U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to
Commission file number 0-14401
SANDATA, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 11-2841799
(State or Other Jurisdict (IRS Employer
Incorporation or Organization) Identification No.)
26 Harbor Park Drive, Port Washington, NY 11050
(Address of Principal Executive Offices) (Zip Code)
516-484-9060
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues at May 31, 1998 was $12,826,970.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
August 26, 1998 was $2,596,818.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the issuer's classes of common
equity, as of August 27, 1998 was 2,481,482 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Forward-Looking Statements
Certain information contained in this Annual Report on Form
10-KSB (the "Form 10-KSB") includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, and is subject
to the safe harbor created by that act. The Company cautions readers that
certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this Form 10-KSB or which are otherwise
made by or on behalf of the Company. For this purpose, any statements contained
in this Form 10-KSB that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "estimate", or "continue" or the negative variations thereof or
comparable terminology are intended to identify forward-looking statements.
Factors which may affect the Company's results include, but are not limited to,
the risks and uncertainties associated with matters discussed under Item 1
"Description of Business", Item 3 - "Legal Proceedings", Item 6 - "Management's
Discussion and Analysis or Plan of Operation" and Item 12 - "Certain
Relationships and Related Transactions" of this Form 10-KSB.
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 personal computers ("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 and
electronic time card with voice recognition systems. Principal products and
services provided by the Company include the Sandsport Home Attendant Reporting
Program, data entry services and specialized system development, among others.
In addition, the Company provides administration and processing services for an
affiliate engaged in the pharmacy prescription benefits management business.
Generally, in providing data processing services, the Company first receives
data from its customers, then processes and generates reports based on such
data. Data processing services are generally 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's software is written in a
variety of software languages including JAVA, 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, 1998 and 1997,
approximately $4,628,000 or 37% and $4,516,000 or 40%, 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(R) for its SHARP clients.
Approximately twenty-five percent (25%) of the volume of SANTRAX users are other
than Vendor Agencies. SANTRAX is an automated timekeeping system designed to
monitor home attendants' arrival and departure times when servicing clients in
their homes. In addition to collecting the arrival and departure times of the
home health care workers from the visit site, SANTRAX also collects a wide range
of additional information from the visit site. By collecting additional data,
SANTRAX can replace the paper "duty sheet" used in home care with SANTRAX, and
enable the provider organization to generate administrative savings. Some of the
information provided by SANTRAX includes expense-related data such as mileage
and supplies, as well as tasks performed such as bathing and skilled nursing
tasks. 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. Reports are then generated to the customer based
upon its specific requirements. Presently, the system is being utilized by
several of the Company's home health care clients, with the Company receiving
approximately an aggregate of 500,000 calls per week. Although no assurances can
be given, it is anticipated that the SANTRAX product can be utilized by other
industry applications. For the fiscal years ended May 31, 1998 and 1997,
approximately $4,564,000 or 37% and $3,766,000 or 33%, respectively, of the
Company's total operating revenues were derived from services rendered relating
to SANTRAX (See Item 3 - "Legal Proceedings").
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 is President, a Member of the Board of
Directors and a principal shareholder (See Item 6 - "Management's Discussion and
Analysis or Plan of Operation - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and Item 12 - "Certain Relationships and Related Transactions").
The Company, through its SandataNet(R) product line, provides computer,
communications and networking sales and services, including training,
maintenance and repair services, to companies and government and professional
services organizations. SandataNet also provides custom programming, software
development and installation services to customers. For the fiscal years ended
May 31, 1998 and 1997 approximately $646,000 or 5% and $325,000 or 3%,
respectively of the Company's total operating revenues were derived from
services rendered relating to SandataNet.
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 SHARP system for the
Home Attendant Program - Medicaid reimbursable billing, management reports,
payroll processing, tax reports - may be utilized in other settings, such as
nursing homes, skilled nursing facilities, and rehabilitation facilities.
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 1998 and 1997, the Company derived revenues from a group
of customers who are all funded by one governmental agency amounting to
approximately $8,416,000 or 67% and $7,905,000 or 70% of total operating
revenues, respectively. The Company also derived approximately $2,307,000 or 18%
and $2,171,000 or 19%, respectively, of revenue from Health Card, a related
party, for data processing and computer software design services and from the
rental of office space. 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 (See Item 6 "Management's Discussion
and Analysis or Plan of Operation - Management's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources").
Proprietary Rights
The Company filed a new United States Trademark application which renames its
voice recognition timekeeping system to SANTRAX. The trademark was registered on
September 16, 1997.
On March 3, 1997 the Company filed an application with the United States Patent
and Trademark Office to register its SandataNet trademark. The trademark was
registered on February 24, 1998.
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.
See Item 3 - "Legal Proceedings" for a discussion of the proposed settlement
terms of certain litigation between the Company and MCI Telecommunications
Corporation.
Research and Development
The Company incurred approximately $185,000 and $276,000 during the fiscal years
1998 and 1997, 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 134 employees, including 125 full-time
and 9 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 28,000 square
feet of office space located at 26 Harbor Park Drive, Port Washington, New York
11050 (the "Facility"). The Company subleases the Facility from BFS Realty, LLC,
an affiliate of the Company's Directors ("BFS"). BFS leases the Facility from
the Nassau County Industrial Development Agency (the "NCIDA"), pursuant to a
lease (the "Lease"), which was assigned by the Company to BFS in November, 1996,
and which expires in December 2005. BFS has the right to become the owner of the
Facility upon expiration of the Lease. The Company currently pays rent to BFS in
the amount of $54,030 per month. BFS also receives rent from other companies,
which includes companies affiliated with the Company's Chairman, which occupy
space in the Facility. The Company's facilities are adequate for current
purposes (See Item 6 - "Management Discussion and Analysis or Plan of Operation
- - Management's Discussion and Analysis of Financial Condition and Results of
Operations - IDA/SBA Financing" for a discussion of the NCIDA and U.S. Small
Business Administration financing transactions).
ITEM 3 - LEGAL PROCEEDINGS
On July 6, 1998, the Company and MCI Telecommunications Corporation ("MCI")
entered into a letter of intent (the "Letter of Intent") pursuant to which the
parties have agreed on the principle terms of a settlement of certain litigation
pending in the United States District Court for the Eastern District of New
York, captioned MCI Telecommunications Corporation v. Sandata, Inc., relating to
certain alleged patent infringement by the Company (the "Litigation"). The
Letter of Intent provides, among other things, that the Company will be granted
a license under certain of MCI's patents (the "Patents") for use in connection
with the Company's SANTRAX system and that the Company will pay MCI certain
royalties.
Other than as described above, the Company is not involved in any material legal
proceeding, other than 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.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Bid Prices
High Low
Fiscal Year Ended
May 31, 1998
First Quarter $10-1/2 $7-1/2
Second Quarter 9-1/4 6-7/8
Third Quarter 8-3/8 4
Fourth Quarter 5-3/4 3-3/4
Fiscal Year Ended
May 31, 1997
First Quarter $ 6-1/4 $2-1/4
Second Quarter 8-3/4 4
Third Quarter 11 7-3/4
Fourth Quarter 10-7/8 8-3/4
Holders
</TABLE>
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 27, 1998 was 1,075.
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
Analysis of Operations
Fiscal Years ended May 31, 1998 compared with May 31, 1997
Service fee revenues for fiscal 1998 were $12,488,327 as compared to $11,312,809
for the previous fiscal year, an increase of $1,175,518 or 10%. The increase is
primarily attributable to revenues derived from SANTRAX and SandataNet.
Real estate rental income was $-0- for fiscal 1998 as compared to $134,700 for
the previous fiscal year. The decrease in rental income relating to the
operation of the Facility for the year ended May 31, 1998 resulted from the
Company's becoming the beneficial owner and lessee of the Facility as of July
31, 1995 in addition to the effect of the subsequent Second Amendment
transaction as of November 1, 1996 (as described below), whereby the Company
became the Sublessee of the Facility.
Other income for the year ended May 31, 1998 was $263,510 as compared to
$407,137 for the year ended May 31, 1997. The decrease is primarily due to the
prior year recognition of a one-time license fee and a decrease in income
recognized on sales/leaseback transactions. In January 1998, the Company
consummated a sale/leaseback of certain fixed assets (principally computer
hardware, software and equipment). The fixed assets, which had a net book value
of approximately $515,000, were sold for $700,000 and concurrently leased back
to the Company. The resulting gain of approximately $185,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
thirty-six (36) months. Approximately $26,000 of deferred gain was recognized
for the year ended May 31, 1998.
Expenses Related to Services
Operating expenses were $8,496,552 for the year ended May 31, 1998, as compared
to $6,884,989 for the year ended May 31, 1997, an increase of $1,611,563 or 23%.
Costs associated with SANTRAX and its operations including telephone and
payroll, in addition to increases in equipment rental payments and payroll for
all other product lines, were the primary factors for the increase in operating
expenses.
Selling, general and administrative expenses for the year ended May 31, 1998
were $2,695,427 compared to $2,348,031 for the year ended May 31, 1997, an
increase of approximately $347,396 or 15%. The increase is primarily due to an
increase in legal fees relative to discovery proceedings in certain litigation
with MCI Telecommunications Corporation, which amounted to approximately
$235,000 for the fiscal year ended May 31, 1998 as compared with approximately
$27,000 for the year ended May 31, 1997 (See "Item 3 - Legal Proceedings"), as
well as approximately $117,000 in expense related to a proposed transaction with
Health Card which terminated in January 1998.
Depreciation and amortization expenses were $1,460,105 for the year ended May
31, 1998, as compared to $1,358,600 for the year ended May 31, 1997, an increase
of $101,505 or 7%. The increase was primarily attributable to fixed asset
additions, including software capitalization costs.
Interest expense for the year ended May 31, 1998 was $56,730 as compared to
$221,042 for the year ended May 31, 1997, a decrease of $164,312 or 74%. The
decrease is attributable to no borrowings made by the Company against the Credit
Agreement and less outstanding debt.
Expenses Related to Real Estate Operations
Operating expenses were $-0- for the year ended May 31, 1998, as compared to
$246,894 for the year ended May 31, 1997.
Interest expense was $-0- for the year ended May 31, 1998 as compared to
$133,918 for the year ended May 31, 1997.
The decreases in expenses relating to the operation of the Facility for the year
ended May 31, 1998 resulted from the Company's becoming the beneficial owner and
lessee of the Facility as of July 31, 1995 in addition to the effect of the
subsequent Second Amendment transaction as of November 1, 1996 (as described
below), whereby the Company became the Sublessee of the Facility. The Company
has reported real estate operating expenses only through the period ended
November 1, 1996.
Income Tax Expenses
Income tax expense was $27,885 and $307,000 for fiscal 1998 and 1997,
respectively. The decrease in income tax expense is due to lower pretax income
and recognition of a larger net operating loss carryfoward in the current year
which offsets higher tax depreciation and amortization. The effective tax rates
for fiscal 1998 and 1997 were 23.6% and 53.7%, respectively.
IDA/SBA Financing
On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as Brodsky
Sibling Realty, Inc., a company affiliated with certain of the Company's
Directors, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition of
the Company's Facility from the NCIDA, and for renovating and equipping the
Facility. These Bonds were subsequently purchased by a bank (the "Bank"). The
aggregate cost incurred by BSRI in conjunction with such acquisition, renovation
and equipping was approximately $4,377,000. In addition, the Company incurred
approximately $500,000 of indebtedness to affiliates of Mr. Brodsky in
connection with additional capital improvements. The Bonds bore interest at
prime plus 3/4 of 1% until August 11, 1995, at which time the interest rate
became fixed at 9% for a five-year term through September 1, 2000. At that time,
the interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the issuance
of the Bonds, the NCIDA obtained title to the Facility which it then leased to
BSRI.
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman guaranteed
the full and prompt payment of principal and interest of the Bonds and the
Company granted the Bank a security interest and lien on all the assets of the
Company. In connection with the issuance and sale of the Bonds, the Company, as
sublessee, entered into a sublease agreement (the "First Sublease") with BSRI,
whereby the Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments in at least equal
amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to Lease
between the Company and BSRI, the Company assumed the obligations of BSRI under
the lease and became the direct tenant and the beneficial owner of the Facility
(collectively the "First Amendment"). In connection with the First Amendment,
the First Sublease was terminated. During the period commencing July 1, 1995 and
ending October 31, 1996 the Company paid rent for the Facility to the NCIDA in
the amount of $48,600 per month, subject to adjustment based upon the then
effective interest rate of the Bonds, among other things. In connection with the
First Amendment, the Company obtained the right to acquire the Facility upon
expiration of the Lease with the NCIDA and became directly liable to the NCIDA
for amounts due thereunder. Furthermore, in connection with the First Amendment,
the Company assumed certain indebtedness owed to affiliates of the Company's
Chairman as follows: (i) the $364,570 remaining balance of a 48-month term loan
bearing interest at 8.7% per annum, and (ii) the $428,570 remaining balance of a
42-month term loan bearing interest at 8.91%. Each of the foregoing loans were
incurred in connection with the construction of improvements to the Facility,
are collateralized by the assets of the primary obligor and are guaranteed by
the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan agreement with the
Long Island Development Corporation ("LIDC"), under a guarantee by the U.S.
Small Business Administration ("SBA") (the "SBA Loan"). The entire $750,000
proceeds were used to repay a portion of the Bonds. The Company entered into the
First Amendment primarily to satisfy certain requirements of the SBA. The SBA
Loan is payable in 240 monthly installments of $6,255, which includes principal
and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into the Second Amendment with BFS
(which succeeded to the interest of BSRI with respect to the Second Amendment),
the NCIDA and the Bank. In connection with the Second Amendment, (i) BFS assumed
all of the Company's obligations under the Lease with the NCIDA and entered into
the Second Sublease with the Company, as sublessee, for the Facility; and (ii)
the Company conveyed to BFS the right to become the owner of the Facility upon
expiration of the Lease. In addition, pursuant to the Second Sublease, the
Company has assumed certain obligations owed by BFS to the NCIDA under the
Lease. BFS has indemnified the Company with respect to certain obligations
relative to the Lease and the Second Amendment.
Liquidity and Capital Resources
The Company's working capital decreased as of May 31, 1998 to $1,454,861 as
compared with $1,548,644 at May 31, 1997.
The Company has spent approximately $2,510,000 in fixed asset additions,
including software capitalization costs in connection with revenue growth and
new product development. The Company expects a reduction in the levels of
capital expenditures in the future.
In October, 1996, the Company commenced a private offering, on a "best efforts
- -all or none" basis, to raise $1,500,000 by issuing an aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock, at an exercise price of $7.00 per share. In February 1997, the
Company completed such private offering. The net proceeds received in connection
with the sale of 300,000 shares of its common stock were $1,256,415 after
payment of expenses related to the offering. Contemporaneously with the
execution and delivery by the Company of the letter of intent with regard to
such private offering, certain assignees of the placement agent acquired 100,000
shares of the Company's Common Stock at a purchase price of $3.00 per share; the
net proceeds from the sale of such 100,000 shares were $260,076.
In connection with the closing of such private offering, an affiliate of the
placement agent entered into a one year financial consulting agreement
("Financial Consulting Agreement") with the Company, pursuant to which, among
other things, such affiliate will receive aggregate annual payments of $36,000
and certain assignees of such affiliate received warrants to purchase an
aggregate of 200,000 shares of Common Stock exercisable as follows: 100,000
shares at $5.00 per share and 100,000 shares at $7.00 per share, such warrants
to be exercisable until September 18, 1998 (with respect to the warrants
exercisable at $5.00 per share) and two years (with respect to the warrants
exercisable at $7.00 per share). The warrants issued in such private offering,
including those issued to investors as well as the assignees of the placement
agent's affiliate, are redeemable by the Company under certain circumstances.
In August, 1997 the Board of Directors authorized the execution and delivery of
a notice of redemption to holders of such warrants. As a result, there were a
total of 166,000 warrants exercised at $7.00 per share. The net proceeds
generated from warrant exercises were $1,105,827. In September, 1997 the Company
withdrew its election to redeem warrants issued pursuant to the Financial
Consulting Agreement discussed above.
In August 1997 pursuant to the terms of the Company's incentive stock option
plan, certain officers of the Company exercised 206,667 options at an exercise
price of $1.79 per share and 23,333 options at an exercise price of $1.875 per
share. Other option exercises by employees of the Company amounted to an
aggregate of 222 shares at an exercise price of $1.875 per share. The net
proceeds generated from option exercises during the fiscal year ended May 31,
1998 were $408,693.
On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former director of the Company and Carol Freund, the spouse of Hugh Freund and
an employee of Sandsport, exercised their respective options and warrants to
purchase an aggregate of 921,334 shares of Common Stock at exercise prices
ranging from $1.38 to $2.61 per share for an aggregate cost of $1,608,861.
Payment for such shares is to be made to the Company (i) a portion in the form
of non-recourse promissory notes due in July 2001, with interest at eight and
one-half percent (8-1/2%) per annum, payable annually; and (ii) a portion by
payment of an aggregate of $1,609 representing the par values paid in cash. The
shares of Common Stock issued upon exercise have been pledged as security for
the debt.
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport, entered
into the Credit Agreement with the Bank which allows Sandsport to borrow and
re-borrow amounts up to $3,000,000. Interest accrues on amounts outstanding
under the Credit Agreement at a rate equal to the London Interbank Offered Rate
plus 2% and will be paid quarterly in arrears or, at Sandsport's option,
interest may accrue at the Bank's prime rate. The Credit Agreement required
Sandsport to pay a commitment fee in the amount of $30,000 and a fee equal to
1/4% per annum payable on the unused average daily balance of amounts under the
Credit Agreement. In addition, there are other fees and charges imposed based
upon Sandsport's failure to maintain certain minimum balances. The Credit
Agreement will expire on March 1, 2000. The indebtedness under the Credit
Agreement is guaranteed by the Company and Sandsport's sister subsidiaries (the
"Group"). The collateral for the facility is a first lien on all equipment owned
by members of the Group, as well as a collateral assignment of $2,000,000 of
life insurance payable on the life of Mr. Brodsky. All of the Group assets are
pledged to the Bank as collateral for the amounts due under the Credit
Agreement. The Group's guaranty to the Bank was modified to conform covenants to
comply with those in the Credit Agreement.
In addition, pursuant to the Credit Agreement, the Group is required to maintain
certain levels of net worth and meet certain financial ratios in addition to
various other affirmative and negative covenants. The Group has, in the past,
under prior agreements with the Bank, failed to meet these net worth and
financial ratios, and the Bank has granted the Group waivers. As of May 31,
1998, there is no balance owed to the Bank on the Credit Agreement.
The Company has been providing services to Federation of Puerto Rican
Organizations, and/or its affiliates (individually and collectively, the
"Federation"), an HRA Vendor Agency, since 1995. At May 31, 1998, the Federation
owed the Company $51,865 for services rendered by the Company. On October 31,
1997 and November 30, 1997, respectively, the Company acquired a loan receivable
for an aggregate of $300,000 from a third party (a portion of which was acquired
from an affiliate of the Company's Chairman), due from the Federation. Such loan
receivable is secured by accounts receivable due to the Federation. Shortly
following the Company's acquiring such receivable, the Federation filed for
bankruptcy protection. The Company has filed, among other things, claims
representing monies owed to the Company with respect to the loan and the
receivables. The Company has fully reserved against the loan and the receivable
in the event that it does not receive payment.
As of June 1, 1998, Health Card hired 11 employees of Sandsport in order to
provide development, enhancement, modification and maintenance services,
previously provided by Sandsport. Sandsport was paid $200,000 in consideration
of Sandsport's waiving certain rights relative to such employees. In addition,
Sandsport began leasing certain computer equipment to Health Card for $2,000 per
month as well as computer hardware for its data processing center at a monthly
cost of $20,000 from Sandsport pursuant to a verbal agreement. Sandsport is
expected to continue to provide to Health Card consulting services related to
Health Card's information systems (See Item 12 "Certain Relationships and
Related Transactions").
The Company believes the results of its continued operations, together with the
available Credit Line should be adequate to fund presently foreseeable working
capital requirements.
Prospects for the Future, Trends and Other Events
The Company has not focussed its marketing activities on its HealthPro(R) System
and Spectrum Solid Waste Management System products for several years. The
Company believes that this will not have any significant adverse impact on the
Company's financial condition or results of operations. At any time in the
future the Company may decide to re-focus marketing activities on these
products.
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.
Year 2000
The Company believes that its computer systems and those of its major customers
and suppliers are substantially Year 2000 compliant. The Company upgrades its
computer systems from time to time as part of its ongoing operations.
Accordingly, it is anticipated that the Company will incur significant
expenditures in connection with such upgrades. However, the Company does not
expect any material effect on its results of operations or financial position
solely as a result of Year 2000 compliance issues.
ITEM 7 - FINANCIAL STATEMENTS
(BEGINS ON PAGE F-1 BELOW)
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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.
------------------------- --------- ====================================
POSITIONS AND OFFICES
PRESENTLY HELD WITH
NAME AGE THE COMPANY
------------------------- --------- ====================================
------------------------- --------- ====================================
Bert E. Brodsky 55 Chairman of the Board, President and
Treasurer
------------------------- --------- ====================================
------------------------- --------- ====================================
Hugh Freund 60 Executive Vice President, Secretary
and Director
------------------------- --------- ====================================
------------------------- --------- ====================================
Gary Stoller 45 Executive Vice President and
Director
------------------------- --------- ====================================
------------------------- --------- ====================================
Paul J. Konigsberg 62 Director
------------------------- --------- ====================================
------------------------- --------- ====================================
Ronald L. Fish 57 Director
------------------------- --------- ====================================
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, from December, 1988 through January, 1991, from February 1998 to
June 1998, Mr. Brodsky served as Chairman of the Board of Health Card and since
June 1998 has served as President of Health Card. From October 1983 through
December 1993, Mr. Brodsky served as Chairman of the Board of Compuflight, a
provider of computerized flight planning services. Since August 1980, Mr.
Brodsky has served as Chairman of the Board of PW, 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 and Secretary since 1995. Mr. Freund is also President of Sandsport, 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.
Paul J. Konigsberg served as a Director of the Company since January, 1998. Mr.
Konigsberg previously served on the Company's Board of Directors from November
1987 through August 1995. Mr. Konigsberg is a certified public accountant and
has been a senior partner in the accounting firm of Konigsberg Wolf & Co., P.C.
since 1970. Mr. Konigsberg also serves on the Company's Audit Committee.
Ronald L. Fish served as a Director of the Company since January, 1998. Since
1975, Mr. Fish served as Administrator, Treasurer and Director of Unlimited Care
Inc., a nursing services firm. Mr. Fish also serves on the Company's Audit
Committee.
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, 1998, all Section 16(a)
filing requirements applicable to the Company's officers, Directors and 10%
shareholders were complied with, except with respect to (i) two Directors, each
of whom filed two late reports on Form 4, each reporting one and two
transactions, respectively and (ii) one Director who filed one late report on
Form 4, reporting two transactions.
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, 1998, 1997 and 1996, respectively, as well as
named executive officers of the Company for the fiscal years ended May 31, 1998,
1997 and 1996. No other person had a total salary and bonus in excess of
$100,000 for the fiscal years ended May 31, 1998, 1997 and 1996:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------- ------- ------------------------------------- ------------------------------- ===========
Annual Compensation Long-Term Compensation
- --------------------------- ------- ------------ ------- ------------- ------------------------ --------- ===========
Awards Payouts
- --------------------------- ------- ------------ ------- ------------- ------------------------ --------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compensation
Salary Bonus Compensa- Awards Options/ Payouts ($)
Name and Principal Year ($) ($) tion ($) SARs (#) ($)
Position ($)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman 1998 200,000 (5) -0- 13,374 (1) -0- -0- -0- 20,401 (2)
of the Board 30,000 (3)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman
of the Board 1997 200,000 -0- 13,374 (1) -0- 110,000 -0- 20,670 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman
of the Board 1996 200,000 -0- 12,259 (1) -0- 44,000 -0- 20,310 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Hugh Freund
Executive Vice President, 1998 165,000 -0- -0- -0- -0- -0- 22,669 (2)
Secretary 17,066 (4)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Hugh Freund
Executive Vice President, 1997 165,000 -0- -0- -0- 90,000 -0- 5,605 (2)
Secretary
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Hugh Freund
Executive Vice President, 1996 69,808 -0- 15,585 (1) -0- 36,000 -0- 5,605 (2)
Secretary
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Gary Stoller
Executive Vice President 1998 115,000 -0- 22,391 (1) -0- -0- -0- 16,040 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Gary Stoller
Executive Vice President 1997 108,302 -0- 22,391 (1) -0- 50,000 -0- -0-
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Gary Stoller
Executive Vice President 1996 95,650 -0- 21,756 (1) -0- 20,000 -0- 1,751 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
</TABLE>
(1) Includes personal benefits relating to the use of Company-leased automobiles
provided for business purposes from an affiliate of the Company's Chairman.
(2) Represents insurance premiums paid by the Company on behalf of Mr. Brodsky,
Mr. Freund and Mr. Stoller for life insurance policies on their lives,
respectively, the benefits of which are payable to their spouses, respectively.
(3) Represents insurance premiums paid by the Company on behalf of Mr. Brodsky
for life insurance policies on his life, the benefits of which are payable to an
insurance trust, of which Mrs. Brodsky is a co-Trustee.
(4) Represents insurance premiums paid by the Company on behalf of Mr. Freund
for life insurance policies on his life, the benefits of which are payable to an
insurance trust, of which Mr. Freund is a co-Trustee.
(5) On May 29, 1998 Mr. Brodsky signed a waiver wherein he agreed to waive his
rights to an additional $300,000 of compensation due to be paid to him for the
fiscal year ended May 31, 1998 pursuant to the terms of the Brodsky Employment
Agreement with the Company discussed below.
Option/SAR Grants in Last Fiscal Year
No stock options were granted to executive officers of the Company during the
fiscal year ended May 31, 1998.
Aggregated Option/SAR Exercise in Last Fiscal Year and Fiscal Year-End Option
Value Table
The following table sets forth certain information concerning the value of
unexercised options and warrants held by executive officers of the Company, for
the fiscal year ended May 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------ -------------------------- ----------------- -------------------------- ==========================
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options and
Options and Warrants at Warrants at May 31,
Name Shares Acquired on Value Realized May 31, 1998(#) 1998($)
Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ -------------------------- ----------------- -------------------------- ==========================
- ------------------ -------------------------- ----------------- -------------------------- ==========================
Bert E. Brodsky 74,000 607,540 658,667/0 1,542,448/0
- ------------------ -------------------------- ----------------- -------------------------- ==========================
- ------------------ -------------------------- ----------------- -------------------------- ==========================
Hugh Freund 43,000 353,030 162,000/0 276,840/0
- ------------------ -------------------------- ----------------- -------------------------- ==========================
- ------------------ -------------------------- ----------------- -------------------------- ==========================
Gary Stoller 46,667 383,136 110,000/0 204,900/0
- ------------------ -------------------------- ----------------- -------------------------- ==========================
</TABLE>
On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former director of the Company and Carol Freund, the spouse of Hugh Freund and
an employee of Sandsport, exercised their respective options and warrants to
purchase an aggregate of 921,334 shares of Common Stock at exercise prices
ranging from $1.38 to $2.61 per share for an aggregate cost of $1,608,861.
Payment for such shares is to be made to the Company (i) a portion in the form
of non-recourse promissory notes due in July 2001, with interest at eight and
one-half percent (8-1/2%) per annum, payable annually; and (ii) a portion by
payment of an aggregate of $1,609 representing the par values paid in cash. The
shares of Common Stock issued upon exercise have been pledged as security for
the debt.
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.
Effective February 1, 1997, the Company and Mr. Brodsky entered into the Brodsky
Employment Agreement providing for, among other things, compensation at the
annual rate of $500,000 or lesser amount if mutually agreed, plus such bonuses
or additional compensation that the Board of Directors of the Company may, on
the basis of improvements in the Company's performance or other reasonable
criteria, deem appropriate. During the 5-year term of the Brodsky Employment
Agreement, the employee shall also be provided with a full-time use of a Company
automobile, six (6) weeks paid vacation annually and group medical insurance and
other benefits or programs which the Company establishes or has made available
to its employees. Mr. Brodsky agreed to accept a reduction in compensation for
the fiscal year ended May 31, 1998 and has signed a waiver evidencing his
agreement to such reduction.
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>
<S> <C> <C> <C> <C> <C> <C>
======================================= ----------------------------------------- =========================================
Name of Director and Name and Address Approximate Percentage
of Beneficial Owner Number of Shares of Outstanding Shares
======================================= ----------------------------------------- =========================================
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY 835,809 (1) 33.7% (1)
======================================= ----------------------------------------- =========================================
Hugh Freund
26 Harbor Park Drive
Port Washington, NY 238,493 (2) 9.6% (2)
======================================= ----------------------------------------- =========================================
Gary Stoller
26 Harbor Park Drive
Port Washington, NY 252,786 (3) 9.9% (3)
======================================= ----------------------------------------- =========================================
Steven N. Bronson
201 South Biscayne Boulevard
Suite 2950
Miami, FL 33131 136,950 (4) 5.3% (4)
======================================= ----------------------------------------- =========================================
James S. Cassel
201 South Biscayne Boulevard
Suite 2950
Miami, FL 33131 79,100 (5) 3.1% (5)
======================================= ----------------------------------------- =========================================
Private Opportunity Partners
II, Ltd. FL Limited Partnership
201 South Biscayne Boulevard
Suite 2950
Miami, FL 33131 71,593 (6) 2.9% (6)
======================================= ----------------------------------------- =========================================
Paul J. Konigsberg
Konigsberg Wolf & Co.
440 Park Avenue South 8,000 *
New York, NY 10016
======================================= ----------------------------------------- =========================================
Ronald L. Fish
Unlimited Care Inc.
245 Main Street -- --
White Plains, NY 10601
======================================= ========================================= =========================================
All executive officers and Directors
as a group (5 persons) 1,622,731 (1)(2)(3) 59.8% (1)(2)(3)
======================================= ========================================= =========================================
</TABLE>
(1) 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.
(2) Excludes 8,000 shares of Common Stock owned by Mr. Freund's adult children;
excludes 83,000 shares of Common Stock owned by Mr. Freund's wife. As set forth
in Mr. Freund's Schedule 13G, filed with the SEC on February 6, 1998, Mr. Freund
disclaims any beneficial interest in, or voting or dispositive control over,
such shares.
(3) Includes presently exercisable options to purchase 20,000 shares of Common
Stock at $2.34 per share under the 1995 Plan; includes presently exerciable
options to purchase 50,000 shares of Common Stock at $2.61 per share under the
1995 Plan. Includes 21,000 shares of Common Stock owned by trusts established
for the benefit of Mr. Stoller's children of which Mr. Stoller is a trustee.
(4) Includes 50,600 shares issuable upon the exercise of currently exercisable
warrants, which were due to expire on December 22, 1997, which expiration date
has been extended until September 18, 1998, at $5.00 per share and 34,600 shares
issuable upon the exercise of currently exercisable warrants, which expire on
December 22, 1998, at $7.00 per share. Excludes 47,500 shares beneficially owned
by Private Opportunity Partners II, L.P., a Florida limited partnership ("POP").
Mr . Bronson is the President of the corporate general partner of POP. Mr.
Bronson has advised the Company that he disclaims beneficial ownership of the
shares beneficially owned by POP.
(5) Includes 30,800 shares issuable upon the exercise of currently exercisable
warrants, which were due to expire on December 22, 1997, which expiration date
has been extended to September 18, 1998, at $5.00 per share and 20,800 shares
issuable upon the exercise of currently exercisable warrants, which expire on
December 22, 1998, at $7.00 per share. Excludes 4,000 shares beneficially owned
by Mr. Cassel's children. Mr. Cassel has advised the Company that he disclaims
beneficial ownership of the shares beneficially owned by his children.
(6) Includes 23,750 shares issuable upon the exercise of currently exercisable
options, which expire on December 22, 2001, and 343 shares owned by the
corporate general partner of POP.
* Less than one percent (1%)
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IDA/SBA Financing
Reference is hereby made to Item 6 - "Management's Discussion and Analysis or
Plan of Operation - Management's Discussion and Analysis of Financial Condition
and Results of Operations - IDA/SBA Financing" for a discussion of an industrial
development revenue bond and SBA financing transactions among the Company, BSRI,
BFS (as successor to BSRI's interest in such transactions), the NCIDA, the SBA
and the Bank.
Advances and Loans to Affiliates
In July 1994 the Company advanced certain fees on behalf of Bert Brodsky, Hugh
Freund, Gary Stoller, Leland H. Freund and Emily B. Freund (collectively, the
"Proponents") arising from a 1994 proposal by the Proponents to take the Company
"private" for purposes of the Federal Securities Laws which they subsequently
withdrew. These fees were repaid by the Proponents in August 1997.
At May 31, 1997, the Company was owed approximately $138,000 from a company
affiliated with the officers of the Company. Subsequent to May 31, 1997, the
Company received approximately $18,000 and a promissory note for the balance
due. The note is payable in 24 monthly payments of principal and interest at 8%
commencing September 1, 1997. The Company deferred principal payments from
April, 1998 to October, 1998, at which time principal and interest payments will
resume. At May 31, 1998, the Company was owed approximately $87,000 on such
note.
During the fiscal year ended May 31, 1998 the Company paid an aggregate of
$35,765 on behalf of certain officers to companies affiliated with the Company's
Chairman for payment of automobile leases.
Sale/Leaseback Transaction
In March 1997, Sandsport assigned its $200,000 option to purchase the assets
leased pursuant to the 1997 Sale/Leaseback Transaction to PWCC, an affiliate of
the Company's Chairman. PWCC acquired the purchase option in consideration for
posting a letter of credit to secure the purchase option obligation. Subsequent
to March 1997, PWCC assigned the purchase option to a third party which is not
affiliated with the Company. Reference is made to Note 8 for a discussion of
additional sale/leaseback transactions.
Registration Statement
On June 3, 1997 the Securities and Exchange Commission declared effective the
Company's registration statement on Form S-3 (the "Registration Statement")
which covered, among other things, the reoffer of 820,213 shares of common stock
beneficially owned by Bert Brodsky, 255,696 shares of common stock beneficially
owned by Hugh Freund and 162,231 shares of common stock beneficially owned by
Gary Stoller (See Item 11 "Security Ownership of Certain Beneficial Owners and
Management").
On July 14, 1997 the Company filed a Registration Statement on Form S-8 relative
to reofferings of shares of Common Stock of the Company which may be acquired
pursuant to stock option plans.
In August 1997 pursuant to the terms of the Company's incentive stock option
plan, certain officers of the Company exercised 206,667 options at an exercise
price of $1.79 per share and 23,333 options at an exercise price of $1.875 per
share. Other option exercises by employees of the Company amounted to an
aggregate of 222 shares at an exercise price of $1.875 per share. The total
proceeds generated from option exercises during the fiscal year ended May 31,
1998 were $414,100.
On July 14, 1998 certain officers and directors, among others, of the Company
exercised options and warrants to purchase an aggregate of 921,334 shares of
Common Stock (See "Item 6 - Management's Discussion and Analysis or Plan of
Operation - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for a discussion of the
option/warrant exercises).
National Medical Health Card Systems, Inc.
The Company derives revenue from Health Card, a company affiliated with the
Company's Chairman of the Board, principally for computer software design
services. The revenues generated from Health Card amounted to approximately
$2,307,000 and $2,171,000 for the years ended May 31, 1998 and 1997,
respectively. Included in the current year revenues are billings of
approximately $2,036,000 for computer software design services. Subsequent to
May 31, 1998, the Company received $293,389 from Health Card in full payment of
amounts due, which totalled $293,389 at May 31, 1998 (See "Item 6 - Management's
Discussion and Analysis or Plan of Operation - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources").
Equipment Leases
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.
Medical Arts Office Services, Inc.
For purposes of the Federal Securities Laws, Medical Arts Office Services, Inc.
("MAOS") may be deemed an affiliate of the Company. During the fiscal years
ending May 31, 1998, and May 31, 1997, MAOS provided the Company with
accounting, bookkeeping and paralegal services. For the fiscal years ended May
31, 1998 and 1997 the total payments made by the Company to MAOS were $223,813
and $223,395 , respectively.
Federation of Puerto Rican Organizations
The Company has been providing services to Federation of Puerto Rican
Organizations, and/or its affiliates (individually and collectively, the
"Federation"), an HRA Vendor Agency, since 1995. At May 31, 1998, the Federation
owed the Company $51,865 for services rendered by the Company. On October 31,
1997 and November 30, 1997, respectively, the Company acquired a loan receivable
for an aggregate of $300,000 from a third party (a portion of which was acquired
from an affiliate of the Company's Chairman), due from the Federation. Such loan
receivable is secured by accounts receivable due to the Federation. Shortly
following the Company's acquiring such receivable, the Federation filed for
bankruptcy protection. The Company has filed, among other things, claims
representing monies owed to the Company with respect to the loan and the
receivables. The Company has fully reserved against the loan and the receivable
in the event that it does not receive payment.
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 Sibling 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)
4(F) Nassau County Industrial Development Agency Industrial Development Revenue
Bonds (1994 Brodsky Sibling Realty Inc. Project) Assumption and Amendment of
Certain Agreements dated November 1, 1996
4(G) Revolving Credit Agreement dated as of April 18, 1997 by and among
Sandsport Data Services, Inc. and Marine Midland Bank
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)
10(M) Form of agreement between Sandsport Data Services, Inc. and vendor agency
(2)
10(N) Form of agreement between Sandsport Data Services, Inc. and vendor agency
(2) 10(O) Form of Subscription Agreement dated December 23, 1996 (2)
10(P) Form of Subscription Agreement dated September 12, 1996 (2)
10(Q) Form of Common Stock Purchase Warrant ($5.00 Exercise Price) (2)
10(R) Form of Common Stock Purchase Warrant ($7.00 Exercise Price) (2)
10(S) Form of Redeemable Common Stock Purchase Warrant (2)
10(T) Employment Agreement dated February 1, 1997 between the Registrant and
Bert E. Brodsky (3)
10(U) Form of Pledge Agreement
10(V) Form of Non-Negotiable Promissory Note
16 Letter re Change in Certifying Accountant (1)
21 Subsidiaries of Registrant (2)
23 Consent of Accountants
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.
(2) 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 Amendment No. 1 to Form S-3 Registration Statement as filed with the
Securities and Exchange Commission on May 27, 1997.
(3) 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, 1997.
(b) Reports on Form 8-K
None.
SANDATA, INC.
FINANCIAL STATEMENTS COMPRISING ITEM 7
OF REPORT ON FORM 10-KSB
TO SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED MAY 31, 1998
Sandata, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of May 31, 1998 and 1997 F-3 - F-4
Consolidated Statements of Income for the years ended May 31, 1998
and 1997 F-5
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the years
ended May 31, 1998 and 1997
F-7
Notes to Consolidated Financial Statements F-8 - F-22
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
of Sandata, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Sandata, Inc.
and Subsidiaries as of May 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
As more fully described in the Notes to the consolidated financial statements,
the Company had certain transactions with companies affiliated with the
Company's Officers and Chairman of the Board.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sandata, Inc. and Subsidiaries as of May 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Marcum & Kliegman LLP
Woodbury, New York
July 24, 1998
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
May 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS
Cash and cash equivalents $1,794,947 $1,200,014
Accounts receivable, net of allowance for doubtful accounts
of $443,000 and $331,000 at 1998 and 1997, respectively 1,611,457 1,254,589
Receivables from affiliates 619,687 949,906
Receivable from former affiliate --- 12,074
Notes receivable - officers --- 102,867
Inventories 27,003 16,335
Prepaid expenses and other current assets 140,873 212,114
Total Current Assets 4,193,967 3,747,899
FIXED ASSETS, NET 5,814,381 5,279,512
OTHER ASSETS
Notes receivable 100,000 100,000
Cash surrender value of officer's life insurance, security
deposits and other 525,281 411,137
Total Assets $10,633,629 $9,538,548
</TABLE>
See notes to consolidated financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Continued)
May 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
CURRENT LIABILITIES
Accounts payable and accrued expenses $2,507,042 $1,691,456
Current portion of long-term debt 22,296 267,864
Deferred/unearned revenue 23,410 2,733
Deferred income 186,358 237,202
Total Current Liabilities 2,739,106 2,199,255
LONG-TERM DEBT --- 1,034,201
DEFERRED INCOME 215,945 243,305
DEFERRED INCOME TAXES 382,000 370,000
Total Liabilities 3,337,051 3,846,761
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock; par value $.001; authorized 3,000,000 shares
in 1998 and 1997, 1,560,149 and 1,216,727 shares issued in 1998
and 1997, respectively; 1,560,149 and 1,163,955 shares outstanding
in 1998 and 1997, respectively 1,560 1,216
Additional paid in capital 4,173,091 2,795,801
Retained earnings 3,121,927 3,031,656
7,296,578 5,828,673
Less Treasury stock - at cost (0 and 52,772 shares in 1998 and
1997, respectively) --- (136,886)
Total Shareholders' Equity 7,296,578 5,691,787
Total Liabilities and Shareholders' Equity $10,633,629 $9,538,548
</TABLE>
See notes to consolidated financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31,
<TABLE>
<S> <C> <C>
1998 1997
REVENUES:
Service fees $12,488,327 $11,312,809
Real estate rental income --- 134,700
Other income 263,510 407,137
Interest income 75,133 26,823
12,826,970 11,881,469
COSTS AND EXPENSES:
Service Fees:
Operating 8,496,552 6,884,989
Selling, general and administrative 2,695,427 2,348,031
Depreciation and amortization 1,460,105 1,358,600
Interest expense 56,730 221,042
12,708,814 10,812,662
Real Estate:
Operating --- 246,894
Depreciation and amortization --- 47,302
Interest expense --- 133,918
Real estate taxes --- 71,012
--- 499,126
TOTAL COSTS AND EXPENSES 12,708,814 11,311,788
Earnings from operations before income taxes 118,156 569,681
Income tax expense 27,885 307,000
NET EARNINGS $ 90,271 $ 262,681
BASIC EARNINGS PER SHARE $ .06 $ .28
DILUTED EARNINGS PER SHARE $ .04 $ .14
</TABLE>
See notes to consolidated financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended May 31, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional
--------------- ------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
Balance at June 1, 1996 816,727 $ 816 $1,279,710 $2,768,975 $(136,886) $3,912,615
Sale of common stock in
connection with private
offering 400,000 400 1,516,091 --- --- 1,516,491
Net earnings --- --- 262,681 --- 262,681
Balance at May 31, 1997 1,216,727 $1,216 $2,795,801 $3,031,656 $(136,886) $5,691,787
Effect of fractional shares
paid out in cash (28) --- --- --- --- ---
Exercise of common stock
purchase warrants 166,000 166 1,105,661 --- --- 1,105,827
Exercise of common stock
options 230,222 230 408,463 --- --- 408,693
Reissuance of treasury stock
(52,772) (52) (136,834) --- 136,886 ---
Net earnings --- --- --- 90,271 --- 90,271
Balance at May 31, 1998 1,560,149 $1,560 $4,173,091 $3,121,927 --- $7,296,578
</TABLE>
See notes to consolidated financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
1998 1997
Cash flows from operating activities:
Net earnings $ 90,271 $ 262,681
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,460,105 1,405,902
(Gain) on disposal of fixed assets (184,642) (375,714)
(Gain) on transfer of facility --- (15,586)
Provision for losses on accounts receivable 112,542 (19,481)
(Decrease) in deferred income (262,846) (277,989)
Recognition of deferred revenue (53,780) (19,300)
Deferred tax provision 12,000 287,000
(Increase) decrease in operating assets
Accounts receivable (469,410) (54,203)
Receivables from affiliates 330,219 (759,271)
Receivable from former affiliate 12,074 14,184
Notes receivable - officers 102,867 ---
Inventories (10,668) 11,637
Prepaid expenses and other current assets 71,241 (39,217)
Other assets (114,144) (454)
Increase in operating liabilities
Accounts payable and accrued expenses 815,586 669,396
Deferred revenue 74,457 17,734
Deferred income 184,642 375,714
Net cash provided by operating activities 2,170,514 1,483,033
Cash flows from investing activities:
Purchases of fixed assets (2,510,332) (1,941,372)
Proceeds from sale/leaseback transactions 700,000 1,906,000
Issuance of notes receivable --- (100,000)
Collection of note receivable - former affiliate --- 77,100
Net cash used in investing activities (1,810,332) (58,272)
Cash flows from financing activities:
Proceeds from stock transactions 1,514,520 1,516,491
Principal payments on term loans (279,769) (609,638)
Proceeds from line of credit --- 3,750,000
Principal payments on line of credit (1,000,000) (3,788,000)
Proceeds from notes payable - affiliates --- 3,010,000
Principal payments on notes payable - affiliates --- (4,472,000)
Net cash provided by (used in) financing activities 234,751 (593,147)
Increase in cash and cash equivalents 594,933 831,614
Cash and cash equivalents at beginning of year 1,200,014 368,400
Cash and cash equivalents at end of year $ 1,794,947 $ 1,200,014
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities: As of
November 1, 1996 a company affiliated with the Directors of the Company assumed
certain lease obligations relative to the transfer of a facility in the amount
of $3,140,884.
See notes to consolidated financial statements
<PAGE>
Sandata, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. SANTRAX Productivity, Inc. and
Sandata Inteck, Inc. are inactive subsidiaries. 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 and custom software
and programming services using Company-developed and licensed software
principally to the healthcare industry. The Company primarily operates in the
New York metropolitan area. During fiscal years 1998 and 1997, the Company
received revenues from a group of customers who are all funded by one
governmental agency, amounting to approximately $8,416,000 and $7,905,000,
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 Company uses the liability method to account for 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 software development costs from the point in time where
technological feasibility has been established until the computer software
product is available to be sold. The Company's amortization is computed on a
straight line basis over a five year period, which represents the estimated use
for life of the software. The Company matches its software amortization against
its respective product revenue, which is reported on a product by product basis.
f. Inventories
Inventories, consisting of computer hardware and peripherals 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
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"), which establishes standards for computing and presenting earnings per
share. The new standard replaces the presentation of primary earnings per share
prescribed by Accounting Principles Board Option No. 15 "Earnings per Share"
("APB 15"), with a presentation of basic earnings per share and also requires
dual presentation of basic and diluted earnings per share on the face of the
statement of operations for all entities with complex capital structures. Basic
earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share pursuant to APB 15. The Company adopted SFAS
128 in the third quarter of fiscal 1998 and has restated all prior periods in
its financial statements.
Basic earnings per share are based on the weighted-average number of shares of
common stock outstanding, which were 1,478,419 at May 31, 1998 and 922,288 at
May 31, 1997. Diluted earnings per share are based on the weighted-average
NOTE 1 (Continued)
number of shares of common stock adjusted for the effects of assumed exercise of
options and warrants under the treasury stock method, which were as follows:
2,246,206 at May 31, 1998 and 1,864,463 at May 31, 1997.
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. Revenues from
hardware and software maintenance contracts are deferred and recognized over the
life of the contracts.
i. Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
The Company has cash balances in banks in excess of the maximum amount insured
by the FDIC as of May 31, 1998.
j. Statement of Cash Flows
The Company paid income taxes of approximately $25,000 and $7,000 and interest
of approximately $57,000 and $355,000 for the years ended May 31, 1998 and 1997,
respectively.
k. 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.
l. Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable and
accounts payable. Due to the short-term nature of these instruments, the fair
value of these instruments approximate their recorded value. The Company has
long-term debt instruments which it believes are stated at estimated fair market
value.
m. Stock Options
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires
compensation expense to be recorded (i) using the new fair value method or (ii)
using existing accounting rules prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company continues to account for its stock-based compensation plans
in accordance with the provisions of APB 25 and will provide pro forma
disclosure in accordance with SFAS 123 if material.
n. Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new disclosure
standards.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") establishes standards for reporting and display of
comprehensive income.
Among other disclosures, SFAS 130 requires that all items that are required to
be recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
the way that public enterprises report information about operating segments.
SFAS 131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS 131 requires separate disclosures for different
operating segments.
NOTE 1 (Continued)
Both of these new standards are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. The Company does not expect that adoption of these
standards will significantly impact its financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132") which standardizes the
disclosure requirements for pensions and other postretirement benefits. The
adoption of SFAS 132 is not expected to significantly impact the Company's
financial statements.
NOTE 2 - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<C>
Useful May 31,
Life 1998 1997
Computer equipment and software costs 5 years $ 9,391,943 $ 7,484,857
Furniture, fixtures and automobiles 4-7 years 304,580 299,138
Leasehold improvements 10 years 2,421,036 2,421,036
$12,117,559 $10,205,031
Less accumulated depreciation and amortization 6,303,178 4,925,519
$ 5,814,381 $ 5,279,512
</TABLE>
Depreciation and amortization expense relating to fixed assets (other than
software costs) amounted to approximately $586,000 and $642,000 in 1998 and
1997, respectively.
Unamortized software costs amounted to approximately $2,990,000 and $2,252,000
at May 31, 1998 and 1997, respectively. Amortization expense for these costs
totaled approximately $874,000 and $764,000 in 1998 and 1997, respectively.
Research and development expenses amounted to approximately $185,000 and
$276,000 in 1998 and 1997, respectively.
NOTE 3 - DEBT
Credit Agreement
On April 18, 1997, the Company's wholly owned subsidiary Sandsport, entered into
a revolving credit agreement (the "Credit Agreement") with the a bank ( the
"Bank") in the amount of $3,000,000. The unpaid balance of any loans under the
Credit Agreement bear interest at either the Bank's prime rate or the adjusted
LIBOR rate, as defined in the Credit Agreement, and will be paid quarterly. The
Company was required to pay a commitment fee in the amount of $30,000 and a fee
equal to 1/4% per annum payable on the unused average daily balance of amounts
under the Credit Agreement. Any indebtedness under the Credit Agreement is
guaranteed by the Company and Sandsport's sister subsidiaries (the "Group"). The
collateral for the facility is a first lien on all equipment owned by members of
the Group as well as a collateral assignment of $2,000,000 of life insurance
payable on the life of a key officer of the Company. All of the Group assets are
pledged to the Bank as collateral for the amounts due under the Credit
Agreement. In addition, the Company is required to maintain certain financial
and restrictive covenants. The Credit Agreement will expire on March 1, 2000, at
which time any outstanding principal balance will be due and payable. As of May
31, 1998, there is no balance owed to the Bank under the Credit Agreement.
<PAGE>
Long Term Debt
Long-term debt at May 31, 1998 and 1997 was as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1998 1997
8.7% Term Loan payable to affiliate, due 1998 $ 10,401 $ 135,405
8.91% Term Loan payable to affiliate, due 1998 11,895 166,660
Variable Rate Term Loan under Credit Agreement -- 1,000,000
22,296 1,302,065
Less: current portion of long-term debt 22,296 267,864
Long-term debt $ -- $1,034,201
</TABLE>
NOTE 3 (Continued)
The Term Loans payable to affiliates represent assumed indebtedness owed to
affiliates of the Company's Chairman and were incurred by the affiliates in
connection with the construction of improvements to the Company's office space
(the "Facility"). The loans are collateralized by the assets of the primary
obligor, BFS Realty, LLC ("BFS"), an affiliate of the Company's Directors, from
whom the Company leases office space at the Facility. The loans are guaranteed
by the Company's Chairman (see Note 6).
NOTE 4 - INCOME TAXES
The income tax expense is comprised of the following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended May 31,
1998 1997
Current
Federal $ --- $ 3,000
State 15,885 17,000
Deferred - Federal and state 12,000 287,000
$ 27,885 $307,000
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
Year ended May 31,
1998 1997
Statutory U.S. federal tax rate 34.0% 34.0%
State taxes 15.9 3.2
Net operating loss carryforwards (204.0) (25.9)
Impact of changes in items giving rise to deferred taxes:
Depreciation and amortization 158.9 29.2
Deferred revenue 25.8 (6.7)
Other (7.0) 19.9
23.6% 53.7%
</TABLE>
As of May 31, 1998 and 1997 depreciation and amortization gave rise to deferred
tax liabilities of approximately $1,047,000 and $860,000, respectively.
Allowance for doubtful accounts, employee benefit accruals, deferred gains, net
operating loss carryforwards and contribution carryovers gave rise to deferred
tax assets of approximately, $665,000 and $490,000, respectively. These amounts
are presented net in the consolidated balance sheet as of May 31, 1998 and 1997,
as a noncurrent deferred tax liability.
At May 31, 1998, the Company had net operating loss carryforwards for tax
purposes of $689,000, expiring at various dates through 2013.
NOTE 5- COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company leases office space at the Facility from BFS (see Note 6). Total
office space and equipment rental expense under operating leases amounted to
approximately $2,173,000 and $1,728,000 in fiscal 1998 and 1997, respectively.
The Company paid rent in the amount of $604,350 and $340,200 to BFS for the
years ended May 31, 1998 and May 31, 1997, respectively.
The Company has obligations to pay rental expense in connection with seven
sale/leaseback transactions. The rental expenses amounted to approximately
$1,025,900 and $773,600 for the years ended May 31, 1998 and 1997 respectively.
(See Note 8).
In connection with a February 1995 sale/leaseback, the Company previously issued
irrevocable letters of credit in an aggregate amount of $375,000 for the benefit
of the lessor. One letter of credit in the amount of $225,000 is cancellable if
the Company meets certain financial covenants. This same letter of credit has
been extended until the earlier of the Company's meeting such financial
covenants or the termination of the June 1995 lease with the same lessor. The
other letter of credit in the amount of $150,000 expired upon the termination of
the February 1995 lease.
Future minimum lease payments for all noncancellable operating leases at May 31,
1998 are as follows:
Amount
Year ending May 31,
1999 $1,781,480
2000 1,663,094
2001 890,948
2002 664,212
2003 648,360
Thereafter 864,480
$6,512,574
Litigation
On July 6, 1998, the Company and MCI Telecommunications Corporation ("MCI")
entered into a letter of intent (the "Letter of Intent") pursuant to which the
parties have agreed on the principle terms of a settlement of certain litigation
pending in the United States District Court for the Eastern District of New
York, captioned MCI Telecommunications Corporation v. Sandata, Inc., relating to
certain alleged patent infringement by the Company (the "Litigation"). The
Letter of Intent provides, among other things, that the Company will be granted
a license under certain of MCI's patents (the "Patents") for use in connection
with the Company's SANTRAX system and that the Company will pay MCI certain
royalties.
Employment and Deferred Compensation Agreements
On February 1, 1997 the Company and Mr. Brodsky entered into an employment
agreement for a five year term (the "Brodsky Employment Agreement"). Among other
things, the Brodsky Employment Agreement provides compensation at the annual
rate of $500,000 or a lesser amount if mutually agreed. The Brodsky Employment
Agreement also provides for payment of an annual bonus at the sole discretion of
the Board of Directors. Mr. Brodsky agreed to accept a reduction in compensation
for the fiscal year ended May 31, 1998 and has signed a waiver evidencing his
agreement to such reduction.
The Company also has a deferred compensation agreement with Mr. Brodsky 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 (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 or death. The Company has obtained
insurance on Mr. Brodsky's life to fund its obligations under the above
agreement.
NOTE 6 - RELATED PARTY TRANSACTIONS
a. On June 1, 1994, BFS Sibling Realty, Inc. ("BSRI") formerly known as Brodsky
Sibling Realty, Inc., a company affiliated with certain of the Company's
Directors, borrowed $3,350,000 in the form of Industrial Development Revenue
Bonds ("Bonds") to finance costs incurred in connection with the acquisition of
the Company's Facility from the NCIDA, and for renovating and equipping the
Facility. These Bonds were subsequently purchased by a bank (the "Bank"). The
aggregate cost incurred by BSRI in conjunction with such acquisition, renovation
and equipping was approximately $4,377,000. In addition, the Company incurred
approximately $500,000 of indebtedness to affiliates of Mr. Brodsky in
connection with additional capital improvements. The Bonds bore interest at
prime plus 3/4 of 1% until August 11, 1995, at which time the interest rate
became fixed at 9% for a five-year term through September 1, 2000. At that time,
the interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the issuance
of the Bonds, the NCIDA obtained title to the Facility which it then leased to
BSRI.
NOTE 6 (Continued)
On June 21, 1994 (as of June 1, 1994), the Company and its Chairman guaranteed
the full and prompt payment of principal and interest of the Bonds and the
Company granted the Bank a security interest and lien on all the assets of the
Company. In connection with the issuance and sale of the Bonds, the Company, as
sublessee, entered into a sublease agreement (the "First Sublease") with BSRI,
whereby the Company leased the Facility for the conduct of its business and, in
consideration therefor, was obligated to make lease payments in at least equal
amounts due to satisfy the underlying Bond obligations.
On July 31, 1995, by an Assignment and Assumption and First Amendment to Lease
between the Company and BSRI, the Company assumed the obligations of BSRI under
the lease and became the direct tenant and the beneficial owner of the Facility
(collectively the "First Amendment"). In connection with the First Amendment,
the First Sublease was terminated. During the period commencing July 1, 1995 and
ending October 31, 1996 the Company paid rent for the Facility to the NCIDA in
the amount of $48,600 per month, subject to adjustment based upon the then
effective interest rate of the Bonds, among other things. In connection with the
First Amendment, the Company obtained the right to acquire the Facility upon
expiration of the Lease with the NCIDA and became directly liable to the NCIDA
for amounts due thereunder. Furthermore, in connection with the First Amendment,
the Company assumed certain indebtedness owed to affiliates of the Company's
Chairman as follows: (i) the $364,570 remaining balance of a 48-month term loan
bearing interest at 8.7% per annum, and (ii) the $428,570 remaining balance of a
42-month term loan bearing interest at 8.91%. Each of the foregoing loans were
incurred in connection with the construction of improvements to the Facility,
are collateralized by the assets of the primary obligor and are guaranteed by
the Company's Chairman.
On August 11, 1995, the Company entered into a $750,000 loan agreement with the
Long Island Development Corporation ("LIDC"), under a guarantee by the U.S.
Small Business Administration ("SBA") (the "SBA Loan"). The entire $750,000
proceeds were used to repay a portion of the Bonds. The Company entered into the
First Amendment primarily to satisfy certain requirements of the SBA. The SBA
Loan is payable in 240 monthly installments of $6,255, which includes principal
and interest at a rate of 7.015%.
As of November 1, 1996, the Company entered into the Second Amendment with BFS
(which succeeded to the interest of BSRI with respect to the Second Amendment),
the NCIDA and the Bank. In connection with the Second Amendment, (i) BFS assumed
all of the Company's obligations under the Lease with the NCIDA and entered into
the Second Sublease with the Company, as sublessee, for the Facility; and (ii)
the Company conveyed to BFS the right to become the owner of the Facility upon
expiration of the Lease. In addition, pursuant to the Second Sublease, the
Company has assumed certain obligations owed by BFS to the NCIDA under the
Lease. BFS has indemnified the Company with respect to certain obligations
relative to the Lease and the Second Amendment.
As a result of the Second Amendment and related transactions discussed above,
the Company reduced its fixed assets, consisting of land, building and
improvement costs, by the amount of the cost thereof, net of accumulated
depreciation, in the amount of $3,125,298 and reduced its long term debt by
$3,140,884, which was assumed by BFS; the net difference was recorded as other
income in the financial statements.
b. 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, amounted to $2,307,000 and $2,171,000
for the years ended May 31, 1998 and 1997, respectively. At May 31, 1998, the
Company was owed approximately $293,000 by such affiliate, which was received in
full subsequent to May 31, 1998.
As of June 1, 1998, this affiliate hired 11 employees of the Company in order to
provide development, enhancement, modification and maintenance services,
previously provided by the Company. The Company was paid $200,000 in
consideration of the Company's waiving certain rights relative to such
employees. In addition, the Company began leasing certain computer equipment to
this affiliate for $2,000 per month as well as computer hardware for its data
processing center at a monthly cost of $20,000 from the Company pursuant to a
verbal agreement. The Company is expected to continue to provide to this
affiliate consulting services related to this affiliate's information systems.
c. The Company is indebted under two Term Loans to affiliates of the Company's
Chairman, as described in Note 3. Each of the foregoing loans were incurred in
connection with the construction of improvements to the Facility, are
collateralized by the assets of the primary obligor and are guaranteed by the
Company's Chairman.
d. The Company makes various lease payments to certain affiliated companies. The
payments are for: equipment rental, which was $366,796 and $367,228 in fiscal
1998 and 1997, respectively, and rent for the Facility which was $604,350 and
$340,200 in fiscal 1998 and 1997, respectively.
e. Due from Officers at May 31, 1997 in the amount of $102,867, represented the
amount advanced by the Company to pay certain fees arising from a proposed
privatization, which was withdrawn in December 1994. These notes were repaid by
the officers in August 1997.
f. At May 31, 1997, the Company was owed approximately $138,000 from a company
affiliated with the officers of the Company. Subsequent to May 31, 1997, the
Company received approximately $18,000 and a promissory note for the balance
due. The note is payable in 24 monthly payments with interest at 8% commencing
September 1, 1997. The Company deferred principal payments from April, 1998 to
NOTE 6 (Continued)
October, 1998, at which time principal and interest payments will resume. At May
31, 1998, the Company was owed approximately $87,000 on such note.
g. On June 3, 1997 the Securities Exchange Commission declared effective the
Company's registration statement on Form S-3 (the "Registration Statement")
which covered, among other things, the reoffer of 820,213 shares of common stock
beneficially owned by Mr. Brodsky and 417,927 shares beneficially owned by two
directors and executive officers of the Company.
h. For the purposes of the Federal Securities Laws, Medical Arts Office
Services, Inc. ("MAOS") may be deemed an affiliate of the Company. During the
fiscal years ended May 31, 1998 and May 31, 1997, MAOS provided the Company with
accounting, bookkeeping and paralegal services. For the fiscal years ended May
31, 1998 and 1997 the total payments made by the Company to MAOS were $223,813
and $223,395, respectively.
NOTE 6 - (Continued)
i. The Company has been providing services to Federation of Puerto Rican
Organizations, and/or its affiliates (individually and collectively, the
"Federation"), an HRA Vendor Agency, since 1995. At May 31, 1998, the Federation
owed the Company $51,865 for services rendered by the Company. On October 31,
1997 and November 30, 1997, respectively, the Company acquired a loan receivable
for an aggregate of $300,000 from a third party (a portion of which was acquired
from an affiliate of the Company's Chairman), due from the Federation. Such loan
receivable is secured by accounts receivable due to the Federation. Shortly
following the Company's acquiring such receivable, the Federation filed for
bankruptcy protection. The Company has filed, among other things, claims
representing monies owed to the Company with respect to the loan and the
receivables. The Company has fully reserved against the loan and the receivable
in the event that it does not receive payment.
NOTE 7 - SHAREHOLDERS' EQUITY
a. Common Stock Purchase Warrants
At May 31, 1998, there were outstanding and exercisable 400,000 common stock
purchase warrants issued to the Company's Chairman. For each warrant, the
Chairman may purchase one share of common stock at $1.38 per share, which
represented the fair market value of the Company's common stock at the date of
issuance of the warrants, which expire in 2001.
b. Private Offering and Related Common Stock Purchase Warrants
In October, 1996, the Company commenced a private offering, on a "best efforts -
all or none" basis, to raise $1,500,000 by issuing an aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock, at an exercise price of $7.00 per share. In February 1997, the
Company completed such private offering. The net proceeds received in connection
with the sale of 300,000 shares of its common stock were $1,256,415 after
payment of expenses related to the offering. Contemporaneously with the
execution and delivery by the Company of the letter of intent with regard to
such private offering, certain assignees of the placement agent acquired 100,000
shares of the Company's Common Stock at a purchase price of $3.00 per share; the
net proceeds from the sale of such 100,000 shares were $260,076.
In connection with the closing of such private offering, an affiliate of the
placement agent entered into a one year financial consulting agreement
("Financial Consulting Agreement") with the Company, pursuant to which, among
other things, such affiliate will receive aggregate annual payments of $36,000
and certain assignees of such affiliate received warrants to purchase an
aggregate of 200,000 shares of Common Stock exercisable as follows: 100,000
shares at $5.00 per share and 100,000 shares at $7.00 per share, such warrants
to be exercisable until September 18, 1998 (with respect to the warrants
exercisable at $5.00 per share) and two years (with respect to the warrants
exercisable at $7.00 per share). The warrants issued in such private offering,
including those issued to investors as well as the assignees of the placement
agent's affiliate, are redeemable by the Company under certain circumstances.
In August, 1997 the Board of Directors authorized the execution and delivery of
a notice of redemption to holders of such warrants. As a result, there were a
total of 166,000 warrants exercised at $7.00 per share. The net proceeds
generated from warrant exercises were $1,105,827.
In September, 1997 the Company withdrew its election to redeem warrants issued
pursuant to the Financial Consulting Agreement discussed above.
c. Stock Options
The Company has stock options outstanding under three stock option plans. At May
31, 1998, there were 2,536 options outstanding under an incentive stock option
NOTE 7 (Continued)
plan adopted in October 1984 and subsequently amended. Options granted under
this plan were granted at exercise prices not less than fair market value on the
date of grant. Options outstanding under this plan expire in 2001. No additional
options may be granted under this plan. During 1998, certain officers of the
Company exercised 206,667 options at an exercise price of $1.79 per share and
23,333 options at an exercise price of $1.875 per share under this plan. Other
option exercises under this plan amounted to 222 shares at an exercise price of
$1.875 per share. Net proceeds generated from option exercises during fiscal
1998 were $408,693.
At May 31, 1998, there were 141,334 options outstanding under a nonqualified
stock option plan adopted in November, 1986 and subsequently amended. Options
outstanding under this plan expire in 2001. No additional options may be granted
under this plan.
At May 31, 1998, there were also 450,000 incentive options outstanding under a
stock option plan adopted in January 1995, which provides for both incentive and
nonqualified stock options and reserves 1,000,000 shares of common stock for
grant under the plan. The plan requires that options be granted at exercise
prices not less than the fair market value at the date of grant, over a ten-year
period. All options outstanding under this plan are exercisable at May 31, 1998
at prices ranging from $1.38 to $2.61 per share over a period of five years from
date of grant.
On July 14, 1997 the Company filed a Registration Statement on Form S-8 relative
to reofferings of shares of Common Stock of the Company which may be acquired
pursuant to stock option plans.
Summary information with respect to the stock option plans follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Range of Outstanding Outstanding
exercise options options
prices ($) granted exercisable
Balance, June 1, 1997 1.38 - 2.34 575,259 575,259
Granted 2.61 250,000 250,000
Canceled 1.875 (1,167) (1,167)
Balance, May 31, 1997 1.38 - 2.61 824,092 824,092
Exercised 1.79 - 1.875 (230,222) (230,222)
Balance, May 31, 1998 1.38 - 2.61 593,870 593,870
</TABLE>
On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former director of the Company and Carol Freund, the spouse of Hugh Freund and
an employee of Sandsport, exercised their respective options and warrants to
purchase an aggregate of 921,334 shares of Common Stock at exercise prices
ranging from $1.38 to $2.61 per share for an aggregate cost of $1,608,861.
Payment for such shares is to be made to the Company (i) a portion in the form
of non-recourse promissory notes due in July 2001, with interest at eight and
one-half percent (8-1/2%) per annum, payable annually; and (ii) a portion by
payment of an aggregate of $1,609 representing the par values paid in cash. The
shares of Common Stock issued upon exercise have been pledged as security for
the debt.
NOTE 8 - SALE/LEASEBACK TRANSACTIONS
The Company is a party to various sale/leaseback transactions involving certain
fixed assets. Gains on these transactions have been deferred and are being
recognized over the lives of the related leases, ranging from thirty-six (36) to
sixty (60) months. Approximately $263,000 and $278,000 of the deferred gains
were recognized in fiscal 1998 and 1997, respectively. Included in these amounts
are the effects of sale/leaseback transactions entered into fiscal 1998 and
1997, as follows:
In June 1996, the Company entered into a sale/leaseback transaction of certain
fixed assets (principally furniture, fixtures, computer hardware and equipment).
The fixed assets, which had a net book value of approximately $657,000, were
sold for $925,000. The resulting gain of approximately $268,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
forty-eight (48) months. Approximately $67,000 of the deferred gain was
recognized for fiscal 1998 and 1997, respectively.
In March 1997, the Company entered into a sale/leaseback transaction of certain
fixed assets (principally computer hardware and software). The fixed assets,
which had a net book value of approximately $874,000, were sold for $981,000.
The resulting gain of approximately $107,000 was recorded as deferred income and
is being recognized over the life of the lease, which is thirty-eight (38)
NOTE 8 (Continued)
months. Approximately $34,000 and $6,000 of the deferred gain was recognized for
fiscal 1998 and 1997, respectively. The Company assigned the option to purchase
such assets to an entity affiliated with the Company's Chairman. The affiliate
acquired the purchase option in consideration for posting a letter of credit to
secure the purchase option obligation. Subsequent to March 1997 the affiliate
assigned the purchase option to an unaffiliated third party.
In January 1998, the Company consummated a sale/leaseback of certain fixed
assets (principally computer hardware, software and equipment). The fixed
assets, which had a net book value of approximately $515,000, were sold for
$700,000. The resulting gain of approximately $185,000 was recorded as deferred
income and is being recognized over the life of the lease, which is thirty-six
(36) months. Approximately $26,000 of deferred gain was recognized for fiscal
1998.
NOTE 9 - 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 $20,641 and $18,385 in fiscal years 1998 and 1997, respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SANDATA, INC.
- ----------------------------------------------------------------------------
(Registrant)
By /s/ Bert E. Brodsky
Bert E. Brodsky, Chairman of the Board
(Principal Executive Officer and
Principal Financial and Accounting Officer)
Date August 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By /s/ Bert E. Brodsky
Bert E. Brodsky, Chairman, President, Treasurer, Director
Date August 26, 1998
By /s/ Hugh Freund
Hugh Freund, Executive Vice President, Secretary, Director
Date August 26, 1998
By /s/ Gary Stoller
Gary Stoller, Executive Vice President, Director
Date August 26, 1998
By /s/ Paul J. Konigsberg
Paul J. Konigsberg, Director
Date August 26, 1998
By /s/ Ronald L. Fish
Ronald L. Fish, Director
Date August 26, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000755465
<NAME> SANDATA, INC.
<MULTIPLIER> 1
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,794,947
<SECURITIES> 0
<RECEIVABLES> 2,674,301
<ALLOWANCES> 443,157
<INVENTORY> 27,003
<CURRENT-ASSETS> 4,193,967
<PP&E> 12,117,557
<DEPRECIATION> 6,303,176
<TOTAL-ASSETS> 10,633,629
<CURRENT-LIABILITIES> 2,739,106
<BONDS> 0
0
0
<COMMON> 1,560
<OTHER-SE> 4,173,091
<TOTAL-LIABILITY-AND-EQUITY> 10,633,629
<SALES> 12,488,327
<TOTAL-REVENUES> 12,826,970
<CGS> 0
<TOTAL-COSTS> 12,652,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,730
<INCOME-PRETAX> 118,156
<INCOME-TAX> 27,885
<INCOME-CONTINUING> 90,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,271
<EPS-PRIMARY> .06
<EPS-DILUTED> .04
</TABLE>
EXHIBIT 10(U)
PLEDGE AGREEMENT, effective July 14, 1998 (the "Pledge Agreement"), made by
and between [Name of Maker] (the "Pledgor") and SANDATA, INC., a Delaware
corporation (the "Pledgee").
WHEREAS, Pledgor has as of this day exercised [a] certain [Warrant/Option] dated
[______________] pursuant to which, among other things, Pledgor is acquiring
[number] of shares of Common Stock of Pledgee (the "Shares").
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is
hereby acknowledged, Pledgor hereby represents and warrants to and covenants and
agrees with Pledgee as follows:
1. Defined Terms. Unless otherwise defined herein, the following terms shall
have the following meanings:
"Code" means the Uniform Commercial Code from time to time in effect in the
State of New York.
"Collateral" means the Pledged Stock (as hereinafter defined) and all Proceeds.
"Lien" or "Liens" means liens, pledges, security interests, charges, claims,
restrictions, subscriptions, options, rights, calls, commitments, hypothecations
and encumbrances of any nature whatsoever.
"Obligations" means any and all indebtedness, obligations, liabilities,
guarantees of any kind, and whether direct or indirect, acquired outright,
conditionally, absolute or contingent, joint or several, secured or unsecured,
due or not due, contractual or tortious, liquidated or unliquidated, arising by
operation of law or otherwise, whether or not of a nature presently contemplated
by the parties or subsequently agreed to by them arising under the Note.
"Pledged Stock" means the Shares, together with any and all shares, stock
certificates, options or rights of any nature whatsoever that may be issued or
granted to the Pledgor with regard thereto, in substitution or replacement
thereof, as a conversion thereof, in exchange therefor or otherwise in respect
thereof.
"Proceeds" means all "proceeds" as such term is defined in Section 9-306(1) of
the Code on the date hereof and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock, collections
thereon and distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to the
Pledgee the Pledged Stock and hereby grants to the Pledgee a valid and binding
first security interest in the Collateral as collateral security for the
Obligations.
3. Stock Powers. Concurrently with the delivery to the Pledgee of the
certificate or certificates representing the Pledged Stock, the Pledgor is
delivering to the Pledgee an undated stock power covering such certificate or
certificates, duly executed in blank by the Pledgor.
4. Representations and Warranties. The Pledgor represents and warrants to the
Pledgee as follows:
(a) The Pledgor is the record and beneficial owner of the Pledged Stock and has
good title thereto, free and clear of any and all Liens, except the Lien created
by this Pledge Agreement.
(b) All such shares of the Pledged Stock have been duly and validly authorized
and issued and are fully paid and nonassessable and held of record and
beneficially solely by the Pledgor.
(c) There are no subscriptions, options, warrants, rights or calls or other
commitments or agreements to which Pledgor is a party or by which it is bound,
calling for the issuance, transfer, sale or other disposition of any Shares and
there are no outstanding securities of Pledgee owed by Pledgor convertible into
or exchanged for, actually or contingently, the Shares.
(d) Upon delivery to the Pledgee of the stock certificate or certificates
evidencing such shares of Pledged Stock, the Lien granted pursuant to this
Pledge Agreement will constitute a valid, perfected first priority Lien on the
Collateral, enforceable as such against all creditors of the Pledgor and any
persons purporting to purchase any Collateral from the Pledgor.
(e) The execution and delivery by Pledgor of this Pledge Agreement and the
performance of the Pledgor's obligations hereunder: (i) are within the Pledgor's
powers; (ii) are not in contravention of the terms of any indenture, agreement
or undertaking to which the Pledgor is a party or by which the Pledgor or any of
its assets or property is bound or affected; (iii) do not require the consent,
approval or authorization of or declaration, registration or filing with any
governmental body or any nongovernmental person; (iv) do not contravene any
contractual or governmental restriction binding upon the Pledgor; and (v) will
not, except as contemplated herein, result in the imposition of any additional
Liens upon any of the Collateral under any existing indenture, mortgage, deed of
trust, loan or credit agreement or other agreement or instrument to which the
Pledgor is a party or by which it or any of the Collateral may be bound or
affected.
(f) This Pledge Agreement has been duly executed and delivered by the Pledgor
and constitutes the legal, valid and binding obligation of the Pledgor
enforceable in accordance with its terms.
5. Covenants. The Pledgor covenants and agrees with the Pledgee that, from and
after the date of this Pledge Agreement and until the Obligations are satisfied
in full:
(a) If the Pledgor shall, as a result of its ownership of the Pledged Stock,
become entitled to receive or shall receive any stock certificate (including,
without limitation, any certificate representing a stock dividend or a
distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
option, right or other security, asset or property, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof (including, without limitation,
in connection with any merger, consolidation or similar event relating to
Pledgee), the Pledgor shall accept the same as the agent of the Pledgee, hold
the same in trust for the Pledgee and deliver the same forthwith to the Pledgee
in the exact form received, duly endorsed by the Pledgor to the Pledgee, if
required, together with an undated stock power covering such certificate duly
executed in blank by the Pledgor to be held by the Pledgee, subject to the terms
hereof, as additional Collateral security for the Obligations. Any sums paid or
property distributed upon or in respect of the Pledged Stock upon any total or
partial liquidation or dissolution of Pledgee shall be paid over or delivered to
the Pledgee forthwith to be held by it hereunder as additional Collateral
security for the Obligations, and in case any distribution shall be made on or
in respect of the Pledged Stock or any sums shall be paid or property shall be
distributed upon or with respect to the Pledged Stock pursuant to the
recapitalization or reclassification of the capital of Pledgee or pursuant to
the reorganization thereof, the sums so paid or property so distributed shall be
delivered to the Pledgee forthwith to be held by it hereunder as additional
Collateral security for the Obligations. If any sums or property so paid or
distributed in respect of the Pledged Stock shall be received by the Pledgor,
the Pledgor shall, until such money or property is paid or delivered to the
Pledgee, hold such money or property as agent of, and in trust for, the Pledgee,
segregated from other funds of the Pledgor, as additional Collateral security
for the Obligations.
(b) Without the prior written consent of the Pledgee, the Pledgor will not (i)
sell, assign, transfer, exchange, or otherwise dispose of, or grant any option
or right with respect to, the Collateral, or (ii) create, incur or permit to
exist any Lien with respect to any of the Collateral, or any interest therein,
except for the lien provided for by this Pledge Agreement. The Pledgor will
defend the right, title and interest of the Pledgee in and to the Collateral
against the claims and demands of all persons whomsoever.
(c) At any time and from time to time, upon the written request of the Pledgee,
and at the sole expense of the Pledgor, the Pledgor will promptly and duly
execute and deliver such further instruments and documents and take such further
actions as the Pledgee may reasonably request for the purposes of obtaining or
preserving the full benefits of this Pledge Agreement and of the rights and
powers herein granted. If any amount payable under or in connection with any of
the Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall be
immediately delivered to the Pledgee, duly endorsed in a manner satisfactory to
the Pledgee, to be held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Pledgee harmless from, any and
all liabilities with respect to, or resulting from any delay in paying, any and
all stamp, excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Pledge Agreement.
6. Events of Default. The Obligations shall become immediately due and payable
at the option of Pledgee upon the occurrence of an event defined as an "Event of
Default" under the Note (an "Event of Default").
7. Cash Dividends; Voting Rights. Unless an Event of Default or an event which,
with the lapse of time or the giving of notice or both, would constitute an
Event of Default, shall have occurred, the Pledgor shall be permitted to receive
all cash dividends paid in the normal course of business of Pledgee and in
respect of the Pledged Stock (provided that such dividends are consistent with
past practice of which Pledgor acknowledges it is familiar with) and to exercise
all voting and corporate rights with respect to the Pledged Stock; provided,
however, that (a) any and all cash dividends or distributions paid that are not
in the normal course of business of Pledgee or are not consistent with past
practice shall be delivered to the Pledgee forthwith as additional Collateral
security for the Obligations and, until so delivered, shall be held by the
Pledgor as agent of, and in trust for, the Pledgee, segregated from other funds
of the Pledgor, as additional Collateral security; and (b) no vote shall be cast
or corporate right exercised or other action taken which, in the Pledgee's sole
judgment, would impair the Collateral or its salability or which would be
inconsistent with or result in any violation of any provision of the Note, this
Pledge Agreement or any other document made, delivered or given in connection
therewith or herewith.
8. Rights of the Pledgee.
(a) If an Event of Default or an event which, with the lapse of time or the
giving of notice or both, would constitute an Event of Default, shall occur, (i)
the Pledgee shall have the right to receive any and all cash dividends and
distributions paid in respect of the Pledged Stock and make application thereof
to the Obligations in such order as the Pledgee may determine, and (ii) all
shares of the Pledged Stock shall be registered in the name of the Pledgee or
its nominee, and the Pledgee or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of the Pledged
Stock at any meeting of shareholders of Pledgee or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of Pledgee, or upon the exercise by the Pledgor or the Pledgee of any
right, privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it and
except for its willful misconduct engaged in with the intent of materially and
adversely affecting the Pledgor's obligations under this Pledge Agreement, but
the Pledgee shall have no duty to the Pledgor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing, and, except with respect to such willful misconduct by the
Pledgee, the Pledgor hereby unconditionally releases the Pledgee and its
affiliates and representatives from any and all liability for any action or
omission in connection with this Pledge Agreement or the Collateral.
(b) The rights of the Pledgee hereunder shall not be conditioned or contingent
upon the pursuit by the Pledgee of any right or remedy against the Pledgor, any
other person which may be or become liable in respect of all or any part of the
Obligations or against any collateral security therefor, guarantee therefor or
right of offset with respect thereto. Neither the Pledgee nor any of its
affiliates or representatives shall be liable for any failure to demand, collect
or realize upon all or any part of the Collateral or for any delay in doing so,
nor shall the Pledgee be under any obligation to sell or otherwise dispose of
any Collateral upon the request of the Pledgor or any other person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
9. Remedies. If an Event of Default has occurred, the Pledgee may exercise, in
addition to all other rights and remedies granted in the Note, this Pledge
Agreement and in any other instrument or agreement securing, evidencing or
relating thereto or to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Pledgee, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Pledgor, Pledgee or any other person (all and each of
which demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give an
option or options to purchase or otherwise dispose of and deliver the Collateral
or any part thereof (or contract to do any of the foregoing), in one or more
parcels at public or private sale or sales, in the over-the-counter market, at
any exchange, broker's board or office of the Pledgee or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Pledgee shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, absolutely free
from any right or claim of whatsoever kind (including, without limitation, any
right or equity of redemption in the Pledgor, which right or equity is hereby
waived and released). The Pledgee shall apply any Proceeds from time to time
held by him and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred in respect thereof or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of the Pledgee hereunder, including, without limitation, reasonable
attorneys' fees and disbursements of counsel to the Pledgee, to the payment in
whole or in part of the Obligations, in such order as the Pledgee may elect and
only after such application and after the payment by the Pledgee of any other
amount required by any provision of law, including, without limitation, Section
9-504 (1)(c) of the Code, need the Pledgee account for the surplus, if any, to
the Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Pledgee arising out of
the lawful exercise by it of any rights hereunder. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least ten (10) days before
such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and any and all costs and expenses of every
kind incurred by the Pledgee with respect to the collection of such deficiency,
including, without limitation, all fees and disbursements of any attorneys
employed by the Pledgee.
10. Public Sales; Private Sales.
(a) If the Pledgee shall determine to exercise its right to sell any of all of
the Pledged Stock pursuant to paragraph 9 hereof, the Pledgor will cause Pledgee
to execute and deliver all such instruments and documents, and do or cause to be
done all such other acts, as may be, in the opinion of the Pledgee, necessary or
advisable to effect and settle such sale.
(b) The Pledgor recognizes that the Pledgee may be unable to effect a public
sale of any or all the Pledged Stock by reason of certain restrictions contained
in the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws or otherwise, and may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers which will be
obliged to agree, among other things, to acquire such securities for their own
account for investment and not with a view to the distribution or resale
thereof. The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Pledgee shall be under no obligation to delay a sale of any of the Pledged Stock
for the period of time necessary to permit Pledgee to register such securities
for public sale under the Securities Act, or under applicable state securities
laws, even if Pledgee would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do or cause to be done
all such other acts as may be necessary to make such sale or sales of all or any
portion of the Pledged Stock pursuant to this paragraph 10 valid and binding and
in compliance with any and all other applicable requirements of law. The Pledgor
further agrees that a breach of any of the covenants contained in this paragraph
10 will cause irreparable injury to the Pledgee, that the Pledgee has no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this paragraph 10 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants.
11. Amendments, etc. with Respect to the Obligations. The Pledgor shall remain
obligated hereunder and the Collateral shall remain subject to the lien granted
hereby, notwithstanding that, without any reservation of rights against the
Pledgor, and without notice to or further assent by the Pledgor, any demand for
payment of any of the Obligations made by the Pledgee may be rescinded by the
Pledgee, and any of the Obligations continued, and the Obligations, or the
liability of Pledgor or any other person upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered, or released by
the Pledgee, the Note, this Pledge Agreement and any other documents executed
and delivered in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Pledgee may deem advisable from time to
time, and any guarantee, right of offset or other collateral security at any
time held by the Pledgee for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. The Pledgee shall not have any
obligation to protect, secure, perfect or insure any other Lien at any time held
by it as security for the Obligations or any property subject thereto. The
Pledgor waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the Pledgee upon
this Pledge Agreement; the Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this Pledge
Agreement; and all dealings between the Pledgee and the Pledgor shall likewise
be conclusively presumed to have been had or consummated in reliance upon this
Pledge Agreement. The Pledgor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Pledgee or the
Pledgor with respect to the Obligations.
12. Limitation on Duties Regarding Collateral. The Pledgee's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Pledgee deals with similar securities and
property for its own account. Neither the Pledgee nor his agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Pledgor or otherwise.
13. Powers Coupled with an Interest. All authorizations and agencies herein
contained with respect to the Collateral are irrevocable and powers coupled with
an interest.
14. Severability; Redelivery of Released Collateral.
(a) If any provision hereof is invalid and unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in favor of the Pledgee in order to carry out the intentions
of the parties hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
(b) In the event that the Collateral or any portion thereof is released to the
Pledgor and any payments or proceeds of any security for the Obligations, or any
part thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then the Pledgor shall redeliver the Collateral to the Pledgee
and, until so redelivered, shall hold the Collateral as agent of, and in trust
for, the Pledgee.
15. No Waiver; Cumulative Remedies. The Pledgee shall not by any act (except by
a written instrument pursuant to paragraph 16 hereof) be deemed to have waived
any right or remedy hereunder or to have acquiesced in any default of any
obligation under the Note, this Pledge Agreement, or any other document made,
delivered or given in connection therewith or herewith, or in any breach of any
of the terms and conditions hereof or thereof. No failure to exercise, nor any
delay in exercising, on the part of the Pledgee, any right, power or privilege
hereunder shall operate as a waiver hereof or thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Pledgee of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Pledgee would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
16. Waivers and Amendments. None of the terms or provisions of this Pledge
Agreement may be amended, supplemented or otherwise modified except by a written
instrument executed by the Pledgor and the Pledgee, provided that any provision
of this Pledge Agreement may be waived by the Pledgee in a letter or agreement
executed by the Pledgee. This Pledge Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of the
Pledgee and its respective successors and assigns, and, in the event of an
assignment of all or any of the Obligations, the rights hereunder, to the extent
applicable to the indebtedness so assigned, may be transferred with such
indebtedness.
17. Entire Agreement. This Pledge Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof. The representations,
warranties, covenants and agreements set forth in this Pledge Agreement and in
the exhibits delivered pursuant hereto constitute all the representations,
warranties, covenants and agreements of the parties and upon which the parties
have relied, shall not be deemed waived or otherwise affected by any
investigation made by any party hereto and, except as may be specifically
provided herein, no change, modification, amendment, addition or termination of
this Pledge Agreement or any part thereof shall be valid unless in writing and
signed by or on behalf of the party to be charged therewith.
18. Notices. Any and all notices or other communications or deliveries required
or permitted to be given or made pursuant to any of the provisions of this
Pledge Agreement shall be deemed to have been duly given or made for all
purposes when hand delivered or sent by certified or registered mail, return
receipt requested and postage prepaid, overnight mail or courier, as follows:
If to Pledgor, at:
If to Pledgee, at:
Sandata, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
or at such other address as either party or person shall designate by notice to
the other parties in accordance with the provisions hereof.
19. Choice of Law. This Pledge Agreement shall be governed by, and interpreted
and construed in accordance with, the laws of the State of New York, excluding
choice of law principles thereof.
20. Successors and Assigns. This Pledge Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns;
provided, however, that the Pledgor may not assign any of its rights or delegate
any of its duties under this Agreement without the prior written consent of the
Pledgee.
21. Headings. The headings or captions in this Agreement are for convenience and
reference only and do not in any way modify, interpret or construe the intent of
the parties or affect any of the provisions of this Agreement.
22. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and unconditionally:
(i) consents and submits for itself and its property in any action or proceeding
relating to this Pledge Agreement, or for recognition and enforcement of any
judgment in respect thereof, to the jurisdiction of the federal and state courts
located within the State of New York;
(ii) consents that any such action or proceeding may be brought in such courts,
and waives any objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the same;
(iii) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Pledgor at its
address set forth above or at such other address of which the Pledgee shall have
been notified in writing; and
(iv) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction.
(b) The Pledgor irrevocably and unconditionally waives any and all rights to a
jury trial in connection with any action or proceeding between the Pledgor (or
its affiliates), on the one hand, and the Pledgee (or its affiliates), on the
other hand, arising under or by reason of this Pledge Agreement or for the
recognition and enforcement of any judgment in respect thereof.
IN WITNESS WHEREOF, the undersigned have caused this Pledge Agreement to be duly
executed and delivered as of the date first above written.
SANDATA, INC.
By: /s/ Bert E. Brodsky, President
/s/ Pledgor
EXHIBIT 10(V)
NON-NEGOTIABLE PROMISSORY NOTE
$--------
As of July 14, 1998
FOR VALUE RECEIVED, _________________ (the "Maker"), with an address at
_____ ________________________________ promises to pay to the order of SANDATA,
INC., a Delaware corporation (the "Payee"), with its principal place of business
at 26 Harbor Park Drive, Port Washington, New York 11050, or at such other place
as the holder hereof may from time to time designate in writing, the principal
sum of _______________________ ($_________), with interest thereon until paid in
full, computed from the date hereof at the rate of eight and one-half percent
(8.5%) per annum. Interest on the unpaid principal balance of this Note shall be
payable monthly, commencing thirty (30) days from the date hereof. The entire
outstanding balance hereunder, including principal and accrued and unpaid
interest, if any, shall be due and payable on July 14, 2001.
If any of the following events ("Event of Default") shall occur and be
continuing (a) the failure to pay any installment of principal of or interest on
the Note within five (5) days after the same shall become due and payable; or
(b) the occurrence of any material adverse change in the Maker's financial
condition or operations; or (c) upon the death of the Maker; or (d) if any
representation or warranty made by Maker herein or in connection with the
transactions contemplated hereby shall prove to be materially false when made;
or (e) termination of business operations, dissolution or termination of Maker's
existence; or (f) the making of an assignment for the benefit of creditors or
the taking advantage by Maker of any insolvency law; or (g) the appointment of a
receiver for any of the Maker's property; or (h) any petition in bankruptcy
being filed by or against Maker, or any proceedings in bankruptcy or under any
laws or regulations of any jurisdiction relating to the relief of debtors being
commenced for the relief or readjustment of any indebtedness either through
reorganization, composition, extension or otherwise, and in the case of an
involuntary petition, failure to have such petition dismissed within sixty (60)
days after filing; or (i) if any provision of this Note shall at any time after
its execution and delivery and for any reason (except by its terms) cease to be
in full force and effect or shall be declared to be null and void, or the
validity or enforceability thereof shall be contested by Maker, or Maker shall
deny that it has any further liability or obligation under this Note except in
accordance with the terms thereof; or (j) upon the entry of one or more final
judgments exceeding in the aggregate $50,000.00 not covered by insurance against
Maker or jointly with any person, firm, or corporation, and such judgment shall
continue unstayed or unbonded, on appeal or otherwise or unsatisfied for a
period of 30 days; then, or at anytime after the happening of an Event of
Default the Payee may declare this Note, all interest hereon and any other
amounts due hereon to be immediately due and payable.
If the Maker shall fail to pay when due (whether at maturity, by reason
of acceleration or otherwise) all or any portion of the principal amount hereof,
notwithstanding anything herein to the contrary, any such unpaid amount shall
bear interest for each day from the date it was so due until paid in full, at
the rate of 12% percent per annum, payable on demand.
<PAGE>
In the event payment is not made when due, the Maker agrees to pay, in
addition to all other required payments hereunder, a late fee equal to four
percent (4%) of the overdue payment.
Notwithstanding anything to the contrary contained in this Note, the
rate of interest payable on this Note shall never exceed the maximum rate of
interest permitted under applicable law.
This Note may not be waived, changed, modified or discharged orally,
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
Notwithstanding any other provisions contained herein, the Maker's
obligations under this Note shall be non-recourse and without personal liability
to the Maker, and the holder hereof, as the exclusive remedy for any default
hereunder, shall have recourse only against the certain shares of Common Stock
of Sandata, Inc. (the "Shares") pledged by the Maker to the Payee pursuant to a
certain Pledge Agreement of even date among the Maker and the Payee. The holder
hereof, by its acceptance of this Note, further agrees that it will not seek to
recover any deficiency remaining after any foreclosure and sale with respect to
the Shares. Any surplus remaining after any such foreclosure and sale shall be
and remain the property of the Maker and the other owners of the Shares.
Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceedings (whether at the trial or appellate level), or should this Note be
placed in the hands of any agent or attorneys for collection upon default or
maturity, the Maker agrees to pay, in addition to all other amounts due and
payable hereunder, all costs and expenses of collection or attempting to collect
this Note, including reasonable attorneys' fees.
Any notice, demand or request relating to any matter set forth herein
shall be in writing and shall be deemed effective when hand delivered, when
mailed, postage prepaid, by registered or certified mail, return receipt
requested, or by overnight mail or nationally recognized overnight courier, or
when sent by facsimile transmission, to the Maker or the Payee at its address
stated herein or at such other address of which it shall have notified the party
giving such notice in writing as aforesaid.
Notwithstanding any other provision of this Note, all payments made
hereunder shall be applied first to payment of sums payable hereunder other than
interest and principal, second to any interest on the principal balance
outstanding hereunder and third to principal.
This Note may be prepaid in whole or in part upon ten (10) days' prior
written notice to Payee without penalty together with accrued and unpaid
interest thereon, if any. All prepayments of principal hereunder shall include
payment of interest up to and including the date of prepayment.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the State of New York, excluding choice of law
principles thereof. The Maker hereby waives presentation for payment, demand,
notice of dishonor and protest of the Note.
<PAGE>
The Maker and the Payee hereby waive all rights to trial by jury in any
action, proceeding, claim or counterclaim arising out of this Note.
/s/ Maker
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 333-22165) and the Registration Statement on Form S-8 (No.
333-31211) of Sandata, Inc. and subsidiaries of our report dated July 24, 1998,
which appears on page F-2 of this annual report on Form 10-KSB for the year
ended May 31, 1998.
Marcum & Kliegman LLP
Woodbury, New York
August 27, 1998
