U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 1999
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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 110-2841799
(State or Other Jurisdiction of (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, 1999 was $14,735,867.
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 25, 1999 was $ 1,085,231.
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 25, 1999 was 2,481,481.
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. Sandata, Inc. (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
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
sells hardware and provides related hardware maintenance of personal computers
("PCs"), peripheral equipment and networks and provides 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 data base and operating system support,
hardware leasing and maintenance and related administrative 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, 1999 and
1998, approximately $4,573,000 or 32% and $4,628,000 or 37%, 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 thirty per cent (30%) 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 620,000 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, 1999 and 1998, approximately $5,978,000 or 42% and
$4,564,000 or 37% respectively, of the Company's total operating revenues were
derived from services rendered relating to SANTRAX (See Item 3 - "Legal
Proceedings").
Specialized System Support. Sandsport supports specialized
system applications based upon its analysis of a client's particular need.
Sandsport currently provides support for specialized system applications to an
affiliate, National Medical Health Card Systems, Inc. ("Health Card"), of which
Mr. Brodsky is Chairman 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, 1999 and 1998 approximately $1,564,000 or 11% and $646,000 or 5%,
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 1999 and 1998, the Company derived
revenues from a group of customers who are all funded by one governmental agency
amounting to approximately $9,460,000 or 67% and $8,416,000 or 67% of total
operating revenues, respectively. The Company also derived approximately
$1,765,000 or 12% and $2,307,000 or 18%, respectively, of revenue from Health
Card, a related party, for data base and operating system support, hardware
leasing, maintenance and related administrative services. 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 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.
On March 30, 1999, the Company filed an application with the
United States Patent and Trademark Office to register its PRO-TRAX trademark.
On April 28, 1999, the Company filed an application with the
United States Patent and Trademark Office to register its RXTRAX trademark.
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
settlement terms of certain litigation between the Company and MCI
Telecommunications Corporation.
Research and Development
The Company incurred approximately $192,000 and $185,000
during the fiscal years 1999 and 1998, 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
As of May 31, 1999, the Company and its subsidiaries employed
147 employees, including 137 full-time and 10 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 $56,730 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 December 21, 1998, the Company and MCI Telecommunications
Corporation ("MCI") settled a patent infringement lawsuit brought by MCI against
the Company in the United States District Court for the Eastern District of New
York captioned MCI Telecommunications Corporation v Sandata, Inc. The settlement
provides, among other things, that the Company is granted a license under
certain of MCI's patents which permit the Company to continue to market and sell
its SANTRAX time and attendance verification product non-exclusively nationwide
and exclusively in the home health care industries for the five New York
boroughs and that the Company will pay MCI certain royalties.
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.
Bid Prices
High Low
Fiscal Year Ended
May 31, 1999
First Quarter 4-1/2 2-5/32
Second Quarter 2-23/32 1-1/8
Third Quarter 2-1/2 1-1/8
Fourth Quarter 3-3/8 1-3/8
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
Holders
Management has been advised by its transfer agent (North
American Transfer Co.) that the approximate number of holders of record of the
Company's Common Stock, as of August 25, 1999 was 1,050.
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
Analysis of Operations
Fiscal Years ended May 31, 1999 compared with May 31, 1998
Service fee revenues for fiscal 1999 were $ 14,155,092 as
compared to $12,488,327 for the previous fiscal year, an increase of $1,666,765
or 13%. The increase is primarily attributable to revenues derived from SANTRAX
and SANDATANET offset by decreases in revenue from National Medical Health Card
Systems, Inc. ("Health Card").
Other income for the year ended May 31, 1999 was $437,575 as
compared to $263,510 for the year ended May 31, 1998. The increase is
attributable to an amount received from Health Card in connection with its
hiring employees of the Company, offset by a decrease in income recognized on
sales/leaseback transactions.
Expenses Related to Services
Operating expenses were $8,909,704 for the year ended May 31,
1999, as compared to $8,496,552 for the year ended May 31, 1998, an increase of
$413,152 or 5%. Costs associated with SANTRAX and its operations, including
payroll expenses, in addition to increases in costs associated with SANDATANET
and its operations, primarily hardware purchases, were the primary factors for
the increases in operating expenses.
Selling, general and administrative expenses for the year
ended May 31, 1999 were $3,428,584 compared to $2,695,427 for the year ended May
31, 1998, an increase of approximately $733,157 or 27%. The increases were
primarily due to increases in consulting, payroll and commission expenses
relative to increased efforts to increase sales in the SANTRAX and SANDATANET
product lines, and certain royalties payable to MCI Telecommunications
Corporation, offset by a decrease in legal expenses.
Depreciation and amortization expenses were $2,015,390 for the
year ended May 31, 1999, as compared to $1,460,105 for the year ended May 31,
1998, an increase of $555,285 or 38%. The increase was primarily attributable to
fixed asset additions, including computer hardware and software capitalization
costs, in connection with ongoing computer systems upgrades.
Interest expense for the year ended May 31, 1999 was $97,170
as compared to $56,730 for the year ended May 31, 1998, an increase of $40,440
or 71%. The increase was a result of increased borrowings on the Company's
Credit Agreement.
Income Tax Expenses
Income tax expense was $171,177 and $27,885 for fiscal 1999 and 1998,
respectively. The increase in income tax expense is due to higher pretax income,
different recognition of software development costs, depreciation and
amortization and revenues from sale/leaseback transactions on a book and tax
basis offset by additional net operating loss carryforwards. The effective tax
rates for fiscal 1999 and 1998 were 60.1% and 23.6%, 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, 1999 to
$235,599 as compared with $1,454,861 at May 31, 1998.
The Company has spent approximately $5,096,000 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 (the "$5.00 Warrants") and 100,000 shares at $7.00 per
share (the $7.00 Warrants"), such warrants to be exercisable until December 22,
1998 (with respect to the $5.00 Warrants) and two years (with respect to the
$7.00 Warrants). The $5.00 Warrants expired on such date without having been
exercised. The warrants issued in such public 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 $921 representing the par values paid in
cash. The equivalent shares of Common Stock 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's 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. At May
31, 1999, the Group hasfailed to meet certain net worth and financial ratios,
and the Bank has granted the Group waivers. As of May 31, 1999, the outstanding
balance on the Credit Agreement with the Bank was $2,500,000.
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. 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. At May 31, 1999, the Federation owed the Company the
$300,000 loan receivable in addition to $47,296 for services rendered by the
Company. 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
$208,000 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. Currently the Company is leasing computer equipment to Health
Card at a monthly cost to Health Card of $32,857. 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
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 56 Chairman of the Board, President and
Treasurer
------------------------- ------- ======================================
------------------------- ------- ======================================
Hugh Freund 61 Executive Vice President, Secretary
and Director
------------------------- ------- ======================================
------------------------- ------- ======================================
Gary Stoller 46 Executive Vice President and Director
------------------------- ------- ======================================
------------------------- ------- ======================================
Paul J. Konigsberg 63 Director
------------------------- ------- ======================================
------------------------- ------- ======================================
Ronald L. Fish 58 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 and from December 1998 to present, Mr. Brodsky served
as Chairman of the Board of Health Card and from June 1998 through December 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 P.W. Medical Management, Inc., which provides
financial and consulting services to physicians. Since 1979, Mr. Brodsky has
also served as President of Bert Brodsky Associates, Inc., which provides
consulting services.
Hugh Freund, a founder of the Company, was the Company's
President from 1978 to November 1986, and a Director of the Company since its
formation in 1978. Since November 1986, Mr. Freund has served as an Executive
Vice President of the Company 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.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1999,
all Section 16(a) filing requirements applicable to the Company's officers,
Directors and 10% shareholders were complied with, except for one filing on Form
4 for Bert E. Brodsky, Hugh Freund and Gary Stoller.
ITEM 10 - EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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, 1999, 1998 and 1997,
respectively, as well as named executive officers of the Company for the fiscal
years ended May 31, 1999, 1998 and 1997. No other person had a total salary and
bonus in excess of $100,000 for the fiscal years ended May 31, 1999, 1998 and
1997:
- --------------------------- ------- ------------------------------------- ------------------------------- ===========
Annual Compensation Long-Term Compensation
- --------------------------- ------- ------------------------------------- ------------------------------- ===========
- --------------------------- ------- ------------ ------- ------------- ------------------------ --------- ===========
Awards Payouts
- --------------------------- ------- ------------ ------- ------------- ------------------------ --------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Other Restricted Securities All Other
Annual Stock Underlying LTIP Com-pensation
Salary Bonus Compensa- Awards Options/ Payouts ($)
Name and Principal Year ($) ($) tion ($) SARs (#) ($)
Position ($)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman 1999 200,000 (5) -0- 22,049 (1) -0- 310,000 -0- 16,678 (2)
of the Board
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman 20,401 (2)
of the Board 1998 200,000 -0- 13,374 (1) -0- -0- -0- 30,000 (3)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman
of the Board 1997 200,000 -0- 13,374 (1) -0- 110,000 -0- 20,670 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Hugh Freund
Executive Vice President, 1999 151,346 -0- -0- -0- 137,000 -0- 22,669 (2)
Secretary 17,066 (4)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
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
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Gary Stoller
Executive Vice President 1999 119,039 -0- 22,391 (1) -0- 73,500 -0- 16,040 (2)
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
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-
- --------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
</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, 1999 Mr. Brodsky signed a waiver wherein he agreed to waive
his rights to an additional $300,000 of compensation due to be paid to
him for the fiscal year ended May 31, 1999 pursuant to the terms of the
Brodsky Employment Agreement with the Company discussed below.
Option/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning
individual grants of stock options to executive officers of the Company, during
the fiscal year ending May 31, 1999:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
=====================================================================================================================
Individual Grants
=====================================================================================================================
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
Percent of Total
Options/SARs
Number of Granted to
Securities Employees in Exercise or
Underlying Fiscal Year Base Price Expiration
Name Options/SARs Granted (%) ($/Sh) Date
(#)
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
Bert E. Brodsky 310,000 59.6 1.41 12/10/03
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
Hugh Freund 137,000 26.3 1.41 12/10/03
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
Gary Stoller 73,500 14.1 1.41 12/10/03
- ------------------------ ---------------------- ---------------------- ----------------------- ======================
</TABLE>
Aggregated Option/SAR Exercise in Last Fiscal Year and
Fiscal Year-End Option Value Table
The following table sets forth certain information concerning
the value of unexercised options and warrants held by executive officers of the
Company, for the fiscal year ended May 31, 1999.
<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, 1999(#) 1999($)
Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------- ----------------------- ----------------- -------------------------- ==========================
- --------------------- ----------------------- ----------------- -------------------------- ==========================
Bert E. Brodsky -0- -0- 310,000/0 27,900/0
- --------------------- ----------------------- ----------------- -------------------------- ==========================
- --------------------- ----------------------- ----------------- -------------------------- ==========================
Hugh Freund -0- -0- 137,000/0 12,330/0
- --------------------- ----------------------- ----------------- -------------------------- ==========================
- --------------------- ----------------------- ----------------- -------------------------- ==========================
Gary Stoller -0- -0- 143,500/0 (65,685)/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 was made to the Company in the amount of
$921 representing the par value of the shares, and a portion in the form of
non-recourse promissory notes due in July 2001, with interest at eight and
one-half percent (8-1/2%) per annum, payable annually, and secured by the number
of shares exercised.
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, 1999 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 1,209,825 (1) 43.3% (1)
======================================= ----------------------------------------- =========================================
Hugh Freund
26 Harbor Park Drive
Port Washington, NY 396,721 (2) 15.2% (2)
======================================= ----------------------------------------- =========================================
Gary Stoller
26 Harbor Park Drive
Port Washington, NY 297,278 (3) 11.3% (3)
======================================= ----------------------------------------- =========================================
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) 1,911,824 (1)(2)(3) 62.2% (1)(2)(3)
======================================= ========================================= =========================================
</TABLE>
- ---------------
(1) Includes 74,734 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; includes 20,500 shares of the Company's
Common Stock owned by Mr. Brodsky's wife; includes 97,318 shares owned
by Mr. Brodsky's adult daughter. Includes presently exercisable options
to purchase 310,000 shares of Common Stock at $1.41 per share under the
1995 Plan.
(2) Includes presently exercisable options to purchase 137,000 shares of
Common Stock at $1.41 per share under the 1995 Plan. Excludes 41,464
shares of Common Stock owned by Mr. Freund's adult children; excludes
91,000 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 16, 1999,
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
exercisable options to purchase 50,000 shares of Common Stock at $2.61
per share under the 1995 Plan; includes presently exercisable options
to purchase 73,500 shares of Common Stock at $1.41 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.
* 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
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 resumed. At May 31, 1999, the Company was owed approximately $42,000 on
such note.
During the fiscal year ended May 31, 1999 the Company paid an
aggregate of $44,440 on behalf of certain officers to companies affiliated with
the Company's Chairman for payment of automobile leases.
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.
National Medical Health Card Systems, Inc.
As of May 31, 1999, the Company derived revenue from Health
Card, a company affiliated with the Company's Chairman of the Board, principally
for data base and operating system support, hardware leasing, maintainance and
related administrative services. The revenues generated from Health Card
amounted to approximately $1,765,000 and $2,307,000 for the years ended May 31,
1999 and 1998, respectively. Included in the current year revenues are billings
of approximately $540,000 forquality assurance testing of software programs
developed by Health Card and network support Subsequent to May 31, 1999, the
Company received $635,494 from Health Card in full payment of amounts due as of
that date (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.
Medical Arts Office Services, Inc. ("MAOS"), a company which
the Company's Chairman of the Board is the sole shareholder provided the Company
with accounting, bookkeeping and paralegal services. For the fiscal years ended
May 31, 1999 and 1998 the total payments made by the Company to MAOS were
$193,934 and $223,813 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. 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 bankruptcy was subsequently
dismissed. The Company has filed, among other things, claims
representing monies owed to the Company with respect to the loan and the
receivables. At May 31, 1999, the Federation owed the Company the $300,000 loan
receivable in addition to $47,296 for services rendered by the Company. 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 (3)
4(G) Revolving Credit Agreement dated as of April 18, 1997 by and among
Sandsport Data Services, Inc. and Marine Midland Bank (3)
10(A) 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(B) Employees' Incentive Stock Option Plan (1)
10(C) First Amendment to Incentive Stock Option Plan dated April 4, 1989 (1)
10(D) Second Amendment to Incentive Stock Option Plan dated December 18, 1990(1)
10(E) 1986 Non-Qualified Stock Option Plan (1)
10(F) Amendment to 1986 Non-Qualified Stock Option Plan dated April 4, 1989 (1)
10(G) 1995 Stock Option Plan (1)
10(H) 1998 Stock Option Plan
10(I) Common Stock Purchase Warrants as issued to Bert E. Brodsky (1)
10(J) Deferred Compensation Plan dated May 1, 1992 between the Registrant and
Bert E. Brodsky (1)
10(K) Form of agreement between Sandsport Data Services, Inc. and
vendor agency (2)
10(L) Form of agreement between Sandsport Data Services, Inc. and vendor
agency (2)
10(M) Form of Subscription Agreement dated December 23, 1996 (2)
10(N) Form of Subscription Agreement dated September 12, 1996 (2)
10(O) Form of Common Stock Purchase Warrant ($5.00 Exercise Price) (2)
10(P) Form of Common Stock Purchase Warrant ($7.00 Exercise Price) (2)
10(Q) Form of Redeemable Common Stock Purchase Warrant (2)
10(R) Employment Agreement dated February 1, 1997 between the Registrant and
Bert E. Brodsky (3)
10(S) Form of Pledge Agreement (4)
10(T) Form of Non-Negotiable Promissory Note (4)
16 Letter re Change in Certifying Accountant (1)
21 Subsidiaries of Registrant
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.
(4) 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, 1998.
(b) Reports on Form 8-K
None.
<PAGE>
SANDATA, INC.
FINANCIAL STATEMENTS COMPRISING ITEM 7
OF REPORT ON FORM 10-KSB
TO SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED MAY 31, 1999
SANDATA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants
Financial Statements
Consolidated Balance Sheets as of May 31, 1999 and 1998 F-3
Consolidated Statements of Income for the years ended
May 31, 1999 and 1998 F-5
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended
May 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
<PAGE>
REPORT OF INDEPENDENT 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, 1999 and 1998, 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, 1999 and 1998, 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
/s/ Marcum & Kliegman LLP
Woodbury, New York
August 26, 1999
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS 1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $1,533,576 $1,794,947
Accounts receivable, net of allowance for doubtful accounts
of $533,000 and $443,000 at 1999 and 1998, respectively 2,034,248 1,611,457
Receivables from affiliates 924,426 619,687
Other receivable 1,100,000 ---
Inventories 29,307 27,003
Prepaid expenses and other current assets 485,455 140,873
---------- ----------
Total Current Assets 6,107,012 4,193,967
FIXED ASSETS, NET 7,169,002 5,814,381
OTHER ASSETS
Notes receivable 169,608 100,000
Cash surrender value of officer's life insurance, security
deposits and other 775,557 525,281
Total Assets $14,221,179 $10,633,629
=========== ===========
</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> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
---- ----
CURRENT LIABILITIES
Accounts payable and accrued expenses $3,022,395 $2,507,042
Current portion of long-term debt 2,500,000 22,296
Deferred/unearned revenue 13,633 23,410
Deferred income 335,385 186,358
---------- ----------
Total Current Liabilities 5,871,413 2,739,106
--------- ---------
LONG-TERM DEBT --- ---
DEFERRED INCOME 324,096 215,945
DEFERRED INCOME TAXES 535,000 382,000
--------- ---------
Total Liabilities 6,730,509 3,337,051
========= =========
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock; par value $.001; authorized 6,000,000 and 3,000,000
shares in 1999 and 1998, 2,481,481 and 1,560,149 shares issued
and outstanding in 1999 and 1998, respectively; 2,481 1,560
Additional paid in capital 5,772,079 4,173,091
Retained earnings 3,235,769 3,121,927
Notes receivable - officers (1,519,659) ---
----------- ---------
Total Shareholders' Equity 7,490,670 7,296,578
--------- ---------
Total Liabilities and Shareholders' Equity $14,221,179 $10,633,629
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31,
<TABLE>
<C> <C>
<S> 1999 1998
REVENUES:
Service fees $14,155,092 $12,488,327
Other income 437,575 263,510
Interest income 143,200 75,133
---------- ----------
14,735,867 12,826,970
---------- ----------
COSTS AND EXPENSES:
Operating 8,909,704 8,496,552
Selling, general and administrative 3,428,584 2,695,427
Depreciation and amortization 2,015,390 1,460,105
Interest expense 97,170 56,730
-------------
TOTAL COSTS AND EXPENSES 14,450,848 12,708,814
---------- ----------
Earnings from operations before income taxes 285,019 118,156
Income tax expense 171,177 27,885
---------- ----------
NET EARNINGS $ 113,842 $ 90,271
BASIC EARNINGS PER SHARE $ .05 $ .06
DILUTED EARNINGS PER SHARE $ .04 $ .04
---------- ----------
</TABLE>
See notes to consolidated financial statements
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended May 31, 1999 and 1998
<TABLE>
<S><C>
Additional Notes
Common Stock Paid-in Retained Treasury Receivable
Shares Amount Capital Earnings Stock Officers Total
Balance at
June 1, 1,216,727 $ 1,216 $2,795,801 $3,031,656 $(136,886) --- $5,691,787
1997
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
Exercise of
common stock
purchase
warrants 400,000 400 551,600 --- --- (551,448) 552
Exercise of
common stock
options 521,332 521 1,047,388 --- --- (968,211) 79,698
Net
Earnings --- --- --- 113,842 --- --- 113,842
============ ============ ============ ============ ============ ============ ============
Balance at
May 31, 1999 2,481,481 $ 2,481 $5,772,079 $3,235,769 $ --- $ (1,519,659) $7,490,670
============ ============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Years ended May 31,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 113,842 $ 90,271
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,015,390 1,460,105
(Gain) on disposal of fixed assets (473,532) (184,642)
Provision for losses on accounts receivable 89,718 112,542
(Decrease) in deferred income (216,353) (262,846)
Recognition of deferred revenue (125,122) (53,780)
Deferred tax provision 153,000 12,000
(Increase) decrease in operating assets
Accounts receivable (512,509) (469,410)
Receivables from affiliates (304,739) 330,219
Other receivable (1,100,000) ---
Receivable from former affiliate --- 12,074
Notes receivable - officers --- 102,867
Inventories (2,304) (10,668)
Prepaid expenses and other current assets (344,582) 71,241
Other assets (250,276) (114,144)
Increase in operating liabilities
Accounts payable and accrued expenses 506,401 815,586
Deferred revenue 115,344 74,457
Deferred income 473,532 184,642
---------- ----------
Net cash provided by operating activities 137,810 2,170,514
---------- ----------
Cash flows from investing activities:
Purchases of fixed assets (5,096,479) (2,510,332)
Proceeds from sale/leaseback transactions 2,200,000 700,000
Collection on note receivable 17,985 ---
---------- ----------
Net cash used in investing activities (2,878,494) (1,810,332)
----------- -----------
Cash flows from financing activities:
Proceeds from stock transactions 1,609 1,514,520
Principal payments on term loans (22,296) (279,769)
Proceeds from line of credit 4,500,000 ---
Principal payments on line of credit (2,000,000) (1,000,000)
----------- -----------
Net cash provided by financing activities 2,479,313 234,751
(Decrease) increase in cash and cash equivalents (261,371) 594,933
Cash and cash equivalents at beginning of year 1,794,947 1,200,014
--------- ---------
Cash and cash equivalents at end of year $1,533,576 $1,794,947
========== ==========
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities:
On July 14, 1998, certain officers, directors and employees exercised their
options and warrants to purchase 921,334 shares of Common Stock for an aggregate
cost of $1,608,861. Payment for such shares was made to the Company in the
amount of $921 and a portion in the form of non-recourse promissory notes.
See notes to consolidated financial statements
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 1999 and 1998, the Company received revenues from a group of
customers who are all funded by one governmental agency, amounting to
approximately $9,460,000 and $8,416,000, respectively.
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 Pro-Health
Systems, Inc. (formerly known as Sandata Inteck, Inc.). SANTRAX
Productivity, Inc. is an inactive subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
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.
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.
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 useful life of the software. The
Company matches its software amortization against its respective
product revenue, which is reported on a product by product basis.
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.
Net Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Standard No.
128 ("SFAS No. 128"), "Earnings per Share". SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share has been
computed using the weighted average number of shares of common stock
outstanding. Diluted earnings per share has been computed using the
basic weighted average shares of common stock issued plus outstanding
stock options, in accordance with Staff Accounting Bulletin No. 98.
Basic earnings per share are based on the weighted-average number of
shares of common stock outstanding, which were 2,372,941 at May 31,
1999 and 1,478,419 at May 31, 1998. Diluted earnings per share are
based on the weighted-average 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: 2,569,209 at May 31, 1999
and 2,246,206 at May 31, 1998.
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.
Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company may be subject to a concentration of credit risk with
respect to its trade receivables. The Company performs on-going credit
evaluations of its customers and generally does require collateral. The
Company maintains allowances to cover potential or anticipated losses
for uncollectible accounts.
The Company has cash balances in banks in excess of the maximum amount
insured by the FDIC as of May 31, 1999.
Statements of Cash Flows
The Company paid income taxes of approximately $22,000 and $25,000 and
interest of approximately $87,000 and $57,000 for the years ended May
31, 1999 and 1998, respectively.
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.
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.
Stock Options
The Company accounts for its stock-based compensation plans in
accordance with the provisions of APB 25 and provides pro forma
disclosure in accordance with SFAS 123.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements.
Business Segments
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), "Disclosures About Segments of an
Enterprise and Related Information", which supercedes SFAS No 14,
"Financial Reporting for Segments of A Business Enterprise." SFAS No.
131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements regarding products and services,
geographical areas and major customers. SFAS No. 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. The Company has determined that its operations
are in one segment, computer services to the health care industry. The
Company's customers and operations are primarily within the New York
metropolitan area.
New Accounting Pronouncements
In April, 1998, Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-up Activities" was issued. This SOP provides guidance on
the financial reporting of start-up costs and organization costs. It
requires the costs of start-up activities and organization costs to be
expensed as incurred. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998. The Company does not
expect that the adoption of SOP No. 98-5 will have a significant effect
on results of operations or the financial position of the Company.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132, "Employee
Disclosures about Pensions and Other Post Retirement Benefits", which
standardizes the disclosure requirements for pensions and other post
retirement benefits. The Company does not expect that the adoption of
the new statement will have a significant effect on the results of
operations or the financial position of the Company.
In June 1998, the Financial Accounting Standards Board issued statement
No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which is required to be adopted in years beginning after
June 15, 1999. The Company does not expect that the adoption of the new
statement will have a significant effect on results of operations or
the financial position of the Company.
NOTE 2 - FIXED ASSETS
<TABLE>
<S> <C> <C> <C>
Fixed assets consist of the following:
Useful May 31,
Life 1999 1998
------ ---- ----
Computer equipment and software costs 5 years $12,354,848 $9,391,943
Furniture, fixtures and automobiles 4-7 years 269,337 304,580
Leasehold improvements 10 years 2,615,741 2,421,036
----------- -----------
$15,239,926 $12,117,559
Less accumulated depreciation and amortization 8,070,924 6,303,178
----------- -----------
$ 7,169,002 $ 5,814,381
=========== ===========
</TABLE>
Depreciation and amortization expense relating to fixed assets (other
than software costs) amounted to approximately $693,000 and $586,000 in
1999 and 1998, respectively.
Unamortized software costs amounted to approximately $4,946,000 and
$2,990,000 at May 31, 1999 and 1998, respectively. Amortization expense
for these costs totaled approximately $1,322,000 and $874,000 in 1999
and 1998, respectively.
Research and development expenses amounted to approximately $192,000
and $185,000 in 1999 and 1998, 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
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's assets are pledged to the
Bank as collateral for the amounts due under the Credit Agreement. In
addition, the Group is required to maintain certain financial and
restrictive covenants. At May 31, 1999, the Group has failed to meet
certain net worth and financial ratios and the Bank has granted the
Group waivers.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, 1999, the outstanding balance on the Credit Agreement
with the Bank was $2,500,000.
Long Term Debt
Long-term debt at May 31, 1999 and 1998 was as follows:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
8.7% Term Loan payable to affiliate, due 1998 $ --- $ 10,401
8.91% Term Loan payable to affiliate, due 1998 --- 11,895
Variable Rate Term Loan under Credit Agreement 2,500,000 -0-
----------- -----------
2,500,000 22,296
Less: current portion of long-term debt 2,500,000 22,296
----------- -----------
Long-term debt $ -0- $ -0-
=========== ===========
</TABLE>
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). The loans were paid in full in July 1998.
NOTE 4 - INCOME TAXES
<TABLE>
<S> <C> <C>
The income tax expense is comprised of the following:
Year ended May 31,
1999 1998
Current
Federal $ --- $ ---
State 18,177 15,885
Deferred - Federal and state 153,000 12,000
-------- -------
$171,177 $27,885
======== =======
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,
1999 1998
Statutory U.S. federal tax rate 34.0% 34.0%
State taxes 4.7 15.9
Net operating loss carryforwards (97.4) (204.0)
Impact of changes in items giving rise to deferred taxes:
Depreciation and amortization 151.2 158.9
Deferred revenue (2.9) 25.8
Other (7.9) (7.0)
-------- --------
60.1% 23.6%
======== ========
</TABLE>
As of May 31, 1999 and 1998 depreciation and amortization gave rise to
deferred tax liabilities of approximately $1,630,000 and $1,047,000,
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, $1,095,000 and $665,000, respectively. These amounts are
presented net in the consolidated balance sheet as of May 31, 1999 and
1998, as a noncurrent deferred tax liability.
At May 31, 1999, the Company had net operating loss carryforwards for
tax purposes of $1,252,000, expiring at various dates through 2019.
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 approximate $2,492,000 and $2,173,000 in fiscal 1999 and
1998, respectively. The Company paid rent in the amount of $661,860 and
$604,350 to BFS for the years ended May 31, 1999 and May 31, 1998,
respectively.
The Company has obligations to pay rental expense in connection with
six sale/leaseback transactions. The rental expenses amounted to
approximately $1,000,800 and $1,025,900 for the years ended May 31,
1999 and 1998 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 letter of credit has been extended until the
earlier of the Company's meeting such financial covenants or the
termination of the June 1996 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. In connection with a March 1997
sale/leaseback, the Company issued an irrevocable letter of credit in
the amount of $200,000 for the benefit of the lessor, which has been
extended until August 1, 2000.
Future minimum lease payments for all non cancellable operating leases
at May 31, 1999 are as follows:
Amount
Year ending May 31,
2000 $2,834,500
2001 2,050,924
2002 1,462,401
2003 768,815
2004 698,112
Thereafter 226,920
---------------
$ 8,041,672
Litigation
On December 21, 1998, the Company and MCI Telecommunications
Corporation ("MCI") settled a patent infringement lawsuit brought by
MCI against the Company in the United States District Court for the
Eastern District of New York, captioned MCI Telecommunications
Corporation v. Sandata, Inc. The settlement provides, among other
things, that the Company is granted a license under certain of MCI's
patents which permits the Company to continue to market and sell its
SANTRAX time and attendance verification product non-exclusively
nationwide and exclusively in the home health care industries for the
five New York boroughs and that the Company will pay MCI certain
royalties.
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 years ended May 31, 1999 and 1998 and has signed waivers
evidencing his agreement to such reductions.
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.
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 in
fiscal 1997.
b. The Company derives revenue from National Medical Health Card
Systems, Inc. ("Health Card"), a company affiliated with the Company's
Chairman of the Board fordata base and operating system support,
hardware leasing, maintenance and related administrative services. The
revenues generated from this company, amounted to $1,765,000 and
$2,307,000 for the years ended May 31, 1999 and 1998, respectively. At
May 31, 1999, the Company was owed approximately $635,000 by such
affiliate, which was received in full subsequent to May 31, 1999.
As of June 1, 1998, Health Card 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
$208,000 in consideration of the Company's waiving certain rights
relative to such employees. In addition, the Company 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 the Company pursuant to a verbal agreement. The Company
is expected to continue to provide to Health Card consulting services
related to its 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. The loans were paid in
full in July 1998.
d. The Company makes various lease payments to affiliates of the
Company's Chairman.. The payments are for: equipment rental, which was
$387,346 and $366,796 in fiscal 1999 and 1998, respectively, and rent
for the Facility which was $661,860 and $604,350 in fiscal 1999 and
1998, respectively.
e. Medical Arts Office Services, Inc. ("MAOS"), a company which the
Company's Chairman of the Board is the sole shareholder, provided the
Company with accounting, bookkeeping and paralegal services. For the
fiscal years ended May 31, 1999 and 1998 the total payments made by the
Company to MAOS were $193,934 and $223,813, respectively.
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 October, 1998, at which time
principal and interest payments resumed. At May 31, 1999, the Company
was owed approximately $42,000 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. 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. 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. At May 31, 1999, the Federation owed the Company
the $300,000 loan receivable in addition to $47,296 for services
rendered by the Company. 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. The warrants were exercised on July 14, 1998.
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 (the
"$5.00 Warrants") and 100,000 shares at $7.00 per share (the "$7.00
Warrants"), such warrants to be exercisable until December 22, 1998
(with respect to the $5.00 Warrants) and two years (with respect to the
$7.00 Warrants). The $5.00 Warrants expired on such date without having
been exercised. 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, 1999, there were 2,536 options outstanding under an
incentive stock option 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, 1999, there were no options outstanding under a nonqualified
stock option plan adopted in November, 1986 and subsequently amended.
No additional options may be granted under this plan.
At May 31, 1999, there were also 590,500 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, 1999 at prices
ranging from $1.41 to $2.61 per share over a period of five years from
date of grant.
Summary information with respect to the stock option plans
follows:
<TABLE>
<S> <C> <C> <C>
Range of Outstanding Outstanding
exercise options options
prices ($) granted exercisable
Balance, June 1, 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
Granted 1.41 - 3.00 914,250 640,810
Cancelled (28,540) (28,540)
Exercised 1.38 - 2.61 (521,334) (521,334)
--------- ---------
Balance, May 31, 1999 1.41 - 3.00 958,246 684,806
========= ========
</TABLE>
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 $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 Data Services, Inc.
("Sandsport'), the Company's wholly owned subsidiary, exercised their
respective options and warrants to purchase an aggregate of 921,334
shares of Common Stock at exercise prices ranging from $1.38 to $2.61
per share for an aggregate cost of $1,608,861. Payment for such shares
was made to the Company in the amount of $921 representing the par
value of the shares, and a portion in the form of non-recourse
promissory notes due in July 2001, with interest at eight and one-half
percent (8-1/2%) per annum, payable annually, and secured by the number
of shares exercised.
In October 1998, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of
authorized common shares from 3,000,000 to 6,000,000.
In October 1998, the Company adopted a stock option plan, reserving
1,000,000 shares of common stock for grant under the plan. Stock
options granted under the plan may be either statutory or
non-statutory. As of May 31, 1999, an aggregate of 345,210 statutory
stock options were granted under the plan and vest over a three-year
period. Additionally, in October 1998, the Company granted certain
directors of the Company non-statutory stock options to purchase an
aggregate of 20,000 shares of the Company's common stock at an exercise
price of $3.00. These options vest immediately and are exercisable over
a five-year period.
In December 1998, the Company granted 520,500 statutory options to
certain officers of the Company under a stock option plan adopted in
January 1995 at an exercise price of $1.41 per share. These options
vest immediately and are exercisable over a five-year period.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock option plans under the fair value
method of SFAS 123. The fair market value for these options was
estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted-average assumptions for 1999 and
1998.
ASSUMPTION
<TABLE>
<S> <C> <C>
May 31
1999 1998
---- ----
Risk free rate 4.33% - 6.74% 6.03% - 7.82%
Dividend yield .000 .000
Volatility factor of the expected market price of the .809 .809
Company's common stock
Average life 5 years 5 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair market value of traded options which have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly differently
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair market value estimate,
in management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair market value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair market value
of the options is amortized to expense over the vesting period of the
options. The Company's pro forma income (loss) is as follows:
Years ended May 31
1999 1998
---- ----
Pro forma net income (loss) $40,535 $(67,397)
Pro forma net income (loss) per share$ $ .02 $ (.05)
The weighted average fair value of options granted during the years
ended May 31, 1999 and 1998 were $.94 and $1.09,, respectively, for
shares granted. The weighted average remaining contractual life of
options exercisable at May 31, 1999 is 4 years. The exercisable prices
range from $1.41 to $3.00 for options outstanding as of May 31, 1999.
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 $216,000 and
$263,000 of the deferred gains were recognized in fiscal 1999 and 1998,
respectively. Included in these amounts are the effects of
sale/leaseback transactions entered into fiscal 1999 and 1998, as
follows:
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 $62,000
and $26,000 of the deferred gain was recognized for fiscal 1999 and
1998, respectively.
In January 1999, 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 $830,000,
were sold for $1,100,000. The resulting gain of approximately $270,000
was recorded as deferred income and is being recognized over the life
of the lease, which is thirty-six (36) months. Approximately $30,000 of
deferred gain was recognized for fiscal 1999. An unaffiliated third
party purchased the residual rights in such lease.
In May 1999, the Company entered into a sale/leaseback of certain fixed
assets (principally computer hardware and equipment). The fixed assets,
which had a net book value of approximately $896,000 were sold for
$1,100,000. The resulting gain of approximately $204,000 was recorded
as deferred income and is being recognized over the life of the lease,
which is thirty-six (36) months. The sale proceeds, which are shown as
Other receivable in the financial statements, were received in June
1999. An unaffiliated third party purchased the residual rights in such
lease.
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 $23,259 and $20,641 in fiscal years 1999
and 1998, 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 27, 1999
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 27, 1999
By /s/ Hugh Freund
Hugh Freund, Executive Vice President, Secretary, Director
Date: August 27, 1999
By /s/ Gary Stoller
Gary Stoller, Executive Vice President, Director
Date: August 27, 1999
By /s/ Paul J.Konigsberg
Paul J. Konigsberg, Director
Date: August 27, 1999
By /s/ Ronald L.Fish
Ronald L. Fish, Director
Date: August 27, 1999
<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-1-1999
<PERIOD-END> MAY-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,533,576
<SECURITIES> 0
<RECEIVABLES> 3,491,549
<ALLOWANCES> 532,875
<INVENTORY> 29,307
<CURRENT-ASSETS> 6,107,012
<PP&E> 15,239,627
<DEPRECIATION> 8,070,925
<TOTAL-ASSETS> 14,221,179
<CURRENT-LIABILITIES> 5,871,413
<BONDS> 0
0
0
<COMMON> 2,481
<OTHER-SE> 4,252,420
<TOTAL-LIABILITY-AND-EQUITY> 14,221,179
<SALES> 14,551,092
<TOTAL-REVENUES> 14,735,867
<CGS> 0
<TOTAL-COSTS> 14,353,678
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,170
<INCOME-PRETAX> 285,019
<INCOME-TAX> 171,177
<INCOME-CONTINUING> 113,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,842
<EPS-BASIC> .05
<EPS-DILUTED> .04
</TABLE>
EXHIBIT 10(H)
Sandata, Inc.
1998 Stock Option Plan
1. Purpose of the Plan. The Sandata, Inc. 1998 Stock Option
Plan (the "Plan") is intended to advance the interests of Sandata, Inc. (the
"Company") by inducing individuals, and eligible entities (as hereinafter
provided) of outstanding ability and potential to join and remain with, or
provide consulting or advisory services to, the Company, by encouraging and
enabling eligible employees, non-employee Directors, consultants and advisors to
acquire proprietary interests in the Company, and by providing the participating
employees, non-employee Directors, consultants and advisors with an additional
incentive to promote the success of the Company. This is accomplished by
providing for the granting of "Options," which term as used herein includes both
"Incentive Stock Options" and "Nonstatutory Stock Options," as later defined, to
employees, non-employee Directors, consultants and advisors.
2. Administration. The Plan shall be administered by the Board
of Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least one (1) person chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan.
3. Shares Subject to the Plan. The stock subject to Options
granted under the Plan shall be shares of the Company's common stock, par value
$.001 per share (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury, or shares purchased from stockholders expressly for use
under the Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate one
million (1,000,000) shares plus such number of Common Shares issuable upon the
exercise of Reload Options (as hereinafter defined) granted under the Plan,
subject to adjustment in accordance with the provisions of Section 14 hereof.
The Company shall at all times while the Plan is in force reserve such number of
shares of Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available for
Options under the Plan.
4. Participation. The class of individual or entity that shall
be eligible to receive Options under the Plan shall be (a) with respect to
Incentive Stock Options described in Section 6 hereof, all employees (including
officers) of either the Company or any subsidiary corporation of the Company,
and (b) with respect to Nonstatutory Stock Options described in Section 7
hereof, all employees (including officers) and non-employee Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the Company; provided, however, that Nonstatutory Stock Options shall not be
granted to any such consultants and advisors unless (i) bona fide services have
been or are to be rendered by such consultant or advisor and (ii) such services
are not in connection with the offer or sale of securities in a capital raising
transaction. For purposes of the Plan, for an entity to be an eligible entity,
it must be included in the definition of "employee" for purposes of a Form S-8
Registration Statement filed under the Securities Act of 1933, as amended (the
"Act"). The Board of Directors or the Committee, in its sole discretion, but
subject to the provisions of the Plan, shall determine the employees and
non-employee Directors of, and the consultants and advisors to, the Company and
its subsidiary corporations to whom Options shall be granted, and the number of
shares to be covered by each Option, taking into account the nature of the
employment or services rendered by the individuals or entities being considered,
their annual compensation, their present and potential contributions to the
success of the Company, and such other factors as the Board of Directors or the
Committee may deem relevant.
5. Stock Option Agreement. Each Option granted under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the individual or entity to whom such Option is granted. The Stock Option
Agreement shall specify the number of shares of Common Stock as to which any
Option is granted, the period during which the Option is exercisable and the
option price per share thereof.
6. Incentive Stock Options. The Board of Directors or the
Committee may grant Options under the Plan, which are intended to meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and which are subject to the following terms and conditions and
any other terms and conditions as may at any time be required by Section 422 of
the Code (referred to herein as an "Incentive Stock Option"):
(a) No Incentive Stock Option shall be granted to
individuals other than employees of
the Company or of a subsidiary corporation of the Company.
(b) Each Incentive Stock Option under the Plan must be
granted prior to August 3, 2008,
which is within ten (10) years from the date the Plan was adopted by the Board
of Directors of the Company.
(c) The option price of the shares subject to any
Incentive Stock Option shall not be
less than the fair market value of the Common Stock at the time such Incentive
Stock Option is granted; provided, however, if an Incentive Stock Option is
granted to an individual who owns, at the time the Incentive Stock Option is
granted, more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of a parent or subsidiary corporation of the
Company, the option price of the shares subject to the Incentive Stock Option
shall be at least one hundred ten percent (110%) of the fair market value of the
Common Stock at the time the Incentive Stock Option is granted.
(d) No Incentive Stock Option granted under the Plan
shall be exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to an individual who
owns, at the time the Incentive Stock Option is granted, more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of a parent or subsidiary corporation of the Company, such Incentive Stock
Option shall not be exercisable after the expiration of five (5) years from the
date of its grant. Every Incentive Stock Option granted under the Plan shall be
subject to earlier termination as expressly provided in Section 12 hereof.
(e) For purposes of determining stock ownership under
this Section 6, the attribution rules of Section 424(d) of the Code shall apply.
(f) For purposes of the Plan, fair market value shall
be determined by the Board of Directors or the Committee. If the Common Stock is
listed on a national securities exchange or traded on the over-the-counter
market, fair market value shall be the closing selling price or, if not
available, the closing bid price or, if not available, the high bid price of the
Common Stock quoted on such exchange, or on the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") system or if the Common Stock is not listed on Nasdaq, then by the
National Quotation Bureau, Incorporated, as the case may be, on the day
immediately preceding the day on which the Option is granted, or, if there is no
trading or bid price on that day, the closing selling price, closing bid price
or high bid price on the most recent day which precedes that day and for which
such prices are available.
7. Nonstatutory Stock Options. The Board of Directors or the
Committee may grant Options under the Plan which are not intended to meet the
requirements of Section 422 of the Code, as well as Options which are intended
to meet the requirements of Section 422 of the Code but the terms of which
provide that they will not be treated as Incentive Stock Options (referred to
herein as a "Nonstatutory Stock Option"). Nonstatutory Stock Options shall be
subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to any
individual or entity eligible to receive an Option under the Plan pursuant to
Section 4(b) hereof.
(b) The option price of the shares subject to a
Nonstatutory Stock Option shall be determined by the Board of Directors or the
Committee, in its sole discretion, at the time of the grant of the Nonstatutory
Stock Option.
(c) A Nonstatutory Stock Option granted under the Plan
may be of such duration as shall be determined by the Board of Directors or the
Committee (subject to earlier termination as expressly provided in Section 12
hereof).
8. Reload Feature. The Board of Directors or the Committee may
grant Options with a reload feature. A reload feature shall only apply when the
option price is paid by delivery of Common Stock (as set forth in Section
13(b)(ii)). The Stock Option Agreement for the Options containing the reload
feature shall provide that the Option holder shall receive, contemporaneously
with the payment of the option price in shares of Common Stock, a reload stock
option (the "Reload Option") to purchase that number of shares of Common Stock
equal to the sum of (i) the number of shares of Common Stock used to exercise
the Option, and (ii) with respect to Nonstatutory Stock Options, the number of
shares of Common Stock used to satisfy any tax withholding requirement incident
to the exercise of such Nonstatutory Stock Option. The terms of the Plan
applicable to the Option shall be equally applicable to the Reload Option with
the following exceptions: (i) the option price per share of Common Stock
deliverable upon the exercise of the Reload Option, (A) in the case of a Reload
Option which is an Incentive Stock Option being granted to a Principal
Stockholder, shall be one hundred ten percent (110%) of the fair market value of
a share of Common Stock on the date of grant of the Reload Option and (B) in the
case of a Reload Option which is an Incentive Stock Option being granted to a
person other than a Principal Stockholder or is a Nonstatutory Stock Option,
shall be the fair market value of a share of Common Stock on the date of grant
of the Reload Option; and (ii) the term of the Reload Option shall be equal to
the remaining option term of the Option (including a Reload Option) which gave
rise to the Reload Option. The Reload Option shall be evidenced by an
appropriate amendment to the Stock Option Agreement for the Option which gave
rise to the Reload Option. In the event the exercise price of an Option
containing a reload feature is paid by check and not in shares of Common Stock,
the reload feature shall have no application with respect to such exercise.
9. Rights of Option Holders. The holder of any Option granted
under the Plan shall have none of the rights of a stockholder with respect to
the stock covered by his Option until such stock shall be transferred to him
upon the exercise of his Option.
10. Alternate Stock Appreciation Rights.
(a) Concurrently with, or subsequent to, the award
of any Option to purchase one or more shares of Common Stock, the Board of
Directors or the Committee may, in itssole discretion, subject to the provisions
of the Plan and such other terms and conditions as the Board of Directors or the
Committee may prescribe, award to the optionee with respect to each share of
Common Stock covered by an Option ("Related Option"),a related alternate
stock appreciation right ("SAR"), permitting the optionee to be paid the
appreciation on the Related Option in lieu of exercising the Related Option.
An SAR granted with respect to an Incentive Stock Option must be granted
together with the Related Option. An SAR granted with respect to a Nonstatutory
Stock Option may be granted together with, or subsequent to, the grant of such
Related Option.
(b) Each SAR granted under the Plan shall be authorized
by the Board of Directors or the Committee, and shall be evidenced by an SAR
Agreement which shall be executed by the Company and by the individual or
entity to whom such SAR is granted. The SAR Agreement shall specify the period
during which the SAR is exercisable, and such other terms and provisions not
inconsistent with the Plan.
(c) An SAR may be exercised only if and to the extent
that its Related Option is eligible to be exercised on the date of exercise of
the SAR. To the extent that a holder of an SAR has a current right to exercise,
the SAR may be exercised from time to time by delivery by the holder thereof to
the Company at its principal office (attention: Secretary) of a written notice
of the number of shares with respect to which it is being exercised. Such notice
shall be accompanied by the agreements evidencing the SAR and the Related
Option. In the event the SAR shall not be exercised in full, the Secretary of
the Company shall endorse or cause to be endorsed on the SAR Agreement and the
Related Option Agreement the number of shares which have been exercised
thereunder and the number of shares that remain exercisable under the SAR and
the Related Option and return such SAR and Related Option to the holder thereof.
(d) An optionee may exercise an SAR only when the
market price on the exercise date of a share of Common Stock subject to the
Related Option exceeds the exercise price per share of the Related Option (the
"SAR Spread"). The amount of payment to which an optionee shall be entitled upon
the exercise of each SAR shall be equal to one hundred percent (100%) of the SAR
Spread; provided, however, the Company may, in its sole discretion, withhold
from any such cash payment any amount necessary to satisfy the Company's
obligation for withholding taxes with respect to such payment.
(e) The amount payable by the Company to an optionee
upon exercise of a SAR may, in the sole determination of the Company, be paid in
shares of Common Stock, cash or a combination thereof, as set forth in the SAR
Agreement. In the case of a payment in shares, the number of shares of Common
Stock to be paid to an optionee upon such optionee's exercise of an SAR shall be
determined by dividing the amount of payment determined pursuant to Section
10(d) hereof by the fair market value of a share of Common Stock on the exercise
date of such SAR. For purposes of the Plan, the exercise date of an SAR shall be
the date the Company receives written notification from the optionee of the
exercise of the SAR in accordance with the provisions of Section 10(c) hereof.
As soon as practicable after exercise, the Company shall either deliver to the
optionee the amount of cash due such optionee or a certificate or certificates
for such shares of Common Stock. All such shares shall be issued with the rights
and restrictions specified herein.
(f) SARs shall terminate or expire upon the same
conditions and in the same manner as the Related Options, and as set forth in
Section 12 hereof.
(g) The exercise of any SAR shall cancel and terminate
the right to purchase an equal number of shares covered by the Related Option,
and the exercise of a Related Option shall cancel and terminate the right to
exercise an SAR granted pursuant to such Related Option.
(h) Upon the exercise or termination of any Related
Option, the SAR with respect to such Related Option shall terminate to the
extent of the number of shares of Common Stock as to which the Related Option
was exercised or terminated.
(i) An SAR granted pursuant to the Plan shall be
exercisable only by the optionee hereof during the optionee's lifetime and,
subject to the provisions of Section 10(f) hereof. (j) No SAR granted pursuant
to the Plan shall be transferable by the individual or entity to whom it was
granted otherwise than by will or the laws of descent and distribution, and,
during the lifetime of such individual, shall not be exercisable by any other
person, but only by him.
11. Transferability. No Option granted under the Plan shall be
transferable by the individual or entity to whom it was granted otherwise than
by will or the laws of descent and distribution, and, during the lifetime of
such individual, shall not be exercisable by any other person, but only by him.
12. Termination of Employment or Death
(a) Subject to the terms of the Stock Option
Agreement, if the employment of an employee by, or the services of a
non-employee Director for, or consultant or advisor to, the Company or a
subsidiary corporation of the Company shall be terminated for cause or
voluntarily by the employee, non-employee Director, consultant or advisor, then
his or its Option shall expire forthwith. Subject to the terms of the Stock
Option Agreement, and except as provided in subsections (b) and (c) of this
Section 12, if such employment or services shall terminate for any other reason,
then such Option may be exercised at any time within three (3) months after such
termination, subject to the provisions of subsection (d) of this Section 12. For
purposes of the Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall be deemed to be
termination of such individual's employment other than voluntarily or for cause.
For purposes of this subsection (a), an employee, non-employee Director,
consultant or advisor who leaves the employ or services of the Company to become
an employee or non-employee Director of, or a consultant or advisor to, a
subsidiary corporation of the Company or a corporation (or subsidiary or parent
corporation of the corporation) which has assumed the Option of the Company as a
result of a corporate reorganization, etc., shall not be considered to have
terminated his employment or services.
(b) Subject to the terms of the Stock Option Agreement,
if the holder of an Option under the Plan dies (i) while employed by, or while
serving as a non-employee Director for or a consultant or advisor to, the
Company or a subsidiary corporation of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or non-employee Director, consultant or advisor, or
for cause, then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised by the estate of the employee or non-employee
Director, consultant or advisor, or by a person who acquired the right to
exercise such Option by bequest or inheritance or by reason of the death of such
employee or non-employee Director, consultant or advisor at any time within one
(1) year after such death.
(c) Subject to the terms of the Stock Option Agreement,
if the holder of an Option under the Plan ceases employment or services because
of permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) while employed by, or while serving as a non-employee Director for or
consultant or advisor to, the Company or a subsidiary corporation of the
Company, then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised at any time within one (1) year after his
termination of employment, termination of Directorship or termination of
consulting or advisory services, as the case may be, due to the disability.
(d) An Option may not be exercised pursuant to this
Section 12 except to the extent
that the holder was entitled to exercise the Option at the time of termination
of employment, termination of Directorship, termination of consulting or
advisory services, or death, and in any event may not be exercised after the
expiration of the Option.
(e) For purposes of this Section 12, the employment
relationship of an employee of the
Company or of a subsidiary corporation of the Company will be treated as
continuing intact while he is on military or sick leave or other bona fide leave
of absence (such as temporary employment by the Government) if such leave does
not exceed ninety (90) days, or, if longer, so long as his right to reemployment
is guaranteed either by statute or by contract.
13. Exercise of Options.
(a) Unless otherwise provided in the Stock Option
Agreement, any Option grantedunder the Plan shall be exercisable in whole at any
time, or in part from time to time, prior to expiration. The Board of Directors
or the Committee, in its absolute discretion, may provide in any Stock Option
Agreement that the exercise of any Options granted under the Plan shall be
subject (i) to such condition or conditions as it may impose, including, but not
limited to, a condition that the holder thereof remain in the employ or service
of, or continue to provide consulting or advisory services to, the Company or a
subsidiary corporation of the Company for such period or periods from the date
of grant of the Option as the Board of Directors or the Committee, in its
absolute discretion, shall determine; and (ii) to such limitations as it may
impose, including, but not limited to, a limitation that the aggregate fair
market value of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any employee during any calendar year
(under all plans of the Company and its parent and subsidiary corporations)
shall not exceed one hundred thousand dollars ($100,000). For purposes of the
preceding sentence, the fair market value of any stock shall be determined as of
the date the option with respect to such stock is granted. In addition, in the
event that under any Stock Option Agreement the aggregate fair market value of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any employee during any calendar year (under all plans of
the Company and its parent and subsidiary corporations) exceeds one hundred
thousand dollars ($100,000), the Board of Directors or the Committee may, when
shares are transferred upon exercise of such Options, designate those shares
which shall be treated as transferred upon exercise of an Incentive Stock Option
and those shares which shall be treated as transferred upon exercise of a
Nonstatutory Stock Option.
(b) An Option granted under the Plan shall be
exercised by the delivery by the holder thereof to the Company at its principal
office (attention of the Secretary) of written notice of the number of shares
with respect to which the Option is being exercised. Such notice shall be
accompanied, or followed within ten (10) days of delivery thereof, by payment of
the full option price of such shares, and payment of such option price shall be
made by the holder's delivery of (i) his check payable to the order of the
Company; (ii) previously acquired Common Stock, the fair market value of which
shall be determined as of the date of exercise; (iii) if provided in the Stock
Option Agreement at the discretion of the Board or Committee, a promissory note
made payable to the Company accompanied by cash payment of the par value of the
Common Stock being purchased; or (iv) by the holder's delivery of any
combination of the foregoing (i), (ii) and if provided in the Stock Option
Agreement at the discretion of the Board or Committee, (iii).
14. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination of shares, reverse split, stock
dividend or the like, an appropriate adjustment shall be made by the Board of
Directors or the Committee in the aggregate number of shares available under the
Plan, in the number of shares and option price per share subject to outstanding
Options, and in any limitation on exerciseability referred to in Section
13(a)(ii) hereof which is set forth in outstanding Incentive Stock Options. If
the Company shall be reorganized, consolidated, or merged with another
corporation, the holder of an Option shall be entitled to receive upon the
exercise of his Option the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon the happening of any such corporate event as if he had been, immediately
prior to such event, the holder of the number of shares covered by his Option;
provided, however, that in such event the Board of Directors or the Committee
shall have the discretionary power to take any action necessary or appropriate
to prevent any Incentive Stock Option granted hereunder which is intended to be
an "incentive stock option" from being disqualified as such under the then
existing provisions of the Code or any law amendatory thereof or supplemental
thereto.
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
15. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the
shares issuable upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or agreement of the
person or estate exercising the Option to the Company to the effect that such
shares are being acquired for investment purposes and not with a view to the
distribution thereof, or such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with such Act. (b) The
Company shall not be obligated to deliver any Common Stock until it has been
listed on each securities exchange or market on which the Common Stock may then
be listed or until there has been qualification under or compliance with such
federal or state laws, rules or regulations as the Company may deem applicable.
The Company shall use reasonable efforts to obtain such listing, qualification
and compliance.
16. Effectiveness of the Plan. The Plan was adopted by the
Board of Directors on August 3, 1998. The Plan shall be subject to approval on
or before August 3, 1999, which is within one (1) year of adoption of the Plan
by the Board of Directors, by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Company entitled to vote
thereon. In the event such stockholder approval is withheld or otherwise not
received on or before the latter date, the Plan and, subject to the terms of the
Stock Option Agreement, all Options that may have been granted hereunder shall
become null and void.
17. Termination, Modification and Amendment.
(a) The Plan (but not Options or SARs previously
granted under the Plan) shall terminate on August 3, 2008, which is within ten
(10) years from the date of its adoption by the Board of Directors of the
Company, or sooner as hereinafter provided, and no Option shall be granted after
termination of the Plan.
(b) The Plan may from time to time be terminated,
modified, or amended by the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy and entitled to vote on the Plan at a meeting of
stockholders.
(c) The Board of Directors may at any time, on or
before the termination date referred to in Section 16(a) hereof, terminate the
Plan, or from time to time make such modifications or amendments to the Plan as
it may deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote on the Plan
at a meeting of stockholders, increase (except as otherwise provided by Section
14 hereof) the maximum number of shares as to which Incentive Stock Options may
be granted hereunder, change the designation of the employees or class of
employees eligible to receive Incentive Stock Options, or make any other change
which would prevent any Incentive Stock Option granted hereunder which is
intended to be an "incentive stock option" from qualifying as such under the
then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
(d) No termination, modification, or amendment of the
Plan may, without the consent of
the individual or entity to whom any Option shall have been granted, adversely
affect the rights conferred by such Option.
18. Not a Contract of Employment. Nothing contained in the
Plan or in any Stock Option Agreement executed pursuant hereto shall be deemed
to confer upon any individual or entity to whom an Option is or may be granted
hereunder any right to remain in the employ or service of the Company or a
subsidiary corporation of the Company or any entitlement to any remuneration or
other benefit pursuant to any consulting or advisory arrangement.
19. Use of Proceeds. The proceeds from the sale of shares
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
20. Indemnification of Board of Directors or Committee. In
addition to such other rights of indemnification as they may have, the members
of the Board of Directors or the Committee, as the case may be, shall be
indemnified by the Company to the extent permitted under applicable law against
all costs and expenses reasonably incurred by them in connection with any
action, suit, or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
Upon the institution of any such action, suit, or proceeding, the member or
members of the Board of Directors or the Committee, as the case may be, shall
notify the Company in writing, giving the Company an opportunity at its own cost
to defend the same before such member or members undertake to defend the same on
his or their own behalf.
21. Definitions. For purposes of the Plan, the terms "parent
corporation" and "subsidiary corporation" shall have the meanings set forth in
Sections 425(e) and 425(f) of the Code, respectively, and the masculine shall
include the feminine and the neuter as the context requires.
22. Governing Law. The Plan shall be governed by, and all
questions arising hereunder shall be determined in accordance with, the laws of
the State of Delaware.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name % of Ownership State of Incorporation
Pro-Health Systems, Inc. 100% Delaware
Sandata Spectrum, Inc. 100% Delaware
Sandsport Data Services, Inc. 100% New York
Sandata Home Health Systems, Inc. 100% Delaware
SanTrax Systems, Inc. 100% New York
SanTrax Productivity, Inc. 100% Delaware
