U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended May 31, 2000
---------------------
OR
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the transition period from to
Commission file number: 0-14401
Sandata, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 11-2841799
(State or Other 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 for year ended May 31, 2000 was $18,597,321.
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
23, 2000 was $1,122,467.
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 23, 2000 was 2,506,475.
Transitional Small Business Disclosure Format (check one):
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
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 providing technology services to its customers. These services either a)
utilize software products developed, acquired or licensed by the Company or b)
leverage the technology-based core competencies that the Company has developed
in formulating and delivering its software services.
Applications of the Company's software include: an automated
payroll processing and billing service delivered via leased lines or over the
Internet, computerized preparation of management reports, telephone based data
collection services, automated database driven outbound telephone notification,
and biometric verification systems involving the use of both voice recognition
and fingerprint technologies.
Services that leverage the Company's core competencies are
driven by the Company's Information Technology ("IT") support services. The
services currently offered include: facilities outsourcing for database and
operating system support, technology consulting, custom software development and
support, resale and implementation of software written and distributed by
others, web site development and hosting, help desk services, and hardware
maintenance and related administrative services.
The Company's software is written in a variety of software
languages including JAVA, C++, Oracle, PL/SQL, CGI, Perl, VB, Foxpro, Access and
COBOL.
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
COMPUTERIZED INFORMATION PROCESSING SERVICES. The Company, through its
wholly owned subsidiary, Sandsport Data Services, Inc. ("Sandsport"), provides
computer services to the home health care industry, principally through its
SHARP (Sandsport Home Attendant Reporting Program) offering.
The primary customers are 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 that, in turn, send home attendants
to patients' homes to assist in homemaking chores. Vendor Agencies also provide
periodic nurse's visits to patients.
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 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 that enable them to review a full year's
earnings history for each of their employees.
Generally, in providing software-related services, the Company
receives data from its customers, processes the data on the Company's equipment
at its premises, and generates reports based on such data.
These services are primarily provided through SHARP. Vendor
Agencies enlist Sandsport's computer services to provide weekly time sheets,
billing, payroll processing and management reports. For the fiscal years ended
May 31, 2000 and 1999, approximately $5,224,000 or 28% and $4,573,000 or 32%,
respectively, of the Company's total operating revenues were derived from
services rendered to Vendor Agencies.
The Company's strategy is to diversify and expand its health care customer
base. Its wholly-owned subsidiary, Pro-Health Systems, Inc., ("Pro-Health")
intends to utilize newly acquired and enhanced software to provide additional
payroll and billing functionality for SHARP users and, by expanding its billing
capabilities, to make the product relevant to home healthcare agencies that
cannot use SHARP in its current form.
Pro-Health offers a system which is designed to be delivered as an
Application Service Providers ("ASP") solution. The software consists of a
comprehensive suite of on-line interactive modules that are integrated with
other Company applications such as Santrax(R) (see below). The Pro-Health
systems' modular and flexible design makes it adaptable to the changeable needs
of a wide spectrum of health care entities.
In October 1998, the Company and Provider Solutions Corporation
("Provider") entered into an agreement (the "Agreement") whereby the parties
contemplated the formation of a joint venture to operate a data processing
service bureau in New York to supply services to the domestic home health care
industry. The Company provides such services through Pro-Health. Pursuant to
the Agreement, Provider conveyed certain software to the Company. The Agreement
provides for a purchase price of $500,000, payable in certain installments as
provided in the Agreement. As of May 31, 2000, the Company has paid
approximately $350,000 to Provider on account of the purchase price. In October
1999, the Company and Pro-Health commenced an action against Provider, et al.
and Provider soon thereafter commenced an action against the Company and
Pro-Health (See Item 3 - "Legal Proceedings").
For the fiscal years ended May 31, 2000 and 1999, approximately $405,000 or
2% and $0 or 0%, respectively, of the Company's total operating revenues were
derived from services rendered to customers using the Pro-Health System.
TELEPHONE-BASED DATA COLLECTION SERVICES. The Company has
developed an automated electronic system known as Sandata(R) SANTRAX(R) that
allows the use of Automated Number Identification ("ANI") technology and voice
recognition technology to assist in capturing data via telephone. The system
incorporates telephone technologies into the data reporting process and is
currently designed to monitor the arrival and departure times of off-site
workers who simply call a unique toll-free number to record their arrival and
departure. The system automatically and immediately confirms that the assigned
person is at the expected place at the expected time for the approved and
scheduled duration, and produces real-time exception reports to enable its
clients to manage their off-site staff.
In addition to collecting the arrival and departure times of
off-site workers from the visit site, SANTRAX is also able to collect a wide
range of additional information. By collecting additional data, SANTRAX can
increase operational efficiencies and enable its customers 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 by
the off-site worker. This data is used to produce weekly payroll and to
automatically prepare reimbursement submissions. Reports are generated to the
customer based upon its specific requirements.
The Company is an ASP that allows its customers to access
certain of its software over the Internet without their needing sophisticated
hardware at their site to house the software or store the data. This allows the
Company's customers to have access to software programs via low-cost hardware
and on a fee per transaction basis, and enables them to utilize the Company's
software services without a substantial upfront investment in either hardware or
software. The Company receives an aggregate of approximately 620,000 calls per
week or 32 million calls per year. The service is currently utilized principally
by the Company's home health care clients, and approximately seventy per cent
(70%) of current SANTRAX calls are Vendor Agencies using the SHARP program.
Effective June 1, 1998, the Company and MCI Telecommunications
Corporation ("MCI") entered into a License Agreement (the "License Agreement")
pursuant to which the Company was granted a license, under certain of MCI's
patents (each individually a "Patent" and collectively the "Patents"), which
enables it to use 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. The License Agreement remains in effect until
October 19, 2010 or until the expiration date of the last to expire Patent,
whichever is the latter to occur. Pursuant to the License Agreement, the Company
pays MCI certain royalties on a per call basis.
For the fiscal years ended May 31, 2000 and 1999,
approximately $7,366,000 or 40% and $5,978,000 or 42%, respectively, of the
Company's total operating revenues were derived from services rendered relating
to SANTRAX.
Although no assurances can be given, it is anticipated that
the SANTRAX product can be utilized by other industry applications. The Company
is developing the product so that it can be sold into the general commercial
market, and the service is currently being modified to meet the needs of a wide
range of businesses wishing to monitor or collect data from off-site employees.
TECHNOLOGY INFRASTRUCTURE AND OUTSOURCING SERVICES. The
Company supports specialized system applications for businesses based upon its
analysis of a client's particular need and specialized system applications.
The Company provides data processing services and technology
infrastructure consulting services on an outsourced basis to National Medical
Health Card Systems, Inc. ("Health Card"), a public company (NASDAQ: NMHC)
engaged in the pharmacy prescription benefits management business. Health Card
is an affiliate of the Company 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").
In addition, the Company offers managed services in the
security arena such as security audits, enterprise firewalls and network
monitoring. It also develops and hosts web sites, runs e-commerce applications
and resells telephone services, leveraging the favorable rates it receives by
virtue of the substantial call volume driven by SANTRAX. While these services
are currently provided to an affiliate, the Company plans to diversify these
offerings and resell them to businesses throughout the New York metropolitan
area.
For the fiscal years ended May 31, 2000 and 1999,
approximately $2,635,000 or 14% and $1,765,020 or 12%, respectively, of the
Company's total operating revenues were derived from services rendered for
outsourcing services.
INFORMATION TECHNOLOGY SERVICES. The Company, through its SandataNet(R)
division, provides IT consulting services for businesses and the public sector.
It delivers computer, communications and networking sales and services,
including training, maintenance and repair services, to companies and government
and professional services organizations.
SandataNet(R) manages a help desk for the Company's internal
operations and also provides help desk services to Health Card and several other
affiliates, covering approximately 275 employees. This help desk is responsible
for desk side support services, including software support, hardware
support/break-fix, LAN administration and configuration services.
The Company has installed critical software applications at a
local municipal government office and is in the process of delivering a solution
to a government office at the county level. It also provides custom programming,
software development and installation services to this sector. In addition, the
Company is in the process of establishing a strategic alliance with a developer
of specialized municipal government software that is expected to assist the
Company in expanding its base of municipal government customers. The Company
cannot assure that such an alliance will be reached. Furthermore, if such an
alliance is reached, the Company cannot predict if it would be successful.
For the fiscal years ended May 31, 2000 and 1999 approximately
$2,367,000 or 13% and $1,564,000 or 11%, respectively of the Company's total
operating revenues were derived from services rendered relating to
SandataNet(R).
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 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 - are being developed for utilization in other
settings, such as nursing homes, skilled nursing facilities, and rehabilitation
facilities.
The Company's telephone-based data collection services are
currently principally used to monitor off-site workers in the home healthcare
industry. The SANTRAX proprietary software could be used to monitor off-site
workers in other industries, and the Company is currently exploring
opportunities in the temporary staffing, security guard and building maintenance
industries.
Technology infrastructure and outsourcing services are
currently utilized in-house and within affiliate companies. The Company intends
to take the core competencies that it has developed in supporting its service
offerings and resell them into the business community in the New York
metropolitan area. The Company cannot assure its ability to resell such
services.
The Company believes it can leverage its in-house capabilities to develop a
new IT services business, and intends that such IT services will be marketed
primarily to businesses in the New York metropolitan area, where it believes it
can support professional services with on-site technical help. In the future,
the Company believes it will have the capability of rolling out such IT services
to a wider geographical audience. The Company cannot assure its ability to
develop a new IT service business and cannot predict that such services will be
successful.
The Company markets its products and services through telemarketing and a
combination of inside and outside sales representatives, all directly employed
by the Company.
COMPETITION
The Company competes with different companies for the sale of
its different products. In the sale of its software products, the Company
competes for customers on the basis of the range, functionality and quality of
its software and on its ability to develop programs tailored to its customers'
requirements. Many of its competitors are companies with directly competitive
software products, and a number 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.
The computer services industry is characterized by competition
in the areas of service, quality, price and technical expertise. Competitors in
this segment vary from the small, local companies to multinational consulting
and accounting firms.
CUSTOMERS
The Company's customer base is primarily drawn from the health
care industry. During the fiscal years 2000 and 1999, the Company derived
revenues from the Vendor Agencies who are all funded by one governmental agency,
amounting to approximately $10,623,000 or 57% and $9,460,000 or 67% of total
operating revenues, respectively. The Company was owed approximately $1,362,000
and 1,394,000 from these customers at May 31, 2000 and 1999, respectively. The
Company also derived approximately 1,753,000 or 9% and $1,765,000 or 12%,
respectively, of revenue from Health Card for database and operating system
support, hardware leasing, maintenance and related administrative services. (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(R)
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.
Such application is currently pending.
On April 28, 1999, the Company filed an application with the
United States Patent and Trademark Office to register its RXTRAX trademark. Such
application is currently pending.
The Company has not applied for Federal copyright registration
for its computer software systems now in existence or being developed. However,
the Company believes that its systems are trade secrets and that they, together
with the documentation, manuals, training aids, instructions and other materials
supplied to users, are subject to the proprietary rights of the Company and
protected by applicable trade secret laws. The Company generally seeks to obtain
trade secret protection pursuant to non-disclosure and confidentiality
agreements with its employees. Although the Company's customers are advised that
the Company retains title to all of its products, and they agree to safeguard
against unauthorized use of such systems, there can be no assurance that the
Company will be able to protect against misappropriation of its proprietary
rights and trade secrets.
RESEARCH AND DEVELOPMENT
The Company incurred approximately $122,000 and $192,000
during the fiscal years 2000 and 1999, 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, 2000, the Company and its subsidiaries employed
146 employees, including 139 full-time and 7 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.
<PAGE>
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 $59,567 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
In October 1998, the Company and Provider entered into an agreement (the
"Agreement") whereby the parties contemplated the formation of a joint venture
to operate a data processing service bureau in New York to supply services to
the domestic home health care industry. The Company provides such services
through Pro-Health. Pursuant to the Agreement, Provider conveyed certain
software to the Company. The Agreement provides for a purchase price of
$500,000, payable in certain installments as provided in the Agreement. As of
May 31, 2000, the Company has paid approximately $350,000 to Provider on account
of the purchase price.
On October 19, 1999, the Company and its wholly-owned subsidiary Pro-Health
brought an action, Sandata, Inc. and Pro-Health Systems, Inc. v. Provider
Solutions Corporation, Michael Milvain and Charlotte Fritchie, Supreme Court,
New York County, Index No. 99-26033, based on breach of contract, fraudulent
misrepresentation and other causes of action, demanding damages of approximately
$10,000,000 (the "State Action").
On October 22, 1999, Provider brought a Federal Action in the United States
District Court, Eastern District (the "Federal Action"), seeking to enjoin the
Company and Provider from (i) hiring certain named employee defendants; (ii)
soliciting any present or former employees of Provider; and (iii) using, without
Providers permission, any trade secret or other proprietary information
belonging to Provider. The Federal Action also sought to (i) enjoin employees
from divulging to the Company, Pro-Health or any other third party, any trade
secret or other proprietary information; and (ii) accepting employment from the
Company, Pro-Health or any other customer or competitor of Provider. The amended
complaint ultimately served on the Company and Pro-Health on March 31, 2000
demanded judgment against defendants of a permanent injunction and damages
against the Company and Pro-Health for total amounts ranging from $10,000,000 to
$15,000,000. The State Action was removed and consolidated into the Federal
Action.
Sandata and Pro-Health asserted multiple counterclaims in the Federal
Action demanding damages of $10,000,000 based upon claim of Declaratory
Judgment, Imposition of Constructive Trust, Breach of Contract, Unfair
Competition, Interference with Business Relations and Economic Advantage and
Injunction. The State Action was removed and later consolidated into the Federal
Action.
To date, substantial discovery has taken place and is
continuing. Discovery is expected to be completed by January 2, 2001. The
Company has asserted claims and defenses against Provider and intends to
continue its prosecution of its claims and vigorously defend all claims against
it.
Notwithstanding the foregoing, because of the uncertainties of
litigation, no assurances can be given as to the outcome of this litigation. In
the event that the Company were not to prevail in this litigation, the Company
could be required to pay significant damages to Provider and could be enjoined
from taking those certain actions specified above. A negative outcome in the
Provider litigation could have a material adverse affect on the Company,
including, but not limited to, its business operations and financial condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
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, 2000
First Quarter $1.75 $1.06
Second Quarter 1.44 .97
Third Quarter 4.34 .75
Fourth Quarter 3.94 1.34
FISCAL YEAR ENDED
MAY 31, 1999
First Quarter $4.50 $2.16
Second Quarter 2.72 1.13
Third Quarter 2.50 1.13
Fourth Quarter 3.38 1.38
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 23, 2000 was 1,016.
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.
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ANALYSIS OF OPERATIONS
Fiscal Years ended May 31, 2000 compared with May 31, 1999
Service fee revenues for fiscal 2000 were $ 17,987,646 as
compared to $14,155,092 for the previous fiscal year, an increase of $3,832,554
or 27%. The increase is primarily attributable to revenues derived from SANTRAX
and SANDATANET offset by decreases in revenue from Health Card.
Other income for the year ended May 31, 2000 was $432,279 as
compared to $437,575 for the year ended May 31, 1999. The decrease is
attributable to a decrease in income recognized on sales/leaseback transactions.
Expenses Related to Services
Operating expenses were $11,419,625 for the year ended May 31,
2000, as compared to $8,909,704 for the year ended May 31, 1999, an increase of
$2,509,921 or 28%. Costs associated with SANTRAX and its operations, including
payroll expenses, in addition to increases in costs associated with SANDATANET
and its operations, were the primary factors for the increases in operating
expenses.
Selling, general and administrative expenses for the year ended May 31,
2000 were $4,346,757 compared to $3,428,584 for the year ended May 31, 1999, an
increase of $918,173 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.
Depreciation and amortization expenses were $2,384,045 for the
year ended May 31, 2000, as compared to $2,015,390 for the year ended May 31,
1999, an increase of $368,655 or 18%. 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, 2000 was $243,637
as compared to $97,170 for the year ended May 31, 1999, an increase of $146,267
or 151%. The increase was a result of increased borrowings on the Company's
Credit Agreement.
Income Tax Expenses
Income tax expense was $189,158 and $171,177 for fiscal 2000
and 1999, respectively. The increase in income tax expense is due to different
recognition of software development costs, depreciation and amortization and
revenues from sale/leaseback transactions on a book and tax basis offset by
lower pretax income and additional net operating loss carryforwards. The
effective tax rates for fiscal 2000 and 1999 were 93.1% and 60.1%, 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased as of May 31, 2000 to
$1,432,966 as compared with $235,599 at May 31, 1999.
The Company has spent approximately $5,700,000 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.
On July 14, 1998, the Chairman, certain officers, directors
and, a former director and the spouse of an officer and an employee of Sandsport
Data Services, Inc. ("Sandsport'), the Company's wholly owned subsidiary,
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. The Company has
received interest payments on such notes in the amount of $120,658 during the
fiscal year ending May 31, 2000. As of May 31, 2000, the outstanding balance on
such notes, including principal and accrued but unpaid interest, was $1,746,145.
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") which allows Sandsport to borrow amounts up to
$3,000,000. Interest accrues on amounts outstanding under the Credit Agreement
at a rate equal to the London Interbank Offered Rate plus 2% and will be paid
quarterly in arrears or, at Sandsport's option, interest may accrue at the
Bank's prime rate. The Credit Agreement 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 which expired on March
1, 2000 has been amended by the Bank to permit Sandsport to borrow amounts up to
$4,500,000 until February 14, 2003. Interest accrues at the same rate as the
original Credit Agreement. The indebtedness under the Credit Agreement is
guaranteed by the Company and Sandsport's sister subsidiaries (the "Group"). 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 the Company's Chairman. 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 failed to meet these net worth and financial ratios, and the
Bank granted the Group a waiver. As of May 31, 2000, the outstanding balance on
the Credit Agreement with the Bank was $2,250,000.
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 $401,000 and $216,000 of the
deferred gains were recognized in fiscal 2000 and 1999, respectively. Included
in these amounts are the effects of sale/leaseback transactions entered into
fiscal 2000 and 1999, 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 $62,000 of the deferred gain
was recognized for fiscal 2000 and 1999, 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 $90,000 and $30,000 of deferred gain was
recognized for fiscal 2000 and 1999, respectively. 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. Approximately $68,000
of deferred gain was recognized for fiscal 2000. An unaffiliated third party
purchased the residual rights in such lease.
In October 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 $895,000, were
sold for $1,115,000. The resulting gain of approximately $220,000 was recorded
as deferred income and is being recognized over the life of the lease, which is
thirty-six (36) months. Approximately $49,000 of the deferred gain was
recognized for fiscal 2000. An unaffiliated third party purchased the residual
rights in such lease.
In January 2000, 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 $442,000, were
sold for $561,000. The resulting gain of approximately $119,000 was recorded as
deferred income and is being recognized over the life of the lease, which is
thirty-six (36) months. Approximately $13,000 of deferred gain was recognized
for fiscal 2000. An unaffiliated third party purchased the residual rights in
such lease.
In February 2000, 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 $237,000 were sold for
$277,000. The resulting gain of approximately $40,000 was recorded as deferred
income and is being recognized over the life of the lease, which is thirty-six
(36) months. Approximately $3,000 of deferred gain was recognized for fiscal
2000. An unaffiliated third party purchased the residual rights in such lease.
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 was supposed to be secured by accounts
receivable due to the Federation. Shortly following the Company's acquiring such
receivable, the Federation and its affiliates filed for bankruptcy protection.
While the bankruptcy case is still pending, no plan of reorganization or
distribution has been proposed. 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, 2000, the Company had written off the $300,000 principal
loan receivable in addition to $47,296 for services rendered by the Company owed
by the Federation against a reserve established in prior years for these
amounts.
As of June 1, 1998, Health Card, a company affiliated with the Company's
Chairman of the Board, 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 $39,800. Sandsport is expected to continue to provide to Health Card
consulting services related to Health Card's information systems. As of May 31,
2000, the Company owed Health Card $500,000 pursuant to a promissory note, dated
May 31, 2000, made payable by the Company to the order of Health Card in the
original principal amount of $500,000 plus interest at the rate of 9-1/2%;
interest on such note is payable quarterly and such note is due on June 1, 2001.
(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.
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.
<PAGE>
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 57 Chairman of the Board and Treasurer
--------------------------- --------- ------------------------------------
--------------------------- --------- ------------------------------------
Stephen Davies 49 President
--------------------------- --------- ------------------------------------
--------------------------- --------- ------------------------------------
Hugh Freund 62 Executive Vice President, Secretary
and Director
--------------------------- --------- ------------------------------------
--------------------------- --------- ------------------------------------
Gary Stoller 47 Executive Vice President and
Director
--------------------------- --------- ------------------------------------
--------------------------- --------- ------------------------------------
Paul J. Konigsberg 64 Director
--------------------------- --------- ------------------------------------
--------------------------- --------- ------------------------------------
Ronald L. Fish 59 Director
=========================== ========= ====================================
Bert E. Brodsky has been Chairman of the Board and Treasurer of
the Company since June 1, 1983 and President from December 1989 through January
2000. 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 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.
Stephen Davies has been President of the Company since February,
2000. Mr. Davies is the sole owner of Edge Initiatives, LLC, a consulting firm
specializing in internet marketing and development. From 1986 to 1999, Mr.
Davies was the founder and served as President and CEO of US Computer Group
Inc., a provider of on-site computer services where Mr. Davies was the winner of
the Ernst & Young/Inc Magazine Entrepreneur of the Year award in 1995. Mr.
Davies served on the Board of Directors of the Independent Service Network
International (ISNI) from 1996 to 1999. Mr. Davies, a graduate of Oxford
University, is a published author in journals and magazines, including Long
Island Business News, AFSM Journal and Systems Magazine.
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.
Additionally, Mr. Freund has been serving as the President of Pro-Health
Systems, Inc. since March 9, 1999. 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 Technology 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 on a review of copies of Forms 3,
4 and 5 furnished to it and written representations that no other reports were
required, during the fiscal year ended May 31, 2000, the Company's officers,
Directors and 10% shareholders complied with all Section 16(a) filing
requirements applicable to them except: Mr. Brodsky failed to file three reports
relative to five transactions. Mr. Davies failed to file one report relative to
one transaction and failed to timely file one report relative to one
transaction. Mr. Freund failed to file one report relative to one transaction.
Mr. Stoller failed to file one report relative to one transaction.
ITEM 10 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for the fiscal years
ending May 31, 2000, 1999 and 1998 concerning the compensation of Bert E.
Brodsky, the Chairman and Chief Executive Officer of the Company, Gary Stoller,
Executive Vice President of the Company, James Poulos, Vice President of
Information Systems of the Company until May 12, 2000 and J.P. Clejan, Project
Manager of the Company. No other executive officer had a total salary and bonus
in excess of $100,000 for the fiscal year ended May 31, 2000:
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
=========================== ======= ======================================== =============================== ===========
Annual Compensation Long-Term Compensation
--------------------------- ------- ---------------------------------------- ------------------------------- -----------
--------------------------- ------- ------------ ---------- ------------- ------------------------ --------- -----------
Awards Payouts
--------------------------- ------- ------------ ---------- ------------- ------------------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Com-pensation
Salary Bonus Compensa- Awards Options/ Payouts ($)
Name and Principal Year ($) ($) Tion ($) SARs (#) ($)
Position ($)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
Bert E. Brodsky, Chairman 2000 200,000 (2) 31,650 14,013 (4) -0- 350,000 -0- 28,564 (5)
of the Board (3)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
1999 200,000 (2) -0- 22,049 (4) -0- 310,000 -0- 16,678 (5)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
1998 200,000 (2) -0- 13,374 (4) -0- -0- -0- 20,401 (5)
30,000 (6)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
Gary Stoller, Executive 2000 150,000 -0- 22,391 (4) -0- -0- -0- 16,040 (5)
Vice President
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
1999 119,039 -0- 22,391 (4) -0- 73,500 -0- 16,040 (5)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
1998 115,000 -0- 22,391 (4) -0- -0- -0- 16,040 (5)
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
James Poulos(1) 2000 120,087 -0- -0- -0- 4,700 -0- -0-
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
1999 103,265 -0- -0- -0- 1,600 -0- -0-
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
--------------------------- ------- ------------ ---------- ------------- ----------- ------------ --------- -----------
J.P. Clejan 2000 130,433 -0- -0- -0- 6,600 -0- -0-
=========================== ======= ============ ========== ============= =========== ============ ========= ===========
</TABLE>
(1) As of May 12, 2000 Mr. Poulos was no longer employed by the Company.
(2) In each of 1998, 1999 and 2000 Mr. Brodsky signed a waiver wherein he
agreed to waive his rights to an additional $300,000 of compensation due to
be paid to him for the fiscal years ended May 31, 1998, 1999 and 2000,
respectively, pursuant to the terms of the Brodsky Employment Agreement
with the Company discussed below.
(3) Represents 25,000 shares of Common Stock granted to Mr. Brodsky on February
4, 2000.
(4) Includes personal benefits relating to the use of Company-leased
automobiles provided for business purposes from an affiliate of the
Company's Chairman.
(5) Represents insurance premiums paid by the Company on behalf of Mr. Brodsky
and Mr. Stoller for life insurance policies on their lives, the benefits of
which are payable to their spouses.
(6) Represents insurance premiums paid by the Company on behalf of Mr. Brodsky
for life insurance policies on his life, the benefits of which are payable
to an insurance trust, of which Mrs. Brodsky is a co-Trustee.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ending May 31, 2000:
<TABLE>
<S>
<C> <C> <C> <C> <C>
======================================================================================================================
Individual Grants
----------------------------------------------------------------------------------------------------------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Percent of Total
Options/SARs
Number of Granted to
Securities Employees in Exercise or
Underlying Fiscal Year Base Price Expiration
Name Options/SARs Granted (%) ($/Sh) Date
(#)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Bert E. Brodsky 350,000 (1) 53.9 1.31 2/3/05
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
James Poulos 1,600 (2) * 3.00 3/1/04 (4)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
J.P. Clejan 6,600 (3) * 3.00 4/12/04
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
(1) Exercisable over a five year period to the extent of 75,500 shares of
Common Stock in each of 2000, 2001, 2002, 2003 and 48,000 shares of Common
Stock in 2004.
(2) Exercisable over a five year period to the extent of 540 shares of Common
Stock in 2000 and 530 shares of Common Stock in each of 2001 and 2002.
(3) Exercisable over a five year period to the extent of 2,200 shares of Common
Stock in each of 2000, 2001 and 2002.
(4) Pursuant to the terms of that certain Option Agreement between the Company
and Mr. Poulos, the option to purchase up to 1,600 shares of Common Stock
granted to Mr. Poulos expired on May 12, 2000, the date his employment with
the Company terminated.
* Less than 1%.
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 for the fiscal year ended May 31, 2000:
<TABLE>
<S>
<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, 2000(#) 2000($)
Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
Bert E. Brodsky -0- -0- 385,500/274,500 5,285/19,215
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
Gary Stoller -0- -0- 143,500/0 0/0
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
James Poulos -0- -0- 0/0 0/0
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
J.P. Clejan -0- -0- 2,200/4,400 0/0
===================== ======================= ================= ========================== ==========================
</TABLE>
COMPENSATION OF DIRECTORS
During the fiscal year ended May 31, 2000 non-statutory
options to purchase up to 36,000 shares of Common Stock, at an exercise price of
$3.00 per share, were issued to each of Messrs. Konigsberg and Fish. In
addition, during the fiscal year ended May 31, 2000, the Company paid $12,000 in
Director's fees.
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.
On February 1, 1997 the Company and its Chairman ("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, 2000 and 1999 and has signed waivers evidencing his agreement to such
reductions.
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
current Directors (iii) each person listed in the Summary Compensation Table;
and (iv) 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>
APPROXIMATE PERCENTAGE
NAME OF MANAGEMENT PERSON AND NAME AND NUMBER OF SHARES OF OUTSTANDING SHARES
ADDRESS OF BENEFICIAL OWNER
--------------------------------------------- ----------------------------------------- ------------------------------------------
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY 1,906,584 (1) 65.9%
--------------------------------------------- ----------------------------------------- ------------------------------------------
Hugh Freund
137,000 (2) 5.2% (2)
--------------------------------------------- ----------------------------------------- ------------------------------------------
Gary Stoller
26 Harbor Park Drive
Port Washington, NY 164,500 (3) 6.2%
--------------------------------------------- ----------------------------------------- ------------------------------------------
James Poulos 0 0%
--------------------------------------------- ----------------------------------------- ------------------------------------------
J.P. Clejan 2,200 (4) *
--------------------------------------------- ----------------------------------------- ------------------------------------------
Paul J. Konigsberg
Konigsberg Wolf & Co.
440 Park Avenue South 24,000 (5) *
New York, NY 10016
--------------------------------------------- ----------------------------------------- ------------------------------------------
Ronald L. Fish
Unlimited Care Inc.
245 Main Street 16,000 (5) *
White Plains, NY 10601
--------------------------------------------- ----------------------------------------- ------------------------------------------
All executive officers and Directors as a
group (6 persons) 2,248,084(1)(2)(3)(5)(6) 70.2%
============================================= ========================================= ==========================================
</TABLE>
---------------
(1) Includes 79,834 shares of the Company's Common Stock owned by the trusts
established for the benefit of Mr. Brodsky's four children; includes 20,500
shares of the Company's Common Stock owned by Mr. Brodsky's wife; includes
100,686 shares of Common Stock owned by Mr. Brodsky's adult daughter;
includes an aggregate of 109,292 shares of Common Stock owned by Mr.
Brodsky's adult sons. Includes 200,000 shares of Common Stock owned by the
Bert E. Brodsky Revocable Trust. Includes presently exercisable options to
purchase 310,000 shares of Common Stock at $1.41 per share under the 1995
Stock Option Plan; includes presently exercisable options to purchase
75,500 shares of common stock at $1.31 per share under the 1998 Stock
Option Plan.
(2) Includes presently exercisable options to purchase 137,000 shares of Common
Stock at $1.41 per share under the 1995 Plan. Excludes 47,464 shares of
Common Stock owned by Mr. Freund's adult children. 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.
(4) Includes persently exercisable options to purchase 2,200 shares of Common
Stock at $3.00 per share under the 1998 Plan.
(5) Includes presently exercisable options to purchase 10,000 shares of Common
Stock at $3.00 per share under the 1998 Plan; includes presently
exercisable options to purchase 6,000 shares of Common Stock at $3.00 per
share under the 1998 Plan.
(6) Does not include 100,000 shares of Common Stock issuable upon the exercise
of currently unexercisable stock options issued to Mr. Davies.
* 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, 1998, the Company was owed approximately $120,000 from a company
affiliated with the officers of the Company, pursuant to a promissory note
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 which was repaid
within the year ended May 31, 2000.
During the fiscal year ended May 31, 2000 the Company paid an
aggregate of $36,404 on behalf of certain officers to companies affiliated with
the Company's Chairman for payment of automobile leases.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
As of May 31, 2000, 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, maintenance and related
administrative services. The revenues generated from Health Card amounted to
approximately $1,753,000 and $1,765,000 for the years ended May 31, 2000 and
1999, respectively. Included in the current year revenues are billings of
approximately $540,000 for quality assurance testing of software programs
developed by Health Card and network support and $302,000 for help desk
services. In addition the Company resells its telephone services to Health Card.
As of May 31, 2000, the billings for such telephone services amounted to
approximately $151,000 for the fiscal year ended May 31, 2000. Subsequent to May
31, 2000, the Company received approximately $191,000 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").
As of May 31, 2000, the Company owed Health Card $500,000 pursuant to a
promissory note, dated May 31, 2000, made payable by the Company to the order of
Health Card in the original principal amount of $500,000 plus interest at the
rate of 9 1/2%; interest on such note is payable quarterly and such note is due
on June 1, 2001.
EQUIPMENT LEASES
The Company makes various lease payments to affiliates of the Company's
Chairman. The payments are for: equipment rental, which was $393,903 and
$387,346 in fiscal 2000 and 1999, respectively
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, 2000 and 1999 the total payments made by the Company to MAOS were
$399,592 and $193,934 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 was supposed to be secured by accounts
receivable due to the Federation. Shortly following the Company's acquiring such
receivable, the Federation and its affiliates filed for bankruptcy protection.
While the bankruptcy case is still pending, no plan or reorganization or
distribution has been proposed. 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, 2000, the Company had written off the $300,000 loan
receivable in addition to $47,296 for services rendered by the Company owed by
the Federation against a reserve established in prior years for these amounts.
<PAGE>
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)
4.1 Nassau County Industrial Development Agency Industrial Development Revenue
Bonds (1994 Brodsky Sibling Realty Inc. Project) dated June 1, 1994 (1)
4.2 Revolving Credit Agreement dated as of April 20, 1995 by and among
Sandsport Data Services, Inc. and Marine Midland Bank (1)
4.3 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)
4.4 Loan Agreement dated August 11, 1995 between Sandata, Inc. and Long Island
Development Corporation (1)
4.5 "504" Note dated August 11, 1995 from the Long Island Development
Corporation to Sandata, Inc. (1)
4.6 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)
4.7 Revolving Credit Agreement dated as of April 18, 1997 by and among
Sandsport Data Services, Inc. and Marine Midland Bank (3)
4.8 Second Amendment dated as of February 14, 2000 to Revolving Credit
Agreement by and among Sandsport Data Services, Inc. and HSBC Bank USA
10.1Software License Agreement and Distribution Agreement between Sandata Home
Health Systems, Inc. and Fastrack Healthcare Systems, Inc. dated as of June
15, 1995 (1)
10.2 Employees' Incentive Stock Option Plan (1)
10.3 First Amendment to Incentive Stock Option Plan dated April 4, 1989 (1)
10.4 Second Amendment to Incentive Stock Option Plan dated December 18, 1990 (1)
10.5 1986 Non-statutory Stock Option Plan (1)
10.6 Amendment to 1986 Non-statutory Stock Option Plan dated April 4, 1989 (1)
10.7 1995 Stock Option Plan (1)
10.8 1998 Stock Option Plan (5)
10.9 Common Stock Purchase Warrants as issued to Bert E. Brodsky (1)
10.10Deferred Compensation Plan dated May 1, 1992 between the Registrant and
Bert E. Brodsky (1)
10.11Form of agreement between Sandsport Data Services, Inc. and vendor agency
(2)
10.12Form of agreement between Sandsport Data Services, Inc. and vendor agency
(2)
10.13 Form of Subscription Agreement dated December 23, 1996 (2)
10.14 Form of Subscription Agreement dated September 12, 1996 (2)
10.15 Form of Common Stock Purchase Warrant ($5.00 Exercise Price) (2)
10.16 Form of Common Stock Purchase Warrant ($7.00 Exercise Price) (2)
10.17 Form of Redeemable Common Stock Purchase Warrant (2)
10.18Employment Agreement dated February 1, 1997 between the Registrant and Bert
E. Brodsky (3)
10.19 Form of Pledge Agreement (4)
10.20 Form of Non-Negotiable Promissory Note (4)
10.21Stock Option Agreement dated December, 1998 between the Registrant and Bert
E. Brodsky
10.22Stock Option Agreement dated February 3, 2000 between the Registrant and
Bert E. Brodsky
10.23Stock Option Agreement dated April 15, 2000 between the Registrant and
Stephen Davies
10.24Promissory Note dated May 31, 2000 between National Medical Health Card
Systems, Inc. and the Registrant
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.
(5) 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, 1999.
(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, 2000
SANDATA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of May 31, 2000 and 1999 F-3-F4
Consolidated Statements of Income for the years ended
May 31, 2000 and 1999 F-5
Consolidated Statements of Shareholders' Equity for the years
ended May 31, 2000 and 1999 F-6
Consolidated Statements of Cash Flows for the years ended
May 31, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-8-F26
<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, 2000 and 1999, 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, 2000 and 1999, 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 24, 2000
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31,
<TABLE>
<S> <C> <C>
ASSETS 2000 1999
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 1,229,718 $ 1,533,576
Accounts receivable, net of allowance for doubtful accounts
of $448,000 and $533,000 at 2000 and 1999, respectively 2,308,901 2,034,248
Receivables from affiliates 405,732 924,426
Other receivable --- 1,100,000
Inventories 17,165 29,307
Prepaid expenses and other current assets 413,119 485,455
----------- -----------
Total Current Assets 4,374,635 6,107,012
FIXED ASSETS, NET 8,911,655 7,169,002
OTHER ASSETS
Notes receivable 126,221 169,608
Cash surrender value of officer's life insurance, security
deposits and other 832,988 775,557
------------ ------------
Total Assets
$14,245,499 $14,221,179
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
May 31,
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
---- ----
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,580,143 $ 3,022,395
Current portion of long-term debt --- 2,500,000
Deferred/unearned revenue 38,848 13,633
Deferred income 322,678 335,385
------------- -----------
Total Current Liabilities 2, 941,669 5,871,413
LONG-TERM DEBT 2,750,000 ---
DEFERRED INCOME 315,253 324,096
DEFERRED INCOME TAXES 702,158 535,000
----------- -------------
Total Liabilities 6,709,080 6,730,509
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock; par value $.001; authorized 6,000,000 shares in 2000 and
1999, 2,506,475 and 2,481,481 shares issued
and outstanding in 2000 and 1999, respectively; 2,506 2,481
Additional paid in capital 5,803,704 5,772,079
Retained earnings 3,249,868 3,235,769
Notes receivable - officers (1,519,659) (1,519,659)
---------- -----------
Total Shareholders' Equity 7,536,419 7,490,670
--------- ---------
Total Liabilities and Shareholders' Equity $ 14,245,499 $ 14,221,179
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31,
<TABLE>
<S> <C> <C>
2000 1999
---- ----
REVENUES:
Service fees $ 17,987,646 $ 14,155,092
Other income 432,279 437,575
Interest income 177,396 143,200
----------- ------------
18,597,321 14,735,867
---------- ----------
COSTS AND EXPENSES:
Operating 11,419,625 8,909,704
Selling, general and administrative 4,346,757 3,428,584
Depreciation and amortization 2,384,045 2,015,390
Interest expense 243,637 97,170
---------- ----------
TOTAL COSTS AND EXPENSES 18,394,064 14,450,848
---------- ----------
Earnings from operations before income taxes 203,257 285,019
Income tax expense 189,158 171,177
----------- ----------
NET EARNINGS $ 14,099 $ 113,843
============ ============
BASIC EARNINGS PER SHARE $ .01 $ .05
------------- -------------
DILUTED EARNINGS PER SHARE $ .01 $ .04
-------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended May 31, 2000 and 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Notes
Paid-In Retained Receivable
Shares Amount Capital Earnings Officers Total
------ ------ ------- -------- -------- -----
Balance at
June 1, 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
Effect of
fractional shares
paid out in cash (6) --- --- --- --- ---
Stock Based
Compensation 25,000 25 31,625 --- --- 31,650
------ -- ------ ------
Net Earnings 14,099 14,099
-------------- ------- ---------- ------- ------ -------------
Balance at
May 31, 2000 2,506,475 $ 2,506 $5,803,704 $3,249,868 $(1,519,659) $7,536,419
========= ======= ========== ========== ============ ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31,
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $14,099 $ 113,842
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,384,045 2,015,390
(Gain) on disposal of fixed assets (379,290) (473,532)
Provision for losses on accounts receivable (85,093) 89,718
(Decrease) in deferred income (400,840) (216,353)
Recognition of deferred revenue (340,389) (125,122)
Stock based compensation 31,650 ---
Deferred tax provision 167,158 153,000
(Increase) decrease in operating assets
Accounts receivable (189,560) (512,509)
Receivables from affiliates 518,694 (304,739)
Other receivable 1,100,000 (1,100,000)
Inventories 12,142 (2,304)
Prepaid expenses and other current assets 72,336 (344,582)
Other assets (57,431) (250,276)
(Decrease) Increase in operating liabilities
Accounts payable and accrued expenses (442,252) 506,401
Deferred revenue 365,604 115,344
Deferred income 379,290 473,532
------- -------
Net cash provided by operating activities 3,150,163 137,810
Cash flows from investing activities:
Purchases of fixed assets (5,700,662) (5,096,479)
Proceeds from sale/leaseback transactions 1,953,254 2,200,000
Collection on note receivable 43,387 17,985
------- -------
Net cash used in investing activities (3,704,021) (2,878,494)
----------- ----------
Cash flows from financing activities:
Proceeds from stock transactions --- 1,609
Principal payments on term loans --- (22,296)
Proceeds from note payable 500,000 ---
Proceeds from line of credit 2,400,000 4,500,000
Principal payments on line of credit (2,650,000) (2,000,000)
----------- -----------
Net cash provided by financing activities 250,000 2,479,313
-----------
Decrease in cash and cash equivalents (303,858) (261,371)
Cash and cash equivalents at beginning of year 1,533,576 1,794,947
----------- ---------
Cash and cash equivalents at end of year $1,229,718 $1,533,576
========== ==========
Supplemental Disclosure of Noncash Investing and Financing Activities:
In February 2000, the Company granted 25,000 shares of Common Stock with a fair
market value of $31,650 as a bonus to the Chairman of the Board of Directors for
services to the Company.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
SANDATA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2000 and 1999, the Company received revenues from a group of
customers who are all funded by one governmental agency, amounting to
approximately $10,623,000 and $9,460,000, respectively. The Company was
owed approximately $1,362,000 and 1,394,000 from these customers at May
31, 2000 and 1999, 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 income 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.
Research and Development
Research and development costs are charged to expense as incurred.
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.
Basic earnings per share are based on the weighted-average number of
shares of common stock outstanding, which were 2,489,562 at May 31,
2000 and 2,372,941 at May 31, 1999. 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: 2,682,784 at May 31, 2000
and 2,569,209 at May 31, 1999.
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 not 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, 2000.
Statements of Cash Flows
The Company paid income taxes of approximately $21,000 and $22,000 and
interest of approximately $231,000 and $87,000 for the years ended May
31, 2000 and 1999, 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 and Similar Equity Instruments
The Company accounts for stock options and similar equity instruments
(collectively "Options") issued to employees and directors in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," rather than the fair value
based method of accounting prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The exercise price for Options issued to employees and
directors equals or exceeds the fair market value of the Company's
Common Stock at the date of grant and, accordingly, no compensation
expense is recorded. Equity instruments issued to acquire goods and
services from non-employees are accounted for based on the fair value
of the consideration received or the fair value of the equity
instruments issued, whichever is more readily determinable.
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 June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which has been deferred to June
30, 2000 by publishing of SFAS No. 137, and is effective for the
Company beginning June 1, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. This Statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value
of a derivative instrument depends on its intended use and the
resulting designation. The Company does not expect that this standard
will have a material impact on its financial statements.
<PAGE>
NOTE 2 - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<S> <C> <C> <C>
Useful May 31,
-------
Life 2000 1999
------ ---- ----
Computer equipment 5 years $ 2,901,023 $2,697,149
Software costs 5 years 13,167,965 9,657,699
Furniture, fixtures and automobiles 4-7 years 327,465 269,337
Leasehold improvements 10 years 2,781,728 2,615,741
--------- -----------
19,178,181 15,239,926
Less accumulated depreciation and amortization 10,266,526 8,070,924
---------- -----------
$ 8,911,655 $7,169,002
=========== ==========
</TABLE>
Depreciation and amortization expense relating to fixed assets (other
than software costs) amounted to approximately $561,000 and $693,000 in
2000 and 1999, respectively.
Unamortized software costs amounted to approximately $6,755,000 and
$4,946,000 at May 31, 2000 and 1999, respectively. Amortization expense
for these costs totaled approximately $1,823,000 and $1,322,000 in 2000
and 1999, respectively.
Research and development expenses amounted to approximately $122,000
and $192,000 in 2000 and 1999, respectively.
NOTE 3 - DEBT
Credit Agreement
On April 18, 1997, the Company's wholly owned subsidiary, Sandsport
Data Services, Inc. ("Sandsport"), entered into a revolving credit
agreement (the "Credit Agreement") with a bank (the "Bank") which
allows Sandsport to borrow amounts up to $3,000,000. Interest accrues
on amounts outstanding under the Credit Agreement at a rate equal to
the London Interbank Offered Rate plus 2% and will be paid quarterly in
arrears or, at Sandsport's option, interest may accrue at the Bank's
prime rate. The Credit Agreement 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 which expired on March 1, 2000 has been amended by the
Bank to permit Sandsport to borrow amounts up to $4,500,000 until
February 14, 2003. Interest accrues at the same rate as the original
Credit Agreement. The indebtedness under the Credit Agreement is
guaranteed by the Company and Sandsport's sister subsidiaries (the
"Group"). 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 the
Company's Chairman. All of the Group's assets are pledged to the Bank
as collateral for the amounts due under 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 failed to meet these net worth and financial
ratios, and the Bank granted the Group a waiver. As of May 31, 2000,
the outstanding balance on the Credit Agreement with the Bank was
$2,250,000
Long Term Debt
Long-term debt at May 31, 2000 and 1999 was as follows:
<TABLE>
<S> <C> <C>
2000 1999
---- ----
Note payable to affiliate, due 2001 $ 500,000 $ ---
Variable Rate Term Loan under Credit Agreement 2,250,000 - 2,500,000
----------- -------------
2,750,000 2,500,000
Less: current portion of long-term debt -0- 2,500,000
----------- --------------
Long-term debt $2,750,000 $ -0-
========== ==============
</TABLE>
As of May 31, 2000, the Company owed National Medical Health Card
Systems, Inc. ("Health Card") a company affiliated with the Company's
Chairman of the Board, $500,000 pursuant to a promissory note, dated
May 31, 2000, made payable by the Company to the order of Health Card
in the original principal amount of $500,000 plus interest at the rate
of 9 1/2%; interest on such note is payable quarterly and such note is
due on June 1, 2001. (See Note 6.)
Maturities of long term debt at May 31, 2000 are as follows:
2001 $ ---
2002 500,000
2003 2,250,000
----------
$2,750,000
NOTE 4 - INCOME TAXES
The income tax expense is comprised of the following:
<TABLE>
<S> <C> <C>
Year ended May 31,
2000 1999
---- ----
Current
Federal $ --- $ ---
State 22,000 18,177
Deferred - Federal and state 167,158 153,000
------- -------
$189,158 $171,177
</TABLE>
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<S> <C> <C>
Year ended May 31,
2000 1999
---- ----
Statutory U.S. federal tax rate 34.0% 34.0%
State taxes 10.8 4.7
Net operating loss carryforwards (318.3) (97.4)
Impact of changes in items giving rise to deferred taxes:
Depreciation and amortization 369.0 151.2
Deferred revenue 4.3 (2.9)
Other (6.70) (7.9)
------ ------
93.1% 60.1%
====== ======
</TABLE>
As of May 31, 2000 and 1999 depreciation and amortization gave rise to
deferred tax liabilities of $2,380,000 and $1,630,000, respectively.
Allowance for doubtful accounts, employee benefit accruals, deferred
gains, net operating loss carryforwards and contribution carryovers
gave rise to deferred tax assets of, $1,677,842 and $1,095,000,
respectively. These amounts are presented net in the consolidated
balance sheet as of May 31, 2000 and 1999, as a noncurrent deferred tax
liability.
At May 31, 2000, the Company had net operating loss carryforwards for
tax purposes of $2,645,305, expiring at various dates through 2020.
NOTE 5- COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company leases office space at 26 Harbor Park Drive, Port
Washington, New York 11050 ("the Facility") from BFS Realty LLC
("BFS"), an affiliate of the Company's Directors (see Note 6). The
Company paid rent in the amount of $694,943 and $661,860 to BFS for
the years ended May 31, 2000 and May 31, 1999, respectively.
The Company has obligations to pay rental expense in connection with
six sale/leaseback transactions. The rental expenses amounted to
approximately $1,956,200 and $1,000,800 for the years ended May 31,
2000 and 1999 respectively. (See Note 8)
Total office space and equipment rental expense under all operating
leases amounted to approximate $3,669,000 and $2,492,000 in fiscal
2000 and 1999, respectively.
Future minimum lease payments for all non cancellable operating leases
at May 31, 2000 are as follows:
Amount
Year ending May 31,
2001 $2,975,274
2002 2,331,945
2003 1,266,541
2004 714,798
2005 238,266
Thereafter ---
----------
$7,526,824
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.
In October 1998, the Company and Provider Solutions Corporation
("Provider") entered into an agreement (the "Agreement") whereby the
parties contemplated the formation of a joint venture to operate a data
processing service bureau in New York to supply services to the
domestic home health care industry. The Company provides such services
through its wholly-owned subsidiary, Pro-Health Systems, Inc.
("Pro-Health"). Pursuant to the Agreement, Provider conveyed certain
software to the Company. The Agreement provides for a purchase price of
$500,000, payable in certain installments as provided in the Agreement.
As of May 31, 2000, the Company has paid approximately $350,000 to
Provider on account of the purchase price.
On October 19, 1999, the Company and Pro-Health brought an action,
Sandata, Inc. and Pro-Health Systems, Inc. v. Provider Solutions
Corporation, Michael Milvain and Charlotte Fritchie, in Supreme Court,
New York County, Index No. 99-26033, based on breach of contract,
fraudulent misrepresentation and other causes of action, demanding
damages of approximately $10,000,000 (the "State Action").
On October 22, 1999, Provider brought a Federal Action in the United
States District Court, Eastern District (the "Federal Action"),
seeking to enjoin the Company and Provider from (i) hiring certain
named employee defendants; (ii) soliciting any present or former
employees of Provider; and (iii) using, without Providers permission,
any trade secret or other proprietary information belonging to
Provider. The Federal Action also sought to (i) enjoin employees from
divulging to the Company, Provider or any other third party, any trade
secret or other proprietary information; and (ii) accepting employment
from the Company, Provider or any other customer or competitor of
Provider. The amended complaint ultimately served on the Company and
Provider on March 31, 2000 demanded judgment against defendants of a
permanent injunction and damages against the Company and Provider for
total amounts ranging from $10,000,000 to $15,000,000. The State
Action was removed and consolidated into the Federal Action.
Sandata and Pro-Health asserted various counterclaims in the Federal
Action demanding damages of $10,000,000 based upon claim of
Declaratory Judgment, Imposition of Constructive Trust, Breach of
Contract, Unfair Competition, Interference with Business Relations and
Economic Advantage and Injunction. The State Action was removed and
later consolidated into the Federal Action.
To date, substantial discovery has taken place and is continuing.
Discovery is expected to be completed by January 2, 2001. The Company
has asserted claims and defenses against Provider and intends to
continue its prosecution of its claims and vigorously defend all claims
against it. Notwithstanding the foregoing, because of the uncertainties
of litigation, no assurances can be given as to the outcome of this
litigation. In the event that the Company were not to prevail in this
litigation, the Company could be required to pay significant damages to
Provider and could be enjoined from taking those certain actions
specified above. A negative outcome in the Provider litigation could
have a material adverse affect on the Company, including, but not
limited to, its business operations and financial condition.
Employment and Deferred Compensation Agreements
On February 1, 1997 the Company and its Chairman ("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, 2000 and 1999 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
Nassau County Industrial Development Agency ("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.TheCompany derives revenue from Health Card for data base and
operating system support, hardware leasing, maintenance and related
administrative services. The revenues generated from Health Card,
amounted to approximately $1,753,000 and $1,765,000 for the years
ended May 31, 2000 and 1999, respectively. At May 31, 2000, the
Company was owed approximately $191,000 by such affiliate, which was
received in full subsequent to May 31, 2000.
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 $39,800. Sandsport is expected to continue to provide to Health
Card consulting services related to Health Card's information systems.
The Company is also indebted under a note payable to Health Card, as
discussed in Note 3.
c. The Company makes various lease payments to affiliates of the
Company's Chairman. The payments are for: equipment rental, which was
$393,903 and $387,346 in fiscal 2000 and 1999, respectively, and rent
for the Facility which was $694,943 and $661,860 in fiscal 2000 and
1999, respectively.
d. 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, 2000 and 1999 the total payments made by the
Company to MAOS were $399,592 and $193,934, respectively.
e. At May 31, 1998, the Company was owed approximately $120,000 from a
company affiliated with the officers of the Company which was converted
to 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 which was
fully repaid within the year ended May 31, 2000.
f. 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,
2000, the Company had written off the $300,000 loan receivable in
addition to $47,296 for services rendered by the Company owed by the
Federation against a reserve established in prior years for these
amounts.
g. During the fiscal year ended May 31, 2000 and 1999 the Company paid
an aggregate of $36,404 and $44,440, respectively on behalf of certain
officers to companies affiliated with the Company's Chairman for
payment of automobile leases.
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. Stock Based Compensation
On February 4, 2000, the Company granted 25,000 shares of Common Stock
with a fair market value of $31,650 to the Company's Chairman as a
bonus for services to the Company. As such, the Company has recorded a
change to its operation for this amount for the year ended May 31,
2000.
c. Stock Options
The Company has stock options outstanding under three stock option
plans.
At May 31, 2000, there were 2,536 options granted at an exercise price
of $1.88 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.
At May 31, 2000, 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, 2000, 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, 2000 at prices
ranging from $1.41 to $2.61 per share over a period of five years from
date of grant.
Summary information with respect to the stock option plans follows:
<TABLE>
<S> <C> <C> <C> <C>
Range of Outstanding Outstanding
exercise options options
prices ($) granted exercisable
------------- --------------- ------------
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
Granted 1.31 - 3.00 682,977 177,965
Cancelled (117,321) (12,900)
--------- --------
Balance 1.31 - 3.00 1,523,902 849,871
========= =======
</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.
On July 14, 1998, the Chairman, certain officers, directors and, a
former director and the spouse of an officer and an employee of
Sandsport Data Services, Inc. ("Sandsport'), the Company's wholly owned
subsidiary, 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. The Company
has received interest payments on such notes in the amount of $120,658
during the fiscal year ending May 31, 2000. As of May 31, 2000, the
outstanding balance on such notes, including principal and accrued but
unpaid interest, was $1,746,145.
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, 2000, an aggregate of 930,860 statutory
stock options were granted under the plan and vest over three to
six-year periods. 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 incentive 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.
In February 2000, the Company granted its Chairman incentive stock
options to purchase an aggregate of 350,000 shares at an exercise price
of $1.31. These options vest and are exercisable over a five year
period.
In April 2000, the Company granted certain directors of the Company
non-statutory stock options to purchase an aggregate of 72,000 shares
at an exercise price of $3.00. These options vest and are exercisable
over a six year period.
In April 2000, the Company granted its President incentive stock
options to purchase an aggregate of 100,000 shares at an exercise price
of $3.00. These options vest over a three year period and are
exercisable over a seven 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 2000 and
1999.
ASSUMPTION
<TABLE>
<S> <C> <C>
May 31,
2000 1999
---- ----
Risk free rate 5.790 - 6.440% 4.33% - 6.74%
Dividend yield .00 .00
Volatility factor of the expected market price of the 1.1537 .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,
2000 1999
---- ----
Pro forma net (loss) income $($92,036) $40,535
Pro forma net (loss) income per share $ (.04) $ .02
The weighted average fair value of options granted during the years
ended May 31, 2000 and 1999 were $1.29 and $.94, respectively, for
shares granted. The weighted average remaining contractual life of
options exercisable at May 31, 2000 is 5 years. The exercisable prices
range from 1.31 to $3.00 for options outstanding as of May 31, 2000.
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 $401,000 and
$216,000 of the deferred gains were recognized in fiscal 2000 and 1999,
respectively. Included in these amounts are the effects of
sale/leaseback transactions entered into fiscal 2000 and 1999, 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 $62,000 of the deferred gain was recognized for fiscal 2000 and
1999, 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 $90,000
and $30,000 of deferred gain was recognized for fiscal 2000 and 1999,
respectively. 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. Approximately $68,000 of deferred gain was recognized for fiscal
2000. An unaffiliated third party purchased the residual rights in such
lease.
In October 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 $895,000,
were sold for $1,115,000. The resulting gain of approximately $220,000
was recorded as deferred income and is being recognized over the life
of the lease, which is thirty-six (36) months. Approximately $49,000 of
the deferred gain was recognized for fiscal 2000. An unaffiliated third
party purchased the residual rights in such lease.
In January 2000, 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 $442,000,
were sold for $561,000. The resulting gain of approximately $119,000
was recorded as deferred income and is being recognized over the life
of the lease, which is thirty-six (36) months. Approximately $13,000 of
deferred gain was recognized for fiscal 2000. An unaffiliated third
party purchased the residual rights in such lease.
In February 2000, 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 $237,000 were sold
for $277,000. The resulting gain of approximately $40,000 was recorded
as deferred income and is being recognized over the life of the lease,
which is thirty-six (36) months. Approximately $3,000 of deferred gain
was recognized for fiscal 2000. 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 $31,296 and $23,259 in fiscal years 2000
and 1999, respectively.
<PAGE>
<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 25, 2000
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, Treasurer, Director
Date: August 25, 2000
By /s/ Hugh Freund
Hugh Freund, Executive Vice President, Secretary, Director
Date: August 25, 2000
By /s/ Gary Stoller
Gary Stoller, Executive Vice President, Director
Date: August 25, 2000
By /s/ Paul J. Konigsberg
Paul J. Konigsberg, Director
Date: August 25, 2000
By /s/ Ronald L. Fish
Ronald L. Fish, Director
Date: August 25, 2000
