U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB
(Mark One)

[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934

For the quarterly period year ended          August 31, 1998

[ ] 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                               (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)


(Former  Name,  Former  Address and Former  Fiscal Year,  if Changed  Since Last
Report)

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


        APPLICABLE ONLY TO REGISTRANTS 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 ISSUERS

The  number of shares  outstanding  of each of the  issuer's  classes  of common
equity, as of October 13, 1998 was 2,481,482 shares.

Transitional Small Business Disclosure Format (check one): Yes No X



<PAGE>



                                      INDEX


                                                                 Page

PART I   FINANCIAL INFORMATION

Item 1   FINANCIAL STATEMENTS:

         CONSOLIDATED CONDENSED BALANCE
         SHEETS as of August 31, 1998 (unaudited)
         and May 31, 1998                                               3

         UNAUDITED CONSOLIDATED CONDENSED
         STATEMENTS OF OPERATIONS for the three
            months ended August 31, 1998 and  August 31, 1997           5

         UNAUDITED CONSOLIDATED CONDENSED
         STATEMENTS OF CASH FLOWS for the three
         months ended August 31, 1998 and August 31, 1997               6

         NOTES TO CONSOLIDATED CONDENSED
         FINANCIAL STATEMENTS                                           7

Item 2   MANAGEMENT'S DISCUSSION AND
         ANALYSIS OR PLAN OF OPERATION                                 11

PART II  OTHER INFORMATION                                             16

Item 1   LEGAL PROCEEDINGS                                             16

Item 2   CHANGES IN SECURITIES                                         16

Item 3   DEFAULTS UPON SENIOR SECURITIES                               16

Item 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY
         HOLDERS                                                       16

Item 5   OTHER INFORMATION                                             16

Item 6   EXHIBITS AND REPORTS ON FORM 8-K                              16



<PAGE>



                         Sandata, Inc. and Subsidiaries


                      CONSOLIDATED CONDENSED BALANCE SHEET




<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>



                                                                                UNAUDITED             AUDITED
                                                                                August 31,             May 31,
                                                                                   1998                  1998
ASSETS:
CURRENT ASSETS
       Cash and cash equivalents                                              $  493,938           $  1,794,947
       Accounts receivable, net of allowance for doubtful
           accounts of $445,000 at August 31, 1998 and
           $443,000 at May 31, 1998                                            1,416,068              1,611,457
       Receivables from affiliates                                               564,312                619,687
       Inventories                                                                11,996                 27,003
       Prepaid expenses and other current assets                                 194,878                140,873

TOTAL CURRENT ASSETS                                                           2,681,192              4,193,967

FIXED ASSETS, NET                                                              6,497,580              5,814,381

OTHER ASSETS
       Notes receivable                                                          187,593                100,000
       Cash surrender value of officer's life insurance,
           security deposits and other                                           535,833                525,281

TOTAL ASSETS                                                                  $9,902,198            $10,633,629

</TABLE>

            See notes to consolidated condensed financial statements

<PAGE>

                         Sandata, Inc. and Subsidiaries

                      CONSOLIDATED CONDENSED BALANCE SHEET

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                                        UNAUDITED             AUDITED
                                                                                        August 31,             May 31,
                                                                                             1998               1998
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
       Accounts payable and accrued expenses                                           $1,697,894         $  2,507,042
       Current portion of long-term debt                                                      ---               22,296
       Deferred/unearned revenue                                                           61,658               23,410
       Deferred income                                                                    177,540              186,358

TOTAL CURRENT LIABILITIES                                                               1,937,092            2,739,106

DEFERRED INCOME                                                                           171,559              215,945
DEFERRED INCOME TAXES                                                                     382,000              382,000

TOTAL LIABILITIES                                                                       2,490,651            3,337,051

SHAREHOLDERS' EQUITY
       Common stock                                                                         3,169                1,560
       Additional paid in capital                                                       5,776,902            4,173,091
       Retained earnings                                                                3,151,135            3,121,927
       Notes receivable - officers                                                     (1,519,659)                 ---

TOTAL SHAREHOLDERS' EQUITY                                                              7,411,547            7,296,578

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                             $9,902,198          $10,633,629

</TABLE>

            See notes to consolidated condensed financial statements


<PAGE>
                         Sandata, Inc. and Subsidiaries

            UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                               THREE MONTHS ENDED
                                                                                                    AUGUST 31,
                                                                                            1998                 1997

REVENUES:
       Service fees                                                                      $3,223,510           $2,974,907
       Other income                                                                         253,328               71,701
       Interest income                                                                       24,398               34,280
                                                                                          3,501,236            3,080,888
COSTS AND EXPENSES:
       Service Fees:
           Operating                                                                      2,117,828            1,981,270
           Selling, general and administrative                                              892,823              596,375
           Depreciation and amortization                                                    439,360              330,251
           Interest expense                                                                   5,730               22,516

TOTAL COSTS AND EXPENSES                                                                  3,455,741            2,930,412

Earnings from operations before income taxes                                                 45,495              150,476

       Income tax expense                                                                    16,287               66,209

NET EARNINGS                                                                          $      29,208          $    84,267

BASIC EARNINGS PER SHARE                                                              $         .01          $       .06

DILUTED EARNINGS PER SHARE                                                            $         .01          $       .04


</TABLE>



            See notes to consolidated condensed financial statements

<PAGE>
                         Sandata, Inc. and Subsidiaries

            UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                         THREE MONTHS ENDED
                                                                                             AUGUST 31,
                                                                                  1998                      1997
Cash flows from operating activities:
Net earnings                                                             $      29,208             $      84,267
Adjustments to reconcile net earnings to net cash
  provided by (used in) operating activities:
       Depreciation and amortization                                           439,360                   330,251
       Increase in allowance for doubtful accounts receivable                    2,315                    48,260
       (Decrease) in deferred income                                           (53,204)                  (71,701)
       Increase in deferred revenue                                             38,248                    26,755
       Decrease (increase) in operating assets                                 131,607                  (338,582)
       (Decrease) in operating liabilities                                    (809,148)                 (305,363)

Net cash (used in) operating activities                                       (221,614)                 (226,113)

Cash flows from investing activities:
       Collection of notes receivable - officers                                   ---                   102,867
       Purchases of fixed assets                                            (1,122,559)                 (599,216)
       Decrease in receivables from affiliates                                  63,851                   327,506
       Collections of note receivable-former affiliates                            ---                    11,363

Net cash (used in) investing activities                                     (1,058,708)                 (157,480)

Cash flows from financing activities:
       Proceeds from stock transactions                                          1,609                   753,183
       Principal payments on term loan                                         (22,296)                  (34,201)
       Proceeds from line of credit                                            250,000                       ---
       Principal payments on line of credit                                   (250,000)                 (500,000)

Net cash provided by financing activities                                      (20,687)                  218,982

       (Decrease) in cash and cash equivalents                              (1,301,009)                 (164,611)
       Cash and cash equivalents at beginning of period                      1,794,947                 1,200,014
       Cash and cash equivalents at end of period                          $   493,938                $1,035,403

</TABLE>

            See notes to consolidated condensed financial statements

<PAGE>
                         Sandata, Inc. and Subsidiaries

               NOTES TO CONSOLIDATED CONDENSED FINANCIAL STTEMENTS
                                   (Unaudited)


1.       CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The Consolidated Condensed Balance Sheet as of August 31, 1998, the Consolidated
Condensed  Statements of Operations  for the three month period ended August 31,
1998 and 1997 and the  Consolidated  Condensed  Statement  of Cash Flows for the
three month period ended August 31, 1998 and 1997 have been prepared by Sandata,
Inc.  and  Subsidiaries  (the  "Company")  without  audit.  In  the  opinion  of
Management,  all adjustments (which include only normal,  recurring adjustments)
necessary to present fairly the financial position as of August 31, 1998 and for
all periods presented have been made.

For  information  concerning  the  Company's  significant  accounting  policies,
reference  is made to the  Company's  Annual  Report on Form 10-KSB for the year
ended May 31, 1998.  Results of Operations  for the period ended August 31, 1998
are not necessarily  indicative of the operating  results  expected for the full
year.

2.       RELATED PARTY TRANSACTIONS

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 (the  "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 the
Company's Chairman 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.

As of June 1, 1998, National Medical Health Card Systems,  Inc., ("Health Card")
of which the Company's Chairman is President, a member of the Board of Directors
and a  principal  shareholder,  hired 11  employees  of the  Company in order to
provide  development,   enhancement,   modification  and  maintenance  services,
previously   provided  by  the  Company.   The  Company  was  paid  $200,000  in
consideration  of  the  Company's   waiving  certain  rights  relative  to  such
employees.  In addition, the Company began leasing certain computer equipment to
Health  Card for  $2,000  per month as well as  computer  hardware  for its data
processing  center at a monthly cost of $20,000  from the Company  pursuant to a
verbal agreement.  The Company is expected to continue to provide to Health Card
consulting services related to Health Card's information systems.

3.       NET EARNINGS PER COMMON SHARE

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"),  which  establishes  standards for computing and presenting  earnings per
share. The new standard  replaces the presentation of primary earnings per share
prescribed  by  Accounting  Principles  Board Option No. 15 "Earnings per Share"
("APB 15"),  with a  presentation  of basic earnings per share and also requires
dual  presentation  of basic and diluted  earnings  per share on the face of the
statement of operations for all entities with complex capital structures.  Basic
earnings  per  share  excludes  dilution  and is  computed  by  dividing  income
available to common stockholders by the weighted-average number of common shares
outstanding for the period.  Diluted earnings per share is computed similarly to
fully diluted  earnings per share  pursuant to APB 15. The Company  adopted SFAS
128 in the third  quarter of fiscal 1998 and has restated  all prior  periods in
its financial statements.

Basic earnings per share are based on the  weighted-average  number of shares of
common stock outstanding,  which were 2,050,860 at August 31, 1998 and 1,382,235
at August 31, 1997. 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:
2,243,866  at August  31,  1998 and  2,293,221  at August 31,  1997.  Options to
purchase  174,000 shares of common stock in 1998 were  outstanding at August 31,
1998 and were not  included in the  computation  of diluted  earnings  per share
because the exercise  price of the options was greater  than the average  market
price of the common stock for the respective period.

4.       STOCKHOLDERS' EQUITY

In October,  1996, the Company commenced a private offering,  on a "best efforts
-all or none"  basis,  to raise  $1,500,000  by issuing an  aggregate of 300,000
shares of Common Stock and five year warrants for the purchase of 150,000 shares
of Common Stock,  at an exercise price of $7.00 per share. In February 1997, the
Company completed such private offering. The net proceeds received in connection
with the sale of  300,000  shares of its  common  stock  were  $1,256,415  after
payment  of  expenses  related  to  the  offering.  Contemporaneously  with  the
execution  and  delivery  by the  Company of the letter of intent with regard to
such private offering, certain assignees of the placement agent acquired 100,000
shares of the Company's Common Stock at a purchase price of $3.00 per share; the
net proceeds from the sale of such 100,000 shares were $260,076.

In  connection  with the closing of such private  offering,  an affiliate of the
placement  agent  entered  into  a  one  year  financial   consulting  agreement
("Financial  Consulting  Agreement") with the Company,  pursuant to which, among
other things,  such affiliate will receive  aggregate annual payments of $36,000
and  certain  assignees  of such  affiliate  received  warrants  to  purchase an
aggregate of 200,000  shares of Common  Stock  exercisable  as follows:  100,000
shares at $5.00 per share and 100,000  shares at $7.00 per share,  such warrants
to be  exercisable  until  December  22,  1998  (with  respect  to the  warrants
exercisable  at $5.00 per share)  and two years  (with  respect to the  warrants
exercisable at $7.00 per share).  The warrants issued in such private  offering,
including  those issued to investors as well as the  assignees of the  placement
agent's affiliate, are redeemable by the Company under certain circumstances.

In August, 1997 the Board of Directors  authorized the execution and delivery of
a notice of redemption to holders of such  warrants.  As a result,  there were a
total of  166,000  warrants  exercised  at $7.00  per  share.  The net  proceeds
generated from warrant exercises were $1,105,827. In September, 1997 the Company
withdrew  its  election to redeem  warrants  issued  pursuant  to the  Financial
Consulting Agreement discussed above.

In August 1997  pursuant to the terms of the  Company's  incentive  stock option
plan,  certain officers of the Company  exercised 206,667 options at an exercise
price of $1.79 per share and 23,333  options at an exercise  price of $1.875 per
share.  Other  option  exercises  by  employees  of the  Company  amounted to an
aggregate  of 222  shares at an  exercise  price of $1.875  per  share.  The net
proceeds  generated from option  exercises  during the fiscal year ended May 31,
1998 were $408,693.

On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former  director of the Company and Carol Freund,  the spouse of Hugh Freund and
an employee of Sandsport 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 $1,609  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.  The shares of Common Stock issued upon exercise have
been pledged as security for the debt.


                         Sandata, Inc. and Subsidiaries

       Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
                                                   
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Results of Operations

Revenues were  $3,501,236 for the three months ended August 31, 1998 as compared
to  $3,080,888  for the three  months  ended  August 31,  1997,  an  increase of
$420,348 or 13.6%.

Service fee revenue for the three months ended August 31, 1998 was $3,223,510 as
compared to  $2,974,907  for the three months ended August 31, 1997, an increase
of $181,627 or 6.1%.  The  increase is  attributable  to revenues  derived  from
SanTrax(R) and SandataNET(R), offset by a decrease in revenues from Health Card.

Other income for the three month period ended August 31, 1998 was  $253,328,  as
compared to $71,701 for the three months ended August 31, 1997.  The increase is
attributable  to an amount  received  from  Health Card in  connection  with its
hiring employees of the Company.

Expenses Related to Services

Operating expenses were $2,117,828 for the three months ended August 31, 1998 as
compared to  $1,981,270  for the three months ended August 31, 1997, an increase
of  $136,558 or 6.9%.  Costs  associated  with  SandataNET  and its  operations,
including payroll and hardware  purchases,  in addition to increases in costs of
operations for other product lines, including payroll,  telephone and rent, were
the primary factors for the increase in operating expenses.

Selling,  general and administrative expenses were $892,823 for the three months
ended August 31, 1998, as compared to $596,375 for the three months ended August
31, 1997,  an increase of $296,448 or 49.7%.  The increase was  primarily due to
increases in consulting,  payroll and commission  expenses relative to increased
efforts to increase  sales in the  SanTrax and  SandataNET  product  lines,  and
certain royalties payable to MCI Telecommunication Corporation.

Depreciation and  amortization  expense  increased  $109,109 to $439,360 for the
three  months ended August 31, 1998 as compared to $330,251 for the three months
ended August 31, 1997.  The increase was primarily  attributable  to fixed asset
additions,  including  computer  hardware and software  capitalization  costs in
connection with ongoing computer system upgrades.

Interest  expense was $5,730 for the three month period ended August 31, 1998 as
compared  to $22,516 for the three  month  period  ended  August 31,  1997.  The
decrease was attributable to less outstanding debt.

Income Tax Expenses

Income tax expense for the three month  period ended August 31, 1998 was $12,605
as compared to $66,209 for the three month period ended August 31, 1997.

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 the Company's  Chairman
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.


<PAGE>


Liquidity and Capital Resources

The Company's  working capital  decreased as of August 31, 1998 to $744,100,  as
compared with $1,454,861 at May 31, 1998.

For the three months ended August 31, 1998, the Company has spent  approximately
$1,123,000 in fixed asset additions,  including  computer  hardware and software
capitalization   costs  in  connection  with  revenue  growth  and  new  product
development.  The Company expects the current levels of capital  expenditures to
continue.

On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg, Gerald Shapiro, a
former  director of the Company and Carol Freund,  the spouse of Hugh Freund and
an employee of Sandsport Data Services, Inc. ("Sandsport"), the Company's wholly
owned subsidiary, exercised their respective options and warrants to purchase an
aggregate  of 921,334  shares of Common  Stock at exercise  prices  ranging from
$1.38 to $2.61 per share for an aggregate cost of  $1,608,861.  Payment for such
shares  was made to the  Company in the  amount of $1,609  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.  The shares of Common Stock issued upon exercise have
been pledged as security for the debt.

On April 18, 1997, the Company's  wholly owned  subsidiary,  Sandsport,  entered
into a revolving credit  agreement (the "Credit  Agreement") with the Bank which
allows  Sandsport to borrow and  re-borrow  amounts up to  $3,000,000.  Interest
accrues on amounts outstanding under the Credit Agreement at a rate equal to the
London Interbank  Offered Rate plus 2% and will be paid quarterly in arrears or,
at Sandsport's option,  interest may accrue at the Bank's prime rate. The Credit
Agreement  required  Sandsport to pay a commitment  fee in the amount of $30,000
and a fee equal to 1/4% per annum payable on the unused average daily balance of
amounts  under the  Credit  Agreement.  In  addition,  there are other  fees and
charges  imposed  based upon  Sandsport's  failure to maintain  certain  minimum
balances.  The Credit  Agreement will expire on March 1, 2000. The  indebtedness
under the Credit  Agreement is guaranteed by the Company and Sandsport's  sister
subsidiaries  (the "Group").  The collateral for the Facility is a first lien on
all equipment owned by members of the Group, as well as a collateral  assignment
of $2,000,000 of life insurance  payable on the life of the Company's  Chairman.
All of the Group  assets are pledged to the Bank as  collateral  for the amounts
due under the Credit Agreement. The Group's guaranty to the Bank was modified to
conform covenants to comply with those in the Credit Agreement.

In addition, pursuant to the Credit Agreement, the Group is required to maintain
certain  levels of net worth and meet  certain  financial  ratios in addition to
various other  affirmative and negative  covenants.  The Group has, in the past,
under  prior  agreements  with the  Bank,  failed  to meet  these  net worth and
financial ratios,  and the Bank has granted the Group waivers.  As of August 31,
1998, there is no balance owed to the Bank on the Credit Agreement.

As of June 1, 1998,  Health Card hired 11  employees  of the Company in order to
provide  development,   enhancement,   modification  and  maintenance  services,
previously provided by the Company. The Company was paid $200,000  consideration
of the Company's waiving certain rights relative to such employees. In addition,
the Company began leasing certain  computer  equipment to Health Card for $2,000
per  month as well as  computer  hardware  for its data  processing  center at a
monthly cost of $20,000  from the Company  pursuant to a verbal  agreement.  The
Company is expected to  continue to provide to Health Card  consulting  services
related to Health Card's information systems.

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.

Year 2000

The Company  believes that its computer systems and those of its major customers
and suppliers are  substantially  Year 2000 compliant and  anticipates  that the
Company  will be in full  compliance  by May  1999.  The  Company  upgrades  its
computer  systems  from time to time as part of its  ongoing  operations  and is
currently planning Year 2000 compliance to occur in conjunction with its planned
conversion to a new software platform.  Accordingly,  it is anticipated that the
Company will incur significant  expenditures in connection with such conversion.
However,  the  Company  does not expect any  material  effect on its  results of
operations  or  financial  position  solely as a result of Year 2000  compliance
issues.


                                                   
                           PART II - OTHER INFORMATION


Item 1 - LEGAL PROCEEDINGS:

Reference is made to Form 10-KSB, May 31, 1998.

Item 2 - CHANGES IN SECURITIES:

None

Item 3  - DEFAULTS UPON SENIOR SECURITIES:

None

Item 4  - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

None

Item 5 - OTHER INFORMATION:

None

Item 6  - EXHIBITS AND REPORTS ON FORM 8-K:

Exhibit 27 - Financial Data Schedule (Electronic Filing Only)


<PAGE>


                                                   
                                   SIGNATURES


Pursuant  to the  requirements  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)



Date:    October 15, 1998              By: /s/ Bert E. Brodsky
                                           Bert E. Brodsky
                                           Chairman of the Board
                                           President, Chief Executive Officer,
                                           Chief Financial Officer



<PAGE>


                                                





                                   October 15, 1998



Securities and Exchange Commission 
450 5th Street, N.W.
Washington, D.C.  20549

                                    Re:   Sandata, Inc., File No. 0-14401

Dear Sir or Madam,

Transmitted  herewith  through  the EDGAR  system is Form 10-QSB for the quarter
ending  August 31, 1998 for Sandata Inc. If you have any  questions or comments,
please contact me at (516)484-4400, extension 215.

                                    Very truly yours,
                                    Linda Scarpantonio
                                    Legal Coordinator