UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the fiscal year ended May 31, 2002

[  ]  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 TECHNOLOGIES, INC.
                (Exact name of small business issuer in its charter)

              DELAWARE                            11-2841799
      (State or other jurisdiction of   (I.R.S. Employee Identification No.)
       incorporation or organization)

                26 Harbor Park Drive, Port Washington, NY    11050
                (Address of principal executive offices)   (Zip Code)

         Issuer's telephone number, including area code: (516) 484-4400

         Securities registered under Section 12(b) of the Exchange Act:
                                      None


         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $.001 par value
                                (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

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<PAGE>


     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, 2002 were $17,852,710.

     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
16, 2002 was $1,536,918.

                   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 16, 2002 was 2,481,808.

         Transitional Small Business Disclosure Format  (check one):

Yes                 No     X
    ------------       ------------

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.


<PAGE>




                                      INDEX

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                                                                                                Page No.

Forward Looking Statements

                                     PART I

Item 1.           Description of Business                                                           1

Item 2.           Description of Property                                                           7

Item 3.           Legal Proceedings                                                                 8

Item 4.           Submission of Matters to a Vote of Security Holders                               9

                                     PART II

Item 5.           Market for Common Equity and Related Stockholder Matters                         10

Item 6.           Management's Discussion and Analysis or Plan of Operation                        11

Item 7.           Financial Statements                                                             18
18

Item 8.           Changes in and Disagreements with Accountants on Accounting
                           and Financial Disclosure                                                18
18

                                    PART III

Item 9.           Directors, Executive Officers, Promoters and Control Persons;
                           Compliance with Section 16(a) of the Exchange Act                       19

Item 10.          Executive Compensation                                                           20

Item 11.          Security Ownership of Certain Beneficial Owners and Management
                           and Related Stockholder Matters                                         23

Item 12.          Certain Relationships and Related Transactions                                   25

                                     PART IV

Item 13.          Exhibits, List and Reports on Form 8-K                                           27

Signatures                                                                                         30

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<PAGE>




     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 Technologies,  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",
or "anticipate",  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 developments in and regulation of the health-case
industry,   new  technology   developments,   competitive  bidding,   risks  and
uncertainties  associated with the Internet and Internet-related  products,  and
other factors.

     The Company is also subject to other risks detailed herein or detailed from
time to time in its Securities and Exchange Commission ("SEC") filings.  Readers
are also urged to carefully review and consider the various  disclosures made by
the Company  which  attempt to advise  interested  parties of the factors  which
affect the Company's business,  including,  without limitation,  the disclosures
made under the  captions  "Description  of  Business"  in Item 1,  "Management's
Discussion  and  Analysis  or  Plan  of  Operation"  in  Item  6,  and  "Certain
Relationships  and Related  Transactions"  in Item 12, of this Form 10-KSB.  All
references to a fiscal year are to the Company's fiscal year which ends May 31.

                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Business Development

             General

     The  Company,  by itself and  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 Medicaid  billing service  delivered via leased lines or over the
Internet,  computerized preparation of management reports,  telephone based data
collection   services,   and  automated   database  driven  outbound   telephone
notification.




<PAGE>


     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. On November 21, 2001,
the Company changed its name from Sandata Inc. to 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) product.

     The primary  customers  are vendor  agencies  that 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 the New York 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 the Human
Resources  Administration  ("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 personal  care 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  Employer's  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.



<PAGE>


     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, 2002 and
2001,  approximately  $5,433,000 or 32% and $5,445,000 or 31%, 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,  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  Provider ("ASP")  solution,  which allows its customers to
access  certain  Pro-Health  software  over the  Internet  without the  customer
needing  sophisticated  hardware at its 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 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.

     For the fiscal years ended May 31, 2002 and 2001, approximately $530,000 or
3%, and $516,000 or 3% 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  telephony  system  (combining  telephones  and  computers)  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.  The information that can be collected and analyzed 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.

     For the fiscal years ended May 31, 2002 and 2001,  approximately $7,691,000
or 45% and $7,562,000 or 43%,  respectively,  of the Company's  total  operating
revenues were derived from services rendered relating to SANTRAX.

     The  software  operates  on the ASP  model,  and 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-two per cent (72%) 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 the last to expire
of various  patents held by MCI or until  October 19, 2010,  whichever is later.
Pursuant to the License  Agreement,  the Company pays MCI certain royalties on a
per call basis.

     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.

     In addition,  the Company develops 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.  The Company has also
offered  managed  services  in the  security  arena  such  as  security  audits,
enterprise  firewalls  and  network  monitoring,  although it  currently  is not
providing  such   services.   The  Company  plans  to  diversify  the  web  site
development,  e-commerce,  and telephone  services and resell them to businesses
throughout the New York metropolitan area.

     For the fiscal years ended May 31, 2002 and 2001, approximately $737,000 or
4% and  $2,071,000  or  12%,  respectively,  of the  Company's  total  operating
revenues were derived from services rendered for outsourcing services.



<PAGE>


     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.
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.  It also provides  custom  programming,  software
development and installation services to this sector.

     For the fiscal years ended May 31, 2002 and 2001  approximately  $2,766,000
or 15% and  $2,170,000 or 12%,  respectively  of the Company's  total  operating
revenues were derived from services rendered relating to SandataNet(R).

     On April 27, 2001,  the Company  acquired  certain assets of North American
Internet Services,  Inc. ("NAIS"),  a provider of broadband  services,  Internet
access, and co-location services.  NAIS had entered bankruptcy  proceedings and,
under the auspices of the Bankruptcy Court, the Company was permitted to "credit
bid" approximately  $124,000 of expenses (including salaries) it had incurred on
behalf of NAIS as the purchase  price for the assets,  and was given 180 days to
exploit the assets it had acquired.  The Company  incurred $77,000 in additional
costs  related to the  acquisition  of these  assets.  The tangible  assets were
determined to have no significant  fair value.  Therefore,  all the expenditures
related to the  acquisition  were  allocated  to  goodwill.  The Company has the
option to abandon the exploitation of these assets within the 180 day period. If
the Company  continues  to use the NAIS assets,  10% of the profits  (defined as
earnings before interest  expense and taxes)  generated by such use must be paid
to the bankruptcy estate for the first three years.

     At May 31, 2001, the Company performed an evaluation of the  recoverability
of the assets acquired from NAIS and concluded that a significant  impairment of
these assets had occurred  based on actual results during the year ended May 31,
2001 and on  estimated  future  cash flows not being  sufficient  to recover the
carrying  value of the goodwill.  Therefore,  the carrying value of the impaired
goodwill  was written down to its  estimated  fair value,  which was  determined
based on discounted  estimated cash flows. The Company  recognized an impairment
loss and write down of the  goodwill  of  approximately  $201,000.  Considerable
management  judgment is necessary to estimate  fair value;  accordingly,  actual
results could vary significantly from such estimates.

             Seasonality

             The Company's revenues are not subject to seasonal fluctuations.



<PAGE>


             Competition

     In the sale of its software products, the Company competes for customers on
the basis of the range, price,  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 is added  competitive
pressure and  uncertainty  because the City of New York  requires all  contracts
with City agencies to undergo competitive bidding.  Furthermore,  the success of
the SHARP business rests with a key officer of the Company,  who has established
strong relationships with the Company's SHARP customers over the years. 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 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 2002 and 2001, the Company  derived  revenues
from  the  Vendor  Agencies  who  are all  funded  by one  governmental  agency,
amounting to  approximately  $10,549,000 or 61% and  $10,608,000 or 60% of total
operating revenues,  respectively. The Company was owed approximately $1,259,000
and $1,160,000 from these customers at May 31, 2002 and 2001, respectively.  The
Company  also  derived  approximately  $693,000 or 4% and  $2,458,000  or 14% of
revenue in the years 2002 and 2001 from  National  Medical  Health Card Systems,
Inc.  ("Health  Card") for  database  and  operating  system  support,  hardware
leasing,  maintenance  and  related  administrative  services.  Health Card is a
public company engaged in the pharmacy  benefits  management  business;  Bert E.
Brodsky,  Chairman of the Board and Chief Executive  Officer of the Company,  is
also the Chairman of the Board and a principal  shareholder of Health Card. (See
Item 6 - "Management's  Discussion and Analysis or Plan of Operation - Liquidity
and Capital Resources").

        The Company markets its products and services through telemarketing and
sales representatives.

             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.

     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  $62,000 and $10,000 during the fiscal
years 2002 and 2001,  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,  2002,  the  Company  and  its  subsidiaries  employed  102
employees,  including  98  full-time  and 4  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.

     On August 8, 2001, the Company  eliminated certain positions and terminated
approximately  thirty (30) employees.  Projected  revenue  reductions and recent
operating losses combined to cause management to re-evaluate staffing needs. The
eliminations and  terminations  from within the Company and its subsidiaries are
expected to generate  approximately  $1,600,000 in reduced expenses on an annual
basis. The Company also incurred approximately $47,000 in severance payments.

     The Company  considers  its  employee  relations  to be  satisfactory.  The
Company is not a party to any collective bargaining agreement.

ITEM 2 - DESCRIPTION OF PROPERTY

     The Company and its  subsidiaries  currently  occupy  approximately  25,188
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,  successor  to BFS Sibling  Realty,  Inc.  and an affiliate of the
Company's Chairman (the "Affiliate"). The Affiliate leases the Facility from the
Nassau County Industrial  Development Agency (the "NCIDA"),  pursuant to a lease
(the  "Lease"),  which was entered into by that Agency and the Affiliate in July
1994. (Subsequent  assignments and re-assignments of that Lease have, in effect,
returned the parties to their original  positions.).  The Lease expires in March
2005.  The  Affiliate  has the right to become  the owner of the  Facility  upon
expiration of the Lease.  The  Affiliate  subleases a portion of the Facility to
the Company.  The Company  currently pays rent to the Affiliate in the amount of
$22,679 per month.  The Affiliate  also receives rent from other  companies that
occupy space in the Facility,  some of which are  affiliated  with the Company's
Chairman.  The Company  believes  that its  facilities  are adequate for current
purposes.  See  Item 6 -  "Management's  Discussion  and  Analysis  or  Plan  of
Operation  -  IDA/SBA  Financing",  and  Note  6a to  the  Financial  Statements
contained in Item 7 of this Form 10-KSB,  for a discussion of the NCIDA and U.S.
Small  Business  Administration   financing   transactions.   See  also  Note  5
(Commitments and  Contingencies) to the Financial  Statements  comprising Item 7
hereof,  for a  description  of the  lease  entered  into as of June 1, 2001 and
revised in November, 2001.

ITEM 3 - LEGAL PROCEEDINGS

     In August of 1999, the Company's  wholly-owned  subsidiary,  Sandsport Data
Services,  Inc.  ("Sandsport")  was named as a defendant in Greater Bright Light
Home Care Services,  Inc. et al. v. Joseph  Jeffries-El,  El Equity Corporation,
Sandsport  Data Services,  Inc. et al.  (Supreme Court of the State of New York,
Kings  County).  Sandsport's  contractual  obligation  to Greater  Bright  Light
involved the depositing of certain government-issued checks into a specific bank
account.  Upon receiving written notification from the agency issuing the checks
to stop depositing them in that account,  Sandsport ceased  depositing them. The
plaintiff  brought the action against Joseph  Jeffries-El and El Equity,  and El
Equity  counterclaimed  against  the  plaintiff,  each  basing its claims on the
financing   agreement  between  them.  El  Equity  also  cross-claimed   against
Sandsport,  asserting that Sandsport converted the  government-issued  checks to
its own use. Although Sandsport is named as a defendant,  the Complaint seeks no
affirmative  relief  against  Sandsport.   Co-defendant  Citibank  has  asserted
indemnification  claims  against  Sandsport  and  all of the  other  defendants.
Sandsport disputes all liability.  The aggregate amount of the funds at issue is
approximately $262,000.

     On October 19, 1999, the Company and  Pro-Health  brought an action against
Provider  Solutions  Corporation  ("Provider") and others, in Supreme Court, New
York County, 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  for the  Eastern  District  of New York  (the  "Federal
Action").  The complaint  demanded relief in the form 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 consolidated  with the Federal
Action.

     On March 8, 2001 the Company, Pro-Health, Provider and all involved parties
and individuals settled the consolidated Federal Action,  globally resolving all
issues,  claims and disputes.  The  settlement  entailed the exchange of general
releases  between the Company,  Pro-Health,  Provider  and all parties,  and the
payment of $600,000 to Provider,  of which $50,000 was paid by the Company.  The
balance  of the  payment  under  the  settlement  was  funded  by the  Company's
insurers.  The  settlement  did not  have a  material  effect  on the  Company's
financial performance.  The Company has retained its proprietary interest in the
subject software.

     On March 1, 2000, Dataline,  Inc.  ("Dataline") began a lawsuit against MCI
WorldCom Network Services,  Inc. ("MCI") and the Company for alleged trade libel
and  related  counts,  in the  United  States  District  Court for the  Southern
District of New York. The court dismissed that lawsuit,  with prejudice,  on May
23, 2002. On May 4, 2001, MCI had brought a patent infringement  lawsuit against
Dataline,  alleging that it was  infringing  three MCI patents,  under which the
Company  has an  exclusive  license in New York City.  Shortly  thereafter,  the
Company  joined  MCI in the suit  against  Dataline.  Pursuant  to a  Settlement
Agreement  dated  January  1, 2002 among MCI,  its  parent  (MCI  Communications
Corporation),  the Company, and Dataline, Dataline acknowledged the validity and
enforceability of the 3 MCI-owned patents that were the subject of the lawsuits.
There were no payments from either MCI or the Company to Dataline.  In addition,
Sandata and  Dataline  entered  into an  Exclusive  Service  Agreement  by which
Dataline  agreed to use the Company's "call capture  infrastructure"  for all of
Dataline's time and attendance systems,  and to pay royalties to the Company for
such use. The terms of the settlement also included mutual releases. See Note 5c
to the Financial Statements comprising Item 7 hereof.

     An action was  commenced  against  the  Company and Health Card by a former
executive of Health Card, Mary Casale, who alleged that employees of both Health
Card and the Company engaged in sex  discrimination as to Ms. Casale,  and thus,
violated  Title VII of the Civil Rights Act of 1964. In February 2002 the matter
was withdrawn from the Equal Employment Opportunity Commission,  and was settled
without any effect on the business or financial condition of the Company.

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 on the Nasdaq  SmallCap  Market under
the symbol "SAND".

     On July 9, 2002 the Company issued a press release  announcing  that Nasdaq
had informed the Company that its shares would be subject to de-listing from the
SmallCap Market for failure to comply with Nasdaq's  Marketplace Rules regarding
minimum  value of publicly  held  shares and  minimum  bid price per share.  The
Company  requested a hearing on these  matters,  and the  de-listing  was stayed
until the  hearing.  The Company was  informed by Nasdaq on August 21, 2002 that
the  Company  had  regained  compliance  with both  Marketplace  Rules and that,
therefore, the hearing was cancelled and the matter is moot.

     The table below sets forth high and low sale prices of the Common Stock, as
furnished by Nasdaq.
<TABLE>
<S>                                                                                   <C>                <C>

                                                                                             Sale Prices
                                                                                       High              Low
                                                                                  ---------------- -----------------
                                                                                  ---------------- -----------------
Fiscal Year Ended
May 31, 2002
First Quarter                                                                           $1.35            $1.07
Second Quarter                                                                          $1.18           $  .84
Third Quarter                                                                           $1.67           $  .75
Fourth Quarter                                                                          $1.02           $  .44

Fiscal Year Ended
May 31, 2001
First Quarter                                                                           $1.88            $1.25
Second Quarter                                                                          $1.50           $  .53
Third Quarter                                                                           $1.41           $  .84
Fourth Quarter                                                                          $1.38           $  .86

</TABLE>

Holders

     The Company has been advised by its transfer agent (North American Transfer
Co.) that the number of holders of record of the Company's  Common Stock,  as of
August 16, 2002 was 991.

Dividends

     No cash  dividends have been paid by the Company on its Common Stock and no
such payment is anticipated in the foreseeable future.

     The Company's  ability to declare and pay dividends is restricted  pursuant
to the terms of a Revolving  Credit  Agreement  dated April 18, 1997 between the
Company and HSBC Bank USA,  formerly Marine Midland Bank (the "Bank"),  and also
under the terms of the  Guaranty  Agreement  dated June 1, 1994 by and among the
Company  (as a  guarantor),  the  Affiliate,  and the Bank (among  others).  The
Guarantee  Agreement was entered into in connection  with the IDA/SBA  Financing
discussed  in Item 6 hereof,  "Management's  Discussion  and Analysis or Plan of
Operation".

ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


     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.

             Analysis of Operations

             Fiscal Years ended May 31, 2002 compared with May 31, 2001

     Service  fee  revenues  for fiscal  2002 were  $17,173,922  as  compared to
$17,769,069  for the  previous  fiscal  year,  a decrease of $595,147 or 3%. The
decrease is primarily  attributable to decreases in revenues from outsourcing of
approximately   $1,300,000   partially  offset  by  increases  in  revenue  from
SandataNet of approximately $775,000.

     Other  income for the year ended May 31,  2002 was  $514,999 as compared to
$368,502  for the year ended May 31,  2001,  an increase of $146,497 or 40%. The
increase is attributable  to $115,000 in payments  received in connection with a
litigation  settlement,  and the  sale of a  customer  list  for  $79,000.  This
increase  is   partially   offset  by  a  decrease  in  income   recognized   on
sales/leaseback transactions.

              Expenses Related to Services

     Operating  expenses  were  $9,877,651  for the year ended May 31, 2002,  as
compared to $10,372,524  for the year ended May 31, 2001, a decrease of $494,873
or 5%. Decreased payroll expenses (approximately $875,000) due to a reduction in
workforce,  and decreased  equipment rental expenses  (approximately  $373,000),
partially offset by increases in purchases for resale  (approximately  $945,000)
were the primary factors for the decrease in operating expenses.

     Selling,  general and  administrative  expenses  for the year ended May 31,
2002 were $5,502,264  compared to $5,004,255 for the year ended May 31, 2001, an
increase of $498,099 or 9%. The  increases  were  primarily  due to increases in
consulting and legal expenses, and additional insurance premiums.

     Depreciation and  amortization  expenses were $1,839,959 for the year ended
May 31,  2002,  as compared to  $2,748,411  for the year ended May 31,  2001,  a
decrease of $908,452 or 33%.  The  decrease was  primarily  attributable  to the
write off of impaired  software in 2001,  as  described  below under the heading
"Impairment of Developed Software."

     Interest  expense for the year ended May 31, 2002 was  $241,729 as compared
to $189,240 for the year ended May 31, 2001,  an increase of $52,489 or 28%. The
increase  was a result  of  higher  overall  average  daily  balances  under the
Company's revolving credit agreement.

             Impairment of Developed Software

     During the fourth  quarter of the year ended May 31, 2001, the Company shut
down  certain  operating  systems and  hardware  configurations,  which had been
capitalized  in  previous  years.  The  Company  had  determined  that the older
system's  architecture  had become  obsolete and too costly to maintain,  so the
Company  coordinated  placing  several new systems in  production  after running
parallel  with  pre-existing  systems  resulting in the  retirement of the older
systems during the fourth quarter.  The Company further determined that there is
no net realizable value remaining since no future revenue would be recognized in
the retired systems because the architecture was completely  replaced by the new
systems.  As such the Company  recognized  an impairment  loss of  approximately
$3,300,000 for the year ended May 31, 2001.

             Impairment of Goodwill

     On April 27, 2001,  the Company  acquired  certain assets of North American
Internet Services,  Inc. ("NAIS"),  a provider of broadband  services,  Internet
access, and co-location  services for approximately  $201,000.  NAIS had entered
bankruptcy  proceedings  and,  under the auspices of the Bankruptcy  Court,  the
Company  was  permitted  to "credit  bid"  approximately  $124,000  of  expenses
(including salaries) it had incurred on behalf of NAIS as the purchase price for
the assets,  and was given 180 days to exploit the assets it had  acquired.  The
Company  incurred  approximately  $77,000  in  additional  costs  related to the
acquisition  of these  assets.  The tangible  assets were  determined to have no
significant  fair  value.  Therefore,   all  the  expenditures  related  to  the
acquisition  were  allocated to goodwill.  The Company has the option to abandon
the  exploitation  of these  assets  within the 180 day  period.  If the Company
continues to use the NAIS assets, 10% of the profits (defined as earnings before
interest expense and taxes) generated by such use must be paid to the bankruptcy
estate for the first three years.

     At May 31, 2001, the Company performed an evaluation of the  recoverability
of the assets acquired from NAIS and concluded that a significant  impairment of
these assets had occurred  based on actual results during the year ended May 31,
2001 and on  estimated  future  cash flows not being  sufficient  to recover the
carrying  value of the  goodwill.  As such,  the carrying  value of goodwill was
written  down to its  estimated  fair  value,  which  was  determined  based  on
discounted  estimated cash flows. The Company  recognized an impairment loss and
write down of the goodwill of approximately  $201,000.  Considerable  management
judgment is necessary to estimate fair value; accordingly,  actual results could
vary significantly from such estimates.

             Income Tax Expenses

     Income tax expense  (benefit) was $249,067 and $(1,293,401) for fiscal 2002
and 2001,  respectively.  The  increase  in income tax  expense is due to higher
pretax  income.  The effective tax rates for fiscal 2002 and 2001 were 63.7% and
(37.0%), respectively.

             IDA/SBA Financing

     In November, 1996 the Company entered into an agreement with the Affiliate,
the Nassau County Industrial  Development  Agency ("NCIDA"),  and Marine Midland
Bank (the  "Bondholder")  (the  "Agreement").  Pursuant  to the  Agreement,  the
Affiliate (i) assumed all of the Company's rights and obligations  under a Lease
Agreement that was  previously  between the Company and the NCIDA (the "Lease"),
and (ii) entered into a Sublease Agreement with the Company for the premises the
Company  occupies.  Pursuant to the  Agreement,  the Affiliate also obtained the
right to become the owner of the premises upon  expiration  of the Lease.  Under
the terms of the Agreement,  the Company is jointly and separately liable to the
NCIDA for all  obligations  owed by the  Affiliate to the NCIDA under the Lease;
however,  the  Affiliate  has  indemnified  the Company  with respect to certain
obligations relative to the Lease and the Agreement.  In addition, the Agreement
provides that the Company is bound by all the terms and conditions of the Lease,
and that a security interest is granted to the Affiliate in all of the Company's
fixtures constituting part of the premises.

     The  foregoing  transactions  and  agreements  were the last in a series of
transactions involving the Company, the Affiliate, NCIDA, the Bondholder and the
U.S. Small Business  Administration.  Chief among these was the borrowing by the
Affiliate in June of 1994 of $3,350,000  in the form of  Industrial  Development
Revenue  Bonds  (the  "Bonds")  to  finance  the  acquisition  of the  Facility.
Simultaneously  with the issuance of the Bonds:  (1) NCIDA obtained title to the
Facility  and  leased  it to the  Affiliate,  (2) the  Affiliate  subleased  the
Facility to the Company, (3) the Bondholder bought the Bonds, (4) the Bondholder
received a mortgage and security  interest in the Facility to secure the payment
of the Bonds. The Affiliate's obligations under the Lease were guaranteed by Mr.
Brodsky,  the  Company,   Sandsport  and  others.  The  Affiliate's  obligations
respecting  repayment  of the Bonds were also  guaranteed  by Mr.  Brodsky,  the
Company, Sandsport and others.

     The Bonds  currently  bear interest at the rate of 9%, and the  outstanding
balance  due on the Bonds as of May 31,  2002 was  $1,444,445.  During the years
ended  May 31,  2002  and  2001,  the  Company  paid  rent to the  Affiliate  of
approximately $408,000 and $615,000, respectively.

     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 SBA  Loan was
assigned to the Affiliate in November 1996;  however,  repayment of the SBA Loan
is guaranteed by the Company and various subsidiaries of the Company. The entire
proceeds  were used to repay a portion of the Bonds.  The SBA Loan is payable in
240 monthly  installments of $6,255,  which includes principal and interest at a
rate of 7.015%. The balance of the SBA Loan as of May 31, 2002 was $599,024.

             Liquidity and Capital Resources

     The Company's  working  capital  decreased as of May 31, 2002 to $1,890,988
from $1,956,661 as of May 31, 2001. The primary factors that  contributed to the
decrease  were  increases  in  accounts  payable,  accrued  expenses,  and notes
receivable-officer,  and decreases in receivables  from  affiliates and deferred
income, offset by an increase in cash and cash equivalents.

     The Company has spent  approximately  $2,620,049 for 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 and directors, and a former
director (who is also 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. The exercise prices ranged 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 $131,994 and $162,110  during the fiscal years ended
May 31, 2002 and 2001. As of May 31, 2002 and 2001, the  outstanding  balance on
such notes,  including principal and accrued but unpaid interest, was $1,669,640
and $1,722,547,  respectively.  (see item 7 "Finacial  Statements" note 12d). On
July 14,  2001,  the  Company  agreed to extend the due dates of the  Promissory
Notes for one hundred  twenty  days.  On  November 9, 2001,  the due date of the
Notes was  extended to November 9, 2004,  and the Company  agreed to  substitute
full  recourse  unsecured  Notes  for  the  Notes  it had  previously  accepted.
Effective December 1, 2001, the interest rate was changed from 8-1/2% to 6%.

     On April 18, 1997 Sandsport, entered into a revolving credit agreement (the
"Credit  Agreement") with the Bank which allowed  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  requires  Sandsport to pay a fee
equal to 1/4% per annum 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 has been amended by the Bank to permit  Sandsport to borrow amounts up
to  $4,500,000  until June 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"). All
of the  Group's  assets are  pledged to the Bank as  collateral  for amounts due
under the  Credit  Agreement,  which  pledge is  secured  by 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.  The
Group's  guaranty  to  the  Bank  was  subsequently   modified  to  include  all
indebtedness  incurred by the Company under the amended Credit  Agreement  dated
August 24, 2001 (see below).

     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, 2001
the Group  failed to meet  these net worth and  financial  ratios,  and the Bank
granted the Group a waiver.  As of August 24, 2001,  Sandsport,  the Company and
the other members of the Group,  and the Bank,  entered into the Third Amendment
and Waiver  (the "Third  Amendment")  to the Credit  Agreement.  Pursuant to the
Third  Amendment,  Sandsport's  covenants  to the Bank to maintain a certain net
worth and to maintain certain financial ratios were revised,  on a going-forward
basis, and the noncompliance with the existing covenants was waived by the Bank.
In addition,  in connection with the Third Amendment,  Sandsport and each member
of the  Group  executed  and  delivered  to the Bank a  Collective  Amended  and
Restated Security Agreement,  pursuant to which the Bank's security interest was
extended  to include a security  interest  in all of the  personal  and  fixture
property of  Sandsport,  the Company and the members of the Group.  On April 11,
2002 the Bank  approved  the  extension  of the  termination  date of the Credit
Agreement  to June 14,  2003.  There  can be no  assurance  that  the Bank  will
continue to grant waivers if the Group fails to meet the net worth and financial
ratios in the future.  If such  waivers are not granted,  any loans  outstanding
under the Credit Agreement become immediately due and payable, which may have an
adverse effect on the Company's business,  operations or financial condition. As
of May 31, 2002, the outstanding  balance on the Credit  Agreement with the Bank
was $4,500,000 and the Company was in compliance with the covenants.

     The  Company is a party to various  sale/leaseback  transactions  involving
certain fixed assets,  principally  computer  hardware,  software and equipment.
Gains on these transactions have been deferred and are being recognized over the
lives of the related leases, each of which is 36 months.  Approximately $297,000
and $344,000 of the deferred gains were recognized in other income for the years
ended May 31, 2002 and 2001,  respectively.  Included  in these  amounts are the
effects of the following sale/leaseback transactions:

     (a) In January 1998, the Company  consummated a  sale/leaseback  of certain
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. Approximately $36,000
of the deferred gain was recognized  for the year ended May 31, 2001,  which was
the last year of the lease. An  unaffiliated  third party purchased the residual
rights in such lease.

     (b) In January 1999, the Company  consummated a  sale/leaseback  of certain
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.
Approximately  $60,000 and $90,000 of deferred gain was recognized for the years
ended May 31, 2002 and 2001, respectively. An unaffiliated third party purchased
the residual rights in such lease.

     (c) In May 1999, the Company entered into a sale/leaseback of certain 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.
Approximately  $68,000 of  deferred  gain was  recognized  for each of the years
ended May 31, 2002 and 2001. An unaffiliated  third party purchased the residual
rights in such lease.

     (d) In October 1999, the Company  consummated a  sale/leaseback  of certain
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.
Approximately  $73,000 of the deferred gain was recognized for each of the years
ended May 31, 2002 and 2001. An unaffiliated  third party purchased the residual
rights in such lease.

     (e) In January 2000, the Company  consummated a  sale/leaseback  of certain
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. Approximately $40,000
of  deferred  gain was  recognized  for each of the years ended May 31, 2002 and
2001. An unaffiliated third party purchased the residual rights in such lease.

     (f) In February 2000, the Company entered into a sale/leaseback  of certain
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. Approximately $14,000
of  deferred  gain was  recognized  for each of the years ended May 31, 2002 and
2001. An unaffiliated third party purchased the residual rights in such lease.

     (g) In November 2000, the Company entered into a sale/leaseback  of certain
fixed assets which had a net book value of approximately $421,500, were sold for
$548,300.  The resulting gain of approximately $126,800 was recorded as deferred
income and is being recognized over the life of the lease. Approximately $42,000
and $21,000 of the deferred gain was recognized for the years ended May 31, 2002
and 2001,  respectively.  An  unaffiliated  third party  purchased  the residual
rights in such lease.

     Until  January of 2002,  the Company was leasing  equipment  and  providing
services to Health Card  pursuant to a verbal  agreement,  and was receiving its
allocable  share of  administrative  and  support  services  that were shared by
Health  Card  and  the  Company,  at a cost  to  Health  Card  of  approximately
$81,000/month.  As of January,  2002, the Company ceased  rendering  services to
Health Card.  Health Card  continues to pay its allocable  share of expenses for
shared services, which amounts to approximately $45,000 per month.

     The Company believes the results of its present  operations,  together with
the available  Credit Line,  should be adequate to fund present and  foreseeable
working capital requirements.

Prospects for the Future, Trends and Other Events

     There is added competitive  pressure and uncertainty in the Company's SHARP
business  because the City of New York requires all contracts with City agencies
to undergo competitive bidding.  Furthermore,  the success of its SHARP business
rests  with  a  key  officer  of  the  Company,   who  has  established   strong
relationships  with the Company's SHARP  customers over the years.  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.

Going Private Transaction

     The  Company  has  received  a  proposal  to  engage  in  a  going  private
transaction.  The proposed  transaction  is  anticipated  to be in the form of a
merger with an entity owned by an investor  group to be led by Bert E.  Brodsky,
the  Company's  Chief  Executive  Officer,  and to include  Hugh Freund and Gary
Stoller,  as well as other  investors (the  "Acquiring  Group")  Pursuant to the
proposal,  the  Company's  shareholders  (other  than Mr.  Brodsky and the other
shareholders  that shall  comprise  part of the  Acquiring  Group) would receive
$1.50 per share of Common  Stock of the Company  (the  "Shares"),  in cash.  The
proposal may be amended, modified or supplemented at any time.

     The Board of Directors has appointed a Special Committee (the "Committee"),
comprised of Ronald Fish and Martin Bernard, to review the proposed transaction.
The  Committee has retained  Brean Murray & Co., Inc. as its financial  advisor,
and has retained its own legal counsel.

     The  proposed  transaction  would result in the  acquisition  of all of the
outstanding Shares of the Company other than the shares owned by Mr. Brodsky and
the other  shareholders  that shall  comprise part of the Acquiring  Group.  The
final  terms  of any  acquisition  will be  based on  negotiations  between  the
Acquiring Group and the Committee.  The proposed acquisition will be subject to,
among other things, (1) the negotiation, execution, and delivery of a definitive
agreement,  (2) approval of the proposed transaction by the Committee,  the full
Board of Directors  and the  Company's  shareholders,  (3) receipt of a fairness
opinion by the Committee,  (4) applicable regulatory approval, and (5) obtaining
any necessary third-party consents or waivers.  There can be no assurance that a
definitive merger agreement will be executed and delivered, or that the proposed
transaction will be consummated.

     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 revenues or income from continuing
operations,  or that would  increase the value of the shares in the long-term or
the short-term.

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

      =========================== ========= ========================================================================
                                                                     Positions and Offices
                                                                      Presently Held with
                 Name               Age                                   the Company
      --------------------------- --------- ------------------------------------------------------------------------
      --------------------------- --------- ------------------------------------------------------------------------
      Bert E. Brodsky                59     Chairman and Treasurer, President Pro Tem
      --------------------------- --------- ------------------------------------------------------------------------
      --------------------------- --------- ------------------------------------------------------------------------
      Hugh Freund                    64     Executive Vice President, Secretary and Director
      --------------------------- --------- ------------------------------------------------------------------------
      --------------------------- --------- ------------------------------------------------------------------------
      Gary Stoller                   49     Chief  Technology Officer, Executive Vice President
      --------------------------- --------- ------------------------------------------------------------------------
      --------------------------- --------- ------------------------------------------------------------------------
      Ronald L. Fish                 61     Director
      --------------------------- --------- ------------------------------------------------------------------------
      --------------------------- --------- ------------------------------------------------------------------------
      Martin Bernard                 53     Director
      =========================== ========= ========================================================================
</TABLE>

     Bert E. Brodsky has been  Chairman 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 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 Compuflight,  a provider of  computerized  flight planning
services.  Since August 1980, Mr. Brodsky has served as Chairman of P.W. Medical
Management,   Inc.,  which  provides   financial  and  consulting   services  to
physicians. Since 1979, Mr. Brodsky has also served as President of Bert Brodsky
Associates, Inc., which provides consulting services.

     Hugh Freund,  a founder of the Company,  was the Company's  President  from
1978 to November  1986,  and a Director of the Company  since its  formation  in
1978.  Since November 1986, Mr. Freund has served as an Executive Vice President
of the Company  and  Secretary  since  1995.  Mr.  Freund is also  President  of
Sandsport,  the Company's  wholly-owned health care data processing  subsidiary.
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 its Chief Information Officer and 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 since 1995, and is the architect of
the SHARP and SanTrax systems.



<PAGE>


     Ronald L. Fish has 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,  and is a  certified  public
accountant.  Mr. Fish serves on the Company's Audit Committee and on the Special
Committee.

     Martin  Bernard has served as a Director of the Company  since  October 22,
2001.  Since 1970,  Mr.  Bernard has worked in the insurance  industry,  most of
those years  working for The Rampart  Group,  located in Lake  Success,  NY. Mr.
Bernard is a graduate of the New York Institute of Technology,  earning a degree
in Business  Administration and since 1997 has been a Trustee of the North Shore
LIJ Health  Systems.  Mr. Bernard serves on the Company's Audit Committee and on
the Special 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, 2002,  the  Company's  officers,
Directors  and  10%   shareholders   complied  with  all  Section  16(a)  filing
requirements applicable to them except: Mr. Fish failed to timely file 4 reports
relative  to 4  transactions  and Mr.  Bernard  failed to  timely  file 1 report
relative to 1 transaction.

ITEM 10 - EXECUTIVE COMPENSATION

Summary Compensation Table

     The  following  table sets forth certain  information  for the fiscal years
ending  May 31,  2002,  2001 and 2000  concerning  the  compensation  of Bert E.
Brodsky,  the  Chairman  and Chief  Executive  Officer of the  Company;  Stephen
Davies,  President of the Company from February 2000 until August 6, 2001;  Hugh
Freund, Executive Vice President and Secretary; and Gary Stoller, Executive Vice
President and Chief Technology  Officer.  No other executive officer had a total
salary and bonus in excess of $100,000 for the fiscal year ended May 31, 2002.

<PAGE>



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

=========================== ======= ======================================== ================================= ==============
                                             Annual Compensation                  Long-Term Compensation
--------------------------- ------- ---------------------------------------- --------------------------------- --------------
--------------------------- ------- ------------ ---------- ---------------- ------------------------ -------- -------------
                                                                                     Awards           Payouts
--------------------------- ------- ------------ ---------- ---------------- ------------------------ -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                                                             Other Annual    Restricted   Securities
                                                               Compensa-        Stock     Underlying  LTIP      All Other
    Name and Principal                Salary       Bonus         tion          Awards     Options/    Payouts  Compensation
         Position            Year       ($)         ($)           ($)            ($)       SARs (#)     ($)        ($)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------

--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
Bert E. Brodsky, Chairman    2002   297,693 (2)     --         27,334(4)         --           --        --      53,785 (5)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2001   310,000 (2)     --         27,918(4)         --           --        --      41,246 (5)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2000   200,000 (2)  113,650      14,013 (4)         --        350,000      --      28,564 (5)
                                                    (3)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
Gary Stoller, Executive      2002     155,769      5,000      14,366 (4)         --           --        --      16,040 (6)
Vice President, Chief
Technology Officer
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2001     150,000      5,800       22,391(4)         --           --        --      16,040 (6)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2000     150,000      5,000      22,391 (4)         --           --        --      16,040 (6)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
Hugh Freund, Executive       2002     171,346     30,500      15,585 (4)         --           --        --      22,670 (7)
Vice President, Secretary                                                                                       17,064 (8)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2001     165,000     37,500      15,585 (4)         --           --        --      22,670 (7)
                                                                                                                17,064 (8)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                                                                                                                22,670 (7)
                            2000      82,789      28,000      15,585 (4)         --           --        --      17,064 (8)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
Stephen Davies, President    2002     139,528       --            --             --           --        --          --
(la)
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                             2001     200,159       --            --             --        150,000      --          --
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
--------------------------- ------- ------------ ---------- ---------------- ------------ ----------- -------- -------------
                            2000      62,307        --            --             --        100,000      --          --
                             (1b)
=========================== ======= ============ ========== ================ ============ =========== ======== =============
</TABLE>

     (1a) Mr.  Davies'  employment as President of the Company was terminated on
August 6, 2001. See Note 5 to the Financial Statements comprising Item 7 of this
Annual Report on Form 10-KSB.

     (1b)  Represents  compensation  paid to Mr.  Davies  from  February 1, 2000
through May 31, 2000, of which $12,000 were consultation fees.

     (2) As of May 31,  in each of 2000,  2001 and  2002  Mr.  Brodsky  signed a
waiver wherein he agreed to waive his rights to an additional $300,000, $190,000
and $202,307, respectively, of compensation due to be paid to him for the fiscal
years then  ended,  pursuant to the terms of the  Brodsky  Employment  Agreement
discussed  below under  "Employment  Agreements,  Termination  of Employment and
Change-in-Control Agreements."

     (3)  Represents  25,000  shares of Common Stock  granted to Mr.  Brodsky on
February  4, 2000,  and  $82,000 in bonus paid in the fiscal  year ended May 31,
2000.

     (4)  Represents   compensation   relating  to  the  use  of  Company-leased
automobiles  provided  for business  purposes by an  affiliate of the  Company's
Chairman.

     (5)  Includes  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 his spouse.

     (6)  Includes  insurance  premiums  paid by the  Company  on  behalf of Mr.
Stoller,  for life  insurance  policies on his life,  the  benefits of which are
payable to his spouse.

     (7)  Includes  insurance  premiums  paid by the  Company  on  behalf of Mr.
Freund,  for life  insurance  policies  on his life,  the  benefits of which are
payable to his spouse.

     (8)  Represents  insurance  premiums  paid by the  Company on behalf of Mr.
Freund  for life  insurance  policies  on his life,  the  benefits  of which are
payable to an insurance trust, of which Mr. Freund is a co-Trustee.

     Option/SAR Grants in Last Fiscal Year

     Not Applicable.

     Aggregated Option/SAR Exercise in Last Fiscal Year and Fiscal Year-End
Option Value Table

     The following table sets forth certain information  concerning the value of
unexercised  options and warrants held by the named  executive  officers for the
fiscal year ended May 31, 2002:
<TABLE>
<S>                                                                             <C>                         <C>

===================== ======================= ================= ========================== ==========================
                                                                  Number of Securities       Value of Unexercised
                                                                 Underlying Unexercised    in-the-Money Options and
                                                                 Options and Warrants at      Warrants at May 31,
                        Shares Acquired on     Value Realized        May 31, 2002(#)                2001($)
        Name               Exercise(#)              ($)         Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
Bert E. Brodsky                 --                   --              536,500/123,500                  0/0
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
Gary Stoller                    --                   --                 143,500/0                     0/0
--------------------- ----------------------- ----------------- -------------------------- --------------------------
--------------------- ----------------------- ----------------- -------------------------- --------------------------
Hugh Freund                     --                   --                 137,000/0                     0/0
===================== ======================= ================= ========================== ==========================
</TABLE>


Compensation of Directors

     During the fiscal year ended May 31, 2002 non-qualified options to purchase
up to 10,000  shares of Common Stock,  at an exercise  price of $1.00 per share,
were issued to each of Messrs.  Bernard and Fish.  In  addition,  for the fiscal
year ended May 31, 2002,  the Company paid an aggregate of $4,000 in  Director's
fees.


     Employment  Contracts,  Termination  of  Employment  and  Change-in-Control
Arrangements

     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, 2001 and
2000, and has signed waivers  evidencing his agreement to such  reductions.  The
Brodsky Employment  Agreement was renewed, on identical terms, on March 1, 2002,
and Mr.  Brodsky  again  agreed to accept a reduction  in  compensation  for the
fiscal year ended May 31, 2002.



<PAGE>


     In  May  1992,  Mr.  Brodsky  and  the  Company  entered  into  a  deferred
compensation  agreement  pursuant  to which  the  Company  would  (i) pay to Mr.
Brodsky a lump sum ranging from $75,000 to $255,000 if he voluntarily terminated
his employment  with the Company after attaining 55 years of age, or (ii) pay 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.
This agreement was terminated in October, 2001.

     ITEM 11 - SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT,
AND RELATED STOCKHOLDER MATTERS

     The following table sets forth the beneficial  share  ownership,  as of May
31,  2002 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 (except Stephen Davies,  the former President);  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>

============================================== ============================== ======================================
   Name of Management Person and Name and                                            Approximate Percentage
         Address of Beneficial Owner                 Number of Shares                 of Outstanding Shares
---------------------------------------------- ------------------------------ --------------------------------------
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY                                    1,302,957 (1)                          42.5%
---------------------------------------------- ------------------------------ --------------------------------------
Hugh Freund
26 Harbor Park Drive
Port Washington, NY                                      487,721 (2)                          18.6%
---------------------------------------------- ------------------------------ --------------------------------------
Gary Stoller
26 Harbor Park Drive
Port Washington, NY                                      297,278 (3)                          11.3%
---------------------------------------------- ------------------------------ --------------------------------------
Ronald L. Fish
Unlimited Care Inc.
245 Main Street
White Plains, NY 10601                                    26,500 (4)                          1.7%
---------------------------------------------- ------------------------------ --------------------------------------
Martin Bernard
c/o Rampart Group
1983 Marcus Aveue
Lake Success, NY 11042                                         0 (5)                            *
---------------------------------------------- ------------------------------ --------------------------------------
Jessica Heather Brodsky
26 Harbor Park Drive
Port Washington, NY                                      294,470                              11.8%
---------------------------------------------- ------------------------------ --------------------------------------
Jeffrey Holden Brodsky
26 Harbor Park Drive
Port Washington, NY                                      184,925                              7.4%
---------------------------------------------- ------------------------------ --------------------------------------
All executive officers and Directors as a
group (4 persons)                                2,114,456 (1) (2) (3) (4)                    63.7%
============================================== ============================== ======================================

</TABLE>


<PAGE>


     (1) Includes 18,684 shares of the Company's Common Stock owned by the trust
established for the benefit of Mr.  Brodsky's minor son;  includes 20,500 shares
of the Company's  Common Stock owned by Mr.  Brodsky's  wife;  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  226,500 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  41,464 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,  which  options  have been
extended to expire on March 14, 2006; includes presently  exercisable options to
purchase  50,000  shares of Common Stock at $2.61 per share under the 1995 Plan,
which options have been extended to expire on June 10, 2006;  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  presently  exercisable  options to purchase  18,000 shares of
Common Stock at $3.00 per share under the 1998 Plan.  Does not include an option
to  purchase  10,000  shares of common  stock at $1.00 per share  under the 2000
stock option plan, none of which are currently exercisable.

     (5) Does not include an option to purchase 10,000 shares of common stock at
$1.00 per share under the 2000 stock  option plan,  none of which are  currently
exercisable.

*            Less than one percent (1%)

















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



                      EQUITY COMPENSATION PLAN INFORMATION

---------------------------- ------------------------ ----------------------- ---------------------------------------
                                    Number of            Weighted-average         Number of Securities remaining
                                Securities to be       price of outstanding    available for future issuance under
                              issued upon exercise     options warrants and    equity compensation plans (excluding
                                 of outstanding               Rights           securities reflected in column (a))
                              options, warrants and
                                     rights
---------------------------- ------------------------ ----------------------- ---------------------------------------
---------------------------- ------------------------ ----------------------- ---------------------------------------
                                       (a)                     (b)                             (c)
---------------------------- ------------------------ ----------------------- ---------------------------------------
---------------------------- ------------------------ ----------------------- ---------------------------------------

1995  Stock   Option   Plan
(approved    by    security
holders)*                             590,500                   $1.54                          409,500
---------------------------- ------------------------ ----------------------- ---------------------------------------
---------------------------- ------------------------ ----------------------- ---------------------------------------

1998  Stock   Option   Plan
(approved    by    security
holders)*                             775,579                   $2.24                          224,421
---------------------------- ------------------------ ----------------------- ---------------------------------------
---------------------------- ------------------------ ----------------------- ---------------------------------------

2000  Stock   Option   Plan
(approved    by    security
holders)*                              28,340                   $1.59                        1,491,660
---------------------------- ------------------------ ----------------------- ---------------------------------------
</TABLE>

     * There are no equity compensation plans not approved by security holders.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Going Private Transaction

     Reference is made to Item 6 - "Management's Discussion and Analysis or Plan
of  Operation  -  Prospects  for the  Future,  Trends  and Other  Events"  for a
description  of a proposal  that the Company  has  received to engage in a going
private  transaction  with a group  of  investors  that  includes  three  of the
Company's  directors.


 IDA/SBA Financing

     Reference is made to Item 6 - "Management's Discussion and Analysis or Plan
of Operation - IDA/SBA Financing" for a discussion of an industrial  development
revenue bond and SBA financing,  pursuant to which the Company pays rent for its
facility to an affiliate of the Company's Chairman.

             Advances and Loans to Affiliates

     During the years ended May 31, 2002 and 2001, the Company paid an aggregate
of $57,285 and $65,894 on behalf of certain  officers  to  companies  affiliated
with the Company's Chairman for payment of automobile leases.

             National Medical Health Card Systems, Inc.

     The Company owed Health Card $500,000  pursuant to a promissory note, dated
May 31, 2000 and due June 1, 2001 plus interest at the rate of 9-1/2%;  interest
on such note was payable  quarterly.  The Note was paid in May, 2001. On June 9,
2001, the Company again issued a promissory note to Health Card in the principal
amount of  $500,000,  with  interest at the rate of 7%, which was due on June 8,
2002. This Note was paid in full on August 15, 2001.



<PAGE>


     Until  January of 2002 the Company  derived  revenue from Health Card,  for
database and operating  system support,  hardware  leasing,  and maintenance and
related  administrative  services.  The  revenues  generated  from  Health  Card
amounted to  approximately  $693,000 and  $2,458,000 for the years ended May 31,
2002 and  2001,  respectively.  For the  years  ended  May 31,  2002  and  2001,
respectively, the Company billed Health Card approximately $126,000 and $821,000
for quality assurance testing and network support; $47,000 and $561,000 for help
desk services;  $175,000 and $448,000 for data processing  center;  $305,000 and
$534,000  for certain  computer  equipment  leases;  and $40,000 and $95,000 for
other  services.  In addition,  the Company  resells its  telephone  services to
Health Card. The billings for such telephone  services amounted to approximately
$124,000  and $134,000 for the years ended May 31, 2002 and May 31, 2001 and are
recorded as a reduction of operating expense. The Company was owed approximately
$19,000  from Health  Card at May 31,  2002.  Subsequent  to May 31,  2002,  the
Company   received   approximately   $14,000  from  Health  Card,   representing
substantially  complete  payment of amounts  due as of that date.  As of January
2002,  the  Company  ceased  rendering  services  to Health  Card.  Health  Card
continues  to pay its  allocable  share of expenses for shared  services,  which
amounts to approximately $45,000 per month.

             Leases

     The Company makes equipment  lease payments to P.W.  Capital Corp. and P.W.
Medical  Management,  Inc.,  both  of  which  are  affiliates  of the  Company's
Chairman.  The  payments  were  $268,011and  $395,989  in fiscal  2002 and 2001,
respectively.  The payments for the Facility  were made to BFS Realty,  LLC, and
were  $408,000  and  $615,000  for the  years  ended  May  31,  2002  and  2001,
respectively.  In June  2001,  the  Company  entered  into a new  lease  for the
Facility  which  was  revised  in  November  2001.  (See  Item 7,  Note 5 to the
Financial Statements for details.)

             Medical Arts Office Services, Inc.

     Medical  Arts  Office  Services,  Inc.  ("MAOS"),  of which  the  Company's
Chairman  is  the  sole  shareholder,  provided  the  Company  with  accounting,
bookkeeping and legal services. For the fiscal years ended May 31, 2002 and 2001
the total  payments  made by the  Company  to MAOS were  $340,869  and  $279,894
respectively.


<PAGE>


                                     Part IV

ITEM 13 - EXHIBITS, LIST AND REPORTS ON FORM 8-K

       (a)    Exhibit Index

Exhibit Number                    Document

     3.1              Certificate  of  Incorporation   and  Amendments   thereto
                      including Certificate  of Ownership  and Merger (DE) and
                      Agreement  and Plan of Merger (1)

     3.2              Certificate of Amendment to Certificate  of  Incorporation
                      filed July 27, 1993 (1)

     3.3              Certificate  of Amendment to Certificate of  Incorporation
                      filed May 26, 1995 (1)

     3.4              Certificate of  Amendment to Certificate of Incorporation
                      filed  November 21, 2001

     3.5              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)




<PAGE>


  Exhibit Number      Document

    4.7               Revolving  Credit  Agreement dated as of  April 18, 1997
                      by and among Sandsport Data Services,  Inc., the
                      Registrant,  certain  subsidiaries of the Registrants 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., the Registrant, certain subsidiaries of
                      the Registrants and HSBC Bank USA (6)

    10.1              Software License Agreement and Distribution  Agreement
                      between Sandata Home Health Systems,  Inc. and Fastrack
                      Healthcare Systems, Inc. dated as of June 15, 1995 (1)

    10.2              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

    10.5              1986 Non-qualified Stock Option Plan (1)

    10.6              Amendment to 1986 Non-qualified  Stock Option Plan
                      dated April 4, 1989 (1)

    10.7              1995 Stock Option Plan (1)

    10.8              1998 Stock Option Plan (5)

    10.10             Termination  letter dated October 8, 2001,
                      regarding Deferred Compensation  Plan dated
                      May 1, 1992  between the Registrant and Bert E. Brodsky

    10.11             Form of agreement  between  Sandsport Data  Services,
                      Inc. and vendor agency (2)

    10.12             Form of agreement  between  Sandsport Data  Services,
                      Inc. and vendor agency (2)



<PAGE>


 Exhibit Number       Document

   10.13              Form of Subscription Agreement dated December 23, 1996
                      (2)

   10.14              Form of Subscription Agreement dated September 12, 1996(2)

   10.18              Employment 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)

   10.21              Stock Option  Agreement dated December 10, 1998 between
                      the Registrant and Bert E. Brodsky (6)

   10.22              Stock Option  Agreement  dated February 3, 2000 between
                      the Registrant and Bert E. Brodsky (6)

   10.29              Extension  Agreement  dated July 14, 2001,  between the
                      Registrant and certain shareholders (7)

   10.30              Third Amendment and Waiver dated as of  August 24, 2001
                      to Loan Agreement  dated as of April  18,  1997 by and
                      among  Sandsport  Data Services,   Inc.,  the Registrant,
                      certain subsidiaries of the Registrant, and HSBC Bank,
                      USA (7)

   10.31              Collective  Amended and Restated Security Agreement dated
                      as of August 24, 2001, by and among Sandsport Data
                      Services,  Inc., the Registrant, certain subsidiaries
                      of the Registrant, and HSBC Bank, USA (7)

   10.32              Lease Agreement dated November 1, 2001 between the
                      Registrant and BFS Realty, LLC for premises in Port
                      Washington, NY (8)

   10.33              Recourse Note between Bert E. Brodsky and Registrant dated
                      December 1, 2001, in the amount of $1,091,128.24

   10.34              Recourse Note between Hugh Freund and Registrant dated
                      December 1, 2001, in the amount of $420,419.16

   10.35              Recourse Note between Gary Stoller and Registrant dated
                      December 1, 2001, in the amount of $57,742.20

   21                 Subsidiaries of Registrant (6)



<PAGE>


     ---------------------------

     (1) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the fiscal  year  ended May 31,  1995,  and  incorporated  herein by
reference.

     (2) Denotes a document  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 and incorporated herein by reference.

     (3) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the fiscal  year  ended May 31,  1997,  and  incorporated  herein by
reference.

     (4) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the fiscal  year  ended May 31,  1998,  and  incorporated  herein by
reference.

     (5) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the fiscal  year  ended May 31,  1999,  and  incorporated  herein by
reference.

     (6) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the  fiscal  year  ended  May 31,  2000 and  incorporated  herein by
reference.

     (7) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-KSB  for the  fiscal  year  ended  May 31,  2001 and  incorporated  herein by
reference.

     (8) Denotes a document filed as an Exhibit to the Company's  Report on Form
10-QSB for the fiscal quarter ended November 30, 2001 and incorporated herein by
reference.

             (b)  Reports on Form 8-K

     (i) On July 9, 2002 the Company  filed an 8-K  containing  a press  release
announcing that Nasdaq had informed the Company that its shares would be subject
to de-listing from the SmallCap Market for failure to comply with certain Nasdaq
Marketplace Rules.The Company was informed by Nasdaq on August 21, 2002 that the
Company had regained compliance with both Marketplace Rules. See Item 5 hereof.

     (ii) On August 6, 2002 the Company filed an 8-K  containing a press release
announcing that the Company had received a proposal to engage in a going private
transaction  with an  investor  group led by Bert E.  Brodsky,  Chief  Executive
Officer of the Company. See Item 6 hereof.




<PAGE>












                           SANDATA TECHNOLOGIES, INC.

     FINANCIAL  STATEMENTS  COMPRISING  ITEM  7 OF  REPORT  ON  FORM  10-KSB  TO
SECURITIES AND EXCHANGE COMMISSION YEAR ENDED MAY 31, 2002




<PAGE>



                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                                                           Page

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                                    F-2


Financial Statements

  Consolidated Balance Sheets as of May 31, 2002 and 2001                                                   F-3

  Consolidated Statements of Operations for the years ended
   May 31, 2002 and 2001                                                                                    F-4

  Consolidated Statement of Shareholders' Equity for the years
   ended May 31, 2002 and 2001                                                                              F-5

  Consolidated Statements of Cash Flows for the years ended
   May 31, 2002 and 2001                                                                                    F-6


Notes to Consolidated Financial Statements                                                              F-7 - F-29





</TABLE>

<PAGE>













                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



Board of Directors and Shareholders
of Sandata Technologies, Inc. and Subsidiaries

     We have audited the  accompanying  consolidated  balance  sheets of Sandata
Technologies,  Inc. and Subsidiaries (formerly Sandata, Inc.) as of May 31, 2002
and 2001, and the related consolidated  statements of operations,  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  auditing  standards  generally
accepted in the United States of America.  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.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Sandata Technologies, Inc. and Subsidiaries as of May 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.

     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.

/s/ Marcum & Kliegman LLP

Woodbury, New York
July 26, 2002, except for Note 12c and 12d,
which are dated August 21, 2002
and August 22, 2002, respectively


<PAGE>


                 See notes to consolidated financial statements


                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

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

                                                                                                May 31,
                                                                                   2002                   2001
                                                                                   ----                   ----
CURRENT  ASSETS
Cash and cash  equivalents                                                       $1,630,617          $  475,578
Accounts receivable,  net of allowance for doubtful accounts of $202,746
  and  $346,903 at 2002 and 2001,  respectively                                   2,182,963           2,160,675
Receivables from affiliates                                                         280,297             802,787
Inventories                                                                          45,342              35,993
Prepaid expenses and other current assets                                           345,349             416,056
Deferred income taxes                                                               207,595             274,470
                                                                                 ----------          ----------

         Total Current Assets                                                     4,692,163           4,165,559

FIXED ASSETS, NET                                                                 6,820,596           6,036,203
-----------------

DEFERRED INCOME TAXES                                                               171,579             335,773
---------------------

OTHER ASSETS
  Notes receivable                                                                   25,190              29,669
  Cash surrender value of officer's life insurance, security
   deposits and other assets                                                      1,105,502             866,774
                                                                                -----------          ----------

         Total Assets                                                           $12,815,030         $11,433,978
                                                                                ===========         ===========

                                       LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued expenses                                         $ 2,781,550        $  1,881,269
  Deferred/unearned revenue                                                          16,367              31,069
  Deferred income                                                                   103,258             296,560
                                                                                -----------        ------------

         Total Current Liabilities                                                2,901,175           2,208,898

LONG-TERM DEBT                                                                    4,500,000           3,850,000
--------------

DEFERRED INCOME                                                                      21,142             124,401
---------------                                                                 -----------        ------------

         Total Liabilities                                                        7,422,317           6,183,299
                                                                                -----------        ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
  Common stock, $.001 par value, 6,000,000 shares
   authorized; 2,481,808 and 2,506,475 shares issued and
   outstanding in 2002 and 2001, respectively                                         2,482              2,506
  Additional paid in capital                                                      5,765,766          5,803,704
  Retained earnings                                                               1,193,755          1,051,721
  Notes receivable - officers                                                    (1,469,290)        (1,607,252)
                                                                                 -----------        -----------

         Total Shareholders' Equity                                               5,492,713          5,250,679
                                                                                -----------         -----------

         Total Liabilities and Shareholders'
           Equity                                                               $12,915,030        $11,433,978
                                                                                ===========        ===========


</TABLE>

<PAGE>


                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               Years ended May 31,
<TABLE>
<S>                                                                              <C>                 <C>

                                                                                      2002                2001
                                                                                      ----                ----

REVENUES
  Service fees                                                                     $17,173,922        $17,769,069
  Other income                                                                         514,999            368,502
  Interest income                                                                      163,789            185,311
                                                                                 -------------      -------------

       TOTAL REVENUES                                                               17,852,710         18,322,882
                                                                                   -----------        -----------

COSTS AND EXPENSES
  Operating                                                                          9,877,651         10,372,524
  Selling, general and administrative                                                5,502,264          5,004,255
  Depreciation and amortization                                                      1,839,965          2,748,411
  Interest expense                                                                     241,729            189,240
  Impairment of developed software                                                          --          3,298,872
  Impairment of goodwill                                                                                  201,128
                                                                                  ------------       ------------


         TOTAL COSTS AND EXPENSES                                                   17,461,609         21,814,430
                                                                                   -----------        -----------

         Earnings (loss) before income taxes                                           391,101         (3,491,548)

Income tax expense (benefit)                                                           249,067         (1,293,401)
----------------------------                                                      ------------        -----------

         NET EARNINGS (LOSS)                                                      $    142,034       $ (2,198,147)
                                                                                  ============       ============

PER SHARE INFORMATION

         BASIC AND DILUTED EARNINGS (LOSS) PER
          SHARE                                                                   $        .06       $       (.88)
                                                                                  ============       =============

       WEIGHTED-AVERAGE NUMBER OF
        SHARES OUTSTANDING                                                           2,494,175          2,506,475
                                                                                  ============       =============
</TABLE>




<PAGE>




                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                        Years ended May 31, 2002 and 2001

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

                                                                Additional                            Notes               Total
                                       Common Stock              Paid-In         Retained           Receivable        Shareholders'
                               Shares            Amount          Capital         Earnings           Officers             Equity
                               -------            ------         --------        ---------          ----------         ------------
Balance at
June 1, 2000                   2,506,475         $2,506      $5,803,704      $ 3,249,868         $(1,607,252)        $ 7,448,826

Net Loss                              --             --              --       (2,198,147)                 --          (2,198,147)
                            ------------    -----------    ------------      -----------         -----------          -----------


Balance at
 May 31, 2001                  2,506,475          2,506       5,803,704        1,051,721          (1,607,252)          5,250,679

Effect of Stock
 Surrender                       (24,667)           (24)        (37,938)              --              37,962                  --

Net Earnings                                         --              --          142,034                  --             142,034
                              -----------       --------     -----------      ----------         ------------        -----------




Balance at
May 31, 2002                   2,481,808         $2,482      $5,765,766      $ 1,193,755         $(1,469,290)        $ 5,492,713
                               =========         ======      ==========      ===========         ===========         ===========


</TABLE>


<PAGE>


                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               Years ended May 31,

<TABLE>
<S>                                                                                 <C>                 <C>
                                                                                          2002                2001
                                                                                          ----                ----
Cash flows from operating activities
 Net earnings (loss)                                                                 $   142,034         $(2,198,147)
  Adjustments to reconcile net earnings (loss) to net cash
   provided by operating activities:
    Depreciation and amortization                                                      1,839,965           2,748,411
    (Gain) loss on disposal of fixed assets                                               (4,309)             75,111
    Change in allowance for doubtful accounts                                           (144,157)           (100,879)
    Recognition of deferred income                                                      (296,561)           (343,820)
    Recognition of deferred revenue                                                      (36,121)           (116,702)
    Impairment of developed software                                                          --           3,298,872
    Impairment of goodwill                                                                    --             201,128
    Deferred tax provision                                                               231,069          (1,312,401)
  (Increase) decrease in operating assets
     Accounts receivable                                                                 121,869             249,105
     Receivables from affiliates                                                         522,490            (397,055)
     Inventories                                                                          (9,352)            (18,828)
     Prepaid expenses and other current assets                                            70,708              (2,937)
     Other assets                                                                       (234,247)            (24,827)
  (Decrease) Increase in operating liabilities
     Accounts payable and accrued expenses                                               900,282            (698,874)
     Deferred/unearned revenue                                                            21,418             108,923
     Deferred income                                                                          --             126,850
                                                                                     -----------          ----------

         Net cash provided by operating activities                                     3,125,088           1,593,930
                                                                                     -----------          ----------

Cash flows from investing activities:
  Purchases of fixed assets                                                           (2,620,049)         (3,795,285)
  Proceeds from sale/leaseback transactions                                                   --             548,343
  Acquisition of intangible asset                                                             --            (201,128)
                                                                                     -----------         -----------

         Net cash used in investing activities                                        (2,620,049)         (3,448,070)
                                                                                     -----------         -----------

Cash flows from financing activities
  Principal payments on note payable                                                    (500,000)           (500,000)
  Proceeds from note payable                                                             500,000                  --
  Proceeds from line of credit                                                         3,800,000           2,200,000
  Principal payments on line of credit                                                (3,150,000)           (600,000)
                                                                                     -----------         -----------

         Net cash provided by financing
           activities                                                                    650,000           1,100,000
                                                                                     -----------         -----------

         INCREASE (Decrease) in cash and cash                                          1,155,039            (754,140)
          equivalents

Cash and cash equivalents - beginning                                                    475,578           1,229,718
-------------------------                                                           ------------          ----------

Cash and cash equivalents - ending                                                  $  1,630,617          $  475,578
-------------------------                                                           ============          ==========

</TABLE>


<PAGE>


                   SANDATA TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - Summary of Significant Accounting Policies

       Nature of Business and Economic Dependency

     Sandata Technologies,  Inc. and Subsidiaries (the "Company", formerly known
as  Sandata,  Inc.  )  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 ended May 31, 2002 and 2001,  the Company  received
revenues  from a group of  customers  who are all funded by the Human  Resources
Administration  of the  City of New York  ("HRA"),  amounting  to  approximately
$10,549,000 and $10,608,000,  respectively.  The Company was owed  approximately
$1,259,000  and  $1,160,000  from  these  customers  at May 31,  2002 and  2001,
respectively.

       Principles of Consolidation

     The  consolidated  financial  statements  include  the  accounts of Sandata
Technologies,  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.
("Pro-Health",  formerly known as Sandata Inteck,  Inc.). SANTRAX  Productivity,
Inc.  and Sandata  Spectrum,  Inc. are inactive  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

       Reclassifications

     Certain  accounts  in  the  prior  year  financial   statements  have  been
reclassified  for comparative  purposes to conform with the  presentation in the
current year financial  statements.  These  reclassifications  have no effect on
previously reported earnings/loss.

       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.

       Impairment of Long-Lived Assets

     The Company  evaluates  its  long-lived  assets,  including  goodwill,  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying   amount  of  such  assets  or  intangibles  may  not  be  recoverable.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying  amount of the asset to future net cash flows  expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying  amount of the assets
exceed the fair value of the assets as determined by estimated  discounted  cash
flows. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.

NOTE 1 - Summary of Significant Accounting Policies, continued

       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.  Deferred tax assets and  liabilities  are recognized
for  the  future  tax  consequences  attributable  to  differences  between  the
financial  statement  carrying  amounts of existing  assets and  liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those  temporary  differences  are  expected to be  recovered  or settled.
Valuation  allowances  are  established  when  necessary to reduce  deferred tax
assets to the amounts expected to be realized.

       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 annual  amortization  of the  capitalized
amounts  is the  greater  of the ratio of  current  revenue  to total  projected
revenue for a product, or the straight-line  method, and is applied over periods
ranging up to five years. The Company  performs  periodic reviews to ensure that
unamortized program costs remain recoverable from future revenue.

       Research and Development

     Research and development costs are charged to expense as incurred. Research
and development  expenses amounted to approximately  $62,000 and $10,000 in 2002
and 2001, respectively.

       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

     The Company  computes  earnings per share in accordance  with  Statement of
Financial  Accounting  Standards  ("SFAS") No. 128 "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  adjusted  for the
dilutive  effect of outstanding  stock options.  NOTE 1 - Summary of Significant
Accounting Policies, continued

       Net Earnings Per Common Share, continued

     For the year ended May 31, 2002 options and warrants to purchase  1,374,419
shares of common stock were outstanding and were not included in the computation
of diluted  earnings  per share  because the  exercise  price of the options and
warrants were greater than the average market price of the common stock. For the
year ended May 31, 2001, outstanding stock options, warrants and other potential
stock issuances were not been considered in the computation of diluted  earnings
per  share  amounts  since  the  effect  of  their  inclusion  would  have  been
antidilutive. The Company uses the treasury stock method to calculate the effect
that the  conversion  of the stock  options would have on earnings per share and
the weighted average number of shares of common stock.

       Revenue Recognition

     Computerized   Information   Processing  Services.  The  Company  generates
revenues for its computerized information processing services from its Sandsport
Home Attendant Reporting Program ("SHARP") and Pro-Health software applications.
The SHARP application provides weekly time sheets,  billing,  payroll processing
and management reports for  not-for-profit  agencies that provide home attendant
services to those in need.  Revenues are  recognized  for these  services in the
period they are provided.  The Pro-Health  application is an application service
provider  solution  that  provides  home  health  care  customers  access to the
Company's software over the Internet without needing  sophisticated  hardware at
its site to  house  the  software  or  store  the  data.  Customers  using  this
application  are charged a monthly fee and  revenue is  recognized  on a monthly
basis as the service is provided.

     Telephone-Based  Data Collection  Services.  The Company generates revenues
for its telephone-based  data collection services from its automated  electronic
system knows as Sandata(R)  SANTRAX(R)  ("SANTRAX")  software  application.  The
SANTRAX  application  is  an  automated   electronic  system  that  incorporates
telephone  technologies  into the data reporting  process to monitor the arrival
and departure  times of off-site  workers.  Revenues from this  application  are
recognized  based on a per  call or  visit  basis  in the  period  in which  the
services are provided.

     Technology   Infrastructure   and  Outsourcing   Services.   Revenues  from
technology  infrastructure  and  outsourcing  services such as data  processing,
technology infrastructure consulting,  web site development,  running e-commerce
applications and reselling  telephone  services are recognized based on per hour
or call rates in the period the service is provided.



<PAGE>


NOTE 1 - Summary of Significant Accounting Policies, continued

       Revenue Recognition, continued

     Information  Technology  Services.  The  Company  generates  revenues  from
information  technology  services  under  the name of  SandataNet  and  includes
services  such as  software  support,  hardware  support/break-fix,  Local  Area
Network ("LAN")  administration and configuration  services and the reselling of
computer  hardware and third-party  software  systems,  some of the services are
pursuant to long-term contracts. Support revenue is recognized based on per hour
rates in the period the service is provided.  For maintenance  contracts greater
than one  month,  revenue  is  recognized  over the  term of the  contract  on a
straight-line  basis.   Computer  hardware  and  software  resale  revenues  are
recognized when the units are shipped and accepted by the customer.  The Company
does not bundle maintenance with any software sold.

     Long-Term  Contracting.  As discussed above, the Company utilizes long-term
contracts and  recognizes  revenue for financial  statement  purposes  under the
percentage of completion  method and,  therefore,  takes into account the costs,
estimated earnings and revenue-to-date on contracts not yet completed.

     The amount of revenue  recognized  at the financial  statement  date is the
portion of the total contract price that the direct labor costs expended to date
bears to the anticipated total direct labor costs, based on current estimates of
costs to  complete.  Direct  labor  costs  include  all  direct  labor,  related
benefits,  and  subcontract  costs.  This  method  is  used  because  management
considers  direct  labor costs to be the best  available  measure of progress on
these contracts.

     Revisions  in  estimates  of  costs  and  earnings  during  the life of the
contracts are reflected in the accounting  period in which such revisions become
known. At the time a loss on a contract  becomes known, the entire amount of the
estimated loss is recognized in the financial statements.  Billings in excess of
estimated   costs  and  earnings  on  uncompleted   contracts  are  included  in
deferred/unearned revenue.

       Sale/Leaseback

     The Company recognizes gains from sale/leaseback  transactions ratably over
the term of the  underlying  lease.  All such leases are operating  leases.  Any
losses from these transactions are recognized in the period incurred.

       Cash and Cash Equivalents

     The Company considers all short-term  investments with an original maturity
of  three  months  or less  to be cash  equivalents.  Due to the  nature  of its
operations,  the Company  deposits,  on a monthly  basis,  amounts in  financial
institutions for the payment of payroll liabilities for certain customers.  Such
amounts are reduced  when the Company  pays such  liabilities.  Such  reductions
generally  occurs over five to ten business  days. At May 31, 2001,  the Company
had amounts on deposit for these liabilities of approximately $1,300,000.


<PAGE>


NOTE 1 - Summary of Significant Accounting Policies, continued

       Concentration of Credit Risk

     The Company is subject to a  concentration  of credit risk with  respect to
its trade receivables,  as disclosed above. 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, 2002.

       Statements of Cash Flows

     The Company  paid  income  taxes of  approximately  $19,000 and $23,000 and
interest of approximately $242,000 and $252,000 for the years ended May 31, 2002
and 2001, respectively.

       Use of Estimates in the Financial Statements

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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  short term  financial  instruments  include  cash,  accounts
receivable,  receivable  from  affiliates  and  accounts  payable.  Due  to  the
short-term  nature of these  instruments,  the fair  value of these  instruments
approximates  their recorded value.  The Company has long-term debt  instruments
which it believes are stated at their estimated fair 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  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 No. 123, "Accounting for Stock-Based
Compensation."  The exercise price for Options issued to employees and directors
equals or exceeds the fair 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.  NOTE 1 - Summary of
Significant Accounting Policies, continued

       Comprehensive Income

     The Company adopted 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

     The  Company  adopted  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.

       New Accounting Pronouncements

     In October 2001, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets".
SFAS No. 144 addresses the accounting model for long-lived assets to be disposed
of by sale and resulting  implementation  issues.  This statement  requires that
those  long-lived  assets be measured  at the lower of  carrying  amount or fair
value  less  cost to sell,  whether  reported  in  continuing  operations  or in
discontinued  operations.  Therefore,  discontinued operations will no longer be
measured at net realizable  value or include  amounts for operating  losses that
have not yet occurred. It also broadens the reporting of discontinued operations
to include all components of an entity with operations that can be distinguished
from the  rest of the  entity  and  that  will be  eliminated  from the  ongoing
operations  of the entity in a disposal  transaction.  SFAS No. 144 is effective
for the  Company in fiscal  2003.  The  Company is  evaluating  the impact  that
implementation  of SFAS No.  144 may  have on the  financial  statements  of the
Company.



<PAGE>


NOTE 1 - Summary of Significant Accounting Policies, continued

       New Accounting Pronouncements, continued

     On April 30,  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements  No. 4, 44 and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS No. 145 eliminates the requirement that gains and losses from
the  extinguishment  of debt be  aggregated  and, if material,  classified as an
extraordinary  item,  net of the  related  income tax effect and  eliminates  an
inconsistency between the accounting for sale-leaseback transactions and certain
lease   modifications   that  have   economic   effects   that  are  similar  to
sale-leaseback   transactions.   Generally,   SFAS  No.  145  is  effective  for
transactions  occurring  after May 15, 2002.  The  adoption of this  standard is
expected to have no impact to the Company.

     SFAS No.  146,  "Accounting  for Costs  Associated  with  Exit or  Disposal
Activities"  ("SFAS 146"),  provides guidance on the recognition and measurement
of  liabilities  for cost  associated  with  exit or  disposal  activities.  The
provisions of this Statement are effective for exit or disposal  activities that
are initiated  after December 31, 2002. The Company is currently  reviewing SFAS
146 to determine the impact upon adoption.


NOTE 2 - Fixed Assets

       Fixed assets consist of the following:
<TABLE>
<S>                                                                                 <C>                 <C>

                                                                                                May 31,
                                                                     Useful Life            2002               2001
                                                                     -----------            ----               ----
       Computer equipment                                               5 years      $  3,169,445       $  2,883,819
       Software costs                                             Up to 5 years        12,364,224         10,047,618
       Furniture, fixtures and automobiles                            4-7 years           419,274            415,330
       Leasehold improvements                                          10 years         2,823,154          2,809,278
                                                                                     ------------      -------------
                                                                                       18,776,097         16,156,045
       Less:  accumulated depreciation and
                amortization                                                          (11,955,501)       (10,119,842)
                                                                                     ------------       ------------

             Total Fixed Assets, net                                                 $  6,820,596       $  6,036,203
                                                                                     ============       ============
</TABLE>

     Depreciation and amortization  expense relating to fixed assets (other than
software   costs)  amounted  to   approximately   $443,000  in  2002  and  2001,
respectively.

     Unamortized  software  costs  amounted  to  approximately   $5,105,000  and
$4,186,000  at May 31,  2002 and 2001,  respectively.  Amortization  expense for
these costs totaled  approximately  $1,397,000  and $2,305,000 in 2002 and 2001,
respectively.



<PAGE>


NOTE 2 - Fixed Assets, continued

     During the fourth  quarter of the year ended May 31, 2001, the Company shut
down  certain  operating  systems and  hardware  configurations,  which had been
capitalized in previous years. The Company had determined that the older systems
architecture  had become  obsolete  and too costly to  maintain,  so the Company
coordinated  placing  several new systems in production  after running  parallel
with  pre-existing  systems  resulting in the  retirement  of the older  systems
during the fourth quarter.  The Company further  determined that there is no net
realizable  value  remaining  since no future revenue would be recognized in the
retired  systems  because the  architecture  was completely  replaced by the new
systems.  As such the Company  recognized  an impairment  loss of  approximately
$3,300,000 for the year ended May 31, 2001.


NOTE 3 - Debt

       Credit Agreement

     The  Company's  wholly owned  subsidiary,  Sandsport  Data  Services,  Inc.
("Sandsport"),  has a revolving credit agreement (the "Credit Agreement") with a
Bank which allows  Sandsport to borrow  amounts up to  $4,500,000  and is due on
June 14,  2003.  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  requires  Sandsport to pay a fee
equal to 1/4% per annum 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 indebtedness
under the Credit  Agreement is guaranteed by the Company and Sandsport's  sister
subsidiaries (the "Group"). All of the Group's assets are pledged to the Bank as
collateral  for the  amounts  due under the Credit  Agreement,  which  pledge is
secured by 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. In addition, the Company is restricted in its ability
to declare  and pay  dividends  pursuant  to the Credit  Agreement.  The Group's
guaranty  to the Bank was  subsequently  modified  to include  all  indebtedness
incurred by the Company under the amended Credit Agreement dated August 24, 2001
(see below).

     On August 24,  2001,  Sandsport,  the Company and the other  members of the
Group,  and the Bank,  entered into the Third  Amendment  and Waiver (the "Third
Amendment")  to  the  Credit   Agreement.   Pursuant  to  the  Third  Amendment,
Sandsport's  covenants  to the Bank to  maintain  a certain  net  worth,  and to
maintain certain financial ratios, were revised on a going-forward basis and the
noncompliance  with the existing  covenants was waived by the Bank. In addition,
in connection with the Third  Amendment,  Sandsport and each member of the Group
executed and  delivered to the Bank a Collective  Amended and Restated  Security
Agreement,  pursuant  to which the Bank's  security  interest  was  extended  to
include a security  interest  in all of the  personal  and  fixture  property of
Sandsport,  the  Company  and the  members of the Group.  As of May 31, 2002 and
2001,  the  outstanding  balance  on the  Credit  Agreement  with  the  Bank was
$4,500,000 and $3,850,000, respectively.

NOTE 3 - Debt, continued

       Long Term Debt

     The Company  owed  National  Medical  Health Card  Systems,  Inc.  ("Health
Card"), a company affiliated with the Company's Chairman, $500,000 pursuant to a
promissory  note,  dated May 31, 2000 and due June 1, 2001 plus  interest at the
rate of 9-1/2%;  interest on such note was payable quarterly.  The Note was paid
in May, 2001.

     On June 9, 2001, the Company issued a promissory note to Health Card in the
principal amount of $500,000,  with interest at the rate of 7%, which was due on
June 8, 2002. This Note was paid in full on August 15, 2001.


NOTE 4 - Income Taxes

       The income tax expense (benefit) is comprised of the following:
<TABLE>
<S>                                                                             <C>                         <C>

                                                                                            Year Ended May 31,
                                                                                            ------------------
                                                                                           2002             2001
                                                                                           ----             ----
       Current
         Federal                                                                  $          --   $           --
         State                                                                           17,998            19,000
                                                                                       --------     -------------

             Total current                                                               17,998            19,000
                                                                                       --------     -------------

       Deferred
         Federal                                                                        192,761        (1,089,293)
         State                                                                           38,308          (223,108)
                                                                                      ---------      ------------

             Total deferred                                                             231,069        (1,312,401)
                                                                                       --------       -----------

             Income tax expense (benefit)                                              $249,067       $(1,293,401)
                                                                                       ========       ===========
</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,
                                                                                       2002                2001
                                                                                       ----                ----
       Statutory U.S. federal tax rate                                                 34.0%             (34.0%)
       State taxes                                                                      4.6               (5.8)
       Permanent Differences                                                           12.2                1.2
       Other                                                                           12.9                1.6
                                                                                       ----             ------

                                                                                       63.7%             (37.0%)
                                                                                       =====             ======

NOTE 4 - Income Taxes, continued

       The components of deferred tax assets and liabilities consists of the
following:

                                                                                             May 31,
                                                                                       2002                2001
                                                                                       ----                ----
       Deferred Tax Assets-Current portion
         Allowance for Doubtful Accounts                                            $ 81,686           $142,230
         Deferred Income                                                              61,367             43,340
         Accrued Expenses                                                             56,117             79,706
         Other                                                                         8,425              9,194
                                                                                    --------           --------

             Deferred Tax Assets, current                                           $207,595           $274,470
                                                                                    ========           ========

                                                                                             May 31,
                                                                                      2002                2001
                                                                                      ----                ----
       Deferred Tax Assets-Long term portion
         Net Operating Loss Carryforwards                                        $ 1,642,275        $ 1,255,038
         Deferred Income                                                                  --            129,255
         Goodwill                                                                         --             82,872
         Other                                                                           604                615
                                                                                 -----------        -----------

             Deferred Tax Assets, Long-term                                        1,642,879          1,467,780
                                                                                 -----------        -----------

       Deferred Tax Liabilities-Long-term portion
         Depreciation and amortization                                            (1,460,054)        (1,132,007)
         Deferred income                                                             (11,246)                 --
                                                                                 ----------       --------------

             Deferred Tax Liabilities, Long-term                                  (1,471,300)        (1,132,007)
                                                                                 -----------        -----------

             Deferred Tax Assets - Long-term, Net                                    171,579            335,773
                                                                                 -----------        -----------

             Total Deferred Tax Asset, Net                                       $   379,174        $   610,243
                                                                                 ============       ===========
</TABLE>


    Management  determined that it was more likely than not that future taxable
income would be  sufficient to enable the Company to realize all of its deferred
tax assets.  Accordingly,  no valuation  allowance  has been recorded at May 31,
2002 and 2001.

     At May 31, 2002, the Company had net operating loss  carryforwards  for tax
purposes of approximately $4,076,000, expiring at various dates through 2022.




<PAGE>


NOTE 5- Commitments and Contingencies

       Lease Agreements

     The Company leases office space at 26 Harbor Park Drive,  Port  Washington,
NY 11050 (the "Facility")  from BFS Realty LLC,  successor to BFS Sibling Realty
and an affiliate of the Company's  Chairman (the  "Affiliate") (see Note 6). The
Company paid rent in the amount of $407,834 and  $615,412 to the  Affiliate  for
the years ended May 31, 2002 and 2001, respectively.

     On June 1, 2001 (revised  November,  2001) , the Company entered into a ten
(10) year lease for the  Facility  with the  Affiliate.  The lease  provides for
annual rental  payments of $277,817 for the period June 1, 2002 to May 31, 2003,
with annual 5% increases in each 12-month period thereafter.  The lease is being
expensed on a  straight-line  basis over the lease term. The lease also requires
monthly payments of various types, such as the Company's  proportionate share of
real  estate  taxes  and  common  area  maintenance   charges,   that  aggregate
approximately  $10,000 per month.  In November,  2001,  the lease was revised to
provide  that  the  Company  would  pay its  utility  expenses  directly  to the
respective utility company, not to the Affiliate.

     The Company has  obligations to pay rental  expense in connection  with six
sale/leaseback  transactions.  The rental  expenses  amounted  to  approximately
$1,195,000   and   $1,630,000  for  the  years  ended  May  31,  2002  and  2001
respectively. (See Note 8)

     Total office space and equipment  rental expense under all operating leases
amounted to  approximately  $2,294,000  and  $3,417,000 in fiscal 2002 and 2001,
respectively.

     Future minimum lease payments for all non cancelable operating leases at
May 31, 2002 are as follows:

                              Year Ending May 31,                 Amount
                              -------------------                 ------
                                      2003                      $1,759,640
                                      2004                         969,461
                                      2005                         644,554
                                      2006                         336,390
                                      2007                         330,988
                                   Thereafter                    1,739,257
                                                                ----------

                                     Total                      $5,780,290
                                                                ==========


<PAGE>


NOTE 5- Commitments and Contingencies, continued

         Litigation

     a. On October  19,  1999,  the  Company  and  Pro-Health  brought an action
against  Provider  Solutions  Corporation  ("Provider")  and others,  in Supreme
Court,   New   York   County,   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 for the Eastern  District of
New York (the "Federal Action").  The complaint demanded relief in the form 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
consolidated with the Federal Action.

     On March 8, 2001 the Company, Pro-Health, Provider and all involved parties
and individuals settled the consolidated Federal Action,  globally resolving all
issues,  claims and disputes.  The  settlement  entailed the exchange of general
releases  between the Company,  Pro-Health,  Provider  and all parties,  and the
payment of $600,000 to Provider,  of which $50,000 was paid by the Company.  The
balance  of the  payment  under  the  settlement  was  funded  by the  Company's
insurers.  The  settlement  did not  have a  material  effect  on the  Company's
operations.  The Company has  retained its  proprietary  interest in the subject
software.

     b. In August of 1999, the Company's wholly-owned subsidiary,  Sandsport was
named as a defendant in Greater Bright Light Home Care Services,  Inc. et al. v.
Joseph Jeffries-El, El Equity Corporation,  Sandsport Data Services, Inc. et al.
(Supreme Court of the State of New York, Kings County).  Sandsport's contractual
obligation  to  Greater   Bright  Light   involved  the  depositing  of  certain
government-issued  checks into a specific bank account.  Upon receiving  written
notification  from the agency issuing the checks to stop depositing them in that
account,  Sandsport  ceased  depositing  them. The plaintiff  brought the action
against Joseph Jeffries-El and El Equity, and El Equity  counterclaimed  against
the plaintiff,  each basing its claims on the financing  agreement between them.
El  Equity  also  cross-claimed  against  Sandsport,  asserting  that  Sandsport
converted the  government-issued  checks to its own use.  Although  Sandsport is
named  as a  defendant,  the  Complaint  seeks  no  affirmative  relief  against
Sandsport.  Co-defendant  Citibank has asserted  indemnification  claims against
Sandsport and all of the other  defendants.  Sandsport  disputes all  liability.
However,  the  Company is unable to  predict  the  outcome  of these  claims and
accordingly,  no  adjustments  have  been  made  in the  consolidated  financial
statements in response to these claims.

     c. On March 1, 2000,  Dataline,  Inc.  ("Dataline") began a lawsuit against
MCI WorldCom  Network  Services,  Inc. ("MCI") and the Company for alleged trade
libel and related  counts,  in the United States District Court for the Southern
District of New York. The court dismissed that lawsuit,  with prejudice,  on May
23, 2002. On May 4, 2001 MCI had brought a patent infringement lawsuit against


<PAGE>


NOTE 5- Commitments and Contingencies, continued

         Litigation, continued

     Dataline,  alleging that it was infringing  three MCI patents,  under which
the Company has an exclusive license in New York City. Shortly  thereafter,  the
Company  joined  MCI in the suit  against  Dataline.  Pursuant  to a  Settlement
Agreement  dated  January  1, 2002 among MCI,  its  parent  (MCI  Communications
Corporation),  the Company, and Dataline, Dataline acknowledged the validity and
enforceability of the 3 MCI-owned patents that were the subject of the lawsuits.
There were no payments  from either MCI or the Company to  Dataline.  As part of
the settlement, Dataline agreed to pay the Company $100,000 in cash and issue an
8%  promissory  note  in the  amount  of  $721,000.  Due to the  uncertainty  of
realization of the note receivable, the Company is recognizing the income on the
note using the installment  method of accounting.  During the year ended May 31,
2002, the Company has recognized  approximately $115,000 of income. In addition,
Sandata and  Dataline  entered  into an  Exclusive  Service  Agreement  by which
Dataline  agreed to use the Company's "call capture  infrastructure"  for all of
Dataline's time and attendance systems,  and to pay royalties to the Company for
such use. The terms of the settlement also included mutual releases.

     d. An action was commenced  against the Company and Health Card by a former
executive of Health Card, Mary Casale, who alleged that employees of both Health
Card and the Company engaged in sex  discrimination as to Ms. Casale,  and thus,
violated  Title VII of the Civil Rights Act of 1964. In February 2002 the matter
was withdrawn from the Equal Employment Opportunity Commission,  and was settled
without any effect on the financial statements of the Company.

 Royalty Agreement

     The Company has been 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, on a per call basis. The license remains
in  effect  until the last to expire  of  various  patents  held by MCI or until
October 19, 2010, whichever is later.



       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,  2002,
2001,  and  2000  and  has  signed  waivers  evidencing  his  agreement  to such
reductions. The Brodsky Employment Agreement was renewed, on identical terms, on
March 1, 2002.

     In  May  1992,  Mr.  Brodsky  and  the  Company  entered  into  a  deferred
compensation  agreement  pursuant  to which  the  Company  would  (i) pay to Mr.
Brodsky a lump sum ranging from $75,000 to $255,000 if he voluntarily terminated
his employment  with the Company after attaining 55 years of age, or (ii) pay 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.
This  agreement  was  terminated  in  October,  2001.

NOTE 5-  Commitments  and Contingencies, continued

       Employment and Deferred Compensation Agreements, Continued

     On  August  9,  2001  the  Company  announced  that it had  terminated  the
employment  of  Stephen  Davies  as  President  of the  Company,  and  would  be
terminating  approximately 30 other  employees.  Mr. Davies received a severance
payment equal to six (6) months' base salary, or $100,000,  and had 90 days from
the date of  termination to exercise the 66,673 options that were vested on that
date.  None of such  options  were  exercised.  In  addition,  the Company  paid
approximately   $47,000  in  severance   payments  for  approximately  30  other
terminated employees.


NOTE 6 - Related Party Transactions

     a. In  November  1996  the  Company  entered  into an  agreement  with  the
Affiliate, the Nassau County Industrial Development Agency ("NCIDA"), and a Bank
(the "Bondholder") (the "Agreement").  Pursuant to the Agreement,  the Affiliate
(i) assumed all of the Company's rights and obligations  under a Lease Agreement
that was previously  between the Company and the NCIDA (the  "Lease"),  and (ii)
entered into a Sublease  Agreement with the Company for the premises the Company
occupies.  Pursuant to the  Agreement,  the Affiliate also obtained the right to
become the owner of the premises upon  expiration of the Lease.  Under the terms
of the Agreement,  the Company is jointly and separately liable to the NCIDA for
all obligations owed by the Affiliate to the NCIDA under the Lease; however, the
Affiliate  has  indemnified  the  Company  with  respect to certain  obligations
relative to the Lease and the  Agreement.  In addition,  the Agreement  provides
that the Company is bound by all the terms and conditions of the Lease, and that
a security interest is granted to the Affiliate in all of the Company's fixtures
constituting part of the premises.

     The  foregoing  transactions  and  agreements  were the last in a series of
transactions involving the Company, the Affiliate, NCIDA, the Bondholder and the
U.S. Small Business  Administration ("SBA"). Chief among these was the borrowing
by the  Affiliate  in  June  of 1994 of  $3,350,000  in the  form of  Industrial
Development  Revenue  Bonds (the  "Bonds")  to finance  the  acquisition  of the
Facility.  Simultaneously  with the  issuance of the Bonds:  (1) NCIDA  obtained
title  to the  Facility  and  leased  it to the  Affiliate,  (2)  the  Affiliate
subleased the Facility to the Company,  (3) the Bondholder bought the Bonds, (4)
the  Bondholder  received a mortgage  and  security  interest in the Facility to
secure the payment of the Bonds.  The  Affiliate's  obligations  under the Lease
were  guaranteed  by  Mr.  Brodsky,  the  Company,  Sandsport  and  others.  The
Affiliate's  obligations  respecting repayment of the Bonds were also guaranteed
by Mr. Brodsky, the Company, Sandsport and others.


NOTE 6 - Related Party Transactions, CONTINUED

     The Bonds  currently  bear interest at the rate of 9%, and the  outstanding
balance due on the Bonds as of May 31,  2002 was  $1,444,445.  The Company  paid
rent to the  Affiliate of $407,834 and $615,412 for the years ended May 31, 2002
and 2001.

     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 SBA
(the "SBA Loan").  The SBA Loan was assigned to the Affiliate in November  1996;
however,  repayment  of the SBA loan is  guaranteed  by the  Company and various
subsidiaries of the Company. The entire proceeds were used to repay a portion of
the Bonds. The SBA Loan is payable in 240 monthly  installments of $6,255, which
includes principal and interest at a rate of 7.015%. The balance of the SBA loan
as of May 31, 2002 was $599,024.

     b. Until  January  2002,  the Company  derived  revenue from Health Card, a
company  affiliated with the Company's  Chairman,  principally for data base and
operating   system   support,   hardware   leasing,   maintenance   and  related
administrative  services.  The revenues  generated  from Health Card amounted to
approximately $693,000 and $2,458,000 for the years ended May 31, 2002 and 2001,
respectively. The Company billed Health Card approximately $126,000 and $821,000
for quality assurance testing of software programs  developed by Health Card and
network support,  and $47,000 and $561,000 for help desk services,  $175,000 and
$448,000 for data processing center as well as $305,000 and $534,000 for certain
computer  equipment  leases and other services for $40,000 and $95,000 for years
ended May 31, 2002 and 2001,  respectively.  In addition the Company resells its
telephone  services to Health Card.  The billings  for such  telephone  services
amounted to approximately $124,000 and $134,000 for the years ended May 31, 2002
and May 31, 2001 and are  recorded  as a reduction  of  operating  expense.  The
Company was owed $19,280 from Health Card at May 31, 2002. Subsequent to May 31,
2002, the Company received approximately $14,000 from Health Card,  representing
substantially  complete  payment of amounts due as of that date.  As of January,
2002,  the  Company  ceased  rendering  services  to Health  Card.  Health  Card
continues  to pay its  allocable  share of expenses for shared  services,  which
amounts to approximately $45,000 per month.

     c. The Company makes lease and rent payments to affiliates of the Company's
Chairman.  The payments for leased equipment were made to P.W. Capital Corp. and
P.W.  Medical  Management,  Inc.,  and were  $268,011 and $395,989 for the years
ended May 31, 2002 and 2001,  respectively.  The payments for the Facility  were
made to BFS Realty,  LLC, and were $407,834 and $615,412 for the years ended May
31, 2002 and 2001,  respectively.  In June 2001, the Company  entered into a new
lease for the Facility which was revised in November, 2001. (See Note 5).

NOTE 6 - Related Party Transactions, CONTINUED

     d. Medical Arts Office  Services,  Inc.  ("MAOS"),  of which the  Company's
Chairman  is  the  sole  shareholder,  provided  the  Company  with  accounting,
bookkeeping  and legal  services.  For the years ended May 31, 2002 and 2001 the
total  payments  made  by the  Company  to  MAOS  were  $340,869  and  $279,894,
respectively.

     e.  During  the  years  ended  May 31,  2002 and 2001 the  Company  paid an
aggregate of $57,285 and $65,894,  respectively on behalf of certain officers to
companies  affiliated  with the  Company's  Chairman  for payment of  automobile
leases.


NOTE 7 - SHAREHOLDERS' EQUITY

         Stock Options

         The Company maintains the following stock option plans:

1984 Stock Option Plan

     There had been 2,536 options granted at an exercise price of $1.88 under an
incentive  stock  option  plan  adopted  in October  1984 (the "1984  Plan") and
subsequently  amended.  Options granted under this plan were granted at exercise
prices not less than fair market value on the date of grant.  All of the options
outstanding  under this plan expired in January 2001. No additional  options may
be granted under this plan.

1995 Stock Option Plan

     At May 31, 2002, there were 590,500 incentive  options  outstanding under a
stock option plan adopted in January 1995 (the "1995 Plan"),  which provides for
both incentive and nonqualified  stock options and reserves  1,000,000 shares of
common  stock for grant under the plan.  Of these  options,  520,500 are held by
officers of the Company.  The plan requires that incentive options be granted at
exercise  prices not less than the fair market  value at the date of grant,  and
terminates  in  January  2005.  All  options  outstanding  under  this  plan are
exercisable at May 31, 2002 at prices ranging from $1.41 to $2.61 per share over
a period of five years from date of grant.

     On July 14, 1997,  the Company filed a  Registration  Statement on Form S-8
relative to  reofferings  of shares of Common Stock of the Company  which may be
acquired pursuant to the 1984 and 1995 Plan.

1998 Stock Option Plan

     At May 31, 2002 there were  775,579  incentive  stock  options  outstanding
under a stock  option plan  adopted in October  1998,  (the "1998  Plan")  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  incentive  options be granted  at  exercise  prices not less than the fair
market value at the date of grant and  terminates in August 2008. Of the options
outstanding  at May 31, 2002,  567,060 were  exercisable  at prices ranging from
$1.31 to $3.00 over three to five years from the date of grant.



<PAGE>


NOTE 7 - SHAREHOLDERS' EQUITY, CONTINUED

2000 Stock Option Plan

     At May 31, 2002, there were 28,340 incentive  options  outstanding  under a
stock option plan adopted on November 20, 2000 (the "2000 Plan"), which provides
for both incentive and nonqualified  stock options and reserves 1,500,000 shares
of common stock for grant under the plan. The 2000 Plan  terminates in September
2010.  Options  outstanding  under  the  plan  vest  over  a  seven-year  period
commencing December 31, 2000 and ending December 31, 2007 and are exercisable at
prices  ranging  from  $1.00 per  share to $3.00 per share  over a period of ten
years from the date of grant. At May 31, 2002,  there were no options  currently
exercisable.

       Summary information with respect to the stock option plans follows:
<TABLE>
<S>                                                                             <C>                     <C>


                                                                  Range of
                                                                  exercise       Outstanding        Outstanding
                                                                                   options            options
                                                                 prices ($)        granted          exercisable
                                                                 ----------        -------          -----------

       Balance, June 1, 2000                                   1.31 - 3.00        1,523,902           849,871
       Granted                                                     3.00             279,808           269,653
       Cancelled                                                                    (76,118)          (11,146)
                                                                                  ----------      ------------
       Balance, May 31, 2001                                   1.31 - 3.00        1,727,592         1,108,378
       Granted                                                 1.00 - 3.00           40,085           150,895
       Cancelled                                                                   (373,258)         (101,713)
                                                                                 -----------       -----------

       Balance, May 31, 2002                                   1.31 - 3.00        1,394,419         1,157,560
                                                                                  =========         =========
</TABLE>

       Stock option grants to certain officers and directors were as follows:

     In October  1998,  the Company  granted  certain  directors  of the Company
non-qualified  stock  options to purchase an aggregate  of 20,000  shares of the
Company's common stock under the 1998 Plan at an exercise price of $1.00.  These
options vested 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 the 1995 Plan at an exercise  price of $1.41 per
share.  These options vested  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 under the 1998 Plan 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-qualified  stock options to purchase an aggregate of 72,000 shares under the
1998 Plan at an exercise price of $3.00.  These options vest and are exercisable
over a six-year period.



<PAGE>


NOTE 7 - SHAREHOLDERS' EQUITY, CONTINUED

2000 Stock Option Plan,  Continued

     In April 2000,  the  Company  granted its then  President  incentive  stock
options to purchase an  aggregate  of 100,000  shares  under the 1998 Plan at an
exercise price of $3.00. In October 2000, the Company granted its then President
incentive  stock options to purchase  150,000  shares under the 2000 Plan, at an
exercise price of $3.00 per share. The President's  employment was terminated on
August 6, 2001, at which date the  President  became  entitled to exercise,  for
ninety days,  the options that had already  vested.  Those options  consisted of
33,340 shares under the 1998 Plan, and 33,333 under the 2000 Plan, none of which
were exercised before the right to exercise expired.

     In November  2000,  the Company  granted  certain  directors of the Company
non-qualified  stock  options to purchase an aggregate  of 20,000  shares of the
Company's common stock under the 1998 Plan at an exercise price of $3.00.  These
options  vest over a  three-year  period and are  exercisable  over a  five-year
period.

     During the fiscal year ended May 31, 2002 non-qualified options to purchase
up to 10,000  shares of Common Stock,  at an exercise  price of $1.00 per share,
were issued to each of two Director's.

     On July 14, 1998,  the  Chairman,  certain  officers and  directors,  and a
former  director  (who is also 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.  The exercise  prices ranged 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 $131,994 and $162,110
during the fiscal  years  ended May 31,  2002 and 2001.  As of May 31,  2002 and
2001, the outstanding balance on such notes, including principal and accrued but
unpaid interest, was $1,669,640 and $1,722,547,  respectively (see Note 12d). On
July 14,  2001,  the  Company  agreed to extend the due dates of the  promissory
notes for one hundred  twenty  days.  On  November 9, 2001,  the due date of the
notes was  extended to November 9, 2004,  and the Company  agreed to  substitute
full  recourse  unsecured  notes  for  the  notes  it had  previously  accepted.
Effective  December 1, 2001,  the  interest  rate was changed from 8-1/2% to 6%.
During  the year  ended  May 31,  2002,  24,667  shares  of  common  stock  were
surrendered  by a former  director and an employee in settlement of notes in the
amount of $37,962.

     Pro forma  information  regarding  net  income  and  earnings  per share is
required  by SFAS  No.  123,  and has  been  determined  as if the  Company  had
accounted  for its  employee  stock  option plans under the fair value method of
SFAS No.  123.  The fair 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 2002 and 2001.



<PAGE>


NOTE 7 - Shareholders' Equity, continued
<TABLE>
<S>                                                                              <C>                    <C>

        ASSUMPTIONS
                                                                                         Year Ended May 31,
                                                                                         ------------------
                                                                                 2002                       2001
                                                                                 ----                       ----
        Risk free rate                                                       4.95 - 6.05%               5.25 - 6.04%
        Dividend yield                                                               .00%                       .00%
        Volatility factor of the expected market
         price of the Company's common stock                                          61%                       117%
        Average life                                                              5 years                    5 years

</TABLE>

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair 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  value of its  employee  stock
options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is  amortized to expense  over the vesting  period of the  options.  The
Company's pro forma loss is as follows:

<TABLE>
<S>                                                                                  <C>             <C>
                                                                                       Year Ended May 31,
                                                                                      2002               2001
                                                                                      ----               ----
     Pro forma net income (loss)                                                    $78,025       $(2,470,616)
     Pro forma net income (loss) per share                                           $  .03    $         (.99)

</TABLE>

     The weighted  average fair value of options  granted during the years ended
May 31, 2002 and 2001 were $1.12 and $.86,  respectively.  The weighted  average
remaining  contractual  life of options  exercisable at May 31, 2002 is 5 years.
The exercisable  prices range from $1.31 to $3.00 for options  outstanding as of
May 31, 2002.

       Restricted Stock Grant Plan

     On September  1, 2000 the Board of  Directors  approved the adoption of the
Company's 2000 Restricted  Stock Grant Plan (the "Stock Grant Plan").  The Stock
Grant Plan was subsequently  adopted by the Shareholders at the Company's Annual
Meeting on November 20, 2000.  The Stock Grant Plan provides for the issuance of
shares that are subject to both standard restrictions on the sale or transfer of
such shares  (e.g.,  the standard  seven year vesting  schedule set forth in the
Stock  Grant  Plan)  and/or  restrictions  that the  Board may  impose,  such as
restrictions  relating to length of  service,  corporate  performance,  or other
restrictions.  As of May 31, 2002, no grants had been made under the Stock Grant
Plan and, therefore,  no shares had vested under it. There are 700,000 shares of
Common  Stock  reserved for  issuance in  connection  with grants made under the
Stock Grant Plan.

NOTE 8 - Sale/Leaseback Transactions

     The  Company is a party to various  sale/leaseback  transactions  involving
certain fixed assets,  principally  computer  hardware,  software and equipment.
Gains on these transactions have been deferred and are being recognized over the
lives of the related leases, each of which is 36 months.  Approximately $297,000
and $344,000 of the deferred gains were recognized in other income for the years
ended May 31, 2002 and 2001,  respectively.  Included  in these  amounts are the
effects of the following sale/leaseback transactions:

     In January 1998, the Company  consummated a sale/leaseback of certain 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. Approximately $36,000
of the deferred gain was recognized for fiscal 2001,  which was the last year of
the lease.  An  unaffiliated  third party  purchased the residual rights to such
lease.

     In January 1999, the Company  consummated a sale/leaseback of certain 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.
Approximately  $60,000 and $90,000 of deferred gain was recognized for the years
ended May 31, 2002 and 2001, respectively. An unaffiliated third party purchased
the residual rights in such lease.

     In May 1999,  the Company  consummated  a  sale/leaseback  of certain 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.
Approximately  $68,000 of  deferred  gain was  recognized  for each of the years
ended May 31, 2002 and 2001. An unaffiliated  third party purchased the residual
rights in such lease.

     In October 1999, the Company  consummated a sale/leaseback of certain 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.
Approximately  $73,000 of the deferred gain was recognized for each of the years
ended May 31, 2002 and 2001. An unaffiliated  third party purchased the residual
rights in such lease.

     In January 2000, the Company  consummated a sale/leaseback of certain 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. Approximately $40,000
of  deferred  gain was  recognized  for each of the years ended May 31, 2002 and
2001. An unaffiliated third party purchased the residual rights in such lease.


<PAGE>


NOTE 8 - Sale/Leaseback Transactions, continued

     In February 2000, the Company consummated a sale/leaseback of certain 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. Approximately $14,000
of  deferred  gain was  recognized  for each of the years ended May 31, 2002 and
2001. An unaffiliated third party purchased the residual rights in such lease.

     In November 2000, the Company consummated a sale/leaseback of certain fixed
assets  which  had a net book  value of  approximately  $421,500,  were sold for
$548,300.  The resulting gain of approximately $126,800 was recorded as deferred
income and is being recognized over the life of the lease. Approximately $42,000
and $21,000 of the deferred gain was recognized for the years ended May 31, 2002
and 2001,  respectively.  An  unaffiliated  third party  purchased  the residual
rights in such lease.


NOTE 9 - Asset Acquisition and Impairment

     On April 27, 2001,  the Company  acquired  certain assets of North American
Internet Services,  Inc. ("NAIS"),  a provider of broadband  services,  Internet
access, and co-location  services for approximately  $201,000.  NAIS had entered
bankruptcy  proceedings  and,  under the auspices of the Bankruptcy  Court,  the
Company  was  permitted  to "credit  bid"  approximately  $124,000  of  expenses
(including salaries) it had incurred on behalf of NAIS as the purchase price for
the assets,  and was given 180 days to exploit the assets it had  acquired.  The
Company  incurred  approximately  $77,000  in  additional  costs  related to the
acquisition  of these  assets.  The tangible  assets were  determined to have no
significant  fair  value.  Therefore,   all  the  expenditures  related  to  the
acquisition  were  allocated to goodwill.  The Company has the option to abandon
the  exploitation  of these  assets  within the 180 day  period.  If the Company
continues to use the NAIS assets, 10% of the profits (defined as earnings before
interest expense and taxes) generated by such use must be paid to the bankruptcy
estate for the first three years.

     At May 31, 2001, the Company performed an evaluation of the  recoverability
of the assets acquired from NAIS and concluded that a significant  impairment of
these assets had occurred  based on actual results during the year ended May 31,
2001 and on  estimated  future  cash flows not being  sufficient  to recover the
carrying  value of the  goodwill.  As such,  the carrying  value of goodwill was
written  down to its  estimated  fair  value,  which  was  determined  based  on
discounted  estimated cash flows. The Company  recognized an impairment loss and
write down of the goodwill of approximately  $201,000.  Considerable  management
judgment is necessary to estimate fair value; accordingly,  actual results could
vary significantly from such estimates.




<PAGE>


NOTE 10 - 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  $40,204  and  $38,197  in  fiscal  years  2002  and  2001,
respectively.


NOTE 11 - Revenue by Product Line

     The Company operates in one business segment,  but derives its revenue from
several product lines. The following table provides the service fee revenues for
the product lines earned for the fiscal years ended May 31, 2002 and 2001:

<TABLE>
<S>                                                                               <C>                  <C>
                                                                                           Year Ended May 31,
                                                                                       2002                2001
                                                                                       ----                ----
       Computerized information processing                                        $  5,962,880      $   5,960,450
       Telephone-based data collection                                               7,690,852          7,561,852
       Technology infrastructure and outsourcing                                       736,932          2,071,266
       Information technology                                                        2,765,761          2,170,240
       Other                                                                            17,497              5,261
                                                                                --------------    ---------------

             Total                                                                 $17,173,922        $17,769,069
                                                                                   ===========        ===========

</TABLE>

NOTE 12 - Subsequent Events


     a. By letter dated June 26, 2002, a former employee of the Company asserted
claims for back wages of $410,000.  The letter,  from the  employee's  attorney,
also contained allegations of age discrimination and retaliatory discharge.  The
letter also  contained an offer of  settlement.  No formal  litigation  has been
started and the Company intends to pursue settlement  negotiations.  A provision
of  $200,000 is included in accrued  expenses  relating to the  asserted  claim,
which represents the Company's best estimate of costs to be incurred. The amount
of the ultimate cost may vary from this estimate.

     b. The  Company  has  received  a  proposal  to engage  in a going  private
transaction.  The proposed  transaction  is  anticipated  to be in the form of a
merger with an entity owned by an investor  group to be led by Bert E.  Brodsky,
the Company's Chief Executive Officer,  and to include Directors Hugh Freund and
Gary Stoller as well as other investors (the "Acquiring Group"). Pursuant to the
proposal,  the  Company's  shareholders  (other  than Mr.  Brodsky and the other
shareholders  that shall  comprise  part of the  Acquiring  Group) would receive
$1.50 per share of Common  Stock of the Company  (the  "Shares"),  in cash.  The
proposal may be amended, modified or supplemented at any time.


<PAGE>


NOTE 12 - Subsequent Events, continued

     The Board of Directors has appointed a Special Committee (the "Committee"),
comprised of Ronald Fish and Martin Bernard, to review the proposed transaction.
The  Committee has retained  Brean Murray & Co., Inc. as its financial  advisor,
and has retained its own legal counsel.

     The  proposed  transaction  would result in the  acquisition  of all of the
outstanding  Shares  other than the Shares  owned by Mr.  Brodsky  and the other
shareholders  that shall  comprise the Acquiring  Group.  The final terms of any
acquisition  will be based on  negotiations  between the Acquiring Group and the
Committee.  The proposed acquisition will be subject to, among other things, (1)
the negotiation, execution, and delivery of a definitive agreement, (2) approval
of the proposed  transaction by the  Committee,  the full Board of Directors and
the Company's shareholders,  (3) receipt of a fairness opinion by the Committee,
(4) applicable regulatory approval,  and (5) obtaining any necessary third-party
consents  or  waivers.  There  can  be no  assurance  that a  definitive  merger
agreement will be executed and delivered,  or that the proposed transaction will
be consummated.

     c. On July 9,  2002 the  Company  issued a press  release  announcing  that
Nasdaq had informed  the Company that its shares would be subject to  de-listing
from the Small Cap Market for failure to comply with Nasdaq's  Marketplace Rules
regarding minimum value of publicly held shares and minimum bid price per share.
The Company requested a hearing on these matters,  and the de-listing was stayed
until the  hearing.  The Company was  informed by Nasdaq on August 21, 2002 that
the  Company  had  regained  compliance  with both  Marketplace  Rules and that,
therefore, the hearing was cancelled and the matter is moot.

     d. On August 22, 2002, the Chairman  repaid $100,000 of the note receivable
officer.



<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 TECHNOLOGIES, INC.
      (Registrant)

By     /s/ Bert E. Brodsky
     --------------------------------------------------------------------------
                            Bert E. Brodsky, Chairman
                           (Principal Executive Officer and
                         Principal Financial and Accounting Officer)

Date: August 27, 2002

     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  27, 2002


By   /s/ Hugh Freund
     -----------------------------------------------------------------------
         Hugh Freund, Executive Vice President, Secretary, Director

Date: August  27, 2002


By   /s/ Gary Stoller
     -----------------------------------------------------------------------
        Gary Stoller, Executive Vice President, Director

Date: August  27, 2002


By    /s/ Martin Bernard
      ----------------------------------------------------------------------
          Martin Bernard, Director

Date: August  27, 2002

By   /s/ Ronald L. Fish
     -----------------------------------------------------------------------
         Ronald L. Fish, Director

Date: August  27, 2002

<PAGE>


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In  connection  with the Annual Report of Sandata  Technologies,  Inc. (the
"Company")  on Form  10-KSB  for the year  ended May 31,  2002 as filed with the
Securities and Exchange  Commission on the date hereof (the  "Report"),  Bert E.
Brodsky,  Chief Executive  Officer and Chief  Financial  Officer of the Company,
certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley  Act of  2002,  that:  (1) The  Report  fully  complies  with the
requirements  of section 13(a) or 15(d) of the Securities  Exchange Act of 1934;
and (2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.

       /s/  Bert E. Brodsky

            Bert E. Brodsky
            Chief Executive Officer and Chief Financial Officer
            August 27, 2002