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

                                   FORM 10-KSB
(Mark One)

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

For the fiscal year ended          May 31, 1997
                          ---------------------

[ ] Transition  report under Section 13 or 15(d) of the Securities  Exchange Act
of 1934 (No fee required)

For the transition period from     to

Commission file number   0-14401

                                  SANDATA, INC.
                 (Name of Small Business Issuer in Its Charter)

         Delaware                                      11-2841799
 (State or Other Jurisdiction of                      (IRS Employer
  Incorporation or Organization)                       Identification No.)

26 Harbor Park Drive, Port Washington, NY                   11050
(Address of Principal Executive Offices)                  (Zip Code)

                                  516-484-9060
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

                                                       Name of Each Exchange
Title of Each Class                                    on Which Registered





Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.001 par value
                                (Title of Class)


                                (Title of Class)

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

Yes        X          No

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     State issuer's revenues for its most recent fiscal year. $11,881,469

     The  aggregate  market  value of the voting  stock  held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of August 27, 1997 was $7,084,862.


<PAGE>




        APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

     Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court.

Yes                   No

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         The number of shares  outstanding  of each of the  issuer's  classes of
         common equity, as of July 24, 1997 was 1,163,955 shares.

         Transitional Small Business Disclosure Format  (check one):

Yes                   No   X

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.




<PAGE>



                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Business Development

     General

     Sandata, Inc. (the "Company"),  through its wholly-owned  subsidiaries,  is
engaged in the business of providing  computerized data processing  services and
custom  software  and  programming  services,  by  utilizing   Company-developed
software,  and software acquired or licensed by the Company,  principally to the
health care industry,  but also to the general  commercial  market. In addition,
the  Company  provides  hardware  maintenance  of  personal  computers  ("PCs"),
printers and networks and training on PC software packages.

     Applications of the Company's  software include: a home health care system,
computerized   preparation  of  management   reports,   payroll  processing  and
electronic  time card with voice  recognition  systems.  Principal  products and
services provided by the Company include the Sandsport Home Attendant  Reporting
Program,  data entry services and specialized system development,  among others.
In addition, the Company provides  administration and processing services for an
affiliate engaged in the pharmacy prescription benefits management business.

     Generally,  in  providing  data  processing  services,  the  Company  first
receives data from its customers,  then processes it and generates reports based
on such data.  Services are provided to customers by processing on the Company's
equipment at its premises. The Company also has available software which permits
information  retrieval from customers'  facilities  which  communicate  with the
Company's  computers at its data center.  This allows the Company's customers to
have access to processing hardware and software without a substantial investment
on their part. The Company also offers its services on a turnkey basis.  Turnkey
computer  systems offer the customer  total  in-house  capabilities  through the
licensing  of the  Company's  software  for use on a  customer's  computer.  The
Company's  software  is  written in a variety of  software  languages  including
COBOL, C and FoxPro.

     The Company  was  incorporated  in the State of New York in June,  1978 and
reincorporated  in the State of Delaware in December 1986, at which time it also
assumed its present name.

Business of Issuer

     Principal Products and Services

     Sandsport Home Attendant Reporting Programs ("SHARP"). The Company, through
its  wholly-owned  subsidiary,  Sandsport  Data  Services,  Inc.  ("Sandsport"),
provides computer services to vendor agencies which,  pursuant to contracts with
the Human Resources Administration ("HRA") of the City of New York, provide home
attendant  services  to the  elderly  and infirm in New York City.  The  Federal
Government  offers this program (the "Home Attendant  Program") to participating
states and  municipalities  as an optional  part of its  Medicaid  program.  The
Federal  Government  funds a substantial  portion of the program and in New York
City, the State Department of Social Services and New York City fund the balance
of the program.  In New York City, the Home Attendant Program is administered by
HRA, which  sub-contracts with proprietary and not-for-profit  agencies ("Vendor
Agencies")  to provide  home  attendant  services  to those in need.  HRA refers
patients


<PAGE>



to Vendor  Agencies  which,  in turn, send home attendants to patients' homes to
assist in  homemaking  chores.  Vendor  Agencies also provide  periodic  nurse's
visits to patients.  Vendor Agencies enlist the Company's  computer  services to
provide weekly time sheets, billing,  payroll processing and management reports.
For the fiscal years ended May 31, 1997 and 1996,  approximately  $4,516,000  or
40% and  $4,531,000  or 51%,  respectively,  of the  Company's  total  operating
revenues were derived from services rendered to Vendor Agencies.

     Sandsport processes payroll,  preparing paychecks  indicating  year-to-date
earnings and  deductions,  payroll  journals and payroll  earnings and deduction
summaries.  Sandsport  provides  computerized  information  which permits Vendor
Agencies to prepare on a quarterly basis their Employers  Quarterly  Federal Tax
Return,  New York State  unemployment  insurance  returns,  deposits for Federal
unemployment  insurance and all required New York City tax returns and deposits.
Annually,  Sandsport  prepares for each Vendor Agency  employee  Transmittal  of
Income and Tax  Statements,  reconciliation  of state tax  withheld  and Federal
Unemployment  Insurance  Returns.  Sandsport also  furnishes to Vendor  Agencies
employee  earning  ledgers  which  enable them to review a full year's  earnings
history for each of their employees.

     In conjunction  with SHARP products,  Sandsport has developed an electronic
time card which  allows  the use of voice  recognition  technology  to assist in
capturing  payroll  information  known  as  Sandata(R) SanTrax(TM)for its  SHARP
clients.  SanTrax is an automated  timekeeping  system  designed to monitor home
attendants'  arrival and departure times when servicing  clients in their homes.
SanTrax  works by  incorporating  telephone  technologies  into  the  attendance
reporting process. Caregivers call their agency's own toll-free number to record
their arrival and departure from the patient's  side;  the system  automatically
and immediately confirms that the assigned caregiver is at the expected place at
the expected time for the approved and scheduled duration.  This data is used to
produce weekly payroll and to automatically prepare reimbursement submissions to
first and third party payors. Presently, the system is being utilized by several
of  the  Company's  home  health  care  clients,   with  the  Company  receiving
approximately an aggregate of 400,000 calls per week. Although no assurances can
be given,  it is anticipated  that the SanTrax  product can be utilized by other
industry  applications.  For the  fiscal  years  ended  May 31,  1997 and  1996,
approximately  $3,766,000  or 33% and  $1,891,000 or 21%,  respectively,  of the
Company's total operating  revenues were derived from services rendered relating
to SanTrax.

     Data Entry Services. The Company,  through Sandsport,  provides data entry,
editing and data  conversion  services  to various  social  services,  municipal
agencies, and the private sector.

     Specialized   System   Development  and  Processing.   Sandsport   designs,
implements and supports  specialized system applications based upon its analysis
of a client's particular need. Sandsport currently provides these services to an
affiliate,  National Medical Health Card Systems, Inc. ("Health Card"), of which
Mr. Brodsky was formerly  Chairman of the Board and is a principal  shareholder.
(See  Item 6 -  "Management's  Discussion  and  Analysis  or Plan  of  Operation
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  -  Overview"  and  Item  12 -  "Certain  Relationships  and  Related
Transactions")

     Sandata  Home  Health*Pro(R).  On June 15, 1995,  the Company,  through its
wholly-owned  subsidiary,  Sandata Home Health Systems, Inc. ("SHHS") granted an
exclusive   license  to  an   unaffiliated   third  party  to  market  its  Home
Health*Pro(R) system ("Health*Pro(R)").  The agreement calls for SHHS to receive
commissions on all sales made by the unrelated party. SHHS has the right to


<PAGE>



revoke this agreement if certain minimum sales targets are not met. In addition,
SHHS also granted to such licensee the right to maintain Health*Pro customers as
well as the right to develop additional  Health*Pro(R) system modules. Under the
terms  of  such  agreement,   all  additions  and   modifications  to  the  Home
Health*Pro(R) software remain the property of SHHS. SHHS and the third party are
currently  involved  in a  lawsuit  in  which  the  third  party  is  seeking  a
declaratory  judgment that the agreement is terminated  and SHHS has  interposed
affirmative  defenses  and  counterclaims  for,  among other  things,  breach of
agreement.  The minimum sales targets under the agreement have not been met (See
Item 6 "Management's Discussion and Analysis or Plan of Operation - Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Prospects for the Future, Trends and Other Events").

     Sanitation Management System. Prior to April 1, 1996, the Company,  through
its wholly-owned  subsidiary,  Sandata Spectrum,  Inc.,  marketed Spectrum Solid
Waste  Management  Systems  ("Sanitation")  pursuant  to  an  exclusive  license
agreement  with P.W.  Medical  Management,  Inc.,  an affiliate of the Company's
Chairman.  (See Item 12 -  "Certain  Relationships  and  Related  Transactions")
Sanitation is an integrated software package designed to provide management with
information  needed  for  planning  and  making  daily  decisions  in the  waste
industry,   including  management  solutions  for  solid  waste,  liquid  waste,
hazardous  waste,  transfer  stations,  recycling and landfill  operations.  The
Company  sold the right to service  its  Sanitation  customers  to a third party
buyer as of April 1, 1996 for  $18,640,  which is payable  pursuant to a monthly
installment  promissory note without interest.  Currently $2,329 remains payable
under such note.  As a condition of the sale,  the buyer  assumed the  Company's
obligations  under the  existing  Sanitation  software  support and  maintenance
agreements  (See  Item 6 -  "Management's  Discussion  and  Analysis  or Plan of
Operation -  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations - Prospects for the Future, Trends and Other Events").

     Seasonality

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

     Marketing and Distribution

     The Company provides its computerized  information processing services to a
variety of users, although principally to the health care industry.  Many of the
Company's  software  programs are, upon  development,  adaptable to customers in
related fields of enterprise. Thus, the components of the Home Attendant Program
- Medicaid reimbursable  billing,  management reports,  payroll processing,  tax
reports - may be utilized in other settings.

     With  respect to SanTrax,  once a customer  has  contracted  to utilize the
service,  it is assigned a toll-free  number by the Company;  calls made to this
number are processed  directly through the Company's  software where reports are
then generated to the customer based upon its specific requirements.

     The Company  markets its products and  services  throughout  the country by
sales   representatives   directly  employed  by  the  Company  in  addition  to
independent sales agents.


<PAGE>




     Competition

     The computer services industry is characterized by competition in the areas
of service,  quality,  price, technical expertise,  software and marketing.  The
Company competes with service bureaus and time-sharing  services as well as with
companies which offer stand-alone systems.

     The Company competes for customers on the basis of the range and quality of
its software and on its ability to develop  programs  tailored to its customers'
requirements.  Many of the  Company's  competitors  have  substantially  greater
financial  resources and  substantially  larger  marketing,  technical and field
organizations.

     With respect to the Company's SHARP business, there has been an increase in
competitive  pressure and uncertainty in recent years, partly as a result of the
City  of New  York  requiring  all  contracts  with  City  agencies  to  undergo
competitive  bidding.  Although the Company has been awarded  contracts based on
its  bids,  there can be no  assurance  that its bids  will be  accepted  in the
future.

     Customers

     The  Company's  customer  base is  primarily  drawn  from the  health  care
industry.  During the fiscal years 1997 and 1996, the Company  derived  revenues
from a group  of  customers  who  are  all  funded  by one  governmental  agency
amounting to  approximately  $7,905,000  or 70% and  $6,218,000  or 69% of total
operating  revenues,   respectively.  The  Company  also  derived  approximately
$2,171,000 or 19% and  $2,014,000 or 22%,  respectively,  of revenue from Health
Card, a related party, for data processing and computer software design services
and from the  rental  of  office  space.  Although  the loss of any one of these
customers  would have a material  adverse  effect on the  Company,  the  Company
believes  that its  relationships  with these  customers  are good (See Item 6 -
"Management's  Discussion  and  Analysis  or Plan of  Operation  -  Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Overview").

     Proprietary Rights

     The Company filed a new United States  Trademark  application  which,  when
approved,  will rename its voice recognition  timekeeping system to SanTrax (See
Item 3 - Legal Proceedings).

     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.


<PAGE>




     Research and Development

     The Company incurred  approximately $276,000 and $201,000 during the fiscal
years 1997 and 1996,  respectively,  on research  and  development.  The Company
incorporates its research and development into its on-going business activities.
The Company's  employees may develop new software  programs and expand or modify
existing  ones.  After  determining  that a program  has  reached  technological
feasibility,  the subsequent development costs are capitalized.  All other costs
are expensed.

     Employees

     The Company and its subsidiaries employ 118 employees,  including 107 full-
time and 11  part-time  employees.  The Company  believes  that its success will
depend in part on its ability in a highly competitive environment to attract and
retain highly skilled technical, marketing and management personnel.

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

ITEM 2 - DESCRIPTION OF PROPERTY

     The Company and its  subsidiaries  currently  occupy  approximately  28,000
square feet of office space  located at 26 Harbor Park Drive,  Port  Washington,
New York 11050 (the  "Facility").  The Company  subleases  the Facility from BFS
Realty,  LLC, an affiliate of the Company's  Directors  ("BFS").  BFS leases the
Facility from the Nassau County  Industrial  Development  Agency (the  "NCIDA"),
pursuant to a lease (the  "Lease"),  which was assigned by the Company to BFS in
November,  1996, and which expires in December 2005. BFS has the right to become
the owner of the Facility upon  expiration of the Lease.  During the period July
1, 1995 through  October 31, 1996, the Company paid rent for the Facility to the
NCIDA in the amount of  approximately  $48,600 per month.  The Company  pays BFS
$48,600  rent per month.  BFS also  receives  rent from other  companies,  which
includes companies affiliated with the Company's Chairman, which occupy space in
the Facility.  The Company's  facilities are adequate for current  purposes (See
Item 6 - "Management Discussion and Analysis or Plan of Operation - Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
IDA/SBA Financing" and Item 12 - "Certain Relationships and Related Transactions
- IDA/SBA  Financing"  for a  discussion  of the NCIDA and U.S.  Small  Business
Administration financing transactions).

ITEM 3 - LEGAL PROCEEDINGS

     Time Data Systems,  Inc. vs. Time Trax  Systems,  Inc. was commenced in May
1996 in United States District Court Eastern District of Michigan. The complaint
contained,  among other things, causes of action for infringement of a federally
registered  trademark,  and sought injunctive  relief  restraining the defendant
from using the name  "TimeTrax".  In August 1996,  the parties agreed to enter a
Final  Judgment  on Consent  whereby,  among  other  things,  the  Defendant  is
restrained from using the name "TimeTrax".  No monetary damages were awarded and
the Plaintiff agreed to dismiss the litigation.

     MCI Telecommunications  Corporation v. Sandata, Inc. On April 10, 1997, the
Company  received  notice  that MCI had  commenced  an action  against it in the
United States District


<PAGE>



Court for the Eastern  District of New York alleging that the Company's  SanTrax
time and attendance system infringes on certain patent rights allegedly owned by
plaintiff. The complaint seeks compensatory and treble damages with interest and
injunctive  relief. The Company intends to vigorously defend this action. On May
13, 1997,  the Company  filed its Answer.  Among other  things,  pursuant to the
Answer,  the Company denies that its product  infringes  MCI's patent rights and
asserts  certain  affirmative  defenses.  In  addition,  the  Answer  contains a
counterclaim challenging the validity of MCI's alleged patent rights.

     Notwithstanding the foregoing,  because of the uncertainties of litigation,
no assurances can be given as to the outcome of the MCI litigation. In the event
that the Company  were not to prevail in this  litigation  the Company  could be
required to pay  significant  damages to MCI and could be enjoined  from further
use of the SanTrax system as it presently exists. Although a negative outcome in
the  MCI  litigation  would  have a  material  adverse  affect  on the  Company,
including,  but not limited to, its  operations  and  financial  condition,  the
Company  believes that, if it is held that the Company's  system infringes MCI's
patent rights,  the Company would attempt to design a system to replace  SanTrax
or would  attempt to  negotiate  with MCI to utilize  its  system,  although  no
assurances can be given that the Company would be successful in these  attempts.
At the present time, the Company cannot assess the possible cost of implementing
a new system or obtaining rights from MCI.

     Since  late  1993,  the  Company  has  been  engaged  from  time to time in
negotiations  relating to the use of MCI's telephone services in connection with
the SanTrax  system.  In late 1996, MCI and the Company  discussed,  among other
things, that the Company could pay a lesser per call charge for such services if
the Company and MCI agreed that the  Company's  technology  did not violate U.S.
Patent  5,255,183  (the  "Katz  Patent"),  which  is  the  subject  of  the  MCI
litigation. No such agreement was ever reached.

     For the fiscal year ended May 31, 1997,  approximately 33% of the Company's
revenues,  respectively,  were  derived  from fees  associated  with the SanTrax
product.

     MCI has  advised  that it owns two  pending  patent  applications  that are
related to the Katz Patent.  Since those patent  applications have not issued to
patent and are confidential at the U.S. Patent Office,  the Company is unable to
determine the scope of any patent applications. In addition, one or both of such
applications  could be amended  by MCI.  There can be no  assurances  that these
patent applications, either as originally filed or as amended, will not issue as
patents with claims that cover the SanTrax system.

     Other than as described  above, the Company is not involved in any material
legal  proceeding,  other than that which is nonmaterial and routine  litigation
incidental to its business.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.



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                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     The Company's Common Stock is traded in  over-the-counter  market under the
symbol  "SAND" on the  National  Association  of  Securities  Dealers  Automated
Quotation System ("NASDAQ").  The table below sets forth high and low bid prices
of the Common  Stock,  as furnished by NASDAQ.  The  quotations  set forth below
reflect interdealer prices without retail markup, markdown or commission and may
not necessarily represent actual transactions.

                                                               Bid Prices
                                                         High              Low
Fiscal Year Ended
May 31, 1997
First Quarter                                            $6-1/4         $2-1/4
Second Quarter                                            8-3/4         4
Third Quarter                                                11         7-3/4
Fourth Quarter                                           10-7/8         8-3/4

Fiscal Year Ended
May 31, 1996
First Quarter                                            $1-3/4         $1-3/4
Second Quarter                                            7-1/2         1-3/4
Third Quarter                                             3-1/4          2-1/4
Fourth Quarter                                            3-3/4         1-3/4

Holders

     Management has been advised by its transfer agent (North American  Transfer
Co.) that the  approximate  number of holders of record of the Company's  Common
Stock, as of August 27, 1997 was 1,111.

Dividends  

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

     Dividends are  restricted  pursuant to the terms of a revolving  credit and
term loan agreement between the Company and a bank.




<PAGE>



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

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

     Overview

     As of  November  1,  1996,  the  Company  entered  into an  Assignment  and
Assumption of and Second  Amendment to Lease  Agreement  among BFS, the Bank and
the Company (the "Second  Amendment").  In connection with the Second Amendment,
(i) BFS assumed all of the Company's  obligations under the Lease with the NCIDA
and  entered  into a sublease  (the  "Second  Sublease")  with the  Company,  as
sublessee,  for the Facility;  and (ii) the Company conveyed to BFS the right to
become the owner of the  Facility  upon  expiration  of the Lease.  In addition,
pursuant to the Second  Sublease,  the Company has assumed  certain  obligations
owed by BFS to the NCIDA under the Lease (See "IDA/SBA Financing" and "Liquidity
and Capital Resources" below).

     In February,  1997, the Company successfully  consummated a "best efforts -
all or none" private  offering of an aggregate of 300,000 shares of Common Stock
and  warrants to  purchase  150,000  shares of Common  Stock at $7.00 per share,
raising net  proceeds of  $1,256,415  after  payment of  offering  expenses.  In
connection with the private  offering,  certain assignees of the placement agent
acquired 100,000 shares of Common Stock,  which realized an additional  $260,076
of net proceeds for the Company.  In June 1997,  the  Company  registered  for
resale,  among other  shares,  the 300,000  shares of Common Stock issued in the
private offering. (See "Liquidity and Capital Resources" below).

     On April 18,  1997,  the  Company's  wholly  owned  subsidiary,  Sandsport,
entered into a Revolving Credit Agreement (the "Credit Agreement") with the Bank
which  allows  Sandsport  to borrow  and  re-borrow  amounts  up to  $3,000,000.
Interest  accrues on amounts  outstanding  under the Credit  Agreement at a rate
equal to the London Interbank Offered Rate plus 2% and will be paid quarterly in
arrears or, at Sandsport's option,  interest may accrue at the Bank's prime rate
(See "Liquidity and Capital Resources" below).

     On June 19, 1997 the Company  announced that it has commenced  negotiations
for a business  combination  with Health  Card.  Health Card advised the Company
that  (i)  it  has  over  42,000   pharmacies   throughout   the  United  States
participating  in its network;  (ii) during its fiscal year ended June 30, 1996,
it has added 120,000 covered lives; (iii) since 1995, it has expanded its client
base by eighteen (18%)  percent;  and (iv) during its fiscal year ended June 30,
1996, its pre-tax  earnings were  $1,039,000 on  $57,000,000 in revenues,  which
included   $41,000  in  revenues  in  connection   with  pharmacy   prescription
reimbursement  services rendered to the Company. For the fiscal years ended 1997
and 1996, the Company derived approximately  $2,171,000 or 19% and $2,014,000 or
22% of revenues, respectively, from data processing and computer software design
services  provided to Health Card and from the rental of office  space to Health
Card.  The Company  cannot assure that an agreement  for a business  combination
will  be  reached,  or that if such  an  agreement  is  reached  that it will be
consummated.

     Analysis of Operations

     Fiscal Years ended May 31, 1997 compared with May 31, 1996

     Service  fee  revenues  for fiscal  1997 were  $11,312,809,  as compared to
$8,964,335  for the previous  fiscal year, an increase of $2,348,474 or 26%. The
increase is largely attributable to revenues derived from SanTrax.



<PAGE>



     Real  estate  rental  income was  $134,700  for fiscal  1997 as compared to
$285,048 for the previous fiscal year.

     The decrease in rental income relating to the operation of the Facility for
the year ended May 31, 1997 resulted from the Company's  becoming the beneficial
owner and lessee of the  Facility  as of July 31, 1995 in addition to the effect
of the  subsequent  Second  Amendment  transaction  as of  November  1, 1996 (as
described below), whereby the Company became the sublessee of the Facility.

     Other  income for the year ended May 31,  1997 was  $407,137 as compared to
$277,982 for the year ended May 31, 1996. This increase is from the receipt of a
one  time  license  fee and the  gains  realized  upon  the  sale of  assets  in
connection with the following sale/leaseback transactions.

     In June 1996,  the Company  consummated a  sale/leaseback  of certain fixed
assets (principally furniture,  fixtures,  computer hardware and equipment) (the
"1996 Sale/Leaseback Transaction"). The fixed assets, which had a net book value
of approximately  $657,000,  were sold for $925,000 and concurrently leased back
to the Company.  The resulting  gain of  approximately  $268,000 was recorded as
deferred  income and is being  recognized  over the life of the lease,  which is
forty-eight (48) months.  Approximately  $67,000 of deferred gain was recognized
for the year ended May 31, 1997.

     In March 1997,  the Company  entered into a  sale/leaseback  transaction of
certain fixed assets  (principally  computer  hardware and software)  (the "1997
Sale/Leaseback  Transaction").  The fixed assets,  which had a net book value of
approximately  $874,000 were sold for $981,000 and  concurrently  leased back to
the  Company.  The  resulting  gain of  approximately  $107,000  was recorded as
deferred  income and is being  recognized  over the life of the lease,  which is
thirty-eight (38) months.  Approximately  $6,000 of deferred gain was recognized
for fiscal 1997.  At the time the 1997  Sale/Leaseback  Transaction  was entered
into, the Company assigned the purchase option  thereunder to P.W. Capital Corp.
("PWCC"), an affiliate of the Company's Chairman. Subsequent to March 1997, PWCC
assigned such purchase  option to a third party which is not affiliated with the
Company (See Item 12 - "Certain Relationships and Related Transactions").

     Expenses Related to Services

     Operating  expenses  were  $6,884,989  for the year ended May 31, 1997,  as
compared  to  $5,038,472  for the  year  ended  May 31,  1996,  an  increase  of
$1,846,517 or 37%.  Costs  associated  with the  development  of SanTrax and its
operations  including  telephone  and  payroll,  in  addition  to  increases  in
equipment  rental  payments,  were  the  primary  factors  for the  increase  in
operating expenses.

     Selling,   general  and  administrative   expenses  for  fiscal  1997  were
$2,348,031  compared to $1,988,115 in fiscal 1996, an increase of  approximately
$359,916 or 18%.  The  increase is  partially  due to an increase in payroll and
advertising costs primarily related to SanTrax and an increase in legal fees and
administrative costs related to Santrax and existing product lines.

     Depreciation  and  amortization  was  $1,358,600 for the year ended May 31,
1997, as compared to $1,093,264  for the year ended May 31, 1996, an increase of
$265,336  or 24%.  The  increase  was  primarily  attributable  to  fixed  asset
additions, including software capitalization costs.

     Interest  expense for fiscal  1997 was  $221,042  compared to $216,862  for
fiscal  1996,  an increase  of $4,180 or 2%. The  increase  is  attributable  to
borrowings against the Company's revolving credit agreement.



<PAGE>



     Expenses Related to Real Estate Operations

     Operating  expenses  were  $246,894  for the year  ended May 31,  1997,  as
compared to $472,310 for the year ended May 31, 1996, a decrease of $225,416.

     Interest  expense was  $133,918 for the year ended May 31, 1997 as compared
to $289,629 for the year ended May 31, 1996.

     The decreases in expenses relating to the operation of the Facility for the
year ended May 31, 1997  resulted  from the  Company's  becoming the  beneficial
owner and lessee of the  Facility  as of July 31, 1995 in addition to the effect
of the  subsequent  Second  Amendment  transaction  as of  November  1, 1996 (as
described below), whereby the Company became the sublessee of the Facility.

     The Company has reported  real estate  operating  expenses only through the
period ended November 1, 1996. The Company does not expect to incur any costs in
the future.

     Income Tax Expenses

     Income tax  expense for fiscal  1997 was  $307,000.  Income tax benefit for
fiscal 1996 was $8,000.  The increase in income tax expense is primarily  due to
an increase in the utilization of net operating loss carryforward in addition to
the increase in the  deferred tax expense  arising from the increase in the book
basis over tax basis of fixed  assets.  The  effective tax rates for fiscal 1997
and 1996 were 53.7% and (3.2)%, respectively.

     IDA/SBA Financing

     On June 1, 1994,  BFS  Sibling  Realty,  Inc.  ("BSRI")  formerly  known as
Brodsky Sibling Realty, Inc., a company affiliated with the Company's Directors,
borrowed  $3,350,000  in  the  form  of  Industrial  Development  Revenue  Bonds
("Bonds") to finance costs  incurred in connection  with the  acquisition of the
Company's  Facility  from  the  NCIDA,  and for  renovating  and  equipping  the
Facility.  These Bonds were subsequently  purchased by a bank (the "Bank").  The
aggregate cost incurred by BSRI in conjunction with such acquisition, renovation
and equipping was approximately  $4,377,000.  In addition,  the Company incurred
approximately   $500,000  of  indebtedness  to  affiliates  of  Mr.  Brodsky  in
connection  with  additional  capital  improvements.  The Bonds bore interest at
prime plus 3/4 of 1% until  August 11,  1995,  at which time the  interest  rate
became fixed at 9% for a five-year term through September 1, 2000. At that time,
the interest  rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
the applicable fixed rate if offered by the Bank. As a condition to the issuance
of the Bonds,  the NCIDA  obtained title to the Facility which it then leased to
BSRI.

     On June  21,  1994  (as of June 1,  1994),  the  Company  and its  Chairman
guaranteed  the full and prompt  payment of principal  and interest of the Bonds
and the Company granted the Bank a security  interest and lien on all the assets
of the Company.  In  connection  with the  issuance  and sale of the Bonds,  the
Company, as sublessee,  entered into a sublease agreement (the "First Sublease")
with BSRI,  whereby  the  Company  leased the  Facility  for the  conduct of its
business and, in consideration therefor, was obligated to make lease payments in
at least equal amounts due to satisfy the underlying Bond obligations.

     On July 31, 1995, by an Assignment and  Assumption  and First  Amendment to
Lease between the Company and BSRI, the Company  assumed the obligations of BSRI
under the lease and  became the direct  tenant and the  beneficial  owner of the
Facility (collectively the "First Amendment").


<PAGE>



In  connection  with the First  Amendment,  the First  Sublease was  terminated.
During  the  period  commencing  July 1, 1995 and ending  October  31,  1996 the
Company  paid rent for the  Facility  to the NCIDA in the amount of $48,600  per
month,  subject to adjustment based upon the then effective interest rate of the
Bonds,  among other things. In connection with the First Amendment,  the Company
obtained the right to acquire the Facility upon expiration of the Lease with the
NCIDA and  became  directly  liable to the NCIDA  for  amounts  due  thereunder.
Furthermore, in connection with the First Amendment, the Company assumed certain
indebtedness  owed to affiliates of the Company's  Chairman as follows:  (i) the
$364,570  remaining balance of a 48-month term loan bearing interest at 8.7% per
annum, and (ii) the $428,570  remaining  balance of a 42-month term loan bearing
interest at 8.91%.  Each of the foregoing loans were incurred in connection with
the  construction  of improvements to the Facility,  are  collateralized  by the
assets of the primary obligor and are guaranteed by the Company's Chairman.

     On August 11, 1995, the Company entered into a $750,000 loan agreement with
the Long Island Development Corporation ("LIDC"),  under a guarantee by the U.S.
Small  Business  Administration  ("SBA") (the "SBA Loan").  The entire  $750,000
proceeds were used to repay a portion of the Bonds. The Company entered into the
First Amendment  primarily to satisfy  certain  requirements of the SBA. The SBA
Loan is payable in 240 monthly  installments of $6,255, which includes principal
and interest at a rate of 7.015%.

     As of November 1, 1996, the Company entered into the Second  Amendment with
BFS  (which  succeeded  to the  interest  of BSRI  with  respect  to the  Second
Amendment), the NCIDA and the Bank. In connection with the Second Amendment, (i)
BFS assumed all of the Company's  obligations under the Lease with the NCIDA and
entered  into the  Second  Sublease  with the  Company,  as  sublessee,  for the
Facility;  and (ii) the Company conveyed to BFS the right to become the owner of
the Facility upon expiration of the Lease.  In addition,  pursuant to the Second
Sublease,  the Company has assumed certain  obligations owed by BFS to the NCIDA
under the  Lease.  BFS has  indemnified  the  Company  with  respect  to certain
obligations relative to the Lease and the Second Amendment.

     Liquidity and Capital Resources

     The Company's  working capital  increased as of May 31, 1997 to $1,548,644,
as compared with a deficiency at May 31, 1996 of $852,929.

     The Company has spent  approximately  $1,941,000 in fixed asset  additions,
including  software  capitalization  costs in connection with revenue growth and
new product  development.  The Company  does not expect the  previous  levels of
capital expenditures to continue.

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

     In connection  with the closing of such private  offering,  an affiliate of
the  placement  agent  entered into a financial  consulting  agreement  with the
Company, pursuant to which, among other


<PAGE>



things,  such affiliate will receive  aggregate  annual  payments of $36,000 and
certain  assignees of such affiliate  received warrants to purchase an aggregate
of 200,000  shares of Common Stock  exercisable  as follows:  100,000  shares at
$5.00 per share and  100,000  shares at $7.00 per  share,  such  warrants  to be
exercisable for one year (with respect to the warrants  exercisable at $5.00 per
share) and two years  (with  respect to the  warrants  exercisable  at $7.00 per
share). The warrants issued in such private offering,  including those issued to
investors  as well as the  assignees of the  placement  agent's  affiliate,  are
redeemable by the Company under certain circumstances.

     The  proceeds  from  the  1996  Sale/Leaseback  Transaction  were  used  to
partially repay outstanding  advances against the Company's previous  $2,000,000
revolving credit agreement (the "Previous  Revolving Credit  Agreement"),  which
was replaced by the Credit Agreement (See "Analysis of Operations" above).

     As discussed in "Overview" and "IDA/SBA Financing" above, in November 1996,
in connection with the Second Amendment of the Lease for the Company's Facility,
the Company  assumed  certain  obligations  of BFS and BFS has  indemnified  the
Company with respect to such assumed obligations.

     The proceeds from the 1997  Sale/Leaseback  Transaction  were used to repay
outstanding  advances against the Company's  Previous Revolving Credit Agreement
and repay notes payable to affiliates (See "Analysis of Operations" above).

     During the fiscal  quarter  ended  February 28, 1997,  $118,781 owed to the
Company pursuant to a promissory note from Compuflight, Inc. ("Compuflight"),  a
former  affiliate  (the  Company's  Chairman  was a  principal  stockholder  and
Chairman  of  Compuflight  through  December  1, 1993),  which  promissory  note
evidences the Company's accounts receivable from Compuflight,  was deemed by the
Company as  uncollectible  and was  charged  against an  allowance  account.  In
connection with such promissory note, the Company  received a security  interest
in  substantially  all the then existing assets of  Compuflight,  which has been
assigned to the Bank as collateral for the Company's  Previous  Revolving Credit
Agreement  with the Bank and which is currently  being  released.  As of May 31,
1997,  Compuflight  is  indebted  to the  Company  in  the  amount  of  $12,074,
representing accounts receivable.

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

     In  addition,  pursuant to the Credit  Agreement,  the Group is required to
maintain  certain  levels  of net  worth and meet  certain  financial  ratios in
addition to various other affirmative and negative covenants.  The Group has, in
the past, under prior agreements with the Bank, failed to meet these net


<PAGE>



worth and  financial  ratios,  and the Bank has  granted the Group  waivers.  No
assurance  can be given  that the Group will be able to meet these net worth and
financial  requirements  in the future,  and/or  that the Bank will  continue to
grant to the Group waivers.  Although in the past the Bank has renewed its loans
to the  Company  when  they  matured,  there  can be no  assurance  that it will
continue to do so or that the Company, if the Bank does not renew the loan, will
be able to arrange alternative financing on terms satisfactory to it.

     As of May 31, 1997, the  outstanding  balance on the Credit  Agreement with
the Bank was $1,000,000.

     The Company believes the results of its continued operations, together with
the available  Credit Line and proceeds from the recent private  offering should
be adequate to fund presently foreseeable working capital requirements.

     Prospects for the Future, Trends and Other Events

     The Company is not  currently  focussing  its  marketing  activities on its
Health*Pro(R) and Sanitation  products.  The Company believes that this will not
have any  significant  adverse  impact on the Company's  financial  condition or
results  of  operations.  At any time in the future  the  Company  may decide to
re-focus  marketing  activities on these products (See Item 1 - "Description  of
Business Business Development - Business of Issuer - Sandata Home Health*Pro(R)"
and - "Sanitation Management System").

     There has been an increase in competitive  pressure and  uncertainty in the
Company's  SHARP  business in recent years,  partly as the result of the City of
New York  requiring  all  contracts  with City  agencies to undergo  competitive
bidding.  Furthermore, the Company notes that, to a major extent, the success of
its SHARP business rests with a key officer of the Company,  who has established
various relationships with the Company's SHARP customers over the years.

     Except as  discussed  above,  the Company has no  knowledge of any specific
prospects,  industry, or other trends, events or uncertainties that might have a
material impact on the Company's net sales or income from continuing operations,
or  that  would  increase  the  value  of the  shares  in the  long-term  or the
short-term.

     The Company  believes  that  inflation  and changing  prices have not had a
material impact on the Company's operations.

ITEM 7 - FINANCIAL STATEMENTS

                           (BEGINS ON PAGE F-1 BELOW)

ITEM 8 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     Not applicable.



<PAGE>



                                    PART III

ITEM  9  -  DIRECTORS,   EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The  following  persons are the  Directors  and  executive  officers of the
Company.

===============================================================================
                                                    Positions and Offices
                                                       Presently Held with
       Name                     Age                       the Company
-------------------------------------------------------------------------------
Bert E. Brodsky                 54             Chairman of the Board, President
                                               and Treasurer
-------------------------------------------------------------------------------
Hugh Freund                     59             Executive Vice President,
                                               Secretary and Director
-------------------------------------------------------------------------------
Gary Stoller                    44             Executive Vice President and
                                               Director
===============================================================================


          Bert E.  Brodsky has been  Chairman of the Board and  Treasurer of the
     Company since June 1, 1983 and President since December, 1989. From August,
     1983, through November, 1984 and from December, 1988 through January, 1991,
     Mr.  Brodsky  served as Chairman of the Board of Health Card.  From October
     1983 through  December 1993, Mr. Brodsky served as Chairman of the Board of
     Compuflight,  a provider of computerized  flight planning  services.  Since
     August 1980,  Mr.  Brodsky has served as Chairman of the Board of PW, which
     provides financial and consulting  services to physicians.  Since 1979, Mr.
     Brodsky has also served as  President  of Bert  Brodsky  Associates,  Inc.,
     which provides consulting services.

          Hugh Freund,  a founder of the Company,  was the  Company's  President
     from 1978 to  November,  1986,  and a  Director  of the  Company  since its
     formation  in 1978.  Since  November  1986,  Mr.  Freund  has  served as an
     Executive  Vice  President  of the Company and  Secretary  since 1995.  Mr.
     Freund is also President of Sandsport,  the Company's  wholly-owned  health
     care data  processing  subsidiary.  In addition to managing  the  Company's
     operations,  Mr. Freund has been  responsible for the marketing  efforts of
     the Company.

          Gary Stoller  joined the Company at the time of its  formation in 1978
     as its  Senior  Programmer  and  Analyst  and has  been an  Executive  Vice
     President and a Director of the Company since  January,  1983.  Mr. Stoller
     has been responsible for computer design, programming and operations of the
     Company as its Chief Information  Officer and is the architect of the SHARP
     and SanTrax systems.

     Each  Director   will  hold  office  until  the  next  Annual   Meeting  of
Stockholders  or until his successor is elected and  qualified.  Each  executive
officer  will  hold  office  until  the next  regular  meeting  of the  Board of
Directors  following the next Annual Meeting of Stockholders or until his or her
successor is elected or appointed and qualified.



<PAGE>



     To the Company's  knowledge,  based solely upon a review of copies of Forms
3, 4 and 5 furnished  to the Company and written  representations  that no other
reports were  required  during the fiscal year ended May 31,  1997,  all Section
16(a) filing requirements  applicable to the Company's  officers,  Directors and
10%  shareholders  were complied with,  except with respect to three  Directors,
each  of  whom  filed  (i) one  late  report  on  Form  5,  each  reporting  one
transaction,  and (ii)  three  late  reports  on Form 4,  reporting  one and two
transactions, respectively.

ITEM 10 - EXECUTIVE COMPENSATION

Summary Compensation Table

     The  following  table  sets  forth  certain   information   concerning  the
compensation of Bert E. Brodsky, the Chairman and Chief Executive Officer of the
Company,  for the fiscal years ended May 31, 1997, 1996 and 1995,  respectively,
as well as named  executive  officers of the Company for the fiscal  years ended
May 31,  1997,  1996 and 1995.  No other  person had a total salary and bonus in
excess of $100,000 for the fiscal years ended May 31, 1997, 1996 and 1995:



<PAGE>



<TABLE>
<CAPTION>
====================================================================================================================================
                                                  Annual Compensation                       Long-Term Compensation

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

-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>     <C>              <C>       <C>    <C>          <C>         <C>             <C>     <C>    
Bert E. Brodsky, Chairman of   1997    200,000         -0-        13,374 (1)         -0-          110,000        -0-      20,670 (2)
         the Board
------------------------------------------------------------------------------------------------------------------------------------

Bert E. Brodsky, Chairman of   1996    200,000         -0-        12,259 (1)         -0-          44,000         -0-        20,310
         the Board                                                                                                            (2)
------------------------------------------------------------------------------------------------------------------------------------

Bert E. Brodsky, Chairman of   1995    191,654 (3)     -0-        11,872 (1)         -0-          416,667        -0-         7,448
         the Board                                                                                     (4)                       (2)
------------------------------------------------------------------------------------------------------------------------------------
        Hugh Freund            1997    165,000         -0-            -0-            -0-          90,000         -0-       5,605 (2)
 Executive Vice President,
         Secretary
------------------------------------------------------------------------------------------------------------------------------------
        Hugh Freund            1996    69,808          -0-        15,585 (1)         -0-          36,000         -0-       5,605 (2)
 Executive Vice President,
         Secretary
------------------------------------------------------------------------------------------------------------------------------------
        Hugh Freund            1995      -0-           -0-         7,497 (1)         -0-          36,000         -0-       5,605 (2)
 Executive Vice President,
         Secretary
------------------------------------------------------------------------------------------------------------------------------------
       Gary Stoller            1997     108,302        -0-        22,391 (1)         -0-          50,000         -0-          -0-
 Executive Vice President
------------------------------------------------------------------------------------------------------------------------------------
       Gary Stoller            1996    95,650          -0-        21,756 (1)         -0-          20,000         -0-       1,751 (2)
 Executive Vice President
------------------------------------------------------------------------------------------------------------------------------------
       Gary Stoller            1995    95,650          -0-        14,777 (1)         -0-          40,000         -0-       1,542 (2)
 Executive Vice President
====================================================================================================================================

</TABLE>


(1)  Includes   personal   benefits   relating  to  the  use  of  Company-leased
     automobiles provided for business purposes.

(2)  Represents insurance premiums paid by the Company on behalf of Mr. Brodsky,
     Mr.  Freund and Mr.  Stoller for life  insurance  policies on their  lives,
     respectively,   the  benefits  of  which  are  payable  to  their  spouses,
     respectively.

(3)  Includes $163,800 paid to Mr. Brodsky as a consulting fee.

(4)  Represents cancellation of 416,667 options and warrants and the issuance of
     a like number at a lower exercise price.

Option/SAR Grants in Last Fiscal Year

     The following table sets forth certain  information  concerning  individual
grants of stock options to executive officers of the Company,  during the fiscal
year ended May 31, 1997:



<PAGE>


<TABLE>


=============================================================================================
<CAPTION>
                                     Individual Grants

---------------------------------------------------------------------------------------------
                            Number of      Percent of Total
                           Securities        Options/SARs
                           Underlying         Granted to
                          Options/SARs       Employees in      Exercise or     Expiration
         Name                Granted          Fiscal Year       Base Price        Date
                               (#)                (%)             ($/Sh)
---------------------------------------------------------------------------------------------
<S>                          <C>                  <C>              <C>           <C>  
   Bert E. Brodsky           110,000              44               2.61          6/19/01
=============================================================================================
     Hugh Freund             90,000               36               2.61          6/19/01
=============================================================================================
     Gary Stoller            50,000               20               2.61          6/19/01
=============================================================================================
</TABLE>


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

     The following table sets forth certain information  concerning the value of
unexercised options and warrants held by executive officers of the Company,  for
the fiscal year ended May 31, 1997:

<TABLE>

==================================================================================================================
<CAPTION>
                      Shares       Value Realized   Number of Securities Underlying Value of Unexercised in-the-
                    Acquired on          ($)           Unexercised Options and      Money Options and Warrants at
      Name          Exercise(#)                      Warrants at May 31, 1997(#)          May 31, 1997($)
                                                      Exercisable/Unexercisable      Exercisable/Unexercisable

------------------------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                 <C>                           <C> 
    Bert E.             -0-              -0-                  732,667/0                     5,552,490/0
    Brodsky
------------------------------------------------------------------------------------------------------------------
  Hugh Freund           -0-              -0-                  205,000/0                     1,448,120/0
------------------------------------------------------------------------------------------------------------------
  Gary Stoller          -0-              -0-                  156,667/0                     1,130,536/0
==================================================================================================================

</TABLE>


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

     In  May  1992,  Mr.  Brodsky  and  the  Company  entered  into  a  deferred
compensation agreement pursuant to which the Company will pay (i) to Mr. Brodsky
a lump sum ranging from  $75,000 to $255,000 if he  voluntarily  terminates  his
employment  with  the  Company  after  attaining  55 years of age or (ii) to Mr.
Brodsky's  beneficiary a lump sum ranging from $200,000 to $450,000 in the event
of Mr.  Brodsky's death during the term of his employment with the Company.  The
amount of the payment is  dependent  upon the age of Mr.  Brodsky at the time of
termination  of employment or death.  The Company has obtained  insurance on Mr.
Brodsky's life to fund its obligations under the above agreement.

     Effective  February 1, 1997, the Company and Mr.  Brodsky  entered into the
Brodsky Employment Agreement providing for, among other things,  compensation at
the annual rate of $500,000  plus such bonuses or additional  compensation  that
the Board of Directors of the Company may, on the basis of  improvements  in the
Company's performance or other reasonable criteria, deem appropriate. During the
5 year term of the Brodsky  Employment  Agreement,  the  employee  shall also be
provided  with a  full-time  use of a Company  automobile,  six (6)  weeks  paid
vacation  annually and group medical  insurance  and other  benefits or programs
which the Company establishes or is made available to its employees.



<PAGE>


ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

     The following  table sets forth the beneficial  share ownership of (i) each
person who is known by the Company to be the beneficial  owner of more than five
(5%)  percent  of the  Company's  Common  Stock;  (ii)  each  of  the  Company's
directors;  and (iii) all of the Company's executive officers and directors as a
group. The ownership  percentages  indicated are calculated,  on a fully-diluted
basis,  in accordance  with Rule 13d-3  promulgated  pursuant to the  Securities
Exchange  Act of 1934,  as amended,  which  attributes  beneficial  ownership of
securities  to a person or entity who holds options or warrants to purchase such
securities.
<TABLE>

====================================================================================================================================
<CAPTION>
 Name of Director and Name
 and Address of Beneficial                                                         Approximate Percentage
     Owner                                  Number of Shares                       of Outstanding Shares
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                        <C>   
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY                              955,809  (1)                               50.4%  (1)
------------------------------------------------------------------------------------------------------------------------------------
Hugh Freund
26 Harbor Park Drive
Port Washington, NY                              323,493  (2)                               23.6%  (2)
------------------------------------------------------------------------------------------------------------------------------------
Gary Stoller
26 Harbor Park Drive
Port Washington, NY                              257,786  (3)                               19.5%  (3)
------------------------------------------------------------------------------------------------------------------------------------
Steven N. Bronson                           136,950 (4)                                     10.5%
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131
-----------------------------------------------------------------------------------------------------------------------------------
James S. Cassel                                79,100 (5)                                   6.4%
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131
-----------------------------------------------------------------------------------------------------------------------------------
Private Opportunity                           71,593 (6)                                    5.7%
Partners II, Ltd. Fl
Limited Partnership
201 South Biscayne Blvd.
Suite 2950
Miami, FL 33131

All executive officers and
Directors as a group (3 persons)
                                              1,537,088 (1)(2)(3)                           68.1%  (1)(2)(3)

====================================================================================================================================
</TABLE>


(1)  Includes  50,000  shares  of  Common  Stock  owned by Mr.  Brodsky's  wife.
     Includes presently  exercisable options to purchase 74,000 shares of Common
     Stock at $1.79  per share  under the  Incentive  Plan;  includes  presently
     exercisable  options to purchase 44,000 shares of Common Stock at $1.51 per
     share  under the 1995  Plan;  includes  presently  exercisable  options  to
     purchase  44,000  shares of Common  Stock at $2.34 per share under the 1995
     Plan;  includes presently  exercisable options to purchase 60,667 shares of
     Common  Stock at $1.38 per share  under the  Non-Qualified  Plan;  includes
     presently exercisable options to purchase 110,000 shares of Common Stock at
     $2.61  per  share  under  the 1995  Plan;  includes  presently  exercisable
     warrants  to  purchase  400,000  shares of Common  Stock at $1.38 per share
     under a Warrant  Agreement which expires in August,  2001;  includes 68,352
     shares of the Company's  Common Stock owned by the trusts  established  for
     the  benefit of Mr.  Brodsky's  four  children,  of which Mr.  Brodsky is a
     trustee.

(2)  Excludes 8,000 shares of Common Stock owned by Mr. Freund's adult children.
     Excludes 4,000 shares of Common Stock and presently  exercisable options to
     purchase  (i) 43,000  shares of Common  Stock at $1.79 per share  under the
     Incentive Plan, (ii) 18,000 shares of Common Stock at $1.38 per share under
     the 1995 Plan and (iii) 18,000 shares of Common Stock at $1.38


<PAGE>



     per share under the  Non-Qualified  Plan owned by Mr. Freund's wife. As set
     forth in Mr. Freund's Schedule 13G, filed with the SEC on February 9, 1997,
     Mr. Freund  disclaims any beneficial  interest in, or voting or dispositive
     control  over,  such  shares.  Includes  presently  exercisable  options to
     purchase  43,000  shares  of  Common  Stock at $1.79  per  share  under the
     Incentive Plan;  includes presently  exercisable options to purchase 18,000
     shares of Common  Stock at $1.51 per share  under the 1995  Plan;  includes
     presently  exercisable options to purchase 36,000 shares of Common Stock at
     $2.34 per share under the 1995 Plan; includes presently exercisable options
     to  purchase  18,000  shares of Common  Stock at $1.38 per share  under the
     Non-Qualified  Plan;  includes  presently  exercisable  options to purchase
     90,000 shares of Common Stock at $2.61 per share under the 1995 Plan.

(3)  Includes presently  exercisable options to purchase 46,667 shares of Common
     Stock at $1.79  per share  under the  Incentive  Plan;  includes  presently
     exercisable  options to purchase 20,000 shares of Common Stock at $1.51 per
     share  under the 1995  Plan;  includes  presently  exercisable  options  to
     purchase  20,000  shares of Common  Stock at $2.34 per share under the 1995
     Plan;  includes presently  exercisable options to purchase 20,000 shares of
     Common  Stock at $1.38 per share  under the  Non-Qualified  Plan;  includes
     presently  exercisable options to purchase 50,000 shares of Common Stock at
     $2.61 per share under the 1995 Plan. Includes 13,000 shares of Common Stock
     owned by trusts  established for the benefit of Mr.  Stoller's  children of
     which Mr. Stoller is the trustee.

(4)  Includes 50,600 shares issuable upon the exercise of currently  exercisable
     warrants,  which expire on December 22, 1997, at $5.00 per share and 34,600
     shares issuable upon the exercise of currently exercisable warrants,  which
     expire on December 22, 1998,  at $7.00 per share.  Excludes  71,593  shares
     beneficially  owned by Private  Opportunity  Partners  II,  L.P., a Florida
     limited partnership  ("POP"). Mr. Bronson is the President of the corporate
     general  partner of POP.  Mr.  Bronson  has  advised  the  Company  that he
     disclaims beneficial ownership of the shares beneficially owned by POP.

(5)  Includes 30,800 shares issuable upon the exercise of currently  exercisable
     warrants,  which expire on December 22, 1997, at $5.00 per share and 20,800
     shares issuable upon the exercise of currently exercisable warrants,  which
     expire on December  22,  1998,  at $5.00 per share.  Excludes  4,000 shares
     beneficially  owned by Mr.  Cassel's  children.  Mr. Cassel has advised the
     Company that he disclaims  beneficial  ownership of the shares beneficially
     owned by his children.

(6)  Includes 23,750 shares issuable upon the exercise of currently  exercisable
     options,  which expire on December  22,  2001,  and 343 shares owned by the
     corporate general partner of POP.





ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     IDA/SBA Financing

     Reference is hereby made to Item 6 - "Management's  Discussion and Analysis
or Plan of  Operation  -  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations - IDA/SBA  Financing" for a discussion of an
industrial  development  revenue bond and SBA financing  transactions  among the
Company,  BSRI, BFS (as successor to BSRI's interest in such transactions),  the
NCIDA, the SBA and the Bank.

     Advances and Loans to Affiliates

     In  January  1997 the  Company  advanced  certain  fees on  behalf  of Bert
Brodsky,  Hugh  Freund,  Gary  Stoller,  Leland H.  Freund  and Emily B.  Freund
(collectively,  the "Proponents") arising from a 1994 proposal by the Proponents
to take the Company "private" for purposes of the Federal  Securities Laws which
they subsequently  withdrew.  These fees were repaid by the Proponents in August
1997.

     On May 1, 1995, the due date of a promissory  note in the principal  amount
of $490,000 payable to Mr. Brodsky to the Company, together with interest at the
prime rate of interest  plus 1-1/4%,  was  extended to October 31,  1995.  (Such
promissory note  represented the then principal amount remaining on a $1,000,000
loan by the Company to Mr. Brodsky in July 1992.) On July 31, 1995, Mr. Brodsky,
as a result  of the  assignment  of the  Lease  with the  NCIDA  from BFS to the
Company in connection with the First Amendment,  repaid $129,000.  The remaining
balance of the note  receivable  was repaid by Mr.  Brodsky  during the  quarter
ended February 29, 1996.

     Compuflight Promissory Note



<PAGE>



     During the fiscal  quarter  ended  February 28, 1997,  $118,781 owed to the
Company pursuant to a promissory note from Compuflight,  a former affiliate (the
Company's  Chairman  was a principal  stockholder  and  Chairman of  Compuflight
through  December  1, 1993),  which  promissory  note  evidences  the  Company's
accounts receivable from Compuflight, was deemed by the Company as uncollectible
and was charged against an allowance account. In connection with such promissory
note, the Company  received a security  interest in  substantially  all the then
existing  assets  of  Compuflight,  which  has  been  assigned  to the  Bank  as
collateral for the Company's Previously Revolving Credit Agreement with the Bank
and which is  currently  being  released.  As of May 31,  1997,  Compuflight  is
indebted  to the  Company  in  the  amount  of  $12,074,  representing  accounts
receivable.

     Sale/Leaseback Transaction

     In March 1997,  Sandsport  assigned  its  $200,000  option to purchase  the
assets  leased  pursuant  to the 1997  Sale/Leaseback  Transaction  to PWCC,  an
affiliate of the  Company's  Chairman.  PWCC  acquired  the  purchase  option in
consideration  for  posting a letter of credit  to secure  the  purchase  option
obligation.  Subsequent to March 1997,  PWCC  assigned the purchase  option to a
third party which is not affiliated with the Company (See Item 6 - "Management's
Discussion  and  Analysis or Plan of  Operation -  Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results of  Operations  -  Analysis  of
Operations").

     Revolving Credit Agreement

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

     In  addition,  pursuant to the Credit  Agreement,  the Group is required to
maintain  certain  levels  of net  worth and meet  certain  financial  ratios in
addition to various other affirmative and negative covenants.  The Group has, in
the past, under prior  agreements with the Bank,  failed to meet these net worth
and financial ratios,  and the Bank has granted the Group waivers.  No assurance
can be given that the Group  will be able to meet these net worth and  financial
requirements  in the future,  and/or that the Bank will continue to grant to the
Group  waivers.  Although  in the past the Bank  has  renewed  its  loans to the
Company when they matured, there can be no assurance that it will continue to do
so or that the  Company,  if the Bank does not  renew the loan,  will be able to
arrange alternative financing on terms satisfactory to it.

     Registration Statement



<PAGE>



     On June 3, 1997 the Securities and Exchange  Commission  declared effective
the Company's registration statement on Form S-3 (the "Registration  Statement")
which covered, among other things, the reoffer of 820,213 shares of common stock
beneficially owned by Bert Brodsky,  255,696 shares of common stock beneficially
owned by Hugh Freund and 162,231  shares of common stock  beneficially  owned by
Gary Stoller (See Item 11 - Security  Ownership of Certain Beneficial Owners and
Management).

     Health Card

     The Company derives revenue from Health Card, a company affiliated with the
Company's  Chairman  of the Board,  principally  for  computer  software  design
services.  The revenues  generated  from Health Card  amounted to  approximately
$2,171,000   and  $2,014,000  for  the  years  ended  May  31,  1997  and  1996,
respectively.   Included  in  the  current   year   revenues   are  billings  of
approximately  $1,781,000 for computer  software design services.  Subsequent to
May 31, 1997, the Company received  $708,000 from Health Card in full payment of
amounts due, which totalled $708,000 at May 31, 1997.

     Reference is hereby made to Item 6 - "Management's  Discussion and Analysis
or Plan of  Operation  -  Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations  -  Overview"  for a  discussion  of the
commencement of negotiations for a business  combination between Health Card and
the Company.

     Equipment Leases

     The Company leases various  equipment  from a company  affiliated  with the
Company's  Chairman.  The  equipment  is leased on a monthly  basis at a rate of
approximately $24,000 per month.

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

(a)  Exhibits

     3(A)(i)   Certificate of  Incorporation  and Amendments  thereto  including
               Certificate  of Ownership  and Merger (DE) and Agreement and Plan
               of Merger (1)

     3(A)(ii)  Certificate of Amendment to Certificate  of  Incorporation  filed
               July 27, 1993 (1)

     3(A)(iii) Certificate of Amendment to Certificate  of  Incorporation  filed
               May 26, 1995 (1)

      3(B)     By-Laws (1)

      4(A)     Nassau   County   Industrial    Development   Agency   Industrial
               Development  Revenue  Bonds  (1994  Brodsky  Sibling  Realty Inc.
               Project) dated June 1, 1994 (1)



<PAGE>



     4(B)      Revolving  Credit  Agreement  dated as of April  20,  1995 by and
               among Sandsport Data Services, Inc. and Marine Midland Bank (1)

     4(C)      Nassau   County   Industrial    Development   Agency   Industrial
               Development  Revenue  Bonds  (1994  Brodsky  Silbing  Realty Inc.
               Project)  Assumption  and Amendment of Certain  Agreements  dated
               July 1, 1995 (1)

     4(D)      Loan Agreement  dated August 11, 1995 between  Sandata,  Inc. and
               Long Island Development Corporation (1)

     4(E)      "504" Note dated August 11, 1995 from the Long Island Development
               Corporation to Sandata, Inc. (1)

     4(F)      Nassau   County   Industrial    Development   Agency   Industrial
               Development  Revenue  Bonds  (1994  Brodsky  Silbing  Realty Inc.
               Project)  Assumption  and Amendment of Certain  Agreements  dated
               November 1, 1996

     4(G)      Revolving  Credit  Agreement  dated as of April  18,  1997 by and
               among Sandsport Data Services, Inc. and Marine Midland Bank

     10(A)     License  Agreement  dated as of  September  1,  1988 by and among
               Sandata, Inc., Sandata Images, Inc., Sandata Spectrum, Inc., P.W.
               Medical Management, Inc., P.W. Spectrum, Inc. and P.W. Subsidiary
               I, Inc., d/b/a Images (1)

     10(B)     Amendment  to  License  Agreement  by and  among  Sandata,  Inc.,
               Sandata  Images,  Inc.,  Sandata  Spectrum,  Inc.,  P.W.  Medical
               Management,  Inc.,  P.W.  Spectrum,  Inc. and P.W.  Subsidiary I,
               Inc., d/b/a Images dated August 31, 1989 (1)

     10(C)     Amendment  to  License  Agreement  by and  among  Sandata,  Inc.,
               Sandata  Images,  Inc.,  Sandata  Spectrum,  Inc.,  P.W.  Medical
               Management,  Inc.,  P.W.  Spectrum,  Inc. and P.W.  Subsidiary I,
               Inc., d/b/a Images dated December 1, 1990 (1)

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

     10(E)     Employees' Incentive Stock Option Plan (1)



<PAGE>



     10(F)     First  Amendment  to  Incentive  Stock Option Plan dated April 4,
               1989 (1)

     10(G)     Second  Amendment to Incentive  Stock Option Plan dated  December
               18, 1990 (1)

     10(H)     1986 Non-Qualified Stock Option Plan (1)

     10(I)     Amendment to 1986 Non- Qualified Stock Option Plan dated April 4,
               1989 (1)

     10(J)     1995 Stock Option Plan (1)

     10(K)     Common Stock Purchase Warrants as issued to Bert E. Brodsky (1)

     10(L)     Deferred   Compensation  Plan  dated  May  1,  1992  between  the
               Registrant and Bert E. Brodsky (1)

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

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

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

     10(P)     Form of Subscript on Agreement dated September 12, 1996 (2)

     10(Q)     Form of Common Stock Purchase Warrant ($5.00 Exercise Price) (2)

     10(R)     Form of Common Stock Purchase Warrant ($7.00 Exercise Price) (2)

     10(S)     Form of Redeemable Common Stock Purchase Warrant (2)

     10(T)     Employment   Agreement   dated   February  1,  1997  between  the
               Registrant and Bert E. Brodsky

     16        Letter re Change in Certifying Accountant (1)

     21        Subsidiaries of Registrant (2)



<PAGE>

     23         Consent of Accountants

     27         Financial Data Schedule (for electronic filing)
---------------------------

(1)  The Company  hereby  incorporates  the  footnoted  Exhibit by  reference in
     accordance  with Rule 12b-32,  as such Exhibit was  originally  filed as an
     Exhibit to the  Company's  Report on Form 10- KSB for the fiscal year ended
     May 31, 1995.

(2)  The Company  hereby  incorporates  the  footnoted  Exhibit by  reference in
     accordance  with Rule 12b-32,  as such Exhibit was  originally  filed as an
     Exhibit to Amendment No. 1 to Form S-3 Registration Statement as filed with
     the Securities and Exchange Commission on May 27, 1997.

          (b) Reports on Form 8-K

          The Company filed one Current Report on Form 8-K as follows:

                                           Date of Event:  June 19, 1997
                                           Items Reported:  Item 5 and Item 7
                                           Financial Statements:  Not Applicable





<PAGE>




                                  SANDATA, INC.

                     FINANCIAL STATEMENTS COMPRISING ITEM 7

                            OF REPORT ON FORM 10-KSB

                      TO SECURITIES AND EXCHANGE COMMISSION

                             YEAR ENDED MAY 31, 1997





<PAGE>


<TABLE>

<CAPTION>
                         Sandata, Inc. and Subsidiaries



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                                           Page

<S>                                                                                                           <C>
Reports of Independent Certified Public Accountants                                                         F-2

Financial Statements

         Consolidated Balance Sheets as of May 31, 1997 and 1996                                         F-3 - F-4

         Consolidated Statements of Income for the years ended
                  May 31, 1997 and 1996                                                                     F-5

         Consolidated Statements of Shareholders' Equity for the years
                  ended May 31, 1997 and 1996                                                               F-6

         Consolidated Statements of Cash Flows for the years ended
                  May 31, 1997 and 1996                                                                     F-7

         Notes to Consolidated Financial Statements                                                     F-8 - F-22



</TABLE>
                                       F-1


<PAGE>



                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS


                         REPORT OF INDEPENDENT CERTIFIED
                               PUBLIC ACCOUNTANTS



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

We have audited the accompanying  consolidated  balance sheets of Sandata,  Inc.
and  Subsidiaries  as of May 31,  1997 and 1996,  and the  related  consolidated
statements  of  income,  shareholders'  equity and cash flows for the years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.  We believe our audits  provide a reasonable
basis for our opinion.

As more fully described in the Notes to the consolidated  financial  statements,
the  Company  had  certain  transactions  with  companies  affiliated  with  the
Company's Officers and Chairman of the Board.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Sandata, Inc. and Subsidiaries as of May 31, 1997 and 1996, and the consolidated
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.



Marcum & Kleigman LLP

Woodbury, New York
August 13, 1997




                                       F-2


<PAGE>


<TABLE>

<CAPTION>
                         Sandata, Inc. and Subsidiaries


                           CONSOLIDATED BALANCE SHEETS

                                     May 31,


                               ASSETS                                                       1997                     1996
                                                                                            ----                     ----


CURRENT ASSETS
<S>                                                                                      <C>                       <C>       
       Cash and cash equivalents                                                         $1,200,014                $  368,400
       Accounts receivable, net of allowance for doubtful accounts
           of $331,000 and $350,000 at 1997 and 1996, respectively                        1,254,589                 1,180,905
       Receivables from affiliates                                                          949,906                   190,635
       Receivable from former affiliate                                                      12,074                    26,258
       Note receivable from former affiliate, net of allowance for
         doubtful accounts of $119,000 in 1996                                                  ---                    77,100
       Notes receivable - officers                                                          102,867                   102,867
       Inventories                                                                           16,335                    27,972
       Prepaid expenses and other current assets                                            212,114                   172,897
                                                                                            -------                   -------

                  Total Current Assets                                                    3,747,899                 2,147,034

FIXED ASSETS, NET                                                                         5,279,512                 9,399,625

OTHER ASSETS
       Note receivable                                                                      100,000                        --
       Cash surrender value of officer's life insurance, security
           deposits and other                                                               411,137                   410,683
                                                                                       ------------            --------------

                  Total Assets                                                           $9,538,548               $11,957,342
                                                                                         ==========               ===========

</TABLE>







                 See notes to consolidated financial statements

                                       F-3


<PAGE>


<TABLE>

<CAPTION>
                         Sandata, Inc. and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS (Continued)

                                     May 31,

                  LIABILITIES AND SHAREHOLDERS' EQUITY                                      1997                     1996
                                                                                            ----                     ----

CURRENT LIABILITIES
<S>                                                                                      <C>                     <C>       
       Accounts payable and accrued expenses                                             $1,691,456              $1,022,058
       Current portion of long-term debt                                                    267,864                 768,354
       Note payable - affiliate                                                                 -0-               1,000,000
       Deferred/unearned revenue                                                              2,733                   4,299
       Deferred income                                                                      237,202                 205,252
                                                                                            -------            ------------

                  Total Current Liabilities                                               2,199,255               2,999,963

LONG-TERM DEBT                                                                            1,034,201               4,322,234

NOTES PAYABLE - AFFILIATES                                                                      -0-                 462,000

DEFERRED INCOME                                                                             243,305                 177,530

DEFERRED INCOME TAXES                                                                       370,000                  83,000
                                                                                            -------            ------------

                  Total Liabilities                                                       3,846,761               8,044,727

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

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
       Common stock;  par value $.001;  authorized  3,000,000 shares in 1997 and
          1996,  1,216,727  and 816,727  issued in 1997 and 1996,  respectively;
          1,163,955 and 763,955 shares outstanding in 1997
          and 1996, respectively                                                              1,216                     816
       Additional paid in capital                                                         2,795,801               1,279,710
       Retained earnings                                                                  3,031,656               2,768,975
                                                                                          ---------               ---------
                                                                                          5,828,673               4,049,501

       Less Treasury stock - at cost (52,772 shares in 1997 and 1996)                      (136,886)               (136,886)
                                                                                   ----------------               ---------

                  Total Shareholders' Equity                                              5,691,787               3,912,615
                                                                                          ---------               ---------

                  Total Liabilities and Shareholders' Equity                             $9,538,548             $11,957,342
                                                                                         ==========             ===========
</TABLE>


                 See notes to consolidated financial statements


                                       F-4


<PAGE>


<TABLE>
<CAPTION>

                                               Sandata, Inc. and Subsidiaries

                                              CONSOLIDATED STATEMENTS OF INCOME

                                                     Years ended May 31,

                                                                                            1997                     1996
                                                                                            ----                     ----

REVENUES:
       
       <S>                                                                               <C>                        <C>       
       Service fees                                                                     $11,312,809                $8,964,335
       Real estate rental income                                                            134,700                   285,048
       Other income                                                                         407,137                   277,982
       Interest income                                                                       26,823                    34,858
                                                                                      -------------            --------------
                                                                                         11,881,469                 9,562,223
                                                                                         ----------                 ---------
COSTS AND EXPENSES:
       Service Fees:
           Operating                                                                      6,884,989                 5,038,472
           Selling, general and administrative                                            2,348,031                 1,988,115
           Depreciation and amortization                                                  1,358,600                 1,093,264
           Interest expense                                                                 221,042                   216,862
                                                                                      -------------            --------------
                                                                                         10,812,662                 8,336,713
                                                                                         ----------                 ---------
       Real Estate:
           Operating                                                                        246,894                   472,310
           Depreciation and amortization                                                     47,302                    88,779
           Interest expense                                                                 133,918                   289,629
           Real estate taxes                                                                 71,012                   123,299
                                                                                       ------------                   -------
                                                                                            499,126                   974,017
                                                                                         ----------                 ---------

TOTAL COSTS AND EXPENSES                                                                 11,311,788                 9,310,730
                                                                                         ----------                 ---------

Earnings from operations before income taxes                                                569,681                   251,493

       Income tax expense (benefit)                                                         307,000                   (8,000)
                                                                                      -------------            --------------

NET EARNINGS                                                                          $     262,681           $       259,493
                                                                                       ============              ============

EARNINGS PER COMMON SHARE                                                             $        0.16           $          0.16

Weighted average common shares outstanding                                                2,263,589                 1,586,423
                                                                                          =========            ==============


</TABLE>



                 See notes to consolidated financial statements

                                       F-5


<PAGE>


<TABLE>
<CAPTION>

                                               Sandata, Inc. and Subsidiaries

                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                              Years ended May 31, 1997 and 1996

                                                                   Additional
                                Common            Stock             Paid-in             Retained            Treasury
                                Shares           Amount             Capital             Earnings             Stock          Total

<S>                              <C>                <C>              <C>                <C>                <C>            <C>       
Balance at June 1, 1996        816,727            $816             $1,279,710         $2,509,482         $(136,886)      $3,653,122
Net earnings                       ---             ---                    ---            259,493                ---         259,493
                           -----------
Balance at May 31, 1996        816,727             816              1,279,710          2,768,975          (136,886)       3,912,615
Sale of common stock in 
connection with private
offering                       400,000             400              1,516,091                ---                ---       1,516,491
Net earnings                      ---              ---                    ---            262,681                ---         262,681
                           -----------
Balance at May 31, 1997      1,216,727          $1,216             $2,795,801         $3,031,656         $(136,886)      $5,691,787

                             

</TABLE>




                 See notes to consolidated financial statements



                                       F-6


<PAGE>


<TABLE>
<CAPTION>


                         Sandata, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     Years ended May 31,
                                                                                           1997                   1996
                                                                                           ----                   ----
Cash flows from operating activities:
<S>                                                                                    <C>                   <C>       
    Net earnings                                                                       $  262,681            $  259,493
    Adjustments to reconcile net earnings to net cash
      provided by operating activities:
         Depreciation and amortization                                                  1,405,902             1,182,043
         (Gain) on disposal of fixed assets                                             (375,714)              (242,552)
         (Gain) on Transfer of Facility                                                  (15,586)                     --
         Provision for losses on accounts receivable                                     (19,481)                45,516
         (Decrease) increase in deferred income                                         (277,989)              (209,233)
         Recognition of deferred revenue                                                 (19,300)               (91,886)
         Deferred tax provision (benefit)                                                 287,000               (57,444)
           (Increase) decrease in operating assets
                Accounts receivable                                                      (54,203)              (441,613)
                Receivables from affiliates                                             (759,271)               868,122
                Receivable from former affiliate                                           14,184                51,201
                Inventories                                                                11,637                (1,750)
                Prepaid expenses and other current assets                                (39,217)               (84,744)
                Income taxes receivable                                                        --                66,000
                Other assets                                                                (454)               (82,917)
         Increase (decrease) in operating liabilities
                Accounts payable and accrued expenses                                     669,396               420,952
                Deferred revenue                                                           17,734                61,434
                Deferred income                                                           375,714               242,552
                                                                                          -------          ------------
           Net cash provided by operating activities                                    1,483,033             1,985,174
                                                                                        ---------          ------------
Cash flows from investing activities:
         Purchases of fixed assets                                                    (1,941,372)            (3,457,703)
         Proceeds from sale/leaseback transactions                                      1,906,000               825,935
         Issuance of notes receivable                                                   (100,000)                    --
         Collection of note receivable - officer                                               --               150,000
         Collection of note receivable - former affiliate                                 77,100                221,099
         Advances to affiliates                                                                --                61,000
                                                                                     ------------          ------------
           Net cash used in investing activities                                         (58,272)            (2,199,669)
                                                                                     ------------          -------------
Cash flows from financing activities:
         Proceeds from private placement offering                                       1,516,491                    --
         Proceeds from term loans                                                              --               979,166
         Principal payments on term loans                                               (609,638)            (1,319,718)
         Proceeds from line of credit                                                   3,750,000             1,500,000
         Principal payments on line of credit                                          (3,788,000)           (2,141,166)
         Proceeds from notes payable - affiliates                                       3,010,000             1,462,000
         Principl payments on notes payable - affiliates                               (4,472,000)                  --
                                                                                    -------------          -----------
           Net cash (used in) provided by financing activities                           (593,147)             480,282
                                                                                     ------------         -------------
           INCREASE IN CASH AND CASH EQUIVALENTS                                          831,614              265,787
Cash and cash equivalents at beginning of year                                            368,400              102,613
                                                                                     ------------          ------------
Cash and cash equivalents at end of year                                               $1,200,014             $368,400
                                                                                       ==========          ============
</TABLE>

Supplemental Disclosure of Noncash Investing and Financing Activities:
As of July 31, 1995 the Company assumed lease obligations  totalling  $4,143,140
as  disclosed  in  the  Notes  to  the  Consolidated   Financial  Statements  in
conjunction  with the acquisition of a facility.As of November 1, 1996 a company
affiliated with the Directors of the Company  assumed certain lease  obligations
relative to the transfer of a facility in the amount of  $3,140,884 as disclosed
in the Notes to the Consolidated Financial Statements.

                 See notes to consolidated financial statements


                                       F-7


<PAGE>


                         Sandata, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a. Principles of Consolidation

     The consolidated financial statements include the accounts of Sandata, Inc.
     and its wholly owned subsidiaries:  Sandsport Data Services,  Inc., Sandata
     Home Health Systems,  Inc., Sandata Spectrum,  Inc., SanTrax Systems, Inc.,
     SanTrax  Productivity,  Inc. and Sandata Inteck, Inc. SanTrax Productivity,
     Inc. and Sandata Inteck,  Inc. are inactive  subsidiaries.  All significant
     intercompany   accounts   and   transactions   have  been   eliminated   in
     consolidation.

     b. Nature of Business and Economic Dependency

     Sandata, Inc. and Subsidiaries (the "Company") are primarily engaged in the
     business of  providing  computerized  data  processing  services and custom
     software and  programming  services  using  Company-developed  and licensed
     software  principally to the  healthcare  industry.  The Company  primarily
     operates in the New York  metropolitan  area.  During fiscal years 1997 and
     1996, the Company  received  revenues from a group of customers who are all
     funded by one governmental  agency,  amounting to approximately  $7,905,000
     and $6,218,000, respectively.

     c. Fixed Assets

     Fixed  assets are  recorded  at cost.  Depreciation  and  amortization  are
     computed  principally  by the  straight-line  method over the lesser of the
     estimated useful lives or lease terms of the related assets.

     d. Income Taxes

     The primary  objectives of accounting for income taxes are to (a) recognize
     the amount of tax payable for the current year and (b) recognize the amount
     of deferred tax liability or asset based on management's  assessment of the
     tax  consequences  of  events  that have been  reflected  in the  Company's
     financial statements or tax returns.

     e. Software Costs

     The company capitalizes  software  development costs from the point in time
     where  technological  feasibility has been  established  until the computer
     software  product is available to be sold.  The Company's  amortization  is
     computed on a straight line basis over a five year period, which represents
     the  estimated  use for  life of the  software.  The  Company  matches  its
     software  amortization  against its respective  product  revenue,  which is
     reported on a product by product basis.


                                       F-8


<PAGE>


NOTE 1 - (Continued)

     f. Inventories

     Inventories,  consisting  of computer  hardware  and  peripherals  held for
resale, are stated at the lower of cost or market;  cost is determined using the
specific identification method.

     g. Net Earnings Per Common Share

     Net  earnings  per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding.  Earnings per common share
for the fiscal years 1997 and 1996 includes the dilutive  effect of  outstanding
stock options and warrants. The number of common stock equivalents determined by
applying  the modified  treasury  stock method  included in the  calculation  of
earnings  per  common  share  for the  years  ended  May 31,  1997  and 1996 was
1,341,301 and 822,468, respectively.

     h. Revenue Recognition

     The Company recognizes revenues and direct costs as the contractual service
is rendered and the expense  associated with such service is incurred.  Revenues
from hardware and software  maintenance  contracts  are deferred and  recognized
over the life of the contracts.

     i. Statement of Cash Flows

     The  Company  paid  income  taxes of  approximately  $7,000  and $4,000 and
interest of approximately $355,000 and $506,000 for the years ended May 31, 1997
and 1996, respectively.

     For purposes of the  statement  of cash flows,  the Company  considers  all
short-term  investments with an original  maturity of three months or less to be
cash equivalents.

     j. Use of Estimates in the Financial Statements

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

     k. Cash

     The  Company has cash  balances  in banks in excess of the  maximum  amount
insured by the FDIC as of May 31, 1997.



NOTE 1 - (Continued)

     l. Fair Value of Financial Instruments

     The Company's  financial  instruments include cash, accounts receivable and
accounts payable.  Due to the short-term nature of these  instruments,  the fair
value of these  instruments  approximate  their recorded value.  The Company has
long-term debt which it believes is stated at estimated fair market value.

NOTE 2 - FIXED ASSETS

     Fixed assets consist of the following:
<TABLE>
<CAPTION>

                                                                  Useful                                May 31,
                                                                   Life                       1997                      1996
                                                                  ------                       ----                      ----
         <S>                                                       <C>                    <C>                       <C>       
         Computer equipment and software costs                    5 years                $7,484,857                $7,622,391
         Furniture, fixtures and automobiles                    4-7 years                   299,138                   289,218
         Leasehold improvements                                  10 years                 2,421,036                   726,737
         Building and improvements                               39 years                        --                 4,085,620
         Land                                                                                    --                   791,280
                                                                                       ------------               -----------
                                                                                        $10,205,031               $13,515,246
         Less accumulated depreciation and amortization                                   4,925,519                 4,115,621
                                                                                         ---------                  ---------
                                                                                         $5,279,512                $9,399,625
                                                                                         ==========                ==========

</TABLE>

     Depreciation and amortization  expense relating to fixed assets (other than
     software costs) amounted to approximately $642,000 and $673,000 in 1997 and
     1996, respectively.

     The cost of assets under capital  leases and  accumulated  amortization  on
     these assets amounted to $4,876,900 and $88,779,  respectively,  at May 31,
     1996.

     Unamortized  software  costs  amounted  to  approximately   $2,252,000  and
     $1,890,000 at May 31, 1997 and 1996, respectively. Amortization expense for
     these costs totaled  approximately  $764,000 and $509,000 in 1997 and 1996,
     respectively.

     Research and development  expenses  amounted to approximately  $276,000 and
     $201,000 in 1997 and 1996, respectively.

NOTE 3 - DEBT

     Credit Agreement

     On April 20, 1995, the Company entered into a $2,000,000  secured revolving
     credit agreement (the "Previous Revolving Credit Agreement") and a two-year
     term loan (the  "Term  Loan") in the  amount of  $500,000  with a bank (the
     "Bank"),  which  expired  in April  1997.  The  Previous  Revolving  Credit
     Agreement provided for the payment of the outstanding balance in sixty (60)
     equal monthly principal installments plus interest at 3/4%


NOTE 3 - (Continued)

     above the Bank's prime rate. The term loan was payable in twenty-four  (24)
     monthly installments of $20,834 plus interest at3/4% above the Bank's prime
     rate, through April 1, 1997.

     On  April  18,  1997,  the  Company  entered  into a new  revolving  credit
     agreement (the "Credit  Agreement")  with the Bank and the credit limit was
     increased to  $3,000,000.  The unpaid  balance bears interest at either the
     Bank's  prime rate or the  adjusted  LIBOR  rate,  as defined in the Credit
     Agreement,  and will be paid  quarterly.  The  Company is required to pay a
     commitment  fee in the amount of $30,000  and a fee equal to 1/4% per annum
     payable on the unused  average  daily  balance of amounts  under the Credit
     Agreement. The indebtedness under the Credit Agreement is guaranteed by the
     Company and secured by all the assets of the Company.  The  collateral  for
     the facility is a first lien on all equipment  owned by the Company as well
     as a collateral  assignment of $2,000,000 of life insurance  payable on the
     life of a key officer of the Company. In addition,  the Company is required
     to  maintain  certain  financial  and  restrictive  covenants.  The  Credit
     Agreement  will  mature on March 1,  2000,  at which  time the  outstanding
     principal  balance  will  be due  and  payable.  As of May  31,  1997,  the
     outstanding balance of the Credit Agreement with the Bank was $1,000,000.

     NCIDA Borrowing and SBA Loan

     On June 1, 1994, BFS Sibling Realty Inc., formerly known as Brodsky Sibling
     Realty,  Inc., an affiliate of the Company's  Directors  ("BSRI")  borrowed
     $3,350,000 in the form of Industrial Development Revenue Bonds ("Bonds") to
     finance costs incurred in connection with the  acquisition,  renovation and
     equipping of the  Company's  office space  located at 26 Harbor Park Drive,
     Port  Washington,   New  York  (the  "Facility")  from  the  Nassau  County
     Industrial Development Agency (the "NCIDA").  These Bonds were subsequently
     purchased by the Bank.  The aggregate  cost incurred by BSRI in conjunction
     with  such   acquisition,   renovation  and  equipping  was   approximately
     $4,377,000.  In addition,  the Company incurred  approximately  $500,000 of
     indebtedness  to affiliates of Mr.  Brodsky in connection  with  additional
     capital improvements. The Bonds bore interest at prime plus 3/4 of 1% until
     August 11, 1995,  at which time the interest  rate became fixed at 9% for a
     five-year  term through  September 1, 2000. At that time, the interest rate
     will  be  adjusted  to a rate  of  either  prime  plus  3/4  of 1%,  or the
     applicable  fixed  rate if  offered  by the  Bank.  As a  condition  to the
     issuance of the Bonds,  the NCIDA  obtained  title to the Facility which it
     then leased to BSRI.

     On June  21,  1994  (as of June 1,  1994),  the  Company  and its  Chairman
     guaranteed  the full and prompt  payment of  principal  and interest of the
     Bonds and the Company granted the Bank a security  interest and lien on all
     the assets of the Company.  In connection with the issuance and sale of the
     Bonds,  the Company entered into a lease  agreement (the "First  Sublease")
     with BSRI, whereby the Company, as sublessee, leased the Facility for the



NOTE 3 - (Continued)

     conduct of its business and, in  consideration  therefor,  was obligated to
     make  lease  payments  that at  least  equal  amounts  due to  satisfy  the
     underlying Bond obligations.

     On July 31, 1995, by an Assignment and  Assumption  and First  Amendment to
     Lease between the Company and BSRI, the Company  assumed the obligations of
     BSRI under the lease and became the direct tenant and the beneficial  owner
     of the Facility  (collectively the "First  Amendment").  In connection with
     the First Amendment,  the First Sublease was terminated.  During the period
     commencing  July 1, 1995 and ending  October 31, 1996 the Company paid rent
     for the  Facility to the NCIDA in the amount of $48,600 per month,  subject
     to  adjustment  based upon the then  effective  interest rate of the Bonds,
     among other things.  In connection  with the First  Amendment,  the Company
     obtained the right to acquire the  Facility  upon  expiration  of the lease
     with the NCIDA (the  "Lease") and became  directly  liable to the NCIDA for
     amounts  due  thereunder.  In  connection  with the First  Amendment  , the
     Company  assumed certain  indebtedness  owed to affiliates of the Company's
     Chairman as follows:  (i) the $364,570 remaining balance of a 48-month term
     loan bearing  interest at 8.7% per annum,  and (ii) the $428,570  remaining
     balance of a 42-month  term loan  bearing  interest  at 8.91%.  Each of the
     foregoing  loans were  incurred  in  connection  with the  construction  of
     improvements  to the  Facility,  are  collateralized  by the  assets of the
     primary  obligor and are guaranteed by the Company's  Chairman.  At May 31,
     1997, $302,065 was owed to affiliates of the Company's Chairman.

     On August 11, 1995, the Company entered into a $750,000 loan agreement with
     the Long Island Development Corporation ("LIDC"),  under a guarantee by the
     U.S. Small  Business  Administration  ("SBA") (the "SBA Loan").  The entire
     $750,000  proceeds  were used to repay a portion of the Bonds.  The Company
     entered into the First Amendment primarily to satisfy certain  requirements
     of the SBA. The SBA Loan is payable in 240 monthly  installments of $6,255,
     which includes principal and interest at a rate of 7.015%.

     As of November 1, 1996,  the Company  entered into the Second  Amendment to
     Lease  Agreement  among BFS Realty,  LLC,  an  affiliate  of the  Company's
     Directors ("BFS") (as successor to BSRI's interest in the transaction) with
     the Bank and the Company (the "Second  Amendment").  In connection with the
     Second  Amendment,  (i) BFS assumed all of the Company's  obligations under
     the  Lease  with  the  NCIDA  and  entered  into a  sublease  (the  "Second
     Sublease") with the Company, as sublessee,  for the Facility;  and (ii) the
     Company  conveyed to BFS the right to become the owner of the Facility upon
     expiration of the Lease. In addition,  pursuant to the Second Sublease, the
     Company has assumed certain  obligations owed by BFS to the NCIDA under the
     Lease. BFS has indemnified the Company with respect to certain  obligations
     relative to the Lease and the Second Amendment.

     As a result of the Second  Amendment  and  related  transactions  discussed
     above, the Company reduced its fixed assets,  consisting of land,  building
     and  improvement  costs,  by  the  amount  of  the  cost  thereof,  net  of
     accumulated depreciation, in the amount of $3,125,298 and reduced


NOTE 3 - (Continued)

     its long  term  debt by  $3,140,884,  which  was  assumed  by BFS;  the net
     difference was recorded as other income in the financial statements.

     Amounts owed to affiliates of the Company's Chairman in connection with the
     construction and improvements  were not assumed by the BFS. The Company and
     its Chairman have  guaranteed the above  obligation to the SBA and NCIDA in
     connection with the foregoing.

         Maturities of long term debt at May 31, 1997 are as follows:
                                                                  Principal
         Year ending May 31,                                     Repayments
             1998                                                $  267,864
             1999                                                    34,201
             2000                                                 1,000,000

                                                                 $1,302,065
                                                                  ----------

NOTE 4 - NOTES PAYABLE - AFFILIATES

     The note  payable  -  affiliate  which is  evidenced  by a note  represents
     amounts borrowed from a company affiliated with the Company's Chairman. The
     demand  note,  which is  non-interest  bearing,  was repaid by the  Company
     during the fiscal year ended May 31, 1997. 

     The  notes  payable  -  affiliates  represents  amounts  borrowed  from two
     companies  affiliated with the Company's Chairman.  The notes bear interest
     at prime plus 3/4% and are due  December  2000 and May 2001,  respectively.
     The notes were  repaid by the  Company  during  the  fiscal  year ended May
     31, 1997.

NOTE 5 - INCOME TAXES

The income tax expense (benefit) is comprised of the following:

                                                           Year ended May 31,
                                                         1997          1996
         Current
                  Federal                               $3,000      $(98,000)
                  State                                 17,000         8,000

         Deferred - Federal and state                  287,000        82,000
                                                      ---------        ------
                                                   $   307,000       $(8,000)
                                                     ==========       ========



NOTE 5 - (Continued)

     The Company's  effective  income tax rate differs from the  statutory  U.S.
Federal income tax rate as a result of the following:

                                                            Year ended May 31,
                                                          1997            1996
         Statutory U.S. Federal tax rate                  34.0%           34.0%
         Alternative minimum tax                            .5
         State taxes                                       3.0             3.2
         Nondeductible items                              62.4            37.4
         Current benefit - tax expense in excess of book (96.4)         (110.3)
         Net change in items giving rise to deferred 
         taxes                                            50.2            32.5
                                                          -----       ---------

                                                          53.7%           (3.2)%
---------                                               ======            ======



     As of May  31,  1997  and  1996  depreciation  gave  rise to  deferred  tax
     liabilities of approximately $860,000 and $696,000, respectively. Allowance
     for doubtful  accounts,  vacation  accruals,  deferred gains, net operating
     loss  carryforwards  and contribution  carryovers gave rise to deferred tax
     assets of  approximately,  $490,000 and  $613,000,  respectively,  net of a
     valuation  allowance of $0 and  $86,000,  respectively.  These  amounts are
     presented  net in the  consolidated  balance  sheet as of May 31,  1997 and
     1996, as a noncurrent deferred tax liability.

NOTE 6- COMMITMENTS AND CONTINGENCIES

     Lease Agreements

     The Company leases office space at the Facility and  equipment.  Until July
     31, 1995,  the Facility was sublet from BSRI, an affiliate of the Company's
     Directors  pursuant to the First  Sublease which was to expire on September
     1, 2005. The First Sublease provided for rental payments to be made to BSRI
     in an amount equal to the principal and interest  requirement on the bonds.
     Such amount was $97,200 for the year ended May 31,  1996,  and included all
     real estate taxes and operating costs.

     As of July 31, 1995,  pursuant to the First  Amendment,  the Company became
     the beneficial owner of and leased the Facility from the NCIDA.  During the
     period commencing July 1, 1995 and ending October 31, 1996 the Company paid
     rent for the  Facility  to NCIDA in the amount of $48,600  per month.  Such
     amount was $243,000 and $486,000 for the years ended May 31, 1997 and 1996,
     respectively.  As of November 1, 1996, the Company  entered into the Second
     Amendment pursuant to which the Company assigned its rights under the Lease
     to BFS (as successor to the interest of BSRI).  The Company,  as sublessee,
     entered  into the Second  Sublease  with BFS for the  Facility.  During the
     period  November 1, 1996 and ending May 31,  1997 the Company  paid rent in
     the amount of $340,200 to BFS.

NOTE 6 - (Continued)

     The Company has  obligations to pay rental expense in connection with seven
     sale/leaseback transactions.  The rental expenses amounted to approximately
     $773,600   and  $602,700  for  the  years  ended  May  31,  1997  and  1996
     respectively. (See Note 10).

     In connection with the February 1995 sale/leaseback, the Company has issued
     irrevocable  letters of credit in the amount of $375,000 for the benefit of
     the lessor.  One letter of credit in the amount of $225,000 is  cancellable
     if the Company  meets  certain  financial  covenants.  The other  letter of
     credit in the amount of $150,000 expires upon the termination of the lease.

     Total office space and equipment  rental expense  amounted to approximately
     $1,728,000 and $1,163,000 in fiscal 1997 and 1996, respectively.

     Future minimum lease payments for all  noncancellable  operating  leases at
     May 31, 1997 are as follows:

                                                                        Amount
                  Year ending May 31,
                           1998                                      $1,769,518
                           1999                                       1,468,867
                           2000                                       1,364,883
                           2001                                         674,818
                           2002                                         599,052
                           Thereafter                                 1,944,000
                                                                     $7,821,138


                         Sandata, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     Litigation

     On April 10,  1997,  the Company  received  notice  that MCI had  commenced
     action  against  it in the United  States  District  Court for the  Eastern
     District  of  New  York  alleging  that  the  Company's  SanTrax  time  and
     attendance  system  infringes on certain patent rights  allegedly  owned by
     plaintiff.  The  complaint  seeks  compensatory  and  treble  damages  with
     interest and injunctive  relief.  The Company intends to vigorously  defend
     this action.  On May 13, 1997,  the Company  filed its Answer.  Among other
     things,  pursuant  to the  Answer,  the  Company  denies  that its  product
     infringes MCI's patent rights and asserts certain affirmative  defenses. In
     addition,  the Answer  contains a counterclaim  challenging the validity of
     MCI's alleged patent rights.

     In the event that the Company were not to prevail in this  litigation,  the
     Company  could be required to pay  significant  damages to MCI and could be
     enjoined from further use of the SanTrax system as it presently exists. The
     ultimate   outcome  of  these  matters  cannot   presently  be  determined.
     Accordingly,  no provision for any liability that may result  therefrom has
     been made in the accompanying consolidated financial statements.


NOTE 6 - (Continued)

     The Company is involved in other  litigation  through the normal  course of
     business.  The Company  believes that the  resolution of these matters will
     not  have a  material  adverse  effect  on the  financial  position  of the
     Company.

     Employment Agreement

     On February 1, 1997 the Company and Mr. Brodsky  entered into an employment
     agreement for a five year term (the "Brodsky Employment Agreement").  Among
     other things, the Brodsky Employment Agreement provides compensation at the
     annual rate of $500,000. The Brodsky Employment Agreement also provides for
     payment  of an  annual  bonus  at  the  sole  discretion  of the  Board  of
     Directors.

NOTE 7 - RELATED PARTY TRANSACTIONS

     The Company  derives  revenue from a company  affiliated with the Company's
     Chairman of the Board for data  processing  services and computer  software
     design.  The revenues  generated from this company,  amounted to $2,171,000
     and $2,014,000 for the years ended May 31, 1997 and 1996, respectively.  At
     May  31,  1997,  the  Company  was  owed  approximately  $708,000  by  such
     affiliate, which was received in full subsequent to May 31, 1997.

     b. On June 1, 1994,  BSRI  borrowed  $3,350,000 in the form of the Bonds to
     finance costs incurred in connection with the  acquisition,  renovation and
     equipping  of the  Company's  Facility  from the  NCIDA.  These  Bonds were
     subsequently  purchased by the Bank. The aggregate cost incurred by BSRI in
     conjunction   with  such   acquisition,   renovation   and   equipping  was
     approximately  $4,377,000.  In addition, the Company incurred approximately
     $500,000 of  indebtedness  to affiliates of Mr. Brodsky in connection  with
     additional capital improvements.  The Bonds bore interest at prime plus 3/4
     of 1% until August 11, 1995,  at which time the interest  rate became fixed
     at 9% for a five-year  term through  September 1, 2000.  At that time,  the
     interest rate will be adjusted to a rate of either prime plus 3/4 of 1%, or
     the  applicable  fixed rate if offered by the Bank.  As a condition  to the
     issuance of the Bonds,  the NCIDA  obtained  title to the Facility which it
     then leased to BSRI.

     On June  21,  1994  (as of June 1,  1994),  the  Company  and its  Chairman
     guaranteed  the full and prompt  payment of  principal  and interest of the
     Bonds and the Company granted the Bank a security  interest and lien on all
     the assets of the Company.  In connection with the issuance and sale of the
     Bonds,  the Company  entered into a First  Sublease with BSRI,  whereby the
     Company  leased the  Facility  for the  conduct  of its  business  and,  in
     consideration  therefor, was obligated to make lease payments that at least
     equal amounts due to satisfy the underlying Bond obligations.

     On July 31, 1995, by the First Amendment  between the Company and BSRI, the
     Company  assumed  the  obligations  of BSRI  under the lease and became the
     direct tenant and the


NOTE 7 - (Continued)

     beneficial  owner of the Facility.  In connection with the First Amendment,
     the First Sublease was  terminated.  During the period  commencing  July 1,
     1995 and ending  October 31, 1996 the Company paid rent for the Facility to
     the NCIDA in the amount of $48,600 per month,  subject to adjustment  based
     upon the then effective  interest rate of the Bonds, among other things. In
     connection  with the First  Amendment,  the Company  obtained  the right to
     acquire the Facility upon expiration of the Lease with the NCIDA and became
     directly liable to the NCIDA for amounts due thereunder. In connection with
     the First  Amendment,  the Company  assumed  certain  indebtedness  owed to
     affiliates of the Company's Chairman as follows: (i) the $364,570 remaining
     balance of a 48-month  term loan  bearing  interest at 8.7% per annum,  and
     (ii) the  $428,570  remaining  balance  of a  42-month  term  loan  bearing
     interest at 8.91%.  Each of the foregoing loans were incurred in connection
     with the construction of improvements to the Facility,  are  collateralized
     by the assets of the primary  obligor and are  guaranteed  by the Company's
     Chairman.

     On August 11, 1995, the Company entered into the $750,000 SBA Loan with the
     LIDC, under a guarantee by the SBA. The entire $750,000  proceeds have been
     used to repay a portion of the Bonds.  The Company  entered  into the First
     Amendment  primarily to satisfy  certain  requirements  of the SBA. The SBA
     Loan is payable in 240  monthly  installments  of  $6,255,  which  includes
     principal and interest at a rate of 7.015%.

     As of November 1, 1996, the Company entered into the Second Amendment among
     BFS (as successor to the interest of BSRI under the Second  Amendment)  and
     the Bank. In connection with the Second  Amendment,  (i) BFS assumed all of
     the Company's  obligations  under the Lease with the NCIDA and entered into
     the Second Sublease with the Company, as sublessee,  for the Facility;  and
     (ii) the  Company  conveyed  to BFS the  right to  become  the owner of the
     Facility  upon  expiration  of the  Lease.  In  addition,  pursuant  to the
     sublease,  the Company has assumed certain  obligations  owed by BFS to the
     NCIDA under the Lease.  BFS has  indemnified  the Company  with  respect to
     certain obligations relative to the Lease and the Second Amendment.

     c. Due from  Officers  in the amount of  $102,867,  which is  evidenced  by
     notes,  represents  the amount  advanced by the Company to pay certain fees
     arising from the proposed  privatization,  which was withdrawn in December
     1994. These notes were repaid by the Officers in August 1997.

     d.  The  Company  makes  various  lease  payments  to  certain   affiliated
     companies.  The payments are for: equipment rental,  which was $367,228 and
     $381,113 in fiscal 1997 and 1996,  respectively,  and rent for the Facility
     which was $340,200 and $97,200 in fiscal 1997 and 1996, respectively.




NOTE 7 - (Continued)

     e. At May 31,  1997,  the Company was owed  approximately  $138,000  from a
     company affiliated with the officers of the Company.  Subsequent to May 31,
     1997, the Company received  approximately $18,000 and a note receivable for
     the balance due. The note is payable in 24 monthly  payments  with interest
     at 8%.

     f On June 3, 1997 the Securities Exchange Commission declared effective the
     Company's registration statement on Form S-3 (the "Registration Statement")
     which covered,  among other things, the reoffer of 820,213 shares of common
     stock  beneficially  owned by Mr. Brodsky and 417,927  shares  beneficially
     owned by two Directors and Executive Officers of the Company.

     g. In May  1992,  Mr.  Brodsky  and the  Company  entered  into a  deferred
     compensation  agreement  pursuant to which the Company  will pay (i) to Mr.
     Brodsky a lump sum  ranging  from  $75,000 to  $255,000  if he  voluntarily
     terminates his employment  with the Company after attaining 55 years of age
     (ii) to Mr.  Brodsky's  beneficiary  a lump sum  ranging  from  $200,000 to
     $450,000  in the  event  of Mr.  Brodsky's  death  during  the  term of his
     employment  with the Company.  The amount of the payment is dependent  upon
     the age of Mr. Brodsky at the time of  termination  or death.,  The Company
     has obtained  insurance on Mr. Brodsky's life to fund its obligations under
     the above agreement.

NOTE 8 - NOTE RECEIVABLE FROM FORMER AFFILIATE

     On July 31, 1993, the Company received a promissory note from  Compuflight,
     Inc.  ("Compuflight"),  a former  affiliate (the  Company's  Chairman was a
     principal stockholder and Chairman of Compuflight through December 1, 1993)
     to evidence the Company's  accounts  receivable from Compuflight.  The note
     was payable in  increments of $20,000 per month  including  interest at the
     rate of one percent above prime on the unpaid  balance and was due April 1,
     1994.  On  November 1, 1993,  the note was  amended.  The  amended  note is
     payable in minimum  increments  of $20,000  per month with  interest at ten
     percent (10%) per annum and contains  provisions for  accelerated  payments
     based upon Compuflight  achieving  certain results.  Payments  commenced on
     February 28, 1994 and are to continue  until such time as the  indebtedness
     and any  accrued  interest  are  paid in full.  The  remaining  balance  of
     $118,781   owed  on  the  note,   which  was  deemed  by  the   Company  as
     uncollectible,  was charged against an allowance account during the quarter
     ended  February 28, 1997.  In  connection  with the  promissory  note,  the
     Company received a security interest in substantially all the then existing
     assets of  Compuflight,  which has been  assigned to the Bank as collateral
     for the  Company's  Credit  Agreement  with the Bank and which is currently
     being released. As of May 31, 1997,  Compuflight is indebted to the Company
     in the amount of $12,074, representing accounts receivable.


                                       F-9


<PAGE>


                         Sandata, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



NOTE 9 - SHAREHOLDERS' EQUITY

     a. Common Stock Purchase Warrants

     In February 1991, the Company issued 400,000 common stock purchase warrants
     to the Company's  Chairman.  The warrants were  exercisable in equal annual
     amounts over a ten-year vesting period. For each warrant,  the Chairman may
     purchase one share of common  stock of the Company at an exercise  price of
     $2.64 per share  (warrants were  subsequently  exchanged on August 10, 1992
     and January 25, 1995 at exchange  prices of $1.79 and $1.38,  respectively;
     all  such  exercise  prices  representing  the  fair  market  value  of the
     Company's  common stock on the respective  dates of exchange).  On April 3,
     1997 the Board of Directors approved the acceleration of the vesting of the
     warrants, wherein all such warrants became immediately exercisable.

     b. Stock Options

     In October 1984, the Company  adopted an incentive  stock option plan which
     reserved 161,444 shares of common stock. The plan requires that all options
     be granted at exercise  prices not less than the fair  market  value at the
     date  of  grant.  In  April  1989  subsequent  to a  proposal  ratified  by
     stockholder  vote, the Company  amended its incentive  stock option plan to
     reflect  revisions  necessitated  by the  Tax  Reform  Act of  1986  and to
     increase the number of shares  subject to the plan from 161,444 to 278,110.
     In December  1990,  the Company's  incentive  plan was amended  pursuant to
     stockholder  vote by increasing the number of shares  available for options
     to 416,667.

     In November  1986,  the Company  adopted a  nonqualified  stock option plan
     which  reserved  111,111  shares of common  stock  that may be  granted  to
     employees,   officers  and   directors.   In  April  1989,   the  Company's
     nonqualified  stock option plan was amended pursuant to stockholder vote by
     increasing the number of shares from 111,111 shares to 227,778 shares.

     In January 1995, the Company adopted a stock option plan providing for both
     incentive and nonqualified  stock options,  which reserves 1,000,000 shares
     of common  stock for grant  under  the  plan.  The plan  requires  that all
     options be granted at exercise  prices not less than the fair market  value
     at the date of grant,  over a ten-year  period.  In  addition,  the Company
     granted officers of the Company incentive options to purchase 82,000 shares
     of the  Company's  common  stock at an  exercise  price of $1.51 per share.
     These options are exercisable over a five-year  period.  In March 1996, the
     Company  granted  officers  of the  Company  incentive  options to purchase
     100,000 shares of the Company's common stock at an exercise price of $2.34.
     These options are exercisable  over a five-year  period.  In June 1996, the
     Company  granted  officers  of the  Company  incentive  options to purchase
     250,000 shares of the Company's common stock at an exercise price of $2.61.
     These options vested over three years and are exercisable  over a five-year
     period.  On April 3, 1997 the Board of Directors  approved the acceleration
     of the vesting of the options,  wherein all such options became immediately
     exercisable.



NOTE 9 - (Continued)

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

                                                     Range of                 Outstanding           Outstanding
                                                     exercise                  options                options
                                                     prices                    granted              exercisable

         <S>                                 <C>    <C>                         <C>                    <C>    
         Balance, June 1, 1996                    1.38 - 1.875                  601,037                476,037
         Granted                                         2.34                   100,000                100,000
         Canceled                                 1.75 - 1.875                 (125,778)                  (778)
                                                                               ---------            -----------
         Balance, May 31, 1996                    1.38 - 2.34                   575,259                575,259
         Granted                                         2.61                   250,000                250,000
         Canceled                                        1.875                   (1,167)                (1,167)
                                                                              -----------               -------
         Balance, May 31, 1997                    1.38 - 2.61                    824,092                824,092
                                                                                 =======                =======
</TABLE>


     c. In October,  1996, the Company commenced a private offering,  on a "best
     efforts - - all or none" basis, to raise $1,500,000 by issuing an aggregate
     of 300,000  shares of Common Stock and five year  warrants for the purchase
     of 150,000 shares of Common Stock, at an exercise price of $7.00 per share.
     Neither the shares of Common Stock, the warrants,  nor the shares of Common
     Stock  underlying the warrants were registered  under the Securities Act of
     1933, as amended.  In February  1997,  the Company  completed  such private
     offering.  The net proceeds received in connection with the sale of 300,000
     shares of its  common  stock were  $1,256,415  after  payment  of  expenses
     related to the offering.  Contemporaneously with the execution and delivery
     by the  Company  of the  letter  of  intent  with  regard  to such  private
     offering,  certain assignees of the placement agent acquired 100,000 shares
     of the Company's  Common Stock at a purchase price of $3.00 per share;  the
     net proceeds from the sale of such 100,000 shares were $260,076.

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

NOTE 10 - SALE/LEASEBACK TRANSACTIONS

     In February  1993,  the Company  entered into two  separate  sale/leaseback
     transactions  of certain fixed assets  (principally  computer  hardware and
     software).  The fixed assets,  which had a net book value of  approximately
     $389,000, were sold for $492,000. The resulting gain


NOTE 10 - (Continued)

     on the sale of  $103,000  was  recorded  as  deferred  income  and is being
     recognized over the lives of the leases.  Approximately $19,000 and $26,000
     of the deferred gain was recognized for fiscal 1997 and 1996, respectively.

     In December  1994,  the Company  entered into a  sale/leaseback  of certain
     fixed  assets  (principally  computer  hardware  and  software).  The fixed
     assets, which had a net book value of approximately  $115,000 were sold for
     $300,000.  The  resulting  gain of  approximately  $185,000 was recorded as
     deferred  income  and is  being  recognized  over  the  life of the  lease.
     Approximately  $62,000 of the deferred gain was  recognized for fiscal 1997
     and 1996.

     In February  1995,  the Company  entered into two  separate  sale/leaseback
     transactions of certain fixed assets  (principally  leasehold  improvements
     and  equipment).   The  fixed  assets,  which  had  a  net  book  value  of
     approximately $391,000, were sold for approximately $559,000. The resulting
     gain on the sale of approximately  $168,000 was recorded as deferred income
     and is being recognized over the lives of the leases. Approximately $56,000
     of the deferred gain was recognized for fiscal 1997 and 1996.

     In June 1995,  the Company  entered into a  sale/leaseback  transaction  of
     certain fixed assets (principally  furniture,  fixtures,  computer hardware
     and software and equipment).  The fixed assets,  which had a net book value
     of  approximately  $332,000 were sold for $500,000.  The resulting  gain of
     $168,000 was recorded as deferred  income and is being  recognized over the
     life of the lease, which is thirty-eight (38) months. Approximately $53,000
     of the deferred gain was recognized for fiscal 1997 and 1996.

     In September 1995, the Company entered into a sale/leaseback transaction of
     certain fixed assets  (principally  computer  hardware).  The fixed assets,
     which  had a net  book  value  of  approximately  $251,000,  were  sold for
     approximately  $326,000.  The resulting gain of  approximately  $75,000 was
     recorded as deferred  income and is being  recognized  over the life of the
     lease, which is sixty (60) months. Approximately $15,000 and $12,500 of the
     deferred gain was recognized for fiscal 1997 and 1996, respectively.

     In June 1996,  the Company  entered into a  sale/leaseback  transaction  of
     certain fixed assets (principally  furniture,  fixtures,  computer hardware
     and  equipment).   The  fixed  assets,  which  had  a  net  book  value  of
     approximately  $657,000,  were sold for  $925,000.  The  resulting  gain of
     approximately  $268,000  was  recorded  as  deferred  income  and is  being
     recognized  over the life of the lease,  which is forty-eight  (48) months.
     Approximately $67,000 of deferred gain was recognized for fiscal 1997.

     In March 1997,  the Company  entered into a  sale/leaseback  transaction of
     certain fixed assets  (principally  computer  hardware and  software).  The
     fixed assets,  which had a net book value of approximately  $874,000,  were
     sold  for  $981,000.  The  resulting  gain of  approximately  $107,000  was
     recorded as deferred  income and is being  recognized  over the life of the
     lease,


NOTE 10 - (Continued)

     which is thirty-eight  (38) months.  Approximately  $6,000 of deferred gain
     was recognized for fiscal 1997. The Company assigned the option to purchase
     such  assets to an  entity  affiliated  with the  Company's  Chairman.  The
     affiliate  acquired  the  purchase  option in  consideration  for posting a
     letter of credit to secure the purchase  option  obligation.  Subsequent to
     March 1997 the affiliate  assigned the purchase  option to an  unaffiliated
     third party.

NOTE 11 - 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 $18,385 and $14,409 in fiscal years 1997 and 1996,
     respectively.

NOTE 12 - NOTE RECEIVABLE

     On January 1, 1997,  the Company  received a  promissory  note from On Time
     Data,  LLC  ("Licensee")  to  evidence  the Company  granting a  three-year
     license to promote,  market,  sell and provide customer service to users of
     the  Company's  SanTrax  product in  California.  The note,  together  with
     accrued  interest at 9.25%,  is due and payable in  eighteen  (18)  monthly
     installments beginning July 1, 1998. Payments on the note shall be deferred
     if certain conditions are met by the Licensee.

NOTE 13 - SUBSEQUENT EVENT

     On June 19, 1997, the Company announced that it has commenced  negotiations
     for a potential  business  combination  with National  Medical  Health Card
     Systems,  Inc., a company  affiliated  with the  Company's  Chairman of the
     Board.  The  Company  cannot  assure  that  an  agreement  for  a  business
     combination  will be reached,  or that if such an  agreement  is reached it
     will be consummated.


                                      F-10


<PAGE>





                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                  SANDATA, INC.
-------------------------------------------------------------------------------
                                  (Registrant)

                               /s/ Bert E. Brodsky

                     Bert E. Brodsky, Chairman of the Board
                        (Principal Executive Officer and
                   Principal Financial and Accounting Officer)

Date     August 29, 1997



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

                             By /s/ Bert E. Brodsky

            Bert E. Brodsky, Chairman, President, Treasurer, Director


Date     August 29, 1997



By                             /s/ Hugh Freund

                 Hugh Freund, Executive Vice President, Director


Date     August 29, 1997



By                             /s/ Gary Stoller

                Gary Stoller, Executive Vice President, Director


Date     August 29, 1997




<PAGE>