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

                                   FORM 10-KSB
(Mark One)

[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
1934.

For the fiscal year ended          May 31, 1999
                          ---------------------

                                                               OR

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
     OF 1934.

For the transition period from                        to

                         Commission file number: 0-14401

                                      Sandata, Inc.
                     (Name of Small Business Issuer in Its Charter)

Delaware                                                110-2841799
(State or Other Jurisdiction of                        (IRS Employer
Incorporation or Organization)                         Identification No.)

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

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

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

                                                           Name of Each Exchange
Title of Each Class                                          on Which Registered

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

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


                              (Title of Class)

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

Yes        X               No

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

         The issuer's revenues at May 31, 1999 was $14,735,867.

         The aggregate  market value of the voting and non-voting  common equity
held by  non-affiliates  computed by  reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
August 25, 1999 was $ 1,085,231.

                 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

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

Yes                        No

                  APPLICABLE ONLY TO CORPORATE REGISTRANTS

         The number of shares  outstanding  of each of the  issuer's  classes of
common equity, as of August 25, 1999 was 2,481,481.

         Transitional Small Business Disclosure Format  (check one):

Yes                 No      X

                       DOCUMENTS INCORPORATED BY REFERENCE

         None.


                                 PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Forward-Looking Statements

                  Certain  information  contained in this Annual  Report on Form
10-KSB (the "Form  10-KSB")  includes  "forward-looking  statements"  within the
meaning of the Private Securities  Litigation Reform Act of 1995, and is subject
to the safe harbor created by that act. Sandata,  Inc. (the "Company")  cautions
readers that certain  important  factors may affect the Company's actual results
and could  cause such  results  to differ  materially  from any  forward-looking
statements  which may be  deemed to have been made in this Form  10-KSB or which
are  otherwise  made by or on  behalf  of the  Company.  For this  purpose,  any
statements  contained in this Form 10-KSB that are not  statements of historical
fact may be  deemed  to be  forward-looking  statements.  Without  limiting  the
generality of the foregoing,  words such as "may", "will", "expect",  "believe",
"anticipate",  "intend",  "could",  "estimate",  or  "continue"  or the negative
variations   thereof  or  comparable   terminology   are  intended  to  identify
forward-looking  statements.  Factors  which may  affect the  Company's  results
include,  but are not limited to, the risks and  uncertainties  associated  with
matters  discussed  under Item 1 -  "Description  of Business",  Item 3 - "Legal
Proceedings",  Item  6 -  "Management's  Discussion  and  Analysis  or  Plan  of
Operation" and Item 12 - "Certain  Relationships  and Related  Transactions"  of
this Form 10-KSB.

Business Development

                  General

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

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

                  Generally,  in providing data processing services, the Company
first  receives data from its customers,  then  processes and generates  reports
based on such data. Data processing services are generally provided to customers
by processing on the Company's  equipment at its premises.  The Company also has
available   software  which  permits   information   retrieval  from  customers'
facilities which  communicate  with the Company's  computers at its data center.
This allows the Company's  customers to have access to  processing  hardware and
software without a substantial  investment on their part. The Company's software
is written in a variety of  software  languages  including  JAVA,  COBOL,  C and
FoxPro.

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

Business of Issuer

                  Principal Products and Services

                  Sandsport Home Attendant  Reporting  Programs  ("SHARP").  The
Company,  through its  wholly-owned  subsidiary,  Sandsport Data Services,  Inc.
("Sandsport"),  provides computer services to vendor agencies which, pursuant to
contracts  with the Human  Resources  Administration  ("HRA") of the City of New
York,  provide  home  attendant  services  to the elderly and infirm in New York
City. The Federal Government offers this program (the "Home Attendant  Program")
to participating  states and  municipalities as an optional part of its Medicaid
program.  The Federal Government funds a substantial  portion of the program and
in New York City, the State Department of Social Services and New York City fund
the balance of the  program.  In New York City,  the Home  Attendant  Program is
administered by HRA, which  sub-contracts  with  proprietary and  not-for-profit
agencies  ("Vendor  Agencies")  to provide home  attendant  services to those in
need.  HRA  refers  patients  to  Vendor  Agencies  which,  in turn,  send  home
attendants to patients'  homes to assist in homemaking  chores.  Vendor Agencies
also provide  periodic  nurse's visits to patients.  Vendor  Agencies enlist the
Company's  computer  services to provide  weekly time sheets,  billing,  payroll
processing and management  reports.  For the fiscal years ended May 31, 1999 and
1998,  approximately  $4,573,000 or 32% and $4,628,000 or 37%, respectively,  of
the Company's  total operating  revenues were derived from services  rendered to
Vendor Agencies.

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

                  In conjunction with SHARP products, Sandsport has developed an
electronic  time card which allows the use of voice  recognition  technology  to
assist in capturing payroll  information known as Sandata(R)  SANTRAX(R) for its
SHARP  clients.  Approximately  thirty  per cent  (30%) of the volume of SANTRAX
users are other than Vendor Agencies. SANTRAX is an automated timekeeping system
designed to monitor home attendants'  arrival and departure times when servicing
clients in their  homes.  In addition to  collecting  the arrival and  departure
times of the home health care workers from the visit site, SANTRAX also collects
a wide  range of  additional  information  from the visit  site.  By  collecting
additional  data,  SANTRAX can replace the paper "duty  sheet" used in home care
with SANTRAX,  and enable the provider  organization to generate  administrative
savings.  Some of the information  provided by SANTRAX includes  expense-related
data such as mileage and supplies,  as well as tasks  performed  such as bathing
and skilled nursing tasks. SANTRAX works by incorporating telephone technologies
into the  attendance  reporting  process.  Caregivers  call their  agency's  own
toll-free  number to record their arrival and departure from the patient's side;
the system automatically and immediately confirms that the assigned caregiver is
at the  expected  place at the  expected  time for the  approved  and  scheduled
duration.  This data is used to  produce  weekly  payroll  and to  automatically
prepare reimbursement  submissions to first and third party payors.  Reports are
then generated to the customer based upon its specific requirements.  Presently,
the system is being  utilized  by  several of the  Company's  home  health  care
clients, with the Company receiving  approximately an aggregate of 620,000 calls
per week.  Although  no  assurances  can be given,  it is  anticipated  that the
SANTRAX product can be utilized by other industry  applications.  For the fiscal
years  ended  May  31,  1999  and  1998,  approximately  $5,978,000  or 42%  and
$4,564,000 or 37% respectively,  of the Company's total operating  revenues were
derived  from  services  rendered  relating  to  SANTRAX  (See  Item 3 -  "Legal
Proceedings").

                  Specialized  System Support.  Sandsport  supports  specialized
system  applications  based upon its  analysis  of a client's  particular  need.
Sandsport  currently provides support for specialized system  applications to an
affiliate,  National Medical Health Card Systems, Inc. ("Health Card"), of which
Mr.  Brodsky is Chairman of the Board of Directors  and a principal  shareholder
(See Item 6 -  "Management's  Discussion  and  Analysis  or Plan of  Operation -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  -  Liquidity  and  Capital   Resources"   and  Item  12  -  "Certain
Relationships and Related Transactions").

                  The Company,  through its SANDATANET(R) product line, provides
computer,  communications and networking sales and services, including training,
maintenance and repair  services,  to companies and government and  professional
services  organizations.  SANDATANET also provides custom programming,  software
development and installation  services to customers.  For the fiscal years ended
May 31,  1999 and  1998  approximately  $1,564,000  or 11% and  $646,000  or 5%,
respectively  of the  Company's  total  operating  revenues  were  derived  from
services rendered relating to SANDATANET.

                  Seasonality

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

                  Marketing and Distribution

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

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

                  Competition

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

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

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

                  Customers

                  The Company's customer base is primarily drawn from the health
care  industry.  During the  fiscal  years 1999 and 1998,  the  Company  derived
revenues from a group of customers who are all funded by one governmental agency
amounting to  approximately  $9,460,000  or 67% and  $8,416,000  or 67% of total
operating  revenues,   respectively.  The  Company  also  derived  approximately
$1,765,000 or 12% and  $2,307,000 or 18%,  respectively,  of revenue from Health
Card, a related  party,  for data base and operating  system  support,  hardware
leasing,  maintenance and related administrative services.  Although the loss of
any one of these customers would have a material  adverse effect on the Company,
the Company believes that its  relationships  with these customers are good (See
Item  6  -  "Management's  Discussion  and  Analysis  or  Plan  of  Operation  -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Liquidity and Capital Resources").


                  Proprietary Rights

                  The Company filed a United States Trademark  application which
renames its voice recognition  timekeeping system to SANTRAX.  The trademark was
registered on September 16, 1997.

                  On March 3, 1997 the  Company  filed an  application  with the
United States Patent and Trademark Office to register its SANDATANET  trademark.
The trademark was registered on February 24, 1998.

                  On March 30, 1999, the Company filed an  application  with the
United States Patent and Trademark Office to register its PRO-TRAX trademark.

                  On April 28, 1999, the Company filed an  application  with the
United States Patent and Trademark Office to register its RXTRAX trademark.

                  The Company has not applied for Federal copyright registration
for its computer software systems now in existence or being developed.  However,
the Company believes that its systems are trade secrets and that they,  together
with the documentation, manuals, training aids, instructions and other materials
supplied  to users,  are  subject to the  proprietary  rights of the Company and
protected by applicable trade secret laws. The Company generally seeks to obtain
trade  secret  protection   pursuant  to  non-disclosure   and   confidentiality
agreements with its employees. Although the Company's customers are advised that
the Company  retains title to all of its  products,  and they agree to safeguard
against  unauthorized  use of such systems,  there can be no assurance  that the
Company  will be able to protect  against  misappropriation  of its  proprietary
rights and trade secrets.

                  See  Item 3 -  "Legal  Proceedings"  for a  discussion  of the
settlement   terms  of  certain   litigation   between   the   Company  and  MCI
Telecommunications Corporation.

                  Research and Development

                  The  Company  incurred  approximately  $192,000  and  $185,000
during  the  fiscal  years  1999  and  1998,   respectively,   on  research  and
development.  The Company  incorporates  its research and  development  into its
on-going business  activities.  The Company's employees may develop new software
programs and expand or modify existing ones.  After  determining  that a program
has reached  technological  feasibility,  the subsequent  development  costs are
capitalized. All other costs are expensed.

                  Employees

                  As of May 31, 1999, the Company and its subsidiaries  employed
147 employees,  including 137 full-time and 10 part-time employees.  The Company
believes  that  its  success  will  depend  in part on its  ability  in a highly
competitive   environment  to  attract  and  retain  highly  skilled  technical,
marketing and management personnel.

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


ITEM 2 - DESCRIPTION OF PROPERTY

                  The   Company   and   its   subsidiaries    currently   occupy
approximately  28,000  square  feet of office  space  located at 26 Harbor  Park
Drive, Port Washington,  New York 11050 (the "Facility").  The Company subleases
the  Facility  from BFS Realty,  LLC, an affiliate  of the  Company's  Directors
("BFS").  BFS leases the Facility from the Nassau County Industrial  Development
Agency (the "NCIDA"),  pursuant to a lease (the "Lease"),  which was assigned by
the Company to BFS in November,  1996,  and which expires in December  2005. BFS
has the right to become the owner of the Facility upon  expiration of the Lease.
The Company  currently pays rent to BFS in the amount of $56,730 per month.  BFS
also receives rent from other  companies,  which includes  companies  affiliated
with the Company's Chairman,  which occupy space in the Facility.  The Company's
facilities  are  adequate  for  current  purposes  (See  Item  6  -  "Management
Discussion  and  Analysis or Plan of  Operation -  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations - IDA/SBA  Financing"
for a discussion of the NCIDA and U.S. Small Business  Administration  financing
transactions).


ITEM 3 - LEGAL PROCEEDINGS

                  On December 21, 1998,  the Company and MCI  Telecommunications
Corporation ("MCI") settled a patent infringement lawsuit brought by MCI against
the Company in the United States District Court for the Eastern  District of New
York captioned MCI Telecommunications Corporation v Sandata, Inc. The settlement
provides,  among  other  things,  that the  Company is  granted a license  under
certain of MCI's patents which permit the Company to continue to market and sell
its SANTRAX time and attendance verification product non-exclusively  nationwide
and  exclusively  in the  home  health  care  industries  for the  five New York
boroughs and that the Company will pay MCI certain royalties.


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

                  Not applicable.


                            PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

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

                                                  Bid Prices
                                            High              Low
Fiscal Year Ended
May 31, 1999
First Quarter                               4-1/2              2-5/32
Second Quarter                              2-23/32            1-1/8
Third Quarter                               2-1/2              1-1/8
Fourth Quarter                              3-3/8              1-3/8

Fiscal Year Ended
May 31, 1998
First Quarter                               10-1/2             7-1/2
Second Quarter                              9-1/4              6-7/8
Third Quarter                               8-3/8              4
Fourth Quarter                              5-3/4              3-3/4

Holders

                  Management  has been  advised  by its  transfer  agent  (North
American  Transfer Co.) that the approximate  number of holders of record of the
Company's Common Stock, as of August 25, 1999 was 1,050.

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

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


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

                  Analysis of Operations

                  Fiscal Years ended May 31, 1999 compared with May 31, 1998

                  Service  fee  revenues  for fiscal 1999 were $  14,155,092  as
compared to $12,488,327  for the previous fiscal year, an increase of $1,666,765
or 13%. The increase is primarily  attributable to revenues derived from SANTRAX
and SANDATANET  offset by decreases in revenue from National Medical Health Card
Systems, Inc. ("Health Card").

                  Other  income for the year ended May 31, 1999 was  $437,575 as
compared  to  $263,510  for  the  year  ended  May 31,  1998.  The  increase  is
attributable  to an amount  received  from  Health Card in  connection  with its
hiring  employees of the Company,  offset by a decrease in income  recognized on
sales/leaseback transactions.

                  Expenses Related to Services

                  Operating  expenses were $8,909,704 for the year ended May 31,
1999, as compared to $8,496,552  for the year ended May 31, 1998, an increase of
$413,152 or 5%.  Costs  associated  with SANTRAX and its  operations,  including
payroll  expenses,  in addition to increases in costs associated with SANDATANET
and its operations,  primarily hardware purchases,  were the primary factors for
the increases in operating expenses.

                  Selling,  general  and  administrative  expenses  for the year
ended May 31, 1999 were $3,428,584 compared to $2,695,427 for the year ended May
31,  1998,  an increase of  approximately  $733,157 or 27%. The  increases  were
primarily  due to  increases  in  consulting,  payroll and  commission  expenses
relative to increased  efforts to increase  sales in the SANTRAX and  SANDATANET
product  lines,  and  certain  royalties   payable  to  MCI   Telecommunications
Corporation, offset by a decrease in legal expenses.

                  Depreciation and amortization expenses were $2,015,390 for the
year ended May 31, 1999,  as compared to  $1,460,105  for the year ended May 31,
1998, an increase of $555,285 or 38%. The increase was primarily attributable to
fixed asset additions,  including computer hardware and software  capitalization
costs, in connection with ongoing computer systems upgrades.

                  Interest  expense  for the year ended May 31, 1999 was $97,170
as compared to $56,730 for the year ended May 31,  1998,  an increase of $40,440
or 71%.  The  increase was a result of  increased  borrowings  on the  Company's
Credit Agreement.

                  Income Tax Expenses

Income  tax  expense  was  $171,177  and  $27,885  for  fiscal  1999  and  1998,
respectively. The increase in income tax expense is due to higher pretax income,
different   recognition  of  software   development   costs,   depreciation  and
amortization  and revenues from  sale/leaseback  transactions  on a book and tax
basis offset by additional net operating loss  carryforwards.  The effective tax
rates for fiscal 1999 and 1998 were 60.1% and 23.6%, respectively.

                  IDA/SBA Financing

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

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

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

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

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

                  Liquidity and Capital Resources

                  The Company's working capital decreased as of May 31, 1999  to
$235,599  as  compared  with $1,454,861 at May 31, 1998.

                  The Company has spent approximately  $5,096,000 in fixed asset
additions,  including software  capitalization  costs in connection with revenue
growth and new  product  development.  The Company  expects a  reduction  in the
levels of capital expenditures in the future.

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

                  In connection  with the closing of such private  offering,  an
affiliate of the placement  agent entered into a one year  financial  consulting
agreement  ("Financial  Consulting  Agreement")  with the  Company,  pursuant to
which, among other things, such affiliate will receive aggregate annual payments
of $36,000 and certain assignees of such affiliate received warrants to purchase
an aggregate of 200,000 shares of Common Stock  exercisable as follows:  100,000
shares at $5.00 per share (the "$5.00 Warrants") and 100,000 shares at $7.00 per
share (the $7.00 Warrants"),  such warrants to be exercisable until December 22,
1998 (with  respect to the $5.00  Warrants)  and two years (with  respect to the
$7.00  Warrants).  The $5.00  Warrants  expired on such date without having been
exercised.  The warrants issued in such public offering,  including those issued
to investors as well as the assignees of the placement  agent's  affiliate,  are
redeemable by the Company under certain circumstances.

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

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

                  On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg,
Gerald Shapiro, a former director of the Company and Carol Freund, the spouse of
Hugh Freund and an employee of Sandsport, exercised their respective options and
warrants to purchase an aggregate of 921,334  shares of Common Stock at exercise
prices  ranging  from  $1.38  to  $2.61  per  share  for an  aggregate  cost  of
$1,608,861.  Payment  for such shares is to be made to the Company (i) a portion
in the form of non-recourse  promissory notes due in July 2001, with interest at
eight and one-half  percent  (8-1/2%) per annum,  payable  annually;  and (ii) a
portion by payment of an aggregate of $921  representing  the par values paid in
cash.  The  equivalent  shares of Common Stock have been pledged as security for
the debt.

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

                  In addition,  pursuant to the Credit  Agreement,  the Group is
required  to maintain  certain  levels of net worth and meet  certain  financial
ratios in addition to various other affirmative and negative  covenants.  At May
31, 1999,  the Group  hasfailed to meet certain net worth and financial  ratios,
and the Bank has granted the Group waivers.  As of May 31, 1999, the outstanding
balance on the Credit Agreement with the Bank was $2,500,000.

                  The  Company has been  providing  services  to  Federation  of
Puerto   Rican   Organizations,   and/or  its   affiliates   (individually   and
collectively,  the "Federation"),  an HRA Vendor Agency,  since 1995. On October
31, 1997 and  November  30,  1997,  respectively,  the  Company  acquired a loan
receivable  for an aggregate of $300,000  from a third party (a portion of which
was  acquired  from an  affiliate  of the  Company's  Chairman),  due  from  the
Federation.  Such loan  receivable is secured by accounts  receivable due to the
Federation.  Shortly  following the Company's  acquiring  such  receivable,  the
Federation filed for bankruptcy  protection.  The Company has filed, among other
things,  claims representing monies owed to the Company with respect to the loan
and the  receivables.  At May 31,  1999,  the  Federation  owed the  Company the
$300,000  loan  receivable  in addition to $47,296 for services  rendered by the
Company.  The Company has fully reserved  against the loan and the receivable in
the event that it does not receive payment.

                  As of  June  1,  1998,  Health  Card  hired  11  employees  of
Sandsport  in  order  to  provide  development,  enhancement,  modification  and
maintenance  services,  previously  provided by  Sandsport.  Sandsport  was paid
$208,000 in consideration of Sandsport's waiving certain rights relative to such
employees.  In addition,  Sandsport began leasing certain computer  equipment to
Health  Card for  $2,000  per month as well as  computer  hardware  for its data
processing  center at a monthly  cost of $20,000  from  Sandsport  pursuant to a
verbal agreement.  Currently the Company is leasing computer equipment to Health
Card at a monthly  cost to Health  Card of  $32,857.  Sandsport  is  expected to
continue to provide to Health Card consulting  services related to Health Card's
information   systems  (See  Item  12  -  "Certain   Relationships  and  Related
Transactions").

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

                  Prospects for the Future, Trends and Other Events

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

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

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

                  Year 2000

                  The Company  believes  that its computer  systems and those of
its major customers and suppliers are  substantially  Year 2000  compliant.  The
Company  upgrades its computer  systems from time to time as part of its ongoing
operations.   Accordingly,  it  is  anticipated  that  the  Company  will  incur
significant expenditures in connection with such upgrades.  However, the Company
does not expect any material  effect on its results of  operations  or financial
position solely as a result of Year 2000 compliance issues


ITEM 7 - FINANCIAL STATEMENTS

                         (BEGINS ON PAGE F-1 BELOW)

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

                  Not applicable.


                              PART III

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

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

        ------------------------- ------- ======================================
                                                   POSITIONS AND OFFICES
                                                    PRESENTLY HELD WITH
                  NAME            AGE                   THE COMPANY
        ------------------------- ------- ======================================
        ------------------------- ------- ======================================
        Bert E. Brodsky           56      Chairman of the Board, President and
                                          Treasurer
        ------------------------- ------- ======================================
        ------------------------- ------- ======================================
        Hugh Freund               61      Executive Vice President, Secretary
                                          and Director
        ------------------------- ------- ======================================
        ------------------------- ------- ======================================
        Gary Stoller              46      Executive Vice President and Director
        ------------------------- ------- ======================================
        ------------------------- ------- ======================================
        Paul J. Konigsberg        63      Director
        ------------------------- ------- ======================================
        ------------------------- ------- ======================================
        Ronald L. Fish            58      Director
        ------------------------- ------- ======================================


                Bert E. Brodsky has been  Chairman of the Board and Treasurer of
the Company since June 1, 1983 and President  since December  1989.  From August
1983 through  November  1984,  from  December 1988 through  January  1991,  from
February 1998 to June 1998 and from December 1998 to present, Mr. Brodsky served
as Chairman of the Board of Health Card and from June 1998 through December 1998
has served as President of Health Card. From October 1983 through December 1993,
Mr.  Brodsky  served as  Chairman  of the Board of  Compuflight,  a provider  of
computerized flight planning services. Since August 1980, Mr. Brodsky has served
as  Chairman  of the Board of P.W.  Medical  Management,  Inc.,  which  provides
financial and  consulting  services to  physicians.  Since 1979, Mr. Brodsky has
also served as  President  of Bert  Brodsky  Associates,  Inc.,  which  provides
consulting services.

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

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

     Paul J.  Konigsberg served as a Director of the Company since January 1998.
Mr. Konigsberg  previously  served on  the  Company's  Board of  Directors  from
November 1987  through  August 1995.  Mr.  Konigsberg  is  a  certified   public
accountant   and   has  been  a  senior  partner  in   the  accounting  firm  of
Konigsberg  Wolf & Co.,  P.C.  since 1970.  Mr. Konigsberg  also serves  on  the
Company's Audit Committee.

                  Ronald L. Fish  served  as  a  Director  of  the Company since
January,  1998.  Since 1975,  Mr. Fish served as  Administrator,  Treasurer  and
Director of Unlimited  Care Inc., a nursing  services firm. Mr. Fish also serves
on the Company's Audit Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

                  To the  Company's  knowledge,  based  solely  upon a review of
copies of Forms 3, 4 and 5 furnished to the Company and written  representations
that no other reports were  required  during the fiscal year ended May 31, 1999,
all Section 16(a) filing  requirements  applicable  to the  Company's  officers,
Directors and 10% shareholders were complied with, except for one filing on Form
4 for Bert E. Brodsky, Hugh Freund and Gary Stoller.

ITEM 10 - EXECUTIVE COMPENSATION

Summary Compensation Table
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                  The following table sets forth certain information  concerning
the compensation of Bert E. Brodsky, the Chairman and Chief Executive Officer of
the  Company,  for  the  fiscal  years  ended  May  31,  1999,  1998  and  1997,
respectively,  as well as named executive officers of the Company for the fiscal
years ended May 31, 1999,  1998 and 1997. No other person had a total salary and
bonus in excess of $100,000 for the fiscal  years ended May 31,  1999,  1998 and
1997:


--------------------------- ------- ------------------------------------- ------------------------------- ===========
                                           Annual Compensation                Long-Term Compensation

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

--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman    1999   200,000 (5)   -0-     22,049 (1)      -0-       310,000       -0-     16,678 (2)
       of the Board
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman                                                                                 20,401 (2)
       of the Board          1998   200,000       -0-     13,374 (1)      -0-         -0-         -0-     30,000 (3)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
Bert E. Brodsky, Chairman
       of the Board          1997   200,000       -0-     13,374 (1)      -0-       110,000       -0-     20,670 (2)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Hugh Freund
Executive Vice President,    1999   151,346       -0-        -0-          -0-       137,000       -0-     22,669 (2)
        Secretary                                                                                         17,066 (4)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Hugh Freund
Executive Vice President,    1998   165,000       -0-        -0-          -0-         -0-         -0-     22,669 (2)
        Secretary                                                                                         17,066 (4)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Hugh Freund
Executive Vice President,    1997   165,000       -0-        -0-          -0-        90,000       -0-     5,605 (2)
        Secretary
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Gary Stoller
 Executive Vice President    1999   119,039       -0-     22,391 (1)      -0-        73,500       -0-     16,040 (2)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Gary Stoller
 Executive Vice President    1998   115,000       -0-     22,391 (1)      -0-         -0-         -0-     16,040 (2)
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
       Gary Stoller
 Executive Vice President    1997   108,302       -0-     22,391 (1)      -0-        50,000       -0-        -0-
--------------------------- ------- ------------ ------- ------------- ----------- ----------- ---------- ===========
</TABLE>
(1)      Includes  personal  benefits  relating  to the  use  of  Company-leased
         automobiles  provided  for business  purposes  from an affiliate of the
         Company's Chairman.

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

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

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

(5)      On May 29, 1999 Mr.  Brodsky signed a waiver wherein he agreed to waive
         his rights to an additional  $300,000 of compensation due to be paid to
         him for the fiscal year ended May 31, 1999 pursuant to the terms of the
         Brodsky Employment Agreement with the Company discussed below.



Option/SAR Grants in Last Fiscal Year

         The  following   table  sets  forth  certain   information   concerning
individual grants of stock options to executive officers of the Company,  during
the fiscal year ending May 31, 1999:
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

=====================================================================================================================

                                                 Individual Grants

=====================================================================================================================
------------------------ ---------------------- ---------------------- ----------------------- ======================
                                                  Percent of Total
                                                    Options/SARs
                               Number of             Granted to
                              Securities            Employees in            Exercise or
                              Underlying             Fiscal Year             Base Price             Expiration
         Name            Options/SARs Granted            (%)                   ($/Sh)                  Date
                                  (#)
------------------------ ---------------------- ---------------------- ----------------------- ======================
------------------------ ---------------------- ---------------------- ----------------------- ======================

Bert E. Brodsky                 310,000                 59.6                    1.41                 12/10/03

------------------------ ---------------------- ---------------------- ----------------------- ======================
------------------------ ---------------------- ---------------------- ----------------------- ======================

Hugh Freund                     137,000                 26.3                    1.41                 12/10/03

------------------------ ---------------------- ---------------------- ----------------------- ======================
------------------------ ---------------------- ---------------------- ----------------------- ======================

Gary Stoller                    73,500                  14.1                    1.41                 12/10/03

------------------------ ---------------------- ---------------------- ----------------------- ======================

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

                  The following table sets forth certain information  concerning
the value of unexercised  options and warrants held by executive officers of the
Company, for the fiscal year ended May 31, 1999.
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

--------------------- ----------------------- ----------------- -------------------------- ==========================
                                                                  Number of Securities       Value of Unexercised
                                                                 Underlying Unexercised    in-the-Money Options and
                                                                 Options and Warrants at      Warrants at May 31,
        Name            Shares Acquired on     Value Realized        May 31, 1999(#)                1999($)
                           Exercise(#)              ($)         Exercisable/Unexercisable  Exercisable/Unexercisable
--------------------- ----------------------- ----------------- -------------------------- ==========================
--------------------- ----------------------- ----------------- -------------------------- ==========================
  Bert E. Brodsky              -0-                  -0-                 310,000/0                  27,900/0
--------------------- ----------------------- ----------------- -------------------------- ==========================
--------------------- ----------------------- ----------------- -------------------------- ==========================
    Hugh Freund                -0-                  -0-                 137,000/0                  12,330/0
--------------------- ----------------------- ----------------- -------------------------- ==========================
--------------------- ----------------------- ----------------- -------------------------- ==========================
    Gary Stoller               -0-                  -0-                 143,500/0                 (65,685)/0
--------------------- ----------------------- ----------------- -------------------------- ==========================
</TABLE>

                  On July 14, 1998 Messrs. Brodsky, Freund, Stoller, Konigsberg,
Gerald Shapiro, a former director of the Company and Carol Freund, the spouse of
Hugh Freund and an employee of Sandsport, exercised their respective options and
warrants to purchase an aggregate of 921,334  shares of Common Stock at exercise
prices  ranging  from  $1.38  to  $2.61  per  share  for an  aggregate  cost  of
$1,608,861.  Payment  for such  shares was made to the  Company in the amount of
$921  representing  the par value of the  shares,  and a portion  in the form of
non-recourse  promissory  notes due in July  2001,  with  interest  at eight and
one-half percent (8-1/2%) per annum, payable annually, and secured by the number
of shares exercised.


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

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

                  Effective  February  1,  1997,  the  Company  and Mr.  Brodsky
entered into the Brodsky Employment Agreement providing for, among other things,
compensation at the annual rate of $500,000 or lesser amount if mutually agreed,
plus such bonuses or additional  compensation that the Board of Directors of the
Company may, on the basis of improvements in the Company's  performance or other
reasonable  criteria,  deem  appropriate.  During the 5-year term of the Brodsky
Employment  Agreement,  the employee shall also be provided with a full-time use
of a Company automobile,  six (6) weeks paid vacation annually and group medical
insurance and other  benefits or programs  which the Company  establishes or has
made  available to its  employees.  Mr.  Brodsky agreed to accept a reduction in
compensation  for the  fiscal  year  ended May 31,  1999 and has signed a waiver
evidencing his agreement to such reduction.


ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

======================================= ----------------------------------------- =========================================

Name of Director and Name and Address                                                      Approximate Percentage
         of Beneficial Owner                        Number of Shares                        of Outstanding Shares
======================================= ----------------------------------------- =========================================
Bert E. Brodsky
26 Harbor Park Drive
Port Washington, NY                                  1,209,825 (1)                               43.3% (1)
======================================= ----------------------------------------- =========================================
Hugh Freund
26 Harbor Park Drive
Port Washington, NY                                   396,721 (2)                                15.2% (2)
======================================= ----------------------------------------- =========================================
Gary Stoller
26 Harbor Park Drive
Port Washington, NY                                   297,278 (3)                                11.3% (3)
======================================= ----------------------------------------- =========================================
Paul J. Konigsberg
Konigsberg Wolf & Co.
440 Park Avenue South                                    8,000                                       *
New York, NY 10016
======================================= ----------------------------------------- =========================================
Ronald L. Fish
Unlimited Care Inc.
245 Main Street                                            --                                        --
White Plains, NY 10601
======================================= ========================================= =========================================
All executive officers and Directors
as a group (5 persons)                            1,911,824 (1)(2)(3)                         62.2% (1)(2)(3)
======================================= ========================================= =========================================

</TABLE>
---------------
(1)      Includes  74,734  shares of the  Company's  Common  Stock  owned by the
         trusts  established for the benefit of Mr. Brodsky's four children,  of
         which Mr. Brodsky is a trustee; includes 20,500 shares of the Company's
         Common Stock owned by Mr. Brodsky's wife;  includes 97,318 shares owned
         by Mr. Brodsky's adult daughter. Includes presently exercisable options
         to purchase 310,000 shares of Common Stock at $1.41 per share under the
         1995 Plan.

(2)      Includes  presently  exercisable  options to purchase 137,000 shares of
         Common  Stock at $1.41 per share under the 1995 Plan.  Excludes  41,464
         shares of Common Stock owned by Mr. Freund's adult  children;  excludes
         91,000 shares of Common Stock owned by Mr.  Freund's wife. As set forth
         in Mr. Freund's  Schedule 13G, filed with the SEC on February 16, 1999,
         Mr.  Freund  disclaims  any  beneficial   interest  in,  or  voting  or
         dispositive control over, such shares.

(3)      Includes  presently  exercisable  options to purchase  20,000 shares of
         Common Stock at $2.34 per share under the 1995 Plan; includes presently
         exercisable  options to purchase 50,000 shares of Common Stock at $2.61
         per share under the 1995 Plan;  includes presently  exercisable options
         to purchase  73,500 shares of Common Stock at $1.41 per share under the
         1995  Plan.  Includes  21,000  shares of Common  Stock  owned by trusts
         established  for the  benefit of Mr.  Stoller's  children  of which Mr.
         Stoller is a trustee.

*        Less than one percent (1%)


ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                  IDA/SBA Financing

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

                  Advances and Loans to Affiliates

                  At May 31, 1997, the Company was owed  approximately  $138,000
from a company  affiliated  with the officers of the Company.  Subsequent to May
31, 1997, the Company received  approximately  $18,000 and a promissory note for
the balance  due. The note is payable in 24 monthly  payments of  principal  and
interest at 8%  commencing  September 1, 1997.  The Company  deferred  principal
payments from April, 1998 to October, 1998, at which time principal and interest
payments resumed. At May 31, 1999, the Company was owed approximately $42,000 on
such note.

                  During the fiscal year ended May 31, 1999 the Company  paid an
aggregate of $44,440 on behalf of certain officers to companies  affiliated with
the Company's Chairman for payment of automobile leases.

                  Registration Statement

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

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


                  National Medical Health Card Systems, Inc.

                  As of May 31, 1999,  the Company  derived  revenue from Health
Card, a company affiliated with the Company's Chairman of the Board, principally
for data base and operating system support,  hardware leasing,  maintainance and
related  administrative  services.  The  revenues  generated  from  Health  Card
amounted to approximately  $1,765,000 and $2,307,000 for the years ended May 31,
1999 and 1998, respectively.  Included in the current year revenues are billings
of approximately  $540,000  forquality  assurance  testing of software  programs
developed by Health Card and network  support  Subsequent  to May 31, 1999,  the
Company received  $635,494 from Health Card in full payment of amounts due as of
that  date  (See  "Item 6 -  Management's  Discussion  and  Analysis  or Plan of
Operation -  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations Liquidity and Capital Resources").

                  Equipment Leases

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

                  Medical Arts Office Services, Inc.

                  Medical Arts Office Services,  Inc. ("MAOS"),  a company which
the Company's Chairman of the Board is the sole shareholder provided the Company
with accounting,  bookkeeping and paralegal services. For the fiscal years ended
May 31,  1999 and 1998 the  total  payments  made by the  Company  to MAOS  were
$193,934 and $223,813 respectively.

                  Federation of Puerto Rican Organizations

                  The  Company has been  providing  services  to  Federation  of
Puerto   Rican   Organizations,   and/or  its   affiliates   (individually   and
collectively,  the "Federation"),  an HRA Vendor Agency,  since 1995. On October
31, 1997 and  November  30,  1997,  respectively,  the  Company  acquired a loan
receivable  for an aggregate of $300,000  from a third party (a portion of which
was  acquired  from an  affiliate  of the  Company's  Chairman),  due  from  the
Federation.  Such loan  receivable is secured by accounts  receivable due to the
Federation.  Shortly  following the Company's  acquiring  such  receivable,  the
Federation filed for bankruptcy protection. The bankruptcy was subsequently
dismissed.  The  Company  has filed,  among  other  things,  claims
representing  monies  owed to the  Company  with  respect  to the  loan  and the
receivables.  At May 31, 1999, the Federation owed the Company the $300,000 loan
receivable  in addition to $47,296 for  services  rendered by the  Company.  The
Company has fully reserved against the loan and the receivable in the event that
it does not receive payment.


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

(a)      Exhibits

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

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

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

3(B) By-Laws (1)

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

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

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

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

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

4(F) Nassau County Industrial Development  Agency Industrial Development Revenue
     Bonds (1994 Brodsky  Sibling  Realty Inc. Project) Assumption and Amendment
     of Certain Agreements dated November 1, 1996 (3)

4(G) Revolving Credit Agreement dated as of April 18, 1997 by and among
     Sandsport Data Services, Inc. and Marine Midland Bank (3)

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

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

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

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

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

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

10(G) 1995 Stock Option Plan (1)

10(H) 1998 Stock Option Plan

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

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

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

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

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

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

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

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

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

10(R) Employment Agreement dated February 1, 1997 between the Registrant and
      Bert E. Brodsky (3)

10(S) Form of Pledge Agreement (4)

10(T) Form of Non-Negotiable Promissory Note (4)

16 Letter re Change in Certifying Accountant (1)

21 Subsidiaries of Registrant

23 Consent of Accountants

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

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

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

(3)      The Company hereby  incorporates the footnoted  Exhibit by reference in
         accordance with Rule 12b-32, as such Exhibit was originally filed as an
         Exhibit to the  Company's  Report on Form  10-KSB  for the fiscal  year
         ended May 31, 1997.

(4)      The Company hereby  incorporates the footnoted  Exhibit by reference in
         accordance with Rule 12b-32, as such Exhibit was originally filed as an
         Exhibit to the  Company's  Report on Form  10-KSB  for the fiscal  year
         ended May 31, 1998.

         (b)      Reports on Form 8-K


                  None.


<PAGE>








                                 SANDATA, INC.

                     FINANCIAL STATEMENTS COMPRISING ITEM 7
                             OF REPORT ON FORM 10-KSB
                      TO SECURITIES AND EXCHANGE COMMISSION
                               YEAR ENDED MAY 31, 1999



                        SANDATA, INC. AND SUBSIDIARIES


                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
Report of Independent Public Accountants

Financial Statements

   Consolidated Balance Sheets as of May 31, 1999 and 1998                   F-3

   Consolidated Statements of Income for the years ended
   May 31, 1999 and 1998                                                     F-5

   Consolidated Statements of Shareholders' Equity for the years
   ended May 31, 1999 and 1998                                               F-6

   Consolidated Statements of Cash Flows for the years ended
   May 31, 1999 and 1998                                                     F-7

   Notes to Consolidated Financial Statements                                F-8




<PAGE>





                     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




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



We have audited the accompanying  consolidated  balance sheets of Sandata,  Inc.
and  Subsidiaries  as of May 31,  1999 and 1998,  and the  related  consolidated
statements  of  income,  shareholders'  equity and cash flows for the years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Sandata, Inc. and Subsidiaries as of May 31, 1999 and 1998, and the consolidated
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.


Marcum & Kliegman LLP

/s/ Marcum & Kliegman LLP


Woodbury, New York
August 26, 1999



<PAGE>
                                          SANDATA, INC. AND SUBSIDIARIES

                                            CONSOLIDATED BALANCE SHEETS

                                                      May 31,
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>                                                  <C>                    <C>


                               ASSETS                                                       1999                     1998
                                                                                            ----                     ----

CURRENT ASSETS
       Cash and cash equivalents                                                         $1,533,576              $1,794,947
       Accounts receivable, net of allowance for doubtful accounts
           of $533,000 and $443,000 at 1999 and 1998, respectively                        2,034,248               1,611,457
       Receivables from affiliates                                                          924,426                 619,687
       Other receivable                                                                   1,100,000                     ---
       Inventories                                                                           29,307                  27,003
       Prepaid expenses and other current assets                                            485,455                 140,873
                                                                                         ----------              ----------
                  Total Current Assets                                                    6,107,012               4,193,967

FIXED ASSETS, NET                                                                         7,169,002               5,814,381

OTHER ASSETS
       Notes receivable                                                                     169,608                 100,000
       Cash surrender value of officer's life insurance, security
           deposits and other                                                               775,557                 525,281

                  Total Assets                                                          $14,221,179             $10,633,629
                                                                                        ===========             ===========







</TABLE>
                                  See notes to consolidated financial statements


<PAGE>


                                          SANDATA, INC. AND SUBSIDIARIES

                                       CONSOLIDATED BALANCE SHEETS (Continued)

                                                         May 31,
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>                                                   <C>                    <C>

                                         LIABILITIES AND SHAREHOLDERS' EQUITY               1999                     1998
                                                                                            ----                     ----

CURRENT LIABILITIES
       Accounts payable and accrued expenses                                             $3,022,395              $2,507,042
       Current portion of long-term debt                                                  2,500,000                  22,296
       Deferred/unearned revenue                                                             13,633                  23,410
       Deferred income                                                                      335,385                 186,358
                                                                                         ----------               ----------

                  Total Current Liabilities                                               5,871,413               2,739,106
                                                                                          ---------               ---------

LONG-TERM DEBT                                                                                  ---                     ---

DEFERRED INCOME                                                                             324,096                 215,945

DEFERRED INCOME TAXES                                                                       535,000                 382,000
                                                                                          ---------               ---------

                  Total Liabilities                                                       6,730,509               3,337,051
                                                                                          =========               =========

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
       Common stock; par value $.001;  authorized 6,000,000 and 3,000,000
       shares in 1999 and 1998, 2,481,481 and 1,560,149 shares issued
       and outstanding in 1999 and 1998, respectively;                                        2,481                   1,560
       Additional paid in capital                                                         5,772,079               4,173,091
       Retained earnings                                                                  3,235,769               3,121,927
Notes receivable - officers                                                              (1,519,659)                    ---
                                                                                         -----------              ---------

                  Total Shareholders' Equity                                              7,490,670               7,296,578
                                                                                          ---------               ---------

                  Total Liabilities and Shareholders' Equity                            $14,221,179             $10,633,629
                                                                                        ===========             ===========
</TABLE>

                                  See notes to consolidated financial statements


<PAGE>


                                          SANDATA, INC. AND SUBSIDIARIES

                                         CONSOLIDATED STATEMENTS OF INCOME

                                                Years ended May 31,

<TABLE>
                                                                                        <C>                     <C>
<S>                                                                                            1999                    1998
REVENUES:
       Service fees                                                                     $14,155,092             $12,488,327
       Other income                                                                         437,575                 263,510
       Interest income                                                                      143,200                  75,133
                                                                                         ----------              ----------
                                                                                         14,735,867              12,826,970
                                                                                         ----------              ----------
COSTS AND EXPENSES:
           Operating                                                                      8,909,704               8,496,552
           Selling, general and administrative                                            3,428,584               2,695,427
           Depreciation and amortization                                                  2,015,390               1,460,105
           Interest expense                                                                  97,170                  56,730
                       -------------

TOTAL COSTS AND EXPENSES                                                                 14,450,848              12,708,814
                                                                                         ----------              ----------

Earnings from operations before income taxes                                                285,019                 118,156

       Income tax expense                                                                   171,177                  27,885
                                                                                         ----------              ----------
NET EARNINGS                                                                            $   113,842            $    90,271

BASIC EARNINGS PER SHARE                                                                $       .05             $       .06
DILUTED EARNINGS PER SHARE                                                              $       .04             $       .04
                                                                                         ----------              ----------



</TABLE>

                                  See notes to consolidated financial statements


<PAGE>


                                          SANDATA, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                         Years ended May 31, 1999 and 1998
<TABLE>
<S><C>


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

Balance at
June 1,          1,216,727        $ 1,216        $2,795,801        $3,031,656        $(136,886)                ---        $5,691,787
1997

Effect of
fractional
shares paid
out in
cash                  (28)           ---              ---                ---              ---                  ---               ---

Exercise of
common stock
purchase
warrants          166,000            166         1,105,661               ---               ---                 ---         1,105,827

Exercise of
common
stock
options           230,222            230           408,463               ---               ---                 ---           408,693

Reissuance
of treasury
stock             (52,772)           (52)        (136,834)               ---           136,886                 ---

Net earnings          ---             ---             ---             90,271               ---                                90,271
             ------------    ------------    ------------       ------------      ------------        ------------      ------------
Balance at
May 31, 1998    1,560,149       $   1,560       4,173,091         $3,121,927               ---                 ---        $7,296,578


Exercise of
common stock
purchase
warrants          400,000             400         551,600               ---                ---            (551,448)              552

Exercise of
common stock
options           521,332             521       1,047,388               ---                ---            (968,211)           79,698

Net
Earnings              ---             ---             ---             113,842              ---                 ---           113,842
             ============    ============    ============        ============     ============        ============      ============

Balance at
May 31, 1999    2,481,481      $    2,481      $5,772,079          $3,235,769     $        ---        $ (1,519,659)       $7,490,670
             ============    ============    ============        ============     ============        ============      ============

</TABLE>
                                  See notes to consolidated financial statements


<PAGE>



                                          SANDATA, INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S>                                                                                    <C>                    <C>

                                                Years ended May 31,
                                                                                           1999                   1998
                                                                                           ----                   ----
Cash flows from operating activities:
    Net earnings                                                                       $  113,842             $  90,271
    Adjustments to reconcile net earnings to net cash
      provided by operating activities:
         Depreciation and amortization                                                  2,015,390             1,460,105
         (Gain) on disposal of fixed assets                                              (473,532)             (184,642)
         Provision for losses on accounts receivable                                        89,718              112,542
         (Decrease) in deferred income                                                   (216,353)             (262,846)
         Recognition of deferred revenue                                                 (125,122)              (53,780)
         Deferred tax provision                                                           153,000                12,000
           (Increase) decrease in operating assets
                Accounts receivable                                                      (512,509)             (469,410)
                Receivables from affiliates                                              (304,739)              330,219
                Other receivable                                                       (1,100,000)                  ---
                Receivable from former affiliate                                              ---                12,074
                Notes receivable - officers                                                   ---               102,867
                Inventories                                                                (2,304)              (10,668)
                Prepaid expenses and other current assets                                (344,582)               71,241
                Other assets                                                             (250,276)             (114,144)
         Increase in operating liabilities
                Accounts payable and accrued expenses                                     506,401               815,586
                Deferred revenue                                                          115,344                74,457
                Deferred income                                                           473,532               184,642
                                                                                       ----------            ----------
           Net cash provided by operating activities                                      137,810             2,170,514
                                                                                       ----------            ----------

Cash flows from investing activities:
         Purchases of fixed assets                                                     (5,096,479)           (2,510,332)
         Proceeds from sale/leaseback transactions                                      2,200,000               700,000
         Collection on note receivable                                                     17,985                   ---
                                                                                       ----------            ----------
            Net cash used in investing activities                                      (2,878,494)           (1,810,332)
                                                                                       -----------           -----------

Cash flows from financing activities:
         Proceeds from stock transactions                                                   1,609             1,514,520
         Principal payments on term loans                                                 (22,296)             (279,769)
         Proceeds from line of credit                                                   4,500,000                   ---
         Principal payments on line of credit                                          (2,000,000)           (1,000,000)
                                                                                       -----------           -----------
           Net cash provided by financing activities                                    2,479,313               234,751

(Decrease) increase in cash and cash equivalents                                         (261,371)              594,933
Cash and cash equivalents at beginning of year                                          1,794,947             1,200,014
                                                                                        ---------             ---------
Cash and cash equivalents at end of year                                               $1,533,576            $1,794,947
                                                                                       ==========            ==========
</TABLE>

Supplemental Disclosure of Noncash Investing and Financing Activities:

On July 14, 1998,  certain  officers,  directors and employees  exercised  their
options and warrants to purchase 921,334 shares of Common Stock for an aggregate
cost of  $1,608,861.  Payment  for such  shares  was made to the  Company in the
amount of $921 and a portion in the form of  non-recourse  promissory  notes.

                                  See notes to consolidated financial statements


<PAGE>






NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business and Economic Dependency

         Sandata, Inc. and Subsidiaries (the "Company") are primarily engaged in
         the business of providing  computerized  data  processing  services and
         custom software and programming  services using  Company-developed  and
         licensed software principally to the healthcare  industry.  The Company
         primarily  operates in the New York  metropolitan  area.  During fiscal
         years 1999 and 1998,  the  Company  received  revenues  from a group of
         customers who are all funded by one governmental  agency,  amounting to
         approximately $9,460,000 and $8,416,000, respectively.

         Principles of Consolidation

         The consolidated  financial statements include the accounts of Sandata,
         Inc. and  its  wholly  owned  subsidiaries:  Sandsport  Data  Services,
         Inc.,  Sandata  Home  Health  Systems,  Inc., Sandata  Spectrum,  Inc.,
         SANTRAX Systems,  Inc.,  SANTRAX  Productivity,   Inc.  and  Pro-Health
         Systems,  Inc.   (formerly  known as  Sandata  Inteck,  Inc.).  SANTRAX
         Productivity,   Inc.   is   an  inactive  subsidiary.  All  significant
         intercompany   accounts  and   transactions  have  been  eliminated  in
         consolidation.

         Fixed Assets

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

         Income Taxes

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

         Software Costs

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


         Inventories

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

         Net Earnings Per Common Share

         In 1997, the Financial  Accounting  Standards Board issued Standard No.
         128 ("SFAS No. 128"),  "Earnings per Share".  SFAS No. 128 replaced the
         calculation of primary and fully diluted  earnings per share with basic
         and  diluted  earnings  per share.  Basic  earnings  per share has been
         computed  using the weighted  average  number of shares of common stock
         outstanding.  Diluted  earnings per share has been  computed  using the
         basic weighted  average shares of common stock issued plus  outstanding
         stock options, in accordance with Staff Accounting Bulletin No. 98.

         Basic  earnings per share are based on the  weighted-average  number of
         shares of common  stock  outstanding,  which were  2,372,941 at May 31,
         1999 and  1,478,419  at May 31,  1998.  Diluted  earnings per share are
         based on the weighted-average number of shares of common stock adjusted
         for the effects of assumed  exercise of options and warrants  under the
         treasury stock method, which were as follows: 2,569,209 at May 31, 1999
         and 2,246,206 at May 31, 1998.

         Revenue Recognition

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

            Cash and Cash Equivalents

         The  Company  considers  all  short-term  investments  with an original
         maturity of three months or less to be cash equivalents.

         Concentration of Credit Risk

         The  Company  may be subject  to a  concentration  of credit  risk with
         respect to its trade receivables.  The Company performs on-going credit
         evaluations of its customers and generally does require collateral. The
         Company maintains  allowances to cover potential or anticipated  losses
         for uncollectible accounts.

         The Company has cash balances in banks in excess of the maximum  amount
         insured by the FDIC as of May 31, 1999.

         Statements of Cash Flows

         The Company paid income taxes of approximately  $22,000 and $25,000 and
         interest of  approximately  $87,000 and $57,000 for the years ended May
         31, 1999 and 1998, respectively.

         Use of Estimates in the Financial Statements

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

         Fair Value of Financial Instruments

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

         Stock Options

         The  Company  accounts  for  its  stock-based   compensation  plans  in
         accordance  with  the  provisions  of  APB 25 and  provides  pro  forma
         disclosure in accordance with SFAS 123.

         Comprehensive Income

         In  1998,  the  Company  adopted  Statement  of  Financial   Accounting
         Standards No. 130 ("SFAS No. 130"),  "Reporting  Comprehensive Income".
         SFAS No.  130  establishes  standards  for  reporting  and  display  of
         comprehensive   income,   its  components  and  accumulated   balances.
         Comprehensive income is defined to include all changes in equity except
         those resulting from investments by owners and distributions to owners.
         Among other disclosures,  SFAS No. 130 requires that all items that are
         required  to  be  recognized  under  current  accounting  standards  as
         components of comprehensive income be reported in a financial statement
         that  is  displayed  with  the  same   prominence  as  other  financial
         statements.

         Business Segments

         In  1998,  the  Company  adopted  Statement  of  Financial   Accounting
         Standards No. 131 ("SFAS No. 131"),  "Disclosures  About Segments of an
         Enterprise  and  Related  Information",  which  supercedes  SFAS No 14,
         "Financial  Reporting for Segments of A Business  Enterprise." SFAS No.
         131 establishes  standards for the way that public  enterprises  report
         information about operating segments in annual financial statements and
         requires reporting of selected  information about operating segments in
         interim   financial   statements   regarding   products  and  services,
         geographical areas and major customers.  SFAS No. 131 defines operating
         segments as components of an enterprise about which separate  financial
         information  is  available  that is  evaluated  regularly  by the chief
         operating  decision maker in deciding how to allocate  resources and in
         assessing  performance.  The Company has determined that its operations
         are in one segment,  computer services to the health care industry. The
         Company's  customers and operations  are primarily  within the New York
         metropolitan area.

         New Accounting Pronouncements

         In April, 1998,  Statement of Position ("SOP") 98-5,  "Reporting on the
         Costs of Start-up Activities" was issued. This SOP provides guidance on
         the financial  reporting of start-up costs and  organization  costs. It
         requires the costs of start-up  activities and organization costs to be
         expensed as incurred. The SOP is effective for financial statements for
         fiscal years  beginning  after  December 15, 1998. The Company does not
         expect that the adoption of SOP No. 98-5 will have a significant effect
         on results of operations or the financial position of the Company.

         In February  1998,  the  Financial  Accounting  Standards  Board issued
         Statement  of  Financial   Accounting   Standard  No.  132,   "Employee
         Disclosures about Pensions and Other Post Retirement  Benefits",  which
         standardizes  the disclosure  requirements  for pensions and other post
         retirement  benefits.  The Company does not expect that the adoption of
         the new  statement  will have a  significant  effect on the  results of
         operations or the financial position of the Company.

         In June 1998, the Financial Accounting Standards Board issued statement
         No.  133,   "Accounting   for   Derivative   Instruments   and  Hedging
         Activities",  which is required to be adopted in years  beginning after
         June 15, 1999. The Company does not expect that the adoption of the new
         statement  will have a  significant  effect on results of operations or
         the financial position of the Company.

NOTE 2 - FIXED ASSETS
         <TABLE>
         <S>                                                   <C>                   <C>                 <C>

         Fixed assets consist of the following:
                                                                Useful                           May 31,
                                                                  Life                   1999                1998
                                                                ------                   ----                ----
         Computer equipment and software costs                    5 years             $12,354,848        $9,391,943
         Furniture, fixtures and automobiles                    4-7 years                 269,337           304,580
         Leasehold improvements                                  10 years               2,615,741         2,421,036
                                                                                      -----------       -----------
                                                                                      $15,239,926       $12,117,559

         Less accumulated depreciation and amortization                                 8,070,924         6,303,178
                                                                                      -----------       -----------
                                                                                      $ 7,169,002       $ 5,814,381
                                                                                      ===========       ===========
        </TABLE>
         Depreciation and  amortization  expense relating to fixed assets (other
         than software costs) amounted to approximately $693,000 and $586,000 in
         1999 and 1998, respectively.

         Unamortized  software  costs amounted to  approximately  $4,946,000 and
         $2,990,000 at May 31, 1999 and 1998, respectively. Amortization expense
         for these costs totaled  approximately  $1,322,000 and $874,000 in 1999
         and 1998, respectively.

         Research  and  development  expenses amounted to approximately $192,000
         and $185,000 in 1999 and 1998, respectively.

NOTE 3 - DEBT

         Credit Agreement

         On April 18, 1997,  the Company's  wholly owned  subsidiary  Sandsport,
         entered into a revolving credit agreement (the "Credit Agreement") with
         a bank ( the "Bank") in the amount of $3,000,000. The unpaid balance of
         any loans under the Credit Agreement bear interest at either the Bank's
         prime  rate or the  adjusted  LIBOR  rate,  as  defined  in the  Credit
         Agreement,  and will be paid quarterly. The Company was required to pay
         a  commitment  fee in the amount of $30,000 and a fee equal to 1/4% per
         annum payable on the unused  average daily balance of amounts under the
         Credit  Agreement.  Any  indebtedness  under the  Credit  Agreement  is
         guaranteed  by the Company and  Sandsport's  sister  subsidiaries  (the
         "Group").  The  collateral  for the  facility  is a  first  lien on all
         equipment  owned  by  members  of the  Group  as well  as a  collateral
         assignment of $2,000,000 of life insurance payable on the life of a key
         officer of the  Company.  All of the Group's  assets are pledged to the
         Bank as collateral for the amounts due under the Credit  Agreement.  In
         addition,  the Group is  required  to maintain  certain  financial  and
         restrictive  covenants.  At May 31, 1999,  the Group has failed to meet
         certain  net worth and  financial  ratios and the Bank has  granted the
         Group  waivers.The  Credit  Agreement  will expire on March 1, 2000, at
         which time any outstanding  principal  balance will be due and payable.
         As of May 31, 1999,  the  outstanding  balance on the Credit  Agreement
         with the Bank was $2,500,000.

         Long Term Debt

         Long-term debt at May 31, 1999 and 1998 was as follows:
         <TABLE>
         <S>                                                            <C>                  <C>

                                                                                 1999                1998
                                                                                 ----                ----

         8.7% Term Loan payable to affiliate, due 1998                   $         ---        $     10,401
         8.91% Term Loan payable to affiliate, due 1998                            ---              11,895

         Variable Rate Term Loan under Credit Agreement                      2,500,000                 -0-
                                                                           -----------         -----------
                                                                             2,500,000              22,296
         Less: current portion of long-term debt                             2,500,000              22,296
                                                                           -----------         -----------
         Long-term debt                                                   $        -0-        $        -0-
                                                                           ===========         ===========
         </TABLE>
         The Term Loans payable to  affiliates  represent  assumed  indebtedness
         owed to affiliates  of the Company's  Chairman and were incurred by the
         affiliates in connection  with the  construction of improvements to the
         Company's office space (the "Facility").  The loans are  collateralized
         by the assets of the primary  obligor,  BFS  Realty,  LLC  ("BFS"),  an
         affiliate  of the  Company's  Directors,  from whom the Company  leases
         office space at the Facility. The loans are guaranteed by the Company's
         Chairman (see Note 6). The loans were paid in full in July 1998.


NOTE 4 - INCOME TAXES
         <TABLE>
         <S>                                                                    <C>             <C>

         The income tax expense is comprised of the following:

                                                                                 Year ended May 31,
                                                                                1999              1998
         Current
                  Federal                                                       $    ---         $    ---
                  State                                                           18,177           15,885

         Deferred - Federal and state                                            153,000           12,000
                                                                                --------          -------
                                                                                $171,177          $27,885
                                                                                ========          =======

         The Company's effective income tax rate differs from the statutory U.S.
         Federal income tax rate as a result of the following:
                                                                                  Year ended May 31,
                                                                                1999              1998


         Statutory U.S. federal tax rate                                           34.0%             34.0%
         State taxes                                                                4.7              15.9
         Net operating loss carryforwards                                         (97.4)           (204.0)

         Impact of changes in items giving rise to deferred taxes:
             Depreciation and amortization                                        151.2             158.9
             Deferred revenue                                                      (2.9)             25.8
             Other                                                                 (7.9)             (7.0)
                                                                                --------          --------
                                                                                 60.1%               23.6%
                                                                                ========          ========
         </TABLE>
         As of May 31, 1999 and 1998  depreciation and amortization gave rise to
         deferred tax  liabilities of  approximately  $1,630,000 and $1,047,000,
         respectively.   Allowance  for  doubtful  accounts,   employee  benefit
         accruals,   deferred  gains,  net  operating  loss   carryforwards  and
         contribution   carryovers   gave  rise  to   deferred   tax  assets  of
         approximately, $1,095,000 and $665,000, respectively. These amounts are
         presented net in the consolidated  balance sheet as of May 31, 1999 and
         1998, as a noncurrent deferred tax liability.

         At May 31, 1999, the Company had net operating loss  carryforwards  for
         tax purposes of $1,252,000, expiring at various dates through 2019.


NOTE 5- COMMITMENTS AND CONTINGENCIES

         Lease Agreements

         The Company  leases office space at the Facility from BFS (see Note 6).
         Total office space and equipment  rental expense under operating leases
         amounted to  approximate  $2,492,000  and $2,173,000 in fiscal 1999 and
         1998, respectively. The Company paid rent in the amount of $661,860 and
         $604,350  to BFS for the  years  ended May 31,  1999 and May 31,  1998,
         respectively.

         The Company has  obligations to pay rental  expense in connection  with
         six  sale/leaseback  transactions.  The  rental  expenses  amounted  to
         approximately  $1,000,800  and  $1,025,900  for the years ended May 31,
         1999 and 1998 respectively. (See Note 8)

         In  connection  with  a  February  1995  sale/leaseback,   the  Company
         previously issued irrevocable  letters of credit in an aggregate amount
         of $375,000 for the benefit of the lessor.  One letter of credit in the
         amount  of  $225,000  is  cancellable  if  the  Company  meets  certain
         financial covenants;  this letter of credit has been extended until the
         earlier  of the  Company's  meeting  such  financial  covenants  or the
         termination  of the June 1996  lease  with the same  lessor.  The other
         letter of credit in the amount of $150,000 expired upon the termination
         of  the  February  1995  lease.   In  connection   with  a  March  1997
         sale/leaseback,  the Company issued an irrevocable  letter of credit in
         the amount of $200,000  for the  benefit of the lessor,  which has been
         extended until August 1, 2000.

         Future minimum lease payments for all non cancellable  operating leases
         at May 31, 1999 are as follows:
                                                                       Amount
                Year ending May 31,
                       2000                                           $2,834,500
                       2001                                            2,050,924
                       2002                                            1,462,401
                       2003                                              768,815
                       2004                                              698,112
                       Thereafter                                        226,920
                                                                 ---------------
                                                                   $   8,041,672

         Litigation

         On  December   21,  1998,   the  Company  and  MCI   Telecommunications
         Corporation  ("MCI") settled a patent  infringement  lawsuit brought by
         MCI  against the Company in the United  States  District  Court for the
         Eastern  District  of  New  York,   captioned  MCI   Telecommunications
         Corporation  v.  Sandata,  Inc. The  settlement  provides,  among other
         things,  that the Company is granted a license  under  certain of MCI's
         patents  which  permits  the Company to continue to market and sell its
         SANTRAX  time  and  attendance   verification  product  non-exclusively
         nationwide and  exclusively in the home health care  industries for the
         five  New York  boroughs  and that  the  Company  will pay MCI  certain
         royalties.

         Employment and Deferred Compensation Agreements

         On  February  1,  1997 the  Company  and Mr.  Brodsky  entered  into an
         employment  agreement  for a five year term  (the  "Brodsky  Employment
         Agreement").  Among  other  things,  the Brodsky  Employment  Agreement
         provides compensation at the annual rate of $500,000 or a lesser amount
         if mutually agreed. The Brodsky Employment  Agreement also provides for
         payment  of an  annual  bonus at the sole  discretion  of the  Board of
         Directors. Mr. Brodsky agreed to accept a reduction in compensation for
         the fiscal  years  ended May 31,  1999 and 1998 and has signed  waivers
         evidencing his agreement to such reductions.

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

NOTE 6 - RELATED PARTY TRANSACTIONS

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

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

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

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

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

         As a result of the Second Amendment and related transactions  discussed
         above,  the  Company  reduced  its fixed  assets,  consisting  of land,
         building and improvement costs, by the amount of the cost thereof,  net
         of  accumulated  depreciation,  in the amount of $3,125,298 and reduced
         its long term debt by  $3,140,884,  which was  assumed by BFS;  the net
         difference was recorded as other income in the financial  statements in
         fiscal 1997.

         b. The  Company  derives  revenue  from  National  Medical  Health Card
         Systems,  Inc. ("Health Card"), a company affiliated with the Company's
         Chairman  of the  Board  fordata  base and  operating  system  support,
         hardware leasing,  maintenance and related administrative services. The
         revenues  generated  from this  company,  amounted  to  $1,765,000  and
         $2,307,000 for the years ended May 31, 1999 and 1998, respectively.  At
         May 31,  1999,  the  Company  was owed  approximately  $635,000 by such
         affiliate, which was received in full subsequent to May 31, 1999.

         As of June 1, 1998,  Health Card hired 11  employees  of the Company in
         order to provide development, enhancement, modification and maintenance
         services,  previously  provided  by the  Company.  The Company was paid
         $208,000 in  consideration  of the  Company's  waiving  certain  rights
         relative to such  employees.  In addition,  the Company  began  leasing
         certain computer  equipment to Health Card for $2,000 per month as well
         as computer  hardware for its data processing  center at a monthly cost
         of $20,000 from the Company pursuant to a verbal agreement. The Company
         is expected to continue to provide to Health Card  consulting  services
         related to its information systems.

         c. The Company is indebted  under two Term Loans to  affiliates  of the
         Company's Chairman, as described in Note 3. Each of the foregoing loans
         were incurred in connection  with the  construction  of improvements to
         the Facility,  are  collateralized by the assets of the primary obligor
         and are  guaranteed by the Company's  Chairman.  The loans were paid in
         full in July 1998.

         d. The  Company  makes  various  lease  payments to  affiliates  of the
         Company's Chairman..  The payments are for: equipment rental, which was
         $387,346 and $366,796 in fiscal 1999 and 1998,  respectively,  and rent
         for the  Facility  which was  $661,860  and $604,350 in fiscal 1999 and
         1998, respectively.

         e. Medical Arts Office  Services,  Inc.  ("MAOS"),  a company which the
         Company's  Chairman of the Board is the sole shareholder,  provided the
         Company with accounting,  bookkeeping and paralegal  services.  For the
         fiscal years ended May 31, 1999 and 1998 the total payments made by the
         Company to MAOS were $193,934 and $223,813, respectively.

         f. At May 31, 1997, the Company was owed approximately  $138,000 from a
         company affiliated with the officers of the Company.  Subsequent to May
         31, 1997, the Company received  approximately  $18,000 and a promissory
         note for the balance  due.  The note is payable in 24 monthly  payments
         with interest at 8% commencing  September 1, 1997. The Company deferred
         principal  payments  from April,  1998 to October,  1998, at which time
         principal and interest payments  resumed.  At May 31, 1999, the Company
         was owed approximately $42,000 on such note.

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

         h. The Company has been  providing  services  to  Federation  of Puerto
         Rican   Organizations,   and/or  its   affiliates   (individually   and
         collectively,  the "Federation"),  an HRA Vendor Agency, since 1995. On
         October 31,  1997 and  November  30,  1997,  respectively,  the Company
         acquired a loan  receivable  for an aggregate of $300,000  from a third
         party (a  portion  of  which  was  acquired  from an  affiliate  of the
         Company's Chairman),  due from the Federation.  Such loan receivable is
         secured by accounts receivable due to the Federation. Shortly following
         the Company's  acquiring  such  receivable,  the  Federation  filed for
         bankruptcy  protection.  The  Company has filed,  among  other  things,
         claims representing monies owed to the Company with respect to the loan
         and the  receivables.  At May 31, 1999, the Federation owed the Company
         the  $300,000  loan  receivable  in addition  to $47,296  for  services
         rendered by the  Company.  The Company has fully  reserved  against the
         loan and the receivable in the event that it does not receive payment.

NOTE 7 - SHAREHOLDERS' EQUITY

         a.   Common Stock Purchase Warrants

         At May 31, 1998, there were outstanding and exercisable  400,000 common
         stock  purchase  warrants  issued to the Company's  Chairman.  For each
         warrant,  the  Chairman may purchase one share of common stock at $1.38
         per share,  which  represented  the fair market value of the  Company's
         common stock at the date of issuance of the  warrants,  which expire in
         2001. The warrants were exercised on July 14, 1998.

         b.   Private Offering and Related Common Stock Purchase Warrants

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

         In connection with the closing of such private  offering,  an affiliate
         of the  placement  agent entered into a one year  financial  consulting
         agreement ("Financial Consulting Agreement") with the Company, pursuant
         to which,  among other things,  such affiliate  will receive  aggregate
         annual  payments  of $36,000 and certain  assignees  of such  affiliate
         received  warrants to purchase an aggregate of 200,000 shares of Common
         Stock  exercisable  as follows:  100,000 shares at $5.00 per share (the
         "$5.00  Warrants")  and  100,000  shares at $7.00 per share (the "$7.00
         Warrants"),  such warrants to be  exercisable  until  December 22, 1998
         (with respect to the $5.00 Warrants) and two years (with respect to the
         $7.00 Warrants). The $5.00 Warrants expired on such date without having
         been exercised. The warrants issued in such private offering, including
         those  issued to investors  as well as the  assignees of the  placement
         agent's  affiliate,   are  redeemable  by  the  Company  under  certain
         circumstances.

         In August,  1997 the Board of Directors  authorized  the  execution and
         delivery of a notice of  redemption to holders of such  warrants.  As a
         result,  there were a total of 166,000 warrants  exercised at $7.00 per
         share.  The  net  proceeds   generated  from  warrant   exercises  were
         $1,105,827.

         In September, 1997 the Company withdrew its election to redeem warrants
         issued pursuant to the Financial Consulting Agreement discussed above.

         c.   Stock Options

         The  Company has stock  options  outstanding  under three stock  option
         plans. At May 31, 1999, there were 2,536 options  outstanding  under an
         incentive  stock option plan  adopted in October 1984 and  subsequently
         amended.  Options  granted  under this plan were  granted  at  exercise
         prices not less than fair  market  value on the date of grant.  Options
         outstanding  under this plan expire in 2001. No additional  options may
         be granted  under this  plan.  During  1998,  certain  officers  of the
         Company  exercised  206,667  options at an exercise  price of $1.79 per
         share and 23,333 options at an exercise price of $1.875 per share under
         this plan.  Other  option  exercises  under this plan  amounted  to 222
         shares at an exercise price of $1.875 per share. Net proceeds generated
         from option exercises during fiscal 1998 were $408,693.

         At May 31, 1999, there were no options outstanding under a nonqualified
         stock option plan adopted in November,  1986 and subsequently  amended.
         No additional options may be granted under this plan.

         At May 31, 1999, there were also 590,500 incentive options  outstanding
         under a stock option plan adopted in January 1995,  which  provides for
         both incentive and  nonqualified  stock options and reserves  1,000,000
         shares of common stock for grant under the plan. The plan requires that
         options  be granted at  exercise  prices not less than the fair  market
         value  at the  date of  grant,  over a  ten-year  period.  All  options
         outstanding  under this plan are  exercisable at May 31, 1999 at prices
         ranging  from $1.41 to $2.61 per share over a period of five years from
         date of grant.
              Summary  information  with  respect  to  the  stock  option  plans
         follows:
         <TABLE>
         <S>                                         <C>                       <C>             <C>

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

              Balance, June 1, 1997                  1.38 - 2.61                 824,092          824,092
              Exercised                              1.79 - 1.875               (230,222)        (230,222)
                                                                                --------         --------
              Balance, May 31, 1998                  1.38 - 2.61                 593,870          593,870
              Granted                                1.41 - 3.00                 914,250          640,810
              Cancelled                                                          (28,540)         (28,540)
              Exercised                              1.38 - 2.61                (521,334)        (521,334)
                                                                                ---------        ---------
              Balance, May 31, 1999                  1.41 - 3.00                 958,246          684,806
                                                                                =========        ========
        </TABLE>

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

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

         On July 14, 1998, Messrs. Brodsky, Freund, Stoller, Konigsberg,  Gerald
         Shapiro,  a former director of the Company and Carol Freund, the spouse
         of Hugh  Freund  and an  employee  of  Sandsport  Data  Services,  Inc.
         ("Sandsport'),  the Company's wholly owned subsidiary,  exercised their
         respective  options and  warrants to purchase an  aggregate  of 921,334
         shares of Common Stock at exercise  prices  ranging from $1.38 to $2.61
         per share for an aggregate cost of $1,608,861.  Payment for such shares
         was made to the  Company  in the  amount of $921  representing  the par
         value  of the  shares,  and a  portion  in  the  form  of  non-recourse
         promissory  notes due in July 2001, with interest at eight and one-half
         percent (8-1/2%) per annum, payable annually, and secured by the number
         of shares exercised.

         In October  1998,  the Board of Directors  approved an amendment to the
         Company's  Certificate  of  Incorporation  to  increase  the  number of
         authorized common shares from 3,000,000 to 6,000,000.

         In October  1998,  the Company  adopted a stock option plan,  reserving
         1,000,000  shares of  common  stock  for  grant  under the plan.  Stock
         options   granted   under   the  plan  may  be  either   statutory   or
         non-statutory.  As of May 31, 1999,  an aggregate of 345,210  statutory
         stock  options were  granted  under the plan and vest over a three-year
         period.  Additionally,  in October 1998,  the Company  granted  certain
         directors  of the Company  non-statutory  stock  options to purchase an
         aggregate of 20,000 shares of the Company's common stock at an exercise
         price of $3.00. These options vest immediately and are exercisable over
         a five-year period.

         In December  1998, the Company  granted  520,500  statutory  options to
         certain  officers of the Company  under a stock  option plan adopted in
         January  1995 at an exercise  price of $1.41 per share.  These  options
         vest immediately and are exercisable over a five-year period.

         Pro forma  information  regarding  net income and earnings per share is
         required  by SFAS 123,  and has been  determined  as if the Company had
         accounted  for its  employee  stock  option  plans under the fair value
         method of SFAS  123.  The fair  market  value  for  these  options  was
         estimated  at the date of grant  using a  Black-Scholes  option-pricing
         model  with the  following  weighted-average  assumptions  for 1999 and
         1998.


         ASSUMPTION
         <TABLE>
         <S>                                                           <C>                  <C>
                                                                                         May 31
                                                                                1999               1998
                                                                                ----               ----

         Risk free rate                                                 4.33% - 6.74%       6.03% - 7.82%
         Dividend yield                                                          .000               .000
         Volatility factor of the expected market price of the                   .809               .809
                  Company's common stock
         Average life                                                          5 years           5 years

         </TABLE>

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating  the fair  market  value of  traded  options  which  have no
         vesting  restrictions and are fully transferable.  In addition,  option
         valuation  models  require the input of highly  subjective  assumptions
         including the expected  stock price  volatility.  Because the Company's
         employee stock options have characteristics  significantly  differently
         from those of traded  options,  and because  changes in the  subjective
         input assumptions can materially affect the fair market value estimate,
         in management's opinion, the existing models do not necessarily provide
         a reliable  single  measure of the fair  market  value of its  employee
         stock options.

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

                                                            Years ended May 31

                                                         1999               1998
                                                         ----               ----

          Pro forma net income (loss)                $40,535           $(67,397)
          Pro forma net income (loss) per share$     $   .02           $   (.05)

         The  weighted  average fair value of options  granted  during the years
         ended May 31,  1999 and 1998 were $.94 and  $1.09,,  respectively,  for
         shares granted.  The weighted  average  remaining  contractual  life of
         options  exercisable at May 31, 1999 is 4 years. The exercisable prices
         range from $1.41 to $3.00 for options outstanding as of May 31, 1999.


NOTE 8 - SALE/LEASEBACK TRANSACTIONS

         The Company is a party to various sale/leaseback transactions involving
         certain fixed assets.  Gains on these  transactions  have been deferred
         and are being recognized over the lives of the related leases,  ranging
         from thirty-six (36) to sixty (60) months.  Approximately  $216,000 and
         $263,000 of the deferred gains were recognized in fiscal 1999 and 1998,
         respectively.   Included   in  these   amounts   are  the   effects  of
         sale/leaseback  transactions  entered  into  fiscal  1999 and 1998,  as
         follows:

         In January 1998, the Company  consummated a  sale/leaseback  of certain
         fixed assets (principally  computer hardware,  software and equipment).
         The fixed assets, which had a net book value of approximately $515,000,
         were sold for $700,000.  The resulting gain of  approximately  $185,000
         was recorded as deferred  income and is being  recognized over the life
         of the lease,  which is thirty-six (36) months.  Approximately  $62,000
         and $26,000 of the  deferred  gain was  recognized  for fiscal 1999 and
         1998, respectively.

         In January 1999, the Company  consummated a  sale/leaseback  of certain
         fixed assets (principally  computer hardware,  software and equipment).
         The fixed assets, which had a net book value of approximately $830,000,
         were sold for $1,100,000.  The resulting gain of approximately $270,000
         was recorded as deferred  income and is being  recognized over the life
         of the lease, which is thirty-six (36) months. Approximately $30,000 of
         deferred gain was  recognized  for fiscal 1999. An  unaffiliated  third
         party purchased the residual rights in such lease.

         In May 1999, the Company entered into a sale/leaseback of certain fixed
         assets (principally computer hardware and equipment). The fixed assets,
         which  had a net book  value of  approximately  $896,000  were sold for
         $1,100,000.  The resulting gain of approximately  $204,000 was recorded
         as deferred income and is being  recognized over the life of the lease,
         which is thirty-six (36) months. The sale proceeds,  which are shown as
         Other  receivable  in the financial  statements,  were received in June
         1999. An unaffiliated third party purchased the residual rights in such
         lease.


NOTE 9 - RETIREMENT PLAN

         The Company has a 401(k)  savings plan covering all eligible  employees
         in which the Company matches a portion of the employees'  contribution.
         The amount of this match was $23,259  and $20,641 in fiscal  years 1999
         and 1998, respectively.



<PAGE>
                              SIGNATURES

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

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

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

Date: August 27, 1999


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


By   /s/ Bert E.Brodsky
         Bert E. Brodsky, Chairman, President, Treasurer, Director

Date: August 27, 1999


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

Date: August 27, 1999


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

Date: August 27, 1999


By    /s/ Paul J.Konigsberg
          Paul J. Konigsberg, Director

Date: August 27, 1999


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

Date: August 27, 1999