<PAGE>   1
                                                                   Exhibit 13(a)
________________________________________________________________________________



                         CITATION COMPUTER SYSTEMS, INC.

                    FINANCIAL INFORMATION FOR THE YEAR ENDED

                                 MARCH 31, 1999


________________________________________________________________________________





<PAGE>   2


INDEX TO FINANCIAL INFORMATION


<TABLE>
<S>                                                                    <C>
Management's Discussion and Analysis of Financial
   Condition and Results of Operations...................................1

Consolidated Balance Sheet..............................................10

Consolidated Statement of Operations....................................12

Consolidated Statement of Shareholders' Equity..........................13

Consolidated Statement of Cash Flows....................................14

Notes to Consolidated Financial Statements..............................16

Statement of Management's Responsibility for
   Financial Reporting..................................................26

Report of Independent Accountants.......................................26
</TABLE>





<PAGE>   3



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

The following should be read in conjunction with the consolidated financial
statements and notes thereto.

OVERVIEW

CITATION Computer Systems, Inc. designs, develops, markets and supports clinical
information systems for hospitals, clinics, physicians' groups and emerging
Integrated Delivery Networks ("IDN's"). The Company offers a comprehensive suite
of products designed using open client/server architecture that meets a broad
range of the information systems needs of the healthcare industry. These
products integrate patient care processes within the enterprise and throughout
the IDN. The Company's systems are modular, scaleable and allow clients to
leverage their investments in existing systems. Individual components of the
Company's systems can function independently, giving clients the ability to
build their system over time and to integrate existing software. CITATION's
clinical systems are installed in approximately 300 institutions ranging in size
from under 100 beds to over 1,000 beds. CITATION markets its products directly
in the United States and Canada, as well as through distribution partners in
Europe, India, the Asia Pacific area and Latin America.

The Company generates revenues from the sale of information systems and
services. System sales consist of software licenses, related hardware,
installation and training, and the sale of third-party software. Hardware
revenues are generated from sales of third-party manufactured hardware typically
sold in conjunction with the Company's software. Service revenue includes
maintenance and support services.

Revenue from systems sales is recognized upon shipment to the client. Revenue
related to the installation is recognized as the work is performed. Service
revenue is recognized ratably over the term of the contract period.

Cost of products and services sold includes cost of system sales and cost of
service revenue. Cost of system sales includes cost of hardware sold,
installation and training expenses and software amortization costs. Cost of
service revenue includes all client service expenses plus an allocation of
certain other overhead expenses.

Research and development expenses include salaries and expenses related to
development and documentation of software systems and are reduced by capitalized
software development costs. Software development costs are expensed until such
time as technological feasibility is established and are capitalized in
compliance with Statement of Financial Accounting Standards No. 86.

Sales and marketing expenses include salaries, commissions, advertising, trade
show costs, and user group costs related to the sale and marketing of the
Company's systems. General and administrative expenses include salaries and
expenses for corporate administration, finance, legal, and human resources, as
well as profit sharing, bonuses and insurance.



                                                                               1

<PAGE>   4


RESTRUCTURING COSTS AND OTHER NON-RECURRING CHARGES, INCLUDING SALE OF THE
FINANCIAL SOFTWARE LINE OF BUSINESS AND THE COMPANY'S UK OPERATIONS

In June 1998, the Company sold the financial software line of business,
including its accounts receivable, patient billing, general ledger, accounts
payable, fixed assets, inventory control, medical records abstracting and
registration software modules to Sterling Systems based in Downey, Idaho. This
line of business accounted for approximately $1.8 million of revenue and
contributed a pretax loss of $0.2 million in fiscal 1998. Revenues from this
line of business in fiscal 1999 were $0.3 million through the date of its sale.
The transaction resulted in an aggregate after tax loss of approximately $0.4
million, or $0.11 per share, which reflects an after tax loss on disposal of $44
thousand, or $0.01 per share, recorded in the first quarter of fiscal 1999 and
an after tax loss of $0.4 million, or $0.10 per share, recorded in the fourth
quarter of fiscal 1999. The loss included the write-off of approximately $0.5
million of capitalized software development costs associated with this software.
The additional charge in the fourth quarter of fiscal 1999 reflects a change in
management's estimates of the collectibility of certain accounts receivable
related to its former financial software line of business. Approximately $0.4
million of the sales price for this line of business is reflected in other
accounts receivable on the March 31, 1999 Consolidated Balance Sheet; payment
thereof is expected in fiscal year 2000.

Also in June 1998, the Company announced it was in discussions about a possible
business combination with MEDASYS Digital Systems, S.A., a French Company with
U.S. offices in Miami and Chicago. On December 9, 1998, the Company and MEDASYS
Digital Systems, S.A. agreed to terminate a previously announced Agreement and
Plan of Reorganization to combine the two companies. The companies have entered
into a joint marketing agreement with respect to clinical information systems.
During the fourth quarter of fiscal 1999, the Company recorded a non-operating
charge of $0.5 million relative to costs associated with the MEDASYS business
combination discussions.

In the fourth quarter of fiscal 1998 the Company recorded non-recurring pretax
charges of approximately $1.0 million related to the restructuring of operations
(primarily customer service matters) and for non-operating costs related to the
strategic review of alternatives following an unsolicited expression of interest
in the Company. See Note 5 of the Notes to Consolidated Financial Statements.

In March 1997, the Company sold its United Kingdom ("UK") operations to Health
Systems Limited, a new UK-based company. Under the terms of the transaction,
Health Systems Limited acquired CITATION's UK operating assets, retained the
majority of the Company's employees in the UK and assumed responsibility for
CITATION's existing customers and contracted commitments in the UK. See Note 6
of the Notes to Consolidated Financial Statements for additional information
regarding the 1997 restructuring charge of $4.3 million related to the sale of
UK operations.



                                                                               2

<PAGE>   5


RESULTS OF OPERATIONS

The following table sets forth, for the period indicated, certain items from the
Company's Consolidated Statement of Operations expressed as a percentage of
total revenues.

<TABLE>
<CAPTION>
                                                                       Year Ended March 31,
                                                               ---------------------------------
                                                                 1999         1998         1997
                                                               -------      -------      -------
<S>                                                            <C>          <C>          <C>
Revenues:
System sales                                                     53.8 %       49.4 %       59.0 %
Service revenue                                                  46.2         50.6         41.0
                                                               ------       ------       ------
Total revenues                                                  100.0        100.0        100.0

Cost of products and services sold:
Cost of system sales                                             37.9         37.6         37.9
Cost of service revenue                                          12.0         12.3         10.5
                                                               ------       ------       ------
Total cost of products & services sold                           49.9         49.9         48.4

Gross profit                                                     50.1         50.1         51.6

Research and development                                         14.7         19.2         14.9
Selling and administrative                                       32.3         40.2         38.7
Restructuring costs and other non-recurring charges                 -          5.0         19.5
Loss on sale of financial systems business                        4.1            -            -
                                                               ------       ------       ------
Total operating expense                                          51.1         64.4         73.1
                                                               ------       ------       ------

Operating loss                                                   (1.0)       (14.3)       (21.5)
Other income (expense):
Interest income                                                   0.4          0.5          0.7
Interest expense                                                 (0.8)        (1.0)        (0.7)
Other, net                                                       (2.8)        (1.2)        (2.5)
                                                               ------       ------       ------
Loss before taxes                                                (4.2)       (16.0)       (24.0)
Benefit for income taxes                                         (1.6)        (6.1)        (9.1)
                                                               ------       ------       ------

Net loss                                                         (2.6)%       (9.9)%      (14.9)%
                                                               =======      ======       ======
</TABLE>



COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1999 TO FISCAL YEAR ENDED MARCH 31,
1998.

REVENUE

Total revenues decreased 3.1% to $16.1 million in fiscal 1999 from $16.6 million
in fiscal 1998 which reflects a 5.5% increase in system sales and an 11.5%
decrease in service revenue. Fiscal 1999 and 1998 included $0.3 million and $1.8
million, respectively, of revenues from the financial software line of business
which was sold in June 1998.

Clinical system sales increased to $8.4 million in fiscal 1999 from $6.4 million
in fiscal 1998. The 31.3% increase in clinical system sales was primarily
attributable to the increase in systems orders of the Company's new NT products
and the increase in hardware sales in anticipation of Y2K upgrades. Clinical
system sales represented 51.9% and 38.5% of total revenues in fiscal years 1999
and 1998, respectively.


                                                                               3

<PAGE>   6


Service revenue decreased to $7.5 million in fiscal 1999 from $8.4 million in
fiscal 1998. The 11.5% decrease was primarily due to the sale of the financial
software line of business in June 1998. Service revenue represented 46.2% and
50.6% of total revenues in fiscal years 1999 and 1998, respectively.

COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT

For fiscal 1999 and 1998, total cost of products and services sold were $8.0
million and $8.3 million, respectively, representing a 3.1% decrease in fiscal
1999. The total cost of products and services sold as a percentage of total
revenues was 49.9% in both fiscal 1999 and 1998, reflecting minimal variation
from year to year in cost of system sales and cost of service revenue as a
percentage of total revenues. Software amortization costs of $1.7 million in
fiscal 1999 and $2.1 million in fiscal 1998 represented 20.5% and 25.1%,
respectively, of total costs of products and services sold for fiscal years 1999
and 1998.

Gross profit as a percentage of total revenues was 50.1% in fiscal years 1999
and 1998.

RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended March 31,
                                                                            ---------------------------
Software Development Expense                                                   1999             1998
----------------------------                                                 -------          -------
                                                                                   (In thousands)
<S>                                                                          <C>              <C>
Research and development spending                                            $ 3,177          $ 4,288
Less - software development capitalized                                          808            1,089
                                                                             -------          -------
     Total research and development expense                                    2,369            3,199
Amortization of software development costs                                     1,650            2,085
                                                                             -------          -------
Total research and development expenses                                      $ 4,019          $ 5,284
                                                                             =======          =======
</TABLE>

<TABLE>
<CAPTION>
Capitalized Software Development Cost, Net                                     1999             1998
------------------------------------------                                   -------          -------
<S>                                                                          <C>              <C>
Beginning of period                                                          $ 2,880          $ 3,876
Research and development capitalized per above                                   808            1,089
Software acquired (C-RIS(R))*                                                    250                -
                                                                             -------          -------
                                                                               3,938            4,965

Write-off - Financial products capitalized software development costs           (539)               -
Amortization of software development costs                                    (1,650)          (2,085)
Other adjustments                                                                 26                -
                                                                             -------          -------
End of period                                                                $ 1,775          $ 2,880
                                                                             =======          =======
</TABLE>

[FN]
*    Software acquired related to the purchase of the radiology system. See Note
     4 of the Consolidated Financial Statements for further information.
</FN>

The decrease in research and development spending in fiscal 1999 as compared to
fiscal 1998 was the result of the Company completing the development of several
Windows NT-based products during fiscal 1998. In conjunction with the decreased
research and development spending in fiscal 1999, the decreased number of
development projects qualifying for capitalization in recent years and the
write-off of capitalized software costs in conjunction with the sale of the
financial software line of business, the Company expects software amortization
expense in fiscal 2000 and beyond to decrease slightly from fiscal 1999 levels.

For the fiscal years 1999 and 1998, the Company capitalized 25.4% of research
and development spending.



                                                                               4
<PAGE>   7


SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses as a percentage of total revenues decreased
to 32.3% in fiscal 1999 from 40.2% in fiscal 1998. Total selling and
administrative expenses decreased $1.5 million to $5.2 million. This decrease
was primarily due to lower personnel costs and lower administrative costs to
support operations.

OTHER OPERATING EXPENSES

See previous discussion of restructuring costs and other non-recurring charges,
including sale of the financial software line of business and the Company's UK
operations.

OPERATING LOSS

CITATION recorded operating income of $0.5 million in fiscal 1999, excluding the
$0.7 million loss on the sale of financial systems line of business. The
operating loss for fiscal 1998 was $1.6 million, excluding the $0.8
restructuring costs. The change primarily reflects the factors described above.
Including the above non-recurring charges, the operating loss was $0.2 million
in fiscal 1999 compared to an operating loss of $2.4 million in fiscal 1998.

INCOME TAXES

The Company's effective income tax benefit rate was 38.0% in both fiscal 1999
and fiscal 1998.

NET LOSS AND LOSS PER SHARE

Net loss decreased $1.3 million to $0.4 million in fiscal 1999 from $1.7 million
in fiscal 1998 as a result of the factors noted above. Basic and diluted loss
per share decreased to $0.11 in fiscal 1999 from $0.43 in fiscal 1998.

COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1998 TO FISCAL YEAR ENDED MARCH 31,
1997.

REVENUE

Total revenues decreased 24.4% to $16.6 million in fiscal 1998 from $22.0
million in fiscal 1997 due to a 36.7% decrease in system sales and a 6.7%
decrease in service revenue. Fiscal 1997 included $0.9 million in United Kingdom
sales (operations within the United Kingdom were sold in 1997).

System sales decreased to $8.2 million in fiscal 1998 from $13.0 million in
fiscal 1997. The 36.7% decrease in system sales was primarily attributable to
the loss of revenue generated from UK operations and the delay in new systems
orders due to the anticipated release of the Company's new NT products. The
Company also believes that system sales results were negatively impacted by
uncertainty over the Company's future because of the announced hiring of an
investment banker to review its strategic options. System sales represented
49.4% and 59.0% of total revenues in fiscal years 1998 and 1997, respectively.

Service revenue decreased to $8.4 million in fiscal 1998 from $9.0 million in
fiscal 1997. The 6.7% decrease was primarily due to the reduction in sales and
renewals of service contracts from existing customers. Service revenue
represented 50.6% and 41.0% of total revenues in fiscal years 1998 and 1997,
respectively.



                                                                               5
<PAGE>   8


COST OF PRODUCTS AND SERVICES SOLD AND GROSS PROFIT

For fiscal 1998 and 1997, total cost of products and services sold were $8.3
million and $10.7 million, respectively, representing a 22.1% decrease in fiscal
1998. The total cost of products and services sold increased to 49.9% of total
revenues in fiscal 1998 from 48.4% in fiscal 1997. The increase in cost as a
percentage of revenues was primarily due to decreases in total revenues which
were not entirely offset by decreases in software amortization costs and client
service expenses. Software amortization costs of $2.1 million in fiscal 1998 and
$2.2 million in fiscal 1997 represented 25.1% and 20.7%, respectively, of total
costs of products and services sold for fiscal years 1998 and 1997.

Gross profit as a percentage of total revenues decreased to 50.1% in fiscal 1998
from 51.6% in fiscal 1997. The decrease in gross profit as a percentage of total
revenues was primarily attributable to the factors discussed above.

RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended March 31,
                                                                   ---------------------------
Software Development Expense                                           1998             1997
----------------------------                                         -------          -------
                                                                          (In thousands)
<S>                                                                 <C>              <C>
Research and development spending                                    $ 4,288          $ 4,793
Less - software development capitalized                                1,089            1,525
                                                                     -------          -------
     Total research and development expense                            3,199            3,268
Amortization of software development costs                             2,085            2,201
                                                                     -------          -------
Total research and development expenses                              $ 5,284          $ 5,469
                                                                     =======          =======
</TABLE>


<TABLE>
<CAPTION>

Capitalized Software Development Cost, Net                             1998             1997
------------------------------------------                           -------          -------
<S>                                                                  <C>              <C>
Beginning of period                                                  $ 3,876          $ 4,762
Research and development capitalized per above                         1,089            1,525
Software acquired (C-MAX)*                                                 -              652
Other software acquired                                                    -              176
                                                                     -------          -------
                                                                       4,965            7,115
Write-off - UK capitalized software development costs                      -           (1,114)
Amortization of software development costs                            (2,085)          (2,201)
Other adjustments                                                          -               76
                                                                     -------          -------
End of period                                                        $ 2,880          $ 3,876
                                                                     =======          =======
</TABLE>

[FN]
*    Software acquired related to the purchase of the contract management
     system. See Note 8 of the Consolidated Financial Statements for further
     information.
</FN>

For the fiscal years 1998 and 1997, the Company capitalized 25.4% and 31.8%,
respectively, of research and development spending.

SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses as a percentage of total revenues increased
to 40.2% in fiscal 1998 from 38.7% in fiscal 1997. Total selling and
administrative expenses decreased $1.8 million to $6.7 million primarily due to
lower selling and marketing expenses, principally sales commissions, to support
operations.



                                                                               6

<PAGE>   9


OPERATING LOSS

CITATION incurred an operating loss of $1.6 million in fiscal 1998, excluding
the $0.8 million in restructuring costs. The operating loss for fiscal 1997 was
$0.4 million, excluding $4.3 million in restructuring costs and loss on the sale
of the UK operations. The operating loss increased primarily reflecting the
factors described above. Including the above non-recurring charges, the
operating loss was $2.4 million in fiscal 1998 compared with an operating loss
of $4.7 million in fiscal 1997.

INCOME TAXES

The Company's effective income tax benefit rate was 38.0% in both fiscal 1998
and fiscal 1997.

NET LOSS AND LOSS PER SHARE

Net loss decreased $1.6 million to $1.7 million in fiscal 1998 from $3.3 million
in fiscal 1997 as a result of the factors noted above. Basic and diluted loss
per share decreased to $.43 in fiscal 1998 from $.87 in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash flows from operations and
borrowing under its line of credit with a bank. At March 31, 1999, the Company
had cash and cash equivalents of $0.2 million compared to $0.4 million at March
31, 1998.

Cash generated (used) by operations was $1.1 million, $2.6 million and $(0.5)
million in the fiscal years of 1999, 1998, and 1997, respectively. For the year
ended March 31, 1999, the Company generated $1.1 million in cash from operating
activities, and used $1.5 in investing activities (including $0.8 million for
capitalized software development, $0.3 million for the purchase of the C-RIS(R)
system, and $0.4 million for capital expenditures). Cash provided by financing
activities was $0.1 million, which included $0.5 million in borrowings to
upgrade internal computer equipment and for the purchase of the C-RIS(R) system,
offset by $0.4 million of principal payments.

Cash decreased $0.1 million in fiscal 1998. The decrease was primarily due to
$1.5 million used in investing activities (for capital expenditures and software
development costs) and $1.1 million of principal payments on long-term debt
offset by $2.6 million of cash provided by operations.

Cash decreased $1.6 million in fiscal 1997. The decrease was primarily due to
$3.2 million used in investing activities, including $1.8 million for
capitalized software and $0.8 million for the purchase of a contract management
system offset by cash provided by financing activities, primarily line of credit
borrowings.

At March 31, 1999, the Company had a line of credit agreement with a bank. The
line of credit allows the Company to borrow up to $4.0 million through June 1,
2000 with interest at the bank's prime rate (7.75% at March 31, 1999). During
fiscal 1999 the Company borrowed approximately $0.4 million under term notes
related to the purchase of C-RIS(R) and certain computer equipment. Such term
notes are payable in monthly payments of principal and interest through March
2002. The line of credit and term notes are secured by the Company's accounts
receivable, inventory, and general intangible assets. There were borrowings of
$1.2 million outstanding under the line of credit agreement as of March 31, 1999
($2.8 million of additional borrowings are available), which have been
classified as long-term in the March 31, 1999 Consolidated Balance Sheet.



                                                                               7
<PAGE>   10


The Company has provided extended payment terms to an overseas customer in
Singapore for a maximum period of three years ending in calendar year 2000. The
Company believes that this receivable is fully collectible pursuant to such
payment terms.

The Company's current commitments consist primarily of operating lease
obligations aggregating $2.5 million over the next five years. The operating
leases consist primarily of the Company's office lease in St. Louis, Missouri,
which expires in May 2004.

The Company believes that its cash and cash equivalents, together with its
current borrowing facilities and cash generated from operations, will be
sufficient to fund its anticipated cash requirements for at least the next 12
months. The Company's ability to meet its cash requirements on a long term basis
will depend on profitable operations and consistent and timely collections of
its accounts receivable.

INFLATION AND CHANGING PRICES

The Company believes inflation has not had a material effect on the Company's
operations or its financial condition.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"), effective for periods beginning
after December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting of
Segments of a Business Enterprise." FAS 131 establishes standards for the way
public business enterprises report financial and descriptive information about
the reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The adoption of FAS 131 during fiscal 1999 had no effect
on the Company's financial statement presentation.

During fiscal 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1998. SOP 97-2 provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions and supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2
did not materially impact the financial position or results of operations of the
Company.

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 established accounting and reporting standards for derivative
instruments and for hedging activities and requires recognition of all
derivatives on the balance sheet measured at fair value. FAS 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is continuing to evaluate the provisions of FAS 133 to determine its
impact on the Company's financial position and results of operations.

YEAR 2000

The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer equipment,
software and devices with imbedded technology that are time sensitive may treat
years as occurring between 1900 and the end of 1999 may not self-convert to
reflect the upcoming change in the century. If not corrected, this problem could
result in system failures or miscalculations and erroneous results by or at the
Year 2000. The Company has completed a Year 2000 compliance program to make its
systems Year 2000 compliant. This program


                                                                               8

<PAGE>   11


encompasses the Company's operating information and facilities systems, the
vendors and other third parties with which the Company does business. The
program includes the following phases: awareness and inventory, detailed
assessment and resolution, testing, deployment and contingency plan development
for all areas.

The Company is utilizing resources to identify, correct, reprogram and test both
its systems used internally as well as the products it sells for Year 2000
compliance. As part of the Company's Year 2000 compliance program, as of March
31, 1999, the Company had: (i) identified all critical software sold and used by
the Company that requires modification for the Year 2000 and completed an
estimate of the personnel time required to complete such software modifications;
(ii) received written or oral confirmation from its telecommunications vendors
that the equipment supplied by such vendors is or will be Year 2000 compliant;
(iii) instituted a formal communication process to keep senior management
apprised of significant Year 2000 issues; and (iv) developed a schedule for
completing necessary Year 2000 modifications in a timely manner. It is
anticipated that all reprogramming efforts will be completed by September 30,
1999. Notification has been sent to all customers of the Company's systems
regarding the Year 2000 issue and its potential effect on those customers
systems, hardware and instruments.

The total cost of the Year 2000 project to date has been less than $150
thousand, principally upgraded hardware. Based on the program to date, the
Company does not expect that future costs of modifications will have a material
adverse effect on the Company's financial position, results of operations or
cash flow and that currently anticipated additional costs to be incurred by the
Company with respect to Year 2000 issues will be funded from operating cash
flows. However, if all Year 2000 issues are not properly identified, or
assessment, remediation and testing are not effected timely with respect to Year
2000 problems that are identified, there can be no assurance that the Year 2000
issue will not materially adversely impact the Company's results of operations
or adversely affect the Company's relationships with customer, vendors, or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material adverse impact on the Company's systems,
financial position, cash flows or results of operations.

Because the Company expects that its internal systems will become Year 2000
compliant in a timely manner and believes that it has or will have taken all
necessary steps with regard to customers and Company products sold to customers
in a timely manner, the Company believes that the most likely worst case
scenario would result from vendors or other third parties failing to achieve
Year 2000 compliance. Depending upon the number of third parties, their identity
and the nature of the non-compliance, the Year 2000 issue could have a material
adverse effect on the Company's financial position, cash flows or results of
operations.

FORWARD LOOKING STATEMENTS

Certain of the statements made herein are "FORWARD LOOKING STATEMENTS," as such
term is used in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any forward
looking statements set forth herein are necessarily subject to significant
uncertainties and risks. The words "believes," "anticipates," "expects," and
similar expressions are intended to identify forward looking statements. The
Company cautions readers that actual results could be materially different as a
result of various possibilities and differences between anticipated and actual
developments.

For further discussion of risk factors, please refer to page 9 of the Company's
Form 10-KSB Annual Report for the fiscal year ended March 31, 1999 as filed with
the Securities and Exchange Commission.


                                                                               9

<PAGE>   12


Consolidated Balance Sheet
(Thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                   March 31,
                                                                              -------------------
                                                                               1999         1998
                                                                              ------       ------
<S>                                                                          <C>          <C>
ASSETS
Current Assets:
   Cash and cash equivalents                                                 $    204     $    420
   Accounts receivable:
     Trade, net of allowance for doubtful accounts of $212 and
       $205, respectively                                                       6,857        6,351
     Other                                                                        445          113
   Inventories (Note 11)                                                          348          436
   Prepaid expenses and other current assets                                      369          270
   Deferred tax assets (Note 13)                                                  142          136
                                                                             --------     --------
     Total current assets                                                       8,365        7,726
                                                                             --------     --------

Software development costs, net of accumulated amortization of
     $12,367 and $10,717 respectively (Note 1)                                  1,775        2,880
                                                                             --------     --------

Property and equipment:
   Furniture and fixtures                                                         843          843
   Hardware and shop equipment                                                  3,091        2,750
   Leasehold improvements                                                         120          109
   Vehicles                                                                        37           37
                                                                             --------     --------
                                                                                4,091        3,739

   Less - accumulated depreciation and amortization                            (3,392)      (2,821)
                                                                             --------     --------

     Net property and equipment                                                   699          918
                                                                             --------     --------
Long-term deferred tax assets (Note 13)                                         1,104          876
Long-term accounts receivable (Note 9)                                          1,569        1,657
Other assets                                                                      366          255
                                                                             --------     --------
                                                                                3,039        2,788
                                                                             --------     --------
Total assets                                                                 $ 13,878     $ 14,312
                                                                             ========     ========
</TABLE>




The accompanying notes are an integral part of the consolidated financial
statements


                                                                              10


<PAGE>   13


Consolidated Balance Sheet - continued
(Thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                       March 31,
                                                                                 --------------------
                                                                                   1999         1998
                                                                                 -------      -------
<S>                                                                             <C>          <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Current portion of long-term debt (Note 12)                                 $    239     $    238
     Accounts payable                                                               1,223        1,423
     Customer deposits                                                                236          413
     Accrued commissions                                                              139          116
     Other accrued liabilities                                                        211          218
     Deferred service revenue                                                       2,521        2,378
                                                                                 --------     --------
       Total current liabilities                                                    4,569        4,786

Long-term debt (Note 12)                                                            1,491        1,379
                                                                                 --------     --------
                                                                                    6,060        6,165
                                                                                 --------     --------
Commitments and contingencies (Notes 9, 10, 16 and 17)
Shareholders' Equity (Notes 1 and 14):
   Preferred stock; par value $.01 per share; 5,000,000 shares
     authorized; no shares issued and outstanding
   Common stock; par value $.10 per share; 10,000,000 shares
     authorized; 3,838,344 and 3,810,548 shares issued and outstanding,
     respectively                                                                     384          381
   Paid-in capital                                                                  6,596        6,513
   Retained earnings                                                                  838        1,253
                                                                                 --------     --------

                                                                                    7,818        8,147
                                                                                 --------     --------

Total liabilities and shareholders' equity                                       $ 13,878     $ 14,312
                                                                                 ========     ========
</TABLE>






The accompanying notes are an integral part of the consolidated financial
statements.


                                                                              11

<PAGE>   14


Consolidated Statement of Operations
(Thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                                Year Ended March 31,
                                                                        -------------------------------------
                                                                          1999          1998           1997
                                                                        --------      --------       --------
<S>                                                                    <C>           <C>             <C>
Net system sales and service revenue:
   System sales                                                        $  8,669      $  8,214        $ 12,972
   Service revenue                                                        7,459         8,426           9,033
                                                                       --------      --------        --------
                                                                         16,128        16,640          22,005
                                                                       --------      --------        --------
Cost of products and services sold:
   System sales                                                           6,110         6,252           8,337
   Service revenue                                                        1,934         2,048           2,313
                                                                       --------      --------        --------
                                                                          8,044         8,300          10,650
                                                                       --------      --------        --------
     Gross profit                                                         8,084         8,340          11,355
Research and development expense                                          2,369         3,199           3,268
Selling and administrative expenses                                       5,207         6,686           8,515
Restructuring costs and other non-recurring charges (Notes 5
   and 6)                                                                     -           832           4,299
Loss on sale of financial systems business (Note 2)                         663             -               -
                                                                       --------      --------        --------

     Operating loss                                                        (155)       (2,377)         (4,727)
                                                                       --------      --------        --------
Other income (expense):
   Interest income                                                           65            78             143
   Interest expense                                                        (126)         (168)           (150)
   MEDASYS merger-related expenses (Note 3)                                (495)            -               -
   Other non-operating expenses (Note 5)                                      -          (158)              -
   Secondary offering expense (Note 7)                                        -             -            (542)
   Other, net                                                                42           (42)             (4)
                                                                       --------      --------        --------
                                                                           (514)         (290)           (553)
                                                                       --------      --------        --------
Loss before income taxes                                                   (669)       (2,667)         (5,280)
Benefit for income taxes (Note 13)                                         (254)       (1,014)         (2,006)
                                                                       --------      --------        --------
     Net loss                                                          $   (415)     $ (1,653)       $ (3,274)
                                                                       ========      ========        ========
Earnings per common and common equivalent share (Note 1):
   Basic and diluted:
     Loss per share                                                    $  (0.11)     $  (0.43)       $  (0.87)
                                                                       ========      ========        ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                                                              12

<PAGE>   15


Consolidated Statement of Shareholders' Equity
(Thousands)


<TABLE>
<CAPTION>
                                                                                         Equity
                                                                                       Adjustment
                                                   Common Stock                       From Foreign
                                                 Par       Paid-In      Retained        Currency
                                                Value      Capital      Earnings       Translation       Total
                                                -----      -------      --------       -----------       -----
<S>                                            <C>        <C>           <C>              <C>           <C>
Balance, March 31, 1996                          $375       $6,128       $ 6,180            $(69)       $12,614
   Sale of common stock pursuant
     to exercise of stock options
     and warrants                                   3          240             -               -            243
   Issuance of common stock
     to Directors (Note 1)                          1           23             -               -             24
   Issuance of common stock for
     401K company matching
     contributions                                  1           58             -               -             59
   Foreign currency translation
     adjustment                                     -            -             -             143            143
   Net loss                                         -            -        (3,274)              -         (3,274)
                                                 ----       ------       -------            ----        -------
Balance, March 31, 1997                           380        6,449         2,906              74          9,809
   Sale of common stock
     pursuant to exercise of
     stock options and warrants                     -            2             -               -              2
   Issuance of common stock
     to Directors (Note 1)                          -           12             -               -             12
   Insurance of common stock
     for 401K company-matching
     contributions                                  1           50             -               -             51
   Foreign currency translation
     adjustment                                     -            -             -             (74)           (74)
   Net loss                                         -            -        (1,653)              -         (1,653)
                                                 ----       ------       -------            ----        -------

Balance, March 31, 1998                          $381       $6,513       $ 1,253            $  -        $ 8,147
   Issuance of common stock
     to Directors (Note 1)                          2           46             -               -             48
   Issuance of common stock
     for 401K company-matching
     contributions                                  1           37             -               -             38
   Net loss                                      $  -       $    -       $  (415)           $  -        $  (415)
                                                 ----       ------       -------            ----        -------
Balance, March 31, 1999                          $384       $6,596       $   838            $  -        $ 7,818
                                                 ====       ======       =======            ====        =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.



                                                                              13

<PAGE>   16


Consolidated Statement of Cash Flows
(Thousands)


<TABLE>
<CAPTION>
                                                                                        Year Ended March 31,
                                                                                ----------------------------------
                                                                                1999          1998            1997
                                                                                ----          ----            ----
<S>                                                                           <C>           <C>             <C>
Cash flows from operating activities:
   Net loss                                                                    $ (415)      $(1,653)        $(3,274)
Adjustments to reconcile net loss to net cash
   provided (used) by operating activities, excluding the effects
   of the sale of UK operations:
   Depreciation and amortization of property and equipment                        590           657             932
   Amortization of software development costs                                   1,650         2,085           2,201
   Amortization of other assets                                                   180           181             107
   Non-cash write off of financial products software                              539             -               -
   Non-cash restructuring costs and other non-recurring
     charges                                                                        -           943           4,299
   Non-cash 401K matching contribution                                             38            51              59
   Non-cash issuance of common stock to Directors                                  48            12              24
   Decrease in deferred income taxes                                             (254)       (1,014)         (1,333)
   Decrease (increase) in accounts receivable, net                               (838)           64           1,295
   Decrease (increase) in inventories                                              88           (19)            120
   Decrease (increase) in prepaid expenses and other assets                      (370)        1,331          (1,076)
   Decrease (increase) in long-term accounts receivable                            88             -          (1,657)
   Decrease in accounts payable                                                  (200)         (238)            (53)
   Increase (decrease) in customer deposits                                      (177)           78            (207)
   Increase (decrease) in other accrued liabilities                                16            (6)         (1,928)
   Increase (decrease) in deferred service revenues                               143            92             (31)
                                                                               ------       -------         -------
Net cash provided (used) by operating activities                               $1,126       $ 2,564         $  (522)
                                                                               ======       =======         =======
</TABLE>





The accompanying notes are an integral part of the consolidated financial
statements.



                                                                              14
<PAGE>   17
Consolidated Statement of Cash Flows - continued
(Thousands)


<TABLE>
                                                       Year ended March 31,
                                                    --------------------------
                                                    1999       1998       1997
                                                    ----       ----       ----
<S>                                               <C>        <C>        <C>
Cash flows from investing activities:
Capital expenditures                               $ (371)  $  (345)   $  (653)
Software development costs                           (834)   (1,089)    (1,777)
Purchase of C-RISO system                            (250)        -          -
Purchase of contract management system                  -         -       (792)
                                                   ------    -------     -------

Net cash used in investing activities              (1,455)   (1,434)     (3,222)
                                                   ------    ------     -------

Cash flows from financing activities:
Principal payments on long-term debt                 (421)   (1,149)       (244)
Proceeds from long-term debt                          534         -       1,967
Proceeds from sale of common stock pursuant
to exercise of stock options and warrants               -         2         243
                                                   ------    ------     -------
Net cash provided (used) by financing activities      113    (1,147)      1,966
                                                   ------    ------     -------
Effect of exchange rate changes on cash                 -       (74)        143
                                                   ------    ------     -------
Net decrease in cash and cash equivalents            (216)      (91)     (1,635)
Cash and cash equivalents, beginning of year          420       511       2,146
                                                   ------    ------     -------
Cash and cash equivalents, end of year             $  204    $  420     $   511
                                                   ======    ======     =======
</TABLE>

Supplemental schedule of non-cash investing and financing activities.

For the years ended March 31, 1999, 1998, and 1997, the Company paid interest
of $126, $168, and $150, respectively, and received refunds of income taxes of
$59, $646, and $793, respectively.









The accompanying notes are an integral part of the consolidated financial
statements.





                                                                              15

<PAGE>   18


Notes to Consolidated Financial Statements
(Thousands except shares and per share amounts)

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The policies utilized by CITATION Computer Systems, Inc. ("Company") in the
preparation of the consolidated financial statements conform to generally
accepted accounting principles, and require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual amounts could differ from these
estimates.

The significant accounting policies followed by the Company are described
below:

OPERATIONS

CITATION designs, develops, markets and supports clinical information systems
for hospitals, clinics, physicians' groups and emerging Integrated Delivery
Networks ("IDN's").  The Company offers a comprehensive suite of products
designed using open client/server architecture that meets a broad range of the
information systems needs of the healthcare industry.

INVENTORIES

Inventories are valued at the lower of cost, determined on the first in, first
out basis, or market.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost.  Major renewals and betterments are
capitalized while maintenance and repairs are expensed currently.  When
property is sold or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss on
disposition is credited or charged to income.

The Company provides for depreciation of property and equipment by charging
against earnings amounts sufficient to amortize the cost of the properties over
the estimated useful lives generally using straight line methods.  The
estimated useful life of the assets are as follows:

     Vehicles, furniture, fixtures and equipment        3 to 10 years
     Leasehold improvements       . Remaining life of the lease

REVENUE RECOGNITION

Revenue from the sale of computer systems is recognized upon shipment to the
customer.  Revenue related to the installation of computer systems is
recognized as the work is performed.  Costs and expenses related to
installation of the computer equipment and software system, training customer
personnel, and provision for warranties offered are estimated and recorded as
cost of sales when the related revenue is recognized.

Revenue from the sale of additional hardware and additional software is
recognized upon shipment.  Costs and expenses associated with the sale of
additional hardware and software are recorded when the related revenue is
recognized.  Revenue related to sales of product warranties and maintenance
service contracts is recognized ratably over the term of the contract period.
Sales returns are treated as reductions to net system sales and service
revenues.

                                                                      16



<PAGE>   19


COST OF SALES

For purposes of estimating the cost of sales related to service revenue, the
Company includes all of its customer service expenses plus an allocation of
certain other overhead expenses based upon estimates made by management.

SOFTWARE DEVELOPMENT COSTS

Certain costs incurred in developing software products are capitalized and
amortized on a product-by-product basis using the greater of the ratio that
current gross revenues for a product bear to the current and anticipated future
gross revenues for that product or the straight-line method over the estimated
three- to five-year economic life of the products.  The costs consist of
salaries, computer expenses and other overhead costs directly related to the
development and/or major enhancement of software products.  Such costs are
capitalized, to the extent they are recoverable through future sales, from the
time the product's technological feasibility is established up to its general
release to customers.  Costs incurred before or after this period are expensed
as incurred.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense as incurred.

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred income taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.  Such temporary differences result
primarily from using different methods to accrue certain expenses and to
calculate capitalization of software development costs for financial and tax
reporting purposes.  Deferred tax (benefit) expense represents the change in
the deferred tax asset or liability.

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), which
requires public entities to present both basic and diluted earnings per share
amounts on the face of their financial statements, replacing the former
calculations of primary and fully diluted earnings per share.  The Company
adopted FAS 128 effective with the beginning of its fiscal 1998 third quarter,
and retroactively restated all prior years earnings per share information.

Reconciliation of the number of shares used in computing basic and dilutive
earnings (loss) per common and common equivalent share is as follows:


<TABLE>
                                                       YEAR ENDED MARCH 31,
                                                 -------------------------------
                                                    1999       1998       1997
                                                 ---------  ---------  ---------
<S>                                              <C>        <C>        <C>
Basic                                            3,823,361  3,806,536  3,773,020
Effect of dilutive securities - stock options            -          -          -
                                                 ---------  ---------  ---------
Diluted                                          3,823,361  3,806,536  3,773,020
                                                 =========  =========  =========
</TABLE>






                                                                             17
<PAGE>   20


FOREIGN CURRENCY TRANSLATION

The asset and liability accounts of the Company's former foreign division were
translated at the year-end exchange rate.  Revenue and expense amounts were
translated at monthly average exchange rates.  The resulting translation
adjustment was recorded as a separate component of shareholders' equity.
Foreign currency transaction gains and losses were included in earnings when
incurred.  Such foreign currency transaction gains and losses were not material
for each of the three years in the period ended March 31, 1999.  As discussed
in Note 6 below, since March 1997 the Company has had no significant foreign
operations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all highly liquid investments, such as
money-market accounts with an original maturity of three months or less.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries.  All significant intercompany transactions and
balances have been eliminated.

DIRECTORS' FEES

During the year ended March 31, 1995, the Company adopted the Directors Common
Share Plan (Directors' Plan) whereby certain non-employee members of the Board
of Directors (Directors) may receive all or a portion of the Directors' fees in
the form of Company common stock in lieu of cash.  During the years ended March
31, 1999, 1998, and 1997, 15,672, 1,600, and 1,793 shares of common stock
valued at $48, $12, and $24, respectively, were issued to such Directors under
the Directors Plan.

COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130"), establishes standards for the reporting and presentation
of comprehensive income and its components in a complete set of general-purpose
financial statements.  Comprehensive income represents net income plus certain
items that are charged directly to stockholders' equity.  The Company has
adopted FAS 130 for the year ended March 31, 1999.  Given the sale of the UK
operations in fiscal 1997, other comprehensive income items are immaterial and
the adoption of FAS 130 had no effect on the accompanying financial statement
presentation.

2. SALE OF FINANCIAL SOFTWARE LINE OF BUSINESS
In June 1998, the Company sold the financial software line of business,
including its accounts receivable, patient billing, general ledger, accounts
payable, fixed assets, inventory control, medical records abstracting and
registration software modules to Sterling Systems based in Downey, Idaho.  This
line of business accounted for approximately $1.8 million of revenue and
contributed a pretax loss of $0.2 million in fiscal 1998. Revenues from this
line of business in fiscal 1999 were $0.3 million through the date of its sale.
The transaction resulted in an aggregate after tax loss of approximately $0.4
million, or $0.11 per share, which reflects an after tax loss on disposal of
$44 thousand, or $0.01 per share, recorded in the first quarter of fiscal 1999
and an after tax loss of $0.4 million, or $0.10 per share, recorded in the
fourth quarter of fiscal 1999. The loss included the write-off of approximately
$0.5 million of capitalized software development costs associated with this
software.  The additional charge in the fourth quarter of fiscal 1999 reflects
a change in management's estimates of the collectibility of certain accounts
receivable related to its former financial software line of business.
Approximately $0.4 million of the sales price for this line of business is
reflected in other accounts receivable on the March 31, 1999 Consolidated
Balance Sheet; payment thereof is expected in fiscal year 2000.



                                                                      18
<PAGE>   21


3. TERMINATION OF POSSIBLE BUSINESS COMBINATION
On September 15, 1998, the Company, MEDASYS Digital Systems, S.A., certain
shareholders of the Company and certain shareholders of MEDASYS entered into an
Agreement and Plan of Reorganization (the "Reorganization Agreement").  On
December 9, 1998, the Reorganization Agreement was terminated by the parties.
However, the companies continued to explore other strategic opportunities and
have entered a joint marketing agreement related to clinical information
systems.  During the fourth quarter of fiscal 1999, a non-operating charge of
$495 was recorded related to costs (primarily legal, accounting and investment
advisory in nature) associated with the MEDASYS business combination
discussions.

4.   ACQUIRED C-RIS(R) RADIOLOGY INFORMATION SYSTEM SOFTWARE
During the fourth quarter of fiscal 1999 the Company agreed to purchase its
C-RIS(R) radiology information system software from Irish Medical Systems (IMS)
for $250.  The Company previously held the exclusive North American
distribution rights for C-RIS(R), which was developed by IMS under CITATION's
specifications and first introduced to the market in 1997.  The Company
financed this purchase with proceeds from a term note.

5. RESTRUCTURING COSTS AND OTHER NON-RECURRING CHARGES
During the fourth quarter of fiscal 1998, the Company recorded non-recurring,
pretax charges of $832 for restructuring costs primarily related to customer
service matters and $158 for non-operating costs related to the strategic
review of alternatives following an unsolicited expression of interest in the
Company.  Cash payments during fiscal 1998 with respect to such charges were
approximately $60.  Remaining additional payments totaling approximately $62
were paid in fiscal 1999.

6. UK RESTRUCTURING AND SALE OF OPERATIONS
During the second, third and fourth quarters of fiscal 1997 the Company
recorded pretax charges of $1,303, $164 and $118, respectively, to cover the
restructuring of its operations in the United Kingdom ("UK").  In March 1997,
the Company completed a transaction in which it sold its UK operations to
Health Systems Limited ("HSL"), which also became CITATION's exclusive
distributor for its clinical software products in the UK. Under the terms of
the transaction, HSL acquired CITATION's UK operating assets, retained a
majority of the Company's employees in the UK, and assumed responsibility for
CITATION's existing customers and contracted commitments in the UK.  The major
components of the UK restructuring and sale, and its effect on the pre-tax and
after-tax results of the Company, are as follows:

<TABLE>
<CAPTION>
                                                                 Year Ended March 31, 1997
                                                              -----------------------------
                                                              Pre-tax  After Tax  Per Share
                                                              -------  ---------  ---------
<S>                                                           <C>      <C>        <C>
Net loss on sale of UK assets (including write-off of
capitalized software of $527)                                  $2,714     $1,655      $0.44
Write-off of capitalized software prior to sale                   587        358       0.09
Severance and closure costs                                       300        183       0.05
Other restructuring costs                                         698        426       0.11
                                                               ------     ------     ------
                                                               $4,299     $2,622      $0.69
                                                              =======     ======     ======
</TABLE>

All expenses associated with the UK restructuring and sale of operations were
recorded during fiscal 1997.  Cash payments during fiscal 1997 related to the
UK restructuring and sale of operations were approximately $550.  Remaining
additional payments totaling approximately $400 were paid in fiscal 1998.




                                                                      19



<PAGE>   22


7. SECONDARY OFFERING EXPENSE
On July 16, 1996 the Company filed a registration statement with the Securities
and Exchange Commission covering a proposed offering of 2,732,311 shares of its
Common Stock, of which 732,311 shares were to be offered for the account of
certain current shareholders and 2,000,000 shares were to be offered by the
Company.  The proposed offering was terminated on October 8, 1996 and no sales
of common stock were made pursuant thereto.  During the year ended March 31,
1997, $542 of non-operating charges related to the proposed secondary offering
were recorded.

8. ACQUIRED CONTRACT MANAGEMENT SYSTEM
On August 26, 1996, the Company acquired a contract management system from
Computer Systems Excellence, Inc. ("CSE") for $1,242, including $92 of
transaction costs.  The Company paid $700 at closing and recorded a liability
of $450 which was paid in eight quarterly installments through August 1998.

9. LONG-TERM ACCOUNTS RECEIVABLE
The Company has provided extended payment terms to a customer in Singapore for
a maximum period of three years ending in calendar year 2000.  The Company
believes that this receivable is fully collectible pursuant to such payment
terms.

10. CONCENTRATION OF CREDIT RISK
The Company generates revenue primarily through sales to the healthcare
industry located throughout the United States.  Due to this concentration,
substantially all receivables at March 31, 1999 and 1998 are from healthcare
institutions in the United States, and a healthcare information systems
integrator based in Singapore, which may be similarly affected by changes in
economic, regulatory or other conditions.

The Company performs ongoing credit evaluations of its customers and generally
does not require collateral.  The Company maintains reserves for potential
credit losses and historically such losses have been within management's
expectations.

11. INVENTORIES
Inventories consist of the following:

<TABLE>
<CAPTION>

                                           March 31,
                                   --------------------
                                        1999       1998
                                   --------- ----------
<S>                                <C>        <C>
Hardware and third party software       $143       $195
Field service equipment                  205        241
                                   ---------  ---------
                                        $348       $436
                                   =========  =========
</TABLE>






                                                                              20
<PAGE>   23


12. LONG-TERM DEBT
Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                      March 31,
                                                                    --------------
                                                                    1999      1998
                                                                    ----      ----
<S>                                                                <C>       <C>
Bank notes payable due in monthly payments of principal and
interest
through March, 2002; interest payable at 8% to 8.5%                $  563    $  338
Note payable to CSE due through August, 1998                            -       112
Borrowings under bank line of credit, interest payable at prime
(7.75% at March 31, 1999)                                           1,167     1,167
                                                                   ------    ------
Total debt                                                          1,730     1,617
Less - current portion                                                239       238
                                                                   ------    ------
Total long-term debt                                               $1,491    $1,379
                                                                   ======    ======
</TABLE>

The line of credit with a bank allows the Company to borrow up to $4,000
through June 1, 2000.  At March 31, 1999, $2,833 was available under the line
of credit.

The line of credit and the notes payable to banks are secured by the Company's
accounts receivable, inventory, equipment, and general intangible assets.  The
respective agreements require that certain minimum net worth and leverage ratio
requirements be maintained by the Company.  The Company was in compliance with
these requirements or has obtained waivers at March 31, 1999.

The aggregate maturities of long-term debt are as follows:


<TABLE>
<CAPTION>
Year Ended
March 31,
<S>         <C>
   2000      $  239
   2001       1,374
   2002         117
            -------
             $1,730
            =======
</TABLE>

13. INCOME TAXES
The components of the benefit for income taxes are as follows:


<TABLE>
<CAPTION>
                                    Year Ended March 31,
                              ---------------------------------
                              1999         1998            1997
                              ----         ----            ----
<S>                          <C>          <C>            <C>
Current:
Federal                      $   -        $     -        $  (577)
State                            -              -            (96)
                             -----        -------        -------
                                 -              -           (673)
                             -----        -------        -------
Deferred:
Federal                       (217)          (857)        (1,118)
State                          (37)          (157)          (215)
                             -----        -------        -------
                              (254)        (1,014)        (1,333)
                             -----        -------        -------
                             $(254)       $(1,014)       $(2,006)
                             =====        =======        =======
</TABLE>






                                                                              21
<PAGE>   24


The benefit for income taxes differs from the amount computed using the
statutory federal income tax rate (34%) as follows:


<TABLE>
                                              Year ended March 31,
                                             ------------------------
                                             1999      1998      1997
                                             ----      ----      ----
<S>                                       <C>       <C>       <C>
Income tax benefit at the statutory rate    $(227)  $  (907)  $(1,795)
Increases:
State income taxes, net                       (24)     (103)     (204)
Other, net                                     (3)       (4)       (7)
                                            -----   -------   -------
                                            $(254)  $(1,014)  $(2,006)
                                            =====   =======   =======
</TABLE>

Deferred tax assets and liabilities at March 31, 1999 and 1998, are comprised
of the following temporary differences:

<TABLE>
<CAPTION>
                                                                            March 31,
                                                                       --------------------
                                                                       1999            1998
                                                                       ----            ----
<S>                                                                  <C>             <C>
Current deferred tax assets (liabilities):
Accrued liabilities                                                      $ 71           $68
Allowance for doubtful accounts                                            85            82
Other, net                                                                (14)          (14)
                                                                         ----          ----
Net current deferred tax asset                                           $142          $136
                                                                         ====          ====
</TABLE>


<TABLE>
<CAPTION>
                                                                            March 31,
                                                                       --------------------
                                                                       1999            1998
                                                                       ----            ----
<S>                                                                  <C>             <C>
Long-term deferred tax assets (liabilities):
Capitalized software development
Costs                                                                   $(387)       $ (829)
Depreciation                                                               85            (9)
State taxes                                                               (53)          (40)
Tax credit carry forward                                                   90            90
Net operating loss carry forward                                        1,369         1,664
                                                                       ------        ------
Net long-term deferred tax asset                                       $1,104          $876
                                                                       ======        ======
</TABLE>

At March 31, 1999, the Company had Federal net operating loss carryforwards of
approximately $3,500 which expire between 2012 and 2013.  Company management
has determined that based on expected future operating plans and tax planning
strategies available to the Company, the net operating loss carryforwards at
March 31, 1999 will be utilized to offset future taxes.  Therefore, no
valuation allowance related to the net operating loss carryforwards has been
recorded at March 31, 1999.

14. STOCK OPTIONS AND WARRANTS
The Company has an Employee Incentive Stock Option Plan which provides for the
issuance of up to 348,347 stock options to executive officers or other key
employees of the Company.

The Company's incentive stock option plan allows participation, with certain
restrictions, by all full-time employees with, at least, one year of service.
Options granted allow employees to purchase shares of the Company's common
stock at prices not less than the fair market value of the stock at the date of
the grant.  Options which have been granted under the plan are exercisable
during the employment of the grantee at specified time intervals.  Outstanding
options expire between 2004 and 2008.






<PAGE>   25


Stock option transactions (number of shares) are summarized below:


<TABLE>
<CAPTION>
                                                     Year Ended March 31,
                                                ----------------------------
                                                1999        1998        1997
                                                ----        ----        ----
<S>                                         <C>         <C>         <C>
Shares under option,
beginning of period                            346,333     300,333     299,497
Stock options granted at an exercise price
of $1.00                                         9,000           -           -
Stock options granted at an exercise price
of $3.0625                                       1,000           -           -
Stock options granted at an exercise price
of $11.00                                            -           -       8,000
Stock options granted at an exercise price
of $15.75                                            -           -       2,000
Stock options granted at an exercise price
of $7.00                                             -       7,000           -
Stock options forfeited                        (15,000)     (1,500)    (41,664)
Non-qualified stock options granted at
an exercise price of $14.25                          -           -      80,000
Non-qualified stock options granted at
an exercise price of $7.24 to $9.125                 -      41,000           -
Non-qualified stock options forfeited          (11,000)          -           -
Stock options exercised at $4.50 to $8.51            -           -     (47,500)
Stock options exercised at $4.50                     -        (500)          -
                                               -------     -------     -------
Shares under option, end of period             330,333     346,333     300,333
                                               =======     =======     =======
</TABLE>

The following table summarizes information for options currently outstanding at
March 31, 1999:


<TABLE>
<CAPTION>
                                    Weighted Average
    Exercise            Number         Remaining
     Price            Outstanding   Contractual Life
----------------  ---------------  ------------------
<S>               <C>              <C>
$1.00-$3.0625      10,000                10   years
4.50  -  5.00     172,000                 6
6.13  -  6.88      24,000                 9
7.00  -  7.19      32,333                 7
8.88  -  9.13      12,000                 9
        14.25      80,000                 7
                  -------
                  330,333
                  =======
</TABLE>

The Company accounts for employee stock options in accordance with Accounting
Principles Board No. 25 "Accounting for Stock Issued to Employees" (APB 25).
Under APB 25, the "intrinsic value based method" specifies that no compensation
expense is recognized if employee stock options are granted with an exercise
price equal to or higher than the market value of the stock price on the date
of the grant.

At March 31, 1999, options to purchase 299,361 shares were exercisable.  During
the years ended March 31, 2000 and 2001, options to purchase an additional
17,036 and 13,936 shares, respectively, will become exercisable.  Options to
purchase 242,181 shares were available for grant under the 1992 Employee
Incentive Stock Option Plan at March 31, 1999.

                                                                              23


<PAGE>   26


In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123").  FAS 123 prescribes the recognition of compensation
expense based on the fair value of options or stock awards determined on the
date of the grant.  However, FAS 123 allows companies to continue to apply the
"intrinsic value based method" set forth in APB 25 for employee stock option
grants.  Had compensation costs for the Company's employee stock option plan
been determined based on the fair value of the options on the grant dates
consistent with the methodology prescribed by FAS 123, the Company's net loss
and net loss per share would have increased as shown below.  In accordance with
the adoption methodology prescribed by FAS 123, the pro forma results shown
below reflect only the impact of employee stock options granted during the
years ended March 31, 1999 and 1998.  Because future employee stock options may
be granted, the pro forma impact for fiscal 1999 and fiscal 1998 is not
necessarily indicative of the impact in future years.


<TABLE>
<CAPTION>
                      1999      1998
                      ----      ----
<S>               <C>         <C>
Net loss
As reported          $ (669)  $(1,653)
Pro forma              (688)   (1,771)
Loss per share
As reported          $(0.11)  $ (0.43)
Pro forma             (0.11)    (0.47)
</TABLE>

The fair value of the options granted is estimated on the date of grant using
the Black-Scholes multiple option-pricing model with the following weighted
average assumptions:


<TABLE>
<CAPTION>
                                         1999              1998
                                         ----              ----
<S>                                    <C>              <C>
Risk-free interest rate                4.4% - 5.3%      5.8% - 6.6%
Expected volatility                            77%              63%
Estimated lives of options (in years)         5.0              5.0
Expected dividend yield                         0%               0%
</TABLE>

The weighted average fair value of options granted during the fiscal years
ended March 31, 1999 and 1998 was $1.89 and $3.95, respectively.

15. PROFIT AND SAVINGS INCENTIVE PLANS
CITATION maintains a Retirement Savings Plan for the benefit of substantially
all CITATION employees.  Employee contributions may range from 1% to 15% of
compensation, subject to limits prescribed by the Internal Revenue Code.
CITATION matches a discretionary percentage of an employee's contribution, up
to 6% of the employee's compensation.

For the plan year ended December 31, 1998 and 1997, the matching contribution
was 25% of employee contributions, and was paid in the form of Company stock.
It is the Company's current intention to continue to make the matching
contribution in the form of Company stock.  Employees are immediately 100%
vested as to employee contributions and are vested as to employer contributions
at the rate of 20% per year, beginning in the second year of service.

For the years ended March 31, 1999, 1998, and 1997, the Company recorded
expense of approximately $38, $51, and $59, respectively, relating to this
plan.

16. LEASES
The Company leases its office and warehouse facilities and certain office
equipment.  The lease terms are generally for two to ten years.  Rental expense
under operating leases for the years ended March 31, 1999, 1998, and 1997, was
approximately $549, $551, and $524, respectively.

                                                                              24



<PAGE>   27


Future minimum lease payments under non-cancelable operating leases are as
follows:


<TABLE>
<CAPTION>
Year Ended March 31,
<S>                   <C>
        2000            $  523
        2001               476
        2002               476
        2003               476
        2004               476
     Thereafter            119
                      --------
                        $2,546
                      ========
</TABLE>

17. COMMITMENTS AND CONTINGENCIES
The Company from time to time is a party to certain lawsuits in the ordinary
course of business.  Management does not expect the outcome of any litigation
to have a material adverse effect on the Company's financial position, results
of operations, or cash flows.

18. RELATED PARTY TRANSACTIONS
During the year ended March 31, 1997, the Company paid approximately $181 in
fees to consulting firms, certain executives of which were Directors of the
Company.  No such payments were made in the years ended March 31, 1999 and
1998.

19. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       Basic and Diluted
                                                                        Earnings (loss)
                Net sales       Gross Profit     Net income (loss)        per share 3
              -------------     ------------     -----------------     -----------------
              1999     1998     1999    1998     1999        1998       1999       1998
              ----     ----     ----    ----     ----        ----       ----       ----
<S>          <C>      <C>      <C>     <C>     <C>        <C>         <C>        <C>
1st quarter  $ 3,414  $ 4,282  $1,701  $2,115    $(130)1   $  (152)     $(.03)1    $(.04)
2nd quarter    4,106    4,273   2,290   2,346      172          37        .05        .01
3rd quarter    3,976    4,305   2,145   2,210      194        (127)       .05       (.03)
4th quarter    4,632    3,780   1,948   1,669     (651)1    (1,411)2     (.17)1     (.37)2
             -------  -------  ------  ------    -----     -------
Total        $16,128  $16,640  $8,084  $8,340    $(415).   $(1,653)     $(.11)3    $(.43)
             =======  =======  ======  ======    =====     =======      =====      ======
</TABLE>

(1)  See Notes 2 and 3 regarding the sale of the financial products and
     termination of proposed business combination in the first and fourth
     quarters of fiscal 1999.

(2)  See Note 5 regarding restructuring costs and other non-recurring charges
     and other non-operating expenses in the fourth quarter of fiscal 1998.

(3)  The annual earnings per share amount does not agree to the sum of the
     quarters as a result of changes in the market prices of the Company's
     common stock and the application of the treasury stock method

                                                                              25
<PAGE>   28

Statement of Management's Responsibility For Financial Reporting

The accompanying consolidated financial statements of CITATION Computer
Systems, Inc. have been prepared by management, who are responsible for their
integrity and objectivity.  The statements have been prepared in conformity
with generally accepted accounting principles and include amounts based on
management's best estimates and judgments.  Financial information elsewhere in
this Annual Report is consistent with that in the consolidated financial
statements.

Management has established and maintains a system of internal controls designed
to provide reasonable assurance that assets are safeguarded and that the
financial records reflect the authorized transactions of the Company.  The
system of internal control includes widely communicated statements of policies
and business practices that are designed to require all employees to maintain
high ethical standards in the conduct of Company affairs.  The internal
controls are augmented by organizational arrangements that provide for
appropriate delegation of authority and division of responsibility.

The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent accountants.  As part of their audit of
the Company's fiscal 1999 consolidated financial statements,
PricewaterhouseCoopers LLP considered the Company's system of internal control
to the extent they deemed necessary to determine the nature, timing and extent
of their audit tests.

The Board of Directors pursues its responsibility for the Company's financial
reporting through its Audit Committee, which is composed of outside Directors.
The Audit Committee meets periodically with the independent accountants, with
or without the presence of management representatives, to discuss the results
of their work and their comments on the adequacy of internal accounting
controls and the quality of financial reporting.

<TABLE>
<S>                                   <C>               <C>
J. Robert Copper                      Richard D. Neece  John P. Gilmore
Chairman and Chief Executive Officer  President         Vice President and Controller
</TABLE>


Report of Independent Accountants

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF CITATION COMPUTER SYSTEMS, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity  and of cash
flows present fairly, in all material respects, the consolidated financial
position of CITATION Computer Systems, Inc. and its subsidiaries at March 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 1999, in conformity with
generally accepted accounting principles.  These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.  We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP
St. Louis, Missouri
May 6, 1999


                                                                              26
<PAGE>   29
OFFICES
424 South Woods Mill Road, Suite 200
Chesterfield, MO  63017

STOCKHOLDER SERVICES
Inquiries should be directed to:
     Maureen Gallagher
     CITATION Computer Systems, Inc.(R)
     424 South Woods Mill Road, Suite 200
     Chesterfield, MO  63017.  314-579-7900
     http://ww.cita.com

TRANSFER AGENT AND REGISTRAR
United Missouri Bank, N.A.
928 Grand Avenue, 13th Floor
Kansas City, MO  64106

INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
St. Louis, MO

LEGAL COUNSEL
Thompson Coburn, LLP
St. Louis, MO

FORM 10-KSB
A copy of CITATION's Form 10-KSB Annual Report as filed with the Securities and
Exchange Commission will be made available to all shareholders, at no charge,
upon request to John P. Gilmore at:  CITATION Computer Systems, Inc. 424 South
Woods Mill Road, Suite 200, Chesterfield, MO  63017

COMMON STOCK INFORMATION
The Common Stock of the Company is quoted and traded on the NASDAQ National
market under the symbol CITA.  The following table sets for the high and low
sale prices of the Common Stock for the periods indicated, as quoted on NASDAQ:

<TABLE>
<CAPTION>
FISCAL 1999 QUARTER ENDED                        HIGH        LOW
<S>                                            <C>       <C>
June 30, 1998                                     $ 9     $4
September 30, 1998                                  5      2 1/2
December 31, 1998                                   3      1
March 31, 1999                                      4      1 1/2

FISCAL 1998 QUARTER ENDED
June 30, 1997                                  $8 1/2     $5 1/2
September 30, 1997                              9 1/2      7 1/8
December 31, 1997                               8 5/8      5 1/2
March 31, 1998                                  9 1/2      5 3/4
</TABLE>

No dividends have been declared or paid on the Company's Common Stock.  The
Company anticipates that it will retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.  There were
approximately 168 shareholders of record on June 9, 1999.

<PAGE>   30

BOARD OF DIRECTORS
FRED L. BROWN
Vice Chairman,
BJC Health System and
1999 Chairman of the American Hospital Association

J. ROBERT COPPER
Chairman and CEO,
CITATION Computer Systems, Inc.

LARRY D. MARCUS
President and CEO,
Peak Media, LLC

JAMES F. O'DONNELL
Chairman and CEO,
Capital for Business, Inc.,
CFB Venture Fund I, Inc.,
and CFB Partners, Inc.

DAVID T. PIERONI
President,
Pieroni Management
Counselors, Inc.

OFFICERS
J. ROBERT COPPER
Chairman and Chief Executive Officer

RICHARD D. NEECE
President and CFO

RUSSELL L. FORTUNE
Executive Vice President,
Sales and Marketing

CANDICE J. BARKER
Vice President,
Clinical Product Suite

ANTON F. FLIEG, JR.
Vice President,
Sales Administration and
C-MAX Product Manager

JOHN P. GILMORE
Vice President,
Controller and Treasurer

PATRICIA Q. MOORE
Vice President,
Human Resources