UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                         Commission File Number 0-21177

                           NETSMART TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

            Delaware                                        13-3680154
        (State or other jurisdiction of                   (I.R.S. Employer
        incorporation or organization)                    Identification Number)

        146 Nassau Avenue, Islip, NY                        11751
        (Address of principal executive offices)          (Zip Code)

       Registrant's telephone number, including area code: (516) 968-2000

           Securities registered pursuant to Section 12(b) of the Act:  ___

           Securities registered pursuant to Section 12(g) of the Act:

    Title of Each Class                 Outstanding shares as of March 15, 2000
    -------------------                 ---------------------------------------
    Common Stock, par value                    3,116,167
    $.01 per share

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months,  (or for such shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes_X_        No__

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S - K is not contained herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

DOCUMENTS INCORPORATED BY REFERENCE

Part III is incorporated  by reference from the  registrant's  definitive  proxy
statement in connection with its 2000 Annual Meeting of Stockholders to be filed
within 120 days of the close of the registrant's fiscal year.

<PAGE>
                                     PART I

Item 1.  Business

Introduction

Netsmart   Technologies,   Inc.  is  a  leader  in  the   design,   development,
implementation  and  licensing  of  management   information   systems  for  the
behavioral health care industry through our wholly-owned  operating  subsidiary,
Creative Socio-Medics.  These products are supported under long-term maintenance
agreements.  Our Windows and client server-based  systems provide  comprehensive
healthcare  information  technology  solutions  which include  billing,  patient
tracking and scheduling for inpatient and  outpatient  environments,  as well as
clinical  documentation  and  medical  record  generation  and  management.  Our
marketing is directed  primarily at such providers of behavioral health services
as state  behavioral  health  agencies,  mental health clinics,  substance abuse
clinics,  methadone  maintenance  clinics,   psychiatric  hospitals,  and  other
specialty care inpatient and outpatient providers.

We have an established  nationwide customer base,  including state agencies that
have responsibility for providing  behavioral  healthcare services in 14 states.
Revenue grew from $13.1 million in 1998 to $21.3 million in 1999, an increase of
61% , while income from  continuing  operations  increased from $413,000 to $1.6
million.

Business Strategy

We  believe  that we are  one of the  most  established  suppliers  of  practice
management  solutions  to the  behavioral  health care  industry.  Our  software
solutions  are  utilized  by more than 500  provider  institutions  that  employ
approximately  50,000  clinicians.  Many of  these  facilities  represent  large
provider  agencies such as state hospitals and behavioral  health care networks.
We believe that a significant  percentage  of the mental  health  practitioners,
such as sole  practitioners  and  small  group  practices  and  clinics,  do not
effectively  use  automation  in the  management  of their  clinician  practice,
principally  because we believe that the available systems are expensive and are
not user-friendly.

We intend to expand our product line to integrate our enterprise-wide  solutions
with Internet  technology and provide application service provider solutions for
use by both large provider agencies and sole practitioners,  smaller clinics and
group  practices.  We also  plan to offer  databases  designed  to  provide  all
clinicians  with  access  to  industry   standard   libraries  via  our  planned
application  service  provider  portal.  We  believe  that  these  products  can
significantly  increase  our  potential  client  base and can  provide us with a
source of ongoing revenue.

The  two  major  segments  of  the  behavioral   healthcare   marketplace   that
underutilize information technologies are:

*    Single to small psychiatric practices that cannot afford nor have the staff
     to support traditional comprehensive client-server products.

*    Clinicians who require  decision  support data guides to facilitate  client
     assessment,  treatment  guidelines for specific populations and documenting
     patient progress and outcomes.

The Internet has emerged as the major structure for addressing and accessing new
markets, providing information,  education, training and effective communication
and for making complex  business  operations  more efficient and effective.  The
behavioral  healthcare  marketplace is undergoing dramatic changes. The Internet
will allow the providers,  payers and consumers to connect in more efficient and
cost  effective  ways.  Providers  will be faced with more  complex  methods and
systems of authorization  management and claims processing,  enhanced regulatory
and accreditation  requirements,  access to validated intervention and treatment
protocols and greater concern over delivery of care.

The next challenge for the Company is to increase market share and leverage this
opportunity  with  focus  on  practice  management  and  decision  support.  The
application  service  provider  solutions  and Internet  technology  can further
expand our product suite.

                                        1

<PAGE>

Practice  Management Strategy - We plan to offer an Internet- enabled version of
its industry standard  Behavioral Health  Information  System.  This application
will be available to the more than 150,000  single and small  behavioral  health
practitioners  that currently utilize manual or limited  functionality  personal
computer based systems.  We plan to offer this product at a modest  subscription
fee and a monthly  transaction-based  service  charge.  We  believe  that we can
attract an increased client base by offering:

*    Our proven practice management applications to all providers, even the
     single office practitioner.
*    Client server, application service provider and Internet delivery
     mechanisms.

Decision  Support - By utilizing our  client-server  or  web-enabled  behavioral
health  information  system  products,  clinicians can access industry  standard
decision support libraries. It is anticipated that initial offerings may include
applications such as:

            *    Treatment planning, progress notes and training curriculum.
            *    Outcome indicator instruments

Forward - Looking Statements

The  statements  in this Form 10-K Annual  Report that are not  descriptions  of
historical  facts may be forward-  looking  statements that are subject to risks
and  uncertainties.  In particular,  statements in this Form 10-K Annual Report,
including any material  incorporated  by reference in this Form 10-K, that state
our  intentions,  beliefs,  expectations,  strategies,  predictions or any other
statements  relating  to  our  future  activities  or  other  future  events  or
conditions  are  "forward-looking  statements."  Forward-looking  statements are
subject to risks,  uncertainties and other factors,  including,  but not limited
to, those  identified  under "Risk  Factors,"  those  described in  Management's
Discussion and Analysis of Financial Conditions and Results of Operations and in
any other  filings  with the  Securities  and  Exchange  Commission,  as well as
general economic conditions, any one or more of which could cause actual results
to differ materially from those stated in such statements.

Organization of the Company

We are a Delaware  corporation  formed in September  1992 under the name Medical
Services  Corp.  Our name was changed to Carte  Medical  Corporation  in October
1993,  CSMC  Corporation  in June 1995 and to  Netsmart  Technologies,  Inc.  in
February  1996. Our executive  offices are located at 146 Nassau Avenue,  Islip,
New York  11751,  telephone  (631)  968-2000.  Reference  to us and to  Netsmart
include our  subsidiary,  Creative  Socio-Medics,  unless the context  indicates
otherwise.

Risk Factors

If we are unable to obtain additional capital, we may not be able to develop our
business.

We had working  capital of $2.0  million at December  31,  1999.  We may require
additional  capital in order to expand and develop our  business and perform our
obligations  under our  agreements and purchase  orders.  We have no commitments
from any person to provide us with any such capital.  Our business may suffer if
we do not obtain the capital when it is required.

Because we are particularly  dependent upon government  contracts,  our business
--------------------------------------------------------------------------------
may be impaired by policies relating to entitlement programs.
-------------------------------------------------------------

We market our health information  systems  principally to behavioral health care
facilities,  many of which are  operated  by  government  entities  and  include
entitlement  programs.  During  1999,  we  generated  55%  of our  revenue  from
contracts  with  government  agencies,  as compared  with 52% in 1998 and 35% in
1997.  Government agencies generally have the right to cancel contracts at their
convenience.  In addition,  we may lose business if government  agencies  reduce
funding for entitlement programs.

Our  business  is based on  providing  systems  relating  to  behavioral  health
--------------------------------------------------------------------------------
organizations,  and changes in government regulation of health care industry may
--------------------------------------------------------------------------------
affect the market for our systems.
----------------------------------

                                        2
<PAGE>

The federal and state governments have adopted numerous  regulations relating to
the health care  industry,  including  regulations  relating to the  payments to
health care  providers  for various  services,  and our systems are  designed to
provide information based on these requirements. The adoption of new regulations
can have a  significant  effect upon the  operations  of health care  providers,
particularly  those operated by state agencies.  We cannot predict the effect on
our  business of future  regulations  by  governments  and payment  practices by
government  agencies.  Furthermore,  changes in  regulations  in the health care
field may force us to modify  our  health  information  systems  to meet any new
record-keeping  or other  requirements.  If that happens,  we may not be able to
generate revenues sufficient to cover the costs of developing the modifications.

If we are not able to take advantage of technological advances, our business may
--------------------------------------------------------------------------------
suffer.
-------

Our customers require software which enables them to store, retrieve and process
very  large   quantities  of  data  and  to  provide  them  with   instantaneous
communications  among the various data bases.  Our business  requires us to take
advantage  of  recent   advances  in  software,   computer  and   communications
technology.  This technology has been developing at rapid rates in recent years,
and our future may be  dependent  upon our  ability to use and develop or obtain
rights to products  utilizing such  technology.  New technology may develop in a
manner which may make our software obsolete. Our inability to use new technology
would have a significant adverse effect upon our business.

Because of our size, we may have difficulty competing with larger companies that
--------------------------------------------------------------------------------
offer similar services.
-----------------------

Our customers in the human services market include entitlement programs, managed
care organizations and specialty care facilities which have a need for access to
information over a distributed data network.  The software  industry in general,
and  the  health  information  software  business  in  particular,   are  highly
competitive. Other companies have the staff and resources to develop competitive
systems. We may not be able to compete  successfully with such competitors.  The
health information systems business is served by a number of major companies and
a larger number of smaller  companies.  We believe that price  competition  is a
significant factor in our ability to market our health  information  systems and
services.

Because we are dependent on our management,  the loss of key executive  officers
--------------------------------------------------------------------------------
could harm our business.
------------------------

Our business is largely  dependent upon our senior executive  officers,  Messrs.
James L. Conway,  president and chief  executive  officer,  Anthony F. Grisanti,
chief  financial  officer,  John F. Philips,  vice  president -- marketing,  and
Gerald O. Koop, vice president of the Company and chief executive officer of our
operating  subsidiary,  Creative  Socio-Medics Corp. Although we have employment
agreements with these officers,  the employment  agreement do not guarantee that
the officers will  continue  with us. Our business may be adversely  affected if
any of our key management personnel or other key employees left our employ.

Because we lack patent protection,  we cannot assure you that others will not be
--------------------------------------------------------------------------------
able to use our proprietary information in competition with us.
---------------------------------------------------------------

We have no patent or copyright protection for our proprietary  software,  and we
rely on  non-disclosure  agreements  with our  employees.  Since our business is
dependent upon our proprietary  products,  the unauthorized use or disclosure of
this information could harm our business.

Our growth may be limited if we cannot make acquisitions.
---------------------------------------------------------

An important part of our growth strategy is to acquire other businesses that are
related to our current business.  Such acquisitions may be made with cash or our
securities  or a  combination  of cash and  securities.  To the  extent  that we
require  cash,  we may have to  borrow  the  funds or issue  equity.  We have no
commitments  from any financing  source and we may not be able to raise any cash
necessary to complete an acquisition.  If we fail to make any acquisitions,  our
future growth may be limited. As of the date of this Form 10-K annual report, we
do not have any agreement or understanding, either formal or informal, as to any
acquisition.

If we make any  acquisitions,  they may disrupt or have a negative impact on our
--------------------------------------------------------------------------------
business.
---------

If we make acquisitions, we could have difficulty integrating the acquired
companies' personnel and operations with our own. In addition, the key personnel
of the acquired business may not be willing to work for us.  We

                                        3
<PAGE>

cannot predict the affect expansion may have on our core business. Regardless of
whether we are  successful  in making an  acquisition,  the  negotiations  could
disrupt our ongoing business, distract our management and employees and increase
our expenses.

We do not anticipate paying dividends on our common stock.
----------------------------------------------------------

We presently intend to retain future earnings, if any, in order to provide funds
for use in the operation and expansion of our business and,  accordingly,  we do
not  anticipate  paying cash  dividends on our Common  Stock in the  foreseeable
future.

The  rights of the  holders of common  stock may be  impaired  by the  potential
--------------------------------------------------------------------------------
issuance of preferred stock.
----------------------------

Our  certificate  of  incorporation  gives our board of  directors  the right to
create new series of preferred  stock. As a result,  the board of directors may,
without  stockholder  approval,  issue  Preferred  Stock with voting,  dividend,
conversion,  liquidation or other rights which could adversely affect the voting
power and equity interest of the holders of common stock.  The preferred  stock,
which could be issued  with the right to more than one vote per share,  could be
utilized  as a method  of  discouraging,  delaying  or  preventing  a change  of
control.  The possible impact on takeover  attempts could  adversely  affect the
price of our common  stock.  Although we have no present  intention to issue any
additional shares of preferred stock or to create any series of preferred stock,
we may issue such shares in the future.  If we issue preferred stock in a manner
which dilutes the voting rights of the holders of the common stock,  our listing
on The Nasdaq SmallCap Market may be impaired.

Shares may be issued  pursuant to options  which may affect the market  price of
--------------------------------------------------------------------------------
our common stock.
-----------------

We may issue stock upon the  exercise of options to purchase up to an  aggregate
799,192 shares of common stock pursuant to our long-term  incentive  plans.  The
exercise of these options and the sale of the underlying  shares of common stock
may have an adverse effect upon the price of our stock.

Behavioral Health Information Systems and Services

We develop, market and support computer software which enables behavioral health
care  organizations  to provide a full range of services in a network  computing
environment.

Users  typically  purchase  one of  several  behavioral  healthcare  information
systems,  in the  form of a  perpetual  license  to use the  system,  as well as
purchasing  professional  services,  support, and maintenance.  In addition,  we
offer  third  party  hardware  and  software  pursuant  to  value  added  resale
arrangements with third party vendors. The professional services include project
management,  training,  consulting and software development services,  which are
provided  either  on a time and  material  basis or  pursuant  to a  fixed-price
contract. The software development services may require the adaptation of health
care  information  technology  systems to meet the specific  requirements of the
customer.

Our typical  license for a  behavioral  health  information  system  ranges from
$10,000 to $100,000 for single facility  healthcare  organization to $250,000 to
$1,000,000 for multi-unit and state operated health care organizations.  Revenue
from license fees were approximately  $2,228,000, or 10.5% of revenue, for 1999,
$2,270,000,  or 17.3% of revenue for 1998 and $737,000,  or 9.6% of revenue, for
1997. Our 1999 Contracts had a longer term than our 1998 Contracts  resulting in
a income recognition over a longer period. A customer's  purchase order may also
include third party hardware or software.  Revenue from hardware and third party
software accounted for approximately  $5,915,000, or 27.8% of revenue, for 1999,
$2,610,000,  or 19.8% of revenue, for 1998 and $1,078,000,  or 14.1% of revenue,
for 1997.

In  addition  to our  behavioral  healthcare  information  systems  and  related
services,  we offer  processing  services  to  substance  abuse  facilities  and
maintain a data center facility at which its personnel  perform data entry, data
processing and produce  operations  reports for smaller substance abuse clinics.
Our data center revenue was approximately  $1,908,000,  or 9.0% of revenue,  for
1999,  $2,164,000  or 16.4% of  revenue,  for 1998 and  $2,235,000,  or 29.3% of
revenue, for 1997.

Maintenance  services have generated  increasing  revenue and have become a more
significant  portion  of our  business  since  most  purchasers  of health  care
information system licenses also purchase maintenance service.

                                        4

<PAGE>

Maintenance revenue increases as existing customers purchase additional licenses
and new customers  purchase their initial software  licenses.  By agreement with
our customers, we provide telephone help services and maintain and upgrade their
software.  Maintenance  contracts  may  require  modifications  to meet  any new
federal and state reporting  requirements which become effective during the term
of the  maintenance  contract.  We do not  maintain the hardware and third party
software sold to our customers, but we provide a telephone help line service for
certain third party software, which we license to our customers. Our maintenance
revenue was approximately $2,258,000, or 10.6% of revenue, for 1999, $1,432,000,
or 10.9% of revenue,  for 1998 and  $1,280,000,  or 16.8% of revenue,  for 1997.
Since  maintenance  revenues log license and  implementation  revenues this area
will substantially increase in 2000.

We currently offer four product modules that provide a range of core application
requirements for behavioral  healthcare  providers.  These products consist of a
suite of complete information technology  applications developed by us, together
with  software  provided  by others  which  enables us to offer  enterprise-wide
solutions to the behavioral  health industry.  The products will be offered in a
variety of delivery modes.

        *   Behavioral  Healthcare   Information  System  -  This  system  is  a
            comprehensive   solution  providing  patient  management  functions,
            billing, tracking, scheduling, and reporting for inpatient treatment
            facilities.

        *   Clinician  Workstation - This  workstation  provides  clinician with
            documentation  and medical record management  including  assessment,
            care  planning,  progress  notes and on-line  medical  records.  The
            clinician  workstation is our  electronic  medical record system for
            behavioral health, which integrates the clinical tools necessary for
            an interdisciplinary approach to the delivery of human services.

        *   The M4 Clinical  Management  System - Pursuant to a joint  marketing
            agreement with Mallinckrodt  Pharmaceutical  Specialties, a division
            of Mallinckrodt Inc., we offer a solution for dispensing, admissions
            and medical records,  counselor and reception/security  specifically
            for  methadone  clinics.  M4  integrates  with our other  behavioral
            health products.

        *   Managed Care  Products - On January 25, 2000, we acquired the Connex
            suite of managed care and employee  assistance  program  information
            systems from Behavioral  Health Partners,  Inc. These modules can be
            installed on a personal computer,  connected to a local or wide area
            communications  network  or  offered  through  the  Internet  in  an
            application  service  provider basis.  The managed care and employee
            assistance  program modules include such features as service request
            management,  contact tracking (patients,  providers, others), import
            of eligibility information by contract, provider search by location,
            specialty,  contract,  hospital privileges,  claims adjudication and
            payment.

All of these  products have been accepted in the  marketplace  by an established
user base, and we believe that our  Window-based  products are Year 2000 ("Y2K")
compliant.

Markets and Marketing

The market for  behavioral  health  information  systems  and  related  services
consists of both private and publicly  operated  providers  offering hospital or
community-based  outpatient  behavioral  healthcare  services.  These healthcare
providers require a healthcare information systems to administer their programs.
We believe that there are at least 15,000 behavioral healthcare providers in the
United   States,   including   public  and   private   hospitals,   private  and
community-based residential facilities and Federal, state and local governmental
agencies.

Many  long-term  behavioral  healthcare  facilities  are operated by  government
entities and include those operated as part of entitlement programs.  During the
years ended December 31, 1999,  1998 and 1997,  approximately  55.0%,  52.0% and
35.0%,  respectively,  of revenue was generated from  contracts with  government
agencies.  Contracts with government agencies generally include provisions which
permit  the  contracting  agency to cancel  the  contract  for its  convenience,
although we have not  experienced a termination for convenience in the last five
years.

In addition to these major behavioral healthcare  providers,  there are a larger
number of sole practitioners, group practices and smaller clinics which may also
require behavioral healthcare facilities. We intend to market our Internet-based
systems to these potential customers.

                                        5
<PAGE>

We believe that the demand for information technology solutions is increasing as
managed  care  exerts  pressure  on  healthcare  providers  to lower  healthcare
delivery costs while expanding the availability of services.  In order to remain
competitive,  the behavioral health delivery networks need detailed clinical and
management  information  systems  that enable  providers  within the networks to
maintain a broad scope of accurate  medical and  financial  information,  manage
costs and deliver  quality care  efficiently.  In addition,  the need to upgrade
existing  systems  to meet the  increased  demand for data  processing  needs of
managed care and regulatory  oversight has also resulted in an increased  demand
for behavioral health care information  technology.  These data processing needs
include  analysis  of  patient  assessments,  maintenance  of  patient  records,
administration  of  patient  treatment  plans and the  overall  coordination  of
patient case management.

We coordinate our marketing effort with the state agencies and other major users
of our systems.  Our state agency  clients  formed a State Systems  Association,
presently  consisting of state  organizations  or agencies  from 14 states.  The
association's  members work with our  management to assess and determine  future
requirements in both patient managed care coordination and regulatory reporting.

For the year ended December 31, 1999, one customer  accounted for  approximately
$3.8 million or 18% of our revenue.  For the year ended December 31, 1998,  this
same customer accounted for $2.1 million or 16% of our revenue.  No one customer
accounted  for  more  than  10% of  revenue  in 1997.  See  "Item 7.  Management
Discussion and Analysis of Financial Condition and Results of Operations.

At December  31, 1999 and 1998,  we had a backlog of orders,  including  ongoing
maintenance and data center  contracts,  for our behavioral  health  information
systems of $14.2 million and $16.8 million,  respectively.  A substantial amount
of the 1999 backlog is expected to be filled during 2000.

Product Development

We  incurred  product  development  costs  relating  to  our  behavioral  health
information  systems of  approximately  $800,000  in 1999,  $763,000 in 1998 and
$201,000  in 1997,  all of which was  company-sponsored.  In 1999,  we  incurred
capitalized software  development costs of approximately  $209,000 in connection
with the development of our proposed web portal services and application service
provider solutions for healthcare providers.

Competition

The healthcare software industry is highly competitive. Although we believe that
we can provide a health care facility or managed care organization with software
to enable it to perform its services more effectively,  other software companies
provide  comparable  systems  and also have the staff and  resources  to develop
competitive systems.

According to independent  consulting reports,  healthcare information technology
is an $18.0 billion  industry  served by numerous  vendors.  The dominant health
care information technology vendors have achieved annual sales of more than $1.0
billion  by  focusing  on  solutions  for  large  medical/surgical  health  care
providers, such as large hospital systems and health maintenance  organizations,
and, have not focused on the  behavioral  healthcare  industry.  We believe that
most of the presently available healthcare management software does not meet the
specific needs of the behavioral healthcare industry, and that the functionality
of our  information  systems  are  designed  to meet the  needs of this  market.
However,  the behavioral  health  information  systems business is serviced by a
number  of  companies,   some  of  which  are  better  capitalized  with  larger
infrastructure  than  Netsmart,  and we may not be able to  continue  to compete
effectively with such companies.

We have an  established  customer  base of more  than  400  clients  nationwide,
including substantial private and government providers of behavioral health care
services.  During 1998 and 1999, we signed  contracts to provide our  healthcare
information  systems  to  ten  state  agencies   responsible  for  administering
behavioral services, bringing the total of such state agencies to 14.

Government Regulations and Contracts

The federal and state governments have adopted numerous  regulations relating to
the health care  industry,  including  regulations  relating to the  payments to
health care providers for various services.  The adoption of new regulations can
have a  significant  effect upon the  operations  of health care  providers  and
insurance companies.

                                        6
<PAGE>

Although our business is aimed at meeting certain of the problems resulting from
government  regulations  and from efforts to reduce the cost of health care,  we
cannot  predict  the effect of future  regulations  by  governments  and payment
practices by government agencies or health insurers, including reductions in the
funding for or scope of  entitlement  programs.  Any change in the  structure of
health  care in the  United  States  can have a  material  effect  on  companies
providing  services  to the health  care  industry,  including  those  providing
software.  Although we believe that the likely  direction  which may result from
the current  study of the health care  industry  would be an increased  trend to
managed care programs,  thereby  increasing  the  importance of automation,  our
business may not benefit from any changes in the industry structure. Even if the
industry  does evolve  toward more  healthcare  being  provided by managed  care
organizations,  it is possible that there will be substantial concentration in a
few very large  organizations,  which may seek to develop  their own software or
obtain software from other sources.  To the extent that the health care industry
evolves  with  greater  government-sponsored  programs  and less  privately  run
organizations,  our  business  may be adversely  affected.  Furthermore,  to the
extent that each state changes its own  regulations in the health care field, it
may be necessary for us to modify our behavioral health  information  systems to
meet  any new  record-keeping  or  other  requirements  imposed  by  changes  in
regulations, and we may not be able to generate revenues sufficient to cover the
costs of developing the modifications.

A  significant  amount  of our  business  has  been  with  government  agencies,
including  specialized  care  facilities  operated by, or under  contract  with,
government  agencies.  The decision on the part of a government  agency to enter
into a contract is dependent  upon a number of factors,  including  economic and
budgetary  problems  affecting  the  local  area,  and  government   procurement
regulations,  which may  include  the need for  approval by more than one agency
before a contract is signed. In addition,  government agencies generally include
provisions in their contracts which permit the contracting  agency to cancel the
contract  at  its  convenience.  We  have  not  experienced  a  termination  for
convenience in the last five years.

Intellectual Property Rights

We have no patent rights for our behavioral health  information system software,
but  we  rely  upon  copyright   protection   for  our  software,   as  well  as
non-disclosure  and secrecy  agreements  with our employees and third parties to
whom we  disclose  information.  We may not be able to protect  our  proprietary
rights  to our  system  and  third  parties  may  claim  rights  in the  system.
Disclosure  of the codes  used in any  proprietary  product,  whether  or not in
violation of a non-disclosure agreement,  could have a materially adverse affect
upon us, even if we are  successful  in  obtaining  injunctive  relief.  We must
continue  to  invest in  product  development,  employee  training,  and  client
support.

Employees

As of December 31, 1999, we had 138 employees,  including four  executive,  nine
sales and  marketing,  114  technical  and eleven  clerical  and  administrative
employees.

Executive Officers

        Our executive officers are as follows:


      Name                   Age         Position
      ----                   ---         --------
Edward D. Bright             63        Chairman of the Board
James L. Conway              52        President and Chief Executive Officer
Anthony F. Grisanti          50        Chief Financial Officer, Treasurer and
                                       Secretary
Gerald Koop                  61        Chief Executive Officer of Creative
                                       Socio-Medics
John F. Phillips             62        Vice President - Marketing


Mr. Edward D. Bright has been chairman of the board and a director of Netsmart
since April 1998.  In April 1998, Mr. Bright was also elected as chairman,
secretary, treasurer and a director of Consolidated Technology Group Ltd., a
public company now known as The Sagemark Companies Ltd., which is engaged in
various lines of business, and a director of Trans Global Services, Inc., which
provides technical temporary staffing services.  In April, 1999, Mr. Bright
resigned as a director of Consolidated Technology Group, Ltd.

                                        7
<PAGE>


Mr. James L. Conway has been president and a director of Netsmart since January
1996 and chief executive officer since April 1998.  From 1993 to April 1998 he
was president of S-Tech Corporation, a manufacturer of aircraft instruments for
the U.S. military and specialty vending equipment for postal, telecommunication
and other industries.  Mr. Conway was previously Vice President and member of
the Board of ITT Credit Corporation, a wholly owned subsidiary of ITT.  Mr.
Conway is also a director of Trans Global.

Mr.  Gerald Koop has been a director of  Netsmart  since June 1998.  He has held
management positions with our subsidiary,  Creative Socio-Medics,  for more than
the past five years, most recently as its chief executive officer, a position he
has held since 1996.

Mr.  Anthony  F.  Grisanti  has been  treasurer  of  Netsmart  since  June 1994,
secretary since February 1995 and chief financial officer since January 1996. He
was chief financial  officer of Creative  Socio-Medics  for more than five years
prior thereto.

Mr.  John F.  Phillips  has been a director of Netsmart  and vice  president  of
Creative  Socio-Medics since June 1994, when Creative  Socio-Medics was acquired
by us,  and our  vice  president-marketing  since  1996.  He was  also  our vice
president -- marketing from June 1994 to January 1996. He was a senior executive
officer and director of Creative  Socio-Medics  and its parent  company for more
than five years prior to June 1994, when it was acquired.

                                        8

<PAGE>
<TABLE>

Item 2.   Property

We lease office space at the following locations:

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

Location                         Purpose         Space            Annual Rental         Expiration
--------                         -------         -----            -------------         ----------
146 Nassau Avenue                Executive       18,000           $280,000, plus 4%     12/31/03
Islip, New York                  offices         square feet      annual increases

1335 Dublin Road                 Offices         3,500            $50,000 (1)           11/30/00
Columbus, Ohio                                   square feet

18B Ledgebrook Run                 (2)           1,800            $21,000 (1)           10/31/02
Mansfield Center, Connecticut,                   square feet

7590 Fay Avenue                  Offices         1,800            $37,000, plus 6%      12/31/00
La  Jolla, California                            square feet      annual increases
----------
(1)     These leases provide for an annual increase in rent for operating
        expenses and real estate taxes.

(2)     These offices are no longer being used by us, and the space is being
        subleased at our cost.

We believe  that our space is  adequate  for our  immediate  needs and that,  if
additional  space is required,  it would be readily  available  on  commercially
reasonable rates.

Item 3.   Legal Proceedings

There are no material legal proceedings pending or threatened against us.

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

On November 18, 1999, we held our 1999 Annual Meeting of Stockholders.

The following individuals were elected as directors:

Name                           Number of Votes             Broker Non Votes
Edward D. Bright                   2,634,548                   1,197,714
James L. Conway                    2,634,548                   1,197,714
John F. Phillips                   2,634,548                   1,197,714
Gerald O. Koop                     2,634,548                   1,197,714
Joseph G. Sicinski                 2,633,948                   1,197,714

The following proposals were approved as follows:
<S>                            <C>           <C>               <C>             <C>

                                                                                Broker
                                 Votes For    Votes Against      Abstain        Non Votes
Approval of the amendment
to the 1998 Long Term
Incentive Plan                   1,346,088       297,040          7,430         1,197,714

Approval of the selection of
Richard H. Eisner & Co., LLP
as independent auditors for
1999                             2,642,651       204,524          1,097         1,197,714


                                        9
</TABLE>
<PAGE>

                                     Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Our common stock is traded on The Nasdaq  SmallCap Market under the symbol NTST.
Set forth below is the  reported  high and low sales  prices of the Common Stock
for each quarterly period during the past two years. Where applicable, the price
information has been retroactively adjusted to reflect the one-for-three reverse
stock split of our common stock which became effective September 1998.

     Quarter Ending                     High Bid              Low Bid
     --------------                     --------              -------

     March 31, 1998                       3.19                  1.88
     June 30, 1998                        2.91                  1.50
     September 30, 1998                   1.41                   .81
     December 31, 1998                    3.13                   .75

     March 31, 1999                       4.91                  2.59
     June 30, 1999                        4.63                  3.50
     September 30, 1999                   7.69                  4.25
     December 31, 1999                    8.13                  6.00

As of December 31, 1999, there were approximately 1,120 holders of record of our
common stock.

We have not paid any cash dividends to the holders of our common stock since our
organization.




                                       10
<PAGE>
<TABLE>

Item 6.  Selected Financial Data

                                                        Year Ended December 31,
                                                        -----------------------
                                      1999         1998          1997           1996            1995
                                      ----         ----          ----           ----            ----
<S>                                <C>        <C>             <C>          <C>           <C>
                                                   (in thousands except per share data)
Selected Statements
  of Operations Data:

Revenue                             $ 21,252      $ 13,165      $  7,635        $  6,538       $ 6,751

Income (Loss) from Continuing
 Operations before interest
  and other financing costs            1,895           759          (536)    (1)  (3,614)       (1,181)

Income (Loss) from Discontinued
  Operations                             180          (217)       (2,615)           (801)         (252)

Net Income (Loss)                      1,825           196        (3,459)   (1&2) (6,579)   (3) (2,850)

Per Share Data - Diluted:
  Continuing Operations                  .47           .12          (.37)          (3.36)        (1.61)
  Discontinued Operations                .05          (.08)        (1.10)           (.47)         (.16)
  Net Income (loss)                      .52           .04         (1.47)          (3.83)        (1.77)

Weighted average number
  of shares outstanding                3,516         2,865         2,387           1,716         1,607

Selected Balance
 Sheet Data:
 Working Capital (deficiency)          2,012            10          (537)            477        (2,562)

Total Assets                          13,972        10,289         7,340           8,251         6,390

Total Liabilities                      8,617         7,005         4,200           3,836         5,887

Redeemable Preferred Stock                                                                          96

Accumulated Deficit                  (13,272)      (15,097)      (15,293)        (11,726)       (5,147)

Stockholders' Equity                   5,355         3,284         3,140           4,415           407

----------

     (1)Includes $3,492 of non-cash compensation charges arising out of the
issuance by the Company of warrants and options having exercises prices which
were less than the market value of the Common Stock at the date of approval by
the board of directors.

     (2)Includes $1,692 of non-cash costs associated with the issuance of
500,000 shares of common stock to certain noteholders and 25,000 shares of
common stock to the Company's asset based lender.

     (3)Includes financing costs of $460 representing the write-off of deferred
financing costs relating to a proposed public offering scheduled for early 1995
but cancelled.
                                       11
</TABLE>
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

A  significant  portion  of our  revenue is derived  from fixed  price  software
development  contracts and licenses.  We recognize this revenue on the estimated
percentage of completion basis.  Since the billing schedules under the contracts
differ from the recognition of revenue, at the end of any period, these contacts
generally  result in either costs and estimated  profits in excess of billing or
billing  in excess of cost and  estimated  profits.  During  1999,  we  received
contracts  that are larger than in previous  years and they provide for a longer
time  between  milestone  payments.  As a result,  both our costs and  estimated
profits in excess of billings and our  billings in excess of cost and  estimated
profits  have  increased  at December  31,  1999.  The largest  component of our
revenue is based upon the time spent by our technical personnel on a project. As
a result,  during the third and fourth quarters,  when many of our employees are
on vacation and holidays, our revenue could be affected.

In 1998,  we  evaluated  our smart card  business and  determined  that the cash
requirements did not justify the continued operations of the development of such
business in the increasingly competitive smart card market. As a result, we sold
our smart  card  division  effective  July 1,  1998,  and we  accounted  for the
operations of this division as a discontinued operation. Accordingly, references
to our continuing operations relate to our behavioral health information systems
businesses.

Years Ended December 31, 1999 and 1998

Our revenue for 1999 was  $21,252,000,  an increase of $8,086,000,  or 61%, from
our 1998 revenue,  which was  $13,165,000.  The largest  component of revenue in
1999 was turnkey  systems labor revenue,  which  increased to $7,768,000 in 1999
from  $3,664,000  in  1998,  reflecting  a  112%  increase.   This  increase  is
substantially the result of growth in the behavioral health information  systems
business and our ability to provide the staff  necessary to generate  additional
revenue from our  outstanding  contracts.  Revenue from third party hardware and
software  increased  to  $5,915,000  in 1999  from  $2,610,000  in  1998,  which
represents an increase of 127%.  Sales of third party  hardware and software are
made in connection with the sales of turnkey  systems.  The data center (service
bureau)  revenue  decreased  to  $1,908,000  in 1999  from  $2,164,000  in 1998,
reflecting a decrease of 12%.  This decrease was  substantially  the result of a
special  project  performed for a client during 1998,  which did not continue at
the same rate in 1999.  License  revenue  decreased to  $2,228,000  in 1999 from
$2,270,000 in 1998, reflecting a decrease of 2%. License revenue is generated as
part of a sale of a behavioral health  information system pursuant to a contract
or purchase order that includes  delivery of the system and maintenance.  During
1999,  our  contracts  generally  had a longer term than our  contracts in 1998,
resulting  in the  recognition  of  license  revenue  over a longer  period.  At
December 31, 1999, we had  unrecognized  license revenue of  approximately  $2.1
million,  as compared  with $1.8 million at December 31, 1998. We expect that we
will recognize this license  revenue over the remaining  terms of the contracts,
which we expect will be completed by December 31, 2000.  However, it is possible
that a portion of the license revenue may not be recognized  until a later date.
Maintenance  revenue  increased to $2,258,000  in 1999 from  $1,432,000 in 1998,
reflecting  an  increase  of 58%.  Revenue  from the sales of our small  turnkey
division increased to $1,174,000 in 1999 from $1,025,000 in 1998,  reflecting an
increase of 15%.

Revenue from contracts from  government  agencies  represented 55% of revenue in
1999 and 52% of revenue  in1998.  This  increase  reflects  an  increase  in our
contracts with state agencies.

Gross profit  increased to  $7,375,000  in 1999 from  $5,084,000  in 1998, a 45%
increase.  Our overall gross margin was 35% in 1999 compared to 39% in 1998. The
reduction in gross margin was substantially  attributable to the increase in our
third party hardware and software  revenue,  which yields margins  significantly
less  than  our  margin  from  our  behavioral   health  systems  and  services.
Additionally,  in order to fill our backlog of orders for our behavioral  health
systems,  we hired  additional  technical  personnel.  Since there is a delay of
approximately  nine months between the time we hire technical  personnel and the
time we are able to generate revenue from their services, the increased staffing
costs had a negative impact upon our margins in 1999.

Selling,  general  and  administrative  expenses  were  $4,553,000  in 1999,  an
increase of 29% from the $3,516,000 in 1998. This increase was substantially the
result of an increase in sales and marketing salaries and related direct selling
costs as well as an increase  in the  provision  for  incentive  bonuses.  These
increases were partially offset by a decrease in sales commissions.

                                       12
<PAGE>

In 1999 we issued warrants for services rendered. We also extended one series of
our warrants  for two months.  An aggregate of $127,000 was charged to financing
costs for the  warrant  issuance  and the warrant  extension.  We did not have a
similar charge item in 1998.

We incurred product development  expenses of $800,000 in 1999, an increase of 5%
from the $763,000 in 1998. These expenses were related to our behavioral  health
information systems products,  including our clinician  workstation,  behavioral
health  information  system for Windows,  managed care and methadone  dispensing
products.

Interest  expense was $250,000 in 1999, a decrease of $96,000,  or 28%, from the
$346,000 in 1998. This decrease was the result of lower borrowings  during 1999,
in addition to a reduced cost of borrowings.  The most significant  component of
the  interest  expense  on an  ongoing  basis  is the  interest  payable  to our
asset-based lender. We paid interest on such loans at a rate equal to prime plus
5 %. In October 1999,  we entered into a credit  facility  agreement  with a new
asset-based  lender. The interest rate of the new facility is 2% above the prime
rate.

Related  party  administrative  expense was $45,000 in 1998.  These charges were
incurred  pursuant to a management  services  agreement  with our then principal
stockholder to provide  general  business,  management and financial  consulting
services for a monthly fee of $15,000.  This  agreement was mutually  terminated
effective April 1, 1998.

We recognized a gain of $180,000 from our discontinued  operations in 1999. This
gain  resulted  from the  reduction  in our reserve  against a  promissory  note
received from the sale of the discontinued operations. We reduced the reserve as
a result of our sale of our interest in the  purchaser  for a note.  In 1998, we
recognized a net loss from our discontinued operations of $217,000.

As a result of the  foregoing  factors,  in 1999 we  generated a net income from
continuing  operations  of  $1,645,000,  or $.56 per share  (basic) and $.47 per
share (diluted),  a gain from discontinued  operations of $180,000,  or $.06 per
share (basic) and $.05 per share (diluted),  and a net income of $1,825,000,  or
$.62 per share (basic) and $.52 per share (diluted).  For 1998, we generated net
income from  continuing  operations  of  $413,000,  or $.12 per share (basic and
diluted),  a loss from  discontinued  operations of $217,000,  or $.08 per share
(basic and diluted),  and net income applicable to common stock of $124,000,  or
$.04 per share (basic and diluted).

Years Ended December 31, 1998 and 1997

Our revenue for 1998 was  $13,165,000,  an increase of $5,530,000,  or 72%, from
our 1997  revenue of  $7,635,000.  The largest  component of revenue in 1998 was
turnkey  systems labor revenue which  increased to $3,664,000 from $2,107,000 in
1997,  reflecting a 74% increase.  This increase is substantially  the result of
growth in the behavioral health information  systems business and our ability to
provide the staff  necessary  to generate  additional  revenue.  The data center
(service  bureau)  revenue  decreased to $2,165,000  in 1998 from  $2,235,000 in
1997, reflecting a decrease of 3%. This decrease was substantially the result of
a special project  performed for a client in 1997, which did not continue at the
same rate in 1998. License revenue increased to $2,270,000 in 1998 from $737,000
in 1997, which is an increase of 208%. License revenue is generated as part of a
sale of a  behavioral  health  information  system  pursuant  to a  contract  or
purchase  order that includes  delivery of the system and  maintenance.  Revenue
from third party  hardware and software  increased  to  $2,610,000  in 1998 from
$1,089,000 in 1997,  which is an increase of 140%. Sales of third party hardware
and  software  are  made in  connection  with  the  sales  of  turnkey  systems.
Maintenance  revenue  increased to $1,432,000  in 1998 from  $1,280,000 in 1997,
reflecting  an  increase  of 12%.  Revenue  from the sales of our small  turnkey
division (formerly our methadone  division) was $1,025,000 in 1998. There was no
revenue for this division in 1997.

Revenue from  contracts  from  government  agencies  represented  52% and 35% of
revenue in 1998 and 1997, respectively.

Gross profit  increased to  $5,084,000  in 1998 from  $2,747,000  in 1997, a 85%
increase.  The increase in the gross profit was  substantially the result of the
increased license revenue, which provides higher margins.

                                       13
<PAGE>

Selling,  general  and  administrative  expenses  were  $3,516,000  in 1998,  an
increase of 21% from the $2,902,000 in 1997. This increase was substantially the
result of an increase in  commissions  expense,  sales and  marketing  salaries,
advertising and related sales expenses which were partially offset by a decrease
in administrative expenses as well as other miscellaneous expenses,  including a
reduction in related party administrative expenses.

Related party  administrative  expense was $45,000 in 1998 and $180,000 in 1997.
These charges were  pursuant to a management  services  agreement  with our then
principal  stockholder for a monthly fee of $15,000. This agreement was mutually
terminated effective April 1, 1998.

During 1998, we incurred product development  expenses of $763,000,  an increase
of 279% from the $201,000 in 1997. These expenses were related to our behavioral
health  information   systems  products  such  as  our  clinician   workstation,
behavioral  health  information  system for Windows,  managed care and methadone
dispensing products.

Interest  expense was $346,000 in 1998, an increase of $38,000,  or 12% from the
$308,000 in 1997. This increase was the result of higher borrowings during 1998,
which were  substantially off set by a reduction in the cost of borrowings.  The
most  significant  component of the interest  expense on an ongoing basis is the
interest payable to our asset-based  lender. We paid interest on such loans at a
rate equal to prime  plus  8-1/2 % plus a fee of 5/8% of the face  amount of the
invoice for the first nine months of 1998. Effective October 1, 1998, we amended
the terms of our agreement with the asset-based  lender and reduced the interest
rate  from  prime  plus 8 1/2% to  prime  plus 5% and  eliminated  the  5/8% fee
previously paid on the face amount of each invoice.

The net loss from our  discontinued  operations,  the smart card  division,  was
$217,000 in 1998, a decrease of $2,398,000  from the  $2,615,000  in 1997.  This
decrease is the result of a reduction of expenses in this division  prior to the
sale of the division.

As a result of the foregoing factors, we generated a net income of $196,000,  or
$.04 per share,  in 1998 as compared with a net loss of $3.5  million,  or $1.47
per share, in 1997.

Liquidity and Capital Resources

We had working capital of $2,012,000 at December 31, 1999 as compared to working
capital of $10,000 at December 31, 1998. Our cash position increased  marginally
from  $199,000 at December  31, 1998 to  $205,000  at  December  31,  1999.  The
increase  in working  capital for 1999 was  substantially  due to the net income
after adding back depreciation and amortization.

Our principal  source of funds,  other than revenue,  is an accounts  receivable
financing  agreement with an asset based lender which permits us to borrow up to
80% of eligible accounts receivable up to a maximum of $3.5 million. At December
31, 1999, the outstanding  borrowings  under this facility were $882,000 and the
maximum amount available under this formula was $2,314,000.

At December 31, 1999,  accounts  receivable  and costs and estimated  profits in
excess  of  interim  billings  were  approximately  $10  million,   representing
approximately  170 days of revenue based on annualizing the revenue for the year
ended December 31, 1999,  although we cannot give any assurance that our revenue
will  continue at the same level as the year ended  December 31, 1999.  Accounts
receivable  at December 31, 1999  increased by  $2,190,000  from  $3,600,000  at
December 31, 1998 to $5,790,000 at December 31, 1999.

Our cash flow from operations was approximately $1.2 million for 1999, and,
based on our outstanding contracts and our continuing business, we believe that
our cash flow from operations,  the availability under our financing agreement
and our cash on hand will be sufficient to enable us to continue to operate
without  additional funding,  although it is  possible  that we may need
additional  funding if our business does not develop as we  anticipate  or if
our  expenses,  including our software development costs relating to our
expansion of our product line and our marketing cost for seeking to expand the
market for our products and services to include smaller clinics and facilities
and sole and group  practitioners  exceed our expectation.

                                       14
<PAGE>

Furthermore,  if we continue to grow at the existing  rate into 2000 and beyond,
we may require  additional  funding.  We are exploring various long term funding
possibilities,  although we cannot give any  assurances  that we will be able to
obtain  financing,  and our failure to obtain financing could impair our ability
to grow.

An important part of our growth strategy is to acquire other businesses that are
related to our current business.  Such acquisitions may be made with cash or our
securities  or a  combination  of cash and  securities.  To the  extent  that we
require  cash,  we may have to  borrow  the  funds or issue  equity.  We have no
commitments  from any financing  source and we may not be able to raise any cash
necessary to complete an acquisition.  If we fail to make any acquisitions,  our
future growth may be limited. As of the date of this Form 10-K annual report, we
do not have any agreement or understanding, either formal or informal, as to any
acquisition.

Year 2000 Compliance

The "Year 2000 Issue"  refers  generally to the problems  that some software may
have in determining the correct century for the year. For example, software with
date-sensitive  functions  that is not Year  2000  compliant  may not be able to
determine  whether  "00" means 1900 or 2000,  which may result in  computer  and
other failures or the creation of erroneous results.

We believe that our present software products are Year 2000 compliant,  and that
any changes  which may be required to software  which we have  delivered  in the
past would be made  pursuant to new  contracts  with the clients to provide them
with a current version of our products.

We have defined Year 2000 compliant as the ability to:

     *    correctly handle date information needed for the December 31, 1999 to
          January 1, 2000 date change;

     *    function according to the product documentation provided for this
          date  change,  without  changes in operation  resulting  from the
          advent of a new century, assuming correct configuration;

     *    where appropriate, respond to two-digit date input in a way that
          resolves the ambiguity as to century in a disclosed, defined and
          predetermined manner;

     *    if the date elements in interfaces  and data storage  specify the
          century,  store and provide  output of date  information  in ways
          that are unambiguous as to century; and

     *    recognize year 2000 as a leap year.

To date,  we have not  experienced  any material  expense  relating to Year 2000
compliance.


Forward Looking Statements

Statements in this Form 10-K include  forward-looking  statements  that address,
among other things,  our  expectations  with respect to the  development  of our
business.  In addition to these statements,  other  information  including words
such as "seek" "anticipate,"  "believe," "plan," "estimate,"  "expect," "intend"
and other similar  expressions  are forward looking  statements.  Actual results
could differ  materially  from those  currently  anticipated  due to a number of
factors,  including those  identified in this Annual Report on Form 10-K for the
year  ended  December  31,  1999,  in our other  documents  filed by us with the
Securities and Exchange Commission.

                                       15
<PAGE>

                                     Part IV

Item 8.        Financial Statements and Supplementary Data

The financial  statements and supplementary  data begin on page F-1 of this Form
10-K.


Item 9.        Changes and Disagreements with Accountants on Accounting and
               Financial Disclosure

As previously disclosed, we changed our accountants from Moore Stephens, P.C. to
Richard A. Eisner & Company,  LLP  commencing  with the year ended  December 31,
1998. There were no disagreements with Moore Stephens, P.C.

                                       16
<PAGE>


1.             Financial Statements
               Report of Richard A. Eisner & Company, LLP
               Report of Moore Stephens, P.C.
               Consolidated Balance Sheets as of December 31, 1999 and 1998
               Consolidated   Statements  of  Operations  for  the  Years  Ended
               December  31,  1999,  1998 and 1997  Consolidated  Statements  of
               Stockholders' Equity for the Years Ended December 31, 1999,
               1998 and 1997
               Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1999,  1998 and 1997
               Notes to Consolidated Financial Statements

2.             Financial Statement Schedules
               None

3.             Reports on Form 8-K
               July 20, 1998    Change in Accountants

4.             Exhibits



<PAGE>








                           NETSMART TECHNOLOGIES, INC.
                                AND SUBSIDIARIES

                                      F - 1

<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
INDEX
--------------------------------------------------------------------------------

                                                                    Page to Page
                                                                    ------------

Independent Auditor's Report - Richard A. Eisner & Company, LLP.....F-3

Independent Auditor's Report - Moore Stephens, P.C..................F-4

Consolidated Balance Sheets.........................................F-5.....F-6

Consolidated Statements of Operations...............................F-7.....F-8

Consolidated Statements of Stockholders' Equity.....................F-9

Consolidated Statements of Cash Flows...............................F-10....F-12

Notes to Consolidated Financial Statements .........................F-13....F-28



                              . . . . . . . . . . .

                                      F - 2
<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders of
Netsmart Technologies, Inc.
Islip, New York


                     We have audited the accompanying consolidated balance sheet
of Netsmart Technologies,  Inc.  and  subsidiary  as of  December  31, 1999 and
1998 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for the years then ended. These consolidated  financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

                     We  conducted  our  audits  in  accordance  with  generally
accepted auditing standards.  Those standards  require that we plan and perform
the audit to obtain reasonable assurance   about  whether  the  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.  An audit also includes assessing the  accounting
principles  used and  significant  estimates  made by management,  as well as
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

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


Richard A. Eisner & Company, LLP

New York, New York
March 9, 2000
                                      F - 3
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders of
  Netsmart Technologies, Inc.
  Islip, New York


        We have audited the accompanying  consolidated statements of operations,
stockholders'  equity,  and cash flows for Netsmart  Technologies,  Inc. and its
subsidiary for the year ended December 31, 1997.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

        In our opinion, the consolidated  financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Netsmart Technologies, Inc. and its  subsidiaries for the year
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.




Moore Stephens, P.C.
Certified Public Accountants

Cranford, New Jersey
March 26, 1998


                                      F - 4
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

                                                         December 31,
                                                         ------------
                                                     1 9 9 9        1 9 9 8
                                                     -------        -------
Assets:
Current Assets:
        Cash and Cash Equivalents                  $   204,989       $   198,689
        Accounts Receivable - Net                    5,789,734         3,600,025
        Costs and Estimated Profits in Excess
          of Interim Billings                        4,253,072         2,899,695
        Note Receivable                                150,000           150,000
        Other Current Assets                           167,516           109,595
                                                   -----------       -----------

        Total Current Assets                        10,565,311         6,958,004
                                                   -----------       -----------

Property and Equipment - Net                           534,864           354,036
                                                   -----------       -----------

Other Assets:
        Software Development Costs - Net               310,722           142,450
        Customer Lists - Net                         2,399,108         2,733,392
        Other Assets                                   162,472           101,064
                                                   -----------       -----------

        Total Other Assets                           2,872,302         2,976,906
                                                   -----------       -----------

        Total Assets                               $13,972,477       $10,288,946
                                                   ===========       ===========


See Notes to Consolidated Financial Statements.

                                      F - 5
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

                                                                         December 31,
                                                                         ------------
                                                                   1 9 9 9           1 9 9 8
                                                                   -------           -------
<S>                                                        <C>                  <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
     Notes Payable                                           $    882,404         $  1,639,694
     Capitalized Lease Obligations                                 25,385               27,283
     Accounts Payable                                           2,562,087            2,166,333
     Accrued Expenses                                           1,243,548            1,178,893
     Interim Billings in Excess of Costs and Estimated
       Profits                                                  3,750,847            1,803,999
     Due to Related Parties                                                             84,000
     Deferred Revenue                                              88,546               47,619
                                                               ----------           ----------

Total Current Liabilities                                       8,552,817            6,947,821
                                                               ----------           ----------

Capitalized Lease Obligations                                      64,627               57,033
                                                               ----------           ----------
Commitments and Contingencies (Note 13)

Stockholders' Equity:
     Preferred Stock, $.01 Par Value;
     Authorized 3,000,000 shares

     Series D 6%  Redeemable  Preferred  Stock - $.01 Par
       Value 3,000  Shares Authorized, none outstanding
       at December 31, 1999,  1,210 Issued and
       outstanding at December 31, 1998 [Liquidation
       Preference of $1,210 and redemption value
       of $1,210,000]                                                                       12

     Additional Paid-in Capital - Series D Preferred Stock                           1,209,509

     Common Stock - $.01 Par Value; Authorized
       15,000,000 Shares; Issued 2,988,738 Shares
       at December 31, 1999, 2,786,921 Shares at
       December 31, 1998                                           29,887               27,869

     Additional Paid-in Capital - Common Stock                 18,657,579           17,203,904

     Accumulated Deficit                                      (13,272,433)         (15,097,202)
                                                               ----------           ----------
                                                                5,415,033            3,344,092

     Less cost of 5,333 Common Shares held in
       Treasury                                                    60,000               60,000
                                                               ----------           ----------

     Total Stockholders' Equity                                 5,355,033            3,284,092
                                                               ----------           ----------

     Total Liabilities and Stockholders' Equity              $ 13,972,477         $ 10,288,946
                                                               ===========          ==========



See Notes to Consolidated Financial Statements.

                                      F - 6
</TABLE>
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

                                                              Y e a r s  e n d e d
                                                              --------------------
                                                             D e c e m b e r   3 1,
                                                             ----------------------
                                                   1 9 9 9          1 9 9 8          1 9 9 7
                                                   -------          -------          -------
<S>                                         <C>                <C>                 <C>

Revenues:
  Software and Related
    Systems and Services:
    General                                      $17,085,603      $  9,569,100      $ 4,119,780
    Maintenance Contract
      Services                                     2,257,869         1,431,695        1,280,465
                                                  ----------       -----------       ----------
    Total Software and Related
      Systems and Services                        19,343,472        11,000,795        5,400,245

  Data Center Services                             1,908,158         2,164,472        2,235,209
                                                  ----------       -----------       ----------

  Total Revenues                                  21,251,630        13,165,267         7,635,454
                                                  ----------       -----------       -----------

Cost of Revenues:
  Software and Related
    Systems and Services:
    General                                       11,054,960         5,975,249         2,493,739
    Maintenance Contract
      Services                                     1,713,759           975,212           928,316
                                                  ----------       -----------       -----------

    Total Software and Related
      Systems and Services                        12,768,719         6,950,461         3,422,055

  Data Center Services                             1,107,571         1,131,078         1,466,107
                                                  ----------       -----------       -----------

  Total Cost of Revenues                          13,876,290         8,081,539         4,888,162
                                                  ----------       -----------       -----------

Gross Profit                                       7,375,340         5,083,728         2,747,292
Selling, General and
  Administrative Expenses                          4,552,866         3,516,288         2,901,724

Financing Costs                                      127,000               --                --

Related Party Administrative Expense                                    45,000           180,000

Research and Development                             800,470           763,059           201,075
                                                  ----------       -----------       -----------

Income (Loss) from Continuing
  Operations before Interest Expense               1,895,004           759,381          (535,507)

Interest Expense                                     250,235           346,114           308,169
                                                  ----------       -----------       -----------

Income (Loss) from Continuing Operations           1,644,769           413,267          (843,676)
                                                  ----------       -----------       -----------

See Notes to Consolidated Financial Statements.

                                      F - 7
</TABLE>
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

                                                              Y e a r s  e n d e d
                                                              --------------------
                                                             D e c e m b e r   3 1,
                                                             ----------------------
                                                   1 9 9 9          1 9 9 8          1 9 9 7
                                                   -------          -------          -------
<S>                                             <C>             <C>              <C>

Discontinued Operations:
  Loss from Discontinued Operations                      -            (397,018)       (2,615,049)
  Gain on Sale of Discontinued Operations             180,000          180,000               --
                                                   ----------        ---------         ---------

  Income (Loss) from Discontinued Operations          180,000         (217,018)       (2,615,049)
                                                   ----------        ---------         ---------

  Net Income (Loss)                                 1,824,769          196,249        (3,458,725)

  Less Cumulative Preferred Stock Dividends               -             72,600            48,400
                                                   ----------        ---------         ---------

  Net Income (Loss) Applicable to Common Stock    $ 1,824,769       $  123,649       $(3,507,125)
                                                   ==========        =========         =========


Earnings Per Share of Common Stock:
  Basic:
    Income (Loss) from Continuing Operations      $       .56       $      .12       $      (.37)
    Income (Loss) from Discontinued Operations            .06             (.08)            (1.10)
                                                   ----------        ---------         ---------

    Net Income (Loss)                             $       .62       $      .04       $     (1.47)
                                                   ==========        =========         =========

    Weighted Average Number of Shares of
      Common Stock Outstanding                      2,921,254        2,779,655         2,386,953
                                                   ==========        =========         =========

  Diluted:
    Income (Loss) from Continuing Operations      $       .47       $      .12       $      (.37)
    Income (Loss) from Discontinued Operations            .05             (.08)            (1.10)
                                                   ----------        ---------         ---------

    Net Income (Loss)                             $       .52       $      .04       $     (1.47)
                                                   ==========        =========         =========

    Weighted Average Number of Shares of
      Common Stock Outstanding                      3,516,317        2,864,993         2,386,953
                                                   ==========        =========         =========


See Notes to Consolidated Financial Statements.


                                      F - 8
</TABLE>
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------

                                          Additional                    Additional
                                           Paid-in                       Paid-in
                            Series D       Capital                       Capital                                        Total
                            --------       -------                       -------                                        -----
                         Preferred Stock  Preferred    Common Stock       Common     Accumulated   Treasury  Shares  Stockholders'
                         ---------------  ---------    ------------       ------     -----------   --------  ------  -------------
                         Shares  Amount    Stock     Shares     Amount    Stock       Deficit       Shares   Cost       Equity
                         ------  ------    -----     ------     ------    -----       -------       ------   ----       ------

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

Balance -
December 31, 1996        1,210    $ 12   $1,209,509  2,266,068  $22,661 $14,908,649 $(11,725,825)                     $ 4,415,006

Common Stock Issued
as Dividends on                                          4,267       43     108,858     (108,901)                             --
Preferred Stock

Common Stock Issued -
Exercise of Options                                     54,926      549      40,363                                        40,912

Common Stock Issued -
Exercise of Warrants                                   426,071    4,260   1,913,061                                     1,917,321

Cost Associated with
Exercise of Warrants                                                        (74,995)                                      (74,995)

Common Stock Issued -
Johnson Acquisition                                     26,667      267     299,733                                       300,000

Net Loss                                                                              (3,458,725)                      (3,458,725)
                         -----     ----   ---------  ---------   ------  ----------   ---------     -----    ------     ---------

Balance -
December 31, 1997        1,210      12    1,209,509  2,777,999   27,780  17,195,668  (15,293,451)                       3,139,518

Common Stock Issued -
Exercise of Options                                      8,922       89       8,236                                         8,325

Purchase of
Treasury Shares                                                                                     5,333   $(60,000)     (60,000)

Net Income                                                                               196,249                          196,249
                         -----     ----   ---------  ---------   ------  ----------   ----------    -----    -------    ---------

Balance -
December 31, 1998        1,210      12    1,209,509  2,786,921   27,869  17,203,904  (15,097,202)   5,333    (60,000)   3,284,092

Common Stock Issued -
Exercise of Options                                     99,317      993     112,554                                       113,547

Common Stock Issued -
Consultant                                               2,500       25       5,600                                         5,625

Common Stock Issued     (1,210)    (12)  (1,209,509)   100,000    1,000   1,208,521                                           --
for Redemption of
Series D Preferred
Stock

Issuance and
Extension of
Warrants                                                                    127,000                                       127,000

Net Income                                                                             1,824,769                        1,824,769
                         -----     ----   ---------  ---------   ------  ----------   ----------    -----    -------    ---------

December 31, 1999          --       --          --   2,988,738  $29,887 $18,657,579 $(13,272,433)   5,333   $(60,000)  $5,355,033
                         =====     ====   =========  =========   ======  ==========   ==========    =====    =======    =========

See Notes to Consolidated Financial Statements.

                                                       F - 9
</TABLE>
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

                                                                     Y e a r s  e n d e d
                                                                     --------------------
                                                                    D e c e m b e r   3 1,
                                                                    ----------------------
                                                         1 9 9 9           1 9 9 8           1 9 9 7
                                                         -------           -------           -------
<S>                                                      <C>              <C>            <C>
Operating Activities:
  Income (Loss) from Continuing Operations            $ 1,644,769       $    413,267      $  (843,676)
                                                        ---------         ----------        ----------
  Adjustments to Reconcile Income
   (Loss) from Continuing  Operations to Net Cash
    Provided by (Used for) Operating Activities:
    Depreciation and Amortization                         600,907            561,562          600,990
    Financing Costs Related to Issuance
       and Extension of Warrants                          127,000
    Financing Expenses related to the issuance
      of Common Stock                                       5,625
  Cash Used in Discontinued Operations                                      (367,018)      (2,615,049)
  Write Off of Capitalized Software Cost
    and Related Hardware                                                                      553,061
    Equity in Net Loss of Joint Venture                                                       287,131
    Provision for Doubtful Accounts                        84,000             60,000           60,000

  Changes in Assets and Liabilities:
    [Increase] Decrease in:
      Accounts Receivable                              (2,273,709)        (1,477,607)         452,032
      Costs and Estimated Profits in
        Excess of Interim Billings                     (1,353,377)        (2,357,371)         (20,538)
      Other Current Assets                                (57,921)           (25,825)          (1,565)
      Other Assets                                        (61,408)             5,839           11,905

    Increase [Decrease] in:
      Accounts Payable                                    395,754          1,034,641          148,536
      Accrued Expenses                                     64,655            102,773           50,045
      Interim Billings in Excess of
        Costs and Estimated Profits                     1,946,848            852,114         (150,220)
      Due to Related Parties                                                                  (21,245)
      Deferred Revenue                                     40,927            (69,461)          (4,439)
                                                        ---------          ---------        ---------

    Total Adjustments                                    (480,699)        (1,680,353)        (649,356)
                                                        ---------          ---------        ---------

  Net Cash Provided by (Used For)
    Operating Activities                                1,164,070         (1,267,086)      (1,493,032)
                                                        ---------          ---------        ---------

Investing Activities:
  Acquisition of Property and
    Equipment                                            (406,751)          (222,031)        (216,041)
  Software Development Costs                             (208,972)                           (462,000)
  Cash Provided by Discontinued Operations                180,000
  Investment in Joint Venture                                                                (166,585)
                                                        ---------          ---------        ---------

  Net Cash Used For Investing Activities                 (435,723)          (222,031)        (844,626)
                                                        ---------          ---------        ---------

See Notes to Consolidated Financial Statements.

                                     F - 10
</TABLE>
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

                                                                     Y e a r s  e n d e d
                                                                     --------------------
                                                                    D e c e m b e r   3 1,
                                                                    ----------------------
                                                         1 9 9 9           1 9 9 8           1 9 9 7
                                                         -------           -------           -------
<S>                                                    <C>               <C>              <C>
Financing Activities:
  Proceeds from Short-Term Notes                            882,404         704,517            345,146
  Payment of Short-Term Notes                            (1,639,694)
  Proceeds from Capitalized Lease Obligation                 40,000
  Proceeds of loans from Related Parties                                    140,000
  Repayment of loans from related parties                   (84,000)        (56,000)
  Payment of Capitalized Lease Obligations                  (34,304)        (15,658)           (34,063)

  Proceeds from Warrant Exercise                                                             1,917,319
  Proceeds from Stock Option Exercise                       113,547           8,325             40,913
  Purchase of Treasury Shares                                               (25,000)
  Costs associated with issuance of Stock                                                      (74,995)
  Other                                                                      76,643
                                                          ---------        --------          ---------

  Net Cash (Used in)provided by
    Financing Activities                                   (722,047)        832,827          2,194,320
                                                          ---------        --------          ---------

  Net Increase [Decrease] in Cash
    and Cash Equivalents                                      6,300        (656,290)          (143,338)

  Cash and Cash Equivalents -
    Beginning of Year                                       198,689         854,979            998,317
                                                          ---------        --------          ---------

  Cash and Cash Equivalents -
    End of Year                                         $   204,989        $198,689         $  854,979
                                                          =========        ========          =========

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the years for:
    Interest                                            $   262,884        $353,713         $  352,837
    Income Taxes                                        $    41,478        $ 16,934         $      --



Supplemental Disclosures of Non-Cash Investing and Financing Activities:

Year ended December 31, 1999:

Pursuant to a March 25, 1999 agreement between us, Consolidated Technology Group
Ltd.,  now known as The Sagemark  Companies,  SIS Capital  Corp., a wholly-owned
subsidiary of Consolidated, and a group of purchasers, consisting principally of
the  Company's  management  and  directors,   on  April  8,  1999,  Consolidated
transferred  to us the 1,210  shares  of the  Company's  Series D 6%  Redeemable
Preferred  Stock,  including  the  right  to  receive  $145,200  of  accumulated
dividends,  and warrants to purchase  shares of our common stock in exchange for
which the Company  issued  100,000  shares of common stock to SIS  Capital.  The
shares  of  Series  D  Preferred  Stock  and the  annual  dividends  of  $72,600
associated with the Series D Preferred Stock have been cancelled.


Year ended December 31, 1998:

5,333 shares of Common Stock were  repurchased  from Johnson  Computing  Systems
pursuant to the  acquisition  agreement,  at a cost of $60,000 which was paid by
the issuance of a short term note.

                                     F - 11
</TABLE>
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

Year ended December 31, 1997:

4,267 shares of common stock were issued to Series D Preferred  stockholders  as
dividends which were payable on October 31, 1996 and April 1, 1997. These shares
were valued at $108,900.

The Company  issued 26,667 shares of common stock to acquire  customer lists and
certain other assets of Johnson  Computer  Systems.  These shares were valued at
$300,000.



See Notes to Consolidated Financial Statements.

                                     F - 12

<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #1
--------------------------------------------------------------------------------

[1] The Company

The Company licenses and installs its proprietary software products, operates an
established service bureau and enters into long term maintenance agreements with
behavioral health  organizations and methadone clinics and other substance abuse
facilities throughout the United States.

[2] Summary of Significant Accounting Policies

Principles  of  Consolidation  -  The  financial   statements  include  Netsmart
Technologies,  Inc.  ["Netsmart"],  and its  wholly-owned  subsidiary,  Creative
Socio-Medics  Corp.  ["CSM"] as well as PsyMedX,  a joint venture which Netsmart
owns  80%   (collectively   referred  to  as  the  Company).   All  intercompany
transactions are eliminated in consolidation.

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

Cash and Cash Equivalents - The Company considers all highly liquid  instruments
purchased with a maturity of three months or less to be cash  equivalents.  Cash
equivalents totaled approximately $192,000 and $249,000 at December 31, 1999 and
1998 respectively.

Concentration  of Credit Risk - The Company  extends  credit to customers  which
results in accounts receivable arising from its normal business activities.  The
Company  does not require  collateral  or other  security  to support  financial
instruments subject to credit risk. The Company routinely assesses the financial
strength of its customers and based upon factors  surrounding the credit risk of
the  customers  believes  that its accounts  receivable  credit risk exposure is
limited.

The Company's  behavioral health information systems are marketed to specialized
care facilities,  many of which are operated by government  entities and include
entitlement  programs.  During the years ended December 31, 1999, 1998 and 1997,
approximately  55%, 52% and 35%  respectively,  of the  Company's  revenues were
generated from contracts with government agencies.

During  the  year  ended   December  31,  1999,   one  customer   accounted  for
approximately $3,835,000 or 18% of revenue. Accounts receivable of approximately
$69,000 and costs and estimated  profits in excess of billing of $1,805,000 less
$170,000 in interim  billings in excess of costs and estimated  profits were due
from this customer at December 31, 1999.

During the year  ended  December  31,  1998,  the same  customer  accounted  for
approximately $2,113,000 or 16% of revenue. Accounts receivable of approximately
$853,000  and costs and  estimated  profits in excess of billings of  $1,260,000
less $318,000 in interim billings in excess of costs and estimated  profits were
due from this customer at December 31, 1998. No one customer  accounted for more
than 10% of revenues in 1997.

The  Company  places  its cash and cash  equivalents  with high  credit  quality
financial  institutions.  The  amount on  deposit  in any one  institution  that
exceeds federally insured limits is subject to credit risk. At December 31, 1999
and 1998, cash and cash equivalent balances of $90,000 and

                                     F - 13
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
--------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies - [Continued]

$150,000  respectively,  were  held at a  financial  institution  in  excess  of
federally insured limits.  The Company believes no significant  concentration of
credit risk exists with respect to these cash equivalents.

Revenue Recognition - During 1997, the Accounting  Standards Executive Committee
of the  American  Institute  of Certified  Public  Accountants  issued SOP 97-2,
"Software   Revenue   Recognition."   This  SOP  provides  guidance  on  revenue
recognition on software  transactions and is effective for transactions  entered
into in fiscal years  beginning after December 15, 1997. The company adopted SOP
97-2 in 1998.  The  adoption  did not have a  material  impact on the  financial
position or results of operations of the Company. The Company recognizes revenue
principally  from  the  licensing  of its  software,  and  from  consulting  and
maintenance  services  rendered in connection  with such  licensing  activities.
Information  processing  revenues  are  recognized  in the  period  in which the
service is provided.  Maintenance  contract revenue is recognized on a straight-
line basis over the life of the  respective  contract.  The Company also derives
revenue from the sale of third party hardware and software.  Consulting  revenue
is recognized when the services are rendered.  No revenue is recognized prior to
obtaining a binding commitment from the customer.

Software development revenue from time-and-materials contracts are recognized as
services are performed.  Revenue from fixed price software development contracts
and revenue under license agreements which require  significant  modification of
the software  package to the  customer's  specifications,  are recognized on the
estimated  percentage-of-completion  method.  Using the units- of-work performed
method to measure progress towards  completion,  revisions in cost estimates and
recognition of losses on these contracts are reflected in the accounting  period
in  which  the  facts  become  known.  Revenue  from  software  package  license
agreements without significant vendor obligations is recognized upon delivery of
the  software.  Contract  terms provide for billing  schedules  that differ from
revenue  recognition  and give rise to costs and estimated  profits in excess of
billings, and billings in excess of costs and estimated profits.

Deferred revenue represents revenue billed and collected but not yet earned.

The cost of  maintenance  revenue,  which  consists  solely of staff payroll and
applicable overhead, is expensed as incurred.

Property and  Equipment and  Depreciation  - Property and equipment is stated at
cost less  accumulated  depreciation.  Depreciation of property and equipment is
computed by the  straight-line  method at rates adequate to allocate the cost of
applicable  assets over their expected  useful lives.  Amortization of leasehold
improvements  is computed  using the  shorter of the lease term or the  expected
useful life of these assets.

Estimated useful lives are as follows:

Equipment                                 3-5 Years
Furniture and Fixtures                      5 Years
Leasehold Improvements                      5 Years

Capitalized  Software  Development  Costs - Capitalization  of computer software
development  costs begins upon the  establishment of technological  feasibility.
Technological  feasibility  for the  Company's  computer  software  products  is
generally  based upon  achievement  of a detail program design free of high risk
development issues. The establishment of technological feasibility and the

                                     F - 14
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
--------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies - [Continued]

ongoing   assessment  of   recoverability   of  capitalized   computer  software
development costs requires considerable  judgement by management with respect to
certain  external  factors,   including,   but  not  limited  to,  technological
feasibility,  anticipated  future gross  revenues,  estimated  economic life and
changes in software and hardware technology.

Amortization of capitalized  computer software  development costs commences when
the  related  products  become  available  for  general  release  to  customers.
Amortization is provided on a product by product basis. The annual  amortization
is the greater of the amount  computed  using (a) the ratio that  current  gross
revenues for a product bear to the total of current and anticipated future gross
revenues for that  product or (b) the  straight-line  method over the  remaining
estimated economic life of the product.

The Company periodically performs reviews of the  recoverability of such
capitalized software costs. At the time a determination is made that capitalized
amounts are not  recoverable  based on the  estimated  cash flows to be
generated  from the applicable software net realizable value, any remaining
capitalized amounts are written off.

During 1999, the Company established PsyMedX, a joint venture with Pathware Inc.
The Company  owns 80% of PsyMedX and  Pathware,  Inc.  owns 20%.  The  agreement
focuses on a joint  effort to develop  and  market web portal  services  and ASP
solutions  for the  behavioral  healthcare  providers,  consumers  and  managers
throughout the United States.  As of December 31, 1999, the Company has invested
approximately   $209,000  in  this  venture  which  was  expended  for  software
development costs.

Information  related to  capitalized  software  costs  applicable  to continuing
operations is as follows:

        Years ended December 31                      1999            1998
        -----------------------                      ----            ----

        Beginning of Year                          $142,450       $183,150
        Capitalized                                 208,972            --
        Amortization                                (40,700)       (40,700)
                                                    -------        -------

          Net                                      $310,722      $ 142,450
          ---                                       =======       ========

Customer  Lists -  Customer  lists  represent  a listing of  customers  obtained
through the acquisition of CSM to which the Company can market its products.  It
also represents a listing of customers  acquired from Johnson  Computing Systems
("Johnson")  in 1997. The gross costs of the customer list acquired from Johnson
was $255,409.  Customer lists are being  amortized on the  straight-line  method
over an estimated useful life of 12 years.
Customer lists at December 31, 1999 and 1998 are as follows:

                                                        December 31,
                                                        ------------
                                                   1 9 9 9           1 9 9 8
                                                   -------           -------

Customer Lists                                    $4,106,223       $4,106,223
Less: Accumulated Amortization                     1,707,115        1,372,831
                                                   ---------        ---------

  Net                                             $2,399,108       $2,733,392
  ---                                              =========        =========


The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."  SFAS No. 121 established accounting standards for
the impairment of long-lived assets and certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of.  Management has

                                     F - 15
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
--------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies - [Continued]

determined that expected future cash flows  (undiscounted  and without  interest
charges) exceed the carrying value of the long lived assets at December 31, 1999
and believes that no impairment of these assets has occurred.

Stock  Options  and  Similar  Equity  Instruments  -  The  Company  adopted  the
disclosure  requirements of Statement of Financial Accounting Standards ("SFAS")
No.  123,  "Accounting  for  Stock-Based  Compensation,"  for stock  options and
similar  equity  instruments  (collectively,  "Options")  issued  to  employees,
however,  the Company  continues  to apply the  intrinsic  value based method of
accounting for options issued to employees  prescribed by Accounting  Principles
Board ("APB") Opinion No. 25,  "Accounting for Stock Issued to Employees" rather
than the fair value based method of accounting  prescribed by SFAS No. 123. SFAS
No.  123 also  applies  to  transactions  in which an entity  issues  its equity
instruments to acquire goods or services from non- employees. Those transactions
are accounted for based on the fair value of the  consideration  received or the
fair  value  of the  equity  instruments  issued,  whichever  is  more  reliably
measurable.

Earnings  (Loss) Per Share - Basic earnings  (loss) per common share is computed
by dividing income (loss) from continuing operations and net income (loss) after
each is  adjusted  for  dividends  accrued  during  the  period on the  Series D
cumulative  preferred  stock by the  weighted  average  number of common  shares
outstanding during the period. Diluted earnings per share reflects the amount of
earnings  for the period  available  to each share of common  stock  outstanding
during the reporting period, giving effect to all potentially dilutive shares of
common stock from the potential exercise of stock options and warrants.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise or contingent  issuance of securities  that would have an  antidilutive
effect on earnings per share (i.e.  improving  earnings per share). The dilutive
effect of outstanding  options and warrants and their  equivalents are reflected
in dilutive  earnings per share by the application of the treasury stock method.
Options and warrants  will have a dilutive  effect only when the average  market
price of the common  stock during the period  exceeds the exercise  price of the
options or warrants.

All per share information has been retroactively  adjusted for the one-for-three
reverse stock split which became effective September 1998.

Research and Development - Research and development costs are charged to expense
as incurred.

[3] Accounts Receivable

Accounts  receivable is shown net of allowance for doubtful accounts of $305,226
and  $372,797 at December  31,  1999 and 1998  respectively.  The changes in the
allowance for doubtful accounts are summarized as follows:

                                                    December 31,
                                            -------------------------------
                                            1999          1998         1997
                                            ----          ----         ----

        Beginning Balance                   $ 372,797     $348,029     $288,029
        Provision for Doubtful Accounts        84,000       60,000       60,000
        Charge-offs                          (151,571)     (35,232)
                                             --------      -------      -------

        Ending Balance                      $ 305,226      372,797     $348,029
                                             ========      =======      =======

                                     F - 16
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
--------------------------------------------------------------------------------

[4] Costs and Estimated Profits in Excess of Interim Billings and Interim
Billings in Excess of Costs and Estimated Profits

Costs,  estimated profits, and billings on uncompleted  contracts are summarized
as follows:

                                                        December 31,
                                                        ------------
                                                    1 9 9 9           1 9 9 8
                                                    -------           -------

Costs Incurred on Uncompleted Contracts           $12,582,652      $ 4,259,190
Estimated Profits                                   7,446,962        4,038,247
                                                   ----------        ---------

Total                                              20,029,614        8,297,437
Billings to Date                                   19,527,389        7,201,741
                                                   ----------        ---------

    Net                                           $   502,225      $ 1,095,696
    ---                                            ==========        =========

Included in the accompanying balance sheet under the following captions:

Costs and estimated profits in
  excess of interim billings                      $ 4,253,072      $ 2,899,695
Interim billings in excess of
  costs and estimated profits                      (3,750,847)      (1,803,999)
                                                   ----------        ---------

    Net                                           $   502,225      $ 1,095,696
    ---                                            ==========        =========



[5] Discontinued Operations

During 1998 the Company  discontinued its CarteSmart division which included its
interest in a joint  venture.  On June 30, 1998, the Company sold this division,
with an option to purchase the  Company's  interest in the joint  venture if the
other party to the venture did not elect to acquire the Company's  interest,  to
Granite  Technologies,  Inc.  ("Granite"),  a  corporation  formed by the former
management  of  the  division.  Granite  issued  to  the  Company  its  $500,000
promissory  note and an equity  interest in Granite  equal to 20% at the time of
transaction.  Granite also agreed to pay certain  royalties to the Company.  The
note was subject to cancellation if the other party to the joint venture elected
to purchase the  Company's  interest.  As the Company has virtually no influence
over the financing and  operating  policies of Granite,  the interest in Granite
accounted for using the cost method.

As a result of the  discontinuation  of the CarteSmart  division,  the financial
statements  for the periods being reported have been restated to reflect the net
loss from the CarteSmart  division as a loss from discontinued  operations.  The
revenues from the  discontinued  operations  amounted to $33,000 and $246,000 in
1998 and 1997 respectively.

In October 1998, the other party to the joint venture  exercised  their right to
purchase the Company's  interest in the joint venture for a $500,000  note.  The
terms of the note  require  twenty four  monthly  principal  payments of $15,000
each, commencing November 1, 1998 and a $140,000 balloon payment due November 1,
2000.  The note also bears  interest at 5.66% per annum.  The Company valued the
note at $180,000 at December 31, 1998 based on  managements  estimates of future
collections  on the note. As all payments have been  received  through  February
2000 on a timely basis the company recognized an additional $180,000 of value in
1999.

During the fourth  quarter of 1999,  the Company was informed that a third party
made a $1.2 million investment in Granite. This transaction is not indicative of
the value of the Company's  investment in Granite.  The Company's  cost basis of
its investment in Granite on its balance sheet is zero.

                                     F - 17

<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
--------------------------------------------------------------------------------

[6] Property and Equipment

Property and equipment consist of the following:
                                                           December 31,
                                                           ------------
                                                        1 9 9 9      1 9 9 8
                                                        -------      -------

Equipment, Furniture and Fixtures                    $  869,497      $ 672,692
Leasehold Improvements                                  264,153        247,609
                                                      ---------       --------

Totals - At Cost                                      1,133,650        920,301
Less:  Accumulated Depreciation                         598,786        566,265
                                                      ---------       --------

    Net                                              $  534,864      $ 354,036
    ---                                               =========       ========

Depreciation expense amounted to $225,923, $176,578, and $169,558,  respectively
for the years ended December 31, 1999, 1998 and 1997.


[7] Related Party Transactions

[A] Related Party Administrative Expense - The Company had an agreement with its
then principal stockholder, Consolidated Technology Group Ltd. (now known as The
Sagemark Companies Ltd.) and its subsidiary The Trinity Group, Inc.  ("Trinity")
pursuant to which the Company  paid Trinity a monthly fee of $15,000 for general
business,  management  and financial  consulting  services.  This  agreement was
mutually  terminated,  effective April 1, 1998.  Pursuant to this agreement,  in
1998, and 1997 the Company charged $45,000, and $180,000 respectively to related
party administrative expenses.

[B] Loans by Related  Parties - During 1998,  certain  officers and employees of
the Company  loaned the Company  $140,000  for which the Company  issued its 18%
installment  notes.  These  loans  were  repaid in five  quarterly  installments
commencing September 30, 1998 and ending September 30, 1999.

[8] Notes Payable

Asset-Based  Lender - In October 1999,  the Company  entered into a new two year
credit facility  agreement with a Bank.  Under this  agreement,  the Company can
draw up to 80% of eligible accounts  receivable up to $3.5 million,  on which it
pays interest at 2% above the prime rate. The credit facility with the Company's
prior lender  limited the Company's  availability  to $2 million at 5% above the
prime rate.  All of the accounts  receivable  and property and  equipment of the
Company  and its  subsidiary  collateralize  the note.  Borrowings  under  these
facilities  were  $882,404  and  $1,639,694  at  December  31,  1999  and  1998,
respectively.

The weighted  average interest rate on short-term  borrowings  outstanding as of
December 31, 1999 and 1998 amounted to approximately 16% and 19% respectively.


                                     F - 18
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
--------------------------------------------------------------------------------

[9] Income Taxes

The Company utilizes an asset and liability  approach to determine the extent of
any deferred  income  taxes,  as described in Statement of Financial  Accounting
Standards   No.  109,   "Accounting   for  Income   Taxes."  This  method  gives
consideration to the future tax consequences associated with differences between
financial statement and tax bases of assets and liabilities.

At December  31,  1999,  the Company has net  operating  loss  carryforwards  of
$9,424,000  expiring by 2012.  Pursuant to Section 382 of the  Internal  Revenue
Code regarding substantial changes in Company ownership, utilization of this net
operating loss carryforward is limited to $1,360,000 per year.

The expiration dates of net operating loss carryforwards are as follows:

December 31,                                   Amount
------------                                   ------

    2010                                      3,233,000
    2011                                      2,930,000
    2012                                      3,261,000
                                              ---------
                                             $9,424,000
                                              =========

The Deferred Tax Asset consists primarily of the following:

  Benefit of federal and state net operating loss carryforwards     $ 3,770,000
  Benefit of stock based compensation awards                          1,400,000
  Less: Valuation Allowance                                          (5,170,000)
                                                                      ---------

 Net Deferred Tax Asset                                             $       --
-----------------------                                               =========

The  Company  has  provided a  valuation  allowance  for the full  amount of the
deferred tax asset of  approximately  $5,170,000  as its future  utilization  is
uncertain.  The Valuation  Allowance decreased by $730,000 in 1999 and increased
by $300,000 and $900,000 in 1998 and 1997 respectively.

The  provision  for income  taxes  varies  from the amount  computed by applying
statutory rates for the reasons summarized below:
                                               1999          1998         1997
                                               ----          ----         ----
Provision Based on Statutory Rates              34%          34%          (34)%
State Taxes Net of Federal Benefit               6%           6%           (6)%
(Decrease) Increase in Valuation Allowance     (40)%        (40)%          40%
                                               ----         ----          ----

  Total                                         -- %         -- %          -- %
                                               ====         ====          ====


[10] Capital Stock

At the close of business on September 14, 1998, a one-for-three reverse split of
the common  stock  became  effective.  All common stock and per shares of common
stock data in the financial  statements  and notes have been adjusted to reflect
this reverse split.

Capital Stock - The Company is authorized to issue 3,000,000 shares of preferred
stock,  par value $.01 per share,  and  15,000,000  shares of common stock,  par
value $.01 per share.  The  Company's  Board of Directors is authorized to issue
preferred stock from time to time without stockholder


                                     F - 19
<PAGE>


NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
--------------------------------------------------------------------------------

[10] Capital Stock - [Continued]

action, in one or more distinct series.  The Board of Directors is authorized to
determine  the rights  and  preferences  of the  preferred  stock.  The Board of
Directors  has  authorized  the  issuance  of  Series A,  Series B and  Series D
preferred  Stock. No shares of any series of preferred stock were outstanding on
December 31, 1999.

Pursuant  to a March 25,  1999,  agreement  between  the  Company,  Consolidated
Technology Group Ltd. and a group of purchasers,  consisting  principally of the
Company's management and directors, on April 8, 1999,  Consolidated  transferred
to the  Company  the  1,210  shares  of the  Company's  Series  D 6%  Redeemable
Preferred  Stock,  including  the  right  to  receive  $145,200  of  accumulated
dividends  for which  the  Company  issued  100,000  shares  of common  stock to
Consolidated. The shares of Series D Preferred Stock have been cancelled as well
as the annual dividends of $72,600 associated with the Series D Preferred Stock.

Common  Stock  Issuances - On August 19,  1996,  the Company  completed a public
offering  pursuant  to which it received  net  proceeds  of  approximately  $3.8
million from the sale of units  comprised  of an aggregate of 431,250  shares of
Common Stock and Series A Redeemable  Common Stock Purchase  Warrants ("Series A
Warrants") to purchase an aggregate of 215,625  shares of common stock at $13.50
per share through August 1999.

During a 90 day period in 1997,  the terms of the Series A Warrants  were
amended to reduce the exercise price. During such period, the Company received
net proceeds of  approximately  $1.8  million  from the  issuance of an
aggregate of 426,071 shares of common stock upon exercise of Series A Warrants.

In August 1996,  holders of Series B Common Stock Purchase  Warrants  ("Series B
Warrants")  to purchase an aggregate of 266,666  shares of Common Stock at $6.00
per share  exercised such warrants.  The Company  received $1.6 million from the
sale of such shares. See Note 14 for information relating to the issuance of the
Series B Warrants.

Treasury Stock - In 1998,  pursuant to the Johnson Computing Systems  agreement,
the Company  purchased  from Johnson  Computing  Systems  5,333 shares of Common
Stock for $60,000. The shares are treated as treasury shares.

Stock Options - See Note 14 for  information  relating to the Company's 1993 and
1998 Long-Term Incentive Plans.

                                     F - 20

<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
--------------------------------------------------------------------------------

[11] Capitalized Lease Obligations

Future minimum payments under  capitalized  lease obligations as of December 31,
1999 are as follows:

Year ending
-----------
December 31,
------------
      2000                                  $ 35,862
      2001                                    35,862
      2002                                    27,515
      2003                                    10,822
                                             -------

    Total Minimum Payments                   110,061
    Less Amount Representing Interest at
       12.6% to 13.8% Per annum               20,049
                                             -------

    Balance                                 $ 90,012
    -------                                  =======

Capitalized  lease  obligations are  collateralized by equipment which has a net
book value of $97,000 and $82,000 at December  31, 1999 and 1998,  respectively.
Amortization  of  approximately  $19,329,  $10,200 and $10,200 in 1999, 1998 and
1997, respectively, has been included in depreciation expense.


[12] Fair Value of Financial Instruments

The carrying  amount of cash and cash  equivalents,  accounts  receivable,  note
receivable, accounts payable and debt maturing within one year approximated fair
value for these instruments because of their short maturities.

[13] Commitments and Contingencies

The  Company  leases  space  for its  executive  offices  and  facilities  under
noncancellable operating leases expiring December 31, 2003.

Minimum annual rentals under noncancellable  operating leases (net of a sublease
to Granite in the amount of $21,000 per year through  2002) having terms of more
than one year are as follows:

Years ending
------------
December 31,
------------
   2000                                      $  389,000
   2001                                         317,000
   2002                                         329,000
   2003                                         342,000
                                              ---------

    Total                                    $1,377,000
    -----                                     =========

Rent expense amounted to $388,000,  $349,000 and $341,000 respectively,  for the
years ended December 31, 1999, 1998 and 1997.

In July 1998, the Company entered into five-year employment  agreements with its
president and chief executive officer, its vice president - marketing, the chief
executive officer of CSM and its chief financial officer, pursuant to which such
officers  receive a base salary of $160,000,  $140,000,  $140,000 and  $120,000,
respectively, with an annual cost of living adjustment. The agreements


                                     F - 21

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
--------------------------------------------------------------------------------

[13] Commitments and Contingencies - [Continued]

provide that the  executives  are eligible to  participate in a bonus pool to be
determined  annually by the  Compensation  Committee.  Bonuses  awarded to these
executives aggregating $343,000 are included in accrued expenses at December 31,
1999.  The  agreements  also provide each of the  executives  with an automobile
allowance.  In the event the executive's  dismissal or resignation or a material
change in his  duties  or in the event of a  termination  of  employment  by the
executive or the Company as a result of a change of control,  the  executive may
receive severance payments of between 24 and 36 months' compensation.


[14] Stock-Based Compensation

Long Term Incentive Plans - The Company has three long-term incentive plans, the
1993 Long- Term Incentive Plan (the "1993 Plan"), as amended, the 1998 Long-Term
Incentive Plan (the "1998 Plan"), as amended,  and the 1999 Long-Term  Incentive
Plan (the "1999 Plan").  The 1999 plan was approved by the Board of Directors in
November  1999,  covers  150,000  shares  of  common  stock  and is  subject  to
stockholder  approval.  No options  have been granted  under the 1999 Plan.  The
Company may issue  170,333 and 780,000  shares of Common  Stock  pursuant to the
1993 Plan and 1998 Plan, respectively.

Officers  and  other  key  employees,  consultants  and  directors  (other  than
non-employee  directors) are eligible to receive  options or other  equity-based
incentives  under  the  Plans.  The 1993  Plan,  the 1998 Plan and the 1999 Plan
(collectively,  the "Plans") are administered by the  Compensation  Committee of
the board of directors.

The 1998 Plan provides that each non-employee director  automatically receives a
nonqualified stock option to purchase 5,000 shares of Common Stock on April 1 of
each year.  However, if there are not sufficient shares available under the 1998
Plan, the non-employee director will receive a lesser number of shares. The 1998
Plan  also  provided  for the  grant on June 30,  1998,  to each  non-  employee
director,  other than the chairman of the board, of a non-qualified stock option
to purchase  10,000 shares of Common Stock,  and to the chairman of the board, a
non-qualified stock option to purchase 35,000 shares of Common Stock.

In November  1998,  the  Committee  reduced the  exercise  price of  outstanding
options to purchase an aggregate of 43,167  shares of Common  Stock,  from $4.50
per share to $1.50 per  share,  which was in excess of the  market  price on the
date the Committee approved the reduction in the exercise price, and accordingly
did not result in any compensation charge.

                                     F - 22

<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
--------------------------------------------------------------------------------

[14] Stock-Based Compensation - [Continued]

A summary of the activity under the Company's stock option plans is as follows:
<S>                            <C>          <C>         <C>          <C>         <C>         <C>

                                          1999                     1998                   1997
                                   --------------------    ---------------------   ---------------------
                                               Weighted                 Weighted                Weighted
                                               --------                 --------                --------
                                               Average                  Average                 Average
                                               -------                  -------                 -------
                                               Exercise                 Exercise                Exercise
                                               --------                 --------                --------
                                   Shares       Price      Shares        Price     Shares        Price
                                   ------       -----      ------        -----     ------        -----
Outstanding - Beginning of
  Year                            882,358       $1.172     148,780      $3.244    203,706        $2.57
Granted During the Year               --           --      823,167(a)    1.18         --           --
Canceled During the Year              --           --      (80,667)(a)   9.60         --           --
Expired During the Years              --           --          --         --          --           --
Exercised During the Year         (99,317)      $1.143      (8,922)       .723    (54,926)        .745
                                  -------        -----     -------       -----     ------         ----

   Outstanding - End of Year      783,041       $1.176     882,358      $1.172    148,780        $3.244
                                  =======        =====     =======       =====    =======         =====

   Exercisable - End of Year      783,041       $1.176     242,358      $1.338    108,447        $2.492
                                  =======        =====     =======       =====    =======         =====

(a)  Includes  under  "Granted  During  the Year"  43,167  shares  granted  upon
cancellation  of an equal number of shares having an exercise price of $4.50 per
share,  and under  "Cancelled  During the Year" the  cancellation  of options to
purchase 43,167 shares.

The following table summarizes stock option information as of December 31, 1999:

                                            Options Outstanding
                                            -------------------
                                                  Weighted
                                                  --------
                                             Average Remaining         Options
                                             -----------------         -------
Exercise Prices      Number Outstanding       Contractual Life       Exercisable
---------------      ------------------       ----------------       -----------

$1.035                      8,208                .9 Years                8,208
$1.50                      32,333               1.3 Years               32,333
$1.50                     242,500               3.4 Years              242,500
$1.00                     500,000               3.8 Years              500,000
                          -------               ---------              -------

   Totals                 783,041               3.6 Years              783,041
                          =======               =========              =======



Warrants  Issued as Compensation - In February 1996, the Company issued Series B
Common Stock Purchase Warrants to purchase  1,051,250 shares of common stock, of
which warrants to purchase  838,750  shares were  exercisable at $6.00 per share
and  warrants  to  purchase   212,500  are  exercisable  at  $15.00  per  share,
subsequently  adjusted  to  $12,  see  below.  These  warrants  were  issued  in
connection with services rendered,  which, in the case of SIS Capital,  included
the guarantee of certain notes payable.  Certain of the warrants initially had a
November 1998 expiration  date,  which was extended to December 31, 1999,  which
was the expiration  date of all of the warrants.  In December 1999 the remaining
$6 and $12 warrants totaling 287,500 and 448,544, respectively, were extended to
February  29,  2000.  The Company  recognized  a financing  cost of $81,000 with
respect to this  extension.  In  February  2000,  these  warrants  were  further
extended  to April 30,  2000,  which will  result in a charge of $125,000 in the
first quarter of 2000.

                                     F - 23
</TABLE>
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
--------------------------------------------------------------------------------

[14] Stock-Based Compensation - [Continued]

Of the warrants issued in February 1996,  262,500 warrants  exercisable at $6.00
per share and 12,500  warrants  exercisable  at $15.00 per share were  issued to
replace 275,000 warrants  previously  issued in October 1993. These warrants had
exercise prices ranging from $8.00 per share to $30.00 per share.

In July 1996,  pursuant to a warrant  exchange,  (a) the holders of  outstanding
warrants  having a $6.00 exercise price exchanged one third of such warrants for
outstanding warrants to purchase, at an exercise price of $12.00 per share, 150%
of  the  number  of  shares  of  common  stock  issuable  upon  exercise  of the
outstanding  warrants  that were  exchanged,  and (b) the exercise  price of the
outstanding  warrants  that had a $15.00  exercise  price was reduced to $12.00.
Prior to the  warrant  exchange,  there were  outstanding  warrants  to purchase
838,750  shares of common stock at $6.00 per share and  outstanding  warrants to
purchase  879,167 shares of common stock at $15.00 per share  outstanding.  As a
result of the  warrant  exchange,  there were  outstanding  warrants to purchase
559,167  shares of common stock at $6.00 per share and 631,877  shares of common
stock at $12.00 per share. These warrants were exercisable  commencing  February
13, 1997. An affiliate of the Company,  a member of the board of directors and a
Company  controlled by such director,  were given permission to exercise options
in August 1996.  This  individual  and entities  exercised  warrants to purchase
266,667  shares  at $6.00  per  share  in  August  1996.  The  Company  recorded
compensation  expenses  of  $3,337,500  in  relation  to the  issuance  of these
warrants.

In 1996 the Company issued 215,625 Series A Common Stock Purchase  Warrants as a
part of its initial  public  offering of its  securities.  These  warrants  were
exercisable  for the two year  period  commencing  August 13, 1997 at a price of
$13.50 per share.  In addition,  the Company issued 83,333 Series A Common Stock
Purchase  Warrants to various  investors.  These warrants have the same terms as
the  warrants  issued to the  general  public.  During  1997,  213,036  of these
warrants were exercised. The remainder expired in August 1999.

During  1997,  the Company  issued  Series C Common  stock  warrants to purchase
23,333 shares of common stock for  consulting  services in  connection  with the
issuance of a research  report on behalf of the  Company.  These  warrants  were
valued at $.90 per  warrant  which  represented  the fair value of the  services
performed by the  recipient.  These  warrants  have an exercise  price of $15.00
which was the market  value of the stock at the time of issuance  and expired on
December 31, 1999.

During 1999, the Company issued warrants to purchase 45,000 shares in connection
with a financial  advisory  agreement  whereby the Company  will pay consulting
fees in addition to the issuance of the warrants. These warrants were valued at
$.58 per warrant,  which  represented  the cost of the services  based upon the
contractual agreement.  These warrants have an exercise price of $5.45, which
represented  a 15% premium over the market value of the stock at the time of
issuance and will expire in October 2004.

During 1999,  the Company  issued 9,000  warrants for services  rendered.  These
warrants  were  valued  at  $2.20  per  warrant  based  upon  the  Black-Scholes
calculation.  These warrants have an exercise price of $4.20 per warrant,  which
was the market  value of the stock at the time of  issuance  and will  expire in
October 2004.

                                     F - 24

<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
--------------------------------------------------------------------------------

[14] Stock-Based Compensation - [Continued]

A summary of warrant activity is as follows:
<S>                             <C>             <C>        <C>           <C>         <C>          <C>

                                              1999                      1998                     1997
                                     ----------------------    ----------------------    ----------------------
                                                   Weighted                  Weighted                 Weighted
                                                   --------                  --------                 --------
                                                    Average                   Average                  Average
                                                    -------                   -------                  -------
                                                   Exercise                  Exercise                 Exercise
                                                   --------                  --------                 --------
                                     Shares         Price      Shares         Price      Shares        Price
                                     ------         -----      ------         -----      ------        -----

Outstanding - Beginning
  of Year                          1,033,632       $10.49    1,033,632        $10.49   1,223,335      $10.93
Granted, Sold or Extended
  During the Year                    790,044         9.36          --            --       23,333       15.00
Canceled During the Year            (188,333)       11.84          --            --          --          --
Expired During the Year             (845,299)       10.20          --            --          --          --
Exercised During the Year                --           --           --            --     (213,036)      13.50
                                   ---------        -----    ---------         -----   ---------       -----


   Outstanding - End of Year         790,044       $ 9.35    1,033,632        $10.49   1,033,632      $10.49
                                   =========        =====    =========         =====   =========       =====


   Exercisable - End of Year         790,044       $ 9.35    1,033,632        $10.49   1,033,632      $10.49
                                   =========        =====    =========         =====   =========       =====



The following table summarizes warrant information as of December 31, 1999:

                                                            Weighted
                                                            --------
                                                       Average Remaining
                                                       -----------------
Exercise Prices                  Shares                  Contractual Life
---------------                  ------                ------------------
$ 6.00                           287,500                      .3 Year
$12.00                           448,544                      .3 Year
$ 5.45                            45,000                     4.7 Years
$ 4.20                             9,000                     4.7 Years
                                 -------                     ---------

   Total                         790,044                      .6 Years
                                 =======                     =========


                                     F - 25
</TABLE>
<PAGE>

NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
--------------------------------------------------------------------------------

[14] Stock-Based Compensation - [Continued]

The  Company  applies  Accounting  Principles  Board  Opinion  ("APB")  No.  25,
"Accounting  for Stock Issued to Employees,"  and related  interpretations,  for
stock  options  issued to employees in accounting  for its stock options  plans.
There was no  compensation  cost  recognized in income for stock based  employee
compensation awards for 1999, 1998 and 1997.

If  the   Company   had   accounted   for  the   issuance  of  all  options  and
compensation-based  warrants pursuant to the fair value based method of SFAS No.
123, the Company would have recorded  additional  compensation  expense totaling
$609,372 for the year ended December 31, 1998 and the Company's net loss and net
loss per share would have been as follows:

                                                      Year  ended
                                                      -----------
                                                     December 31,
                                                     ------------
                                                         1998
                                                         ----

Net Income as Reported                                 $ 196,249
                                                       =========

Pro Forma Net Loss                                     $(413,123)
                                                       =========

Net Income Attributable to Common Stock                $ 123,649
                                                       =========

Pro-Forma Net Income Attributable to Common Stock      $(485,723)
                                                       =========

Net Income (Loss) Per Share as Reported                $     .04
                                                       =========

Pro Forma Net Loss Per Share                           $    (.17)
                                                       =========

There were no  options or  compensation  based  warrants  issued in 1999 or 1997
which  were  accounted  for under APB No.  25.  The fair  value of  options  and
warrants at date of grant was estimated using the Black-Scholes fair value based
method with the following weighted average assumptions:

                                                         1998
                                                         ----
Expected Life (Years)                                      5
Interest Rate                                           4.87%
Annual Rate of Dividends                                   0%
Volatility                                                70%

The  weighted  average fair value of options and warrants at date of grant using
the fair value based method during 1998 is estimated at $.74.

                                     F - 26
<PAGE>
<TABLE>

NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #15
--------------------------------------------------------------------------------

[15] Operating Segments

The Company currently classifies its operations into two business segments:  (1)
Software and Related Systems and Services and (2) Data Center Services. Software
and Related Systems and Services is the design, installation, implementation and
maintenance  of  computer   information   systems  that  provide   comprehensive
healthcare information technology solutions including billing,  patient tracking
and scheduling for inpatient and  outpatient  environments,  as well as clinical
documentation and medical record generation and management. Data Center Services
involve company personnel performing data entry and data processing services for
customers.  Intersegment  sales and sales  outside  the  United  States  are not
material. Information concerning the Company's business segments is as follows:

                                                               Y e a r s   e n d e d
                                                               ---------------------
                                                               D e c e m b e r  31,
                                                               --------------------
                                                       1 9 9 9           1 9 9 8         1 9 9 7
                                                       -------           -------         -------
<S>                                               <C>               <C>             <C>
Revenues:
---------
      Software and Related Systems and Services     $19,343,472       $11,000,795       $ 5,400,245
      Data Center Services                            1,908,158         2,164,472         2,235,209
                                                     ----------        ----------        ----------

      Total Revenues                                $21,251,630       $13,165,267       $  7,635,454
      --------------                                 ==========        ==========         ==========

Gross Profit:
-------------
      Software and Related Systems and Services     $ 6,574,753       $ 4,050,334       $  1,978,190
      Data Center Services                              800,587         1,033,394            769,102
                                                     ----------        ----------         ----------

      Total Gross Profit                            $ 7,375,340       $ 5,083,728       $  2,747,292
      ------------------                             ==========        ==========         ==========

Income [Loss] From Operations:
------------------------------
      Software and Related Systems and Services     $ 1,494,381       $   342,501       $   (448,801)
      Data Center Services                              400,623           416,880            (86,706)
                                                     ----------        ----------         ----------

      Total Income [Loss] From Operations           $ 1,895,004       $   759,381       $   (535,507)
      -----------------------------------            ==========        ==========         ==========

Depreciation and Amortization:
------------------------------
      Software and Related Systems and Services     $   356,191       $   468,840       $    477,953
      Data Center Services                              244,716            92,722            123,037
                                                     ----------        ----------         ----------

      Total Depreciation and Amortization           $   600,907       $   561,562       $    600,990
      -----------------------------------            ==========        ==========         ==========

Interest Expense:
-----------------
      Software and related systems and services     $   227,767       $   289,210       $    220,774
      Data Center Services                               22,468            56,904             87,395
                                                     ----------        ----------         ----------

      Total Interest Expense                        $   250,235       $   346,114       $    308,169
                                                     ==========        ==========         ==========

Capital Expenditures:
---------------------
      Software and Related Systems and Services     $   595,747       $   188,570       $    636,174
      Data Center Services                               19,976            33,461             41,867
                                                     ----------        ----------         ----------

      Total Capital Expenditures                    $   615,723       $   222,031       $    678,041
      --------------------------                     ==========        ==========         ==========

Identifiable Assets:
--------------------
      Software and Related Systems and Services     $11,757,183       $ 7,740,018       $  4,452,999
      Data Center Services                            2,215,294         2,548,928          2,886,804
                                                     ----------        ----------         ----------

      Total Identifiable Assets                     $13,972,477       $10,288,946       $  7,339,803
      -------------------------                      ==========        ==========         ==========

                                     F - 27
</TABLE>
<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #16
--------------------------------------------------------------------------------

[16] Subsequent Event

In January  2000,  the Company  acquired  the Connex  suite of managed  care and
employee  assistance  program (EAP)  information  systems from Behavioral Health
Partners,  Inc. (BHPI). The acquisition price consisted of approximately $80,000
in cash and 15,528  shares of  Netsmart's  common stock valued at $100,000.  The
purchase price was allocated to computer software in the amount of $180,000.


                                     F - 28

<PAGE>




                                   SIGNATURES

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



                                                   NETSMART TECHNOLOGIES, INC.

Date: March 29, 2000                                /s/ James L. Conway
                                                    -------------------
                                                    James L. Conway, President

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates  indicated.  Each person whose
signature appears below hereby authorizes Edward D. Bright,  James L. Conway and
Anthony F.  Grisanti or any of them acting in the absence of the others,  as his
true and lawful  attorney-in-fact and agent, with full power of substitution and
resubstitution  for  him  and in his  name,  place  and  stead,  in any  and all
capacities to sign any and all amendments (including post- effective amendments)
to this registration statement,  and to file the same, with all exhibits thereto
and other  documents in connection  therewith,  with the Securities and Exchange
Commission.

Signature                                Title                     Date
---------                                -----                     ----

/s/ James L. Conway             President, Chief Executive       March 29, 2000
-------------------------       Officer and Director (Principal
James L. Conway                 Executive Officer)


/s/ Anthony F. Grisanti         Chief Financial Officer          March 29, 2000
-------------------------       (Principal Financial and
Anthony F. Grisanti             Accounting Officer)


/s/ Edward D. Bright            Director                         March 29, 2000
-------------------------
Edward D. Bright


/s/ John F. Phillips            Director                         March 29, 2000
-------------------------
John F. Phillips


/s/ Gerald Koop                 Director                         March 29, 2000
-------------------------
Gerald Koop

/s/ Joseph Sicinski             Director                         March 29, 2000
-------------------------
Joseph Sicinski

<PAGE>

                           Netsmart Technologies, Inc.
                                Index to Exhibits
                                December 31, 1999


a)  Exhibits

3.1(1)  Restated   Certificate   of   Incorporation,   as   amended,   including
        certificates  of  designation  with  respect  to the  Series  A, B and D
        Preferred Stock.
3.2(1)  By-Laws
10.1    Employment Agreement dated July 1, 1998, between the Registrant and
        James L. Conway.
10.2    Employment Agreement dated July 1, 1998, between the Registrant and
        John F. Phillips.
10.3    Employment Agreement dated July 1, 1998, between the Registrant and
        Gerald O. Koop.
10.4    Employment Agreement dated July 1, 1998, between the Registrant and
        Anthony F. Grisanti.
10.5(1) 1993 Long-Term Incentive Plan.
10.6(2) 1998 Long-Term Incentive Plan.
10.7    1999 Long-Term Incentive Plan
10.8    1999 Employee Stock Purchase Plan
10.9    Agreement dated August 26, 1999, between the Registrant and Silicon
        Valley Bank.
11.1    Computation of loss per share.
21.1    Subsidiaries of the Registrant.
24.1    Consent of Moore Stephens, P.C.
25.1    Powers of attorney (See Signature Page)
27.1    Financial data schedule.

----------
(1)       Filed as an exhibit to the Registrant's registration statement on Form
          S-1, File No. 333-2550, which was declared effective by the Commission
          on August 13, 1996, and incorporated herein by reference.

(2)       Filed as an appendix the  Registrant's  proxy  statement  dated
          September 30, 1999,  relating  to its 1999 Annual  Meeting of
          Stockholders  and  incorporated herein by reference.