SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549
                           -----------------------


                              FORM 10-K/A

                             Amendment No. 3

                   For the Year Ended December 31, 1998


                        Commission File No. 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 no.)

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

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


  Purpose of Amendment:    To provide additional disclosure in Note 14 of Notes
  to Consolidated Financial Statements.






<PAGE>



                                 Part IV

Item 8.  Financial Statements and Supplementary Data

     The financial statements begin on Page F-1.


<PAGE>






1.                Financial Statements
                  Report of Richard A. Eisner & Company, LLP
                  Report of Moore Stephens, P.C.
                  Consolidated Balance Sheets as of December 31, 1998 and 1997
                  Consolidated  Statements  of  Operations  for the Years  Ended
                  December 31, 1998,  1997 and 1996  Consolidated  Statements of
                  Stockholders'  Equity for the Years Ended  December  31, 1998,
                  1997 and 1996  Consolidated  Statements  of Cash Flows for the
                  Years  Ended  December  31,  1998,  1997  and  1996  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 SUBSIDIARY


                                   F - 1

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
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 AUDITOR'S REPORT


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


     We have audited the accompanying consolidated balance sheet of Netsmart
Technologies, Inc. and its  subsidiary as of December 31, 1998,  and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year 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 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  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 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   financial
position  of  Netsmart Technologies,  Inc. and its  subsidiary as of December
31, 1998, and the results of their  operations  and their cash flows for the
year then ended in conformity with generally accepted accounting principles.



Richard A. Eisner & Company, LLP
Certified Public Accountants

New York, New York
March 23, 1999
With respect to Note 17, April 8, 1999




                                   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  balance sheet of Netsmart
Technologies,  Inc. and its  subsidiary as of December 31, 1997, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two years in the period 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 audits.

       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 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 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 financial position of
Netsmart Technologies,  Inc. and its subsidiary as of December 31, 1997, and the
results  of their  operations  and their cash flows for each of the two years in
the period 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 SUBSIDIARY
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

                                                           December 31,
                                                           ------------
                                                    1 9 9 8            1 9 9 7
                                                    -------            -------
Assets:
Current Assets:
       Cash and Cash Equivalents                 $     198,689      $    854,979
       Accounts Receivable - Net                     3,600,025         2,182,418
       Costs and Estimated Profits in Excess
         of Interim Billings                         2,899,695           542,324
       Note Receivable                                 150,000                --
       Other Current Assets                            109,595            83,770
                                                    ----------        ----------

       Total Current Assets                          6,958,004         3,663,491
                                                    ----------        ----------

Property and Equipment - Net                           354,036           308,583
                                                    ----------        ----------

Other Assets:
       Software Development Costs - Net                142,450           183,150
       Customer Lists - Net                          2,733,392         3,067,676
       Other Assets                                    101,064           116,903
                                                    ----------        ----------

       Total Other Assets                            2,976,906         3,367,729
                                                    ----------        ----------

       Total Assets                              $  10,288,946      $  7,339,803
                                                    ==========        ==========



See Notes to Consolidated Financial Statements.


                                   F - 5

<PAGE>



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

                                                           December 31,
                                                           -----------
                                                    1 9 9 8             1 9 9 7
                                                    -------             -------
Liabilities and Stockholders' Equity:
Current Liabilities:
   Notes Payable                                 $   1,639,694      $   935,177
   Capitalized Lease Obligations                        27,283           23,331
   Accounts Payable                                  2,166,333        1,131,692
   Accrued Expenses                                  1,178,893        1,041,120
   Interim Billings in Excess of Costs and
     Estimated Profits                               1,803,999          951,885
   Due to Related Parties                               84,000               --
   Deferred Revenue                                     47,619          117,080
                                                   -----------        ---------

Total Current Liabilities                            6,947,821        4,200,285
                                                   -----------        ---------

Capitalized Lease Obligations                           57,033               --
                                                   -----------        ---------

Commitments and Contingencies (Note 13)                     --               --

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

    Series D 6% Redeemable Preferred Stock - $.01 Par
       Value 3,000 Shares Authorized, 1,210 Issued and
       Outstanding [Liquidation Preference of $1,210
       and redemption value of $1,210,000]                  12               12

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

       Common Stock - $.01 Par Value; Authorized
         15,000,000 Shares; Issued 2,786,921 Shares
         at December 31, 1998, 2,777,999 Shares at
         December 31, 1997                              27,869           27,780

       Additional Paid-in Capital - Common Stock    17,203,904       17,195,668

       Accumulated Deficit                         (15,097,202)     (15,293,451)
                                                    ----------       ----------
                                                     3,344,092        3,139,518

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

       Total Stockholders' Equity                    3,284,092        3,139,518
                                                    ----------       ----------

     Total Liabilities and Stockholders' Equity   $ 10,288,946      $ 7,339,803
                                                    ==========       ==========



See Notes to Consolidated Financial Statements.


                                   F - 6

<PAGE>



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 8         1 9 9 7           1 9 9 6
                                      -------         -------           -------
Revenues:
  Software and Related
    Systems and Services:
    General                        $  9,569,100       $ 4,119,780   $ 3,104,998
    Maintenance Contract
      Services                        1,431,695         1,280,465     1,225,709
                                    -----------         ---------     ---------
    Total Software and Related
      Systems and Services           11,000,795         5,400,245     4,330,707

  Data Center Services                2,164,472         2,235,209     2,207,155
                                    -----------         ---------     ---------

  Total Revenues                     13,165,267         7,635,454     6,537,862
                                    -----------         ---------     ---------

Cost of Revenues:
  Software and Related
    Systems and Services:
    General                           5,975,249         2,493,739     2,774,878
    Maintenance Contract
      Services                          975,212           928,316       595,366
                                    -----------         ---------     ---------

    Total Software and Related
      Systems and Services            6,950,461         3,422,055     3,370,244

  Data Center Services                1,131,078         1,466,107     1,220,368
                                    -----------         ---------     ---------

  Total Cost of Revenues              8,081,539         4,888,162     4,590,612
                                    -----------         ---------     ---------

Gross Profit                          5,083,728         2,747,292     1,947,250

Selling, General and
  Administrative Expenses             3,516,288         2,901,724     1,721,854

Related Party Administrative Expense     45,000           180,000        69,000

Stock Based Compensation                     --                --     3,492,300

Research and Development                763,059           201,075       278,000
                                   ------------         ---------     ---------

Income (Loss) from Continuing
  Operations before Financing Costs
  and Interest                          759,381          (535,507)   (3,613,904)

Financing Costs                              --                --     1,692,000

Interest Expense                        346,114           308,169       472,548
                                   ------------         ---------     ---------

Income (Loss) from Continuing
 Operations                             413,267          (843,676)   (5,778,452)
                                   ------------         ---------     ---------


See Notes to Consolidated Financial Statements.


                                   F - 7

<PAGE>



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 8       1 9 9 7         1 9 9 6
                                           -------       -------         -------

Discontinued Operations:
  Loss from Discontinued Operations        (397,018)    (2,615,049)    (800,992)
  Gain on Sale of Discontinued Operations   180,000             --           --
                                          ---------      ---------   ----------

  Loss from Discontinued Operations        (217,018)    (2,615,049)    (800,992)
                                          ---------      ---------   ----------

  Net Income (Loss)                         196,249     (3,458,725)  (6,579,444)

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

  Net Income (Loss) Applicable to
    Common Stock                         $  123,649    $(3,507,125) $(6,579,444)
                                          =========      =========    =========


Earnings Per Common Share:
  Basic and Diluted:
    Income (Loss) from Continuing
      Operations                         $      .12    $      (.37) $     (3.36)
    Income (Loss) from Discontinued
      Operations                               (.08)         (1.10)        (.47)
                                          ---------      ---------     --------

    Net Income (Loss)                    $      .04    $     (1.47) $     (3.83)
                                          =========      =========     ========

    Weighted Average Number of Shares of
      Common Stock Outstanding            2,779,655      2,386,953    1,716,418
                                          =========      =========    =========





See Notes to Consolidated Financial Statements.


                                   F - 8

<PAGE>
<TABLE>


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

                                                                    Additional                 Additional
                                                                      Paid-in                  Paid-in                    Total
                                      Series A         Series D       Capital                  Capital                    Stock-
                   Treasury Shares Preferred Stock  Preferred Stock Preferred   Common Stock   Common   Accumulate        holders'
                   Shares   Cost   Shares   Amount  Shares   Amount   Stock    Shares   Amount  Stock   Deficit           Equity

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

Balance-                            400    $   4    2,210   $ 22   $2,249,505 1,003,751 $10,038 $ 3,294,033 $(5,146,381) $  407,211
December 31, 1995

Common Stock Issued
in Exchange for
Series D and
Series A Preferred Stock           (400)      (4)  (1,000)   (10)  (1,039,996)  389,400   3,894   1,036,116        --           --

Allocated Related
Party Administrative
Expenses                             --        --     --      --          --        --      --        9,000        --         9,000

Compensation from
the Issuance of
Common Stock
Warrants and options                 --        --     --      --          --        --      --    3,492,300        --     3,492,300

Common Stock
Issued - Initial
Public Offering                                                                 431,250    4,312  5,170,689               5,175,001

Common Stock
Issued - Exercise
of Warrants                                                                     266,667    2,667  1,597,333               1,600,000

Common Stock
Issued -
Financing Costs                                                                 175,000    1,750  1,678,250               1,680,000

Costs Associated
with Issuance
of Stock                                                                                         (1,369,072)             (1,369,072)

Net Loss                            --         --     --      --          --        --       --         --   (6,579,444) (6,579,444)
                                   ----       ----   ----    ----   ---------   --------   ----- ----------   ---------   ---------

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                                                               4,267       43    108,858    (108,901)        --
on 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      8,326                   8,325

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

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

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


See Notes to Consolidated Financial Statements.
</TABLE>

                                                                    F - 9

<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 8            1 9 9 7          1 9 9 6
                                                          -------            -------          -------
<S>                                               <C>                 <C>              <C>

Operating Activities:
  Income (Loss) from Continuing Operations           $    413,267       $   (843,676)    $ (5,778,452)
                                                        ---------            -------        ---------
  Adjustments to Reconcile Income
    (Loss) from Continuing Operations to Net
    Cash Used for Operating Activities:
    Depreciation and Amortization                         561,562            600,990          486,566
    Administrative Expenses                                                                     9,000
    Additional Compensation Related to the
       issuance of Equity Instruments                                                       3,492,300
    Financing Expenses related to the issuance
      of Common Stock                                                                       1,680,000
  Cash Used in Discontinued Operations                   (367,018)        (2,615,049)        (800,992)
  Write Off of Capitalized Software Cost
    and Related Hardware                                                     553,061
    Equity in Net Loss of Joint Venture                                      287,131          264,085
    Provision for Doubtful Accounts                        60,000             60,000           60,000

  Changes in Assets and Liabilities:
    [Increase] Decrease in:
      Accounts Receivable                              (1,477,607)           452,032         (231,478)
      Costs and Estimated Profits in
        Excess of Interim Billings                     (2,357,371)           (20,538)        (516,707)
      Other Current Assets                                (25,825)            (1,565)         (68,810)
      Other Assets                                          5,839             11,905          (10,502)

    Increase [Decrease] in:
      Accounts Payable                                  1,034,641            148,536         (202,620)
      Accrued Expenses                                    102,773             50,045         (332,174)
      Interim Billings in Excess of
        Costs and Estimated Profits                       852,114           (150,220)         160,626
      Due to Related Parties                                                 (21,245)        (143,458)
      Deferred Revenue                                    (69,461)            (4,439)         (52,580)
                                                      -----------         ----------       ----------

    Total Adjustments                                  (1,680,353)          (649,356)       3,793,256
                                                      -----------         ----------       ----------

  Net Cash Used For Operating Activities               (1,267,086)        (1,493,032)      (1,985,196)
                                                      -----------         ----------       ----------

Investing Activities:
  Acquisition of Property and
    Equipment                                            (222,031)          (216,041)        (181,033)
  Software Development Costs                                                (462,000)        (278,800)
  Investment in Joint Venture                                               (166,585)        (384,631)
                                                      -----------         ----------       ----------

  Net Cash Used For Investing Activities                 (222,031)          (844,626)        (844,464)
                                                      -----------         ----------       ----------

See Notes to Consolidated Financial Statements.

</TABLE>

                                   F - 10

<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 8          1 9 9 7           1 9 9 6
                                                           -------          -------           -------
<S>                                                     <C>               <C>              <C>

Financing Activities:
  Proceeds from Short-Term Notes                           704,517          345,146           500,000
  Payment of Short-Term Notes                                                                (912,270)
  Payment of Bank Note Payable                                                                (79,000)
  Proceeds of loans from Related Parties                                    140,000
  Repayment of loans from related parties                  (56,000)                          (750,000)
  Payment of Capitalized Lease Obligations                 (15,658)         (34,063)         (145,146)

  Issuance of Common Stock in Public Offering                                               5,175,000
  Proceeds from Warrant exercise                                          1,917,319         1,600,000
  Proceeds from Stock Option Exercise                        8,325           40,913
  Purchase of Treasury Shares                              (25,000)                                --
  Cash Overdraft                                                                              (95,536)
  Redemption of Series B Preferred Stock                                                      (96,000)
  Costs associated with issuance of Stock                                   (74,995)       (1,369,071)
  Other                                                     76,643
                                                          --------        ---------         ---------

  Net Cash provided by Financing Activities                832,827        2,194,320         3,827,977
                                                          --------        ---------         ---------

  Net Increase [Decrease] in Cash                         (656,290)        (143,338)          998,317

  Cash - Beginning of Year                                 854,979          998,317                --
                                                          --------        ---------        ---------

  Cash - End of Year                                    $  198,689     $    854,979       $   998,317
                                                          ========        =========        ==========

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the periods for:
    Interest                                            $  353,713     $    352,837       $   481,856
    Income Taxes                                        $   16,934     $         --       $        --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

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.

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.


                                   F - 11
</TABLE>

<PAGE>



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



Year ended December 31, 1996:

The Company's  principal  stockholder  SISC  exchanged  1,000 shares of Series D
preferred stock for 375,000 shares of common stock. As a result of this exchange
the aggregate  redemption  price of the Series D preferred  stock was reduced to
$1,210,000.  The Series A preferred  stock was  converted  into 14,400 shares of
common stock in a transaction valued at $43,200.

Pursuant to an agreement  with four  accredited  investors,  the Company  issued
250,000 units  composed of .667 shares of common stock and Series A Common Stock
purchase warrant. The Company incurred a one time non-cash charge of $1,611,000.

Pursuant  to a  modification  of an  agreement  with an asset  based  lender the
Company  issued  8,333  common  shares to such  lender  and  incurred a one-time
non-cash finance charge of $81,000.

The Company  granted  stock options to purchase an aggregate of 80,667 shares of
common stock and recognized compensation expense of $154,800.

The Company  granted  1,191,042  Series B Common  Stock  purchase  warrants  and
298,959  Series A Common Stock  purchase  warrants and  recognized  compensation
expense of $3,337,500.






   See Notes to Consolidated Financial Statements.


                                   F - 12

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
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"] (collectively referred to as the Company).  All
intercompany transactions are eliminated in consolidation.  Certain amounts
have been reclassified in the prior years' statements to conform to the current
year's presentation.

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 $249,000 and $940,000 at December 31, 1998 and
1997 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, 1998, 1997 and 1996,
approximately  52%, 35% and 31%  respectively,  of the  Company's  revenues were
generated from contracts with government agencies.

During  the  year  ended   December  31,  1998,   one  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.  Approximately  $1,830,000 of such
amounts were subsequently  collected in 1999. No one customer accounted for more
than 10% of revenues  in 1997.  During the year ended  December  31,  1996,  one
customer  of  the  Company's  discontinued  Cartesmart  division  accounted  for
approximately $1,879,000 or 22% of revenue. Accounts receivable of approximately
$473,000 were due from this customer at December 31, 1996. In 1997,  receivables
from such customer in the amount of $745,000 were written off.

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, 1998
and 1997, cash and cash equivalent balances of $150,000 and


                                   F - 13

<PAGE>



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

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

$840,000  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.
Revenue from software  package license  agreements  without  significant  vendor
obligations is recognized upon delivery of the software.  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.  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 SUBSIDIARY
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 performs an annual review 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.

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

         Years ended December 31              1998             1997
         -----------------------              ----             ----

         Beginning of Year                    $ 183,150      $      --
         Capitalized                                 --        203,500
         Amortization                           (40,700)       (20,350)
                                              ---------       --------

           Net                                $ 142,450      $ 183,150
           ---                                =========      =========

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  associated  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, 1998 and 1997 are as follows:

                                                      December 31,
                                                      ------------
                                               1 9 9 8         1 9 9 7
                                               -------         -------

Customer Lists                                $ 4,106,223     $ 4,106,223
Less: Accumulated Amortization                  1,372,831       1,038,547
                                                ---------       ---------

   Net                                        $ 2,733,392     $ 3,067,676
   ---                                          =========       =========


On January 1, 1996,  the  Company  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  determined  that  expected  future  cash  flows
(undiscounted  and without  interest  charges)  exceed the carrying value of the
long lived assets at December 31, 1998 and believes  that no impairment of these
assets has occurred.


                                   F - 15

<PAGE>
<TABLE>


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


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

Stock Options and Similar  Equity  Instruments - On January 1, 1996, 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 common
shares 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.

Allocated Related Party Administrative Expenses - During the first six months of
1996,  certain  administrative  services  were  performed  for the  Company by a
principal  shareholder.  The fair value of such services,  approximately $9,000,
was charged to related party administrative expenses, and, since the shareholder
will not be reimbursed for such charges, credited to additional paid-in capital.
(See Note 7)

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 $372,797
and  $348,029 at December  31,  1998 and 1997  respectively.  The changes in the
allowance for doubtful accounts are summarized as follows:

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

                                                                    December 31,
                                                                    ------------
                                                        1998              1997         1996
                                                        ----              ----         ----

         Beginning Balance                           $348,029          $288,029       $346,263
         Provision for Doubtful Accounts               60,000            60,000         60,000
         Charge-offs                                  (35,232)                        (118,234)
                                                      -------           -------        -------

         Ending Balance                              $372,797          $348,029       $288,029
                                                      =======           =======       ========


                                   F - 16
</TABLE>

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
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 8               1 9 9 7
                                                 -------               -------

Costs Incurred on Uncompleted Contracts        $ 4,259,190          $ 2,730,054
Estimated Profits                                4,038,247            1,293,104
                                                 ---------            ---------

Total                                            8,297,437            4,023,158
Billings to Date                                 7,201,741            4,432,719
                                                 ---------            ---------

     Net                                       $ 1,095,696          $  (409,561)
     ---                                         =========            =========

Included in the accompanying balance sheet under the following captions:

Costs and estimated profits in excess of
  interim billings                                    $ 2,899,695    $ 542,324
Interim billings in excess of costs and
  estimated profits                                    (1,803,999)    (951,885)
                                                        ---------     --------

     Net                                              $ 1,095,696    $(409,561)
     ---                                                =========     ========



[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 a 20% equity interest in Granite. Granite also agreed to pay
certain  royalties to the Company and granted the Company a license with respect
to the CarteSmarte  software.  The note was subject to cancellation if the other
party to the joint venture  elected to purchase the Company's  interest.  As the
Company does not have significant  influence over the operations of Granite, the
20% interest is accounted for using the cost method.

As a result of the  discontinuation of the CarteSmarte  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,  $246,000 and
$2,003,000 in 1998, 1997 and 1996 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. All monthly payments have
been  received  through  March 1999 on a timely basis and the Company has valued
the note at $180,000 which amount is reflected as a gain on sale of discontinued
operations.

During  the  fourth   quarter  of  1997  the   Company  had   re-evaluated   the
recoverability of its investment in the joint venture.  A determination was made
that this  investment  would not be recoverable  based upon estimated cash flows
and  consequently  the company  wrote off  $147,432,  which reduced the carrying
value of the venture to 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 8         1 9 9 7
                                                       -------         -------
Equipment, Furniture and Fixtures                    $ 672,692      $  582,207
Leasehold Improvements                                 247,609         164,335
                                                      --------       ---------

Totals - At Cost                                       920,301         746,542
Less:  Accumulated Depreciation                        566,265         437,959
                                                      --------       ---------

     Net                                             $ 354,036      $  308,583
     ---                                              ========       =========

Depreciation expense amounted to $176,578, $169,558, and $145,686,  respectively
for the years ended December 31, 1998, 1997 and 1996.


[7] Related Party Transactions

[A] Related Party Administrative Expense - The Company had an agreement with its
principal  stockholder,  Consolidated 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,  1997 and 1996 the  Company  charged  $45,000,  180,000 and
$60,000 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 are being repaid in five quarterly  installments
commencing September 30, 1998 and ending September 30, 1999.
The amount payable at December 31, 1998 is $84,000.


[8] Notes Payable

Asset-Based Lender - The Company entered into an accounts  receivable  financing
arrangement  with an  asset-based  lender.  Borrowings  under this facility were
$1,639,694 and $935,177 at December 31, 1998 and 1997,  respectively.  Under the
agreement,  the Company can borrow up to 80% of eligible accounts  receivable up
to $2  million,  on which it pays  interest at the annual rate of prime plus 5%.
This note is collateralized  by all of the accounts  receivable and property and
equipment of the Company.

In October 1998, the agreement with the asset based lender was modified to allow
the Company to borrow up to 80% of the amount of qualified  accounts  receivable
up to a maximum of $2 million.  The previous  amount of maximum  borrowings  was
capped at $1.5 million. The interest rate was reduced from prime plus 8 1/2 % to
prime plus 5%. In addition,  the 5/8% fee previously  paid on the face amount of
each invoice was eliminated.

The weighted  average interest rate on short-term  borrowings  outstanding as of
December 31, 1998 and 1997 amounted to approximately 19% and 22%, respectively.






                                   F - 18

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
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,  1998,  the Company has net  operating  loss  carryforwards  of
$11,363,000  expiring by 2012.  Pursuant to Section 382 of the Internal  Revenue
Code regarding  substantial  changes in Company ownership,  utilization of these
losses may be limited.

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

December 31,                                   Amount
-----------                                    ------
     2008                                      315,000
     2009                                    1,010,000
     2010                                    3,847,000
     2011                                    2,930,000
     2012                                    3,261,000
                                             ---------
                                           $11,363,000

The Deferred Tax Asset consists primarily of the following:

  Benefit of federal and state net operating loss carryforwards   $   4,500,000
  Benefit of stock based compensation awards                          1,400,000
  Less: Valuation Allowance                                          (5,900,000)
                                                                      ---------

Net Deferred Tax Asset                                            $         --
                                                                      =========
The  Company  has  provided a  valuation  allowance  for the full  amount of the
deferred tax asset of  approximately  $5,900,000  as its future  utilization  is
uncertain.   The  Valuation  Allowance  increased  by  $300,000,   $900,000  and
$2,900,000 in 1998, 1997 and 1996 respectively.

The  provision  for income  taxes  varies  from the amount  computed by applying
statutory rates for the reasons summarized below:
                                            1998         1997          1996
                                            ----         ----          ----
Provision Based on Statutory Rates           34%        (34)%         (34)%
State Taxes Net of Federal Benefit            6%         (6)%          (6)%
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
became  effective.  All common share and per common share data in the  financial
statements  and notes have been  adjusted to reflect  the one for three  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.  At December 31, 1998, only the Series D preferred stock was
outstanding.  (See Note 17)

Preferred Stock -The Series D preferred stock is 6% redeemable  preferred stock.
The stockholders are entitled to receive a $60.00 per share annual dividend when
and as declared by the Board of Directors.  Dividends are  cumulative and accrue
from October 1, 1995. Dividends are payable semi-annually on April 1 and October
1. The stock is  redeemable  at the option of the  Company  for $1,000 per share
commencing   October  1,  1998.  In  the  event  of  voluntary  or   involuntary
liquidation,  the  stockholders  are entitled to receive $1.00 per share and all
accrued and unpaid  dividends.  On June 30, 1997, the Company paid the dividends
relating to the Series D preferred  stock which were  payable on October 1, 1996
and April 1, 1997.  The dividends were paid through the issuance of 4,267 shares
of Common Stock and valued at the fair market value at the respective dates they
became payable.  The Series D preferred stock is nonvoting except as is required
by law. No dividend  has been paid since April 1, 1997 and at December 31, 1998,
the accrued  cumulative  dividends  on the Series D  Preferred  Stock in arrears
aggregated were $108,900 or $90 per share.

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 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 - 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
Long-Term Incentive Plan.




                                   F - 20

<PAGE>



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

[11] Capitalized Lease Obligations

Future minimum payments under  capitalized  lease obligations as of December 31,
1998 are as follows:

Year ending
December 31,
       1999                                                 $    36,838
       2000                                                      25,041
       2001                                                      25,041
       2002                                                      18,780
                                                              ---------

     Total Minimum Payments                                     105,700
     Less Amount Representing Interest at 13.8% Per annum        21,384
                                                              ---------

     Balance                                                 $   84,316
     -------                                                  =========

Capitalized  lease  obligations are  collateralized by equipment which has a net
book value of $82,000 and $15,000 at December  31, 1998 and 1997,  respectively.
Amortization   of   approximately   $10,200   and  $10,200  in  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, accounts
payable and debt maturing within one year the carrying amount  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. The Company also
leases additional office space on a month-to-month basis.

Minimum annual rentals under noncancellable  operating leases (net of a sublease
to Granite) having terms of more than one year are as follows:

Years ending
------------
December 31,
-----------
   1999                                              $    380,000
   2000                                                   389,000
   2001                                                   317,000
   2002                                                   329,000
   2003                                                   342,000
                                                       ----------

     Total                                           $  1,757,000
                                                       ==========

Rent expense amounted to $349,000,  $341,000 and $358,000 respectively,  for the
years ended December 31, 1998, 1997 and 1996.

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.  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 two long-term  incentive  plans, the
1993  Long-Term  Incentive  Plan (the "1993  Plan"),  as  amended,  and the 1998
Long-Term  Incentive Plan (the "1998 Plan"),  as amended.  The Company may issue
170,333 and 280,000  shares of Common  Stock  pursuant to the 1993 Plan and 1998
Plan,  respectively.  In  November  1998,  the  board of  directors  adopted  an
amendment  to the 1998 Plan  (the  "1998  Amendment"),  subject  to  stockholder
approval,  pursuant  to which the number of shares  subject to the 1998 Plan was
increased from 280,000 shares to 780,000 shares.

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 and the 1998 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.

Pursuant to the 1998  Amendment,  the Company  granted,  subject to  stockholder
approval  of the 1998  Amendment,  options  to  purchase  10,000  shares to each
non-employee  director,  other than the chairman of the board,  and an option to
the chairman of the board to purchase 50,000 shares. The exercise price for such
options  was $1.00 per  share,  which was the fair  market  value on the date of
grant.

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.




                                   F - 22

<PAGE>

<TABLE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
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>

                                                1998                        1997                         1996
                                      ------------------------    -------------------------    --------------------------
                                                     Weighted                     Weighted                     Weighted
                                                     --------                     --------                     --------
                                                      Average                      Average                      Average
                                                     --------                     --------                     --------
                                                     Exercise                     Exercise                     Exercise
                                                     --------                     --------                     --------
                                      Shares           Price       Shares           Price       Shares          Price
                                      ------           -----       ------           -----       ------          -----
Outstanding - Beginning of
  Year                                148,780         $3.244       203,706         $2.57        123,039         $ .803
Granted During the Year               823,167(a)       1.18            --            --          80,667          5.265
Canceled During the Year              (80,667)(a)      9.60            --            --             --             --
Expired During the Years                  --            --             --            --             --             --
Exercised During the Year              (8,922)         .723        (54,926)         .745            --             --
                                      -------                      -------                      -------

   Outstanding - End of Year          882,358        $1.172        148,780        $3.244        203,706         $ 2.57
                                      =======         =====        =======         =====        =======          =====

   Exercisable - End of Year          242,358        $1.338        108,447        $2.492         59,626         $ .803
                                      =======         =====        =======         =====        =======          =====
<FN>
___________________________
(a)  Includes  43,167  shares  granted upon  cancellation  of an equal number of
shares having an exercise price of $4.50 per share.

</FN>

The following table summarizes stock option information as of December 31, 1998:

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

$.696                   34,576              1 Year                     34,576
$1.035                  24,615              1.9 Years                  24,615
$1.50                   43,167              2.3 Years                  43,167
$1.50                  280,000              4.4 Years                 140,000
$1.00                  500,000              4.8 Years                     --
                       -------              ---------                 -------

   Totals              882,358              4.3 Years                 242,358
                       =======              =========                 =======



Warrants  Issued as  Compensation  - In February  1996,  the  Company  issued an
aggregate of 1,051,250 Series B Common Stock Purchase Warrants, of which 838,750
are  exercisable  at $6.00 per share and 212,500 were  exercisable at $15.00 per
share. These warrants were issued in connection with services  rendered,  which,
in the case of SISC,  included the guarantee of certain notes payable.  Although
the warrants  were issued prior to a  three-for-four  reverse  split,  which was
effective in February 1996,  the number of shares  issuable upon exercise of the
warrants,  but not the  exercise  price,  was  adjusted  for the reverse  split.
Certain of the warrants initially had a November 1998 expiration date, which was
extended  to  December  31,  1999,  which is the  expiration  date of all of the
warrants.

</TABLE>



                                  F - 23


<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. All of the remaining  Series B
Common Stock Purchase Warrants expire on December 31, 1999. 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  are
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,  the  Company  issued  23,333  Series C Common  stock  warrants in
exchange for 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 will
expire on December 31, 1999.


                                  F - 24

<PAGE>
<TABLE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
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>

                                                1998                      1997                           1996
                                      -----------------------    -----------------------     ------------------------
                                                     Weighted                   Weighted                     Weighted
                                                     --------                   --------                     --------
                                                      Average                    Average                      Average
                                                      -------                    -------                      -------
                                                     Exercise                   Exercise                     Exercise
                                                     --------                   --------                     --------
                                      Shares           Price     Shares          Price       Shares            Price
                                      ------           -----     ------          -----       ------            -----

Outstanding - Beginning
  of Year                             1,033,632       $10.49     1,223,335       $10.93      275,000         $21.81
Granted or Sold During
  the Year                                  --          --          23,333        15.00    1,490,002          10.00
Canceled During the Year                    --          --             --          --       (275,000)         21.81
Expired During the Year                     --          --             --          --            --             --
Exercised During the Year                   --          --        (213,036)       13.50     (266,667)          6.00
                                                                 ---------        -----    ---------          -----


   Outstanding - End of Year          1,033,632       $10.49     1,033,632       $10.49     1,223,335        $10.93
                                      =========        =====     =========        =====     =========         =====


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



The following table summarizes warrant information as of December 31, 1998:

                                                               Weighted
                                                          Average Remaining
Exercise Prices              Shares                        Contractual Life
---------------              ------                       -----------------
$ 6.00                       292,500                          1 Year
$12.00                       631,877                          1 Year
$13.50                        85,922                         .7 Years
$15.00                        23,333                          1 Year
                           ---------

 Total                     1,033,632                         .9 Years
                           =========                         ========




[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.
Total   compensation   cost  recognized  in  income  for  stock  based  employee
compensation awards was $-- in 1998 and 1997 and $3,492,300 in 1996.


                                  F - 25

<PAGE>



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

[14] Stock-Based Compensation - [Continued]

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
and $846,000 for the years ended December 31, 1998 and 1996 respectively and the
Company's net loss and net loss per share would have been as follows:

                                                    Year  ended
                                                    -----------
                                                    December 31,
                                                    -----------
                                               1998              1996
                                               ----              ----


Net Income (Loss) as Reported                $ 196,249        $ (6,579,444)
                                               =======           =========

Pro Forma Net Loss                           $(413,123)       $ (7,425,444)
                                               =======           =========

Net Income (Loss) Per Share as Reported      $     .04        $      (3.83)
                                               =======           =========


Pro Forma Net Loss Per Share                 $    (.17)       $      (4.33)
                                               =======           =========

There were no options or  compensation  based warrants issued in 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              1996
                                               ----              ----
Expected Life (Years)                            5                  2
Interest Rate                                 4.87%               6.0%
Annual Rate of Dividends                         0%                 0%
Volatility                                      70%              67.9%

The  weighted  average fair value of options and warrants at date of grant using
the fair value based method during 1998, 1997 and 1996 is estimated at $.74, $--
and $3.99 respectively.


                                  F - 26
</TABLE>

<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 8          1 9 9 7        1 9 9 6
                                                          -------          -------        -------
<S>                                                   <C>            <C>             <C>
Revenues:
       Software and Related Systems and Services        $11,000,795    $ 5,400,245    $ 4,330,707
       Data Center Services                               2,164,472      2,235,209      2,207,155
                                                         ----------     ----------     ----------

       Total Revenues                                   $13,165,267    $ 7,635,454    $ 6,537,862
       --------------                                    ==========     ==========     ===========

Gross Profit:
       Software and Related Systems and Services        $ 4,050,334    $ 1,978,190    $   960,463
       Data Center Services                               1,033,394        769,102        986,787
                                                         ----------      ---------      ---------

       Total Gross Profit                               $ 5,083,728    $ 2,747,292    $ 1,947,250
       ------------------                                ==========      =========      =========

Income [Loss] From Operations:
       Software and Related Systems and Services        $   342,501    $  (448,801)   $(3,516,099)
       Data Center Services                                 416,880        (86,706)       (97,805)
                                                         ----------      ---------      ---------

       Total [Loss] From Operations                     $   759,381    $  (535,507)   $(3,613,904)
       ----------------------------                      ==========      =========      =========

Depreciation and Amortization:
       Software and Related Systems and Services        $   468,840    $   477,953    $   367,984
       Data Center Services                                  92,722        123,037        118,582
                                                         ----------       --------      ---------

       Total Depreciation and Amortization              $   561,562    $   600,990    $   486,566
       -----------------------------------               ==========       ========      =========

Interest Expense:
       Software and related systems and services        $   289,210    $   220,774    $   313,018
       Data Center Services                                  56,904         87,395        159,530
                                                         ----------       --------      ---------

       Total Interest Expense                           $   346,114    $   308,169    $   472,548
                                                         ===========      ========      =========

Capital Expenditures:
       Software and Related Systems and Services        $   188,570    $   636,174    $   444,516
       Data Center Services                                  33,461         41,867         15,317
                                                         ----------       --------       --------

       Total Capital Expenditures                       $   222,031    $   678,041    $   459,833
       --------------------------                        ==========       ========       ========

Identifiable Assets:
       Software and Related Systems and Services        $ 7,740,018    $ 4,452,999    $ 5,052,671
       Data Center Services                               2,548,928      2,886,804      3,198,058
                                                         ----------      ---------      ---------

       Total Identifiable Assets                        $10,288,946    $ 7,339,803    $ 8,250,729
       -------------------------                         ============    =========      =========

                                  F - 27
</TABLE>


<PAGE>



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

[16] Johnson Acquisition

In October  1997,  the Company  purchased  the customer  list and certain  other
assets of Johnson Computing Systems ("Johnson  Computing"),  for which it issued
26,667 shares of Common Stock,  valued at $300,000.  Pursuant to the  agreement,
because the price of the Common Stock did not reach a certain  price level,  the
Company  purchased  5,333  shares of Common  Stock from  Johnson  Computing  for
$60,000,  which is payable in installments.  Johnson Computing provided software
and related support for methadone clinics.  The acquisition was accounted for as
a purchase and  accordingly,  the results of operations  of the acquired  entity
were included in the  consolidated  statements  of  operations  from the date of
acquisition.  The proforma results for 1997 and 1996,  assuming this acquisition
has been made at the beginning of 1996,  would not be materially  different from
the reported results.


[17] Subsequent Event

On March 25, 1999, Netsmart and a group of purchasers, consisting principally of
Netsmart's management and directors, entered into an agreement with Consolidated
Technologies,  Inc.  Pursuant to the  agreement,  the purchasers are to buy from
Consolidated,  in a private sale,  an aggregate of 496,312  shares of Netsmart's
common stock for an aggregate  purchase  price of $1 million.  On April 8, 1999,
248,156 of such shares were purchased by the management  investors for $500,000.
The agreement also gives the  purchasers the right to buy up to between  296,312
and 496,312  additional  shares of Netsmart's  common stock from Consolidated at
the same purchase price per share.

In addition,  Consolidated  agreed to transfer to Netsmart  shares of Netsmart's
preferred stock (including the right to receive dividends  thereon) and warrants
to purchase  shares of Netsmart's  common stock,  for which  Netsmart will issue
100,000 shares of its common stock to Consolidated.  This exchange took place on
April 8, 1999.




                                  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.


Dated: August 9, 1999                        By /s/ James L. Conway
                                               -------------------------------
                                             James L. Conway, President and CEO


       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.


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

/s/James L. Conway           President, Chief Executive          August 9, 1999
------------------------     Officer and Director (Principal
James L. Conway              Executive Officer)


/s/Anthony F. Grisanti       Chief Financial Officer             August 9, 1999
------------------------     (Principal Financial and
Anthony F. Grisanti          Accounting Officer)


/s/Edward D. Bright          Director                            August 9, 1999
------------------------
Edward D. Bright


/s/John F. Phillips          Director                            August 9, 1999
------------------------
John F. Phillips


/s/Gerald O. Koop            Director                            August 9, 1999
------------------------
Gerald O. Koop

                                                       By: /s/ James L. Conway
                             Director                      -------------------
------------------------                                   Attorney-in-Fact
Joseph G. Sicinski                                         August 9, 1999





<PAGE>