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

                                      Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                   SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
                     For the fiscal year ended December 31, 1997

                           Commission File Number 0-21177

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

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

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

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

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

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

     Title of Each Class         Outstanding shares as of April 9, 1998
     -------------------         ---------------------------------------
     Common Stock, par value
     .01 per share                           8,333,996

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

Yes_X_        No__

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

DOCUMENTS INCORPORATED BY REFERENCE

Item III is incorporated  by reference from the  Registrant's  definitive  proxy
statement relating to its 1998 Annual Meeting of Stockholders.


<PAGE>



                                               PART I

Item 1.  Business

Introduction

Netsmart Technologies,  Inc. ("Netsmart" or the "Company") principally develops,
markets and supports computer software designed to enable behavioral health care
organizations to manage their administrative,  clinical and billing requirements
in a network computing environment. Behavioral health care organizations provide
mental  health and substance  abuse care and  childrens  services in private and
publicly  funded  facilities.  Increasingly  such care is provided in integrated
service delivery networks of inpatient and outpatient care facilities.

77% of  Netsmart's  revenue for the year ended  December 31, 1996 and 97% of its
revenue  for the fiscal  year  ended  December  31,  1997 was  generated  by its
behavioral health information systems and related services which are marketed by
its subsidiary Creative  Socio-Medics Corp.  ("CSM").  CSM was acquired by Carte
Medical Holdings,  Inc. ("Holdings") from a nonaffiliated party in June 1994 and
transferred by Holdings to Netsmart in September 1995.

Netsmart has also developed proprietary network technology utilizing smart cards
which it markets in the health care field as the CarteSmart System. A smart card
is a plastic  card about the size of a  standard  credit  card which  contains a
single  embedded  microprocessor  chip  with  both data  storage  and  computing
capabilities.

Forward Looking Statements

Statements in this Form 10-K that are not  descriptions of historical  facts may
be  forward-looking  statements  that are  subject  to risks and  uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors,  including  those  identified  in this Form 10-K and in other
documents filed by the Company with the Securities and Exchange Commission.

Organization of the Company

Netsmart  is a  Delaware  corporation  formed in  September  1992 under the name
Medical  Services  Corp.  Its name was changed to Carte Medical  Corporation  in
October  1993  through  the  merger of  Medical  Services  Corporation  into its
wholly-owned  subsidiary,  Carte Medical Corp. The Company's  corporate name was
changed to CSMC Corporation in June 1995 and to Netsmart  Technologies,  Inc. in
February 1996.

In June 1994,  the assets of CSM were acquired by a  wholly-owned  subsidiary of
SIS  Capital  Corp.  ("SISC"),  the  Company's  principal  stockholder,  from  a
non-affiliated party. In September 1995, the stock of CSM was transferred to the
Company. References to Netsmart include both the Company, its former and present
subsidiaries, including CSM from June 16, 1994.

The Company's  executive  offices are located at 146 Nassau Avenue,  Islip,  New
York 11751, telephone (516) 968-2000.

As of April 8, 1998  approximately  29.7% of the  Company's  outstanding  Common
Stock was owned by SISC,  which is a  wholly-owned  subsidiary  of  Consolidated
Technology Group Ltd. ("Consolidated"),  a public company. Consolidated, through
The Trinity Group,  Inc.  ("Trinity"),  which was a  wholly-owned  subsidiary of
Consolidated,  has an agreement  with the Company  pursuant to which the Company
pays Consolidated a fee of $15,000 per month through August 1999.

In April 1998, Mr. Lewis S. Schiller, who was chairman of the board, chief
executive officer and a director of Consolidated, the Company and other
subsidiaries of Consolidated, resigned as an officer and director of
Consolidated and each of its present subsidiaries, including the Company.
Mr. Norman J. Hoskin, who was a director of Consolidated, the Company and other
subsidiaries of Consolidated, resigned as a director
                                         1

<PAGE>



of Consolidated and such subsidiaries, including the Company.  Contemporaneously
with the effectiveness of such resignations, Messrs. Edward D. Bright and
Seymour Richter were elected as directors to fill the vacancies created by the
resignation of Messrs. Schiller and Hoskin.  Messrs. Bright, and Richter were 
also elected as directors of Consolidated.  In April 1998, Mr. Bright was
elected as Chairman of the Board and Mr. Conway was elected as Chief Executive
Officer of the Company.

Behavioral Health Information Systems and Services

Since the June 1994  acquisition  of CSM,  Netsmart has offered its  customers a
range of products  and services  principally  based upon the  behavioral  health
information  systems which were developed and marketed by CSM.  Users  typically
purchase one of the  behavioral  health  information  systems,  in the form of a
perpetual  license  to use  the  system,  as  well  as  contract  services,  and
maintenance from Netsmart. In addition, Netsmart offers third party hardware and
software pursuant to arrangements  with the hardware and software  vendors.  The
contract services include project management,  training, consulting and software
development services,  which are provided either on a time and material basis or
pursuant to a  fixed-price  contract.  The  software  development  services  may
require CSM to adapt one of its behavioral  health  information  systems to meet
the specific requirements of the customer.

The typical price for a license for CSM's behavioral health information  systems
ranges from $10,000 to $30,000 for single facility health care  organizations to
$250,000  to  $500,000   for   multi-unit   and  state   operated   health  care
organizations.  During the years ended  December  31, 1997,  1996 and 1995,  CSM
installed 35, 6, and 11 behavioral health information systems. Licensing of such
systems represented approximately $737,000,  $329,000, and $162,000 in the years
ended  December  31,  1997,   1996  and  1995,   respectively,   accounting  for
approximately 9.4%, 3.9%, and 2.2% of revenue for such periods.

A customer's  purchase  order may also include third party hardware or software.
For the years ended December 31, 1997, 1996 and 1995,  revenue from hardware and
third party software accounted for approximately $1.1 million,  $1.1 million and
$2.1 million,  representing 13.4%, 13% and 29.1%,  respectively,  of revenues in
such periods.

In addition to its behavioral health  information  systems and related services,
CSM offers processing  services to substance abuse  facilities.  CSM maintains a
data  center  facility  at which  its  personnel  perform  data  entry  and data
processing and produce operations reports for smaller  substance-abuse  clinics.
During the years  ended  December  31,  1997,  1996 and 1995,  CSM's data center
operation  generated  revenue of  approximately  $2.2 million,  $2.2 million and
$1.7, respectively,  representing  approximately 28.4%, 25.8% and 23.6% of CSM's
revenues for such periods.

Maintenance  services have generated  increasing  revenue and have become a more
significant  portion of CSM's business since  virtually all purchasers of health
care  information  system  licenses  typically  purchase   maintenance  service.
Maintenance  revenue increases as present customers purchase additional licenses
from  CSM and  new  customers  obtain  their  initial  licenses  for its  health
information services. Under its maintenance contracts,  which are executed on an
annual  basis,  CSM  provides  telephone  help  services  to its  customers  and
maintains  and upgrades its  software.  Its  obligations  under the  maintenance
contract may require CSM to make any modifications necessary to meet new Federal
and state reporting  requirements.  CSM does not maintain the hardware and third
party  software sold to its  customers,  but does provide a telephone  help line
service for certain of the third party software which it relicenses.

The CarteSmart System

Netsmart's   CarteSmart   System   software   was   designed   to   operate   on
industry-standard computer networks and smart cards.

Netsmart's initial  applications were designed to meet the needs of managed care
organizations  and  entitlement  programs  and  Netsmart  developed a smart card
interface  to its  health  management  systems.  Each  time a  patient  visits a
participating  health  care  provider,  the  health  care  provider  adds to the
patient's  data base  information  concerning  the  visit,  including  the date,
procedures performed and diagnosis. At the

                                                  2

<PAGE>



time of the first  visit to a  participating  physician,  the  physician  enters
information relating to the diagnosis and treatment given on that visit together
with such  information  relating to chronic  conditions,  such as allergies  and
medication,  as the physician deems important. This information is inputted into
the  patient's  smart  card  and may also be  transmitted  to the  managed  care
organization's   central  data  base,  where,   unless   dissemination  of  such
information has been restricted by the patient, other health care providers will
have access to the information.

To date,  Netsmart has licensed its CarteSmart  software in  conjunction  with a
pilot project for San Diego County,  which  involved the issuance of smart cards
to  approximately  1,200 mental health patients  participating in the California
Medical  Managed Care  Initiative.  Netsmart is also  marketing  its  CarteSmart
System to other entitlement  programs and managed care  organizations;  however,
except for the pilot project in San Diego County,  Netsmart has not entered into
any agreements with any such  organizations,  and no assurance can be given that
Netsmart will enter into any such agreements.

Commencing in May 1995,  Netsmart  entered into a series of agreements  with IBN
Limited,  a New York corporation for services and CarteSmart  software  licenses
for the  implementation  of a satellite based  distributed  network of automatic
teller  machines and off-line point of sale terminals  using smart cards for the
former Soviet Union.  At the beginning of fiscal 1998 Netsmart  learned that IBN
has not been successful in marketing its system in the former Soviet Union,  and
Netsmart has decided to write-off approximately $754,000 of receivables due from
IBN.

Netsmart has evaluated its CarteSmart  business and the investment which will be
required to further develop and enhance its CarteSmart  System to succeed in the
increasingly competitive smart card market. At the current time it is continuing
to market its CarteSmart System only in the health and human services market. As
a result of its evaluation, the Company is currently negotiating the sale of its
CarteSmart  business.  The  Company  will  explore  other  options  if these
negotiations are not successful.

Markets and Marketing

The market for CSM's behavioral health information  systems and related services
is comprised of both private and publicly operated  providers  offering hospital
or community based outpatient  behavioral  health care services.  As a result of
national  managed  care  initiatives  most  providers  are  joining in  regional
networks containing both public and private facilities.  Management  Information
Systems,  such as CSM's  behavioral  health  information  system  are a required
component of the administrative  structure of these networks.  CSM believes that
there are  approximately  15,000  providers  of such  treatment  programs in the
United   States,   including   public  and   private   hospitals,   private  and
community-based residential facilities and Federal, state and local governmental
agencies.

Many of the long term behavioral  health care facilities which are potential CSM
customers are operated by government entities and include entitlement  programs.
During the years ended December 31, 1997, 1996 and 1995,  approximately  34, 31%
and 54%, respectively,  of revenues was generated from contracts with government
agencies.  Contracts with government agencies generally include provisions which
permit  the  contracting  agency  to cancel  the  contract  at its  convenience,
although the Company has not  experienced a termination  for  convenience in the
last five years.

For the year ended December 31, 1997, no customer accounted for more than 10% of
Netsmart's  revenue.  In the year ended December 31, 1996, IBN Limited generated
revenue of approximately $1.9 million, representing 22% of Netsmart's revenue.

At  December  31,  1997 and 1996,  Netsmart  had a backlog of orders,  including
ongoing  maintenance  and  data  center  contracts,  for its  behavioral  health
information  systems in the  aggregate  amount of $4.8  million and $3.7 million
respectively.  Substantially all of the backlog at December 31, 1997 is expected
to be filled during 1998.

Netsmart's  sales  force  is  comprised  of  9  full-time  sales  and  marketing
representatives.

                                                  3

<PAGE>



Product Development

During 1997 the Company incurred product development costs of $664,000, of which
$405,000 was incurred for the CSM  behavioral  health  information  system,  and
$259,000 was incurred for the development of a customer  activated  terminal and
server  software of the Carte Smart  system.  $204,000 of the cost  incurred for
enhancement of the CSM behavioral health system was capitalized.

During 1996 the company incurred product  development  costs of $557,000 for the
Smart Carte system,  of which $279,000 was capitalized and written off in fiscal
1997.

Competition

The  software  industry  in general  is highly  competitive.  Although  Netsmart
believes that it can provide a health care facility or managed care organization
with  software  to enable it to perform its  services  more  effectively,  other
software  companies provide  comparable  systems and computer and communications
companies  have the staff and  resources  to develop  competitive  systems,  and
users, such as insurance companies, have the ability to develop software systems
in  house.  Because  of the large  subscriber  base  participating  in the major
managed  care  organizations,  the  inability  of  Netsmart  to license any such
organizations  could  have  a  materially  adverse  effect  upon  its  business.
Furthermore,  various  companies  have offered smart card  programs,  by which a
person can have his medical  records  stored and software  vendors and insurance
companies  have  developed  software to enable a physician or other medical care
provider to have direct  access to the  insurer's  computer  and other  software
designed to maintain patient health and/or  medication  records.  The market the
Company is addressing is very cost sensitive.

The behavioral  health  information  systems business is serviced by a number of
companies,  some of which are  better  capitalized,  and have  larger  marketing
staffs than  Netsmart,  and no assurance can be given that Netsmart will be able
to continue to compete effectively with such companies.

Government Regulations

The Federal and State governments have adopted numerous  regulations relating to
the health care  industry,  including  regulations  relating to the  payments to
health care providers for various services.  The adoption of new regulations can
have a  significant  effect upon the  operations  of health care  providers  and
insurance companies. Although Netsmart's business is aimed at meeting certain of
the problems  resulting from  government  regulations and from efforts to reduce
the cost of health care, the effect of future  regulations  by  governments  and
payment  practices  by  government   agencies  or  health  insurers,   including
reductions  in the  funding  for or scope of  entitlement  programs,  cannot  be
predicted.  Any change in, the structure of health care in the United States can
have a material  effect on  companies  providing  services  to the  health  care
industry,  including those providing  software.  Although Netsmart believes that
one likely  direction which may result from the current study of the health care
industry would be an increased trend to managed care programs,  no assurance can
be given that Netsmart's  business will benefit from any changes in the industry
structure.  Even if the  industry  does  evolve  toward  more  health care being
provided  by  managed  care  organizations,  it is  possible  that there will be
substantial  concentration in a few very large organizations,  which may seek to
develop their own software or obtain software from other sources.  To the extent
that the health care industry evolves with greater government sponsored programs
and less  privately  run  organizations,  Netsmart's  business  may be adversely
affected. Furthermore, to the extant that each state changes its own regulations
in the  health  care  field,  it may be  necessary  for  Netsmart  to modify its
behavioral health  information  systems to meet any new  record-keeping or other
requirements  imposed by changes in  regulations,  and no assurance can be given
that Netsmart will be able to generate revenues sufficient to cover the costs of
developing the modifications.

Approximately  one-third of CSM's  business has been with  government  agencies,
including  specialized  care  facilities  operated by, or under  contract  with,
government  agencies.  The decision on the part of a government  agency to enter
into a contract is dependent  upon a number of factors,  including  economic and
budgetary  problems  affecting  the  local  area,  and  government   procurement
regulations,  which may  include  the need for  approval by more than one agency
before a contract is signed. In addition, contracts with

                                      4

<PAGE>



government  agencies  generally include  provisions which permit the contracting
agency to cancel the contract at its  convenience,  although the Company has not
experienced a termination for convenience in the last five years.

Intellectual Property Rights

Netsmart  has no patent  rights for its  behavioral  health  information  system
software,  but it relies upon copyright protection for its software,  as well as
non-disclosure  and secrecy  agreements  with its employees and third parties to
whom  Netsmart  discloses  information.  No assurance can be given that Netsmart
will be able to protect its  proprietary  rights to its system or that any third
party will not claim rights in the system.  Disclosure  of the codes used in the
CarteSmart System or in any proprietary product,  whether or not in violation of
a  non-disclosure  agreement,  could  have  a  materially  adverse  affect  upon
Netsmart, even if Netsmart is successful in obtaining injunctive relief.

Employees

As of December 31, 1997,  Netsmart had 85 employees,  including five  executive,
nine marketing,  64 technical and seven clerical and  administrative  employees.
The chief executive  officer and the president of Netsmart devote only a portion
of their time to the business of Netsmart.

Executive Officers of the Company

The following are the executive officers of the Company as of April 15, 1998:

Name                           Age        Position with the Company
----                           ---        -------------------------

Edward D. Bright               61         Chairman of the Board
James L. Conway                50         President and Chief Executive Officer
Leonard M. Luttinger           49         Vice President
Anthony F. Grisanti            49         Chief Financial Officer,
                                          Treasurer and Secretary
John F. Phillips               60         Vice President-- Marketing
Gerald O. Koop                 58         Chief Executive Officer, CSM

Mr.  Edward D.  Bright  has been  Chairman  of the Board and a  director  of the
Company  since  April  1998.  In April  1998,  Mr.  Bright  was also  elected as
chairman, secretary,  treasurer and a director of Consolidated and a director of
Trans Global Services,  Inc.  ("Trans  Global"),  a publicly-held  subsidiary of
Consolidated that provides technical  temporary staffing services.  From January
1996 until April 1998, Mr. Bright was an executive officer of or advisor to CSM.
From June 1994,  when CSM was  acquired by the Company  from  Advanced  Computer
Techniques,  Inc. ("ACT"), until January 1996, he was chief executive officer of
the Company. He was a senior executive officer and a director of CSM and ACT for
more than two years prior to June 1994.

Mr. James L. Conway became CEO of the Company in April 1998. Mr. Conway has been
president  and a director of the Company  since  January  1996.  From 1993 until
April 1998,  he was  president  of S-Tech  Corporation  ("S-Tech"),  which was a
wholly-owned  subsidiary of Consolidated  which  manufactures  specialty vending
equipment for postal, telecommunication and other industries. From 1990 to 1993,
he was a consultant  to General Aero Products  Corp.  ("General  Aero"),  a Long
Island based defense  manufacturing firm as debtor in possession of General Aero
following its filing under Chapter 11 of the Federal Bankruptcy Act in 1989.

Mr.  Leonard  M.  Luttinger  has  been a  director  of  the  Company  since  its
organization  in September  1992 and was  president  from  September  1992 until
January 1996, when he became chief operating officer.  From October 1996 through
March 1997, he was vice president of the Smartcard Division.  From March 1991 to
September  1992,  Mr.  Luttinger  was vice  president  of smart card systems for
Onecard, a corporation engaged in the development of smart-card technology. From
June 1966 to February 1991, he was employed at

                                       5

<PAGE>



Unisys, a computer corporation,  and its predecessor Burroughs  Corporation,  in
various  capacities,  including manager of semiconductor and memory products and
manager of scientific systems.

Mr.  Anthony F.  Grisanti  has been  treasurer  of the Company  since June 1994,
secretary since February 1995 and chief financial officer since January 1996. He
was  chief  financial  officer  of CSM and ACT for more than  five  years  prior
thereto.

Mr. John F.  Phillips  has been a director of the Company and vice  president of
CSM since June 1994, when CSM was acquired.  He was a senior  executive  officer
and director of CSM and ACT for more than five years prior to June 1994.

Mr.  Gerald  Koop has been an  executive  of CSM  since  June  1994 when CSM was
acquired.  He served as marketing executive from June 1994 to January 1996. From
January  1996 to present,  he has  operated as chief  executive  officer of CSM.
Prior to June 1994, Mr. Koop was on medical leave of absence from CSM.


Item 2.   Property

The Company's  executive  offices and  facilities  are located in  approximately
15,000 square feet of space at 146 Nassau Avenue, Islip, New York, pursuant to a
lease which  terminates  on February 28,  1999,  at a minimum  annual  rental of
$263,000. This lease provides for fixed annual increases ranging from 4% to 5%.

The Company also leases  approximately 3,500 square feet of office space at 1335
Dublin Road,  Columbus,  Ohio,  pursuant to a lease which terminates on November
30, 2002, at a minimum annual rental of $50,000.  This lease provides for annual
increases for operating expenses and real estate taxes.

The Company also leases  approximately  1,800 square feet of office space at 18B
Ledgebrook  Run,  Mansfield  Center,  Connecticut,  pursuant  to a  lease  which
terminates  on October 31, 2002,  at a minimum  annual  rental of $21,000.  This
lease  provides  for annual  increases  for  operating  expenses and real estate
taxes.

The Company also leases  approximately 1,800 square feet of office space at 7590
Fay Avenue, La Jolla, California,  pursuant to a lease which terminates on March
31, 1999, at a minimum annual rental of $31,000.
This lease provides for fixed annual increases of 4%.

The Company occupies, on a month to month basis, approximately 2,000 square feet
of office space in Ashland, Oregon, at a monthly rental of $700.

The Company  believes  that its space is adequate  for its  immediate  needs and
that,  if  additional  space  is  required,  it would be  readily  available  on
commercially reasonable rates.


Item 3.   Legal Proceedings

In March 1997,  an action was  commenced  against the Company and certain of its
officers,  directors and stockholders by Onecard Health Services  Corporation in
the Supreme Court of the State of New York,  County of New York.  The action was
similar to one previously brought by the same plaintiff,  which was dismissed in
September  1966.  The named  defendants  include,  in addition  to the  Company,
Messrs.  Lewis S. Schiller,  formerly chief executive  officer and a director of
the Company, Leonard M. Luttinger, vice president and a director of the Company,
Thomas L. Evans,  formerly a vice  president  of the Company,  Consolidated  and
certain  of its  subsidiaries,  other  stockholders  of the  Company  and  other
individuals  who were or may have been  officers or directors of Onecard but who
have no  affiliation  with the Company or  Consolidated.  Mr.  Luttinger and Mr.
Evans were  employees of Onecard  prior to the  formation  of the  Company.  Mr.
Schiller  was not an  employee  or  director  or,  consultant  to, or  otherwise
affiliated with,  Onecard.  The complaint makes broad claims respecting  alleged
misappropriation  of Onecard's  trade  secrets,  corporate  assets and corporate
opportunities, breach of fiduciary relationship unfair competition, fraud,

                                       6

<PAGE>



breach of trust and other similar  allegations,  apparently  arising at the time
of, or in connection  with, the  organization  of the Company in September 1992.
The complaint seeks injunctive relief and damages,  including  punitive damages,
of $130 million.  The Company  believes that the action is without merit, and it
will vigorously  defend the action.  The Company has filed an answer denying all
of the  plaintiffs'  allegations  and  has  asserted  affirmative  defenses.  In
addition, the Company believes that there is a difference in the technology used
in the Onecard software and the Company's CarteSmart software and in the type of
computer network on which the software  operates.  The Company has demanded that
the  plaintiff  particularize  the broad  allegations  of the  complaint and the
produce documents  referred to in the complaint.  The plaintiff is presently not
represented  by counsel and has not produced the  requested  documentation.  The
Company plans to file a motion to dismiss the action.  No assurance can be given
as to the ultimate disposition of the action, and an adverse decision may have a
material adverse effect upon the business of the Company.


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

No matters were submitted to security holders for a vote during the three months
ended December 31, 1997.


                                 Part II

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

The  Company's  Common Stock is traded on The Nasdaq  SmallCap  Market under the
symbol NTST.  Set forth below is the  reported  high and low sales prices of the
Common  Stock  commencing  from  August  13,  1996,  the date of the  Prospectus
relating to the Company's initial public offering.

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

 September 30, 1996 (from August 13)               $13.25              $12.50
 December 31, 1996                                   3.38                3.00
 March 31, 1997                                      6.00                2.63
 June 30, 1997                                       6.63                2.63
 September 30, 1997                                  6.50                2.00
 December 31, 1997                                   6.25                 .81

As of December  31, 1997 there were  approximately  710 holders of record of the
Company's Common Stock.

No cash  dividends  have been paid to the holders of the shares of Common  Stock
during the years ended December 31, 1997 and 1996 and 1995.






                                        7

<PAGE>

<TABLE>


Item 6.  Selected Financial Data

                                                    Year Ended December 31,
                                                    -----------------------
                                      1997         1996          1995         1994        1993
                                      ----         ----          ----         ----        ----
                                                   (in 000's except per share data)
<S>                                <C>            <C>           <C>         <C>          <C>
Selected Statements
  of Operations Data:

Revenues                             $ 7,882        $ 8,541      $ 7,382      $ 2,924      $   57

Income (Loss) from
 Operations                         1 (2,863)      2 (4,151)      (1,433)      (1,491)       (339)

Net Income (Loss)                     (3,459)   2&3  (6,579)    4 (2,850)      (1,751)       (433)

Net Income (Loss)
  per Common Share                      (.48)         (1.28)        (.59)        (.36)       (.10)

Weighted average number
  of shares outstanding                7,161          5,149        4,822        4,822       4,763

Selected Balance
 Sheet Data:
 Working Capital (deficiency)           (537)           477       (2,562)      (4,037)       (938)

Total Assets                           7,340          8,251        6,390        7,193         585

Total Liabilities                      4,200          3,836        5,887        6,342        (938)

Redeemable Preferred Stock                --             --           96           96          96

Accumulated Deficit                  (15,293)       (11,726)      (5,147)      (2,297)       (546)

Stockholders' Equity
(deficiency)                           3,140          4,415          407          755        (449)

--------
        1Reflects a write off of$553 of  capitalized  software costs and related
hardware.  Reflects  a write off of $754 of  accounts  receivable  and costs and
estimated  profits in excess of interim  billings  associated  with one  client.
These write offs relate to the Smarte Carte business.

        2Reflects $3,492 of non cash compensation charges arising out of the
issuance by the Company of warrants and options having exercises prices which
were less than the market value of the Common Stock at the date of approval by 
the board of directors. 

        3Reflects $1,692 of non cash costs associated with the issuance of
500,000 common shares to certain noteholders and 25,000 shares of common stock
to the Company's asset based lender. 

        4Reflects financing costs of $460 representing the write-off of deferred
financing costs relating to a proposed public offering scheduled for early 1995
but cancelled.

                                  8
</TABLE>


<PAGE>



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

Years Ended December 31, 1997 and 1996.

The  Company's  revenue for 1997 was $7.9 million,  a decrease of  approximately
$659,000,  or 8% from the revenue for 1996 which was $8.5 million. This decrease
results from a decrease in revenue from  $1,879,000  in 1996 to $95,000 in 1997,
from a contract with IBN Limited  ("IBN").  IBN  represented  the Company's most
significant customer for 1996,  accounting for approximately 22% of revenue. The
Company is no longer  providing  professional  services to IBN and in 1997,  the
Company wrote off $754,000 of accounts receivable relating to IBN.

Revenue  from the  Company's  behavioral  health  information  systems  ("BHIS")
continued  to  represent  the  Company's  principal  source of  revenue in 1997,
accounting for $7.6 million or 97% of revenue.  The largest component of revenue
in 1997 was data center  revenue  which  increased  to  $2,235,000  in 1997 from
$2,207,000 in 1996, reflecting an increase of 1%. The BHIS revenues increased to
$2,107,000 in 1997 from $1,663,000 in 1996,  reflecting an increase of 27%. This
increase  is  substantially  the  result of growth in the BHIS  backlog  and the
ability of the Company to provide the staff necessary to generate the additional
revenue.  Maintenance revenue increased to $1,280,000 in 1997 from $1,226,000 in
1996,  reflecting a 4% increase.  Revenue from third party hardware and software
decreased to $1,078,000 in 1997 from $1,114,000 in 1996, a decrease of 3%. Sales
of third party  hardware and software are made in  connection  with the sales of
BHIS.  License  revenue  increased to $737,000 in 1997 from  $329,000 in 1996, a
124% increase.  License  revenue is generated as part of a sale of BHIS pursuant
to a  contract  or  purchase  order  that  includes  delivery  of the system and
maintenance. The Company believes that the increase in 1997 installations should
enable the Company to increase the maintenance revenue in future periods.

Revenue from contracts from government  agencies  represented 34% of revenue for
1997 .

Gross  profit  increased to  $1,727,000  in 1997 from  $1,610,000  in 1996, a 7%
increase.  The  increase in the gross profit was  substantially  the result of a
reduction  of costs  associated  with the IBN  contract.  During  1996 the costs
associated  with this contract were  disproportionately  high. In addition,  the
Company  generated a higher  gross margin from its health  information  systems,
particularly from the increase in license revenue which provides higher margins.

Selling,  general and  administrative  expenses  were $2.8  million in 1997,  an
increase of 71%,  from $1.7  million in 1996.  The increase was the result of an
increase in personnel and salaries in the sales and marketing and administrative
areas,  an increase in other direct sales  expenses such as  advertising,  trade
shows and  commissions  and an increase in general and  administrative  expenses
such as insurance and an adjustment for bad debts.

During 1996, the Company incurred non cash compensation  charges of $3.5 million
arising  out of the  issuance by the  Company of  warrants  and  options  having
exercise  prices  which were below the market  value of the Common  Stock at the
date of issuance.  During 1996, the Company also issued 500,000 shares of common
stock to certain  noteholders  and 25,000 common  shares to the Company's  asset
based lender.  As a result of such  issuance,  the Company  incurred a financing
cost charge to operations  of  approximately  $1.7  million.  There were no such
charges during 1997.

During 1997,  the Company  incurred  product  development  expenses of $201,000,
which were  related  to the  Company's  behavioral  health  information  systems
products.  In addition,  the Company  capitalized  $204,000 of behavioral health
information systems software  development costs associated with such products as
its  clinician  workstation,  BHIS  for  Windows,  managed  care  and  methadone
dispensing   products.   The  Company  also  capitalized  $259,000  of  software
development  costs for the Company's  contract with a customer,  with respect to
its customer  activated  terminal product and server  software.  Amortization of
such  software in 1997 amounted to $59,000 which was charged to cost of revenue.
In 1996, the Company incurred product  development  expenses of $557,000,  which
were related to the Company's contract with IBN and the development of SmartCard
products.  $279,000  of such amount was  capitalized  in 1996 and written off in
1997.

                                         9

<PAGE>



In 1997,  the Company's  50% share of its loss in its joint venture  corporation
with respect to the  development  of CCAC software  purchased in 1996  increased
from $264,000 in 1996 to $287,000 in 1997. Included in the 1997 loss was a write
off  of the  investment  in the  joint  venture  corporation  in the  amount  of
$147,000.  This  adjustment  was made after a  determination  was made that this
investment  would not be  recovered,  based  upon  estimated  cash  flows.  This
adjustment reduced the carrying basis to zero.

Interest expense was $308,000 in 1997, a decrease of $164,000,  or 35%, from the
interest  expense  in  1996.  This is a  result  of a  decrease  in the  average
borrowings  during 1997. The most significant  component of the interest expense
on an ongoing basis is the interest payable to the Company's asset-based lender.
The  Company  pays  interest  on such loans at a rate equal to prime plus 8 1/2%
plus a fee of 5/8% of the face amount of the invoice.

During  1997,  the  Company  wrote off  certain  receivables  from IBN  totaling
$754,000.

As a result of the foregoing  factors,  the Company  incurred a net loss of $3.5
million, or $.48 per share, in 1997 as compared with a net loss of $6.6 million,
or $1.28 per share, in 1996.

Years Ended December 31, 1996 and 1995

The Company's revenue for 1996 was $8.5 million, an increase of $1.1 million, or
15% from the revenue for 1995 which was $7.4 million.  Approximately  $1,550,000
of the increase in revenue was  generated  pursuant to the  Company's  agreement
with IBN. IBN  represented  the Company's  most  significant  customer for 1996,
accounting for approximately 22% of revenue.  Furthermore,  through December 31,
1996 IBN has generated  revenue of $2.4 million,  or approximately  89.6% of the
Company's  total revenue from the SmartCard  systems  during the two years ended
December 31, 1996 and 1995 on a combined  basis.  The revenue  generated to date
includes  approximately  $419,000 of  guaranteed  royalties.  As of December 31,
1996,  the contract was more than 80%  complete.  The Company is  continuing  to
provide professional  services to IBN, although revenues from such services have
declined  substantially from the level at the beginning of the year. The Company
intends to expand its marketing effort for its CarteSmart  System,  however,  at
December 31, 1996,  the Company did not have any  significant  contracts for the
CarteSmart system.

Revenue from the Company's  behavioral health  information  systems continued to
represent the Company's principal source of revenue in 1996, accounting for $6.5
million or 76% of revenue.  However, as a result of the increase of revenue from
SmartCard  systems,   principally  from  IBN,  revenue  from  behavioral  health
information  systems and  services  declined as a percentage  of total  revenue.
Except for revenue from the IBN  contract,  the largest  component of revenue in
1996 was data center  (service  bureau) revenue which increased to $2,207,000 in
1996 from $1,742,000 in 1995, an increase of 27%. The BHIS revenue  decreased to
$1,663,000  in 1996  from  $1,777,000  in 1995,  reflecting  a  decrease  of 6%.
Maintenance  revenue  increased to $1,226,000  in 1996 from  $1,099,000 in 1995,
reflecting  an 11%  increase.  Revenue  from third party  hardware  and software
decreased  to  $1,114,000  in 1996 from  $2,148,000  in 1995, a decrease of 48%.
Sales of third party hardware and software are made only in connection  with the
sales of BHIS.  License  revenue  increased to $329,000 in 1996 from $162,000 in
1995.  License revenue is generated as part of a sale of a BHIS product pursuant
to  a  contract  or  purchase  order  that  includes  delivery  of  a  BHIS  and
maintenance. The Company believes that the increase in 1996 installations should
enable the  Company  to  increase  the  maintenance  revenue in future  periods.
Revenue from contracts from government  agencies  represented 31% of revenue for
1996 . The Company  believes that such  contracts  will continue to represent an
important part of its business,  particularly its behavioral health  information
systems business.

Gross profit  decreased to  $1,332,000  in 1996 from  $1,763,000  in 1995, a 24%
decrease. The decrease in the gross profit was substantially the result of costs
associated with the completion of the IBN contract. At December 31, 1996 the IBN
contract was more than 80% complete.

Selling,  general  and  administrative  expenses  were $1.9  million in 1996,  a
decrease of 24% from the $2.5 million in 1995. The decline was substantially the
result of a one time charge in 1995 of a write off of deferred  public  offering
costs in the amount of $460,000 as well as a reduction in executive compensation
and a reduction in staff in 1996.

                                       10

<PAGE>



During 1996, the Company incurred non cash compensation  charges of $3.5 million
arising  out of the  issuance by the  Company of  warrants  and  options  having
exercise prices which were less than the market value of the Common Stock at the
date of approval by the board of  directors.  During  1996,  the Company  issued
500,000  common  shares to certain  noteholders  and 25,000 common shares to the
Company's asset based lender. As a result of such issuance, the Company incurred
a financing cost charge to operations of approximately $1.7 million.

During  1996,  the  Company  incurred  development  expenses  in the  amount  of
$278,000,  which  were  related  to the  Company's  contract  with  IBN  and the
development  of  SmartCard  products.  Also  during  1996 the  Company  incurred
capitalized  software  development  costs in the  amount  of  $279,000  of which
$28,000 has been amortized in 1996 and charged to cost of revenue.  In 1995, the
Company incurred research and development expenses in the amount of $699,000.

In 1996 the Company  recognized  its 50% share of its loss in its joint  venture
corporation  with respect to the purchase of CCAC  software.  The amount of such
loss was $264,000.

Interest  expense was $473,000 in 1996,  a decrease of $81,000,  or 15% from the
interest expense in 1995. The most significant component of the interest expense
on an ongoing basis is the interest payable to the Company's asset-based lender,
which it pays  interest  equal to the  greater if 18% per annum or prime plus 8%
plus a fee of 1% of the face amount of the invoice.

As a result of the foregoing  factors,  the Company  incurred a net loss of $6.6
million, or $1.28 per share in 1996 as compared with a net loss of $2.9 million,
or $.59 per share in 1995.

Liquidity and Capital Resources

The Company had a working  capital  deficit of $537,000 at December  31, 1997 as
compared to a working  capital  surplus of $477,000 at December  31,  1996.  The
decrease  in  working   capital  for  the  year  ended  December  31,  1997  was
substantially due to the net loss incurred for the year as well as the Company's
investment in its capitalized  software and computer  equipment  notwithstanding
the receipt of net  proceeds of $1.9  million  from the issuance of Common Stock
upon the exercise of warrants,  as described below. The Company also invested an
additional $166,000 in its CCAC joint venture during the year ended December 31,
1997. The Company's cash balances were $855,000 at December 31, 1997 as compared
to $998,000 at December 31, 1996.

The Company's  principal  source of funds,  other than revenue and proceeds from
the  warrant  exercise  mentioned  below,  is an accounts  receivable  financing
agreement with an asset based lender whereby it may borrow up to 80% of eligible
accounts receivable up to a maximum of $1,250,000. This maximum will increase to
$1,500,000  effective  August 1, 1998. As of December 31, 1997, the  outstanding
borrowings  under this facility was $935,000.  At December 31, 1997, the maximum
amount available under this formula was $981,000.

At December 31, 1997,  accounts  receivable  and costs and estimated  profits in
excess  of  interim  billings  were  approximately  $2.7  million,  representing
approximately  124 days of revenue based on annualizing the revenue for the year
ended  December 31, 1997,  although no assurance  can be given that revenue will
continue  at the same  level as the  year  ended  December  31,  1997.  Accounts
receivable  at  December  31, 1997  decreased  by $102,000  from  $2,284,000  at
December 31, 1996 to  $2,182,000 at December 31, 1997. At December 31, 1997 Beth
Israel  Medical  Center  and the  State of  Colorado  accounted  for 12% and 10%
respectively,  of the total gross accounts receivable balance. No other customer
accounted for more than 10% of the accounts receivable balance.

In  September  1997 the  Company  amended  the terms of its Series A  Redeemable
Common Stock  Purchase  Warrants.  Pursuant to the  amendment,  (i) the exercise
price of the Warrant was reduced  from $4.50 to $3.00,  and (ii) upon payment of
the $3.00  exercise  price,  the Company would issue two shares of Common Stock,
resulting in an effective  exercise  price of $1.50 per share.  These terms were
available until December 16, 1997. At December 31, 1997,  639,107  warrants were
exercised and the Company

                                      11

<PAGE>



received  $1,917,000 in gross proceeds.  The Company  believes that these funds,
together with revenue from operations will be sufficient to enable it to operate
without additional funds for at least through 1998.

Year 2000 Issue

Many existing computer programs use only two digits to identify a year in a date
field.  These programs were designed and developed without considering the
impact of the upcoming change in the century.  If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000.
This issue is referred to as the "Year 2000 issue".  The Company is in the
process of evaluating the potential cost to it in addressing the Year 2000 issue
and the potential consequences of an incomplete or untimely resolution of the
Year 2000 issue.  No assurance can be given that the Company will not incur
significant cost in addressing the Year 2000 issue or that the failure to
adequately address the Year 2000 issue will not have a material adverse effect
upon the Company.


Item 7A.       Quantitative and Qualitative Disclosure About Market Risk.

Not Applicable.


Item 8.        Financial Statements and Supplementary Data

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


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

None


                                     PART III

Part III,  consisting of Items 10, 11, 12 and 13, is  incorporated  by reference
from the  definitive  proxy  statement  relating  to the  Company's  1998 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days after the end of the year ended December 31, 1997.


                                     Part IV

Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K


                                                  12

<PAGE>







1. Financial Statements
   F-3              Report of Moore Stephens, P.C. Independent Auditors
   F-4 - F-5        Consolidated Balance Sheets as of December 31, 1997 and 1996
   F-6 - F7         Statements of Operations for the Years Ended December 31,
                    1997, 1996 and 1995
   F-8              Statements of Shareholders' Equity for the Years Ended
                    December 31, 1997, 1996 and 1995
   F-9 - F-11       Statements of Cash Flows for the Years Ended December 31,
                    1997,  1996 and 1995
   F-12 - F-30      Notes to Financial Statements

2. Financial Statement Schedules
   None

3. Reports on Form 8-K
   None

4. Exhibits



                                         13

<PAGE>








                          NETSMART TECHNOLOGIES, INC.









                                     F - 1

<PAGE>



NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

INDEX
--------------------------------------------------------------------------------



                                                               Page to Page

Independent Auditor's Report...................................F-3

Balance Sheets.................................................F-4......F-5

Statements of Operations.......................................F-6......F-7

Statements of Stockholders' Equity.............................F-8

Statements of Cash Flows.......................................F-9......F-11

Notes to Financial Statements .................................F-12.....F-30




                  .   .   .   .   .   .   .   .   .   .   .

                                   F - 2

<PAGE>



                      INDEPENDENT AUDITOR'S REPORT


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


               We have audited the accompanying  consolidated  balance sheets of
Netsmart Technologies, Inc. and its subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three 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 audits in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

               In our opinion, the 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 1996, and the results of their operations and their cash flows for each
of the three 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 - 3

<PAGE>

<TABLE>



NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------


                                                           December 31,
                                                           -----------    
                                                      1 9 9 7        1 9 9 6
                                                      -------        -------
<S>                                              <C>                <C>    

Assets:
Current Assets:
  Cash and Cash Equivalents                       $   854,979        $    998,317
  Accounts Receivable - Net                         2,182,418           2,284,450
  Costs and Estimated Profits in Excess
    of Interim Billings                               542,324             931,786
  Other Current Assets                                 83,770              82,205
                                                  -----------        ------------

  Total Current Assets                              3,663,491           4,296,758
                                                  -----------        ------------

  PROPERTY AND EQUIPMENT - NET                        308,583             382,586
                                                  -----------        ------------

Other Assets:
  Software Development Costs                          183,150             250,920
  Investment in Joint Venture at Equity                    --             120,546
  Customer Lists                                    3,067,676           3,128,814
  Other Assets                                        116,903              71,105
                                                  -----------        ------------

  Total Other Assets                                3,367,729           3,571,385
                                                  -----------        ------------

  Total Assets                                    $ 7,339,803        $  8,250,729
                                                   ==========         ===========



See Notes to Financial Statements.

                                       F - 4
</TABLE>


<PAGE>

<TABLE>


NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------


                                                                   December 31,
                                                                   -----------
                                                              1 9 9 7           1 9 9 6
                                                              -------           -------
<S>                                                     <C>                   <C>  

Liabilities and Stockholders' Equity:
Current Liabilities:
  Notes Payable                                           $     935,177         $     590,031
  Capitalized Lease Obligations                                  23,331                41,449
  Accounts Payable                                            1,131,692               983,156
  Accrued Expenses                                            1,041,120               991,075
  Interim Billings in Excess of Costs and Estimated
  Profits                                                       951,885             1,102,105
  Due to Related Parties                                             --                23,542
  Deferred Revenue                                              117,080                88,420
                                                          --------------        ---------------

  Total Current Liabilities                                   4,200,285             3,819,778
                                                          -------------         -------------

Capitalized Lease Obligations                                        --                15,945

Commitments and Contingencies                                        --                    --

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

    Series D 6% Redeemable Preferred Stock - $.01 Par
      Value 3,000 Shares Authorized, 1,210 Issued and
      Outstanding [Liquidation Preference 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 and Outstanding
    8,333,996 Shares at December 31, 1997,
    6,798,203 Shares at December 31, 1996                       83,339                67,982

  Additional Paid-in Capital - Common Stock                 17,140,109            14,863,328

  Accumulated Deficit                                      (15,293,451)          (11,725,825)
                                                          -------------        -------------

  Total Stockholders' Equity                                 3,139,518             4,415,006
                                                         -------------         -------------

  Total Liabilities and Stockholders' Equity              $  7,339,803          $  8,250,729
                                                          ============          ============





See Notes to Financial Statements.

                                                F - 5
</TABLE>


<PAGE>

<TABLE>


NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

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 7           1 9 9 6         1 9 9 5
                                          -------           -------         -------
<S>                                    <C>               <C>            <C>    

Revenues:
  Software and Related
    Systems and Services:
    General                             $  4,366,006      $  5,108,095    $ 4,541,000
    Maintenance Contract
      Services                             1,280,465         1,225,709      1,099,000
                                           ---------         ---------      ---------
    Total Software and Related
      Systems and Services                 5,646,471         6,333,804      5,640,000

  Data Center Services                     2,235,209         2,207,155       1,742,000
                                           ---------         ---------       ---------

  Total Revenues                           7,881,680         8,540,959       7,382,000
                                           ---------         ---------       ---------

Cost of Revenues:
  Software and Related
    Systems and Services:
    General                                3,760,424         5,114,882       3,986,000
    Maintenance Contract
      Services                               928,316           595,366         743,000
                                             -------           -------       ----------

    Total Software and Related
      Systems and Services                 4,688,740         5,710,248       4,729,000

  Data Center Services                     1,466,107         1,220,368         889,000
                                           ---------         ---------       ----------

  Total Cost of Revenues                   6,154,847         6,930,616       5,618,000
                                           ---------         ---------       ---------

  Gross Profit                             1,726,833         1,610,343       1,764,000

 Provision for Doubtful Accounts             814,398           260,000           8,000

 Selling, General and
  Administrative Expenses                  2,841,724         1,661,854       2,472,000

Related Party Administrative
  Expenses                                   180,000            69,000          18,000

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

Write off of Capitalized Software Costs      553,061               --               --

  and Related Hardware

Research and Development                     201,075           278,000         699,000
                                           ---------        ----------      ----------

Loss from Operations                      (2,863,425)       (4,150,811)     (1,433,000)

Financing Costs                                   --         1,692,000         863,000

Interest Expense                             308,169           472,548         355,000

Equity in Net Loss of Joint Venture          287,131           264,085              --
See Notes to Financial Statements.

                                                F - 6
</TABLE>

<TABLE>

<PAGE>



NETSMART TECHNOLOGIES, INC.
----------------------------------------------------------------------------------------------


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 7           1 9 9 6           1 9 9 5
                                                 -------           -------           -------
<S>                                          <C>               <C>              <C>    


Related Party Interest
  Expense                                              --                 --           199,000

  Net Loss                                    $(3,458,725)       $(6,579,444)      $(2,850,000)
                                               ===========       ============      ============


Loss Per Common Share                         $      (.48)       $     (1.28)      $      (.59)
                                               ===========       ============      ============

Weighted Average Number of
  Shares of Common Stock                        7,160,858          5,149,253         4,821,528
                                               ===========       ============      ============


See Notes to Financial Statements.

                                                F - 7
</TABLE>


<PAGE>

<TABLE>


NETSMART TECHNOLOGIES, INC.
-----------------------------------------------------------------------------------------------------------------------------------

STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------

                                       Series A      Series D               Common Stock     
                                       Preferred     Preferred   Additional $.01 Par Value  Additional 
                                       Stock         Stock       Paid-in    Authorized        Paid-in
                                       at .01        at .01      Capital    15,000,000        Capital                   Total
                                       Par Value     Par Value   Preferred  Shares            Common     Accumulated   Stockholders'
                                     Shares Amount Shares Amount Stock      Shares    Amount  Stock       Deficit       Equity

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


Balance - December 31, 1994
[Combined]                             400  $--      -- $ --   $   40,000 1,050,003 $11,000 $ 3,001,000 $ (2,297,000) $  755,000

Allocated Related Party 
 AdministrativeExpenses                 --   --      --   --           --        --      --      18,000           --      18,000

Common Stock Issued to Affiliate        --   --      --   --           --   825,000   8,000      (8,000)          --          --

Common Stock and Preferred 
 Stock Issued to Affiliate              --   --   2,210   --    2,210,000 1,125,000  11,000     241,000           --   2,462,000

Common Stock Issued to Officer 
 for Services                           --   --      --   --           --    11,250      --      22,000           --      22,000

Net Loss                                --   --      --   --           --        --      --          --   (2,850,000) (2,850,000)
                                       ---  ---   -----  ---    --------- ---------  ------  ----------    ---------   ---------

Balance - December 31, 1995
[Consolidated]                         400    4   2,210   22    2,249,505 3,011,253  30,113   3,273,968   (5,146,381)    407,221
                                       ---  ---   -----  ---    --------- ---------  ------  ----------    ---------   ---------

Common Stock Issued in Exchange for 
Series D and Series A Preferred Stock (400)  (4) (1,000) (10)  (1,039,996)1,168,200  11,681   1,028,319           --          --

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

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

Common Stock Issued - Initial Public
Offering                                                                  1,293,750  12,938   5,162,063                5,175,001

Common Stock Issued - Exercise of
 Warrants                                                                   800,000   8,000   1,592,000                1,600,000

Common Stock Issued - Financing 
 Costs                                                                      525,000   5,250   1,674,750                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
 [Consolidated]                         --    --   1,210   12   1,209,509  6,798,203  67,982  14,863,328  (11,725,826)  4,415,005
                                       ---   ---   -----  ---   ---------  ---------  ------  ----------   ----------   ---------

Common Stock Issued as Dividends       
 on Preferred Stock                                                           12,802     128     108,772     (108,900)         --


Common Stock Issued - Exercise of
 Options                                                                     104,777   1,647      39,265                   40,912

Common Stock Issued - Exercise of
 Warrants                                                                  1,278,214  12,782   1,904,539                1,917,321

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

Common Stock Issued - Johnson
 Acquisition                                                                  80,000     800     299,200                  300,000

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

Balance - December 31, 1997
 [Consolidated]                         --   $--   1,210 $ 12  $1,209,509  8,333,996 $83,339 $17,140,109 $(15,293,451) $3,139,518
                                       ===   ===   =====  ===   =========  =========  ======  ==========   ==========   =========
See Notes to Financial Statements.

                                                   F - 8
</TABLE>


<PAGE>
<TABLE>



NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

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 7           1 9 9 6           1 9 9 5
                                                         -------           -------           -------
<S>                                                 <C>                <C>             <C>    
      
Operating Activities:
  Net Loss                                            $ (3,458,725)     $ (6,579,444)     $ (2,850,000)
                                                      ------------       ------------      ------------
  Adjustments to Reconcile Net
    Loss to Net Cash [Used
    for] Provided by Operating Activities:
    Depreciation and Amortization                          600,990           486,566           872,000
    Administrative Expenses                                     --             9,000             8,000
    Additional Compensation Related to the
       issuance of Equity Instruments                           --         3,492,300            22,000
    Financing Expenses related to the issuance
      of Common Stock                                           --         1,680,000                --
Write Off of Deferred Public
      Offering Costs                                            --                --           460,000
Write Off of Capitalized Software Cost
  and Related Hardware                                     553,061                --                --
    Equity in Net Loss of Joint Venture                    287,131           264,085            21,000
    Provision for Doubtful Accounts                        814,398           260,000             8,000

  Changes in Assets and Liabilities:
    [Increase] Decrease in:
      Accounts Receivable                                 (302,366)         (431,478)         (388,000)
      Costs and Estimated Profits in
        Excess of Interim Billings                         (20,538)         (516,707)           87,000
      Other Current Assets                                  (1,565)          (68,810)           10,000
      Other Assets                                          11,905           (10,502)               --

    Increase [Decrease] in:
      Accounts Payable                                     148,536          (202,620)          159,000
      Accrued Expenses                                      50,045          (332,174)          935,000
      Interim Billings in Excess of
        Costs and Estimated Profits                       (150,220)          160,626          (217,000)
      Due to Related Parties                               (21,245)         (143,458)          496,000
      Deferred Revenue                                      (4,439)          (52,580)          141,000
                                                       ------------      ------------       -----------

    Total Adjustments                                    1,965,693         4,594,248         2,624,000
                                                       ------------      ------------       -----------

  Net Cash - Operating Activities - Forward             (1,493,032)       (1,985,196)         (226,000)
                                                       ------------      ------------       -----------

Investing Activities:
  Acquisition of Property and
    Equipment                                             (216,041)         (181,033)         (138,000)
  Software Development Costs                              (462,000)         (278,800)               --
  Investment in Joint Venture                             (166,585)         (384,631)               --
                                                       ------------      ------------       -----------

  Net Cash - Investing Activities -
    Forward)                                          $   (844,626)     $   (844,464)     $   (138,000)

See Notes to Financial Statements.

                                                   F - 9
</TABLE>


<PAGE>

<TABLE>


NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

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 7           1 9 9 6           1 9 9 5
                                                         -------           -------           -------
<S>                                                 <C>               <C>              <C>   

  Net Cash - Operating Activities -
    Forwarded                                         $(1,493,032)     $(1,985,196)     $   (226,000)
                                                       -----------      -----------      ------------

  Net Cash - Investing Activities -
    Forwarded                                            (844,626)        (844,464)         (138,000)
                                                       -----------      -----------      -------------

Financing Activities:
  Proceeds from Short-Term Notes                          345,146          500,000           831,000
  Payment of Short-Term Notes                                             (912,270)         (190,000)
  Payment of Bank Note Payable                                             (79,000)         (175,000)
  Payment of Short-Term Notes
    to related party                                                      (750,000)               --
  Payment of Capitalized Lease
    Obligations                                           (34,063)        (145,146)          (29,000)
  Issuance of Common Stock                                               5,175,000                --
  Proceeds from Warrant exercise                        1,917,319        1,600,000                --
  Proceeds from Stock Option Exercise                      40,913               --                --
 Cash Overdraft                                                             95,536)           56,000
  Redemption of Series B Preferred Stock                                   (96,000)               --
  Costs associated with issuance of Stock                 (74,995)      (1,369,071)
  Deferred Public Offering Costs                                                --          (129,000)
                                                         ---------      -----------        -----------

  Net Cash - Financing Activities                       2,194,320        3,827,977           364,000
                                                        ----------      -----------        -----------

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

Cash - Beginning of Periods                               998,317               --                --
                                                         ---------      -----------        -----------

  Cash - End of Periods                               $  8 54,979      $   998,317       $        --
                                                       ===========      ===========       ============

Supplemental Disclosure of Cash Flow Information:
  Cash paid during the periods for:
    Interest                                          $   352,837     $    481,856       $   349,000
    Income Taxes                                      $        --     $         --       $        --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

During the year ended December 31, 1997, the Company had the following:

12,802 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 80,000 shares of common stock to acquire  customer lists and
certain other assets of Johnson  Computer  Systems.  These shares were valued at
$300,000.





                                          F - 10
</TABLE>


<PAGE>



NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

During the year ended December 31, 1996, the Company had the following:

SISC exchanged 1,000 shares of Series D preferred stock for 1,125,000  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 43,200  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 two shares of common  stock and one 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  25,000  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 242,000 shares of
common stock and recognized compensation expense of $154,800.

The Company  granted  3,573,125  Series B Common  Stock  purchase  warrants  and
896,875  Series A Common Stock  purchase  warrants and  recognized  compensation
expense of $3,337,500.

  During the year ended December 31, 1995, the Company had the following:

  1)   $388,000 of accrued interest owed to SISC was exchanged for 1,125,000 
       shares of common stock.

  2)   $2,210,000 of SISC debt was exchanged for 2,210 shares of Series D
       Preferred Stock.

  3)   825,000 shares of common stock were issued to a subsidiary as follows:

         A)  750,000 shares were issued in connection with the transfer of CSM
             to the Company.

         B)  75,000 shares were issued in respect of certain indebtedness 
             guaranteed by Consolidated.

  See Notes to Financial Statements.

                                    F - 11

<PAGE>



NETSMART TECHNOLOGIES, INC.
--------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS, Sheet #1
--------------------------------------------------------------------------------

[1] Financial Statement Presentation, Organization and Nature of Operations

The financial  statements as of and for the three years ended  December 31, 1997
are presented on a consolidated  basis and include Netsmart  Technologies,  Inc.
["Netsmart"],  formerly CSMC Corporation,  Carte Medical Corporation and Medical
Services Corp., and its wholly-owned  subsidiary,  Creative  Socio-Medics  Corp.
["CSM"].  Netsmart  and CSM are  collectively  referred to as the  Company.  All
intercompany transactions are eliminated in consolidation.

Netsmart was incorporated on September 9, 1992.  Netsmart's  marketing effort is
primarily directed at managed care organizations and methadone clinics and other
substance abuse facilities throughout the United States.

[2] Summary of Significant Accounting Policies

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  $940,000 and $1,000,000 at December 31, 1997
and 1996 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 from its customers.  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.  Such  estimate of the  financial
strength of such customers may be subject to change in the near term.

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, 1997, 1996 and 1995,
approximately  35%, 31% and 54%  respectively,  of the  Company's  revenues were
generated from contracts with government agencies.

No one customer accounted for more than 10% of revenues in 1997. During the year
ended  December 31, 1996 and 1995,  one  customer  accounted  for  approximately
$1,879,000  and  $1,400,000 or 22% and 19%  respectively,  of revenue.  Accounts
receivable of approximately $473,000 and $336,000 were due from this customer at
December 31, 1996 and 1995. At December 31, 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,
1997,  cash and cash  equivalent  balances of $840,000  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  - 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 licensing will be
recognized under the terms of the licenses.

                                  F - 12

<PAGE>



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

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

Consulting  revenue is recognized when the services are rendered.  No revenue is
recognized prior to obtaining a binding commitment from the customer.

Revenues  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.  It is
reasonably  possible that the amount of costs and estimated profits in excess of
billing and billings in excess of costs and estimated  profits may be subject to
change in the near  term.  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.   Software
development  revenues  from  time-and-materials   contracts  are  recognized  as
services are performed.

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.

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 is taking  steps to meet the
requirements  of the SOP and expects that it will not have a material  impact on
the financial position or results of operations of the company.

Direct Costs - Direct costs generally represent labor costs related to licensing
and consulting agreements.

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 range from 2 to 10 years as follows:

Equipment                                             2-5 Years
Furniture and Fixtures                                5-7 Years
Leasehold Improvements                                8-10 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
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

                                  F - 13

<PAGE>



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

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

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 to be  provided  on a product  by  product  basis.  The  annual
amortization  shall be 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 including the
period being reported on.

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 is as follows:

  Years ended December 31                  1997          1996           1995
  -----------------------              -----------   -----------    --------

  Beginning of Year                    $ 250,920     $       --     $ 419,000
  Capitalized                            462,000        278,800            --
  Amortization                          (114,885)       (27,880)     (419,000)
  Net Realizable Value Adjustment       (414,885)            --            --
                                        ---------      ---------     ---------

                                       $ 183,150     $   250,920    $      --
                                        =========       ========     ==========

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"),  (See Note 17).  The gross costs of the  customer  list  associated
acquired from Johnson was $255,409.  Customer  lists are being  amortized on the
straight-line method.

In 1995, the amortization  period of customer lists was changed from 20 years to
12  years.  The  change  in the  period  of  amortization  reflects  changes  in
technology which became important in the health care industry  subsequent to the
acquisition of CSM in June 1994. The development of  Window-based  applications,
particularly  Windows  95,  which  had not  been  developed  at the  time of the
acquisition,  together with the possibility of other changes in the software and
communications industry, represent developments that the Company feels require a
change  in the  amortization  period  to  twelve  years.  Such  change  has been
accounted for as a change in accounting estimate.  The effect of this change was
to increase amortization by $120,000 in 1995.

Customer lists at December 31, 1997 and 1996 are as follows:

                                                        December 31,
                                                   1 9 9 7           1 9 9 6

Customer Lists                                    $4,106,223        $3,850,814
Less: Accumulated Amortization                     1,038,547           722,000
                                                  -----------      ------------

  Net                                             $3,067,676        $3,128,814
  ---                                             ==========       ============



                                 F - 14

<PAGE>



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


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

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
intangibles at December 31, 1997 and believes that no impairment of these assets
has occurred.  It is at least reasonably possible that management's  estimate of
expected  future  cash flows may change in the near term.  This may result in an
accelerated amortization method or write-off of intangibles.

Cost Associated With Public Offerings - In 1996, the Company  completed a public
offering of its securities  (See Note 10). Costs of $1,370,000  associated  with
the offering were offset against total gross  proceeds of  $5,175,000.  In 1995,
the Company  withdrew a registration  statement  following the  termination of a
previous public offering. Costs of $460,000, associated with that offering, were
expensed, and included in financing costs, in 1995.

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 will continue 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  must be  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.

Loss Per Share - The Financial  Accounting  Standards  Board ("FASB") has issued
SFAS No. 128, "Earnings per Share";  which is effective for financial statements
issued for periods ending after December 15, 1997.  Accordingly,  loss per share
data in the financial statements for the year ended December 31, 1997, have been
calculated in accordance  with SFAS No. 128.  Prior periods' loss per share data
have been  recalculated  as necessary  to conform  prior years' data to SFAS No.
128.

SFAS No. 128 supersedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per Share," and replaces its primary  earnings per share with basic earnings per
share representing the amount of earnings for the period available to each share
of common  stock  outstanding  during the  reporting  period.  SFAS No. 128 also
requires a dual presentation of basic and diluted earnings per share on the face
of  the  statement  of  operations  for  all  companies  with  complex   capital
structures.  Diluted  earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding  during the reporting
period,  while giving effect to all potentially dilutive common shares that were
outstanding during the period,  such as common shares that could result from the
potential exercise or conversion of securities into common stock.

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,
which  recognizes  the use of proceeds  that could be obtained  upon exercise of
options and warrants in computing  diluted  earnings per share.  It assumes that
any proceeds would be used to purchase  common stock at the average market price
during the period.  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.

                               F - 15

<PAGE>



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

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

All per share information has been retroactively  adjusted for any reverse stock
splits,  recapitalizations  and any shares  issued for  nominable  value for all
periods presented.

Investment in Joint  Venture - The Company's  investment in a joint venture (See
Note 16) is accounted for under the equity method.

Allocated Related Party Administrative Expenses - During the first six months of
1996 and all of 1995,  certain  administrative  services were  performed for the
Company  by  Consolidated   Technology   group  Ltd.   "Consolidated"   and  its
subsidiaries.  As of  April  8,  1998,  approximately  29.7%  of  the  Company's
outstanding Common Stock owned by SIS Capital Corp. ("SISC"),  which is a wholly
owned  subsidiary  of  Consolidated,  a public  company.  The fair value of such
services,  approximately $9,000 and $18,000 respectively, was charged to related
party  administrative  expenses,  and, since Consolidated will not be reimbursed
for such charges, credited to additional paid-in capital. (See Note 7)

Research and Development - Expenditures  for research and development  costs for
the years ended December 31, 1997, 1996 and 1995 amounted to $201,000,  $278,000
and $699,000, respectively.

[3] Accounts Receivable

Accounts receivable is shown net of allowance for doubtful accounts of $348,029,
$288,029  and $146,263 at December 31,  1997,  1996 and 1995  respectively.  The
changes in the allowance for doubtful accounts are summarized as follows:

                                                      December 31,
                                           1997          1996         1995

   Beginning Balance                    $ 288,029      $ 146,263     $ 137,842
   Provision for Doubtful Accounts        814,398        260,000        60,000
   Recoveries                                  --             --            --
   Charge-offs                           (754,398)      (118,234)      (51,579)
                                         ---------      ---------      --------


   Ending Balance                       $ 348,029      $ 288,029     $ 146,263
                                          ========      ========      ========


[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 7           1 9 9 6

Costs Incurred on Uncompleted Contracts        $ 2,730,054       $  3,483,918
Estimated Profits                                1,293,104            652,749
                                                 ---------          ----------

Total                                            4,023,158          4,136,667
Billings to Date                                 4,432,719          4,306,986
                                                 ---------          ----------

    Net                                        $  (409,561)      $   (170,319)
    ---                                          ==========         ==========



                                     F - 16

<PAGE>



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


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

Included in the accompanying balance sheet under the following captions:

Costs and estimated profits in excess of interim billings $ 542,324  $  931,786
Interim billings in excess of costs and estimated profits  (951,885) (1,102,105)
                                                           ---------  ---------

    Net                                                   $(409,561) $ (170,319)
    ---                                                    =========  ==========

[5] Going Concern Considerations

The  accompanying  financial  statements  have been  prepared on a going concern
basis which  contemplates  the  realization  of assets and the  satisfaction  of
liabilities  and  commitments in the normal course of business.  The Company has
sustained  losses since  inception and the  accumulated  deficit at December 31,
1997 is  $13,838,560.  The ability of the Company to continue as a going concern
is dependent upon the success of the Company's  marketing  effort and its access
to sufficient funding to enable it to continue operations.  The Company has been
funded through December 31, 1997 through loans from principal  stockholders,  an
asset-based  lender and others,  and from the sale of stocks and  warrants  [See
Notes 7 and 8]. All these factors had raised substantial doubt about the ability
of the Company to continue as a going concern.

Such substantial  doubt has been alleviated due to the Company's  implementation
of the Health System Design Corporation  agreement in the first quarter of 1998,
which will allow the Company to provide  the  "Provider  Management  Information
System" to nearly 600 provider  agencies in the State of Ohio.  In addition,  in
the first quarter of 1998, the Company secured  contracts such as the New Jersey
University  of Medicine and  Dentistry,  to install its BHIS System.  Management
believes  that the gross  profit  from the  implementation  of the Provider
Management Information  System and  installation  of its BHIS  System  will 
range from $1.6 million to $3.1 million.  The Company believes that the $1.6
million gross profit can be attained with a minimal increase in the existing
staff.

There can be no assurances that management's plans to reduce operating losses by
increasing  revenues  to fund  operations  will  be  successful.  The  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of  recorded  assets,  or  the  amounts  and  classification  of
liabilities  that might be necessary in the event the Company cannot continue in
existence.

[6] Property and Equipment

Property and equipment consist of the following:
                                                           December 31,
                                                       1 9 9 7      1 9 9 6

Equipment, Furniture and Fixtures                  $  582,207      $  538,634
Leasehold Improvements                                164,335         164,335
                                                      -------         -------

Totals - At Cost                                      746,542         702,969
Less:  Accumulated Depreciation                       437,959         320,383
                                                      --------        -------

    Net                                            $  308,583      $  382,586
    ---                                               =======         =======

Depreciation expense amounted to $169,558, $145,686, and $140,000,  respectively
for the years ended December 31, 1997, 1996 and 1995.



                                    F - 17

<PAGE>



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

[7] Related Party Transactions

[A] Issuance of Stock at Organization - In connection  with the  organization of
the Company in September 1992, the Company issued 824,256 shares of common stock
as follows:  582,072 shares of common stock to SISC, for $1,300,  112,584 shares
to DLB, Inc.  ["DLB"] for $6,700,  and 43,200 shares of common stock for nominal
consideration to each of DLB and two individuals,  one of whom became a director
in June 1994.  DLB is controlled by the wife of the chairman of the board who is
also the  chairman  of the  board of  Consolidated.  The  chairman  of the board
disclaims any beneficial interest in any securities owned by DLB.

Also in connection with the  organization of the Company,  the Company  acquired
all of the capital  stock of LMT in exchange for 129,600  shares of common stock
and 400 shares of Series A 4% Convertible  Redeemable preferred stock, par value
$.01 per  share  ["Series  A  preferred  stock"].  The 400  shares  of  Series A
preferred  stock are  convertible  into 43,200  shares of common stock [See Note
10].  LMT was a shell  corporation  with no  operating  business.  The shares of
common  stock  issued  included  60,480 to the chief  operating  officer  of the
Company and 25,920 to the  vice-president  of the Company.  The remaining 43,200
and all of the shares of Series A preferred  stock were issued to a  non-related
individual.  The  Company  expensed  the value of the Series A  preferred  stock
($40,000).  The issuance of the common stock was treated as compensation  valued
at $.01 per share.  In August 1996 the Company  converted its Series A Preferred
stock into 43,200 Common Shares.

[B] Loans by Related Parties - At September 30, 1995, the total indebtedness due
SISC was $2,960,000 plus interest of $388,000. As of such date, (i) the interest
was exchanged for 1,125,000 shares of common stock,  (ii) $2,210,000 of the debt
was  exchanged  for 2,210  shares  of Series D 6%  preferred  stock  ["Series  D
preferred  stock"],  having  a  liquidation  price  of  $1.00  per  share  and a
redemption price of $1,000 per share, and (iii) the remaining  $750,000 due SISC
is  represented by the Company's 10%  subordinated  note due January 15, 1997 or
earlier  upon the  completion  of the  Company's  initial  public  offering.  In
conjunction with the September 30, 1995 debt  restructuring,  $136,000 which was
previously  recorded as paid-in capital,  was reclassified to debt owed to SISC.
The  Series D  preferred  stock may be  redeemed  at the  option of the  Company
commencing  October 1, 1998,  and is redeemable at any time after  issuance from
50% of the  proceeds  of any over  allotment  on the  Company's  initial  public
offering or other issuance of equity securities  subsequent to the completion of
the Company's initial public offering.

In  connection  with the  issuance  by the  Company  of its  Interim  Notes [the
"Interim Notes"] in July and August 1993, SISC, in anticipation of the Company's
receipt of the proceeds of such loans,  advanced the Company,  on a non-interest
bearing  basis,  $79,000,  which was repaid by the Company in August 1993.  Such
advance was used by the Company to pay the  principal  on a $50,000  demand note
and interest of $2,000 and to pay normal operating expenses.  In connection with
the Interim Notes, SISC transferred to the lenders an aggregate of 15,120 shares
of common stock for $.232 per share.  In  connection  with the  agreement of the
holders of the  Interim  Notes to extend the  maturity  date of the notes to the
earlier of September  30, 1994,  or three days after the Company  completes  its
initial public offering, SISC transferred an aggregate of 9,375 shares of common
stock to such  noteholders.  The  Company  incurred  a charge of $7,000  against
operations  for  financing  costs in  conjunction  with the issuance of stock by
SISC. The Interim Notes were paid in full in 1996.

During the period  from  January to June 1994,  SISC  advanced an  aggregate  of
$330,000 to CSM. As a result of the  acquisition,  such obligations are included
in the  principal  amount  of the  Company's  obligations  to SISC,  which  were
approximately  $2.6 million at December  31,  1994.  Included in the advances by
SISC to the  Company  were  $300,000  which  was used to pay  payroll  taxes and
interest and $500,000 which was used in connection with the purchase of CSM.

At December 31, 1995 and 1994,  ACT [the parent of Old CSM] loaned  $167,000 and
$58,000 to the Company in the form of demand notes  bearing  interest at 10% per
annum. These loans were paid in

                             F - 18

<PAGE>



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

[7] Related Party Transactions - [Continued]

[B] Loans by Related  at Organization - [Continued]

full in 1996.

The Company has an agreement  with  Consolidated  and its subsidiary The Trinity
Group, Inc. ("Trinity") pursuant to which the Company will pay Trinity a monthly
fee of $15,000 for a three-year  term  commencing in September 1996, for general
business,  management  and  financial  consulting  services.  Pursuant  to  this
agreement,   in  1997  and  1996  the  Company  charged   $180,000  and  $60,000
respectively to related party administrative expenses.

The Company  entered into an agreement with SMI Corporation  (SMI),  pursuant to
which the company would pay SMI compensation of $25,000 to $59,000 per month for
which  SMI  would  provide  persons  to serve in  management-level  or other key
positions  for the  Company.  In  addition,  the Company is to pay SMI 6% of the
revenues  generated from Smart Card and related  services.  The agreement  would
continue until  December 31, 2000. In February of 1997 the Company  modified the
agreement  whereby the monthly fees were reduced to $9,000 plus expenses and all
commission  arrangements  were canceled.  The sole stockholder of SMI, Mr. Storm
Morgan was elected as a director of the  Company in January  1996.  For the year
ended December 31, 1997 the Company  incurred and paid $180,000 of  compensation
expense.  For the year ended December 31, 1996,  the Company  incurred and paid,
$619,700 of compensation  expense  pursuant to its agreement with SMI as well as
an additional $250,000 for services.

[8] Notes Payable

Asset-Based  Lender - In February  1995,  the Company  entered  into an accounts
receivable financing with an asset-based lender.  Borrowings under this facility
were  $935,177  and $590,031 at December  31, 1997 and 1996,  respectively.  The
Company can borrow up to 80% of eligible  receivables,  and it pays  interest at
the rate of  prime  plus 8 1/2% and a fee  equal  to 5/8% of the  amount  of the
invoice.  This note is  collateralized  by all of the  accounts and property and
equipment of the Company.  In addition,  the  Company's  obligations  under this
facility are  guaranteed by the chairman of the board of the Company.  Also, the
treasurer of the Company has issued his limited guaranty to the lender.

In July 1997,  the  agreement  with the asset based lender was modified to allow
borrowings  up to 80%  instead of 75% of  eligible  receivables  to a maximum of
$1,250,000  through  July 31,  1998 and  $1,500,000  thereafter,  if the Company
elects not to terminate the agreement. The previous amount of maximum borrowings
was capped at $750,000.  The interest  rate was adjusted from the greater of 18%
per annum or prime plus 8% to prime plus 8 1/2% per annum. The fee on the amount
of the invoice was reduced from 1% to 5/8%.

Notes payable consist of the following:
                                                               December 31,
                                                           1 9 9 7       1 9 9 6
Asset-Based  Lender - payable on demand  with  interest
 at prime plus 8 1/2% in 1997 and the greater of 18%
 per annum or prime plus 8% in 1996                   $   935,177    $   590,031
                                                       ===========    ==========

The weighted  average interest rate on short-term  borrowings  outstanding as of
December 31, 1997 and 1996 amounted to approximately 22% and 22%, respectively.

In January 1996, the Company borrowed $500,000 from four accredited investors.
In connection with such loans, the Company issued its 8% promissory notes due
January 31, 1997, which were subsequently paid from the proceeds of the 
Company's initial public offering during 1996.  The

                              F - 19

<PAGE>



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

[8] Notes Payable - [Continued]

Company also agreed to issue and register with the  Securities  Act one unit for
each  $2.00  principal  amount of  notes.  The unit  issued  to the  noteholders
mirrored the units issued in the initial public  offering which consisted of two
shares of the  Company's  Common Stock and one Series A Redeemable  Common Stock
Purchase  Warrant.  The Company  incurred a one time non-cash  finance charge of
$1,611,000 upon the issuance of these units.

[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.

For  financial  reporting  purposes at December  31,  1997,  the Company has net
operating  loss  carryforwards  of  $10,572,000  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. Based on this and
the fact that the Company has generated  operating  losses through  December 31,
1997,  the  deferred  tax  asset of  approximately  $4,200,000  is  offset by an
allowance of $4,200,000.

A  deferred  tax  asset of  approximately  $1,400,000,  related  to  stock-based
compensation  awards, has been offset by a valuation allowance of $1,400,000 due
to the uncertainty of its realization.

Deferred Tax Asset

  Federal and State Net Operating Loss Carryforwards           $   4,200,000
  Stock Based Compensation Awards                                  1,400,000
  Less: Valuation Allowance                                       (5,600,000)
                                                                -------------

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

The Valuation  Allowance  increased by $900,000 and  $2,900,000 in 1997 and 1996
respectively.

The  provision  for income  taxes  varies  from the amount  computed by applying
statutory rates for the reasons summarized below:
                                                        1997            1996
                                                        ----            ----
Provision Based on Statutory Rates                      (34)%            (34)%
State Taxes Net of Federal Benefit                       (6)%             (6)%
Increase in Valuation Allowance                           40%              40%
                                                       ------           ------

  Total                                                  -- %             -- %

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

December 31,                                        Amount

    2007                                          $     72,000
    2008                                               433,000
    2009                                             2,029,000
    2010                                             1,704,000
    2011                                             2,935,000
    2012                                             3,399,000
                                                   -----------
                                                  $ 10,572,000

                                  F - 20

<PAGE>



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

[10] Capital Stock

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  action,  in one or more
distinct series. The Board of Directors is authorized to determine the following
rights and preferences, among others, for each series: (i) the rate of dividends
and whether such dividends shall be cumulative;  (ii) the price at and the terms
and  conditions on which shares may be redeemed;  (iii) the amount  payable upon
shares in the event of voluntary or involuntary liquidation; (iv) whether or not
a sinking fund shall be provided for the  redemption or purchase of shares;  (v)
the terms and conditions on which shares may be converted; and (vi) whether, and
in what  proportion  to any other  series or class,  a series  shall have voting
rights other than  required by law. The Board of Directors  has  authorized  the
issuance of the Series A preferred  stock,  the Series B preferred stock and the
Series D preferred  Stock.  At December  31,  1997,  only the Series D preferred
stock was outstanding.

Preferred  Stock - The Series A  preferred  stock is 4%  convertible  redeemable
preferred  stock.  The  stockholders  are  entitled to receive a $4.00 per share
annual  dividend when and as declared by the Board of  Directors.  Dividends are
fully cumulative and accrue from October 1, 1992. Dividends are payable annually
on March 1. The stock is  redeemable at the option of the Company at any time at
which the Company has  consolidated  net worth of at least $2,500,000 at a price
of $1,000 per share plus  accrued  dividends.  Each share of Series A  preferred
stock is  convertible  into 108 shares of common stock at the  discretion of the
stockholder.  In  the  event  of  involuntary  or  voluntary  liquidation,   the
stockholders  are  entitled to receive $100 per share and all accrued and unpaid
dividends.  As of December 31, 1995,  approximately $4,000 of dividends [$10 per
share] were in arrears.  In August 1996,  the Company  issued  43,200  shares of
Common Stock upon conversion of all of its Series A Preferred Stock.

The Series B preferred stock is 6% redeemable  convertible  preferred stock. The
stockholders are entitled to receive a $72.00 per share annual dividend when and
as declared by the Board of Directors. Dividends are fully cumulative and accrue
from April 1, 1993.  Dividends  are  payable  annually  on March 1. The stock is
redeemable at the discretion of the Company at any time at which the Company
has  consolidated  net worth of at least  $5,000,000  at a price of $1,200  per
share plus accrued dividends.

Each share of Series B  preferred  stock is  convertible  into  259.2  shares of
common stock at the discretion of the stockholders.  In the event of involuntary
or voluntary  liquidation,  the  stockholders are entitled to receive $1,200 per
share and all  accrued and unpaid  dividends.  Each holder of Series B preferred
stock has the right, following the Company's initial public offering, to require
the  Company to redeem all of the shares of Series B  preferred  stock  owned by
such holder at a redemption  price equal to $1,200 per share. As of December 31,
1995,  approximately  $11,000 [$138 per share] of dividends were in arrears.  In
August 1996 the Company redeemed its Series B Redeemable  Preferred stock in the
amount of $96,000.

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.  Earlier  redemption is permitted under certain  circumstances.  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  dividend  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 12,802  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.


                                  F - 21

<PAGE>



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

[10] Capital Stock - [Continued]

The  Company  has  granted to the  holders of the Series A  preferred  stock and
Series B preferred  stock and certain  warrant  holders,  with  respect to their
warrants,  certain piggyback registration rights following the Company's initial
public  offering,  with  respect to the  shares of common  stock  issuable  upon
conversion or exercise of the preferred stock or warrants.

On August 19,  1996 the  Company  completed  a public  offering  whereby it sold
646,875 units at a price of $8 per unit for net proceeds of  approximately  $3.8
million.  Each unit  consisted  of two  shares of common  stock and one series A
Redeemable Common Stock Purchase Warrant.

On August 21, 1996 Series B Common Stock purchase  warrants to purchase  800,000
shares of common stock at $2 per share were  exercised and the Company  received
$1,600,000 in gross and net proceeds.

See Note 7 for additional  information  relating to the issuance of common stock
and  preferred  stock in  connection  with  the  Company's  organization  and in
connection with certain financings.

See Note 14 for information  relating to the Company's 1993 Long-Term  Incentive
Plan.

[11] Capitalized Lease Obligations

Future minimum payments under  capitalized  lease obligations as of December 31,
1997 are as follows:

Year ending
-----------
December 31,
-----------
      1998                                                       $    23,596
                                                                 -----------

      Total Minimum Payments                                          23,596
      Less Amount Representing Interest at 12% Per annum                 265
                                                                 ------------

      Balance                                                    $    23,331
      -------                                                    ===========

Capitalized  lease  obligations are  collateralized by equipment which has a net
book value of $15,000 and $25,000 at December  31, 1997 and 1996,  respectively.
Amortization   of   approximately   $10,200   and  $30,700  in  1997  and  1996,
respectively, has been included in depreciation expense.

[12] Fair Value of Financial Instruments

Effective  December 31, 1995,  the Company  adopted SFAS No. 107, which requires
disclosing fair value to the extent practicable for financial  instruments which
are  recognized  or  unrecognized  in the balance  sheet.  The fair value of the
financial instruments disclosed therein is not necessarily representative of the
amount  that  could be  realized  or  settled,  nor does the fair  value  amount
consider the tax consequences of realization or settlement.  The following table
summarizes  financial  instruments  by individual  balance sheet  accounts as of
December 31, 1997 and 1996:

                                     Carrying Amount             Fair Value
                                     ---------------             ---------- 
                                       December 31,             December 31,
                                     ---------------            -----------

                                       1997        1996       1997         1996
                                       ----        ----       ----         ----

Debt Maturing Within One Year        $935,000   $590,000    $935,000   $590,000
                                     ========   ========    ========   ========

For 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.

                                F - 22

<PAGE>



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

[13] Commitments and Contingencies

The  Company  leases  space  for its  executive  offices  and  facilities  under
noncancellable  operating  leases  expiring  October 31, 2002.  The Company also
leases additional office space on a month-to-month basis.

Minimum annual  rentals under  noncancellable  operating  leases having terms of
more than one year are as follows:

Years ending
December 31,
  1998                                      $371,000
  1999                                       123,000
  2000                                        67,000
  2001                                        21,000
  2002                                        14,000
                                             -------

    Total                                   $596,000

Rent expense amounted to $341,000,  $358,000 and $309,000 respectively,  for the
years ended December 31, 1997, 1996 and 1995.

The  Company  has  an  agreement  with  Trinity  Group,  Inc.   ["Trinity"],   a
wholly-owned subsidiary of Consolidated,  pursuant to which the Company will pay
Trinity $15,000 a month for consulting services.
(See Note 7).

At the time of the  acquisition  of CSM,  the  Company  entered  into  five-year
employment  agreements  with its current chief operating  officer  [formerly the
president] and vice  president,  which replaced  employment  agreements  then in
effect,  and the three  individuals who had been officers of CSM. The agreements
provide for  salaries of  $125,000,  $85,000,  $125,000,  $125,000  and $80,000,
respectively,  subject to cost of living increases.  The agreements also provide
for bonuses based upon a percentage of income before income taxes.  The officers
are also provided with an automobile or an automobile allowance.

In January 1996, the vice-president's  base salary was increased from $85,000 to
$100,000.  Also, for 1996, the chief  operating  officer and two other officers,
whose base salaries were $125,000 each,  agreed to reduce their base salaries to
$62,000,  $100,000 and $100,000,  with certain incentives if certain targets are
attained.  The  current  president  who is  not  one  of  the  five  individuals
previously mentioned,  was compensated during 1996 at the annual rate of $52,000
prior to the public offering and $125,000 subsequent to the public offering.

On or about  September 29, 1995, an action was commenced  against the Company by
the filing of a summons  with  notice in the  Supreme  Court of the State of New
York,  County of New York.  The action  was  commenced  by Jacque W. Pate,  Jr.,
Melvin Pierce, Herbert A. Meisler, John Gavin, Elaine Zanfini,  individually and
derivatively as  shareholders of Onecard Health Systems  Corporation and Onecard
Corporation,  which corporations are collectively  referred to as "Onecard." The
named defendants include, in addition to the Company,  officers and directors of
the  Company,  its  principal  stockholder  and  the  parent  of  its  principal
stockholder.  A complaint was served on November 15, 1995.  The complaint  makes
broad claims  respecting  alleged  misappropriation  of Onecard's trade secrets,
corporate assets and corporate opportunities,  breach of fiduciary relationship,
unfair  competition,  fraud,  breach  of trust and  other  similar  allegations,
apparently  arising at the time of, or in connection with the  organization  of,
the  Company in  September  1992.  The  complaint  seeks  injunctive  relief and
damages,  including  punitive  damages,  of $130 million.  In September 1996 the
above action was dismissed.


                                  F - 23

<PAGE>



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

[13] Commitments and Contingencies - [Continued]

In March 1997, the plaintiff has refiled a new action with the same  allegations
and stating claims that were at the basis of the original complaint. Such action
is in the amount of  $130,000,000.  The Company contends that the technology and
software  were  created  from a "clean  office  start" and the action is without
merit and frivolous. No assessment as to any outcome can be made at this time as
the matter is in its very preliminary  stages. The Company denies any allegation
of wrongdoing and intends to vigorously defend the action. The plaintiff has not
supplied  documentation  requested by the defendants as part of their  discovery
process, nor is plaintiff represented by an attorney.  The Company plans to file
a motion to dismiss the action.

[14] Stock-Based Compensation

In July 1993,  the  Company  adopted,  by action of the board of  directors  and
stockholders,  the 1993  Long-term  Incentive  Plan (the  "Plan").  The Plan was
amended in October  1993,  April 1994,  October  1994 and February  1996.  These
amendments  increased the number of shares  available for grant  pursuant to the
plan. The Plan does not have an expiration date.

The Plan is  authorized to grant options or other  equity-based  incentives  for
511,000  shares of the common  stock.  If shares  subject to an option under the
Plan cease to be subject to such  options,  or if shares  awarded under the Plan
are  forfeited,  or  otherwise  terminated  without a payment  being made to the
participant in the form of stock, such shares will again be available for future
distribution under the Plan.

Awards under the Plan may be made to key  employees,  including  officers of and
consultants to the Company,  its  subsidiaries  and  affiliates,  but may not be
granted to any director unless the director is also an employee of or consultant
to the Company or any  subsidiaries or affiliates.  The Plan imposes no limit on
the  number of  officers  and other key  employees  to whom  awards may be made;
however,  no person shall be entitled to receive in any fiscal year awards which
would  entitle  such  person to acquire  more than 3% of the number of shares of
common stock outstanding on the date of grant.

In January  1995,  the Board  granted,  to various  employees,  stock options to
purchase an aggregate of 252,804 shares of common stock at $.232 per share,  and
in December  1995 the Board  granted,  to various  employees,  stock  options to
purchase an aggregate of 116,316 shares of common stock at $.345 per share. Such
exercise  prices were  determined  by the Board to be the fair market  value per
share on the date of grant.  The  options  become  exercisable  as to 50% of the
shares on the first and second anniversaries of the date of grant. These options
expire on January 31, 2000 and December 31, 2000,  respectively.  In  connection
with certain of the January 1995 option grants,  the Board  canceled  previously
granted  options to purchase  206,250  shares at an exercise  price of $5.33 per
share which were  granted in 1994.  In April 1996,  the  Company  granted  stock
options  to  purchase  an  aggregate  of  129,500  shares of common  stock at an
exercise  price of $2.00  per  share  and  recognized  compensation  expense  of
$154,800.  The options are  exercisable as to 50% of the shares on the first and
second anniversaries of the date of grant and expire in April 2001. In September
1997, 164,777 stock options were exercised in the 1993 Long Term Incentive stock
option plan and the Company received gross proceeds of $40,913.

In addition, the Company granted to the underwriter,  for nominal consideration,
options to purchase  56,250  units,  consisting  of two common  shares,  and one
purchase  warrant,  for a four year period commencing August 13, 1997 at a price
of $5.37.


                                   F - 24

<PAGE>

<TABLE>


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

[14] Stock-Based Compensation - [Continued]

A summary of the activity under the Company's stock option plan is as follows:

                                         1997                   1996                    1995
                                       -------                 ------                  ------

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

                                              Weighted                 Weighted             Weighted
                                              --------                 --------             --------
                                               Average                  Average              Average
                                               -------                  -------              -------
                                              Exercise                 Exercise             Exercise
                                              --------                 --------             --------
                                  Shares        Price      Shares        Price      Shares    Price
                                  -----         -----      ------        -----      ------    -----
Outstanding - Beginning of
  Years                          611,120       $1.60       369,120      $ .265      206,250   $ 5.33
Granted During the Years              --          --       242,000        3.57      369,102     .265
Canceled During the Years             --          --            --          --     (206,250)    5.33
Expired During the Years              --          --            --          --           --       --
Exercised During the Years      (164,777)       .248            --          --           --       --
                                 -------        -----      -------       ------     -------    -----

   Outstanding - End of Years    446,343       $2.06       611,120        1.60      369,120     .265
                                 =======        =====      =======       ======     =======    =====

   Exercisable - End of Years    325,343       $1.504      178,878        .265           --       --
                                 =======        =====      =======       ======     =======    =====


                                         1997                   1996                    1995
                                        ------                  -----                   -----
                                  Weighted    Weighted     Weighted    Weighted     Weighted    Weighted
                                  --------    --------     --------    --------     --------    --------
                                   Average     Average      Average     Average      Average     Average
                                   -------     -------      -------     -------      -------     -------
                                  Exercise      Fair       Exercise      Fair       Exercise      Fair 
                                  --------      ----       --------      ----       --------      ---- 
                                   Price       Value        Price       Value       Price        Value
                                   -----       -----        -----       -----       -----        ----- 
Options Issued with
Exercise Price Above
Stock Price at Date of
Grant                               --           --         $5.37       $  .93           --        --

Options Issued with Exercise
Price Equal to Stock Price at
Date of Grant                       --           --            --           --        $.265      $.14

Options Issued with Exercise
Price Below Stock Price at
Date of Grant                       --          --          $2.00        $1.78           --        --

The following table summarizes stock option information as of December 31, 1997:

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

                                                            Weighted
                                                            --------
                                                     Average Remaining        Weighted Average
                                                     -----------------        ---------------- 
Range of Exercise Prices                  Shares       Contractual Life          Exercise Price
------------------------                  ------       ----------------          --------------

$.232 to $.345                            204,343         3.0 Years                $ .283
$2.00                                     129,500         3.3 Years                  2.00
$5.37                                     112,500         3.7 Years                  5.37
                                          -------         ---------                -------


   Totals                                 446,343         3.3 Years                $ 1.21
                                          =======         =========                ======

In October 1993, the Company issued to SISC warrants to purchase  375,000 shares
of  common  stock at $10.00  per  share,  225,000  shares at $6.67 per share and
150,000 shares of common stock at $2.67

                                      F - 25
</TABLE>


<PAGE>



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

[14] Stock-Based Compensation - [Continued]

per share and issued to SMACS warrants to purchase 37,500 shares of common stock
at $6.67 per share and 37,500  shares at $2.67 per share.  The  warrants  became
exercisable  six months from the  completion  of the  Company's  initial  public
offering or earlier  with the consent of the  Company  and the  underwriter  and
expire on November 30, 1998.

In  February  1996,  the  Company  issued an  aggregate  of  3,153,750  Series B
Warrants,  of which 2,526,250 are exercisable at $2.00 per share and 637,500 are
exercisable at $5.00 per share.  These  warrants were issued in connection  with
services  rendered,  which,  in the case of SISC,  included the guarantee of the
December 1995 Interim Notes, and, in certain instances the terms of the warrants
were  revised.  Although  the warrants  were issued prior to the  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.

Of the warrants issued in February 1996,  787,500 warrants  exercisable at $2.00
per share and 37,500  warrants  exercisable  at $5.00 per share  were  issued to
replace 825,000 warrants  previously  issued in October 1993. These warrants had
exercise prices ranging from $2.67 per share to $10.00 per share.

In July 1996,  pursuant to a warrant  exchange,  (a) the holders of  outstanding
warrants  having a $2.00 exercise price exchanged one third of such warrants for
outstanding warrants to purchase,  at an exercise price of $4.00 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 have a $5.00 exercise price was reduced to $4.00. Prior to
the warrant  exchange,  there were  outstanding  warrants to purchase  2,516,250
shares of common stock at $2.00 per share and  outstanding  warrants to purchase
2,637,500 shares of common stock at $5.00 per share outstanding.  As a result of
the warrant  exchange,  there are  outstanding  warrants  to purchase  1,677,500
shares of common stock at $2.00 per share and  1,895,625  shares of common stock
at $4.00 per share. This warrants may be exercised  commencing February 13, 1997
or earlier if approved by the company and the  underwriter.  An affiliate of the
Company, a member of the board of the directors and a Company controlled by such
directors,  were given  permission  to  exercise  options in August  1996.  This
individual and entities  exercised  warrants to purchase 800,000 shares at $2.00
per share in August 1996. All of the warrants expire on December 31, 1999. These
warrants  are Series B Common  Stock  Purchase  Warrants.  The Company  recorded
compensation  expenses  of  $3,337,500  in  relation  to the  issuance  of these
warrants.

The Company issued 646,875 Series A Common Stock Purchase  Warrants as a part of
its initial public  offering of its  securities.  These warrants are exercisable
for two year period commencing August 13, 1997 at a price of $4.50. In addition,
the Company issued  250,000  Series A Common Stock  Purchase  Warrant to various
accredited  investors  (See Note 8).  These  warrants  have the same term as the
warrants issued to the general public.

During  1997,  the  Company  issued  70,000  Series C Common  stock  warrants in
exchange for the issuance of a research  report on behalf of the Company.  These
warrants were valued at $.30 per warrant which represented the fair value of the
services performed by the recipient. These warrants have an exercise price of $5
which was the market  value of the stock at the time of issuance and will expire
on December 31, 1999.


                                    F - 26

<PAGE>
<TABLE>



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

[14] Stock-Based Compensation - [Continued]

A summary of warrant activity is as follows:

                                         1997                  1996                     1995
                                         ----                  ----                     -----
                                           Weighted              Weighted                  Weighted
                                           --------              --------                  --------
                                           Average               Average                   Average
                                           -------               -------                   -------
                                           Exercise              Exercise                  Exercise
                                           --------              --------                  --------
                               Shares       Price     Shares       Price       Shares       Price
                               ------       -----     ------       -----       ------       -----
<S>                         <C>           <C>       <C>        <C>           <C>         <C>
 

Outstanding - Beginning
  of Years                     3,670,000   $3.64        825,000    $ 7.27       825,000     $ 7.27
Granted or Sold During
  the Years                       70,000    5.00      4,470,000      3.35            --         --
Canceled During the Years             --      --       (825,000)     7.27            --         --
Expired During the Years              --      --             --        --            --         --
Exercised During the Years      (639,107)   4.50       (800,000)     2.00            --         --
                               ---------    -----     ----------    -----       --------     ------

   Outstanding - End of Years  3,100,893   $3.50      3,670,000    $ 3.64       825,000     $ 7.27
                               =========   =====      =========     =====       =======      ======


   Exercisable - End of Years  3,100,893   $3.50             --        --       825,000     $ 7.27
                               =========   =====      =========     ======      =======      ======



                                            1997             1996                     1995
                                            ----             ----                     ----
                                Weighted   Weighted    Weighted  Weighted      Weighted   Weighted
                                --------   --------    --------  --------      --------   --------
                                 Average    Average     Average   Average       Average    Average
                                 -------    -------     -------   -------       -------    ------- 
                                Exercise      Fair     Exercise    Fair        Exercise     Fair
                                -------       ----     --------    ----         -------     ---- 
                                  Price      Value       Price    Value          Price     Value
                                  -----      -----       -----    -----          -----     ----- 
Warrants Issued with Exercise
Price Above Stock Price at
Date of Grant                       --         --        $4.16    $1.04             --       --

Warrants Issued with Exercise
Price Equal to Stock Price at
Date of Grant                     $5.00     $ .30           --       --             --       --
Warrants Issued with Exercise
Price Below Stock Price at
Date of Grant                                            $2.00    $1.78             --       --

The following table summarizes warrant information as of December 31, 1997:
<S>                                    <C>             <C>                  <C>    


                                                            Weighted
                                                            --------
                                                     Average Remaining          Weighted Average
                                                     -----------------          -----------------
Range of Exercise Prices                  Shares       Contractual Life            Exercise Price
------------------------                  ------       ----------------            --------------

$2.00                                       877,500       2.0 Years                   2.00
$4.00                                     1,895,625       2.0 Years                   4.00
$4.50                                       257,768       .7 Years                    4.50
$5.00                                        70,000       .7 Years                    5.00
                                          ---------       --------                    ----

   Total                                  3,100,893       1.9 Years                   3.50
                                          =========       =========                   ====
</TABLE>


                                              F - 27

<PAGE>



NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #18
--------------------------------------------------------------------------------

[14] Stock-Based Compensation - [Continued]

The Company applies  accounting  principles Board Opinion 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 $3,492,300
in 1996.

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 $846,000
and $50,000 for the years ended December 31, 1996 and the Company's net loss and
net loss per share would have been as follows:

                                                   Y e a rs    e n d e d
                                                   ---------------------
                                                   D e c e m b e r   3 1,
                                                   ----------------------
                                                 1 9 9 6              1995
                                                 -------              ----



Net Loss as Reported                          $ (6,579,444)         $(2,850,000)
                                               ============          ===========

Pro Forma Net Loss                            $ (7,425,444)         $(2,900,000)
                                               ============          ===========

Net Loss Per Share as Reported                $      (1.28)         $      (.59)
                                               ============          ===========


Pro Forma Net Loss Per Share                         (1.44)         $      (.60)
                                               ============          ===========


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:

                                        1 9 9 7       1 9 9 6           1995
                                        -------       -------           ----
Expected Life (Years)                       --             2                3
Interest Rate                               --           6.0%             6.0%
Annual Rate of Dividends                    --             0%               0%
Volatility                                  --          67.9%            69.6%

The  weighted  average fair value of options and warrants at date of grant using
the fair value based  method  during  1997,  1996 and 1995 is  estimated at $--,
$1.33 and $.14 respectively.


                                      F - 28

<PAGE>

<TABLE>


NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #19
--------------------------------------------------------------------------------

[15] Industry 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.  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 7           1 9 9 6         1 9 9 5
                                                       -------           -------         -------
<S>                                               <C>                 <C>            <C>    

Revenues:
--------
      Software and Related Systems and Services    $  5,646,471        $  6,333,804      $  5,640,000
      Data Center Services                            2,235,209           2,207,155         1,742,000
                                                    -----------         -----------       -----------

      Total Revenues                               $  7,881,680        $  8,540,959      $  7,382,000
      --------------                                ===========         ===========       ===========

Gross Profit:
------------
      Software and Related Systems and Services    $    957,731        $    623,456      $    911,000
      Data Center Services                              769,102             986,787           853,000
                                                    -----------         -----------       -----------

      Total Gross Profit                           $  1,726,833        $  1,610,243      $  1,764,000
      ------------------                            ===========         ===========       ===========

Income [Loss] From Operations:
-----------------------------
      Software and Related Systems and Services    $ (2,776,719)       $ (4,053,006)     $ (1,692,000)
      Data Center Services                              (86,706)            (97,805)          259,000
                                                    ------------        -----------       -----------

      Total [Loss] From Operations                 $ (2,863,425)       $ (4,150,811)     $ (1,433,000)
      ----------------------------                  ===========         ===========       ===========

Depreciation and Amortization:
-----------------------------
      Software and Related Systems and Services    $    477,953        $    367,984      $    765,000
      Data Center Services                              123,037             118,582           107,000
                                                    -----------         -----------       -----------

      Total Depreciation and Amortization          $    600,990        $    486,566      $    872,000
      -----------------------------------           ===========         ===========       ===========

Capital Expenditures:
--------------------
      Software and Related Systems and Services    $    636,174        $    444,516      $     46,000
      Data Center Services                               41,867              15,317            92,000
                                                    ------------        -----------      ------------

      Total Capital Expenditures                   $    678,041        $    459,833      $    138,000
      --------------------------                    ===========         ===========       ===========

Identifiable Assets:
-------------------
      Software and Related Systems and Services    $  3,696,725        $  4,119,943      $  3,625,000
      Data Center Services                            2,587,426           2,607,693         2,691,000
                                                    -----------         -----------       -----------

      Total Identifiable Assets                    $  6,284,151        $  6,727,636      $  6,316,000
      -------------------------                     ===========         ===========       ===========

                                       F - 29
</TABLE>


<PAGE>



NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #20
--------------------------------------------------------------------------------

[16] Joint Venture

The Company entered into a joint venture with Oasis Technology,  Ltd.  ["Oasis"]
pursuant  to which the joint  venture  corporation  (50%  owned by the  Company)
purchased  certain credit card processing  software.  The Company and Oasis each
paid  $325,000 of the  $650,000  purchase  price.  The Company  accounts for its
interest  in the Joint  Venture on the equity  method.  During  1996 the Company
recognized  $264,085  of its share of losses  related to this joint  venture and
contributed an additional $59,631 in cash to fund ongoing costs. During 1997 the
Company recognized $139,699 of its share of losses related to this joint venture
and contributed an additional $165,585 in cash to fund ongoing costs. During the
fourth  quarter  of 1997 the  Company  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  wrote
off  $147,432  which  reduced  the  carrying  basis to zero.  Such write off was
charged to equity in net loss of joint venture.

[17] Johnson Acquisition

In  October  1997 the  Company  issued  80,000  shares of  Common  Stock for the
purchase  of certain  assets and  customer  list of  Johnson  Computer  Systems.
Johnson Computing Systems is a provider of license software and services for the
automation of methadone  dispensing and integrated  clinical and billing turnkey
systems.  The shares  issued were valued at $300,000  and of which  $255,000 was
assigned  to  customer  lists and the  balance to a covenant  not to compete and
computer equipment.

[18] New Authoritative Accounting Pronouncement

The FASB has issued SFAS No. 131,  "Disclosures  about Segments of an Enterprise
and Related Financial Information". This statement is effective for fiscal years
ending after December 15, 1998 and establishes standards for the way that public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  SFAS No. 131 is not  expected  to have a  material  impact on the
Company.

The Financial Accounting Standards Board ("FASB") has issued Financial 
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income."  SFAS
No. 130 is effective for fiscal year's beginning after December 15, 1997.
Earlier application is permitted.  Reclassification of financial statements for
earlier periods provided for comparative purposes is required.  SFAS No. 130 is
not expected to have a material impact on the company.


                                F - 30

<PAGE>



                           SIGNATURES

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

                                               NETSMART TECHNOLOGIES, INC.

Date: April 11, 1998                           ___________________________   
                                               James Conway
                                               Chief Executive Officer

      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/ Anthony F. Grisanti               Chief Financial Officer     April 11, 1998
----------------------------------
Anthony F. Grisanti


/S/ James Conway                      President & Director        April 11, 1998
----------------------------------
James Conway                          Chief Executive Officer


/S/ John Phillips                     Director                    April 11, 1998
----------------------------------
John Phillips


/S/ Edward Bright                     Director                    April 11, 1998
----------------------------------
Edward Bright                         Chairman of Board of Directors


/S/ Seymour Richter                   Director                    April 11, 199
----------------------------------
Seymour Richter


/S/ Leonard M. Luttinger              Director                    April 11, 1998
-----------------------------------
Leonard M. Luttinger


/S/ Storm Morgan                      Director                    April 11, 1998
-----------------------------------
Storm Morgan


<PAGE>





                                     Netsmart Technologies, Inc.
                                          Index to Exhibits
                                          December 31, 1997


a)  Exhibits

2.11    Plan and Agreement of Reorganization  ("Purchase Agreement") dated as of
        April 13, 1994, by and among  Consolidated  Technology  Group Ltd.,  CSM
        Acquisition  Corp., the Registrant,  Creative  Socio-Medics  Corp. ("Old
        CSM"), and Advanced Computer Techniques, Inc. ("ACT")
2.21    Amendment dated April 13, 1994 to the Purchase Agreement.
2.31    Disclosure Letter to the Plan and Agreement of Reorganization ("Purchase
        Agreement")  dated as of  April  13,  1994,  by and  among  Consolidated
        Technology Group Ltd., CSM Acquisition  Corp., the Registrant,  Old CSM,
        and ACT.
2.41    Second Amendment dated June 16, 1994 to the Purchase Agreement.
2.51    Agreement   dated  October  26,  1994,   between  the   Registrant   and
        Consolidated  Technology  Group, Ltd.  ("Consolidated")  relating to the
        plan and  agreement of  reorganization  dated as of April 13,  1994,  as
        amended,  among the Registrant,  Consolidated,  CSM  Acquisition  Corp.,
        Creative Socio-Medics Corp. and Advanced Computer Techniques, Inc.
2.61    Letter  agreement  dated  December  5, 1994,  between  the  Registrant
        and Consolidated.
3.11    Restated   Certificate   of   Incorporation,   as   amended,   including
        certificates  of  designation  with  respect  to the  Series  A, B and D
        Preferred Stock.
3.21    By-Laws
4.11    Form of Warrant  Agreement dated August 13, 1996,  among the Registrant,
        American Stock Transfer & Trust  Company,  as Warrant Agent,  and Monroe
        Parker Securities, Inc., to which the form of Series A Redeemable Common
        Stock Purchase Warrant is included as an exhibit.
4.22    Form of Amendment to the Warrant Agreement.
10.11   Employment  Agreement  dated June 16, 1994,  between the  Registrant
        and Leonard M. Luttinger,  as amended. 10.22 Employment Agreement dated
        as of August 15, 1996, between the Registrant and James L. Conway. 10.31
        Employment Agreement dated June 16, 1994,  between the Registrant  and
        John F. Phillips,  as amended.
10.41   Employment  Agreement  dated June 16, 1994,  between the  Registrant
        and Anthony F. Grisanti.  10.51 Agreement dated March 1, 1996 between
        the Registrant and The Trinity Group, Inc.
10.61   1993 Long-Term Incentive Plan.
10.71   Form of Series B Common Stock Purchase Warrant.
10.81   Form of Option Agreement from SIS Capital Corp. to certain officers of
        Old CSM.
10.91   Agreement  dated  March  3,  1995  between  CSM and United  Credit
        Corporation,  as amended.
10.101  Software licensing and service agreement dated April 27, 1996 between
        the Registrant and IBN Limited.
10.111  Letter  agreement dated  February  28,  1996  between the  Registrant
        and Oasis  Technology  Ltd. ("Oasis) relating to a proposed joint
        venture.
10.121  Source code  license  agreement  dated  November  10,  1995  between the
        Registrant  and Oasis.
10.131  Software  marketing and  distribution  agreement between the Registrant
        and Oasis.
10.141  Joint marketing letter agreement dated March 31, 1995 between the
        Registrant and Oasis.
10.151  Agreement dated February 7, 1996  between the Credit Card  Acquisition
        Corp.  and Fiton  Business,  S.A.
10.162  Stockholders  agreement  dated  as of  September  2,  1996  between  the
        Registrant, Consolidated Technology Group Ltd. 1174378 Ontario Inc. and
        Credit Card Acquisition Corp. (a subsidiary of the Registrant), Oasis
        Technologies Holdings, Ltd. and Oasis Technology Ltd.
10.172  Amendment dated July 22, 1997, to March 3, 1995 agreement between CSM
        and United Credit Corporation.
11.1    Computation of loss per share.
21.1    Subsidiaries of the Registrant.
24.1    Consent of Moore Stephens,  P.C.
25.1    Powers of attorney (See Signature Page)
27.1    Financial data schedule.

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

2 Filed as an exhibit to the  Registrant's  registration  statement on Form S-1,
File No. 333-32391,  which was declared effective by the Commission on September
17, 1997, and incorporated herein by reference.