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


                                     FORM 10-K/A

                                   Amendment No. 1

                        For the Year Ended December 31, 1997


                             Commission File No. 0-21177


                               NETSMART TECHNOLOGIES, INC.

               (Exact name of registrant as specified in its charter)




               Delaware                               13-3680154
    (State or other jurisdiction of                (I.R.S. employer
    incorporation or organization)                identification no.)

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

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





     Purpose of Amendment: To include Part III and amended Financial Statements




                                      

<PAGE>



                                      PART III

Item 10.    Directors and Executive Officers of the Registrant

            The  directors  and  executive  officers of the Company at April 30,
1998, are as follows:

Name                   Age     Position
Edward D. Bright 1     66      Chairman of the board and director
James L. Conway        49      President, chief executive officer and director
Leonard M. Luttinger   48      Vice president and director
Anthony F. Grisanti    49      Chief financial officer, treasurer and secretary
John F. Phillips       57      Vice president -- marketing and director
Storm R. Morgan        31      Director
Seymour Richter 1      61      Director

----------
1     Member of the audit and compensation committees.

      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, a public company
whose  business,  in  addition  to the  Company,  includes  technical  temporary
staffing  services  and  telecommunications  services,  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
Creative  Socio Medics Corp.  ("CSM"),  a  subsidiary  of the Company  which was
acquired from Advanced Computer Techniques, Inc. ("ACT") in June 1994. From June
1994 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 has been president and a director of the Company since
January 1996 and chief  executive  officer since April 1998.  Since 1993, he has
been president of S-Tech Corporation ("S- Tech"), which, until April 1998, 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.
Conway devotes substantially all of his time to the business of the Company.

      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. In October 1996, he became
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 Unisys,  a computer  corporation,  and its  predecessor
Burroughs Corporation, in various capacities, including manager of semiconductor
and memory products and manager of scientific systems.



                                       - 1 -

<PAGE>



      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 also served as vice chairman
and vice  president -- marketing of the Company from June 1994 to January  1996.
He was a senior executive officer and director of CSM and ACT for more than five
years prior to June 1994. From January 1993 to June 1994, he was chairman of the
Board of CSM and ACT. From 1986 until December 1992, he was president of CSM and
ACT. Mr. Phillips is a director of ACT.

      Mr. Storm R. Morgan has been a director of the Company since January 1996.
Mr. Morgan is also senior vice president of Oasis, a position he has held since
1991, and an officer and director of SMI Corporation ("SMI"), a position he has
held since 1989.  Mr. Morgan is the sole stockholder of SMI.

      Mr.  Seymour  Richter has been a director of the Company since April 1998.
Since April 1998, he has been president,  acting chief  executive  officer and a
director  of  Consolidated.  From July 1995 until April  1998,  Mr.  Richter was
employed by Patterson  Travis  Operating  Account,  Inc., a private company that
makes  investments for its own account.  For more than five years prior thereto,
he was the chief  executive  officer of Touch Base Ltd., an independent  selling
organization  in the  apparel  industry.  Mr.  Richter is also a director  Trans
Global.

      Messrs. Bright and Richter were elected to the board following the
resignation of Messrs. Lewis S. Schiller and Norman J. Hoskin in April 1998.

      In 1997, the board of directors created audit and compensation committees,
both of which are  composes  of two  independent  directors.  Messrs.  Edward D.
Bright  and  Seymour  Richter  are the  members  of both  committees.  The audit
committee  has  the  authority  to  approve  the  Company's   audited  financial
statements,  to meet with the Company's independent auditors, to review with the
auditors and with management any management letter issued by the auditors and to
generally  exercise the power normally  accorded an audit  committee of a public
corporation.   In  addition,   any  transactions  between  the  Company  or  its
subsidiaries,   on  the  one  hand,  and  any  officer,  director  or  principal
stockholder or any affiliate of any officer,  director or principal stockholder,
on the other hand, requires the prior approval of the audit committee.

      The compensation  committee serves as the stock option committee  pursuant
to the Company's  stock option plans.  In addition,  it reviews and approves any
changes in compensation for the Company's executive officers.

      Directors are elected for a term of one year.

      None of the Company's officers and directors are related.

      The Company's  Certificate of Incorporation  includes certain  provisions,
permitted under Delaware law, which provide that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of  fiduciary  duty as a director  except for  liability  (i) for any
breach of the  director's  duty of loyalty to the  Company or its  stockholders,
(ii) for acts or  omissions  not in good  faith  or  which  involve  intentional
misconduct or a knowing violation of law, (iii) for any transaction


                                       - 2 -

<PAGE>

<TABLE>


from  which the  director  derived an  improper  personal  benefit,  or (iv) for
certain  conduct  prohibited  by law.  The  Certificate  of  Incorporation  also
contains broad  indemnification  provisions.  These provisions do not affect the
liability of any director under Federal or applicable state securities laws.

Item 11.    Executive Compensation

      Set forth  below is  information  with  respect  to  compensation  paid or
accrued by the Company and its  subsidiaries  for the years ended  December  31,
1997, 1996 and 1995 to its chief executive  officer and to each four most highly
compensated  executive officers officer whose compensation exceeded $100,000 for
1997.

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

                                        Annual Compensation         Long-Term Compensation (Awards)
                                        -------------------         ------------------------------
                                                                    Restricted Stock   Options, SARs
                                                                    ----------------   -------------
Name and Principal Position    Year   Salary    Bonus      Other    Awards (Dollars)     (Number)
---------------------------    ----   ------    -----      -----    ---------------       ------
Lewis S. Schiller, CEO 1       1997        --       --         --                 --             --
                               1996        --       --         --                 --             --
                               1995        --       --         --                 --         52,500
James L. Conway, president     1997  $125,000       --         --                 --             --
                               1996    77,408       --         --                 --        268,750
Leonard M. Luttinger, vice     1997   136,895       --         --                 --             --
president                      1996    62,500  $67,262         --                 --        156,250
                               1995   125,000       --         --                 --        176,678
John F. Phillips, vice         1997   109,500   89,657         --                 --             --
chairman and vice president    1996   100,000   33,906         --                 --         27,000
                               1995   123,900       --         --                 --         38,768
Anthony F. Grisanti, chief     1997    87,600   73,888         --                 --             --
financial officer              1996    80,000   23,500         --                 --         15,000
                               1995    80,000       --         --                 --         32,464

----------
1     Mr.  Schiller  resigned as an officer and director of the Company in April
      1998. Mr. Schiller has received no compensation  from the Company.  During
      the years ended December 31, 1997,  1996 and 1995, the total  compensation
      paid or accrued by Consolidated to Mr. Schiller was $974,000, $340,000 and
      $250,000, respectively.

      The annual salary paid by  Consolidated  to Mr.  Schiller  pursuant to his
employment agreement with Consolidated was $250,000, subject to a cost of living
increase,  prior  to  September  1,  1996.  Effective  September  1,  1996,  Mr.
Schiller's  annual  salary from  Consolidated  was  increased  to  $500,000.  In
addition,  Mr. Schiller receives incentive  compensation from Consolidated based
on the results of Consolidated's  operations and owns 10% of the equity interest
of Consolidated or SIS Capital Corporation  ("SISC"), a wholly-owned  subsidiary
of  Consolidated,  in each of  their  operating  subsidiaries  and  investments.
Pursuant to such  agreement,  Mr.  Schiller  and his  designees  received 10% of
SISC's  equity  interest  in the  Company  and other  subsidiaries  of SISC.  In
addition,  Mr.  Schiller was entitled to 20% of SISC's gross profit in the event
of any sale of any of its  subsidiaries.  In April 1998, in connection  with his
resignation  as a director  and officer of  Consolidated  and its  subsidiaries,
Consolidated purchased Mr. Schiller's employment agreement, as a result of which
the agreement is no longer in effect.

      In June 1994, the Company entered into five-year employment agreements
with Messrs. Leonard M. Luttinger, John F. Phillips and Anthony F. Grisanti,
which provide for annual base salaries of $125,000, $125,000 and $80,000,
respectively.  The agreements provide for an annual cost of living adjustment,


</TABLE>
                                       - 3 -

<PAGE>

<TABLE>


an automobile allowance and a bonus of 4% of income before income taxes for
Messrs. Luttinger and Phillips and 2% of income before income taxes for Mr.
Grisanti.  The maximum bonus is 300% of salary for Messrs. Luttinger and
Phillips and 200% of salary for Mr. Grisanti.  For 1996, Messrs. Luttinger and
Phillips agreed to reduced base salaries of $62,500 and $100,000, respectively,
with certain incentives if certain targets are attained.  For 1997, Mr. Phillips
agreed to a reduced base salary of $109,000 plus commissions.  In August 1996,
the Company entered into an agreement with Mr. James L. Conway pursuant to which
it pays him an annual salary of $125,000, subject to a cost of living
adjustment, an automobile allowance and a bonus of 5% of income before income
taxes up to a maximum of 300% of his salary.  Prior to August 1996, Mr. Conway
received a salary of $52,000 per year.

      No stock options or SARs were granted  during 1997.  The  following  table
sets forth  information  concerning the exercise of options and warrants  during
the year ended  December 31, 1997 and the year-end value of options and warrants
held by the Company's  officers named in the  remuneration  table.  No SARs have
been granted.

 Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value

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


                                                          Number of
                                                          Securities            Value of
                                                          Underlying            Unexercised In-
                                                          Unexercised           the-Money
                                                          Options1 at Fiscal    Options at Fiscal
                                                          Year End              Year End2

                            Shares Acquired   Value       Exercisable/          Exercisable/
      Name                  Upon Exercise    Realized     Unexercisable         Unexercisable
      ----                  -------------    --------     -------------         -------------
Lewis S. Schiller3              --               --         166,667/            --/
                                                            --                  --
James L. Conway                 --               --         268,750/            --/
                                                            --                  --
Leonard M. Luttinger            --               --         183,018/            $15,098/
                                                            --                  --
John F. Phillips                --               --         65,768/             22,814/
                                                            --                  --
Anthony F. Grisanti             --               --         47,464/             19,817/

                                                            --                  --
----------
1     The number of shares of Common Stock subject to options includes shares of
      Common Stock issuable upon exercise of warrants.

2     The determination of "in the money" options at December 31, 1997, is based
      on the closing price of the Common Stock on the Nasdaq  SmallCap Market on
      December 31, 1997, which was $.875.

3     Warrants  held  by Mr.  Schiller  include  warrants  issued  to him by the
      Company and warrants transferred to him by SISC. Such warrants were issued
      to him by the Company or  transferred  to him by SISC, as the case may be,
      in 1996.




</TABLE>
                                       - 4 -

<PAGE>



Item 12.    Security Ownership of Certain Beneficial Owners and Management

      The  following  table sets  forth,  based on  information  provided by the
persons named below,  the number and percentage of shares of outstanding  Common
stock  owned  by each  person  known  to the  Company  to own at least 5% of the
Company's  Common  Stock,  each  director,  each  officer  named in the  summary
compensation  table,  and all directors and officers as a group, as of April 30,
1998:


                             Amount and Nature
Name and                     of Beneficial
Address1                     Ownership2               Percent of Ownership
--------                     ---------                --------------------

SIS Capital Corp.3            3,530,070                39.7%
160 Broadway
New York, NY 10038

Storm R. Morgan4                307,000                 3.6%

James L. Conway5                293,750                 3.4%

Leonard M. Luttinger6           231,662                 2.7%

Edward D. Bright7               108,912                 1.3%

John F. Phillips8               108,912                 1.3%

Anthony F. Grisanti9             67,384                 *

Seymour Richter                      --                  --

All directors and officers    1,217,620                13.3%
as a group (seven individuals) 4, 5, 6, 7, 8, 9


----------
1     Unless otherwise indicated, the address of each person is c/o Netsmart
      Technologies, Inc., 146 Nassau Avenue, Islip, New York 11751.

2     Unless otherwise indicated, each person named has the sole voting and sole
      investment power and has direct beneficial ownership of the shares.

3     Represents  (a)  2,965,070  shares of Common  Stock  owned by SISC and (b)
      565,000 shares of Common Stock issuable upon exercise of Series B Warrants
      owned by SISC which are exercisable at $2.00 per share (15,000 shares) and
      $4.00 per share (550,000 shares).

4     Includes 262,500 shares of Common Stock issuable upon exercise of Series B
      Warrants  owned by Mr.  Morgan  which are  exercisable  at $2.00 per share
      (150,000 shares) and $4.00 per share (112,500 shares).

5     Includes 268,750 shares of Common Stock issuable upon exercise of Series B
      Warrants  owned by Mr.  Conway,  which are  exercisable at $2.00 per share
      (100,000 shares) and $4.00 per share (168,750 shares).



                                       - 5 -

<PAGE>



6     Includes (a) 156,250  shares of Common  Stock  issuable  upon  exercise of
      Series B Warrants owned by Mr.  Luttinger,  which are exercisable at $2.00
      per share  (25,000  shares) and $4.00 per share  (112,500  shares) and (b)
      17,412  shares of Common Stock  issuable upon the exercise of options held
      by Mr. Luttinger.

7     Includes 42,912 shares of Common Stock issuable upon exercise of
      outstanding options held by Mr. Bright.

8     Includes   42,912  shares  of  Common  Stock  issuable  upon  exercise  of
      outstanding options held by Mr. Phillips.

9     Includes   47,464  shares  of  Common  Stock  issuable  upon  exercise  of
      outstanding options held by Mr. Grisanti.


Item 13.    Certain relationships and Related Transactions

      In January  1996,  Mr. Storm Morgan was elected a director of the Company.
At the time of his election he was a consultant of the Company. The Company does
not pay  compensation to Mr. Morgan.  During 1996, the Company  operated under a
proposed  agreement  pursuant  to which the  Company  paid to SMI,  of which Mr.
Morgan is the sole stockholder,  an officer and director,  $619,700 for services
provides by Mr.  Morgan  from a time to time on an as needed  basis and for four
persons to serve in  management-level or other key positions of the Company on a
full time basis.  These individuals  provided  marketing,  support and technical
services  to the  Company.  Mr.  Morgan was not  required  to devote any minimum
amount of time to the  business of the  Company.  In  addition,  during 1996 the
Company paid SMI $285,524 for expenses incurred by SMI, a substantial portion of
which was  reimbursed to the Company by its clients.  In 1996,  the Company also
paid SMI  $11,750  in  commissions  and  $250,000  for  services  related to the
Company's agreement with IBN.

      In February 1997 the Company  modified its agreement with SMI reducing the
monthly fees payable to $9,000. During 1997 the Company paid to SMI $124,000 for
services provided by Mr. Morgan,  $47,161 for expenses and consultants  incurred
by SMI on behalf of the Company and $9,000 in  commissions.  Mr.  Morgan was not
required to devote any minimum amount of time to the business of the Company.

      In 1994, in connection with the execution of the agreement to acquire CSM,
SISC, a wholly-owned subsidiary of Consolidated and the principal stockholder of
the Company,  granted to Messrs.  Edward D. Bright, John F. Phillips and Anthony
F. Grisanti  options to purchase  from SISC 66,000,  66,000 and 19,920 shares of
Common Stock,  respectively,  at $.232 per share. Such options were exercised in
1997.

      The Company has an agreement with  Consolidated  pursuant to which it pays
Consolidated $15,000 per month through August 1999.

      In connection with the resignations of Messrs. Lewis S. Schiller, Norman
J. Hoskin and E. Gerald Kay, in April 1998, the Company exchanged general
releases with such persons.

      In  connection  with the  Company's  accounts  receivable  financing,  Mr.
Schiller  guaranteed the Company's  obligations to the lender and Mr. Anthony F.
Grisanti  issued  his  guaranty  which is  limited  to the  losses or  liability
resulting  from  certain  irregularities  by the  Company in the  submission  of
invoices for


                                       - 6 -

<PAGE>



advances and the failure to pay over the proceeds  from  accounts to the lender.
The Company knows of no such  irregularities.  The advances  under this facility
were $935,000 at December 31, 1997 and $1,338,000 at April 30, 1998. The maximum
borrowings under the facility,  subject to the borrowing formula, is $1,250,000,
which is to increase to $1,500,000 on August 1, 1998.  The lender has, from time
to time, permitted the Company to exceed the present borrowing limitation.

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

1.    Financial Statements.

      The Financial Statements begin on Page F-1





                                       - 7 -

<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            Consolidated Statements of Operations for the Years
                            Ended December 31, 1997, 1996 and 1995
        F-8                 Consolidated Statements of Stockholders' Equity for
                            the Years Ended December 31, 1997, 1996 and 1995
        F-9 - F-11          Consolidated Statements of Cash Flows for the Years
                            Ended December 31, 1997,  1996 and 1995
        F-12 - F-30         Notes to Consolidated Financial Statements

2.      Financial Statement Schedules
        None

3.      Reports on Form 8-K
        None

4.      Exhibits




                                      

<PAGE>

















                           NETSMART TECHNOLOGIES, INC.
                                 AND SUBSIDIARY















                                      F - 1



<PAGE>



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



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

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

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

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

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

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

Notes to Consolidated 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
[Except for Note 19 as to which
the date is April 2, 1998]


                                      F - 3

<PAGE>



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


                                                   December 31,
                                                   ------------
                                                1 9 9 7      1 9 9 6
                                                -------      -------
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 Consolidated Financial Statements.


                                       F - 4

<PAGE>



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


                                                          December 31,
                                                          ------------
                                                    1 9 9 7         1 9 9 6
                                                    -------         -------
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,            12               12

  Additional Paid-in Capital - Series D Preferre     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 Consolidated Financial Statements.


                                       F - 5

<PAGE>



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

                                                 Y e a r s    e n d e d
                                                 ---------------------- 
                                                  D e c e m b e r   3 1,
                                                  ----------------------
                                          1 9 9 7        1 9 9 6      1 9 9 5
                                          -------        -------      -------
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         553,061             --             --
 Costs 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 Consolidated Financial Statements.


                                       F - 6

<PAGE>



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


                                              Y e a r s    e n d e d
                                              ---------------------- 
                                               D e c e m b e r   3 1,
                                               ---------------------
                                         1 9 9 7        1 9 9 6        1 9 9 5
                                         -------        -------        -------

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 Consolidated Financial Statements.

70752
                                       F - 7

<PAGE>

<TABLE>


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

                                                        Y e a r s    e n d e d
                                                        D e c e m b e r   3 1,
                                                        ----------------------
                                                1 9 9 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 Consolidated Financial Statements.


                                          F - 9
</TABLE>

<PAGE>

<TABLE>


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


                                                        Y e a r s    e n d e d
                                                        ----------------------
                                                        D e c e m b e r   3 1,
                                                        ----------------------
                                                1 9 9 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                      $    854,979    $    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. AND SUBSIDIARY
------------------------------------------------------------------------------
CONSOLIDATED 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 Consolidated Financial Statements.


                                         F - 11

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
------------------------------------------------------------------------------
NOTES TO CONSOLIDATED 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.

As of December 31, 1997, approximately 35.7% of the Company's outstanding Common
Stock  was  owned  by  SIS  Capital  Corp.  ("SISC"),  which  is a  wholly-owned
subsidiary of  Consolidated  Technology  Group Ltd.  ("Consolidated"),  a public
company.   Although  the  company  is  not  majority   owned  by   Consolidated,
Consolidated has effectual  control through common Boards of Directors and other
means, thus the Company is treated as a subsidiary of Consolidated for financial
reporting purposes.

[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  or other  security  to support  financial
instruments subject to credit risk. The Company routinely assesses the financial
strength of its customers and based upon factors  surrounding the credit risk of
the  customers  believes  that its accounts  receivable  credit risk exposure is
limited.  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.



                                     F - 12

<PAGE>



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


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

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.  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.

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 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


                                     F - 13

<PAGE>



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


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

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


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


                                     F - 14

<PAGE>



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


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

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.

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.




                                     F - 15

<PAGE>



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


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

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. 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)
   ---                                             =========      =========



Included in the accompanying balance sheet under the following captions:

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

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



                                     F - 16

<PAGE>



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


[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  $15,293,451.  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. In
addition,  the  Company  is  currently  negotiating  the sale of its  CarteSmart
business which to date has incurred substantial losses.

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.


[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.


                                     F - 17

<PAGE>



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


[7] Related Party Transactions - [Continued]

[A] Issuance of Stock at Organization - [Continued]

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.  This note
was paid in 1996. 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 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


                                     F - 18

<PAGE>



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


[7] Related Party Transactions - [Continued]

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

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 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.



                                     F - 19

<PAGE>



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


[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
                                           ==========

[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


                                     F - 20

<PAGE>



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


[10] Capital Stock - [Continued]

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. 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. 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.

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


                                     F - 21

<PAGE>



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


[10] Capital Stock - [Continued]

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.

[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.


                                     F - 22

<PAGE>



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


[13] Commitments and Contingencies - [Continued]

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.  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


                                     F - 23

<PAGE>



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


[13] Commitments and Contingencies - [Continued]

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. AND SUBSIDIARY
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
                               ----------------     -----------------    --------------------
                                       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                       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:

                                                  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            $ 2.06
                                   =======      =========            ======

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



</TABLE>
                                     F - 25

<PAGE>



NETSMART TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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. These 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 the two year  period  commencing  August  13,  1997 at a price of $4.50  per
share.  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. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #18
------------------------------------------------------------------------------


[14] Stock-Based Compensation - [Continued]

The  Company  applies  Accounting  Principles  Board  Opinion  ("APB")  No.  25,
"Accounting  for Stock Issued to Employees",  and related  interpretations,  for
stock  options  issued to employees in accounting  for its stock options  plans.
Total   compensation   cost  recognized  in  income  for  stock  based  employee
compensation  awards  was  $-- in  1997,  $3,492,300  in 1996  and $-- in  1995,
respectively.

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 1995 and the Company's net
loss and net loss per share would have been as follows:

                                                      Years ended
                                                      ----------- 
                                                      December 31,
                                                      -----------
                                                  1996            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)
                                                =========        =========

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

                                 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    $   623,556   $   911,000
 Data Center Services                           769,102        986,787       853,000
                                             ----------     ----------    ----------

 Total Gross Profit                         $ 1,726,833    $ 1,610,343   $ 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. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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  Computing  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 Pronouncements

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.

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.

[19] Subsequent Event

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 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.


                                       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 30, 1998                      /s/
                                          ---------------------------   
                                           James L. Conway, President

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

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

/s/ James L. Conway             President, Chief Executive    April 30, 1998
----------------------------
James L. Conway                 Officer and Director(Principal
                                Executive Officer)

/s/ Anthony F. Grisanti         Chief Financial Officer       April 30, 1998
----------------------------
Anthony F. Grisanti             (Principal Financial and
                                 Accounting Officer)

/s/ Edward D. Bright            Director                      April 30, 1998
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Edward D. Bright


/s/ John F. Phillips             Director                     April 30, 1998
-----------------------------  
John F. Phillips


                                  Director                    April 30, 1998
-----------------------------
Leonard M. Luttinger


                                  Director                    April 30, 1998
-----------------------------
Storm Morgan


/s/ Seymour Richter               Director                    April 30, 1998
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Seymour Richter