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

                             Form 10-K

        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
              For the fiscal year ended December 31, 1998

                     Commission File Number 0-21177

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

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

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

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

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

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

Title of Each Class                 Outstanding shares as of March 24, 1999
-------------------                 ---------------------------------------
Common Stock, par value                              2,786,921
 .01 per share

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

Yes_X_        No__

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

DOCUMENTS INCORPORATED BY REFERENCE

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


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                                  PART I

Item 1.  Business

Introduction

Netsmart Technologies,  Inc. is a leader in the design,  development,  marketing
and implementation of management  information  systems for the behavioral health
care  industry  through  our   wholly-owned   operating   subsidiary,   Creative
Socio-Medics ("CSM"). We license our proprietary software products to behavioral
healthcare  providers  and we install and support our products  under  long-term
maintenance   agreements.   Our  Windows-based   systems  provide  comprehensive
healthcare  information  technology  solutions  that  include  billing,  patient
tracking and scheduling for inpatient and  outpatient  environments,  as well as
clinical  documentation and medical record generation and management.  Marketing
is directed  primarily at providers of  behavioral  health  services,  including
mental health clinics,  substance abuse clinics,  methadone maintenance clinics,
psychiatric  hospitals,  and  other  specialty  care  inpatient  and  outpatient
providers.

We have an established  nationwide  customer base,  including the state agencies
that have  responsibility  for providing  behavioral  healthcare  services in 14
states.  Our revenue grew from $7.6 million in 1997 to $13.2 million in 1998, an
increase of 73.7%, while income from continuing operations increased from a loss
of $844,000 to income of $413,000.

Forward - Looking Statements

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

Organization of the Company

We are a Delaware  corporation  formed in September  1992 under the name Medical
Services  Corp.  Our name was changed to Carte  Medical  Corporation  in October
1993,  CSMC  Corporation  in June 1995 and to  Netsmart  Technologies,  Inc.  in
February  1996. Our executive  offices are located at 146 Nassau Avenue,  Islip,
New York  11751,  telephone  (516)  968-2000.  Reference  to us and to  Netsmart
include our subsidiary, CSM, unless the context indicates otherwise.

Risk Factors

We require additional capital. We had working capital of $10,000 at December 31,
1998 as compared to a working  capital deficit of $537,000 at December 31, 1997.
Our cash  position  decreased  from $855,000 at December 31, 1997 to $199,000 at
December  31,  1998.  However,  in order to expand and develop our  business and
perform our  obligations  under our agreements and purchase  orders,  we require
substantial  additional  capital,  and we have no commitments from any person to
provide such capital.  Our business may suffer significantly if we do not obtain
the  capital  when it is  required.  See "Item 7.  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

We are dependent upon  government  contracts.  We market our health  information
systems  principally  to behavioral  health care  facilities,  many of which are
operated by government  entities and include  entitlement  programs.  During the
years ended December 31, 1998, 1997 and 1996,  approximately  52%, 35%, and 31%,
respectively,  of our revenue  was  generated  from  contracts  with  government
agencies.  Government  agencies  generally have the right to cancel contracts at
their convenience.

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We recently  discontinued our CarteSmart division.  During 1998, we discontinued
our  CarteSmart  division.  On  June  30,  1998,  we  sold  this  division  to a
corporation formed by the former management of such division.

Our  business is subject to the effect of  technological  advances  and possible
product  obsolescence.  Our  customers  require  software  which enables them to
store,  retrieve and process very large  quantities  of data and to provide them
with instantaneous  communications among the various data bases. Our business is
designed  to take  advantage  of  recent  advances  in  software,  computer  and
communications technology. Such technology has been developing at rapid rates in
recent  years,  and our  future  may be  dependent  upon our  ability to use and
develop or obtain rights to products  utilizing such technology.  New technology
may develop in a manner which may make our software  obsolete.  If we cannot use
such new  technology,  it  would  have a  significant  adverse  effect  upon our
business.

Our industry is highly  competitive.  Our customers in the human services market
include  entitlement  programs,  managed  care  organizations,   specialty  care
facilities and other major  information  technology  users which have a need for
access to information over a distributed data network.  The software industry in
general, and the health information software business in particular,  are highly
competitive.  Although we believe that we provide our clients  with  software to
enable them to perform their services more effectively, other companies have the
staff  and  resources  to  develop  competitive  systems.  We may not be able to
compete successfully with such competitors.

The health information systems business is served by a number of major companies
and a larger number of smaller companies,  many of which are better capitalized,
better known and have better  marketing  staffs than we have,  and we may not be
able  to  compete  effectively  with  such  companies.  We  believe  that  price
competition  is a  significant  factor  in our  ability  to  market  our  health
information systems and services. See "Business -- Competition."

We depend on our management.  Our business is largely dependent upon our senior
executive officers, Messrs. James L. Conway, president and chief executive
officer, John F. Philips, vice president --marketing, and Gerald O. Koop, chief
executive officer of our operating subsidiary, Creative Socio-Medics
Corporation.  We have employment agreements with Messrs. Conway, Phillips, Koop
and Anthony F. Grisanti.  Mr. Grisanti is our chief financial officer. 
Our business may be adversely affected if any of our key management personnel 
or other key employees left our employ.

We lack patent  protection.  We have no patent  protection  for our  proprietary
software.

We are subject to the effect of government  regulations of health care industry.
Substantially  all of our revenue has been derived  from our health  information
systems and services.  The Federal and state  governments  have adopted numerous
regulations relating to the health care industry, including regulations relating
to the payments to health care providers for various  services.  The adoption of
new regulations can have a significant effect upon the operations of health care
providers,  particularly those operated by state agencies. We cannot predict the
effect  on our  business  of  future  regulations  by  governments  and  payment
practices by government agencies.  Furthermore,  changes in state regulations in
the health care field may force us to modify our health  information  systems to
meet any new record-keeping or other  requirements.  If that happens, we may not
be able to generate  revenues  sufficient to cover the costs of  developing  the
modifications.  In addition,  we may lose business if government agencies reduce
funding for entitlement programs.

Our principal stockholder and certain directors may have conflicts of interest.
SIS Capital Corp. ("SISC"), a wholly-owned subsidiary of Consolidated
Technology Group Ltd. ("Consolidated"), a public company, is our largest
stockholder, holding approximately 29.3% of our outstanding Common Stock as of
April 10, 1999.  Mr. Edward D. Bright, chairman of the board and a director, is
also chairman, secretary, treasurer and a director of Consolidated, and Mr.
Seymour Richter, a director, is president, chief executive officer and a
director of Consolidated.  Accordingly, Messrs. Bright and Richter may have a
conflict of interest with respect to their positions with us and with
Consolidated.

We may be  subject  to  control  by SISC.  Mr.  Seymour  Richter,  as the  chief
executive  officer of  Consolidated  and SISC,  has the right to vote the shares
owned by SISC.  Accordingly,  SISC and Mr.  Richter,  who is the chief executive
officer  of SISC,  may be able to elect all of the  directors  and would thus be
able to control the Company.


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

The  rights of the  holders of Common  Stock may be  affected  by the  potential
issuance of Preferred Stock. Our certificate of incorporation gives the board of
directors  the right to determine  the  designations,  rights,  preferences  and
privileges of the holders of one or more series of Preferred Stock. Accordingly,
the board of directors is  empowered,  without  stockholder  approval,  to issue
Preferred Stock with voting, dividend,  conversion,  liquidation or other rights
which could adversely affect the voting power and equity interest of the holders
of Common Stock.  The Preferred  Stock,  which could be issued with the right to
more than one vote per share,  could be  utilized  as a method of  discouraging,
delaying or preventing a change of control of the Company.  The possible  impact
on takeover  attempts  could  adversely  affect the price of the Company  Stock.
Although  we have no  present  intention  to  issue  any  additional  shares  of
Preferred  Stock or to create any additional  series of Preferred  Stock, we may
issue such shares in the future.  Furthermore,  if we issue Preferred Stock in a
manner  which  dilutes  the voting  rights of the holders of Common  Stock,  our
listing on The Nasdaq SmallCap Market may be impaired.

"See  Note 17 of Notes to  Consolidated  Financial  Statements  for  information
concerning  an  agreement  pursuant to which a group of  purchasers,  consisting
principally of our  management,  have agreed to purchase a portion of the shares
owned by SIS Capital.

Behavioral Health Information Systems and Services

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

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

Our typical  license for a  behavioral  health  information  system  ranges from
$10,000 to $100,000 for single facility  healthcare  organization to $250,000 to
$1,000,000 for multi-unit and state operated health care  organizations.  During
the years  ended  December  31,  1998,  1997 and 1996,  license  fees from these
systems were  approximately  $2,270,000,  $737,000 and  $329,000,  respectively,
accounting for  approximately  17.3%, 9.6% and 5.0% of revenue for such years. A
customer's purchase order may also include third party hardware or software. For
the years ended  December 31,  1998,  1997 and 1996,  revenue from  hardware and
third party  software  accounted for  approximately  $2,610,000,  $1,078,000 and
$1,114,000  representing  19.8%, 14.1% and 17.0% , respectively , of revenue for
such years.

In  addition  to our  behavioral  healthcare  information  systems  and  related
services,  we offer  processing  services  to  substance  abuse  facilities  and
maintain a data center facility at which its personnel  perform data entry, data
processing and produce  operations  reports for smaller substance abuse clinics.
During  the years  ended  December  31,  1998,  1997 and 1996,  our data  center
operation  generated  revenue  of  approximately   $2,164,000,   $2,235,000  and
$2,207,000,  respectively,  representing approximately 16.4%, 29.3% and 33.8% of
our revenue for such periods.

Maintenance  services have generated  increasing  revenue and have become a more
significant  portion  of our  business  since  most  purchasers  of health  care
information  system  licenses also  purchase  maintenance  service.  Maintenance
revenue increases as existing  customers  purchase  additional  licenses and new
customers  purchase  their  initial  software  licenses.  By agreement  with our
customers,  we provide  telephone  help  services and maintain and upgrade their
software.  Maintenance  contracts  may  require  modifications  to meet  any new
federal and state reporting  requirements which become effective during the term
of the  maintenance  contract.  We do not  maintain the hardware and third party
software sold to our customers, but we provide a telephone help line service for

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certain  third party  software,  which we license to our  customers.  During the
years ended  December  31,  1998,  1997 and 1996,  our  maintenance  revenue was
approximately $1,432,000, $1,280,000 and $1,226,000, respectively,  representing
approximately 10.9%, 16.8% and 18.8% of our revenue for such years.

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

         *    Behavioral Healthcare Information System for Windows - This system
              is  a  comprehensive   software  solution  that  provides  patient
              management functions, billing, tracking, scheduling, and reporting
              for inpatient treatment facilities.  This system is also a gateway
              to other company and third party products.

         *    Human Services Information System for Windows - This system offers
              a variety of modules that include system administration, staff and
              client appointment,  scheduling,  billing,  and activity recording
              for outpatient and community provider agencies.

         *    Clinician    Workstation-    This   system   provides    clinician
              documentation and medical record management including  assessment,
              care planning, progress notes, and on-line medical records.

         *    The M4 Clinical  Management  System (M4) - This  system,  owned by
              Mallinckrodt    Pharmaceutical    Specialties,   a   division   of
              Mallinckrodt Group,  provides a solution for dispensing,  medical,
              admissions/records,  counselor and reception/security specifically
              for methadone clinics.  Pursuant to an exclusive license agreement
              with Mallinckrodt,  we will sell, install and provide training and
              service  for M4  informational  management  system  for  Methadone
              maintenance  centers. M4 will also integrate with our managed care
              and behavioral health products.

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

Markets and Marketing

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

Many  long-term  behavioral  healthcare  facilities  are operated by  government
entities and include those operated as part of entitlement programs.  During the
years ended December 31, 1998,  1997 and 1996,  approximately  52.0%,  35.0% and
31.0%,  respectively,  of revenue was generated from  contracts with  government
agencies.  Contracts with government agencies generally include provisions which
permit  the  contracting  agency to cancel  the  contract  for its  convenience,
although we have not  experienced a termination for convenience in the last five
years.

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


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

For the year ended  December 31, 1998 one customer  accounted for  approximately
$2.1  million or 16% of our revenue.  For the years ended  December 31, 1997 and
1996,  no customer  accounted  for more than 10% of our revenue from  continuing
operations.  See  "Item 7.  Management  Discussion  and  Analysis  of  Financial
Condition and Results of Operations."

At December  31, 1998 and 1997,  we had a backlog of orders,  including  ongoing
maintenance and data center  contracts,  for our behavioral  health  information
systems of $16.8 million and $4.8 million, respectively. A substantial amount of
the 1998 backlog is expected to be filled during 1999.

Product Development

For the years ending December 31, 1998, 1997 and 1996, we incurred approximately
$763,000  ,$201,000 and $278,000,  respectively,  of product  development  costs
relating to our behavioral health information systems.

Competition

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

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

We have an  established  customer  base of more  than  400  clients  nationwide,
including  large private and  government  providers of  behavioral  health care.
During the period from January 1, 1998 to March 25, 1999, we signed contracts to
provide our healthcare information systems to ten state agencies responsible for
administering  behavioral services,  bringing the total number of such states to
14.

Government Regulations and Contracts

The Federal and state governments have adopted numerous  regulations relating to
the health care  industry,  including  regulations  relating to the  payments to
health care providers for various services.  The adoption of new regulations can
have a  significant  effect upon the  operations  of health care  providers  and
insurance  companies.  Although our business is aimed at meeting  certain of the
problems  resulting from  government  regulations and from efforts to reduce the
cost of health  care,  we cannot  predict  the effect of future  regulations  by
governments  and payment  practices by government  agencies or health  insurers,
including  reductions in the funding for or scope of entitlement  programs.  Any
change in the  structure of health care in the United States can have a material
effect on companies  providing  services to the health care industry,  including
those providing  software.  Although we believe that the likely  direction which
may result  from the  current  study of the  health  care  industry  would be an
increased trend to managed care programs,  thereby  increasing the importance of
automation,  our  business  may not  benefit  from any  changes in the  industry
structure.  Even if the  industry  does  evolve  toward  more  healthcare  being
provided  by  managed  care  organizations,  it is  possible  that there will be
substantial  concentration in a few very large organizations,  which may seek to
develop their own software or obtain software from other sources.  To the extent
that the health care industry evolves with greater government sponsored programs
and less privately

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run organizations,  our business may be adversely affected.  Furthermore, to the
extent that each state changes its own  regulations in the health care field, it
may be necessary for us to modify our behavioral health  information  systems to
meet  any new  record-keeping  or  other  requirements  imposed  by  changes  in
regulations, and we may not be able to generate revenues sufficient to cover the
costs of developing the modifications.

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

Intellectual Property Rights

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

Employees

As of December 31, 1998, we had 106 employees,  including four  executive,  nine
marketing, 86 technical and seven clerical and administrative employees.

Year 2000 Issues

Year 2000 compliance  generally  requires a software  program to record,  store,
process and present  calendar  dates  falling on or after January 1, 2000 in the
same manner as the program records,  stores,  processes,  and presents  calendar
dates  falling on or before  December 31, 1999.  It also requires that a program
correctly handle all leap year dates, including February 29, 2000.

Typically,  Year 2000 dates are being handled by most software companies through
the use of the 80/20  standard or a similar  standard.  Under this  standard,  a
system  will accept a two digit date and uses the 80/20 rule  ("80/20  Rule") to
determine  the century.  Dates  entered as 00-20 are assumed to be  twenty-first
century dates. For example, an entry of 18 would be assumed to be 2018. Dates of
21 and beyond are assumed to be twentieth  century dates, For example,  an entry
of 52 is assumed to be 1952. The 80/20 determination will be advanced each year,
starting with the year 2001, so that 80/20 would become 79/21 at that point.  We
are using this  standard for all new programs as well as to make older  programs
Year 2000 compliant.

In addition, in some cases software companies are developing programs which will
accept  four digit  dates or will show the four digit date chosen by the program
when a two digit date is entered.  We have chosen to use one or a combination of
more  than  one of these  industry  accepted  fixes,  depending  on the  product
involved.

In all cases,  except as noted  below,  these fixes have been  programmed,  and,
where a product is not Year 2000 compliant,  licensees of the product  concerned
have  been  advised  of that  fact  and have  been  provided  with a method  for
upgrading the program so that it will be Year 2000 compliant.

Most of the products  currently being licensed are Year 2000 compliant.  Some of
our products,  which were developed for earlier versions of Windows are not Year
2000  compliant,  and  we are  either  developing  an  upgraded  program  or are
providing the users with the ability to upgrade the products to become Year 2000
compliant.  We believe that all of our current products will either be Year 2000
compliant or we will provide the client with the

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ability to upgrade the products to a Year 2000  compliant  version by fall 1999.
We do not believe that the cost of making our systems Year 2000  compliant  will
have a material effect upon our operations.

Our internal accounting system is not Year 2000 compliant. We are installing new
accounting  software,   which  is  Year  2000  compliant.   The  costs  of  such
installation will range from approximately $25,000 to $50,000.

Executive Officers

         Our executive officers are as follows:


 Name                           Age              Position
 ----                           ---              --------
Edward D. Bright                 62       Chairman of the Board
James L. Conway                  51       President and Chief Executive Officer
Anthony F. Grisanti              49       Chief Financial Officer,
                                          Treasurer and Secretary
Gerald Koop                      60       Chief Executive Officer of CSM
John F. Phillips                 61       Vice President - Marketing


Mr.  Edward D. Bright has been  chairman of the board and a director of Netsmart
since  April 1998.  In April  1998,  Mr.  Bright was also  elected as  chairman,
secretary, treasurer and a director of Consolidated, a public company engaged in
various lines of business, and a director of Trans Global Services,  Inc., which
provides  technical  temporary  staffing  services.  Consolidated is the largest
stockholder of Netsmart and Trans Global.

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

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

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

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



                                  7

<PAGE>


<TABLE>

Item 2.   Property

We lease office space at the following locations:

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

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

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

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

7590 Fay Avenue               Offices          1,800            $37,000, plus 6%       12/31/00
La  Jolla, California                          square feet      annual increases

<FN>
_________________
(1)  These leases provide for an annual increase in rent for operating expenses
     and real estate taxes.

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

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

Item 3.   Legal Proceedings

There are no material  legal  proceedings  pending or  threated  against us. The
action by Onecard  Corporation  which was  disclosed  in prior  filings with the
Securities and Exchange Commission has been dismissed.

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

No matters were submitted to security holders for a vote during the three months
ended December 31, 1998.






                   [This Portion Intentionally Left Blank]

                                  8
</TABLE>
<PAGE>



                                 Part II

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

Our Common Stock is traded on The Nasdaq  SmallCap Market under the symbol NTST.
Set forth below is the  reported  high and low sales  prices of the Common Stock
commencing  from August 13,  1996,  the date of the  Prospectus  relating to our
initial  public  offering,  through  December  31, 1998.  All price  information
reflects the one-for-three reverse split, effective September 14, 1998.

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

  September 30, 1996 (from August 13)        $13.25                    $12.50
  December 31, 1996                            3.38                      3.00

  March 31, 1997                               6.00                      2.63
  June 30, 1997                                6.63                      2.63
  September 30, 1997                           6.50                      2.00
  December 31, 1997                            6.25                       .81

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

As of December  31, 1998 there were  approximately  710 holders of record of the
Company's Common Stock.

No cash  dividends  have been paid to the holders of the shares of Common  Stock
during the years ended December 31, 1998 and 1997 and 1996.









                     [This Portion Intentionally Left Blank]

                                  9

<PAGE>

<TABLE>


Item 6.  Selected Financial Data
<S>                                       <C>         <C>        <C>            <C>        <C> 

                                                               Year Ended December 31,
                                               1998        1997        1996          1995      1994
                                               ----        ----        ----          ----      ----
                                                         (in thousands except per share data)
Selected Statements
  of Operations Data:

Revenue                                     $ 13,165   $ 7,635       $  6,538       $ 6,751   $ 2,924

Income (Loss) from Continuing
 Operations before interest
  and other financing costs                      759      (536)     (1)(3,614)       (1,181)   (1,126)

Loss from Discontinued Operations               (217)   (2,615)          (801)         (252)     (365)

Net Income (Loss)                                196    (3,459)   (1&2)(6,579)    (3)(2,850)   (1,751)

Per Share Data - Basic & Diluted:
  Continuing Operations                          .12      (.37)         (3.36)        (1.61)     (.85)
  Discontinued Operations                       (.08)    (1.10)          (.47)         (.16)     (.23)
  Net Income (loss)                              .04     (1.47)         (3.83)        (1.77)    (1.08)

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

Selected Balance
 Sheet Data:
 Working Capital (deficiency)                     10      (537)           477        (2,562)   (4,037)

Total Assets                                  10,289     7,340          8,251         6,390     7,193

Total Liabilities                              7,005     4,200          3,836         5,887     6,342

Redeemable Preferred Stock                       --        --             --             96        96

Accumulated Deficit                          (15,097)  (15,293)       (11,726)       (5,147)   (2,297)

Stockholders' Equity                           3,284     3,140          4,415           407       755
<FN>

____________________
                                                                               
(1) Reflects $3,492 of non-cash compensation charges arising out of the issuance
by the Company of warrants and options having exercises prices which were less
than the market value of the Common Stock at the  date of approval by the board
of directors.
                                                                               
(2) Reflects $1,692 of non-cash costs associated with the issuance of 500,000
shares of common stock to certain noteholders and 25,000 shares of common stock
to the Company's asset based lender.
                                                                               
(3) Reflects financing costs of $460 representing the write-off of deferred
financing costs relating to a proposed public offering scheduled for early 1995
but cancelled.
</FN>

                                  10
</TABLE>

<PAGE>



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

Results of Operations

Years Ended December 31, 1998 and 1997

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

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

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

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

Selling,  general  and  administrative  expenses  were  $3,516,000  in 1998,  an
increase of 21% from the $2,902,000 in 1997. This increase was substantially the
result of an increase in  commissions  expense,  sales and  marketing  salaries,
advertising and related sales expenses which were partially offset by a decrease
in administrative expenses as well as other miscellaneous expenses,  including a
reduction in related party administrative expenses. Related party administrative
expense was $45,000 in 1998 and $180,000 in 1997. These charges were pursuant to
an  management  services  agreement  with the our  principal  stockholder  for a
monthly fee of $15,000. This agreement was mutually terminated, effective April,
1, 1998.

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

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



                                  11

<PAGE>



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

As a result of the foregoing factors, we generated a net income of $196,000,  or
$.04 per share,  in 1998 as compared with a net loss of $3.5  million,  or $1.45
per share, in 1997.

Years Ended December 31, 1997 and 1996

Our revenue for 1997 was $7.6 million, an increase of $1.1 million, or 17%, from
the revenue for 1996 which was $6.5 million. The largest component of revenue in
1997  was data  center  revenue  which  increased  to  $2,235,000  in 1997  from
$2,207,000  in 1996,  reflecting  an increase of 1%. The turnkey  systems  labor
revenue  increased to $2,107,000 in 1997 from $1,663,000 in 1996,  reflecting an
increase  of 27%.  This  increase is  substantially  the result of growth in the
behavioral  health  business  and our ability to provide the staff  necessary to
generate the additional revenue.  Maintenance revenue increased to $1,280,000 in
1997 from $1,226,000 in 1996, reflecting a 4% increase. Revenue from third party
hardware and software decreased to $1,078,000 in 1997 from $1,114,000 in 1996, a
decrease of 3%. License  revenue  increased to $737,000 in 1997 from $329,000 in
1996, a 124% increase.

Revenue from  contracts  from  government  agencies  represented  35% and 31% of
revenue in 1997 and 1996, respectively.

Gross profit  increased to  $2,747,000  in 1997 from  $1,947,000  in 1996, a 41%
increase.  The increase in the gross profit was  substantially the result of the
increased license revenue which provides higher margins.

Selling,  general and  administrative  expenses  were $2.9  million in 1997,  an
increase of 71%,  from $1.7  million in 1996.  The increase was the result of an
increase in personnel and salaries in the sales and marketing and administrative
areas,  an increase in other direct sales  expenses such as  advertising,  trade
shows and  commissions  and an increase in general and  administrative  expenses
including insurance and an adjustment for bad debts.

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

During 1997, we incurred product development expenses of $201,000, a decrease of
28% from the $278,000 in 1996.  These  expenses  were related to our  behavioral
health  information   systems  products  such  as  our  clinician   workstation,
behavioral health  information  systems for Windows,  managed care and methadone
dispensing products.

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

Related party  administrative  expense was $180,000 in 1997 and $70,000 in 1996.
These charges were pursuant to an agreement  with our principal  stockholder  to
provide general  business,  management and financial  consulting  services for a
monthly  fee of  $15,000  commencing  in  September  1996,  the  month  after we
completed our initial public offering.

The loss from discontinued  operations,  the smart card division, was $2,615,000
in 1997, and $801,000 in 1996.

As a result of the foregoing  factors,  we incurred a loss of $3.5  million,  or
$1.45 per share,  in 1997 as compared with a net loss of $6.6 million,  or $3.84
per share, in 1996.

                                  12

<PAGE>



Liquidity and Capital Resources

We had working capital of $10,000 at December 31, 1998, as compared to a working
capital  deficit of $537,000 at December 31, 1997.  Our cash position  decreased
from  $855,000 at December  31, 1997 to  $199,000  at  December  31,  1998.  The
increase  in  working   capital  for  the  year  ended  December  31,  1998  was
substantially  due  to  the  net  income  after  adding  back  depreciation  and
amortization.

Our principal  source of funds,  other than revenue,  is an accounts  receivable
financing  agreement  with an asset based lender whereby we may borrow up to 80%
of eligible accounts  receivable up to a maximum of $2,000,000.  At December 31,
1998, the outstanding borrowings under this facility was $1,640,000. At December
31, 1998, the maximum amount available under this formula was $1,670,000. During
the year, with the consent of the asset-based lender, we have, from time to time
exceeded  the  maximum  borrowing  level  provided  in the  agreement  with  the
asset-based lender.

In order to expand and develop our  business and perform our  obligations  under
our agreements and purchase orders, we require  substantial  additional capital,
and we have no commitments from any person to provide such capital. Our business
may suffer significantly if we do not obtain the capital when it is required.

At December 31, 1998,  accounts  receivable  and costs and estimated  profits in
excess  of  interim  billings  were  approximately  $6.5  million,  representing
approximately  178 days of revenue based on annualizing the revenue for the year
ended  December 31, 1998,  although no assurance  can be given that revenue will
continue  at the same  level as the  year  ended  December  31,  1998.  Accounts
receivable  at December 31, 1998  increased by $1.4 million from $2.2 million at
December 31, 1997 to $3.6 million at December 31, 1998.  We believe  that,  with
the  elimination of expenses  relating to the smart card  business,  the cash on
hand, the increased line with our asset based lender  together with revenue from
the behavioral  health  information  system  business,  it will be sufficient to
enable us to  continue  to  operate  at least  through  the end of 1999  without
additional  funding.  If we continue to grow at the existing  rate into 2000 and
beyond,  we  may  require  significant  additional  funding.  We  are  therefore
exploring  various  long  term  funding  possibilities  with  several  banks and
investment banking  organizations.  No assurances can be given as to the ability
of Netsmart to obtain additional financing and our inability to do so could have
a material adverse affect on our ability to grow.

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

Not Applicable.

                                  Part III


The  information  required by Part III is  incorporated  by  reference  from our
definitive  proxy  statement for our 1999 Annual Meeting of  Stockholders  to be
filed with the Securities and Exchange Commission not later than April 30, 1999.


                                   Part IV

Item 8.      Financial Statements and Supplementary Data

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


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

As disclosed in the Company's form 8-K filed on July 20, 1998, the Company
changed its accountants from Moore Stephens, P.C. to Richard A. Eisner &
Company, LLP.  There were no disagreements with accountants.



                                  13

<PAGE>






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

2.                Financial Statement Schedules
                  None

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

4.                Exhibits



                                  14

<PAGE>







                      NETSMART TECHNOLOGIES, INC.
                            AND SUBSIDIARY




                                  F - 1


<PAGE>

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

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

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

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

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

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

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

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

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




                   .   .   .   .   .   .   .   .   .   .   .

                                  F - 2

<PAGE>



                      INDEPENDENT AUDITOR'S REPORT


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


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

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

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


Richard A. Eisner & Company, LLP
Certified Public Accountants

New York, New York
March 23, 1999
With respect to Note 17, April 18, 1999



                                  F - 3

<PAGE>



                      INDEPENDENT AUDITOR'S REPORT


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


      We  have  audited  the  accompanying  consolidated  balance  sheet  of
Netsmart Technologies,  Inc. and its subsidiary as of December 31, 1997, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the two years in the period ended  December  31,  1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the  consolidated  financial  statements  referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Netsmart  Technologies,  Inc. and its  subsidiary as of December 31,
1997,  and the results of their  operations and their cash flows for each of the
two years in the period ended  December 31, 1997, in conformity  with  generally
accepted accounting principles.


Moore Stephens, P.C.
Certified Public Accountants

Cranford, New Jersey
March 26, 1998
[Except for Note 19 as to which
the date is April 2, 1998]



                                  F - 4

<PAGE>



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

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


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

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

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

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

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

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



See Notes to Consolidated Financial Statements.

                                  F - 5

<PAGE>
<TABLE>



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

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


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

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

Capitalized Lease Obligations                                             57,033                -- 

Commitments and Contingencies (Note 13)                                      --                 --

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


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

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

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

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

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

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

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

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



See Notes to Consolidated Financial Statements.

                                  F - 6
</TABLE>

<PAGE>
<TABLE>



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

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

                                                             Y e a r s  e n d e d
                                                            D e c e m b e r   3 1,
                                              1 9 9 8              1 9 9 7              1 9 9 6
                                              -------              -------              -------
<S>                                          <C>                <C>                 <C>    

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

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

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

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

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

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

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

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

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

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

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

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

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

Financing Costs                                        --                 --            1,692,000

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

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


See Notes to Consolidated Financial Statements.

                                  F - 7
</TABLE>

<PAGE>
<TABLE>



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

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------


                                                                Y e a r s  e n d e d
                                                                D e c e m b e r   3 1,
                                                    1 9 9 8               1 9 9 7             1 9 9 6
                                                    -------               -------             -------
<S>                                             <C>              <C>                 <C>    

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

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

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

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

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

Earnings Per Common Share:
  Basic and Diluted:
    Income (Loss) from Continuing Operations      $       .12        $      (.35)      $      (3.36)
    Income (Loss) from Discontinued Operations           (.08)             (1.10)              (.47)
                                                   ----------          ---------          ---------

    Net Income (Loss)                             $       .04        $     (1.45)      $      (3.83)
                                                   ==========          =========          =========

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







See Notes to Consolidated Financial Statements.

                                                              F - 8
</TABLE>

<PAGE>
<TABLE>




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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Common Stock
Issued - Exercise
of Options                                                                        8,922       89      8,326                   8,325 

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

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

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


See Notes to Consolidated Financial Statements.
</TABLE>

                                                   F - 9

<PAGE>
<TABLE>



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

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

                                                                   Y e a r s  e n d e d
                                                                   D e c e m b e r   3 1,
                                                       1 9 9 8            1 9 9 7           1 9 9 6
                                                       -------            -------           -------
<S>                                                <C>               <C>                <C>    
Operating Activities:
  Income (Loss) from Continuing Operations          $    413,267       $   (843,676)      $ (5,778,452)
                                                     -----------        -----------        -----------
  Adjustments to Reconcile Income
    (Loss) from Continuing Operations to Net
    Cash Used for Operating Activities:
    Depreciation and Amortization                        561,562            600,990            486,566
    Administrative Expenses                                                                      9,000
    Additional Compensation Related to the
       issuance of Equity Instruments                                                        3,492,300
    Financing Expenses related to the issuance
      of Common Stock                                                                        1,680,000
  Cash Used in Discontinued Operations                  (367,018)        (2,615,049)          (800,992)
  Write Off of Capitalized Software Cost
    and Related Hardware                                                    553,061
    Equity in Net Loss of Joint Venture                                     287,131            264,085
    Provision for Doubtful Accounts                       60,000             60,000             60,000

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

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

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

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

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

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

See Notes to Consolidated Financial Statements.

                                  F - 10
</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 8               1 9 9 7               1 9 9 6
                                                     -------               -------               -------  
<S>                                              <C>                <C>               <C>   
                                                
Financing Activities:
  Proceeds from Short-Term Notes                     704,517            345,146              500,000
  Payment of Short-Term Notes                                                               (912,270)
  Payment of Bank Note Payable                                                               (79,000)
  Proceeds of loans from Related Parties                                140,000
  Repayment of loans from related parties            (56,000)                               (750,000)
  Payment of Capitalized Lease Obligations           (15,658)           (34,063)            (145,146)

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

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

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

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

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

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

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

Year ended December 31, 1998:

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

Year ended December 31, 1997:

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

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

                                  F - 11
</TABLE>

<PAGE>


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

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

Year ended December 31, 1996:

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

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

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

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

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






   See Notes to Consolidated Financial Statements.

                                  F - 12

<PAGE>



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

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


[1] The Company

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

[2] Summary of Significant Accounting Policies

Principles of Consolidation - The financial statements include Netsmart
Technologies, Inc. ["Netsmart"], and its wholly-owned subsidiary, Creative
Socio-Medics Corp. ["CSM"] (collectively referred to as the Company).  All
intercompany transactions are eliminated in consolidation.  Certain amounts have
been reclassified in the prior years' statements to conform to the current
year's presentation.

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

Cash and Cash Equivalents - The Company considers all highly liquid  instruments
purchased with a maturity of three months or less to be cash  equivalents.  Cash
equivalents totaled approximately $249,000 and $940,000 at December 31, 1998 and
1997 respectively.

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

The Company's  behavioral health information systems are marketed to specialized
care facilities,  many of which are operated by government  entities and include
entitlement  programs.  During the years ended December 31, 1998, 1997 and 1996,
approximately  52%, 35% and 31%  respectively,  of the  Company's  revenues were
generated from contracts with government agencies.

During  the  year  ended   December  31,  1998,   one  customer   accounted  for
approximately $2,113,000 or 16% of revenue. Accounts receivable of approximately
$853,000  and costs and  estimated  profits in excess of billings of  $1,260,000
less $318,000 in interim billings in excess of costs and estimated  profits were
due from this  customer at December 31, 1998.  Approximately  $1,830,000 of such
amounts were subsequently  collected in 1999. No one customer accounted for more
than 10% of revenues  in 1997.  During the year ended  December  31,  1996,  one
customer  of  the  Company's  discontinued  Cartesmart  division  accounted  for
approximately $1,879,000 or 22% of revenue. Accounts receivable of approximately
$473,000 were due from this customer at December 31, 1996. In 1997,  receivables
from such customer in the amount of $745,000 were written off.

The  Company  places  its cash and cash  equivalents  with high  credit  quality
financial  institutions.  The  amount on  deposit  in any one  institution  that
exceeds federally insured limits is subject to credit risk. At December 31, 1998
and 1997, cash and cash equivalent balances of $150,000 and

                                  F - 13

<PAGE>



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

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

$840,000  respectively,  were  held at a  financial  institution  in  excess  of
federally insured limits.  The Company believes no significant  concentration of
credit risk exists with respect to these cash equivalents.

Revenue Recognition - During 1997, the Accounting  Standards Executive Committee
of the  American  Institute  of Certified  Public  Accountants  issued SOP 97-2,
"Software   Revenue   Recognition."   This  SOP  provides  guidance  on  revenue
recognition on software  transactions and is effective for transactions  entered
into in fiscal years  beginning after December 15, 1997. The company adopted SOP
97-2 in 1998.  The  adoption  did not have a  material  impact on the  financial
position or results of operations of the company. The Company recognizes revenue
principally  from  the  licensing  of its  software,  and  from  consulting  and
maintenance  services  rendered in connection  with such  licensing  activities.
Revenue from software  package license  agreements  without  significant  vendor
obligations is recognized upon delivery of the software.  Information processing
revenues are  recognized  in the  period  in  which  the  service  is  provided.
Maintenance  contract  revenue is recognized on a  straight-line  basis over the
life of the respective contract.  The Company also derives revenue from the sale
of third party hardware and software.  Consulting revenue is recognized when the
services are  rendered.  No revenue is  recognized  prior to obtaining a binding
commitment from the customer.

Software development revenue from time-and-materials contracts are recognized as
services are performed.  Revenue from fixed price software development contracts
and revenue under license agreements which require  significant  modification of
the software  package to the  customer's  specifications,  are recognized on the
estimated  percentage-of-completion  method.  Using the units- of-work performed
method to measure progress towards  completion,  revisions in cost estimates and
recognition of losses on these contracts are reflected in the accounting  period
in which the facts become known.  Contract  terms provide for billing  schedules
that  differ  from  revenue  recognition  and give rise to costs  and  estimated
profits in excess of  billings,  and  billings in excess of costs and  estimated
profits.

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

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

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

Estimated useful lives are as follows:

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

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


                                  F - 14

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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


On January 1, 1996,  the  Company  adopted  Statement  of  Financial  Accounting
Standards  (SFAS) No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and  for  Long-Lived  Assets  to Be  Disposed  Of."  SFAS  No.  121  established
accounting  standards  for the  impairment  of  long-lived  assets  and  certain
identifiable  intangibles,  and goodwill  related to those assets to be held and
used,  and for  long-lived  assets and certain  identifiable  intangibles  to be
disposed  of.   Management  has  determined  that  expected  future  cash  flows
(undiscounted  and without  interest  charges)  exceed the carrying value of the
long lived assets at December 31, 1998 and believes  that no impairment of these
assets has occurred.


                                  F - 15

<PAGE>



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

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

Stock Options and Similar  Equity  Instruments - On January 1, 1996, the Company
adopted  the  disclosure  requirements  of  Statement  of  Financial  Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", for stock
options and  similar  equity  instruments  (collectively,  "Options")  issued to
employees,  however,  the Company  continues to apply the intrinsic  value based
method of accounting  for options  issued to employees  prescribed by Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees"  rather than the fair value based method of accounting  prescribed by
SFAS No.  123.  SFAS No.  123 also  applies to  transactions  in which an entity
issues its equity  instruments to acquire goods or services from  non-employees.
Those   transactions   are  accounted  for  based  on  the  fair  value  of  the
consideration  received  or the fair  value of the  equity  instruments  issued,
whichever is more reliably measurable.

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

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

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

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

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

[3] Accounts Receivable

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

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

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

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

                                  F - 16

<PAGE>



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

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

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

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

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

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

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

Included in the accompanying balance sheet under the following captions:

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

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



[5] Discontinued Operations

During 1998 the Company  discontinued its CarteSmart division which included its
interest in a joint  venture.  On June 30, 1998 the Company  sold this division,
with an option to purchase the  Company's  interest in the joint  venture if the
other party to the venture  did not elect to acquire the  Company's interest, to
Granite  Technologies,  Inc.  ("Granite"),  a  corporation  formed by the former
management  of  the  division.  Granite  issued  to  the  Company  its  $500,000
promissory note and a 20% equity interest in Granite. Granite also agreed to pay
certain  royalties to the Company and granted the Company a license with respect
to the CarteSmarte  software.  The note was subject to cancellation if the other
party to the joint venture  elected to purchase the Company's  interest.  As the
Company does not have significant  influence over the operations of Granite, the
20% interest is accounted for using the cost method.

As a result of the  discontinuation of the CarteSmarte  division,  the financial
statements  for the periods being reported have been restated to reflect the net
loss from the CarteSmart division as a loss from discontinued operations.  The
revenues from the discontinued operations amounted to $33,000, $24,600 and
$2,003,000 in 1998, 1997 and 1996 respectively.

In October 1998 the other party to the joint  venture  exercised  their right to
purchase the Company's  interest in the joint venture for a $500,000  note.  The
terms of the note  require  twenty four  monthly  principal  payments of $15,000
each,  commencing November 1,1998 and a $140,000 balloon payment due November 1,
2000. The note also bears interest at 5.66% per annum. All monthly payments have
been  received  through  March 1999 on a timely basis and the Company has valued
the note at $180,000 which amount is reflected as a gain on sale of discontinued
operations.

During  the  fourth   quarter  of  1997  the   Company  had   re-evaluated   the
recoverability of its investment in the joint venture.  A determination was made
that this  investment  would not be recoverable  based upon estimated cash flows
and  consequently  the company  wrote off  $147,432,  which reduced the carrying
value of the venture to zero.


                                  F - 17

<PAGE>



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

[6] Property and Equipment

Property and equipment consist of the following:
                                                         December 31,
                                                         -----------
                                                   1 9 9 8         1 9 9 7
                                                   -------         -------

Equipment, Furniture and Fixtures                 $ 672,692      $  582,207
Leasehold Improvements                              247,609         164,335
                                                   --------       ---------

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

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

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


[7] Related Party Transactions

[A] Related Party Administrative Expense - The Company had an agreement with its
principal  stockholder,  Consolidated and its subsidiary The Trinity Group, Inc.
("Trinity")  pursuant to which the Company paid Trinity a monthly fee of $15,000
for  general  business,  management  and  financial  consulting  services.  This
agreement was mutually  terminated,  effective  April 1, 1998.  Pursuant to this
agreement,  in 1998,  1997 and 1996 the  Company  charged  $45,000,  180,000 and
$60,000 respectively to related party administrative expenses.

[B] Loans by Related Parties - During 1998 certain officers and employees of the
Company  loaned  the  Company  $140,000  for which the  Company  issued  its 18%
installment notes.  These loans are being repaid in five quarterly  installments
commencing  September 30, 1998 and ending September 30, 1999. The amount payable
at December 31, 1998 is $84,000.


[8] Notes Payable

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

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

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





                                  F - 18

<PAGE>



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

[9] Income Taxes

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

At December  31,  1998,  the Company has net  operating  loss  carryforwards  of
$11,363,000  expiring by 2012.  Pursuant to Section 382 of the Internal  Revenue
Code regarding  substantial  changes in Company ownership,  utilization of these
losses may be limited.

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

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

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

The Deferred Tax Asset consists primarily of the following:

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

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

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

The  provision  for income  taxes  varies  from the amount  computed by applying
statutory rates for the reasons summarized below:

                                               1998       1997         1996
                                               ----       ----         ----
Provision Based on Statutory Rates              34%       (34)%        (34%)
State Taxes Net of Federal Benefit               6%        (6)%         (6%)
Increase in Valuation Allowance                (40)%       40%          40%
                                               ----       ----         ----

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


[10] Capital Stock

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

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

                                  F - 19

<PAGE>



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

[10] Capital Stock - [Continued]

action, in one or more distinct series.  The Board of Directors is authorized to
determine the rights and preferences of the preferred stock.  The Board of
Directors has authorized the issuance of Series A, Series B and Series D
preferred Stock.  At December 31, 1998, only the Series D preferred stock
was outstanding.  (See Note 17)

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

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

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

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

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

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



                                  F - 20

<PAGE>



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

[11] Capitalized Lease Obligations

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

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

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

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

Capitalized  lease  obligations are  collateralized by equipment which has a net
book value of $82,000 and $15,000 at December  31, 1998 and 1997,  respectively.
Amortization   of   approximately   $10,200   and  $10,200  in  1998  and  1997,
respectively, has been included in depreciation expense.


[12] Fair Value of Financial Instruments

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

[13] Commitments and Contingencies

The  Company  leases  space  for its  executive  offices  and  facilities  under
noncancellable  operating  leases  expiring  December 31, 2003. The Company also
leases additional office space on a month-to-month basis.

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

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

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

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

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

                                  F - 21

<PAGE>



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

[13] Commitments and Contingencies - [Continued]

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


[14] Stock-Based Compensation

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

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

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

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

In November  1998,  the  Committee  reduced the  exercise  price of  outstanding
options to purchase an aggregate of 43,167  shares of Common  Stock,  from $4.50
per share to $1.50 per  share,  which was in excess of the  market  price on the
date the Committee approved the reduction in the exercise price.



                                  F - 22

<PAGE>
<TABLE>



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

[14] Stock-Based Compensation - [Continued]

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

                                                1998                        1997                         1996            
                                      ------------------------    -------------------------    --------------------------
                                                     Weighted                     Weighted                     Weighted
                                                     --------                     --------                     --------
                                                      Average                      Average                      Average
                                                     --------                     --------                     --------  
                                                     Exercise                     Exercise                     Exercise
                                                     --------                     --------                     --------  
                                      Shares           Price       Shares           Price       Shares          Price
                                      ------           -----       ------           -----       ------          -----  
Outstanding - Beginning of
  Year                                148,780         $3.244       203,706         $2.57        123,039         $ .803
Granted During the Year               323,167(a)       1.50            --            --          80,667          5.265
Canceled During the Year              (80,667)(a)      9.60            --            --             --             --
Expired During the Years                  --            --             --            --             --             --
Exercised During the Year              (8,922)         .723        (54,926)         .745            --             --
                                      -------                      -------                      -------

   Outstanding - End of Year          382,358        $1.397        148,780        $3.244        203,706         $ 2.57
                                      =======         =====        =======         =====        =======          =====

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

</FN>

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

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

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


   Totals              382,358              3.7 Years                 242,358
                       =======              =========                 =======



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

</TABLE>



                                  F - 23


<PAGE>



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

[14] Stock-Based Compensation - [Continued]

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

In July 1996,  pursuant to a warrant  exchange,  (a) the holders of  outstanding
warrants  having a $6.00 exercise price exchanged one third of such warrants for
outstanding warrants to purchase, at an exercise price of $12.00 per share, 150%
of  the  number  of  shares  of  common  stock  issuable  upon  exercise  of the
outstanding  warrants  that were  exchanged,  and (b) the exercise  price of the
outstanding  warrants  that had a $15.00  exercise  price was reduced to $12.00.
Prior to the  warrant  exchange,  there were  outstanding  warrants  to purchase
838,750  shares of common stock at $6.00 per share and  outstanding  warrants to
purchase  879,167 shares of common stock at $15.00 per share  outstanding.  As a
result of the  warrant  exchange,  there were  outstanding  warrants to purchase
559,167  shares of common stock at $6.00 per share and 631,877  shares of common
stock at $12.00 per share. These warrants were exercisable  commencing  February
13, 1997. An affiliate of the Company,  a member of the board of directors and a
Company  controlled by such director,  were given permission to exercise options
in August 1996.  This  individual  and entities  exercised  warrants to purchase
266,667 shares at $6.00 per share in August 1996. All of the remaining  Series B
Common Stock Purchase Warrants expire on December 31, 1999. The Company recorded
compensation  expenses  of  $3,337,500  in  relation  to the  issuance  of these
warrants.

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

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


                                  F - 24

<PAGE>
<TABLE>



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

[14] Stock-Based Compensation - [Continued]

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

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

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


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


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



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

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

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




[14] Stock-Based Compensation - [Continued]

The  Company  applies  Accounting  Principles  Board  Opinion  ("APB")  No.  25,
"Accounting  for Stock Issued to Employees",  and related  interpretations,  for
stock  options  issued to employees in accounting  for its stock options  plans.
Total   compensation   cost  recognized  in  income  for  stock  based  employee
compensation awards was $-- in 1998 and 1997 and $3,492,300 in 1996.


                                  F - 25

<PAGE>



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

[14] Stock-Based Compensation - [Continued]

If the Company had  accounted  for the issuance of all options and  compensation
based  warrants  pursuant  to the fair value based  method of SFAS No. 123,  the
Company would have recorded  additional  compensation  expense totaling $262,325
and $846,000 for the years ended December 31, 1998 and 1996 respectively and the
Company's net loss and net loss per share would have been as follows:

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


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

Pro Forma Net Loss                           $(66,076)       $ (7,425,444)
                                              =======           =========

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


Pro Forma Net Loss Per Share                 $   (.05)       $      (4.33)
                                              =======           =========

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

                                               1998              1996
                                               ----              ----
Expected Life (Years)                            5                  2
Interest Rate                                 5.51%               6.0%
Annual Rate of Dividends                         0%                 0%
Volatility                                      70%              67.9%

The  weighted  average fair value of options and warrants at date of grant using
the fair value based method during 1998, 1997 and 1996 is estimated at $.81, $--
and $3.99 respectively.


                                  F - 26
</TABLE>

<PAGE>

<TABLE>


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

[15] Operating Segments

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

                                                                   Y e a r s   e n d e d
                                                                   ---------------------
                                                                    D e c e m b e r  31,
                                                                    -------------------
                                                          1 9 9 8          1 9 9 7        1 9 9 6
                                                          -------          -------        -------
<S>                                                   <C>            <C>             <C> 
Revenues:
       Software and Related Systems and Services        $11,000,795    $ 5,400,245    $ 4,330,707
       Data Center Services                               2,164,472      2,235,209      2,207,155
                                                         ----------     ----------     ----------

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

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

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

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

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

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

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

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

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

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

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

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

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

                                  F - 27
</TABLE>


<PAGE>



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

[16] Johnson Acquisition

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


[17] Subsequent Event

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

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




                                  F - 28

<PAGE>




                             SIGNATURES

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



                                              NETSMART TECHNOLOGIES, INC.

Date: April 14, 1998                          /s/ James L. Conway         
                                             -----------------------------------
                                             James L. Conway, President

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

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

/s/ James L. Conway         President, Chief Executive          April 14, 1999
---------------------       Officer and Director (Principal
James L. Conway             Executive Officer)
                              

/s/ Anthony F. Grisanti     Chief Financial Officer             April 14, 1999
---------------------       (Principal Financial and 
Anthony F. Grisanti         Accounting Officer)               
                                                

/s/ Edward D. Bright        Director                            April 14, 1999
---------------------
Edward D. Bright


/s/ John F. Phillips        Director                            April 14, 1999
---------------------
John F. Phillips


/s/ Gerald Koop             Director                            April 14, 1999
---------------------
Gerald Koop


                            Director                            April 14, 1999
---------------------
Joseph Sicinski


---------------------       Director                            April 14, 1999
Seymour Richter



<PAGE>




                          Netsmart Technologies, Inc.
                               Index to Exhibits
                               December 31, 1998


a)  Exhibits

3.1(1)   Restated   Certificate   of   Incorporation,   as  amended,   including
         certificates  of  designation  with  respect  to the  Series A, B and D
         Preferred Stock.
3.2(1)   By-Laws
4.1(1)   Form of Warrant  Agreement dated August 13, 1996, among the Registrant,
         American Stock Transfer & Trust Company,  as Warrant Agent,  and Monroe
         Parker  Securities,  Inc.,  to which  the form of  Series A  Redeemable
         Common Stock Purchase Warrant is included as an exhibit.
4.2(2)   Form of Amendment to the Warrant Agreement.
10.1(1)  Employment  Agreement  dated June 16, 1994,  between the Registrant and
         Leonard M. Luttinger,  as amended.
10.2(2)  Employment Agreement dated as of August 15, 1996, between the
         Registrant and James L. Conway.
10.3(1)  Employment Agreement dated June 16, 1994,  between the Registrant  and
         John F. Phillips,  as amended.
10.4(1)  Employment  Agreement  dated June 16, 1994,  between the Registrant and
         Anthony F. Grisanti.
10.6(1)  1993 Long-Term Incentive Plan.
10.7(1)  Form of Series B Common Stock Purchase Warrant.
10.9(1)  Agreement dated March 3, 1995 between CSM and United Credit
         Corporation, as amended.
10.17(2) Amendment  dated July 22, 1997, to March 3, 1995  agreement between
         CSM and United Credit Corporation.
11.1     Computation of loss per share.
21.1     Subsidiaries of the Registrant.
24.1     Consent of Moore Stephens, P.C.
25.1     Powers of attorney (See Signature Page)
27.1     Financial data schedule.




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

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