NETSMART TECHNOLOGIES INC, S-1/A, 1996-08-13

NETSMART TECHNOLOGIES INC
S-1/A, 1996-08-13
COMPUTER PROCESSING & DATA PREPARATION

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As filed with the Securities and Exchange Commission on August 13, 1996
Registration No. 333-2550

Securities and Exchange Commission
Washington, D.C. 20549

Amendment No. 3
To
Form S-1

Registration Statement under the Securities Act of 1933

Netsmart Technologies, Inc.
(Exact name of registrant as specified in its charter)

Asher S. Levitsky P.C.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
(212) 953-6000
Fax: (212) 953-6899
(Name, address and telephone number of agent for service)

Copies to:

Lewis S. Schiller, Chief Executive Officer Alexander Bienenstock, Esq.
Netsmart Technologies, Inc. Singer, Bienenstock, Zamansky,
Ogele & Selengut, LLP.
146 Nassau Avenue 40 Exchange Place; 20th floor
Islip, NY 11751 New York, NY 10005
(516) 968-2000 (212) 809-8550
Fax: (516) 968-2123 Fax: (212) 344-0394

<PAGE>

Netsmart Technologies, Inc.

Cross-Reference Sheet Pursuant to Rule 404

Item No. Caption in Prospectus
-------- ---------------------

1. Forepart of the Registration Registration Statement Facing Page,
Statement and Outside Front Cover Prospectus Cover Page
of Prospectus
2. Inside Front and Outside Bank Inside Cover Page, Back Cover Page
Cover Pages of Prospectus
3. Summary Information, Risk Factors Prospectus Summary, Risk Factors
and Ratio of Earnings to Fixed
Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Risk Factors, Underwriting
6. Dilution Dilution
7. Selling Security Holders Cover Page, Inside Cover Page, Selling
Security Holders
8. Plan of Distribution Cover Page, Inside Cover Page, Selling
Security Holders, Underwriting
9. Description of Securities to be Description of Securities
Registered
10. Interest of Named Experts and N.A.
Counsel
11. Information with Respect to the (a)-(c) Prospectus Summary, Business
Registrant (d) Cover Page
(e) Financial Statements
(f) Prospectus Summary, Selected
Financial Data
(g) N.A.
(h) Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(i) N.A.
(j)-(k) Management
(l) Principal Stockholders
(m) Certain Transactions
12. Disclosure of Commission N/A
Positionon Indemnification
for Securities Act Liabilities

<PAGE>

PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 13, 1996

562,500 Units

Netsmart Technologies, Inc.

(Each Unit consisting of two shares of Common Stock, par value $.01 per
share, and one Series A Redeemable Common Stock Purchase Warrant)

Netsmart Technologies, Inc. (the "Company") is offering 562,500 Units,
each Unit consisting of two shares of Common Stock and one Series A Redeemable
Common Stock Purchase Warrant (the "Warrants") or an aggregate of 1,125,000
shares of Common Stock and 562,500 Warrants. The Common Stock and Warrants
comprising the Units will be separately transferable immediately upon issuance.
Each Warrant entitles the holder to purchase one share of Common Stock at $4.50
per share (subject to adjustment) during the two-year period commencing one year
from the date of this Prospectus. The Warrants are redeemable by the Company,
with the consent of Monroe Parker Securities, Inc. (the "Underwriter"),
commencing one year from the date of this Prospectus, for $.05 per Warrant, on
not more than 60 nor less than 30 days' written notice if the closing bid price
per share of Common Stock is at least $9.00 (subject to adjustment) for at least
20 consecutive trading days ending within ten days of the date the Warrants are
called for redemption. See "Description of Securities."

Prior to this Offering, there has been no public market for the
Company's securities. The initial public offering price and composition of the
Units and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Underwriter, and are
not related to the Company's assets, book value, financial condition or other
recognized criteria of value. Although the Company has applied for the inclusion
of the Common Stock, Units and Warrants in The Nasdaq SmallCap Market under the
symbols NTST, NTSTU and NTSTW, respectively, there can be no assurance that an
active trading market in the Company's securities will develop or be sustained.

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AND "DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)

Per Unit............. $8.00 $ .80 $7.20

Total (3)............ $4,500,000 $450,000 $4,050,000

(footnotes on page 2)
The Units are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Common Stock and Warrants comprising the Units will be made
against payment therefor at the offices of the Underwriter at 2500 Westchester
Avenue, Purchase, New York 10577 on , 1996.

Monroe Parker Securities, Inc.

The date of this Prospectus is , 1996

<PAGE>

(footnotes from Cover Page)
(1) Excludes additional compensation to be received by the Underwriter in
the form of (a) a non-accountable expense allowance equal to 3% of the
gross proceeds of this Offering ($.24 per Unit) for a total of $135,000
($155,250 if the Underwriter's over-allotment option is exercised in
full), (b) options (the "Underwriter's Options") to purchase 56,250
Units at $11.60 per Unit exercisable during the four-year period
commencing one year from the date of this Prospectus, and (c) a
one-year consulting agreement pursuant to which the Company will pay
the Underwriter a fee of $60,000. See "Underwriting." In addition, the
Company has agreed to indemnify the Underwriter against certain
liabilities, including liability under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."

(2) Before deducting estimated expenses of the Offering of approximately
$525,000 ($.93 per Unit), which are payable by the Company and relate
to the Offering by the Company and possible sale by selling security
holders, and which include the Underwriter's non-accountable expense
allowance and consulting agreement.

(3) The Company has granted to the Underwriter an option, exercisable
within 45 days after the date of this Prospectus, to purchase up to an
additional 84,375 Units on the same terms solely to cover over-
allotments. If the over-allotment option is exercised in full, the
Total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $5,175,000, $517,500 and $4,657,500,
respectively. See "Underwriting."

A significant number of Units may be sold to customers of the
Underwriter. Such customers may subsequently engage in the sale or purchase of
the securities through or with the Underwriter. Although they have no obligation
to do so, the Underwriter may become a market maker and otherwise effect
transactions in securities of the Company, and, if the Underwriter participates
in such market, it may be a dominating influence in the trading of securities.
The prices and the liquidity of the securities may be significantly affected by
the degree, if any, of the participation of the Underwriter in such market,
should a market arise.

This Prospectus, with a different Cover Page, relates to the sale by
selling security holders of (i) 800,000 Series B Common Stock Purchase Warrants
("Outstanding Warrants") in private transactions, and (ii) the public sale of
the 800,000 shares of Common Stock issuable upon exercise of the Outstanding
Warrants and 250,000 Units being issued on or about the date of this Prospectus
to certain note holders. See "Selling Security Holders." The sale of such
securities by the selling security holders is not part of the underwritten
public offering.

The Company will be subject to certain informational requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
The Company uses the calendar year as its fiscal year.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
COMMON STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.

- 2 -

<PAGE>
(Continued from Cover Page)

PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST 13, 1996

Netsmart Technologies, Inc.

800,000 Series B Common Stock Purchase Warrants 250,000 Units
(each Unit consisting of two shares of Common Stock, par value $.01
per share, and one Series A Redeemable Common Stock Purchase Warrant)

The 250,000 Units and/or the shares of Common Stock and Series A
Redeemable Common Stock Purchase Warrants (the "Warrants") comprising such
Units, which are to be sold by certain selling stockholders (the "Selling
Stockholders") of Netsmart Technologies, Inc. (the "Company"), are subject to a
one-year unconditional lock-up and, accordingly, may not be transferred during
the one-year period commencing on the date of this Prospectus. During the month
following the expiration of such one-year period, such securities may be sold by
the Selling Stockholders only with the consent of Monroe Parker Securities,
Inc., the underwriter (the "Underwriter") of the Company's initial public
offering. Each Unit consists of two shares of Common Stock and one Warrant. The
Common Stock and Warrants comprising the Units are separately transferable. Each
Warrant entitles the holder to purchase one share of Common Stock at $4.50 per
share (subject to adjustment) during the two-year period commencing one year
from the date of this Prospectus. The Warrants are redeemable by the Company,
with the consent of the Underwriter, commencing one year from the date of this
Prospectus, for $.05 per Warrant, on not more than 60 nor less than 30 days'
written notice if the closing bid price per share of Common Stock is at least
$9.00 (subject to adjustment) during 20 consecutive trading days ending within
ten days of the date the Warrants are called for redemption.
See "Description of Securities."

The 800,000 Series B Common Stock Purchase Warrants ("Outstanding
Warrants") may be sold in negotiated transactions by certain of the Company's
warrant holders (the "Selling Warrant Holders") in negotiated transactions. The
Outstanding Warrants have an exercise price of $2.00 per share, expire on
December 31, 1999 and are not redeemable by the Company. During the first six
months from the date of this Prospectus, the Outstanding Warrants may not be
exercised and the underlying shares of Common Stock may not be sold without the
consent of the Company and the Underwriter. During the 18 months following the
expiration of such six month period, neither the Outstanding Warrants nor the
underlying shares of Common Stock may be sold without the consent of the
Underwriter. The Outstanding Warrants are not to be publicly sold, and there is
not expected to be any public market for the Outstanding Warrants. The
Outstanding Warrants provide that, in the event that they are sold or otherwise
transferred pursuant to an effective registration statement, they expire 90 days
from the date of transfer. As a result, any purchaser of Outstanding Warrants
must, within a short period, either exercise the Outstanding Warrants or permit
them to expire unexercised.

The 800,000 shares of Common Stock issuable upon exercise of the
Outstanding Warrants may not be sold during the first six months from the date
of this Prospectus without the prior consent of the Company and the Underwriter.
During the 18 months following the expiration of such six month period, such
shares may not be sold without the consent of the Underwriter.

The Company will not receive any proceeds from the sale by the Selling
Stockholders or Selling Warrant Holders (collectively, "Selling Security
Holders") of the Units or Outstanding Warrants or underlying securities except
to the extent that any Warrants or Outstanding Warrants are exercised. The cost
of the registration of the securities for the Selling Security Holders,
estimated at approximately $5,000, is being borne by the Company.
(continued on page 2)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is , 1996

<PAGE>

(Continued from Cover Page)
The Selling Warrant Holders have advised the Company that any transfer
of the Outstanding Warrants will be either a sale in private transactions at
negotiated prices or by gift. They have advised the Company with respect to the
underlying shares of Common Stock, and each of the Selling Stockholders has
advised the Company with respect to the Units and shares of Common Stock and
Warrants comprising the Units that such sale may be effected from time to time
in transactions (which may include block transactions) by or for the account of
the Selling Security Holders in the over-the-counter market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices or in negotiated
transactions, a combination of such methods of sale or otherwise, and securities
may be transferred by gift.

Selling Security Holders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Security Holders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Security Holders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).

The Company has informed the Selling Security Holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-2,
10b-6 and 10b-7, may apply to their sales in the market and has furnished each
of the Selling Security Holders with a copy of these rules. The Company has also
informed the Selling Security Holders of the need for delivery of copies of this
Prospectus.

This Prospectus, with a different Cover Page, relates to the sale by
Company pursuant to an underwritten public offering of 562,500 Units, each Unit
consisting of two shares of Common Stock and one Series A Redeemable Common
Stock Purchase Warrant (the "Warrants") or an aggregate of 1,125,000 shares of
Common Stock and 562,500 Warrants. See "Underwriting."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

- 2 -

<PAGE>

PROSPECTUS SUMMARY

The following discussion summarizes certain information contained in
this Prospectus. It does not purport to be complete and is qualified in its
entirety by reference to more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. All share
and per share information in this Prospectus has been restated to reflect a
2,000-for-one Common Stock recapitalization effective in August 1993, a
.576-for-one reverse split effective in October 1993 and a three-for-four
reverse split effective February 1996.

THE COMPANY

Netsmart Technologies, Inc. (the "Company") develops, markets and
supports computer software designed to enable organizations to provide a range
of services in a network computing environment. A network computing environment
is a computer system that provides multiple users with access to a common data
base and functions. A network system can be a local system, such as a local area
network, known as a LAN, which operates within an office or facility, or a
distributed system which provides simultaneous access to a common data base to
many users at multiple locations.

There are typically three parties in the Company's network systems --
the sponsor, the users and the service providers. The sponsor is the party that
maintains the data base. The sponsor may be a managed care organization, a
university or a financial institution. The users are the individuals who use the
system, and may be the subscribers of a managed care organization, the students
at a university or the bank card or credit card holders of a financial network.
The service providers are those who provide goods or services to the users.
Service providers are the physicians, pharmacies or other health care
professionals who provide medical services for the managed care organization,
the university book store, food service and library and banks and merchants who
provide goods, services or funds to bank card or credit card holders.

The Company has developed proprietary network technology using smart
cards which it markets in the health care, financial and education fields as the
CarteSmart System. A smart card is a plastic card the size of a standard credit
card which contains a single embedded microprocessor chip. The card has data
storage and computing capabilities, and the smart card software includes
security elements to restrict unauthorized access to or modification of certain
information contained on the card. The Company also supplies network
applications which use telecommunications rather than smart cards to obtain
access to and manage data information. The smart card permits both access to and
updating of information on the card. For example, in the health care field, the
health care provider can, by inserting the smart card in a smart card reader,
confirm insurance coverage, chronic conditions such as allergies, medications
currently prescribed and reports of recent visits to participating health care
providers. The health care provider can then input new information, including
diagnostic and treatment information, from the current office visit onto both
the smart card and the organization's computer.

Substantially all of the Company's revenue through December 31, 1995
and approximately 63.5% of revenue for the three months ended March 31, 1996 was
generated by its health information systems and related services, which are
marketed through Creative Socio-Medics Corp. ("CSM"), a subsidiary which was
acquired by Carte Medical Holdings, Inc. ("Holdings"), the Company's principal
stockholder, from a nonaffiliated party in June 1994. In September 1995, the
stock of CSM was transferred by Holdings to the Company. See "Business --
Acquisition of CSM." The Company offers these systems and related services to
specialty care health organizations and entitlement programs in the United
States. Revenue from health care systems and related services includes the sale
of third party hardware and software, which accounted for approximately 10.5%
and 26.7% of revenue for the three months ended March 31, 1996 and the year
ended December 31, 1995. The principal assets acquired by the company were CSM's
customer lists, accounts receivable, work in process and office equipment. See
Note 1 of Notes to Netsmart Technologies, Inc. Consolidated Financial
Statements.

Prior to the acquisition of the assets of Old CSM in June 1994, the
Company was a development stage company and its sole source of revenue was
$57,000 in consulting revenue which it received in 1993. As a result of the
acquisition, the Company's principal business became the sale and license of
health information systems and related services. Following the acquisition, the
Company continued the development of its CarteSmart System software, and, during
the period from the summer of 1994 until mid 1995, it developed certain
enhancements to its health information systems.

An initial version of the Company's CarteSmart technology was first
used in a pilot program in Europe in 1993 by an affiliate of a health insurer in
The Netherlands. In January 1995, the Company introduced its CarteSmart System
in the United States with the implementation of a pilot program in San Diego
County, California. This program involved the issuance of smart cards to
approximately 1,200 mental health patients participating in the California
MediCal Managed Care Initiative. The Company's services relating to the pilot
program were performed principally in 1994 and, to a lesser extent in 1995, and
the Company's revenue from the pilot program was $121,000, of which $90,000 was
earned in 1994 and $31,000 was

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<PAGE>

earned in 1995. The Company is presently performing planning services for San
Diego in connection with its proposed roll-out of a program which is expected to
commence in 1997. The roll-out, if approved and budgeted by the county, would be
a phased roll-out over a two-year period. Although the Company believes that it
will perform services for San Diego County in connection with the proposed
roll-out, no assurance can be given that the roll-out will be approved or, if
approved, that the Company will be engaged to perform such services. The Company
is marketing its CarteSmart Systems to other entitlement programs and
specialized health care organizations, including users of its health information
systems.

In July 1995, the Company entered into an agreement for the
implementation in 1995 of a magnetic stripe identification card system at
Virginia Commonwealth University ("VCU") which uses CarteSmart technology to
enable students to use one card for identification, food service and library
services. The system was implemented in 1995, and generated revenue of $118,000
during that year.

The Company has an agreement with IBN Limited ("IBN") for the license
and implementation of a CarteSmart automated teller machine and point of sale
system in the former Soviet Union. Substantially all of the Company's revenue
from smart card systems during the three months ended March 31, 1996 was
generated by the IBN agreement. As part of the IBN project, the Company is
integrating the Oasis Technology, Ltd. ("Oasis") IST/Share Financial Transaction
Processing System with its own and other third-party products.

In February 1996, a wholly-owned subsidiary of the Company entered into
an agreement with Fiton Business S.A. ("Fiton") pursuant to which the subsidiary
agreed to purchase from Fiton an application software product, known as the SATC
software (the "SATC Software"), which processes retail plastic card transactions
and merchant transactions. The purchase price is $650,000, of which $475,000 has
been paid as of June 30, 1996. The subsidiary will acquire title to the SATC
Software upon payment of the balance of the purchase price, which is due in
September 1996. The subsidiary's obligations are guaranteed by the Company,
Consolidated and Oasis. The Company expects to enter into a joint venture with
Oasis pursuant to which the subsidiary that purchased the SATC Software will
become a joint venture corporation, with 50% of its stock being owned by each of
the Company and Oasis. The SATC Software is designed to perform functions
required by credit card issuers including application processing and tracking,
credit evaluation, credit authorization and the printing of statements. The
Company intends to integrate the SATC Software with both its CarteSmart System
and Oasis' IST/Share software and the joint venture corporation intends to
market the SATC Software to the financial services industry.

The Company is a Delaware corporation, formed in September 1992 under
the name Medical Services Corp., a holding company, whose operations were
conducted by its wholly-owned subsidiary, Carte Medical Corp. In October 1993,
the Company merged its subsidiary into itself and changed its name to Carte
Medical Corporation. In June 1995, the Company's name was changed to CSMC
Corporation, and in February 1996, the Company's name was changed to Netsmart
Technologies, Inc. References to the Company include both the Company, its
former and present subsidiaries, including CSM from June 16, 1994, the date of
the acquisition of the assets of Creative Socio-Medics Corp. ("Old CSM") by
Holdings, unless the context indicates otherwise. References to CSM relate to
the business and operations of both CSM and its predecessor, Old CSM, unless the
context indicates otherwise. Prior to the acquisition of the assets of Old CSM,
Old CSM was engaged in the business in which it is presently engaged, which is
health care systems and related services. The Company's executive offices are
located at 146 Nassau Avenue, Islip, New York 11751, telephone (516) 968-2000.

As of July 29, 1996, approximately 75.7% of the Company's Common Stock
was owned by Holdings, a wholly-owned subsidiary of SIS Capital Corp. ("SISC"),
which is in turn a wholly-owned subsidiary of Consolidated Technology Group Ltd.
("Consolidated"), a public company. See "Certain Transactions," "Principal
Stockholders" and "Selling Security Holders."

The following is a description of the relationships among the Company
and certain related parties, which relationships are described in greater detail
under "Certain Transactions."

Consolidated is a public corporation and owns all of the capital stock
of SISC, which, in turn, owns all of the issued and outstanding capital stock of
Holdings. Holdings is the principal stockholder of the Company. See "Principal
Stockholders." Mr. Lewis S. Schiller, chairman of the board and a director of
the Company, is chairman of the board, chief executive officer and a director of
Consolidated, SISC and Holdings. Another subsidiary of Consolidated, The Trinity
Group, Inc. ("Trinity"), has an agreement with the Company pursuant to which the
Company is to pay Trinity a monthly fee of $15,000 for the three-year period
commencing with the month in which the Company receives the proceeds from this
Offering for general business, management and financial consulting services.

Oasis is an independent software company that markets to the financial
services industry. The Company has a cross-marketing agreement with Oasis and
intends to enter into a joint venture agreement with Oasis with respect to the
SATC Software. Mr. Storm R. Morgan, a director of and consultant to the Company,
is senior vice president of and has an equity interest in, Oasis.

Mr. Morgan is the sole stockholder, a director and officer of SMI, Inc.
("SMI"). The Company has a proposed agreement with SMI pursuant to which the
Company is to pay SMI compensation of $25,000 to $59,000 per month for
management, marketing and technical services to be provided to the Company
through December 31, 2000.

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<PAGE>

THE OFFERING

Securities Offered by
the Company: 562,500 Units at $8.00 per Unit. Each Unit
consists of two shares of Common Stock and one
Series A Redeemable Common Stock Purchase Warrant
the "Warrants"). The shares of Common Stock and
Warrants comprising the Units will be separately
transferable immediately upon issuance.

Securities Offered by
Selling Security Holders: The Prospectus, with a different cover page,
relates to (i) the sale by SISC, Bridge Ventures,
Inc. ("Bridge Ventures") and Saggi Capital Corp.
("Saggi"), (SISC, Bridge Ventures and Saggi, in
their capacities as selling security holders,
being referred to collectively as the "Selling
Warrant Holders") of an aggregate of 800,000
Outstanding Warrants and the sale of the
underlying shares of Common Stock, commencing six
months from the date of this Prospectus or earlier
with the consent of the Company and the
Underwriter, and (ii) the sale by certain note
holders (the "Selling Stockholders") of an
aggregate of 250,000 Units, subject to a one-year
unconditional lock-up. Accordingly, neither the
Units being offered by the Selling Stockholders
nor the securities comprising such Units may be
transferred during the one-year period commencing
on the date of this Prospectus. During the month
following the expiration of such one-year period,
such securities may be sold by the Selling
Stockholders only with the consent of the
Underwriter. The Units to be issued to the Selling
Stockholders are identical to the Units sold to
the public pursuant to this Prospectus. The sales
by the Selling Warrant Holders and the Selling
Stockholders (collectively, the "Selling Security
Holders") are not a part of the underwritten
public offering.

The Outstanding Warrants have an exercise price of
$2.00 per share, expire on December 31, 1999 and
are not redeemable. During the first six months
from the date of this Prospectus, the Outstanding
Warrants may not be exercised and the underlying
shares of Common Stock may not be sold without the
consent of the Company and the Underwriter. During
the 18 months following the expiration of such six
month period, neither the Outstanding Warrants nor
the underlying shares of Common Stock may be sold
without the consent of the Underwriter. The
Outstanding Warrants are not to be publicly sold,
and there is not expected to be any public market
for the Outstanding Warrants. The Outstanding
Warrants provide that, in the event that they are
sold or otherwise transferred pursuant to an
effective registration statement, they expire 90
days from the date of transfer. As a result, any
purchaser of Outstanding Warrants must, within a
short period, either exercise the Outstanding
Warrants or permit them to expire unexercised.

The Selling Warrant Holders and the Selling
Stockholders (collectively, the "Selling Security
Holders") have advised the Company that any sales
of such securities will be made on The Nasdaq
SmallCap Market at prevailing prices or in private
transactions at negotiated prices, except that any
transfer by the Selling Warrant Holders of their
Outstanding Warrants will be made in private
transactions at negotiated prices. See "Selling
Security Holders."

Description of Warrants:

Exercise of Warrants The Warrants are exercisable commencing one year
from the date of this Prospectus. Subject to
redemption by the Company, the Warrants may be
exercised at any time during the two-year period
commencing one year from the date of this
Prospectus at an exercise price of $4.50 per
share, subject to adjustment.

Redemption of Warrants The Warrants are redeemable by the Company
commencing one year from the date of this
Prospectus, with the consent of the Underwriter,
at $.05 per Warrant, on not more than 60 nor less
than 30 days written notice, provided that the
closing bid price of the

- 5 -

<PAGE>

Common Stock is at least $9.00 per share, subject
to adjustment, during 20 consecutive trading days
ending within ten days of the date the Warrants
are called for redemption.

Use of Proceeds: The net proceeds of this Offering will be used to
pay outstanding loans, including loans due to
related parties, and for working capital and other
corporate purposes. See "Use of Proceeds," and
"Interim Financings."

Risk Factors: Purchase of the Units involves a high degree of
risk and substantial dilution, and should be
considered only by investors who can afford to
sustain a loss of their entire investment. See
"Risk Factors" and "Dilution."

Nasdaq Symbols:

Common Stock NTST
Units NTSTU
Warrants NTSTW

Common Stock and Warrants Outstanding:
At the date of this Prospectus:

4,136,253 shares of Common Stock1
3,573,125 Series B Common Stock Purchase
Warrants ("Outstanding Warrants")(2)

As Adjusted(3):

5,786,253 shares of Common Stock1
812,500 Series A Common Stock Purchase
Warrants
3,573,125 Outstanding Warrants

(1) Does not include a maximum of 511,000 shares of Common Stock which may
be issued pursuant to the Company's 1993 Long Term Incentive Plan, of
which stock options to purchase 487,256 shares are outstanding,
3,573,125 shares of Common Stock issuable pursuant to the Outstanding
Warrants, 43,200 shares of Common Stock issuable upon the conversion of
outstanding shares of Series A 4% Convertible Redeemable Preferred
Stock ("Series A Preferred Stock"), 20,737 shares of Common Stock
issuable upon the conversion of outstanding shares of Series B 6%
Redeemable Convertible Preferred Stock ("Series B Preferred Stock"),
25,000 shares of Common Stock to be issued to the Company's asset-based
lender, or any shares of Common Stock issuable upon exercise of the
Warrants, the Underwriter's over-allotment option or Underwriter's
Options or the securities underlying the Underwriter's Options.

(2) There are presently Outstanding Warrants to purchase an aggregate of
1,677,500 shares of Common Stock at $2.00 per share and 1,895,625
shares of Common Stock at $4.00 per share. See "Certain Transactions"
and "Description of Securities -- Series B Common Stock Purchase
Warrants."

(3) Reflects (a) the issuance of the 1,125,000 shares of Common Stock and
562,500 Warrants comprising the Units offered hereby, (b) the issuance
of 500,000 shares of Common Stock and 250,000 Warrants comprising the
Units to be issued to the Selling Stockholders and (c) the issuance of
25,000 shares of Common Stock to the Company's asset-based lender.

- 6 -

<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION

Statement of Operations Data(1):
- --------------------------------
Three Months Ended March 31, Year Ended December 31,
---------------------------- ----------------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $2,560,000 $1,427,000 $7,382,000 $2,924,000 $ 57,000
Net (loss) 1,999,000 (558,000) (2,850,000) (1,751,000) (433,000)
Pro forma adjustments to expense(2) 45,000 684,000
Pro forma net (loss) (2,044,000) (3,534,000)
Pro forma (loss) per share
of Common Stock (.42) (.73)
Weighted average number
of shares outstanding(3) 4,821,528 4,821,528 4,821,528 4,821,528 4,763,028

Balance Sheet Data:
- -------------------
March 31, 1996 December 31,
------------------------------ ------------------------------
As Adjusted(4) Actual 1995 1994
-------------- ------------ ------------ ------------
Working capital (deficiency) $ 217,000 $(3,162,000) $(2,562,000) $(4,037,000)
Total assets 10,238,000 7,999,000 6,390,000 7,193,000
Total liabilities 6,275,000 7,415,000 5,887,000 6,342,000
Redeemable Preferred Stock -- 96,000 96,000 96,000
Accumulated deficit (8,826,000) (7,146,000) (5,147,000) (2,297,000)
Stockholders' equity(5) 4,013,000 488,000 407,000 755,000
Net tangible book value (deficiency)
per share of Common Stock(6) .09 (.73) (.74) (.94)
</TABLE>

(1) Statement of operations data includes the operations of CSM commencing
July 1, 1994.

(2) Reflects the effect on a pro forma basis for the three months ended March
31, 1996 and the year ended December 31, 1995 if certain additional
compensation payable after completion of this Offering were in effect for
such periods. See Notes 11 and 14 of Notes to Netsmart Technologies, Inc.
Consolidated Financial Statements.

(3) All shares of Common Stock issued prior to the date of this Prospectus are
treated as outstanding since inception.

(4) As adjusted to reflect (a) the receipt by the Company of the net proceeds
from the sale of the 562,500 Units offered hereby, (b) the use of a
portion of the proceeds of this Offering to pay certain debt and redeem
the Series B Preferred Stock and (c) the issuance of 250,000 Units to the
Selling Stockholders and 25,000 shares of Common Stock to the Company's
asset-based lender. See "Use of Proceeds," "Capitalization," "Interim
Financings" and "Selling Security Holders."

(5) Stockholders' equity includes $1,250,000 additional paid-in capital
relating to Preferred Stock.

(6) Excludes the amount allocated to the liquidation preferences of the Series
A and D Preferred Stock.

- 7 -

<PAGE>

RISK FACTORS

The purchase of the Units offered hereby involves a high degree of risk
and should be considered only by investors who can afford to sustain the loss of
their entire investment. In analyzing this Offering, prospective investors
should carefully consider the following factors, among others.

1. History of losses; qualified opinion of accountants.
----------------------------------------------------
The Company commenced operations in September 1992. Its sole
source of revenue from inception through June 30, 1994 was approximately $57,000
in consulting fees received during 1993. Commencing July 1, 1994, the Company's
financial statements include the operations of CSM, which was acquired by
Holdings in June 1994. The Company sustained losses of $2.0 million, or $.41 per
share, for the three months ended March 31, 1996, $2.9 million, or $.59 per
share, for the year ended December 31, 1995, $1.8 million, or $.36 per share,
for the year ended December 31, 1994, and $400,000, or $.09 per share, for the
year ended December 31, 1993. From its organization in September 1992 until
March 31, 1996, the Company sustained a cumulative loss of $7.1 million. If
certain additional compensation expenses had been incurred during the three
months ended March 31, 1996 and the year ended December 31, 1995, the Company's
pro forma net loss for such periods would have been $2.0 million, or $.42 per
share, and $3.5 million, or $.73 per share, respectively. See Notes 11 and 14 of
Notes to Netsmart Technologies, Inc. Consolidated Financial Statements. The loss
for the quarter ended March 31, 1996, reflects a non-cash charge of $2.1 million
of compensation expense resulting from the issuance in February 1996 of
Outstanding Warrants at exercise prices below the market price on the date of
grant. See Note 5 of Notes to Netsmart Technologies, Inc. Consolidated Financial
Statements. The Company anticipates that, as a result of the April 1996 grant of
options at exercise prices below the fair market value at the date of grant, it
will incur a similar charge in the amount of $155,000. See Note 17 of Notes to
Netsmart Technologies, Inc. Consolidated Financial Statements. The Company's
independent accountants have included an explanatory paragraph in their report
stating that there is substantial doubt about the ability of the Company to
continue as a going concern.

Substantially all of the Company's revenue through December 31, 1995
and 63.2% of its revenue during the three months ended March 31, 1996, has been
generated from the Company's health information systems and related services. In
order to generate any revenues from its CarteSmart System, the Company must be
successful in licensing its system. CarteSmart revenue is expected to consist
principally of license fees, which are based on the number of cards issued, and
consulting and maintenance revenues relating to the CarteSmart Systems being
installed. Thus, in order for the Company to generate significant revenues from
its CarteSmart System, it must develop a substantial base of smart card users.
The failure of the Company to generate revenues at a level in excess of its
ongoing expenses may force the Company to reduce or cease operations. The
Company is also subject to the risks normally associated with a new business
enterprise, including unforeseeable expenses, delays and complications. No
assurance can be given that the Company can or will ever operate profitably.

Pursuant to the subscription agreements by which the Selling
Stockholders purchased the Company's 8% Promissory Notes due January 31, 1997
(the "January 1996 Interim Notes"), the Company is issuing to the Selling
Stockholders an aggregate of 250,000 Units. The January 1996 Interim Notes are
payable from the proceeds of this Offering. In addition, the Company is to issue
25,000 shares of Common Stock as a fee to its asset-based lender. As a result of
these issuances, the Company will incur at the time of such issuances, which
will be on or about the closing of this Offering, financing costs of $1.6
million and $80,000, respectively, which reflect the value of such securities
and which will have a material impact upon the results of the Company's
operations for 1996.

2. The Company's significant working capital deficiency;
----------------------------------------------------------------
delinquency on payment to vendors.
----------------------------------
As of March 31, 1996, the Company had a working capital
deficiency of approximately $3.2 million. The Company's assets at March 31, 1996
include intangible assets of $4.0 million relating to customer lists purchased
as part of the acquisition of Old CSM ($3.4 million) and the SATC Software
($650,000). The customer lists reflect clients which, at the time of the June
1994 acquisition of the assets of Old CSM, used CSM's health information systems
or other services provided by CSM. The value of these assets, which represent
approximately 50.2% of total assets at such date, is dependent upon the ability
of the Company to generate revenues, including revenues from the CarteSmart
System, from such customer base and to generate revenue from applications using
the SATC Software.

As a result of the Company's working capital deficiency, the Company
was increasingly delinquent in payments to vendors. Accounts payable to vendors
increased to $1.6 million at March 31, 1996 from $1.2 million at December 31,
1995. The delinquency for vendors deemed critical to the Company's operations is
generally less than 60 days, and the delinquency for other vendors was in excess
of 90 days.

- 8 -

<PAGE>

3. Substantial capital requirements of the Company.
------------------------------------------------
The Company's operations through 1994 were financed
principally by SISC, the parent of Holdings, which is the principal stockholder
of the Company, and DLB, Inc. ("DLB"). Old CSM's operations from January 1994
until the acquisition in June 1994 were financed principally by SISC. Mr. Lewis
S. Schiller, chairman of the board of directors of the Company, is the chief
executive officer of SISC. SISC is a wholly-owned subsidiary of Consolidated, of
which Mr. Schiller is chief executive officer. DLB is controlled by Mr.
Schiller's wife, although Mr. Schiller disclaims any beneficial interest in DLB.
In April 1994, SISC purchased the Company's obligations to DLB from DLB.

At September 30, 1995, prior to the recapitalization of debt by SISC,
the Company owed SISC approximately $3.0 million and interest of approximately
$388,000. As of September 30, 1995, SISC converted the $388,000 of accrued
interest into 1,125,000 shares of Common Stock, reflecting a price of $.345 per
share, and exchanged $2.2 million principal amount of debt for 2,210 shares of a
new series of Preferred Stock, the Series D 6% Redeemable Cumulative Preferred
Stock ("Series D Preferred Stock"), which has a redemption price of $2.2
million. In January 1996, SISC exchanged 1,000 shares of Series D Preferred
Stock for 1,125,000 shares of Common Stock, reflecting a purchase price of $.89
per share, which reduced the aggregate redemption price of the Series D
Preferred Stock to $1.2 million. The remaining $750,000 is represented by the
Company's 10% subordinated note due January 1997. The $750,000 note is payable
from the proceeds of this Offering, however, SISC has agreed not to require any
payment from the proceeds of this Offering except from the proceeds of the
over-allotment option, if the over-allotment option is exercised. SISC has not
made any additional advances to the Company subsequent to September 30, 1995.
However, SISC may make advances to the Company in the future.

Since January 1995, the Company's principal source of funds has been an
accounts receivable financing agreement and interim loans from nonaffiliated
accredited investors. In February 1995, the Company entered into an accounts
receivable financing with an asset-based lender. Borrowings under this facility
were $972,000 at March 31, 1996 and $958,000 at August 8, 1996. The Company can
borrow up to 75% of eligible receivables, and it pays interest at the greater of
18% per annum or prime plus 8% and a fee equal to 1% of the amount of the
invoice. In March 1996, the maximum borrowing under the agreement was increased
from $750,000 to $1.0 million and the percentage of eligible receivables was
increased from 75% to 80%. These higher levels of borrowing capacity will
continue in effect until the Company either completes this Offering or raises
$350,000 in a private placement of securities, at which time the lower levels
will be restored. In addition, the Company will be required to pay the lender a
$25,000 fee at the closing of this Offering or such other financing and issue to
the lender 25,000 shares of Common Stock. The Company's obligations under this
facility are guaranteed by Messrs. Lewis S. Schiller and Leonard M. Luttinger,
the chairman of the board and chief executive officer, and the chief operating
officer, respectively, of the Company. In addition, two officers of CSM,
including Mr. Anthony F. Grisanti, chief financial officer of the Company, have
issued their limited guaranty to the lender.

In January 1996, the Company borrowed $500,000 and issued January 1996
Interim Notes, which are due on January 31, 1997 or earlier upon the completion
of this Offering. The proceeds from the issuance of the January 1996 Interim
Notes were used to make the initial payment with respect to the purchase of SATC
Software, for working capital and to pay expenses relating to this Offering. See
"Interim Financings" and "Selling Security Holders."

The purchase price for the SATC Software is $650,000, of which $325,000
was due and was paid at the time of the execution of the agreement in February
1996. The remaining $325,000 is due in three installments during 1996 of which
two installments of $75,000 each were paid by Oasis. The Company has an
agreement with Oasis pursuant to which Oasis will pay the remaining $325,000 as
part of its contribution to the joint venture. However, the Company has a direct
obligation to the seller to make the payments, and, in the event that Oasis
fails to make the payments, the Company will be required to make the remaining
payment of $175,000, which is due in September 1996. The obligations are also
guaranteed by Consolidated and Oasis. The Company and Oasis have not finalized
their joint venture agreement.

The Company has a proposed agreement with SMI Corporation ("SMI")
pursuant to which the Company pays SMI compensation of $25,000 to $59,000 per
month, for which SMI will provide the services of Mr. Morgan from time to time
on an as-needed basis and up to four other persons to serve in management-level
or other key positions for the Company on a full-time basis. Mr. Morgan is not
required to devote any minimum amount of time to the business of the Company.
The agreement continues until December 31, 2000. The proposed agreement also
contemplates payment of 6% of smart card and related revenues generated by the
Company. Pursuant to an agreement with SMI, the Company is to pay SMI a fee of
$250,000 for services in connection with the Company's agreement with IBN, of
which $50,000 is payable from the proceeds of this Offering. See "Use of
Proceeds" and "Certain Transactions."

Mr. Storm R. Morgan, a director of the Company, is senior vice
president of and has an equity interest in Oasis and is sole stockholder, a
director and officer of SMI. See "Certain Transactions."

- 9 -

<PAGE>

Pursuant to employment agreements with five officers of the Company and
its subsidiaries, the Company is paying for 1996 base salaries of $442,500. In
addition, the Company is paying its president, Mr. James L. Conway, an annual
salary of $52,000, and it has an agreement to pay Trinity, a wholly-owned
subsidiary of Consolidated, consulting fees of $180,000 per annum. See
"Management" and "Certain Transactions." The aggregate annual payments under
such agreements at the present rates of compensation are $674,000. If the
monthly payments to SMI are included, the total compensation payable to such
persons at a present annual rate ranges from $974,000 (based on $25,000 per
month payable to SMI) to $1.4 million (based $59,000 per month payable to SMI),
in addition to 6% of the Company's revenue from smart card and related services.
To the extent that the Company does not generate sufficient cash flow from its
operations, a portion of the proceeds of this Offering may be used for such
purposes. Furthermore, if the fees payable to SMI in connection with the
purchase of the SATC Software and the agreement with IBN are included, the total
annualized defined payments to such persons would range from $1.2 million to
$1.6 million. See "Use of Proceeds."

Although the Company believes that the proceeds from this Offering will
enable it to operate for one year from the date of this Prospectus, it is
possible that conditions may arise as a result of which the Company may require
additional capital prior to one year from the date of this Prospectus, and no
assurance can be given that the Company will be able to obtain any or adequate
funds when required or that any funds available to it will be on reasonable
terms. The failure to obtain necessary funds could result in the reduction or
cessation of operations by the Company.

4. Limited use of CarteSmart software; need to customize software.
---------------------------------------------------------------
As of December 31, 1995, except for a pilot program with an
initial version of the CarteSmart System in Europe in 1993 and a recent pilot
project in San Diego County, California, the CarteSmart System has not been used
by customers for any significant period of time. A pilot program is designed to
prove the technology without any commitment by the contracting party to the full
implementation of the program. The Company has an agreement with the Albert
Einstein School of Medicine pursuant to which the smart card interface to the
previously installed health information system is scheduled to be installed
during the third quarter of 1996, and the Company has an agreement with IBN to
develop a CarteSmart System based installation, for which the initial module was
delivered in May 1996. The failure of the Company to have an established
customer base may adversely affect its ability to market the CarteSmart System.
The ability of the CarteSmart System to operate profitably over an extended
period of time is dependent upon a number of factors not within the control of
the Company, including the performance of the cards and card readers and the
hardware used, all of which are purchased by the users of the CarteSmart System
from independent sources. Since the Company does not sell smart cards or smart
card readers as part of its products and services, the Company must rely upon
others to provide hardware which meets the Company's specifications. No
assurance can be given that the Company's software will function during actual
operations in the manner contemplated by the Company or that it will operate
free from maintenance or other performance problems for sustained periods of
time.

Although the Company's CarteSmart System software has general
application, its experience with each of its four CarteSmart clients reflects a
need to customize the software to meet the specific needs of the client.
Although the customization need not be significant, each user has its unique
requirements that must be met. These requirements may include the need to enable
the CarteSmart System to interface with the client's existing systems to the
development of a range of software products to meet needs which are not
presently being served. Although the Company believes that its CarteSmart
software can be readily adapted to meet the needs of its clients, no assurance
can be given as to the ability of the Company to meet specific client
requirements. Furthermore, the costs of customization may be significant, and,
to the extent the Company has fixed price contracts, there can be no assurance
that the Company will be able to generate profits from its CarteSmart
agreements.

5. Effect of technological advances; possible obsolescence.
--------------------------------------------------------
Users of software systems such as the Company's CarteSmart
System and its health information systems require software which enables the
storage, retrieval and processing of very large quantities of data and demand
instantaneous communications among the various data bases. Thus, the Company's
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 the future of the Company may be dependent upon its
ability to have access to and to develop or obtain rights to products utilizing
such technology. It is possible that new technology may develop in a manner
which may make the Company's software obsolete. The failure of the Company to
obtain access to such technology could have a material adverse effect upon the
Company's future development.

6. Default on notes and bank debt; prior default on tax
----------------------------------------------------
obligation, and possible claim relating to CSM.
-----------------------------------------------
In July and August 1993, the Company issued notes (the
"Interim Notes") in the principal amount of $216,000. The Interim Notes matured
in October and November 1993, and the Company is in default on the Interim
Notes. As of June 30, 1996, Interim Notes in the principal amount of $135,000
were outstanding. In December 1994, the Company issued notes (the "December 1994
Interim Notes") in the principal amount of $200,000, payment of which was
guaranteed by Consolidated. The Company

- 10 -

<PAGE>

has paid $67,000 principal amount of the December 1994 Interim Notes and the
Company and Consolidated are in default with respect to the remaining $133,000.
The Interim Notes and December 1994 Interim Notes are to be paid from the
proceeds of this Offering. See "Use of Proceeds."

Prior to April 1994, the Company had failed to pay certain withholding
taxes which, together with interest and estimated penalties, were estimated at
$334,000. Payment of the estimated withholding tax obligation and interest,
totalling approximately $300,000, was made in April 1994 from an advance made by
SISC for such purpose.

As of March 31, 1996, the Company had outstanding bank debt of $29,000,
representing bank debt incurred by CSM prior to the acquisition. As of July 31,
1996, such debt has been paid. These obligations are treated as demand notes at
March 31, 1996. The loan agreement relating to such loans requires CSM and its
parent to maintain consolidated working capital of $450,000 and tangible net
worth of at least $1.3 million. CSM was not in compliance with these covenants.
The bank loans were assumed by the Company in connection with the acquisition of
CSM. CSM is also delinquent in payments aggregating approximately $138,000 under
various equipment leases and its office lease although none of the lessors have
declared a default. CSM has executed a confession of judgment as a result of
default under a hardware purchase agreement. As of December 31, 1995 and June
30, 1996, $28,000 and $21,000, respectively, was due on the obligation
underlying the confession of judgment.

In June 1994, Holdings acquired the assets of Old CSM. A portion of the
purchase price consisted of shares of Consolidated common stock, which were
issued to Old CSM, a wholly-owned subsidiary of Advanced Computer Techniques,
Inc. ("ACT"). The Company has been advised by ACT that certain of its security
holders have expressed concern about the current market price of the
Consolidated common stock which was issued to Old CSM as part of the purchase
price for Old CSM's assets as a result of a substantial decline in the price of
such common stock since the assets of Old CSM were acquired by Holdings in June
1994. Although no formal or informal claim has been made against Consolidated,
Holdings or the Company and the Company does not believe that it has any
liability arising out of any such concern or related claim, no assurance can be
given that the Company, Holdings, Consolidated or their officers and directors
will not be subject to liability or that such liability will not be material.

7. Onecard litigation.
--------------------
On or about September 29, 1995, an action was commenced
against the Company by the filing of a summons with notice in the Supreme Court
of the State of New York, County of New York. The action was commenced by Jacque
W. Pate, Jr., Melvin Pierce, Herbert A. Meisler, John Gavin, Elaine Zanfini,
individually and derivatively as stockholders of Onecard Health Systems
Corporation and Onecard Corporation, which corporations are collectively
referred to as "Onecard." The named defendants include, in addition to the
Company, Messrs. Lewis S. Schiller, chief executive officer and a director of
the Company, Leonard M. Luttinger, chief operating officer of the Company,
Thomas L. Evans, vice president of the Company, Holdings, the Company's
principal stockholder, Consolidated, and other stockholders of the Company and
other individuals who were or may have been officers or directors of Onecard but
who have no affiliation with the Company or Consolidated. Mr. Luttinger and Mr.
Evans were employees of Onecard prior to the formation of the Company. Mr.
Schiller was not an employee or director of, consultant to, or otherwise
affiliated with, Onecard. A complaint was served on November 15, 1995. The
complaint makes broad claims respecting alleged misappropriation of Onecard's
trade secrets, corporate assets and corporate opportunities, breach of fiduciary
relationship, unfair competition, fraud, breach of trust and other similar
allegations, apparently arising at the time of, or in connection with, the
organization of the Company in September 1992. The complaint seeks injunctive
relief and damages, including punitive damages, of $130 million. The Company
believes that the action is without merit, and it will vigorously defend the
action. The Company's view that the complaint is without merit is based on the
difference in the technology used in the Onecard software and the Company's
CarteSmart software and the type of computer network on which the software
operates. The Company has filed an answer denying all of the plaintiffs'
allegations and has filed a motion to dismiss the complaint, which motion has
not been decided by the Court. However, no assurance can be given as to the
ultimate disposition of the action, and an adverse decision may have a material
adverse effect upon the business of the Company.

8. Dependence upon contracts with government agencies.
---------------------------------------------------

The Company's health information systems are marketed
principally to specialized care facilities, many of which are operated by
government entities and include entitlement programs. During the three months
ended March 31, 1996 and the years ended December 31, 1995, 1994 and 1993,
approximately 30%, 54%, 49% and 47%, respectively, of CSM's revenues was
generated from contracts with government agencies. The Company's largest
customer for the three months ended March 31, 1996 was IBN, which generated
revenue of $933,000, or 36.4% of revenue for the quarter. The Company's largest
customer for 1995 was the State of Colorado, which accounted for approximately
$1.4 million, or 18.5% of revenue. CSM's largest customer for 1994 was Cuyahoga
County, Ohio, which accounted for 5.5% of its revenue. No other customers
accounted for 5% or more of the Company's or CSM's revenues in any of such
periods. Contracts with government agencies generally include provisions which
permit the contracting agency to cancel the contract at its convenience.

- 11 -

<PAGE>

9. Competition.
------------

The Company markets health information software and services
and licenses software in the health and human services market. Its customers in
such market include entitlement programs, managed care organizations, specialty
care facilities and other major computer users which have a need for access over
a distributed data network. The Company has recently commenced marketing and
developing software products for the financial services and education markets.
The software industry in general is highly competitive. In addition, with
technological developments in the communications industry, it is possible that
communications as well as computer and software companies may offer similar or
comparable services to those offered by the Company. Although the Company
believes that it can provide its clients with software to enable them to perform
their services more effectively, other companies, including major computer and
communications companies, have the staff and resources to develop competitive
systems, and users, such as insurance and financial services companies, have the
ability to develop software systems in-house. In the health care field various
companies offer and promote smart card programs by which a person can have his
or her medical records stored, and software vendors and insurance companies have
developed software to enable a physician or other medical care provider to have
direct access to the insurer's computer and other software designed to enable a
physician to maintain patient health and/or medication records. The Company
believes the health insurance industry is developing switching software to be
used in transmitting claims from health care providers to the insurers, and it
may also develop the software to process such claims, which would compete with
certain functions of the CarteSmart System. Major systems and consulting
vendors, such as Unisys Corporation ("Unisys"), AT&T Corp. and Andersen
Worldwide, have provided smart card based solutions to their clients and they
offer other software systems in the industries to which the Company is marketing
its products and services. Furthermore, the recently announced joint venture
among Visa, MasterCard and certain major banks relating to the development of a
smart card based system may have an adverse effect upon the ability of the
Company to market smart card products to the financial services industry. No
assurance can be given that the Company will be able to compete successfully
with such competitors.

The health information systems business, in which the Company has
derived substantially all of its revenue through December 31, 1995, is highly
competitive, and is serviced 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 the Company, and no assurance can be given
that the Company will be able to compete effectively with such companies. Major
vendors of health information systems include Shared Medical Systems Corp. and
HBO Corp. The Company believes that price competition is a significant factor in
its ability to market its health information systems and services. In marketing
its products and services to the financial services industry, the Company
competes with numerous software vendors as well as major banks, credit card
issuers and other financial services companies which have the resources to
develop competing products. Competition for the education market includes not
only major software developers but credit card issuers and telecommunications
companies that can market their products not only to the institutions but to the
students as well. See "Business -- Competition."

10. Dependence on management.
-------------------------
The Company's business is largely dependent upon its senior
executive officers. The Company's chief operating officer is Mr. Leonard M.
Luttinger. Mr. Thomas L. Evans, vice president, is responsible for smart card
product development. Mr. John F. Phillips has been responsible for CSM's
marketing, and is continuing to perform such duties for the Company. Mr. Storm
R. Morgan, a consultant and a director of the Company, together with SMI, will
have responsibilities with respect to CarteSmart products. The Company has
employment agreements with Messrs. Luttinger, Thomas L. Evans, Edward D. Bright,
John F. Phillips and Anthony F. Grisanti, who are chief operating officer of the
Company, vice president of the Company, vice president of CSM, president of CSM
and chief financial officer of the Company, respectively. The Company also has a
consulting arrangement and proposed agreement with SMI, a corporation owned by
Mr. Morgan, and an agreement with Trinity, a wholly-owned subsidiary of
Consolidated. The loss of service of key management personnel or other key
employees would have a material adverse effect upon the Company's business and
prospects. Furthermore, the market for qualified personnel is highly
competitive, the Company will compete with some of the major computer,
communications and software companies as well as major corporations hiring
in-house staff in seeking to hire such employees, and no assurance can be given
as to the ability of the Company to employ such persons. The Company anticipates
that it will continue to be largely dependent upon Mr. Evans for product
development and enhancement and Messrs. Luttinger, Morgan and Phillips for
marketing. Pursuant to the underwriting agreement, the Company has agreed to use
its best efforts to obtain key man life insurance in the amount of $1,000,000 on
the lives of each of Messrs. Conway, Luttinger and Evans. See "Underwriting."

11. Lack of patent protection.
--------------------------
The Company has no patent protection for its proprietary
software, including the CarteSmart System. Although the Company has signed
non-disclosure agreements with its employees and others to whom it discloses
proprietary information, no assurance can be given that such protection will be
sufficient. The unauthorized use or disclosure of the Company's proprietary
software and other proprietary information may have a materially adverse effect
upon its business. Furthermore, although the Company's software was developed
independent of any work performed by its employees for former employers, an
action has been commenced against the Company, certain of its officers and
others. The complaint makes broad claims respecting alleged misapproriation of
Onecard's trade secrets, corporate assets and corporate opportunities, breach of
fiduciary relationship, unfair competition, fraud, breach of trust and other
similar allegations, apparently arising at the time of, or in connection with
the organization of the Company in September 1992. The complaint seeks
injunctive relief and damages, including punitive damages, of $130 million.

- 12 -

<PAGE>

The Company believes that the action is without merit, and it will vigorously
defend the action. The Company's view that the complaint is without merit is
based on the difference in the technology used in the Onecard software and the
Company's CarteSmart software and the type of computer network on which the
software operates. An adverse decision in the Onecard litigation could have a
material adverse effect upon the Company's business and financial condition. See
"Risk Factors 7. -- Onecard litigation."

12. Effect of government regulations of health care industry.
---------------------------------------------------------
Substantially all of the Company's revenue has been derived
from its health information systems, including the CarteSmart interface. 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, and the effect of future regulations by governments and payment
practices by government agencies or health insurers cannot be predicted. To the
extent that the health care industry evolves with more government sponsored
programs and fewer privately run organizations, the Company's 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 the Company to
modify its health information systems which are in operation to meet any new
record-keeping or other requirements imposed by changes in regulations, and no
assurance can be given that the Company will be able to generate revenues
sufficient to cover the costs of developing the modifications. In addition,
reductions in funding for entitlement programs may adversely affect the market
for the Company's health information systems and services.

13. Conflicts of interest; proceeds to benefit affiliates.
------------------------------------------------------
As of September 30, 1995, prior to the recapitalization of
debt by SISC, the Company owed SISC approximately $3.0 million and interest of
$388,000. The total advances to the Company include approximately $300,000 used
to pay withholding taxes and interest, $500,000 to fund the cash portion of the
purchase price of CSM and $330,000 for advances to Old CSM during the period
from January to June 1994. SISC, either directly or through Holdings, may in the
future make advances to the Company. As of September 30, 1995, SISC converted
the accrued interest into 1,125,000 shares of Common Stock, and exchanged $2.2
million for 2,210 shares of Series D Preferred Stock, which is redeemable under
certain conditions at $1,000 per share. The remaining $750,000 is represented by
the Company's 10% note due January 1997 or earlier upon completion of the
Company's initial public offering. SISC has agreed not to require any payment
from the proceeds of this Offering unless the over-allotment option is
exercised, in which event a portion of the proceeds from the exercise of the
over-allotment option may be used for such purposes.

Mr. Lewis S. Schiller, chairman of the board and a director of the
Company, is the chairman of the board of a number of other corporations,
including Consolidated and other companies owned or controlled by Consolidated.
As of July 29, 1996, Holdings, the largest stockholder of the Company, owned
approximately 75.7% of the outstanding Common Stock of the Company and, as a
result, has the ability to elect all of the directors of the Company. Holdings
was organized in June 1994 by SISC to hold SISC's equity interest in the Company
and CSM prior to the transfer of CSM stock to the Company, which was effected at
September 30, 1995. As a result of SISC's stock ownership and Mr. Schiller's
position as chairman of the board, SISC has effectively determined the terms and
conditions of any transactions between the two companies, including the number
and price of shares issued to Holding and terms of warrants and other securities
issued to SISC, and SISC and Holdings continue to have this power. Mr. Schiller
devotes only a limited amount of his time to the business of the Company. Mr.
Schiller does not have an employment agreement with the Company; however, the
Company has an agreement with Trinity, a wholly-owned subsidiary of
Consolidated, pursuant to which the Company will pay Trinity fees of $15,000 per
month for the three-year period commencing with the month in which the Company
receives the proceeds from this Offering. Prior to such time, no compensation or
fees will be paid or accrued to Mr. Schiller, Consolidated, SISC or any other
subsidiary of Consolidated. Pursuant to an employment agreement between Mr.
Schiller and Consolidated, Mr. Schiller has the right to purchase 10% of SISC's
equity position in its subsidiaries, including the Company, for 110% of SISC's
cost. Pursuant to this agreement, in December 1995 and January 1996, Mr.
Schiller exercised his option to purchase 373,507 shares of Common Stock. See
"Certain Transactions."

As of August 8, 1996, the Company owed its asset-based lender
approximately $958,000 under an accounts receivable financing arrangement. The
proceeds of this loan were used to pay $90,000 to the Company's bank, to pay
$67,000 plus interest to the holders of the December 1994 Interim Notes, for
working capital and for other corporate purposes. The Company's obligations to
the asset based lender are guaranteed by Messrs. Lewis S. Schiller and Leonard
M. Luttinger, chief executive officer and chief operating officer, respectively,
of the Company. In addition, two officers of CSM, including Mr. Anthony F.
Grisanti, chief financial officer of the Company, have issued their limited
guaranty to the lender. The limited guaranty, which was required by the lender
as a condition to making the loan, applies in the event that the lender incurs
losses are a result of an account receivable not being a bona fide receivable or
the Company failing promptly to pay over to the asset-based lender the proceeds
from receivables which are received by the Company. The Company does not believe
that any of its receivables are not bona fide.

- 13 -

<PAGE>

The Company has a proposed agreement with SMI pursuant to which the
Company pays SMI compensation of between $25,000 to $59,000 per month, for which
SMI will provide the services of Mr. Morgan from time to time on an as-needed
basis and up to four other persons to serve in management-level or other key
positions for the Company on a full-time basis. The proposed agreement continues
until December 31, 2000. The proposed agreement also contemplates the payment to
SMI of 6% of smart card and related revenues generated by the Company. Pursuant
to the proposed agreement, the Company is to pay SMI fees of $250,000 for
services in connection with the Company's agreement with IBN, and $50,000 of
such fees is payable from the proceeds of this Offering. See "Use of Proceeds."
See "Certain Transactions" with respect to Outstanding Warrants issued to Mr.
Morgan and employees of SMI.

The holders of the Company's Series B Preferred Stock have the right,
following the completion of the Company's initial public offering, to demand
redemption of the Series B Preferred Stock at $1,200 per share. SISC, Mr. E.
Gerald Kay, a director, and Mr. Harris Freedman, a founder, hold 40, 20 and 20
shares, respectively, of Series B Preferred Stock and each of them would be
entitled to demand redemption of his Series B Preferred Stock for $1,200 per
share. The Series B Preferred Stock will be redeemed from the proceeds of this
Offering at a redemption price of $96,000, in which event past dividends will be
waived.

CSM borrowed funds from time to time from ACT, the parent of Old CSM.
See "Business -- Acquisition of CSM." Messrs. John F. Phillips, a director of
the Company and vice president of CSM, and Edward D. Bright, president of CSM,
are directors of ACT. As of March 31, 1996 and May 20, 1996, the Company owed
ACT $232,000 and $256,000, respectively.
A portion of the proceeds of this Offering will be used to pay such obligation.

Pursuant to employment, consulting and other agreements with officers
and other related parties, the total annualized defined payments to such persons
would range from $1.2 million to $1.6 million, of which $50,000 is to be paid
from the proceeds of this Offering. To the extent that the Company does not
generate cash flow from operations sufficient to enable it to make such payments
from cash flow, a portion of the proceeds of this Offering allocated to working
capital may be used for such purposes. See "Use of Proceeds."

14. Continued control by SISC and management.
-----------------------------------------
At July 29, 1996, 78.0% of the outstanding shares of Common
Stock were owned by Holdings (75.7%) and Mr. Lewis S. Schiller (2.3%), chief
executive officer of the Company and of Holdings, and 84.8% of such shares were
owned by the Company's officers and directors and their affiliates, including
Holdings. Mr. Schiller, as the chief executive officer of Consolidated, SISC and
Holdings, has the right to vote the shares owned by Holdings and SISC. If the
shares owned by DLB, which is controlled by Mr. Schiller's wife, are included,
the percentage would be 90.5%. Upon the sale of the 562,500 Units offered
hereby, and the issuance of the 250,000 Units to the Selling Stockholders,
Holdings and Mr. Schiller would own 56.0% of the Common Stock, all officers and
directors as a group would own 61.1% and all officers and directors and DLB
would own 65.2%. In addition, SISC holds Outstanding Warrants to purchase
835,000 shares of Common Stock at $2.00 per share and 650,000 shares of Common
Stock at $4.00 per share. Accordingly, SISC, which owns Holdings, and Mr.
Schiller, who is the chief executive officer of SISC, will continue to be able
to elect all of the directors and will thus be able to continue to control the
Company.

15. Broad discretion as to use of proceeds; potential unspecified
-------------------------------------------------------------
acquisitions and change in use of proceeds.
-------------------------------------------
Approximately $2.2 million, representing approximately 63.5%
of the net proceeds of this Offering, are allocated to working capital and other
corporate purposes. Accordingly, management will have broad discretion with
respect to the expenditure of the net proceeds of this Offering. Purchasers of
the Units offered hereby will be entrusting their funds to the Company's
management, upon whose judgment the investors must depend, with only limited
information concerning management's specific intentions. The Company may enter
into joint ventures, acquisitions or other arrangements, such as joint marketing
arrangements and licensing agreements, which the Company believes would further
the Company's growth and development. No assurance can be given as that any such
agreements will result in additional revenue or net income for the Company. See
"Use of Proceeds" and "Business -- Potential Business Agreements."

Notwithstanding its plan to develop its business as described in this
Prospectus, future events, including the problems, expenses, difficulties,
complications and delays frequently encountered by businesses, as well as
changes in the economic climate or changes in government regulations, may make
the reallocation of funds necessary or desirable. Any such reallocation will be
at the discretion of the Board of Directors. Accordingly, in the event that the
Company determines that it is unable to develop a profitable business as
described in this Prospectus, the Company may engage in other, unrelated
businesses and use a portion of the proceeds of the Offering for such purpose.
However, the Company has no such intention at this time. No assurance can be
given that any such businesses can or will be profitably operated.

- 14 -

<PAGE>

16. No public market.
-----------------
Prior to this Offering, there has been no public trading
market for the Company's securities. Although the Company has applied to have
the Common Stock, Units and Warrants included in The Nasdaq SmallCap Market,
there can be no assurance that an active market in any of such securities will
develop or, if such a market develops, that it will be sustained.

17. Arbitrary offering price and terms.
-----------------------------------
The composition and price of the Units and the terms of the
Warrants offered hereby have been determined by negotiations between the Company
and the Underwriter, and do not necessarily bear any relation to the results of
the Company's operations or its financial condition or any other indicia of
value.

18. Possible restrictions on market-making activities in Company's
--------------------------------------------------------------
securities.
-----------
The Underwriter has advised the Company that it intends to
make a market in the Company's securities. Rule 10b-6 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), may prohibit the
Underwriter from engaging in any market-making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Underwriter of the exercise of Warrants until the later of the termination of
such solicitation, activity or the termination (by waiver or otherwise) of any
right that the Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation

As a result, the Underwriter may be unable to provide a market for the
Company's securities during certain periods while the Warrants are exercisable.
In addition, under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Security Holders' securities
may not simultaneously engage in market-making activities with respect to any
securities of the Company for the applicable "cooling off" period (at least two
and possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Underwriter is engaged in a distribution of the
Selling Security Holders' securities, it will not be able to make a market in
the Company's securities during the applicable restrictive period. Any temporary
cessation of such market-making activities could have an adverse effect on the
market price of the Company's securities. See "Selling Security Holders" and
"Underwriting."

19. Possible delisting from The Nasdaq System and market
----------------------------------------------------
illiquidity.
------------
In order for the Common Stock, Units and Warrants to be
included in The Nasdaq SmallCap Market, the Company must, after giving effect to
the completion of this Offering, have a net worth of at least $2 million and
total assets of at least $4 million. The Company expects that it will meet the
listing requirements for The Nasdaq SmallCap Market upon completion of this
Offering and that the Company's Common Stock, Warrants and Units will be
initially included in The Nasdaq SmallCap Market. If the Company is unable to
satisfy Nasdaq's requirements for continued listing, the Common Stock, Warrants
and Units may be delisted from The Nasdaq SmallCap Market. In such event,
trading, if any, in such securities would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the Nasdaq's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions,
reduction in security analysts' and the news media's coverage of the Company,
and lower prices for the Company's securities than might otherwise be attained.

A significant number of the Units may be sold to customers of the
Underwriter. Such customers may subsequently engage in the sale or purchase of
the securities through or with the Underwriter. Although they have no obligation
to do so, the Underwriter may become market makers and otherwise effect
transactions in securities of the Company, and, if they participate in such
market, may be dominating influences in the trading of the securities. The
prices and the liquidity of the securities may be significantly affected by the
degree, if any, of the participation of the Underwriter in such market, should a
market arise.

20. Risks of low-priced stocks; penny stock regulations.
----------------------------------------------------
If the Company's securities were delisted from The Nasdaq
SmallCap Market (See "Risk Factors -- 19. Possible delisting of securities from
The Nasdaq System and market illiquidity") they may become subject to Rule 15g-9
under the Exchange Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and institutional accredited investors. For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may affect the ability of broker-dealers
to sell the Company's Common Stock and Warrants and may affect the ability of
purchasers in this Offering to sell any of the Common Stock or Warrants acquired
pursuant to this Prospectus in the secondary market.

The Commission's regulations define a "penny stock" to be any equity
security that has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Company's Common
Stock, Units and Warrants if the Common Stock is listed on The Nasdaq SmallCap
Market and has certain price and volume information provided on a current and
continuing basis

- 15 -

<PAGE>

or meet certain minimum net tangible assets or average revenue criteria. There
can be no assurance that the Company's securities will qualify for exemption
from these restrictions. If the Company's Common Stock or Warrants were subject
to the rules on penny stocks, the market liquidity for the Common Stock or
Warrants could be severely adversely affected.

21. Potential adverse effect of redemption of Warrants.
---------------------------------------------------
Commencing one year from the date of this Prospectus, with the
consent of the Underwriter, the Warrants may be redeemed by the Company at a
redemption price of $.05 per Warrant upon not more than 60 nor less than 30
days' notice if the closing price of the Common Stock is at least $9.00, subject
to adjustment, during the 20 consecutive trading days ending within ten days of
the date of the Warrants are called for redemption. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price
therefor at a time when it may be disadvantageous for the holder to do so, to
sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which, at the time
the Warrants are called for redemption, is likely to be substantially less than
the market value of the Warrants. The Company will not call the Warrants for
redemption except pursuant to a currently effective prospectus and registration
statement. See "Description of Securities -- Series A Redeemable Common Stock
Purchase Warrants."

22. Current prospectus and state registration required to exercise
--------------------------------------------------------------
Warrants.
---------
Holders of the Warrants will only be able to exercise the
Warrants if (a) a current prospectus under the Securities Act relating to the
shares of Common Stock issuable upon exercise of the Warrants is then in effect
and (b) such securities are qualified for sale or exemption from qualification
under the applicable securities laws of the states in which the various holders
of Warrants reside. Although the Company has undertaken to use its best efforts
to maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise of any Warrants
subsequent to nine months from the date of this Prospectus. Prior to the
expiration of nine months from the date of this Prospectus, it may be necessary
to amend or supplement this Prospectus under certain conditions, in which event
the Warrants could not be exercised prior to the date of the amended Prospectus
or supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
refunded by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside. See
"Description of Securities -- Series A Redeemable Common Stock Purchase
Warrants."

The Company has registered or qualified the Warrants for sale in a
limited number of states. The Underwriter anticipates that it will be permitted
to sell the Units in the following states: California, Colorado, Connecticut,
Delaware, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland, Michigan, New
York, Rhode Island and Utah. There is no assurance that, at the time a holder of
Warrants desires to exercise the Warrants, that such holder will reside in a
state in which the underlying Common Stock may be issued, even if the
Underwriter is able to sell the Units in such states. Although the Company is
not aware of any states which prohibit the registration or qualification of
securities of the type offered by the Company and anticipates that it will
qualify for available after-market exemptions in a majority of states within
several months after the completion of the Offering, there can be no assurance
that an exception permitting the exercise of the Warrants will be available in
any jurisdiction other than those in states which the Common Stock and Warrants
were initially registered or are exempt from registration at the time a holder
seeks to exercise Warrants.

23. No Common Stock dividends anticipated.
--------------------------------------
The Company presently intends to retain future earnings, if
any, in order to provide funds for use in the operation and expansion of its
business and, accordingly, does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company is required to pay annual
dividends of $1,600 per annum, commencing March 1, 1994, with respect to the
Series A Preferred Stock and of $5,760 per annum, commencing March 1, 1994, with
respect to the Series B Preferred Stock, which may be paid in cash or in shares
of Common Stock. The Company did not pay the dividends due March 1, 1994, 1995
or 1996. As of the date of this Prospectus, the aggregate dividend arrearages
were approximately $22,000. The Series B Preferred Stock is to be redeemed from
the proceeds of this Offering, and payment of accrued dividends is being waived.
Dividends on the 1,210 shares of Series D Preferred Stock are payable at the
annual rate of $72,600 in equal semi-annual installments commencing with the
first April 1 or October 1 following the closing of this Offering. Dividends on
the Series D Preferred Stock may be paid either in cash or in shares of Common
Stock.

- 16 -

<PAGE>

24. Dilution.
---------
A purchaser of Common Stock in this Offering will experience
immediate and substantial dilution of $3.91, or 97.8%, from the initial public
offering price of the Common Stock issued pursuant to this Prospectus of $4.00
per share (assuming no value is allocated to the Warrant included in the Units).
See "Dilution."

25. Shares eligible for future sale.
--------------------------------
All of the presently issued and outstanding shares of Common
Stock and preferred stock are "restricted securities" as that term is defined
under Rule 144 promulgated under the Securities Act. If a public market develops
for the Company's Common Stock, the Company is unable to predict the effect that
sales made under Rule 144 or other sales may have on the then prevailing market
price of the Common Stock. Of the 4,136,253 presently outstanding shares of
Common Stock, 896,994 shares of Common Stock, together with the 63,936 shares of
Common Stock issuable upon conversion of the Series A and B Preferred Stock,
will become eligible for sale pursuant to Rule 144 commencing 90 days after the
effective date of the registration statement of which this Prospectus forms a
part. The remaining shares of Common Stock will become eligible for sale
pursuant to Rule 144 in September 1997 as to 1,755,000 shares held by SISC, in
December 1997 to February 1998 as to the remaining 1,484,259 shares, of which
1,012,500 shares are owned by Holdings. The holders of substantially all of the
outstanding Common Stock have agreed that they will not sell their shares for
two years from the date of this Prospectus without the prior approval of the
Underwriter.

26. Shares issuable pursuant to warrants, options and Preferred
-----------------------------------------------------------
Stock; registration rights.
---------------------------
The Company may issue stock grants or options to purchase up
to an aggregate 511,000 shares of Common Stock pursuant to its 1993 Long-Term
Incentive Plan, of which 487,256 shares are subject to outstanding options. The
Company has issued Outstanding Warrants to purchase 1,677,500 shares of Common
Stock at an exercise price of $2.00 per share and 1,895,625 shares of Common
Stock at an exercise price of $5.00 per share, in each case commencing six
months after the date of this Prospectus or earlier with the consent of the
Company and the Underwriter. During the term of such options and warrants, the
holders will have the opportunity to profit from a rise in the market price of
the Common Stock, and their exercise may dilute the book value per share of the
Common Stock. The Company has provided certain piggyback registration rights to
the holders of options to purchase 151,920 shares of Common Stock granted by
SISC in connection with the acquisition of CSM. However, the holders of such
stock and Outstanding Warrants have agreed not to sell the Common Stock issuable
upon such conversion or exercise for two years from the date of this Prospectus
without the prior approval of the Underwriter. The holders of Outstanding
Warrants have demand and piggyback registration rights commencing two years from
the date of this Prospectus or earlier with the consent of the Underwriter. The
Company will bear the cost of preparing such registration statements but will
not receive any proceeds from the sale of shares of Common Stock pursuant
thereto other than payment of the exercise price with respect to the warrants
issued by the Company. The existence of these registration rights, as well as
the sale of shares of Common Stock pursuant to registration statements which the
Company may be required to prepare, may have a depressive effect on the price of
the Common Stock in the open market. In addition, the existence of such warrants
and options and the registration rights referred to above may adversely affect
the terms on which the Company can obtain additional equity financing. The
holders of warrants are likely to exercise them at a time when the Company would
otherwise be able to obtain capital on terms more favorable than those provided
by the warrants.

27. Potential adverse impact of Preferred Stock on rights of
--------------------------------------------------------
holders of Common Stock.
------------------------
The Company's certificate of incorporation authorizes the
issuance of so-called "blank check" preferred stock with the board of directors
having 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 the Company has no present intention to issue any additional shares of
Preferred Stock or to create any additional series of Preferred Stock, the
Company may issue such shares in the future.

28. Inexperience of the Underwriter.
--------------------------------
The Underwriter has been actively engaged in the securities
brokerage and investment banking business since 1994. However, the Underwriter
has engaged in only limited underwriting activities, and this Offering is only
the third public offering in which the Underwriter has acted as the sole or
managing underwriter. There can be no assurance that the Underwriter's limited
experience as an underwriter of public offerings will not adversely affect the
offering of the Units, the subsequent development of a trading market, if any,
or the market for and liquidity of the Company's securities. Accordingly,
purchasers of the Units offered hereby may suffer a lack of liquidity in their
investment or a material diminution of the value of their investment.

- 17 -

<PAGE>

DILUTION

The net tangible book value of the Company's Common Stock at March 31,
1996 was approximately $(.73) per share. All share and per share information
included in this Prospectus has been restated to reflect a 2,000-for-one Common
Stock recapitalization effective August 1993, a .576-for-one reverse split
effective in October 1993 and a three-for-four reverse split effective in
February 1996. Net tangible book value represents the amount of the Company's
tangible assets reduced by the amount of its liabilities and the liquidation
preference of the Series A, B and D Preferred Stock. Without taking into effect
any change in net tangible book value of the Company after March 31, 1996, other
than as a result of (i) the sale of the 562,500 Units offered pursuant to this
Prospectus (at a per share price of $4.00, with no value ascribed to the Warrant
included in the Unit) after deducting fees and other estimated expenses of the
Offering, (ii) the issuance of 250,000 Units to the holders of the January 1996
Interim Notes and 25,000 shares of Common Stock to the Company's asset-based
lender for no cash consideration and (iii) the redemption of the Series B
Preferred Stock, the Company's net tangible book value as of March 31, 1996
would have been approximately $.09 per share. This amount represents an
immediate increase in net tangible book value per share of approximately $.82 to
the present stockholders and an immediate dilution (the difference between the
offering price of the shares and the net tangible book value per share after the
Offering) per share of approximately $3.91 to the purchasers of the Common
Stock.

The following table illustrates the dilution of one share of Common
Stock as of March 31, 1996:

Public offering price per share of Common Stock $4.00
Net tangible book value per share at March 31, 1996 $(.73)
Increase per share attributable to sale of the Units
offered hereby .82
-----
Pro forma net tangible book value per share after Offering .09
-----
Dilution to public investors $3.91*
=====

* If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $.18 per share of Common Stock,
resulting in an increase in the net tangible book value per share of
$.89 and dilution to the public investors of $3.82 per share.

The following tables summarize, as of March 31, 1996, (a) the number of
shares of Common Stock purchased from the Company, the total cash consideration
and the average price per share paid to the Company for the Common Stock
outstanding prior to this Offering, (b) the issuance of 500,000 shares of Common
Stock included in the 250,000 Units to be issued to the Selling Stockholders,
who are the holders of the January 1996 Interim Notes for no cash consideration,
and (c) the number of shares and consideration to be paid by the public
investors for the 1,125,000 shares of Common Stock included in the 562,500 Units
to be sold in this Offering:
Total Percent
Shares of Percent Cash of Total Average
Common of Consid- Consid- Price
Stock Total eration eration Per
Purchased Shares Paid Paid Share
--------- ------ ---------- -------- -------
Existing Stockholders(1) 4,136,253 71.8% $1,418,000 24.0% $ .34
=====
Selling Stockholders(2) 500,000 8.7 -0- 0.0 $ .00
=====
Public Investors 1,125,000 19.5 4,500,000 76.0 $4.00
--------- ------ ---------- ------ =====
Total 5,761,253 100.0% $5,918,000 100.0%
========= ====== ========== ======

(1) For purposes of this table, no value is given to (a) the consideration
received for shares of Common Stock issued for services rendered at the
time of the Company's organization, (b) the consideration received in
respect of the guarantee of the Company's obligations under the
December 1994 Interim Notes or (c) the shares of Consolidated common
stock issued in connection with the acquisition of CSM or in connection
with the December 1994 Interim Notes.

(2) Represents shares of Common Stock being issued to the Selling
Stockholders, who are the holders of the January 1996 Interim Notes,
pursuant to the Registration Statement of which this Prospectus forms a
part. See "Interim Financings" and "Selling Security Holders."

- 18 -

<PAGE>

USE OF PROCEEDS

Pursuant to employment, consulting and other agreements with officers
and other related parties, the total annualized defined payments to such persons
would range from $1.2 million to $1.6 million, of which $50,000 is to be paid
from the proceeds of this Offering. A discussion of these obligations is set
forth after the footnotes to the Use of Proceeds table. To the extent that the
Company does not generate cash flow from operations sufficient to enable it to
make such payments from cash flow, a portion of the proceeds of this Offering
allocated to working capital may be used for such purposes.

The Company intends to utilize the net proceeds from the sale of the
Units issued pursuant to this Prospectus, estimated at approximately $3.5
million (assuming the Underwriter's over-allotment option is not exercised),
substantially as follows:

(a) Approximately $870,000 (24.7% of the net proceeds) to pay
principal and interest on the Interim Notes, December 1994
Interim Notes and January 1996 Interim Notes held by unrelated
parties, of which notes in the principal amount of $133,000
plus interest and an extension payment are guaranteed by an
affiliate of the Company.(1)

(b) Approximately $270,000 (7.7%) to pay ACT for loans made to
the Company.(2)

(d) $50,000 (1.4%) to SMI on account of fees due to SMI in
connection with the purchase of the SATC Software and the IBN
agreement.(4)

(e) The balance of approximately $2.2 million (63.5%) for working
capital and other corporate purposes, including the
elimination of the Company's working capital deficiency,
marketing and product development and the possible acquisition
of one or more businesses, product lines or software products
in the computer network and related business and the payment
of a $25,000 fee to the Company's asset-based lender and
accrued dividends on the Series A Preferred Stock which were
approximately $5,500 as of March 31, 1996.(5)

(1) Interim Notes in the principal amount of $216,000 were due in October
and November 1993. The Company has paid an Interim Note in the amount
of $27,000, and SISC has purchased an Interim Note in the principal
amount of $54,000. December 1994 Interim Notes in the principal amount
of $200,000 were issued in December 1994, of which $67,000 has been
paid. The Company is in default with respect to the remaining $133,000
principal amount of December 1994 Interim Notes and $135,000 principal
amount of Interim Notes. In addition, the Company owes a $12,500
extension payment with respect to the December 1994 Interim Notes.
January 1996 Interim Notes in the principal amount of $500,000 were
issued in January 1996. The proceeds from these notes were used to make
the initial $325,000 payment pursuant to the agreement to acquire the
SATC Software and for working capital and other corporate purposes,
including expenses relating to this Offering. See "Certain
Transactions" and "Interim Financings."

(2) This money represents demand loans made by ACT for working capital. The
loans bear interest at 10% per annum. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions." Although ACT is independent of the Company, because Mr.
John Phillips is a director of both companies, it may be deemed an
affiliate of the Company.

(3) See "Description of Securities -- Series B Preferred Stock." Three
stockholders -- Holdings, which holds 40 shares, Mr. E. Gerald Kay, a
director, and one other stockholder, each of whom holds 20 shares, of
Series B Preferred Stock -- have the right to demand redemption of the
Series B Preferred Stock following the completion of this Offering. The
holders of the Series B Preferred Stock have advised the Company that
they intend to demand redemption. The Company will pay $96,000 from the
proceeds of this Offering to redeem the Series B Preferred Stock, and
the unpaid dividends will be waived. Holdings and Mr. Kay may be deemed
affiliates of the Company.

(4) The balance of the $250,000 fee is payable from the proceeds of the
over-allotment option, if exercised, or from cash flow, and is due in
any event 13 months from the date of this Prospectus. See "Certain
Transactions." Because Mr. Storm Morgan, a director of the Company, is
the sole stockholder, a director and officer of SMI, SMI may be deemed
an affiliate of the Company.

- 19 -

<PAGE>

(5) To the extent that the principal amount of the Company's obligations to
its asset-based lender at the time of the closing of this Offering
exceed $750,000, a portion of the proceeds allocated to working capital
may be used to reduce the principal amount of such borrowings to
$750,000. At August 8, 1996, the outstanding balance due the
asset-based lender was $958,000.

The Company has employment agreements with five executive officers of
the Company and CSM, pursuant to which it is paying base salaries during 1996 at
the aggregate annual rate of $442,500. In addition, the Company is paying its
president at the annual rate of $52,000, and it has an agreement with Trinity
pursuant to which the Company will pay Trinity $180,000 per year during the
three-year period commencing on first day of the month in which the Company
receives the proceeds from this Offering. The aggregate annual payments under
such agreements and arrangements at the present rates of compensation are
$674,000. The Company's proposed agreement with SMI requires monthly payments of
$25,000 to $59,000 per month, for which SMI will provide the services Mr. Morgan
from time to time on an as-needed basis and up to four other persons to serve in
management-level or other key positions for the Company on a full-time basis.
The agreement continues until December 31, 2000. If the monthly payments to SMI
are included, the total compensation payable to such persons at the present
annual rate ranges from $974,000 (based on $25,000 per month payable to SMI) to
$1.4 million (based on monthly payment of $59,000 to SMI), in addition to 6% of
the Company's revenue from smart card and related services which are payable to
SMI. To the extent that the Company does not generate sufficient cash flow from
its operations, a portion of the proceeds of this Offering may be used for such
purposes. Furthermore, if the fee payable to SMI in connection with the
Company's agreement with IBN is included, the total annualized defined payments
to such persons would range from $1.2 million to $1.6 million, of which $50,000
is payable from the proceeds of this Offering, and a portion of the proceeds of
this Offering allocated to working capital may be used to pay the balance of
such $250,000 fee in the event that the over-allotment option is not exercised
and the Company does not generate sufficient cash flow to provide it with the
funds to make such payment, which is due not later than 13 months from the date
of this Prospectus. See "Certain Transactions."

The foregoing represents the Company's best estimate of its allocation
of the proceeds of this Offering based upon the present state of its business,
operations and plans, current business conditions and the Company's evaluation
of the market for the CarteSmart System and health information system and
services as well its estimate of the time and effort required to develop new
products, including enhancements for the SATC Software. Management will have
broad discretion to determine the use of a substantial portion of the proceeds
of this Offering, and conditions may develop which could cause management to
reallocate proceeds from the categories listed above, including difficulties
encountered in developing and implementing its proposed expanded marketing
program, problems in the operation of the CarteSmart System, other problems
encountered in the Company's business and changes in government policy, none of
which can be predicted with any degree of certainty. Furthermore, future events,
including the problems, expenses, difficulties, complications and delays
frequently encountered by new businesses, as well as changes in the economic
climate and changes or anticipated changes in government regulations, may make
the reallocation of funds necessary or desirable. Any such reallocation will be
at the discretion of the Board of Directors. Furthermore, in the event that the
Company determines that it is unable to develop a profitable business as
described in this Prospectus, the Company may use the proceeds from this
Offering to engage in other unrelated businesses, although it has no such
intention at this time.

The Company believes that the net proceeds from this Offering will be
sufficient to satisfy the Company's cash requirements for at least twelve months
following the date of this Prospectus. However, it is possible that conditions
may arise as a result of which the Company may require additional capital prior
to one year from the date of this Prospectus, and no assurance can be given that
the Company will be able to obtain any or adequate funds when required or that
any funds available to it will be on reasonable terms. The failure to obtain
necessary funds could result in the reduction or cessation of operations by the
Company.

The Company may use a portion of the proceeds of this Offering in
connection with joint ventures, acquisitions or other arrangements, such as
joint marketing arrangements and licensing agreement, which management deems
necessary or desirable in connection with the development of the Company's
business and related activities. Although the Company has engaged in
negotiations and is performing a due diligence investigation with respect to
such a transaction, it has not entered into any letters of intent or agreements
with respect to any such arrangements or transactions. See "Business --
Potential Business Agreements."

In the event that the Underwriter exercises its over-allotment option,
a portion of the proceeds from such exercise is expected to be used to make a
payment on the Company's $750,000 note to SISC and the fee due to SMI.

Pending the application of the funds as described above, said funds
will be invested in short-term interest-bearing deposits and securities.

- 20 -

<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect (i) the sale of the 562,500 Units
offered hereby, (ii) the issuance of 250,000 Units to the holders of the January
1996 Interim Notes and 25,000 shares to the Company's asset-based lender, and
(iii) the application of a portion of the proceeds from this Offering to pay
short-term debt and redeem the Series B Preferred Stock.

March 31, 1996
------------------------------
Actual As Adjusted
------------- --------------
Short-term debt:
Demand loans from related party(1) $ 232,000 --
Note payable -- asset-based lender(2) 972,000 $ 750,000
Interim financing notes(3) 768,000 --
Bank loan and cash overdraft payable(4) 136,000 136,000
Capital lease obligations -- current maturities(5) 168,000 168,000
---------- ----------
$2,276,000 $1,054,000
========== ==========

Long-term debt:
10% Note to related party(6) $ 750,000 $ 750,000
Capital lease obligations -- long-term portion(5) 29,000 29,000
---------- ----------
779,000 779,000
Redeemable Preferred Stock:
80 shares are issued, outstanding and
designated as Series B 6% Redeemable Preferred
Stock, with certain optional and mandatory
redemption rights(7) 96,000 --
---------- --------
Stockholders' equity:
Preferred Stock, par value $.01 per share,
3,000,000 shares authorized, of which:

400 shares are issued, outstanding and
designated as Series A 4% Convertible
Redeemable Preferred Stock, with certain
optional redemption rights(8) -- --

3,000 shares authorized and 1,210 shares issued,
outstanding and designated as Series D 6%
Redeemable Cumulative Preferred Stock, with
certain optional redemption rights(9) -- --

Additional paid-in capital -- Preferred Stock 1,250,000 1,250,000

Common Stock, par value $.01 per share,
15,000,000 shares authorized, 4,136,253 shares
issued and outstanding and 5,786,253 outstanding
as adjusted(10) 41,000 58,000

Additional paid-in capital -- Common Stock(11) 4,268,000 9,456,000

Accumulated deficit(11) (5,071,000) (6,751,000)
----------- -----------
Stockholders' equity 488,000 4,013,000
---------- ----------
Total capitalization $1,363,000 $4,792,000
========== ==========

(1) Represents demand loans made by ACT to the Company. See "Use of
Proceeds," "Certain Transactions" and Note 5 of Notes to Netsmart
Technologies, Inc. Consolidated Financial Statements.

- 21 -

<PAGE>

(2) Represents secured notes due to an asset-based lender, which are
guaranteed by officers of the Company. The amount outstanding on
August 8, 1996 was $958,000. See Note 6 of Notes to Netsmart
Technologies, Inc. Consolidated Financial Statements.

(3) See "Interim Financings" and Note 6 of Notes to Netsmart Technologies,
Inc. Consolidated Financial Statements. The amount outstanding reflects
Interim Notes of $135,000 and December 1994 Interim Notes of $133,000.
In addition, the Company owes a $12,500 extension fee to the holders of
the December 1994 Interim Notes.

(4) Represents the balance due on a secured bank loan incurred by Old CSM
prior to the acquisition of CSM. The loan is treated as a demand loan
and bears interest at prime plus 1 1/2%. The note has been paid. See
Note 6 of Notes to Netsmart Technologies, Inc. Consolidated Financial
Statements.

(5) See Note 9 of Notes to Netsmart Technologies, Inc. Consolidated
Financial Statements.

(6) This note to SISC is due in January 1997, but is payable from the
proceeds of the Company's initial public offering. SISC has agreed (a)
to extend the stated maturity date to April 1, 1997 and (b) not to
require any payment unless the over-allotment option is exercised. See
"Use of Proceeds," "Certain Transactions" and Note 5 of Notes to
Netsmart Technologies, Inc. Consolidated Financial Statements.

(7) Represents a series of Preferred Stock which have mandatory redemption
provisions or are redeemable on demand by the holder. The amount shown
represents the liquidation preference. See "Description of Securities
-- Series B Preferred Stock" for information concerning the rights,
preferences and privileges of the holders of the Series B Preferred
Stock, including the right to demand redemption following completion of
this Offering.

(8) The liquidation preference of the Series A Preferred Stock is $100 per
share, or an aggregate of $40,000. The redemption price is $1,000 per
share, or an aggregate of $400,000. See "Description of Securities --
Series A Preferred Stock" for information concerning the rights,
preferences and privileges of the holders of the Series A Preferred
Stock.

(9) The liquidation preference of the Series D Preferred Stock is $1 per
share. The redemption price is $1,000 per share, or an aggregate of
$1,210,000.

(10) Does not include an aggregate of 3,753,687 shares of Common Stock
reserved as follows: (a) 3,573,125 shares issuable upon exercise of the
Outstanding Warrants, (b) 511,000 shares issuable upon the grant of
options, rights or other equity-based incentives provided pursuant to
the Company's 1993 Long-Term Incentive Plan, (c) 43,200 shares issuable
upon conversion of the outstanding shares of Series A Preferred Stock,
(d) 20,737 shares issuable upon conversion of the outstanding shares of
Series B Preferred Stock, and (e) 25,000 shares issuable to the
Company's asset-based lender. In addition, there are reserved (i)
562,500 shares issuable upon exercise of the Warrants included in the
Units offered by this Prospectus, (ii) 253,125 shares of Common Stock
for issuance upon exercise of the Underwriter's over-allotment option
and upon exercise of Warrants issuable upon exercise of such
over-allotment option, (iii) 168,750 shares of Common Stock for
issuance upon exercise of the Underwriter's Options and exercise of
Warrants issuable upon exercise of the Underwriter's Options. See
"Certain Transactions," "Description of Securities" and "Underwriting."

(11) Reflects (a) an increase of $1,680,000 in additional paid-in capital
and (b) an increase of $1,680,000 in accumulated deficit arising from
the issuance of 250,000 Units to the Selling Stockholders and 25,000
shares to the Company's asset-based lender and the incurrence by the
Company of financing costs of $1,680,000.

See "Business -- Property" and Notes 9 and 11 of Notes to Netsmart
Technologies, Inc. Consolidated Financial Statements for information concerning
the Company's long-term lease obligations.

- 22 -

<PAGE>

NETSMART TECHNOLOGIES, INC.
SELECTED FINANCIAL DATA

(In thousands, except per share amounts)

Set forth below is selected financial data with respect to the Company
for the three months ended March 31, 1996 and 1995, the years ended December 31,
1995, 1994 and 1993 and the period from inception (September 9, 1992) to
December 31, 1992. The selected financial data has been derived from the
financial statements which appear elsewhere in this Prospectus. The report of
the Company's independent accountants includes an explanatory paragraph stating
that there is substantial doubt as to the ability of the Company to continue as
a going concern. The unaudited financial data for the interim periods reflect,
in the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the data for such periods.
The results of operations for interim periods are not necessarily indicative of
operating results for the entire year. This data should be read in conjunction
with the financial statements of the Company and the related notes which are
included elsewhere in this Prospectus.

Statement of Operations Data:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31, September 9, 1992
---------------------------- ------------------------ (Inception) to
1996 1995 1995 1994 1993 December 31, 1992
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $2,560 $1,427 $7,382 $2,924 $ 57 $ --
Net (loss) (1,999) (558) (2,850) (1,751) (433) (113)
Pro forma adjustments
to expenses(1) 45 684
Pro forma net (loss) (2,044) (3,534)
Pro forma (loss) per
share of Common Stock (.42) (.73)
Weighted average
number of shares
outstanding 4,822 4,822 4,822 4,822 4,763 4,763

</TABLE>

Balance Sheet Data:
<TABLE>
<CAPTION>

December 31,
---------------------------------------------------
March 31, 1996 1995 1994 1993
-------------- ---- ---- ----
<S> <C> <C> <C> <C>
Working capital (deficiency) $(3,162) $(2,562) $(4,037) $(938)
Total assets 7,999 6,390 7,193 585
Total liabilities 7,416 5,887 6,342 938
Redeemable Preferred Stock 96 96 96 96
Accumulated deficit (5,071) (5,147) (2,297) (546)
Stockholders' equity (deficiency) 488 407 755 (449)

</TABLE>
(1) Reflects the effect on a pro forma basis for the three months ended
March 31, 1996 and the year ended December 31, 1995 if certain
additional compensation payable after completion of this Offering were
in effect for such periods. See Notes 11 and 14 of Notes to Netsmart
Technologies, Inc. Consolidated Financial Statements.

- 23 -

<PAGE>

NETSMART TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

Results of Operations

Three Months Ended March 31, 1996 and 1995

The Company's revenue for the three months ended March 31, 1996 (the
"March 1996 period") was $2.6 million, an increase of $1.1 million, or 79%, from
the revenue for the three months ended March 31, 1995 (the "March 1995 period"),
which was $1.4 million. Approximately $933,000 of the increase in revenue
reflects revenue generated pursuant to the Company's agreement with IBN. IBN
represented the Company's most significant customer for the March 1996 period,
accounting for approximately 36.4% of revenue for the quarter. Furthermore,
through March 31, 1996, IBN has generated revenue of $1.4 million, or
approximately 89.8% of the Company's total revenue from SmartCard Systems during
the March 1996 period and the year ended December 31, 1995, on a combined basis.
The revenue generated to date includes approximately $200,000 of the guaranteed
royalties. As of March 31, 1996, the contract was more than 75% completed.
Following completion of the contract, the Company anticipates that it will
continue to receive royalty and maintenance revenue from IBN. In addition, the
Company is continuing to provide professional services to IBN, although revenues
from such services will decline from the level in the March 1996 period. The
Company intends to expand its marketing effort for its CarteSmart System;
however, at March 31, 1996, the Company did not have any significant contracts
for the CarteSmart System.

Revenue from the Company's health information systems continued to
represent the Company's principal source of revenue during the March 1996
period, accounting for $1.6 million, or 63.2% of revenue. However, as a result
of the increase of revenue from SmartCard Systems, principally from IBN, revenue
from health information systems and services declined as a percentage of total
revenue. Except for revenue from the IBN contract, the largest components of
revenue for the March 1996 period were data center (service bureau) revenue and
turnkey systems, which increased to $481,000 and $410,000, respectively, in the
March 1996 period from $420,000 and $387,000, respectively, in the March 1995
period, reflecting increases of 14.5% and 6.1%, respectively. Maintenance
revenue increased to $289,000 in the March 1996 period from $252,000 in the
March 1995 period, a 14.6% increase. Revenue from third party hardware and
software decreased to $268,000 from $301,000 in the March 1995 period, a
decrease of 11.0%. Sales of third party hardware and software are made only in
connection with sales of turnkey systems. License revenues increased to $168,000
in the March 1996 period from $53,000 in the March 1995 period. The license
revenue reflects the sale of three systems in the March 1996 period as
contrasted with two systems in the March 1995 period. License revenue is
generated as part of a sale of a turnkey system pursuant to a contract or
purchase order that includes the development of a turnkey system and
maintenance. The Company believes that the increase in installations at March
31, 1996 from the prior year should enable the Company to increase the
maintenance revenue in future periods.

Although revenue from contracts from government agencies represented
30% of revenue for the three months ended March 31, 1996, a decrease from the
54% for the year ended December 31, 1996, the Company believes that such
contracts will continue to represent an important part of its business,
particularly its health information systems business. During the three months
ended March 31, 1996, contracts from government agencies accounted for
approximately 47% of its revenue from health information systems. The ability of
the Company to generate revenue from both CarteSmart Systems and from its
government contracts will continue to have a material effect upon its ability to
be profitable. The Company believes that its CarteSmart System could be a source
of additional revenue from existing customers, including government agencies and
entitlement programs. However, no assurance can be given as to the ability of
the Company to generate revenue at a level above its expenses, in particular the
expenses due to related parties as discussed in "Use of Proceeds" and "Certain
Transactions."

Gross profit increased to $662,000 in the March 1996 period from
$317,000 in the March 1995 period, a 109% increase, which reflected an increase
in the gross margin to 25.8% in the March 1996 period from 22.2% in the March
1995 period. The improved margin reflects the inclusion of CarteSmart revenue,
on which the Company realized a higher margin than on its health information
systems and services. In addition, the sale of third party hardware and software
generally reflects a lower gross margin than the Company's other products and
services. Accordingly, the increased proportion of higher margin revenue from
sales of the CarteSmart System as compared with lower margin sales of third
party hardware and software had a positive effect upon the Company's overall
gross margin. The gross profit for the March 1996 period benefitted from the
gross margin for maintenance services. During the March 1996 period, the gross
profit from maintenance services increased to $145,000 from $60,000 in the March
1995 period, reflecting an increase in the gross margin from such services to
50.1%

- 24 -

<PAGE>

for the March 1996 period from 23.8% for the March 1995 period. The increase in
margin resulted from increased services performed on a time and materials basis.
Such services generate increased revenue with marginal increases in cost of
revenue.

Selling, general and administrative expenses were $455,000 for the
March 1996 period, a decrease of 23.3% from $593,000 for the March 1995 period.
The decline reflected a reduction in executive compensation and a reduction in
staff. A significant portion of the Company's payments to SMI at the rate of
$59,000 per month were related to the IBN agreement and, accordingly, were
included in cost of revenue. Amortization of customer lists was $78,000 in the
March 1996 period, compared with $48,000 in the March 1995 period. At December
31, 1995, the Company changed the amortization of customer lists from 20 years
to twelve years. The Company believes that the change in the life of the
customer list reflects frequent changes which have occurred in the software
industry and are likely to occur in the future and which may affect the cash
flow to be generated by the customer lists purchased in connection with the
acquisition of CSM. In particular, the change in the period of amortization
reflected changes in technology which became important in the health care
industry subsequent to the acquisition of CSM in June 1994. The development of
Windows-based applications, particularly Windows 95, which had not been
developed at the time of the acquisition, together with the possibility of other
changes in the software and communications industry, represented developments
that the Company felt required a change in the amortization period to twelve
years.

During the March 1996 period, the Company incurred noncash compensation
charges of $2.1 million arising out of the issuance by the Company of
Outstanding Warrants having exercise prices which were less than the market
value of the Common Stock at the date of approval by the board of directors. See
Note 5 of Notes to Netsmart Technologies, Inc. Consolidated Financial
Statements. The Company believes that the principal reason for the loss for the
March 1996 period was such $2.1 million compensation expense. Absent such
charge, the Company would have generated net income of $76,000 for the period.

During the March 1996 period, the Company did not incur any research
and development expenses, since the personnel who had been engaged in such
activities were reassigned to work on the IBN contract, and, as a result, their
salaries and related expenses were included as cost of revenue. During the March
1995 period, the Company incurred research and development expenses of $156,000.

Interest expense was $126,000 in the March 1996 period, an increase of
$56,000, or 80.0%, from the interest expense for the March 1995 period. The
increased interest reflects higher borrowing levels pursuant to the Company's
agreement with its asset-based lender. The most significant component of the
interest on an ongoing basis is the interest payable to the Company's
asset-based lender, on which it pays interest equal to the greater of 18% per
annum or prime plus 8% plus a fee of 1% of the face amount of the invoice. The
debt restructure whereby at September 30, 1995, SISC exchanged more than $2
million in debt for shares of Series D Preferred Stock and the subsequent
exchange by SISC of a portion of such preferred stock for Common Stock will have
the effect of reducing the interest payable by the Company, which reduction will
be offset to some extent by dividends payable to SISC with respect to the Series
D Preferred Stock. However, the $72,600 annual dividends payable on the 1,210
shares of Series D Preferred Stock will be significantly less than the interest
paid on the debt. Furthermore, the Company believes that upon completion of this
Offering, it may be able to reduce outstanding debt, and it will seek to obtain
better financing terms than were available to it prior to the Offering, although
no assurance can be given that the Company will be able to negotiate more
favorable financing terms.

As a result of the foregoing factors, the Company incurred a net loss
of $2.0 million, or $.41 per share, for the March 1996 period, as compared with
a loss of $558,000, or $.12 per share, for the March 1995 period. If certain
additional compensation expenses had been incurred during the March 1996 period,
the pro forma net loss would have been $2.0 million, or $.42 per share. See
Notes 11 and 14 of Notes to Netsmart Technologies, Inc. Consolidated Financial
Statements.

The Company is addressing its continuing losses through the development
and implementation of an integrated marketing plan for both its CarteSmart
System and health information systems and services and the development of
enhancements to its health information systems and the development and
implementation of a marketing plan directed at the financial services industry
and educational institutions. The Company has obtained its initial contracts for
its products in both areas with its agreements with IBN (financial services) and
VCU (educational institutions). Furthermore, it believes that the acquisition,
through a joint venture corporation, of the SATC Software, and the further
development of such software will provide it with a significant product for the
financial services industry. However, notwithstanding the Company's product
development and marketing efforts, losses may continue, and no assurance can be
given that the Company will be successful in these efforts.

Pursuant to the subscription agreements by which the Selling
Stockholders purchased the January 1996 Interim Notes, the Company is issuing to
the Selling Stockholders an aggregate of 250,000 Units. In addition, the Company
is to issue 25,000 shares of Common Stock as a fee to its asset-based lender. As
a result of these issuances, the Company will incur at the time of such
issuances, which will be on or about the closing of this Offering, financing
costs of $1.6 million and $80,000, respectively, which reflect the value of such
securities and which will have a material impact upon the results of the
Company's operations for 1996.

The Company is aware of a recently announced joint venture involving
Visa, MasterCard and certain major banks with respect to smart cards. See
"Business -- Competition." The Company believes that such venture is a pilot
program which

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is to demonstrate the capability of smart card technology, and that, if
successful, will result in increased competition in the financial services
industry as more companies seek to take advantage of smart card technology.
Although the Company is marketing its CarteSmart System to the financial
services market, except for the agreement with IBN, the Company does not have
any orders from companies in such market. However, no assurance can be given as
to the ability of the Company to market its products and services to such
market.

Years Ended December 31, 1995 and 1994

The results of the Company's operations for the year ended December 31,
1995 are not comparable with the results of operations for 1994 since the
acquisition of CSM was effective July 1, 1994, and the results of operations for
1994 include the CSM business only from such date.

The Company's revenue for 1995 was $7.4 million, representing an
increase of 152% from the revenue of the Company for 1994 of $2.9 million. The
increase reflected the inclusion of CSM's operations for only the last six
months of the year. Revenue from health information systems and services
accounted for $6.8 million, or 91.5% of total revenue for 1995 and more than 99%
of pro forma combined revenue of the Company and CSM for 1994. CarteSmart
Systems revenue accounted for the balance of the revenue for the periods. In
1994, the Company generated CarteSmart Systems revenue of $90,000 from the pilot
project in San Diego County. In 1995, revenue from CarteSmart technology was
$631,000.

The largest component of revenue for 1995 was $2.0 million from the
sale of third party hardware and software, as compared with $519,000 for 1994.
Such revenue represented 26.7% and 17.7% of revenue for 1995 and 1994,
respectively. A significant portion of revenue in 1995 represented the sale of
hardware ($842,000) and software and related services ($524,000) pursuant to a
purchase order from the State of Colorado for its Department of Human Services.
Revenue from services related to turnkey systems and data center revenue
accounted for $1.8 million and $1.7 million, or 24.1% and 23.6% of revenue,
respectively, for 1995, as compared with $664,000 and $884,000, or 22.7% and
30.2% of revenue, respectively, for 1994. Maintenance revenue was $1.1 million
and $500,000 in 1995 and 1994, respectively, representing 14.9% and 17.1% of
revenue, respectively. The Company believes that the increase in installations
at December 31, 1995 from the prior year should enable the Company to increase
the maintenance revenue in future periods. Revenue from CarteSmart Systems
increased to $631,000 in 1995, representing 8.6% of revenue, from $90,000 in
1994, representing 3.1% of revenue. The CarteSmart System revenue reflected
revenue from IBN ($481,000), VCU ($118,000) and the San Diego pilot program
($31,000) in 1995 and the San Diego program ($90,000) in 1994. The overall
increase in revenue reflects the inclusion of CarteSmart Systems revenue
combined with the revenue from the Colorado agreement. As discussed under
"Results of Operations -- Three Months Ended March 31, 1996 and 1995," the
increased revenue from CarteSmart Systems has a positive effect upon revenue in
the March 1996 period.

Both the increase in revenue and the change in revenue mix reflected
increased revenue resulting from an enhanced marketing effort following the June
1994 acquisition of CSM. During the second half of 1994, the Company received
significant purchase orders from the State of Colorado for its Department of
Human Services and the State of Oklahoma. The Colorado order covered the
purchase of the Company's health information system, including software,
consulting services and hardware, at a total purchase price of approximately
$1.2 million. Of the purchase price, approximately $700,000 represented the
purchase price of the software and consulting services, and the balance
represents the cost of the hardware. In July 1994, the Company received a
purchase order from a state agency of the State of Oklahoma for a health
information system which includes the graphical interface. The order called for
the installation of the system in ten hospitals for a purchase price of
approximately $430,000. The Company is continuing to market its health
information systems to entitlement programs. It believes that the inclusion of
the graphical and smart card functions, which were implemented during the second
half of 1994 and the first half of 1995, will assist it in marketing its
products to entitlement programs. It also believes that the successful pilot
project for the smart card interface in San Diego provides the Company with an
important tool in marketing this function to both new and existing clients. The
Company is commencing a marketing effort for its CarteSmart System directed at
the financial services industry and educational institutions. However, in the
industries to which the Company is marketing its products, there is typically a
long selling cycle, as a result of which the Company must continue to support
its marketing effort for a significant period before any revenue is realized.

Gross profit increased to $1.8 million in 1995 from $390,000 in 1994,
an increase of 352%, which reflected an increase in the gross margin to 23.9% in
1995 from 13.3% in 1994. The increase in gross profit resulted from both the
improved gross margin and the inclusion of twelve months of CSM operations in
1995 and six months of such operations in 1994. The improved margin reflects the
significant increase in CarteSmart revenue, on which the Company realized a
higher margin than on its health information systems and services. However, the
amortization of capitalized software costs of $419,000 during 1995 is reflected
as a cost of revenue, which offset the higher margin for the CarteSmart System.
During

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1995, the Company changed its CarteSmart System from a DOS-based system to a
Windows-based system. The capitalized costs related to the DOS-based system. As
a result, at December 31, 1995, the Company wrote off the unamortized software
development costs, which increased cost of revenue. In addition, the Company
expensed the development of the Windows-based system, which was charged to
research and development. The gross profit for 1995 benefited from the gross
margin for maintenance services. During 1995, the gross profit from maintenance
services increased to $356,000 from $52,000 in 1994, reflecting an increase in
the gross margin from such services to 32.4% for 1995 from 10.4% for 1994. The
increase in margin resulted from increased services performed on a time and
materials basis as well as a reduction in staff as the Company was able to
perform the same services with a smaller staff.

Selling, general and administrative expenses were $2.5 million and $1.5
million for 1995 and 1994, respectively, representing a 65.0% increase. In 1994,
selling, general and administrative expenses included approximately $236,000 of
compensation expense arising out of the issuance of Consolidated common stock to
former officers of CSM and the grant by SISC to such persons of options to
purchase shares of the Company's Common Stock which were owned by SISC. However,
in 1995, selling, general and administrative expenses included a $200,000
increase in annualized expenses resulting from an increase in the marketing
staff, a $100,000 increase in the level of compensation for the Company's and
CSM's officers following the June 1994 acquisition of CSM, $150,000 in legal
expenses, a portion of which related to the acquisition of CSM, and $313,000 of
the amortization of customer lists resulting from the CSM acquisition.
Commencing July 1, 1994, general and administrative expenses reflects the
amortization of customer lists resulting from the CSM acquisition.

Research and development was $699,000 and $367,000 for 1995 and 1994,
respectively, representing a 90.4% increase. The increase reflects research and
development for smart card and related products and the graphical interface for
the Company's health information systems.

During 1995, the Company incurred financing costs of $863,000,
representing the write-off of deferred financing costs relating to a proposed
initial public offering which had been scheduled for early 1995, but which had
been cancelled. No such expenses were incurred in 1994.

Interest expense was $554,000 and $260,000 for 1995 and 1994,
reflecting a 113% increase. The increased interest reflects (i) financing costs
of $208,000 reflecting interest and fees at higher borrowing levels pursuant to
the Company's agreement with its asset-based lender and (ii) interest at 10% on
an increased average level of borrowings from SISC. The most significant
component of the interest on an ongoing basis is the interest payable to the
Company's asset-based lender, on which it pays interest equal to the greater of
18% per annum or prime plus 8% plus a fee of 1% of the face amount of the
invoice. The debt restructure whereby at September 30, 1995, SISC exchanged more
than $2 million in debt for shares of Series D Preferred Stock and the
subsequent exchange by SISC of a portion of such preferred stock for Common
Stock will have the effect of reducing the interest payable by the Company,
which reduction will be offset to some extent by dividends payable to SISC with
respect to the Series D Preferred Stock. However, the $72,600 annual dividends
payable on the 1,210 shares of Series D Preferred Stock will be significantly
less than the interest paid on the debt. Furthermore, the Company believes that
upon completion of this Offering, it may be able to reduce outstanding debt, and
it will seek to obtain better financing terms than were available to it prior to
the Offering, although no assurance can be given that the Company will be able
to negotiate more favorable financing terms.

As a result of the foregoing factors, the Company sustained losses of
$2.9 million, or $.59 per share, for 1995, as compared with a loss of $1.8
million, or $.36 per share. If certain additional compensation expenses were
incurred during the year, the pro forma loss would have been $3.5 million, or
$.73 per share. See Note 11 of Notes to Netsmart Technologies, Inc. Consolidated
Financial Statements.

In addition, at December 31, 1995 and 1994, the estimated profit
included in cost and estimated profit in excess of interim billings and interim
billings in excess of cost and estimated profit decreased substantially from
approximately $1.4 million to approximately $500,000. See Note 2 of Notes to
Netsmart Technologies, Inc. Consolidated Financial Statements. This decrease
reflected a reduction in the number of contracts that have billing schedules
which differ from revenue recognition. As a result of a reduced number of such
contracts at December 31, 1995, the estimated profits from such contracts
declined.

Years Ended December 31, 1994 and 1993

The Company does not believe that the results of its operations in 1994
and 1993 are comparable. Until the completion of the CSM acquisition in June
1994, the Company was a development stage company. Its only revenue prior to the
June 1994 acquisition of CSM was $57,000 in consulting revenue from an affiliate
of an insurance company in The Netherlands, which it received in 1993.
Furthermore, CSM's operations prior to the acquisition are not comparable to
those operations following the acquisition since the combination of the
operations of the two companies enabled the Company to generate more revenue
than the Company believes would have resulted from the separate operation of the
two companies. Following the acquisition

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in June 1994, the companies combined their operations and developed a more
effective development and marketing organization, as evidenced by the
development in the second half of 1994 and the first half of 1995, of the
graphical and smart card interfaces for the health information systems and
enabled the Company to obtain its first installations of its CarteSmart System
in the United States, with the pilot project in San Diego. Furthermore, the
contract with the Albert Einstein School of Medicine also represented an
agreement for smart card applications at an existing CSM installation.

Revenue for 1994 was $2.9 million compared with $57,000 for 1993. The
increase reflects the inclusion of revenue from CSM's health information systems
from July 1, 1994. Similarly, the increase in cost of revenue and gross profit
also reflected such business. The largest component of revenue for 1994 was
$884,000 from the data center, representing 30.2% of total revenue. Revenue from
contract services and sales of third party hardware and software were $754,000
and $519,000, representing 25.8% and 17.8% of revenue.

Selling, general and administrative expenses increased to $1.5 million
from $376,000, reflecting the inclusion of CSM's overhead for the second half of
the year as well as (a) approximately $236,000, representing compensation
expense arising out of the issuance of Consolidated common stock to former
officers of CSM and the grant by SISC to such persons of options to purchase
shares of the Company's Common Stock which were owned by SISC and (b) $215,000
amortization of research and development resulting from the writedown of the
value of one version of the CarteSmart Software which had been capitalized. In
addition, during the second half of 1994, general and administrative expenses
reflects the amortization of customer list resulting from the CSM acquisition.

During 1994, the Company incurred $367,000 of research and development
expenses relating principally to the CarteSmart system and the development of
tools for the development of its graphical interface to its health information
systems.

Interest expense increased to $260,000 from $87,000, principally as a
result of increased borrowings from SISC subsequent to December 31, 1993, and
the inclusion of interest on CSM's bank debt commencing July 1, 1994.

As a result of the foregoing, the Company sustained a net loss of $1.8
million, or $.36 per share, for 1994, as compared with a loss of $433,000, or
$.09 per share, for 1993.

Liquidity and Capital Resources

At March 31, 1996, the Company had a working capital deficiency of
approximately $3.2 million. The working capital deficit increased by
approximately $300,000 since December 31, 1995. Since its organization, it
sustained losses of approximately $5.1 million. Its operation through December
1994 were funded principally through loans of approximately $3.0 million from
SISC, and loans from unrelated parties of approximately $400,000, on which the
Company is presently in default. Such loans plus interest and a $12,500
extension fee, are to be paid from the proceeds of this Offering. At September
30, 1995, SISC exchanged $2,210,000 principal amount of the Company's
obligations to SISC for 2,210 shares of Series D Preferred Stock, which have a
redemption price of $2,210,000, exchanged $388,000 of interest for 1,125,000
shares of Common Stock, and accepted a 10% subordinated note due January 1997
for the remaining $750,000. SISC has agreed to extend the maturity date to April
1, 1997. The note is payable from the proceeds of this Offering, but SISC has
agreed not to require any payment unless the over-allotment option is exercised.
If the over-allotment option is exercised, the Company intends to make a payment
on account of the Company's note to SISC. In addition, to the extent that the
Company receives proceeds from the exercise of any Warrants or Outstanding
Warrants, a portion of such proceeds may be used for such purposes. In January
1996, SISC exchanged 1,000 shares of Series D Preferred Stock for 1,125,000
shares of Common Stock. In addition, during the period from July 1994 through
May 1996, the Company borrowed an aggregate of $256,000 from ACT. Such advances
were made on a demand basis, and will be paid from the proceeds of this
Offering.

Since January 1, 1995, the Company's principal source of funds other
than revenue has been an accounts receivable financing agreement and interim
loans from nonaffiliated accredited investors. In February 1995, the Company
entered into an accounts receivable financing agreement with an asset-based
lender pursuant to which it may borrow up to 75% of eligible accounts
receivable. In March 1996, the maximum borrowing under the agreement was
increased from $750,000 to $1.0 million and the percentage of eligible
receivables was increased from 75% to 80%. These higher levels of borrowing
capacity will continue in effect until the Company either completes this
Offering or raises $350,000 in a private placement of securities, at which time
the lower levels will be restored. In addition, the Company will be required to
pay the lender a $25,000 fee at the closing of this Offering or such other
financing and issue to the lender 25,000 shares of Common Stock. As of March 31,
1996 and August 8, 1996, the outstanding borrowings under such facility were
$972,000 and $958,000, respectively. The

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proceeds of the financing were used to pay $90,000 on the Company's bank loan,
$67,000 plus interest on the December 1994 Interim Notes and for working capital
and other corporate purposes. The Company pays interest on these borrowings of
the greater of 18% per annum or prime plus 8% and pay a fee of 1% of the face
amount of the invoice. The Company intends to seek alternative financing on more
favorable terms. In the event that it is unable to obtain alternative financing,
it may keep the facility in place. Certain of the Company's officers have given
the lender certain guarantees with respect to the financing. In the event that
the Company's borrowings from the asset-based lender exceed $750,000 on the
closing date with respect to this Offering, a portion of the proceeds from this
Offering allocated to working capital may be used to reduce the borrowings to
$750,000.

In January 1996, the Company borrowed $500,000 from unaffiliated
investors, and issued its 8% note due the earlier of January 31, 1997 or five
days after the completion of this Offering. The proceeds of the notes were used
to make the initial $325,000 payment of the $650,000 purchase price of the SATC
Software, for working capital and to pay expenses relating to this Offering. At
December 31, 1995, the Company owed the holders of the Interim Notes and the
December 1994 Interim Notes an aggregate of $295,000, plus interest and, with
respect to the December 1994 Interim Notes, a $12,500 extension fee. The Company
is in default with respect to such notes, and the notes will be paid from the
proceeds of this Offering. The Company continues to require additional funds for
its operations.

As a result of its working capital deficit, the Company was delinquent
in payments to its vendors. Accounts payable to vendors increased to $1.6
million at March 31, 1996 from $1.2 million at December 31, 1995. The
delinquency for vendors deemed critical to the Company's operations is generally
less than 60 days, and the delinquency for other vendors was in excess of 90
days. Although vendors have demanded payment from the Company, the Company has
sought to work with the vendors by modest payments on account. The Company is
not presently in litigation with any of its vendors. The Company believes that,
following completion of this Offering, it will be able to improve its vendor
payments and, accordingly, the past delinquencies will not have an ongoing
adverse effect.

At March 31, 1996, accounts receivable and cost and estimated profits
in excess of interim billings were approximately $3.4 million, representing
approximately 91 days of revenue based on annualizing the revenue for the March
1996 period, although no assurance can be given that revenue for the year will
continue at the same level as in the March 1996 period. At December 31, 1995,
accounts receivable and cost and estimated profits in excess of interim billings
were approximately $2.5 million, representing approximately 88 days of revenue.
The Company believes that such amount is reasonable considering the customer
base, which is largely government agencies, hospitals and clinics. Since the
Company does not receive significant payments in advance of services rendered,
the Company does not anticipate that it will generate significant deferred
revenue.

The Company's independent accountants have included an explanatory
paragraph in their report stating that there is substantial doubt about the
ability of the Company to continue as a going concern. The Company has addressed
this issue through the expansion of its marketing efforts for its health
information systems and CarteSmart Systems products. The CarteSmart products
have been an increasing source of revenue, having accounted for more than 36% of
its revenue for the March 1996 period, principally as a result of the IBN
contract. Although the Company does not have any backlog for its CarteSmart
System, it is actively marketing the CarteSmart Systems to potential users both
in the health and human services market and in other markets. The Company
believes that the acquisition of the SATC Software will increase the potential
uses for the CarteSmart System. The Company is continuing its efforts to
increase its revenue from its health information systems and services.

The Company anticipates that the costs relating to its joint venture
with Oasis relating to the SATC Software, the Company will be covered by
business generated by the marketing of such software and related products and
services. The Company believes that the Company's share of the costs incurred by
such venture through June 30, 1996 was approximately $100,000. To the extent
that such costs are not covered by such sales, a portion of the proceeds of this
Offering allocated to working capital may be used for such purpose.

The Company's continuing obligations include a consulting agreement
with Trinity, pursuant to which the Company is to pay Trinity annual consulting
fees of $180,000, and a proposed agreement with SMI pursuant to which SMI is to
receive annual payments in the range of $300,000 to $684,000. The Company
anticipates that it will pay the fees to Trinity from operations. The Company
anticipates that the fees due to SMI will be generated by revenue from contracts
with parties introduced to the Company by SMI. The Company is presently
marketing its services to certain of such parties, although no agreements have
been signed and no assurance can be given that the Company will enter into any
agreements with any such parties or that any such contracts will be profitable
to the Company after giving effect to the payments due to SMI. However, to the
extent that the SMI relationship does not generate profitable business to the
Company, it can reduce the scope of activity

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so that its payments will be on the lower end of the compensation range.
Notwithstanding the foregoing, to the extent that the Company does not generate
sufficient revenue from operations to any obligations the Company has to Trinity
and SMI, a portion of the proceeds of this Offering allocated to working capital
may be used for such purposes.

The Company has agreements with certain officers and officers of
subsidiaries pursuant to which such persons are entitled to bonuses based the
Company's income before income taxes. The Company does not believe that its
liquidity will be adversely affected by such bonuses, since such bonuses are not
payable unless the Company generates income, and no assurance is given that the
Company can or will generate income. Although it is possible that income before
income taxes may exceed cash flow, for the short-term the Company does not
believe that any obligations to such individuals will have any impact upon its
liquidity. For 1996, the Company's income before income taxes will be affected
by non-cash charges, including (i) financing costs from the issuance of Units
and Common Stock to the holders of the January 1996 Interim Notes and the
Company's asset-based lender, (ii) compensation charges resulting from the
issuance of options at prices which are below the fair market value on the date
of grant and (iii) amortization of customer lists relating to the acquisition of
assets of Old CSM.

The Company believes that the net proceeds from this Offering available
to it, after giving effect to the payment of outstanding debt, will be
sufficient to enable it to operate without additional funding for at least one
year from the date of this Prospectus. The Company believes that the increased
revenue from both its CarteSmart System and medical information systems and
services will be sufficient to enable it to cover the additional expenses
described in "Use of Proceeds." In this connection, the Company believes that
its marketing arrangement with Oasis can increase its business. However, it is
possible that conditions may arise as a result of which the Company may require
additional capital prior to one year from the date of this Prospectus, and no
assurance can be given that the Company will be able to obtain any or adequate
funds when required or that any funds available to it will be on reasonable
terms. The failure to obtain necessary funds could result in the reduction or
cessation of operations by the Company. Furthermore, there can be no assurance
that the Company will generate significant revenues as a result of its agreement
with Oasis or that the amount payable under the agreement with SMI will not
significantly exceed the cash derived from any services rendered by SMI or as a
result of the SMI agreement.

BUSINESS

Background

The Company was organized in September 1992 to develop systems that
operate in a distributed network environment using a range of technologies. A
network system is a computer system that provides multiple users with access to
a common data base. A network system can be a local system, such as a local area
network or LAN, which operates within a single office or facility, or a network
system which provides simultaneous access to a common data base by different
users or different classes of users at multiple locations.

There are up to three parties in the Company's network systems -- the
sponsor, the users and the service providers. The sponsor is the party that
maintains the data base. The sponsor may be a managed care organization,
university or a bank or credit card association. The users are the persons who
use the system, and may be the subscribers for a managed care organization, the
students at a university and the bank card or credit card holders for a bank or
credit card association. The service providers are those who provide goods or
services to the users. Service providers may be the physicians, pharmacies or
other health care professionals who provide medical services to the subscribers
of the managed care organization, the university book store, food service
department, vending machine operators, library and others who provide service to
students at the university, and merchants and operators of automated teller
machines who provide goods, services or funds to bank card or credit card
holders.

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Acquisition of CSM

On June 16, 1994, Holdings, the Company's principal stockholder,
through a wholly-owned subsidiary, CSM Acquisition Corp. ("Acquisition
Corporation"), acquired the assets and assumed liabilities of Old CSM pursuant
to a plan and agreement of reorganization dated as of April 13, 1994, as amended
(the "Purchase Agreement"), among the Company, Consolidated, Acquisition
Corporation, Old CSM and ACT, the parent of Old CSM. At the time of the
acquisition of CSM, ACT was a publicly traded company. Consolidated is the
parent of SISC, which is the sole stockholder of Holdings. In connection with
the purchase, (i) Acquisition Corporation purchased the assets and assumed
liabilities of Old CSM in exchange for 800,000 shares of Consolidated's common
stock and $500,000, which was advanced by the Company to Acquisition Corporation
from the proceeds of a loan made by SISC, (ii) Holdings transferred the stock of
Acquisition Corporation to the Company on September 30, 1995, (iii) in
consideration for the transfer of the Acquisition Corporation stock, the Company
issued to Holdings an aggregate of 750,000 shares of Common Stock, and (iv)
Acquisition Corporation changed its corporate name to Creative Socio-Medics
Corp. The principal assets acquired by the Company were CSM's customer list,
accounts receivable, work in process and office equipment, See "Certain
Transactions" and Note 1 of Notes to Netsmart Technologies, Inc. Consolidated
Financial Statements.

The Purchase Agreement was negotiated among officers of the Company,
Consolidated, ACT and CSM. There was no affiliation or other relationship
between Consolidated, Acquisition Corporation and the Company, on the one hand,
and ACT and Old CSM, on the other hand. At the time the acquisition of CSM was
consummated, Messrs. Edward D. Bright and John F. Phillips, who were officers
and directors of ACT and Old CSM, and Mr. Anthony F. Grisanti, who was an
officer of ACT and Old CSM, resigned their positions as officers of both
companies. Messrs. Bright, Phillips and Grisanti are the vice president,
president and secretary and chief financial officer, respectively, of CSM, as a
subsidiary of the Company. Mr. Phillips is also a director of the Company, and
Mr. Grisanti is also chief financial officer, treasurer and secretary of the
Company.

At the time of the execution of the Purchase Agreement, SISC granted to
Messrs. Bright, Phillips and Grisanti options to purchase an aggregate of
151,920 shares of the Company's Common Stock owned by SISC. The shares of Common
Stock owned by SISC were transferred to Holdings subject to the options. The
options are exercisable at an exercise price of $.232 per share during the
five-year period commencing in June 1994. In June 1994, at the closing of the
acquisition, Consolidated issued to such individuals an aggregate of 40,000
shares of Consolidated common stock. The value of the 40,000 shares of
Consolidated common stock, approximately $136,000, is included as part of the
Company's obligations due to SISC. See "Certain Transactions."

In June 1994, at the time of the purchase of the assets from Old CSM,
the Company entered into five-year employment agreements with Messrs. Leonard M.
Luttinger, Edward D. Bright, John F. Phillips, Thomas L. Evans and Anthony F.
Grisanti, pursuant to which they were employed as executive officers of the
Company at a base compensation of $125,000, $125,000, $125,000, $85,000 and
$80,000, respectively. The agreements with Messrs. Luttinger and Evans replaced
earlier employment agreements with such persons. See "Management --
Remuneration" for information concerning the terms of the employment agreements.
At such time, Old CSM owed Messrs. Bright, Phillips and Grisanti an aggregate of
$133,000 in accrued salary and out-of-pocket expenses incurred on behalf of Old
CSM, which has been paid.

The acquisition of CSM provided the Company with an ongoing stream of
revenue together with a marketing force familiar with the entitlement and health
care field which was marketing a compatible product. At the time of the
acquisition, CSM's health information systems did not provide certain
capabilities which were sought by its customer base. Following the acquisition,
the Company developed two enhancements to its health information systems -- a
graphical interface, which enables the users of the systems to operate in a
WindowsTM environment, and a smart card interface using the Company's CarteSmart
System, which enables the users to enter and retrieve data through the use of
smart cards. Windows is a trade mark of Microsoft Corp. Following the
implementation of the smart card interface, the Company initiated a marketing
effort for its CarteSmart System to users of its health information systems. The
two CarteSmart agreements in the health care field -- the San Diego County pilot
project and the Albert Einstein School of Medicine agreement -- reflect
amendments to the Company's existing agreements.

The CarteSmart System

The Company's CarteSmart System software was designed to operate on
industry-standard computer networks and "smart cards." A smart card is a plastic
card the size of a standard credit card which contains an embedded
microprocessor chip. The card has data storage and computing capabilities, and
the smart card software includes security elements to restrict unauthorized
access to or modification of certain information contained on the card. A smart
card may also include a magnetic stripe to allow it to be used in networks that
do not include smart card functionality. The smart cards are designed to be
issued

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only by the sponsor organization, such as a managed care organization, specialty
care facility, administrator of an entitlement program or other similar
organization, a university or a bank or credit card organization.

The CarteSmart software consists of components which allow the Company
to develop network applications for sponsors with less effort than would be
required if those network applications were developed from scratch. The
CarteSmart software consists of an Application Program Interface ("API") and an
API Generator which allows fast customization of the API for specific network
applications. The API is a set of software modules that provide the common
functions required to support a computer network using smart cards. By using the
API, the Company or a sponsor may develop network systems more quickly than if
all of the software necessary to implement the network were custom written for a
particular network application. The API Generator is a tool developed by the
Company that is designed to allow the Company or a network sponsor to develop a
custom API for a particular network and reduce the effort required to build
network systems.

The CarteSmart System is designed to operate on file servers and
personal computers which utilize the DOS, Windows 3.1, Windows 95, Windows NT or
UNIX operating systems, depending upon the application. The software used in the
smart card can be used or adapted for use in most commercially available smart
cards. Smart cards generally meet international standards and are considered
commodity products, although each manufacturer has its own software to interface
with a computer. Accordingly, the Company believes that a manufacturer would
provide any necessary assistance in order to market its cards.

The Company's initial applications were designed to meet the needs of
managed care organizations and entitlement programs, and the Company developed a
smart card interface to its health management systems. Each time a patient
visits a participating health care provider, the health care provider adds to
the patient's data base information concerning the visit, including the date,
procedures performed and diagnosis. At the time of the first visit to a
participating physician, the physician enters information relating to the
diagnosis and treatment given on that visit together with such information
relating to chronic conditions, such as allergies and medication, as the
physician deems important. The Company does not anticipate that the health care
provider will be expected to include information relating to earlier diagnoses
or treatment; however, the organization which provides the smart card may
require additional information to be input at the initial visit. This
information is input into the patient's smart card and may also be transmitted
to the managed care organization's central data base, where, unless
dissemination of such information has been restricted by the patient, other
health care providers will have access to the information. The health care
provider can read information from, and write information onto, the smart card
through a card interface device, which is standard computer peripheral equipment
readily available from computer outlets and can be easily connected to a
personal computer. The information transferred to the smart card is first input
by the health care provider on a computer and includes the date of service,
diagnosis, treatment, including any prescribed medication, and any other
information which the health care provider determines.

At the time of the visit, the health care provider inputs the standard
codes for the diagnosis and procedures performed. Errors in inputting the
diagnosis and the procedure code delay payment or affect the amount of payment.
The SmartCard System can be integrated with the health care provider's existing
practice management system, without requiring any additional personnel. The
CarteSmart System software has integrated within it an easy to use diagnosis and
procedure code look-up capability, as well as error checking and other
safeguards which assist the health care provider in inputting the proper codes
based upon normal medical terminology.

The smart card stores only a limited amount of information, and is
intended to reflect current medical conditions and not a record of medical
treatment from birth. When the storage capacity of the card, which is equivalent
to approximately ten typed pages, is reached, items are deleted on a
chronological basis, with the earliest items being deleted first, although there
is an override procedure by which certain crucial medical information, such as
allergies and chronic conditions, can be retained, regardless of the date when
the patient was diagnosed or treated for the condition. The card also includes
information on each prescription which the patient is taking. A smart card is
different from a magnetic stripe card, such as is used at VCU, in that it has an
updatable data storage capacity, which a magnetic stripe card does not.

To date, the Company has licensed an initial version of its CarteSmart
software in the medical and health care field to an affiliate of a health
insurance company in The Netherlands for a pilot project, to San Diego County
for a pilot project

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and to the Albert Einstein School of Medicine. Although the pilot program in The
Netherlands was successful technically, the program was not expanded, because,
in the Company's opinion, the ability of the project to demonstrate that it
reduced costs was not satisfactorily proven under the system of insurance
reimbursement practices in The Netherlands. In January 1995, pursuant to an
agreement with San Diego County, California, the Company introduced its
CarteSmart System in the United States. The initial phase, a pilot program which
was completed during 1995, involved the issuance of smart cards to approximately
1,200 mental health patients participating in the California MediCal Managed
Care Initiative. The Company recognized revenue of $31,000 and $90,000 from the
San Diego pilot program during 1995 and 1994, respectively. The Company is
presently performing planning services for San Diego County in connection with
its proposed roll-out of a program which is expected to commence in 1997. The
roll-out, if approved and budgeted by the county, would be a phased roll-out
over a two-year period. Although the Company believes that it will perform
services for San Diego County in connection with the proposed roll-out, no
assurance can be given that the roll-out will be approved, or if approved, that
the Company will be engaged to perform such services. he Company is also
marketing its CarteSmart System to other entitlement programs and managed care
organizations; however, as of the date of this Prospectus, except for San Diego
County, the Company has not entered into any agreements with any such
organizations, and no assurance can be given that the Company will enter into
any such agreements.

In November 1995, the Company entered into an agreement with the Albert
Einstein School of Medicine to add the CarteSmart System to its existing system
to provide smart card network capabilities for use in its clinics and
out-patient facilities. Installation of the smart card network is scheduled for
the third quarter of 1996, and, as of March 31, 1996, no revenue had been
generated from such customer. The Company is presently customizing the
CarteSmart health care application software to meet the requirements of the
Albert Einstein School of Medicine, including the ability to interface with its
present computer systems in addition to the health information system licensed
from the Company.

During 1995, the Company commenced marketing its CarteSmart based
products to markets other than the health care field. In July 1995, the Company
entered into an agreement pursuant to which it installed a magnetic stripe
identification system which uses CarteSmart technology to provide for the
centralized issuance of a single card to all persons allowed access to the
university and its services. The card contains the individual's name, photo,
signature and unique card identification number, which defines the holder's
entitlement to food service and library services. Approximately 20,000 students
are using the system. The Company is negotiating with respect to an agreement to
expand the program to support additional services, however, no assurance can be
given that the program will be expanded. A magnetic card differs from a smart
card since it does not have an independent updatable data storage capability.

The Company believes that a major market for its smart card technology
is the financial services industry, including banks and credit card issuers.
Commencing in May 1995, the Company entered into a series of agreements with IBN
for services and CarteSmart software licenses for the implementation of a
satellite based distribution network of automatic teller machines and off-line
point of sale terminals using smart cards for the former Soviet Union. In April
1996, the Company entered into a more encompassing agreement with IBN, which
superseded the prior agreements, for the development of the system and the
license of the system to IBN. IBN is a New York-based company which has rights
to install such systems in the former Soviet Union. The Company's agreement with
IBN is not contingent upon the success of IBN's installations in the former
Soviet Union, although the extent of its revenues from royalties will be based
on the number of cards issued and may be adversely affected by political
developments in the former Soviet Union. The system being delivered to IBN
includes Oasis Technologies' IST/Share Financial Transaction System software and
other third party software which the Company is integrating with its CarteSmart
software to complete the IBN system. Through March 31, 1996, the Company has
generated approximately $1.4 million revenue from IBN.

In developing the CarteSmart System for the financial services
industry, the Company is using networking technologies that use
telecommunications networks as well as smart cards. In addition, the Company,
through a subsidiary, is purchasing the SATC Software, which processes retail
plastic card transactions and merchant transactions. The purchase price is
$650,000, of which $325,000 was paid by the Company, $150,000 was paid by Oasis
and the remaining $175,000 is to be paid by Oasis, although the Company remains
obligated for the balance if Oasis fails to make the payment. The SATC Software
is designed to perform functions required by credit card issuers, including
applications processing and tracking, credit evaluations, credit authorization
and the printing of statements. In the event the final payment is not made, the
subsidiary will not acquire title. The agreement with Fiton pursuant to which
the SATC Software is to be acquired provides for royalty payments to Fiton based
on licenses of the SATC Software, with certain minimum royalties due in 2003.
The agreement also gives Fiton certain rights in Central America. The Company
has an agreement with Oasis pursuant to which Oasis is to make the remaining
payments, and it is negotiating an agreement with Oasis pursuant to which the
subsidiary will become a joint venture corporation owned 50% by the Company and
50% by Oasis and/or its principals. See "Business -- Product Development."

As of March 31, 1996, except for $57,000 in consulting revenue
generated in 1993, the Company generated revenue from its Carte Smart System
from three clients -- IBN, from which it generated revenue of $933,000 in the
three months ended March 31, 1996 and $481,000 for the year ended December 31,
1995, VCU, from which it generated revenue of $10,000 in

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the three months ended March 31, 1996 and $118,000 for the year ended December
31, 1995, and the San Diego pilot project, which generated revenue of $31,000 in
the year ended December 31, 1995 and $90,000 in the year ended December 31,
1994.

The Company has a proposed agreement with SMI pursuant to which the
Company pays SMI compensation of $25,000 to $59,000 per month, for which SMI
will provide the services of Mr. Storm Morgan, a director of the Company, on an
as-needed basis and up to four other persons to serve in management-level or
other key positions for the Company on a full-time basis. Mr. Morgan is not
required to devote any minimum amount of time to the business of the Company.
The agreement also provides for payment of 6% of smart card and related revenues
generated by the Company. The Company believes that the royalty is reasonable
based on the experience of SMI and its personnel in developing businesses
similar to that of the Company. The Company anticipates that SMI will assist the
Company in marketing its CarteSmart Systems, however, no assurance can be given
as to the extent of any revenue which may be generated from SMI's efforts.

Health Information Systems and Services

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

Although the health information systems constituted the basis of CSM's
business, revenue from the license of such systems, has not represented a major
component of its revenues. The typical price for a license for CSM's health
information systems ranges from $10,000 to $30,000. During the years ended
December 31, 1995, 1994 and 1993, CSM installed health information systems with
eleven, thirteen and twelve customers, respectively. Revenue from the licensing
of such systems represented approximately $162,000, $375,000 and $235,000, in
the years ended December 31, 1995, 1994 and 1993, respectively, accounting for
approximately 2.2%, 7.4% and 4.7% of revenue for such periods. However, the
Company license of a health information system is not limited to the grant of a
license, and typically includes significant additional services, including
software development and consulting services and maintenance services.

The Company offers software systems developed by CSM which are designed
to meet the requirements of providers of long-term specialty care treatment.
Certain of its systems were developed to meet the requirements of Federally
funded target cities projects and is installed in Baltimore, Los Angeles,
Atlanta and Cuyahoga County (Cleveland), Ohio.

A customer's purchase order may also include third party hardware or
software. For the three months ended March 31, 1996 and the years ended December
31, 1995, 1994 and 1993, revenue from hardware and third party software
accounted for approximately $268,000, $2.0 million, $900,000 and $1.0 million,
representing 10.5%, 26.7%, 18.1% and 19.6%, respectively, of revenues in such
periods.

In addition to its health information systems and related services, the
Company offers specialty care facilities a data center, at which its personnel
perform data entry and data processing and produce operations reports. These
services are typically provided to smaller substance-abuse clinics. During the
three months ended March 31,1996 and the years ended December 31, 1995, 1994 and
1993, CSM's service bureau operation generated revenue of approximately
$481,000, $1.7 million, $1.6 million and $1.7 million, respectively,
representing approximately 18.8%, 23.6%, 32.5% and 33.6% of CSM's revenues for
such periods. The largest user of the service bureau is the State of New York
Office of Alcohol and Substance Abuse Services, which uses the Company's service
bureau to maintain its statewide database of methadone users, however, such
customer accounted for less than 4% of CSM's revenues in the three months ended
March 31, 1996 and the years ended December 31, 1995, 1994 and 1993. The Company
intends to augment the marketing effort for the service bureau, although no
assurance can be given that such operations will continue to be profitable.

Maintenance services have generated increasing revenue and are
becoming a more significant portion of the Company's business. Since purchasers
of health information system licenses typically purchase maintenance service,
maintenance revenue increases as new customers obtain licenses for its health
information services. Under its maintenance contracts, which are executed on an
annual basis, the Company maintains its software and provides certain upgrades.
Its

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obligations under the maintenance contract may require the Company to make any
modifications necessary to meet new Federal reporting requirements. The Company
does not maintain the hardware and third party software sold to its customers.

Markets and Marketing

Although the market for smart card systems includes numerous
applications where a secure distributed data base processing system is
important, the Company's initial marketing efforts were directed to the health
and human services market, including managed care organizations and entitlement
programs. In the United States alone, the Company believes that there are
presently more than 75 million persons who participate in managed care programs,
which are sponsored by almost 600 organizations or health insurers. Because of
the relationship between the organization and the participating medical care
providers and patients, the organization can institute a smart card system
without the need for the Company to conduct a separate marketing effort directed
at the medical care providers. Although independent health insurers which do not
operate a managed care organization may, in the future, be a market for a smart
card system, because the relationship between the insurer and the medical care
provider is different from that of the managed care organization and its
participating medical care providers, the Company is not treating independent
insurance companies as a market for the CarteSmart System, and no assurance can
be given that it will ever become a market for the system.

The market for the Company's health information systems and related
services is comprised of various providers of specialty care involving long-term
treatment of a repetitive nature rather than short-term critical care, such as
medical and surgical hospitals or clinics. The Company believes that there are
approximately 15,000 providers of such treatment programs in the United States,
including public and private hospitals, private and community-based residential
facilities and Federal, state and local governmental agencies. Of these
facilities, approximately 200 are customers of the Company.

The Company believes that the acquisition of the CSM business and
assets complements its CarteSmart business and personnel. Following the
acquisition, the Company developed the graphical and smart card interface to the
CSM health information system and commenced a marketing effort directed to the
Company's customer base. The two smart card agreements, San Diego County and the
Albert Einstein School of Medicine, represent amendments to existing contracts
to include smart card services.

For the three months ended March 31, 1996, the Company's largest
customer was IBN, which generated revenue of $933,000, or 14.8% of revenue. For
the year ended December 31, 1995, one customer accounted for more than 5% of the
Company's revenue. The State of Colorado generated revenue of approximately $1.4
million, representing 18.5% of revenue for the year. At March 31, 1996, this
contract was substantially completed. Percentage of completion is based on the
percentage of work performed by such date. CSM's largest customer for 1994 was
Cuyahoga County (Cleveland) Ohio, from which CSM recognized revenue of $250,000,
or 7.0% of revenue. During 1993, CSM had two customers which accounted for at
least 5% of its revenue. Its largest customer for 1993 was the City of
Baltimore, which entered into a contract with CSM for approximately $800,000 for
software licenses and various contract services, maintenance, hardware and
software. CSM's revenue from the Baltimore contract accounted for $312,000, or
6.3% of revenue, in 1993. The contract was completed in July 1994, and revenue
from the contract in 1994 was substantially less than such revenue was in 1993.
A contract with the City of Los Angeles accounted for 5.2% of revenue for 1993.
No other customer accounted for 5% or more of the Company's revenues in any of
such periods.

The Company believes that the CarteSmart software has applications
beyond the health and human services market and is seeking to market the
software to educational institutions and in the financial services industry. See
"Business -- The CarteSmart System." In April 1995, the Company entered into a
joint marketing agreement with Oasis, pursuant to which each company markets the
software of the other company. Oasis, an independent software developer, has
developed and markets a transaction processing system, known as IST/Share,
designed for high volume users in the financial services industry. Mr. Storm R.
Morgan, a director of and consultant to the Company, is an officer of, and has
an equity interest in, Oasis. The Company believes that its agreement with Oasis
will enhance its ability to market and introduce its product to the financial
services industry where Oasis has an existing client base.

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The Company may enter into negotiations with other companies which have
business, product lines or products which are compatible with the Company's
business objectives. However, no assurance can be given as to the ability of the
Company to enter into any agreement with such a company or that any agreement
will result in licenses of the CarteSmart System. See "Business -- Potential
Business Agreements."

At March 31, 1996, the Company had a backlog of orders, including
ongoing maintenance and data center contracts, in the aggregate amount of
approximately $3.9 million, substantially all of which are expected to be filled
during the following twelve months. Such backlog reflected data center contracts
of $1.7 million, maintenance contracts of $1.2 million and contracts for turnkey
health information systems of $1.0 million. The data center and maintenance
contracts are typically one to three year contracts and the backlog reflects the
unexpired term of the contracts, based upon the average monthly usage for the
preceding three months. The backlog did not include any contracts for CarteSmart
Systems.

At March 31, 1995, the Company's backlog was approximately $4.8
million, consisting of $1.6 million of data center contracts, $1.0 million for
maintenance contracts and contracts for turnkey health information systems
contracts of $2.1 million.

The Company's sales force is comprised of three full-time sales
representatives, as well as Mr. Leonard M. Luttinger, chief operating officer,
John F. Phillips, president of CSM, and SMI, a consultant to the Company. Mr.
Storm R. Morgan's services include activities relating to the marketing of the
CarteSmart System to industries outside of the medical field. His present
efforts are devoted principally to the financial services industry. In addition,
Mr. Luttinger and other members of the Company's technical staff are available
to assist in market support, especially for proposals which contemplate the use
of smart card transaction processing networks.

Product Development

The Company is continuing the development and enhancement of the
CarteSmart System, and six of its employees are engaged in such activities. For
the year ended December 31, 1995 and the year ended December 31, 1994, research
and development expenses were $699,000 and $367,000, respectively. No research
and developmental expenses were incurred during the three months ended March 31,
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company intends to expand its development activities
following completion of this Offering. The Company intends to develop a product
based on both the SATC Software and its own technologies, including the
CarteSmart System, and to develop a network support tool for the financial
services industry. The proposed enhancements include an increased language
capability so that it can be multilingual, an interface with the Company's
CarteSmart System and an interface with Oasis' IST/Share, which is a transaction
processing system for high volume users in the financial services industry.

Competition

The Company is in the business of licensing software to entitlement
programs and managed care organizations, specialty care institutions and other
major computer users who have a need for access to a distributed data network,
and marketing health information systems software to specialty care
organizations. The software industry in general is highly competitive. In
addition, with technological developments in the communications industry, it is
possible that communications as well as computer and software companies may
offer similar or comparable services. Although the Company believes that it can
provide a health care facility or managed care organization with software to
enable it to perform its services more effectively, other companies, including
major computer and communications companies have the staff and resources to
develop competitive systems, and users, such as insurance companies, have the
ability to develop software systems in house. Because of the large subscriber
base participating in the major managed care organizations, the inability of the
Company to license any such organizations could have a materially adverse effect
upon its business. Furthermore, various companies have offered smart cards
programs, by which a person can have his medical records stored, and software
vendors and insurance companies have developed software to enable a physician or
other medical care provider to have direct access to the insurer's computer and
other software designed to maintain patient health and/or medication records.
The market is very cost sensitive. In marketing systems such as the CarteSmart
System, the Company must be able to demonstrate the ability of the network
sponsor to provide enhanced services at lower effective cost. Major systems and
consulting vendors, such as Unisys, AT&T Corp. and Andersen Worldwide have
provided smart card based solutions to their clients and they offer other
software systems in the industries to which the Company is marketing its
products and services. No assurance can be given that the Company will be able
to compete successfully with such competitors. The Company believes the health
insurance industry is developing switching software to be used in transmitting
claims from health care providers to the insurers, and insurers or managed care

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organizations may also develop or license or purchase from others the software
to process such claims, which would compete with certain functions of the
CarteSmart System. The health information systems business is highly
competitive, and is serviced 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 the Company, and no assurance can be given
that the Company will be able to compete effectively with such companies. Major
vendors of health information systems include Shared Medical Systems Corp. and
HBO Corp. The Company believes that price competition is a significant factor in
its ability to market its health information systems and services, and was a
factor in the decline in CSM's revenue from 1992 to lower levels in 1994 and
1993, although such revenue increased during 1995.

The Company also faces intense competition as it seeks to enter the
education and financial services markets. Competition for the education market
includes not only major and minor software developers, but credit card issuers
and telecommunications companies. In marketing its CarteSmart-based products to
educational institutions, the Company can focus on the benefits to the
university of providing an all-purpose card to ease administration and reduce
costs. Major credit card issuers and communications companies, such as American
Express, AT&T and MCI, can offer similar services by permitting the university
to link their cards with the university's services. Such organizations can also
use these marketing efforts as a part of their overall corporate marketing
strategy to familiarize the students with their particular cards and services in
hopes of attracting the students as a long-term user of their cards and
services. As part of a marketing plan, rather than a profit center, such card
issuers may be able to offer the universities services similar to the Company,
but at a lower cost to the university. In this context, it is possible that,
unless the Company can enter into a marketing arrangement with a major card
issuer or telecommunications company, the Company may not be able compete
successfully in marketing its CarteSmart products to educational institutions.

The financial services industry is served by numerous software vendors.
In addition, major banks, credit card issuers and other financial services
companies have the resources to develop networking software in house. At
present, most financial institutions use magnetic stripe cards rather than smart
cards. The Company believes that its CarteSmart System together with the SATC
Software and its joint marketing agreement with Oasis, which presently serves
the financial services industry, will assist the Company in selling and
licensing its products and services in the financial services industry. However,
to the extent that smart cards become more important in the financial services
industry, more companies in the financial services industry, as well as the
major computer and software companies, all of whom are better known and
substantially better capitalized than the Company, and numerous smaller software
developers, are expected to play in increasingly active role in developing and
marketing smart card based products. Furthermore, the recently announced joint
venture among Visa, MasterCard and certain major banks relating to the
development of a smart card based system, may have an adverse effect upon the
ability of the Company to market smart card products to the financial services
industry. The Company believes that such venture is a pilot program to
demonstrate the capability of smart card technology, and that, if successful,
increased competition for smart card systems in the financial services industry
will result as more companies seek to take advantage of smart card technology.
No assurance can be given as to the ability of the Company to compete in this
industry.

Government Regulations

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

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A substantial percentage of CSM's business has been with government
agencies, including specialized care facilities operated by, or under contract
with, government agencies. See "Business -- Markets and Marketing." The decision
on the part of a government agency to enter into a contract is dependent upon a
number of factors, including economic and budgetary problems affecting the local
area, and government procurement regulations, which may include the need for
approval by more than one agency before a contract is signed. In addition,
contracts with government agencies generally include provisions which permit the
contracting agency to cancel the contract at its convenience.

Intellectual Property Rights

The CarteSmart System is a proprietary system developed by the Company,
and its health information system software is proprietary software developed by
CSM. The Company has no patent rights for the CarteSmart System or health
information system software, but it relies upon non-disclosure and secrecy
agreements with its employees and third parties to whom the Company discloses
information. No assurance can be given that the Company will be able to protect
its proprietary rights to its system or that any third party will not claim
rights in the system. Disclosure of the codes used in the CarteSmart System or
in any proprietary product, whether or not in violation of a non-disclosure
agreement, could have a materially adverse affect upon the Company, even if the
Company is successful in obtaining injunctive relief, and no assurance can be
given that the Company will be able to obtain injunctive relief. Furthermore,
the Company may not be able to enforce its rights in the CarteSmart System in
certain foreign countries.

Prior to joining the Company, Messrs. Leonard M. Luttinger and Thomas
L. Evans, chief operating officer and vice president, respectively, of the
Company, were employed by Onecard Corporation ("Onecard"), a corporation which
was engaged in the development of smart card technology. The Company developed
its CarteSmart technology independent of Onecard, and no Onecard technology was
incorporated in the CarteSmart technology. See "Business -- Litigation" for
information with respect to an action commenced by Onecard against the Company,
Consolidated and certain of the Company's officers.

Source of Supply

Since the Company does not provide any of the hardware or the smart
cards, it is the responsibility of the licensee to obtain the hardware, smart
cards and other supplies. The Company's software operates on computer hardware
and smart cards manufactured by a number of suppliers.

Potential Business Agreements

Following completion of this Offering, the Company may enter into joint
ventures, acquisitions or other arrangements, such as joint marketing
arrangements and licensing agreements, which the Company believes would further
the Company's growth and development. In negotiating such agreements or
arrangements, the Company anticipates that such agreements would be based upon
the manner in which the Company's business can be expanded, the extent to which
either the Company's technology can be introduced or developed in fields not
then being addressed by the Company or the extent to which additional channels
can be developed for the Company's products and technology. The Company is a
participant in a joint marketing vehicle by which the Company's products can be
marketed by the other parties to the marketing arrangement, and the Company
would have access to customers of the marketing partners. The Company's proposed
joint venture with Oasis to purchase the SATC Software and its joint marketing
agreement with Oasis are examples of such agreements. Furthermore, no assurance
can be given that any agreement which the Company enters into will generate any
revenue to the Company. To the extent that the Company enters into an agreement
with an affiliated party, the terms and conditions of such agreement will be on
terms at least as favorable to the Company as those the Company could achieve in
negotiations at arm's length with an independent third party. If any such
agreement is with an affiliated party, the Company will seek the approval of a
majority of the directors who have no affiliation with the other party.

Employees

As of March 31, 1996, the Company had 66 employees, including five
executive, four marketing and marketing support, 51 technical and six clerical
and administrative employees. The chief executive officer and the president of
the Company devote only a portion of their time to the business of the Company.
Upon completion of this Offering, the Company intends to hire additional
personnel as needed.

- 38 -

<PAGE>

Litigation

On or about September 29, 1995, an action was commenced against the
Company by the filing of a summons with notice in the Supreme Court of the State
of New York, County of New York. The action was commenced by Jacque W. Pate,
Jr., Melvin Pierce, Herbert A. Meisler, John Gavin, Elaine Zanfini, individually
and derivatively as stockholders of Onecard. The named defendants include, in
addition to the Company, Messrs. Lewis S. Schiller, chief executive officer and
a director of the Company, Leonard M. Luttinger, chief operating officer of the
Company, and Thomas L. Evans, vice president of the Company, Holdings, the
Company's principal stockholder, Consolidated, and other stockholders of the
Company and other individuals who were or may have been officers or directors of
Onecard but who have no affiliation with the Company or Consolidated. Messrs.
Luttinger and Evans were employees of Onecard prior to the formation of the
Company. Mr. Schiller was not an employee or director of, consultant to, or
otherwise affiliated with, Onecard. A complaint was served on November 15, 1995.
The complaint makes broad claims respecting alleged misappropriation of
Onecard's trade secrets, corporate assets and corporate opportunities, breach of
fiduciary relationship, unfair competition, fraud, breach of trust and other
similar allegations, apparently arising at the time or, or in connection with
the organization of, the Company in September 1992. The complaint seeks
injunctive relief and damages, including punitive damages, of $130 million. The
Company believes that the action is without merit, and it will vigorously defend
the action. The Company filed an answer denying all allegations contained in the
complaint and filed a motion to dismiss, which motion has not been decided by
the Court. However, no assurance can be given as to the ultimate disposition of
the action, and an adverse decision may have a material adverse effect upon the
Company.

Property

The Company's executive offices and facilities are located in
approximately 18,000 square feet of space at 146 Nassau Avenue, Islip, New York,
pursuant to a lease which terminates on February 28, 1999, at a minimum annual
rental of $250,000. This lease provides for fixed annual increases ranging from
4% to 5%. The Company believes that such space is adequate for its immediate
needs. The Company occupies, on a month-to-month basis, an aggregate of
approximately 2,500 square feet of office space in Wethersfield, Connecticut and
La Jolla, California, at an aggregate monthly rental of $4,700.

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

MANAGEMENT

Directors and Executive Officers

The directors and executive officers of the Company are as follows:

Name Age Position
- ------------------ --- ---------------------------------------------------
Lewis S. Schiller 65 Chairman of the Board, Chief Executive Officer
and Director
James L. Conway 48 President and Director
Leonard M. Luttinger 47 Chief Operating Officer and Director
Thomas L. Evans 40 Vice President
Anthony F. Grisanti 47 Chief Financial Officer, Treasurer and Secretary
John F. Phillips 57 Vice President of CSM and Director
E. Gerald Kay 55 Director
Storm R. Morgan 31 Director

Mr. Lewis S. Schiller has been chairman of the board and a director of
the Company since its organization in September 1992. Mr. Schiller is chairman
of the board and chief executive officer of Consolidated, SISC and Holdings and
is chief executive officer and/or chairman of Consolidated's operating
subsidiaries, whose operations include magnetic resonance imaging centers, three
dimensional imaging products, telecommunications and various manufacturing
operations. SISC is the sole stockholder of Holdings, the principal stockholder
of the Company, and SISC and Holdings are wholly-owned

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<PAGE>

subsidiaries of Consolidated. Mr. Schiller has held such positions for more than
the past five years. Since May 1995, Mr. Schiller has also been chairman of the
board, chief executive officer and a director of Trans Global Services, Inc.
(formerly known as Concept Technologies Group, Inc.), ("Trans Global"), a
contract engineering company, of which SISC holds a majority of the voting
rights. Mr. Schiller devotes only a portion of his time to the business of the
Company. On December 11, 1989, Mr. Schiller was elected as chairman and chief
executive and financial officer of General Technologies Group, Ltd. ("GTG"), a
Long Island based defense manufacturing firm in which Consolidated was a
stockholder and a major creditor. On December 14, 1989, GTG filed for protection
under Chapter 11 of the Bankruptcy Act. Consolidated also commenced litigation
against GTG, its former chairman and chief executive officer, accountants and
secured lender which was settled out of court in 1993 and 1996. Mr. Schiller is
also a director of Fingermatrix, Inc., a public company which develops and
markets fingerprint identification systems. Mr. Schiller devotes a significant
portion of his time to the business of Consolidated and its other subsidiaries.
He anticipates that he will devote such amount of his time to the business of
the Company as is necessary; however, Mr. Schiller does not expect to devote
more than 10% of his time to the business of the Company.

Mr. James L. Conway has been president and a director of the Company
since January 1996. Since 1993, he has been president of S-Tech Corporation
("S-Tech"), a wholly-owned subsidiary of Consolidated which manufactures
specialty vending equipment for postal, telecommunication and other industries
and avionics products. His position as president of S-Tech Corporation is his
principal business activity. From 1990 to 1993, he was president of GTG, as
debtor in possession following its filing under Chapter 11 of the Bankruptcy
Act. Mr. Conway devotes 40% to 50% of his time to the business of the Company.

Mr. Leonard M. Luttinger has been president and a director of the
Company since its organization in September 1992 until January 1996, when he
became chief operating officer. From March 1991 to September 1992, Mr. Luttinger
was vice president of smart card systems for Onecard, a corporation engaged in
the development of smart-card technology. From June 1966 to February 1991, he
was employed at Unisys, a computer corporation, and its predecessor Burroughs
Corporation, in various capacities, including manager of semiconductor and
memory products and manager of scientific systems.

Mr. Thomas L. Evans has been vice president of the Company since
September 1992. From January 1991 to September 1992, Mr. Evans was director of
development for Onecard. From September 1987 to November 1990, he was director
of management information systems for Allied Grocers Co-operative, Inc., a food
and grocery distributor. From June 1973 to September 1987, he was a senior
project manager for Unisys.

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

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

Mr. E. Gerald Kay has been a director of the Company since June 1994.
For more than the past five years, Mr. Kay has been chairman of the board and
chief executive officer of Chem International, Inc., a pharmaceutical
manufacturer, Manhattan Drug Co., Inc., a wholesaler of pharmaceutical products,
The Vitamin Factory, Inc., a chain of retail vitamin stores, and Connaught
Press, Inc., a publisher. From 1988 to 1990 he was also president and a director
of The Rexall Group, Inc., a distributor of Rexall brand products. Mr. Kay is
also a director of Trans Global.

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

Messrs. Phillips and Grisanti and Mr. Edward D. Bright, who was chief
executive officer and a director of the Company from June 1994 to December 1995,
resigned as officers of ACT and Old CSM in June 1994, at the time of the sale by
Old CSM of its assets. Although Messrs. Phillips and Bright continue to serve as
directors of ACT, they anticipate that such service will not require any
significant amount of their business time and effort.

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

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<PAGE>

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

The Board of Directors does not have any executive, nominating or audit
committees.

Remuneration

Set forth below is information concerning the Company's chief executive
officer and the only officers who received or accrued compensation in excess of
$100,000 during the years ended December 31, 1995, 1994 and 1993. Information
with respect to Messrs. Bright and Phillips reflects, for 1994, the combined
compensation received from the Company and Old CSM, and for 1993, the
compensation received from Old CSM.

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (Awards)
------------------- -------------------------------
Name and Principal Position Year Salary Bonus Restricted Stock Options, SARs
- --------------------------- ---- ---------- --------- ---------------- -------------
Awards (Dollars) (Number)
---------------- -----------
<S> <C> <C> <C> <C> <C>
Lewis S. Schiller, CEO 1995 --(1) -- -- 52,500
(through June 1994) 1994 --(1) -- -- --
1993 --(1) -- -- --
Leonard M. Luttinger, 1995 $125,000 -- -- 176,768
President 1994 113,390 -- -- 15,000(2)2
1993 110,423 $24,000 $4,065(3) --
Edward D. Bright, CEO of 1995 127,627 -- -- 38,768
CSM, CEO of the Company 1994 115,203 -- --(4) 15,000(2)
(from July 1994 to December 1993 104,507 -- -- --
1995)
John F. Phillips, chairman of 1995 123,900 -- -- 38,768
the board of CSM, vice 1994 108,416 -- --(4) 15,000(2)
chairman and vice president 1993 109,226 -- -- --
-- marketing

</TABLE>
(1) Mr. Schiller received no compensation from the Company. Effective
December 31, 1994, Consolidated changed its fiscal year to the calendar
year from the twelve months ended July 31. During the year ended
December 31, 1995, the period from August 1, 1994 to December 31, 1994,
for the fiscal years ended July 31, 1994 and 1993, the total
compensation paid or accrued by Consolidated to Mr. Schiller were
$250,000, $94,000, $181,451 and $175,000, respectively. The Company has
an agreement with Trinity pursuant to which it is to pay Trinity
consulting fees of $180,000 per year for the three years following the
date of this Prospectus. The services to be rendered by Trinity include
general business and financial management services and may be rendered
by officers of Trinity, including Mr. Schiller, who is chief
executive officer of both Trinity and the Company.

(2) In December 1994, the Company issued options to purchase 15,000 shares
of Common Stock at $5.33 per share to each of Messrs. Luttinger, Bright
and Phillips pursuant to the Company's 1993 Long-Term Incentive Plan.
In January 1995, these options were cancelled and new options were
granted with an exercise price of $.232 per share, which was determined
by the Board of Directors to be the fair market value per share on such
date, to Messrs. Luttinger (8,058 shares), Bright (20,058 shares) and
Phillips (20,058 shares). See "Management -- Long-Term Incentive Plan."
See "Business -- Acquisition of CSM" and "Certain Transactions" for
information relating to the grant by SISC of options to purchase Common
Stock and the issuance by Consolidated of its common stock to Messrs.
Bright, Phillips and one other officer.

(3) Represents the value of 17,752 shares of Common Stock transferred to
Mr. Luttinger by SISC. See "Certain Transactions."

(4) See "Business -- Acquisition of CSM" and "Certain Transactions" for
information relating to the grant of options by SISC and the issuance
of Consolidated Common Stock by Consolidated to Messrs. Bright and
Phillips.

- 41 -

<PAGE>

In June 1994, at the closing of the acquisition of CSM, the Company
entered into five-year employment agreements with Messrs. Luttinger, Evans,
Edward D. Bright, John F. Phillips and Anthony F. Grisanti providing for annual
base salaries of $125,000, $85,000, $125,000, $125,000 and $80,000,
respectively. The agreements with Messrs. Luttinger and Evans replaced prior
agreements and increased their compensation. In January 1996, Mr. Evans' base
salary was increased to $100,000. The agreements provide for an annual cost of
living adjustment, an automobile allowance and a bonus of 4% of income before
income taxes for Messrs. Luttinger, Bright and Phillips and 2% of income before
income taxes for Messrs. Evans and Grisanti. The maximum bonus is 300% of salary
for Messrs. Luttinger, Bright and Phillips and 200% of salary for Messrs. Evans
and Grisanti. The agreements provide that such individuals will be elected as
executive officers of the Company. Mr. Luttinger's agreement also provides for
payment of his relocation expenses. For 1996, Messrs. Luttinger, Phillips and
Bright agreed to reduced base salaries of $62,500, $100,000 and $100,000, with
certain incentives if certain targets are attained. The aggregate annual base
salaries for 1996 under these agreements is $442,500. The Company also pays one
other officer, Mr. James L. Conway, salary of $52,000 per year. In addition, the
Company has an agreement with Trinity pursuant to which the Company will pay
Trinity $180,000 per year during the three-year period commencing on the first
day of the month in which the Company receives the proceeds from this Offering.
See "Certain Transactions."

The annual base compensation payable by Consolidated to Mr. Schiller
pursuant to his agreement with Consolidated is $250,000, subject to a cost of
living increase. In addition, Mr. Schiller receives incentive compensation based
on the results of Consolidated's operations and has a right to purchase 10% of
Consolidated's or SISC's equity interest in their operating subsidiaries and
investments for 110% of their cost. In December 1995 and January 1996, Mr.
Schiller exercised his option with respect to 373,507 shares of Common Stock
owned by Holdings. See "Certain Transactions."

Mr. Storm R. Morgan, a director of the Company, serves as a consultant
to the Company. The Company does not pay any compensation directly to Mr.
Morgan; however, it has a consulting arrangement and a proposed agreement with
SMI, a company wholly-owned by Mr. Morgan and of which he is a director and
officer, pursuant to which the Company pays SMI monthly payments of $25,000 to
$59,000 per month, for which SMI will provide the services of Mr. Morgan from
time to time on an as-needed basis and up to four other persons to serve in
management-level or other key positions for the Company on a full-time basis. In
addition, the Company pays SMI a fee equal to 6% of revenue from smart card and
related services.
See "Certain Transactions."

Pursuant to the underwriting agreement, the Company has agreed to use
its best efforts to obtain key man life insurance in the amount of $1,000,000 on
the lives of each of Messrs. James L. Conway, Leonard M. Luttinger and Thomas L.
Evans. See "Underwriting."

Long-Term Incentive Plan

In July 1993, the Company adopted, by action of the board of directors
and stockholders, the 1993 Long-Term Incentive Plan (the "Plan"). The Plan was
amended in October 1993, April 1994, October 1994 and February 1996. The Plan
does not have an expiration date. Set forth below is a summary of the Plan, but
this summary is qualified in its entirety by reference to the full text of the
Plan, a copy of which is filed as an exhibit to the Registration Statement, of
which this Prospectus is a part.

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

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

The Plan is to be administered by a committee of no less than three
disinterested directors to be appointed by the board (the "Committee"). No
member or alternate member of the Committee shall be eligible to receive options
or stock under the Plan (except as to the automatic grant of options to
directors) or under any plan of the Company or any of its affiliates. The
Committee has broad discretion in determining the persons to whom stock options
or other awards are to be granted, the terms and conditions of the award,
including the type of award, the exercise price and term and the restrictions
and forfeiture

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<PAGE>

conditions. If no Committee is appointed, the functions of the committee shall
be performed by the board of directors. At present no Committee has been
appointed.

The Committee will have the authority to grant the following types of
awards under the Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards. The Plan is designed to provide the Committee
with broad discretion to grant incentive stock-based rights.

In January 1995, the Board granted stock options to purchase an
aggregate of 252,804 shares of Common Stock at $.232 per share, and in December
1995, the Board granted stock options to purchase an aggregate of 104,952 shares
of Common Stock at $.345 per share. Such exercise prices were determined by the
Board to be the fair market value per share on the date of grant. The options
become exercisable as to 50% of the shares on the first and second anniversaries
of the date of grant. In connection with certain of the January 1995 option
grants, the Board cancelled previously granted options to purchase 206,250
shares at an exercise price of $5.33 per share which were granted in 1994. In
April 1996, the Company granted stock options to purchase an aggregate of
129,500 shares of Common Stock at an exercise price of $2.00 per share,
including options to purchase 27,000 shares which were granted to each of
Messrs. Edward D. Bright and John F. Phillips. The options are exercisable as to
50% of the shares on the first and second anniversaries of the date of grant.
The fair value of the Common Stock was $3.20 on the date of grant, and, as a
result, during the quarter ending June 30, 1996, the Company will incur
compensation expense of $155,000. See Note 17 of Notes to Netsmart Technologies,
Inc. Consolidated Financial Statements.

The following table sets forth information concerning options granted
during the year ended December 31, 1995 to the officers named in the
compensation table under "Management -- Remuneration." No SARs were granted. See
"Certain Transactions" for information concerning the issuance of Outstanding
Warrants to such persons.

Option Grants in Last Fiscal Year

Percent of Total
Number of Shares Options Granted Exercise
Underlying to Employees in Price Expiration
Name Options Granted Fiscal Year(1) Per Share Date
- -------------------- --------------- --------------- --------- ----------
Lewis S. Schiller 52,500(2) 8.7% $5.00 12/31/99
Leonard M. Luttinger 8,058 1.3% .2323 1/31/00
18,710 3.1% .345 12/31/00
37,500(2) 6.3% 2.00 12/31/99
112,500(2) 18.8% 5.00 12/31/99
Edward D. Bright 20,058 3.3% .2323 1/31/00
18,710 3.1% .345 12/31/00
John F. Phillips 20,058 3.3% .2323 1/31/00
18,710 3.1% .345 12/31/00

(1) The percentage is based upon the total number of stock options granted
(357,756) and Outstanding Warrants issued (240,000) to individuals who,
at the time of issuance, were officers, directors or employees of the
Company.

(2) Represents Outstanding Warrants formally issued in February 1996. In
July 1996, pursuant to the warrant exchange described under "Certain
Transaction -- Issuance of Warrants," the exercise price of those
Outstanding Warrants having a $5.00 exercise price was reduced to
$4.00, and the 12,500 Outstanding Warrants with a $2.00 exercise price
were exchanged for Outstanding Warrants to purchase 18,750 shares of
Common Stock at $4.00 per share.

(3) In connection with the January 1995 option grants, the Company
cancelled options to purchase 15,000 shares of Common Stock at $5.33
per share, which had been granted in 1994 to each of Messrs. Luttinger,
Bright and Phillips.

The following table sets forth information concerning the exercise of
options during the year ended December 31, 1995 and the year-end value of
options held by the officers named in the compensation table under "Management
- --Remuneration."

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<PAGE>

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

Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Fiscal Options at Fiscal
Shares Year End Year End1
Acquired
Upon Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- -------------------- -------- -------- ----------------- -----------------
Lewis S. Schiller -- -- --/ --/
52,500 -0-
Leonard M. Luttinger -- -- --/ --/
176,768 $ 911
Edward D. Bright -- -- --/ --/
38,768 2,267
John F. Phillips -- -- --/ --/
38,768 2,267

(1) The determination of "in the money" options at December 31, 1995, is
based on the fair market value of the Common Stock as determined by the
Board of Directors in December 1995 of $.345 per share.

CERTAIN TRANSACTIONS

Issuance of Securities at Organization

In connection with its organization, the Company, in September 1992,
issued an aggregate of 824,256 shares of Common Stock as follows: 582,072 shares
of Common Stock to SISC for $1,300, 112,584 shares to DLB for $6,700, and 43,200
shares of Common Stock to each of DLB, Mr. Harris Freedman and Mr. E. Gerald
Kay, who has been a director of the Company since June 1994, for nominal
consideration. SISC, DLB, Mr. Freedman and Mr. Kay may be deemed founders of the
Company. Mr. Lewis S. Schiller, chairman of the board of the Company, is
chairman of the board and chief executive officer of SISC. DLB is controlled by
the wife of Mr. Lewis S. Schiller; however, Mr. Schiller disclaims any
beneficial interest in any securities owned by DLB. Mr. Freedman is an officer
of Bridge Ventures, one of the selling warrantholders. See "Selling Security
Holders."

Also in connection with its organization, the Company acquired all of
the capital stock of LMT, Inc. ("LMT") in exchange for 129,600 shares of Common
Stock and 400 shares of Series A Preferred Stock, which are convertible into an
aggregate of 43,200 shares of Common Stock. LMT was a shell corporation which
was organized at the same time as the Company and never engaged in any business.
One of the stockholders of LMT, Mr. Martin Hodes, had, prior to the Company's
organization, but in anticipation of the Company's formation, incurred
substantial expenses in connection with technology related to the Company's
business, but which was never used by the Company. The shares of Common Stock
were issued as follows: 60,480 shares to Leonard M. Luttinger, chief operating
officer and a director of the Company, 43,200 shares to Mr. Martin Hodes, and
25,920 shares to Mr. Thomas Evans, vice president of the Company. Prior to the
issuance of the stock to the LMT stockholders, none of the LMT stockholders had
any affiliation with the Company.

From December 1992 through March 1993, the Company sold to each of four
accredited investors, including Mr. E. Gerald Kay, DLB and Mr. Harris Freedman,
one unit of the Company's securities for $25,000 per unit. Each such unit
consisted of 4,536 shares of Common Stock and 20 shares of Series B Preferred
Stock. Each share of Series B Preferred Stock is convertible into 259.2 shares
of Common Stock. In April 1994, DLB sold its shares of Series B Preferred Stock
to SISC.

In October 1993, SISC transferred an aggregate of 74,100 shares of
Common Stock for $.232 per share, as follows: 17,460, 8,640 and 18,000 shares to
Messrs. Luttinger, Hodes and Evans, respectively, and 6,000 shares to each of
five key employees of the Company. The $15,000 consideration payable to SISC
with respect to the 65,520 shares transferred by SISC to Messrs. Luttinger,
Evans and five employees was included in the Company's obligations to SISC.

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<PAGE>

In June 1993, SISC transferred 4,253 shares to a nonaffiliated party.
During the period from November 1993 and March 1994, SISC transferred an
aggregate of 36,201 shares of Common Stock at $.232 per share to DLB and six
unaffiliated persons.

Loan Transactions with Related Parties

During the period between the Company's organization in September 1992
and September 30, 1995, the Company borrowed approximately $2.9 million and
$97,000 from SISC and DLB, respectively. These loans bear interest at 10% per
annum. In April 1994, SISC purchased from DLB the note representing the
Company's obligations to DLB and DLB's Series B Preferred Stock. At such time,
SISC also purchased an Interim Note for $54,000 from an unrelated party for
$54,000.

The largest amounts owed by the Company at any one time to SISC during
1994 and 1995 were approximately $2.6 million and $3.0 million, respectively,
which were outstanding on December 31, 1994 and September 30, 1995. The largest
amount due to DLB during 1994 was $97,000, which was outstanding from the
beginning of the year until such obligation was purchased by SISC in April 1994.

In October 1993, the Company issued 78,000 shares of Common Stock to
SISC in consideration for the cancellation by SISC of approximately $18,100 of
indebtedness. At September 30, 1995, the Company's indebtedness to SISC was
approximately $3.0 million plus interest of $388,000. This indebtedness includes
loans made by SISC to the Company and CSM as well as the value of the 40,000
shares of Consolidated common stock issued to certain individuals in connection
with the acquisition of CSM. See "Certain Transactions -- Acquisition of CSM."
At September 30, 1995:

(a) SISC accepted 2,210 shares of Series D Preferred
Stock, which have a redemption price of $1,000 per share, or an aggregate of
$2,210,000 in exchange for cancellation of the Company's indebtedness in the
principal amount of $2.2 million. The Series D Preferred Stock is not voting and
there are limitations on the redemption of such shares. See "Description of
Securities -- Series D Preferred Stock." The Company issued a $750,000
promissory note to SISC in respect of the balance of its indebtedness to SISC.
The note is due in January 1997, but is payable five days after the completion
of the Company's initial public offering. SISC has agreed to extend the maturity
date to April 1, 1997. SISC has agreed not to require any payment unless the
over-allotment option is exercised, and, in the event that the over-allotment
option is exercised, a portion of such proceeds may be used for such purposes.
In addition, in the event the Company receives the proceeds from the exercise of
any Warrants or Outstanding Warrants, a portion of such proceeds may be used to
make a payment to SISC.

(b) The Company issued 1,125,000 shares of Common Stock to
Holdings in consideration of the cancellation by SISC of accrued interest at
September 30, 1995 of $388,000, reflecting a price of $.345 per share.

In January 1996, SISC exchanged 1,000 shares of Series D Preferred
Stock for 1,125,000 shares of Common Stock. As a result of this exchange, the
aggregate redemption price of the Series D Preferred Stock was reduced to $1.2
million.

In connection with the July and August 1993 issuance by the Company of
Interim Notes in the principal amount of $216,000, SISC sold to the lenders an
aggregate of 15,120 shares of Common Stock for $.232 per share, and the Company
agreed to give such stockholders certain piggyback registration rights with
respect to such shares. In connection with the agreement of the holders of the
Interim Notes to extend the maturity date until December 31, 1994, SISC
transferred an aggregate of 9,375 shares of Common Stock to such holders. The
holder of an Interim Note in the principal amount of $27,000 received payment of
the note and no shares were transferred.

In connection with the issuance by the Company of its December 1994
Interim Notes in the principal amount of $200,000, Consolidated (i) issued
shares of its common stock to the holders of such notes at the time of the
issuance of such notes, (ii) issued additional shares of its common stock upon
the exercise by the Company of its right to extend the maturity date of the
December 1994 Interim Notes to January 31, 1995, and a subsequent extension to
April 30, 1995, and (iii) guaranteed payment when such notes were not paid on
January 31, 1995. In anticipation of such interim financing, SISC advanced the
Company $50,000, which was repaid from the proceeds of the December 1994 Interim
Notes. Pursuant to a modification and extension agreement dated as of January
31, 1995, among the Company and the noteholders, the principal of the notes was
payable in three installments due on February 28, March 31 and April 30, 1995
and additional shares of Consolidated common stock were issued. The first
payment of $67,000 plus interest was made. The Company had the right to defer
the March 1995 payment until April 1995 by the payment of an extension fee of
$12,500 and the issuance by Consolidated of additional shares of its common
stock. The Company has not made either of the other two payments and is

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in default on the notes. The remaining principal plus accrued interest and the
extension fee was approximately $150,000 at December 31, 1995. See "Interim
Financings." In consideration of the issuance of the shares of Consolidated's
common stock and its agreement to guarantee payment of the notes, the Company
agreed to issue 75,000 shares of Common Stock to Holdings. Such shares were
issued at September 30, 1995. In addition, the Company agreed to issue
Outstanding Warrants to SISC. See "Certain Transactions -- Issuance of
Warrants."

During 1994 and 1995, ACT lent the Company $58,000 and $109,000,
respectively. The outstanding balance on December 31, 1995 and 1994 were
$167,000 and $58,000, respectively, representing the largest amounts owed during
such years. ACT has lent money to the Company during 1996, and, at March 31,
1996 and July 17, 1996, the balance due to ACT was $232,000 and $256,000,
respectively, which, with interest, is to be paid from the proceeds of this
Offering. The loans, which were made on a demand basis and bear interest at 10%
per annum, were used for working capital and other corporate purposes.

The Company believes that the transactions described above are fair and
reasonable to the Company and were made on terms that are not less favorable to
the Company than could have been obtained from non-affiliated third parties, if
such third parties were available, and it intends that transactions with related
parties will be on an arms-length basis.

Issuance of Warrants

In October 1993, the Company issued to SISC warrants to purchase
375,000 shares of Common Stock at $10.00 per share, 225,000 shares at $6.67 per
share and 150,000 shares of Common Stock at $2.67 per share and issued to SMACS
warrants to purchase 37,500 shares of Common Stock at $6.67 per share and 37,500
shares at $2.67 per share. These warrants became exercisable six months from the
completion of the Company's initial public offering or earlier with the consent
of the Company and the underwriter and expired on November 30, 1998. In
connection with the Company's prior proposed initial public offering, SISC
agreed to a reduction in the amount to be paid to SISC from the proceeds of such
offering, and the Company issued to SISC a warrant to purchase 525,000 shares of
Common Stock at $6.67 per share, and the Company and SISC agreed to an
adjustment in the exercise price of warrants to purchase 375,000 shares of
Common Stock from $10.00 per share to $6.67 per share.

In February 1996, the Company issued an aggregate of 3,573,125
Outstanding Warrants, of which 1,677,500 are exercisable at $2.00 per share and
1,895,625 are exercisable at $4.00 per share. These warrants were issued in
connection with services rendered, which, in the case of SISC, included the
guarantee of the December 1994 Interim Notes. Although the Warrants were issued
prior to the three-for-four reverse split, which was effective in February 1996,
the number of shares issuable upon exercise of the Outstanding Warrants, but not
the exercise price, was adjusted for the reverse split. Since the fair value of
the Common Stock on the date of board approval was $3.20 per share, the Company
incurred a compensation expense of $2.1 million as a result of the issuance of
Outstanding Warrants at $2.00 per share. See Notes 11 and 14 of Notes to
Netsmart Technologies, Inc. Consolidated Financial Statements. The Outstanding
Warrants expire on December 31, 1999. The Outstanding Warrants, which, with
respect to SISC and SMACS, replaced of the warrants described in preceding
paragraph, were issued in February 1996 to the following persons:

Name $2 Warrants $5 Warrants
- --------------------- ----------- -----------
SISC 1,968,750 --
Lewis S. Schiller -- 52,500
Storm R. Morgan 225,000 --
James L. Conway 112,500 112,500
Leonard M. Luttinger 37,500 112,500
Thomas L. Evans -- 37,500
SMACS Holdings, Inc. 37,500 187,500
Bridge Ventures, Inc. 135,000 135,000
--------- -------
Total 2,516,250 637,500
========= =======

SISC has transferred Outstanding Warrants to purchase 700,417 shares of
Common Stock to Mr. Lewis S. Schiller (206,250 warrants), E. Gerald Kay (100,000
warrants), James Conway (25,000 warrants), two officers and one director of
Consolidated (156,667 warrants), SMI (62,500 warrants) and two other individuals
who are not affiliated with the Company (150,000 warrants). Mr. Schiller has an
employment agreement with Consolidated pursuant to which he has an option to

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purchase 10% of Consolidated's or SISC's or their subsidiaries' interest in
equity securities owned by them. The transfer of the Outstanding Warrants to Mr.
Schiller was made pursuant to such employment agreement and for other services
to SISC. In February 1996, Mr. Schiller transferred to DLB 133,500 shares of
Common Stock and Outstanding Warrants to purchase 106,250 shares of Common Stock
at $2.00 per share in satisfaction of certain of his obligations to DLB or its
stockholder. DLB and Mr. Schiller have transferred 15,000 shares and 35,000
shares, respectively, of Common Stock to each of the Schillers' three adult
children and one person who is an officer of Consolidated. Mr. Schiller and DLB
disclaim any beneficial interest in the shares owned by the Schillers' adult
children. Bridge Ventures transferred Outstanding Warrants to purchase 67,500
shares of Common Stock at $2.00 per share and 67,500 shares of Common Stock at
$5.00 per share to Saggi, and SMACS transferred Outstanding Warrants to purchase
18,750 shares of Common Stock at $2.00 per share and 93,750 shares of Common
Stock at $5.00 per share to Saggi. As a result of such transfers, Saggi holds
Outstanding Warrants to purchase 86,250 shares of Common Stock at $2.00 and
161,250 shares of Common Stock at $5.00 per share. See "Selling Security
Holders."

In July 1996, pursuant to a warrant exchange, (a) the holders of
Outstanding Warrants having a $2.00 exercise price exchanged one third of such
warrants for Outstanding Warrants to purchase, at an exercise price of $4.00 per
share, 150% of the number of shares of Common Stock issuable upon exercise of
the Outstanding Warrants that were exchanged, and (b) the exercise price of the
Outstanding Warrants having a $5.00 exercise price was reduced to $4.00. Prior
to the warrant exchange, there were Outstanding Warrants to purchase 2,516,250
shares of Common Stock at $2.00 per share and Outstanding Warrants to purchase
637,500 shares of Common Stock at $5.00 per share outstanding. As a result of
the warrant exchange, there are Outstanding Warrants to purchase 1,677,500
shares of Common Stock at $2.00 per share and 1,895,625 shares of Common Stock
at $4.00 per share.

The Company issued the Outstanding Warrants to Messrs. James L. Conway
and Storm R. Morgan prior to their election as directors and prior to Mr.
Conway's election as president of the Company.

Acquisition of CSM

In April 1994, the Company entered into the Purchase Agreement to
acquire the assets of CSM from Old CSM. In June 1994, the acquisition of CSM's
assets was completed. Consolidated issued 800,000 shares of its common stock to
Old CSM, and SISC advanced the Company $500,000 to enable it to pay the cash
portion of the purchase price. The assets of Old CSM were acquired by a
subsidiary of Holdings, and the subsidiary changed its corporate name to
Creative Socio-Medics Corp. In September 1995, Holdings transferred the CSM
stock to the Company, and the Company issued 750,000 shares of Common Stock to
Holdings.

In connection with the execution of the Purchase Agreement, SISC
granted to Messrs. Edward D. Bright, John F. Phillips and Anthony F. Grisanti
options to purchase 66,000, 66,000 and 19,920 shares of Common Stock,
respectively. The shares subject to option are outstanding shares which are
owned by Holdings. The options are exercisable at an exercise price of $.232 per
share during the five-year period commencing on June 1994. The Company has
agreed to give Messrs. Bright, Phillips and Grisanti certain registration
rights, which do not apply prior to the completion of this Offering, with
respect to the shares of Common Stock issuable upon exercise of the options. At
the closing of the acquisition, Consolidated issued 17,377, 17,377 and 5,246
shares of Consolidated common stock to Messrs. Bright, Phillips and Grisanti,
respectively. Mr. Phillips has been a director of the Company and an officer of
the Company and/or CSM since the acquisition of CSM. Mr. Bright was chief
executive officer and a director of the Company from June 1994 through December
1995 and has been an officer of CSM since the June 1994 acquisition. Mr.
Grisanti has been treasurer of the Company since June 1994. The value of such
shares, which was approximately $136,000, was included in the amount owed by the
Company to SISC at September 30, 1995. See "Certain Transactions -- Loan
Transactions with Related Parties."

At the time of the acquisition of CSM in June 1994, SISC transferred
its stock in the Company to Holdings, its wholly-owned subsidiary, which, until
September 30, 1995, owned all of the stock of CSM as well as a controlling
interest in the Company.

Other Related Party Transactions

The Company has an agreement with Trinity pursuant to which the Company
will pay Trinity a monthly fee of $15,000 for a three-year term commencing on
the first day of the month in which the Company receives the proceeds from this
Offering for general business, management and financial consulting services.
Neither Mr. Lewis S. Schiller, chairman of the board of the Company,
Consolidated, SISC and Trinity, nor any other employee of Consolidated, SISC or
Trinity receives any compensation from the Company for services rendered by him,
and the fee reflects compensation for services

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rendered and to be rendered by Trinity to the Company. No compensation is
payable or accruable pursuant to the agreement until the completion of the
Company's initial public offering. Trinity's business is providing management
and related services, including services relating to the structure or
restructure of an organization, for companies which are affiliated with
Consolidated as well as non-affiliated entities.

Pursuant to an employment agreement between Mr. Schiller and
Consolidated, Mr. Schiller has the right to purchase 10% of SISC's equity
position in its subsidiaries, including the Company, for 110% of SISC's cost. In
December 1995, Mr. Schiller exercised his option and purchased from SISC an
aggregate of 348,009 shares of Common Stock of the Company at exercise prices
per share ranging from $.002 to $.38. The option exercised by Mr. Schiller
covered his option with respect to all of the Common Stock issued to SISC and/or
Holdings through December 31, 1995. In January 1996, Mr. Schiller exercised his
option to purchase 112,500 shares of Common Stock representing his option with
respect to the stock issuable in connection with the 1,125,000 shares of Common
Stock issued to Holdings in exchange for 1,000 shares of Series D Preferred
Stock. Such option had an exercise price of $.978 per share. Pursuant to his
employment agreement with Consolidated, the exercise price is payable over a
five-year period.

In January 1996, the Company issued 11,250 shares of Common Stock to
Mr. Thomas L. Evans for services rendered by him. The fair value of such shares
will be treated as compensation to Mr. Evans in 1995.

In January 1996, Mr. Storm R. Morgan was elected as a director of the
Company. At the time of his election, he was a consultant to the Company. The
Company does not pay compensation to Mr. Morgan. The Company has a proposed
agreement with SMI, of which Mr. Morgan is sole stockholder, an officer and a
director, pursuant to which the Company pays SMI monthly payments of $25,000 to
$59,000 per month, for which SMI will provide to the Company the services of Mr.
Morgan from time to time on an as-needed basis and up to four persons to serve
in management-level or other key positions for the Company on a full-time basis.
These individuals are providing marketing, support and technical services to the
Company. Mr. Morgan is not required to devote any minimum amount of time to the
business of the Company. The proposed agreement continues until December 31,
2000. If four persons (other than Mr. Morgan) are provided, the monthly fee
payable to SMI will be $59,000. To the extent that SMI provides the services of
persons other than Mr. Morgan, the Company may terminate such persons on 60 days
notice, in which event the monthly payment is reduced by $8,500 per person, but
in no event will the monthly payment be less than $25,000. The proposed
agreement also contemplates payment to SMI of 6% of smart card and related
revenues generated by the Company. In addition, the Company is to pay SMI a fee
of $250,000 for services relating to the Company's agreement with IBN, of which
$50,000 is payable from the proceeds of this Offering. The remaining $200,000 is
payable from the proceeds of the over-allotment option, if exercised by the
Underwriter, and from cash flow, provided, that in any event such amount shall
be due 13 months from the date of this Prospectus. The proposed agreement also
provides that, in the event that the Company receives a commission from sales of
smart cards and smart card readers, the Company is to pay SMI 50% to 100% of the
commissions received. Such commissions, if received, could be paid by smart card
vendors and certain equipment vendors in connection with smart card based
programs. Those instances in which SMI would receive 100% of the commissions are
expected to relate to certain limited circumstances in which SMI introduced both
the client and the equipment vendor to the Company. SMI has experience in the
development, marketing and sales of advanced electronic financial transaction
processing systems for point of sale applications, including automated teller
machines.

Mr. Morgan is also senior vice president of, and holds an equity
interest in, Oasis. The Company has a joint marketing agreement with Oasis
pursuant to which each company markets the products of the other for which it
receives a commission. The Company and Oasis are also forming a joint venture
corporation to acquire the SATC Software. The purchase price of the SATC
Software is $650,000, of which $325,000 is payable by each of the Company and
Oasis. The initial $325,000 payment was made by the Company. Oasis has agreed to
provide the joint venture company with the funds to make the remaining
installments, which are due during 1996, and has paid two installments each in
the amount of $75,000. The remaining payment of $175,000 is due in September
1996. However, the agreement pursuant to which the SATC Software is being
purchased, requires the Company to make the payment regardless of whether the
Company receives payment from Oasis. The Company intends to develop enhancements
to the SATC Software to enable it to interface with Oasis' IST/Share as well as
the Company's own CarteSmart System software.

In connection with the Company's accounts receivable financing, Messrs.
Schiller and Luttinger guaranteed the Company's obligations to the lender and
Messrs. Edward D. Bright and Anthony F. Grisanti, vice president of CSM and
secretary and chief financial officer of the Company, respectively, issued their
guaranty which is limited to the losses or liability resulting from certain
irregularities by the Company in the submission of invoices for advances and the
failure to pay over the proceeds from accounts to the lender. The Company knows
of no such irregularities. The advances under this facility were approximately
$972,000 and $958,000 at March 31, 1996 and August 8, 1996, respectively.

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As of June 30, 1996, SISC transferred 25,000 shares and 75,000 shares
of Common Stock to Messrs. James L. Conway, president of the Company, and Storm
R. Morgan, a director of the Company. Such shares were transferred in respect of
services rendered by such individuals to affiliates of Consolidated other than
the Company.

The Company has performed consulting services for certain of
Consolidated's affiliated companies. Such services, which have not been
substantial and consist of technical support, programming and systems analysis,
are rendered on an arms-length basis.

INTERIM FINANCINGS

In July and August 1993, the Company issued its Interim Notes, which
are payable from the proceeds of this Offering, in the aggregate principal
amount of $216,000. The notes were issued to seven accredited investors, none of
whom is an officer, director or principal stockholder of the Company or an
affiliate of any such person. In connection with the issuance of such notes,
SISC sold to the purchasers 2,160 shares of Common Stock at $.232 per share for
each $27,000 note purchased. The holders of the shares of Common Stock have
certain piggyback rights subsequent to this Offering. The net proceeds to the
Company from the Interim Notes was approximately $205,000, of which $78,535 was
used to reimburse SISC for money advanced by SISC without interest to pay
principal and interest on notes in the aggregate principal amount of $50,000 and
for other working capital purposes. The balance of such net proceeds was used
for working capital and other corporate purposes. In connection with an
extension of the maturity date to December 31, 1994, SISC transferred to the
holders of the Interim Notes an aggregate of 9,375 shares of the Company's
Common Stock owned by it. In April 1994, SISC purchased from one of the
noteholders such noteholder's Interim Note in the principal amount of $54,000.
The Company has paid $27,000 of the Interim Notes. The outstanding Interim Notes
are to be paid from the proceeds of this Offering. See "Use of Proceeds" and
"Certain Transactions."

In December 1994, the Company borrowed $200,000 from accredited
investors and issued to the investors its December 1994 Interim Notes in the
principal amount of $200,000. The proceeds of the loan were used for working
capital and other corporate purposes, including the payment of expenses relating
to this Offering. In anticipation of such interim financing, SISC advanced the
Company $50,000, which was repaid from the proceeds of the December 1994 Interim
Notes. The December 1994 Interim Notes were due December 31, 1994. In connection
with the December 1994 Interim Notes, Consolidated issued an aggregate of 30,000
shares of its common stock to the lenders in December 1994. The last reported
sale price for the Consolidated common stock on December 1, 1994, the date of
the initial closing for the sale of December 1994 Interim Notes, was $.69 per
share. Pursuant to the terms of the notes, the Company extended the maturity
date of the December 1994 Interim Notes until January 31, 1995, in connection
with which Consolidated delivered an additional 30,000 shares of Consolidated
common stock. The December 1994 Interim Notes provided that if such notes are
not paid by January 31, 1995, Consolidated is to issue and deliver its guaranty
of the payment of the principal of the December 1994 Interim Notes and accrued
interest thereon in three equal installments on the last day of February, March
and April 1995. Pursuant to a modification and extension agreement dated as of
January 31, 1995, among the Company and the noteholders, the principal amount of
the December 1994 Interim Notes was payable in three installments due on
February 28, March 31 and April 30, 1995. The first payment of $67,000 plus
interest was made. The Company had the right to defer the March payment until
April by the payment by the Company of a $12,500 extension fee and the issuance
by Consolidated of 25,004 additional shares of Consolidated common stock. The
Company has not made either of the other two payments and is in default on the
notes. The unpaid principal amount of the December 1994 Interim Notes of
$133,000, plus accrued interest, plus the $12,500 extension fee, which are
guaranteed by Consolidated, will be paid from the proceeds of this Offering. In
consideration of the issuance by Consolidated of shares of its common stock in
connection with the December 1994 Interim Notes, its agreement to issue
additional shares of its common stock if the notes are extended and its
agreement to provide the guarantee in the event that the December 1994 Interim
Notes are not paid by January 31, 1995, the Company issued to SISC Outstanding
Warrants to purchase 300,000 shares of Common Stock at $2.00 per share and
issued 75,000 shares of Common Stock to Holdings.
See "Use of Proceeds" and "Certain Transactions."

In January 1996, the Company borrowed $500,000 from four accredited
investors. In connection with such loans, the Company issued its 8% promissory
notes due January 31, 1997, which are payable from the proceeds of this
Offering. The Company also agreed that, if the Company completes an initial
public offering of its securities prior to the January 31, 1997 maturity date,
it would register pursuant to the Securities Act and issue to the noteholders
one Unit for each $2.00 principal amount of notes. Accordingly, the Company has
registered 250,000 Units for issuance to the noteholders for no cash
consideration. The shares of Common Stock and Warrants comprising the Units will
be issued at the time of payment of the notes, but the holders of the Units have
agreed not to sell shares of Common Stock or engage in short sales or sales
against

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the box for a period of 13 months commencing on the date the Company receives
the proceeds of this Offering. See "Selling Security Holders."

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of July 29, 1996 and as adjusted to
give effect to the sale of the 1,125,000 shares of Common Stock included in the
562,500 Units offered by this Prospectus and the 500,000 shares of Common Stock
included in the 250,000 Units to be issued to the holders of the January 1996
Interim Notes, who are the Selling Stockholders, and the 25,000 shares of Common
Stock to be issued to the Company's asset-based lender, the number and
percentage of shares of outstanding Common Stock owned by each person owning at
least 5% of the Company's Common Stock, each director owning stock and all
directors and officers as a group:

Common Stock
--------------------------------------------------
Amount and Nature
Name and of Beneficial Percent of Ownership
Address(1) Ownership(2) Outstanding As Adjusted
---------- ----------------- ----------- -----------
Lewis S. Schiller(3) 3,232,758 78.0% 56.0%
160 Broadway
New York, NY 10038

SIS Capital Corp.(4) 3,132,758 75.7% 54.3%
and
Carte Medical Holdings, Inc.
160 Broadway
New York, NY 10038

DLB, Inc.(5) 237,577 5.7% 4.1%
One Butler Road
Scarsdale, New York 10583

Leonard M. Luttinger(6) 82,029 2.0% 1.4%

John F. Phillips(7) 76,129 1.8% 1.3

Storm R. Morgan(8) 75,000 1.8% 1.3%

E. Gerald Kay(9) 52,920 1.3% *

James L. Conway(10) 25,000 * *

All Directors and Officers 3,544,462 84.8% 61.1%
as a group (five individuals
owning stock)(3), (6), (7),
(8), (9), (10), (11)

* Less than 1%.

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

(2) Unless otherwise indicated, each person named has the sole voting and
sole investment power and has direct beneficial ownership of the
shares. Since Outstanding Warrants are not exercisable for six months
following the date of this Prospectus without the consent of the
Company and the Underwriter, for purpose of this table, shares issuable
upon exercise of Outstanding Warrants are not deemed to be outstanding
at July 29, 1996. Information as to ownership of Outstanding Warrants
by each person named in the table is set forth in the footnotes.

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(3) Includes (a) 100,000 shares of Common Stock owned by Mr. Schiller, (b)
3,122,390 shares owned by Holdings, of which Mr. Schiller is the chief
executive officer and has the power to vote the shares, and (c) 10,368
shares of Common Stock issuable upon conversion of the 40 shares of
Series B Preferred Stock owned by Holdings. In addition, SISC holds
Outstanding Warrants to purchase 835,000 shares of Common Stock at
$2.00 per share and 650,000 shares of Common Stock at $4.00 per share,
and Mr. Schiller holds Outstanding Warrants to purchase 66,667 shares
of Common Stock at $2.00 per share and 102,500 shares of Common Stock
and $4.00 per share. Includes 151,920 shares of Common Stock owned by
Holdings, subject to options granted by SISC in connection with the
acquisition of CSM. See "Certain Transactions." Shares owned by Mr.
Schiller do not include securities owned by DLB, which is owned by Mr.
Schiller's wife and with respect to which Mr. Schiller disclaims
beneficial interest. At July 29, 1996, DLB owned 237,577 shares of
Common Stock and Outstanding Warrants to purchase 106,250 shares of
Common Stock at $2.00 per share. If the shares owned by DLB were
included with Mr. Schiller's shares, the number of shares of Common
Stock beneficially owned by Mr. Schiller at July 29, 1996 would be
3,472,358, or 83.7% of the outstanding shares of Common Stock at such
date, and 60.2% as adjusted.

(4) Includes (a) 3,122,390 shares owned by Holdings and (b) 10,368 shares
of Common Stock issuable upon conversion of the Series B Preferred
Stock owned by Holdings. In addition, SISC holds Outstanding Warrants
to purchase 835,000 shares of Common Stock at $2.00 per share and
650,000 shares of Common Stock at $4.00 per share. The shares owned by
SISC include 151,920 shares of Common Stock owned by Holdings, subject
to options granted by SISC in connection with the acquisition of CSM.
See "Certain Transactions."

(5) Does not include Outstanding Warrants to purchase 70,833 shares of
Common Stock at $2.00 and 53,126 shares of Common Stock at $4.00 per
share owned by DLB.

(6) Includes 4,029 shares of Common Stock issuable upon exercise of
outstanding options. In addition, Mr. Luttinger owns Outstanding
Warrants to purchase 25,000 shares of Common Stock at $2.00 per share
and 131,250 shares of Common Stock at $4.00 per share.

(7) Represents 66,000 shares issuable upon exercise of an option granted by
SISC and 10,029 shares of Common Stock issuable upon exercise of
outstanding options.

(8) Mr. Morgan holds Outstanding Warrants to purchase 150,000 shares of
Common Stock at $2.00 per share and 112,500 shares of Common Stock at
$4.00 per share, and SMI, of which Mr. Morgan is sole stockholder and
an officer and director, owns outstanding Warrants to purchase 41,667
shares of Common Stock at $2.00 per share and 31.250 shares of Common
Stock at $4.00 per share.

(9) Includes 5,184 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock owned by Mr. Kay. In addition, Mr.
Kay holds Outstanding Warrants to purchase 66,667 shares of Common
Stock at $2.00 per share and 50,000 shares of Common Stock at $4.00 per
share.

(10) Mr. Conway holds Outstanding Warrants to purchase 100,000 shares of
Common Stock at $2.00 per share and 168,750 shares of Common Stock at
$4.00 per share.

(11) Information with respect to all officers and directors as a group also
includes 26,560 shares of Common Stock issuable upon exercise of an
option granted by SISC to Mr. Anthony F. Grisanti.

SELLING SECURITY HOLDERS

The Selling Warrant Holders, SISC, Bridge Ventures and Saggi, may sell,
from time to time, the 800,000 shares of Common Stock issuable upon exercise of
the Outstanding Warrants pursuant to this Prospectus. During the first six
months from the date of this Prospectus, the Outstanding Warrants may not be
exercised, and the underlying shares of Common Stock may not be sold, without
the consent of the Company and the Underwriter. For the 18 months following the
expiration of such six-month period, neither the Outstanding Warrants nor the
underlying shares of Common Stock may be sold without the consent of the
Underwriter. The Outstanding Warrants are not to be publicly sold, and there is
not expected to be any public market for the Outstanding Warrants. The
Outstanding Warrants provide that, in the event that they are sold or otherwise
transferred pursuant to an effective registration statement, they expire 90 days
from the date of transfer. As a result, any purchaser of Outstanding Warrants
must, within a short period, either exercise the Outstanding Warrants or permit
them

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to expire unexercised. The Outstanding Warrants have an exercise price of $2.00
per share. SISC may exercise Outstanding Warrants by delivery of shares of
Series D Preferred Stock, with each such share to be deemed to have a value of
$1,000. See "Description of Securities -- Series D Preferred Stock."

SISC owns Outstanding Warrants to purchase 835,000 shares of Common
Stock at $2.00 per share and 650,000 shares of Common Stock at $4.00 per share.
Bridge Ventures owns Outstanding Warrants to purchase 45,000 shares of Common
Stock at $2.00 per share and 101,250 shares of Common Stock at $4.00 per share.
In addition, SMACS Holdings, Inc. ("SMACS"), an affiliate of Bridge Ventures,
holds Outstanding Warrants to purchase 12,500 shares of Common Stock at $2.00
per share and 103,125 shares of Common Stock at $4.00 per share, and Mr. Harris
Freedman, an officer of Bridge Ventures and SMACS, owns 47,736 shares of Common
Stock. Saggi owns Outstanding Warrants to purchase 57,500 shares of Common Stock
at $2.00 per share and 204,375 shares of Common Stock at $4.00 per share. Ms.
Sharon Will, an officer of Saggi, owns 7,079 shares of Common Stock. See
"Certain Transactions."

The Outstanding Warrants become exercisable six months from the date of
this Prospectus, or earlier with the consent of the Company and the Underwriter.
At such time as the Outstanding Warrants become exercisable, neither the
Outstanding Warrants nor the underlying Common Stock may be sold without the
prior consent of the Underwriter until the expiration of two years from the date
of this Prospectus, and in no event may such Warrants or the underlying Common
Stock be sold prior to the exercise in full or the expiration of the
Underwriter's over-allotment option. The holders of the Outstanding Warrants
have one demand registration right commencing two years after the date of this
Prospectus. The Outstanding Warrants being registered are exercisable at $2.00
per share, expire on December 31, 1999 and may not be redeemed by the Company.

Set forth below is information as to the stock ownership of the Selling
Warrant Holders as of the date the Outstanding Warrants become exercisable.

Amount and Nature Shares
Name and of Beneficial Being Percent of Ownership
Address Ownership Offered Outstanding As Adjusted
- ------- ----------------- --------- ----------- -----------
SIS Capital Corp. 4,617,758(1) 750,000 63.4% 53.1%(2)
160 Broadway
New York, NY 10038

Bridge Ventures, Inc. 149,250(3) 25,000 2.5% 2.1%
545 Madison Avenue
New York, NY 10022

Saggi Capital Corp. 386,125(4) 25,000 6.3% 5.8%
208 East 51st Street
New York, New York 10022

(1) Includes (a) 1,485,000 shares of Common Stock issuable upon exercise of
the Outstanding Warrants, (b) 3,122,390 shares owned by Holdings, which
is wholly owned by SISC, of which 151,920 shares of Common Stock are
subject to options granted by SISC in connection with the CSM
acquisition, and (c) 10,368 shares of Common Stock issuable upon
conversion of the 40 shares of Series B Preferred Stock owned by
Holdings. Mr. Lewis S. Schiller, chairman of the board of the Company
is the chief executive officer of Consolidated, the parent of SISC, and
has the right to vote and direct the disposition of the shares owned by
Holdings, SISC's wholly-owned subsidiary. See "Business --Acquisition
of CSM," "Management" and "Certain Transactions."

(2) If the over-allotment option is exercised in full, SISC's percent of
ownership on an as adjusted basis would be 51.9%.

(3) Represents 149,250 shares of Common Stock issuable upon exercise of
Outstanding Warrants owned by Bridge Ventures. Shares owned by Bridge
Ventures do not include securities owned by SMACS or by Mr. Harris
Freedman, who is an officer of Bridge Ventures and SMACS.

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(4) Represents 386,125 shares of Common Stock issuable upon exercise of
Outstanding Warrants owned by Saggi. Shares owned by Saggi do not
include securities owned by Ms. Sharon Will, who is an officer of
Saggi.

In connection with the issuance of the January 1996 Interim Notes, the
Company has agreed that, if the Company completes its initial public offering
prior to the January 31, 1997 maturity date of the notes, it will issue to the
note holders one Unit for each $2.00 principal amount of January 1996 Interim
Notes. The Company has registered, and will issue pursuant to the Registration
Statement of which this Prospectus is a part, an aggregate of 250,000 Units,
consisting of 500,000 shares of Common Stock and 250,000 Warrants, to the
persons named below (the "Selling Stockholders"). The Units and the Common Stock
and Warrants comprising the Units being offered by the Selling Stockholders are
subject to a one-year unconditional lock-up and, accordingly, may not be
transferred by the Selling Stockholders during the one-year period commencing on
the date of this Prospectus. During the month following the expiration of such
one-year period, such securities may be sold by the Selling Stockholders only
with the consent of the Underwriter. They have further agreed that, during the
13-month period commencing on the date of this Prospectus, they will not engage
in any short sales or short sales against the box with respect to the Company's
securities.

Set forth below is information as to the Selling Stockholders. None of
the Selling Stockholders is a stockholder or warrant holder of the Company.

Name Number of Shares(1) Number of Warrants
---- ------------------- ------------------
360 Central Corporation 300,000 150,000
12382 Baywind Court
Boca Raton, FL 33428

Charles S. Junger 100,000 50,000
42 West 39th St.
New York, NY 10018

Steven Capizzi 50,000 25,000
42 Cider Creek Circle
Rochester, NY 14616

Kenneth Lipson 50,000 25,000
251 28th Avenue
San Francisco, CA 94121

(1) Does not include shares of Common Stock issuable upon exercise of the
Warrants included in the Units to be issued to the Selling
Stockholders.

The Company will not receive any proceeds from the sale by the Selling
Warrant Holders of the shares of Common Stock issuable upon exercise of their
Outstanding Warrants other than the exercise price of the Outstanding Warrants
to the extent that the Outstanding Warrants are exercised, or from the sale by
the Selling Stockholders other than upon exercise of their Warrants.

The Selling Warrant Holders have advised the Company that any transfer
of the Outstanding Warrants will be either a sale in private transactions at
negotiated prices or by gift. They have advised the Company with respect to the
underlying shares of Common Stock, and each of the Selling Stockholders has
advised the Company with respect to the shares of Common Stock and Warrants
being acquired by them pursuant to this Prospectus that such sale may be
effected from time to time in transactions (which may include block transactions
by or for the account of the Selling Warrant Holders or Selling Stockholders
(collectively, "Selling Security Holders") in the over-the-counter market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices or in
negotiated transactions, a combination of such methods of sale or otherwise, and
securities may be transferred by gift.

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Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Security Holder's securities
may not simultaneously engage in market-making activities with respect to any
securities of the Company during the applicable "cooling-off" period (at least
two and possibly nine business days) prior to the commencement of such
distribution. Accordingly, in the event the Underwriter is engaged in a
distribution of a Selling Security Holder's securities, it will not be able to
make a market in the Company's securities during the applicable restrictive
period. However, the Underwriter has not agreed to and is not obligated to act
as broker-dealer in the sale of any Selling Security Holder's securities and the
Selling Security Holders may be required, and in the event the Underwriter is a
market-maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Security Holder desiring to sell
securities will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Rules 10b-6
and 10b-7, which provisions may limit the timing of the purchases and sales of
shares of the Company's securities by such Selling Security Holders.

The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discount and commissions under the Securities Act.

DESCRIPTION OF SECURITIES

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. Holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Holders of Common
Stock are entitled to share in such dividends as the Board of Directors, in its
discretion, may declare from funds legally available. In the event of
liquidation, each outstanding share entitles its holder to participate ratably
in the assets remaining after payment of liabilities. There are presently
4,136,253 shares of Common Stock outstanding, and upon completion of this
Offering and the issuance of 250,000 Units to the Selling Stockholders and
25,000 shares of Common Stock to the Company's asset-based lender, assuming the
Underwriter's over-allotment option is not exercised, there will be 5,786,253
shares of Common Stock outstanding. In addition, at July 29, 1996, there were
reserved for issuance 3,573,125 shares for issuance upon the exercise of the
Outstanding Warrants, 511,000 shares for issuance upon exercise of options
granted and to be granted pursuant to the Plan, 43,200 shares for issuance upon
conversion of the Series A Preferred Stock and 20,737 shares for issuance upon
conversion of the Series B Preferred Stock.

Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
the Company, and there are no redemption or sinking fund provisions with regard
to the Common Stock. All outstanding shares of Common Stock are, and those
issuable pursuant to this Prospectus or upon exercise of the Warrants will be
when issued as provided in this Prospectus, validly issued, fully paid, and
nonassessable. Stockholders do not have cumulative voting rights.

The Company's Board of Directors is authorized to issue, from time to
time and without further stockholder action, up to 3,000,000 shares of Preferred
Stock in one or more distinct series. The Board of Directors is authorized to
fix the following rights and preferences, among others, for each series: (i) the
rate of dividends and whether such dividends shall be cumulative; (ii) the price
at and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of voluntary or involuntary liquidation;
(iv) whether or not a sinking fund shall be provided for the redemption or
purchase of shares; (v) the terms and conditions on which shares may be
converted; and (vi) whether, and in what proportion to any other series or
class, a series shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per share. The Company
has no plans, agreements or understandings with respect to the designation of
any series or the issuance of any shares of Preferred Stock.

There are presently three series of Preferred Stock which are
authorized. Set forth below is information concerning each series of Preferred
Stock. The Series A, B and D Preferred Stock are on a parity with each other
with respect to dividends and on liquidation and dissolution. The Board of
Directors may create other series of Preferred Stocks which are either junior or
senior to or on a parity with the Series A, B or D Preferred Stock as to
dividends and/or on any voluntary or mandatory liquidation without the approval
of the holders of such series of Preferred Stock. Upon completion of this
Offering, the outstanding shares of Series A Preferred Stock will be converted
into shares of Common Stock, the shares of Series B

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Preferred Stock will be redeemed, and the only series of Preferred Stock which
will remain outstanding will be the Series D Preferred Stock.

The Company's certificate of incorporation authorizes the issuance of
so-called "blank check" preferred stock with the board of directors having 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 the
Company has no present intention to issue any additional shares of Preferred
Stock or to create any additional series of Preferred Stock, the Company may
issue such shares in the future.

Series A Preferred Stock

The Series A Preferred Stock consists of 400 shares, all of which are
issued and outstanding. Holders of shares of Series A Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, out of funds of the Company legally available for payment, dividends at
an annual rate of $4 per share. Dividends on the Series A Preferred Stock are
payable annually on March 1 in each year to holders of record at the close of
business on the immediately preceding February 15. The first dividend payment
date was March 1, 1994. Dividends accrue from the date of issuance of the shares
and are payable in cash or in shares of Common Stock, valued at fair market
value, as the Company's board of directors shall determine. The Company did not
pay the $2,262 dividend due March 1, 1994 or the $1,600 dividend due March 1,
1995 and 1996, and a portion of proceeds of this Offering may be used to make
such payment. Other than as required by applicable law, holders of shares of
Series A Preferred Stock will not be entitled to any voting rights with respect
to their shares.

In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any security of the
Company, if any, which ranks senior to the Series A Preferred Stock, holders of
shares of Series A Preferred Stock will be entitled to receive from the assets
of the Company $100 per share plus accrued and unpaid dividends to the payment
date, before any payment or distribution is made to holders of shares of Common
Stock or any other series or class of stock hereafter issued which ranks junior
as to liquidation rights to the Series A Preferred Stock.

Each share of Series A Preferred Stock, unless previously redeemed, is
convertible, commencing on the date of issuance, into 108 shares of Common
Stock. If the Series A Preferred Stock is called for redemption, conversion
rights will expire at the close of business on the business day prior to the
redemption date. The conversion rate is subject to adjustment upon the
occurrence of certain events.

The Company has the right to redeem the shares of Series A Preferred
Stock at a redemption price of $1,000 per share, plus accumulated and unpaid
dividends, at any time after the end of the first fiscal quarter in which its
financial statements show a consolidated net worth, determined in accordance
with generally accepted accounting principles consistently applied, of at least
$2,500,000. The Series A Preferred Stock may be redeemed in whole only and not
in part. Once the Series A Preferred Stock becomes redeemable, the Company may
redeem the Series A Preferred Stock upon at least 30, but not more than 60 days'
prior written notice to the registered holders. If the Series A Preferred Stock
is called for redemption, conversion rights will expire at the close of business
on the business day prior to the redemption date. The Company has agreed not to
redeem the Series A Preferred Stock prior to the expiration of two years from
the date of this Prospectus without the consent of the Underwriter. The sole
holder of the Series A Preferred Stock has agreed to convert his Series A
Preferred Stock into Common Stock following completion of this Offering.

Series B Preferred Stock

The Series B Preferred Stock consists of 80 shares, all of which are
issued and outstanding. Holders of shares of Series B Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, out of funds of the Company legally available for payment, dividends at
an annual rate of $72 per share. Dividends on the Series B Preferred Stock will
be payable annually on March 1 in each year to holders of record at the close of
business on the immediately preceding February 28. The first dividend payment
date was March 1, 1994. Dividends shall accrue from April 1, 1993, and are
payable in cash or in shares of Common Stock, valued at fair market value, as
the Company's board of

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directors shall determine, except that the first dividend shall be paid in cash.
The Company did not pay the $5,271 dividend due March 1, 1994 or the $5,760
dividends due on each of March 1, 1995 and 1996. The Series B Preferred Stock is
to be redeemed from the proceeds of this Offering, and payment of the accrued
dividends is being waived. Other than as required by applicable law, holders of
shares of Series B Preferred Stock will not be entitled to any voting rights
with respect to their shares.

In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any security of the
Company, if any, which ranks senior to the Series B Preferred Stock, holders of
shares of Series B Preferred Stock will be entitled to receive from the assets
of the Company $1,200 per share plus accrued and unpaid dividends to the payment
date, before any payment or distribution is made to holders of shares of Common
Stock or any other series or class of stock hereafter issued which ranks junior
as to liquidation rights to the Series B Preferred Stock.

The holders of the Series B Preferred Stock will be entitled at any
time after the Company receives the proceeds from this Offering, subject to
prior redemption, to convert each share of Series B Preferred Stock into 259.2
shares of Common Stock of the Company. If the Series B Preferred Stock is called
for redemption, conversion rights will expire at the close of business on the
business date prior to the redemption date. The conversion rate is subject to
adjustment upon the occurrence of certain events. If the holder of Series B
Preferred Stock demands redemption following the Company's initial public
offering, as described below, such holder's rights of conversion terminate
immediately upon issuing such demand.

Each holder of Series B Preferred Stock has the right, during the 30
day period following the date the Company receives the proceeds of this
Offering, on written notice to the Company, to require the Company to redeem all
of the shares of Series B Preferred Stock owned by such holder at a redemption
price equal to $1,200 per share. No holder of Series B Preferred Stock shall be
entitled to demand redemption of less than all of the shares of Series B
Preferred Stock owned by such holder. The Company shall be required to pay the
redemption price within 90 days after the receipt of the notice from the holder.
In the event that a holder of Series B Preferred Stock gives such notice, such
holder's right to convert the Series B Preferred Stock into Common Stock will
terminate immediately upon making the demand for redemption, and the holder's
only claim against the Company shall be for the amount of the redemption price.

The Company shall have the right to redeem the shares of Series B
Preferred Stock at a redemption price of $1,200 per share, plus accumulated and
unpaid dividends, at any time after the end of the first fiscal quarter in which
its financial statements show a consolidated net worth, determined in accordance
with generally accepted accounting principles consistently applied, of at least
$5,000,000. The Series B Preferred Stock may be redeemed in whole only, and not
in part. Once the Series B Preferred Stock becomes redeemable, the Company may
redeem the Series B Preferred Stock upon at least 30, but not more than 60 days'
prior written notice to the registered holders. If the Series B Preferred Stock
is called for redemption, conversion rights will expire at the close of business
on the business day prior to the redemption date. The Series B Preferred Stock
is to be redeemed following completion of this Offering. See "Use of Proceeds."

Series D Preferred Stock

The Series D Preferred Stock consists of a maximum of 3,000 shares, of
which 1,210 shares are issued and outstanding and owned by SISC. The holders of
the Series D Preferred Stock are entitled to receive, out of funds of the
Company legally available for payment, dividends at the annual rate of $60 per
share. Dividends are cumulative and accrue from the date of issuance, which was
October 1, 1995. Dividends are payable semiannually on the first day of April
and October, with the first dividend payment date being the first of such dates
to occur after the Company receives the proceeds of this Offering. Other than as
required by applicable law, holders of shares of Series D Preferred Stock will
not be entitled to any voting rights with respect to their shares.

In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any security of the
Company, if any, which ranks senior to the Series D Preferred Stock, holders of
shares of Series D Preferred Stock will be entitled to receive from the assets
of the Company $1.00 per share plus accrued and unpaid dividends to the payment
date, before any payment or distribution is made to holders of shares of Common
Stock or any other series or class of stock hereafter issued which ranks junior
as to liquidation rights to the Series D Preferred Stock. The Series D Preferred
Stock is on a parity with the Series A and B Preferred Stock as to dividends and
upon liquidation or dissolution of the Company.

The Series D Preferred Stock is redeemable at the option of the Company
for $1,000 per share commencing October 1, 1998, except that, prior to October
1, 1998, the Company may redeem shares of Series D Preferred Stock from 50% of
the

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net proceeds from the sale by the Company of its equity securities, including
the issuance of convertible securities and shares of Common Stock issued upon
exercise of warrants or options, excluding this Offering, except to the extent
that fifty percent (50%) of the net proceeds to the Company from the sale of
securities pursuant to the over-allotment option may be used to redeem any
shares of Series D Preferred Stock. However, the Company has agreed not to apply
any proceeds from the over-allotment option, if exercised, to redeem the Series
D Preferred Stock. The Company is not required to provide for the redemption of
any shares of Series D Preferred Stock through the operation of a sinking fund.
Any action to redeem the Series D Preferred Stock shall be taken by the Board of
Directors, with any person who is a holder or an officer, director or principal
stockholder of a holder of Series D Preferred Stock not participating in the
vote. The Series D Preferred Stock may also be transferred to the Company to
exercise Outstanding Warrants, with each share valued at $1,000 for such
purpose.

Series A Redeemable Common Stock Purchase Warrants

The holder of each Warrant is entitled, upon payment of the exercise
price of $4.50 per share, to purchase one share of Common Stock. Unless
previously redeemed, the Warrants are exercisable during the two-year period
commencing one year from the date of this Prospectus. Holders of the Warrants
will only be able to exercise the Warrants if (a) a current prospectus under the
Securities Act of 1933, as amended (the "Securities Act") relating to the shares
of Common Stock issuable upon exercise of the Warrants is then in effect, and
(b) such securities are qualified for sale or exemption from qualification under
the applicable securities laws of the states in which the various holders of
Warrants reside.

Commencing one year from the date of this Prospectus, with the consent
of the Underwriter, the Warrants are subject to redemption by the Company, on
not more than 60 nor less than 30 days' written notice, at a price of $.05 per
Warrant, if the closing price per share of the Common Stock is at least $9.00,
subject to adjustment, for at least 20 consecutive trading days ending within
ten days of the date on which the Warrants are called for redemption. Holders of
Warrants will automatically forfeit their rights to purchase the shares of
Common Stock issuable upon exercise of such Warrants unless the Warrants are
exercised before the close of business on the business day immediately prior to
the date set for redemption. All of the outstanding Warrants must be redeemed if
any are redeemed. A notice of redemption shall be mailed to each of the
registered holders of the Warrants by first class, postage prepaid, within five
business days (or such longer period to which the Underwriter may consent) after
the Warrants are called for redemption, but no earlier than the sixtieth nor
later than the thirtieth day before the date fixed for redemption. The notice of
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the redemption
price to be paid, and that the right to exercise the Warrants shall terminate at
5:00 p.m. (New York City time) on the business day immediately preceding the
date fixed for redemption. The Warrants can only be redeemed if, on the date the
Warrants are called for redemption, there is an effective registration statement
covering the shares of Common Stock issuable upon exercise of the Warrants.

The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised.

The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such as
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events.

The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until the holder exercises the
Warrants.

Although the Warrants have a fixed exercise price and a formula for
adjustments in certain events and have a fixed expiration date, it is possible
that in the future the Company may wish to reduce the exercise price or extend
the exercise period. The Company has no plans to reduce such price or extend the
Warrants. Any such change would be effected pursuant to a post-effective
amendment to the registration statement of which this Prospectus is a part or a
new registration statement, and no exercise of the Warrant with amended terms
may be exercised unless and until such post-effective amendment or new
registration statement has been declared effective by the Commission.

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Series B Common Stock Purchase Warrants

As of the date of this Prospectus, there were Outstanding Warrants to
purchase 1,677,500 shares of Common Stock at $2.00 per share and 1,895,625
shares of Common Stock at $4.00 per share. See "Certain Transactions" for
information with respect to the issuance of such Outstanding Warrants.

The Outstanding Warrants may be exercised during the period commencing
six months from the date the Company receives proceeds from this Offering and
ending on December 31, 1999. The exercise of the Outstanding Warrants can be
accelerated with the consent of the Company and the Underwriter. The holders of
the Outstanding Warrants have demand and piggy-back registration rights with
respect to stock issuable upon issuance of the Outstanding Warrants commencing
two years from the date of this Prospectus or earlier with the consent of the
Underwriter and the managing underwriter of the subsequent offering. The Company
has no right to redeem the Outstanding Warrants. In the event that the
Outstanding Warrants are transferred pursuant to an effective registration
statement, the Outstanding Warrants automatically terminate 90 days after the
date of transfer, provided that the registration statement remains current and
effective during such period. In such event, the transferee must either exercise
the Outstanding Warrant or permit it to expire unexercised.

The holders of the Outstanding Warrants have been given the opportunity
to profit from a rise in the market for the shares of the Company's Common Stock
at a nominal cost per share, with a resulting dilution in the interests of
stockholders. The holders of the Outstanding Warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital, if then needed, by a new equity offering on terms more
favorable than those provided by the Outstanding Warrants. Such facts may
adversely affect the terms on which the Company could obtain additional
financing.

Dividend Policy

Except for the obligation of the Company to pay dividends with respect
to the Preferred Stock, the Company presently intends to retain future earnings,
if any, in order to provide funds for use in the operation and expansion of its
business and accordingly does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. See "Description of Securities" for information
concerning dividends payable with respect to the Series A, B and D Preferred
Stock.

Shares Eligible for Future Sale

All of the presently issued and outstanding shares of Common Stock and
preferred stock are "restricted securities" as that term is defined under Rule
144 promulgated under the Securities Act. If a public market develops for the
Company's Common Stock, the Company is unable to predict the effect that sales
made under Rule 144 or other sales may have on the then prevailing market price
of the Common Stock. Of the 4,136,253 presently outstanding shares of Common
Stock, 896,994 shares of Common Stock, together with the 63,936 shares of Common
Stock issuable upon conversion of the Series A and B Preferred Stock, will
become eligible for sale pursuant to Rule 144 commencing 90 days after the
effective date of the registration statement of which this Prospectus forms a
part. The remaining shares of Common Stock will become eligible for sale
pursuant to Rule 144 in September 1997 as to 1,755,000 shares held by SISC, in
December 1997 to February 1998 as to the remaining 1,484,259, of which 1,012,500
shares are owned by Holdings.

Commencing on the date the shares may be sold pursuant to Rule 144, in
any three month period, a holder may sell up to the greater of 1% of the
outstanding Common Stock, which is 57,612 shares based on 5,761,253 shares of
Common Stock outstanding upon completion of this Offering, assuming the
over-allotment option is not exercised, or the average weekly trading volume of
the Common Stock. Shares held by persons who are not affiliated with the Company
may sell the Common Stock without limitation on the later of three years after
the stock is purchased or 90 days from the date of this Prospectus.

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Transfer Agent and Warrant Agent

The transfer agent for the Common Stock and Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.

UNDERWRITING

Monroe Parker Securities, Inc. (the "Underwriter") has agreed, on the
terms and subject to the conditions of the Underwriting Agreement, to purchase
from the Company, and the Company has agreed to sell to the Underwriter, 562,500
Units. The Underwriter is committed to purchase and pay for all of the Units
offered hereby on a "firm commitment" basis if any are purchased.

The Underwriter has advised the Company that it proposes to offer the
Units to the public at the initial public offering price set forth on the cover
page of this Prospectus. The Underwriter may allow to certain dealers, who are
members of the National Association of Securities Dealers, Inc. ("NASD"),
concessions not exceeding $. per Unit, of which not more than $. per Unit may be
reallowed to other dealers who are members of the NASD. After the initial public
offering, the offering price, the concession and the reallowance may be changed.

The Company has granted an option to the Underwriter, exercisable
during the 45 day period from the date of this Prospectus, to purchase up to a
maximum of 84,375 additional Units at the offering price, less the underwriting
discounts, for the sole purpose of covering over-allotments of the Units.

The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units sold
(including any Units sold pursuant to the Underwriter's over-allotment option).

The Company has also agreed to enter into a one-year consulting
agreement pursuant to which the Company will pay the Underwriter a fee of
$60,000, which is to be paid in full at the closing of this Offering. During the
period of the consulting agreement, the Underwriter will be reimbursed for its
Company-approved out of pocket expenses. The Company has also entered into an
agreement with the Underwriter pursuant to which the Company will pay the
Underwriter a fee in the event the Company enters into an acquisition, merger or
similar transaction with a party introduced to it by the Underwriter. As of the
date of this Prospectus, the Underwriter has not introduced the Company to any
such party.

The holders of substantially all of the outstanding Common Stock and
Outstanding Warrants have agreed not to sell publicly any of their securities
without the written consent of the Underwriter for a period of two years from
the date of this Prospectus. See "Selling Security Holders" for information
relating to the restrictions on sales by the Selling Security Holders. The
Company has agreed that, during the two years following the date of this
Prospectus, it will not, without the consent of the Underwriter, issue shares of
Common Stock (other than upon exercise or conversion of existing securities, the
Warrants, the Underwriter's Options or pursuant to the Plan) or file a
registration statement.

The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.

In connection with this Offering, the Company has agreed to sell to the
Underwriter, for a purchase price of $56.25, Underwriter's Options to purchase
from the Company up to 56,250 Units at an exercise price equal to 145% of the
initial public offering price per Unit. The Units issuable upon exercise of the
Underwriter's Options are substantially identical to the Units offered hereby,
except that, in the event that the Underwriter's Options are exercised after the
redemption (but before the expiration) of the Warrants, the Warrants underlying
the Underwriter's Options are immediately redeemable by the Company. The
Underwriter's Options are exercisable for a four-year period commencing one year
from the date this Prospectus, except that, if the Warrants expire prior to the
exercise of the Underwriter's Options, upon such exercise the Company will issue
two shares of Common Stock and no Warrants. During the one-year period
commencing on the date of this Prospectus, the Underwriter's Options may not be
sold, transferred, assigned or hypothecated, except to the officers of the
Underwriter or to selling group members or officers or partners or members
thereof, all of which shall be bound by such restrictions. If the Underwriter's
Options are transferred subsequent to the one-year period commencing on the date
of this Prospectus, they must be immediately exercised and, if not so exercised,
they will terminate. The Underwriter's Options will contain anti-dilution
provisions providing for adjustment under certain circumstances similar to those
applicable to the Warrants included in the Units. The holders of the
Underwriter's Options have no voting, dividend or other rights as stockholders
of the Company with respect to securities underlying the Underwriter's Options.
The holders of the Underwriter's Options have

- 59 -

<PAGE>

been given the opportunity to profit from a rise in the market for the Company's
securities at a nominal cost, with a resulting dilution in the interests of
stockholders. The holders of the Underwriter's Options can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital, if then needed, by a new equity offering on terms more
favorable than those provided by the Underwriter's Options. Such facts may
adversely affect the terms on which the Company could obtain additional
financing. Any profit received by the Underwriter on the sale of the
Underwriter's Options or the securities issuable upon exercise of the
Underwriter's Options may be deemed additional underwriting compensation.

The Company has agreed during the term of the Underwriter's Options and
for two years thereafter to give advance notice to the holders of the
Underwriter's Options or underlying securities of its intention to file a
registration statement, and, in such case, the holders of the Underwriter's
Options and underlying securities shall have the right to require the Company to
include the underlying securities in such registration statement at the
Company's expense. At the demand of the holders of a majority of holders of the
Underwriter's Options and underlying Common Stock, including Common Stock issued
or issuable upon exercise of the Warrants issuable upon exercise of the
Underwriter's Options, during the term of the Underwriter's Options, the Company
will also be required to file one such registration statement at the Company's
expense. In addition, the Company has agreed to cooperate with the holders of
the Underwriter's Options in filing a registration at the expense of the holders
of the Underwriter's Options or underlying securities.

The Company has also agreed to pay the Underwriter a Warrant
solicitation fee equal to 4% of the exercise price of the Warrants, a portion of
which may be reallowed to a member of the NASD who solicited or assisted in the
solicitation of the exercise of the Warrants. The Warrant exercise fee shall not
be payable with respect to any Warrant exercises prior to the first anniversary
of the date of this Prospectus and may be paid only if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (ii) the exercise of the Warrant was solicited by
a member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise, (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangements are made, in addition to the
disclosure provided in this Prospectus, in documents provided to holders of
warrants at the time of exercise, and (v) the solicitation of the Warrant was
not made in violation of Rule 10b-6 of the Commission under the Securities
Exchange Act of 1934.

Rule 10b-6 of the Commission pursuant to the Exchange Act may prohibit
the Underwriter from engaging in any market making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Underwriter of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriter may be unable
to provide a market for the Company's securities during certain periods while
the Warrants are exercisable.

Prior to this Offering there has been no public market for the
securities of the Company. The public offering price and composition of the
Units and the exercise price and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the Underwriter
and are not related to the Company's assets, book value, financial condition or
any other recognized criteria of value. In determining such price and terms, the
Company and the Underwriter considered a number of factors, including estimates
of the Company's business potential, the amount of dilution to public investors,
the Company's prospects, and the general condition of the securities markets.

Pursuant to the Underwriting Agreement, the Company has agreed to use
its best efforts to purchase key-man life insurance in the amount of $1 million
on the life of each of Messrs. James L. Conway, Leonard M. Luttinger and Thomas
L. Evans, president, chief operating officer and vice president, respectively,
of the Company, and to keep such insurance in effect for at least three years
from the date of this Prospectus, provided that such insurance is available on
standard rates. The Company will be the beneficiary of these policies.

The Company has agreed not to call the Series A Preferred Stock for
redemption during the two years following the date of this Prospectus without
the consent of the Underwriter.

The Underwriter has informed the Company that sales to any account over
which the Underwriter exercises discretionary authority will not exceed 1% of
this Offering.

- 60 -

<PAGE>

LEGAL MATTERS

Esanu Katsky Korins & Siger, 605 Third Avenue, New York, New York
10158, counsel for the Company, have given their opinion as to the authorization
and valid issuance of the shares of Common Stock and Warrants comprising the
Units offered by this Prospectus. Singer, Bienenstock, Zamansky, Ogele &
Selengut, LLP., 40 Exchange Place, New York, New York 10005, is acting as
counsel for the Underwriter in connection with this Offering.

EXPERTS

The financial statements of the Company included in this Prospectus
have been audited by Moore Stephens, P.C., independent certified public
accountants, as stated in their report appearing herein, which includes an
explanatory paragraph that there is substantial doubt as to the ability of the
Company to continue as a going concern, and are included in reliance on their
report given on the authority of that firm as experts in accounting and
auditing. On July 1, 1996, the firm of Mortenson and Associates, P.C. changed
its name to Moore Stephens, P.C.

The financial statements of CSM for the year ended December 31, 1993
included in this Prospectus have been audited by Richard A. Eisner & Company,
LLP, independent certified public accountants, as stated in their report
appearing herein, and are included in reliance on their report given on the
authority of that firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1 relating to the securities offered
hereby has been filed by the Company with the Securities and Exchange
Commission. This Prospectus does not contain all of the information set forth in
such Registration Statement. For further information with respect to the Company
and to the securities offered hereby, reference is made to such Registration
Statement, including the exhibits thereto. Statements contained in this
Prospectus as to the content of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

- 61 -

<PAGE>

INDEX TO FINANCIAL STATEMENTS

Page to Page

Netsmart Technologies, Inc.

Independent Auditor's Report F-3
Balance Sheets F-4 -- F-6
Statements of Operations F-7 -- F-8
Statements of Stockholders' Equity F-9
Statements of Cash Flows F-10 -- F-11
Notes to Financial Statements F-12 -- F-29

Creative Socio-Medics Corp.

Report of Independent Auditors F-30
Statements of Operations F-31
Statement of Changes in Capital (Deficiency) F-32
Statements of Cash Flows F-33 -- F-34
Notes to Financial Statements F-35 -- F-36

F-1

<PAGE>

[This page intentionally left blank]

F-2

<PAGE>
INDEPENDENT AUDITOR'S REPORT

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

We have audited the accompanying consolidated balance sheet of
Netsmart Technologies, Inc. [formerly CSMC Corporation] and subsidiary as of
December 31, 1995, and the combined balance sheet of Netsmart Technologies, Inc.
and affiliate as of December 31, 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Netsmart Technologies, Inc. and subsidiary as of December 31, 1995, and Netsmart
Technologies, Inc. and affiliate as of December 31, 1994, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, and the results of Netsmart Technologies, Inc.'s
operations and cash flows for the year ended December 31, 1993, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements and as discussed in Note 3 to the financial statements, the
Company has suffered recurring losses since its inception in 1992, and has an
accumulated deficit at December 31, 1995 of $5,147,000. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

/S/___________________________
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.

Cranford, New Jersey
March 6, 1996

F-3

<PAGE>
NETSMART TECHNOLOGIES, INC.
BALANCE SHEETS

March 31, December 31,
---------- ------------
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
[Consolidated] [Consolidated] [Combined]
[Unaudited]
Assets:
Current Assets:
Cash $ 71,000 $ -- $ --
Accounts Receivable - Net 2,329,000 2,112,000 1,732,000
Costs and Estimated Profits in Excess
of Interim Billings 1,055,000 415,000 502,000
Other Current Assets 19,000 14,000 24,000
---------- ---------- ----------
Total Current Assets 3,474,000 2,541,000 2,258,000
--------- ---------- ----------

Property and Equipment - Net 336,000 347,000 349,000
---------- ---------- ----------

Other Assets:
Software Development Costs -- -- 419,000
Deferred Public Offering Costs 114,000 -- 331,000
Investment in Joint Venture at Equity -- -- 21,000
Customer Lists 3,364,000 3,442,000 3,755,000
Software 650,000 -- --
Other Assets 61,000 60,000 60,000
--------- ---------- ----------
Total Other Assets 4,189,000 3,502,000 4,586,000
--------- ---------- ----------
Total Assets $7,999,000 $6,390,000 $7,193,000
========== ========== ==========

See Notes to Financial Statements.

F-4

<PAGE>
NETSMART TECHNOLOGIES, INC.
BALANCE SHEETS

March 31, December 31,
---------- ------------
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
[Consolidated] [Consolidated] [Combined]
[Unaudited]

Liabilities and Stockholders' Equity:
Current Liabilities:
Cash Overdraft $ 107,000 $ 95,000 $ 39,000
Notes Payable - Bank 29,000 79,000 254,000
Notes Payable - Other 1,740,000 1,003,000 362,000
Capitalized Lease Obligations 168,000 169,000 185,000
Accounts Payable 1,627,000 1,186,000 1,027,000
Accrued Expenses 1,459,000 1,323,000 388,000
Interim Billings in Excess of Costs
and Estimated Profits 1,210,000 940,000 1,157,000
Due to Related Parties 232,000 167,000 2,883,000
Deferred Revenue 64,000 141,000 --
---------- ----------- ----------

Total Current Liabilities - Forward 6,636,000 5,103,000 6,295,000
---------- ----------- ----------

Capitalized Lease Obligations - Forward 29,000 34,000 47,000
---------- ----------- ----------

Subordinated Debt - Related Party
- Forward 750,000 750,000 --
---------- ----------- ----------

Commitments and Contingencies - Forward -- -- --
---------- ----------- ----------

Redeemable Preferred Stock:
Series B 6% Redeemable Preferred Stock;
80 Shares Authorized, Issued and
Outstanding [Liquidation Preference
and Redemption Price of $96,000] -
Forward $ 96,000 $ 96,000 $ 96,000

See Notes to Financial Statements.

F-5

<PAGE>
NETSMART TECHNOLOGIES, INC.
BALANCE SHEETS
March 31, December 31,
1996 1995 1994
---------- ---------- ----------
[Consolidated] [Consolidated] [Combined]
[Unaudited]

Total Current Liabilities - Forwarded $6,636,000 $5,103,000 $6,295,000
---------- ---------- ----------
Capitalized Lease Obligations - Forwarded 29,000 34,000 47,000
---------- ---------- ----------
Subordinated Debt - Related Party -
Forwarded 750,000 750,000 --
---------- ---------- ----------
Commitments and Contingencies - Forwarded -- -- --
---------- ---------- ----------
Redeemable Preferred Stock - Forwarded 96,000 96,000 96,000
---------- ---------- ----------
Stockholders' Equity:
Preferred Stock, $.01 Par Value;
Authorized 3,000,000 Shares;
Authorized, Issued and Outstanding:

Series A 4% Convertible Redeemable
Preferred Stock - $.01 Par Value
400 Shares Authorized, Issued and
Outstanding [Liquidation Preference
of $40,000] -- -- --

Series D 6% Redeemable Preferred
Stock - $.01 Par Value 3,000
Shares Authorized, 2,210 Issued
and Outstanding [Liquidation
Preference of $2,210 and $1,210]
at December 31, 1995 and March 31,
1996, Respectively -- -- --

<PAGE>

Additional Paid-in Capital -
Preferred Stock [$40,000 - Series A;
$2,210,000 - Series D at December 31,
1995, $1,210,000 - Series D at March
31, 1996] 1,250,000 2,250,000 40,000

Common Stock - $.01 Par Value;
Authorized 15,000,000 Shares;
Issued and Outstanding 1,050,003
Shares at December 31, 1994,
3,011,253 Shares at December 31,
1995, 4,136,253 Shares at March
31, 1996 41,000 30,000 11,000

Additional Paid-in Capital
- Common Stock 6,343,000 3,274,000 3,001,000
Accumulated Deficit (7,146,000) (5,147,000) (2,297,000)
----------- ----------- -----------
Total Stockholders' Equity 488,000 407,000 755,000
----------- ----------- -----------
Total Liabilities and Stockholders'
Equity $ 7,999,000 $ 6,390,000 $ 7,193,000
============ ============ ===========

See Notes to Financial Statements.

F-6

<PAGE>
NETSMART TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- ----------
[Consolidated] [Combined] [Consolidated] [Combined]
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C> <C>
Revenues:
Software and Related Systems and Services:
General $ 1,790,000 $ 755,000 $ 4,541,000 $ 1,539,000 $ 57,000
Maintenance Contract Services 289,000 252,000 1,099,000 501,000 --
----------- ----------- ----------- ----------- ---------
Total Software and Related Systems and Services 2,079,000 1,007,000 5,640,000 2,040,000 57,000

Data Center Services 481,000 420,000 1,742,000 884,000 --
----------- ----------- ----------- ----------- ---------
Total Revenues 2,560,000 1,427,000 7,382,000 2,924,000 57,000
----------- ----------- ----------- ----------- ---------
Cost of Revenues:
Software and Related Systems and Services:
General 1,469,000 711,000 3,986,000 1,669,000 20,000
Maintenance Contract Services 144,000 192,000 743,000 449,000 --
----------- ----------- ----------- ----------- ---------
Total Software and Related Systems and Services 1,613,000 903,000 4,729,000 2,118,000 20,000

Data Center Services 285,000 207,000 889,000 416,000 --
----------- ----------- ----------- ----------- ---------
Total Cost of Revenues 1,898,000 1,110,000 5,618,000 2,534,000 20,000
----------- ----------- ----------- ----------- ---------
Gross Profit 662,000 317,000 1,764,000 390,000 37,000

Selling, General and Administrative Expenses 455,000 593,000 2,480,000 1,495,000 358,000
Related Party Administrative Expenses 5,000 4,000 18,000 19,000 18,000
Compensation [Note 5] 2,075,000 -- -- -- --
Research and Development -- 156,000 699,000 367,000 --
----------- ----------- ----------- ----------- ---------
Loss from Operations (1,873,000) (436,000) (1,433,000) (1,491,000) (339,000)

Financing Costs -- -- 863,000 -- 7,000
Interest Expense 126,000 70,000 355,000 71,000 87,000
Related Party Interest Expense -- 52,000 199,000 189,000 --
----------- ----------- ----------- ----------- ---------
Net Loss [Continued]: Historical - Forward $(1,999,000) $ (558,000) $(2,850,000) $(1,751,000) $(433,000)
=========== =========== =========
</TABLE>
See Notes to Financial Statements.

F-7

Net Loss [Continued]: Historical - Forwarded $(1,999,000) $ (558,000) $(2,850,000) $(1,751,000) $(433,000)
=========== =========== =========

Pro Forma Adjustments to Expense [Notes 11 and 14C] 45,000 684,000
----------- -----------
Pro Forma Net Loss $(2,044,000) $(3,534,000)
=========== ===========

Pro Forma Loss Per Share $ (.42) $ (.73)
=========== ===========

Number of Shares of Common Stock 4,821,528 4,821,528
=========== ===========
</TABLE>
See Notes to Financial Statements.

F-8

<PAGE>
NETSMART TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Series D Additional Common Stock $.01 Additional
Prfd Stock Prfd Stock Paid-in Par Value Auth- Paid-in Total
at .01 at .01 Capital orized 15,000,000 Capital Stock-
Par Value Par Value Preferred Shares Common Accumulated holders'
Shs Amnt Shs Amnt Stock Shs Amnt Stock Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992 400 $ -- -- $ -- $ 40,000 967,467 $ 10,000 $ 3,000 $ (113,000) $(60,000)

Common Stock issued as part of
units for cash in January 1993 -- -- -- -- -- 4,536 -- 1,000 -- 1,000
Common Stock Transferred by SISC
in connection with interim notes
in October and November 1993 -- -- -- -- -- -- -- 7,000 -- 7,000
Common Stock Issued for Debt in
October 1993 -- -- -- -- -- 78,000 1,000 17,000 -- 18,000
Allocated Related Party Administrative
Expenses -- -- -- -- -- -- 18,000 -- 18,000 --
Net Loss -- -- -- -- -- -- -- -- (433,000) (433,000)
--- ---- ----- ---- ---------- --------- -------- ---------- ----------- ---------
Balance - December 31, 1993 400 -- -- -- 40,000 1,050,003 11,000 46,000 (546,000) (449,000)

Allocated Related Party Administrative
Expenses -- -- -- -- -- -- -- 19,000 -- 19,000
Combination with CSM -- -- -- -- -- -- -- 2,936,000 -- 2,936,000
Net Loss -- -- -- -- -- -- -- -- (1,751,000)(1,751,000)
--- ---- ----- ---- ---------- --------- -------- ---------- ---------- ----------
Balance - December 31, 1994 [Combined] 400 -- -- -- 40,000 1,050,003 11,000 3,001,000 (2,297,000) 755,000

Allocated Related Party Administrative
Expenses -- -- -- -- -- -- -- 18,000 -- 18,000
Common Stock Issued to Affiliate -- -- -- -- -- 825,000 8,000 (8,000) -- --
Common Stock and Preferred Stock Issued
to Affiliate -- -- 2,210 -- 2,210,000 1,125,000 11,000 241,000 -- 2,462,000
Common Stock Issued to Officer for
Services -- -- -- -- -- 11,250 -- 22,000 -- 22,000
Net Loss -- -- -- -- -- -- -- -- (2,850,000)(2,850,000)
--- ---- ----- ---- ---------- --------- -------- ---------- ---------- ----------
Balance - December 31, 1995
[Consolidated] 400 -- 2,210 -- 2,250,000 3,011,253 30,000 3,274,000 (5,147,000) 407,000

Common Stock Issued in Exchange for
Series D Preferred Stock -- -- (1,000) -- (1,000,000) 1,125,000 11,000 989,000 -- --
Allocated Related Party Administrative
Expenses -- -- -- -- -- -- -- 5,000 -- 5,000
Compensation from the Issuance of Common
Stock Warrants -- -- -- -- -- -- -- 2,075,000 -- 2,075,000
Net Loss -- -- -- -- -- -- -- -- (1,999,000)(1,999,000)
--- ---- ----- ---- ---------- --------- -------- ---------- ---------- ----------
Balance - March 31, 1996 [Consolidated]
[Unaudited] 400 $ -- 1,210 $ -- $1,250,000 4,136,253 $ 41,000 $6,343,000 $(7,146,000) $488,000
=== ==== ===== ==== ========== ========= ======== ========== =========== ========
</TABLE>
See Notes to Financial Statements.

F-9

Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (217,000) 636,000 (388,000) (369,000) --
Costs and Estimated Profits in
Excess of Interim Billings (640,000) (102,000) 87,000 (233,000) --
Other Current Assets (5,000) 10,000 10,000 45,000 4,000
Other Assets (1,000) -- -- (3,000) --

Increase [Decrease] in:
Accounts Payable 441,000 (384,000) 159,000 13,000 45,000
Accrued Expenses (189,000) 350,000 935,000 199,000 16,000
Interim Billings in Excess of
Costs and Estimated Profits 270,000 (552,000) (217,000) 413,000 --
Accrued Payroll Taxes and
Related Expenses -- -- -- (276,000) 217,000
Due to Related Parties 65,000 209,000 496,000 1,629,000 314,000
Deferred Revenue (77,000) -- 141,000 -- --
--------------- ---------------- --------------- --------------- -------------
Total Adjustments 1,836,000 302,000 2,624,000 2,158,000 629,000
--------------- ---------------- --------------- --------------- -------------
Net Cash - Operating Activities - Forward (163,000) (256,000) (226,000) 407,000 196,000
--------------- ---------------- --------------- --------------- -------------

Investing Activities:
Acquisition of Property and Equipment (20,000) (4,000) (138,000) (122,000) (19,000)
Software Development Costs -- -- -- (177,000) (426,000)
Investment in Joint Venture -- -- -- (25,000) --
Acquisition of Software (325,000) -- -- -- --
Cash Acquired in Combination with CSM -- -- -- 31,000 --
--------------- ---------------- --------------- --------------- -------------
Net Cash - Investing Activities - Forward $ (345,000) $ (4,000) $ (138,000) $ (293,000) $ (445,000)
</TABLE>
See Notes to Financial Statements.

F-10

<PAGE>
NETSMART TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31, December 31,
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
[Consolidated] [Combined] [Consolidated] [Combined]
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C> <C>
Net Cash - Operating Activities - Forwarded $ (163,000) $ (256,000) $ (226,000) $ 407,000 $ 196,000
--------------- --------------- --------------- --------------- -------------
Net Cash - Investing Activities - Forwarded (345,000) (4,000) (138,000) (293,000) (445,000)
--------------- --------------- --------------- --------------- -------------
Financing Activities:
Proceeds from Short-Term Notes 764,000 492,000 831,000 200,000 216,000
Payment of Short-Term Notes (27,000) (67,000) (190,000) -- --
Payment of Bank Note Payable (50,000) (110,000) (175,000) (60,000) --
Payment of Capitalized Lease
Obligations (6,000) (5,000) (29,000) (8,000) --
Issuance of Preferred Stock -- -- -- -- 24,000
Issuance of Common Stock -- -- -- -- 1,000
Cash Overdraft 12,000 (35,000) 56,000 37,000 2,000
Deferred Public Offering Costs (114,000) (15,000) (129,000) (283,000) --
--------------- --------------- --------------- --------------- -------------
Net Cash - Financing Activities 579,000 260,000 364,000 (114,000) 243,000
--------------- --------------- --------------- --------------- -------------
Net Increase [Decrease] in Cash 71,000 -- -- -- (6,000)

Cash - Beginning of Periods -- -- -- -- 6,000
--------------- --------------- --------------- --------------- -------------
Cash - End of Periods $ 71,000 $ -- $ -- $ -- $ --
=============== =============== =============== =============== =============

Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods for:
Interest $ 95,000 $ -- $ 349,000 $ 76,000 $ 2,000

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

In October 1993, the Company converted $18,000 of SISC debt into 78,000 shares of common stock.

In September 1995:

1) $388,000 of accrued interest owed to SISC was exchanged for 1,125,000 shares of common stock.
2) $2,210,000 of SISC debt was exchanged for 2,210 shares of Series D Preferred Stock.
3) 825,000 shares of common stock were issued to Holdings as follows:

A) 750,000 shares were issued in connection with the transfer of the Acquisition Corp. stock to CSMC.
B) 75,000 shares were issued in respect of certain indebtedness guaranteed by Consolidated.

In February 1996, the Company acquired software and assumed a liability in the amount of $325,000.
</TABLE>
See Notes to Financial Statements.

F-11

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

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

The financial statements as of December 31, 1995 are presented on a consolidated
basis and include Netsmart Technologies, Inc. [formerly "CSMC Corporation" and
"Carte Medical Corporation"] ["Netsmart"], and its wholly-owned subsidiary,
Creative Socio-Medics Corp. ["CSM"] [collectively, the "Company"]. All
intercompany transactions are eliminated in consolidation.

The financial statements as of December 31, 1994, which include Netsmart and CSM
commencing July 1, 1994, are presented on a combined basis because they are
under common control. All intercompany transactions are eliminated in
combination. The acquisition by Carte Medical Holdings, Inc. ["Holdings"], the
principal stockholder of Netsmart, of CSM occurred on June 16, 1994. The
operations of CSM from that date to June 30, 1994 were not substantial and are
not included in the combined financial statements as of December 31, 1994. The
financial statements prior to July 1, 1994 reflect the results of operations and
financial position of Netsmart.

Netsmart was incorporated on September 9, 1992 to engage in the development and
marketing of an integrated proprietary software system designed to run on
multiple systems in a distributed network environment. Netsmart's marketing
effort through December 31, 1995 was primarily directed at managed care
organizations and methadone clinics and other substance abuse facilities
throughout the country. Netsmart's software operates on computer networks,
including networks based on personal computers, and so-called "smart cards." A
smart card is a plastic card the size of a standard credit card which combines
data storage capacity and access to information along with computing capacity
within a single embedded microprocessor chip contained in the card.

Netsmart was organized under the name Medical Services Corp. ["MSC"], and had a
wholly-owned subsidiary named Carte Medical Corp. In October 1993, the
subsidiary was merged into MSC, and the name was changed to Carte Medical
Corporation. In May 1995, the name of the Company was changed to CSMC
Corporation and in February 1996, the name was changed to Netsmart Technologies,
Inc.

<PAGE>

Netsmart is controlled by Consolidated Technology Group Ltd. ["Consolidated"], a
public company, through its wholly-owned subsidiary Holdings. Prior to June 16,
1994, Netsmart's principal stockholder was SIS Capital Corp. ["SISC"], a
wholly-owned subsidiary of Consolidated. Netsmart's chairman of the board is the
chief executive officer of Consolidated. Prior to 1995, substantially all of the
funds for Netsmart's operations had been advanced by principal stockholders,
principally SISC. During 1995, the Company's principal source of funds has been
an accounts receivable financing agreement with an asset-based lender [See Note
5].

From inception through July 1994, Netsmart had generated revenue of
approximately $57,000, which represents fees for consulting services, and was
considered to be in the development stage. As of July 1994, the Company was no
longer considered to be in the development stage.

In August 1993, Netsmart effected a 2,000-for-one common stock recapitalization,
and in October 1993, Netsmart effected a .576-for-one reverse split in its
common stock. In February 1996, the Company effected a three-for-four reverse
split in its common stock. All share and per share information in these
financials statements give effect, where appropriate, to such transactions.

In April 1994, Netsmart entered into an Agreement and Plan of Reorganization
[the "Purchase Agreement"] among Consolidated, Netsmart, CSM Acquisition Corp.
["Acquisition Corp."], a wholly-owned subsidiary of Consolidated, Creative
Socio-Medics ["Old CSM"], and Advanced Computer Techniques, Inc. ["ACT"], Old
CSM's parent.

F-12

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

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

Pursuant to the Purchase Agreement, in June 1994, Acquisition Corp. acquired the
assets and assumed liabilities of Old CSM in exchange for 800,000 shares of
Consolidated's common stock and $500,000 cash which was advanced by Netsmart
from a loan from SISC. The following summarizes the purchase price allocated to
acquired assets at fair value:

Cash $ 500,000
Stock of Consolidated 2,700,000
------------------
Purchase Cost $ 3,200,000
------------- ==================

Allocated to:
Customer Lists $ 3,851,000
Accounts Receivable 1,363,000
Costs and Estimated Profits in Excess of
Billings 269,000
Property and Equipment 261,000
Other Assets 213,000
Liabilities Assumed (2,757,000)
------------------
Total $ 3,200,000
----- ==================

The value of Consolidated stock was calculated based on the 800,000 shares of
common stock given per the acquisition agreement at the fair value of $3.375 per
share. The fair value was determined based on the average trading price of
Consolidated common stock for a period before and after the acquisition date.
The $2,700,000 is recorded as additional paid-in capital since such amount will
not be reimbursed.

<PAGE>

In June 1994, SISC formed a wholly-owned subsidiary, Holdings, and transferred
its stock in Netsmart and Acquisition Corp. to Holdings. On September 30, 1995,
the stock of Acquisition Corp., whose name had been changed to Creative
Socio-Medics Corp. in June 1994, was transferred to the Company. At the same
time, the Company issued 825,000 shares of its common stock to Holdings, of
which 750,000 shares were issued in connection with the transfer of the
Acquisition Corp. stock and 75,000 shares were issued in respect of certain
indebtedness guaranteed by Consolidated.

At the time of the execution of the Purchase Agreement, SISC granted three
officers of Old CSM, who became officers of the Company, options to purchase an
aggregate of 151,920 shares of common stock at $.232 per share. The value of the
options is based on a fair value of approximately $.89 per share of the
Company's common stock less the exercise price of $.232 per share. The fair
value was determined based on the financial condition of the Company at the time
the options were granted. The shares subject to option are outstanding shares
which were owned by SISC and transferred to Holdings subject to the options. The
Company has granted to these individuals certain piggy back registration rights
with respect to the shares of common stock issuable upon exercise of the
options. The value of these options is approximately $100,000 and is treated as
compensation by the Company. At the closing of the purchase of Old CSM,
Consolidated transferred to such three officers an aggregate of 40,000 shares of
Consolidated common stock, which were valued at approximately $136,000. The
value of such shares is treated as compensation by the Company. The value of
Consolidated stock was determined on a consistent basis with those shares given
in the acquisition. The amounts of $100,000 and $136,000 were credited to
additional paid-in capital.

F-13

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

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

The following pro forma unaudited results assumes the acquisition of CSM had
occurred at the beginning of the indicated periods:

Years ended
December 31,
1994 1993

Net Revenues $ 5,050,000 $ 5,048,000
=============== ================

Net Loss $ (2,136,000) $ (751,000)
=============== ================

Loss Per Share $ (.44) $ (.16)
=============== ================

Number of Shares of Common Stock 4,821,528 4,763,028
=============== ================

[2] Summary of Significant Accounting Policies

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

Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. The
Company does not require collateral from its customers. The Company routinely
assesses the financial strength of its customers and based upon factors
surrounding the credit risk of the customers believes that its accounts
receivable credit risk exposure is limited. Such estimate of the financial
strength of such customers may be subject to change in the near term.

<PAGE>

The Company's 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, 1995 and 1994,
approximately 54% and 49% of the Company's revenues were generated from
contracts with government agencies. There were no revenues generated from
government agency contracts in 1993.

During the year ended December 31, 1995, one customer accounted for
approximately $1,400,000 or 19% of revenue. Accounts receivable of approximately
$336,000 were due from this customer at December 31, 1995. No one customer
accounted for more than 10% of revenues in 1994. Revenues in 1993 pertained to
one customer.

Revenue Recognition - The Company anticipates that it will recognize revenue
principally from the licensing of its software, and from consulting and
maintenance services rendered in connection with such licensing activities.
Revenue from licensing will be recognized under the terms of the licenses, which
are expected to provide for a royalty, which may be payable annually, monthly or
on some other basis, based on the number of persons using smart cards pursuant
to the license agreement. Consulting revenue is recognized when the services are
rendered. No revenue is recognized prior to obtaining a binding commitment from
the customer.

F-14

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[2] Summary of Significant Accounting Policies [Continued]

Revenue Recognition [Continued] - Revenues from fixed price software development
contracts and revenue under license agreements which require significant
modification of the software package to the customer's specifications, are
recognized on the estimated percentage-of-completion method. Using the
units-of-work performed method to measure progress towards completion, revisions
in cost estimates and recognition of losses on these contracts are reflected in
the accounting period in which the facts become known. Revenue from software
package license agreements without significant vendor obligations is recognized
upon delivery of the software. Information processing revenues are recognized in
the period in which the service is provided. Maintenance contract revenue is
recognized on a straight-line basis over the life of the respective contract.
Software development revenues from time-and-materials contracts are recognized
as services are performed.

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

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

Contract terms provide for billing schedules that differ from revenue
recognition and give rise to costs and estimated profits in excess of billings,
and billings in excess of costs and estimated profits. It is reasonably possible
that the amount of costs and estimated profits in excess of billing and billings
in excess of costs and estimated profits may be subject to change in the near
term.

<PAGE>

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

December 31,
1995 1994

Costs Incurred on Uncompleted Contracts $ 2,588,000 $ 1,494,000
Estimated Profits 491,000 1,390,000
--------------- ----------------
Total 3,079,000 2,884,000
Billings to Date 3,604,000 3,539,000
--------------- ----------------
Net $ (525,000) $ (655,000)
--- =============== ================

Included in the accompanying balance
sheet under the following captions:

Costs and estimated profits in excess
of interim billings $ 415,000 $ 502,000
Interim billings in excess of costs
and estimated profits 940,000 1,157,000
--------------- ----------------
Net $ (525,000) $ (655,000)
--- =============== ================

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

Accounts Receivable - Accounts receivable is shown net of allowance for doubtful
accounts of $146,000 and $138,000 at December 31, 1995 and 1994, respectively.

Property and Equipment and Depreciation - Property and equipment is stated at
cost less accumulated depreciation. Depreciation of property and equipment is

F-15

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[2] Summary of Significant Accounting Policies [Continued]

computed by the straight-line method at rates adequate to allocate the cost of
applicable assets over their expected useful lives. Amortization of leasehold
improvements is computed using the shorter of the lease term or the expected
useful life of these assets.

Estimated useful lives range from 2 to 10 years as follows:

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

Capitalized Software Development Costs - Capitalization of computer software
development costs begins upon the establishment of technological feasibility.
Technological feasibility for the Company's computer software products is
generally based upon achievement of a detail program design free of high risk
development issues. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized computer software
development costs requires considerable judgement by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life and
changes in software and hardware technology.

Amortization of capitalized computer software development costs commences when
the related products become available for general release to customers.
Amortization is to be provided on a product by product basis. The annual
amortization shall be the greater of the amount computed using (a) the ratio
that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product including the
period being reported on. In 1995, due to a change from a DOS based operating
system to a Windows based operating system, management determined that the
estimated economic life of the developed computer software had expired. This has
been accounted for as a change in accounting estimate and as a result
amortization increased by $210,000 in 1995. Amortization of capitalized computer
software development costs amounted to $419,000, $221,000 and $3,000 at December
31, 1995, 1994 and 1993, respectively. Amortization expense has been included in
cost of revenues for all periods.

<PAGE>

Customer Lists - Customer lists represent a listing of customers obtained
through the acquisition of CSM to which the Company can market its products.
Customer lists are being amortized on the straight-line method.

In 1995, the amortization period of customer lists was changed from 20 years to
12 years. The change in the period of amortization reflects changes in
technology which became more important in the health care industry subsequent to
the acquisition of CSM in June 1994. The development of Window-based
applications, particularly Windows 95, which had not been developed at the time
of the acquisition, together with the possibility of other changes in the
software and communications industry, represent developments that the Company
feels require a change in the amortization period to twelve years. Such change
has been accounted for as a change in accounting estimate. The effect of this
change was to increase amortization by $120,000 in 1995. Management has
determined that expected future cash flows exceed the carrying value of customer
lists at December 31, 1995. It is at least reasonably possible that management's
estimate of expected future cash flows will change in the near term. This may
result in an accelerated amortization method or write-off of the customer lists.

Customer lists at December 31, 1995 and 1994 are as follows:
December 31,
1995 1994

Customer Lists $ 3,851,000 $ 3,851,000
Less: Accumulated Amortization 409,000 96,000
-------------- ----------------

F-16

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[2] Summary of Significant Accounting Policies [Continued]

Net $ 3,442,000 $ 3,755,000
--- ============== ================

Deferred Public Offering Costs - The Company has withdrawn its registration
statement following termination in early 1995 of its proposed initial public
offering. Deferred public offering costs in the amount of $460,000 are expensed
in 1995 and are included in financing costs.

Loss Per Share - Loss per share is based on the weighted average number of
shares outstanding for each period presented. Certain options and warrants,
issued to related parties at or below the Initial Public Offering price within
one year of the filing of the registration statement, are included in the
computation of loss per share. Such options and warrants resulted in a net
increase in outstanding common stock of 685,275 shares for all periods
presented. In August 1993, the Company effected a 2,000-for-one common stock
recapitalization, in October 1993, the Company effected a .576-for-one reverse
split in its common stock, and, in February 1996, the Company effected a
three-for-four reverse split in its common stock. In January 1996, the Company
issued 1,125,000 shares of common stock in exchange for 1,000 shares of Series D
preferred stock. All share and per share information in these financial
statements gives effect, retroactively, to such transactions. Dividends on
preferred stock are included in the calculation of loss per share.

Proposed Investment in Joint Venture - The Company's proposed investment in a
joint venture will represent a minority interest in a corporation organized to
promote the cross-marketing of the computer related products and services of the
stockholders. The investment will be accounted for under the equity method.

Allocated Related Party Administrative Expenses - During 1995, 1994 and 1993,
certain administrative services were performed for the Company by Consolidated
and its subsidiaries. The fair value of such services, approximately $18,000,
$19,000 and $18,000, respectively, was charged to general and administrative
expenses, and, since Consolidated will not be reimbursed for such charges,
credited to additional paid-in capital.

Research and Development - Expenditures for research and development costs for
the year ended December 31, 1995 and 1994 amounted to $699,000 and $367,000,
respectively. There were no research and development costs in 1993.

<PAGE>

[3] Going Concern

The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has sustained losses
since inception and the accumulated deficit at December 31, 1995 is $5,147,000.
The ability of the Company to continue as a going concern is dependent upon the
success of the Company's marketing effort and its access to sufficient funding
to enable it to continue operations. The Company has been funded through
December 31, 1995 through loans from principal stockholders, an asset-based
lender and others and from the sale of stock [See Notes 5 and 6]. The ability of
the Company to effect its transition, ultimately, to profitable operations is
dependent upon obtaining adequate financing through a private placement or
initial public offering and achieving a level of revenues from the license of
its software and consulting and maintenance revenues to support its cost
structure. The failure of the Company to generate revenues at a level in excess
of its ongoing expenses may force the Company to reduce or cease operations.
Management plans to increase revenues by marketing its products to markets other
than the health care field, such as the financial services industry.

F-17

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #7

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[4] Property and Equipment

Property and equipment consist of the following:
December 31,
1995 1994

Equipment, Furniture and Fixtures $ 674,000 $ 596,000
Leasehold Improvements 164,000 164,000
-------------- --------------
Totals - At Cost 838,000 760,000
Less: Accumulated Depreciation 491,000 411,000
-------------- --------------
Net $ 347,000 $ 349,000
--- ============== ==============

Depreciation amounted to $140,000, $69,000 and $5,000, respectively for the
years ended December 31, 1995, 1994 and 1993.

[5] Related Party Transactions

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

Also in connection with the organization of the Company, the Company acquired
all of the capital stock of LMT in exchange for 129,600 shares of common stock
and 400 shares of Series A 4% Convertible Redeemable preferred stock, par value
$.01 per share ["Series A preferred stock"]. The 400 shares of Series A
preferred stock are convertible into 43,200 shares of common stock [See Note 8].
LMT was a shell corporation with no operating business. The shares of common
stock issued included 60,480 to the chief operating officer of the Company and
25,920 to the vice-president of the Company. The remaining 43,200 and all of the
shares of Series A preferred stock were issued to a non-related individual. The
Company expensed the value of the Series A preferred stock ($40,000). The
issuance of the common stock was treated as compensation valued at $.01 per
share.

<PAGE>

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

At December 31, 1994, SISC has advanced $2,626,000 which are in the form of
demand notes bearing interest at 10%. This amount includes a $97,000 note due to
DLB, Inc. which was purchased by SISC in April 1994. Interest expense on these

F-18

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #8

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[5] Related Party Transactions [Continued]

notes for the years ended December 31, 1995 and 1994 amounted to $199,000 and
$189,000, respectively.

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

From December 1992 through March 1993, the Company sold to each of DLB, one
present director, one founder and one non-affiliated individual units at a price
of $25,000 per unit. Each unit consists of 4,536 shares of common stock and 20
shares of Series B 6% Redeemable Convertible preferred stock, par value $.01 per
share ["Series B preferred stock"]. The 20 shares of Series B preferred stock
acquired by each person are convertible into 5,184 shares of common stock [See
Note 8].

<PAGE>

In October 1993, the Company converted $18,000 of SISC debt into 78,000 shares
of common stock.

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

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

[C] Other Matters - As of December 31, 1993, the Company had a liability for
payroll taxes, including estimated interest and penalties, of approximately
$334,000. Certain officers and principal stockholders are personally responsible
for such payments. Payment of the estimated payroll tax obligation and interest
totaling approximately $300,000 was made in April 1994 from an advance made by
SISC for such purpose.

In February 1996, the Company issued an aggregate of 3,153,750 Series B
Warrants, of which 2,516,250 are exercisable at $2.00 per share and 637,500 are
exercisable at $5.00 per share. These warrants were issued in connection with
services rendered, which, in the case of SISC, included the guarantee of the
December 1994 Interim Notes, and, in certain instances the terms of the warrants
were revised. Although the warrants were issued prior to the three-for-four
reverse split, which was effective in February 1996, the number of shares
issuable upon exercise of the warrants, but not the exercise price, was adjusted
for the reverse split. Certain of the warrants initially had a November 1998
expiration date, which was extended to December 31, 1999, which is the
expiration date of all of the warrants.

F-19

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #9

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[5] Related Party Transactions [Continued]

[C] Other Matters [Continued] - The following is a schedule of warrants:
<TABLE>
<CAPTION>
No. of FMV at Compensation No. of Warrants
Date of Grant Warrants Issued Exercise Price Date of Grant Recorded Exercised
------------- --------------- -------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
February 1996 1,728,750 2.00 $ 3.20 $ 2,075,000 --
February 1996 [Originally
Issued in October 1993] 787,500 2.00 .232 -- --
February 1996 600,000 5.00 3.20 --
February 1996 [Originally
Issued in October 1993] 37,500 5.00 .232 -- --
--------------- -------------
Totals 3,153,750 2,075,000
------ ============== =============
</TABLE>
Of the warrants issued in February 1996, 787,500 warrants exercisable at $2.00
per share and 37,500 warrants exercisable at $5.00 per share were issued to
replace 825,000 warrants previously issued in October 1993. These warrants had
exercise prices ranging from $2.67 per share to $10.00 per share, while the fair
value of common stock was $.232 per share. No compensation was recorded for such
warrants issued.

In October 1993, SISC transferred shares of common stock to two officers, who
received 17,460 and 18,000 shares, respectively, and to five employees, each of
whom received 6,000 shares. The fair value of such shares, approximately $15,000
in the aggregate, was charged to compensation.

In December 1995, the Company accrued a charge for additional compensation in
the approximate amount of $22,000 for services rendered by its vice president.
The charge represents 11,250 shares of common stock issued to the vice president
in January 1996.

<PAGE>

[6] Notes Payable

Bank - Notes payable to bank in the amount of $79,000, are payable on demand.
The notes bear interest at 1-1/2% over the bank's prime rate and are
collateralized by the assets of CSM. The loan agreements require CSM and its
parent to maintain consolidated working capital of $450,000 and consolidated
tangible net worth of $1,300,000. The Company is not in compliance with these
covenants and the notes are in default.

Asset-Based Lendor - In February 1995, the Company entered into an accounts
receivable financing with an asset-based lender. Borrowings under this facility
were $707,000 at December 31, 1995. The Company can borrow up to 75% of eligible
receivables, and it pays interest at the greater of 18% per annum or prime plus
8% and a fee equal to 1% of the amount of the invoice. This note is
collateralized by all of the accounts and property and equipment of the Company.
In addition, the Company's obligations under this facility are guaranteed by the
chairman of the board and president of the Company. Also, the then chief
executive officer and the treasurer of the Company have issued their limited
guaranty to the lender.

Investors - In 1994 and 1993, the Company borrowed $200,000 and $216,000,
respectively, from accredited investors and issued its 1993 Interim Notes and
December 1994 Interim Notes, respectively, to such investors. In 1994, SISC
purchased an Interim Note in the amount of $54,000 from a noteholder. In 1995,
the first payment of approximately $66,000 was paid on the December 1994 Interim
Notes. No other payments have been made on either of these notes and they are

F-20

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #10

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[6] Notes Payable [Continued]

currently in default. In addition, the Company owes a $12,500 extension fee to
the holder of the December 1994 Interim Notes.

Investors [Continued] - In connection with the agreement of the holders of the
1993 Interim Notes to extend the maturity date of the notes to the earlier of
September 30, 1994, or three days after the Company completes its initial public
offering. SISC transferred an aggregate of 9,375 shares of common stock to such
noteholders. The Company incurred a charge of $7,000 against operations for
financing costs in conjunction with the issuance of stock by SISC.

In connection with the issuance of the December 1994 Interim Notes: (i)
Consolidated issued the lender 85,000 shares of its stock, (ii) the Company
issued to SISC outstanding warrants to purchase 300,000 shares of common stock
at $2.00 per share, and (iii) the Company issued 75,000 shares of common stock
to Holdings. The Company incurred charges totaling $103,000 against operations
for financing costs in conjunction with the issuances of stock. Such charges
were recorded as intercompany charges due to SISC and Consolidated by the
Company.

Notes payable consist of the following:
December 31,
1995 1994
Bank - payable on demand with interest at
1-1/2% over the bank's prime rate, which
was 8.5% at December 31, 1995,
currently in default $ 79,000 $ 254,000

Investors - interest at 10%,
currently in default 296,000 362,000

Asset-Based Lender - payable on demand
with interest at the greater of 18%
per annum or prime plus 8% 707,000 --
-------------- ----------------
Totals $ 1,082,000 $ 616,000
------ ============== ================

The weighted average interest rate on short-term borrowings outstanding as of
December 31, 1995 and 1994 amounted to approximately 17% and 10%, respectively.

<PAGE>

[7] Income Taxes

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

For financial reporting purposes at December 31, 1995, the Company has net
operating loss carryforwards of $5,147,000 expiring by 2010. The Tax Reform Act
of 1986 includes provisions which may limit the net operating loss carryforwards
available for use in any given year if certain events occur, including
significant changes in stock ownership. If the Company is successful in
completing an initial public offering, utilization of the Company's net
operating loss carryforwards to offset future income may be limited due to
income tax regulations regarding substantial changes in company ownership. Based
on this and the fact that the Company has generated operating losses through
December 31, 1995, the deferred tax asset of approximately $1,800,000 is offset
by an allowance of $1,800,000.

F-21

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #11

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[7] Income Taxes [Continued]

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

December 31, Amount

2007 $ 113,000
2008 433,000
2009 1,751,000
2010 2,850,000
--------------
$ 5,147,000
==============
[8] Capital Stock

Capital Stock - The Company is authorized to issue 3,000,000 shares of preferred
stock, par value $.01 per share, and 15,000,000 shares of common stock, par
value $.01 per share. The Company's Board of Directors is authorized to issue
preferred stock from time to time without stockholder action, in one or more
distinct series. The Board of Directors is authorized to fix the following
rights and preferences, among others, for each series: (i) the rate of dividends
and whether such dividends shall be cumulative; (ii) the price at and the terms
and conditions on which shares may be redeemed; (iii) the amount payable upon
shares in the event of voluntary or involuntary liquidation; (iv) whether or not
a sinking fund shall be provided for the redemption or purchase of shares; (v)
the terms and conditions on which shares may be converted; and (vi) whether, and
in what proportion to any other series or class, a series shall have voting
rights other than required by law. The Board of Directors has authorized the
issuance of the Series A preferred stock, the Series B preferred stock and the
Series D preferred Stock.

<PAGE>

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

The Series B preferred stock is 6% redeemable convertible preferred stock. The
stockholders are entitled to receive a $72.00 per share annual dividend when and
as declared by the Board of Directors. Dividends are fully cumulative and accrue
from April 1, 1993. Dividends are payable annually on March 1. The stock is
redeemable at the discretion of the Company at any time at which the Company has
consolidated net worth of at least $5,000,000 at a price of $1,200 per share
plus accrued dividends. Each share of Series B preferred stock is convertible
into 259.2 shares of common stock at the discretion of the stockholders. In the
event of involuntary or voluntary liquidation, the stockholders are entitled to
receive $1,200 per share and all accrued and unpaid dividends. Each holder of
Series B preferred stock has the right, following the Company's initial public
offering, to require the Company to redeem all of the shares of Series B
preferred stock owned by such holder at a redemption price equal to $1,200 per
share. As of December 31, 1995, approximately $11,000 [$138 per share] of
dividends were in arrears.

The Series D preferred stock is 6% redeemable preferred stock. The stockholders
are entitled to receive a $60.00 per share annual dividend when and as declared
by the Board of Directors. Dividends are cumulative and accrue from October 1,
1995. Dividends are payable semi-annually on April 1 and October 1. The stock is
redeemable at the option of the Company for $1,000 per share commencing October
1, 1998. Earlier redemption is permitted under certain circumstances. In the
event of voluntary or involuntary liquidation, the stockholders are entitled to
receive $1.00 per share and all accrued and unpaid dividends.

The Series A, Series B and Series D preferred stock are nonvoting except as is
required by law.

F-22

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #12

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[8] Capital Stock [Continued]

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

See Note 5 for additional information relating to the issuance of common stock
and preferred stock in connection with the Company's organization and in
connection with certain financings.

See Note 12 for information relating to the Company's 1993 Long-Term Incentive
Plan.

[9] Capitalized Lease Obligations

Future minimum payments under capitalized lease obligations as of December 31,
1995 are as follows:

Year ending
December 31,
1996 $ 209,000
1997 20,000
1998 17,000
----------------
Total Minimum Payments 246,000
Less Amount Representing Interest at Rates Ranging from
11% to 12% Per annum 43,000
----------------
Balance $ 203,000
------- ================

<PAGE>

Capitalized lease obligations are collateralized by equipment which has a net
book value of $64,000 and $104,000 at December 31, 1995 and 1994, respectively.
The Company has not made timely payments on a capitalized lease obligation on
equipment with a net book value of $21,000 and $62,000 at December 31, 1995 and
1994, respectively. Amortization of approximately $40,000 and $45,000 in 1995
and 1994, respectively, has been included in depreciation expense.

[10] Fair Value of Financial Instruments

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

Debt Maturing Within One Year $ 1,082,000 $ 1,082,000
Long-Term Debt 750,000 750,000
-------------- ---------------
Totals $ 1,832,000 $ 1,832,000
------ ============== ===============

For debt classified as current, it was assumed that the carrying amount
approximated fair value for these instruments because of their short maturities.
The fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities. The carrying amount of
long-term debt approximates fair value.

F-23

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #13

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[11] Commitments and Contingencies

The Company leases space for its executive offices and facilities under a
noncancellable operating lease expiring February 28, 1999. The Company also
leases additional office space on a month-to-month basis.

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

Years ending
December 31,
1996 $ 249,000
1997 248,000
1998 261,000
1999 44,000
2000 and thereafter --
-------------
Total $ 802,000
----- =============

Rent expense amounted to $309,000, $148,000 and $25,000, respectively, for the
years ended December 31, 1995, 1994 and 1993.

The Company has an agreement with Trinity Group, Inc. ["Trinity"], a
wholly-owned subsidiary of Consolidated, pursuant to which the Company will pay
Trinity $15,000 a month for consulting services. Neither the Company's chairman
of the board, who is the chairman of the board of Consolidated, nor any other
employee of Consolidated, Trinity or SISC receives compensation from the
Company. No compensation is payable or accruable until the completion of an
initial public offering. Upon completion of an initial public offering, the
Company will pay Trinity $15,000 per month for the three-year term of the
agreement.

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

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

Following is pro forma unaudited information for the years ended December 31,

F-24

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #14

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[11] Commitments and Contingencies [Continued]

1995, 1994 and 1993 assuming the above management services agreement and
employment agreement and the management service agreement with SMI Corporation
[See Note 14C] had been in effect in their entirety during these periods:

Years ended
December 31,
1995 1994 1993
------------- ------------- -------------
Net Loss $ (2,850,000) $ (1,751,000) $ (433,000)

Pro Forma Adjustments to Expense:
Increase in Management Services
Expense Per Agreements (684,000) (684,000) (684,000)
Increase in Executive Compensation
Expense Per New Employment
Agreements -- (39,000) (34,000)
------------- ------------- -------------
Pro Forma Net Loss after Increases
in Consulting Expense and
Executive Compensation Expense
Per Agreements $ (3,534,000) $ (2,474,000) $ (1,151,000)
============= ============= =============
Net Loss Per Share $ (.59) $ (.36) $ (.09)
============= ============= =============

Pro Forma Net Loss Per Share after
Increases in Management Services
Expense and Executive Compensation
Expense Per Agreements $ (.73) $ (.51) $ (.24)
============= ============= =============
Number of Shares of Common Stock 4,821,528 4,821,528 4,763,028
============= ============= =============

Compensation was calculated based on the average [$42,000 per month] of the
range [$25,000 to $59,000] payable to SMI Corporation [See Note 14] under such
management service agreement.

<PAGE>

The following presents the pro forma net loss, for all periods, using the
minimum and maximum amounts payable to SMI Corporation:

Years ended
December 31,
1995 1994 1993
------------- ------------- -------------
Pro Forma Net Loss after Increase
in Consulting Expense and
Executive Compensation Per
Agreements with SMI Corporation
at $25,000 Per Month $ (3,330,000) $ (2,270,000) $ (947,000)
============= ============= =============
Net Loss Per Share $ (.69) $ (.47) $ (.20)
============= ============= =============

Pro Forma Net Loss after Increase
in Consulting Expense and
Executive Compensation Per
Agreements with SMI Corporation
at $59,000 Per Month $ (3,738,000) $ (2,768,000) $ (1,355,000)
============= ============= =============
Net Loss Per Share $ (.78) $ (.56) $ (.28)
============= ============= =============

F-25

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #15

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[11] Commitments and Contingencies [Continued]

[12] Long-Term Incentive Plan

In July 1993, the Company adopted, by action of the Board of Directors and
stockholders, the 1993 Long-Term Incentive Plan [the "Plan"]. The Plan was
amended in October 1993, April 1994, October 1994 and February 1996. The Plan
does not have an expiration date.

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

<PAGE>

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

In January 1995, the Board granted stock options to purchase an aggregate of
252,804 shares of common stock at $.232 per share, and in December 1995, the
Board granted stock options to purchase an aggregate of 104,952 shares of common
stock at $.345 per share. Such exercise prices were determined by the Board to
be the fair market value per share on the date of grant. The options become
exercisable as to 50% of the shares on the first and second anniversaries of the
date of the grant. In connection with certain of the January 1995 option grants,
the Board canceled previously granted options to purchase 206,250 shares at an
exercise price of $5.33 per share which were granted in 1994.

[13] Industry Segment

The Company currently classifies its operations into two business segments: (1)
Software and Related Systems and Services and (2) Data Center Services. Software

F-26

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #16

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[13] Industry Segment [Continued]

and Related Systems and Services is the design, installation, implementation and
maintenance of computer information systems. Data Center Services involve
company personnel performing data entry and data processing services for
customers. Intersegment sales and sales outside the United States are not
material. Information concerning the Company's business segments is as follows:

Years ended
December 31,
1995 1994 1993
------------- ------------- ------------
Revenues:
Software and Related Systems
and Services $ 5,640,000 $ 2,040,000 $ 57,000
Data Center Services 1,742,000 884,000 --
------------- ------------- ------------
Total Revenues $ 7,382,000 $ 2,924,000 $ 57,000
-------------- ============= ============== ============
Gross Profit:
Software and Related Systems
and Services $ 911,000 $ (78,000) $ 37,000
Data Center Services 853,000 468,000 --
------------- -------------- ------------
Total Gross Profit $ 1,764,000 $ 390,000 $ 37,000
------------------ ============= ============== ============
Income [Loss] From Operations:
Software and Related Systems and
Services $ (1,692,000) $ (1,649,000) $ (339,000)
Data Center Services 259,000 158,000 --
------------- -------------- ------------
Total Loss From Operations $ (1,433,000) $ (1,491,000) $ (339,000)
-------------------------- ============= ============== ============

<PAGE>

Depreciation and Amortization:
Software and Related Systems
and Services $ 765,000 $ 401,000 $ 8,000
Data Center Services 107,000 69,000 --
------------- -------------- ------------
Total Depreciation and
Amortization $ 872,000 $ 470,000 $ 8,000
------------ ============= ============== ============
Capital Expenditures:
Software and Related Systems
and Services $ 46,000 $ 119,000 $ 19,000
Data Center Services 92,000 3,000 --
------------- -------------- ------------
Total Capital Expenditures $ 138,000 $ 122,000 $ 19,000
-------------------------- ============= ============== ============
Identifiable Assets:
Software and Related Systems
and Services $ 3,699,000 $ 4,261,000
Data Center Services 2,691,000 2,932,000
------------- --------------
Total Identifiable Assets $ 6,390,000 $ 7,193,000
------------------------- ============= ==============

[14] Subsequent Events

[A] The Company executed an agreement in February 1996 to purchase an
application software product known as the SATC Software which processes retail
plastic card transactions and merchant transactions. The purchase price for the
SATC Software is $650,000, of which $325,000 was paid in February 1996 with the
remaining balance of $325,000 due in three installments during 1996.

F-27

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #17

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[14] Subsequent Events [Continued]

[B] The Company intends to enter into a joint venture with Oasis Technology,
Ltd. ["Oasis"] pursuant to which the joint venture corporation will purchase the
SATC software and made an advance payment of $325,000, in January 1996, pursuant
to such proposed joint venture. The Company has an agreement with Oasis that
Oasis will pay the remaining $325,000 as part of its contribution to the joint
venture. However, the Company has a direct obligation to the seller to make the
payments, and, in the event that Oasis fails to make the payments, the Company
will be required to make the payments. The obligations are also guaranteed by
Consolidated.

[C] The Company intends to enter into an agreement with SMI Corporation ["SMI"],
pursuant to which the Company pays SMI compensation of $25,000 to $59,000 per
month for which SMI will provide persons to serve in management-level or other
key positions for the Company. In addition, the Company will pay SMI 6% of the
revenues generated from Smart Card and related services. The agreement will
continue until December 31, 2000. Pursuant to the agreement, the Company is to
pay SMI fees of $250,000 for services rendered in 1996. The sole stockholder of
SMI, Mr. Storm Morgan, was elected as a director of the Company in January 1996.
For the three months ended March 31,1996, the Company incurred, and paid,
$177,000 of compensation expense pursuant to its contract with SMI Corporation.

[D] In January 1996, the Company borrowed $500,000 from four accredited
investors. In connection with such loans, the Company issued its 8% promissory
notes due January 31, 1997, which are payable from the proceeds of the Company's
initial public offering. The Company also agreed that, if the Company completes
an initial public offering of its securities prior to the January 31, 1997
maturity date, it would register pursuant to the Securities Act and issue to the
noteholders one unit for each $2.00 principal amount of notes. The unit to be
issued to the noteholders will mirror the units to be issued in the initial
public offering. The Company will incur a one-time non-cash finance charge of
approximately $1,600,000 upon the issuance of these units.

<PAGE>

[E] In January 1996, SISC exchanged 1,000 shares of Series D preferred stock for
1,125,000 shares of common stock. As a result of this exchange, the aggregate
redemption price of the Series D preferred stock was reduced to $1,210,000.

[F] In March 1996, the agreement with the asset-based lender was modified to
allow borrowings up to 80% of eligible receivables to a maximum of $1,000,000.
In consideration, the Company will pay the asset-based lender (i) an annual fee
of $10,000 and (ii) a monthly fee of $10,000. If the Company receives equity
funds by way of the an initial public offering or a private placement of at
least $350,000, the original borrowing availability will be reinstated and the
Company shall pay the asset-based lender a $25,000 fee and issue it 25,000
shares of Company common stock. The Company will incur a one-time non-cash
finance charge of approximately $80,000 upon the issuance of the common stock.

[15] New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] issued 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," in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets, 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. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.

F-28

<PAGE>
NETSMART TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #18

[Information as of and for the Periods Ended
March 31, 1996 and 1995 are Unaudited]

[15] New Authoritative Accounting Pronouncements [Continued]

The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.

[16] Unaudited Interim Statements

The financial statements for the three months ended March 31, 1996 and 1995 are
unaudited; however, in the opinion of management all adjustments [consisting
solely of normal recurring adjustments] necessary to a fair presentation of the
financial statements for these interim periods have been made. The results for
interim periods are not necessarily indicative of the results to be obtained for
a full fiscal year.

[17] Subsequent Events [Unaudited]

In March 1996, the Company filed a registration statement for the sale of its
securities through an initial public offering. In the first quarter of 1996, the
Company incurred $114,000 of deferred costs in connection with the anticipated
initial public offering. Deferred public offering costs will be charged against
the proceeds of the anticipated public offering. If the offering is not
consummated, the cost will be expensed.

In April 1996, the Board granted stock options to purchase 129,500 shares of
common stock at $2.00 per share. The fair value per share at the date of grant
was $3.20 per share. The Company will incur a charge to expense of $155,000 at
the date of grant.

In April 1996, the Company and SISC agreed to extend the maturity date of the
Company's 10% subordinated note payable in the amount of $750,000. The new
maturity date shall be April 1, 1997 or earlier upon the completion of the
Company's initial public offering.

. . . . . . . . . . . .

F-29

<PAGE>
REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholder
Creative Socio-Medics Corp.
East Islip, New York

We have audited the accompanying Creative Socio-Medics Corp. statements
of operations, changes in capital (deficiency) and cash flows for the year
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these 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 financial statements enumerated above present fairly,
in all material respects, the results of the operations and the cash flows of
Creative Socio-Medics Corp. for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.

/S/_________________________
Richard A. Eisner & Company, LLP

New York, New York
March 4, 1994

June 16, 1994
With respect to Note 1

F-30

<PAGE>

CREATIVE SOCIO-MEDICS CORP.

STATEMENTS OF OPERATIONS
(in thousands)

Six Months Ended Year Ended
June 30, December 31,
___________________ ____________
1994 1993 1993
________ ________ ____________
(Unaudited)

Revenue (Note 2) $2,126 $2,790 $4,991
----- ----- -----

Costs and expenses:

Cost of revenue 1,786 2,089 3,697

Sales and marketing 370 347 719

General and administrative (Note 1) 227 303 656

Interest expense 32 36 69
----- ----- -----

2,415 2,775 5,141
----- ----- -----

Net income (loss) $ (289) $ 15 $ (150)
===== ===== =====

Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.

F-31

<PAGE>

CREATIVE SOCIO-MEDICS CORP.

STATEMENT OF CHANGES IN CAPITAL (DEFICIENCY)
(Note 1)

Common Shares
Issued
_______________________
Number
of Par (Accumulated
Shares Value Deficit)
__________ _________ ________________
(in thousands)

Balance - January 1, 1993 1 -- $ (133)

Dividend to parent (23)

Net (loss) (150)
----- ----- -----

Balance - December 31, 1993 1 -- $ (306)
===== ===== =====

Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.

F-32
<PAGE>
CREATIVE SOCIO-MEDICS CORP.
STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended Year Ended
June 30, December 31,
___________________ ____________
1994 1993 1993
________ ________ ____________
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (289) $ 15 $ (150)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 57 81 165
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (181) (130) 95
(Increase) decrease in costs and
estimated profits in excess of
interim billings 84 (103) (85)
(Increase) decrease in other
current assets 17 16 (34)
Decrease in other long-term assets 7
Increase (decrease) in accounts
payable and accrued expenses 158 (26) (67)
Increase in billings in excess of
costs and estimated profits. 63 216 262
----- ----- -----
Net cash provided by (used in)
operating activities (91) 69 193
----- ----- -----
Cash flows from investing activities:
Purchases of fixed assets (24) (10) (20)
Investment in C Smart (11) -- --
----- ----- -----
Net cash (used in) investing activities (35) (10) (20)
----- ----- -----
Cash flows from financing activities:
(Decrease) in bank overdraft (6) (2) (50)
Payment of bank debt (40) (45) (45)
Deferred registration costs (47) -- --
Proceeds from promissory note 330 -- --
Payment of capitalized lease obligations (25) (21) (55)
Dividends (55) 9 (23)
----- ----- -----
Net cash provided by (used in)
financing activities 157 (59) (173)
----- ----- -----
Net increase (decrease) in cash 31 -- --
Cash at beginning of year -- -- --
----- ----- -----
Cash at end of year $ 31 $ -- $ --
===== ===== =====

Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.

F-33

<PAGE>

CREATIVE SOCIO-MEDICS CORP.

STATEMENTS OF CASH FLOWS
(in thousands)

Six Months Ended Year Ended
June 30, December 31,
___________________ ____________
1994 1993 1993
________ ________ ____________
(Unaudited)

Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 24 $ 30 $ 29

Noncash investing and financing activities:
(1) The Company acquired fixed assets of $51,000 and financed existing
accounts payable of $24,000 in the six months ended June 30,, 1994
pursuant to a capitalized lease obligation.

Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.

F-34
<PAGE>
CREATIVE SOCIO-MEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the six months ended June 30, 1994 and 1993)

(NOTE 1) - Basis of Presentation:

The Company and principles of consolidation:

Creative Socio-Medics Corp. (the "Company" or "CSM"), a wholly-owned
subsidiary of Advanced Computer Techniques Corporation ("ACT") through
June 15, 1994, develops, markets and supports software products and services,
concentrating on government agencies and healthcare facilities. Sales to
government agencies represented 47% of revenues in 1993.

ACT charged CSM for operating expenses incurred on its behalf, amounting to
approximately $23,000 and $427,000 for the six months ended June 30, 1994
(unaudited) and the year ended December 31, 1993.

On June 16, 1994, the Company sold all of its net assets to CSM Acquisition
Corp., a wholly owned subsidiary of Consolidated Technology Group, Ltd..

(NOTE 2) - Significant Accounting Policies:

[1] Revenue recognition:

Revenues from fixed price software development contracts and revenue under
license agreements which require significant modification of the software
package to the customer's specifications, are recognized on the estimated
percentage-of-completion method. Revisions in cost estimates and recognition
of losses on these contracts are reflected in the accounting period in which
the facts become known. Revenue from software package license agreements
without significant vendor obligations is recognized upon delivery of the
software. Information processing revenues are recognized in the period in
which the service is provided. Maintenance contract revenue is recognized on
a straight-line basis over the life of the respective contract. Software
development revenues from time-and-materials contracts are recognized as
services are performed.

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

[2] Fixed assets:

Equipment (including equipment under capital leases), and furniture and
fixtures are depreciated on the straight-line method over estimated useful
lives ranging from two to ten years. Leasehold improvements are amortized on
the straight-line method over the terms of the lease. Depreciation and
amortization of fixed assets aggregated $57,000 for the six-month period ended
June 30, 1994 (unaudited) and $120,000 in 1993.

F-35
<PAGE>
CREATIVE SOCIO-MEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with respect to the six months ended June 30, 1994 and 1993)

(NOTE 2) - Significant Accounting Policies: (continued)

[3] Development and enhancement:

Expenditures for development and enhancement costs included in cost of
revenues for the six-month period ended June 30, 1994 (unaudited) was $83,000
and for the year ended December 31, 1993 was approximately $52,000.

[4] Interim financial information:

In the opinion of management, all adjustments have been made to present fairly
the results of operations and cash flows for the six-month periods ended
June 30, 1994 and 1993.

(NOTE 3) - Rent Expense:

Total gross rent under leases charged to operations amounted to approximately
$108,000 for the six-month period ended June 30, 1994 (unaudited) and $253,000
in the year ended December 31, 1993.

F-36

<PAGE>

No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus in connection with the offer made
by this Prospectus, and, if given or made, such 562,500 Units
information or representations must not be relied
on as having been authorized by the Company or by NETSMART TECHNOLOGIES
the Underwriter. This Prospectus does not Inc.
constitute an offer to sell or a solicitation of
an offer to buy any securities offered hereby to (Each Unit Consists of
any person in any jurisdiction in which such offer two shares of Common
or solicitation was not authorized or in which the Stock and one Series A
person making such offer or solicitation is not Redeemable Common Stock
qualified to do so or to anyone to whom it is Purchase Warrant)
unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that there
has been no change in the circumstances of the
Company of the facts herein set forth since the
date of this Prospectus.

TABLE OF CONTENTS
Page

Prospectus Summary..............................3
Risk Factors....................................8
Dilution.......................................18
Use of Proceeds................................19
Capitalization.................................21
Selected Financial Data .......................23
Management's Discussion and Analysis of Financial
Condition and Results of Operations............24
Business.......................................30
Management.....................................40
Certain Transactions...........................45
Interim Financings.............................49 PROSPECTUS
Principal Stockholders.........................50
Selling Security Holders.......................52
Description of Securities......................55
Underwriting...................................59
Legal Matters..................................62
Experts........................................62
Additional Information ........................62 MONROE PARKER
Index to Financial Statements..................F-1 SECURITIES, Inc.

Until , 1996 (25 days after the date of this
Prospectus) all dealers effecting transactions in
the registered securities, whether or not
participating in the distribution, may be required
to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to
their unsold allotments or subscriptions. , 1996

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

SEC registration fee $ 5,242.82
NASD registration fee 2,020.41
Nasdaq listing fee 10,000.00
Printing and engraving 25,000.00*
Accountants' fees and expenses 75,000.00*
Legal fees 150,000.00*
Transfer agent's and warrant agent's fees and expenses 5,000.00*
Blue Sky fees and expenses 40,000.00*
Underwriter's non-accountable expense allowance 135,000.00
Underwriter's consulting agreement 60,000.00
Miscellaneous 17,736.77*
------------
Total $525,000.00*
============

* Estimated

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law and Article EIGHTH
of the Registrant's Restated Certificate of Incorporation (Exhibit 3.1) provide
for indemnification of directors and officers of the Registrant under certain
circumstances.

Reference is made to Paragraphs 6 and 7 of the Underwriting Agreement
(Exhibit 1.1) with respect to indemnification of the Registrant and the
Underwriter. In addition, the Outstanding Warrants (Exhibit 10.7) and the
subscription agreement relating to the January 1996 Interim Notes (Exhibit
10.12) also include indemnification provisions.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, offices or controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

Item 15. Recent Sales of Unregistered Securities

Set forth below is information concerning the issuance by the
Registrant of its securities since its organization in September 1992. All
securities issued are restricted securities and the certificates bear
restrictive legend.

(a) In August 1993, the Registrant effected a 2,000-for-one Common
Stock recapitalization. In October 1993, the Registrant effected a .576-for-one
reverse split in its Common Stock, and in February 1996, the Registrant effected
a three-for-four reverse split of its Common Stock. The issuance of shares of
Common Stock in such transactions was exempt from the registration requirements
of the Securities Act pursuant to Section 3(a)(9) thereof. All share and per
share information in this Item 26 has been restated, where appropriate, to give
effect to such transactions.

(b) In connection with the organization of the Registrant in
September 1992, the Registrant issued 582,072 shares of Common Stock to SIS
Capital Corp. ("SISC") for $1,300 (.002 per share), 112,584 shares of Common
Stock to DLB, Inc. ("DLB") for $6,700 ($.06 per share), and 43,200 shares of
Common Stock to each of DLB, Mr. Harris Freedman and Mr. E. Gerald Kay for
nominal considerations. DLB is owned by Ms. Carol Schiller, wife of Mr. Lewis S.
Schiller, chairman of the board and a director of the Registrant. Mr. Schiller
disclaims any beneficial interest in DLB or the shares of Common Stock owned by
DLB.

(c) In connection with the organization of the Registrant, the
Registrant acquired all of the capital stock of LMT, Inc. ("LMT") in exchange
for 129,600 shares of Common Stock and 400 shares of Series A Preferred Stock,
which are convertible into

II-1

<PAGE>

an aggregate of 43,200 shares of Common Stock. LMT was a shell corporation with
no operating business, and accordingly, there was no cash consideration paid to
the Registrant.

Number of Shares
--------------------------------
Name Common Stock Preferred Stock
---- ------------ ---------------
Leonard M. Luttinger 60,480
Martin Hodes 43,200 400
Thomas Evans 25,920
------- ---
129,600 400
======= ===

(d) During the period from December 1992 to March 1993, the Registrant
sold units to four accredited investors, each unit consisting of 4,536 shares of
Common Stock and 20 shares of Series B Preferred Stock for an aggregate
consideration of $25,000 per unit. Each share of Series B Preferred Stock is
convertible into 259.2 shares of Common Stock. The price per unit was allocable
as follows: $24,000 to the Series B Preferred Stock ($1,200 per share) and
$1,000 to the Common Stock ($.22 per share). One unit was issued to each of the
following persons: DLB, Inc., Harris Freedman, E. Gerald Kay and Murray Vinarub.

(e) In July and August 1993, the Registrant issued its 90-Day
Promissory Notes in the aggregate principal amount of $216,000 to the seven
accredited investors named below. In connection with such issuances, SISC
transferred 15,120 shares of Common Stock to the purchasers of the notes. In
March 1994, in connection with the agreement of the note holders to extend the
time for payment until December 31, 1994, SISC transferred to the note holders
an aggregate of 9,375 shares of Common Stock.

Name Principal Amount Initial Shares Additional Shares
---- ---------------- -------------- -----------------
Norman Goldstein $ 54,000 4,320 --(1)
All American Funding Corp. 27,000 2,160 1,875
Beau-Lev 27,000 2,160 1,875
David Catanzarite 27,000 --(2) --(2)
Israel Cohen 27,000 2,160 1,875
T.H. Lehman & Co. 27,000 2,160 1,875
MBO Holdings, N.V. 27,000 2,160 1,875
-------- ------ -----
$216,000 15,120 9,375
======== ====== =====

(1) The note issued to Mr. Goldstein was purchased by SISC, and,
accordingly, no shares were transferred to him.

(2) The note issued to Mr. Catanzarite was paid and no shares were
transferred to him.

(f) In October 1993, the Registrant issued to SISC an aggregate of
78,000 shares of Common Stock for $.232 per share, which was treated as a
reduction of the amount due from the Registrant to SISC of approximately
$18,000.

(g) In October 1993, the Registrant issued to SISC warrants to
purchase 375,000 shares of Common Stock at $10.00 per share, 225,000 shares at
$6.67 per share and 150,000 shares of Common Stock at $2.67 per share and issued
to SMACS Holdings, Inc. ("SMACS"), warrants to purchase 37,500 shares of Common
Stock at $6.67 per share and 37,500 shares at $2.67 per share. These warrants
became exercisable six months from the completion of the Registrant's initial
public offering or earlier with the consent of the Registrant and the
underwriter and expired on November 30, 1998. In connection with the
Registrant's prior proposed initial public offering, SISC agreed to a reduction
in the amount to be paid to SISC from the proceeds of such offering, and the
Registrant issued to SISC a warrant to purchase 525,000 shares of Common Stock
at $6.67 per share, and the Registrant and SISC agreed to an adjustment in the
exercise price of warrants to purchase 375,000 shares of Common Stock from
$10.00 per share to $6.67 per share.

(h) In February 1996, the Registrant issued an aggregate of 3,153,750
Outstanding Warrants, of which 2,516,250 are exercisable at $2.00 per share and
637,500 are exercisable at $5.00 per share. These warrants were issued in
connection with services rendered, which, in the case of SISC, included the
guarantee of the December 1994 Interim Notes. Although the Warrants were issued
prior to the three-for-four reverse split, which was effective in February 1996,
the number of shares issuable upon exercise of the Outstanding Warrants, but not
the exercise price, was adjusted for the reverse split. The Outstanding Warrants
expire on December 31, 1999. The Outstanding Warrants, which, with respect to
SISC and SMACS, replaced of the warrants described in Paragraph (g) of this Item
15, were issued in February 1996 to the following persons:

II-2

<PAGE>

Name $2 Warrants $5 Warrants
---- ----------- -----------
SISC 1,968,750 --
Lewis S. Schiller -- 52,500
Storm R. Morgan 225,000 --
James L. Conway 112,500 112,500
Leonard M. Luttinger 37,500 112,500
Thomas L. Evans -- 37,500
SMACS Holdings, Inc. 37,500 187,500
Bridge Ventures, Inc. 135,000 135,000
--------- -------
Total 2,516,250 637,500
========= =======

(i) In July 1996, pursuant to a warrant exchange, (a) the holders of
Outstanding Warrants having a $2.00 exercise price exchanged one third of such
warrants for Outstanding Warrants to purchase, at an exercise price of $4.00 per
share, 150% of the number of shares of Common Stock exchanged, and (b) the
exercise price of the Outstanding Warrants having a $5.00 exercise price was
reduced to $4.00. Prior to the warrant exchange, there were Outstanding Warrants
to purchase 2,516,250 shares of Common Stock at $2.00 per share and Outstanding
Warrants to purchase 637,500 shares of Common Stock at $5.00 per share
outstanding. As a result of the warrant exchange, there are Outstanding Warrants
to purchase 1,677,500 shares of Common Stock at $2.00 per share and 1,895,625
shares of Common Stock at $4.00 per share.

(j) In December 1994, the Registrant issued its 10% promissory notes
due December 31, 1994 (the "December 1994 Interim Notes") in the principal
amount of $200,000. In connection with the issuance of the December 1994 Interim
Notes, Consolidated Technology Group Ltd. ("Consolidated") issued to the
purchasers of such notes 1,500 shares of its common stock for each $10,000
principal amount of December 1994 Interim Notes. In connection with the
extension of the maturity date of the December 1994 Interim Notes to January 31,
1994, Consolidated issued an additional 1,500 shares of its common stock for
each $10,000 principal amount of December 1994 Interim Notes. Carte Medical
Holdings, Inc. ("Holdings"), the principal stockholder of the Registrant, is a
wholly-owned subsidiary of SISC, which is a wholly-owned subsidiary of
Consolidated. The Registrant had the right to defer the March 1995 payment by
the payment of a $12,500 extension fee and the issuance by Consolidated of 1,250
shares of Consolidated common stock for each $10,000 principal amount of
December 1994 Interim Notes. In connection with the issuance by Consolidated of
its common stock, its agreement to issue additional shares of its common stock
and its agreement to guarantee the December 1994 Interim Notes if such notes are
not paid by January 31, 1995, the Registrant agreed to issue 75,000 shares of
Common Stock to Holdings. Such shares were issued in September 1995. Set forth
below is information concerning the issuance of the December 1994 Interim Notes.
The number of shares of Consolidated common stock reflects both the initial
issuance and the additional issuance.

Name Principal Amount of Notes Shares of Consolidated Common Stock
---- ------------------------- -----------------------------------
Joseph Brussese $ 25,000 10,625
Bernard Savetz 25,000 10,625
Ruth Wolf 25,000 10,625
Larry Pallini 15,000 6,375
Jeffrey Schwartz 15,000 6,375
Rosemary G. Barsky 12,500 5,313
Alvin I. Lebenfeld 12,500 5,313
Ronald S. Levine 12,500 5,313
Irwin Pincus 12,500 5,313
David Schiffman 12,500 5,313
Michael Friedman 10,000 4,250
Steven L. Tillman 10,000 4,250
Robert Friedman 6,250 2,657
Lawrence Lupo 6,250 2,657
-------- -------
$200,000 85,004

(k) At September 30, 1995, the Registrant owed SISC approximately
$3.0 million plus interest of $388,000. At September 30, 1995:

II-3

<PAGE>

(i) Holdings transferred to the Registrant all of the stock of
CSM in exchange for 750,000 shares of Common Stock in accordance with the
Registrant's agreement with SISC.

(ii) The Registrant issued to Holdings 75,000 shares of Common
Stock in consideration for the guarantee by Consolidated of the December 1994
Interim Notes and the issuance by Consolidated of shares of its common stock to
the holders of such notes. See Item (h) of this Item 15.

(iii) SISC accepted 2,210 shares Series D Preferred Stock,
which have a redemption price of $1,000 per share, or an aggregate of $2,210,000
in exchange for cancellation of the Registrant's indebtedness to SISC in the
principal amount of $2,210,000. The Series D Preferred Stock is not voting and
there are limitations on the redemption of such shares. The Registrant issued a
$750,000 promissory note to SISC in respect of the balance of its indebtedness
to SISC. The note is due in January 1997, but is payable five days after the
completion of the Registrant's initial public offering.

(iv) The Registrant issued 1,125,000 shares of Common Stock to
Holdings in consideration of the cancellation by SISC of accrued interest at
September 30, 1995 of $388,000, reflecting a price of $.345 per share of Common
Stock.

(l) In January 1996, SISC exchanged 1,000 shares of Series D
Preferred Stock for 1,125,000 shares of Common Stock, reflecting a price of $.89
per share of Common Stock.

(m) In January 1996, the Registrant issued to Mr. Thomas Evans,
vice president of the Registrant, 11,250 shares of Common Stock for services
rendered in 1995. The shares were valued at $2.00 per share.

(n) In January 1996, the Registrant issued to the following four
accredited investors notes (the "January 1996 Interim Notes") in the principal
amount of $500,000, which are due January 1997 or earlier upon completion of the
Registrant's initial public offering. Pursuant to the subscription agreement, if
the Registrant effects its initial public offering prior to the maturity date of
the January 1996 Interim Notes, the Registrant will issue pursuant to the
registration statement relating to such initial public offering one unit
identical with that offered to the public for each $2.00 principal amount of
January 1996 Interim Note. See "Selling Security Holders." Set forth below are
the purchasers of the January 1996 Interim Notes and the principal amount of
January 1996 Interim Notes issued.

Name Principal Amount
---- ----------------
360 Central Corporation $300,000
Charles S. Junger 100,000
Steven Capizzi 50,000
Kenneth Lipson 50,000

The issuances described in Paragraphs (b) through (l) are exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof as transactions not involving a public offering. No underwriting was
involved in connection with any such issuances and no fees or commissions were
paid.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

1.1(2) Form of Underwriting Agreement.
1.2(2) Form of Underwriter's Option.
1.3(2) Form of Consulting Agreement between the Registrant and the
Underwriter.
1.4(2) Form of M/A Agreement between the Registrant and the
Underwriter.
2.1(2) Plan and Agreement of Reorganization ("Purchase Agreement")
dated as of April 13, 1994, by and among Consolidated
Technology Group Ltd., CSM Acquisition Corp., the Registrant,
Creative Socio-Medics Corp. ("Old CSM"), and Advanced Computer
Techniques, Inc. ("ACT")

2.2(2) Amendment dated April 13, 1994 to the Purchase Agreement.
2.3(2) Disclosure Letter to the Plan and Agreement of Reorganization
("Purchase Agreement") dated as of April 13, 1994, by and among
Consolidated Technology Group Ltd., CSM Acquisition Corp., the
Registrant, Old CSM, and ACT.
2.4(2) Second Amendment dated June 16, 1994 to the Purchase Agreement.

II-4

<PAGE>

2.5(2) Agreement dated October 26, 1994, between the Registrant and
Consolidated Technology Group, Ltd. ("Consolidated") relating
to the plan and agreement of reorganization dated as of April
13, 1994, as amended, among the Registrant, Consolidated, CSM
Acquisition Corp., Creative Socio-Medics Corp. and Advanced
Computer Techniques, Inc.
2.6(2) Letter agreement dated December 5, 1994, between the Registrant
and Consolidated.
3.1(2) Restated Certificate of Incorporation, as amended, including
certificates of designation with respect to the Series A, B and
D Preferred Stock.
3.2(2) By-Laws
4.1(2) Form of Warrant Agreement 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.
5.1(1) Opinion of Esanu Katsky Korins & Siger.
10.1(2) Employment Agreement dated June 16, 1994, between the
Registrant and Leonard M. Luttinger, as amended.
10.2(2) Employment Agreement dated June 16, 1994, between the
Registrant and Thomas Evans.
10.3(2) Employment Agreement dated June 16, 1994, between the
Registrant and John F. Phillips, as amended.
10.4(2) Employment Agreement dated June 16, 1994, between the
Registrant and Anthony F. Grisanti.
10.5(2) Employment Agreement dated June 16, 1994, between the
Registrant and Edward D. Bright, as amended.
10.6(2) Agreement dated March 1, 1996 between the Registrant and
The Trinity Group, Inc.
10.7(2) 1993 Long-Term Incentive Plan.
10.8(2) Form of Outstanding Warrant.
10.9(2) Form of Option Agreement from SIS Capital Corp. to
certain officers of Old CSM.
10.10(2) Interim Notes.
10.11(2) Form of Subscription Agreement for Interim Notes.
10.12(2) Form of Subscription Agreement relating to the December
1994 Interim Notes, including the form of December 1994
Interim Note.
10.13(2) Modification and extension agreement dated as of January
31, 1995, among the Registrant and the holders of the December
1994 Interim Notes.
10.14(2) January 1996 Interim Notes.
10.15(2) Form of Subscription Agreement for January 1996 Interim Notes.
10.16(2) Contract dated September 22, 1994. by and between the
State of Colorado for the use and benefit of the Department of
Human Services and CSM.
10.17(2) Agreement dated March , 1995 between CSM and United
Credit Corporation, as amended.
10.18(2) Software licensing and service agreement dated April 27,
1996 between the Registrant and IBN Limited.
10.19(2) Letter agreement dated February 28, 1996 between the
Registrant and Oasis Technology Ltd. ("Oasis) relating to the a
proposed joint venture.
10.20(2) Source code license agreement dated November 10, 1995
between the Registrant and Oasis.
10.21(2) Software marketing and distribution agreement between
the Registrant and Oasis.
10.22(2) Joint marketing letter agreement dated March 31, 1995
between the Registrant and Oasis.
10.23(2) Agreement dated February 7, 1996 between the Credit Card
Acquisition Corp. and Fiton Business, S.A.
10.24 Exhibit Omitted
10.25(2) Purchase Order dated June 30, 1995 from Virginia
Commonwealth University to the Registrant.
10.26(2) Form of the Registrant's 10% Subordinated Note due
January 15, 1997 issued to SIS Capital Corp.
11.1(2) Computation of loss per share.
24.1(1) Consent of Moore Stephens, P.C. (See Page II-7).
24.2(2) Consent of Richard A. Eisner & Company, LLP.
24.3(1) Consent of Esanu Katsky Korins & Siger (included in
Exhibit 5.1).
25.1(2) Powers of attorney.
27.1(2) Financial data schedule.

(1) Filed with this Amendment.
(2) Previously filed.

(b) Financial Statement Schedules

None

II-5

<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this amendment to this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 12th day of
August, 1996

NETSMART TECHNOLOGIES, INC.

By: /S/ LEWIS S. SCHILLER
Lewis S. Schiller
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to this registration statement has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.

Signature Title
--------- -----

Lewis S. Schiller Chairman of the Board, Chief
- ----------------- Executive Officer and Director
Lewis S. Schiller (Principal Executive Officer)

Anthony F. Grisanti Treasurer and Chief Financial
- ------------------- Officer (Principal Financial
Anthony F. Grisanti and Accounting Officer)

James L. Conway Director
- --------------- By: /S/ LEWIS S. SCHILLER
James L. Conway ---------------------
Lewis S. Schiller
Attorney in Fact
Leonard M. Luttinger Director August 12, 1996
- --------------------
Leonard M. Luttinger

John F. Phillips Director
- ----------------
John F. Phillips

- -------------
E. Gerald Kay Director

Storm R. Morgan Director
- ---------------
Storm R. Morgan

II-6

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use in this Registration Statement on Form S-1 of our
report dated March 6, 1996, accompanying the financial statements of Netsmart
Technologies, Inc., which report includes an explanatory paragraph relating to
the ability of Netsmart Technologies, Inc. to continue as a going concern, and
to the use of our name, and the statements with respect to us as appearing under
the heading "Experts" in the Prospectus.

On July 1, 1996, the firm of Mortenson and Associates, P.C. changed its
name to Moore Stephens, P.C.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
August 12, 1996

II-7

<PAGE>

Exhibit 5.1

August 12, 1996

Securities and Exchange Commission 13146-04
450 Fifth Street N.W.
Washington, D.C. 20549

Re: Netsmart Technologies, Inc.
File No. 333-2550
-----------------

Gentlemen:

We refer to the above-captioned registration statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Netsmart Technologies, Inc. a Delaware corporation (the
"Company"), with the Securities and Exchange Commission.

We have examined the originals, photocopies, certified copies or other
evidence of such records of the Company, certificates of officers of the Company
and public officials, and other documents as we have deemed relevant and
necessary as a basis for the opinion herinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as certified copies or photocopies and the
authenticity of the originals of such latter documents.

Based on our examination mentioned above, we are of the opinion that the
securities being registered to be sold pursuant to the Registration Statement
are duly authorized and will be, when sold in the manner described in the
Registration Statement, legally and validly issued, and, in the case of the
Common Stock, fully paid and nonassessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under "Legal Matters" in
the related Prospectus. In giving the foregoing consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act or the rules and regulations of the Securities and Exchange
Commission.

Very truly yours,

ESANU KATSKY KORINS & SIGER