HEALTHWATCH INC, PRE 14A, 1999-04-09

HEALTHWATCH INC
PRE 14A, 1999-04-09
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

HEALTHWATCH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

______________________________________________________________________
(2) Aggregate number of securities to which transaction applies:

______________________________________________________________________

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
______________________________________________________________________

(4) Proposed maximum aggregate value of transaction:
______________________________________________________________________

(5) Total fee paid:
______________________________________________________________________

[ ] Fee paid previously with preliminary materials.
______________________________________________________________________

[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fees
was paid previously. Identify the previous filing by registration statement
number or the form or schedule and the date of its filing.

(1) Amount previously paid:
______________________________________________________________________

(2) Form, Schedule or Registration Statement No.:
______________________________________________________________________

(3) Filing Party:
______________________________________________________________________

(4) Date Filed: N/A
______________________________________________________________________
<PAGE>
<PAGE>
PRELIMINARY NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
HEALTHWATCH, INC.

To the Shareholders of HealthWatch, Inc.:

PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of
HealthWatch, Inc., will be held at 11:00 a.m. (Eastern Daylight Time) on
Wednesday, May 19, 1999, at the Company's principal executive offices, 9040
Roswell Road, Suite 470, Atlanta, Georgia, to consider and act upon the
following matters:

I. To elect directors of the Company.

II. To approve the granting to the holders of the Series P Preferred
Stock the right to convert their shares into common stock of the
Company at a conversion ratio of ten (10) shares of common stock
for each share of Series P Preferred Stock as more fully set forth
in the Certificate of Designation filed for the Series P Preferred
Stock.

III. To approve an amendment to the Company's Articles of Incorporation
to change the Company's name to MERAD Technologies Corporation.

IV. To amend the Company's 1995 Stock Option Plan to provide that the
number of options for shares of common stock that the Board of
Directors is authorized to issue shall be the lessr of 3,000,000
shares or an amount not to exceed twenty-five percent (25%) of the
number of outstanding shares of the company's common stock, par
value $.01 per share, calculated prior to the inclusion of issued
but unexercised options.

V. To transact such other business as may properly come before the
meeting.

Accompanying this Notice are a Proxy and Proxy Statement and a copy of
the Company's 1998 Annual Report on Form 10-KSB, Amendment No. 1 to Form 10-
KSB, and Report on Form 10-QSB for the Quarter ended December 31, 1998, as
filed with the Securities and Exchange Commission. Whether or not you
expect to be present at the meeting, please sign and date the Proxy and
return it to the Company. The Proxy may be revoked at any time prior to the
time that it is voted. Only shareholders of record at the close of business
on April 19, 1999 will be entitled to vote at the meeting.

BY ORDER OF THE BOARD OF DIRECTORS
Paul W. Harrison
Chairman of the Board

April 19, 1999
<PAGE>
<PAGE>
PRELIMINARY PROXY STATEMENT

HEALTHWATCH, INC.

9040 Roswell Road
Suite 470
Atlanta, Georgia 30350

Annual Meeting of Shareholders

MAY 19, 1999
11:00 a.m. (Eastern Daylight Time)

GENERAL

The enclosed Proxy is solicited by the Board of Directors of
HealthWatch, Inc. ("HealthWatch" or the "Company"). Such solicitation is
being made by mail and may also be made by directors, officers, and
employees of the Company personally or by telephone. Any Proxy given
pursuant to such solicitation may be revoked by the shareholder at any time
prior to the voting of the Proxy by filing with the Company either a written
revocation or a later dated Proxy or by attendance and voting in person at
the meeting. Shares represented by Proxies will be voted as specified in
such Proxies, and if no choice is specified, will be voted in favor of the
Board of Directors' nominees to the Board and for all of the proposals set
forth in this Proxy Statement.

Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. The election inspectors will
treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as unvoted for purposes
of determining the approval of any matter submitted to the shareholders for
a vote. If a broker indicates on the Proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote with
respect to that matter.

All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the material enclosed herewith will be paid by the
Company. Directors will not be separately compensated for soliciting
proxies. The Company may reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by
them in sending proxy material to beneficial owners of stock. This Proxy
Statement and accompanying form of Proxy are being mailed to shareholders on
or about April 23, 1999.

PROPOSALS OF SHAREHOLDERS

Proposals of shareholders of the Company intended to be presented at
the Company's next annual meeting of shareholders must be received by the
President of the Company at the above address no later than October 1, 1999,
in order for any such proposals to be included in the Company's Proxy
Statement and form of Proxy relating to that meeting.

REVERSE STOCK SPLIT

The Company's Common Stock is listed on the Nasdaq Small Cap Market.
The Nasdaq Stock Market, Inc. recently adopted rules requiring, among other
things, that all stocks listed on Nasdaq maintain a minimum bid price of
$1.00 per share. On February 11, 1998, the Company's Board of Directors
implemented a one-for-five reverse split of the Common Stock which was
effective February 23,1998. The reverse split was approved in order to
satisfy the new Nasdaq requirements. All information regarding the Common
Stock in this Proxy Statement has been adjusted to reflect the reverse stock
split.<PAGE>
<PAGE>
OUTSTANDING STOCK

The Company's common stock, $.01 par value ("Common Stock"), of which
there were 3,021,515 shares outstanding on April 19, 1999, constitutes the
only class of outstanding voting securities issued by the Company, and
therefore the only class of equity securities of the Company entitled to vote
at the annual meeting. Each shareholder will be entitled to cast one vote
for each share of Common Stock held. Votes may be cast in person or by
proxy. Only shareholders of record at the close of business on April 19,
1999, will be entitled to vote at the meeting.

The following table sets forth as of April 19, 1999, the shares of
Common Stock and percentage of total shares owned by the shareholders known
to beneficially own 5% of the Company's outstanding shares of each class of
stock of the Company, each director and nominee for election to the Board of
Directors of the Company and as to all officers and directors as a group.
All persons indicated have (unless indicated to the contrary) sole or shared
with their spouse voting and dispositive power over such shares.

<TABLE>
<CAPTION>
Name and Address of Beneficial
Owner, Name of Director or
Nominee or Identity of Group Title of Class Amount Beneficially Owned Percentage of Class<F5>
- ------------------------------ ------------------ ------------------------- -------------------
<S> <C> <C> <C>
Paul W. Harrison Common 1,252,563 <F1><F2> 29.0%
9040 Roswell Road Series P Preferred 125,088.4 37.4%
Suite 470
Atlanta, Georgia 30350

Larry Fisher Common 251,666 <F1> 5.8%
9040 Roswell Road
Suite 470
Atlanta, Georgia 30350

Brian L. Schleicher Common 220,926 <F1><F3> 5.1%
9040 Roswell Road Series P Preferred 7,812.5 2.3%
Suite 470
Atlanta, Georgia 30350

Richard T. Case Common 24,609 <F1> *
9040 Roswell Road
Suite 470
Atlanta, Georgia 30350

Sanford L. Schwartz Common 38,095.4 <F1><F4> *
9040 Roswell Road
Suite 470
Atlanta, Georgia 30350

Mary M. Harrison Common 209,906 <F1> 4.8%
Series P Preferred 31,250 9.3%

Jeff Brenner Common 160,000 5.3%

All Officers, Directors and Common 1,872,606.4 <F1><F2><F3><F4> 43.3%
Nominees as a Group (6 persons) Series P Preferred 132,900.9 39.7%
____________________
</TABLE>
[FN]
* Less than one percent of shares outstanding.

<F1> Includes for the following persons the number of shares set forth
opposite their name which are issuable within 60 days of the record

date upon exercise of outstanding stock purchase options or warrants

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<PAGE>
<PAGE>
or conversion of outstanding debentures: Paul Harrison--931,531 shares;
Fisher--111,666 shares; Schleicher--110,463; Case--23,667 shares; Schwartz
--36,667 shares; Mary Harrison--104,403; and all other officers and
directors as a group--1,296,041 shares.

<F2> Includes 83,333 shares owned by HALIS, Inc. ("HALIS"), of which Mr.
Harrison is the Chairman of the Board of Directors, President, and
Chief Executive Officer and a major shareholder.

<F3> Includes 72,727 shares and 72,727 warrants owned by B&S Holdings, Inc.
("B&S"). Mr. Schleicher is an officer, director and principal shareholder
of B&S.

<F4> Includes 1,428.4 shares owned by Creative Business Strategies, Inc.
("CBS"). Mr. Schwartz is an officer, director and principal shareholder
of CBS.

<F5> Common Stock is based upon a total of 4,317,556 shares, representing
3,021,515 [SHARES] outstanding on April 19, 1999, plus the shares issuable
as set forth in footnote (1) above. The Series P Preferred Stock is based
upon 334,432 shares outstanding.
</FN>

INFORMATION CONCERNING DIRECTORS AND OFFICERS

COMPENSATION

The following table sets forth, on an accrual basis, the aggregate cash
compensation paid by the Company and its subsidiaries during the three
fiscal years ended June 30, 1998, 1997, and 1996, respectively, to the
Company's Presidents and Chief Executive Officers and Chairman of the Board
of Directors. No officer or director of the Company received compensation
of $100,000 or more in fiscal 1996 or 1997.
<TABLE>
<CAPTION>
Name and Principal Fiscal Options Restricted
Position Year Salary Bonus (No. of Shares) Stock Awards
------------------ ----- ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Paul W. Harrison 1998 -- -- 250,000 shs. <F1> --
Chairman, President 1997 -- -- -- --
and CEO <F1> 1996 -- -- -- --

Daniel J. Kelly 1998 $132,500 $13,200 120,000 shs. <F2> --
Former President and 1997 $ 80,770 -- 120,000 shs. --
CEO <F1> 1996 -- -- -- --
____________
<FN>
<F1> Mr. Harrison replaced Mr. Kelly as President and CEO of the Company effective June 1, 1998.
Mr. Harrison was granted 150,000 options in October 1997 and 100,000 options in May 1998.
<F2> Represents repricing of options originally granted during fiscal year 1997.
</FN>
</TABLE>

STOCK BASED COMPENSATION

The Company has a 1989 Incentive Stock Option Plan and 1993 and 1995
Stock Option Plans (the "Plans") for its key employees directors and
consultants to purchase shares of the Company's Common Stock. The Plans
provide that the purchase price of the shares covered by incentive stock
options may not be less than the fair market value of the shares on the date
the option was granted. Non-statutory stock options granted can be granted
at exercise prices of 85% or more of the fair market value of the Company's
Common Stock on the date of grant. To date, all options granted under the
Plans have been at exercise prices equal to the fair market value of the
Common Stock on the date the Company agreed to grant the options.

As part of the acquisition of Paul Harrison Enterprises, Inc. by the
Company on October 2, 1998, the Company agreed to assume 600,000 options for
PHE outstanding at the time of the merger, and converted such options into

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<PAGE>
<PAGE>
625,000 non-statutory stock options of the Company. Paul W. Harrison holds
583,333 of these options which have an exercise price of $.96 per share
exercisable on or before December 31, 2003.

The Company has, from time to time, also provided non-statutory stock
options outside of the Plans to directors, officers and consultants and has
awarded stock grants to officers, directors, employees and consultants in
consideration for services. These non-statutory options generally have had
a term of three to seven years and have had exercise prices equal to the
fair market value of the Company's Common Stock on the date the options were
granted. As of April 19, 1999, the Company had an aggregate of 775,982
shares reserved for issuance pursuant to outstanding stock options under the
Plans and other stock option grants, and an additional 1,195,000 shares
reserved for outstanding warrants (exclusive of the 625,000 shares issuable
to the former PHE option holders).

DIRECTORS' REPORT. On August 25, 1997 and May 27, 1998, the Board of
Directors unanimously approved repricing all outstanding stock options held
by current employees and directors of the Company (a total of 348,714 and
445,380 shares, respectively), including 120,000 and 40,000 shares,
respectively, subject to options held by Daniel J. Kelly to $0.66 per share.
It was the Board of Directors' opinion that the repricing of these options
was appropriate in view of the Company's inability to provide adequate cash
compensation, particularly to its officers and directors, due to the
Company's lack of working capital.

The following table shows option grants during fiscal 1998 to the named
executive officers of the Company. Reference is also made to the
information included above under "Compensation."

<TABLE>
<CAPTION>
Options Granted Percent of Total Exercise Expiration
Name in Fiscal 1998 Options Granted Price Date
- --------------- ----------------- ---------------- -------- ----------
<S> <C> <C> <C> <C>
Paul W. Harrison 150,000 shs. 35.0% $0.66 10/10/02
100,000 shs. 23.3% $0.66 05/27/03
Daniel J. Kelly 40,000 shs. 9.0% $0.66<F1> 12/18/01
120,000 shs. 37.3% $2.80<F1> 12/18/01
<FN>
<F1> These options represent the repricing during fiscal 1998 of
previously granted options. The 40,000-share option represents a
repricing on May 27, 1998 of one-third of the 120,000-share option
that was granted in 1997 and repriced on August 27, 1997.
</FN>
</TABLE>

The following table shows the number of options exercised during fiscal
1998 and the 1998 fiscal year-end value of the options held at the end of
the fiscal year by the named executive officer.

<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options
Shares Acquired on Options at June 30, 1998 at June 30, 1998
Name Exercise of Options Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------- ------------------- ------------------------- -------------------------
<S> <S> <C> <C>
Paul W. Harrison None 183,333/66,667 shs. $-0-/$-0-
Daniel J. Kelly<F1> None<F1> 40,000/80,000 shs. $-0-/$-0-

<FN>
<F1)> On March 29, 1999, Mr. Kelly exercised all 40,000 options for
shares in the Company at an exercise price of $0.66 per share.
The remaining 80,000 options have been cancelled.
</FN>
</TABLE>

CERTAIN RELATED PARTY TRANSACTIONS

Since August 1997, the Company has entered into a number of
transactions with HALIS, Inc., an Atlanta, Georgia, publicly-traded company
(OTC Bulletin Board Symbol: "HLIS"), and a number of its affiliates and
shareholders. HALIS supplies information technology and services focused on
the healthcare industry and has developed the HALIS Health Care Enterprise
System ("HES"), a single system which integrates all of the major functions
needed by clinics, hospitals, healthcare practices, payers, long-term care

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<PAGE>
<PAGE>
facilities, laboratories, pharmacies and home healthcare facilities. The
HES was developed by HALIS utilizing the MERAD technology, an advanced virtual
software and information media utility developed by Paul W. Harrison and owned
by Paul Harrison Enterprises, Inc., a Georgia corporation ("PHE"), that was
controlled by Paul W. Harrison prior to its acquisition by the Company on
October 2, 1998. PHE was also a significant shareholder of HALIS.

During the first quarter of fiscal year 1998, PHE, Mr. Fisher and two
non-affiliated shareholders of HALIS exchanged 1,100,000 of their shares of
HALIS common stock for 880,000 shares of the Company's Common Stock, and PHE
was granted an option to acquire 320,000 additional shares of the Company's
Common Stock in exchange for 400,000 additional shares of HALIS common
stock. The exchange ratio was based upon the market value for each
company's common stock at the time that the transaction was negotiated.
Additionally, the agreements provided that HALIS was to acquire 83,333
shares of the Company's Common Stock for a purchase price of $125,000.
During February 1998, the option was exercised by PHE and its assigns and
PHE exchanged an additional 1,262,000 shares of HALIS common stock for
378,000 shares of HealthWatch Common Stock. The exchange ratio for the
shares exchanged in February was based on the market value for each
company's common stock at the time that the exchange was negotiated. As a
result of these transactions, at September 30, 1998 PHE held 888,400 shares
of the Company's common stock. As a result of the acquisition of PHE by the
Company on October 2, 1998, these shares became treasury shares and are
deemed cancelled and not outstanding.

These transactions followed the execution by the Company and HALIS
during August 1997 of a letter of intent which contemplated a merger of the
Company and HALIS. The two companies have not consummated the merger due to
the relative volatility in each company's stock price and certain accounting
issues that may affect the Company's ability to maintain the $2,000,000
minimum net worth required by The Nasdaq Stock Market, Inc. for the Company
to maintain its listing on Nasdaq. While consummation of the merger has not
been ruled out by each company's respective Board of Directors, the Company
is presently uncertain if it will proceed with the merger.

Following the initial merger discussions, the Company and HALIS
determined that it would be preferable for the two companies, at that time,
to adopt a shared business development strategy. To implement this strategy,
the Company and HALIS entered into a business collaboration agreement whereby
the Company and HALIS share sales prospects and the Company acts as a reseller
of the HES software. Additionally, the Company obtained a non-exclusive
license from PHE to the MERAD technology, and retained PHE to develop
proprietary software technology which originally was contemplated to be used
to expand the Company's product offerings to include products and services
specifically focused on monitoring, capturing and managing medical information
at the point of care. Due to the Company's limited resources, the Company has
not proceeded to develop software that would be used in conjunction with its
medical devices.

During October 1998, the Company agreed to acquire PHE and caused its
newly created wholly owned subsidiary MERAD Software, Inc., a Nevada
corporation, to merge with PHE. In the merger, the shareholders of PHE
received 334,432 shares of the Company's Series P Preferred Stock, stated
value $10.00 per share (the "Preferred Stock"). Subject to prior approval by
the Company's shareholders (see Proposal II in this Proxy Statement), the
Preferred Stock will be convertible into 3,344,320 shares of the Company's
common stock. Paul W. Harrison, Chairman, President and Chief Executive
Officer of the Company, received 125,088 of the Series P Preferred Stock and
Brian L. Schleicher, Chief Financial Officer and Chief Administrative
Officer of the Company received 7,812 of the Series P Preferred Stock. All
of the Preferred Stock is non-voting, except in certain circumstances. The
Series P Preferred Stock has a cumulative dividend feature of 12%, which
adjusts to a maximum of 24% if the shares are not granted the right to
convert by certain target dates. As February 1, 1999, the Series P
Preferred Stock dividend rate was adjusted to 18% per annum. In addition to
the issuance of the Series P Preferred Stock, the PHE shareholders shall be
paid additional consideration based on the percentage of the revenues that
the Company receives in connection with the sale of software developed
utilizing the MERAD technology, up to a maximum of $7 million, and certain
PHE shareholders received options for approximately 625,000 shares of the
Company's common stock with an exercise price of $.96 per share in exchange
for previously outstanding options of PHE. Of the outstanding options
issued in the PHE acquisition, 583,333 were issued to Paul W. Harrison.
During the second quarter of fiscal 1999, the PHE Shareholders, as a group,
earned $31,036 as additional consideration, 50% of which will be paid in
cash and the balance paid in common stock of the Company.

At the time of the merger, PHE held 6,177,010 shares of common stock in
HALIS and owned the MERAD technology. As a result of its acquisition of PHE
and the MERAD technology, the Company has diverted its attention away from

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<PAGE>
<PAGE>
the expansion of its medical device business, and has decided to use the
newly acquired MERAD technology to develop expanded applications in the
healthcare and other industries. Accordingly, the use of this technology to
expand the Company's medical device business is uncertain. As a result of
the merger, the Company increased its ownership interest in HALIS to
8,939,010 shares of HALIS' common stock, representing approximately 19% of
its outstanding shares. In January 1999, the Company converted outstanding
debt owed by HALIS to the Company into 1,824,645 additional shares of common
stock of HALIS, bringing the number of HALIS shares held by the Company to
10,763,655, representing approximately 22% of HALIS' outstanding shares.
The Company is now the single largest shareholder of HALIS and due to the
size of its holdings, now accounts for its investment under the equity
method of accounting (i.e., it recognizes its proportionate amount of HALIS'
income or loss each month).

Further, as a result of the merger of PHE into MERAD Software, Inc.,
the MERAD technology is now owned by the Company. HALIS is obligated to pay
the Company 10% of the gross revenues generated by HALIS from products and
services utilizing the MERAD technology. During the second quarter of
fiscal 1999, the Company earned $31,036 in royalties from HALIS. Additionally,
the Company and HALIS currently share office space and have a cost sharing
arrangement relating to key personnel under an arrangement that requires the
Company to pay HALIS a calculated amount each month.

Effective October 10, 1997, PHE and Paul W. Harrison entered into a
consulting agreement with the Company which expired on December 31, 1998. The
agreement provides for, among other things, the payment to PHE commencing on
January 1, 1998 of $15,000 per month through June 30, 1998, the granting of a
five-year non-statutory stock option to Mr. Harrison representing the right to
acquire up to 150,000 shares of the Company's Common Stock at $2.65625 per
share, the then fair market value for the Company's Common Stock, and to
loan to Mr. Harrison up to $200,000 payable in four equal annual installments
with interest to accrue at 7% per annum to cover tax liabilities arising from
the stock swaps with PHE. As of the date of this Proxy Statement, $0 had been
borrowed pursuant to the loan commitment. In May 1998 the exercise price for
the stock options were repriced to $0.66 per share. None of the options have
been exercised. In February 1999, the consulting agreement was modified to
remove PHE as a party and to provide for the payment of $12,500 to Paul W.
Harrison on a monthly basis to manage the Company, effective as of January 1,
1999. As of March 31, 1999, $35,000 was paid under the revised consulting
agreement to Mr. Harrison.

Effective October 10, 1997, Larry Fisher entered into a consulting
agreement with the Company which expired on December 31, 1998. The
agreement provided, among other things, for the grant of a five-year non-
statutory stock option representing the right to acquire 80,000 shares of
the Company's Common Stock at $2.65625 per share, the then fair market value
for the Company's Common Stock. In May 1998 the exercise price for the
stock options were repriced to $0.66 per share. Effective January 1, 1999,
the Company entered into a new consulting agreement with Mr. Fisher for a
one year term under which Mr. Fisher will be paid $5,000 per month to assist
in business development opportunities for the Company.

On December 18, 1996, Daniel J. Kelly entered into an employment
agreement with the Company to become the Company's President and CEO. Under
the employment agreement he was to be paid $150,000 per annum, and was
eligible for a bonus of up to one-third of his base salary and received an
option to purchase 120,000 shares of the Company's Common Stock. The
Agreement provided for a severance payment equal to five months salary if
his employment was terminated before December 31, 2000. Effective June 1,
1998 Mr. Kelly's employment was terminated, and the Company entered into a
separation agreement that provided for the payment of $71,500 and
acknowledgment by the Company that 40,000 of his options were deemed to be
fully vested at an exercise price of $0.66 per share. On March 29, 1999,
Mr. Kelly exercised all of the outstanding options.

On January 22, 1998, Paul W. Harrison, Larry Fisher and Lindley S.
Branson (the Secretary of the Company, and a former Director and President
of the Company) each loaned the Company $17,000 for a period of 90 days.
The loans bear interest at 7% per annum. As additional compensation for
making the loans, each was granted a warrant to acquire 16,666 shares of the
Company's Common Stock at $1.71875 per share, the fair market value for the
Company's Common Stock on January 22, 1998. In addition, during January
1998, a $35,000 loan which Mr. Branson made during the fourth quarter of
calendar 1997 was paid by the issuance to Mr. Branson of 20,000 shares of
the Company's Common Stock.

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<PAGE>
<PAGE>
Paul W. Harrison, Chairman of the Board, Chief Executive Officer and
President of the Company, is also the Chairman, President and Chief Executive
Officer of HALIS. Larry Fisher is a Director of both the Company and HALIS.
Brian L. Schleicher, the current Chief Financial Officer and Chief
Administrative Officer of the Company, is also the Chief Administrative
Officer of HALIS.

PROPOSAL I

ELECTION OF DIRECTORS

Proxies returned by shareholders will be voted at the meeting, in
the absence of contrary indication, in favor of the election of the following
four persons as directors. Richard T. Case has been a director of the Company
since April 1997, Sanford L. Schwartz has been a director of the Company since
June 1983, and Paul W. Harrison and Larry Fisher have been directors of the
Company since November 1997. All four directors have been nominated, in each
case, to hold office until the next Annual Meeting of Shareholders and
thereafter until their successors have been duly elected and qualified, unless
a prior vacancy shall occur by reason of their death, resignation or removal
from office.

Although management has no reason to believe that any of the nominees
will be unable to serve as a director, if that contingency should occur, it
is intended that the shares represented by the Proxies will be voted, in the
absence of contrary indication, for any substitute nominee designated by the
Board of Directors, unless the Board determines to reduce its size
appropriately. Proxies will not be voted for more than four nominees to the
Board of Directors.

The nominees to the Board of Directors of the Company are as follows:

<TABLE>
<CAPTION>
Name Director Since Age Positions with the Company
- ---- -------------- --- --------------------------
<S> <S> <C> <C>
Paul W. Harrison November 1997 44 Chairman of the Board of Directors,
President and CEO

Richard T. Case<F1><F2> April 1997 48 Director

Larry Fisher<F1> November 1997 54 Director

Sanford L. Schwartz<F2> June 1983 48 Director

______________________
<FN>
<F1> Member of Audit Committee.
<F2> Member of Compensation Committee.
</FN>
</TABLE>

Paul W. Harrison has extensive experience in the United States and
----------------
internationally managing information technology companies. Mr. Harrison has
been the Chairman of the Company since November 1997 and the President and
CEO since June 1998. Mr. Harrison has also been the Chairman and CEO of
HALIS, Inc. since November 1996, President of HALIS since June 1997, and the
President of, and a significant shareholder in, PHE, a privately held
information technology management company that was founded by Mr. Harrison
and acquired by the Company in October 1998. Mr. Harrison also founded
Halis Software, Inc. a healthcare information technology company that was
acquired by Fisher Business Systems, Inc. (which changed its name to HALIS,
Inc.) in November 1996. Mr. Harrison was the President and Managing Member
of AUBIS, LLC from February 1995 to December 1997, which owned two
information system companies that were merged into Fisher in November 1996.

-7-
<PAGE>
<PAGE>
Mr. Harrison was an executive with and advisor to HBO & Company, a leading
healthcare information systems company, from June 1993 until December 1994.
Prior to joining HBOC, Mr. Harrison was the President and CEO of BIVEN, Inc.
from April 1991 to June 1993, a company that he founded and sold to HBOC in
June 1993.

Richard T. Case. Mr. Case has been President of Benchmark Associates,
---------------
a business consulting firm since 1985. Mr. Case was President of PolyMedica
Industries, Inc., a medical products company from May 1990 to July 1992.
Mr. Case served as a director of the Company from 1990 to 1994.

Larry Fisher was the Executive Vice President of HALIS, Inc. from June
------------
1997 to December 1998. Mr. Fisher was the founder of Fisher Business
Systems, Inc. ("Fisher"), the predecessor of HALIS, and served as a director
since its organization in 1979 and continues today as a director of HALIS.
Mr. Fisher served as President, Chief Executive Officer and Treasurer of
Fisher from 1979 to 1992, and as Chairman of the Board, from December 1992
to November 1996. He led the development of the first generation of
Fisher's products for the hospitality marketplace. Prior to 1979, Mr.
Fisher was employed by IBM for 11 years in several executive sales and
marketing positions. In his last such position, Mr. Fisher was responsible
for creating, implementing and monitoring national marketing programs for
the retail and hospitality industries.

Sanford L. Schwartz. Mr. Schwartz, has been a consultant with Creative
-------------------
Business Strategies, Inc., a business/development consulting firm, since
July 1992. He served as Chief Executive Officer of the Company from June
1983 to September 1993 and as Chairman of the Board of Directors from June
1983 to November 1997. Mr. Schwartz is also a director of Renaissance
Entertainment Corporation.

During fiscal 1998, the Board of Directors met 10 times. All directors
attended at least 75% of the aggregate of the total number of meetings of the
Board of Directors held during fiscal 1998 during the period for which they
were directors. During fiscal 1998, the functions that would be served by an
audit, nominating and compensation committee were reserved to the full Board
of Directors. New Audit and Compensation Committee members will be appointed
following the Annual Meeting. Directors who are not otherwise compensated by
the Company generally have been compensated through the issuance of stock
options.

CERTAIN FILINGS. On May 1, 1991, comprehensive new rules promulgated
by the Securities and Exchange Commission relating to the reporting of
securities transactions by directors and officers became effective. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company during the fiscal year ended June 30, 1998 all
required reports were timely filed, except that Richard T. Case and Paul W.
Harrison, directors of the Company, failed to file a form 3 on a timely
basis reporting their respective ownership of the Company's Common Stock at
the time that they were each elected a director of the Company in 1997.

The Board of Directors recommends that you GRANT authority to vote for
-----
the election of each of the director nominees noted.

PROPOSAL II

TO APPROVE THE GRANTING TO THE HOLDERS OF THE SERIES P
PREFERRED STOCK THE RIGHT TO CONVERT THEIR SHARES INTO COMMON
STOCK OF THE COMPANY AS SET FORTH IN THE CERTIFICATE
OF DESIGNATION FOR THE SERIES P PREFERRED STOCK

The Company presently has authorized 50,000,000 shares of par value
$.01 common stock and 5,000,000 shares of par value $.01 preferred stock.
The Board of Directors has been granted the authority to designate the
preferences, rights and limitations of the preferred stock by designating
separate series of preferred stock and filing a designation thereof with the
Secretary of State of Minnesota. As of April 19, 1999 the Company has
3,021,515 shares of Common Stock, 1,145,000 shares of the Series A Preferred
Stock and 334,443 shares of the Series P Preferred Stock issued and
outstanding.

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The Board of Directors at a meeting held May 27, 1998 authorized the
issuance of up to 1,500,000 shares of the Series A Preferred Stock. The
Series A Preferred Stock is entitled to receive a $0.06 dividend per share
per annum when, as and if declared by the Board of Directors. The dividend
is cumulative; therefore any dividend not declared in any year accrues until
such time as a dividend is declared. The Series A Preferred Stock shall
have its accumulated dividend paid before any dividends are paid to holders
of another series of preferred stock or the holders of the common stock.
The Series A Preferred Stock has a stated value of $1.00 per share. In the
event of liquidation, dissolution or winding up of the Company the Series A
Preferred Stock shall be entitled to a liquidation preference for this
amount per share prior to any distribution of any assets or surplus funds to
the holders of any other class of preferred stock or the holders of the
common stock. Each holder of the Series A Preferred Stock shall be entitled
to convert the Series A Preferred Stock into common stock of the Company at
a conversion price equal to the lesser of seventy percent (70%) of (i) the
five-day average closing bid price for the Company's common stock preceding
the conversion date, or (ii) the five-day average closing bid price
preceding the original issue date of the Series A Preferred Stock. As of
April 19, 1999, assuming a conversion of all of the Series A Preferred Stock
on this date, the conversion price would be $0.52 per share (using ii.
above) and the Series A Preferred Stock would be convertible into 2,201,923
shares of common stock of the Company. If the shares are converted then any
unpaid accumulated dividends shall be waived. The Series A Preferred Stock
does not carry any voting rights except if dividends have not been paid for
a period of one year or more. In such event, the holders of the Series A
Preferred Stock shall, until such dividends are paid, be entitled, with the
holders of the common stock voting as a class, to vote for the election of
directors, with the votes per share for the holders of the Series A
Preferred Stock being equal to the number of shares then issuable upon
conversion of the Series A Preferred Stock.

The Board of Directors at a meeting held August 27, 1998 authorized the
issuance of up to 400,000 shares of the Series P Preferred Stock. The
Series P Preferred Stock is entitled to receive a $1.20 dividend per share
per annum through January 31, 1999. If the holders of the Series P
Preferred Stock are not granted the right to convert in to shares of common
stock prior to February 1, 1999, the dividends accrue at the rate of $1.80
per share from February 1, to August 1, 1999. If the holders of the Series
P Preferred Stock are not granted the right to convert in to shares of
common stock prior to August 1, 1999, the dividends accrue at the rate of
$2.40 per share from August 1, 1999 thereafter. The dividend is to be paid
semi-annually each June 30 and December 31, commencing June 30, 1999, and is
cumulative; therefore any dividend not paid in any year accrues until such
time as a dividend is paid. The Series P Preferred Stock shall have its
accumulated dividend paid before any dividends are paid to holders of
another series of preferred stock or the holders of the common stock. The
Series P Preferred Stock has a stated value of $10.00 per share. In the
event of liquidation, dissolution or winding up of the Company the Series A
Preferred Stock shall be entitled to a liquidation preference for this
amount per share prior to any distribution of any assets or surplus funds to
the holders of any other class of preferred stock, other than the Series A
Preferred Stock, or the holders of the common stock. If approved by the
holders of a majority of a quorum of the shares of common stock of the
Company, each share of the Series P Preferred Stock shall be convertible
into ten (10) shares of the Company's common stock, provided that prior to
March 31, 2000, the holders of the Series P Preferred Stock shall not be
entitled to convert their shares to the extent that the common shares
issuable would exceed 45% of the then issued and outstanding shares of the
Company's common stock. As of April 19, 1999, assuming a conversion of all
of the Series P Preferred Stock on this date, the Series P Preferred Stock
would be convertible into 3,344,430 shares of common stock of the Company,
however only 2,475,000 shares would be entitled to be converted prior to
March 31, 2000 (unless additional common stock of the Company is issued and
outstanding prior to that date). If the shares are converted then any
unpaid accumulated dividends shall be waived. The Series P Preferred Stock
does not carry any voting rights except if dividends have not been paid for
a period of one year or more. In such event, the holders of the Series P
Preferred Stock shall, until such dividends are paid, be entitled, with the
holders of the common stock voting as a class, to vote for the election of
directors, with the votes per share for the holders of the Series P
Preferred Stock being equal to the number of shares then issuable upon
conversion of the Series P Preferred Stock.

On October 2, 1998, the Company acquired Paul Harrison Enterprises,
Inc. ("PHE"). In the acquisition, the Shareholders of PHE received, among
other things, in the aggregate 334,443 shares of the Company's Series P
Preferred Stock, of which Paul W. Harrison, Chairman, President and Chief
Executive Officer of the Company, received 125,088.4 shares of the Series P
Preferred Stock and Brian L. Schleicher, Chief Financial Officer and Chief
Administrative Officer of the Company, received 7,812.5 shares of the Series
P Preferred Stock. If the proposal is approved, Mr. Harrison and Mr.
Schleicher will be entitled to convert their Series P Preferred Stock into
1,250,884 shares and 78,125 shares of the Company's Common Stock,
respectively.

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<PAGE>
The acquisition of PHE allowed the Company (i) to acquire the MERAD
technology in order for it to focus its business strategy on being a premier
information technology company, (ii) to acquire a significant interest in
HALIS which is the first vertical implementation of the MERAD technology, and
(iii) to come into compliance with Nasdaq's $2,000,000 minimum net worth
requirement (by reflecting the value of the HALIS stock and MERAD technology
on its balance sheet). Without the acquisition, the common stock of the
Company was likely to be delisted by Nasdaq. However, in order to issue
common stock to the PHE shareholders, a meeting of shareholders was required
and approval of the Company's shareholders was necessary but impossible to
obtain within the time frame needed. This fact and due to certain accounting
concerns as to how to account for the transaction, the Board elected to issue
the Series P Preferred Stock, and the PHE shareholders agreed to accept such
stock in good faith, in order to allow the Company to remain in compliance
with Nasdaq. Because shareholder approval was necessary to either give
conversion rights to the PHE shareholders or to issue the number of shares
of common stock necessary to close the transaction, the Board agreed to
bring the issue of approving the conversion feature set forth in the
Certificate of Designation to the shareholders at the next annual meeting.
A copy of the Certificate of Designation, Preferences, Rights and
Limitations of the Series P Preferred Stock filed with the Secretary of
State of Minnesota is attached as Exhibit 4.1 to this Proxy Statement, which
is incorporated herein by reference.

The Board believes that granting the holders of the Series P Preferred
Stock the right to convert their shares into Common Stock of the Company at
a conversion ration of 10 shares of Common Stock for each 1 share of Series
P Preferred Stock, as more fully set forth in the Certificate of Designation
for the Series P Preferred Stock as filed with the Secretary of State of
Minnesota, is in the best interest of the Company and recommends a vote FOR
---
the approval of the proposal. An affirmative vote by holders of a majority
of the shares of Common Stock present at the meeting of shareholders is
required to approve the proposal.

PROPOSAL III

TO AMEND THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO CHANGE THE COMPANY'S CORPORATE NAME

The Company's Board has adopted, and is recommending to the
stockholders for their approval at the Annual Meeting, a resolution to amend
Article I of the Company's Articles of Incorporation to change the corporate
name. The applicable text of the Board's resolution is as follows:

"RESOLVED, that Article I of the Company's Articles of Incorporation be
amended to read in its entirety as follows:

The name of this corporation shall be MERAD Technologies Corporation."

At the last Annual Meeting, the shareholders of the Company voted to
amend the Company's Articles of Incorporation to change the name of the
Company to Tesyn Incorporated. In the judgment of the Board of Directors,
the change of corporate name to Tesyn was not desirable, but rather it is
now desirable in view of the change in the strategic focus of the business
of the Company resulting from the recent business collaboration with HALIS
and the acquisition of PHE and the MERAD Technology which will be used to
expand the Company's product offerings to include products and services
focused on E-Commerce. These transactions were part of a strategic
corporate program to diversify the Company's business operations.

If the proposed name change is adopted, it is the intent of the Company
to use the trade name MERAD in connection with its new software technology
business and in its communications with stockholders and the investment
community. Additionally, the Company may change the name of its wholly-owned
subsidiary, HealthWatch Technologies, Inc. to incorporate the MERAD trademark
and identification.

If the amendment is adopted, stockholders will not be required to
exchange outstanding stock certificates for new certificates.
of the outstanding shares of Common Stock of the Company entitled to vote at

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<PAGE>

Approval of this proposal requires the affirmative vote of a majority
the Annual Meeting. If approved by the stockholders, the amendment to
Article I will become effective upon filing with the Secretary of the State
of Minnesota an Articles of Amendment to the Company's Articles of
Incorporation, which filing is expected to take place shortly after the
Annual Meeting. However, the Board of Directors will be authorized, without
a further vote of the stockholders, to abandon the name change and determine
not to file the Articles of Amendment if the Board concludes that such
action would be in the best interest of the Company and its stockholders.
If this proposal is not approved by the stockholders, then the Articles of
Amendment will not be filed.

The Board believes that the proposal to amend the Company's Articles of
Incorporation to change the corporate name is in the best interest of the
Company and recommends a vote FOR approval of the proposal.
---

PROPOSAL IV

TO AMEND THE COMPANY'S 1995 STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES COVERED THEREUNDER

The Company presently has in place and effect the "1995 Stock Option
Plan" (the "Plan") which has been utilized by the Company as incentive
compensation to employees and others providing services to the Company and its
subsidiaries. Certain of the options issued under the Plan are considered
incentive stock options within the meaning of section 422A of the Internal
Revenue Code and other options issued pursuant to the Plan shall constitute
non-statutory options. The Board has the authority to determine which options
are to be incentive stock options and which are to be non-statutory options and
shall enter into option agreements with the recipients accordingly. Article V,
Section 5.1 provides that the total number of shares of common stock made
available and reserved for issuance under the plan shall be 400,000 shares as
the same may be adjusted to take into account stock dividends or splits,
recapitalizations, reclassifications or other similar corporate changes.
The Board of Directors elected to amend the Plan to provide that the number
of shares made available and reserved under the Plan shall be set at the lesser
of 3,000,000 shares or twenty-five (25%) of the issued and outstanding shares of
common stock of the Company as the case may be from time to time. The Company
is in the process of reorganizing its focus and business strategy that
commenced with the acquisition of Paul Harrison Enterprises, Inc. and the MERAD
technology. Additional acquisitions may occur. In this regard, the Company
will need additional options to attract possible acquisition candidates, and
executive personnel, and to reward exceptional performance by its employees
during this transition period. By establishing a percentage of outstanding
shares as the lower end of the benchmark for the number of options issuable
under the Plan, the Board has the most flexibility possible without unduly
burdening existing shareholders.

The Board believes that the proposal to amend the Company's 1995 Stock
Option Plan to provide that the number of shares issuable thereunder be set
at the lesser of 3,000,000 shares or twenty-five (25%) of the issued and
outstanding shares of common stock of the Company, as the case may be from time
to time, is in the best interest of the Company and recommends a vote FOR
approval of the proposal. ---

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<PAGE>
The essential features of the Plan are outlined below:

GENERAL

The Plan provides for the grant of both incentive and non-statutory
stock options. Incentive stock options granted under the Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code"). Non-
statutory stock options granted under the Plan are not intended to qualify
as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of options.

PURPOSE

The Board adopted the Plan to provide a means enhancing stockholder
investment by attracting, retaining and motivating key employees, directors
and consultants of the Company and its affiliates, and to encourage stock
ownership by such parties by providing them with a means to acquire a
proprietary interest in the success of the Company.

ELIGIBILITY

Incentive stock options may be granted under the Plan only to employees
(including officers and employees who are directors) of the Company and its
affiliates. Employees (including officers), directors, and consultants of
both the Company and its affiliates are eligible to receive non-statutory
stock options under the Plan. No incentive stock option may be granted
under the Plan to any person who, at the time of the grant, owns (or is
deemed to own) stock possessing more than 10% of the total combined voting
power of the Company or any affiliate of the Company, unless the exercise
price is at least 110% of the fair market value of the stock subject to the
option on the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect
to which incentive stock options are exercisable for the first time by an
option holder during any calendar year (under the Plan and all other such
plans of the Company and its affiliates) may not exceed $100,000. The Board
can grant options in excess of the above limits if the options are non-
statutory options.

ADMINISTRATION

The Board shall be responsible for administering the Plan. Subject to
the provisions of the Plan, the Board has the power to construe and
interpret the Plan and to determine the persons to whom and the dates on
which options will be granted, the number of shares of Common Stock to be
subject to each option, the time or times during the term of each option
within which all or a portion of such option may be exercised, the exercise
price, the type of consideration and other terms of the option.

The Board has the power to delegate administration of the Plan to a
committee composed of three or more members of the Board. The Board
however, has retained administration of the Plan.

STOCK SUBJECT TO THE OPTION PLAN

Subject to the approval of this Proposal II, the greatest of 1,000,000
shares or twenty-five percent (25%) of the Common Stock, par value $.01 per
share, outstanding will be reserved for issuance under the Plan. Based upon
the share of Common Stock outstanding as of April 19, 1999, the shares
reserved under the Plan would be 753,378 shares. If options granted under
the Plan expire or otherwise terminate for any reason without being
exercised in full, the shares of Common Stock not acquired pursuant to such
options again become available for issuance under the Plan. In the event
that the Company's outstanding Common Stock is subject to a stock dividend
or split, recapitalization, reclassification, or other similar corporate
change, the aggregate number of shares available under the Plan shall be
adjusted appropriately, and the number of shares and option price per share
shall be proportionately and appropriately be adjusted without any change in
the aggregate option price to be paid upon exercise of the option. The
Board shall make any determinations of the effect of such corporate actions
on the options under the Plan.

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TERMS OF OPTIONS

The following is a description of the permissible terms of options
under the Plan. Individual option grants as determined by the Board may be
more restrictive as to any or all of the permissible terms described below.

EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
may not be less than 100% of the fair market value of the stock subject to
the option on the date of the grant and, in some cases (see "Eligibility"
above), may not be less than 110% of such fair market value. The exercise
price of non-statutory options shall be determined by the Board but shall
not be less than eighty-five percent (85%) of the fair market value on the
date of grant. If options are granted with exercise prices below market
value, deductions for compensation attributable to the exercise of such
options could be limited by applicable provisions of the Code. See "Federal
Income Tax Information." The exercise price of options granted under the
Plan must be paid either in cash at the time the option is exercised or, if
acceptable to the Board, by delivery of other shares of Common Stock of the
Company, provided that with respect to an exercise of incentive stock
options, the payment in the form of Common Stock does not prevent the option
from being treated as an incentive stock option under the Code.

OPTION EXERCISE. Unless otherwise specified by the Board, one-third of
the options granted shall vest on each of the three anniversary dates
following the date of grant. The Board has the authority to vary from this
schedule and may approve different vesting schedules for different
optionees.

TERM. The maximum term of options under the Plan is 10 years. Unless
otherwise specified by the Board the duration of an option shall be 5 years
from the date of grant. Unless provided otherwise for a non-statutory
option, vested options under the Plan generally terminate (a) three months
after termination if such termination is for any reason other than death,
permanent and total disability (as defined in the Code) or "for cause" (as
defined in the Plan) or (b) one year after termination if such termination
is due to death or permanent and total disability. In addition, vested
options shall terminate immediately upon an option holder's termination of
service "for cause." In the case of an option holder's death, an option may
be exercised by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution. The option term
generally is not extended in the event that exercise of the option within
these periods is prohibited.

RESTRICTIONS ON TRANSFER

The option holder may not transfer an option otherwise than by will or
by the laws of descent and distribution. During the lifetime of the option
holder, only the option holder or the option holder's guardian or legal
representative may exercise an option.

EFFECT OF CERTAIN CORPORATE EVENTS

The Plan provides that, in the event of a sale of substantially all of
the assets of the Company, specified types of merger or consolidation with
or into any other entity or person in which in excess of 50% of the
Company's voting power is transferred ("change in control"), then the
Company shall have the option, but not the obligation, to cancel options
outstanding as of the effective date of such acquisition or change of
control, whether or not the options are then exercisable. Upon such
election, the Company shall pay the optionees an amount equal to the
difference between the net amount payable per share in the acquisition and
the exercise price of the option. If the Company is the survivor of any
acquisition, the options granted shall pertain to and apply to the
securities such holder would have received in such acquisition. Any
dissolution or liquidation of the Company, or any merger or consolidation in
which the Company is not the survivor, shall cause every option to terminate
effective as of the date of such event. In such event the optionee shall
(i) be offered options outstanding in the surviving company in such amount,
terms and conditions which will substantially preserve the optionees rights
and benefits for options granted under the Plan, or (ii) have the right to
exercise all options granted under the Plan whether or not such option were
then otherwise exercisable.

DURATION, AMENDMENT AND TERMINATION

The Plan will terminate on December 8, 2005. Any options outstanding
at the end of this period shall remain in effect in accordance with the
terms of the grant. The Board may also amend the Plan at any time or from

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time to time, however no amendment shall adversely effect any outstanding
grant under the Plan without the consent of the recipient thereunder.

FEDERAL INCOME TAX INFORMATION

Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-
term capital gains rate for federal income tax purposes is currently 20%
while the maximum ordinary income rate and short-term capital gains rate is
effectively 39.6%. Slightly different rules may apply to option holders who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Securities Exchange Act.

INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code. There generally are no
federal income tax consequences to the option holder or the Company by
reason of the grant or exercise of an incentive stock option. However, the
exercise of an incentive stock option may increase the option holder's
alternative minimum tax liability, if any. If an option holder holds stock
acquired through exercise of an incentive stock option for at least two
years from the date on which the option is granted and at least one year
from the date on which the shares are transferred to the option holder upon
exercise of the option, any gain or loss on a disposition of such stock will
be a long-term capital gain or loss. Generally, if the option holder
disposes of the stock before the expiration of either of these holding
periods (a "disqualifying disposition"), then at the time of disposition the
option holder will realize taxable ordinary income equal to the lesser of
(i) the excess of the stock's fair market value on the date of exercise over
the exercise price, or (ii) the option holder's actual gain, if any, on the
purchase and sale. The option holder's additional gain or any loss upon the
disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on whether the stock was held for more
than one year. To the extent the option holder recognizes ordinary income
by reason of a disqualifying disposition, the Company will generally be
entitled to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.

NON-STATUTORY STOCK OPTIONS. Non-statutory stock options granted under
the Plan generally have the following federal income tax consequences:
There are no tax consequences to the option holder or the Company by reason
of the grant of a non-qualified stock option. Upon exercise of a non-
qualified stock option, the option holder normally will recognize taxable
ordinary income equal to the excess, if any, of the stock's fair market
value on the date of exercise over the option exercise price. However, to
the extent the stock is subject to certain types of vesting restrictions,
the taxable event will be delayed until the vesting restrictions lapse
unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the
applicable provisions of the Code and the satisfaction of a tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the option
holder. Upon disposition of the stock, the option holder will recognize a
capital gain or loss equal to the difference between the selling price and
the sum of the amount paid for such stock plus any amount recognized as
ordinary income upon exercise of the option (or vesting of the stock). Such
gain or loss will be long-term or short-term depending on whether the stock
was held for more than one year. Slightly different rules may apply to
option holders who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Securities Exchange Act.

POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain "covered employees" in a taxable year to the extent that
compensation to such covered employee exceeds $1 million. It is possible
that compensation attributable to stock options, when combined with all
other types of compensation received by a covered employee from the Company,
may cause this limitation to be exceeded in any particular year. Certain
kinds of compensation, including qualified "performance-based compensation,"
are disregarded for purposes of the deduction limitation.

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INDEPENDENT AUDITORS

Silverman Olson Thorvilson & Kaufmann Ltd. has served as the Company's
independent auditors since the Company's formation in 1983. The Company
does not expect that a representative of Silverman Olson Thorvilson &
Kaufmann Ltd. will be present at the meeting.

OTHER MATTERS

Management does not intend to bring before the meeting any business
other than as set forth in this Proxy Statement and has not been informed
that any other business is to be presented to the meeting. If any matters
other than those referred to above should properly come before the meeting,
however, it is the intention of the persons named in the enclosed Proxy to
vote such Proxy in accordance with their best judgment.

Please sign and return promptly the enclosed Proxy in the envelope
provided. The signing of a Proxy will not prevent your attending the
meeting and voting in person.

By Order of the Board of Directors
Paul W. Harrison
Chairman of the Board
April 19, 1999

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<PAGE>
CERTIFICATE OF THE DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS OF THE
SERIES P PREFERRED STOCK OF
HEALTHWATCH, INC.

HealthWatch, Inc., hereinafter called the "Corporation", a corporation
organized and existing under the Minnesota Business Corporation Act does
hereby certify that, pursuant to authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of the Corporation,
said Board of Directors at a meeting duly called and held on August 27,
1998, and at which a quorum was at all times present, duly adopted a
Resolution providing for the issuance of a series of 400,000 shares of
Series P Preferred Stock, which Resolution is as follows:

"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of
Preferred Stock of the Corporation be and it hereby is given the distinctive
designation of "Series P Preferred Stock" (hereinafter referred to as the
"Series P Preferred Stock"), said Series to consist of Four Hundred Thousand
(400,000) shares of the stated value of Ten Dollars ($10.00) per share
("Stated Value"). The preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or restrictions
thereof shall be as follows:

1. Dividends
---------

(a) Subject to the following, the holders of shares of Series P
Preferred Stock shall be entitled to receive dividends at the rate
of 12% (as adjusted for any stock dividends, combinations or
splits with respect to such shares) per annum from the date of
issuance to January 31, 1999, payable out of funds legally
available therefor; provided, however, that such dividends shall
not be paid and the dividends on the Series P Preferred Stock
shall terminate and cease to accrue in the event that the Series P
Preferred Stock shall become convertible into shares of the
Corporation's Common Stock in accordance with Section 4 hereof on
or before January 31, 1999. In the event that the Series P
Preferred Stock has not become convertible into shares of the
Corporation's Common Stock in accordance with Section 4 hereof
prior to February 1, 1999, the dividends accrued to that date
shall be due and owing and the holders of shares of Series P
Preferred Stock shall be entitled to receive dividends at the rate
of 18% (as adjusted for any stock dividends, combinations or
splits with respect to such shares) per annum from February 1,
1999 to August 1, 1999, or, if earlier, the date upon which such
shares shall become convertible into shares of the Corporation's
Common Stock, payable out of funds legally available therefor. In
the event that the Series P Preferred Stock has not become
convertible into shares of the Corporation's Common Stock prior to
August 1, 1999, the dividends accrued to that date shall be due
and owing and the holder of shares of Series P Preferred Stock
shall be entitled to receive dividends at the rate of 24% (as
adjusted for any stock dividends, combinations or splits with
respect to such shares) per annum from August 1, 1999 until such
date as the Series P Preferred Stock shall become convertible into
shares of the Corporation's Common Stock, payable out of funds
legally available therefor. Such dividends shall commence upon
issuance and shall be payable in preference to any dividend to any
shares of Common Stock, and shall be cumulative. Dividends earned
after February 1, 1999 shall be paid semi-annually on June 30 and
December 31, commencing June 30, 1999, and in every case shall be
paid to holders of record as of the close of business five
business days before the dividend payment date. Dividends shall
be paid in cash or, at the option of the holders of the shares of
Series P Preferred Stock, in shares of the Corporation's Common
Stock, the value of such stock for the purpose of any such payment
to be equal to the average five-day closing bid price for the
Common Stock for the five-day period immediately preceding the
record date for such payment.

(b) No dividends (other than those payable solely in the Common Stock
of the Corporation) shall be paid on any shares of Common Stock of
the Corporation during any fiscal year of the Corporation until
dividends, combinations or splits with respect to such shares) on
the Series P Preferred Stock shall have been paid or declared and
set apart during that fiscal year and any prior year in which
dividends accumulated but remain unpaid. Following any such
payment or declaration, the holders of any shares of Common Stock
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shall be entitled to receive dividends, payable out of funds
legally available therefor, when, as and if declared by the Board
of Directors.

In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options
or rights to purchase any such securities or evidences of indebtedness,
then, in each such case the holders of the Series P Preferred Stock shall be
entitled to a proportionate share of any such distribution as though the
holders of the Series P Preferred Stock were the holders of the number of
shares of Common Stock of the Corporation into which their shares of Series
P Preferred Stock were then convertible as of the record date (assuming for
this provision that there was no limitation on the right of conversion of
the Series P Preferred Stock) fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.

2. Liquidation Preference
----------------------

(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
Series P Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of shares of Common Stock
by reason of their ownership thereof, the amount of $10.00 per
share (as adjusted for any stock dividends, combinations or splits
with respect to such shares), plus all accrued or declared but
unpaid dividends on such shares for each share of Series P
Preferred Stock then held by them. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of
the Series P Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of the Series P Preferred Stock and holders of any other
shares of Preferred Stock of the Corporation in proportion to the
preferential amount each such holder is otherwise entitled to
receive.

(b) After payment to the holders of the Series P Preferred Stock of
the amounts set forth in Section 2(a) above, and the payment to
the holders of any other series of Preferred Stock of the
Corporation of any liquidation preferences for such additional
series of Preferred Stock, the entire remaining assets and funds
of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock in
proportion to the shares of Common Stock then held by them.

(c) Whenever the distribution provided for in this Section 2 shall be
payable in securities or property other than cash, the value of
such distribution shall be the fair market value of such
securities or other property as determined in good faith by the
Board of Directors.

3. Voting Rights
-------------

Unless and except to the extent otherwise required by law, the holders
of the Series P Preferred Stock shall have no voting power; provided that if
any dividends on the Series P Preferred Stock declared by the Board of
Directors in accordance with Section 1 hereof have not been paid for a
period of one year or more, the holders of Series P Preferred Stock shall,
until such dividends have been paid, be entitled, with the holders of the
Common Stock, voting as a class, to vote or act by written consent for the
election of directors, with the number of votes per share of Series P
Preferred Stock in such election to be equal to ten shares of Common Stock
(as adjusted for any stock dividends, combinations or splits with respect to
such shares). Unless and except to the extent otherwise required by law,
the holders of the Series P Preferred Stock shall have no right to vote as a
class with respect to any matter. Should the Series P Preferred Stock be
entitled to vote on any matter pursuant to a requirement of law, each holder
of such stock shall be entitled to one vote in respect to each share of such
stock held of record in respect to such matter, unless some other vote is
required by law.

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4. Conversion of Series P Preferred Stock into Common Stock
--------------------------------------------------------

(a) Subject to the following conversion rights being approved by the
holders of a majority of a quorum of the shares of the

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Corporation's Common Stock and the provisions of this Section 4,
the holder of record of any share or shares of Series P Preferred
Stock and the Corporation shall have the right, at his or its
option, as the case may be, at any time after issuance, to convert
or to cause the conversion of each said share or shares of Series
P Preferred Stock into ten (10) (as adjusted for any stock
dividends, combinations or splits with respect to such shares)
fully-paid and non-assessable shares of Common Stock, $.01 par
value (herein referred to as "Common Stock), of the Corporation.
The Corporation shall not be required to issue fractional shares
in connection with the conversion of any of the Series P Preferred
Stock and shall, in lieu thereof, pay to the holder requesting
conversion, an amount equal to the value (determined by the
Corporation's Board of Directors) of such fractional share.

(b) Any holder of a share or shares of Series P Preferred Stock
desiring to convert such Series P Preferred Stock into Common
Stock, shall surrender the certificate or certificates
representing the share or shares of Series P Preferred Stock so to
be converted, duly endorsed (if required by the Corporation) to
the Corporation or in blank, at the office of any Transfer Agent
for the Series P Preferred Stock (or such other place as may be
designated by the Corporation), and shall give written notice to
the Corporation at said office that he elects to convert the same
as provided above, and setting forth the name or names (with the
address or addresses) in which the shares of Common Stock are to
be issued.

(1) As promptly as practicable after the surrender for conversion
of any Series P Preferred Stock , the Corporation shall
deliver or cause to be delivered at the principal office of
the Transfer Agent for the Series P Preferred Stock (or such
other place as may be designated by the Corporation), to or
upon the written order of the holder of such Series P
Preferred Stock , certificates representing the shares of
Common Stock issuable upon such conversion issued in such
name or names as such holder may direct. Shares of the
Series P Preferred Stock shall be deemed to have been
converted as of the close of business on the date of the
surrender of the Series P Preferred Stock for conversion, as
provided above, and the rights of the holders of such Series
P Preferred Stock shall cease at such time, and the person or
persons in whose name or names the certificates for such
shares are to be issued shall be treated for all purposes as
having become the record holder or holders of such Common
Stock at such time; provided, however, that any such
surrender on any date when the stock transfer books of the
Corporation shall be closed shall constitute the person or
persons in whose name or names the certificate for such
shares are to be issued as the record holder or holders
thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open.

(2) The Corporation shall pay all dividends accrued on the shares
of Series P Preferred Stock surrendered for conversion, such
payment to be made in cash or at the option of the
Corporation, in shares of the Corporation's Common Stock, the
value of such stock to be determined as set forth in Section
1(a) hereof.

(3) The Corporation shall at all times reserve and keep available
solely for the purpose of issuance upon conversion of Series
P Preferred Stock , as herein provided, such number of shares
of Common Stock as shall be issuable upon the conversion of
all outstanding Series P Preferred Stock .

(4) Prior to March 31, 2000, the holders of Series P Preferred
Stock shall not be entitled to convert nor shall the
Corporation have the right to require conversion of the
Series P Preferred Stock held by such holders to the extent
that such conversion would result in such holders

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<PAGE>
beneficially owning (as determined in accordance with Section
13(d) of the Securities Exchange Act of 1934 and the Rules
thereunder) in the aggregate in excess of forty-five percent
(45%) of the then issued and outstanding shares of the

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Corporation's Common Stock.

(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series P Preferred Stock shall be made without
charge for any tax in respect of such issuance. However, if any
certificate is to be issued in a name other than that of the
holder of record of the Series P Preferred Stock so converted, the
person or persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance, or shall establish to
the satisfaction of the Corporation that such tax has been paid or
is not due and payable.

5. General
------

(a) In the event that the Corporation shall at any time prior to
conversion either (a) subdivide the outstanding shares of Common
Stock into a greater number of shares, (b) combine the outstanding
shares of Common Stock into a smaller number of shares, (c) change
the outstanding shares of Common Stock into the same or a given
number of shares of any other class or classes of stock, (d)
declare on or in respect of the Common Stock a dividend payable in
shares or other securities of the Corporation, then the holders of
the Series P Preferred Stock shall be entitled to receive the same
number of shares or other securities of the Corporation, or shall
be entitled to subscribe for and purchase at the same price that
the shares or securities are offered to holders of Common Stock,
the number of such shares or the amount of such securities as will
represent the same proportion of the outstanding Common Stock
prior to such increase or decrease as they would have been
entitled to receive or subscribe for, as the case may be, had they
been holders of the number of shares of Common Stock into which
their shares of Series P Preferred Stock were convertible on the
record date (assuming for the purposes of this provision that
there was no limitation on the right of conversion of the Series P
Preferred Stock) for any such dividend or subscription. The Board
of Directors shall determine what adjustments shall be made in the
Stated Value in order to appropriately reflect and account for any
such change.

(b) In the event the Corporation at any time while any of the shares
of Series P Preferred Stock are outstanding shall be consolidated
with or merged into any other corporation or corporations, or
shall sell or lease all or substantially all of its property and
business as an entirety, lawful provision shall be made as part of
the terms of such consolidation, merger, sale, or lease so that
the holder of any shares of Series P Preferred Stock may
thereafter receive in lieu of such shares of Common Stock
otherwise issuable to him upon conversion of his shares of Series
P Preferred Stock (assuming for the purpose of this provision that
there was no limitation on the right of conversion of the Series P
Preferred Stock), but at the conversion rate which would otherwise
be in effect at the time of conversion as hereinbefore provided,
the same kind and amount of securities or assets as may be
issuable, distributable, or payable upon such consolidation,
merger, sale, or lease, with respect to shares of Common Stock of
the Corporation. The Board of Directors shall determine what
adjustments shall be made in the Stated Value in order to
appropriately reflect and account for any such change.

(c) Nothing herein shall be deemed to require the Corporation in the
event of any such subdivision, combination, reclassification,
recapitalization, consolidation, merger or sale of assets, or
liquidation, dissolution or winding up, to issue or distribute
fractional interests in shares of capital stock or any other
security of the Corporation or another issuer, and the Corporation
may make such arrangements as the Board of Directors of the
Corporation shall approve with respect to any such event for
settlement in lieu of issuance of a fractional interest in a share
of capital stock or other security of the Corporation or another
issuer to any holder of the Series P Preferred Stock .

(d) The shares of Series P Preferred Stock shall not be subject to the
operation of a purchase, retirement or sinking fund.

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<PAGE>
(e) The issuance of additional shares of Series P Preferred Stock
shall not be subject to any restrictions as to issuance, nor shall
the holders of the Series P Preferred Stock be entitled to any
restriction with respect to the issuance of shares of any other
series of the Corporation's Common Stock or Preferred Stock, or as
to the powers, preferences or rights of any such other series;
provided that no series of additional shares of Preferred Stock
shall have any liquidation or other similar rights in preference
to the Series P Preferred Stock."

IN WITNESS WHEREOF, I have hereunto subscribed my hand this 30th day of
September, 1998.

HealthWatch, Inc.

By /s/ Paul Harrison
-------------------------------------
Paul Harrison
Chairman of the Board of Directors