HALIS INC, 10KSB, 1998-04-15

HALIS INC
10KSB, 1998-04-15
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 1997

Commission File Number 0-16288

HALIS, INC.
(Exact name of Registrant as specified in its charter)

Georgia 58-1366235
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

9040 Roswell Road, Suite 470
Atlanta, Georgia 30350
(770) 641-5555
(Address of principal executive offices,
including zip code, and telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Common
Stock, $.01 par value

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.( )

Revenues for the fiscal year ended December 31, 1997: $10,134,586

The aggregate market value of the Common Stock of the Registrant held
by nonaffiliates of the Registrant (approximately 22,864,883 shares) on April
10, 1998 was approximately $5,716,221. The aggregate market value was computed
by reference to the average of the bid and asked prices of the Common Stock on
the OTC Bulletin Board on April 10, 1998. For the purposes of this response,
officers, directors and holders of 5% or more of the Registrant's Common Stock
are considered to be affiliates of the Registrant at that date.

The number of shares outstanding of the Registrant's Common Stock as of
April 10, 1998 was 47,395,835 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

Transitional Small Business Disclosure Format (check one):

Yes No X
--- ---

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PART I

ITEM 1. BUSINESS

GENERAL

HALIS, Inc. ("HALIS" or the "Company") based in Atlanta, Georgia, is a
supplier of information technology and services, focusing on the healthcare
industry. HALIS currently is implementing a corporate strategy, which combines
external acquisitions and internal sales growth, including the development of
business partner relationships.

HALIS currently has offices in Atlanta, Chicago and Tampa. The Atlanta
operation includes sales, service, and consulting functions, and currently
serves as the HALIS national Customer Service Center. The Chicago facility
performs healthcare technology-driven services, and the Tampa office provides
management, billing and related administrative services to healthcare
providers.

Utilizing advanced healthcare models and information technology not
previously available to the marketplace, HALIS has developed HALIS Healthcare
Enterprise System ("HES"), a single program for the healthcare industry. The HES
integrates all of the major functions needed by clinics, hospitals, practices,
payers, long term care facilities, laboratories, pharmacies and home healthcare,
the eight major markets in which HALIS competes. HALIS is currently building out
the specific features required by each of these eight markets. Subsets of or all
of the HES can be used by each of these markets and can be combined to provide a
complete solution for integrated healthcare delivery networks. These networks
are being formed by hospitals, clinics, payers, practice management companies,
individual practices, and other entities which are involved in the delivery and
management of healthcare services.

The Company's systems business will be targeted to healthcare industry
participants such as physician practices, HMO's, home healthcare providers and
hospitals. The Company expects to capitalize on the healthcare industry's demand
for more software variety, updates, convenience, lower pricing, and better
support services. In addition, the Company will provide information systems to
management companies to help manage their point-of-care information. For
example, the Company will provide an information system to managed care
organizations that will aid in managing the networks of medical practices.

RECENT DEVELOPMENTS

The Company's 1997 operating losses, negative operating cash flow, and
the sale of certain businesses resulted in the need for a restructuring program.
The Company has implemented a restructuring program to reduce its fixed costs
and move the Company towards profitability. The Company does not anticipate that
it will record a restructuring reserve related to these actions. As part of this
program, the Company consolidated its three Atlanta offices into a single
location on March 1, 1998. In addition to eliminating certain leases and
redundant occupancy costs, this move is also expected to produce synergistic
benefits among employees. See "Item 2 - Description of Property."

The Company has also realigned its executive structure. Effective March
1, 1998, Harold J. Williams, III and James E. Clements, who served as the
Company's Chief Financial Officer and Controller, respectively, resigned and
became consultants to the Company with respect to certain financial and
accounting matters. Also effective March 1, 1998, Joseph H. Neely and Ken Lopez,
who served as the Company's Chief Operating Officer and Vice President of Sales,
respectively, left the Company to form their own sales and marketing
organization that is under contract to provide certain sales and marketing
services to the Company. In addition, the remaining executive officers have
deferred all or part of their salaries until the Company achieves a positive
cash flow or receives additional outside capital. Overhead was further reduced
by the elimination of five other corporate office employees.

Thus far in 1998, the Company has had limited success entering into
contracts for the sale of the HES product. The Company continues to focus on the
sale of HES software, which the Company believes will continue to gain market
acceptance. In addition to focusing on near term profitability, the Company is
seeking strategic relationships, including possible business combinations, which
will enhance the Company's capital structure, as well as its sales and marketing
infrastructure.

The Company estimates that it incurred negative cash flow of
approximately $700,000 from January 1, 1998 to February 28, 1998. Due to its
cash flow situation, the Company has negotiated payment terms with vendors
representing approximately $490,000 in accounts payable of the approximate
$950,000 of accounts payable as of February 28, 1998. Certain of these payment
terms continue through August 1998. The remaining accounts payable not subject
to payment terms are managed on a case by case basis. The Company's cash balance
at March 31, 1998 was approximately $300,000. Management anticipates decreased
operating expenses through the reduction in the number of employees and
increased revenue by the third quarter from HES sales. Additionally, the Company
has identified the need for an immediate capital infusion of $1.3 million, of
which $968,000 has been raised as of April 14, 1998, primarily in the form of
convertible debentures. Based on the Company's current cash usage, this $1.3
million should last through June 30, 1998 at which time the Company must be cash
flow positive or additional capital will be required. See "-Factors Affecting
Future Performance."

COMPANY BACKGROUND

The predecessor of HALIS, Fisher Business Systems, Inc. ("Fisher") was
organized in 1979 by Larry Fisher to provide vertical software applications for
potential business users of IBM minicomputers. The initial applications provided
by Fisher consisted principally of business management software directed at a
variety of different businesses, including pharmacies, supermarkets and general
retail, as well as restaurants. Spurred by the introduction of the IBM Personal
Computer, or "PC," Fisher developed its own proprietary PC-based business
applications software in 1984. At the same time, Fisher's previously diffuse
marketing approach was restructured to focus on its most successful market niche
- - the restaurant industry.

Due to a downturn in its business in 1994, Fisher was unable to commit
sufficient resources to continue research and development of its products to
keep pace in the hospitality market place, undermining its competitive position.
In 1995, Fisher's Board of Directors concluded that Fisher needed a significant
shift in its strategic plan to continue in business. As a consequence, Fisher
developed a strategy to grow its business through the acquisition of select
software companies in the hospitality and healthcare markets. See "Company
Strategy."

Pursuant to this strategy, HALIS, (f/k/a Fisher Business Systems, Inc.)
issued 15,000,000 shares (66.8%) of its common stock in exchange for 100% of the
capital stock of AUBIS Hospitality Systems, Inc. ("AHS"), AUBIS Systems
Integration, Inc. ("ASI"), and HALIS Software, Inc. ("HSI"), which included

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ProHealth Solutions, Inc., on November 19, 1996. The acquisitions were
accounted for as the reverse acquisition of HALIS, Inc. by an "accounting
entity" consisting of AHS, ASI, and HSI (collectively, the "Predecessors")
because, following the transaction, the former shareholders of AHS, ASI, and HSI
were in control of the Company. Accordingly, the financial statements of the
Company are the financial statements of the "accounting entity" adjusted for the
assumed acquisition of the net assets of HALIS, Inc. in exchange for the
issuance of HALIS, Inc. common stock outstanding before the transaction. The net
assets of the Predecessors are accounted for at their historical cost. In
accordance with purchase accounting principles pursuant to Accounting Principles
Board Statement No. 16, "Business Combinations" (APB 16), the Company accounted
for the net assets of HALIS, Inc. acquired at the fair value of such net assets
as of November 19, 1996.

The Company made three additional acquisitions in January 1997, one
additional acquisition in May 1997, and two additional acquisitions in July
1997. See "- Acquisitions." The Company made three dispositions in December
1997. See "- Recent Dispositions."

INDUSTRY BACKGROUND

The healthcare industry is undergoing change at an unprecedented rate.
Hospitals are buying physician practices; individual practices are combining
their efforts and forming independent practice associations; physician practice
management and service companies ("MS0's") are either buying or managing groups
of practices and clinics; and insurance companies are entering many of these
markets.

The implications of these changes are numerous, but one of the key
factors in the success of each of these organizations is the availability of
information throughout the organization, beginning at the point of service. It
is estimated that as many as 90 manual steps are required to service a patient
and process a claim generated by an office visit. The process is fraught with
error. The physician often does not know all of the patient's history, and if
and how much he or she will be paid for the performance of a given service due
to the complexities in the benefit plans and management contracts under which
the practice operates.

As a result of the new healthcare environment, management expects
significant increases in spending on healthcare technology and related services
over the next several years. According to published research reports, the
industry has historically spent approximately two to three percent of its
revenues on information technology and services, compared to six to ten percent
of revenues for companies in other information intensive industries. Management
believes that, over the next several years, spending on healthcare technology
and related services will approach the levels experienced by other industries.
This trend, combined with the overall growth of the healthcare industry, is
expected by management to yield significant opportunities for companies who
deliver information technology products and services to the healthcare market.

Healthcare delivery costs have increased dramatically in recent years.
The growing influence of managed care has resulted in increasing pressure on
participants in the healthcare system to contain costs. Accordingly, healthcare
systems are migrating toward more managed care reimbursement, including
discounted fee for service and capitation. Under capitation, providers are paid
a predetermined fee per individual to provide all healthcare services, thereby
assuming the potential financial risks of escalating healthcare costs.

To deliver care in a more cost-effective manner, providers are forming
integrated health delivery networks that may include acute-care hospitals,
physicians offices, outpatient clinics, homecare, and long-term care facilities.
The success of these comprehensive delivery networks is dependent upon, among
other things, effectively managing and delivering information to caregivers and
managers across multiple points of care.

Traditionally, the hospital information systems market has been the
largest segment of healthcare information services. According to industry
analysts, the healthcare industry spent approximately $10 billion for products
and services to support automated information systems in 1995, and the market is
expected to reach $28 billion by the year 2000.

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The current market of healthcare and related businesses in the United
States is estimated to be more than $1 trillion. International markets provide
even greater opportunity. The immediate domestic market potential for the
Company's software products and technology services is estimated to be a
universe of 3.4 million businesses representing more than $15 billion in annual
revenue.

In addition to this expanding market opportunity, the demand for
healthcare information systems is also increasing as hospitals and other
providers come under increased pressure to quantify and control their costs. As
a result, many providers are spending more on systems to enable them to access
such information. According to the 1996 Annual HIMSS/HP Leadership Survey, an
industry survey conducted by Hewlett Packard at the Healthcare Information and
Management Systems Society conference, 63% of the respondents stated that their
information system investments will increase at a rate of 20% or more, and 24%
indicated budget growth of over 50%.

Healthcare information systems are evolving to meet the needs of a
changing marketplace. Initially, these systems were financially oriented,
focusing on the ability to capture charges and generate patient bills. However,
as reimbursement has shifted more towards risk sharing and capitation, providers
and payers are seeking to better manage risk by controlling costs, demonstrating
quality, measuring outcomes and influencing utilization. Each of these goals
requires the collection, analysis and interpretation of clinical and financial
information related to the delivery of healthcare.

Management believes that the availability of a complete, timely and
cost-effective patient focused information system is essential to controlling
costs, while providing high quality patient care. Sources of patient information
usually include a number of different sites; therefore, current and historical
paper records must be made available by computer to all points-of-care. All
participants in the delivery network need information systems that can capture
data at the point-of-care, communicate data across the continuum of care, and
process and store the large volumes of data necessary for the development of the
computer-based, longitudinal patient record.

Information technology in healthcare has historically had a "bottoms
up" approach. Software applications such as billing, admissions, claims
processing, patient registration, medical records, contract management, and
others were developed individually, using rigid programming techniques. Over
time, many of these systems were "interfaced" to each other in order to provide
a more complete solution. The piecing together of these disparate applications,
however, has caused significant problems in the development, implementation, and
enhancement of these systems. Each time a change is made to one application, the
other applications, normally written by different groups of people, have to be
changed to maintain the "interface." This process results in long lead times,
and higher costs to acquire, maintain, and upgrade systems.

It is not uncommon for a hospital to have more than 10 different
application systems (up to 50 in larger hospitals) installed to perform the
functions of admissions, billing, patient registration, insurance processing,
internal reporting, laboratory information, pharmacy records, contract
management, and eligibility. A typical single software application (including
integration testing and conversion) can cost in excess of $200,000. Annual
software support for multiple applications can run as much as $600,000 or more,
and changes to the software programs create additional charges to the hospital.
Physician practices face the same situation on a smaller cost scale, spending up
to $20,000 or more for initial software license fees, plus support and
customization.

There are estimated to be approximately 120 million combinations of
computer instructions required to support today's healthcare industry with
enterprise-wide application solutions. Using traditional "hard coding" of
computer instructions, this simply cannot practically be done. Therefore, most
systems in the market today have difficulty producing the total solution that
the changing healthcare environment demands. Traditional programming techniques
do not offer a quality, cost effective path to the future for today's customers.

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THE HALIS HEALTHCARE ENTERPRISE SYSTEM

HALIS has developed an advanced healthcare information model and a
single program for the healthcare industry, the HALIS Healthcare Enterprise
System ("HES"). Using superior healthcare information models and advanced
database techniques, HALIS offers a totally integrated, not interfaced, top down
approach to healthcare information systems. The HES can be used in its entirety
for an integrated healthcare delivery network, or subsets can be used for
clinics, hospitals, practices, payers, long term care facilities, laboratories,
pharmacies, and home healthcare providers.

The Company's HES uses a fifth generation database system that manages
data through its integrated multimedia-object, open database compliant (ODBC),
and SQL-relational database. The HES technology platform consists of five major
integrated parts: (i) the graphical end-user interface, (ii) the program object
processor, (iii) the multimedia object database, (iv) the SQL relational and
open database driver, and (v) the communications network manager.

The HES provides a direct connection between the consumer or end-user
and the ready-to-use database driven system. Program data and instruction can be
added in an automated manner without traditional programming knowledge.
Currently, competing software technology in the healthcare industry requires
technical expertise to connect data and processing instructions to a running
program.

The HES' ability to respond to conditions and changes makes it
appealing to healthcare industry participants. Programmer coded instructions or
computer generated coded instructions often exceed the computer workstation
capacity. Therefore, management believes that the conditions and processing
needs are not included in the currently available commercial systems, and a
great deal of the processing must be handled manually. The HES is designed to
handle the processing conditions and needs of the healthcare industry.

HALIS has eliminated more than 90% of the programming effort and
duplicity that other systems have required by placing most of the program logic
into its database. Instead of literally thousands of "if/then" programming
statements for each healthcare event, which require significant personnel and
computer time to execute, the HES directly locates the relevant mathematical and
decision operations and relationships in the database. In addition, the HES is
designed to allow the user to update most items in the database directly,
virtually eliminating the user's dependence on the software supplier to make
such changes.

The HES also eliminates the need for the redundant data found in other
systems. It is estimated that more than half, and possibly up to 80% of the
information used by each individual software application is the same information
required by every other application in the system. The HES utilizes the
relational database concept to eliminate this redundancy and streamline the
development, enhancement and operational process dramatically.

The HALIS technology provides a new level of economies in the
production and maintenance of healthcare systems. HALIS systems are being sold
at over 50% less than competitive systems, with a huge corresponding reduction
in maintenance and support costs. HALIS' cost to continuously add new features
and functions to its system will be substantially below today's market costs,
since there is only one system to modify, not up to 10 or more disparate
systems. HALIS will use videoconferencing and the Internet to deliver training,
product support, sales support and customer service. Each of these techniques is
designed to improve user satisfaction and lower costs.

In 1998, HALIS will focus on three of the eight primary markets it
expects to penetrate: physician practices, including individual, group and
combinations; clinics; and healthcare payers. During 1997 the HALIS Practice
Management System (a subset of HES) was installed in the field as pilot sites,
and is available for sale today to practices and practice management
organizations. The software enables users to add day-to-day changes in patient
data, billing criteria, and clinical management in one system. Management
believes that the principal benefits of the software include: (i) centralization
of patient data, (ii) coverage verification, (iii) increased collections, (iv)
lower billing costs, and (v) higher quality clinical data. There are about fifty
functions provided including registration, medical records, patient encounters,
billing, managed care, reports and system support.

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The HALIS Payer System (another subset) is installed in a pilot site
and is expected to be ready for general release in 1999. The HALIS HES Clinic
System (another subset) is currently being sold as pilots and is expected to be
ready for general release during 1998. A pilot site is a customer who
acknowledges that while the particular HALIS system being offered is
functionally complete, it must be field tested in an operational environment,
where additional features may be added to further enhance its usability.

The HES was developed by the Company through the healthcare prototype
licensed from Paul Harrison Enterprises, Inc. ("PHE") which is controlled by the
Chairman and Chief Executive Officer of the Company. In November 1996, the
Company entered into a perpetual, non-exclusive transferable license with PHE to
utilize proprietary technology known as MERAD ("MERAD") for a license fee of 10%
of gross revenues generated from MERAD and any derivatives thereof by the
Company or any of its affiliates. In July 1995, PHE acquired from Paul Harrison,
the Chairman of the Board, Chief Executive Officer and President of the Company,
certain algorithms and concepts for the creation of an advanced artificially
intelligent software tool called "MERAD," a tool utilized to develop application
software. Through the use of artificial intelligence, MERAD can substantially
decrease the development time necessary to create and debug application
software. The Company uses MERAD to develop the HES.

SERVICE BUSINESSES

As a complement to its technology product, HES, the Company delivers
healthcare and business services through its business units Physicians Resource
Network ("PRN"), American Benefit Administrative Services and Compass. PRN is
located in Tampa, Florida and delivers physician practice management services.
American Benefit Administrative Services is located in Chicago, Illinois and
provides third party claims administration and related services. Compass is
located in Atlanta, Georgia and provides information technology consulting.

COMPANY STRATEGY

The Company is currently focused on the point of service system
business in the healthcare industry (e.g., physician practices, MSO's and other
managed care organizations) and is expanding to larger markets such as clinics
and hospitals. Management believes that the Company benefits from the
flexibility of the Company's technology and the fact that the Company has no
"legacy" systems to maintain, enhance, or otherwise invest in. Management
believes that the flexibility of the Company's healthcare software will allow
the Company to keep up with user demand for updates to health plan changes,
management contract revisions, availability of new pharmaceutical products, and
changes in managed care-driven plans and practices. Moreover, the Company should
be able to deliver integrated software to virtually every healthcare market
segment including medical practices, home health agencies, hospitals, clinics,
long-term care, labs, pharmacies, and payers.

The Company's strategy is to offer its customers a complete solution to
their healthcare information needs. HALIS will use its technological advantages
to produce and sell lower cost application software, and will provide healthcare
information outsourcing and consulting services to augment its software
products. In addition, the Company should be able to deliver a turnkey solution
to healthcare organizations through its ability to implement customized computer
hardware, communication networks, and other systems integration services.

The Company will address the healthcare industry's needs by automating
the production and maintenance of software for all healthcare market segments
through its own version of an automated factory based on the advanced database
technology. Management believes that several competitors have attempted to
create one technology to build software for multiple healthcare segments but
have had limited success. The Company believes that the advanced database
technology will be instrumental in automating and integrating the healthcare
industry's information cycle.

The Company believes that it will have an advantage over its
competitors because its product "engines" -- the integrated healthcare software
product and its information technology core -- are expected to be effective in
keeping pace with the ongoing market changes in healthcare. Management believes
that many competitors currently have fragmented inflexible healthcare software
that fails to meet the needs of healthcare companies.

HALIS believes that distribution channels for its software products are
enhanced by acquiring healthcare information service companies and developing
strategic partnerships with market segment participants. However, the
implementation of HALIS' acquisition strategy in fiscal 1997 did not produce
desired results; some acquisitions resulted in a reduction of goodwill
recorded and the sale of certain assets related to these acquisitions.

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HALIS will also utilize business partners to facilitate entry into
certain markets and increase its geographic presence in key areas of the United
States. Through its acquisition of The Compass Group, Inc., an Atlanta based
consulting firm, HALIS is a Global Alliance Partner with Geac (formerly Dun &
Bradstreet Software). HALIS is currently pursuing the expansion of its
relationship with Geac at a corporate and regional level. The Company has been
selected as a Geac global alliance partner for healthcare, and is working with
Geac sales and marketing management to identify Geac customers who are prospects
for the Company's software and services. The Company is also negotiating with
other prospective HALIS business partners.

The Company will manage its operations from its corporate headquarters
in Atlanta, and strategically located regional offices focused on sales and
service in different geographical areas. HALIS will endeavor to keep its
corporate overhead costs low, while maintaining sufficient staff to implement
the business plan and manage holding company activities such as strategic
planning, mergers and acquisitions, accounting, treasury, research and
development, and risk management.

The Company's strategic plan is a significant shift in the Company's
past business direction. There can be no assurance that the Company will
be successful in implementing its strategic plan or that shareholder value will
be enhanced. See "- Factors Affecting Future Performance."

FACTORS AFFECTING FUTURE PERFORMANCE

Uncertainty of Market Acceptance; Reliance on a Limited Number of
Products. HALIS' Healthcare Enterprise System is a new technology. Achieving
market acceptance for HALIS' products will require substantial marketing efforts
and expenditure to inform potential customers of the distinctive characteristics
and benefits of these products. Since HALIS has limited marketing experience,
financial and other resources to undertake extensive independent marketing
activities, there can be no assurance that HALIS will be able to market its
products successfully. Furthermore, HALIS is dependent upon a limited number of
products and on one technology for most of its revenues. There can be no
assurance that HALIS will be able to commercialize its healthcare information
technology profitably.

Working Capital Requirements Need for Additional Financing. HALIS will
require additional capital or other financing to finance its operations and
continued growth. There can be no assurance that HALIS will be able to obtain
such financing if and when needed, or that if obtained, it will be sufficient or
on terms and conditions acceptable to HALIS. If the Board of Directors of HALIS
determines to obtain additional capital through the issuance of additional
equity securities of HALIS, there can be no assurance that such shares will be
issued at favorable prices and terms. Any such future equity financing could be
dilutive to shareholders of the Company.

Acquisitions and Integration. An important element of HALIS' business
strategy is to expand through acquisitions. HALIS' future success is dependent
upon its ability to finance acquisitions and effectively integrate acquired
businesses with HALIS' operations. Although HALIS believes that it will be able
to effect such integration, there can be no assurance that past or future
acquisitions will be successfully integrated or that any such acquisition will
otherwise be successful. In fact, during 1997 HALIS disposed of the recently
acquired orthodontic practice management software business and certain recently
acquired non-healthcare assets See "- Recent Dispositions." In addition, due to
cash flow issues and poor operating results at several subsidiaries, the Company
determined that the unamortized goodwill resulting from certain recent
acquisitions is not recoverable and recorded a write-off. See "Item 6.
Managements' Discussion and Analysis of Plan of Operations." In addition, the
financial performance of HALIS is now and will continue to be subject to various
risks associated with the acquisition of businesses, including the financial

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effects associated with the integration of such businesses. Although HALIS has
made a number of acquisitions over the past eighteen months, there can be no
assurance that HALIS' acquisition strategy will be successful. Without a
successful acquisition strategy, HALIS believes that its prospects for revenue
growth are significantly reduced.

Limited History of Profitability. HALIS has not reported any profits
for a full year of operations since fiscal 1991. In addition, each of the
companies which HALIS has recently acquired has a limited operating history and
many were not profitable in 1997. There can be no certainty regarding HALIS'
ability to achieve or sustain profitability in the future.

Healthcare Industry and Marketing Changes. The healthcare industry is
subject to changing political, economic and regulatory influences that may
affect the procurement practices and other operational aspects of the healthcare
industry. During the past several years, the healthcare industry has been
subject to an increase in governmental regulation of, among other things,
reimbursement rates and certain capital expenditures. A number of lawmakers have
announced that they intend to propose programs to reform the U.S. healthcare
system. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates and otherwise change the
operating environment for HALIS' customers. Cost containment measures instituted
by healthcare providers could result in greater selectivity in the allocation,
of capital funds, which could have an adverse effect on HALIS' ability to sell
its products and services. HALIS cannot predict with any certainty what effect,
if any, such proposals or healthcare reforms might have on its business,
financial condition or results of operations.

In addition, the healthcare industry is currently undergoing
significant consolidation of healthcare providers resulting in a smaller number
of larger healthcare delivery enterprises. The changing industry profile
produced by this consolidation could have an adverse impact on HALIS' margins
and revenues due to increased competition.

Control by Management. Paul Harrison, the Chairman of the Board, Chief
Executive Officer and President of HALIS, exercises voting control over
approximately 31% of the outstanding shares of Common Stock of HALIS. As a
result of such concentration of ownership, Mr. Harrison has the ability to exert
significant influence on the policies and affairs of the Company and corporate
actions requiring shareholder approval, including the election of the members of
the Board of Directors. This concentration of ownership could have the effect of
delaying, deferring or preventing a change of control of the Company, including
any business combination with an unaffiliated party, and could also affect the
price that investors might be willing to pay in the future for shares of Common
Stock.

Dependence on Management and Key Personnel. The success of HALIS
depends to a large degree upon the personal efforts and ability of its Chief
Executive Officer and President, Paul Harrison. The loss of the services of Mr.
Harrison would have a materially adverse effect on HALIS. HALIS has entered into
an employment agreement with Mr. Harrison. HALIS does not maintain key man life
insurance on any of its executives.

The Company's future operating results also depend in significant part
upon the continued service of its key technical, consulting and management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will retain its key managerial or
technical personnel or attract such personnel in the future. The Company has at
times experienced difficulty recruiting qualified personnel, and there can be no
assurance that the Company will not experience such difficulties in the future.
The Company actively recruits qualified product development, consulting and
sales and marketing personnel. If the Company is unable to hire and retain
qualified personnel in the future, such inability could have a material adverse
effect on the Company's business, operating results and financial condition.

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Technological Change; Proprietary Technology. Future advances in the
healthcare information systems industry could lead to new technologies, products
or services that are competitive with the products and services offered by
HALIS. HALIS' success will depend, in part, on its ability to be responsive to
technological developments and challenges. Such technological advances could
also lower the cost of such products and services or otherwise result in
competitive pricing pressures, which could have an adverse effect on HALIS. To
remain competitive in the evolving healthcare information systems marketplace,
HALIS must develop new products on a timely basis. The failure to develop
competitive products or to introduce new products on a timely basis could have
an adverse effect on HALIS' future financial performance.

Protection of Proprietary Information. HALIS does not have any patents
or registered copyrights but may obtain patents or registered copyrights in the
future as appropriate. HALIS treats its software and related technical data as
confidential and relies on internal nondisclosure safeguards, including
confidentiality agreements with employees, and on laws protecting trade secrets,
to protect what it regards as proprietary information. Competitors and customers
may nevertheless be able to copy certain functional aspects of HALIS' products.
In addition, under the terms of certain agreements by which HALIS licenses its
software for inclusion in software systems marketed by other manufacturers,
HALIS has been required to place in escrow the source code for the licensed
software. In the event of a default by HALIS in its performance under such
agreements, the licensee would be entitled to receive and retain such source
code for its own use.

Competition. The industry in which HALIS operates is highly competitive
and subject to continuing change in the manner in which products and services
are marketed and vendors are selected by customers. The primary competitive
factors are scope and quality of products and service and support capabilities.
Certain current and potential competitors have significantly greater resources
than HALIS.

Limited Trading Volume: Shares Eligible for Future Sale. On October 30,
1992, HALIS' Common Stock ceased quotation on the NASDAQ Small Cap Market. Price
information on HALIS' Common Stock is now available on the OTC Bulletin Board.
HALIS has experienced limited trading volume in its stock historically. There is
no assurance that a public market for HALIS' securities will continue to be made
or that shareholders will be able to avail themselves of a public trading market
for the Common Stock in the future.

Moreover, sales and potential sales of substantial amounts of the
Company's Common Stock in the public market pursuant to effective registration
statements, Rule 144 or otherwise could adversely affect the prevailing market
prices for the Common Stock and impair the Company's ability to raise additional
capital through the sale of equity securities.

No Dividends. HALIS has never paid cash dividends on its Common Stock
and has no plans to pay cash dividends in the foreseeable future. The policy of
HALIS' Board of Directors is to retain all available earnings for use in the
operation and expansion of HALIS' business.

Possible Issuance of Preferred Stock. HALIS is authorized to issue up
to 5,000,000 shares of Preferred Stock, $0.10 par value. Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by shareholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions. No Preferred Stock is currently
outstanding, and HALIS has no present plans for the issuance thereof. The
issuance of any series of Preferred Stock could affect the rights of the holders
of Common Stock, and therefore, reduce the value of the Common Stock and make it
less likely that holders of Common Stock would receive a premium for the sale of
their shares of Common Stock. In particular, specific rights granted to future
holders of Preferred Stock could be issued to restrict HALIS' ability to merge
with or sell its assets to a third party.

Possible Volatility of Stock Price. The market price of the Common
Stock may be subject to significant fluctuations in response to HALIS' operating
results and other factors. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations, particularly in the high
technology sector, which have often been unrelated to the operating performance
of particular companies. Such

9
<PAGE> 10

fluctuations and factors such as announcements of technological innovations or
new products by HALIS or its competitors or third parties, as well as market
conditions in the computer software or hardware industries and healthcare reform
measures, may have a significant effect on the market price of HALIS' Common
Stock.

Fluctuations in Quarterly Performance. HALIS' product sales will be
derived primarily from the sale of software systems and related services in the
healthcare industry, the market for which is still developing. Accordingly,
HALIS' quarterly results of operations are difficult to predict, and delays in
the closing of sales near the end of the quarter could cause quarterly revenues
and, to a greater degree, operating and net income to fall substantially short
of anticipated levels. HALIS' total revenues and net income levels could also be
adversely affected by cancellations or delays of orders, interruptions or delays
in the supply of key components, changes in customer base or product mix,
seasonal patterns of capital spending by customers, delays in purchase decisions
due to new product announcements by HALIS or its competitors, increased
competition and reductions in average selling prices.

RECENT DISPOSITIONS

DISPOSITION OF THE ORTHODONTIC BUSINESS

10
<PAGE> 11
orthodontic practice management software business (the "Orthodontic Business")
on December 31, 1997. The Orthodontic Business was acquired by the Company from
Software Manufacturing Group, Inc. in January 1997. See "- Acquisitions." The
Orthodontic Business includes the development, marketing, selling and servicing
of computer hardware and software to orthodontic healthcare providers. The sale
to InfoCure was consummated pursuant to an Asset Purchase Agreement dated
December 31, 1997 (but effective as of December 1, 1997) by and among the
Company, HALIS Services and InfoCure (the "InfoCure Asset Purchase Agreement").
InfoCure paid HALIS Services, net of liabilities paid by HALIS Services,
approximately $1.2 million in cash. The Company recorded a loss of approximately
$3.1 million on the sale of the Orthodontic Business.

In connection with the InfoCure Asset Purchase Agreement, the Company
and HALIS Services agreed to pay approximately $5,900 per month through January
1999 to a former employee of HALIS Services and not to compete in the
orthodontic practice management industry for a period of five years.

SALE OF CERTAIN NON-HEALTH CARE ASSETS

Due to their disappointing operating performance, HALIS Services sold
certain non-healthcare related assets and property of TG Marketing Systems and
Aubis Systems Integration, Inc. ("ASI") to Communications Wiring and
Accessories, Inc. ("Communications Wiring") on December 31, 1997 for a purchase
price of $1 million and the assumption of certain liabilities (the "Purchase
Price"), subject to downward adjustment as hereinafter described. The
non-healthcare related assets and property included accounts receivable,
computer software, computer equipment, furniture, fixtures and leasehold
improvements. The Company received no cash consideration at closing and has not
recorded any receivable from this transaction due to an evaluation of the timing
and probability of the payments as hereinafter described.

The Purchase Price is payable in monthly installments, commencing
February 15, 1998, and continuing on the 15th day of each month thereafter
(each, an "Installment Payment") until the earlier of the date upon which the
aggregate amount of Installment Payments paid to HALIS Services shall equal the
Purchase Price or December 31, 2007. Each Installment Payment shall be equal to
20% of the license fees, lease payments and royalties actually received by
Communications Wiring with respect to the purchased assets for the calendar
month immediately preceding the respective date upon which such Installment
Payment shall be due and payable; provided, however, that in the event that the
aggregate amount of all Installment Payments actually paid by Communications
Wiring to HALIS Services prior to December 31, 2007 (the "Paid Installments")
shall be less than $500,000, Communications Wiring shall pay to Seller an amount
equal to the difference between $500,000 and the Paid Installments on December
31, 2007. In the event that the aggregate amount of all Installment Payments
actually paid by Communications Wiring to HALIS Services prior to December 31,
2007 shall be equal to or greater than $500,000, Communications Wiring shall
have no further obligation to make installment payments to HALIS Services and
the entire Purchase Price shall be deemed to be equal to the Paid Installments.

To secure the payment of the Purchase Price by Communications Wiring,
HALIS Services retained a security interest in certain of the purchased assets
constituting or relating to proprietary software developed by HALIS Services.
Such security interest, however, does not guarantee that Communications Wiring
will make the required Installment Payments as and when they become due. The
Company recorded a loss of approximately $2.3 million on the sale of this
business.

ACQUISITIONS

In November 1996, the Company merged AHS and ASI, each a wholly owned
subsidiary of AUBIS, L.L.C. ("AUBIS"), with and into two wholly owned
subsidiaries of the Company. In connection therewith, AUBIS received 10,000,000
shares of Common Stock of the Company. AHS and ASI are suppliers of network
integration products and services to the healthcare and other industries. The
Company sold substantially all of the assets of ASI in December 1997. See
"-Recent Dispositions."

11
<PAGE> 12

In November 1996, the Company also acquired HSI, a wholly owned
subsidiary of Healthcare Technology Investments, L.L.C. (formerly, HALIS,
L.L.C.). In connection therewith, Healthcare Technology Investments, L.L.C.
received 5,000,000 shares of Common Stock of the Company. HSI is the developer
of the HES.

In January 1997, the Company acquired The Compass Group, Inc., a
software consulting company ("Compass"). In connection therewith, Debra York,
the sole shareholder of Compass, was issued an aggregate of 350,000 shares of
the Company's Common Stock and Compass became a wholly owned subsidiary of the
Company (the "Compass Subsidiary"). In addition, as consideration for the waiver
by Ms. York of her rights under a provision in the Merger Agreement providing
for the issuance of additional shares of the Company's Common Stock at a future
date if certain financial targets were achieved for the year ending December 31,
1997, the Company agreed to issue 688,000 shares of the Company's Common Stock
to Ms. York on June 30, 1997.

In connection with the Compass merger, the Compass Subsidiary entered
into an employment agreement with Ms. York providing for the employment of Ms.
York as President of the Compass Subsidiary for a term of two years at an annual
base salary of $120,000. In addition, in connection with the consummation of the
Merger, the Company granted to Ms. York non-qualified options to purchase 85,000
shares of the Company's Common Stock at an option price of $2.00 per share. The
options granted to Ms. York are fully exercisable and expire January 10, 2007.
On February 25, 1998 the Company's Board of Directors adopted a resolution to
amend the terms of certain outstanding stock option agreements to reduce the
exercise price thereof and to reduce the number of shares of common stock
subject thereto. In connection with this resolution, the exercise price of Ms.
York's options was reduced to $0.25 per share and the number of shares were
reduced to 59,500 from 85,000.

In January 1997, the Company also acquired Software Manufacturing
Group, Inc. ("SMG"), a developer and seller of orthodontic practice management
systems, which the Company sold in December 1997. See -"Item 1. Business- Recent
Dispositions." In connection therewith, the SMG shareholders were issued an
aggregate of 3,072,000 shares of Common Stock and SMG became a wholly owned
subsidiary of the Company (the "SMG Subsidiary"). In addition, as consideration
for the waiver by the SMG shareholders of their rights under a provision in the
Merger Agreement providing for the issuance of additional shares of Common Stock
at a future date if certain financial targets were achieved for the year ending
December 31, 1997, the Company agreed to issue 960,000 shares of the Company's
Common Stock to the SMG shareholders on June 30, 1997.

In connection with the SMG merger, the SMG Subsidiary entered into an
employment agreement with Charles Cone, Jr. providing for the employment of Mr.
Cone as President of the SMG Subsidiary for a term of two years at an annual
base salary of $192,000 plus incentive compensation determined in accordance
with the provisions of his Employment Agreement. In addition, the Company
granted to certain employees of SMG non-qualified options to purchase a total of
100,000 shares of the Company's Common Stock at an option price of $2.00 per
share. These options are fully exerciseable and expire on January 24, 2007.

In January 1997, the Company also acquired American Benefit
Administrative Services, Inc. ("ABAS") and Third Party Administrators, Inc.
("TPA"), which provide third party administrative services for healthcare plans
of large and small companies throughout the United States. In connection
therewith, the ABAS and TPA shareholders were issued an aggregate of 1,875,000
shares of Common Stock and ABAS and TPA became a wholly owned subsidiary of the
Company (the "ABAS/TPA Subsidiary").

Upon consummation of the ABAS and TPA mergers, the ABAS/TPA Subsidiary
entered into an Employment Agreement with Philip E. Spicer providing for the
employment of Mr. Spicer as President and a director of the ABAS/TPA Subsidiary
for a term of three years following the consummation of the mergers (subject to
extension in accordance with the terms of the Employment Agreement). The
Employment Agreement provides for Mr. Spicer to receive an annual base salary of
$200,000 plus incentive compensation determined in accordance with the terms of
Mr. Spicer's Employment Agreement.

<PAGE> 13

In addition, Mr. Spicer received a $100,000 signing bonus, payable in
two installments with $50,000 due upon execution of his Employment Agreement and
the remainder due on or before July 1, 1997. In addition, the Company granted to
Mr. Spicer non-qualified options to purchase 1,250,000 shares of Common Stock at
an option price of $2.00 per share. The options granted to Mr. Spicer are fully
exercisable and expire on January 31, 2007. On February 25, 1998 the Company's
Board of Directors adopted a resolution to amend the terms of certain
outstanding stock option agreements to reduce the exercise price thereof and to
reduce the number of shares of common stock subject thereto. In connection with
this resolution, the exercise price of one-half of Mr. Spicer's options was
reduced to $0.25 per share and the number of shares were reduced to 437,500 from
625,000. As a result, Mr. Spicer now holds options to purchase 625,000 and
437,500 shares of Common Stock at $2.00 and $0.25 per share, respectively.

Mr. Spicer's Employment Agreement also provides for certain payments to
be made to Mr. Spicer in the event he is terminated without cause or in the
event of a change in control of the ABAS/TPA Subsidiary. The Merger Agreement
also provides that Mr. Spicer may repay a loan from ABAS/TPA, which had a
balance of $574,831 as of December 31, 1997, in the form of HALIS Common Stock
if certain specified conditions are met.

Upon consummation of the ABAS and TPA mergers, the ABAS/TPA Subsidiary
also entered into an Employment Agreement with Patricia M. Toledano providing
for the employment of Ms. Toledano as Vice President and a director of the
ABAS/TPA Subsidiary for a term of three years following the consummation of the
mergers (subject to extension in accordance with the terms of the Employment
Agreement). The Employment Agreement provides for Ms. Toledano to receive an
annual base salary of $77,000 plus incentive compensation determined in
accordance with the terms of Ms. Toledano's Employment Agreement.

In addition, the Company granted to Ms. Toledano non-qualified options
to purchase 100,000 shares of Common Stock at an option price of $2.00 per
share. The options granted to Ms. Toledano are fully exercisable and expire on
January 31, 2007. Ms. Toledano's Employment Agreement also provides for certain
payments to be made to Ms. Toledano in the event she is terminated without cause
or in the event of a change in control of the ABAS/TPA Subsidiary. In connection
with the consumation of the mergers, the Company granted another ABAS/TPA
Subsidiary employee non-qualified options to purchase 25,000 shares of the
Company's common stock at an option price of $2.00 per share. These options are
fully exercisable and expire on January 31, 2007.

In May 1997 the Company acquired TG Marketing Systems, Inc., a Georgia
corporation ("TGM"), a provider of marketing and customer service software and
related consulting services. Upon consummation of the TGM merger, Joseph M.
Neely, in his capacity as the sole shareholder of TGM, was issued an aggregate
of 2,388,060 shares of the Company's Common Stock. Mr. Neely also entered into
an employment agreement with the Company for a term of two years at an annual
base salary of $150,000 to serve as the Chief Operating Officer of the Company.
In addition, in connection with the consummation of the TGM merger, the Company
granted options to purchase an aggregate of 500,000 shares of the Company's
Common Stock to certain employees of TGM at an option price of $1.50 per share.
These options vest over a four year period in accordance with the Company's 1996
Stock Option Plan, and expire on May 2, 2007. In December 1997 the Company sold
certain assets of the business formerly conducted by TGM. See "-Recent
Dispositions." In connection with this asset sale the options granted to
purchase 500,000 shares of the Company's Common stock were reduced to an
aggregate number of 129,450 shares. The option price and vesting schedule were
unchanged.

In July 1997 the Company acquired Physicians Resource Network, Inc., a
Florida corporation ("PRN") which became a subsidiary of the Company (the "PRN
Subsidiary"). PRN provides practice management services to healthcare providers.
Upon consummation of the PRN merger, Anthony F. Maniscalco, in his capacity as
the sole shareholder of PRN, was issued an aggregate of 3,733,333 shares of the
Company's Common Stock.

<PAGE> 14

In connection with the PRN merger, the PRN Subsidiary entered into an
employment agreement with Mr. Maniscalco providing for the employment of Mr.
Maniscalco as President of the PRN Subsidiary for a term of two years at an
initial base salary of $125,000.

Also in connection with the PRN merger, the Company retired
approximately $80,000 of existing indebtedness of PRN and agreed to cause all
personal guaranties with respect to the indebtedness of PRN in the principal
amount of $520,000 to a financial institution to be terminated. Subsequent to
year end, the financial institution extended a new one year promissory note for
the remaining outstanding balance of $460,675. The collateral supporting the
loan, including all personal guaranties remains in place.

In July 1997 the Company acquired PhySource Ltd., an Illinois physician
practice management corporation ("PhySource"), which became a subsidiary of the
Company (the "PhySource Subsidiary"). Upon consummation of the PhySource merger,
the shareholders of PhySource were issued an aggregate of 2,632,611 shares of
the Company's Common Stock, including payment of certain deferred compensation
and expense advances to certain shareholders, payments to certain shareholders
for termination of employment agreements, and payment in retirement of certain
existing indebtedness of PhySource.

In connection with the PhySource merger, the PhySource Subsidiary
entered into an employment agreement with Theodore M. Homa, M.D. providing for
the employment of Dr. Homa as the Medical Director for the medical practice that
previously constituted the business of Theodore M. Homa, M.D., S.C. (the "Homa
Practice"), which was acquired by PhySource immediately prior to the
consummation of the PhySource merger. The employment agreement provides for the
employment of Dr. Homa for a term of two years and for the payment of an annual
base salary effective January 1, 1998 of $288,000. In addition, as incentive
compensation Dr. Homa will be paid an amount equal to 2% of the software
component of technology sales resulting from Dr. Homa's referral of prospective
customers.

SUBSIDIARY CONSOLIDATION

In June 30, 1997, the following subsidiaries of the Company were merged
into HALIS Services, Inc., a newly-organized, wholly-owned Georgia subsidiary of
the Company: Software Manufacturing Group, Inc.; TG Marketing Systems, Inc.;
HALIS Software, Inc.; AUBIS Hospitality Systems, Inc.; AUBIS Systems
Integration, Inc. and The Compass Group, Inc. The purpose of the merger was to
simplify the Company's corporate structure and facilitate the consolidation of
accounting and treasury functions.

PURCHASE OF HEALTHWATCH STOCK

On August 20, 1997, the Company and HealthWatch, Inc. ("HealthWatch")
entered into a Subscription and Purchase Agreement (the "Purchase Agreement"),
pursuant to which the Company agreed to purchase up to 50,000 shares of Series H
Preferred Stock (the "HealthWatch Preferred Stock") of HealthWatch for an
aggregate consideration of up to $300,000, depending upon the number of shares
of HealthWatch Preferred Stock purchased. Each share of HealthWatch Preferred
Stock may be converted at any time at the option of the holder thereof into
twenty shares of the common stock of HealthWatch (the "HealthWatch Common
Stock"). HealthWatch is a developer, manufacturer and distributor of medical
instrumentation used in infusion therapy and vascular diagnosis. Paul W.
Harrison and Larry Fisher, who are directors and the Chairman and Chief
Executive Officer and the Executive Vice President of the Company, respectively,
serve as directors of HealthWatch and as of February 5, 1998 beneficially own
approximately 44% of its common stock.

From August 20, 1997 through September 22, 1997, the Company purchased
an aggregate of 4,166 shares of HealthWatch Preferred Stock for $125,000. The
HealthWatch Preferred Stock purchased by the Company was converted into 83,333
shares of HealthWatch Common Stock, or 3.9% of the outstanding HealthWatch
Common Stock. The Company is not obligated and does not have the present intent
to purchase additional shares of the capital stock of HealthWatch.

<PAGE> 15

The purpose of the acquisition by the Company of the HealthWatch
Preferred Stock was: (i) to take an initial step in connection with the possible
acquisition by the Company of HealthWatch; and (ii) to provide HealthWatch with
working capital. The Company and HealthWatch entered into a non-binding letter
of intent, dated August 8, 1997 (the "Letter of Intent"), providing for the
merger of HealthWatch with the Company. Since the execution of the Letter of
Intent, the Company and HealthWatch abandoned the proposed merger between the
two companies and instead pursued a joint venture and co-marketing arrangement.

The Company's HealthWatch investment of $125,000 is viewed by both
companies as a demonstration of HALIS' commitment to the joint venture. The
arrangement contemplates shared sales prospects by the Company and HealthWatch
with a commission or revenue sharing arrangement to be structured. HealthWatch
will provide technology, including the management of digitalized information
from its devices, and an integration database engine for connection at the point
of care. Management believes that this will provide an automated link to the HES
for faster and more accurate information transfer. See "Item 12. Certain
Relationships and Related Transactions".

CUSTOMERS

The Company's customers include numerous healthcare industry
participants located throughout the United States, including healthcare
consumers, provider groups and managed care organizations.

COMPETITION

The Company believes that the principal competitive factors in the
healthcare information systems market are: the breadth and quality of system and
product offerings, the proprietary nature of methodologies and technical
resources, price, customer service, and the effectiveness of marketing and sales
efforts. In addition, the Company believes that the speed with which information
technology companies anticipate and respond to the evolving healthcare industry
structure and address unmet information needs are also important competitive
factors. The Company believes that, with adequate capital, it will be able to
compete favorably with respect to each of these factors.

The market for healthcare information products and services is
intensely competitive. Competitors vary in size and in the scope and breadth of
products and services offered. In addition, the Company competes with different
companies in each of its target markets. Many of the Company's competitors, such
as HBO & Company, have significantly greater financial, technical, product
development and marketing resources than the Company.

The Company's potential competitors include specialty healthcare
information companies, physician practice management companies, third party
claims administrators, healthcare information systems and software vendors, and
large data processing and information companies. Many of these competitors have
substantial installed customer bases in the healthcare industry, as well as the
ability to fund significant product development and acquisition efforts.

PROPRIETARY RIGHTS

The Company's success and ability to compete are dependent in part upon
its proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. Although the Company relies on the limited
protection afforded by such intellectual property laws, it also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition, and
reliable maintenance are essential to establishing and maintaining a
technological leadership position. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
customers and generally controls access to and distribution of its software,
documentation and other proprietary information. Although the Company restricts
the use by the customer of the Company's technology, there can be no assurance
that unauthorized use of the Company's technology will not occur.

<PAGE> 16

Despite the measures taken by the Company to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
the Company's products, or obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.

Certain technology used in conjunction with the Company's products is
licensed from third parties, generally on a non-exclusive basis. These licenses
usually require the Company to pay royalties and fulfill confidentiality
obligations. The termination of any such licenses, or the failure of the
third-party licensors to adequately maintain or update their products, could
result in delay in the Company's ability to ship certain products while it seeks
to implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's results of operations. While it may be
necessary or desirable in the future to obtain other licenses relating to one or
more of the Company's products or relating to current or future technologies,
there can be no assurance that the Company will be able to do so on commercially
reasonable terms or at all.

In the future, the Company may receive notices claiming that it is
infringing on the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require the expenditure of significant resources to develop
non-infringing technology, require disputed rights to be licensed from others,
or require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, can be time
consuming and expensive to defend, prosecute or resolve.

EMPLOYEES

As of March 20, 1998, the Company had 125 full-time employees,
including two in senior management. The Company also utilizes contract personnel
for support services, installations of Company's systems, and programming. None
of the Company's employees are subject to a collective bargaining agreement, and
the Company considers its employee relations to be good.

FORWARD-LOOKING STATEMENTS

This Form 10-KSB contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
and Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and objectives
of the Company for future operations. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. The Company's plans and objectives are based on the assumption
that the Company's entry into the healthcare industry will be successful, that
competitive

<PAGE> 17

conditions within the healthcare industry will not change materially or
adversely, and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions, as well as future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements included herein are reasonable, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person, that the objectives and plans of the Company will be achieved. See
"-Factors Affecting Future Performance."

ITEM 2. DESCRIPTION OF PROPERTY.

The Company's headquarters is located at 9040 Roswell Road, Suite 470,
Atlanta, Georgia. This 11,500-square-foot facility is leased pursuant to a
72-month lease at a monthly rental of $19,800. The Company also leases
additional space in the greater Atlanta area, Chicago and Tampa. Pursuant to the
Company's asset sales and restructuring program, the Company has reduced its net
rented space in Atlanta by approximately 9,500 square feet and anticipates a
further reduction of 3,600 square feet during April 1998. This reduction is
expected to reduce net occupancy costs in Atlanta by approximately $12,000 per
month to $19,800.

ITEM 3. LEGAL PROCEEDINGS.

In February 1997, a complaint styled Advanced Custom Computer
Solutions, Inc., Wayne W. Surman and Charlotte Surman v. Fisher Business
Systems, Inc., HALIS, Inc., Larry Fisher, Paul W. Harrison and Nathan I. Lipson,
was filed in the State Court of Fulton County, Georgia. The complaint alleges,
among other things, breach of contract in connection with the termination by the
Company of its merger agreement with ACCS, which the Company advised ACCS was
terminated in November 1996 due to the impossibility of ACCS's fulfilling
certain conditions to closing therein. In addition, the complaint alleges that
the defendants made false and misleading statements to the plaintiffs for the
purpose of inducing plaintiffs to lend money to the Company. The complaint seeks
damages in the amount of at least $2.0 million (the exact amount of such damages
to be proved at trial), additional damages to be determined by the jury at trial
and punitive damages. The Company has answered, denying the allegations of
liability in the complaint, and the Company intends to vigorously contest the
lawsuit. There can be no assurance, however, that the Company will be successful
in its defense or that the resolution of this matter will not have a material
adverse effect on the financial condition or results of operation of the
Company.

In August 1995, the Company entered into a Finder's Fee Agreement with
Penny Sellers, pursuant to which the Company agreed to pay Ms. Sellers a
commission equal to 10% of the amount of any equity investments in the Company
or software licensing fees paid to the Company in respect of transactions
introduced to the Company by Ms. Sellers. The compensation payable to Ms.
Sellers pursuant to the Finder's Fee Agreement was limited to $500,000. In late
August 1995, Ms. Sellers introduced the Company to AUBIS. To date, the Company
has paid $19,350 to Ms. Sellers, which represents 10% of the investment made by
the principals of AUBIS in a private placement of convertible notes (in which
private placement other investors besides the AUBIS principals participated) and
10% of the amounts received by the Company from the sale of Fisher Restaurant
Management Systems by AUBIS.

Finally, Ms. Sellers has made a claim for 10% of the value of AHS, ASI,
and HSI, which were acquired by HALIS in November 1996. Ms. Sellers filed suit
with respect to these claims against HALIS, Larry Fisher and Paul W. Harrison on
July 13, 1997, in the State Court of Fulton County, Georgia seeking actual
damages from the Company and Messrs. Fisher and Harrison in the amount of
$480,535 and punitive damages from

<PAGE> 18

Messrs. Fisher and Harrison in the amount of $1,000,000. HALIS' management
believes that these claims are outside the scope of the Finders' Fee Agreement
and intends to vigorously contest them. There can be no assurance, however, that
HALIS will be successful in its defense or that the resolution of this matter
will not have a material adverse effect on the financial condition or results of
operation of HALIS.

HALIS is also party to litigation that it believes to be immaterial
with respect to amount and is not disclosed herein.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On December 5, 1997, the Company held its 1997 Annual Meeting of
Shareholders. At the meeting, the Company's shareholders approved an amendment
to the 1996 Stock Option Plan, to among other things, increase the number of
shares available thereunder from 3,000,000 shares to 8,000,000. The number of
votes cast in favor of the amendment was 28,727,770 shares and the number of
those cast against the amendment was 555,217 shares. There were 13,160
abstentions.

The following persons were elected to serve on the Company's Board of
Directors: Paul W. Harrison, Larry Fisher and Charles Broes. The number of votes
cast for the election of each of the directors was 28,992,837 shares. There were
no votes cast against any of the directors and 303,310 shares abstained.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

On October 30, 1992, the Company's Common Stock ceased quotation on the
NASDAQ Small Cap Market. Price information on the Company's Common Stock is now
available on the OTC Bulletin Board. The trading symbol for the Common Stock is
"HLIS."

As of March 25, 1998, there were approximately 415 holders of record of
the Company's Common Stock; however, the Company believes that there are more
than 415 beneficial owners of its Common Stock.

The following table sets for the high and the low closing bid price of
the Company's Common Stock on the OTC Bulletin Board, as reported by Bloomberg
Reports for the periods indicated:

<TABLE>
<CAPTION>
1997
HIGH LOW
----- -----
<S> <C> <C>
Fourth Quarter $1.97 $0.44
Third Quarter 2.31 1.94
Second Quarter 2.56 1.38
First Quarter 2.25 1.38
</TABLE>

The quotations given in the above table reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions. The Company has not paid any dividends and does not expect to do
so in the foreseeable future. Although the payment of dividends rests with the
discretion of the Board of Directors, the Company intends to employ its
earnings, if any, to finance its ongoing operations and to further develop its
business.

RECENT SALES OF SECURITIES

In March 1997, the Company completed a private placement of 668,000
shares of Common Stock and 289,467 Warrants with a strike price of $1.75 per
share, resulting in net proceeds to the Company of approximately $900,000. The
net proceeds of the offering were utilized by the Company to expand its sales
and marketing efforts, enhance its software products, support the growth of its
administrative infrastructure, fund expenses

18
<PAGE> 19

related to the acquisition of selected healthcare software, service and system
integration companies, and for general corporate purposes.

In May 1997, the Company completed a private placement of 648,332
shares of Common stock and 280,942 Warrants with a strike price of $1.75 per
share, resulting in net proceeds to the Company of approximately $1.0 million.
The net proceeds of the offering were utilized by the Company to expand its
sales and marketing efforts, support the growth of its administrative
infrastructure, fund expenses related to the acquisition of selected healthcare
software, service and system integration companies, and for general corporate
purposes.

In September 1997, the Company completed a private placement of
1,724,000 shares of Common Stock and 176,326 Warrants with a strike price of
$1.35 per share, resulting in net proceeds to the Company of approximately $1.9
million. The net proceeds of the offering were utilized by the Company to expand
its sales and marketing efforts, support the growth of its administrative
infrastructure, fund expenses related to the acquisition of selected healthcare
software, service and system integration companies, and for general corporate
purposes.

On September 30, 1997, the Company issued 1,006,000 shares of Common
Stock upon the conversion by holders of $1,006,000 in principal amount of the
Company's 7% Convertible Promissory Notes (the "Notes"). Following the
conversion, $500,000 in principal remained outstanding under the Notes. In
addition to reducing future quarterly cash interest expense by approximately
$20,000, the Notes conversion eliminated the obligation of the Company to repay
the principal sum of $1,006,000 at maturity on January 15, 1998. Also on
September 30, 1997, the Company issued approximately 200,051 shares of Common
Stock upon the conversion by certain creditors of approximately $200,051 of
principal and accrued interest.

During December 1997 the Company received funds from the sale of 4%
Convertible Debentures and certain warrants. The Debentures and Reg S Warrants
were issued to non-U.S. Persons with the assistance of GEM Advisors, Inc. acting
as a placement agent. The Debentures are convertible into the Company's common
stock at a fixed conversion price of $0.61 per share or a variable conversion
price (65% of the bid price average for the 10 trading days preceding the day
prior to the conversion date). The Company also issued 250,000 warrants with an
exercise price of $0.60 per share. The consideration received by the Company for
the Debentures was $200,000 in cash less certain expenses, including payments of
$2,500 in fees to the escrow agent, and 9% of the aggregate proceeds to GEM
Advisors, Inc. and 100,000 Warrants to an affiliate of GEM as compensation for
its services. The offers and sales of the Debentures and Reg S Warrants were
made pursuant to a claim of exemption under rules 901 and 903 of Regulation S
promulgated by the Securities Act of 1933, as amended. Subsequent to December
31, 1997, the Company received an additional $100,000 from the sale of 4%
Convertible Debentures and 100,000 warrants under the same terms and conditions
as the December 30 sale. See the Company's Current Report on Form 8-K, dated
December 30, 1997 for additional information.

Subsequent to December 31, 1997, the holders of all $300,000 of the 4%
Convertible Debentures elected to convert their investment into the Company's
Common Stock. As a result, the Company issued an aggregate of 1,267,497 shares
of Common Stock in full satisfaction of principal and accrued interest owed to
the holders.

In response to the decline in price of the Company's Common Stock, the
Company offered the remaining holders of the Notes additional shares of common
stock to encourage them to execute their conversion option. The additional
shares had the effect of increasing the ratio of shares issued to debt retired
from 1:1 to 1.25:1. This same offer was extended to the holders of $1,006,000 of
the Notes that had exercised their conversion option on September 30, 1997.

Holders of $210,000 of the remaining $500,000 of these outstanding
Notes elected to convert on December 31, 1997. On January 15, 1998, the maturity
date of the Notes, $190,000 was retired and $100,000 was converted into newly
issued 10% Convertible Notes.

Through a private placement of 6% Convertible Debentures the Company
has raised $868,000 from January 1, 1998 to April 14, 1998. The holders of these
debentures shall be entitled to convert the entire principal amount and accrued
but unpaid interest of these debenture at any time on or before the maturity
date. These debentures may be converted at the option of the holder at (i) 65%
of the closing bid price of the Shares on the date of purchase of the debenture
(the "Fixed Conversion Price"); or (ii) 65% of the average closing bid price of
the Shares for the ten (10) trading days immediately preceding the day prior to
the conversion date (the "Variable Conversion Price").

The issuance of securities described above were made in reliance on the
exemption from registration provided by Section 3(b) and/or 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation, the
certificates bear restrictive

19
<PAGE> 20

legends and appropriate stop transfer instructions have been or will
be given to the transfer agent. Except as described above, no underwriter was
involved in the transaction and no commissions were paid.

The Company will require additional capital or other financing to
finance its operations and continued growth. There can be no assurance that the
Company will be able to obtain such financing if and when needed, or that if
obtained, it will be sufficient or on terms and conditions acceptable to the
Company.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

The following discussion should be read in conjunction with the
consolidated financial statements of the Company and subsidiaries contained
elsewhere herein. As a result of the acquisition of AHS, ASI and HSI in November
1996, which acquisitions were accounted for as a "reverse acquisition," the
financial statements of the Company are the financial statements of the
"accounting entity," consisting of AHS, ASI and HSI. Accordingly, the financial
statements of the Company are the financial statements of the "accounting
entity" adjusted for the assumed acquisition of the net assets of the Company in
exchange for the issuance of Company common stock outstanding before the
transaction. As a result, the Company's results of operations for the year ended
December 31, 1996 consist of the operations of AHS, ASI and HSI for the entire
year and the operations of HALIS, Inc. from November 19, 1996 to December 31,
1996.

During January 1997, the Company completed three acquisitions with
companies that have been accounted for as purchases under APB 16 by the Company.
As a result of the acquisitions of The Compass Group, Inc. ("Compass"), Software
Manufacturing Group, Inc. ("SMG"), and American Administrative Services, Inc.
and Third Party Administrators, Inc. ("ABAS/TPA"), the results of operations for
these three acquired companies are included in the Company's Consolidated
financial statements from their dates of acquisition (January 10, 24, and 31,
respectively) through the period end of December 31, 1997 (SMG is included
through the effective date of its disposition, December 1, 1997 - See "Item 1.
Business - Recent Dispositions").

The Company acquired TG Marketing Systems, Inc. ("TGM") on May 2, 1997
through the issuance of 2,388,060 shares of its common stock. The results of
operations for TGM are included in the Company's Consolidated financial
statements from the acquisition date through the period end of December 31, 1997
(TGM was sold effective December 31, 1997 - See "Item 1. Business - Recent
Dispositions"). The Company acquired Physician's Resource Network, Inc. ("PRN")
on July 7, 1997 through the issuance of 3,733,333 shares of its common stock and
PhySource Ltd. ("PhySource") on July 31, 1997 through the issuance of 2,632,611
shares of its common stock. The results of operations for PRN and PhySource are
included in the Company's consolidated financial statements from their
acquisition dates through the period end of December 31, 1997. It is the opinion
of management that these transactions qualify as tax-free reorganizations within
the meaning of Section 368(a) of the Internal Revenue Code of 1986.

FINANCIAL CONDITION

Total assets increased $5,786,877 or 508% during the year ended
December 31, 1997, due primarily to the acquisitions described above, and is
reflected in the majority of the Balance Sheet categories.

Total liabilities increased $977,826 primarily due to the acquisitions.
This increase is offset by the conversion into equity of $1,216,000 of the
Company's 7% Convertible Promissory Notes outstanding at December 31, 1996. At
December 31, 1997, the Company had a working capital deficit of $1,790,792. The
Company's current liabilities include accounts payable and accrued expenses of
$1,869,056, including $376,520 payable as a result of one of the dispositions of
a business, and payroll and sales tax payable of $272,634. Payroll and sales
taxes payable at December 31, 1997, consisted primarily of sales and use taxes
owed to the State of Georgia. The Company has negotiated an agreement with the
Georgia Department of Revenue which provides for regular monthly payments of
$10,000 for 21 months.

20
<PAGE> 21

As a result of numerous factors, including but not limited to, the
Company's working capital deficit, and because the Company has sustained losses
from operations since inception, the Company's independent public accountants
have included a paragraph in their audit report accompanying the Company's
financial statements regarding the significant doubt about the Company's ability
to continue as a going concern. Until such time as the Company's healthcare
software is accepted in the marketplace and generates revenues sufficient to
support the operations of the Company, operations will be financed, in large
part, from outside sources. See "- Liquidity and Capital Resources."

RESULTS OF OPERATIONS

Revenues, which consist of system sales and services, increased 426%
from $1,925,412 for the year ended December 31, 1996 ("fiscal 1996") to
$10,134,586 for the year ended December 31, 1997 ("fiscal 1997"), primarily due
to service revenues derived from the six acquired companies (Compass, SMG,
ABAS/TPA, TGM, PRN and PhySource) from their respective acquisition dates
through the period end of December 31, 1997 or the disposition date of December
1, 1997 for SMG. On a proforma basis including only Compass, ABAS/TPA, PRN, and
PhySource as if these acquisitions had occurred on January 1, 1997, the
Company's revenues would have been $9,475,416 compared to $1,925,412 for the
twelve months ended December 31, 1996 or an increase of 392%.

Selling, general and administrative expenses increased 733% from
$1,423,193 in fiscal 1996 to $11,855,637 in fiscal 1997. This increase reflects
the expenses of the acquisitions and increased overhead costs. The Company has
implemented a restructuring program to reduce its fixed costs and move the
Company towards profitability. As a part of this program, the Company
consolidated its three Atlanta offices into a single location March 1, 1998. See
"Item 2. Description of Property."

Due to the continued significant operating losses at several
subsidiaries, the Company reviewed the recoverability of goodwill. This analysis
was based upon a review of estimated cash flows from these businesses. The
Company determined that: (i) the unamoritized goodwill from the PhySource
acquisition of $2,925,044 was not recoverable and should be written off, (ii)
the goodwill from the PRN acquisition should be reduced by $3,924,741 to
$1,396,311, and (iii) the goodwill from the Compass acquisition should be
reduced by $942,560 to $383,302.

Primarily as a result of selling, general and administrative and other
expenses during the year (both in absolute terms and as a percentage of
revenue), the write down of goodwill, and a $5.4 million loss on the sale of
assets the Company incurred a net loss of $20,502,424 or $.57 per share for
fiscal 1997. This compares to a net loss of $1,989,696 or $0.12 per share for
fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1997, the Company recorded a net loss of $20,502,424. The
net loss stemmed primarily from the sale of businesses, the write down of
goodwill, amortization of goodwill from the acquisitions, and

21
<PAGE> 22

increased overhead costs to support the acquisitions and develop the HES
product. The Company's operating activities used $4,809,385 in cash, primarily
due to increased overhead expenses and disappointing revenues. During fiscal
1997, investing activities provided $1,528,216 in cash due to the sale of
businesses.

Financing activities during fiscal 1997 provided $3,721,989, primarily
the result of $3,848,197 in proceeds from private placements.

During fiscal 1997, HALIS experienced a severe cash drain as a result
of lower than anticipated revenues from certain acquired companies and increased
overhead costs. This caused management to re-evaluate the focus of HALIS'
business. Thus far in 1998, the Company has had limited success in entering into
contracts for the sale of the HES product. The Company is focusing its efforts
on the sale of the Healthcare Enterprise System software, which the Company
believes will continue to gain market acceptance. In addition to focusing on
near term profitability, the Company is seeking strategic relationships,
including possible business combinations, which will enhance the Company's
capital structure, as well as its sales and marketing infrastructure.

Until such time as the Company's healthcare software is accepted in the
marketplace and generates revenues sufficient to support the operations of the
Company, operations will be financed, in large part, from outside sources. There
can be no assurance that the Company will be able to obtain such financing if
and when needed, or that if obtained, it will be sufficient or on terms and
conditions acceptable to the Company.

No provision has been made in the financial statements for any
settlements or judgments relating to either of the matters discussed in "Item 3.
Legal Proceedings." In the event of a material judgment or settlement resulting
from either of these matters, the Company would experience an adverse effect on
its liquidity. Additionally, the majority of the agreements entered into through
December 31, 1997 for the HES product have been for pilot sites and have
contingencies. In the event that the pilot testing identifies substantive
modifications to the product which are mandatory for marketplace feasibility,
additional development costs and/or delays in launching the product could have a
material adverse effect on liquidity.

The Company does not expect that the cost to modify its information
technology infrastructure to be Year 2000 compliant will be material to its
financial condition or results of operations. To date, the expense of upgrading
product applications to be Year 2000 compliant has not been material. Moreover,
the Company does not anticipate any material disruption in its operations as a
result of any failure by the company to be in compliance. In the event that any
of the Company's significant suppliers or customers does not successfully and
timely achieve Year 2000 compliance, the Company's business or operations could
be adversely affected.

ITEM 7. FINANCIAL STATEMENTS.

The following financial statements and reports thereon are filed with
this report:

- Report of Independent Public Accountants - Arthur Andersen LLP

- Report of Independent Public Accountants - Habif, Arogeti &
Wynne, P.C.

- Consolidated Balance Sheet - December 31, 1997

22
<PAGE> 23

- Consolidated Statements of Operations for the years ended
December 31, 1997 and December 31, 1996

- Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997 and December 31, 1996

- Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and December 31, 1996

- Notes to Consolidated Financial Statements

23
<PAGE> 24

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of HALIS, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of HALIS, Inc. and
Subsidiaries as of December 31, 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. 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 referred to above present fairly, in
all material respects, the financial position of HALIS, Inc. and Subsidiaries
as of December 31, 1997 and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note C to
the financial statements, the Company sustained a net loss of $20,502,424 and
net cash used by operating activities of $4,809,385 for the year ended December
31, 1997, and had a working capital deficit at December 31, 1997 of $1,790,792.
These conditions have continued in fiscal 1998. These conditions and the other
factors affecting future performance discussed in Note C 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 C. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

Arthur Andersen LLP

Atlanta, Georgia
April 10, 1998

24
<PAGE> 25

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
of HALIS, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of HALIS, Inc. and
Subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, stockholders' deficit and cash flows for the year ended December
31, 1996. We have also audited the combined statements of operations,
stockholders' deficit and cash flows of AUBIS Hospitality Systems, Inc. and
Subsidiaries, AUBIS Systems Integration, Inc., HALIS Software, Inc., and
ProHealth Solutions, Inc., [collectively, the Predecessor], for the year ended
December 31, 1995. These consolidated financial statements and combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and combined 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 audits to
obtain reasonable assurance about whether the consolidated financial statements
and the combined financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements and combined 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 financial position of HALIS, Inc. and Subsidiaries
as of December 31, 1996 and the Predecessor as of December 31, 1995 and the
results of their operations and their cash flows for the years ended December
31, 1996 and 1995 in conformity with generally accepted accounting principles.

As discussed in Note A to the consolidated financial statements, HALIS, Inc.
was involved in a business combination with the Predecessor that has been
accounted for as a reverse acquisition in which the Predecessor is treated as
the acquirer for accounting purposes; accordingly, the financial statements for
periods prior to November 19, 1996 are the combined financial statements of the
Predecessor.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continued as a going concern. As discussed in Note C to
the consolidated financial statements, the Company has had recurring losses, a
working capital deficit and a capital deficit. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note C. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty

/s/ Habif,Arogeti & Wynne, P.C.

Atlanta, Georgia

March 7, 1997, except for Notes C and J, as to which the date is March 31, 1997

25
<PAGE> 26

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997

ASSETS

<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 1,160,809
Customer claims and premium funds 350,675
Receivables, less allowance for possible losses
of $ 407,265 697,335
Other current assets 63,602
-----------
Total current assets 2,272,421

PROPERTY AND EQUIPMENT
Computer equipment 772,639
Office furniture and fixtures 638,720
Leasehold improvements 65,215
Less: accumulated depreciation (695,385)
-----------
Total property and equipment, net 781,189

OTHER ASSETS
Deposits 114,917
Goodwill, net of accumulated
amortization of $ 889,236 2,834,860
Capitalized software development costs,
net of accumulated amortization of $ 32,601 128,394
Other intangibles, net of
accumulated amortization of $ 13,933 93,394
Notes receivable - related party 574,831
Long-term investments 125,000
-----------
Total other assets 3,871,396

TOTAL ASSETS $ 6,925,006
===========
</TABLE>

The accompanying notes are an integral part of this statement.

<PAGE> 27

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,869,056
7% Convertible promissory notes 290,000
4 % Convertible promissory notes 200,000
Deferred revenue and customer deposits 389,851
Payroll and sales taxes payable 272,634
Line of credit 92,334
Notes payable 381,014
Notes payable - related parties 66,241
Obligations under capital leases - current portion 147,664
Other current liabilities 354,419
------------
Total current liabilities 4,063,213

LONG-TERM DEBT
Obligations under capital leases - net of current portion 144,568

STOCKHOLDERS' EQUITY
Preferred stock $.10 par value 5,000,000
authorized; 0 issued and outstanding 0
Common stock $.01 par value 100,000,000
authorized; 44,239,675 issued and outstanding 442,397
Additional paid-in capital 35,743,205
Accumulated deficit (33,468,377)
------------
Total stockholders' equity 2,717,225

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,925,006
============
</TABLE>

The accompanying notes are an integral part of this statement.

<PAGE> 28

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996

<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
SALES REVENUE $ 10,134,586 $ 1,925,412

COST AND EXPENSES
Cost of goods sold 1,889,858 1,656,113
Selling, general, and administrative 11,855,637 1,423,193
Amortization and depreciation 2,600,664 18,379
Research and development 844,404 400,699
Write down of intangibles 7,792,345 0
------------ ------------
24,982,908 3,498,384

OPERATING LOSS (14,848,322) (1,572,972)

OTHER INCOME (EXPENSES)
Loss on sale of subsidiaries (5,395,053) 0
Gain (loss) on asset disposal 8,678 (8,228)
Interest expense (93,736) (67,613)
Interest income 7,953 546
Other (expense) income (181,944) 9,559
Merger costs 0 (378,588)
Rental income 0 27,600
------------ ------------
(5,654,102) (416,724)
------------ ------------
NET LOSS $(20,502,424) $ (1,989,696)
============ ============

BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.57) $ (0.12)
============ ============

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 36,094,189 15,956,824
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 29

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996

<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(20,502,424) $(1,989,696)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation 2,600,664 18,379
Loss on sale of subsidiaries 5,395,053 0
Write down of intangibles 7,792,345 0
Assumption of expenses by parent 0 32,000
Provision for losses on accounts receivable 316,257 (40,000)
Loss on asset disposal 0 8,228
Changes in operating assets and liabilities, net of assets and
liabilities acquired and sold
Increase in customer claims and premium funds (350,675) 0
(Increase) Decrease in accounts receivable (510,038) 140,031
(Increase) Decrease in receivables-related parties (13,754) 21,813
Decrease in inventory 11,479 45,669
(Increase) Decrease in other current assets (117,224) 71
Increase in deposits (85,380) (4,230)
Increase in other intangibles 0 (23,946)
Increase (Decrease) in accounts payable
and accrued expenses 708,170 (255,061)
Increase (Decrease) in accrued expenses - related parties (36,543) 37,599
Increase (Decrease) in payroll and sales taxes (485,887) 90,517
Increase (Decrease) in deferred revenues 192,326 (96,219)
and customer deposits
Increase in other current liabilities 276,246 0
Decrease in income tax payable 0 (6,908)
------------ -----------
Total adjustments 15,693,039 (32,057)
------------ -----------
Net cash used by operating activities $ (4,809,385) $(2,021,753)
</TABLE>

The accompanying notes are an integral part of these statements.

29
<PAGE> 30

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996

<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from investing activities:
Purchases of property and equipment $ (491,631) $ (16,424)
Decrease in notes receivables - related parties (13,754) 0
Net purchase of long-term investments (120,000) 0
Advances from Fisher and cash received in acquisition 0 1,187,233
Cash acquired in acquisitions 299,458 0
Proceeds from sale of subsidiaries 1,845,465 0
Net proceeds from sale of property and equipment 8,678 10,651
----------- -----------
Net cash provided by investing activities 1,528,216 1,181,460

Cash flows from financing activities:
Proceeds from issuance of common stock, net of transaction costs 3,848,197 1,398,819
Proceeds from 4% convertible promissory notes 200,000 0
Net payments on lines of credit (66,666) (16,088)
Net payments on obligations under capital leases (69,039) 0
Net payments on notes payable (92,102) 0
Net (payments) proceeds on notes payable - related parties (98,401) 48,900
----------- -----------
Net cash provided by financing activities 3,721,989 1,431,631
----------- -----------

Net increase in cash 440,820 591,338

Cash, beginning of the year 719,989 128,651
----------- -----------

Cash, end of the year $ 1,160,809 $ 719,989
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

30
<PAGE> 31

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,1997 AND
DECEMBER 31,1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN
SHARES AMOUNT CAPITAL
---------- -------- -----------
<S> <C> <C> <C>
Balances, December 31, 1995 -- $ -- $ 586,287

HALIS, INC
Net loss 0 0 0
Additional capital contributed 0 0 199,678
Assumed purchase of net assets
of Fisher at Predecessor cost 7,455,646 74,556 8,614,787
Issuance of shares in reverse acquisition of Fisher
by HALIS, Inc. 15,000,000 150,000 (150,000)
Issuance of common stock 1,516,975 15,170 1,623,649
---------- -------- -----------
Balances, December 31, 1996 23,972,621 $239,726 $10,874,401

Net Loss 0 0 0
Shares issued in business acquisitions 15,699,004 156,990 19,606,419
Issuance of common stock 3,040,332 30,403 3,749,945
Common stock issued for conversion of
convertible debt to equity 1,527,718 15,278 1,512,440
---------- -------- -----------
Balances, December 31, 1997 44,239,675 $442,397 $35,743,205
========== ======== ===========

<CAPTION>
STOCK TOTAL
SUBSCRIPTION ACCUMULATED STOCKHOLDERS'
RECEIVABLE DEFICIT EQUITY
------------ ------------ ------------
<S> <C> <C> <C>
Balances, December 31, 1995 $ -- $ (1,421,780) $ (835,493)

HALIS, INC
Net loss 0 (1,989,696) (1,989,696)
Additional capital contributed 0 0 199,678
Assumed purchase of net assets
of Fisher at Predecessor cost 0 (9,554,477) (865,134)
Issuance of shares in reverse acquisition of Fisher
by HALIS, Inc. 0 0 --
Issuance of common stock (240,000) 0 1,398,819
--------- ------------ ------------
Balances, December 31, 1996 $(240,000) $(12,965,953) $ (2,091,826)

Net Loss 0 (20,502,424) (20,502,424)
Shares issued in business acquisitions 0 0 19,763,409
Issuance of common stock 240,000 0 4,020,348
Common stock issued for conversion of
convertible debt to equity 0 0 1,527,718
--------- ------------ ------------
Balances, December 31, 1997 $ -- $(33,468,377) $ 2,717,225
========= ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

31
<PAGE> 32

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION:

HALIS, Inc. ("HALIS") and Subsidiaries (collectively, the "Company")
develops and supplies healthcare software systems and provides practice
management and claims processing services to managed healthcare markets, medical
practices, and related point of service markets. The Company also provides value
added computer services, network solutions, and connectivity solutions and
systems integration principally to Atlanta area businesses. Additionally, the
Company provides services support, including onsite hardware maintenance, as
well as network support programs.

On November 19, 1996, HALIS, Inc. (f/k/a Fisher Business Systems, Inc.)
issued 15,000,000 shares (66.8%) of its common stock in exchange for 100% of the
capital stock of AUBIS Hospitality Systems, Inc. and Subsidiaries (AHS), AUBIS
Systems Integration, Inc. (ASI), and HALIS Software, Inc. (HSI), which included
ProHealth Solutions, Inc. (see Note B).

The acquisitions set out in the preceding paragraph were accounted for
as the reverse acquisition of HALIS, Inc. by an "accounting entity" consisting
of AHS, ASI, and HSI (collectively, the Predecessor) because following the
transaction, the former shareholders of AHS, ASI, and HSI are in control of the
Company. Accordingly, the financial statements of the Company are the financial
statements of the "accounting entity" adjusted for the assumed acquisition of
the net assets of HALIS, Inc. in exchange for the issuance of HALIS, Inc. common
stock outstanding before the transaction. The net assets of the Predecessor are
accounted for at their historical cost.

In accordance with purchase accounting principles pursuant to
Accounting Principles Board Opinion No. 16, "Business Combinations" (APB 16),
the Company accounted for the net assets of HALIS, Inc. acquired at the fair
value of such net assets as of November 19, 1996.

Because of the transactions noted above, the Company's results of
operations for the year ended December 31, 1996 consist of the operations of
AHS, ASI, and HSI for the entire year and the operations of HALIS, Inc. from
November 19, 1996 to December 31, 1996.

PRINCIPLES OF CONSOLIDATION:

The consolidated financial statements include the accounts of HALIS,
Inc. and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.

32
<PAGE> 33

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

REVENUE RECOGNITION:

Revenue consists primarily of physician practice management fees, third
party claims processing fees, consulting services, software licensing fees,
sales of related computer hardware, and post contract customer support and
maintenance.

<TABLE>
<S> <C>
Practice management, claims processing, When the services are provided.
consulting services, installation,
training and education

Software Licensing Revenue After shipment of the product and
fulfillment of acceptance terms, provided no
significant obligations remain and
collection of resulting receivable is deemed
probable.

Contract Support Ratably over the life of the contract from the
effective date.

Hardware Upon shipment of computer equipment to the
customer, provided no significant
obligations remain and collection of
resulting receivable is deemed probable.
</TABLE>

RESTRICTED CASH:

The Company, through its third party claims administration subsidiary,
receives prepayments for premiums to be paid on behalf of its customers. As of
December 31, 1997, the Company had $350,675 of such prepayments, and related
deferred revenue and customer deposits of $379,083.

PROPERTY AND EQUIPMENT:

Property and equipment is carried at cost. Depreciation is computed
using the straight-line method based on estimated useful lives of the assets,
generally three to five years.

GOODWILL:

Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over a period of 5
years. The Company assesses the recoverability of its goodwill whenever
adverse events or changes in circumstances or business climate indicate that
expected future cash flows (undiscounted and without interest charges) in
individual business units may not be sufficient to support recorded goodwill. If
undiscounted cash flows are not sufficient to support the recorded asset, an
impairment is recognized to reduce the carrying value of the goodwill based on
the expected discounted cash flows of the business unit.

In December 1997, due to the continued significant operating losses at
several subsidiaries, the Company reviewed the recoverability of goodwill. The
Company determined that: (i) the unamortized goodwill from the PhySource Ltd.
("PhySource") acquisition $2,925,044 was not recoverable and should be written
off, (ii) the goodwill from the Physician Resource Network, Inc. ("PRN")
acquisition should be reduced by $3,924,741 to $1,396,311, and (iii) the
goodwill from The Compass Group, Inc. ("Compass") acquisition should be reduced
by $942,560 to $383,302.

SOFTWARE DEVELOPMENT COSTS:

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed", research and development costs incurred prior to the
attainment of technological and marketing feasibility of products are charged to
operations. Thereafter, the Company capitalizes the direct costs and allocated
overhead incurred in the

33
<PAGE> 34

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

development of products, until the point of market release of such products,
wherein costs incurred are again charged to operations.

Capitalized costs are amortized over a period of five years on a
straight-line basis, and amortization commences when the product is available
for market release. Unamortized costs are carried at the lower of book value or
net realizable value.

LONG-TERM INVESTMENTS

The investment is in a marketable equity security, is classified
available for sale and is recorded at market value which at December 31, 1997
approximated cost.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Approximately $500,000 of the amounts payable balance of $1,445,000 is
in arrears and the Company has negotiated the payment terms. Approximately
$376,000 of the accounts payable balance is due to buyer of one of the
businesses sold during 1997. The remaining accounts payable balance is being
negotiated with vendors on a case by case basis as they come due.

INCOME TAXES:

Income taxes are based on loss for financial reporting purposes and
reflect a current liability (asset) for the estimated taxes payable
(recoverable) in the current year tax return and changes in deferred taxes.
Deferred tax liabilities and assets are recognized for the estimated tax effects
of temporary differences between financial reporting and taxable income (loss)
for the loss carryforwards based on enacted tax laws and rates. A valuation
allowance is used to reduce deferred tax assets to the amount that is more
likely than not to be realized.

EARNINGS PER SHARE:

The Company has adopted SFAS No. 128, "Earnings Per Share", in 1997
which requires a basic earnings per share and diluted earnings per share
presentation. The two calculations differ as a result of common stock
equivalents included in diluted earnings per share, but excluded in basic
earnings per share. As the Company experienced net losses for the income
statement periods presented, common stock equivalents have an antidilutive
effect and are excluded for purposes of calculating diluted earnings per share.
The number of shares which have an antidilutive effect on diluted earnings per
share was 1,942,345 and 1,651,660 in 1997 and 1996, respectively. There is no
difference between earnings per share amounts recorded previously and amounts
recorded pursuant to SFAS No. 128.

USE OF 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 certain assets, liabilities, and
disclosures including the allowance for possible losses, useful lives, legal
contingencies, and recoverability of long-term assets such as capitalized
software development costs and goodwill. Actual amounts could differ from those
estimates. Any adjustments applied to estimated amounts are recognized in the
year in which such adjustments are determined.

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure", which establishes
standards for disclosing information about an entity's capital structure. SFAS
No. 129 is effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS No. 129 is not expected to have any impact on the Company's
financial reporting disclosures.

In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for
displaying comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 is not expected
to have a significant impact on the Company's financial reporting disclosures.

In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which establishes standards for reporting information

34
<PAGE> 35
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

about operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports
issued to stockholders. SFAS No. 131 is effective for fiscal year beginning
after December 15, 1997. The adoption of SFAS No. 131 is not expected to have a
significant impact on the Company's financial reporting disclosures.

The American Institute of Certified Public Accountants has issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition", effective for
fiscal years beginning after December 15, 1997. The Company has reviewed the SOP
and does not anticipate any material change to its revenue recognition policy as
a result of the adoption of the SOP.

B. MERGER AND REORGANIZATION:

On March 7, 1996, ProHealth Solutions, Inc. merged with and into HSI.
HSI continued as the surviving corporation and ProHealth Solutions, Inc. was the
nonsurviving corporation.

On November 19, 1996, HALIS, Inc., consummated the acquisition of AHS
and ASI, pursuant to the Amended and Restated Agreement and Plan of Merger and
Reorganization, dated December 13, 1995 and amended and restated as of March 29,
1996, and as further amended on September 27, 1996. On November 19, 1996, AHS
and ASI were merged into two wholly-owned subsidiaries of HALIS, Inc. In
connection therewith, AUBIS, L.L.C., the parent company of AHS and ASI, received
10,000,000 shares of HALIS, Inc. common stock.

On November 19, 1996, HALIS, Inc., consummated the acquisition of HSI
pursuant to the Amended and Restated Agreement and Plan of Merger and
Reorganization, as of March 29, 1996 and amended on September 27, 1996. On
November 19, 1996, HSI was merged into a wholly-owned subsidiary of HALIS, Inc.
In connection therewith, HALIS, L.L.C., the parent company of HSI, received
5,000,000 shares of HALIS, Inc. common stock.

Following consummation of the AUBIS and HALIS transactions, the
Company's corporate name was changed from Fisher Business Systems, Inc. to
HALIS, Inc.

C. REALIZATION OF ASSETS:

The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company has sustained losses
from operations since the merger and such losses are continuing in fiscal year
1998. Additionally, the Company has used, rather than provided, cash in its
operating activities during the years ended December 31, 1996 and 1997, and this
continues to be the case in 1998. The Company had a working capital deficiency
as of December 31, 1997 and as of March 31, 1998. Specifically, the Company
estimates that it incurred negative cash flow of approximately $700,000 from
January 1, 1998 to February 28, 1998. Due to its cash flow situation, the
Company has negotiated payment terms with vendors representing a significant
portion of the accounts payable and is managing the payment of the remaining
acounts payable on a case by case basis. The Company's cash balance at March 31,
1998 was approximately $300,000.

In view of the matters described in the preceding paragraph, there is a
significant doubt about the Company's ability to continue as a going concern.
The recoverability of the recorded assets and satisfaction of the liabilities
reflected in the accompanying balance sheet is dependent upon continued
operation of the Company, which is in turn dependent upon the Company's ability
to meet its financing requirements on a continuing basis and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.

Management plans to take the following steps to improve its operating
results and financial position, which it believes to be sufficient to provide
the Company with the ability to continue in existence during the

35
<PAGE> 36

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ensuing twelve month period.

The Company is presently raising capital in a private placement to
provide up to $1,300,000 of working capital. Management believes that the net
proceeds contemplated by this offering will be sufficient to fund the Company's
operations through June 1998. The Company has raised net proceeds of
approximately $858,000 from this offering as of April 10, 1998 primarily in the
form of convertible debentures. If the Company is unable to increase revenues
and cut costs in order to generate sufficient positive cash flow beginning in
July of 1998, an additional capital infusion will be required for the Company to
meet its obligations.

As discussed in Note N to these financial statements, the Company
completed three dispositions in December 1997 which it believes substantially
strengthened the Company's operations. These dispositions raised cash, improved
cash flow, and increased the Company's focus on sales of its software
technology.

The Company has implemented a restructuring program to reduce its fixed
costs and move the Company towards profitability. The Company does not
anticipate that it will record a restructuring reserve related to these actions.
As part of this program, the Company consolidated its three Atlanta offices into
a single location on March 1, 1998. In addition to eliminating certain leases
and redundant occupancy costs, this move is also expected to produce synergistic
benefits among employees.

While the Company believes the plan that it is undertaking will be
successful and in the interest of the Company, no assurances can be given that
the Company indeed will be successful and that the Company will continue as a
going concern. Risk factors include, among others, (i) timely completion of
modifications and enhancements of the Company's healthcare products, (ii)
continued working capital availability while such products are being developed,
(iii) continued availability of key members of management, (iv) acceptance of
the Company's products by customers in the healthcare market, (v) uncertainty of
market acceptance, (vi) reliance on a limited number of products, (vii)
effective integration of acquisitions, (viii) technological change, and (ix)
competition.

D. SOFTWARE DEVELOPMENT COSTS:

<TABLE>
<CAPTION>
Years ended December 31,
1997 1996
-----------------------
<S> <C> <C>
Balances, beginning of year $160,995 $ -0-

Amounts capitalized -0- 160,995

Amortization 32,601 -0-
-----------------------
Balances, end of year $128,394 $160,995
=======================

Research and development costs incurred $844,404 $561,694

Less amounts capitalized -0- 160,995
-----------------------
Research and development charged to expense $844,404 $400,699
=======================

</TABLE>

No amortization of capitalized software development costs was
recognized during 1996.

36
<PAGE> 37
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

E. NOTES PAYABLE:
<TABLE>
<S> <C>

The Company has the following notes payable as of December 31, 1997:

Bank - Note Payable $381,014

Interest of 10.5% per annum. Payable in monthly installments
of $10,491 with a balloon payment at maturity on December 25,
1997. Secured by PRN assets, life insurance proceeds and
personal guarantees. Refinanced subsequent to year end.

7% Convertible Promissory Notes $290,000

Convertible promissory notes were issued in a private
placement by HALIS, Inc., in 1996 and mature January 15, 1998.
$1,216,000 of these notes were converted into equity during
fiscal 1997. Interest is payable quarterly, and the principal
may, at the holder's option, be converted into shares of
common stock at $1.00 per share. Subsequent to year end
$190,000 of the notes were retired and $100,000 were converted
into newly issued 10% convertible notes.

4% Convertible Debenture $200,000

On December 30, 1997 the Company issued a 4% convertible
debenture in the principal amount of $200,000 with interest
payable at maturity or upon conversion. The Debentures are
convertible into the Company's common stock at a fixed
conversion price of $0.61 per share or a variable conversion
price (65% of the bid price average for a 10 day period). The
Company also issued 250,000 warrants with an exercise price of
$0.60 per share.
</TABLE>

Subsequent to year-end, the bank holding the note payable agreed to consolidate
the outstanding balance with the line of credit it extends to the Company (see
Note F), and extend the maturity until March 17, 1999. The interest rate on the
new $460,675 note is 10.5% per annum. The note is payable in monthly
installments of $12,935 with a balloon payment at maturity. The note is secured
by PRN assets, life insurance proceeds and personal guarantees.

F. LINE OF CREDIT:

<TABLE>
<S> <C>
The Company has the following line of credit as of December 31, 1997:

Bank Line of Credit $ 92,334

Interest of 10.5% per annum. Secured by PRN assets, life
insurance proceeds and personal guarantees. Refinanced
subsequent to year end as part of consolidation of bank
debt discussed in Note E.

</TABLE>

37
<PAGE> 38
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

G. RELATED PARTY NOTES:

<TABLE>
<S> <C>
The Company has the following unsecured notes payable to stockholders
and directors as of December 31, 1997:

Notes Payable:

Stockholder - unsecured note payable with interest of 7.00%; payable 4/30/98. $ 18,000

Stockholder/Director - unsecured note payable non-interest bearing; due on demand. 39,241

Stockholder/Director - unsecured note payable non-interest bearing; due on demand. 9,000
--------
$ 66,241
========
</TABLE>

The Company has the following note receivable due from a stockholder as
of December 31, 1997.

Notes Receivable:

Stockholder - $574,831 note receivable with interest of 5% per annum,
due October 31, 2001; stockholder may repay the note using HALIS
Common Stock if certain conditions are met, including but not limited
to, the Company's common stock achieving a traded market price of at
least $3 per share for a specified period of time.

Management believes that these transactions were under terms no less
favorable to the Company than those arranged with other parties.

H. COMMITMENTS AND CONTINGENCIES:

PAYROLL AND SALES TAXES:

The Company has an agreement to pay monthly for certain historic
payroll and sales tax issues.

LEASES:

The Company leases office space and equipment under several operating
and capital lease agreements expiring between 1998 and 2004. Rent expense for
the office space and equipment classified as operating leases totaled $586,827
and $156,553 for the years ended December 31, 1997 and 1996, respectively. At
December 31, 1997, future minimum lease payments under non-cancelable leases
having remaining terms in excess of one year are as follows:

<TABLE>
<CAPTION>
December 31, Operating Leases Capital Leases
-----------------------------------------------------------------------------
<S> <C> <C>
1998 $ 752,840 $ 164,843

1999 732,957 133,548

2000 633,434 25,085

2001 568,991 19,407

2002 883,290 -
---------------------------
Totals: $3,571,512 $ 342,883
Less: Interest ========== (50,651)
----------
$ 292,232
==========
</TABLE>

38
<PAGE> 39

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment at December 31, 1997 include the following
assets held under capitalized leases:

<TABLE>
<S> <C>
Computer Equipment $246,231
Office Furniture & Equipment 46,001
--------
292,232

Less: Accumulated Depreciation 83,465
--------
$208,767
</TABLE>

EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) retirement savings plan for all employees
who meet certain eligibility requirements. Employees may contribute to the plan
up to 20% of their salary or the maximum allowed by the IRS. The Company may
elect to make matching and/or discretionary contributions. However, one of the
Company's 1997 acquisitions, PRN, had a pre-existing plan, which included a 2%
employee matching contribution. This matching will not continue after December
31, 1997.

EMPLOYMENT AGREEMENTS:

The Company has entered into an employment agreement with Paul W.
Harrison, which expires December 31, 1999. The agreement provides for a annual
base salary of $200,000 (to be increased upon the attainment of certain annual
revenue targets) plus certain incentive bonus payments and the issuance of
certain qualified and non-qualified stock options to purchase shares of common
stock of the Company at the discretion of the Board of Directors. Effective
February 15, 1998 Mr. Harrison elected to defer his salary until such time as
the Company is generating positive cash flow.

The Company also entered into an employment agreement with Larry
Fisher, which expires December 31, 1999. The agreement provides for an annual
salary of $175,000 (to be increased upon the attainment of certain annual
revenue targets) plus incentive bonus payments. In addition, the employment
agreement provides for the issuance of certain qualified and nonqualified
options to purchase shares of common stock of the Company at the discretion of
the Board of Directors. Effective February 15, 1998 Mr. Fisher elected to defer
his salary until such time as the Company is generating positive cash flow.

In connection with current year acquisitions, the Company entered into
employment agreements with certain members of management (Note N).

LITIGATION:

In February 1997, a complaint styled Advanced Custom Computer
Solutions, Inc., ("ACCS") Wayne W. Surman and Charlotte Surman v. Fisher
Business Systems, Inc., HALIS, Inc., Larry Fisher, Paul W. Harrison and Nathan
I. Lipson was filed in the State Court of Fulton County, Georgia. The complaint
alleges, among other things, breach of contract in connection with the
termination by the Company of its merger agreement with ACCS, which the Company
advised ACCS was terminated in November 1996 due to the impossibility of ACCS's
fulfilling certain conditions to closing therein. In addition, the complaint
alleges that the defendants made false and misleading statements to the
plaintiffs for the purpose of inducing plaintiffs to lend money to the Company.
The complaint seeks damages in the amount of at least $2.0 million (the exact
amount of such damages to be proved at trial), additional damages to be
determined by the jury at trial and punitive damages. The Company has answered
denying the allegations of liability in the complaint and intends to vigorously
contest the lawsuit. There can be no assurance, however, that the Company will
be successful in its defense or

39
<PAGE> 40
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

that the resolution of this matter will not have a material adverse effect on
the financial condition or results of operation of the Company.

Ms. Sellers has claimed that the entirety of a convertible notes
offering completed in 1996 (in which an aggregate of $1,470,000 was raised by
HALIS) would not have been successful but for her introduction of the AUBIS
principals to HALIS. As a result, Ms. Sellers has made a claim for 10% of all
amounts raised in the notes offering. Ms. Sellers has also made a claim, based
on the same rationale, to 10% of all future capital funding raised by HALIS (up
to the $500,000 maximum compensation). In this regard HALIS has recently
completed a private placement which raised gross proceeds of approximately
$2,000,000. Finally, Ms. Sellers has made a claim for 10% of the value of AHS,
ASI, and HSI, which were acquired by HALIS in November 1996. Ms. Sellers filed
suit with respect to these claims against HALIS, Larry Fisher and Paul W.
Harrison on July 18, 1997, in the State Court of Fulton County, Georgia seeking
actual damages from the Company and Messrs. Fisher and Harrison in the amount of
$480,535 and punitive damages from Messrs. Fisher and Harrison in the amount of
not less than $1,000,000. HALIS' management believes that these claims are
outside the scope of the Finders' Fee Agreement and intends vigorously to
contest them. There can be no assurance, however, that HALIS will be successful
in its defense or that the resolution of this matter will not have a material
adverse effect on the financial condition or results of operation of HALIS.

HALIS is also party to litigation that it believes to be immaterial
with respect to amount and is not disclosed herein. No provision has been made
in these financial statements regarding these items due to the uncertainty of
their ultimate resolution.

I. INCOME TAXES:

40
<PAGE> 41
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1997 are as follows:

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 10,731,859
Other, net 230,660
------------
10,962,519

Deferred tax liabilities:
Excess tax depreciation over book (9,086)
------------

Net deferred tax asset 10,953,433
Valuation allowance (10,953,433)
------------

Net deferred tax asset reported -
</TABLE>

The reconciliation of the effective income tax rate to the federal statutory
rate is as follows:

<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
Federal income tax rate (34.0%) (34.0%)

Effect of net operating loss carryforward
and valuation allowance 34.0% 34.0%

State income tax, net of federal benefit - -
--------------------

Effective income tax rate 0.0% 0.0%
</TABLE>

At December 31, 1997, the Company had available for carryforward a net
operating loss of approximately $28.6 million. Approximately $10.0 million of
the net operating loss relates to losses prior to 1997, and as a result of an
ownership change on November 19, 1996 (Note A), and in accordance with Section
382 of the Internal Revenue Code, the loss carryforward is limited to
approximately $841,000 for each year thereafter. Losses are limited to a
fifteen-year carryforward, with losses from 1985 beginning to expire in 2000.

J. STOCK OPTION PLAN:

During 1996, the Company adopted the 1996 Stock Option Plan which
provided for the issuance of both qualified and nonqualified stock options to
employees and non-employee directors pursuant to Section 422 of the Internal
Revenue Code. The number of shares reserved for the plan was 3,000,000. On
December 5, 1997 the shareholders of the Company approved an amendment to
increase the number of shares available for grant from 3,000,000 shares to
8,000,000 shares. Additional non-qualified options may be granted outside of the
plan upon approval of the Board of Directors.

Options issued to participants are granted with an exercise price of
the mean between the high "bid" and low "ask" price (average market price) as of
the close of business on the date of grant, and are exercisable up to ten years
from date of grant. Incentive stock options issued to persons who directly or
indirectly own more than ten percent of the outstanding stock of the Company
shall have an exercise price

41
<PAGE> 42

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of 110 percent of the average market price on the date of grant and are
exercisable up to five years from date of grant. The aggregate fair market value
of the shares with respect to which incentive stock options are exercisable for
the first time by a holder during any calendar year under all plans shall not
exceed $100,000.

The Company's previous incentive stock option plan, the 1986 incentive
Stock Option Plan, expired on January 29, 1996. The 1988 Non-qualified Stock
Option Plan was terminated by the Company on April 24, 1996. Activity related to
these plans is as follows:

<TABLE>
<CAPTION>
1986 & Weighted Weighted Outside Weighted
1988 Plans: Average 1996 Plan: Average of Plans: Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding @ 12/31/95 77,540 $0.71 -- -- 792,000 $0.34
Granted -- -- 1,760,000 $1.59 6,200,000 1.13
Expired (5,600) 0.50 -- -- -- --
--------------- ------------- ----------
Outstanding @ 12/31/96 71,940 0.72 1,760,000 1.59 6,992,000 1.04
Granted -- -- 1,217,742 1.87 5,680,000 2.09
Expired -- -- (10,000) 2.00 -- --
Terminated -- -- -- -- (4,800,000) 1.13
--------------- ------------- ----------
Outstanding @ 12/31/97 71,940 0.72 2,967,742 1.71 7,872,000 1.74

Exercisable @ 12/31/97 71,940 $0.72 1,382,500 $1.59 7,272,000 $1.74
</TABLE>

Exercise prices for options outstanding as of December 31, 1997 under
the 1986 and 1988 Plans ranged from $0.09 to $11.88 per share. The weighted
average remaining life of these options was approximately 5 years.

Exercise prices for options outstanding as of December 31, 1997 granted
under the 1996 Plan ranged from $1.13 to $2.28 per share. The weighted average
remaining life of these options was approximately 9 years.

Exercise prices for options outstanding as of December 31, 1997 granted
outside of the Plans ranged from $0.25 to $2.12 per share. The weighted average
remaining life of these options was approximately 9 years.

On February 25, 1998 the Company's Board of Directors adopted a
resolution to amend the terms of certain outstanding stock option agreements to
reduce the exercise price thereof and the number of shares of common stock
subject thereto. In connection with this resolution, the aggregate number of
options outstanding at December 31, 1997 was reduced by 2.1 million shares to
8.8 million shares. The weighted average exercise price declined from $1.72 per
share to $0.54 per share.

The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options rather than
Statement of Financial Accounting Standards Board Statement No. 123, "Accounting
for Stock-Based Compensation," (SFAS 123). Under APB 25, if the exercise price
of the underlying stock equals fair market value on the date of grant, no
compensation expense is recognized.

Pro forma information regarding net income (loss) and earnings per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996:

42
<PAGE> 43
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.88-6.53% 6.1%

Dividend yield 0.0% 0.0%

Volatility factor 0.3 0.3

Weighted average expected life 5 years 3 years

Forfeiture rate 5.0% 0.0%
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss and loss per share if compensation expense had been
recognized for the options issued would have been as follows:

<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss - as reported $20,502,424 $1,989,696

Net loss - pro forma 25,688,334 2,944,622

Reported per share - basic & diluted 0.57 0.12

Pro forma per share - basic & diluted 0.71 0.18

Weighted average fair value of options
granted during the year 0.74 0.39
</TABLE>

K. PRIVATE PLACEMENT OF COMMON STOCK:

RECENT SALES OF SECURITIES

In May 1997, the Company completed a private placement of 648,332
shares of Common Stock and 280,942 Warrants with a strike price of $1.75 per
share, resulting in net proceeds to the Company of approximately $1.0 million.
The net proceeds of the offering were utilized by the Company to expand its
sales and marketing efforts, support the growth of its administrative
infrastructure, fund expenses related to the acquisition of selected healthcare
software, service and system integration companies, and for general corporate
purposes.

43
<PAGE> 44
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

L. RELATED PARTY TRANSACTIONS: On November 18, 1996, the Company
entered into a license to a proprietary technology asset ("MERAD") from Paul
Harrison Enterprises, Inc. ("PHE"), which is controlled by the Chairman and
Chief Executive Officer of the Company. Mr. Harrison serves as the President of
PHE and beneficially owns approximately 40% of this company. The Company is
obligated to pay a license fee equal to 10% of the gross revenues generated from
MERAD and any derivations thereof by the Company or any of its affiliates. In
addition, the Company is obligated to pay MERAD Corporation a development fee of
$15,000 per month pursuant to a license and software development agreement
between MERAD Corporation and HALIS Software, Inc., a company purchased by the
Company in November 1996. Mr. Harrison serves as President and is a 21%
shareholder of MERAD Corporation. During 1996 and 1997, $90,000 and $180,000,
respectively, was paid to MERAD Corporation for specific enhancements and
maintenance required by the Company.

As part of the license, HALIS Software agreed to continue developing
MERAD and to be a beta site to test MERAD's capabilities and functionality. HSI
agreed that any enhancements and modifications to MERAD become the sole and
exclusive proprietary property of PHE, subject to HALIS Software's rights to use
the same under its license. With the exception of certain licenses to use MERAD,
PHE has exclusive ownership rights to MERAD.

As a result of its acquisition of HALIS Software in November 1996, the
Company assumed a software development and license agreement with OneTree
Corporation, which is controlled by Paul W. Harrison. Mr. Harrison serves as a
director and is an 80% shareholder of OneTree Corporation. During 1996 and 1997,
$244,915 and $75,223, respectively, was paid to OneTree Corporation pursuant to
its development and license agreement. This agreement was terminated in April
1997 in a settlement agreement that required the Company to pay OneTree $59,473.
This obligation was satisfied in September 1997 and is included in the aggregate
number cited above.

Management believes that these transactions were under terms no less
favorable to the Company than those arranged with other parties.

44
<PAGE> 45
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

M. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Supplemental information required by SFAS No. 95 relative to the
statement of cash flows is as follows:

The Company's non-cash investing and financing activities were as follows:

<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Acquisitions:
Fair value of assets acquired $ 6,465,634 $ 0
Liabilities assumed 2,341,960 0
Stock issued 19,763,409 0
-----------------------------
Goodwill $15,639,735 $ 0
=============================

Debt converted to equity:
Exchange of notes payable - related party for
common stock $ 203,051 $ 167,678
Exchange of 7% convertible promissory Notes
for common stock 1,216,000 0
Exchange of services rendered for common stock 108,667 0
Exchange of receivable for common stock 0 240,000
-----------------------------
$ 1,527,718 $ 407,678
- -------------------------------------------------------------------------------------------------

CASH PAID DURING THE YEAR FOR:
1997 1996
- -------------------------------------------------------------------------------------------------
Interest $ 90,343 $ 6,585
Taxes $ - $ 6,908
- -------------------------------------------------------------------------------------------------

</TABLE>

N. ACQUISITIONS AND DISPOSITIONS:

45
<PAGE> 46
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Ms. York of her rights under a provision in the Merger Agreement providing for
the issuance of additional shares of the Company's Common Stock at a future date
if certain financial targets were achieved for the year ending December 31,
1997. On June 30, 1997 the Company agreed to issue 688,000 shares of the
Company's Common Stock to Ms. York.

In January 1997, the Company also acquired Software Manufacturing
Group, Inc. ("SMG"), a developer and seller of orthodontic practice management
systems, which the Company sold in December 1997. See "Item 1. Business - Recent
Dispositions." In connection therewith, the SMG shareholders were issued an
aggregate of 3,072,000 shares of Common Stock and SMG became a wholly owned
subsidiary of the Company (the "SMG Subsidiary"). In addition, as consideration
for the waiver by the SMG shareholders of their rights under a provision in the
Merger Agreement providing for the issuance of additional shares of Common Stock
at a future date if certain financial targets were achieved for the year ending
December 31, 1997, on June 30, 1997 the Company agreed to issue 960,000 shares
of the Company's Common Stock to the SMG shareholders.

46
<PAGE> 47
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

adopted a resolution to amend the terms of certain outstanding stock option
agreements to reduce the exercise price thereof and to reduce the number of
shares of common stock subject thereto. In connection with this resolution, the
exercise price of one-half of Mr. Spicer's options was reduced to $0.25 per
share and the number of shares were reduced to 437,500 from 625,000. As a
result, Mr. Spicer now holds options to purchase 625,000 and 437,500 at $2.00
and $0.25 per share, respectively.

In addition, the Company granted to Ms. Toledano non-qualified options
to purchase 100,000 shares of Common Stock at an option price of $2.00 per
share. The options granted to Ms. Toledano are fully exercisable and expire on
January 31, 2007. Ms. Toledano's Employment Agreement also provides for certain
payments to be made to Ms. Toledano in the event she is terminated without cause
or in the event of a change in control of the ABAS/TPA Subsidiary. In connection
with the consumation of the mergers, the Company granted another ABAS/TPA
subsidiary employee non-qualified options to purchase 25,000 shares of the
Company's common stock at an option price of $2.00 per share. These options are
fully exercisable and expire on January 31, 2007.

In May 1997 the Company acquired TG Marketing Systems, Inc., a Georgia
corporation ("TGM"), a provider of marketing and customer service software and
related consulting services. Upon consummation of the TGM merger, Joseph M.
Neely, in his capacity as the sole shareholder of TGM, was issued an aggregate
of 2,388,060 shares of the Company's Common Stock. Mr. Neely also entered into
an employment agreement with the Company for a term of two years at an annual
base salary of $150,000 to serve as the Chief Operating Officer of the Company.
In addition, in connection with the consummation of the TGM merger, the Company
granted options to purchase an aggregate of 500,000 shares of the Company's
Common Stock to certain employees of TGM at an option price of $1.50 per share.
These options vest over a four year period in accordance with the Company's 1996
Stock Option Plan, and expire on May 2, 2007. In December 1997 the Company sold
certain assets of the businesses formerly conducted by TGM. In connection with
this asset sale the options granted to purchase 500,000 shares of the Company's
Common stock were reduced to an aggregate number of 129,450 shares. The option
price and vesting schedule were unchanged.

<PAGE> 48
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In July 1997 the Company acquired PhySource Ltd. ("PhySource"), an
Illinois a physician practice management corporation, which became a subsidiary
of the Company (the "PhySource Subsidiary"). Upon consummation of the PhySource
merger, the shareholders of PhySource were issued an aggregate of 2,632,611
shares of the Company's Common Stock, including payment of certain deferred
compensation and expense advances to certain shareholders, payments to certain
shareholders for termination of employment agreements, and payment in retirement
of certain existing indebtedness of PhySource.

All acquisitions consummated during the current year have been
accounted for under the purchase method, and therefore, the results of the
operations of the acquired entities have been included in the consolidated
financial statements since the date of acquisition.

DISPOSITION OF THE ORTHODONTIC BUSINESS

Due to the previously described cash requirements, HALIS Services, Inc.
("HALIS Services"), a subsidiary of the Company, sold to InfoCure Corporation
("InfoCure") substantially all of the assets of the orthodontic practice
management software business (the "Orthodontic Business") on December 31, 1997.
The Orthodontic Business was acquired by the Company from Software Manufacturing
Group, Inc. in January 1997. The Orthodontic Business includes the development,
marketing, selling and servicing of computer hardware and software to
orthodontic healthcare providers. The sale to InfoCure was consummated pursuant
to an Asset Purchase Agreement dated December 31, 1997 (but effective as of
December 1, 1997) by and among the Company, HALIS Services and InfoCure (the
"InfoCure Asset Purchase Agreement"). InfoCure paid HALIS Services, net of
liabilities paid by HALIS Services, approximately $1.8 million in cash. As of
December 31, 1997, the Company had liabilities recorded of approximately
$376,000 due to the purchase as an adjustment of the purchase price which was
paid in 1998. The Company recorded a loss of approximately $3.1 million on the
sale of the Orthodontic Business.

SALE OF CERTAIN NON-HEALTH CARE ASSETS

Due to their disappointing operating performance, HALIS Services sold
certain non-healthcare related assets and property of TG Marketing Systems and
Aubis Systems Integration (formerly, Aubis Systems Integration, Inc. or "ASI")
to Communications Wiring and Accessories, Inc. ("Communications Wiring") on
December 31, 1997 for a purchase price of $1 million and the assumption of
certain liabilities (the "Purchase Price"), subject to downward adjustment as
hereinafter described. The non-healthcare related assets and property included
accounts receivable, computer software, computer equipment, furniture, fixtures
and leasehold improvements. The Company received no cash consideration at
closing and has not recorded any receivable from this transaction due to an
evaluation of the timing and probability of the payments as hereinafter
described.

48
<PAGE> 49
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

49
<PAGE> 50

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

O. UNAUDITED PRO FORMA INFORMATION:

The following unaudited pro forma consolidated statement of operations
of HALIS, Inc. gives retroactive effect to the following transactions as if they
had occurred on January 1, 1997: (i) purchase of Compass, ABAS, PRN, and
PhySource and (ii) the purchase and disposition of SMG and TGM. (Note N)

The unaudited pro forma consolidated statement of operations was
prepared by HALIS, Inc.'s management based on, and should be read in conjunction
with, the historical statement of operations appearing elsewhere herein. This
statement may not be indicative of the results of operations that would actually
have been achieved had the transactions taken place at the date indicated and
should not be construed as indicative of HALIS, Inc.'s results of operations for
any future period.

<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------

As Reported Adjustments Pro Forma
---------------------------------------------------
<S> <C> <C> <C>
Sales revenue $ 10,134,586 $ (659,170) $ 9,475,416

Net loss $(20,502,424) $(4,862,354) $(15,640,070)

Basic and diluted net loss per common share $ (0.57) $ (0.45)

Basic and diluted weighted average shares 36,094,189 35,080,137
outstanding
</TABLE>

<PAGE> 51

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

On January 5, 1998, the Company dismissed its independent auditors,
Habif, Arogeti & Wynne, P.C., and on the same date authorized the engagement of
Arthur Andersen LLP as its independent auditors for the fiscal year ended
December 31, 1997. Arthur Andersen LLP was formally engaged by the Company on
January 8, 1998. Each of these actions was approved by the Board of Directors of
the Company.

Habif, Arogeti & Wynne, P.C. audited the financial statements for the
Company for the fiscal year ended December 31, 1996. The report of Habif,
Arogeti & Wynne, P.C. on the financial statements of the Company for the fiscal
year ended December 31, 1996 contained an additional paragraph which emphasized
that there was substantial doubt about the ability of the Company to continue as
a going concern. Except as set forth in the preceding sentence, the report of
Habif, Arogeti & Wynne, P.C. did not contain any adverse opinion or a disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.

Except as described herein, in connection with the audit of the fiscal
year ended December 31, 1996 and for the unaudited interim period through
January 5, 1998, there were no disagreements with Habif, Arogeti & Wynne, P.C.
on any matter of accounting principle or practice, financial statement
disclosure, or audit procedure or scope which disagreement, if not resolved to
the satisfaction of Habif, Arogeti & Wynne, P.C. would have caused it to make
reference to the subject matter of the disagreement in its report. Habif,
Arogeti & Wynne, P.C. has advised the Company, and the Company concurs, that the
Company's consolidated statement of cash flows for the nine months ended
September 30, 1997 is incorrect. The error is that the changes in assets and
liabilities included as adjustments to reconcile net loss to net cash used by
operating activities include the effects of businesses acquired during the
period. The effect of this error was to increase the net cash used by operating
activities and decrease the cash used by financing activities. The Company has
corrected this error by filing a corrected Form 10-QSB/A for the quarter ended
September 30, 1997.

Further, during the fiscal year ended December 31, 1996 and the
unaudited interim period through January 5, 1998, neither the Company or any of
its representatives sought the advice of Arthur Andersen LLP regarding the
application of accounting principles to a specific completed or contemplated
transaction or the type of audit opinion that might be rendered on the Company's
financial statements, which advice was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issue.

In connection with the audit of the fiscal year ended December 31, 1996
and for the unaudited interim period through January 5, 1998, Habif, Arogeti &
Wynne, P.C. did not advise the Company that (i) the internal controls necessary
for the Company to develop reliable financial statements did not exist; (ii)
that information had come to its attention that led it to no longer be able to
rely on management's representations, or that made it unwilling to be associated
with the financial statements prepared by management; (iii) that there existed a
need to expand significantly the scope of its audit, or that information had
come to the attention of Habif, Arogeti & Wynne, P.C. during the fiscal periods,
that if further investigated may (a) materially impact the fairness or
reliability of either: a previously issued audit report or the underlying
financial statements, or the financial statements issued or to be issued
covering the fiscal period subsequent to the date of the most recent financial
statements covered by an audit report (including information that may prevent it
from rendering an unqualified audit report on those financial statements), or
(b) cause Habif, Arogeti & Wynne, P.C. to be unwilling to rely on management's
representations or be associated with the Company's financial statements, and
due to the dismissal of Habif, Arogeti & Wynne, P.C. did not so expand the scope
of its audit or conduct such further investigation; or (iv) that information had
come to the attention of Habif, Arogeti & Wynne, P.C. that it concluded
materially impacts the fairness or reliability of either (a) a previously issued
audit report or the underlying financial statements, or (b) the financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report
(including information that, unless resolved to the satisfaction of Habif,
Arogeti & Wynne, P.C., would prevent it from rendering an unqualified audit
report on those financial statements), and due to the dismissal of

51
<PAGE> 52

Habif, Arogeti & Wynne, P.C., the issue has not been resolved to the
satisfaction of Habif, Arogeti & Wynne, P.C. prior to its dismissal.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

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

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---------------------------------------------------------------------------------------
<S> <C> <C>
Paul W. Harrison 43 Chairman of the Board and Chief Executive Officer

Larry Fisher 54 Executive Vice President, Secretary, Treasurer and
Director

Charles Broes 59 Director
</TABLE>

Paul W. Harrison, age 43, has served as Chairman of the Board and Chief
Executive Officer of the Company since November 1996. Mr. Harrison has extensive
experience in the United States and internationally managing information
technology companies and consulting projects. He is also the Chairman of the
publicly traded company HealthWatch, Inc., and a significant owner in PHE, a
privately held information technology management company. Previously, Mr.
Harrison was the President and Managing Member of AUBIS, LLC from February 1995
to December 1997, which owned two information systems companies that were merged
into HALIS in November 1996. Prior to HBOC, Mr. Harrison was an executive with
and an advisor to HBO & Company from June 1993 until December 1994. He helped
expand HBOC's markets, and it is now the top publicly traded health care
information systems company. Prior to HBOC, Mr. Harrison was the CEO of BIVEN,
Inc. from April 1991 to June 1993, which sold BIVEN Software and other
technology related assets to HBOC in June 1993.

Larry Fisher, age 54, has served as Executive Vice President of the
Company since June 1997. Mr. Fisher was the founder of Fisher Business Systems,
Inc. ("Fisher"), the predecessor of HALIS, Inc., and served as a director since
its organization in 1979. Mr. Fisher subsequently 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. From November 1996 to June 1997,
Mr. Fisher served as the President of HALIS, Inc. He led the development of the
first generation of Fisher's products for the hospitality marketplace and is a
recognized leader in the industry. Under his management, Fisher developed the
first integrated point-of-sale and back office system for the food service
industry. He also directed Fisher's efforts in the development of its second
generation touch screen system. Mr. Fisher also serves as a director of
HealthWatch, Inc., a manufacturer of medical products. 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.

Charles Broes, age 59, has served as a director of the Company since
July 1997. Mr. Broes is Chief Executive Officer of American Enterprise
Solutions, Inc., a publically held healthcare service organization. In addition,
Mr. Broes is the co-founder and is currently serving as the Chief Executive
Officer and Chairman of the Board of TMR Corp., a business development company.
Mr. Broes also serves as Chairman and Chief Executive Officer of Optimark Data
Systems, Inc., a Canadian company. In 1982, Mr. Broes founded Wellmark, Inc.
which became an industry leader for electronic healthcare clearinghouse
services.

52
<PAGE> 53

The executive officers of the Company are appointed by the Board of
Directors and hold office at the pleasure of the Board. Executive officers
devote their full time to the affairs of the Company. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company.

RECENT CHANGES IN MANAGEMENT

Effective March 1, 1998, Harold J. Williams, III and James E. Clements
resigned as officers of the Company. Mr. Williams served as Chief Financial
Officer since June 1997 and Mr. Clements served as Controller since September
1997. Messrs. Williams and Clements have entered into consulting contracts with
the Company pursuant to which they will provide certain financial and accounting
services to the Company.

Effective March 1, 1998, Joseph H. Neely and Ken Lopez resigned as
officers of the Company. Mr. Neely served as the Company's Chief Operating
Officer since June 1997 and Mr. Lopez served as the Company's Vice President of
Sales. Messrs. Neely and Lopez have left the Company to form their own sales and
marketing organization that is under contract to provide certain sales and
marketing services to the Company.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the fiscal year
ended December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with, except
as follows: Paul W. Harrison(failed to file on a timely basis three reports
relating to a total of five transactions); Nathan Lipson (failed to file on a
timely basis two reports relating to a total of four transactions); Aubis,
L.L.C. (failed to file on a timely basis one report relating to a total of one
transaction); Larry Fisher (failed to file on a timely basis one report relating
to a total of one transaction); and Charles Broes (failed to file on a timely
basis one report relating to a total of one transaction).

Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, the Company has a policy
requiring all Section 16 reporting persons to report monthly to the Executive
Vice President of the Company as to whether any transactions in the Company's
Common Stock occurred during the previous month.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning
compensation paid, accrued or deferred by the Company for the fiscal years ended
December 31, 1997, 1996 and 1995 to or on behalf of the Company's Chief
Executive Officer and the other executive officer of the Company whose total
annual salary and bonus exceeded $100,000 during the fiscal year ended December
31, 1997 (hereinafter referred to as the "Named Executive Officers").

53
<PAGE> 54

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------

NAME AND FISCAL OTHER ANNUAL STOCK
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Paul W. Harrison 1997 $200,000 $ -0- (5) 2,700,000
Chairman of the Board and 1996(1) 33,000 8,000 (5) 4,750,000(2)
Chief Executive Officer-
Larry Fisher 1997 $175,000 $ -0- (5) 800,000
Executive Vice President 1996(3) 182,882 5,000 (5) 2,650,000(4)
1995 150,000 18,000 (5) 650,000
</TABLE>

(1) Mr. Harrison joined the Company on November 19, 1996 upon consummation
of the acquisitions of AHS, ASI and HSI. Accordingly, cash compensation
for 1996 is for the period from November 19, 1996 to December 31, 1996.
(2) Of this amount, options to purchase 3,000,000 shares of Common Stock
were subsequently terminated without being exercised. This amount also
includes options to purchase 1,400,000 shares of Common Stock granted
to Mr. Harrison prior to his employment with the Company. See "- Stock
Options."
(3) Represents compensation for the twelve-month period ended December 31,
1996.
(4) Of this amount, options to purchase 1,800,000 shares of Common Stock
were subsequently terminated without being exercised.
(5) The Company pays for an automobile allowance for Messrs, Harrison and
Fisher, as well as certain other perquisites. The aggregate amounts of
these benefits do not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus during the past fiscal year for the Named
Executive Officers.

DIRECTOR'S FEES

The Company does not presently pay any fees to directors but does
reimburse directors for reasonable out-of-pocket expenses incurred in connection
with attendance of meetings of the Board of Directors. The Company has granted
certain non-qualified stock options to its non-employee directors. The following
table displays the options awarded to outside directors during 1997.

<TABLE>
<CAPTION>
DIRECTOR DATE OPTIONS VESTING EXERCISE PRICE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles Broes 6/5/97 100,000 25% per year beginning $2.12
6/5/98

Trevor Hicks 6/5/97 100,000 25% per year beginning $2.12
6/5/98

Nate Lipson 6/5/97 100,000 25% per year beginning $2.12
6/5/98
</TABLE>

EMPLOYMENT AGREEMENTS

Effective November 18, 1996, the Company entered into an Employment
Agreement with Paul W. Harrison, pursuant to which Mr. Harrison serves as
Chairman of the Board and Chief Executive Officer of the Company. The Employment
Agreement is for a term of three years, expiring on December 31, 1999, and
provides for an annual base salary of $200,000 (to be increased upon the
attainment of certain annual revenue targets) plus incentive bonus payments. In
addition, the Employment Agreement provides for Mr. Harrison to receive options
to purchase shares of Common Stock of the Company in the discretion of the Board
of Directors. The Employment Agreement provides for certain severance payments
to be paid to Mr. Harrison in the event of a change in control of the Company or
a significant change in Mr. Harrison's operational duties.

54
<PAGE> 55

In the event of a change in control, Mr. Harrison will be entitled to terminate
his employment with the Company and to receive three times the sum of his annual
base salary and the cost for one year of all additional benefits provided to Mr.
Harrison under the Employment Agreement. In addition, in the event Mr. Harrison
terminates his employment under certain stated conditions or is terminated by
the Company without cause, he will receive the greater of one year's annual base
salary or an amount equal to the base salary which would otherwise be payable to
Mr. Harrison for the remaining term of his Employment Agreement. Any such
severance payment may, at the option of the Company, be paid to Mr. Harrison in
equal monthly installments or in a lump sum at a discounted present value. The
Employment Agreement contains non-compete and non-solicitation provisions,
effective through the actual date of termination of the Employment Agreement and
for a period of two years thereafter.

Effective November 18, 1996, the Company also entered into an
Employment Agreement with Larry Fisher, pursuant to which Mr. Fisher serves as
President and Chief Operating Officer of the Company. The Employment Agreement
is for a term of three years, expiring on December 31, 1999, and provides for an
annual base salary of $175,000 (to be increased upon the attainment of certain
annual revenue targets) plus incentive bonus payments. In addition, the
Employment Agreement provides for Mr. Fisher to receive options to purchase
shares of Common Stock of the Company in the discretion of the Board of
Directors. The Employment Agreement provides for certain severance payments to
be paid to Mr. Fisher in the event of a change in control of the Company or a
significant change in Mr. Fisher's operational duties. In the event of a change
in control, Mr. Fisher will be entitled to terminate his employment with the
Company and to receive two times his annual base salary plus twice the cost for
one year of all additional benefits provided to Mr. Fisher under the Employment
Agreement. In addition, in the event Mr. Fisher terminates his employment under
certain stated conditions or is terminated by the Company without cause, he will
receive the greater of one year's annual base salary or an amount equal to the
base salary which would otherwise be payable to Mr. Fisher for the remaining
term of his Employment Agreement. Any such severance payments may, at the option
of the Company, be paid to Mr. Fisher in equal monthly installments or in a lump
sum at a discounted present value. The Employment Agreement contains non-compete
and non-solicitation provisions, effective through the actual date of
termination of the Employment Agreement and for a period of two years
thereafter.

STOCK OPTIONS

On November 18, 1996, the Company's shareholders adopted the 1996 Stock
Option Plan (the "Plan") for employees who are contributing significantly to the
business of the Company or its subsidiaries as determined by the Company's Board
of Directors or the committee administering the Plan. The Plan currently
provides for the grant of incentive and non-qualified stock options to purchase
up to 8,000,000 shares of Common Stock at the discretion of the Board of
Directors of the Company or a committee designated by the Board of Directors to
administer the Plan. The option exercise price of incentive stock options must
be at least 100.0% (110.0% in the case of a holder of 10.0% or more of the
Common Stock) of the fair market value of the stock on the date the option is
granted and the options are exercisable by the holder thereof in full at any
time prior to their expiration in accordance with the terms of the Plan.
Incentive stock options granted pursuant to the Plan will expire on or before
(1) the date which is the tenth anniversary of the date the option is granted,
or (2) the date which is the fifth anniversary of the date the option is granted
in the event that the option is granted to a key employee who owns more than 10%
of the total combined voting power of all classes of stock of the Company or any
subsidiary of the Company. Options granted under the Plan typically vest over a
period of four years.

In consideration of services rendered by Paul Harrison to the Company
in anticipation of the consummation of the mergers with AHS, ASI and HSI, the
Company on June 7, 1996 granted to Mr. Harrison an option to purchase 1,400,000
shares of Common Stock, which options became exercisable upon consummation of
the HSI merger. The option terminates on June 7, 2006 and is exercisable at a
price of $1.125 per share (which represents the fair market value of the Common
Stock on the date of grant).

On December 6, 1996, the Company granted options to purchase up to
3,350,000 shares of Common Stock to Mr. Harrison, and options to purchase up to
1,850,000 shares of Common Stock to Mr. Fisher, exercisable at a price of $2.00
per share. Of this amount, options to purchase 3,000,000 shares of Common

55
<PAGE> 56

Stock granted to Mr. Harrison and options to purchase 1,800,000 shares of Common
Stock granted to Mr. Fisher were subsequently terminated without being
exercised. The remaining stock options granted to Messrs, Harrison and Fisher
are exercisable immediately. In February 1998 options were granted to Mr.
Harrison (1,000,000 at $0.25 per share) and Mr. Fisher (600,000 at $0.25 per
share) in consideration of deferral of salary.

As of April 10, 1998, options to purchase 10.9 million shares of Common
Stock of the Company were outstanding.

The following table provides certain information concerning individual
grants of stock options made during the fiscal year ended December 31, 1997 to
the Named Executive Officers:

<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------

NAME OPTIONS GRANTED % OF TOTAL OPTIONS GRANTED TO EXERCISE OR BASE PRICE EXPIRATION
(#) EMPLOYEES IN FISCAL YEAR ($PER SHARE) DATE
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul W. Harrison 2,700,000(1) 39.1% $2.12 (2) 6/5/07

Larry Fisher 800,000(1) 11.6% $2.12 (2) 6/5/07
</TABLE>

(1) Options are immediately exercisable.
(2) On February 25, 1998 the Company's Board of Directors adopted a
resolution to amend the terms of certain outstanding stock option
agreements to reduce the exercise price thereof and to reduce the
number of shares of common stock subject thereto. In connection
with this resolution, the exercise price of Mr. Harrison's and Mr.
Fisher's options were reduced to $0.25 per share and the number of
shares were reduced to 1,809,000 and 536,000, respectively.

The following table provides certain information concerning the value
of unexercised options held by the Named Executive Officers as of December 31,
1997. No stock options were exercised by the Named Executive Officers during
fiscal 1997.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES (1)

<TABLE>
<CAPTION>
NAME NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT
YEAR-END YEAR-END
EXERCISABLE /UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paul W. Harrison 4,450,000 / 0 $ 0 / $0

Larry Fisher 2,400,000 / 0 $ 185,975 / $0
</TABLE>

(1) Dollar values calculated by determining the difference between the fair
market value of the Company's Common Stock at December 31, 1997 ($0.53)
and the exercise price of such options.

<PAGE> 57
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth information regarding the beneficial
ownership of the Company Common Stock of the Company, as of April 13, 1998, by
(i) those persons or entities known by management of the Company to own
beneficially more than 5% of the Company Common Stock, (ii) each of the
directors of the Company, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated in the footnotes to the table,
the persons or entities listed below have sole voting and investment power with
respect to the shares of the Company Common Stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME OF BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED (1) OF CLASS
---------------- ------------- --------
<S> <C> <C>
Paul W. Harrison 14,628,534(2) 31%

Larry Fisher 3,063,000(3) 7%

Charles Broes 5,880,840(4) 12%

Healthcare Technology 5,000,000(5) 11%
Investments, L.L.C.

Anthony Maniscalco 3,733,333(6) 8%
and Catherine Maniscalco

Healthwatch, Inc. 2,762,000(7) 6%

American Enterprise Solutions 5,880,840(8) 12%

Nathan Lipson 2,766,079(9) 6%

Directors and executive officers 23,572,374 50%
as a group (3 persons)
</TABLE>
(1) "Beneficial Ownership" includes shares for which an individual directly
or indirectly, has or shares voting or investment power or both and
also includes options which are exercisable within sixty days of the
date of this Annual Report on Form 10K-SB. All of the listed persons
have sole voting and investment power over the shares listed opposite
their names unless otherwise indicated in the notes below. Beneficial
ownership as reported in the above table has been determined in
accordance with Item 403 of Regulation S-B under the Securities
Exchange Act of 1934. The percentages are based upon 47,395,835 shares
outstanding, except for certain parties who hold presently exercisable
options and convertible securities to purchase shares. The percentages
for those parties who hold presently exercisable options or convertible
securities are based upon the sum of 47,395,835 shares plus the number
of shares subject to presently exercisable options or convertible
securities held by them, as indicated in the following notes.

(2) Mr. Harrison disclaims beneficial ownership in 4,775,150 shares, but
the amount reflected above includes (i) 4,450,000 shares subject to
presently exercisable stock options, (ii) 3,916,534 shares owned by
PHE, Inc., which Mr. Harrison has the power to vote by virtue of his
position as the President of such entity but of which Mr. Harrison
disclaims beneficial ownership with respect to 2,098,232 shares, (iii)
5,000,000 shares owned by Healthcare Technology Investments, L.L.C.
("HTI"), which Mr. Harrison has the power to vote by virtue of his
position as the President and manager of this entity but of which Mr.
Harrison disclaims beneficial ownership with respect to 2,676,918
shares, and (iv) 2,762,000 shares owned by Healthwatch which Mr.
Harrison has the power to vote by virtue of his position as the
Chairman of the Board of Directors of Healthwatch, but Mr. Harrison
disclaims beneficial ownership with respect to the 2,762,000 shares.
PHE directly owns 3,916,534 and indirectly, through HTI, owns
3,879,053. See Note 5 with respect to the beneficial ownership of the
shares held by HTI. Mr. Harrison's business address is 9040 Roswell
Road, Suite 470, Atlanta, Georgia 30350.

(3) Includes 2,400,000 shares subject to presently exercisable stock
options. Mr. Fisher's business address is 9040 Roswell Road, Suite 470,
Atlanta, Georgia 30350. These numbers exclude Healthwatch shares. Mr.
Fisher is a director of Healthwatch but is not the beneficial owner of
such shares.

(4) Includes 5,880,840 shares held by American Enterprise Solutions. Mr.
Broes is the Chief Executive Officer of America Enterprise Solutions,
but Mr. Broes disclaims beneficial ownership with respect to the
5,880,840 shares. Mr. Broes' business address is Thompson Center-II,
5313 Johns Road, Suite 201, Tampa, Florida 33634.

(5) Mr. Harrison presently has the power to vote all of these shares by
virtue of his positions as President and manager of Healthcare
Technology Investments, L.L.C., a Georgia limited liability company
("HTI"), but specifically disclaims beneficial ownership with respect
to 2,581,168 shares held by HTI. The members, as of the date hereof,
and their current beneficial ownership interests in the shares held by
HTI are as follows: Paul Harrison Enterprise, Inc. (3,879,053); Paul W.
Harrison (522,180, directly, 1,800,902, indirectly); James Askew
(186,492); Lonnie Herzog (186,493), Eugene Harrison (99,463); Kathleen
Wilhoit (74,597); Bill McIvor (39,785); and Frank Sparkman (11,936).
HTI's business address is 3390 Peachtree Road, N.E., Lenox Towers,
Suite 1000, Atlanta, Georgia 30326.

57
<PAGE> 58
(6) These shares were issued in connection with the Company's acquisition
of Physician's Resource Network, Inc. in July 1997. Mr. Maniscalco's
business address is 3550 West Waters Avenue, Suite 100, Tampa, Florida
33614.

(7) Mr. Harrison is Chairman of the Board of Healthwatch and Mr. Fisher is
a director. Healthwatch's business address is 2445 Cades Way, Vista
California 92083.

(8) Mr. Broes is the Chief Executive Officer of America Enterprise
Solutions, but Mr. Broes disclaims beneficial ownership with respect
to the 5,880,840 shares. American Enterprise Solutions' business
address is Thompson Center 11, 5313 Johns Road, Suite 201, Tampa,
Florida 33634.

(9) Mr. Lipson is a former director of the Company and his address is 3775
Randall Mill Rd., Atlanta, GA 30327.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On August 20, 1997, the Company and Healthwatch, Inc. ("HealthWatch")
entered into a Subscription and Purchase Agreement (the "Purchase Agreement"),
pursuant to which the Company agreed to purchase up to 50,000 shares of Series H
Preferred Stock (the "HealthWatch Preferred Stock") of HealthWatch for an
aggregate consideration of up to $300,000, depending on the number of shares of
HealthWatch Preferred Stock purchased. Each share of HealthWatch Preferred Stock
may be converted at any time at the option of the holder thereof into twenty
shares of the common stock of HealthWatch (the "HealthWatch Common Stock").
HealthWatch is a developer, manufacturer and distributor of medical
instrumentation used in infusion therapy and vascular diagnosis. Paul W.
Harrison and Larry Fisher, who are directors and the Chairman and Chief
Executive Officer and the Executive Vice President of the Company, respectively,
serve as directors of HealthWatch.

From August 20, 1997 through September 22, 1997, the Company purchased
an aggregate of 20,833 shares of HealthWatch Preferred Stock for $125,000. The
HealthWatch Preferred Stock purchased by the Company is presently convertible
into an aggregate of 416,666 shares of HealthWatch Common Stock, or 8.9% of the
outstanding HealthWatch Common Stock. The Company is not obligated and does not
have the present intent to purchase additional shares of the capital stock of
HealthWatch.

The Company's HealthWatch Preferred Stock investment of $125,000 is
viewed by both companies as a demonstration of HALIS' commitment to the joint
venture. The arrangement contemplates shared sales prospects by the Company and
HealthWatch with a commission or revenue arrangement to be structured.
HealthWatch will provide technology, including the management of digitalized
information from its devices, and an integration database engine for connection
at the point of care. Management believes that this will provide an automated
link to the HES for faster and more accurate information transfer.

In connection with the acquisition of ASI, AHS and HSI on November 19,
1996, the Company issued 10,000,000 shares of Common Stock to AUBIS, L.L.C. and
5,000,000 shares of Common Stock to Healthcare Technology Investments, L.L.C.
(formerly HALIS, L.L.C.). Paul W. Harrison, the Chairman and Chief Executive
Officer of the Company, serves as the managing member of both AUBIS, L.L.C. and
Healthcare Technology Investments, L.L.C. and beneficially owns approximately
25% and 54% respectively, of these two companies.

On November 18, 1996, the Company entered into a license to a
proprietary technology asset ("MERAD") from Paul Harrison Enterprises, Inc.
("PHE"), which is controlled by the Chairman and Chief Executive Officer of the
Company. Mr. Harrison serves as the President of PHE and beneficially owns
approximately 40% of this company. The Company is obligated to pay a license fee
equal to 10% of the gross revenues generated from MERAD and any derivations
thereof by the Company or any of its affiliates. In addition, the Company is
obligated to pay MERAD Corporation a development fee of $15,000 per month
pursuant to a license and software development agreement between MERAD
Corporation and HALIS Software, Inc., a company purchased by the Company in
November 1996. Mr. Harrison serves as President

58
<PAGE> 59

and is a 21% shareholder of MERAD Corporation. During 1996 and 1997, $90,000 and
$180,000, respectively, was paid to MERAD Corporation for specific enhancements
and maintenace required by the Company.

In February 1996, the Company entered into a Management Agreement with
AUBIS, L.L.C. pursuant to which Mr. Harrison provided management services to the
Company in an effort to begin the process of effecting an orderly transition of
ASI and AHS to the Company. The Management Agreement was terminated on June 1,
1996. Management fees totaling $50,000 were paid by the Company to AUBIS, L.L.C.
pursuant to this agreement. Separately, AHS, ASI and HSI paid management fees to
AUBIS, L.L.C. of $85,100 in 1996. No management fees were paid to AUBIS, LLC in
1997.

In February 1996, the Company entered into a Marketing Agreement with
AHS pursuant to which AHS distributed the Fisher Restaurant Management System.
Pursuant to this agreement, the Company advanced AHS $80,000, which indebtedness
was canceled upon the acquisition of AHS by the Company in November 1996. AHS
was previously a wholly owned subsidiary of AUBIS, L.L.C. which is controlled by
Mr. Harrison.

In 1996, the Company conducted a private placement of 7.0% Convertible
Promissory Notes due January 15, 1998 (the "Notes"), some of which were
purchased by directors of the Company as follows:

<TABLE>
<CAPTION>
NOTE PURCHASER NOTE AMOUNT 1996 INTEREST 1997 INTEREST
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paul Harrison & affiliate $90,000 $3,945 $5,775

Larry Fisher 50,000 2,747 3,208

Nathan Lipson 90,000 3,634 5,775
</TABLE>

On September 30, 1997 the directors of the Company elected to
convert their 7% convertible Promissory Notes to shares of the Company's
common stock in accordance with the provisions of the notes. Shares were
issued to the directors as follows:

<TABLE>
<S> <C>
Paul Harrison & affiliate 90,000 shares

Larry Fisher 50,000 shares

Nathan Lipson 90,000 shares
</TABLE>

In response to the decline in price of the Company's common stock, the
Company offered the remaining holders of the 7% convertible Promissory Notes
additional shares of common stock to encourage them to execute their conversion
option. The additional shares had the effect of increasing the ratio of shares
issued to debt retired from 1:1 to 1.25:1. This same offer was extended to the
holders of $1,006,000 of the 7%

59
<PAGE> 60

Convertible Notes that had exercised their conversion option on September 30,
1997, including the directors of the Company. Consequently, on January 20, 1998
the directors received additional shares as follows:

<TABLE>
<S> <C>
Paul Harrison & affiliate 22,500 shares

Larry Fisher 12,500 shares

Nathan Lipson 22,500 shares
</TABLE>

In addition, as of December 31, 1996, the Company owed $135,000 to
Nathan Lipson, a director of the Company. These notes bear interest at rates
ranging from 8.75% to 12.0% per year and are due on demand. As of December 31,
1996 accrued and unpaid interest on these notes totaled $20,787. On September
30, 1997 the Company converted the $129,188 of outstanding principal and accrued
interest owed to Mr. Lipson pursuant to these notes to equity by issuing 129,188
shares of the Company's Common Stock to him

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.

The following exhibits are filed with or incorporated by reference into
this report.

<TABLE>
<S> <C>
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-2 (No. 333-45783) filed February 6, 1998).
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-2
(No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-18, Reg. No. 33-14114-A, filed May 7, 1987, as amended
("Form S-18"))
10.1 Employment Agreement dated November 18, 1996, as amended on
January 3, 1997, by and between the Registrant HALIS and Paul
W. Harrison (incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.2 Employment Agreement dated November 18, 1996, as amended on
January 3, 1997, by and between the Registrant and Larry
Fisher (incorporated by reference to Exhibit 10.2 of the
Company Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.5 Sublease dated January 10, 1997 by and between VeriFone, Inc.
and the Registrant for lease of office space in Atlanta,
Georgia (incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.6 Warrant Agreement, dated November 19, 1996, by and between the
Registrant and SunTrust Bank, Atlanta (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996)
10.7 Form of Employee Trade Secret Agreement (incorporated by
reference to Exhibit 10.19 of the Company's Form S-18)
10.8 License Agreement, dated November 18, 1996, by and between
Paul Harrison Enterprises, Inc. and the Registrant Atlanta
(incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1996)
10.9 Form of Note Purchase Agreement (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form
S-2 effective August 29, 1997)
10.10 Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of December 13, 1995 and amended and
restated as of March 29, 1996 and as further amended on
September 27, 1996, among Fisher Business Systems, Inc.,
AUBIS, L.L.C.,
</TABLE>

60
<PAGE> 61

<TABLE>
<S> <C>
AUBIS Hospitality Systems, Inc., AUBIS Systems Integration,
Inc., and certain persons and affiliates of AUBIS, L.L.C.
(incorporated by reference from the Company's Current Report
on Form 8-K dated November 19, 1996)
10.11 Agreement and Plan of Merger and Reorganization, dated as of
January 10, 1997, among HALIS, Inc. and The Compass Group,
Inc., Compass Acquisition Co. and Debra B. York (incorporated
by reference from the Company's Current Report on Form 8-K
dated January 10, 1997)
10.12 Agreement and Plan of Merger and Reorganization, dated as of
January 24, 1997, among HALIS, Inc., SMG Acquisition Co.,
Software Manufacturing Group, Inc., and the shareholders of
Software Manufacturing Group, Inc. (incorporated by reference
from the Company's Current Report on Form 8-K dated January
24, 1997)
10.13 Agreement and Plan of Merger and Reorganization, dated as of
May 2, 1997, among HALIS, Inc., TG Marketing Systems, Inc., TG
Marketing Systems Acquisition Co., and Joseph H. Neely
(incorporated by reference from the Company's Current Report
on Form 8-K dated May 2, 1997)
10.14 Agreement and Plan of Merger and Reorganization, dated as of
July 7, 1997, among HALIS, Inc., PRN Acquisition Co.,
Physicians Resource Network, Inc., and the sole shareholder of
Physicians Resource Network, Inc. (incorporated by reference
from the Company's Current Report on Form 8-K dated July 7,
1997)
10.15 Agreement and Plan of Merger and Reorganization, dated as of
July 31, 1997, among HALIS, Inc., PhySource Acquisition Co.,
PhySource Ltd., and the shareholders of PhySource Ltd.
(incorporated by reference from the Company's Current Report
on Form 8-K dated July 31, 1997)
10.16 Agreement and Plan of Merger and Reorganization, dated as of
January 31, 1997, among HALIS, Inc., ABAS/TPA Acquisition Co.,
American Benefit Administrative Services, Inc., Third Party
Administrators, Inc., and the shareholders of American Benefit
Administrative Services, Inc. and Third Party Administrators,
Inc. (incorporated by reference from the Company's Current
Report on Form 8-K dated January 31, 1997)
10.17 401(k) Plan of Registrant adopted January 1, 1991
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K)
10.18 Stock Purchase Agreement, dated as of March 29, 1996 and
amended as of September 27, 1996, between Fisher Business
Systems, Inc., HALIS, L.L.C., Paul W. Harrison and James Askew
(incorporated by reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K dated November 19, 1996)
10.19 1996 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on
Form 10-KSB for the year ended January 31, 1996)
10.19.1 Amendment No. 1 to 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.19.1 of the Company's Registration
Statement on Form S-2 (Registration No. 333-45783), filed
February 6, 1998)
10.19.2 Amendment No. 2 to 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.19.2 of the Company's Registration
Statement on Form S-2 (Registration No. 333-45783), filed
February 6, 1998)
10.20 Form of 4% Convertible Debenture (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K dated
December 29, 1997)
10.21 Form of Common Stock Purchase Warrant Certificate
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K dated December 29, 1997)
10.22 Asset Purchase Agreement dated December 31, 1997 among HALIS
Services, Inc., Orthodontic Practice Management System, Inc.,
Infocure Corporation, and the Company (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated December 31, 1997)
10.23 Asset Purchase Agreement dated December 31 1997 between
Communications Wiring and Accessories, Inc. and HALIS
Services, Inc.(incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated December 31,
1997)
21.1 List of Subsidiaries
23.1 Consent of Habif, Arogeti & Wynne, P.C.
</TABLE>

61
<PAGE> 62

<TABLE>
<S> <C>
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only)
</TABLE>

(B) REPORTS ON FORM 8-K.

The following reports on Form 8-K were filed during the fourth quarter
of the fiscal year ended December 31, 1997:

- - Current Report on Form 8-K/A dated October 14, 1997.

<PAGE> 63

SIGNATURES

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

HALIS, INC.

Date: April 14, 1998 By: /s/ Paul W. Harrison
--------------------------------
Paul W. Harrison
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul W. Harrison Chairman of the Board and April 14, 1998
------------------------------ Chief Executive Officer
Paul W. Harrison

/s/ Larry Fisher Director, Executive Vice President,
------------------------------ Treasurer And Secretary (principal
Larry Fisher financial and accounting officer) April 14, 1998

/s/ Charles Broes Director April 14, 1998
------------------------------
Charles Broes
</TABLE>

63
<PAGE> 64
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------ ----------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-2 (No. 333-45783) filed February 6, 1998).
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-2
(No. 333-34215) filed August 22, 1997)
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form
S-18, Reg. No. 33-14114-A, filed May 7, 1987, as amended
("Form S-18"))
10.1 Employment Agreement dated November 18, 1996, as amended on
January 3, 1997, by and between the Registrant HALIS and Paul
W. Harrison (incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.2 Employment Agreement dated November 18, 1996, as amended on
January 3, 1997, by and between the Registrant and Larry
Fisher (incorporated by reference to Exhibit 10.2 of the
Company Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.5 Sublease dated January 10, 1997 by and between VeriFone, Inc.
and the Registrant for lease of office space in Atlanta,
Georgia (incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996)
10.6 Warrant Agreement, dated November 19, 1996, by and between the
Registrant and SunTrust Bank, Atlanta (incorporated by
reference to Exhibit 10.4 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996)
10.7 Form of Employee Trade Secret Agreement (incorporated by
reference to Exhibit 10.19 of the Company's Form S-18)
10.8 License Agreement, dated November 18, 1996, by and between
Paul Harrison Enterprises, Inc. and the Registrant Atlanta
(incorporated by reference to Exhibit 10.6 of the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996)
10.9 Form of Note Purchase Agreement (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form
S-2 effective August 29, 1997)
10.10 Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of December 13, 1995 and amended and
restated as of March 29, 1996 and as further amended on
September 27, 1996, among Fisher Business Systems, Inc.,
AUBIS, L.L.C., AUBIS Hospitality Systems, Inc., AUBIS Systems
Integration, Inc., and certain persons and affiliates of
AUBIS, L.L.C. (incorporated by reference from the Company's
Current Report on Form 8-K dated November 19, 1996)
10.11 Agreement and Plan of Merger and Reorganization, dated as of
January 10, 1997, among HALIS, Inc. and The Compass Group,
Inc., Compass Acquisition Co. and Debra B. York (incorporated
by reference from the Company's Current Report on Form 8-K
dated January 10, 1997)
10.12 Agreement and Plan of Merger and Reorganization, dated as of
January 24, 1997, among HALIS, Inc., SMG Acquisition Co.,
Software Manufacturing Group, Inc., and the shareholders of
Software Manufacturing Group, Inc. (incorporated by reference
from the Company's Current Report on Form 8-K dated January
24, 1997)
10.13 Agreement and Plan of Merger and Reorganization, dated as of
May 2, 1997, among HALIS, Inc., TG Marketing Systems, Inc., TG
Marketing Systems Acquisition Co., and Joseph H. Neely
(incorporated by reference from the Company's Current Report
on Form 8-K dated May 2, 1997)
10.14 Agreement and Plan of Merger and Reorganization, dated as of
July 7, 1997, among HALIS, Inc., PRN Acquisition Co.,
Physicians Resource Network, Inc., and the sole shareholder of
Physicians Resource Network, Inc. (incorporated by reference
from the Company's Current Report on Form 8-K dated July 7, 1997)
10.15 Agreement and Plan of Merger and Reorganization, dated as of
July 31, 1997, among HALIS, Inc., PhySource Acquisition Co.,
PhySource Ltd., and the shareholders of PhySource Ltd.
(incorporated by reference from the Company's Current Report
on Form 8-K dated July 31, 1997)
10.16 Agreement and Plan of Merger and Reorganization, dated as of
January 31, 1997, among HALIS, Inc., ABAS/TPA Acquisition Co.,
American Benefit Administrative Services, Inc., Third Party
Administrators, Inc., and the shareholders of American Benefit
Administrative Services, Inc. and Third Party Administrators,
Inc. (incorporated by reference from the Company's Current
Report on Form 8-K dated January 31, 1997)
10.17 401(k) Plan of Registrant adopted January 1, 1991
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K)
10.18 Stock Purchase Agreement, dated as of March 29, 1996 and
amended as of September 27, 1996, between Fisher Business
Systems, Inc., HALIS, L.L.C., Paul W. Harrison and James Askew
(incorporated by reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K dated November 19, 1996)
10.19 1996 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.20 of the Company's Annual Report on
Form 10-KSB for the year ended January 31, 1996)
10.19.1 Amendment No. 1 to 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.19.1 of the Company's Registration
Statement on Form S-2 (Registration No. 333-45783), filed
February 6, 1998)
10.19.2 Amendment No. 2 to 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.19.2 of the Company's Registration
Statement on Form S-2 (Registration No. 333-45783), filed
February 6, 1998)
10.20 Form of 4% Convertible Debenture (incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K dated
December 29, 1997)
10.21 Form of Common Stock Purchase Warrant Certificate
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K dated December 29, 1997)
10.22 Asset Purchase Agreement dated December 31, 1997 among HALIS
Services, Inc., Orthodontic Practice Management System, Inc.,
Infocure Corporation, and the Company (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated December 31, 1997)
10.23 Asset Purchase Agreement dated December 31 1997 between
Communications Wiring and Accessories, Inc. and HALIS
Services, Inc.(incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated December 31, 1997)
21.1 List of Subsidiaries
23.1 Consent of Habif, Arogeti & Wynne, P.C.
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only)
</TABLE>

<PAGE> 1

EXHIBIT 21.1

Subsidiaries of the Registrant

HALIS Services, Inc.
- a Georgia Corporation d/b/a HALIS Services, Inc. and the Compass
Group

Physicians Resource Network, Inc.
- a Georgia Corporation d/b/a Physicians Resource Network and PRN

American Benefit Administrative Services, Inc.
- a Georgia Corporation d/b/a American Benefit Administrative
Services and ABAS

PhySource Ltd.
- a Georgia Corporation d/b/a the Homa Practice

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

HALIS, Inc.
Atlanta, Georgia

We hereby consent to the incorporation by reference in Registration
Statement No. 33-22588 on Form S-8 dated June 16, 1988, No. 33-22591 on Form
S-8 dated June 16, 1988, No. 33-38257 on Form S-8 dated December 19, 1990, No.
33-38258 on Form S-8 dated December 19, 1990, No. 33-53702 on Form S-8 dated
October 20, 1992, and No. 33-53704 on Form S-8 dated October 20, 1992, of our
report dated March 7, 1997, relating to the financial statements of HALIS, Inc.
appearing in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.

/s/ HABIF, AROGETI & WYNNE, P.C.

Atlanta, Georgia
April 10, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 10, 1998 included in the December 31, 1997
Form 10-KSB for HALIS, Inc. into its previously filed Registration Statements
No. 33-22588 on Form S-8 dated June 16, 1988, No. 33-22591 on Form S-8 dated
June 16, 1988, No. 33-38257 on Form S-8 dated December 19, 1990, No. 33-38258
on Form S-8 dated December 19, 1990, No. 33-53702 on Form S-8 dated October 20,
1992, and No. 33-53704 on Form S-8 dated October 20, 1992.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
April 10, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HALIS, INC. FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,160,809
<SECURITIES> 0
<RECEIVABLES> 1,104,600
<ALLOWANCES> 407,265
<INVENTORY> 0
<CURRENT-ASSETS> 2,272,421
<PP&E> 1,476,574
<DEPRECIATION> 695,385
<TOTAL-ASSETS> 6,925,006
<CURRENT-LIABILITIES> 4,063,213
<BONDS> 0
0
0
<COMMON> 442,397
<OTHER-SE> 2,274,828
<TOTAL-LIABILITY-AND-EQUITY> 6,925,006
<SALES> 10,134,586
<TOTAL-REVENUES> 10,134,586
<CGS> 1,889,858
<TOTAL-COSTS> 24,982,908
<OTHER-EXPENSES> 165,313
<LOSS-PROVISION> 5,395,053
<INTEREST-EXPENSE> 93,736
<INCOME-PRETAX> (20,502,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,502,424)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)

</TABLE>