HALIS INC, 10KSB, 2000-04-26

HALIS INC
10KSB, 2000-04-26
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, 1999

Commission File Number 0-16288

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

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

3525 Piedmont Road
7 Piedmont Center Suite 300
Atlanta, Georgia 30305
(404) 262-0181
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(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 a 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, 1999: $5,082,493
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The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant (approximately 43,141,349 shares) on March 31,
2000 was approximately $6,738,679. The aggregate market value was computed by
reference to the average of the bid and asked prices of the Common Stock the
Nasdaq Bulletin Board on March 31, 2000. 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
March 31, 2000 was 57,317,222 shares.

DOCUMENTS INCORPORATED BY REFERENCE
-------------------------------------

None

Transitional Small Business Disclosure Format (check one):
Yes ________ No X

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Halis, Inc. ("Halis" or the "Company"), headquartered in Atlanta, Georgia,
is a systems developer of information technology and a provider of related
services, focusing on the healthcare industry. The Company also provides third
party administrative services for healthcare plans of large and small companies
throughout the United States. Halis' offices are located in Atlanta, Georgia
and Chicago, Illinois.

On March 8, 2000, the Company entered into a Letter of Intent with
HealthWatch, Inc. ("HealthWatch") to merge into a wholly-owned Georgia
subsidiary of HealthWatch. See "Item 1: Description of Business-Recent
Developments." HealthWatch is a publicly traded company on the Nasdaq
SmallCap Market (Nasdaq: Heal) with offices in Atlanta, Georgia and San Diego,
California. HealthWatch is incorporated in the State of Minnesota and also
provides information technology services for the healthcare industry. As of the
date of this filing, Halis has not yet entered into a definitive merger
agreement and is currently attempting to negotiate such an agreement with
HealthWatch.

The corporate offices for our Company are located at 3525 Piedmont Road, 7
Piedmont Center, Suite 300, Atlanta, Georgia 30305. Our company's telephone
number is 404-262-0181. For more information on our Company, you should contact
Investor Relations at the above address.

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GENERAL

Halis' system architects have years of experience building large advanced
software systems for the healthcare and other industries. In 1996, the Company
focused its attention on developing a new healthcare software system that it
believed would revolutionize the way that a healthcare organization operates.
Historically, a healthcare organization's system needs have been met with old
legacy systems that are not integrated across all of the functions that a
healthcare organization may utilize through its encounter with a patient or
other users of their services. By way of example, a single patient visit results
in scheduling, registration, medical records update, billing, claims processing,
etc. In order to handle this type of transaction, a typical system would be made
up of many modules or programs that were interfaced together. This results in
an inefficient system made up of millions of lines of code with repetitive
processing and manual intervention occurring at various points. The Halis design
team understood the inefficiencies of the current products available in the
healthcare industry and set out to develop an integrated healthcare software
solution that would not be limited by these constraints.

As a result, the Company developed the Halis Enterprise System (the "HES"),
a comprehensive advanced integrated system capable of being applied to all the
main participants in the healthcare process including: providers, payors,
office-based physician practices, management practice companies, hospitals,
laboratories, pharmacies, home healthcare providers and long-term care
facilities. To accomplish this, the Company's developers modeled the healthcare
industry to find certain commonalty, thus avoiding duplication of effort. The
design of the HES avoids the pitfalls of having to write and maintain millions
of lines of code, and then initiate the process of "interfacing" them together
at each installation. The HES is integrated by design (not "interfaced") and is
contained in one program and distributed database that performs over 270
functions in 20 different applications. The HES is designed to allow multiple
locations the ability to share identical data in a master database that is
available to all users, or, depending on security and confidentiality concerns,
data can be shared by only a limited number of locations or users (the user sets
the parameters for access to data). The HES is capable of managing data for a
healthcare enterprise's personnel, supplies, patients, finances and contracts
all in one program. Indeed, HES allows great flexibility in meeting the needs of
even the most complex healthcare delivery systems.

The technical innovation that enables the HES to be powerful, yet simple to
install and maintain, is the virtual software and information media processing
utility known as "MERAD," that the Company licenses from its affiliate,
HealthWatch. MERAD enables the HES to store programming code in a database,
thereby removing the repetitive processing required in conventional programming.
Because MERAD is completely Internet enabled (including Intranet and Extranet
subsets), the HES can be downloaded over the Internet and installed in minutes
to numerous locations simultaneously. This means that the HES is not only easier
to maintain and support, but also allows for installation and certain support
and services to be performed over the Internet. The HES can also allow consumer
interaction with the healthcare providers via the Internet.

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The HES integrates all of the major functions needed by clinics, hospitals,
physician practices, payors, long-term care facilities, laboratories, pharmacies
and home healthcare providers, the eight major markets in which Halis plans to
compete. Halis is currently building out the specific features required by each
of these eight markets. Presently, the Company is marketing the HES to clinics
and physician and management practices.

The Company's systems and services business is targeted to healthcare
industry participants, such as physician practices, HMO's, home healthcare
providers and hospitals that generally have 100 users or more. The Company
expects to capitalize on the healthcare industry's demand for more software
variety, frequent updates, convenience, lower pricing and better support
services.

The Company's third party administrator subsidiary, American Benefit
Administrative Services, Inc. ("ABAS"), provides claims processing and other
administrative services to major companies throughout the United States.

During fiscal year 1998, Halis' relationship with HealthWatch expanded with
HealthWatch owning approximately 20% of Halis' outstanding Common Stock .
HealthWatch owns the MERAD technology which is licensed to the Company under a
Business Collaboration Agreement. Under that Agreement, the Company is obligated
to pay HealthWatch a royalty equal to 10% of the gross revenues generated by the
Company from sales of the products and services that incorporate HealthWatch's
information technology software. During the first quarter of fiscal year 1999,
the Company's Board of Directors decided that in order to conserve its resources
and to operate more efficiently, the Company would focus its attention on the
sales of the HES and its claims processing capabilities, and would rely upon
HealthWatch to supply support and services to Halis' customers. In addition,
Halis and HealthWatch are currently sharing office space and administrative
resources under a cost sharing arrangement for the corporate offices of both
companies. The Company's Chicago facility is the location for its ABAS
subsidiary, which performs healthcare claims processing and other healthcare
related services for employers.

COMPANY BACKGROUND

The predecessor of Halis, Fisher Business Systems, Inc. ("Fisher"), was
organized in 1979 in the state of New York 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, general retail and 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 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

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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.

Pursuant to this strategy, on November 19, 1996, 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"). All three companies were under the control of Paul Harrison. The
acquisitions were accounted for as the reverse acquisition of Halis 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 Predecessors
adjusted for the acquisition of the net assets of Halis in exchange for the
issuance of Halis Common Stock outstanding before the transaction. In accordance
with purchase accounting principles pursuant to Accounting Principles Board
Statement No. 16, Business Combinations, the net assets of the Predecessors were
accounted for at their historical cost and the net assets of Halis were
accounted for at their fair market value on November 19, 1996.

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 companies are either buying or managing groups of practices and
clinics; and insurance companies are entering many of these same markets.

The implications of these changes are numerous, but one of the key factors
to 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. This process is often fraught with errors.
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, we expect significant
increases in spending on healthcare technology and related services over the
next several years. According to some 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. We believe
that this trend, combined with the overall growth of

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the healthcare industry, will yield significant opportunities for companies who
deliver information technology products and services to the healthcare industry.

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 healthcare delivery networks that may include acute-care hospitals,
physicians offices, outpatient clinics, home healthcare providers and long-term
care facilities. The success of these comprehensive delivery networks is
dependent upon, among other things, effectively managing and delivering
information to care givers 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.

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. Management believes the immediate domestic market
potential for the Company's software products and technology services is a
universe of approximately 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 services.

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We believe 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 a
computer-based 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, maintenance and
enhancement of these systems. Each time a change is made to one application, the
other applications, normally written by different programers, must be changed to
maintain the "interface." This process results in longer 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 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, these systems cannot be maintained in a cost effective
manner. 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.

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, physician practices, Payors, long-term care facilities, laboratories,
pharmacies and home healthcare providers.

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HES uses the MERAD technology developed by HealthWatch that manages and
processes data through its Internet-enabled virtual software and information
media processing utility. 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. Because it is Internet ready, the
interaction can occur from multiple locations. Program data and instruction
can be added in an automated manner without the programmer needing to research
and map the various interfaces to other programs. Currently, competing software
technology in the healthcare industry often requires technical expertise to
connect data and processing instructions to a legacy program.

Halis believes that it has eliminated more than 90% of the programming
effort and duplicity that other systems have required by using MERAD to place
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 other applications in the system. The HES utilizes the relational
database concept to eliminate this redundancy and streamline the development,
enhancement and operational processes dramatically.

The Halis technology provides a new level of economies in the production
and maintenance of healthcare systems. The initial cost of the HES is 50% less
than other competitive products, 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 because
there is only one system to modify, not up to 10 or more disparate systems or
modules. Halis uses the Internet to demonstrate the HES, and to deliver
training, product support, sales support and customer service to its customers.
Each of these techniques is designed to improve user satisfaction and lower
costs to the user and the Company.

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 HES include: (i) centralization of patient data,
(ii) coverage verification, (iii) increased collections, (iv) lower billing
costs and (v) higher quality clinical data. Functions provided include
registration, medical records, patient encounters, billing, managed care,
reports and system support.

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The Company currently operates under a Business Collaboration Agreement
with HealthWatch (the "Collaboration Agreement"). Under the Collaboration
Agreement, HealthWatch has granted Halis a non-exclusive license to
HealthWatch's information technology software in exchange for a ten percent
(10%) commission on sales of products incorporating such software.
Additionally, Halis has granted HealthWatch a non-exclusive license to market
the HES in exchange for a ten percent (10%) commission on all revenues received
from sales or services relating to the HES product.

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 clinics). As resources become available, the Company plans to
expand into the other segments of the healthcare industry. Management believes
that the Company is well positioned to produce and support the Company's
products, due to 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 HES will allow the Company to
keep up with user demand for updates due to health plan changes, management
contract revisions, new services and products and changes in managed care plans
and practices. Additionally, over time, with sufficient dedication of
resources, the Company will be able to deliver integrated software to virtually
every healthcare market segment including medical practices, home health
agencies, hospitals, clinics, long-term care facilities, labs, pharmacies and
payors. The HES can become the standard platform allowing all of these providers
to transfer data among themselves.

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 offer the HES through (1) a customer-managed and operated
model that can be downloaded from the Internet and managed by the customer's in-
house IT personnel and (2) an outsourced model that is offered over the
Internet from the Company's facilities. The Company intends to market its
products through the use of a Web site, selected magazine advertising and high-
profile trade shows to build brand awareness. The HES may also be downloaded
from the Internet to be used by potential customers on a trial basis.

The Company believes that it will have an advantage over its competitors
because its products 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 will not meet the
changing needs of today's healthcare companies.

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The Company will manage its operations from its corporate headquarters in
Atlanta, Georgia 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 corporate activities, such as strategic planning,
mergers and acquisitions, accounting, treasury, research and development and
risk management.

There can be no assurance that the Company will be successful in
implementing its strategic plan or that shareholder value will be enhanced if
such plan is implemented. See "Risk Factors Affecting Future Performance."

RISK FACTORS AFFECTING FUTURE PERFORMANCE

You should carefully consider the following risks in your evaluation of
Halis. The risks and uncertainties below are not the only ones we face.
Additional risks and uncertainties may also adversely impact and impair our
business. If any of the following risks actually occur, our business, results
of operations or financial condition would likely suffer. In such case, the
trading price of our Common Stock could decline.

We Have a History of Losses, Expect Future Losses and Cannot Assure You That We
Will Achieve Profitability.

We have generated extremely limited revenues with our information
technology business. Our revenue and income potential are unproven and our
business model is constantly evolving. We have limited experience addressing
challenges frequently encountered by early-stage companies in the software and
related services industry. You should evaluate our business in light of the
risks and difficulties frequently encountered by early stage companies engaged
in such commerce. These risks include:

. lack of sufficient capital;
. uncertain market acceptance of our products and services;
. our ability to develop and upgrade our infrastructure, including
internal controls, transaction processing capacity, data storage and
retrieval systems and web site;
. our ability to respond to competition;
. our need to manage changing operations;
. our reliance upon general economic conditions; and
. our dependence upon and need to hire key personnel.

We may not be successful in addressing these risks, and our business
strategy may not be successful. As a result of our limited operating history in
the healthcare information technology industry and the competitive nature of the
markets in which we compete, our historical financial data is of limited value
in anticipating future performance.

We have not achieved profitability and we cannot be certain that we will
realize sufficient revenue to achieve profitability. Halis has incurred net
losses of $1,444,827 in the year ended

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December 31, 1999 and $3,148,799 in the year ended December 31, 1998. As of
December 31, 1999, Halis had an accumulated deficit of $38,062,003. We plan to
increase our operating expenses to expand our sales and marketing operations,
broaden our customer support capabilities and continue to build our operational
infrastructure. If growth in our revenues does not outpace the increase in these
expenses, we may not achieve or sustain profitability.
Our Business Will Suffer if Healthcare Providers Do Not Accept the Internet

We are planning for a large segment of our customers to outsource our
solutions by accessing the applications and services through a shared center and
private Internet channel. We cannot guarantee that participants in the
healthcare industry and in particular, physicians, will accept an Internet
outsourced solution as a replacement for traditional sources of these services.
Market acceptance of our outsourced solution will depend upon continued growth
in the use of the Internet generally and, in particular, as a source of services
for the healthcare industry. The acceptance of the Internet for storing,
managing and processing information by healthcare professionals will require a
broad acceptance of new methods of conducting business and exchanging
information. Our future financial success will depend upon our ability to
attract and retain healthcare providers as customers. Our failure to achieve
market acceptance would have a material adverse effect on our business, results
of operations and financial condition.

We Rely on a Limited Number of Products and are Dependent on Market Acceptance
of Such Products

We have a limited number of customers who are currently using our products
and achieving market acceptance for our products will require substantial
marketing efforts and expenditures to inform potential customers of the
distinctive characteristics and benefits of these products. Since we have
limited financial and other resources to undertake extensive independent
marketing activities, there can be no assurance we will be able to market our
products successfully.

We Hope to Grow Rapidly, and the Failure to Manage our Growth Could Adversely
Affect Our Business

As we continue to increase the scope of our operations, we may not have an
effective planning and management process in place to implement our business
plan successfully. This growth may strain our management systems and resources.
We anticipate the need to continue to improve our financial and managerial
controls and our reporting systems. In addition, we will need to expand, train
and manage our growing work force. Our business, results of operations and
financial condition will be materially and adversely affected if we are unable
to manage and integrate our expanding operations effectively.

We Need to Expand our Sales and Customer Support Infrastructure

Our ability to expand our business will depend in part on recruiting and
training additional direct sales and customer support personnel. Competition
for qualified personnel in

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these areas is intense. We may not be able to successfully expand our direct
sales force, which would limit our ability to expand our customer base. We may
be unable to hire highly trained customer support personnel, which would make it
difficult for us to meet customer demands. As a result, any difficulties we may
have in expanding our sales and marketing or customer support organizations

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will have a negative impact on our ability to successfully capitalize on any
acquisitions we may complete.

Risks Relating to the Proposed Merger

Halis and HealthWatch may not achieve the benefits they expect from the
merger which may have a material adverse effect on the combined company's
business, financial condition and operating results and/or could result in loss
of key personnel.

We will need to overcome significant issues in order to realize any
benefits or synergies from the merger, including the timely, efficient and
successful execution of a number of post-merger events. Key events include:

. integrating the operations of the two companies;
. retaining and assimilating the key personnel of each company;
. retaining the existing customers and strategic partners of
each company;
. developing new services and products that utilize the assets
of both companies; and
. maintaining uniform standards, controls, procedures and
policies.

The successful execution of these post-merger events will involve
considerable risk and may not be successful. These risks include:

. the potential disruption of the combined company's ongoing
business and distraction of its management;
. ability to convert customers of businesses we acquire to on-
line systems;
. ability to consummate acquisitions;
. the impairment of relationships with employees and customers
as a result of any integration of new management personnel;
and
. potential unknown liabilities associated with the acquired
business.

The combined company may not succeed in addressing these risks or any other
problems encountered in connection with the merger.

Although the Halis and HealthWatch Boards of Directors have each
determined that the merger is in the best interests of the stockholders of Halis
and HealthWatch, respectively, the integration of the two companies will involve
special risks. There may be challenges in retaining the customers of the
combined business. Moreover, challenges may be presented in assimilating and
retaining personnel. In addition, the integration of the operations and systems
of the two companies and the realization of potential operating synergies may
prove difficult, and may cause management's attention to be diverted from other
business concerns. These and other difficulties associated with the merger may
lead to potential adverse short term effects on operating results.

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Changing United States Healthcare Environment

In recent years, the healthcare industry has changed significantly in an
effort to reduce costs. These changes include increased use of managed care,
cuts in Medicare, consolidation of pharmaceutical and medical/surgical supply
distributors and the development of large, sophisticated purchasing groups. We
expect the healthcare industry to continue to change significantly in the
future. Some of these changes may have a material adverse effect on our results
of operations, such as a reduction in governmental support of healthcare
services or adverse changes in legislation or regulations governing the delivery
or pricing of healthcare services or mandated benefits.

Going Concern

We will require additional debt or equity capital to sustain operations and
continue our business development efforts. In addition, due to the limited
resources available to us during the fiscal year ended December 31,1999, we were
unable to deploy our intended business strategy to any measurable degree. Our
auditors have given us a going concern opinion for the last three years
indicating that there is a substantial doubt about our ability to continue as a
going concern.

Regulation of Privacy Issues

The Federal Trade Commission and state governmental bodies have been
investigating the confidentiality and privacy policies and practices of
healthcare Internet companies and Internet companies in general, and may impose
regulations. In addition, proposed privacy standards for the handling of
individually identifiable health information that is transmitted or stored
electronically were issued by the Department of Health and Human Services on
November 3, 1999 and it will be necessary for our platform and for the
applications that we provide to be in compliance with the final regulations.
Finally, industry groups are also proposing various privacy and ethics standards
in an effort to maintain self-regulation. We will likely incur additional
expenses regarding privacy practices and policies. Any such policies and
practices, whether self-imposed or imposed by government regulation, could
affect the way in which we are allowed to conduct our business, especially those
aspects that involve the collection, use and access to personal information and
medical records, and could have a material adverse effect on our business,
results of operations and financial condition.

The Healthcare Industry is Subject to Extensive Government Regulation

Participants in the healthcare industry are subject to extensive and
frequently changing regulation at the federal, state and local levels. Some of
the laws and regulations relate to payment and other relationships with third
party billing and collection agents, as well as regulating computer software
intended for use in the healthcare setting. The impact of regulatory
developments in the healthcare industry is complex and difficult to predict. We
cannot assure you that we will not be materially adversely affected by existing
or new regulatory requirements or interpretations. These requirements or
interpretations could also limit the effectiveness of the

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use of the Internet for the methods of healthcare e-commerce we are developing
or even prohibit the sale of a subject product or service. Healthcare service
providers, payors and plans are also subject to a wide variety of laws and
regulations that could affect the nature and scope of their relationships with
us. Laws regulating health insurance, health maintenance organizations and
similar organizations, as well as employee benefit plans, cover a broad array of
subjects, including confidentiality, financial relationships with vendors,
mandated benefits, grievance and appeal procedures and others. State and federal
laws have also implemented so-called "fraud and abuse" rules that specifically
restrict or prohibit certain types of financial relationships between us or our
customers and healthcare service providers, including physicians and pharmacies.
Laws governing healthcare providers, payors and plans are often not uniform
between states, and could require us to undertake the expense and difficulty of
tailoring our business procedures, information systems or financial
relationships in order for our customers to be in compliance with applicable
laws and regulations. Compliance with such laws could also interfere with the
scope of our services, or make them less cost-effective for our customers.

There is no Assurance that a Public Market for our Common Stock Will Continue to
Develop

There has only been a limited public market for our Common Stock. We
cannot predict the extent to which investor interest in our Common Stock will
lead to the development of a trading market or how liquid that market might
become. Our Common Stock is quoted on the Nasdaq OTC Bulletin Board. You may
expect trading volume to be low in such a market. Consequently, the activity of
only a few shares may affect the market and may result in wide swings in price
and in volume.

We do not Intend to Pay Future Cash Dividends

We currently do not anticipate paying cash dividends on our Common Stock at
any time in the near future. Any decision to pay dividends will depend upon our
profitability at the time, cash available and other factors. We may never pay
cash dividends or distributions on our Common Stock.

Dependence on Current Management

As of March 31, 2000, our executive officers, directors and 5% shareholders
together beneficially owned approximately 31% of our outstanding Common Stock.
These shareholders, if they vote together, will retain substantial control over
matters requiring approval by our shareholders, such as the election of
directors and approval of significant corporate transactions. This
concentration of ownership might also have the effect of delaying or preventing
a change in control.

As of March 31, 2000, Paul Harrison, CEO and Chairman of the Board of
Directors of the Company, exercises voting control over approximately 8,322,349
shares of the outstanding Common Stock of the Company, including options and
warrants (excluding shares owned by

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HealthWatch). Additionally, Mr. Harrison, as the designer of our technology and
the HES System, is critical to the ongoing development of products utilizing our
technology.

Competition from Third Parties Could Reduce or Eliminate Demand for our
Products and Services

The market for Internet services is highly competitive, and we expect that
competition will intensify in the future. We may not be able to compete
successfully against our current or future competitors and, accordingly, we
cannot be certain that we will be able to expand the number of our customers and
end users, or retain our current customers or third-party service providers.
Many of our current and potential competitors have longer operating histories
and may be in a better position to produce and market their services due to
their greater financial, technical, marketing and other resources, as well as
their significantly greater name recognition and larger installed bases of
customers.

Newly Introduced Products May Contain Undetected or Unresolved Defects

Any new or enhanced products we introduce may contain undetected or
unresolved software or hardware defects when they are first introduced or as new
versions are released. In the past, we have discovered errors in our products
and it is possible that design defects will occur in new products. These defects
could result in a loss of sales and additional costs, as well as damage to our
reputation and the loss of relationships with our customers.

Failure to Attract and Retain Experienced Personnel and Senior Management
Could Harm Our Ability to Grow

We believe that our future success will depend in large part upon our
continued ability to identify, hire, retain and motivate highly skilled
employees, who are in great demand. In particular, we believe that we must
expand our research and development, marketing, sales and customer support
capabilities in order to effectively serve the evolving needs of our present and
future customers. Competition for these employees is intense and we may not be
able to hire additional qualified personnel in a timely manner and on reasonable
terms. In addition, our success depends on the continuing contributions of our
senior management and technical personnel, all of whom would be difficult to
replace. The loss of any one of them could adversely affect our ability to
execute our business strategy. None of our employees are currently bound by an
employment agreement and we do not have "key person" life insurance policies
covering any of our employees.

Our Limited Ability to Protect our Proprietary Technology may Adversely
Affect our Ability to Compete, and We may be Found to Infringe Proprietary
Rights of Others, Which Could Harm our Business

Our future success and ability to compete depends in part upon our
proprietary technology. None of our technology is currently patented. Instead,
we rely on a combination of

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contractual rights and copyright, trademark and trade secret laws to establish
and protect our proprietary technology. We generally enter into confidentiality
agreements with our employees, consultants, resellers, customers and potential
customers, limit access to and distribution of our source code, and further
limit the disclosure and use of other proprietary information. We cannot assure
that the steps taken by us in this regard will be adequate to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technology. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain or use our products
or technology. Monitoring unauthorized use of our products is difficult, and
while we are unable to determine the extent to which piracy of our software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.

We are also subject to the risk of claims and litigation alleging
infringement of the intellectual property rights of others. Third parties may
assert infringement claims in the future with respect to our current or future
products. Any assertion, regardless of its merit, could require us to pay
damages or settlement amounts and could require us to develop non-infringing
technology or pay for a license for the technology that is the subject of the
asserted infringement. Any litigation or potential litigation could result in
product delays, increased costs or both. In addition, the cost of litigation and
the resulting distraction of our management resources could adversely affect our
results of operations. We also cannot assure that any licenses for technology
necessary for our business will be available or that, if available, these
licenses can be obtained on commercially reasonable terms.

Fluctuations in Quarterly Performance

Our revenues 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, our 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. Our 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 us
or our competitors, increased competition and reductions in average selling
prices.

RECENT DEVELOPMENTS

Proposed HealthWatch Merger

On March 8, 2000, our Company executed a letter of intent with
HealthWatch to merge into a wholly-owned Georgia subsidiary of HealthWatch.
HealthWatch currently owns approximately 20% of the outstanding Common Stock of
Halis, and Halis and HealthWatch currently operate under a Business
Collaboration Agreement for the HES and MERAD

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technologies (See "Item 1: DESCRIPTION OF BUSINESS - The Halis Healthcare
Enterprise System") and a cost sharing arrangement for corporate office space
and administrative resources.

Under the terms of the letter of intent, Halis would merge into a new
wholly-owned subsidiary of HealthWatch. As a result of the merger, Halis
shareholders would receive $0.33 for each share of Halis Common Stock. The
$0.33 per share purchase price will be paid in shares of HealthWatch Common
Stock . The actual number of shares to be issued will be based upon the average
closing price of HealthWatch's Common Stock for the 10 trading days immediately
preceding the closing date of the proposed merger.

The closing of the proposed merger will be conditioned upon the
following:

. appropriate approvals of the Halis and HealthWatch
stockholders;
. HealthWatch having raised a minimum of $5,000,000 from
issuance of its equity securities; and
. obtaining governmental and regulatory approval.

The letter of intent also contains a binding provision providing
HealthWatch an unconditional right to purchase, prior to the closing of the
merger, up to $1,000,000 of Halis' Common Stock at $.20 per share, and upon
consummation of such financing, HealthWatch shall have a three month option to
purchase an additional $5,000,000 of Halis' Common Stock at a price of $.20 per
share.

On March 23, 2000, HealthWatch raised approximately $5.4 Million from the
sale of its equity securities in a private placement, which satisfies one of the
conditions precedent to the closing of the merger.

Corporate Restructuring

The Company has implemented a restructuring program to reduce its fixed
costs and move the Company towards profitability. As part of this program, the
Company has entered into a cost sharing arrangement with HealthWatch in order to
reduce its corporate overhead.

Under the cost sharing arrangement, Halis and HealthWatch are sharing the
costs related to their corporate overhead, including office space, personnel and
administrative support. Additionally, the Company has outsourced its accounting
and finance functions to the accounting firm of Harshman & Phillips, P.C.

The HES is now commercially available, but the Company has had limited
success entering into contracts for the sale of the HES product to date. During
fiscal 1999, the Company refocused the marketing of the HES software to
larger oriented customers who have a minimum of 100 users. While the Company has
started to receive a high degree of interest in the HES, the sales cycle and
decision process is long, and the Company's past financial performance has been
perceived as a negative factor causing the sales cycle to be stretched even
longer. Nonetheless, the Company believes the HES will continue to gain market
acceptance, although

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no assurances can be given. In addition to focusing on larger physician
practices, management companies and clinics, the Company is seeking strategic
relationships, including possible business combinations, with companies whose
size and resources may be able to assist the Company in capturing a larger
market presence, enhancing the Company's capital structure, as well as
strengthening its sales and marketing infrastructure.

DISPOSITIONS DURING THE LAST THREE FISCAL YEARS

During fiscal 1997, the Company made a number of acquisitions pursuant to
its strategy of acquiring companies that could assist in the beta testing and
distribution of the HES system. At the end of fiscal 1997, the Company refocused
its business strategy and decided that the original distribution plan was not
going to be successful and started a program of divesting some of the
acquisitions previously made. As a result, the Company has disposed of a number
of the business units it acquired in 1997 and has reduced its overhead and cost
of operations significantly. Now that the HES is commercially available and
implemented in several locations, its new focus and business strategy is to sell
the HES to larger organizations with a minimum of 100 users. This has resulted
in many of the previous acquisitions of business units to be unnecessary on a
go-forward basis. Accordingly, discussed below are the dispositions made between
fiscal 1997 and fiscal 1999.

Disposition of Physician's Resource Network in Fiscal 1998

On June 30, 1998, the Company effectuated a merger of Physician's Resource
Network, Inc. ("PRN"), a wholly owned subsidiary of the Company that was
acquired in July 1997, with American Enterprise Solutions, Inc. ("AES").
Located in Tampa, Florida, PRN delivered practice management and billing
services to healthcare providers. The transaction with AES was effected pursuant
to an Agreement and Plan of Merger dated June 25, 1998 (but effective as of June
30, 1998) among the Company, AES, PRN Acquisition Co.,Inc. and PRN (the "Merger
Agreement"). Under the terms of the Merger Agreement, the Company received AES'
promise to deliver within 90 days of the closing date, all of the shares of
Halis Common Stock owned by AES of record and beneficially as of the closing
date, including without limitation shares that AES has the right to acquire as
of the closing date, which number of shares shall be not less than 9,984,000
shares of the Company's Common Stock . The Merger Agreement provided that if AES
delivers more than 11,000,000 shares of Company Common Stock , then the Company
must also transfer to AES the right to receive contingent installment payments
(the "Installment Payments") under that certain Asset Purchase Agreement dated
December 31, 1997, between Communications Wiring and Accessories, Inc. and Halis
Services, Inc.("Halis Services"), a subsidiary of the Company. To date, the
Company has not recorded a receivable with respect to Installment Payments
because of the uncertain timing and probability of such Installment Payments.
Additionally, pursuant to the Merger Agreement the Company retained certain
liabilities in the aggregate amount of $478,797 related to the business of PRN.

Because the number of shares to be received by the Company as consideration
for the sale of PRN was uncertain, the Company deferred any recognition of the
gain on the sale until

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such time as this uncertainty was resolved. However, the results of operations
for PRN were not included in the results of operation for the Company after June
30, 1998. On October 9, 1998, the Merger Agreement was amended by the parties to
acknowledge and agree that the number of shares of the Company's Common Stock to
be delivered by AES totaled 12,048,325 shares. AES agreed to deliver, or cause
to be delivered, 11,548,325 shares on or before October 13, 1998, with the
remaining 500,000 shares to be delivered on or before January 31, 1999. As of
December 31, 1999, the Company has received the 11,548,325 shares which were
canceled and are no longer outstanding. The remaining 500,000 shares have not
been received by the Company.

The Company's Board of Directors decided that PRN did not fit within its
refocused strategy and viewed the sale to AES as an opportunity to retire
approximately 20% of the Company's outstanding stock while reducing the cash
drain caused by this subsidiary. Charles Broes, who served as a director of the
Company from July 1, 1997 until he resigned on June 10, 1998, served as the
Chief Executive Officer, Secretary, Treasurer and board member of AES. Mr. Broes
did not participate in any meetings of the Company's Board of Directors with
respect to the Merger Agreement, or the amendment thereto.

For federal income tax purposes, the PRN disposition was not intended to
constitute a reorganization within the meaning of Section 368 of the Code. The
parties to the Merger Agreement acknowledged that the merger was intended to
constitute a redemption by Halis of all Halis stock owned directly or indirectly
by AES pursuant to Section 302(b)(3) of the Internal Revenue Code of 1986, as
amended (the "Code").

The amount of consideration to be paid by the parties under the AES Merger
Agreement, as amended, was determined by arms-length negotiations between
informed business persons and represents, in the Company's view, fair value for
PRN. Due to the fact that the uncertainty regarding the precise timing of
receipt and number of shares of the Company's Common Stock was not resolved
until October 1998, the Company deferred the recognition of the expected gain on
the disposition of PRN, and did not recognize $907,696 of this gain until the
fourth quarter ending December 31, 1998.

Sale of the Homa Practice in Fiscal 1998

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event and the $18,323 gain associated with the sale was recognized in the fourth
quarter of 1998. The results from operations for the Homa Practice were included
in the Company's results from operations for the nine-month period ended
September 30, 1998. The Contingent Payment was to be calculated and paid to the
Company on November 1, 1999. As of March 31, 2000, the calculation of the
Contingent Payment has not been completed, and thus, the payment has not been
made.

Disposition of the Orthodontic Business in Fiscal 1997

On December 31, 1997, Halis Services, Inc., a wholly owned subsidiary of
the Company, sold to InfoCure Corporation ("InfoCure") substantially all of the
assets of the orthodontic practice management software business (the
"Orthodontic Business") that was acquired by the Company from Software
Manufacturing Group, Inc. in January 1997. The Orthodontic Business included
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, 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-healthcare Assets in Fiscal 1997

Due to their disappointing operating performance, Halis Services, Inc. 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.

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;

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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. As of
March 31, 2000, the Company has not received any Installment Payments from
Communications Wiring.

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 DURING THE LAST THREE FISCAL YEARS

Acquisition of the Compass Group, Inc. in Fiscal 1997

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 $.25 per share and the number of shares was
reduced to 59,500.

Acquisition of Software Manufacturing Group, Inc. in Fiscal 1997

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In January 1997, the Company acquired Software Manufacturing Group, Inc.
("SMG"), a developer and seller of orthodontic practice management systems. 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, on June 30, 1997, the Company agreed to
issue 960,000 shares of the Company's Common Stock to the SMG shareholders.

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 exercisable and expire on January 24, 2007.

The Company sold substantially all of the assets of SMG in December 1997.

Acquisition of American Benefit Administrative Services, Inc. in Fiscal 1997

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.

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

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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 $.25 per share and the number of shares were reduced to 437,500 from 625,000.
In August 1998, the Company's Board elected to reduce the exercise price of all
of the outstanding options of employees of the Company to $0.13 per share. Mr.
Spicer now holds options to purchase 1,062,500 shares of the Company's Common
Stock.

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
$623,377 as of December 31, 1999, 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 her 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 consummation 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 August 1998, the exercise price
on each of these options was reduced to $0.13 per share.

Acquisition of TG Marketing Systems, Inc. in Fiscal 1997

In May 1997, the Company acquired TG Marketing Systems, Inc., a Georgia
corporation ("TGM"), which provides 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

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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.

Acquisition of Physicians Resource Network, Inc. in Fiscal 1997

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 3,733,333 shares of the Company's
Common Stock.

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. Additionally, the Company retired
approximately $80,000 of existing indebtedness of PRN and agreed to cause all
personal guaranties given to a financial institution with respect to the
indebtedness of PRN in the principal amount of $520,000 to a financial
institution to be terminated.

In June 1998, the Company sold the PRN Subsidiary to American Enterprises
Solutions, Inc.

Acquisition of PhySource Ltd. In Fiscal 1997

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 for the 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 provided 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 was to be paid an amount equal to 2% of the software
component of technology sales

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resulting from Dr. Homa's referral of prospective customers.

In September 1998, the Company sold the Homa Practice to Physicians
Enterprise Systems, LLC.

Subsidiary Consolidation

On 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.; and AUBIS Systems
Integration, Inc. The purpose of the merger was to simplify the Company's
corporate structure and facilitate the consolidation of accounting and treasury
functions. On January 1, 1999, all of the assets previously attributable to
Halis Software, Inc., including all of Halis Services' rights, title and
interest in the HES system were spun-off to a newly created wholly-owned
subsidiary called HES Technology, Inc., a Georgia corporation.

Purchase of HealthWatch Stock by the Company; Relationship with HealthWatch

HealthWatch is presently the single largest shareholder of the Company
holding 10,763,655 shares of the Company's outstanding Common Stock
(approximately 20%). During fiscal years 1997 and 1998 the Company has entered
into a number of transactions that have brought the Companies closer together.
Paul W. Harrison is the Chairman, President and CEO of both Companies. The
Companies have entered into a Business Collaboration Agreement to provide each
company access to the technology owned by the other company. Additionally, the
Company has entered into a cost sharing arrangement for corporate office space
and administrative support.

The relationship of the two companies began on August 20, 1997, when the
Company and 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 HealthWatch's Series H Preferred Stock (the "HealthWatch
Preferred Stock") for an aggregate consideration of up to $300,000.

From August 20, 1997 through September 22, 1997, the Company purchased a
total of 4,166 shares of HealthWatch Preferred Stock for $125,000. During
fiscal 1998, the Company converted the HealthWatch Preferred Stock into 16,667
(adjusted for reverse stock split) shares of HealthWatch Common Stock. The
Company is not obligated and does not have the present intention to purchase
additional shares of the capital stock of HealthWatch.

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 merger of
the Company and HealthWatch; and (ii) to provide HealthWatch with working
capital. The Company and HealthWatch entered into two different non-binding
letters of intent, dated August 8, 1997 and July 14, 1998 (the "Letters of
Intent"), providing for the merger of HealthWatch with the

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<PAGE>

Company. On October 2, 1998, HealthWatch acquired Paul Harrison Enterprises,
Inc., a company controlled by Paul W. Harrison, and which was, at the time of
the acquisition, the largest single shareholder of the Company. Immediately
after the acquisition, HealthWatch held 8,939,010 shares of the Company's Common
Stock. Due to volatility in both companies respective stock price, and certain
accounting issues related to the possible merger, the Company and HealthWatch
postponed the proposed merger between the two companies and instead pursued a
Business Collaboration Agreement in which the companies agreed to share sales
prospects and HealthWatch became a reseller of the Company's HES software.
Pursuant to a cost sharing arrangement, the Company and HealthWatch share office
space in Atlanta, Georgia and certain office and executive personnel.

On March 8, 2000, the Company and HealthWatch executed a new Letter of
Intent to merge the two companies. See "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 is also an important competitive factor. 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 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

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<PAGE>

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, there can be no assurance that
unauthorized use of the Company's technology will not occur.

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 if 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

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<PAGE>

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, could be time consuming and expensive to defend,
prosecute or resolve.

EMPLOYEES

As of March 31, 2000, the Company had 45 full-time employees. The Company
also utilizes contract personnel supplied by HealthWatch and others 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 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
- -"Risk Factors Affecting Future Performance."

ITEM 2. DESCRIPTION OF PROPERTY.

The Company's headquarters is located at 3525 Piedmont Road, 7 Piedmont
Center, Suite 300, Atlanta, Georgia under a cost sharing arrangement with
HealthWatch. The Company also leases additional office space in Atlanta, Georgia
at a monthly rate of $4,340. Additionally, the

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Company leases approximately 11,000 sq. feet of space in Chicago, Illinois,
where its ABAS subsidiary is located, at a monthly rental of $18,541, which will
escalate to $23,000 per month by the year 2003.

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<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

(A) Penelope Sellers v. Halis, Inc., Larry Fisher and Paul W. Harrison
------------------------------------------------------------------
Fulton State Court
Civil Action File No. 97VS1294SD

On July 18, 1997, the Company was sued by Penelope Sellers, in an action
seeking actual damages against the Company in the amount of $480,534.70,
unspecified attorneys fees, and punitive damages of not less than $1,000,000.
Ms. Sellers contends that a finder's Fee Agreement into which she entered with
the Company in August 1995, and under which she was to receive 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 her, entitles her to an amount in excess of the approximately $19,350
which she has been paid to date under that agreement. That amount represents 10%
of the investment made by the principals of AUBIS, LLC ("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.

Ms. Sellers claims that the entirety of the convertible notes offering
described above (in which an aggregate of $1,470,000 was raised by the Company)
would not have been successful but for her introduction of the AUBIS principals
to the Company. 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 capital funding raised by the Company (up to the
$500,000 maximum compensation), including the proceeds of a private placement
which raised gross proceeds of approximately $2.0 million. Finally, Ms. Sellers
has made a claim for 10% of the value of AUBIS and Halis Systems, Inc.

Discovery has been completed. Defendants filed a motion for partial
summary judgment, which was granted, the effect of which is to eliminate Larry
Fisher and Paul W. Harrison on claims asserted against them for tortious
interference and contractual relations. The Company continues to vigorously
defend this lawsuit.

(B) 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
-----------------------------
Fulton State Court
Civil Action File No. 97VS0123082.

In February 1997, Advanced Custom Computer Solutions, Inc. ("ACCS"), Wayne
W. Surman and Charlotte Surman sued the Company alleging, among other things,
breach of contract in connection with the termination by the Company of a 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

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plaintiffs to lend money to the Company, and that the Company, or individuals
related to it, tortiously interfered with the business relationships of ACCS,
and fraudulently induced ACCS management to permit Company management to take
over and "systematically destroy" the ongoing business of ACCS. The Surmans are
the principals of ACCS and claim personal damages against the Company on certain
of the claims, and claim a right to at least 150,000 shares of the Company's
common stock, the exact amount to be determined at trial, based on a claim of a
breach of an alleged oral contract to pay them shares of Halis stock as
compensation for soliciting investors (the "Oral Contract Claim"). The Surman's
further claim that the Company fraudulently induced them to solicit investors
for the Company (the "Investor Solicitation Claim"). The complaint sought
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 answered, denying the allegations of liability
in the complaint, and the Company vigorously defended the lawsuit. On November
19, 1998, the trial court granted summary judgment in favor of the Company on
all but two counts of the plaintiff's complaint, as amended. The two counts
remaining include the Oral Contract Claim and Investor Solicitation Claim. The
plaintiffs have appealed to the Georgia Court of Appeals from the order granting
partial summary judgment to the Company on all other claims, and the Company has
cross-appealed the portions of the order denying summary judgment on the two
surviving counts. The Georgia Court of Appeals has affirmed the trial court's
granting of summary judgment in favor of the Company on seven of the nine count
in the Complaint, and affirming the denial of the company's cross appeal denying
summary judgment on the two surviving counts.

There can be no assurance, however, that the Company will be successful in
its appeal, or defense of the plaintiff's appeal, or that the final resolution
of this matter will not have a material adverse effect on the financial
condition or results of operation of the Company.

(B) Carrera-Maximus, Inc. (previously known as Carrera Consulting Group, v.
-----------------------------------------------------------------------
Halis, Inc., and Does 1 to 30, inclusive,
----------------------------------------
Superior Court of the State of California, County of Sacramento
Case No. 00-AS-01605

Company was served with this Complaint on April 1, 2000. The Complaint
asserts counts for the following:

Breach of contract seeking return of professional service fees it paid of
$425,638; product support fees in the amount of $55,601; license fees in the
amount of $56,750.

The company intends to vigorously defend this case, including the filing of
an answer and assertion of the appropriate counterclaims.

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

No matters were submitted for a vote of our Shareholders during the fourth
quarter of the fiscal year ended December 31, 1999.

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 SmallCap 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 31, 2000, there were approximately 1,600 holders of record of
the Company's 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 Nasdaq for the
periods indicated:

1998 1999
High Low High Low
----- ----- ----- -----

Fourth Quarter $0.23 $0.21 $0.16 $0.06
Third Quarter 0.58 0.56 0.19 0.11
Second Quarter 0.37 0.35 0.23 0.13
First Quarter 0.72 0.69 0.30 0.13

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

During fiscal 1999, the Company raised additional cash to meet its
operating needs through several private placements of its Common Stock and
warrants to purchase additional Common Stock at a latter date. In total, the
Company received cash in the amount of $247,500 in consideration for the
issuance of approximately 2,800,000 shares of its Common Stock and warrants to
purchase an additional 722,500 shares of Common Stock at exercise prices
ranging from $0.05 to $0.105 per share.

In addition, the Company issued approximately 1,090,000 shares of its
Common Stock

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<PAGE>

in consideration for consulting services received by the Company valued at
approximately $110,500. During February 1999, the Company issued 1,500,000
shares of its Common Stock to Paul Harrison in settlement of the salary due to
Mr. Harrison under his employment contract for fiscal year 1998. Finally, in
January 1999, the holders of 6% notes converted $157,741 of such notes into
1,824,645 shares of Common Stock.

During January 1998, the Company received additional funds from the sale of
4% Convertible Debentures and certain warrants pursuant to a claim of exemption
under rules 901 and 903 of Regulation S promulgated by the Securities Act of
1933, as amended. The debentures and warrants were issued to non-U.S. Persons
with the assistance of GEM Advisors, Inc. acting as a placement agent. The
debentures were 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 the debenture holders 100,000 warrants
with an exercise price of $0.60 per share. The consideration received by the
Company for the debentures was $100,000 in cash less certain expenses, including
9% of the aggregate proceeds to GEM Advisors, Inc., and were used for the
Company's working capital needs.

In the first quarter of fiscal 1998, the holders of all of the $300,000 of
the 4% Convertible Debentures ($200,000 was received in December 1997, $100,000
was received in January 1998) 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 holders of $500,000 of the Company's 7% Convertible
Promissory Notes due January 15, 1998 (which was the amount of these notes
remaining outstanding), 125,000 additional shares of Common Stock to encourage
them to execute their conversion option prior to January 15, 1998. Holders of
$210,000 of the Notes accepted the offer as of January 15, 1998, resulting in
the Company issuing 52,500 additional shares of Common Stock. The additional
shares had the effect of increasing the ratio of shares issued to debt retired
from 1:1 to 1.25:1. 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. As an equitable adjustment believed by the Board of Directors
to be in the Company's best interest and for fair consideration in light of all
the facts and circumstances, the holders of $1,006,000 of the Notes that had
exercised their conversion option on or before September 30, 1997 were issued
251,500 additional shares on January 20, 1998.

The 10% Convertible Notes are convertible into the Company's Common Stock
at a variable conversion price equal to 80% of the average closing bid price for
the 10 trading days preceding the day prior to the conversion date. During the
three months ended March 31, 1998, the holders of $50,000 of the 10% Convertible
Debentures elected to convert their investment into the Company's Common Stock.
As a result, the Company issued an aggregate of 163,506 shares of Common Stock
in full satisfaction of principal and accrued interest owed to such

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<PAGE>

holders.

On January 15, 1998, the Company also issued 358,000 additional shares of
Common Stock to purchasers who had previously purchased Common Stock in a
private placement completed in September 1997. These shares were issued in
exchange for a waiver of rescission rights and as an equitable adjustment to
such private placement based on careful consideration by the Company's Board of
Directors of all the facts and circumstances.

Through a private placement of 6% Convertible Debentures during 1998, the
Company raised $1,530,200. The holders of the 6% Convertible Debentures elected
to convert their investment into the Company's Common Stock immediately, and the
Company issued an aggregate of 10,515,311 shares of Common Stock in full
satisfaction of principal and accrued interest owed to such holders. The funds
raised in this private placement were utilized for the working capital needs of
the Company.

On September 1, 1998, Paul Harrison, the Chairman, President and CEO of the
Company, exercised 500,000 stock options resulting in $65,000 being received by
the Company. On November 19, 1998, Mr. Harrison exercised an additional 384,615
stock options resulting in an additional $50,000 being received by the Company.
On December 22, 1998, Mr. Harrison exercised an additional 115,385 stock options
resulting in an additional $15,000 being received by the Company. All of the
stock options were exercised at a price of $0.13 per share.

In January 1997, the Company completed a private placement of 336,000
shares of Common Stock and 112,000 warrants, resulting in net proceeds to the
Company of approximately $400,000. 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 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 1,148,333 shares
of Common stock and 497,609 warrants, resulting in net proceeds to the Company
of approximately $1.6 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 1,779,000
shares of Common Stock and 194,659 warrants, 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

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<PAGE>

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 Note
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 $200,000 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 warrants were
issued to non-U.S. Persons with assistance of GEM Advisors, Inc. acting as a
placement agent pursuant to a claim of exemption under rules 901 and 903 of
Regulation S promulgated by the Securities Act of 1933, as amended. 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
bill price average for a 10 day period). 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. as compensation for its services.

Except as otherwise set forth above, 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 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.

On June 30, 1998, the Company disposed of its PRN subsidiary in a merger
transaction with AES. Accordingly, results of operations for PRN were included
in fiscal year 1998 through June 30, 1998 only. Due to a dispute with AES
regarding the amount of consideration to be paid by AES to the Company in the
transaction, and any gain or loss recognized on the transaction was deferred
until the fourth quarter of 1998 when the dispute was resolved. AES is still

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<PAGE>

obligated to deliver 500,000 shares of the Company's common stock to the Company
as the final payment for the transaction.

On October 1, 1998, the Company disposed of all of the assets and business
known as the Homa Practice. Accordingly, results of operations for the Homa
Practice were included in fiscal year 1998 through September 30, 1998 only.

FINANCIAL CONDITION

COMPARISON OF 1999 VERSES 1998

Total assets decreased by $1,017,422 during the year ended December 31,
1999. The net decrease consisted mainly of decreases in trade receivables, note
receivable - related parties and depreciation and amortization. The accounts
receivable decrease of $105,543 was due to a decrease in sales offset by a
$34,146 increase in allowance for possible losses. Note receivable - related
parties decreased by $596,292 due to the fact that a $623,377 note receivable
from a stockholder was fully reserved. The above decreases were offset by an
increase in property and equipment of $338,265. The increase is due to the
purchase of a new computer system and vehicle by ABAS, both of which were fully
or partially financed.

Total liabilities decreased by $310,884 during the year ended December 31,
1999. The net decrease consisted primarily of decreases in accounts payable and
accrued expenses, deferred revenue and customer deposits, payroll and sales
taxes payable and notes payable-related parties which were partially offset by
increases in obligations under capital leases. Obligations under capital leases
increased by $224,728 as a result of computer equipment and software purchased
by ABAS. Deferred revenue and customer deposits decreased by $120,752 due to
decreased sales activity. Accounts payable and accrued expenses, payroll and
sales taxes payable and notes payable-related parties decreased by $48,249,
$211,736 and $98,241, respectively. The decreases were due to the conversion of
accrued payroll by an officer of the Company of $210,000 and the general
reduction of other liabilities due to the restructuring. Notes payable-related
parties was reduced by $98,241 due to issuance of common stock to HealthWatch
for payment of debt.

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 for fiscal years 1999 and 1998 regarding the substantial
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."

COMPARISON OF 1998 VERSES 1997

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<PAGE>

Total assets decreased $3,184,094 during the year ended December 31, 1998
due primarily to the dispositions of PRN and the Homa Practice. The dispositions
resulted in the decrease of total assets of $1,505,963 and $411,801,
respectively. Additionally, the Company has written off certain other assets
including $224,312 of goodwill related to the Company's consulting business,
$125,289 of other intangible assets, and recorded $561,474 of depreciation and
amortization, exclusive of PRN. The investment in HealthWatch was written down
to fair market value of $36,158 from $125,000, a decrease of $88,542, and is
recorded as an unrealized loss on investment in the stockholders' deficit
section of the balance sheet. Other components of the net decrease are increases
in accounts receivable of $160,903, $78,673 of which is related to the sale of
the HES system, deposits of $54,470, customer claims and premium funds at ABAS
of $586,629, and purchases of property and equipment of $93,224. Other decreases
consist of cash of $1,108,326 which was used for general working capital and
operations.

Total liabilities decreased by $290,187 primarily due to decreases related
to the dispositions of PRN and the Homa Practice of $386,984 and $55,118,
respectively. An increase in liabilities consisted of $278,725 in deferred
revenue related to sales of the HES system, $427,047 in customer deposits at
ABAS due to increased volume of new business, and $201,700 and $294,651 in
payroll and sales taxes payable and other current liabilities, respectively.
Other decreases are composed of $490,000 of conversions of debt to equity,
$53,000 in net payments on related party loans, $97,822 in repayment of notes
payable, and $259,924 in accounts payable and accrued expenses.

RESULTS OF OPERATIONS

COMPARISON OF 1999 VERSES 1998

Revenues which consist of system sales and services, decreased 33% from
$7,630,370 for the year ended December 31, 1998 ("fiscal 1998") to $5,082,493
for the year ended December 31, 1999. ("fiscal 1999"), primarily due to the
dispositions of PRN and the Homa Practice effective July 1, 1998 and October 1,
1998, respectively. Revenues on a historical basis for the continuing businesses
consisting of the Company's consulting business, ABAS, HES and corporate
decreased 7% from $5,474,756 for fiscal 1998. The decrease is the result of
lagging sales of the HES system and a decrease in the consulting business during
1999.

Cost of goods sold decreased 64% from $2,335,237 for fiscal 1998 to
$848,173 for fiscal 1999 primarily due the decrease in the consulting business
which resulted in $1,397,031 of the reduction. The remaining decrease is the
result of reduced sales of the HES system.

Selling, general, and administrative expenses decreased 45% from $7,343,382
for fiscal 1998 to $4,056,539 for fiscal 1999 primarily due to the restructuring
of the Company and the corresponding reduction of corporate overhead. Selling,
general, and administrative expenses on a historical basis for the continuing
businesses consisting of the Company's consulting business, ABAS, HES and
corporate decreased 18% from $4,970,916 for fiscal 1998.

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<PAGE>

Amortization and depreciation decreased $291,235 (32%) from $911,371 for
fiscal 1998 to $620,137 for fiscal 1999 primarily due to the additional write
down of unamortized goodwill of Compass during fiscal 1998, and the dispositions
of PRN and the Homa Practice during fiscal 1998.

Of the Company's $1,444,827 net loss for fiscal 1999, $623,377 was the
result of a write off of a related party note receivable and $684,133 is
depreciation, amortization and a write down of intangibles. The Company's
EBITDA for 1999 was reduced by approximately $2.6 million, or 96%, from
approximately a $2.7 million loss to a $100,000 loss.

Primarily due to the dispositions of PRN and the Homa Practice in the
middle to late 1998, the restructuring program that reduced fixed overhead, the
Company was able to reduce its net loss from $3,148,799 or $.06 per share for
fiscal 1998 to $1,444,827 or $0.03 per share for fiscal 1999. The net loss was
reduced 54% from fiscal 1998 to fiscal 1999. The net loss for 1998 excluding the
net gain on dispositions of subsidiaries was approximately $3.9 million. The
Company reduced its net loss excluding these events by approximately 63%.

COMPARISON OF 1998 VERSES 1997

Revenues which consist of system sales and services, decreased 27% from
$10,134,586 for the year ended December 31, 1997 ("fiscal 1997") to $7,630,370
for the year ended December 31, 1998. ("fiscal 1998"), primarily due to the
dispositions of PRN and the Homa Practice effective July 1, 1998 and October 1,
1998, respectively. Revenues on a historical basis for the continuing businesses
consisting of the Company's consulting business, ABAS, HES and corporate
increased 51% from $3,616,996 for fiscal 1997 to $5,474,756 for fiscal 1998. The
increase is the result of increased market acceptance of the HES system and
increased service revenues at Halis consulting and ABAS.

Cost of goods sold increased 24% from $1,889,858 for fiscal 1997 to
$2,335,237 for fiscal 1998 primarily due a 139% increase in revenues from the
Halis consulting business.

Selling, general, and administrative expenses decreased 37% from
$11,855,637 for fiscal 1997 to $7,343,382 for fiscal 1998 primarily due to the
dispositions PRN and the Homa Practice and a reduction of corporate overhead.
The Company's restructuring program has reduced fixed corporate overhead by 21%,
approximately $670,000 from fiscal 1997 to fiscal 1998

Amortization and depreciation decreased $1,689,293 (65%) from $2,600,664
for fiscal 1997 to $911,371 for fiscal 1998 primarily due to the write down of
unamortized goodwill of PhySource, PRN and Compass during fiscal 1997, the
dispositions of SMG and TGM during fiscal 1997, the additional write down of
unamortized goodwill of Compass during fiscal 1998, and the dispositions of PRN
and the Homa Practice during fiscal 1998.

Due to the anticipated reduction of revenues generated from the Halis
consulting business

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<PAGE>

during fiscal 1999 and in the future, the Company has written off $224,312 of
unamortized goodwill from the Compass acquisition.

The Company reported losses on sale of businesses of $5,395,053 for fiscal
1997 and gains on the sale of businesses of $926,017 for fiscal 1998. The losses
for fiscal 1997 were the result of goodwill related to the 1997 acquisitions
that were acquired primarily with Company stock. Due the write down of
unamortized goodwill on PhySource, PRN and Compass during the fourth quarter of
1997, the carrying value of the investments were stated at net realizable value.
The dispositions of PRN and the Homa Practice during 1998 resulted in gains due
to their carrying value being written down during fiscal 1997.Of the $926,017
gain on sale of subsidiaries for fiscal 1998, $907,696 was due to the PRN
disposition.

Interest expense decreased by $33,395 (36%) from $93,736 for fiscal 1997 to
$60,341 for fiscal 1998 primarily due to the conversion of promissory notes to
equity and the reduction of bank notes payable by $97,822.

The Company reported other expense of $181,944 for fiscal 1997. Other
income of $44,411 for fiscal 1998 related to rental income due to the subleasing
of office space at the ABAS subsidiary.

Primarily due to the dispositions of PRN and the Homa Practice, the
restructuring program that reduced fixed overhead, fiscal 1997 write downs of
unamortized goodwill, and increased profitability and demand in the Halis
consulting business and the HES system, respectively, the Company was able to
reduce its net loss from $20,502,424 or $.57 per share for fiscal 1997 to
$3,148,799 or $0.06 per share for fiscal 1998. The net loss was reduced from
fiscal 1997 to fiscal 1998 by 84%.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1999, HALIS' severe cash drain experienced during 1998 was
dramatically reduced. The Company's restructuring strategy implemented during
1998 reduced net cash used in operations from $2,780,175 to $173,467, or 94%.
The Company's net loss and operations during 1999 were financed primarily with
the issuance of common stock for cash.

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 continue to 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.

The Company raised approximately $250,000 during 1999 through the issuance
of approximately 2 million shares of common stock.

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<PAGE>

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, 1999 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.

COMPARISON OF 1999 VERSES 1998

During fiscal 1999, the Company recorded a net loss of $1,444,827. The net
loss was primarily the result of a $623,377 write off of a related party note
receivable and $684,133 in depreciation, amortization and a write down of
intangibles, none of which affect liquidity or cash. The Company's operating
activities used $173,467 in cash during fiscal 1999, a decrease of $2,606,708
(94%) from $2,780,175 during fiscal 1998. The significant improvement is
primarily due to; (1) the positive effects of the 1998 restructuring that were
completed during the fourth quarter of fiscal 1998 and (2) the cost sharing
arrangement with HealthWatch that allowed the Company to share fixed expenses
including salaries and rent.

Investing activities used $76,162 during fiscal 1999, a decrease of
$427,588 (122%) from the $351,426 provided for fiscal 1998. The decrease is
primarily due to less cash being received for the dispositions of subsidiaries
during fiscal 1999 and an increase in purchases of property and equipment by
ABAS.

Financing activities provided $210,649 during fiscal 1999, a decrease of
$1,109,774 (84%) from $1,320,423 for fiscal 1998. The decrease in primarily due
to the reduction of capital raising activities during 1999.

COMPARISON OF 1998 VERSES 1997

During fiscal 1998, the Company recorded a net loss of $3,148,799. The net
loss stemmed primarily from the residual increased overhead associated with the
Company's acquisition strategy during 1997. During the fourth quarter of 1998,
the Company had Earnings Before Interest, Depreciation and Amortization of
approximately $240,000. This was primarily due to implementation of the HES and
cost cutting steps put into place during the third quarter. The Company's
operating activities used $2,780,175 in cash during fiscal 1998, a decrease of
$2,042,964 (42%) from $4,823,139 during fiscal 1997. The decrease is primarily
due to the dispositions of PRN and the Homa Practice and the restructuring
program that reduced fixed overhead.

Investing activities provided $351,426 during fiscal 1998, a decrease of
$1,190,544 (77%) from $1,541,970 for fiscal 1997. The decrease is primarily due
to less cash being received

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<PAGE>

for the dispositions of subsidiaries during fiscal 1998 and the reduction of
purchases of property and equipment.

Financing activities provided $1,320,423 during fiscal 1998, a decrease of
$2,401,566 (65%) from $3,721,989 for fiscal 1997. The decrease in primarily due
to the reduction of capital raising activities during 1998. The Company began
1998 with $1,160,809 in the bank, and combined with a net $1,570,199 of capital
raised and $400,000 received from the sale of the Homa Practice was sufficient
to fund the net loss of $3,148,799.

Net cash used in the Company's operations during the first quarter of 1999
was approximately $24,000 per month, compared to an average net cash used of
$230,000 per month during fiscal year 1998.

ITEM 7. FINANCIAL STATEMENTS.

The following financial statements and report of the Company's
independent auditors are attached at the end of this report:

Report of Independent Auditors - Tauber & Balser, P.C.

Consolidated Balance Sheet - December 31, 1999

Consolidated Statements of Operations For The Years Ended December 31, 1999
and December 31, 1998

Consolidated Statements of Cash Flows For The Years Ended December 31, 1999
and December 31, 1998

Consolidated Statements of Stockholders' Equity (Deficit) For The Years
Ended December 31, 1999 and December 31, 1998

Notes to Consolidated Financial Statements

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

On February 1, 1999, the Company dismissed its independent auditors, Arthur
Andersen, LLP and on the same date authorized the engagement of Tauber & Balser,
P.C. as its independent auditors for the fiscal year ended December 31, 1998.
Tauber & Balser, P.C. was formally engaged by the Company on February 1, 1999 to
audit the Company's financial statements for the fiscal year ended December 31,
1998 and reissue the Company's 1997 report previously issued by Arthur Andersen,
LLP. Each of these actions was approved by the Board of Directors of the
Company.

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<PAGE>

Arthur Andersen, LLP audited the financial statements for the Company for
the fiscal year ended December 31, 1997. The report of Arthur Andersen LLP on
the financial statements of the Company for the fiscal year ended December 31,
1997 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 Arthur
Andersen, LLP 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, 1997 and for the unaudited interim period through February 1,
1999, there were no disagreements with Arthur Andersen, LLP 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
Arthur Andersen, LLP, would have caused it to make reference to the subject
matter of the disagreement in its report.

Further, during the fiscal year ended December 31, 1997 and the unaudited
interim period through February 1, 1999, neither the Company or any of its
representatives sought the advice of Tauber & Balser, P.C. 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 in the Company's
decision to engage Tauber & Balser, P.C. as its independent auditors.

In connection with the audit of the fiscal year ended December 31, 1997
Arthur Andersen, LLP 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 Arthur Andersen, LLP 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 Arthur
Andersen, LLP to be unwilling to rely on management's representations or be
associated with the Company's financial statements, and due to the dismissal of
Arthur Andersen, LLP, did not so expand the scope of its audit or conduct such
further investigation; or (iv) that information had come to the attention of
Arthur Andersen, LLP 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 Arthur Andersen, LLP, would prevent it from
rendering an unqualified audit report on those financial statements), and due to
the dismissal of Arthur Andersen LLP, the issue has not been

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<PAGE>

resolved to the satisfaction of Arthur Andersen, LLP 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 of the Company are as follows:

Name Age Position with the Company
---- --- -------------------------
Paul W. Harrison 44 Chairman of the Board of
Directors, President and Chief
Executive Officer

Dr. Joel R. Greenspan 51 Director

PAUL W. HARRISON, has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since November 1996 and was elected
President of the Company in June 1997. He is also Chairman and CEO of
HealthWatch; which owns approximately 20% of Halis. Previously, Mr. Harrison
was the CEO of Paul Harrison Enterprises, Inc. ("PHE"), an information
technology management company, from February 1995 until it was merged into
HealthWatch in October 1998. Prior to PHE, Mr. Harrison was an executive with
HBO & Company, which is now McKesson HBOC (NYSE:MCK), from June 1993 until
December 1994. Prior to HBOC, Mr. Harrison served as CEO of SOTRISS from 1981
to 1989. SOTRISS was an information technology company that was sold to a
publicly-traded Fortune 500 company in 1989. Mr. Harrison's education includes
a Bachelors Degree from Georgia State University. He is a Chartered Financial
Consultant, a Chartered Life Underwriter and a Fellow of the Life Management
Institute.

DR. JOEL GREENSPAN, age 51, was elected as a director of the Company on
February 1, 1999 to fill a vacancy on the Board. Dr. Greenspan is recently
retired from the Centers for Disease Control after 23 years with the
organization, where he held the positions of Assistant Director for Planning,
Communications, and External Relations and Chief, Surveillance and Information
Systems, both for the Division of Sexually Transmitted Diseases Prevention.

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 December 31, 1998, Larry Fisher resigned his position as
Executive Vice

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<PAGE>

President and Director of the Company. Mr. Fisher had served as Executive Vice
President since June 1997.

Effective July 27, 1999, Brian L. Schliecher resigned his position as Vice
President, Secretary and Chief Administrative Officer of the Company. Mr.
Schliecher had served in such capacity as the Company's Chief Operating Officer
since February 1999.

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, 1999, the Company is aware of the following reports that were
filed with the commission by officers, directors and 10% stockholders of the
Company after their respective due dates: Paul W. Harrison (annual statement of
beneficial ownership), Joel Greenspan (annual statement of beneficial ownership;
statement of changes in beneficial ownership for transactions in February and
December 1999) and Kathleen Wilhoit (annual statement of beneficial ownership;
statement of changes in beneficial ownership for transactions in December 1999).
Based upon its review of copies of filings received by it, the Company believes
that since January 1, 1999, all other Section 16(a) filing requirements
applicable to its directors, officers and 10% stockholders were complied with.

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 Company as
to whether any transactions in the Company's Common Stock occurred during the
previous month.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain summary information concerning
compensation paid, accrued or deferred by the Company for the fiscal years ended
December 31, 1999, 1998 and 1997 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, 1999 (hereinafter referred to as the "Named Executive Officers").

Page 45
<PAGE>

ANNUAL COMPENSATION

<TABLE>
<CAPTION>
NAME AND FISCAL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul W. Harrison 1999 $107,070(2) $ -0-
Chairman of the Board and 1998 $280,000(3) $ -0-
Chief Executive Officer 1997 $200,000 $ -0-
</TABLE>

_____________________

(1) The Company pays for 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.

(2) Mr. Harrison agreed to reduce his salary to $107,000 with $27,070
paid in cash and accepted 1,187,500 shares of Common Stock with a market
value of $80,000 in lieu of cash payments due to the Company's limited
operating capital. Mr. Harrison also received options to purchase 540,000
shares of Common Stock at an exercise price of $0.05 per share.

(3) Mr. Harrison's employment agreement provides for a base salary of
$280,000 for fiscal year 1998, however, only $25,000 was paid to Mr.
Harrison as of year-end, with the balance of $255,000 being deferred. On
February 1, 1999, Mr. Harrison agreed to accept 1,500,000 shares of Common
Stock of the Company in lieu of his 1998 base salary that was deferred. The
shares of stock had a market value, based upon the close of trading on
January 29, 1999, of $210,000 (calculated at $0.14 per share). Mr. Harrison
agreed to waive the remaining $45,000 of deferred compensation owed to him
for his fiscal 1998 base salary.

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.

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.

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<PAGE>

As a result of achieving the targets in his employment agreement, Mr. Harrison's
base salary was increased to $280,000 commencing January 1, 1998. 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. 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.

During fiscal year 1999, due to the cash needs of the Company, the Company
and Mr. Harrison agreed to the deferral of the majority of Mr. Harrison's 1999
base salary. Mr. Harrison received only $27,070 of his base salary during fiscal
year 1999. Mr. Harrison and the Company agreed to the satisfaction of the base
salary owed to him by the issuance to him of 1,187,500 shares of the Company's
Common Stock (the fair market value of which was $80,000).

Mr. Harrison's employment contract with the Company expired on December 31,
1999. As of March 31, 2000, the Company and Mr. Harrison had not renewed his
employment contract and the Company is currently in negotiations for terms of a
new employment agreement with Mr. Harrison.

The Company had also entered into an employment agreement with Larry Fisher
which was scheduled to expire December 31, 1999. The agreement provided for an
annual base salary of $175,000 plus incentive bonus payments and the issuance of
qualified and non-qualified stock options to purchase common stock of the
Company. During 1999, the Company and Mr. Fisher agreed to the mutual
termination of his agreement effective December 31, 1998. Pursuant to a
Separation and Settlement Agreement entered into with Mr. Fisher, the Company
agreed to pay Mr. Fisher's unpaid 1998 base salary in cash and to issue Mr.
Fisher 300,000 fully vested non-statutory stock options, exercisable at a price
of $0.13 per share, expiring January 2006. At December 31, 1999, the remaining
balance due to Mr. Fisher was $ 94,662.

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

Page 47
<PAGE>

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% (110% in the case of a
holder of 10% 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 options terminate on June 7, 2006 and are exercisable at a
price of $1.125 per share (which represents the fair market value of the Common
Stock on the date of grant). During 1998, the exercise price was reduced to
$0.13 per share (the market price at the date of reduction).

On December 6, 1996, the Company granted options to purchase up to
3,350,000 shares of Common Stock to Mr. Harrison, exercisable at a price of
$2.00 per share. Of this amount, options to purchase 3,000,000 shares of Common
Stock granted to Mr. Harrison were subsequently terminated during 1997 without
being exercised. The remaining stock options granted to Mr. Harrison are
exercisable immediately. In February 1998, 650,000 and 350,000 options
exercisable at $0.25 per share were granted to Mr. Harrison in consideration of
deferral of salary and additional compensation, respectively. In August 1998,
all of these options were repriced to $0.13 per share.

As of March 31, 2000, options to purchase 12,780,290 shares of Common Stock
of the Company were outstanding.

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<PAGE>

Stock Option Grants

The following table provides certain information concerning individual
grants of stock options made during the fiscal year ended December 31, 1999 to
the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
- -----------------

<TABLE>
<CAPTION>
Percent of Total Exercise
Number of Options Granted to or
Options Employees in Base Price Expiration
Name Granted(1) Fiscal 1999 (2) (Per Share) ($) Date
<S> <C> <C> <C> <C>
Paul W. Harrison 540,000 25.84% $0.05 12/14/2009
Joel Greenspan 100,000 4.78% $0.05 12/02/2009
</TABLE>
___________________
(1) All options noted are immediately exercisable.

(2) During 1999, 2,090,000 options were issued to employees, officers and
directors.

Stock Option Exercises and Outstanding Options

The following table contains information, with respect to (i) the number of
stock options exercised during the last fiscal year, and the values realized in
respect thereof, by the Named Executive Officers, and (ii) the number stock
options and the value of said stock options held by the named executive officers
as of December 31, 1999.

<TABLE>
<CAPTION>
Number of
Unexercised
Options at Value of Unexercised
Shares 12/31/99 In-the-Money Options at
Acquired on Value Exercisable/ 12/31/99 Exercisable/
Name Exercise(#) Realized ($) Unexercisable Unexercisable(1)(2)($)
<S> <C> <C> <C> <C>
</TABLE>

Page 49
<PAGE>

Paul W. Harrison 0 0 4,644,000/0 $305,640/0
Joel Greenspan 0 0 150,000/0 $12,500/0
________________________

(1) The market price of the Company's Common Stock on December 31, 1999 was
$0.16.
(2) Dollar values calculated by determining the difference between the fair
market value of the Company's Common Stock at December 31, 1998 ($0.16) and
the exercise price of such options.

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 December 31, 1999,
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 and executive officers 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's Common Stock
shown as beneficially owned by them.

SHARES OF
COMMON STOCK
NAME BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED (1) OF CLASS
--------------------------------------------------------------

Paul W. Harrison(2) 18,398,504 29.4%
Joel Greenspan (3) 470,000 0.8%
Directors and executive officers
as a group (3 persons)(4) 19,419,873 31.0%

____________________

(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 that are exercisable within sixty days of the date of this report. 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 Rule 13d-3 of the Securities Exchange Act of 1934. The
percentages are based upon 62,561,222 shares, representing 57,317,222 shares
outstanding as of December 31, 1999, plus 5,244,000 which is the number of
shares subject to presently exercisable options or convertible securities held
by the noted parties, as indicated in the following notes.

(2) The amount reflected above includes (i) 4,644,000 shares subject to
presently exercisable stock options, (ii)10,763,655 shares owned by HealthWatch,
Inc., which Mr. Harrison has the

Page 50
<PAGE>

power to vote by virtue of his Position as the President of such entity, but of
which Mr. Harrison disclaims beneficial ownership and (iii) 2,990,849 shares
owned by Mr. Harrison directly.

(3) Includes 150,000 shares subject to presently exercisable stock options.

(4) Includes 5,244,000 shares subject to presently exercisable stock options.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has a note receivable due from Philip Spicer, President of the
ABAS Subsidiary and a shareholder of the Company, in the amount of $623,377 as
of December 31, 1999. The note accrues interest at 5% per annum and is due
October 31, 2001. The note may be repaid 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.

At December 31, 1999 the Company is indebted to Paul Harrison on an
unsecured non-interest bearing basis in the amount of $15,000.

Paul W. Harrison, the Chairman, President and Chief Executive Officer of
the Company, is also the Chairman, President and Chief Executive Officer of
HealthWatch. Mr. Harrison is also a Shareholder of both companies.

On August 20, 1997, the Company and 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").

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 16,667
(adjusted for reverse stock-splits) shares of HealthWatch Common Stock,
representing approximately one percent (1%) of the total shares of HealthWatch
Common Stock outstanding at March 6, 2000. The Company is not obligated and does
not have the present intent to purchase additional shares of the capital stock
of HealthWatch.

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. A second letter of intent was entered on
July 14, 1998 (the "Second LOI") which superceded the Letter of Intent. Under

Page 51
<PAGE>

the Second LOI, the Company and HealthWatch again agreed to merge the two
companies.

Pursuant to the Second LOI, HealthWatch agreed to loan the Company up to a
total of $250,000 pursuant to a 6% debenture maturing in February 2000 (see
Exhibit 4.4). During the fiscal year ended December 31, 1998, HealthWatch had
advanced $100,000 to the Company under the debenture. Subsequently, the Company
advanced an additional $57,740 to Halis. On January 29, 1999, HealthWatch
exercised its conversion rights in the debenture, and converted the outstanding
amounts due to HealthWatch into 1,824,645 shares of the Company's Common Stock .
HealthWatch now holds 10,763,655 shares of the Company's Common Stock
(approximately 20%) and is the Company's single largest shareholder.

Due to the market volatility of the two companies stock, and accounting
issues that would be raised as a result of the merger that may have had an
adverse effect on HealthWatch, the companies agreed to delay the consummation of
the merger.

On March 8, 2000, the companies again agreed to merge by entering into a
letter of intent ("Third LOI"). Under the Third LOI, the companies agreed that
Halis would be merged with and into a wholly-owned subsidiary of HealthWatch.
Halis shareholders will receive $0.33 per share of Halis Common Stock payable in
HealthWatch common Stock, the exact number of shares to be determined based on
the average closing price of HealthWatch Common Stock for the ten (10) days
immediately preceding the closing of the proposed merger.

The Third LOI also contains a provision that provides HealthWatch with an
unconditional right to purchase, prior to the closing of the proposed merger, up
to $1,000,000 of Halis Common Stock at $0.20 per share, and upon any such
financing, HealthWatch shall have a three month option to purchase up to an
additional $5,000,000 of Halis Common Stock at $0.20 per share.

During 1999 and 1998, the Company and HealthWatch operated under a Business
Collaboration Agreement which allowed HealthWatch to act as a reseller of the
Company's software product and provided for the sharing of certain operating
expenses. The Company received from HealthWatch approximately $204,000 and
$125,000 in 1999 and 1998, respectively, under this agreement.

On November 18, 1996, the Company entered into a license agreement for a
proprietary technology asset ("MERAD") from Paul Harrison Enterprises, Inc.
("PHE"), which was controlled by the Chairman and Chief Executive Officer of the
Company. Mr. Harrison served as the President of PHE and at the time
beneficially owned approximately 40% of this company. PHE was acquired by
HealthWatch, Inc. on October 2, 1998. 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 to PHE (after the merger now
known as MERAD Software, Inc.). During 1999 and 1998, $62,518 and $28,815,
respectively, of license fees were incurred under this agreement. At December
31, 1999 and 1998, $87,483 and $24,965, respectively, was payable to PHE under
this agreement and was included in accounts payable.

Page 52
<PAGE>

In addition, the Company was obligated to pay MERAD Corporation, a 79%
subsidiary of PHE (Paul Harrison owns the remaining 21% interest), a development
fee of $15,000 per month pursuant to a license and software development
agreement between MERAD Corporation and HALIS Software, Inc. ("HSI"), a
subsidiary of the Company. The development agreement with MERAD Corporation
ended June 30, 1998. During 1998, $160,000 was earned by MERAD Corporation for
specific enhancements and maintenance required by the Company to its software
products.

As part of the license agreement, Halis Software agreed to continue
developing MERAD and to be a beta site to test MERAD's capabilities and
functionality. Halis Software agreed that any enhancements and modifications to
MERAD became 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 running in favor of the Company and its
affiliates, PHE has exclusive ownership rights to MERAD.

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.

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
(No. 333-45783) filed February 6, 1998 of the Company's Registration
Statement on Form S-2 (No. 333-34215) filed August 29, 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")).

4.2 Form of 4% Convertible Debenture (incorporated by reference to Exhibit
4.1 of the Company's Current Report on Form 8-K dated January 13,
1998).

4.3 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 January 13, 1998).

Page 53
<PAGE>

4.4 Form of 6% Convertible Debenture Subscription Agreement and
Debenture (incorporated by reference to Exhibit 4.2 of the
Company's Form 10QSB filed August 13, 1998).

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).

10.2.1 Employment Agreement dated November 19, 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's
Annual Report on Form 10-KSB for the year ended December 31,
1996).

10.2.2 Separation and Settlement Agreement entered as of January 31,
1999 by and between Registrant and Larry Fisher (incorporated by
reference to Exhibit 10.2.2 of the Company's Annual Report, as
amended, on Form 10-KSB/A for the year ended December 31, 1998).

10.3 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).

10.4 Warrant Agreement, dated November 19, 1996, by and between the
Registrant and SunTrust Bank, Atlanta (incorporated by reference
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996).

10.5 Form of Employee Trade Secret Agreement (incorporated by
reference to Exhibit 10.19 of the Company's Form S-18).

10.6 License Agreement, dated November 18, 1996, by and between Paul
Harrison Enterprises, Inc. and the Registrant (incorporated by
reference to Exhibit 10.6 of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996).

10.7 Form of Note Purchase Agreement (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-
2(Registration No. 333-34215) effective August 29, 1997).

10.8 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).

10.9 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

Page 54
<PAGE>

B. York (incorporated by reference from the Company's Current
Report on Form 8-K dated January 10, 1997).

10.10 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).

10.11 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).

10.12 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).

10.13 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).

10.14 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).

10.15 401(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).

10.16 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).

10.17.1 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).

10.17.2 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).

Page 55
<PAGE>

10.17.3 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).

10.20.1 Agreement and Plan of Merger dated June 25, 1998 among Halis,
Inc., American Enterprise Solutions, Inc., PRN Acquisition Co.
and Physicians Resource Network, Inc. (incorporated by reference
from the Company's Current Report on Form 8-K dated July 15,
1998).

10.20.2 First Amendment to Agreement and Plan of Merger dated as of
October 9. 1998 among Halis, Inc., American Enterprise Solutions,
Inc., PRN Acquisition Co., and Physicians Resource Network,
Inc.(incorporated by reference to Exhibit 10.2.2 of the Company's
Annual Report, as amended, on Form 10-KSB/A for the year ended
December 31, 1998).

10.21 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 filed
January 15, 1998).

10.22 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 filed January 15,1998).

10.23 Agreement for Purchase and Sale of Assets by and between
Physicians Enterprise Systems, LLC and Registrant and PhySource,
Ltd., dated as of September 30, 1998, effective as of October 1,
1998 (incorporated by reference to the Company's Form 10QSB filed
November 23, 1998).

21.1 List of Subsidiaries.

23.1 Consent of Tauber & Balser, P.C.

27.1 Financial Data Schedule (for SEC use only).

99.1 Letter of Intent to Merge dated as of July 14, 1998 by and
between Registrant and HealthWatch, Inc. (incorporated by
reference to Exhibit 99.1 of the Companies Form 10-QSB filed
August 13, 1998).

99.2 Letter of Intent dated March 8, 2000 by and between Registrant
and HealthWatch, Inc. (filed herewith).

(2) Reports on Form 8-K.

Page 56
<PAGE>

The following reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended December 31, 1999:

None.

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 24, 2000 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:

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

/s/ Paul W. Harrison Chairman of the Board, President April 24, 2000
Paul W. Harrison and Chief Executive Officer

/s/ Dr. Joel Greenspan Director April 24, 2000
Dr. Joel Greenspan

Page 57
<PAGE>

HALIS, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998

TABLE OF CONTENTS
- -----------------

<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2

Consolidated Balance Sheet F-3

Consolidated Statements of Operations F-5

Consolidated Statements of Cash Flows F-6

Consolidated Statements of Stockholders' Equity (Deficit) F-8

Notes to Consolidated Financial Statements F-10
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of HALIS, Inc. and
Subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1999 and 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HALIS, Inc. and
Subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 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 B to
the financial statements, the Company's recurring losses from operations and
limited capital resources 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 B. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

April 7, 2000

F-2
<PAGE>

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999

<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 13,503
Receivables, less allowance for possible losses of $229,800 257,388
Other current assets 74,158
----------

TOTAL CURRENT ASSETS 345,049
----------

PROPERTY AND EQUIPMENT
Computers and software 425,564
Vehicle 36,588
Office furniture and equipment 64,617
Leasehold improvements 29,770
----------
556,539
Less: accumulated depreciation 183,289
----------

PROPERTY AND EQUIPMENT, NET 373,250
----------

OTHER ASSETS
Deposits 99,250
Goodwill, net of accumulated amortization of $1,144,222 870,191
Other intangible, net of accumulated amortization of $69,283 49,488
Investment 48,958
----------

TOTAL OTHER ASSETS 1,067,887
----------

TOTAL ASSETS $1,786,186
==========

The accompanying notes are an integral part
of these Consolidated Financial Statements

</TABLE>

F-3
<PAGE>

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT

<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,767,853
Deferred revenue 36,294
Accrued payroll and payroll taxes 262,598
Note payable to a bank 318,891
Note payable - related party 15,000
Obligations under capital leases - current portion 60,211
------------

TOTAL CURRENT LIABILITIES 2,460,847
------------

LONG-TERM DEBT
Obligations under capital leases, net of current portion 208,560
------------

STOCKHOLDERS' DEFICIT
Preferred stock, $.10 par value; 5,000,000 shares authorized;
none issued -
Common stock, $.01 par value; 100,000,000 shares authorized;
52,710,130 issued and outstanding 527,101
Common stock to be issued, 781,250 shares 40,000
Additional paid-in capital 36,687,723
Accumulated other comprehensive loss, unrealized
loss on investment (76,042)
Accumulated deficit (38,062,003)
------------

TOTAL STOCKHOLDERS' DEFICIT (883,221)
------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,786,186
============
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-4
<PAGE>

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
REVENUES $ 5,082,493 $ 7,630,370
----------- -----------

COST AND EXPENSES
Cost of goods sold 848,173 2,335,237
Selling, general and administrative 4,056,539 7,343,382
Depreciation and amortization 620,137 911,371
Research and development 287,254 725,994
Write down of intangibles 63,996 224,312
----------- -----------
TOTAL COST AND EXPENSES 5,876,099 11,540,296
----------- -----------

OPERATING LOSS (793,606) (3,909,926)
----------- -----------

OTHER INCOME (EXPENSE)
Provision for losses on note
receivable-related party (623,377) -
Gain on sale of subsidiaries - 926,017
Loss on asset disposal - (174,603)
Interest expense (63,119) (60,341)
Interest income 27,131 25,643
Other income 8,144 44,411
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (651,221) 761,127
----------- -----------

NET LOSS $(1,444,827) $(3,148,799)
=========== ===========

BASIC AND DILUTED LOSS PER COMMON SHARE $ (.03) $ (.06)
=========== ===========

BASIC AND DILUTED WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 51,266,751 50,804,461
=========== ===========
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-5
<PAGE>

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,444,827) $(3,148,799)
----------- -----------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization:
Property and equipment 115,772 150,009
Goodwill 402,883 634,679
Other 101,482 126,683
Loss on disposal of property and equipment - 174,603
Gain on sale of subsidiaries - (926,019)
Write down of intangibles 63,996 224,312
Interest accrued on note receivable - related party (27,085) (21,461)
Provision for losses on accounts receivable 11,003 186,951
Provision for losses on note receivable 623,377 -
Issuance of common stock for services 15,400 -
Changes in operating assets and liabilities, net of
assets and liabilities sold:
Decrease (increase) in accounts receivable 94,540 (369,981)
Increase in other current assets (3,287) (9,469)
Decrease (increase) in deposits 70,137 (63,908)
Decrease in accounts payable and
accrued expenses (74,370) (215,440)
Increase (decrease) in accrued payroll and
payroll taxes (1,736) 201,700
Increase (decrease) in deferred revenues (120,752) 275,965
----------- -----------

Total adjustments 1,271,360 368,624
----------- -----------

Net cash used by operating activities (173,467) (2,780,175)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (76,162) (48,574)
Proceeds from sale of subsidiaries - 400,000
----------- -----------

Net cash provided (used) by investing activities (76,162) 351,426
----------- -----------
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-6
<PAGE>

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
-------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
transaction costs $250,000 $ 1,585,199
Proceeds from 6% convertible promissory notes - 100,000
Proceeds from 4% convertible promissory notes - 100,000
Payments on convertible promissory notes - (215,000)
Payments on obligations under capital leases (42,216) (98,954)
Payments on note payable to a bank (56,635) (97,822)
Net proceeds (payments) on notes payable - related parties 59,500 (53,000)
-------- -----------

Net cash provided by financing activities 210,649 1,320,423
-------- -----------

NET DECREASE IN CASH (38,980) (1,108,326)

CASH, BEGINNING OF YEAR 52,483 1,160,809
-------- -----------

CASH, END OF YEAR $ 13,503 $ 52,483
======== ===========
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-7
<PAGE>

HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
Accumulated
Common Additional Other Total
Common Stock Stock Paid-In Comprehensive Accumulated Stockholders'
-----------------------
Shares Amount to be Issued Capital Loss Deficit Equity (Deficit)
----------- --------- ------------ ----------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 44,239,675 $ 442,397 $ - $35,743,205 $ - $(33,468,377) $ 2,717,225

Comprehensive Loss:
Net loss - - - - - (3,148,799) (3,148,799)
Change in unrealized loss
on investment - - - - (88,542) - (88,542)
---------------
Total Comprehensive Loss (3,237,341)

Shares received and canceled
as proceeds of sale of
subsidiary (11,548,325) (115,483) - (1,501,282) - - (1,616,765)
Issuance of common stock 11,952,225 119,521 - 1,465,678 - - 1,585,199
Common stock issued for
conversion of convertible
debt to equity 1,616,188 16,162 - 358,838 - - 375,000
----------- --------- ------------ ----------- ------------- ------------ ----------------

Balances, December 31, 1998 46,259,763 462,597 - 36,066,439 (88,542) (36,617,176) (176,682)

Comprehensive Loss:
Net loss - - - - - (1,444,827) (1,444,827)
Change in unrealized loss
on investment - - - - 12,500 - 12,500
---------------
Total Comprehensive Loss 1,432,327

Issuance of common stock 2,066,667 20,667 - 189,333 - - 210,000
Common stock issued to
consultants 1,059,055 10,591 - 97,457 - - 108,048
Common stock issued for
conversion of convertible
debt to equity 1,824,645 18,246 - 139,494 - - 157,740
Common stock issued to an
employee in lieu of accrued
compensation 1,500,000 15,000 - 195,000 - - 210,000
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-8
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock to be issued - - 40,000 - - - 40,000
----------- --------- ------------ ----------- ------------- ------------ ---------------
Balances, December 31, 1999 52,710,130 $ 527,101 $ 40,000 $36,687,723 $ (76,042) $(38,062,003) $ (883,221)
=========== ========= ============ =========== ============= ============ ===============
</TABLE>

The accompanying notes are an integral part
of these Consolidated Financial Statements

F-9
<PAGE>

HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998

NOTE 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 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. It
grants credit to its customers without requiring collateral.

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.

Revenue Recognition

Revenue consists primarily of third party claims processing fees, consulting
services, software licensing fees, sales of related computer hardware, and post
contract customer support and maintenance. For 1999 and 1998, third party
claims processing fees accounted for approximately 66% and 36%, respectively, of
the Company's sales. Revenues are recognized as follows:

Claims processing, consulting services, When the services are provided.
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.

F-10
<PAGE>

Cash - Agency Accounts

The Company, through its third party claims administration subsidiary, maintains
custody of cash funds on behalf of its customers for the payment of insurance
premiums to carriers and medical claims for covered individuals. The Company
has custody of the funds but no legal right to them. Therefore, the cash
balances and related liabilities are not reflected in the Company's balance
sheet. At December 31, 1999, the Company maintained custody of approximately
$1.3 million of customer funds.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the assets,
generally five to seven 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 five 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 the recorded asset. An impairment is
recognized by reducing the carrying value of the goodwill based on the expected
discounted cash flows of the business unit.

In December 1998, due to the anticipated expiration of major customer contracts
of the Company's HALIS Consulting subsidiary ("HALIS Consulting"), the Company
reviewed the recoverability of goodwill. The Company determined that the
unamortized goodwill from the HALIS Consulting acquisition of $224,312 was not
recoverable and should be written off.

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

Capitalized costs were amortized over a period of five years on a straight-line
basis, and amortization commenced when the product was available for market
release. In December 1999, due to the Company's plan to no longer sell its
existing "window" based software product and to convert to an "Internet" driven
software product in 2000, the Company reviewed the recoverability of software
development costs. The Company determined that the unamortized software
development costs of $63,996 was not recoverable and should be written off.

Other Intangible

Other intangible consists of license fees paid to a non-related company for the
right to use its software technology in the development of the Company's
software product and is amortized over a period of two

F-11
<PAGE>

years on a straight-line basis.

Investment

The investment is in a marketable equity security of a related company, which is
classified as available-for-sale, and is carried at market value (see Note I).
The purchase cost and fair value of the investment at December 31, 1999 was
$125,000 and $48,958, respectively. The related unrealized holding loss of
$76,042 is reported as a separate component of stockholders' equity (deficit) at
December 31, 1999.

Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable income
(loss) and for the loss carryforwards based on enacted tax laws and rates. A
valuation allowance is used to reduce deferred income tax assets to the amount
that is more likely than not to be utilized.

Earnings Per Share

The Company has adopted SFAS No. 128, "Earnings Per Share," which requires basic
earnings per share and diluted earnings per share presentation. The two
calculations differ as a result of potential common shares 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, potential
common shares 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 14,269,317 and 11,584,189
in 1999 and 1998, respectively.

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, revenues, expenses
and contingent assets and liabilities. Significant estimates included in these
financial statements relate to 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.

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheet for cash,
receivables and notes payable approximate their fair values due to the short
maturities of those instruments. Available-for-sale marketable securities are
recorded at fair value in the consolidated balance sheet. Management is unable
to estimate the fair value of its other financial instruments. These
instruments are being paid as cash becomes available.

Reclassifications

Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the 1999 consolidated financial statement presentation.

F-12
<PAGE>

NOTE B - REALIZATION OF ASSETS AND SATISFACTION OF LIABILITIES

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. However, the Company incurred a net loss of
$1,444,827 and $3,148,799 for the years ended December 31, 1999 and 1998,
respectively, and had a working capital deficiency of $2,115,798 and an equity
deficiency of $883,221 at December 31, 1999. The Company has sustained
continuous losses from operations. The Company has used, rather than provided,
cash in its operating activities during the years ended December 31, 1999 and
1998 and has deferred payment of certain accounts payable and accrued expenses.
Given these results, additional capital and improved operations will be needed
to sustain the Company's operations.

Management's plans in this regard include merging with HealthWatch, Inc.
("HealthWatch"), a related company which owns approximately 20% of HALIS (see
Note I). The Company expects the merger to improve its liquidity by having
access to HealthWatch's cash reserves and increasing the Company's ability to
raise additional growth capital. In addition, the Company is upgrading its HES
software product to an Internet version. This upgrade will restructure the
software into several healthcare software products under a common architecture,
which the Company believes will improve market acceptance. The Company also
plans to expand its business model to include e-commerce services that will
supplement its software sales and value-added business services. The e-commerce
business will focus on technology-based transactions that are paid for on a
monthly or per-transaction basis. This revenue model is expected to generate
recurring, more predictable revenues that can be leveraged to work towards a
positive cash flow. Additionally, the Company will continue its efforts to
raise the additional capital required to fund planned 2000 activities.

In view of the matters described above, there is substantial 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.
There can be no assurance that management will be successful in implementing its
plans. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

NOTE C - NOTE PAYABLE

The Company has a 10.5% note payable to a bank in the amount of $318,891 as of
December 31, 1999. The note is payable in monthly installments of $8,045,
including interest, with a balloon payment of all unpaid principal and interest
due on July 28, 2000. The note was assumed in connection with the disposal of a
subsidiary of the Company. Certain assets of the former subsidiary act as
collateral for the loan. The Company has guaranteed payment of the loan.

NOTE D - RELATED PARTY NOTES

The Company had an unsecured note receivable due from a stockholder of $623,377.
The note accrues interest at 5% per annum and is due October 31, 2001. The
stockholder may repay the note using HALIS common stock if certain conditions
are met, including but not limited to the Company's common stock

F-13
<PAGE>

achieving a traded market price of at least $3 per share for a specified period
of time.

In December 1999, the Company reviewed the collectibility of this note and
determined that its collection was doubtful. The entire amount of the note has
been reserved at December 31, 1999.

At December 31, 1999, the Company had an unsecured note payable to a stockholder
and director of the Company in the amount of $15,000. This note was non-
interest bearing and due on demand.

F-14
<PAGE>

NOTE E - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space under several operating lease agreements
expiring in 2003. Rent expense for the office space and equipment classified as
operating leases totaled $536,547 and $586,121 for the years ended December 31,
1999 and 1998, respectively. At December 31, 1999, future minimum lease
payments under non-cancelable operating leases having remaining terms in excess
of one year are as follows:

Beginning January 2000, the Company will sublease one of its office facilities
under a four year operating lease expiring December 2003. Minimum future
subrental income anticipated under this agreement is as follows:

During 1998, the Company acquired equipment totaling $44,650 under a five year
capital lease. During 1999, the Company acquired computers and software and a
vehicle totaling $266,943 under capital leases ranging from three to five years.
Amortization of these capital leases included in depreciation expense totaled
$78,200 and $2,236 for the years ended December 31, 1999 and 1998, respectively.
Accumulated depreciation amounted to $80,436 and $2,236 as of December 31, 1999
and 1998, respectively.

Future payments under these leases are as follows:

<TABLE>
<S> <C>
2000 $ 84,432
2001 82,635
2002 78,775
2003 71,572
2004 10,341
--------
Total minimum lease payments 327,755
Amount representing interest (58,984)
--------
Present value of minimum lease payments $268,771
========
</TABLE>

Employment Agreements

The Company had in effect an employment agreement with Paul W. Harrison which
expired December 31, 1999. The agreement provided for an annual base salary of
$280,000 (to be increased

F-15
<PAGE>

upon the attainment of annual revenue targets) plus certain incentive bonus
payments and the issuance of qualified and non-qualified stock options to
purchase common stock of the Company. Mr. Harrison agreed to reduce his 1998
salary to $235,000, of which $25,000 was paid in cash and the remaining $210,000
was satisfied through the issuance of 1,500,000 shares of the Company's common
stock in February 1999. During 1999, Mr. Harrison agreed to reduce his 1999
salary to $107,000, of which $27,000 was paid in cash and the remaining $80,000
was satisfied through the issuance of 1,187,500 shares of the Company's common
stock in February 2000. The Company is presently in negotiations with Mr.
Harrison for terms of a new employment agreement.

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 Surmans are the principals of ACCS
and claim personal damages against the Company on certain of the claims, and
claim a right to at least 150,000 shares of the Company's common stock, the
exact amount to be determined at trial, based on a claim of a breach of an
alleged oral contract to pay them shares of the Company's common stock as
compensation for soliciting investors (the "Oral Contract Claim"). The Surmans
further claim that the Company fraudulently induced them to solicit investors
for the Company (the "Investor Solicitation Claim"). The complaint seeks
damages in the amount of at least $2 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 answered, denying the allegations of
liability in the complaint, and the Company vigorously defended the lawsuit.

On November 19, 1998, the trial court granted summary judgment in favor of the
Company on all but two counts of the plaintiff's complaint, as amended. The two
counts remaining include the Oral Contract Claim and Investor Solicitation
Claim. The plaintiffs have appealed to the Georgia Court of Appeals from the
order granting partial summary judgment to the Company on all other claims, and
the Company has cross-appealed the portions of the order denying summary
judgment on the two surviving counts. The Georgia Court of Appeals has affirmed
the trial court's granting of summary judgment in favor of the Company on seven
of the nine counts in the complaint and affirming the denial of the Company's
cross

F-16
<PAGE>

appeal denying summary judgment on the two surviving counts. 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.

On July 18, 1997, the Company was sued by Penelope Sellers in an action seeking
actual damages against the Company in the amount of $480,535, unspecified
attorneys fees, and punitive damages of not less than $1,000,000. Ms. Sellers
contends that a Finder's Fee Agreement into which she entered with the Company
in August 1995, and under which she was to receive 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 to transactions introduced to the Company by her,
entitles her to an amount in excess of the approximately $19,350 which she has
been paid to date under that agreement. That amount represents 10% of the
investment made by the principals of AUBIS, LLC ("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.

Ms. Sellers claims that the entirety of the convertible notes offering described
above (in which an aggregate of $1,470,000 was raised by the Company) would not
have been successful but for her introduction of the AUBIS principals to the
Company. 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 capital funding raised by the Company (up to the
$500,000 maximum compensation), including the proceeds of a private placement
which raised gross proceeds of approximately $2 million. Finally, Ms. Sellers
has made a claim for 10% of the value of AUBIS and HALIS Software, Inc.

The Company has answered Ms. Seller's complaint, denying liability under the
Finder's Fee Agreement in an amount exceeding that already paid, and denying
liability to Ms. Sellers under any of the factual or legal bases alleged in her
complaint. Discovery has been completed. The defendants filed a motion for
partial summary judgment, which was granted, effectively eliminating Larry
Fisher and Paul Harrison on claims asserted against them for tortuous
interference with contractual relations. The Company continues to vigorously
defend this 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.

On March 22, 1999, the Company and Paul Harrison were sued by Debra York, the
former President of the Company's wholly owned subsidiary, The Compass Group,
Inc. Ms. York's complaint alleged that she was owed compensation arising from
a certain Agreement and Plan of Merger and Reorganization and a certain
Employment Agreement, and in connection with certain alleged representations of
the Company and Paul Harrison. On September 24, 1999, a settlement was reached
among the parties in which the Company paid Ms. York $20,000 and Ms. York
returned to the Company stock options to purchase 809,500 shares of the
Company's common stock at a price of $0.13 per share.

On April 1, 2000, the Company was served a complaint by Carrera-Maximus, Inc.
(previously known as Carrera Consulting Group). The complaint alleges breach of
contract in connection with certain professional service fees, product support
fees, and license fees paid to the Company under a contract between the two
parties. Carrera-Maximus, Inc. is seeking the return of fees in the total
amount of approximately $538,000. The Company denies the allegations of
liability in the complaint and intends

F-17
<PAGE>

to vigorously defend this case, including the filing of an answer and assertion
of the appropriate counter claims. 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.

The Company 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.

NOTE F - INCOME TAXES

Significant components of the Company's deferred income tax assets as of
December 31, 1999 are as follows:

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 6,297,108
Other, net 580,886
-----------

Net deferred tax asset 6,887,994
Valuation allowance (6,887,994)
-----------

Net deferred tax asset reported $ -
===========
</TABLE>

The valuation allowance at December 31, 1998 amounted to $6,405,312.

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

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal income tax rate (34.0)% (34.0)%
Effect of valuation allowance on deferred tax assets 34.0 34.0
State income tax, net of Federal benefit 0.0 0.0
-------- --------
Effective income tax rate 0.0% 0.0%
======== ========
</TABLE>

At December 31, 1999, the Company had available for carryforward a net operating
loss of approximately $16.6 million. Approximately $9 million of the net
operating loss relates to losses prior to 1997, and as a result of an ownership
change on November 19, 1996, and in accordance with Section 382 of the Internal
Revenue Code, the loss carryforward is limited to approximately $841,000 for
each year thereafter. The net operating losses expire between the years 2000
and 2019. Future recognition of these carryforwards will be reflected when it
is more likely than not that they will be utilized.

Net operating loss carryforwards expiring in the next five years are
approximately as follows:

<TABLE>
<S> <C>
2000 $ 112,000
2001 246,000
2002 1,225,000
2003 1,571,000
2004 782,000

</TABLE>

F-18
<PAGE>

NOTE G - STOCK OPTION PLANS

During 1996, the Company adopted the 1996 Stock Option Plan which provided for
the issuance of both qualified and non-qualified 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
the 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 of 110 percent of the average market price on the
date of grant and are exercisable up to five years from the date of grant.

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 at December 31, 1997 71,940 $ 0.28 2,967,742 $1.67 7,872,000 $1.75

Granted - - 990,350 $0.13 3,995,290 $0.13
Expired - - - - - -
Terminated - - (2,206,842) $1.23 (2,222,200) $0.38
Exercised - - - - (1,000,000) $0.13
------ ---------- ----------

Outstanding at December 31, 1998 71,940 $ 0.28 1,751,250 $0.25 8,645,090 $0.20

Granted - - - - 2,378,700 $0.08
Expired (220) $11.88 - - - -
Terminated - - (385,250) $0.13 (717,000) $0.13
Exercised - - - - - -
------ ---------- ----------

Outstanding at December 31, 1999 71,720 $ 0.24 1,366,000 $0.20 10,306,790 $0.16
====== ========== ==========

Options exercisable at
December 31, 1999 71,720 $ 0.24 775,475 $0.25 10,202,290 $0.16
====== ========== ==========
</TABLE>

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

F-19
<PAGE>

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 approximately 8.8 million shares (prior to any other
transactions in 1998). The weighted average exercise price declined from $1.72
per share to $0.54 per share.

Exercise prices for options outstanding as of December 31, 1999 under the 1986
and 1988 Plans range from $0.13 to $10.63 per share. The weighted average
remaining life of these options was approximately three years.

Exercise prices for options outstanding as of December 31, 1999 granted under
the 1996 Plan ranged from $0.13 to $2.00 per share. The weighted average
remaining life of these options was approximately eight years.

Exercise prices for options outstanding as of December 31, 1999 granted outside
of the Plans ranged from $0.05 to $2.12 per share. The weighted average
remaining life of these options was approximately eight years.

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). In accordance with APB 25, since the exercise price
of the underlying stock options equaled the fair market value on the date of
grant, no compensation expense was recognized.

Pro forma information regarding net income (loss) and earnings (loss) 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 1999 and 1998:

1999 1998
---------- ----------
<S> <C> <C>

Risk-free interest rate 4.55-5.67% 4.31-4.72%

Dividend yield 0.0% 0.0%

Expected volatility 147.60% 125.33%

Weighted average expected life 4 years 4 years

Forfeiture rate 5.0% 5.0%
</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:

F-20
<PAGE>

Net loss - as reported $(1,444,827) $(3,148,799)

Net loss - pro forma $(1,472,727) $(3,935,589)

Reported loss per share - basic & diluted $ (0.03) $ (0.06)

Pro forma loss per share - basic & diluted $ (0.03) $ (0.08)

Weighted average fair value of options granted
during the year $ 0.01 $ 0.13
</TABLE>

NOTE H - STOCK WARRANTS

The Company has issued stock warrants in conjunction with the issuance of common
stock. Activity related to stock warrants was as follows:

<TABLE>
<CAPTION>
Weighted Average
Warrants Exercise Price
---------------- --------------------
<S> <C> <C>
Outstanding at December 31, 1997 1,301,760 $ 1.73
Granted - $ -
Exercised - $ -
Expired (25,000) $ 1.35
----------
Outstanding at December 31,1998 1,276,760 $ 1.73
Granted 1,161,822 $ 0.29
Exercised - $ -
Expired - $ -
----------
Outstanding at December 31, 1999 2,438,582 $ 1.05
==========
</TABLE>

At December 31, 1999 the Company had warrants outstanding as follows:

Common Shares Exercise Range of
Under Warrant Price Per Share Expiration Dates
- -------------------- ------------------ -------------------------------
<S> <C> <C>
437,500 $ .05 December 2004
535,000 $ .11 June 2004
237,982 $ 1.35 September 2002 - December 2002
1,228,100 $ 1.75 November 2001 - September 2002
-----------
2,438,582
===========
</TABLE>

NOTE I - RELATED PARTY TRANSACTIONS

On November 18, 1996, the Company entered into a license agreement for a
proprietary technology

F-21
<PAGE>

asset ("MERAD") from Paul Harrison Enterprises, Inc. ("PHE"), which was
controlled by the Chairman and Chief Executive Officer of the Company. Mr.
Harrison served as the President of PHE and at the time beneficially owned
approximately 40% of this company. PHE was acquired by HealthWatch, Inc. on
October 2, 1998. 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 to PHE (after the merger now known as MERAD
Software, Inc.). During 1999 and 1998, $62,518 and $28,815, respectively, of
license fees were incurred under this agreement. At December 31, 1999 and 1998,
$87,483 and $24,965, respectively, was payable to PHE under this agreement and
was included in accounts payable.

In addition, during 1998, $160,000 was earned by MERAD Corporation for specific
enhancements and maintenance required by the Company to its software products.

As part of the license agreement, HSI 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 MERAD Software, Inc., subject to HSI's rights to use the
same under its license. With the exception of certain licenses to use MERAD,
MERAD Software, Inc. has exclusive ownership rights to MERAD.

During 1999, the Company granted options to an officer/director of the Company
to purchase 540,000 shares of the Company's common stock at a price of $.05 per
share. These options expire December 2009.

During 1999, the Company granted options to a director of the Company to
purchase 100,000 shares of the Company's common stock at a price of $.05 per
share. These options expire December 2009.

During 1999, the Company granted options to a relative of an officer/director of
the Company to purchase 100,000 shares of the Company's common stock at a price
of $.05 per share. These options expire December 2009.

At December 31, 1999, the Company had outstanding the following qualified and
nonqualified stock options granted to officers and directors:

Common Shares Exercise Range of
Under Option Price Per Share Expiration Dates
- --------------- --------------- -------------------------
<S> <C> <C>
740,000 $.05 December 2009
5,666,500 $.13 June 2006 - December 2009
---------
6,406,500
=========
</TABLE>

Of the total outstanding options granted to officers and directors as discussed
above, options to acquire up to an aggregate of $6,343,250 shares of common
stock are exercisable at December 31, 1999.

F-22
<PAGE>

During 1999, 1,500,000 shares of the Company's stock were issued to an officer
of the Company for payment of accrued compensation of $210,000.

At December 31, 1998, the Company had outstanding a 6% convertible debenture to
HealthWatch, Inc., a related company, in the amount of $100,000. During 1999,
this related company loaned the Company an additional $57,741. In January 1999,
the outstanding convertible debenture in the total amount of $157,741 was
converted into 1,824,645 shares of the Company's common stock.

In 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 16,667 (adjusted for Reverse Stock Split) shares of
HealthWatch common stock, or 3.9% of the outstanding HealthWatch common stock at
that time. The Company is not obligated and does not have the present intent to
purchase additional shares of the common stock of HealthWatch.

Paul W. Harrison, the Chairman and Chief Executive Officer of the Company, is
also the Chairman and Chief Executive Officer of HealthWatch. Mr. Harrison is
also a shareholder of both companies.

The Company and HealthWatch entered into a non-binding letter of intent, dated
August 8, 1998 (the "Letter of Intent"), providing for the merger of HealthWatch
with the Company. However, due to the market volatility of the two companies'
stock and accounting issues that would be caused as a result of the merger that
may have an adverse effect on HealthWatch, the companies agreed to delay the
consummation of the merger.

In March 2000, the Company and HealthWatch signed a binding letter of intent to
merge. In the merger, each share of common stock of the Company outstanding
immediately prior to the effective time of the merger would be converted into
the right to receive that fraction of a share of HealthWatch common stock equal
to $.33 divided by the average closing price of HealthWatch common stock on the
NASDAQ Market for the ten trading days immediately preceding the merger closing
date (the "Merger Consideration"). In addition, outstanding stock options and
stock warrants of the Company would be converted into options and warrants
to purchase HealthWatch common stock in accordance with the same conversion
ratio.

The Letter of Intent also contains binding provisions providing HealthWatch with
an unconditional right to purchase prior to the closing of the merger, up to
$1,000,000 of the Company's Common Stock at $0.20 per share, and upon such
financing, HealthWatch shall have a three month option to purchase up to an
additional $5,000,000 of the Company's Common Stock at $0.20 per share.

The proposed merger is expected to take approximately 90 days from the date of
the binding letter of intent. The merger is subject to, among other conditions,
the approval of the shareholders of both companies. No assurance can be given
that the parties will reach a definitive merger agreement or that, if reached,
the parties will be able to satisfy the conditions to the consummation of the
merger.

NOTE J - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Details of non-cash transactions are as follows:

F-23
<PAGE>

Capital lease obligations incurred for the acquisition
of property and equipment $266,943 $ 44,650
======== ==========

Debt consolidated into a single note payable to a bank:
Line of credit $ - $ 92,334
Note payable - 368,341
-------- ----------
$ - $ 460,675
======== ==========

Debt converted to equity:
6% convertible promissory note, related party $157,741 $ -
Accounts payable, consultants 92,648 -
Accrued employee compensation 210,000 -
4% convertible promissory notes - 300,000
10% convertible promissory notes - 75,000
-------- ----------
$460,389 $ 375,000
======== ==========

12,048,305 shares of the Company's common stock
recorded as consideration for sale of subsidiary $ - $1,686,763
======== ==========

Capitalized license fees recorded by increasing
accounts payable $118,771 $ -
======== ==========

Cash paid for interest $ 61,050 $ 63,191
======== ==========
</TABLE>

NOTE K - DISPOSITIONS

Sale of Physician's Resource Network in Fiscal 1998

On June 30, 1998, the Company sold to American Enterprise Solutions, Inc.
("AES") all of the stock of Physician's Resource Network, Inc. ("PRN"), a
wholly-owned subsidiary of the Company, that the Company had acquired in July
1997. Located in Tampa, Florida, PRN delivers practice management services to
healthcare providers. The sale of AES was effected pursuant to an Agreement and
Plan of Merger dated June 25, 1998 (but effective as of June 30, 1998) among the
Company, AES, PRN Acquisition Co., and PRN (the "Merger Agreement"). Under the
terms of the Merger Agreement, the Company received AES' promise to deliver
within 90 days of the closing date, all of the shares of HALIS common stock
owned by AES of record and beneficially as of the closing date, including
without limitation shares that AES has the right to acquire as of the closing
date, which number of shares shall not be less than 9,984,000 shares of the
Company's common stock. The Merger Agreement provided that if AES delivers more
than 11,000,000 shares of Company common stock, then the Company must also
transfer to AES the right to receive contingent installment payments (the
"Installment Payments") under that certain Asset Purchase Agreement dated
December 31, 1997, between Communications Wiring and Accessories, Inc. and HALIS
Services, Inc., a subsidiary of the Company. Additionally, pursuant to the
Merger Agreement the Company retained certain liabilities in the aggregate
amount of $478,797 related

F-24
<PAGE>

to the business of PRN.

On October 9, 1998, the Merger Agreement was amended by the parties to
acknowledge and agree that the number of shares of the Company's common stock to
be delivered by AES totaled 12,048,325 shares. AES delivered 11,548,325 shares
during 1998. The remaining 500,000 shares have not been received by the Company
as of the report date.

Charles Broes, who served as a director of the Company from July 1, 1997 until
he resigned on June 10, 1998, served as the Chief Executive Officer, Secretary,
Treasurer and board member of AES. Mr. Broes did not participate in any
meetings of the Company's board of directors with respect to the Merger
Agreement, or the amendment thereto.

For Federal income tax purposes, the merger is not intended to constitute a
reorganization within the meaning of Section 368 of the Code. The parties to
the Merger Agreement acknowledge that the merger is intended to constitute a
redemption by HALIS of all HALIS stock owned directly or indirectly by AES
pursuant to Section 302(b)(3) of the Internal Revenue Code of 1986, as amended.

Sale of the Homa Practice in Fiscal 1998

On September 30, 1998, the Company's wholly-owned subsidiary, PhySource, Ltd.
("PhySource"), sold to Physician's Enterprise System, LLC ("PES") all of the
medical and non-medical assets of its Dr. Homa medical practice that the Company
had acquired in 1997 (the "Homa Practice"). The Homa Practice had provided
medical services to patients in the Arlington Heights, Illinois vicinity. The
sale was effected through an Agreement for Purchase and Sale of Assets entered
into between PES, the Company and PhySource, and was effective as of October 1,
1998 (the "Asset Agreement"). Under the terms of the Asset Agreement, PhySource
received $400,000 at closing and the right to receive 50% of collections on the
receivables assigned to PES in excess of $400,000, less a collection fee of 20%
(the "Contingent Payment"), and had certain specific liabilities assumed by the
purchaser. The Contingent Payment was to be calculated and paid to the Company
on November 1, 1999. As of December 31, 1999 and the report date, the
calculation of the Contingent Payment had not been made by PES and therefore, no
amounts have been paid or accrued in the Company's 1999 financials related to
this Contingent Payment. The results from operations for the Homa Practice were
included in the Company's results from operations for the nine-month period
ended September 30, 1998.

NOTE L - FOURTH QUARTER ADJUSTMENTS

Significant adjustments made in the fourth quarter of 1999 are as follows:

Record provision for losses on note receivable - related party..........$623,377
Decrease in deferred revenue on software sales/maintenance contracts....$240,132
Additional accrual of accounts payable relating to legal fees...........$100,000

F-25
<PAGE>

EXHIBIT INDEX

Exhibit
Number Description

21.1 List of Subsidiaries

23.1 Consent of Tauber & Balser, P.C.

27.1 Financial Data Schedule (for SEC use only)

99.2 Letter of Intent dated March 8, 2000 by and between Registrant and
HealthWatch, Inc.

<PAGE>

EXHIBIT 21.1

List of Subsidiaries

Halis Services, Inc., a Georgia corporation

The Compass Group, Inc., a Georgia corporation, d/b/a Halis Consulting

HES Technology, Inc., a Georgia corporation

American Benefit Administrative Services, Inc., an Illinois corporation, d/b/a
ABAS and TPA

PhySource Ltd., a Georgia corporation

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

TAUBER & BALSER, P.C.
Certified Public Accountants
3340 Peachtree Road, N.E.
Suite 250
Atlanta, GA 30326

We consent to the incorporation by reference of our report dated April 7,
2000 included in the December 31, 1999 Form 10-KSB for Halis, Inc. and 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.

/s/ Tauber & Balser, P.C.
---------------------
TAUBER & BALSER, P.C.
Atlanta, Georgia
April 24, 2000

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HALIS, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000790733
<NAME> HALIS, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,503
<SECURITIES> 0
<RECEIVABLES> 487,188
<ALLOWANCES> 229,800
<INVENTORY> 0
<CURRENT-ASSETS> 345,049
<PP&E> 556,539
<DEPRECIATION> 183,289
<TOTAL-ASSETS> 1,786,186
<CURRENT-LIABILITIES> 2,460,847
<BONDS> 0
0
0
<COMMON> 527,101
<OTHER-SE> (1,410,322)
<TOTAL-LIABILITY-AND-EQUITY> 1,786,186
<SALES> 5,082,493
<TOTAL-REVENUES> 5,082,493
<CGS> 848,173
<TOTAL-COSTS> 5,876,099
<OTHER-EXPENSES> 651,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,119
<INCOME-PRETAX> (1,444,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,444,827)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)

</TABLE>

<PAGE>

EXHIBIT 99.2

Letter of Intent

March 8, 2000

Board of Directors
Halis, Inc.
3525 Piedmont Road
7 Piedmont Center
Suite 300
Atlanta, Georgia 30305

Re: Proposed Merger of HealthWatch, Inc. and Halis, Inc.

Gentlemen:

This letter will confirm the various discussions that we have had regarding
the acquisition by HealthWatch, Inc. a Minnesota corporation (the "Purchaser"),
by means of merger of Halis, Inc., a Georgia corporation (the "Seller") into
Purchaser or a wholly-owned subsidiary of Purchaser (the "Subsidiary"). Subject
to the preparation, execution and performance of a definitive written agreement
(the "Agreement") containing such terms, conditions, covenants, representations
and warranties as either party may in good faith require, I understand that we
have agreed in principle to the following general terms:

1. Basic Transaction.

On a date to be agreed upon (the "Closing Date"), Seller will merge into
Purchaser or Subsidiary under the terms of which each shareholder of Seller will
receive that fraction of a share of Purchaser's Common Stock, $.05 par value,
equal to $.33 divided by the average closing price of Purchaser's Common Stock
on the NASDAQ Small Cap market for the ten days preceding the Closing Date in
return for cancellation of each outstanding share of Seller's Common Stock, $.01
par value. The $.33 value referenced in the preceding sentence reflects
approximately a 50% premium over the average closing price of Seller's Common
Stock for the ten trading days immediately preceding the date of this letter.

2. Representations and Warranties.

Seller will make the representations and warranties usual and customary in
such a transaction, including, without limitation, the following: (a) the clear
and unencumbered title of Seller to all of its assets; (b) all of the Seller's
personal property in good working condition subject to ordinary wear and tear;
and (c) the right and power of Seller to assign all of its license agreements
and customer contracts to Purchaser.
<PAGE>

3. Access.

Seller will grant Purchaser and its representatives access to the
personnel, property, contracts, books and records of Seller and will furnish to
Purchaser and its representatives such financial, operating and other
information with respect to the business and properties of Seller as Purchaser
shall, from time to time, reasonably request. In connection with its examination
of Seller, with prior written notice to Seller, Purchaser and its
representatives may communicate with any person having business dealings with
Seller. All of such access, investigation and communication by Purchaser and
its representatives will be conducted in a manner designed not to materially
interfere with the normal business of Seller.

4. Exclusive Dealing.

In consideration for the expenditures of time, effort and expense to be
undertaken by Purchaser in connection with the preparation and execution of the
Agreement and Purchaser's investigation of Seller which is a condition precedent
to the execution of the Agreement, the Halis Board of Directors will not and
will not cause the Seller to, between the date of the execution of this letter
and the Closing Date, enter into or conduct any discussions with any other
prospective purchaser of the stock or assets of Seller. In addition, the Halis
Board of Directors shall use its best efforts to preserve intact the business
organization and goodwill of Seller.

5. Non-Solicitation.

Purchaser agrees that during the period commencing on the date of the
execution of this letter and ending on the Closing Date, or for one year after
the termination of this letter, Purchaser shall not, directly or indirectly,
solicit or attempt to solicit, any person who is an employee of the Seller at
that time, or induce or attempt to induce any employee of the Seller to
terminate his or her employment relationship with the Seller.

6. Disclosure.

Except as and to the extent required by law or required for the Purchaser
or Seller, as the case may be, to obtain financing, due diligence or legal and
financial opinions, each party agrees that it will not release or issue any
reports, statements or releases pertaining to this letter of intent and the
implementation hereof without the prior written consent of the other party
hereto.

7. Costs.

Each party will be responsible for and bear all of its own costs and
expenses (including any broker's or finder's fees and the expenses of its
representatives) incurred at any time in connection with pursuing or
consummating the proposed merger.

-2-

<PAGE>

8. Conditions.

The closing of the merger will be conditioned upon (i) Purchaser and Seller
obtaining appropriate approval of their respective shareholders; (ii) Purchaser
having raised a minimum of $5,000,000 from issuances of equity securities of
Purchaser, prior to closing; and (iii) obtaining required governmental and
regulatory approvals.

9. Financing Option.

Prior to the closing of the merger, Purchaser shall have the unconditional
right to purchase up to $1,000,000 of the Seller's Common Stock at $.20 per
share, and upon any such financing Purchaser shall have a three month option to
invest up to an additional $5,000,000 at the same $.20 per share.

10. Entire Agreement.

Except as provided in paragraphs 1, 3, 4, 5 and 9 hereof, which are
intended to represent binding agreements of the parties hereto ("Binding
Provisions"), this letter is intended to be, and shall be construed only as, a
letter of intent summarizing and evidencing the discussions between Purchaser
and Seller to the date hereof. Except as otherwise provided in the preceding
sentence, the respective rights and obligations of Purchaser and Seller remain
to be defined in the Agreement, into which this letter and our prior discussions
shall merge. The Binding Provisions constitute the entire agreement by and
between the parties, supersede all prior oral or written agreements,
understandings, representations and warranties, and courses of conduct and
dealing between the parties on the subject matter hereof. Except as otherwise
provided in this letter, the Binding Provisions may be amended or modified only
by a writing executed by each of the parties.

11. Governing Law.

The Binding Provisions will be governed by and construed under the laws of
the State of Georgia without regard to conflict of laws principles.

12. Termination.

This letter will automatically terminate, unless extended by mutual consent
of the parties, upon the earlier to occur of: (a) the date the Agreement is
signed by all parties, or (b) two months after the date this letter is signed by
the Seller. In addition, this letter may be terminated earlier upon written
notice by Purchaser to Seller unilaterally, for any reason or no reason, with or
without cause, at any time; provided however, that the termination hereof will
have no effect on the liability of a party for a breach of any of the Binding
Provisions. Upon termination of this letter, the parties shall continue to be
bound by all of the Binding Provisions other than those

-3-

<PAGE>

relating to "Access" and "Exclusive Dealings," which obligations will survive
any such termination in accordance with its terms for a period of six months.

13. Counterparts.

This letter may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this letter and all of which, when taken
together, will be deemed to constitute one and the same agreement.

If the foregoing correctly expresses our understanding, please indicate
your agreement by signing and dating the enclosed copy of this letter in the
space indicated below and returning it to me at the above letterhead address.
Upon receipt of a signed copy of this letter, I will instruct our attorneys to
prepare a draft of the Agreement and related documentation for review by you and
your counsel.

Yours very truly,

HEALTHWATCH, INC.

By: /s/ Paul W. Harrison
--------------------------
Paul Harrison, President

THE FOREGOING CORRECTLY EXPRESSES
OUR UNDERSTANDING,
THIS 8/TH/
DAY OF MARCH, 2000

HALIS, INC.

By: /s/ Joel Greenspan
-----------------------------
Dr. Joel Greenspan, Director

-4-