U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

               QUARTERLY-REPORT UNDER SECTION 13 OR 15 (D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

  For the quarterly period ended                         Commission file number
  ------------------------------                         ----------------------
      September 30, 1999                                        0-11476

                               HEALTHWATCH, INC.
        ---------------------------------------------------------------
        Exact Name of Small Business Issuer as Specified in Its Charter

             Minnesota                                          84-0916792
   -------------------------------                         --------------------
   (State or Other Jurisdiction of                           (I.R.S. Employer
    Incorporation or Organization)                          Identification No.)

                 9040 Roswell Road, Suite 470, Atlanta, GA 30350
                 -----------------------------------------------
                    (Address of Principal Executive Offices)

                                 (770) 641-5555
                ------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

                                       N/A
      ---------------------------------------------------------------------
         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

 Check whether the issuer: (1) filed all reports required to be filed by Section
 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
 period that the  registrant was required to file such reports) and (2) has been
 subject to such filing requirements for the past 90 days.

                            Yes   X       No
                                -----        ----

   Number of registrant's common shares outstanding at October 31, 1999:

                                  5,777,230
                                  ---------

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

<PAGE>
                                HEALTHWATCH, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)
                               SEPTEMBER 30, 1999


                                     PART I.
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                     ASSETS

Current Assets
     Cash                                                          $     20,598
     Accounts Receivable, net of allowance for
        doubtful accounts of $19,911                                     30,010
     Inventory                                                           81,225
     Receivables - related party                                         55,022
     Other Current Assets                                                 3,733
                                                                    -----------
                 Total current assets                                   190,589

Marketable equity securities - related party                          1,673,569
Property and equipment, net                                              18,345
Intangible assets, net                                                1,289,077
Other assets                                                             30,610
                                                                    -----------
                 Total Assets                                      $  3,202,189
                                                                    ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                              $    138,895
     Accrued compensation and payroll taxes                             181,476
     Other accrued expenses - related parties                           236,342
     Other accrued expenses - unrelated parties                         515,350
     Deferred revenue                                                    32,919
     Current portion of debentures payable
         - related parties                                               15,000
     Current portion of debentures payable
         - unrelated parties                                            465,000
                                                                    -----------
                 Total liabilities                                    1,584,983
                                                                    -----------
Shareholders' Equity
     Cumulative preferred stock, 5,000,000 shares authorized,
      par value $.01 per share;
      - 6% Series A, $1.00 stated value, 568,000
         shares issued and outstanding                                    5,680
      - Series P, $10.00 stated value, 334,432 shares
         issued and outstanding                                           3,344
     Common stock, $.01 par value; 50,000,000 shares
      authorized, 5,023,588 issued and outstanding                       50,236
     Additional paid-in capital                                      21,973,672
     Accumulated deficit                                            (20,415,725)
                                                                    -----------
                 Total shareholders' equity                           1,617,207
                                                                    -----------
                 Total liabilities and shareholders' equity        $  3,202,189
                                                                    ===========


        The accompanying notes are an integral part of these statements.

                                     -2-

<PAGE>

                                HEALTHWATCH, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
                                   (UNAUDITED)

                                           Three Months Ended September 30,
                                               1999                 1998
                                           -------------        ------------

Product sales                               $   151,703         $  365,609
Product cost of sales                            82,551            266,573
                                             ----------          ---------
         Gross profit                            69,152             99,036
                                             ----------          ---------

Operating costs and expenses:
    Selling, general and administrative         263,590            329,806
    Depreciation and amortization                85,210             66,996
    Research and development                     37,190             36,220
                                             ----------          ---------
Total operating costs and expenses              385,990            433,022
                                             ----------          ---------
Loss from continuing operations                (316,838)          (333,986)
                                             ----------          ---------

Other income (expense):
    Unrealized loss on marketable equity
      securities - related party                  --              (336,272)
    Equity in earnings of subsidiary           (96,102)               --
    Interest expense                           (16,458)            (16,596)
    Miscellaneous                                 --                 2,316
                                             ---------           ---------
         Total other income (expense)         (112,560)           (350,552)
                                             ---------           ---------
Net loss                                    $ (429,398)         $ (684,538)
                                             =========           =========
Net loss per share                          $    (0.10)         $    (0.25)
                                             =========           =========
Weighted average number of shares
  outstanding                                4,179,956           2,783,121
                                             =========           =========


        The accompanying notes are an integral part of these statements.

                                       -3-

<PAGE>

                             STATEMENT OF CASH FLOWS
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED SEPTEMBER 30,
                                                                       1999                          1998
                                                                   --------------                -------------
<S>                                                                 <C>                           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                           $ (429,398)                   $ (684,538)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
     Depreciation and amortization                                       85,210                        66,996
     Unrealized loss on marketable equity securities                        -                         336,272
     Provision for bad debt                                              (6,399)                          -
     Equity in earnings of subsidiary                                    96,102                           -
     Issuance of stock for services                                      50,002                           -
  Decrease (increase) in assets:
     Accounts receivable                                                 74,297                       (37,353)
     Inventory                                                            2,639                           759
     Other current assets                                                 6,198                       (33,945)
     Other assets                                                         3,400                      (151,275)

  Increase (decrease) in liabilities:

     Accounts payable                                                     2,172                       (46,576)
     Accrued expenses - related parties                                  17,992                       (85,016)
     Accrued expenses - unrelated parties                               (53,094)                     (141,057)
     Deferred revenue                                                     4,389                         9,744
                                                                      ---------                    ----------
       Net cash used in operating activities                           (146,490)                     (766,039)
                                                                      ----------                   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property & equipment                                          -                          (1,590)
  Decrease in note receivable - related party                            95,342                          -
                                                                      ---------                    ----------
       Net cash provided by (used in) investing activities               95,342                        (1,590)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds (costs) of issuance of common stock                       50,000                          -
  Effect of exchange rate changes on cash                                   -                            -
                                                                      ---------                    ----------
   Net cash provided by financing activities                             50,000                          -
                                                                      ---------                    ----------

  Increase (decrease) in cash                                            (1,148)                     (767,629)

  Cash - beginning of period                                             21,746                       854,290
                                                                      ---------                    ----------
  Cash - end of period                                               $   20,598                   $    86,661
                                                                      =========                    ==========


        The accompanying notes are an integral part of these statements.

</TABLE>

                                   -4-

<PAGE>

                                HEALTHWATCH, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
                                   (UNAUDITED)

PRINCIPLES OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and with the instructions to Form 10-QSB.  Accordingly,  they do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  (consisting  of normal  recurring  accruals)  necessary  for a fair
presentation of the Company's  financial  position as of September 30, 1999, and
it's results of operations and cash flows for the  three months  and nine months
then  ended have been  included.  However,  operating  results  for the  interim
periods noted are not necessarily indicative of the results that may be expected
for the year ending June 30,  2000.  This report  should be read in  conjunction
with the  Company's  Financial  Statements  and Notes  thereto  contained in the
Company's annual report on Form 10-KSB for the year ended June 30, 1999.

MANAGEMENT'S OPERATING PLANS

As a result  of  recurring  losses  and  negative  cash  flow  from  operations,
management  has reviewed its  operational  and financial  plans  relative to the
Company's ability to continue in existence with its historical lines of business
and has  refocused  the Company  into an  information  technology  company.  The
Company,  now d/b/a MERAD Technologies  Corporation,  has changed from a company
primarily  involved in the  manufacture  and marketing of medical  products to a
company  primarily  involved  in  the  software  information  technology  ("IT")
business, and will be seeking the approval of its shareholders for a name change
at its next annual meeting.

On October 1, 1998,  as part of the  transformation,  the Company  acquired Paul
Harrison  Enterprises,   Inc.  ("PHE").  PHE  owned  the  MERAD  technology,   a
sophisticated virtual software application utility (the "MERAD Technology") that
utilizes an advanced  multi-media  object and relational  database which creates
knowledge objects that can be used and reused in a virtually unlimited number of
combinations  to  provide  efficient  applications  that  can  be  accessed  and
processed  in both an Internet  and  Intranet  environment.  Previously,  during
fiscal  1998,  the  Company  had  obtained  a  license  from  MERAD  Corporation
("MERAD"),  a subsidiary  of PHE, for use of the MERAD  Technology  and retained
MERAD to develop proprietary  software technology which was to be used to expand
the  Company's  product  offerings to include  products  and services  specially
focused on monitoring,  capturing and managing medical  information at the point
of care. Due to its limited resources,  the Company has not proceeded to develop
software that would be used in conjunction with its medical devices. In light of
the Company's  refined emphasis on utilizing the newly acquired MERAD Technology
to develop  expanded  applications in the healthcare and other  industries,  the
Company has decided not to expand the Company's  medical  device  business.  The
acquisition of PHE, which is a significant shareholder of HALIS, Inc. ("HALIS"),

                                   -5-

<PAGE>

also  increased  the  Company's  ownership  of the  common  stock  of  HALIS,  a
healthcare IT company,  at that time to approximately 19% of HALIS'  outstanding
shares of common stock. On January 29, 1999, the Company  acquired an additional
1,824,645 shares of HALIS' common stock by converting  $157,741 owed by HALIS to
the Company  pursuant to a debenture,  bringing its interest in the HALIS common
stock to  approximately  21.9%,  and now accounts for its investment in HALIS on
the equity method of accounting.

In the PHE  acquisition,  the Shareholders of PHE received 334,432 shares of the
Company's  Series  P  Preferred  Stock,  stated  value  $10.00  per  share  (the
"Preferred Stock"). Subject to prior approval by the Company's shareholders, the
Preferred  Stock will be  convertible  into  3,344,320  shares of the  Company's
common stock. Paul W. Harrison,  Chairman, President and Chief Executive Officer
of the Company,  received  125,088 of the Series P Preferred  Stock and Brian L.
Schleicher,  the former Interim Chief Financial Officer and Chief Administrative
Officer of the Company  received 7,812 of the Series P Preferred  Stock.  All of
the Preferred Stock is non-voting. The Series P Preferred Stock has a cumulative
dividend feature of 12%, which adjusts to a maximum of 24% if the shares are not
granted the right to convert by certain  target  dates.  As of February 1, 1999,
the Series P  Preferred  Stock  accrued a dividend at the rate of 18% per annum,
which was increased to 24% on August 1, 1999.  See  designation  of the Series P
Preferred Stock  incorporated  by reference from the Company's  annual report on
Form 10-KSB for the year ended June 30, 1998. In addition to the issuance of the
Series  P  Preferred  Stock,  the PHE  shareholders  shall  be  paid  additional
consideration  based on the percentage of the revenues that the Company receives
in  connection  with  the  sale  of  software  developed   utilizing  the  MERAD
Technology, up to a maximum of $7 million, and certain PHE shareholders received
options for  approximately  625,000 shares of the Company's common stock with an
exercise price of $.96 per share in exchange for previously  outstanding options
of PHE. Of the outstanding  options issued in the PHE acquisition,  583,333 were
issued to Paul W. Harrison. During fiscal 1999, and the three-month period ended
September 30, 1999, the PHE Shareholders,  as a group, earned $92,772 and $,051,
respectively, as additional consideration, 50% of which will be paid in cash and
the balance to be paid in common stock of the Company.

During fiscal 2000, the Company intends to continue to emphasize the IT business
and  provide  IT  services  and  support  to its  customers  and to  HALIS,  its
affiliate.  Additionally, the Company is in the process of identifying strategic
acquisition  candidates  in the systems  integration  and support area that will
enhance the Company's  ability to provide these  services.  However,  due to its
depressed  stock  price,  the Company has found it difficult to proceed with any
acquisitions.  The Company also expects to continue to expand its  collaborative
efforts  with HALIS and to increase  its efforts to market the HALIS  Healthcare
Enterprise System (the "HALIS HES") product and its derivatives to the Company's
customer base (see discussion below). The HALIS HES software,  which is owned by
HALIS, was developed  utilizing the MERAD  Technology.  As a result of acquiring
the MERAD Technology in the PHE  acquisition,  the Company earns a royalty equal
to 10% of the gross  revenues  generated  by HALIS on sales of the HALIS HES and
any derivative  products or services  associated  therewith.  The Company earned
$8,102 in royalties during the three-month  period ended September 30, 1999. The
Company also will explore the  possibility  of  developing  its own  information
systems   utilizing  the  MERAD   Technology  for  other   information-intensive
industries such as financial services,  insurance and real estate;  however, due
to the limited financial resources of the Company, expansion into other lines of
business is uncertain.  In recognition of this change in the Company's  business
focus,  the Company  will ask its  stockholders  at its next  Annual  Meeting of
Stockholders  to approve a change in the  Company's  name to MERAD  Technologies
Corporation.

                                   -6-

<PAGE>

NET INCOME (LOSS) PER SHARE

The net  income  (loss) per share was  computed  based on the  weighted  average
number of shares  outstanding  during the  periods  without  taking  into effect
outstanding options and warrants.

INVENTORY

Inventory consisted of the following at September 30, 1999 and June 30, 1999:

                                 9/30/99                6/30/99

Raw materials                   $ 81,225               $ 59,000
Work in process                     --                     --
Finished goods                      --                   24,864
                                --------               --------
                                $ 81,225               $ 83,864

DEBENTURES PAYABLE

Debentures  payable accrue interest at an annual rate of 10%, payable quarterly.
The debentures  matured on March 1, 1998, and are currently in default as to the
payment of principal and past due interest.  The debentures  could be converted,
at the option of the holder,  at a conversion rate of one share of the Company's
common stock for every $70.00 of debentures,  plus interest,  converted.  During
fiscal  1999,  the  Company  repaid  $100,000  of the  principal  amount  of the
debentures  due and owing.  During the  three-month  period ended  September 30,
1999, the Company did not pay any principal or interest on the debentures. As of
September 30, 1999,  $142,524 in accrued but unpaid  interest is  outstanding on
the debentures.  The Company will attempt to reach an agreement with the holders
of the  debentures  prior to the end of the current  fiscal year in an effort to
resolve the amounts  outstanding or otherwise  bring the debentures out of their
default status.

SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES

Pursuant to agreements  entered into during fiscal 1998,  the Company  issued to
PHE an aggregate of 488,400 shares of common stock during the three-month period
ended  September 30, 1998 (prior to its  acquisition by the Company) in exchange
for 1,400,000 shares of HALIS' common stock owned by PHE. During the three-month
period ended  December 31, 1998, the Company issued the 334,432 shares of Series
P Preferred Stock, and retired 888,400 shares of common stock, (which was all of
the Company's common stock owned by PHE at the date of acquisition).  All shares
were  retired  at the price of  $.80/share,  which  represented  the  discounted
approximate trading price at the date of acquisition.  Management has determined
the fair  market  value of the shares of Series P Preferred  Stock  issued to be
$2,560,000 based on the approximate trading price for the Company's common stock
(into which they would be converted if approved by the  Company's  shareholders)
at the date of the  transaction,  discounted to factor in the reduction in value
stemming from the  non-marketable  restrictions of the preferred  shares issued.
During the  three-month  period ended  September 30, 1999, the PHE  shareholders
earned $8,102 of additional  consideration  based on software  sales made during
the  quarter  utilizing  the MERAD  Technology.  The Company  accounted  for the
acquisition  under the  purchase  method of  accounting  whereby  the assets and
liabilities  of PHE were  recorded at their fair market  value as of the date of
the acquisition. As a result, the HALIS stock owned by PHE was stepped up to its
fair value of $868,488.  The  $900,164  excess  purchase  price over fair market
value of the net

                                   -7-

<PAGE>

tangible assets  acquired has been identified as technology  acquired (the MERAD
Technology) and is being amortized over a ten-year period.

During fiscal 1999, the Company  received  1,824,645 of common stock of HALIS in
exchange  for  a 6%  convertible  debenture  and  subsequent  advances  totaling
$157,741.  The  conversion  brought the Company's  total  investment in HALIS to
21.9% of HALIS outstanding  common stock. As a result of this stock acquisition,
the Company converted its accounting for this long-term investment to the equity
method. Under generally accepted accounting principles, the change is considered
a change in  accounting  principle and requires the Company to  recalculate  and
restate the carrying  value of its investment as if the investment was accounted
for under the equity method as of the date of its initial acquisition.

INVESTMENT IN HALIS COMMON STOCK; HALIS BUSINESS COLLABORATION

As of September 30, 1999, the Company held 10,763,655 shares of the common stock
of HALIS, representing  approximately 21.0% of the total outstanding shares. The
Company  does not hold the HALIS shares for trading  purposes,  but rather holds
them for long-term investment purposes. During fiscal 1999, the Company acquired
an additional  1,824,645  shares of HALIS common stock  increasing its ownership
interest in HALIS to its present holdings.  Consequently,  until this additional
acquisition,  the  Company  reflected  its  interest in HALIS at cost but now is
required  by  generally  accepted  accounting  principles  to  account  for  its
investment in HALIS on the equity method of accounting,  thereby  reflecting its
portion of HALIS'  earnings or losses in the Company's  income  statement with a
corollary  adjustment to its investment account.  Additionally,  the Company was
required to  recalculate  and restate the carrying value of its investment as if
the  investment  was accounted for under the equity method as of the date of its
initial  acquisition.  The  Company's  change in method to the equity  method is
considered a change in accounting  principle.  The cumulative effect of changing
to the new  accounting  principle  on the  amount of  retained  earnings  at the
beginning  of the fiscal  year is  required  to be reported in net income of the
period of change.  Due to the Company's  determination  that a decline in market
value at June 30, 1998 was other than temporary, and the related unrealized loss
of $1,824,605  was included in net income for the year ended June 30, 1998,  the
Company  did not restate the value of the shares held at June 30, 1998 above the
fair market value at that date of $318,708. Hence, there is no cumulative effect
of an  accounting  change  reported in the  Company's  statement of  operations.
Subsequent  increases  in the  carrying  value  of  the  investment  related  to
additional  shares being  acquired in October 1998 and January 1999 as disclosed
above.  Other  increases and decreases to the  investment  relate to the Company
recording  its  pro-rata  share  of  HALIS  net  income  or loss for each of the
quarters ended September 1998, December 1998 and March 1999. The Company's share
of HALIS' net loss for the  three-month  period  ended  September  30,  1999 was
($96,102).

Due to the  accounting  change taking place in the third quarter of fiscal 1999,
the  Company  was  required  to restate  its  operating  results for each of the
interim  periods  since the close of its prior  fiscal  year.  The change was to
decrease  the net loss for the quarter  ended  September  30, 1998 by  $319,287,
decrease the net loss for the quarter ended  December 31, 1998 by $112,898,  and
decrease the net loss for the quarter ended March 31, 1999 by $7,808. The change
in net income at the time of the change to the equity  method was an increase of
$432,185.  The increase is the result of recording the Company's share of HALIS'
net  income  of  $103,721  and the  reversal  of a  $336,272  write  down of the
investment to fair market value during the quarter ended September 30, 1998.

                                   -8-

<PAGE>

The carrying value of the investment at September 30, 1999 is $1,673,569.  Based
on the closing bid price of the HALIS shares on September  30, 1999,  the shares
had a fair market value of approximately $1,345,457.

The  calculated  value  exceeds the  Company's  carrying  value by $328,112.  In
management's  opinion,  this decline is temporary in nature,  and therefore,  no
adjustment  is  necessary  to the  carrying  value as a result of the use of the
equity  method  of  accounting.  Additionally  the  carrying  value of the HALIS
investment  under the equity  method  exceeded the 21% equity in the  underlying
assets of HALIS at the date of conversion  to the equity  method by  $1,845,329.
This excess is being  amortized  on the  straightline  method over 10 years,  or
$184,533 per year.

During  fiscal 1997,  the Company  determined  to expand its business to include
healthcare information software products and services. The decision was based on
the Company's desire to improve margins for its medical  products,  particularly
its Life Sciences  peripheral vascular  diagnostic  products,  and to expand its
product and service  offerings  in order to increase  revenues and to return the
Company  to  profitability.  In this  connection,  the  Company  entered  into a
business  collaboration  agreement with HALIS, pursuant to which the Company and
HALIS share sales  prospects and the Company is marketing the HALIS HES software
to its client base of approximately  1,200 customers that have previously bought
the Company's  diagnostic  equipment.  There are no assurances  that the Company
will be  successful  in its  attempts  to sell the  HALIS  HES  software  to its
customer base.

HALIS, based in Atlanta,  Georgia,  supplies information technology and services
focused on the healthcare  industry.  Utilizing  advanced  healthcare models and
information technology, HALIS has developed the HALIS HES software utilizing the
MERAD  Technology,  a single system which  integrates all of the major functions
needed by clinics,  hospitals,  healthcare  practices,  payors,  long-term  care
facilities, laboratories, pharmacies and home healthcare facilities.

On July 14, 1998, the Company  entered into a letter of intent (the "1998 Letter
of Intent")  with HALIS to merge the two  companies.  However as a result of the
volatility  of the stock  price of the HALIS  shares,  the  consummation  of the
merger is  presently  uncertain.  Pursuant  to the 1998  Letter of  Intent,  the
Company  agreed  to  loan  HALIS  up to a total  of  $250,000  pursuant  to a 6%
debenture maturing in February 2000 (see Exhibit 10.6). As of December 31, 1998,
the Company had advanced  $100,000 to HALIS under the  debenture.  Subsequently,
the Company  advanced an  additional  $57,741 to HALIS.  On January 29, 1999 the
Company  exercised its  conversion  rights in the  debenture,  and converted the
outstanding  amounts due to the Company  into  1,824,645  shares of HALIS common
stock.

YEAR 2000

Software  applications  that use only two digits to  identify a year in the date
field  may  cause  fatal  errors  in the  processing  of data  (the  "Year  2000
Concern").  The  Company  acknowledges  that  the  failure  of its  software  to
recognize the proper date codes could cause  substantial harm to the Company and
its  customers.  However,  the HALIS HES  software  developed by HALIS and being
marketed by the Company was developed with the Year 2000 Concern in mind and has
been designed to be Year 2000  compliant.  This means that HALIS has  indicated,
and the  Company  believes,  that the  HALIS  HES  software  being  marketed  to
customers will accept and recognize date codes for the Year 2000 and beyond, and
process  that  information  recognizing  the  correct  year in the  date  field.
Further,  the MERAD Technology was also designed to be Year 2000 compliant.  The
Company  does  not  believe  that the  failure  of any of the  software  that it
utilizes in its operations  from  third-party  vendors to be Year 2000 compliant
will have a material  effect on the Company.  The Company  believes that even if
the  software it utilizes  from  vendors is not Year 2000  compliant,  there are
sufficient  alternatives  available  that the  Company  can  resolve  any issues
without incurring any material amounts to resolve any Year 2000 Concerns.


                                      -9-

<PAGE>

ITEM 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OR  PLAN OF OPERATION

During  fiscal  2000,  the  Company  continued  efforts to  develop  proprietary
technology  utilizing  MERAD  and to  market  as a  reseller  HALIS'  healthcare
enterprise system to the Company's  customers.  In this connection,  the Company
expects to continue to expand its collaborative efforts with HALIS and to expand
its efforts to market the HALIS  healthcare  enterprise  system to the Company's
customer base. The Company also intends to explore the possibility of developing
information  systems  utilizing  the  MERAD  technology  for  other  information
intensive industries such as financial services, insurance and real estate.

The Company has incurred  significant  operating  losses during the past several
years  and at June 30,  1999 had an  accumulated  deficit  of  $19,986,327.  The
Company will require additional debt or equity capital to sustain operations and
to  continue  its  business  development  efforts.  The report of the  Company's
independent  public  accountants  for the years  ended  June 30,  1999 and 1998,
contained a paragraph noting  substantial  doubt regarding the Company's ability
to continue as a going concern.

Total assets at September 30, 1999 were  $3,202,189,  representing a decrease of
$345,783  from June 30, 1999.  The  amortization  of  intangible  assets and the
decline in the  equity  method  investment  in HALIS  account  for  $68,605  and
$96,102, respectively of this decline. Also, amounts due from HALIS decreased by
$95,342 with repayments by HALIS to the Company.

Current  liabilities  decreased by $58,886 from  $1,643,869  at June 30, 1999 to
$1,584,983 at September 30, 1999. The decrease is primarily  attributable to the
issuance of common stock for other accrued  expenses - services of $42,500.  The
debentures  payable  balance at September 30, 1999 remained  unchanged  from the
June 30, 1999 balance,  and additional interest accrued on the debentures during
the period of $12,000 which is included in other accrued expenses.

Shareholders' equity decreased from $1,904,103 at June 30, 1999 to $1,617,207 at
September 30, 1999, a decrease of $286,896.  The decrease is  attributable  to a
net loss for the period of $429,397.  This net loss is offset by the issuance of
100,000  shares of  common  stock  valued at  $42,500  for prior  services,  the
issuance  of 89,468  shares of common  stock  valued at $50,000  current  period
services and  proceeds of $50,000 from the issuance of 142,858  shares of common
stock.

RESULTS OF OPERATIONS

Revenues  declined by $213,906,  or 58.5%,  during the three-month  period ended
September  30,  1999  compared  to the  similar  period in 1998.  The  Company's
continued  shift  from  a  products  driven  supplier   company  to  a  software
information  technology  company largely  represents the revenues  decline.  The
Company  recognized  $8,100 in  royalties  from  HALIS  with  respect to its 10%
royalty from HALIS' gross revenues  associated  with its  Healthcare  Enterprise
System, and these royalties are included in product sales.

Gross profit was 45.6% for the  three-month  period ended  September 30, 1999 as
compared to 27.1% for the same 1998 period. This increase in gross profit is due
primarily to reduced  manufacturing  overhead  expenses and the mature nature of
the Company's remaining product lines supported.

Selling,  general and administrative  expenses as a percent of sales were 173.8%
for the three-month period ended September 30, 1999, compared with 90.2% for the
similar 1998  period.  This  increase was due  primarily to lower sales level of
products. The selling,  general and administrative expenses decreased by $66,216
for the  three-month  period ended  September 30, 1999 from the comparable  1998
period due to the  reduction  in  corporate  overhead  and  salaries and related
benefits. Depreciation and amortization increased by $18,214 for the three-month
period ended  September 30, 1999 as compared to the same 1998 period,  resulting
from the  additional  amortization  associated  with the  Company's  fiscal 1999
acquisition  of the MERAD  technology and related  current period  amortization.
Research and  development  costs remained  consistent for the three months ended
September 30, 1999 as compared  with the same 1998 period.  The Company needs to
raise  additional  sources of capital to expand  its  research  and  development
efforts with its recently acquired MERAD technology.

                                      -10-

<PAGE>
During  fiscal  1999,  the  Company  changed  its method of  accounting  for its
investment in HALIS to the equity method from the available-for-sale  fair value
method because it acquired additional  interests bringing its ownership interest
in HALIS to  approximately  21%. For the three-month  period ended September 30,
1999, the Company  recognized a loss from its equity method interest in HALIS of
$96,102. For the same 1998 period, the Company determined a permanent decline in
its available-for-sale fair value investment in HALIS of $336,272.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1999, the Company had $50,608 of cash and accounts  receivable.
During the  three-month  period ended September 30, 1999,  operating  activities
consumed  $146,490 of cash as compared to $766,039 for the same 1998 period.  As
discussed in the previous section,  the primary reason was the conversion of the
HALIS  investment from  available-for-sale  to the equity method and issuance of
common stock for services.  Due to the Company's  operating  losses, it has been
required to raise  additional  equity  capital to fund its  operations.  Capital
expenditures  during this period have been limited to routine capital purchases.
Since the beginning of fiscal 2000, the Company has raised  $50,000  through the
sale of 142,858 shares of its common stock.  During  fiscal 2000,  the Company's
preferred  shareholders,  Series A,  converted  577,000  preferred  shares  into
1,405,585 shares of common stock in accordance to the preferred stock, Series A,
conversion feature.

The  Company's 10%  Convertible  Secured  Debentures in the principal  amount of
$480,000 were due and payable on March 1, 1998. The Company believes it needs to
raise  in excess of  $1,000,000 of working  capital in addition  to that already
raised and committed in fiscal 2000 to sustain operations during the next twelve
months and to pay the Debentures.

The Company  continues to monitor its cash  situation  very closely.  Due to the
down-sizing  of the  Company  and shift  from a product  supplier  to a software
information  technology  company,  its cash  needs are not as acute as they were
during the prior year.  However,  the Company has been unsuccessful in expanding
its customer base and royalty stream from its recently acquired MERAD technology
during the current  period.  If the Company is unable to increase  its  customer
base and royalty  stream  from its MERAD  technology  during  fiscal  2000,  the
Company will not be able to continue to generate  sufficient  positive cash flow
to meet its obligations without seeking additional capital infusion.

The Company is considering  additional  private placements of its securities for
these  requirements.  There can be no assurance that the Company will be able to
raise additional debt or equity capital or, if able to raise additional capital,
the price at which such capital would be available.

The Company  considers  its  investment  in HALIS to be a long-term  investment.
However, in the event that the Company is unable to raise additional capital, it
may be required to sell shares of the HALIS common stock. The HALIS common stock
is traded in the over-the-counter market on the NASDAQ Bulletin Board. While the
10,763,655  shares  of  HALIS  common  stock  owned  by the  Company  represents
approximately  21% of the total  outstanding  shares of HALIS common stock,  the
Company's  ability to sell its HALIS shares  could be adversely  affected by the
limited  trading  volume for HALIS' stock and the  requirement  that the Company
sell its HALIS shares in accordance  with Rule 144 promulgated by the Securities
and Exchange Commission which could limit the number of HALIS shares which could
be sold in any three-month period to approximately  536,000 shares. There can be
no  assurance  as to the price the Company  could  receive for the HALIS  common
stock if it were required to sell the stock to raise additional working capital.

                                      -11-
<PAGE>

                                    PART II.
                                OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

During the  three-month  period ended  September 30, 1999,  the Company issued a
total of 1,405,581  shares of common stock upon  conversion of 577,000 shares of
the Series A Preferred Stock.  During the three-month period ended September 30,
1999, the Company issued 332,326 shares of common stock, 189,468 of which was in
lieu of services, and 142,858 in a private placement of securities.  The Company
issued the securities without  registration under the Securities Act of 1933, as
amended,  in reliance upon an exemption from the  registration  requirements  of
such Act contained in Section 4(2) thereof. All of the foregoing securities were
acquired for investment purposes.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

On March 1,  1998,  $580,000  principal  amount  of the  Company's  10%  Secured
Convertible  Debentures  ("Debentures")  were due and  payable.  The Company was
unable to pay the  Debentures  in  accordance  with their  terms and the Company
obtained no further extension of the maturity date. During fiscal 1999, $100,000
in fair value of the debentures was paid to the holders thereof. As of September
30,  1999,   $480,000  of  the  debentures  remain  outstanding  and  due,  plus
approximately  $_______  in accrued  but unpaid  interest.  The  debentures  are
convertible by the holders thereof into shares of common stock of the Company at
the rate of $70 of the outstanding debentures.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS.   The  following  exhibits  are  filed  with  or  incorporated by
     reference into this report:

3.1  Articles of Incorporation, as amended, of the Company <F1>

3.2  Bylaws, as amended, of the Company <F2>

4.1  Specimen form of the Company's Common Stock certificate <F2>

4.2  HealthWatch, Inc. Stock Option Plan of 1989  <F3>

4.3  Form of Incentive Stock Option Agreement  <F3>

4.4  Form of Non-statutory Stock Option Agreement  <F3>

4.5  HealthWatch, Inc. Stock Option Plan of 1993  <F4>

4.6  HealthWatch, Inc. Stock Option Plan of 1996  <F5>

4.7  HealthWatch, Inc. 1995 Stock Grant and Salary Deferral Plan  <F5>

4.8  Subscription and Purchase Agreement dated as of the 14th day of August 1992
     between the Company and the  Purchasers of the  Company's  10%  convertible
     senior  debentures due 1997  (including as an appendix  thereto the form of
     the debenture certificate) <F6>

4.9  Subscription and Purchase  Agreement between  HealthWatch,  Inc. and HALIS,
     Inc. <F7>

                                      -12-
<PAGE>

4.10 Certificate of the Designation,  Preferences, Rights and Limitations of the
     6% Series A Convertible Preferred Stock of HealthWatch, Inc. <F10>

4.11 Certificate of the Designation,  Preferences, Rights and Limitations of the
     Series P Preferred Stock of HealthWatch, Inc. <F10>

10.1 Business  Collaboration  Agreement dated as of October 10, 1997 between the
     Company and HALIS, Inc. <F8>

10.2 License and  Software  Development  Agreement  dated as of October 10, 1997
     between the Company and MERAD Corporation <F8>

10.3 Consulting  Agreement dated as of October 10, 1997 among the Company,  Paul
     Harrison Enterprises, Inc. and Paul Harrison <F8>

10.4 Consulting  Agreement  dated as of October 10, 1997 between the Company and
     Larry Fisher <F8>

10.5 Agreement  and  Plan  of  Merger  dated  as of  September  30,  1998  among
     HealthWatch, Inc., MERAD Software, Inc. and Paul Harrison Enterprises, Inc.
     <F9>

10.6 Letter of Intent between  HealthWatch,  Inc. and HALIS, Inc. dated July 14,
     1998 <F10>

27.1 Financial Data Schedule (for SEC use only).

(b)  REPORTS ON FORM 8-K.  The  following  reports on Form 8-K were filed during
     the quarter ended September 30, 1999.

     None

------------
[FN]
<F1>   Incorporated  herein by reference to the  Company's  Annual  Report, Form
       10-K, for the year ended June 30, 1990, File No, 0-11476.

<F2>   Incorporated  herein  by  reference  to Registration Statement, Form S-18
       (File No. 2-85688D).

<F3>   Incorporated herein by reference to Registration  Statement S-2 (File No.
       33-42831).

<F4>   Incorporated herein by  reference  to the  Company's  Annual  Report Form
       10-KSB, for the year ended June 30, 1994 (File No. 0-11476).

<F5>   Incorporated herein by  reference  to the  Company's  Annual Report  Form
       10-KSB, for the year ended June 30, 1996 (File No. 0- 11476).

<F6>   Incorporated herein by reference to Registration Statement SB-2 (File No.
       33-73462).

<F7>   Incorporated herein by  reference  to the  Company's Annual  Report  Form
       10-KSB, for the year ended June 30, 1997 (File No. 0- 11476).

                                      -13-

<PAGE>

<F8>   Incorporated  herein by reference to the Company's  Quarterly Report Form
       10QSB, for the quarter ended December 31, 1997.

<F9>   Incorporated herein by reference to the Company's Report, Form 8-K, dated
       October 1, 1998.

<F10>  Incorporated herein by reference to the Company's Annual  Report Form 10-
       KSB, for the year ended June 30, 1998 (File No. 0-11476).
</FN>

                                      -14-

<PAGE>

                              SIGNATURES

     In accordance  with the Exchange Act, the registrant  caused this report to
be signed by the undersigned, thereunto duly authorized.


Date:   November 19, 1999         HealthWatch, Inc.


                                  By:   /s/ Paul W. Harrison
                                     ----------------------------------------
                                     Paul W. Harrison
                                     (Chairman, President and Chief Executive
                                      Officer)
                                           (Principal Financial Officer)


                                      -15-

<PAGE>

                             EXHIBIT INDEX

Number                        Description
------                        -----------

3.1    Articles of Incorporation, as amended, of the Company  <F1>
3.2    Bylaws, as amended, of the Company  <F2>
4.1    Specimen form of the Company's Common Stock certificate <F2>
4.2    HealthWatch, Inc. Stock Option Plan of 1989  <F3>
4.3    Form of Incentive Stock Option Agreement  <F3>
4.4    Form of Non-statutory Stock Option Agreement  <F3>
4.5    HealthWatch, Inc. Stock Option Plan of 1993  <F4>
4.6    HealthWatch, Inc. Stock Option Plan of 1996  <F5>
4.7    HealthWatch, Inc. 1995 Stock Grant and Salary Deferral Plan  <F5>
4.8    Subscription and Purchase Agreement dated as  of the  14th day  of August
       1992  between  the  Company  and  the  Purchasers  of  the Company's  10%
       convertible  senior debentures due 1997 (including as an appendix thereto
       the form of the debenture certificate) <F6>
4.9    Subscription and Purchase Agreement between HealthWatch,  Inc. and HALIS,
       Inc. <F7>
4.10   Certificate of  the  Designation,  Preferences, Rights and Limitations of
       the 6% Series A Convertible  Preferred Stock of HealthWatch,  Inc.  <F10>
4.11   Certificate of the  Designation,  Preferences,  Rights and Limitations of
       the Series P Preferred Stock of HealthWatch, Inc. <F10>
10.1   Business Collaboration Agreement dated as of October 10, 1997 between the
       Company and HALIS, Inc.  <F8>
10.2   License and Software  Development  Agreement dated as of October 10, 1997
       between the Company and MERAD Corporation <F8>
10.3   Consulting Agreement dated as of October 10, 1997 among the Company, Paul
       Harrison Enterprises, Inc. and Paul Harrison <F8>
10.4   Consulting Agreement dated as of October 10, 1997 between the Company and
       Larry Fisher <F8>
10.5   Agreement  and  Plan  of  Merger  dated  as  of  September 30, 1998 among
       HealthWatch,  Inc.,  MERAD Software, Inc. and Paul Harrison  Enterprises,
       Inc. <F9>
10.6   Letter of Intent between HealthWatch, Inc. and HALIS, Inc. dated July 14,
       1998  <F10>
27.1   Financial Data Schedule (for SEC use only).

------------
[FN]

<F1>  Incorporated  herein by reference to the  Company's  Annual  Report,  Form
      10-K, for the year ended June 30, 1990, file No, 0-11476.

<F2>  Incorporated  herein  by  reference  to  Registration Statement, Form S-18
      (File No. 2-85688D).

<F3>  Incorporated herein  by reference to Registration Statement S-2  (File No.
      33-42831).

<F4>  Incorporated  herein  by  reference  to  the  Company's Annual Report Form
      10-KSB, for the year ended June 30, 1994 (File No. 0-11476).

<F5>  Incorporated herein by  reference to  the  Company's  Annual  Report  Form
      10-KSB, for the year ended June 30, 1996 (File No. 0-11476).

<F6>  Incorporated herein by reference to Registration Statement SB-2  (File No.
      33-73462).

                                      -16-

<PAGE>

<F7>  Incorporated  herein by  reference  to the  Company's  Annual  Report Form
      10-KSB, for the year ended June 30, 1997 (File No. 0-11476).

<F8>  Incorporated  herein by reference to the Company's  Quarterly  Report Form
      10QSB, for the quarter ended December 31, 1997.

<F9>  Incorporated  herein by reference to the Company's Report, Form 8-K, dated
      October 1, 1998.

<F10> Incorporated  herein by  reference  to the  Company's  Annual  Report Form
      10-KSB, for the year ended June 30, 1998 (File No. 0-11476).
</FN>

                                      -17-