UNITED STATES
                              SECURITIES AND EXCHANGE COMMISSION
                                    Washington, D.C.  20549

                                           FORM 10-Q

        (Mark One)
[ X ]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                            OF THE SECURITIES EXCHANGE ACT OF 1934

                       For the quarterly period ended September 30, 1999

                                              OR

[   ]                     TRANSITION REPORT PURSUANT TO SECTION 13 OR
                         15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from        to
                               Commission file number 000-19636

                             HEALTHCARE INTEGRATED SERVICES, INC.
                    (Exact name of registrant as specified in its charter)

        Delaware                                          22-3119929
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification No.)

1040 Broad Street, Shrewsbury, New Jersey                            07702
(Address of principal executive offices)                         (Zip Code)

                                        (732) 544-8200
                     (Registrant's telephone number, including area code)

        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 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

        Indicate  the  number  of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

        Class                               Outstanding at November 15, 1999
Common Stock, $.01 par value                         11,356,974 shares

                                              1

<PAGE>



                     HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES

                                             INDEX

PART I.        FINANCIAL INFORMATION:                                 PAGE

Item 1.        Financial Statements:

    Consolidated Balance Sheets -
        September 30, 1999 and December 31, 1998                        3

    Consolidated Statements of Income -
        Three and nine months ended September 30, 1999 and 1998         4

    Consolidated Statement of Changes in Stockholders Equity -
        For the nine months ended September 30, 1999                    5

    Consolidated Statements of Cash Flows -
        Nine months ended September 30, 1999 and 1998                   6

    Notes to Consolidated Financial Statements                          7

Item 2.        Management's Discussion and Analysis of                 12
               Financial Condition and Results of Operations

Item 3.        Quantitative and Qualitative Disclosure About           17
               Market Risk

PART II.       OTHER INFORMATION

Item 5.        Other Information                                       18

Item 6.        Exhibits and Reports on Form 8-K                        18

SIGNATURES                                                             19


                                              2

<PAGE>




                     HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                 September 30,      December 31,
Assets                                                                1999              1998
------                                                               ------            -----
                                                                          (Unaudited)

    <S>                                                                 <C>               <C>

Current Assets:
   Cash and cash equivalents                                          $899,075        $1,506,123
   Accounts receivable - net                                        12,036,029         9,869,696
   Accounts receivable acquired in the Beran Acquisition             1,614,639         4,653,831
   Loan receivable                                                   2,700,000         2,550,000
   Prepaid expenses and other                                          418,737           228,758
                                                                       -------           -------
               Total current assets                                 17,668,480        18,808,408
                                                                    ----------        ----------
Property, Plant and Equipment - Net                                  8,318,001         9,578,807
                                                                     ---------         ---------
Deferred Tax Asset - Net                                             1,730,325            48,325
                                                                     ---------            ------
Other Assets:
   Due from officer                                                    264,125           264,125
   Deferred transaction and financing costs                          1,067,696         1,122,175
   Other                                                               548,547           273,975
   Goodwill - net                                                   12,593,686        12,858,838
                                                                    ----------        ----------
               Total other assets                                   14,474,054        14,519,113
                                                                    ----------        ----------
Total Assets                                                       $42,190,860       $42,954,653
                                                                   ===========       ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
   Borrowings under revolving line of credit                        $2,798,920        $2,838,275
   Accounts payable and accrued expenses                             2,340,235         2,122,916
   Current portion of capital lease obligations                        840,560         1,505,510
   Current portion of note payable                                   2,238,916        14,000,000
   Reserve for subleased equipment                                      25,780           294,790
   Income taxes payable                                                 46,122          106,582
                                                                       --------          -------
               Total current liabilities                             8,290,533        20,868,073
                                                                     ---------        ----------
Noncurrent Liabilities:
   Capital lease obligations                                         2,911,388         3,440,890
   Note payable                                                     10,927,301                 -
                                                                    ----------        ----------
               Total noncurrent liabilities                         13,838,689         3,440,890
                                                                    ----------         ---------

Minority Interests                                                     659,051           896,404
                                                                       -------           -------
Commitments and Contingencies

Stockholders' Equity:
   Cumulative accelerating redeemable preferred stock, 871.7
   shares outstanding at September 30, 1999 and December 31,
   1998, respectively ($10,500 per share liquidation preference)            87                87
   Common stock, $.01 par value:  50,000,000 shares authorized,
   11,356,974 outstanding  at September 30, 1999 and December
   31, 1998, respectively                                              113,570           113,570
   Additional paid-in capital                                       23,136,160        23,050,076
   Accumulated deficit                                              (3,847,230)       (5,414,447)
                                                                    -----------       -----------
               Total stockholders' equity                           19,402,587        17,749,286
                                                                    ----------        ----------
Total Liabilities and Stockholders' Equity                         $42,190,860       $42,954,653
                                                                   ===========       ===========
</TABLE>

                  See accompanying notes to consolidated financial statements.


                                              3

<PAGE>








                        HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                           Three Months Ended               Nine Months Ended
                                              September 30,                   September 30,
                                               (Unaudited)                     (Unaudited)
                                           1999           1998            1999             1998
                                           ----           ----            ----             ----

  <S>                                         <C>            <C>             <C>               <C>

Revenues                                   $5,384,878     $3,257,547     $17,158,179       $9,760,201
                                           ----------     ----------     -----------       ----------
OPERATING EXPENSES:
   Salaries                                 1,720,430        930,326       5,327,092        2,620,030
   Other operating expenses                 1,684,237        951,194       5,166,379        2,969,915
   Provision for bad debts                    204,309              -         416,339                -
   Consulting and marketing fees              144,746        139,161         411,788          513,361
   Professional fees                          159,066        119,210         442,704          370,974
   Depreciation and amortization              797,087        412,654       2,369,694        1,262,899
   Interest                                   597,848        167,328       2,120,795          554,777
   Gain on sale of property, plant and
        equipment                                   -              -                -        (151,767)
                                            ---------      ---------      -----------        ---------
                                            5,307,723      2,719,873      16,254,791        8,140,189
                                            ---------      ---------      ----------        ---------
Income Before Minority Interests in Joint
Ventures and Income Taxes                      77,155        537,674         903,388        1,620,012
Minority Interests in Joint Ventures           96,335       (132,230)        (87,955)        (379,950)
                                               ------       ---------        --------        ---------
Income Before Income Taxes                    173,490        405,444         815,433        1,240,062
Income Tax (Benefit) Provision               (782,600)        13,014      (1,603,864)          32,500
                                             ---------        ------      -----------          ------
Net Income                                    956,090        392,430       2,419,297        1,207,562
Preferred Dividends                           322,999              -         824,048                -
                                              -------       --------         -------        ---------
Net Income Available to Common
Shareholders                                 $633,091       $392,430      $1,595,249       $1,207,562
                                             ========       ========      ==========       ==========

Net Income per Common Share - Basic             $.06          .04           $.14              $.12
                                                ====          ===           ====              ====

Weighted Average Common Shares
   Outstanding - Basic                     11,356,974     10,512,017      11,356,974       10,236,835
                                           ==========     ==========      ==========       ==========

Net Income per Common Share- Diluted          $.05            $.04          $.12               $.11
                                              ====            ====          ====               ====
Weighted Average Common Shares
   Outstanding - Diluted                   20,258,686     10,950,834      20,080,895       11,248,767
                                           ==========     ==========      ==========       ==========

</TABLE>

                 See accompanying notes to consolidated financial statements.

                                              4

<PAGE>




              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                   Accumulate
                                                                       Additional  (Deficit)                 Total
                                                                         Paid-in    Retained  Unearned   Stockholders'
                                                                         Capital    Earnings Compensation   Equity
                                Preferred Stock       Common Stock
                                Shares    Amount   Shares     Amount

     <S>                           <C>      <C>    <C>           <C>    <C>           <C>                      <C>

BALANCE, JANUARY 1, 1999           872     $87   11,356,974  $113,570 $23,050,076 $(5,414,447)            $17,749,286

Net income                                                                          2,419,297               2,419,297

Unearned compensation in connection
with stock option grant                                                    86,084              (86,084)

Amortization of unearned compensation
for stock options                                                                               58,052        58,052

Preferred dividends                                                                 (824,048)                (824,048)

BALANCE, SEPTEMBER 30, 1999         872      $87  11,356,974  $113,570 $23,136,160 $(3,819,198)$(28,032)   $19,402,587
                              ========= ======== =========== ========= =========== =========== ========= =============


</TABLE>


                 See accompanying notes to consolidated financial statements.

                                              5

<PAGE>




                HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                             Nine Months Ended
                                                               September 30,
                                                               (Unaudited)
                                                            1999                 1998
                                                            ----                 ----
     <S>                                                      <C>             <C>
Cash Flows From Operating Activities:
  Net income available to common shareholders              $1,595,249      $1,207,562
  Adjustments to reconcile net income available to common
  shareholders to net cash provided
  by operating activities:
     Depreciation and amortization                          2,369,694       1,262,899
     Gain on sale of property, plant and equipment                  -       (151,767)
     Non-cash compensation charge                              58,052               -
     Charge associated with facility closure                   33,371               -
     Minority interests in joint ventures                      87,955         379,950
     Allowance for doubtful accounts                          693,000         742,000
Changes in Assets and Liabilities:
          Accounts receivable                                 179,859     (2,187,328)
          Prepaid expenses and other                        (189,979)          24,531
          Deferred taxes                                  (1,682,000)               -
          Goodwill                                          (224,539)               -
          Other                                             (274,572)          13,577
          Accounts payable and accrued expenses               217,319         457,939
          Income taxes payable                                (60,460)            942
          Deferred transaction and financing costs             54,479       (882,674)
                                                               ------       ---------
               Net cash provided by operating activities    2,857,428         867,631
                                                            ---------         -------

Cash Flows from Investing Activities:
     Loan receivable                                        (150,000)               -
     Proceeds from sale of property, plant and equipment            -         655,000
     Purchases of property, plant and equipment             (568,342)        (32,339)
                                                            ---------        --------
               Net cash (used in) provided by investing
                activities                                  (718,342)         622,661

Cash Flows from Financing Activities:
     (Payments) borrowings against the revolving line of
       credit                                               (39,355)         395,169
     Distributions to limited partners of joint ventures    (325,308)        (85,995)
     Payments on capital lease obligations                (1,245,307)     (1,496,102)
     Payments on bridge financing                           (833,783)               -
     Payments on reserve for subleased equipment            (302,381)        (53,460)
               Net cash used in financing activities      (2,746,134)     (1,240,388)
                                                          -----------     -----------

  (Decrease) increase in cash and cash equivalents          (607,048)         249,904
  Cash and cash equivalents at beginning of period          1,506,123          70,626
                                                            ---------          ------
  Cash and cash equivalents at end of period                 $899,075        $320,530
                                                             --------        --------

Supplemental Cash Flow Information:
  Interest paid during the period                          $1,863,691        $557,796
                                                           ----------        --------
  Income taxes paid during the period                        $196,115       $  31,558
                                                             --------       ---------

Supplemental Schedule of Non-Cash Investing and
Financing Activities:
  Capital leases principally for computer and medical
   equipment                                                  $50,855      $2,427,063

</TABLE>


          See   accompanying   notes   to   consolidated   financial statements.

                                              6

<PAGE>



                     HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                          Notes to Consolidated Financial Statements
                             Nine Months Ended September 30, 1999

Note 1. - Basis of Presentation

        The accompanying  unaudited  consolidated condensed financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
Rule 10-01 of Regulation  S-X.  Accordingly,  certain  information  and footnote
disclosures  normally included in annual consolidated  financial statements have
been omitted from the accompanying interim consolidated financial statements. In
the opinion of management,  the accompanying  unaudited  consolidated  financial
statements  contain all  adjustments  necessary to present  fairly the Company's
financial position as of September 30, 1999 and the related statements of income
and cash flows for the periods ended  September  30, 1999 and 1998.  There is no
substantial  income tax  provision  for the three and nine month  periods  ended
September 30, 1998 due to the availability of net operating loss  carryforwards.
For the three and nine month  periods  ended  September  30,  1999 an income tax
benefit has been recorded  based on the estimated  effective  income tax benefit
rate for the full  year.  The  income  tax  benefit  results  from  management's
judgement that a valuation allowance against deferred tax assets, which amounted
to $2,428,888  at December 31, 1998,  will no longer be required at December 31,
1999  because the  realization  of the deferred  tax assets is  considered  more
likely than not as a result of the Company's achieving profitable operations.

        The results of operations  for the nine months ended  September 30, 1999
are not  necessarily  indicative of the results of  operations  expected for the
year ending December 31, 1999 or any other period.  The  consolidated  financial
statements  included herein should be read in conjunction  with the consolidated
financial  statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year  ended  December  31,  1998  which is on file with the
Securities and Exchange Commission.

Note 2. - Earnings Per Share

        Basic  earnings  per common  share are  computed by dividing  net income
available to common shareholders by the weighted average number of common shares
outstanding  for the three and nine month periods  ended  September 30, 1999 and
1998, as applicable.  Diluted earnings per common share are computed by dividing
net income  available to common  shareholders by the weighted  average number of
common shares  outstanding  for the three and nine month periods ended September
30, 1999 and 1998, as applicable,  plus the  incremental  shares that would have
been  outstanding  upon the assumed exercise of dilutive stock option awards and
conversion of the preferred shares.

        The following is a reconciliation  of the numerators and denominators of
the basic and diluted earnings per share computations:


                                              7

<PAGE>


<TABLE>
<CAPTION>


                                          For the Three Months Ended September 30,
                                       1999                                      1998
                      --------------------------------------    --------------------------------------
                         Income       Shares      Per-Share        Income       Shares      Per-Share
                      (Numerator)  (Denominator)   Amount       (Numerator)  (Denominator)   Amount

   <S>                      <C>         <C>             <C>         <C>          <C>              <C>
Basic EPS
Net Income Available t    $633,091
Common Shareholders   o               11,356,974       $.06       $ 392,430    10,512,017        $.04
Add:
Preferred Dividends        322,999             -                           -             -

Effect of Dilutive
Securities
Stock Options                    -       177,791                           -       358,317
Series C Stock                   -             -                           -        80,500
Series D Stock                   -     8,723,921                           -             -
                      ------------ -------------                ------------ -------------
                          $956,090    20,258,686        $.05       $ 392,430    10,950,834        $.04
Diluted EPS
Net Income
                      ============ ============= ===========    ============ ============= ===========


                                        For the Nine Months Ended September 30,
                                    1999                                        1998
                      --------------------------------------    --------------------------------------
                         Income       Shares      Per-Share        Income       Shares      Per-Share
                      (Numerator)  (Denominator)   Amount       (Numerator)  (Denominator)   Amount
Basic EPS
Net Income Avail.to     $1,595,249
Common Shareholders                   11,356,974        $.14      $1,207,562    10,236,835        $.12
Add:
Preferred Dividends        824,048             -                           -             -

Effect of Dilutive
Securities
Stock Options                    -             -                           -       646,188
Series C Stock                   -             -                           -       365,744
Series D Stock                   -     8,723,921                           -             -
                      ------------ -------------                ------------ -------------
                        $2,419,297    20,080,895        $.12      $1,207,562    11,248,767        $.11
Diluted EPS
Net Income
                      ============ ============= ===========    ============ ============= ===========


</TABLE>

Note 3. - Relocation of Corporate Offices and Company Name Change

        Effective  August 1, 1999,  the Company's  corporate name was changed to
HealthCare Integrated Services, Inc. and its corporate offices were relocated to
Shrewsbury Executive Center II, 1040 Broad Street, Shrewsbury, New Jersey 07702.
In  conjunction  with the  relocation of the Company's  corporate  offices,  the
Company entered into a five year lease for  approximately  10,300 square feet of
space.  The lease provides for fixed annual rent in each of years one and two of
$196,308 and $206,640 in each of years three through five. The Company's trading
symbol on The Nasdaq Stock Market, HISS, was not affected by this name change.

Note 4. - Beran Acquisition

        On October 2, 1998  (effective  October 1,  1998),  HIS  Imaging  Co., a
wholly-owned  subsidiary  of the Company  (which,  effective  July 1, 1999,  was
merged into another wholly-owned  subsidiary,  HIS Imaging,  LLC), acquired (the
"Beran Acquisition") all of the assets and business of, and assumed

                                              8

<PAGE>



certain liabilities  relating to (i) a fixed-site MRI facility in Voorhees,  New
Jersey,  (ii) a multi-modality  diagnostic  imaging facility in Northfield,  New
Jersey  and  a  radiology   facility  in  Ocean  City,   New  Jersey,   (iii)  a
multi-modality diagnostic imaging facility in Bloomfield,  New Jersey and (iv) a
multi- modality  diagnostic  imaging facility in Voorhees and Williamstown,  New
Jersey  (the  "Monroe   Facility")   and  a  radiology   facility  in  Atco  and
Williamstown, New Jersey (collectively, the "Beran Entities"). The consideration
given by the Company in the Beran  Acquisition was (x) the assumption of certain
obligations  and  liabilities of the Beran  Entities,  (y) cash in the amount of
$11.5  million  and (z) the  issuance of 871.743  shares of Series D  Cumulative
Accelerating  Redeemable  Preferred  Stock of the Company (the "Series D Stock")
having an aggregate  liquidation  preference of $9,153,301.50 (i.e., $10,500 per
share  liquidation  preference).  The Company also assumed  certain  contractual
obligations of the Beran Entities on a  going-forward  basis under the contracts
assigned to the Company in the Beran Acquisition (including operating leases and
equipment maintenance agreements). The Company also loaned the Beran Entities an
aggregate of $2.5 million, which loan bears interest at 8% per annum and matures
upon the terms and conditions  contained in the related promissory notes, but in
no event  later then  December  31,  1999.  The Company  used the  proceeds of a
short-term $14.0 million bridge loan from DVI Financial Services Inc. ("DFS") to
pay the cash  portion  of the  purchase  price and to fund the loan to the Beran
Entities (the "DFS Bridge Loan").  The DFS Bridge Loan bears interest at 12% per
annum with no payment  due in month one (i.e.,  November  1998),  interest  only
payments of $140,000 in each of months two through  four (i.e.,  December  1998,
January  1999  and  February   1999),   principal   and  interest   payments  of
approximately  $308,000  in each of months  five and six  (i.e.,  March 1999 and
April 1999), with a balloon payment of $13,951,804 due in month seven (i.e., May
1999),  which  balloon  payment  date was  extended to August 1, 1999.  As noted
below, in September 1999, the DFS Bridge Loan was  restructured  and now matures
in May 2004. In addition,  options to purchase  400,000  shares of common stock,
par value $.01 per share,  of the Company at an exercise  price of $1.03125  per
share  were  issued  to DFS  for  providing  the  DFS  Bridge  Loan.  The  Beran
Acquisition is being accounted for as a purchase.

        Effective  July 14, 1999, the Company  closed the Monroe  Facility.  The
facility,  historically  and since its acquisition,  has operated  unprofitably.
Following  the  acquisition,  the  Company  was  unsuccessful  at its attempt to
profitably  operate the facility.  It was decided that the Company had to either
invest in certain  equipment  upgrades to  modernize  the  facility or cease its
operations.  After analysis of the pertinent factors,  the Company determined to
close the facility.  The closure of the Monroe Facility,  resulted in a one-time
charge  to  operations   during  the  quarter   ended   September  30,  1999  of
approximately  $33,000,  which is primarily comprised of a reserve for estimated
future cash outflows relating to the leased premises.  The Company will continue
to review  the  performance of the facilities  acquired  in the Beran
Acquisition,  as well as its other  facilities,  and may
make  additional  modifications  to there operations as conditions warrant.

     In September  1999, the Company  restructured  the DFS Bridge Loan with DFS
into a long-term  liability.  As a result, the repayment date of the debt is now
May 1, 2004,  with  principal and interest  payments of  approximately  $308,000
payable by the Company in each of the 56 months commencing  October 1, 1999. The
outstanding  balance of the DFS  Bridge  Loan at the time of  restructuring  was
$13,166,217. The debt bears interest at 12% per annum.

Note 5. - Deferred Transaction and Financing Costs

        Deferred  transaction and financing costs relate to expenses incurred in
connection  with the Company's  proposed  acquisition  of a management  services
organization ("MSO") and the related

                                              9

<PAGE>



financing therefore.  In the event such proposed acquisition is not consummated,
the related deferred transaction and financing costs will be expensed.

Note 6. - Segment Information

        The Company  currently  operates in two industry  segments -- diagnostic
imaging and  physician  practice  management.  The  diagnostic  imaging  segment
primarily  involves operating  fixed-site  diagnostic  imaging  facilities.  The
physician practice  management  segment,  which commenced  operations during the
second  quarter of fiscal  1998,  consists of providing  management  services to
independent physician practices.

        The following table shows net revenues and operating  income by industry
segment for the three and nine month  periods ended  September 30, 1999.  Assets
are not identified by industry  segment.  Operating  income consists of revenues
less direct  operating  expenses.  All  corporate  operating  expenses have been
allocated to the diagnostic imaging segment:

                                                     Three and Nine Months
                                                    Ended             Ended
                                                        Sept. 30, 1999
     Net revenues:
      Diagnostic imaging                          $5,066,475         16,262,908
      Physician practice management                  318,403            895,271
                                                  ----------        -----------
      Total                                       $5,384,878        $17,158,179
                                                  ==========        ===========

     Operating income:
      Diagnostic imaging                           $(132,348)          $438,611
      Physician practice management                  209,503            464,777
                                                     -------            -------
                  Total                          $    77,153           $903,388
                                                 ===========           ========

Note 7. - Acquisition of Limited Partners' Interest

        Prior  to  May  1,  1999,   the  Company's   MRI  facility   located  in
Philadelphia,  Pennsylvania was operated as a joint venture among a wholly-owned
subsidiary  of the  Company (as the general  partner  holding a 60%  partnership
interest) and certain  individual  medical  professionals and others (as limited
partners  holding in the aggregate the  remaining  40%  partnership  interests).
Effective May 1, 1999, the Company's subsidiary  consummated the purchase of the
limited  partners' 40% partnership  interests for $100,000 in cash. At April 30,
1999, the net book value of this 40%  partnership  interest was $0. The $100,000
purchase  price will be recorded by the Company as goodwill and amortized over a
period of ten years.

     Additionally,  the Company is in the process of negotiating the purchase of
the limited partners'  ownership  interest in the Company's  facility located in
Wayne, New Jersey (the "Wayne  Facility").  This facility is operated as a joint
venture  is among a  wholly-owned  subsidiary  of the  Company  (as the  general
partner  holding  a  51%  partnership   interest)  and  two  individual  medical
professionals, who also provide consulting services to this facility the reading
radiologists at this facility (as limited  partners holding in the aggregate the
remaining 49% partnership interest).  However,  there can be no assurance,  that
the  Company  will be  successful  in its  negotiations  to acquire  the limited
partners' ownership interest in the Wayne Facility.

                                              10

<PAGE>



Note 8. Newly Formed Ventures

        Effective  April  1999,  the  Company,  in a 50/50  joint  venture  with
HealthMark Alliance, Inc. ("HAI"), formed Atlantic Imaging Group, LLC ("Atlantic
Imaging") to develop, market and manage statewide networks of diagnostic imaging
facilities.  The initial  scope of the network is New Jersey.  The Company  will
provide day-to-day  administrative and management  services to Atlantic Imaging,
and both the Company and HAI will provide marketing  services.  Atlantic Imaging
has entered into a five-year  arrangement  with National  Healthcare  Resources,
Inc.  ("NHR"),  which  provides  medical  case  management  services  to several
insurance  carriers,  whereby,  among  other  things,  NHR agreed to utilize the
network on an exclusive basis for any MRI services for which it refers claimants
on behalf of its clients (unless  otherwise  instructed by such client) and will
utilize  the  network for other  radiology  services to the extent  practicable.
Atlantic  Imaging is being accounted for by the Company using the equity method.
Amounts  attributable  to the Company's  investment in Atlantic  Imaging for the
three and nine months ended September 30, 1999 are not significant.

        In addition,  in September 1999 the Company  announced its establishment
of clinical research operations through a wholly-owned subsidiary,  HIS Clinical
Research  Co. LLC  ("HISCR").  HISCR will focus on arranging  clinical  research
trials for pharmaceutical  companies.  To date, HISCR has arranged four clinical
studies  in the  areas  of  rheumatology  pain  management  medication,  chronic
prostatitis  medication,  diabetes  drug  therapies  and  pneumonia  medication.
Amounts  attributable  to the  operations of HISCR for the three and nine months
ended September 30, 1999 are not significant.



                                              11

<PAGE>




Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations

        CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES  LITIGATION REFORM ACT
OF 1995.  Statements  in this  Quarterly  Report that are not  historical  facts
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of  1934,  as  amended.  Any  statements  contained  herein  which  are  not
historical facts or which contain the words "anticipate," "believe," "continue,"
"estimate,"  "expect,"  "intend," "may,"  "should," and similar  expressions are
intended to identify  forward-looking  statements.  Such statements  reflect the
current  view of the Company  with  respect to future  events and are subject to
certain risks, uncertainties and assumptions, including, but not limited to, the
risk that the Company may not be able to  implement  its growth  strategy in the
intended  manner  including the  integration of  acquisitions,  risks  regarding
currently unforeseen  competitive pressures affecting participants in the health
care  market and risks  affecting  the  Company's  industry,  such as  increased
regulatory compliance and changes in regulatory  requirements,  changes in payor
reimbursement  levels and  technological  changes.  In addition,  the  Company's
business,  operations  and  financial  conditions  are  subject  to  the  risks,
uncertainties  and assumptions  which are described in the Company's reports and
statements filed from time to time with the Securities and Exchange Commission.

For the Nine Months Ended September 30, 1999 vs. September 30, 1998

        For the nine months ended September 30, 1999,  revenues were $17,158,179
as compared to  $9,760,201  for the nine months ended  September  30,  1998,  an
increase of approximately  $7,398,000 or 76%. This increase was primarily due to
(i) revenues  associated with the operation of five New Jersey-based  diagnostic
imaging facilities (the "Beran Facilities")  acquired effective as of October 1,
1998  (approximately  $7,319,000)  (the "Beran  Acquisition")  and (ii) revenues
associated  with  the  Company's   physician  practice   management   operations
(approximately  $505,000),  all of which were partially offset by the closure of
the Company's  fixed-site  MRI facility in Secaucus,  New Jersey (the  "Secaucus
Facility") in May 1998 (approximately $414,000).

        For the nine months ended  September 30, 1999,  operating  expenses were
$16,254,791  as compared to $8,140,189  for the nine months ended  September 30,
1998,  an  increase of  approximately  $8,115,000  or 100%.  This  increase  was
primarily due to (i) expenses  incurred in connection  with the operation of the
Beran  Facilities  acquired in October  1998  (approximately  $6,562,000),  (ii)
increased expenses  associated with facilities that were operated by the Company
for  both  of  the  nine  month  periods  ended  September  30,  1999  and  1998
(approximately  $1,269,145)  primarily due to increased salary expenses relating
to  new  personnel,   temporary  help  costs,  and  increased  depreciation  and
amortization  and maintenance  agreement costs relating to new equipment,  (iii)
increased  interest  expense  (approximately   $358,000)  relating  to  deferred
financing  costs  incurred in connection  with the Beran  Acquisition  which are
being expensed over the applicable agreement term, (iv) expenses relating to the
Company's physician practice management operations  (approximately $300,000) and
(v) a gain on sale of property,  plant and  equipment  in the second  quarter of
fiscal 1998 relating to the sale of the mobile MRI unit utilized at the Secaucus
Facility to an unaffiliated party  (approximately  $152,000),  all of which were
partially offset by decreased consulting and marketing fees

                                              12

<PAGE>



(approximately $216,000) and the closure of the Secaucus Facility in May 1998
(approximately $258,000).

For the Three Months Ended September 30, 1999 vs. September 30, 1998

        For the three months ended September 30, 1999,  revenues were $5,384,878
as compared to  $3,257,547  for the three months ended  September  30, 1998,  an
increase of approximately  $2,127,000 or 65%. This increase was primarily due to
(i) revenues  associated with the operation of the Beran Facilities  acquired in
October 1998  (approximately  $2,294,000) and (ii) revenues  associated with the
Company's physician practice management operations (approximately $123,000), all
of which were  partially  offset by the closure of the Secaucus  Facility in May
1998  (approximately  $57,000)  and  a  decrease  in  revenues  associated  with
facilities  that were  operated by the Company  for both of the  quarters  ended
September 30, 1999 and 1998 (approximately  $234,000). The same facility decline
in revenues for the quarter ended  September 30, 1999, is  attributable in part,
to The New Jersey  Automobile  Cost  Reduction Act of 1998 (the "ACR Act") which
was  implemented in the third quarter of fiscal 1999. The ACR Act allows for the
pre-certification  of MRI and other diagnostic imaging  procedures  reimbursable
through automobile  insurance carriers before each procedure is performed.  This
requirement  has caused some delays and  decreases  in MRI and other  diagnostic
imaging  referrals  during the third  quarter  of fiscal  1999 at various of the
Company's facilities.

        For the three months ended September 30, 1999,  operating  expenses were
$5,307,723  as compared to $2,719,873  for the three months ended  September 30,
1998,  an  increase  of  approximately  $2,588,000  or 97%.  This  increase  was
primarily due to (i) expenses  incurred in connection  with the operation of the
Beran  Facilities  acquired in October  1998  (approximately  $2,214,000),  (ii)
increased expenses  associated with facilities that were operated by the Company
for both of the  quarters  ended  September  30,  1999  and 1998  (approximately
$374,000)  primarily due to increased salary expenses relating to new personnel,
professional  fees,  temporary help costs, and increased  maintenance  agreement
costs  relating to new  equipment not covered by a  manufacturer's  warranty and
(iii)  expenses  relating  to  the  Company's   physician  practice   management
operations (approximately $38,000).

        The operating results for the Company continue to be negatively impacted
by the  Company's  fixed-site  MRI facility  located in Brooklyn,  New York (the
"Brooklyn  Facility").  For the three and nine months ended  September 30, 1999,
the Brooklyn Facility  generated losses of $123,299 and $445,428,  respectively,
as compared  to  $100,233  and  $577,942,  respectively,  for the three and nine
months ended September 30, 1998 . The Brooklyn Facility  continues to operate at
a loss,  even after the September 1998  restructuring  of the lease  arrangement
with  respect to this  facility  which  reduced  the monthly  lease  payments by
approximately  $13,500 per month.  Although  the Company  continues to implement
certain revenue enhancement  measures,  including excess capacity  arrangements,
there can be no assurance that the procedures generated at the Brooklyn Facility
will be sufficient to better support the operations of the Brooklyn Facility.

        In furtherance of the Company's  previously announced expanded strategic
focus into the area of establishing  physician practice management operations in
New Jersey,  New York and Philadelphia,  Pennsylvania,  the Company is assessing
affiliations with several primary care and  multi-specialty  physician practices
including  Pavonia Medical  Associates,  P.A.  (""PMA"),  as well as the faculty
practices  of  certain  hospitals.   Initially,   the  Company  focused  on  the
establishment  of its  physician  practice  management  operations  through  the
acquisition of physician practices. In this regard, the

                                              13

<PAGE>



Company  entered  into  various  letters  of  intent,   however,  no  definitive
acquisition  agreements  or long-term  administrative  service  agreements  were
executed. Given the significant declines in the financial performance of many of
the leading  publicly-traded  physician practice management companies during the
past  year,  the  availability  of  financing  for these  acquisitions  has been
extremely limited. This constriction in the financing market has had, and
is likely to continue to have,  an adverse  impact on the  Company's  ability to
effect its  physician  practice  management  acquisitions.  The  Company has now
shifted its focus from the  acquisition of physician  practices to  affiliations
with them and has been  providing  management  services  to PMA and  another New
Jersey based multi-specialty physician practice for the past several months.

Liquidity and Capital Resources of the Company
----------------------------------------------

        As of September  30,  1999,  the Company had a cash balance of $899,075,
current assets of $17,668,480 and working capital of $9,377,947. The significant
improvement  in the  Company's  working  capital  is a result  of the  Company's
restructuring  of a short-term $14.0 million bridge loan (the "DFS Bridge Loan")
with DVI Financial Services Inc. ("DFS"). As a result of this restructuring, the
repayment  date of the debt is now May 1,  2004,  with  principal  and  interest
payments  of  approximately  $308,000  payable by the  Company in each of the 56
months  commencing  with  October 1, 1999.  The  outstanding  balance of the DFS
Bridge Loan at the time of restructuring was $13,166,217.  The restructured debt
bears interest at 12% per annum.  The DFS Bridge Loan was funded in October 1998
in connection with the Beran Acquisition and bore interest at 12% per annum with
no payment due in month one (i.e.,  November  1998),  interest  only payments of
$140,000 in each of months two through four (i.e.,  December 1998,  January 1999
and February 1999), principal and interest payments of approximately $308,000 in
each of months  five and six (i.e.,  March  1999 and April  1999) with a balloon
payment of  $13,951,804  due in month  seven  (i.e.,  May 1999),  which  balloon
payment date had been extended to August 1, 1999.

        Cash flows provided by operating activities were $2,857,428 for the nine
months ended September 30, 1999, which consisted  primarily of (i) net income of
$1,595,249, (ii) depreciation and amortization of $2,369,694,  (iii) an increase
in the allowance for doubtful accounts  receivable of $693,000 and (iv) minority
interests in joint  ventures of $87,955.  Other  significant  components of cash
flows  provided  by  operating  activities  include  (x) an increase in accounts
receivable,  net of  $2,166,333,  (y) an  increase  in  deferred  tax  asset  of
$1,682,000 and (z) an increase in prepaid expenses and other of $189,979, all of
which were partially offset by a decrease in the accounts receivable acquired in
the Beran  Acquisition  of  $3,039,192  and an increase in accounts  payable and
accrued expenses of $217,319.

        Cash flows used in investing activities were $718,342,  which related to
interest  income of $150,000  associated  with a $2.5  million loan to the Beran
Entities and purchases of property, plant and equipment of $568,342. The loan to
the Beran Entities bears interest at 8% per annum and matures upon the terms and
conditions contained in the related promissory notes, but in no event later then
December 31, 1999.

        Cash flows used in financing activities were $2,746,134, which consisted
primarily of payments on capital lease  obligations of  $1,245,307,  payments on
the DFS Bridge Loan of $833,783,  payments on  obligations  related to subleased
equipment of $302,381 and  distributions to limited partners of joint venture of
$325,308.

                                              14

<PAGE>



        In December  1997,  the Company  agreed to guarantee a $1.0 million loan
from DFS to Jersey  Integrated  HealthPractice,  Inc. which provides  management
services  to PMA,  ("JIHP").  This loan was  funded by DFS to JIHP on January 8,
1998 and  bears  interest  at 12% per  annum  and is  repayable  over 48  months
commencing  in  February  1998 at $26,330  per month.  At  September  30,  1999,
approximately  $639,000  of the loan  was  outstanding.  PMA and each  physician
stockholder of PMA have  acknowledged that such extension of credit is for their
benefit and have agreed that to the extent that the Company is or becomes liable
in respect of any indebtedness or other liability or obligation of either PMA or
JIHP,  and the  acquisition  by the Company of 100% of the  outstanding  capital
stock of JIHP is not consummated, then PMA and each physician stockholder of PMA
agree to indemnify  and hold the Company  harmless  from and against any and all
such liabilities and obligations.

        Effective  December  26,  1996,  the  Company  entered  into a Loan  and
Security Agreement with DVI Business Credit Corporation ("DVIBC"),  an affiliate
of DFS, to provide a revolving line of credit to the Company. The maximum amount
available  under such credit facility  initially was $2.0 million,  which amount
increased  to  $3.0  million  in  October  1998 in  connection  with  the  Beran
Acquisition,  with advances limited to 75% of eligible accounts  receivable,  as
determined  by DVIBC.  Borrowings  under the line of credit bear interest at the
rate of 3% over the prime lending rate and were  originally  repayable on May 1,
1999,  which  maturity date had been extended to August 1, 1999. The Company has
been  notified by DVIBC that it is  prepared  to further  extend the term of the
revolving  line of credit until October 1, 2000,  subject to the  negotiation of
terms and conditions  acceptable to DVIBC. The Company's  obligations  under the
credit facility are collateralized  through a grant of a first security interest
in  all  eligible  accounts   receivable.   The  agreement   contains  customary
affirmative and negative covenants  including covenants requiring the Company to
maintain  certain  financial  ratios  and  minimum  levels of  working  capital.
Borrowings  under this credit facility may be used to fund working capital needs
as well as acquiring  businesses  which are  complementary  to the  Company.  At
September  30,  1999 and  December  31,  1998,  respectively,  the  Company  had
$2,798,920  and  $2,838,275,  respectively,  of  borrowings  under  this  credit
facility.

        Prior  to  May  1,  1999,   the  Company's   MRI  facility   located  in
Philadelphia,  Pennsylvania was operated as a joint venture among a wholly-owned
subsidiary  of the  Company (as the general  partner  holding a 60%  partnership
interest) and certain  individual  medical  professionals and others (as limited
partners  holding in the aggregate the  remaining  40%  partnership  interests).
Effective May 1, 1999, the Company's subsidiary  consummated the purchase of the
limited  partners' 40% partnership  interests for $100,000 in cash. At April 30,
1999, the net book value of this 40%  partnership  interest was $0. The $100,000
purchase  price will be recorded by the Company as goodwill and amortized over a
period of ten years.

     Additionaly,  the Company is in the process of negotiating  the purchase of
the limited partners'  ownership  interest in the Company's  facility located in
Wayne, New Jersey (the "Wayne  Facility").  This facility is operated as a joint
venture  is among a  wholly-owned  subsidiary  of the  Company  (as the  general
partner  holding  a  51%  partnership   interest)  and  two  individual  medical
professionals, who also provide consulting services to this facility the reading
radiologists at this facility (as limited  partners holding in the aggregate the
remaining 49% partnership interest).  However,  there can be no assurance,  that
the  Company  will be  successful  in its  negotiations  to acquire  the limited
partners' ownership interest in the Wayne Facility.

        The  nature of the  Company's  operations  require  significant  capital
expenditures which generally have been financed through the issuance of debt and
capital  leases  and  proceeds  received  from  the sale of  equity  securities,
including the Company's initial public offering of Common Stock

                                              15

<PAGE>



and  redeemable  warrants  in November  1991,  the  subsequent  exercise of such
redeemable  warrants  and the sale of Series C  Convertible  Preferred  Stock in
February  1996.  Continued  expansion of the Company's  business,  including the
establishment  of  physician  practice  management   operations,   will  require
substantial  cash resources and will have an impact on the Company's  liquidity.
The  Company  believes  that  cash to be  provided  by the  Company's  operating
activities together with borrowings  available from the Company's revolving line
of credit will enable the Company to meet its anticipated cash  requirements for
its present  operations for the next twelve months.  Continued  expansion of the
Company's business, including the establishment of physician practice management
operations,  will require additional sources of financing.  The Company has been
notified  by DVIBC  that they are  prepared  to  further  extend the term of the
revolving  line of credit until October 1, 2000,  subject to the  negotiation of
terms and conditions acceptable to them.

Effect of Year 2000 Issue

        The "Year 2000 issue" is a result of computer programs written using two
digits instead of four digits to refer to a particular  year.  Therefore,  these
computer  programs may  recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or  miscalculation  causing
disruptions of operations,  including, among other things, a temporary inability
to process  transactions,  send  invoices or engage in similar  normal  business
activity.

        The Company has not yet fully  completed its assessment of the impact of
the Year 2000  issue on its  computer  systems  and  technology,  including  (i)
information  technology  such as software and  hardware  relating to its medical
billing  systems,   accounting/finance   systems,   payroll   systems,   desktop
applications  and  servers,  and  (ii)   non-information   systems  or  embedded
technology such as micro  controllers  contained in various  medical  equipment,
safety  systems,  facilities  and  utilities  (including  telephones,  facsimile
machines,  time clocks and postage meters).  The Company is evaluating its state
of readiness  through surveys of its sites as well as through  discussions  with
its  significant  vendors to  determine  the  readiness of those  vendors  whose
failure to correct year 2000 issues  would  materially  impact the Company.  The
Company has completed its site  assessments and hopes to complete its assessment
of the state of  readiness  of its  significant  vendors by the end of the third
quarter of fiscal 1999.

        The cost to the  Company to correct  its  internal  Year 2000  issues is
estimated to be $88,500,  consisting of $30,500  related to the upgrading of its
corporate  server,  $54,500 relating to the upgrading of personal  computers and
$3,500 related to the upgrading of medical equipment.  However, the Company does
not  consider all of these  upgrades to be Year 2000 related  because they would
have been made otherwise in the ordinary  course of business  irrespective  of a
Year 2000 issue. The Company anticipates that these costs will be funded through
operating  cash  flows.  During the third  quarter of fiscal  1999,  the Company
completed the process of upgrading its corporate  server and personal  computers
at a cost of approximately  $73,000.  The Company is currently in the process of
replacing those  non-compliant  personnel  computers in certain of the Company's
facilities with the more modern computers from the Company's  corporate  office.
The Company expects to complete the requisite  upgrading of medical equipment by
the end of the fourth quarter of fiscal 1999.

        While the Company  believes its efforts are adequate to attain  internal
Year 2000 compliance,  the Year 2000 readiness of its vendors may lag behind the
Company's  efforts and it has not yet determined the extent to which the Company
is  vulnerable  to the failure of its vendors to  remediate  their own Year 2000
issues. There can be no guarantee that the systems of these third parties will

                                              16

<PAGE>



be timely converted or that a failure to convert will not have a material impact
on the Company's  business,  financial  condition or results of operations.  The
Company is not yet in a position  to assess  any such third  party's  compliance
efforts or the impact on the Company if any such efforts fail.

        The  Company's  current  estimates  of the  amount  of  time  and  costs
necessary to modify and test its computer  systems and  technology and determine
its  state of  readiness  are based on  management's  best  estimates  including
assumptions  regarding  future events,  including the continued  availability of
certain  resources,   Year  2000  modification  plans  and  other  factors.  New
developments  may occur that could affect the Company's  estimates of the amount
of time and  costs  necessary  to  modify  and test its  systems  for Year  2000
compliance,  including,  but not  limited  to (i) the  availability  and cost of
personnel  trained in this area,  (ii) the  ability  to locate and  correct  all
relevant  computer  codes and  equipment  and  (iii)  the Year  2000  compliance
attained by its significant vendors. The Company has not developed,  nor does it
plan to develop,  any contingency plans for any unplanned  noncompliance  issues
from internal or external sources.  There can be no guarantee that any unplanned
noncompliance  issues from internal or external sources will not have a material
impact on the Company's business, financial condition or results of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

        Not Applicable.

                                              17

<PAGE>



                                  PART II - OTHER INFORMATION

        Items 1 through 5 have been omitted  because the related  information is
either inapplicable or has been previously reported.

Item 6.  Exhibits and Reports on Form  8-K

        (a)    Exhibit 27    -      Financial Data Schedule

        (b)    Reports on Form 8-K

               The  Company  filed  a  Current  Report  on  Form  8-K  with  the
               Securities and Exchange  Commission on August 9, 1999 relating to
               the  issuance of its Press  Release on August 5, 1999  announcing
               the  name  change  of  the  Company  and  the  relocation  of its
               corporate offices.


                                              18

<PAGE>


                                          SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

HEALTHCARE INTEGRATED SERVICES, INC.
               (Registrant)



Date: November 15, 1999                     /s/ Elliott H. Vernon
                                            ---------------------
                                           Elliott H. Vernon
                                           Chairman of the Board and
                                           Chief Executive Officer
                                           (Principal Executive Officer)


Date: November 15, 1999                     /s/ Scott P. McGrory
                                            --------------------
                                            Scott P. McGrory
                                            Vice President - Controller
                                            (Principal Financial and
                                            Accounting Officer)