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 March 31, 2001
                                 --------------

                                                        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 May 21, 2001
         -----                                    ---------------------------
Common Stock, $.01 par value                             1,361,703 shares

                                                         1

<PAGE>




              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES

                                      INDEX

PART I.    FINANCIAL INFORMATION:                                          PAGE
-------    ----------------------                                          ----

Item 1.    Unaudited Consolidated Financial Statements:

           Consolidated Balance Sheets -
           March 31, 2001 and December 31, 2000                              3

           Consolidated Statements of Operations -
           Three months ended March 31, 2001 and 2000                        4

           Consolidated Statement of Changes in Stockholders Equity -
           For the three months ended March 31, 2001                         5

           Consolidated Statements of Cash Flows -
           Three months ended March 31, 2001 and 2000                        6

           Notes to Unaudited Consolidated Financial Statements              7

Item 2.    Management's Discussion and Analysis of                          18
           Financial Condition and Results of Operations

Item 3.    Quantitative and Qualitative Disclosure About                    22
           Market Risk

PART II.   OTHER INFORMATION

Item 5.    Other Information                                                23

Item 6.    Exhibits and Reports on Form 8-K                                 23

SIGNATURES                                                                  24
----------


                                                         2

<PAGE>




              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
<S>                                                                                  <C>                   <C>



                                                                                      March 31,            December 31,
Assets                                                                                  2001                   2000
------                                                                                 ------                 -----
                                                                                     (Unaudited)
Current Assets:
   Cash and cash equivalents                                                           $171,780          $     482,239
   Accounts receivable - net                                                         10,760,176             10,657,418
   Loan receivable                                                                            -                186,410
   Due from International Commerce Exchange Systems ("ICES")                            528,896                517,021
   Prepaid expenses and other                                                           212,221                 82,349
                                                                                        -------                 ------
                  Total current assets                                               11,673,073             11,925,437
                                                                                     ----------             ----------
Property, Plant and Equipment - Net                                                   6,566,854              6,999,570
Other Assets:
   Due from officer                                                                     264,125                264,125
   Deferred transaction and financing costs                                             163,742                116,896
   Other                                                                                175,201                178,637
   Investment in Atlantic Imaging Group, LLC ("AIG")                                    213,352                188,360
                                                                                        -------                -------
                  Total other assets                                                    816,420                748,018
                                                                                        -------                -------
Total Assets                                                                        $19,056,347            $19,673,025
                                                                                    ===========            ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
   Accounts payable and accrued expenses                                             $3,858,121             $3,727,465
   Dividends payable                                                                  1,539,063              1,293,654
   Borrowings under revolving line of credit                                          2,763,677              3,015,924
   Current portion of capital lease obligations                                         629,303                556,967
   Current portion of note payable                                                    1,517,353              1,811,580
   Income taxes payable                                                                   1,020                 10,020
                                                                                          -----                 ------
                  Total current liabilities                                          10,308,537             10,415,610
                                                                                     ----------             ----------
Noncurrent Liabilities:
   Capital lease obligations                                                          3,857,710              4,053,783
   Note payable                                                                       8,593,235              9,062,183
                                                                                      ---------              ---------
                  Total noncurrent liabilities                                       12,450,945             13,115,966
                                                                                     ----------             ----------
Commitments and Contingencies
Stockholders' Equity (Deficiency in net assets):
   Preferred stock, $.10 par value, 1,000,000 shares authorized:
    Series D 8% cumulative accelerating redeemable preferred stock, 633.647
      shares outstanding at March 31, 2001 and December 31, 2000, respectively
      $10,500 per share liquidation preference)                                              63                     63
   Common stock, $.01 par value:  50,000,000 shares authorized, 1,361,703
   outstanding  at March 31, 2001 and December 31, 2000, respectively                    13,617                 13,617
   Additional paid-in capital                                                        21,240,419             21,240,419
   Accumulated deficit                                                              (24,957,234)           (25,112,650)
                                                                                    ------------           ------------
                  Total stockholders' equity (Deficiency in net assets)              (3,703,135)            (3,858,551)
                                                                                     -----------            -----------
Total Liabilities and Stockholders' Equity (Deficiency in net assets)               $19,056,347            $19,673,025
                                                                                    ===========            ===========

</TABLE>


          See accompanying notes to unaudited consolidated financial
statements.


                                                         3

<PAGE>









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

                                                      Three Months Ended
                                                           March 31,
                                                          (Unaudited)

<TABLE>
<CAPTION>
<S>                                               <C>                <C>

                                                    2001               2000
                                                    ----               ----
Revenues                                         $3,980,317         $4,991,368
                                                 ----------         ----------
OPERATING EXPENSES:
   Salaries                                       1,626,790          1,601,302
   Other operating expenses                       1,326,287          1,558,179
   Provision for bad debts                          379,468            415,516
   Consulting and marketing fees                     46,432            139,996
   Professional fees                                 87,425             99,522
   Depreciation and amortization                    435,534            919,310
   Interest                                         536,100            620,185
   Gain on sale of property, plant and
    equipment                                      (798,532)                 -
                                                   ---------
                                                  3,639,504          5,354,010
                                                  ---------          ---------
Income/(Loss) Before Minority Interests in
   Joint Ventures and Income Taxes                  340,813           (362,642)
Equity earnings in AIG                               59,992             14,330
Minority Interests in Joint Ventures                      -            (58,438)
                                               ------------            --------
Income/(Loss) Before Income Taxes                   400,805           (406,750)
Income Tax Benefit                                      (20)           (91,542)
                                               ------------           --------
Net Income/(Loss)                                   400,825           (315,208)
Preferred Dividends                                 245,409            248,135
                                                    -------            -------
Net Income/(Loss) Available to Common
   Shareholders                                    $155,416          $(563,343)
                                                   ========          ==========
Net Income/(Loss) per Common Share -
   Basic                                             $.11              $(.50)
                                                     ====              ======
Weighted Average Common Shares
   Outstanding - Basic                            1,361,703         1,135,699
                                                  =========         =========
Net Income/(Loss) per Common Share -
     Diluted                                         $.11              $(.50)
                                                     ====              =====
Weighted Average Common Shares
   Outstanding - Diluted                          1,361,703        1,135,699
                                                  =========        =========

</TABLE>

                    See accompanying notes to unaudited consolidated financial
statements.

                                                         4

<PAGE>





              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY
                             IN NET ASSETS)
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
<S>                                      <C>          <C>        <C>         <C>            <C>            <C>         <C>


                                                                                                                        Total
                                                                                                      Accumulated   Stockholders'
                                                                                        Additional     (Deficit)        Equity
                                                                                          Paid-in      Retained     (Deficiency in
                                                                                          Capital      Earnings       Net Assets)
                                          Preferred Stock          Common Stock
                                         Shares     Amount     Shares       Amount
BALANCE, JANUARY 1, 2001                    634        $63      1,361,703     $13,617    $21,240,419  $(25,112,650)    $(3,858,551)

Net income                                                                                                 400,825         400,825
Preferred dividends                                                                                       (245,409)       (245,409)
BALANCE, MARCH 31, 2001                     634        $63      1,361,703     $13,617    $21,240,419 $ (24,957,234)    $(3,703,135)
                                    =========== ==========  ============= ===========  ============= ============= ================

</TABLE>



                      See accompanying notes to unaudited consolidated financial
statements.

                                                         5

<PAGE>





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

<TABLE>
<CAPTION>
<S>                                                                           <C>              <C>


                                                                           Three Months Ended
                                                                                March 31,
                                                                              (Unaudited)


                                                                              2001               2000
                                                                              ----               ----
Cash Flows From Operating Activities:
  Net income/(loss) available to common shareholders                        $155,416          $(563,343)
  Adjustments to reconcile net income/(loss) available to common
  shareholders to net cash (used in) provided by operating activities:
      Depreciation and amortization                                          435,534            919,310
      Non-cash compensation charge                                                 -             25,955
      Gain on sale of property, plant and equipment                         (798,532)                 -
      Interests in joint ventures                                            (59,992)            89,108
      Allowance for doubtful accounts                                        451,000            553,000
Changes in Assets and Liabilities:
            Accounts receivable                                             (553,758)        (1,189,889)
            Due from ICES - Interest Income                                  (11,875)                 -
            Prepaid expenses and other                                      (129,872)           (69,034)
            Deferred taxes                                                         -           (101,730)
            Other                                                              3,436             70,437
            Accounts payable and accrued expenses                            130,656            236,418
            Preferred dividends payable                                      245,409            197,724
            Income taxes payable                                              (9,000)            (6,475)
            Deferred transaction and financing costs                         (46,846)           (42,613)
                                                                             --------           --------
                  Net cash (used in) provided by operating activities       (188,424)           118,868
                                                                            ---------           -------

Cash Flows from Investing Activities:
      Loan payments from the buyers of the Wayne Facility                    186,410                  -
      Proceeds from the Beran Entities                                             -             50,411
      Purchases of property, plant and equipment                              (8,399)           (23,915)
      Proceeds from sale of property, plant and equipment net of
      closing costs                                                          804,113                  -
                                                                             -------        -----------
                  Net cash provided by investing activities                  982,124             26,496
                                                                             -------             ------

Cash Flows from Financing Activities:
      (Payments) Borrowings against the revolving line of credit            (252,247)           129,055
      Payments on capital lease obligations                                 (123,737)          (181,258)
      Payments on DFS Bridge Loan                                           (763,175)          (551,130)
      Distributions from (contritubtions to) joint ventures                   35,000           (154,878)
                                                                              ------           ---------
                  Net cash used in financing activities                   (1,104,159)          (758,211)
                                                                          -----------          ---------

  Decrease in cash and cash equivalents                                     (310,459)          (612,847)
  Cash and cash equivalents at beginning of period                           482,239            645,389
                                                                             -------            -------
  Cash and cash equivalents at end of period                                $171,780            $32,542
                                                                            --------            -------

Supplemental Cash Flow Information:
  Interest paid during the period                                           $528,258           $574,255
                                                                            --------           --------
  Income taxes paid during the period                                         $9,280          $  29,795
                                                                              ------          ---------

Supplemental Schedule of Non-Cash Investing and Financing
Activities:
  Non-cash proceeds in connection with the sale of property, plant and
  equipment                                                                  $48,000                  -
                                                                             =======          =========
  Capital leases principally for computer and medical equipment                    -          $1,493,990
                                                                             =======          ==========

</TABLE>


                           See accompanying notes to unaudited consolidated
financial statements.

                                                         6

<PAGE>




              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements
                        Three Months Ended March 31, 2001

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 March 31, 2001 and the related statements of operations
and cash flows for the periods ended March 31, 2001 and 2000. The Company had a
deferred tax asset as of March 31, 2000.

         The Company has an accumulated deficit of $24,957,234 and $25,112,650
at March 31, 2001 and December 31, 2000, respectively. The decrease is
attributable primarily to the gain on sale of property, plant and equipment by
the Company during the first quarter of 2001. Cash flows (used in) provided by
operating activities were $188,424 and $118,868 for the three months ended March
31, 2001 and March 31, 2000, respectively.

         The results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the results of operations expected for the year
ending December 31, 2001 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, 2000 which is on file with the
Securities and Exchange Commission. The Company is in the process of filing an
amended Form 10-K for the year ended December 31, 2000.

         Financial Viability - The Company has a deficiency in net assets
attributable primarily to the cash operating losses and the write-off of certain
intangible assets and deferred costs. Management is introducing various measures
in 2001 to reduce operating expenses and increase revenues. In addition, the
Company has executed an amended letter of intent with MedicalEdge Technologies,
Inc. 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 be sufficient to fund its anticipated cash requirements for its
present operations. The Company is also prepared to adopt additional expense
reduction measures if its estimates as to its cash requirements and satisfaction
thereof prove to be inaccurate. The Company believes that these measures will
enable it to continue as a going concern.





                                                         7

<PAGE>



Note 2. - Earnings Per Share

         Basic earnings (loss) per common share are computed by dividing net
income (loss) available to common shareholders by the weighted average number of
common shares outstanding for the three month period ended March 31, 2001 and
2000, as applicable. Diluted earnings (loss) per common share are computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding for the three month period ended
March 31, 2001 and 2000, 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 (loss) per share computations:

<TABLE>
<CAPTION>
<S>                            <C>              <C>               <C>               <C>              <C>            <C>



                                                        For the Three Months Ended March 31,
                                               2001                                                2000
                         ------------------------------------------------     ----------------------------------------------
                                           (Unaudited)                                         (Unaudited)
                         ------------------------------------------------     ----------------------------------------------
                          Income/(Loss)        Shares         Per-Share         (Loss)/Income        Shares       Per-Share
                           (Numerator)      (Denominator)      Amount            (Numerator)     (Denominator)     Amount
                           -----------      -------------      ------            -----------     -------------     ------
Basic EPS
Net Income/(Loss)
Available to Common
Shareholders                     $155,416         1,361,703          $.11            $(563,343)        1,135,699      $(.50)
Add:
Preferred Dividends                     -                 -                                   -                -

Effect of Dilutive
Securities
Stock Options                           -                -                                    -                -
Series D Stock                          -                -                                    -                -
                         ---------------- -----------------                   ----------------- ----------------

Diluted EPS
Net Income/(Loss)                $155,416         1,361,703          $.11            $(563,343)        1,135,699      $(.50)
                         ================ ================= =============     ================= ================ ===========

</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. Since January 20,
2000, the Common Stock has been listed on the American Stock Exchange ("AMEX")
under the symbol "HII." Prior thereto, it has been included in The Nasdaq Stock
Market under the symbol "HISS."

Note 4. - Sales, Acquisitions and Terminated Acquisitions

         Sales - In December 2000, the Company sold its partnership interest in
its MRI facility located in Wayne, New Jersey to the limited partners. The Wayne
facility had been operated as a joint venture among the Company's wholly-owned
subsidiary (as the general partner holding a 51% partnership interest) and two
individual medical professionals (as limited partners holding in aggregate

                                                         8

<PAGE>



the remaining 49% partnership interest). The Company decided to sell its
partnership interest at this time in anticipation of the scheduled expiration of
the partnership agreement in February 2002. The purchase price for the Company's
partnership interest was $1,250,000. As of December 31, 2000, the limited
partners owed the Company a remaining balance of $186,410 in promissory notes
which was paid in full during February and March of 2001. The Company is also
entitled to receive 20% of the partnership's gross revenues that exceed $400,000
in any quarter commencing with the quarter ended March 31, 2001 for a period of
four (4) years. As a result of the sale of its partnership's interest, the
Company recorded a gain on the sale of $753,773, which was recorded in the
fourth quarter of 2000.

         In November 2000, the Company sold certain of its assets relating to
its diagnostic imaging facility in Brooklyn, New York to Presgar Imaging of
Highway, L.L.C. ("Presgar"). The Company decided to sell this facility since it
has operated at a loss for the past several years. The sales price of the asset
was $700,000. The Company retained the MRI equipment and related furniture,
fixture and equipment. During the first quarter of 2001, the Company sold the
MRI equipment to an unaffiliated third party and recorded a gain on the sale of
equipment of $48,000. The sale also excluded the Company's accounts receivable
generated by this facility of approximately $1,000,000 in net realizable value.
In conjunction with this sale, the Company subleased the Brooklyn facility to
Presgar. The Company currently leases the building from DVI Realty Company. As a
result of the sale of these assets, in the fourth quarter of 2000 the Company
recorded a gain on the sale of $666,143.

         On March 5, 2001, the Company sold certain assets including medical and
office equipment relating to its diagnostic imaging facility located in the
Rittenhouse Square of Philadelphia, Pennsylvania to Rittenhouse Imaging Center,
L.P. The cash sales price of the asset was $800,000, which was paid at the
closing. The Company is also entitled to receive 25% of the revenue generated at
the facility that exceeds $250,000 in any quarter, up to a maximum of $700,000,
as post closing payments. However, if the purchaser renovates the facility for
the purpose of removing and repairing certain medical equipment, the purchaser
shall be entitled to a credit against the post closing payments. In the first
quarter of 2001 the Company recorded a gain on the sale of the assets of
$750,532.

         Terminated Acquisition - In April 2001, the Company announced that, as
a result of a restructuring of Pavonia Medical Associates, P.A. ("PMA") into
several smaller specialty physician practice groups, it would no longer proceed
with its acquisition of Jersey Integrated HealthPractice, Inc. ("JIHP"), nor
would it continue to provide management services to PMA as a single provider
entity. In lieu of this global management agreement, the Company has entered
into administrative services agreements with several of the smaller specialty
physician practice groups, one of which is a related party, formed as a result
of the restructuring of PMA as well as exclusive three to five-year agreements
to arrange and coordinate clinical research trials on behalf of these groups and
the other physician practice groups formed as a result of the restructuring of
PMA. The Company is also negotiating similar administrative services agreements
with these other physician practice groups. In addition, the Company expects to
acquire PMA's diagnostic imaging facility located at its principal offices in
Jersey City, New Jersey, which the Company is currently leasing, in exchange for
certain management fees and other liabilities owed to the Company by PMA. As a
result of the restructuring, the Company's merger agreement and multi-year
administrative services agreement with PMA have been terminated.


                                                         9

<PAGE>



         Medical Billing Services - In March 2001, the Company, in its
continuing efforts to reduce expenses, entered into an agreement with an
unaffiliated third party, Practical Billing Solutions, Inc. ("PBS") to provide
medical billing services for its diagnostic imaging operations. The Company was
able to reduce its headcount by 23 employees as the result of this outsourcing
arrangement. The agreement provides that PBS will bill insurance companies,
patients and other payors, on behalf of the Company, for a percentage of
collections plus postage expenses. The term of the agreement is for 36 months
and automatically renews for additional periods of 24 months each, with a right
to terminate after one year with 90 days written notice. As an additional
expense reduction measure, the Company currently intends to use its former
billing office at the Ocean Township Facility for its primary corporate offices
and to sublet all or substantially all of its corporate office in Shrewsbury,
New Jersey.

     Acquisitions - On October 2, 1998 (effective  October 1, 1998), HIS Imaging
LLC.,  a   wholly-owned   subsidiary  of  the  Company,   acquired  (the  "Beran
Acquisition") all of the assets and business of, and assumed 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 and a  radiology
facility  in  Atco  and  Williamstown,   New  Jersey  (the  Company  closed  the
Williamstown  Facility in July 1999) (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 887.385  shares of
Series D Cumulative  Accelerating Redeemable Preferred Stock of the Company (the
"Series D Stock") having an aggregate  liquidation  preference of  $9,317,542.50
(i.e., $10,500 per share liquidation preference). The purchase price was subject
to an adjustment based on the value of the Beran Entities'  accounts  receivable
as of the closing date and, in accordance  therewith,  15.642 shares of Series D
Stock having an aggregate  liquidation  preference of $164,241 were  transferred
back to the Company and canceled.  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
(the "Beran Loan") an aggregate of $2.5 million,  which loan bore interest at 8%
per annum and was to mature  upon the  terms  and  conditions  contained  in the
related  promissory  notes,  but in no event later then December 31, 1999. As of
December 31, 1999, the Beran Entities  repaid the Beran Loan in shares of Series
D Stock (i.e.,  238.096  shares of Series D Stock were  transferred  back to the
Company and cancelled in repayment of this loan).  The Company used the proceeds
of a $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 Series D Stock accrues  dividends at the
rate of 8% of the liquidation  preference and increases by an additional 2% upon
each three month anniversary of the date of issuance: provided, however, that in
no  event  will  the  dividend  rate  be in  excess  of 15%  of the  liquidation
preference.  All accrued and unpaid  dividends  are  payable  quarterly  in cash
commencing  January 10, 1999.  After March 1, 1999,  the holders of the Series D
Stock  became  entitled  to  convert  the Series D Stock  into an  aggregate  of
approximately  634,120  shares of the  Common  Stock;  provided  that  until the
Company obtains stockholder  approval of the issuance of the Series D Stock, the
holders of the Series D Stock only will be able to  convert  into  Common  Stock
representing  in the  aggregate  19.9%  of the  outstanding  Common  Stock as of
October 2, 1998  (i.e.  209,477  shares).  The  Company  may redeem the Series D
Stock, in whole but not in part, at any time at its liquidation  preference plus
all accrued and unpaid dividends to the date of redemption.

         The Company is currently negotiating the exchange of the outstanding
Series D Stock into subordinated promissory notes in the aggregate principal
amount equal to the aggregate liquidation preference of the outstanding Series D
Stock plus accrued and unpaid dividends. However, the accompanying unaudited
financial statements do not give effect to any exchange which may result from
these negotiations.

         The Company recorded the acquisition of the assets of the Beran
Entities in accordance with the purchase method of accounting whereby assets
acquired and liabilities assumed were recorded at their fair values. The excess
of the cost of the acquisition (including transaction costs) over the fair value
of net assets acquired was recorded as goodwill and was being amortized over a
period of 20 years. As of December 31, 2000, as a result of current period and
projected operating losses in the acquired businesses, the Company wrote-off the
remaining book value of this goodwill in the amount of $10,261,234.

     Note  Payable - In order to  improve  the  Company's  working  capital,  in
January 2001 the Company  renegotiated  the $14.0 million DFS Bridge Loan (which
had been  renegotiated  in  September  1999 from a short-term  liability  into a
long-term liability).  Prior to the renegotiation in January 2001, the repayment
date of the DFS Bridge Loan (which  bears  interest at 12% per annum) was 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. As a result of
the renegotiation in January 2001, the DFS Bridge Loan is now evidenced by three
different notes having different  payment schedules and bearing interest ranging
from 12% to 13% per annum: (i) a $3,000,000 original note payable (balance as of
March 31, 2001 was $2,415,266) as follows:  no payment due in month one, two and
three (i.e.  January,  February and March 2001),  in months four through  twelve
(i.e.  April  through   December  2001)  principal  and  interest   payments  of
approximately  $24,417,  in months thirteen  through twenty- four (i.e.  January
through December 2002) principal and interest payments of approximately  $39,993
and in months  twenty-five  through  sixty (i.e.  January 2003 through  December
2005)  principal  and  interest  payments  of  approximately   $75,817;  (ii)  a
$3,000,000  original note payable  (balance as of March 31, 2001 was $2,413,814)
as follows: no payment due in month one, two and three (i.e.  January,  February
and March 2001),  in months four through  twelve (i.e.  April  through  December
2001)  principal  and  interest  payments of  approximately  $24,415,  in months
thirteen through twenty- four (i.e. January through December 2002) principal and
interest  payments of approximately  $39,663 and in months  twenty-five  through
sixty (i.e.  January 2003 through December 2005) principal and interest payments
of approximately  $75,189; and (iii) a $7,166,217 original note payable (balance
as

                                                        11

<PAGE>



of March 31, 2001 was $5,281,508) as follows: in months one through forty-one
(i.e. January 2001 though May 2004) principal and interest payments of
approximately $167,748.56. The outstanding balance of the DFS Bridge Loan at the
time of renegotiation was $10,324,538. The DFS Bridge Loan was funded in October
1998 in connection with the Beran Acquisition.

         In July 1999, the Company ceased operations at its Monroe Diagnostic
Imaging Center (the "Williamstown Facility") located in Williamstown, New
Jersey. The facility, historically and since its acquisition in October 1998,
had operated unprofitably. Following its acquisition, the Company was
unsuccessful in its attempts 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 Williamstown
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.

Note 5. - Deferred Transaction and Financing Costs

         Deferred transaction and financing costs relate to legal and accounting
fees incurred in connection with the Company's proposed pending acquisitions or
management services contracts and proposed new financing of the Company's
expansion plans. In the event any of such proposed acquisitions or financing is
not consummated or any such management services contract is not executed, the
related deferred costs will be expensed.

Note 6. - Segment Information

         The Company currently operates in two industry segments: (i) diagnostic
imaging and (ii) physician management/consulting and clinical research
operations. The diagnostic imaging segment primarily involves operating
fixed-site diagnostic imaging facilities. The physician management/consulting
and clinical research segment, which commenced operations during the second
quarter of fiscal 1998, consists of providing management and consulting services
to independent physician practices and providing clinical research opportunities
to such practices and others.

         The following table shows net revenues and operating income by industry
segment for the three month period ended March 31, 2001 and March 31, 2000.
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:


<TABLE>
<CAPTION>
<S>                                                                      <C>                    <C>



                                                                       Three Months            Three Months
                                                                         Ended                    Ended
                                                                       March 31, 2001          March 31, 2000
                                                                       --------------          ---------------
                                                                        (Unaudited)               (Unaudited)
         Net revenues:
              Diagnostic imaging                                        $3,940,307                $4,662,733
              Physician management/consulting
               and clinical research                                        40,010                   328,635
                                                                            ------                   -------
              Total                                                     $3,980,317                $4,991,368
                                                                        ==========                ==========

                                                        12

<PAGE>





         Operating income/(loss):
              Diagnostic imaging                                          $426,927                   $(548,179)
              Physician management/consulting
               and clinical research                                       (86,114)                    185,537
                                                                           --------                    -------
              Total                                                       $340,813                   $(362,642)
                                                                          ========                   ==========

</TABLE>


              Over the past few years, the Company's results of operations have
been negatively impacted by several developments in the HealthCare field. Among
other things, the trend in the industry towards managed care and HMOs has
resulted in lower reimbursement rates for medical procedures, including
diagnostic imaging, and an increased demand for lower overall HealthCare costs.
The Company is addressing this trend by actively pursuing contracts for its
diagnostic imaging operations that contain favorable reimbursement rates and
eliminating agreements with payors who have reduced reimbursement rates
significantly below the current Medicare fee schedule. The Company's revenues
from its diagnostic imaging operations, primarily those New Jersey facilities
acquired in October 1998, have also been adversely affected by the New Jersey
Automobile Cost Reduction Act of 1998 which was implemented in the second
quarter of fiscal 1999. This Act requires the pre-certification of MRI and other
diagnostic imaging procedures reimbursable through automobile insurance carriers
before each procedure is performed. This requirement has caused significant
delays and decreases in MRI and other diagnostic imaging referrals during fiscal
2000 and continued through the first quarter March 31, 2001 at various of the
Company's New Jersey facilities.

Note 7. 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 provides
day-to-day administrative and management services to Atlantic Imaging, and both
the Company and HAI 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 has agreed to utilize the network on an
exclusive basis for any MRI services it refers claimants to 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. The network
presently consists of 85 diagnostic imaging facilities in New Jersey and
currently provides services to 18 automobile insurance carriers in New Jersey
including: Allstate Insurance Company, Palisades Safety and Insurance
Association, National General Insurance Company, Metropolitan, National
Continental Progressive Insurance Company and Highlands Insurance Group.

              In addition, in September 1999 the Company established clinical
research operations through a wholly-owned subsidiary, HIS Clinical Research Co.
LLC ("HISCR"). HISCR focuses on arranging clinical research trials for
pharmaceutical companies. To date, HISCR has arranged 19 clinical studies in the
areas of rheumatology pain management medication, chronic prostatitis
medication, diabetes drug therapies, chronic bronchitis, diabetic
polyneuropathy, respiratory track infections, sinusitis, smoking reduction,
hypertension, asthma medication, pulmonary function and pneumonia medication on
behalf of various leading pharmaceutical companies including ASTA

                                                        13

<PAGE>



     Medica,  Inc.;  Abbott  Laboratories;   Merck  &  Co.,  Inc.;  Ortho-McNeil
Pharmaceutical,  Inc.; SmithKline Beecham Corporation; Takeda America Research &
Development Center,  Inc.; Bristol Meyers Squibb Company;  American  Biosystems,
Inc; Pfizer; and Glaxo Wellcome, Inc. HISCR has an exclusive five-year agreement
with North Jersey Health,  P.A. ("NJ Health") to arrange and coordinate clinical
research trials on its behalf, and has an exclusive three to five-year agreement
to arrange and coordinate  clinical  research  trials on behalf of the physician
practice  groups formed as a result of the  restructuring  of PMA (See Physician
Management and Consulting Operations).

              In January 2000, the Company formed CliniCure.com, LLC
("CliniCure.com"), a wholly-owned subsidiary, to provide web-based outreach for
clinical research trials by physicians, universities, hospitals and
pharmaceutical companies. CliniCure.com's Web site is intended to be an easy to
navigate medical web site which will facilitate access to medical clinical
trials for both patients and physicians alike. It is expected that patient users
will be able to research new clinical trials beginning in a variety of areas
and, if interested, will be able to apply for participation in these trials.
Additionally, physicians and researchers will be able to utilize the site as a
referral source in the recruitment of candidates for clinical trials. Amounts
attributable to the operations of CliniCure.com for the three months ended March
31, 2001 are not significant.

Physician Management and Consulting Operations

              During fiscal 1997, the Company decided to expand its strategic
focus into the area of physician management and consulting and, in connection
therewith, in January 1998 entered into letters of intent with respect to the
acquisition of all of the outstanding capital stock of Jersey Integrated
HealthPractice, Inc. ("JIHP"), a management services organization ("MSO") formed
and owned by PMA and Liberty HealthCare Systems, Inc. ("Liberty") and which
managed PMA. In July 2000, the Company announced that it had entered into
several agreements including (1) a merger agreement relating to its acquisition
of JIHP and (2) a multi-year administrative services agreement with PMA. The
Company had previously entered into an exclusive five year agreement with PMA to
arrange and coordinate clinical research trials on its behalf.

              In April 2001, the Company announced that, as a result of a
restructuring of PMA into several smaller specialty physician practice groups,
it would no longer proceed with its acquisition of JIHP, nor would it continue
to provide management services to PMA as a single provider entity. PMA had been
one of the largest multi-specialty medical practices in New Jersey, and the
Company had been providing management services to PMA for over two years. In
lieu of this global management agreement, the Company has entered into
administrative services agreements with several of the smaller specialty
physician practice groups formed as a result of this restructuring of PMA as
well as exclusive three to five-year agreements to arrange and coordinate
clinical research trials on behalf of these groups and the other physician
practice groups formed as a result of this restructuring of PMA (which groups,
in the aggregate, are comprised of over 70 physicians treating over 80,000
patients). The Company is also negotiating similar administrative services
agreements with these other physician practice groups. In addition, the Company
expects to acquire PMA's diagnostic imaging facility, which the Company is
currently leasing, located at its principal offices in Jersey City, New Jersey,
in exchange for certain management fees and other liabilities owed to the
Company by PMA.

              As a result of the restructuring of PMA, the Company's merger
agreement and multi-year administrative services agreement with PMA have been
terminated. The Company had expected to

                                                        14

<PAGE>



issue an aggregate of 1.1 million shares of Common Stock and approximately $4.9
million in redeemable convertible preferred stock in connection with its
acquisition of JIHP. As of December 31, 2000, the Company wrote-off
approximately $1.0 million in deferred transaction costs related to legal and
accounting fees incurred in connection with the proposed acquisition and in
deferred financing costs related to costs incurred in connection with proposed
new financing of these expansion plans. In addition, as of December 2000, the
Company wrote-off as bad debt expense the approximately $2.0 million account
receivable due from PMA.

              In December 1997, the Company agreed to guarantee a $1.0 million
loan from DFS to 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 March 31, 2001, approximately $292,961
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
Company's acquisition 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. The Company expects that
this loan will be repaid through the collection of certain receivables of PMA.

              Since February 1999, the Company has been providing management and
consulting services to another New Jersey-based multi-specialty physician
practice, NJ Health. NJ Health is one of the largest independent multi-specialty
physician practices in New Jersey, consisting of 32 physicians, 16 offices and
80,000 active patients. In December 1999, the Company entered into a letter of
intent with NJ Health setting forth the terms of an agreement which provides
for, among other things, management and consulting services pursuant to an
administrative services agreement with an initial term of five years, during
which period the Company will provide NJ Health with certain non-medical,
management and consulting services. In accordance with the agreement, NJ Health
will pay to the Company a fixed management fee of $500,000 per annum. In
addition to the fixed management fee, additional management fees will be paid to
the Company from NJ Health's net income related to ancillary services. The
agreement also enables the Company to acquire the assets of NJ Health, subject
to certain financial milestones being achieved, as well as the satisfaction of
certain additional conditions, during the first three years of the agreement. As
of December 31, 2000, the Company decided not to acquire the assets of NJ Health
and wrote-off the approximately $500,000 account receivable due from NJ Health.

 MedicalEdge Technologies, Inc.

              On September 26, 2000, the Company executed an amended letter of
intent with MedicalEdge Technologies, Inc., an acute care/physician services
e-commerce HealthCare company ("MedicalEdge"), with respect to its acquisition,
by way of reverse merger (the "Merger"), of the Company. The Merger, when
completed, will reorient part of the Company's focus to the provision of
HealthCare and related services through the Internet. MedicalEdge is currently
an indirect subsidiary of ICES.

              The letter of intent with MedicalEdge provides that in the Merger
the MedicalEdge stockholders will be issued shares of the Company's Common Stock
representing, in the aggregate, 72% of the issued and outstanding Common Stock
immediately after the Merger (on a fully-diluted basis). The Merger is subject
to, among other closing conditions, the final negotiation of a merger

                                                        15

<PAGE>



agreement, satisfactory completion of due diligence, stockholder approval and
the disposition by the Company of its diagnostic imaging business.

              In order to provide certain protection to the stockholders of the
Company as of September 26, 2000, the letter of intent with MedicalEdge provides
that if the average per share closing sales price of the Common Stock for the 20
consecutive trading days prior to the first anniversary of the closing of the
Merger is not equal to $2.50 or more, each such stockholder of the Company shall
have the right to require the Company to purchase, in whole or in part, the
shares of Common Stock such stockholder owned as of September 26, 2000 and which
it still owns as of such anniversary date, for a per share purchase price of
$2.50 per share.

              The letter of intent with MedicalEdge further provides that upon
execution the Company would issue to MedicalEdge 100 shares of its preferred
stock convertible at the closing of the Merger into 100,000 shares of Common
Stock. These shares will constitute a portion of the 72% of the Common Stock to
be issued to the MedicalEdge stockholders in the Merger. If the Merger is not
consummated for any reason prior to the nine-month anniversary of the execution
of the letter of intent with MedicalEdge, other than as a result of
MedicalEdge's inability or refusal to proceed, then MedicalEdge shall have the
option to require the Company to repurchase all of these shares of preferred
stock for either cash (and, under certain specified conditions, a one-year
promissory note) equal to the fair market value of these 100,000 shares of
Common Stock or 100,000 shares of Common Stock, as the Company shall determine.

Sale of Common Stock to Huntington Street and VentureTek L.P.

              In conjunction with the execution of the letter of intent with
MedicalEdge, the Company raised $500,000 through an agreement to sell 226,004
shares of Common Stock (constituting approximately 19.9% of the outstanding
Common Stock before such sale) to Lindsay Rosenwald, M.D. d/b/a Huntington
Street Company ("Huntington"), and VentureTek L.P. ("VentureTek"") for a per
share purchase price of $2.212 for the purpose of the MedicalEdge transaction.
The proceeds of this sale were provided to ICES in accordance with the letter of
intent and are require to be utilized for the development of the business,
products and services to be operated, owned and provided by the surviving
company after the Merger. The Company has agreed to file a registration
statement covering these shares of Common Stock within 30 days after the closing
(which date is subject to extension under certain specified conditions), and to
issue additional shares of Common Stock to these investors if the market price
of the Common Stock at the earlier of 120 days from the closing or the effective
date of the registration statement is less that $2.88 in order to provide the
investors with a 130% return on their investment (valuing all shares at the then
market price). The issuance of these additional shares of Common Stock is
subject to stockholder approval. If this stockholder approval is not obtained,
the Company has to deliver to Huntington and VentureTek a cash amount equal to
the fair market value of the additional shares or, if it is financially unable
to deliver such cash amount, the Company is then obligated to deliver a
promissory note, in such amount, to them bearing interest at the rate of 9% per
annum, with principal and interest payable in full on the first anniversary of
the date of issuance of the note. The Company intends to solicit stockholder
approval of this issuance during the second half of 2001.




                                                        16

<PAGE>


Loan to ICES

              The $500,000 the Company received from Huntington and VentureTek
was loaned to ICES (the "ICES Loan") for the development of the business,
products and services to be operated, owned and provided by the surviving
company after the Merger. The outstanding principal and accrued interest of the
ICES Loan is payable in full in cash on or prior to the earlier of the 30th day
after the closing of the Merger and the 180th day after the execution of the
letter of intent with MedicalEdge; provided, however, that if the Merger has not
been consummated prior to such 180th day and MedicalEdge is using its reasonable
efforts in good faith to close the Merger, and the Merger is not consummated as
a consequence of the Company's inability or refusal to proceed, then in lieu of
such cash repayment, the Company shall be issued class A common stock of ICES
having an aggregate value equal to such repayment, based upon an ICES valuation
of $500 million. In addition, if the Merger has not been consummated prior to
the 180th day after the execution of the letter of intent with MedicalEdge and
the Company is using its reasonable efforts in good faith to close the Merger,
and the Merger is not consummated as a consequence of MedicalEdge's inability or
refusal to proceed, then the Company shall have the option to received either
repayment of the ICES Loan in full in cash or class A common stock of ICES, and
MedicalEdge shall reimburse the Company its actual out-of-pocket expenses
incurred in connection with the Merger, up to an aggregate of $200,000, one-half
of which reimbursement shall consist of cash and one-half of which shall consist
of class A common stock of ICES.

                                                        17

<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 Three Months Ended March 31, 2001 vs. March 31, 2000

              For the three months ended March 31, 2001, revenues were
$3,980,317 as compared to $4,991,368 for the three months ended March 31, 2000,
a decrease of approximately $1,011,000 or 20%. This decrease was primarily due
to (i) a decrease of $400,000 in revenues from the Company's Monmouth, Edgewater
and Lower Manhattan facilities, (ii) a decrease of $900,000 from the Company's
Brooklyn, Wayne and Rittenhouse facilities, which decrease in revenue were
partially offset by a $100,000 increase in revenue from the other New Jersey
facilities and a $200,000 increase in revenues related to the Pavonia diagnostic
imaging facility, which the Company is currently leasing, located at its
principal offices in Jersey City, New Jersey.

              For the three months ended March 31, 2001, operating expenses were
$4,438,036 as compared to $5,354,010 for the three months ended March 31, 2000,
a decrease of approximately $916,000 or 17%. This decrease was primarily due to
(i) decreased depreciation and amortization of approximately $484,000 as a
result of the closure of the Brooklyn, Wayne and Rittenhouse facilities, (ii)
decreased consulting, marketing, and professional fees approximately $94,000,
(iii) decreased interest expense of approximately $84,000, primarily due to the
renegotiation in January 2001 of the DFS Bridge Loan and certain capital lease
obligations, and (iv) a decrease in other operating expenses of approximately
$232,000, relating to the closure of the Brooklyn, Wayne and Rittenhouse
facilities.


Liquidity and Capital Resources of the Company

              As of March 31, 2001, the Company had a cash balance of $171,780,
current assets of $11,673,073 and working capital of $1,364,536. In order to
improve the Company's working capital, in January 2001 the Company renegotiated
the $14.0 million DFS Bridge Loan (which had been

                                                        18

<PAGE>



renegotiated in September 1999 from a short-term liability into a long-term
liability). Prior to the renegotiation in January 2001, the repayment date of
the DFS Bridge Loan (which bears interest at 12% annum) was 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. As a result of the
renegotiation in January 2001, the DFS Bridge Loan is now evidenced by three
different notes having different payment schedules and bearing interest ranging
from 12% to 13% per annum. The Company's working capital was adversely affected
by the marked decline in the number of MRI and other diagnostic imaging
referrals primarily to the Company's New Jersey facilities, acquired in 1998, in
January 2001, as discussed above, which decline resulted from certain changes
enacted and penalties implemented by automobile insurance carriers in late
December 1999 to pre-certification requirements of diagnostic imaging procedures
and the uncertainties associated with these changes.

              Although the Company has implemented various measures to improve
it revenues during the past several years, including the formation of Atlantic
Imaging in April 1999, the establishment of clinical research operations in
September 1999 and the formation of CliniCure.com in January 2000, these efforts
were not sufficient to eliminate the Company's operating losses. Accordingly,
during the latter part of 2000 and the beginning of 2001, the Company took a
number of additional steps to further streamline its cost structure and
eliminate its least profitable operations. Among the actions taken by the
Company were; the leasing of its employees in June 2000; the sale of certain
diagnostic imaging facilities located in Brooklyn, New York in November 2000, in
Wayne, New Jersey in December 2000 and in Philadelphia, Pennsylvania in March
2001; the outsourcing of its billing operations in March 2001; and the
renegotiation of certain of its credit facilities. The Company's letter of
intent with MedicalEdge contemplates its disposition of its diagnostic imaging
operations, and additional facilities may also be disposed of in 2001. The
Company is also prepared to adopt additional expense reduction measures if its
estimates as to its cash requirements and satisfaction thereof prove to be
inaccurate.

              Cash flows used in operating activities were $188,424 for the
three months ended March 31, 2001, which consisted primarily of (i) net income
of $155,416, (ii) depreciation and amortization expenses of $435,534, (iii) a
decrease in the allowance for doubtful accounts receivable of $451,000, (iv) a
gain on the sale of property, plant and equipment of $798,532, and (v) equity
earnings in AIG $59,992. Other significant components of cash flows used in
operating activities include (A) an increase in accounts receivable, net of
$553,758, and (B) an increase in preferred dividends payable of $245,409.

              Cash flows provided by investing activities were $982,124, which
related to the (i) proceeds from the sale of property, plant and equipment  of
$804,113. (The Company used the proceeds from such sales to pay off certain
existing indebtedness of the Company related to such facilities and otherwise),
and (ii) loan payments from buyers of the Wayne facility of $186,410.

              Cash flows used in financing activities were $1,104,159, which
consisted primarily of payments on capital lease obligations of $123,737,
payments on the DFS Bridge Loan of $763,175 and distributions from joint venture
of $35,000, and payments with respect to the Company's
revolving line of credit of $252,247.

              In December 1997, the Company agreed to guarantee a $1.0 million
loan from DFS to 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 March 31, 2001, approximately $292,961
of the loan was outstanding. PMA and each physician stockholder

                                                        19

<PAGE>



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 (including any requisite stockholder approvals), 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. The
Company expects that this loan will be repaid through the collection of certain
receivables of PMA.

              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 $2,000,000, which amount
increased to $3,000,000 in October 1998 in connection with the Beran Acquisition
and further increased to $4,000,000 in December 1999, 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 are repayable on May 26, 2001. The Company is currently negotiating an
extension of such line of credit. 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 are used to fund working capital needs as well as acquiring
businesses which are complementary to the Company. At March 31, 2001, the
Company had $2,763,677 of borrowings under this credit facility.

              In October 1999, the Company entered into an exclusive five-year
agreement with PMA to arrange and coordinate clinical research trials on its
behalf. The Company had arranged 19 clinical research trials on behalf of PMA
prior to its restructuring. As of March 31, 2001, the Company had received an
aggregate of approximately $48,440 in fees from such trials and PMA had received
an aggregate of approximately $139,177 in fees for such trials. The Company has
entered into exclusive three to five-year agreements to arrange and coordinate
clinical research trials on behalf of the several physician practice groups
formed as a result of the restructuring of PMA. Dr. Patel, a director and
Vice-Chairman of the Company, is the sole stockholder, director and officer of
one of these small specialty physician practice groups.

              In June 2000, the Company entered into a lease agreement with
Stratus Services Group, Inc. ("Stratus") which is an employment leasing company
and also provides a wide range of other staffing and outsourcing services.
Effective June 19, 2000, all of the Company employees, (totaling approximately
150 employees), except certain officers and radiologists, became employees of
Stratus and then were leased back to the Company. Stratus is a public company
traded on Nasdaq under the symbol "SERV" and the CEO of Stratus is a former
director of the Company. As of March 31, 2001, the Company had paid Stratus
$3,904,522 for such lease arrangement (which represents the leased employees'
compensation plus a leasing and administrative fee to Stratus related to taxes
and insurance and for payroll, human resources and accounting services) and had
an outstanding balance owed to Stratus in the amount of $707,198. The term of
the lease agreement is for one year and automatically renews on an annual basis
with a right to terminate with 30 days written notice.

              In July 1999, the Company closed its MRI facility in Williamstown,
New Jersey. The facility, historically and since its acquisition in October 1998
as part of the Beran Acquisition, had operated unprofitably. Following its
acquisition, the Company was unsuccessful in its attempts to

                                                        20

<PAGE>



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 this 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.

              In November 2000, the Company sold the Brooklyn Facility which had
been operating at a loss for the past several years. The Company received
$700,000 in cash upon the sale of the facility. The Company recorded a gain on
the sale of $666,143, which was recorded in the fourth quarter of 2000.

              In December 2000, the Company sold its partnership interest in its
MRI facility located in Wayne, New Jersey to the limited partners. The Wayne
facility had been operated as a joint venture among the Company's wholly-owned
subsidiary (as the general partner holding a 51% partnership interest) and two
individual medical professionals (as limited partners holding in aggregate the
remaining 49% partnership interest). The Company decided to sell its partnership
interest at this time in anticipation of the scheduled expiration of the
partnership agreement in February 2002. The purchase price for the Company's
partnership interest was $1,250,000. As of December 31, 2000, the limited
partners owed the Company a remaining balance of $186,410 which was paid in full
during January and February of 2001. The Company is also entitled to receive 20%
of the partnership's gross revenues that exceed $400,000 in any quarter
commencing with the quarter ended March 31, 2001 for a period of four (4) years.
As a result of the sale of its partnership's interest, the Company recorded a
gain on the sale of $753,773, which was recorded in the fourth quarter of 2000.

              In March 2001, the Company sold the Rittenhouse facility. The
Company received $800,000 in cash upon the sale of the facility, and is also
entitled to additional payments under certain specified conditions.

              The Company used the proceeds from such sales to pay off certain
existing indebtedness of the Company related to such facilities and otherwise.

              The nature of the Company's operations require significant capital
expenditures which generally have been financed through the issuance of debt and
capital leases. Continued expansion of the Company's business, including the
implementation of its new business model, will require substantial cash
resources and will have an impact on the Company's liquidity.

              Over the past few years, the Company's results of operations have
been negatively impacted by several developments in the HealthCare field. Among
other things, the trend in the industry towards managed care and HMOs has
resulted in lower reimbursement rates for medical procedures, including
diagnostic imaging, and an increased demand for lower overall HealthCare costs.
The Company is addressing this trend by actively pursuing contracts for its
diagnostic imaging operations that contain favorable reimbursement rates and
eliminating agreements with payors who have reduced reimbursement rates
significantly below the current Medicare fee schedule. The Company's revenues
from its diagnostic imaging operations, primarily those New Jersey facilities
acquired in October 1998, have also been adversely affected by the New Jersey
Automobile Cost Reduction Act of 1998 which was implemented in the second
quarter of fiscal 1999. This Act requires the pre-certification of MRI and other
diagnostic imaging procedures reimbursable through

                                                        21

<PAGE>



automobile insurance carriers before each procedure is performed. This
requirement has caused significant delays and decreases in MRI and other
diagnostic imaging referrals during the latter half of fiscal 2000 and continued
through the first quarter of March 31, 2001 at various of the Company's New
Jersey facilities.

              As a result of losses in fiscal 2000 and the expectation of
continuing losses from the Beran facilities the Company acquired in October
1998, the Company wrote-off the remaining goodwill related to these facilities
of approximately $10.0 million in the fourth quarter of 2000. The decline in
performance of these facilities contributed, in large part, to the Company's
receipt of a "going concern" modification from its independent auditors.

              Although the Company has implemented various measure to improve
its revenues during the past several years, including the formation of Atlantic
Imaging Group in April 1999, the establishment of clinical research operations
in September 1999 and the formation of CliniCure.com in January 2000, these
efforts were not sufficient to eliminate the Company's operating losses.
Accordingly, during the latter part of 2000 and the beginning of 2001, the
Company took a number of additional steps to further strengthen its cost
structure and eliminate its least profitable operations. Among the actions taken
by the Company were the leasing of its employees in June 2000; the sale of
certain diagnostic imaging facilities located in Brooklyn, New York in November
2000, in Wayne, New Jersey in December 2000, and in Philadelphia, Pennsylvania
in March 2001; the outsourcing of its billing operation in March 2001 and the
renegotiation of certain of its credit facilities. The Company's letter of
intent with MedicalEdge contemplates its disposition of its diagnostic imaging
operations, and additional facilities may also be disposed of in 2001. The
Company believes that cash to be provided by the Company's operating activities
together with borrowings available form the Company's revolving line of credit
will be sufficient to fund its anticipated cash requirements for its present
operations. Each of DVIBC and DFS has waived any default that may have existed
at December 31, 2000 in any financial ratio or similar covenant in the Company's
loan arrangements with them, and has agreed not to take action as a result of
any such financial ratio or similar covenant default (or any other default that
may subsequently occur as a result of any events or circumstances of which
either DVIBC or DFS has knowledge and which constituted a default at December
31, 2000). The Company is also prepared to adopt additional expense reduction
measures if its estimates as to its cash requirements and satisfaction thereof
prove to be inaccurate. The Company believes that these measures will enable it
to continue as a going concern.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

              Not Applicable.

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<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)  The Company filed a Current Report on Form
                   8-K with the Securities and Exchange
                   Commission on February 7, 2001.

                   (i)      Item 5. Other Events
                   (ii)     Item 7. Financial Statements and Exhibits
                                    (a) Press Release of HealthCare Integrated
                                    Services, Inc. dated February 6, 2001.




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<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:  May 21, 2001                /s/ Elliott H. Vernon
                                   ---------------------
                                   Elliott H. Vernon
                                   Chairman of the Board and Chief Executive
                                   Officer
                                  (Principal Executive Officer)


Date:  May 21, 2001                /s/ Robert D. Baca
                                   ------------------
                                   Robert D. Baca
                                   President and Chief Operating Officer
                                   (Principal Financial and Accounting Officer)

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