<PAGE>

                                  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 JUNE 30, 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 AUGUST 16, 2001
----------------------------                     ------------------------------
Common Stock, $.01 par value                            1,361,703 shares


<PAGE>

              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES

                                      INDEX

PART I.  FINANCIAL INFORMATION:                                          PAGE

Item 1.    Financial Statements:

           Condensed Consolidated Balance Sheets -

           June 30, 2001 (unaudited) and December 31, 2000                 3

           Condensed Consolidated Statements of Operations (unaudited)-

           Three and six months ended June 30, 2001 and 2000               4

           Condensed Consolidated Statements of Cash Flows (unaudited) -

           Six months ended June 30, 2001 and 2000                         5

           Notes to Condensed Consolidated Financial Statements            6

Item 2.    Management's Discussion and Analysis of                        13
           Financial Condition and Results of Operations

Item 3.    Quantitative and Qualitative Disclosure About                  16
           Market Risk

PART II.   OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K                               17

SIGNATURES                                                                18


                                       2

<PAGE>

              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,
ASSETS                                                                      JUNE 30,2001     2000
                                                                            ------------  ------------
                                                                            (UNAUDITED)
<S>                                                                         <C>           <C>
Current Assets:
   Cash and cash equivalents                                                    $212,613     $482,239
   Accounts receivable - net                                                  11,636,921   10,657,418
   Loan receivable                                                                     -      186,410
   Due from International Commerce Exchange Systems ("ICES")                     570,954      517,021
   Prepaid expenses and other                                                    161,090       82,349
                                                                             -----------  -----------
                  Total current assets                                        12,581,578   11,925,437
                                                                             -----------  -----------
Property, Plant and Equipment - Net                                            6,706,475    6,999,570
                                                                             -----------  -----------
Other Assets:
   Due from officer                                                              264,125      264,125
   Deferred transaction and financing costs                                      161,195      116,896
   Other                                                                         181,933      178,637
   Investment in Atlantic Imaging Group, LLC ("AIG")                              53,205      188,360
                                                                             -----------  -----------
                  Total other assets                                             660,458      748,018
                                                                             -----------  -----------
Total Assets                                                                 $19,948,511  $19,673,025
                                                                             ===========  ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable and accrued expenses                                      $4,492,042   $3,727,465
   Dividends payable                                                           1,787,198    1,293,654
   Borrowings under revolving line of credit                                   2,859,431    3,015,924
   Current portion of capital lease obligations                                  773,405      556,967
   Current portion of note payable                                             1,657,508    1,811,580
   Income taxes payable                                                            6,020       10,020
                                                                             -----------  -----------
                  Total current liabilities                                   11,575,604   10,415,610
                                                                             -----------  -----------
Noncurrent Liabilities:
   Capital lease obligations                                                   4,214,476    4,053,783
   Note payable                                                                8,113,004    9,062,183
                                                                             -----------  -----------
                  Total noncurrent liabilities                                12,327,480   13,115,966
                                                                             -----------  -----------
Commitments and Contingencies
Stockholders' Equity:
   Preferred stock, $.10 par value, 1,000,000 shares authorized:
      Series D 8% cumulative accelerating redeemable preferred stock,
      633.647 shares outstanding at June 30, 2001 and December 31, 2000,              63           63
      respectively ($10,500 per share liquidation preference)
   Common stock, $.01 par value:  50,000,000 shares authorized, 1,361,703         13,617       13,617
   outstanding  at June 30, 2001 and December 31, 2000, respectively
   Additional paid-in capital                                                 21,240,419   21,240,419
   Accumulated deficit                                                      (25,208,672)  25,112,650)
                                                                             -----------  -----------
                  Total stockholders' equity (Deficiency in net assets)      (3,954,573)  (3,858,551)
                                                                             -----------  -----------
Total Liabilities and Stockholders' Equity (Deficiency in net assets)        $19,948,511  $19,673,025
                                                                             ===========  ===========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       3

<PAGE>

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

<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED JUNE 30,            SIX MONTHS ENDED JUNE 30,
                                                    -------------------------------      -------------------------------
                                                          (UNAUDITED)                           (UNAUDITED)
                                                    2001                2000              2001              2000
                                                    ----                ----              ----              ----
<S>                                                 <C>                 <C>               <C>               <C>
Revenues                                              $4,552,105         $4,841,112       $8,532,422          $9,832,480
                                                      ----------         ----------       ----------          ----------
OPERATING EXPENSES:
   Salaries                                            1,396,573          1,517,248        3,023,363           3,118,550
   Other operating expenses                            1,387,690          1,473,157        2,713,977           3,031,337
   Provision for bad debts                               384,867            404,378          764,335             819,894
   Consulting and marketing fees                          56,371             15,152          102,803             155,148
   Professional fees                                     117,982             70,728          205,407             170,249
   Depreciation and amortization                         504,001            711,251          939,535           1,630,561
   Interest                                              532,681            598,659        1,068,781           1,218,844
   Gain on sale of property, plant and equipment               -                  -         (798,532)                  -
                                                      ----------         ----------       ----------          ----------
                                                       4,380,165          4,790,573        8,019,669          10,144,583
                                                      ----------         ----------       ----------          ----------
Income/(Loss) Before Minority Interests in
Joint Ventures and Income Taxes                          171,940             50,539          512,753           (312,103)
Equity (loss)/earnings in AIG                          (170,147)            259,899        (110,155)             274,229
Minority Interests in Joint Ventures                           -          (142,393)                -           (200,831)
                                                      ----------         ----------       ----------          ----------
Income(Loss) Before Income Taxes                           1,793            168,045          402,598           (238,705)
Income Tax Provision (Benefit)                             5,096             69,988            5,076            (21,554)
                                                      ----------         ----------       ----------          ----------
Net (Loss)/Income                                        (3,303)             98,057          397,522           (217,151)
Preferred Dividends                                      248,135            248,137          493,544             496,272
                                                      ----------         ----------       ----------          ----------
Net (Loss) Available to Common Shareholders           $(251,438)         $(150,080)        $(96,022)          $(713,423)
                                                      ==========         ==========        =========          ==========
Net (Loss) per Common Share - Basic                       $(.18)             $(.13)           $(.07)              $(.63)
                                                          ======             ======           ======              ======
Weighted Average Common Shares
   Outstanding - Basic                                 1,361,703          1,135,699        1,361,703           1,135,699
                                                       =========          =========        =========           =========
Net (Loss) per Common Share- Diluted                      $(.18)             $(.13)           $(.07)              $(.63)
                                                          ======             ======           ======              ======
Weighted Average Common Shares
   Outstanding - Diluted                               1,361,703          1,135,699        1,361,703           1,135,699
                                                       =========          =========        =========           =========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       4

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                SIX MONTHS ENDED
                                                                                    JUNE 30,
                                                                                   (Unaudited)
                                                                             2001              2000
                                                                             ----              ----
<S>                                                                        <C>                <C>
      Cash Flows From Operating Activities:
        Net (loss)/income available to common shareholders                     (96,022)        $(713,423)
        Adjustments to reconcile net income/(loss) available to
        common shareholders to net cash provided by operating
        activities:
             Depreciation and amortization                                      939,537         1,630,561
             Non-cash compensation charge                                             -            41,993
             Gain on sale of property, plant and equipment                    (798,532)                 -
             Interests in joint ventures                                        135,155            80,324
             Allowance for doubtful accounts                                  1,216,642         1,118,000
             Changes in Assets and Liabilities:
               Accounts receivable                                          (2,196,145)       (2,065,113)
               Due from ICES - Interest Income                                 (23,933)                 -
               Prepaid expenses and other                                      (78,741)         (140,700)
               Deferred taxes                                                         -          (49,742)
               Other                                                            (3,296)            73,578
               Accounts payable and accrued expenses                            764,577         1,527,518
               Preferred dividends payable                                      493,544
               Income taxes payable                                             (4,000)           (6,475)
               Deferred transaction and financing costs                        (44,299)         (130,374)
                  Net cash provided by operating activities                     304,487         1,231,147
                                                                            -----------       -----------
      Cash Flows from Investing Activities:
            Loan payments from the buyers of the Wayne facility                 186,410                 -
            Due from ICES - principal                                          (30,000)                 -
            Proceeds from the Beran Entities                                          -            50,411
            Purchases of property, plant and equipment                          (8,861)          (30,988)
            Proceeds from sale of property, plant and equipment net             804,113                 -
            of closing costs
                                                                            -----------       -----------
                  Net cash provided by investing activities                     951,662            19,423
                                                                            -----------       -----------
      Cash Flows from Financing Activities:
            (Payments) Borrowings against the revolving line of               (156,493)           174,469
            credit
            Payments on capital lease obligations                             (266,031)         (434,662)
            Payments on note payable                                        (1,103,251)       (1,118,960)
                                                                            -----------       -----------
                  Net cash used in financing activities                     (1,525,775)       (1,646,229)
                                                                            -----------       -----------

        Decrease in cash and cash equivalents                                 (269,626)         (395,659)
        Cash and cash equivalents at beginning of period                        482,239           645,389
                                                                            -----------       -----------
        Cash and cash equivalents at end of period                             $212,613          $249,730
                                                                            ===========       ===========

      Supplemental Cash Flow Information:

        Interest paid during the period                                      $1,075,431        $1,217,157
                                                                             ==========        ==========
        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 medical equipment                       $643,162        $1,594,211
                                                                            ===========       ===========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       5

<PAGE>


              HEALTHCARE INTEGRATED SERVICES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated 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 condensed consolidated financial
statements contain all adjustments necessary to present fairly the Company's
financial position as of June 30, 2001 and the related statements of operations
and cash flows for the periods ended June 30, 2001 and 2000. The condensed
consolidated balance sheet as of December 31, 2000 was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles.

The results of operations for the three and six months ended June 30, 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.

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. 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.

NOTE 2. - BASIC AND DILUTED NET LOSS PER SHARE

Basic earnings per share ("EPS") excludes dilution and is computed by dividing
(loss) income applicable to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the
weighted average number of common shares outstanding during the period plus the
additional weighted average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive. Common equivalent shares
result from the assumed exercises of outstanding stock options and warrants, the
proceeds of which are then assumed to have been used to repurchase outstanding
shares of common stock (the "treasury stock method").

For the three and six months ended June 30, 2001 and 2000, the Company had stock
options and warrants outstanding that were anti-dilutive. These securities could
potentially dilute basic EPS in the future and were not included in the
computation of diluted EPS because to do so would have been anti-dilutive for
the periods presented. Consequently, there were no differences between basic and
diluted EPS for these periods.


                                       6

<PAGE>

NOTE 3. - BORROWINGS

NOTES PAYABLE

In January 2001, in an effort to improve the Company's working capital position,
the Company renegotiated the terms of its notes payable with DVI Financial
Services, Inc. ("DFS"), the outstanding balances of which aggregated $10,324,538
at December 31, 2000 (the "DFS Bridge Loan"). Prior to this renegotiation, the
repayment date of the DFS Bridge Loan was May 1, 2004, with principal and
interest (at the rate of 12% per annum) payments of $308,000 due monthly
throughout the remaining term of the DFS Bridge Loan.

As a result of the renegotiation in January 2001, the DFS Bridge Loan is now
evidenced by three separate notes with differing interest rates (ranging from
12% to 13%): (i) a note representing the principal amount of $2,352,507 (as at
December 31, 2000) with payments over sixty months, through December 2005, as
follows: no payments due in months one, two and three (i.e., January, February
and March 2001), monthly principal and interest payments of $24,417 in months
four through twelve (i.e., April through December 2001), monthly principal and
interest payments of $39,993 in months thirteen through twenty-four (i.e.,
January through December 2002) and monthly principal and interest payments
$75,817 in months twenty-five through sixty (i.e., January 2003 through December
2005); (ii) a second note representing the principal amount of $2,352,507 (as at
December 31, 2000) with payments over sixty months, through December 2005, as
follows: no payments due in months one, two and three (i.e., January, February
and March 2001), monthly principal and interest payments of $24,415 in months
four through twelve (i.e., April through December 2001), monthly principal and
interest payment of $39,663 in months thirteen through twenty-four (i.e.,
January through December 2002) and monthly principal and interest payments of
$75,189 in months twenty-five through sixty (i.e., January 2003 through December
2005); and (iii) a note representing the principal amount of $5,619,524 (as at
December 31, 2000) with monthly principal and interest payments of $167,749 due
in each of 41 months through May 2004.

In January 2001, the Company also issued a secured promissory note payable to
DFS for $549,225 (bearing interest at the rate of 10% per annum) in payment of
certain past due leases and DFS Bridge Loan obligations. At December 31, 2000,
this indebtedness was included in the current portion of notes payable. In March
2001, this note was paid in full.

Notes payable at June 30, 2001 is as follows:

<TABLE>
<CAPTION>

                                                 DFS BRIDGE LOAN
                                 --------------------------------------------
                                    NOTE (i)        NOTE (ii)      NOTE (iii)      SECURED NOTE        TOTAL
                                 -----------       ----------      ----------     -------------      -----------
<S>                              <C>               <C>             <C>            <C>                <C>
Balance, December 31, 2000        $2,352,507       $2,352,507      $5,619,524          $549,225      $10,873,763
Interest Accrued to Principal        140,724          137,424         320,214                 -          598,362
Principal Payments                    73,253           72,645       1,006,490           549,225        1,701,613
                                 -----------       ----------      ----------     -------------      -----------
Balance, June 30, 2001            $2,419,978       $2,417,286      $4,933,248     $           -       $9,770,512
                                 ===========       ==========      ==========     =============      ===========

</TABLE>


                                       7

<PAGE>

REVOLVING LINE OF CREDIT

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 agreement contains
customary affirmative and negative covenants including covenants requiring the
Company to maintain certain financial ratios and minimum levels of working
capital. The maximum amount available under this credit facility is currently
$4.0 million with advances limited to 75% of eligible accounts receivable, as
determined by DVIBC. Borrowings under the revolving line of credit bear interest
at the rate of 3% over the prevailing prime lending rate and was repayable on
May 26, 2001. The term of this credit facility was extended until July 25, 2001
and further extended until September 30, 2001. The Company is currently
renegotiating the term of this credit facility. At June 30, 2001, the Company
had $2,859,431 of borrowings under this credit facility.

NOTE 4. - SIGNIFICANT TRANSACTIONS

DISPOSITIONS

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 assets sold was $800,000, which was paid to the Company
at the closing. Under the terms of the sale, as contingent payments, the Company
is also entitled to receive 25% of the revenue generated by the facility that
exceeds $250,000 in any quarter, up to a maximum of $700,000. However, if the
purchaser renovates the facility for the purpose of removing and repairing
certain medical equipment, it shall be entitled to a credit against the
contingent payments. The results of operations for the six months ended June 30,
2001 include a gain on the sale of assets of $751,000.

In November 2000, the Company sold certain of its assets relating to its
diagnostic imaging facility in Brooklyn, New York. At the time of the sale, the
Company retained the magnetic resonance imaging ("MRI") equipment and related
furniture, fixtures and other equipment. During the first quarter of 2001, the
Company subsequently sold the MRI equipment located in Brooklyn to an
unaffiliated third party and recorded a gain on the sale of $48,000.

CANCELLED 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"), the management services
organization that managed PMA, 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


                                       8

<PAGE>

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.

On June 4, 2001, JIHP filed for protection under Chapter 11 of the United States
Bankruptcy Code. The Company is a guarantor of a $1.0 million loan of with a
balance of $300,000 from DFS to JIHP. The Company had previously reached
agreement with PMA and each physician stockholder of PMA that, to the extent
that the Company is or becomes liable in respect of any obligation 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 agrees to indemnify and hold the
Company harmless from and against any and all such liabilities and obligations.
The Company has not accrued any liabilities as a result of this guarantee. The
Company expects that this loan will be satisfied through the collection of
certain receivables and/or the personal guarantees of physician stockholders of
PMA.

PROPOSED TRANSACTION

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 International Commerce Exchange Systems, Inc. ("ICES"). The Company is
currently finalizing the terms of the Merger agreement.

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, and
VentureTek L.P. for a per share purchase price of $2.212 for the purpose of the
MedicalEdge transaction. Additional shares may be issued to these purchasers in
accordance with the related purchase agreement. The proceeds of this sale were
loaned to ICES in accordance with the letter of intent (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


                                       9

<PAGE>

to proceed, then the Company shall have the option to receive 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. The Company and ICES have agreed to extend the
term of the ICES Loan to December 31, 2001 in conjunction with the finalization
of the Merger agreement.

In May 2001, the Company, through Helios Ventures, Inc., a joint venture
together with MedicalEdge and IntelliCom International, Ltd., ("IntelliCom")
commenced negotiations to purchase the assets of Helios Health, Inc., a company
that, prior to filing for protection under Chapter 7 of the United States
Bankruptcy Code, had operated the largest network of healthcare-focused,
physician practice-located kiosks in the United States. In connection with this
contemplated acquisition and the Merger, the Company agreed to loan to ICES
through a Convertible Revolving Promissory Note ("Convertible Note") an amount
of up to $150,000 with an interest rate of ten percent (10%) per annum of which
$30,000 had been advanced as of June 30, 2001. The outstanding principal and
interest of the Convertible Note is due and payable in May 2002. The Convertible
Note further provides that if the Merger does not occur on or prior to December
31, 2001, the principal amount of the Convertible Note, and any accrued but
unpaid interest thereon, may, at the option of the Company, be repaid in cash or
be converted into such number of shares ("Conversion Shares") of common stock of
MedicalEdge, equal to the quotient obtained by dividing (i) the outstanding
principal amount of the Convertible Note by (ii) eighty percent (80%) of the
lowest price per share at which MedicalEdge sold its shares in any "Offering"
(as defined in the Convertible Note) after the issuance of the Convertible Note
and prior to the conversion thereof.

OTHER MATTERS

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.

NOTE 5. - LEASE OBLIGATIONS

During the six months ended June 30, 2001, the Company entered into a capital
lease agreement with DFS for certain diagnostic imaging equipment. The lease
commenced on June 22, 2001 and terminates on July 22, 2006:


                                       10

<PAGE>

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 six month period ended June 30, 2001 and June 30, 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:

                                             Three Months         Six Months
                                                 Ended               Ended
                                             JUNE 30, 2001       JUNE 30, 2001
                                             --------------      -------------
                                               (Unaudited)        (Unaudited)
    Net revenues:
         Diagnostic imaging                    $4,496,134          $8,436,441
         Physician management/consulting
          and clinical research                    55,971              95,981
                                              -----------          ----------
         Total                                 $4,552,105          $8,532,422
                                               ==========          ==========
    Operating income/(loss):
         Diagnostic imaging                      $240,751            $667,678
         Physician management/consulting
          and clinical research                   (68,811)           (154,925)
                                                 --------            --------
         Total                                   $171,940            $512,753
                                                 ========            ========

NOTE 7. - OTHER TRANSACTIONS

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


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<PAGE>

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.

NOTE 8. - SUBSEQUENT EVENT

JOINT VENTURE

On July 23, 2001, Helios Ventures, Inc. ("Helios"), a joint venture formed by
and among the Company, MedicalEdge and IntelliCom, acquired the assets of Helios
Health, Inc., which was under protection under Chapter 7 of the United States
Bankruptcy Code. The Company, which is finalizing its Merger agreement with
MedicalEdge, acquired 40% of the common stock of Helios in the transaction.
Helios intends to operate the largest network of healthcare-focused kiosks in
the United States, which are presently installed in nearly 1,400 doctor's office
waiting rooms.


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<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking statements" under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements can generally be identified by
the use of such terms as "anticipate," "believe," "continue," "estimate,"
"expect," "intend," "may," "should," or similar variations or the negative
thereof. 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 associated with the Company's need to refinance certain
near-term debt maturities, 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. The Company assumes no obligation to
update any such forward-looking statements.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2001 VS. SIX MONTHS ENDED JUNE 30, 2000

For the six months ended June 30, 2001, the company reported net income of
$398,000 as compared to a net loss of $217,000 for the similar period in 2000.
During each of the six-month periods in 2001 and 2000, the Company recorded
dividends to preferred stockholders of $494,000 and $496,000, respectively,
resulting in net losses applicable to common stockholders of $96,000, or $0.07
per share, in 2001, and $713,000, or $0.63 per share, in 2000.

The Company's total revenue decreased by $1.3 million, or 13.2%, to $8.5 million
from $9.8 million for the six months ended June 30, 2001 and 2000, respectively.
The net decrease in revenue was primarily attributable to (i) the elimination of
$2.0 million in revenue generated in fiscal 2000 at the Company's former
facilities in Brooklyn, Wayne, and Rittenhouse Square, which facilities were
sold in November 2000, December 2000 and March 2001, respectively; (ii) an
increase of $500,000 in revenue at the Pavonia diagnostic imaging facility; and
(iii) an increase of $200,000 in revenue at the other New Jersey facilities.

During the six-month period ended June 30, 2001, total operating expenses,
excluding gain on the sale of assets, was $8.8 million as compared to a $10.1
million in the comparable period in 2000, a decrease of $1.3 million, or
13.1%. This net decrease is primarily comprised of (i) decreases of $700,000
and $500,000 in depreciation and amortization and other operating expenses,
respectively, resulting from the sale of the Brooklyn, Wayne and Rittenhouse
facilities; (ii) an increase of $100,000 in other operating expenses relating
to the Pavonia facility; (iii) an increase of $100,000 in other

                                       13

<PAGE>

operating expenses representing fees paid for outsourced medical billing
operations; (iv) a decrease of $100,000 in salaries resulting from staff
reductions; and (v) a reduction in interest expense of $150,000 relating to
reduced balances of outstanding obligations and the renegotiation of capital
lease obligations.

During the first quarter ended March 31, 2001, the Company sold certain assets,
including medical office equipment relating to its diagnostic imaging facility
located at Rittenhouse Square. During the first quarter of 2001, the Company
also sold certain assets relating to its former facility in Brooklyn, which was
sold in November 2000. Results of operations for the six-month period ended June
30, 2001 includes gain on the sale of assets of $800,000 relating to the
disposition of these assets.

THREE MONTHS ENDED JUNE 30, 2001 VS. THREE MONTHS ENDED JUNE 30, 2000

For the three months ended June 30, 2001,the company reported a net loss of
$3,000 as compared to net income of $98,000 for the similar period in 2000.
During each of the three-month periods in 2001 and 2000, the Company recorded
dividends to preferred stockholders of $248,000, resulting in net losses
applicable to common stockholders of $251,000, or $0.18 per share, in 2001, and
$150,000, or $0.13 per share, in 2000.

The Company's total revenue decreased by $300,000, to $4.5 million from $4.8
million for the three months ended June 30, 2001 and 2000, respectively. The
decrease in revenue is net of an adjustment of $600,000 relating to the
elimination of excess contractual charges and customer credit balances. Before
effect of this adjustment, the Company's total revenue decreased by $900,000, to
$3.9 million from $4.8 million, a reduction of 17.9%. The $900,000 decrease was
primarily attributable to the elimination of $1.1 million in revenue generated
in fiscal 2000 at the Company's former facilities in Brooklyn, Wayne, and
Rittenhouse Square, which decrease was partly offset by an increase of $200,000
in revenue at the Pavonia diagnostic imaging facility.

In connection with the Company's outsourcing of its medical billing function,
all patient services occurring after March 31, 2001 are billed to insurance
companies, patients and other payors utilizing the outsourced billing service.
Payments on account for patient balances as of March 31, 2001 are retained and
serviced through the Company's former billing system. Subsequent to the transfer
of the billing function, and commensurate with the servicing of the pre-April 1,
2001 accounts, the Company discovered select accounts with erroneous credit
balances or duplicate contractual billing reductions that were generated as a
result of a software programming error. In the latter part of the second quarter
of 2001, the Company retained a software specialist to quantify the effect of
these excess charges and credits. As a result of the software specialist's
findings, the Company recorded an adjustment of $600,000, representing the
amount pertaining to the reduction in excess contractual charges and the
elimination of credit balance customer accounts.

During the three-month period ended June 30, 2001, total operating expenses
decreased by $400,000, or 8.6%, to $4.4 million from $4.8 million in the
comparable period in fiscal 2000. This decrease is primarily comprised of (i)
decreases of $200,000 and $300,000 in depreciation and amortization and other
operating expenses, respectively, resulting from the sale of the Brooklyn, Wayne
and Rittenhouse facilities; (ii) an increase of $100,000 in other operating
expenses relating to the Pavonia facility; (iii) an increase of $100,000 in
other operating expenses representing fees paid for outsourced


                                       14

<PAGE>

medical billing operations; (iv) a decrease of $100,000 in salaries resulting
from staff reductions; and (v) a reduction in interest expense of $66,000
relating to reduced balances of outstanding obligations and the renegotiation of
capital lease obligations.

LIQUIDITY AND CAPITAL RESOURCES

Over the past few years, the Company's results of operations have been
negatively impacted by several developments in the health care field. Among
other things, the trend in the industry towards managed care and health
maintenance organizations has resulted in lower reimbursement rates for medical
procedures, including diagnostic imaging, and an increased demand for lower
overall health care 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 delays and decreases in MRI and other diagnostic imaging referrals during
the latter half of fiscal 2000 and continued through the six months ended June
30, 2001 at various of the Company's New Jersey facilities.

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 first half 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 and leasing arrangements.

In January 2001, in an effort to improve the Company's working capital position,
the Company renegotiated the terms of it notes payable with DVI Financial
Services, Inc. ("DFS"), the outstanding balances of which aggregated $10.3
million at December 31, 2000 (the "DFS Bridge Loan"). Prior to this
renegotiation, the payment date of the DFS Bridge Loan was May 1, 2004, with
principal and interest (at the rate of 12% per annum) payments of $308,000 due
monthly throughout the remaining term of the DFS Bridge Loan.

As a result of the renegotiation in January 2001, the DFS Bridge Loan is now
evidenced by three separate notes with differing interest rates (ranging from
12% to 13%) and extended the maturing date for the two of the three notes (to
December 31, 2005). Under the terms of the DFS Bridge Loan restructuring, no
payments of principal and interest were due for the first quarter of 2001.


                                       15

<PAGE>

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 agreement contains
customary affirmative and negative covenants including covenants requiring the
Company to maintain certain financial ratios and minimum levels of working
capital. The maximum amount available under this credit facility is currently
$4.0 million with advances limited to 75% of eligible accounts receivable, as
determined by DVIBC. Borrowings under the revolving line of credit bear interest
at the rate of 3% over the prevailing prime lending rate and was repayable on
May 26, 2001. The term of this credit facility was extended until July 25, 2001
and further extended until September 30, 2001. The Company is currently
renegotiating the term of this credit facility. At June 30, 2001, the Company
had $3.0 million of borrowings under this credit facility.

As of June 30, 2001, the Company had a cash balance of $200,000 a net decrease
of $300,000 as compared to the prior year.

During this period, the Company generated $300,000 from operating activities, as
compared to $1.2 million of cash generated from operating activities during the
comparable period in fiscal 2000. Net cash provided by operating activities
included $800,000 of proceeds received from the sale of assets.

Cash flows provided by investing activities was $1.0 million, which related to
(i) proceeds received by the Company from the sale of property, plant and
equipment of $800,000, relating to the Rittenhouse and Brooklyn facilities and
(ii) collection of a $200,000 loan receivable due at December 31, 2000 relating
to the sale of the Wayne facility.

During the six month period ended June 30, 2001, the Company utilized $1.5
million of cash in its financing activities which is comprised of (i) payments
of $1.1 million pertaining to the DFS Bridge Loan, (ii) payments of $266,000 on
capital lease obligations and (iii) payments of $156,000 with respect to the
Company's revolving line of credit.

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.

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.

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)      EXHIBITS.

                  None.

         (b)      REPORTS ON FORM 8-K.

                  None.


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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: August 20, 2001        /s/ Elliott H. Vernon
                             ------------------------------------------
                             Elliott H. Vernon
                             Chairman of the Board and Chief Executive Officer



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