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                                                                   DRAFT 4/11/00

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

                                    FORM 10-K

                                   (Mark One)

 X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999

or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ____________to_______________

                         Commission File Number 0-21209

                                 AHT CORPORATION
             (Exact name of registrant as specified in its charter)

                Delaware                                       13-3893841
    (State or other jurisdiction                   (IRS employer identification
of incorporation or organization)                               number)

555 White Plains Road                                            10591
Tarrytown, New York
(Address of principal executive offices)                       (Zip code)

Registrants' telephone number, including area code: (914) 524-4200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K:

The aggregate market value of the shares of Common Stock held by non-affiliates
of the registrant is $52,965,758, based on the closing price of the Common Stock
on March 24, 2000. As of March 24, 2000, there were 11,123,366 shares of Common
Stock outstanding.


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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1999, are incorporated by reference in Part
III hereof.

STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A NUMBER OF
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.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE" AND WORDS OF
SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENT
REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS AS TO INDUSTRY TRENDS, FUTURE
ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, ANTICIPATED REVENUES AND
EXPENSES, AND PRODUCTS OR SERVICE LINE GROWTH MAY BE SIGNIFICANTLY IMPACTED BY
CERTAIN RISKS AND UNCERTAINTIES SET FORTH HEREIN, INCLUDING, BUT NOT LIMITED TO,
FAILURE OF THE CLINICAL E-COMMERCE INDUSTRY TO DEVELOP AT ANTICIPATED RATES,
FAILURE OF THE COMPANY'S CLINICAL INFORMATION TECHNOLOGY PRODUCTS AND SERVICES
TO GAIN SIGNIFICANT MARKET ACCEPTANCE, FAILURE TO MEET OPERATING OBJECTIVES OR
TO EXECUTE THE OPERATING PLAN, FAILURE TO MEET ITS OBLIGATIONS OR A FAILURE
TO CURE A DEFAULT UNDER THE CYBEAR AGREEMENTS, COMPETITION AND OTHER ECONOMIC
FACTORS. NO ASSURANCES CAN BE GIVEN AS TO THE OUTCOME OF ANY PENDING LAWSUITS
AGAINST THE COMPANY. SEE ALSO ITEM 1 "RISKS AFFECTING THE COMPANY'S BUSINESS."


                                     PART I

ITEM 1.  BUSINESS

Overview

AHT Corporation (the "Company") is a national provider of Internet-based
clinical e-commerce among physicians, other healthcare providers, and healthcare
organizations. The Company is focused on automating laboratory and prescription
transactions, the two most frequent clinical transactions initiated by
physicians today.

The Company's products principally focus on laboratory and prescription
connectivity and transaction processing, including, within the laboratory suite
of applications, Dr. Chart(R), Dr. Chart Web(TM), Compliance Monitor(TM),
CDR(TM), and CDX(TM), and its electronic prescription writing product, @Rx(TM).

The Company's products take an incremental approach to practice automation, with
the goal of enabling the physician and office staff adoption of technology. The
Company believes that its products are relatively easy to use and do not require
radical changes in the healthcare provider's workflow or the physician's
practice style generally.


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Dr. Chart(R) Laboratory Products

The Company's Dr. Chart(R) products link clinical laboratories to physicians,
enabling them to initiate laboratory orders on-line and to view those results
on-line in a real-time basis from their desktop PCs. Dr. Chart(R) is also
Web-enabled, making the clinical information available on a real-time basis to
any physician and clinician equipped with a standard office PC and a Web
browser. A large part of a clinical laboratory's day-to-day operation is
comprised of receiving and processing paper-based orders from providers and then
distributing paper-based reporting of the test results back to the provider.
These test results play a large role in the provider's decisions on current
treatment options. The more data-rich and timely a test result can be delivered,
the sooner and better-informed a medical decision can be made, thus increasing
the efficiency of the ordering and results communication process for both the
providers and the laboratory.

The Company's laboratory transaction management software suite serves to
effectively manage test data dictionaries, other laboratory interfaces, and
other sources of information, integrating disparate healthcare institutions and
providing connectivity to community-based providers within an integrated
delivery system. The Company's multi-system interfaces integrate provider
workflow by creating connectivity to practice management systems and laboratory
information systems.

Dr. Chart(R) utilizes a computer-to-computer interchange, incorporating a
routing and data translation solution that facilitates communication of
information among physicians, hospitals and other healthcare providers. Dr.
Chart(R) allows physicians, nurses and other clinicians to effectively manage
patient information from multiple sources, such as hospital laboratories and
other hospital ancillary systems, reference laboratories and practice management
systems.

Compliance Monitor Product

Compliance Monitor(TM) software assists clinical laboratories with Medicare and
Health Care Financing Administration (HCFA) compliance. One of the critical
success factors in addressing HCFA compliance issues for clinical laboratories
is information. Capturing and reporting the appropriate data that will be used
in case of external audits and monitoring is an integral part of laboratories'
compliance program. Compliance Monitor(TM) software assists clinical
laboratories in organizing information for Medicare Compliance and to comply
with HCFA regulations.

Rules, policies and business logic are built into the tables of Compliance
Monitor(TM). For example, laboratory orders are validated against The Local
Medicare Review Policy to determine reimbursement and exposure to penalties for
non-compliance. The system automatically checks against the tables and existing
rules and flags the user with an alert message if there is a potential
compliance violation. All alert messages and validation checks are kept in a
commercially secure audit log.

@Rx(TM) Prescription Product

@Rx(TM) launched in October 1999, is the nation's first comprehensive Internet
tool to manage all phases of the prescription writing process from the
physician's office, including screening for


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drug interactions and insurance medication preferences. The @Rx(TM) electronic
prescription management service enables physicians and other authorized
healthcare providers to manage the entire prescription writing process over the
Internet utilizing technology designed to maximize the security and
confidentiality of patient health information. @Rx(TM) is designed to be made
available to physicians and other healthcare providers through AHT's @Rx(TM)
website, www.at-rx.com, and through links in websites of healthcare
organizations that want to provide physicians with the ability to manage
prescriptions over the Internet.

@Rx(TM) automates the prescription writing process, from formulating the initial
prescription order to checking for the potential for drug interactions, to
checking for preferences for health insurance coverage, to printing, and, in
some cases, transmitting the prescription electronically to a designated
pharmacy. The Company's prescription transaction service has the potential in
some cases to replace both the paper prescription and the phone calls regarding
prescriptions with an efficient online transaction with the provider's clinical
management system, which potentially saves both time and labor from the ordering
process, as well as providing more accurate and informative orders. The
Company's information system interfaces integrate provider workflow by creating
connectivity to prescription benefit management information systems.

National Co-Marketing, Distribution and Development Transaction

On March 28, 2000, the Company and Cybear, Inc. ("Cybear") (NASDAQ: CYBA), a
leading national e-healthcare connectivity, applications, and portal provider,
announced that they are collaborating to provide both prescription and
laboratory transaction management. The agreements include a co-marketing and
distribution agreement for the Company's @Rx(TM) and Dr. Chart(R) products and
Cybear's Internet portal, dr.cybear.com. In a related agreement, AHT has granted
Cybear the exclusive right to migrate the @Rx(TM) prescription system to a
hand-held computer that will be marketed exclusively by the two companies.

This collaboration is designed to allow medical offices using the Cybear ISP to
exchange prescription and laboratory orders from a single Web site using a
secure Intranet connection. These applications, among other benefits, are
designed to screen prescriptions for formulary compliance and potential drug
interactions and laboratory orders for Medicare medical necessity compliance. In
addition, the Cybear portal will be designed to provide access to lab results
and medication histories and allow a provider to review this information
electronically from any Web-enabled computer.

The Company and Cybear expect that by migrating the electronic prescribing
capability to a hand-held system, physicians will be able to write prescriptions
at the point of prescribing on a Web-enabled portable computer device.
Physicians now write nearly all of the 2.8 billion annual prescriptions by hand.
Mobile access to this information could reduce errors and pharmacy inquiries for
prescription renewals and clarifications.

The Company was previously organized to offer comprehensive physician practice
and network management and consulting services to physician practices, physician
networks, hospitals, and other healthcare organizations. However, in order to
enable the Company to focus entirely on the growth of its Internet-based
clinical e-commerce business managing laboratory and prescription transactions,
on May 14, 1999, the Company sold its physician management services unit to
PractiCare, Inc., a wholly-owned subsidiary of Phoenix Home Life Mutual
Insurance Company, for approximately $3.1 million in cash plus the assumption of
certain payables and capital leases associated with the unit.


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The Company was incorporated in the State of Delaware on June 20, 1995 under the
name Majean, Inc. On August 24, 1995, the Company changed its name to Advanced
Health Corporation, subsequent to a merger pursuant to which a Delaware
corporation of the same name merged with and into the Company. On February 1,
1999 the Company filed a Registration of Trade Names in Delaware to do business
under the name of AHT Corporation. Stockholders approved the change to the
Company's corporate name to AHT Corporation at the June 1999 Annual Meeting of
Stockholders.

The Company's executive offices are located at 555 White Plains Road, Tarrytown,
New York, 10591, and its telephone number is (914) 524-4200. The Company's
Internet address is www.ahtech.com.

Clinical Information Systems

The Company has developed enabling technologies, including Internet-based
applications, for e-commerce and communications among physicians, other
healthcare providers and healthcare organizations. The Company's clinical
information systems consist of proprietary software, third-party hardware,
proprietary and third-party databases, and related support services. They are
designed to complement existing healthcare information systems and to function
with third-party applications. The clinical information systems connect to
physician users through desktop computers using standard communication methods.
Access to the Company's clinical information systems is delivered to physician
users and other healthcare professionals via both private networks and
intranets. The Company's clinical information systems are designed to allow
physicians to (i) access patient-specific clinical and payor information, (ii)
generate prescriptions and orders for laboratory tests, print patient education
material, and provide summaries of patient prescription and laboratory results
history, and (iii) access databases containing managed care, disease management,
health insurance, or diagnostic/treatment preferences.

The Company's products support HL-7 interfaces, incorporate TCP/IP and use
Microsoft NT protocols for real-time data transmission and run on the Microsoft
Windows operating system and standard hardware platforms. The Company employs
proprietary processes and standard commercial security measures to safeguard the
privacy of clinical data accessed or transmitted on both private and public
networks, including the Internet and the data communication paths within its
products, including user passwords, 40 to 128-bit key encryption technology, and
a Microsoft secure socket layer (SSL) encryption algorithm. The Company expects
to continue to employ industry standard security measures in the future.

The Company licenses its clinical information systems to third party healthcare
organizations, principally laboratories and prescription benefit management
companies. The Company continues to pursue strategic relationships with
healthcare providers as well as hospital information systems companies,
physician practice management systems companies, and on-line services companies
for the purpose of further developing and marketing its information systems.

The Company offers its clinical information systems for provider users, and for
laboratory and prescription clinical applications.


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Industry and Competition

The healthcare industry generates billions of clinical and financial
transactions each year, including, but not limited to, prescriptions, lab orders
and results, radiology orders and results, medical claims, eligibility
inquiries, encounters and referrals. While most direct healthcare spending takes
place outside of the doctor's office, physicians control an estimated 80% of the
medical dollar through their decisions. The growth of managed care has forced
participants to become more efficient and sophisticated, while also demanding
more information and increasing administrative requirements. Many of the
inefficiencies in healthcare result from poor information exchange among
participants, which include patients, providers, payors, and other trading
partners. For physicians to meet the clinical and financial demands of managed
care, the Company believes that moving patient-centered clinical and financial
data electronically all along the continuum of care will become a business
requirement. As an inexpensive, ubiquitous, and flexible technology, the
Internet and secure intranets can be used to facilitate timely and accurate flow
of information between the various participants in the healthcare system, within
the rules promulgated by HCFA, The Health Insurance Portability and
Accountability Act of 1996, and other various state statutes and regulations.

Clinical laboratories, pharmacy benefit managers, payors, and managed care
organizations are eager to enhance healthcare e-commerce, in order to reduce
administrative costs while not compromising quality of care. For example, a
physician who enters an electronic prescription could be warned about a
potential drug interaction. The appropriate change could be made before the
patient leaves the office, limiting the chance of misunderstanding and
eliminating the need for additional administrative work. Over time, the
patient's transactional data could be aggregated to create a basic electronic
medical record that the physician could access, saving time and reducing the
costs associated with lost records and neglected information. The Company
believes that the combination of the size of the healthcare market, the changes
currently affecting the healthcare market, and the relative lack of automation
in such market creates significant business opportunities for companies like
AHT.

The market for healthcare information systems and services is highly competitive
and rapidly changing. The Company believes that the principal competitive
factors for clinical information systems are the proprietary nature of
methodologies, databases, and technical resources; the usefulness of the data
and reports generated by the software; customer service and support;
compatibility with the customer's existing information systems; potential for
product enhancement; vendor reputation; price; and the effectiveness of
marketing and sales efforts. In addition, as the market for clinical information
systems develops, additional competitors may enter the market and competition
may intensify. The area of healthcare e-commerce transaction networks has been
targeted by many companies that have significantly greater financial, marketing,
and other resources than the Company. The Company is also aware that other
e-commerce transaction processing companies have targeted this industry as a
growth market, and that those companies could in the future utilize their
networks to process electronic healthcare e-commerce transactions.

The Company believes that its ability to compete successfully in the healthcare
e-commerce market will depend in part upon its ability to offer a variety of
integrated products and services and to implement sales and marketing strategies
that bring its products and services to the attention of its potential customer
base. The Company believes that the timely development of new clinical
information applications and the enhancement of existing clinical information
systems are important to its competitive position. The Company's product
development strategy is directed toward creating new applications that (i)
increase the functionality of current products


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by providing enhanced interfaces; and (ii) expand access to third-party systems
and data repositories. The Company currently has approximately 20 professionals
dedicated to systems development.


Risks Affecting the Company's Business

In March 2000, Cybear purchased from the Company for $4 million in cash a 10%
Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the
Company's assets, including its intellectual property, and which is convertible
at Cybear's option into shares of the Company's common stock at a conversion
price per share equal to the lower of $4.34 or 80% of the average market price
prior to the conversion date, provided that Cybear cannot acquire upon
conversion more than approximately 1.9 million of the Company's shares. In
addition, Cybear has received from the Company a five year warrant to purchase
up to 300,000 shares of the Company's common stock at an exercise price per
share of $4.34. In the event that the Company materially defaults under its
agreements with Cybear, then Cybear could take title to some or all of the
Company's assets.

The Company's future success depends in significant part upon the continued
service of its key technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that the Company can retain its key managerial and technical employees
or that it can attract, assimilate or retain other highly qualified technical
and managerial personnel in the future. The Company depends on its technical and
implementation personnel. The Company's technical sales personnel typically
support sales. The Company's ability to expand sales and enter into new vertical
markets could be affected by a shortage of qualified technical sales support
personnel. The Company depends on its trained implementation personnel or those
of independent consultants to implement its software. A shortage in the number
of trained implementation personnel could limit the Company's ability to
implement its software on a timely and effective basis. Delayed or ineffective
implementation of our software may limit the Company's ability to expand its
revenues and may result in customer dissatisfaction and damage to the Company's
reputation. Any of these events could seriously impair the Company's business,
operating results and financial condition.

Software programs are, by their nature, complex and have the potential to
contain undetected errors or "bugs." Despite testing, bugs may be discovered
only after the Company's product has been installed and used by customers. The
Company has on occasion experienced delays in the scheduled introduction of new
and enhanced products because of bugs. Undetected errors could result in adverse
publicity, loss of revenues, litigation, liability, delay in market acceptance
or claims against us by customers, any of which could seriously damage our
business, operating results and financial condition.

The majority of the Company's e-commerce revenues come from its laboratory
reporting products. Therefore, a significant new entrant into the e-commerce
market or a significant expansion by an existing competitor could have an
adverse effect on the Company's business.

The market for the Company's products is characterized by frequent new product
introductions and enhancements, rapid technological advances, and rapid changes
in customer requirements and preferences. Accordingly, the Company's future
success will depend on its ability to enhance its existing products and to
develop and market new products on a timely basis that respond to evolving
customer requirements, achieve market acceptance and keep pace with
technological


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developments and obtain adequate financing and/or revenues to fund such
activities. There can be no assurance that the Company will be successful in
developing, introducing on a timely basis and marketing such products or
enhancements; that its software will not contain errors that would delay product
introduction, shipment or implementation; or that any such new products or
enhancements will be accepted by the market. Because the Company's products are
important to the successful operation of its customers' managed care
organizations, errors or delays in product development and enhancement may have
a material adverse effect on the continued market acceptance of the Company's
products and may expose the Company to claims from customers and third parties.

The Company faces competition from many healthcare information systems companies
and other technology companies, including Allscripts, Healtheon and Proxymed.
Many of its competitors are significantly larger and have greater financial
resources than the Company and have established reputations for success in
implementing healthcare information service systems. Many companies, including
companies developing new technologies utilizing an Internet-based system, have
targeted the healthcare e-commerce transaction industry for growth.

Strategy

The objective of the Company is to become a leading provider of Internet-based
clinical e-commerce among both providers and healthcare organizations. By
enabling providers and healthcare organizations to manage the collection,
integration, and distribution of clinical information from disparate sources
more effectively, the Company seeks to help providers and healthcare
organizations efficiently manage patient care more effectively, including
improve the overall delivery of care to patients, meet medical necessity
guidelines, analyze clinical utilization patterns, perform patient profiling,
and improve patient education.

The Company's competitive strengths include (i) leading position in technology
for the electronic management of laboratory orders and results; (ii)
well-recognized customer base of approximately 60 healthcare organizations,
including some of the largest reference laboratories and hospital systems in the
US, the largest prescription benefit manager in the US and two of the leading
on-line pharmacies in the US; and (iii) intellectual property that includes
system interfaces to connect the Company's product to existing "legacy"
information systems, and two patents for the electronic management of
prescriptions in the physician's office.

The Company has taken an incremental approach to practice automation. The
Company gains entry to the practice through its line of laboratory and
prescription management products. The Company believes its laboratory and
prescription management products provide high value, are easy to use, and
encourage the physician and his/her office staff to access the computer to
manage laboratory orders and results as well as write prescriptions. A position
on the physician's "desktop" is necessary to capture the physician's orders
electronically and is critical to being a leader in the e-commerce industry. The
Company plans to increase its application offerings into the executive desktop
used by the nurse assistants and incrementally increase automation of the
clinical workflow.

The Company's strategy is to:

      -     Use the Company's understanding of physician technology adoption for
            key clinical transactions. Create additional distribution channels
            to penetrate physician offices and further secure a position on the
            physician's desktop.

      -     Gain additional strategic, industry-leading customers.


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      -     Provide high levels of service to a national physician and
            healthcare organization customer base.

      -     Gain critical mass through organic growth and acquisitions.

Proprietary Rights

The Company is relying upon the effectiveness of protection provided by a
combination of patent, trade secret, and copyright laws, nondisclosure and other
contractual provisions, and technological measures to protect its proprietary
position in its methodologies, databases and software. The Company has two
issued U.S. patent applications by the United States Patent and Trademark
Office, and a foreign patent application having subject matter common with both
U.S. applications. The patents are directed to the Company's electronic
prescription management system and related technologies. No assurance can be
given that patent, trade secrets, copyright, or other intellectual property
rights can be successfully asserted in any court action. The Company also has
copyrights in its software, user documentation and databases. The copyright
protection accorded to databases, however, is fairly limited. While the
arrangement and selection of data are protectable, the actual data are not, and
others are free to create databases that perform the same function. The Company
distributes its clinical information systems products under agreements that
grant customers non-exclusive licenses and generally contain terms and
conditions restricting the disclosure and use of the Company's systems. In
addition, the Company attempts to protect the secrecy of its proprietary
databases and other trade secrets and proprietary information through
confidentiality agreements with employees, consultants and third parties.

The Company believes that, aside from the various legal protections of its
proprietary information and technologies, factors such as the technological and
creative skills of its personnel and product maintenance and support are
integral to establishing and maintaining its position within the healthcare
industry. Although the Company believes that its products do not infringe upon
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future.
In addition, under the Cybear Loan, the Company has pledged a security interest
in all of its intellectual property to Cybear.

Government Regulation

As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state, and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the nature of the Company's relationship with a wide
variety of healthcare providers and managed care organizations and the
uncertainty of new regulations, many aspects of the Company's business
operations have not been the subject of formal state or federal regulatory
interpretations, and there can be no assurance that a review by courts or
regulatory authorities of the Company's business or that of its affiliated
physician organizations will not result in a determination that could adversely
affect the operations of the Company.

Electronic Transmission of Prescriptions: A primary feature of the Company's
products and services is the ability to electronically transmit (either by
computer-to-facsimile or computer-to-computer) prescriptions from a doctor's
office to a pharmacy. The ability of a pharmacist to fill an electronically
transmitted prescription is governed by federal and state law. The United States
Drug Enforcement Agency ("DEA") regulates the issuance and content of
prescriptions for controlled substances. The United States Congress has approved
the dispensing of prescriptions transmitted via facsimile of original, signed
prescriptions for controlled substances other than for Schedule II drugs
(narcotics). Neither Congress nor the DEA has addressed publicly electronic


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transmission of computer-generated prescriptions for controlled substances. The
DEA is investigating the possibility of adopting a policy regarding electronic
transmission of prescription orders, such as that used by the electronic
prescription writing and management systems (the "Prescription Systems"), for
controlled substances. No assurance can be given that Congress or the DEA will
accept the method of transmitting prescriptions by electronic means for
controlled substances in the future.

The application of state rules to the use of the Prescription Systems varies.
Additionally, other state laws that may affect the Company's ability to sell its
products in certain states include certain state requirements that require
licensure as either a doctor or a pharmacy in order for a third party to send or
receive a prescription. A common carrier, such as a telephone company, is often
excluded from such requirements. The Company's ability to market in such states
would depend upon each state's willingness to deem the Company to be a common
carrier of such prescriptions, the assurance of which cannot be given.

Modification or further clarification of federal and state rules regarding use
of the Prescription Systems in a manner that reduces their utility may have a
material adverse effect on the Company.

FDA Regulation: Certain products, including software applications, intended for
use in the diagnosis of disease or other conditions, or in the cure, treatment,
mitigation, or prevention of disease, are subject to regulation by the Food and
Drug Administration ("FDA") as medical devices under the Federal Food, Drug and
Cosmetic Act of 1938, as amended (the "FDCA"). The FDCA imposes substantial
regulatory controls over the manufacturing, testing, labeling, sale,
distribution, marketing, and promotion of medical devices and other related
activities. These regulatory controls can include, for example, compliance with
the following: manufacturer establishment registration and device listing;
current good manufacturing practices; FDA clearance of a pre-market notification
submission or FDA approval of a pre-market approval application; medical device
adverse event reporting; and prohibitions on misbranding and adulteration.
Violations of the FDCA can result in severe criminal and civil penalties and
other sanctions, including, but not limited to, product seizure, recall, repair,
or refund orders, withdrawal or denial of pre-market notifications or pre-market
approval applications, denial, or suspension of government contracts, and
injunctions against unlawful product manufacture, labeling, promotion, and
distribution, or other activities. In its 1989 Draft Policy For the Regulation
of Computer Products ("Draft Policy"), the FDA stated their policy regarding the
regulation of software products, including its intent to exempt certain clinical
decision support software products from a number of regulatory controls. Under
the Draft Policy, the FDA stated that it intended to exempt certain decision
support software products that involve "competent human intervention before any
impact on human health occurs (e.g., where clinical judgment and experience can
be used to check and interpret a system output)" from the following controls:
manufacturer establishment registration and device listing, pre-market
notification, and compliance with the medical device reporting and current good
manufacturing practice regulations. In the Draft Policy, the FDA stated that
until it formally exempted decision support software products from these
requirements, manufacturers of eligible decision support software products would
be required to comply with those controls.

Since issuing the Draft Policy, the FDA has not issued a final policy on this
issue, not formally exempted any products as discussed in the Draft Policy, and
has regulated additional software products. The FDA has referred to the Draft
Policy in official presentations regarding software regulation and in decisions
and opinions regarding the regulatory status of various products. Over the last
several years, however, the FDA has stated that it intends to issue a new policy


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concerning computer products and has been increasing its efforts to develop this
policy in recent months. Under this new policy being considered, exemptions from
regulatory controls, if any, may be based upon a product specific "risk factor"
analysis. For purposes of this analysis, the FDA may consider, among other
things, the following: (i) seriousness of the disease to be diagnosed or
treated, (ii) the time frame for use of the information, (iii) whether the data
output is provided or manipulated in a novel or non-traditional manner, (iv)
whether the software provides individualized patient care recommendations, (v)
whether the mechanism by which the software arrives at a decision is hidden or
transparent and (vi) whether the product provides new capabilities for the user.
Given the FDA's intent to issue a new policy concerning the regulation of
computer software, which policy may or may not conform to FDA's current
reasoning, there can be no assurance as to the effect of such a policy, if any,
upon the regulatory status of the Company's products.

The Company's clinical information systems are intended to assist healthcare
providers in analyzing economic and quality data related to patient care and
expected outcomes in order to maximize the cost-effectiveness of general
treatment plans and practice protocols. These products are not intended to
generate the primary source of specific diagnostic data, result or affect the
use of specific therapeutic interventions for individual patients. As such, the
Company believes that its clinical information systems are not medical devices
under the FDCA, or, if medical devices not actively regulated by the FDA at this
time, and, thus, are not subject to many, if any, of the controls imposed on
manufacturers of medical devices. The Company further believes that to the
extent that its products might be determined to be medical devices, and not
otherwise exempt from regulation, they fall within the exemptions for decision
support systems provided by the Draft Policy. The Company has not taken action
to comply with the requirements that would otherwise apply if the Company's
products were determined to be non-exempt medical devices.

There can be no assurance that the FDA will not make a request or take other
action to require the Company to comply with any or all current or future
controls applicable to medical devices under the FDCA. There can be no assurance
that, if such a request were made or other action were taken, the Company could
comply in a timely manner, if at all, or that any failure to comply would not
have a material adverse effect on the Company's business, financial condition or
results of operations, or that the Company would not be subjected to significant
penalties or other sanctions. There can be no assurance that the FDA will
continue to permit any or all of the exemptions provided in the Draft Policy, or
in a new policy statement, if any, or that the FDA will promulgate regulations
formally implementing such exemptions. There can be no assurance that the
Company's current or future clinical information systems will qualify for future
exemptions, if any, nor can there be any assurance that any future requirements
will not have a material adverse effect on the Company's business, financial
condition, or results of operations.

Confidentiality of Medical Information: The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. These
federal and state laws and regulations govern both the disclosure and the use of
confidential patient medical record information. Although compliance with these
laws and regulations is at present principally the responsibility of the
hospital, physician, managed care organization, or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly.

With respect to its electronic clinical information systems, the Company uses a
state-of-the-art security system, including user passwords, 40-128-bit key
encryption technology and a Microsoft Secure Socket Layer (SSL) encryption
algorithm, to safeguard the privacy of clinical data


                                       11
<PAGE>   12
accessed or transmitted on both private and public networks, including the
Internet, and will continue to employ such security measures in the future. The
Company believes that its procedures currently comply with the laws and
regulations regarding the collection of patient data in substantially all
jurisdictions, but regulations governing patient confidentiality rights are
evolving rapidly and are often difficult to apply.

Each state has various laws protecting the confidentiality of patient medical
information, including laboratory and prescription information. Although it is
not uncommon for a third party to have access to such information, in most
states, such third party has an obligation to maintain the confidentiality of
such information and could be subject to liability if that obligation is
breached. Although, as discussed above, the Company has procedures to maintain
the confidentiality of the information it receives, there can be no assurance
that inadvertent disclosure of information will not occur to the detriment of
the Company's business.

Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. Furthermore, the Health
Insurance Portability and Accountability Act was enacted on August 21, 1996
("HIPPA") and required the Secretary of Health and Human Services to adopt
national standards for the transmission of certain types of patient medical
information and the data elements used in such transmissions, and to adopt
standards to ensure the integrity and confidentiality of such information.

In August 1998, Secretary Shalala proposed security and electronic signature
standards for the electronic transmission of medical information and on November
3, 1999, the Secretary promulgated proposed regulations designed to protect the
privacy of electronically transmitted or maintained, individually identifiable
health information, which privacy regulations are expected to become final at
the end of June 2000. We do not know if these regulations will be adopted in
their present form, a different form, or at all. However, if adopted, such
regulations could require the Company to expend substantial additional resources
to comply with the revised standards. Also, authorizations may be required
before identifiable patient information could be electronically transmitted to
third parties for any purpose other than treatment, payment or health care
operations, which include such activities as quality assessment, verification of
a healthcare providers credentials, insurance rating, peer review, fraud and
abuse compliance review and document production for use in civil or criminal
legal proceedings. These regulations also would require that we enter into
agreements with certain of our customers governing the dissemination of such
information and would require that holders or users of such information
implement specified security measures. We continue to monitor HIPAA activity and
prepared to incorporate any changes to our software products or our operations
that are necessary to ensure compliance.

Fraud and Abuse Statutes: Certain provisions of the Social Security Act,
commonly referred to as the "Anti-kickback Statute," prohibit the offer,
payment, solicitation, or receipt of any form of remuneration which is intended
to induce business for which payment may be made under a federal healthcare
program. A federal healthcare program is any plan or program that provides
health benefits, whether directly, through insurance or otherwise, which is
funded directly, in whole or in part, by the United States government (e.g.,
Medicare, Medicaid and CHAMPUS). Excluded from the definition of federal
healthcare program is the Federal Employee Health Benefits Program.

As a provider of connectivity products between pharmacies and managed care
companies or laboratories and providers, we and our customers are also subject
to the Anti-kickback Statute. The type of remuneration covered by the
Anti-kickback Statute is very broad. It includes not only kickbacks, bribes, and
rebates, but also proscribes any such remuneration, whether made


                                       12
<PAGE>   13
directly or indirectly, overtly or covertly, in cash or in kind. In general, the
Anti-kickback Statute has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many business
arrangements potentially subjecting such arrangements to lengthy expensive
investigations and prosecutions initiated by federal and state government
officials. Many states, including some of those in which the Company does
business, have adopted similar prohibitions against payments intended to induce
referrals of Medicaid and other third-party payor patients. The Anti-kickback
Statute provides a number of exceptions or "safe harbors" for specific
transactions. We believe that our arrangements with our customers are in
material compliance with the Anti-kickback Statute and the various other similar
state laws. Nevertheless, because of the breadth of federal and state
anti-kickback statutes and the absence of court decisions interpreting their
application to arrangements such as those entered into by the Company, there can
be no assurance that the Company's activities will not be challenged by
regulatory authorities or that the Company's position will prevail if
challenged.

To the extent the Company is deemed to be a referral source under any
agreements, the Company could be subject to scrutiny and prosecution under the
Anti-kickback Statute. Violation of the Anti-kickback Statute is a felony,
punishable by criminal fines up to $25,000 per violation and imprisonment for up
to five years; a civil monetary penalty of $50,000; and/or civil damages of not
more than three times the amount of remuneration offered, paid, solicited or
received without regard to whether any portion of such remuneration was for a
lawful purpose. In addition, the U.S. Department of Health and Human Services
("HHS") may impose civil penalties excluding violators from participation in
Medicare or state health programs.

Healthcare Reform: As a result of the continued escalation of healthcare costs
and the inability of many individuals to obtain health insurance, numerous
proposals have been and continue to be introduced in the U.S. Congress and state
legislatures relating to healthcare reform, which may contain proposals to
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's customers. There
can be no assurance as to the ultimate content, timing, or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation, which may be material to the Company.

Employees

As of March 31, 2000, the Company had a total of approximately 55 employees. The
Company is not and never has been a party to a collective bargaining agreement.
The Company has never experienced a work stoppage and believes that its employee
relations are satisfactory.

ITEM 2.  PROPERTIES

The Company currently leases 26,302 square feet of office space in Tarrytown,
New York, 17,552 square feet of which it occupies, and 8,750 square feet of
which it sublets. The Company is responsible for an annual rent of approximately
$550,000, which includes the sublet portion that generates approximately
$180,000 of rental income. Both the lease and the sublease expire March 2002.
The Company also leases 8,100 square feet in Hawthorne, New York, which expires
October 30, 2000, at an annual rent of approximately $120,000. The Advanced
Health Technologies subsidiary occupies 8,028 square feet of leased office space
in Fort Washington, Pennsylvania, which expires December 2002 and has an annual
rent of approximately $133,000, and 4,184 square feel of office space in
Chicago, Illinois which expires April, 2002, and has an annual rent of
approximately $90,000 annually.


                                       13
<PAGE>   14
ITEM 3. LEGAL PROCEEDINGS

From July 1 through August 17, 1998, eleven putative class actions were filed in
the United States District Court for the Southern District of New York, all of
which have been consolidated under the caption In re Advanced Health Corporation
Securities Litigation (the "Class Action"). The consolidated complaint, filed in
February 1999, alleged that the Company and its current or former officers or
directors, Jonathan Edelson, M.D., Steven Hochberg, Alan B. Masarek, Robert
Alger and Michael W. Rogers are liable for certain misrepresentations and
omissions regarding, among other matters, the Company's operations, performance,
and financial condition. The consolidated class action complaint sought, among
other remedies, certification as a class action and unspecified damages.

On January 27, 2000, the Company agreed to a settlement of the Class Action,
pursuant to which the Company has deposited $300,000 in escrow to cover the
costs of notice to the class, administration of the settlement and plaintiff
attorneys' expenses and will, upon final approval of the settlement, issue
886,437 shares of common stock to class members and class counsel (subject to
possible enhancement if the Company's stock price drops below a certain level or
if the Company authorizes and issues additional stock). The settlement is
subject to the District Court's approval. The Court has scheduled a hearing on
the settlement for April 18, 2000.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

No matters were submitted to a vote of securityholders during the fourth quarter
of the fiscal year ended December 31, 1999.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Common Stock trades on the NASDAQ National Market under the symbol
"AHTC."

      (a)   Market Information

      The following sets forth the high and low bid price for the period
commencing January 1, 1999 through December 31, 1999 as reported by NASDAQ.
Quotations reflect inter dealer prices without retail mark-up, mark-down, or
commission, and may not represent actual transactions.

<TABLE>
<CAPTION>
            Common Stock                                       High          Low
<S>                                                        <C>            <C>
January 1, 1999 through December 31, 1999                  $    6.250     $    1.813
First Quarter ended March 31, 1999                              4.500          1.813
Second Quarter ended June 30, 1999                              6.250          2.750
Third Quarter ended September 30, 1999                          4.438          2.750
Fourth Quarter ended December 31, 1999                          5.500          2.688
</TABLE>

      (b)   Approximate Number of Equity Stockholders


                                       14
<PAGE>   15
      Based upon information supplied from the Company's transfer agent, the
Company believes that the number of record holders of the Company's equity
securities as of March 25, 2000 is approximately 150. The Company believes that
the number of beneficial holders of the Company's Common Stock as of March 25,
1999 is in excess of 300.

      (c)   Dividends

      The Company has not declared or paid any cash dividends on its capital
stock since inception and does not expect to pay cash dividends in the
foreseeable future. The Company presently intends to retain future earnings, if
any, to finance the expansion of its business. The payment of any cash dividends
in the future will depend on the Company's earnings, financial condition,
results of operations, capital needs and other factors deemed pertinent by the
Company's Board of Directors, subject to laws and regulations then in effect.


ITEM 6. SELECTED FINANCIAL DATA.

The selected consolidated statement of operations data for the three years ended
December 31, 1999, 1998 and 1997, and the consolidated balance sheet data as of
December 31, 1998 and 1999, are derived from the consolidated Financial
Statements of the Company included elsewhere in this Annual Report on Form 10-K,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated statement of operations for the years ending December
31, 1995 and 1996 and the consolidated balance sheet data as of December 31,
1995, 1996 and 1997, all of which are included on in this Annual Report on Form
10-K, and are derived from the consolidated financial statements of the Company,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated financial data set forth below is qualified by
reference to, and should be read in conjunction with, the Company's Consolidated
Financial Statements and the Notes, thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                               1995       1996       1997      1998       1999
                                                                             --------   --------   --------  --------   --------
<S>                                                                          <C>        <C>        <C>       <C>        <C>
REVENUE                                                                      $  1,054   $  2,657   $ 11,910  $  3,530   $  1,086
COST OF REVENUES                                                                  340        799      1,030     1,942      1,261
                                                                             ---------------------------------------------------
               Gross profit/(loss)                                                714      1,858     10,880     1,588       (175)
OPERATING EXPENSES
RESTRUCTURING CHARGES                                                           6,412      6,042      5,169    14,133     13,446
                                                                                   --         --         --     7,645         --
                                                                             ---------------------------------------------------
               Operating income/(loss)                                         (5,698)    (4,184)     5,711   (20,190)   (13,621)
OTHER INCOME, Net                                                                  (8)        15      1,144     2,073        793
GAIN ON SALE OF INVESTMENT                                                         --         --         --        --        486
(LOSS) ON IMPAIRMENT OF INVESTMENTS                                                --         --         --        --    (11,000)
                                                                            -----------------------------------------------------
               Net income/(loss) before taxes                                  (5,706)    (4,169)     6,855   (18,117)   (23,342)
INCOME TAX (BENEFIT) PROVISION                                                     --     (1,668)       365     4,722         36
                                                                             ---------------------------------------------------
               Net income/(loss) from continuing operations                    (5,706)    (2,501)     6,490   (22,839)   (23,378)
DISCONTINUED OPERATION:
               Income/(loss) from discontinued operation, net of
                 income taxes                                                   --      1,036        668   (29,280)     2,574
</TABLE>


                                       15
<PAGE>   16
<TABLE>
<S>                                                                          <C>        <C>        <C>       <C>        <C>
GAIN/(LOSS) ON DISPOSITION OF DISCONTINUED OPERATION                                                          (23,074)
                                                                             ---------------------------------------------------
               Net income/(loss)                                             $ (5,706)  $ (1,465)  $  7,158  $(75,193)  $(20,804)
                                                                             ===================================================


PER SHARE INFORMATION
      Basic net loss per share:
               Loss from continuing operation                                ($  1.47)  ($  0.48)  $   0.82  ($  2.27)  ($  2.19)
               Gain from discontinued operation                              $   0.00   $   0.20   $   0.09  ($  2.90)  $   0.24
               Loss from sale of discontinued operation                      $   0.00   $   0.00   $   0.00  ($  2.29)  $   0.00
                                                                             ---------------------------------------------------
                     Basic net loss per share                                ($  1.47)  ($  0.28)  $   0.91  ($  7.46)  ($  1.95)
                                                                             ===================================================

      Diluted net loss per share:
               Loss from continuing operation                                ($  1.47)  ($  0.48)  $   0.73  ($  2.27)  ($  2.19)
               Gain from discontinued operation                              $   0.00   $   0.20   $   0.08  ($  2.90)  $    .24
               Loss from sale of discontinued operation                      $   0.00   $   0.00   $   0.00  ($  2.29)  $    .00
                                                                             ---------------------------------------------------
                     Basic net loss per share                                ($  1.47)  ($  0.28)  $   0.81  ($  7.46)  ($  1.95)
                                                                             ===================================================

Common shares used in computing per share amounts:
      Basic                                                                     3,893      5,149      7,872    10,085     10,675
      Diluted                                                                   3,893      5,149      8,891    10,085     10,675
</TABLE>


<TABLE>
<CAPTION>
(In thousands)                             1995         1996         1997         1998          1999
                                          ------      -------      -------      -------      --------
<S>                                       <C>         <C>          <C>          <C>          <C>
Balance Sheet Data

Cash and cash equivalents                 $1,464      $12,086      $ 7,534      $ 9,269      $  2,528
Investments in marketable securities          --        7,390       34,082        6,972            --
Certificates of deposit                       --           --        5,399        2,580           150
Working capital (deficit)                    758       26,603       61,644        7,779           679

Total assets                               2,888       35,400       94,358       44,634        13,890
Total debt                                   138           --           --          809            --
Total Stockholders' equity                 2,675       31,884       93,100       29,890        10,564
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.


                                       16
<PAGE>   17
The following discussion of the results of operations and financial condition of
the Company should be read in conjunction with the Consolidated Financial
Statements and the notes thereto included elsewhere in this Annual Report on
Form 10-K.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company's actual results could differ materially from its historical results
or from any forward-looking statements made or incorporated into this Annual
Report. Factors that may cause such differences include, but are not limited to,
failure of the clinical e-commerce industry to develop at anticipated rates,
failure of the Company's clinical information technology products and services
to gain significant market acceptance, failure to meet operating objectives or
to execute the operating plan, competition and other economic factors.

OVERVIEW

AHT Corporation (the "Company") is a national provider of Internet-based
clinical e-commerce among physicians, other healthcare providers, and healthcare
organizations. The Company is focused on automating laboratory and prescription
transactions, the two most frequent clinical transactions initiated by
physicians today. In October 1999, the Company launched its @Rx(TM) prescription
product which is the nation's first comprehensive internet tool to manage all
phases of the prescription writing process from the physician's office. The
Company generates revenues from fees for the use and support of its clinical
information systems, including transaction, license, software installation,
software integration, system support, training and data conversion fees.

The Company believes that its historical results of operations from period to
period are not comparable and that such results are not necessarily indicative
of results for any future periods because the Company has restructured its
continuing business operations, acquired new technology to develop and market
and has discontinued the development and marketing of certain products from its
product line and is marketing its products to different customers.

For the year ended December 31, 1999, the Company reported an operating loss of
$13.6 million and a net loss from continuing operations of $23.4 million that
includes a loss on impairment of minority investments in affiliates of $11.0
million, a gain on sale of investment in affiliate of $.5 million, and a net
gain from discontinued operations of $2.6 million for a total net loss of $20.8
million. Included in the net loss from continuing operations are non-recurring
expenses of $2.5 million which included the settlement cost of $1.5 million of
the action commenced against the Company by Bukstel & Halfpenny, Inc., legal
costs associated with this action and other costs associated with the


                                       17
<PAGE>   18
migration of operations from Chicago to the Philadelphia office. In addition,
and as included in the net loss from continuing operations, the Company changed
its goodwill amortization period from 20 to 3 years, thereby increasing the
comparable non-cash expense by approximately $.2 million. In May 1999, the
Company, sold its physician practice management division for approximately $3.1
million in cash plus the assumption of certain payables and capital leases
associated with this division. The Company will now be able to devote its full
resources to expanding its Internet-based laboratory and prescription
transaction management business. The restructuring action described below
contains forward-looking statements that may be significantly impacted by
certain risks and uncertainties, including failure to meet operating objectives
or to execute the operating plan and failure to successfully restructure the
Company's business.

In March 2000, Cybear purchased from the Company for $4 million in cash a 10%
Senior Convertible Note due March 31, 2001 (the "Cybear Loan") secured by the
Company's assets, including its intellectual property, and which is convertible
at Cybear's option into shares of the Company's common stock at a conversion
price per share equal to the lower of $4.34 or 80% of the average market price
prior to the conversion date, provided that Cybear cannot acquire upon
conversion more than approximately 1.9 million of the Company's shares. In
addition, Cybear has received from the Company a five year warrant to purchase
up to 300,000 shares of the Company's common stock at an exercise price per
share of $4.34. In the event that the Company materially defaults under its
agreements with Cybear, then Cybear could take title to some or all of the
Company's assets. The agreements include a co-marketing and distribution
agreement for the Company's Web-based @Rx(TM) electronic prescribing service and
Dr. Chart (R) clinical laboratory transaction management product and Cybear's
Internet portal, dr.cybear.com. In a related agreement, the Company granted
Cybear the exclusive right to migrate the @Rx(TM) prescription system to a hand
held computer that will be marketed exclusively by the Company and Cybear.

In 1998, the Company restructured its information technology unit to increase
its focus on product development and sales in areas such as electronic
laboratory and prescription management. The Company intends to limit product
development efforts that does not focus on electronic laboratory and
prescription management. Further, the Company has redirected its sales efforts
to increase sales for its product lines that offer laboratory and prescription
functionality and to develop distribution channels including Internet portals.
Sales efforts will be focused on strategic sales initiatives that emphasize
long-term, recurring revenue streams rather than large, one-time revenue events
so as to better position the Company to benefit from the electronic commerce
market. Currently, the Company has a contract backlog of approximately $1.3
million of revenue that it expects to recognize in 2000 and $.5 million of
deferred revenue that represents cash received from customers who are in the
process of installing the Company's proprietary software based on specific
milestones.

RESULTS FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998

Total revenue from continuing operations for the year ended December 31, 1999
decreased to $1.1 million from $3.5 million in the comparable period ended
December 31, 1998, primarily as a result of a change in the Company's strategy
to market and support only its core product offerings of laboratory and
prescription software rather than seeking large, one-time software sales or
licensing from other system offerings. The Company earned these fees for the use
and support of its clinical information systems, including the recognition of
non-recurring license revenues, system support, implementation, programming and
training revenues.

Cost of revenues for the year ended December 31, 1999 decreased to $1.3 million
from $1.9 million for the comparable period ended December 31, 1998. Cost of
revenues includes direct costs associated with core product installation efforts
incurred and amortization expense related to previously capitalized software
development costs. The decrease in cost of revenues related primarily to the
1998 re-structuring action. Cost of revenues for the year ended December 31,
1998 included amortization of capitalized research and development costs prior
to the write-off of these assets and the purchase of hardware associated with
revenue derived from a customer agreement, both of which are non-recurring
expenses.

Operating expenses for the year ended December 31, 1999 decreased to $13.4
million from $14.1 million for the comparable period ended December 31, 1998,
primarily as a result of restructuring actions taken during the second half of
1998 in connection with the Company's business strategy. These restructuring
actions reduced expenses to better align costs with the Company's core product
offerings. Operating expenses for the year ended December 31, 1999 included
software research and development costs of approximately $1.3 million,
depreciation and amortization


                                       18
<PAGE>   19
expense of approximately $1.4 million and non-recurring expenses of $2.5 million
which included the $1.5 million cost of settling an action commenced against the
Company by Bukstel & Halfpenny, Inc., legal costs associated with this action
and other costs associated with the migration of operations from its Chicago
office to the Philadelphia office. The cost of launching the Company's @RX TM
prescription product is also included in operating expenses. In 1998, the
Company decided to focus its technology sales efforts around its laboratory and
prescription software products and as a result of this action, software
development assets related to other products, amounting to $6.2 million, were
determined to be unrealizable and the remaining net value of these assets was
charged to restructuring. Since the quarter ended March 31, 1998, the Company
has not incurred any software development costs that could be capitalized. These
costs are being treated as period costs, which are included as operating
expenses in the Company's consolidated financial statements. The foregoing
write-off left $.4 million remaining in unamortized capitalized software
development costs relating to laboratory and prescription software products.

There were no restructuring charges for the year ended December 31, 1999.
Restructuring charges for the year ended December 31, 1998 amounted to
approximately $7.6 million and represent amounts primarily associated with the
write-down of capitalized software assets as explained above. The remaining $1.5
million of the $7.6 million restructuring charge relates primarily to facility
closures and personnel reductions.

Other income, net for the year ended December 31, 1999, was $.8 million as
compared to $2.1 million for the year ended December 31, 1998 and was
attributable to interest earned from investments in marketable securities as a
result of the investment of proceeds from the Company's 1997 follow-on public
offering and operating cash.

LOSS ON IMPAIRMENT OF ASSET
YEAR ENDED DECEMBER 31, 1999 AND 1998

Based on an independent appraisal received by the Company, its minority
investments in affiliates has been written down by $11.0 million to reflect its
estimated fair market value.

GAIN ON SALE OF INVESTMENT IN AFFILIATE
YEAR ENDED DECEMBER 31, 1999 AND 1998

In 1999, the Company sold its minority investment in Caresoft, a company that
provides business solutions to the healthcare community, for approximately $1.0
million. The Company initially invested $.5 million in 1997.

Provision for income taxes includes payments made for state and local income
taxes based on amounts other than taxable income. For the year ended December
31, 1998, a charge of $4.1 million was recorded to provide a valuation allowance
against prior year deferred tax assets, as it is more likely than not that these
assets will not be realized.

The net loss from continuing operations for the year ended December 31, 1999 was
$23.4 million compared to a net loss of $22.8 million for the year ended
December 31, 1998 due to the factors described above.

RESULTS OF DISCONTINUED OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998

In January 1999, the Company's Board of Directors approved a plan to divest its
practice management services unit and sold the unit in May 1999. Prior to this
action, the Company had restructured this unit into an outsourcing services
company designed to provide professional services to the healthcare industry
that would selectively contract with customers that would potentially generate
increased profitability. For the year ended December 31, 1999, the Company
reported a net gain from discontinued operations net of income taxes of $2.6
million compared to a net loss from discontinued operations net of income taxes
of $29.3 million and an estimated loss of $23.1 million from the anticipated
disposition of the management services unit of which $16.0 million is non-cash,
for each of the discontinued operations and disposition for the comparable
period ending December 31, 1998. The Company's historical financial information
has been restated to report the results of the discontinued operation on a
consistent basis for the years ended December 31, 1999, 1998 and 1997.



                                       19
<PAGE>   20
LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999, the Company had aggregate cash, cash equivalents,
certificates of deposit and marketable securities of $2.7 million, as compared
to $17.1 million at December 31, 1998.

At December 31, 1999, the Company had negative cash flow from its operating
activities of ($13.1) million, compared with a negative ($10.2) million at
December 31, 1998. Included in cash flow from operations for the year ended
December 31, 1999 was $1.5 million for the settlement of an action commenced by
Bukstel & Halfpenny, Inc., and $1.0 million of additional one-time charges for
legal costs associated with this action and other expenses associated with the
migration of the Company's Chicago operations to its Philadelphia office. Net
cash provided by investing activities from continuing operations was $8.2
million for the year ended December 31, 1999, principally attributable to the
net proceeds from investments in marketable securities and certificates of
deposit. Net cash provided by investing activities from continuing operations
was $27.7 million for the comparable period ended December 31, 1998, principally
attributable to the net proceeds from investments in marketable securities, an
additional investment ($5.0 million) in an affiliated entity in which the
Company previously had a minority interest, and increased capitalized software
development costs (other assets) during the first quarter of 1998 ($1.1 million,
net of amortization). Net cash provided by financing activities from continuing
operations was $.8 million for the year ended December 31, 1999, principally
attributable to net proceeds from the exercise of incentive stock options. Net
cash provided by financing activities from continuing operations was $.4 million
for the year ended December 31, 1998, principally attributable to net proceeds
from the exercise of incentive stock options offset by the purchase of treasury
stock under the Company's stock repurchase program. Net cash flows from
discontinued operations for the year ended December 31, 1999 was a negative $2.7
million compared with a negative $16.3 million for the comparable period ended
December 31, 1998. Included in discontinued operating cash flow at December 31,
1999 was the sale of the Company's investment in Southern States Eye Care, LLC.
Based on its current assessment, the Company has recognized an $11.0 million
loss on the minority investments it has made, based on an independent appraisal
received by the Company.

The Company's operating plan for 2000 includes the continuing support and
maintenance of the Company's electronic laboratory and prescription management
products described above, and developing strategic customers, including Merck
Medco, Planet Rx, and Drugstore.com and new proprietary distribution channels
including Internet portals. The principal categories of expenditures include
research and development of the Company's electronic laboratory and prescription
management products as well as ongoing business development and marketing. While
the Company has incurred certain non-recurring charges for settling a lawsuit,
costs associated with such legal action and other one-time charges that have
accelerated its use of cash, the Company believes that based on its cash and
investments on hand, including the March 2000 purchase by Cybear for $4 million
in cash of a 10% Senior Convertible Note due March 31, 2001 with interest paid
quarterly, interest income, collection of officer loans, other receivables and
revenues from operations, it will generate sufficient cash to fund planned
operations of the Company through at least the end of the


                                       20
<PAGE>   21
first quarter of 2001. To the extent that the clinical e-commerce industry does
not develop at anticipated rates, or there is a failure of the Company's
clinical information technology products and services to gain significant market
acceptance, or competition or other economic factors impedes the operating
objectives and operating plan, the Company, based on the nature of its business,
has significant variable costs that can be effectively and timely reduced to
offset the above mentioned factors. The Company has no other planned material
capital expenditures or capital commitments.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                             <C>
Report of Independent Public Accountants...................................................      F-1
Consolidated Balance Sheets as of December 31, 1998 and 1999 ..............................      F-2
Consolidated Statements of Operations for the three years ended December 31, 1999 .........      F-3
Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1999      F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 .........      F-5
Notes to Consolidated Financial Statements ................................................      F-6
</TABLE>

Financial Statement Schedules

All schedules, other than those disclosed, have been omitted because they are
not applicable or not required or because the required information is included
in the Consolidated Financial Statements or notes thereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by this item is incorporated herein by reference to
the sections of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31,1999 and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Election of Directors," "Executive Officers" and
"Disclosure Pursuant to Section 16 of the Exchange Act."


                                       21
<PAGE>   22
ITEM 11. EXECUTIVE COMPENSATION

The information called for by this item is incorporated herein by reference to
the sections of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31,1999 and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Meetings of the Board of Directors and Committees of
the Board of Directors; Compensation of Directors" and "Executive Compensation
and Related Information."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this item is incorporated herein by reference to
the section of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 1999 and
delivered to stockholders in connection with the 1999 Annual Meeting of
Stockholders, captioned "Security Ownership of Certain Beneficial Owners,
Directors and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated herein by reference to
the section of the definitive Proxy Statement to be filed with the Securities
and Exchange Commission not later than 120 days after December 31, 1999, and
delivered to stockholders in connection with the 2000 Annual Meeting of
Stockholders, captioned "Certain Transactions."

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.

(a)   Documents Filed as Part of the Report

1.    Financial Statements.

      The financial statements listed under Item 8 are filed as part of this
      report.

2.    Financial Statement Schedules.

            Certain schedules have been omitted because they are either not
      applicable or the required information has been disclosed in the financial
      statements or notes thereto.

3.    Exhibits.

            The exhibits listed on the accompanying Exhibit Index are filed as
      part of this report or incorporated by reference herein.

(b)   Reports on Form 8-K

      The registrant filed no Current Reports on Form 8-K during the fourth
quarter of the year ended December 31, 1999.


                                       22
<PAGE>   23
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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, on the 12th day of
April, 2000.


                                          ADVANCED HEALTH CORPORATION


                                          By /s/ Jonathan Edelson
                                             ---------------------------------
                                             Jonathan Edelson, M.D.,
                                             Chairman of the Board and
                                             Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:


<TABLE>
<CAPTION>
SIGNATURE                     TITLE                                                DATE
---------                     -----                                                ----
<S>                           <C>                                               <C>
/s/ Jonathan Edelson          Chairman of the Board, Chief                      April 12, 2000
    Jonathan Edelson, MD      Executive Officer, President and Director
                              (Principal Executive Officer)


/s/ Jeffrey M. Sauerhoff      Chief Financial Officer (Principal                April 12, 2000
    Jeffrey M. Sauerhoff      Financial and Accounting Officer)


/s/ Robert J. Alger           Executive Vice President and                      April 12, 2000
                              Chief Information Officer and Director


/s/ James T. Carney           Director                                          April 12, 2000
    James T. Carney


/s/ Barry Kurokawa            Director                                          April 12, 2000
    Barry Kurokawa


/s/ Arthur M. Southam         Director                                          April 12, 2000
    Arthur M. Southam, MD

</TABLE>


                                       23
<PAGE>   24
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.          DESCRIPTION OF EXHIBIT                                                                                 PAGE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                                                                                                    <C>
**3.1                Restated Certificate of Incorporation of the Company

**3.2                By-laws of the Company

**10.7               Tarrytown, New York Office Lease Agreement dated November 30, 1995, between Tarrytown Corporate
                     Center IV, L.P. and the Company.

**10.8               First Amendment to Lease Agreement between Reckon Operating Partnership, LP, as Owner, and the
                     Company, as Tenant

*10.9                Chicago Office Lease Agreement dated April 16, 1999, between EOP Operating Limited Partnership and
                     the Company

**10.10              Fort Washington Lease Agreement dated November 13, 1997, between Comdrive Associates, L.P. and
                     Company as Tenant

**10.11              Hawthorne Lease Agreement dated January 8, 1998, between United Parcel Service, Inc. and Company as
                     Tenant

**10.12              Form of Director Indemnification Agreement

**10.13              Employment Agreement between the Company and Jonathan Edelson, M.D.

**10.16              Employment Agreement between the Company and Robert Alger

**10.17              Employment Agreement between the Company and Jeffrey M. Sauerhoff

**10.18              Employment Agreement between the Company and Eddy W. Friedfeld

**10.20              Amended and Restated Advanced Health Corporation 1995 Stock Option Plan

* 10.21              Asset Purchase Agreement between the Company and Practicare

* 10.22              Securities Purchase Agreement between the Company and Cybear dated March 27, 2000

* 10.23              10% Senior Secured Convertible Note in favor of Cybear, Inc., dated March 27, 2000

* 10.24              Warrant to purchase 300,000 shares of the Company's Common Stock issued to Cybear, Inc., dated March 27, 2000

**10.21              Employee Stock Purchase Plan
</TABLE>


                                      24
<PAGE>   25
<TABLE>
<S>                  <C>                                                                                                    <C>

**21                 List of Subsidiaries

*23.0                Consent of Arthur Andersen LLP

*27                  Financial Data Schedule
</TABLE>

*     Filed herewith.

**    Filed as an exhibit to the Company's Registration Statement on Form S-1,
as amended (Registration No. 333-06283), Company's Registration Statement on
Form S-1, as amended (Registration No. 333-35115), and Company's Form 10-K,
dated March 30, 1999 incorporated herein by reference.


                                      25
<PAGE>   26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To AHT Corporation:

We have audited the accompanying consolidated balance sheets of AHT Corporation
(a Delaware corporation) and subsidiaries as of December 31, 1998 and 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the three years ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AHT Corporation and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the three years ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.




                                               ARTHUR ANDERSEN LLP



New York, New York
April 13, 2000



                                      F-1
<PAGE>   27
AHT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(000'S OMITTED, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                            December 31
                                                                                      ----------------------
                                            ASSETS                                       1998         1999
                                            ------                                    ---------    ---------
<S>                                                                                    <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                           $  9,269      $ 2,528
   Certificates of deposit                                                                2,580          150
   Investments in marketable securities                                                   6,972           --
   Accounts receivable, net                                                                 320          262
   Other current assets                                                                     362          561
   Current assets of discontinued operations                                              2,065           --
                                                                                       --------      -------
             Total current assets                                                        21,568        3,501

PROPERTY AND EQUIPMENT, net                                                               2,565        2,055

GOODWILL, net                                                                             1,861        2,227

INVESTMENTS IN AFFILIATES                                                                14,000        2,500

OTHER ASSETS                                                                              2,001        3,607

NONCURRENT ASSETS OF DISCONTINUED OPERATIONS                                              2,639           --
                                                                                       --------     --------
              Total assets                                                             $ 44,634     $ 13,890
                                                                                       ========     ========

                             LIABILITIES AND SHAREHOLDERS' EQUITY
                             ------------------------------------

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                              $  3,610     $  2,699
    Other current liabilities                                                               875          123
    Current liabilities of discontinued operations                                        9,304           --
                                                                                       --------     --------
              Total current liabilities                                                  13,789        2,822

DEFERRED REVENUE                                                                            250          504

NON CURRENT LIABILITIES OF DISCONTINUED OPERATIONS                                                    705           --
                                                                                       --------     --------
              Total liabilities                                                          14,744        3,326
                                                                                       --------     --------

COMMITMENTS AND CONTINGENCIES (Notes 14 and 16)

SHAREHOLDERS' EQUITY:
    Preferred stock, $.01 par value; 5,000,000 shares authorized; 0 shares
       issued and outstanding, respectively                                                  --           --
    Common stock, $.01 par value; 15,000,000 shares authorized;
       10,424,127 and 11,069,549 shares issued and outstanding, respectively                103          110
    Additional paid-in capital                                                          108,450      109,970
    Accumulated deficit                                                                 (78,277)     (99,081)
    Net unrealized gain on marketable securities, net of deferred income taxes                3           --
    Less- Treasury stock, at cost; 153,937 and 166,337 shares, respectively                (389)        (435)
                                                                                       --------     --------
              Total shareholders' equity                                                 29,890       10,564
                                                                                       --------     --------
              Total liabilities and shareholders' equity                               $ 44,634     $ 13,890
                                                                                       ========     ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.



                                      F-2
<PAGE>   28
AHT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except share and per share data)

<TABLE>
<CAPTION>
                                                                            For the Years Ended December 31
                                                                       -------------------------------------------
                                                                          1997            1998            1999
                                                                       -----------    ------------    ------------
<S>                                                                    <C>            <C>             <C>
REVENUES                                                               $    11,910    $      3,530    $      1,086

COST OF REVENUES                                                             1,030           1,942           1,261
                                                                       -----------    ------------    ------------
                 Gross profit                                               10,880           1,588            (175)

OPERATING EXPENSES                                                           5,169          14,133          13,446

RESTRUCTURING CHARGES                                                           --           7,645              --
                                                                       -----------    ------------    ------------
                 Operating (loss) income                                     5,711         (20,190)        (13,621)

INTEREST EXPENSE                                                               (11)            (20)            (60)

INTEREST INCOME                                                              1,155           2,093             853

GAIN ON SALE OF INVESTMENT                                                      --              --             486

LOSS ON IMPAIRMENT OF INVESTMENTS                                               --              --         (11,000)
                                                                       -----------    ------------    ------------
                 Net (loss) income from continuing operations before
                    income taxes                                             6,855         (18,117)        (23,342)

INCOME TAX PROVISION                                                           365           4,722              36
                                                                       -----------    ------------    ------------
                 Net (loss) income from continuing operations                6,490         (22,839)        (23,378)
                                                                       -----------    ------------    ------------

DISCONTINUED OPERATIONS:
    (Loss) income from discontinued operations (Note 2)                        668         (29,280)          2,574
    Loss on disposal of discontinued operations (Note 2)                        --         (23,074)             --
                                                                       -----------    ------------    ------------
                 Net (loss) income                                     $     7,158    $    (75,193)   $    (20,804)
                                                                       ===========    ============    ============

PER SHARE INFORMATION:
    Basic net (loss) income per share-
       (Loss) income from continuing operations                        $      0.82    $      (2.27)   $      (2.19)
       (Loss) income from discontinued operations                             0.09           (2.90)           0.24
       (Loss) on disposal of discontinued operations                            --           (2.29)             --
                                                                       -----------    ------------    ------------
                 Basic net (loss) income per share
                                                                       $      0.91    $      (7.46)   $      (1.95)
                                                                       ===========    ============    ============

    Diluted net (loss) income per share-
       (Loss) income from continuing operations                        $      0.73    $      (2.27)   $      (2.19)
       (Loss) income from discontinued operations                             0.08           (2.90)           0.24
       (Loss) on disposal of discontinued operations                            --           (2.29)             --
                                                                       -----------    ------------    ------------
                 Diluted net (loss) income per share
                                                                       $      0.81    $      (7.46)   $      (1.95)
                                                                       ===========    ============    ============

    Common shares used in computing per share amounts-
       Basic                                                             7,872,204      10,085,407      10,674,987
                                                                       ===========    ============    ============
       Diluted                                                           8,890,856      10,085,407      10,674,987
                                                                       ===========    ============    ============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.


                                      F-3
<PAGE>   29
AHT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(000's omitted, except share data)
<TABLE>
<CAPTION>                                                                                                Unrealized
                                                                                                         Gain (Loss)
                                                            Common Stock        Additional                   on
                                                       -----------------------   Paid-in    Accumulated  Marketable
                                                          Shares     Par Value   Capital      Deficit    Securities
                                                       -----------   ---------  ----------  -----------  -----------
<S>                                                    <C>           <C>        <C>         <C>          <C>
BALANCE, January 1, 1997                                7,166,941   $     72   $   42,069    $ (10,242)   $    60

    Issuance of common stock, net of expenses
       of $4,102                                        2,250,000          22      45,939           --         --

    Exercise of stock options                             352,614           4       1,249           --         --

    Common stock issued for acquisitions                  100,164           1       3,759           --         --

    Unrealized gain on marketable securities, net of
       deferred income taxes of $79                             --         --          --           --        124

    Income tax benefit from exercise of
       stock options                                            --         --       2,960           --         --

    Net income                                                  --         --          --        7,158         --
                                                       -----------   --------   ---------    ---------    -------

BALANCE, December 31, 1997                               9,869,719         99      95,976       (3,084)       184

    Exercise of stock options                              199,553          1       1,283           --         --

    Common stock issued for acquisitions                   354,855          3       4,891           --         --

    Stock options granted for acquisitions                      --         --       6,300           --         --

    Repurchase of treasury stock                                --         --          --           --         --

    Unrealized loss on marketable securities, net of
       deferred income taxes of $0                              --         --          --           --       (181)

    Net loss                                                    --         --          --      (75,193)        --
                                                       -----------   --------   ---------    ---------    -------
BALANCE, December 31, 1998                              10,424,127        103     108,450      (78,277)         3

    Unrealized loss on marketable securities, net of
       deferred income taxes of $0                              --         --          --           --         (3)

    Exercise of stock options                              523,151          6         859           --         --

    Common stock issued for acquisitions                   122,271          1         661           --         --

    Repurchase of treasury stock                                --         --          --           --         --

    Net loss                                                    --         --          --      (20,804)        --
                                                       -----------   --------   ---------    ---------    -------
BALANCE, December 31, 1999                              11,069,549   $    110   $109,970     $ (99,081)   $    --
                                                       ===========   ========   =========    =========    =======
</TABLE>
<TABLE>
<CAPTION>
                                                             Treasury Stock
                                                         --------------------
                                                           Shares     Amount       Total
                                                         ---------   --------    ---------
<S>                                                      <C>         <C>         <C>
BALANCE, January 1, 1997                                    8,937      $  (75)    $31,884
    Issuance of common stock, net of expenses
       of $4,102                                                --         --      45,961

    Exercise of stock options                                   --         --       1,253

    Common stock issued for acquisitions                        --         --       3,760

    Unrealized gain on marketable securities, net of
       deferred income taxes of $79                             --         --         124

    Income tax benefit from exercise of
       stock options                                            --         --       2,960

    Net income                                                  --         --       7,158
                                                       -----------   --------   ---------

BALANCE, December 31, 1997                                   8,937        (75)      93,100

    Exercise of stock options                                   --         --        1,284

    Common stock issued for acquisitions                        --         --        4,894

    Stock options granted for acquisitions                      --         --        6,300

    Repurchase of treasury stock                           145,000       (314)        (314)

    Unrealized loss on marketable securities, net of
       deferred income taxes of $0                              --         --         (181)

    Net loss                                                    --         --      (75,193)
                                                         ---------   --------    ---------
BALANCE, December 31, 1998                                 153,937       (389)      29,890

    Unrealized loss on marketable securities, net of
       deferred income taxes of $0                              --         --           (3)

    Exercise of stock options                                   --         --          748

    Common stock issued for acquisitions                        --         --        2,606

    Repurchase of treasury stock                            12,400        (46)         (46)

    Net loss                                                    --         --      (20,804)
                                                         ---------   --------    ---------
BALANCE, December 31, 1999                                 166,337   $   (435)   $  10,564
                                                         =========   ========    =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>   30
AHT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)

<TABLE>
<CAPTION>
                                                                     For the Years Ended December 31
                                                                     --------------------------------
                                                                       1997        1998        1999
                                                                     --------    --------    --------
<S>                                                                  <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net (loss) income from continuing operations                     $  6,490    $(22,839)   $(23,378)
    Adjustments to reconcile net (loss) income to net cash (used
       in) provided by operating activities-
          Depreciation and amortization                                 1,123       2,477       1,354
          Deferred income taxes                                            --       4,092          --
          Allowance for doubtful accounts                                 450         553          18
          Gain on sale of investment                                       --          --        (486)
          Loss on impairment of investment                                 --          --      11,000
          Changes in operating assets and liabilities-
              Accounts receivable                                      (1,330)      1,133          40
              Other current assets                                        205         251        (199)
              Accounts payable, accrued expenses and other current
                 liabilities                                           (2,024)      3,918      (1,663)
              Deferred revenue                                           (200)        250         254
                                                                     --------    --------    --------
                    Net cash (used in) provided by operating
                       activities                                       4,714     (10,165)    (13,060)
                                                                     --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Minority investment in affiliated entities                         (9,000)     (5,000)         --
    Other assets                                                       (5,307)      4,876        (119)
    Investments in certificates of deposit, net                        (5,399)      2,819         702
    Investments in marketable securities, net                         (26,692)     27,110       6,969
    Intangible assets                                                    (317)     (1,495)         --
    Sale of investment                                                     --          --         986
    Purchases of property and equipment, net                           (2,246)       (592)       (337)
                                                                     --------    --------    --------
                    Net cash provided by (used in) investing
                       activities                                     (48,961)     27,718       8,201
                                                                     --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net proceeds from sale and issuance of common stock                45,961          --          --
    Net proceeds from exercise of stock options                         1,254         759         865
    Purchase of treasury stock                                             --        (314)        (46)
                                                                     --------    --------    --------
                 Net cash provided by financing activities             47,215         445         819
                                                                     --------    --------    --------

NET CASH USED IN DISCONTINUED OPERATIONS                               (7,520)    (16,263)     (2,701)
                                                                     --------    --------    --------

                 Net change in cash and cash equivalents               (4,552)      1,735      (6,741)

CASH AND CASH EQUIVALENTS, beginning of year                           12,086       7,534       9,269
                                                                     --------    --------    --------

CASH AND CASH EQUIVALENTS, end of year                               $  7,534    $  9,269    $  2,528
                                                                     ========    ========    ========

 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for-
       Interest                                                      $     11    $    100    $     60
       Income taxes                                                       248         648          36

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
       Fair market value of common stock issued for acquisitions        3,760       5,415         662
       Unrealized gain (loss) on marketable securities                    297        (181)         --
</TABLE>

The accompanying notes are an integral part of these consolidated statements.


                                      F-5
<PAGE>   31
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


1. ORGANIZATION AND BUSINESS

AHT Corporation and subsidiaries ("AHT" or the "Company"), a Delaware
corporation, is a provider of Internet-based clinical e-commerce applications
for physicians and other healthcare providers and organizations. The Company's
clinical information systems consist of proprietary software, third-party
hardware, proprietary third-party databases, and related support services. Such
systems are designed to complement existing healthcare information systems and
to function with third-party applications. The Company is focused on automating
laboratory and prescription transactions, the two most frequent transactions
initiated by physicians today. The Company was formerly a provider of primarily
professional practice and network management services to physician groups and
networks (Note 2).

The Company has suffered losses from continuing operations, decreasing revenues
and negative cash flow from operating activities for the years ended December
31, 1998 and 1999, all of which are primarily due to the exiting of the
physician practice management business and the refocus of the Company's strategy
to be a provider of Internet-based clinical e-commerce products. Management has
developed a detailed plan and has taken certain actions in order to generate the
funding necessary for the Company's operations, including: (1) issuance of
additional capital and debt (Note 17); (2) devoting the Company's full resources
to expanding the Company's Internet-based laboratory and prescription
transaction management business; (3) developing strategic relationships (Notes
15 and 17); (4) immediate reduction of costs; and (5) to the extent that the
Company's operating plans are impeded by outside factors, the timely and
effective reduction of variable costs to offset these factors. Management of the
Company believes that these plans will be adequate to support the Company's
operations at least through March 31, 2001.

2. DISCONTINUED OPERATIONS

In January 1999, the Company's Board of Directors approved a plan to seek
strategic alternatives for the disposal of the Company's physician practice
management line of business, which had been its primary business operation. This
determination was made due to the fact that this business operation was deemed
to be no longer core to the Company's strategy of focusing on healthcare
e-commerce. Accordingly, the results of the physician practice management
business has been accounted for as discontinued operations, and the accompanying
consolidated financial statements presented herein have been restated to report
separately the net assets, net liabilities, operating results and net cash flows
of this discontinued operation. The loss from discontinued operations for the
year ended December 31, 1998 includes the write-down of the assets of the
physician practice management operations to estimated net realizable values and
the estimated costs of disposing of this discontinued operation, less the
expected tax benefits applicable thereto. The loss from discontinued operations
for the year ended December 31, 1999 reflects the operating loss of the
physician practice management unit.

In May 1999, the Company sold the majority of its net assets attributable to the
Company's former physician management services unit to a third party for
approximately $3.1 million in cash plus the assumption of certain payables and
capital leases.

Summarized financial information for the discontinued operation is as follows:

<TABLE>
<CAPTION>
                                      Years Ended December 31
                                    ----------------------------
                                     1997       1998      1999
                                    -------   --------    ------
<S>                                 <C>       <C>         <C>
Revenue                             $50,887   $ 57,979    $2,165
                                    =======   ========    ======

(Loss) income before income taxes   $   705   $(29,280)   $1,651
Income tax provision                     37         --        --
                                    -------   --------    ------
  Net (loss) income                 $   668   $(29,280)   $1,651
                                    =======   ========    ======
</TABLE>


                                      F-6
<PAGE>   32
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


No benefit for income taxes has been reflected for 1998 and 1999 in the above
table as the Company has recorded a full valuation allowance against the related
deferred tax assets due to the uncertainty of the realization of these assets.

<TABLE>
<CAPTION>
                                                               December 31
                                                               -----------
                                                                  1998
                                                                 -------
<S>                                                                <C>
Accounts receivable, net                                         $ 1,427
Other current assets                                                 638
                                                                 -------
          Total current assets                                     2,065
                                                                 -------
Property, plant and equipment                                        831
Other assets                                                       1,808
                                                                 -------
          Total noncurrent assets                                  2,639
                                                                 -------
Current liabilities                                               (9,304)
Noncurrent liabilities                                              (709)
                                                                 -------
Net assets (liabilities) of discontinued operations              $(5,309)
                                                                 =======
</TABLE>

There were no assets or liabilities from discontinued operations as of December
31, 1999.

Management Service Organizations

The Company previously established Management Service Organizations by forming
majority-owned subsidiaries to facilitate the provision of management services
to physician practice and network clients.

In the two years ended December 31, 1999, the Company obtained a 51% interest in
each of eight and one newly formed MSOs, respectively, whereby the Company
acquired these interests as part of the formation of the MSOs and concurrent
with the signing of long-term management services agreements between the MSOs
and physician practices. The Company did not acquire any interests during 1999.

In forming these MSOs, the Company conveyed 49% interests to the physician
practice or network in exchange for the execution of the long-term management
services agreements described above. The Company recorded the fair value of
these arrangements, which was, in the opinion of management, was more readily
determinable than the 49% MSO interest conveyed.

The structure of the Company's wholly or majority-owned MSOs provided for the
Company to receive activity-based fee income from the MSOs for management
services provided and reimbursement from the MSOs for certain expenses incurred,
with the result being that there are no profits in the MSO entity for which a
minority interest is required to be calculated. Accordingly, the income (loss)
from discontinued operations does not reflect any minority interest in the
operations of the MSOs.

All intercompany accounts and transactions have been eliminated in
consolidation. The results of operations, assets and liabilities attributable to
the MSOs are included in discontinued operations in the accompanying
consolidated financial statements.

The stockholders' agreements for these MSOs, among other issues, (i) restricted
the transfer of MSO equity, (ii) provided the terms upon which the MSO can, at
the Company's option, be merged with and into a wholly


                                      F-7
<PAGE>   33
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


owned subsidiary of the Company in a transaction in which the physician practice
or network will receive stock of the Company in exchange for shares in the MSO,
and (iii) granted to the physician practice or network the right to put its
equity share in the MSO to the Company within one year of the Company's
satisfaction of certain specified targets if the Company has not called its
right to acquire those interests within that period. The Company had not met the
specified targets prior to the sale of physician practice management unit. The
agreements provided that these call transactions will be paid in the Company's
common stock, and put transactions will be paid in cash, and that either
transaction, if effected, would be based on an agreed-upon amount at the time of
the transaction. No such transactions have taken place as a result of the sale
of the Company's physician practice management business.

Revenues from Discontinued Operations

The Company's revenues from discontinued operations consist primarily of
revenues from the provision of physician and network management services. A
physician group practice is a single legal entity comprised of multiple
physicians. Through its majority or wholly owned consolidated MSOs, the Company
entered into management services agreements with physician group practices,
whereby such physician practices outsourced their nonmedical and administrative
functions to the MSO. Activity-based fees were generated by the MSO through the
provision of these outsourced services as well as certain additional management,
marketing and information services. Fees for such services were either fixed or
based on the level of services provided, as negotiated in the Company's various
agreements for the provision of services, and were recognized monthly or as
these services are rendered, respectively, based on the terms of the related
agreements. The Company's contracts with its physician group practices also
included predetermined incentives, which were earned and recognized as revenue
in the event that the Company is successful in reducing a physician group
practice's administrative overhead as a percentage of collections.

Acquisitions from Discontinued Operations

In connection with a 1995 acquisition agreement, the Company issued options to
purchase 283,010 shares of common stock at $.0112 per share. These options are
only exercisable, as contingent consideration, upon the achievement of certain
capitalization levels related to regulatory requirements. The entire purchase
price of this acquisition has been allocated to intangible assets included in
noncurrent assets from discontinued operations in the accompanying consolidated
balance sheets. The Company reached the stated capitalization level during 1998,
and therefore the stock options became exercisable. As a result, the Company
recorded a $6,300 purchase price adjustment, which represents the fair market
value of the stock options on the date they became exercisable. The remaining
net intangible assets relating to this acquisition were subsequently charged to
loss from discontinued operations in the accompanying consolidated statements of
operations during the year ended December 31, 1998.

In 1997, as a result of the achievement of certain targeted operating goals, as
defined in previous purchase agreements, certain related parties exercised
warrants for 72,196 shares of the Company's common stock valued at $1,354, which
represents the difference between the market value of the stock at the date of
exercise ($23.13 per share) and the value at the date of grant ($4.38 per
share), and the Company issued 33,966 shares of common stock at a value of $21
per share for a total value of $713. These amounts were recorded as adjustments
to the original purchase prices and the remaining net intangible assets relating
to these acquisitions were disposed of in 1999 as part of the sale of the
physician practice management unit.

During 1998, the Company acquired all of the outstanding stock of Integrated
Medical Management, Inc. ("IMM"), a physician practice management organization,
for $1,520 in cash and 354,855 shares of common stock ($13.79 per share, which
was the then fair market value of the Company's common stock), for an


                                      F-8
<PAGE>   34
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


aggregate purchase price of approximately $6,400. Furthermore, the IMM purchase
agreement calls for the issuance of additional shares of common stock, as
contingent consideration based upon certain targets. As a result of this
acquisition, the Company recorded the excess purchase price over net liabilities
acquired of $8,570, as goodwill. The results of operations, net assets and
resulting goodwill from this entity are included within the discontinued
operations in the accompanying consolidated financial statements.

During 1999, the Company and IMM's former shareholders amended the contingent
consideration provision in the acquisition agreement as a result of the
Company's intention to dispose of its physician practice management businesses.
Pursuant to the amended agreement, the Company paid $1,300 to the former
shareholders, and the former shareholders forfeited their rights to certain of
their respective common stock options. The Company has recorded a charge for
such amount in the results from discontinued operations for the year ended
December 31, 1998. The net assets from this acquisition were included in the
sale of the Company's physician practice management unit in 1999.

Madison Medical - The Private Practice Group of New York, L.L.P. ("Madison")

During 1997, the Company loaned $2,000 to Madison at the prime rate plus 2%, not
to exceed 10%, with interest payable monthly and the outstanding principal
payable in twelve monthly installments beginning in January 1998. Further, the
Company guaranteed a letter of credit in favor of Madison, in the amount of
$1,727, by depositing and restricting cash in the same amount with the same
financial institution providing that letter of credit. These obligations were
secured by the 49% ownership interest in Uptown Physician Management, Inc., an
MSO in which the Company had a 51% interest. On December 12, 1998, the Company
commenced legal action. On January 15, 1999, the Company commenced an
arbitration proceeding against Madison to collect $2,100 in fees owed pursuant
to a management services agreement between the parties. Madison has asserted a
defense in the action and a counterclaim in the arbitration seeking $2,400 in
damages based on the Company's and Uptown's alleged breaches of the management
services agreement. The Company and Madison settled there action in April 1999,
whereby Madison will pay the Company $2.5 million for all amounts owed and both
parties would withdraw all of their respective claims of the amount owed. $700
was paid within one month of the settlement and the remaining principal plus
interest incurring thereon at 8% per annum is to be paid in equal installments
over a five-year period. As of December 31, 1999, $1,604 remains outstanding
under the settlement agreement. However, the Company has provided a full
valuation reserve for this note due to the uncertainty of its collectibility.

Loans to Affiliates

During 1998, the Company loaned $2,000 to a physician, who was a principal in
one of the physician practices with which the Company maintained a management
services agreement, at 10% interest and payable in full on December 31, 1998.
The physician subsequently informed the Company of his inability to repay the
loan and as a result he Company agreed to restructure the loan. The
restructuring did not have a materially adverse effect on the Company's
consolidated financial statements as of and for the year ended December 31,
1998.

Litigation and Disputes from Discontinued Operations

                                      F-9
<PAGE>   35
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


In January 1999, a physician practice client of the Company, Millennium
Management Group, P.C. ("Millennium") who was in bankruptcy, filed an adversary
proceeding in United States Bankruptcy Court, District of New Jersey, asserting
claims for breach of fiduciary duty, breach of contract and conversion based on
the management services agreement among the parties. The complaint sought the
return of certain property allegedly belonging to Millennium in exchange for a
lien against the assets of Millennium that is senior to all claims other than
Millennium's bank debt. This matter was settled in 1999 and the resolution of
this matter did not have a material impact on the company's consolidated
financial statements.

In September 1998, the Company received notice from Advanced Heart Physicians
and Surgeons Network, P.C. ("Advanced Heart") that Advanced Heart was dissolving
due to irreconcilable differences. Advanced Heart claims that under the terms of
the management services agreement between Advanced Heart and the Company, this
action would cause the management services agreement to be terminated, the
Company would be required to refund certain fees previously received from
Advanced Heart and the Company would be required to repurchase certain
outstanding common shares of the Company held by one of the principals of
Advanced Heart. During 1999, Advanced Heart and the Company agreed to terminate
the management services agreement and settled the matter and the resolution of
this matter did not have a material impact on the Company's consolidated
financial statements.

In December 1998, the Philadelphia Cardiology Group P.C. ("PCG") served the
Company with a notice of default and termination under the management services
agreement. PCG filed a complaint against the Company alleges among other items
that the Company is liable for breach of contract under the parties' management
services agreement for alleged performance defaults. The action is still in the
preliminary stages, and the Company believes that PCG's claims are without merit
and intends to defend against them virgiously. In management's opinion, the
resolution of this matter will not have a materially adverse effect on the
Company's consolidated financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of AHT
and its wholly owned subsidiaries, Advanced Health Management Corporation
("AHM"), Advanced Health Technologies Corporation, Advanced Health Bukstel &
Halfpenny Corporation and its majority owned Management Service Organizations
("MSOs") discussed above. All intercompany transactions have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
specifically for, but not limited to, the useful lives of capitalized software
costs and intangible assets and the loss on disposal of discontinued operations
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                      F-10
<PAGE>   36
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


Revenue Recognition

The Company's revenue from continuing operations is generated from the
licensing and support of its software to third parties.

The Company recognizes revenue in accordance with Statement of Position ("SOP")
97-2 "Software Revenue Recognition." SOP 97-2 applies to all entities that earn
revenue by licensing, selling, leasing or otherwise marketing computer software.
It does not apply to revenue earned on products or services when the software
contained in those products or services is incidental to the products or
services as a whole. SOP 97-2 requires that revenue be allocated to each product
or service upon a high threshold of "vendor-specific objective evidence" and
deferred until all of the following four criteria are met for that particular
product or service: (1) persuasive evidence of an agreement must exist, (2)
delivery must have occurred, (3) the vendor's fee must be fixed or determinable,
and (4) collectibility must be probable.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with
original maturities of three months or less when purchased.

Certificates of Deposit

Certificates of deposit consist of a series of time deposits with maturities
from three to twelve months that were pledged as collateral on outstanding
letters of credit related to the Company's management service agreements
previously discussed.

Investments in Marketable Securities

The Company accounts for investments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with this pronouncement, the
investment and debt securities held by the Company and included in the
accompanying consolidated balance sheets that may be sold in response to changes
in interest rates, prepayments, and other factors have been classified as
available-for-sale. Such securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
shareholders' equity (on an after-tax basis). Gains and losses on the
disposition of securities are recognized on the specific identification method
in the period in which they occur.

Property and Equipment

Property and equipment, consisting primarily of electronic data processing
equipment, are stated at cost and depreciated on a straight-line basis over the
useful lives of the assets (3 to 5 years). Equipment held under capital leases
is amortized utilizing the straight-line method over the lesser of the term of
the lease or the estimated useful life of the asset.

Capitalized Software Costs

The Company develops computer software, which is marketed to third parties.
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility is established. Any additional development costs
are capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold,


                                      F-11
<PAGE>   37
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


Leased or Otherwise Marketed." Amortization of such costs is provided using the
straight-line basis over the estimated economic life of the products, as
determined. The Company performs an annual review of the recoverability of such
capitalized software costs. At the time a determination is made that capitalized
amounts are not recoverable based on estimated cash flows to be generated from
the applicable software, any remaining capitalized amounts are expensed. Certain
previously capitalized software costs were charged to restructuring charges
during 1998 (Note 4).

Computer software amortization charged to expense aggregated $300, $1,054 and
$241, respectively, for each of the three years ended December 31, 1999.

Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, and covenants not-to-compete are included in
intangible assets and were being amortized over a period of 20 years on a
straight-line basis through the 4th quarter of 1999. During the 4th quarter of
1999 management reevaluated the useful lives and adjusted the amortization
period to 3 years for the remaining goodwill. These amortization periods are
evaluated by management on a continuing basis, and will be adjusted if the lives
of the related intangible assets are impaired. Amortization was $187, $96 and
$268, respectively, for the three years ended December 31, 1999.

Accounting for Long-Lived Assets

The Company accounts for long-lived assets under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of.
Management has performed a review of all long-lived assets and has determined
that there are impairments of the respective carrying values of certain
long-lived assets as of December 31, 1999 (Notes 2, 4 and 9).

Investments in Affiliates

Investments in affiliates represent purchased interests of less than 20% and are
accounted for on the cost method. Annually, the Company reviews these
investments for impairment or whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable.

Computer Software for Internal Use

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. The adoption of SOP 98-1 in 1999 did not have a
material effect on the Company's consolidated financial statements. The Company
has expensed all software development costs for the three years ended December
31, 1999, as the Company has not incurred any costs that are capitalizable under
SOP 98-1.

Research and Development

Research and development costs are expensed as incurred by the Company. Research
and development expense aggregated $770, $2,400 and $1,300, respectively, for
the three years ended December 31, 1999.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term maturity of these
instruments. The carrying amounts of notes receivable capital lease obligations,
including current portions, approximate fair value.


                                      F-12
<PAGE>   38
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on (1) differences between the
financial accounting and income tax bases of assets and liabilities and (2) net
operating loss carryforwards, using enacted tax rates in effect for the years in
which the differences and carryforwards are expected to reverse and be utilized,
respectively (Note 13).

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per common share under the provisions
of SFAS No. 128 "Earnings Per Share." Basic net income (loss) per common share
("Basic EPS") is computed by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted net income (loss) per common share
("Diluted EPS") is computed by dividing net income (loss) by the weighted
average number of common shares and dilutive potential common shares then
outstanding. SFAS No. 128 requires the presentation of both Basic EPS and
Diluted EPS on the face of the consolidated statements of operations.

Shares used in calculating Basic and Diluted EPS are reconciled as follows:

<TABLE>
<CAPTION>
                                                           1997         1998         1999
                                                         ---------   ----------   ----------
<S>                                                      <C>         <C>          <C>
Average shares outstanding for basic net (loss) income
   per share                                             7,872,204   10,085,407   10,674,987
Diluted effect of stock options and warrants             1,018,652           --           --
                                                         ---------   ----------   ----------
          Weighted average shares outstanding for
              diluted net (loss) income per share        8,890,856   10,085,407   10,674,987
                                                         =========   ==========   ==========
</TABLE>

Diluted EPS for 1998 and 1999 does not include the impact of 1,460,607 and
2,138,771 stock options and warrants, respectively, then outstanding, as the
effect of their inclusion would be antidilutive.

Stock-Based Compensation

The Company has elected to follow the accounting set forth in Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25") and to provide the necessary pro forma disclosures as if the fair value
method had been applied (Note 12).

Comprehensive Income

The components of comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1997       1998         1999
                                                -------     -------      -------
<S>                                            <C>       <C>          <C>
Net (loss) income                               $7,158    $(75,193)    $(20,804)
Unrealized (loss) gain on marketable
  securities                                       124        (181)          --
                                                ------    --------     --------
   Comprehensive (loss) income                  $7,282    $(75,374)    $(20,804)
                                                ======    ========     ========
</TABLE>


                                      F-13
<PAGE>   39
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


Concentration of Credit Risk

Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, certificates of deposit,
marketable securities and trade accounts receivable. The Company maintains cash
and cash equivalents, certificates of deposit and marketable securities with
various financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information.

Segment Reporting

The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in 1998. This statement establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. The Company currently operates in one segment.


In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging," which establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company does not expect the adoption
of this standard to have a material effect on the Company's results of
consolidated operations, financial position or cash flows.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year's presentation.

4. RESTRUCTURING CHARGES

During the third and fourth quarters of 1998, the Company recorded total
restructuring charges of $7,648 relating to the Company's former information
technology line of business. Included in this total are noncash write-downs of
capitalized software no longer marketed or supported by the Company of $6,160,
facility closure costs of $281, noncash write-downs of property, plant and
equipment of $70, and severance and other employee-related costs of $1,137. All
of the restructuring costs have been paid as of December 31, 1999.

5. ACQUISITION OF BUSINESSES

During 1997, the Company acquired certain assets of Bukstel & Halfpenny, Inc.
("B&H"), a clinical information technology company, for $306 in cash, 66,201
shares of common stock ($21.81 per share) and options for the purchase of 12,012
shares ($21.00 per share, which was the then fair market value of the Company's
common stock) of the Company's common stock, for an aggregate purchase price of
$2,000. Furthermore, the B&H purchase agreement calls for the issuance of an
additional 114,613 shares of common stock, as contingent consideration. These
shares were issued in 1999 and, as a result, the Company recorded a


                                      F-14
<PAGE>   40
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


$623 purchase price adjustment, which represents the fair market value of the
common stock on the date of issuance. In September 1998, B&H commenced an action
in the Supreme Court of the State of New York against the Company. In addition
to the Company, the complaint named as defendants Advanced Health Med-E-Systems
Corporation, Advanced Health Bukstel & Halfpenny Corporation and certain current
or former officers or directors of the Company. The complaint asserts violations
of the federal securities laws, common law fraud and other common law claims in
connection with the Company's September 17, 1997 purchase of certain assets from
B&H and seeks rescission of the asset purchase agreement or unspecified damages.
On October 30, 1998, B&H obtained an order to show cause and temporary
restraining order, which temporarily prevented the Company from transferring
certain software code to a certain customer and from including certain "software
escrow" provisions in certain software licensing agreements. In August 1999,
this lawsuit was settled. Under the terms of the settlement, B&H withdrew its
rescission action and released AHT from any other present or future claims in
return for a $1.5 million payment. AHT has gained sole discretion and full
rights to market, sell and transfer, all software purchased from B&H including
the authority to include software licensing escrows in their agreements.
Additionally, the Company agreed to forgive a $225 secured promissory note owed
by B&H to the Company, in exchange for control of the 12,400 shares of the
Company's Common Stock which were pledged as collateral for this note. The
Company recorded the then fair market value of the 12,400 common shares as the
cost of acquiring treasury stock.

The pro forma effects of the Company's acquisitions have not been presented, as
the results are immaterial to the Company's consolidated financial statements
taken as a whole.

6. RELATED PARTY TRANSACTIONS

Software Licensing Agreements

During 1997 and 1998, the Company entered into two separate software licensing
agreements with a company in which AHT holds a common stock investment (Note
9(a)). The Company recognized $2,500 of licensing revenue from each transaction
for each of the years ended December 31, 1997 and 1998, respectively.

Transactions with Officers

In accordance with the Company's Senior Executive Loan Policy, which is
administered by the Compensation Committee of the Board of Directors, the
Company made loans to certain senior executives of the Company aggregating
$1,570 and $1,801, which are included in other assets in the accompanying
consolidated balance sheets as of December 31, 1998 and 1999, respectively.
These loans are due three years from the loan date with interest payable monthly
at a rate of 6% per annum. As of December 31, 1999, certain interest and
principal payments have been made. Subsequent to December 31, 1999,
approximately $340 of interest and principal of the loans have been repaid.

Management of the Company believes that these related party transactions were
effected on terms, which approximate fair market value.


                                      F-15
<PAGE>   41
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


7. INVESTMENTS IN MARKETABLE SECURITIES

The carrying amounts, gross unrealized gains and losses and estimated market
values of investment securities as of December 31, 1998, are summarized as
follows:

<TABLE>
<CAPTION>
                                                Gross         Gross       Estimated
                                 Carrying     Unrealized    Unrealized      Market
                                  Amount        Gains        (Losses)       Value
                                 ------       ----------    ----------    ---------
<S>                              <C>          <C>           <C>           <C>
Commercial paper                  $2,200        $   --        $   --        $2,200
U.S. Government and agencies       2,015            --            --         2,015
Corporate bonds                    2,754             3            --         2,757
                                  ------        ------        ------        ------
                                  $6,969        $    3        $   --        $6,972
                                  ======        ======        ======        ======
</TABLE>

All investment securities held as of December 31, 1998 are due in one year or
less. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. The Company had no marketable securities at December
31, 1999.

8. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                    December 31
                                                  ---------------
                                                   1998     1999
                                                  ------   ------
<S>                                               <C>      <C>
Computer equipment and software                   $4,223   $3,582
Equipment under capital leases                       438       58
Furniture and fixtures                               632      648
Leasehold improvements                                62       79
                                                  ------   ------
                                                   5,355    4,367

Less- Accumulated depreciation and amortization    2,790    2,312
                                                  ------   ------
                 Property and equipment, net      $2,565   $2,055
                                                  ======   ======
</TABLE>

Depreciation and amortization aggregated $753, $1,178 and $1,157, respectively,
for the three years ended December 31, 1999.

9. INVESTMENTS IN AFFILIATES

Investments in affiliates consist of the following:

<TABLE>
<CAPTION>
                                   December 31
                                -----------------
                                 1998      1999
                                -------   -------
<S>                             <C>       <C>
PatientCare Dynamics, LLC (a)   $10,000   $ 1,500
ACRM, Inc. (b)                    3,500     1,000
Caresoft, Inc. (c)                  500        --
                                -------   -------
                                $14,000   $ 2,500
                                =======   =======
</TABLE>


                                      F-16
<PAGE>   42
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


         (a)      On December 30, 1997, the Company purchased Class B Shares and
                  a Warrant, with a total value of $5,000, of PatientCare
                  Dynamics, LLC, a corporation that, among other things,
                  provides technology-based support systems and services to
                  healthcare professionals. In 1998, the Company purchased
                  additional Class B Shares and a Warrant with a total value of
                  $5,000. Management has determined that there is a permanent
                  impairment in the value of the investment at December 31,
                  1999 based upon an independent third-party valuation.
                  Therefore, the Company has adjusted the value of the
                  investment to its net realizable value of $1,500. As of
                  December 31, 1999, the Company owns approximately 17.7% of PCD
                  and has therefore accounted for the remaining investment
                  under the cost method.


         (b)      On September 30, 1997, the Company paid $1,000 for 9.9%
                  preferred stock ownership of Eminent Research Systems, Inc.
                  (formerly ACRM, Inc.), a corporation that provides advanced
                  cardiovascular research management. In 1997, the Company
                  loaned $2,500 to Eminent under a loan agreement. In July 1998,
                  the preferred stock interest and the loan were converted into
                  a $3,500 newly issued convertible debenture, bearing interest
                  at 6.0% per annum and payable in full on July 1, 2003. The
                  debenture was converted into 15% of the then outstanding
                  shares of Eminent common stock.

                  Management has determined that there is a permanent impairment
                  in the value of the investment at December 31, 1999 based upon
                  an independent third-party valuation. Therefore, the Company
                  has adjusted the value of the investment to its net realizable
                  value of $1,000.


         (c)      In June 1997, the Company purchased $500 of Series A Preferred
                  Stock issued by Caresoft, Inc., a corporation that, among
                  other things, develops chronic disease and patient compliance
                  software. As of December 31, 1998, the Company owned less than
                  20% of Caresoft, Inc. and therefore accounted for this
                  investment under the cost method. The Company sold this
                  investment in 1999 for $986, recognizing a gain of $486, net
                  of transaction costs, which is included in other income from
                  continuing operations in the accompanying statement of
                  operations for the year ended December 31, 1999.

10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                  December 31
                                                ---------------
                                                 1998     1999
                                                ------   ------
<S>                                             <C>      <C>
Professional fees                               $1,996   $  958
Accounts payable                                   441      625
Other                                            1,173    1,116
                                                ------   ------
  Total accounts payable and accrued expenses   $3,610   $2,699
                                                ======   ======
</TABLE>


                                      F-17
<PAGE>   43
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


11. OTHER CURRENT LIABILITIES

In connection with an acquisition in 1998 (Note 2), the Company assumed amounts
due from a $1,000 line of credit with a bank, which bears interest at prime plus
1.25%. As of December 31, 1998, there was $809 outstanding on the line of
credit. The amounts were repaid during 1999.

12. SHAREHOLDERS' EQUITY

Common Stock

In 1995, the Company sold 79,780 common shares pursuant to a private placement
agreement dated April 21, 1995 for an aggregate of $625. In accordance with this
agreement, the holders of these shares have the right, on two occasions, to
participate on a piggyback basis in a registration by the Company under the
Securities Act of 1933, as amended, subject to certain restrictions, for a
period ending on September 30, 2000, and commencing twelve months from the
closing of an initial public offering of the securities of the Company.

In October 1997, the Company completed a second public offering of its common
stock. The offering included the sale of 2,000,000 shares of common stock by the
Company and 500,000 shares of common stock by existing shareholders, at $22.25
per share plus an underwriter's overallotment of 750,000 shares. Total net
proceeds to the Company from this offering were $45,961.

Stock Repurchase Program

In September 1998, the Board of Directors approved a plan to repurchase up to
3,500,000 shares of the Company's outstanding common stock. The plan provides
that the shares may be repurchased at the discretion of the Company's senior
management over a period of up to six months. As of December 31, 1999, the
Company had repurchased 145,000 shares of treasury stock for total payments of
$315 under this plan.

Stock Options

The Company maintains the 1995 Stock Option Plan (the "1995 Plan") for the
purpose of granting incentive stock options to employees, officers or directors
of, or consultants or advisors to, the Company. Options granted under the 1995
Plan typically vest annually over a three-year period and expire ten years from
the date of grant. The Company reserved 1,500,000 shares of common stock for
issuance under the 1995 Plan, which was increased in 1997 and 1999 by 600,000
and 200,000 shares, respectively, pursuant to a vote by the Company's
shareholders.

The Company also maintains the Advanced Health Corporation Employee Stock
Purchase Plan (the "Employee Plan") in order to allow the employees of the
Company to acquire a proprietary interest in the Company through the purchase of
the Company's common stock. Under the Employee Plan, eligible employees will be
granted options to purchase shares of common stock through regular payroll
deductions. The total number of shares of common stock that are authorized for
issuance under the Employee Plan is 1,200,000. No shares have been issued under
the Employee Plan.


                                      F-18
<PAGE>   44
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


In August 1998, the Company canceled and reissued all then outstanding stock
options, which had an exercise price above $5.05. Employees whose options were
canceled received an amount equal to 75% of their previous option grants. The
new options were granted at an exercise price of $2.50 per share, which was
equal to or above the then fair market value of the Company's common stock.

The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.

Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income (loss) and basic net income (loss) per share would
have been changed to the following pro forma amounts:

<TABLE>
<CAPTION>
                                        1997          1998             1999
                                       -------      ---------       ----------
<S>                                    <C>          <C>             <C>
Net (loss) income:
    As reported                        $ 7,158      $ (75,193)      $ (20,804)
    Pro forma                            4,370        (81,557)        (21,878)

Basic and diluted net (loss)
 income per share:
    As reported                        $   .91      $   (7.46)      $   (1.95)
    Pro forma                              .56          (8.11)          (2.05)
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

A summary of the status of the 1995 Plan at December 31, 1998 and 1999, and
changes during the years then ended, is presented in the table and narrative
below:

<TABLE>
<CAPTION>
                                                   1998                          1999
                                         -----------------------        ---------------------
                                                       Wtd. Avg.                    Wtd. Avg.
                                           Shares      Ex Price       Shares        Ex Price
                                         -----------   ---------     ---------      ---------
<S>                                      <C>           <C>           <C>            <C>
Outstanding at beginning of year          2,478,800    $  13.72                    $    2.53
    Granted                               1,298,718        2.81      1,851,080          2.94
    Exercised                              (199,553)       5.35        523,250          1.43
    Forfeited                            (1,726,885)      10.34       (523,151)         2.53
                                                                      (235,559)
                                         ----------                  ---------     ---------
Outstanding at end of year                1,851,080        2.53      1,615,620          2.53
                                         ==========                  =========     =========
Exercisable at end of year                1,205,511        2.53      1,052,168          2.53
                                         ==========                  =========     =========
Weighted average fair value of options
   granted                               $     2.53         N/A      $    2.60     $     N/A

</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1999: risk-free interest rates of 5.42%
and 5.36%, respectively; expected dividend yields of 0%; expected lives of 3
years; expected stock price volatility of 154% and 113%, respectively.


                                      F-19
<PAGE>   45
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


13. INCOME TAXES

Income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                          Years Ended December 31
                                                       ------------------------------
                                                        1997        1998       1999
                                                       -------    --------    -------
<S>                                                    <C>        <C>         <C>
Federal:
    Current                                            $    --    $    536    $    --
    Deferred                                             2,556     (19,291)    (8,620)
State and local:
    Current                                                 --          95         36
    Deferred                                               451      (3,404)    (1,557)
Adjustment to valuation allowance for opening net       (2,605)      4,092         --
  deferred tax assets
Valuation allowance for net deferred tax assets             --      22,694     10,177
                                                       -------    --------    -------
              Total income tax provision (benefit)     $   402    $  4,722    $    36
                                                       =======    ========    =======
</TABLE>

A reconciliation of the difference between the statutory federal income tax rate
and the Company's effective tax rate for the three years ended December 31, 1999
are as follows:

<TABLE>
<CAPTION>
                                                    1997     1998    1999
                                                    ----     ----    ----
<S>                                                 <C>      <C>     <C>
Tax provision (benefit) at statutory rate             34%      34%     34%
State and local taxes                                  6        6       6
Adjustment to valuation allowance for opening net     --        6      --
  deferred tax assets
Valuation allowance for net deferred tax assets      (35)     (40)    (40)
                                                    ----     ----    ----
                                                       5%       6%     --%
                                                    ====     ====    ====
</TABLE>

The tax effects of temporary differences that give rise to a significant portion
of the deferred income tax asset, net, at December 31, 1998 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                     December 31
                                                 -------------------
                                                   1998       1999
                                                 --------    -------
<S>                                              <C>         <C>
Net operating loss carryforward                  $ 16,011    $ 21,699
Accrued expenses                                    4,666       1,206
Allowance for doubtful accounts                     2,549          20
Amortization                                        1,746       1,512
Exercise of stock options                             577         577
Impairment of investments                                       4,400
Other                                                (326)       (326)
                                                 --------    --------
                                                   25,223      29,088
Less- Valuation allowance                         (25,223)    (29,088)
                                                 --------    --------
              Total deferred income taxes, net   $     --    $     --
                                                 ========    ========
</TABLE>


                                      F-20
<PAGE>   46
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


At December 31, 1999, the Company had net operating loss carryforwards ("NOLs")
available to offset taxable income of approximately $55,690, expiring in varying
amounts from 2010 through 2019. In 1997, management of the Company determined
that, more likely than not, its previously reserved deferred tax assets would be
realized and, accordingly, reduced the related valuation allowance. The
reduction in the valuation allowance is included in the provision for income
taxes in the accompanying consolidated statement of operations for 1997. The
determination that the net deferred tax asset of $4,092 at December 31, 1997 was
realizable, was based on the Company's profitability during 1997. Based upon the
Company's results of operations for the year ended December 31, 1999, the
Company determined that more likely than not, its deferred tax assets would not
be realized and recorded a full valuation allowance against such assets. The
provision for income taxes for the year ended December 31, 1998 represents the
charge for the valuation allowance for prior year deferred tax assets. Deferred
tax assets of approximately $1,360 for the year ended December 31, 1997, all of
which are related to tax benefits associated with the exercise of stock options,
did not result in a tax benefit in the accompanying consolidated statements of
operations but, rather, an increase to additional paid-in capital.

14. COMMITMENTS

The Company leases certain office space for its operations. Leases for this
space expire through 2002 and call for annual rent, with immaterial escalations
through the end of the leases. The Company has also entered into several
operating leases for office equipment.

Future minimum payments for operating leases at December 31, 1999 are as
follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
                 Year ending December 31:
                     2000                                     $   693
                     2001                                         621
                     2002                                         260
</TABLE>

Rent expense was $443, $299 and $515, respectively, for the three years ended
December 31, 1999.

Employment Agreements

The Company maintains employment agreements with certain named executives. The
employment agreements provide for aggregate annual base salaries of $855. These
executives are also entitled to receive discretionary bonuses. The employment
agreements provide for a four-year term that is automatically renewable for
successive one-year terms unless either party gives prior written notice of its
intent not to renew.

15. STRATEGIC PARTNERSHIP AGREEMENTS

In August 1999, the Company entered into a strategic alliance agreement with
Laboratory Corporation of America Holdings ("LabCorp"), a national clinical
laboratory. Under the agreement, the Company will provide computer interfaces
for LabCorp's reference laboratory, hospital, and managed care clients. The
agreement provides for AHT to develop and install specific interfaces based on
AHT's technology, which allows LabCorp and its hospital partners to exchange
laboratory results, demographics, eligibility information, and laboratory
orders. The Company will receive fees based upon the number of interfaces
provided, as defined under the agreement.


                                      F-21
<PAGE>   47
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


In November 1999, the Company entered into an agreement with drugstore.com, inc.
("drugstore.com"), an online drugstore and information site offering products
and solutions for health, beauty, wellness, personal care, to become a
participatory member in drugstore.com's new certification program for electronic
prescriptions. The certification program will help define the guidelines for
receipt of electronic prescriptions by online pharmacies. Under terms of the
agreement, AHT will work with drugstore.com to help establish and promote the
National Council for Prescription Drug Programs ("NCPDP") industry standard for
transmission of electronic prescriptions to online pharmacies. Through a
six-month test period beginning in early 2000, drugstore.com, AHT and other
program participants will work through technical, regulatory and operational
issues regarding electronic prescriptions with feedback from NCPDP. If
successful under the program, the Company will earn fees on electronic
prescriptions on a transaction basis.

In November 1999, the Company entered into a licensing agreement with
PlanetRx.com, Inc. ("PlanetRx"), an Internet healthcare destination for
commerce, content and community, for the Company's web-enabled electronic
prescription writing and transmission service. Under the terms of the agreement,
PlanetRx.com will pay AHT a transaction-processing fee for each electronic
prescription submitted for fulfillment to PlanetRx.com's website.
No transaction fees were earned during 1999.

In December 1999, the Company entered into an strategic agreement with
Merck-Medco Managed Care, L.L.C. ("Merck-Medco"), a pharmacy benefit management
company serving benefit plans of employers, unions, commercial and government
health plans, a subsidiary of Merck & Co., Inc. Under the agreement, the Company
will provide its web-based prescription management service, which manages
prescriptions electronically to registered users with Merck-Medco, as defined,
and to connect with Merck-Medco through the Company's proprietary web site. The
Company will earn fees on electronic prescriptions on a transaction basis.

16. LITIGATION AND DISPUTES

On September 23, 1997, the Company commenced an action against a customer to
collect $1,000 owed by the customer to the Company pursuant to a software
license agreement dated as of March 31, 1997, as amended (the "License
Agreement"), between the customer and the Company. On October 1, 1997, the
customer filed an answer to this lawsuit and asserted various counterclaims
against the Company, in which the customer alleges that the subject software and
documentation was not timely delivered and installed in accordance with the
License Agreement. As relief, the customer sought a declaratory judgment that
the customer is not obligated to make the $1,000 payment, as well as unspecified
damages. This action was settled in January 1999, all claims were dismissed with
prejudice and the settlement did not have a materially adverse effect on the
Company's consolidated financial statements.

From July 1 through August 17, 1998, eleven putative class actions were filed in
the United States District Court for the Southern District of New York, all of
which have been consolidated under the caption "In re Advanced Health
Corporation Securities Litigation". The amended consolidated complaint filed in
February 1999, seeks, among other remedies, certification as a class action and
unspecified damages resulting from defendants' alleged violations of federal
securities laws. The amended consolidated complaint alleged that the Company and
certain of its current or former officers or directors are liable for certain
misrepresentations and omissions regarding, among other matters, the Company's
operations, performance and financial condition. On January 27, 2000, the
Company agreed to a settlement of the Class  Action, pursuant to which the
Company has deposited $300,000 in escrow to cover the costs of notice to the
class, administration of the settlement and plaintiff attorneys' expenses and
will, upon final approval of the settlement, issue 886,437 shares of common
stock to class members and class counsel (subject to possible enhancement if the
Company's stock price drops below a certain level or if the Company authorizes
and issued additional stock). The settlement is subject to the District Court's
approval. The Court has scheduled a hearing on the settlement for April 18,
2000.

                                      F-22
<PAGE>   48
AHT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 and 1999
(000's omitted, except share and per share data)


The settlement provides for the dismissal of the suit without any admission of
wrongdoing on the part of the Company.

From time to time, the Company is involved in other litigation. Although the
actual amount of any liability that could arise with respect to any such
litigation cannot be accurately predicted, in the opinion of management, the
resolution of these matters is not expected to have a material adverse effect on
the Company's business, results of operations or financial condition.

17. SUBSEQUENT EVENT

In March 2000, the Company entered into certain agreements with Cybear, Inc.
("Cybear"). As part of the agreements, Cybear purchased a $4 million 10% Senior
Convertible Note (the "Cybear Note") for cash from the Company, due March 31,
2001 and secured by the Company's assets. The Cybear Note is convertible at
Cybear's option into shares of the Company's common stock at a conversion price
equal to the lower of $4.34 per share or 80% of the average market price per
share prior to the conversion date, provided that Cybear cannot acquire upon
conversion approximately more than 1.9 million of the Company's shares. In
addition, Cybear received from the Company a five-year warrant to purchase up to
300,000 shares of the Company's common stock at an exercise price per share of
$4.34. The agreements include a co-marketing and distribution agreement for the
Company's Web-based electronic prescribing service and clinical laboratory
transaction management product and Cybear's Internet portal. In a related
agreement, the Company granted Cybear the exclusive right to migrate the
Company's Web-based prescription system to a hand held computer that will be
marketed exclusively by the Company and Cybear.


                                      F-23
<PAGE>   49



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To AHT Corporation:

We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of AHT Corporation and subsidiaries included
in this annual report on Form 10-K and have issued our report thereon dated
April 13, 2000. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. This schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.




                                           ARTHUR ANDERSEN LLP



New York, New York
April 13, 2000





                                      S-1
<PAGE>   50



AHT CORPORATION AND SUBSIDIARIES

SUPPLEMENTAL SCHEDULE II
(000's omitted)




<TABLE>
<CAPTION>

                                                                    Additions
                                                         ---------------------------
                                            Balance at   Charged to       Charged to
                                           Beginning of    Cost and         Other                      Balance at
                Description                   Period      Expenses        Accounts     Deductions   End of Period
                -----------                   ------      --------        --------     ----------   -------------
DECEMBER 31:
<S>                                        <C>            <C>            <C>           <C>          <C>
1997 allowance for doubtful accounts        $ 210          $ 450          $   --          $  --           $ 660
1998 allowance for doubtful accounts          660             --              --           (630)             30
1999 allowance for doubtful accounts           30             20              --             --              50
</TABLE>





                                      S-2