<PAGE>   1

                       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 0-27056

                                    HIE, INC.
             (Exact name of registrant as specified in its charter)

                   GEORGIA                             58-2112366
       (State or other jurisdiction of              (I.R.S. Employer
       incorporation or organization)              Identification No.)

       1850 PARKWAY PLACE, SUITE 1100                    30067
              MARIETTA, GEORGIA                        (Zip Code)
  (Address of principal executive offices)

                                 (770) 423-8450
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      None

         SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common
Stock, $0.01 par value per share (together with associated preferred stock
purchase rights)

         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 registrant's Common Stock (based upon
the closing sales price quoted on the Nasdaq National Market) held by
nonaffiliates as of March 27, 2000 was approximately $136,494,271.

         As of March 27, 2000, 27,159,088 shares of the registrant's Common
Stock, par value $0.01 per share (together with associated preferred stock
purchase rights), were outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's definitive Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference into Part III.


<PAGE>   2



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                           NUMBER
                                                                                                           ------
<S>      <C>        <C>                                                                                    <C>
Part I

         Item 1.    Business..................................................................................3

                    Factors That May Affect Future Performance...............................................10

         Item 2.    Properties...............................................................................23

         Item 3.    Legal Proceedings........................................................................23

         Item 4.    Submission of Matters to a Vote of Security Holders......................................23

         Executive Officers of the Registrant................................................................24

Part II

         Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters....................26

         Item 6.    Selected Financial Data..................................................................28

         Item 7.    Management's Discussion and Analysis of Financial Condition and Results of
                    Operations...............................................................................29

         Item 7A.   Quantitative and Qualitative Disclosures About Market Risk...............................40

         Item 8.    Financial Statements and Supplementary Data..............................................41

         Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial
                    Disclosure...............................................................................42

Part III

         Item 10.   Directors and Executive Officers of the Registrant *.....................................42

         Item 11.   Executive Compensation *.................................................................42

         Item 12.   Security Ownership of Certain Beneficial Owners and Management *.........................42

         Item 13.   Certain Relationships and Related Transactions *.........................................42

Part IV

         Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................43
</TABLE>



* Incorporated by reference to the Registrant's Proxy Statement for the 2000
  Annual Meeting of Shareholders.


                                       2
<PAGE>   3



             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

         This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, in particular, forward-looking statements under the
headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are intended to identify such forward-looking statements; however,
this Report also contains other forward-looking statements in addition to
historical information. Actual results may differ materially from those
indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated results will be realized. Among the important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are the factors set forth below in
"Item 1. Business -- Factors That May Affect Future Performance." By making
these forward-looking statements, HIE, Inc. does not undertake to update them in
any manner except as may be required by its disclosure obligations in filings it
makes with the Securities and Exchange Commission (the "Commission") under the
Federal securities laws.

         In this Report, the words "Company," "HIE," "we," "our," "ours," and
"us" refer to HIE, Inc. and its subsidiaries. HIE owns the HIE (R),
Cloverleaf(R), EMerge(R) and Solution Sourcing(TM) trademarks in the United
States. Trademarks, trade names or service marks of other companies appearing
elsewhere in this Report are the property of their respective owners.



                                     PART I

ITEM 1.  BUSINESS

         The Company was incorporated in Georgia on June 15, 1994 and changed
its name from Healthdyne Information Enterprises, Inc. to HIE, Inc. on February
24, 1999. The Company's principal executive offices are located at 1850 Parkway
Place, Suite 1100, Marietta, Georgia 30067, and its telephone number is (770)
423-8450. The Company maintains a web site at http://www.hie.com. The reference
to HIE's web address does not constitute incorporation by reference of the
information contained at the site.

         During 1999, the Company operated in one segment, the licensing of
integration software products and performance of related integration services.
During 1998, the Company operated in two segments: (i) the licensing of
integration software products and performance of related integration services,
and (ii) the providing of consulting services related to information systems
integration for healthcare organizations. See Note 14 of the Notes to
Consolidated Financial Statements for financial information with respect to
segments. On December 31, 1998, HIE sold the assets comprising its Integrated
Services Group, which provided these consulting services related to information
systems integration for healthcare organizations, to Superior Consultant
Company, Inc., a wholly-owned subsidiary of Superior Consultant Holdings
Corporation. The purchase price for the sale of the Integrated Services Group
was $2.2 million in cash, subject to adjustment based on the actual collection
of accounts receivable of the Integrated Services



                                       3
<PAGE>   4

Group. The portion of the purchase price held in escrow subject to the
collection of accounts receivable was received by HIE on December 31, 1999.



OVERVIEW

         HIE develops, markets and supports enterprise application integration
("EAI") software products and provides services related to its products, as well
as integration outsourcing and information technology ("IT") facilities
management services. HIE's solutions integrate, index and consolidate data
housed in the enterprise's disparate applications to improve its business
processes, empower its customers and stakeholders and facilitate the adoption of
new technologies, such as the internet.

PRODUCTS AND SERVICES

         The Company's two primary software products are Cloverleaf(R) and
EMerge(R). In addition, the Company provides services related to its products,
as well as integration outsourcing and full IT facilities management services.

Cloverleaf Integration Engine

         Cloverleaf, HIE's interface engine, is an EAI software product that
allows information in the form of messages, records or transactions to be
exchanged, transformed and routed between disparate applications. It is a core
technology designed to provide a configurable infrastructure for enterprise-wide
application integration. Cloverleaf creates a high performance-messaging
platform that supports asynchronous and synchronous connections to a range of
programs, databases, objects and protocols. Graphical configuration clients
allow quick development of flow logic to direct, modify and support business
integration rules. Proactive management, alerting and testing functions are all
included.

         HIE is currently shipping Cloverleaf Integration Engine 3.6 and expects
to release updates or new versions during 2000. In addition to the version of
Cloverleaf that HIE markets directly to the healthcare market, HIE currently
sells two branded versions of the Cloverleaf Integration Engine:

         -        Pathways Interface Manager, a private label version of the
                  Cloverleaf Integration Engine distributed by McKesson HBOC,
                  Inc. ("McKessonHBOC")

         -        Cloverleaf finance, a version of Cloverleaf specifically
                  bundled for trade-oriented banking and securities applications
                  which includes pre-built adapters and features required for
                  successful implementations in the Society for Worldwide
                  Interbank Financial Telecommunication ("S.W.I.F.T.") and
                  Straight Through Processing (STP) environments common to
                  international banking and trading

         HIE also offers the Cloverleaf Gateway, an integration engine designed
primarily for independent software vendors seeking to bundle selected
integration features with their own product. The Cloverleaf Gateway enables
vendors to easily and quickly integrate their applications with their customers'
existing IT environments.


                                       4
<PAGE>   5

EMerge

         EMerge helps healthcare enterprises to integrate person-specific
information--such as demographics, identification numbers and insurance
information--across organizations and information systems. Healthcare
information systems typically have proprietary master person index ("MPI") keys
to reference data related to each person (e.g. a patient record) held in their
database. EMerge is an enterprise-wide MPI ("EMPI") product built with
healthcare process logic on top of the Company's EAI technology. EMerge indexes
the MPIs of multiple, disparate healthcare information systems so that users can
gain access to information on these systems. It identifies and tracks patients
and encounter summaries across the continuum of patient care and offers
front-end and back-end integration capabilities. EMerge also minimizes the
duplication of patient records, improves data access time and allows accurate
linkages of disparate clinical information. EMerge provides process-level
integration and an indexing system applied specifically to the healthcare
industry. As of December 31, 1999, EMerge was installed in approximately 15
healthcare locations.

         HIE is currently at EMerge release level 3.1 and expects to release
updates or new versions during 2000.

Client Services

         HIE offers comprehensive design, implementation, maintenance and
education services related to its integration products, including:

         -        pre-implementation assessment services

         -        software implementation

         -        dedicated on-site integration personnel to work with a
                  customer's staff to define integration procedures, implement
                  interfaces, manage the transition of the customer's staff from
                  its old system to a new HIE solution and manage integration
                  projects on an ongoing basis

         -        off-site management of a customer's integration needs

         -        assistance for time-critical, highly complex integration
                  projects on an as-needed basis

         -        open-enrollment training courses to provide users of HIE's
                  products with training on system essentials, intermediate
                  level and advanced courses

         -        training on system administration, project management,
                  operating systems, networking, programming languages and
                  record format standards

         HIE provides training courses at its facilities. In addition, the
Company offers training at client-hosted facilities on an as requested basis,
tutoring services and enhanced skill-building before or after training.
Computer-based training is also available for certain refresher and general
prerequisite training courses.

         HIE's service personnel bring significant expertise that can be used to
handle a variety of integration-related projects. Examples of such projects
include:


                                       5
<PAGE>   6

         -        helping a customer analyze system configurations to improve
                  system performance

         -        designing a custom automatic backup and archiving system to
                  protect a customer's integration infrastructure

         -        evaluating a customer's record layouts and translations (a
                  project which can be the foundation for maintaining system
                  update records)

In addition to its integration and system administration services, HIE provides
its customers with comprehensive training and 24 hours per day and 7 days per
week technical support for its products via telephone, electronic mail and its
web site.

Solution Sourcing(TM) Outsourcing Services

         INTEGRATION SOURCING allows the client organization, whether integrated
healthcare delivery network or vendor, to outsource its integration functions to
HIE. With Integration Sourcing, HIE assumes management and personnel roles,
asset arrangements for hardware within the integration function, software
upgrades, interface development, documentation and maintenance of interfaces and
around-the-clock monitoring and support. FACILITIES SOURCING gives healthcare
institutions or vendors the ability to fully outsource their computing
operations to HIE.

CUSTOMERS

         HIE has two primary target customers: the healthcare enterprise (which
may be a large hospital, integrated delivery network or other
healthcare-delivery entity) and the healthcare software vendor. An enterprise is
either a single entity with multiple departments or multiple entities that are
joined together to fulfill a common mission. For example, a hospital, which has
laboratory, radiology, pharmacy and other departments, is an enterprise; an
integrated healthcare delivery network, which consists of hospitals, clinics,
imaging centers, physicians, home healthcare providers, management service
organizations, employers, payors and others, is also an enterprise. The
healthcare software vendor is in the business of developing software products
for the healthcare industry. Its products offer solutions to a healthcare
enterprise problem, and must be integrated into the healthcare enterprise's
existing information systems infrastructure.

         Since its inception in 1994, HIE has focused on providing products and
services to customers in the healthcare market, and substantially all of HIE's
revenue comes from customers in the healthcare market. HIE's products are
currently available to customers in versions specifically designed to meet the
needs of companies in the healthcare and financial industries. While
approximately 90% of HIE's revenues in 1999 were generated within the United
States, HIE has customers in several countries worldwide.

         No single end-user customer accounted for more than 10% of the
Company's revenue in 1999, 1998 or 1997.

         Approximately 7%, 35% and 18% of HIE's total revenue in 1999, 1998 and
1997, respectively, were generated by third-party distributors of its products.
No single distributor provided customers to HIE that accounted for more than 10%
of HIE's revenue in either 1999 or


                                       6
<PAGE>   7

1997. During fiscal 1998, distributors accounted for approximately 80% of HIE's
software sales, and one distributor, McKessonHBOC, accounted for approximately
40% of HIE's software license revenue and approximately 18% of HIE's total
revenue.

         See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations --Backlog" regarding information about
backlog orders.

SALES AND MARKETING

         HIE sells its products and services both through independent
distributors and its direct sales force. HIE focuses on selling to the financial
services market through an exclusive master reseller agreement with Trace
Financial Ltd. During fiscal 1999 and 1998, distributors accounted for
approximately 27% and 80%, respectively, of HIE's software sales. As of December
31, 1999, HIE employed a total of 17 individuals in its direct sales force.
HIE's sales people are located throughout the United States.

         HIE's typical healthcare sales cycle is between three and nine months.

         HIE conducts extensive marketing programs including direct mail, media
relations, user group and partnership relations, advertising and trade shows.
HIE also sponsors an annual user conference that provides it with the
opportunity to exchange information with its customers on HIE's products and
trends in the industry. As of December 31, 1999, HIE employed a total of six
individuals in marketing.

RESEARCH AND DEVELOPMENT

         HIE has made substantial investments in EAI technology through product
development and acquisition. HIE spent $5.3 million, $5.1 million and $3.4
million on research and development activities during 1999, 1998 and 1997,
respectively. Its product suite has evolved from message brokers first produced
by predecessors as early as 1991. As of December 31, 1999, HIE had a development
staff of 31, which included the original architects of the core EAI products.
HIE categorizes its product development management into three coordinated
groups:

         Research. This group is responsible for researching emerging
technologies and developing prototypes for future products.

         Message Broker. This group is responsible for the development,
integration and quality engineering of the Cloverleaf Integration Engine,
Cloverleaf OM3 components and other messaging brokering products.

         Indexing. This group is responsible for HIE's healthcare processware
product, EMerge, which is an indexing product for persons and insurance and care
providers.

COMPETITION

         The market for HIE's products is intensely competitive and is expected
to become increasingly competitive as current competitors expand their product
offerings and new competitors enter the market. HIE's current competitors
include a number of companies offering


                                       7
<PAGE>   8

one or more solutions to the application integration problem, some of which are
directly competitive with HIE's products.

         HIE faces competition for product sales and services from a number of
sources, including the following:

         -        "in-house" IT departments of potential customers or
                  distributors

         -        other vendors offering EAI software directly competitive with
                  our products, such as Software Technologies Corp.

         -        other vendors offering EMPI software directly competitive with
                  our products, such as Software Technologies Corp., Madison
                  Technologies, Inc. and various HIS vendors

         -        systems integrators and professional service organizations and
                  consultants

         -        other vendors of software that address only certain technology
                  components of EAI solutions

         Many of these companies have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition, and a larger installed base of customers than HIE.
Many of these competitors also may have well-established relationships with
HIE's current and potential customers in our targeted markets. In addition, many
of these competitors have extensive knowledge of EAI and may be in a better
position than HIE to devote significant resources toward the development,
promotion and sale of products.

         HIE believes that the principal competitive factors affecting its
market include product features such as heterogeneous computing platforms,
responsiveness to customer needs, scaleability, adaptability, support of a broad
range of functionality, performance, ease of use, quality, price and
availability of professional services for product implementation, customer
service and support, effectiveness of sales and marketing efforts, and company
and product reputation. Although HIE believes that it currently competes
favorably with respect to such factors, there can be no assurance that it can
maintain its competitive position against current and potential competitors,
especially those with greater financial, marketing, service, support, technical
and other resources than HIE.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

         HIE's success and ability to compete are dependent in part upon its
proprietary technology. HIE relies on a combination of copyright, trademark and
trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect its proprietary rights. Despite HIE's
efforts to protect its proprietary rights, existing copyright, trademark and
trade secret laws afford only limited protection. Moreover, the laws of certain
countries do not protect HIE's proprietary rights to the same extent as do the
laws of the United States. In addition, attempts may be made to copy or reverse
engineer aspects of HIE's products or to obtain and use information that HIE
regards as proprietary. Accordingly, there can be no assurance that HIE will be
able to protect its proprietary rights against unauthorized third-party


                                       8
<PAGE>   9

copying or use, which could materially and adversely affect HIE's business,
financial condition or results of operations. Moreover, there can be no
assurance that others will not develop products that infringe HIE's proprietary
rights, or that are similar or superior to those developed by HIE. Policing the
unauthorized use of HIE's products is difficult and litigation may be necessary
in the future to enforce HIE's intellectual property rights, to protect HIE's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on HIE's business, financial
condition or results of operations.

         There can be no assurance that third parties will not claim
infringement by HIE with respect to current or future products. HIE expects that
EAI software developers will increasingly be subject to infringement claims as
the number of products in different industry segments overlap. In addition,
there can be no assurance that legal action claiming patent infringement will
not be commenced against HIE, or that HIE would necessarily prevail in such
litigation given the complex technical issues and inherent uncertainties in
patent litigation. In the event a patent claim against HIE was successful or HIE
could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, HIE's business, financial
condition and results of operations would be materially adversely affected.


EMPLOYEES

         As of December 31, 1999, HIE employed 179 persons. Of these employees,
28 were engaged in sales and marketing, 99 were in services, 31 were in research
and development and 21 were in general and administrative functions. None of
these employees are represented by a labor union or subject to any collective
bargaining agreement, and HIE has experienced no work stoppages. Management
believes that its relationship with its employees is good and that the future
success of HIE depends in large part on its ability to attract and retain
qualified personnel.


                                       9
<PAGE>   10



                   FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

         In addition to other factors and matters discussed elsewhere herein,
factors that, in the view of HIE, could cause actual results to differ
materially from those discussed in forward-looking statements are set forth
below. All forward-looking statements attributable to HIE or persons acting on
our behalf are expressly qualified in their entirety by the following cautionary
statements.

OUR OPERATING RESULTS VARY SIGNIFICANTLY AND OUR PAST OPERATING RESULTS MAY NOT
BE INDICATIVE OF OUR FUTURE PERFORMANCE

         Historically, the Company has not achieved year over year revenue
growth. You should not use our past results to predict future operating margins
and results. Additionally, we have a limited operating history upon which you
can base your evaluation of our business and prospects. Prior to 1998 and during
1999, we experienced a history of losses and we have not yet been consistently
profitable on an annual basis. At December 31, 1999, we had an accumulated
deficit of approximately $29.8 million. Our future operating results will depend
on many factors, including the following:

         -        the growth of the EAI software market

         -        the continued growth of demand for our EMerge product

         -        the size and timing of orders for our products and the
                  collection of the related accounts receivable

         -        the amount and timing of services revenue

         -        the ongoing impact of the Year 2000 issue on sales of our
                  products (See "-- Year 2000 Risks May Result in Material
                  Adverse Effects on Our Business.")

         -        the length of the sales cycle for our products

         -        potential delays in our implementations at customer sites

         -        changes in demand for our products

         -        introduction of new products or product enhancements by us or
                  our competitors

         -        changes in prices of our products and those of our competitors

         -        the effects of global economic conditions on capital
                  expenditures for software

         -        amount, availability and timing of expenditures relating to
                  expansion of our business

         -        variability in the mix of services that we perform versus
                  those performed by our third-party service providers

         -        the ability to integrate the operations and assets of
                  acquired businesses, including the retention of key
                  employees and contracts associated with such acquisitions

         -        the impact of the Internet on the healthcare industry

WE HAVE INCURRED LOSSES AND THERE CAN BE NO ASSURANCES REGARDING IF AND WHEN WE
WILL AGAIN GENERATE POSITIVE EARNINGS

     Prior to 1998 and during 1999, we experienced a history of losses, and we
have not yet been consistently profitable on an annual basis. We believe this is
primarily due to the fact that we


                                       10
<PAGE>   11

have experienced a shift in the composition of our overall revenue from
relatively high-margin software license fees to the lower-margin service
component of our business. Therefore, our overall gross profit has been
reduced, contributing significantly to the overall losses that we have
incurred. Unless we are able to generate increased unit sales of our
Cloverleaf Integration Engine in the healthcare and financial/banking markets
or generate significant sales from our EMerge software product, as well as
develop and market new enhancements and new products, we may continue to see
our lower-margin service business dominate our overall revenue composition.
If this trend continues, unless we are able to continue to make cost cutting
measures, including improvements to the gross profit of the service business,
such losses may continue to occur. We are unable to assure you that we will
be able to remedy this situation in the near future, if at all, and
therefore, there can be no assurance if and when we will return to
profitability. See "--We Depend on Services Revenue." In addition, such
losses have contributed to our inability in the past to satisfy certain
financial covenants of our revolving line of credit, which defaults were
waived by the lender. On December 31, 1999, we entered into a new line of
credit agreement with no financial covenants. On February 24, 2000, we
entered into an accounts receivable financing agreement, which provides for
an extension of credit in order to finance receivables up to $6,000,000.
There are no financial covenants associated with this agreement.

FACTORS AFFECTING FLUCTUATIONS IN OUR QUARTERLY RESULTS

         Our quarterly operating results have fluctuated significantly in the
past and may vary significantly in the future. Quarterly revenue and operating
results depend upon, among other things, the volume and timing of customer
contracts and service orders received, as well as the amount of each contract
that we are able to recognize as revenue. These factors are difficult to
forecast. In addition, as is common in the software industry, a significant
portion of our license revenue in a given quarter historically has been recorded
in the last month of that quarter. Our expense levels for each quarter, however,
are based primarily on our estimates of future revenue and are largely fixed. As
a result, we may be unable to adjust spending rapidly enough to compensate for
any unexpected revenue shortfall. Any significant shortfall in revenue in
relation to our planned expenditures would seriously harm our business,
financial condition and results of operations.

         Our Dependence On Sales To Distributors and Significant Customers May
Impact Our Quarterly Results

         We use distributors to sell EAI solutions in our targeted markets.
Sales of our products to a limited number of distributors may account for a
significant amount of revenue for a particular quarter. For example, one
distributor, Trace Financial LTD, accounted for 29% and 58% of our software
revenue for the three months ended March 31, 1999 and June 30, 1999,
respectively. Additionally, in the fourth quarter of 1998, sales to a major
distributor accounted for almost one half of our total revenue and
substantially all of our software revenue. One customer, Columbia/HCA
Healthcare Corporation, accounted for 69% of our software revenue and 23% of
our total revenue for the three months ended September 30, 1999. For the
three months ended December 31, 1999, one customer, Cybear, Inc., represented
66% of software revenue and 25% of our total revenue. Our distributors and
significant customers may not purchase significant amounts of our products in
a particular quarter, if at all. Further,


                                       11
<PAGE>   12

changes or delays in distributor orders and the absence of significant customers
in the future may cause significant variability in our revenue for any
particular quarter.

         Collection Of Accounts Receivable May Impact Our Quarterly Results

         A downturn in the software market generally or other financial problems
of significant customers could affect our ability to collect outstanding
accounts receivable. We have been required to establish a reserve against a
significant accounts receivable balance in the past. Our accounts receivable,
minus an allowance for doubtful accounts of $5.2 million, were approximately
$6.7 million on December 31, 1999. Delays in collection or uncollectibility of
accounts receivable could harm our liquidity and working capital position.

         Seasonality May Impact Our Quarterly Results

         Our operating results have also experienced certain seasonal
fluctuations. Historically, our revenue has been higher in the fourth quarter
and lower in the first quarter of each year. We believe that our seasonality is
due in part to the calendar year budgeting cycles of many of our customers and
our incentive compensation policies, which tend to reward our sales personnel
for achieving annual rather than quarterly revenue quotas. In future periods, we
expect that these seasonal trends may continue to cause first quarter license
revenue to decrease from the level achieved in the preceding quarter.

         As a result of these and other factors, our quarterly revenue may
fluctuate significantly, and we cannot predict with certainty our quarterly
revenue and operating results. Further, we believe that period-to-period
comparisons of our operating results are not necessarily a meaningful indication
of future performance. It is likely that in one or more future quarters our
results may fall below the expectations of securities analysts and investors. If
this occurs, the trading price of our common stock would likely decline.

OUR REVENUE IS PRIMARILY GENERATED IN THE HEALTHCARE AND FINANCIAL/BANKING
MARKETS

         Substantially all of our revenue comes from customers in the healthcare
and the financial/banking markets. Sales to healthcare organizations accounted
for substantially all of our total revenue for the years ended December 31, 1999
and 1998. As a result, our business, financial condition and results of
operations are influenced by conditions affecting these industries. Our
distributors and customers may not continue to purchase our products and
services. Consequently, our failure to maintain our relationships with our
current distributors and customers or to add new distributors or customers that
make significant purchases of our products and services would seriously harm our
business, financial condition and results of operations.

         Many healthcare organizations are consolidating to create integrated
healthcare delivery systems with greater market power. These organizations may
try to use their market power to negotiate price reductions for our applications
and services. As the healthcare industry consolidates, competition for customers
will become more intense and the importance of acquiring each customer will
become greater. If we were forced to reduce prices for our products or services,
our operating results would suffer.


                                       12
<PAGE>   13

         The healthcare market itself is highly regulated and is subject to
changing political, economic and regulatory influences. These factors affect
the purchasing practices and operations of healthcare organizations. Changes
in current healthcare financing and reimbursement systems could cause us to
make unplanned enhancements of software applications or services, or result
in delays or cancellations of orders or in the revocation of endorsement of
our applications and services by healthcare participants. Federal and state
legislatures have periodically considered programs to reform or amend the
U.S. healthcare system at both the federal and state level. These programs
may contain proposals to increase governmental involvement in healthcare,
lower reimbursement rates or otherwise change the environment in which
healthcare market participants operate. Healthcare market participants may
respond by reducing their investments or postponing investment decisions,
including investments in our applications and services. We do not know what
effect any proposals would have on our business. See "--Government Regulation
Could Adversely Affect our Business."

         We have been selling in the financial/banking market for less than 24
months with a limited amount of success. Prior to 1999, we generated little
revenue from the financial/banking market, and during 1999, approximately 14% of
software revenue was generated from the financial/banking market. During 1999,
we partnered with a single distributor to service this market. We cannot
reasonably predict future revenue from this market due to our limited experience
and sales success in this market.

OUR SOFTWARE LICENSE REVENUE IS SUBSTANTIALLY DEPENDENT ON ONE PRODUCT

         Substantially all of our software license revenue in 1998 and
approximately 90% of our software license revenue in 1999 was derived from sales
of our Cloverleaf Integration Engine. Our future success will depend on
continued market acceptance of our Cloverleaf Integration Engine and
enhancements to this product. Competition, technological change or other factors
could reduce demand for, or market acceptance of, our Cloverleaf Integration
Engine. A decline in demand for our Cloverleaf Integration Engine would
seriously harm our business, financial condition and results of operations. To
date, EMerge has only a limited sales history upon which you can base your
evaluation of its prospects. If we are unable to achieve significant sales of
our software products, the composition of our revenue may continue to be
dominated by our lower-margin services business, which may contribute to ongoing
losses.

WE DEPEND ON SERVICES REVENUE

         Services revenue represented a majority of our total revenue for 1999,
1998 and 1997. We anticipate that services revenue will continue to account for
a substantial amount of our total revenue for the foreseeable future.

         -        Because services revenue has lower gross margins than software
                  license revenue, an increase in the percentage of total
                  revenue represented by services revenue or an unexpected
                  decrease in software license revenue could have a detrimental
                  effect on our overall gross profit and our operating results

         -        We subcontract certain product implementation, customer
                  support and training services to third-party service
                  providers. Revenue from these third-party service providers
                  generally carries lower gross margins than our service
                  business overall; as a result, our


                                       13
<PAGE>   14

                  services revenue and related margins may vary from period
                  to period, depending on the mix of revenue from third-party
                  service providers

         -        Services revenue depends in part on ongoing renewals of
                  support contracts by our customers, some of which may not
                  renew their support contracts

         If our services revenue is lower than anticipated, our business,
financial condition and results of operations could be seriously harmed. Our
ability to increase services revenue will depend in large part on our ability to
increase the scale of our professional services organization. We may not be able
to do so. In addition, we believe our success depends in part on introducing new
service offerings.

WE MAY BE UNABLE TO EXPAND OUR DIRECT SALES AND PROFESSIONAL SERVICES
ORGANIZATIONS

         Currently, we market our products to distributors and end-users in the
healthcare market through our internal sales force and focus sales to the
financial and banking markets through the agreement with Trace Financial Ltd.
Additionally, clients that license our products often engage our professional
services organization to assist with support, training, consulting and
implementation of our EAI solutions. Our ability to achieve significant revenue
growth in the future will greatly depend on our ability to recruit and train
sufficient technical, customer support and direct sales personnel. Any new
professional services personnel will require training and education and take
time to reach full productivity. We have in the past and may in the future
experience difficulty in recruiting qualified sales, technical and support
personnel. To meet our needs for such personnel, we may need to use more costly
third-party consultants and independent contractors to supplement our own
professional services organization. Our inability to maintain an adequate direct
sales force and professional services organization could seriously harm our
business, financial condition and results of operations.


                                       14
<PAGE>   15

OUR FAILURE TO MANAGE GROWTH OF OPERATIONS INTERNALLY OR THROUGH ACQUISITIONS
MAY ADVERSELY AFFECT US

         Our current information systems, procedures and controls may not
continue to support any growth in our operations and may hinder our ability to
exploit the market for EAI and EMPI products and services. We cannot be certain
that we will continue to experience or successfully manage growth that we
achieve either through growth of internal operations or through acquisitions.
Our inability to sustain or manage our growth could seriously harm our business,
financial condition and results of operations. To manage any growth, we must
continue to:

         -        expand our sales, marketing and customer support organizations

         -        invest in the development of enhancements to existing products
                  and new products that meet changing customer needs

         -        improve our operational processes and management controls

         -        further develop our EAI and EMPI service offerings

         -        successfully integrate the assets and operations of acquired
                  businesses

         -        retain key employees and contracts

SALES AND IMPLEMENTATION CYCLES FOR OUR EAI AND EMPI SOLUTIONS CAN BE LENGTHY

         Sales cycles for our EAI and EMPI solutions can be lengthy. Our typical
sales cycle to customers in the healthcare and financial/banking markets ranges
between three to nine months from our initial contact with a potential customer
to the sales of our solutions. We are unable to control many factors that will
influence our customers' buying decisions. The sales and implementation process
involves a significant technical evaluation and commitment of capital and other
resources by our customers. The sale and implementation of our solutions are
subject to delays due to our customers' internal budgets and procedures for
approving large capital expenditures and deploying new technologies.

OUR MARKETS ARE HIGHLY COMPETITIVE

         We compete in markets that are intensely competitive. We will be
required to devote a significant amount of resources to expand our presence in
our targeted markets. Additionally, in order to maintain our market share in the
healthcare market, we must preserve our relationships with our current customers
as well as establish relationships with new customers. We expect the markets for
our products and services to become more competitive as current competitors
expand their product offerings and new competitors enter the market. Increased
competition could result in price reductions, reduced gross margins and loss of
market share, any of which could seriously harm our business, financial
condition and results of operations. Our principal competitors include:

         Internal IT Departments

         We face competition and sales resistance from the internal IT
departments of potential customers that have developed or may develop in-house
systems that may substitute for our products. We expect that internally
developed application integration systems will continue to


                                       15
<PAGE>   16

be a principal source of competition for the foreseeable future. In particular,
we may face difficulties making sales to organizations whose internal
development groups have already progressed significantly toward completion of
systems that our products might replace, or where the underlying technologies
used by such groups differ fundamentally from our products.

         Software and Middleware Vendors

         We face competition from a variety of software and middleware vendors
that provide EAI and EMPI products in different vertical markets. These
competitors include:

         -        companies offering EAI products

         -        companies offering EMPI products

         -        IT consulting firms

         -        application vendors

         Systems Integrators and Professional Service Organizations

         We also may face competition from systems integrators and professional
service organizations that design and develop custom systems and perform custom
integration of systems and applications. Certain of these firms may possess
industry-specific expertise or reputations among our potential customers. These
systems integrators and consulting firms can resell our products, and we may
engage in joint marketing and sales efforts with them. We may rely upon these
firms for recommendations of our products during the evaluation stage of the
purchase process, as well as for implementation and customer support services.
These systems integrators and consulting firms may have similar, and often more
established, relationships with our competitors, and there can be no assurance
that these firms will not market or recommend software products that are
competitive with our products.

         Many of these companies have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition, and a larger installed base of customers than we do.
Many of our competitors also may have well-established relationships with our
current and potential customers in our target markets. In addition, many of
these competitors have extensive knowledge of EAI and EMPI solutions and may be
in a better position than we are to devote significant resources toward the
development, promotion and sale of products.

         Current and potential competitors may also respond more quickly than we
can to new or emerging technologies and changes in customer requirements. They
may have established or may establish cooperative relationships among themselves
or with third parties to increase the ability of their products to address
customer needs. Accordingly, it is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. We
also expect that competition will increase as a result of software industry
consolidations. We cannot assure you that we will be able to compete
successfully against current and future competitors, or that competitive
pressure we face will not significantly harm our business, financial condition
and results of operations.


                                       16
<PAGE>   17

WE MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY TO REMAIN COMPETITIVE

         The market for our products is characterized by rapid technological
change, such as the Internet, frequent new product introductions and
enhancements, changes in customer demands and evolving industry standards. Our
existing products could be rendered obsolete if we fail to keep up in any of
these ways. We have also found that the technological life cycles of our
products are difficult to estimate, partially because they may vary according to
the particular application. We believe that our future success will depend upon
our ability to continue to enhance our current product line while we
concurrently develop and introduce new products that keep pace with competitive
and technological developments. These developments require us to continue to
make substantial product development investments.

         Existing Products

         We currently serve a customer base with a wide variety of hardware,
software, database and networking platforms. To gain broad market acceptance, we
believe that we will have to support our products on a variety of platforms. Our
success will depend on, among others, the following factors:

         -        our ability to integrate our products with multiple platforms,
                  especially relative to our competition in our targeted markets

         -        the portability of our products, particularly the number of
                  hardware platforms, operating systems and databases that our
                  products can source or target

         -        the integration of additional software modules under
                  development with existing products

         -        our management of technical personnel and sub-contractors

         Future Products

         New technologies, most importantly, the Internet, have caused many
changes to healthcare practices and raised the expectations of customers for
timely service and efficient business processes. Even though the healthcare
industry has not widely adopted these changes, we believe that the Internet will
eventually touch every aspect of healthcare. We are currently adapting our
business so as to facilitate the adoption of these new technologies. We cannot
assure you, however, that we will be successful in developing and marketing
future product enhancements or new products that respond to technological
changes, shifting customer preferences or evolving industry standards. We may
experience difficulties that could delay product enhancements or new products or
increase our costs to develop these products. If we are unable to develop and
introduce new products or enhancements of existing products in a timely and
affordable manner or if we experience delays in the commencement of commercial
shipments of new products and enhancements, then customers may forego purchases
of our products and purchase those of our competitors.

OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY

         Our success depends upon our ability to maintain the proprietary and
confidential technology incorporated in our products. We rely on a combination
of copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing arrangements, to establish and protect our proprietary
rights. We presently have no patents. Despite our efforts to protect our
proprietary rights, existing copyright, trademark and trade secret laws afford
only limited protection. In addition, the laws of certain foreign countries do
not protect our rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer


                                       17
<PAGE>   18

aspects of our products or to obtain and use information that we regard as
proprietary. We cannot assure you that we will be able to protect our
proprietary rights against unauthorized third-party copying or use. Furthermore,
policing the unauthorized use of our products is difficult, and litigation may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of our resources.

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS CAN BE COSTLY AND RESULT IN THE LOSS
OF SIGNIFICANT RIGHTS

         It is possible that third parties will claim that we have infringed
their current or future intellectual property rights. We expect that EAI
software developers may increasingly be subject to infringement claims as the
number of products in different industry segments overlap. Any claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays, or require us to enter into royalty or licensing
agreements, any of which could seriously harm our business, financial condition
and results of operations. We cannot assure you that such royalty or licensing
agreements, if required, would be available on terms acceptable to us, if at
all. Additionally, we cannot assure you that legal action claiming intellectual
property infringement will not be commenced against us, or that we would prevail
in such litigation given the complex technical issues and inherent uncertainties
in litigation. In the event an intellectual property claim against us was
successful and we could not obtain a license on acceptable terms or license a
substitute technology or redesign to avoid infringement, our business, financial
condition and results of operations would be seriously harmed. Even if we
prevail in litigation, the expense of litigation could be significant and could
seriously harm our business, financial condition and results of operation.

WE RELY ON THIRD PARTIES FOR TECHNOLOGY IN OUR PRODUCTS

         We depend upon third-party suppliers to provide software that is
incorporated in certain of our products. We do not have control over the
scheduling and quality of work of such third-party software suppliers.
Additionally, the third-party software may not continue to be available to us on
commercially reasonable terms, if at all. Our agreements to license certain
third-party software will terminate after specified dates unless they are
renewed. If we cannot maintain licenses to key third-party software, shipments
of our products could be delayed until equivalent software could be developed or
licensed and integrated into our products.

THERE ARE MANY RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

         While approximately 90% of our revenue for the years ended December 31,
1999 and 1998 was generated within the United States, we have customers in
several countries worldwide. International sales in certain foreign markets are
subject to a variety of risks, including

         -        difficulties in establishing and managing international
                  distribution channels

         -        localizing software products for sales in foreign markets and
                  enforcing intellectual property rights

         -        fluctuations in the value of foreign currencies, including the
                  Euro


                                       18
<PAGE>   19

         -        changes in duties and quotas

         -        introduction of tariff or non-tariff barriers

         -        economic, political and regulatory changes

In addition, to the extent profit is generated or losses are incurred in foreign
countries, our effective income tax rate may be materially affected. We do not
currently engage in hedging transactions, but we may do so in the future. We
cannot assure you that any of the factors described above will not seriously
harm our business, financial condition and results of operations.

FAILURE TO RECRUIT AND RETAIN KEY EMPLOYEES WILL SERIOUSLY HARM OUR BUSINESS

         Our success is highly dependent upon the continued service and skills
of our executive officers and other key technical, sales and marketing
employees. We do not maintain key man life insurance on any of our employees,
and we have not entered into employment agreements with any key employees that
provide for any fixed term of service. In addition, our future success will
depend considerably on our ability to attract and retain highly skilled
employees and management personnel. Competition for such personnel is intense.
We cannot assure you that we will be successful in attracting and retaining
highly skilled employees and management personnel. Further, we anticipate growth
and expansion into areas and activities which may require the addition of new
highly skilled employees and the development of additional expertise by existing
management personnel. Any new highly skilled personnel may require training and
education and take time to reach full productivity. The failure to attract and
retain such employees or to develop such expertise could seriously harm our
business, financial condition or operating results.

OUR PRODUCTS MAY BE AFFECTED BY UNKNOWN SOFTWARE DEFECTS

         Our products depend on complex software, both internally developed and
licensed from third parties. Complex software often contains defects,
particularly when first introduced or when enhancements or new versions are
released. Although we conduct extensive testing, we may not discover software
defects that affect our new or current products or enhancements until after they
are deployed. Although we have not experienced any material software defects to
date, it is possible that, despite testing by us, defects may occur in our
software. These defects could cause performance interruptions, which could
damage our reputation with existing or potential customers, increase our service
costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could cause our business to suffer.

WE MAY INCUR MATERIAL COSTS IN CONNECTION WITH PRODUCT LIABILITY CLAIMS

         Because many of our clients use our products to integrate important
applications in their organizations, any errors, defects or other performance
problems of our products could result in financial or other damages to our
clients. Additionally, we provide services to assist certain customers in
identifying and correcting potential Year 2000 problems. In the event of any
errors, defects or other performance problems in our products or services, our
clients could seek damages for losses from us, which, if successful, could
seriously harm our business, financial condition or results of operations.
Although our license agreements typically contain provisions


                                       19
<PAGE>   20

designed to limit our exposure to product liability claims, existing or future
laws or unfavorable judicial decisions could negate such limitation of liability
provisions. We have not experienced any product liability claims to date,
however, a product liability claim brought against us, even if not successful,
would likely be time consuming and costly.

YEAR 2000 RISKS MAY RESULT IN MATERIAL ADVERSE EFFECTS ON OUR BUSINESS

         The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information with the year changing to 2000. As a result, IT and
non-IT systems used by many companies were upgraded to address Year 2000
problems. We formed a Year 2000 task force that has systematically evaluated all
existing systems, products and key external relationships to ascertain material
Year 2000 issues and solutions.

         Although our task force has completed its evaluation, due to the
uncertainties still associated with the Year 2000 problem, there can be no
assurance that all applications that may be affected by the problem have been
detected. To date, we have not experienced any Year 2000-related errors in our
systems and products, and we continue to monitor such issues. The Year 2000
issue could result in the following risks for us:

         -        we may not be able to modify our products, services offerings,
                  IT and non-IT systems in a timely and successful manner to
                  comply with the Year 2000 requirements, which could have a
                  material adverse effect on our operating results

         -        the system failures due to Year 2000 problems of third parties
                  with whom we have a material relationship may have a material
                  adverse effect on our operating results

         -        our customers may reallocate capital expenditures to fix Year
                  2000 problems and defer purchases of our software

         -        we may be subject to a claim involving our products or Year
                  2000 assessment services that could have a material adverse
                  effect on our business, results of operations and financial
                  condition

         -        the spending and purchasing patterns of customers or potential
                  customers may be affected by the Year 2000 issue as companies
                  expend significant resources to correct or update their
                  current systems for Year 2000 compliance or delay purchases of
                  new software until after the Year 2000 in order to avoid
                  implementing a formal Year 2000 compliance program with
                  respect to the new software

GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS

         Our business is subject to government regulation. Existing as well as
new laws and regulations could adversely affect our business. Some computer
applications and software are considered medical devices and are subject to
regulation by the United States Food and Drug Administration (the "FDA"). We do
not believe that our current products or services provided to the healthcare
industry are subject to FDA regulation. However, we may expand our application
and service offerings into areas that subject us to FDA regulation. We have no
experience in complying with FDA regulations. We believe that complying with FDA
regulations would be


                                       20
<PAGE>   21

time consuming, burdensome and expensive and could delay our introduction of new
applications or services.

         By virtue of our products and services provided to the healthcare
industry, we are subject to extensive regulation relating to the confidentiality
and release of patient records, which are included in our databases. Federal and
state 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 or other
healthcare provider, regulations governing patient confidentiality rights are
evolving rapidly. Additional legislation governing the distribution of medical
records has been proposed at both the state and federal level. On August 22,
1996, President Clinton signed the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, which mandates the use of standard
identifiers, security and other provisions protecting patients' confidentiality
rights by the Year 2000. Regulations have been proposed to implement these
requirements and we are designing our applications to comply with the proposed
regulations, but cannot assure you that we will be able to comply with those
proposed regulations in a timely manner or at all. Furthermore, until the
proposed regulations become final, they could change, which could cause us to
expend additional resources to comply with the revised standards.

         Another recent legislative change that may effect our business is the
Balanced Budget Act of 1997, which significantly changes the method of payment
under the Medicare and Medicaid programs, resulting in significant reductions in
payments to healthcare providers for inpatient, outpatient, home health and
skilled nursing services. This may affect the spending and purchasing patterns
of our customers or potential customers, causing our customers to reduce their
purchases of our products or postpone their investment decisions.

         In order to ensure continued compliance with changing government
standards and regulations, we monitor regulations affecting our business,
including those that will be mandated by HIPAA. We cannot assure you that
changes to state or federal laws will not materially restrict the ability of
healthcare organizations to invest in our products or submit information from
patient records using our software products.

OUR COMMON STOCK PRICE MAY BE HIGHLY VOLATILE

         The trading price of our common stock may be volatile. The stock market
in general, and the market for technology and software companies in particular,
has, from time to time, experienced extreme volatility that often has been
unrelated to the operating performance of particular companies. These broad
market and industry fluctuations may significantly affect the trading price of
our common stock, regardless of our actual operating performance. The trading
price of our common stock could be affected by a number of factors, including:

         -        changes in expectations of our future financial performance

         -        changes in securities analysts' estimates (or the failures to
                  meet such estimates)

         -        announcements of technological innovations

         -        customer and distributor relationship developments

         -        conditions affecting our targeted markets in general

         -        quarterly fluctuations in our revenue and financial results


                                       21
<PAGE>   22

         In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.

YOU MAY EXPERIENCE DILUTION IF THE PRICE OF OUR COMMON STOCK DECREASES

         If the price of our common stock decreases, we may be obligated to
issue additional shares of common stock. The conversion price of our Series B
Cumulative Convertible Exchangeable Preferred Stock will be reset on June 20,
2000 if the average price of our common stock for the five business days prior
to June 20, 2000 is less than $2.1491. Additionally, in connection with a recent
acquisition, we issued shares of our common stock with an aggregate value of
$5.5 million, or $4.207 per share. At any time on or before September 14, 2000,
if the average price of our common stock falls below $4.207 for any 10-day
trading period, we may be required to issue additional shares of common stock so
that the aggregate value of the stock held by that shareholder remains equal to
$5.5 million. To the extent that additional shares of our common stock are
issuable due to a decrease in our stock price, our shareholders will experience
dilution of their ownership percentages.

CERTAIN EVENTS COULD RESULT IN OUR BEING DELISTED FROM NASDAQ, WHICH COULD
REDUCE OUR ABILITY TO RAISE FUNDS

         If our stock price or net tangible assets were to drop below specified
levels, certain Nasdaq regulations would require the delisting of our shares.
Accordingly, our common stock could no longer be traded on Nasdaq. In such an
event, our shares could only be traded on over-the-counter bulletin board
systems. If our stock were to be delisted, then we may face significant
difficulties in raising additional capital on favorable terms, if at all.
Delisting would also negatively affect shareholder liquidity.


                                       22
<PAGE>   23


ITEM 2.  PROPERTIES

         HIE leases approximately 12,637 square feet of office space under two
leases in Marietta, Georgia for its principal executive and administrative
offices and its corporate sales, marketing and research and development
facilities. The lease relating to 3,322 square feet expires in February 2001 and
the lease for 9,315 square feet expires February 2003. These two leases combined
require monthly rental payments of approximately $21,106. HIE also leases
approximately 27,533 square feet of office space in Dallas, Texas for most of
its services personnel for monthly rental payments of approximately $60,348,
pursuant to a lease which expires in January 2006. HIE also leases approximately
9,550 square feet of office space in Columbus, Ohio for services and product
development personnel for monthly rental payments of approximately $9,152,
pursuant to a lease which expires in July 2002.

ITEM 3.  LEGAL PROCEEDINGS

         As of the date hereof, there are no material legal proceedings pending
against HIE. From time to time, HIE is involved in legal proceedings and
litigation arising in the ordinary course of business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
quarter ended December 31, 1999.


                                       23
<PAGE>   24

                      EXECUTIVE OFFICERS OF THE REGISTRANT

         The following persons are the current executive officers of HIE.
Certain information as of December 31, 1999 relating to the executive officers,
which has been furnished to HIE by the individuals named, is set forth below.

<TABLE>
<CAPTION>
         NAME                          AGE             POSITION
         ----                          ---             --------
         <S>                           <C>    <C>
         Robert I. Murrie              54     President, Chief Executive Officer and Director
         Joseph A. Blankenship         30     Senior Vice President - Finance, Chief Financial Officer,
                                              Treasurer and Secretary
         Mark D. Shary                 40     Senior Vice President - Business Development and Director
         Carolyn R. Jolley             50     Senior Vice President - Client Services
         Michael T. McGuire            51     Senior Vice President - Sales
         Shannon Bradshaw Hodges       40     Senior Vice President - Marketing
         Deborah L. Dean               33     Senior Vice President - Research and Development
         Lisa M. Maguire               29     Vice President - Controller, Chief Accounting Officer,
                                              Assistant Treasurer and Assistant Secretary
</TABLE>

         Robert I. Murrie has served as a director and the President and Chief
Executive Officer of HIE since October 1997. He was President of Healthcare
Communications, Inc., a wholly-owned subsidiary of HIE, from April 1997 to
October 1997 and served as a Client Partner of HIE (a senior sales executive
position) from January 1996 to April 1997. Prior to joining HIE, Mr. Murrie
served as President and Chief Executive Officer of Nurse on Call, a managed care
service company, from 1992 to December 1995 and held several senior executive
positions at HBO & Company from 1985 to 1992, including President and Chief
Executive Officer of Healthquest, Inc., a wholly-owned subsidiary of HBO &
Company, from 1988 to 1992.

         Joseph A. Blankenship has served as Senior Vice President - Finance,
Chief Financial Officer, Secretary and Treasurer of HIE since July 1999. He
previously served as Vice President - Controller, Chief Accounting Officer,
Assistant Treasurer and Assistant Secretary of HIE from January 1999 through
June 1999. Mr. Blankenship served as Corporate Controller of Decorative Home
Accents, Inc., a textile manufacturer, from October 1996 to December 1998, and
as Director of Accounting of Allegiant Physician Services, Inc., a healthcare
services company, from April 1994 to October 1996.

         Mark D. Shary has served as a director of HIE since June 1998 and as
Senior Vice President - Business Development since February 1999. He previously
served as Senior Vice President - Product Planning of HIE from May 1998 through
January 1999 and as Chief Financial Officer, Treasurer and Secretary of HIE from
May 1998 until November 1998. Mr. Shary joined HIE when HIE acquired HUBLink,
Inc. in May 1998, where he had served as Chief Executive Officer since founding
that company in 1992. From 1982 until 1992, Mr. Shary


                                       24
<PAGE>   25

served in a number of executive and staff capacities at Ernst & Young LLP,
including Senior Manager from 1989 to 1992.

         Carolyn R. Jolley has served as Senior Vice President - Client Services
of HIE since December 1997 and as Vice President of HIE from October 1997 until
December 1997. Ms. Jolley joined HIE when HIE acquired Healthcare
Communications, Inc., where Ms. Jolley had served as Vice President, Client
Services since May 1993. Prior to joining Healthcare Communications, Inc., Ms.
Jolley was an account executive for Shared Financial Systems, Inc., an
integration engine company serving the banking industry, from September 1990
until April 1993.

         Michael McGuire has served as Senior Vice President - Sales of HIE
since March 1999. Prior to joining HIE, Mr. McGuire was President of the Service
Division of Eclipsys Corporation, responsible for a $54 million healthcare
service business that included facilities management, remote processing,
hardware maintenance, network solutions, desktop services and consulting. From
1995 to 1997, Mr. McGuire was President and CEO of National Healthtech, a
wholly-owned subsidiary of Affiliated Computer Services. Prior to that, Mr.
McGuire spent 10 years in various management roles at HBO & Company, including
VP-Mainframe Sales, VP-Outsourcing Services and VP-Quality.

         Shannon B. Hodges has served as Senior Vice President - Marketing of
HIE since December 1999. She previously served as Vice President - Marketing of
HIE from March 1998 to November 1999. Prior to joining HIE, Ms. Hodges served as
an independent healthcare software consultant from June 1996 to March 1998; as
Vice President of Product Development for Nurse On Call from February 1992 to
June 1996; as Vice President of Nurse On Call from January 1990 to February
1992; and as Director of Marketing for Labthermics Technologies, an IDE-stage
medical device manufacturer, from June 1986 to January 1990.

         Deborah L. Dean has served as Senior Vice President - Research and
Development since December 1999. She previously served as Vice President -
Research and Development from February 1999 to November 1999. Ms. Dean joined
HIE when HIE acquired Criterion Health Systems, where Ms. Dean was
Vice-President of Research and Development since November 1994. Prior to joining
HIE, Ms. Dean was Director of Customer Services and subsequently Vice President
of Customer Services at Inforum/Medstat, Inc., a healthcare decision support
company, from November 1994 to November 1990. Prior to that Ms. Dean spent 3
years at St. Bernard's Regional Medical Center in various Information Systems
roles.

         Lisa M. Maguire has served as Vice President - Controller, Chief
Accounting Officer, Assistant Treasurer and Assistant Secretary since December
1999. Ms. Maguire has 6 years of experience with KPMG LLP, including manager
from June 1998 to October 1999 in the Information, Communication and
Entertainment industry group, in which she served mostly software and other
high-tech clients.


                                       25
<PAGE>   26


                                     PART II

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

         HIE's common stock, $0.01 par value per share, together with associated
preferred stock purchase rights, is traded on the Nasdaq National Market under
the symbol "HDIE." The following table sets forth the high and low sales prices
of the common stock as reported by the Nasdaq National Market for the periods
indicated.

<TABLE>
<CAPTION>
                                                      HIGH            LOW
                                               ---------------- ---------------

         <S>                                   <C>              <C>
         1998
              First Quarter..................      $  2.97          $  1.44
              Second Quarter.................         4.28             2.63
              Third Quarter..................         4.81             2.81
              Fourth Quarter.................         5.47             1.94

         1999
              First Quarter..................      $ 10.25          $  3.37
              Second Quarter.................         4.25             2.00
              Third Quarter..................         3.06             1.75
              Fourth Quarter.................         3.94             1.53
</TABLE>

         As of March 9, 2000, there were approximately 1,908 holders of record
of HIE's common stock.

         The Company has never paid any cash dividends with respect to its
common stock and does not anticipate paying cash dividends in the foreseeable
future. The Company currently intends to retain all earnings, if any, for use in
the expansion of the Company's business. The payment of dividends, if any, in
the future with respect to the Company's common stock is within the discretion
of the Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition and other relevant factors.

         On December 21, 1999, HIE and Cybear, Inc., an unrelated third-party
customer, entered into a convertible note and warrant purchase agreement
pursuant to which HIE obtained a $3 million working capital loan with interest
payable quarterly at a rate of 7.8% per annum and the principal payable on
December 21, 2000. The note is convertible at maturity at the holder's option
into that number of shares of the Company's common stock determined by dividing
the outstanding principal amount by $3.19 (approximately 940,439 shares). The
warrant purchase agreement entitles the holder to purchase 47,022 shares of the
Company's common stock at any time on or before December 21, 2004 at an exercise
price of $3.19 per share. The shares of common stock underlying the convertible
note and the warrant purchase agreement are subject to piggyback registration
rights. This transaction was exempt from registration under Section 4(2) of


                                       26
<PAGE>   27

the Securities Act as a transaction not involving a public offering. In
addition, the parties were sophisticated investors and had access to information
about the Company.


                                       27
<PAGE>   28


ITEM 6.  SELECTED FINANCIAL DATA

         The following selected consolidated financial data should be read in
conjunction with HIE's consolidated financial statements and related notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations included elsewhere in this Report. The selected
consolidated financial statement data for the years ended December 31, 1999,
1998, 1997, 1996 and 1995 are derived from HIE's audited consolidated financial
statements and give retroactive effect to the 1998 merger of a subsidiary of HIE
and HUBLink, Inc., which merger was accounted for as a pooling of interests.
Historical results are not necessarily indicative of results of operations to be
expected in the future.






<TABLE>
<CAPTION>
                                                                 FOR THE YEARS ENDED DECEMBER 31,
                                                   --------------------------------------------------------------
                                                     1999         1998          1997          1996         1995
                                                   --------      -------      --------       -------     --------
                                                              (In thousands, except for per share data)
<S>                                                <C>           <C>          <C>            <C>         <C>
STATEMENTS OF OPERATIONS:
Total revenue ................................     $ 25,315      $27,184      $ 18,064       $20,243     $ 11,248

Operating earnings (loss) ....................     $ (7,977)     $ 1,599*     $ (8,506)*     $   497     $ (9,891)*

Net earnings (loss) attributable to common
shareholders .................................     $ (8,504)     $ 1,498*     $ (8,596)*     $   107     $(10,961)*
Diluted net earnings (loss) per share of .....     $  (0.34)     $  0.06*     $  (0.38)*     $  0.01     $  (0.60)*
   common stock
Shares used in the calculation of diluted
   net earnings (loss) per share of common
   stock .....................................       25,347       24,867        22,587        21,277       18,302
</TABLE>


* Includes non-recurring pre-tax and after-tax charges of $1,060, $6,396 and
$5,435, or $0.04, $0.28 and $0.30 net loss per share, in 1998, 1997 and 1995,
respectively (see Notes 1 and 2 of Notes to Consolidated Financial Statements
included herein).

<TABLE>
<CAPTION>
                                                                      AS OF DECEMBER 31,
                                                  ---------------------------------------------------------
                                                    1999        1998          1997        1996        1995
                                                  -------     -------     ---------     -------     -------
                                                                        (In thousands)
CONSOLIDATED BALANCE SHEETS DATA:
<S>                                               <C>         <C>         <C>           <C>         <C>
Total assets ................................     $27,267     $31,535     $4 28,940     $33,085     $22,793
Long-term debt and obligations under
   capital leases, excluding current
   installments .............................     $   254     $   642     $     316     $ 4,316     $ 5,462
</TABLE>


                                       28
<PAGE>   29


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

         Certain of the statements made in this Item 7 and in other portions of
this Report and in documents incorporated by reference herein are
forward-looking statements. Such forward-looking statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company to
differ materially from historical results or from any results expressed or
implied by such forward-looking statements. Such factors include, without
limitation, those discussed in "Item 1. Business -- Factors That May Affect
Future Performance" herein.

OVERVIEW

         HIE develops and markets EAI solutions and provides related
implementation, maintenance and support services and education to companies
seeking to connect their disparate software applications and data repositories.
HIE has served customers in the healthcare market since 1994 and in 1998 began
providing its software and services to financial institutions. HIE's products
are designed to enable companies to more effectively administer the disparate
elements of their IT systems by linking both new and existing software to form a
more efficient IT environment.

         The Company was incorporated in Georgia in June 1994 as Healthdyne
Information Enterprises, Inc., a wholly-owned subsidiary of Healthdyne, Inc.,
and was initially focused on providing enterprise-wide clinical information
management solutions for healthcare delivery networks. In November 1995,
Healthdyne, Inc. distributed all of the outstanding shares of HIE common stock
in a spin-off. In October 1997, HIE redefined its strategic direction to focus
on providing software products and services to support the enterprise-wide
integration of information. As part of its new strategic focus, HIE (1) acquired
HUBLink, Inc., a privately-held integration software product company, in May
1998 in a pooling-of-interests transaction and (2) sold assets related to
certain non-strategic consulting services to Superior Consultant Holdings
Corporation in December 1998.

         HIE sells its software products to distributors and application
vendors, as well as directly to end-users. Software license sales are comprised
of (1) full-use licenses, which provide the end-user with full functionality of
the product and (2) limited-use licenses, which restrict the functionality of
the product or the number of application interfaces. A typical distributor or
application vendor agreement includes an initial purchase of software for resale
with additional licenses purchased periodically during the term of the
agreement. Sales directly to end-users are generally for perpetual licenses for
a one-time, up-front fee.

         HIE recognizes revenue from two primary sources, software licenses and
services. Software license revenue is recognized in accordance with the criteria
set forth in Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"), issued by the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants. Accordingly, HIE recognizes software
license revenue when: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable.


                                       29
<PAGE>   30

         Services revenue includes fees for product implementation and
integration services, software support and maintenance agreements and education.
Product implementation and integration services are generally provided under
contracts with terms of less than one year. Revenue is recognized as the work is
performed or, in the case of a fixed-fee contract, on a percentage-of-completion
basis, even though some services may be prepaid. Software support and
maintenance services are generally provided under one-year renewable service
contracts for a prepaid standard fee. Revenue is recognized ratably on a
straight-line basis over the term of the contract. Education classes are
provided for a standard per-student charge and revenue is recognized as the
service is provided.

         Research and development expenses are accounted for in accordance with
the provisions of the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on HIE's product development
model, technological feasibility is established upon completion of a working
model. In 1999 and 1998, HIE capitalized $1.3 million and $1.2 million,
respectively, of software development costs in accordance with SFAS 86.


                                       30
<PAGE>   31


RESULTS OF OPERATIONS

         The following table sets forth both HIE's total revenue and the
percentage of total revenue (unless otherwise indicated) for each component
included in HIE's Consolidated Statements of Operations for the years indicated:


<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                             -----------------------------------------
                                                                1999            1998            1997
                                                             ---------       ---------       ---------

<S>                                                          <C>             <C>             <C>
Total HIE Revenue (in 000's) ...........................     $  25,315       $  27,184       $  18,064

Revenue:
     Software ..........................................          27.6%           45.7%           40.9%
     Services and other ................................          72.4%           54.3%           59.1%
                                                             ---------       ---------       ---------
         Total revenue .................................         100.0%          100.0%          100.0%
                                                             ---------       ---------       ---------

Cost of revenue:
     Software (as a% of software revenue) ..............          19.2%            6.9%           13.9%
     Services and other (as a% of services and other
       revenue) ........................................          55.6%           48.1%           56.4%
         Total cost of revenue .........................          45.6%           29.3%           39.0%
                                                             ---------       ---------       ---------

         Gross profit ..................................          54.4%           70.7%           61.0%

Operating expenses:
     Sales and marketing ...............................          27.5%           24.5%           29.7%
     Research and development ..........................          16.0%           14.3%           16.5%
     General and administrative ........................          21.9%           21.1%           24.0%
      Provision for doubtful accounts ..................          20.5%            1.0%            2.5%
     Merger costs ......................................            --%            3.9%             --%
     Obsolete software and other write-offs ............            --%             --%           25.7%
     Purchased in-process research and development .....            --%             --%            9.7%
                                                             ---------       ---------       ---------
         Operating earnings (loss) .....................         (31.5)%           5.9%          (47.1)%

Losses of affiliate ....................................            --%             --%           (0.8)%
Interest expense .......................................          (2.1)%          (1.0)%          (2.4)%
Interest income ........................................           0.1%            0.6%            2.7%
                                                             ---------       ---------       ---------
         Earnings (loss) before income taxes ...........         (33.5)%           5.5%          (47.6)%

Income taxes ...........................................            --%             --%             --%
                                                             ---------       ---------       ---------

         Net earnings (loss) ...........................         (33.5)%           5.5%          (47.6)%
                                                            ==========       =========       =========
</TABLE>


                                       31
<PAGE>   32



Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

         Revenue

         Revenue decreased by 7% to $25.3 million in the year ended December 31,
1999 from $27.2 million in the year ended December 31, 1998. The Company
experienced a decrease in software revenue, which was partially offset by an
increase in services and other revenue.

         Software. Software license revenue decreased by 44% to $7.0 million in
the year ended December 31, 1999 from $12.4 million in the year ended December
31, 1998. As a percentage of total revenue, software license revenue decreased
to 27.6% in the year ended December 31, 1999 from 45.7% in the year ended
December 31, 1998. Management believes that the dollar decrease in software
revenue was primarily attributable to the impact of the Year 2000 issue as
customers or potential customers used significant resources to correct or update
their existing systems for Year 2000 compliance and delayed purchases of new
software until the Year 2000 due to limited budgets or in order to avoid
implementing a formal Year 2000 compliance program with respect to the new
software. Management believes this negative impact on software license revenue
as a result of Year 2000 will lessen over the first half of 2000. The decrease
in software revenue as a percentage of total revenue resulted from the decrease
in software revenue previously discussed and the increase in service revenue
discussed below.

         Services and other. Services and other revenue increased by 24% to
$18.3 million in the year ended December 31, 1999 from $14.8 million in the year
ended December 31, 1998. As a percentage of total revenue, services and other
revenue increased to 72.4% in the year ended December 31, 1999 from 54.3% in the
year ended December 31, 1998. The dollar increase in services and other revenue
was primarily due to an increase in the sale and completion of projects. The
increase in services and other revenue as a percentage of total revenue was
primarily due to decreased software sales during the year ended December 31,
1999.

         Cost of Revenue

         Software. Cost of software license revenue consists principally of
royalty payments to third parties for software products that were sold with
HIE's products, software purchased from third parties for resale, and
amortization of capitalized software development costs. Cost of software license
revenue increased by 58% to $1.3 million in the year ended December 31, 1999
from $852,000 in the year ended December 31, 1998. As a percentage of software
license revenue, cost of software license revenue increased to 19.2% in the year
ended December 31, 1999 from 6.9% in the year ended December 31, 1998. Cost of
software revenue increased due to an increase in amortization of capitalized
software for the year ended December 31, 1999 compared to the year ended
December 31, 1998. The increase in cost of software revenue as a percentage of
software revenue was a result of decreased software sales and the increase in
amortization of capitalized software during the year ended December 31, 1999
compared to the year ended December 31, 1998, as previously discussed.

         Services and other. Cost of services and other revenue consists
primarily of personnel, contract services, facility and systems costs incurred
in providing product implementation, integration projects, maintenance,
consulting and education services. Cost of services and other



                                       32
<PAGE>   33

revenue increased by 44% to $10.2 million in the year ended December 31, 1999
from $7.1 million in the year ended December 31, 1998. As a percentage of
services and other revenue, cost of services and other revenue increased to
55.6% in the year ended December 31, 1999 from 48.1% in the year ended December
31, 1998. The dollar increase in cost of services and other revenue was
primarily due to an increase in service personnel necessary to complete service
projects. The increase in cost of services and other revenue as a percentage of
services and other revenue was primarily attributable to an increase in service
personnel and the related startup time to train and educate new staff.

         Operating Expenses

         Sales and marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and promotional expenses. Sales and marketing expense increased by 4% to
$7.0 million in the year ended December 31, 1999 from $6.7 million in the year
ended December 31, 1998. As a percentage of total revenue, sales and marketing
expense increased to 27.5% in the year ended December 31, 1999 from 24.5% in the
year ended December 31, 1998. The dollar increase in sales and marketing expense
was primarily due to additional sales personnel to market solutions developed
for financial/banking markets. The increase in sales and marketing expense as a
percentage of total revenue was primarily attributable to the addition of sales
personnel, discussed above, and to a decrease in software sales for 1999.

         Research and development. Research and development expense includes
personnel costs, contract services, and travel associated with the development
of new products, enhancements of existing products and quality assurance
activities. Research and development expense increased by 4% to $4.0 million in
the year ended December 31, 1999 from $3.9 million in the year ended December
31, 1998. As a percentage of total revenue, research and development expense
increased to 16.0% in the year ended December 31, 1999 from 14.3% in the year
ended December 31, 1998. Research and development expense increased due to an
increase in development costs for solutions in the financial/banking market.
Additionally, research and development expenses increased due to development
costs for solutions that complement the Company's existing products. Capitalized
costs related to internally developed software remained relatively consistent at
$1.3 million in the year ended December 31, 1999 compared to $1.2 million in the
year ended December 31, 1998.

         General and administrative. General and administrative expense consists
primarily of personnel costs, outside professional fees, and software and
equipment costs associated with the finance, legal, human resources, information
systems, and administrative functions of HIE. General and administrative expense
decreased by 4% to $5.5 million in the year ended December 31, 1999 from $5.7
million in the year ended December 31, 1998. As a percentage of total revenue,
general and administrative expense increased to 21.9% in the year ended December
31, 1999 from 21.1% in the year ended December 31, 1998. The slight increase in
general and administrative expense as a percentage of total revenue was
primarily due to the decrease in software sales for the year ended December 31,
1999.

         Provision for doubtful accounts. The provision for doubtful accounts
increased to $5.2 million in the year ended December 31, 1999 from $270,000 in
the year ended December 31,


                                       33
<PAGE>   34

1998. As a percentage of total revenue, the provision for doubtful accounts
increased to 20.5% in the year ended December 31, 1999 from 1.0% in the year
ended December 31, 1998. The increase in the provision for doubtful accounts was
primarily due to (1) one distributor's failure to pay the majority of its
receivable balance when it became due on December 31, 1999 and (2) this
distributor's failure to make a commitment of when or how much it would
ultimately pay the Company.

         Income taxes. HIE had no provision for income taxes in the years ended
December 31, 1999 or 1998 as a result of a net operating loss for 1999 and HIE
utilizing net operating loss carryforwards in 1998. As of December 31, 1999, HIE
had net operating loss carryforwards for tax reporting purposes of approximately
$23.4 million, which expire at various dates from 2007 through 2019.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue

         Revenue increased by 50% to $27.2 million in the year ended December
31, 1998 from $18.1 million in the year ended December 31, 1997.

         Software. Software license revenue increased by 68% to $12.4 million in
the year ended December 31, 1998 from $7.4 million in the year ended December
31, 1997. As a percentage of total revenue, software license revenue increased
to 45.7% in the year ended December 31, 1998 from 40.9% in the year ended
December 31, 1997. The dollar increase in software license revenue was primarily
due to increased sales of software to third-party distributors. The increase in
software license revenue as a percentage of total revenue was primarily due to
the dollar increase in software sales to third-party distributors added in the
latter half of 1998. During 1998, HIE focused its marketing efforts primarily on
software sales to third-party distributors and application vendors. The addition
of new distributors and application vendors facilitated HIE's revenue growth
during 1998 and third-party distributors comprised approximately 80% of software
sales during 1998.

         Services and other. Services and other revenue increased by 38% to
$14.8 million in the year ended December 31, 1998 from $10.7 million in the year
ended December 31, 1997. As a percentage of total revenue, services and other
revenue decreased to 54.3% in the year ended December 31, 1998 from 59.1% in the
year ended December 31, 1997. The dollar increase in services and other revenue
was primarily due to an increase in the sale and completion of projects as well
as an increase in service personnel productivity. The decrease in services and
other revenue as a percentage of total revenue was primarily due to increased
software sales to third-party distributors added in the third and fourth
quarters of 1998.

         Cost of Revenue

         Software. Cost of software license revenue consists principally of
royalty payments to third parties for software products that were sold with
HIE's products, software purchased from third parties for resale, and
amortization of capitalized software development costs. Cost of software license
revenue decreased by 17% to $852,000 in the year ended December 31, 1998 from
$1.0 million in the year ended December 31, 1997. As a percentage of software
license


                                       34
<PAGE>   35

revenue, cost of software license revenue decreased to 6.9% in the year ended
December 31, 1998 from 13.9% in the year ended December 31, 1997. The dollar
decrease in cost of software license revenue resulted primarily from a write-off
of obsolete software in late 1997 which resulted in a lower amortization of
purchased software expense for 1998. The decrease in cost of software license
revenue as a percentage of software license revenue was primarily due to the
write-off of obsolete software in 1997 and to increased software license
revenue.

         Services and other. Cost of services and other revenue consists
primarily of personnel, facility and systems costs incurred in providing product
implementation, integration project, maintenance, consulting and education
services. Cost of services and other revenue increased by 18% to $7.1 million in
the year ended December 31, 1998 from $6.0 million in the year ended December
31, 1997. As a percentage of services and other revenue, cost of services and
other revenue decreased to 48.1% in the year ended December 31, 1998 from 56.4%
in the year ended December 31, 1997. The dollar increase in cost of services and
other revenue was primarily due to an increase in service personnel necessary to
complete service projects. The decrease in cost of services and other revenue as
a percentage of services and other revenue was primarily due to increases in
service personnel productivity.

         Operating Expenses

         Sales and marketing. Sales and marketing expense consists primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and promotional expenses. Sales and marketing expense increased by 24% to
$6.7 million in the year ended December 31, 1998 from $5.4 million in the year
ended December 31, 1997. As a percentage of total revenue, sales and marketing
expense decreased to 24.5% in the year ended December 31, 1998 from 29.7% in the
year ended December 31, 1997. The dollar increase in sales and marketing expense
was primarily due to initial marketing for solutions being developed for new
vertical markets other than the healthcare market. The decrease in sales and
marketing expense as a percentage of total revenue was primarily due to
increased distribution to third-party distributors versus direct sales.

         Research and development. Research and development expense includes
personnel costs, contract services, and travel associated with the development
of new products, enhancements of existing products and quality assurance
activities. Research and development expense increased by 30% to $3.9 million in
the year ended December 31, 1998 from $3.0 million in the year ended December
31, 1997. As a percentage of total revenue, research and development expense
decreased to 14.3% in the year ended December 31, 1998 from 16.5% in the year
ended December 31, 1997. The dollar increase in research and development expense
was primarily due to an increase in development personnel and contract
programmers needed to support planned product expansion in vertical markets
other than healthcare. The decrease in research and development expense as a
percentage of total revenue was primarily due to an increase in revenue and, to
a lesser extent, to increased capitalization of costs related to internally
developed software to $1.2 million in 1998 from $467,000 in 1997. The increased
capitalization of internally developed software costs was a result of increased
spending on software development projects in connection with planned expansion
into additional vertical markets.


                                       35
<PAGE>   36

         General and administrative. General and administrative expense consists
primarily of personnel costs, outside professional fees, and software and
equipment costs associated with the finance, legal, human resources, information
systems, and administrative functions of HIE. General and administrative expense
increased by 32% to $5.7 million in the year ended December 31, 1998 from $4.3
million in the year ended December 31, 1997. As a percentage of total revenue,
general and administrative expense decreased to 21.1% in the year ended December
31, 1998 from 24.0% in the year ended December 31, 1997. The dollar increase in
general and administrative expense was primarily due to increases in recruiting
costs, telecommunication expenses and other general and administrative expenses
as a result of an overall increase in personnel and revenue growth. The decrease
in general and administrative expense as a percentage of total revenue was
primarily due to increased revenue and elimination of redundant costs in the
second half of 1998 related to the acquisition of HUBLink, Inc. by HIE.

         Provision for doubtful accounts. The provision for doubtful accounts
decreased to $270,000 in the year ended December 31, 1998 from $445,000 in the
year ended December 31, 1997. As a percentage of total revenue, the provision
for doubtful accounts was insignificant in both years.

         Merger costs. Merger costs consist of investment banking, legal and
accounting fees, travel and severance costs in connection with HIE's acquisition
of HUBLink, Inc. on May 12, 1998. In connection with the acquisition of HUBLink,
HIE incurred $1.1 million of one-time charges in the year ended December 31,
1998.

         Obsolete software and other write-offs. Obsolete software and other
write-offs consist of certain assets that were written-off or fully reserved
relating to HIE's redefined strategic direction in October 1997. In the year
ended December 31, 1997, HIE wrote-off or fully reserved certain assets totaling
$4.7 million that no longer contributed to HIE's new strategic direction,
including the following: (1) the net book value of certain third-party and
internally developed software totaling $2.7 million; (2) accounts receivable
totaling $1.1 million and project completion costs totaling $0.6 million, both
related to the software that HIE ceased selling and distributing under its new
strategic direction; and (3) other costs totaling $0.3 million.

         Purchased in-process research and development. Purchased in-process
research and development consists of costs for software integration products
that HIE purchased in connection with its acquisition of Criterion Health
Strategies, Inc. in 1997. The total costs incurred were $1.7 million in the year
ended December 31, 1997.

         Income taxes. HIE had no provision for income taxes in the years ended
December 31, 1998 or 1997 as a result of HIE utilizing net operating loss
carryforwards in 1998 and a net operating loss for 1997.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1999, the Company had $5.6 million in cash and cash
equivalents compared to $3.2 million at December 31, 1998. At December 31, 1999,
HIE had negative working capital of $238,000 compared to working capital of $7.4
million at December 31, 1998. The working capital decrease was primarily
attributable to the operating losses, particularly the


                                       36
<PAGE>   37

provision for doubtful accounts and the cash purchase of property and equipment
in the year ended December 31, 1999.

         Net cash provided by operating activities was $429,000 in the year
ended December 31, 1999 compared to net cash used in operating activities of
$3.7 million in the year ended December 31, 1998. This difference of $4.1
million was primarily due to a reduction in trade accounts receivable and other
current assets.

         Net cash used in investing activities increased to $2.3 million in the
year ended December 31, 1999 from $312,000 in the year ended December 31, 1998.
This increased use of cash of $2.0 million was due primarily to expenditures for
computer equipment and furniture due to the additional client services
personnel. Additionally, HIE's sale of the Integrated Services Group in the
fourth quarter of 1998 provided $1.5 million in cash for the year ended December
31, 1998 compared to $650,000 in the year ended December 31, 1999.

         Net cash provided by financing activities was $4.3 million in the year
ended December 31, 1999, compared to net cash used in financing activities of
$632,000 in the year ended December 31, 1998. This increase of $4.9 million in
cash is a result of the issuance of a convertible note payable for $3.0 million
during the year ended December 31, 1999, coupled with a $3.4 million decrease in
principal payments on long-term debt for the year ended December 31, 1999
compared to the year ended December 31, 1998. In addition, HIE's net borrowings
from its line of credit facilities totaled approximately $508,000 for the year
ended December 31, 1999 compared to $1.5 million for the year ended December 31,
1998.

         In August 1998, the Company entered into a $5.0 million line of credit
facility (the "Credit Facility") with Silicon Valley Bank (the "Bank"). The
Company was in default of two of the financial covenants under the Credit
Facility at March 31, 1999: (1) quarterly profitability; and (2) the minimum
Quick Ratio, as defined therein. Subsequent to March 31, 1999, the Company and
the Bank amended the Credit Facility whereby the Bank waived these defaults, the
interest rate increased by 0.5% annually (to 1.5% over prime) and the line of
credit became secured by the Company's intellectual property.

         At June 30, 1999, the Company was again in default of the above two
financial covenants under the Credit Facility. Subsequent to June 30, 1999, the
Company and the Bank amended the Credit Facility whereby the Bank waived the
defaults, the interest rate was increased by 0.5% annually (to 2% over prime)
and the term of the Credit Facility was extended to September 30, 1999. On
September 30, 1999, the Company and the Bank again amended the Credit Facility,
whereby the Bank extended the term of the Credit Facility to November 30, 1999.
The Company and the Bank signed another loan amendment to extend the term to
December 31, 1999.

         On December 31, 1999, the Company entered into an Amended and Restated
Loan and Security Agreement with the Bank, which provides for a revolving line
of credit up to $3.0 million subject to certain borrowing base limitations
described in the agreement. The revolving line of credit matures on December 31,
2000, bears interest at the Bank's prime rate (8.5% at December 31, 1999) and is
secured by $3.0 million of cash equivalents.


                                       37
<PAGE>   38

         On September 29, 1999, the Company sold 65,000 shares of a newly
designated 8.5% Series B Cumulative Convertible Exchangeable Preferred Stock
("Series B Preferred Stock") to individuals in a private placement for gross
proceeds of $650,000. The Series B Preferred Stock has a $10.00 per share
liquidation value and provides for 8.5% cumulative annual dividends, payable
quarterly in arrears beginning on December 31, 1999. The Series B Preferred
Stock is convertible at any time into the Company's common stock determined by
dividing (1) $10.00 by (2) $2.1491 (115% of the average of the closing bid
prices of the common stock for the five business days prior to the closing
date). The conversion price will be reset on June 20, 2000 if the average
closing price for the Company's common stock on the preceding five business days
is less than $2.1491. The Series B Preferred Stock is also exchangeable at the
Company's option into subordinated notes with substantially equal terms. The
Series B Preferred Stock is redeemable at 25% of the originally issued shares of
Series B Preferred Stock on annual redemption dates beginning on September 30,
2002. The Series B Preferred Stock is net of unamortized financing costs of
$302,000 at December 31, 1999. The financing costs are being accreted over the
term of the Series B Preferred Stock.

         On December 21, 1999, the Company entered into a convertible note and
warrant purchase agreement with Cybear, Inc., pursuant to which the Company
obtained a $3.0 million working capital loan with interest payable quarterly at
a rate of 7.8% per annum, and the principal payable on December 21, 2000. The
note is convertible at maturity at the holder's option into that number of
shares of the Company's common stock determined by dividing the outstanding
principal amount by $3.19 (approximately 940,439 shares). The warrant purchase
agreement entitles Cybear, Inc. to purchase 47,022 shares of the Company's
common stock at any time before December 21, 2004, at an exercise price of $3.19
per share.

         On February 24, 2000, the Company entered into an Accounts Receivable
Financing Agreement (the "Agreement") with Silicon Valley Bank, which provides
for an extension of credit in order to finance receivables up to $6.0 million.
The Agreement term continues through February 15, 2001 and requires finance
charges equal to the Bank's prime rate plus 2%. In conjunction with the
Agreement, the Company issued a Stock Purchase Warrant to the Bank, which
entitles the holder to purchase 61,539 shares of the Company's common stock at
any time on or before February 23, 2005 at an exercise price of $4.875 per
share.

         On March 13, 2000, the Company signed an agreement, effective as of
February 25, 2000, to purchase certain service contracts and other assets of the
Integrated Solutions Division ("ISD") of Thermo Information Solutions, Inc.
("Thermo"). ISD, based in Charleston, South Carolina, designs, implements and
manages information technology solutions. The purchase price consists of
1,307,345 shares of the Company's common stock, and a warrant to purchase an
additional 261,469 shares of the Company's common stock at any time on or before
March 13, 2004. Thermo has a one-time right, exerciseable at any time on or
before September 14, 2000, subject to certain limitations, to receive additional
shares of HIE common stock in the event that the average trading price of HIE
common stock during the 10-day trading period prior to its election is below
$4.207 per share. The acquisition will be accounted for using the purchase
method of accounting.


                                       38
<PAGE>   39

         HIE is committed to make expenditures under non-cancelable operating
leases and capital lease agreements for certain facilities and equipment. These
leases expire at various dates through 2003. At December 31, 1999, HIE had $2.3
million in outstanding capital and operating lease obligations.

         As noted above, during the year ended December 31, 1999, the Company
experienced a reduction in anticipated software revenue that has adversely
affected the Company's current results of operations and liquidity. The Company
has implemented cost control measures and cost and personnel reductions in its
efforts to increase liquidity and strengthen its financial position. In
addition, the Company has narrowed the focus of its commercial (non-healthcare)
efforts on banking and finance by signing an exclusive distributor and license
agreement with Trace Financial Ltd. This focus will result in more effective use
of the Company's resources and position the Company to achieve better results in
that part of its business. Management is exploring strategic opportunities to
maximize shareholder value and strengthen the Company's capital position. This
effort could result in the raising of additional capital through the issuance of
debt or equity securities, strategic alliances, business combinations,
refinancings or some combination thereof. However, there can be no assurance
that the Company will be successful in its attempt to strengthen its liquidity
position.

         Based on the Company's business plan and business model projections,
the Company believes that currently available cash and anticipated cash flows
from operating activities will be sufficient to meet the Company's capital
requirements for at least the next twelve months and the foreseeable future.

BACKLOG

         As of December 31, 1999, HIE's revenue backlog totaled $9.3 million
compared with $8.7 million as of December 31, 1998. Revenue backlog is comprised
of maintenance fees paid in advance, contracted implementation services and
other unearned revenue relating to accepted orders or agreements for the
delivery of HIE's products and services. Revenue included in backlog is
generally expected to be recognized over the next twelve months. Generally,
customer orders and agreements included in backlog are subject to cancellation
and there can be no assurance that backlog will be realized. Consequently,
backlog is not necessarily indicative of future results.

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 98-9 ("SOP 98-9"), Modification of SOP No. 97-2, Software Revenue
Recognition, with Respect to Certain Transactions. This SOP amends SOP 97-2 to,
among other matters, require recognition of revenue using the "residual method"
in circumstances outlined in the SOP. Under the residual method, revenue is
recognized as follows: (1) the total fair value of undelivered elements, as
indicated by vendor-specific objective evidence, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
SOP 98-9 is effective for fiscal years beginning after March 15,



                                       39
<PAGE>   40

1999. The Company does not believe that the adoption of SOP 98-9 will have a
material effect on its revenue recognition.

YEAR 2000

         The Year 2000 issue refers generally to the data structure and
processing problem that may prevent systems from properly processing
date-sensitive information beginning on January 1, 2000. HIE formed a Year 2000
task force which systematically evaluated all existing systems, products and key
external relationships to ascertain material Year 2000 issues and solutions.
These efforts were to ensure that its computer products were Year 2000 ready and
that its internal core information technology ("IT and non-IT systems") were
Year 2000 ready.

         The Company successfully implemented its Year 2000 program as evidenced
by the continued successful operation of its computer products and core internal
IT and non-IT systems. Further, the Company has not encountered any significant
problems with its third party customers, financial institutions, vendors and
others with whom it conducts business. To date, we have not experienced any Year
2000 problems. If any of our third-party suppliers experience Year 2000
disruptions, the Company may incur costs to develop alternative ways of managing
the affected aspects of the business. The Company will continue to monitor its
product performance and core IT and non-IT systems throughout 2000 to ensure
ongoing performance. While there can be no assurance that no Year 2000-related
issues may arise, as of December 31, 1999, the Company believes, based on
information currently available, that Year 2000 related events are not likely to
have a material effect on its results of operations, financial condition or
liquidity. HIE did not incur any material costs directly associated with its
Year 2000 readiness efforts.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is subject to interest rate risk on its line of credit
(variable rate debt), convertible note payable (fixed rate debt) and obligations
under capital leases (fixed rate debt). The Company's primary market risk
exposure relates to (i) the interest rate risk on long-term and short-term
borrowings, (ii) the impact of interest rate movements on its ability to meet
interest expense requirements and (iii) the impact of interest rate movements on
the Company's ability to obtain adequate financing for future operations. The
Company manages interest rate risk on its outstanding long-term and short-term
debt through its use of fixed and variable rate debt. While the Company cannot
predict or manage its ability to refinance existing debt or the impact interest
rate movements will have on its existing debt, management continues to evaluate
its financial position on an on-going basis.


                                       40
<PAGE>   41



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements for the years ended December 31, 1999, 1998
and 1997

<TABLE>
     <S>                                                             <C>
     Independent Auditors' Report....................................F-1
     Consolidated Balance Sheets.....................................F-2
     Consolidated Statements of Operations...........................F-3
     Consolidated Statements of Shareholders' Equity.................F-4
     Consolidated Statements of Cash Flows...........................F-5
     Notes to Consolidated Financial Statements......................F-7
</TABLE>


                                       41
<PAGE>   42



                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
HIE, Inc.


We have audited the accompanying consolidated balance sheets of HIE, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 HIE, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.


                                                          /s/ KPMG LLP


Atlanta, Georgia
January 25, 2000, except as to note 15,
which is as of March 13, 2000


                                      F-1
<PAGE>   43


                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                             ----------------------
                                                                                               1999          1998
                                                                                             --------      --------
<S>                                                                                          <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents (note 1(c) and 6)                                                $  5,609      $  3,167
  Trade accounts receivable, net of allowance for doubtful accounts (note 3)                    6,662        12,996
  Other current assets (note 7)                                                                 1,421         1,854
                                                                                             --------      --------
    Total current assets                                                                       13,692        18,017

Purchased software, net (note 1(e))                                                             1,266         1,946
Capitalized software development costs, net (note 1(f))                                         2,425         1,606
Property and equipment, net (note 4)                                                            2,908         2,289
Excess of cost over net assets of businesses acquired, net (note 1(h) and 2)                    6,887         7,535
Other assets                                                                                       89           142
                                                                                             --------      --------
    Total assets                                                                             $ 27,267      $ 31,535
                                                                                             ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current installments of long-term debt and obligations under capital leases (note 6)       $  6,363      $  2,926
  Accounts payable, principally trade                                                           1,211         1,276
  Accrued liabilities (note 5)                                                                  1,773         1,703
  Deferred revenue                                                                              4,583         4,690
                                                                                             --------      --------
    Total current liabilities                                                                  13,930        10,595

Long-term debt and obligations under capital leases, excluding current
  installments (note 6)                                                                           254           642
                                                                                             --------      --------
    Total liabilities                                                                          14,184        11,237
                                                                                             --------      --------

Series B Cumulative Convertible Exchangeable Preferred Stock; designated 550 shares;
   65 shares issued and outstanding at December 31, 1999; net of issuance costs (note 8)          348            --

Shareholders' equity (note 9):
  Preferred stock, without par value. Authorized 20,000 shares;
    designated Series A cumulative preferred stock 500 shares; issued none                         --            --
  Common stock, $0.01 par value. Authorized 50,000 shares; 25,555 and 24,972
    issued and outstanding shares at December 31, 1999 and 1998, respectively                     256           250
  Additional paid-in capital                                                                   42,236        41,301
  Accumulated deficit                                                                         (29,757)      (21,253)
                                                                                             --------      --------
    Total shareholders' equity                                                                 12,735        20,298
                                                                                             --------      --------

Commitments (note 12)

Total liabilities and shareholders' equity                                                   $ 27,267      $ 31,535
                                                                                             ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>   44



                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                       ------------------------------------
                                                                         1999          1998          1997
                                                                       --------      --------      --------
<S>                                                                    <C>           <C>           <C>
Revenue (note 13):
  Software                                                             $  6,982      $ 12,432      $  7,388
  Services and other                                                     18,333        14,752        10,676
                                                                       --------      --------      --------
    Total revenue                                                        25,315        27,184        18,064
                                                                       --------      --------      --------

Cost of revenue:
  Software                                                                1,343           852         1,026
  Services and other                                                     10,193         7,102         6,025
                                                                       --------      --------      --------
    Total cost of revenue                                                11,536         7,954         7,051
                                                                       --------      --------      --------

    Gross profit                                                         13,779        19,230        11,013

Operating expenses:
  Sales and marketing                                                     6,969         6,672         5,362
  Research and development                                                4,047         3,882         2,977
  General and administrative                                              5,545         5,747         4,339
  Provision for doubtful accounts                                         5,195           270           445
  Merger costs (notes 1(k) and 2)                                            --         1,060            --
  Obsolete software and other write-offs (note 1(k))                         --            --         4,650
  Purchased in-process research and development (notes 1(k) and 2)           --            --         1,746
                                                                       --------      --------      --------
    Operating earnings (loss)                                            (7,977)        1,599        (8,506)

Losses of affiliate (note 2)                                                 --            --          (151)
Interest expense                                                           (529)         (254)         (436)
Interest income                                                              33           153           497
                                                                       --------      --------      --------
    Earnings (loss) before income taxes                                  (8,473)        1,498        (8,596)

Income taxes (note 7)                                                        --            --            --
                                                                       --------      --------      --------

    Net earnings (loss)                                                  (8,473)        1,498        (8,596)

Accretion of Series B Preferred Stock                                       (17)           --            --
Series B Preferred Stock dividend requirement                               (14)           --            --
                                                                       --------      --------      --------

Net earnings (loss) attributable to common shareholders                $ (8,504)     $  1,498      $ (8,596)
                                                                       ========      ========      ========

Net earnings (loss) per share of common stock:
  Basic                                                                $  (0.34)     $   0.06      $  (0.38)
                                                                       ========      ========      ========
  Diluted                                                              $  (0.34)     $   0.06      $  (0.38)
                                                                       ========      ========      ========

Shares used in the calculation of net earnings (loss) per share of
  common stock:
  Basic                                                                  25,347        24,031        22,587
                                                                       ========      ========      ========
  Diluted                                                                25,347        24,867        22,587
                                                                       ========      ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   45


                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>

                                                     Common Stock        Additional                                       Total
                                                 ---------------------     Paid-in        Deferred     Accumulated    Shareholders'
                                                   Shares      Amount      Capital      Compensation     Deficit          Equity
                                                 ---------    --------     -------      ------------   -----------   --------------
<S>                                              <C>          <C>        <C>            <C>           <C>            <C>
Balance at December 31, 1996                       22,592       $226       $ 35,555        $ (23)       $(14,155)       $ 21,603
Issuance of common stock in an acquisition            416          4          1,095           --              --           1,099
Issuance of common stock in private
  offerings, net of offering expenses of $20          280          3          1,236           --              --           1,239
Stock options exercised                               193          2             31           --              --              33
Employee stock plan purchases                          82          1            169           --              --             170
Deferred compensation related to granting
  of stock options                                     --         --            233         (233)             --              --
Amortization of deferred compensation, net
  of forfeitures                                       --         --            (39)         183              --             144
Net loss                                               --         --             --           --          (8,596)         (8,596)
                                                   ------       ----       --------        -----        --------        --------
Balance at December 31, 1997                       23,563        236         38,280          (73)        (22,751)         15,692
Issuance of common stock in satisfaction of
  investment banker advisory fee                      100          1            405           --              --             406
Issuance of common stock in satisfaction of
  note payable to HUBLink shareholder                 125          1            507           --              --             508
Stock options exercised                             1,092         11          1,491           --              --           1,502
Employee stock plan purchases                          92          1            140           --              --             141
Amortization of deferred compensation, net
  of forfeitures                                       --         --             --           73              --              73
Income tax benefits arising from stock
option exercises                                       --         --            478           --              --             478
Net earnings                                           --         --             --           --           1,498           1,498
                                                   ------       ----       --------        -----        --------        --------
Balance at December 31, 1998                       24,972        250         41,301           --         (21,253)         20,298
Stock options exercised                               402          4            571           --              --             575
Employee stock plan purchases                         106          1            217           --              --             218
Exercise of warrants                                   75          1            103           --              --             104
Issuance of warrants in conjunction with
  obtaining loan                                       --         --             44           --              --              44
Accretion of discount on Series B
  Preferred Stock                                      --         --             --           --             (17)            (17)
Series B Preferred Stock dividends                     --         --             --           --             (14)            (14)
Net loss                                               --         --             --           --          (8,473)         (8,473)
                                                   ------       ----       --------        -----        --------        --------
Balance at December 31, 1999                       25,555       $256       $ 42,236        $  --        $(29,757)       $ 12,735
                                                   ======       ====       ========        =====        ========        ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   46



                       HIE, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In thousands)

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                           ----------------------------------
                                                                             1999         1998          1997
                                                                           -------      -------      --------

<S>                                                                        <C>          <C>          <C>
Cash flows from operating activities:
  Net earnings (loss)                                                      $(8,473)     $ 1,498      $ (8,596)
  Adjustments to reconcile net earnings (loss) to net cash provided by
  (used in) operating activities:
    Obsolete software and other write-offs                                      --           --         4,614
    Purchased in-process research and development                               --           --         1,746
    Losses of affiliate                                                         --           --           151
    Provision for doubtful accounts                                          5,195          270           445
    Depreciation and amortization                                            2,737        2,165         1,816
    Compensation related to stock options, net                                  --           73           144
    Decrease (increase) in trade accounts receivable                           889       (8,655)       (1,409)
    Decrease (increase) in other current assets                                 33         (104)         (508)
    Increase (decrease) in trade accounts payable                               85          413          (767)
    Increase (decrease) in accrued liabilities                                  70         (419)          122
    (Decrease) increase in deferred revenue                                   (107)       1,093           503
                                                                           -------      -------      --------
      Net cash provided by (used in) operating activities                      429       (3,666)       (1,739)
                                                                           -------      -------      --------

Cash flows from investing activities:
  Purchased software                                                           (51)        (112)         (445)
  Capitalized software development costs                                    (1,291)      (1,249)         (467)
  Capital expenditures                                                      (1,629)        (258)         (303)
  Change in other non-current assets and liabilities, net                       29         (210)       (1,071)
  Proceeds from disposition of business                                        650        1,517            --
                                                                           -------      -------      --------
    Net cash used in investing activities                                   (2,292)        (312)       (2,286)
                                                                           -------      -------      --------

Cash flows from financing activities:
    Proceeds from issuance of convertible note payable                       3,000           --           583
    Principal payments on long-term debt                                      (417)      (3,797)       (1,261)
    Net borrowings under line of credit                                        508        1,522           120
    Proceeds from the sale of Series B Preferred Stock, net                    331           --            --
    Preferred stock dividends                                                  (14)          --            --
    Proceeds from issuances of common stock                                    897        1,643         1,589
                                                                           -------      -------      --------
      Net cash provided by (used in) financing activities                    4,305         (632)        1,031
                                                                           -------      -------      --------

      Net increase (decrease) in cash and cash equivalents                   2,442       (4,610)       (2,994)

Cash and cash equivalents at beginning of year                               3,167        7,777        10,771
                                                                           -------      -------      --------

Cash and cash equivalents at end of year                                   $ 5,609      $ 3,167      $  7,777
                                                                           =======      =======      ========
</TABLE>

See accompanying notes to consolidated financial statements         (continued)


                                      F-5
<PAGE>   47




                       HIE, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                             (In thousands)

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                             ------------------------------
                                                                               1999        1998       1997
                                                                             -------     -------     ------

<S>                                                                          <C>         <C>         <C>
Supplemental disclosures of cash paid for:

  Interest                                                                   $   529     $   254     $  190
                                                                             =======     =======     ======

Supplemental disclosures of non-cash investing and financing activities:

    Equipment acquired under capital lease obligations                       $    --     $   844     $  467
                                                                             =======     =======     ======

    Obligations incurred in connection with acquisitions                     $    --     $    --     $  840
                                                                             =======     =======     ======

    Issuance of common stock in connection with an acquisition               $    --     $    --     $1,099
                                                                             =======     =======     ======

    Issuance of common stock in satisfaction of note payable
      to HUBLink shareholder                                                 $    --     $   508     $   --
                                                                             =======     =======     ======

    Issuance of common stock in satisfaction of investment
      banker advisory fee                                                    $    --     $   406     $   --
                                                                             =======     =======     ======

    Income tax benefits arising from stock option exercises                  $    --     $   478     $   --
                                                                             =======     =======     ======

    Return of purchased software                                             $   150     $    --     $   --
                                                                             =======     =======     ======

    Issuance of warrants to purchase common stock in connection
    with issuance of debt                                                    $    44     $    --     $   --
                                                                             =======     =======     ======

    Accretion of discount on Series B Preferred Stock                        $    17     $    --     $   --
                                                                             =======     =======     ======

Disposal of business:

  Assets disposed of                                                         $    --     $ 2,445     $   --
  Liabilities disposed of                                                         --        (278)        --
  Amount in/received from escrow (note 2)                                        650        (650)        --
                                                                             -------     -------     ------
    Proceeds from disposition of business                                    $   650     $ 1,517     $   --
                                                                             =======     =======     ======
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   48


                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Business

                  HIE, Inc. and subsidiaries (collectively referred to as "HIE"
                  or the "Company") provide software tools and services to
                  achieve the enterprise-wide integration of information.

                  HIE was incorporated on June 15, 1994 in the State of Georgia
                  and is headquartered in Marietta, Georgia. HIE was a wholly
                  owned subsidiary of Healthdyne, Inc. ("Healthdyne") until
                  November 6, 1995 at which time Healthdyne distributed all of
                  the outstanding shares of HIE to the Healthdyne shareholders
                  (the "Spin-off"). On February 24, 1999, the Company changed
                  its name from Healthdyne Information Enterprises, Inc. to HIE,
                  Inc.

         (b)      Basis of Consolidated Financial Statement Presentation

                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries, as appropriate (see note 2).

                  The consolidated financial statements have been prepared in
                  conformity with generally accepted accounting principles. In
                  preparing the consolidated financial statements, management is
                  required to make estimates and assumptions that affect the
                  reported amounts of assets and liabilities as of the dates of
                  the consolidated balance sheets and income and expenses for
                  the periods. Actual results could differ from those estimates.

                  All significant intercompany balances and transactions have
                  been eliminated in consolidation.

         (c)      Cash and Cash Equivalents

                  Cash and cash equivalents consist of cash and short-term
                  investments with original maturities of three months or less.
                  $3,000 of cash equivalents serve as collateral on the
                  Company's line of credit (see note 6).

         (d)      Revenue

                  Revenue is derived from the sale of integration software tools
                  and from providing related education, consulting, project
                  management, implementation, support and other integration
                  services. Revenue from software licensing and support fees is
                  recognized in accordance with Statement of Position ("SOP")
                  97-2, Software Revenue Recognition and SOP 98-4, Deferral of
                  the Effective Date of Provision SOP 97-2. Software revenue is
                  recognized based on four criteria proscribed by SOP 97-2,
                  which are: (1) persuasive evidence of an arrangement exists,
                  (2) delivery has occurred, (3) the fee is fixed or
                  determinable, and (4) collectibility is probable. All service
                  revenue is recognized as the


                                      F-7
<PAGE>   49

                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                  work is performed or, in the case of a fixed fee contract, on
                  the percentage-of-completion basis, even though some services
                  are prepaid. Deferred revenue represents advance payments or
                  billings for software licenses, services, or support in
                  advance of revenue recognition.

                  In December 1998, the Accounting Standards Executive Committee
                  of the American Institute of Certified Public Accountants
                  issued SOP 98-9, Software Revenue Recognition with Respect to
                  Certain Transactions. SOP 98-9 is effective for fiscal years
                  beginning after March 15, 1999 and the Company does not expect
                  a material change to its accounting for revenue recognition as
                  a result of adopting the provisions of SOP 98-9.

                  The Company established business relationships with several
                  new distributors in recent years and therefore, limited
                  historical data is available on which to base estimates of
                  future returns, allowances and warranties. Management of the
                  Company has provided an allowance for expected returns,
                  allowances and warranties based on historical rates. The
                  amounts of returns, allowances and warranties ultimately
                  incurred could differ materially in the near term from the
                  allowances calculated.

         (e)      Purchased Software

                  Purchased software includes the cost of purchased integration
                  software tools and the cost of software acquired in connection
                  with business combinations. It also includes the cost of
                  licenses to use, embed and sell software tools developed by
                  others. These costs are being amortized ratably based on the
                  projected revenue associated with these purchased or licensed
                  tools and products or the straight-line method over five
                  years, whichever method results in a higher level of annual
                  amortization. Amortization expense related to purchased
                  software amounted to $581, $563 and $886 in 1999, 1998 and
                  1997, respectively. Accumulated amortization related to
                  purchased software totaled $1,931 and $1,350 at December 31,
                  1999 and 1998, respectively.


                                      F-8
<PAGE>   50
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


         (f)      Research and Development and Capitalized Software Development
                  Costs

                  Prior to the determination of technological feasibility for
                  software tools, research and development costs are expensed as
                  incurred. After determination of technological feasibility and
                  before the release of the software tools for general
                  availability, the development costs related to such tools are
                  capitalized. These costs are being amortized ratably based on
                  the projected revenue associated with these tools or the
                  straight-line method over five years, whichever method results
                  in a higher level of annual amortization. The Company
                  capitalized $1,291, $1,249 and $467 of software development
                  costs in 1999, 1998 and 1997, respectively. Amortization
                  expense related to capitalized software development costs was
                  $472, $207 and $101 in 1999, 1998 and 1997, respectively.
                  Accumulated amortization related to capitalized software
                  development costs totaled $801 and $329 at December 31, 1999
                  and 1998, respectively.

         (g)      Property and Equipment

                  Property and equipment are stated at cost less accumulated
                  depreciation and amortization. Depreciation is provided on the
                  straight-line method over an estimated useful life of five
                  years. Amortization of leasehold improvements is recorded over
                  the shorter of the lives of the related assets or the lease
                  terms and is included in depreciation expense.

         (h)      Excess of Cost Over Net Assets of Businesses Acquired

                  The excess of cost over net assets of businesses acquired
                  (goodwill) is being amortized using the straight-line method
                  over 15 years. Amortization expense related to acquired
                  businesses amounted to $672 in each of the years ended
                  December 31, 1999, 1998 and 1997. At each balance sheet date,
                  the Company assesses the recoverability of this intangible
                  asset by determining whether the amortization of the goodwill
                  balance over its remaining life can be recovered through
                  undiscounted future operating cash flows of the acquired
                  operation. The amount of goodwill impairment, if any, is
                  measured based on projected discounted future operating cash
                  flows using a discount rate reflecting the Company's average
                  cost of funds. Accumulated amortization related to goodwill
                  totaled $3,283 and $2,611 at December 31, 1999 and 1998,
                  respectively.


                                      F-9
<PAGE>   51
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


         (i)      Long-Lived Assets and Long-Lived Assets to be Disposed of

                  The Company accounts for long-lived assets in accordance with
                  the provisions of Statement of Financial Accounting Standards
                  ("SFAS") 121, Accounting for the Impairment of Long-Lived
                  Assets and for Long-Lived Assets to be Disposed of. This
                  statement requires that long-lived assets and certain
                  identifiable intangibles be reviewed for impairment whenever
                  events or changes in circumstances indicate that the carrying
                  amount of an asset may not be recoverable. Recoverability of
                  assets to be held and used is measured by a comparison of the
                  carrying amount of an asset to future net cash flows expected
                  to be generated by the asset. If such assets are considered to
                  be impaired, the impairment to be recognized is measured by
                  the amount by which the carrying amount of the assets exceeds
                  the fair value of the assets. Assets to be disposed of are
                  reported at the lower of the carrying amount or fair value
                  less costs to sell.

         (j)      Stock Option Plans

                  The Company accounts for its stock option plans in accordance
                  with the provisions of Accounting Principles Board ("APB")
                  Opinion No. 25, Accounting for Stock Issued to Employees, and
                  related interpretations. As such, compensation expense to be
                  recognized over the related vesting period is generally
                  determined on the date of grant only if the current market
                  price of the underlying stock exceeds the exercise price. SFAS
                  123, Accounting for Stock-Based Compensation, permits entities
                  to recognize as expense over the vesting period the fair value
                  of all stock-based awards on the date of grant. Alternatively,
                  SFAS 123 allows entities to continue to apply the provisions
                  of APB Opinion No. 25 and provide pro forma net earnings
                  (loss) and pro forma earnings (loss) per share disclosures for
                  employee stock option grants as if the fair-value-based method
                  defined in SFAS 123 had been applied. The Company has elected
                  to continue to apply the provisions of APB Opinion No. 25 and
                  provide the pro forma disclosures required by SFAS 123 (see
                  note 9).

         (k)      Non-recurring Charges

                  The Company incurred the following non-recurring charges
                  during 1998 and the fourth quarter of 1997:

<TABLE>
<CAPTION>
                                                                                     Fourth
                                                                                     Quarter
                                                                        1998          1997
                                                                       ------        ------
                  <S>                                                  <C>           <C>
                  Obsolete software and other write-offs               $   --        $4,650
                  Purchased in-process research and development            --         1,746
                  Merger costs                                          1,060            --
                                                                       ------        ------
                                                                       $1,060        $6,396
                                                                       ======        ======
</TABLE>

                  Merger costs resulting from the Company's acquisition of
                  HUBLink Inc., which was accounted for as a pooling of
                  interests, include investment banking fees, legal and


                                      F-10
<PAGE>   52
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                  accounting fees, travel and severance costs (see note 2). The
                  total merger costs were $1,060 during 1998.

                  During the fourth quarter of 1997, in conjunction with a
                  change in executive management, the Company ceased selling and
                  distributing, and consequently wrote-off, certain third-party
                  and internally developed software, related project costs and
                  accounts receivable, and other costs that no longer
                  contributed to the Company's redefined business direction.

                  In connection with the acquisition of Criterion Health
                  Strategies, Inc. during 1997, the Company recorded a
                  non-recurring charge related to purchased in-process research
                  and development costs for integration software tools. The
                  amount of the non-recurring charge was equal to the estimated
                  current fair value of specifically identified technologies for
                  which technological feasibility had not yet been established
                  pursuant to SFAS 86, Accounting for Costs of Computer Software
                  to be Sold, Leased or Otherwise Marketed and for which future
                  alternative uses did not exist at the time of acquisition (see
                  note 2).


         (l)      Income Taxes

                  The Company accounts for income taxes using the asset and
                  liability approach in accordance with SFAS 109, Accounting for
                  Income Taxes. Under SFAS 109, deferred income taxes are
                  recognized for the tax consequences of "temporary differences"
                  by applying enacted statutory tax rates applicable to future
                  years to differences between the financial statement carrying
                  amounts and the tax bases of existing assets and liabilities.
                  Additionally, the effect on deferred taxes of a change in tax
                  rates is recognized in earnings in the period that includes
                  the enactment date. Income tax benefits are not recognized
                  unless ultimate realization of such benefits is more likely
                  than not (see note 7).


         (m)      Net Earnings (Loss) Per Share of Common Stock

                  The Company has presented net earnings (loss) per share
                  pursuant to SFAS 128, Earnings Per Share, which prescribes the
                  calculation methodology and financial reporting requirements
                  for basic and diluted earnings per share. Basic earnings
                  (loss) per common share available to common shareholders are
                  based on the weighted average number of common shares
                  outstanding. Diluted earnings (loss) per common share
                  available to common shareholders are based on the weighted
                  average number of common shares outstanding and dilutive
                  potential common shares, such as dilutive stock options,
                  determined using the treasury stock method.

         (n)      Operating Segments

                  The Company has presented its operating segments in accordance
                  with SFAS 131, Disclosures about Segments of an Enterprise and
                  Related Information. During 1999, the Company operated in one
                  segment, that being the licensing of integration software


                                      F-11
<PAGE>   53
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


                  products and performance of related integration services.
                  During 1998, the Company operated in two segments: (i) the
                  licensing of integration software products and performance of
                  related integration services and (ii) the providing of
                  consulting services related to information systems integration
                  for healthcare organizations (see note 14).

         (o)      Comprehensive Income

                  No statement of comprehensive income has been included in the
                  accompanying financial statements since the Company has no
                  other comprehensive income.

         (p)      Reclassifications

                  Certain 1998 and 1997 amounts have been reclassified to
                  conform to the classifications presented in the 1999 financial
                  statements.


2.       ACQUISITIONS AND DISPOSITIONS

         Integrated Services Group

         On December 31, 1998, the Company disposed of assets comprising its
         Integrated Services Group ("ISG") to Superior Consulting Company, Inc.,
         a wholly-owned subsidiary of Superior Consultant Holdings Corporation,
         in exchange for cash of $2,200, of which $650 was held in escrow until
         certain conditions were met. The amount in escrow was released on
         December 31, 1999, and the Company was relieved of all obligations. ISG
         provided consulting services related to information systems integration
         for healthcare organizations. ISG comprised approximately 12.3% of the
         Company's revenue in 1998 (see note 14). There was no gain or loss
         resulting from this disposal.

         HUBLink, Inc.

         In May, 1998, the Company issued 2,900 shares of its common stock in
         exchange for all outstanding common stock of HUBLink, Inc. ("HUBLink")
         of Columbus, Ohio, an integration software tool company. This business
         combination has been accounted for as a pooling-of-interests
         combination. Merger costs totaling $1,060 resulting from the Company's
         acquisition of HUBLink include investment banking fees, legal and
         accounting fees, travel and severance costs (see note 1(k)). The
         financial position and results of operations of the Company have been
         restated for all periods prior to the merger to give retroactive effect
         to the merger.

         Criterion Health Strategies, Inc.

         In October 1994, the Company committed to make certain loans to
         Criterion Health Strategies, Inc. ("CHS") of Nashville, Tennessee, a
         provider of data management software tools and services, with such
         loans being convertible into a 64% equity ownership interest in CHS.
         During December 1995, Massey Burch Capital Corp. ("Massey Burch")
         agreed to


                                      F-12
<PAGE>   54
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


         share equally HIE's funding commitment to CHS in exchange for half of
         HIE's potential equity ownership interest in CHS. In December 1996, HIE
         acquired an option (the "Option") to purchase Massey Burch's potential
         equity ownership interest in CHS. In June 1997, the existing and
         potential equity ownership interests of various parties in CHS were
         restructured and all equity ownership interests in CHS held by persons
         other than HIE and Massey Burch were canceled in exchange for the grant
         of options to purchase 199 shares of HIE common stock to CHS executive
         management and other employees at the fair value on the date of grant.

         On December 31, 1997, HIE exercised the Option to acquire Massey
         Burch's 50% equity ownership interest in CHS, bringing HIE's equity
         ownership interest in CHS to 100%, in exchange for 416 shares of HIE
         common stock and warrants to purchase 50 shares of HIE common stock for
         $1.59 per share exercisable through December 2003. The warrants were
         exercised during 1999 (see note 9). Prior to HIE's acquisition of the
         majority interest in CHS, the Company's share of the losses of CHS was
         netted against notes receivable from CHS and shown as losses of
         affiliate in the accompanying consolidated financial statements. CHS'
         results of operations were included in the Company's consolidated
         statements of operations beginning on January 1, 1998.

         The acquisition of CHS was accounted for using the purchase method of
         accounting. The total purchase price of CHS was $3,200. The acquisition
         resulted in purchased in-process research and development of $1,746,
         which was expensed in 1997, purchased software of $715 and additional
         cost over net assets acquired of $336. The Company also assumed an $840
         obligation to a third party for the exclusive use of a software tool in
         the healthcare industry.

         The purchased in-process research and development charge relates to a
         back-end software integration tool research and development project
         designed to facilitate the analysis of data stored in various disparate
         information systems. The amount of this purchased in-process research
         and development charge was determined based on the present value of
         management's estimate of the future cash flows (discounted by a
         risk-adjusted weighted average cost of capital of 45%) expected to be
         derived from the new software integration tool for its estimated
         eight-year life subsequent to the completion of the project, after
         consideration of the fair value of the other CHS assets acquired. At
         the date of acquisition, management estimated that this research and
         development project was approximately 50% complete measured in terms of
         the total estimated man-hours for the project. During 1998, this
         project was completed with costs incurred of $150.


                                      F-13
<PAGE>   55
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



3.       TRADE ACCOUNTS RECEIVABLE

         Trade accounts receivable is net of an allowance for doubtful accounts
         as follows:

<TABLE>
<CAPTION>
                                                    December 31,
                                                 ------------------
                                                   1999       1998
                                                 -------    -------
         <S>                                     <C>        <C>
         Trade accounts receivable               $11,822    $13,716
         Less allowance for doubtful accounts      5,160        720
                                                  ------    -------
         Trade accounts receivable, net          $ 6,662    $12,996
                                                 =======    =======
</TABLE>


4.       PROPERTY AND EQUIPMENT

         Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                           ----------------
                                                            1999      1998
                                                           ------    ------

         <S>                                               <C>       <C>
         Machinery and equipment                           $3,027    $2,067
         Furniture and fixtures                               927       484
         Equipment under capital leases                     1,822     1,822
         Leasehold improvements                               138       110
                                                           ------    ------
                                                            5,914     4,483
         Less accumulated depreciation and amortization     3,006     2,194
                                                           ------    ------

         Net property and equipment                        $2,908    $2,289
                                                           ======    ======
</TABLE>

5.       ACCRUED LIABILITIES

         Accrued liabilities are summarized as follows:

<TABLE>
<CAPTION>
                                        December 31,
                                      ----------------
                                       1999      1998
                                      ------    ------
         <S>                          <C>       <C>
         Benefits and compensation    $  625    $1,046
         Project completion costs        444       352
         Other                           704       305
                                      ------    ------

                                      $1,773    $1,703
                                      ======    ======
</TABLE>

6.       LONG-TERM DEBT

         Long-term debt consists of the following:


                                      F-14
<PAGE>   56
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                                       ----------------
                                                                                         1999      1998
                                                                                       ------    ------

         <S>                                                                           <C>       <C>
         Lines of credit (see below)                                                   $3,000    $2,492
         Convertible note payable, net of unaccreted discount of $42 at
            December 31, 1999 (see below)                                               2,958        --
         Obligations under capital leases - equipment leases; interest ranging from
            9% to 17% with various monthly payments and maturing at various dates
            through September 1, 2003                                                     659     1,076
                                                                                       ------    ------
                                                                                        6,617     3,568

         Less current installments                                                      6,363     2,926
                                                                                       ------    ------

         Long-term debt, excluding current installments                                $  254    $  642
                                                                                       ======    ======
</TABLE>

         Approximate aggregate minimum annual payments due on long-term debt and
         capital leases subsequent to December 31, 1999 are as follows: 2000,
         $6,363; 2001, $213; 2002, $27; and 2003, $14.

         In August 1998, the Company entered into a $5,000 line of credit
         facility (the "Credit Facility") with Silicon Valley Bank (the "Bank").
         On December 31, 1999, the Company entered into an Amended and Restated
         Loan and Security Agreement with the Bank, which provides for a
         revolving line of credit up to $3,000 subject to borrowing base
         limitations. The borrowing base is the lesser of (i) the balance of the
         revolving line of credit, or (ii) 100% of the cash equivalent balance
         held as collateral for the line of credit. The revolving line of credit
         matures on December 31, 2000, and bears interest at the Bank's prime
         rate (8.5% at December 31, 1999).

         On December 21, 1999, the Company entered into a convertible note and
         warrant purchase agreement with Cybear, Inc., pursuant to which the
         Company obtained a $3,000 working capital loan with interest payable
         quarterly at a rate of 7.8% per annum, and the principal payable on
         December 21, 2000. The note is convertible at maturity at the holder's
         option into that number of shares of the Company's common stock
         determined by dividing the outstanding principal amount by $3.19
         (approximately 940 shares). The warrant purchase agreement entitles
         Cybear, Inc. to purchase 47 shares of the Company's common stock at any
         time before December 21, 2004, at an exercise price of $3.19 per share
         (see note 9).


                                      F-15
<PAGE>   57
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


7.     INCOME TAXES

       The provision for income taxes includes income taxes currently payable
       and those deferred because of temporary differences between the financial
       statement and tax bases of assets and liabilities that will result in
       taxable or deductible amounts in the future and any increase or decrease
       in the valuation allowance for deferred income tax assets.

       A reconciliation of the expected income tax (expense) benefit (based on
       the U.S. Federal statutory rate) to the actual income tax (expense)
       benefit is as follows:

<TABLE>
<CAPTION>
                                                                Years ended December, 31
                                                         -------------------------------------
                                                          1999            1998           1997
                                                         -------         ------        -------
       <S>                                               <C>             <C>           <C>
       Computed expected income tax (expense)
         benefit                                         $ 2,966         $(524)        $ 3,008
       Goodwill amortization                                (261)         (261)           (261)
       Tax benefit from stock options exercises              644            --             733
       Utilization of prior year financial
         statement losses                                     --           367              --
       Losses of affiliate                                    --            --             (53)
       (Increase) decrease in valuation allowance         (3,349)          416          (3,422)
       Other                                                  --             2              (5)
                                                         -------         -----         -------
                                                         $    --         $  --         $    --
                                                         =======         =====         =======
</TABLE>


       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax asset are as follows:

<TABLE>
<CAPTION>

                                                                             December, 31
                                                                       ------------------------
                                                                        1999             1998
                                                                       -------         -------
       <S>                                                             <C>             <C>
       Deferred tax assets (liabilities):
         Allowance for doubtful accounts                               $ 1,806         $    70
         Accruals and reserves not deducted for tax purposes                26              13
         Depreciation and amortization                                    (293)           (140)
         Net operating loss carryforwards                                8,198           6,441
         Tax credit carryforwards                                          256             260
                                                                       -------         -------
         Total gross deferred tax asset                                  9,993           6,644

       Less valuation allowance                                          9,515           6,166
                                                                       -------         -------

           Net deferred tax asset, included in other current assets    $   478         $   478
                                                                       =======         =======
</TABLE>

         Under SFAS 109, deferred income tax assets and liabilities are
         recognized for differences between the financial statement carrying
         amounts and the tax bases of assets and liabilities which will result
         in future deductible or taxable amounts and for net operating loss and
         tax credit carryforwards. A valuation allowance is then established to
         reduce the deferred income tax assets to the level at which it is "more
         likely than not" that any tax benefits will be realized. Realization of
         tax benefits of deductible temporary differences and operating loss and
         tax credit carryforwards depends on having sufficient taxable


                                      F-16



<PAGE>   58
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


         income within the carryback and carryforward periods. Sources of
         taxable income that may allow for the realization of tax benefits
         include (1) taxable income in the current year or prior years that is
         available through carryback, (2) future taxable income that will result
         from the reversal of existing taxable temporary differences, and (3)
         future taxable income generated by future operations. The valuation
         allowance for deferred income tax assets at December 31, 1999 and 1998
         was $9,515 and $6,166, respectively. The net increase (decrease) in the
         valuation allowance for deferred income tax assets for the years ended
         December 31, 1999 and 1998 was $3,349 and $(416), respectively. Based
         on the level of historical taxable income and projections for future
         taxable income over the periods in which the deferred tax assets are
         deductible, management believes it is more likely than not the Company
         will realize the benefits of the deferred tax assets, net of existing
         valuation allowances at December 31, 1999.

         At December 31, 1999, the Company had the following estimated credits
         and net operating loss carryforwards available for Federal income tax
         reporting purposes to be applied against future taxable income and tax
         liabilities:

<TABLE>
<CAPTION>

                                                                         Net
                                           Foreign       Business      operating
         Year of expiration                credit         credit         loss
         ------------------               --------       ---------    ----------
         <S>                              <C>            <C>          <C>
             2000                            $ 23        $   --       $     --
             2007                              --             3              5
             2008                              --            38            838
             2009                              --            --          2,069
             2010                              --            49          1,938
             2011                              --            34          7,160
             2012                              --           109          5,616
             2018                              --            --            777
             2019                              --            --          5,021
                                            -----        ------       --------
                                            $  23        $  233       $ 23,424
                                            =====        ======       ========
</TABLE>


       The net operating loss carryforward of $23,424 includes deductions of
       approximately $5,748 related to the exercise of stock options, which will
       be credited to additional paid-in capital when recognized. The
       alternative minimum tax net operating loss carryforward approximates the
       regular net operating loss carryforward. A portion of the net operating
       loss (approximately $8,165) is limited by Section 382 of the Internal
       Revenue Code of 1986, as amended, to an annual utilization of
       approximately $749.


8.     REDEEMABLE PREFERRED STOCK

       On September 29, 1999, the Company sold 65 shares of a newly designated
       8.5% Series B Cumulative Convertible Exchangeable Preferred Stock
       ("Series B Preferred Stock") to individuals in a private placement for
       gross proceeds of $650. The Series B Preferred Stock has a $10.00 per
       share liquidation value and provides for 8.5% cumulative annual
       dividends, payable quarterly in arrears beginning on December 31, 1999.
       The Series B

                                      F-17

<PAGE>   59
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       Preferred Stock is convertible at any time into the Company's common
       stock determined by dividing (1) $10.00 by (2) $2.1491 (115% of the
       average of the closing bid prices of the common stock for the five
       business days prior to the closing date). The conversion price will be
       reset on June 20, 2000 if the average closing price for the Company's
       common stock on the preceding five business days is less than $2.1491.
       The Series B Preferred Stock is also exchangeable at the Company's option
       into subordinated notes with substantially equal terms. The Series B
       Preferred Stock is redeemable at 25% of the originally issued shares of
       Series B Preferred Stock on annual redemption dates beginning on
       September 30, 2002. The Series B Preferred Stock is net of unamortized
       financing costs of $302 at December 31, 1999. The financing costs are
       being accreted over the term of the Series B Preferred Stock.


9.     SHAREHOLDERS' EQUITY

       Warrants

       In connection with entering into the Convertible Note and Warrant
       Purchase Agreement with Cybear, Inc. (see note 6), the Company issued
       warrants to purchase 47 shares of the Company's common stock at any time
       before December 21, 2004. Using the Black-Scholes option pricing model,
       the Company has calculated the fair market value of the warrants granted
       to be $44 as of the grant date. This amount was recorded as additional
       paid-in capital and a reduction to the Convertible Note Payable and will
       be amortized as interest expense over the term of the note. All 47
       warrants remain outstanding as of December 31, 1999.

       On December 31, 1997, HIE issued warrants to purchase 50 shares of HIE
       common stock, at $1.59 per share, to Massey Burch (see note 2). In
       January 1999, Massey Burch exercised the warrants to purchase 42 shares
       of HIE common stock.

       On May 12, 1998, HIE issued a warrant to purchase 33 shares of the
       Company's common stock at $3.15 per share in exchange for the
       cancellation of warrants to purchase shares of HUBLink common stock. The
       warrant was exercised in December 1999.

       Private Offering

       In 1997, HUBLink issued 280 equivalent shares of HIE common stock and
       received proceeds of $1,239, net of offering costs of $20.

       Stock Option Plans

       The Company maintains five stock option plans for the benefit of
       employees and directors. A total of 6,718 shares of the Company's common
       stock have been authorized for issuance under these plans. Most of the
       stock options granted under these plans are exercisable in equal amounts
       over three years and expire in six to ten years. Other terms of options



                                      F-18



<PAGE>   60
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       granted under the plans are determined by the Stock Option Committee of
       the Company's Board of Directors, subject to the terms of the
       respective plans.

       The per share weighted-average fair values of stock options granted
       during 1999, 1998 and 1997 were $1.73, $1.20 and $1.14, respectively, on
       the date of grant using the Black-Scholes option-pricing model with the
       following assumptions:


<TABLE>
<CAPTION>
                                             1999           1998         1997
                                            -------       -------       -------
       <S>                                  <C>           <C>           <C>
       Expected volatility                   46%           44%           40%
       Expected dividend yield               none          none          none
       Risk-free interest rate              6.00%         5.30%         5.50%
       Expected life of stock options       5 years       5 years       5 years
</TABLE>


       The Company applies APB Opinion No. 25 in accounting for its stock option
       plans. Accordingly, no compensation cost is recognized for its stock
       options in the consolidated financial statements, unless the stock
       options are granted at an exercise price below fair value at the grant
       date, in which case the difference between the exercise price and the
       fair value is recorded as deferred compensation cost and amortized over
       the relevant period of benefit. Had the Company determined compensation
       cost based on the fair value at the grant date for its stock options
       under SFAS 123, the Company's reported net earnings (loss) and related
       per share amounts would have been changed to the pro forma amounts
       indicated below:


<TABLE>
<CAPTION>
                                                           1999         1998         1997
                                                         -------      -------       -------
       <S>                                               <C>          <C>           <C>
       Net earnings (loss) attributable to common
        shareholders:
         As reported                                     $(8,504)     $ 1,498       $(8,596)
         Pro forma                                        (9,231)         649        (9,301)
       Diluted net earnings (loss) per share:
         As reported                                     $ (0.34)     $  0.06       $ (0.38)
         Pro forma                                         (0.36)        0.03         (0.41)
</TABLE>


                                      F-19

<PAGE>   61
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       A summary of stock option transactions under these plans during 1999,
1998 and 1997 is shown below:

<TABLE>
<CAPTION>
                                                                                   Option price per share
                                                                                   ----------------------
                                                                  Number                         Weighted
                                                                of shares          Range         average
                                                                ---------          -----         -------
            <S>                                                 <C>              <C>             <C>
            Options outstanding at December 31, 1996               2,941         $0.23 - $5.88    $2.24
               Granted                                             1,242         $0.25 - $5.88    $2.74
               Exercised                                            (193)        $0.23 - $1.50    $0.93
               Canceled or expired                                  (499)        $1.31 - $5.88    $3.81
                                                                  ------
            Options outstanding at December 31, 1997               3,491         $0.23 - $5.88    $2.21
               Granted                                             1,240         $2.00 - $3.95    $2.60
               Exercised                                          (1,092)        $0.23 - $4.47    $1.38
               Canceled or expired                                (1,167)        $1.50 - $5.50    $3.20
                                                                  ------
            Options outstanding at December 31, 1998               2,472         $0.23 - $5.88    $2.27
               Granted                                             1,205         $2.11 - $8.03    $2.98
               Exercised                                            (402)        $0.23 - $4.47    $1.43
               Canceled or expired                                  (340)        $0.27 - $5.88    $3.09
                                                                  ------
            Options outstanding at December 31, 1999               2,935         $0.25 - $8.03    $2.59
                                                                  ======


            Options exercisable at December 31, 1997               1,511         $0.23 - $5.88    $1.57
                                                                  ======


            Options exercisable at December 31, 1998               1,303         $0.23 - $5.88    $1.85
                                                                  ======

            Options exercisable at December 31, 1999               1,035         $0.25 - $5.88    $2.23
                                                                  ======
</TABLE>

       The following table summarizes information about stock options
       outstanding and exercisable at December 31, 1999:


<TABLE>
<CAPTION>
                                                     Options outstanding                 Options exercisable
                                            --------------------------------------    ------------------------
                                                         Weighted
                                                          average         Weighted                     Weighted
                                             Number      remaining        average        Number        average
       Range of                             outstanding  contractual      exercise     exercisable     exercise
       exercise prices                      at 12/31/99  life (months)     price       at 12/31/99      price
       ---------------                      --------------------------    --------    -----------      -----
       <S>                                  <C>          <C>              <C>         <C>              <C>
       $0.23 - $2.00                            998           37           $1.60          635          $1.46
       $2.11 - $2.78                            975           94           $2.48          101          $2.47
       $2.81 - $4.81                            903           66           $3.52          274          $3.63
       $5.50 - $8.03                             59           70           $6.75           25          $5.68
                                                 --                                        --

                                              2,935           66           $2.59        1,035          $2.23
                                              =====                                     =====
</TABLE>



                                      F-20

<PAGE>   62
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       Non-Employee Directors Stock Plan

       On October 20, 1995, the Company established a stock plan for
       non-employee directors whereby such directors may elect to receive all or
       a portion of their annual retainer fee in unrestricted shares of the
       Company's common stock. As of December 31, 1999, none of the 250 shares
       reserved for this plan have been issued.

       Stock Purchase Plan

       The Company maintains an employee stock purchase plan for all eligible
       employees of the Company. Participants may use up to 10% of their
       compensation to purchase the Company's common stock through payroll
       deductions for 85% of the lower of the beginning or ending stock price on
       a quarterly basis. Of the 400 shares of the Company's common stock
       reserved for issuance under this plan, 106 shares, 92 shares and 82
       shares were issued during the years ended December 31, 1999, 1998 and
       1997, respectively.

       Shareholder Rights Plan

       On October 20, 1995, the Company's Board of Directors declared a dividend
       distribution of one purchase right for each share of the Company's common
       stock outstanding as of October 30, 1995. If a person or group acquires
       beneficial ownership of 15% or more of the Company's outstanding common
       stock or announces a tender offer or exchange that would result in the
       acquisition of a beneficial ownership right of 20% or more of the
       Company's outstanding common stock, the rights detach from the common
       stock and are distributed to shareholders as separate securities. Each
       right entitles its holder to purchase one one-hundredth of a share (a
       unit) of Series A Cumulative Preferred Stock, at a purchase price of $50
       per unit. The rights, which do not have voting power, expire on October
       23, 2005 unless previously distributed and may be redeemed by the Company
       in whole at a price of $.01 per right at any time before and within 10
       days after their distribution. If the Company is acquired in a merger or
       other business combination transaction, or 50% of its assets or earnings
       power are sold at any time after the rights become exercisable, the
       rights entitle a holder to buy a number of common shares of the acquiring
       company having a market value of twice the exercise price of the right.
       If a person acquires 20% of the Company's common stock or if a 15% or
       larger holder merges with the Company and the common stock is not changed
       or exchanged in such merger, or engages in self-dealing transactions with
       the Company, each right not owned by such holder becomes exercisable for
       the number of common shares of the Company having a market value of twice
       the exercise price of the right.

10.    EMPLOYEE BENEFIT PLANS

       Prior to July 1, 1998, the Company and certain of its subsidiaries
       maintained 401(k) defined contribution plans for the benefit of their
       employees. Effective July 1, 1998, these plans were merged and the
       Company adopted the HIE, Inc. 401(k) Savings and Profit Sharing Plan for
       the benefit of all eligible employees of the Company. The Company may



                                      F-21


<PAGE>   63
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

       make discretionary matching contributions up to the maximum allowed
       under IRS regulations. The discretionary matching contributions vest at
       a rate of 25% per year beginning after the second year of service. For
       the years ended December 31, 1999, 1998 and 1997, the Company made
       discretionary matching contributions of $257, $212 and $72,
       respectively, to the various plans.

11.    FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company uses financial instruments in the normal course of its
       business. The carrying values of cash equivalents, accounts receivable,
       accounts payable, and deferred revenue approximate fair value due to the
       short-term maturities of these assets and liabilities. The Company
       estimates that the carrying amounts of the Company's long-term debt
       approximates the fair value based on the current rates offered to the
       Company for debt of the same remaining maturities.

12.    COMMITMENTS

       The Company is committed under non-cancelable operating lease and capital
       lease agreements for facilities and equipment which expire at various
       dates through 2003. The future minimum annual lease payments under these
       leases are summarized as follows:

<TABLE>
<CAPTION>

                                          Operating     Capital
         Year ending December 31,          Leases       Leases
         ------------------------         --------      -------
         <S>                              <C>           <C>
                   2000                   $  1,016      $    456
                   2001                        295           227
                   2002                        207            31
                   2003                         32            15
                Thereafter                      --            --
                                          --------      --------
                                          $  1,550           729
                                          ========


       Less interest                                          70
                                                        --------
       Present value of future minimum
       capital lease payments                           $    659
                                                        ========
</TABLE>



       Rental expense for operating leases (excluding those with lease terms of
       a month or less that were not renewed) was $1,429, $962 and $918 in 1999,
       1998 and 1997, respectively.

13.    MAJOR DISTRIBUTOR

       No single distributor accounted for more than 10% of the Company's
       revenue in 1999 or 1997. One distributor accounted for 18% of the
       Company's total revenue and 40% of its software revenue in 1998.



                                      F-22


<PAGE>   64
                           HIE, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

14.    SEGMENT INFORMATION

       The Company's reportable segments are strategic business units that offer
       different products and services. During 1999, the Company operated in one
       segment, that being the licensing of integration software products and
       performance of related integration services. During 1998, the Company
       operated in two segments: (i) the licensing of integration software
       products and performance of related integration services ("Software") and
       (ii) the providing of consulting services related to information systems
       integration for healthcare organizations ("Consulting"). Prior to 1998,
       the Consulting business did not separately exist. On December 31, 1998,
       the Consulting business was sold (see note 2). The accounting policies of
       the segments are the same as those described in note 1. The Company
       evaluates performance of the segments based on revenues and operating
       earnings (loss) of the segments. Segment information for the year ended
       December 31, 1998 is as follows:

<TABLE>
<CAPTION>

                                                     1998
                                                   --------
                <S>                                <C>
                Revenue:
                  Software                         $ 23,830
                  Consulting                          3,354
                                                   --------
                    Total revenue                  $ 27,184
                                                   ========

              Operating earnings (loss):
                Software                           $  2,059
                Consulting                             (460)
                                                   --------
                  Operating earnings               $  1,599
                                                   ========
</TABLE>

15.    SUBSEQUENT EVENTS

       On February 24, 2000, the Company entered into an Accounts Receivable
       Financing Agreement (the "Agreement") with Silicon Valley Bank (the
       "Bank"), which provides for an extension of credit in order to finance
       receivables up to $6,000. The Agreement term continues through February
       15, 2001 and requires finance charges equal to the Bank's prime rate plus
       2%. In conjunction with the Agreement, the Company issued a Stock
       Purchase Warrant to the Bank, which entitles the holder to purchase 62
       shares of the Company's common stock at any time on or before February
       23, 2005 at an exercise price of $4.875 per share.

       On March 13, 2000, the Company signed an agreement to purchase certain
       service contracts and other assets of the Integrated Solutions Division
       ("ISD") of Thermo Information Solutions, Inc. ISD, based in Charleston,
       South Carolina, designs, implements and manages information technology
       solutions. The purchase price consists of 1,307 shares of the Company's
       common stock, and a warrant to purchase an additional 261 shares of the
       Company's common stock at $4.207 per share at any time on or before March
       13, 2004. The acquisition will be accounted for using the purchase method
       of accounting.


                                      F-23

<PAGE>   65

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 section of the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders (the "2000 Proxy Statement") captioned "Proposal 1.
Election of Directors" identifies members of the Board of Directors of the
Company and nominees, and is incorporated in this Item 10 by reference.

         See also "Executive Officers of the Company" appearing in Part I
hereof.

         The section of the 2000 Proxy Statement captioned "Other Matters --
Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated in this
Item 10 by reference.


ITEM 11. EXECUTIVE COMPENSATION

         The information in the section of the 2000 Proxy Statement captioned
"Executive Compensation and Other Information" is incorporated in this Item 11
by reference.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information in the section of the 2000 Proxy Statement captioned
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
in this Item 12 by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information in the section of the 2000 Proxy Statement captioned
"Certain Relationships and Related Transactions" is incorporated in this Item 13
by reference.


                                       42

<PAGE>   66


                                     PART IV

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

         (a)(1) The following consolidated financial statements of the Company
and its subsidiaries and report of independent auditors thereon are included as
Pages F-1 through F-24 of this Annual Report on Form 10-K:

         Independent Auditors' Report

         Consolidated Balance Sheets - December 31, 1999 and 1998

         Consolidated Statements of Operations -
                  Years Ended December 31, 1999, 1998 and 1997

         Consolidated Statements of Shareholders' Equity - Years Ended December
                  31, 1999, 1998 and 1997

         Consolidated Statements of Cash Flows - Years Ended December 31, 1999,
                  1998 and 1997

         Notes to Consolidated Financial Statements

         (a)(2) The following supporting financial statement schedule and report
of independent auditors thereon are included as part of this Annual Report on
Form 10-K:

         Independent Auditors' Report

         Schedule II - Valuation and Qualifying Accounts

All other Schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.

         (a)(3)   Exhibits:

         Periodic reports, proxy statements and other information filed by HIE
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the Commission's Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549, and the public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission also maintains an Internet site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding HIE. HIE's SEC file number reference is Commission File
No. 0-27056.


                                       43

<PAGE>   67


Exhibit
Number   Description
------   -----------

3.1      Amended and Restated Articles of Incorporation of HIE (filed as Exhibit
         3(i) to the Company's Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1999 (Commission File No. 0-27056), and
         incorporated herein by reference).

3.2      By-Laws of HIE, as amended (filed as Exhibit 3 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
         (Commission File No. 0-27056), and incorporated herein by reference).

4.1      Rights Agreement dated October 23, 1995 between HIE and SunTrust Bank
         (filed as Exhibit 4 to Amendment No. 1 to the Company's Registration
         Statement on Form S-1 (Registration No. 33-96478), and incorporated
         herein by reference).

4.2      Form of Revised Subscription Agreement for Series B Preferred Stock
         (with Revised Annex I - Registration Rights) (filed as Exhibit 4.1 to
         the Company's Registration Statement on Form S-3 (Registration No.
         333-90849), and incorporated herein by reference).

10.1     Agreement dated June 13, 1997 between HIE, Criterion Health Strategies,
         Inc. and Brenton L. Teveit (filed as Exhibit 2.1 to the Company's
         Current Report on Form 8-K dated June 13, 1997 (Commission File No.
         0-27056), and incorporated herein by reference).

10.2     Agreement dated June 13, 1997 between HIE, Criterion Health Strategies,
         Inc. and J. Edward Pearson, Jr. (filed as Exhibit 2.2 to the Company's
         Current Report on Form 8-K dated June 13, 1997 (Commission File No.
         0-27056), and incorporated herein by reference).

10.3     First Amendment to Option Agreement dated December 31, 1997 between HIE
         and The Southern Venture Fund II, L.P. (filed as Exhibit 2.1 to the
         Company's Current Report on Form 8-K dated December 31, 1997
         (Commission File No. 0-27056), and incorporated herein by reference).

10.4     Amended and Restated Stock Purchase Warrant dated December 31, 1997
         between HIE and The Southern Venture Fund II, L.P. (filed as Exhibit
         2.2 to the Company's Current Report on Form 8-K dated December 31, 1997
         (Commission File No. 0-27056), and incorporated herein by reference).

10.5     Agreement and Plan of Merger dated May 12, 1998 by and among HIE, HIE
         Acquisition Corporation, HUBLink, Inc. and Mark D. Shary (filed as
         Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 12,
         1998 (Commission File No. 0-27056), and incorporated herein by
         reference).

                                       44


<PAGE>   68

10.6     Private Placement and Registration Rights Agreement dated as of May 12,
         1998 among HIE and each of the HUBLink Parties (filed as Exhibit 2.2 to
         the Company's Current Report on Form 8-K dated May 12, 1998 (Commission
         File No. 0-27056), and incorporated herein by reference).

10.7     Loan and Security Agreement dated August 3, 1998 between HIE and
         Silicon Valley Bank (filed as Exhibit 10.11 to the Company's Annual
         Report on Form 10-K for the year ended December 31, 1998 (Commission
         File No. 0-27056), and incorporated herein by reference).

10.8     Loan Modification Agreement dated November 13, 1998 between HIE and
         Silicon Valley Bank. (filed as Exhibit 10.12 to the Company's Annual
         Report on Form 10-K for the year ended December 31, 1998 (Commission
         File No. 0-27056), and incorporated herein by reference).

10.9     Value Added Marketing Agreement dated September 8, 1998 between HIE and
         HBO & Company of Georgia (Portions of this exhibit have been redacted
         and are subject to a confidential treatment request filed with the
         Secretary of the Commission pursuant to Rule 24b-2 under the Exchange
         Act. The redacted material was filed separately with the Commission.)
         (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for
         the year ended December 31, 1998 (Commission File No. 0-27056), and
         incorporated herein by reference).

10.10    First Amendment to Value Added Marketing Agreement dated March 3, 1999
         between HIE and HBO & Company of Georgia. (filed as Exhibit 10.14 to
         the Company's Annual Report on Form 10-K for the year ended December
         31, 1998 (Commission File No. 0-27056), and incorporated herein by
         reference).

10.11    Second Loan Modification Agreement dated May 13, 1999 between HIE, Inc.
         and Silicon Valley Bank (filed as Exhibit 10.1 to the Company's Current
         Report on Form 8-K dated May 13, 1999 (Commission File No. 0-27056),
         and incorporated herein by reference).

10.12    Third Loan Modification Agreement dated August 2, 1999 between HIE,
         Inc. and Silicon Valley Bank (filed as Exhibit 10.2 to the Company's
         Current Report on Form 8-K dated May 13, 1999 (Commission File No.
         0-27056), and incorporated herein by reference).

10.13    Fourth Loan Modification Agreement dated September 30, 1999 between
         HIE, Inc. and Silicon Valley Bank (filed as Exhibit 10 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
         (Commission File No. 0-27056), and incorporated herein by reference).

10.14    Fifth Loan Modification Agreement dated November 30, 1999 between HIE,
         Inc. and Silicon Valley Bank (filed as Exhibit 10 to the Company's
         Current Report on Form 8-K dated November 30, 1999 (Commission File No.
         0-27056), and incorporated herein by reference).

10.15    Non-negotiable Convertible Term Note issued December 21, 1999 by HIE,
         Inc. to Cybear, Inc. (filed as Exhibit 10.1 to the Company's Current
         Report on Form 8-K dated December 31, 1999 (Commission File No.
         0-27056), and incorporated herein by reference).


                                       45

<PAGE>   69

10.16    Stock Purchase Warrant issued December 21, 1999 by HIE, Inc. to Cybear,
         Inc. (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K
         dated December 31, 1999 (Commission File No. 0-27056), and incorporated
         herein by reference).

10.17    Registration Rights Agreement dated December 21, 1999 between HIE, Inc.
         and Cybear, Inc. (filed as Exhibit 10.3 to the Company's Current Report
         on Form 8-K dated December 31, 1999 (Commission File No. 0-27056), and
         incorporated herein by reference).

10.18    Amended and Restated Loan and Security Agreement dated December 31,
         1999 between HIE, Inc. and Silicon Valley Bank (filed as Exhibit 10.4
         to the Company's Current Report on Form 8-K dated December 31, 1999
         (Commission File No. 0-27056), and incorporated herein by reference).

10.19    Accounts Receivable Financing Agreement dated February 24, 2000 between
         HIE, Inc. and Silicon Valley Bank (filed as Exhibit 10.1 to the
         Company's Current Report on Form 8-K dated February 24, 2000
         (Commission File No. 0-27056), and incorporated herein by reference).

10.20    Stock Purchase Warrant dated February 24, 2000 issued by HIE, Inc. to
         Silicon Valley Bank (filed as Exhibit 10.2 to the Company's Current
         Report on Form 8-K dated February 24, 2000 (Commission File No.
         0-27056), and incorporated herein by reference).

10.21    Asset Purchase Agreement dated March 13, 2000 between Thermo
         Information Solutions Inc. and HIE, Inc. (filed as Exhibit 2.1 to the
         Company's Current Report on Form 8-K dated March 13, 2000 (Commission
         File No. 0-27056), and incorporated herein by reference).

10.22    Common Stock Purchase Warrant dated March 13, 2000 issued by HIE, Inc.
         to Thermo Information Solutions Inc. (filed as Exhibit 2.2 to the
         Company's Current Report on Form 8-K dated March 13, 2000 (Commission
         File No. 0-27056), and incorporated herein by reference).

10.23*   Amended and Restated HIE, Inc. Non-Employee Director Stock Option Plan
         (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for
         the quarter ended June 30, 1999 (Commission File No. 0-27056), and
         incorporated herein by reference).

10.24*   HIE Adjustment Stock Option Plan (filed as Exhibit 10.5 to Amendment
         No. 1 to the Company's Registration Statement on Form S-1 (Registration
         No. 33-96478), and incorporated herein by reference).

10.25*   Form of Director Agreement under HIE Adjustment Stock Option Plan
         (filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for
         the year ended December 31, 1997 (Commission File No. 0-27056), and
         incorporated herein by reference).

10.26*   HIE Restated Stock Option Plan Two (filed as Exhibit 10.2 to the
         Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
         1998 (Commission File No. 0-27056), and incorporated herein by
         reference).


                                       46

<PAGE>   70

10.27*   Form of Agreement under HIE Restated Stock Option Plan Two (filed as
         Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1997 (Commission File No. 0-27056), and incorporated
         herein by reference).

10.28*   Form of Agreement under Non-Employee Director Stock Option Plan (filed
         as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
         year ended December 31, 1997 (Commission File No. 0-27056), and
         incorporated herein by reference).

10.29*   Non-employee Directors Stock Plan (filed as Exhibit 10.9 to the
         Company's Registration Statement on Form S-1 (Registration No.
         33-96478), and incorporated herein by reference).



11       Statement of Computation of Per Share Earnings (Loss).

21       Subsidiaries of the Company.

23       Consent of KPMG LLP.

27       Financial Data Schedule (for purposes of the Commission only).

99       Press Release of HIE dated January 26, 2000, reporting fourth quarter
         and year-end 1999 results (filed as Exhibit 99 to the Company's Current
         Report of Form 8-K dated December 31, 1999 (Commission File No.
         0-27056), and incorporated herein by reference).



------------

*        Management contract or compensatory plan or arrangement required to be
         filed as an exhibit pursuant to Item 14(c) of Form 10-K.

            (b)      Reports on Form 8-K:

         During the quarter ended December 31, 1999, the Company filed two
current reports on Form 8-K dated November 30, 1999 and December 31, 1999,
reporting under Item 5 thereof certain modifications to its credit facility.

                                       47

<PAGE>   71




                                   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.

                                      HIE, INC.



                                      By: /s/ Robert I. Murrie
                                         ---------------------------------------
                                         Robert I. Murrie
                                         President and Chief Executive Officer
                                         (Principal Executive Officer)

March 30, 2000

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below 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/ Parker H. Petit            Chairman of the Board of Directors                    March 30, 2000
-------------------------
Parker H. Petit



/s/ Robert I. Murrie           Director, President and Chief Executive Officer       March 30, 2000
-------------------------      (Principal Executive Officer)
Robert I. Murrie



/s/ Joseph A. Blankenship      Senior Vice President - Finance, Chief Financial      March 30, 2000
-------------------------      Officer, Treasurer and Secretary (Principal
Joseph A. Blankenship          Financial Officer)



/s/ Lisa M. Maguire            Vice President - Controller, Chief Accounting         March 30, 2000
-------------------------      Officer, Assistant Treasurer and Assistant
Lisa M. Maguire                Secretary (Principal Accounting Officer)

</TABLE>



<PAGE>   72



<TABLE>

<S>                           <C>                                  <C>
/s/ Joseph G. Bleser          Director                             March 30, 2000
--------------------------
Joseph G. Bleser


/s/ J. Terry Dewberry         Director                             March 30, 2000
--------------------------
J. Terry Dewberry


/s/ William J. Gresham, Jr.   Director                             March 30, 2000
--------------------------
William J. Gresham, Jr.


/s/ Charles R. Hatcher, Jr.   Director                             March 30, 2000
--------------------------
Charles R. Hatcher, Jr.


/s/ John W. Lawless           Director                             March 30, 2000
--------------------------
John W. Lawless


/s/ Carl E. Sanders           Director                             March 30, 2000
--------------------------
Carl E. Sanders


/s/ Mark D. Shary             Director                             March 30, 2000
--------------------------
Mark D. Shary


/s/ Donald W. Weber           Director                             March 30, 2000
--------------------------
Donald W. Weber
</TABLE>





<PAGE>   73











                          Independent Auditors' Report

The Board of Directors and Shareholders
HIE, Inc.

         Under date of January 25, 2000, we reported on the consolidated balance
sheets of HIE, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998, as
contained in the annual report on Form 10-K for the year 1999. In connection
with our audit of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

         In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



Atlanta, Georgia
January 25, 2000


                                                   /s/ KPMG LLP
<PAGE>   74
                                                                     SCHEDULE II



                           HIE, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                 (In thousands)


<TABLE>
<CAPTION>
                                        Balance                                                    Balance
                                          at         Charged to                                       at
                                       Beginning     Costs and         Other                        End of
                                       of Period      Expenses       Additions    Deductions        Period
                                       ---------      --------       ---------    ----------        ------
<S>                                    <C>            <C>            <C>          <C>              <C>
Allowance for Doubtful Accounts:

Year Ended December 31, 1997           $  325          $  445          $ --        $   144          $  626

Year Ended December 31, 1998           $  626          $  270          $ --        $   176          $  720

Year Ended December 31, 1999           $  720          $5,195          $250        $ 1,005          $5,160
</TABLE>