<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

(MARK ONE)
[X]     ANNUAL REPORT UNDER SECTION 13 OR 15(b) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [Fee Required]

        For the fiscal year ended   DECEMBER 31, 1997

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(b) OF THE SECURITIES
        EXCHANGE ACT OF 1934 [No Fee Required]

        For the transition period from __________ to _________

                         Commission file number 0-28170

                         OACIS HEALTHCARE HOLDINGS CORP.
                 (Name of small business issuer in its charter)

                     DELAWARE                                   04-3229774
           (State or other jurisdiction                      (I.R.S. Employer
          incorporation or organization)                  Identification Number)

100 DRAKE'S LANDING ROAD, SUITE 100, GREENBRAE, CA                 94904
      Address of principal executive offices)                   (Zip Code)


Issuer's Telephone Number  (415) 925-0121

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

        Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(b) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.

Yes   [X]    No   [ ]

        Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB [ ]

        The Registrant's revenues for its fiscal year ended December 31, 1997
were $24.9 million.

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $15,000,000 as of February 18, 1998, based upon
the closing sale price of the Registrant's Common Stock reported for such date
on the Nasdaq National Market. Shares of Common Stock held by each executive
officer and director and by each person who owns 10% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. The determination of affiliate status is not necessarily a
conclusive determination for other purposes.

        As of February 18, 1998, the Registrant had outstanding 10,333,916
shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Certain information is incorporated into Part III of this report by
reference to the Proxy Statement for the Registrant's 1998 annual meeting of
stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-KSB.

Transitional Small Business Disclosure Format (check one):  Yes [ ]    No [X]



<PAGE>   2

                         OACIS HEALTHCARE HOLDINGS CORP.

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
PART I

<S>             <C>                                                        <C>
      Item  1.  Description of Business...................................  3
      Item  2.  Description of Property................................... 10
      Item  3.  Legal Proceedings......................................... 10
      Item  4.  Submission of Matters to a Vote of Security Holders....... 10


PART II

      Item  5.  Market for Common Equity and Related Stockholder Matters.. 11
      Item  6.  Management's Discussion and Analysis or Plan of Operations 12
      Item  7.  Financial Statements...................................... 24
      Item  8.  Changes In and Disagreements with Accountants on
                Accounting and Financial Disclosure....................... 38


PART III

      Item  9.  Directors, Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the
                Exchange Act.............................................. 38
      Item 10.  Executive Compensation.................................... 38
      Item 11.  Security Ownership of Certain Beneficial Owners and
  .             Management................................................ 38
      Item 12.  Certain Relationships and Related Transactions............ 38
      Item 13.  Exhibits and Reports on Form 8-K.......................... 38

SIGNATURES ............................................................... 40
</TABLE>





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This report on Form 10-KSB including the discussions in Part I Item 1
"DESCRIPTION OF BUSINESS", and Part II Item 6 "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS" contains certain forward-looking statements
which involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those set forth in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS."

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Oacis Healthcare Holdings Corp., through its wholly owned subsidiary, Oacis
Healthcare Systems, Inc. (together, the "Company") develops, markets, licenses,
installs and supports flexible, enterprise wide, open architecture clinical
information systems ("Oacis" or the "System"). Oacis is an "electronic medical
record" that collects and transmits clinical, financial and demographic data
from multiple information systems across the continuum of care including large
hospitals, clinics, physician offices and other points of care throughout an
integrated healthcare delivery system ("IDS"), integrates data from these
systems into a patient-centered clinical data repository and provides
applications with graphical user interfaces which enable physicians, nurses and
other clinicians to view, manipulate and act on the information in real time at
the point of care.

Oacis is:

o       Designed on a flexible, open architecture that is designed to work with
        existing departmental and legacy systems enabling institutional
        providers of care to follow a "best of breed" approach to their
        departmental systems and preserve their investments in information
        systems rather than purchase entirely new systems.

o       Based on a client server model and is designed to be scaleable from a
        few users to several thousand users in multiple provider locations.

o       Designed to provide information to clinicians in a more efficient manner
        than paper based records.

o       Designed to integrate efficiently with clinician practice routines by
        providing care management information in user-defined formats to improve
        clinical efficiency and medical outcomes.

The Company's products are in use by major medical centers, large hospitals and
IDSs in the United States, Canada, Europe and Australia.

Oacis Healthcare Systems, Inc. was founded as a California Corporation in 1984
under the name Simborg Systems, Inc. In 1990, Bell Atlantic Systems Group, Inc.
purchased all of the outstanding stock of Simborg Systems and renamed the
company Bell Atlantic Healthcare Systems, Inc. In April 1994, Oacis Healthcare
Holdings Corp. was formed as a Delaware corporation and in May 1994 Oacis
Healthcare Holdings Corp. purchased all of the outstanding stock of Bell
Atlantic Healthcare Systems, Inc. and renamed the company Oacis Healthcare
Systems, Inc.

The Company's executive offices are located at 100 Drakes Landing Road, Suite
100, Greenbrae, California, 94904. Its telephone number is (415) 925-0121.
During 1998, the Company will relocate its executive offices to 1101 Fifth
Avenue, San Rafael, California. This relocation is expected to occur during the
Company's third quarter.

PRODUCTS

Existing Products

   Oacis. The Oacis clinical information system incorporates both software and
hardware systems that collect clinical, financial and demographic data from
departmental information systems across the continuum of care including large
hospitals, clinics, physician offices and other points of care throughout an
IDS, and integrates that data into a patient-centered clinical data repository.
This repository typically contains a wide variety of data gathered from existing
departmental information systems, such as registration, scheduling, laboratory,
radiology, pharmacy and accounting systems, as well as information entered by
clinicians at the point of care.





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Oacis provides access to this information through applications with graphical
user interfaces that enable physicians, nurses and other clinicians to input,
view and act on the data on a real-time basis.

        The Oacis system is comprised of two primary elements: the Oacis
Healthcare Network, which supports the connectivity (integration) and storage
(data repository) function of the system, and Oacis Clinical Care applications,
which facilitate the input and delivery of clinical information at the point of
care. The Oacis Healthcare Network and Oacis Clinical Care applications are
typically integrated at the data and user interaction level and can be licensed
as a system although each primary element contains modules which may be licensed
separately. Customers may license all or some combination of the modules with
the minimum initial license typically including the Oacis Data Repository,
Gateway ++ and Clinical Display. For the years ended December 31, 1997, 1996 and
1995, substantially all of the Company's revenues were generated through
licensing, installing and supporting the Oacis system.

        The Company's products are designed to utilize a multi-tier, distributed
architecture. The Company's products that are in beta release and in
development as listed below utilize the Oacis II Architecture. Oacis II
Architecture takes greater advantage of available industry standards including
the use of Corba distributed objects and utilizes a three tier or multi-tier
design. This architecture is designed to internet enable Oacis applications
developed using this architecture, enhance system scalability and performance in
larger installations and facilitate the modularization of the Oacis system to
enable easier integration of third party/partner applications into both the
Oacis Healthcare Network and Oacis Clinical Care applications.

        The Oacis Healthcare Network modules which are commercially available
include:

<TABLE>
<CAPTION>
                MODULE                        DESCRIPTION
                ------                        -----------

<S>                            <C>

Oacis Data Repository          The Oacis Data Repository ("ODR") is an
                               object-relational database designed to store and
                               manage a full range of clinical, financial, and
                               demographic data. The ODR organizes its data by
                               patient rather than by encounter and therefore is
                               designed to provide the basis for building
                               longitudinal, patient-centered electronic medical
                               records across the continuum of care. The ODR
                               data schema, called the "Service Model," provides
                               Oacis with the flexibility and scalability
                               required to meet the changing information
                               requirements of hospitals and IDSs. The ODR can
                               be configured and maintained using the Oacis
                               System Assistant, a database extension and
                               management tool that configures the ODR and
                               generates software code that operates on the
                               database.

Gateway++                      Gateway++ is an open architecture integration
                               engine that is designed to enable the exchange of
                               data among the many different information systems
                               within a hospital or IDS, such as registration,
                               scheduling, laboratory, radiology, pharmacy and
                               accounting systems. Gateway++ accepts,
                               translates, reformats and routes data between
                               various information systems located throughout a
                               hospital or IDS while at the same time updating
                               the ODR using the Company's proprietary Data Base
                               Loader technology. Gateway++ performance, feeder
                               system status and transaction flows are monitored
                               using the Gateway Monitor application.
</TABLE>


                                       4
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<TABLE>
<CAPTION>
            MODULE                           DESCRIPTION
            ------                           -----------
<S>                           <C>
Enterprise Member/            The Enterprise Member/Patient Index ("EMPI") is
Patient Index                 designed to manage and reconcile duplicate medical
                              records coming from disparate information systems
                              that use different patient identifiers. EMPI is
                              designed to support those healthcare
                              organizations which have multiple and changing
                              sources of patient identification and
                              registrations and other situations where the same
                              population is served by more than one care
                              provider. EMPI is designed to detect multiple
                              patient identifiers across an enterprise for the
                              same patient or member, assigns a single patient
                              identifier for such patient or member and merges
                              patient data from multiple sources into one
                              comprehensive record in the clinical database.
                              EMPI is based on licensed technology.
 </TABLE>

        The Oacis Clinical Care applications which are generally available
include:

<TABLE>
<CAPTION>
                MODULE                   DESCRIPTION
                ------                   -----------
<S>                           <C>
Clinical Display               Clinical Display integrates all elements
                               of the ODR into a highly summarized patient
                               roster form with "drill-down" capabilities to
                               access more detailed information. This patient
                               roster format allows clinicians to prioritize
                               work upon sign-on to the system, highlights
                               user-defined critical data and contains time
                               indicators for the age of data and a viewed/not
                               viewed status. Graphs and lists can be customized
                               to match each clinical user's method of
                               practicing medicine. Clinical Display also
                               provides clinical users with schedules that
                               contain clinical interventions to be performed
                               for each patient. The schedules can be configured
                               by disease, provider or location so the clinical
                               user can more effectively manage specific patient
                               populations over a period of time.

Clinical Documentation         Clinical Data Entry, the first in a series of
- Clinical Data Entry          applications addressing Clinical Documentation,
                               enables a clinical user to enter clinical data,
                               such as notes, results, vital signs, functional
                               status, and outcomes directly into the ODR.
                               Clinical Documentation is designed for keyboard
                               or mouse based input.

Workstation Tools              OaBuilder enables customers to configure
                               workstations for use with the Oacis System. Other
                               tools include Workstation Security System,
                               On-Line Help, Site Defined Reporting and
                               Softcopy, an on-line documentation program.
</TABLE>

StatLAN.  The initial version of the Company's open architecture clinical
information system, StatLAN was introduced in 1986. StatLAN collects and
presents, but does not store, medical record information from existing legacy
and departmental systems. StatLAN incorporates a minicomputer-based interface
engine along with the software required to retrieve data on a network of
PC-based workstations.



                                       5
<PAGE>   6

Products in Beta Release

        The Company has developed and is currently in the process of installing
the beta version of the following new Oacis Clinical Care Applications:


<TABLE>
<CAPTION>
                MODULE                                DESCRIPTION
                ------                                -----------
<S>                            <C>
Oacis Order Management         Oacis Order Management is designed to provide
                               capability for the clinician to request services
                               or place clinical orders as clinical decisions
                               are being made in the in-patient, out-patient,
                               and ambulatory care setting. This application is
                               designed using a "trees and tabs" interaction
                               model which provides for improved user navigation
                               and is designed to be highly intuitive, thereby
                               requiring minimal physician training and use of
                               the keyboard. The application includes an order
                               communication function that is tightly integrated
                               with the Clinical Display application allowing
                               the physician to place an order while reviewing
                               clinical results and eliminates the need to learn
                               multiple systems. This product is expected to be
                               made generally available in mid year 1998.

Oacis Census Management        Oacis Census Management is designed to Provide
                               capability for the clinician to perform patient
                               admission, discharge and transfer ("ADT")
                               functions directly into the Oacis Data Repository
                               with no interruptions to workflow or dependent
                               external systems. This application interacts with
                               the customer's legacy ADT system through the
                               Oacis Gateway ++.

Oacis Passport                 Passport is designed to enable clinicians to
                               explore the electronic medical record from remote
                               locations including over the Internet. Passport
                               is designed to provide access to the Oacis Data
                               Repository from multiple personal computing
                               hardware platforms using the Oacis Application
                               Server and standard browser technology thereby
                               reducing the need to replace existing desktop or
                               laptop technology. Passport is based on many of
                               the design principals found in Oacis Clinical
                               Display and enables patient data to be configured
                               and viewed according to each clinicians practice
                               patterns. This product is expected to be made
                               generally available in mid year 1998.

Enhancement to EMPI            The Company is currently developing an
                               enhancement to EMPI that incorporates both a 32
                               bit architecture and enhanced user interaction
                               model to the workstation and adds an unmerge
                               capability to the EMPI and Oacis Data
                               Repository products.
</TABLE>

Product Development

        The Company's current product plan includes a number of new modules for
the Oacis Healthcare Network and Oacis Clinical Care Applications. Products that
are in various stages of design and development include: Pharmacy Order
Management, an application designed to incorporate the pharmacy vocabulary
management and third-party applications into the Oacis Order Management product;
Pharmacy BestDose, an application being designed to integrate a third-party
expert dosing product which contains a knowledge server (rules engine and
pharmacy database) into the Oacis Order Management product. In addition, the
Company is designing and currently plans to develop a clinical documentation
system, Problem Management, Vocabulary Management, Clinical Decision Support and
Protocols, Care Guidelines and patient Care Planning applications. Enhancements
to EMPI include the addition of a screen scraping capability.



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SERVICES

        The Company provides installation and support services to its customers.
The Company typically provides services initially to install the Company's model
system (Modelnet) and in certain cases provides assistance in the process of
testing and validating the functionality of the system as well as the
integration capabilities of the software for purposes of achieving software
delivery and acceptance. These services are typically provided over the three to
six month period following the execution of a contract. The Company also offers
and generally does provide broader installation services which include project
planning, hardware integration, interface development and testing, database
specification and configuration, workflow engineering, screen design and
configuration, integration testing and tuning and training customer personnel in
system operation, maintenance and use. These services are typically provided as
a supplement to the customer's internal information services department and are
often performed in conjunction with the assistance of other third party
consulting firms. The duration of an installation is dependent upon a number of
factors including the extent of workflow re-engineering, clinical analysis and
screen development desired by the customer as well as other factors, however the
typical installation will take from 9 to 18 months.

        Increasingly, the Company is seeking to supplement its service delivery
capability through partnerships with healthcare related consulting firms. During
1997, approximately 9% of the Company's billable hours for installation of the
Oacis system were provided by third party consulting firms whose services were
provided through Oacis. In March, 1998, the Company signed a multi-year
agreement with Superior Consultant Company, Inc. to supplement Oacis's
installation resources. The Company expects that the percentage of billable
hours for installation of the Oacis system that are provided by third party
consulting firms whose services are provided through Oacis will increase
significantly in 1998.

        The Company also provides telephone and other support services to its
customers 24 hours a day, seven days a week, after installation is complete, as
well as other services such as customization services, technical and user
training programs, network analysis and troubleshooting. The Company's customer
support organization has historically been based in Atlanta, Georgia. In the
fourth quarter of 1997, the Company initiated a plan to restructure its customer
support organization. This restructure, which is expected to achieve operational
efficiency and improve customer support, will include a relocation of the
Customer support function to the Company's corporate headquarters in Marin
County, California.

CUSTOMERS

        The Company's customers include hospitals, major medical centers and
IDSs throughout the United States, Canada, Europe and Australia.

        The Company licenses its Oacis System and has licensed its StatLAN
system and provides installation, training and support services to customers
pursuant to the terms of a software license, installation and support agreement.
Under the software license, installation and support agreements, the Company
generally grants to the customer a non-exclusive and non-transferable right to
use the system for data processing and related operations, and data storage,
retrieval and manipulation, all in connection with providing health care
services. In addition, the Company provides installation and training services
pursuant to a workplan mutually created by the Company and the customer, and
maintenance and support services which typically are provided on a renewable
annual basis. Pursuant to these agreements, the customer is obligated to pay to
the Company a fixed software license fee (payable in increments depending on the
achievement of installation or software acceptance milestones), installation
fees on a time and materials basis, training fees based on a price list of
scheduled training courses, and fixed maintenance and support fees which
typically initiate upon first production use of the system. The term of the
software license is perpetual, although either party can generally terminate the
license upon the material default, bankruptcy or insolvency of the other. The
Company typically indemnifies its customers against all costs, damages and
losses it may suffer based on a claim that the system infringes a third party's
trade secret, U.S. patent or U.S. copyright, and the Company seeks to obtain
indemnification from each customer against all costs, damages and losses
incurred by the Company in connection with any claim arising out of or resulting
from the use or operation of the system by the customer, including claims based
on any theory of product liability. In addition, the Company typically warrants
that its system will meet certain feature , function and performance criteria,
including criteria concerning response time and system availability.

SALES AND MARKETING

        The Company sells its systems in North America through eight direct
sales personnel supported by a staff of three clinical sales specialists and
four client services account executives who conduct in-depth system
presentations and demonstrations, and five sales support personnel who prepare
sales proposals. The sales cycle for health care information systems is
typically 12 to 18 months from





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initial contact to contract execution and can be lengthened by a number of
factors, including merger and acquisition activity and general consolidation of
healthcare organizations.

        In 1996, the Company entered into a marketing agreement with VHA, Inc.
to market certain of the Company's products to its membership of approximately
1400 healthcare organizations in the United States. Marketing fees payable to
VHA, Inc. as a result of contracts with VHA members are payable to VHA as cash
payments are received by Oacis and are included in the Sales and Marketing
expense in the Company's Statement of Operations.

        Outside of North America, the Company's products are sold through
distribution arrangements which typically require minimal sales support from the
Company. The Company currently has formal distribution and marketing
relationships in Australia, New Zealand, and Norway. The Company has signed a
Global Reseller Agreement with Andersen Consulting which allows Andersen
Consulting to demonstrate and market the Oacis system in territories where no
other formal distributor relationship exists. Under this agreement, Andersen
Consulting may request distribution rights on a country by country basis with
terms of the distribution rights to be negotiated separately for each country.

        The Company's marketing organization is responsible for product
management including the development of new product specifications, oversight of
the products development progress, product marketing, positioning and pricing
strategies and product introduction including support in the development of
sales strategy. In addition, the marketing organization is responsible for
corporate marketing and advertising and customer interaction through
coordination of both a customer operated User Group and a selected customer
Quality Council.

TECHNOLOGY

        General Architecture. The Oacis system is based on a distributed
architecture called Oacis II utilizing distributed objects based on the CORBA
and DCOM models. This model enables Oacis to distribute information processing
across multiple computers and scale server and client hardware in increments to
accommodate expansion and contraction in utilization. Servers perform all data
management functions for the Oacis system and client workstations support the
user interface for all application functions. Application logic is distributed
across servers and workstations. This architecture is also designed to provide
remote access to clinical information through various technologies, including
LANs, WANs, phone lines, and the Internet.

        Hardware Platform. The Oacis Healthcare Network operates on Sun
Microsystems and Hewlett-Packard servers designed for high volume, on-line
transaction processing. The Company believes that it can port the Oacis
Healthcare Network to other hardware platforms and intends to do so commensurate
with market demand. The Oacis Clinical Care applications are designed to operate
primarily on Intel-based Pentium class PC workstations.

        Software Architecture. The Company uses industry standard software
whenever possible to minimize development and maintenance costs. The Oacis
Healthcare Network operates on a UNIX operating system. The ODR is built on
Sybase Structured Query Language ("SQL") Server relational database management
software. Sybase's SQL server provides the throughput and functional
characteristics necessary to deliver large scale, high performance database
management. The PC workstation operating system is Microsoft Windows. All major
Oacis software components are written in C++, the workstation user interface is
written in Visual Basic and C++, the database is accessed with SQL, and
application logic is created with a combination of Sybase stored procedures, C++
and Visual Basic. All software components are assembled in a layered
architecture to facilitate the replacement of layers, such as the relational
database, as new technology becomes available and as market demand dictates. The
Company's systems also incorporate a number of third-party computer software
products. In particular, both the Gateway++ and Oacis Data Repository components
of Oacis incorporate a Sybase relational database. In addition, Oacis includes a
number of embedded software products licensed from third parties.

RESEARCH AND DEVELOPMENT

        The Company's research and development efforts focus on (i) extending
the functionality of Oacis through the development or integration of new
applications, extensions to existing applications and integration of third-party
technologies, (ii) ongoing efforts to enhance system performance and reliability
as the number of users, interfaces and databases grows, (iii) extending the
Oacis Healthcare Network architecture to give Oacis more flexibility and the
ability to service increasingly large IDSs and (iv) staying current with
advancing technologies.





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As of December 31, 1997, the Company had 71 employees engaged in research and
development activities including quality assurance and technical documentation
publication. This represents an increase of 14 employees from December 31, 1996.
For the years ended December 31, 1997, 1996 and 1995, the Company's research and
development expenditures before capitalization of development costs were
approximately $8.1 million, $6.9 million and $6.4 million, respectively. The
Company capitalized $2,001,000, $506,000 and $275,000 of research and
development expenses associated with the development of certain components of
Oacis after technological feasibility had been established in 1997, 1996 and
1995, respectively.

COMPETITION

        The Company believes that the principal competitive factors for
selecting a clinical information system are the system's ability to operate with
and preserve existing departmental and legacy systems, ability to demonstrate
the system in use at existing customer sites, ease of installation, clinical
focus, reliability, flexibility, scalability, ease of use, functionality and
price as well as the reputation, breadth of product offerings, size and
financial stability of the system vendor.

        Competition in the market for clinical information systems and services
is intense and is expected to increase. The Company's competitors include other
providers of health care information systems and services, and health care
consulting firms. The Company's principal competitors include 3M Health
Information Systems, Cerner Corporation, Epic Systems Corporation, HBO &
Company, HealthVISION, Inc. and Shared Medical Systems Corporation. Furthermore,
other major health care information companies not presently offering clinical
information systems may enter the Company's markets. Many of the Company's
competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than the Company. Many of the Company's competitors also currently
have, or may develop or acquire, substantial installed customer bases in the
health care industry. As a result of these factors, the Company's competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products than the Company.

PROPRIETARY RIGHTS

        The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights. The Company has not filed any patent applications covering
its technology or registered any of its copyrights with state or federal
agencies. There can be no assurance that measures taken by the Company to
protect its intellectual property will be adequate or that the Company's
competitors will not independently develop systems and services that are
substantially equivalent or superior to those of the Company.

GOVERNMENT REGULATION

        The United States Food and Drug Administration (the "FDA") is
responsible for assuring the safety and effectiveness of medical devices under
the Federal Food, Drug and Cosmetic Act. Computer products are subject to
regulation when they are used or are intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body. The
FDA could determine in the future that predictive applications of the Company's
systems and applications make them clinical decision tools subject to FDA
regulation. Medical devices are subject to regulation by the FDA, which
requires, among other things, premarket notifications or approvals and
compliance with labeling, registration and listing requirements, good
manufacturing practices and records and reporting requirements. Compliance with
these regulations could be burdensome, time consuming and expensive. The Company
also could become subject to future legislation and regulations concerning the
manufacture, marketing and function of medical devices and health care software
systems. These could increase the cost and time necessary to market new products
and could affect the Company in other respects not presently foreseeable. The
Company cannot predict the effect of possible future legislation and regulation.

        The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases is subject
to substantial regulation by state governments. These state laws and regulations
govern both the disclosure and use of confidential patient medical record
information. Although compliance with these laws and regulations is principally
the responsibility of the hospital, physician or other health care provider with
access to the Company's information system, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of such





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<PAGE>   10

information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
will not materially restrict the ability of health care providers to submit
information from patient records to the Company's systems.

EMPLOYEES

        As of December 31, 1997, the Company had 194 employees, including 71 in
research and development, 65 in installation and support services, 40 in sales
and marketing and 18 in finance and administration. None of the Company's
employees are represented by a labor organization, and the Company is not a
party to any collective bargaining agreement. The Company has never had any
employee strike or work stoppages and considers its relations with its employees
to be good. The Company is reliant on highly skilled personnel in all facets of
its business. Particularly with respect to research and development and
installation personnel who typically have a mixture of computer programming and
clinical skills, the market for such highly skilled personnel is extremely
competitive and there can be no assurance that the Company will be able to hire
the personnel it requires to complete its product development activities or
install its products in accordance with its business plans either of which could
result in a material adverse affect on the Company's business, financial
condition and results of operations.

ITEM 2.  DESCRIPTION OF PROPERTY

        The Company leases approximately 34,000 square feet of office space in
Greenbrae, California for its corporate headquarters. The Company also leases
approximately 10,500 square feet of office space in Atlanta, Georgia for
installation and support services. In March 1997, the Company entered into a
lease for approximately 55,000 square feet of office space located in San
Rafael, California, where it plans to relocate its corporate headquarters in the
third quarter of 1998. The Company has extended its lease for its corporate
headquarters and can continue to extend this lease until November 1, 1998 to
accommodate the timing of its move to the new facility. The Company's office
lease in Atlanta, Georgia expires in April 1998 and, pursuant to the Company's
plans to restructure its customer support organization and relocate it from
Atlanta, Georgia to the corporate headquarters in California, the Company has
entered into a lease for approximately 2,800 square feet in Atlanta, Georgia.
This space will be used primarily as a technical lab space to support field
installation personnel working in that region.

ITEM 3.  LEGAL PROCEEDINGS

        There are no material legal proceedings involving the Company pending at
this time.

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

        Not applicable.













                                       10

<PAGE>   11

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "OCIS." As of February 18, 1998, there were approximately 76 holders
of record of the Company's Common Stock. The Company has never paid any cash
dividends on its capital stock. The Company currently intends to retain any
future earnings to fund operations and, therefore, does not anticipate paying
any cash dividends in the foreseeable future.

        The following table sets forth, for the periods indicated, the range of
the high and low sales prices for the Company's Common Stock as reported on the
Nasdaq National Market.

<TABLE>
<CAPTION>
                                      HIGH           LOW
                                      ----           ---
<S>                                   <C>            <C>
Fiscal 1997:
   First Quarter..............        7 3/4          4 3/4
   Second Quarter.............        6 1/2          4
   Third Quarter..............        9 1/8          5 1/2
   Fourth Quarter.............        8 1/8          3 1/4
</TABLE>

<TABLE>
<CAPTION>
                                      HIGH           LOW
                                      ----           ---
<S>                                   <C>            <C>
Fiscal 1996:
   Second Quarter.............       18 1/4         10 1/4
   Third Quarter..............       13 1/8          7 1/4
   Fourth Quarter.............       12 1/2          6 1/2
</TABLE>















                                       11

<PAGE>   12


                      SELECTED CONSOLIDATED FINANCIAL DATA

        The following table summarizes certain financial data for the Company.
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis or Plan of Operations" and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-KSB. The Company's historical operating results are not necessarily
indicative of the results for any future period.

<TABLE>
<CAPTION>
        STATEMENT OF OPERATIONS DATA:                     YEAR ENDED DECEMBER 31,
        (IN THOUSANDS, EXCEPT PER            --------------------------------------------------
         PER SHARE SHARE DATA)                   1997               1996               1995
                                             ------------       ------------       ------------
        <S>                                  <C>                <C>                <C>

        Total revenue                        $     24,965       $     20,444       $     13,554
        Gross profit                               11,820             10,063              4,434
        Operating expenses                         17,049             15,480             13,635
        Loss from operations                       (5,229)            (5,417)            (9,201)
        Interest income(expense), net               1,098                844               (123)
        Net loss                                   (4,131)            (4,573)            (9,324)
        Basic and diluted net loss per share        (0.41)             (0.67)             (5.48)
        Weighted average common shares
          outstanding                          10,153,000          6,785,000          1,701,000
</TABLE>

<TABLE>
<CAPTION>
        BALANCE SHEET DATA:                               YEAR ENDED DECEMBER 31,
        (IN THOUSANDS)                       --------------------------------------------------
                                                 1997               1996               1995
                                             ------------       ------------       ------------
        <S>                                  <C>                <C>                <C>
        Cash and short-term investments      $     15,649       $     23,141       $      3,900
        Working capital                            16,887             23,840              1,704
        Total assets                               31,191             32,712             11,878
        Long term obligations                         461                669              3,000
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

OVERVIEW

Background

        The Company develops, markets, licenses, installs, and supports clinical
information systems primarily for major medical centers, hospitals and
integrated healthcare delivery systems. In 1986, the Company introduced StatLAN,
the initial version of the Company's clinical information system. In 1994, the
Company introduced Oacis. Oacis is comprised of the Oacis Healthcare Network,
which includes an interface engine, a clinical data repository and an Enterprise
Member/Patient Index and Clinical Care applications, which facilitate the input
and delivery of information at the point of care.

        Substantially all of the Company's revenues are derived from the
licensing and installation of Oacis. The Company intends to focus its sales
and marketing efforts on IDSs which currently account for a growing portion of
the overall market for clinical information systems. The formation of IDSs and a
general consolidation in the healthcare industry has a number of effects which
include the creation of larger healthcare networks with greater market
concentration. The Company believes that while such consolidation may result in
an increase in demand for open architecture clinical information systems such as
the Company provides, the near term effect of such consolidation reduces the
resources available for IDSs to invest in clinical information systems until
such time as the rate of consolidation slows. Accordingly, the Company believes
that the market for the Company's products may continue to develop slowly in the
near term and that sales cycles will continue to be long.

        The Company's future success and financial performance depends in large
part upon the Company's ability to provide the increasing system functionality
required by its customers through the timely development and successful
introduction of new applications and enhancements to Oacis. The Company has
historically devoted significant resources to system enhancements and
development and believes that significant continuing development efforts
together with an increased focus on integration of third party applications will
be required to sustain and enhance the Company's competitive market position.
Additionally, the Company's ability to develop, market, sell and install its
systems depends on the Company's ability to retain, recruit and hire highly
skilled personnel in a number of technical and clinical fields particularly in
the area of installation services. The market for this highly skilled workforce
is extremely competitive.





                                       12
<PAGE>   13

        The Company's cost of revenues for installation and support services, as
well as its operating expenses, are primarily comprised of personnel and
personnel related costs. These costs are impacted by a number of factors
including increases in personnel and adjustments in compensation levels to
remain competitive in the markets in which the Company operates. The Company
regularly appraises its competitive position with regard to compensation
strategies and makes adjustments when and as required. Additionally, the Company
adjusts salary levels, generally at the beginning of its reporting year, for all
personnel based on merit and other factors including increases in the cost of
living. As a result, the year over year quarterly results before the effect of
capitalized software reflect the increased operating expenses resulting from
increased personnel and personnel related expenses.

Revenue Recognition

        The Company's revenues consist of license fees for the perpetual use of
its software, installation revenues associated with installing and configuring
the software to meet specific customer needs, revenues from the sale of
third-party hardware and software, and ongoing support services. The price of an
Oacis system varies depending on a number of factors, including the modules
licensed and the volume of outpatient visits and inpatient days for the customer
organization, and generally ranges from more than nine hundred thousand dollars
to a few million dollars. The Company resells third-party hardware and software
pursuant to standard reseller agreements.

        Software license fee and installation services revenues from contracts
where the Company is actively involved in the installation of the system, which
are primarily in the United States and Canada, are recognized on a percentage of
completion basis measured by the ratio of (i) labor hours incurred to attain
certain installation milestones or software acceptance milestones to (ii) total
estimated labor hours. The Company generally bills its installation services as
the services are provided. Software license fees are generally billed in
accordance with installation milestones. Accordingly, revenues recognized in
advance of achieving billing milestones are recorded as unbilled accounts
receivable and collections resulting from billing milestones achieved in advance
of recognizing revenues are recorded as unearned revenues on the consolidated
balance sheet. If the total estimated cost of a contract is expected to exceed
the contract price, determined primarily by the installation component of the
contract, the total estimated loss is charged to expense in the period the loss
is identified. In addition, in certain transactions where existing customers
seek to expand the license rights of previously licensed software, the Company
recognizes license fee revenue from certain software components upon the
granting of these expanded rights and when collection of the additional license
fees are probable.

        Software license revenues from contracts where the Company is not
actively involved in the installation of the system, typically contracts outside
of North America, are recognized as contract amounts become due and payable by
the international partner typically on a milestone basis. In addition, revenue
recognition on a contract milestone basis can cause quarterly revenue and
earnings variability due to the size and timing of such milestones. Because the
Company is not actively involved in these international installations, milestone
attainment and consequently revenue recognition on these contracts may be
delayed for reasons which include delays caused by the customer, or the
Company's international partner, both of which are beyond the control of the
Company.

        The Company also recognizes revenues from support fees and sales of
third-party hardware and software. Support agreements generally cover a one year
period and the associated revenues are recognized ratably over the period of the
support agreement. Third-party hardware and software revenues are recognized
upon delivery of the related hardware and software. Third-party hardware and
software are generally sold pursuant to a purchase order and are not governed by
the terms of the software license and services agreement.

Sales to Major Customers

During the year ended December 31, 1997, one international customer accounted
for 16% of the Company's revenue and at December 31, 1997, this customer
accounted for 16% of total gross receivables. Two additional customers accounted
for 10% and 12% of total gross receivables at December 31, 1997 both of which
had significant third-party hardware and software purchases at year end. During
1996, two customers accounted for 17% and 11%, respectively, of the Company's
revenue and at December 31, 1996, these customers accounted for 5% and 7%,
respectively, of total receivables. One additional customer accounted for 10% of
total receivables at December 31, 1996. During the year ended December 31, 1995
no customers accounted for 10% of revenue or 10% of total gross receivables at
December 31, 1995.





                                       13
<PAGE>   14
Backlog

        The Company had backlog of $21.2 million and $13.8 million at December
31, 1997 and 1996, respectively. Backlog consists of the unrecognized portion of
contractually committed software license fees, estimated installation fees, and
maintenance and support fees. The Company adjusts the timing of an installation
to accommodate customer needs and because a typical installation requires nine
to 18 months to complete, there can be no assurance that the amounts in backlog
will be recognized in the next 12 months. Due to the relative size of a typical
system sale and installation contract compared to the Company's annual revenues,
a termination or installation delay of one or more contracts could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows.

Year 2000

        The Company has contracted with an independent third-party to evaluate
its products for year 2000 compliance. The Company believes the cost associated
with making necessary changes, if any, to its products will not have a material
impact on its future operating results.

RESULTS OF OPERATIONS

        The following table sets forth the results of operations for the Company
expressed as a percentage of total revenues for the years ended December 31,
1997, 1996 and 1995. The Company's historical operating results are not
necessarily indicative of the results for any future period.

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                       -------------------------------
                                                        1997         1996         1995
                                                       -----        -----        -----
       <S>                                             <C>          <C>          <C>
       Revenues:
         Software licenses ......................       41.2%        38.6%        25.0%
         Installation and support services.......       33.0         32.4         43.0
         Third-party hardware and software.......       25.8         29.0         32.0
                                                       -----        -----        -----
             Total revenues .....................      100.0        100.0        100.0
                                                       -----        -----        -----
       Cost of revenues:
         Software licenses ......................        3.7          1.2          1.0
         Installation and support services.......       26.6         27.5         38.6
         Third-party hardware and software.......       22.4         22.1         27.7
                                                       -----        -----        -----
             Total cost of revenues .............       52.7         50.8         67.3
                                                       -----        -----        -----
             Gross profit .......................       47.3         49.2         32.7
                                                       -----        -----        -----
       Operating expenses:
         Sales and marketing ....................       27.2         27.4         35.9
         Research and development ...............       24.5         31.2         44.9
         General and administrative .............       14.6         17.1         19.8
         Restructuring charges ..................        2.0          0.0          0.0
                                                       -----        -----        -----
             Total operating expenses ...........       68.3         75.7        100.6
                                                       -----        -----        -----
       Loss from operations .....................      (21.0)       (26.5)       (67.9)
       Interest income (expense), net ...........        4.4          4.1         (0.9)
                                                       -----        -----        -----
       Net loss .................................      (16.6)%      (22.4)%      (68.8)%
                                                       -----        -----        -----
    </TABLE>

YEAR ENDED DECEMBER 31, 1997 AND 1996

        Revenues

        In the year ended December 31, 1997, total revenues increased 22% to
$25.0 million from $20.4 million in the year ended December 31, 1996. Of these
amounts, software license fee revenues increased 30% to $10.3 million,
installation and support service revenues increased 24% to $8.2 million and
third-party hardware and software revenues increased 9% to $6.4 million. The
increase in software license fee revenue was attributable in part to the timing
of software license fee recognition from international contracts which represent
approximately 16% of total revenues in 1997 as compared to 4% in 1996. Revenue
on international contracts is recognized when amounts become due and payable,
typically on a project milestone basis, and therefore the timing of recognition
is difficult to predict as the Company is not actively involved in the
installment process and such revenues are subject to significant quarterly
variability. However, the Company expects that international revenues may
continue to be a significant component of total revenues. The increase in
installation and support services revenue in 1997, as compared to 1996, was due
to a higher number of billable hours resulting from more installations in
process as well as additional special services business at existing live
customer sites. Maintenance revenue also contributed significantly to the year
over year growth as new sites completed installation and initiated




                                       14
<PAGE>   15

maintenance. The increase in third-party hardware and software revenue was due
to an increase in the average size and total number of third-party sales
transactions.

        Cost of Revenues

        Cost of revenues were $13.1 million, or 53% of total revenues in the
year ended December 31, 1997, compared to $10.4 million, or 51% of total
revenues in the year ended December 31, 1996. Cost of software license fee
revenue increased 264% to $917,000 in the year ended December 31, 1997, due to
an increase in distributor fees related to international revenues as well as an
increase in amortization of capitalized software development costs. Cost of
installation and support services increased 18% to $6.6 million in the year
ended December 31, 1997 from $5.6 million in the year ended December 31, 1996,
due to an increase in the average number of personnel during 1997 as well as
increased consulting costs related to third-party installation personnel. Gross
profit as a percentage of revenue decreased to 47% in 1997 from 49% in 1996 as a
result of lower margins in both software license fee and third party product
revenues offset by a shift in revenue mix to higher margin software license fee
revenue. Gross profit for software license fees, installation and support
services, and third-party hardware and software products totaled 91%, 19% and
13% respectively during the year ended December 31, 1997 as compared to 97%, 15%
and 24%, respectively, during the year ended December 31, 1996. Gross profit on
software license fees decreased year over year due to the increase in
international distributor fees and, to a smaller degree, an increase in
amortization of software development costs during 1997. Gross profit on
installation and support service revenues increased primarily due to improved
margins in the support organization where expenses have remained flat but
maintenance revenue has increased as new sites have completed installation and
initiated maintenance. Gross profit on third-party hardware and software
products decreased due to the mix of third-party products sold and the pricing
programs available. The Company anticipates that its third-party hardware and
software product gross margins will approximate 1997 levels in future periods
due to increased competitive pressures for third-party pricing as well as
changes in certain third-party pricing programs.

        Sales and Marketing

        Sales and marketing expenses increased 21% to $6.8 million in the year
ended December 31, 1997 from $5.6 million in the year ended December 31, 1996,
but remained consistent as a percentage of total revenue at 27% on a year over
year basis. The increase in sales and marketing expenses resulted from an
increase in personnel, an increase in travel related expenses resulting from
increased sales prospecting activity, and an increase in commission expense
resulting from sales activity. These increases were offset by lower consulting
expenses during 1997. The Company anticipates greater quarterly variability in
sales and marketing expenses as a result of the timing of marketing fees
associated with VHA member contracts.

        Research and Development

        Research and development expenses, before software capitalization,
increased 18% to $8.1 million in the year ended December 31, 1997 from $6.9
million in the year ended December 31, 1996 and decreased as a percentage of
total revenues from 34% in the year ended December 31, 1996 to 32% in the year
ended December 31, 1997. The increase in research and development expenses was
primarily attributable to increased headcount and consulting costs in order to
meet the Company's development plan which encompassed new products and
enhancements to existing products. Included in the 1996 period was $700,000 of
acquisition costs for certain technology. This acquired technology, which forms
the basis of the Oacis Enterprise Member/Patient Index ("EMPI"), a component of
the Oacis Healthcare Network, and the costs associated with this technology were
charged to expense in the first quarter 1996 because the licensed technology had
not yet reached technological feasibility and had no alternative future use. The
Company capitalized $2,001,000 of software development costs representing 25% of
total 1997 research and development expenses. During 1996, the Company
capitalized $506,000 in software development costs representing 7% of 1996
development expenditures. The year over year increase in software capitalization
is due to an increase in the number of products in the latter stages of
development. The Company expects its software capitalization to continue at or
near 1997 levels throughout 1998.

        General and Administrative

        General and administrative expenses increased 4% to $3.6 million in the
year ended December 31, 1997 from $3.5 million in the year ended December 31,
1996, but decreased as a percentage of total revenues to 15% in the year ended
December 31, 1997 from 17% in the year ended December 31, 1996. The increase in
general and administrative expenses was a result of an increase in personnel
related costs and "Public Company" related costs offset by lower consulting
costs and certain non-recurring expenses included in the period ended December
31, 1996.





                                       15
<PAGE>   16

        Restructuring Charge

        In the fourth quarter of 1997, the Company initiated a plan to
restructure its customer support organization, which has historically been
located in Atlanta, Georgia. The restructure which is expected to achieve
operational efficiencies and improve customer support will include a relocation
of the customer support function to the Company's headquarters in Marin County,
California. The restructuring charge of $520,000 recognized at the end of 1997
primarily relates to severance costs, write-off of undepreciated assets and rent
expense.

YEAR ENDED DECEMBER 31, 1996 AND 1995

        Revenues

        In the year ended December 31, 1996, total revenues increased 51% to
$20.4 million from $13.6 million in the year ended December 31, 1995. Of these
amounts, software license fee revenues increased 133% to $7.9 million,
installation and support service revenues increased 14% to $6.6 million and
third-party hardware and software revenues increased 37% to $5.9 million. The
increase in software license fee and installation and support services revenue
in 1996 was due to an increase in the average selling price of installations in
progress, a higher component of international software license fee revenue, and
the number of installations in progress during the year ended December 31, 1996.
The increase in the average selling price of installations in progress was due
to a combination of factors including the size of the customer and an expanded
product offering. During 1996, the international component of total revenues
accounted for 4% of total revenues. The increase in third-party hardware and
software revenue was due to an increase in the average size of third-party sales
transactions.

        Cost of Revenues

        Cost of revenues were $10.4 million, or 51% of total revenues in the
year ended December 31, 1996, compared to $9.1 million, or 67% of total revenues
in the year ended December 31, 1995. Cost of software license fee revenue
increased 103% to $252,000 in the year ended December 31, 1996, due to an
increase in amortization of capitalized software development costs in 1996 as
well as distributor fees related to international sales. Cost of installation
and support services increased 7% to $5.6 million in the year ended December 31,
1996 from $5.2 million in the year ended December 31, 1995, due to an increase
in the average cost of installation and support personnel, as well as an
increase in the average number of such personnel during 1996. Gross profit as a
percentage of revenue increased to 49% in the year ended December 31, 1996 from
33% in the year ended December 31, 1995, due to a shift in the mix of revenue to
higher margin software license fee revenue as well as an increase in gross
margins from third-party hardware and software product sales. Gross profit for
software license fees, installation and support services, and third-party
hardware and software products totaled 97%, 15% and 24% respectively during the
year ended December 31, 1996 as compared to 96%, 10% and 13%, respectively,
during the year ended December 31, 1995. Gross profit on installation and
support service revenues increased due to an increase in the billable component
of installation services as well as improved implementation methodologies during
1996 offset by the impact of delays in closing new business, the hiring and
training of new employees and a focus on methodology development for new product
releases. Gross profit on third-party hardware and software products increased
due to improved pricing programs and the mix of third-party products sold.

        Sales and Marketing

        Sales and marketing expenses increased 15% to $5.6 million in the year
ended December 31, 1996 from $4.9 million in the year ended December 31, 1995,
and decreased as a percentage of total revenue from 36% in 1995 to 27% in 1996.
The increase in sales and marketing expenses was a result of an increase in
personnel, an increase in travel related expenses resulting from increased sales
prospecting activity, and an increase in consulting and advertising related
expenses offset by a decrease in commission expenses resulting from changes in
the Company's sales incentive compensation programs. In 1996, the Company
implemented a new commission structure which extended the period over which
commissions are earned. Accordingly, the Company recognizes commission expenses
as earned over the contract term.







                                       16
<PAGE>   17
        Research and Development

        Research and development expenses increased 5% to $6.4 million in the
year ended December 31, 1996 from $6.1 million in the year ended December 31,
1995 and decreased as a percentage of total revenues from 45% in the year ended
December 31, 1995 to 31% in the year ended December 31, 1996. The increase in
research and development expenses was primarily attributable to the acquisition
(license) costs of certain technology which forms the basis of the Oacis
Enterprise Member/Patient Index ("EMPI"), a component of the Oacis Healthcare
Network, and the costs associated with the continuing development of that
technology offset by increased levels of software capitalization during 1996.
Because the licensed technology had not reached technological feasibility and
had no alternative future use, the $700,000 license fee was charged to expense
in the first quarter of 1996. Additionally, during 1996 the Company capitalized
$506,000 of software development costs representing 7% of total 1996 development
expenditures. During 1995, the Company capitalized $275,000 in software
development costs representing 5% of 1995 development expenditures. Excluding
the impact of the licensed technology and software capitalization, research and
development expenses decreased 3% in the year ended December 31, 1996 over the
same period in 1995 as a result of lower personnel costs partially offset by
higher consulting costs.

        General and Administrative

        General and administrative expenses increased 30% to $3.5 million in the
year ended December 31, 1996 from $2.7 million in the year ended December 31,
1995, but decreased as a percentage of total revenues to 17% in the year ended
December 31, 1996 from 20% in the year ended December 31, 1995. The increase in
general and administrative expenses was a result of an increase in personnel,
increased corporate recruiting expenses as well as increased consulting expenses
related in part to certain process improvement initiatives.

QUARTERLY RESULTS OF OPERATIONS

        The following table presents the Company's operating results for the
eight quarters in the period ended December 31, 1997. The information for each
of these quarters is unaudited and has been prepared on the same basis as the
audited Consolidated Financial Statements appearing elsewhere in this Form
10-KSB. In the opinion of management, all necessary adjustments (consisting only
of normal recurring adjustments) have been included to present fairly the
unaudited quarterly results when read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Form 10-KSB. These operating results are not necessarily
indicative of the results for any future period.

        The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: the Company's long
sales cycle; the timing of revenue recognition including the timing of
international revenue recognition and domestic license expansion and site
license activity; demand for the Company's systems, applications and services,
including variability in demand and orders for the third-party hardware and
software; the number, timing and significance of announcements and releases of
system enhancements and new applications by the Company and its competitors; the
termination of, or a reduction in, offerings of the Company's systems,
applications and services; the loss of customers due to consolidation in the
healthcare industry or caused by other factors; the amount of backlog at the
beginning of any particular quarter; customer budgeting cycles and changes in
customer budgets; investments by the Company in marketing, sales, research and
development and administrative personnel necessary to support the Company's
anticipated operations; marketing and sales promotional activities; software
defects and other system quality factors; and general economic conditions.
Additionally, the Company's revenues have varied significantly due to the timing
of third-party product revenues however, the impact on quarterly operating
results from the variability has not been significant due to generally low
margin contribution from this revenue.

<TABLE>
<CAPTION>
                                                            QUARTERLY FINANCIAL RESULTS
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                  ---------------------------------------------------
                                                                  1997 QUARTER ENDED
                                                  ---------------------------------------------------
                                                  MARCH 31      JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                  --------      -------    ------------   -----------
        <S>                                       <C>           <C>           <C>           <C>
        Total revenue                             $ 4,797       $ 6,861       $ 5,944       $ 7,363
        Non third-party product revenue             3,398         4,751         5,014         5,360
        Gross margin                                2,061         3,264         2,972         3,523
        Net loss                                   (1,645)         (644)         (763)       (1,079)
        Basic and diluted net loss per share        (0.16)        (0.06)        (0.07)        (0.11)
</TABLE>





                                       17
<PAGE>   18

<TABLE>
<CAPTION>
                                                             1996 QUARTER ENDED
                                             ---------------------------------------------------
               1996 QUARTER ENDED            MARCH 31      JUNE 30    SEPTEMBER 30   DECEMBER 31
               ------------------            --------      -------    ------------   -----------
        <S>                                  <C>           <C>           <C>           <C>
        Total revenue                        $ 3,905       $ 4,097       $ 6,651       $ 5,791
        Non third-party product revenue        2,980         3,129         3,604         4,800
        Gross margin                           1,735         1,871         2,888         3,569
        Net income (loss)                     (2,850)       (1,989)         (246)          512
        Basic and diluted net income
          (loss) per share                     (1.64)        (0.32)        (0.02)         0.05
</TABLE>

Liquidity and Capital Resources

        At December 31, 1997 the Company's cash and cash equivalents and
short-term investments totaled $15.6 million as compared to $23.1 million at
December 31, 1996. The Company completed an initial public offering of 3,220,000
shares of Common Stock on May 16, 1996 at $10.00 per share resulting in net
proceeds to the Company of $28.9 million. Subsequent to the closing of this
offering, the Company repaid $4.0 million in long-term obligations.

        During 1997, the Company invested $2,253,000 in capital expenditures
primarily related to computers and office equipment. Of this amount $423,000 was
acquired under a capital lease agreement with Comdisco, Inc. ("Comdisco"). The
Company expects that its capital expenditures will increase in 1998 due
primarily to anticipated expenditures for leasehold improvements associated with
the relocation of the Company's Corporate headquarters as well as continued
investment in computers and technology in support of the Company's product
development and operation objectives. The Company expects its capital
expenditures in 1998 to approximate $3.5 million, the majority of which is
expected to be financed through a $3.0 million non-revolving term loan which is
secured by the Company's cash and short-term cash investments.

        In April 1996, the Company entered into a master lease agreement with
Comdisco which enabled the Company to finance the purchase of new equipment, or
sell and lease back certain existing equipment, up to an aggregate of $1.0
million. The lease term is 42 months from the date of funding, and the annual
interest rate is 8.5%. As of December 31, 1997, $1,000,000 of new equipment was
financed under this agreement.

        In April 1996, the Company borrowed $1.0 million pursuant to a Loan and
Security Agreement with Comdisco, Inc. which was secured by all property and
equipment of the Company. In June 1996, the Company repaid the outstanding
principal balance of this loan with a portion of the proceeds of the initial
public offering.

        The Company's working capital and capital requirements will depend upon
numerous factors including possible customer installation delays, lengthy sales
cycles, the Company's plans for developing, acquiring or licensing new
applications and technologies, the Company's requirements to purchase additional
capital equipment and the level of resources that the Company devotes to its
sales and marketing activities. The Company believes that its existing capital
resources and available equipment lease financing arrangements will be adequate
to fund its current operations for at least the next 18 months. Thereafter, the
Company may require additional funds to support its operations and may seek to
raise such additional funds through public or private equity financing or from
other sources. There can be no assurance that additional financing will be
available at all or that, if available, such financing will be obtainable on
terms favorable to the Company.

New Accounting Pronouncements

        In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. The disclosures prescribed by SFAS 130
will be reflected in the Company's financial statements for the year ending
December 31, 1998.

        In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The disclosures prescribed by SFAS 131 will be reflected in the
Company's financial statements for the year ending December 31, 1998.





                                       18
<PAGE>   19

        In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition," which the Company currently intends to adopt for transactions
entered into in the fiscal year beginning January 1, 1998. SOP 97-2 provides
guidance on recognizing revenue on software transactions and supersedes SOP
91-1, "Software Revenue Recognition". Retroactive application of the provision
of this SoP is prohibited. Historically, the Company has accounted for the
majority of its software license fee revenue under Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts," accordingly the Company believes that the adoption of SoP 97-2 will
not have a significant impact on its revenue recognition accounting policies.

FACTORS AFFECTING OPERATING RESULTS

        This report on Form 10-KSB contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated by such forward-looking statements as a result
of certain factors including those set forth below.

        HISTORY OF OPERATING LOSSES; UNCERTAIN PROFITABILITY. The Company has
incurred net losses of $4.1 million, $4.6 million and $9.3 million for the years
ended December 31, 1997, 1996 and 1995, respectively and at December 31, 1997
had an accumulated deficit of $26 million. The Company has not achieved
consistent profitability on a quarterly basis and has not achieved annual
profitability. The Company's prior operating history, consolidation and
uncertainty in the healthcare industry, dependence on the emerging market for
IDSs, dependence on Oacis as its principal product, long sales and installation
cycles, development of international sales opportunities, and dependence upon
key personnel and third parties, competition, and general economic and other
factors make the prediction of future operating results difficult. There can be
no assurance that any of the Company's business strategies will be successful or
that the Company will be able to achieve consistent revenue growth or achieve
profitability on a quarterly or annual basis.

        CONSOLIDATION AND UNCERTAINTY IN THE HEALTH CARE INDUSTRY, DEPENDENCE ON
EMERGING MARKET FOR IDSs. Many health care providers are consolidating to create
larger health care networks and IDSs with greater market concentration. The
Company focuses its sales and marketing efforts primarily on IDSs, which
currently account for a growing portion of the overall market for clinical
information systems. The Company believes that consolidation and formation of
IDSs will continue and may ultimately result in an increase in demand for open
architecture clinical information systems such as the Company provides, and
accordingly focuses its sales and marketing efforts on this market. However, the
near term effect of such consolidation includes reducing the resources available
for IDSs to invest in clinical information systems until such time as the rate
of consolidation slows. Accordingly, the Company believes that the market for
the Company's products may continue to develop slowly in the near term and that
sales cycles will continue to be long. In addition, continued consolidation
could erode the Company's existing customer base and reduce the size of the
Company's target market. Additionally, the resulting enterprises could have
greater bargaining power, which could lead to price erosion of the Company's
systems and services. The reduction in the size of the Company's target market
resulting from industry consolidation or delays in purchasing clinical
information systems due to industry consolidation or the failure of the Company
to maintain adequate price levels could have a material adverse effect on the
Company's business, financial condition and results of operations. The health
care industry also is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operation of health
care industry participants. During the past several years, the United States
health care industry has been subject to an increase in governmental regulation
and reform proposals. These reforms may increase governmental involvement in
health care, lower reimbursement rates and otherwise change the operating
environment for the Company's customers. Health care industry participants may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for the Company's systems
and services. The failure of the Company to maintain adequate price levels or
sales as a result of legislative or market-driven reforms could have a material
adverse effect on the Company's business, financial condition and results of
operations.

        DEPENDENCE ON OACIS; MARKET ACCEPTANCE; SYSTEM ENHANCEMENTS.
Substantially all of the Company's revenues are currently derived from licenses
of Oacis. Therefore, any significant reduction in licensing of Oacis would have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company's future success and financial performance
depends in large part upon the Company's ability to provide the increasing
system functionality required by its customers through the timely development or
integration of new applications and enhancements and the successful introduction
of such applications and enhancements to Oacis. The Company has historically
devoted significant resources to system enhancements and research and
development and believes that significant continuing development efforts will be
required to sustain and enhance the Company's competitive market position. There
can be no assurance that the Company will successfully develop or integrate,





                                       19
<PAGE>   20

introduce, market and sell new system enhancements or applications, or that
system enhancements or new applications developed or integrated by the Company
will meet the requirements of health care providers and achieve market
acceptance.

        LONG SALES AND INSTALLATION CYCLES. The sales cycle for large scale
clinical information systems is lengthy. The Company's sales cycle is subject to
delays associated with the lengthy approval process that typically accompanies
significant capital expenditures, customer budgeting cycles and changes in
customer budgets, changes or the anticipation of changes in the regulatory
environment affecting healthcare organizations, changes in the customer's
strategic information system initiatives, competing information systems projects
within the customer organization, consolidation in the health care industry in
general, the highly sophisticated nature of the Company's products and
competition in the market for clinical information systems. Additionally, during
the sales process, the Company expends substantial time, effort and funds
preparing a contract proposal, demonstrating the system, arranging visits to
customer reference sites and negotiating the contract. For these and other
reasons, the Company's sales cycle is lengthy and the Company does not have the
ability to predict when or if the sales process with a prospective customer will
result in a signed contract.

        The time required to install the Company's systems can vary
significantly depending on the needs and skill sets of its customers.
Installation of an Oacis system typically requires nine to 18 months, depending
on a number of factors including the size of the customer, the system licensed,
the number of legacy systems to be interfaced, the degree of customization
requested by the customer and the customer's installation schedule. This period
may be longer if unforeseen technical, integration or other problems arise
during the installation process, if the Company has insufficient trained
installation personnel to handle several installations simultaneously, if the
Company is unable to contract with third parties to provide supplemental
installation resources, or if a customer decides to delay the installation
schedule. Due to this long installation cycle, the Company's future results of
operations depend in large part on maintaining efficient and timely installation
procedures, particularly since a typical system license and installation
contract is relatively large compared to the Company's annual revenues. In
addition, payments to the Company are dependent upon achievement of certain
installation or software acceptance milestones, the achievement of which can be
dependent upon the customer and other third-parties. If installation is delayed,
then payments and revenue recognition may also be delayed. Any failure by the
Company to install its clinical information systems on a timely basis could have
a material adverse effect on the Company's business, financial condition and
results of operations.

        INTERNATIONAL SALES. The Company has licensed clinical information
systems to customers located outside of the United States and expects to
continue marketing its systems to foreign customers. In 1994 and 1995, revenues
from international customers were immaterial, however, revenues from
international customers accounted for approximately 4% of the total revenues in
1996 and 16% of total revenues in 1997. The Company expects that international
revenues may continue to be a significant component of total revenues in future
quarters. Accordingly, the Company's operating results may increasingly be
subject to the risks inherent in international transactions, including
difficulties in staffing and managing foreign sales operations, changes in
regulatory requirements, exchange rates, tariffs or other barriers, and other
factors including dependence on third-party distributors and installers of the
Company's products. Additionally, due to the revenue recognition model used for
international sales (sales outside of North America) this increasing reliance on
international sales may result in higher quarter to quarter variability of
software revenues.

        POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS. The Company's
quarterly revenues and operating results have varied significantly in the past
and are likely to vary substantially from quarter to quarter in the future.
Quarterly revenues and operating results may fluctuate as a result of a variety
of factors, including the following: the Company's long sales cycle; demand for
the Company's systems, applications and services, including variability in
demand, orders for and shipment of hardware; increasing dependence on
international revenues; the number, timing and significance of announcements and
releases of system enhancements and new applications by the Company and its
competitors; the termination of, or a reduction in, offerings of the Company's
systems, applications and services; the loss of customers due to consolidation
in the health care industry; delays in installations requested by customers or
caused by other factors; the timing of revenue recognition; the amount of
backlog at the beginning of any particular quarter; customer budgeting cycles
and changes in customer budgets; investments by the Company in marketing, sales,
research and development, and administrative personnel necessary to support the
Company's anticipated operations; marketing and sales promotional activities;
software defects and other system quality factors; and general economic
conditions. In particular, the timing of revenue recognition can be affected by
many factors, including the timing of customer attainment of software
acceptance or installation milestones. As a result of the relatively large size
of each customer contract, combined with the Company's method of revenue
recognition, quarterly results are likely to be significantly affected by small
changes in the number of customer contracts in process during a particular
quarter. There can be no assurance that the Company will not experience delays
in recognizing revenue in the future, particularly considering the complexity
and large scale of installations of the Company's systems. In addition, since





                                       20
<PAGE>   21

purchase of the Company's systems generally involves a significant commitment of
capital, any downturn in any potential customer's business or the economy in
general, including changes in the health care market, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, the Company's operating expense levels are relatively
fixed and, to a large degree, are based on anticipated revenues. If revenues are
below expectations, net income is likely to be disproportionately affected.
Further, it is likely that in some future quarter the Company's unit sales
volume, revenue, backlog or operating results will be below the expectations of
public market analysts and investors. In such event, the trading price of the
Company's Common Stock would likely be materially adversely affected.

        HIGHLY COMPETITIVE MARKET. Competition in the market for clinical
information systems and services is intense and is expected to increase. The
Company's competitors include other providers of health care information systems
and services, and health care consulting firms. The Company's principal
competitors include 3M Health Information Systems, Cerner Corporation, HBO &
Company, HealthVISION, Inc. and Shared Medical Systems Corporation. Furthermore,
other major health care information companies not presently offering clinical
information systems may enter the Company's markets. Increased competition could
result in price reductions, reduced gross margins, and loss of market share, any
of which could materially adversely affect the Company's business, financial
condition and results of operations. In addition, many of the Company's
competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than the Company. Many of the Company's competitors also currently
have, or may develop or acquire, substantial installed customer bases in the
health care industry. As a result of these factors, the Company's competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products than the Company. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.

        NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL. The
Company's anticipated future operations may place a strain on its management
systems and resources. The Company expects that it will be required to continue
to improve its financial and management controls, reporting systems and
procedures, and will need to expand, train and manage its work force. There can
be no assurance that the Company will be able to effectively manage these tasks,
and the failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company intends to
hire additional installation, research and development and sales personnel in
1998 and beyond. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain such personnel, particularly those in key positions, the
Company's business, financial condition and results of operations could be
materially adversely affected. The Company's future success also depends in
significant part upon the continued service of its executive officers and other
key sales, marketing, development and installation employees. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has historically experienced turnover in
certain key positions of the Company and high turnover in general. Additions of
new and departures of existing personnel can be disruptive and could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is seeking to supplement its service
delivery capability through partnerships with healthcare related consulting
firms. There can be no assurance that the Company will be successful in
incorporating third-party consulting services into its existing services
operations. Failure by the Company to incorporate third-party consulting
services into its existing services operations could have a material adverse
affect on the Company's business, financial condition and results of operations.

        DEPENDENCE ON THIRD PARTY PRODUCTS. The Company's systems are dependent
upon a number of third-party computer hardware and software products. There can
be no assurance that financial or other difficulties experienced by third-party
providers will not have an adverse impact upon the technologies incorporated by
the Company's systems, or that, if such technologies become unavailable, the
Company will be able to find suitable alternatives. In particular, both the
Gateway++ and Oacis Data Repository components of Oacis incorporate a Sybase
relational database. Any significant failure by Sybase to meet the Company's
database requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. A decline in Sybase's
reputation could reduce the appeal of the Company's products to its potential
customers. Although the Company believes that it can port Oacis to other
relational database platforms, such efforts would require substantial time and
investment and would have an adverse affect on the Company's operations,
including its ability to complete other product development. In addition, Oacis
includes a number of embedded software products licensed from third parties.
Failure of such third parties to maintain or enhance their products could impair
the functionality of Oacis and could require the Company to obtain alternative
products from other sources or to develop such software internally, either of
which could involve costs and delays as well as diversion of engineering
resources. In addition, modifications or enhancements by these third-party
vendors often require that the Company modify its own software products to
operate with these enhancements or modifications. There can be no assurance that
the Company will be able to

                                       21
<PAGE>   22

modify its own software to accommodate third-party changes or that the effort to
make such changes will not adversely affect the Company's other development
projects.

        RISK OF SYSTEM DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA. Systems as
complex as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive testing, the Company has in the past released systems
that contain defects, has discovered software errors in certain of its
enhancements and applications after their introduction and, as a result, has
experienced delays in recognizing revenues and incurred higher than expected
operating expenses during certain periods in order to correct these errors. The
Company's systems are intended for use in a clinical health care setting, to
collect and display clinical information used in the diagnosis and treatment of
patients. As a result, the Company expects that its customers and potential
customers have a greater sensitivity to system defects than the market for
software products generally. In addition, customer contracts typically provide
that the Oacis system is warranted to meet certain performance criteria
concerning response time and system availability. The Company also will
generally recommend hardware configurations that it believes will be adequate to
achieve user acceptable response time performance and system availability.
Failure of a customer's system to meet these performance criteria could
constitute a material breach under such contracts, and could delay revenue
recognition and require that the Company incur additional expense in order to
make the system meet these performance criteria or to purchase additional
hardware where the recommended hardware configurations have been determined to
be inadequate. Although to date the Company has not experienced material adverse
effects resulting from any software errors or performance failures, there can be
no assurance that, despite testing by the Company and by current and potential
customers, errors or performance failures will not occur in new enhancements or
applications after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs, any
of which could have a material adverse effect upon the Company's business,
financial condition and results of operations.

        YEAR 2000. Many computer systems experience problems handling dates
beyond the year 1999. Therefore, some computer hardware and software will need
to be modified prior to the year 2000 in order to remain functional. The Company
along with an independent third-party consultant is assessing both the internal
readiness of its computer systems and the compliance of its computer products
and software sold to customers for handling the year 2000. The Company expects
to implement successfully the systems and programming changes necessary to
address year 2000 issues, and does not believe that the cost of such actions
will have a material effect on the Company's results of operations or financial
condition. There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, the implementation of such changes, and
the Company's inability to implement such changes could impact the timing of
installations and have an adverse effect on future results of operations.

        The Company is also assessing the possible effects on the Company's
operations of the year 2000 readiness of key suppliers and subcontractors. The
Company's reliance on suppliers and subcontractors, and, therefore, on the
proper functioning of their information systems and software, means that failure
to address year 2000 issues could have a material impact on the Company's
operations and financial results; however, the potential impact and related
costs are not known at this time. Additionally, Oacis' customers are currently
assessing their own systems and those of vendors for compliance with Year 2000.
Installation work required by customers to implement Year 2000 releases may
distract customers attention from acquiring and installing Oacis' Systems. Such
distraction could have a material adverse affect on future results of
operations.

        LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT. The Company relies on
a combination of trade secrets, copyright and trademark laws, nondisclosure and
other contractual provisions to protect its proprietary rights. The Company has
not filed any patent applications covering its technology or registered any of
its copyrights with state or federal agencies. There can be no assurance that
measures taken by the Company to protect its intellectual property will be
adequate or that the Company's competitors will not independently develop
systems and services that are substantially equivalent or superior to those of
the Company. Substantial litigation regarding intellectual property rights
exists in the software industry, and the Company expects that software products
may be increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
systems overlap. Although the Company believes that its systems and applications
do not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future or that a license or similar agreement will be available
on reasonable terms in the event of an unfavorable ruling on any such claim. In
addition, any such claim may require the Company to incur substantial litigation
expenses or subject the Company to significant liabilities and could have a
material adverse effect on the Company's business, financial condition and
results of operations.



                                       22
<PAGE>   23

        PRODUCT LIABILITY AND MEDICAL MALPRACTICE. The Company's clinical
information systems provide clinical information used by clinicians in the
diagnosis and treatment of patients. Any failure by the Company's systems to
provide accurate, reliable and timely information, or to adequately protect the
confidentiality of the information, could result in claims against the
Company. The Company maintains insurance to protect against claims associated
with the use of its systems, but there can be no assurance that its insurance
coverage would adequately cover any claims asserted against the Company. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. Even unsuccessful claims could result in
the Company's expenditure of funds in litigation and diversion of management
time and resources. There can be no assurance that the Company will not be
subject to product liability or medical malpractice claims that will result in
liability in excess of its insurance coverage, that the Company's insurance will
cover such claims or that appropriate insurance will continue to be available to
the Company in the future at commercially reasonable rates.

        GOVERNMENT REGULATION. The United States Food and Drug Administration
(the "FDA") is responsible for assuring the safety and effectiveness of medical
devices under the Federal Food, Drug and Cosmetic Act. Computer products are
subject to regulation when they are used or are intended to be used in the
diagnosis of disease or other conditions, or in the cure, mitigation, treatment
or prevention of disease, or are intended to affect the structure or function of
the body. The FDA could determine in the future that predictive applications of
the Company's systems and applications make them clinical decision tools subject
to FDA regulation. Medical devices are subject to regulation by the FDA, which
requires, among other things, premarket notifications or approvals and
compliance with labeling, registration and listing requirements, good
manufacturing practices and records and reporting requirements. Compliance with
these regulations could be burdensome, time consuming and expensive. The Company
also could become subject to future legislation and regulations concerning the
manufacture and marketing of medical devices and health care software systems.
These could increase the cost and time necessary to market new products and
could affect the Company in other respects not presently foreseeable. The
Company cannot predict the effect of possible future legislation and regulation.

        The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases is subject
to substantial regulation by state governments. These state laws and regulations
govern both the disclosure and use of confidential patient medical record
information. Although compliance with these laws and regulations is principally
the responsibility of the hospital, physician or other health care provider with
access to the Company's information system, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of such
information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
will not materially restrict the ability of health care providers to submit
information from patient records to the Company's systems.

        RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. The Company may in the
future pursue acquisitions of complementary products, technologies or
businesses. Future acquisitions by the Company may result in potentially
dilutive issuances of equity securities, the incurrence of additional debt and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, products and personnel of the acquired company, the diversion
of management's attention from other business concerns, risks of entering
markets in which the Company has no direct prior experience, and the potential
loss of key employees of the acquired company. There can be no assurance that
the Company will ever successfully complete an acquisition.






                                       23
<PAGE>   24
ITEM 7.   FINANCIAL STATEMENTS

Report of Independent Accountants

Consolidated Financial Statements:

         Balance Sheets - December 31, 1997 and 1996

         Statement of Operations - Years Ended December 31, 1997, 1996 and 1995

         Statement of Shareholders' Equity - Years Ended December 31, 1997,
         1996 and 1995

         Statement of Cash Flows - Years Ended December 31, 1997, 1996 and 1995

         Notes to Consolidated Financial Statements

(All other schedules are omitted because they are not applicable, not required
or the information required to be set forth therein is included in the financial
statements or in the notes thereto.)

































                                       24

<PAGE>   25

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
Oacis Healthcare Holdings Corp.

        In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Oacis
Healthcare Holdings Corp. and its subsidiary, at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.






PRICE WATERHOUSE LLP
San Jose, California
January 9, 1998
























                                       25

<PAGE>   26

                         OACIS HEALTHCARE HOLDINGS CORP.
                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                           -----------------------
                                                             1997          1996
                                                           --------       --------
<S>                                                        <C>            <C>
                                     ASSETS

Current assets:
    Cash and cash equivalents ..........................   $  5,962       $  4,307
    Short-term investments .............................      9,687         18,834
    Accounts receivable, net ...........................      8,276          6,449
    Other current assets ...............................      1,149            308
                                                           --------       --------
         Total current assets ..........................     25,074         29,898
Property and equipment, net ............................      3,341          2,143
Capitalized software, net ..............................      2,382            667
Other assets ...........................................        394              4
                                                           --------       --------
         Total assets ..................................   $ 31,191       $ 32,712
                                                           ========       ========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ...................................   $  1,784       $    620
    Accrued expenses ...................................      2,818          3,113
    Unearned revenue ...................................      3,585          2,325
                                                           --------       --------
         Total current liabilities .....................      8,187          6,058
                                                           --------       --------
Long-term obligations ..................................        461            669
                                                           --------       --------

Commitments (Note 13)

Stockholders' equity:
    Preferred Stock, $0.01 par value; 5,000,000 shares
      authorized; none issued and outstanding ..........         --             --
    Common Stock, $0.01 par value, 30,000,000 shares
      authorized; 10,330,000 and 10,064,000, shares
      issued and outstanding............................        103            101
    Additional paid-in capital .........................     48,542         47,905
    Accumulated deficit ................................    (26,002)       (21,871)
    Deferred stock compensation ........................       (100)          (150)
                                                           --------       --------
         Total stockholders' equity ....................     22,543         25,985
                                                           --------       --------
         Total liabilities and stockholders' equity ....   $ 31,191       $ 32,712
                                                           ========       ========
</TABLE>


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





                                       26
<PAGE>   27


                         OACIS HEALTHCARE HOLDINGS CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (Amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------
                                                    1997               1996               1995
                                                ------------       ------------       ------------
<S>                                             <C>                <C>                <C>
Revenues:
    Software licenses ....................      $     10,291       $      7,887       $      3,388
    Installation and support services ....             8,232              6,626              5,825
    Third-party hardware and software ....             6,442              5,931              4,341
                                                ------------       ------------       ------------
         Total revenues ..................            24,965             20,444             13,554
                                                ------------       ------------       ------------

Costs of revenues:
    Software licenses ....................               917                252                124
    Installation and support services ....             6,645              5,610              5,237
    Third-party hardware and software ....             5,583              4,519              3,759
                                                ------------       ------------       ------------
         Total cost of revenues ..........            13,145             10,381              9,120
                                                ------------       ------------       ------------
Gross profit .............................            11,820             10,063              4,434
                                                ------------       ------------       ------------
Operating expenses:
    Sales and marketing ..................             6,782              5,614              4,874
    Research and development .............             6,109              6,375              6,080
    General and administrative ...........             3,638              3,491              2,681
    Restructuring charge .................               520                  -                  -
                                                ------------       ------------       ------------
         Total operating expenses ........            17,049             15,480             13,635
                                                ------------       ------------       ------------

Loss from operations .....................            (5,229)            (5,417)            (9,201)

Interest income(expense), net ............             1,098                844               (123)
                                                ------------       ------------       ------------
Net loss .................................      $     (4,131)      $     (4,573)      $     (9,324)
                                                ============       ============       ============

Basic and diluted net loss per share .....      $      (0.41)      $      (0.67)      $      (5.48)
                                                ============       ============       ============

Weighted average common shares outstanding        10,153,000          6,785,000          1,701,000
                                                ============       ============       ============
</TABLE>


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





                                       27
<PAGE>   28

                         OACIS HEALTHCARE HOLDINGS CORP.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    (Amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                      PREFERRED STOCK      COMMON STOCK     ADDTIONAL              DEFERRED      TOTAL
                                    ------------------  -------------------  PAID-IN  ACCUMULATED    STOCK     STOCKHOLDERS'
                                      SHARES    AMOUNT    SHARES    AMOUNT   CAPITAL    DEFICIT   COMPENSATION    EQUITY
                                    ----------  ------  ----------  -------  -------- ----------- ------------ -------------
<S>                                  <C>        <C>      <C>        <C>      <C>        <C>         <C>        <C>
Balance at December 31, 1994....     2,950,000  $   29   1,327,000  $    13  $  5,792   $ (7,974)               $(2,140)

Issuance of Series A
     Preferred Stock, net.......       838,000       8                          1,499                             1,507
Issuance of Series B
     Preferred Stock, net.......     6,229,000      62                         10,875                            10,937
Issuance of Common  Stock,
     net........................                           377,000        3       167                               170
Exercise of stock options.......        50,000       1      28,000        1        98                               100
Deferred stock compensation.....                                                  200               $   (200)        --
Net loss........................                                                          (9,324)                (9,324)
                                    ----------  ------  ----------  -------  --------   --------    --------    -------
Balance at December 31, 1995....    10,067,000     100   1,732,000       17    18,631    (17,298)       (200)     1,250

Conversion of Series A
     Preferred Stock to
     Common Stock...............    (3,838,000)    (38)  1,919,000       19        19                                --
Conversion of Series B
     Preferred Stock to
     Common Stock...............    (6,229,000)    (62)  3,115,000       31        31                                --
Issuance of Common Stock,
     net........................                         3,220,000       32    28,865                            28,897
Net loss........................                                                          (4,573)                (4,573)
Common Stock issued for
     services...................                             5,000
Exercise of stock options.......                            28,000        1        12                                13
Employee Stock Purchase Plan....                            45,000        1       347                               348
Amortization of deferred
     stock compensation.........                                                                          50         50
                                    ----------  ------  ----------  -------  --------   --------    --------    -------
Balance at December 31, 1996....            --      --  10,064,000      101    47,905    (21,871)       (150)    25,985

Exercise of stock option........                           104,000        1        54                                55
Employee Stock Purchase Plan....                           162,000        1       583                               584
Amortization of deferred
     stock compensation.........                                                                          50         50
Net loss........................                                                          (4,131)                (4,131)
                                    ----------  ------  ----------  -------  --------   --------    --------    -------
Balance at December 31, 1997....            --  $   --  10,330,000  $   103  $ 48,542   $(26,002)   $   (100)   $22,543
                                    ==========  ======  ==========  =======  ========   ========    ========    =======
</TABLE>


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





                                       28
<PAGE>   29

                         OACIS HEALTHCARE HOLDINGS CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                         --------------------------------------
                                                           1997           1996           1995
                                                         --------       --------       --------
<S>                                                      <C>            <C>            <C>
Cash flows from operating activities:
Net loss ..........................................      $ (4,131)      $ (4,573)      $ (9,324)
Adjustments to reconcile net loss to
    net cash used in operating activities:
    Depreciation and amortization .................         1,341          1,164          1,535
    Stock compensation expense ....................            50             50              -
    Acquired in-process research
       and development ............................             -            700              -
Changes in assets and liabilities:
    Accounts receivable, net ......................        (1,827)        (1,344)        (1,129)
    Other current assets ..........................          (841)            19           (209)
    Other assets ..................................          (390)            (4)             -
    Accounts payable ..............................         1,164         (1,105)           515
    Accrued expenses ..............................          (698)           (92)         1,060
    Unearned revenues .............................         1,260           (926)         1,265
                                                         --------       --------       --------
Net cash used in operating activities .............        (4,072)        (6,111)        (6,287)
                                                         --------       --------       --------

Cash flows from investing activities:
    Purchase of property and equipment ............        (1,830)          (344)          (718)
    Purchase of short-term investments ............        (6,127)       (22,769)             -
    Sale of short-term investments ................        15,274          3,935              -
    Capitalized software development costs ........        (2,001)          (506)          (275)
                                                         --------       --------       --------
Net cash provided by (used in) investing activities         5,316        (19,684)          (993)
                                                         --------       --------       --------
Cash flows from financing activities:
    Net proceeds from Common Stock issuance .......             -         28,897            170
    Net proceeds from Preferred Stock issuance ....             -              -         12,444
    Proceeds from employee stock purchase plan ....           584            348              -
    Proceeds from options exercises ...............            55             13            100
    Principal payment on note payable .............             -         (4,000)        (1,735)
    Payments under capital leases .................          (228)           (56)             -
    Proceeds from notes payable ...................             -          1,000              -
                                                         --------       --------       --------
Net cash provided by financing activities
                                                              411         26,202         10,979
                                                         --------       --------       --------
Increase in cash and cash equivalents .............         1,655            407          3,699
Cash and cash equivalents, beginning of period ....         4,307          3,900            201
                                                         --------       --------       --------
Cash and cash equivalents, end of period ..........      $  5,962       $  4,307       $  3,900
                                                         ========       ========       ========
</TABLE>


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





                                       29
<PAGE>   30
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

1.      DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

        Oacis Healthcare Holding Corp. (the Company) was incorporated in
Delaware on April 18, 1994. On May 14, 1994, the Company acquired 100% of the
outstanding common stock of Bell Atlantic Healthcare Systems, Inc. (a
wholly-owned subsidiary of Bell Atlantic Systems Group, Inc.) and renamed it
Oacis Healthcare Systems, Inc. (Oacis). Prior to the acquisition of Oacis, the
Company had no substantive operations. Through Oacis, the Company develops,
markets, licenses, installs and supports clinical information systems primarily
for major medical centers, hospitals and integrated healthcare networks.

        The accompanying financial statements present the consolidated accounts
of the Company for the years ended December 31, 1997, 1996 and 1995 after
elimination of all intercompany accounts and transactions.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        REVENUE RECOGNITION

        The Company's revenues consist of license fees for the perpetual use of
its software, installation revenues associated with installing and configuring
the software to meet specific customer needs, revenues from the sale of
third-party hardware and software, and ongoing support services. The price of an
Oacis system varies depending on a number of factors, including the modules
licensed and the volume of outpatient visits and inpatient days for the customer
organization, and generally ranges from more than nine hundred thousand dollars
to a few million dollars. The Company resells third-party hardware and software
pursuant to standard reseller agreements.

        Software license fee and installation services revenues from contracts
where the Company is actively involved in the installation of the system, which
are primarily in the United States and Canada, are recognized on a percentage of
completion basis measured by the ratio of (i) labor hours incurred to attain
certain installation milestones or software acceptance milestones to (ii) total
estimated labor hours. The Company generally bills its installation services as
the services are provided. Software license fees are generally billed in
accordance with installation milestones. Accordingly, revenues recognized in
advance of achieving billing milestones are recorded as unbilled accounts
receivable and collections resulting from billing milestones achieved in advance
of recognizing revenues are recorded as unearned revenues on the consolidated
balance sheet. If the total estimated cost of a contract is expected to exceed
the contract price, determined primarily by the installation component of the
contract, the total estimated loss is charged to expense in the period the loss
is identified. In addition, in certain transactions where existing customers
seek to expand the license rights of previously licensed software, the Company
recognizes license fee revenue from certain software components upon the
granting of these expanded rights and when collection of the additional license
fees are probable.

        Software license revenues from contracts where the Company is not
actively involved in the installation of the system, typically contracts outside
of North America, are recognized as contract amounts become due and payable by
the international partner typically on a milestone basis. In addition, revenue
recognition on a contract milestone basis can cause quarterly revenue and
earnings variability due to the size and timing of such milestones. Because the
Company is not actively involved in these international installations, milestone
attainment and consequently revenue recognition on these contracts may be
delayed for reasons which include delays caused by the customer, or the
Company's international partner, both of which are beyond the control of the
Company.

        The Company also recognizes revenues from support fees and sales of
third-party hardware and software. Support agreements generally cover a one year
period and the associated revenues are recognized ratably over the period of the
support agreement. Third-party hardware and software revenues are recognized
upon delivery of the related hardware and software. Third-party hardware and
software are generally sold pursuant to a purchase order and are not governed by
the terms of the software license and services agreement.





                                       30
<PAGE>   31
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

        CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

        All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents and those with maturities
greater than three months are considered short-term investments.

   The Company has classified all short-term investments as available-for-sale
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". At December
31, 1997, the estimated fair value of the investments approximated cost, and the
amounts of gross unrealized gains and losses were not significant.

        UNBILLED ACCOUNTS RECEIVABLE

        Unbilled accounts receivable represent the amount of licensing and
installation fees for delivered products and services recognized as revenue
under the percentage-of-completion method but not yet billed to the customer.
Unbilled accounts receivable are billable and collectible by the Company within
one year in accordance with contract provisions.

        PROPERTY AND EQUIPMENT

        Property, equipment and leasehold improvements are recorded at cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets which range from three to five years. Amortization of
leasehold improvements is calculated using the straight-line method over the
shorter of the remaining economic life or the lease term. Additions and
improvements are capitalized, while repairs and maintenance are charged to
expense as incurred.

        SOFTWARE DEVELOPMENT COSTS

        Software development costs not qualifying for capitalization are
expensed as research and development costs. Capitalized software development
costs arise from the development of certain components of the Oacis Healthcare
Network and are being amortized on a product by product basis using the greater
of (a) the ratio that current period gross revenues for the product bear to the
total current period and estimated future gross revenues for the product or (b)
the straight line method over the remaining estimated economic life of the
product at the beginning of the period. The Company evaluates the estimated net
realizable value of each software product at each balance sheet date and records
a write-down to net realizable value for any products for which the net book
value is in excess of net realizable value in the future.

The Company capitalized $2,001, $506 and $275 of software development costs in
1997, 1996 and 1995, respectively. Capitalized software development costs arise
from the development of certain components of the Oacis Healthcare Network and
are being amortized on a straight-line basis over the estimated future life of
these products. During the year ended December 31, 1997, 1996 and 1995 ,
amortization of software development costs totaled $286, $89, and $25,
respectively.

In February 1996, the Company licensed technology from an independent party that
was incorporated into the Enterprise Member/Patient Index (EMPI), a component of
the Oacis Healthcare Network. Because the technology had not yet reached
technological feasibility at the date of license, and had no alternative future
use, the $700 license fee was charged to research and development expense.

        INCOME TAXES

        The provision for income taxes is calculated in accordance with SFAS No.
109, "Accounting for Income Taxes." Under SFAS No. 109, a current tax liability
or asset is recognized for the estimated taxes payable or refundable on tax
returns for the current period. A deferred tax liability or asset is recognized
for the estimated future tax effects attributable to temporary differences
between the carrying amount and tax bases of assets, liabilities and tax
carryforwards. The measurement of deferred tax assets is reduced, if necessary,
by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.

        BASIC AND DILUTED NET LOSS PER SHARE

        The Company adopted Statement of Financial Accounting Standards No. 128,
"Earning per Share" (SFAS 128) and Staff Accounting Bulletin No. 98 during the
year ended December 31, 1997 and retroactively restated all prior periods. Basic
net loss per





                                       31
<PAGE>   32
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

share is computed using the weighted average number of common share outstanding
during the period. Diluted net loss per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
period except that common equivalent shares are excluded from the computation if
the effect is anti-dilutive. Common equivalent shares consist of the incremental
shares issuable upon the conversion of preferred stock and the exercise of stock
options and warrants (using the treasury stock method).

        CONCENTRATION OF CREDIT RISK

        Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of bank deposits,
short-term investments and accounts receivable. The Company places its cash and
cash equivalents and short-term investments primarily in checking and money
market accounts, certificates of deposits, United States treasury bills and high
grade corporate instruments. The Company's accounts receivable are derived from
revenues earned from customers located primarily in the United States, Canada
and Australia. The Company performs ongoing evaluations of its customers'
financial condition and maintains an allowance for doubtful accounts based upon
the expected collectibility.

        During the year ended December 31, 1997, one international customer
accounted for 16% of the Company's revenue and at December 31, 1997, this
customer accounted for 16% of total gross receivables. Two additional customers
accounted for 10% and 12% of total gross receivables at December 31, 1997 both
of which had significant third-party hardware and software purchases at year
end. During 1996, two customers accounted for 17% and 11%, respectively, of the
Company's revenue and at December 31, 1996, these customers accounted for 5% and
7%, respectively, of total receivables. One additional customer accounted for
10% of total receivables at December 31, 1996. During the year ended December
31, 1995 no customer accounted for 10% of revenue or 10% of total gross
receivables at December 31, 1995.

        STOCK BASED COMPENSATION

        The Company accounts for stock-based employee compensation arrangements
in accordance with provision of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").


        USE OF ESTIMATES

        The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses. Significant estimates used in the preparation of these financial
statements include those relating to the percentage-of-completion of
installations in process which determine revenue recognition during the
reporting period as well as estimates relating to the capitalization and related
amortization of software development costs. The estimate of a product's useful
life and its net realizable value may be affected by increased competitive
pressures and developing technologies. These factors could result in a
significant reduction in the amount of capitalized software development costs in
the future.

        NEW ACCOUNTING PRONOUNCEMENTS

        In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. The disclosures prescribed by SFAS 130
will be reflected in the Company's financial statements for the year ending
December 31, 1998.

        In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The disclosures prescribed by SFAS 131 will be reflected in the
Company's financial statements for the year ending December 31, 1998.

        In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition," which the Company currently intends to adopt for transactions
entered into in the fiscal year beginning December 1, 1998. SOP 97-2 provides
guidance on recognizing revenue on software transactions and supersedes SOP
91-1, "Software Revenue Recognition". Retroactive application of the provision
of this SoP is prohibited. Historically, the Company has accounted for the
majority of its software license fee revenue under Statement of Position 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts," accordingly the Company believes that the adoption of SoP 97-2 will
not have a significant impact on its revenue recognition accounting policies.

                                       32
<PAGE>   33
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

        RECLASSIFICATION

        Certain balance sheet items have been reclassified to conform with
current year presentation.

3.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

        Cash paid for interest for the years ended December 31, 1997, 1996 and
1995 was $57, $149 and $253, respectively.

        NONCASH FINANCING ACTIVITIES

        Equipment purchased under capital lease obligations for the year ended
December 31, 1997 and 1996 was $423 and $578, respectively.

4.      ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                 ----------------------
                                                   1997           1996
                                                 -------        -------
        <S>                                      <C>            <C>
        Accounts receivable ..............       $ 5,407        $ 4,288
        Unbilled accounts receivable .....         3,234          2,694
                                                 -------        -------
                                                   8,641          6,982
        Less:  Allowance for
               doubtful accounts..........          (365)          (533)
                                                 -------        -------
                                                 $ 8,276        $ 6,449
                                                 =======        =======
</TABLE>

5.      PROPERTY AND EQUIPMENT

Property and equipment consist of the following:


<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                 ----------------------
                                                   1997           1996
                                                 -------        -------
        <S>                                      <C>            <C>
        Computer and office equipment ......      $ 6,588       $ 4,583
        Equipment and fixtures .............          840           752
        Leasehold improvements .............          728           568
                                                  -------       -------
                                                    8,156         5,903
        Accumulated depreciation ...........       (4,815)       (3,760)
                                                  -------       -------
                                                  $ 3,341       $ 2,143
                                                  =======       =======
</TABLE>

        Included in property and equipment at December 31, 1997 is $1,001 of
computer and office equipment acquired under capital leases. Depreciation
expense for the year ended December 31, 1997, 1996 and 1995, was $1,055,
$1,075 and $1,510, respectively including $155, $62 and $0 of amortization of
capital leases in 1997, 1996 and 1995, respectively.

6.      ACCRUED EXPENSES

        Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                    --------------------
                                                     1997          1996
                                                    ------        ------
        <S>                                         <C>           <C>
        Compensation and benefits ..............    $  782        $1,306
        Hardware and other contract-related.....       643           898
        Restructuring charge ...................       520             -
        Other ..................................       873           909
                                                    ------        ------
                                                    $2,818        $3,113
                                                    ======        ======
</TABLE>





                                       33
<PAGE>   34
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

        In the fourth quarter 1997, the Company initiated a plan to restructure
its customer support organization, which has historically been located in
Atlanta, Georgia. The restructure which is expected to achieve operational
efficiencies and improve customer support will include a relocation of the
customer support function to the Company's headquarters in Marin County,
California. The restructuring charge of $520,000 recognized at the end
of 1997 primarily relates to severance costs, write-off of undepreciated assets
and rent expense.

7.      LONG-TERM OBLIGATIONS

        NOTE PAYABLE

        In connection with the acquisition of Oacis Healthcare System, Inc. in
1994, the Company issued a $4,500 note payable to Bell Atlantic Systems Group,
Inc. Interest on the note was at 8% per annum payable quarterly and was secured
by the Common Stock of Oacis. At the completion of the Company's initial public
offering in May, 1996, the note was repaid.

8.      INCOME TAXES

        No provision for income taxes has been recorded for any of the periods
presented since the Company incurred net operating losses for tax purposes.

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                -----------------------
                                                   1997          1996
                                                --------       --------
        <S>                                     <C>            <C>
        Deferred tax amounts are comprised
          of the following:
        Deferred tax assets:
          Net operating loss carryforwards      $ 10,125       $  8,300
          Tax credit carryforwards .......           930            620
          Non-deductible accruals ........         1,120          1,490
          Capitalized R&D ................           415             --
          Depreciation ...................           115            240
                                                --------       --------
        Total deferred tax assets ........        12,705         10,650

        Deferred tax liabilities:
          Capitalized software ...........          (800)            --
                                                --------       --------
        Total deferred tax liabilities ...          (800)            --
                                                --------       --------
        Net deferred tax assets ..........        11,905         10,650

          Deferred tax valuation allowance       (11,905)       (10,650)
                                                --------       --------
                                                $     --       $     --
                                                ========       ========

</TABLE>

        Based on a number of factors including the lack of a history of profits
and the fact that the market in which the Company competes is intensely
competitive and characterized by rapidly changing technology, management
believes that there is sufficient uncertainty regarding the realizability of
deferred tax assets such that a full valuation allowance has been provided.

        At December 31, 1997, the Company had federal and California net
operating loss carryforwards of approximately $27,000 and $5,000, respectively,
which expire in varying amounts through 2012 and 2001, respectively. The
difference between the federal and California net operating loss carryforwards
results primarily from apportionment and a 50 percent limitation on the
California loss carryforward amounts. The California net operating loss
carryforwards are net of approximately $3,000 of pre-acquisition net operating
loss carryforwards which expired in 1997.

        At December 31, 1997, federal net operating loss carryforwards and net
deferred tax assets include pre-acquisition net operating loss carryforwards of
$3,200, which expire in varying amounts through 2002. Under the Tax Reform Act
of 1986, the benefit from net operating loss carryforwards are restricted by
cumulative ownership changes of 50 percent or more over a three-year period, as
defined. Due to cumulative changes in the Company's ownership, utilization of
the Company's pre-acquisition net operating loss carryforwards are subject to
annual limitation of approximately $400 a year. In addition, due to cumulative
changes in the Company's stock ownership from May 14, 1994 to the issuance of
Series B Preferred Stock in May 1995, approximately $9,340 of federal
post-acquisition operating losses and $2,141, of California post-acquisition
operating losses may also be subject to annual limitation.





                                       34
<PAGE>   35
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

9.      STOCKHOLDERS' EQUITY

        In May 1996, the Company completed its initial public offering of
3,220,000 shares of its Common Stock at a per share price of $10.00. At December
31, 1995, the Company's capitalization included 10,067,000 shares of Series A
and B Convertible Preferred Stock and 1,732,000 shares of Common Stock. The
Series A and B Convertible Preferred Stock automatically converted - at a ratio
of 2 to 1 - into newly issued shares of Common Stock upon closing of the
Company's initial public offering.

10.     COMMON STOCK WARRANTS

        In connection with the Oacis acquisition, the Company issued warrants to
purchase 293,211 shares of Common Stock. The warrants are exercisable at a price
of $0.44 per share and expire on May 13, 2000. At the date of acquisition, the
exercise price of the warrants approximated the fair market value of the
underlying equity instruments. In April 1996, the Company issued warrants to
purchase 19,133 shares of Common Stock at $7.84 per share in connection with a
capital lease arrangement and a secured loan agreement. The exercise price of
these warrants, which expire in May 1998, approximated their fair value at the
date of issuance.

11.     STOCK COMPENSATION PLANS

        In 1996, the Company adopted the 1996 stock option plan (the "1996
Plan") which provides for the grant of incentive stock options to employees and
nonstatutory stock options and stock purchase rights to employees and
consultants. A total of 1,330,000 shares of Common Stock have been reserved for
issuance under the 1996 Plan, zero of which are available for grant at December
31, 1997. The Company has also issued incentive stock options under prior option
plans referred to as the 1995 Plan and 1994 Plan. There are no shares available
for grant under either the 1995 Plan or 1994 Plan. The exercise price of options
granted under all of these Stock Compensation Plans is determined by the Board
of Directors and is generally not less than the fair market value of the stock
at the date of the grant. Options granted under these plans are exerciseable for
periods not exceeding 10 years from the date of grant. Options granted under the
1995 Plan have an acceleration feature in the event of the sale of the Company.

        The Company's Director Stock Option Plan (the "Director Plan") provides
each nonemployee director with an option to purchase 10,000 shares of common
stock. In addition, on the first day following each annual meeting of
stockholders, each re-elected nonemployee director who has served as a Director
for at least six months will receive an option to purchase 2,500 shares of
Common Stock. The exercise price of all options granted under the Director Plan
is the fair market value of the Company's Common Stock on the date of grant.
Options granted under the Director Plan vest monthly over twelve months from the
date of grant. A total of 200,000 shares of Common Stock have been reserved for
issuance under the Director Plan, 127,500 of which are available for grant at
December 31, 1997.

        The Company's employee stock purchase plan (the "Purchase Plan") permits
eligible employees to purchase Common Stock through payroll deductions of up to
15% of an employee's compensation, up to a maximum of $21,250 for all purchases
ending within the same calendar year. The price at which Common Stock will be
purchased under the Purchase Plan is equal to 85% of the fair market value of
the Common Stock on the first day of the applicable offering period or the last
day of the applicable purchase period, whichever is lower. A total of 600,000
shares of Common Stock have been reserved for issuance under the Purchase Plan,
392,952 of which are available for purchase at December 31, 1997.

        During 1995, the Company recorded $200 of deferred stock compensation
expense for the excess of the deemed fair market value over the exercise price
at the date of grant related to certain options granted in 1995. The
compensation expense is being recognized over the option vesting period of four
years. During 1997, the Company recognized $50 compensation expense related to
deferred stock compensation.

        During 1994, the Board of Directors granted non-qualified stock options
to purchase 58,600 shares of Preferred Stock and 26,340 shares of Common Stock
to certain members of the Company's management. During 1995, 46,880 and 21,072
options to purchase Preferred Stock and Common Stock, respectively, were
exercised. The remaining unexercised options expired during 1995.

        Stock option transactions under the 1994 Plan, the 1995 Plan, the 1996
Plan, and the Director's Plan for the years ended December 31, 1997, 1996 and
1995 are summarized below:

                                       35
<PAGE>   36
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                               WEIGHTED
                                                           AVERAGE EXERCISE
                                                SHARES          PRICE
                                               ---------   ----------------
        <S>                                    <C>             <C>
        Outstanding at December 31, 1994         348,185       $ 0.44
          Granted                                875,384         0.62
          Exercised                               (4,587)        0.44
          Canceled                               (25,462)        0.57
                                               ---------       ------
        Outstanding at December 31, 1995       1,193,520         0.57
          Granted                                650,775         7.58
          Exercised                              (27,946)        0.44
          Canceled                              (149,643)        1.38
                                               ---------       ------
        Outstanding at December 31, 1996       1,666,706         3.31
          Granted                              1,102,255         5.05
          Exercised                              (99,490)        0.57
          Canceled                              (140,945)        6.29
                                               ---------       ------
        Outstanding at December 31, 1997       2,528,526         3.90
                                               =========       ======
        Options exercisable at
        December 31, 1997                      1,274,168       $ 2.94
                                               =========       ======
</TABLE>

        The following tables summarize information about stock options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>
                         Options Outstanding at December 31, 1997

                                                 WEIGHTED
                                                  AVERAGE
                                                 REMAINING           WEIGHTED
        RANGE OF EXERCISE      OUTSTANDING      CONTRACTUAL          AVERAGE
              PRICES              NUMBER            LIFE         EXERCISE PRICE
         ---------------        ---------       -----------      --------------
         <S>                   <C>                  <C>            <C>
         $ 0.44 - $ 0.44          840,386            7.3            $     0.44
           1.50 -   2.50          105,275            7.9                  1.62
           3.60 -   5.75          726,334            9.8                  3.96
           6.00 -  10.00          823,543            8.7                  7.29
          10.01 -  15.00           32,988            8.5                 13.70
                                ---------
                                2,528,526
                                =========
</TABLE>
                    Options Exercisable at December 31, 1997
<TABLE>
<CAPTION>
                                                        WEIGHTED AVERAGE
      RANGE OF EXERCISE PRICES    NUMBER EXERCISABLE     EXERCISE PRICE
      ------------------------    ------------------    ----------------
          <S>                         <C>                    <C>
          $  0.44 - $ 0.44               686,406             $ 0.44
             1.50 -   2.50                67,044               1.69
             3.60 -   5.75               200,723               3.89
             6.00 -  10.00               294,911               7.49
            10.01 -  15.00                25,084              13.49
                                       ---------
                                       1,274,168
                                       =========
</TABLE>

        Had compensation cost for the Company's 1996 Plan, 1995 Plan and 1994
Plan been determined based on the fair value at the grant dates, as prescribed
in SFAS 123, the net loss and pro forma net loss per share would have been as
follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                        -----------------------------------------------
                                           1997              1996               1995
                                        ---------          ---------          ---------
        <S>                             <C>                <C>                <C>
        Net Loss
                 As reported            $   4,131          $   4,573          $   9,324
                 Pro Forma              $   5,173          $   5,095          $   9,341
        Basic and diluted  net
        loss per share
                 As reported            $    0.41          $    0.67          $    5.48
                 Pro forma              $    0.51          $    0.75          $    5.49
</TABLE>
                                       36
<PAGE>   37
                         OACIS HEALTHCARE HOLDINGS CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (Amounts in thousands, except share data)

        The Company calculated the fair value of each purchase under the
Purchase Plan and each option grant on the date of grant using the Black Scholes
binomial pricing method with the following assumptions: dividend yield at 0%;
weighted average expected option term of 4 years; risk free interest rate of
5.6% to 6.7%, 5% to 6.6% and 5.63% to 6.77% for the years ended December 31,
1997, 1996 and 1995, respectively. The Company also assumed a volatility factor
of approximately 38% for the year ended December 31, 1997 and 40% for the period
from May 17, 1996 to December 31, 1996. The weighted average fair value of
options granted during 1997, 1996 and 1995 was $5.05, $7.58 and $0.62,
respectively.

        Unaudited - In January 1998, the Company repriced options underlying
approximately 990,000 shares of Common Stock at the fair market value of the
Company's stock on the date of repricing which was equal to $3.50.
Additionally, the Company amended the terms of the repriced options to delay
exercising of any unvested options as of January 15, 1998 for one year.

12.     EMPLOYEE BENEFIT PLANS

        On May 14, 1994, the Company adopted the Oacis Healthcare Systems, Inc.
401(k) Plan (the "401(k) Plan") covering all eligible employees. Under the
401(k) Plan provisions, participants may elect to contribute up to 15 percent of
their salary, subject to statutorily prescribed annual limits, on a tax deferred
basis. The 401(k) Plan permits, but does not require, employer matching and
profit sharing contributions. All administrative expenses of the 401(k) Plan are
paid by the Company. During 1996, the Company contributed $46 to the 401(k)
Plan. The Company made no contributions in 1997.

13.     COMMITMENTS

        The Company leases its current and future office facilities under
noncancelable operating lease agreements which expire through August 2008 and
certain computer and office equipment under capital leases which expire through
February 2001. Future minimum payments under noncancelable operating leases and
capital leases as of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                    OPERATING          CAPITAL
                                                      LEASES           LEASES
                                                     -------          -------
        <S>                                          <C>              <C>
        1998...............................          $ 1,163          $   329
        1999...............................            1,608              325
        2000...............................            1,608              155
        2001...............................            1,567               15
        Thereafter ........................           10,359                -
                                                     -------          -------
        Total Minimum Lease Payments ......          $16,305              824
                                                     =======
        Less amount representing interest .                              (108)
        Amount due within one year ........                              (255)
                                                                      -------
        Present value of future minimum
          lease payments, less amounts
          due within one year .............                           $   461
                                                                      =======
</TABLE>

        Rent expense under noncancelable operating leases totaled $1,191, $1,096
and $1,133 for the years ended December 31, 1997, 1996 and 1995. In March 1997,
the Company entered into a lease in anticipation of the relocation of its
corporate headquarters. Rent under this lease is expected to commence in the
latter half of 1998 when the facility is ready for occupancy.

                                       37
<PAGE>   38

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        NOT APPLICABLE

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

        Information concerning the directors and executive officers of the
Company is incorporated by reference to the sections entitled "Proposal No. 1:
Election of Directors - Nominees" and "Management - Executive Officers"
contained in the Company's definitive proxy statement with respect to the
Company's 1998 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year
covered by this form 10-KSB (the "Proxy Statement"). Information concerning
compliance with Section 16(a) of the Exchange Act of 1934 is incorporated by
reference to the section entitled "Compliance with Section 16(a) of the Exchange
Act" contained in the Company's Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         Information concerning executive compensation is incorporated by
reference to the sections entitled "Proposal No. 1: Election of Directors -
Director Compensation," "Management - Summary Compensation Table," "Management -
Option Grants in Last Fiscal Year," "Management - Aggregated Option Exercises in
Last Fiscal year and Fiscal Year-End Option Values" and "Management - Employment
Agreement" contained in the Company's Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information concerning the security ownership of certain beneficial
owners and management is incorporated by reference to the section entitled
"Information Concerning Solicitation and Voting Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information concerning certain relationships and related transactions is
incorporated by reference to the section entitled "Certain Transactions"
contained in the Company's Proxy Statement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits:

          3.1*     Certificate of Incorporation of Registrant

          3.2x     Bylaws of Registrant.

          4.1+     Form of Common Stock certificate.

          10.1+    1996 Stock Plan and form of agreement thereunder.

          10.2+    1996 Director Option Plan and form of option agreement
                   thereunder.

          10.3+    1996 Employee Stock Purchase Plan and form of subscription
                   agreement thereunder.

          10.4+    Form of Indemnification Agreement entered into between
                   Registrant and its directors and executive officers.

          10.5+    Restated Stockholders Agreement dated as of April 8, 1996
                   between the Registrant and certain stockholders.

          10.6+    Lease dated August 30, 1990 for facilities located at 100
                   Drake's Landing Road, Greenbrae, California, together with
                   related expansion and extension agreements and work
                   agreements.

          10.7+    Lease dated July 10, 1992 for facilities located in Atlanta,
                   Georgia, together with an addendum thereto dated March 29,
                   1993.

                                       38
<PAGE>   39


          10.8+    Employment Agreement dated May 17, 1995 between Jim McCord
                   and Oacis Healthcare Systems, Inc., a wholly-owned subsidiary
                   of the Registrant ("Subsidiary").

          10.9+    Master Lease Agreement and Equipment Schedule VL-1, each
                   dated as of March 1, 1996, between Comdisco, Inc. and
                   Subsidiary.

          10.11+   Standard form of Software License Agreement for the Oacis
                   System.


          10.12    Lease dated March 19, 1997 for Facility located at 1101 5th
                   Avenue, San Rafael, Marin County, California

          21.1+    Subsidiaries of the Registrant.

          23.1     Consent of Independent Accountants

          24.1     Power of Attorney (see page 45) 27.0 Financial Data Schedule.

*    Incorporated by reference to Exhibit 3.2 previously filed with the
     Company's Registration Statement on Form SB-2 (No. 333-02804-LA)

x    Incorporated by reference to Exhibit 3.3 previously filed with the
     Company's Registration Statement on Form SB-2 (No. 333-02804-LA)

+    Incorporated by reference to the same numbered exhibit previously filed
     with the Company's Registration Statement on Form SB-2 (No. 333-02804-LA)

     (b) Reports on Form 8-K

     No report on Form 8-K were filed by the Company during the three months
     ended December 31, 1997.





                                       39
<PAGE>   40
                                   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, in the City of
Greenbrae, California, on March 31, 1998. OACIS HEALTHCARE HOLDINGS CORP.


                               By: _____________________________________________
                                   Stephen F. Ghiglieri,
                                   Vice President of Finance and Administration,
                                   Chief Financial Officer and Secretary


                                POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jim McCord and Stephen Ghiglieri, and
each of them acting individually, as his attorney-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.

   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>
                                   Chairman of the Board and Chief Executive        March 31, 1998
_______________________________    Officer (Principal Executive Officer)
Jim McCord

_______________________________    President, Chief Operating Officer               March 31, 1998
John Kingery                        and Director

                                   Vice President of Finance and Administration,    March 31, 1998
_______________________________    Chief Financial Officer and Secretary
Stephen F. Ghiglieri               (Principal Financial and Accounting Officer)

_______________________________    Director                                         March 31, 1998
Alan W. Crites

_______________________________    Director                                         March 31, 1998
Bernard Puckett

_______________________________    Director                                         March 31, 1998
David Dominik

_______________________________    Director                                         March 31, 1998
Fred Goad

_______________________________    Director                                         March 31, 1998
Dennis Sisco

_______________________________    Director                                         March 31, 1998
William H. Younger, Jr.
</TABLE>


                                       40