SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
June 30, 1998 0-11476
HEALTHWATCH, INC.*
(Exact name of registrant as specified in its charter)
Minnesota 84-0916792
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470
Atlanta, GA 30350
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(770) 641-5555
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months 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 herein, 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 [___].
Registrant's revenues for fiscal year ended June 30, 1998: $1,383,335.
Aggregate market value of voting stock held by non-affiliates of
registrant as of October 1, 1998: Approximately $1,500,000.
Number of shares outstanding as of October 1, 1998: 2,909,121 shares of
Common Stock, $.01 par value.
Documents incorporated by reference: None.
______________
* Registrant intends to ask stockholders at the 1998 Annual Meeting of
Stockholders to approve a change in Registrant's name to MERAD Technologies
Corporation.<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
Director
Name Since Age Positions With The Company
---- -------- --- --------------------------
Paul W. Harrison 1997 43 Chief Executive Officer and Director
George T. Mier -- 48 Vice President of Marketing
Richard T. Case 1997 47 Director
Larry Fisher 1997 53 Consultant and Director
Sanford L. Schwartz 1983 46 Director
PAUL W. HARRISON has extensive experience in the United States and
internationally managing information technology companies. He has been the
Chairman & CEO of HALIS, Inc. since November 1996, and a significant owner
in PHE, a privately-held information technology management company. Mr.
Harrison was the President and Managing Member of AUBIS, LLC from February
1995 to December 1997, which owned two information system companies that
were merged into HALIS in November 1996. Mr. Harrison was an executive with
and advisor to HBO & Company, a leading healthcare information systems
company ("HBOC"), from June 1993 until December 1994. Prior to HBOC, Mr.
Harrison was the CEO of BIVEN, Inc. from April 1991 to June 1993, which sold
software and other technology-related assets to HBOC in June 1993.
GEORGE T. MIER was Director of Sales and Marketing of the Company from
March 1996 to November 1996 when he became Vice President of Marketing.
Prior to joining the Company, he was Vice President--Sales and Customer Care
and Senior Consultant for Innotech, Inc., a manufacturer of ophthalmic
equipment and disposables, from 1993 to 1995; National Sales Director, World
Learning, Inc., an educational company from 1992 to 1993; and National Sales
Manager or Regional Manager for American Optical Corp., a medical products
company, from 1988 to 1992.
RICHARD T. CASE has been President of Benchmark Associates, a business
consulting firm since 1985. Mr. Case was President of Polymedica
Industries, Inc., a medical products company from May 1990 to July 1992.
Mr. Case also served as a Director of the Company from 1990 to 1994.
LARRY FISHER has served as Executive Vice President of HALIS, Inc.
since June 1997. Mr. Fisher was the founder of Fisher Business Systems,
Inc. ("Fisher"), the predecessor of HALIS, and served as a director since
its organization in 1979. Mr. Fisher subsequently served as President,
Chief Executive Officer and Treasurer of Fisher from 1979 to 1992, and as
Chairman of the Board, from December 1992 to November 1996. He led the
development of the first generation of Fisher's products for the hospitality
marketplace and is a recognized leader in the industry. Under his
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management, Fisher developed the first integrated point-of-sale and back
office system for the food service industry. He also directed Fisher's
efforts in the development of its second generation touch screen system.
Prior to 1979, Mr. Fisher was Common Stock.employed by IBM for 11 years in
several executive sales and marketing positions. In his last such position,
Mr. Fisher was responsible for creating, implementing and monitoring
national marketing programs for the retail and hospitality industries.
SANFORD L. SCHWARTZ has been a consultant with Creative Business
Strategies, Inc., a business/development consulting firm, since July 1992.
He served as Chief Executive Officer of the Company from June 1983 to
September 1993. Mr. Schwartz is a director of Renaissance Entertainment
Corporation.
CERTAIN FILINGS. On May 1, 1991, comprehensive new rules promulgated
by the Securities and Exchange Commission relating to the reporting of
securities transactions by directors and officers became effective. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company during the fiscal year ended June 30, 1998 all
required reports were timely filed, except that Richard T. Case and Paul W.
Harrison, directors of the Company, each failed to file a Form 3 report on a
timely basis reporting their respective ownership of the Company's
securities at the time that they were elected a director of the Company.
Item 10. EXECUTIVE COMPENSATION.
COMPENSATION
The following table sets forth, on an accrual basis, the aggregate cash
compensation paid by the Company and its subsidiaries during the three
fiscal years ended June 30, 1998 to the Company's Presidents and Chief
Executive Officers and Chairman of the Board of Directors. No officer or
director of the Company received compensation of $100,000 or more in fiscal
1996 or 1997.
<TABLE>
<CAPTION>
Name and Principal Fiscal Options Restricted
Position Year Salary Bonus (No. of Shares) Stock Awards
- ------------------ ------ ------ ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel J. Kelly 1998 $137,500 $13,200 120,000 shs.* --
Former President and 1997 80,770 -- 120,000 shs. --
CEO 1996 -- -- -- --
</TABLE>
* Represents repricing of options granted during 1997.
STOCK BASED COMPENSATION
The Company has a 1989 Incentive Stock Option Plan and 1993 and 1995
Stock Option Plans ("the Plans") for its key employees, directors and
consultants to purchase shares of the Company's Common Stock. The Plans
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provide that the purchase price of the shares covered by incentive stock
options may not be less than the fair market value of the shares on the date
the option was granted. Nonstatutory stock options granted can be granted
at exercise prices of 85% or more of the fair market value of the Company's
Common Stock on the date of grant. To date, all options granted under the
Plans have been at exercise prices equal to the fair market value of the
Common Stock on the date the Company agreed to grant the options.
The Company has, from time to time, also provided nonstatutory stock
options outside of the Plans to directors, officers and consultants and has
awarded stock grants to officers, directors, employees and consultants in
consideration for services. These nonstatutory options generally have had a
term of three to five years and have had exercise prices equal to the fair
market value of the Company's Common Stock on the date the options were
granted. At November 30, 1998, the Company had an aggregate of 859,584
shares reserved for issuance pursuant to outstanding stock options under the
Plans.
DIRECTORS' REPORT. On August 25, 1997 and May 27, 1998, the Board of
Directors unanimously approved repricing of most outstanding stock options
held by current employees and directors of the Company (a total of 348,714
and 445,380 shares, respectively), including 120,000 and 40,000 shares,
respectively, subject to options held by Daniel J. Kelly. It was the Board
of Directors' opinion that the repricing of these options was appropriate in
view of the Company's inability to provide adequate cash compensation,
particularly to its officers and directors, due to the Company's lack of
working capital.
The following table shows option grants during fiscal 1998 to the named
executive officer of the Company. Reference is also made to the information
included above under "Compensation."
Options Granted Percent of Total Exercise Expiration
Name in Fiscal 1998 Options Granted Price Date
- --------------- --------------- ---------------- -------- ----------
Daniel J. Kelly 40,000 shs. 9.0% $ .66<1> 12/18/01
Daniel J. Kelly 120,000 shs. 37.3% $2.80<1> 12/18/01
<F1> These options represent the repricing during fiscal 1998 of previously
granted options. The 40,000 share option represents a repricing on May
27, 1998 of one-third of the 120,000 share option which was repriced on
August 25, 1997.
The following table shows the number of options exercised during fiscal
1998 and the 1998 fiscal year-end value of the options held at the end of
the fiscal year by the named executive officer.
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<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised in-the-money Options
Shares Acquired on Options at June 30, 1998 at June 30, 1998
Name Exercise of Options Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------- ------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Daniel J. Kelly None 40,000/120,000 shs. $-0-/$-0-
</TABLE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of November 30, 1998, the shares of
Common Stock and percentage of total shares owned by the shareholders known to
beneficially own 5% of the Company's outstanding shares of Common Stock, each
director and nominee for election to the Board of Directors of the Company and
as to all executive officers and directors as a group. All persons indicated
have (unless indicated to the contrary) sole or shared with spouse voting and
dispositive power over such shares.
Name and Address of Beneficial
Owner, Name of Director or
Nominee or Identity of Group Amount Beneficially Owned Percentage
- ------------------------------ ------------------------- ----------
[S] [C] [C]
Paul W. Harrison 812,832 <1><2> 29.7%
9040 Roswell Road
Suite 470
Atlanta, Georgia 30350
Larry Fisher 220,666 <1> 10.5%
9040 Roswell Road
Suite 470
Atlanta, Georgia 30350
Richard T. Case 8,142 <1> *
Sanford L. Schwartz 26,981 <1><3> 1.3%
All Officers, Directors and 1,092,571 <1><2><3> 37.9%
Nominees as a Group
(5 persons)
____________________
[FN]
* Less than one percent of shares outstanding.
<F1> Includes for the following persons the number of shares set forth
opposite their name which are issuable within 60 days of the record
date upon exercise of outstanding stock purchase options or warrants or
conversion of outstanding debentures: Harrison--709,999 shares; Fisher
--80,666 shares; Case--8,000 shares; Schwartz--20,214 shares; and all
officers and directors as a group--832,879 shares.
-5-<PAGE>
<F2> Includes 83,333 shares owned by HALIS, Inc. ("HALIS"), of which Mr.
Harrison is the Chairman of the Board of Directors and Chief Executive
Officer and a major shareholder. Does not include 125,092 shares of
Series P Preferred Stock which, subject to approval of the Company's
shareholders, would be convertible into 1,250,884 shares of the Company's
Common Stock.
<F3> Includes shares owned by Creative Business Strategies, Inc. ("CBS").
Mr. Schwartz is an officer, director and principal shareholder of CBS.
</FN>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fourth quarter of calendar 1997, the Company completed a
series of transactions with HALIS; two officers and directors of HALIS;
MERAD Corporation, which is a wholly-owned subsidiary of Paul Harrison
Enterprises, Inc., an affiliate of HALIS; and several shareholders of HALIS
in which these parties exchanged 1,100,000 of their shares of HALIS common
stock for 880,000 shares of the Company's Common Stock and PHE was granted
an option to acquire 320,000 additional shares of the Company's Common Stock
in exchange for 400,000 additional shares of HALIS common stock, the
exchange ratio being based on the market value for each company's common
stock at the time that the transaction was negotiated; and HALIS acquired
83,333 shares of the Company's Common Stock for a purchase price of
$125,000. These transactions followed the execution, during August 1997, by
the Company and HALIS of a letter of intent which contemplated a merger of
the two companies. In furtherance of the business collaboration with HALIS
and to assist the Company in maintaining a minimum net worth of $2,000,000
as required by The Nasdaq Stock Market, Inc. for companies whose stock is
listed on Nasdaq, during February 1998, the PHE option was exercised by PHE
and its assigns and PHE exchanged an additional 1,262,000 shares of HALIS
common stock for 378,600 shares of the Company's Common Stock. The exchange
ratio for the shares exchanged in February was based on the market value
for each company's common stock at the time that the exchange was
negotiated.
Following discussions, HALIS and the Company determined that it
would be preferable for the two companies, at that time, to adopt a
shared business development strategy, but for each to remain a
separate company. To implement this strategy, the Company and HALIS
entered into a business collaboration agreement whereby the Company
and HALIS share sales prospects and the Company agreed to develop
technology and an integration database engine designed to monitor,
capture and manage medical information at the point of care.
In addition, the Company obtained a non-exclusive license from
MERAD to certain artificial intelligence computer software and a
multimedia database utility, and retained MERAD to develop proprietary
software technology which will be used to expand the Company's product
offerings to include products and services specifically focused on
monitoring, capturing and managing medical information at the point of
care. MERAD was to be paid $15,000 per month for 24 months to develop
the software and was to be paid a royalty of from 5% to 1% of the
gross proceeds the Company derives from the sale of the software.
-6-
<PAGE>
Effective October 10, 1997, PHE and Paul W. Harrison entered into
a consulting agreement with the Company which expires on December 31,
1998. The agreement provides for, among other things, the payment to
PHE commencing on January 1, 1998 of $15,000 per month, the granting
of a seven-year nonstatutory stock option to Mr. Harrison representing
the right to acquire up to 150,000 shares of the Company's Common
Stock at $2.65625 (repriced to $.66 per share on May 27, 1998) per
share, the then fair market value for the Company's Common Stock, and
to loan to Mr. Harrison up to $200,000 payable in four equal annual
installments and bearing interest at 7% per annum. As of the date of
this report, $0 had been borrowed pursuant to the loan commitment.
During the second quarter of fiscal 1999, the Company acquired
all of the outstanding shares of PHE, including the shares owned by
Mr. Harrison, in exchange for an aggregate of 334,443 shares of the
Company's Series P Preferred Stock which, subject to approval of the
Company's shareholders, will be convertible into 3,344,320 shares of
the Company's Common Stock. For additional information regarding this
transaction, see the Company's Current Report (Form 8-K) dated October
7, 1998 filed with the Commission.
Effective October 10, 1997, Larry Fisher entered into a
consulting agreement with the Company which expires on December 31,
1998. The agreement provides, among other things, for the grant of a
seven-year nonstatutory stock option representing the right to acquire
80,000 shares of the Company's Common Stock at $2.65625(repriced to
$.66 per share on May 27, 1998) per share, the then fair market value
for the Company's Common Stock.
On December 18, 1996, Daniel J. Kelly entered into an employment
agreement with the Company pursuant to which he is to be paid $150,000
per annum, is eligible for a bonus of up to one-third of his base
salary and received an option to purchase 120,000 shares of the
Company's Common Stock. The Agreement provides for a severance
payment equal to five months salary if his employment is terminated
before December 31, 2000.
On January 22, 1998, Paul W. Harrison, Larry Fisher and Lindley
S. Branson (a former officer and director of the Company) each loaned
the Company $17,000 for a period of 90 days. The loans paid interest
at 7% per annum. As additional compensation for making the loans,
each was granted a warrant to acquire 16,666 shares of the Company's
Common Stock at $1.71875 per share, the fair market value for the
Company's Common Stock on January 22, 1998. These loans were repaid
in fiscal 1998. In addition, during January 1998, a $35,000 loan
which Mr. Branson made during the fourth quarter of calendar 1997 was
paid by the issuance to Mr. Branson of 20,000 shares of the Company's Common
Stock.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) Listing of Exhibits:
3.1 Articles of Incorporation, as amended, of the Company <1>.
3.2 Bylaws, as amended, of the Company <2>.
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4.1 Specimen form of the Company's Common Stock certificate
<2>.
4.2 HealthWatch, Inc. Stock Option Plan of 1989 <3>.
4.3 Form of Incentive Stock Option Agreement <3>.
4.4 Form of Nonstatutory Stock Option Agreement <4>.
4.5 HealthWatch, Inc. Stock Option Plan of 1993 <4>.
4.6 HealthWatch, Inc. Stock Option Plan of 1995 <5>.
4.7 HealthWatch, Inc. 1995 Stock Grant and Salary Deferral Plan <5>.
4.8 Subscription and Purchase Agreement dated as of the 14th day of
August 1992 between the Company and the Purchasers of the
Company's 10% convertible senior debentures due 1997 (including
as an appendix thereto the form of the debenture certificate)
<6>.
4.9 Subscription and Purchase Agreement between HealthWatch, Inc.
and HALIS, Inc. <7>
4.10 Certificate of the Designation, Preferences, Rights and
Limitations of the 6% Series A Convertible Preferred Stock of
HealthWatch, Inc. -- previously filed.
4.11 Certificate of the Designation, Preferences, Rights and
Limitations of the Series P Preferred Stock of HealthWatch, Inc.
-- previously filed.
10.1 License Agreement dated February 27, 1992, as amended September
13, 1993, between Howard R. Everhart and Metamed, Inc. <6>.
10.2 Second Amendment to License Agreement dated May 9, 1995 between
Howard R. Everhart and HealthWatch Technologies, Inc. <7>.
10.3 Business Collaboration Agreement dated as of October 10, 1997
between the Company and HALIS, Inc. <8>.
10.4 License and Software Development Agreement dated as of October
10, 1997 between the Company and MERAD Corporation <8>.
10.5 Consulting Agreement dated as of October 10, 1997 among the
Company, Paul Harrison Enterprises, Inc. and Paul Harrison <8>.
10.6 Consulting Agreement dated as of October 10, 1997 between the
Company and Larry Fisher <8>.
10.7 Agreement and Plan of Merger dated as of September 30, 1998
among HealthWatch, Inc., MERAD Software, Inc. and Paul Harrison
Enterprises, Inc. <9>.
10.8 Letter of Intent between HealthWatch, Inc. and HALIS, Inc.
dated July 14, 1998 -- previously filed.
21 Subsidiaries of the Company at June 30, 1998 <6>.
23.1 Consent of Silverman Olson Thorvilson & Kaufmann, Ltd. --
previously filed.
27.1 Financial Data Schedule - previously filed.
________________________
[FN]
<F1> Incorporated herein by reference to the Company's Annual Report, Form
10-K, for the year ended June 30, 1990 (File No. 0-11476).
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<F2> Incorporated herein by reference to Registration Statement, Form S-18
(File No. 2-85688D).
<F3> Incorporated herein by reference to Registration Statement, Form S-2
(File No. 33-42831).
<F4> Incorporated herein by reference to the Company's Annual Report, Form
10-KSB, for the year ended June 30, 1994 (File No. 0-11476).
<F5> Incorporated herein by reference to the Company's Annual Report, Form
10-KSB, for the year ended June 30, 1996 (File No. 0-11476).
<F6> Incorporated herein by reference to Registration Statement, Form SB-2
(File No. 33-73462).
<F7> Incorporated herein by reference to the Company's Annual Report, Form
10-KSB, for the year ended June 30, 1997 (File No. 0-11476).
<F8> Incorporated herein by reference to the Company's Quarterly Report,
Form 10-QSB, for the quarter ended December 31, 1997.
<F9> Incorporated herein by reference to the Company's Current Report, Form
8-K, dated October 1, 1998.
</FN>
(b) During the quarter ended June 30, 1998, Registrant did not file a
report on Form 8-K.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEALTHWATCH, INC.
Date: December 1, 1998 By /s/ Paul W. Harrison
------------------------------------
Paul W. Harrison (Chief Executive
Officer)
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