<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) January 24, 1997
______________________________
HALIS, Inc.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Georgia 0-16288 58-1366235
________________________________________________________________________________
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 641-5555
-----------------------------
Not applicable
________________________________________________________________________________
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
- ------ ---------------------------------
(a) Financial Statements of Business Acquired:
The following financial statements are filed with this Report:
SOFTWARE MANUFACTURING GROUP, INC.
- ----------------------------------
Independent Auditors' Report of Habif, Arogeti & Wynne, P.C.
Balance Sheet at December 31, 1996
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Changes in Stockholders' Deficit for the years ended December 31,
1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
(b) Pro Forma Financial Information:
The following unaudited pro forma condensed financial statements are filed
with this Report:
Introduction
Unaudited Pro Forma Condensed Consolidated Balance Sheet - December 31, 1996
Unaudited Pro Forma Condensed Consolidated Statement of Operation - year ended
December 31, 1996
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements
(c) Exhibits:
2.1 Agreement and Plan of Merger and Reorganization, dated as of January 24,
1997, among HALIS, Inc., SMG Acquisition Co., Software Manufacturing
Group, Inc. and the shareholders of Software Manufacturing Group, Inc.
(incorporated by reference from the Company's Current Report on Form 8-K
dated January 24, 1997).
-2-
<PAGE>
[LETTERHEAD OF HABIF, AROGETI & WYNNE, P.C.]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
Software Manufacturing Group, Inc.
We have audited the accompanying balance sheet of SOFTWARE MANUFACTURING GROUP,
INC., as of December 31, 1996, and the related statements of operations, changes
in stockholders' deficit and cash flows for the years ended December 31, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SOFTWARE MANUFACTURING GROUP,
INC., at December 31, 1996, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
/s/ Habif, Arogeti & Wynne, PC.
Atlanta, Georgia
March 5, 1997
MEMBERS
GEORGIA SOCIETY OF
CERTIFIED PUBLIC ACCOUNTANTS
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
AICPA DIVISION FOR CPA FIRMS
PRIVATE COMPANIES PRACTICE SECTION
SEC PRACTICE SECTION
--------------------------------------------------------------
1073 West Peachtree Street, N.E. Atlanta, Georgia 30309-3837
(404) 892-9651 Fax (404) 876-3913
-3-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
<TABLE>
<CAPTION>
Current assets
- --------------
<S> <C>
Cash and cash equivalents $ 97,784
Receivables, less allowance for
doubtful accounts of $15,052 272,071
Prepaid expenses 13,297
-----------
Total current assets 383,152
-----------
Property and equipment, at cost
- -------------------------------
Computer equipment 391,789
Office furniture and equipment 151,970
-----------
543,759
Less accumulated depreciation [392,251]
-----------
151,508
-----------
Other assets
- ------------
Deposits 7,267
Capitalized software development costs,
net of accumulated amortization of $27,762 138,810
Other 1,150
-----------
147,227
-----------
$ 681,887
===========
LIABILTIES AND STOCKHOLDERS' DEFICIT
------------------------------------
Current liabilities
- -------------------
Line-of-credit payable $ 200,000
Current portion of long-term debt 70,694
Current portion of capital lease obligations 16,248
Note payable - related party 260,000
Accounts payable 153,803
Accrued expenses 118,512
Deferred revenue 506,591
Customer deposits and prepayments 124,355
-----------
Total current liabilities 1,450,203
-----------
Long-term liabilities
- ---------------------
Long-term debt, net of current potion 266,535
Capital lease obligations, net of current portion 35,185
-----------
301,720
-----------
Stockholders' deficit
- ---------------------
Common stock - $1.00 par value,
100,000 shares authorized; 4,000 shares
issued and outstanding 4,000
Additional paid-in capital 9,250
Accumulated deficit [1,083,286]
-----------
[1,070,036]
-----------
$681,887
===========
</TABLE>
See auditors' report and accompanying notes.
-4-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Systems sales and services $2,923,629 $3,461,832
- -------------------------- ---------- ----------
Costs and expenses
- ------------------
Cost of sales 1,102,388 1,262,409
Selling, general, and administrative 2,108,094 2,198,804
Research and development 312,430 211,342
--------- ---------
3,522,912 3,672,555
--------- ---------
Operating loss [599,283] [210,723]
--------- ---------
Other income [expense]
- ----------------------
Miscellaneous income 53,999 63,887
Interest income 731 1,268
Interest expense [83,360] [20,729]
Loss on disposal of property and equipment [77,468] [14,050]
---------- ----------
[106,098] 30,376
---------- ----------
Net loss $[705,381] $[180,347]
========== ==========
</TABLE>
See auditors' report and accompanying notes.
-5-
<PAGE>
SOFTWARE MANUFACTURINIG GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1994 $4,000 $9,250 $[ 197,558] $[ 184,308]
Net loss - - [ 180,347] [ 180,347]
------ ------ ----------- -----------
Balances, December 31, 1995 4,000 9,250 [ 377,905] [ 364,655]
Net loss - - [ 705,381] [ 705,381]
------ ------ ----------- -----------
Balances, December 31, 1996 $4,000 $9,250 $[1,083,286] $[1,070,036]
====== ====== =========== ===========
</TABLE>
See auditors' report and accompanying notes.
-6-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
-------- ---------
Cash flows from operating activities
- ------------------------------------
<S> <C> <C>
Net loss [705,381] [180,347]
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 130,071 93,722
Loss on sale of property and equipment 77,468 14,050
Bad debt 12,000 -
Inventory reserve 20,000 -
Changes in assets and liabilities
Decrease [Increase] in receivables 56,220 [ 16,399]
Decrease [Increase] in inventory 143,087 [ 58,780]
Increase in prepaid expenses [3,663] [ 9,634]
Decrease [Increase] in deposits 1,355 [ 1,712]
Increase in other assets - [ 4,504]
Increase [Decrease] in accounts payable [ 62,377] 85,201
Increase [Decrease] in accrued expenses 4,320 [ 38,395]
Increase [Decrease] in deferred revenue [ 46,404] 73,127
Increase [Decrease] in customer deposits 102,794 [ 9,498]
--------- ---------
Total adjustments 434,871 127,178
--------- ---------
Net cash used by operating activities [270,510] [ 53,169]
--------- ---------
Cash flows from investing activities
- ------------------------------------
Purchase of property and equipment [ 82,157] [192,592]
Proceeds from sale of equipment and furniture 13,395 -
Increase in software development costs [ 47,849] [118,723]
--------- ---------
Net cash used by investing activities [116,611] [311,315]
--------- ---------
Cash flows from financing activities
- ------------------------------------
Proceeds from note payable - related party 205,000 100,000
Payments on note payable - related party [ 45,000] -
Proceeds from issuance of long-term debt 7,923 445,680
Principal payments on long-term debt [70,694] [151,995]
Proceeds from line-of-credit 200,000 75,679
Principal payments on line-of-credit - [ 75,679]
Principal payments on capital lease obligations [ 15,097] [ 5,790]
--------- ---------
Net cash provided by financing activities 282,132 387,895
--------- ---------
Net increase [decrease] in cash and cash
equivalents [104,989] 23,411
Cash and cash equivalents, beginning of year 202,773 179,362
--------- ---------
Cash and cash equivalents, end of year $ 97,784 $ 202,773
========= =========
</TABLE>
NONCASH INVESTING ACTIVITIES
- ----------------------------
In 1995, capital lease obligations of $72,320 were incurred when the Company
entered into a lease for new equipment.
See auditors' report and accompanying notes.
-7-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Nature of Operations:
--------------------
SOFTWARE MANUFACTURING GROUP, INC., a Georgia corporation, develops,
licenses, and supports computer software for use by orthodontic practices
within North America. The Company provides training for the software and
offers service contracts which include technical telephone support and
software updates.
Revenue Recognition:
-------------------
Revenue consists primarily of licensing fees, sales of related computer
hardware, and post contract customer support. The Company accounts for such
revenue in accordance with the American Institute of Certified Public
Accountants' (AICPA) Statement of Position 91-1, Software Revenue
--------------------------
Recognition, as follows:
<TABLE>
<CAPTION>
<S> <C>
License Revenue - Revenue from the sales of software licenses
is recognized after shipment of the product
and fulfillment of acceptance terms, provided
no significant obligations remain and collection
of resulting receivable is deemed probable.
Support contract - Ratably over the life of the contract from the
effective date.
Installation, training and education - When the services are provided.
Hardware - Upon shipment of computer equipment to the
customer, provided no significant obligations
remain and collection of resulting receivable
is deemed probable.
</TABLE>
Cash and Cash Equivalents:
-------------------------
The Company classifies all highly liquid instruments with maturities of
ninety days or less as cash equivalents.
Property and Equipment:
----------------------
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that
materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed of, and the related allowance for
depreciation, are eliminated from the accounts, and any resulting gain or
loss is included in operations.
-8-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
------------------------------------------
Property and Equipment: [Continued]
----------------------
Depreciation is provided using the straight-line method based on the
estimated useful lives of the assets which are as follows:
Computer equipment 5 years
Office furniture and equipment 5 - 7 years
Software Development Costs:
--------------------------
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, research and development costs incurred prior to the attainment of
technological and marketing feasibility of products are charged to operations.
Thereafter, the Company capitalizes the direct costs and associated allocated
overhead incurred in the development of products, until the point of market
release of such products, wherein costs incurred are again charged to
operations.
Capitalized costs are amortized over a period of five years, the estimated
product life, on a straight line basis, and amortization commenced when the
product became available for market release. Unamortized costs are carried at
the lower of book value or net realizable value.
Income Taxes:
------------
The Company had elected to be treated as an S corporation pursuant to the
Internal Revenue Code for federal and state income tax purposes. The income of
an S corporation is taxable and distributable to the individual stockholders
of a corporation without further tax consequences to the Company. As discussed
further in Note C, the Company ceased to be an S corporation subsequent to
year end upon consummation of a merger with another company.
Use of Estimates:
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
disclosures including the allowance for doubtful accounts, inventory reserve,
useful lives and recoverability of long term assets. Actual amounts could
differ from those estimates. Any adjustments applied to estimated amounts are
recognized in the year in which such adjustments are determined.
-9-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
B. SOFTWARE DEVELOPMENT COSTS:
--------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1 9 9 6 1 9 9 5
-------- ---------
<S> <C> <C>
Balances, beginning of year $118,723 $ -0-
Amounts capitalized 47,849 118,723
Amortization [ 27,762] -0-
-------- ---------
Balances, end of year $138,810 $ 118,723
======== =========
Research and development costs incurred $360,279 $ 330,065
Less amounts capitalized [ 47,849] [118,723]
-------- ---------
Research and development charged to expense $312,430 $ 211,342
======== =========
</TABLE>
No amortization of capitalized research and development costs was
provided during 1995 as market release of the product did not occur until
February 1996.
C. SUBSEQUENT EVENT - MERGER AGREEMENT:
-----------------------------------
On January 24, 1997, the shareholders of the Company effected a merger
agreement with HALIS, Inc. (HALIS) whereby the Company was merged into a
subsidiary of HALIS in a transaction accounted for as a purchase by HALIS. It
is the opinion of management and legal counsel that this transaction
qualifies as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986.
All 4,000 issued and outstanding shares were exchanged by the shareholders in
consideration for 3,072,000 of HALIS's shares. Additionally, contingent
merger consideration may be paid in the form of HALIS common stock, based
upon certain, specified operating results for the year ended December 31,
1997.
The merger agreement included an employment agreement with the president of
the Company which expires in January 1999 and provides for a base salary of
$192,000 plus certain variable incentive compensation.
As a subsidiary of HALIS, a publicly traded company, the Company
will no longer be taxed as an S corporation for income tax purposes.
The Company issued its stock in payment of the Company's $260,000 liability
to a majority shareholder (Note J) upon closing.
Subsequent Events - Other:
-------------------------
Two shareholders of the Company personally assumed the amounts due under the
long-term debt and line-of-credit to Fidelity National Bank in January 1997.
Both instruments were paid in full and closed in February 1997. The balances
at December 31, 1996 of the long-term debt and line-of-credit were $337,229
and $200,000, respectively.
-10-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
D. RECEIVABLES:
-----------
Receivables as of December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Trade $ 266,156
Other 20,967
---------
287,123
Allowance for doubtful accounts [ 15,052]
---------
$ 272,071
=========
</TABLE>
E. LONG-TERM DEBT:
--------------
The Company has the following note payable:
Fidelity National Bank - Secured note payable in the original amount of
$400,000, at prime plus 2% per annum, with monthly payments in the amount of
$8,500 which include interest. The note was originally due December 28,
2000. Fidelity National Bank has a blanket lien on the assets of the
Company.
Maturities of the note payable as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, Amount
- -------------- --------
<S> <C>
1997 $ 70,694
1998 78,290
1999 86,703
2000 101,542
--------
$337,229
========
</TABLE>
As discussed in Note C, this note was paid in full subsequent to year end.
F. LINE-OF-CREDIT:
--------------
The Company has a $200,000 revolving line-of-credit with Fidelity National
Bank, of which $200,000 was owed at December 31, 1996. Bank advances on the
credit line are payable on demand and carry an interest rate of prime plus 2%
per annum. The credit line is secured by substantially all corporate assets.
As discussed in Note C, this instrument was paid in full subsequent to year
end.
G. CAPITAL LEASES PAYABLE:
----------------------
The Company leases equipment under two capital leases. The economic substance
of the leases is that the Company is financing the acquisition of the assets
through the leases, and, accordingly, they are recorded in the Company's
assets and liabilities. The leases contain a bargain purchase option at the
end of the lease term.
-11-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
G. CAPITAL LEASES PAYABLE: [Continued]
----------------------
The following is an analysis of the leased assets included in property and
equipment:
<TABLE>
<CAPTION>
1 9 9 6
----------
<S> <C>
Office furniture and equipment $ 72,320
Less accumulated depreciation [30,111]
--------
$ 42,209
========
</TABLE>
The following is a schedule by year of future minimum payments required under
the leases together with their present value as of December 31, 1996:
<TABLE>
<CAPTION>
December 31, Amount
- -------------- --------
<S> <C>
1997 $ 23,113
1998 23,968
1999 13,698
2000 3,425
--------
Total minimum lease payments 64,204
Less amount representing interest [12,771]
Present value of minimum lease payments 51,433
Less amounts currently payable [16,248]
--------
Long term portion $ 35,185
========
</TABLE>
H. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company does not have a secured interest in its accounts receivable;
however, it does have legal recourse for defaulted amounts. There were no
significant receivables from any single customer at December 31, 1996.
The Company maintains all of its cash deposits at three financial depository
institutions. The amount of the accounting loss due to credit risk the
Company would incur if the financial depository institution failed would be
the cash deposits in excess of the $100,000 amount per depositor that is
federally insured. The amount at risk totalled $18,350 at December 31, 1996.
Operating Leases:
----------------
The Company leases office space and equipment under several operating
agreements. Rent expense for the office space and equipment totalled $129,836
and $112,580 for the years ended December 31, 1996 and 1995, respectively.
-12-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
H. COMMITMENTS AND CONTINGENCIES: [Continued]
-----------------------------
Operating Leases: [Continued]
----------------
At December 31, 1996, future minimum lease payments under non-cancellable
leases having remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
December 31, Amount
- -------------- --------
<S> <C>
1997 $117,056
1998 117,052
1999 6,498
--------
$240,606
========
</TABLE>
Employee Benefit Plan:
---------------------
The Company sponsors an age-based profit-sharing plan for all employees who
meet certain eligibility requirements. The Company may elect to make
discretionary contributions. Employees are subjected to a five-year vesting
schedule. The Company made no contributions to the plan during the previous
two fiscal years.
Litigation:
----------
The Company is defendant in a number of claims relating to matters arising in
the ordinary course of business. Management contends that the Company has no
liability under these claims. The amount of liability, if any, from the
claims cannot be determined with certainty; however, management is of the
opinion that the outcome of the claims will not have a material adverse
impact on the financial position. Due to uncertainties in the settlement
process, it is at least reasonably possible that management's estimate of the
outcome will change within the next year.
I. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
------------------------------------------------
Supplemental information required by Statement of Financial Accounting
Standards No. 95, relative to the statement of cash flows, is as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
--------- ---------
<S> <C> <C>
Interest paid $81,766 $20,729
</TABLE>
-13-
<PAGE>
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
J. NOTE PAYABLE - RELATED PARTY:
----------------------------
The Company has an unsecured note payable to a majority shareholder of the
Company as of December 31, 1996 in the amount of $260,000. The note is due on
demand and interest is being accrued at 8% per annum. Total interest paid
during 1996 was $14,770. Interest incurred but not paid at December 31, 1995
was $3,627. In connection with the merger agreement, the Company issued its
stock in payment of this liability to this shareholder subsequent to
year end (Note C).
Amount due to a partnership which shares common ownership was $842 at
December 31, 1996.
-14-
<PAGE>
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet of HALIS,
Inc. gives effect to the following transactions as if they occurred on December
31, 1996: the acquisitions of The Compass Group, Inc. (Compass) and Software
Manufacturing Group, Inc. (SMG) by HALIS, Inc. and Subsidiaries (HALIS)
accounted for as purchases. The Unaudited Pro Forma Condensed Consolidated
Statement of Operations for HALIS for the year ended December 31, 1996 gives
retroactive effect to the acquisition as if they had occurred January 1, 1996.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to be indicative of the actual financial position or the results of
operations of HALIS had the acquisition been completed, and should be read in
conjunction with the unaudited financial statements of HALIS and the audited
financial statements of Compass and SMG and the related notes thereto.
-15-
<PAGE>
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HALIS, Inc. The Software
and Compass Manufacturing
Subsidiaries Group, Inc. Group, Inc. Adjustments Pro Forma
------------ ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
------
Current assets $ 798,341 $51,619 $ 383,152 $ - $ 1,233,112
Property and equipment 60,154 4,475 151,508 [a] [ 1,508] 214,629
Other assets 118,639 - 8,417 [a] [ 18,000] 109,056
Capitalized software
development costs 160,995 - 138,810 [a] 1,561,190 1,860,995
Goodwill - - - [a] 2,781,431 2,781,431
------------ ------- ----------- ----------- ------------
Total assets $ 1,138,129 $56,094 $ 681,887 $ 4,323,113 $ 6,199,223
============ ======= =========== =========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities $ 1,723,955 $28,107 $ 1,450,203 $[ 530,694] $ 2,671,571
Long-term debt - - 301,720 [ 266,535] 35,185
Convertible promissory notes 1,506,000 - - - 1,506,000
------------ ------- ----------- ----------- ------------
Total liabilities 3,229,955 28,107 1,751,923 [b] [ 797,229] 4,212,756
------------ ------- ----------- ----------- ------------
Stockholders' deficit
- ---------------------
Net stockholders' equity [deficit] - 27,987 [1,070,036] [c] 1,042,049 -
Common stock, par value $.01 239,726 - [a] 34,220 273,946
Additional paid-in capital 10,881,151 - [a] 4,288,893 14,925,224
[b] 797,229
[c] [1,042,049]
Stock subscription receivable [ 240,000] - [ 240,000]
Accumulated deficit [12,965,953] - [12,965,953]
Less: Treasury stock at cost [ 6,750] - - - [ 6,750]
------------ ------- ----------- ----------- ------------
Total stockholders' [deficit]
equity [ 2,091,826] 27,987 [1,070,036] 5,120,342 1,986,467
------------ ------- ----------- ----------- ------------
Total liabilities and stock-
holders' deficit $ 1,138,129 $56,094 $ 681,887 $ 4,323,113 $ 6,199,223
============ ======= =========== =========== ============
Common stock issued and
outstanding (c) 23,972,621 27,394,621
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
-16-
<PAGE>
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HALIS, Inc. The Software
and Compass Manufacturing
Subsidiaries Group, Inc. Group, Inc. Adjustments Pro Forma
------------ ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Systems sales and services $ 1,925,412 $ 234,696 $ 2,923,629 $ - $ 5,083,737
- -------------------------- ------------ --------- ----------- ----------- ------------
Costs and expenses
- ------------------
Cost of goods sold 1,656,113 165,854 1,102,388 - 2,924,355
Research and development 1,516,572 - 312,430 1,829,002
Selling, general, and [d] 944,807
administrative 325,699 100,922 2,108,094 [e] 66,859 3,546,381
------------ --------- ----------- ----------- ------------
3,498,384 266,776 3,522,912 1,011,666 8,299,738
------------ --------- ----------- ----------- ------------
Operating loss [ 1,572,972] [ 32,080] [ 599,283] [1,011,666] [ 3,216,001]
- -------------- ------------ --------- ----------- ----------- ------------
Other income [expense]
- ----------------------
Loss on asset disposal [ 8,228] - [ 77,468] - [ 85,696]
Rental income 27,600 - - - 27,600
Interest expense [ 67,613] - [ 83,360] [f] 71,087 [ 79,886]
Interest income 546 1,016 731 - 2,293
Other income 9,559 - 53,999 - 63,558
Other expenses [ 378,588] - - - [ 378,588]
------------ --------- ----------- ----------- ------------
[ 416,724] 1,016 [ 106,098] 71,087 [ 450,719]
------------ --------- ----------- ----------- ------------
Net loss $[ 1,989,696] $[ 31,064] $[ 705,381] $[ 940,579] [ 3,666,720]
============ ========= =========== =========== ============
Net loss per share [ 0.12] [ .19]
============ ============
Weighted average shares
outstanding 15,956,824 19,378,824
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
-17-
<PAGE>
HALIS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Balance Sheet - December 31, 1996:
- ---------------------------------
[a] To record the issuance by HALIS of 350,000 and 3,072,000 shares of common
stock to the shareholders of Compass and SMG, respectively, in exchange
for 100% of the outstanding stock of Compass and SMG in transactions
to be accounted for as purchases by HALIS.
Management estimates the value of the 3,422,000 shares to be $1.20 per
share. Management has allocated the purchase price to the assets and
liabilities acquired based upon their relative fair values. The adjustments
to reflect these estimated fair values of the assets and liabilities
acquired are as follows:
<TABLE>
<CAPTION>
Compass SMG Total
-------- ----------- -----------
<S> <C> <C> <C>
Property and equipment $ -0- $[ 1,508] $[ 1,508]
Capitalized software development -0- 1,561,190 1,561,190
Goodwill 363,906 2,417,525 2,781,431
-------- ----------- -----------
$363,906 $ 3,977,207 $ 4,341,113
======== =========== ===========
</TABLE>
Management continues to study the allocation of the purchase prices; upon
completion of such study, the allocation may change.
Additionally, HALIS incurred approximately $18,000 of merger costs prior to
December 31, 1996 which have been capitalized as part of the cost of the
acquisitions.
[b] To reflect the assumption and forgiveness of a total of $797,229 of loans
from a bank and a shareholder by certain shareholders of SMG in connection
with the merger.
[c] To eliminate Compass and SMG's equity [deficit] in consolidation.
Statement of Operations:
- -----------------------
For the year ended December 31, 1996:
- ------------------------------------
[d] To reflect twelve months of amortization of goodwill and capitalized
software development costs. Goodwill generated in the Compass and SMG
mergers is amortized on a straight-line basis over three and five year
lives, respectively. Capitalized software development costs related to the
SMG acquisition are amortized on a straight-line basis over a five year
life.
[e] To reflect incremental expense related to a new employment contact entered
into with officers of Compass and SMG.
[f] To remove interest expense related to the debt assumed and forgiven in the
SMG merger.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
HALIS, INC.
By: /s/ Larry Fisher
-------------------------
Larry Fisher, President
Dated: April 4, 1997
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