<PAGE> 1
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 31, 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> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
The following financial statements are filed with this Report:
AMERICAN BENEFIT AND ADMINISTRATIVE SERVIVES, INC. AND
THIRD PARTY ADMINISTRATORS, INC.
Independent Auditors' Report of Habif, Arogeti & Wynne, P.C.
Combined Balance Sheets at January 31, 1997 (unaudited) and October 31, 1996
Combined Statements of Operations for the three month periods ended January 31,
1997 and 1996 (unaudited) and the years ended October 31, 1996
and 1995
Combined Statements of Changes in Stockholders' Deficit for the three month
period ended January 31, 1997 (unaudited) and the years ended October
31, 1996 and 1995
Combined Statements of Cash Flows for the three month periods ended January 31,
1997 and 1996 (unaudited) and the years ended October 31, 1996 and
1995
Notes to Combined 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 Operations - 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 31, 1997 among HALIS, Inc., ABAS/TPA Acquisition Co.,
American Benefit Administrative Services, Inc., Third Party
Administrators, Inc. and the shareholders of American Benefit
Administrative Services, Inc. and Third Party Administrators,
Inc. (Incorporated by reference from the Company's Current
Report on Form 8-K dated January 31, 1997)
-2-
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Benefit Administrative Services, Inc. and
Third Party Administrators, Inc.
We have audited the accompanying combined balance sheet of AMERICAN BENEFIT
ADMINISTRATIVE SERVICES, INC. and THIRD PARTY ADMINISTRATORS, INC. as of
October 31, 1996 and the related combined statements of operations,
changes in stockholders' equity and cash flows for the years ended October 31,
1996 and 1995. These combined financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of AMERICAN BENEFIT
ADMINISTRATIVE SERVICES, INC. and THIRD PARTY ADMINISTRATORS, INC. at October
31, 1996, and the results of their operations and their cash flows for the
years ended October 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
April 4, 1997
-3-
<PAGE> 4
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
[Unaudited]
January 31, October 31,
1997 1996
---------- ----------
<S> <C> <C>
Current assets
Cash $ 7,065 $ 10,877
Customer claims and premium funds 297,887 273,189
Accounts receivable, less allowance for
doubtful accounts of $-0-
for both January 31, 1997 and
October 31, 1996 66,286 85,213
Prepaid and other current assets 17,486 6,635
---------- ----------
Total current assets 388,724 375,914
---------- ----------
Property and equipment, at cost
Furniture and fixtures 55,824 55,824
Leasehold improvements 28,470 28,470
Computer equipment and software 136,123 136,123
Vehicles 36,495 36,495
Equipment 221,699 221,699
Building and improvements 22,797 22,797
---------- ----------
501,408 501,408
Less accumulated depreciation [432,939] [425,307]
---------- ----------
68,469 76,101
---------- ----------
Other assets
Accounts receivable - related party 5,608 5,608
Note receivable - shareholder 555,386 558,500
Goodwill, less $155,614 and
$152,522 of accumulated amortization
at January 31, 1997 and October 31, 1996,
respectively 9,275 12,367
Deposits and other noncurrent assets 9,887 9,887
Capitalized merger costs 27,291 -0-
---------- ----------
607,447 586,362
---------- ----------
$1,064,640 $1,038,377
========== ==========
</TABLE>
See auditors' report and accompanying notes
-4-
<PAGE> 5
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
COMBINED BALANCE SHEETS [CONTINUED].
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
[Unaudited]
January 31, October 31,
1997 1996
<S> <C> <C>
Current liabilities
Checks written in excess of funds on deposit $ 52,005 $ 34,403
Notes payable 65,706 57,500
Accounts payable 121,120 119,976
Customer funds on deposit to
pay claims and premiums 297,887 273,189
Unearned commissions 73,822 56,348
Payroll, commissions and related taxes payable 63,915 93,016
Deferred rent - short-term 57,573 77,088
Interest payable - related party 3,393 2,386
---------- ----------
Total current liabilities 735,421 713,906
---------- ----------
Long-term liabilities
Deferred rent - long-term 41,691 56,091
---------- ----------
Stockholders' equity
Common stock - ABAS, Inc., no par value, 10,000
shares authorized; 3,000 shares issued and outstanding 411,000 411,000
Common stock - TPA, Inc., no par value, 100,000
shares authorized; 300 shares issued and
outstanding 1,000 1,000
Stock subscription receivable - TPA, Inc. [1,000] [1,000]
---------- ----------
411,000 411,000
Accumulated deficit [123,472] [142,620]
---------- ----------
287,528 268,380
---------- ----------
$1,064,640 $1,038,377
========== ==========
</TABLE>
See auditors' report and accompanying notes
-5-
<PAGE> 6
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC. AND
THIRD PARTY ADMINISTRATORS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
[Unaudited]
For the
Three Months Ended For the Years Ended
January 31, October 31,
-------------------------- -------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 686,559 $ 653,228 $2,710,207 $2,596,939
---------- ---------- ---------- ----------
Expenses
Cost of revenues 223,422 228,838 880,940 806,809
Selling, general and administrative 448,670 455,274 1,848,119 1,815,945
---------- --------- ---------- ----------
672,092 684,112 2,729,059 2,622,754
---------- --------- ---------- ----------
Income [Loss] from operations 14,467 [30,884] [18,852] [25,815]
---------- --------- ---------- ----------
Other income [expense]
Interest income 6,888 6,786 27,175 36,614
Interest expense [2,207] [4,258] [10,626] [16,374]
Other expense -0- -0- [75] [52]
---------- --------- ---------- ----------
4,681 2,528 16,474 20,188
---------- --------- ---------- ----------
Net income [loss] $ 19,148 $ [28,356] $ [2,378] $ [5,627]
========== ========= ========== ==========
</TABLE>
See auditors' report and accompanying notes.
-6-
<PAGE> 7
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC. AND
THIRD PARTY ADMINISTRATORS, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995 AND
THE THREE MONTH PERIOD ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
ABAS, Inc. TPA, Inc. Total
Common Stock Common Stock Stock Share-
---------------- -------------- Subscription Accumulated holders'
Shares Amount Shares Amount Receivable Deficit Equity
------ ------ ------ ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 31, 1994 3,000 $401,000 300 $1,000 $[1,000] $[134,615] $266,385
Issuance of stock -- 10,000 -- -- -- -- 10,000
Net loss -- -- -- -- -- [5,627] [5,627]
----- -------- --- ------ ------- --------- --------
Balances, October 31, 1995 3,000 411,000 300 1,000 [1,000] [140,242] 270,758
Net loss -- -- -- -- -- [2,378] [2,378]
----- -------- --- ------ ------- --------- --------
Balances, October 31, 1996 3,000 411,000 300 1,000 [1,000] [142,620] 268,380
Net income - three months ended
January 31, 1997 [unaudited] -- -- -- -- -- 19,148 19,148
----- -------- --- ------ ------- --------- --------
Balances, January 31, 1997 [unaudited] 3,000 $411,000 300 $1,000 [1,000] $[123,472] $287,528
===== ======== === ====== ======= ========= ========
</TABLE>
See auditors' report and accompanying notes
-7-
<PAGE> 8
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
COMBINED STATEMENTS OF CASH FLOWS
Increase [Decrease] in Cash
<TABLE>
<CAPTION>
[Unaudited]
For the
Three Months Ended For the Years Ended
January 31, October 31,
------------------------ ---------------------------
1997 1996 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income [loss] $ 19,148 $ [28,356] $ [2,378] $ [5,627]
---------- --------- --------- ----------
Adjustments to reconcile net income [loss]
to net cash provided by operating activities
Depreciation and amortization 11,187 [21,083] 70,131 101,189
Changes in assets and liabilities
Decrease [Increase] in customer receivables 18,927 [56,954] [891] 64,770
Increase in due from related party -0- -0- [511] [463]
Decrease in prepaid insurance and
other current assets [10,851] [18,184] 1,370 [4,034]
[Increase] Decrease in customer deposit funds [24,698] 174,756 202,455 170,241
Decrease in deposits and other
noncurrent assets -0- -0- 25,558 -0-
Increase [Decrease] in accounts payable 1,144 [25,114] [32,818] [7,473]
Increase [Decrease] in checks written in
excess of funds on deposit 17,602 5,682 34,403 [118,271]
[Decrease] Increase in payroll, commissions
and related taxes payable [29,100] [41,980] [33,754] 7,130
Increase in unearned commissions 17,474 107,371 28,339 22,617
Increase [Decrease] in customer claims
and premiums liability 24,698 [180,710] [202,455] [170,241]
Decrease in deferred rent [33,915] [15,367] [42,318] [16,350]
Increase [Decrease] in interest payable - related party 1,007 1,156 1,892 [1,270]
---------- -------- --------- ----------
Total adjustments [6,525] [28,261] 51,401 47,845
---------- -------- --------- ----------
Net cash provided [used] by operating activities 12,623 [56,617] 49,023 42,218
---------- -------- --------- ----------
Cash flows from investing activities
Purchases of property and equipment -0- [4,122] [22,914] [2,184]
Advances to shareholder, net 3,114 [7,508] [23,200] 19,700
Capitalized merger costs [27,754] -0- -0- -0-
---------- -------- --------- ----------
Net cash provided [used] by investing activities [24,640] [11,625] [46,114] 17,516
---------- -------- --------- ----------
Cash flows from financing activities
Proceeds of notes payable 8,205 34,596 -0- 67,500
Payments on notes payable and long-term debt -0- -0- [28,730] [112,469]
---------- -------- --------- ----------
Net cash provided [used] by financing activities 8,205 34,596 [28,730] [44,969]
---------- -------- --------- ----------
Net (decrease) increase in cash [3,812] [33,646] [25,821] 14,765
Cash, beginning of period 10,877 36,698 36,698 21,933
---------- -------- --------- ----------
Cash, end of period $ 7,065 $ 3,052 $ 10,877 $ 36,698
========== ======== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the periods for
Interest $ 1,200 $ 3,102 $ 8,736 $ 17,644
</TABLE>
See auditor's report and accompanying notes
-8-
<PAGE> 9
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1996 AND 1995
[Unaudited with respect to January 31, 1997 and
the three months ended January 31, 1997]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
American Benefits Administrative Services, Inc. (ABAS) and Third Party
Administrators, Inc. (TPA) were formed to administer self or partially
self-funded medical insurance plans and broker small group insurance
plans. The Companies, which have identical ownership and do business as
Third Party Administrators, Inc., operate out of leased facilities in
Naperville, Illinois.
Principles of Combination:
The accompanying financial statements are presented on a combined basis
due to the common ownership and business activities of the Companies. The
combined financial statements include the accounts of each of the
Companies.
Cash:
At times, the Companies' cash balances exceed FDIC insurance limits. The
amount at risk was $471,660 at October 31, 1996.
Accounts Receivable:
The Companies consider all accounts receivable to be fully collectible;
therefore, no allowance for doubtful accounts has been provided. The
Companies do not have a secured interest in their accounts receivable;
however, they do have legal recourse for defaulted amounts.
Depreciation:
Depreciation is computed using the straight-line method for financial
reporting purposes at rates based on the following estimated useful lives:
Furniture and fixtures 7 years
Leasehold improvements 10 years
Computer hardware 5 years
Computer software 3 years
Vehicles 3 years
Equipment 5 - 7 years
Building and improvements 25 years
-9-
<PAGE> 10
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
OCTOBER 31, 1996 AND 1995
[Unaudited with respect to January 31, 1997 and
the three months ended January 31, 1997]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Depreciation: [Continued]
Depreciation expense for the years ended October 31, 1996 and 1995 is
$53,642 and $84,700, respectively. For federal income tax purposes,
depreciation is computed using the modified accelerated cost recovery
system. Expenditures for major renewals and betterments that extend the
useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Goodwill:
Goodwill is being amortized on a straight-line basis over ten years for
financial reporting purposes. Amortization expense for the years ended
October 31, 1996 and 1995 is $16,489, respectively. Goodwill is not
amortized for federal income tax purposes.
Capitalized Merger Costs:
Costs associated with the merger (Note B) are capitalized and will be
amortized on a straight-line basis over a year life commencing in the
first period subsequent to the merger.
Customer Funds on Deposit to Pay Claims and Premiums:
These cash deposit accounts and the related liability represent funds
which have been received from customers either to pay benefit claims for
self-insurance plans or to remit to third-party insurance carriers. The
Companies function as an agent on behalf of the customers in handling
these monies.
Unearned Commissions:
Unearned commissions are recognized as revenue as the related services are
provided.
Deferred Rent:
Deferred rent represents the amount by which cumulative lease expense for
financial reporting purposes has exceeded the actual cash payments made
under the leases.
Income Taxes:
The Companies had elected to be treated as S corporations pursuant to the
Internal Revenue Code for federal and state income tax purposes. The
income of an S corporation is taxable to the individual stockholders
without any further tax consequences to the Companies. As discussed
further in Note B, the Companies ceased to be S corporations subsequent to
year end upon consummation of a merger with another company.
-10-
<PAGE> 11
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
OCTOBER 31, 1996 AND 1995
[Unaudited with respect to January 31, 1997 and
the three months ended January 31, 1997]
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from these estimates.
Interim Financial Statements:
The accompanying financial statements for the three month periods ended
January 31, 1997 and 1996 are unaudited but, in the opinion of management
of ABAS and TPA, reflect all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation. The results of
operations for the three-month period are not necessarily indicative of
the results that may be expected for the full year ending October 31, 1997.
B. SUBSEQUENT EVENT - MERGER AGREEMENT:
On January 31, 1997, the shareholders of the Companies effected a merger
agreement with HALIS, Inc. (HALIS), whereby the Companies were 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 3,300 issued and outstanding shares were surrendered by the
shareholders in consideration for 1,875,000 of HALIS' shares.
Additionally, the merger agreement included noncompetition agreements
between HALIS and the president and vice president of the Companies. The
merger agreement also provides that the president may repay a loan from
the Companies, which had a balance of $558,500 at October 31, 1996 in the
form of HALIS common stock commencing at the end of 1997, provided
certain, specific operating conditions are met.
In addition, the merger agreement provides employment agreements for the
president and vice president as well as incentive compensation and
guaranteed payments in the event of termination or change in control of
the Companies. HALIS also executed agreements with both of these parties
which provide for the issuance of 1,350,000 fully-vested HALIS common
stock options, exercisable at $2.00 per share for a period of ten years
from the date of the agreement.
-11-
<PAGE> 12
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
OCTOBER 31, 1996 AND 1995
[Unaudited with respect to January 31, 1997 and
the three months ended January 31, 1997]
C. NOTES PAYABLE:
Notes payable consisted of the following as of October 31, 1996:
<TABLE>
<CAPTION>
Payee and Description Collateral Amount
--------------------- ---------- ------
<S> <C> <C>
National Hospital and Health Care Services, Inc.:
Related party working capital loan. Interest at Security interest
8%. Due on demand. Interest expense was in substantially
$4,596 and $1,921 in 1996 and 1995, respectively. all business assets $50,000
Note payable, payable in 24 monthly installments
of $900, including simple interest at 7%. Due in
1997. Interest expense was $800 and $267 in
1996 and 1995, respectively. Unsecured 7,500
-------
$57,500
=======
</TABLE>
D. LITIGATION:
The Companies are defendants in a number of claims relating to matters
arising in the ordinary course of business. Management contends that the
Companies have 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.
E. LEASES:
During the years ended October 31, 1996 and 1995, furniture, equipment,
storage space rentals and office rent under long-term lease obligations
were $216,366 and $219,529, respectively. Future obligations over the
primary terms of the Companies' long-term leases as of October 31, 1996
are as follows:
<TABLE>
<CAPTION>
Year Ended
October 31, Amount
----------- ------
<S> <C>
1997 $ 270,052
1998 213,933
1999 26,280
2000 25,610
2001 18,240
---------
$ 554,115
=========
</TABLE>
-12-
<PAGE> 13
AMERICAN BENEFIT ADMINISTRATIVE SERVICES, INC.
AND THIRD PARTY ADMINISTRATORS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
OCTOBER 31, 1996 AND 1995
[Unaudited with respect to January 31, 1997 and
the three months ended January 31, 1997]
E. LEASES: [Continued]
In addition to the base rent for the Companies' office, located in
Naperville, Illinois, the Companies are liable for their pro rata share of
operating expenses and real estate taxes in excess of a base amount for
each calendar year.
F. RELATED PARTY TRANSACTIONS:
As of October 31, 1996, an officer/shareholder of the Companies has drawn
$558,500 more than dividend distributions and salary. A promissory note,
due October 31, 2001, with interest at 5% payable annually was drawn to
evidence the debt. During the year ended October 31, 1996, $26,587 of
interest accrued on the note. As discussed in Note B, this note may be
repaid in the form of HALIS stock depending upon certain specified
operating results of future periods.
On June 8, 1995, American Benefit Administrative Services, Inc. received
$60,000 from National Hospital and Health Care Services, Inc., a
corporation which shares common ownership, as a working capital loan. As
of October 31, 1996, the unpaid balance was $50,000 [Note C].
G. DEFINED CONTRIBUTION PLAN:
The Companies sponsor a defined contribution (401(k)) plan for all regular
full-time employees who have completed a minimum of one year of
employment. Under the plan, employees may elect to defer up to 15% of
their gross compensation, up to statutory limits. Employer contributions
are discretionary. Employer contributions for the years ended October 31,
1996 and 1995 totaled $5,779 and $2,742, respectively.
H. ECONOMIC DEPENDENCY:
During the years ended October 31, 1996 and 1995, the Companies had sales
to one major customer, defined as a customer from which 10% or greater of
annual sales revenue is derived. During 1996, $360,255 (13%) of revenue
was earned from Boston Mutual Life Insurance Company, with related trade
accounts receivable of $2,722 at October 31, 1996. During 1995, $534,425
(21%) of revenue was earned from Durham Life Insurance Company, with
related trade accounts receivable of $25,292 at October 31, 1995.
-13-
<PAGE> 14
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)
Software Manufacturing Group, Inc. (SMG), and the combined entity of American
Benefit Administrative Services, Inc. and Third Party Administrators, Inc.
(ABAS) 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
acquisitions 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 audited
financial statements of HALIS, Compass, SMG, and ABAS and the related notes
thereto.
-14-
<PAGE> 15
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
American
Benefit
Administrative
HALIS, Inc. The Software Services, Inc.
and Compass Manufacturing and Third Party
Subsidiaries Group, Inc. Group, Inc. Administrators, Inc. Adjustments Pro Forma
------------------------ ------------- -------------------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 798,341 $ 51,619 $ 383,152 $ 375,914 $ -- $1,609,026
Property and equipment 60,154 4,475 151,508 76,101 [a] [2,609] 289,629
Other assets 118,639 -- 8,417 586,362 [a] [32,659] 680,759
Capitalized software
development costs 160,995 -- 138,810 -- [a] 1,561,190 1,860,995
Goodwill -- -- -- -- [a] 4,952,166 4,952,166
---------- ---------- ---------- ---------- ---------- ----------
Total assets $1,138,129 $ 56,094 $ 681,887 $1,038,377 $6,478,088 $9,392,575
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial
statements.
-15-
<PAGE> 16
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET [CONTINUED]
DECEMBER 31, 1996
<TABLE>
<CAPTION>
American
Benefit
Administrative
HALIS, Inc. The Software Services, Inc.
and Compass Manufacturing and Third Party
Subsidiaries Group, Inc. Group, Inc. Administrators, Inc. Adjustments Pro Forma
------------ ----------- ------------- -------------------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities $ 1,723,955 $ 28,107 $ 1,450,203 $ 713,906 [b] $ [530,694] $ 3,385,477
Long-term debt -- -- 301,720 56,091 [b] [266,535] 91,276
Convertible promissory notes 1,506,000 -- -- -- -- 1,506,000
------------ ------------ ------------ ---------- ------------ ------------
Total liabilities 3,229,955 28,107 1,751,923 769,997 [797,229] 4,982,753
------------ ------------ ------------ ---------- ------------ ------------
Stockholders' deficit
Net stockholders' equity [deficit] -- 27,987 [1,070,036] 268,380 [c] 773,669 --
Common stock, par value $.01 239,726 -- -- [a] 52,970 292,696
Additional paid-in capital 10,881,151 -- -- [a] 4,877,780 17,329,829
-- [b] 797,229
-- -- [c] 773,669
--
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] 268,380 7,275,317 4,409,822
------------ ------------ ------------ ---------- ------------ ------------
Total liabilities and stock-
holders' deficit $ 1,138,129 $ 56,094 $ 681,887 $1,038,377 $ 6,478,088 $ 9,392,575
============ ============ ============ ========== ============ ============
Common stock issued and
outstanding (c) 23,972,621 29,269,621
============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial
statements.
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<PAGE> 17
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
American
Benefits
Administrative
HALIS, Inc. The Software Services, Inc.
and Compass Manufacturing and Third Party
Subsidiaries Group, Inc. Group, Inc. Administrators, Inc. Adjustments Pro Forma
------------ ------------- -------------- ------------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Systems sales and services $ 1,925,412 $ 234,696 $ 2,923,629 $ 2,710,207 $ -- $ 7,793,944
------------- ------------- ------------- ------------- ----------- ------------
Costs and expenses
Cost of goods sold 1,656,113 165,854 1,102,388 880,940 -- 3,805,295
Research and development 1,516,572 -- 312,430 -- -- 1,829,002
Selling, general, and -- -- -- -- [d] 1,385,896
administrative 325,699 100,922 2,108,094 1,848,119 [e] 124,359 5,893,089
------------- ------------- ------------- ------------- ----------- ------------
3,498,384 266,776 3,522,912 2,729,059 1,510,255 11,527,386
------------- ------------- ------------- ------------- ----------- ------------
Operating loss [1,572,972] [32,080] [599,283] [18,852] [1,510,255] [3,733,442]
------------- ------------- ------------- ------------- ----------- ------------
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] [10,626] [f] 71,087 [90,512]
Interest income 546 1,016 731 27,175 -- 29,468
Other income and (expense) 9,559 -- 53,999 [75] -- 63,483
Other expenses [378,588] -- -- -- -- [378,588]
------------- ------------- ------------- ------------- ----------- ------------
[416,724] 1,016 [106,098] 16,474 71,087 [434,245]
------------- ------------- ------------- ------------- ----------- ------------
Net loss $ [1,989,696] $ [31,064] $ [705,381] $ [2,378] $[1,439,168] [4,167,687]
============= ============= ============= ============= =========== ============
Net loss per share $ [0.12] [.22]
============= ============
Weighed average shares
outstanding 15,956,824 19,378,824
============= ============
</TABLE>
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<PAGE> 18
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, 3,072,000 and 1,875,000
(5,297,000 shares in aggregate) shares of common stock to the shareholders
of Compass, SMG, and ABAS, respectively, in exchange for 100% of the
outstanding stock of Compass, SMG, and ABAS in transactions to be
accounted for as purchases by HALIS. Additionally, 85,000 and 136,363
options were issued in connection with the Compass and proposed to be
issued in connection with the ABAS acquisitions, respectively.
Management estimates the value of the 5,297,000 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 ABAS Total
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Property and equipment $ -0- $ [1,508] $ [1,101] $ [2,609]
Capitalized software
development -0- 1,561,190 -- 1,561,190
Goodwill 415,964 2,399,525 2,104,018 4,919,507
-------- ---------- ---------- ----------
$415,964 $3,959,207 $2,102,917 $6,478,088
======== ========== ========== ==========
</TABLE>
Management continues to study the allocation of the purchase prices; upon
completion of such study, the allocation may change.
Additionally, HALIS incurred $32,659 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 the equity [deficit] of Compass, SMG, and ABAS 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 and capitalized acquisition costs. Goodwill
generated in the Compass, SMG, and ABAS mergers is amortized on a
straight-line basis over three, five, 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. Capitalized
acquisition costs are amortized on a straight-line basis over a five year
life.
[e] To reflect incremental expense related to employment contracts entered
into with officers of Compass, SMG, and ABAS.
[f] To remove interest expense related to the debt assumed and forgiven in the
SMG merger.
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<PAGE> 19
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 14, 1997
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