<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
September 30, 1997 0-16288
HALIS, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-1366235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 641-5555
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 last 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value 44,083,969
Class Outstanding at November 6, 1997
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 857,382
Customer claims and premium funds 235,390
Receivables, less allowance for possible losses 1,574,098
of $ 100,205
Inventories 10,178
Other current assets 125,782
-----------
Total current assets 2,802,830
PROPERTY AND EQUIPMENT AT COST
Computer equipment 602,626
Office furniture and fixtures 615,443
Leasehold improvements 63,674
Real estate 21,254
Less: accumulated depreciation (234,541)
-----------
Total property and equipment 1,068,456
OTHER ASSETS
Deposits 133,620
Goodwill, net of accumulated
amortization of $ 1,054,142 13,204,362
Capitalized software development costs,
net of accumulated amortization of $ 457,848 3,430,909
Other Intangibles, net of
accumulated amortization of $ 24,605 114,000
Notes receivable - leases 22,343
Notes receivable - related parties 609,871
Long term investments 125,000
-----------
Total other assets 17,640,105
TOTAL ASSETS $21,511,391
</TABLE>
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,934,976
Convertible promissory notes 500,000
Line of credit 99,073
Deferred revenue and customer deposits 636,136
Payroll and sales taxes payable 207,339
Premiums payable 233,058
Notes payable 414,988
Notes payable - related parties 77,366
Obligations under capital lease - current portion 115,895
Other current liabilities 257,036
------------
Total current liabilities 4,475,867
LONG-TERM DEBT, NET OF CURRENT PORTION
Notes payable - related parties 13,301
Obligations under capital lease - net of current portion 221,011
------------
Total long-term debt 234,312
OTHER LONG TERM LIABILITIES - DEFERRED REVENUE 29,200
STOCKHOLDERS' EQUITY
Common stock $.01 par value 100,000,000
authorized 41,762,200 issued and outstanding 417,622
Additional paid-in capital 33,766,737
Common stock subscribed 15,447
Accumulated deficit (17,421,044)
Treasury stock (6,750)
------------
Total stockholder's equity 16,772,012
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 21,511,391
</TABLE>
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND
COMBINED STATEMENTS OF OPERATIONS
OF THE PREDECESSOR FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
----------- -----------
<S> <C> <C>
SALES REVENUE $ 3,313,209 $ 353,865
COST AND EXPENSES
Cost of goods sold 996,320 269,243
Selling, general, and administrative 4,488,021 234,984
Research and development 291,159 107,255
----------- ---------
5,775,500 611,482
OPERATING LOSS (2,462,291) (257,617)
OTHER INCOME (EXPENSES)
Interest expense (45,129) (5,500)
Interest income 8,966 0
Other income (expense) 0 (35,000)
Rental income 0 6,700
----------- ---------
(36,163) (33,800)
----------- ---------
NET LOSS BEFORE INCOME TAXES $(2,498,454) $(291,417)
INCOME TAX PROVISION $ 0 $ 0
----------- ---------
NET LOSS $(2,498,454) $(291,417)
=========== =========
NET LOSS PER COMMON SHARE $ (0.06)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 39,540,614
===========
</TABLE>
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<PAGE> 6
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
COMBINED STATEMENTS OF OPERATIONS
OF THE PREDECESSOR FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
----------- -----------
<S> <C> <C>
SALES REVENUE $ 6,919,135 $1,656,089
COST AND EXPENSES
Cost of goods sold 2,395,384 1,084,977
Selling, general, and administrative 7,867,795 892,060
Research and development 999,493 234,178
----------- ----------
11,262,672 2,211,215
OPERATING LOSS (4,343,537) (555,126)
OTHER INCOME (EXPENSES)
Gain (loss) on asset disposal 8,678 (27,528)
Interest expense (122,621) (19,666)
Interest income 31,273 0
Other income (expense) 3,253 (42,500)
Merger costs (32,137) 0
Rental income 0 14,400
----------- ----------
(111,554) (75,294)
----------- ----------
NET LOSS BEFORE INCOME TAXES $(4,455,091) $ (630,420)
INCOME TAX PROVISION $ 0 $ 0
NET LOSS $(4,455,091) $ (630,420)
=========== ==========
NET LOSS PER COMMON SHARE $ (0.14)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 32,964,701
===========
</TABLE>
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<PAGE> 7
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
COMBINED STATEMENTS OF CASH FLOWS
OF THE PREDECESSOR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,455,091) $ (630,420)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 144,648 9,141
Amortization 1,346,916 514
Gains (loss) on disposal of assets 8,678 15,172
Changes in assets and liabilities
Decrease (increase) in accounts receivable (485,136) 28,689
Decrease (increase) in receivables - related parties (336) 753
Decrease (increase) in notes receivables - leases 6,257 0
Decrease (increase) in customer claims/premium funds (235,390) 0
Decrease (increase) in inventory 1,301 45,847
Decrease (increase) in prepaid expenses/other assets (150,216) 366
Decrease (increase) in deposits (95,666) (4,467)
Decrease (increase) in intangible assets (144,748) 0
Increase (decrease) in accounts payable
& accrued expenses 1,825,258 (344,613)
Increase (decrease) in accrued expenses - related parties (75,784) (55,863)
Increase (decrease) in sales & payroll taxes (459,182) 0
Increase (decrease) in deferred revenues
& customer deposits 109,215 (88,818)
Increase (decrease) in premiums payable 0 0
Increase (decrease) in other current liabilities 228,863 2,181
Increase (decrease) in income tax payable 0 (64,167)
Increase (decrease) in accrued salary - officer 0 (6,908)
----------- -----------
Net cash provided (used) by operating activities $(2,430,413) $(1,092,593)
</TABLE>
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<PAGE> 8
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
COMBINED STATEMENTS OF CASH FLOWS
OF THE PREDECESSOR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PREDECESSOR
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from investing activities
Purchase of equipment and furniture ($290,835) ($10,519)
Net costs of acquisitions 0 0
Decrease (increase) in long term investments (120,000) 0
Deferred merger costs 0 (126,792)
Insurance recovery from equipment loss 0 5,024
Proceeds from sale of maintenance contracts 0 0
----------- ----------
Net cash provided (used) by investing activities ($410,835) ($132,287)
Cash flows from financing activities
Advances from affiliates 0 506,358
Proceeds (net payments) from/on bank lines of credit $ 39,073 $ 0
Proceeds (net payments) from/on capital leases 197,184 0
Proceeds (net payments) from/on notes payable (551,728) 0
Proceeds (net payments) from/on convertible promissory notes 500,000 0
Proceeds (net payments) from/on notes payable - affiliates 0 545,748
Proceeds (net payments) from/on notes payable - related parties (1,168,635) (16,088)
Proceeds (net payments) from/on LT debt - related party 0 0
Proceeds from private placements 3,962,747 0
Issue notes payable - related party 0 78,900
----------- ----------
Net cash provided (used) by financing activities $ 2,978,641 $1,114,918
Net increase (decrease) in cash 137,393 (109,962)
Cash, beginning of the period 719,989 128,651
Cash, end of period $ 857,382 $ 18,689
</TABLE>
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<PAGE> 9
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In management's opinion, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation have been included. Operating
results for the three-month and nine-month periods ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and the footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1996.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
On November 19, 1996, HALIS, Inc. (f/k/a Fisher Business Systems, Inc.,
the "Company") issued 15,000,000 shares (66.8%) of its common stock in exchange
for 100% of the capital stock of AUBIS Hospitality Systems, Inc. ("AHS"), AUBIS
Systems Integration, Inc. ("ASI"), and HALIS Software, Inc. ("HSI"), which
included ProHealth Solutions, Inc.
The acquisitions set out in the preceding paragraph were accounted for
as the reverse acquisition of HALIS, Inc. by an "accounting entity" consisting
of AHS, ASI, and HSI (collectively, the "Predecessor") because, following the
transaction, the former shareholders of AHS, ASI, and HSI were in control of the
Company. Accordingly, the financial statements of the Company are the financial
statements of the "accounting entity" adjusted for the assumed acquisition of
the net assets of HALIS, Inc. in exchange for the issuance of HALIS, Inc. common
stock outstanding before the transaction. The net assets of the Predecessor are
accounted for at their historical cost.
In accordance with purchase accounting principles pursuant to
Accounting Principles Board Statement No. 16, Business Combinations (APB 16),
the Company accounted for the net assets of HALIS, Inc. acquired at the fair
value of such net assets as of November 19, 1996.
During January 1997, the Company effected three merger agreements with
companies that have been accounted for as purchases under APB 16 by the Company.
As a result of the acquisitions of The Compass Group, Inc. ("Compass"), Software
Manufacturing Group, Inc. ("SMG"), and American Benefit and Administrative
Services, Inc. and Third Party Administrators, Inc. ("ABAS/TPA"), the results of
operations for these three acquired companies are included in the Company's
Consolidated financial statements from their dates of acquisition (January 10,
24, and 31, respectively) through the period end of September 30, 1997.
The Company acquired TG Marketing Systems, Inc. ("TGM") on May 2, 1997
through the issuance of 2,388,060 shares of its common stock. The results of
operations for TGM are included in
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<PAGE> 10
the Company's Consolidated financial statements from the acquisition date
through the period end of September 30, 1997. The Company acquired Physician's
Resource Network, Inc. ("PRN") on July 7, 1997 through the issuance of 3,733,333
shares of its common stock and PhySource Ltd. ("PhySource") on July 31, 1997
through the issuance of 2,632,611 shares of its common stock. The results of
operations for PRN and PhySource are included in the Company's consolidated
financial statements from the acquisition date through the period end of
September 30, 1997. It is the opinion of management that these transactions
qualify as tax-free reorganizations within the meaning of Section 368(a) of the
Internal Revenue Code of 1986. Management of all companies represent they have
no plans or intentions which would adversely affect the operations of any of the
companies.
On June 30, 1997, the Company formed HALIS Services, Inc. ("Services"),
a wholly owned subsidiary. Simultaneously, the Company performed a legal entity
consolidation by merging its Compass, SMG, HSI, AHS, ASI, and TGM subsidiaries
into Services. The reorganization was undertaken to simplify the Company's legal
structure and facilitate the operational and financial assimilation of the
acquisitions.
Principles of Consolidation
The consolidated financial statements include the accounts of HALIS,
Inc. and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
The combined financial statements of the Predecessor include the
accounts of AHS, ASI, HSI and ProHealth Solutions, Inc. All significant
intercompany accounts and transactions have been eliminated.
Merger Agreements:
Legal expenses associated with completed mergers and acquisitions are
capitalized and amortized over 5 years. All other merger and acquisition costs
are expensed in the period incurred.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements of HALIS, Inc. and subsidiaries contained
elsewhere herein. As a result of the acquisitions of AUBIS Hospitality Systems,
Inc. ("AHS"), AUBIS Systems Integration, Inc. ("ASI") and HALIS Software, Inc.
("HSI") in November 1996, which acquisitions were accounted for as a "reverse
acquisition," the financial statements of the Company are the financial
statements of the "accounting entity," consisting of AHS, ASI and HSI.
Accordingly, the financial statements of the Company are the financial
statements of the "accounting entity" adjusted for the assumed acquisition of
the net assets of the Company in exchange for the issuance of Company common
stock outstanding before the transaction. As a result, the Company's results of
operations for the three and nine months ended September 30, 1996 consists of
the combined operations of AHS, ASI and HSI for period.
As a result of the acquisitions of Compass, SMG, ABAS/TPA, TGM, PRN and
PhySource during the first, second and third quarters of 1997, the results of
operations for these six acquired
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<PAGE> 11
companies are included in the Company's consolidated financial statements from
their respective dates of acquisition (January 10, January 24, January 31, May
2, July 7, and July 31, respectively).
FINANCIAL CONDITION
Total assets at September 30, 1997 totaled $21,511,391, an increase of
$20,373,262 from total assets of $1,138,129 at December 31, 1996. This increase
is primarily attributable to the six acquisitions described above, and is
reflected in the majority of the Balance Sheet categories. In particular,
accounts receivable, net fixed assets, goodwill, and capitalized software
development costs all exhibited substantial increases during the period. Total
assets also increased during the nine month period ended September 30, 1997 as a
result of proceeds of $3,962,747 received from the sale of common stock during
such period.
Current liabilities increased from $1,723,955 at December 31, 1996 to
$4,505,067 at September 30, 1997. This increase of $2,781,112 is again largely
attributable to the six acquisitions.
Stockholder's equity (deficit) increased from a deficit of $2,091,826
to a positive balance of $16,772,012, an increase of $18,863,838. This
difference is attributable to the issuance of 14,051,004 shares of common stock
for the six acquisitions, as well as the $3,962,747 raised in private placements
of the Company's common stock during the nine months ended September 30, 1997.
RESULTS OF OPERATIONS
Sales revenue increased by $2,959,344 for the three months ended
September 30, 1997, and $5,263,046 for the nine months ended September 30, 1997
as compared to the respective prior year periods. This increase is primarily the
result of consolidating the results of the six acquisitions (Compass, SMG,
ABAS/TPA, TGM, PRN and PhySource) from their respective acquisition dates
through the period end of September 30, 1997.
Cost of goods sold increased $727,077 in absolute terms for the three
months ended September 30, 1997, but declined as a percentage of sales revenue
from 76.1% for the three months ended September 30, 1996 to 30.1% for the three
months ended September 30, 1997. During the nine month period ending September
30, 1997 the Company's cost of goods sold as a percentage of sales revenue
decreased to 34.6% from 65.5% for the same period in the prior year, reflecting
the shift in product mix away from lower margin hardware sales and support
towards software sales and support. The margin improvement would have been
greater without the $457,848 of amortized software development costs included in
cost of goods sold for 1997.
Selling, general and administrative expenses increased by $4,253,037
and $6,975,735 for the three and the nine-month periods ended September 30,
1997, respectively. These increases resulted from the six acquisitions, as well
as the Company's investment in its corporate infrastructure to support future
growth. Included in selling, general and administrative expenses is amortization
expense of $1,516,536 for the nine months ended September 30, 1997, most of
which was attributable to goodwill ($1,054,142) and other intangibles recorded
for the acquisitions referenced above and as required by APB 16.
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<PAGE> 12
Research and development costs increased by a total of $183,904 and
$765,315 for the three and the nine month periods ended September 30, 1997,
respectively, reflecting the Company's continued investment in its proprietary
software technology.
The net loss of $2,498,454 and $4,455,091 for the three and the nine
month periods ended September 30, 1997, respectively, is primarily attributable
to increased selling, general and administrative expenses, as well as the
increased research and development costs.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, operating activities
consumed $2,430,413 of cash, primarily due to the net loss of $4,455,091. As
discussed in the previous section, the primary reasons for the net loss are the
substantial selling, general and administrative expenses and research and
development expenses incurred to fund the corporate infrastructure development,
as well as the ongoing investment in the Company's proprietary software
products.
The Company recorded a net increase in cash of $137,393 during the nine
months ended September 30, 1997, offsetting the operational losses with proceeds
from private placements. Management continues to seek and evaluate potential
sources of additional capital to support the Company's expected future growth.
Financing activities during fiscal 1997 provided $2,978,641, primarily
the result of proceeds from the issuance of stock during the nine months ended
September 30, 1997.
In September 1996, the Company completed an offering of $1,506,000 of
7.0% Convertible Promissory Notes due January 15, 1998 (the "Notes"). Interest
on the Notes is payable quarterly by the Company and the principal thereof (plus
any accrued interest) may, at the option of the holder, be converted into shares
of Common Stock at a conversion price of $ 1.00 per share. Any such conversion
must be made on or before January 15, 1998. Approximately $1,165,007 of the
proceeds of this offering were advanced to AHS, ASI and HSI to support their
operations (which advances were accounted for as notes receivable from
affiliates), while the balance of the proceeds from the sale of the Notes were
utilized to expand the Company's sales and marketing capabilities. The advances
to AHS, ASI and HSI were converted to equity upon the acquisition of these
companies in November 1996.
In January 1997, the Company completed a private placement of 1,684,975
shares of Common Stock and 730,156 Warrants, resulting in net proceeds to the
Company of approximately $1.8 million. The net proceeds of the offering were
utilized by the Company to expand its sales and marketing efforts, enhance its
software products, support the growth of its administrative infrastructure, fund
expenses related to the acquisition of selected healthcare software, service and
system integration companies and for general corporate purposes.
In May 1997, the Company completed a private placement of 1,148,333
shares of Common stock and 497,609 Warrants, resulting in net proceeds to the
Company of approximately $1.5 million. The net proceeds of the offering were
utilized by the Company to expand its sales and marketing efforts, support the
growth of its administrative infrastructure, fund expenses related to the
acquisition of selected healthcare software, service and system integration
companies and for general corporate purposes.
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<PAGE> 13
In September 1997, the Company completed a private placement of
1,779,000 shares of Common Stock and 194,667 Warrants, resulting in net proceeds
to the Company of approximately $1,925,000. The net proceeds of the offering
were utilized by the Company to expand its sales and marketing efforts, support
the growth of its administrative infrastructure, fund expenses related to the
acquisition of selected healthcare software, service and system integration
companies and for general corporate purposes.
On September 30, 1997, the Company issued 1,006,000 shares of Common
Stock upon the conversion by holders of $1,006,000 in principal amount of the
Notes. Following the conversion, $500,000 in principal remained outstanding
under the Notes. In addition to reducing future quarterly cash interest expense
by approximately $20,000, the Note conversion eliminated the obligation of the
Company to repay the principal sum of $1,006,000 at maturity on January 15,
1998. Also on September 30, 1997, the Company issued approximately 200,051
shares of Common Stock upon the conversion by certain creditors of approximately
$200,051 of principal and accrued interest.
The Company will require additional capital or other financing to
finance its operations and continued growth. There can be no assurance that the
Company will be able to obtain such financing if and when needed, or that if
obtained, it will be sufficient or on terms and conditions acceptable to the
Company.
No provision has been made in the financial statements for any
settlements or judgments relating to either of the matters referenced in Item 3
herein. In the event of a material judgment or settlement resulting from either
of these matters, the Company would experience an adverse effect on its
liquidity. Additionally, all agreements to date for the HES product have been
for pilot sites and have contingencies. In the event that the pilot testing
identifies substantive modifications to the product which are mandatory for
marketplace feasibility, additional development costs and/or delays in launching
the product could have a material adverse effect on liquidity.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
and Exchange Act of 1934, as amended, which are intended to be covered by the
safe harbors created thereby. These statements include the plans and objectives
of the Company for future operations. The forward-looking statements included
herein are based on current expectations that involve numerous risks and
uncertainties. The Company's plans and objectives are based on the assumption
that the Company's entry into the healthcare industry will be successful, that
competitive conditions within the healthcare industry will not change materially
or adversely and that there will be no material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements included herein are reasonable, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person, that the objectives and plans of the Company will be achieved.
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<PAGE> 14
RECENT DEVELOPMENTS
On August 20, 1997, the Company and HealthWatch, Inc. ("HealthWatch")
entered into a Subscription and Purchase Agreement (the "Purchase Agreement"),
pursuant to which the Company agreed to purchase up to 50,000 shares of Series H
Preferred Stock (the "HealthWatch Preferred Stock") of HealthWatch for an
aggregate consideration of up to $300,000, depending on the number of shares of
HealthWatch Preferred Stock purchased. Each share of HealthWatch Preferred Stock
may be converted at any time at the option of the holder thereof into twenty
shares of the common stock of HealthWatch (the "HealthWatch Common Stock").
HealthWatch is a developer, manufacturer and distributor of medical
instrumentation used in infusion therapy and vascular diagnosis.
From August 20, 1997 through September 22, 1997, the Company purchased
an aggregate of 20,833 shares of HealthWatch Preferred Stock for $125,000. The
HealthWatch Preferred Stock purchased by the Company is presently convertible
into an aggregate of 416,666 shares of HealthWatch Common Stock, or 8.9% of the
outstanding HealthWatch Common Stock. The Company is not obligated and does not
have the present intent to purchase additional shares of the capital stock of
HealthWatch. The Company is accounting for the HealthWatch Preferred Stock as a
long-term investment.
The purpose of the acquisition by the Company of the HealthWatch
Preferred Stock was (i) to take an initial step in connection with the possible
acquisition by the Company of HealthWatch, and (ii) to provide HealthWatch with
working capital. The Company and HealthWatch entered into a non-binding letter
of intent, dated August 8, 1997 (the "Letter of Intent"), providing for the
merger of HealthWatch with the Company. Since the execution of the Letter of
Intent, the Company and HealthWatch abandoned the proposed merger between the
two companies and instead pursue a joint venture and co-marketing arrangement.
In return for the Company's HealthWatch Preferred Stock investment of
$125,000, viewed by both companies as demonstrating the Company's commitment to
the joint venture, the Company anticipates that it will have use of the
HealthWatch facility in California and access to additional support and
distribution resources on the West Coast. The co-marketing arrangement
contemplates shared sales prospects by the Company and HealthWatch with a
commission or revenue arrangement to be structured. HealthWatch will provide
technology, including the management of digitalized information from its
devices, and an integration database engine for connection at the point of care.
Management believes that this will provide an automated link to the HALIS
Healthcare Enterprise application system for faster and more accurate
information transfer.
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<PAGE> 15
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 thereunto duly authorized.
HALIS, INC.
Dated: February 5, 1998 By: /s/ Paul W. Harrison
------------------ ----------------------------------------
Paul W. Harrison, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Dated: February 5, 1998 By: /s/ Harold J. Williams, III
------------------ ----------------------------------------
Harold J. Williams, III, Chief Financial
Officer (Principal Financial Officer)
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