<PAGE> 1
As filed with the Securities and Exchange Commission on February 12, 1998
REGISTRATION NO. 333-45783
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1 to
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HALIS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1366235
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9040 ROSWELL ROAD
SUITE 470
ATLANTA, GEORGIA 30350
(770) 641-5555
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
PAUL W. HARRISON,
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
9040 ROSWELL ROAD, SUITE 470
ATLANTA, GEORGIA 30350
(770) 641-5555
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
WILLIAM L. MEYER, ESQ.
SMITH, GAMBRELL & RUSSELL, LLP
SUITE 3100, PROMENADE II
1230 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-3592
(404) 815-3500
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Amount Proposed maximum Proposed
TITLE OF EACH CLASS OF to be offering price maximum aggregate Amount of
SECURITIES TO BE REGISTERED registered (1) per unit offering price registration fee(2)
- ------------------------------- ----------------------- ------------------------ ----------------------- ------------------------
<S> <C> <C> <C> <C>
$.01 par value common stock 1,155,450 $.44 $508,398 $150
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</TABLE>
(1) The shares of Common Stock are being registered hereby for the account
of certain shareholders of the Company. No other shares of Common Stock
are being registered pursuant to this offering. Pursuant to Rule 416,
this Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may be issued because of future
stock dividends, stock distributions, stock splits, or similar capital
readjustments.
(2) Computed in accordance with Rule 457(c) and previously paid.
The prospectus included in this Registration Statement also relates to the
Registrant's Registration Statement on Form S-2 (Registration No. 333-3445), as
permitted by Rule 429 under the Securities Act of 1933, as amended.
--------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
46,491,159 SHARES
HALIS, INC.
COMMON STOCK
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The 46,491,159 shares of Common Stock, $0.01 par value per share (the
"Common Stock") of HALIS, Inc. ("HALIS" or the "Company") offered hereby are
being sold by certain holders of the Common Stock of the Company named herein
under "Selling Shareholders." Unless the context otherwise requires, the holders
of the Common Stock selling shares hereunder are hereinafter collectively
referred to as the "Selling Shareholders." All of the shares covered hereby will
only be sold by the Selling Shareholders. The Company will not receive any of
the proceeds from the shares sold by the Selling Shareholders. See "Selling
Shareholders," "Plan of Distribution" and "Use of Proceeds."
The Common Stock is traded on the Nasdaq Bulletin Board under the symbol
"HLIS." On February 3, 1998, the average of the closing bid and asked price for
the Common Stock, as reported on the Nasdaq Bulletin Board, was $ .44 per
share.
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SEE"RISK FACTORS" ON PAGES 5 TO 9 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================== ============= =================== ================= ===============
OFFERING UNDERWRITING PROCEEDS TO PROCEEDS
PRICE TO DISCOUNTS AND SELLING TO
PUBLIC COMMISSIONS SHAREHOLDERS COMPANY
- ----------------------------------------------------- ------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Per Share....................................... See Text See Text See Text See Text
Total .......................................... Below Below Below Below
===================================================== ============= =================== ================= ===============
</TABLE>
The Selling Shareholders have advised the Company that they may elect to
offer for sale and to sell the Common Stock from time to time in one or more
transactions through brokers in the over-the-counter market, in private
transactions, or otherwise, in each case at market prices then prevailing or
obtainable. Accordingly, sales prices and proceeds to the Selling Shareholders
will depend upon price fluctuations and the manner of sale. The Selling
Shareholders may effect such transactions by selling to or through one or more
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, brokerage commissions or similar fees in amounts which
may vary from transaction to transaction. Such brokerage commissions and charges
and the legal fees, if any, will be paid by the Selling Shareholders. The
Company will bear all other expenses in connection with registering the shares
offered hereby, which expenses are estimated to total approximately $75,000. See
"Plan of Distribution."
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The date of this Prospectus is February , 1998
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AVAILABLE INFORMATION
The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934 (the "1934 Act") and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
by writing to the Securities and Exchange Commission, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding the Company at http://www.sec.gov.
The Company has filed a Registration Statement on Form S-2 (together
with all amendments and exhibits filed or to be filed in connection therewith,
the "Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission pursuant
to the 1934 Act are hereby incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996;
2. The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997;
3. The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997;
4. The Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997;
5. The Company's Quarterly Report on Form 10-QSB/A for the quarter
ended September 30, 1997;
6. The Company's Current Report on Form 8-K dated January 10, 1997;
7. The Company's Amendment No. 1 on Form 8-K/A dated March 28, 1997
to its Current Report on Form 8-K dated January 10, 1997;
8. The Company's Current Report on Form 8-K dated January 24, 1997;
9. The Company's Amendment No. 1 on Form 8-K/A dated April 7, 1997
to its Current Report on Form 8-K dated January 24, 1997;
10. The Company's Current Report on Form 8-K dated January 31, 1997;
11. The Company's Amendment No. 1 on Form 8-K/A dated April 16, 1997
to its Current Report on Form 8-K dated January 31, 1997;
12. The Company's Current Report on Form 8-K dated May 2, 1997;
13. The Company's Amendment No. 1 on Form 8-K/A dated July 16, 1997
to its Current Report or Form 8-K dated May 2, 1997;
14. The Company's Current Report on Form 8-K dated July 7, 1997;
15. The Company's Amendment No. 1 on Form 8-K/A dated September 18,
1997 to its Current Report on Form 8-K dated July 7, 1997;
16. The Company's Current Report on Form 8-K dated July 31, 1997;
17. The Company's Amendment No. 1 on Form 8-K/A dated October 13,
1997 to its Current Report on Form 8-K dated July 31, 1997;
18. The Company's Current Report on Form 8-K dated December 30,
1997;
19. The Company's Current Report on Form 8-K dated December 31,
1997;
20. The Company's Current Report on Form 8-K dated January 5, 1998;
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21. The information contained under the headings "Security Ownership
of Certain Beneficial Owners and Management," "Executive
Compensation," "Certain Transactions" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" contained
in the Company's Definitive Proxy Statement dated November 20,
1997; and
22. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A as filed with the
Commission on October 9, 1987;
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
and superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been incorporated by reference in this
Prospectus (excluding exhibits unless such exhibits are specifically
incorporated by reference into such documents). Please direct such requests to
Larry Fisher, Executive Vice President, HALIS, Inc., 9040 Roswell Road, Suite
470, Atlanta, Georgia 30350, telephone number (770) 641-5555.
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THE COMPANY
HALIS, Inc. ("HALIS" or the "Company"), based in Atlanta, Georgia, is a
publicly traded company and supplier of information technology and services,
focusing on the healthcare industry. HALIS currently is implementing a corporate
strategy which combines external acquisitions and internal sales growth,
including the development of business partner relationships.
HALIS has offices in Atlanta, Chicago and Tampa and intends to expand
its geographic presence to Texas, California and the Northeast. The Atlanta
operation includes sales, service, and consulting functions, and currently
serves as the HALIS national Customer Service Center. The Chicago facility
performs healthcare technology-driven services and may serve as the Company's
outsourcing center for customers who wish to take advantage of the HALIS
technology, but do not wish to operate their own internal systems. The Tampa
office provides management, billing and related administrative services to
healthcare providers.
Utilizing advanced healthcare models and information technology not
previously available to the marketplace, HALIS has developed HALIS Healthcare
Enterprise System, a single program for the healthcare industry. This Healthcare
Enterprise System integrates all of the major functions needed by clinics,
hospitals, practices, payers, long term care facilities, laboratories,
pharmacies and home healthcare, the eight major markets into which HALIS
competes. HALIS is currently building out the specific features required by each
of these eight markets. Subsets of or all of the Healthcare Enterprise System
can be used by each of these markets and can be combined to provide a complete
solution for Integrated Healthcare Delivery Networks. These Networks are being
formed by hospitals, clinics, payers, practice management companies, individual
practices, and other entities which are involved in the delivery and management
of healthcare services.
The Company's systems business will be targeted to healthcare industry
participants such as physician practices, HMO's, home healthcare providers and
hospitals. The Company expects to capitalize on the healthcare industry's demand
for more software variety, updates, convenience, lower pricing, and better
support services. In addition, the Company will provide information management
systems to management companies to help manage their point-of-care systems
information. For example, in the healthcare industry, the Company will provide
an information management system to managed care organizations that will aid in
managing the networks of medical practices.
The Company's executive offices are located at 9040 Roswell Road, Suite
470, Atlanta, Georgia 30350 and its telephone number is (770) 641-5555.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED IN THIS PROSPECTUS AND IN THE
DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE, THE MATTERS DISCUSSED
HEREIN AND THEREIN CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SUGGESTED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING WITHOUT LIMITATION, THE
EFFECT OF ECONOMIC CONDITIONS, PRODUCT DEMAND, COMPETITIVE PRODUCTS AND OTHER
RISKS DETAILED HEREIN AND IN THE COMPANY'S OTHER FILINGS WITH THE COMMISSION.
THE PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES SIGNIFICANT
RISKS. PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL ATTENTION TO THE FOLLOWING
STATEMENTS RESPECTING CERTAIN RISKS APPLICABLE TO THE OFFERING.
Uncertainty of Market Acceptance; Reliance on a Limited Number of
Products. HALIS' Healthcare Enterprise System is a new technology. Achieving
market acceptance for HALIS' products will require substantial marketing efforts
and expenditure to inform potential customers of the distinctive characteristics
and benefits of these products. Since HALIS has limited marketing experience,
financial and other resources to undertake extensive independent marketing
activities, there can be no assurance that HALIS will be able to market its
products successfully. Furthermore, HALIS is dependent on a limited number of
products and on one technology for most of its revenues. There can be no
assurance that HALIS will be able to commercialize its healthcare information
technology profitably.
Working Capital Requirements; Need for Additional Financing. HALIS will
require additional capital or other financing to finance its operations and
continued growth. There can be no assurance that HALIS 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 HALIS. If the Board of Directors of HALIS
determines to obtain additional capital through the issuance of additional
equity securities of HALIS, there can be no assurance that such shares will be
issued at prices or on terms equal to the offering price and terms of this
offering. Any such future equity financing could be dilutive to shareholders of
the Company.
Acquisitions and Integration. An important element of HALIS' business
strategy is to expand through acquisitions. HALIS' future success is dependent
upon its ability to finance acquisitions and effectively integrate acquired
businesses with HALIS' operations. Although HALIS believes that it will be able
to effect such integration, there can be no assurance that past or future
acquisitions will be successfully integrated or that any such acquisition will
otherwise be successful. In addition, the financial performance of HALIS is now
and will continue to be subject to various risks associated with the acquisition
of businesses, including the financial effects associated with the integration
of such businesses. Although HALIS has made a number of acquisitions over the
past eighteen months, there can be no assurance that HALIS' acquisition strategy
will be successful. Without a successful acquisition strategy, HALIS believes
that its prospects for revenue growth are significantly reduced.
Limited History of Profitability. HALIS has not reported any profits
for a full year of operations since fiscal 1991. In addition, each of the
companies which HALIS has recently acquired has a limited operating history.
There can be no certainty regarding HALIS' ability to achieve or sustain
profitability in the future.
Healthcare Industry and Marketing Changes. The healthcare industry is
subject to changing political, economic and regulatory influences that may
affect the procurement practices and other operational aspects of the
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healthcare industry. During the past several years, the healthcare industry has
been subject to an increase in governmental regulation of, among other things,
reimbursement rates and certain capital expenditures. A number of lawmakers have
announced that they intend to propose programs to reform the U.S. healthcare
system. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates and otherwise change the
operating environment for HALIS' customers. Cost containment measures instituted
by healthcare providers could result in greater selectivity in the allocation of
capital funds, which could have an adverse effect on HALIS' ability to sell its
products and services. HALIS cannot predict with any certainty what effect, if
any, such proposals or healthcare reforms might have on its business, financial
condition or results of operations.
In addition, the healthcare industry is currently undergoing
significant consolidation of healthcare providers resulting in a smaller number
of larger healthcare delivery enterprises. The changing industry profile
produced by this consolidation could have an adverse impact on HALIS' margins
and revenues due to increased competition.
Control by Paul Harrison. Paul Harrison, the Chairman of the Board,
Chief Executive Officer and President of HALIS, exercises voting control over
approximately 34% of the outstanding shares of Common Stock of HALIS. As a
result of such concentration of ownership, Mr. Harrison has the ability to exert
significant influence on the policies and affairs of the Company and corporate
actions requiring shareholder approval, including the election of the members of
the Board of Directors. This concentration of ownership could have the effect of
delaying, deferring or preventing a change of control of the Company, including
any business combination with an unaffiliated party, and could also affect the
price that investors might be willing to pay in the future for shares of Common
Stock.
Dependence on Management and Key Personnel. The success of HALIS
depends to a large degree upon the personal efforts and ability of its Chief
Executive Officer and President, Paul Harrison, and its Executive Vice
President, Chief Administrative Officer and Secretary, Larry Fisher. The loss of
the services of either Mr. Harrison or Mr. Fisher would have a materially
adverse effect on HALIS. HALIS has entered into employment agreements with
Messrs. Harrison and Fisher. HALIS does not maintain key man life insurance on
any of its executives.
The Company's future operating results also depend in significant part
upon the continued service of its key technical, consulting and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will retain its key
managerial or technical personnel or attract such personnel in the future. The
Company has at times experienced difficulty recruiting qualified personnel, and
there can be no assurance that the Company will not experience such difficulties
in the future. The Company actively recruits qualified product development,
consulting and sales and marketing personnel. If the Company is unable to hire
and retain qualified personnel in the future, such inability could have a
material adverse effect on the Company's business, operating results and
financial condition.
Technological Change; Proprietary Technology. Future advances in the
healthcare information systems industry could lead to new technologies, products
or services that are competitive with the products and services offered by
HALIS. HALIS' success will depend, in part, on its ability to be responsive to
technological developments and challenges. Such technological advances could
also lower the cost of such products and services or otherwise result in
competitive pricing pressures, which could have an adverse effect on HALIS. To
remain competitive in the evolving healthcare information systems marketplace,
HALIS must develop new products on
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a timely basis. The failure to develop competitive products or to introduce new
products on a timely basis could have an adverse effect on HALIS' future
financial performance.
Protection of Proprietary Information. HALIS does not have any patents
or registered copyrights and does not anticipate obtaining any patents or
registered copyrights in the near future. HALIS treats its software and related
technical data as confidential and relies on internal nondisclosure safeguards,
including confidentiality agreements with employees, and on laws protecting
trade secrets, to protect what it regards as proprietary information.
Competitors and customers may nevertheless be able to copy certain functional
aspects of HALIS' products. In addition, under the terms of certain agreements
by which HALIS licenses its software for inclusion in software systems marketed
by other manufacturers, HALIS has been required to place in escrow the source
code for the licensed software. In the event of a default by HALIS in its
performance under such agreements, the licensee would be entitled to receive and
retain such source code for its own use.
Competition. The industry in which HALIS operates is highly competitive
and subject to continuing change in the manner in which products and services
are marketed and vendors are selected by customers. The primary competitive
factors are scope and quality of products and service and support capabilities.
Certain current and potential competitors have significantly greater resources
than HALIS.
Limited Trading Volume; Shares Eligible for Future Sale. On October 30,
1992, HALIS' Common Stock ceased quotation on the NASDAQ Small Cap Market. Price
information on HALIS' Common Stock is now available on the NASDAQ "Bulletin
Board." HALIS has experienced limited trading volume in its stock historically.
There is no assurance that a public market for HALIS' securities will continue
to be made or that shareholders will be able to avail themselves of a public
trading market for the Common Stock in the future.
Moreover, sales and potential sales of substantial amounts of the
Company's Common Stock in the public market pursuant to this Prospectus, Rule
144 or otherwise could adversely affect the prevailing market prices for the
Common Stock and impair the Company's ability to raise additional capital
through the sale of equity securities.
No Dividends. HALIS has never paid cash dividends on its Common Stock
and has no plans to pay cash dividends in the foreseeable future. The policy of
HALIS' Board of Directors is to retain all available earnings for use in the
operation and expansion of HALIS' business.
Possible Issuance of Preferred Stock. HALIS is authorized to issue up
to 5,000,000 shares of Preferred Stock, $.10 par value. Preferred Stock may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the Board of Directors, without further action by shareholders,
and may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividends and liquidation, conversion and
redemption rights and sinking fund provisions. No Preferred Stock is currently
outstanding, and HALIS has no present plans for the issuance thereof. The
issuance of any series of Preferred Stock could affect the rights of the holders
of Common Stock, and therefore, reduce the value of the Common Stock and make it
less likely that holders of Common Stock would receive a premium for the sale of
their shares of Common Stock. In particular, specific rights granted to future
holders of Preferred Stock could be issued to restrict HALIS' ability to merge
with or sell its assets to a third party.
Possible Volatility of Stock Price. The market price of the Common
Stock may be subject to significant fluctuations in response to HALIS' operating
results and other factors, and there can be no assurance that the market price
of the Common Stock will not decline below the offering price herein. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations, particularly in the high technology
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sector, which have often been unrelated to the operating performance of
particular companies. Such fluctuations and factors such as announcements of
technological innovations or new products by HALIS or its competitors or third
parties, as well as market conditions in the computer software or hardware
industries and healthcare reform measures, may have a significant effect on the
market price of HALIS' Common Stock.
Fluctuations in Quarterly Performance. HALIS' product sales will be
derived primarily from the sale of software systems and related services in the
healthcare industry, the market for which is still developing. Accordingly,
HALIS' quarterly results of operations are difficult to predict, and delays in
the closing of sales near the end of the quarter could cause quarterly revenues
and, to a greater degree, operating and net income to fall substantially short
of anticipated levels. HALIS' total revenues and net income levels could also be
adversely affected by cancellations or delays of orders, interruptions or delays
in the supply of key components, changes in customer base or product mix,
seasonal patterns of capital spending by customers, delays in purchase decisions
due to new product announcements by HALIS or its competitors, increased
competition and reductions in average selling prices.
Pending Litigation. In February 1997, a complaint was filed in the
State Court of Fulton County, Georgia alleging, among other things, breach of
contract in connection with the termination by HALIS of its merger agreement
with Advanced Custom Computer Solutions, Inc. ("ACCS"), which HALIS advised ACCS
was terminated in November 1996 due to the impossibility of ACCS' fulfilling
certain conditions to closing therein. In addition, the complaint alleges that
the defendants made false and misleading statements to the plaintiffs for the
purpose of inducing plaintiffs to lend money to HALIS. The complaint seeks
damages in the amount of at least $2.0 million (the exact amount of such damages
to be proved at trial), additional damages to be determined by the jury at trial
and punitive damages. HALIS has answered denying the allegations of liability in
the complaint and intends to vigorously contest the lawsuit. There can be no
assurance, however, that HALIS will be successful in its defense or that the
resolution of this matter will not have a material adverse effect on the
financial condition or results of operation of HALIS. See "Business--Legal
Proceedings."
In August 1995, HALIS entered into a Finders Fee Agreement with Penny
Sellers, pursuant to which HALIS agreed to pay Ms. Sellers a commission equal to
10% of the amount of any equity investments in HALIS or software licensing fees
paid to HALIS in respect of transactions introduced to HALIS by Ms. Sellers. The
compensation payable to Ms. Sellers pursuant to the Finders Fee Agreement was
limited to $500,000. In late August 1995, Ms. Sellers introduced HALIS to the
principals of AUBIS, L.L.C. ("AUBIS"). To date, HALIS has paid $19,350 to Ms.
Sellers, which represents 10% of the investment made by the principals of AUBIS
in a private placement of convertible notes (in which private placement other
investors besides the AUBIS principals participated) and 10% of the amounts
received by HALIS from the sale of Fisher Restaurant Management Systems by
AUBIS. See "Business--Legal Proceedings."
Ms. Sellers has claimed that the entirety of a convertible notes
offering completed in 1996 (in which an aggregate of $1,470,000 was raised by
HALIS) would not have been successful but for her introduction of the AUBIS
principals to HALIS. As a result, Ms. Sellers has made a claim for 10% of all
amounts raised in the notes offering. Ms. Sellers has also made a claim, based
on the same rationale, to 10% of all future capital funding raised by HALIS (up
to the $500,000 maximum compensation). In this regard HALIS has recently
completed a private placement which raised gross proceeds of approximately
$2,000,000. Finally, Ms. Sellers has made a claim for 10% of the value of AHS,
ASI, and HSI, which were acquired by HALIS in November, 1996. Ms. Sellers filed
suit with respect to these claims against HALIS, Larry Fisher and Paul W.
Harrison on July 13, 1997, in the State Court of Fulton County, Georgia seeking
actual damages from the Company and Messrs. Fisher and Harrison in the amount of
$480,534.70 and punitive damages from Messrs. Fisher and Harrison in the amount
of $1,000,000. HALIS' management believes that these claims are outside the
scope of the Finders' Fee Agreement and intends vigorously to contest them.
There can be no assurance, however, that HALIS will be
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successful in its defense or that the resolution of this matter will not have a
material adverse effect on the financial condition or results of operation of
HALIS. See "Business--Legal Proceedings."
HALIS is also party to litigation that it believes to be immaterial
with respect to amount and is not disclosed herein.
BUSINESS
GENERAL
HALIS, based in Atlanta, Georgia, is a publicly traded company and
supplier of information technology and services, focusing on the healthcare
industry. HALIS currently is implementing a corporate strategy which combines
external acquisitions and internal sales growth, including the development of
business partner relationships.
HALIS has offices in Atlanta, Chicago and Tampa and intends to expand
its geographic presence to Texas, California and the Northeast. The Atlanta
operation includes sales, service, and consulting functions, and currently
serves as the HALIS national Customer Service Center. The Chicago facility
performs healthcare technology-driven services and may serve as the Company's
outsourcing center for customers who wish to take advantage of the HALIS
technology, but do not wish to operate their own internal systems. The Tampa
office provides management, billing and related administrative services to
health care providers.
Utilizing advanced healthcare models and information technology not
previously available to the marketplace, HALIS has developed HALIS Healthcare
Enterprise System, a single program for the healthcare industry. This Healthcare
Enterprise System integrates all of the major functions needed by clinics,
hospitals, practices, payers, long term care facilities, laboratories,
pharmacies and home healthcare, the eight major markets into which HALIS
competes. HALIS is currently building out the specific features required by each
of these eight markets. Subsets of or all of the Healthcare Enterprise System
can be used by each of these markets and can be combined to provide a complete
solution for Integrated Healthcare Delivery Networks. These Networks are being
formed by hospitals, clinics, payers, practice management companies, individual
practices, and other entities which are involved in the delivery and management
of healthcare services.
The Company's systems business will be targeted to healthcare industry
participants such as physician practices, HMO's, home healthcare providers and
hospitals. The Company expects to capitalize on the healthcare industry's demand
for more software variety, updates, convenience, lower pricing, and better
support services. In addition, the Company will provide information management
systems to management companies to help manage their point-of-care systems
information. For example, in the healthcare industry, the Company will provide
an information management system to managed care organizations that will aid in
managing the networks of medical practices.
COMPANY BACKGROUND
The predecessor of HALIS, Inc., Fisher Business Systems, Inc.
("Fisher"), was organized in 1979 by Larry Fisher to provide vertical software
applications for potential business users of IBM minicomputers. The initial
applications provided by Fisher consisted principally of business management
software directed at a variety of different businesses, including pharmacies,
supermarkets and general retail, as well as restaurants. Spurred by the
introduction of the IBM Personal Computer, or "PC," Fisher developed its own
proprietary PC-based
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business applications software in 1984. At the same time, Fisher's previously
diffuse marketing approach was restructured to focus on its most successful
market niche - the restaurant industry.
Due to a downturn in its business in 1994, Fisher was unable to commit
sufficient resources to continue research and development of its products to
keep pace in the hospitality market place, undermining its competitive position.
In 1995, Fisher's Board of Directors concluded that Fisher needed a significant
shift in its strategic plan to continue in business. As a consequence, Fisher
developed a strategy to grow its business through the acquisition of select
software companies in the hospitality and healthcare markets. See "--Company
Strategy."
Pursuant to this strategy, 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.
("HIS"), which included ProHealth Solutions, Inc., on November 19, 1996. The
acquisitions were accounted for as the reverse acquisition of HALIS, Inc. by an
"accounting entity" consisting of AHS, ASI, and HSI (collectively, the
"Predecessors") 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 Predecessors 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.
The Company made three additional acquisitions in January 1997, one
additional acquisition in May 1997, and two additional acquisitions in July
1997. See "--Recent Acquisitions." The Company made three dispositions in
December 1997. See "--Recent Dispositions."
INDUSTRY BACKGROUND
The healthcare industry is undergoing change at an unprecedented rate.
As a user of healthcare services, most people have direct experience with some
of these changes. Hospitals are buying physician practices; individual practices
are combining their efforts and forming independent practice associations;
physician practice management companies are either buying or managing groups of
practices and clinics; and insurance companies are entering many of these
markets.
The implications of these changes are numerous, but one of the key
factors in the success of each of these organizations is the availability of
information throughout the organization, beginning at the point of service. It
is estimated that as many as 90 manual steps are required to service a patient
and process a claim generated by an office visit. The process is fraught with
error. The physician often does not know all of the patient's history, and if
and how much he or she will be paid for the performance of a given service due
to the complexities in the benefit plans and management contracts under which
the practice operates.
As a result of the new healthcare environment, management expects
significant increases in spending on healthcare technology and related services
over the next several years. Historically, the industry has spent approximately
two to three percent of its revenues on information technology and services,
compared to six to ten percent of revenues for companies in other industries,
according to published research reports. Management believes that, over the next
several years, spending on healthcare technology and related services will
approach the levels experienced by other industries. This trend, combined with
the overall growth of the health care
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industry, is expected by management to yield significant opportunities for
companies who deliver information technology products and services to the
healthcare market.
Healthcare delivery costs have increased dramatically in recent years.
The growing influence of managed care has resulted in increasing pressure on
participants in the healthcare system to contain costs. Accordingly, healthcare
systems are migrating toward more managed care reimbursement, including
discounted fee for service and capitation. Under capitation, providers are paid
a predetermined fee per individual to provide all healthcare services, thereby
assuming the potential financial risks of escalating healthcare costs.
To deliver care in a more cost-effective manner, providers are forming
integrated health delivery networks that may include acute-care hospitals,
physicians' offices, outpatient clinics, homecare and long-term care facilities.
The success of these comprehensive delivery networks is dependent upon, among
other things, effectively managing and delivering information to caregivers and
managers across multiple points of care.
Traditionally, the hospital information systems market has been the
largest segment of healthcare information services. According to industry
analysts, the healthcare industry spent approximately $10 billion for products
and services to support automated information systems in 1995, and the market is
expected to reach $28 billion by the year 2000.
The current market of healthcare and related businesses in the United
States is estimated to be more than $1 trillion. International markets provide
even greater opportunity. The immediate domestic market potential for the
Company's software products and technology services is estimated to be a
universe of 3.4 million businesses representing more than $15 billion in annual
revenue.
In addition to this expanding market opportunity, the demand for
healthcare information systems is also increasing as hospitals and other
providers come under increased pressure to quantify and control their costs. As
a result, many providers are spending more on systems to enable them to access
such information. According to the 1995 Annual HIMSS/HP Leadership Survey, an
industry survey conducted by Hewlett Packard at the Healthcare Information and
Management Systems Society conference, 75% of the respondents stated that their
information system investments will increase at a rate of 20% or more over the
next two years.
Healthcare information systems are evolving to meet the needs of a
changing marketplace. Initially, these systems were financially oriented,
focusing on the ability to capture charges and generate patient bills. However,
as reimbursement has shifted more toward risk sharing and capitation, providers
and payers are seeking to better manage risk by controlling costs, demonstrating
quality, measuring outcomes and influencing utilization. Each of these goals
requires the collection, analysis and interpretation of clinical and financial
information related to the delivery of healthcare.
Management believes that the availability of a complete, timely and
cost-effective patient focused information system is essential to controlling
costs while providing high quality patient care. Sources of patient information
usually include a number of different sites; therefore, current and historical
paper records must be made available by computer to all points-of-care. All
participants in the delivery network need information systems that can capture
data at the point-of-care, communicate data across the continuum of care, and
process and store large volumes of data necessary for the development of the
computer-based longitudinal patient record.
Information technology in healthcare has historically had a "bottoms
up" approach. Software applications such as billing, admissions, claims
processing, patient registration, medical records, contract management, and
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others were developed individually using rigid programming techniques. Over
time, many of these systems were "interfaced" to each other in order to provide
a more complete solution. The piecing together of these disparate applications,
however, has caused significant problems in the development, implementation, and
enhancement of any or all of these systems. Each time a change is made to one
area of the system, many other different programs, normally written by different
groups of people, have to be changed to maintain the "interface". This process
results in long lead times, high costs of acquisition, on-going maintenance, and
system upgrades.
It is not uncommon for a hospital to have more than 10 different
application systems (up to 50 in larger hospitals) installed to perform the
functions of admissions, billing, patient registration, insurance processing,
internal reporting, laboratory information, pharmacy records, contract
management, and eligibility. A typical software application (including
integration testing and conversion) can cost in excess of $200,000. Annual
software support for the applications can run as much as $600,000 or more, and
changes to the software programs create additional charges to the hospital.
Physician practices face the same situation on a smaller cost scale, spending up
to $20,000 or more for the initial software license fees, plus support and
customization.
There are estimated to be approximately 120 million combinations of
computer instructions required to perform today's healthcare industry and
enterprise-wide applications. Using traditional "hard coding" of computer
instructions, this simply cannot practically be done. Therefore, most systems in
the market today have difficulty producing the total solution that the changing
healthcare environment demands. Traditional programming techniques do not offer
a quality, cost effective path to the future for today's customers.
THE HALIS HEALTHCARE ENTERPRISE SYSTEM
HALIS has developed an advanced healthcare information model and a
single program for the healthcare industry, the HALIS Healthcare Enterprise
System ("HES"). Using superior healthcare information models and advanced
database techniques, HALIS offers a totally integrated, not interfaced, top down
approach to healthcare information systems. The HES can be used in its entirety
for an Integrated Healthcare Delivery Network, or subsets can be used for
clinics, hospitals, practices, payers, long term care facilities, laboratories,
pharmacies, and home healthcare providers.
The Company's HES uses a fifth generation database system that manages
data through its integrated multimedia-object, open database compliant (ODBC),
and SQL-relational database. The HES technology platform consists of five major
integrated parts: (i) the graphical end-user interface; (ii) the program object
processor; (iii) the multimedia object database; (iv) the SQL relational and
open database driver; and (v) the communications network manager.
The HES provides a direct connection between the consumer or end-user
and the ready-to-use database driven system. Program data and instruction can be
added in an automated manner without traditional programming knowledge.
Currently, competing software technology and the healthcare industry requires
technical expertise to connect data and processing instructions to a running
program.
The HES's ability to respond to conditions and changes makes it
appealing to healthcare industry participants. Programmer coded instructions or
computer generated coded instructions often exceed the computer workstation
capacity. Therefore, management believes that the conditions and processing
needs are not included in the currently available commercial systems, and a
great deal of the processing must be handled manually. Alternatively, the HES is
expected to handle all the processing conditions and needs of the healthcare
industry.
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HALIS has eliminated more than 90% of the programming effort and
duplicity that other systems have required by placing most of the program logic
into its database. Instead of literally thousands of "if/then" programming
statements for each healthcare event, which require significant personnel and
computer time to execute, the HES directly locates the relevant mathematical and
decision operations and relationships in the database. In addition, the HES is
designed to allow the user to update most items in the database directly,
virtually eliminating the user's dependence on the software supplier to make
such changes. The HES also eliminates the need for redundant data found in all
other systems. It is estimated that more than half, and possibly up to 80% of
the information used by each individual software application is the same as
required by every other application in the system. The HES utilizes the
relational database concept to eliminate this redundancy and streamline the
development, enhancement and operational process dramatically.
The HALIS technology provides a new level of economies in the
production and maintenance of healthcare systems. HALIS systems are being sold
at over 50% less than competitive systems, with a huge corresponding reduction
in maintenance and support costs. HALIS' cost to continue to provide new
features and functions to its system will be substantially below today's market
costs, since there is only one system to modify, not up to 10 or more disparate
systems. HALIS will use videoconferencing and the Internet to deliver training,
product support, sales support and customer service. Each of these techniques is
designed to improve user satisfaction and lower costs.
In 1998, HALIS will focus on three of the eight primary markets it
expects to penetrate: physician practices, including individual, group and
combinations; clinics; and healthcare payors. During 1997 the HALIS Practice
Management System (a subset of HES) was installed in the field as pilot sites,
and is available for sale today to practices and practice management
organizations. The software enables users to add day-to-day changes in patient
data, billing criteria, and quality management in one system. Management
believes that the principal benefits of the software include (i) centralization
of patient data, (ii) coverage verification, (iii) increased collections, (iv)
lower billing costs and (v) higher quality clinical data. Functions provided
include registration, medical records, patient encounters, billing, managed
care, reports and system support.
The HALIS Payer System (another subset) is installed in a pilot site
and is expected to be ready for general release in early 1998. The HALIS HES
Clinic System is currently being sold as pilots and is expected to be ready for
general release during 1998. A pilot site is a customer who acknowledges that
while the particular HALIS system being offered is functionally complete, it
must be field tested in an operational environment, where additional features
may be added to further enhance its usability.
The HES was developed by the Company through the healthcare prototype
licensed from Paul Harrison Enterprises, Inc. ("PHE"). In November 1996, the
Company entered into a perpetual, non-exclusive transferable license with PHE to
utilize proprietary technology known as MERAD ("MERAD") for a license fee of 10%
of gross revenues generated from MERAD and any derivatives thereof by the
Company or any of its affiliates. In July 1995, PHE acquired from Paul Harrison,
the Chairman of the Board, Chief Executive Officer and President of the Company,
certain algorithms and concepts for the creation of an advanced artificially
intelligent software tool called "MERAD," a tool utilized to develop application
software. Through the use of artificial intelligence, MERAD can substantially
decrease the development time necessary to create and debug application
software. The Company uses MERAD to develop the HES.
COMPANY STRATEGY
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The Company is currently focused on the point-of-service system
business in the healthcare industry (e.g., physician practices, MSO's and other
managed care organizations) and is expanding to larger markets such as clinics
and hospitals. Management believes that the Company is well positioned to
produce and support the Company's products due to the flexibility of the
Company's technology and the fact that the Company has no "legacy" systems to
maintain, enhance, or otherwise invest in. Management believes that the
flexibility of the Company's healthcare software will allow the Company to keep
up with user demand for updates to health plan changes, management contract
revisions, availability of new pharmaceutical products, and changes in managed
care-driven plans and practices. Moreover, the Company should be able to deliver
integrated software to virtually every healthcare market segment including
medical practices, home health agencies, hospitals, clinics, long-term care,
labs, pharmacies and payers.
The Company's strategy is to offer its customers a complete solution to
their healthcare information needs. HALIS will use its technological advantages
to produce and sell lower cost application software, and will provide healthcare
information outsourcing and consulting services to augment its software
products. In addition, the Company should be able to deliver a turnkey solution
to healthcare organizations through its ability to implement customized computer
hardware, networks, and other systems integration services.
The Company will address the healthcare systems industry's needs by
automating the production and maintenance of software for all healthcare market
segments through its own version of an automated factory based on the advanced
database technology. Several competitors have attempted to create one technology
to build software for multiple healthcare segments but have had limited success.
The Company believes that the advanced database technology will be instrumental
in automating and integrating the healthcare industry's information cycle.
The Company believes that it will have an advantage over its
competitors because its product "engines" -- the integrated health software
product and its information technology core -- is expected to be effective in
keeping pace with the ongoing market changes in healthcare. Management believes
that many competitors currently have fragmented, inflexible healthcare software
that fails to meet the needs of healthcare companies.
HALIS plans to build superior distribution channels for its software
products by consolidating healthcare information service companies and
developing strategic partnerships with market segment participants. HALIS
acquisitions will typically be healthcare technology service companies (as
opposed to product producing companies). HALIS will convert the "service only"
oriented companies to technology-driven companies to increase market share and
add value. These companies must project a positive cash flow within the first
year following acquisition in order to be candidates for acquisition. HALIS
intends to use its stock for these acquisitions and infuse cash only when
growing the companies. This model has been followed for the initial
acquisitions. HALIS typically pays between one and two times annual revenues for
an acquisition, deducting from the purchase price any debt.
HALIS will also utilize business partners to facilitate entry into
certain markets and increase its geographic presence in key areas of the United
States. Through its acquisition of The Compass Group, Inc., an Atlanta based
consulting firm, HALIS is a Global Alliance Partner with Geac (formerly Dun &
Bradstreet Software). HALIS is currently pursuing the expansion of its
relationship with Geac at a corporate and regional level. The Company has
recently been selected as a Geac global alliance partner for healthcare, and is
working with Geac sales and marketing management to identify Geac customers who
are prospects for the Company's software and services. The Company is also
negotiating with other prospective HALIS business partners.
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The Company will manage its operations through its corporate
headquarters in Atlanta, and strategically located regional offices focused on
sales and service in different geographical areas. HALIS will endeavor to keep
its corporate overhead costs low, while maintaining sufficient staff to
implement the business plan and manage holding company activities such as
strategic planning, mergers and acquisitions, accounting, treasury, research and
development, and risk management.
The Company's strategic plan is a significant shift in the Company's
past business direction as a result of the acquisitions (see "--Recent
Acquisitions"). While the Company believes the strategic plan that it is
undertaking will be successful and in the best interest of the Company, no
assurances can be given that the Company indeed will be successful and that
shareholder value will be enhanced. See "Risk Factors."
RECENT DISPOSITIONS
DISPOSITION OF THE ORTHODONTIC BUSINESS
On December 31, 1997 HALIS Services, Inc. ("HALIS Services"), a
subsidiary of the Company, sold to InfoCure Corporation ("InfoCure")
substantially all of the assets of the orthodontic practice management software
business (the "Orthodontic Business") that the Company had acquired from
Software Manufacturing Group, Inc. in January 1997. See "-- Recent
Acquisitions." The Orthodontic Business includes the development, marketing,
selling and servicing of computer hardware and software to orthodontic
healthcare providers. The sale to InfoCure was consummated pursuant to an Asset
Purchase Agreement dated December 31, 1997 (but effective as of December 1,
1997) by and among the Company, HALIS Services and InfoCure (the "InfoCure Asset
Purchase Agreement"). InfoCure paid HALIS Services, net of liabilities paid by
HALIS Services, approximately $1.5 million in cash.
In connection with the InfoCure Asset Purchase Agreement, the Company
and HALIS Services agreed to pay approximately $5,900 per month through January
1999 to a former employee of HALIS Services and not to compete in the
orthodontic practice management industry for a period of five years.
SALE OF CERTAIN NON-HEALTH CARE ASSETS
On December 31, 1997, pursuant to an Asset Purchase Agreement of that
date by and between HALIS Services, as seller, and Communications Wiring and
Accessories, Inc. ("Communications Wiring"), as buyer (the "Communications
Wiring Asset Purchase Agreement"), HALIS Services sold to Communications Wiring
certain non-healthcare related assets and property of TG Marketing Systems and
Aubis Systems Integration (formerly, Aubis Systems Integration, Inc. or "ASI"),
two business units of HALIS Services, for a purchase price of $1 million and the
assumption of certain liabilities (the "Purchase Price"), subject to downward
adjustment as hereinafter described. The non-healthcare related assets and
property include accounts receivable, computer software, computer equipment,
furniture, fixtures and leasehold improvements. The Purchase Price is payable in
monthly installments, commencing February 15, 1998, and continuing on the 15th
day of each month thereafter (each, an "Installment Payment") until the earlier
of the date upon which the aggregate amount of Installment Payments paid to
HALIS Services shall equal the Purchase Price or December 31, 2007. Each
Installment Payment shall be equal to 20% of the license fees, lease payments
and royalties actually received by Communications Wiring with respect to the
purchased assets for the calendar month immediately preceding the respective
date upon which such Installment Payment shall be due and payable; provided,
however, that in the event that the aggregate amount of all Installment Payments
actually paid by Communications Wiring to HALIS Services prior to December 31,
2007 (the "Paid Installments") shall be less than $500,000, Communications
Wiring shall pay to Seller an amount equal to the difference between $500,000
and the Paid Installments on December 31, 2007. In the event that the aggregate
amount of all Installment Payments actually paid by Communications Wiring to
HALIS Services prior to December 31, 2007 shall be equal to or greater than
$500,000, Communications
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Wiring shall have no further obligation to make installment payments to HALIS
Services and the entire Purchase Price shall be deemed to be equal to the Paid
Installments.
To secure the payment of the Purchase Price by Communications Wiring,
HALIS Services retained a security interest in certain of the purchased assets
constituting or relating to proprietary software developed by HALIS Services.
Such security interest, however, does not guarantee that Communications Wiring
will make the required Installment Payments as and when they become due.
The foregoing description of the sale of certain non-healthcare related
assets to Communications Wiring is qualified in its entirety by reference to the
terms of the Communications Wiring Asset Purchase Agreement attached as Exhibit
10.2 to the Company's Current Report on Form 8-K dated December 31, 1997.
RECENT ACQUISITIONS
In November 1996, the Company merged AHS and ASI, each a wholly owned
subsidiary of AUBIS, L.L.C. ("AUBIS"), with and into two wholly owned
subsidiaries of the Company. In connection therewith, AUBIS received 10,000,000
shares of Common Stock of the Company. AHS and ASI are suppliers of network
integration products and services to the healthcare and other industries. The
Company sold substantially all of the assets of ASI in December 1997. See
"--Recent Dispositions."
In November 1996, the Company also acquired HSI, a wholly owned
subsidiary of Healthcare Technology Investments, L.L.C. (formerly, HALIS,
L.L.C.). In connection therewith, Healthcare Technology Investments, L.L.C.
received 5,000,000 shares of Common Stock of the Company. HSI is the developer
of the HES.
In January 1997, the Company acquired The Compass Group, Inc., a
software consulting company ("Compass"). In connection therewith, Debra York,
the sole shareholder of Compass, was issued an aggregate of 350,000 shares of
the Company's Common Stock and Compass became a wholly owned subsidiary of the
Company (the "Compass Subsidiary"). In addition, as consideration for the waiver
by Ms. York of her rights under a provision in the Merger Agreement providing
for the issuance of additional shares of the Company's Common Stock at a future
date if certain financial targets were achieved for the year ending December 31,
1997, on June 30, 1997 the Company agreed to issue 688,000 shares of the
Company's Common Stock to Ms. York.
In connection with the Compass merger, the Compass Subsidiary entered
into an employment agreement with Ms. York providing for the employment of Ms.
York as President of the Compass Subsidiary for a term of two years at an annual
base salary of $120,000. In addition, in connection with the consummation of the
Merger, the Company granted to Ms. York non-qualified options to purchase 85,000
shares of the Company's Common Stock at an option price of $2.00 per share. The
options granted to Ms.
York are fully exercisable and expire January 10, 2007.
In January 1997, the Company also acquired Software Manufacturing
Group, Inc. ("SMG"), a developer and seller of practice management systems
engaged in the Orthodontic Business, which the Company sold in December 1997.
See "-- Recent Dispositions -- Disposition of the Orthodontic Business." In
connection therewith, the SMG shareholders were issued an aggregate of 3,072,000
shares of Common Stock and SMG became a wholly owned subsidiary of the Company
(the "SMG Subsidiary"). In addition, as consideration for the
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waiver by the SMG shareholders of their rights under a provision in the Merger
Agreement providing for the issuance of additional shares of Common Stock at a
future date if certain financial targets were achieved for the year ending
December 31, 1997, on June 30, 1997 the Company agreed to issue 960,000 shares
of the Company's Common Stock to the SMG shareholders.
In connection with the SMG merger, the SMG Subsidiary entered into an
employment agreement with Charles Cone, Jr. providing for the employment of Mr.
Cone as President of the SMG Subsidiary for a term of two years at an annual
base salary of $192,000 plus incentive compensation determined in accordance
with the provisions of his Employment Agreement.
In January 1997, the Company also acquired American Benefit
Administrative Services, Inc. ("ABAS") and Third Party Administrators, Inc.
("TPA"), which provide third party administrative services for healthcare plans
of large and small companies throughout the United States. In connection
therewith, the ABAS and TPA shareholders were issued an aggregate of 1,875,000
shares of Common Stock and ABAS and TPA became a wholly owned subsidiary of the
Company (the "ABAS/TPA Subsidiary").
Upon consummation of the ABAS and TPA mergers, the ABAS/TPA Subsidiary
entered into an Employment Agreement with Philip E. Spicer providing for the
employment of Mr. Spicer as President and a director of the ABAS/TPA Subsidiary
for a term of three years following the consummation of the mergers (subject to
extension in accordance with the terms of the Employment Agreement). The
Employment Agreement provides for Mr. Spicer to receive an annual base salary of
$200,000 plus incentive compensation determined in accordance with the terms of
Mr. Spicer's Employment Agreement.
In addition, Mr. Spicer received a $100,000 signing bonus, payable in
two installments with $50,000 due upon execution of his Employment Agreement and
the remainder due on or before July 1, 1997. In addition, the Company granted to
Mr. Spicer non-qualified options to purchase 1,250,000 shares of Common Stock at
an option price of $2.00 per share. The options granted to Mr. Spicer are fully
exercisable and expire on the tenth anniversary of the date of issuance. Mr.
Spicer's Employment Agreement also provides for certain payments to be made to
Mr. Spicer in the event he is terminated without cause or in the event of a
change in control of the ABAS/TPA Subsidiary. The Merger Agreement also provides
that Mr. Spicer may repay a loan from ABAS/TPA, which had a balance of $547,790
as of August 15, 1997, in the form of HALIS Common Stock if certain specified
conditions are met.
Upon consummation of the ABAS and TPA mergers, the ABAS/TPA Subsidiary
also entered into an Employment Agreement with Patricia M. Toledano providing
for the employment of Ms. Toledano as Vice President and a director of the
ABAS/TPA Subsidiary for a term of three years following the consummation of the
mergers (subject to extension in accordance with the terms of the Employment
Agreement). The Employment Agreement provides for Ms. Toledano to receive an
annual base salary of $77,000 plus incentive compensation determined in
accordance with the terms of Ms. Toledano's Employment Agreement.
In addition, the Company granted to Ms. Toledano non-qualified options
to purchase 100,000 shares of Common Stock at an option price of $2.00 per
share. The options granted to Ms. Toledano are fully exercisable and expire on
the tenth anniversary of the date of issuance. Ms. Toledano's Employment
Agreement also provides for certain payments to be made to Ms. Toledano in the
event she is terminated without cause or in the event of a change in control of
the ABAS/TPA Subsidiary.
In May 1997 the Company acquired TG Marketing Systems, Inc., a Georgia
corporation ("TGM"). Upon
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consummation of the TGM merger, Joseph M. Neely, in his capacity as the sole
shareholder of TGM, was issued an aggregate of 2,388,060 shares of the Company's
Common Stock. Mr. Neely also entered into an employment agreement with the
Company for a term of two years at an annual base salary of $150,000 and
currently serves as the Chief Operating Officer of the Company. In addition, in
connection with the consummation of the TGM merger, the Company granted options
to purchase an aggregate of 500,000 shares of the Company's Common Stock to
certain employees of TGM at an option price of $1.50 per share.
In December 1997 the Company sold certain assets of the businesses
formerly conducted by TGM. See "-- Recent Dispositions."
In July 1997 the Company acquired Physicians Resource Network, Inc., a
Florida corporation ("PRN") which became a subsidiary of the Company (the "PRN
Subsidiary"). Upon consummation of the PRN merger, Anthony F. Maniscalco, in his
capacity as the sole shareholder of PRN, was issued an aggregate of 3,733,333
shares of the Company's Common Stock.
In connection with the PRN merger, the PRN Subsidiary entered into an
employment agreement with Mr. Maniscalco providing for the employment of Mr.
Maniscalco as President of the PRN Subsidiary for a term of two years at an
initial base salary of $125,000.
Also in connection with the PRN merger, the Company retired
approximately $80,000 of existing indebtedness of PRN and agreed to cause all
personal guaranties with respect to the indebtedness of PRN in the principal
amount of $520,000 to a financial institution to be terminated by refinancing,
payment in full or otherwise on or before December 25, 1997.
In July 1997 the Company acquired PhySource Ltd., an Illinois
corporation ("PhySource") which became a subsidiary of the Company (the
"PhySource Subsidiary"). Upon consummation of the PhySource merger, the
shareholders of PhySource were issued an aggregate of 2,632,611 shares of the
Company's Common Stock, including payment of certain deferred compensation and
expense advances to certain shareholders, payments to certain shareholders for
termination of employment agreements, and payment in retirement of certain
existing indebtedness of PhySource.
In connection with the PhySource merger, the PhySource Subsidiary
entered into an employment agreement with Theodore M. Homa, M.D. providing for
the employment of Dr. Homa as the Medical Director for the medical practice that
previously constituted the business of Theodore M. Homa, M.D., S.C. (the "Homa
Practice"), which was acquired by PhySource immediately prior to the
consummation of the PhySource merger. The employment agreement provides for the
employment of Dr. Homa for a term of two years and for the payment of an annual
base salary for the initial 12 months of the employment agreement of $144,000.
In addition, as incentive compensation Dr. Homa will be paid an amount equal to
50% of the EBITDA (as defined in the employment agreement) for the Homa Practice
for the immediately preceding month; provided, however, that in no event shall
the total compensation (base salary plus incentive compensation) for Dr. Homa in
any month exceed $35,000 during the initial 12-month period or $40,000 during
the remainder of the term of employment.
SUBSIDIARY CONSOLIDATION
In June 30, 1997, the following subsidiaries of the Company were merged
into HALIS Services, a newly-organized, wholly-owned Georgia subsidiary of the
Company: Software Manufacturing Group, Inc.; TG Marketing Systems, Inc.; HALIS
Software, Inc.; AUBIS Hospitality Systems, Inc.; AUBIS Systems Integration, Inc.
and The
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Compass Group, Inc. The purpose of the merger was to simplify the Company's
corporate structure and facilitate the consolidation of accounting and treasury
functions.
RECENT DEVELOPMENTS
PURCHASE OF HEALTHWATCH STOCK
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 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 pursued 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 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 HES for faster and more
accurate information transfer.
CUSTOMERS
The Company's customers are expected to include numerous healthcare
industry participants located throughout the United States, including provider
groups and managed care organizations.
COMPETITION
The Company believes that the principal competitive factors in the
healthcare information market are the breadth and quality of system and product
offerings, access to proprietary data, the proprietary nature of methodologies
and technical resources, price and the effectiveness of marketing and sales
efforts. In addition, the Company believes that the speed with which information
companies anticipate and respond to the evolving healthcare industry structure
and identify unmet information needs is an important competitive factor. The
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Company believes that, with adequate capital, it will be able to compete
favorably with respect to each of these factors.
The market for healthcare information products and services is
intensely competitive. Competitors vary in size and in the scope and breadth of
products and services offered, and the Company competes with different companies
in each of its target markets. Many of the Company's competitors, such as HBO &
Company, have significantly greater financial, technical, product development
and marketing resources than the Company.
The Company's potential competitors include specialty healthcare
information companies, healthcare information system and software vendors and
large data processing and information companies. Many of these competitors have
substantial installed customer bases in the healthcare industry and the ability
to fund significant product development and acquisition efforts.
PROPRIETARY RIGHTS
The Company's success and ability to compete are dependent in part upon
its proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. Although the Company relies on the limited
protection afforded by such intellectual property laws, it also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable maintenance are essential to establishing and maintaining a technology
leadership position. The Company generally enters into confidentiality or
license agreements with its employees, consultants and customers and generally
controls access to and distribution of its software, documentation and other
proprietary information. Although the Company restricts the use by the customer
of the Company's software and does not permit the re-sale, sublicense or other
transfer of such software, there can be no assurance that unauthorized use of
the Company's technology will not occur.
Despite the measures taken by the Company to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
the Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
Certain technology used in conjunction with the Company's products is
licensed from third parties, generally on a non-exclusive basis. These licenses
usually require the Company to pay royalties and fulfill confidentiality
obligations. The termination of any such licenses, or the failure of the
third-party licensors to adequately maintain or update their products, could
result in delay in the Company's ability to ship certain products while it seeks
to implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's results of operations. While it may be
necessary or desirable in the future to obtain other licenses relating to one or
more of the Company's products or relating to current or future technologies,
there can be no assurance that the Company will be able to do so on commercially
reasonable terms or at all.
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In the future, the Company may receive notices claiming that it is
infringing on the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require the expenditure of significant resources to develop
non-infringing technology, require disputed rights to be licensed from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit,
as well as claims initiated by the Company against third parties, can be time
consuming and expensive to defend, prosecute or resolve.
EMPLOYEES
As of January 31, 1998, the Company had approximately 144 full-time
employees, including four in senior management. The Company also utilizes
contract personnel for support services, installations of Company systems and
programming. None of the Company's employees is subject to a collective
bargaining agreement, and the Company considers its employee relations to be
good.
PROPERTIES AND FACILITIES
The Company's headquarters are located at 9040 Roswell Road, Suite 470,
Atlanta, Georgia. This 4,000 square feet facility is leased pursuant to a
55-month lease at a monthly rental of $6,223. The Company also leases additional
space in the greater Atlanta area, Chicago and Tampa.
LEGAL PROCEEDINGS
In February 1997, a complaint styled Advanced Custom Computer
Solutions, Inc., Wayne W. Surman and Charlotte Surman v. Fisher Business
Systems, Inc., HALIS, Inc., Larry Fisher, Paul W. Harrison and Nathan I. Lipson,
was filed in the State Court of Fulton County, Georgia. The complaint alleges,
among other things, breach of contract in connection with the termination by the
Company of its merger agreement with ACCS, which the Company advised ACCS was
terminated in November 1996 due to the impossibility of ACCS's fulfilling
certain conditions to closing therein. In addition, the complaint alleges that
the defendants made false and misleading statements to the plaintiffs for the
purpose of inducing plaintiffs to lend money to the Company. The complaint seeks
damages in the amount of at least $2.0 million (the exact amount of such damages
to be proved at trial), additional damages to be determined by the jury at trial
and punitive damages. The Company has answered denying the allegations of
liability in the complaint and intends to vigorously contest the lawsuit. There
can be no assurance, however, that the Company will be successful in its defense
or that the resolution of this matter will not have a material adverse effect on
the financial condition or results of operation of the Company.
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<PAGE> 23
In August 1995, the Company entered into a Finder's Fee Agreement with
Penny Sellers, pursuant to which the Company agreed to pay Ms. Sellers a
commission equal to 10% of the amount of any equity investments in the Company
or software licensing fees paid to the Company in respect of transactions
introduced to the Company by Ms. Sellers. The compensation payable to Ms.
Sellers pursuant to the Finder's Fee Agreement was limited to $500,000. In late
August 1995, Ms. Sellers introduced the Company to AUBIS. To date, the Company
has paid $19,350 to Ms. Sellers, which represents 10% of the investment made by
the principals of AUBIS in a private placement of convertible notes (in which
private placement other investors besides the AUBIS principals participated) and
10% of the amounts received by the Company from the sale of Fisher Restaurant
Management Systems by AUBIS.
Ms. Sellers has claimed that the entirety of a convertible notes
offering completed in 1996 (in which an aggregate of $1,470,000 was raised by
HALIS) would not have been successful but for her introduction of the AUBIS
principals to HALIS. As a result, Ms. Sellers has made a claim for 10% of all
amounts raised in the notes offering. Ms. Sellers has also made a claim, based
on the same rationale, to 10% of all future capital funding raised by HALIS (up
to the $500,000 maximum compensation). In this regard HALIS has recently
completed a private placement which raised gross proceeds of approximately
$2,000,000. Finally, Ms. Sellers has made a claim for 10% of the value of AHS,
ASI, and HSI, which were acquired by HALIS in November, 1996. Ms. Sellers filed
suit with respect to these claims against HALIS, Larry Fisher and Paul W.
Harrison on July 13, 1997, in the State Court of Fulton County, Georgia seeking
actual damages from the Company and Messrs. Fisher and Harrison in the amount of
$480,534.70 and punitive damages from Messrs. Fisher and Harrison in the amount
of $1,000,000. HALIS' management believes that these claims are outside the
scope of the Finders' Fee Agreement and intends vigorously to contest them.
There can be no assurance, however, that HALIS will be successful in its defense
or that the resolution of this matter will not have a material adverse effect on
the financial condition or results of operation of HALIS.
HALIS is also party to litigation that it believes to be immaterial
with respect to amount and is not disclosed herein.
FORWARD-LOOKING STATEMENTS
This Prospectus 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. See
"RISK FACTORS."
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<PAGE> 24
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
shares of the Common Stock by the Selling Shareholders. See "Selling
Shareholders" for a list of those persons who will receive the proceeds from
such sales. Certain of the shares of the Common Stock to be sold by the Selling
Shareholders represent Common Stock underlying warrants and options to purchase
Common Stock and the Company's 7.0% Convertible Promissory Notes Due January 15,
1998 (the "Notes"). Although the Company will not receive any proceeds from the
sale of the Common Stock by the Selling Shareholders, the Company will receive
proceeds upon the exercise of such warrants and options in an amount equal to
the product of the number of warrants/options exercised multiplied by their
exercise price. Such proceeds will be used for general corporate purposes and
working capital. In addition, for every share of Common Stock issued upon
conversion of the Notes, the Company will benefit in an amount equal to a $1.00
reduction in the indebtedness outstanding under the Notes.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
On October 30, 1992, the Company's Common Stock ceased quotation on the
Nasdaq Small Cap Market. Price information on the Company's Common Stock is now
available on the OTC Bulletin Board. The trading symbol for the Common Stock is
"HLIS."
As of October 2, 1997, there were approximately 300 holders of record
of the Company's Common Stock; however, the Company believes that there are more
than 300 beneficial owners of its Common Stock.
The following table sets for the high and the low bid price of the
Company's Common Stock on the OTC Bulletin Board, as reported by Bloomberg
Reports for the periods indicated:
<TABLE>
<CAPTION>
1997
----------------------------
HIGH LOW
------------- -------------
<S> <C> <C>
Fourth Quarter 1.97 .44
Third Quarter 2.31 1.94
Second Quarter 2.56 1.38
First Quarter 2.25 1.38
</TABLE>
The quotations given in the above table reflect inter-dealer prices,
without retail mark-up, mark down or commission, and may not represent actual
transactions. The Company has not paid any dividends and does not expect to do
so in the foreseeable future. Although the payment of dividends rests with the
discretion of the Board of Directors, the Company intends to employ its
earnings, if any, to finance its ongoing operations and to further develop its
business.
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<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 AHS, ASI and 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 years
ended December 31, 1996 and 1995 consist of the operations of AHS, ASI and HSI
for the entire years and the operations of HALIS, Inc. from November 19, 1996 to
December 31, 1996.
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 companies are included in the Company's
consolidated financial statements from their respective dates of acquisition
(January 10, January 24, January 31 and May 2, 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
NINE-MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE-MONTHS ENDED
SEPTEMBER 30, 1997
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
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<PAGE> 26
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.
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.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1996
Revenues declined 46.3% from $3,582,896 for the year ended December 31,
1995 ("fiscal 1995") to $1,925,412 for the year ended December 31, 1996 ("fiscal
1996"), primarily due to the termination on December 31, 1995 of a distribution
agreement with a significant supplier of AHS and the subsequent withdrawal by
AHS from the hospitality business. This business line accounted for
approximately $1.75 million, or 48.8%, of the Company's revenue for fiscal 1995.
To offset this anticipated loss of revenue, AHS had attempted to increase its
sales efforts with respect to selling its other product lines in the fast food
segment of the market and attempted during the first quarter of 1996 to sell the
Fisher Restaurant Management System(R) in the fine dining segment of the market.
In March 1996, AHS made a strategic decision to discontinue the resale of third
party products by AHS in the hospitality market, and the related support
services provided by AHS to the customers thereof. This line of business
accounted for approximately $1.9 million of the Company's revenues in 1995, or
53.0% of total revenues.
During fiscal 1996, AHS experienced a severe cash drain caused by the
loss of its previously referenced product line and slower than expected sales of
its other products. This caused management to reevaluate the focus of AHS'
business, which had been primarily directed towards small independent restaurant
operators that required a substantial staff to provide support services. In the
second quarter of 1996, management redirected the focus of AHS and, in
anticipation of the merger of AHS into the Company, decided to direct its
resources to providing software and systems integration services to the
healthcare market through ASI and its relationships with the Company and HSI.
In addition, during fiscal 1996, revenues from HSI decreased by
$263,616, primarily as a result of its decision to terminate the Partners in
Prevention Program and the Managed Care Guide. HSI's major customer for the
Partners In Prevention(TM) program had been Prudential Health Care Systems of
Georgia ("Prudential"). Prudential notified HSI in mid-1996 that it did not
intend to honor the balance of its contract, which had two years
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remaining. Prudential did not honor the balance of its contract for two reasons.
First, the Partners in Prevention Program was inadequate to meet Prudential's
needs. Second, Prudential decided to cancel the project that utilized Partners
in Prevention. Lost revenues to HSI as a result of the termination of the
contract by Prudential was approximately $270,000.
The major client for the Managed Care Guide(TM) had been Hoechst Marion
Roussel ("HMR"), an international pharmaceutical company. A contract is
currently in force with HMR that provides HMR a right of first refusal to
distribute the Managed Care Guide(TM) in all major markets in the United States.
The impact upon HSI of HMR's right of first refusal concerning the Managed Care
Guide on a historical basis has been immaterial. HSI has not focused on the
Managed Care Guide as a product in itself and only plans to incorporate the
generic information used to produce the Guide. HSI did not expect to generate
revenues from the Managed Care Guide as a separate product.
The projected impact HMR will have on HSI in general is negligible
because HSI does not plan to market the Managed Care Guide as a product in
itself. HSI plans to only use generic information (public domain type of
information) available to incorporate in the HALIS Healthcare Enterprise System.
In addition, HSI believes that HMR will not exercise its right of first refusal
and would allow HSI to distribute (if HSI chose to do so) the Managed Care Guide
through other organizations. If HMR does exercise its right of first refusal,
HSI will receive revenues it would otherwise not generate on its own.
No other contracts contain unilateral customer cancellation features.
The Company's management has been encouraged by the initial marketplace
response to its Healthcare Enterprise System product, as evidenced by four
executed contracts for pilot sales during the first quarter of 1997. Sales of
the Healthcare Enterprise System product accounted for revenues of only $67,615
in fiscal 1996, as it was still in the development stage for most of 1996. The
Company will follow a strategy of carefully selecting a limited number of pilot
sites and subjecting the software to extensive field use in selected markets
prior to officially launching the product. For that reason, revenues recognized
from the Healthcare Enterprise System product in 1997 will be minimal, but are
expected to be more significant in 1998 and beyond.
Selling, general and administrative expenses increased 15.3% from
$1,249,790 in fiscal 1995 to $1,441,572 in fiscal 1996. Although the Company
reduced operating expenses in the ASI and AHS operating units to compensate for
the loss of business addressed above, significant financial resources were
invested in the development of the HALIS Healthcare Enterprise System
($561,694), and the staffing of a senior corporate management team ($295,676).
Additionally, the Company made the decision to merge ProHealth Solutions into
HSI in March of 1996. ProHealth Solutions had developed a database program
called Partners in Prevention, as well as the Managed Care Guide. Management
decided in early 1996 that neither product had marketplace viability as
stand-alone offerings. ProHealth's operating expenses for 1996, prior to being
merged into HSI, were $129,109.
Other expenses in fiscal 1996 included interest expense of $67,613
related to the Company's convertible promissory notes and other notes payable,
as well as interest on the Company's sales and use tax liabilities. Other
expenses also included merger costs of $378,588 incurred primarily in connection
with the reverse acquisition of the Company by AHS, ASI and HSI during the year.
As a consequence of the decrease in revenues during fiscal 1996,
coupled with the increase in selling, general and administrative and other
expenses during the year (both in absolute terms and as a percentage of
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revenue), the Company incurred a net loss of $1,989,696 or $0.12 per share for
fiscal 1996. This compares to a net loss of $372,938 for fiscal 1995.
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.
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.
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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.
During December 1997 the Company sold three business units and received
funds from the sale of convertible debentures. See "Business -- Recent
Dispositions" and "-- Description of Capital Stock -- Sale of Equity Securities
Pursuant to Regulation S." The estimated impact of the sale of the three
business units and the convertible debentures was to increase cash by
approximately $1,350,000. This cash was used to fund development of the
Company's proprietary software products, cash requirements of its remaining
business units and corporate overhead. One of the business units sold was the
Company's largest cash producer.
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 under
"RISK FACTORS -- Pending Litigation", above. 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.
CHANGES IN ACCOUNTANTS
On January 5, 1998, the Company dismissed its independent auditors,
Habif, Arogeti & Wynne, P.C., and on the same date authorized the engagement of
Arthur Andersen LLP as its independent auditors for the fiscal year ended
December 31, 1997. Arthur Andersen LLP was formally engaged by the Company on
January 8, 1998. Each of these actions was approved by the Board of Directors of
the Company.
Habif, Arogeti & Wynne, P.C. audited the financial statements for the
Company for the fiscal year ended December 31, 1996. The report of Habif,
Arogeti & Wynne, P.C. on the financial statements of the Company for the fiscal
year ended December 31, 1996 contained an additional paragraph which emphasized
that there was substantial doubt about the ability of the Company to continue as
a going concern. Except as set forth in the preceding sentence, the report of
Habif, Arogeti & Wynne, P.C. did not contain any adverse opinion or a disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
Except as described herein, in connection with the audit of the fiscal
year ended December 31, 1996 and for the unaudited interim period through
January 5, 1998, there were no disagreements with Habif, Arogeti & Wynne, P.C.
on any matter of accounting principle or practice, financial statement
disclosure, or audit procedure or scope which disagreement, if not resolved to
the satisfaction of Habif, Arogeti & Wynne, P.C. would have caused it to make
reference to the subject matter of the disagreement in its report. Habif,
Arogeti & Wynne, P.C.
-28-
<PAGE> 30
has advised the Company, and the Company concurs, that the Company's
consolidated statement of cash flows for the nine months ended September 30,
1997 is incorrect. The error is that the changes in assets and liabilities
included as adjustments to reconcile net loss to net cash used by operating
activities include the effects of businesses acquired during the period. The
effect of this error was to increase the net cash used by operating activities
and decrease the cash used by financing activities. The Company has corrected
this error by filing a corrected Form QSB/A for the quarter ended September 30,
1997.
Further, during the fiscal year ended December 31, 1996 and the
unaudited interim period through January 5, 1998, neither the Company or any of
its representatives sought the advice of Arthur Andersen LLP regarding the
application of accounting principles to a specific completed or contemplated
transaction or the type of audit opinion that might be rendered on the Company's
financial statements, which advice was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issue.
In connection with the audit of the fiscal year ended December 31, 1996
and for the unaudited interim period through January 5, 1998, Habif, Arogeti &
Wynne, P.C. did not advise the Company that (i) the internal controls necessary
for the Company to develop reliable financial statements did not exist; (ii)
that information had come to its attention that led it to no longer be able to
rely on management's representations, or that made it unwilling to be associated
with the financial statements prepared by management; (iii) that there existed a
need to expand significantly the scope of its audit, or that information had
come to the attention of Habif, Arogeti & Wynne, P.C. during the fiscal periods,
that if further investigated may (a) materially impact the fairness or
reliability of either: a previously issued audit report or the underlying
financial statements, or the financial statements issued or to be issued
covering the fiscal period subsequent to the date of the most recent financial
statements covered by an audit report (including information that may prevent it
from rendering an unqualified audit report on those financial statements), or
(b) cause Habif, Arogeti & Wynne, P.C. to be unwilling to rely on management's
representations or be associated with the Company's financial statements, and
due to the dismissal of Habif, Arogeti & Wynne, P.C. did not so expand the scope
of its audit or conduct such further investigation; or (iv) that information had
come to the attention of Habif, Arogeti & Wynne, P.C. that it concluded
materially impacts the fairness or reliability of either (a) a previously issued
audit report or the underlying financial statements, or (b) the financial
statements issued or to be issued covering the fiscal period subsequent to the
date of the most recent financial statements covered by an audit report
(including information that, unless resolved to the satisfaction of Habif,
Arogeti & Wynne, P.C., would prevent it from rendering an unqualified audit
report on those financial statements), and due to the dismissal of Habif,
Arogeti & Wynne, P.C., the issue has not been resolved to the satisfaction of
Habif, Arogeti & Wynne, P.C. prior to its dismissal.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers and directors of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Paul W. Harrison................. 42 Chairman of the Board and Chief Executive Officer
Larry Fisher..................... 53 Executive Vice President, Secretary, Treasurer and Director
Joseph H. Neely.................. 39 Chief Operating Officer and Senior Vice President
Harold J. Williams Iii........... 36 Chief Financial Officer and Senior Vice President
Charles Broes.................... 59 Director
</TABLE>
-29-
<PAGE> 31
Paul W. Harrison, age 42, has served as Chairman of the Board and Chief
Executive Officer of the Company since November 1996. In addition, Mr. Harrison
has been the managing member of AUBIS since February 1995, a director of AUBIS
Hospitality Systems, Inc. ("AHS") since June 1994 and a director of AHS since
January 1995. Mr. Harrison also serves as a director of HealthWatch, Inc., a
manufacturer of medical products. Mr. Harrison has 20 years of professional
experience in the United States and internationally in investments, management
consulting, and information technology. Mr. Harrison has created and sold
various software technology companies over his career that specialized in the
healthcare and information technology markets. In 1994, he acquired Wiporwil
Systems and Peripheral Design to form AUBIS, L.L.C. Prior to founding AUBIS,
L.L.C. Mr. Harrison started and later sold Biven, a technology company, to HBO &
Company ("HBOC"). Biven enabled HBOC to enter the highly competitive managed
healthcare information technology segment of the industry. Mr. Harrison served
as a senior executive of HBOC until 1995. Prior to Biven, Mr. Harrison owned and
operated several technology development companies supporting the healthcare
industry. Mr. Harrison has also invested in the development of the Chemical
Sciences Center at the Scripps Research Institute, is on the Scripps Research
Presidents Council, and is a Louis Pasteur Fellow. Mr. Harrison is also active
in private investment funds and is a well known supporter of health related
charities.
Larry Fisher, age 53, has served as Executive Vice President of the
Company since June 1997. Mr. Fisher was the founder of Fisher Business Systems,
Inc. ("Fisher"), the predecessor of HALIS, Inc., and served as a director since
its organization in 1979. Mr. Fisher subsequently served as President, Chief
Executive Officer and Treasurer of Fisher from 1979 to 1992, and as Chairman of
the Board, from December 1992 to November 1996. From November 1996 to June 1997,
Mr. Fisher served as the President of HALIS, Inc. He led the development of the
first generation of Fisher's products for the hospitality marketplace and is a
recognized leader in the industry. Under his management, Fisher developed the
first integrated point-of-sale and back office system for the food service
industry. He also directed Fisher's efforts in the development of its second
generation touch screen system. Mr. Fisher also serves as a director of
HealthWatch, Inc., a manufacturer of medical products. Prior to 1979, Mr. Fisher
was employed by IBM for 11 years in several executive sales and marketing
positions. In his last such position, Mr. Fisher was responsible for creating,
implementing and monitoring national marketing programs for the retail and
hospitality industries.
Joseph H. Neely, age 39, has served as Chief Operating Officer and
Senior Vice President since June 1997 and as a director of the Company since
June 1997. Prior to his service at HALIS, Inc., Mr. Neely founded and served as
the President of TG Marketing, a company acquired by HALIS in May 1997. TG
Marketing provides marketing software and services to a variety of industries,
including the health care industry. Mr. Neely's experience combines sales and
marketing expertise with knowledge of the most current methods of deploying
software and services technology.
Harold J. Williams, III, age 36, has served as Chief Financial Officer
and Senior Vice President of the Company since June 1997. Mr. Williams has a
comprehensive corporate finance background that includes experience in the
multi-national corporate market as well as the middle market leveraged finance
arena. Prior to joining HALIS, he spent over seven years with Heller Financial's
Corporate Finance Group where he participated in the closing of over $250
million of senior and mezzanine financings. Mr. Williams previously worked for
the International Treasury Department of RJR Nabisco where he assisted in
project financings, subsidiary capitalizations, and other international
transactions. Mr. Williams also spent four years with SunTrust Bank where he was
responsible for the bank's west coast originations and portfolio management
activities.
Charles Broes, age 59, has served as a director of the Company since
July 1997. In addition, Mr. Broes is the co-founder and is currently serving as
the Chief Executive Officer and Chairman of the Board of TMR Corp., a business
development company. Mr. Broes also serves as Chairman and Chief Executive
Officer of
-30-
<PAGE> 32
Optimark Data Systems, Inc., a Canadian company. In 1982, Mr. Broes founded
Wellmark, Inc. which became an industry leader for electronic healthcare
clearinghouse services.
The executive officers of the Company are appointed by the Board of
Directors and hold office at the pleasure of the Board. Executive officers
devote their full time to the affairs of the Company. There are no family
relationships between any director or executive officer and any other director
or executive officer of the Company.
SELLING SHAREHOLDERS
Except as indicated otherwise, the following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock
by the shareholders of the Company who are offering securities pursuant to this
Prospectus (the "Selling Shareholders"), which information is based on recent
Company records, including the Company's previous Registration Statement on Form
S-2 (No. 333-3445), and data provided by selling shareholders. "Beneficial
Ownership" includes shares for which an individual, directly or indirectly, has
or shares voting or investment power or both. All of the listed persons have
sole voting and investment power over the shares listed opposite their names
unless otherwise indicated in the notes below. Shares shown as beneficially
owned after the offering assumes that all shares offered hereby by the Selling
Shareholder are sold. As of February 2, 1998, there were 45,653,832 shares of
the Company's Common Stock outstanding.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Juan G. Alancon.......................... 920 * 920 0 0%
Jeffrey Albrecht......................... 266,667(3) * 266,667 0 0%
Paul Anderson............................ 307 * 307 0 0%
Mitchell Andrews......................... 165,510(12) * 165,510 0 0%
Annecy Partners.......................... 80,000(4) * 80,000 0 0%
Shepard B. Ansley, IRA R/O............... 13,333(5) * 13,333 0 0%
Atlanta Jewish Federation................ 100,000 * 100,000 0 0%
Wayne P. Attkinson, DDS, PA
Money Purchase Pension Plan........... 22,221(6) * 22,221 0 0%
Attkisson, Carter & Akers, Inc........... 283,331(7) * 283,331 0 0%
James E. Askew........................... 58,667(8) * 58,667 0 0%
Rebecca Baisch........................... 920 * 920 0 0%
John W. Baker............................ 379,999(9) * 379,999 0 0%
Sandra M. Barber......................... 614 * 614 0 0%
Evelyn Barrett/WSJR...................... 23,750 * 23,750 0 0%
Timothy J. Baxter........................ 1,841 * 1,841 0 0%
Philip Beatty............................ 6,250 * 6,250 0 0%
Campbell Brett Bentson................... 14,000 * 14,000 0 0%
Chris Bentson............................ 92,563(10) * 92,563 0 0%
Dana Pennstrom Bentson................... 20,000 * 20,000 0 0%
Hunter Colum Bentson..................... 14,000 * 14,000 0 0%
O'Malley Anne Bentson.................... 12,000 * 12,000 0 0%
Todd B. Blankenbecker.................... 1,687 * 1,687 0 0%
David E. Boyd............................ 80,000(4) * 80,000 0 0%
Charles Broes............................ 50,000 * 50,000 0 0%
</TABLE>
-31-
<PAGE> 33
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James Brown.............................. 20,000 * 20,000 0 0%
Darren H. Bryant......................... 18,750 * 18,750 0 0%
Freddie & Jean Bryant.................... 31,250 * 31,250 0 0%
Sharon Bryant-Brown...................... 12,500 * 12,500 0 0%
R. Stephen Burch......................... 12,500 * 12,500 0 0%
Burch G. Cameron......................... 189,000(12) * 189,000 0 0%
Peter M. Candler......................... 59,250(13) * 59,250 0 0%
Belfield H. Carter, Jr. IRA ............. 80,000(4) * 80,000 0 0%
Anne W. Carville......................... 532 * 532 0 0%
Anne W. Carville as custodian for
Claire Sevier Carville................ 532 * 532 0 0%
Stephen Normand Carville................. 532 * 532 0 0%
Stephen N. Carville as custodian for
Joseph James Carville................. 532 * 532 0 0%
Stephen N. Carville as custodian for
Stephen Normand Carville, Jr........... 532 * 532 0 0%
Richard A. Clark......................... 3,882 * 3,882 0 0%
Victor & Deborah Clark................... 12,500 * 12,500 0 0%
Drs. Cohen & Fixelle, P.C. Profit Sharing
Plan..................................... 12,000 * 12,000 0 0%
Dawn R. Coleman.......................... 614 * 614 0 0%
Charles Cone, Jr......................... 1,797,074(12) 3% 1,797,074 0 0%
Gael J. Cone............................. 25,000 * 25,000 0 0%
Laura S. Cooney.......................... 1,841 * 1,841 0 0%
Jo Ann Corso............................. 1,841 * 1,841 0 0%
Karen Crisp.............................. 1,841 * 1,841 0 0%
William E. Davidson, Jr.................. 25,000 * 25,000 0 0%
Jay M. Davis............................. 111,111(14) * 111,111 0 0%
Wink A. Davis, Jr........................ 80,000(4) * 80,000 0 0%
Anne DesRosier........................... 614 * 614 0 0%
J. Domescik Master Trust................. 40,000 * 40,000 0 0%
J. Domescik, MD.......................... 40,000 * 40,000 0 0%
John M. Dratch........................... 12,500 * 12,500 0 0%
Keith B. Dressler........................ 200,000 * 200,000 0 0%
First Tennessee Bank Trustee for
Stanley Dressler Pension Plan......... 200,000 * 200,000 0 0%
George V. Duvzak........................ 730,964(12) 1% 675,000 55,964 *
Ruben M. Duron........................... 7,407 * 7,407 0 0%
Jeffrey S. Ellerman...................... 50,000 * 50,000 0 0%
Ann J. Ellis............................. 532 * 532 0 0%
Jack Ray Farm............................ 80,000(4) * 80,000 0 0%
Rodger Fauber............................ 62,500 * 62,500 0 0%
Michelle R. Fawcett...................... 96,340(12) * 96,340 0 0%
Walter R. Fawcett, III................... 397,451(12) 1% 397,451 0 0%
</TABLE>
-32-
<PAGE> 34
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ernest G. Fermanis & Pauline Fermanis 80,000 * 80,000 0 0%
Larry Fisher(15)......................... 3,063,000(16) 5% 2,155,000 908,000 1.5%
Laurie B. Fisher......................... 173,750 * 173,750 0 0%
James D. Fluker, Jr...................... 111,250(17) * 111,250 0 0%
Elisabeth Ann M. Foley................... 1,841 * 1,841 0 0%
Sara Foreman............................. 614 * 614 0 0%
Gerald R. Forsythe....................... 837,376(12) 1% 837,376 0 0%
Jean D. Forsythe......................... 89,755 * 89,755 0 0%
Melissa S. Forsythe...................... 96,340(12) * 96,340 0 0%
Monica J. Forsythe....................... 96,340(12) * 96,340 0 0%
Marsha F. Fournier....................... 340,298(12) * 340,298 0 0%
Deborah R. Fowler........................ 25,000 * 25,000 0 0%
W. Guy Fowler............................ 25,000 * 25,000 0 0%
Charles P. Garrison...................... 306,667(18) * 226,667 80,000 *
J. Harper Gaston......................... 31,250 * 31,250 0 0%
Howard E. Gilbert........................ 5,000 * 5,000 0 0%
Burton L. Graham......................... 16,000 * 16,000 0 0%
Eric Graziano............................ 307 * 307 0 0%
Anyce Cecilia Griffon.................... 532 * 532 0 0%
Duane Joseph Griffon..................... 532 * 532 0 0%
George Gustave Griffon, III.............. 532 * 532 0 0%
Jodi Kleinpeter Griffon.................. 532 * 532 0 0%
Lance Champagne Griffon.................. 532 * 532 0 0%
Renee Lucille Griffon.................... 532 * 532 0 0%
Glen D. Gullat........................... 1,841 * 1,841 0 0%
Luis F. Gutierrez........................ 250,000 * 250,000 0 0%
Nancy W. Halper.......................... 5,000 * 5,000 0 0%
Joseph W. Hamilton....................... 12,500 * 12,500 0 0%
Sonny Hamilton........................... 12,500 * 12,500 0 0%
Brad Hammond............................. 62,500 * 62,500 0 0%
Catherine D. Hampton..................... 1,841 * 1,841 0 0%
Yvette Handy............................. 1,489 * 1,489 0 0%
Brett Hardt.............................. 736,094(19) 1% 736,094 0 0%
Harshman & Phillips, P.C................. 31,996 * 31,996 0 0%
Paul Harrison(20)........................ 13,366,534(21) 22% 4,450,000 8,916,534 14%
Quill O. Healey.......................... 80,000(4) * 80,000 0 0%
Healthcare Technology Investments, 5,000,000(22) 8% 5,000,000 0 0%
L.L.C....................................
Charles R. Heaton........................ 40,000(23) * 40,000 0 0%
Joseph Terrell Hill as custodian for
David Williams Hill................... 532 * 532 0 0%
Joseph Terrell Hill as custodian for
Joseph Carter Hill.................... 532 * 532 0 0%
</TABLE>
-33-
<PAGE> 35
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph Terrell Hill as custodian for
Laren Terrell Hill.................... 532 * 532 0 0%
Phillip L. Hinson........................ 20,000(24) * 20,000 0 0%
Charles R. Hoke.......................... 2,000 * 2,000 0 0%
Samuel D. Holmes......................... 50,000 * 50,000 0 0%
Theodore M. Homa......................... 200,946(12) * 200,946 0 0%
W. Gerry Howe............................ 180,075(12) * 180,075 0 0%
David A. Hunt............................ 1,074 * 1,074 0 0%
Gordon P. Hurley......................... 80,000(4) * 80,000 0 0%
Indeck Energy Services, Inc.............. 85,132(12) * 85,132 0 0%
Peter R. Indovina........................ 675,000(12) 1% 675,000 0 0%
Mark Jarosz.............................. 25,000(24) * 25,000 0 0%
Janice K. Jennings....................... 614 * 614 0 0%
Mark C. Kendall.......................... 144,745(12) * 144,745 0 0%
Frank Kinnett............................ 31,250 * 31,250 0 0%
Frank Kinnett Profit Sharing Plan........ 80,000(4) * 80,000 0 0%
Diane G. Kling........................... 532 * 532 0 0%
Laura Kurt............................... 920 * 920 0 0%
Sherrill W. Lane......................... 532 * 532 0 0%
Sherrill W. Lane as custodian for
Camille Womack Palmer................. 532 * 532 0 0%
Sherrill W. Lane as custodian for
Archer Cotton Lane.................... 532 * 532 0 0%
Sherrill W. Lane as custodian for
Malcolm Taylor Lane................... 532 * 532 0 0%
Thomas A. Lane........................... 532 * 532 0 0%
Thomas A. Lane as custodian for
Caroline Copeland Lane................ 532 * 532 0 0%
Gordon R. Lang........................... 250,000 * 250,000 0 0%
Edward H. Leatherman..................... 10,000 * 10,000 0 0%
Leslie S. Leighton and Deborah G.
Leighton.............................. 162,667(18) * 130,667 32,000 *
Barbara Linn............................. 614 * 614 0 0%
Daniel S. Lipson........................ 210,413 * 210,413 0 0%
Nathan I. Lipson......................... 2,857,524(25) 5% 2,857,524 0 *
Sara Lipson Shlesinger................... 496,913(11) * 496,913 0 0%
James Long, Jr........................... 25,000 * 25,000 0 0%
Priscilla W. Lopez-Tan................... 155,597(12) * 155,597 0 0%
Gail Mackey.............................. 532 * 532 0 0%
Reno Madsen.............................. 12,500 * 12,500 0 0%
David J. Mahan........................... 11,667(26) * 11,667 0 0%
David J. Mahan and Sue R. Mahan
JTWROS................................ 64,400(27) * 64,400 0 0%
David J. Mahan IRA....................... 51,240(28) * 51,240 0 0%
</TABLE>
-34-
<PAGE> 36
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David J. Mahan Custodian for Holly M.
Mahan................................. 22,439(29) * 22,439 0 0%
Anthony F. Maniscalco and Catherine
A. Maniscalco......................... 3,733,333(12) 6% 3,733,333 0 0%
Gary M. Marcello......................... 34,000(30) * 34,000 0 0%
Victor L. Marcello....................... 27,777(35) * 27,777 0 0%
Simon Marchant........................... 1,841 * 1,841 0 0%
John D. Margeson......................... 340,000(32) * 340,000 0 0%
James A. Martin, III..................... 8,000(33) * 8,000 0 0%
Joseph J. Maschek, Jr.................... 163,332(12) * 163,332 0 0%
Leslie D. McCleod........................ 10,000 * 10,000 0 0%
George McCoy............................. 1,841 * 1,841 0 0%
Greg McGowan............................. 66,666(34) * 66,666 0 0%
Robert A. McOsker........................ 50,000 * 50,000 0 0%
William L. Meyer......................... 41,450(35) * 31,250 10,200 *
Randy H. Nash............................ 21,384(36) * 21,384 0 0%
Randy H. Nash IRA........................ 34,395(37) * 34,395 0 0%
Joseph H. Neely & Christine G.
Neely(38)............................. 2,365,838 4% 2,365,838 0 0%
Northstar Capital Partners, LP........... 72,000(39) * 72,000 0 0%
Diane Oelschlager........................ 920 * 920 0 0%
Toni Olson and Mark Olson JTWROS......... 43,333(40) * 43,333 0 0%
F. Cole Pate............................. 30,000(41) * 30,000 0 0%
Grace T. Pate............................ 15,000 * 15,000 0 0%
Don Pearce............................... 62,500 * 62,500 0 0%
Robert F. Perry.......................... 53,333(42) * 53,333 0 0%
Paul Harrison Enterprises, Inc........... 7,795,587(43) * 3,916,534 3,879,053 6.4%
Charles Powell........................... 12,500 * 12,500 0 0%
Jeff Powell.............................. 12,500 * 12,500 0 0%
Johanne Powell........................... 12,500 * 12,500 0 0%
Gordon Random............................ 1,017,339 * 1,017,339 0 0%
Vijaykumar M. Rao & Prema V. Rao......... 250,000 * 250,000 0 0%
Brenda Rappaport......................... 10,000 * 10,000 0 0%
Daniel B. Rather......................... 146,667(44) * 146,667 0 0%
Karen Robinson........................... 22,222 * 22,222 0 0%
Lisa Robinson............................ 1,841 * 1,841 0 0%
William G. Rogers........................ 28,000(45) * 28,000 0 0%
Robert A. Rowland........................ 80,000(4) * 80,000 0 0%
William M. Scaljon....................... 100,000 * 100,000 0 0%
Steven M. Schwartz....................... 50,000 * 50,000 0 0%
Paul M. Seeley........................... 10,000 * 10,000 0 0%
Charles L. Shields....................... 40,000(25) * 40,000 0 0%
Irving M. Shlesinger..................... 25,000 * 25,000 0 0%
John Shlesinger.......................... 163,506(11) * 163,506 0 0%
</TABLE>
-35-
<PAGE> 37
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Samuel L. Shober......................... 92 * 92 0 0%
David Short.............................. 1,250 * 1,250 0 0%
Jim Simmons.............................. 62,500 * 62,500 0 0%
John F. Singleton........................ 25,000 * 25,000 0 0%
Brett Elliott Smith...................... 1,841 * 1,841 0 0%
Robert V. Smith.......................... 12,500 * 12,500 0 0%
Samuel O. Sokoh.......................... 1,841 * 1,841 0 0%
Philip E. Spicer......................... 1,875,000(46) 3% 1,875,000 0 0%
Scott T. Staley.......................... 32,000 * 32,000 0 0%
Gordon Stene............................. 13,333(5) * 13,333 0 0%
Penny Stovall............................ 31,250 * 31,250 0 0%
Wayne W. Surman & Charlotte S.
Surman................................ 79,750 * 79,750 0 0%
Ward Cicero Swain III.................... 1,841 * 1,841 0 0%
Ann B. Swinney........................... 20,000 * 20,000 0 0%
Bruce G. Reich 7,889 * 7,889
Kenneth A. Swinney....................... 65,000(41) * 65,000 0 0%
Kenneth A. Swinney, custodian for
Andrew T. Swinney..................... 20,000 * 20,000 0 0%
Kenneth A. Swinney, custodian for
Jacob R. Swinney...................... 20,000 * 20,000 0 0%
Mark Thompson............................ 18,500 * 18,500 0 0%
Patricia Toledano........................ 100,000(24) * 100,000 0 0%
Barnie Vanzant, Jr....................... 27,777(31) * 27,777 0 0%
James B. Vincent......................... 10,000 * 10,000 0 0%
Sudesh K. Vohra.......................... 250,000 * 250,000 0 0%
Robert Wait.............................. 18,000 * 18,000 0 0%
Marvin E. Wallace........................ 1,038,869 2% 1,038,869 0 0%
Walton Properties Profit Sharing Plan
& Trust............................... 62,500 * 62,500 0 0%
Adam J. Waxman........................... 25,000 * 25,000 0 0%
Samuel E. Webster........................ 80,000(4) * 80,000 0 0%
James H. Whitmire........................ 855,157(12) 1% 855,157 0 0%
David Williams and Judith Napier True.... 22,221(47) * 22,221 0 0%
Clarissa A. Windham...................... 20,000 * 20,000 0 0%
Martha Taylor Windham.................... 18,155 * 18,155 0 0%
Mary Elizabeth Windham................... 20,000 * 20,000 0 0%
Stephen D. Windham....................... 20,000 * 20,000 0 0%
Barbara Womack........................... 532 * 532 0 0%
Ellen Lowe Womack........................ 532 * 532 0 0%
Lydia Womack............................. 266 * 266 0 0%
Lydia Womack as custodian for Lydia
Caroline Campbell..................... 266 * 266 0 0%
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- ----------------------------
NUMBER NUMBER
NAME OF BENEFICIAL BENEFICIALLY PERCENT SECURITIES TO BENEFICIALLY PERCENT
OWNER OWNED (1) OF CLASS(49) BE OFFERED(2) OWNED OF CLASS(50)
------- ------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Lydia Womack as custodian for
William Campbell...................... 266 * 266 0 0%
Margaret Champagne Griffon Womack........ 5,320 * 5,320 0 0%
Milton J. Womack......................... 57,656(4) * 57,656 0 0%
Milton J. Womack, Jr..................... 532 * 532 0 0%
Milton J. Womack, Jr. as custodian for
Hannah Louise Womack................... 532 * 532 0 0%
Thomas McD. Womack as custodian for
Thomas McD. Womack, Jr................ 266 * 266 0 0%
Thomas McD. Womack as custodian
for Annie Weeks Womack................ 266 * 266 0 0%
Thomas McD. Womack as custodian
for Maria McKenzie Womack............. 266 * 266 0 0%
Thomas McD. Womack as custodian
for Reed Waddell Womack............... 266 * 266 0 0%
Thomas McD. Womack as custodian
for Brendan Wall Womack................ 266 * 266 0 0%
Dr. James H. Wood........................ 62,500 * 62,500 0 0%
Dr. James H. Wood and Mary K.
Wood.................................. 366,667(3) 1% 366,667 0 0%
Ken Woods................................ 27,777(31) * 27,777 0 0%
Susan Yanez.............................. 1,841 * 1,841 0 0%
Debra York............................... 1,128,663(48) 2% 1,110,663 18,000 *
---------- -----------
Total........................... 60,390,910 46,491,159
</TABLE>
- --------------------------------------------
* Less than 1% of outstanding shares
(1) 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 (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. In
January 1997, the Company completed a private placement of 1,684,975
shares of Common Stock and 730,156 warrants (the "Warrants"). Warrants are
immediately exercisable at an exercise price of $1.75 per share and expire
on December 31, 1999. In addition, in May, 1997, the Company completed a
private placement of 1,148,333 shares of Common Stock and 497,609
Warrants. The holders of the above-referenced securities have been granted
certain registration rights by the Company. Accordingly, such securities
are being registered by the Company hereby. For the purpose of this
Prospectus, it is assumed that the holder exercises 100% of the option or
Warrant or converts 100% of the Note, as the case may be.
(2) Substantially all of the shares of Common Stock included in this
Registration Statement are being registered by the Company for the benefit
of the selling shareholders pursuant to certain registration rights
granted by the Company. Accordingly, not all of the shares of Common Stock
included herein may actually be sold by the selling shareholders pursuant
to the Registration Statement.
(3) Includes 66,667 shares subject to presently exercisable Warrants.
(4) Includes 20,000 shares subject to presently exercisable Warrants.
(5) Includes 3,333 shares subject to presently exercisable Warrants.
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<PAGE> 39
(6) Includes 5,555 shares subject to presently exercisable Warrants.
(7) Represents shares subject to presently exercisable Warrants.
(8) Represents shares of Common Stock issued by the Company to Mr. Askew
pursuant to the terms of a settlement agreement entered into by the
Company and Mr. Askew. See Note 22 hereof for information with respect to
certain shares of Common Stock held indirectly as a member of Healthcare
Technology Investments, L.L.C.
(9) Includes 94,999 shares subject to presently exercisable Warrants.
(10) Includes 45,000 shares subject to presently exercisable stock options.
Shares were issued by the Company in connection with acquisitions of other
businesses. The holders of these shares have been granted certain
registration rights by the Company. Accordingly, such shares are being
registered by the Company hereby.
(11) Includes shares subject to a presently convertible Note.
(12) All or a portion of such shares were issued by the Company in connection
with acquisitions of other businesses. The holders of these shares have
been granted certain registration rights by the Company.
Accordingly, such shares are being registered by the Company hereby.
(13) Includes 7,000 shares subject to presently exercisable Warrants.
(14) Includes 27,778 shares subject to presently exercisable Warrants.
(15) Mr. Fisher is a director, the Executive Vice President, Chief
Administrative Officer and Secretary of the Company.
(16) Includes 2,400,000 shares subject to presently exercisable stock options.
Mr. Fisher's business address is 9040 Roswell Road, Suite 470, Atlanta,
Georgia 30350.
(17) Includes 20,000 shares subject to presently exercisable Warrants.
(18) Includes 16,667 shares subject to presently exercisable Warrants.
(19) Includes 100,000 shares subject to presently exercisable Warrants.
(20) Mr. Harrison is the Chairman of the Board and Chief Executive Officer of
the Company.
(21) Mr. Harrison disclaims beneficial ownershipp in 4,775,150 shares, but the
amount reflected above includes (i) 4,450,000 shares subject to presently
exercisable stock options, (ii) 3,916,534 shares owned by PHE, Inc., which
Mr. Harrison has the power to vote by virtue of his position as the
president of such entity but of which Mr. Harrison disclaims beneficial
ownership with respect to 2,098,232 shares, and (iii) 5,000,000 shares
owned by Healthcare Technology Investments, L.L.C. ("HTI"), which Mr.
Harrison has the power to vote by virtue of his position as the President
and manager of this entity but of which Mr. Harrison disclaims beneficial
ownership with respect to 2,676,918 shares. PHE directly owns 3,916,534
and indirectly, through HTI, owns 3,879,053. See Note 22 with respect to
the beneficial ownership of the shares held by HTI. Mr. Harrison's
business address is 9040 Roswell Road, Suite 470, Atlanta, Georgia 30350.
(22) The shares held by Healthcare Technology Investments, L.L.C., a Georgia
limited liability company ("HTI"), may be transferred to any of its
members or subsequent transferees who shall also be specifically covered
by this offering. Mr. Harrison presently has the power to vote all of
these shares by virtue of his positions as President and manager of this
entity, but specifically disclaims beneficial ownership with respect to
2,581,168 shares held by HTI. The members, as of the date hereof, and
their current beneficial ownership interests in the shares held by HTI are
as follows: Paul Harrison Enterprise, Inc. (3,879,053); Paul W. Harrison
(522,180, directly, 1,800,902, indirectly); James Askew (186,492); Lonnie
Herzog (186,493), Eugene Harrison (99,463); Kathleen Wilhoit (74,597);
Bill McIvor (39,785); and Frank Sparkman (11,936). HTI's business address
is 3390 Peachtree Road, N.E., Lenox Towers, Suite 1000, Atlanta, Georgia
30326.
(23) Includes 10,000 shares subject to presently exercisable Warrants.
(24) Represents shares subject to presently exercisable stock options.
(25) Includes 10,000 shares subject to presently exercisable stock options.
(26) Includes 2,917 shares subject to presently exercisable Warrants.
(27) Includes 16,100 shares subject to presently exercisable Warrants.
(28) Includes 12,810 shares subject to presently exercisable Warrants.
(29) Includes 5,610 shares subject to presently exercisable Warrants.
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<PAGE> 40
(30) Includes 8,500 shares subject to presently exercisable Warrants.
(31) Includes 6,944 shares subject to presently exercisable Warrants.
(32) Includes 85,000 shares subject to presently exercisable Warrants.
(33) Includes 2,000 shares subject to presently exercisable Warrants.
(34) Includes 16,666 shares subject to presently exercisable Warrants.
(35) Includes 10,000 shares held by Mr. Meyer's two minor children. Mr. Meyer
is a partner of the law firm of Smith, Gambrell & Russell, LLP which
serves as the Company's outside legal counsel.
(36) Includes 5,346 shares subject to presently exercisable Warrants.
(37) Includes 8,599 shares subject to presently exercisable Warrants.
(38) Mr. Neely serves as a Senior Vice President of the Company. Mr. Neely's
business address is 9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
(39) Includes 18,000 shares subject to presently exercisable Warrants.
(40) Includes 10,833 shares subject to presently exercisable Warrants.
(41) Includes shares subject to presently exercisable stock options.
(42) Includes 13,333 shares subject to presently exercisable Warrants.
(43) PHE directly owns 3,916,534 and indirectly, through HTI, owns 3,879,053.
See note 22 with respect to the beneficial ownership of the shares held by
HTI.
(44) Includes 36,667 shares subject to presently exercisable Warrants.
(45) Includes 7,000 shares subject to presently exercisable Warrants.
(46) Includes 1,250,000 shares subject to presently exercisable stock options.
Mr. Spicer's business address is 1733 Park Street, Suite 300, Naperville,
Illinois 60544. Shares were issued by the Company in connection with
acquisitions of other businesses. The holders of these shares have been
granted certain registration rights by the Company. Accordingly, such
shares are being registered by the Company hereby.
(47) Includes 5,555 shares subject to presently exercisable Warrants.
(48) Includes 85,000 shares subject to presently exercisable stock options.
Shares were issued by the Company in connection with acquisitions of other
businesses. The holders of these shares have been granted certain
registration rights by the Company. Accordingly, such shares are being
registered by the Company hereby.
(49) Calculated by dividing the number of shares beneficially owned by the
selling shareholder, including shares issued upon the exercise of all
outstanding options, Warrants and convertible debt, by the number of
shares of Common Stock outstanding after giving effect to the issuance of
shares upon the exercise of outstanding options, Warrants and convertible
debt. See "Security Ownership of Certain Beneficial Owners and Management"
in the Company's Proxy Statement dated November 20, 1997.
(50) Calculated by dividing the number of shares beneficially owned by the
selling shareholder by the number of shares of Common Stock outstanding
after giving effect to the issuance of shares upon the exercise of
outstanding options, Warrants and convertible debt.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of HALIS consists of 100,000,000 shares of
Common Stock, par value $.01 per share and 5,000,000 shares of Preferred Stock,
par value $.10 per share.
COMMON STOCK
Each share of Common Stock is entitled to one vote per share for the
election of directors and on all other matters submitted to a vote of
shareholders. There are no cumulative voting rights. Common shareholders do not
have preemptive rights or other rights to subscribe for additional shares, and
HALIS' Common Stock is not subject
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<PAGE> 41
to conversion or reduction. All the outstanding Common Stock is, and all shares
issuable hereunder will be, duly and validly issued, fully paid and
nonassessable. In the event of liquidation, subject to the rights of holders of
the Notes and any other notes or Common Stock subsequently issued, the holders
of Common Stock will share equally in any balance of corporate assets available
for distribution to them. Subject to the rights of holders of the Notes, holders
of the Common Stock are entitled to receive dividends when and as declared by
HALIS' Board of Directors out of funds legally available therefor. HALIS has not
paid any dividends since its inception and has no intention to pay any dividends
in the foreseeable future. Any future dividends would be subject to the
discretion of HALIS' Board of Directors and would depend on, among other things,
future earnings, the operating and financial condition of HALIS, its capital
requirements, and general business conditions.
PREFERRED STOCK
HALIS is authorized to issue up to 5,000,000 shares of $.10 par value
Preferred Stock, none of which is outstanding. The Board of Directors has the
power, without further action by the shareholders, to divide any and all shares
of Preferred Stock into series and to fix and determine the relative rights and
preferences of the Preferred Stock, such as the designation of series and the
number of shares constituting such series, dividend rights, redemption and
sinking fund provisions, liquidating and dissolution preferences, conversion or
exchange rights and voting rights, if any. Issuances of Preferred Stock by the
Board of Directors may result in such shares having senior dividend and/or
liquidation preferences to the holders of shares of Common Stock and may dilute
the voting rights of such holders. Issuances of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
rights of holders of the Common Stock. In addition, the issuance of Preferred
Stock could make it more difficult for a third party to acquire a majority of
the outstanding voting stock. Accordingly, the issuance of Preferred Stock may
be used as an "anti-takeover" device without further action on the part of the
stockholders of HALIS. HALIS has no present plans to issue any shares of
Preferred Stock and has agreed that it will not issue any shares of Preferred
Stock on or before September 11, 1997 without shareholder approval.
COMMON STOCK PURCHASE WARRANTS
HALIS currently has outstanding approximately 1,271,482 Common Stock
Purchase Warrants (the "Warrants").
Exercise Price and Periods. The Warrants are each exercisable at a
price of $1.75 OR $1.35 per share (the "Exercise Price"). The expiration date of
the Warrants may be extended indefinitely or the exercise price thereof reduced,
at the discretion of HALIS, upon giving written notice to the Transfer and
Warrant Agent and the Warrantholders. The expiration date of the Warrants is
December 31, 1999, subject to further extension at the option of HALIS.
Rights of Warrantholders. Holders of the U.S. Warrants and the Warrants
have no voting rights and are not entitled to dividends. In the event of
liquidation, dissolution, or winding up of the affairs of HALIS, holders of the
Warrants will not be entitled to participate in any liquidation distribution.
Holders of Warrants are protected against dilution of their interests
represented by the underlying shares of Common Stock upon the occurrence of
stock dividends, stock splits, or reclassifications of HALIS' Common Stock.
Limitations Upon Exercise. The Warrants may not be exercised unless
HALIS maintains a current Registration Statement in effect with the SEC or an
exemption from such registration is available during the exercise period of the
Warrants. HALIS is required to use its best efforts to file a Registration
Statement and to
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<PAGE> 42
keep information on HALIS current during the period within which the U.S.
Warrants may be exercised. However, HALIS will have no obligation to keep the
Registration Statement current when the market bid price for HALIS' Common Stock
is below the exercise price of the U.S. Warrants by more than ten percent (10%)
for a period of not less than twenty (20) consecutive trading days.
Transfer, Exchange and Exercise. The Warrants are in registered form
and may be presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time on or prior to their expiration date, at which time the
Warrants become wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.
Effect of Warrants. For the life of the Warrants, Warrantholders have
the opportunity to profit from a rise in the market value of the Common Stock of
HALIS, if any, at the expense of the holders of Common Stock. A Warrantholder
may be expected to exercise Warrants at a time when HALIS, in all likelihood,
would be able to obtain equity capital, if it so desired, by a public sale of
new Common Stock on terms more favorable than those provided in the Warrants.
Exercise of the Warrants could dilute the equity interest of other stockholders
in HALIS.
TRANSFER AND WARRANT AGENT
SunTrust Bank, Atlanta, acts as the Transfer Agent and Warrant Agent
for the Common Stock and Warrants of HALIS.
SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
During December 1997 the Company received funds from the sale of 4%
Convertible Debentures and certain warrants (the "Reg S Warrants"). The
Debentures and Reg S Warrants were issued to non-U.S. Persons with the
assistance of GEM Advisors, Inc. acting as a placement agent. The consideration
received by the Company for the Debentures was $300,000 in cash less certain
expenses, including payments of $2,500 in fees to the escrow agent and 9% of the
aggregate proceeds to GEM Advisors, Inc. as compensation for its services. The
offers and sales of the Debentures and Reg S Warrants were made pursuant to a
claim of exemption under Rules 901 and 903 of Regulation S promulgated by the
Securities and Exchange Commission or, alternatively, under Section 4(2) of the
Securities Act of 1933, as amended. See the Company's Current Report on Form
8-K, dated December 30, 1997 for additional information.
Neither the shares issuable upon conversion of the Debentures or the
Reg. S Warrants are registered under the Registration Statement of which this
Propectus is a part or under any other Registration Statement of the Company and
are not subject to sale pursuant to this Prospectus.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby for the benefit of the
Selling Shareholders were originally issued by the Company pursuant to the
private placement exemption from registration provided in Sections 3(b) and/or
4(2) of the Securities Act of 1933, as amended. The Company has agreed to
register the shares for resale
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<PAGE> 43
by the Selling Shareholders. The Company will not receive any of the proceeds
from the sale of such shares by the Selling Shareholders. See "Use of Proceeds."
The Common Stock may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest. Such sales may be made on one or more exchanges or in the
over-the-counter market, or otherwise, at prices and on terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. Accordingly, sales prices and proceeds to the Selling Shareholders
will depend upon market price fluctuations and the manner of sale. The shares
may be sold by one or more of the following, without limitation: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the shares
as agent but may position and resell a portion of the block as principal to
facilitate the transaction, (b) purchases by a broker or dealer as principal and
resale by such broker or dealer or for its account pursuant to the Prospectus,
as supplemented, (c) an exchange distribution in accordance with the rules of
such exchange, and (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In addition, any securities covered by the
Prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule
144 rather than pursuant to the Prospectus, as supplemented. From time to time
the Selling Shareholders may engage in short sales, short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives thereof, and may sell and deliver the shares in connection
therewith. In addition, certain Selling Shareholders may elect to sell shares of
the Common Stock in privately negotiated transactions in exchange for restricted
shares of Common Stock and/or Warrants of the Company.
From time to time Selling Shareholders may pledge their shares pursuant
to the margin provisions of their respective customer agreements with their
respective brokers. Upon a default by a Selling Shareholder, the broker may
offer and sell the pledged shares of Common Stock from time to time as described
hereunder.
The Selling Shareholders may effect transactions by selling to or
through one or more broker-dealers, and such broker-dealers may receive
compensation in the form of underwriting discounts, brokerage commissions or
similar fees in amounts which may vary from transaction to transaction. The
Selling Shareholders will pay such brokerage commissions and charges, as well as
the fees and expenses of any counsel retained by them in connection with this
offering. The Company will bear all other expenses in connection with
registering the shares offered hereby, which expenses are estimated to total
approximately $75,000.
LEGAL MATTERS
Certain legal matters with respect to the legality of the shares of
Common Stock offered hereby have been passed upon for the Company by Smith,
Gambrell & Russell, LLP, Atlanta, Georgia.
EXPERTS
The financial statements of the Company as of and for the fiscal year
ended December 31, 1996, and the financial statements of AUBIS Hospitality
Systems, Inc. and Subsidiaries, AUBIS Systems Integration, Inc., HALIS Software,
Inc., and ProHealth Solutions, Inc. as of and for the fiscal year ended December
31, 1995, included and incorporated in this Prospectus by reference to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996 have
been audited by the firm of Habif, Arogeti & Wynne, P.C., independent auditors,
as set forth in their report thereon and are so incorporated in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
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<PAGE> 44
The financial statements of Compass as of and for the fiscal year ended
December 31, 1996, included and incorporated in this Prospectus by reference to
the Company's Current Report on Form 8-K (Amendment No. 1) dated March 28, 1997,
have been audited by the firm of Habif, Arogeti & Wynne, P.C., independent
auditors, as set forth in their report thereon and are so incorporated in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of SMG as of December 31, 1996 and for the two
year period ended December 31, 1996, included and incorporated in this
Prospectus by reference to the Company's Current Report on Form 8-K (Amendment
No. 1) dated April 7, 1997, have been audited by the firm of Habif, Arogeti &
Wynne, P.C., independent auditors, as set forth in their report thereon and are
so incorporated in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of ABAS/TPA as of October 31, 1996 and for the
two year period ended October 31, 1996, included and incorporated in this
Prospectus by reference to the Company's Current Report on Form 8-K (Amendment
No. 1) dated April 14, 1997, have been audited by the firm of Habif, Arogeti &
Wynne, P.C., independent auditors, as set forth in their report thereon and are
so incorporated in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of TGM as of December 31, 1996 and for the
year ended December 31, 1996, included and incorporated in this Prospectus by
reference to the Company's Current Report on Form 8-K (Amendment No. 1) dated
July 16, 1997, have been audited by the firm of Habif, Arogeti & Wynne, P.C.,
independent auditors, as set forth in their report thereon and are so
incorporated in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of PRN as of December 31, 1996 and for the two
year period ended December 31, 1996, included and incorporated in this
Prospectus by reference to the Company's Current Report on Form 8-K (Amendment
No. 1) dated September 18, 1997, have been audited by the firm of Habif, Arogeti
& Wynne, P.C., independent auditors, as set forth in their report thereon and
are so incorporated in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The combined financial statements of PhySource and Theodore M. Homa,
M.D., S.C. as of December 31, 1996 and for the period from inception (February
28, 1996) through December 31, 1996 for PhySource and the year ended December
31, 1996 for Theodore M. Homa, M.D., S.C., included and incorporated in this
Prospectus by reference to the Company's Current Report on Form 8-K (Amendment
No. 1) dated October 13, 1997, have been audited by the firm of Habif, Arogeti &
Wynne, P.C., independent auditors, as set forth in their report thereon and are
so incorporated in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
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<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HALIS, INC. AND SUBSIDIARIES
Independent Auditors' Report..............................................................................F-4
Consolidated Balance Sheet - December 31, 1996............................................................F-5
Consolidated Statement of Operations for the year ended December 31,
1996 and Combined Statement of Operations of the Predecessor for the
year ended December 31, 1995...........................................................................F-7
Consolidated Statement of Stockholders' Deficit for the year ended
December 31, 1996 and Combined Statement of Stockholders' Deficit
of the Predecessor for the year ended December 31, 1995................................................F-8
Consolidated Statement of Cash Flows for the year ended December 31,
1996 and Combined Statement of Cash Flows of the Predecessor for
the year ended December 31, 1995.......................................................................F-9
Notes to Consolidated Financial Statements................................................................F-10
Consolidated Balance Sheet at September 30, 1997 (unaudited)..............................................F-26
Consolidated Statement 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 (unaudited)...................................F-28
Consolidated Statements 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 (unaudited)......................................F-29
Notes to Unaudited Consolidated Financial Statements......................................................F-31
THE COMPASS GROUP, INC.
Independent Auditor's Report..............................................................................F-34
Balance Sheet at December 31, 1996........................................................................F-35
Statement of Operations for the year ended December 31, 1996..............................................F-36
Statement of Stockholders' Equity for the year ended December 31, 1996....................................F-37
Statement of Cash Flows for the year ended December 31, 1996..............................................F-38
Notes to Financial Statements.............................................................................F-39
SOFTWARE MANUFACTURING GROUP, INC.
Independent Auditors' Report..............................................................................F-42
Balance Sheet at December 31, 1996........................................................................F-43
Statements of Operations for the years ended December 31, 1996 and
1995...................................................................................................F-44
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 1996 and 1995.............................................................................F-45
Statements of Cash Flows for the years ended December 31, 1996 and
1995...................................................................................................F-46
Notes to Financial Statements.............................................................................F-47
AMERICAN BENEFIT AND ADMINISTRATIVE SERVICES, INC. AND
THIRD PARTY ADMINISTRATORS, INC.
Independent Auditors' Report..............................................................................F-54
Combined Balance Sheets at January 31, 1997 (unaudited) and
October 31, 1996.......................................................................................F-55
</TABLE>
F-1
<PAGE> 46
<TABLE>
<S> <C>
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......................................................................................F-57
Combined Statements of Changes in Stockholders' Equity for the three
months ended January 31, 1997 (unaudited) and the years ended
October 31, 1996 and 1995..............................................................................F-58
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......................................................................................F-59
Notes to Combined Financial Statements....................................................................F-60
TG MARKETING SYSTEMS, INC.
Independent Auditors' Report..............................................................................F-65
Balance Sheets at December 31, 1996 and March 31, 1997 (unaudited)........................................F-66
Statements of Income for the year ended December 31, 1996 and for
the three month periods ended March 31, 1997 and 1996 (unaudited)......................................F-67
Statement of Changes in Stockholders' Equity for the year ended
December 31, 1996 and for the three months ended March 31, 1997
(unaudited)............................................................................................F-68
Statements of Cash Flows for the year ended December 31, 1996 and for
the three month periods ended March 31, 1997 and 1996 (unaudited)......................................F-69
Notes to Financial Statements.............................................................................F-70
PHYSICIANS RESOURCE NETWORK, INC.
Independent Auditors' Report..............................................................................F-74
Balance Sheets at December 31, 1996 and June 30, 1997 (unaudited).........................................F-75
Statements of Operations for the years ended December 31, 1996 and
1995 and the six months ended June 30, 1997 and 1996 (unaudited).......................................F-76
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 1996 and 1995 and the six month period ended June 30,
1997 (unaudited).......................................................................................F-77
Statements of Cash Flows for the years ended December 31, 1996 and
1995 and the six months ended June 30, 1997 and 1996 (unaudited).......................................F-78
Notes to Financial Statements.............................................................................F-79
PHYSOURCE LTD. AND THEODORE M. HOMA, M.D., S.C.
Independent Auditors' Report..............................................................................F-85
Balance Sheets at December 31, 1996 and June 30, 1997 (unaudited).........................................F-86
Statements of Operations for the years ended December 31, 1996 and
1995 and the six months ended June 30, 1997 and 1996 (unaudited).......................................F-87
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 1996 and 1995 and the six month period ended June 30,
1997 (unaudited).......................................................................................F-88
</TABLE>
F-2
<PAGE> 47
<TABLE>
<S> <C>
Statements of Cash Flows for the years ended December 31, 1996 and
1995 and the six months ended June 30, 1997 and 1996 (unaudited).......................................F-89
Notes to Financial Statements.............................................................................F-90
PRO FORMA FINANCIAL INFORMATION OF HALIS, INC. --
THE COMPASS GROUP, INC., SOFTWARE MANUFACTURING
GROUP, INC. AND AMERICAN BENEFIT AND ADMINISTRATIVE
SERVICES, INC. AND THIRD PARTY ADMINISTRATORS, INC. ACQUISITIONS
Introduction..............................................................................................F-96
Unaudited Pro Forma Condensed Consolidated Balance Sheet -
December 31, 1996......................................................................................F-97
Unaudited Pro Forma Condensed Consolidated Statement of Operations -
year ended December 31, 1996...........................................................................F-99
Notes to Unaudited Condensed Consolidated Pro Forma Financial
Statements.............................................................................................F-100
PRO FORMA FINANCIAL INFORMATION OF HALIS, INC. --
TG MARKETING SYSTEMS, INC. ACQUISITION
Introduction..............................................................................................F-101
Unaudited Pro Forma Condensed Consolidated Balance Sheet - March 31,
1996...................................................................................................F-102
Unaudited Pro Forma Condensed Consolidated Statements of Operations
year ended December 31, 1996 and three month period ended March
31, 1997...............................................................................................F-103
Notes to Unaudited Condensed Consolidated Pro Forma Financial
Statements.............................................................................................F-105
PRO FORMA FINANCIAL INFORMATION OF HALIS, INC. --
PHYSICIANS RESOURCE NETWORK, INC.
Introduction..............................................................................................F-107
Unaudited Pro Forma Condensed Consolidated Balance Sheet - June 30,
1997...................................................................................................F-108
Unaudited Pro Forma Condensed Consolidated Statements of Operations
year ended December 31, 1996 and six month period ended June 30,
1997...................................................................................................F-109
Notes to Unaudited Condensed Consolidated Pro Form Financial
Statements.............................................................................................F-110
PRO FORMA FINANCIAL INFORMATION OF HALIS, INC. --
DISPOSITION OF ORTHODONTIC BUSINESS AND NON-HEALTHCARE ASSETS
Introduction..............................................................................................F-112
Unaudited Pro Forma Condensed Consolidated Balance Sheet - September
30, 1997...............................................................................................F-113
Unaudited Pro Forma Condensed Consolidated Statements of Operations -
nine months ended September 30, 1997...................................................................F-114
Notes to Unaudited Condensed Consolidated Pro Form Financial
Statements.............................................................................................F-115
</TABLE>
F-3
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of HALIS, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of HALIS, Inc. and
Subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the year ended December 31,
1996. We have also audited the combined statements of operations, stockholders'
deficit and cash flows of AUBIS Hospitality Systems, Inc. and Subsidiaries,
AUBIS Systems Integration, Inc., HALIS Software, Inc., and ProHealth Solutions,
Inc., [collectively, the Predecessor], for the year ended December 31, 1995.
These consolidated financial statements and combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and 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 consolidated financial statements and 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 consolidated financial statements and 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 financial statements referred to above present fairly, in
all material respects, the financial position of HALIS, Inc. and Subsidiaries as
of December 31, 1996 and the Predecessor as of December 31, 1995 and the results
of their operations and their cash flows for the years ended December 31, 1996
and 1995 in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, HALIS, Inc. was
involved in a business combination with the Predecessor that has been accounted
for as a reverse acquisition in which the Predecessor is treated as the acquirer
for accounting purposes; accordingly, the financial statements for periods prior
to November 19, 1996 are the combined financial statements of the Predecessor.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note C to the
consolidated financial statements, the Company has had recurring losses, a
working capital deficit and a capital deficit. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note C. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
March 7, 1997, except for Notes C and J, as to which the date is March 31, 1997
F-4
<PAGE> 49
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets
- --------------
Cash $ 719,989
Receivables, less allowance for possible losses
of $39,027 45,003
Current portion of receivables - related party 13,285
Inventories 10,178
Other current assets 9,886
----------
Total current assets 798,341
----------
Property and equipment, at cost
- ----------------------
Computer equipment 101,777
Office furniture and fixtures 45,349
----------
147,126
Less accumulated depreciation (86,972)
----------
60,154
----------
Other assets
- ------------
Deposits 16,434
Receivables - related party, net of current portion 48,458
Deferred merger costs 32,659
Loan origination fees, net of accumulated
amortization of $18,000 18,000
Capitalized software development costs, net of
accumulated amortization of $-0- 160,995
Other intangible assets, net of accumulated amortization
of $2,059 3,088
----------
279,634
----------
$1,138,129
==========
</TABLE>
See auditors' report and accompanying notes
F-5
<PAGE> 50
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
Current liabilities
- -------------------
Accounts payable and accrued expenses $ 908,660
Accounts payable and accrued expenses - related party 75,784
Deferred revenue and customer deposits 19,106
Notes payable 210,000
Notes payable - related party 144,000
Payroll and sales tax payable 366,405
------------
Total current liabilities 1,723,955
------------
Long-term debt, net of current portion
- --------------------------------------
Convertible notes payable 1,506,000
------------
Commitments and contingencies (Note G)
- --------------------------------------
Stockholders' deficit
- ---------------------
Common stock $.01 par value, 100,000,000
authorized; 23,972,621 issued and outstanding 239,726
Additional paid-in capital 10,881,151
Stock subscription receivable (240,000)
Accumulated deficit (12,965,953)
Treasury stock (6,750)
------------
(2,091,826)
------------
$ 1,138,129
============
</TABLE>
See auditors' report and accompanying notes
F-6
<PAGE> 51
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
COMBINED STATEMENTS OF OPERATIONS
OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
[Predecessor]
1996 1995
------------ ------------
<S> <C> <C>
Systems sales and services $ 1,925,412 $ 3,582,896
------------ ------------
Costs and expenses
- ------------------
Cost of goods sold 1,656,113 2,613,259
Selling, general, and administrative 1,441,572 1,249,790
Research and development 400,699 -0-
------------ ------------
3,498,384 3,863,049
------------ ------------
Operating loss (1,572,972) (280,153)
- -------------- ------------ ------------
Other income (expense)
- ----------------------
Gain (loss) on asset disposal (8,228) 6,385
Rental income 27,600 21,350
Interest expense (67,613) (22,798)
Interest income 546 1,394
Other income 9,559 315
Merger costs (378,588) -0-
Loss from misappropriation -0- (97,123)
------------ ------------
(416,724) (90,477)
------------ ------------
Loss before income taxes (1,989,696) (370,630)
Income taxes -0- 2,308
- ------------ ------------ ------------
Net loss $ (1,989,696) $ (372,938)
============ ============
Net loss per common share $ (0.12) --
============
Weighted average shares outstanding 15,956,824 --
============
</TABLE>
See auditors' report and accompanying notes
F-7
<PAGE> 52
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Stock Total
------------ Paid-in Subscription Accumulated Treasury Stockholders'
Predecessor Company Shares Amount Capital Receivable Deficit Stock Deficit
- -------------------------------- ---------- -------- ----------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994 -0- $ -0- $ 375,787 $ -0- $ (1,048,842) $ -0- $ (673,055)
Additional capital contribution -0- -0- 210,500 -0- -0- -0- 210,500
Net loss -0- -0- -0- -0- (372,938) -0- (372,938)
---------- -------- ----------- --------- ------------ ------- -----------
Balances, December 31, 1995 -0- -0- 586,287 -0- (1,421,780) -0- (835,493)
HALIS, Inc.
- --------------------------------
Net loss -0- -0- -0- -0- (1,989,696) -0- (1,989,696)
Additional capital contributed -0- -0- 199,678 -0- -0- -0- 199,678
Assumed purchase of net assets
of Fisher at Predecessor cost 7,455,646 74,556 8,621,537 -0- (9,554,477) (6,750) (865,134)
Issuance of shares in reverse acquisition
of Fisher by HALIS, Inc. 15,000,000 150,000 (150,000) -0- -0- -0- -0-
Issuance of common stock 1,516,975 15,170 1,623,649 (240,000) -0- -0- 1,398,819
---------- -------- ----------- --------- ------------ ------- -----------
Balances, December 31, 1996 23,972,621 $239,726 $10,881,151 $(240,000) $(12,965,953) $(6,750) $(2,091,826)
========== ======== =========== ========= ============ ======= ===========
</TABLE>
See auditors' report and accompanying notes
F-8
<PAGE> 53
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
COMBINED STATEMENT OF CASH FLOWS
OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
[Predecessor]
1996 1995
----------- ---------
<S> <C> <C>
Cash flow from operating activities
- -----------------------------------
Net loss $(1,989,696) $(372,938)
----------- ---------
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation 15,100 18,896
Amortization 3,279 1,030
Assumption of expenses by parent 32,000 -0-
Allowance for loss on account receivable (40,000) 18,000
Loss (Gain) on disposal of assets 8,228 (6,385)
Changes in assets and liabilities
Decrease (Increase) in accounts receivable 140,031 22,841
Decrease (Increase) in receivables - related party 21,813 (8,048)
Decrease (Increase) in inventories 45,669 (6,196)
Decrease (Increase) in other current assets 71 (5,716)
Increase in intangible assets -0- (5,147)
Increase in deposits (4,230) (8,609)
Increase (Decrease) in accounts payable
and accrued expenses (255,061) 162,902
Increase in accounts payable and
accrued expenses - related party 37,599 88,468
Increase (Decrease) in income tax payable (6,908) 6,908
Increase (Decrease) in deferred revenue
and customer deposits (96,219) 48,266
Increase in payroll and sales taxes payable 90,517 150,569
----------- ---------
Total adjustments (8,111) 477,779
----------- ---------
Net cash provided [used] by
operating activities (1,997,807) 104,841
----------- ---------
Cash flows from investing activities
- ------------------------------------
Purchase of property equipment (16,424) (52,498)
Increase in software development costs (160,995) -0-
Net decrease (increase) in deferred merger costs 137,049 (169,708)
Net proceeds from sale of property and equipment 10,651 -0-
Advances from Fisher and cash received in acquisition 1,187,233 -0-
Insurance recovery from equipment loss -0- 30,677
----------- ---------
Net cash provided [used] by investing activities 1,157,514 (191,529)
----------- ---------
Cash flows from financing activities
- ------------------------------------
Proceeds from issuance of common stock 1,398,819 -0-
Proceeds from additional capital contributions -0- 210,000
Net payments on note payable and line-of-credit (16,088) (17,912)
Proceeds from issuance of notes payable - related party 100,000 11,020
Repayments on notes payable - related party (51,100) -0-
----------- ---------
Net cash provided by financing activities 1,431,631 203,108
----------- ---------
Net increase in cash 591,338 116,420
Cash, beginning of year 128,651 12,231
----------- ---------
Cash, end of year $ 719,989 $ 128,651
=========== =========
</TABLE>
See auditors' report and accompanying notes
F-9
<PAGE> 54
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of the Company and Basis of Presentation:
HALIS, Inc. (HALIS) and Subsidiaries (collectively, the Company) is a
developer and supplier of healthcare software systems to managed
healthcare markets and to medical practices and related point of
service markets. The Company also provides value added computer
services, network solutions, and connectivity solutions and systems
integration principally to Atlanta area businesses. Additionally, the
Company provides services support, including onsite hardware
maintenance, as well as network support programs.
On November 19, 1996, HALIS, Inc. (f/k/a Fisher Business Systems, Inc.)
issued 15,000,000 shares (66.8%) of its common stock in exchange for
100% of the capital stock of AUBIS Hospitality Systems, Inc. and
Subsidiaries (AHS), AUBIS Systems Integration, Inc. (ASI), and HALIS
Software, Inc. (HSI), which included ProHealth Solutions, Inc. (see
Note B).
The acquisitions set out in the preceding paragraph are being 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
are 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.
Because of the transactions noted above, the Company's results of
operations for the year ended December 31, 1996 consists of the
operations of AHS, ASI, and HSI for the entire year and the operations
of HALIS, Inc. from November 19, 1996 to December 31, 1996.
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 AUBIS Hospitality Systems, Inc. and Subsidiaries, AUBIS
Systems Integration, Inc., HALIS Software, Inc. and ProHealth
Solutions, Inc. All significant intercompany accounts and transactions
have been eliminated.
F-10
<PAGE> 55
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
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:
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.
Inventory:
Inventory is recorded on the first-in, first-out method at the
lower-of-cost or market.
Property and Equipment:
Property and equipment is carried at cost. Depreciation is computed
using the straight-line method based on estimated useful lives of the
assets, generally three to seven years. For income tax purposes,
depreciation is calculated on accelerated methods.
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.
F-11
<PAGE> 56
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Software Development Costs: [Continued]
Capitalized costs are amortized over a period of five years on a
straight-line basis, and amortization commences when the product is
available for market release. Unamortized costs are carried at the
lower of book value or net realizable value.
Deferred Merger Costs:
Deferred merger costs will be capitalized as part of the merger
agreements subsequently commenced. (Note M). Deferred merger costs
associated with mergers which were consummated during 1996 (Note B)
were charged to operations in 1996 because the assets balances of
HALIS, Inc. were considered to be at fair value.
Income Taxes:
Income taxes are based on loss for financial reporting purposes and
reflect a current liability (asset) for the estimated taxes payable
(recoverable) in the current year tax return and changes in deferred
taxes. Deferred tax liabilities and assets are recognized for the
estimated tax effects of temporary differences between financial
reporting and taxable income (loss) for the loss carryforwards based on
enacted tax laws and rates. A valuation allowance is used to reduce
deferred tax assets to the amount that is more likely than not to be
realized.
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 certain assets,
liabilities, and disclosures including the allowance for doubtful
accounts, inventory reserve, useful lives and recoverability of
long-term assets such as capitalized software development costs. Actual
amounts could differ from those estimates. Any adjustments applied to
estimated amounts are recognized in the year in which such adjustments
are determined.
Reclassifications:
Certain 1995 amounts have been reclassified to conform to 1996
presentation.
B. MERGER AND REORGANIZATION:
On March 7, 1996, ProHealth Solutions, Inc. merged with and into HSI.
HSI continued as the surviving corporation and ProHealth Solutions,
Inc. was the nonsurviving corporation.
F-12
<PAGE> 57
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
B. MERGER AND REORGANIZATION: [Continued]
On November 19, 1996, HALIS, Inc., consummated the acquisition of AHS
and ASI, pursuant to the Amended and Restated Agreement and Plan of
Merger and Reorganization, dated December 13, 1995 and amended and
restated as of March 29, 1996, and as further amended on September 27,
1996. On November 19, 1996, AHS and ASI were merged into two
wholly-owned subsidiaries of HALIS, Inc. In connection therewith,
AUBIS, L.L.C., the parent company of AHS and ASI, received 10,000,000
shares of HALIS, Inc. common stock.
On November 19, 1996, HALIS, Inc., consummated the acquisition of HSI
pursuant to the Amended and Restated Agreement and Plan of Merger and
Reorganization, as of March 29, 1996 and amended on September 27, 1996.
On November 19, 1996, HSI was merged into a wholly-owned subsidiary of
HALIS, Inc. In connection therewith, HALIS, L.L.C., the parent company
of HSI, received 5,000,000 shares of HALIS, Inc. common stock.
Following consummation of the AUBIS and HALIS transactions, the
Company's corporate name was changed from Fisher Business Systems, Inc.
to HALIS, Inc.
C. REALIZATION OF ASSETS:
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. However, the Company
has sustained losses from operations since inception and such losses
are expected to continue through the coming period. Additionally, the
Company has used, rather than provided, cash in its operating
activities during the current period. The Company had a working capital
and capital deficiency as of December 31, 1996.
In view of the matters described in the preceding paragraph,
recoverability of the recorded assets and satisfaction of the
liabilities reflected in the accompanying balance sheet is dependent
upon continued operation of the Company, which is in turn dependent
upon the Company's ability to meet its financing requirements on a
continuing basis and to succeed in its future operations. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts
and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management plans to take the following steps to improve its operating
results and financial position, which it believes to be sufficient to
provide the Company with the ability to continue in existence during
the ensuing twelve month period.
The Company is presently raising capital in a private placement which
provides for up to $3,000,000 of capital infusion. Management believes
that the net proceeds contemplated by this offering will be sufficient
to fund both the Company's operations and acquisitions over the next
twelve months. To date, the Company has raised net proceeds of $681,122
in this offering (Note J).
F-13
<PAGE> 58
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
C. REALIZATION OF ASSETS: [Continued]
As discussed in Note M to these financial statements, the Company
completed three acquisitions in January 1997 which it believes
substantially strengthen the Company's operations and complement the
existing business units. These acquisitions were effected through the
issuance of an aggregate of 5,297,000 shares of the Company's common
stock and an aggregate of 1,535,000 of common stock options rather than
utilizing working capital. The Company contemplates future acquisitions
will be effected in a similar manner, in order to preserve working
capital for operations.
Additionally, the Company expects to increase sales volumes of existing
products as a result of increased marketing and advertising efforts.
During 1996, the Company's development of its software product entered
the "pilot" stage, and the Company commenced selling pilot systems in
1997. Management represents that sales to date under such pilot
contracts have been promising, and expects the trend to continue during
the coming period. Additionally, the Company will implement certain
cost containment measures which should benefit future operations.
Management plans to seek sources of financing in order to continue as a
going concern.
D. SOFTWARE DEVELOPMENT COSTS:
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995
-------- -----
<S> <C> <C>
Balances, beginning of year $ -0- $ -0-
Amounts capitalized 160,995 -0-
Amortization -0- -0-
-------- -----
Balances end of year $160,995 $ -0-
======== =====
Research and development costs incurred $561,694 $ -0-
Less amounts capitalized 160,995 -0-
-------- -----
Research and development charged to expense $400,699 $ -0-
======== =====
</TABLE>
No amortization of capitalized software development costs was
recognized during 1996 as market release had not occurred for the
product.
F-14
<PAGE> 59
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
E. NOTES PAYABLE:
The Companies have the following notes payables as of December 31,
1996:
<TABLE>
<S> <C>
Bank-note payable, interest of 8.25% per annum,
payable at maturity, due January 10, 1997.
Secured by shareholders' certificate of deposit. $105,000
Bank-note payable, interest of 8.25% per annum,
payable at maturity, due January 29, 1997.
Secured by shareholders' certificate of deposit. 105,000
--------
$210,000
========
</TABLE>
Both of the $105,000 notes were subsequently renewed on their maturity
dates, mature on April 14, 1997 and April 29, 1997, and are now secured
by a certificates of deposit owned by HALIS, Inc. Both certificates of
deposit are in the amount of $105,000 and mature on April 14, 1997 and
April 29, 1997, respectively.
Convertible Notes Payable - 7% convertible promissory notes were issued
in a private placement by the acquired company, HALIS, Inc., in early
1996 and mature January 15, 1998. The notes are convertible into common
stock of the Company at any time until their maturity date at $1 per
share. Forty-three notes were issued by the Company in amounts ranging
from $10,000 to $80,000 generating $1,470,000 in proceeds.
Additionally, $36,000 of notes were issued in consideration for
services rendered to HALIS, Inc. $455,000 of these notes were issued to
related parties at terms identical to the terms of notes issued to
third parties. Interest expense on these notes recognized from November
19 through December 31, 1996 (period of inclusion) totaled $14,334.
F. NOTES PAYABLE - RELATED PARTIES:
The Companies have the following unsecured notes payable to shareholder
directors as of December 31, 1996:
<TABLE>
<S> <C>
Shareholder/Director - note payable with interest of 8.75%
payable on demand; due on demand. This note is unsecured $ 70,000
Shareholder/Director - note payable with interest payable
of 12% per annum; due on demand. This note is unsecured 65,000
Shareholder/Director - note payable non-interest
bearing; due on demand. This note is unsecured 9,000
--------
$144,000
========
</TABLE>
F-15
<PAGE> 60
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
G. COMMITMENTS AND CONTINGENCIES:
Concentrations of Credit Risk:
The Companies do not have a secured interest in their accounts
receivable; however, they do have legal recourse for defaulted amounts.
The Company maintains the majority of its cash deposits at one
financial depository institution. 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
totaled approximately $585,000 at December 31, 1996.
Payroll and Sales Taxes:
The Company is delinquent in paying certain federal and state payroll
taxes and sales taxes. The Internal Revenue Service has written the
Companies indicating that it may file a Notice of Federal Tax Lien or
levy the Companies' assets if past due payroll taxes are not paid. The
Company made a payment of $27,446 related to this liability to the
Internal Revenue Service in January 1997.
Operating Leases:
The Companies lease office space and equipment under several operating
lease agreements. Rent expense for the office space and equipment
totaled $156,553 and $95,714 for the years ended December 31, 1996 and
1995, respectively.
At December 31, 1996, future minimum lease payments under
non-cancelable leases having remaining terms in excess of one year are
as follows:
<TABLE>
<CAPTION>
December 31, Amount
------------ ------
<S> <C>
1997 $153,613
1998 104,432
1999 86,160
2000 83,972
2001 59,535
--------
Totals $487,712
========
</TABLE>
Employee Benefit Plan:
The Company sponsors a 401(k) retirement savings plan for all employees
who meet certain eligibility requirements. Employees may contribute to
the plan up to 20% of their salary or the maximum allowed by the IRS.
The Company may elect to make matching and/or discretionary
contributions. Employee contributions are immediately 100% vested while
Company contributions are subject to a six-year vesting schedule. The
Company made no contributions to the plan during any of the previous
two fiscal years.
Significant Customers:
For the year ended December 31, 1996, sales to two customers, Atlanta
Jewish Federation and Canada Life, totaled approximately $852,000, and
accounted for 44% of the Company's sales.
F-16
<PAGE> 61
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
G. COMMITMENTS AND CONTINGENCIES: [Continued]
Economic Dependency:
For the year ended December 31, 1996, purchases from one vendor,
Merisal, totaled approximately $589,000 and accounted for 49% of the
Company's purchases from suppliers. Unpaid invoices included in
accounts payable at December 31, 1996 totaled $73,519.
During 1995, AHS purchased a significant portion of its products from
Sulcus, also know as Sulcus Hospitality Group, Sulcus Computer
Corporation, and Squirrel Companies, Inc. (Sulcus). Sales generated
from Sulcus products and services were approximately $1,750,000.
Effective January 1, 1996, AHS was no longer an authorized Sulcus
dealer.
Employment Agreements:
The Company has entered into an employment agreement with Paul W.
Harrison which expires December 31, 1999. The agreement provides for a
annual base salary of $200,000 (to be increased upon the attainment of
certain annual revenue targets) plus certain incentive bonus payments
and certain qualified and non-qualified stock options to purchase
shares of common stock of the Company at the discretion of the Board of
Directors.
The Company also entered into an employment agreement with Larry Fisher
which expires December 31, 1999. The agreement provides for an annual
salary of $175,000 (to be increased upon the attainment of certain
annual revenue targets) plus incentive bonus payments. In addition, the
employment agreement provides for certain qualified and non-qualified
options to purchase shares of common stock of the Company at the
discretion of the Board of Directors.
In connection with mergers which occurred subsequent to year end, the
Company entered into employment agreements with certain members of
management (Note M).
Litigation:
The Company and its directors have been named as defendants in a claim
relating to an acquisition target which was aborted. The plaintiff,
Advanced Customer Computer Solutions, Inc. (ACCS), alleges breach of
contract in connection with the termination by the Company of its
merger agreement. In addition, the complaint alleges that the
defendants made false and misleading statements to the plaintiffs for
the purpose of inducing plaintiffs to lend money to the Company; the
Company has a convertible note payable to one of the plaintiffs in the
amount of $60,000. The complaint seeks damages in the amount of at
least $2 million plus damages. The Company intends to deny the
allegations of liability in the complaint and to vigorously contest and
defend against the lawsuit. Additionally, the Company has filed a
counterclaim against certain parties related to ACCS alleging that
those parties made intentional misrepresentations and concealed
material facts for the purpose of inducing the Company to pursue a
merger with ACCS. Additionally, the HSI subsidiary filed a counterclaim
against ACCS alleging that ACCS breached the terms of its marketing and
licensing agreement with HSI. Due to uncertainties in the settlement
process, management and its legal counsel do not express an opinion
with respect to the likelihood of an unfavorable outcome in this
matter.
F-17
<PAGE> 62
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
G. COMMITMENTS AND CONTINGENCIES: [Continued]
Litigation: [Continued]
The Company entered into a finder's fee agreement with Penny Sellers in
which the Company agreed to pay a 10% commission up to $500,000 on
investments made by investors introduced by Ms. Sellers. Ms. Sellers
introduced HALIS, Inc. (then Fisher) to the principals of AUBIS L.L.C.
and contends that all money raised by the Company could not have been
possible if not for her introduction. She has made a claim for 10% of
private placements of approximately $3,470,000 and 10% of the value of
ASI, AHS, and HSI. Management believes that these claims are outside
the scope of the finder's fee agreement and intends to contest them
vigorously. Management and legal counsel express no opinion as to the
likely outcome of this matter.
No provision has been made in these financial statements regarding
these two items due to the uncertainty of their ultimate resolution.
H. INCOME TAXES:
The sources of temporary differences and their effect on the net
deferred taxes are as follows:
<TABLE>
<S> <C>
Deferred tax asset resulting from
net operating loss carryforwards $ 3,800,000
Other temporary differences 17,632
Less valuation allowances (3,817,632)
-----------
$ -0-
===========
</TABLE>
The valuation allowance fully reserves the net deferred tax asset which
arose from the tax loss carryforwards and temporary differences
generated.
At December 31, 1996, the Company had available for carryforward a net
operating loss of approximately $10,000,000. On November 19, 1996, the
Company had a significant change in ownership (Note A). As a result of
the ownership change, and in accordance with Section 382 of the
Internal Revenue Code, the Company's net operating loss is limited in
total and each year. The net operating loss available for the year
ending December 31, 1996 is $840,997. For each year thereafter, the net
operating loss will be limited to approximately $840,997 plus any
unused loss from the prior year (1996 and forward). In addition to the
limitation from Section 382 of the Internal Revenue Code, the losses
are limited to a fifteen-year carryforward, with losses from 1984
beginning to expire in the year 1999.
I. STOCK OPTION PLAN:
During 1996, the Company adopted the 1996 Stock Option Plan which
provides for the issuance of both qualified and nonqualified stock
options to employees and non-employee directors pursuant to Section 422
of the Internal Revenue Code. The number of shares reserved for the
plan are 3,000,000. Additional non-qualified options may be granted
outside of the plan with approval of the board of directors.
F-18
<PAGE> 63
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
I. STOCK OPTION PLAN: [Continued]
Options issued to participants are granted with an exercise price of
the mean between the high "bid" and low "ask" price (average market
price) as of the close of business on the date of grant, and are
exercisable up to ten years from date of grant. Incentive stock options
issued to persons who directly or indirectly own more than ten percent
of the outstanding stock of the Company shall have an exercise price of
110 percent of the average market price on the date of grant and are
exercisable up to five years from date of grant. The aggregate fair
market value of the shares with respect to which incentive stock
options are exercisable for the first time by a holder during any
calendar year under all plans shall not exceed $100,000.
The Company's previous incentive stock option plan, the 1986 incentive
Stock Option Plan, expired on January 29, 1996. The 1988 Non-qualified
Stock Option Plan was terminated by the Company on April 24, 1996.
Activity related to these plans is as follows:
<TABLE>
<CAPTION>
1986 and
1988 Plans Weighted Avg 1996 Plan Weighted Avg
Number of Exercise Number of Exercise
Options Price Options Price
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Outstanding,
December 31, 1994 120,340 $ .7279 -- --
Awarded 753,200 .3682 -- --
Expired (3,200) .7279 -- --
------- -------
Outstanding,
December 31, 1995 870,340 0.4166 -- --
Awarded -- -- 1,760,000 $1.5926
Exercised (5,600) 0.5000 -- --
------- ------- --------- -------
Outstanding,
December 31, 1996 864,740 $0.4160 1,760,000 $1.5926
======= ======= ========= =======
Vested Options 864,740 1,260,000
======= =========
</TABLE>
There were 6,200,000 options granted during 1996 outside of the 1996
Plan, of which 4,800,000 were terminated subsequent to year end. The
remaining 1,400,000 options were vested at year end, have an exercise
price of $1.125 per share and a remaining life of 9.5 years.
Exercise prices for options outstanding as of December 31, 1996 under
the 1986 and 1988 Plan ranged from $.25 to $20.00 per share. The
weighted average remaining life of these options was approximately 5
years.
F-19
<PAGE> 64
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
I. STOCK OPTION PLAN: (Continued)
Exercise prices for options outstanding as of December 31, 1996 granted
under the 1996 Plan ranged from $1.125 to $2.00 per share. The weighted
average remaining life of these options was approximately 10 years.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options because,
as discussed below, the alternative fair value accounting provided for
under Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation, (FAS 123) requires use of
option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, if the exercise price of the
underlying stock equals fair market value on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996
respectively: risk-free interest rates of 6.1%, no dividend yield,
volatility factors of the expected market price of the Company's common
stock of .30 and a weighted-average expected life of the option of 3
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma net loss if compensation expense had been
recognized for the options issued would have been $2,944,622. Loss per
share on a primary basis would have been $.18.
No information as to the compensation expense, effect upon operations,
and net loss per share as computed under the guidelines of FAS 123 is
provided for periods prior to 1996 as the financial information
included in this report for prior periods is for the Predecessor
whereas options issued in prior periods relate to the acquired company
(Note B). Applying compensation expense as determined under FAS 123 to
options of the acquired company to the historical operations of the
Predecessor would be misleading.
F-20
<PAGE> 65
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEARS ENDED DECEMBER 31, 1995
J. PRIVATE PLACEMENT OF COMMON STOCK:
During 1996, the Company effected a private placement of shares of
common stock in accordance with Regulation D of the Securities and
Exchange Commission. The shares were sold at $1.20 per share. For every
three shares of stock sold, one common stock warrant was issued to the
purchaser, which represents the right to purchase an additional share
at $1.75 per share. In aggregate, 1,516,975 shares of common stock and
657,356 warrants were issued, which included an additional 151,698
warrants issued to the placement agent. All warrants expire December
31, 1999. The Company raised $1,638,818 in capital after payment of
issuance costs and related fees as of December 31, 1996. An additional
$183,000 was raised by the Company in this offering in January 1997.
Subsequent to year end, the Company initiated an additional private
placement of common stock which provides for the issuance of up to
2,000,000 shares of stock at a price of $1.50 per share. For every
three shares of stock sold, one common stock warrant was issued to the
purchaser, which represents the right to purchase an additional share
at $1.75 per share. As of March 28, 1997, the Company had issued
500,000 shares of common stock and 216,667 common stock purchase
warrants (including 50,000 warrants issued to the placement agent) for
proceeds of $681,122, which are net of certain placement costs of
$68,878.
K. RELATED PARTY TRANSACTIONS:
HSI has software development and license agreements with OneTree
Corporation, which is controlled by the majority shareholder of the
Company. The agreement is dated September 15, 1996 and shall terminate
when development services are completed. The development fee is $30,000
per month plus out of pocket costs, payable bi-weekly. Included in
capitalized or expensed research and development costs for the year
ended December 31, 1996 is $244,915 of these fees. Included in related
party accounts payable is $15,750 which had not been paid to OneTree as
of December 31, 1996.
HSI has also entered into a software development and license agreement
with MERAD Corporation, which is controlled by the majority shareholder
of the Company. The agreement is dated August 15, 1996 and shall
terminate after the enhancements to the HALIS software are delivered
and accepted by the Company. The development fee is $15,000 per month,
payable bi-weekly. Included in capitalized or expensed research and
development are $90,000 which was paid to MERAD Corporation. Accounts
receivable of $13,285 were due from MERAD for reimbursement of the
purchase of certain equipment.
F-21
<PAGE> 66
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
K. RELATED PARTY TRANSACTIONS: [Continued]
HSI has entered into an agreement with Paul Harrison Enterprises, Inc.
(PHE), which is controlled by the majority shareholder of the Company.
The agreement was entered into on July 1, 1996. HSI shall pay PHE
$15,000 upon completion of the software according to specifications. On
November 18, 1996, the Company entered into a license to a proprietary
technology asset (PHE Technology) from PHE. The Company is obligated to
pay a license fee of 10% of the gross revenues generated from the PHE
Technology and any derivations thereof by the Company or any of its
affiliates. Included in selling, general and administrative expenses is
$7,259 in royalties which were paid to PHE which represent the 10%
royalty on sales of this software.
The Company paid management fees to AUBIS L.L.C. in the amount of
$85,100 and $76,979, for the years ended December 31, 1996 and 1995,
respectively. Included in related party accounts payable are $39,247 of
these fees which were not paid as of December 31, 1996.
Interest expense to related parties for the years ended December 31,
1996 and 1995 were $16,155 and $21,332, respectively. Included in
related party accrued expenses are $20,787 of those expenses which were
not paid as of December 31, 1996.
Additionally, in 1996, a 10% commission of $7,259 on sales of software
was paid to Paul Harrison, the majority shareholder, and is included in
selling, general and administrative expenses.
L. 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>
1996 1995
------ ------
<S> <C> <C>
Taxes paid $6,908 $ -0-
Interest paid 6,585 6,145
</TABLE>
The following non-cash transaction occurred for the year ended December
31, 1996:
AUBIS L.L.C. contributed capital by satisfying a note payable - related
party of $150,000 and related accrued interest of $17,678.
Common stock and additional paid-in capital totaling $240,000 was
issued by issuing a stock subscription receivable.
The following non-cash transactions occurred for the year ended
December 31, 1995:
Employee advances were increased by transferring fixed assets valued at
$11,500 to those employees.
Capital was contributed to HSI by issuing a receivable from the parent
in the amount of $500.
F-22
<PAGE> 67
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
M. SUBSEQUENT EVENTS:
Merger Agreements:
During January 1997, the Company effected three merger agreements with
companies that will be accounted for as purchases under APB 16 by the
Company. It is the opinion of management and legal counsel 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.
The Compass Group, Inc. (Compass) was purchased for 350,000 shares of
the Company's common stock in exchange for all outstanding shares of
Compass. The agreement also provides for contingent merger
consideration, paid in the form of the Company's common stock, based
upon certain, specified operating results of the year ended December
31, 1997.
In addition, the Compass merger agreement provided for an employment
agreement with the managing director of Compass which expires in
January 1999 and provides for a base salary of $120,000 which may be
increased after twelve months at the discretion of the board of
directors. The Company also awarded to the managing director options to
purchase 85,000 shares of the Company's common stock at $2.00 per
share, exercisable for ten years from the closing date.
The Software Manufacturing Group, Inc. (SMG) was purchased for
3,072,000 shares of common stock of the Company in consideration for
all outstanding shares of SMG. The agreement also provides for
contingent merger consideration, paid in the form of the Company's
common stock based upon certain, specified operating results of the
period ended December 31, 1997.
In addition, the SMG merger agreement included an employment agreement
with the president of SMG which expires in January 1999 and provides
for a base salary of $192,000 plus certain variable incentive
compensation. Options to purchase a total of 100,000 shares of HALIS
common stock at $2.00 per share were granted to three employees of SMG.
American Benefit Administrative Services, Inc. and Third Party
Administrators, Inc., (ABAS/TPA) were purchased for 1,875,000 shares of
the Company's common stock in consideration for all outstanding shares
of ABAS/TPA. Additionally, the merger agreement included noncompetition
agreements between the Company and the president and vice-president of
ABAS/TPA.
The purchase agreement also provides that the president of ABAS/TPA may
repay a loan from ABAS/TPA, which had a balance of $558,500 at October
31, 1996, in the form of the Company's common stock commencing at the
end of 1997, if certain specified conditions are met.
F-23
<PAGE> 68
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
M. SUBSEQUENT EVENTS: [Continued]
Merger Agreements: [Continued]
In addition, the ABAS/TPA merger agreement provided for an employment
agreement with the president which expires in January, 2000 and
provides for a base salary of $200,000 plus certain variable incentive
compensation, a $100,000 signing bonus payable in two $50,000
installments: one installment upon signing the employment agreement and
one installment on or before July 1, 1997. The merger agreement also
provides for an employment agreement with the vice-president which
provides for a base salary of $77,000. Both employment agreements
provide for incentive compensation and guaranteed payments in the event
of termination or in the event of change in control of the ABAS/TPA
subsidiary. Additionally, the Company executed agreements with both of
these parties which provide for the issuance of an aggregate of
1,350,000 fully-vested common stock options of the Company's stock,
exercisable at $2.00 per share for a period of ten years from the date
of the agreement.
N. UNAUDITED PRO FORMA INFORMATION:
The following unaudited pro forma consolidated statement of operations
of HALIS, Inc. gives retroactive effect to the following transactions
as if they had occurred on January 1, 1995.
The unaudited pro forma consolidated statement of operations was
prepared by HALIS, Inc.'s management based on, and should be read in
conjunction with, the historical statement of operations appearing
elsewhere herein. This statement may not be indicative of the results
of operations that would actually have been achieved had the
transactions taken place at the date indicated and should not be
construed as indicative of HALIS, Inc.'s results of operations for any
future period.
<TABLE>
<CAPTION>
Year ended December 31, 1996
As reported Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
Systems sales and services $ 1,925,412 $ 333,855 $ 2,259,267
=========== ========= ===========
Net loss $(1,989,696) $(564,256) $(2,553,952)
=========== ========= ===========
Net loss per common share (0.12) (0.12)
=========== ===========
Weighted average shares outstanding 15,956,824 22,194,634
=========== ===========
</TABLE>
F-24
<PAGE> 69
HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND THE
COMBINED FINANCIAL STATEMENTS OF THE PREDECESSOR
FOR THE YEAR ENDED DECEMBER 31, 1995
N. UNAUDITED PRO FORMA INFORMATION: [Continued]
<TABLE>
<CAPTION>
Year ended December 31, 1995
As reported Adjustments Pro Forma
----------- ----------- ---------
<S> <C> <C> <C>
System sales and services $ 3,582,896 $ 732,549 $ 4,315,445
=========== ========= ============
Net loss (372,938) (408,037) (780,975)
=========== ========= ============
Net loss per common share $ -- $ -- $ (.03)
=========== ========= ============
Weighted average shares outstanding -- -- 21,849,254
=========== ========= ============
</TABLE>
F-25
<PAGE> 70
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>
F-26
<PAGE> 71
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>
F-27
<PAGE> 72
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>
F-28
<PAGE> 73
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>
F-29
<PAGE> 74
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>
F-30
<PAGE> 75
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
F-31
<PAGE> 76
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.
F-32
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Shareholders
The Compass Group, Inc.
We have audited the accompanying balance sheet of THE COMPASS GROUP, INC. as of
December 31, 1996, and the related statements of operations, stockholder's
equity and cash flows for the year ended December 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides 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 THE COMPASS GROUP, INC. at
December 31, 1996, and the results of its operations and its cash flows for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
March 20, 1997
F-34
<PAGE> 78
THE COMPASS GROUP, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
Current assets
- --------------
Cash and cash equivalents $28,287
Trade accounts receivable, net of allowance for
doubtful accounts of $-0- 22,580
Prepaid expenses 752
-------
Total current assets 51,619
-------
Furniture and equipment, at cost, less accumulated
- ------------------------
Depreciation of $4,866 4,475
-------
$56,094
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities
- -------------------
Accounts payable $ 5,310
Payroll taxes payable 12,651
Accrued retirement plan 10,146
-------
Total current liabilities 28,107
-------
Stockholders' equity
- --------------------
Common stock - $.50 par value,
1,000 shares authorized , issued and
outstanding 500
Retained earnings 27,487
-------
27,987
-------
$56,094
=======
See auditor's report and accompanying notes
F-35
<PAGE> 79
THE COMPASS GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenues, net $ 234,696
---------
Costs and expenses
- ------------------
Contract consulting fees 165,854
Selling, general and administrative 100,922
---------
266,776
---------
Loss from operations [32,080]
Other income 1,016
---------
Net loss $ [31,064]
=========
See auditor's report and accompanying notes
F-36
<PAGE> 80
THE COMPASS GROUP, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
Common Retained
Stock Earnings Total
--------- ---------- ---------
Balance, January 1, 1996 500 $ 153,328 $ 153,828
Net loss - [31,064] [31,064]
Distributions - [94,777] [94,777]
---- --------- ---------
Balance December 31, 1996 $ 500 $ 27,487 $ 27,987
==== ========= =========
See auditor's report and accompanying notes
F-37
<PAGE> 81
THE COMPASS GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash flows from operating activities
- ------------------------------------
Net loss $[31,064]
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation and amortization 1,794
Changes in assets and liabilities
Decrease in accounts receivable 127,993
Increase in prepaid expenses [135]
Decrease in other current assets 530
Increase in accounts payable 3,982
Decrease in payroll taxes payable [3,079]
Decrease in accrued retirement plan [179]
--------
Total adjustments 130,906
--------
Net cash provided by operating activities 99,842
--------
Cash flows from financing activities
- ------------------------------------
Distributions to shareholder [94,777]
--------
Net increase in cash 5,065
Cash and cash equivalents, beginning of year 23,222
--------
Cash and cash equivalents, end of year $ 28,287
========
See auditor's report and accompanying notes
F-38
<PAGE> 82
THE COMPASS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Nature of Operations:
--------------------
THE COMPASS GROUP, INC. a Georgia corporation, provides implementation
training and other consulting services related to computer systems. The
Company does not develop or license proprietary software.
Revenue Recognition and Accounts Receivable:
---------------------------------------
Revenue is comprised primarily of consulting fees and is recognized as
services are provided. The Company considers all accounts receivable to be
fully collectible; therefore, no allowance for doubtful accounts has been
provided. The Company does not have a secured interest in its accounts
receivable; however, it does have legal recourse for defaulted amounts.
Cash and Cash Equivalents:
-------------------------
The Company classifies all highly liquid instruments with maturities of
ninety days or less as cash equivalents.
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 B, 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 and 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.
B. SUBSEQUENT EVENT - MERGER AGREEMENT:
-----------------------------------
On January 10, 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.
F-39
<PAGE> 83
THE COMPASS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996
B. SUBSEQUENT EVENT - MERGER AGREEMENT: [Continued]
-----------------------------------
All 1,000 issued and outstanding shares were exchanged by the shareholders
in consideration for 350,000 of HALIS' shares. Additional consideration
given by HALIS consists of options to purchase 85,000 shares of HALIS stock
at $2.00 per share, exercisable for 10 years from the closing date. The
agreement also provides for contingent merger consideration, paid in the
form of HALIS common stock based upon certain, specified operating results
of the period ended December 31, 1997.
The managements of both companies represent that they have no plans or
intentions that would affect the operations of the Company.
C. FURNITURE AND EQUIPMENT:
-----------------------
Furniture 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.
Depreciation is provided using the straight-line method based on the
estimated useful lives of the assets which are as follows:
Historical
Description Life Cost
----------- ---------- ----------
Computer software 3 years $ 453
Computer equipment 5 years 5,914
Office furniture and equipment 5 - 7 years 2,974
------
9,341
Less accumulated depreciation 4,866
------
$4,475
======
Depreciation expense was $1,781 for the year ended December 31, 1996.
D. ORGANIZATIONAL COSTS:
--------------------
The Company recognized $13 of amortization expense in 1996 related to $100
of capitalized organizational costs which have been fully amortized at
December 31, 1996.
E. RETIREMENT PLAN CONTRIBUTION:
----------------------------
The Company made a discretionary contribution to the retirement plan of the
managing director of $10,146 for 1996, which was recorded as a current
liability at year end.
F-40
<PAGE> 84
THE COMPASS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996
F. MAJOR CUSTOMERS - ECONOMIC DEPENDENCY:
-------------------------------------
The Company derived 77% of its sales from 2 major customers, defined as
those who comprise ten percent or greater of annual revenues. Individually,
annual revenues from those customers, Intel, Inc. and Siemens, Inc., were
$133,967 (57%), and $46,341 (20%), respectively, with no related accounts
receivable at year end.
F-41
<PAGE> 85
[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
F-42
<PAGE> 86
SOFTWARE MANUFACTURING GROUP, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
Current assets
- --------------
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
===========
See auditors' report and accompanying notes.
F-43
<PAGE> 87
SOFTWARE MANUFACTURING GROUP, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995
---------- ----------
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]
========== ==========
See auditors' report and accompanying notes.
F-44
<PAGE> 88
SOFTWARE MANUFACTURINIG GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------ ------ ----------- -----------
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]
====== ====== =========== ===========
See auditors' report and accompanying notes.
F-45
<PAGE> 89
SOFTWARE MANUFACTURING GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995
-------- ---------
Cash flows from operating activities
- ------------------------------------
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
========= =========
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.
F-46
<PAGE> 90
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>
<S> <C><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.
F-47
<PAGE> 91
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
A. 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.
F-48
<PAGE> 92
SOFTWARE MANUFACTURING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995
B. SOFTWARE DEVELOPMENT COSTS:
--------------------------
Years ended December 31, 1 9 9 6 1 9 9 5
-------- ---------
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
======== =========
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.
F-49
<PAGE> 93
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:
Trade $ 266,156
Other 20,967
---------
287,123
Allowance for doubtful accounts [15,052]
---------
$ 272,071
=========
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:
December 31, Amount
- -------------- --------
1997 $ 70,694
1998 78,290
1999 86,703
2000 101,542
--------
$337,229
========
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.
F-50
<PAGE> 94
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:
1 9 9 6
----------
Office furniture and equipment $ 72,320
Less accumulated depreciation [30,111]
--------
$ 42,209
========
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:
December 31, Amount
- -------------- --------
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
========
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.
F-51
<PAGE> 95
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:
December 31, Amount
- -------------- --------
1997 $117,056
1998 117,052
1999 6,498
--------
$240,606
========
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:
1 9 9 6 1 9 9 5
--------- ---------
Interest paid $81,766 $20,729
F-52
<PAGE> 96
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.
F-53
<PAGE> 97
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
F-54
<PAGE> 98
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
F-55
<PAGE> 99
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
F-56
<PAGE> 100
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.
F-57
<PAGE> 101
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
F-58
<PAGE> 102
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
F-59
<PAGE> 103
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
F-60
<PAGE> 104
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.
F-61
<PAGE> 105
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.
F-62
<PAGE> 106
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>
F-63
<PAGE> 107
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.
F-64
<PAGE> 108
[HABIF, AROGETI & WYNNE, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Stockholder
TG Marketing Systems, Inc.
We have audited the accompanying balance sheet of TG MARKETING SYSTEMS, INC.,
as of December 31, 1996, and the related statements of income, changes in
stockholder's equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audit provides 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 TG MARKETING SYSTEMS, INC., at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
June 18, 1997
F-65
<PAGE> 109
TG MARKETING SYSTEMS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
[Unaudited]
December 31, 1996 March 31, 1997
----------------- --------------
<S> <C> <C>
Current assets
Cash $ 7,690 $ 59,013
Customer receivables, less allowance for
doubtful accounts of $17,661 156,761 163,420
Employee receivables 123 1,655
Accounts receivable - related party 29,176 37,944
--------- ---------
Total current assets 193,750 262,032
--------- ---------
Property and equipment, at cost
Equipment 119,940 132,705
Furniture and fixtures 10,196 10,196
--------- ---------
130,136 142,901
Less accumulated depreciation [22,372] [29,442]
--------- ---------
107,764 113,459
--------- ---------
Other assets 2,081 2,081
--------- ---------
$ 303,595 $ 377,572
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Line of credit $ 34,140 $ -0-
Current portion of capital lease obligations 18,019 17,883
Accounts payable and other current liabilities 34,948 11,366
--------- ---------
Total current liabilities 87,107 29,249
--------- ---------
Long-term liabilities
Capital lease obligations,
net of current portion 28,086 23,594
--------- ---------
Stockholder's equity
Common stock, $1 par value,
1,000 shares authorized; 1,000
shares issued and outstanding 1,000 1,000
Retained earnings 187,402 323,729
--------- ---------
188,402 324,729
--------- ---------
$ 303,595 $ 377,572
========= =========
</TABLE>
See auditors' report and accompanying notes.
F-66
<PAGE> 110
TG MARKETING SYSTEMS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
[Unaudited]
For the
Three Months Ended
For the March 31,
Year Ended --------------------
December 31, 1996 1996 1997
----------------- -------- ----------
<S> <C> <C> <C>
Net revenues
Services $750,083 $ 157,786 $ 368,827
Reimbursed expenses 66,937 30,860 25,515
-------- --------- ---------
817,020 188,646 394,342
-------- --------- ---------
Costs and expenses
Cost of services 402,600 84,622 148,244
Selling and marketing 104,322 33,288 40,184
General and administrative 188,036 32,906 66,921
-------- --------- ---------
694,958 150,816 255,349
-------- --------- ---------
Income from operations 122,062 37,830 138,993
-------- --------- ---------
Other income [expense]
Other income 5,551 3,227 -0-
Interest expense [ 4,092] [ 292] [ 2,666]
-------- --------- --------
1,459 2,935 [ 2,666]
-------- --------- --------
Net income - Historical 123,521 40,765 136,327
Pro Forma provision for income taxes 49,000 16,000 55,000
-------- --------- --------
Pro Forma net income $ 74,521 $ 24,765 $ 81,327
======== ========= ========
</TABLE>
See auditors' report and accompanying notes.
F-67
<PAGE> 111
TG MARKETING SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1997 [UNAUDITED]
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------- --------- -----
<S> <C> <C> <C>
Balances, January 1, 1996 1,000 $ 63,881 $ 64,881
Net income - 123,521 123,521
----- ------- --------
Balances, December 31, 1996 1,000 187,402 188,402
Net income - three months ended
March 31, 1997 [Unaudited] - 136,327 136,327
----- ------- --------
Balances, March 31, 1997 [Unaudited] 1,000 $323,729 $324,729
===== ======== ========
</TABLE>
See auditors' report and accompanying notes.
F-68
<PAGE> 112
TG MARKETING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Increase [Decrease] in Cash
<TABLE>
<CAPTION>
[Unaudited]
For the
Three Months Ended
For the Year Ended March 31,
-----------------------
December 31, 1996 1996 1997
------------------ -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 123,521 $ 40,765 $ 136,327
--------- -------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 13,561 2,526 7,070
Changes in assets and liabilities
[Increase] in customer receivables [ 124,700] [ 1,227] [ 6,659]
Decrease [Increase] in employee receivables 5,195 2,739 [ 1,532]
Decrease [Increase] in accounts receivable -
related party 19,442 -0- [ 8,768]
Decrease in prepaid expenses 2,800 2,800 -0-
[Increase] in other assets [ 2,003] [ 1,431] -0-
[Decrease] in accounts payable and other
current liabilities [ 21,867] [ 16,380] [23,582]
--------- -------- ---------
Total adjustments [ 107,572] [ 10,973] [ 33,471]
--------- -------- ---------
Net cash provided by operating activities 15,949 29,792 102,856
--------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment [ 35,284] [ 8,264] [ 12,765]
--------- -------- ---------
Cash flows from financing activities
Proceeds [Repayment] of line of credit 34,140 7,500 [ 34,140]
Payments of capital leases [ 7,115] - [ 4,628]
Deposit paid to secure capital lease - [ 863] -
--------- --------- ---------
Net cash provided [used] by financing activities 27,025 6,637 [ 38,768]
--------- --------- ---------
Net increase in cash 7,690 28,165 51,323
Cash, beginning of period -0- -0- 7,690
--------- --------- ---------
Cash, end of period $ 7,690 $ 28,165 $ 59,013
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the periods for
Interest $ 4,092 $ 292 $ 2,666
Income taxes 8,190 8,190 -0-
</TABLE>
During the year ended December 31, 1996, the Company purchased $53,220 of
equipment by entering into capital leases.
See auditor's report and accompanying notes.
F-69
<PAGE> 113
TG MARKETING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
AND MARCH 31, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
TG MARKETING SYSTEMS, INC., a Georgia corporation, provides consulting and
programming services and information management software to customers to
assist them in the development of marketing systems.
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, 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.
Revenue Recognition:
Revenue consists primarily of consulting and programming services. 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.
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.
Depreciation is provided using the straight-line method based on the
useful lives of the assets, which have been estimated to be five years.
Income Taxes:
On January 1, 1995, the Company 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. However, during February 1996 the Company
paid $8,190 of income taxes related to pre-S election items recognized as
taxable income in 1995. As discussed further in Note B, the Company ceased
to be an S corporation in May 1997.
F-70
<PAGE> 114
TG MARKETING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996
AND MARCH 31, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Income Taxes: [Continued]
A pro forma provision for income taxes has been presented which represents
income taxes which would have been provided had the Company operated as a
C Corporation.
Interim Financial Statements:
The accompanying financial statements for the three month period ended
March 31, 1996 and 1997 are unaudited but, in the opinion of management,
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 years ending 1996 and 1997.
B. SUBSEQUENT EVENT - MERGER AGREEMENT:
On May 2, 1997, the stockholder 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. All 1,000
issued and outstanding shares were surrendered by the stockholder in
consideration for 2,388,060 of HALIS' shares.
Additionally, the merger agreement included a two year employment
agreement between HALIS and the stockholder of the Company as president
which provides for an annual base salary of $150,000. HALIS also executed
agreements with certain Company employees which provide for the issuance
of 500,000 fully-vested HALIS common stock options, exercisable at $1.50
per share for a period of ten years.
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. As a subsidiary of HALIS, a
publicly traded company, the Company will no longer enjoy its status as an
S corporation for income tax purposes.
C. ACCOUNTS RECEIVABLE - RELATED PARTY:
At December 31, 1996, the Company had advanced to the stockholder $29,176
under an informal arrangement with no written agreement, stated interest
rate or repayment terms. In April 1997, this advance was satisfied by the
transfer of certain personally-owned equipment at book value by the
stockholder to the Company.
F-71
<PAGE> 115
TG MARKETING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996
AND MARCH 31, 1997 [UNAUDITED]
D. LINES OF CREDIT:
At December 31, 1996, the Company had drawn $34,140 under a $60,000 line
of credit from a bank. Interest is payable monthly and bears a variable
interest rate of prime plus 1% (an effective rate of 9.25% at December 31,
1996). Interest expense related to this facility was $604 during 1996. The
line of credit is collateralized by all accounts receivable, equipment,
furniture and fixtures of the company and bears the personal guarantee of
the stockholder and matures September 10, 1997.
In January 1997, the Company obtained a line of credit from a bank, which
provides for borrowing of up of $60,000. This line of credit bears a
variable interest rate of prime plus 1.5% (an effective rate of 9.75% upon
inception), and certain, specified financial covenants. Collateral pledged
for this instrument includes all assets of the Company as well as the
assignment of benefits a life insurance policy of the stockholder, and the
personal guarantees of the stockholder and his wife.
E. CAPITAL LEASES PAYABLE:
In 1996, the Company acquired equipment under two long-term leases which
are capital leases. These leases expire in 1999. Amortization of the
equipment purchased under these leases is reported as a component of
depreciation expense. The leased property had a cost of $53,220,
accumulated depreciation of $2,201, and a net book value of $51,019 as of
December 31, 1996.
The future minimum leases payments under the capital lease for each of the
next three years and in total and the net present value of the future
minimum lease payments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 24,391
1998 18,872
1999 13,326
--------
56,589
Less amount representing interest [10,484]
--------
Present value of net minimum lease payments 46,105
Current portion of capital lease obligation [18,019]
--------
Long-term capital lease net of current portion $ 28,086
========
</TABLE>
F. OPERATING LEASE COMMITMENTS:
During 1996, the Company leased office space and an automobile under
operating lease agreements. Rent expense under these agreements was
$34,600 in 1996.
F-72
<PAGE> 116
TG MARKETING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996
AND MARCH 31, 1997 [UNAUDITED]
F. OPERATING LEASE COMMITMENTS: [Continued]
The Company has entered into a new office lease agreement, effective March
of 1997, which will commence upon the completion and loan closing of the
new building, expected in June 1997. The lessor is the Company's
stockholder, who is the owner of the buildings. The old lease will be
canceled upon inception of the new lease. The annual future minimum lease
commitments under the new building lease and the automobile lease are as
follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1997 $ 58,800
1998 77,000
1999 72,000
2000 36,000
--------
Total $243,800
========
</TABLE>
Rent paid to the stockholder was $33,600 during 1996.
G. ECONOMIC DEPENDENCY - MAJOR CUSTOMERS:
A major customer is defined as one from whom ten percent or greater of
annual revenues is derived. During 1996, the Company had four such
customers. Individually, revenues from G. E. Capital, Inc. were $195,577
(26%), from National Linen Services, Inc. were $141,064 (19%), from
Wachovia, Inc. were $93,992 (13%), and $83,536 from HBOC Corporation were
(11%) with related trade accounts receivable of $5,416, $42,283, $24,979,
and $2,188, respectively, at December 31, 1996.
The Company does not have a secured interest in any customer accounts
receivable; however, it does have legal recourse for defaulted accounts.
F-73
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
To the Stockholder
Physicians Resource Network, Inc.
We have audited the accompanying balance sheet of PHYSICIANS RESOURCE NETWORK,
INC., as of December 31, 1996, and the related statements of operations, changes
in stockholder's 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 PHYSICIANS RESOURCE NETWORK,
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, P.C.
Atlanta, Georgia
August 29, 1997
F-74
<PAGE> 118
PHYSICIANS RESOURCE NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, [Unaudited]
1996 June 30, 1997
------------ -------------
<S> <C> <C>
Current assets
Cash $ -0- $ 24,566
Accounts receivables, net of allowance for
doubtful accounts of $20,000 691,558 286,857
---------- ----------
Total current assets 691,558 311,423
---------- ----------
Property and equipment, at cost
Equipment 542,461 546,229
Furniture and fixtures 399,776 399,776
Leasehold improvements 57,115 57,115
---------- ----------
999,352 1,003,120
Less accumulated depreciation [466,185] [546,769]
---------- ----------
533,167 456,351
---------- ----------
Other assets 6,214 6,214
---------- ----------
$1,230,939 $ 773,988
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Cash overdraft $ 41,989 $ -0-
Notes payable 179,000 179,000
Current portion of capital lease obligations 106,854 122,991
Current portion of long-term debt 418,488 418,488
Accounts payable and other current liabilities 467,583 251,092
Notes payable - related parties 404,500 285,000
---------- ----------
Total current liabilities 1,618,414 1,256,571
---------- ----------
Long-term liabilities
Capital lease obligations, net of current portion 213,148 158,728
---------- ----------
Stockholder's deficit
Common stock, 1,000 shares of voting and 10,000
non-voting shares authorized; 1,000 shares $.10
par value and 1,000 non-voting shares $.10 par
value issued and outstanding 200 200
Additional paid-in capital 85,923 85,923
Accumulated deficit [686,746] [727,434]
---------- ----------
[600,623] [641,311]
---------- ----------
$1,230,939 $ 773,988
========== ==========
</TABLE>
See auditors' report and accompanying notes.
F-75
<PAGE> 119
PHYSICIANS RESOURCE NETWORK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
[Unaudited]
For the For the
Years Ended Six Months Ended
December 31, June 30,
------------------------- ------------------------
1995 1996 1996 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from services $ 3,171,271 $6,526,822 $3,397,720 $2,879,782
----------- ---------- ---------- ----------
Costs and expenses
Cost of services 2,190,349 5,029,433 2,513,336 2,246,381
General and administrative 1,097,415 1,459,477 823,716 624,991
----------- ---------- ---------- ----------
3,287,764 6,488,910 3,337,052 2,871,372
----------- ---------- ---------- ----------
Income [Loss] from operations [116,493] 37,912 60,668 8,410
----------- ---------- ---------- ----------
Other income [expense]
Other income 11,192 10,773 4,496 20,327
Interest expense [87,817] [132,616] [50,901] [69,425]
Loss on asset disposal [15,534] [8,793] [8,793] -0-
----------- ---------- ---------- ----------
[92,159] [130,636] [55,198] [49,098]
----------- ---------- ---------- ----------
Net income [loss] $ [208,652] $ [92,724] $ 5,470 $ [40,688]
=========== ========== ========== ==========
</TABLE>
See auditors' report and accompanying notes.
F-76
<PAGE> 120
PHYSICIANS RESOURCE NETWORK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE SIX MONTH PERIOD ENDED JUNE 30, 1997 [UNAUDITED]
<TABLE>
<CAPTION>
Common Stock
------------- Additional
Number Paid-In Accumulated
of shares Amount Capital Deficit Total
------------ ---- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995 2,000 $200 $85,923 $[385,370] $[299,247]
Net loss [208,652] [208,652]
----- ---- ------- --------- ---------
Balances, December 31, 1995 2,000 200 85,923 [594,022] [507,899]
Net loss [92,724] [92,724]
----- ---- ------- --------- ---------
Balances, December 31, 1996 2,000 200 85,923 [686,746] [600,623]
Net loss - six months ended
June 30, 1997 [Unaudited] [40,688] [40,688]
----- ---- ------- --------- ---------
Balances, June 30, 1997
[Unaudited] 2,000 $200 $85,923 $[727,434] $[641,311]
===== ==== ======= ========= =========
</TABLE>
See auditors' report and accompanying notes.
F-77
<PAGE> 121
PHYSICIANS RESOURCE NETWORK, INC.
STATEMENTS OF CASH FLOWS
Increase [Decrease] in Cash
<TABLE>
<CAPTION>
[Unaudited]
For the For the
Years ended Six Months Ended
December 31, June 30,
----------------------- -----------------------
1995 1996 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income [loss] $[208,652] $ [92,724] $ 5,470 $ [40,688]
--------- --------- --------- ---------
Adjustments to reconcile net income [loss] to net
cash provided [used] by operating activities
Depreciation 105,278 134,221 63,967 80,523
Loss on asset disposal 15,534 8,793 8,793 -0-
Changes in assets and liabilities
Decrease [Increase] in accounts receivables [126,410] [481,254] [176,952] 404,700
Increase in other assets [2,015] [3,119] [3,119] -0-
Increase [Decrease] in cash overdraft -0- 41,989 -0- [41,989]
Increase [Decrease] in accounts payable
and other current liabilities 94,387 266,201 122,185 [216,491]
--------- --------- --------- ---------
Total adjustments 86,774 [33,169] 14,874 226,743
--------- --------- --------- ---------
Net cash provided [used] by
operating activities [121,878] [125,893] 20,344 186,055
--------- --------- --------- ---------
Cash flows from investing activities
Acquisitions of property and equipment [160,133] [111,646] [67,479] [3,707]
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds [Repayment] of notes payable [42,101] 99,000 99,000 -0-
Payments of capital lease obligations [41,879] [55,524] [27,639] [38,282]
Proceeds [payments] on long-term debt 158,639 21,155 [28,824] -0-
Proceeds [payment] of notes payable - related
parties 235,000 104,500 [7,500] [119,500]
--------- --------- --------- ---------
Net cash provided [used] by financing activities 309,659 169,131 35,037 [157,782]
--------- --------- --------- ---------
Net increase [decrease] in cash 27,648 [68,408] [12,098] 24,566
Cash, beginning 40,760 68,408 68,408 -0-
--------- --------- --------- ---------
Cash, ending $ 68,408 $ -0- $ 56,310 $ 24,566
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years and periods for
Interest $ 82,660 $ 126,524 $ 69,397 $ 52,619
</TABLE>
During the years ended December 31, 1996 and 1995, the Company purchased
$141,392 and $71,347 of equipment by entering into capital leases,
respectively.
See auditors' report and accompanying notes.
F-78
<PAGE> 122
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
PHYSICIANS RESOURCE NETWORK, INC., a Florida Corporation, provides
management, consulting, billing and staffing services on a contract basis
to medical practices in the Tampa, Florida area.
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, 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.
Revenue Recognition:
Revenue consists primarily of fees earned from employee leasing, practice
management and consulting services.
Accounts Receivable:
The Company does not have a secured interest in its accounts receivable;
however, it does have legal recourse for defaulted amounts.
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.
Depreciation is provided using the straight-line method based on the useful
lives of the assets, which have been estimated to be five to seven years.
Income Taxes:
On October 1, 1988, the Company 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 stockholder of a corporation without further tax
consequences to the Company. As discussed further in Note B, the Company
ceased to be an S corporation in July 1997.
F-79
<PAGE> 123
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Compensated Absences:
Employees must be full time, permanent employees to accrue sick leave.
Employees earn 48 hours of sick leave a year and can carry over any unused
hours. Hours not used upon termination, voluntary or involuntary, will be
paid out. Effective January 1, 1997, only three days could be carried over
to the next year and three days may be surrendered for cash.
Interim Financial Statements:
The accompanying financial statements for the six month period ended June
30, 1996 and 1997 are unaudited but, in the opinion of management, reflect
all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation. The results of operations for the six
month period are not necessarily indicative of the results for the full
years ending 1996 and 1997.
B. SUBSEQUENT EVENT - MERGER AGREEMENT:
On July 7, 1997, the stockholder 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. All issued
and outstanding shares of the Company were surrendered by the stockholder
in consideration for 3,733,333 shares of common stock of HALIS.
Additionally, the merger agreement included a two year employment agreement
between HALIS and the stockholder of the Company which provides for an
annual base salary of $125,000 and incentive compensation as determined by
the Board of Directors of 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. As a subsidiary of HALIS, a publicly
traded company, the Company will no longer enjoy its status as an S
corporation for income tax purposes.
C. RELATED PARTY TRANSACTIONS AND ECONOMIC DEPENDENCY:
The Company is affiliated with a collection agency, Accounts Management,
Inc. of Tampa Bay (AMI), in which the Company's sole shareholder has a 50%
ownership. The Company does not pay AMI fees, but AMI earns fees from the
medical practices directly. Included in revenues for the years ended
December 31, 1996 and 1995 are $8,913 and $6,438 from AMI, respectively.
Related accounts receivable at December 31, 1996 was $1,431.
Interest expense to related parties (See Note H) for the years ended
December 31, 1996 and 1995 was $24,387 and $5,401, respectively. Accrued
interest at December 31, 1996 was $13,828.
F-80
<PAGE> 124
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
C. RELATED PARTY TRANSACTIONS AND ECONOMIC DEPENDENCY: [Continued]
The Company also had transactions with a construction company which is
owned 50% by the shareholder. The construction company provided
construction services of which approximately $43,500 is included in
leasehold improvements at December 31, 1996.
The Company earned revenues from five medical practices in which the
shareholder's sibling has ownership. As of October 31, 1996, three of the
five medical practices are no longer considered related. Revenues
attributed to these three medical practices for the ten months ended
October 31, 1996 were $303,698 (see Notes D and K).
D. ACCOUNTS RECEIVABLES:
Accounts receivables as of December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Customer receivables - Trade $ 631,686
Customer receivables - Related Parties 79,822
Employee receivables 50
---------
711,558
Allowance for doubtful accounts [20,000]
---------
$ 691,558
=========
</TABLE>
E. NOTES PAYABLE:
Line-of-Credit:
The Company has a $100,000 revolving line-of-credit with Central Bank of
Tampa, of which $99,000 was owed at December 31, 1996. The line-of-credit
is being refinanced and is expected to mature December 25, 1997. Bank
advances on the credit line are payable on demand and carry an interest
rate of prime plus 1.25% per annum. The credit line is secured by
substantially all corporate assets and is personally guaranteed by the
shareholder.
Mulberry Street Investment Company - secured note payable in the amount of
$80,000 at 10% per annum. Principal plus interest was paid in full on July
7, 1997.
F-81
<PAGE> 125
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
F. CAPITAL LEASES PAYABLE:
The Company acquired computer equipment and office furniture under seven
long-term capital leases. These leases begin to expire in 1998.
Depreciation of the equipment and furniture purchased under these leases is
reported as a component of depreciation expense. The leased property had a
cost of $454,214, accumulated depreciation of $193,581, and a net book
value of $260,633 as of December 31, 1996.
The future minimum leases payments under the capital lease for each of the
next three years and in total and the net present value of the future
minimum lease payments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 146,951
1998 135,068
1999 110,179
---------
392,198
Less amount representing interest [72,196]
---------
Present value of net minimum lease payments 320,002
Less current portion of capital lease obligation [106,854]
---------
Long-term capital lease obligation net of current portion $ 213,148
=========
</TABLE>
G. LONG-TERM DEBT:
Central Bank of Tampa - Secured note payable in the amount of $525,000 at
10.5% per annum, with monthly payments in the amount of $11,328 which
includes interest. Central Bank of Tampa has a blanket lien on the assets
of the Company and personal guarantee of Anthony Maniscalco. This note is
being refinanced and is expected to be called for a balloon payment due
December 25, 1997.
H. NOTES PAYABLE - RELATED PARTIES:
Shareholder: Amount
The Company has an unsecured note payable to the sole
shareholder of the Company as of December 31, 1996. The note
is due on demand and interest is being accrued at 8% per
annum. During the six months ended June 30, 1997, $27,500 of
principal was paid. The remaining $285,000 was converted to
equity on July 3, 1997. $312,500
F-82
<PAGE> 126
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
H. NOTES PAYABLE - RELATED PARTIES: [Continued]
Anthony & Associates:
Unsecured note payable to a company owned 100% by the
shareholder. The note accrued interest at 8% per annum.
The outstanding principal amount and related interest
were paid in full on February 11, 1997. 42,000
TDM OF TAMPA, INC.:
Unsecured note payable to a company owned 50% by the
shareholder. The note accrued interest at 10.5%. The
outstanding principal amount and related interest
were paid in full on February 11, 1997. 50,000
---------
$ 404,500
=========
I. OPERATING LEASE COMMITMENTS:
The Company leases office space, automobiles and office equipment under
operating lease agreements. Rent expense under these agreements was
$171,015 in 1996.
The annual future minimum lease commitments under the building, automobile,
and the office equipment leases are as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1997 $167,103
1998 170,358
1999 137,713
2000 11,928
---- --------
Total $487,102
========
</TABLE>
J. EMPLOYEE BENEFIT PLAN:
The Company sponsors a profit-sharing plan for all employees who meet
certain eligibility requirements. The Company may elect to make
discretionary contributions up to 2% of an employee's gross salary.
Employees are subjected to a five-year vesting schedule. The Company made
contributions to the plan of approximately $40,000 in 1996 and $17,000 in
1995.
F-83
<PAGE> 127
PHYSICIANS RESOURCE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND 1995 [AUDITED]
AND JUNE 30, 1997 [UNAUDITED]
K. ECONOMIC DEPENDENCY - MAJOR CLIENTS:
A major client is defined as one from whom ten percent or greater of annual
revenues is derived. During 1996 and 1995, the Company had three and one
such customers, respectively.
Individually, revenues from Maniscalco, Alagona, & Elchahal, MDs, PA (MAE)
were $1,197,496 (18%) in 1996 and $1,021,770 (32%) in 1995. The related
trade accounts receivable at December 31, 1996 was $66,958. As a group,
including MAE, five clients in which the shareholder's sibling has
ownership accounted for $2,267,555 (35%) and $1,976,370 (62%) of revenues
in 1996 and 1995, respectively.
During 1996, revenues from Associated Primary Care, PA were $1,686,413
(26%) and from Access Medical Care, Inc. were $1,189,128 (18%) with related
trade accounts receivable of $45,204 and $252,493, respectively, at
December 31, 1996.
F-84
<PAGE> 128
INDEPENDENT AUDITORS' REPORT
To the Stockholder of
Physource Ltd. and
Theodore M. Homa M.D., S.C.
We have audited the accompanying combined balance sheet of PhySource Ltd. and
Theodore M. Homa, M.D., S.C. as of December 31, 1996 and the related combined
statements of operations, changes in stockholders' equity [deficit], and cash
flows for the period from inception [February 28, 1996] of PhySource, Ltd. and
for the year ended December 31, 1996 for Theodore M. Homa, M.D., S.C. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides 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 PhySource Ltd. and
Theodore M. Homa, M.D., S.C. at December 31, 1996, and the results of their
operations and their cash flows from inception [February 28, 1996] for PhySource
Ltd. and for the year ended December 31, 1996 for Theodore M. Homa, M.D., S.C.
in conformity with generally accepted accounting principles.
/s/ Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
September 26, 1997
F-85
<PAGE> 129
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
COMBINED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
December 31, [Unaudited]
1996 June 30, 1997
------------ -------------
<S> <C> <C>
Current assets
Cash $ 41,621 $ 18,420
Accounts receivable, net of allowance for
doubtful accounts of $8,690 26,146 304,502
Prepaid expenses 6,620 -0-
Current portion of lease receivable 5,304 5,575
-------- ----------
Total current assets 79,691 328,497
-------- ----------
Property and equipment, at cost
Computer equipment 141,476 143,394
Furniture and fixtures 27,007 49,464
-------- ----------
168,483 192,858
Less accumulated depreciation [46,521] [75,113]
-------- ----------
121,962 117,745
-------- ----------
Other assets
Organization costs, net of accumulated
amortization of $1,644 10,683 10,683
Lease receivable, net of current portion 25,882 23,024
-------- ----------
36,565 33,707
-------- ----------
$238,218 $ 479,949
======== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Notes payable - related parties $786,542 $1,043,240
Retirement plan payable 12,479 12,479
Current portion of long-term debt - related parties 5,386 7,051
Accounts payable and accrued expenses 78,980 33,338
Accounts payable and accrued expenses -
related parties 29,858 221,568
-------- ----------
Total current liabilities 913,245 1,317,676
-------- ----------
Long-term liabilities
Long-term debt - related party, net of current portion 23,454 20,125
-------- ----------
Stockholder's deficit
Common stock - PhySource, Ltd. no par value,
12,000 shares authorized; 6,000 shares issued
and outstanding 1,000 1,000
Common stock - Homa, S.C. no par value, 20,000
shares authorized; 1,000 shares issued and
outstanding 3,000 3,000
Stock subscription receivable [1,000] [1,000]
Accumulated deficit [701,481] [860,852]
-------- ----------
[698,481] [857,852]
-------- ----------
$238,218 $ 479,949
======== ==========
</TABLE>
See auditors' report and accompanying notes.
F-86
<PAGE> 130
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
COMBINED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION [FEBRUARY 28, 1996]
THROUGH DECEMBER 31, 1996 FOR PHYSOURCE, LTD. AND
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR THEODORE M. HOMA, M.D., S.C.
<TABLE>
<CAPTION>
[Unaudited]
For the For the
Year Ended Six Months Ended
December 31, 1996 June 30,
----------------- ---------------------------
1996 1997
---------- -----------
<S> <C> <C> <C>
Revenues from services $ 601,983 $ 188,302 $1,223,115
---------- ---------- ----------
Cost of services 469,986 111,464 667,204
General and administrative 770,363 299,028 662,663
---------- ---------- ----------
1,240,349 410,492 1,329,867
---------- ---------- ----------
Loss from operations [638,366] [222,190] [106,752]
---------- ---------- ----------
Other income [expense]
Interest income 1,875 -0- 3,063
Interest expense [31,769] [4,641] [50,548]
Gain on asset disposal 21,285 2,070 -0-
---------- ---------- ----------
[8,609] [2,571] [47,485]
---------- ---------- ----------
Net loss $[646,975] $[224,761] $[154,237]
========== ========== ==========
</TABLE>
See auditors' report and accompanying notes.
F-87
<PAGE> 131
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY [DEFICIT]
FOR THE PERIOD FROM INCEPTION [FEBRUARY 28, 1996]
THROUGH DECEMBER 31, 1996 FOR PHYSOURCE, LTD. AND
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR THEODORE M. HOMA, M.D., S.C. AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997 [UNAUDITED]
<TABLE>
<CAPTION>
Theodore M. Total
PhySources, Ltd. Homa, M.D., S.C. Share-
Common Stock Common Stock Stock Retained holders'
-------------------- ------------------ Subscription Earnings Equity
Shares Amount Shares Amount Receivable [Deficit] [Deficit]
------ ------ ------- ------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1996 -0- $ -0- 1,000 $3,000 $ -0- $ 21,344 $ 24,344
Issuance of stock 6,000 1,000 -0- -0- [1,000] -0- -0-
Dividends paid -0- -0- -0- -0- -0- [75,850] [75,850]
Net loss -0- -0- -0- -0- -0- [646,975] [646,975]
------ ------ ------- ------- ------------ --------- ----------
Balances, December 31,
1996 6,000 1,000 1,000 3,000 [1,000] [701,481] [698,481]
Dividends paid [unaudited] -0- -0- -0- -0- -0- [5,134] [5,134]
Net loss - six months
ended June 30,
1997 [unaudited] -0- -0- -0- -0- -0- [154,237] [154,237]
----- ------ ------ ------- ------- --------- ---------
Balances, June 30,
1997 [unaudited] 6,000 $1,000 1,000 $3,000 $[1,000] $[860,852] $[857,852]
----- ------ ------ ------- ------- --------- ---------
</TABLE>
See auditors' report and accompanying notes.
F-88
<PAGE> 132
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION [FEBRUARY 28, 1996]
THROUGH DECEMBER 31, 1996 FOR PHYSOURCE, LTD. AND
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR THEODORE M. HOMA, M.D., S.C.
Increase [Decrease] in Cash
<TABLE>
<CAPTION>
[Unaudited]
For the For the
Year ended Six Months Ended
December 31, 1996 June 30,
----------------- -----------------------
1996 1997
--------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $[646,975] $[224,761] $[154,237]
--------- --------- ---------
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 21,158 5,164 28,592
Gain on disposal of assets [21,285] [2,070] -0-
Changes in assets and liabilities
Increase in accounts receivable [26,146] [22,652] [278,356]
Decrease [Increase] in prepaid expenses [6,173] [15,954] 6,620
Decrease [Increase] in shareholder advances 21,919 [31,518] -0-
Increase in organizational costs [12,327] [2,005] -0-
Increase in retirement plan payable 12,479 -0- -0-
Increase [Decrease] in accounts payable
and accrued expenses 78,690 37,050 [45,642]
Increase in accounts payable and other
accrued expenses - related party 29,858 4,641 191,710
--------- --------- ---------
Total adjustments 98,173 [27,344] [97,076]
--------- --------- ---------
Net cash used by operating
activities [548,802] [252,105] [251,313]
--------- --------- ---------
Cash flows from investing activities
Acquisitions of property and equipment [83,588] [28,496] [24,375]
--------- --------- ---------
Cash flows from financing activities
Proceeds from repayment of lease receivable 2,919 -0- 2,587
Proceeds from notes payable - related parties 727,988 280,409 256,698
Payments on long-term debt [2,529] [665] [1,664]
Dividends [56,635] -0- [5,134]
--------- --------- ---------
Net cash provided by financing activities 671,743 279,744 252,487
--------- --------- ---------
Net increase [decrease] in cash 39,353 [857] [23,201]
Cash, beginning 2,268 2,268 41,621
--------- --------- ---------
Cash, ending $ 41,621 $ 1,411 $ 18,420
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years and periods for
Interest $ 6,772 $ -0- $ 1,130
</TABLE>
See auditor's report and accompanying notes.
F-89
<PAGE> 133
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
PhySource LTD. (PhySource), an Illinois Corporation, started business and
was incorporated on February 28, 1996. PhySource provides management,
consulting, billing and staffing services on a contract basis to medical
practices.
Theodore M. Homa, M.D., S.C., (Homa), an Illinois Corporation, was
incorporated in 1979 and is a medical practice providing internal medicine
services.
Principles of Combination:
The accompanying financial statements of PhySource and Homa (collectively,
the Companies) are presented on a combined basis due to the common
ownership and business activities of the Companies [Note B]. The combined
financial statements include the accounts of each of the Companies. All
significant intercompany accounts and transactions have been eliminated.
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, 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.
Accounts Receivable:
The Company does not have a secured interest in its accounts receivable;
however, it does have legal recourse for defaulted amounts.
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.
F-90
<PAGE> 134
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: [Continued]
Property and Equipment: [Continued]
Depreciation is provided using the straight-line method based on the useful
lives of the assets, which have been estimated to be five years.
Depreciation expense for the year ended December 31, 1996 was $19,514.
Income Taxes:
PhySource and Homa elected to be treated as S corporations pursuant to the
Internal Revenue Code for federal and state income tax purposes on February
28, 1996 and January 1, 1989, respectively. The income of an S corporation
is taxable and distributable to the individual stockholders of a
corporation without further consequences to PhySource or Homa. As discussed
further in Note B, the Companies ceased to be S corporations in July 1997,
in connection with Homa's merger into PhySource and PhySource's subsequent
merger into HALIS, Inc. (HALIS).
Interim Financial Statements:
The accompanying financial statements for the period from inception to June
30, 1996 for PhySource, for the six month period ended June 30, 1996 for
Homa, and for the six month period ended June 30, 1997 for the Companies
are unaudited but, in the opinion of management, reflect all normal and
recurring adjustments necessary for a fair presentation. The results of
operations for the six month period are not necessarily indicative of the
results for the periods ended December 31, 1997.
B. SUBSEQUENT EVENT - MERGER AGREEMENT:
On July 31, 1997, the stockholder of Homa effected a merger agreement with
Physource, pursuant to which Homa was merged into PhySource. All issued and
outstanding shares of the common stock of Homa were surrendered by the
stockholder in consideration for 788 shares of common stock of PhySource.
On July 31, 1997, the stockholders of PhySource effected a merger agreement
with HALIS, pursuant to which PhySource was merged into a subsidiary of
HALIS. All issued and outstanding shares of PhySource were surrendered by
the stockholders in consideration for 1,502,963 shares of common stock of
HALIS.
These mergers were accounted for as purchase by HALIS.
Additionally, in connection with the merger, HALIS issued 1,129,648 shares
of common stock and 37,742 incentive stock options to satisfy certain
liabilities.
F-91
<PAGE> 135
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
C. RELATED PARTY TRANSACTIONS:
In 1996, Homa received revenues from Buffalo Grove Internal Medicine (BGIM)
in the amount of $239,586. The sole shareholder of Homa is a 50%
shareholder of BGIM. The balance due from BGIM as of December 31, 1996 was
$-0-. Effective January 1, 1997, the shareholder no longer provided
services in BGIM and billed all services through Homa.
In 1996, PhySource purchased property and equipment in the amount of
$89,923 from Indeck Engery Services, Inc. (Indeck), which is majority owned
by Mr. Gerald R. Forsythe, a director of PhySource who is also the father
of four PhySource shareholders. The Companies also bank at American
Enterprise Bank, which is also majority owned by Mr. Forsythe.
In 1996, Homa paid billing fees to Medical Practice Management in the
amount of $15,728, which is owned 100% by the wife of the sole shareholder
of Homa.
In 1996, Homa sold property and equipment to the shareholder of Homa for
$19,215. The book value of the vehicle was $-0- and the gain is included in
gain from asset disposals in the statement of operations.
D. LEASE RECEIVABLES:
PhySource leases property and equipment under the provisions of a long-term
lease. For financial reporting purposes, the asset has been removed from
the books and a gain on the sale in the amount of $2,070 has been
recognized. The lease expires in May 2001.
The future minimum lease repayments under the capital lease and the net
present value of the future minimum lease repayments at December 31, 1996
are as follows:
<TABLE>
<S> <C>
Total minimum lease repayments $39,349
Less amount representing interest [8,163]
-------
Present value of minimum lease payments 31,186
Current portion of capital lease [5,304]
-------
Long-term capital lease less current portion $25,882
=======
</TABLE>
F-92
<PAGE> 136
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
D. LEASE RECEIVABLES: [Continued]
Maturities of the lease receivable as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997 $ 5,304
1998 5,860
1999 6,474
2000 7,152
2001 6,396
-------
$31,186
=======
</TABLE>
E. NOTES PAYABLE - RELATED PARTIES:
The Company has the following unsecured notes payable to related parties as
of:
<TABLE>
<CAPTION>
December 31, June 30,
------------ -----------
<S> <C> <C>
Director - note payable with interest
of prime + 2% payable on demand
This note is unsecured. $677,000 $ 802,000
Indeck - note payable with interest
of prime + 2% payable on demand.
This note is unsecured. 84,542 84,542
Shareholder/Director - note payable with interest
of prime + 2% payable on demand; due on
demand. This note is unsecured. 25,000 25,000
Shareholder - note payable with interest at 7%
per annum; interest and principal due April
1998. This note is unsecured. -0- 18,000
Fawcett Insurance Agency, Inc. - note payable
with interest of prime + 2% payable on demand;
due on demand. This note is unsecured. -0- 85,000
Shareholder/Director - note payable with interest
of prime + 2% payable on demand; due on
demand. This note is unsecured. -0- 28,698
-------- ----------
$786,542 $1,043,240
======== ==========
</TABLE>
F-93
<PAGE> 137
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
E. NOTES PAYABLE - RELATED PARTIES: [Continued]
The above debt, excluding the note payable of $18,000, was subsequently
satisfied at the merger [Note B] with HALIS stock. Fawcett Insurance
Agency, Inc. is wholly-owned by a shareholder/director of PhySource.
Accrued interest relating to the above notes at December 31, 1996 and June
30, 1997 was $29,858 and $79,276, respectively.
F. LONG-TERM DEBT - RELATED PARTY:
<TABLE>
<S> <C>
Director - installment loan with interest of 10% payable in monthly
installments of $665; due May 31, 2001.
This note in secured by an x-ray machine. $28,840
Less current portion [5,386]
-------
$23,454
=======
</TABLE>
Maturities of the installment note as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1997 $ 5,386
1998 5,950
1999 6,573
2000 7,261
2001 3,670
-------
$28,840
=======
</TABLE>
G. OPERATING LEASE COMMITMENTS:
The Companies lease equipment and office space under operating lease
agreements. Rent expense under these agreements was $49,131 in 1996.
The annual future minimum lease commitments under these leases are as
follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1997 $ 26,518
1998 28,761
1999 29,205
2000 29,227
2001 24,860
Thereafter 51,737
--------
$190,308
========
</TABLE>
F-94
<PAGE> 138
PHYSOURCE LTD. and THEODORE M. HOMA, M.D., S.C.
NOTES TO COMBINED FINANCIAL STATEMENTS [CONTINUED]
DECEMBER 31, 1996 AND JUNE 30, 1997 [UNAUDITED]
H. EMPLOYEE BENEFIT PLAN:
PhySource sponsors a 401(k) retirement savings plan for all employees who
meet certain eligibility requirements. Employees may contribute to the plan
up to 15% of their salary or the maximum allowed by the IRS. The Company
may elect to make matching and/or discretionary contributions. Employees'
contributions are immediately 100% vested while the Company contributions
are subject to a six-year vesting schedule. The Company made a contribution
to the plan during 1996 for $12,479.
I. ECONOMIC DEPENDENCY - MAJOR CLIENTS:
A major client is defined as one from whom ten percent or greater of annual
revenues is derived. During 1996, the Companies had one such customer.
Homa received revenues of $239,586 from BGIM, a related party [Note C],
in 1996 which accounted for 40% of revenues.
J. SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
The Companies acquired property and equipment of $58,554 and $31,369 by
issuance of notes payable and long-term debt.
The Companies sold property and equipment by issuing a note receivable in
the amount of $34,105.
The Company sold property and equipment with a net book value of $-0- for
$19,215 which is included in dividends.
K. SUBSEQUENT EVENTS:
The Companies are currently negotiating a new operating lease for office
space.
In conjunction with the merger [Note B], the Companies have entered
into an employment agreement with Theodore M. Homa, M. D. which expires
in July 31, 1999. The agreement provides for an annual base salary of
$144,000 plus certain incentive compensation.
F-95
<PAGE> 139
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.
F-96
<PAGE> 140
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.
F-97
<PAGE> 141
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.
F-98
<PAGE> 142
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>
F-99
<PAGE> 143
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.
F-100
<PAGE> 144
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND DECEMBER 31, 1996
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet of
HALIS, Inc. gives effect to the following transaction as if it occurred on
March 31, 1997: the acquisition of 100% of the capital stock of TG Marketing
Systems, Inc. (TGM) by HALIS, Inc. and Subsidiaries (HALIS) accounted for as a
purchase. All 1,000 issued and outstanding shares of TGM were surrendered by
the stockholder in consideration for 2,388,060 of HALIS' shares. The Unaudited
Pro Forma Condensed Consolidated Statements of Operations for HALIS for the
year ended December 31, 1996 and for the three month period ended March 31,
1997 give retroactive effect to the acquisition of TGM as if it 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 TGM
and the related notes thereto.
F-101
<PAGE> 145
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
HALIS, Inc.
and TG Marketing
Subsidiaries Systems, Inc. Adjustments Pro Forma
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current assets $ 751,198 $262,032 [a] $[ 37,944] $ 975,286
Property and equipment 303,974 113,459 [a] 37,944 455,377
Other assets 632,780 2,081 - 634,861
Capitalized software development
costs 1,794,902 - [b] 2,000,000 3,794,902
Goodwill 4,163,788 - [b] 230,495 4,394,283
---------- ------- ---------- -----------
Total assets $7,646,642 $377,572 $2,230,495 $10,254,709
========== ======= ========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
HALIS, Inc.
and TG Marketing
Subsidiaries Systems, Inc. Adjustments Pro Forma
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Current liabilities $ 4,462,310 $ 29,249 $ - $ 4,491,559
Long-term debt 75,551 23,594 - 99,145
Convertible promissory notes - - - -
------------ --------- ----------- -------------
Total liabilities 4,537,861 52,843 - 4,590,704
------------ --------- ----------- -------------
Stockholders' equity
Stockholders' equity - 324,729 [c] [324,729] -
Common stock, par value $.01 299,415 - [b] 23,881 323,296
Additional paid-in capital 18,645,667 - [b] 2,206,614 21,177,010
[c] 324,729
Stock subscription receivable [ 681,122] - - [ 681,122]
Accumulated deficit [15,148,429] - - [ 15,148,429]
Less: Treasury stock at cost [ 6,750] - - [ 6,750]
------------ --------- ----------- -------------
Total stockholders' equity 3,108,781 324,729 2,230,495 5,664,005
------------ --------- ----------- -------------
Total liabilities and stock-
holders' equity $ 7,646,642 $ 377,572 $ 2,230,495 $ 10,254,709
============ ========= =========== =============
Common stock issued and
outstanding (c) 29,941,551 2,388,060 32,329,611
============ =========== =============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-102
<PAGE> 146
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HALIS, Inc.
and TG Marketing
Subsidiaries Systems, Inc. Adjustments Pro Forma
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Systems sales and other
revenues $ 7,793,944 $ 817,020 [d]$ [ 21,536] $ 8,589,428
------------- ------------ -------------- -------------
Costs and expenses
Cost of sales and revenues 3,805,295 402,600 [d] [ 21,536] 4,186,359
Research and development 1,829,002 - - 1,829,002
Selling, general, and
administrative 5,893,089 292,358 [e] 446,099 6,778,035
------------- ------------
[f] 7,589
[g] 100,500
11,527,386 694,958 [g] 38,400
------------- ------------ -------------- -------------
571,052 12,793,396
Operating income [loss] [ 3,733,442] 122,062 [ 592,588] [ 4,203,968]
------------- ------------ -------------- -------------
Other income [expense]
Loss on asset disposal [ 85,696] - - [ 85,696]
Rental income 27,600 - - 27,600
Interest expense [ 90,512] [ 4,092] - [ 94,604]
Interest income 29,468 - - 29,468
Other income [expense] 63,483 5,551 - 69,034
Other expenses [ 378,588] - - [ 378,588]
------------- ------------ ------------- -------------
[ 434,245] 1,459 - [ 432,786]
------------- ------------ -------------
Net income [loss] $[ 4,167,687] $ 123,521 $ [ 592,588] [ 4,636,754]
============= ============ ============== =============
Net loss per share [ .22] - [ .25] [ .21]
============= ============ ============== =============
Weighed average shares
outstanding 19,378,824 - 2,388,060 21,766,884
============= ============ ============== =============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-103
<PAGE> 147
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HALIS, Inc.
and TG Marketing
Subsidiaries Systems, Inc. Adjustments Pro Forma
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Systems sales and other
revenues $ 1,320,353 $ 394,342 [d] $[ 5,494] $ 1,709,201
------------- ------------- -------------- ------------
Costs and expenses
Cost of sales and revenues 431,085 148,244 [d] [ 5,494] 573,835
Research and development 284,674 - - 284,674
Selling, general, and administrative 1,486,291 107,105 [e] 111,525 1,741,543
------------- ------------- ------------
[f] 1,897
[g] 25,125
[g] 9,600
--------------
2,202,050 255,349 142,653 2,600,052
------------- ------------- -------------- ------------
Operating loss [ 881,697] 138,993 [ 148,147] [ 890,851]
------------- ------------- -------------- ------------
Other income [expense]
Gain on asset disposal 8,678 - - 8,678
Interest expense [ 38,379] [ 2,666] - [ 41,045]
Interest income 8,334 - - 8,334
Other income 8,668 - - 8,668
Merger costs [ 13,904] - - [ 13,904]
------------- ------------- -------------- ------------
[ 26,603] [ 2,666] - [ 29,269]
------------- ------------- -------------- ------------
Net income [loss] $[ 908,300] $ 136,327 $[ 148,147] $[ 920,120]
============= ============= ============== ============
Net loss per share [ .03] - [ .06] [ .03]
============= ============== ============
Weighed average shares outstanding 27,744,693 - 2,388,060 30,132,753
============= ============== ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-104
<PAGE> 148
HALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
Balance Sheet - March 31, 1997:
[a] To reflect the repayment of advances to the former stockholder of TGM by
TGM, by the transfer of certain personally-owned equipment at book value
by the former stockholder to the Company.
[b] To record the issuance by HALIS of 2,388,060 shares of common stock to the
stockholder of TGM, in exchange for 100% of the outstanding stock of TGM
in a transaction to be accounted for as a purchase by HALIS.
Management estimates the value of the 2,388,060 shares to be $1.07 per
share. Management has allocated the purchase price to the assets and
liabilities acquired based upon their relative fair values. This
transaction generated goodwill of $230,495 which will be amortized on a
straight-line basis over a five year life. Additionally, management has
attributed $2 million of the purchase price to software previously
developed by TGM under fee-for-service arrangements. The value of such
software will be capitalized and amortized on a straight-line basis over a
five year life.
Management continues to study the allocation of the purchase prices; upon
completion of such study, the allocation may change.
[c] To eliminate the equity of TGM in consolidation.
Statement of Operations:
The operations of HALIS as of December 31, 1996 include the pro forma effect of
the acquisitions of The Compass Group, Inc., Software Manufacturing Group, Inc.
and the combined entity of American Benefit Administrative Services, Inc. and
Third Party Administrators, Inc., all of which occurred in January 1997.
For the year ended December 31, 1996:
[d] To reflect the elimination of actual revenues and related costs for sales
occurring between HALIS and TGM.
[e] To reflect one year of amortization of capitalized software development
costs and goodwill generated in TGM acquisition.
[f] To reflect one year of depreciation related to equipment transferred by the
former stockholder of TGM to the Company.
[g] To reflect incremental compensation and rent expense related to an
employment agreement and a lease entered into with the former stockholder
of TGM in the amounts of $100,500 and $38,400, respectively.
F-105
<PAGE> 149
HALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED [CONTINUED]
PRO FORMA FINANCIAL STATEMENTS
Statement of Operations [Continued]:
For the three months ended March 31, 1997:
[d] To reflect the elimination of actual revenues and related costs for sales
occurring between HALIS and TGM.
[e] To reflect three months of amortization of capitalized software development
costs and goodwill generated in the TGM acquisition.
[f] To reflect three months of depreciation related to equipment transferred by
the former stockholder of TGM to the Company.
[g] To reflect three months of incremental compensation and rent expense
related to an employment agreement and lease entered into with the former
stockholder of TGM in the amounts of $25,125 and $9,600, respectively.
F-106
<PAGE> 150
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND DECEMBER 31, 1996
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet of HALIS,
Inc. gives effect to the following transaction as if it occurred on June 30,
1997: the acquisition of 100% of the capital stock of Physicians Resource
Network, Inc. (PRN) by HALIS, Inc. and Subsidiaries (HALIS) accounted for as a
purchase. All issued and outstanding shares of PRN were surrendered by the
stockholder in consideration for 3,733,333 of HALIS' shares. The Unaudited Pro
Forma Condensed Consolidated Statements of Operations for HALIS for the year
ended December 31, 1996 and for the six month period ended June 30, 1997 give
retroactive effect to the acquisition of PRN as if it 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 and PRN as of and for
the year ended December 31, 1996 and the related notes thereto.
F-107
<PAGE> 151
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS
------
HALIS, Inc. Physicians
and Resource
Subsidiaries Network, Inc. Adjustments Pro Forma
------------ ------------- --------------- -----------
<S> <C> <C> <C> <C>
Current assets $ 2,266,307 $ 311,423 [c]$ [80,000] $ 2,497,730
Property and equipment 453,039 456,351 909,390
Other assets 746,085 6,214 752,299
Capitalized software development
costs 3,625,348 3,625,348
Goodwill 5,536,274 [a]5,396,311 10,932,585
----------- ------------ ------------ -----------
Total assets $12,627,053 $ 773,988 $ 5,316,311 $18,717,352
=========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY [DEFICIT]
----------------------------------------------
HALIS, Inc. Physicians
and Resource
Subsidiaries Network, Inc. Adjustments Pro Forma
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Current liabilities $ 4,918,569 $ 1,256,571 [c]$[365,000] $ 5,810,140
Long-term debt 195,820 158,728 354,548
----------- ------------ ------------ -----------
Total liabilities 5,114,389 1,415,299 [365,000] 6,164,688
----------- ------------ ------------ -----------
Stockholders' equity [deficit]
Stockholders' equity [deficit] [641,311] [b] 641,311 -0-
Common stock, par value $.01 329,794 [a] 37,333 367,127
Additional paid-in capital 22,098,793 [a]5,358,978 27,101,460
[b] [641,311]
[c] 285,000
Common stock subscribed 13,417 13,417
Accumulated deficit [14,922,590] [14,922,590]
Less: Treasury stock at cost [6,750] [6,750]
----------- ------------ ------------ -----------
Total stockholders' equity 7,512,664 [641,311] 5,681,311 12,552,664
----------- ------------ ------------ -----------
Total liabilities and stock-
holders' equity $12,627,053 $ 773,988 $ 5,316,311 $ 18,717,352
=========== ============ ============ ===========
Common stock issued and
outstanding [a] 32,979,413 3,733,333 36,712,746
=========== ============ ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-108
<PAGE> 152
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HALIS, Inc. Physicians
and Resource
Subsidiaries Network, Inc. Adjustments Pro Forma
-------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Systems sales and other
revenues $ 8,589,428 $ 6,526,822 $ -0- $ 15,116,250
------------ ------------ ------------ ------------
Costs and expenses
Cost of sales and revenues 4,186,359 5,029,433 9,215,792
Research and development 1,829,002 1,829,002
Selling, general, and
administrative 6,778,035 1,459,477 [d]1,079,262 9,341,890
[f]25,116
------------ ------------ ------------ ------------
12,793,396 6,488,910 1,104,378 20,386,684
------------ ------------ ------------ ------------
Operating income [loss] [4,203,968] 37,912 [1,104,378] [5,270,434]
------------ ------------ ------------ ------------
Other income [expense]
Loss on asset disposal [85,696] [8,793] [94,489]
Rental income 27,600 27,600
Interest expense [94,604] [132,616] [e]22,800 [204,420]
Interest income 29,468 29,468
Other income [expense] 69,034 10,773 79,807
Other expenses [378,588] [378,588]
------------ ------------ ------------ ------------
[432,786] [130,636] 22,800 [540,622]
------------ ------------ ------------ ------------
Net Loss $ [4,636,754] $ [92,724] $ [1,081,578] $ [5,811,056]
============ ============ ============ ============
Net loss per share $ [.21] $ [.23]
============ ============
Weighed average shares
outstanding 21,766,884 3,733,333 25,500,217
============ ============ ============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-109
<PAGE> 153
HALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
Balance Sheet - June 30, 1997:
[a] To record the issuance by HALIS of 3,733,333 shares of common stock on
July 7, 1997, to the stockholder of PRN and the principal payment of
$80,000 to Mulberry Street Investment Company, representing an
indebtedness of PRN, in exchange for 100% of the outstanding stock of
PRN in a transaction to be accounted for as a purchase by HALIS.
Management estimates the value of the 3,733,333 shares to be $1.35 per
share. Management has allocated the purchase price to the assets and
liabilities acquired based upon their relative fair values. This
transaction generated goodwill of $5,396,311 which will be amortized on a
straight-line basis over a five year life.
Management continues to study the allocation of the purchase prices; upon
completion of such study, the allocation may change.
[b] To eliminate the equity of PRN in consolidation.
[c] To record the conversion of $285,000 notes payable to sole shareholder of
PRN, into capital of PRN which occurred on July 3, 1997.
To record the payoff of $80,000 notes payable to Mulberry Street Investment
Company, in July 1997, in connection with the merger.
Statement of Operations:
The operations of HALIS as of December 31, 1996 include the pro forma effect of
the acquisitions of The Compass Group, Inc., Software Manufacturing Group, Inc.,
the combined entity of American Benefit Administrative Services, Inc. and Third
Party Administrators, Inc., all of which occurred in January 1997, and TG
Marketing Systems, Inc., which occurred in May 1997.
For the year ended December 31, 1996:
[d] To reflect one year of amortization of goodwill generated in PRN
acquisition.
[e] To reflect one year of reduction in interest expense as a result of the
conversion of $285,000 in notes payable to equity by the sole shareholder
of PRN, prior to the merger.
To reflect one year of reduction in interest expense as a result of the
payoff of the Mulberry Street Investment Company debt, in connection with
the merger.
[f] To reflect incremental compensation expense related to an employment
agreement entered into with the former stockholder of PRN.
F-110
<PAGE> 154
HALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED [CONTINUED]
PRO FORMA FINANCIAL STATEMENTS
Statement of Operations [Continued]:
For the six months ended June 30, 1997:
[d] To reflect six months of amortization of goodwill generated in the PRN
acquisition.
[e] To reflect six months of reduction in interest expense as a result of the
conversion of $285,000 in notes payable to equity by sole shareholder of
PRN, prior to the merger.
To reflect six months of reduction in interest expense as a result of the
payoff of the Mulberry Street Investment Company debt, in connection with
the merger.
[f] To reflect six months of incremental compensation expense related to an
employment agreement entered into with the former stockholder of PRN.
F-111
<PAGE> 155
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
The following Unaudited Pro Forma Condensed Consolidated Balance sheet of
HALIS, Inc. gives effect to the sales of three business units, Software
Manufacturing Group ("SMG"), TG Marketing system ("TGM"), and Aubis Systems
Integration ("ASI") by HALIS, Inc. as if those sales had occurred on September
30, 1997. The Unaudited Pro Forma Condensed Consolidated Statements of
Operations for HALIS for the period ended September 30, 1997 gives retroactive
effect to the sales of the business units as if they had occurred on January 1,
1997. The Unaudited Pro Forma Balance Sheet and Statement of Operations do not
purport to be indicative of the actual financial position or the results of
operations of HALIS had the sales been completed as of the dates above. The
assets of SMG were sold to Infocure Corporation, an unrelated entity, for
approximately $1.8 million in cash on December 31, 1997. HALIS retained the
accounts payable and the sale was effective as of December 31, 1997 to
Communications Wiring and Accessories, Inc. in exchange for the assumption of
liabilities and certain future revenue.
F-112
<PAGE> 156
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
------
HALIS, INC
AND BUSINESS
SUBSIDIARIES UNITS SOLD ADJUSTMENTS PROFORMA
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Current Assets $ 2,802,830 $ (749,004) $ 1,734,682 (b) $ 3,788,508
Property and Equipment 1,068,456 (295,746) 2,000 744,710
Goodwill 13,204,362 (3,063,479) -- 10,140,883
Capitalized Software Development
costs 3,430,909 (3,180,562) -- 250,347
Other Assets 1,004,834 (64,877) -- 939,957
------------ ----------- ------------ -----------
Total Assets $ 21,511,391 $(7,353,668) $ 1,736,682 $15,894,405
============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
HALIS, INC
AND BUSINESS
SUBSIDIARIES UNITS SOLD ADJUSTMENTS PROFORMA
------------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Current Liabilities $ 4,475,867 $(1,144,464) $ 1,080,869 (c) $ 4,412,272
Long Term Debt 263,512 (114,652) -- 148,860
------------ ----------- ------------ -----------
Total liabilities 4,739,379 (1,259,116) 1,080,869 4,561,132
============ =========== ============ ===========
Stockholders' Equity (Deficit)
- ------------------------------
Common stock, par value $.01 417,622 417,622
Additional paid-in capital 33,766,737 -- 33,766,737
Parent Investment in Sub. - Opms -- --
Common stock subscribed 15,447 15,447
Accumulated deficit (17,421,044) (6,094,552) 655,813 (b) (22,859,783)
Less: treasury stock at cost (6,750) -- -- (6,750)
------------ ----------- ------------ -----------
Total stockholders' Equity 16,772,012 (6,094,552) 655,813 11,333,273
------------ ----------- ------------ -----------
Total Liabilities & Equity $ 21,511,391 $(7,353,668) $ 1,736,682 $15,894,405
============ =========== ============ ===========
Common stock issued and
outstanding 41,762,200 41,762,200
============ ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-113
<PAGE> 157
HALIS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDING SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HALIS, INC
AND BUSINESS
SUBSIDIARIES UNITS SOLD ADJUSTMENTS PROFORMA
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
System Sales and other revenue $ 6,919,135 $ (3,032,269) $ -- $ 3,886,766
- ------------------------------ ----------- ------------ ------------- -----------
Costs and expenses
- ------------------
Cost of sales and revenue 2,395,384 (717,734) -- 1,677,650
Selling, general and administrative 7,867,795 (2,453,630) -- 5,414,165
Research and development 999,493 -- -- 999,493
----------- ------------ ------------- -----------
11,262,672 (3,171,364) -- 8,091,308
----------- ------------ ------------- -----------
Operating Income (loss) (4,343,537) 138,995 -- (4,204,542)
- ---------------------- ----------- ------------ ------------- -----------
Other income (expense)
Gain (loss) on sale of Business Units -- -- (5,438,739) (d) (5,438,739)
Gain (loss) on asset disposal 8,678 -- -- 8,678
Interest expense (122,621) 2,892 -- (119,729)
Interest income 31,273 (834) -- 30,439
Other income (expense) 3,253 (3,121) -- 132
Merger costs (32,137) -- -- (32,137)
----------- ------------ ------------- -----------
(111,554) (1,063) (5,438,739) (5,551,356)
----------- ------------ ------------- -----------
Net income (loss) $(4,455,091) $ 137,932 (5,438,739) $(9,755,898)
=========== ============ ============= ===========
Net loss per common share (0.14) -- -- (0.29)
Weighted average shares outstanding 32,964,701 -- -- 32,964,701
=========== ============ ============= ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
F-114
<PAGE> 158
HALIS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENT
BALANCE SHEET; September 30, 1997
[a] This represents September 30, 1997 balance sheet for SMG, TGM and ASI
business units.
[b] To reflect the cash proceeds of the sale of SMG and aded assets retained
or reduced in the sale of TGM and ASI.
[c] To reflect the current liabilities of the Business Units retained by Halis.
STATEMENT OF OPERATIONS:
[d] To reflect estimated loss on disposition of the Business Units.
[e] This represents the statement of operations for the Business Units for the
nine months ended September 30, 1997.
F-115
<PAGE> 159
================================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................................................... 2
Incorporation of Certain
Documents by Reference................................................ 2
The Company............................................................. 4
Risk Factors............................................................ 5
Business................................................................ 9
Use of Proceeds......................................................... 25
Price Range of Common Stock and Dividends............................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................26
Selling Shareholders.................................................... 33
Description of Capital Stock............................................ 42
Changes in Accountants.................................................. 33
Directors and Executive Officers........................................ 42
Plan of Distribution.................................................... 46
Legal Matters........................................................... 46
Experts................................................................. 47
Index to Financial Statements............................................F-1
</TABLE>
================================================================================
================================================================================
HALIS, INC.
46,491,159 SHARES
COMMON STOCK
P R O S P E C T U S
FEBRUARY ,1998
9040 ROSWELL ROAD
SUITE 470
ATLANTA, GEORGIA 30350
(770) 641-5555
================================================================================
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are estimates of the fees and expenses payable by the
Company in connection with the offer and sale of the Common Stock:
<TABLE>
<S> <C>
SEC Registration Fees .................. $29,500
Blue Sky Qualification Fees and Expenses 5,000
Legal Fees and Expenses ................ 25,000
Accounting Fees and Expenses ........... 7,500
Transfer Agent Fees .................... 1,000
Printing, Materials, and Postage ....... 2,500
Miscellaneous Expenses ................. 4,500
-------
Total .......................... $75,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As provided under Georgia law, the Company's Articles of Incorporation
provide that a Director shall not be liable to the Company or its shareholders
for monetary damages, for breach of his or her duties care as a Director, except
that such provisions shall not eliminate or limit the liability of a Director
(a) for any appropriation, in violation of his or her duties, of any business
opportunity of the Company; (b) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of law; (c) for unlawful
corporate distributions; or (d) for any transaction from which the Director
received an improper personal benefit. Article VI of the Company's Bylaws
provides that the Company shall indemnify a Director who has been successful in
the defense of any proceeding to which he or she was a party or in defense of
any claim, issue or matter therein because he or she is or was a Director of the
Company, against reasonable expenses incurred by him or her in connection with
such defense.
The Company's Bylaws also provide that the Company may indemnify any
Director, officer, employee or agent made a party to a proceeding because he or
she is or was a Director, officer, employee or agent against liability incurred
in the proceeding if he or she acted in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company and, in the case of
any criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. Determination concerning whether or not the applicable
standard of conduct has been met can be made by (a) a disinterested majority of
the Board of Directors or (b) independent legal counsel. No indemnification may
be made to or on behalf of a Director, officer, employee or agent in connection
with (i) a proceeding by or in the right of the Company, except for reasonable
expenses incurred in connection with the proceeding, if it is determined that
the Director has met the standard of conduct specified in the Bylaws, or (ii)
any proceeding with respect to conduct for which the Director was adjudged
liable on the basis that personal benefit was improperly received by such
Director, whether or not involving action in his official capacity.
II-1
<PAGE> 161
ITEM 16. EXHIBITS.
The following exhibits are filed with or incorporated by reference into
this report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C> <C>
3.1* - Certificate of Incorporation, as amended
3.2 - Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of
the Company's Registration Statement on Form S-2, effective August 29,
1997)
4.1 - Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-18, Reg. No. 33-
14114-A, filed May 7, 1987, as amended ("Form S-18"))
5.1* - Opinion of Smith, Gambrell & Russell, LLP
10.1 - Employment Agreement dated November 18, 1996, as amended on January
3, 1997, by and between the Registrant HALIS
and Paul W. Harrison (incorporated by
reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-KSB for the year
ended December 31, 1996)
10.2 - Employment Agreement dated November 18, 1996, as amended on January
3, 1997, by and between the Registrant and Larry Fisher (incorporated by
reference to Exhibit 10.2 of the Company Annual Report on Form 10-KSB
for the year ended December 31, 1996)
10.3* - Non-Competition and Non-Disclosure Agreement dated May 2, 1997 by and
between the Registrant and Joseph H. Neely.
10.4* - Employment Agreement dated June 1997 by and between the Registrant
and Harold J. Williams III.
10.5 - Sublease dated January 10, 1997 by and between VeriFone, Inc. and the
Registrant for lease of office space in Atlanta, Georgia (incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996)
10.6 - Warrant Agreement, dated November 19, 1996, by and between the
Registrant and SunTrust Bank, Atlanta (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996)
10.7 - Form of Employee Trade Secret Agreement (incorporated by reference to
Exhibit 10.19 of the Company's Form S-18)
10.8 - License Agreement, dated November 18, 1996, by and between Paul
Harrison Enterprises, Inc. and the Registrant (December 10-KSB, Exhibit
10.6)
10.9 - Form of Note Purchase Agreement (incorporated by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-2 effective August
29, 1997)
10.10 - Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of December 13, 1995 and amended and restated as of March 29,
1996 and as further amended on September 27, 1996, among Fisher
Business Systems, Inc., AUBIS, L.L.C., AUBIS Hospitality Systems, Inc.,
AUBIS Systems Integration, Inc., and certain persons and affiliates of
AUBIS, L.L.C. (incorporated by reference from the Company's Current
Report on Form 8-K dated November 19, 1996)
10.11* - Agreement and Plan of Merger and Reorganization, dated as of January 10,
1997, among HALIS, Inc. and The Compass Group, Inc., Compass
Acquisition Co. and Debra B. York (incorporated by reference from the
Company's Current Report on Form 8-K dated January 10, 1997)
</TABLE>
II-2
<PAGE> 162
<TABLE>
<S> <C> <C>
10.12 - 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)
10.13 - Agreement and Plan of Merger and Reorganization, dated as of May 2,
1997, among HALIS, Inc., TG Marketing Systems, Inc., TG Marketing
Systems Acquisition Co., and Joseph H. Neely (incorporated by reference
from the Company's Current Report on Form 8-K dated May 2, 1997)
10.14 - Agreement and Plan of Merger and Reorganization, dated as of July 7,
1997, among HALIS, Inc., PRN Acquisition Co., Physicians Resource
Network, Inc., and the sole shareholder of Physicians Resource Network,
Inc. (incorporated by reference from the Company's Current Report on
Form 8-K dated July 7, 1997)
10.15 - Agreement and Plan of Merger and Reorganization, dated as of July 31,
1997, among HALIS, Inc., PhySource Acquisition Co., PhySource Ltd.,
and the shareholders of PhySource Ltd. (incorporated by reference from the
Company's Current Report on Form 8-K dated July 31, 1997)
10.16 - 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)
10.17 - 401(k) Plan of Registrant adopted January 1, 1991 (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K)
10.18 - Stock Purchase Agreement, dated as of March 29, 1996 and amended as of
September 27, 1996, between Fisher Business Systems, Inc., HALIS,
L.L.C., Paul W. Harrison and James Askew (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated November
19, 1996)
10.19 - 1996 Stock Option Plan of the Company (incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-KSB for the
year ended January 31, 1996)
10.19.1* - Amendment No. 1 to 1996 Stock Option Plan
10.19.2* - Amendment No. 2 to 1996 Stock Option Plan
10.20 - Form of 4% Convertible Debenture (incorporated by reference to Exhibit
4.1 of the Company's Current Report on Form 8-K dated December 29,
1997)
10.21 - Form of Common Stock Purchase Warrant Certificate (incorporated by
reference to Exhibit 4.2 of the Company's Current Report on Form 8-K
dated December 29, 1997)
10.22 - Asset Purchase Agreement dated December 31, 1997 among HALIS
Services, Inc., Orthodontic Practice Management System, Inc., Infocure
Corporation, and the Company (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated December 31, 1997)
10.23 - Asset Purchase Agreement dated December 31 1997 between
Communications Wiring and Accessories, Inc. and HALIS Services,
Inc.(incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 31, 1997)
23.1* - Consent of Habif, Arogeti & Wynne, P.C.
23.2* - Consent of Smith, Gambrell & Russell (contained in Exhibit 5.1)
</TABLE>
- -----------------------
* Previously filed on February 6, 1998
II-3
<PAGE> 163
- ------------------
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on the 12th day of
February, 1998.
HALIS, INC.
By:/s/ Paul W. Harrison
----------------------------------------
Paul W. Harrison, Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
following capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul W. Harrison* Chairman of the Board, February 12, 1998
- ----------------------------------- Chief Executive Officer and President
Paul W. Harrison
/s/ Larry Fisher* Director, Executive Vice President,
- ----------------------------------- Chief Administrative Officer
Larry Fisher and Secretary February 12, 1998
/s/ Harold J. Williams, III* Chief Financial Officer February 12, 1998
- ----------------------------------- (Principal Financial Officer)
Harold J. Williams, III
/s/ James E. Clements* Controller February 12, 1998
- ----------------------------------- (PrincipalAccounting Officer)
James E. Clements
/s/ Chuck Broes* Director February 12, 1998
- -----------------------------------
Chuck Broes
</TABLE>
By: /s/ Paul W. Harrison
------------------------------
Paul W. Harrison
Attorney-in-Fact
<PAGE> 165
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page No.
------ ---------------------- --------
<S> <C> <C>
3.1 * - Certificate of Incorporation, as amended
3.2 - Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of
the Company's Registration Statement on Form S-2, effective August 29,
1997)
4.1 - Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-18, Reg. No. 33-
14114-A, filed May 7, 1987, as amended ("Form S-18"))
5.1* - Opinion of Smith, Gambrell & Russell, LLP
10.1 - Employment Agreement dated November 18, 1996, as amended on January
3, 1997, by and between the Registrant HALIS
and Paul W. Harrison (incorporated by
reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-KSB for the year
ended December 31, 1996)
10.2 - Employment Agreement dated November 18, 1996, as amended on January
3, 1997, by and between the Registrant and Larry Fisher (incorporated by
reference to Exhibit 10.2 of the Company Annual Report on Form 10-KSB
for the year ended December 31, 1996)
10.3* - Non-Competition and Non-Disclosure Agreement dated May 2, 1997 by and
between the Registrant and Joseph H. Neely.
10.4* - Employment Agreement dated June 1997 by and between the Registrant
and Harold J. Williams III.
10.5 - Sublease dated January 10, 1997 by and between VeriFone, Inc. and the
Registrant for lease of office space in Atlanta, Georgia (incorporated by
reference to Exhibit 10.3 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996)
10.6 - Warrant Agreement, dated November 19, 1996, by and between the
Registrant and SunTrust Bank, Atlanta (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996)
10.7 - Form of Employee Trade Secret Agreement (incorporated by reference to
Exhibit 10.19 of the Company's Form S-18)
10.8 - License Agreement, dated November 18, 1996, by and between Paul
Harrison Enterprises, Inc. and the Registrant (December 10-KSB, Exhibit
10.6)
10.9 - Form of Note Purchase Agreement (incorporated by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-2 effective August
29, 1997)
10.10 - Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of December 13, 1995 and amended and restated as of March 29,
1996 and as further amended on September 27, 1996, among Fisher
Business Systems, Inc., AUBIS, L.L.C., AUBIS Hospitality Systems, Inc.,
AUBIS Systems Integration, Inc., and certain persons and affiliates of
AUBIS, L.L.C. (incorporated by reference from the Company's Current
Report on Form 8-K dated November 19, 1996)
10.11 - Agreement and Plan of Merger and Reorganization, dated as of January 10,
1997, among HALIS, Inc. and The Compass Group, Inc., Compass
Acquisition Co. and Debra B. York (incorporated by reference from the
Company's Current Report on Form 8-K dated January 10, 1997)
</TABLE>
<PAGE> 166
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page No.
------ ---------------------- --------
<S> <C> <C>
10.12 - 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)
10.13 - Agreement and Plan of Merger and Reorganization, dated as of May 2,
1997, among HALIS, Inc., TG Marketing Systems, Inc., TG Marketing
Systems Acquisition Co., and Joseph H. Neely (incorporated by reference
from the Company's Current Report on Form 8-K dated May 2, 1997)
10.14 - Agreement and Plan of Merger and Reorganization, dated as of July 7,
1997, among HALIS, Inc., PRN Acquisition Co., Physicians Resource
Network, Inc., and the sole shareholder of Physicians Resource Network,
Inc. (incorporated by reference from the Company's Current Report on
Form 8-K dated July 7, 1997)
10.15 - Agreement and Plan of Merger and Reorganization, dated as of July 31,
1997, among HALIS, Inc., PhySource Acquisition Co., PhySource Ltd.,
and the shareholders of PhySource Ltd. (incorporated by reference from the
Company's Current Report on Form 8-K dated July 31, 1997)
10.16 - 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)
10.17 - 401(k) Plan of Registrant adopted January 1, 1991 (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K)
10.18 - Stock Purchase Agreement, dated as of March 29, 1996 and amended as of
September 27, 1996, between Fisher Business Systems, Inc., HALIS,
L.L.C., Paul W. Harrison and James Askew (incorporated by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K dated November
19, 1996)
10.19 - 1996 Stock Option Plan of the Company (incorporated by reference to
Exhibit 10.20 of the Company's Annual Report on Form 10-KSB for the
year ended January 31, 1996)
10.19.1* - Amendment No. 1 to 1996 Stock Option Plan
10.19.2* - Amendment No. 2 to 1996 Stock Option Plan
10.20 - Form of 4% Convertible Debenture (incorporated by reference to Exhibit
4.1 of the Company's Current Report on Form 8-K dated December 29,
1997)
10.21 - Form of Common Stock Purchase Warrant Certificate (incorporated by
reference to Exhibit 4.2 of the Company's Current Report on Form 8-K
dated December 29, 1997)
10.22 - Asset Purchase Agreement dated December 31, 1997 among HALIS
Services, Inc., Orthodontic Practice Management System, Inc., Infocure
Corporation, and the Company (incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K dated December 31, 1997)
10.23 - Asset Purchase Agreement dated December 31 1997 between
Communications Wiring and Accessories, Inc. and HALIS Services,
Inc.(incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 31, 1997)
23.1* - Consent of Habif, Arogeti & Wynne, P.C.
23.2* - Consent of Smith, Gambrell & Russell (contained in Exhibit 5.1)
</TABLE>
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* Previously filed on February 6, 1998
