SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
June 30, 1999 0-16288
HALIS, INC.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-1366235
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9040 Roswell Road, Suite 470, Atlanta, Georgia 30350
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(Address of principal executive offices) (Zip Code)
(770) 641-5555
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Issuer's telephone number, including area code:
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the last 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value, 52,283,327 shares are outstanding
at July 31, 1999
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS
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CURRENT ASSETS
- --------------
Cash $ 112,680
Customer claims and premium funds 915,672
Receivables, less allowance for possible losses
of $179,000 292,373
Other receivables 0
Other current assets 97,987
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Total current assets 1,418,713
PROPERTY AND EQUIPMENT
- ----------------------
Computer equipment 408,870
Office furniture and fixtures 64,617
Leasehold improvements 29,770
Less: accumulated depreciation (98,342)
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Total property and equipment, net 404,915
OTHER ASSETS
- ------------
Deposits 99,250
Goodwill, net of accumulated
amortization of $937,778 1,076,636
Capitalized software development costs,
net of accumulated amortization of $80,900 80,096
Other intangibles, net of
accumulated amortization of $39,590 79,180
Notes receivable - related parties 609,825
Long-term investments 83,333
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Total other assets 2,028,318
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TOTAL ASSETS $3,851,946
==========
The accompanying notes are an integral part of these statements.
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,029,832
Deferred revenue and customer deposits 1,159,339
Payroll and sales taxes payable 209,549
Notes payable - unrelated parties 350,508
Notes payable - related parties 67,650
Obligations under capital leases - current portion 44,231
Deferred gain on sale of subsidiary 0
Other current liabilities 458,267
----------
Total current liabilities 3,319,376
LONG-TERM DEBT
Obligations under capital leases - net of current portion 223,355
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $.10 par value 5,000,000
authorized; 0 issued and outstanding 0
Common stock $.01 par value 100,000,000
authorized; 52,283,327 issued and outstanding 522,833
Additional paid-in capital 36,645,755
Unrealized loss on investment (41,667)
Accumulated deficit (36,817,705)
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Total stockholders' equity (deficit) 309,216
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $3,851,946
=========
The accompanying notes are an integral part of these statements.
3
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
THE THREE MONTHS ENDED JUNE 30, 1998
1999 1998
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SALES REVENUE $ 1,147,735 $ 2,098,270
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COST AND EXPENSES
- -----------------
Cost of goods sold 218,476 539,023
Selling, general, and administrative 937,254 2,485,680
Research and development 82,872 203,146
Amortization and depreciation 143,437 275,418
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1,382,039 3,503,267
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OPERATING INCOME (LOSS) (234,304) (1,404,997)
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OTHER INCOME (EXPENSES)
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Interest expense (12,514) (18,826)
Interest income 6,703 11,776
Other income (expense) 3,746 0
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(2,066) (7,050)
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NET INCOME (LOSS) $ (236,369) $ (1,412,047)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER
COMMON SHARE $ (0.00) $ (0.03)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 51,182,228 53,184,487
=========== ===========
The accompanying notes are an integral part of these statements.
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
THE SIX MONTHS ENDED JUNE 30, 1998
1999 1998
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SALES REVENUE $ 2,730,572 $ 4,289,368
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COST AND EXPENSES
- -----------------
Cost of goods sold 585,702 1,044,672
Selling, general, and administrative 1,896,605 5,332,160
Research and development 152,574 436,544
Amortization and depreciation 282,952 540,835
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2,917,834 7,354,211
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OPERATING INCOME (LOSS) (187,263) (3,064,843)
- --------------
OTHER INCOME (EXPENSES)
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Interest expense (30,343) (34,210)
Interest income 13,333 12,490
Other income (expense) 3,746 (5,414)
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(13,265) (27,134)
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NET INCOME (LOSS) $ (200,527) $ (3,091,977)
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER
COMMON SHARE $ (0.00) $ (0.06)
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 50,041,380 50,051,356
=========== ===========
The accompanying notes are an integral part of these statements.
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash flows from operating activities
Net Income (loss) $(236,369) $(3,091,977)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization and depreciation 282,952 540,835
Decrease in allowances for losses on accounts receivable (16,654) (78,450)
Changes in operating assets and liabilities, net of assets and
liabilities acquired and sold
Decrease (increase) in customer claims and premium funds 21,632 (188,794)
Decrease in accounts receivable 87,212 4,254
Increase in accounts receivable - related parties 0 (7,968)
Increase in notes receivable - related parties (13,533) 0
Increase in other current assets (27,116) (138,179)
Increase (decrease) in deposits 70,137 (5,255)
(Decrease) increase in accounts payable & accrued expenses (75,090) 72,030
Decrease in sales & payroll taxes (54,785) (132,732)
Increase in deferred revenues & customer deposits 64,989 695,976
(Decrease) increase in other current liabilities (214,029) 266,321
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Total adjustments 125,715 1,028,038
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Net cash used by operating activities (110,654) (2,063,939)
Cash flows from investing activities:
Purchases of property and equipment (44,474) (15,478)
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Net cash used by investing activities (44,474) (15,478)
Cash flows from financing activities:
Proceeds from issuance of common stock 150,000 0
Proceeds from 6% convertible debentures 0 1,166,500
Proceeds from 4% convertible debentures 0 100,000
Private equity rescissions 0 (50,000)
Net payments on 7% convertible promissory notes 0 (190,000)
Net payments on lines of credit 0 (92,334)
Payments on capital leases (21,807) (98,347)
Net payments (proceeds) from notes payable (25,018) 51,311
Net proceeds from notes payable - related parties 112,150 40,000
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Net cash provided by financing activities 215,325 927,130
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Net increase (decrease) in cash 60,197 (1,152,287)
Cash, beginning of the period 52,483 1,160,809
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Cash, end of period $ 112,680 $ 8,522
========= ===========
The accompanying notes are an integral part of these statements.
</TABLE>
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HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
BASIS OF PRESENTATION:
The accompanying unaudited 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
six-month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and the notes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1998.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of HALIS, Inc.
and its wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
Revenue Recognition
Revenue consists primarily of physician practice management fees, third
party claims processing fees, consulting services, software licensing fees,
sales of related computer hardware, and post contract customer support and
maintenance.
Practice management, claims When the services are provided.
processing, consulting
services, installation,
training and education
Software Licensing Revenue After shipment of the
product and fulfillment of acceptance
terms, provided no significant
obligations remain and collection of
resulting receivable is deemed probable.
Contract Support Ratably over the life of the
contract from the effective date.
Hardware Upon shipment of computer equipment to
the customer, provided no significant
obligations remain and collection of
resulting receivable is deemed probable.
Subscription Sales Ratably over the life of the
contract from the effective date.
Goodwill
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over a period of 5
years. The Company assesses the recoverability of its goodwill whenever adverse
events or changes in circumstances or business climate indicate that
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expected future cash flows (undiscounted and without interest charges) in
individual business units may not be sufficient to support recorded goodwill. If
undiscounted cash flows are not sufficient to support the recorded asset, an
impairment is recognized to reduce the carrying value of the goodwill based on
the expected future cash flows of the business unit.
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. The Company has sustained losses during the
years ended December 31, 1998 and 1997. Such losses have continued for the six
months ended June 30, 1999. Additionally, the Company has used, rather than
provided, cash in its operating activities during the years ended December 31,
1998 and 1997, and this continues to be the case in 1999, although on a much
reduced basis. The Company had a working capital deficiency as of December 31,
1998 and as of June 30, 1999 of $2,457,627 and $2,000,663, respectively.
Specifically, the Company incurred negative cash flow from operating activities
of approximately $110,654 from December 31, 1998 to June 30, 1999. Due to its
cash flow situation, the Company has negotiated payment terms with vendors
representing a significant portion of the accounts payable and is managing the
payment of the remaining accounts payable on a case by case basis. Due to the
Company's weak cash position, it has not been able to stay in compliance with
some of the payment terms with some of its vendors.
In view of the matters described in the preceding paragraph, there is
significant doubt about the Company's ability to continue as a going concern.
The 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 has been successful in reducing its operating overhead which has
resulted in a decrease in its ongoing cash requirements. Additionally, the
Company has been successful in the past in generating cash investment from
various entities to supplement its cash generated from operations. However, if
the Company is unable to produce revenues and maintain its lower overhead
structure during the balance of 1999, an additional capital infusion will be
required for the Company to meet its obligations during the third and fourth
quarters of 1999.
Thus far in 1999, although interest in its HES enterprise-wide product
continues to increase, the Company has had virtually no success in entering into
contracts for the sale of the HES enterprise-wide product due to the long sales
cycle involved in the decision process of potential customers and the poor
financial condition and performance of the Company. However, because of the
Company's inability to make inroads in the medical software distribution systems
through conventional methods, the Company has focused its attention on trying to
enter into joint ventures with one or more entities which the Company hopes will
result in one or more alliances with entities that can assist in the
distribution of its software products. The Company believes that by entering
into one or more joint ventures, the Company will be able to enhance its capital
structure, as well as its sales and marketing infrastructure. Further, the
Company has found a general resistance to the fully integrated nature of it's
enterprise-wide product by customers who view the HES enterprise product as
being more comprehensive than their current needs (regardless of the fact that
it is priced significantly lower than competitors who supply only component
parts of the same type of system). As a result, the Company has decided to
separate the HES enterprise-wide product into nine versions, each specifically
designed for a certain market segment. It is hoped that the separate market
segmentation of its product will enable the Company to identify customers who
have specific needs to be addressed rather than viewing their business on an
enterprise wide basis. No guaranty can be provided that this new focus of the
Company on its products will be successful in penetrating any one or more of the
identified market segments. Additionally, in order to focus more on being a
product oriented company, the Company has assigned a number of its service and
research and development personnel to its HealthWatch affiliate (which owns
approximately 21% of the Company), and will outsource its service and support
functions to other joint venture partners in an effort to reduce its overhead
and conserve its cash resources. By taking this step, the Company's management
has made the decision to focus the Company on the sale of its HES products and
the expansion of its claims administration business, while its affiliates focus
on services and support to the Company's customers. While the Company
anticipates that the plan that it is undertaking will be successful and is in
the best interest of the Company, no assurances can be given that the Company
indeed will be successful and that the Company will continue as a going concern
without either an infusion of cash or a successful alliance with one or more
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joint venture partners. Risk factors include, among others, (i) timely
completion of modifications and enhancements to the Company's healthcare
products requested by customers, (ii) continued working capital availability
while such products are being developed,(iii) continued availability of key
members of management, (iv) acceptance of the Company's products by customers in
the healthcare market, (v) uncertainty of market acceptance, (vi) reliance on a
limited number of products, (vii) effective integration of acquisitions, if any
(viii) technological change, and (ix) competition.
Merger Agreements
On July 31, 1998, the Company and HealthWatch, Inc. ("HealthWatch")
(NASDAQ: HEAL) announced the signing of a Letter of Intent to Merge dated as of
July 14, 1998. The merger was expected to be in the form of a tax-free stock
exchange and is subject to, among other things, the completion of due diligence
and approval by the disinterested shareholders of both companies. At the present
time the consummation of the merger as contemplated in the Letter of Intent is
uncertain. In the interim, the Company and HealthWatch, an information
technology company, are working together to provide the Company's software and
services to the HealthWatch customer base. HealthWatch has to date been
unsuccessful in selling any of the Company's products to any of its customers.
The two companies share certain expenses pursuant to a business collaboration
agreement. Paul W. Harrison serves as Chairman, President and Chief Executive
Officer, and is a director of both companies. Brian L. Schleicher, serves
as Chief Financial Officer, Chief Administrative Officer and General Counsel to
HealthWatch. From September 1, 1998 through July 27, 1999 Mr. Schleicher also
served as Chief Administrative Officer of the Company, and continues to serve
as its General Counsel. As of June 30, 1999, HealthWatch beneficially owned
approximately 21% of the Company's common stock. Mr. Harrison, who directly
owns 5.9% of the Company's common stock, indirectly controls in excess of 27% of
the common stock of the Company by virtue of his positions at HealthWatch. Mr.
Schleicher does not own any shares of the Company's stock (but holds 300,000
options) and less than 5% of the outstanding shares of HealthWatch. On June 1,
1999, Larry Fisher, a director of both the Company and HealthWatch resigned his
positions in both Companies to pursue other ventures.
On November 18, 1996, the Company entered into a license agreement with
Paul Harrison Enterprises, Inc. (now known as MERAD Software, Inc.) relating to
a proprietary application software utility (the "MERAD Technology") that is
owned by MERAD Software. MERAD Software was acquired by HealthWatch in October
1998, therefore HealthWatch, through its subsidiary, is entitled to receive from
the Company a license fee equal to 10% of the gross revenues generated from any
software products utilizing or incorporating MERAD and any derivations thereof
by the Company or any of its affiliates. The Company's HES software was created
utilizing MERAD, therefor any sales of the HES software will result in a royalty
payment due directly to MERAD Software and indirectly to HealthWatch. In
addition, the Company was obligated to pay MERAD Corporation, a MERAD Software
subsidiary, a development fee of $15,000 per month pursuant to a license and
software development agreement entered between MERAD Corporation and HALIS
Software, Inc., the predecessor company of HALIS Services, Inc., a wholly-owned
subsidiary of the Company. This arrangement terminated on June 30, 1998. Mr.
Harrison served as President and was a 21% shareholder of MERAD Corporation,
which was dissolved on July 21, 1999. During 1997 and 1998, $180,000 and
$60,000, respectively, was paid to MERAD Corporation for specific enhancements
and maintenance required by the Company to its software products. The Company
owed MERAD Corporation, and as a result of its dissolution, now owes MERAD
Software, Inc. $30,000 at June 30, 1999 as a result of this arrangement.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
FINANCIAL CONDITION
Total assets at June 30, 1999 were $3,851,946, an increase of $111,034 from
total assets of $3,740,912 at December 31, 1998. An increase of $245,350 is
attributable to the purchase of a new computer by the Company's ABAS subsidiary,
a $60,197 increase in cash due to the issuance of common stock in a private
placement, offset by depreciation and amortization for the six months ended June
30, 1999 of $282,952.
Current liabilities decreased by $561,840 from $3,881,216 at December 31,
1998 to $3,319,376 at June 30, 1999. The decrease is primarily attributable to
the conversion in the first quarter of a $157,741 note payable due to
HealthWatch into 1,824,645 shares of common stock of the Company and the
conversion of a $255,000 salary deferral by a senior executive into 1,500,000
shares of common stock of the Company. These decreases were supplemented by the
Company reducing accounts payable, accrued expenses, and other current
liabilities by a total of $337,786. Increases in deferred
revenue and customer deposits and in current portions of capital leases of
$64,989 and $36,566, respectively, offset the decreases. The total increase in
obligations under capital leases of $223,543 is due to the purchase of a new
computer system by ABAS.
Stockholder's equity increased from $(176,682) at December 31, 1998 to
$309,216 at June 30, 1999, an increase of $485,898. The increase is attributable
to the sale of 1,966,667 shares of common stock of the Company for $200,000 in
three private placements, a net unrealized gain of $46,875 in the Company's
long-term investment in an affiliate, and the issuance of 4,056,896 shares of
common stock upon the conversion of related party notes payable, salary
deferrals by a senior executive, and accrued expenses by outside advisors,
during the six months ended June 30, 1999. These increases are offset by a net
loss for the six months ended June 30, 1999 of $200,527.
RESULTS OF OPERATIONS
Sales revenue decreased by $950,535 and $1,558,796 for the three and six
month periods ended June 30, 1999 as compared to the same periods for the prior
year. The changes in the three and six month periods are primarily the result of
lost revenues of $792,960 and $1,847,152 from the divestiture of the Company's
PRN and Homa subsidiaries. Other decreases for the three months ended June 30,
1999 are $315,353 in consulting revenue offset by increases in HES revenue of
$98,731 and ABAS revenue of $56,056. Other increases for the six months ended
are $347,072 in HES revenue and $182,993 for ABAS offset by a decrease in
consulting revenue of $244,701. During the three months ended June 30, 1999, the
Company has wound down the operations of its Compass Group consulting services
subsidiary as its contracts with its customers expired. Due to its cash
requirements and low profit margins, the Company has decided not to expend its
valuable cash resources on continuing or expanding its consulting services
business.
Cost of goods sold decreased $320,547 and $458,970 for the three and six
month periods ended June 30, 1999 as compared to the same periods for the prior
year. As a percentage of sales revenue, cost of goods sold were 19.0% and 25.7%
for the three month periods ended June 30, 1999 and 1998,and 21.4% and 24.4% for
the six month periods ended June 30, 1999 and 1998, respectively. These
decreases are largely attributable to the sale of the PRN and Homa subsidiaries
and the loss of their lower margin revenues as compared to the ongoing software,
consulting, and claims processing businesses.
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Selling, general and administrative expenses decreased by $1,548,426 and
$3,435,555 for the three and six month periods ended June 30, 1999 as compared
to the same periods for the prior year. The decreases are primarily the result
of reduced expenses associated with the disposition of the Company's PRN and
Homa subsidiaries of approximately $866,000 and $2,118,000 and decreases in
corporate overhead of approximately $863,000 and $1,524,000, for the three and
six months ended June 30, 1999 as compared to the same periods for the prior
year. These decreases were offset by increases in overhead at ABAS of $190,000
and $286,000 for the three and six month periods ended June 30, 1999 and 1998.
Decreases in corporate salaries of $585,000 and 688,000 for the three and six
months ended are included in the reductions of corporate overhead in conjunction
with the Company's downsizing. The decrease is further affected by the Company's
business collaboration agreement with HealthWatch. The Company recorded net
reductions of $30,000 and $90,000 in selling, general and administrative
expenses during the three and six month periods ended June 30, 1999 as a result
of this agreement.
Research and development costs decreased by $120,274 and $283,970 for the
three and six month periods ended June 30, 1999 as compared to the same periods
for the prior year. These reductions are primarily the result of the movement of
the Company's HES system from the initial and beta phase of development to
commercial viability during 1998 and the shift of certain research and
development personnel to work as part of the Merad Software services group for
HealthWatch effective March 1, 1999.
Net losses of $236,369 and $200,527 for the three and six month periods
ended June 30, 1999 as compared to a net losses of $1,412,047 and $3,091,977 for
the same periods for 1998 are improvements of $1,175,678 and $2,891,450. The
improvements are attributable to decreases in the selling, general and
administrative expenses resulting from the downsizing of the Company and the net
effect of its divestiture activity. Unless additional new revenue is generated
from product sales or as a result of a joint venture alliance, the Company
anticipates that losses will continue during the balance of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended June 30, 1999, operating activities
consumed $110,654 of cash as compared to $2,063,939 for the same period for the
prior year. As discussed in the previous section, the primary reasons for the
improvement are decreases in selling, general and administrative expenses and
research and development expenses, and the results of the Company's divestiture
strategy.
The Company continues to monitor its cash situation very closely. Due to
the down-sizing of the Company, its cash needs are not as acute as they were
during 1998. However, during the first six months of 1999 the Company has been
unsuccessful in penetrating the medical practices markets with its HES products,
and has seen the winding down of its Compass consulting services business. This
has caused a tremendous drain on the Company's scarce cash resources. If the
Company is unable to increase sales of its HES products during the third and
fourth quarters of 1999, the Company will not be able to continue to generate
sufficient positive cash flow to meet its obligations without seeking additional
capital infusion. There is no guarantee that the Company will be able to raise
sufficient cash or at what terms such cash, if available, will be provided to
the Company.
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YEAR 2000
Software applications that use only two digits to identify a year in the
date field may cause fatal errors in the processing of data (the "Year 2000
Concern"). The Company acknowledges that the failure of its software to
recognize the proper date codes could cause substantial harm to the Company and
its customers. Accordingly, the Company developed its HES software with the Year
2000 Concern in mind and has designed its software to be Year 2000 compliant.
This means that the Company believes that all of the Company's healthcare
software sold to customers will accept and recognize date codes for the Year
2000 and beyond, and process that information recognizing the correct year in
the date field. The Company does not believe that the failure of any of the
software that it utilizes in its operations from third-party vendors to be Year
2000 compliant will have a material effect on the Company, with the exception of
the claims processing software utilized by its ABAS subsidiary. ABAS is a
third-party administrator and is in the process of switching to a new claims
processing system that will be Year 2000 compliant. The Company estimates that
it will convert all of ABAS' data by the end of the third quarter of 1999, at a
cost of approximately $400,000. Additionally, the Company will be undertaking a
review of its business systems to make a determination of whether those systems
are Year 2000 compliant and will query those vendors whose systems are material
to the Company to determine their Year 2000 readiness. The Company believes
that, with the exception of the software utilized at its ABAS subsidiary, even
if the remaining software it utilizes from vendors is not Year 2000 compliant,
there are sufficient alternatives available that the Company can resolve any
issues by the second quarter of 1999 without incurring any material amounts to
resolve any Year 2000 Concerns.
FORWARD-LOOKING STATEMENTS
This Form 10-QSB 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, as well as future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements included herein are reasonable, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person, that the objectives and plans of the Company will be achieved.
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PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
Debra B. York v. HALIS, Inc. and Paul Harrison, Fulton Superior
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Court Civil Action File No. 1999CV06535
On March 22, 1999, the Company and Paul Harrison were sued by Debra York,
the former President of the Company's wholly-owned subsidiary, The Compass
Group, Inc. Ms. York's complaint alleges that the Company breached an Employment
Agreement with Ms. York by failing to pay certain commissions due for fiscal
years 1997 and 1998, the Company breached one or more oral agreements as to the
amount of the alleged commissions owed, and the Company and Mr. Harrison made
false representations regarding the Company and the HES product in an effort to
induce Ms. York to sell her company to the Company in January 1997 and make
further investment in the Company subsequent to that date. Ms. York seeks at
least $250,000 in damages, plus attorneys fees and punitive damages of an
undisclosed amount. In its answer the Company denied that any amounts are due by
the Company to Ms. York under her Employment Agreement, that any oral agreements
were entered with Ms. York, or that any false representations were made to Ms.
York by the Company or Mr. Harrison. The Company will be picking up the defense
for Mr. Harrison and will vigorously defend this suit. In addition, the Company
raised a number of counter-claims in its answer against Ms. York, including that
Ms. York breached the merger agreement entered at the time the Company acquired
the Compass Group, and the terms of her non-competition agreement. Further, on
June 8, 1999, three of the Company's operating subsidiaries, The Compass Group,
Inc., HALIS Services, Inc., and HES Technology, Inc. commenced an action against
Ms. York in the Superior Court of Cobb County, Georgia, Case No. 99-1-4523-28,
in which these companies allege causes of action against Ms. York for breach of
contract, misappropriation of trade secrets and confidential information,
intentional interference with contracts, and breach of fiduciary duties. Ms.
York answered denying liability. Both cases are proceeding forward to the
discovery stage.
Motivational Marketing, Inc. v. TG Marketing Systems, Inc. et al.,
- -----------------------------------------------------------------
United States District Court of the District of New Jersey, Civil Action
Case No. 99-975 (AJL)
On April 8, 1999, Motivational Marketing filed an action against the
Company, a now defunct subsidiary TG Marketing Systems, Inc. (TG Marketing") and
others alleging that Motivational Marketing is owed in excess of $75,000 for
certain commissions, plus punitive damages and attorneys fees in an undisclosed
amount. The alleged obligation arose from an agreement entered by TG Marketing
prior to its acquisition by the Company in 1997. Additionally, the Company sold
all of the business and assets of TG Marketing in 1998 and agreed to defend and
indemnify the purchaser against unknown claims like the plaintiff's. As a result
the Company is picking up the cost of the defense of the purchaser of the TG
Marketing business. Likewise, the Company has preserved its rights against the
seller from whom the Company purchased TG Marketing whom has agreed to indemnify
the Company against such claims. The Company in its answer denied that it is
liable to the plaintiffs and that it is subject to the jurisdiction of the
courts in the state of New Jersey. Accordingly, on May 27, 1999, the Company has
filed a motion to dismiss the matter for lack of personal jurisdiction and is
awaiting a response from the Court.
13
<PAGE>
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the three and six month periods ended June 30, 1999, the Company
Raised $150,000 and $200,000, respectively, through the private placement of its
common stock, resulting in the Company issuing 1,300,000 and 1,966,667 shares
during these periods. During the six months ended June 30, 1999 an additional
1,500,000 shares were issued to Paul Harrison in lieu of $255,000 of accrued but
unpaid salary owed to Mr. Harrison for 1998. Furthermore, 1,824,645 shares of
common stock were issued to HealthWatch in satisfaction of $157,741 due to
HealthWatch under a 6% convertible debenture entered into in 1998 and subsequent
advances. Lastly, 200,012 and 732,251 shares of common stock were issued to
consultants during the three and six month periods ended June 30, 1999, for
services rendered to the Company during 1998 and 1999. In total, aggregates of
450,012 and 4,973,563 shares of common stock were issued during the three and
six month periods ended June 30, 1999, respectively.
The issuance of securities described above were made in reliance on the
exemption from registration provided by Section 3(b) and/or 4(2) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation, the
certificates bear restrictive legends and appropriate stop transfer instructions
have been or will be given to the transfer agent. No underwriter was involved in
the transactions and no commissions were paid.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or incorporated
by reference into this report:
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-2 (No. 333-45783) filed February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-2
(No. 333-34215) filed August 22, 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
(No. 33-14114-A), filed May 7, 1987, as amended)
4.2 Form of 6% Convertible Debenture Subscription Agreement and
Convertible Debenture (incorporated by reference to Exhibit 4.2
of the Company's Quarterly Report on Form 10QSB for the period
ended June 30, 1998, filed August 13, 1998)
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended June
30,1999.
None
14
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALIS, INC.
Dated: August 12, 1999 By: /s/ Paul W. Harrison
------------------------------------
Paul W. Harrison, Chairman of
the Board, Chief Executive Officer
and President
(Principal Executive Officer
and Principal Financial Officer)
15
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ---------- ---------------
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-2 (No. 333-45783) filed February 6, 1998)
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 of the Company's Registration Statement on Form S-2 (No.
333-34215) filed August 22, 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
(No. 33-14114-A), filed May 7, 1987, as amended)
4.2 Form of 6% Convertible Debenture Subscription Agreement and
Convertible Debenture (incorporated by reference to Exhibit 4.2
of the Company's Quarterly Report on Form 10QSB for the period
ended June 30, 1998, filed August 13, 1998)
27.1 Financial Data Schedule (for SEC use only)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HALIS, INC. FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,028,352
<SECURITIES> 0
<RECEIVABLES> 471,373
<ALLOWANCES> 179,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,318,713
<PP&E> 503,257
<DEPRECIATION> 98,342
<TOTAL-ASSETS> 3,751,946
<CURRENT-LIABILITIES> 3,319,376
<BONDS> 0
0
0
<COMMON> 522,833
<OTHER-SE> (213,617)
<TOTAL-LIABILITY-AND-EQUITY> 3,851,946
<SALES> 2,730,572
<TOTAL-REVENUES> 2,730,572
<CGS> 585,702
<TOTAL-COSTS> 2,917,834
<OTHER-EXPENSES> (17,079)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,343
<INCOME-PRETAX> (200,527)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200,527)
<EPS-BASIC> (0)
<EPS-DILUTED> (0)
</TABLE>
