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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File Number
------------------------------ ----------------------
September 30, 2000 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.)
1100 Johnson Ferry Road, Suite 670, Atlanta, GA 30342
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(Address of Principal Executive Offices)
(404) 364-1871
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(Issuer's Telephone Number, Including Area Code)
N/A
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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 Exchange Act during the past 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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Number of registrant's common shares outstanding at October 31, 2000
61,078,880
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Transitional Small Business Disclosure Format (check one)
Yes X No
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $ 322,384
Receivables, less allowance for possible losses
of $232,159 202,553
Other current assets 142,291
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Total current assets 667,228
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Property and Equipment
Computer equipment 471,647
Vehicles 36,588
Office furniture and fixtures 75, 844
Leasehold improvements 29,770
Less: accumulated depreciation (289,197)
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Total property and equipment, net 324,652
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Other Assets
Deposits 102,840
Goodwill, net of accumulated
amortization of $1,453,889 560,524
Capitalized software development costs,
net of accumulated amortization of $160,995 58,150
Other intangibles, net of
accumulated amortization of $113,821 4,949
Long-term investments 19,791
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Total other assets 746,254
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Total assets $1,738,134
==========
</TABLE>
(The accompanying notes are an integral part of these statements)
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,109,065
Deferred revenue and customer deposits 18,900
Accrued payroll and payroll taxes payable 173,055
Due to HealthWatch, Inc. 291,406
Notes payable - bank 306,557
Obligations under capital leases - current portion 63,192
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Total current liabilities 1,962,175
Long-term debt
Obligations under capital leases - net of current portion 159,219
Shareholders' Equity (Deficit)
Common stock $.01 par value; 100,000,000
authorized; 61,078,880 issued and outstanding 610,788
Additional paid-in-capital 37,835,036
Unrealized loss on investment (105,209)
Accumulated deficit (38,723,875)
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Total shareholders' equity (deficit) (383,260)
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Total liabilities and shareholders' equity (deficit) $ 1,738,134
============
</TABLE>
(The accompanying notes are an integral part of these statements)
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
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<S> <C> <C>
Revenues $ 936,638 $ 1,056,733
Cost and Expenses
Cost of goods sold 540 95,766
Selling, general and administrative 976,800 953,191
Research and development 72,016 93,441
Amortization and depreciation 154,521 145,145
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1,203,877 1,287,543
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Operating Loss (267,238) (230,810)
Other Income (Expense)
Interest expense ( 11,710) (15,606)
Interest income - 7,008
Other income - 11,237
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(11,710) 2,639
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Net Loss $ (278,949) $ (228,171)
=========== ===========
Basic and Diluted Loss per Common Share $ (0.00) $ (0.00)
=========== ===========
Basic and Diluted Weighted Average Common
Shares Outstanding 61,078,880 52,337,675
=========== ===========
</TABLE>
(The accompanying notes are an integral part of these statements.)
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HALIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
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<S> <C> <C>
Revenue $ 2,911,467 $ 3,787,304
Cost and Expenses
Cost of goods sold 12,010 766,469
Selling, general and administrative 2,950,562 2,764,795
Research and development 118,841 246,015
Amortization and depreciation 460,114 428,097
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3,541,527 4,205,376
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Operating Loss (630,060) (418,072)
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Other Income (Expense)
Gain on asset disposal 35,000 -
Interest expense (66,812) (45,950)
Interest income - 20,341
Other income - 14,983
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(31,812) (10,626)
Net Loss $ (661,872) $ (428,698)
=========== ===========
Basic and Diluted Loss per Common Share $(0.01) $(0.01)
=========== ===========
Basic and Diluted Weighted Average Shares Outstanding 58,480,500 52,335,952
=========== ===========
</TABLE>
(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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (661,872) $(428,698)
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Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 460,114 428,097
Decrease in allowances for losses on accounts
receivable - (16,656)
Issuance of stock for current services 26,000 -
Changes in operating assets and liabilities, net of
assets and liabilities acquired and sold:
Decrease in customer claims and premium funds - (225,867)
Decrease in accounts receivable 54,832 66,409
Increase in notes receivables - related parties - (69,477)
Increase in other current assets (68,133) (1,337)
(Increase) decrease in deposits (3,590) 70,137
Decrease in accounts payable & accrued expenses (578,786) (1,100)
Decrease in sales & payroll taxes payable (89,543) (118,000)
(Decrease) increase in deferred revenues &
customer deposits (17,394) 387,471
Decrease in other current liabilities 810 (254,133)
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Total adjustments (215,690) 265,544
Net cash provided (used) by operating activities (877,562) (163,154)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (31,746) (59,988)
Purchase of intangible assets, HES technology costs (58,150) -
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Net cash used by investing activities (89,896) (59,988)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,070,000 210,000
Principal payments on capital leases (71,923) (33,976)
Net increase in Due to HealthWatch, Inc. 290,596 -
Principal payments on notes payable (12,334) (50,606)
Net proceeds from notes payable - related parties - 45,241
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Net cash provided by financing activities 1,276,339 170,659
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Net increase (decrease) in cash 308,881 (52,483)
Cash - beginning of period 13,503 52,483
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Cash - end of period $ 322,384 $ -
========== ========
</TABLE>
(The accompanying notes are an integral part of these statements.)
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HALIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
PRINCIPLES 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
three and nine-month periods ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. 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, 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Halis, Inc. and
its wholly owned subsidiaries (the "Company"). All significant inter-company
accounts and transactions have been eliminated.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Revenue consists primarily of third party claims processing fees, consulting
services, software licensing fees, sales of related computer hardware and post
contract customer support and maintenance. Revenues are recognized as follows:
<TABLE>
<CAPTION>
<S> <C>
Claims processing, consulting services, When the services are provided.
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.
</TABLE>
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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 five years.
The Company assesses the recoverability of its goodwill whenever adverse events
or changes in circumstances or business climate indicate that expected future
cash flows (undiscounted and without interest charges) in individual business
units may not be sufficient to support the recorded asset. An impairment is
recognized by reducing the carrying value of the goodwill based on the expected
discounted 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 1999, and such losses are continuing in fiscal
year 2000. Additionally, the Company has used, rather than provided, cash in
its operating activities during the years ended December 31, 1998 and 1999, and
this was also the case for the nine months ended September 30, 2000. The Company
had working capital deficiencies of $2,115,798 and $1,294,946 as of December 31,
1999 and September 30, 2000, respectively. The Company's negative cash flow
from operating activities was $173,467 and $877,562 for year ended December 31,
1999 and the nine months ended September 30, 2000, respectively. 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. The
increased negative cash flow from operating activities during the nine months
ended September 30, 2000 is directly attributable to the Company settling and
paying significant accounts payable and accrued expenses.
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'S OPERATING PLANS
The Company, headquartered in Atlanta, Georgia, is a systems developer of
information technology and a provider of related services, focusing on the
healthcare industry. The Company also provides third party administrative
services for healthcare plans of large and small companies throughout the United
States. Halis' offices are located in Atlanta, Georgia and Chicago, Illinois.
In 1996, the Company focused its attention on developing a new healthcare
software system that it believed would revolutionize the way that a healthcare
organization operates. Historically, a healthcare organization's system needs
have been met with old legacy systems that are not integrated across all of the
functions that a healthcare organization may utilize through its encounter with
a
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patient or other users of their services. As a result, the Company developed
the Halis Healthcare Enterprise System (the "HES System"), a comprehensive
advanced integrated system capable of being applied to all the main participants
in the healthcare process including: providers, payors, office-based physician
practices, management practice companies, hospitals, laboratories, pharmacies,
home healthcare providers and long-term care facilities. The HES System is
integrated by design (not "interfaced") and is contained in one program and
distributed database that includes over 50 different applications.
The technical innovation that enables the HES System to be powerful, yet simple
to install and maintain, is the virtual software and information media
processing utility known as "MERAD," that the Company licenses from its
affiliate, HealthWatch, Inc. ("HealthWatch"). MERAD enables the HES System to
store programming code in a database, thereby removing the repetitive processing
required in conventional programming. The HES System integrates all of the major
functions needed by clinics, hospitals, physician practices, payors, long-term
care facilities, laboratories, pharmacies and home healthcare providers, the
eight major markets in which Halis plans to compete. Halis is currently
building out the specific features required by each of these eight markets.
Presently, the Company is marketing the HES System to clinics, hospitals and
physician and management practices. While management believes that the HES
System will gain market acceptance, the Company has had limited success in
marketing the HES System to the healthcare industry. As a result, virtually all
of the Company's revenues have come from its ABAS subsidiary.
The Company's systems and services business is targeted to healthcare industry
participants, such as physician practices, HMO's, home healthcare providers and
hospitals that generally have 100 users or more. The Company expects to
capitalize on the healthcare industry's demand for more software variety,
frequent updates, convenience, lower pricing and better support services.
The Company's third party administrator subsidiary, American Benefit
Administrative Services, Inc. ("ABAS"), is located in Chicago, Illinois and
provides claims processing and other administrative services to major companies
throughout the United States.
During fiscal year 1998, HealthWatch increased its ownership in Halis to
approximately 20% of Halis' outstanding common stock. HealthWatch owns the
MERAD technology which is licensed to the Company under a Business Collaboration
Agreement ("Collaboration Agreement"). The Collaboration Agreement provides,
among other things, for revenue sharing from sales of each company's products
based on a 60/40 split (i.e., the selling company would receive 60% of the sales
price received and the company that owns the technology would receive 40% of the
sales price received). Furthermore, the Company will receive a collaboration
fee of $50,000 per month, which is applied as a credit against any revenue
sharing amount that is due to the Company. The Company is obligated to provide
support to HealthWatch for the Company's software products, provide reasonable
product enhancement as part of product release updates and cooperate with
HealthWatch in regard to product enhancement requests. HealthWatch may
terminate the $50,000 monthly collaboration fee payable to the Company on or
after October 1, 2001, under certain terms and conditions. The Collaboration
Agreement terminates on September 20, 2005 and provides for automatic one-year
extensions unless terminated with a ninety-day notice by either party. In
addition, the Company and HealthWatch are currently sharing office space and
administrative resources under a cost sharing arrangement for the corporate
offices of both companies.
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<PAGE>
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 continues to focus on the sale of the HES System, which
management believes will gain market acceptance.
. In addition to focusing on near term profitability, the Company is seeking
strategic relationships, including possible business combinations, which will
enhance the Company's capital structure, as well as its sales and marketing
infrastructure. As such, the Company has executed an Agreement and Plan of
Merger by and among Halis, Inc., HealthWatch, Inc. and HealthWatch Merger
Sub, Inc. that provides that Halis would merge with and into HealthWatch
Merger Sub, Inc., a wholly-owned subsidiary of HealthWatch. (See "The
HealthWatch Merger" below).
. The Company plans to continue to develop its third party administrator
subsidiary, ABAS. ABAS is currently operating profitably and management
believes that the business contacts generated in this business may provide
cross marketing opportunities for its HES System.
While the Company believes 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 will be successful and that the Company will continue as a going
concern. Risk factors include, among others:
. acceptance of the Company's products by customers in the healthcare market;
. continued working capital availability while such products are being
developed and marketed;
. reliance on a limited number of products;
. reliance on the healthcare industry;
. continued availability of key members of management;
. heavy competition in the healthcare technology industry;
. timely completion of modifications and enhancements to the Company's
healthcare products; and
. technological change.
The HealthWatch Merger
On March 8, 2000, Halis executed a letter of intent with HealthWatch, Inc.,
Nasdaq SmallCap Market: "HEAL" ( "HealthWatch"), to merge with and into a
wholly-owned subsidiary of HealthWatch. As of September 30, 2000, HealthWatch
was the single largest shareholder, owning approximately 25% of the outstanding
common stock of Halis. Halis and HealthWatch currently operate under the
Collaboration Agreement, as discussed above, and a cost sharing arrangement for
corporate office space and administrative resources.
On June 29, 2000, the Company and HealthWatch executed a definitive Agreement
and Plan of Merger. Under the terms of the merger agreement, each outstanding
share of Halis common stock would be converted into one twentieth (.050) of a
share of HealthWatch common stock (i.e., an exchange ratio of 1 share of
HealthWatch common stock for 20 shares of Halis common stock). The
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merger agreement also provides, under certain circumstances, for a termination
fee of $500,000 to be imposed against a breaching party that prevents the
closing of the merger.
The transaction is expected to close by the end of January 2001, subject to the
satisfaction of various conditions, including without limitation, the approval
of the transaction by the majority of the shareholders of each company, the
qualification of the merger as a tax-free reorganization for income tax
purposes, the registration with the Securities and Exchange Commission of the
shares to be issued in the merger, listing of the shares so issued on the Nasdaq
SmallCap Market, issuance of favorable fairness opinions of the financial
advisors retained by each company and various other customary conditions. No
assurance can be given that the parties will be able to satisfy the conditions
to the consummation of the transaction.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FINANCIAL CONDITION
Total assets as of September 30, 2000 were $1,738,134, a decrease of $48,052
from total assets of $1,786,186 at December 31, 1999. The decrease is primarily
attributable to decreases in accounts receivable and the market value of the
Company's investment in HealthWatch of $54,832 and $29,167, respectively, and
depreciation and amortization of $460,114. The decreases were offset by a
$308,881 increase in cash, which is the residual from the sale of 5,000,000
shares of common stock to HealthWatch for a total purchase price of $1,000,000,
and increases in property and equipment, capitalized software development costs
and other current assets of $57,310, $58,150 and $68,133, respectively.
Current liabilities decreased by $498,672 from $2,460,847 at December 31, 1999
to $1,962,175 at September 30, 2000. The decrease is primarily attributable to
reducing accounts payable and accrued expenses and accrued payroll and payroll
taxes by $658,788 and $89,543, respectively, and decreases in notes payable-bank
and notes payable-related party of $12,334 and $15,000, respectively. Accounts
payable and accrued expenses were reduced partially by the reversal of
approximately $235,000 of aged accounts payable and accrued liabilities to
selling, general and administrative expense, which management believes the
Company will no longer be required to settle. These decreases were offset by an
increase in Due to HealthWatch, Inc. of $291,406.
Stockholders' equity increased from a deficit of $883,221 at December 31, 1999
to a deficit of $383,260 at September 30, 2000, an increase of $499,961. This
increase is attributable to the sale of 5,000,000 shares of common stock of the
Company to HealthWatch for $1,000,000, the sale of 1,000,000 shares of common
stock of the Company for $70,000 in a private placement, the issuance of 400,000
shares of common stock for current services valued at $26,000, and the issuance
of 1,187,500 shares to Paul W. Harrison, Halis' Chairman and CEO, in payment of
$80,000 of accrued salary and a $15,000 loan. The increases are offset by a
decrease in the market value of the Company's investment in HealthWatch common
stock of $29,167 and a net loss for the period of $661,872.
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RESULTS OF OPERATIONS
Revenues decreased by $120,095 and $875,837 and for the three and nine-month
periods ended September 30, 2000, as compared to the same periods for the prior
year. The decreases for the three and nine-month periods are primarily the
result of significantly decreased consulting fees and HES System revenues. Due
to cash resource limitations, the Company made the decision in late 1999 to no
longer aggressively pursue its consulting business. The decreases are partially
offset by increased revenues at the Company's ABAS subsidiary.
Cost of goods sold decreased $95,226 and $754,459 for the three and nine-month
periods ended September 30, 2000, as compared to the same periods for the prior
year. These decreases are directly attributable to the reduction of consulting
revenues.
Selling, general and administrative expenses increased by $23,609 and $185,767
to $976,800 and $2,950,562, respectively, for the three and nine-month periods
ended September 30, 2000. The increases are primarily the result of increased
consulting and professional fees associated with the Company's change in
business focus and increased overhead resulting from growth at the Company's
ABAS subsidiary. Included in the nine-month selling, general and administrative
expenses are reversals of aged accounts payable and accrued liabilities of
approximately $235,000.
Research and development costs decreased by $21,425 and $127,174 for the three
and nine-month periods ended September 30, 2000 as compared to the same periods
for the prior year. These reductions are primarily the result of the shift of
certain research and development personnel to work as part of the Merad Software
services group for HealthWatch, Inc. effective March 1, 1999.
The Company incurred net losses of $278,949 and $661,872 for the three and nine
months ended September 30, 2000 as compared to net losses of $228,171 and
$428,698 for the three and nine months ended September 30, 1999, which is an
increase of $50,778 and $233,174, respectively. The increases are attributable
to a significant decrease in HES System and consulting revenues combined with an
increase in selling, general and administrative expenses resulting from
increased consulting and professional fees in connection with the Company's
change in business focus.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended September 30, 2000, operating activities
consumed $877,562 of cash as compared to $163,154 for the same period for the
prior year. The primary reasons for the decrease is the Company's aggressive
approach to settling liabilities with past due vendors and paying down its
accounts payable and accrued liabilities. The Company was able to do this
through the use of cash provided by HealthWatch both in the form of loans and
the purchase of common stock. The Company reduced its accounts payable and
accrued expenses by $658,788, of which $578,788 was either settled or paid in
cash, including approximately $235,000 of aged accounts payable and accrued
liabilities which were reversed, and $80,000 which was converted to common stock
of the Company.
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 and 1999. However, if the
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Company is unable to increase sales of its HES System or consummate the merger
with HealthWatch, the Company may not be able to continue to generate sufficient
positive cash flow to meet its obligations without seeking additional capital.
Halis' immediate cash needs have been partially provided for through the sale of
its common stock.
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.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
(A) Penelope Sellers v. Halis, Inc., Larry Fisher and Paul W. Harrison,
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State Court of the State of Georgia, County of Fulton
Civil Action File No. 97VS1294SD
On July 18, 1997, Halis was sued by Penelope Sellers, in an action seeking
actual damages against Halis in the amount of $480,534.70, unspecified attorneys
fees and punitive damages of not less than $1,000,000. Ms. Sellers contends
that a finder's fee agreement between her and Halis from August 1995, under
which she was to receive 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 her, entitles her to an amount in excess of
the approximately $19,350 which she has been paid to date under that agreement.
That amount represents 10% of the investment made by the principals of Aubis,
LLC ("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.
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Ms. Sellers claims that the entirety of the convertible notes offering described
above (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 capital funding raised by Halis (up to the $500,000 maximum
compensation), including the proceeds of a private placement which raised gross
proceeds of approximately $2.0 million. Finally, Ms. Sellers has made a claim
for 10% of the value of Aubis and Halis Systems, Inc.
Discovery has been completed. Defendants filed a motion for partial summary
judgment, which was granted, the effect of which is to eliminate Larry Fisher
and Paul W. Harrison on claims asserted against them for tortious interference
with contractual relations. Halis continues to vigorously defend this lawsuit.
There can be no assurance, however, that Halis will be successful in its defense
of the plaintiff's complaint, or that the final resolution of this matter will
not have a material adverse effect on Halis' financial condition or results of
operation.
(B) Advanced Custom Computer Solutions, Inc., Wayne W. Surman and Charlotte
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Surman v. Fisher Business Systems, Inc., Halis, Inc., Larry Fisher, Paul W.
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Harrison and Nathan I. Lipson,
-----------------------------
State Court of the State of Georgia, County of Fulton
Civil Action File No. 97VS0123082.
In February 1997, Advanced Custom Computer Solutions, Inc. ("ACCS"), Wayne W.
Surman and Charlotte Surman sued Halis alleging, among other things, breach of
contract in connection with the termination by Halis of a merger agreement with
ACCS, which Halis 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 Halis, and that Halis, or individuals related to it, tortuously
interfered with the business relationships of ACCS, and fraudulently induced
ACCS management to permit Halis management to take over and "systematically
destroy" the ongoing business of ACCS. The Surman's are the principals of ACCS
and claim personal damages against Halis on certain of the claims, and claim a
right to at least 150,000 shares of Halis common stock, the exact amount to be
determined at trial, based on a claim of a breach of an alleged oral contract to
pay them shares of Halis stock as compensation for soliciting investors (the
"Oral Contract Claim"). The Surman's further claim that Halis fraudulently
induced them to solicit investors for Halis (the "Investor Solicitation Claim").
The complaint sought 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 answered, denying
the allegations of liability in the complaint, and Halis vigorously defended the
lawsuit. On November 19, 1998, the trial court granted summary judgment in favor
of Halis on all but two counts of the plaintiff's complaint, as amended. The two
counts remaining include the Oral Contract Claim and Investor Solicitation
Claim. The plaintiffs have appealed to the Georgia Court of Appeals from the
order granting partial summary judgment to Halis on all other claims, and Halis
has cross-appealed the
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portions of the order denying summary judgment on the two surviving counts. The
Georgia Court of Appeals has affirmed the trial court's granting of summary
judgment in favor of Halis on seven of the nine count in the complaint, and
affirming the denial of Halis' cross appeal denying summary judgment on the two
surviving counts.
Plaintiff's filed a petition for certiorari to the Georgia Supreme Court
regarding the decision of the Georgia Court of Appeals. The Georgia Supreme
Court, on September 8, 2000, denied that petition for certiorari.
There can be no assurance, however, that Halis will be successful in its defense
of the plaintiff's petition for certiorari, or that the final resolution of this
matter will not have a material adverse effect on Halis' financial condition or
results of operation.
(C) Carrera-Maximus, Inc. (previously known as Carrera Consulting Group) v.
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Halis, Inc., and Does 1 to 30, inclusive,
----------------------------------------
Superior Court of the State of California, County of Sacramento
Case No. 00-AS-01605
Halis was served with this Complaint on April 1, 2000. The Complaint asserts
counts for the following:
Breach of contract seeking return of professional service fees Carrera-Maximus,
Inc. paid of $425,638, product support fees in the amount of $55,601 and license
fees in the amount of $56,750.
Halis intends to vigorously defend this case. Halis has filed an answer
asserting various defenses and denying liability, and has asserted a
counterclaim for breach of contract for unpaid fees and unreimbursed expenses.
This suit is currently in the discovery phase.
There can be no assurance, however, that Halis will be successful in its defense
of the plaintiff's complaint, or that the final resolution of this matter will
not have a material adverse effect on Halis' financial condition or results of
operation.
(D) Motivational Marketing, Inc. vs. Joseph Neely, Halis Services, Inc. and
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CWA Systems & Solutions, Inc.
-----------------------------
State Court of the State of Georgia, County of Fulton
Case No. 00-VS-009208E
On September 8, 2000, Plaintiff filed its Complaint in the State Court of Fulton
County seeking damages against Halis Services, Inc., a wholly-owned subsidiary
of Halis, alleging breach of contract for failure to pay commissions due in an
amount in excess of $138,000, and damages for fraud in the inducement in an
amount of not less than $100,000, plus unspecified punitive damages and
attorney's fees. The contract referenced in Plaintiff's complaint was an
agreement between Plaintiff and TG Marketing, Inc., a company acquired by Halis
in May of 1997 ("TGM"), for telemarketing services whereby Plaintiff was
supposed to receive commissions from TGM in consideration for referrals of
clients to TGM. Halis Services, Inc. denies the
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allegations of the complaint and intends to vigorously defend this case.
Discovery has not yet begun.
There can be no assurance, however, that Halis Services, Inc. will be successful
in its defense of the complaint or that the final resolution of this matter will
not have a material adverse effect on Halis, Inc.'s financial condition or
results of operation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the nine-month period ended September 30, 2000, the Company issued a
total of 7,587,500 shares of common stock. The Company executed the following
equity transactions; 1,000,000 shares of common stock were sold for $70,000 in a
private placement, the issuance of 400,000 common shares for current services
valued at $26,000 and the issuance of 1,187,500 shares to Paul W. Harrison,
Halis' Chairman and CEO, in payment of $80,000 of accrued salaries and a $15,000
loan. The Company also issued 5,000,000 shares of common stock for a total
purchase price of $1,000,000 to HealthWatch as discussed above.
The Company issued the above securities without registration under the
Securities Act of 1933, as amended, in reliance upon an exemption from the
registration requirements of such Act contained in Section 4(2) thereof. All of
the foregoing securities were acquired for investment purposes.
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. 333-45783)
filed February 6, 1998).
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")).
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).
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10.4 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).
27.1 Financial Data Schedule (for SEC use only).
99.2 Letter of Intent dated March 8, 2000 by and between Registrant and
HealthWatch, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999).
99.3 Agreement and Plan of Merger by and among registrant, HealthWatch
Merger Sub, Inc. and HealthWatch, Inc. (incorporated by reference to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2000).
99.4 Amended and Restated Financing Option by and among Registrant and
HealthWatch, Inc. (incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000).
99.5 Amendment to the Agreement and Plan of Merger by and among Halis,
Inc., HealthWatch Merger Sub, Inc. and HealthWatch, Inc. dated as of
September 29, 2000 (Filed herewith).
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended September
30, 2000:
None.
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed by the undersigned, thereunto duly authorized.
Date: November 14, 2000 Halis, Inc.
By: /s/ Paul W. Harrison
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Paul W. Harrison
(Chairman, President and Chief Executive
Officer)
(Principal Financial Officer)
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EXHIBIT INDEX
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 (No.
333-45783) filed February 6, 1998 of the Company's Registration Statement
on Form S-2 (No. 333-34215) filed 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")).
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).
10.4 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).
27.1 Financial Data Schedule (for SEC use only).
99.2 Letter of Intent dated March 8, 2000 by and between Registrant and
HealthWatch, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999).
99.3 Agreement and Plan of Merger by and among registrant, HealthWatch Merger
Sub, Inc. and HealthWatch, Inc. (incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30,
2000).
99.4 Amended and Restated Financing Option by and among Registrant and
HealthWatch, Inc. (incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000).
99.5 Amendment to the Agreement and Plan of Merger by and among Halis, Inc.,
HealthWatch Merger Sub, Inc. and HealthWatch, Inc. dated as of September
29, 2000. (Filed herewith).
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