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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
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June 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.)
3525 Piedmont Road, 7 Piedmont Center, Suite 300, Atlanta, GA 30305
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(Address of Principal Executive Offices)
(404) 262-0181
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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 July 31, 2000
62,317,222
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Transitional Small Business Disclosure Format (check one)
Yes No X
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HALIS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
ASSETS
Current Assets
Cash $ 671,734
Receivables, less allowance for possible losses
of $229,800 212,565
Other current assets 136,705
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Total current assets 1,021,004
Property and Equipment
Computer equipment 437,210
Vehicles 36,588
Office furniture and fixtures 74,683
Leasehold improvements 29,770
Less: accumulated depreciation (250,292)
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Total property and equipment, net 327,958
Other Assets
Deposits 102,840
Goodwill, net of accumulated
amortization of $1,350,667 663,747
Capitalized software development costs,
net of accumulated amortization of $160,995 58,150
Other intangibles, net of
accumulated amortization of $98,975 19,795
Long-term investments 22,395
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Total other assets 866,926
Total assets $2,215,888
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(The accompanying notes are an integral part of these statements)
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HALIS, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 1,170,314
Deferred revenue and customer deposits 21,600
Accrued payroll and payroll taxes payable 144,026
Due to HealthWatch, Inc. 437,807
Notes payable - bank 306,563
Obligations under capital leases - current portion 61,549
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Total current liabilities 2,141,859
Long-term debt
Obligations under capital leases - net of current portion 175,734
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 (102,604)
Accumulated deficit (38,444,926)
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Total stockholders' equity (deficit) (101,706)
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Total liabilities and stockholders' equity (deficit) $ 2,215,888
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(The accompanying notes are an integral part of these statements)
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HALIS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended June 30,
2000 1999
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Sales Revenue $ 926,588 $ 1,147,735
Cost and Expenses
Cost of goods sold 1,600 218,476
Selling, general and administrative 906,705 937,254
Research and development 448 82,872
Amortization and depreciation 153,104 143,437
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1,061,857 1,382,039
Operating Income (Loss) (135,269) (234,304)
Other Income (Expense)
Interest expense (31,584) (12,514)
Interest income - 6,703
Other income - 3,746
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(31,584) (2,065)
Net Income (Loss) $ (166,853) (236,369)
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Basic and Diluted Loss per Common Share $ (0.00) $ (0.01)
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Basic and Diluted Weighted Average
Shares Outstanding 58,374,553 51,182,228
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(The accompanying notes are an integral part of these statements.)
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HALIS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
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<S> <C> <C>
Sales Revenue $1,974,828 $2,730,572
Cost and Expenses
Cost of goods sold 11,470 585,702
Selling, general, and administrative 1,973,763 1,896,607
Research and development 46,826 152,574
Amortization and depreciation 305,593 282,952
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2,337,652 2,917,835
Operating Income (Loss) (362,823) (187,263)
Other Income (Expense)
Gain on asset disposal 35,000 -
Interest expense (55,101) (30,343)
Interest income - 13,333
Other income - 3,746
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(20,101) (13,264)
Net Income (Loss) $ (382,925) $ (200,527)
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Basic and Diluted Loss per Common Share $ (0.01) $ (0.00)
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Basic and Diluted Weighted Average Shares Outstanding 56,390,075 50,041,380
========== ==========
</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 SIX MONTHS ENDED JUNE 30, 2000 AND
THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (382,925) $(200,527)
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Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 305,593 282,952
Decrease in allowances for losses on accounts receivable - (16,654)
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 - 21,632
Decrease in accounts receivable 44,824 87,212
Increase in notes receivables - related parties - (13,533)
Increase in other current assets (60,630) (27,116)
Increase in capitalized software development costs (58,150) -
(Increase) decrease in deposits (3,590) 70,137
Decrease in accounts payable & accrued expenses (517,536) (110,932)
Decrease in sales & payroll taxes payable (118,572) (54,785)
(Decrease) increase in deferred revenues & customer deposits (14,694) 64,989
Decrease in other current liabilities 540 (214,029)
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Total adjustments (396,215) 89,873
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Net cash provided (used) by operating activities (779,140) (110,654)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (24,163) (44,474)
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Net cash used by investing activities (24,163) (44,474)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,070,000 150,000
Proceeds (payments) on capital leases (33,405) (21,807)
Net increase in Due to HealthWatch, Inc. 437,267 -
Net (payments) / proceeds from notes
payable (12,328) (25,018)
Net proceeds from notes payable - related
parties - 112,150
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Net cash provided by financing activities 1,461,534 215,325
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Increase (decrease) in cash 658,231 60,197
Cash - beginning of period 13,503 52,483
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Cash - end of period $ 671,734 $ 112,680
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</TABLE>
(The accompanying notes are an integral part of these statements.)
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HALIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 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 six month periods ended June 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 six months ended June 30, 2000. The Company had
working capital deficiencies of $2,115,798 and $1,120,855 as of December 31,
1999 and June 30, 2000, respectively. The Company's negative cash flow from
operating activities was $173,467 and $779,140 for year ended December 31, 1999
and the six months ended June 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 six months ended June 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 30 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. Under that Agreement, the Company is obligated to pay HealthWatch a
royalty equal to 10% of the gross revenues generated by the Company from sales
of the products and services that incorporate HealthWatch's information
technology software. During the first quarter of fiscal year 1999, the Company's
Board of Directors decided that in order to conserve its resources and to
operate more efficiently, the Company would focus its attention on the sales of
the HES System and its claims processing capabilities, and would rely upon
HealthWatch to supply support and services to Halis' customers. In addition,
Halis and HealthWatch are currently sharing office space and administrative
resources under a cost sharing arrangement for the corporate offices of both
companies.
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.
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1. The Company continues to focus on the sale of the HES System, which
management believes will gain market acceptance.
2. 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).
3. 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 the healthcare industry;
. continued availability of key members of management;
. competition;
. 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 June 30, 2000, HealthWatch was
the single largest shareholder, owning approximately 25% of the outstanding
common stock of Halis. Halis and HealthWatch currently operate under a Business
Collaboration Agreement for the HES System and MERAD technologies and a cost
sharing arrangement for corporate office space and administrative resources.
The letter of intent contains a binding provision providing HealthWatch an
unconditional right to purchase, prior to the closing of the merger, up to
$1,000,000 of Halis' common stock at $.20 per share for a total of 5,000,000
shares, and upon consummation of such financing, HealthWatch shall have a three
month option to purchase up to an additional $5,000,000 of Halis' common stock
at a price of $.20 per share.
In April 2000, HealthWatch exercised its option to purchase 5,000,000 shares of
Halis' common stock for a total investment of $1,000,000. As a result,
HealthWatch received an option to purchase up to an additional 25,000,000 shares
of common stock for a total purchase price of $5,000,000. On
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July 28, 2000, without affecting the terms of the merger, HealthWatch and Halis
executed an amendment to the financing option which extended the option period
through and including September 29, 2000. All other terms and conditions to the
financing option, including the exercise price, were unchanged.
On June 29, 2000, the Company, HealthWatch, Inc. and HealthWatch Merger Sub,
Inc. 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 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 calendar year 2000, subject
to the satisfaction of various conditions, including without limitation, the
approval of the transaction by the majority of the shareholders of each such
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. (See "Agreement and Plan
of Merger by and among Halis, Inc., HealthWatch Merger Sub, Inc. and
HealthWatch, Inc." attached hereto as Exhibit 99.3)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FINANCIAL CONDITION
Total assets as of June 30, 2000 were $2,215,888, an increase of $429,702 from
total assets of $1,786,186 at December 31, 1999. The increase is primarily
attributable to a $658,231 increase in cash 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 capitalized software development costs and other current assets of
$58,150 and $62,547, respectively. The increases were offset by a decrease in
the market value of the Company's investment in HealthWatch of $48,958 and
depreciation and amortization of $305,593.
Current liabilities decreased by $318,988 from $2,460,847 at December 31, 1999
to $2,141,859 at June 30, 2000. The decrease is primarily attributable to
reducing accounts payable and accrued expenses and accrued payroll and payroll
taxes by $716,711, and decreases in notes payable-bank and notes payable-related
party of $10,868 and $15,000, respectively. These decreases were offset by an
increase in Due to HealthWatch, Inc. of $437,807.
Stockholder's equity increased from $(883,221) at December 31, 1999 to
$(101,706) at June 30, 2000, an increase of $781,515. 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 common
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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 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 $26,562
and a net loss for the period of $382,925.
RESULTS OF OPERATIONS
Sales revenue decreased by $755,744 for the six-month period ended June 30, 2000
as compared to the same period for the prior year. The decrease for the six-
month period is 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 decrease is partially offset by increased revenues at the Company's ABAS
subsidiary.
Cost of goods sold decreased $580,183 for the six-month period ended June 30,
2000 as compared to the same period for the prior year. This decrease is
directly attributable to the reduction of consulting revenues.
Selling, general and administrative expenses increased by $77,156 to $1,973,763
for the six-month period ended June 30, 2000. The increase is 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.
Research and development costs decreased by $105,748 for the six-month period
ended June 30, 2000 as compared to the same period 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 a net loss of $382,925 for the six months ended June 30,
2000 as compared to a net loss of $200,527 for the six months ended June 30,
1999, which is an increase of $182,398. The increase is 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 six-month period ended June 30, 2000, operating activities consumed
$779,140 of cash as compared to $110,654 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
$716,711, of which $636,711 was either settled or paid in cash and $80,000 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 due to HealthWatch
executing its financing option, which provided $1 million cash in exchange for
5,000,000 shares of Halis' common stock. See "The HealthWatch Merger" above.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the six-month period ended June 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, Inc, pursuant to the HealthWatch
financing option discussed above (See "The HealthWatch Merger"). Additionally,
in connection with the purchase of common stock by HealthWatch, the Company
issued HealthWatch a three month option to purchase up to an additional
25,000,000 shares at $.20 per share pursuant to the financing option contained
in the March 8, 2000 letter of intent. On July 28, 2000, the Company amended
the financing option to extend the exercise period through and including
September 29, 2000. All other terms and conditions of the financing option were
unchanged.
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The Company issued the 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 3. LEGAL PROCEEDINGS.
(A) Penelope Sellers v. Halis, Inc., Larry Fisher and Paul W. Harrison
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Fulton State Court
Civil Action File No. 97VS1294SD
On July 18, 1997, the Company was sued by Penelope Sellers, in an action seeking
actual damages against the Company 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 into which she entered with the Company
in August 1995, and under which she was to receive 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
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 the Company
from the sale of Fisher Restaurant Management Systems by AUBIS.
Ms. Sellers claims that the entirety of the convertible notes offering described
above (in which an aggregate of $1,470,000 was raised by the Company) would not
have been successful but for her introduction of the AUBIS principals to the
Company. 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 the Company (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. The Company continues to vigorously defend this
lawsuit.
There can be no assurance, however, that the Company 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 the financial condition or
results of operation of the Company.
(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
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Fulton State Court
Civil Action File No. 97VS0123082.
In February 1997, Advanced Custom Computer Solutions, Inc. ("ACCS"), Wayne W.
Surman and
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Charlotte Surman sued the Company alleging, among other things, breach of
contract in connection with the termination by the Company of a 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, and that the Company, or individuals related to it,
tortuously interfered with the business relationships of ACCS, and fraudulently
induced ACCS management to permit Company 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 the Company on certain of
the claims, and claim a right to at least 150,000 shares of the Company's 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 the Company fraudulently induced them to solicit investors for the Company
(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. The Company answered, denying the allegations of liability in the
complaint, and the Company vigorously defended the lawsuit. On November 19,
1998, the trial court granted summary judgment in favor of the Company 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 the Company on all other claims, and the Company has
cross-appealed the 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 the Company on seven of the nine count
in the Complaint, and affirming the denial of the company's cross appeal denying
summary judgment on the two surviving counts.
There can be no assurance, however, that the Company 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 the financial
condition or results of operation of the Company.
(C) Carrera-Maximus, Inc. (previously known as Carrera Consulting Group) v.
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Halis, Inc., and Does 1 to 30, inclusive,
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Superior Court of the State of California, County of Sacramento
Case No. 00-AS-01605
The Company 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 it paid of
$425,638; product support fees in the amount of $55,601; and license fees in the
amount of $56,750.
The Company intends to vigorously defend this case. The Company 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.
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There can be no assurance, however, that the Company 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 the financial condition or
results of operation of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(d) 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 (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. (filed herewith).
99.4 Amended and Restated Financing Option by and among Registrant and
HealthWatch, Inc. (filed herewith).
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(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended June 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: August 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
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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. (filed herewith).
99.4 Amended and Restated Financing Option by and among Registrant and
HealthWatch, Inc. (filed herewith).
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