<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 001-15667
PRECIS SMART CARD SYSTEMS, INC.
(Exact name of small business issuer in its Charter)
OKLAHOMA 73-1494382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 MCGEE STREET, SUITE 147
NORMAN, OKLAHOMA 73072
(Address of principal executive offices)
(405) 292-4900
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As of August 10,
2000, 2,350,000 shares of the issuer's common stock, $0.01 par value, were
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
FORM 10-QSB
For the Quarter Ended June 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information
Item 1 Financial Statements .................................... F-1
Item 2 Management's Discussion and Analysis or Plan of Operation 1
Part II. Other Information
Item 1 Legal Proceedings ....................................... 4
Item 2 Changes in Securities and Use of Proceeds ............... 4
Item 3 Defaults Upon Senior Securities ......................... 5
Item 4 Submission of Matters to a Vote of Security Holders ..... 5
Item 5 Other Information ....................................... 5
Item 6 Exhibits and Reports on Form 8-K ........................ 5
Signatures ....................................................... 6
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our financial statements which are prepared in accordance with
Regulation S-B are set forth in this report beginning on page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
You should read the following discussion in conjunction with our
financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW
At Precis, we design, market, implement and service custom memory
and microprocessor card products, known as smart cards, on which information
and software can be stored. This information can be easily, securely and
accurately accessed and manipulated by electronic data processing equipment.
Our software offers solutions for creating and processing data and ensuring
secure electronic transactions. Through our research efforts, we have
developed a library of reusable computer software components for a variety of
personal computer and embedded applications all centered on smart card
technology. Our technology enables electronic commerce in closed-system
environments for point-of-sale transactions and other uses. Our products
includes the Precis Health Card System-TM-, a healthcare smart card system;
PrecisCache-TM-, a fixed-value smart card system; PrecisReserve-TM-, a
reloadable stored-value smart card system; and PrecisPersona-TM-, a smart
card based customer loyalty and rewards system.
Our products and services include full service hardware integration
and software development and implementation from the point-of-sale to
back-end processing for electronic commerce. We are positioned to provide
customers with sophisticated smart card business solutions across a wide
range of applications.
On March 21, 2000, we and our wholly-owned subsidiary,
Precis-Foresight Acquisition, Inc., entered into an Agreement and Plan of
Merger with Foresight, Inc. ("Foresight"), an Oklahoma corporation. Under
this agreement, Foresight will merge with and into our subsidiary. Foresight
primarily designs and markets membership and loyalty programs for businesses
in the rental-purchase industry, financial institutions, employer groups,
retailers and association-based organizations. Memberships in these programs
are offered and sold as value-added features of a point-of-sale transaction,
by telemarketer solicitation, or by direct mail distribution as an insert or
a solo item. During 1999, Foresight's revenues were approximately $6 million,
and Foresight maintained a base of more than 580,000 customers nationwide. We
hope to expose our technology solutions to Foresight's clients, as well as
use their marketing arm to expand into new markets. The closing of this
merger is subject to approval by our shareholders.
Historically, the revenue from our smart card technology has been
derived from closed-area sports environments and events and certain
healthcare applications. Due to a lack of the financial resources necessary
to market our products prior to our initial public offering in February 2000,
our revenue has decreased from prior periods. In addition, the nature of the
contracts for the closed-area projects did not result in a recurring revenue
stream. We hope to utilize our smart card technology and the marketing
expertise of Foresight to develop smart card solutions and products that
provide recurring revenue sources as well as continuing benefits for our
customers. During April 2000, we announced the launch of the Precis-Instacare
card. The Precis-Instacare card is a smart card that stores a consumer's
medical information including the name, address and phone number; blood type
and organ donor status; a list of allergies, medical conditions and permanent
medications; as well as emergency contact and primary insurance provider
information. In the event of an emergency, attending paramedics will retrieve
the card and use a portable, hand-held reader to access the information
stored on the card. With the emergency card, customers will also receive a
package of health-related benefits that are purchased from Foresight and
provide consumers with valuable discounts on certain healthcare services. We
began limited test marketing of the Precis-Instacare card during May 2000. We
will expand the test marketing in August 2000. We anticipate that some
revenue will be generated from the test marketing, but additional product
development could be required based upon the results of our test marketing
before significant distribution of the product and resulting generation of
significant revenue can be realized.
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<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
REVENUES. We did not generate any revenue during the three months
ended June 30, 2000. Prior to the completion of our public offering in
February 2000, we lacked the financial resources to support marketing of our
products. Since the date of our public offering, we have focused on the
development of the Precis Instacare card and began test marketing of the card
in May 2000. We will be expanding our test marketing in August 2000. We
anticipate that some revenue will be generated from the test marketing, but
additional product development could be required based upon the results of
our test marketing before significant distribution of the product and
resulting generation of significant revenue can be realized.
PRODUCT DEPLOYMENT AND RESEARCH AND DEVELOPMENT EXPENSES. Product
deployment and research and development costs increased $11,905 to $67,998
during the three months ended June 30, 2000 from $56,093 during the second
three months of 1999. This increase was attributable to expenses incurred in
the test marketing of the Precis Instacare card which was offset by a
reduction in our staff of development engineers.
SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased
2% to $42,495 during the three months ended June 30, 2000 from $43,219 during
the second three months of 1999. A decrease in sales and marketing salaries
expense was offset by an increase in advertising expense associated with the
marketing of the Precis Instacare card.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased $30,726 to $66,305 during the three months ended June 30,
2000 from $97,031 during the second three months of 1999. This decrease was
primarily attributable to a decrease in legal and professional fees and
depreciation expense.
OTHER EXPENSE (INCOME). We generated net other income of $49,705
during the three months ended June 30, 2000 compared to net other expense of
$30,955 during the second three months of 1999. This change was due to the
generation of interest income on the proceeds received from our initial
public offering in February 2000. During the three months ended June 30,
1999, we did not have interest bearing deposits or investments and as a
result did not generate any interest income.
SIX MONTHS ENDED JUNE 30, 2000 VS. SIX MONTHS ENDED JUNE 30, 1999
REVENUES. We did not generate any revenue during the six months
ended June 30, 2000. Prior to the completion of our public offering in
February 2000, we lacked the financial resources to support marketing of our
products. Since the date of our public offering, we have focused on the
development of the Precis Instacare card and began test marketing in the card
in May 2000. We will be expanding our test marketing in August 2000. We
anticipate that some revenue will be generated from the test marketing, but
additional product development could be required based upon the results of
our test marketing before significant distribution of the product and
resulting generation of significant revenue can be realized.
PRODUCT DEPLOYMENT AND RESEARCH AND DEVELOPMENT EXPENSES. Product
deployment and research and development costs decreased $21,229 to $113,233
during the six months ended June 30, 2000 from $134,462 during the first six
months of 1999. This decrease was attributable to a reduction in our staff of
development engineers which was offset by expenses incurred in the test
marketing of the Precis Instacare card.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased
$8,266 to $87,587 during the six months ended June 30, 2000 from $79,321
during the first six months of 1999. A decrease in sales and marketing
salaries expense was offset by an increase in advertising expense associated
with the marketing of the Precis Instacare card.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $17,676 to $234,800 during the six months ended June 30,
2000 from $217,124 during the first six months of 1999. This increase was
primarily attributable to an increase in salaries and related benefits.
OTHER EXPENSE (INCOME). We generated net other income of $67,784
during the six months ended June 30, 2000 compared to net other expense of
$42,834 during the first six months of 1999. This change was due to the
generation of interest income on the proceeds received from our initial
public offering in February 2000.
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During the six months ended June 30, 1999, we did not have interest bearing
deposits or investments and as a result did not generate any interest income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed operations and capital
expenditures through private placements and sales of debt and equity
securities together with cash from operations and loans from shareholders. In
February 2000, we completed our initial public offering and from the sale of
1,150,000 shares of our common stock we received net proceeds of
approximately $5,675,000. As of June 30, 2000, we had working capital of
$4,227,989. During the six months ended June 30, 2000, we used a portion of
the proceeds of the initial public offering to extinguish substantially all
of our outstanding debt.
Operating activities for the six months ended June 30, 2000, used
net cash of $943,309 as the result of a net loss of $367,836 increased by
changes in accounts payable, accrued liabilities, other assets and inventory
totaling $575,473. During the six months ended June 30, 1999, our operating
activities used net cash of $281,024 as the result of the net loss of
$448,741, offset by depreciation of $56,992 and an increase in accounts
payable and accrued liabilities of $58,850 and $51,875, respectively. During
the six months ended June 30, 2000 and 1999, net cash provided by financing
activities was $5,183,141 and $653,497, respectively. During the first six
months of 2000, we sold 1,150,000 shares of our common stock in an initial
public offering for gross proceeds of $6,900,000 (net proceeds of
approximately $5,675,000) which were subsequently used to repay short-term
debt of $329,643 and long-term debt of $311,148. During the first six months
of 1999, we sold 300,000 shares of our common stock in a private placement
offering for gross proceeds of $600,000 (net proceeds of approximately
$477,000). In addition, we borrowed $226,643 on a short-term basis; we repaid
a book overdraft of $27,513 and made payments of $22,827 on long-term debt.
We currently have no commitments for capital expenditures in
material amounts. We believe that our existing cash and cash from operations
will be sufficient to fund our operations for the next 12 months. Because our
capital requirements cannot be predicted with certainty, there is no
assurance that we will not require additional financing before expiration of
the 12-month period. There is no assurance that any additional financing will
be available on terms satisfactory to us or advantageous to our shareholders.
In February 2000, we completed our initial public offering with the
sale of 1,150,000 shares of our common stock and received net proceeds of
$5,675,000, approximately. Our business plan is to use more than $2.7 million
of the net proceeds from this offering to market our products and technology.
We believe that through our marketing efforts we will obtain significant
revenue growth and obtain profitability. Historically, we have devoted our
financial resources principally to development of our smart card technology.
We believe that with the net proceeds of the offering, we have the financial
resources to develop market acceptance of our smart card technology. However,
there is limited information available concerning the performance of our
technologies or market acceptance of our products. Also, our marketing
experience is very limited. Thus, we provide no assurance that
- we will be successful in implementing our business plan or
- unanticipated expenses or problems or technical difficulties will
not occur which would result in material implementation delays, or
- we will have sufficient capacity to satisfy any increased demand
for our smart card products and technologies resulting from
implementation of our plan.
Any one of these will adversely affect our ability to become profitable.
FORESIGHT, INC. MERGER AGREEMENT
On March 21, 2000, we and our wholly-owned subsidiary,
Precis-Foresight Acquisition, Inc., entered into an Agreement and Plan of
Merger with Foresight. Under this agreement, Foresight will merge with and
into our subsidiary. At the closing of this merger we will issue and deliver
500,000 shares of our common stock to the shareholders of Foresight. In
addition, if our and Foresight's combined or consolidated income before
income tax expense during 2000, 2001 or 2002 exceeds $500,000 we will issue
one share of our common stock for each dollar
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of income over $500,000 for the year with the highest income. Also, we will
issue and deliver at closing 166,667 shares of our series A convertible
preferred stock. This preferred stock has a stated value of $12.00 per share
and provides for annual dividends of $1.44 per share, payable quarterly.
Also, each share of this preferred stock is convertible, at the holder's
option, into one share of our common stock. The closing is subject to
approval by our shareholders.
In connection with this merger, we have agreed to grant Barron Chase
Securities, Inc. stock options exercisable for the purchase of 200,000 shares
of our common stock for $9.37 per share. These options will be exercisable
through June 30, 2003.
FORWARD-LOOKING STATEMENTS AND BUSINESS RISKS
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The words "anticipate,"
"believe," "expect," "plan," "intend," "project," "forecast," "could" and
similar expressions are intended to identify forward-looking statements. All
statements other than statements of historical facts included in this Form
10-QSB regarding our financial position, business strategy, budgets and plans
and objectives of management for future operations are forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that
actual results may not differ materially from those in the forward-looking
statements herein for reasons including the effect of competition, the level
of sales and renewal certifications, marketing, product development and other
expenditures, economic conditions, the legislative and regulatory environment
and the condition of the capital and equity markets.
Readers are cautioned to consider the specific business risk factors
described in our annual report on Form 10-KSB for the fiscal year ended
December 31, 1999 and not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. We
undertake no obligation to publicly revise forward-looking statements to
reflect events or circumstances that may arise after the date hereof.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) None
(d) On February 8, 2000, our Registration Statement (No. 333-86643)
became effective under the Securities Act of 1933 for an offering of
1,000,000 shares of the Company's Common Stock ("Shares") and an additional
150,000 shares to cover an over-allotment option granted to Barron Chase
Securities, Inc. ("Underwriter"). This offering was closed on February 10,
2000 and 1,150,000 shares were sold. The public offering price was $6.00 per
share, resulting in gross proceeds of $6,900,000. The Underwriter received a
10% commission, a 3% non-accountable expense allowance of the gross proceeds
and a financial advisory fee of $108,000, or an aggregate of $1,005,000.
Additional offering expenses were approximately $218,496 resulting in net
proceeds of $5,676,504. The following expenditures have been made from the
net proceeds:
- $726,045 to repay principal and interest on borrowings of $607,165
made by us pursuant to promissory notes issued to our
shareholders,
- $278,574 to repay accounts payable and accrued liabilities
(excluding accrued interest payable and accrued offering costs),
and
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<PAGE>
- $410,541 for working capital;
- the balance has been invested in high grade, short-term interest
bearing investments.
One of our directors, Michael E. Dunn, is a member of the law firm
of Dunn, Swan and Cunningham ("DS&C"). DS&C was paid approximately $186,000
for legal services rendered in conjunction with the offering of the shares, a
private placement offering and other legal services rendered over
approximately 18 months. Also, Kent H. Webb, M.D., one of our directors and
the holder of nine promissory notes, was paid the $229,750 outstanding
principal sum of these notes and accrued interest of $32,548. Except for the
foregoing payments to DS&C and Dr. Webb, no part of the offering expenses or
net proceeds was directly paid to our (a) directors, officers, or their
associates; (b) 10% or greater shareholders, or (c) affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Registrant's Certificate of Incorporation,
incorporated by reference to Exhibit 3.1 of
Registrant's Form SB-2 Registration Statement (No.
333-86643).
3.2 Registrant's Bylaws, incorporated by reference to
Exhibit 3.2 of Registrant's Form SB-2 Registration
Statement (No. 333-86643).
4.1 Form of Certificate of Common Stock of Registrant,
incorporated by reference to Exhibit 4.1 of
Registrant's Form SB-2 Registration Statement (No.
333-86643).
10.1 Precis Smart Card, Inc. 1999 Stock Option Plan
(amended and restated), incorporated by reference to
Exhibit 10.1 of Registrant's Form SB-2 Registration
Statement (No. 333-86643).
10.2 Master Equipment Purchase and Maintenance Agreement,
dated June 29, 1999, between NationsBanc Services,
Inc. and Registrant, incorporated by reference to
Exhibit 10.4 of Registrant's Form SB-2 Registration
Statement (No. 333-86643).
10.3 Smart Card Agreement, dated July 8, 1999, between
Entertainment Smart Systems, Inc. and Registrant,
incorporated by reference to Exhibit 10.5 of
Registrant's Form SB-2 Registration Statement (No.
333-86643).
10.4 VeriFone VeriSmart Application Developer's Kit
License Agreement between VeriFone, Inc. and
Registrant, dated January 27, 1999, incorporated by
reference to Exhibit 10.6 of Registrant's Form SB-2
Registration Statement (No. 333-86643).
10.5 Agreement and Plan of Merger, amongst Registrant,
Precis-Foresight Acquisition, Inc., Foresight, Inc.,
Paul A. Kruger and Mark R. Kidd, dated March 21,
2000, is
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<PAGE>
incorporated by reference to Registrant's Quarterly
Report on Form 10-QSB for the three months ended
March 31, 2000, filed with the commission on
May 11, 2000.
27 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K:
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRECIS SMART CARD SYSTEMS, INC.
(Registrant)
By: /s/ Larry E. Howell
-------------------------------------
Larry E. Howell
Chief Executive Officer
Date: August 10, 2000
By: /s/ Mark R. Kidd
-------------------------------------
Mark R. Kidd
Chief Financial Officer and
Controller
Date: August 10, 2000
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PRECIS SMART CARD SYSTEMS, INC.
INDEX TO CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheets as of June 30, 2000 and December 31, 1999 .......... F-2
Condensed Statements of Operations and Accumulated Deficit for the
Three Months Ended June 30, 2000 and 1999 .............................. F-3
Condensed Statements of Operations and Accumulated Deficit for the
Six Months Ended June 30, 2000 and 1999 and from
Inception (April 1994) to June 30, 2000 ................................ F-4
Condensed Statements of Stockholders' Equity for the Six Months
Ended June 30, 2000 and from Inception (April 1994) to
June 30, 2000 .......................................................... F-5
Condensed Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 and from Inception (April 1994) to
June 30, 2000 .......................................................... F-6
Notes to Condensed Financial Statements ..................................... F-7
</TABLE>
F-1
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 4,261,370 $ 21,538
Inventory 17,601 --
----------- ------------
Total Current Assets 4,278,971 21,538
----------- ------------
Property and Equipment:
Office Equipment 48,219 48,219
Computer Equipment 273,959 273,959
Furniture and Fixtures 7,735 7,735
----------- ------------
329,913 329,913
Less Accumulated Depreciation (329,913) (329,913)
----------- ------------
Total Property and Equipment -- --
----------- ------------
Other Assets 30,000 147,428
----------- ------------
TOTAL ASSETS $ 4,308,971 $ 168,966
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 32,722 $ 443,074
Accrued Liabilities 10,316 127,836
Mezzanine Debt -- 329,643
Current Portion of Capital Leases 7,944 41,570
Current Portion of Long-Term Debt -- 277,522
----------- ------------
Total Current Liabilities 50,982 1,219,645
----------- ------------
Total Liabilities 50,982 1,219,645
----------- ------------
Stockholders' Equity (Deficit):
Preferred Stock, $1 Par Value, 2,000,000 Shares Authorized;
No shares Issued and Outstanding -- --
Common Stock, $.01 Par Value, 8,000,000 Shares Authorized;
2,350,000 and 1,200,000 Issued and Outstanding 23,500 12,000
Additional Paid-In Capital 8,366,074 2,701,070
Deficit Accumulated During Development Stage (4,131,585) (3,763,749)
----------- ------------
Total Stockholders' Equity (Deficit) 4,257,989 (1,050,679)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,308,971 $ 168,966
=========== ============
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-2
<PAGE>
See Accompanying Notes to Condensed Financial Statements
F-3
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Statements of Operations and Accumulated Deficit
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Product and Service Revenues $ -- $ --
----------- -----------
Operating Expenses:
Product Deployment and Research and Development 67,998 56,093
Sales and Marketing 42,495 43,219
General and Administrative 66,305 97,031
----------- -----------
Total Operating Expenses 176,798 196,343
----------- -----------
Operating Loss (176,798) (196,343)
----------- -----------
Other Expense (Income):
Interest Expense 10,682 30,955
Interest Income (60,387) --
----------- -----------
(49,705) 30,955
----------- -----------
Net loss - Deficit Accumulated During Development Stage $ (127,093) $ (227,298)
=========== ===========
Net Loss per Share $ (0.05) $ (0.19)
=========== ===========
Weighted Average Number of Shares Outstanding 2,350,000 1,200,000
=========== ===========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-4
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Statements of Operations and Accumulated Deficit
(Unaudited)
<TABLE>
<CAPTION>
Inception
For the Six Months Ended (April 1994)
June 30, to
------------------------------- June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Product and Service Revenues $ -- $ 25,000 $ 443,026
----------- ----------- -----------
Operating Expenses:
Product Deployment and Research and Development 113,233 134,462 1,728,237
Sales and Marketing 87,587 79,321 706,961
General and Administrative 234,800 217,124 1,951,764
----------- ----------- -----------
Total Operating Expenses 435,620 430,907 4,386,962
----------- ----------- -----------
Operating Loss (435,620) (405,907) (3,943,936)
----------- ----------- -----------
Other Expense (Income):
Interest Expense 23,644 42,834 283,496
Interest Income (91,428) -- (95,847)
----------- ----------- -----------
(67,784) 42,834 187,649
----------- ----------- -----------
Net loss - Deficit Accumulated During Development Stage $ (367,836) $ (448,741) $(4,131,585)
=========== =========== ===========
Net Loss per Share $ (0.17) $ (0.37) $ (3.23)
=========== =========== ===========
Weighted Average Number of Shares Outstanding 2,158,000 1,200,000 1,278,000
=========== =========== ===========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-5
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
---------------------------- ---------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
------------ ------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, Inception (April 1994) -- $ -- -- $ -- $ -- $ --
Sale of Stock 1,230,000 12,300 -- -- 693,831 --
Net Loss -- -- -- -- -- (417,348)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1994 1,230,000 12,300 -- -- 693,831 (417,348)
Sale of Stock 525,000 5,250 -- -- 352,250 --
Net Loss -- -- -- -- -- (333,017)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1995 1,755,000 17,550 -- -- 1,046,081 (750,365)
Sale of Stock 122,600 1,226 -- -- 243,974 --
Net Loss -- -- -- -- -- (398,389)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1996 1,877,600 18,776 -- -- 1,290,055 (1,148,754)
Sale of Stock 162,750 1,628 -- -- 323,873 --
Net Loss -- -- -- -- -- (1,150,160)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1997 2,040,350 20,404 -- -- 1,613,928 (2,298,914)
Sale of Stock 2,500 25 4,968 596,120 4,975 --
Conversion of Preferred
Stock 298,060 2,980 (4,968) (596,120) 593,139 --
Reverse Stock Split (1,440,910) (14,409) -- -- 14,409 --
Net Loss -- -- -- -- -- (671,330)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1998 900,000 9,000 -- -- 2,226,451 (2,970,244)
Sale of Stock 300,000 3,000 -- -- 474,619 --
Net Loss -- -- -- -- -- (793,505)
------------ ------------- ------------ ------------- -------------- ------------
Balance, December 31, 1999 1,200,000 12,000 -- -- 2,701,070 (3,763,749)
Sale of Stock 1,150,000 11,500 -- -- 5,665,004 --
Net Loss -- -- -- -- (367,836)
------------ ------------- ------------ ------------- -------------- ------------
Balance, June 30, 2000 2,350,000 $ 23,500 -- $ -- $ 8,366,074 $(4,131,585)
============ ============= ============ ============= ============== ============
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-6
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Inception
For the Six Months Ended (April 1994)
June 30, to
--------------------------- June 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (367,836) $ (448,741) $(4,131,585)
Adjustments to Reconcile Net Loss to Net Cash Used
by Operating Activities:
Depreciation -- 56,992 330,072
(Increase) Decrease:
Inventory (17,601) -- (17,601)
Gain on Disposition of Assets -- -- 3,488
Other Assets (30,000) -- (30,000)
Increase (Decrease):
Accounts Payable (410,352) 58,850 32,722
Accrued Liabilities (117,520) 51,875 10,316
----------- ----------- -----------
Net Cash Used by Operating Activities (943,309) (281,024) (3,802,588)
----------- ----------- -----------
Cash Flows from Investing Activities
Purchase of Property and Equipment -- (7,836) (333,560)
----------- ----------- -----------
Net Cash Used by Investing Activities -- (7,836) (333,560)
----------- ----------- -----------
Cash Flows from Financing Activities
Sale of Stock 5,823,932 477,194 8,389,574
Decrease in Book Overdraft -- (27,513) --
Payments on Short-Term Debt (329,643) -- (329,643)
Payments on Long-Term Debt (311,148) (22,827) (1,073,913)
Proceeds from Short-Term Debt -- 226,643 329,643
Proceeds from Long-Term Debt -- -- 1,081,857
----------- ----------- -----------
Net Cash Provided by Financing Activities 5,183,141 653,497 8,397,518
----------- ----------- -----------
Net Change in Cash 4,239,832 364,637 4,261,370
Cash at Beginning of Period 21,538 -- --
----------- ----------- -----------
Cash at End of Period $ 4,261,370 $ 364,637 $ 4,261,370
=========== =========== ===========
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-7
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
Notes to Condensed Financial Statements
(Unaudited)
Note 1 - Interim Financial Information
The accompanying condensed financial statements are unaudited, but
include all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the financial position at such dates and of the operations and cash flows for
the periods then ended. The financial information is presented in a condensed
format, and it does not include all of the footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles. Operating results for the period ended June
30, 2000 are not necessarily indicative of results that may be expected for
the entire year. The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ materially from such assumptions and estimates. The
accompanying financial statements and related footnotes should be read in
conjunction with the Company's audited financial statements, included in its
December 31, 1999 Form 10-KSB filed with the Securities and Exchange
Commission.
Note 2 - Capital Structure
During February 2000, the Company completed an initial public
offering of 1,150,000 shares of common stock and received net proceeds of
approximately $5,675,000.
Note 3 - Contingencies
In connection with the Company's initial public offering, the
Company agreed to sell to the underwriter warrants exercisable for the
purchase of 100,000 shares of common stock for $9.00 per share during a
five-year period. The holders of these warrants have the right, until
February 8, 2007 to include such warrants and the underlying shares of common
stock in any registration statement or amendment to a registration statement
of the Company at no expense to such holders.
Note 4 - Proposed Merger
On March 21, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") to acquire Foresight, Inc. ("Foresight")
through a merger transaction. The merger is subject to, among other
conditions, approval of the Company's shareholders. It is anticipated that
the merger will be completed in September 2000 and that it will be accounted
for as a purchase. The Merger Agreement provides that on the effective date
of the merger, the Company will issue 500,000 shares of its common stock and
166,667 shares of preferred stock for Foresight. Additional shares of common
stock are issuable based on earnings levels of the Company for the years 2000
through 2002. Following the merger, the Company's Board of Directors will be
limited to seven with three designated by Foresight shareholders. The Company
is related to Foresight because one Foresight shareholder is the chief
financial officer of the Company.
Also, in connection with this merger, the Company granted Barron
Chase Securities, Inc. stock options exercisable for the purchase of 200,000
shares of common stock for $9.37 per share. The options are exercisable
through June 30, 2003.
F-8
