<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 7, 2000
PRECIS SMART CARD SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 001-15667 73-1494382
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 SOUTH MCGEE DRIVE, SUITE 147
OKLAHOMA CITY, OKLAHOMA 73072
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 292.4900
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Pursuant to the Agreement and Plan of Merger dated March 21, 2000 and
as amended on June 22, 2000 and August 23, 2000 (the "Merger Agreement"), on
December 7, 2000, Foresight, Inc., an Oklahoma corporation ("Foresight"), merged
with and into Precis-Foresight Acquisition, Inc., an Oklahoma corporation
("Merger Sub") and became a wholly-owned subsidiary of Precis Smart Card
Systems, Inc. (the "Merger-Acquisition"). Pursuant to the Merger Agreement,
Precis Smart Card Systems, Inc. (the "Company") issued and delivered 166,667
shares of its series A preferred stock and 450,000 shares of its common stock to
Paul A. Kruger and 50,000 shares of its common stock to Mark R. Kidd. The
preferred stock is convertible into 166,667 shares of the Company's common
stock. Furthermore, Mr. Kruger and his designees John Simonelli and Mark R. Kidd
became directors of the Company on December 7, 2000. Until all of the shares of
common stock that are deliverable under the terms of the Merger Agreement (which
is anticipated to be on or before April 30, 2004), Messrs. Kruger, Simonelli and
Kidd will serve as members of the Company's Board of Directors as the designees
of Mr. Kruger. In the event of the resignation or death of Messrs. Kruger,
Simonelli or Kidd, a person designated by Mr. Kruger (or his successors in
interest in the event he is deceased) will be named as a director to fill the
vacancy created by the resignation or death. The Merger-Acquisition may be
viewed as a change in control of the Company.
The following table presents, as of December 7, 2000, information
related to the beneficial ownership of the Company's common stock of (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the common stock, (ii) each of the Company's directors and executive officers,
and (iii) all of the Company's executive officers and directors as a group,
together with their percentage holdings of the outstanding shares. All persons
listed have sole voting and investment power with respect to their shares unless
otherwise indicated, and there are no family relationships amongst the Company's
executive officers and directors. For purposes of the following table, the
number of shares and percent of ownership of the Company's outstanding common
stock that the named person beneficially owns include shares of the Company's
common stock that the person has the right to acquire before February 5, 2001
pursuant to exercise of stock options, warrants and conversion of the
outstanding series A convertible preferred stock, and are deemed to be
outstanding, but are not deemed to be outstanding for the purposes of computing
the number of shares beneficially owned and percent of outstanding common stock
of any other named person.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY OUTSTANDING
NAME (AND ADDRESS) OF BENEFICIAL OWNER OWNED(1) SHARES(1)(2)
-------------------------------------- ------------ ------------
<S> <C> <C>
Paul A. Kruger(3).................................. 616,667 20.4
2500 South McGee Drive, Suite 200
Norman, Oklahoma 73072
Michael R. Morrisett............................... 270,401 9.5
8626 South Florence Avenue
Tulsa, Oklahoma 74137
Larry E. Howell.................................... 100,000 3.5
John Simonelli..................................... 100,000 3.5
Kent H. Webb, M.D.................................. 97,018 3.4
Mark R. Kidd....................................... 50,000 1.8
Lyle W. Miller..................................... -- --
Michael E. Dunn(4)................................. 2,000 (5)
Executive Officer and Directors as a group
(seven persons)(3)(4).......................... 965,685 32.0
</TABLE>
-------------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of the named person to acquire the shares before February 5,
2001 are treated as outstanding for determining the amount and
percentage of common stock owned by the person. Based upon the
Company's knowledge, each named
-2-
<PAGE>
person has sole voting and sole investment power with respect to the
shares shown except as noted, subject to community property laws,
where applicable.
(2) The percentage shown was rounded to the nearest one-tenth of one
percent, based upon 2,850,000 shares of common stock being
outstanding.
(3) The beneficially owned shares and the percentage includes 166,667
shares of common stock into which the series A preferred stock may be
converted.
(4) The beneficially owned shares and the percentages includes 2,000
shares of common stock that Dunn Swan & Cunningham (of which Mr. Dunn
is President) is entitled to receive but has not been issued.
(5) The percentage is less than 1.0%.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
GENERAL
Pursuant to the Agreement and Plan of Merger dated March 21, 2000 and
as amended on June 22, 2000 and August 23, 2000 (the "Merger Agreement"), on
December 7, 2000, Foresight, Inc., an Oklahoma corporation ("Foresight"), merged
with and into Precis-Foresight Acquisition, Inc., an Oklahoma corporation
("Merger Sub") and became a wholly-owned subsidiary of Precis Smart Card
Systems, Inc. (the "Merger-Acquisition"). The name of the Merger Sub was also
changed to Foresight, Inc. The Merger Agreement was approved by the Company's
annual shareholders meeting held on November 29, 2000. The Merger-Acquisition
was accounted for under the purchase method of accounting.
BUSINESS OF FORESIGHT, INC.
Foresight primarily designs and markets membership and loyalty programs
for rental-purchase companies, financial institutions, employer groups,
retailers and association-based organizations. These programs are offered and
sold as a value-added feature of a point-of-sale transaction (either rental or
purchase) or by direct marketing through direct mail and other direct marketing
distribution. Program members are offered and provided products and services of
Foresight and third-party vendors. The products and services are bundled,
enhanced, priced and marketed utilizing relationship marketing strategies to
target the profiled needs of the client's particular customer base. The
marketing programs offer members an economic, efficient and expedient method of
purchasing the products and services offered. As of June 30, 2000, Foresight had
approximately 115 client organizations offering various membership programs with
approximately 560,000 members.
The program products and services currently offered by Foresight
include various forms of
- insurance products, including accidental death and dismemberment,
property and unemployment insurance,
- consumer discounts and benefits, including discounted fees for health
services including savings on prescription drugs, dental services and
vision products and services, credit card and valuables registration
services, credit reporting and monitoring services, legal services and
legal defense reimbursement, travel services, and Internet web portal,
- discount programs and services utilizing redeemable discount coupons,
including offers for food, household services and entertainment
options (amusement or theme park discounts), and
- automotive services including roadside assistance, discounted
automotive services, theft reward, emergency travel and ambulance
expense reimbursements.
In addition, Foresight has the ability to build loyalty based point programs
into its membership programs. The points can be redeemed by members for a
variety of products and discounts which may include airline miles or in- store
discounts. The type of point program is customized to the needs of the client.
-3-
<PAGE>
Pursuant to the Merger Agreement, the Company
- on December 7, 2000, issued and delivered 166,667 shares of series A
preferred stock and 450,000 shares of common stock to Paul A. Kruger
and 50,000 shares of common stock to Mark R. Kidd; and
- agreed to issue and deliver to Messrs. Kruger and Kidd one share of
common stock for each dollar of the greater of the Company's and
Foresight's combined or consolidated income before income tax expense,
plus the goodwill amortization attributable to the acquisition of
Foresight, during 2000, 2001, 2002 or 2003, less the 500,000 shares
ofthe Company's common stock previously delivered to them. The shares
of common stock that Messrs. Kruger and Kidd may become entitled to
receive will be issued to them in accordance with a separate agreement
with Messrs. Kruger and Kidd.
The shares of common stock and the series A convertible preferred stock
were issued without registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended, and the applicable
state securities act. The shares of common stock and series A convertible
preferred stock issued or that may be issued to Messrs. Kruger and Kidd pursuant
to the Merger Agreement are "restricted securities" as defined under Rule 144 of
the Securities Act of 1933, as amended. These shares are not freely
transferable; however, they may be resold in compliance with the applicable
holding period, volume, manner-of-sale and notice requirements of Rule 144. For
purposes of Rules 144 and 145 of the Securities Act of 1933, Messrs. Kruger and
Kidd are considered to have acquired these shares on December 7, 2000, which is
the commencement date of the one- and two-year holding periods of these shares
for purposes of Rule 144.
SERIES A CONVERTIBLE PREFERRED STOCK
In connection with the merger-acquisition of Foresight, the Company's
Board of Directors designated 166,667 shares of the Company's preferred stock as
series A convertible preferred stock ("series A preferred stock") with a stated
value of $12.00 per share. All shares of series A preferred stock were issued
and delivered to Paul A. Kruger. The Company may in the future issue additional
series of preferred stock with liquidation preferences and dividend rights which
rank junior to the series A preferred stock.
The series A preferred stock possess all such rights and privileges
that are afforded to preferred stock by the Oklahoma General Corporation Act in
the absence of any express grant or limitation of rights or privileges provided
in the series A preferred stock certificate. The designations and the
preferences, conversions and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of the
shares of the series A preferred stock are summarized below.
DIVIDENDS. Dividends may be declared and paid or set apart for payment
upon the series A preferred stock out of the Company's assets or funds legally
available for the payment of dividends. Holders of series A preferred stock, as
a class, are entitled to receive, when and as declared by the Company's Board of
Directors, out of any funds legally available therefor, preferred annual
dividends of $1.44, payable quarterly. Dividends are cumulative. Dividends may
not be declared and paid or set apart for payment upon the Company's common
stock unless all dividends, including cumulative dividends, then payable on the
series A preferred stock shall have been paid.
VOTING RIGHTS. Holders of the series A preferred stock do not have any
voting rights. However, the consent of the holders of at least a majority of the
outstanding shares is required, voting at a special or annual meeting of
shareholders, for amendment of the Company's certificate of incorporation and
the designations, preferences and rights of the series A preferred stock, in any
manner which would adversely affect the holders of the shares.
LIQUIDATION RIGHTS. In the event of the Company's liquidation,
dissolution or winding-up of its affairs, and before any distributions or
payments are made to the holders of the common stock, holders of the series A
preferred stock are entitled to receive a liquidating distribution of $12.00 per
share plus accumulated and unpaid dividends before any distribution of assets
will be made to holders of the Company common stock or any junior preferred
stock. Holders of series A preferred stock are not entitled to participate in
any further liquidating distributions.
-4-
<PAGE>
CONVERSION PRIVILEGES. Each share of series A preferred stock is
convertible, at the holder's option, into one share of Company common stock,
subject to customary adjustments to prevent dilution upon the occurrence of
certain future events. The Company is obligated to reserve and keep available,
free from preemptive rights, unissued or treasury shares of its common stock
sufficient to effect the conversion of all the issued and outstanding shares of
series A preferred stock.
REDEMPTION. The Company may, at its option, redeem the series A
preferred stock on at least 30 days' notice, in whole and not in part, at any
time at $12.00 per share plus accumulated and unpaid dividends to the date fixed
for redemption, subject to the holder's right to convert into common stock.
MATERIAL INTERESTS OF MANAGEMENT MEMBERS
Paul A. Kruger and Mark R. Kidd were executive officers and directors
of Foresight. Mr. Kidd is the Company's Chief Financial Officer, Controller and
Secretary. Furthermore, Mr. Kruger is the President and the largest shareholder
of Palweb Corporation, a publicly held development stage company engaged in the
manufacturing and marketing of plastic pallets and the design, manufacture and
sale of large plastic injection molding machines and systems plastic pallets.
Lyle W. Miller, one of the Company's Directors, is Vice President and both
Messrs. Kidd and Miller are shareholders and Directors of PalWeb Corporation.
Palweb Corporation is the parent of PaceCo Financial Services, Inc., of which
Mr. Kidd is President.
On December 7, 2000, in exchange for the outstanding capital stock of
Foresight
- Mr. Kruger was issued 450,000 shares of common stock and 166,667
shares of series A preferred stock of the Company;
- Mr. Kidd was issued 50,000 shares of common stock of the Company; and
- Messrs. Kruger and Kidd became entitled to receive one share of
Company common stock for each dollar of the greater of the Company's
and Foresight's combined or consolidated income before income tax
expense, plus the goodwill amortization attributable to the
acquisition of Foresight, during 2000, 2001, 2002 or 2003, less the
500,000 shares of the Company's common stock previously issued to
them. These additional shares, if applicable, will be issued and
delivered to Messrs. Kruger and Kidd in accordance with a separate
agreement with Messrs. Kruger and Kidd.
In addition, the Company agreed to enter into an employment agreement with each
of Messrs. Kruger and Kidd providing for employee compensation and benefits
similar to the compensation and benefits being received by each of Messrs.
Kruger and Kidd from Foresight immediately prior to the effective time of the
merger-acquisition. Immediately prior to the merger-acquisition, Messrs. Kruger
and Kidd were receiving from Foresight annual compensation of $60,000 and
$106,000, respectively. Messrs. Kruger and Kidd also participated in Foresight's
401(k) retirement plan and Mr. Kidd participated in Foresight's health insurance
plan.
Also, in connection with the merger-acquisition, the Company agreed to
grant Barron Chase Securities, Inc. stock options exercisable on or before June
30, 2003 for the purchase of 200,000 shares of the Company's common stock for
$9.37 per share. These options were granted for the investment banking financial
services and consulting advice provided by Barron Chase Securities, Inc. in the
review of the valuation and structure of the merger consideration. Barron Chase
Securities, Inc. did not participate directly in the actual merger negotiations
with Foresight and its shareholders.
ACCOUNTING TREATMENT OF THE MERGER-ACQUISITION
For accounting purposes, Foresight will be considered to have been
purchased by the Company. On a pro forma basis, the purchase price of Foresight
will be $2,742,000 for accounting purposes, which will be recorded as goodwill,
an intangible asset. This pro forma purchase price is the aggregate sum of
- 166,667 shares of the series A preferred stock valued at $2,000,000,
the $12.00 per share stated value, and
-5-
<PAGE>
- 500,000 shares of common stock valued at $1.484 per share, the closing
sale price of the Company's common stock on December 7, 2000.
The resulting $1,865,035 of goodwill will be amortized on a
straight-line basis over 15 years. Any additional shares of the Company's common
stock issued and delivered in connection with this merger-acquisition will be
recorded as additional goodwill. These additional shares, if any, will increase
the purchase price of Foresight and will be recorded as additional goodwill
based upon the market value of the shares on the date of issuance. This
additional goodwill will be amortized over the remainder of the 15-year period
or the estimated period that the Company will be benefitted by the
Merger-Acquisition, whichever is the shorter period.
The selection of the 15-year amortization period considered the nature
of Foresight's business, the products and services provided by Foresight and the
contractual relationships and arrangements with Foresight's clients. Foresight
has been in continuous operation for approximately 14 years. Although clients
have the right to terminate their contractual relationship with Foresight,
because of the marketing organization that Foresight has developed over its 14
years of operations, historically terminating clients have been replaced with
new clients. In acquiring Foresight, the intent is not to acquire individual
clients, but to acquire the employee organization and management responsible for
obtaining and maintaining clients. Precis will continually review whether events
and circumstances have occurred that indicate the remaining estimated useful
life of goodwill warrants revision or that the remaining unamortized balance of
goodwill is not recoverable. When factors, such as operating losses, loss of
customers, or changes in the membership services industry, if present, indicate
that goodwill should be evaluated for possible impairment, Precis will use an
estimate of the related undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. Although management
of the Company believes that goodwill will be recoverable over the remaining
amortization period, it is possible, due to a change in circumstances, that the
carrying value of goodwill could become impaired in the future. Such impairment
could have a material effect on the results of operations in a particular
reporting period.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS AND EXHIBITS.
The audited financial statements of Foresight, Inc. for the years ended
December 31, 1999 and 1998 and for the years then ended are incorporated by
reference to pages F-3 through F-10 appearing in the Company's Schedule A (Proxy
Statement) filed with the Commission on October 13, 2000.
(b) PRO FORMA FINANCIAL INFORMATION.
The unaudited pro forma financial statements giving effect to the
acquisition of Foresight, Inc. by the Company appear at pages F-1 through F-5 of
this Report.
(c) EXHIBITS.
2.1 Agreement and Plan of Merger, amongst Registrant,
Precis-Foresight Acquisition, Inc., Foresight, Inc., Paul A.
Kruger and Mark R. Kidd, dated March 21, 2000, incorporated
by reference to the Schedule 14A filed with the Commission
on October 13, 2000.
2.2 First Amendment to Agreement and Plan of Merger, amongst
Registrant, Precis-Foresight Acquisition, Inc., Foresight,
Inc., Paul A. Kruger and Mark R. Kidd, dated June 22, 2000,
incorporated by reference to the Schedule 14A filed with the
Commission on October 13, 2000.
2.3 Second Amendment to Agreement and Plan of Merger, amongst
Registrant, Precis-Foresight Acquisition, Inc., Foresight,
Inc., Paul A. Kruger and Mark R. Kidd, dated Augus 23, 2000,
incorporated by reference to the Schedule 14A filed with the
Commission on October 13, 2000.
3.1 First Amendment to the Certificate of Incorporation of
Registrant, dated and filed with the Secretary of State of
the State of Oklahoma on December 1, 2000, incorporated by
reference to the Schedule 14A filed with the Commission on
October 13, 2000.
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<PAGE>
4.1 Certificate of Designations, Preferences, and Rights of
Series A Convertible Preferred Stock, adopted by Registrant's
Board of Directors on March 17, 2000 and filed with the
Secretary of State of the State of Oklahoma on December 1,
2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRECIS SMART CARD SYSTEMS, INC.
(Registrant)
By: /s/ LARRY E. HOWELL
------------------------------
Larry E. Howell
Chief Executive Officer
Date: December 20, 2000
-8-
<PAGE>
PRECIS SMART CARD SYSTEMS, INC. AND SUBSIDIARY
Pro Forma Combined Balance Sheet
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Precis Smart
Card Foresight, Pro Forma Pro Forma
Systems, Inc. Inc. Adjustments Combined
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 153,454 $ 190,820 $ -- $ 344,274
Short-Term Investments 4,041,651 4,041,651
Accounts Receivable -- 915,984 -- 915,984
Income Taxes Receivable -- 16,272 -- 16,272
Other -- 14,060 -- 14,060
------------ ------------ ------------ ------------
Total Current Assets 4,195,105 1,137,136 -- 5,332,241
------------ ------------ ------------ ------------
Property and Equipment 329,913 227,386 -- 557,299
Less Accumulated Depreciation (329,913) (100,306) -- (430,219)
------------ ------------ ------------ ------------
Total Property and Equipment -- 127,080 -- 127,080
------------ ------------ ------------ ------------
Other Assets 78,637 73,335 -- 151,972
Goodwill, net of Accumulated Amortization -- -- 2,511,285 (a) 2,511,285
------------ ------------ ------------ ------------
Total Assets $ 4,273,742 $ 1,337,551 $ 2,511,285 $ 8,122,578
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 95,134 $ 1,039,731 $ -- $ 1,134,865
Accrued Liabilities 10,316 30,105 -- 40,421
Current Portion of Capital Leases 2,021 -- -- 2,021
------------ ------------ ------------ ------------
Total Current Liabilities 107,471 1,069,836 -- 1,177,307
Income Taxes Payable -- 39,000 -- 39,000
------------ ------------ ------------ ------------
Total Liabilities 107,471 1,108,836 -- 1,216,307
------------ ------------ ------------ ------------
Stockholders' Equity (Deficit):
Preferred Stock -- -- 2,000,000 (a) 2,000,000
(500)(a)
Common Stock 23,500 500 5,000 (a) 28,500
Additional Paid-In Capital 8,366,074 -- 735,000 (a) 9,101,074
Retained Earnings (Deficit) (4,223,303) 228,215 (228,215)(a) (4,223,303)
------------ ------------ ------------ ------------
Total Stockholders' Equity (Deficit) 4,166,271 228,715 2,511,285 6,906,271
------------ ------------ ------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 4,273,742 $ 1,337,551 $ 2,511,285 $ 8,122,578
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-1
<PAGE>
PRECIS SMART CARD SYSTEMS, INC. AND SUBSIDIARY
Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Precis Smart
Card Foresight, Pro Forma Pro Forma
Systems, Inc. Inc. Adjustments Combined
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Product and Service Revenue $ -- $ 5,409,416 $ -- $ 5,409,416
------------ ------------ ------------ ------------
Operating Expenses:
Product Deployment and Research and
Development 154,911 3,321,620 -- 3,476,531
Sales and Marketing 134,269 591,485 -- 725,754
General and Administrative 303,761 1,139,309 125,564 (a) 1,568,634
------------ ------------ ------------ ------------
Total Operating Expenses 592,941 5,052,414 125,564 5,770,919
------------ ------------ ------------ ------------
Operating Income (Loss) (592,941) 357,002 (125,564) (361,503)
------------ ------------ ------------ ------------
Other Expense (Income):
Interest Expense 23,830 50 -- 23,880
Interest Income (157,217) (12,079) -- (169,296)
------------ ------------ ------------ ------------
(133,387) (12,029) -- (145,416)
------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes (459,554) 369,031 (125,564) (216,087)
(Provision) Benefit for Income Taxes -- (95,000) 95,000 (b) --
------------ ------------ ------------ ------------
Net Income (Loss) (459,554) 274,031 (30,564) (216,087)
Less Dividends on Preferred Stock -- -- 180,000 (c) 180,000
------------ ------------ ------------ ------------
Income Applicable to Common Shareholders $ (459,554) $ 274,031 $ (210,564) $ (396,087)
============ ============ ============ ============
Net Loss per Share $ (0.21) $ (0.15)
============ ============
Weighted Average Number of Shares Outstanding 2,222,000 2,722,000
============ ============
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
F-2
<PAGE>
PRECIS SMART CARD SYSTEMS, INC. AND SUBSIDIARY
Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Precis Smart
Card Foresight, Pro Forma Pro Forma
Systems, Inc. Inc. Adjustments Combined
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Product and Service Revenue $ 63,060 $ 6,635,390 $ -- $ 6,698,450
--------------- --------------- --------------- ---------------
Operating Expenses:
Product Deployment and Research and
Development 230,828 4,249,225 -- 4,480,053
Sales and Marketing 163,712 677,702 -- 841,414
General and Administrative 382,764 1,259,099 243,301 (a) 1,885,164
--------------- --------------- --------------- ---------------
Total Expenses 777,304 6,186,026 243,301 7,206,631
--------------- --------------- --------------- ---------------
Operating Income (Loss) (714,244) 449,364 (243,301) (508,181)
--------------- --------------- --------------- ---------------
Other Expense (Income):
Interest Expense 79,261 -- -- 79,261
Interest Income -- (1,740) -- (1,740)
--------------- --------------- --------------- ---------------
79,261 (1,740) -- 77,521
--------------- --------------- --------------- ---------------
Income (Loss) Before Income Taxes (793,505) 451,104 (243,301) (585,702)
(Provision) Benefit for Income Taxes -- (150,000) 150,000 (b) --
--------------- --------------- --------------- ---------------
Net Income (Loss) (793,505) 301,104 (93,301) (585,702)
Less Dividends on Preferred Stock -- -- 240,000 (c) 240,000
--------------- --------------- --------------- ---------------
Income Applicable to Common Shareholders $ (793,505) $ 301,104 $ (333,301) $ (825,702)
=============== =============== =============== ===============
Net Loss per Share $ (0.66) $ (0.49)
=============== ===============
Weighted Average Number of Shares Outstanding 1,200,000 1,700,000
=============== ===============
</TABLE>
The accopmpanying notes are an integral part of these pro forma financial
statements.
F-3
<PAGE>
Note 1 - Basis for Presentation
The pro forma combined balance sheet and statements of operations
present the pro forma effects of the merger of Precis-Foresight Acquisition,
Inc. ("Merger Sub"), a wholly-owned subsidiary of Precis Smart Card Systems,
Inc. ("Precis"), with Foresight, Inc., an Oklahoma corporation ("Foresight")
pursuant to an Agreement and Plan of Merger (the "Merger Agreement") by and
among Precis, Merger Sub and Foresight dated March 21, 2000 (the "Foresight
Merger"). The Foresight Merger will be accounted for under the purchase method
of accounting, and, as a result of this merger, Foresight will become a
wholly-owned subsidiary of Precis. Foresight is a provider of membership service
programs. Membership service programs offer selected products and services from
a variety of vendors intended to enhance the existing relationships between
businesses and consumers.
The Merger Agreement provides that on the effective date of the merger,
Precis will issue 500,000 shares of its common stock and 166,667 shares of its
preferred stock for Foresight. The holders of the preferred stock will be
entitled to receive annual dividends of $1.44 per share and these dividends are
cumulative. Additional shares of common stock are issuable based on earnings
levels of Precis for the years 2000 through 2003. Following the merger, Precis'
Board of Directors will be limited to seven with three designated by Foresight
shareholders.
Also, in connection with this merger, Precis 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.
The accompanying unaudited pro forma financial statements are presented
assuming the Foresight Merger occurred or was consummated as of September 30,
2000, the date of the balance sheet, or on January 1, 1999, the first day of the
year ended December 31, 1999, the period presented. The information presented
for Precis and Foresight as of and for the nine months ended September 30, 2000,
is derived from the unaudited financial statements of Precis and Foresight as of
such date and for such period. The information presented for Precis and
Foresight for the year ended December 31, 1999, is derived from the audited
financial statements of Precis and Foresight as of such date and for such
period.
The pro forma financial information presented in the unaudited pro
forma combined financial statements is not necessarily indicative of the
financial position or results of operations that would have been achieved had
the operations been those of a single consolidated corporate entity. The results
of operations presented in the unaudited pro forma statements of operations are
not necessarily indicative of the combined results of future operations of
Precis following consummation of the Foresight Merger.
Note 2 - Pro Forma Adjustments
The accompanying unaudited pro forma combined financial statements have
been adjusted to record and give effect to the Foresight Merger as follows:
(a) The purchase of Foresight and resulting goodwill. The
consideration given to the shareholders of Foresight was
valued as follows: the $2,000,000 of preferred stock was
valued at par; the 500,000 shares of common stock has been
valued at the December 7, 2000 closing price of $1.48. The
resulting $1,865,035 of goodwill will be amortized over 15
years and is attributable to Foresight's customer contracts,
customer list, product development and vendor network.
(b) The provision for income taxes applicable to Foresight has
been eliminated to reflect the benefit that will be realized
from the consolidation of Precis and Foresight.
(c) The 166,667 shares of preferred stock issued in conjunction
with the merger have an annual cumulative dividend rate of
$1.44 per share.
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Note 3 - Goodwill
Goodwill acquired in connection with the Foresight Merger will be
amortized on a straight-line basis over 15 years. Precis will continually
evaluate whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill warrants revision or that the
remaining unamortized balance of goodwill is not recoverable. When factors, such
as operating losses, loss of customers, or changes in the membership services
industry, if present, indicate that goodwill should be evaluated for possible
impairment, Precis will use an estimate of the related undiscounted net income
over the remaining life of the goodwill in measuring whether the goodwill is
recoverable. Although management believes that goodwill will be recoverable over
the respective remaining amortization periods, it is possible, due to a change
in circumstances, that the carrying value of goodwill could become impaired in
the future. Such impairment could have a material effect on the results of
operations in a particular reporting period.
Note 4 - Earnings Per Share
Pro forma income per common share has been computed based upon the
weighted average number of common shares outstanding during the nine months
ended September 30, 2000 and year ended December 31, 1999, respectively.
Outstanding warrants are not included in the weighted average shares outstanding
for the period because their effect on earnings per share calculation is
anti-dilutive.
Note 5 - Segment Reporting
The operations of Precis are significantly different from those of Foresight.
Therefore, if the proposed merger is completed, Precis will provide segment
disclosures as required by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
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