<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 September 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 November 6, 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 September 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <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. Since May 2000, we have been test marketing the
Precis-Instacare card through direct marketing efforts focused at consumers. To
date, the marketing efforts in the test markets have not been successful. We
anticipate that future revenue for the Instacare concept will come from
marketing the medical information application as an enhancement to other
products. Additional product development could be required based upon the
results of our test marketing and as we explore other applications for the
Instacare product before significant distribution of the product and resulting
generation of significant revenue can be realized.
-1-
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 VS. THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. We did not generate any revenue during the three months ended
September 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. To date,
marketing the Precis-Instacare card directly to consumers as a stand-alone
product has not been successful. In addition to the direct marketing to
consumers, we have begun marketing efforts to sell the Instacare product as an
enhancement for other products. Additional product development could be required
based upon the results of our test marketing and as we explore other
applications for the Instacare product 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 $11,995 to $41,678
during the three months ended September 30, 2000 from $53,673 during the third
quarter 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 decreased
$5,816 to $46,682 during the three months ended September 30, 2000 from $52,498
during the third quarter 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 $54,785 to $68,961 during the three months ended September
30, 2000 from $123,746 during the third quarter of 1999. This decrease was
primarily attributable to a decrease in legal and professional fees and travel
expenses.
OTHER EXPENSE (INCOME). We generated net other income of $65,603 during
the three months ended September 30, 2000 compared to net other expense of
$10,453 during the same 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 September 30, 1999, we
did not have interest bearing deposits or investments and as a result did not
generate any interest income.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES. We did not generate any revenue during the nine months ended
September 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. To date,
marketing the Precis-Instacare card directly to consumers as a stand-alone
product has not been successful. In addition to the direct marketing to
consumers, we have begun marketing efforts to sell the Instacare product as an
enhancement for other products. Additional product development could be required
based upon the results of our test marketing and as we explore other
applications for the Instacare product 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 $33,224 to $154,911
during the nine months ended September 30, 2000 from $188,135 during the first
nine 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
$2,450 to $134,269 during the nine months ended September 30, 2000 from $131,819
during the first nine months of 1999. An increase in advertising expense
associated with the marketing of the Precis-Instacare card was offset by a
decrease in sales and marketing salaries expense.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased $37,109 to $303,761 during the nine months ended September
30, 2000 from $340,870 during the first nine months of 1999. This decrease was
primarily attributable to a decrease in legal and professional fees and travel
expenses.
OTHER EXPENSE (INCOME). We generated net other income of $133,387
during the nine months ended September 30, 2000 compared to net other expense of
$53,287 during the first nine months of 1999. This change
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<PAGE>
was due to the generation of interest income on the proceeds received from
our initial public offering in February 2000. During the nine months ended
September 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 September 30,
2000, we had working capital of $4,087,634. During the first quarter of 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 nine months ended September 30, 2000,
used net cash of $856,223 as the result of a net loss of $459,554 increased
by changes in accounts payable, accrued liabilities and other assets totaling
$396,669. During the nine months ended September 30, 1999, our operating
activities used net cash of $391,988 as the result of the net loss of
$665,598, offset by depreciation of $64,059 and an increase in accounts
payable and accrued liabilities of $160,826 and $48,725, respectively. During
the nine months ended September 30, 2000 and 1999, net cash provided by
financing activities was $5,029,790 and $564,304, respectively. During
February 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 $317,071. During the first nine 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 $31,313 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 amortization of goodwill attributable to
the acquisition of Foresight and before income tax expense during 2000, 2001,
2002 or 2003 exceeds $500,000, we will issue one share of our common stock for
each dollar 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
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<PAGE>
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) None
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:
EXHIBIT NO. DESCRIPTION
-4-
<PAGE>
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 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.
(b) REPORTS ON FORM 8-K:
None
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<PAGE>
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: November 6, 2000
By: /s/ MARK R. KIDD
------------------------------------
Mark R. Kidd
Chief Financial Officer and
Controller
Date: November 6, 2000
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<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
INDEX TO CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheets as of September 30, 2000 and December 31, 1999................................F-2
Condensed Statements of Operations and Accumulated Deficit for the
Three Months Ended September 30, 2000 and 1999....................................................F-3
Condensed Statements of Operations and Accumulated Deficit for the Nine Months
Ended September 30, 2000 and 1999 and from
Inception (April 1994) to September 30, 2000......................................................F-4
Condensed Statements of Stockholders' Equity for the Nine Months
Ended September 30, 2000 and from Inception (April 1994) to
September 30, 2000................................................................................F-5
Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2000
and 1999 and from Inception (April 1994) to
September 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>
September 30, December 31,
2000 1999
--------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 153,454 $ 21,538
Short-Term Investments 4,041,651 --
--------------- ----------------
Total Current Assets 4,195,105 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 78,637 147,428
--------------- ----------------
TOTAL ASSETS $ 4,273,742 $ 168,966
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 95,134 $ 443,074
Accrued Liabilities 10,316 127,836
Mezzanine Debt -- 329,643
Current Portion of Capital Leases 2,021 41,570
Current Portion of Long-Term Debt -- 277,522
--------------- ----------------
Total Current Liabilities 107,471 1,219,645
--------------- ----------------
Total Liabilities 107,471 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 (4,223,303) (3,763,749)
--------------- ----------------
Total Stockholders' Equity (Deficit) 4,166,271 (1,050,679)
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,273,742 $ 168,966
=============== ================
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-2
<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
September 30,
-------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Product and Service Revenues $ -- $ 23,513
--------------- ---------------
Operating Expenses:
Product Deployment and Research and Development 41,678 53,673
Sales and Marketing 46,682 52,498
General and Administrative 68,961 123,746
--------------- ---------------
Total Operating Expenses 157,321 229,917
--------------- ---------------
Operating Loss (157,321) (206,404)
--------------- ---------------
Other Expense (Income):
Interest Expense 186 10,453
Interest Income (65,789) --
--------------- ---------------
(65,603) 10,453
--------------- ---------------
Net loss - Deficit Accumulated During Development Stage $ (91,718) $ (216,857)
=============== ===============
Net Loss per Share $ (0.04) $ (0.18)
=============== ===============
Weighted Average Number of Shares Outstanding 2,350,000 1,200,000
=============== ===============
</TABLE>
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>
Inception
(April 1994)
For the Nine Months Ended to
September 30, September 30,
-------------------------------
2000 1999 2000
--------------- --------------- ----------------
<S> <C> <C> <C>
Product and Service Revenues $ -- $ 48,513 $ 443,026
--------------- --------------- ----------------
Operating Expenses:
Product Deployment and Research and Development 154,911 188,135 1,769,915
Sales and Marketing 134,269 131,819 753,643
General and Administrative 303,761 340,870 2,020,725
--------------- --------------- ----------------
Total Operating Expenses 592,941 660,824 4,544,283
--------------- --------------- ----------------
Operating Loss (592,941) (612,311) (4,101,257)
--------------- --------------- ----------------
Other Expense (Income):
Interest Expense 23,830 53,287 283,682
Interest Income (157,217) -- (161,636)
--------------- --------------- ----------------
(133,387) 53,287 122,046
--------------- --------------- ----------------
Net loss - Deficit Accumulated During Development Stage $ (459,554) $ (665,598) $ (4,223,303)
=============== =============== ================
Net Loss per Share $ (0.21) $ (0.55) $ (3.20)
=============== =============== ================
Weighted Average Number of Shares Outstanding 2,222,000 1,200,000 1,319,000
=============== =============== ================
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-4
<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 -- -- -- -- (459,554)
------------ ------------ ----------- ----------- ----------- -------------
Balance, September 30, 2000 2,350,000 $ 23,500 -- $ -- $ 8,366,074 $ (4,223,303)
============ ============ =========== =========== =========== =============
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-5
<PAGE>
PRECIS SMART CARD SYSTEMS, INC.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Inception
For the Nine Months Ended (April 1994)
September 30, to
------------------------------- September 30,
2000 1999 2000
--------------- --------------- -----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (459,554) $ (665,598) $ (4,223,303)
Adjustments to Reconcile Net Loss to Net Cash Used
by Operating Activities:
Depreciation -- 64,059 330,072
(Increase) Decrease:
Inventory -- -- --
Gain on Disposition of Assets -- -- 3,488
Other Assets 68,791 -- (78,637)
Increase (Decrease):
Accounts Payable (347,940) 160,826 95,134
Accrued Liabilities (117,520) 48,725 10,316
--------------- --------------- -----------------
Net Cash Used by Operating Activities (856,223) (391,988) (3,862,930)
--------------- --------------- -----------------
Cash Flows from Investing Activities
Purchase Short-Term Investments (4,041,651) -- (4,041,651)
Purchase of Property and Equipment -- (7,836) (333,560)
--------------- --------------- -----------------
Net Cash Used by Investing Activities (4,041,651) (7,836) (4,375,211)
--------------- --------------- -----------------
Cash Flows from Financing Activities
Sale of Stock 5,676,504 396,487 8,389,574
Decrease in Book Overdraft -- (27,513) --
Payments on Short-Term Debt (329,643) -- (329,643)
Payments on Long-Term Debt (317,071) (31,313) (1,079,836)
Proceeds from Short-Term Debt -- 226,643 329,643
Proceeds from Long-Term Debt -- -- 1,081,857
--------------- --------------- -----------------
Net Cash Provided by Financing Activities 5,029,790 564,304 8,391,595
--------------- --------------- -----------------
Net Change in Cash 131,916 164,480 153,454
Cash at Beginning of Period 21,538 -- --
--------------- --------------- -----------------
Cash at End of Period $ 153,454 $ 164,480 $ 153,454
=============== =============== =================
</TABLE>
See Accompanying Notes to Condensed Financial Statements
F-6
<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 September 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 2003. 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-7
