1 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, 2001 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------------- ------------------ Commission File Number: 65-0903895 ----------------------------------------------------- NET 1 UEPS TECHNOLOGIES, INC. - - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) FLORIDA 65-0903895 - - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 325744 West Hastings Street, Vancouver, British Columbia, Canada V6C1A5 - - -------------------------------------------------------------------------------- (Address of executive offices) (Zip Code) Registrant's telephone number, including area code: (604) 669-4561 --------------------------- - - -------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if changed since last Report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable dated. Common Stock Outstanding as of June 30, 2001: 15,852,856 Shares 2 NET I UEPS TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) TABLE OF CONTENTS FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2001 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Balance Sheet as of June 30, 2001 (unaudited) and as of December 31, 2000. Condensed Statements of Operations (Unaudited) for the three months ended June 30, 2001 and 2000, for the six months ended June 30, 2001 and 2000, and from the Company's inception, May 8, 1997 through June 30, 2001. Condensed Statements of Cash Flows (Unaudited) for the six months ended June 30, 2001 and 2000. Notes to Financial Statements. 2 3 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2000, AND THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000. OPERATIONS: Management is actively involved in negotiations with established entities in IT services, financial services and wireless applications for partnership agreements to market the FTS patent and the related UEPS technologies and services. On April 6, 2001, the Company issued the Reserve Bank of Malawi, Malawi's central bank, with a license to distribute the Company's FTS/UEPS technology. A national switching and smart card system is currently being installed by the Company's UEPS integrator, with a launch date of October 2001. The Company is currently engaged in advanced stage negotiations with potential licensees of the FTS/UEPS technology in Nigeria, Kenya, Ghana, Congo, Uganda, Chile, Syria and Australia. REVENUES: The Company is still in its development stage and planned principal activities have not commenced or produced revenues. Initial income is expected in the third or fourth calendar quarter of 2001. ADMINISTRATIVE EXPENSES: Administrative expenses increased from $66,228 for the three months ended June 30, 2000 to $146,184 for the three months ended June 30, 2001, an increase of $79,956; and increased from $150,469 for the six months ended June 30, 2000 to $314,012 for the six months ended June 30, 2001, an increase of $163,543. The increases resulted primarily from subcontract fees paid pursuant to an outsourcing agreement with Net 1 Investment Holdings, Ltd., the Company's UEPS integrator for the Central Europe, Middle East and African regions. The expenses for the periods represented the Company's net loss for each of the periods. LIQUIDITY AND CAPITAL RESOURCES: The primary source of the Company's cash has been through the sale of equity. Currently, the Company does not have available any established lines of credit with banking facilities. The Company will utilize capital raised in private placements to fund ongoing administrative expenses until such time that revenues commence from the commercialization of the Company's products. The Company believes its current available cash position is sufficient to meet its cash needs on a short-term basis. Management is not aware of any known trends or demands, commitments, events, or uncertainties, as they relate to liquidity which could negatively affect the Company's ability to develop its business as planned. Management is exploring all avenues to reach a larger and profitable business volume and asset value than originally planned. 3 4 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits required by Item 601 of Regulation S-B None (b) Reports on Form 8-K None 4 5 SIGNATURE 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, thereunto duly authorized. NET 1 UEPS TECHNOLOGIES, INC. By: /s/ Claude Guerard ------------------------------------ Claude Guerard, CEO DATED: August 13, 2001 5 6 FINANCIAL STATEMENTS Balance Sheets..............................................................F2 Statements of Operations....................................................F3 Statements of Cash Flows....................................................F4 Statement of Stockholders' Equity...........................................F5 Notes to the Financial Statements........................................F6-F8 F-1 7 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Balance Sheets (See accompanying notes) F-2
June 30, December 31, 2001 2000 ---------- ------------ $ $ (unaudited) (audited) Assets Current Asset Cash 441,983 789,613 Property, Plant and Equipment (Note 3) 612 831 Intangible Assets (Note 4) 4,199 5,179 ---------- --------- Total Assets 446,794 795,623 ========== ========= Liabilities and Stockholders' Equity Current Liabilities Accounts payable (Note 5) 150,536 182,003 Accrued liabilities -- 3,350 ---------- --------- Total Current Liabilities 150,536 185,353 ---------- --------- Contingent Liabilities (Notes 1 and 6) Stockholders' Equity Common Stock, 100,000,000 shares authorized, par value $.001 per share, 15,852,856 issued and outstanding 15,853 15,853 Additional Paid in Capital 1,991,519 1,991,519 ---------- --------- 2,007,372 2,007,372 ---------- --------- Preferred Stock, 3,000,000 shares authorized, par value $0.10 per share, none issued -- -- ---------- --------- Deficit Accumulated During the Development Stage (1,711,114) (1,397,102) ---------- --------- Total Stockholders' Equity 296,258 610,270 ---------- --------- Total Liabilities and Stockholders' Equity 446,794 795,623 ========== ========= 8 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Statements of Operations (See accompanying notes) F-3
Accumulated from Three months Six months May 8, 1997 ended ended (Inception) June 30, June 30, to June 30, ----------------------- ----------------------- 2001 2001 2000 2001 2000 ----------- ---------- ------------ ----------- ----------- $ $ $ $ $ (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Revenues -- -- -- -- -- ----------- ---------- ---------- ---------- ---------- Administrative Expenses Amortization 6,671 599 363 1,198 725 Bank charges 5,359 715 232 1,406 431 Consulting (Note 5) 733,371 43,438 46,500 89,938 113,000 Foreign exchange 8,098 -- 228 -- 750 Investor relations - advertising 22,907 -- -- -- -- Investor relations - consulting 37,574 -- -- -- -- Office, rent and telephone 128,132 3,367 3,877 3,367 8,048 Professional fees 313,448 3,762 14,478 14,617 17,304 Subcontract 203,987 90,000 -- 180,000 - Transfer agent and regulatory fees 24,856 -- 550 127 2,245 Travel 227,353 4,383 -- 23,526 7,966 Less interest income (642) (80) -- (167) -- ----------- ---------- ---------- ---------- ---------- 1,711,114 146,184 66,228 314,012 150,469 ----------- ---------- ---------- ---------- ---------- Net Loss (1,711,114) (146,184) (66,228) (314,012) (150,469) =========== ========== ========== ========== ========== Net Loss Per Share (.01) (.05) (.02) (.01) =========== ========== ========== ========== ========== Weighted Average Shares Outstanding 15,853,000 12,450,000 15,853,000 12,450,000 =========== ========== ========== ========== ========== 9 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Statements of Cash Flows (See accompanying notes) F-4
Six months ended June 30, ---------------------- 2001 2000 --------- --------- $ $ (unaudited) (unaudited) Cash Flows to Operating Activities Net loss (314,012) (150,469) Adjustment to reconcile net loss to cash Amortization 1,198 725 Change in non-cash working capital items Increase (decrease) in accounts payable and accrued liabilities (34,816) 87,851 Decrease in prepaid expenses -- 12,540 --------- --------- Net Cash Used in Operating Activities (347,630) (49,353) --------- --------- Cash Flows from Financing Activities -- -- --------- --------- Cash Flows to Investing Activities -- -- --------- --------- Decrease in cash (347,630) (49,353) Cash - beginning of period 789,613 71,635 --------- --------- Cash - end of period 441,983 22,282 ========= ========= Non-Cash Financing Activities -- -- ========= ========= Supplemental Disclosures Interest paid -- -- Income tax paid -- -- ========= ========= 10 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Notes to the Financial Statements 1. Development Stage Company Net 1 UEPS Technologies, Inc. herein ("the Company") was incorporated in the State of Florida on May 8, 1997. The Company is a development stage company engaged in the business of commercializing the smart card technology based Universal Electronic Payment System ("UEPS") and Funds Transfer System ("FTS") through the development of strategic alliances with national and international bank and card service organizations. The patent rights (or applications for patents) of the UEPS/FTS technology are for all worldwide territories (except South Africa and its surrounding territories) are held by Net 1 Holdings S.a.r.1., a company incorporated in Luxembourg ("Net 1 Holdings"). The Company entered into a license agreement, dated May 19, 1997 (the "License Agreement"), with Net 1 Holdings, Net 1 Operations S.a.r.1. and Net 1 Pty (collectively, the "Licensors"), where the licensors granted a non-exclusive license to the Company for the UEPS technology for the issuance of 2,706,122 shares at a fair market value of $0.001 per share. A total of 5,412,244 shares were issued as the Company split the stock on a two new for one old basis. On October 1, 1997 an Amendment to the License Agreement was signed that provided for the transfer of the ownership of the UEPS technology and FTS patents and for the assignment of the Technology License Agreement between VISA International Service Association and Net 1 Holdings, dated July 31, 1997 (the "Visa Agreement") to the Company in consideration for 2,364,806 shares on a pre-split basis, 4,729,612 on a post-split basis. The assignment of the Visa Agreement and the transfer of the ownership of the UEPS technology and FTS patents to the Company were never consummated because certain conditions precedent were never satisfied. On May 3, 2000 an agreement entitled "Patent and Technology Agreement" was entered into between the Company and Net 1 Holdings that granted the Company an exclusive marketing license for the UEPS technology and the FTS patent for the world excluding South Africa and its surrounding territories under terms similar to those stipulated in the Amendment to the License Agreement. No conditions precedent were stipulated. The 4,729,612 shares of Net 1 previously issued into trust in consideration for the Amendment to the License Agreement were thus released to Net 1 Holdings. The above issuances of shares were on a pre-split basis. Net 1 Holdings as at June 30, 2000 owns 10,141,856 common shares of 15,602,856 issued and outstanding common shares, or 65%. In a development stage company, management devotes most of its activities to establishing a new business primarily, the development of a detailed business plan, marketing strategy and the raising of funds required to develop and operate the business successfully. Planned principal activities have not yet produced revenues and the Company has suffered recurring operating losses as is normal in development stage companies. These factors raise doubt about the Company's ability to continue as a going concern. The ability of the Company to emerge from the development stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for its products. On December 8, 2000, the Company announced that it granted an option, valid for 120 days, to a corporate management firm, Sandon Overseas Corporation Limited ("Sandon"), to acquire 8,750,000 shares of the Company at $3.50 per share. The purchase price would consist of $7 million in cash and the balance by a combination of cash and capital stock of Net 1 Applied Technology Holdings Ltd., the patent rights holder for South Africa and its surrounding territories, ("Aplitec") equal to 20.1% of the total issued share capital of Aplitec. On February 28, 2001 the Company announced that Sandon had cancelled their option. 2. Summary of Significant Accounting Policies (a) Property, Plant and Equipment Computer equipment is amortized over five years on a straight-line basis. F-5 11 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Notes to the Financial Statements 2. Summary of Significant Accounting Policies (b) Intangible Assets Costs to acquire exclusive license rights to specific technology are capitalized as incurred. These costs are being amortized on a straight line basis over five years. Intangible assets are evaluated in each reporting period to determine if there were events or circumstances which would indicate a possible inability to recover the carrying amount. Such evaluation is based on various analyses including assessing the Company's ability to bring the commercial applications to market, related profitability projections and undiscounted cash flows relating to each application which necessarily involves significant management judgment. (c) Basic and Diluted Net Income (Loss) per Share The Company computes net income (loss) per share in accordance with SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation of both basic and diluted earnings per shares (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is antidilutive. (d) Foreign Currency Transactions/Balances Transactions in currencies other than the U.S. dollar are translated at the rate in effect on the transaction date. Any balance sheet items denominated in foreign currencies are translated into U.S. dollars using the rate in effect on the balance sheet date. (e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates. (f) Adjustments These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. (g) Revenue Recognition The Company receives revenue from Net1 Holdings SARL from all sales of licenses equal to the Net1 Holdings SARL annual after tax net profit as certified by its auditors in its annual financial statement. The Company will recognize the revenue in the period when the audited financial statements of Net1 Holdings SARL become available. The Company will report the revenue on a net basis as the Company is acting as an agent for Net1 Holdings SARL as per the Patent and Technology agreement date May 3, 2000. F-6 12 Net 1 UEPS Technologies, Inc. (A Development Stage Company) Notes to the Financial Statements 3. Property, Plant and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. 4. Intangible Assets
June 30, December 31, Accumulated 2001 2000 Depreciation and Net Book Net Book Cost Amortization Value Value ------ ---------------- -------- ------------ $ $ $ $ (unaudited) (audited) Computer equipment and software 2,181 1,569 612 831 ======= ======== ======== ======= See Note 1 for the description of the license and Note 6 for status of the underlying patents. 5. Related Party Transactions (a) Consulting fees for the six months ended June 30, 2001 include $75,000 (2000 - $75,000) paid or payable to a director. $12,500 of these fees are included in accounts payable at June 30, 2001. Subcontract costs include $180,000 paid or payable to a company with a common director. (b) See Note 1 for an exclusive license purchased from a related party. 6. Legal Proceedings (a) Status of FTS Patents FTS was first patented in South Africa in 1989. The European patent was granted on December 28, 1994, with effect in Austria, Belgium, Switzerland, Germany, Denmark, Spain, France, Great Britain, Greece, Italy, Liechtenstein, Luxembourg, Netherlands and Sweden. The European Patent Convention provides for an opposition period immediately following the grant of a European patent, and six parties filed an opposition to the grant of the patent on the grounds that the invention was not patentable. The case was heard before a Board of the Opposition Division in March 1998, when the patent was upheld in a form slightly different than the original application. Following the issue of the formal decision, a number of the opponents filed an appeal. The appeal proceedings will be heard in two to three years before the Board of Appeal of the European Patent Office. Currently, the granted patent remains effective in each of the designated states and is currently in force. (b) Potential lawsuit Serge Belamant, the estate of Andre Mansvelt and Net I Canada Ltd. (a British Columbia corporation whose three shareholders are Serge Belamant, the estate of Andre Mansvelt and John Drove), have been served by John Drove, with a claim to the rights for UEPS for Canada in an action brought before the Supreme Court of Canada in February, 2000. The Company, as the exclusive licensee for UEPS for the world except South Africa, was served by John Drove with a notice of claim in February, 2000. The Company, as the exclusive licensee to the UEPS technology, can potentially expect to be joined as a defendant to this statement of claim. The Company plans to defend any and all claims brought against it. F-7
June 30, December 31, Accumulated 2001 2000 Depreciation and Net Book Net Book Cost Amortization Value Value ------ ---------------- --------- ----------- $ $ $ $ (unaudited) (audited) Exclusive License 9,361 5,162 4,199 5,179 ======= ======= ======= =======