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, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 65-0903895
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NET 1 UEPS TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its Charter)
FLORIDA 65-0903895
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 325-744 West Hastings Street, Vancouver, British Columbia, Canada V6C 1A5
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(Address of executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 669-4561
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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
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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 July 26, 2002: 15,852,856 Shares
NET I UEPS TECHNOLOGIES, INC.
(A development stage company)
TABLE OF CONTENTS
Form 10-QSB
For the Quarter Ended June 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying consolidated financial statements are prepared in accordance
with the instructions to Form 10-Q, are unaudited and do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. These financial statements should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 2001. All adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of operations for the interim
periods have been made and are of a recurring nature unless otherwise disclosed
herein. The results of operations for such interim periods are not necessarily
indicative of results of operations for a full year.
Condensed Balance Sheet as of June 30, 2002 (unaudited) and as of
December 31, 2001 (audited).
Condensed Statements of Operations (unaudited) for the three months
ended June 30, 2002 and 2001, for the six months ended June 30, 2002 and
2001 and from the Company's inception, May 8, 1997 through June 30, 2002.
Condensed Statements of Cash Flows (unaudited) for the three months
ended June 30, 2002 and 2001.
Notes to Financial Statements.
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Balance Sheets
June 30, December 31,
2002 2001
$ $
(unaudited) (audited)
Assets
Current Assets
Cash 24,571 57,289
Accounts receivable (Note 1) 157,565 -
Prepaid expenses - 30,000
Total Current Assets 182,136 87,289
Property, Plant and Equipment (Note 3) 175 394
Intangible Assets (Note 4) 2,746 3,219
Total Assets 185,057 90,902
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable (Note 5) 379,377 148,227
Accrued liabilities 9,800 10,000
Total Current Liabilities 389,177 158,227
Contingent Liabilities (Notes 1 and 6)
Stockholders' Deficit
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 (2,211,492) (2,074,697)
Total Stockholders' Deficit (204,120) (67,325)
Total Liabilities and Stockholders' Deficit 185,057 90,902
(See accompanying notes)
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Operations
Accumulated
from
May 8, 1997 Three months Six months
(Inception) ended ended
to June 30, June 30, June 30,
2002 2002 2001 2002 2001
$ $ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenues 157,565 - - 157,565 -
Administrative Expenses
Amortization 8,561 346 599 692 1,198
Bank charges 7,231 117 715 372 1,406
Consulting (Note 5) 922,433 46,500 43,438 93,000 89,938
Foreign exchange 8,098 - - - -
Investor relations 61,093 - - - -
Office, rent and telephone 131,701 165 3,367 2,422 3,367
Professional fees 359,713 8,527 3,762 11,734 14,617
Subcontract 560,925 90,000 90,000 180,000 180,000
Transfer agent and regulatory fees 25,107 - - - 127
Travel 285,018 1,000 4,383 6,204 23,526
Less interest income (823) (33) (80) (64) (167)
2,369,057 146,622 146,184 294,360 314,012
Net Loss (2,211,492) (146,622) (146,184) (136,795) (314,012)
Net Loss Per Share (0.01) (0.01) (0.01) (0.02)
Weighted Average Shares Outstanding 15,853,000 15,853,000 15,853,000 15,853,000
(See accompanying notes)
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
Six months
ended
June 30,
2002 2001
$ $
(unaudited) (unaudited)
Cash Flows to Operating Activities
Net loss (136,795) (314,012)
Adjustment to reconcile net loss to cash
Amortization 692 1,198
Change in non-cash working capital items
(Increase) in accounts receivable (157,565) -
Increase (decrease) in accounts payable
and accrued liabilities 230,950 (34,816)
Decrease in prepaid expenses 30,000 -
Net Cash Used in Operating Activities (32,718) (347,630)
Cash Flows from Financing Activities - -
Cash Flows to Investing Activities - -
Decrease in cash (32,718) (347,630)
Cash - beginning of period 57,289 789,613
Cash - end of period 24,571 441,983
Non-Cash Financing Activities - -
Supplemental Disclosures
Interest paid - -
Income tax paid - -
(See accompanying notes)
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
owns 64% of the Company's common shares.
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.
In order to meet expenses over the next twelve months the Company is
actively searching for additional equity financing. For fiscal 2002 the
Company will be receiving $157,565 from Net 1 Holdings relating to sales of
licenses. These sales were recognized during the quarter ended March 31,
2002 upon receipt of audited financial statements of Net 1 Holdings.
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
2. Summary of Significant Accounting Policies
(a) Property, Plant and Equipment
Computer equipment is amortized over five years on a straight-line
basis.
(b) Long-Lived Assets
Costs to acquire exclusive license rights to specific technology are
considered "Long-Lived" assets and 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) Interim Financial Statements
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 Net 1 Holdings from all sales of
licenses equal to the Net 1 Holdings annual net profit before
amortization as certified by its auditors in its annual financial
statement. The Company recognizes revenue in the period when the
audited financial statements of Net 1 Holdings become available. The
Company reports revenue on a net basis as the Company is acting as an
agent for Net 1 Holdings as per the Patent and Technology Agreement
dated May 3, 2000.
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.
Accumulated 2002 2001
Depreciation and Net Book Net Book
Cost Amortization Value Value
$ $ $ $
(unaudited) (audited)
Computer equipment
and software 2,181 2,006 175 394
4. Intangible Assets
2002 2001
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
(unaudited) (audited)
Exclusive License 9,361 6,615 2,746 3,219
See Note 1 for the description of the license and Note 6 for status of the
underlying patents.
5. Related Party Transactions
Transactions with related parties are recorded at their exchange amounts.
(a) Consulting fees include $75,000 (2001 - $75,000) paid or payable to a
director.
(b) Subcontract costs include $180,000 (2001 - $180,000) paid or payable
to a Company with a common director.
(c) See Note 1 for an exclusive license purchased from a related party
during fiscal 2000 and related revenue recognized.
(d) On January 29, 2002, pursuant to a Director's Resolution, unpaid
consulting fees and subcontract costs, totalling $217,453 as at June
30, 2002, have been postponed until the Company has sufficient funds
to pay.
6. Legal Proceedings
The Funds Transfer Systems 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
are scheduled for September 19, 2002 at the European Patent Office in
Munich, Germany. Currently, the granted patent remains effective in each of
the designated states and is currently in force.
Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
Three months ended June 30, 2002 compared to the three months ended June 30,
2001 and the six months ended June 30, 2002 compared to the six months ended
June 30, 2001.
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Management has been actively involved in negotiations to secure sufficient
equity and/or debt financing to fund the Company's business plans. In the short
term, management has suspended various expenses including the Consulting
Agreement with its CEO, Claude Guerard and its Outsourcing Agreement with Net 1
Investment Holdings, Ltd., the Company's UEPS integrators for the Central
Europe, Middle East and African regions.
The Company is engaged in negotiations with potential licensees of the FTS/UEPS
technology in Kenya, Ghana, Congo, Uganda, Tanzania, Zambia, Madagascar and
Australia. An Australian organization wishes to implement FTS based systems in
Australia, Hong Kong, the Philippines, Indonesia, Egypt and China. Negotiations
have been extended with the Australian organization as the License Agreement
being compiled has been expanded to include various applications and
territories.
Revenues: The Company is still in its development stage and planned principal
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activities have produced revenues of $157,565 which represent license fees
collected by Net 1 Holdings during calendar year 2001 from licensees in Burundi,
Latvia, Ghana, CIS, and Malawi.
Net 1 receives revenue from Net 1 Holdings from all sales of licenses equal to
Net 1 Holdings annual net profit before amortization as certified by its
auditors in its annual financial statement. Net 1 recognized the revenue in the
period when the audited financial statements of Net 1 Holdings become available
and will report the revenue on a net basis as the Company is acting as an agent
for Net 1 Holdings as per the Patent and Technology agreement dated May 3, 2000.
Administrative Expenses: Administrative expenses increased from $146,184 for the
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three months ended June 30, 2001 to $146,622 for the three months ended June 30,
2002, an increase of $438; and decreased from $314,012 for the six months ended
June 30, 2001 to $294,360 for the six months ended June 30, 2002, a decrease of
$19,652. The decrease resulted primarily from a reduction in travel expenses.
The majority of the expenses can be attributed to the 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. Management has suspended payments to Net 1 Investment Holdings Ltd.
and Claude Guerard under his Consulting Agreement which in the three months
ending June 30, 2002 accounted for $90,000 and $46,500 respectively, compared to
$90,000 and $43,438 respectively for the three months ending June 30, 2001; and
for the six months ending June 30, 2002 accounted for $180,000 and $93,000
respectively.
Management intends to keep operating expenses at the lowest possible level by
developing outsourcing policies.
Liquidity and Capital Resources: The primary source of the Company's cash has
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been through the sale of equity. Currently, the Company does not have available
any established lines of credit with banking facilities.
The Company will be receiving $157,565 from license fees collected up to
December 31, 2001, by Net 1 Holdings. Additional fees from the sale of new
licenses and recurring annual license fees from existing licensees will accrue
to the Company during 2002.
The Company anticipates raising additional funds from the sale of equity during
the current fiscal year. Such funds will be used for working capital.
The Company believes its current available cash position and revenues due from
Net 1 Holdings is sufficient to meet its cash needs on a short-term basis, but
the Company will need additional capital to aggressively pursue its business
plans.
The Company's ability to continue as a going concern is dependent upon the
Company's ability in the near future to (i) raise additional funds through
equity financings involving affiliates, controlling shareholders, and unrelated
parties, and (ii) further develop markets for its products.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits required by Item 601 of Regulation S-B
None
(b) Reports on Form 8-K
None
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
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Claude Guerard, CEO
DATED: July 26, 2002