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 March 31, 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 V6C1A5
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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 April 30, 2002: 15,852,856 Shares
NET I UEPS TECHNOLOGIES, INC.
(A development stage company)
TABLE OF CONTENTS
Form 10-QSB
For the Quarter Ended March 31, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet as of March 31, 2002 (unaudited) and as of
December 31, 2001 (audited).
Condensed Statements of Operations (Unaudited) for the three months
ended March 31, 2002 and 2001, and from the Company's inception, May 8,
1997 through March 31, 2002.
Condensed Statements of Cash Flows (Unaudited) for the three months
ended March 31, 2002 and 2001.
Notes to Financial Statements.
Item 2. Management's Discussion and Analysis or Plan of Operations
Results of Operations
Three months ended March 31, 2002 compared to the three months ended March 31,
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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 currently engaged in advanced stage negotiations with
potential licensees of the FTS/UEPS technology in Kenya, Ghana, Congo, Uganda,
Tanzania, Chile, China, Thailand, Vietnam, Zambia, Madagascar, Australia and the
number of Middle East countries. The Australian organization wishes to implement
FTS based systems in Australia, Hong Kong, the Philippines, and Indonesia.
Revenues: The Company is still in its development stage and planned principal
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principal 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 decreased from $167,828 for
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the three months ended March 31, 2001 to $147,738 for the three months ended
March 31, 2002, a decrease of $20,090. The decrease resulted primarily from
reduced travel expenses and professional fees. 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 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 has used the last $1,000,000 received in October 2000 for general
working capital. The Company anticipates raising additional funds from the sale
of equity during the next fiscal year. Such capital 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: May 13, 2002
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Balance Sheets
March 31 December 31,
2002 2001
$ $
(unaudited) (audited)
Assets
Current Assets
Cash 31,010 57,289
Accounts receivable (Note 1) 157,565 -
Prepaid expenses - 30,000
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Total Current Assets 188,575 87,289
Property, Plant and Equipment (Note 3) 284 394
Intangible Assets (Note 4) 2,982 3,219
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Total Assets 191,841 90,902
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Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable (Note 5) 242,339 148,227
Accrued liabilities 7,000 10,000
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Total Current Liabilities 249,339 158,227
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Contingent Liabilities (Notes 1 and 6)
Subsequent Event (Note 7)
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
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2,007,372 2,007,372
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Preferred Stock, 3,000,000 shares authorized,
par value $0.10 per share, none issued - -
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Deficit Accumulated During the Development Stage (2,064,870) (2,074,697)
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Total Stockholders' Deficit (57,498) (67,325
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Total Liabilities and Stockholders' Deficit 191,841 90,902
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(See accompanying notes)
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from
May 8, 1997
(Inception) Three months ended
to March 31, March 31,
2002 2002 2001
$ $ $
(unaudited) (unaudited) (unaudited)
Revenues(Note 1) 157,565 157,565 -
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Administrative Expenses
Amortization 8,215 346 599
Bank charges 7,114 255 691
Consulting (Note 5) 875,933 46,500 46,500
Foreign exchange 8,098 - -
Investor relations - advertising 23,519 612 -
Investor relations - consulting 37,574 - -
Office, rent and telephone 131,536 2,257 -
Professional fees 351,186 3,207 10,855
Subcontract (Note 5) 470,925 90,000 -
Transfer agent and regulatory fees 25,107 - 127
Travel 284,018 5,204 19,143
Less interest income (790) (31) (87)
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2,222,435 147,738 167,828
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Net Income (Loss) (2,064,870) 9,827 (167,828)
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Net Income (Loss) Per Share - (0.01)
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Weighted Average Shares Outstanding 15,853,000 15,853,000
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(See accompanying notes)
(Diluted loss per share has not been presented as the result is anti-dilutive)
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
Three months ended
March 31
2002 2001
$ $
Cash Flows to Operating Activities
Net income (loss) 9,827 (167,828)
Adjustment to reconcile net loss to cash
Amortization 346 599
Change in non-cash working capital items
(Increase)in accounts receivable (157,565) -
Increase (decrease) in accounts payable
and accrued liabilities 91,113 (10,095)
Decrease in prepaid expenses 30,000 -
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Net Cash Used in Operating Activities (26,279) (177,324)
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Cash Flows from Financing Activities - -
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Cash Flows to Investing Activities - -
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Decrease in cash (26,279) (177,324)
Cash - beginning of period 57-289 612,289
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Cash - end of period 31,010 612,289
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Non-Cash Financing Activities - -
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Supplemental Disclosures
Interest paid - -
Income tax paid - -
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(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.
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.
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
$ $ $ $
Computer equipment and software 2,181 1,897 284 394
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4. Intangible Assets
2002 2001
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Exclusive License 9,361 6,379 2,982 3,219
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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 include $37,500 (2001 - $37,500) paid or payable to a
director.
(b) Subcontract costs include $90,000 (2001 - $90,000) 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 $89,953 as at March
31, 2002, have been postponed until the Company has sufficient funds
to pay.
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 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.
(b) Potential claim
A claim to the rights for UEPS for Canada was brought about in an
action 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 with a notice of claim in February, 2000. On
December 6, 2001 the claim was settled by third parties resulting in
no settlement costs to the Company.