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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
NET 1 UEPS TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its charter)
Florida 65-0903895
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(State of incorporation) (I.R.S. Employer Identification No.)
507-700 West Pender Street
Vancouver B.C., Canada V6C1G8
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number 1-888-796-2233
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Securities to be Registered Pursuant to 12(b) of the Act: None
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Securities to be registered pursuant to 12(g) of the Act:
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COMMON STOCK $.001 PAR VALUE
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(Title of Class)
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TABLE OF CONTENTS
Page No.
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PART I
Description of Business............................................. 1
Description of Property............................................. 9
Directors, Executive Officers and Significant Employees............. 9
Executive Compensation.............................................. 11
Security Ownership of Certain Beneficial Owners and Management...... 12
Interest of Management and Related Transactions..................... 14
Description of Securities........................................... 14
PART II
Market for Common Equity and
Other Shareholder Matters...................................... 17
Legal Proceedings .................................................. 18
Changes in and Disagreements with Accountants....................... 18
Recent Sales of Unregistered Securities............................. 18
Indemnification of Directors and Officers........................... 19
PART III
Index to Exhibits................................................... 20
PART FS
Financial Statements................................................ F-1
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Net 1 UEPS Technologies, Inc. was incorporated under the laws of the
State of Florida in May 1997 to acquire and exploit a non-exclusive worldwide
license to the "Universal Electronic Payment System" or "UEPS" payment system.
The UEPS is a software application that utilizes the "Funds Transfer System" or
"FTS" patents held by Net 1 Holdings S.a.r.l. ("Net 1 Holdings"), a 1929 company
incorporated in Luxembourg. In this report, we refer to Net 1 UEPS Technologies,
Inc. as "Net 1," "we," or "us." Information in this registration statement gives
effect to a 2:1 forward split of our common stock executed in June 1998.
Net 1 is a development stage company engaged in the business of
commercializing the smart card based UEPS through the development of strategic
alliances with national and international bank, card service or retail
organizations. To date our activities have consisted of acquiring certain
exclusive rights to the above-mentioned technology from Net 1 Holdings.
Our management team devotes most of their activities to establishing a
new business, primarily, the development of a detailed business plan, marketing
strategy and the raising of the funds required to develop and operate the
business successfully. Planned principal activities have not yet produced
revenues, and Net 1 has suffered operating losses. Net 1 has a working capital
deficit of $61,545 as of December 31, 1999. These factors raise substantial
doubt about Net 1's ability to continue as a going concern. The ability of Net 1
to complete its long-term business plan depends on whether it is successful in
raising the capital it requires through equity financing and developing a market
for its products.
The UEPS technology was developed by Serge Belamant, an executive
officer of Net 1, and the late Andre Mansvelt, a former executive officer of Net
1, and the resulting FTS patents (or applications for patents) were assigned to
Net 1 Investment Holdings (Pty) Ltd. ("Net 1 (Pty)") with respect to patent
rights in South Africa and the surrounding territories, and to Net 1 Holdings
with respect to rights in all other territories.
Net 1 entered into a license agreement, dated May 19, 1997 (the
"License Agreement"), with Net 1 Holdings, Net 1 Operations S.a.r.l. and Net 1
Pty (collectively, the "Licensors"), where the licensors granted a non-exclusive
license to us for the UEPS technology except for South Africa and its
surrounding territories. 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 world-wide except for South Africa and its
surrounding territories 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 Net 1 in consideration for
4,729,612 shares of common stock of Net 1.
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The assignment of the Visa Agreement and the transfer of the ownership of the
UEPS technology and FTS patents to Net 1 were never consummated because certain
conditions precedent were never satisfied.
On May 3, 2000 we entered into a Patent and Technology Agreement with
Net 1 Holdings that granted us world-wide except for South Africa and its
surrounding territories, an exclusive marketing license for the UEPS technology
and the FTS patents under terms similar to those stipulated in the Amendment to
the License Agreement. No conditions precedent were stipulated. The 4,729,612
shares of common stock of Net 1 previously issued in consideration for the
Amendment to the License Agreement were released to Net 1 Holdings.
DESCRIPTION OF OUR BUSINESS
The following description of our business is intended to provide an
understanding of our product and the direction of our initial marketing
strategy. As Net 1 is in its developmental stages, any focus described in the
following may change and different initiatives may be pursued although none are
presently contemplated.
We intend to develop and implement a branded payment system utilizing
our proprietary technology. The payment system network will operate under the
name "Net 1." The Net 1 payment system will provide an alternative to existing
payment systems such as credit cards, debit cards, bank wires, checks and cash.
Net 1's initial focus will be on products where we do not expose ourselves to
credit risk.
The Net 1 system employs cards that are similar to credit cards, but
which have a computer chip embedded within them that can both store and process
information. The Net 1 system is based on two components developed by the
founders of Net 1, the FTS, for which patents have been obtained or applied for
in certain jurisdictions, and the UEPS. The FTS describes a secure method of
transferring funds from one smart card to another without the need for the
card-to-card transaction to be processed through a central computer issuing
system, a so-called off-line transaction. The UEPS is a suite of computer
programs that incorporates the FTS to deliver a fully integrated payment and
settlement system.
We will license our proprietary technology to other entities which will
issue Net 1 cards to their customers. Depending on the specifics of the
application, as discussed below, funds are loaded onto the computer chip on the
cardholder's card either by the cardholder or by others, including employers or
governmental benefit providers. Once loaded with funds, the cardholder may pay
for goods or services by transferring funds from his or her card to a merchant
that accepts Net 1 cards.
Unlike other smart card based cash substitute schemes, such as
Mondex(R) and VisaCash(R) which have had unsuccessful pilot programs in the
past, we believe that the technology underlying the Net 1 payment system offers
a variety of benefits to the cardholder which makes the Net 1 system much more
than merely a substitute for cash.
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As two brief examples:
o the system is designed to be loss tolerant, in the event that a card is
lost or stolen, the funds loaded onto the card cannot be used by a third
party and the card can be replaced once reported lost or stolen, and
o funds can be securely transferred off-line from one card to another. A
cardholder with a home card reader/terminal can pay for goods bought over
the Internet from a merchant that accepts the card without the need to
transmit personal account information over the Internet.
In addition, interest can be paid on account balances. The benefits
that are inherent in the Net 1 system make the system attractive to issuers,
cardholders and merchants in geographically and economically diverse areas.
We are in the developmental stages of our business and for the next
twelve months intend to focus on attracting the necessary capital to implement
our business plan as described below. No assurances can be given that we will be
successful in attracting capital or meeting our business objectives.
OUR TECHNOLOGY. Net 1's technological platform is based on two
fundamental components:
o the FTS patents; and
o the UEPS.
FTS PATENTS. The FTS describes a method through which funds can be
transferred from one smart card to another in a secure and off-line manner.
Off-line for these purposes refers to a transaction which is effected when there
is no contact with the card issuer or authorization center at the time of the
transaction. The FTS also incorporates how these cards can be loaded or
re-loaded with funds as well as how these funds can be redeemed for value in a
banking or non-banking environment. The FTS patents have been registered in the
United States, Europe, South Africa and a number of other countries that have
patent agreements with these countries. The FTS is registered in the United
States Patent & Trademark Office under registration number 5,175,416 and in the
European Patent Office under the publication number 0 421 808 B1.
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
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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.
The methodology protected by the FTS patents makes possible a payment
system that is affordable, secure and flexible. The system is affordable because
transactions occur between the computer chips embedded in the two smart cards
involved using a relatively inexpensive self contained terminal. There is,
therefore, no need for existing infrastructures such as electricity, telephone
or data transmission. The Net 1 payment system utilizing the FTS is secure
because all transactions are verified (i.e., confirmation of the actual transfer
of the funds) between the two smart cards which are involved in the transaction
using advanced hardware tamper protection and cryptographic systems, together
with protocols and techniques developed by the founders of Net 1. Finally, the
FTS is flexible because transactions are completed off-line so that there are
virtually no restrictions on the locations in which verified transactions can
occur.
UEPS. The UEPS is a suite of software programs that incorporates the
FTS patent to deliver a fully integrated payment and settlement system. The
first version of the UEPS system was released in 1991. The programs included in
the UEPS include both the software which is included in the computer chip
embedded in each smart card as well as the software required to maintain the
payment system. UEPS provides all the functions that are necessary to issue and
manage a smart card and terminal base as well as those needed to effect
settlement between all the operators and participants. UEPS is fully traceable
and auditable and can provide advanced facilities such as loss tolerance and
interest distribution. UEPS is scalable and can be made available to well
established market leaders or as a starter kit to smaller organizations.
IDENTIFIED SOURCES OF REVENUE. Net 1 has identified several potential
general sources of revenue including:
o manufacture licensing;
o usage licensing;
o joint ventures; and
o hardware sales.
None of these sources of revenue have yet been developed and there can be no
assurance that they will develop.
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MANUFACTURE LICENSING. Licenses will be required by all manufacturers
that produce smart cards that incorporate into their embedded computer chip
applications that utilize the FTS patents. Net 1 intends to charge a fee to
smart card manufacturers for each smart card produced by such manufacturer that
includes the FTS application. In addition, it is anticipated that a yearly fee
will also be charged which will entitle the manufacturers to product information
and workshop materials from Net 1.
Manufacturers of point of sale terminals and prepaid utility meter
terminals who wish to produce terminals capable of supporting FTS based
applications will be licensed by Net 1. It is anticipated that these
manufacturer licenses will be based on a variety of payment systems including,
for example, annual payments, per-terminal payments or transaction fees,
depending upon the particular circumstances. Generally, the terminals used in
connection with the FTS/UEPS based payment system, unlike other payment systems,
do not require a great deal of technology as the security process used by the
payment system is managed in its entirety by the two smart cards transacting at
the time. Manufacturers, therefore, can mass-produce low cost terminals for the
Net 1 FTS/UEPS payment systems.
USAGE LICENSING. We will license entities that will operate specific
applications that use FTS intellectual property or the combined FTS/UEPS payment
system. We anticipate that the license fees for these licenses will include a
combination of annual fees as well as transaction fees.
JOINT VENTURES. We will explore opportunities to form joint ventures
with entities within particular geographic territories. The joint venturer would
then act as a system operator in that territory. Under this scenario we will act
as a licensor and may have an equity interest or other participation in the
licensee. It is contemplated that we will enter into technology and know-how
transfer agreements in exchange for our interest in the joint venture and the
other joint venture partner or partners will contribute capital and other
expertise necessary to exploit the technology in the given territory.
HARDWARE SALES. We will pursue arrangements with smart card and
terminal manufacturers which will enable us to purchase these items of hardware
in volume at preferential prices. We contemplate selling these items to our
licensees, passing along a portion of the price savings.
MARKET FOCUS. In an effort to allocate our resources in an efficient
manner, management of Net 1 has identified two distinct markets for our products
based on the benefits that cardholders, merchant cardholders and others would
find desirable from the payment system. Net 1 has developed marketing strategies
to develop these two markets. The first market is one which has a reliable,
extensive and inexpensive telecommunications network, with a considerable
penetration of credit and debit card services, and in which the vast majority of
the population has access to banking products. For our purposes, this market is
referred to as the "developed market." The second market is characterized by
regions which do not have reliable, extensive and inexpensive telecommunications
and related infrastructure systems, where there is relatively little penetration
of
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credit or debit cards and/or where a large portion of the population does not
have access to traditional banking services. The second market is referred to as
the "less developed market."
THE DEVELOPED MARKETS. Our principal competition in the developed
markets is the existing installed base of credit and traditional on-line debit
cards, as well as cash, checks and other forms of payment. In addition, several
other companies are developing smart card based payment systems. In order to
effectively compete in this market, an alternative payment system must offer
some identifiable benefit to the cardholder and the merchant cardholder. We
believe that our product offers substantial benefits over existing payment
systems in connection with payments for goods and services over the Internet and
other selected environments.
One significant impediment to the growth of commerce over the Internet
is the reluctance of consumers to broadcast sensitive credit or debit account
information over the Internet. Moreover, Internet transactions settled by credit
card are not generally verified, resulting in increased costs for the on-line
merchant. There is a need in this market for a payment system which can provide
on-line merchants with instant, verified (i.e., the equivalent of receiving
cash) transfers of payments from customers while not requiring the customer to
transmit any information over the Internet which can access or even identify the
customer's payment account. We believe that the Net 1 FTS/UEPS payment system
can meet these objectives as well as provide additional benefits to on-line
consumers and merchants.
We envision a system in which consumers can use their existing account
at a financial institution to load their cards with funds. This procedure will
be able to operate in many different ways depending on the relationship between
Net 1 and the specific financial institution. If no relationship exists, a
simple debit or stop order could be used to allow the cardholder to load his or
her UEPS smart card through a simple Internet application. In the case where the
financial institution is a licensee of Net 1, the debit or stop order would not
be required to achieve the above mentioned result. Interest rates and other
incentives could be offered to cardholders as an incentive to maintain higher
balances on their UEPS smart cards. Internet merchants would then be able to
accept guaranteed payments for the goods or services they offer over the
Internet. Merchants and service providers would be able to deposit these
payments in any financial institution on a daily basis. Cardholders would be
protected against the unauthorized use of their card and would always maintain a
full audit trail of all their transactions.
Net 1's Internet payment solution is no different to its standard
off-line point-of-sale transaction. Our ability to readily adapt UEPS to
Internet transactions is due to the patented end-to-end security protocol that
ensures that any active communication can only be interpreted by the cardholder
and the merchant cardholders. We believe that the risk of fraud, repudiation or
non-payment is reduced compared to competing systems.
Net 1 intends to have a system that can provide payment functionality
in pay-as-you-use services. These services include, for example, access to
databases or other information systems, professional advice or advanced software
or special application systems. There are other competing
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systems that have been proposed for these markets. Our continuous debit function
could ensure that payment is made while the service is being used. This same
functionality can be used in applications such as fuel dispensing and telephonic
communication.
We intend to market this product to on-line retailers and service
providers and will develop a final product based on the specifications for the
system required by these entities. Once there is a sufficient installed base of
cards, Net 1 will then broaden its focus to conventional banking and retail
applications in these markets.
LESS DEVELOPED MARKETS. Net 1's present competition in the less
developed markets is principally cash. In addition, other companies are
developing smart card based systems for these markets, and these systems may be
competitive. The less developed markets comprise the great majority of the
world's population, and there is currently no alternative to cash in these
markets. Due to their lack of infrastructure, these markets have not been
particularly attractive to alternative payment systems such as debit and credit
cards, and for the most part, entities such as Visa and MasterCard have not
attempted to enter these markets. Net 1 believes that its product is
particularly well suited for these markets, and while individual transactions
may be smaller than in more well developed markets, the volume of these
transactions is potentially much greater, representing a significant opportunity
for us, our licensees and joint venture partners.
Net 1's goal in these markets is to provide a payment system to the
population as an alternative to cash. Cash is expensive to handle and is
particularly prone to theft. Moreover, since people in the less developed
markets do not have access to traditional banking products, they therefore do
not deposit their money in secure savings accounts on which they earn interest.
The Net 1 FTS/UEPS system can enhance the lives of the populations of these
developing markets by affording them much greater security with respect to their
money and making available banking products such as interest bearing savings
accounts. In addition, by simplifying the administrative burden and removing the
costs associated with handling cash, a Net 1 FTS/UEPS system will result in
significant savings to employers, governments and merchants. A significant focus
of Net 1 in these markets, therefore, is to identify licensees and/or joint
venture partners located in these regions that it believes will be in a position
to effectively market the payment system to employers and governments.
The general strategy is to market the system to those who presently
transfer money to others, as wages in the case of employers and as government
benefits in the case of governments. These entities would enter into
arrangements with a card issuer, who would issue cards to their employees or
beneficiaries. The wages or benefits for these cardholders would then be loaded
onto their cards, thus avoiding the need for the distribution of cash or checks.
The funds loaded onto the cards could then be used at local merchants that
accept the card for purchases of goods and services. Cash could also be obtained
from the card at local banks or retail establishments. The goal is to develop a
large installed cardholder base in the most efficient manner. Once a region has
a sufficient number of cardholders, additional merchants can be solicited and
the payment system expanded. As the cardholder base grows, additional benefits
inherent in the Net 1 FTS/UEPS system will become
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recognized and the system will continue to grow. Net 1 is also exploring
initiatives in these markets to utilize the FTS/UEPS system in connection with
public transportation, taxis and prepaid utility services such as telephones,
electricity and water.
COMPETITION. Separate from competition from cash, checks, credit and
debit cards and other existing payment systems, Net 1 has identified a number of
other products currently being produced which use smart card technology in
connection with a fund transfer system. These include Mondex, Proton and EMV,
which represent products from Visa, MasterCard and Europay. We believe that the
UEPS technology can be distinguished from these competitors in a number of
significant ways.
The most important differences between our competition and Net 1 are
listed below:
o since little or no technology is required in the terminal
itself, terminals can be manufactured, distributed and
installed at a fraction of the cost of other similar terminals
which require sophisticated security and communications
modules;
o the terminal network can operate "off-line" (i.e. without the
need for a data communication session to be active during the
transaction) or "on line" through the use of any
communications infrastructure, including satellite,
micro-wave, radio, land lines or any other distribution
channel;
o each transaction has a unique transaction sequencing algorithm
that allows verifiable auditing of the transaction creating a
loss tolerant system. From a practical perspective, this
enables the detection and subsequent elimination of fraudulent
activity and an ability to replace lost or stolen cards; and
o the encryption security protocols enable cardholders to
receive fund loading instructions from a third party through
any insecure communications channel such as word of mouth,
telephone, newspaper or any analogue or digital network.
In addition, the UEPS technology includes functionality that allows:
o transparent and automatic recovery in the event of transaction
failure resulting from terminal hardware or software problems;
o the smart card itself can be used as proof of purchase,
replacing the need for a separate ticket and ticketing system,
for example, on buses, trains or the lottery;
o continuous debiting which in turn allows for simultaneous
vending and debiting in unattended environments such as fuel
dispensing and telephony,
o speed of processing that is mandatory in applications such as
transportation and access control; and
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o open or restricted purses that are required to implement
certain applications such as pension and welfare distribution
and specific funding initiatives.
ITEM 2. DESCRIPTION OF PROPERTY
Net 1 rents office facilities and services on an as needed basis at
suite 507-700 West Pender Street, Vancouver B.C. Canada from Gilmour, McKay
Roberts Consulting Limited, one of our financial consultants. We rent the
offices for One Thousand Dollars ($1,000) per month on a month to month basis.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth the names, ages and positions of our
executive officers and directors. Directors will be elected at our annual
meeting of shareholders and serve for one year or until their successors are
elected and qualify. Officers are elected by the board of directors and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the board of directors.
Name Age Positions Held
---- --- --------------
Serge Belamant 47 Chief Executive Officer, Chairman of the
Board of Directors
Claude Guerard 58 Director
David Anthony 50 Secretary and Treasurer
SERGE CHRISTIAN PIERRE BELAMANT. Mr. Belamant has been a director of
Net 1 since its inception in May 1997. Since May 1997, Mr. Belamant has also
served as Chief Executive Officer of Net 1. From June 1997 to present, Mr.
Belamant has served as Chief Executive Officer and a director of Net 1 Applied
Technology Holdings Limited, a company listed on the Johannesburg Stock Exchange
as well as the Chief Technology Officer and a director of Prosperity Holdings
Limited, a financial services company. From 1996 to 1997, Mr. Belamant served as
a consultant in the development of COPAC (Chip Off-Line Pre-Authorized Card), a
product currently being marketed internationally by Visa International. From
October 1989 to September 1995, Mr. Belamant served as the managing director of
Net 1 Products (Pty) Ltd., a privately owned South African company specializing
in the development of advanced technologies in the field of transaction
processing and payment systems. Mr. Belamant also serves on the board of a
number of other companies that are closely related to the smart card business
worldwide. Mr. Belamant spent ten years working as a computer scientist for
Control Data Corporation where he won a number of international awards. Later,
he was responsible for the design, development, implementation and operation of
the Saswitch Automated Teller Machine network in South Africa that rates today
as the third largest ATM switching system in the world. Mr. Belamant has
patented a number of inventions
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ranging from biometrics to gaming as well as the FTS. Mr. Belamant has more than
twenty years experience in the fields of operations research, security,
biometrics, artificial intelligence and on-line and off-line transaction
processing systems.
CLAUDE GUERARD. Mr. Guerard has served as our director since August
1998. From December 1996 to October 1999, Mr. Guerard served as Vice President
of Gemplus S.C.A., a company in the smart card industry. During this period, Mr.
Guerard also served as the Chief Executive Officer of Gemplus' South African
division, Chief Executive Officer of Gemplus Gmbh, and general manager of
Gemplus' Central and Eastern Europe division. From 1990 to 1996, Mr. Guerard was
Chief Executive Officer and Chairman of AM International France, a subsidiary of
AM International Corp., a Chicago based multinational graphics and printing
company. Mr. Guerard also has sales and management experience in
computer/technology and related industries having worked for 13 years at IBM and
8 years with Nashua Corp., a company engaged in the sales and service of office
equipment.
DAVID ANTHONY. Mr. Anthony has served as Net 1's Secretary and
Treasurer since May 1997. From 1991 to 1997, Mr. Anthony was the sole proprietor
of an independent financial consulting firm specializing in structuring and
funding emerging growth companies, primarily in North America. Previously, from
1986 to 1991, Mr. Anthony was the founder of Professional Canadian Investment
Group (Procan), a venture capital firm based in Vancouver, British Columbia.
EMPLOYMENT AGREEMENTS
SERGE CHRISTIAN PIERRE BELAMANT AND ANDRE PETER MANSVELT
Since Net 1's inception in May 1997, it was decided that no employment
agreement would be entered into by Serge Christian Pierre Belamant or the late
Andre Peter Mansvelt and Net 1 until the funding necessary to operate the
company would be secured. Although that Mr. Belamant continues to perform his
duties as the Chairman and C.E.O of Net 1, he has not been remunerated to date
in any form whatsoever. Mr. Belamant has in fact funded Net 1 through Holdings
in Luxembourg and Net 1 (Pty) in South Africa.
ERIC YOUNG
Net 1 employed Mr. Young under contract, as an attorney, dedicated to
the restructuring of the company from September 1998 to January 2000.
CLAUDE GUERARD
Our majority shareholder, Net 1 Holdings S.a.r.l. entered into a
consulting and advisory agreement with Mr. Guerard on October 1, 1999. The term
of the agreement was to extend from October 1999 to January 2000. In this
agreement, Net 1 Holdings S.a.r.l. agreed to pay Mr. Guerard $12,500 per month.
Mr. Guerard's responsibilities included the restructuring of the company and the
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general management of the company. Mr. Guerard's contract could be extended at
the discretion of the company once we raise the necessary funds to develop our
business plan. Effective October 25, 1999 we assumed all liabilities under the
agreement through an assignment of the agreement, releasing Net 1 Holdings
S.a.r.l. from the liabilities and responsibilities of the agreement. In 1999, we
paid consulting fees totaling $37,500 to Mr. Guerard under this agreement. Of
these fees, $12,500 is included in accounts payable at December 31, 1999.
ITEM 4. EXECUTIVE COMPENSATION
The following table sets forth information relating to the
compensation paid by Net 1 during the past fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------- ---------------------------------
Awards Payouts
---------------------- ----------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------ ---- ------ ----- ------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Serge Belamant, CEO, 1999 N/A -- -- -- -- -- --
Chairman 1998 N/A -- -- -- -- -- --
1997 N/A -- -- -- -- -- --
Claude Guerard, Director 1999 N/A -- -- -- -- -- --
1998 N/A -- -- -- -- -- --
1997 N/A -- -- -- -- -- --
David Anthony, Secretary, 1999 N/A -- -- -- -- -- --
Treasurer 1998 N/A -- -- -- -- -- --
1997 N/A -- -- -- -- -- --
</TABLE>
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STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
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Individual Grants Alternative To
Percent of Potential Realizable Value At (f)and (g):
Number Of Total Assumed Annual Rates Of Stock Grant Date
Securities Options/ Price Appreciation For Value
Underlying SARs Granted Exercise Of Option Term ---------------
Options/SARs To Employees Base Price Expiration ---------------------- Grant Date
Name Granted (#) In Fiscal Year (S/Sh) Date 5% ($) 10% ($) Present Value $
(a) (b) (c) (d) (e) (f) (g) (h)
---- ------------ -------------- ---------- ---------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Serge Belamant,
CEO,Chairman N/A -- -- -- -- -- --
Claude Guerard,
Director N/A -- -- -- -- -- --
David Anthony,
Secretary,
Treasurer N/A -- -- -- -- -- --
</TABLE>
OPTION EXERCISES AND HOLDINGS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs At Fiscal Year-
Shares At Fiscal Year-End End
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- ----------- -------- ------------------ --------------
<S> <C> <C> <C> <C>
Serge Belamant,
CEO, Chairman N/A -- -- --
Claude Guerard,
Director N/A -- -- --
David Anthony, N/A -- -- --
Secretary, Treasurer
</TABLE>
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 15, 2000
with respect to:
o each person known to us to be the beneficial owner of more
than 5% of our common stock;
o each of our officers and directors; and
o all directors and officers as a group.
-12-
<PAGE> 15
This information as to beneficial ownership was furnished to us by or
on behalf of the persons named. Unless otherwise indicated, the business address
of each person listed is 507-700 West Pender Street, Vancouver, British
Columbia, Canada V6C1G8. Information with respect to the percent of class is
based on 15,602,856 issued and outstanding shares of common stock as of
September 15, 2000.
Except as otherwise indicated, to our knowledge, each shareholder has
sole power to vote and dispose of all the shares of common stock listed opposite
his name.
Approximate
Percentage of
No. of Outstanding Shares
Name Shares Beneficially Owned
---- ---------- ------------------
Net 1 Holdings S.a.r.l. 10,141,856 65.00%
Gemplus SCA 1,521,278 9.75%
Serge Belamant 5,130,813 32.88%
Claude Guerard 608,511 3.90%
David Anthony 50,000 .32%
All Officers and Directors
As a Group (3 persons) 5,789,324 37.10%
Net 1 Holdings S.a.r.l., whose address is 6, rue Jean Monnet, L-2180
Luxembourg, is a corporation controlled by Cornet Ltd. (52.7%) and a trust
structure of which Serge Christian Pierre Belamant, our Chief Executive Officer
and Chairman (47.3%) is a beneficiary. Net 1 Holdings owns 65% of the issued and
outstanding common stock of Net 1. Cornet Ltd. whose address is Westaway
Chambers, 39 Don Street, St. Helier, Jersey C.I. JE48UA, is a Jersey corporation
controlled by Serge Christian Pierre Belamant and the estate of Andre Peter
Mansvelt through trust structures. The 1,521,278 shares of common stock owned by
Gemplus SCA is not included in the 10,141,856 shares of common stock owned by
Net 1 Holdings S.a.r.l.
Gemplus SCA, whose address is Avenue du Pic De Bertagne, 13884 Gemenos,
France, is a French corporation that is the beneficial owner of 1,521,278
(9.75%) shares of common stock of Net 1. Mr. Claude Guerard served as an
executive officer of Gemplus from December 1996 to October 1999.
Serge Belamant, whose address is 43 Carlisle Avenue, Hurlingham,
Sandton, 2196, South Africa, is the Chief Executive Officer and Chairman of Net
1. He is the beneficial owner of 5,130,813 shares of Net 1's common stock
pursuant to his direct and indirect shareholdings in Net 1 Holdings S.a.r.l.
These shares cannot be voted by Mr. Belamant personally but only by Net 1
Holdings S.a.r.l.
-13-
<PAGE> 16
Claude Guerard, whose address is No. 20 Avenue Pozzo Di Borgo, 92210
Saint-Cloud, France, is a director of Net 1. He is indirectly the beneficial
owner of 608,511 (3.9%) shares of the common stock through Net 1 Holdings
S.a.r.l., Cornet Ltd. and a trust structure. The shares may not be voted by Mr.
Guerard but only by Net 1 Holdings S.a.r.l.
David Anthony is the Secretary and Treasurer of Net 1. Mr. Anthony, as
the beneficiary of the estate of Shannon Fitzpatrick, is deemed to beneficially
own 50,000 (.32%) shares of the common stock held by the estate of Shannon
Fitzpatrick.
ITEM 6. INTEREST OF MANAGEMENT AND CERTAIN TRANSACTIONS
We entered into a license agreement, dated May 19, 1997 (the "License
Agreement"), with Net 1 Holdings S.a.r.l., Net 1 Operations S.a.r.l. and Net 1
PTY (collectively, the "Licensors"), where the Licensors granted a non-exclusive
license to us for the UEPS technology world-wide except for South Africa and its
surrounding territories. On October 1, 1997 an Amendment to the License
Agreement was signed that provided for the transfer of the ownership of the UEPS
and FTS technology to Net 1 and for the assignment of the Technology License
Agreement between Visa International Service Association and Net 1 Holdings
S.a.r.l, dated July 31, 1997 (the "Visa Agreement") under certain conditions
precedent in consideration for 4,729,612 shares of common stock of the Net 1.
The assignment of the Visa Agreement and the transfer of the ownership of the
UEPS technology and FTS patents to NET 1 were never consummated because the
conditions precedent were never satisfied.
On May 3, 2000 an agreement entitled "Patent and Technology Agreement"
was entered into by Net 1 and Net 1 Holdings S.a.r.l. granting Net 1 an
exclusive marketing license for the UEPS and FTS technology world-wide except
for 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 common stock of Net 1 previously issued
in consideration for the Amendment to the License Agreement were released to Net
1 Holdings S.a.r.l.
In 1998, consulting fees totaling $102,155 were paid to our former
President and Director Mr. James Rodgers before his resignation effective August
4, 1998.
In 1998, consulting fees totaling $65,000 were paid to our former Chief
Financial Officer Mr. Edwin Austin before his resignation effective August 4,
1998.
In 1999, consulting fees totaling $ 37,500 were paid to Mr. Claude
Guerard, one of our directors. Of these fees, $12,500 is included in accounts
payable at December 31, 1999.
ITEM 7. DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of common stock, par
value $.001 per share, and 3,000,000 shares of preferred stock, par value $.10
per share. As of September 15, 2000 there were 15,602,856 shares of common stock
issued and outstanding and no shares of preferred stock outstanding.
-14-
<PAGE> 17
COMMON STOCK
The authorized capital stock of Net 1 currently includes 100,000,000
shares of common stock, par value $.001 per share. The holders of common stock:
have equal ratable rights to dividends from funds legally available therefor,
when, as and if declared by the board of directors of Net 1, are entitled to
share ratably in all of the assets of Net 1 available for distribution and upon
liquidation, dissolution or winding up of the affairs of Net 1. There are no
preemptive subscription or conversion rights or redemption or sinking fund
provisions applicable thereto. Holders of common stock are entitled to one vote
per share on all matters on which stockholders may vote at all meetings of
stockholders. The holders of common stock of Net 1 do not have cumulative voting
rights, which means that the holders of more than 51% of such outstanding
shares, voting for the election of directors, can elect all of the directors to
be elected, if they so choose and in such event, the holders of the remaining
shares will not be able to elect any of the directors.
PREFERRED STOCK
Net 1 is authorized to issue up to 3,000,000 shares of preferred
stock, par value $.10 per share, with designations, rights and preferences as
may be determined from time to time by the board of directors. Accordingly, the
board of directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
common stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of Net 1.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and Net 1's Articles and Bylaws also authorize us to
indemnify our directors, officers, employees and agents. In addition, Net 1's
Articles and Florida law presently limit the personal liability of corporate
directors for monetary damages, except where the directors (i) breach their
fiduciary duties; and (ii) such breach constitutes or includes certain
violations of criminal law, a transaction from which the directors derived an
improper personal benefit, certain unlawful distributions or certain other
reckless, wanton or willful acts or misconduct.
-15-
<PAGE> 18
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF NET 1'S ARTICLES OF INCORPORATION
AND BYLAWS
The paragraphs above under the section entitled "Preferred Stock"
could have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt, including attempts that might result in a premium
being paid over the market price for the shares held by shareholders. Despite
the belief of Net 1 as to the benefits to shareholders of these provisions of
our Articles of Incorporation, these provisions may also have the effect of
discouraging a future takeover attempt which would not be approved by Net 1's
board, but pursuant to which the shareholders may receive a substantial premium
for their shares over then current market prices. As a result, shareholders who
might desire to participate in such a transaction may not have any opportunity
to do so. These provisions will also render the removal of Net 1's board of
directors and management more difficult and may tend to stabilize Net 1's stock
price, thus limiting gains which might otherwise be reflected in price increases
due to a potential merger or acquisition. The board of directors, however, has
concluded that the potential benefits of these provisions outweigh the possible
disadvantages. Pursuant to applicable regulations, at any annual or special
meeting of its shareholders, Net 1 may adopt additional Articles of
Incorporation provisions regarding the acquisition of its equity securities that
would be permitted to a Florida corporation.
[Intentionally Blank]
-16-
<PAGE> 19
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
There is currently limited public trading of Net 1's common stock on
the NASD pink sheets under the symbol NUEP. As of July 18, 2000 there were 55
shareholders of record of our common stock. Our common stock has traded on the
Pink Sheets of the National Quotation System under the symbol NUEP since
February 2000. During February 2000, our common stock was de-listed from the
Over-the-Counter Bulletin Board of the National Association of Securities
Dealers, Inc. for failure to comply with the phase-in provisions of the OTC
Bulletin Board Eligibility Rule which required all companies whose securities
are quoted on the OTC Bulletin Board to become reporting companies with the
Securities and Exchange Commission. Previously, our common stock traded on the
Over-the-Counter Bulletin Board under the symbol "NUEP." The following table
sets forth the high and low bid quotations for the common stock for the periods
indicated. These quotations reflect prices between dealers, do not include
retail mark-ups, mark-downs, and commissions and may not necessarily represent
actual transactions.
Period High Low
------ ---- ---
Quarter ended September 30, 1998 $7.875 $4.25
Quarter ended December 31, 1998 $5.5 $3.25
Quarter ended March 31, 1999 $6.75 $3.5
Quarter ended June 30, 1999 $6.00 $3.31
Quarter ended September 30, 1999 $4.00 $1.875
Quarter ended December 31, 1999 $2.81 $1.375
Quarter ended March 31, 2000 $7.93 $2.25
Quarter ended June 30, 2000 $5.75 $3.00
Quarter ended September 30, 2000 $5.50 $3.50
Net 1's transfer agent since May 1997 is Florida Atlantic Stock
Transfer Inc., located at 7130 Nob Hill Road, Tamarac, Florida, FL 33321.
Net 1 has never paid cash dividends on its common stock and presently
intends to retain future earnings, if any, to finance the expansion of business.
Net 1 does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
-17-
<PAGE> 20
ITEM 2. LEGAL PROCEEDINGS
In September 1997, John Drove, as petitioner, applied for an order
under Section 201 of the Company Act, R.S.B.C. 1996, allowing him to commence a
derivative action in the name of Net 1 Products (Canada) Ltd., against the
individual respondents Andre Peter Mansvelt and Serge Christian Pierre Belamant,
a former officer and current officer of Net 1 respectively, for the alleged
wrongful appropriation of a corporate opportunity belonging to Net 1 Products
(Canada) Ltd. and for breach of trust and breach of fiduciary duty of the
individual respondents to Net 1 Products (Canada) Ltd. A petition was filed in
the Supreme Court of British Columbia, Vancouver Registry under case number
A972151. Because factual disputes arose between the parties, it was necessary
that the petition be converted into an action to enable discovery and a trial to
resolve the issues in dispute. We are informed that no written contracts were
entered into with the petitioner. On October 5, 1998, the Court ordered that the
matter be brought to trial and that it proceed under action number C976027 in
the Supreme Court of British Columbia, Vancouver Registry. A writ of summons was
subsequently issued by Net 1 Products (Canada) Ltd., as plaintiff, against Andre
Peter Mansvelt and Serge Christian Pierre Belamant. The specific relief sought
by Net 1 Products (Canada) Ltd. includes a declaration that Net 1 Products
(Canada) Ltd. has certain rights to the UEPS Technology within Canada, an
accounting with respect to the third party licensing and distribution rights of
UEPS in Canada, and an order to transfer to the petitioner certain rights to the
UEPS Technology.
In February 2000, an application to join numerous other entities was
filed by Net 1 Products (Canada) Ltd. For strategic purposes, Net 1 may
potentially be joined as a defendant in the lawsuit. Because the action is
predicated upon alleged oral statements and circumstantial evidence, we believe
that any claim against Net 1 will not have a material adverse effect on Net 1.
We plan to defend any claims brought against the company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
As part of a non-exclusive license agreement to the UEPS and FTS
technology, on May 8, 1997, we issued 2,706,122 shares of our common stock at a
fair value of $.001 per share to the licensors of the technology. The shares of
stock are exempt from registration based upon Section 4(2) of the Securities
Act of 1933. The technology licensors are Net 1 Holdings, Net 1 Operations
S.a.r.l. and Net 1 (Pty).
On November 27, 1997, we agreed to issue 4,729,612 of our shares of
common stock at a fair value of $.001 per share to Net 1 Holdings S.a.r.l. in
consideration for, amongst other things, converting its non-exclusive license to
the UEPS and FTS technology to an exclusive license world-wide except for South
Africa and its surrounding territories. These shares were delivered to Net 1
Holdings upon the signing of the Technology and Patent Agreement signed on May
3, 2000. The shares of stock are exempt from registration based upon Section
4(2) of the Securities Act of 1933.
In October 1997, Net 1 consummated the sale of 130,500 shares of its
common stock at a purchase price of $6.50 per share to three (3) investors. The
total gross proceeds we received from this transaction were $848,250. The
securities issued to the investors were exempt from registration pursuant to
Rule 504 of Regulation D of the Securities Act of 1933.
In July 1997, Net 1 consummated the sale of 2,600,000 shares of its
common stock at a purchase price of $0.0576 per share to fifty (50) investors.
The total gross proceeds we received from this transaction were $150,000. The
securities issued to the investors were exempt from registration pursuant to
Rule 504 of Regulation D of the Securities Act of 1933.
On September 27, 2000, Net 1 issued 250,000 shares of common stock for
a total of $1,000,000 or $4.00 per share to a single accredited investor which
was unaffiliated with Net 1. Since this investor had access to relevant
information concerning the financial statements and operations of Net 1, had the
sophistication to evaluate this information and had financial resources to bear
the economic risk of this investment, the sale of these shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) of that
act.
-18-
<PAGE> 21
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act permits the indemnification of
directors, employees, officers and agents of Florida corporations. Net 1's
Articles of Incorporation and Bylaws provide that Net 1 shall indemnify its
directors and officers to the fullest extent permitted by the Act. Insofar as
indemnification for liabilities arising under the Act may be permitted to
directors, officers or persons controlling Net 1 pursuant to the foregoing
provisions, Net 1 has been informed that, in the opinion of the Commission, this
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
The following audited Financial Statements for Net 1 include the
audited balance sheet at December 31, 1999 and the related audited statements of
operations, changes in shareholders equity and cash flows for each of the years
in the period from May 8, 1997 (inception) to December 31, 1998 and the year end
financial statement at December 31, 1999 (audited) as well as January 1, 2000 to
June 30, 2000 unaudited financial statements.
-19-
<PAGE> 22
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibits Description of Document
-------- -----------------------
1. Articles of Incorporation of Net 1 UEPS Technologies, Inc.*
2. Bylaws of Net 1 UEPS Technologies, Inc.*
3. Patent and Technology Agreement, between the Net 1 UEPS
Technologies, Inc. and Net 1 Holdings S.a.r.l., dated May 3,
2000.*
10.1 Consulting Agreement between Net 1 Holdings S.a.r.l. and Claude
Guerard, dated October 1, 1999.*
10.2 Assignment of Consulting Agreement between Net 1 Holdings
S.a.r.l. ("Assignor") and Net 1 UEPS Technologies, Inc.
("Assignee"), dated October 25, 1999.*
27.1 Financial Data Schedule. (year ended December 31, 1999)*
27.2 Financial Data Schedule. (6 months ended June 30, 2000)*
* Previously filed.
-20-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
NET 1 UEPS TECHNOLOGIES, INC.
Date: October 26, 2000 By: /s/ Serge Belamant
------------------------------------
Serge Christian Pierre Belamant,
Chief Executive Officer
and Chairman
-21-
<PAGE> 24
FINANCIAL STATEMENTS
Balance Sheets F1
Statements of Operations F2
Statements of Cash Flows F3
Notes to the Financial Statements F4-F6
<PAGE> 25
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
$ $
------------- -------------
<S> <C> <C>
(unaudited) (unaudited)
Assets
Current Assets
Cash 22,282 152,687
Prepaid expenses -- 12,540
Total Current Assets 22,282 165,227
Property, Plant and Equipment (Note 3) 1,048 1,703
Intangible Assets (Note 4) 6,250 2,569
Total Assets 29,580 169,499
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 232,570 79,885
Accrued liabilities 1,000 --
Total Current Liabilities 233,570 79,885
Contingency (Note 1)
Subsequent Event (Note 7)
Stockholders' Equity
Common Stock, 100,000,000 shares authorized,
par value $.001 per share, 15,602,856 and 10,873,244
issued and outstanding respectively 15,602 10,873
Additional Paid in Capital 991,769 991,769
1,007,371 1,002,642
Preferred Stock, 3,000,000 shares authorized, par value
$0.10 per share, none issued -- --
Deficit Accumulated During the Development Stage (1,211,361) (913,028)
Total Stockholders' Equity (Deficit) (203,990) 89,614
Total Liabilities and Stockholders' Equity 29,580 169,499
</TABLE>
(See accompanying notes)
-F1-
<PAGE> 26
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Accumulated from
May 8, 1997 Six months Six months
(Inception) ended ended
to June 30, June 30, June 30,
2000 2000 1999
$ $ $
---------------- ----------- -----------
<S> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
Revenues -- -- --
Administrative Expenses
Amortization 4,183 725 473
Bank charges 3,340 431 520
Consulting 521,343 113,000 70,000
Foreign exchange 8,098 750 --
Investor relations - advertising 22,907 -- --
Investor relations - consulting 37,574 -- --
Office, rent and telephone 122,387 8,048 13,932
Professional fees 272,221 17,304 24,017
Subcontract 23,987 -- --
Transfer agent and regulatory fees 24,729 2,245 10,354
Travel 170,592 7,966 --
1,211,361 150,469 119,296
Net Loss (1,211,361) (150,469) (119,296)
Net Loss Per Share (0.01) (0.01)
Weighted Average Shares Outstanding 12,450,000 10,873,000
</TABLE>
(See accompanying notes)
-F2-
<PAGE> 27
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Accumulated from
May 8, 1997 Six months Six months
(Inception) ended ended
to June 30, June 30, June 30,
2000 2000 1999
$ $ $
---------------- ----------- -------------
<S> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
Cash Flows to Operating Activities
Net loss (1,211,361) (150,469) (119,296)
Adjustment to reconcile net loss to cash
Amortization 4,244 725 473
Change in non-cash working capital items
Increase (decrease) in accounts payable
and accrued liabilities 233,570 87,851 (157,960)
(Increase) decrease in prepaid expenses -- 12,540 --
Net Cash Used in Operating Activities (973,547) (49,353) (276,783)
Cash Flows from Financing Activities
Increase in capital stock 998,010 -- --
Net Cash Provided by Financing Activities 998,010 -- --
Cash Flows to Investing Activities
(Increase) in property, plant and equipment (2,181) -- --
Net Cash Used in Investing Activities (2,181) -- --
Increase (decrease) in cash 22,282 (49,353) (276,783)
Cash - beginning of period -- 71,635 429,470
Cash - end of period 22,282 22,282 152,687
Non-Cash Financing Activities
9,361,846 shares issued for an
exclusive license (Note 4) 9,361 -- --
Supplemental Disclosures
Interest paid -- -- --
Income tax paid -- -- --
</TABLE>
(See accompanying notes)
-F3-
<PAGE> 28
Net 1 UEPS Technologies, Inc.
(A Development Stage Company)
Notes to the Financial Statements
(unaudited)
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
patents 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. The Company
has a working capital deficit of $211,288 as at June 30, 2000. These
factors raise substantial 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.
Subsequent to June 30, 2000 the Company has raised $1,000,000 by issuing
250,000 shares at $4.00 per share by way of a private placement. See Note
7.
-F4-
<PAGE> 29
2. Summary of Significant Accounting Policies
(a) Property, Plant and Equipment
Computer equipment is amortized over five years on a straight-line
basis.
(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) 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.
(d) 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.
(e) 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.
3. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation.
<TABLE>
<CAPTION>
2000 1999
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
---- ------------ ---------- ----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Computer equipment and software 2,181 1,133 1,048 1,703
</TABLE>
4. Exclusive License
<TABLE>
<CAPTION>
2000 1999
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
---- ------------ ---------- ----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Exclusive License 9,361 3,111 6,250 2,569
</TABLE>
See Note 1 for the description of the license and Note 6 for status of the
underlying patents.
-F5-
<PAGE> 30
5. Related Party Transactions
(a) Consulting fees include $75,000 (1999 - $37,500) paid or payable to a
director; $62,500 of these fees are included in accounts payable at
June 30, 2000.
(b) See Note 1 for an exclusive license purchased from a related party,
Net 1 Holdings Ltd.
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.
7. Subsequent Event
The Company issued 250,000 shares for $1,000,000 by way of a private
placement.
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