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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________________to _____________________

Commission file number: 000-31203

NET 1 U.E.P.S. TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

President Place, 4^th Floor, Cnr. Jan Smuts and Bolton Avenue
Rosebank, Johannesburg, South Africa
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: 27-11-343-2001

Not Applicable
(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 the filing requirements for at least
the past 90 days. YES x    NO ¨

Indicate by check mark whether the registrant is an accelerated filed (as defined in Rule 12b-2 of the
Exchange Act). YES ¨      NO x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 140,715,411 shares of Common Stock, $0.001 par value, were outstanding at October 01, 2004.

THE INFORMATION IN THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS FORM 10-K, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS DOCUMENT THE WORDS "ANTICIPATE," "ESTIMATE," "INTENDS," "PROJECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED.

ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS WE INCLUDE IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT

Form 10-Q

NET 1 U.E.P.S. TECHNOLOGIES, INC.

Table of Contents

1

Part I.            Financial Information

Item 1.            Financial Statements

NET 1 U.E.P.S. TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

2

NET 1 U.E.P.S. TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

3

NET 1 U.E.P.S. TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flow

See Notes to Interim Unaudited Condensed Consolidated Financial Statements

4

NET 1 U.E.P.S. TECHNOLOGIES, INC.
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 2004 and 2003
(All amounts stated in thousands of United States Dollars, unless otherwise stated)

1.            Basis of Presentation and Summary of Significant Accounting Policies

                Unaudited Interim Financial Information

                As a result of the transaction described fully in the 10-K, the former shareholders of Net 1 Applied Technology Holdings Limited ("Aplitec") obtained a majority voting interest in the Company on June 7, 2004. Generally accepted accounting principles require that the company whose shareholders retain a majority interest in a combined business be treated as the acquirer for accounting purposes. Consequently, this transaction has been accounted for as a reverse acquisition. Accordingly, all the financial information included in this Form 10-Q unless indicated otherwise for the periods up to June 7, 2004, i.e. for Q1 2004 represent the results of Aplitec prior to the date it acquired Net 1. For the period from June 7, 2004, i.e. for Q1 2005 the financial information presented herein represents the consolidated results of Aplitec and Net1 with Net1 as the acquired entity. Unless the context otherwise provides, the reference to the Company refers to Net1 and its subsidiaries (including Aplitec).

                The accompanying unaudited condensed consolidated financial statements include all majority owned subsidiaries over which the Company exercises control and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles ("GAAP") for interim financial reporting. The results of operations for the three months ended September 30, 2004 and 2003 are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

                These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004, as filed with the Securities and Exchange Commission on October 12, 2004. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

                Stock-Based Compensation

                The Company accounts for stock-based compensation in accordance with the provisions of Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Accordingly, compensation expense is not required to be recorded when stock options/ awards are granted to employees as long as the exercise price is not less than the fair market value of the stock when the option/ award is granted. In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123 allows the Company to continue to follow the present APB 25 guidelines, but requires pro-forma disclosures of net income and earnings per share as if the Company had adopted the provisions of the Statement. In December 2002, the FASB issued Statement of Financial Accounting Standard 148, Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB Statement No. 123 ("SFAS 148"), which provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. SFAS 148 requires prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation and amends Accounting Principle Board Opinion No. 28, Interim Financial Reporting ("APB 28"), to require disclosure about those effects in interim financial information. These disclosure requirements became effective for the Company's third quarter of fiscal 2003. The Company has continued to account for stock-based compensation under the provisions of APB 25 using the intrinsic value method.

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1.            Basis of Presentation and Summary of Significant Accounting Policies (continued)

                There was no stock compensation charge under APB 25 for either of the three months ended September 30, 2004 and 2003. Had compensation expense for share options granted under the stock option plan been determined based on fair value at the grant dates consistent with the method required in accordance with SFAS 123, the Company's net income and earnings per share in accordance with US GAAP for the three months ended September 30, 2004 and 2003 would have been as presented in the pro-forma disclosures below:

                Translation of foreign currencies

                The functional currency of the Company is the South African Rand and its reporting currency is the United States Dollar. The current rate method is used to translate the financial statements of the Company to United States Dollars. Under the current rate method, assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average rates for the period. Translation gains and losses are reported in accumulated other comprehensive income in shareholders' equity.

                Foreign exchange transactions are translated at the spot rate ruling at the date of the transaction. Monetary items are translated at the closing spot rate at the balance sheet date. Transactional gains and losses are recognized in income for the period.

2.            Goodwill and Intangible Assets

                On July 1, 2002 the Company adopted SFAS 142 for US GAAP purposes, which required that goodwill and certain intangible assets with indefinite useful lives, including those recorded in past business combinations, no longer be amortized, but instead be tested for impairment at least annually. The standard also required the completion of a transitional impairment test with any resulting impairment identified treated as a cumulative effect of a change in accounting principle.

                Prior to SFAS 142, the Company assessed goodwill for impairment based on the guidance in Accounting Principles Board Opinion No. 17, Intangible Assets and SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and had to evaluate the periods of amortization continually to determine whether later events and circumstances warranted revised estimates of useful lives; impairment had to be recognized when the carrying amount exceeded the fair market value of the asset.

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2.            Goodwill and Intangible Assets (continued)

                Summarized below is the carrying value and accumulated amortization of the intangible assets that will continue to be amortized under SFAS 142, as well as the carrying amount of goodwill, which will no longer be amortized.

                The Company obtained its patent for the Funds Transfer System (FTS) on its acquisition of Net 1 Investment Holdings (Proprietary) Limited ("Net 1 Holdings") on July 12, 2000. 100% of Net 1 Holdings' issued share capital was acquired for a historical cost of approximately $3.2 million (or $3.9 million at the quarter end exchange rate of $1 : ZAR6.456), which was satisfied through the issuance of 9,750,000 of the Company's common shares. In addition, a deferred taxation adjustment was required to increase the historical carrying value to $4.8 million (or $1.9 million at the quarter end exchange rate of $1:ZAR6.456) . Net 1 Holdings was a holding company that did not generate significant revenues or expenses and did not have significant assets or liabilities other than the FTS patent rights for South Africa and surrounding territories, on which the Company's smart card applications are based.

                Aggregate amortization expense on the FTS patent for the quarter ended September 30, 2004 was approximately $0.15 million (three months to September 30, 2003: $0.13 million). Estimated amortization expense to be reported in future periods is estimated at $0.6 million per annum, however this amount could differ from the actual amortization as a result of new intangible asset acquisitions, changes in useful lives and other relevant factors.

                In December 2003 the Company entered into an agreement with various black economic empowerment partners (the "partners") whereby the partners would provide certain services, for example, debt collection and dispute resolution, related to the Cash Paymaster Services Northern contract. The Company total amount to be paid to the partners is approximately $2.3 million (or $2.6 million at the year end exchange rate of $1:ZAR6.456) . The amount paid will be amortized over the contract period of 3 years. Amortization for the three months to September 30, 2004 is approximately $0.2 million. Estimated amortization expense to be reported in future periods is estimated at $0.9 million per annum, however this amount could differ from the actual amortization as a result of changes in the contract period and other relevant factors.

                The customer contracts and exclusive licenses were valued by an independent third party and these assets were valued at approximately $0.1 million and $4.5 million, respectively, with estimated useful lives of 5 and 7 years respectively. Amortization expense for the customer contracts and exclusive licenses for the three months ended September 30, 2004 is $0.006 million and $0.16 million, respectively. Estimated amortization expense for the customer contracts and exclusive license to be reported in future periods is estimated at $0.024 million and $0.64 million per annum, respectively. These amounts could differ from the actual amortization as a result of changes in the useful lives and other relevant factors.

                As required by SFAS 141 goodwill has been allocated to the Company's reportable UEPS Transaction-based activities, UEPS-based financial services and Hardware, software and related technology sales business segments as follows:

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2.            Goodwill and Intangible Assets (continued)

As required by SFAS 142, the standard has not been retroactively applied to the results for the periods prior to adoption.

3.            Capital structure and creditor rights attached to the B Class Loans

                The balance sheet reflects two classes of equity, namely common stock and linked units.

                The linked units comprise the following instruments which are linked and cannot be traded separately:

                •                 A right to special convertible preferred stock,

                •                 B Class preferred stock in Net 1 Applied Technologies South Africa Limited ("New Aplitec") and 

                •                 B Class loans issued by New Aplitec 

                Although the linked units include certain instruments (the B Class preferred stock and the B Class loans) that are legally equity of a subsidiary of the Company, they have been treated as equity of the Company and recorded as part of shareholders' equity in these consolidated financial statements, in recognition of their substance, which is economically equivalent to that of common stock.

                The B Class loans referred to above are not considered to be a liability in accordance with SFAS 150, Accounting for Certain Financial Instruments with Characteristics of Both Equity and Liability, as New Aplitec does not have an obligation to transfer assets to its shareholders in respect of the loans. In addition, any distributions relating to the loans are solely at the discretion of New Aplitec.

                Voting rights –The holder of a convertible preference share has the same voting rights as a common shareholder. Therefore, a linked unit-holder is able to vote on the same matters as a common shareholder of the Company, including the selection of directors, corporate decisions submitted to shareholder vote, and decisions regarding distribution of earnings. In addition, the convertible preference shares do not provide any additional rights with respect to control of the Company above or beyond the common shareholder.

                Dividend rights – The corporate by-laws of the Company are such that the Company's common shareholders and linked unit holders have similar rights to the distribution of the Company's earnings.

                Liquidation rights – The corporate by-laws allow for the automatic conversion of the linked units into common stock of the Company thereby allowing linked unit holder to have identical liquidation rights to a common shareholder in the event liquidation.

                Sale rights – A linked unit holder can only dispose of its interest in the Company by 1) converting the linked units into common stock and 2) selling the common stock on the open market. Therefore, a holder of the linked units receives the same risk and rewards in market price fluctuation as a common stockholder of the Company. In addition, both groups of shareholders have similar means as to which it is able to liquidate its interest in the Company.

                Common stock

                Holders of shares of the Company's common stock are entitled to receive dividends and other distributions when declared by the Company's board of directors out of funds available. Payment of dividends and distributions is subject to certain restrictions of the state of Florida law, including the requirement that after making any distribution the Company must be able to meet its debts as they become due in the usual course of its business.

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3.            Capital structure and creditor rights attached to the B Class Loans (continued)

                Upon voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of common stock share ratably in the assets remaining after payments to creditors and provision for the preference of any preferred stock according to its terms. There are no pre-emptive or other subscription rights, conversion rights or redemption or scheduled installment payment provisions relating to shares of common stock. All of the outstanding shares of common stock are fully paid and non-assessable.

                Each holder of common stock is entitled to one vote per share for the election of directors and for all other matters to be voted on by shareholders. Holders of common stock may not cumulate their votes in the election of directors, and are entitled to share equally and ratably in the dividends that may be declared by the board of directors, but only after payment of dividends required to be paid on outstanding shares of preferred stock according to its terms. The shares of Company common stock are not subject to redemption.

                Special convertible preferred stock

                The special convertible preferred stock ranks, on parity, without preference and priority, with the Company's common stock with respect to dividend rights (except as described below) or rights upon liquidation, dissolution or winding up of the Company. The stock is junior in preference and priority to each other class or series of preferred stock or other equity security of the Company under terms which may be determined by the board of directors to expressly provide that such other security rank senior in preference or priority to the special convertible preferred stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Company.

                Provided that shares of special convertible preferred stock are outstanding, the Company's board will determine immediately prior to the declaration of any dividend or distribution (i) the portion, if any, of the Company's assets available for such dividend of distribution that is attributable to funds or assets from New Aplitec, regardless of the manner received ("the South African Amount"), and (ii) the portion of such funds or assets that is not from New Aplitec (the "Non South African Amount"). The South African Amount will not include amounts received from New Aplitec due to its liquidation, distribution or dividend after an insolvency or winding up.

                Provided that shares of special convertible preferred stock are outstanding, (i) any dividends or distributions by the Company's board of Non-South African Amounts must be paid pro rata to all holders of common stock and special convertible preferred stock, and (ii) and dividends or distributions by the Company's board of South African Amounts can be paid only to holders of common stock. The Company's board has complete discretion to declare a dividend or distribution with respect to South African Amounts or Non-South African Amounts.

                In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Company, all outstanding shares of special convertible preferred stock will automatically convert and holders of such stock will be entitled to receive pari passu with holders of common stock, any assets of the Company distributed for the benefit of its shareholders.

                Holders of special convertible preferred stock have the right to receive notice of, attend, speak and vote at general meetings of Net 1 U.E.P.S. Technologies, Inc ("Net 1") , and are entitled to vote on all matters on which holders of common stock are entitled to vote. Each holder of special convertible preferred stock present in person, or the person representing such holder, is entitled to a number of votes equal to the number of shares of common stock that would be issued upon conversion of the special convertible preferred stock held by such holder on the record date.

                B class preferred stock

                The Company owns 100% of the A class common stock and A class loans in issue of New Aplitec. The B class preferred stock rank pari passu with the New Aplitec A class stock in respect of participation in dividends and return of capital prior to winding-up of New Aplitec. The B class preferred stock shall not, however, participate in dividends or a return of capital on a winding-up of New Aplitec for any reason. However, the unit holders will participate, as the B class preference stock will automatically convert into Company common stock on a winding-up of New Aplitec. The B class preferred stock cannot be sold or transferred other than to the Company pursuant to the occurrence of a trigger event. Therefore, the B class preferred stock, the B class loans and the rights to receive Company special convertible preferred stock are linked together and cannot be traded separately.

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3.            Capital structure and creditor rights attached to the B Class Loans (continued)

                The holders of B class preferred stock will only be entitled to vote on matters which directly affect the rights attaching to the B class preferred stock. At every general meeting of New Aplitec at which more than one class of shareholders are present and entitled to vote, unit holders of the South African Trust which in turn holds the B class preferred stock, shall be entitled, upon a poll, to that proportion of the total votes in New Aplitec which the aggregate number of B class preferred stock held bears to the aggregate number of all shares entitled to be voted at such meeting (provided that no resolution for the declaration of a dividend or for the disposal of any intellectual property of New Aplitec shall be passed unless unit holders representing 50.1% of the B class preferred stock present at the meeting in person or represented by proxy vote in favor of such resolution).

                B class loans

                The B class loans are unsecured and repayable as and when directed by the board of directors of New Aplitec provided that no capital may be repaid until at least 30 days have lapsed from the date of drawdown of the loans, and subject to South African Exchange Control approval. The loans will bear interest at such rates as may be determined by the board of directors of New Aplitec at the beginning of each year, but shall not be more than the prime rate as quoted by Standard Bank of South Africa Limited from time to time. Interest, if so declared by the board of directors of New Aplitec, will be payable by New Aplitec semi-annually in arrears.

                Conversion of special convertible preferred stock to common stock

                Special convertible preferred stock is convertible into shares of common stock on a one-for-one basis upon the occurrence of trigger event. With each converted share of special convertible preferred stock that is converted, the Company will receive

                •                 1.228070 B class preference shares; and 

                •                 such holder's interest in the New Aplitec B loan accounts 

                Upon conversion, all rights with respect to shares for special convertible preferred stock will cease. Converted shares will be cancelled and have the status of authorized but unissued preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the board of directors.

                During the three months ended September 30, 2004, 15,168,802 special convertible preferred shares were converted to common stock. The trigger events that gave rise to these conversions were requested by linked unit-holders to sell and/or covert 18,628,353 linked units. The net result of these conversions was that 18,628,353 B class preferred stock and B class loans were ceded to Net1, which converted 15,168,802 special convertible preferred stock to 15,168,802 common stock in return for the ownership of the 18,628,353 B class preferred shares and B class loans. As a result of the conversion, the number of common stock has increased 15,168,802 and the number of special convertible preferred stock has decreased by 15,168,802. In addition, as a consequence of the conversion, the Company now owns 18,628,353 B class preferred shares and B class loans. The reduction in the B class preferred stock from $0.038 million to $0.035 million is due to the cession to the Company of the B class preferred stock as a result of the trigger events. The value of the B class preferred stock held by the Company is eliminated on consolidation.

4.            Earnings per share

                Earnings per share has been presented separately for each of the two classes of equity. However, the entire consolidated net income of the Company is attributable to the shareholders of the Company comprising both the holders of Net 1 common stock and the holders of linked units. As described in Note 2, the linked units have the same rights and entitlements as those attached to common shares.

                Basic earnings per common share and per linked unit has been calculated by dividing the net income by the weighted average number of common shares and linked units respectively, outstanding during each period. Diluted earnings per share has been calculated to give effect to the number of additional common shares/ linked units that would have been outstanding if the potential dilutive instruments had been issued in each period.

                As a result of the transaction in the prior fiscal year the weighted average number of shares used to calculate earnings per share as of September 30, 2003 has been retroactively restated to reflect the capital structure after the transaction. For the purposes of this restatement, the Aplitec share capital has been presented as common stock as of September 30, 2003.

                The weighted average number of shares for the three months ended September 30, 2004 presented below includes the common shares as well as the special convertible preferred shares as the shareholders that hold these shares have the same rights and entitlements as those attached to the common shares.

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4.            Earnings per share (continued)

                The following tables detail the weighted average number of shares used for the calculation of earnings per share as of September 30, 2004 and 2003.