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 March 31, 2005
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
NET1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 65-0903895 |
| (State or other jurisdiction | (IRS Employer |
| of incorporation or organization) | Identification No.) |
President Place, 4th Floor, Cnr.
Jan Smuts Avenue and Bolton Road
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
filer (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: 163,050,808 shares of Common Stock, $0.001 par value, were outstanding at March 31, 2005.
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-Q, 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
NET1 UEPS TECHNOLOGIES, INC.
Table of Contents
1
Part I. Financial Information
Item 1. Financial Statements
NET1 UEPS TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
| Unaudited | Audited | |||||
| March 31, | June 30, | |||||
| 2005 | 2004 | |||||
| (In thousands, except share data) | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 92,712 | $ | 80,282 | ||
| Accounts receivable | 31,769 | 18,196 | ||||
| Finance loans receivable, net of allowances of – March: $7,059; June: $8,387 | 8,830 | 9,300 | ||||
| Deferred expenditure on smart cards | 3,514 | 6,031 | ||||
| Inventory | 1,662 | 1,054 | ||||
| Deferred income taxes | 3,473 | 2,549 | ||||
| Total current assets | 141,960 | 117,412 | ||||
| LONG TERM RECEIVABLE | 1,027 | 1,106 | ||||
| PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED | ||||||
| DEPRECIATION OF – March: $19,818; June: $23,225 | 7,327 | 7,638 | ||||
| EQUITY ACCOUNTED INVESTMENT | 1,346 | 878 | ||||
| GOODWILL | 14,933 | 15,212 | ||||
| INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF – March: | ||||||
| $4,625; June: $3,019 | 8,725 | 10,386 | ||||
| TOTAL ASSETS | 175,318 | 152,632 | ||||
| LIABILITIES | ||||||
| CURRENT LIABILITIES | ||||||
| Bank overdraft | - | 19 | ||||
| Accounts payable | 17,990 | 23,693 | ||||
| Income taxes payable | 14,660 | 24,119 | ||||
| Total current liabilities | 32,650 | 47,831 | ||||
| DEFFERRED INCOME TAXES | 13,988 | 8,961 | ||||
| LONG TERM LIABILITIES | - | 252 | ||||
| TOTAL LIABILITIES | 46,638 | 57,044 | ||||
| SHAREHOLDERS’ EQUITY | ||||||
| COMMON STOCK | ||||||
| Authorized: 500,000,000 with $0.001 par value; | ||||||
| Issued and outstanding shares - March: 163,050,808; June: 135,235,220 | 163 | 135 | ||||
| SPECIAL CONVERTIBLE PREFERRED STOCK | ||||||
| Authorized: 300,000,000 with $0.001 par value; | ||||||
| Issued and outstanding shares - March: 165,151,550; June: 192,967,138 | 165 | 193 | ||||
| B CLASS PREFERENCE SHARES | ||||||
| Authorized: 330,000,000 with $0.001 par value; | ||||||
| Issued and outstanding shares (net of shares held by the Company) - March: | ||||||
| 209,890,130; June: 236,977,187 | 33 | 38 | ||||
| ADDITIONAL PAID-IN-CAPITAL | 71,686 | 71,681 | ||||
| ACCUMULATED OTHER COMPREHENSIVE INCOME | 13,711 | 15,039 | ||||
| RETAINED EARNINGS | 42,922 | 8,502 | ||||
| TOTAL SHAREHOLDERS’ EQUITY | 128,680 | 95,588 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 175,318 | $ | 152,632 | ||
See Notes to Unaudited Condensed Consolidated Financial Statements
2
NET1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations
| Three months ended | Nine months ended | |||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| (In thousands, except share data) | (In thousands, except share data) | |||||||||||
| REVENUE | $ | 45,667 | $ | 36,274 | $ | 134,885 | $ | 91,463 | ||||
| EXPENSE | ||||||||||||
| COST OF GOODS SOLD, IT PROCESSING, | ||||||||||||
| SERVICING AND SUPPORT | 12,428 | 9,949 | 41,207 | 28,206 | ||||||||
| GENERAL AND ADMINISTRATION | 11,436 | 8,325 | 33,804 | 25,625 | ||||||||
| DEPRECIATION AND AMORTIZATION | 1,668 | 1,693 | 4,897 | 4,110 | ||||||||
| REORGANIZATION CHARGES | - | 3,291 | - | 3,537 | ||||||||
| OPERATING INCOME | 20,135 | 13,016 | 54,977 | 29,985 | ||||||||
| INTEREST INCOME, net | 294 | 903 | 1,497 | 2,464 | ||||||||
| INCOME BEFORE INCOME TAXES | 20,429 | 13,919 | 56,474 | 32,449 | ||||||||
| INCOME TAX EXPENSE | 8,619 | 6,389 | 22,534 | 13,896 | ||||||||
| NET INCOME BEFORE EARNINGS FROM EQUITY | ||||||||||||
| ACCOUNTED INVESTMENT | 11,810 | 7,530 | 33,940 | 18,553 | ||||||||
| EARNINGS FROM EQUITY ACCOUNTED | ||||||||||||
| INVESTMENT | 147 | - | 480 | - | ||||||||
| NET INCOME | $ | 11,957 | $ | 7,530 | $ | 34,420 | $ | 18,553 | ||||
| Basic earnings per share, in cents – common stock | ||||||||||||
| and linked units | 3.64 | 3.90 | 10.49 | 9.61 | ||||||||
| Diluted earnings per share, in cents – common stock | ||||||||||||
| and linked units | 3.57 | 3.90 | 10.30 | 9.61 | ||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
3
NET1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Movements in Shareholders’
Equity
| Three months ended | Nine months ended | |||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| (In thousands) | (In thousands) | |||||||||||
| COMMON STOCK | ||||||||||||
| Balance, beginning of period | $ | 157 | $ | 39 | $ | 135 | $ | 39 | ||||
| Conversion to common stock from special | ||||||||||||
| convertible preferred stock | 6 | - | 28 | - | ||||||||
| Balance, end of period | 163 | 39 | 163 | 39 | ||||||||
| SPECIAL CONVERTIBLE PREFERRED STOCK | ||||||||||||
| Balance, beginning of period | 171 | - | 193 | - | ||||||||
| Conversion from special convertible preferred | ||||||||||||
| stock to common stock | (6 | ) | - | (28 | ) | - | ||||||
| Balance, end of period | 165 | - | 165 | - | ||||||||
| B CLASS PREFERENCE SHARES | ||||||||||||
| Balance, beginning of period | 34 | - | 38 | - | ||||||||
| Cessation of B class preference shares to Net1 | ||||||||||||
| as a result of trigger events | (1 | ) | - | (5 | ) | - | ||||||
| Balance, end of period | 33 | - | 33 | - | ||||||||
| ADDITIONAL PAID IN CAPITAL | ||||||||||||
| Balance, beginning of period | 71,685 | 40,538 | 71,681 | 40,538 | ||||||||
| Conversion to common stock from special | ||||||||||||
| convertible preferred stock | 3,212 | - | 15,515 | - | ||||||||
| Cessation of B class preference shares and B | ||||||||||||
| class loans to Net1 as a result of trigger events | (3,211 | ) | - | (15,510 | ) | - | ||||||
| Balance, end of period | 71,686 | 40,538 | 71,686 | 40,538 | ||||||||
| ACCUMULATED OTHER COMPREHENSIVE | ||||||||||||
| INCOME | ||||||||||||
| Balance, beginning of period | 25,008 | 8,455 | 15,039 | (962 | ) | |||||||
| Movement in foreign currency translation | ||||||||||||
| reserve | (11,297 | ) | 4,798 | (1,328 | ) | 14,215 | ||||||
| Balance, end of period | 13,711 | 13,253 | 13,711 | 13,253 | ||||||||
| RETAINED EARNINGS | ||||||||||||
| Balance, beginning of period | 30,965 | 41,912 | 8,502 | 30,889 | ||||||||
| Net income for the period | 11,957 | 7,530 | 34,420 | 18,553 | ||||||||
| Balance, end of period | 42,922 | 49,442 | 42,922 | 49,442 | ||||||||
| Total shareholders’ equity | $ | 128,680 | $ | 103,272 | $ | 128,680 | $ | 103,272 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements
4
NET1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
| Three months ended | Nine months ended | |||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||
| (In thousands) | (In thousands) | |||||||||||
| Cash flows from operating activities | ||||||||||||
| Cash received from customers | $ | 18,941 | $ | 35,611 | $ | 127,910 | $ | 92,969 | ||||
| Cash paid to suppliers and employees | (21,365 | ) | (16,407 | ) | (81,864 | ) | (49,580 | ) | ||||
| Interest received | 3,815 | 3,654 | 11,645 | 10,755 | ||||||||
| Finance costs paid | (3,517 | ) | (2,621 | ) | (10,131 | ) | (8,161 | ) | ||||
| Income taxes paid | - | (3,490 | ) | (31,984 | ) | (10,626 | ) | |||||
| Net cash (used in) provided by operating | ||||||||||||
| activities | (2,126 | ) | 16,747 | 15,576 | 35,357 | |||||||
| Cash flows from investing activities | ||||||||||||
| Capital expenditures | (1,260 | ) | (454 | ) | (2,982 | ) | (2,392 | ) | ||||
| Proceeds from disposal of property, plant and equipment | 8 | 15 | 29 | 33 | ||||||||
| Acquisition of contract rights | - | (1,329 | ) | - | (1,329 | ) | ||||||
| Net cash used in investing activities | (1,252 | ) | (1,768 | ) | (2,953 | ) | (3,688 | ) | ||||
| Cash flows from financing activities | ||||||||||||
| Repayment of bank overdrafts | - | - | (19 | ) | - | |||||||
| Dividends paid | - | - | - | (5,088 | ) | |||||||
| Net cash used in financing activities | - | - | (19 | ) | (5,088 | ) | ||||||
| Effect of exchange rate changes on cash | (9,226 | ) | 4,602 | (174 | ) | 12,170 | ||||||
| Net (decrease) increase in cash and cash equivalents | (12,604 | ) | 19,581 | 12,430 | 38,751 | |||||||
| Cash and cash equivalents – beginning of period | 105,316 | 73,483 | 80,282 | 54,313 | ||||||||
| Cash and cash equivalents at end of period | $ | 92,712 | $ | 93,064 | $ | 92,712 | $ | 93,064 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements
5
NET1 UEPS TECHNOLOGIES, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2005 and 2004
(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
On June 7, 2004, the Company completed a transaction, which is more fully described in the Company’s Annual Report on Form 10-K for the year ended June 30, 2004, in which the former shareholders of Net1 Applied Technology Holdings Limited, or Aplitec, acquired a majority voting interest in the Company. In accordance with generally accepted accounting principles, the Company accounted for the Aplitec transaction as a reverse acquisition, which requires that the company whose shareholders retain a majority voting interest in a combined business be treated as the acquiror for accounting purposes. Therefore, for the three and nine months ended March 31, 2005, the Company’s condensed consolidated financial statements reflect the operations of Net1 and its consolidated subsidiaries and for the three and nine months ended March 31, 2004, reflect the operations of Aplitec and its consolidated subsidiaries, but not Net1. References to the “Company” refer to Net1 and its consolidated subsidiaries, including Aplitec, unless the context otherwise requires. References to Net1 are references solely to Net1 UEPS Technologies, Inc.
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 and nine months ended March 31, 2005 and 2004 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 Principles 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 under fixed plans 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. The Company has continued to account for stock-based compensation under the provisions of APB 25 using the intrinsic value method.
FASB Statement 123 (