Florida | 7389 | 65-0903895 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Dr. Serge C.P. Belamant Net 1 UEPS Technologies, Inc. President Place, 4th Floor Cnr. Jan Smuts Avenue and Bolton Road Rosebank, Johannesburg, South Africa Tel: (2711) 343-2000 Fax: (2711) 880-7080 | Marjorie Sybul Adams, Esq. DLA Piper Rudnick Gray Cary US LLP 1251 Avenue of the Americas New York, NY 10020 Tel: (212) 835-6000 Fax: (212) 835-6001 | Chris Ewing, Esq. Cliffe Dekker Inc 1 Protea Place Sandown, South Africa Tel: (2711) 290-7120 Fax: (2711) 290-7300 | Paul Kumleben, Esq. Davis Polk & Wardwell 99 Gresham Street London, EC2V 7NG England Tel: (4420) 7418-1300 Fax: (4420) 7418-1400 |
The information in this prospectus is not complete and may be changed. The selling shareholders and, if the over-allotment is exercised by the underwriters, we may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and the selling shareholders and, if the over-allotment is exercised by the underwriters, we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discounts and commissions | $ | $ | ||||||
Proceeds, before expenses, to selling shareholders | $ | $ |
Morgan Stanley | JPMorgan |
Robert W. Baird & Co. | Jefferies & Company, Inc. | Thomas Weisel Partners LLC |
Page | ||||
Prospectus Summary | 1 | |||
Risk Factors | 11 | |||
Forward Looking Statements | 30 | |||
Use of Proceeds | 31 | |||
Price Range of Common Stock | 31 | |||
Dividend Policy | 31 | |||
Capitalization | 33 | |||
Selected Consolidated Financial Data | 34 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 36 | |||
Business | 74 | |||
Corporate History | 99 | |||
Government Regulation | 102 | |||
Management | 107 | |||
Certain Relationships and Related Party Transactions | 115 | |||
Principal and Selling Shareholders | 117 | |||
Description of Capital Stock | 121 | |||
Shares Eligible for Future Sale | 125 | |||
Enforceability of Civil Liabilities | 127 | |||
Material U.S. Federal Tax Consequences for Non-U.S. Holders of Common Stock | 128 | |||
Underwriting | 131 | |||
Legal Matters | 134 | |||
Experts | 134 | |||
Where You Can Find Additional Information | 135 | |||
Index to Consolidated Financial Statements | F-1 |
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Common stock offered by the selling shareholders | shares | |
Common stock outstanding prior to this offering, as of March 31, 2005 | 27,175,135 shares | |
Special convertible preferred stock outstanding prior to this offering, as of March 31, 2005 | 27,525,259 shares | |
Special convertible preferred stock converted into common stock and sold in this offering | shares | |
Common stock outstanding after this offering | shares | |
Special convertible preferred stock outstanding after this offering | shares | |
Use of proceeds | Certain of the selling shareholders may exercise options to purchase the shares of common stock that they are selling in this offering. We will not receive any proceeds from this offering other than proceeds we receive from the exercise of any of these options and from any shares sold pursuant to the exercise by the underwriters of the over-allotment option. We will use any proceeds we receive for working capital and general corporate purposes. | |
Purposes of this offering | To achieve a broader shareholder base, to increase visibility in the U.S. marketplace and to provide increased liquidity for our shareholders. The offering is also intended to provide our existing South African shareholders who desire to sell their shares with the opportunity to sell their shares in a broadly marketed underwriting. | |
Proposed Nasdaq National Market symbol | UEPS | |
• | 27,525,259 shares of common stock issuable upon conversion of an equal number of outstanding shares of our special convertible preferred stock; and | |
• | 2,906,980 shares of common stock issuable upon the exercise of options and other stock-based awards outstanding as of March 31, 2005, granted under our 2004 Stock Incentive Plan at a weighted average exercise price of $1.50 per share. | |
• | reflects a one-for-six reverse stock split of our common stock and special convertible preferred stock which became effective on June 13, 2005. The effect of this reverse stock split was to decrease the number of issued and outstanding shares by a factor of six and correspondingly increase the earnings per share by a factor of six; and | |
• | assumes no exercise of the underwriters’ over-allotment option. |
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Nine Months | |||||||||||||||||||||
Ended | |||||||||||||||||||||
March 31, | Year Ended June 30, | ||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||
Consolidated Statements of Operations Data: | |||||||||||||||||||||
Revenue | $ | 134,885 | $ | 91,463 | $ | 131,098 | $ | 74,924 | $ | 51,793 | |||||||||||
Cost of goods sold, IT processing, servicing and support | 41,207 | 28,206 | 39,134 | 25,935 | 14,170 | ||||||||||||||||
General and administrative charges | 33,804 | 25,625 | 39,677 | 26,399 | 21,637 | ||||||||||||||||
Depreciation and amortization | 4,897 | 4,110 | 5,676 | 3,323 | 3,128 | ||||||||||||||||
Reorganization costs | — | 3,537 | 11,133 | — | — | ||||||||||||||||
Operating income | 54,977 | 29,985 | 35,478 | 19,267 | 12,858 | ||||||||||||||||
Interest, net | 1,497 | 2,464 | 3,640 | 2,600 | 1,381 | ||||||||||||||||
Income before taxes | 56,474 | 32,449 | 39,118 | 21,867 | 14,239 | ||||||||||||||||
Income tax expense | 22,534 | 13,896 | 25,927 | 9,473 | 5,554 | ||||||||||||||||
Income from continuing operations | 34,420 | 18,553 | 13,278 | 11,942 | 8,518 | ||||||||||||||||
Net income attributable to shareholders(1) | 34,420 | 18,553 | 13,278 | 13,117 | 8,518 | ||||||||||||||||
Income from continuing operations per share: | |||||||||||||||||||||
Basic(2) | $ | 0.63 | $ | 0.58 | $ | 0.40 | $ | 0.37 | $ | 0.27 | |||||||||||
Diluted(2) | $ | 0.62 | $ | 0.58 | $ | 0.38 | $ | 0.37 | $ | 0.27 | |||||||||||
Cash dividend per share(3) | $ | — | $ | — | $ | 1.14 | $ | 0.12 | $ | 0.06 |
(1) | Net income attributable to shareholders for 2003 includes an extraordinary item of $0.9 million and the results of a change in accounting policy of $0.3 million as a result of the adoption and application ofStatement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. |
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(2) | The basic and diluted earnings per share have been restated as a result of the transaction described in notes 1, 10 and 11 to our consolidated financial statements and the one-for-six reverse stock split. |
(3) | The cash dividend per share has been restated as a result of the transaction described in notes 1, 10 and 11 to our consolidated financial statements and the one-for-six reverse stock split. The cash dividend per share for 2004 was calculated based on 32,161,190 Aplitec shares and represents the dividend paid to shareholders of Aplitec as a result of the transaction. |
As of March 31, 2005 | ||||
(In thousands) | ||||
Consolidated Balance Sheet Data: | ||||
Cash and cash equivalents | $ | 92,712 | ||
Total current assets | 141,960 | |||
Total assets | 175,318 | |||
Total current liabilities | 32,650 | |||
Total debt | — | |||
Total shareholders’ equity | 128,680 |
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The provincial governments of South Africa are our largest customers, and any non-renewal or termination of our government social welfare contracts would materially and adversely affect our business and revenues, results of operations and cash flows. |
We may not maintain our current level of profitability or rates of growth. |
• | continue to enroll new smart card users in South Africa; | |
• | hire and train personnel capable of marketing, installing and integrating our solution, supporting customers and managing operations; | |
• | continue to expand the range of applications that use our technology and to market these applications successfully; |
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• | successfully identify and enter other markets for our products; and | |
• | manage the costs of our business, including the costs associated with maintaining and developing our technology and expanding our operations internationally. |
Changes in current government regulations relating to social welfare grants could adversely affect our revenues and cash flows. |
We may have difficulty managing our growth which could limit our ability to increase sales and cash flow. |
• | implementing appropriate operational and financial systems; | |
• | expanding our sales and marketing infrastructure and capabilities; | |
• | providing adequate training and supervision to maintain high quality standards; and | |
• | preserving our culture and values. |
There are risks relating to operating in South Africa that could adversely affect our business, operating results, cash flows and financial condition. |
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There are risks relating to other countries in which we intend to operate that could adversely affect our future business, operating results, cash flows and financial condition. |
• | political and economic instability; | |
• | loss due to civil strife, acts of war, guerrilla activities and insurrection; | |
• | competition from existing market participants that may have a longer history in or greater familiarity with the foreign markets we enter; | |
• | government interventions and protectionism; | |
• | potential adverse changes in laws and regulatory practices, including import and export license requirements, tariffs, legal structures and tax laws; | |
• | cancellation of contractual rights; | |
• | trade barriers; | |
• | difficulties in staffing and managing operations; | |
• | import and export restrictions; | |
• | adverse tax consequences; | |
• | the lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights; | |
• | security and safety of employees; | |
• | restrictions on the right to convert or repatriate currency or export assets; | |
• | greater risk of uncollectible accounts and longer collection cycles; | |
• | currency fluctuations; | |
• | indigenization and empowerment programs; | |
• | logistical and communications challenges; | |
• | changes in labor conditions; | |
• | discrimination against U.S. companies; and | |
• | exposure to liability under U.S. securities laws, including the Foreign Corrupt Practices Act. |
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Volatility in the South African Rand to U.S. dollar exchange rate may adversely affect our reported operating results. |
The loss of the services of Dr. Belamant or any of our other executive officers would adversely affect our business. |
We face a highly competitive employment market and may not be successful in attracting and retaining a sufficient number of skilled employees, particularly in the technical and sales areas and senior management. |
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We pre-fund the payment of social welfare grants on behalf of our South African government customers and any payment defaults by these customers would adversely affect our operations. |
Our ability to operate our wage payment and insurance products businesses may be limited by existing South African banking and financial services laws and regulations. |
We may face competition from the incumbent retail banks in South Africa in the unbanked market segment. |
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We may face increased competition as our sales and product offerings increase. |
Patent competition may adversely affect our products or processes, and limited patent protection, a lack of proprietary protection and the potential to incur costly litigation could be harmful to our operations. |
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The copyrights in earlier versions of our UEPS software are jointly owned which may reduce our future revenues. |
Our current license agreement with Visa imposes long-term restrictions on our ability to license rights in our technology and could inhibit our ability to realize additional revenue from these rights in our technology. |
Our license agreement with Visa substantially impacts our ability to defend and enforce our patents licensed to Visa and could substantially inhibit our ability to protect the rights in our technology. |
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We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business. |
Escalating pricing pressures from our retail customers may adversely affect our business. |
Our strategy of partnering with companies outside South Africa may not be successful. |
System failures, including breaches in the security of our system, could harm our business. |
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We may not be able to exploit technological advances quickly and successfully, which could impair our competitive position and operations. |
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We may incur material losses in connection with our distribution of cash to recipients of social welfare grants. |
We may not recover outstanding amounts owed to our micro-finance businesses. |
We may undertake acquisitions that could increase our costs or liabilities or be disruptive to our business. |
We may be subject to privacy laws in South Africa and other jurisdictions in which we operate. |
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Our international operations require us to comply with a number of U.S. and international regulations. |
We may incur significant costs to ensure compliance with U.S. corporate governance and accounting requirements. |
We may not be able to meet the accelerated filing and internal control reporting requirements imposed by the SEC. |
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We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock. |
We may have difficulty raising necessary capital to fund operations as a result of market price volatility for our shares of common stock. |
Our quarterly operating results may fluctuate significantly as a result of factors outside of our control, which could cause the market price of our common stock to decline. |
• | demand for and acceptance of our new product offerings; |
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• | delays in the implementation and delivery of our products and services, which may impact the timing of our recognition of revenue; | |
• | variations in product mix and cost during any period; | |
• | development of new relationships and maintenance and enhancement of existing relationships with customers and strategic partners; | |
• | difficulties with component supplies, manufacturing or distribution; | |
• | deferral of customer contracts in anticipation of product or service enhancements; | |
• | timing of commencement, implementation or completion of major implementation projects; | |
• | the relative mix of net revenues from established markets, including South Africa, and unestablished markets; | |
• | fluctuations in currency exchange rates; | |
• | the fixed nature of many of our expenses; and | |
• | industry and economic conditions, including competitive pressures and inventory obsolescence. |
The period between our initial contact with a potential customer and the sale of our products or services to that customer tends to be long and may be subject to delays which may have an impact on our revenues. |
We may become subject to a U.S. tax liability for failing to withhold on certain distributions on instruments issued in connection with the Aplitec transaction. |
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Shipments of our electronic payment systems may be delayed by factors outside of our control, which can harm our reputation and our relationships with our customers. |
Force majeure events, such as terrorist attacks, other acts of violence or war, political instability and health epidemics may adversely affect us. |
The price for shares of our common stock quoted on the Over-the-Counter Bulletin Board may not be indicative of their fair value. |
We expect that the price of our shares of common stock will fluctuate substantially. |
• | the gain or loss of significant orders or customers; | |
• | announcements of our participation in a joint venture or partnership; |
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• | recruitment or departure of key personnel; | |
• | the announcement of new products or service enhancements by us or our competitors; | |
• | changes in government regulation that directly or indirectly affect our business; | |
• | quarterly variations in our results of operations; | |
• | changes in earnings estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ earning estimates; | |
• | developments in our industry; | |
• | events and news related to the regions where we and our subsidiaries conduct our business; and | |
• | general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors. |
Future sales of our common stock could reduce our stock price. |
One of our shareholders will continue to hold a significant block of shares in our company after completion of this offering and, as a result, will continue to have significant influence over our company. |
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We have not paid dividends in the past and it is not our current policy to pay dividends, and any return on investment may be limited to the value of our stock. |
• | declaration of the dividend is approved by a majority of the holders of New Aplitec B class preference shares, | |
• | all B loan accounts have been paid by New Aplitec and | |
• | the dividend does not exceed 50% of New Aplitec’s annual earnings. |
You may have difficulties enforcing a U.S. judgment against us, our executive officers and directors and some of the experts named in this prospectus or asserting U.S. securities laws claims in South Africa. |
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Quarter Ended | High | Low | ||||||
Sep. 30, 2002 | $ | 7.20 | $ | 5.40 | ||||
Dec. 31, 2002 | $ | 7.80 | $ | 5.40 | ||||
Mar. 31, 2003 | $ | 7.80 | $ | 5.40 | ||||
June 30, 2003 | $ | 12.72 | $ | 6.36 | ||||
Sep. 30, 2003 | $ | 14.40 | $ | 11.40 | ||||
Dec. 31, 2003 | $ | 40.80 | $ | 13.32 | ||||
Mar. 31, 2004 | $ | 60.90 | $ | 31.32 | ||||
June 30, 2004 | $ | 64.20 | $ | 9.00 | ||||
Sep. 30, 2004 | $ | 14.10 | $ | 6.66 | ||||
Dec. 31, 2004 | $ | 16.20 | $ | 5.94 | ||||
Mar. 31, 2005 | $ | 21.30 | $ | 10.56 | ||||
June 30, 2005 (through June 16, 2005) | $ | 18.60 | $ | 13.68 |
• | declaration of the dividend is approved by a majority of the holders of New Aplitec B class preference shares; |
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• | all B loan accounts have been paid by New Aplitec; and | |
• | the dividend does not exceed 50% of New Aplitec’s annual earnings. |
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As of March 31, 2005 | |||||
(In thousands) | |||||
Shareholders’ equity: | |||||
Common stock, $0.001 par value; 83,333,333 shares authorized; 27,175,135 shares issued and outstanding | $ | 27 | |||
Special convertible preferred stock, $0.001 par value; 50,000,000 shares authorized; 27,525,259 shares issued and outstanding | 28 | ||||
B Class preferred stock, $0.001 par value; 330,000,000 shares authorized; 209,809,130 shares issued and outstanding (net of shares held by us) | 33 | ||||
Additional paid-in-capital | 71,959 | ||||
Accumulated other comprehensive income | 13,711 | ||||
Retained earnings | 42,922 | ||||
Total shareholders’ equity | $ | 128,680 | |||
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Nine Months Ended | ||||||||||||||||||||||||||||
March 31, | Year Ended June 30, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||||||||||
Revenue | $ | 134,885 | $ | 91,463 | $ | 131,098 | $ | 74,924 | $ | 51,793 | $ | 73,243 | $ | 68,355 | ||||||||||||||
Cost of goods sold, IT processing, servicing and support | 41,207 | 28,206 | 39,134 | 25,935 | 14,170 | 21,983 | 20,568 | |||||||||||||||||||||
General and administrative charges(1) | 33,804 | 25,625 | 39,677 | 26,399 | 21,637 | 36,779 | 33,754 | |||||||||||||||||||||
Depreciation and amortization(1) | 4,897 | 4,110 | 5,676 | 3,323 | 3,128 | — | — | |||||||||||||||||||||
Reorganization costs | — | 3,537 | 11,133 | — | — | — | — | |||||||||||||||||||||
Operating income(2) | 54,977 | 29,985 | 35,478 | 19,267 | 12,858 | 14,641 | 14,083 | |||||||||||||||||||||
Interest, net | 1,497 | 2,464 | 3,640 | 2,600 | 1,381 | 1,443 | 1,419 | |||||||||||||||||||||
Income before taxes | 56,474 | 32,449 | 39,118 | 21,867 | 14,239 | 16,084 | 15,503 | |||||||||||||||||||||
Income tax expense | 22,534 | 13,896 | 25,927 | 9,473 | 5,554 | 7,100 | 4,337 | |||||||||||||||||||||
Income from continuing operations | 34,420 | 18,553 | 13,278 | 11,942 | 8,518 | 8,069 | 7,557 | |||||||||||||||||||||
Net income attributable to shareholders(3) | $ | 34,420 | $ | 18,553 | $ | 13,278 | $ | 13,117 | $ | 8,518 | $ | 8,069 | $ | 7,557 |
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Nine Months Ended | |||||||||||||||||||||||||||||
March 31, | Year Ended June 30, | ||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||||||
Income from continuing operations per share(4): | |||||||||||||||||||||||||||||
Basic | $ | 0.63 | $ | 0.58 | $ | 0.40 | $ | 0.37 | $ | 0.27 | $ | 0.24 | $ | 0.30 | |||||||||||||||
Diluted | $ | 0.62 | $ | 0.58 | $ | 0.38 | $ | 0.37 | $ | 0.27 | $ | 0.24 | $ | 0.24 | |||||||||||||||
Cash dividend per share(5) | $ | — | $ | — | $ | 1.14 | $ | 0.12 | $ | 0.06 | $ | — | $ | — |
(1) | Prior to 2002, we recorded depreciation as part of general and administrative charges. For the years ended June 30, 2001 and 2000, general and administrative charges included $3.7 million and $4.8 million, respectively, related to depreciation and amortization. After 2002, we began to present depreciation and amortization as a separate line item. |
(2) | Includes $160,000 and $50,000 of other operating income for the years ended June 30, 2001 and 2000, respectively. |
(3) | Net income attributable to shareholders for 2003 includes an extraordinary item of $0.9 million and the results of a change in accounting policy of $0.3 million as a result of the adoption and application ofStatement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. |
(4) | The basic and diluted earnings per share have been restated as a result of transaction described in notes 1, 10 and 11 to our consolidated financial statements. |
(5) | The cash dividend per share has been restated as a result of the transaction described in notes 1, 10 and 11 to our consolidated financial statements. The cash dividend per share for 2004 was calculated based on 32,161,190 Aplitec shares and represents the dividend paid to shareholders of Aplitec as a result of the transaction. |
Nine Months Ended | ||||||||||||||||||||||||||||
March 31, | Year Ended June 30, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Additional Operating Data: | ||||||||||||||||||||||||||||
Cash flow from operating activities | $ | 15,576 | $ | 35,357 | $ | 41,895 | $ | 17,644 | $ | 11,753 | $ | 19,005 | $ | 12,677 | ||||||||||||||
Operating income margin | 41% | 33% | 27% | 26% | 25% | 20% | 21% | |||||||||||||||||||||
Capital expenditures | 2,982 | 2,392 | 2,802 | 6,712 | 1,919 | 3,640 | 3,460 |
As of | ||||||||||||||||||||||||
March 31, | As of June 30, | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 92,712 | $ | 80,282 | $ | 54,313 | $ | 32,150 | $ | 27,033 | $ | 10,172 | ||||||||||||
Total current assets | 141,960 | 117,412 | 78,705 | 45,480 | 43,163 | 33,628 | ||||||||||||||||||
Total assets | 175,318 | 152,632 | 98,359 | 56,496 | 59,575 | 49,776 | ||||||||||||||||||
Total current liabilities | 32,650 | 47,831 | 19,861 | 10,178 | 9,929 | 14,537 | ||||||||||||||||||
Total debt | — | 252 | — | — | — | 751 | ||||||||||||||||||
Total shareholders’ equity | $ | 128,680 | $ | 95,588 | $ | 70,504 | $ | 41,724 | $ | 45,033 | $ | 33,490 |
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Transaction-Based Activities |
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KwaZulu-Natal | Limpopo | North West | Northern Cape | Eastern Cape | ||||||||||||||||
Original year of contract award | 1992 | 1996 | 1995 | 1997 | 2002 | |||||||||||||||
Date acquired by Net 1 | October 1998 | October 1998 | October 1998 | October 1998 | n/a | |||||||||||||||
Date of first Net 1 contract | January 2000 | December 2003 | July 2000 | January 2000 | November 2003 | |||||||||||||||
UEPS smart card implementation date | January 2000 | January 2004 | October 2000 | September 2001 | November 2003 | |||||||||||||||
Merchant acquiring rollout date | December 2004 | March 2005 | n/a | July 2004 | October 2004 | |||||||||||||||
Current contract expiration date (including extensions) | December 2005 | November 2006 | June 2005 | December 2006 | November 2005 | |||||||||||||||
Further possible extensions | 1 year | 2 years | Negotiable | Negotiable | 2 years | |||||||||||||||
Number of beneficiaries paid by CPS (as of March 31, 2005) | 1,431,119 | 859,874 | 272,352 | 124,816 | 633,207 |
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Smart Card Accounts |
Financial Services |
Hardware, Software and Related Technology Sales |
• | hardware for the back-end switching and settlement system; | |
• | customization of the UEPS software to suit local conditions, including UEPS management system, automated teller machine, or ATM, integration and POS device integration; | |
• | customization of an applications suite to client’s specific requirements, such as banking, retail or wage payments; | |
• | ongoing software and hardware support/maintenance; and | |
• | license fees. |
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Cost of Goods Sold, IT Processing, Servicing and Support |
General and Administrative |
Depreciation and Amortization |
Reorganization Charges |
Interest Income |
Income Taxes |
Earnings from Equity-Accounted Investment |
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Government Decision Making |
Rate of Adoption by System Participants |
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Total Spent | Total cash withdrawal | Total Spent and Withdrawn | ||||||||||
Jan-04 | 3 | 7 | 10 | |||||||||
Mar-04 | 386 | 599 | 985 | |||||||||
May-04 | 668 | 1351 | 2019 | |||||||||
Jul-04 | 3135 | 9297 | 12432 | |||||||||
Sep-04 | 4942 | 11260 | 16202 | |||||||||
Nov-04 | 16770 | 46741 | 63511 | |||||||||
Jan-05 | 22307 | 61231 | 83538 | |||||||||
Mar-05 | 42266 | 149003 | 191269 |
Implementation of New UEPS Systems |
Deferred Taxation |
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Accounts Receivable and Provision for Doubtful Debts |
Research and Development |
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Nine Months | ||||||||||||||||||||||||||||
Ended March 31, | Year Ended June 30, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
Actual exchange rates | ||||||||||||||||||||||||||||
ZAR: $ average exchange rate | 6.1546 | 6.9971 | 6.9001 | 9.0568 | 10.1477 | 7.6109 | 6.3487 | |||||||||||||||||||||
Highest ZAR: $ rate during period | 6.7635 | 7.8030 | 7.8030 | 12.3300 | 13.8450 | 8.1900 | 9.1950 | |||||||||||||||||||||
Lowest ZAR: $ rate during period | 5.5350 | 6.0576 | 6.0576 | 6.9900 | 7.9946 | 6.7300 | 5.9350 | |||||||||||||||||||||
Rate at end of period | 6.3099 | 6.3525 | 6.2750 | 7.4700 | 10.3700 | 8.0536 | 6.8250 |
Translation Exchange Rates |
Nine Months | ||||||||||||||||||||||||||||
Ended March 31, | Year Ended June 30, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
Income and expense items: $1 = ZAR | 6.1433 | 6.9734 | 6.9183 | 9.0568 | 10.1477 | 7.6109 | 6.3487 | |||||||||||||||||||||
Balance sheet items: $1 = ZAR | 6.3099 | 6.3525 | 6.2750 | 7.4700 | 10.3700 | 8.0536 | 6.8250 |
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Nine Months Ended March 31, 2005 Compared to Nine Months Ended March 31, 2004 |
• | fluctuations in the exchange rate between the South African rand, or ZAR, which is our functional currency, and the U.S. dollar, which is our reporting currency; | |
• | commencement during the first quarter of the Nedbank project to deliver POS devices and the conclusion of the project during the third quarter; and | |
• | higher volumes in transaction-based activities and financial services. |
45
Consolidated Overall Results of Operations |
In United States Dollars | ||||||||||||
(US GAAP) | ||||||||||||
Nine Months Ended March 31, | ||||||||||||
2005 | 2004 | $ % | ||||||||||
$ ‘000 | $ ‘000 | Change | ||||||||||
Revenue | 134,885 | 91,463 | 47 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 41,207 | 28,206 | 46 | % | ||||||||
General and administrative | 33,804 | 25,625 | 32 | % | ||||||||
Depreciation and amortization | 4,897 | 4,110 | 19 | % | ||||||||
Reorganization charges | — | 3,537 | (100 | )% | ||||||||
Operating income | 54,977 | 29,985 | 83 | % | ||||||||
Interest income, net | 1,497 | 2,464 | (39 | )% | ||||||||
Income before income taxes | 56,474 | 32,449 | 74 | % | ||||||||
Income tax expense | 22,534 | 13,896 | 62 | % | ||||||||
Net income before earnings from equity accounted investment | 33,940 | 18,553 | 83 | % | ||||||||
Earnings from equity accounted investment | 480 | — | ||||||||||
Net income | 34,420 | 18,553 | 86 | % | ||||||||
In South African Rand | ||||||||||||
(US GAAP) | ||||||||||||
Nine Months Ended March 31, | ||||||||||||
2005 | 2004 | ZAR % | ||||||||||
ZAR ‘000 | ZAR ‘000 | Change | ||||||||||
Revenue | 830,391 | 635,992 | 31 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 254,899 | 194,876 | 31 | % | ||||||||
General and administrative | 207,668 | 178,693 | 16 | % | ||||||||
Depreciation and amortization | 30,084 | 28,661 | 5 | % | ||||||||
Reorganization charges | — | 24,665 | (100 | )% | ||||||||
Operating income | 337,740 | 209,097 | 62 | % | ||||||||
Interest income, net | 9,197 | 17,182 | (46 | )% | ||||||||
Income before income taxes | 346,937 | 226,279 | 53 | % | ||||||||
Income tax expense | 138,433 | 96,902 | 43 | % | ||||||||
Net income before earnings from equity accounted investment | 208,504 | 129,377 | 61 | % | ||||||||
Earnings from equity accounted investment | 2,949 | — | ||||||||||
Net income | 211,453 | 129,377 | 63 | % | ||||||||
46
47
In United States Dollars (SA GAAP) | ||||||||||||||||||||
Nine Months Ended March 31, | ||||||||||||||||||||
2005 | % of | 2004 | % of | |||||||||||||||||
$ ‘000 | Total | $ ‘000 | Total | % Change | ||||||||||||||||
Operating Segment | ||||||||||||||||||||
Consolidated revenue: | ||||||||||||||||||||
Transaction-based activities | 77,538 | 57 | % | 59,875 | 66 | % | 30 | % | ||||||||||||
Smart card accounts | 26,362 | 20 | % | 15,762 | 17 | % | 67 | % | ||||||||||||
Financial services | 15,642 | 12 | % | 12,384 | 14 | % | 26 | % | ||||||||||||
Hardware, software and related technology sales | 15,343 | 11 | % | 3,312 | 3 | % | 363 | % | ||||||||||||
Total consolidated revenue | 134,885 | 100 | % | 91,333 | 100 | % | 48 | % | ||||||||||||
Consolidated operating income (loss): | ||||||||||||||||||||
Transaction-based activities | 31,629 | 55 | % | 18,626 | 68 | % | 70 | % | ||||||||||||
Smart card accounts | 11,983 | 21 | % | 7,165 | 26 | % | 67 | % | ||||||||||||
Financial services | 7,579 | 13 | % | 5,150 | 19 | % | 47 | % | ||||||||||||
Hardware, software and related technology sales | 6,036 | 11 | % | (236 | ) | (1 | )% | |||||||||||||
Corporate/Eliminations | (174 | ) | 0 | % | (3,442 | ) | (12 | )% | (95 | )% | ||||||||||
Total consolidated operating income | 57,053 | 100 | % | 27,263 | 100 | % | 109 | % | ||||||||||||
In South African Rand (SA GAAP) | ||||||||||||||||||||
Nine Months Ended March 31, | ||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||
ZAR | % of | ZAR | % of | |||||||||||||||||
‘000 | Total | ‘000 | Total | % Change | ||||||||||||||||
Operating Segment | ||||||||||||||||||||
Consolidated revenue: | ||||||||||||||||||||
Transaction-based activities | 477,346 | 57 | % | 416,937 | 66 | % | 14 | % | ||||||||||||
Smart card accounts | 162,292 | 20 | % | 109,755 | 17 | % | 48 | % | ||||||||||||
Financial services | 96,297 | 12 | % | 86,238 | 14 | % | 12 | % | ||||||||||||
Hardware, software and related technology sales | 94,456 | 11 | % | 23,062 | 3 | % | 310 | % | ||||||||||||
Total consolidated revenue | 830,391 | 100 | % | 635,992 | 100 | % | 31 | % | ||||||||||||
Consolidated operating income (loss): | ||||||||||||||||||||
Transaction-based activities | 194,605 | 55 | % | 129,661 | 68 | % | 50 | % | ||||||||||||
Smart card accounts | 73,728 | 21 | % | 49,878 | 26 | % | 48 | % | ||||||||||||
Financial services | 46,632 | 13 | % | 35,847 | 19 | % | 30 | % | ||||||||||||
Hardware, software and related technology sales | 37,138 | 11 | % | (1,643 | ) | (1 | )% | |||||||||||||
Corporate/Eliminations | (1,071 | ) | 0 | % | (23,960 | ) | (12 | )% | (96 | )% | ||||||||||
Total consolidated operating income | 351,032 | 100 | % | 189,783 | 100 | % | 85 | % | ||||||||||||
Transaction-Based Activities |
48
Total Year to | ||||||||||||||||
Three Months Ended | Date | |||||||||||||||
Dec. 2004 | Mar. 2005 | (includes | ||||||||||||||
(includes | (includes | Northern Cape, | ||||||||||||||
Sept. 2004 | Northern | Northern Cape, | Eastern Cape | |||||||||||||
(includes | Cape and | Eastern Cape and | and KwaZulu- | |||||||||||||
Province | Northern Cape) | Eastern Cape | KwaZulu-Natal) | Natal) | ||||||||||||
POS devices installed | 340 | 926 | 1,140 | 2,406 | ||||||||||||
Number of new UEPS participating retail locations | 265 | 435 | 741 | 1,441 | ||||||||||||
Value of transactions processed through POS devices (in $ ’000) | 3,563 | 10,596 | 45,529 | 59,688 | ||||||||||||
Value of transactions processed through POS devices (in ZAR ’000) | 22,711 | 64,518 | 273,800 | 361,029 |
• | Full operation of Eastern Cape contract: During the first two quarters of fiscal 2004, the implementation of our social welfare grant payment system in the Eastern Cape Province was not fully operational. We processed 5,480,916 transactions during the nine months ended March 31, 2005, compared with 3,889,783 transactions during the nine months ended March 31, 2004. | |
• | Higher volumes from our other provincial contracts: We have experienced growth in most of the other provinces where we administer payments of social welfare grants. This growth has been mainly due to new qualifying criteria announced in 2003 by the South African government that increased the eligibility for child support grants, and a significant increase in the number of disability grants approved by the various provincial governments. In total, the volume of payments processed during the nine months ended March 31, 2005 increased 21% to 29,435,978 from the comparable period during 2004. | |
• | Annual price increase adjustments: Under our Service Level Agreements with provincial governments, we are entitled to annual price increases based upon factors such as average grant size, volumes and the South African Consumer Price Index, or “CPI” rates. |
49
Nine Months Ended March 31, | ||||||||||||||||||||||||
Average Price per Beneficiary Payment | ||||||||||||||||||||||||
Number of Payments | ||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||
Province | 2005 | 2004 | $(1) | $(2) | ZAR(1) | ZAR(2) | ||||||||||||||||||
KwaZulu-Natal | 12,494,917 | 10,194,132 | 3.30 | 2.55 | 20.27 | 17.767 | ||||||||||||||||||
Limpopo | 8,012,425 | 6,893,862 | 2.30 | 1.94 | 14.14 | 13.50 | ||||||||||||||||||
North West | 2,366,301 | 2,332,115 | 2.92 | 2.31 | 17.93 | 16.10 | ||||||||||||||||||
Northern Cape | 1,081,419 | 1,029,949 | 3.41 | 3.01 | 20.97 | 20.97 | ||||||||||||||||||
Eastern Cape | 5,480,916 | 3,889,783 | 2.26 | 2.00 | 13.91 | 13.91 | ||||||||||||||||||
Total | 29,435,978 | 24,339,841 | ||||||||||||||||||||||
(1) | The average price per payment excludes $0.90 (ZAR 5.50) related to the provision of smart card accounts. |
(2) | The average price per payment excludes $0.79 (ZAR 5.50) related to the provision of smart card accounts. |
• | the increased volumes and the higher average price per payment as detailed in the table above; | |
• | the reduced losses on the Eastern Cape contract, where we incurred significant expenses during the first half of fiscal 2004 in connection with the process of optimizing the logistics of the Eastern Cape implementation, such as the number of vehicles, number of payment points and number of beneficiaries at each payment point; | |
• | the conversion of our operations in the Limpopo province during November 2003 to February 2004 to a full smart card-based payment system; and | |
• | the increase in the number of social grant beneficiaries paid through our POS device infrastructure at participating retailers, instead of payment using more costly automated cash dispensers. |
Smart Card Accounts |
Financial Services |
50
At March 31, | At March 31, | At March 31, | At March 31, | ||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||||
$ % | ZAR % | ||||||||||||||||||||||||
$ ‘000 | $ ‘000 | Change | ZAR ‘000 | ZAR ‘000 | Change | ||||||||||||||||||||
Finance loans receivable: | |||||||||||||||||||||||||
Traditional microlending — gross | 11,143 | 12,043 | (7 | )% | 70,313 | 76,502 | (8 | )% | |||||||||||||||||
Provisions | (7,059 | ) | (8,052 | ) | (12 | )% | (44,541 | ) | (51,148 | ) | (13 | )% | |||||||||||||
Finance loans receivable: | |||||||||||||||||||||||||
Traditional microlending — net of provisions | 4,084 | 3,991 | 2 | % | 25,772 | 25,354 | 2 | % | |||||||||||||||||
Finance loans receivable: | |||||||||||||||||||||||||
UEPS-based lending — net and gross (i.e., no provisions) | 4,746 | 4,550 | 4 | % | 29,944 | 28,906 | 4 | % | |||||||||||||||||
8,830 | 8,541 | 55,716 | 54,260 | ||||||||||||||||||||||
Nine Months Ended March 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
% of | % of | |||||||||||||||
Total | Profit | Total | Profit | |||||||||||||
Revenue | Margin % | Revenue | Margin % | |||||||||||||
UEPS-based lending | 48 | % | 76 | % | 18 | % | 66 | % | ||||||||
Traditional microlending | 52 | % | 22 | % | 82 | % | 26 | % | ||||||||
100 | % | 100 | % | |||||||||||||
Hardware, Software and Related Technology Sales |
51
52
• | reorganization costs associated with the Aplitec transaction; and | |
• | fluctuations in the exchange rate between the ZAR and the U.S. dollar. |
Consolidated Overall Results of Operations |
In United States Dollars | ||||||||||||
(US GAAP) | ||||||||||||
Year Ended June 30, | ||||||||||||
2004 | 2003 | $ % | ||||||||||
$ ‘000 | $ ‘000 | Change | ||||||||||
Revenue | 131,098 | 74,924 | 75 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 39,134 | 25,935 | 51 | % | ||||||||
General and administrative | 39,677 | 26,399 | 50 | % | ||||||||
Depreciation and amortization | 5,676 | 3,323 | 71 | % | ||||||||
Reorganization charges | 11,133 | — | ||||||||||
Operating income | 35,478 | 19,267 | 84 | % | ||||||||
Interest income, net | 3,640 | 2,600 | 40 | % | ||||||||
Income before income taxes | 39,118 | 21,867 | 79 | % | ||||||||
Income tax expense | 25,927 | 9,473 | 174 | % | ||||||||
Net income before minority interest, earnings from equity accounted investment, extraordinary item and cumulative effect of an accounting charge | 13,191 | 12,394 | 6 | % | ||||||||
Minority interest | — | 452 | (100 | )% | ||||||||
Earnings from equity accounted investment | 87 | — | ||||||||||
Extraordinary item | — | 857 | (100 | )% | ||||||||
Cumulative effect of an accounting change | — | 318 | (100 | )% | ||||||||
Net income | 13,278 | 13,117 | 1 | % | ||||||||
53
In South African Rand | ||||||||||||
(US GAAP) | ||||||||||||
Year Ended June 30, | ||||||||||||
2004 | 2003 | ZAR | ||||||||||
ZAR | ZAR | % | ||||||||||
‘000 | ‘000 | Change | ||||||||||
Revenue | 898,768 | 678,568 | 32 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 265,003 | 234,879 | 13 | % | ||||||||
General and administrative | 274,497 | 239,090 | 15 | % | ||||||||
Depreciation and amortization | 39,268 | 30,096 | 30 | % | ||||||||
Reorganization charges | 77,021 | — | ||||||||||
Operating income | 242,979 | 174,503 | 39 | % | ||||||||
Interest income, net | 25,183 | 23,548 | 7 | % | ||||||||
Income before income taxes | 268,162 | 198,051 | 35 | % | ||||||||
Income tax expense | 179,371 | 85,795 | 109 | % | ||||||||
Net income before minority interest, earnings from equity accounted investment, extraordinary item and cumulative effect of an accounting charge | 88,791 | 112,256 | (21 | )% | ||||||||
Minority interest | — | 4,094 | (100 | )% | ||||||||
Earnings from equity accounted investment | 602 | — | ||||||||||
Extraordinary item | — | 7,762 | (100 | )% | ||||||||
Cumulative effect of an accounting change | — | 2,880 | (100 | )% | ||||||||
Net income | 89,393 | 118,804 | (25 | )% | ||||||||
54
In United States Dollars (SA GAAP) | ||||||||||||||||||||
Year Ended June 30, | ||||||||||||||||||||
2004 | % of | 2003 | % of | % | ||||||||||||||||
$ ‘000 | Total | $ ‘000 | Total | Change | ||||||||||||||||
Operating Segment | ||||||||||||||||||||
Consolidated revenue: | ||||||||||||||||||||
Transaction-based activities | 83,275 | 64 | % | 44,058 | 58 | % | 89 | % | ||||||||||||
Smart card accounts | 26,584 | 20 | % | 13,750 | 18 | % | 93 | % | ||||||||||||
Financial services | 16,633 | 13 | % | 13,407 | 18 | % | 24 | % | ||||||||||||
Hardware, software and related technology sales | 4,606 | 3 | % | 5,135 | 6 | % | (10 | )% | ||||||||||||
Total consolidated revenue | 131,098 | 100 | % | 76,350 | 100 | % | 72 | % | ||||||||||||
Consolidated operating income (loss): | ||||||||||||||||||||
Transaction-based activities | 24,913 | 63 | % | 10,196 | 53 | % | 144 | % | ||||||||||||
Smart card accounts | 12,055 | 31 | % | 5,500 | 28 | % | 119 | % | ||||||||||||
Financial services | 6,778 | 17 | % | 4,705 | 24 | % | 44 | % | ||||||||||||
Hardware, software and related technology sales | 1,232 | 3 | % | 680 | 4 | % | 81 | % | ||||||||||||
Corporate/ Eliminations | (5,735 | ) | (14 | )% | (1,663 | ) | (9 | )% | 245 | % | ||||||||||
Total consolidated operating income | 39,243 | 100 | % | 19,418 | 100 | % | 102 | % | ||||||||||||
55
In South African Rand (SA GAAP) | |||||||||||||||||||||
Year Ended June 30, | |||||||||||||||||||||
2004 | 2003 | ||||||||||||||||||||
ZAR | % of | ZAR | % of | % | |||||||||||||||||
‘000 | Total | ‘000 | Total | Change | |||||||||||||||||
Operating Segment | |||||||||||||||||||||
Consolidated revenue: | |||||||||||||||||||||
Transaction-based activities | 567,910 | 63 | % | 399,016 | 58 | % | 42 | % | |||||||||||||
Smart card accounts | 183,917 | 20 | % | 124,533 | 18 | % | 48 | % | |||||||||||||
Financial services | 115,077 | 13 | % | 121,426 | 18 | % | (5 | )% | |||||||||||||
Hardware, software and related technology sales | 31,864 | 4 | % | 46,509 | 6 | % | (31 | )% | |||||||||||||
Total consolidated revenue | 898,768 | 100 | % | 691,484 | 100 | % | 30 | % | |||||||||||||
Consolidated operating income (loss): | |||||||||||||||||||||
Transaction-based activities | 172,360 | 64 | % | 92,343 | 53 | % | 87 | % | |||||||||||||
Smart card accounts | 83,599 | 31 | % | 49,813 | 28 | % | 68 | % | |||||||||||||
Financial services | 46,696 | 17 | % | 42,605 | 24 | % | 10 | % | |||||||||||||
Hardware, software and related technology sales | 8,525 | 3 | % | 6,162 | 4 | % | 38 | % | |||||||||||||
Corporate/Eliminations | (40,166 | ) | (15 | )% | (15,055 | ) | (9 | )% | 167 | % | |||||||||||
Total consolidated operating income | 271,014 | 100 | % | 175,868 | 100 | % | 54 | % | |||||||||||||
Transaction-Based Activities |
• | Full operation of Eastern Cape contract: The implementation of our social welfare grant payment system in the Eastern Cape province became fully operational in 2004, which dramatically increased the number of benefits processed during the year in that province to 5,482,237 transactions, compared with 1,050,833 in the prior year. | |
• | Significantly higher volumes under existing provincial contracts: We experienced significant growth in most of the other provinces where we administer payments of social welfare grants. This growth is mainly due to new qualifying criteria announced in 2003 by the South African government that increased the eligibility for child support grants. In total, the volume of payments processed during the year ended June 30, 2004 increased by 43% to 33,439,462 compared to the year ended June 30, 2003. | |
• | Annual price increase adjustments: Under our Service Level Agreements with provincial governments, we are entitled to annual price increases based upon factors such as average grant size, volumes and the South African Consumer Price Index, or “CPI” rates. |
56
Year Ended June 30, | ||||||||||||||||||||||||
Average Price per Beneficiary Payment | ||||||||||||||||||||||||
Number of Payments | ||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||||||||||
Province | 2004 | 2003 | (US$)(1) | (US$)(2) | (ZAR)(1) | (ZAR)(2) | ||||||||||||||||||
KwaZulu-Natal | 14,037,541 | 11,125,544 | 2.66 | 1.80 | 18.26 | 15.82 | ||||||||||||||||||
Limpopo | 9,402,141 | 7,435,326 | 2.04 | 1.45 | 13.98 | 12.64 | ||||||||||||||||||
North West | 3,127,808 | 2,940,723 | 2.35 | 1.82 | 16.09 | 15.99 | ||||||||||||||||||
Northern Cape | 1,389,735 | 1,180,735 | 3.05 | 2.27 | 20.97 | 20.07 | ||||||||||||||||||
Eastern Cape | 5,482,237 | 1,050,833 | 2.03 | 1.64 | 13.91 | 14.41 | ||||||||||||||||||
Total | 33,439,462 | 23,733,161 | ||||||||||||||||||||||
(1) | The average price per payment excludes $0.70 (ZAR 5.50) related to the provision of smart card accounts. |
(2) | The average price per payment excludes $0.70 (ZAR 5.00) related to the provision of smart card accounts. |
• | reduced losses on the Eastern Cape contract, on which we experienced significant losses during 2003 as a result of the substantial establishment costs and very low transaction volumes during the contract implementation period. The increased costs we incurred during the first half of 2004 in connection with the process of optimizing the logistics of the Eastern Cape implementation, such as number of vehicles, number of payment points and number of beneficiaries at each payment point, also resulted in reduced losses on the Eastern Cape contract during the second half of 2004; and | |
• | the conversion of our operations in the Limpopo province to a full smart card-based payment system. |
Smart Card Accounts |
57
Financial Services |
Year Ended June 30, | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
2004 | 2003 | $ % | ZAR | ZAR | ZAR % | |||||||||||||||||||
$ ‘000 | $ ‘000 | Change | ‘000 | ‘000 | Change | |||||||||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
Traditional microlending — gross | 12,609 | 10,963 | 15 | % | 79,124 | 81,890 | (3 | )% | ||||||||||||||||
Provisions | (8,352 | ) | (6,529 | ) | 28 | % | (52,410 | ) | (48,771 | ) | 8 | % | ||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
Traditional microlending — net of provisions | 4,257 | 4,434 | (4 | )% | 26,714 | 33,119 | (19 | )% | ||||||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
UEPS-based lending — net and gross (i.e., no provisions) | 5,043 | 3,194 | 58 | % | 31,647 | 23,861 | 33 | % | ||||||||||||||||
9,300 | 7,628 | 58,361 | 56,980 | |||||||||||||||||||||
Year Ended June 30, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
% of | Operating | % of | Operating | |||||||||||||
Total | Income | Total | Income | |||||||||||||
Revenue | Margin % | Revenue | Margin % | |||||||||||||
UEPS-based lending | 41 | % | 66 | % | 34 | % | 58 | % | ||||||||
Traditional microlending | 59 | % | 27 | % | 66 | % | 31 | % | ||||||||
100 | % | 100 | % | |||||||||||||
Hardware, Software and Related Technology Sales |
58
Corporate/Eliminations |
59
Consolidated Overall Results of Operations |
In United States Dollars | ||||||||||||
(US GAAP) | ||||||||||||
Year Ended June 30, | ||||||||||||
2003 | 2002 | $ % | ||||||||||
$ ‘000 | $ ‘000 | Change | ||||||||||
Revenue | 74,924 | 51,793 | 45 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 25,935 | 14,170 | 83 | % | ||||||||
General and administration | 26,399 | 21,637 | 22 | % | ||||||||
Depreciation and amortization | 3,323 | 3,128 | 6 | % | ||||||||
Reorganization charges | — | — | ||||||||||
Operating income | 19,267 | 12,858 | 50 | % | ||||||||
Interest income, net | 2,600 | 1,381 | 88 | % | ||||||||
Income before income taxes | 21,867 | 14,239 | 54 | % | ||||||||
Income tax expense | 9,473 | 5,554 | 71 | % | ||||||||
Net income before minority interest, earnings from equity accounted investment, extraordinary item and cumulative effect of an accounting charge | 12,394 | 8,685 | 43 | % | ||||||||
Minority interest | 452 | 167 | 171 | % | ||||||||
Earnings from equity accounted investment | — | — | ||||||||||
Extraordinary item | 857 | — | ||||||||||
Cumulative effect of an accounting charge | 318 | — | ||||||||||
Net income | 13,117 | 8,518 | 54 | % | ||||||||
60
In South African Rand | ||||||||||||
(US GAAP) | ||||||||||||
Year Ended June 30, | ||||||||||||
2003 | 2002 | |||||||||||
ZAR | ZAR | ZAR % | ||||||||||
‘000 | ‘000 | Change | ||||||||||
Revenue | 678,568 | 525,174 | 29 | % | ||||||||
Cost of goods sold, IT processing, servicing and support | 234,879 | 143,375 | 64 | % | ||||||||
General and administrative | 239,090 | 219,566 | 9 | % | ||||||||
Depreciation and amortization | 30,096 | 31,742 | (5 | )% | ||||||||
Reorganization charges | — | — | ||||||||||
Operating income | 174,503 | 130,491 | 34 | % | ||||||||
Interest income, net | 23,548 | 14,014 | 68 | % | ||||||||
Income before income taxes | 198,051 | 144,505 | 37 | % | ||||||||
Income tax expense | 85,795 | 56,360 | 52 | % | ||||||||
Net income before minority interest, earnings from equity accounted investment, extraordinary item and cumulative effect of an accounting change | 112,256 | 88,145 | 27 | % | ||||||||
Minority interest | 4,094 | 1,695 | 142 | % | ||||||||
Earnings from equity accounted investment | — | — | ||||||||||
Extraordinary item | 7,762 | — | ||||||||||
Cumulative effect of an accounting change | 2,880 | — | ||||||||||
Net income | 118,804 | 86,450 | 37 | % | ||||||||
61
In United States Dollars (SA GAAP) | ||||||||||||||||||||
Year Ended June 30, | ||||||||||||||||||||
2003 | % of | 2002 | % of | % | ||||||||||||||||
$ ‘000 | Total | $ ‘000 | Total | Change | ||||||||||||||||
Operating Segment | ||||||||||||||||||||
Consolidated revenue: | ||||||||||||||||||||
Transaction-based activities | 44,058 | 58 | % | 28,291 | 55 | % | 56 | % | ||||||||||||
Smart card accounts | 13,750 | 18 | % | 8,318 | 16 | % | 65 | % | ||||||||||||
Financial services | 13,407 | 18 | % | 10,465 | 20 | % | 28 | % | ||||||||||||
Hardware, software and related technology sales | 5,135 | 6 | % | 4,719 | 9 | % | 9 | % | ||||||||||||
Total consolidated revenue | 76,350 | 100 | % | 51,793 | 100 | % | 47 | % | ||||||||||||
Consolidated operating income (loss): | ||||||||||||||||||||
Transaction-based activities | 10,196 | 53 | % | 7,376 | 55 | % | 38 | % | ||||||||||||
Smart card accounts | 5,500 | 28 | % | 2,772 | 21 | % | 98 | % | ||||||||||||
Financial services | 4,705 | 24 | % | 900 | 7 | % | 423 | % | ||||||||||||
Hardware, software and related technology sales | 680 | 4 | % | 1,611 | 12 | % | (58 | )% | ||||||||||||
Corporate/Eliminations | (1,663 | ) | (9 | )% | 642 | 5 | % | |||||||||||||
Total consolidated operating income | 19,418 | 100 | % | 13,301 | 100 | % | 46 | % | ||||||||||||
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In South African Rand (SA GAAP) | ||||||||||||||||||||
Year Ended June 30, | ||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||
ZAR | % of | ZAR | % of | % | ||||||||||||||||
‘000 | Total | ‘000 | Total | Change | ||||||||||||||||
Operating Segment | ||||||||||||||||||||
Consolidated revenue: | ||||||||||||||||||||
Transaction-based activities | 399,016 | 58 | % | 287,095 | 55 | % | 39 | % | ||||||||||||
Smart card accounts | 124,533 | 18 | % | 84,404 | 16 | % | 48 | % | ||||||||||||
Financial services | 121,426 | 18 | % | 106,196 | 20 | % | 14 | % | ||||||||||||
Hardware, software and related technology sales | 46,509 | 6 | % | 47,890 | 9 | % | (3 | )% | ||||||||||||
Total consolidated revenue | 691,484 | 100 | % | 525,585 | 100 | % | 32 | % | ||||||||||||
Consolidated operating income (loss): | ||||||||||||||||||||
Transaction-based activities | 92,343 | 53 | % | 74,848 | 55 | % | 23 | % | ||||||||||||
Smart card accounts | 49,813 | 28 | % | 28,135 | 21 | % | 77 | % | ||||||||||||
Financial services | 42,605 | 24 | % | 9,131 | 7 | % | 367 | % | ||||||||||||
Hardware, software and related technology sales | 6,162 | 4 | % | 16,354 | 12 | % | (62 | )% | ||||||||||||
Corporate/Eliminations | (15,055 | ) | (9 | )% | 6,532 | 5 | % | |||||||||||||
Total consolidated operating income | 175,868 | 100 | % | 135,000 | 100 | % | 30 | % | ||||||||||||
Transaction-Based Activities |
• | New Eastern Cape contract: In November 2002, we commenced the implementation of a social welfare grant payment system in the Eastern Cape province. At year-end, we had processed benefits for 469,918 beneficiaries. The Eastern Cape contract generated revenue of $4.6 million (ZAR 47.1 million) in the last eight months in fiscal 2003. | |
• | Significantly higher volumes under existing provincial contracts: We experienced significant growth in most of the other provinces where we administer payments of social welfare grants. This growth is mainly due to new qualifying criteria announced by the South African government aimed at increasing the number of citizens eligible for social welfare grants. | |
• | Annual price increase adjustments: Under our Service Level Agreements with provincial governments, we are entitled to annual price increases based upon factors such as average grant size, volumes and the South African Consumer Price Index, or “CPI” rates. |
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Year Ended June 30, | ||||||||||||||||||||||||
Number of Payments | ||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||
Province | 2003 | 2002 | (US$)(1) | (US$)(2) | (ZAR)(1) | (ZAR)(2) | ||||||||||||||||||
KwaZulu-Natal | 11,125,544 | 8,834,917 | 1.80 | 1.23 | 15.82 | 12.48 | ||||||||||||||||||
Limpopo | 7,435,326 | 6,025,866 | 1.45 | 1.07 | 12.64 | 10.82 | ||||||||||||||||||
North West | 2,940,723 | 2,992,402 | 1.82 | 1.52 | 15.99 | 15.43 | ||||||||||||||||||
Northern Cape | 1,180,735 | 1,005,813 | 2.27 | 1.84 | 20.07 | 18.66 | ||||||||||||||||||
Eastern Cape | 1,050,833 | — | 1.64 | — | 14.41 | — | ||||||||||||||||||
Total | 23,733,161 | 18,858,998 | ||||||||||||||||||||||
(1) | The average price per payment excludes $0.70 (ZAR 5.00) related to the provision of smart card accounts. |
(2) | The average price per payment excludes $0.70 (ZAR 4.50) related to the provision of smart card accounts. |
Smart Card Accounts |
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Financial Services |
Year Ended June 30, | ||||||||||||||||||||||||
2003 | 2002 | $ % | 2003 | 2002 | ZAR % | |||||||||||||||||||
$ ‘000 | $ ‘000 | Change | ZAR ‘000 | ZAR ‘000 | Change | |||||||||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
Traditional microlending — gross | 10,963 | 7,971 | 38% | 81,890 | 82,664 | (1 | )% | |||||||||||||||||
Provisions | (6,529 | ) | (4,060 | ) | 61% | (48,771 | ) | (42,102 | ) | 17 | % | |||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
Traditional microlending — net of provisions | 4,434 | 3,911 | 13% | 33,119 | 40,562 | (18 | )% | |||||||||||||||||
Finance loans receivable: | ||||||||||||||||||||||||
UEPS-based lending — net and gross (i.e., no provisions) | 3,194 | 1,945 | 64% | 23,861 | 20,174 | 18 | % | |||||||||||||||||
7,628 | 5,856 | 56,980 | 60,736 | |||||||||||||||||||||
Year Ended June 30, | ||||||||||||||||
2003 | 2002 | |||||||||||||||
% of | Operating | % of | Operating | |||||||||||||
Total | Income | Total | Income | |||||||||||||
Revenue | Margin % | Revenue | Margin % | |||||||||||||
UEPS-based lending | 34% | 58% | 21% | 16% | ||||||||||||
Traditional microlending | 66% | 31% | 79% | 12% | ||||||||||||
100% | 100% | |||||||||||||||
• | The UEPS-based lending initiative was profitable, on a monthly basis, for the entire 2003 year. During the first half of 2002, UEPS-based lending was in the start-up stage and therefore we |
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incurred significant costs in connection with these activities. Accordingly, the operating income on these activities improved significantly from the break-even result achieved during 2002. | ||
• | Traditional microlending activity exhibited significant improvements in operating income margins following a management change in the second half of 2002. This new management focused heavily on cost controls and managing bad debt. We also established a dedicated collection department, which produced significant cost savings during 2003 as the amount of doubtful accounts written off and provisions for doubtful debts (calculated on the same basis as in previous years) was significantly reduced, while we made meaningful progress with the recovery of debts written off in prior years. The cost of running an internal collection department is also considerably less than our previous practice of outsourcing this function. |
Hardware, Software and Related Technology Sales |
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Nine Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Earnings per share (U.S. cents) | ||||||||
Basic earnings per common share and linked unit | ||||||||
— using shares in issue for period (as reported) | 62.9 | 57.7 | ||||||
— using shares issued as at March 31, 2005 (non-GAAP measure) | 61.8 | 57.7 | ||||||
Number of shares (thousands) | ||||||||
— weighted average number of shares (as reported) | 54,700 | 32,161 | ||||||
— number of shares in issue as at March 31, 2005 (used in non-GAAP measure) | 54,700 | 54,700 |
Year Ended June 30, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Earnings per share (U.S. cents) | ||||||||||||
Basic earnings per common share and linked unit | ||||||||||||
— using shares in issue for period (as reported) | 39.6 | 40.8 | 27.0 | |||||||||
— using shares issued as at March 31, 2005 (non-GAAP measure) | 24.6 | 24.0 | 15.6 | |||||||||
Number of shares (thousands) | ||||||||||||
— weighted average number of shares (as reported) | 33,581 | 32,161 | 31,215 | |||||||||
— number of shares in issue as at March 31, 2005 (used in non-GAAP measure) | 54,700 | 54,700 | 54,700 |
Quarterly Results of Operations |
In United States Dollars | |||||||||||||||||||||
Three Months Ended (SA GAAP) | |||||||||||||||||||||
June 30, | Mar 31, | Dec 31, | Sept 30, | Total | |||||||||||||||||
2003 | 2003 | 2002 | 2002 | YTD | |||||||||||||||||
(In thousands except per share data) | |||||||||||||||||||||
Revenue | 21,861 | 20,169 | 16,204 | 18,116 | 76,350 | ||||||||||||||||
Operating income (loss) | 5,676 | 5,493 | 3,388 | 4,861 | 19,418 | ||||||||||||||||
Net Income | 4,468 | 3,463 | 2,656 | 3,345 | 13,932 | ||||||||||||||||
Earnings per share (common stock and linked units) | |||||||||||||||||||||
Basic earnings per share (US cents) | 13.8 | 10.8 | 8.4 | 10.8 | 43.8 | ||||||||||||||||
Diluted earnings per share (US cents) | 13.8 | 10.8 | 8.4 | 10.8 | 43.8 |
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In United States Dollars | |||||||||||||||||||||
Three Months Ended (SA GAAP) | |||||||||||||||||||||
June 30, | Mar 31, | Dec 31, | Sept 30, | Total | |||||||||||||||||
2004 | 2004 | 2003 | 2003 | YTD | |||||||||||||||||
(In thousands except per share data) | |||||||||||||||||||||
Revenue | 39,765 | 36,144 | 29,338 | 25,851 | 131,098 | ||||||||||||||||
Operating income (loss) | 11,892 | 12,468 | 7,501 | 7,294 | 39,155 | ||||||||||||||||
Net Income | (4,570 | ) | 8,208 | 5,503 | 4,866 | 14,007 | |||||||||||||||
Earnings per share (common stock and linked units) | |||||||||||||||||||||
Basic earnings per share (US cents) | (12.0 | ) | 25.8 | 17.4 | 15.0 | 42.0 | |||||||||||||||
Diluted earnings per share (US cents) | (12.0 | ) | 25.8 | 17.4 | 15.0 | 40.2 |
In United States Dollars | |||||||||||||||||
Three Months Ended | |||||||||||||||||
(SA GAAP) | |||||||||||||||||
Mar 31, | Dec 31, | Sept 30, | Total | ||||||||||||||
2005 | 2004 | 2004 | YTD | ||||||||||||||
(In thousands except per share data) | |||||||||||||||||
Revenue | 45,667 | 45,995 | 43,223 | 134,885 | |||||||||||||
Operating income (loss) | 20,544 | 18,343 | 18,166 | 57,053 | |||||||||||||
Net income | 13,951 | 13,616 | 12,991 | 40,558 | |||||||||||||
Earnings per share (common stock and linked units) | |||||||||||||||||
Basic earnings per share (US cents) | 25.8 | 24.6 | 24.0 | 74.4 | |||||||||||||
Diluted earnings per share (US cents) | 25.2 | 24.6 | 23.4 | 72.6 |
• | cost of capital; | |
• | cost of financing; |
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• | opportunity cost of utilizing surplus cash; and | |
• | availability of tax efficient structures to moderate financing costs. |
Cash Flows from Operating Activities |
Cash Flows from Investing Activities |
Cash Flows from Financing Activities |
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Nine Months Ended March 31, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
$ ‘000 | $ ‘000 | ZAR ‘000 | ZAR ‘000 | |||||||||||||
Operating Segment | ||||||||||||||||
Transaction-based activities | 2,313 | 2,077 | 14,352 | 14,519 | ||||||||||||
Smart card accounts | — | — | — | — | ||||||||||||
Financial services | 669 | 111 | 4,118 | 775 | ||||||||||||
Hardware, software and related technology sales | — | 15 | — | 100 | ||||||||||||
Corporate/ Eliminations | — | 189 | — | 1,317 | ||||||||||||
Consolidated total | 2,982 | 2,392 | 18,470 | 16,711 | ||||||||||||
Year Ended June 30, | ||||||||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||||||||
$ ‘000 | $ ‘000 | $ ‘000 | ZAR ‘000 | ZAR ‘000 | ZAR ‘000 | |||||||||||||||||||
Operating Segment | ||||||||||||||||||||||||
Transaction-based activities | 2,371 | 6,043 | 943 | 16,435 | 54,729 | 9,574 | ||||||||||||||||||
Smart card accounts | — | — | — | — | — | — | ||||||||||||||||||
Financial services | 185 | 106 | 817 | 1,280 | 960 | 8,295 | ||||||||||||||||||
Hardware, software and related technology sales | 34 | 15 | 5 | 234 | 135 | 54 | ||||||||||||||||||
Corporate/ Eliminations | 218 | 548 | 153 | 1,512 | 4,967 | 1,549 | ||||||||||||||||||
Consolidated total | 2,808 | 6,712 | 1,918 | 19,461 | 60,791 | 19,472 | ||||||||||||||||||
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Payments Due by Period, as of March 31, 2005 (in $ ‘000s) | ||||||||||||||||||||||||||||
Due | Due | Due | Due | Due | More | |||||||||||||||||||||||
Within | Within | Within | Within | Within | than | |||||||||||||||||||||||
1 Year | 2 Years | 3 Years | 4 Years | 5 Years | 5 Years | Total | ||||||||||||||||||||||
Contractual obligations | — | — | — | — | — | — | — | |||||||||||||||||||||
Long term debt obligations | — | — | — | — | — | — | — | |||||||||||||||||||||
Long-term payables | — | — | — | — | — | — | — | |||||||||||||||||||||
Capital lease obligations | — | — | — | — | — | — | — | |||||||||||||||||||||
Operating lease obligations | 1,642 | 1,026 | 809 | 486 | 48 | 4 | 4,015 | |||||||||||||||||||||
Purchase obligations | 98 | — | — | — | — | — | 98 |
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Notional Amount | Strike Price | Maturity | ||||
USD 98,000 | ZAR 6.0542 | September 30, 2005 |
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Notional Amount | Strike Price | Maturity | ||||
EUR 16,250 | ZAR 7.8475 | July 12, 2004 | ||||
EUR 202,000 | ZAR 8.1822 | August 2, 2004 | ||||
EUR 16,250 | ZAR 7.8878 | August 10, 2004 | ||||
EUR 16,250 | ZAR 7.9299 | September 10, 2004 | ||||
EUR 16,250 | ZAR 7.9749 | October 12, 2004 | ||||
EUR 263,200 | ZAR 8.2129 | October 29, 2004 | ||||
EUR 4,243,000 | ZAR 8.5225 | January 7, 2005 | ||||
USD 167,900 | ZAR 6.2950 | September 22, 2004 |
None |
Notional Amount | Strike Price | Maturity | ||||
US$16,250 | ZAR 12.643 | January 8, 2003 |
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System Components |
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Our UEPS Platform |
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UEPS Smart Card Functionality |
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• | All ten fingers are captured, with three fingerprint images captured per finger. | |
• | The three fingerprint images for each finger are consolidated and filtered to create the best image for that finger. This results in ten-high quality fingerprint images. | |
• | The ten fingerprint images are scored and the four highest scoring images are used to generate fingerprint templates. A fingerprint template is a unique geometric representation of one fingerprint. | |
• | The card holder is verified against these four templates using the highest fingerprint matching threshold to ensure the best recordation process. This process assists to eliminate the false rejection of genuine card holders due to initial bad fingerprint template recordation. | |
• | The four fingerprint templates are signed by an “issuing UEPS smart card” and stored on the card holder’s smart card. |
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• | The costs of transporting beneficiaries and payment personnel to and from distribution points; | |
• | The time beneficiaries must spend waiting in line at distribution points rather than working or engaging in other activities; | |
• | The need to provide adequate staff, water, toilets, medical emergency services, shelters and security at distribution points; | |
• | The need to provide personnel to deal with beneficiary communications and inquiries; and | |
• | The need to create itineraries and schedules for payment delivery personnel, as well as to establish distribution centers and purchase vehicles to travel to distribution points. |
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• | the market introduction date; | |
• | the key features of the product; | |
• | the features of our UEPS technology which each product uses; | |
• | the types of fees we charge or currently plan to charge for the product; and | |
• | the target markets for the product: |
Year of | ||||||||||
Market | ||||||||||
Product | Introduction | Features | Types of Fees | Target Markets | ||||||
S2S Pension and Welfare | • 2000-2004 | • Ten-Digit Signature Codes — Offline and Online Loading • Automatic Credit • Multiple Audit Trail • Mutual Authentication • Transparent and Automatic Recovery • Biometric Identification | • Loading Fee per Beneficiary • Sales of Smartcards • Registration and Enrollment | • Government • Social Welfare Grant Beneficiaries | ||||||
S2S Wage Payment | • 2005 | • Ten-Digit Signature Codes — Offline and Online Loading • Multiple Wallets • Restricted Wallets • Multiple Audit Trails • Mutual Authentication • Transparent and Automatic Recovery • Biometric Identification • Interest Calculations | • Wage Loading Fee per Employee per Month • Equipment Sales per Payroll Clerk plus POS Terminals for the Payment of Wages in the Field or Factory • Sales of Smartcards • Mass Registration and Enrollment per Employee if Performed by us • Monthly Smart Card Account Fee per Employee per Month | • Employers • Employees | ||||||
S2S Medical Management, Patient Monitoring and Distribution | • 2005 | • Multiple Wallets • Restricted Wallets • Multiple Audit Trails • Mutual Authentication • Transparent and Automatic Recovery • Biometric Identification | • Technology Processing Fee per Smart Card per Month (Volume Based) • UEPS Software Fee (Volume Based) • Database Capturing Module per Patient • Patient License Fee per Hospital/ Clinic/ Health Care Facility • Equipment Sales for Hospital/ Clinic and Health Care Facility • Sales of Smartcards | • Non-Governmental Organizations • Government Paid Contractors • Governments | ||||||
S2S Retail and Wholesale | • 2004 | • Ten-Digit Signature Codes — Offline and Online Loading • Automatic Credit • Multiple Wallets • Restricted Wallets • Multiple Audit Trails • Mutual Authentication • Transparent and Automatic Recovery • Biometric Identification • Interest Calculations • Settlement — Offline and Online | • Merchant Transaction Fee • Cash Withdrawal Fee from UEPS Card Holders Excluding Social Grant Recipients • Hardware Equipment Sales or Rentals • Smart Card Sales • Installation & Training Fee • Reports and Banking Fees • Monthly Card Account Fee per Retailer per Month | • Retailers • Wholesale Retailers • UEPS Client Card Holders | ||||||
S2S Insurance System | • 2004 | • Multiple Audit Trails • Mutual Authentication • Transparent and Automatic Recovery • Biometric Identification • Settlement — Offline and Online | • Insurance Merchant Transaction Fee • Debit Order Collection Fee • Hardware Equipment Sales or Rentals • Smartcard Sales • Installation and Training Fee • Reports and Banking Fees | • Insurance Underwriter/ Broker (External Insurance Merchants) | ||||||
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S2S Pension and Welfare |
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S2S Wage Payment |
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S2S Medical Management |
S2S Retail and Wholesale |
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S2S Insurance |
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• | institute proceedings before an equality court under Chapter 4 of the Promotion of Equality and Prevention of Unfair Discrimination Act; or | |
• | make a complaint to the National Credit Regulator under Section 138 of the Bill. |
• | deny payment to any person entitled to payment by these means or unfairly discriminate in granting priority of payment among persons entitled to payment by these means; | |
• | give priority to one credit provider over another in accepting similar means to make payment for processing; or | |
• | assign any collection, group, batch or subset of similar means to make payment for priority processing over any other similar means to make payment. |
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Name | Age | Position | ||||
Dr. Serge C.P. Belamant | 51 | Chief Executive Officer, Chairman of the Board and Director | ||||
Antony Charles Ball | 46 | Director | ||||
Chad Leonard Smart | 32 | Director | ||||
Herman Gideon Kotze | 34 | Chief Financial Officer and Director | ||||
Brenda Stewart | 46 | Senior Vice President — Marketing and Sales | ||||
Nitin Soma | 37 | Senior Vice President — Information Technology | ||||
Christopher Stefan Seabrooke | 52 | Director | ||||
Alasdair Jonathan Kemsley Pein | 45 | Director |
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Composition of the Board of Directors; Election and Removal of Directors |
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Committees of the Board of Directors |
Audit Committee |
• | monitors our accounting and financial reporting process and internal control system; | |
• | appoints and replaces independent outside auditors from time to time, determines their compensation and other terms of engagement and oversees their independence, qualifications and work; | |
• | oversees the performance of our internal audit function; and | |
• | oversees our compliance with legal, ethical and regulatory matters. |
Remuneration Committee |
• | development and implementation of our compensation policies, strategies, plans and programs, and disclosure relating to these matters; | |
• | compensation-related matters outside the ordinary course, including employment contracts, change-in-control provisions and severance arrangements; | |
• | compensation of our chief executive officer and the other executive officers of us and our subsidiaries and the remuneration of our board of directors; and | |
• | performance reviews of individual executives and related matters. |
Corporate Governance and Nominating Committee |
• | establish criteria for board and committee membership and recommend to our board of directors proposed nominees for election to the board of directors and for membership on each committee of the board of directors; | |
• | monitor our procedures for the receipt and consideration of director nominations by shareholders and other persons and for the receipt of shareholder communications directed to our board of directors; |
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• | make recommendations regarding proposals submitted by our shareholders; and | |
• | make recommendations to our board of directors regarding management succession planning, corporate governance matters and practices. |
Compensation Committee Interlocks and Insider Participation |
Director Compensation |
Executive Compensation |
Annual Compensation(1) | |||||||||||||||||||||||||||||||||
Salary | Bonus | All Other | |||||||||||||||||||||||||||||||
Fiscal | ZAR | US$ | ZAR | US$ | Options/ | ZAR | US$ | ||||||||||||||||||||||||||
Name and Principal Position | Year | ‘000 | ‘000 | ‘000 | ‘000 | Securities | ‘000 | ‘000 | |||||||||||||||||||||||||
Dr. Serge C.P. Belamant, Chief Executive | 2004 | 1,725 | 249 | 500 | 72 | A | — | — | |||||||||||||||||||||||||
Officer, Chairman of the Board and | 2003 | 1,425 | 157 | 400 | 44 | — | — | — | |||||||||||||||||||||||||
Director | 2002 | 1,050 | 103 | 0 | 0 | — | — | — | |||||||||||||||||||||||||
Herman Gideon Kotze, Chief Financial | 2004 | 1,050 | 151 | 250 | 36 | A | — | — | |||||||||||||||||||||||||
Officer and Director | 2003 | 855 | 94 | 180 | 20 | — | — | — | |||||||||||||||||||||||||
2002 | 690 | 68 | 50 | 5 | — | — | — | ||||||||||||||||||||||||||
Brenda Stewart, Senior Vice-President — | 2004 | 900 | 130 | 200 | 29 | A | — | — | |||||||||||||||||||||||||
Sales and Marketing | 2003 | 725 | 80 | 130 | 14 | — | — | — | |||||||||||||||||||||||||
2002 | 608 | 60 | 50 | 5 | — | — | — | ||||||||||||||||||||||||||
Nitin Soma, Senior Vice-President — | 2004 | 812 | 117 | 160 | 23 | B | — | — | |||||||||||||||||||||||||
Information Technology | 2003 | 670 | 74 | 120 | 13 | — | — | — | |||||||||||||||||||||||||
2002 | 552 | 54 | 30 | 3 | — | — | — |
(1) | There has been no other annual or long-term compensation awarded to, earned by, or paid by us to the persons listed in this table. |
(A) | 333,334 other stock-based awards at $0.00 (ZAR 0.00) and 83,334 options at US$3.00 (ZAR 18.84) |
(B) | 250,000 other stock-based awards at $0.00 (ZAR 0.00) and 83,334 options at US$3.00 (ZAR 18.84) |
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Potential | ||||||||||||||||||||||||||||||||
Realizable | ||||||||||||||||||||||||||||||||
Value at | ||||||||||||||||||||||||||||||||
Percent of | Assumed | |||||||||||||||||||||||||||||||
Total | Annual Rates | |||||||||||||||||||||||||||||||
Options/ | of Stock Price | |||||||||||||||||||||||||||||||
Number of | Number of | OSBAs | Appreciation | |||||||||||||||||||||||||||||
Securities | Securities | Granted | for Option/ | |||||||||||||||||||||||||||||
Underlying | Exercise or | Underlying | Exercise or | to | OSBAs Term | |||||||||||||||||||||||||||
Options | Base Price | OSBAs | Base Price | Employees | in US$ ‘000 at | |||||||||||||||||||||||||||
Granted | of Options | Granted | OSBAs | in Fiscal | Expiration | |||||||||||||||||||||||||||
Name | (#) | (US$/Sh) | (#) | (US$/Sh) | Year | Date | 5% | 10% | ||||||||||||||||||||||||
Dr. Serge C.P. Belamant | 83,334 | 3.00 | 333,334 | 0.00 | 14.33 | % | June 6, 2014 | 2,036 | 3,242 | |||||||||||||||||||||||
Herman Gideon Kotze | 83,334 | 3.00 | 333,334 | 0.00 | 14.33 | % | June 6, 2014 | 2,036 | 3,242 | |||||||||||||||||||||||
Brenda Stewart | 83,334 | 3.00 | 333,334 | 0.00 | 14.33 | % | June 6, 2014 | 2,036 | 3,242 | |||||||||||||||||||||||
Nitin Soma | 83,334 | 3.00 | 250,000 | 0.00 | 11.47 | % | June 6, 2014 | 1,629 | 2,594 |
Number of Shares | Value of Unexercised | |||||||||||||||||||||||
Underlying Unexercised | In-the-Money | |||||||||||||||||||||||
Shares | Value | Options/OSBAs at June 30, | Options/OSBAs at June 30, | |||||||||||||||||||||
Acquired on | Realized | 2004 (# ‘000) | 2004 (US$ ‘000) | |||||||||||||||||||||
Exercise | (US$ | |||||||||||||||||||||||
Name | (#) | ‘000) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Dr. Serge C.P. Belamant | — | — | 67 | 350 | 768 | 4,032 | ||||||||||||||||||
Herman Gideon Kotze | — | — | 67 | 350 | 768 | 4,032 | ||||||||||||||||||
Brenda Stewart | — | — | 67 | 350 | 768 | 4,032 | ||||||||||||||||||
Nitin Soma | — | — | 50 | 283 | 614 | 3,072 |
Restraint of Trade Agreements |
111
Employee Benefit Plans |
Administration |
Term |
Shares Reserved for Awards and Limits on Awards |
112
Stock Options |
Stock Appreciation Rights |
Other Stock-Based Awards |
113
Performance Standards and Section 162(m) |
Transferability |
Amendment |
114
115
116
• | each person or group of affiliated persons which, to our knowledge, owns beneficially more than 5% of our outstanding shares of common stock or more than 5% of our outstanding special convertible preferred stock; | |
• | each of our directors and named executive officers; | |
• | all of our directors and executive officers as a group; and | |
• | each selling shareholder participating in this offering. |
117
Shares Sold | Shares Beneficially | Shares Beneficially | ||||||||||||||||||||||||||
Shares Beneficially | During this | Owned After this | Owned After this | |||||||||||||||||||||||||
Owned Immediately | Offering | Offering Assuming No | Offering Assuming Full | |||||||||||||||||||||||||
Prior to this | Assuming No | Exercise of the Over- | Exercise of the Over- | |||||||||||||||||||||||||
Offering | Exercise of the | Allotment Option | Allotment Option | |||||||||||||||||||||||||
Over-Allotment | ||||||||||||||||||||||||||||
Name of Beneficial Owner | Number | % | Option | Number | % | Number | % | |||||||||||||||||||||
Directors, Officers and 5% Shareholders: | ||||||||||||||||||||||||||||
Dr. Serge C.P. Belamant(1) | 3,099,411 | 10.6 | % | |||||||||||||||||||||||||
Herman Gideon Kotze(2) | 150,000 | * | ||||||||||||||||||||||||||
Antony Charles Ball(3) | 8,334 | * | ||||||||||||||||||||||||||
Chad Leonard Smart(3) | 8,334 | * | ||||||||||||||||||||||||||
Christopher Stefan Seabrooke(3) | 8,334 | * | ||||||||||||||||||||||||||
Alasdair Jonathan Kemsley Pein(3) | 8,334 | * | ||||||||||||||||||||||||||
Brenda Stewart(2) | 150,000 | * | ||||||||||||||||||||||||||
Nitin Soma(4) | 161,905 | * | ||||||||||||||||||||||||||
Brenthurst Private Equity II Limited(5) | 2,008,212 | 7.4 | % | |||||||||||||||||||||||||
Brenthurst Private Equity South Africa I Limited(5) | 1,013,273 | 3.7 | % | |||||||||||||||||||||||||
South African Private Equity Fund III, L.P.(6) | 14,443,572 | 53.2 | % | |||||||||||||||||||||||||
South African Private Equity Trust III(6) | 208,073 | * | ||||||||||||||||||||||||||
Brait International Limited(6) | 833,334 | 3.1 | % | |||||||||||||||||||||||||
Nedbank Limited(7) | 8,109,910 | 23.0 | % | |||||||||||||||||||||||||
Nedbank Rainmaker Equity Fund(8) | 1,777,698 | 6.1 | % | |||||||||||||||||||||||||
Directors and Executive Officers as a group (8 persons)(9) | 3,594,649 | 12.2 | % | |||||||||||||||||||||||||
Other Selling Shareholders: | ||||||||||||||||||||||||||||
Employees Selling Shares obtained through the Exercise of Stock Options: | ||||||||||||||||||||||||||||
Selling Shareholders Converting Special Convertible Preferred Stock: |
* | Less than one percent |
(1) | CI Law Trustees Limited for the San Roque Trust dated 8/18/92 owns 1,017,132 shares of common stock. Dr. Serge C.P. Belamant as proxy of CI Law Trustees can vote all of CI Law Trustees’ shares. The amount also includes 1,932,279 special convertible preferred shares owned by Dr. Belamant that are convertible into common stock upon the occurrence of a trigger event. Also included in the amount are 133,334 shares which are exercisable or will become exercisable within the next 60 days under the 333,334 other stock-based awards that are exercisable in five equal installments beginning June 7, 2004. The amount also includes 16,667 shares which are exercisable or will become exercisable within the next 60 days under the 83,334 options that are exercisable in five equal installments beginning June 7, 2005. If the common stock underlying all outstanding shares of special convertible preferred stock were deemed outstanding, Dr. Belamant’s beneficial ownership percentages would be 5.7%, % and %, respectively, which also reflects Dr. Belamant’s applicable voting power percentages. |
118
(2) | Represents 133,334 shares which are exercisable or will become exercisable within the next 60 days under the 333,334 other stock-based awards that are exercisable in five equal installments beginning June 7, 2004. Also includes 16,667 shares which are exercisable or will become exercisable within the next 60 days under the 83,334 options that are exercisable in five equal installments beginning June 7, 2005. |
(3) | Represents 8,334 shares which are exercisable or will become exercisable within the next 60 days under the 41,667 options that are exercisable in five equal installments beginning June 7, 2005. |
(4) | Represents 100,000 shares which are exercisable or will become exercisable within the next 60 days under the 250,000 other stock-based awards that are exercisable in five equal installments beginning June 7, 2004, as well as 45,239 special convertible preferred shares that are convertible into common stock upon the occurrence of a trigger event. Also includes 16,667 shares which are exercisable or will become exercisable within the next 60 days under the 83,334 options that are exercisable in five equal installments beginning June 7, 2005. |
(5) | Pursuant to a Schedule 13D, dated June 7, 2004, filed by Brenthurst Private Equity II Limited, Brenthurst Private Equity South Africa I Limited, Brenthurst Limited, Theseus Limited, and Maitland Trustees Limited, Brenthurst Private Equity II Limited beneficially owns 1,833,334 shares of common stock and Brenthurst Private Equity South Africa I Limited beneficially owns 1,000,000 shares of common stock. As the controlling shareholder, Brenthurst Limited may be deemed to be the beneficial owner of securities held by Brenthurst Private Equity II Limited and Brenthurst Private Equity South Africa I Limited. As the parent company of Brenthurst, Theseus Limited may be deemed to be the beneficial owner of securities held by Brenthurst. As the parent company of Theseus, Maitland Trustees Limited may be deemed to the beneficial owner of securities held by Theseus. Brenthurst, Theseus and Maitland disclaim beneficial ownership of the securities, except to the extent of its pecuniary interest. If the common stock underlying all outstanding shares of special convertible preferred stock were deemed outstanding, the beneficial ownership percentages of Brenthurst Private Equity II Limited would be 3.7%, % and %, respectively, and the beneficial ownership percentages of Brenthurst Private Equity South Africa I Limited would be 1.9%, % and %, respectively, which amounts reflect the applicable voting power percentages. |
The registered address of Brenthurst Private Equity II Limited and Brenthurst Private Equity South Africa I Limited is 9 Columbus Centre, Pelican Drive, Road Town, Tortola, British Virgin Islands. |
(6) | The securities are held of record by SAPEF. As the general partner of SAPEF, SAPEF III International G.P. Limited may be deemed to be the beneficial owner of the securities held by SAPEF. |
The registered address of SAPEF is Walker House P.O. Box 908, George Town, Grand Cayman, Cayman Islands and the registered address of Brait International is Suite 305, Third Floor, Caudan Waterfront, Port Louis, Mauritius. | |
Pursuant to a Schedule 13D, dated June 7, 2004, filed by SAPEF, Brait International Limited, SAPEF III International G.P. Limited, Capital Partners Group Holdings Limited, and Brait S.A., SAPEF beneficially owns 14,443,572 shares of common stock, and Brait International Limited beneficially owns 833,334 shares of common stock. As a shareholder of SAPEF III International G.P. Limited, and as the parent company of Brait International, Capital Partners Group Holdings Limited may be deemed to be the beneficial owner of securities held by each of SAPEF III International G.P. Limited and Brait International. As the parent company of Capital Partners Group Holdings Limited, Brait S.A. may be deemed to be the beneficial owner of securities held by Capital Partners Group Holdings Limited. SAPEF III International G.P. Limited, Capital Partners Group Holdings Limited and Brait S.A. disclaim beneficial ownership of the securities, except to its pecuniary interest. If the common stock underlying all outstanding shares of special convertible preferred stock were deemed outstanding, the beneficial ownership percentages of SAPEF would be 26.4%, % and %, respectively, and the beneficial ownership percentages of Brait International Limited would be 1.5%, % and %, respectively, which amounts reflect the applicable voting power percentages. | |
119
As the Trustee of SAPET, Brait Capital Partners Trustee (Pty) Ltd, or BCP Trustees, may be deemed to be the beneficial owner of the securities held by BCP Trustees. As a shareholder of BCP Trustees, Brait South Africa Ltd, or BSA, may be deemed to be a beneficial owner of the shares held by SAPET. As the shareholder of BSA, Brait S.A. may be deemed to be the beneficial owner of securities held by BSA. BCP Trustees and Brait S.A. disclaim beneficial ownership of the securities, except to its pecuniary interest. |
(7) | The amount includes 8,109,910 special convertible preferred shares. Nedbank Limited’s registered address is 135 Rivonia Road, Sandown, 2196, South Africa. If the common stock underlying all outstanding shares of special convertible preferred stock were deemed outstanding, the beneficial ownership percentages of Nedbank Limited would be 14.8%, % and %, respectively, which amounts reflect the applicable voting power percentages. |
(8) | The amount includes 1,777,698 special convertible preferred shares. Nedbank Rainmaker’s registered address is BoE Clocktower, Clocktower Precinct, V & A Waterfront, Cape Town, South Africa. If the common stock underlying all outstanding shares of special convertible preferred stock were deemed outstanding the beneficial ownership percentages of Nedbank Rainmaker would be 3.2%, % and % respectively, which amounts reflect the applicable voting power percentages. |
(9) | Represents an aggregate of 500,000 shares which are exercisable or will become exercisable within the next 60 days under the 1,250,002 other stock-based awards that are exercisable in five equal installments beginning June 7, 2004. Also includes 100,000 shares which are exercisable or will become exercisable within the next 60 days under the 500,000 options that are exercisable in five equal installment beginning June 7, 2005. Also includes 1,977,517 special convertible preferred shares. |
120
121
• | on parity, without preference and priority, to our common stock with respect to dividend rights (except as described below) or rights upon liquidation, dissolution or winding up; and | |
• | junior in preference and priority to each other class or series of preferred stock or other equity security of ours under terms that may be determined by the board of directors to expressly provide that such other security will 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. |
• | any increase (including by way of merger, consolidation or otherwise) in the total number of authorized or issued shares of special convertible preferred stock; or | |
• | any amendment, alteration or change to the powers, designations, preferences, rights, qualifications, limitations or restrictions of the special convertible preferred stock in the articles of incorporation in any manner that adversely affects the holders of such stock. |
• | 7.368421056 New Aplitec B class preference shares; and | |
• | such holder’s interest in the New Aplitec B loan accounts, which is equal to (1) the aggregate principal amount of New Aplitec B loans, plus any accrued interest, minus any repayment or previous transfer of New Aplitec B loans, divided by (2) the number of the shares of special convertible preferred stock outstanding at such time. |
122
Special Meetings |
Notice of Shareholder Meetings |
123
• | Our board of directors currently may issue up to 50,000,000 shares of preferred stock, with such designations, preferences, cumulative, relative, participating, optional or other rights, limitations or restrictions as fixed by our board of directors, which could include the right to approve an acquisition or change in control. | |
• | Our articles of incorporation do not provide for cumulative voting for directors. The absence of cumulative voting may make it more difficult for shareholders owning an aggregate of less than a majority of our stock to elect directors to our board. | |
• | Our by-laws currently provide that our board of directors can increase or decrease the number of directors by amendment to the by-laws, and vacancies, including vacancies resulting from an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors. | |
• | Our by-laws provide that shareholders who desire to bring business before an annual or special meeting of shareholders must comply with certain advance notice provisions. These advance notice provisions also apply to the nomination of any person for election as a director. |
124
Approximate | ||||
Number of Shares | Description | |||
After the date of this prospectus, freely tradeable shares. | ||||
After 180 days from the date of this prospectus, except as otherwise discussed below, the lock-up period will expire, and these additional shares of common stock will be saleable, subject, in some cases, to holding periods and volume limitations. |
• | 1% of the total number of our shares of common stock then outstanding, which is expected to equal approximately shares of common stock immediately after the closing of this offering; or | |
• | the average weekly trading volume of our shares of common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
125
126
• | the court which pronounced the judgment had jurisdiction to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts; | |
• | the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it); | |
• | the judgment has not lapsed; | |
• | the recognition and enforcement of the judgment by South African courts would not be contrary to public policy, including observance of the rules of natural justice which provide that no award is enforceable unless the defendant was duly served with documents initiating proceedings, that he was given a fair opportunity to be heard and that he enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal; | |
• | the judgment was not obtained by fraudulent means; | |
• | the judgment does not involve the enforcement of a penal or revenue law; and | |
• | the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act, 1978 (as amended), of South Africa. |
127
• | a citizen or resident of the United States; | |
• | a corporation created or organized in, or under the laws of, the United States or any political subdivision of the United States; | |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; | |
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or | |
• | a trust that existed on August 20, 1996, was treated as a U.S. person on August 19, 1996, and elected to be treated as a U.S. person. |
128
129
130
Name | Number of Shares | |||||
Morgan Stanley & Co. Incorporated | ||||||
J.P. Morgan Securities Inc. | ||||||
Robert W. Baird & Co. Incorporated | ||||||
Jefferies & Company, Inc. | ||||||
Thomas Weisel Partners LLC | ||||||
Subtotal | ||||||
Total | ||||||
131
• | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for our common stock; or | |
• | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock; |
• | the sale of shares to the underwriters; | |
• | our issuance of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or | |
• | transactions by any person other than us relating to the shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares. |
Per share | $ | ||||
Total | $ | ||||
Per share | $ | ||||
Total | $ | ||||
132
133
134
135
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-37 | ||||
F-38 | ||||
F-39 | ||||
F-40 | ||||
F-41 |
F-1
/s/Deloitte & Touche (South Africa) | |
Chartered Accountants (SA) | |
Johannesburg, Republic of South Africa |
F-2
/s/PKF (JHB) Inc. | |
PKF (JHB) INC | |
Chartered Accountants (SA) | |
Registered Accountants and Auditors |
F-3
June 30, | June 30, | |||||||||
2004 | 2003 | |||||||||
(In thousands except | ||||||||||
share data) | ||||||||||
ASSETS | ||||||||||
CURRENT ASSETS | ||||||||||
Cash and cash equivalents | $ | 80,282 | $ | 54,313 | ||||||
Trade and other receivables (net of allowances of — 2004: $8,387; 2003: $6,797) | 33,527 | 20,614 | ||||||||
Inventory | 1,054 | 845 | ||||||||
Deferred income taxes | 2,549 | 2,933 | ||||||||
Total current assets | 117,412 | 78,705 | ||||||||
LONG TERM RECEIVABLE | 1,106 | — | ||||||||
PROPERTY, PLANT, & EQUIPMENT, net | 7,638 | 8,017 | ||||||||
EQUITY ACCOUNTED INVESTMENT | 878 | — | ||||||||
GOODWILL | 15,212 | 8,046 | ||||||||
INTANGIBLE ASSETS | 10,386 | 3,591 | ||||||||
TOTAL ASSETS | 152,632 | 98,359 | ||||||||
LIABILITIES | ||||||||||
CURRENT LIABILITIES | ||||||||||
Bank overdraft | 19 | — | ||||||||
Trade and other payables | 23,693 | 16,459 | ||||||||
Income taxes payable | 24,119 | 3,402 | ||||||||
Total current liabilities | 47,831 | 19,861 | ||||||||
DEFERRED INCOME TAXES | 8,961 | 7,994 | ||||||||
LONG TERM LIABILITIES | 252 | — | ||||||||
57,044 | 27,855 | |||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
COMMON STOCK Authorized: 83,333,333 with $0.001 par value; Issued and outstanding shares — 2004: 22,539,204; 2003: 32,161,190 | 23 | 6 | ||||||||
SPECIAL CONVERTIBLE PREFERRED STOCK Authorized: 50,000,000 with $0.001 par value; Issued and outstanding shares: 32,161,190 | 32 | — | ||||||||
B CLASS PREFERRED STOCK Authorized: 330,000,000 with $0.001 par value; Issued and outstanding shares: 236,977,187 | 38 | — | ||||||||
ADDITIONAL PAID-IN-CAPITAL | 71,954 | 40,571 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 15,039 | (962 | ) | |||||||
RETAINED EARNINGS | 8,502 | 30,889 | ||||||||
TOTAL SHAREHOLDERS’ EQUITY | 95,588 | 70,504 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 152,632 | $ | 98,359 | ||||||
F-4
June 30, | June 30, | June 30, | |||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands, except share data) | |||||||||||||
REVENUE | 131,098 | 74,924 | 51,793 | ||||||||||
EXPENSES | |||||||||||||
COST OF GOODS SOLD, IT PROCESSING, SERVICING AND SUPPORT | 39,134 | 25,935 | 14,170 | ||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 39,677 | 26,399 | 21,637 | ||||||||||
DEPRECIATION AND AMORTIZATION | 5,676 | 3,323 | 3,128 | ||||||||||
REORGANIZATION COSTS | 11,133 | — | — | ||||||||||
OPERATING INCOME | 35,478 | 19,267 | 12,858 | ||||||||||
INTEREST INCOME, NET | 3,640 | 2,600 | 1,381 | ||||||||||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST | 39,118 | 21,867 | 14,239 | ||||||||||
INCOME TAX EXPENSE | 25,927 | 9,473 | 5,554 | ||||||||||
MINORITY INTEREST | — | 452 | 167 | ||||||||||
NET INCOME FROM CONTINUING OPERATIONS BEFORE EARNINGS FROM EQUITY ACCOUNTED INVESTMENT, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE | 13,191 | 11,942 | 8,518 | ||||||||||
EARNINGS FROM EQUITY ACCOUNTED INVESTMENT | 87 | — | — | ||||||||||
INCOME FROM CONTINUING OPERATIONS | 13,278 | 11,942 | 8,518 | ||||||||||
EXTRAORDINARY ITEM | — | 857 | — | ||||||||||
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE | — | 318 | — | ||||||||||
NET INCOME FOR THE YEAR | 13,278 | 13,117 | 8,518 | ||||||||||
Income from continuing operations per share | |||||||||||||
Basic earnings, in cents | |||||||||||||
Common stock | 39.6 | 37.2 | 27.0 | ||||||||||
Linked units | 39.6 | — | — | ||||||||||
Diluted earnings, in cents | |||||||||||||
Common stock | 38.4 | — | 27.0 | ||||||||||
Linked units | 38.4 | — | — | ||||||||||
Net income per share | |||||||||||||
Basic earnings, in cents | |||||||||||||
Common stock | 39.6 | 40.8 | 27.0 | ||||||||||
Linked units | 39.6 | ||||||||||||
Diluted earnings, in cents | |||||||||||||
Common stock | 38.4 | — | 27.0 | ||||||||||
Linked units | 38.4 |
F-5
Special Convertible | B Class | |||||||||||||||||||||||||||||||||||||||||||
Common Stock | Preferred Stock | Preferred Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||||||||||||||
Number | Additional | Number | Number | Comprehensive | Comprehensive | |||||||||||||||||||||||||||||||||||||||
of | Paid-In | of | of | Retained | Income | Income | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Shares | Amount | Shares | Amount | Earnings | (Loss) | Total | (Loss) | ||||||||||||||||||||||||||||||||||
(In thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||
Balance — July 1, 2001 (as previously reported) | 187,134,139 | 37 | 38,445 | — | — | — | — | 15,710 | (9,159 | ) | 45,033 | |||||||||||||||||||||||||||||||||
Effect of one-for- six reverse stock split | (155,945,116 | ) | (31 | ) | 31 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Balance — July 1, 2001 (as restated) | 31,189,023 | 6 | 38,476 | — | — | — | — | 15,710 | (9,159 | ) | 45,033 | |||||||||||||||||||||||||||||||||
Net Income | 8,518 | 8,518 | 8,518 | |||||||||||||||||||||||||||||||||||||||||
Dividends declared | (2,531 | ) | (2,531 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock issued during the year | 495,356 | — | 528 | 528 | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | 384 | 384 | ||||||||||||||||||||||||||||||||||||||||||
Movement in Foreign Currency Translation Reserve | (10,208 | ) | (10,208 | ) | (10,208 | ) | ||||||||||||||||||||||||||||||||||||||
Balance — June 30, 2002 | 31,684,379 | 6 | 39,388 | — | — | — | — | 21,697 | (19,367 | ) | 41,724 | (1,690 | ) | |||||||||||||||||||||||||||||||
Net Income | 13,117 | 13,117 | 13,117 | |||||||||||||||||||||||||||||||||||||||||
Dividends declared | (3,925 | ) | (3,925 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock issued during the year | 476,811 | — | 570 | 570 | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | 613 | 613 | ||||||||||||||||||||||||||||||||||||||||||
Movement in Foreign Currency Translation Reserve | 18,405 | 18,405 | 18,405 | |||||||||||||||||||||||||||||||||||||||||
Balance — June 30, 2003 | 32,161,190 | 6 | 40,571 | — | — | — | — | 30,889 | (962 | ) | 70,504 | 31,522 | ||||||||||||||||||||||||||||||||
Net income | 13,278 | 13,278 | 13,278 | |||||||||||||||||||||||||||||||||||||||||
Items related to the reorganization transaction | ||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | (35,665 | ) | (35,665 | ) | ||||||||||||||||||||||||||||||||||||||||
Cash distribution to Aplitec shareholders | (37,002 | ) | (37,002 | ) | ||||||||||||||||||||||||||||||||||||||||
Reorganization of share capital | (31,910,238 | ) | (6 | ) | (64 | ) | 31,910,238 | 32 | 235,128,068 | 38 | — | |||||||||||||||||||||||||||||||||
Issue of linked units to Brait in accordance with underwriting agreement | (250,952 | ) | 847 | 250,952 | 1,849,119 | 847 | ||||||||||||||||||||||||||||||||||||||
Reverse acquisition of Net 1 by Aplitec | 2,642,143 | 3 | 7,931 | 7,934 | ||||||||||||||||||||||||||||||||||||||||
Issue of common stock | 17,610,238 | 18 | 52,813 | 52,831 | ||||||||||||||||||||||||||||||||||||||||
Stock issued in accordance with 2004 Stock Incentive Plan | 1,453,490 | 1 | 4,359 | 4,360 | ||||||||||||||||||||||||||||||||||||||||
Issue of stock for transaction fees | 833,333 | 1 | 2,499 | 2,500 | ||||||||||||||||||||||||||||||||||||||||
Movement in Foreign Currency Translation Reserve | 16,001 | 16,001 | 16,001 | |||||||||||||||||||||||||||||||||||||||||
Balance — June 30, 2004 | 22,539,204 | 23 | 71,954 | 32,161,190 | 32 | 236,977,187 | 38 | 8,502 | 15,039 | 95,588 | 29,279 | |||||||||||||||||||||||||||||||||
F-6
June 30, | June 30, | June 30, | |||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands, except share data) | |||||||||||||
Cash flows from operating activities | |||||||||||||
Cash received from customers | $ | 123,177 | $ | 70,768 | $ | 72,059 | |||||||
Cash paid to suppliers and employees | (72,825 | ) | (49,487 | ) | (57,501 | ) | |||||||
Interest received | 15,362 | 8,065 | 3,260 | ||||||||||
Finance costs paid | (11,698 | ) | (5,465 | ) | (1,879 | ) | |||||||
Income taxes paid | (12,121 | ) | (6,237 | ) | (4,186 | ) | |||||||
Net cash provided by operating activities | 41,895 | 17,644 | 11,753 | ||||||||||
Cash flows from investing activities | |||||||||||||
Capital expenditures | (2,802 | ) | (6,712 | ) | (1,919 | ) | |||||||
Proceeds from disposal of property, plant and equipment | 62 | 314 | 624 | ||||||||||
Long term receivable granted | (937 | ) | — | — | |||||||||
Acquisition of minority interests/subsidiaries/equity accounted investments | (2,052 | ) | (995 | ) | 415 | ||||||||
Cash received on acquisition of Net 1 UEPS Technologies, Inc. | 8 | — | — | ||||||||||
Net cash used in investing activities | (5,721 | ) | (7,393 | ) | (880 | ) | |||||||
Cash flows from financing activities | |||||||||||||
Proceeds from issue of share capital | 52,831 | 570 | 528 | ||||||||||
Proceeds from issue of preference share capital | 847 | — | — | ||||||||||
Proceeds from bank overdrafts | 17 | — | — | ||||||||||
Cash distribution to shareholders | (37,002 | ) | — | — | |||||||||
Dividends paid | (40,753 | ) | (2,836 | ) | — | ||||||||
Net cash used in financing activities | (24,060 | ) | (2,266 | ) | 528 | ||||||||
Effect of exchange rate changes on cash | 13,855 | 14,178 | (6,284 | ) | |||||||||
Net increase in cash and cash equivalents | 25,969 | 22,163 | 5,117 | ||||||||||
Cash and cash equivalents — beginning of period | 54,313 | 32,150 | 27,033 | ||||||||||
Cash and cash equivalents at end of year | $ | 80,282 | $ | 54,313 | $ | 32,150 | |||||||
F-7
1. | Description of Business and Basis of Presentation |
Description of Business |
• | number of common and special convertible stock authorized, issued and outstanding; | |
• | stock issued under any of the Company’s stock compensation plans, including stock issued pursuant to the Company’s 2004 Stock Incentive Plan; | |
• | all per share measures, including but not limited to basic and diluted earnings per share; | |
• | certain price per share information related to the transaction mentioned above and described more fully below; and | |
• | reallocation of amounts from common stock to additional paid in capital as the par value did not change. | |
F-8
• | On June 7, 2004, Net 1 Applied Technologies South Africa Limited (“New Aplitec”), a holding company established and existing under the laws of South Africa, completed a transaction whereby it acquired substantially all of the assets and liabilities of Aplitec for $127.53 million (or ZAR825,641,638) (the “net purchase price”). The net purchase price together with the cash retained in Aplitec was distributed as an advance distribution to Aplitec shareholders. | |
• | The New Aplitec Participation Trust (“South African Trust”) is a South African bewind trust established and existing under the laws of South Africa. | |
• | The Aplitec Holdings Participation Trust (the “Cayman Trust”) is a purpose trust created under Part VIII of the Trust Law (2001 Revision) of the Cayman Islands. | |
• | The Aplitec shareholders had the option of either electing to receive 190 South African cents per share and an investment in New Aplitec in the form of a nil paid renounceable letter of allocation representing an interest in a New Aplitec B class preference share (“B class preferred stock”) and B class loans held by the South African Trust (collectively the “reinvestment option”) or cash of 500 South African cents per share. Shareholders who elected to receive the reinvestment option are described as “reinvesting shareholders”. In addition to the liquidation dividend, reinvesting shareholders were granted, units in the South African Trust with the right to receive, for no additional consideration, special convertible preferred stock of the Company, which are held by the Cayman Trust. These shares may be converted, upon the occurrence of a trigger event, to Company common stock on a one-for-one basis. A trigger event can occur when a unit holder gives notice to the South African Trust in writing of its intention to convert some or all of its B class preferred stock and B class loans. A trigger event also includes the abolition or relaxation of Exchange Controls by the South African Reserve Bank to permit reinvesting shareholders to hold Company common stock directly or the winding up or placing under judicial management of New Aplitec or the Company. | |
• | Upon receipt of notice of a trigger event, the trustee of the South African Trust will request delivery from the Cayman Trust of the number of shares of the Company’s special convertible preferred stock attributable to the units being converted. Upon delivery by the Cayman Trust, the South African Trust will transfer these shares of special convertible preferred stock, along with a proportionate number of B class preferred stock and loan accounts to the Company in exchange for shares of the Company’s common stock. | |
• | On June 25, 2004, shareholders holding 1,849,119 of Aplitec’s issued shares elected the cash option. The remaining shareholders holding 235,128,068 shares elected the reinvestment option. Aplitec entered into an underwriting agreement with South African Private Equity Trust III (“SAPET”) and South African Private Equity Fund III L.P. (“SAPEF” and, together with SAPET, the “Underwriters”). In terms of this arrangement the Underwriters agreed to take up all of the rights in the South African Trust of the reinvestment option not taken up by Aplitec’s shareholders, up to the maximum of $70 million (or ZAR437 million), which was equivalent to 64.7% of the reinvestment option, at a price of $0.45 (or ZAR2.85) per Aplitec share not involved in the reinvestment. The Underwriters paid $0.84 million (or ZAR5,269,989) for 1,849,119 units in the South African Trust in terms of the underwriting agreement. | |
• | On May 27, 2004, the Company issued the equivalent of 32,161,190 of its special convertible preferred stock to the Cayman Trust, to be held for the benefit of Aplitec’s shareholders that elected the reinvestment option and the Underwriters. | |
F-9
• | The combination of instruments issued to the reinvesting shareholders (B Class preferred stock and B Class loans in New Aplitec as well as rights to receive special convertible preference shares in the Company) are referred to as “linked units” and the reinvesting shareholders that hold these instruments are referred to as “linked unit holders”. Both the Net 1 common stock and the linked units have been reflected as equity of the Company. Refer to Note 10 — Capital Structure for a detailed explanation of this treatment. |
2. | Significant Accounting Policies |
Basis of Presentation |
Principles of Consolidation |
Use of Estimates |
Property, Plant and Equipment |
Computer equipment | 3 years | |||
Office equipment | 3 years | |||
Vehicles | 4 to 5 years | |||
Furniture and fittings | 5 to 10 years |
Leasehold Improvement Costs |
F-10
Income Taxes |
Goodwill |
Intangible Assets |
Equity Method Investments |
F-11
Inventory |
Translation of Foreign Currencies |
Revenue Recognition |
Fees and Commissions |
Interest Income |
Systems Implementation Projects |
F-12
Other Income |
Research and Development Expenditure |
Loan Provisions |
Stock-Based Compensation |
2004 | 2003 | 2002 | ||||||||||
Net income | $ | 13,278 | $ | 13,117 | $ | 8,518 | ||||||
Add back: stock-based compensation expense included in reported net income, net of related tax effects | 4,360 | 613 | 384 | |||||||||
Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects | (6,257 | ) | (100 | ) | (209 | ) | ||||||
Pro-forma net income | $ | 11,381 | $ | 13,630 | $ | 8,693 | ||||||
Earnings per share, basic and diluted (in cents): | ||||||||||||
Basic, as reported | 39.6 | 40.8 | 27.0 | |||||||||
Basic, pro forma | 32.4 | 40.8 | 27.0 | |||||||||
Weighted average assumptions(1): | ||||||||||||
Risk-free interest rate | 3.50 | % | 14.00 | % | 13.00 | % | ||||||
Dividend yield | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Stock volatility | 72.00 | % | 67.82 | % | 67.82 | % | ||||||
Average expected life (years) | 7.00 | 2.15 | 2.15 |
(1) | The 2004 assumptions are based on stock issued under the 2004 Stock Incentive Plan and the 2003 and 2002 assumptions are based on the stock compensation plan for the equity listed on the Johannesburg Securities Exchange. |
F-13
3. | Property, Plant and Equipment |
2004 | 2003 | ||||||||
Cost: | |||||||||
Computer equipment | $ | 16,626 | $ | 11,444 | |||||
Furniture and office equipment | 4,097 | 2,407 | |||||||
Motor vehicles | 10,140 | 7,979 | |||||||
30,863 | 21,830 | ||||||||
Accumulated depreciation: | |||||||||
Computer equipment | 14,558 | 8,247 | |||||||
Furniture and office equipment | 2,280 | 1,329 | |||||||
Motor vehicles | 6,387 | 4,237 | |||||||
23,225 | 13,813 | ||||||||
Carrying amount: | |||||||||
Computer equipment | 2,068 | 3,197 | |||||||
Furniture and office equipment | 1,817 | 1,078 | |||||||
Motor vehicles | 3,753 | 3,742 | |||||||
$ | 7,638 | $ | 8,017 | ||||||
4. | Goodwill and Intangible Assets |
F-14
2004 | 2003 | ||||||||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||
Value | Amortization | Value | Value | Amortization | Value | ||||||||||||||||||||
Goodwill | $ | 19,302 | $ | (4,090 | ) | $ | 15,212 | $ | 12,085 | $ | (4,039 | ) | $ | 8,046 | |||||||||||
Finite-lived intangible assets: | |||||||||||||||||||||||||
Contract rights | 2,673 | (520 | ) | 2,153 | — | — | — | ||||||||||||||||||
Customer contracts | 114 | (2 | ) | 112 | — | — | — | ||||||||||||||||||
Exclusive licences | 4,506 | (54 | ) | 4,452 | — | — | — | ||||||||||||||||||
FTS patent | 6,106 | (2,443 | ) | 3,663 | 5,129 | (1,539 | ) | 3,591 | |||||||||||||||||
Other patents | 6 | — | 6 | — | — | — | |||||||||||||||||||
Total finite-lived intangible assets | $ | 13,405 | $ | (3,019 | ) | $ | 10,386 | $ | 5,129 | $ | (1,539 | ) | $ | 3,591 | |||||||||||
F-15
June 30, 2004 | ||||||||||||
Net | ||||||||||||
Accumulated | Carrying | |||||||||||
Cost | Amortization | Value | ||||||||||
Transaction-based activities | $ | 3,841 | $ | (1,133 | ) | $ | 2,708 | |||||
Financial services | 7,857 | (2,203 | ) | 5,654 | ||||||||
Hardware, software and related technology sales | 7,604 | (754 | ) | 6,850 | ||||||||
Total | $ | 19,302 | $ | (4,090 | ) | $ | 15,212 | |||||
June 30, 2003 | ||||||||||||
Net | ||||||||||||
Accumulated | Carrying | |||||||||||
Cost | Amortization | Value | ||||||||||
Transaction-based activities | $ | 3,962 | $ | (1,554 | ) | $ | 2,408 | |||||
Financial services | 6,602 | (1,851 | ) | 4,751 | ||||||||
Hardware, software and related technology sales | 1,521 | (634 | ) | 887 | ||||||||
Total | $ | 12,085 | $ | (4,039 | ) | $ | 8,046 | |||||
2004 | 2003 | 2002 | ||||||||||
Reported net profit | $ | 13,278 | $ | 13,117 | $ | 8,518 | ||||||
Add back: goodwill amortization | — | — | 865 | |||||||||
Recognition of negative goodwill | — | — | — | |||||||||
Adjusted net profit | $ | 13,278 | $ | 13,117 | $ | 9,383 | ||||||
2004 | 2003 | |||||||
Extraordinary gain — negative goodwill that arose after July 1, 2002 | — | $ | 857 | |||||
Cumulative effect of an accounting change: write-off of negative goodwill that arose prior to July 1, 2002 | — | 318 | ||||||
— | $ | 1,175 | ||||||
F-16
5. | Income Taxes |
2004 | 2003 | 2002 | |||||||||||
Income tax provision | |||||||||||||
Current provision | $ | 21,298 | $ | 10,635 | $ | 5,757 | |||||||
Capital gains tax | 4,012 | — | — | ||||||||||
Deferred taxation charge (benefit) | 617 | (1,162 | ) | (203 | ) | ||||||||
Income tax provision | 25,927 | 9,473 | 5,554 | ||||||||||
Income tax rate reconciliation | |||||||||||||
Income taxes at statutory South African tax rates | 37.78 | % | 37.78 | % | 37.78 | % | |||||||
Permanent items | 9.95 | % | 5.54 | % | 1.23 | % | |||||||
NUEP losses not provided for | 8.29 | % | — | — | |||||||||
Capital gains tax | 10.26 | % | — | — | |||||||||
Income tax provision | 66.29 | % | 43.32 | % | 39.01 | % | |||||||
Current | 54.45 | % | 48.63 | % | 40.43 | % | |||||||
Capital gains tax | 10.26 | % | — | — | |||||||||
Deferred | 1.58 | % | (5.31 | )% | (1.42 | )% | |||||||
2004 | 2003 | |||||||
Assets: | ||||||||
Assessed losses | $ | 6,667 | $ | 1,431 | ||||
Valuation allowance related to assessed losses | (3,245 | ) | — | |||||
Prepaid expenses | (2,395 | ) | (1,365 | ) | ||||
Provisions and accruals | 1,191 | 2,833 | ||||||
Other | 331 | 34 | ||||||
2,549 | 2,933 | |||||||
Liabilities: | ||||||||
FTS patent | 1,384 | 1,356 | ||||||
Intangible assets | 1,633 | (167 | ) | |||||
Property, plant and equipment | — | (98 | ) | |||||
STC Liability | 6,025 | 6,756 | ||||||
Other | (81 | ) | 147 | |||||
8,961 | 7,994 | |||||||
Net deferred income tax liabilities | $ | 6,412 | $ | 5,061 | ||||
F-17
6. | Stock-Based Compensation |
2004 Stock Incentive Plan |
Term |
Shares Reserved for Awards and Limits on Awards |
Stock Options |
Stock Appreciation Rights |
Other Stock-Based Awards |
F-18
2004 | 2003 | 2002 | ||||||||||||||||||||||
No. of | Weighted | No. of | Weighted | No. of | Weighted | |||||||||||||||||||
Shares | Average | Shares | Average | Shares | Average | |||||||||||||||||||
Under | Exercise | Under | Exercise | Under | Exercise | |||||||||||||||||||
Option(2) | Price | Option(1) | Price | Option(1) | Price | |||||||||||||||||||
Outstanding at beginning of year | — | — | 481,787 | $ | 0.96 | 983,929 | $ | 0.90 | ||||||||||||||||
Granted | 1,453,490 | — | — | — | — | — | ||||||||||||||||||
Exercised | — | $ | 3.00 | 476,811 | 0.96 | 495,356 | 0.90 | |||||||||||||||||
Lapsed or otherwise forfeited | — | — | 4,976 | — | 6,786 | — | ||||||||||||||||||
Outstanding at end of year | 1,453,490 | — | — | $ | 0.96 | 481,787 | $ | 0.90 | ||||||||||||||||
Exercisable at end of year | — | — | — | — | — | — |
(1) | The number of stock based awards outstanding during 2003 and 2002 has been adjusted using the reinvestment ratio mentioned in Note 1 above, and reflects the one-for-six stock split described in Note 11 below. |
(2) | The number of stock-based awards outstanding during 2004 has been adjusted to reflect the one-for-six reverse stock split described in Note 11 below. |
7. | Trade and Other Receivables |
2004 | 2003 | |||||||
Trade and other receivables, gross | $ | 41,914 | $ | 27,411 | ||||
Allowance for doubtful accounts, beginning of year restated at year end rates | 8,091 | 5,682 | ||||||
Provisions charged to the income statement | 723 | 1,122 | ||||||
Amounts utilized | (427 | ) | (7 | ) | ||||
Allowance for doubtful accounts, end of year | 8,387 | 6,797 | ||||||
Trade and other receivables, net | $ | 33,527 | $ | 20,614 | ||||
F-19
8. | Trade and Other Payables |
2004 | 2003 | |||||||
Trade payables | $ | 7,431 | $ | 6,189 | ||||
Accruals | 9,091 | 4,404 | ||||||
Value-added tax payable | 1,049 | 661 | ||||||
Other payables | 2,984 | 2,629 | ||||||
Provisions | 3,138 | 2,576 | ||||||
$ | 23,693 | $ | 16,459 | |||||
9. | Revenue |
2004 | 2003 | 2002 | ||||||||||
Sale of goods | $ | 3,321 | $ | 7,979 | $ | 6,216 | ||||||
Services rendered and loan based interest received | 127,777 | 66,945 | 45,577 | |||||||||
$ | 131,098 | $ | 74,924 | $ | 51,793 | |||||||
10. | Capital Structure and Creditor Rights Attached to the B Class Loans |
• | Special convertible preferred stock, | |
• | B Class preferred stock in New Aplitec and | |
• | B Class loans issued by New Aplitec |
F-20
Common Stock |
Special Convertible Preferred Stock |
F-21
B Class Preferred Stock |
B Class Loans |
F-22
Conversion of Special Convertible Preferred Stock to Common Stock |
• | 7.368421056 B class preference shares; and | |
• | such holder’s interest in the New Aplitec B loan accounts. |
11. | Earnings Per Share |
F-23
2004 | 2003 | 2002 | ||||||||||
In U.S. cents | ||||||||||||
Earnings per share, as previously reported | 6.6 | 6.8 | 4.5 | |||||||||
Effects of one-for-six reverse stock split | 33.0 | 30.4 | 22.5 | |||||||||
Earnings per share, as restated | 39.6 | 37.2 | 27.0 | |||||||||
’000 shares | ||||||||||||
Weighted average number of common stock and linked units, as previously reported | 201,489 | 192,967 | 187,287 | |||||||||
Effects of one-for-six reverse stock split | (167,908 | ) | (160,806 | ) | (156,072 | ) | ||||||
Weighted average number of common stock and linked units, as restated, included in tables below | 33,581 | 32,161 | 31,215 | |||||||||
2004 | 2003 | 2002 | ||||||||||
In U.S. cents | ||||||||||||
Diluted earnings per share, as previously reported | 6.4 | 6.8 | 4.5 | |||||||||
Effects of one-for-six reverse stock split | 32.0 | 30.4 | 22.5 | |||||||||
Diluted earnings per share, as restated | 38.4 | 37.2 | 27.0 | |||||||||
’000 shares | ||||||||||||
Weighted average number of common stock and linked units, as previously reported - diluted | 207,939 | 192,967 | 187,287 | |||||||||
Effects of one-for-six reverse stock split | (173,282 | ) | (160,806 | ) | (156,072 | ) | ||||||
Weighted average number of common stock and linked units, as restated, included in tables below - diluted | 34,657 | 32,161 | 31,215 | |||||||||
2004 | 2003 | 2002 | |||||||||||
Weighted average number of common shares — basic | 1,420 | 32,161 | 31,215 | ||||||||||
Weighted average effect of dilutive securities: | |||||||||||||
Employee stock options | 46 | — | 171 | ||||||||||
Weighted average number of shares — diluted | 1,466 | 32,161 | 31,386 | ||||||||||
F-24
2004 | 2003 | 2002 | |||||||||||
Weighted average number of linked units — basic | 32,161 | — | — | ||||||||||
Weighted average effect of dilutive securities: | |||||||||||||
Employee stock options | 1,030 | — | — | ||||||||||
Weighted average number of linked units — diluted | 33,191 | — | — | ||||||||||
2004 | 2003 | 2002 | ||||||||||
Basic Earnings per common share, in cents | ||||||||||||
Income before extraordinary item and cumulative effect of an accounting change | 39.60 | 37.20 | 27.00 | |||||||||
Extraordinary item | — | 2.40 | — | |||||||||
Cumulative effect of an accounting change | — | 1.20 | — | |||||||||
Net income | 39.60 | 40.80 | 27.00 | |||||||||
12. | Commitments and Contingencies |
Operating Lease Commitments |
Due within a year | $ | 2,072 | ||
Due within 2 years | 1,398 | |||
Due within 3 years | 840 | |||
Due within 4 years | $ | 250 |
Capital Commitments |
Purchase Obligations |
Guarantees |
Contingencies |
F-25
13. | Related Party Transactions |
14. | Reconciliation of Net Income for the Year to Net Cash Provided by Operating Activities |
2004 | 2003 | 2002 | |||||||||||
Net Income for the year | $ | 13,278 | $ | 13,117 | $ | 8,518 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||
Depreciation and amortizations | 5,676 | 3,323 | 3,128 | ||||||||||
Minority interest in net income | — | 452 | 167 | ||||||||||
Earnings from equity accounted investment | (87 | ) | — | — | |||||||||
(Profit) loss on disposal of property, plant and equipment | 14 | (22 | ) | (67 | ) | ||||||||
Profit on disposal of business | — | (300 | ) | (267 | ) | ||||||||
Fair value adjustment related to financial liabilities | 33 | — | — | ||||||||||
Fair value of foreign currency exchange contracts | 483 | — | — | ||||||||||
Interest received from equity accounted investment | (68 | ) | — | — | |||||||||
Stock compensation charge related to awards of stock/options | 4,360 | 613 | 385 | ||||||||||
Stock issued related to transaction costs | 2,500 | — | — | ||||||||||
Extraordinary item | — | (857 | ) | — | |||||||||
Change in accounting policy | — | (318 | ) | — |
F-26
2004 | 2003 | 2002 | |||||||||||||
Changes in assets and liabilities: | |||||||||||||||
(Increase) decrease in accounts receivable | (7,954 | ) | (4,156 | ) | (1,184 | ) | |||||||||
(Increase) decrease in inventory | (44 | ) | 1,003 | 106 | |||||||||||
Increase (decrease) in accounts payable | 6,770 | 4,838 | (402 | ) | |||||||||||
Increase (decrease) in taxes payable | 18,166 | (647 | ) | 406 | |||||||||||
Increase (decrease) in deferred taxes | (1,232 | ) | 598 | 963 | |||||||||||
Total adjustments | 28,617 | 4,527 | 3,235 | ||||||||||||
Net cash provided by operating activities | $ | 41,895 | $ | 17,644 | $ | 11,753 | |||||||||
15. | Operating Segments |
F-27
June 30, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Revenues | ||||||||||||||
Transaction-based activities | $ | 83,275 | $ | 44,058 | $ | 28,291 | ||||||||
Smart card accounts | 26,584 | 13,750 | 8,318 | |||||||||||
Financial services | 16,633 | 13,407 | 10,465 | |||||||||||
Hardware, software and related technology sales | 4,606 | 5,135 | 4,719 | |||||||||||
Total | 131,098 | 76,350 | 51,793 | |||||||||||
Operating income | ||||||||||||||
Transaction-based activities | 24,913 | 10,196 | 7,376 | |||||||||||
Smart card accounts | 12,055 | 5,500 | 2,772 | |||||||||||
Financial services | 6,778 | 4,705 | 900 | |||||||||||
Hardware, software and related technology sales | 1,232 | 680 | 1,611 | |||||||||||
Corporate/Eliminations | (5,735 | ) | (1,663 | ) | 642 | |||||||||
Total | 39,243 | 19,418 | 13,301 | |||||||||||
Interest earned | ||||||||||||||
Transaction-based activities | — | — | — | |||||||||||
Smart card accounts | — | — | — | |||||||||||
Financial services | — | — | — | |||||||||||
Hardware, software and related technology sales | — | — | — | |||||||||||
Corporate/Eliminations | 15,418 | 8,070 | 3,261 | |||||||||||
Total | 15,418 | 8,070 | 3,261 | |||||||||||
Interest expense | ||||||||||||||
Transaction-based activities | 11,175 | 4,887 | 1,617 | |||||||||||
Smart card accounts | — | — | — | |||||||||||
Financial services | 29 | 51 | 15 | |||||||||||
Hardware, software and related technology sales | 155 | 338 | 247 | |||||||||||
Corporate/Eliminations | 419 | 194 | — | |||||||||||
Total | 11,778 | 5,470 | 1,879 | |||||||||||
F-28
June 30, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Depreciation and amortization | ||||||||||||||
Transaction-based activities | 4,017 | 3,287 | 2,004 | |||||||||||
Smart card accounts | — | — | — | |||||||||||
Financial services | 572 | 488 | 408 | |||||||||||
Hardware, software and related technology sales | 4 | 14 | 50 | |||||||||||
Corporate/Eliminations | 299 | 179 | 173 | |||||||||||
Total | 4,892 | 3,968 | 2,635 | |||||||||||
Income taxation expense | ||||||||||||||
Transaction-based activities | 4,121 | 1,593 | 1,728 | |||||||||||
Smart card accounts | 3,617 | 1,650 | 832 | |||||||||||
Financial services | 2,024 | 1,396 | 265 | |||||||||||
Hardware, software and related technology sales | 323 | 103 | 409 | |||||||||||
Corporate/Eliminations | 18,791 | 2,892 | 1,031 | |||||||||||
Total | 28,876 | 7,634 | 4,265 | |||||||||||
Net income after taxation | ||||||||||||||
Transaction-based activities | 9,616 | 3,716 | 4,031 | |||||||||||
Smart card accounts | 8,438 | 3,850 | 1,940 | |||||||||||
Financial services | 4,725 | 3,258 | 619 | |||||||||||
Hardware, software and related technology sales | 754 | 240 | 955 | |||||||||||
Corporate/Eliminations | (9,614 | ) | 3,321 | 2,873 | ||||||||||
Total | 13,919 | 14,385 | 10,418 | |||||||||||
Segment assets | ||||||||||||||
Total | 142,309 | 87,252 | 49,250 | |||||||||||
Expenditures for long-lived assets | ||||||||||||||
Transaction-based activities | 2,371 | 6,043 | 943 | |||||||||||
Smart card accounts | — | — | — | |||||||||||
Financial services | 185 | 106 | 817 | |||||||||||
Hardware, software and related technology sales | 34 | 15 | 5 | |||||||||||
Corporate/Eliminations | 218 | 548 | 153 | |||||||||||
Total | $ | 2,808 | $ | 6,712 | $ | 1,918 | ||||||||
F-29
2004 | 2003 | 2002 | ||||||||||||
Net income after tax in accordance with SA GAAP | $ | 14,007 | $ | 14,385 | $ | 10,418 | ||||||||
Intangible amortization adjustment | (a) | (300 | ) | (229 | ) | (205 | ) | |||||||
Internally developed intangibles adjustment | (b) | — | 180 | 54 | ||||||||||
Development expenses adjustment | (c) | — | 252 | 366 | ||||||||||
Revenue adjustment due to inclusion of the business from the beginning of the year instead of acquisition date | (d) | — | (1,427 | ) | — | |||||||||
Self insurance adjustment | (e) | (2,894 | ) | 873 | 468 | |||||||||
Goodwill amortization adjustment | (f) | (484 | ) | 813 | (742 | ) | ||||||||
Stock compensation charge | (k) | — | (613 | ) | (385 | ) | ||||||||
Secondary Taxation on Companies adjustment | (h) | 1,612 | (1,533 | ) | (1,120 | ) | ||||||||
Taxation adjustments due to difference between SA and US GAAP | (i) | 1,337 | (307 | ) | (169 | ) | ||||||||
Reclassification of earnings from equity accounted investment | (j) | (87 | ) | — | — | |||||||||
Net income after tax in accordance with US GAAP | $ | 13,191 | $ | 12,394 | $ | 8,685 | ||||||||
Segment assets in accordance with SA GAAP | $ | 142,309 | $ | 87,252 | $ | 49,250 | ||||||||
Recognition of goodwill, net of amortization | (f) | 6,573 | 5,740 | 3,473 | ||||||||||
Recognition of intangible assets, net of amortization | (a) | 3,669 | 3,591 | 2,579 | ||||||||||
Recognition of derivative instruments | (g) | (20 | ) | (17 | ) | (12 | ) | |||||||
Consolidation of the Self Insurance Captive | (e) | (358 | ) | 1,394 | 1,117 | |||||||||
Deferred tax adjustments | (h) | 459 | 399 | 89 | ||||||||||
Segment assets in accordance with US GAAP | $ | 152,632 | $ | 98,359 | $ | 56,496 | ||||||||
F-30
F-31
F-32
16. | Comprehensive Income (Loss) |
2004 | 2003 | 2002 | ||||||||||
Net income | $ | 13,278 | $ | 13,117 | $ | 8,518 | ||||||
Foreign currency translation adjustments | 16,001 | 18,405 | (10,208 | ) | ||||||||
$ | 29,279 | $ | 31,522 | $ | (1,690 | ) | ||||||
17. | Fair Value of Financial Instruments |
Initial Recognition and Measurement |
Trade and Other Receivables |
Trade and Other Payables |
Risk Management |
F-33
Foreign Exchange Risk |
Forward Purchase Contracts |
Notional Amount | Strike Price | Maturity | ||||
EUR 16,250 | ZAR 7.8475 | July 12, 2004 | ||||
EUR 202,000 | ZAR 8.1822 | August 2, 2004 | ||||
EUR 16,250 | ZAR 7.8878 | August 10, 2004 | ||||
EUR 16,250 | ZAR 7.9299 | September 10, 2004 | ||||
EUR 16,250 | ZAR 7.9749 | October 12, 2004 | ||||
EUR 263,200 | ZAR 8.2129 | October 29, 2004 | ||||
EUR 4,243,000 | ZAR 8.5225 | January 7, 2005 | ||||
USD 167,900 | ZAR 6.2950 | September 22, 2004 |
Notional Amount | Strike Price | Maturity | ||||
USD 16,250 | ZAR 12.643 | January 8, 2003 |
Interest Rate Risk |
Credit Risk |
18. | Equity Accounted Investment and Long Term Receivable |
F-34
19. | Acquisitions |
Reverse Acquisition of NUEP |
F-35
Cash | $ | 8 | |||
Investments | 217 | ||||
Intangible assets | 4,620 | ||||
Goodwill | 5,794 | ||||
Total assets acquired | 10,639 | ||||
Current liabilities | 960 | ||||
Deferred tax | 1,745 | ||||
Total liabilities acquired | 2,705 | ||||
Net assets acquired | $ | 7,934 | |||
Acquisition of NUEP Holdings S.a.r.l. |
20. | Reorganization Charge |
Accounting fees | $ | 1,256 | ||
Regulatory, filing and printing charges | 520 | |||
Legal fees | 529 | |||
Secretarial services | 16 | |||
Other professional fees | 4,429 | |||
Other | 4,383 | |||
$ | 11,133 | |||
F-36
March 31, | June 30, | |||||||||
2005 | 2004 | |||||||||
(Unaudited) | (Audited) | |||||||||
(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 | ||||||||
DEFERRED INCOME TAXES | 13,988 | 8,961 | ||||||||
LONG TERM LIABILITIES | — | 252 | ||||||||
TOTAL LIABILITIES | 46,638 | 57,044 | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||||
COMMON STOCK | ||||||||||
Authorized: 83,333,333 with $0.001 par value; | ||||||||||
Issued and outstanding shares — March: 27,175,135; June: 22,539,204 | 27 | 23 | ||||||||
SPECIAL CONVERTIBLE PREFERRED STOCK | ||||||||||
Authorized: 50,000,000 with $0.001 par value; | ||||||||||
Issued and outstanding shares — March: 27,525,259; June: 32,161,190 | 28 | 32 | ||||||||
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 | 71,959 | 71,954 | ||||||||
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 | ||||||
F-37
Nine Months Ended | |||||||||
March 31, | March 31, | ||||||||
2005 | 2004 | ||||||||
(In thousands, except | |||||||||
share data) | |||||||||
REVENUE | $ | 134,885 | $ | 91,463 | |||||
EXPENSE | |||||||||
COST OF GOODS SOLD, IT PROCESSING, SERVICING AND SUPPORT | 41,207 | 28,206 | |||||||
GENERAL AND ADMINISTRATIVE | 33,804 | 25,625 | |||||||
DEPRECIATION AND AMORTIZATION | 4,897 | 4,110 | |||||||
REORGANIZATION CHARGES | — | 3,537 | |||||||
OPERATING INCOME | 54,977 | 29,985 | |||||||
INTEREST INCOME, net | 1,497 | 2,464 | |||||||
INCOME BEFORE INCOME TAXES | 56,474 | 32,449 | |||||||
INCOME TAX EXPENSE | 22,534 | 13,896 | |||||||
NET INCOME BEFORE EARNINGS FROM EQUITY ACCOUNTED INVESTMENT | 33,940 | 18,553 | |||||||
EARNINGS FROM EQUITY ACCOUNTED INVESTMENT | 480 | — | |||||||
NET INCOME | $ | 34,420 | $ | 18,553 | |||||
Basic earnings per share (in cents), common stock and linked units | 62.94 | 57.66 | |||||||
Diluted earnings per share (in cents), common stock and linked units | 61.80 | 57.66 |
F-38
Nine Months Ended | ||||||||||
March 31, | March 31, | |||||||||
2005 | 2004 | |||||||||
(In thousands) | ||||||||||
COMMON STOCK | ||||||||||
Balance, beginning of period | $ | 23 | $ | 6 | ||||||
Conversion to common stock from special convertible preferred stock | 4 | — | ||||||||
Balance, end of period | 27 | 6 | ||||||||
SPECIAL CONVERTIBLE PREFERRED STOCK | ||||||||||
Balance, beginning of period | 32 | — | ||||||||
Conversion from special convertible preferred stock to common stock | (4 | ) | — | |||||||
Balance, end of period | 28 | — | ||||||||
B CLASS PREFERENCE SHARES | ||||||||||
Balance, beginning of period | 38 | — | ||||||||
Cessation of B class preference shares to Net 1 as a result of trigger events | (5 | ) | — | |||||||
Balance, end of period | 33 | — | ||||||||
ADDITIONAL PAID IN CAPITAL | ||||||||||
Balance, beginning of period | 71,954 | 40,571 | ||||||||
Conversion to common stock from special convertible preferred stock | 15,539 | — | ||||||||
Cessation of B class preference shares and B class loans to Net 1 as a result of trigger events | (15,534 | ) | — | |||||||
Balance, end of period | 71,959 | 40,571 | ||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME | ||||||||||
Balance, beginning of period | 15,039 | (962 | ) | |||||||
Movement in foreign currency translation reserve | (1,328 | ) | 14,215 | |||||||
Balance, end of period | 13,711 | 13,253 | ||||||||
RETAINED EARNINGS | ||||||||||
Balance, beginning of period | 8,502 | 30,889 | ||||||||
Net income for the period | 34,420 | 18,553 | ||||||||
Balance, end of period | 42,922 | 49,442 | ||||||||
Total shareholders’ equity | $ | 128,680 | $ | 103,272 | ||||||
F-39
Nine Months Ended | |||||||||
March 31, | March 31, | ||||||||
2005 | 2004 | ||||||||
(In thousands) | |||||||||
Cash flows from operating activities | |||||||||
Cash received from customers | $ | 127,910 | $ | 92,969 | |||||
Cash paid to suppliers and employees | (81,864 | ) | (49,580 | ) | |||||
Interest received | 11,645 | 10,755 | |||||||
Finance costs paid | (10,131 | ) | (8,161 | ) | |||||
Income taxes paid | (31,984 | ) | (10,626 | ) | |||||
Net cash (used in) provided by operating activities | 15,576 | 35,357 | |||||||
Cash flows from investing activities | |||||||||
Capital expenditures | (2,982 | ) | (2,392 | ) | |||||
Proceeds from disposal of property, plant and equipment | 29 | 33 | |||||||
Acquisition of contract rights | — | (1,329 | ) | ||||||
Net cash used in investing activities | (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 | (174 | ) | 12,170 | ||||||
Net increase in cash and cash equivalents | 12,430 | 38,751 | |||||||
Cash and cash equivalents — beginning of period | 80,282 | 54,313 | |||||||
Cash and cash equivalents at end of period | $ | 92,712 | $ | 93,064 | |||||
F-40
1. | Basis of Presentation and Summary of Significant Accounting Policies |
Unaudited Interim Financial Information |
• | number of common and special convertible stock authorized, issued and outstanding; | |
• | stock issued pursuant to the Company’s 2004 Stock Incentive Plan; | |
• | all per share measures, including but not limited to basic and diluted earnings per share; and | |
• | reallocation of amounts from common stock to additional paid in capital as the par value did not change. | |
Stock-Based Compensation |
F-41
Nine Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Net income | $ | 34,420 | $ | 18,553 | ||||
Add back: stock-based compensation expense included in reported net income, net of related tax effects | — | — | ||||||
Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects | (650 | ) | — | |||||
Pro-forma net income | $ | 33,770 | $ | 18,553 | ||||
Earnings per share, basic and diluted (U.S. cents): | ||||||||
Basic, as reported | 62.94 | 57.66 | ||||||
Basic, pro forma | 60.60 | 57.66 | ||||||
Weighted average assumptions: | ||||||||
Risk-free interest rate | 3.50 | % | — | |||||
Dividend yield | — | — | ||||||
Stock volatility | 72.00 | % | — | |||||
Average expected life (years) | 7.00 | — |
Translation of Foreign Currencies |
F-42
Recent Accounting Pronouncements |
2. | Goodwill and Intangible Assets |
F-43
As at March 31, 2005 | As at June 30, 2004 | ||||||||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||
Value | Amortization | Value | Value | Amortization | Value | ||||||||||||||||||||
Goodwill | $ | 18,886 | $ | (3,953 | ) | $ | 14,933 | $ | 19,302 | $ | (4,090 | ) | $ | 15,212 | |||||||||||
Finite-lived intangible assets: | |||||||||||||||||||||||||
Contract rights | 2,658 | (1,181 | ) | 1,477 | 2,673 | (520 | ) | 2,153 | |||||||||||||||||
Customer contracts | 114 | (20 | ) | 94 | 114 | (2 | ) | 112 | |||||||||||||||||
Exclusive licences | 4,506 | (539 | ) | 3,967 | 4,506 | (54 | ) | 4,452 | |||||||||||||||||
FTS patent | 6,072 | (2,885 | ) | 3,187 | 6,106 | (2,443 | ) | 3,663 | |||||||||||||||||
Other patents | — | — | — | 6 | — | 6 | |||||||||||||||||||
Total finite-lived intangible assets | $ | 13,350 | $ | (4,625 | ) | $ | 8,725 | $ | 13,405 | $ | (3,019 | ) | $ | 10,386 | |||||||||||
FTS Patent |
Contract Rights |
F-44
Customer Contracts and Exclusive Licenses |
As at March 31, 2005 | |||||||||||||
Accumulated | Net Carrying | ||||||||||||
Cost | Amortization | Value | |||||||||||
Transaction-based activities | $ | 3,478 | $ | (1,011 | ) | $ | 2,467 | ||||||
Smart card accounts | — | — | — | ||||||||||
Financial services | 7,813 | (2,191 | ) | 5,622 | |||||||||
Hardware, software and related technology sales | 7,595 | (751 | ) | 6,844 | |||||||||
Total | $ | 18,886 | $ | (3,953 | ) | $ | 14,933 | ||||||
As at June 30, 2004 | |||||||||||||
Accumulated | Net Carrying | ||||||||||||
Cost | Amortization | Value | |||||||||||
Transaction-based activities | $ | 3,841 | $ | (1,133 | ) | $ | 2,708 | ||||||
Smart card accounts | — | — | — | ||||||||||
Financial services | 7,857 | (2,203 | ) | 5,654 | |||||||||
Hardware, software and related technology sales | 7,604 | (754 | ) | 6,850 | |||||||||
Total | $ | 19,302 | $ | (4,090 | ) | $ | 15,212 | ||||||
3. | Capital Structure and Creditor Rights Attached to the B Class Loans |
• | a right to special convertible preferred stock, | |
• | B Class preference shares in Net 1 Applied Technologies South Africa Limited (“New Aplitec”) and | |
• | B Class loans issued by New Aplitec. |
F-45
Common Stock |
F-46
Special Convertible Preferred Stock |
B Class Preference Shares |
F-47
B Class Loans |
Conversion of Special Convertible Preferred Stock to Common Stock |
• | 7.368421056 B class preference shares; and | |
• | such holder’s interest in the New Aplitec B loan accounts. |
4. | Earnings Per Share |
F-48
Nine Months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
In U.S. cents | ||||||||
Earnings per share, as previously reported | 10.5 | 9.6 | ||||||
Effects of one-for-six reverse stock split | 52.4 | 48.1 | ||||||
Earnings per share, as restated | 62.9 | 57.7 | ||||||
’000 shares | ||||||||
Weighted average number of common stock and linked units, as previously reported | 328,202 | 192,967 | ||||||
Effects of one-for-six reverse stock split | (273,502 | ) | (160,806 | ) | ||||
Weighted average number of common stock and linked units, as restated, included in tables below | 54,700 | 32,161 | ||||||
Nine Months | ||||||||
Ended | ||||||||
March 31 | ||||||||
2005 | 2004 | |||||||
In U.S. cents | ||||||||
Diluted earnings per share, as previously reported | 10.3 | 9.6 | ||||||
Effects of one-for-six reverse stock split | 51.5 | 48.1 | ||||||
Diluted earnings per share, as restated | 61.8 | 57.7 | ||||||
’000 shares | ||||||||
Weighted average number of common stock and linked units, as previously reported — diluted | 334,243 | 192,967 | ||||||
Effects of one-for-six reverse stock split | (278,536 | ) | (160,806 | ) | ||||
Weighted average number of common stock and linked units, as restated, included in tables below — diluted | 55,707 | 32,161 | ||||||
F-49
Nine Months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
‘000 | ‘000 | |||||||
Weighted average number of outstanding shares of common stock — basic | 27,175 | 32,161 | ||||||
Weighted average effect of dilutive securities: employee stock options | 500 | — | ||||||
Weighted average number of outstanding shares of common stock — diluted | 27,675 | 32,161 | ||||||
Nine Months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
‘000 | ‘000 | |||||||
Weighted average number of outstanding linked units — basic | 27,525 | — | ||||||
Weighted average effect of dilutive securities: employee stock options | 507 | — | ||||||
Weighted average number of outstanding linked units — diluted | 28,032 | — | ||||||
Nine Months | ||||||||
Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
‘000 | ‘000 | |||||||
Total weighted average number of outstanding shares used to calculated earnings per share — basic | 54,700 | 32,161 | ||||||
Total weighted average number of outstanding shares used to calculated earnings per share — diluted | 55,707 | 32,161 | ||||||
5. | Comprehensive Income |
Nine Months Ended | ||||||||
March 31, | ||||||||
2005 | 2004 | |||||||
Net income | $ | 34,420 | $ | 18,553 | ||||
Foreign currency translation adjustments | (1,328 | ) | 14,215 | |||||
$ | 33,092 | $ | 32,768 | |||||
F-50
6. | Operating Segments |
F-51
Nine Months Ended | ||||||||||
March 31, | ||||||||||
2005 | 2004 | |||||||||
Revenues | ||||||||||
Transaction-based activities | $ | 77,538 | $ | 59,875 | ||||||
Smart card accounts | 26,362 | 15,762 | ||||||||
Financial services | 15,642 | 12,384 | ||||||||
Hardware, software and related technology sales | 15,343 | 3,312 | ||||||||
Total | 134,885 | 91,333 | ||||||||
Operating income | ||||||||||
Transaction-based activities | 31,629 | 18,626 | ||||||||
Smart card accounts | 11,983 | 7,165 | ||||||||
Financial services | 7,579 | 5,150 | ||||||||
Hardware, software and related technology sales | 6,036 | (236 | ) | |||||||
Corporate/Eliminations | (174 | ) | (3,442 | ) | ||||||
Total | 57,053 | 27,263 | ||||||||
Interest earned | ||||||||||
Transaction-based activities | — | — | ||||||||
Smart card accounts | — | — | ||||||||
Financial services | — | — | ||||||||
Hardware, software and related technology sales | — | — | ||||||||
Corporate/Eliminations | 11,505 | 10,962 | ||||||||
Total | 11,505 | 10,962 | ||||||||
Interest expense | ||||||||||
Transaction-based activities | 9,689 | 8,020 | ||||||||
Smart card accounts | — | — | ||||||||
Financial services | 21 | 20 | ||||||||
Hardware, software and related technology sales | 298 | 109 | ||||||||
Corporate/Eliminations | — | 349 | ||||||||
Total | 10,008 | 8,498 | ||||||||
F-52
Nine Months Ended | ||||||||||
March 31, | ||||||||||
2005 | 2004 | |||||||||
Depreciation and amortization | ||||||||||
Transaction-based activities | 3,910 | 3,432 | ||||||||
Smart card accounts | — | — | ||||||||
Financial services | 377 | 435 | ||||||||
Hardware, software and related technology sales | — | 2 | ||||||||
Corporate/Eliminations | 716 | 189 | ||||||||
Total | 5,003 | 4,058 | ||||||||
Income taxation expense | ||||||||||
Transaction-based activities | 6,559 | 3,359 | ||||||||
Smart card accounts | 3,595 | 2,150 | ||||||||
Financial services | 2,268 | 1,539 | ||||||||
Hardware, software and related technology sales | 1,720 | (103 | ) | |||||||
Corporate/Eliminations | 3,850 | 4,205 | ||||||||
Total | 17,992 | 11,150 | ||||||||
Net income after taxation | ||||||||||
Transaction-based activities | 15,379 | 7,248 | ||||||||
Smart card accounts | 8,386 | 5,015 | ||||||||
Financial services | 5,292 | 3,590 | ||||||||
Hardware, software and related technology sales | 4,014 | (242 | ) | |||||||
Corporate/Eliminations | 7,487 | 2,966 | ||||||||
Total | 40,558 | 18,577 | ||||||||
Segment assets | ||||||||||
Total | 164,670 | 131,243 | ||||||||
Expenditures for long-lived assets | ||||||||||
Transaction-based activities | 2,313 | 2,077 | ||||||||
Smart card accounts | — | — | ||||||||
Financial services | 669 | 111 | ||||||||
Hardware, software and related technology sales | — | 15 | ||||||||
Corporate/Eliminations | — | 189 | ||||||||
Total | $ | 2,982 | $ | 2,392 | ||||||
F-53
Nine Months Ended | ||||||||||
March 31, | March 31, | |||||||||
2005 | 2004 | |||||||||
Net income after tax in accordance with SA GAAP | $ | 40,558 | $ | 18,577 | ||||||
Intangible amortization adjustment | (a) | (251 | ) | (223 | ) | |||||
Self insurance adjustment | (b) | (1,465 | ) | 2,515 | ||||||
Goodwill amortization adjustment | (c) | 120 | 430 | |||||||
Secondary Taxation on Companies adjustment | (d) | (4,740 | ) | (1,977 | ) | |||||
Taxation adjustments due to difference between SA and US GAAP | (e) | 198 | (769 | ) | ||||||
Reclassification of earnings from equity accounted investment | (f) | (480 | ) | — | ||||||
Net income after tax in accordance with US GAAP | $ | 33,940 | $ | 18,553 | ||||||
March 31, | ||||||
2005 | ||||||
Segment assets in accordance with SA GAAP | $ | 164,670 | ||||
Recognition of goodwill, net of amortization | (c) | 6,882 | ||||
Recognition of intangible assets, net of amortization | (a) | 3,187 | ||||
Deferred tax adjustments | (d) | 579 | ||||
Segment assets in accordance with US GAAP | $ | 175,318 | ||||
F-54
7. | Deferred Expenditure on Smart Cards |
F-55
Morgan Stanley | JPMorgan |
Robert W. Baird & Co. | Jefferies & Company, Inc. | Thomas Weisel Partners LLC |
Item 13. | Other Expenses of Issuance and Distribution |
Amount to be Paid | |||||
SEC registration fee | $ | 13,535.30 | |||
NASD filing fee | 12,000.00 | ||||
Nasdaq National Market listing fee | |||||
Printing expenses | |||||
Legal fees and expenses | |||||
Accounting fees and expenses | |||||
Transfer agent fee | |||||
Miscellaneous | |||||
Total | $ | ||||
Item 14. | Indemnification of Directors and Officers |
II-1
Item 15. | Recent Sales of Unregistered Securities |
II-2
Item 16. | Exhibits and Financial Statement Schedules |
(a) | Exhibits |
Item 17. | Undertakings |
II-3
Net 1 UEPS Technologies, Inc. |
By: | /s/Serge C.P. Belamant |
Name: Serge C.P. Belamant |
Title: | Chief Executive Officer |
Signature | Title | Date | ||||
/s/Serge C.P. Belamant | Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer) | June 17, 2005 | ||||
* | Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial and Accounting Officer) | June 17, 2005 | ||||
* | Director | June 17, 2005 | ||||
* | Director | June 17, 2005 | ||||
* | Director | June 17, 2005 | ||||
* | Director | June 17, 2005 | ||||
*By: | /s/Serge C.P. Belamant Attorney-in-Fact |
II-4
1.1*** | Form of Underwriting Agreement. | |||
2.1 | Sale Agreement, dated October 31, 2003, between Net 1 Applied Technology Holdings Limited, Net 1 Investment Holdings (Proprietary) Limited, Net 1 Support Services (Proprietary) Limited and Newshelf 713 (Proprietary) Limited (incorporated by reference to Exhibit 2.1 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.2 | Subscription Agreement, dated October 31, 2003, between Net 1 UEPS Technologies, Inc. and Newshelf 713 (Proprietary) Limited (incorporated by reference to Exhibit 2.2 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.3 | Asset Purchase Agreement, dated as of January 30, 2004, between Net 1 Holdings S.a.r.l. and Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 2.3 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.4 | Common Stock Purchase Agreement, dated as of January 30, 2004, between Net 1 UEPS Technologies, Inc. and SAPEF III International G.P. Limited (or its nominees) (incorporated by reference to Exhibit 2.4 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.5 | Subscription Agreement, dated November 10, 2003, between the Trustees for the time being of the New Aplitec Participation Trust and Newshelf 713 (Proprietary) Limited (incorporated by reference to Exhibit 2.5 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.6 | Trust Deed of the New Aplitec Participation Trust, dated October 31, 2003, entered into between Newshelf 713 (Proprietary) Limited and Brait Capital Partners Trustees (Proprietary) Limited (incorporated by reference to Exhibit 2.6 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.7 | Trust Deed for the Aplitec Holdings Participation Trust, dated January 30, 2004, between Walkers SPV, SAPEF III International G.P. Limited (in its capacity as original enforcer), Brait Capital Partners Trustees (Proprietary) Limited (in its capacity as trustee of the New Aplitec Participation Trust) and Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 2.7 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.8 | Umbrella Agreement, dated November 10, 2003, between SAPEF III International G.P. Limited, The Trustees of the South African Private Equity Trust III, Net 1 UEPS Technologies, Inc., The Trustees of the New Aplitec Participation Trust and Newshelf 713 (Proprietary) Limited (incorporated by reference to Exhibit 2.8 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
2.9 | Underwriting Agreement, dated November 5, 2003, South African Private Equity Trust III and South African Private Equity Fund III L.P. and Newshelf 713 (Proprietary) Limited (incorporated by reference to Exhibit 2.9 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
3.1 | Articles of Incorporation of Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 1 to our Registration Statement on Form 10-SB filed on August 1, 2000 (file no. 000-31203)). | |||
3.2 | Articles of Amendment to Articles of Incorporation of Net 1 UEPS Technologies, Inc. (included as Annex A to the proxy statement/ prospectus included in our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463) and incorporated by reference herein). | |||
3.3 | Articles of Amendment to Articles of Incorporation of Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 3.3 to our Form 8-K, filed on June 14, 2005). | |||
3.4 | Amended and Restated By-Laws of Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 3.5 to our Form 8-K, filed on June 7, 2005). | |||
4.1** | Form of common stock certificate. | |||
5.1*** | Opinion of DLA Piper Rudnick Gray Cary US LLP as to the legality of the securities being registered. |
10.1 | Distribution Agreement, dated July 1, 2002, between Net 1 UEPS Technologies, Inc. and Net 1 Investment Holdings (Pty) Limited (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
10.2 | Patent and Technology Agreement, dated June 19, 2000, by and between Net 1 Holdings S.a.r.l. and Net 1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
10.3 | Service Level Agreement between The Limpopo Provincial Government in its Department of Health and Welfare and Cash Paymaster Services (Northern) (Pty) Limited (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
10.4 | Service Level Agreement between the Department of Social Welfare and Population Development, KwaZulu-Natal and Cash Paymaster Services KwaZulu-Natal (Pty) Ltd. (incorporated by reference to our Registration Statement on Form S-4, filed on February 3, 2004 (file no. 333-112463)). | |||
10.5 | 2004 Stock Incentive Plan (included as Annex B to the proxy statement/ prospectus included in our Registration Statement on Form S-4, filed on February 3, 2003 (file no. 333-112463) and incorporated by reference herein). | |||
10.6 | Product License Agreement between Net 1 Holdings S.a.r.l. and Banque De Gestion Et De Financement Burundi (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to our Registration Statement on Form S-4/ A, filed on April 21, 2004 (file no. 333-112463)). | |||
10.7 | Product Licence Agreement between Net 1 Holdings S.a.r.l. and Banque De Commerce, De Development Et D’Industrie B.C.D.I. S.A. Rwanda (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to our Registration Statement on Form S-4/ A, filed by Net 1 UEPS Technologies, Inc. on April 21, 2004 (file no. 333-112463)). | |||
10.8 | Product Licence Agreement between Net 1 Holdings S.a.r.l. and Net 1 Operations S.a.r.l. (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to our Registration Statement on Form S-4/ A, filed on April 21, 2004 (file no. 333-112463)). | |||
10.9 | Procurement and Commissioning Agreement between Net 1 Investment Holdings (Proprietary) Limited and Reserve Bank of Malawi (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to our Registration Statement on Form S-4/ A, filed on April 21, 2004 (file no. 333-112463)). | |||
10.10 | Non Exclusive UEPS Licence Agreement between Net 1 Investment Holdings (Proprietary) Limited and SIA Netcards (incorporated by reference to Amendment No. 2 to our Registration Statement on Form S-4/ A, filed on April 21, 2004 (file no. 333-112463)). | |||
10.11*** | Shareholders’ Agreement among Net 1 UEPS Technologies, Inc., South African Private Equity Fund III, L.P., Brait International Limited, Brenthurst Private Equity II Limited, Brenthurst Private Equity South Africa I Limited, CI Law Trustees Limited for the San Roque Trust dated August 18, 1992 and Dr. Belamant. | |||
10.12* | Technology License Agreement between Net 1 Investment Holdings (Proprietary) Limited and Visa International Service Association. | |||
10.13* | Service Level Agreement between the Province of the Eastern Cape Department of Social Development and CPS Eastern Cape (Proprietary) Limited. | |||
10.14* | Banking Facility between Nedbank Limited and Net 1 Applied Technology Holdings Limited. | |||
10.15* | Facility between Cash Paymaster Services Eastern Cape and Nedbank Limited. | |||
10.16* | Addendum to Facility Letter—Approval of Increase Bridging Loan Facilities between Nedbank Limited and Net 1 Applied Technology Holding Limited. | |||
10.17*** | Agreement between Nedcor Bank Limited and Net 1 Products (Proprietary) Limited. | |||
10.18* | Assignment of Copyright and License of Patents and Trade Marks between MetroLink (Proprietary) Limited and Net 1 Products (Proprietary) Limited. | |||
10.19* | Patent and Technology Agreement by and between Net 1 Investment Holdings (Proprietary) Limited and Nedcor Bank Limited. | |||
21.1* | Subsidiaries of Net 1 UEPS Technologies, Inc. |
23.1** | Consent of Deloitte & Touche, Chartered Accountants. | |||
23.2** | Consent of PKF (Jhb) Inc. | |||
23.3*** | Consent of DLA Piper Rudnick Gray Cary US LLP (incorporated by reference to Exhibit 5.1 to this Registration Statement on Form S-1). | |||
23.4*** | Consent of Cliffe Dekker Inc. | |||
24.1* | Power of Attorney. |
* | Filed previously. |
** | Filed herewith. |
*** | To be filed by amendment. |