UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6,
2008 (August 27, 2008)
NET 1 UEPS TECHNOLOGIES,
INC.
(Exact name of registrant as specified in its
charter)
Florida
|
000-31203
|
98-0171860
|
(State or other jurisdiction of incorporation)
|
(Commission File Number)
|
(IRS Employer Identification No.)
|
President Place, 4
th
Floor, Cnr. Jan Smuts
Avenue and Bolton Road Rosebank, Johannesburg, South
Africa
(Address of principal executive offices) (ZIP Code)
011-27-11-343-2000
Registrants
telephone number, including area code
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a -12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d -2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e -4(c))
Explanatory Note
On August 27, 2008, we acquired 80.1% of the issued share
capital of BGS Smartcard Systems AG (BGS). In the Acquisition, we paid the
selling shareholders approximately $101.6 million in cash and issued certain
selling shareholders an aggregate of 40,134 shares of our common stock. We
financed the cash portion of the purchase price with the proceeds of bank
financing which we repaid in full on October 16, 2008.
On August 27, 2008, we filed a Current Report on Form 8-K (the
Form 8-K) under Item 2.01 to report the completion of the Acquisition. In
response to parts (a) and (b) of Item 9.01 of the Form 8-K, we stated that we
would file the required financial information by amendment, as permitted by Item
9.01. This Form 8-K amendment is being filed to provide certain historical
financial statements of BGS and pro forma financial information.
Item 9.01.
|
Financial Statements and
Exhibits.
|
(a)
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Financial statements of businesses
acquired
.
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|
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Report
of Independent Registered Public Accounting Firm
|
F-1
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|
BGS Smartcard Systems AG audited financial
statements for the year ended December 31, 2007 comprising:
|
|
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Consolidated
Balance Sheet as of December 31, 2007
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F-2
|
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Consolidated
Statement of Operations for the year ended December 31, 2007
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F-3
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|
Consolidated Statement of Movements in Shareholders’ Equity for the year ended December 31, 2007
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F-4
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Consolidated Statement of Cash Flows for the year ended December 31, 2007
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F-5
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|
Notes to the Consolidated Financial Statements for the year ended December 31, 2007
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F-6
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BGS Smartcard Systems AG unaudited financial
statements for the six months ended June 30, 2008 and 2007 comprising:
|
|
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Unaudited
Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
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F-16
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Unaudited
Consolidated Statements of Operations for the six months ended June 30,
2008 and 2007
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F-17
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Unaudited Consolidated Statements of Movements in Shareholders’ Equity for the six months ended June 30, 2008 and 2007
|
F-18
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Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007
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F-19
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Notes
to the Unaudited Consolidated Financial Statements for the six months ended
June 30, 2008 and 2007
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F-20
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(b)
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Pro forma financial
information
.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of BGS Smartcard
Systems AG:
We have audited the accompanying consolidated balance sheet of
BGS Smartcard Systems AG (an Austrian corporation) and its subsidiaries
(collectively, the "Company") as of December 31, 2007, and the related
consolidated statements of operations, movements in shareholders equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2007, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte Wirtschaftsprüfungs GmbH
Deloitte Wirtschaftsprüfungs GmbH
Vienna, Austria
November 6, 2008
F-1
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
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CONSOLIDATED BALANCE SHEET
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|
|
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as of December 31, 2007
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2007
|
|
|
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(In thousands,
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except
|
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share data)
|
|
|
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|
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ASSETS
|
|
|
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CURRENT ASSETS
|
|
|
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Cash and cash equivalents
|
€
|
3,862
|
|
Restricted cash
|
|
722
|
|
Accounts receivable, net
|
|
5,277
|
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Inventory
|
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1,018
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|
Deferred tax
|
|
43
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Total current assets
|
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10,922
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|
|
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LONG-TERM RECEIVABLES
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25
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PROPERTY, PLANT AND EQUIPMENT, net
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274
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INVESTMENT AVAILABLE FOR SALE
|
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968
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INTANGIBLE ASSETS, net
|
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5
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DEFERRED TAX
|
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4,399
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|
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TOTAL ASSETS
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16,593
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|
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LIABILITIES
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CURRENT LIABILITIES
|
|
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Accounts payable
|
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30
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Other payables
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|
2,713
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Income taxes payable
|
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542
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Total current liabilities
|
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3,285
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|
|
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COMMITMENTS AND CONTINGENCIES
|
|
-
|
|
|
|
|
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TOTAL LIABILITIES
|
|
3,285
|
|
|
|
|
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SHAREHOLDERS EQUITY
|
|
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COMMON STOCK
|
|
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Authorized shares: 26,800 with zero par value;
|
|
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Issued and outstanding shares: 26,800
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2,000
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|
|
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ADDITIONAL PAID-IN CAPITAL
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7,128
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ACCUMULATED OTHER COMPREHENSIVE INCOME
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34
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|
|
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RETAINED EARNINGS
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4,146
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TOTAL SHAREHOLDERS EQUITY
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13,308
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|
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
€
|
16,593
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
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CONSOLIDATED STATEMENT OF OPERATIONS
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|
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for the year ended December 31, 2007
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2007
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(In thousands)
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|
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REVENUE
|
€
|
17,244
|
|
|
|
|
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EXPENSES
|
|
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|
|
|
|
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Cost of goods sold, IT
processing, servicing and support
|
|
2,912
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|
|
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Selling, general and
administration
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7,396
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|
|
|
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Depreciation and
amortization
|
|
136
|
|
|
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OPERATING INCOME
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6,800
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|
|
|
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INTEREST INCOME, net
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142
|
|
|
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INCOME BEFORE INCOME TAXES
|
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6,942
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|
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INCOME TAX EXPENSE
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1,627
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|
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NET INCOME BEFORE LOSS FROM EQUITY
ACCOUNTED
|
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INVESTMENTS
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5,315
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|
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LOSS FROM EQUITY ACCOUNTED INVESTMENTS
|
|
(278
|
)
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NET INCOME
|
€
|
5,037
|
|
See accompanying notes to consolidated financial statements.
F-3
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
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CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
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for the year ended December 31, 2007
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Common stock
|
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|
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|
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|
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|
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|
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Accumu
|
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lated
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|
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|
|
|
|
|
|
|
|
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|
|
other
|
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|
|
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|
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|
|
|
|
|
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|
|
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|
compre
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Compreh
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Additional
|
|
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|
hensive
|
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|
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|
ensive
|
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Number
|
|
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|
|
|
paid in
|
|
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Retained
|
|
|
income
|
|
|
|
|
|
income
|
|
|
|
of
shares
|
|
|
Amount
|
|
|
capital
|
|
|
earnings
|
|
|
(loss)
|
|
|
Total
|
|
|
(loss)
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2007
|
|
26,800
|
|
€
|
2,000
|
|
€
|
7,128
|
|
€
|
2,912
|
|
€
|
60
|
|
€
|
12,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
5,037
|
|
|
|
|
|
5,037
|
|
€
|
5,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Dividends paid
|
|
|
|
|
|
|
|
|
|
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(3,803)
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|
|
|
|
|
(3,803)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Movement in foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation reserve
|
|
|
|
|
|
|
|
|
|
|
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|
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(26)
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|
|
(26)
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|
(26)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
26,800
|
|
€
|
2,000
|
|
€
|
7,128
|
|
€
|
4,146
|
|
€
|
34
|
|
€
|
13,308
|
|
€
|
5,011
|
|
F-4
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
|
|
for the year ended December 31, 2007
|
|
|
|
|
|
|
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2007
|
|
|
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(In
|
|
|
|
thousands)
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Net income
|
€
|
5,037
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
Depreciation and
amortization
|
|
136
|
|
Profit on sale of property, plant and
equipment
|
|
(1
|
)
|
Loss from equity
accounted investment
|
|
278
|
|
Increase in accounts receivable
|
|
(1,630
|
)
|
Increase in inventory
|
|
(808
|
)
|
Increase in accounts payable and other
payables
|
|
1,323
|
|
Increase in taxes
payable
|
|
244
|
|
Decrease in deferred taxes
|
|
550
|
|
Net cash provided by operating activities
|
|
5,129
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
Capital expenditures
|
|
(159
|
)
|
Movement in restricted cash
|
|
(722
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
19
|
|
Net cash used in investing activities
|
|
(862
|
)
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
Repayment of bank overdraft
|
|
(637
|
)
|
Dividends paid
|
|
(3,803
|
)
|
Net cash used in financing activities
|
|
(4,440
|
)
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(173
|
)
|
|
|
|
|
Cash and cash equivalents beginning of year
|
|
4,035
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
€
|
3,862
|
|
See accompanying notes to consolidated financial statements.
F-5
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
1.
|
DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
|
Description of
Business
BGS Smartcard Systems AG (the
Company) was founded in July 1997 in Vienna, Austria. The Company is a
provider of software solutions for electronic payments based on micro-controller
cards (so-called smart cards). The Companys products are marketed under the
direct universal electronic transactions (DUET) brand name. The Companys
product line ranges from solutions for banks to payroll systems for companies
and Internet banking as well as egovernment, micro finance and social
services.
The Company focuses on the
developing markets of the Commonwealth of Independent States (CIS) and the
Arabian region including North Africa as well as Asia and Latin America. These
markets are developed directly by the Company and its subsidiaries in the
Russian Federation and India as well as by sales partners in other countries. An
Austrian subsidiary of the Company develops the Companys software products.
2.
|
SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of
presentation
The accompanying consolidated
financial statements include all majority owned subsidiaries over which the
Company exercises control and have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Principles of
consolidation
The consolidated financial
statements include the accounts of the Company and its controlled subsidiaries,
which are generally majority owned. The accounts of variable interest entities
(VIEs) as defined by Financial Accounting Standards Board (FASB)
Interpretation No. 46(R),
Accounting for Variable Interest Entities
,
(FIN 46R), are included in the consolidated financial statements, if required.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
Use of
estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property, plant and
equipment
Property, plant and equipment are
shown at cost less accumulated depreciation. Property, plant and equipment are
depreciated on the straight-line basis at rates which are estimated to amortize
the assets to their anticipated residual values over their useful lives. Within
the following asset classifications, the expected economic lives are
approximately:
|
Computer and office equipment
|
3 to 5 years
|
|
Motor vehicles
|
5 to 8 years
|
|
Furniture and fittings
|
5 to 10 years
|
|
Plant and equipment
|
10 years
|
The gain or loss arising on the
disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in
income.
F-6
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Leasehold improvement
costs
Costs incurred in the adaptation
of leased properties to serve the requirements of the Company are capitalized
and amortized over the shorter of the term of the lease and the contract for
which the lease has been entered into.
Sales
taxes
Revenue and expenses are presented net of sales, use and value
added taxes, as the case may be.
Income
taxes
The Company provides for income
taxes using the asset and liability method. This approach recognizes the amount
of taxes payable or refundable for the current year, as well as deferred tax
assets and liabilities for the future tax consequence of events recognized in
the financial statements and tax returns. Deferred income taxes are adjusted to
reflect the effects of changes in tax laws or enacted tax rates. The income tax
rate during the year ended December 31, 2007 was 25%.
In establishing the appropriate
income tax valuation allowances, the Company assesses the realizability of its
net deferred tax assets, and based on all available evidence, both positive and
negative, determines whether it is more likely than not that the net deferred
tax assets or a portion thereof will be realized.
The Company has adopted FIN 48
for the period beginning January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in tax positions.
Uncertain tax positions are recognized in the financial statements for positions
which are considered more likely than not of being sustained based on the
technical merits of the position on audit by the tax authorities. The
measurement of the tax benefit recognized in the financial statements is based
upon the largest amount of tax benefit that, in managements judgement, is
greater than 50% likely of being realized based on a cumulative probability
assessment of the possible outcomes. The Company has analyzed its uncertain tax
positions and no adjustment is required.
The Companys policy is to
include interest related to unrecognized tax benefits in interest income, net
and penalties in selling, general and administration in the consolidated
statements of operations.
Intangible
assets
Intangible assets are shown at
cost less accumulated amortization and are amortized over their useful lives,
which vary between two and five years. Intangible assets are periodically
evaluated for recoverability, and those evaluations take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists.
Inventory
Inventory is valued at the lower of cost and market value. Cost
is determined on a first-in, first-out basis.
Translation of
foreign currencies
The functional currency of the
Companys foreign subsidiaries is the local currency of the country in which the
subsidiary operates. The reporting currency of the Company is the euro. The
current rate method is used to translate the financial statements of the Company
to euro. Under the current rate method, assets and liabilities are translated at
the exchange rates in effect at the balance sheet date. Revenues and expenses
are translated at average rates for the period. Translation gains and losses are
reported in accumulated other comprehensive income in shareholders equity.
Foreign exchange transactions are
translated at the spot rate ruling at the date of the transaction. Monetary
items are translated at the closing spot rate at the balance sheet date.
Transactional gains and losses are recognized in income for the period.
F-7
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Revenue
recognition
The Company recognizes revenue
when:
-
there is persuasive evidence of an agreement or arrangement;
-
delivery of products has occurred or services have been rendered;
-
the sellers price to the buyer is fixed or determinable;
-
collectibility is reasonably assured.
The Companys principal revenue
streams and their respective accounting treatments are discussed below:
Hardware sales
Revenue from hardware sales is
recognized when risk of loss has transferred to the customer and there are no
unfulfilled company obligations that affect the customers final acceptance of
the arrangement.
To the extent that sales of
hardware are made in an arrangement that includes software that is more than
incidental, the Company applies the guidance in American Institute of Certified
Public Accountants Statement of Position 97-2,
Software Revenue Recognition,
as amended
(SOP 97-2). This requires consideration of post contract
maintenance and technical support or other future obligations which could impact
the timing and amount of revenue recognized.
Software
Revenue from the sale of software
is recognized if all revenue recognition criteria have been met. Post contract
maintenance and technical support in respect of software is negotiated and sold
as a separate service and is recognized over the period such items are
delivered.
Other income
Revenue from service and
maintenance activities is charged to customers on a time-and-materials basis and
is recognized in the statement of operations as services are delivered to
customers.
Research and
development expenditure
Research and development
expenditures are charged to net income in the periods in which they are
incurred. During the year ended December 31, 2007, the Company incurred research
and development expenditures of €2,2 million.
Computer software
development
Costs in respect of the
development of software intended for sale to licensees is accounted for in
accordance with Financial Accounting Standards Board (FASB) Statement No. 86,
Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed
(FAS 86)
.
FAS 86 requires product development costs to be
charged to expenses as incurred until technological feasibility is attained.
Technological feasibility is attained when the Companys software has completed
system testing and has been determined viable for its intended use. The time
between the attainment of technological feasibility and completion of software
development is generally short with immaterial amounts of development costs
incurred during this period.
Costs in respect of the
development of software for the Companys internal use are accounted for in
accordance with Statement of Position 98-1
Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use
(SOP 98-1),
issued by the American Institute of Certified Public Accountants.
F-8
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Recent accounting
pronouncements not yet adopted as of December 31, 2007
In September 2006, the FASB
issued Statement of Financial Accounting Standard (SFAS) No. 157,
Fair
Value Measurements
(FAS 157)
.
FAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
FAS 157 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier adoption is permitted. The
Company is currently assessing FAS 157 and does not expect the adoption of this
standard to have a material impact on its financial position or results of
operations.
In February 2008, the FASB issued
FASB Statement of Position (FSP) FAS 157-2,
Effective Date of FASB
Statement No. 157
(FSP FAS 157-2) which delays the effective date of FAS
157 for all nonrecurring fair value measurements of nonfinancial assets and
nonfinancial liabilities until fiscal years beginning after November 15, 2008.
Entities are encouraged to adopt FAS 157 for measurements of nonfinancial assets
and nonfinancial liabilities in its entirety as long as they have not yet issued
financial statements during that year. An entity that chooses to adopt FAS 157
in its entirety must do so for all nonfinancial assets and nonfinancial
liabilities within its scope. The Company is currently reviewing the impact of
the adoption of FAS 157 for all non-financial assets and liabilities on its
financial statements.
In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities -Including an Amendment of FASB Statement No. 115 (FAS 159). FAS
159 permits an entity to choose to measure many financial instruments and
certain other items at fair value. The unrealized gains and losses on items for
which the fair value option has been elected will be reported in earnings at
each subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments. FAS 159 is effective for fiscal years beginning after November
15, 2007 and for interim periods within those fiscal years. The Company is
currently assessing FAS 159 and does not expect the adoption of this standard to
have a material impact on its financial position or results of operations.
In December 2007, the FASB issued
SFAS No. 141(revised 2007),
Business Combinations
(FAS 141R). FAS 141R
replaces SFAS No. 141,
Business Combinations
(FAS 141). FAS 141R
retains the fundamental requirements in FAS 141 that the acquisition method of
accounting (defined in FAS 141 as the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
FAS 141R requires the acquiring entity in a business combination to recognize
the assets acquired and liabilities assumed at the acquisition date. FAS 141R
also requires acquisition-related costs to be recognized separately from the
business combination. FAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is
currently assessing FAS 141R and has not yet determined the impact that the
adoption of this standard will have on its financial position or results of
operations.
In December 2007, the FASB issued
SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
(FAS 160). FAS 160 establishes a single method of accounting
for changes in a parents ownership interest in a subsidiary that does not
result in deconsolidation. FAS 160 clarifies that all of those transactions are
equity transactions if the parent retains its controlling financial interest in
the subsidiary. FAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. However, FAS 160 shall be applied prospectively as of
the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented. The
Company is currently assessing FAS 160 and has not yet determined the impact
that the adoption of this standard will have on its financial position or
results of operations.
In March 2008, the FASB issued
SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities
an amendment of FASB No. 133
(FAS 161). FAS 161 requires enhanced
disclosures about an entitys derivative and hedging activities and thereby
improves the transparency of financial reporting. FAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. FAS 161 encourages, but
does not require, comparative disclosures for earlier periods at initial
adoption. The Company is currently assessing FAS 161 and has not yet determined
the impact that the adoption of this standard will have on its financial
position or results of operations.
F-9
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
In May 2008, the FASB issued SFAS
No. 162,
The Hierarchy of Generally Accepted Accounting Principles
(FAS
162). FAS 162 identifies the sources of accounting principles and the framework
for selecting the principles to be used in the preparation of financial
statements under US GAAP. FAS 162 is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles
. The adoption of FAS 162 is not expected to
change current practice.
In April 2008, the FASB issued
FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142,
Goodwill and Other
Intangible Assets
(FAS 142). The intent of FSP 142-3 is to improve the
consistency between the useful life of an intangible asset determined under FAS
142 and the period of expected cash flows used to measure the fair value of the
asset under FAS 141. FSP 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company is currently assessing
FSP FAS 157-2 and has not yet determined the impact that its adoption will have
on the Companys financial position or results of operations.
|
2007
|
|
|
Accounts receivable, trade
|
€5,016
|
Other receivables
|
261 -
|
Total accounts receivable, net
|
€5,277
|
The Companys inventory comprised
of the following as of December 31, 2007.
|
2008
|
|
|
Finished goods
|
€1,018
|
5.
|
PROPERTY, PLANT AND
EQUIPMENT
|
|
2007
|
Cost:
|
|
Computer equipment
|
€465
|
Furniture and office equipment
|
115
|
Motor vehicles
|
77
|
Plant and equipment
|
70
|
|
727
|
Accumulated depreciation:
|
|
Computer equipment
|
296
|
Furniture and office equipment
|
92
|
Motor vehicles
|
10
|
Plant and equipment
|
55
|
|
453
|
Carrying amount:
|
|
Computer equipment
|
169
|
Furniture and office equipment
|
23
|
Motor vehicles
|
67
|
Plant and equipment
|
15
|
|
€274
|
F-10
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
Summarized below is the carrying value and accumulated
amortization of the intangible assets as of December 31, 2007:
|
|
As of December 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
carrying
|
|
|
|
value
|
|
|
amortization
|
|
|
value
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
Software licenses and rights
|
|
€75
|
|
|
€(70
|
)
|
|
€5
|
|
|
|
|
|
|
|
|
|
|
|
Total
finite-lived intangible assets
|
|
€75
|
|
|
€(70
|
)
|
|
€5
|
|
Aggregate amortization expense on
the rights and licenses for the year ended December 31, 2007 was approximately
€0.01 million.
Future annual amortization
expense is estimated at €0.01 million per annum. Actual annual amortization
expense to be reported in future periods could differ from this estimate as a
result of new intangible asset acquisitions, changes in useful lives and other
relevant factors.
|
2007
|
|
|
Advance payments received on order (client
deposits)
|
€817
|
Payroll-related payables
|
593
|
Accruals
|
179
|
Provisions
|
1,124
|
|
€2,713
|
The Companys balance sheet
reflects one class of equity, namely common stock.
Common stock
Holders of shares of the
Companys common stock are entitled to receive dividends and other distributions
when declared by the Companys supervisory board out of funds available.
Upon voluntary or involuntary
liquidation, dissolution or winding up of the Company, holders of common stock
share ratably in the assets remaining after payments to creditors. There are no
pre-emptive or other subscription rights, conversion rights or redemption or
scheduled installment payment provisions relating to shares of common stock. All
of the outstanding shares of common stock are fully paid and non-assessable.
Each holder of common stock is
entitled to one vote per share for the election of the supervisory board and for
all other matters to be voted on by shareholders.. The shares of Company common
stock are not subject to redemption.
F-11
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
Presented below is the analysis
of the income tax provision for the year ended December 31, 2007 and the
reconciliation of income taxes, calculated at the statutory income tax rate, to
the income tax provision included in the accompanying statement of operations
for the year ended December 31, 2007:
|
2007
|
Income tax provision:
|
|
Current income tax
provision
|
|
Austria
|
€1,180
|
Other
international
|
-
|
Current income tax provision
|
1,180
|
Deferred taxation charge
(benefit)
|
447
|
Income tax provision
|
€1,627
|
Income tax rate reconciliation
|
|
Income taxes at statutory tax rates
|
25.00%
|
Permanent items
|
2.00%
|
Income tax provision
|
23.00%
|
Current
|
17.00%
|
Deferred
|
6.00%
|
9.
|
INCOME TAXES (continued)
|
The following table shows the
significant components included in deferred income taxes as at December 31,
2007:
|
|
2007
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
Assessed
losses
|
|
€155
|
|
Provisions and accruals
|
|
43
|
|
License
rights
|
|
11,421
|
|
Total deferred tax assets before valuation allowance
|
|
11,619
|
|
Valuation allowances
|
|
(7,177
|
)
|
Total deferred tax assets, net of
valuation allowance
|
|
4,442
|
|
Reported as
|
|
|
|
Current deferred tax
|
|
43
|
|
Long term
deferred tax
|
|
€4,399
|
|
Tax status
The Company is registered for
taxation in Austria, Vienna and final assessments are available for the years up
to and including 2006. The last audit conducted by the Austrian tax authorities
covered the tax period from 2001 to 2003 and was completed in 2005. The Company
has no significant appeals pending.
Tax loss
carry-forwards
As of December 31, 2007, a
subsidiary of the company has a net operating loss carry forward of €0.5
million.
Acquisition of license rights
previously owned by BGS Switzerland
The license rights previously
held by BGS Switzerland were transferred to the Company as of June 30, 2006, as
a result of the liquidation of BGS Switzerland. The license rights, termed
software for taxation purposes, were not capitalized under GAAP because it was
generated internally. However the license rights were valued for tax purposes
based on previous license payments at €50.76 million in June 2006. The Company
expects to amortize the license rights in its tax returns over a period of 15
years. Accordingly, as of December 31, 2007, the Company has recognized a
deferred tax asset of approximately €11.4 million related to the license rights
which have been recognized for tax purposes but not in terms of GAAP.
F-12
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
9.
|
INCOME TAXES (continued)
|
Valuation allowance
The utilization of deferred tax
assets is dependent on the Companys future operating profits. Management is not
aware of any trends, events, or transactions that are expected to affect future
levels of taxable income. Management is of the opinion that based on the weight
of available positive and negative evidence it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax assets above, except for certain tax losses discussed
below.
Management has provided a valuation allowance for the net
operating loss carry forwards and the license rights.
The net operating loss was
incurred by a subsidiary which is currently in the start-up phase and the
Companys management believes that due to the status of the subsidiary it may
not be able to utilize these tax loss carry forwards in future. Accordingly, a
valuation allowance of €0.2 million has been provided for the full amount of the
tax loss carry forward.
The tax deduction for the license
rights is claimable over a 15 year period beginning in the tax year ended
December 31, 2006. Management has considered all available evidence, both
positive and negative, including forecasts of taxable income over its five-year
forecasting period, and determined based on the weight of that evidence, that as
at December 31, 2007, a valuation allowance is needed for approximately 61% of
the deduction claimable related to the license rights as there may not be
sufficient taxable income in the future to offset this deduction.
During the year ended December
31, 2007, the Company utilized €0.3 million of its valuation allowance.
10.
|
COMPREHENSIVE INCOME
(LOSS)
|
The Companys comprehensive
income consists of net income and foreign currency translation gains and losses
which, under GAAP, are excluded from net income. Total comprehensive income for
the year ended December 31, 2007 was:
|
|
2007
|
|
|
|
|
|
Net income
|
|
€5,037
|
|
Foreign currency translation adjustments
|
|
(26
|
)
|
Total
comprehensive income
|
|
€5,011
|
|
11.
|
SUPPLEMENTAL CASH FLOW
INFORMATION
|
Supplemental cash flow
information:
The following table presents the
supplemental cash flow disclosures for the year ended December 31, 2007:
|
2007
|
Cash received from interest
|
€149
|
Cash paid for interest
|
€7
|
Cash paid for income taxes
|
€603
|
12.
|
FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
Initial recognition and
measurement
Financial instruments are
recognized when the Company becomes a party to the transaction. Initial
measurements are at cost, which includes transaction costs subsequent to initial
recognition. These instruments are measured as set out below:
Trade and other
receivables
Trade and other receivables
originated by the Company are stated at cost. The fair value of trade and other
receivables approximate their carrying value due to their short-term nature.
F-13
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
12.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
|
Trade and other
payables
The fair values of trade and
other payables approximates their carrying amounts, due to their short-term
nature.
Risk management
The Company seeks to reduce its
exposure to currencies other than the euro through a policy of matching, to the
extent possible, assets and liabilities denominated in those currencies. In
addition, the Company uses financial instruments in order to economically hedge
its exposure to exchange rate and interest rate fluctuations arising from our
operations.
Currency Exchange
Risk
The Company is subject to
currency exchange risk because it sells inventories that will be paid to the
Company in other currencies, primarily the U.S. dollar. The Company has used
forward contracts in order to limit its exposure in these transactions to
fluctuations in exchange rates between the euro, on the one hand, and the U.S.
dollar, on the other hand.
As of December 31, 2007, the outstanding
foreign exchange contract is as follows:
As of December 31, 2007
|
|
Fair market
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
USD 1,187.500
|
1.3555
|
EUR
1.4718
|
January 25, 2008
|
Interest Rate
Risk
As a result of our normal
borrowing and leasing activities, the Companys operating results are exposed to
fluctuations in interest rates, which it manages primarily through its regular
financing activities. The Company generally maintains limited investment in cash
equivalents and has occasionally invested in marketable securities.
Credit Risk
Credit risk relates to the risk
of loss that the Company would incur as a result of non-performance by
counterparties. The Company maintains credit risk policies with regard to its
counterparties to minimize overall credit risk. These policies include an
evaluation of a potential counterpartys financial condition, credit rating, and
other credit criteria and risk mitigation tools as the Companys management
deems appropriate.
With respect to credit risk on
financial instruments, the Company maintains a policy of entering into such
transactions only with European financial institutions that have a credit rating
of BBB or better, as determined by Moodys.
13.
|
COMMITMENTS AND
CONTINGENCIES
|
Operating lease
commitments
The Company leases certain
premises. At December 31, 2007, the future minimum payments under operating
leases consist of:
Due within 1
year
|
€449
|
Due within 2 years
|
226
|
Due within 3
years
|
98
|
Due within 4 years
|
98
|
Due within 5
years
|
€98
|
Operating lease payments related
to the premises were €0.4 million for the year ended December 31, 2007. In terms
of the lease agreement for the Companys head office, the Company may terminate
the lease with 12 months written notice.
F-14
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Consolidated Financial Statements
|
for the year ended December 31, 2007
|
(All amounts
stated in thousands of euro, unless otherwise stated)
|
13.
|
COMMITMENTS AND CONTINGENCIES
(continued)
|
Purchase Obligations
As of December 31, 2007, the
Company has purchase obligations totaling approximately €0.8 million.
Capital commitments
As of December 31, 2007, the
Company had no outstanding capital commitments.
Guarantees
As at December 31, 2007, the
Company has pledged a deposit as security to reduce guarantee costs related to a
guarantee of €0.7 million issued to a customer by the Companys bank. The
Company has classified this deposit as restricted cash.
14.
|
SHORT-TERM FACILITIES
|
As of December 31, 2007, the
Company had maximum unused short-term facilities of approximately €1.0 million
with each of two of Austrias largest banks. The interest rate applicable to
these short-term facilities is negotiated when the facilities are utilized.
15.
|
RELATED PARTY TRANSACTIONS
|
The Company corporate head office
in Vienna is owned by a relative of the Companys Chief Operating Officer/ Chief
Financial Officer. During the year ended December 31, 2008, the Company paid
€0.1 million to lease the premises.
On August 27, 2008, Net 1 UEPS
Technologies, Inc. (Net1) acquired 80.1% of our issued and outstanding share
capital for approximately €70 million in cash.
Pursuant to the purchase
agreement between the Company and Net1, the Company transferred its interest in
ZAO Sbercarta, a company incorporated in the Russian Federation, by way of
universal legal succession to the shareholders of the Company on record before
Net1 acquired its 80.10% interest.
In January 2008, the Company invested €0.1 million to acquire a
32% interest in BGS Middle East Limited (BGS Middle East), a company
incorporated in Dubai, United Arab Emirates. BGS Middle East has a 34% interest
in Sarmaye E-Commerce Co, Teheran, a company incorporated in Iran. In August
2008 and pursuant to the purchase agreement between the Company and Net1, the
Companys interest in BGS Middle East was sold for €1 and the Company recorded a
loss on sale of investment of €0.1 million.
F-15
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
as of June 30, 2008 and December 31, 2007
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
(In thousands,
|
|
|
|
(In thousands,
|
|
|
|
except
|
|
|
|
except
|
|
|
|
share data)
|
|
|
|
share data)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
€
|
6,098
|
|
|
€
|
3,862
|
|
Restricted cash
|
|
503
|
|
|
|
722
|
|
Accounts receivable, net
|
|
2,438
|
|
|
|
5,277
|
|
Inventory
|
|
716
|
|
|
|
1,018
|
|
Deferred tax
|
|
53
|
|
|
|
43
|
|
Total current assets
|
|
9,808
|
|
|
|
10,922
|
|
|
|
|
|
|
|
|
|
LONG-TERM RECEIVABLES
|
|
25
|
|
|
|
25
|
|
PROPERTY, PLANT AND EQUIPMENT, net
|
|
252
|
|
|
|
274
|
|
INVESTMENT AVAILABLE FOR SALE
|
|
968
|
|
|
|
968
|
|
INTANGIBLE ASSETS, net
|
|
2
|
|
|
|
5
|
|
DEFERRED TAX
|
|
4,399
|
|
|
|
4,399
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
15,454
|
|
|
|
16,593
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
Accounts payable
|
|
41
|
|
|
|
30
|
|
Other payables
|
|
7,198
|
|
|
|
2,713
|
|
Income taxes payable
|
|
591
|
|
|
|
542
|
|
Total current liabilities
|
|
7,830
|
|
|
|
3,285
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
7,830
|
|
|
|
3,285
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
Authorized shares: 26,800 with zero par value;
|
|
|
|
|
|
|
|
Issued and outstanding shares: 26,800
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
7,128
|
|
|
|
7,128
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
|
|
(7
|
)
|
|
|
34
|
|
|
|
|
|
|
|
|
|
(ACCUMULATED LOSS) RETAINED EARNINGS
|
|
(1,497
|
)
|
|
|
4,146
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
7,624
|
|
|
|
13,308
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
€
|
15,454
|
|
|
€
|
16,593
|
|
See accompanying notes to consolidated financial
statements.
F-16
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
for the six months ended June 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
REVENUE
|
€
|
5,672
|
|
|
€
|
6,521
|
|
|
|
|
|
|
|
|
|
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold, IT
processing, servicing and support
|
|
1,688
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
Selling, general and
administration
|
|
3,851
|
|
|
|
3,336
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
74
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
59
|
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME, net
|
|
117
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
176
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
|
51
|
|
|
|
474
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE LOSS FROM EQUITY
ACCOUNTED INVESTMENTS
|
|
125
|
|
|
|
1,713
|
|
|
|
|
|
|
|
|
|
LOSS FROM EQUITY ACCOUNTED INVESTMENTS
|
|
-
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
€
|
125
|
|
|
€
|
1,435
|
|
See accompanying notes to consolidated financial
statements.
F-17
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF MOVEMENTS
IN SHAREHOLDERS EQUITY
|
|
for the six months ended June 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated
|
|
|
compre
|
|
|
|
|
|
Compreh
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
loss)
|
|
|
hensive
|
|
|
|
|
|
ensive
|
|
|
|
Number
|
|
|
|
|
|
paid in
|
|
|
Retained
|
|
|
income
|
|
|
|
|
|
income
|
|
|
|
of
shares
|
|
|
Amount
|
|
|
capital
|
|
|
earnings
|
|
|
(loss)
|
|
|
Total
|
|
|
(loss)
|
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2007
|
|
26,800
|
|
|
2,000
|
|
|
7,128
|
|
|
2,912
|
|
|
60
|
|
|
12,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,435
|
|
|
|
|
|
1,435
|
|
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(3,803
|
)
|
|
|
|
|
(3,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign
currency
translation reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30,
2007
|
|
26,800
|
|
|
€2,000
|
|
|
€7,128
|
|
|
€544
|
|
|
€60
|
|
|
€9,732
|
|
|
€1,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January
1, 2008
|
|
26,800
|
|
|
€2,000
|
|
|
€7,128
|
|
|
€4,146
|
|
|
€34
|
|
|
€13,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
125
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
(5,768
|
)
|
|
|
|
|
(5,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
translation reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
(41
|
)
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2008
|
|
26,800
|
|
|
€2,000
|
|
|
€7,128
|
|
|
€ (1,497
|
)
|
|
€ (7
|
)
|
|
€7,624
|
|
|
€84
|
|
F-18
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
|
|
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
for the six months ended June 30, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
(In
|
|
|
|
(In
|
|
|
|
thousands)
|
|
|
|
thousands)
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income
|
€
|
125
|
|
|
€
|
1,435
|
|
Adjustments to reconcile net income to net cash provide by
operating activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
74
|
|
|
|
68
|
|
Loss on sale of property, plant and
equipment
|
|
-
|
|
|
|
2
|
|
Loss from equity
accounted investment
|
|
-
|
|
|
|
278
|
|
Decrease (Increase) in accounts
receivable
|
|
2,839
|
|
|
|
(808
|
)
|
Decrease (Increase) in
inventory
|
|
302
|
|
|
|
(141
|
)
|
(Decrease) Increase in accounts payable
and other payables
|
|
(1,313
|
)
|
|
|
575
|
|
Increase in taxes
payable
|
|
49
|
|
|
|
30
|
|
(Increase) Decrease in deferred taxes
|
|
(10
|
)
|
|
|
135
|
|
Net cash provided by operating activities
|
|
2,066
|
|
|
|
1,574
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(49
|
)
|
|
|
(136
|
)
|
Movement in restricted cash
|
|
219
|
|
|
|
-
|
|
Proceeds from disposal of property, plant and equipment
|
|
-
|
|
|
|
17
|
|
Net cash provided by
(used in) investing activities
|
|
170
|
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Repayment of bank overdraft
|
|
-
|
|
|
|
(637
|
)
|
Net cash used in
financing activities
|
|
-
|
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
2,236
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of
year
|
|
3,862
|
|
|
|
4,035
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
€
|
6,098
|
|
|
€
|
4,853
|
|
See accompanying notes to consolidated financial statements.
F-19
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
1.
|
DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION
|
Description of
Business
BGS Smartcard Systems AG (the
Company) was founded in July 1997 in Vienna, Austria. The Company is a
provider of software solutions for electronic payments based on micro-controller
cards (so-called smart cards). The Companys products are marketed under the
direct universal electronic transactions (DUET) brand name. The Companys
product line ranges from solutions for banks to payroll systems for companies
and Internet banking as well as egovernment, micro finance and social
services.
The Company focuses on the
developing markets of the Commonwealth of Independent States (CIS) and the
Arabian region including North Africa as well as Asia and Latin America. These
markets are developed directly by the Company and its subsidiaries in the
Russian Federation and India as well as by sales partners in other countries. An
Austrian subsidiary of the Company develops the Companys software products.
2.
|
SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of
presentation
The accompanying consolidated
financial statements include all majority owned subsidiaries over which the
Company exercises control and have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Principles of
consolidation
The consolidated financial
statements include the accounts of the Company and its controlled subsidiaries,
which are generally majority owned. The accounts of variable interest entities
(VIEs) as defined by Financial Accounting Standards Board (FASB)
Interpretation No. 46(R), Accounting for Variable Interest Entities, (FIN
46R), are included in the consolidated financial statements, if required. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Use of
estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property, plant and
equipment
Property, plant and equipment are
shown at cost less accumulated depreciation. Property, plant and equipment are
depreciated on the straight-line basis at rates which are estimated to amortize
the assets to their anticipated residual values over their useful lives. Within
the following asset classifications, the expected economic lives are
approximately:
Computer equipment
|
3 to 5 years
|
Office equipment
|
4 to 5 years
|
Vehicles
|
5 to 8 years
|
Furniture and fittings
|
5 to 10 years
|
Plant and equipment
|
10 years
|
F-20
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
The gain or loss arising on the
disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognized in
income.
Leasehold improvement
costs
Costs incurred in the adaptation
of leased properties to serve the requirements of the Company are capitalized
and amortized over the shorter of the term of the lease and the contract for
which the lease has been entered into.
Sales
taxes
Revenue and expenses are presented
net of sales, use and value added taxes, as the case may be.
Income
taxes
The Company provides for income
taxes using the asset and liability method. This approach recognizes the amount
of taxes payable or refundable for the current year, as well as deferred tax
assets and liabilities for the future tax consequence of events recognized in
the financial statements and tax returns. Deferred income taxes are adjusted to
reflect the effects of changes in tax laws or enacted tax rates. The income tax
rate during the year ended December 31, 2007 was 25%.
In establishing the appropriate
income tax valuation allowances, the Company assesses the realizability of its
net deferred tax assets, and based on all available evidence, both positive and
negative, determines whether it is more likely than not that the net deferred
tax assets or a portion thereof will be realized.
The company has adopted FIN 48
for the period beginning January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for uncertainty in tax positions.
Uncertain tax positions are recognized in the financial statements for positions
which are considered more likely than not of being sustained based on the
technical merits of the position on audit by the tax authorities. The
measurement of the tax benefit recognized in the financial statements is based
upon the largest amount of tax benefit that, in managements judgement, is
greater than 50% likely of being realized based on a cumulative probability
assessment of the possible outcomes. The Company has analyzed its uncertain tax
positions and no adjustment is required.
The Companys policy is to
include interest related to unrecognized tax benefits in interest income, net
and penalties in selling, general and administration in the consolidated
statements of operations.
Intangible
assets
Intangible assets are shown at
cost less accumulated amortization and are amortized over their useful lives,
which vary between two and five years. Intangible assets are periodically
evaluated for recoverability, and those evaluations take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists.
Inventory
Inventory is valued at the lower
of cost and market value. Cost is determined on a first-in, first-out basis.
F-21
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Translation of
foreign currencies
The functional currency of the
Companys foreign subsidiaries is the local currency of the country in which the
subsidiary operates. The reporting currency of the Company is the euro. The
current rate method is used to translate the financial statements of the Company
to euro. Under the current rate method, assets and liabilities are translated at
the exchange rates in effect at the balance sheet date. Revenues and expenses
are translated at average rates for the period. Translation gains and losses are
reported in accumulated other comprehensive income in shareholders equity.
Foreign exchange transactions are
translated at the spot rate ruling at the date of the transaction. Monetary
items are translated at the closing spot rate at the balance sheet date.
Transactional gains and losses are recognized in income for the period
Revenue
recognition
The Company recognizes revenue
when:
-
there is persuasive evidence of an agreement or arrangement;
-
delivery of products has occurred or services have been rendered;
-
the sellers price to the buyer is fixed or determinable;
-
collectibility is reasonably assured.
The Companys principal revenue
streams and their respective accounting treatments are discussed below:
Hardware sales
Revenue from hardware sales is
recognized when risk of loss has transferred to the customer and there are no
unfulfilled company obligations that affect the customers final acceptance of
the arrangement.
To the extent that sales of
hardware are made in an arrangement that includes software that is more than
incidental, the Company applies the guidance in American Institute of Certified
Public Accountants Statement of Position 97-2,
Software Revenue Recognition,
as amended
(SOP 97-2). This requires consideration of post contract
maintenance and technical support or other future obligations which could impact
the timing and amount of revenue recognized.
Software
Revenue from licensed software is
recognized on a subscription basis over the period that the client is entitled
to use the license. Revenue from the sale of software is recognized if all
revenue recognition criteria have been met. Post contract maintenance and
technical support in respect of software is negotiated and sold as a separate
service and is recognized over the period such items are delivered.
Other income
Revenue from service and
maintenance activities is charged to customers on a time-and-materials basis and
is recognized in the statement of operations as services are delivered to
customers.
Research and
development expenditure
Research and development
expenditures are charged to net income in the periods in which they are
incurred. During the six months ended June 30, 2008 and 2007, the Company
incurred research and development expenditures of €1.3 million and €1.1 million,
respectively.
F-22
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
Computer software
development
Costs in respect of the
development of software intended for sale to licensees is accounted for in
accordance with Financial Accounting Standards Board (FASB) Statement No. 86,
Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed
(FAS 86)
.
FAS 86 requires product development costs to be
charged to expenses as incurred until technological feasibility is attained.
Technological feasibility is attained when the Companys software has completed
system testing and has been determined viable for its intended use. The time
between the attainment of technological feasibility and completion of software
development is generally short with immaterial amounts of development costs
incurred during this period.
Costs in respect of the
development of software for the Companys internal use are accounted for in
accordance with Statement of Position 98-1
Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use
(SOP 98-1),
issued by the American Institute of Certified Public Accountants.
Recent accounting
pronouncements adopted
Effective January 1, 2008, the
Company adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standard (SFAS) No. 157,
Fair Value Measurements
(FAS 157). FAS 157 clarifies the definition of fair value, establishes a
framework for measuring fair value and expands the disclosures on fair value
measurements; however, it does not require any new fair value measurements.
In determining the fair value of
our assets and liabilities, the Company uses various valuation approaches,
predominantly the market and income approaches. FAS 157 establishes a hierarchy
for information and valuations used in measuring fair value that is broken down
into three levels based on its reliability. Level 1 valuations are based on
quoted prices in active markets for identical assets or liabilities that we have
the ability to access. Level 2 valuations are based on quoted prices in markets
that are not active or for which all significant inputs are observable, directly
or indirectly. Level 3 valuations are based on information that is unobservable
and significant to the overall fair value measurement.
The adoption of FAS 157 has not
had a material effect on the Companys results of operations or financial
position.
Effective January 1, 2008, the
Company adopted FASB SFAS No.159,
The Fair Value Option for Financial Assets
and Financial Liabilities
(FAS 159). FAS 159 expands the use of fair value
accounting to eligible financial assets and liabilities. The Company evaluated
its existing financial instruments and elected not to adopt the fair value
option on its financial instruments. However, because the FAS 159 election is
based on an instrument-by-instrument election at the time the Company first
recognizes an eligible item or enters into an eligible firm commitment, the
Company may decide to exercise the option on new items when business reasons
support doing so in future. As a result, the adoption of FAS 159 has not had a
material effect on the Companys results of operations or financial
position.
Recent accounting
pronouncements not yet adopted as of June 30, 2008
In December 2007, the FASB issued
SFAS No. 141(revised 2007),
Business Combinations
(FAS 141R). FAS 141R
replaces SFAS No. 141,
Business Combinations
(FAS 141). FAS 141R
retains the fundamental requirements in FAS 141 that the acquisition method of
accounting (defined in FAS 141 as the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
FAS 141R requires the acquiring entity in a business combination to recognize
the assets acquired and liabilities assumed at the acquisition date. FAS 141R
also requires acquisition-related costs to be recognized separately from the
business combination. FAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is
currently assessing FAS 141R and has not yet determined the impact that the
adoption of this standard will have on its financial position or results of
operations.
F-23
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
In December 2007, the FASB issued
SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
(FAS 160). FAS 160 establishes a single method of accounting
for changes in a parents ownership interest in a subsidiary that does not
result in deconsolidation. FAS 160 clarifies that all of those transactions are
equity transactions if the parent retains its controlling financial interest in
the subsidiary. FAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. However, FAS 160 shall be applied prospectively as of
the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented. The
Company is currently assessing FAS 160 and has not yet determined the impact
that the adoption of this standard will have on its financial position or
results of operations.
In March 2008, the FASB issued
SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities
an amendment of FASB No. 133
(FAS 161). FAS 161 requires enhanced
disclosures about an entitys derivative and hedging activities and thereby
improves the transparency of financial reporting. FAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. FAS 161 encourages, but
does not require, comparative disclosures for earlier periods at initial
adoption. The Company is currently assessing FAS 161 and has not yet determined
the impact that the adoption of this standard will have on its financial
position or results of operations.
In May 2008, the FASB issued SFAS
No. 162,
The Hierarchy of Generally Accepted Accounting Principles
(FAS
162). FAS 162 identifies the sources of accounting principles and the framework
for selecting the principles to be used in the preparation of financial
statements under US GAAP. FAS 162 is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,
The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles
. The adoption of FAS 162 is not expected to
change current practice.
In April 2008, the FASB issued
FSP FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142,
Goodwill and Other
Intangible Assets
(FAS 142). The intent of FSP 142-3 is to improve the
consistency between the useful life of an intangible asset determined under FAS
142 and the period of expected cash flows used to measure the fair value of the
asset under FAS 141. FSP 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company is currently assessing
FSP FAS 157-2 and has not yet determined the impact that its adoption will have
on the Companys financial position or results of operations.
|
June 30,
|
|
December 31,
|
|
2008
|
|
2007
|
|
|
|
|
Accounts receivable, trade
|
€2,270
|
|
€5,016
|
Other receivables
|
168
|
|
261
|
Total accounts receivable, net
|
€2,438
|
|
€5,277
|
The Companys inventory comprised
of the following as of June 30, 2008 and December 31, 2007.
|
June 30,
|
|
December 31,
|
|
2008
|
|
2007
|
|
|
|
|
Finished goods
|
€716
|
|
€1,018
|
F-24
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
5.
|
PROPERTY, PLANT AND
EQUIPMENT
|
|
June 30,
|
|
December 31,
|
|
2008
|
|
2007
|
|
|
|
|
Cost:
|
|
|
|
Computer equipment
|
€490
|
|
€465
|
Furniture and office equipment
|
115
|
|
115
|
Motor vehicles
|
78
|
|
77
|
Plant and equipment
|
70
|
|
70
|
|
753
|
|
727
|
Accumulated depreciation:
|
|
|
|
Computer equipment
|
333
|
|
296
|
Furniture and office equipment
|
96
|
|
92
|
Motor vehicles
|
15
|
|
10
|
Plant and equipment
|
57
|
|
55
|
|
501
|
|
453
|
Carrying amount:
|
|
|
|
Computer equipment
|
157
|
|
169
|
Furniture and office equipment
|
19
|
|
23
|
Motor vehicles
|
63
|
|
67
|
Plant and equipment
|
13
|
|
15
|
|
€252
|
|
€274
|
Summarized below is the carrying
value and accumulated amortization of the intangible assets as of June 30, 2008
and December 31, 2007:
|
As of June 30, 2008
|
|
As of December 31,
2007
|
|
Gross
|
|
|
|
Net
|
|
Gross
|
|
|
|
Net
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
value
|
|
amortization
|
|
value
|
|
value
|
|
amortization
|
|
value
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses and rights
|
€77
|
|
€75
|
|
€2
|
|
€75
|
|
€(70)
|
|
€5
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
finite-lived intangible assets
|
€77
|
|
€75
|
|
€2
|
|
€75
|
|
€(70)
|
|
€5
|
Aggregate amortization expense on
the rights and licenses for the six months ended June 30, 2008 and 2007, was
approximately €0.01 million and €0.01 million, respectively.
Future annual amortization
expense is estimated at €0.01 million per annum. Actual annual amortization
expense to be reported in future periods could differ from this estimate as a
result of new intangible asset acquisitions, changes in useful lives and other
relevant factors.
|
June 30,
|
|
December 31,
|
|
2008
|
|
2007
|
Advance payments received on order (client
deposits)
|
€621
|
|
€817
|
Payroll-related payables
|
369
|
|
593
|
Accruals
|
248
|
|
179
|
Dividends payables
|
5,762
|
|
-
|
Provisions
|
198
|
|
1,124
|
|
€7,198
|
|
€2,713
|
F-25
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
The Companys balance sheet
reflects one class of equity, namely common stock.
Common stock
Holders of shares of the
Companys common stock are entitled to receive dividends and other distributions
when declared by the Companys supervisory board out of funds available.
Upon voluntary or involuntary
liquidation, dissolution or winding up of the Company, holders of common stock
share ratably in the assets remaining after payments to creditors. There are no
pre-emptive or other subscription rights, conversion rights or redemption or
scheduled installment payment provisions relating to shares of common stock. All
of the outstanding shares of common stock are fully paid and non-assessable.
Each holder of common stock is
entitled to one vote per share for the election of the supervisory board and for
all other matters to be voted on by shareholders. The shares of Company common
stock are not subject to redemption.
Presented below is the analysis
of the income tax provision for the six months ended June 30, 2008 and 2007, and
the reconciliation of income taxes, calculated at the statutory income tax rate,
to the income tax provision included in the accompanying statement of operations
for the six months ended June 30, 2008 and 2007:
|
2008
|
|
2007
|
Income tax provision:
|
|
|
|
Current income tax
provision
|
|
|
|
Austria
|
€19
|
|
€445
|
Other
international
|
-
|
|
-
|
Current income tax provision
|
19
|
|
445
|
Capital gains tax
|
-
|
|
-
|
Change in
tax rate
|
-
|
|
-
|
Deferred taxation charge
(benefit)
|
32
|
|
29
|
Income tax provision
|
€51
|
|
€474
|
|
|
|
|
Income tax rate reconciliation
|
|
|
|
Income taxes at statutory tax rates
|
25.00%
|
|
25.00%
|
Permanent items
|
4.00%
|
|
(3.00)%
|
Income tax provision
|
29.00%
|
|
22.00%
|
Current
|
11.00%
|
|
20.00%
|
Capital gains tax
|
-%
|
|
-%
|
Change in
tax rate
|
-%
|
|
-%
|
Deferred
|
18.00%
|
|
2.00%
|
F-26
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
9.
|
INCOME TAXES (continued)
|
The following table shows the
significant components included in deferred income taxes as at June 30, 2008 and
December 31, 2007:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assessed
losses
|
|
€155
|
|
|
€155
|
|
Provisions and accruals
|
|
53
|
|
|
43
|
|
License
rights
|
|
11,421
|
|
|
11,421
|
|
Total deferred tax assets before valuation allowance
|
|
11,629
|
|
|
11,619
|
|
Valuation
allowances
|
|
(7,177
|
)
|
|
(7,177
|
)
|
Total deferred tax assets, net of
valuation allowance
|
|
4,452
|
|
|
4,442
|
|
|
|
|
|
|
|
|
Reported as
|
|
|
|
|
|
|
Current
deferred tax assets
|
|
53
|
|
|
43
|
|
Long term deferred tax
assets
|
|
€4,399
|
|
|
€4,399
|
|
Tax status
The Company is registered for
taxation in Austria, Vienna and final assessments are available for the years up
to and including 2006. The last audit conducted by the Austrian tax authorities
covered the tax period from 2001 to 2003 and was completed in 2005. The Company
has no significant appeals pending.
Tax loss
carry-forwards
As of June 30, 2008 and December
31, 2007, a subsidiary of the company has a net operating loss carry forward of
€0.5 million and €0.5 million, respectively.
Acquisition of license rights
previously owned by BGS Switzerland
The license rights previously
held by BGS Switzerland were transferred to the Company as of June 30, 2006, as
a result of the liquidation of BGS Switzerland. The license rights, termed
software for taxation purposes, were not capitalized under GAAP because it was
generated internally. However the license rights were valued for tax purposes
based on previous license payments at €50.76 million in June 2006. The Company
expects to amortize the license rights in its tax returns over a period of 15
years. Accordingly, as of June 30, 2008 and December 31, 2007, the Company has
recognized a deferred tax asset of approximately €11.4 million, respectively,
related to the license rights which have been recognized for tax purposes but
not in terms of GAAP.
Valuation allowance
The utilization of deferred tax
assets is dependent on the Companys future operating profits. Management is not
aware of any trends, events, or transactions that are expected to affect future
levels of taxable income. Management is of the opinion that based on the weight
of available positive and negative evidence it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax assets above, except for certain tax losses discussed
below.
Management has provided a
valuation allowance for the net operating loss carry forwards and the license
rights.
The net operating loss was
incurred by a subsidiary which is currently in the start-up phase and the
Companys management believes that due to the status of the subsidiary it may
not be able to utilize these tax loss carry forwards in future. Accordingly, a
valuation allowance of €0.2 million has been provided for the full amount of the
tax loss carry forward as of June 30, 2008 and December 31, 2007,
respectively.
F-27
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
9.
|
INCOME TAXES (continued)
|
The tax deduction for the license
rights is claimable over a 15 year period beginning in the tax year ended
December 31, 2006. Management has considered all available evidence, both
positive and negative, including forecasts of taxable income over its five-year
forecasting period, and determined based on the weight of that evidence, that as
at June 30, 2008, a valuation allowance is needed for approximately 62% of the
deduction claimable related to the license rights as there may not be sufficient
taxable income in the future to offset this deduction.
During the six months ended June
30, 2008, the Company did not utilize its valuation allowance. During the six
months ended June 30, 2007, the Company utilized approximately €0.2 million its
valuation allowance.
10.
|
COMPREHENSIVE INCOME
(LOSS)
|
The Companys comprehensive
income consists of net income and foreign currency translation gains and losses
which, under GAAP, are excluded from net income. Total comprehensive income for
the six months ended June 30, 2008 and 2007 was:
|
2008
|
|
2007
|
Net income
|
€125
|
|
€1,435
|
Foreign currency translation adjustments
|
(41)
|
|
-
|
Total
comprehensive income
|
€84
|
|
€1,435
|
11.
|
SUPPLEMENTAL CASH FLOW
INFORMATION
|
Supplemental cash flow
information:
The following table presents the
supplemental cash flow disclosures for the six months ended June 30, 2008 and
2007:
|
2008
|
|
2007
|
Cash received from interest
|
€117
|
|
€62
|
Cash paid for interest
|
€-
|
|
€3
|
Cash paid for income taxes
|
€796
|
|
€598
|
12.
|
FAIR VALUE OF FINANCIAL
INSTRUMENTS
|
Initial recognition and
measurement
Financial instruments are
recognized when the Company becomes a party to the transaction. Initial
measurements are at cost, which includes transaction costs subsequent to initial
recognition. These instruments are measured as set out below:
Trade and other
receivables
Trade and other receivables
originated by the Company are stated at cost. The fair value of trade and other
receivables approximate their carrying value due to their short-term nature.
Trade and other
payables
The fair values of trade and
other payables approximates their carrying amounts, due to their short-term
nature.
Risk management
The Company seeks to reduce its
exposure to currencies other than the euro through a policy of matching, to the
extent possible, assets and liabilities denominated in those currencies. In
addition, the Company uses financial instruments in order to economically hedge
its exposure to exchange rate and interest rate fluctuations arising from our
operations.
F-28
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
12.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
(continued)
|
Currency Exchange
Risk
The Company is subject to
currency exchange risk because it sells inventories that will be paid to the
Company in other currencies, primarily the U.S. dollar. The Company has used
forward contracts in order to limit its exposure in these transactions to
fluctuations in exchange rates between the euro, on the one hand, and the U.S.
dollar, on the other hand.
As of June 30, 2008 and 2007, the
outstanding foreign exchange contract is as follows:
As of June 30,
2008
None.
As of June 30,
2007
|
|
|
|
Fair market
|
|
Notional amount
|
Strike price
|
value price
|
Maturity
|
USD
|
1,187,500
|
EUR
|
1.3509
|
EUR
|
1.3572
|
September 20, 2007
|
USD
|
1,187,500
|
EUR
|
1.3520
|
EUR
|
1.3587
|
October 22, 2007
|
USD
|
1,187,500
|
EUR
|
1.3555
|
EUR
|
1.3630
|
January 25, 2008
|
Interest Rate
Risk
As a result of our normal
borrowing and leasing activities, the Companys operating results are exposed to
fluctuations in interest rates, which it manages primarily through its regular
financing activities. The Company generally maintains limited investment in cash
equivalents and has occasionally invested in marketable securities.
Credit Risk
Credit risk relates to the risk
of loss that the Company would incur as a result of non-performance by
counterparties. The Company maintains credit risk policies with regard to its
counterparties to minimize overall credit risk. These policies include an
evaluation of a potential counterpartys financial condition, credit rating, and
other credit criteria and risk mitigation tools as the Companys management
deems appropriate.
With respect to credit risk on
financial instruments, the Company maintains a policy of entering into such
transactions only with European financial institutions that have a credit rating
of BBB or better, as determined by Moodys.
13.
|
COMMITMENTS AND
CONTINGENCIES
|
Operating lease
commitments
The Company leases certain
premises. At June 30, 2008, the future minimum payments under operating leases
consist of:
Due within 1 year
|
€434
|
Due within 2 years
|
223
|
Due within 3 years
|
98
|
Due within 4 years
|
98
|
Due within 5 years
|
€49
|
Operating lease payments related
to the premises were €0.2 million for each of the six month ended June 30, 2008
and 2007, respectively. In terms of the lease agreement for the Companys head
office, the Company may terminate the lease with 12 months written notice.
F-29
BGS SMARTCARD SYSTEMS AKTIENGESELLSCHAFT
|
Notes to the Unaudited Consolidated Financial Statements
|
for the six months ended June 30, 2008 and 2007
|
(All amounts
stated in thousands of Euro, unless otherwise stated)
|
13.
|
COMMITMENTS AND CONTINGENCIES
(continued)
|
Purchase Obligations
As of June 30, 2008, the Company
has purchase obligations totaling approximately €0.1 million.
Capital commitments
As of June 30, 2008, the Company
had no outstanding capital commitments.
Guarantees
As at June 30, 2008, the Company
has pledged a deposit as security to reduce guarantee costs related to a
guarantee of €0.5 million issued to a customer by the Companys bank. The
Company has classified this deposit as restricted cash.
14.
|
SHORT-TERM FACILITIES
|
As of June 30, 2008 and 2007, the
Company had maximum unused short-term facilities of approximately €1.0 million
with each of two of Austrias largest banks. The interest rate applicable to
these short-term facilities is negotiated when the facilities are utilized.
15.
|
RELATED PARTY TRANSACTIONS
|
The Company corporate head office
in Vienna is owned by a relative of the Companys Chief Operating Officer/ Chief
Financial Officer. During each of the six months ended June 30, 2008 and 2007,
the Company paid €0.1 million to lease the premises.
On August 27, 2008, Net 1 UEPS
Technologies, Inc. (Net) acquired 80.1% of our issued and outstanding share
capital for approximately €70 million in cash.
Pursuant to the purchase
agreement between the Company and Net1, the Company transferred its interest in
ZAO Sbercarta, a company incorporated in the Russian Federation, by way of
universal legal succession to the shareholders of the Company on record before
Net1 acquired its 80.10% interest.
In January 2008, the Company invested €0.1 million to acquire a
32% interest in BGS Middle East Limited (BGS Middle East), a company
incorporated in Dubai, United Arab Emirates. BGS Middle East has a 34% interest
in Sarmaye E-Commerce Co, Teheran, a company incorporated in Iran. In August
2008 and pursuant to the purchase agreement between the Company and Net1, the
Companys interest in BGS Middle East was sold for €1 and the Company recorded a
loss on sale of investment of €0.1 million.
F-30
NET 1 UEPS TECHNOLOGIES, INC.
UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
Overview
The following unaudited pro forma
combined financial statements have been prepared to give effect to our
acquisition (the Acquisition) on August 27, 2008 of 80.1% of the issued share
capital of BGS Smartcard Systems AG (BGS). We have prepared these unaudited
pro forma combined financial statements based on (a) our historical audited
consolidated financial statements for the year ended June 30, 2008 and (b) BGSs
historical unaudited consolidated financial statements for the year ended June
30, 2008. The historical consolidated financial statements have been adjusted as
described in the notes to the unaudited pro forma combined financial
statements.
We have presented an unaudited
pro forma balance sheet which combines the historical balance sheets of Net1 and
BGS, each as of June 30, 2008, as if the Acquisition had occurred on that date.
We have presented an unaudited pro forma statement of operations of Net1 and BGS
which combines the historical statements of operations of Net1 and BGS, each for
the year ended June 30, 2008, as if the Acquisition had occurred on July 1,
2007.
Our fiscal year ends on June 30
and BGS fiscal year ended on December 31. SEC rules require us to prepare the
pro forma statement of operations by using our fiscal year end and bringing BGS
statement of operations up to within 93 days of our fiscal year end. Thus, we
have prepared the pro forma combined statement of operations to coincide with
our fiscal year end as follows. We used BGS statement of operations for the
year ended December 31, 2007, added the first six months of BGS 2008 fiscal
year and deducted the comparable period of BGS 2007 fiscal year (i.e., the six
months ended June 30, 2007). Although the historical consolidated statement of
operations of BGS included in Item 9(a) of this Form 8-K/A for BGS most
recently completed fiscal year (which ended on December 31, 2007) has been
audited, BGS historical consolidated statement of operations for the year ended
June 30, 2008 that we used in preparing the unaudited pro forma combined
statement of operations has not been audited.
The Acquisition is being
accounted for using the purchase method of accounting. Under the purchase method
of accounting, the aggregate consideration paid is allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their fair values on the transaction date. Any purchase price in excess of net
assets acquired is recorded as goodwill. These unaudited pro forma combined
financial statements have been prepared based on preliminary estimates of fair
values. The actual amounts and the allocation between net tangible and
intangible assets ultimately recorded may differ materially from the information
presented in these unaudited pro forma combined financial statements, including
property, plant and equipment, identifiable intangible assets and residual
goodwill. The preliminary estimates of the fair values of the assets acquired
and liabilities assumed reflected herein are subject to change based upon
completion of the valuation of the assets acquired and liabilities assumed as of
the closing date.
No account has been taken within
these unaudited pro forma combined financial statements of any future changes in
accounting policies or any synergies (including cost savings), all of which may
or may not occur as a result of the Acquisition. In addition, the impact of
ongoing integration activities and other changes in BGS assets and liabilities
could cause material differences in the information presented.
These unaudited pro forma
combined financial statements are not necessarily indicative of the consolidated
results of operations or financial position of the combined company that would
have been reported had the Acquisition been completed as of the dates presented,
and are not necessarily representative of future consolidated results of
operations or financial condition of the combined company.
You should read these unaudited
pro forma combined financial statements in conjunction with the historical
audited consolidated financial statements and accompanying notes of BGS included
in Item 9(a) of this Form 8-K/A and our audited consolidated financial
statements included in our Annual Report on Form 10-K. Certain BGS balances have
been reclassified to conform to the balance sheet and statement of operations
presentation of Net1.
F-31
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
|
(in thousands, except per share data or unless
otherwise indicated)
|
As of June 30, 2008
|
|
|
|
|
|
|
|
|
Net1
|
|
Historical
|
Historical
|
Historical
|
|
|
pro forma
|
|
Net1
|
BGS
|
BGS
|
|
|
combined
|
|
(USD
|
(EUR
|
(USD
|
Pro forma
|
|
(USD
|
|
000)
|
000)
|
000)
|
adjustments
|
Notes
|
000)
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
272,475
|
6,601
|
10,422
|
7,289
|
3 (g)
|
290,186
|
Pre-funded
social welfare grants
|
|
|
|
|
|
|
receivable
|
35,434
|
-
|
-
|
|
|
35,434
|
Accounts
receivable, net
|
21,797
|
2,463
|
3,889
|
(175)
|
3 (c)
|
25,511
|
Finance loans receivable, net
|
4,301
|
-
|
-
|
|
|
4,301
|
Deferred
expenditure on smart cards
|
78
|
-
|
-
|
|
|
78
|
Inventory
|
6,052
|
716
|
1,131
|
|
|
7,183
|
Deferred
income taxes
|
5,597
|
53
|
84
|
|
|
5,681
|
Total current assets
|
345,734
|
9,833
|
15,526
|
7,114
|
|
368,374
|
Long term receivable
|
207
|
968
|
1,528
|
(1,528)
|
3 (i)
|
207
|
Property, plant and equipment,
net
|
6,291
|
252
|
398
|
|
|
6,689
|
Equity accounted investments
|
2,685
|
-
|
-
|
|
|
2,685
|
Goodwill
|
76,938
|
-
|
-
|
34,727
|
3 (e)
|
111,665
|
Intangible assets, net
|
22,216
|
2
|
3
|
79,864
|
3 (a)
|
102,083
|
Deferred tax asset
|
-
|
4,399
|
6,945
|
4,525
|
|
11,470
|
TOTAL ASSETS
|
454,071
|
15,454
|
24,400
|
124,702
|
|
603,173
|
LIABILITIES
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Loan facility
|
-
|
-
|
-
|
110,000
|
3 (h)
|
110,000
|
Trade
payables
|
4,909
|
-
|
-
|
-
|
|
4,909
|
Other payables
|
57,432
|
7,239
|
11,429
|
4,495
|
3 (c)
|
73,356
|
Income
taxes payable
|
14,162
|
591
|
933
|
|
|
15,095
|
Total current liabilities
|
76,503
|
7,830
|
12,362
|
114,495
|
|
203,360
|
Deferred income taxes
|
33,474
|
|
|
19,967
|
3 (a)
|
53,441
|
Interest bearing liabilities
|
3,766
|
|
|
|
|
3,766
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
113,743
|
7,830
|
12,362
|
134,462
|
|
260,567
|
Minority interest
|
-
|
|
|
2,396
|
|
2,396
|
Common stock
|
52
|
2,000
|
3,158
|
(3,158)
|
3 (f)
|
52
|
Special convertible preferred stock
|
5
|
|
|
|
|
5
|
B class preference shares
|
6
|
|
|
|
|
6
|
Additional paid-in-capital
|
119,283
|
7,128
|
11,254
|
(11,254)
|
3 (d)
|
120,265
|
Treasury shares
|
(7,950)
|
|
|
982
|
3 (f)
|
(7,950)
|
Accumulated other comprehensive income
|
(37,820)
|
(7)
|
(11)
|
11
|
3 (d)
|
(37,820)
|
|
266,752
|
|
|
2,363
|
3 (d)
|
|
Retained earnings (accumulated losses)
|
|
(1,497)
|
(2,363)
|
(1,100)
|
3 (g)
|
265,652
|
TOTAL SHAREHOLDERS
EQUITY
|
340,328
|
7,624
|
12,038
|
(12,156)
|
|
340,210
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
454,071
|
15,454
|
24,400
|
124,702
|
|
603,173
|
See accompanying notes to unaudited pro forma combined
financial statements.
F-32
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
|
(in thousands, except per share data or unless
otherwise indicated)
|
For the year ended June 30, 2008
|
|
|
|
|
|
|
|
|
Net1
|
|
Historical
|
Historical
|
Historical
|
|
|
pro forma
|
|
Net1
|
BGS
|
BGS
|
Pro forma
|
|
combined
|
|
(USD 000)
|
(EUR 000)
|
(USD 000)
|
adjustments
|
Notes
|
(USD 000)
|
|
|
|
|
|
|
|
Revenue
|
254,056
|
16,395
|
24,044
|
|
|
278,100
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Cost of goods sold,
IT
processing, servicing
and
support
|
67,486
|
3,611
|
5,296
|
|
|
72,782
|
General and administration
|
65,362
|
7,911
|
11,602
|
|
|
76,964
|
Depreciation and amortization
|
10,822
|
142
|
208
|
10,599
|
3 (a)
|
21,629
|
|
|
|
|
|
|
|
Operating income (loss)
|
110,386
|
4,731
|
6,938
|
(10,599)
|
|
106,725
|
|
|
|
|
(10,911)
|
3 (b)
|
|
Interest income (expense), net
|
15,722
|
200
|
293
|
(1,100)
|
3 (g)
|
4,004
|
|
|
|
|
|
|
|
Net income (loss) before income
taxes and minority interest
|
126,108
|
4,931
|
7,231
|
(22,610)
|
|
110,729
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
39,192
|
1,204
|
1,766
|
(2,650)
(3,575)
|
3 (a)
3 (b)
|
34,733
|
|
|
|
|
|
|
|
Net income (loss) from
continuing operations before
minority interest and loss from
equity accounted investments
|
86,916
|
3,727
|
5,465
|
(16,385)
|
|
75,996
|
|
|
|
|
|
|
|
Minority interest
|
(815)
|
-
|
-
|
1,088
|
|
273
|
Loss from equity accounted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
investments
|
(1,036)
|
-
|
-
|
|
|
(1,036)
|
|
|
|
|
|
|
|
Net income (loss)
|
86,695
|
3,727
|
5,465
|
(17,473)
|
|
74,687
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
Basic earnings common stock
and linked units
|
1.52
|
|
|
|
|
1.31
|
Diluted earnings common
stock
and linked units
|
1.50
|
|
|
|
|
1.29
|
|
|
|
|
|
|
|
Weighted-average number of
outstanding shares of common
stock and linked units used to
calculate basic earnings per share
|
57,155,927
|
|
|
40,134
|
3 (f)
|
57,196,061
|
|
|
|
|
|
|
|
Weighted-average number of
outstanding shares of common
stock and linked units used to
calculate diluted earnings per
share
|
57,635,332
|
|
|
40,134
|
3 (f)
|
57,675,466
|
See accompanying notes to unaudited pro forma combined financial
statements.
F-33
NET 1 UEPS TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
The accompanying unaudited pro
forma combined financial statements present the pro forma financial position and
results of operations of the combined company based on the historical financial
information and after giving effect to the Acquisition and adjustments described
in these notes. The Acquisition is being recorded using the purchase method of
accounting, with Net1 as the acquirer.
The unaudited pro forma combined
balance sheet combines the historical balance sheets of Net1 and BGS each as of
June 30, 2008, to reflect the Acquisition as if it had occurred on that date.
The unaudited pro forma combined statement of operations combines the historical
statements of operations of Net1 and BGS each for the year ended June 30, 2008,
to reflect the Acquisition as if it had occurred on July 1, 2007.
BGS unaudited historical
financial statements for the year ended June 30, 2008 were prepared in
accordance with US GAAP and are denominated in Euros. An exchange rate of
$0.6334/€1 has been used to translate BGS historical balance sheet at June 30,
2008 from Euro to U.S. dollars, based on the closing exchange rate as reported
by an independent external source (www.oanda.com). An exchange rate of
$0.6819/€1 has been used to translate BGS results of operations for the year
ended June 30, 2008 from Euros to U.S. dollars, based on the average daily
exchange rate for the year ended June 30, 2008 as reported by
www.oanda.com
.
Certain BGS balances have been
reclassified to conform to the balance sheet and statement of operations
presentation of Net1.
The following table sets forth
the components of the purchase price for the Acquisition (using exchange rates
applicable as of June 30, 2008 for cash paid at closing and a portion of the
estimated costs related to the Acquisition):
|
USD 000
|
Cash paid at closing to former BGS
shareholders
|
101,611
|
Cash payable to former BGS shareholders on March 31, 2009
|
2,213
|
Estimated costs related to the Acquisition
|
2,457
|
40,134 shares of Net1 common stock valued at $24.46 per
share issued to certain former BGS
|
|
shareholders
|
982
|
Total purchase price
|
107,263
|
The following table sets forth
the preliminary allocation of the purchase price:
|
USD 000
|
Cash and cash equivalents
|
10,422
|
Accounts receivable, net
|
3,889
|
Inventory
|
1,131
|
Property, plant and equipment
|
398
|
Intangible assets (see Note 3(b))
|
79,867
|
Trade and other payables
|
(11,429)
|
Income taxes payable
|
(933)
|
Deferred tax assets
|
11,554
|
Deferred tax liabilities (see Note 3(b))
|
(19,967)
|
Minority interests
|
(2,396)
|
Goodwill
|
34,727
|
Total purchase
price
|
107,263
|
The preliminary purchase price
allocation is based on management estimates as of November 6, 2008, and may be
adjusted up to one year following the closing of the Acquisition. The purchase
price allocation has not been finalized, as management has not yet analyzed in
detail the assets acquired and liabilities assumed. In addition, all costs
related to the Acquisition have not been identified and allocated. We expect to
finalize the purchase price allocation on or before March 31, 2009. The actual
amounts and the allocation between net tangible and intangible assets ultimately
recorded may differ materially from the information presented in these unaudited
pro forma combined financial statements, including property, plant and
equipment, identifiable intangible assets and residual goodwill.
F-34
The following are descriptions of
each of the pro forma adjustments included in the unaudited pro forma combined
financial statements:
(a)
|
Represents the portion of the purchase price allocated to
BGS intangible assets acquired, at estimated fair values based on
managements estimates. As of June 30, 2008, these assets had a carrying
value on BGS balance sheet of $0. As noted above, this identification and
estimation of fair value is provisional and may change when the final
purchase price allocation is made. Since the tax basis of these
identifiable intangible assets is less than their accounting basis, the
purchase price allocated to these assets results in additional deferred
tax liabilities. The fair value ($) has been converted from EUR to USD
using the balance sheet translation rate described in Note 1
above.
|
|
|
|
|
|
Annual
|
|
|
|
|
|
Estimated
|
amortization
|
Annual
|
|
|
Fair value
|
Fair value
|
useful life
|
expense
|
tax effect
|
|
|
(EUR 000)
|
(USD 000)
|
(in years)
|
(USD 000)
|
(USD 000)
|
|
Finite lived intangibles assets
|
|
|
|
|
|
|
Customer relationships
|
50,586
|
79,864
|
7
|
10,599
|
2,650
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
Customer relationships
|
12,647
|
19,966
|
|
|
|
|
Using the translation rate for the year ended June 30,
2008, the total annual amortization expense related to these intangible
assets was $10.6 million and the total deferred tax effect on the
statement of operations related to these intangible assets was $2.7
million.
|
|
|
(b)
|
Represents the estimated reduction in interest income on
Net1s cash reserves for the year ended June 30, 2008, as a result of the
payment of the cash portion of the purchase price of $101.6 million, at an
assumed pre-tax South African interest rate of 10.89%. This adjustment
also assumes that the cash had been paid out 50 days after the beginning
of the period presented, rather than at the beginning of the period,
because Net1 financed the cash portion of the purchase price with the
proceeds of a loan facility described in Note 3 (h) below that was repaid
in full 50 days after closing of the Acquisition, and thus, continued to
earn interest on these cash reserves for the first 50 days of the period
until the loan was repaid in full. The adjustment has been tax-effected
using a fully-distributed rate of 35.45%. The tax effect related to this
adjustment is included on the income tax expense line on the unaudited pro
forma combined statements of operations.
|
|
|
(c)
|
Represents the expected amount of $2.3 million owing to
external professional advisors for services provided related to the
Acquisition that are not reflected in Net1s June 30, 2008 consolidated
balance sheet. Fees paid to professional advisors of $0.2 million are
included in accounts receivable, net as of June 30, 2008. These costs have
been included in the estimated costs related to the Acquisition included
in Note 2 above. Also includes $2.2 million payable to former shareholders
of BGS under the stock purchase agreement on March 31, 2009.
|
|
|
(d)
|
Represents the elimination of BGS equity, i.e. common
stock, additional paid in capital, accumulated other comprehensive income
(foreign currency translation reserve) and accumulated losses, acquired by
Net1.
|
|
|
(e)
|
Represents the excess of the purchase price over the fair
value of net assets acquired.
|
|
|
(f)
|
Represents 40,134 shares of Net1 common stock issued to
certain shareholders of BGS shares at $24.46 per share, which represents
the closing price of Net1 common stock as quoted on the Nasdaq Global
Select Market on August 27, 2008.
|
|
|
(g)
|
Represents the excess of the $110 million short-term bank
financing obtained by Net1 in connection with the Acquisition over the
amount of the financing proceeds used in the Acquisition, which proceeds
were used as follows: (i) $101.6 million to pay the selling shareholders,
(ii) $1.1 million to pay the bank facility fee and (iii) $0.2 million to
pay Acquisition-related costs which were included in the purchase price.
The loan facility was repaid in full using internally generated funds 50
days after the initial draw down. The interest rate on the loan facility
was Euro Interbank Offered Rate plus 2.50%. Included in interest income
(expense), net in the unaudited pro forma combined statement of operations
is interest paid to the bank of $0.8 million under the loan facility and
the facility fee of $1.1 million. The interest and facility fee are not
deductible for taxation purposes.
|
|
|
(h)
|
Represents the $110 million short-term bank financing
discussed above.
|
|
|
(i)
|
Represents an investment held by BGS that was not
included in the Acquisition.
|
F-35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
|
NET 1 UEPS TECHNOLOGIES, INC.
|
|
|
|
|
Date: November 6, 2008
|
By:
/s/ Serge Belamant
|
|
Dr. Serge C.P. Belamant
|
|
Chief Executive Officer
|
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