What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-06 compared with 2021-02-04 · 412 added, 281 removed, 890 unchanged (44% of the section changed)

5 unchanged sentences

Cash and cash equivalents

Restricted cash related to ATM funding (Note 9)

Restricted cash related to ATM funding and credit facilities (Note 9)

Accounts receivable, net and other receivables (Note 3)

4 unchanged sentences

Total current assets

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - December:

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - March:

$ 36,296 June:

21 unchanged sentences

200,000,000 with $ 0.001 par value;

Issued and outstanding shares, net of treasury - December:

Issued and outstanding shares, net of treasury - March:

56,626,060 June:

16 unchanged sentences

Three months ended

Six months ended

Nine months ended

(as restated) (A)

6 unchanged sentences

Depreciation and amortization

Impairment loss (Note 7)

OPERATING LOSS

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 5 and 6)

GAIN ON DISPOSAL OF FIHRST (Note 2)

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT - BANK FRICK (Note 6)

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 6)

GAIN ON DISPOSAL OF FIHRST (Note 2)

INTEREST INCOME

INTEREST EXPENSE

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

LOSS BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE (Note 19)

NET LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS

(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 6)

NET LOSS BEFORE INCOME (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS

INCOME (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS (Note 6)

NET LOSS FROM CONTINUING OPERATIONS

NET INCOME FROM DISCONTINUED OPERATIONS (Note 21)

GAIN ON DISPOSAL OF DISCONTINUED OPERATION, net of tax (Note 2)

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

7 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands)

Other comprehensive income (loss), net of taxes

Other comprehensive (loss) income, net of taxes

Movement in foreign currency translation reserve

Release of foreign currency translation reserve related to disposal of FIHRST

Movement in foreign currency translation reserve related to equity-accounted investments

Total other comprehensive income, net of taxes

Comprehensive income (loss)

Comprehensive income (loss) attributable to Net1

Release of foreign currency translation reserve related to disposal of Bank Frick (Note 6 and Note 12)

Release of foreign currency translation reserve related to disposal of Net1 Korea (Note 2 and Note 12)

Release of foreign currency translation reserve related to disposal of FIHRST (Note 2 and Note 12)

Total other comprehensive (loss) income, net of taxes

Comprehensive loss

Comprehensive loss attributable to Net1

See Notes to Unaudited Condensed Consolidated Financial Statements

12 unchanged sentences

Redeemable common stock

For the three months ended December 31, 2019 (dollar amounts in thousands)

Balance – October 1, 2019

For the three months ended March 31, 2020 (dollar amounts in thousands)

Balance – January 1, 2020

( 24,891,292 )

Restricted stock granted (Note 13)

Stock-based compensation charge (Note 13)

Other comprehensive income (Note 12)

Balance – December 31, 2019

Reversal of stock-based compensation charge (Note 13)

Other comprehensive loss (Note 12)

Balance – March 31, 2020

( 24,891,292 )

For the six months ended December 31, 2019 (dollar amounts in thousands)

For the nine months ended March 31, 2020 (dollar amounts in thousands)

Balance – July 1, 2019

( 24,891,292 )

Restricted stock granted

Stock-based compensation charge (Note 13)

Reversal of stock-based compensation charge (Note 13)

Stock-based compensation charge related to equity accounted investment

Other comprehensive income

Balance – December 31, 2019

Other comprehensive loss (Note 12)

Balance – March 31, 2020

( 24,891,292 )

13 unchanged sentences

Redeemable common stock

For the three months ended December 31, 2020 (dollar amounts in thousands)

Balance – October 1, 2020

For the three months ended March 31, 2021 (dollar amounts in thousands)

Balance – January 1, 2021

( 24,891,292 )

1 unchanged sentence

Stock-based compensation charge (Note 13)

Reversal of stock-based compensation charge (Note 13)

Other comprehensive income (Note 12)

Balance – December 31, 2020

Other comprehensive loss (Note 12)

Balance – March 31, 2021

( 24,891,292 )

For the six months ended December 31, 2020 (dollar amounts in thousands)

For the nine months ended March 31, 2021 (dollar amounts in thousands)

Balance – July 1, 2020

6 unchanged sentences

Other comprehensive income (Note 12)

Balance – December 31, 2020

Balance – March 31, 2021

( 24,891,292 )

3 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands)

2 unchanged sentences

Depreciation and amortization

Impairment loss (Note 7)

Movement in allowance for doubtful accounts receivable

Loss from equity-accounted investments (Note 6)

(Earnings) Loss from equity-accounted investments (Note 6)

Movement in allowance for doubtful loans to equity-accounted investments

2 unchanged sentences

Interest payable

Gain on disposal of Net1 Korea (Note 2)

Gain on disposal of FIHRST (Note 2)

Loss on disposal of equity-accounted investment - Bank Frick (Note 6)

Loss on disposal of equity-accounted investment (Note 6)

Loss (Profit) on disposal of property, plant and equipment

(Profit) Loss on disposal of property, plant and equipment

Stock-based compensation charge (Note 13)

Dividends received from equity accounted investments

Decrease (Increase) in accounts receivable and finance loans receivable

(Increase) Decrease in inventory

(Decrease) Increase in accounts payable and other payables

(Decrease) Increase in taxes payable

Decrease in accounts receivable and finance loans receivable

Decrease (Increase) in inventory

Decrease in accounts payable and other payables

Decrease in taxes payable

Increase (Decrease) in deferred taxes

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities

1 unchanged sentence

Proceeds from disposal of property, plant and equipment

Proceeds from disposal of DNI as equity-accounted investment (Note 3)

Proceeds from disposal of equity-accounted investment - Bank Frick, net of expenses (Note 6)

Proceeds from disposal of Net1 Korea, net of cash disposed (Note 2)

Proceeds from disposal of FIHRST, net of cash disposed (Note 2)

Investment in equity-accounted investments (Note 6)

Transaction costs paid related to disposal of Net1 Korea (Note 2)

Proceeds from disposal of DNI as equity-accounted investment (Note 3)

Loan to equity-accounted investment (Note 6)

Repayment of loans by equity-accounted investments

Proceeds from disposal of FIHRST, net of cash disposed (Note 2)

Investment in equity-accounted investments (Note 6)

Net change in settlement assets

10 unchanged sentences

Net change in settlement obligations

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net increase in cash, cash equivalents and restricted cash

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash – beginning of period

3 unchanged sentences

Notes to the Unaudited Condensed Consolidated Financial Statements

for the three and six months ended December 31, 2020 and 2019

for the three and nine months ended March 31, 2021 and 2020

(All amounts in tables stated in thousands or thousands of U.S.

4 unchanged sentences

generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting.

The results of operations for the three months ended December 31, 2020 and 2019, are not necessarily indicative of the results for the full year.

The results of operations for the three and nine months ended March 31, 2021 and 2020, are not necessarily indicative of the results for the full year.

The Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

2 unchanged sentences

Impact of COVID-19 on the Company’s business

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three and six months ended December 31, 2020, compared to the last four months of the year ended June 30, 2020.

However, on December 28, 2020, the country moved back to Level 3 restrictions which remain in place as of the date of this report.

This level of restrictions is not as severe as that applied during April and May 2020 but is greater than was applied through most of the six months ended December 31, 2020.

The increase in restrictions was in response to a second wave of infections, which has been more severe than the first wave.

While all the Company’s businesses continue to operate, it has increased preventive measures and it is unclear to what extent activity levels will be affected.

The Company has experienced an increase in claims in its life insurance business, which the Company believes is linked to the second wave.

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three and nine months ended March 31, 2021, compared to the last four months of the year ended June 30, 2020.

South Africa has been at an adjusted Level 1 since March 1, 2021.

On December 28, 2020, the country moved back to Level 3 restrictions which remained in place through to February 28, 2021.

South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive.

The country went into lockdown (Level 5) towards the end of March 2020 and gradually eased restrictions for the remainder of the 2020 calendar year (to Level 4 from May 1, to Level 3 from June 1, to Level 2 from August 18 and to Level 1 from September 21).

The increase at the end of December 2020 back to Level 3 was in response to a second wave of infections, which was more severe than the first wave.

The South Africa government commenced its vaccination program in early calendar 2021, with a stated goal of vaccinating 67% of the South African population by the end of the calendar year.

With the winter months approaching, there are concerns over the potential for a third wave, particularly as there have been several delays in the vaccination program to date.

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance continue to remain uncertain.

2 unchanged sentences

Recent accounting pronouncements adopted

There were no new accounting pronouncements adopted by the Company during the three and six months ended December 31, 2020.

Recent accounting pronouncements not yet adopted as of December 31, 2020

There were no new accounting pronouncements adopted by the Company during the three and nine months ended March 31, 2021.

Recent accounting pronouncements not yet adopted as of March 31, 2021

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Measurement of Credit Losses on Financial Instruments .

4 unchanged sentences

The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material.

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

Recent accounting pronouncements not yet adopted as of March 31, 2021 (continued)

In August 2018, the FASB issued guidance regarding Disclosure Framework:

4 unchanged sentences

The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

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

Recent accounting pronouncements not yet adopted as of December 31, 2020 (continued)

In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).

17 unchanged sentences

The Company incorrectly duplicated the recognition of acquiring fees in revenue and recorded an equal and opposite entry in cost of goods sold, IT processing, servicing and support in its unaudited condensed consolidated statement of operations due to the misinterpretation of certain system reports.

The error did not impact on the Company’s operating income (loss), net income, balance sheet or cash flows.

The error did not impact on the Company’s operating loss, net loss, balance sheet or cash flows.

The Company determined that the error impacted reported results for the period from July 1, 2018 to September 30, 2020.

The error impacts the Company’s reported results and the Company has restated its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 16 (Revenue) and Note 18 (Operating segments) for the three and six months ended December 31, 2019, to correct for the error.

The tables below present the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

The error impacts the Company’s reported results and the Company has restated its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 16 (Revenue) and Note 18 (Operating segments) for the three and nine months ended March 31, 2020, to correct for the error.

Unaudited condensed consolidated statement of operations

2 unchanged sentences

Cost of goods sold, IT processing, servicing and support

Three months ended December 31, 2019

Three months ended March 31, 2020

(in thousands)

Cost of goods sold, IT processing, servicing and support

Six months ended December 31, 2019

Nine months ended March 31, 2020

(in thousands)

Cost of goods sold, IT processing, servicing and support

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amounts reported for the six months ended December 31, 2020, include the correction of the error.

(1) The error for the three months ended September 30, 2020, also impacted the nine months ended March 31, 2021, by the same amount and therefore the amounts reported for the nine months ended March 31, 2021, include the correction of the error.

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

1 unchanged sentence

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support (continued)

The table below presents the impact of the restatement on the affected lines in the Processing and Total columns included in the revenue note (Note 16) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

Three months ended

Six months ended

Nine months ended

September 30, 2020 (1)

December 31, 2019

March 31, 2020

Processing fees - as restated

4 unchanged sentences

Rest of world

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amount reported for the six months ended December 31, 2020, includes the correction of the error.

The table below presents the impact of the restatement to the Processing operating segment revenue included in the operating segment note (Note 18) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

(1) The error for the three months ended September 30, 2020, also impacted the nine months ended March 31, 2021, by the same amount and therefore the amount reported for the nine months ended March 31, 2021, includes the correction of the error.

Revenue (as restated)

5 unchanged sentences

Processing - as restated

Total for the three months ended December 31, 2019 - as restated

Total for the three months ended March 31, 2020 - as restated

Processing - as restated

Total for the six months ended December 31, 2019 - as restated

Disposal of controlling interest in FIHRST

Total for the nine months ended March 31, 2020 - as restated

Disposal of controlling interest in KSNET and FIHRST

2020 Disposals

March 2020 disposal of KSNET

On January 23, 2020, the Company, through its wholly owned subsidiary Net1 Applied Technologies Netherlands B.V.

(“Net1 BV”), a limited liability private company incorporated in the Netherlands, entered into an agreement with PayletterHoldings LLC, a limited liability private company incorporated in the Republic of Korea, in terms of which Net1 BV agreed to sell its entire shareholding in Net1 Applied Technologies Korea Limited (“Net1 Korea”), a limited liability private company incorporated in the Republic of Korea and the sole shareholder of KSNET, Inc.

for $ 237.2 million.

The transaction was subject to customary closing conditions and closed on March 9, 2020.

The Company no longer controls Net1 Korea and its subsidiaries and deconsolidated its investment effective March 1, 2020, and has had no continued involvement since that date.

KSNET was acquired in October 2010, and was a profitable and cash generative business, but operated autonomously and in a more developed economy, with limited overlap with the Company’s other activities.

The Company also believed that the intrinsic value of KSNET was not appropriately reflected in the Company’s overall valuation.

The Company’s board of directors commenced a strategic review of its various businesses and investments during 2019, and ultimately evaluated and decided to sell KSNET in January 2020 in order to focus more on the Company’s core strategy, boost liquidity and to maximize shareholder value.

The table below presents the impact of the deconsolidation of Net1 Korea and its subsidiaries and the calculation of the net gain recognized on deconsolidation:

Proceeds from disposal of Net1 Korea, net of cash disposed

Cash and cash equivalents disposed

Cash withheld by purchaser to settle South Korean taxes (1)

Fair value of consideration received

carrying value of Net1 Korea, comprising

Cash and cash equivalents

Accounts receivable, net

Finance loans receivable, net

Property, plant and equipment, net

Operating lease right of use asset

Goodwill (Note 7)

Intangible assets, net

Deferred income taxes assets

Other long-term assets

Accounts payable

Other payables

Operating lease liability - current

Income taxes payable

Deferred income taxes liabilities

Operating lease liability - long-term

Other long-term liabilities

Released from accumulated other comprehensive income – foreign currency translation reserve (Note 12)

Settlement assets

Settlement liabilities

Gain recognized on disposal, before transaction costs and tax

Transaction costs (2)

Gain recognized on disposal, before tax

Taxes related to gain recognized on disposal (1)

Gain recognized on disposal, after tax

(1) Represents taxes that the Company expected to pay related to the disposal of Net1 Korea as of March 31, 2020.

The Company also agreed that the purchaser withhold potential capital gains taxes of $ 19.9 million (approximately KRW 23.8 billion) and non-refundable securities transaction taxes of $ 1.2 million (approximately KRW 1.4 billion), for a total withholding of $ 21.1 million, from the purchase price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities.

Net1 BV commenced a process to claim a refund from the South Korean tax authorities of the amount withheld and received this amount of approximately $ 20.1 million (KRW 23.8 billion) in September 2020.

The Company included the expected amount to be refunded in the caption Accounts receivable, net and other receivables in its consolidated balance sheet as of June 30, 2020, refer also to Note 3.

Disposal of controlling interest in KSNET and FIHRST (continued)

2020 Disposals (continued)

March 2020 disposal of KSNET (continued)

(2) Transaction costs include expenses incurred by the Company of $ 7.5 million directly related to the disposal of Net1 Korea and paid in cash and a non-refundable securities transfer tax of approximately $ 1.2 million which was also withheld from the purchase price and paid to the South Korean tax authorities directly by the purchaser.

December 2019 disposal of FIHRST

28 unchanged sentences

Accounts receivable, net and other receivables

The Company’s accounts receivable, net, and other receivables as of December 31, 2020, and June 30, 2020 , are presented in the table below:

The Company’s accounts receivable, net, and other receivables as of March 31, 2021, and June 30, 2020 , are presented in the table below:

Accounts receivable, trade, net

6 unchanged sentences

Foreign currency adjustment

Taxes refundable related to sale of Net1 Korea

Current portion of amount outstanding related to sale of interest in Bank Frick

Loans provided to Carbon

Taxes refundable related to sale of Net1 Korea

Current portion of amount outstanding related to sale of remaining interest in DNI

1 unchanged sentence

Total accounts receivable, net and other receivables

In January 2020, the Company agreed that the purchaser of Net1 Korea would withhold potential capital gains taxes of approximately $ 19.8 million (KRW 23.8 billion) from the Net1 Korea transaction price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities.

Net1 BV commenced a process to claim a refund from the South Korean tax authorities of the potential amount withheld and received this amount of approximately $ 20.1 million (KRW 23.8 billion) in September 2020.

Current portion of amount outstanding related to sale of interest in Bank Frick represents the amount due by the purchaser in October 2021 related to the sale of Bank Frick, refer to Note 6 for additional information regarding the sale.

Taxes refundable related to sale of Net1 Korea relates to the disposal of KSNET as discussed in Note 2 and the entire amount outstanding, or approximately $ 20.1 million (KRW 23.8 billion), was received in September 2020.

On October 26, 2020, DNI settled the full amount outstanding of $ 5.7 million related to sale of the remaining interest in DNI, including the amounts included in other long-term assets, refer to Note 6.

2 unchanged sentences

Finance loans receivable, net

The Company’s finance loans receivable, net, as of December 31, 2020, and June 30, 2020 , is presented in the table below:

The Company’s finance loans receivable, net, as of March 31, 2021, and June 30, 2020 , is presented in the table below:

Microlending finance loans receivable, net

6 unchanged sentences

Working capital finance loans receivable, gross

Allowance for doubtful finance loans receivable, end of period

1 unchanged sentence

Total accounts receivable, net

Gross microlending finance loans receivable as of December 31, 2020, increased compared to June 30, 2020, following subdued lending activity due to COVID-19 restrictions in April and early May 2020.

The Company was unable to originate any significant loans in April and early May 2020.

Accounts receivable, net and other receivables and finance loans receivable, net (continued)

Finance loans receivable, net (continued)

The Company created an allowance for doubtful working capital finance receivables related to a receivable due from a customer based in the United States during the year ended June 30, 2018.

Gross microlending finance loans receivable as of March 31, 2021, increased compared to June 30, 2020, following subdued lending activity due to COVID-19 restrictions in April and early May 2020.

The Company was unable to originate any significant loans in April and early May 2020.

The Company created an allowance for doubtful working capital finance loans receivable related to a receivable due from a customer based in the United States during the year ended June 30, 2018.

The Company commenced legal proceedings against the customer in 2018.

1 unchanged sentence

In December 2020, the Company withdrew its claim lodged in the bankruptcy proceedings because it does not believe it will recover the receivable via these proceedings, or via any other process.

In December 2020, the Company utilized the entire allowance for doubtful working capital finance receivables against the outstanding receivable.

The Company’s inventory comprised the following categories as of December 31, 2020, and June 30, 2020 :

In December 2020, the Company utilized the entire allowance for doubtful working capital finance loans receivable against the outstanding receivable.

The Company’s inventory comprised the following categories as of March 31, 2021, and June 30, 2020 :

Finished goods

1 unchanged sentence

Finished goods subject to sale restrictions represents airtime inventory purchased in March 2020, that could only be sold by the Company from October 1, 2020.

As of December 31, 2020, finished goods includes $ 16.4 million of airtime inventory that was previously classified as finished goods subject to sale restrictions.

As of March 31, 2021, finished goods includes $ 16.0 million of airtime inventory that was previously classified as finished goods subject to sale restrictions.

Fair value of financial instruments

10 unchanged sentences

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S.

dollar is its reporting currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR.

dollar is its reporting currency, but it earns most of its revenues and incurs a significant amount of its expenses in ZAR.

dollar has fluctuated significantly against the ZAR over the past three years.

3 unchanged sentences

The Company generally maintains investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities.

Fair value of financial instruments (continued)

Risk management (continued)

Microlending credit risk

1 unchanged sentence

The Company manages this risk by performing an affordability test for each prospective customer and assigning a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

Fair value of financial instruments (continued)

Risk management (continued)

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties.

18 unchanged sentences

The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa.

The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of December 31, 2020, and June 30, 2020, and valued Cell C at $ 0.0 (zero) at December 31, 2020, and June 30, 2020.

The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of March 31, 2021, and June 30, 2020, and valued Cell C at $ 0.0 (zero) at March 31, 2021, and June 30, 2020.

The Company believes the Cell C business plan utilized in the Company’s valuation is reasonable based on the current performance and the expected changes in Cell C’s business model.

The Company changed certain valuation assumptions when preparing the December 31, 2020, valuation compared with the June 30, 2020, valuation.

For the December 31, 2020, valuation, the Company incorporated the payments under the lease liabilities into the cash flow forecasts instead of including the December 31, 2020, carrying value in net debt and assumed that the deferred tax asset would be utilized over the forecast period instead of including the fair value of the deferred tax asset as of December 31, 2020, in the valuation.

The Company changed certain valuation assumptions when preparing the December 31, 2020, valuation compared with the June 30, 2020, valuation, and these updated assumptions have been used for the March 31, 2021 valuation as well.

Similar to the approach taken for December 31, 2020, the March 31, 2021, valuation, the Company incorporated the payments under the lease liabilities into the cash flow forecasts instead of including the March 31, 2021, carrying value in net debt and assumed that the deferred tax asset would be utilized over the forecast period instead of including the fair value of the deferred tax asset as of March 31, 2021, in the valuation.

For the June 30, 2020, valuation, the Company included the carrying value of the lease liabilities within net debt and included the June 30, 2020, fair value of the deferred tax asset in the valuation.

The Company utilized the latest approved business plan provided by Cell C management for the period ended December 31, 2025, for the December 31, 2020 valuation and the period ended December 31, 2024 for the June 30, 2020 valuation, and the following key valuation inputs were used as of December 31, 2020 and June 30, 2020:

The Company utilized the latest approved business plan provided by Cell C management for the period ended December 31, 2025, for the March 31, 2021 valuation and the period ended December 31, 2024 for the June 30, 2020 valuation.

Fair value of financial instruments (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C (continued)

The following key valuation inputs were used as of March 31, 2021 and June 30, 2020:

Weighted Average Cost of Capital ("WACC"):

4 unchanged sentences

Minority discount:

Net adjusted external debt - December 31, 2020:

ZAR 11.2 billion ($ 0.8 billion), includes no lease liabilities

Net adjusted external debt - March 31, 2021:

ZAR 11.4 billion ($ 0.8 billion), no lease liabilities included

Net adjusted external debt - June 30, 2020:

ZAR 15.8 billion ($ 0.9 billion), includes ZAR 4.4 billion of lease liabilities

Deferred tax (incl, assessed tax losses) - December 31, 2020:

Deferred tax (incl, assessed tax losses) - March 31, 2021:

Deferred tax (incl, assessed tax losses) - June 30, 2020:

1 unchanged sentence

(1) translated from ZAR to U.S.

dollars at exchange rates applicable as of December 31, 2020.

dollars at exchange rates applicable as of March 31, 2021.

(2) translated from ZAR to U.S.

dollars at exchange rates applicable as of June 30, 2020.

Fair value of financial instruments (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C (continued)

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% increase and 1.0% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on December 31, 2020, all amounts translated at exchange rates applicable as of December 31, 2020:

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 3.0% increase and 2.5% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on March 31, 2021, all amounts translated at exchange rates applicable as of March 31, 2021:

Sensitivity for fair value of Cell C investment

2 unchanged sentences

EBITDA margin

The fair value of the Cell C shares as of December 31, 2020, represented 0 % of the Company’s total assets, including these shares.

The fair value of the Cell C shares as of March 31, 2021, represented 0 % of the Company’s total assets, including these shares.

The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given the current situation of Cell C’s business.

5 unchanged sentences

The Company has no derivatives that are measured under Level 1 or 3 of the fair value hierarchy.

The Company had no outstanding foreign exchange contracts as of December 31, 2020, or June 30, 2020.

The following table presents the Company’s assets measured at fair value on a recurring basis as of December 31, 2020, according to the fair value hierarchy:

The Company had no outstanding foreign exchange contracts as of March 31, 2021, or June 30, 2020.

The following table presents the Company’s assets measured at fair value on a recurring basis as of March 31, 2021, according to the fair value hierarchy:

Quoted Price in Active Markets for Identical Assets

6 unchanged sentences

Total assets at fair value

Fair value of financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2020, according to the fair value hierarchy:

7 unchanged sentences

Total assets at fair value

Fair value of financial instruments (continued)

There have been no transfers in or out of Level 3 during the three and six months ended December 31, 2020 and 2019, respectively.

There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three and six months ended December 31, 2020 and 2019.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the six months ended December 31, 2020:

There have been no transfers in or out of Level 3 during the three and nine months ended March 31, 2021 and 2020, respectively.

There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three and nine months ended March 31, 2021 and 2020.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the nine months ended March 31, 2021:

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of December 31, 2020

Balance as of March 31, 2021

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S.

dollar on the carrying value.

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of December 31, 2019

Balance as of March 31, 2020

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S.

9 unchanged sentences

Equity-accounted investments

The Company’s ownership percentage in its equity-accounted investments as of December 31, 2020, and June 30, 2020, was as follows:

Bank Frick & Co AG (“Bank Frick”)

The Company’s ownership percentage in its equity-accounted investments as of March 31, 2021, and June 30, 2020, was as follows:

Finbond Group Limited (“Finbond”)

3 unchanged sentences

V2 Limited (“V2”)

Bank Frick & Co AG (“Bank Frick”)

Walletdoc Proprietary Limited (“Walletdoc”)

On February 3, 2021, the Company, through its wholly-owned subsidiary, Net1 Holdings LI AG (“Net1 LI”), entered into a share sales agreement with the Frick Family Foundation (“KFS”) to sell its entire interest, or 35 %, in Bank Frick to KFS for $ 30 million.

Net1 and certain entities within the IPG group also entered into an indemnity and release agreement with KFS and Bank Frick under which the parties agreed to terminate all existing arrangements with Bank Frick and settle all liabilities related to the Company’s activities with Bank Frick through the payment of $3.6 million to KFS.

The Company received $ 15.0 million, net, on closing, which comprised $18.6 million less the $ 3.6 million due to KFS to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG’s activities with Bank Frick.

The Company included the $ 18.6 million within cash flows from investing activities and the $ 3.6 million within cash flows from operating activities in the unaudited condensed consolidated statement of cash flows for the three and nine months ended March 31, 2021.

The outstanding balance due by KFS is expected to be paid as follows:

(i) $ 7.5 million on October 30, 2021, which is included in the caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of March 31, 2021, and (ii) the remaining amount, of $ 3.9 million on July 15, 2022, which is included in the caption other long-term assets, including reinsurance assets in the Company’s unaudited condensed consolidated balance sheet as of March 31, 2021.

The parties entered into a security and pledge agreement under which KFS pledged the Bank Frick shares purchased as security for the amounts outstanding under the share sales agreement.

The Company incurred transaction costs of approximately $ 0.04 million.

The following table presents the calculation of the loss on disposal of Bank Frick on February 3, 2021:

Loss on sale of Bank Frick:

Consideration received in cash on February 3, 2021

Consideration received with note on February 3, 2021, refer to (Note 3) and other long-term assets below

transaction costs

carrying value of Bank Frick

release of foreign currency translation reserve from accumulated other comprehensive loss

Loss on sale of Bank Frick (1)

(1) The Company does not expect to pay taxes related to the sale of Bank Frick because the base cost of its investment exceeds the sales consideration received.

The Company does not believe that it will be able to utilize any capital loss, if any, generated because Net1 LI does not own any other capital assets.

On April 15, 2020, the Company paid a termination fee of CHF 17.0 million ($ 17.5 million) to KFS to cancel an option that was previously exercised by the Company.

The Company considered the termination of the exercise of the option to acquire a further 35 % interest in Bank Frick an impairment indicator.

The Company recorded an impairment loss of $ 18.3 million during the three and nine months ended March 31, 2020, related to the other-than-temporary decrease in Bank Frick’s value, which represented the difference between the determined fair value of the Company’s interest in Bank Frick and the Company carrying value (before the impairment).

The impairment loss is included in the caption loss from equity-accounted investments in the Company’s unaudited condensed consolidated statement of operations.

Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

As of December 31, 2020, the Company owned 268,820,933 shares in Finbond representing approximately 31 % of its issued and outstanding ordinary shares.

Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on December 31, 2020, the last trading day of the month, was ZAR 0.99 per share.

The market value, using the December 31, 2020, closing price, of the Company’s holding in Finbond on December 31, 2020, was ZAR 266.1 million ($ 18.2 million translated at exchange rates applicable as of December 31, 2020).

Finbond published its half-year results to August 2020 in October 2020, which included the financial impact of the COVID-19 pandemic on its reported results during the reporting period.

As of March 31, 2021, the Company owned 268,820,933 shares in Finbond representing approximately 31 % of its issued and outstanding ordinary shares.

Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on March 31, 2021, the last trading day of the month, was ZAR 1.65 per share.

The market value, using the March 31, 2021, closing price, of the Company’s holding in Finbond on March 31, 2021, was ZAR 443.6 million ($ 29.9 million translated at exchange rates applicable as of March 31, 2021).

Finbond published its half-year results to August 2020 in October 2020, which included the financial impact of the COVID-19 pandemic on its reported results during that reporting period.

Finbond incurred losses during the six months to August 2020, and experienced a slow-down in its lending activities.

Finbond reported that its lending activities have increased again since August 2020, albeit at a slower pace compared with the prior calendar period.

Finbond reported that its lending activities had increased again since August 2020, albeit at a slower pace compared with the prior calendar period.

Finbond’s share price declined substantially during the period from its fiscal year end (February 2020) to September 30, 2020, and the weakness in its traded share price continued post September 30, 2020.

7 unchanged sentences

The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15 % to the December 31, 2020, Finbond closing price.

The total impairment charge for the six months ended December 31, 2020, was $ 17.6 million.

The total impairment charge for the nine months ended March 31, 2021, was $ 17.7 million.

In June 2020, V2 Limited drew down $ 0.5 million of the $ 5.0 million working capital facility granted by the Company to V2.

In September 2020, the Company agreed to grant V2 an option to acquire the Company’s entire interest in V2 for an option price of $ 5.0 million plus the face value of the outstanding working capital facility.

The option expired on December 31, 2020.

The Company and V2 also agreed to reduce the $ 5.0 million working capital facility to $ 1.5 million.

In December 2020, the Company no longer expected to recover its carrying value in V2 and impaired its remaining interest in V2 recording an impairment loss of $ 0.5 million during the nine months ended March 31, 2021.

The Company sold its investment in V2 on April 22, 2021, for one dollar.

In September 2020, the Company and V2 agreed to reduce the $ 5.0 million working capital facility to $ 1.5 million.

In October 2020, V2 drew down the remaining available $ 1.0 million of the working capital facility.

The Company does not expect to recover its carrying value in V2 and has impaired its remaining interest in V2, recording an impairment loss of $ 0.5 million during the three and six months ended December 31, 2020.

The Company also created an allowance for doubtful loans receivable of $ 0.5 million during the three and six months ended December 31, 2020, related to a portion of the working capital facility outstanding as of December 31, 2020.

The Company also created an allowance for doubtful loans receivable of $ 0.5 million during the nine months ended March 31, 2021, related to a portion of the working capital facility outstanding as of March 31, 2021.

In November 2020, the Company’s subsidiary, Net1 SA, signed an agreement with Walletdoc under which Walletdoc agreed to repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest in Walletdoc to Walletdoc.

DNI – impairments in fiscal 2020

During the nine months ended March 31, 2020, the Company recorded impairment losses of $ 13.1 million.

These impairment losses included (i) an amount of $ 11.5 million related to the difference between the fair value of consideration received on April 1, 2020 following the sale of its remaining interest, and the carrying value of DNI as of March 31, 2020, which included $ 11.3 million included in accumulated other comprehensive loss as of March 31, 2020, and (ii) an amount of $ 1.6 million representing the excess of recorded earnings from DNI over its carrying value, calculated as the amount that the Company could receive pursuant to the call option granted to DNI in May 2019.

Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the six months ended December 31, 2020:

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the nine months ended March 31, 2021:

Investment in equity

8 unchanged sentences

Foreign currency adjustment (2)

Balance as of December 31, 2020

Balance as of March 31, 2021

Investment in loans:

3 unchanged sentences

Foreign currency adjustment (2)

Balance as of December 31, 2020

Balance as of March 31, 2021

Carrying amount as of :

June 30, 2020

December 31, 2020

March 31, 2021

(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc.

2 unchanged sentences

Other long-term assets

Summarized below is the breakdown of other long-term assets as of December 31, 2020, and June 30, 2020:

Summarized below is the breakdown of other long-term assets as of March 31, 2021, and June 30, 2020:

Total equity investments

4 unchanged sentences

Investment in 7.625 % of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625 % notes

Long-term portion of amount due related to sale of interest in Bank Frick (2)

Long-term portion of amount due from DNI related to sale of remaining interest in DNI

3 unchanged sentences

(1) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.

(2) Long-term portion of amount due related to sale of interest in Bank Frick represents the amount due by the purchaser in July 2022.

Equity-accounted investments and other long-term assets (continued)

1 unchanged sentence

In early November 2020, MobiKwik entered into an agreement to raise additional capital through the issuance of additional shares to a new shareholder at a valuation of $ 135.54 per share.

The Company considered this transaction to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik.

The Company used this valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $ 15.1 million from $ 27.0 million to $ 42.1 million as of December 31, 2020.

The change in the fair value of MobiKwik of $ 15.1 million is included in the caption “Change in fair value of equity securities” in the unaudited condensed consolidated statement of operations for the three and six months ended December 31, 2020.

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of December 31, 2020:

In mid-March 2021, MobiKwik raised additional capital through the issuance of shares to new shareholders at a valuation of $ 170.33 per share.

The Company considered each of these transactions to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik.

The Company used the November 2020 valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $ 15.1 million from $ 27.0 million to $ 42.1 million as of December 31, 2020.

The Company used the March 2021 valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $ 10.8 million from $ 42.1 million to $ 52.9 million as of March 31, 2021.

The change in the fair value of MobiKwik for the three and nine months ended March 31, 2021, of $ 10.8 million and $ 25.9 million, respectively, is included in the caption “Change in fair value of equity securities” in the unaudited condensed consolidated statement of operations for the three and nine months ended March 31, 2021.

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of March 31, 2021:

Unrealized holding

14 unchanged sentences

Contractual maturities of held to maturity investments

Summarized below is the contractual maturity of the Company’s held to maturity investment as of December 31, 2020:

Summarized below is the contractual maturity of the Company’s held to maturity investment as of March 31, 2021:

Estimated fair value (1)

6 unchanged sentences

Goodwill and intangible assets, net

Summarized below is the movement in the carrying value of goodwill for the six months ended December 31, 2020:

Summarized below is the movement in the carrying value of goodwill for the nine months ended March 31, 2021:

Accumulated impairment

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2020

Balance as of March 31, 2021

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the U.S.

dollar on the carrying value.

Refer to Note 18 for additional information regarding changes to the Company’s reportable segments during the six months ended December 31, 2020.

Refer to Note 18 for additional information regarding changes to the Company’s reportable segments during the nine months ended March 31, 2021.

Goodwill has been allocated to the Company’s reportable segments as follows:

3 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2020

Balance as of March 31, 2021

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the U.S.

dollar on the carrying value.

Intangible assets

Intangible assets, net

Carrying value and amortization of intangible assets

Summarized below is the carrying value and accumulated amortization of the intangible assets as of December 31, 2020, and June 30, 2020:

As of December 31, 2020

Summarized below is the carrying value and accumulated amortization of the intangible assets as of March 31, 2021, and June 30, 2020:

As of March 31, 2021

As of June 30, 2020

9 unchanged sentences

Total finite-lived intangible assets

Infinite-lived intangible assets:

Indefinite-lived intangible assets:

Financial institution licenses

Total infinite-lived intangible assets

Total indefinite-lived intangible assets

Total intangible assets

Goodwill and intangible assets, net (continued)

Intangible assets (continued)

Aggregate amortization expense on the finite-lived intangible assets for the three months ended December 31, 2020 and 2019, was approximately $ 0.1 million and $ 0.1 million, respectively.

Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2020 and 2019, was approximately $ 0.2 million and $ 0.2 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on December 31, 2020, is presented in the table below.

Intangible assets, net (continued)

Aggregate amortization expense on the finite-lived intangible assets for each of the three months ended March 31, 2021 and 2020, was approximately $ 0.1 million, respectively.

Aggregate amortization expense on the finite-lived intangible assets for the nine months ended March 31, 2021 and 2020, was approximately $ 0.3 million and $ 0.2 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on March 31, 2021, is presented in the table below.

Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.

2 unchanged sentences

Reinsurance assets and policyholder liabilities under insurance contracts

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the six months ended December 31, 2020:

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the nine months ended March 31, 2021:

Reinsurance Assets (1)

2 unchanged sentences

Increase in policy holder benefits under insurance contracts

Claims and policyholders’ benefits under insurance contracts

Claims and decrease in policyholders’ benefits under insurance contracts

Foreign currency adjustment (3)

Balance as of December 31, 2020

Balance as of March 31, 2021

(1) Included in other long-term assets (refer to Note 6);

5 unchanged sentences

Assets and policyholder liabilities under investment contracts

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the six months ended December 31, 2020:

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the nine months ended March 31, 2021:

Investment contracts (2)

1 unchanged sentence

Increase in policy holder benefits under investment contracts

Claims and decrease in policyholders’ benefits under investment contracts

Foreign currency adjustment (3)

Balance as of December 31, 2020

Balance as of March 31, 2021

(1) Included in other long-term assets (refer to Note 6);

5 unchanged sentences

On November 2, 2020, the Company amended its short-term South African credit facility with Nedbank Limited to increase the indirect and derivative facilities component of the facility from ZAR 150.0 million to ZAR 159.0 million.

As of December 31, 2020, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 459.0 million ($ 31.3 million).

As of March 31, 2021, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 459.0 million ($ 31.0 million).

The credit facility comprises an overdraft facility of (i) up to ZAR 300.0 million ($ 20.2 million), which is further split into (a) a ZAR 250.0 million ($ 16.9 million) overdraft facility which may only be used to fund mobile ATMs and (b) a ZAR 50.0 million ($ 3.4 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 159.0 million ($ 10.7 million), which include guarantees, letters of credit and forward exchange contracts.

The Company has entered into cession and pledge agreements with Nedbank related to certain of its Nedbank credit facilities (the general banking facility and a portion of the indirect facility) and the Company has ceded and pledged certain bank accounts to Nedbank.

The funds included in these bank accounts are restricted as they may not be withdrawn without the express permission of Nedbank.

These funds, of ZAR 113.0 million ($ 7.6 million translated at exchange rates applicable as of March 31, 2021), are included within the caption restricted cash related to ATM funding and credit facilities to the Company’s unaudited condensed consolidated balance sheet as of March 31, 2021.

Movement in short-term credit facilities

Summarized below are the Company’s short-term facilities as of December 31, 2020, and the movement in the Company’s short-term facilities from as of June 30, 2020 to as of December 31, 2020, as well as the respective interest rates applied to the borrowings as of December 31, 2020:

Short-term facilities available as of December 31, 2020

Summarized below are the Company’s short-term facilities as of March 31, 2021, and the movement in the Company’s short-term facilities from as of June 30, 2020 to as of March 31, 2021, as well as the respective interest rates applied to the borrowings as of March 31, 2021:

Short-term facilities available as of March 31, 2021

Overdraft restricted as to use for ATM funding only

5 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2020

Balance as of March 31, 2021

Restricted as to use for ATM funding only

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2020 (2)

Balance as of March 31, 2021 (2)

(1) Represents the effects of the fluctuations between the ZAR and the U.S.

(2) As of December 31, 2020 and June 30, 2020, the Company had utilized approximately ZAR 156.6 million ($ 10.7 million) and ZAR 93.6 million ($ 5.4 million), respectively, of its indirect and derivative facilities of ZAR 159.0 million (June 30, 2020:

(2) As of March 31, 2021 and June 30, 2020, the Company had utilized approximately ZAR 156.6 million ($ 10.6 million) and ZAR 93.6 million ($ 5.4 million), respectively, of its indirect and derivative facilities of ZAR 159.0 million (June 30, 2020:

ZAR 150 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note 20).

Other payables

Summarized below is the breakdown of other payables as of December 31, 2020, and June 30, 2020:

Summarized below is the breakdown of other payables as of March 31, 2021, and June 30, 2020:

Value-added tax payable

3 unchanged sentences

Capital structure

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the six months ended December 31, 2020 and 2019, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the six months ended December 31, 2020 and 2019, respectively:

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the nine months ended March 31, 2021 and 2020, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the nine months ended March 31, 2021 and 2020, respectively:

Number of shares, net of treasury:

3 unchanged sentences

Accumulated other comprehensive loss

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2020:

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended March 31, 2021:

Three months ended

December 31, 2020

March 31, 2021

Accumulated foreign currency translation reserve

Balance as of October 1, 2020

Balance as of January 1, 2021

Release of foreign currency translation reserve related to the disposal of Bank Frick (Note 6)

Movement in foreign currency translation reserve

Balance as of December 31, 2020

Balance as of March 31, 2021

Accumulated other comprehensive loss (continued)

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2019:

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended March 31, 2020:

Three months ended

December 31, 2019

March 31, 2020

Accumulated foreign currency translation reserve

Balance as of October 1, 2019

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

Movement in foreign currency translation reserve related to equity-accounted investment

Balance as of January 1, 2020

Release of foreign currency translation reserve related to Net1 Korea disposal (Note 2)

Movement in foreign currency translation reserve

Balance as of December 31, 2019

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2020:

Six months ended

December 31, 2020

Balance as of March 31, 2020

The table below presents the change in accumulated other comprehensive (loss) income per component during the nine months ended March 31, 2021:

Nine months ended

March 31, 2021

Accumulated foreign currency translation reserve

Balance as of July 1, 2020 (as restated, Note 1)

Balance as of July 1, 2020

Release of foreign currency translation reserve related to disposal of Bank Frick (Note 6)

Movement in foreign currency translation reserve related to equity-accounted investment

Movement in foreign currency translation reserve

Balance as of December 31, 2020

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2019:

Six months ended

December 31, 2019

Balance as of March 31, 2021

The table below presents the change in accumulated other comprehensive (loss) income per component during the nine months ended March 31, 2020:

Nine months ended

March 31, 2020

Accumulated foreign currency translation reserve

Balance as of July 1, 2019

Release of foreign currency translation reserve related to Net1 Korea disposal (Note 2)

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

1 unchanged sentence

Movement in foreign currency translation reserve

Balance as of December 31, 2019

There were no reclassifications from accumulated other comprehensive loss to net (loss) income during the three and six months ended December 31, 2020.

During the three and six months ended December 31, 2019, the Company reclassified $ 1.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the FIHRST disposal (refer to Note 2).

Balance as of March 31, 2020

During the three and nine months ended March 31, 2021, the Company reclassified $ 2.5 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of Bank Frick (refer to Note 6).

During the three months ended March 31, 2020, the Company reclassified $ 14.2 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net gain related to the disposal of Net1 Korea (refer to Note 2).

During the nine months ended March 31, 2020, the Company reclassified $ 14.2 million and $ 1.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net gain (loss) related to the disposal of Net1 Korea and FIHRST, respectively (refer to Note 2).

Stock-based compensation

1 unchanged sentence

Stock option and restricted stock activity

The following table summarizes stock option activity for the six months ended December 31, 2020 and 2019:

The following table summarizes stock option activity for the nine months ended March 31, 2021 and 2020:

Number of shares

6 unchanged sentences

Granted - November 2020

Outstanding - December 31, 2020

Outstanding - March 31, 2021

Outstanding - June 30, 2019

Granted – October 2019

Outstanding - December 31, 2019

Outstanding - March 31, 2020

On August 5, 2020, the Company granted one of its non-employee directors, Mr.

1 unchanged sentence

These stock options are subject to the non-employee director’s continuous service through the applicable vesting date, and half of the options vest on each of the first and second anniversaries of the grant date.

The Company awarded 560,000 and 561,000 stock options to employees during the three and six months ended December 31, 2020 and 2019, respectively.

During the six months ended December 31, 2020, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $ 6.20 to $ 11.23 per share following his separation from the Company.

Employees forfeited 205,999 stock options during the three and six months ended December 31, 2020.

No stock options were forfeited during the three and six months ended December 31, 2019.

No stock options were awarded during the three months ended March 31, 2021 and 2020.

The Company awarded 560,000 and 561,000 stock options to employees during the nine months ended March 31, 2021 and 2020, respectively.

During the nine months ended March 31, 2021, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $ 6.20 to $ 11.23 per share following his separation from the Company.

Employees forfeited 10,000 and 93,928 stock options during the three months ended March 31, 2021 and 2020, respectively.

Employees forfeited 205,999 and 93,928 stock options during the nine months ended March 31, 2021 and 2020, respectively.

The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table.

1 unchanged sentence

The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms.

The table below presents the range of assumptions used to value stock options granted during the six months ended December 31, 2020 and 2019:

Six months ended

The table below presents the range of assumptions used to value stock options granted during the nine months ended March 31, 2021 and 2020:

Nine months ended

Expected volatility

5 unchanged sentences

Options (continued)

The following table presents stock options vested and expected to vest as of December 31, 2020:

The following table presents stock options vested and expected to vest as of March 31, 2021:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Vested and expecting to vest - December 31, 2020

Vested and expecting to vest - March 31, 2021

These options have an exercise price range of $ 3.01 to $ 11.23 .

The following table presents stock options that are exercisable as of December 31, 2020:

The following table presents stock options that are exercisable as of March 31, 2021:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Exercisable - December 31, 2020

During the three months ended December 31, 2020, , 181333 stock options became exercisable.

No stock options became exercisable during the three months ended December 31, 2019.

During the six months ended December 31, 2020 and 2019, respectively, 337,666 and 170,335 stock options became exercisable.

Exercisable - March 31, 2021

No stock options became exercisable during the three months ended March 31, 2021 and 2020.

During the nine months ended March 31, 2021 and 2020, respectively, 337,666 and 170,335 stock options became exercisable.

The Company issues new shares to satisfy stock option exercises.

Restricted stock

The following table summarizes restricted stock activity for the six months ended December 31, 2020 and 2019:

The following table summarizes restricted stock activity for the nine months ended March 31, 2021 and 2020:

Number of shares of restricted stock

3 unchanged sentences

Vested – September 2020 - accelerated vesting

Non-vested – December 31, 2020

Non-vested – March 31, 2021

Non-vested – June 30, 2019

Non-vested – December 31, 2019

During the six months ended December 31, 2020, 244,500 shares of restricted stock with time-based vesting conditions vested.

Granted – February 2020

Vested – March 2020

Vested – March 2020 - accelerated vesting

Non-vested – March 31, 2020

Stock-based compensation (continued)

Stock option and restricted stock activity (continued)

Options (continued)

During the three months ended March 31, 2021, 244,500 shares of restricted stock with time-based vesting conditions vested.

In connection with the Company’s former chief executive officer’s separation, the Company agreed to accelerate the vesting of 66,800 shares of restricted stock which were granted in February 2020, and which were subject to time-based vesting.

These shares of restricted stock vested on September 30, 2020.

The , 510200 shares of restricted stock that were forfeited during the six months ended December 31, 2020, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

The , 510200 shares of restricted stock that were forfeited during the nine months ended March 31, 2021, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

The March 31, 2021, non-vested shares of restricted stock presented in the table above includes 164,000 shares of restricted stock forfeited by an executive officer following his resignation from the Company on April 30, 2021.

The amount of 164,000 shares of restricted stock comprised 107,200 shares of restricted stock with performance (related to agreed return on net asset value) and time-based vesting conditions, 30,000 shares of restricted stock with a market condition (related to share price performance) and time-based vesting conditions, and 26,800 shares of restricted stock with time-based vesting conditions.

The February 2020 grants comprise 113,600 shares of restricted stock awarded to executive officers that are subject to time-based vesting and 454,400 shares of restricted stock awarded to executive officers that are subject to performance and time-based vesting.

During three and nine months ended March 31, 2020, employees forfeited 17,500 shares of restricted stock upon termination and 7,500 shares (50% of the original award) of restricted stock with time-based vesting conditions were forfeited by an executive officer upon the disposal of Net1 Korea.

The Company’s Board of Directors accelerated the vesting of the other half of the award and 7,500 shares vested.

On February 5, 2021, the Company entered into an employment agreement with Mr.

Mali, under which Mr.

Mali was appointed Chief Executive Officer of Net1 SA.

The appointment is effective from May 1, 2021.

Mali was awarded 77,040 shares of restricted stock on May 1, 2021.

The number of shares granted was calculated using a base amount of ZAR 6.25 million, the Company’s closing share price on the Nasdaq Global Select Market on April 30, 2021, and the April 30, 2021 $ / ZAR closing exchange rate.

These shares of restricted stock include time-based vesting conditions and are subject to Mr.

Mali’s continuous service to the Company through the applicable vesting date, with one third of the options vesting on each of the first, second and third anniversaries of the grant date, May 1, 2021.

The parties also agreed that, on or about August 1, 2021, the Company will issue such number of shares of restricted stock equal to the aggregate amount of the Company’s common stock purchased by Mr.

Mali between May 1, 2021 and July 31, 2021.

The number of shares of restricted to stock to be issued will be calculated using a base amount of up to ZAR 6.25 million, in each case, divided by the product of the Fair Market Value (as defined in the Company’s Amended and Restated 2015 Stock Incentive Plan) of the Company’s common stock, multiplied by the $ / ZAR exchange rate on the date of grant.

These shares of restricted stock are also expected to include time-based vesting conditions and will be subject to Mr.

Mali is also entitled to a long-term incentive award related to the Company’s 2021 fiscal year, comprising an award of restricted stock equal to 85 % of Mr.

Mali’s base salary, or ZAR 5.95 million, divided by the product of the Fair Market Value of the Company’s common stock, as determined by the Company’s remuneration committee in its sole discretion, multiplied by the $ / ZAR exchange rate on the date of grant.

Vesting of the award is subject to performance criteria to be determined by the Company’s remuneration committee and the continuous employment of Mr.

Mali on each vesting date.

The award of restricted stock vests ratably over a period of three years commencing on the first anniversary of the grant of the award.

Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2020 and 2019, of $ 0.2 million and $0.4 million, respectively, which comprised:

The Company recorded a stock-based compensation charge, net during the three months ended March 31, 2021 and 2020, of $ 0.2 million and $0.3 million, respectively, which comprised:

Allocated to cost of goods sold, IT processing, servicing and support

Allocated to selling, general and administration

Three months ended December 31, 2020

Three months ended March 31, 2021

Stock-based compensation charge

Reversal of stock compensation charge related to stock options and restricted stock forfeited

Total - three months ended December 31, 2020

Three months ended December 31, 2019

Total - three months ended March 31, 2021

Three months ended March 31, 2020

Stock-based compensation charge

Total - three months ended December 31, 2019

The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2020 and 2019, of $ 0.6 million and $ 0.8 million respectively, which comprised:

Reversal of stock compensation charge related to stock options and restricted stock forfeited

Total - three months ended March 31, 2020

The Company recorded a stock-based compensation charge, net during the nine months ended March 31, 2021 and 2020, of $ 0.9 million and $ 1.2 million respectively, which comprised:

Allocated to cost of goods sold, IT processing, servicing and support

Allocated to selling, general and administration

Six months ended December 31, 2020

Nine months ended March 31, 2021

Stock-based compensation charge

Reversal of stock compensation charge related to stock options and restricted stock forfeited

Total - six months ended December 31, 2020

Six months ended December 31, 2019

Total - nine months ended March 31, 2021

Nine months ended March 31, 2020

Stock-based compensation charge

Total - six months ended December 31, 2019

Reversal of stock compensation charge related to stock options and restricted stock forfeited

Total - nine months ended March 31, 2020

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.

As of December 31, 2020, the total unrecognized compensation cost related to stock options was approximately $ 1.3 million, which the Company expects to recognize over approximately three years .

As of December 31, 2020, the total unrecognized compensation cost related to restricted stock awards was approximately $ 0.7 million, which the Company expects to recognize over approximately two years .

As of December 31, 2020, and June 30, 2020, respectively, the Company recorded a deferred tax asset of approximately $ 0.04 million and $ 0.4 million, related to the stock-based compensation charge recognized related to employees of Net1.

As of December 31, 2020, and June 30, 2020, respectively, the Company recorded a valuation allowance of approximately $ 0.04 million and $ 0.4 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States.

As of March 31, 2021, the total unrecognized compensation cost related to stock options was approximately $ 1.1 million, which the Company expects to recognize over approximately three years .

As of March 31, 2021, the total unrecognized compensation cost related to restricted stock awards was approximately $ 0.7 million, which the Company expects to recognize over approximately two years .

As of March 31, 2021, and June 30, 2020, respectively, the Company recorded a deferred tax asset of approximately $ 0.04 million and $ 0.4 million, related to the stock-based compensation charge recognized related to employees of Net1.

As of March 31, 2021, and June 30, 2020, respectively, the Company recorded a valuation allowance of approximately $ 0.04 million and $ 0.4 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States.

The Company deducts the difference between the market value on the date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.

2 unchanged sentences

Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method.

There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended December 31, 2020 and 2019.

There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended March 31, 2021 and 2020.

Accordingly, the two-class method presented below does not include the impact of any redemption.

1 unchanged sentence

Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock.

Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended December 31, 2020 and 2019 , reflects only undistributed earnings.

Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended March 31, 2021 and 2020 , reflects only undistributed earnings.

The computation below of basic (loss) earnings per share excludes the net loss attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.

6 unchanged sentences

Three months ended

Six months ended

Nine months ended

(in thousands except

10 unchanged sentences

weighted-average common shares outstanding

Effect of dilutive securities:

Stock options

Denominator for diluted (loss) earnings per share:

5 unchanged sentences

Percent allocated to common shareholders

(Loss) Earnings per share (continued)

Options to purchase 1,579,784 shares of the Company’s common stock at prices ranging from $ 3.01 to $ 11.23 per share were outstanding during the three and six months ended December 31, 2020, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock.

Options to purchase 1,425,579 shares of the Company’s common stock at prices ranging from $ 3.07 to $ 11.23 per share were outstanding during the three and six months ended December 31, 2019, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock.

The options, which expire at various dates through November 4, 2030, were still outstanding as of December 31, 2020.

Options to purchase 425,784 shares of the Company’s common stock at prices ranging from $ 6.20 to $ 11.23 per share were outstanding during the three and nine months ended March 31, 2021, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock.

Options to purchase 1,331,651 shares of the Company’s common stock at prices ranging from $ 3.07 to $ 11.23 per share were outstanding during the three and nine months ended March 31, 2020, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock.

The options, which expire at various dates through November 4, 2030, were still outstanding as of March 31, 2021.

Supplemental cash flow information

The following table presents supplemental cash flow disclosures for the three and six months ended December 31, 2020 and 2019:

The following table presents supplemental cash flow disclosures for the three and nine months ended March 31, 2021 and 2020:

Three months ended

Six months ended

Nine months ended

Cash received from interest

4 unchanged sentences

This cash may only be used to fund ATMs and is considered restricted as to use and therefore is classified as restricted cash.

Cash, cash equivalents and restricted cash also includes cash in certain bank accounts that have been ceded to Nedbank.

As this cash has been pledged and ceded it may not be drawn and is considered restricted as to use and therefore is classified as restricted cash as well.

Refer to Note 9 for additional information regarding the Company’s facilities.

The following table presents the disaggregation of cash, cash equivalents and restricted cash as of December 31, 2020 and 2019, and June 30, 2020:

December 31, 2020

December 31, 2019

The following table presents the disaggregation of cash, cash equivalents and restricted cash as of March 31, 2021 and 2020, and June 30, 2020:

March 31, 2021

March 31, 2020

June 30, 2020

2 unchanged sentences

Cash, cash equivalents and restricted cash

The following table presents supplemental cash flow disclosure related to leases for the three and six months ended December 31, 2020 and 2019:

Three months ended December 31,

Six months ended December 31,

The following table presents supplemental cash flow disclosure related to leases for the three and nine months ended March 31, 2021 and 2020:

Three months ended March 31,

Nine months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities

4 unchanged sentences

Disaggregation of revenue

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2020:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended March 31, 2021:

Financial services

10 unchanged sentences

Previously reported information has been restated.

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2019:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended March 31, 2020:

Financial services

14 unchanged sentences

Disaggregation of revenue (continued)

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2020:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the nine months ended March 31, 2021:

Financial services

8 unchanged sentences

Rest of world

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2019:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the nine months ended March 31, 2020:

Financial services

16 unchanged sentences

The Company also operates parts of its financial services business from locations which it leases for a period of less than one year.

The Company’s operating lease expense during each of the three months ended December 31, 2020 and 2019 was $ 0.9 million, respectively.

The Company does not have any significant leases that have not commenced as of December 31, 2020 .

The Company’s operating lease expense during the three months ended March 31, 2021 and 2020 was $ 1.1 million and $ 0.9 million, respectively.

The Company’s operating lease expense during each of the nine months ended March 31, 2021 and 2020 was $ 2.9 million, respectively.

The Company does not have any significant leases that have not commenced as of March 31, 2021 .

The Company has also entered into short-term leasing arrangements, primarily for the lease of branch locations and other locations to operate its financial services business in South Africa.

The Company’s short-term lease expense during the three months ended December 31, 2020 and 2019 , was $ 0.9 million and $ 1.3 million, respectively.

The Company’s short-term lease expense during the six months ended December 31, 2020 and 2019 , was $ 2.0 million and $ 2.7 million, respectively.

The Company’s short-term lease expense during the three months ended March 31, 2021 and 2020 , was $ 1.0 million and $ 0.8 million, respectively.

The Company’s short-term lease expense during the nine months ended March 31, 2021 and 2020 , was $ 3.1 million and $ 3.5 million, respectively.

Leases (continued)

The following table presents supplemental balance sheet disclosure related to the Company’s right-of-use assets and its operating lease liabilities as of December 31, 2020 and June 30, 2020 :

The following table presents supplemental balance sheet disclosure related to the Company’s right-of-use assets and its operating lease liabilities as of March 31, 2021 and June 30, 2020 :

Operating leases:

2 unchanged sentences

Weighted average discount rate (percent)

The maturities of the Company’s operating lease liabilities as of December 31, 2020, are presented below:

The maturities of the Company’s operating lease liabilities as of March 31, 2021, are presented below:

Maturities of operating lease liabilities

2021 (for December 31, 2020 excluding six months to December 31, 2020)

2021 (for March 31, 2021 excluding nine months to March 31, 2021)

Total undiscounted operating lease liabilities

10 unchanged sentences

During the first quarter of fiscal 2021, the Company reorganized its operating segments by combining what were previously the South African transaction processing segment and the International transaction processing segment into what is now the Processing segment and bifurcating what was previously the Financial inclusion and applied technologies segment into what are now the Financial services segment and the Technology segment.

Segment results for the three and six months ended December 31, 2020 reflect these changes to the operating segments.

Segment results for the three and nine months ended March 31, 2021, reflect these changes to the operating segments.

Operating segments

16 unchanged sentences

The Company writes life insurance contracts, primarily funeral-benefit policies, and policy holders pay the Company a monthly insurance premium.

The Technology segment includes sale of hardware and licenses to customers.

The Technology segment includes sales of hardware and licenses to customers.

Hardware includes the sale of POS devices, SIM cards and other consumables which can occur on an ad hoc basis.

1 unchanged sentence

Corporate/Eliminations includes the Company’s head office cost center and the amortization of acquisition-related intangible assets.

The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended December 31, 2020 and 2019, is as follows:

The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended March 31, 2021 and 2020, is as follows:

Revenue (as restated) (1)

3 unchanged sentences

Financial services

Total for the three months ended December 31, 2020

Total for the three months ended March 31, 2021

Processing (1)

Financial services

Total for the three months ended December 31, 2019

(1) Processing for the three months ended December 31, 2019 has been restated for the error described in Note 1.

The reconciliation of the reportable segment’s revenue to revenue from external customers for the six months ended December 31, 2020 and 2019, is as follows:

Total for the three months ended March 31, 2020

(1) Processing for the three months ended March 31, 2020 has been restated for the error described in Note 1.

The reconciliation of the reportable segment’s revenue to revenue from external customers for the nine months ended March 31, 2021 and 2020, is as follows:

Revenue (as restated) (1)

3 unchanged sentences

Financial services

Total for the six months ended December 31, 2020

Total for the nine months ended March 31, 2021

Processing (1)

Financial services

Total for the six months ended December 31, 2019

(1) Processing for the six months ended December 31, 2019 has been restated for the error described in Note 1.

Total for the nine months ended March 31, 2020

(1) Processing for the nine months ended March 31, 2020 has been restated for the error described in Note 1.

The Company does not allocate interest income, interest expense or income tax expense to its reportable segments.

2 unchanged sentences

Operating segments (continued)

The reconciliation of the reportable segments measures of profit or loss to income before income taxes for the three and six months ended December 31, 2020 and 2019, is as follows:

The reconciliation of the reportable segments measures of profit or loss to income before income taxes for the three and nine months ended March 31, 2021 and 2020, is as follows:

Three months ended

Six months ended

Nine months ended

Reportable segments measure of profit or loss

3 unchanged sentences

Gain on disposal of FIHRST

Loss on disposal of equity-accounted investment - Bank Frick

Loss on disposal of equity-accounted investment

1 unchanged sentence

Interest expense

Income (Loss) before income taxes

The following tables summarize segment information that is prepared in accordance with GAAP for the three and six months ended December 31, 2020 and 2019:

Loss before income taxes

The following tables summarize segment information that is prepared in accordance with GAAP for the three and nine months ended March 31, 2021 and 2020:

Three months ended

Six months ended

Nine months ended

(as restated) (1)

13 unchanged sentences

Corporate/Eliminations

(1) Revenues-Processing-All others for the three and six months ended December 31, 2019 have been restated for the error described in Note 1.

(1) Revenues-Processing-All others for the three and nine months ended March 31, 2020 have been restated for the error described in Note 1.

Operating segments (continued)

7 unchanged sentences

The cumulative effect of any change in the enacted tax rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete event in the interim period in which the enactment date occurs.

For the three months ended December 31, 2020, the Company’s effective tax rate was impacted by the tax effect of the change in the fair value of our equity securities (refer to Note 6), which is at a lower tax rate than the South African statutory rate, which was partially offset by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

For the six months ended December 31, 2020, the Company’s effective tax rate was impacted by the tax effect of the change in fair value referred to above, tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment (refer to Note 6).

For the three and six months ended December 31, 2019, the Company’s effective tax rate was impacted by the on-going losses incurred by certain of its South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by the Company’s South African businesses and non-deductible expenses, including transaction-related expenditure, which was partially offset by tax expense recorded by the Company’s profitable businesses in South Africa.

For the three months ended March 31, 2021, the Company’s effective tax rate was impacted by the tax effect of the change in the fair value of our equity securities (refer to Note 6), which is at a lower tax rate than the South African statutory rate, the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

For the nine months ended March 31, 2021, the Company’s effective tax rate was impacted by the tax effect of the change in fair value referred to above, tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment (refer to Note 6).

For the three and nine months ended March 31, 2020, the Company’s effective tax rate was impacted by the tax neutral disposal of FIHRST (impacts nine months only), the non-deductible impairment losses, the losses incurred by IPG and certain of its South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these businesses, non-deductible expenses, including transaction-related expenditure, and tax expense recorded by the Company’s profitable businesses, primarily in South Africa.

Uncertain tax positions

The Company had no significant uncertain tax positions during the three months ended December 31, 2020, and therefore, the Company had no accrued interest related to uncertain tax positions on its balance sheet.

The Company had no significant uncertain tax positions during the three months ended March 31, 2021, and therefore, the Company had no accrued interest related to uncertain tax positions on its balance sheet.

The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.

2 unchanged sentences

federal jurisdiction.

As of December 31, 2020, the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2016.

As of March 31, 2021, the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2016.

The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations.

2 unchanged sentences

The Company is required to procure these guarantees for these third parties to operate its business.

Nedbank has issued guarantees to these third parties amounting to ZAR 156.6 million ($ 10.7 million, translated at exchange rates applicable as of December 31, 2020) thereby utilizing part of the Company’s short-term facilities.

Nedbank has issued guarantees to these third parties amounting to ZAR 156.6 million ($ 10.6 million, translated at exchange rates applicable as of March 31, 2021) thereby utilizing part of the Company’s short-term facilities.

The Company pays commission of between 0.4 % per annum to 1.94 % per annum of the face value of these guarantees and does not recover any of the commission from third parties.

Commitments and contingencies (continued)

The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of December 31, 2020.

The maximum potential amount that the Company could pay under these guarantees is ZAR 156.6 million ($ 10.7 million, translated at exchange rates applicable as of December 31, 2020).

The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in Note 9.

Guarantees (continued)

The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of March 31, 2021.

The maximum potential amount that the Company could pay under these guarantees is ZAR 156.6 million ($ 10.6 million, translated at exchange rates applicable as of March 31, 2021).

As discussed in Note 9, the Company has ceded and pledged certain bank accounts to Nedbank as security for certain of these guarantees with an aggregate value of ZAR 63.0 million ($ 4.2 million translated at exchange rates applicable as of March 31, 2021).

The guarantees have reduced the amount available under its indirect and derivative facilities in the Company’s short-term credit facility described in Note 9.

Contingencies

4 unchanged sentences

Refer to Note 3 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding the deconsolidation of Net1 Korea and DNI.

The table below presents certain major captions to the Company’s unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and six months ended December 31, 2019, that have not been separately presented on those statements related to the presentation of Net1 Korea as a discontinued operation:

The table below presents certain major captions to the Company’s unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and nine months ended March 31, 2020, that have not been separately presented on those statements related to the presentation of Net1 Korea as a discontinued operation:

Three months ended

Six months ended

December 31, 2019

Nine months ended

March 31, 2020

Unaudited condensed consolidated statement of operations

14 unchanged sentences

The Company retained a continuing involvement in DNI following the disposal of the Company’s controlling interest during the year ended June 30, 2019.

The Company recorded earnings under the equity method related to its retained investment in DNI during the six months ended December 31, 2019.

The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the six months ended December 31, 2019:

The Company recorded earnings under the equity method related to its retained investment in DNI during the nine months ended March 31, 2020.

The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the nine months ended March 31, 2020:

Three months ended

Six months ended

December 31, 2019

Nine months ended

March 31, 2020

Revenue generated from transactions with DNI

Expenses incurred related to transactions with DNI

The Company received dividends of $ 0.4 million and $ 1.1 million from DNI during the three and six months ended December 31, 2019, respectively.

The Company received dividends of $ 0.7 million and $ 1.8 million from DNI during the three and nine months ended March 31, 2020, respectively.

Related party transactions

1 unchanged sentence

In late September 2020, Value Capital Partners (Pty) Ltd (“VCP”), a significant shareholder, notified the Company that it would make payment to the Company related to the disgorgement of short-swing profits from the purchase of common stock by VCP pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended and the Company’s insider trading policy.

The Company recognizes these proceeds as a capital contribution from shareholders and recorded an increase of $ 0.1 million, net of taxes of $ 0.02 million, to additional paid-in capital in its unaudited condensed consolidated statement of changes in equity for the three months ended September 30, 2020.

As the purchase transactions occurred in late September 2020, $ 0.02 million of the $ 0.12 million proceeds were received in early October 2020 and these amounts were recorded within cash flows from financing activities in the Company’s unaudited condensed consolidated statement of cash flow for the three months ended December 31, 2020.

The Company recognized these proceeds as a capital contribution from shareholders and recorded an increase of $ 0.1 million, net of taxes of $ 0.02 million, to additional paid-in capital in its unaudited condensed consolidated statement of changes in equity for the three months ended September 30, 2020.

The gross proceeds of $ 0.12 million are recorded within cash flows from financing activities in the Company’s unaudited condensed consolidated statement of cash flow for the nine months ended March 31, 2021.

The Company expects to pay the taxes due of $ 0.02 million in calendar 2021.

Subsequent events

Disposal of entire 35% interest in Bank Frick

On February 3, 2021, the Company entered into a share sales agreement with the Frick Family Foundation (“KFS”) to sell its entire interest, or 35 %, in Bank Frick to KFS for $ 30 million.

The parties also agreed that the Company will pay $ 3.6 million to KFS to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG’s activities with Bank Frick, and this amount will be set off against the first payment made by KFS in February 2021.

KFS will pay $ 15.0 million within two days from signing, which comprises $ 18.6 million less the $ 3.6 million referred to earlier, $ 7.5 million on October 30, 2021, and the remaining amount, of $ 3.9 million on July 15, 2022.

The parties entered into a security and pledge agreement under which KFS pledged the Bank Frick shares purchased as security for the amounts outstanding under the share sales agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements