What changed in this filing

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Item 1. Financial Statements

2021-11-08 compared with 2021-05-06 · 314 added, 677 removed, 625 unchanged (61% of the section changed)

2 unchanged sentences

Unaudited Condensed Consolidated Balance Sheets

September 30,

(In thousands, except share data)

8 unchanged sentences

Total current assets

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

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

$ 36,163 June:

21 unchanged sentences

200,000,000 with $ 0.001 par value;

Issued and outstanding shares, net of treasury - March:

Issued and outstanding shares, net of treasury - September:

56,996,214 June:

16 unchanged sentences

Three months ended

Nine months ended

(as restated) (A)

(In thousands, except per share data)

September 30,

(In thousands, except per share data)

3 unchanged sentences

Depreciation and amortization

Impairment loss (Note 7)

OPERATING LOSS

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

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

LOSS BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE (Note 19)

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

Net (loss) earnings per share, in United States dollars (Note 14):

Basic (loss) earnings attributable to Net1 shareholders

Diluted (loss) earnings attributable to Net1 shareholders

LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)

INCOME TAX EXPENSE (BENEFIT) (Note 18)

NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS

LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

Net loss per share, in United States dollars (Note 13):

Basic loss attributable to Net1 shareholders

Diluted loss attributable to Net1 shareholders

(A) Certain amounts have been restated to correct the misstatement discussed in Note 1.

3 unchanged sentences

Three months ended

Nine months ended

(In thousands)

September 30,

(In thousands)

2 unchanged sentences

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

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

Add comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Net1

13 unchanged sentences

Redeemable common stock

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)

Reversal of stock-based compensation charge (Note 13)

Other comprehensive loss (Note 12)

Balance – March 31, 2020

( 24,891,292 )

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

For the three months ended September 30, 2020 (dollar amounts in thousands)

Balance – July 1, 2020

( 24,891,292 )

Restricted stock granted

Stock-based compensation charge (Note 12)

Reversal of stock-based compensation charge (Note 12)

Stock-based compensation charge related to equity accounted investment

Other comprehensive loss (Note 12)

Balance – March 31, 2020

Stock-based compensation charge related to equity-accounted investment (Note 5)

Proceeds from disgorgement of shareholders' short-swing profits

Other comprehensive income (Note 11)

Balance – September 30, 2020

( 24,891,292 )

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

11 unchanged sentences

Redeemable common stock

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

Balance – January 1, 2021

( 24,891,292 )

Exercise of stock option (Note 13)

Stock-based compensation charge (Note 13)

Other comprehensive loss (Note 12)

Balance – March 31, 2021

( 24,891,292 )

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

For the three months ended September 30, 2021 (dollar amounts in thousands)

Balance – July 1, 2021

( 24,891,292 )

Exercise of stock option (Note 13)

Restricted stock granted (Note 12)

Stock-based compensation charge (Note 12)

1 unchanged sentence

Stock-based compensation charge related to equity-accounted investment (Note 5)

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

Other comprehensive income (Note 12)

Balance – March 31, 2021

Other comprehensive loss (Note 11)

Balance – September 30, 2021

( 24,891,292 )

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

1 unchanged sentence

Three months ended

Nine months ended

(In thousands)

September 30,

(In thousands)

1 unchanged sentence

Depreciation and amortization

Impairment loss (Note 7)

Impairment loss

Movement in allowance for doubtful accounts receivable

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

Loss from equity-accounted investments (Note 5)

Movement in allowance for doubtful loans to equity-accounted investments

Change in fair value of equity securities (Note 5 and 6)

Fair value adjustment related to financial liabilities

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)

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

Profit on disposal of property, plant and equipment

Stock-based compensation charge (Note 12)

Dividends received from equity-accounted investments

Decrease in accounts receivable and finance loans receivable

Decrease (Increase) in inventory

Decrease (Increase) in accounts receivable and finance loans receivable

Decrease in inventory

Decrease in accounts payable and other payables

Decrease in taxes payable

Increase (Decrease) in deferred taxes

Increase (Decrease) in taxes payable

Decrease in deferred taxes

Net cash used in operating activities

2 unchanged sentences

Proceeds from disposal of property, plant and equipment

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)

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)

Proceeds from disposal of Net1 Korea

Proceeds from disposal of DNI as equity-accounted investment

Loan to equity-accounted investment

Net change in settlement assets

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

1 unchanged sentence

Repayment of bank overdraft (Note 8)

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

Proceeds from exercise of stock options

Long-term borrowings utilized (Note 9)

Repayment of long-term borrowings (Note 9)

Guarantee fee

Finance lease capital repayments

Proceeds from disgorgement of shareholders' short-swing profits

Net change in settlement obligations

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

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net increase (decrease) 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 nine months ended March 31, 2021 and 2020

for the three months ended September 30, 2021 and 2020

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

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

The results of operations for the three months ended September 30, 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 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.

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, 2021.

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.

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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 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.

The Company’s business has been, and continues to be, impacted by government restrictions and quarantines related to COVID-19.

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.

South Africa is currently at adjusted Level 1, which has a limited impact on the Company’s businesses.

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.

1 unchanged sentence

The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition.

July 2021 civil unrest in South Africa

Two of South Africa’s nine provinces experienced significant civil unrest in July 2021 resulting in mass looting, loss of life, disruption of transport and supply routes, and widespread destruction of property.

In total 337 South Africans lost their lives in the unrest - fortunately none of the Company’s employees were injured or harmed.

There was widespread damage to bank and ATM infrastructure in the affected provinces.

In total approximately 1,800 ATMs and 300 branches were damaged, and the Banking Association of South Africa (“BASA”), estimates that total damage to banking infrastructure amounted to ZAR 1.6 billion.

The South African Special Risks Insurance Association (“SASRIA”), a public enterprise and a non-life insurance company that provides coverage for damage caused by special risks such as politically motivated malicious acts, riots, strikes, terrorism and public disorders, estimates that the total damage to property across South Africa will be in the order of between ZAR 19.0 and ZAR 20.0 billion.

The Company suffered damage at 19 of its branches and to 173 ATMs.

The disruption and related closure of branches also impacted the Company’s efforts to grow EPE customer numbers.

The Company also saw an impact on transaction volumes through its ATMs with July 2021 volumes 13 % lower than June 2021, and August 2021 3 % lower than July 2021.

The Company estimates that it will cost approximately ZAR 40.0 million to repair its branches and damaged ATMs and to replace ATMs that have been destroyed.

The Company believes that these losses suffered through destruction of property will be fully covered under its various insurance policies, through the government backed SASRIA cover.

As a result of the disruption to ATM coverage and availability, BASA and South Africa’s banks agreed that the fee which customers pay to utilize other bank’s ATMs would be waived for August and September 2021.

The Company lost transaction fee revenue of approximately ZAR 6.0 .

million ($ 0.4 million) during the three months ended September 30, 2021, as a result of this decision.

Restatement of financial statements

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

In November 2020, the Company identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during its assessment and systems development of new products.

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 consolidated statement of operations due to the misinterpretation of certain system reports.

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 impacted the Company’s reported results and the Company has restated its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 15 (Revenue) and Note 17 (Operating segments) for the three months ended September 30, 2020.

Refer Note 25 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021, for additional information regarding the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations and certain note presentation.

Recent accounting pronouncements adopted

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 .

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Disclosure Framework:

Changes to the Disclosure Requirements for Fair Value Measurement.

The guidance modifies the disclosure requirements related to fair value measurement.

The guidance became effective for the Company beginning July 1, 2021.

The adoption of this guidance did not have a material impact on the Company’s financial statements or its footnote disclosures.

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.

The guidance clarifies that an entity should consider observable transactions that require an entity to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with U.S GAAP guidance immediately before applying or upon discontinuing the equity method.

The guidance also clarifies that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

The guidance became effective for the Company beginning July 1, 2021.

The adoption of this guidance did not have a material impact on the Company’s financial statements or its footnote disclosures.

Recent accounting pronouncements not yet adopted as of September 30, 2021

In June 2016, the FASB issued guidance regarding Measurement of Credit Losses on Financial Instruments .

The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

3 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:

Changes to the Disclosure Requirements for Fair Value Measurement.

The guidance modifies the disclosure requirements related to fair value measurement.

This guidance is effective for the Company beginning July 1, 2021.

Early adoption is permitted.

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

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

5 unchanged sentences

and Intangibles — Goodwill and Other (ASC 350).

The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023, and defers the adoption guidance regarding Disclosure Framework:

Changes to the Disclosure Requirements for Fair Value Measurement by the Company from July 1, 2020 to July 1, 2021.

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815.

This guidance is effective for the Company beginning July 1, 2021.

Early adoption is permitted.

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

Restatement of financial statements

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

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 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 nine months ended March 31, 2020, 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 nine months ended March 31, 2020:

Unaudited condensed consolidated statement of operations

Three months ended September 30, 2020 (1)

(in thousands)

Cost of goods sold, IT processing, servicing and support

Three months ended March 31, 2020

(in thousands)

Cost of goods sold, IT processing, servicing and support

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 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)

Restatement of financial statements (continued)

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 nine months ended March 31, 2020:

Three months ended

Nine months ended

September 30, 2020 (1)

March 31, 2020

Processing fees - as restated

South Africa - as restated

Rest of world

Total revenue, derived from the following geographic locations - as restated

South Africa - as restated

Rest of world

(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.

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 nine months ended March 31, 2020:

Revenue (as restated)

Reportable Segment

Inter-segment

From external customers

Processing - as restated (1)

Total for the three months ended September 30, 2020 - as restated

Processing - as restated

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

Processing - as restated

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

In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited (“FIHRST”) for $ 11.7 million (ZAR 172.2 million).

The transaction closed in December 2019.

FIHRST was deconsolidated following the closing of the transaction.

Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings.

The table below presents the impact of the deconsolidation of FIHRST and the calculation of the net gain recognized on deconsolidation:

Fair value of consideration received

carrying value of FIHRST, comprising

Cash and cash equivalents

Accounts receivable, net

Property, plant and equipment, net

Goodwill (Note 7)

Intangible assets, net

Deferred income taxes assets

Accounts payable

Other payables

Income taxes payable

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

Settlement assets

Settlement liabilities

Gain recognized on disposal, before tax

Taxes related to gain recognized on disposal, comprising:

Capital gains tax

Release of valuation allowance related to capital losses previously unutilized (1)

Transaction costs

Gain recognized on disposal, after tax

(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but not utilized.

A portion of these unutilized capital losses was utilized as a result of the disposal of FIHRST and, therefore, the equivalent portion of the valuation allowance created was released.

The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023.

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.

Accounts receivable, net and other receivables and finance loans receivable, net

Accounts receivable, net and other receivables

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

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

September 30,

Accounts receivable, trade, net

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Charged to statement of operations

Deconsolidation

Foreign currency adjustment

1 unchanged sentence

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

Current portion of total held to maturity investments

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

Other receivables

Total accounts receivable, net and other receivables

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.

The Company received $ 0.3 million on September 30, 2020, for total receipts of $ 6.0 million.

Current portion of amount outstanding related to sale of interest in Bank Frick represents the amount due by the purchaser related to the sale of Bank Frick.

The Company received the first scheduled repayment of $ 7.5 million in October 2021 and the remaining amount of $ 3.9 million is due in July 2022.

The loan provided to Carbon was scheduled to be repaid before June 30, 2020, however, Carbon requested a payment holiday as a result of the impact of the COVID-19 pandemic on its business.

The parties had not agreed new repayment terms as of September 30, 2021.

However, the Company acknowledges the unexpected and ongoing challenges facing Carbon and determined in June 2021 to create an allowance for doubtful loans receivable due to these circumstances and ongoing consolidated losses incurred by Carbon.

Investment in 7.625 % of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625 % notes represents the investment in a note which matures in August 2022.

The carrying value as of each of September 30, 2021 and June 30, 2021, respectively was $ 0 (nil).

The note is included in other long-term assets as of June 30, 2021 (refer to Note 5).

Other receivables include prepayments, deposits and other receivables.

Contractual maturities of held to maturity investments

Summarized below is the contractual maturity of the Company’s held to maturity investment as of September 30, 2021:

Estimated fair value (1)

Due in one year or less

Due in one year through five years (2)

Due in five years through ten years

Due after ten years

(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.

(2) The cost basis is zero ($ 0.0 million).

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

Finance loans receivable, net

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

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

September 30,

Microlending finance loans receivable, net

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Foreign currency adjustment

Working capital finance loans receivable, gross

Allowance for doubtful finance loans receivable, end of period

Beginning of period

Total accounts receivable, net

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

Finance loans receivable, net (continued)

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.

The customer is engaged in bankruptcy proceedings.

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 loans receivable against the outstanding receivable.

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

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

September 30,

Finished goods

Finished goods subject to sale restrictions

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

As of September 30, 2021 and June 30, 2021, respectively finished goods includes $ 15.4 million and $ 16.5 million of Cell C airtime inventory that was previously classified as finished goods subject to sale restrictions.

In support of Cell C’s liquidity position, the Company has limited the resale of this airtime to its own distribution channels until such time as Cell C’s recapitalisation process is concluded.

Fair value of financial instruments

13 unchanged sentences

As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.

Fair value of financial instruments (continued)

Interest rate risk

1 unchanged sentence

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

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

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, 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 March 31, 2021 valuation and the period ended December 31, 2024 for the June 30, 2020 valuation.

The Company incorporates the payments under Cell C’s lease liabilities into the cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period.

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

Fair value of financial instruments (continued)

1 unchanged sentence

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:

The following key valuation inputs were used as of September 30, 2021 and June 30, 2021:

Weighted Average Cost of Capital ("WACC"):

4 unchanged sentences

Minority discount:

Net adjusted external debt - March 31, 2021:

Net adjusted external debt - September 30, 2021:

ZAR 11.5 billion ($ 0.8 billion), no lease liabilities included

Net adjusted external debt - June 30, 2021:

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

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

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

ZAR 2.9 billion ($ 167.3 million)

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

(1) translated from ZAR to U.S.

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

dollars at exchange rates applicable as of September 30, 2021.

(2) translated from ZAR to U.S.

dollars at exchange rates applicable as of June 30, 2021.

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:

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 4.2% increase and 3.2% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on September 30, 2021, all amounts translated at exchange rates applicable as of September 30, 2021:

Sensitivity for fair value of Cell C investment

2 unchanged sentences

EBITDA margin

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 fair value of the Cell C shares as of September 30, 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.

2 unchanged sentences

These foreign exchange contracts are over-the-counter derivative transactions.

All of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better.

Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better.

The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2).

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 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:

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

The Company had no outstanding foreign exchange contracts as of September 30, 2021.

The Company’s outstanding foreign exchange contracts as of June 30,2021, were as follows:

Notional amount ('000)

July 02, 2021

Fair value of financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 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, 2021, according to the fair value hierarchy:

7 unchanged sentences

Total assets at fair value

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:

There have been no transfers in or out of Level 3 during the three months ended September 30, 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 months ended September 30, 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 three months ended September 30, 2021:

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of March 31, 2021

Balance as of September 30, 2021

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

dollar on the carrying value.

Fair value of financial instruments (continued)

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of March 31, 2020

Balance as of September 30, 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 March 31, 2021, and June 30, 2020, was as follows:

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

September 30,

Finbond Group Limited (“Finbond”)

Carbon Tech Limited (“Carbon”)

Revix (“Revix”)

SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)

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 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).

As of September 30, 2021, the Company owned 268,820,933 shares in Finbond representing approximately 31.5 % of its issued and outstanding ordinary shares.

Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 30, 2021, the last trading day of the month, was ZAR 1.40 per share.

The market value, using the September 30, 2021, closing price, of the Company’s holding in Finbond on September 30, 2021, was ZAR 376.3 million ($ 24.9 million translated at exchange rates applicable as of September 30, 2021).

Impairment of investment in Finbond during the three months ended September 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 that reporting period.

6 unchanged sentences

There is limited trading in Finbond shares on the JSE because it has three shareholders that own approximately 90 % of its issued and outstanding shares between them.

The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15 % to the September 30, 2020, Finbond closing price of $ 1.04 .

The Company performed a further impairment assessment of its holding in Finbond as of December 31, 2020, following a modest decline in its market price during the quarter ended December 31, 2020.

The Company recorded an impairment loss of $ 0.8 million during the quarter ended December 31, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment).

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 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 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 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 nine months ended March 31, 2021:

The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15 % to the September 30, 2020, Finbond closing price of ZAR 1.04 .

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the three months ended September 30, 2021:

Investment in equity

1 unchanged sentence

Stock-based compensation

Comprehensive (loss) income:

Other comprehensive income

Equity accounted (loss) earnings

Share of net (loss) income

Comprehensive loss:

Other comprehensive loss

Equity accounted loss

Share of net loss

Dividends received

Disposal of equity-accounted investment

Foreign currency adjustment (2)

Balance as of March 31, 2021

Investment in loans:

Balance as of June 30, 2020

Loans granted

Allowance for doubtful loans

Foreign currency adjustment (2)

Balance as of March 31, 2021

Balance as of September 30, 2021

Carrying amount as of :

June 30, 2021

March 31, 2021

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

(2) The foreign currency adjustment represents the effects of the fluctuations of the Swiss franc, ZAR, Nigerian naira and Namibian dollar, against the U.S.

September 30, 2021

(1) Includes Carbon and SmartSwitch Namibia.

(2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR, Nigerian naira and Namibian dollar, against the U.S.

dollar on the carrying value.

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

Other long-term assets

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

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

September 30,

Total equity investments

5 unchanged sentences

Long-term portion of amount due related to sale of interest in Bank Frick (3)

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

Policy holder assets under investment contracts (Note 7)

2 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)

Other long-term assets (continued)

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.

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:

(2) The note is included in accounts receivable, net and other receivables as of September 30, 2021 (refer to Note 2).

(3) Long-term portion of amount due related to sale of interest in Bank Frick as of June 30, 2021, represents the amount due by the purchaser in July 2022 and is included in accounts receivable, net, and other receivables as of September 30, 2021 (refer to Note 2).

The Company did not identify any observable price changes in orderly transactions for similar or identical equity securities issued by MobiKwik during the three months ended September 30, 2021.

In October 2021, the Company converted its 310,781 shares of compulsorily convertible cumulative preferences shares to 6,215,620 equity shares in anticipation of MobiKwik’s initial public offering.

The Company’s investment percentage remained unchanged following the conversion.

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of September 30, 2021:

Unrealized holding

4 unchanged sentences

Held to maturity:

Investment in Cedar Cellular notes

Investment in Cedar Cellular notes (Note 2)

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of June 30, 2021:

6 unchanged sentences

Investment in Cedar Cellular notes

Contractual maturities of held to maturity investments

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

Estimated fair value (1)

Due in one year or less

Due in one year through five years (2)

Due in five years through ten years

Due after ten years

(2) The cost basis is zero ($0.0 million).

Goodwill and intangible assets, net

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

Summarized below is the movement in the carrying value of goodwill for the three months ended September 30, 2021:

Accumulated impairment

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of March 31, 2021

Balance as of September 30, 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 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 March 31, 2021

Balance as of September 30, 2021

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

2 unchanged sentences

Carrying value and amortization of intangible assets

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

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

As of September 30, 2021

As of June 30, 2021

7 unchanged sentences

Customer relationships

Software and unpatented

Software and unpatented technology

Total finite-lived intangible assets

Indefinite-lived intangible assets:

Financial institution licenses

Total indefinite-lived intangible assets

Total intangible assets

Goodwill and intangible assets, net (continued)

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.

Aggregate amortization expense on the finite-lived intangible assets for each of the three months ended September 30, 2021 and 2020, was approximately $ 0.1 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30, 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 nine months ended March 31, 2021:

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the three months ended September 30, 2021:

Reinsurance Assets (1)

4 unchanged sentences

Foreign currency adjustment (3)

Balance as of March 31, 2021

Balance as of September 30, 2021

(1) Included in other long-term assets (refer to Note 5);

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 nine months ended March 31, 2021:

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the three months ended September 30, 2021:

Investment contracts (2)

3 unchanged sentences

Foreign currency adjustment (3)

Balance as of March 31, 2021

Balance as of September 30, 2021

(1) Included in other long-term assets (refer to Note 5);

3 unchanged sentences

Refer to Note 11 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021, for additional information regarding its borrowings.

July 2017 Facilities, as amended, comprising long-term borrowings (all repaid) and a short-term facility (Facility E)

Available short-term facility - Facility E

On August 2, 2021, Net1 SA and RMB entered into a Letter of Amendment to increase Facility E from ZAR 1.2 billion to ZAR 1.4 billion ($ 92.6 million, translated at exchange rates applicable as of September 30, 2021).

As at September 30, 2021, the Company had utilized approximately ZAR 0.8 billion ($ 51.6 million) of this overdraft facility.

This overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s ATMs is considered restricted cash.

The prime rate on September 30, 2021, was 7.0 %.

Nedbank facility, comprising short-term facilities

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 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.

As of September 30, 2021, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 406.6 million ($ 26.9 million).

The credit facility comprises an overdraft facility of up to ZAR 250.0 million ($ 16.5 million), which may only be used to fund mobile ATMs and indirect and derivative facilities of up to ZAR 156.6 million ($ 10.4 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.

These funds, of ZAR 156.6 million ($ 10.4 million translated at exchange rates applicable as of September 30, 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 September 30, 2021.

As of September 30, 2021, the interest rate on the overdraft facility was 5.9 %.

As of September 30, 2021 and June 30, 2021, the Company had utilized approximately ZAR 156.6 million ($ 10.4 million) and ZAR 156.6 million ($ 10.9 million), respectively, of its indirect and derivative facilities of ZAR 156.6 million (June 30, 2021:

ZAR 156.6 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 19).

Movement in short-term credit facilities

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

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

Short-term facilities available as of September 30, 2021

Overdraft restricted as to use for ATM funding only

5 unchanged sentences

Foreign currency adjustment (1)

Balance as of March 31, 2021

Balance as of September 30, 2021

Restricted as to use for ATM funding only

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of March 31, 2021 (2)

Balance as of September 30, 2021 (2)

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

(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 March 31, 2021, and June 30, 2020:

Summarized below is the breakdown of other payables as of September 30, 2021, and June 30, 2021:

September 30,

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 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:

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 as of September 30, 2021 and 2020, respectively:

September 30,

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 March 31, 2021:

Three months ended

March 31, 2021

Accumulated foreign currency translation reserve

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 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 March 31, 2020:

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30, 2021:

Three months ended

March 31, 2020

Accumulated foreign currency translation reserve

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 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

September 30, 2021

Accumulated foreign currency translation reserve

Balance as of July 1, 2021

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 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

Balance as of September 30, 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 September 30, 2020:

Three months ended

September 30, 2020

Accumulated foreign currency translation reserve

Balance as of July 1, 2020

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)

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

Movement in foreign currency translation reserve

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).

Balance as of September 30, 2020

There were no reclassifications from accumulated other comprehensive loss to net (loss) income during the three months ended September 30, 2021 and 2020.

Stock-based compensation

1 unchanged sentence

Stock option and restricted stock activity

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

The following table summarizes stock option activity for the three months ended September 30, 2021 and 2020:

Number of shares

4 unchanged sentences

Outstanding - June 30, 2021

Granted - August 2020

Granted - November 2020

Outstanding - March 31, 2021

Outstanding - September 30, 2021

Outstanding - June 30, 2020

Granted – October 2019

Outstanding - March 31, 2020

Granted – August 2020

Outstanding - September 30, 2020

No stock options were awarded during the three months ended September 30, 2021.

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.

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.

Employees forfeited 85,000 stock options during the three months ended September 30, 2021.

During the three months ended September 30, 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.

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 nine months ended March 31, 2021 and 2020:

Nine months ended

The table below presents the range of assumptions used to value stock options granted during the three months ended September 30, 2020:

Three months ended

September 30,

Expected volatility

Expected dividends

Expected life (in years)

3 unchanged sentences

Options (continued)

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

The following table presents stock options vested and expected to vest as of September 30, 2021:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Vested and expecting to vest - March 31, 2021

Vested and expecting to vest - September 30, 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 March 31, 2021:

The following table presents stock options that are exercisable as of September 30, 2021:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

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.

Exercisable - September 30, 2021

During the three months ended September 30, 2021 and 2020, respectively, 231,333 and , 156333 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 nine months ended March 31, 2021 and 2020:

The following table summarizes restricted stock activity for the three months ended September 30, 2021 and 2020:

Number of shares of restricted stock

1 unchanged sentence

Non-vested – June 30, 2021

Granted – July 2021

Granted – August 2021

Non-vested – September 30, 2021

Non-vested – June 30, 2020

Vested – August 2020

Vested – September 2020 - accelerated vesting

Non-vested – March 31, 2021

Non-vested – June 30, 2019

Granted – February 2020

Vested – March 2020

Vested – March 2020 - accelerated vesting

Non-vested – March 31, 2020

Non-vested – September 30, 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.

Restricted stock (continued)

On June 30, 2021, the Company entered into employment agreements with Mr.

Meyer, under which Mr.

Meyer was appointed Group Chief Executive Officer of the Company effective July 1, 2021.

Meyer was awarded 117,304 shares of restricted stock on July 1, 2021, which were subject to time-based vesting and vest in full on June 30, 2024, subject to Mr.

Meyer’s continued service to the Company through June 30, 2024.

In addition, under the terms of Mr.

Meyer’s engagement, the Company’s Remuneration Committee also awarded Mr.

Meyer 117,304 shares of restricted stock which include performance conditions and which only vest on June 30, 2024 if the performance conditions are met and Mr.

Meyer remains employed with the Company through June 30, 2024.

Vesting of half of these awards, or 58,652 shares of restricted stock, is subject to the Company achieving its three-year financial services plan during the specific measurement period from June 30, 2021, to June 30, 2024, and the other half is subject to share price growth targets, and only vest if the Company’s share price is $ 8.14 or higher on June 30, 2024.

In August 2021, the Company awarded 44,986 shares of restricted stock to an employee which have time-based vesting conditions.

No shares of restricted stock vested during the three months ended September 30, 2021.

During the three months ended September 30, 2020, 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 , 66800 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 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)

The 480,200 shares of restricted stock that were forfeited during the three months ended September 30, 2020, included 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company.

Stock-based compensation charge and unrecognized compensation cost

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 March 31, 2021

Stock-based compensation charge

Total - three months ended March 31, 2021

Three months ended March 31, 2020

Stock-based compensation charge

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:

The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2021 and 2020, of $ 0.3 million and $0.4 million, respectively, which comprised:

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

Allocated to selling, general and administration

Nine months ended March 31, 2021

Three months ended September 30, 2021

Stock-based compensation charge

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

Total - nine months ended March 31, 2021

Nine months ended March 31, 2020

Total - three months ended September 30, 2021

Three months ended September 30, 2020

Stock-based compensation charge

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

Total - nine months ended March 31, 2020

Total - three months ended September 30, 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 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.

As of September 30, 2021, the total unrecognized compensation cost related to stock options was approximately $ 0.6 million, which the Company expects to recognize over approximately two years .

As of September 30, 2021, the total unrecognized compensation cost related to restricted stock awards was approximately $ 2.2 million, which the Company expects to recognize over approximately three years .

As of September 30, 2021, and June 30, 2021, respectively, the Company recorded a deferred tax asset of approximately $ 0.4 million and $ 0.1 million, related to the stock-based compensation charge recognized related to employees of Net1.

As of September 30, 2021, and June 30, 2021, respectively, the Company recorded a valuation allowance of approximately $ 0.4 million and $ 0.1 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 March 31, 2021 and 2020.

There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended September 30, 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 March 31, 2021 and 2020 , 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 September 30, 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.

1 unchanged sentence

Stock options are included in the calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities, as the stock options do not contain non-forfeitable dividend rights.

The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in August 2017, March 2018, May 2018, September 2018 and February 2020, as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss) earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied.

The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in May 2018, September 2018, February 2020, May 2021, July 2021 and August 2021 as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss) earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied.

The vesting conditions for all awards made are discussed in Note 16 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021.

(Loss) Earnings per share (continued)

The following table presents net loss attributable to Net1 and the share data used in the basic and diluted (loss) earnings per share computations using the two-class method:

Three months ended

Nine months ended

(in thousands except

September 30,

(in thousands except

per share data)

Net loss attributable to Net1

Undistributed (loss) earnings

Percent allocated to common shareholders

(Calculation 1)

Percent allocated to common shareholders (Calculation 1)

Numerator for (loss) earnings per share:

2 unchanged sentences

weighted-average common shares outstanding

Effect of dilutive securities:

Stock options

Denominator for diluted (loss) earnings per share:

4 unchanged sentences

Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B)

Percent allocated to common shareholders

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.

Percent allocated to common shareholders (A) / (B)

(Loss) Earnings per share (continued)

Options to purchase 270,832 shares of the Company’s common stock at prices ranging from $ 6.20 to $ 11.23 per share were outstanding during the three months ended September 30, 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 1,231,617 shares of the Company’s common stock at prices ranging from $ 3.07 to $ 11.23 per share were outstanding during the three months ended September 30, 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 September 30, 2021.

Supplemental cash flow information

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

The following table presents supplemental cash flow disclosures for the three months ended September 30, 2021 and 2020:

Three months ended

Nine months ended

September 30,

Cash received from interest

1 unchanged sentence

Cash paid for income taxes

Disaggregation of cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash included on the Company’s unaudited condensed consolidated statement of cash flows includes restricted cash related to cash withdrawn from the Company’s various debt facilities to fund ATMs.

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 March 31, 2021 and 2020, and June 30, 2020:

March 31, 2021

March 31, 2020

June 30, 2020

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash

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,

The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 2021 and 2020:

Three months ended

September 30,

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 March 31, 2021:

Financial services

Processing fees

Rest of world

Technology products

Telecom products and services

Lending revenue

Insurance revenue

Account holder fees

Total revenue, derived from the following geographic locations

Rest of world

As discussed in Note 18, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures during the three months ended September 30, 2020.

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 March 31, 2020:

Financial services

(as restated)

(as restated) (1)

Processing fees

South Africa (1)

Rest of world

Technology products

Telecom products and services

Lending revenue

Insurance revenue

Account holder fees

Total revenue, derived from the following geographic locations

Rest of world

(1) Processing fees South Africa and Total column has been restated for the error described in Note 1.

Revenue recognition (continued)

Disaggregation of revenue (continued)

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:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 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 nine months ended March 31, 2020:

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 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 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’s operating lease expense during each of the three months ended September 30, 2021 and 2020 was $ 0.9 million, respectively.

The Company does not have any significant leases that have not commenced as of September 30, 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 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.

The Company’s short-term lease expense during the three months ended September 30, 2021 and 2020 , was $ 1.3 million and $ 1.1 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 March 31, 2021 and June 30, 2020 :

Operating leases:

Operating lease right-of-use asset

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

September 30,

Right of use assets obtained in exchange for lease obligations:

Weighted average remaining lease term (years)

Weighted average discount rate (percent)

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

The maturities of the Company’s operating lease liabilities as of September 30, 2021, are presented below:

September 30,

Maturities of operating lease liabilities

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

2022 (for September 30, 2021 excluding three months to September 30, 2021)

Total undiscounted operating lease liabilities

4 unchanged sentences

Operating segments

Change to internal reporting structure and restatement of previously reported information

During September 2020, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures following the Company’s decisions to focus primarily on the South African market and to exit its operating activities performed through IPG.

The chief operating decision maker has decided to analyze the Company’s operating performance primarily based on reported information for statutory entities, statutory groups, clustered statutory entities or clustered statutory groups, with certain reallocations, based on the activity of the reporting unit.

Previously reported information has been restated.

Reallocation of certain activities among operating segments

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 nine months ended March 31, 2021, reflect these changes to the operating segments.

Operating segments

4 unchanged sentences

The Company’s reportable segments offer different products and services and require different resources and marketing strategies but share the Company’s assets.

Operating segments (continued)

The Processing segment includes fees earned by the Company from processing activities performed for its customers and revenue generated from the distribution of prepaid airtime.

3 unchanged sentences

The Company also earns fees on transactions performed by other banks’ customers utilizing its ATM, POS or bill payment infrastructure.

The Processing segment includes IPG’s processing activities.

The Processing segment includes IPG’s processing activities for fiscal 2021 as IPG’s activities were ceased in fiscal 2021.

The Financial services segment includes activities related to the provision of financial services to customers, including a bank account, loans and insurance products.

6 unchanged sentences

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 March 31, 2021 and 2020, is as follows:

Revenue (as restated) (1)

Reportable Segment

Inter-segment

From external customers

Financial services

Total for the three months ended March 31, 2021

Processing (1)

Financial services

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:

Operating segments (continued)

The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended September 30, 2021 and 2020, is as follows:

Revenue (as restated) (1)

3 unchanged sentences

Financial services

Total for the nine months ended March 31, 2021

Total for the three months ended September 30, 2021

Processing (1)

Financial services

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.

Total for the three months ended September 30, 2020

(1) Processing for the three months ended September 30, 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.

The Company evaluates segment performance based on segment operating income before acquisition-related intangible asset amortization which represents operating income before acquisition-related intangible asset amortization and expenses allocated to Corporate/Eliminations, all under GAAP.

Operating segments (continued)

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:

The reconciliation of the reportable segments measures of profit or loss to loss before income tax expense (benefit) for the three months ended September 30, 2021 and 2020, is as follows:

Three months ended

Nine months ended

September 30,

Reportable segments measure of profit or loss

1 unchanged sentence

Corporate/Eliminations

Change in fair value of equity securities

Gain on disposal of FIHRST

Loss on disposal of equity-accounted investment - Bank Frick

Loss on disposal of equity-accounted investment

Interest income

Interest expense

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:

Loss before income tax expense (benefit)

Operating segments (continued)

The following tables summarize segment information that is prepared in accordance with GAAP for the three months ended September 30, 2021 and 2020:

Three months ended

Nine months ended

(as restated) (1)

September 30,

(as restated) (1)

12 unchanged sentences

Corporate/Eliminations

(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)

(1) Revenues-Processing-All others for the three months ended September 30, 2020 have been restated for the error described in Note 1.

The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per segment as all of the significant assets are used in the operations of all, rather than any one, of the segments.

5 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 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.

For the three months ended September 30, 2021, the Company’s effective tax rate was impacted by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by 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.

Income tax (continued)

Income tax in interim periods (continued)

For the three months ended September 30, 2020, the Company’s effective tax rate was impacted by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment, 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

Uncertain tax positions

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 had no significant uncertain tax positions during the three months ended September 30, 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 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.

As of September 30, 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, 2017.

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 ($ 10.6 million, translated at exchange rates applicable as of March 31, 2021) thereby utilizing part of the Company’s short-term facilities.

Nedbank has issued guarantees to these third parties amounting to ZAR 156.6 million ($ 10.4 million, translated at exchange rates applicable as of September 30, 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)

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 Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of September 30, 2021.

The maximum potential amount that the Company could pay under these guarantees is ZAR 156.6 million ($ 10.4 million, translated at exchange rates applicable as of September 30, 2021).

As discussed in Note 8, the Company has ceded and pledged certain bank accounts to Nedbank as security for these guarantees with an aggregate value of ZAR 156.6 million ($ 10.4 million translated at exchange rates applicable as of September 30, 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 8.

Contingencies

The Company is subject to a variety of other insignificant claims and suits that arise from time to time in the ordinary course of business.

The Company is subject to a variety of insignificant claims and suits that arise from time to time in the ordinary course of business.

Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Discontinued operations

The Company determined that, following the disposal of its controlling interest, Net1 Korea (in fiscal 2020) and DNI (in fiscal 2019) should be classified as discontinued operations because the disposal of these businesses represented a strategic shift that would have a major effect on the Company’s operations and financial results.

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 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

Nine months ended

March 31, 2020

Unaudited condensed consolidated statement of operations

Discontinued:

Cost of goods sold, IT processing, servicing and support

Selling, general and administration

Depreciation and amortization

Operating income

Interest income

Interest expense

Net income before tax

Income tax expense

Net income from discontinued operations

Unaudited condensed consolidated statement of cash flows

Discontinued:

Total net cash provided by operating activities

Total net cash used in investing activities

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 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

Nine months ended

March 31, 2020

Revenue generated from transactions with DNI

Expenses incurred related to transactions with DNI

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

Related party transactions

Disgorgement proceeds from VCP

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 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

Agreement to acquire a controlling interest in the Connect Group

On October 31, 2021, the Company entered into a Sale of Shares Agreement (the “Sale Agreement”) with the Sellers (as defined in the Sale Agreement), Cash Connect Management Solutions Proprietary Limited (“CCMS”), Ovobix (RF) Proprietary Limited (“Ovobix”), Luxiano 227 Proprietary Limited (“Luxiano”) and K2021477132 (South Africa) Proprietary Limited (“K2021” and together with CCMS, Ovobix and Luxiano, the “Target Companies”).

Pursuant to the Sale Agreement, and subject to its terms and conditions, the Company’s wholly-owned subsidiary, Net1 SA, agreed to acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in the Target Companies.

The Company has guaranteed the performance of Net1 SA’s obligations under the Sale Agreement.

Subsequent events (continued)

Subject to the terms and conditions set forth in the Sale Agreement, at the closing of the transaction, the Sellers shall receive consideration of ZAR 3,683,559,419 , after deducting an aggregate amount of ZAR 175,860,000 representing awards to certain members of management, subject to certain adjustments.

The ZAR 3,683,559,419 includes 3,065,883 shares of common stock to be issued in three tranches on each of the first, second and third anniversaries of the closing.

The Sale Agreement also includes a purchase price escalator that is intended to reflect an assumed increase in Enterprise Value (as defined in the Sale Agreement) from March 1, 2021, through closing at the rate of 3.05 % per annum.

The Sale Agreement includes customary covenants from the Sellers, including (i) to conduct the business in the ordinary course during the period between the execution of the Sale Agreement and the closing of the transactions contemplated thereby, and (ii) not to engage in certain kinds of transactions during such period.

The closing of the transaction is subject to customary closing conditions, including (i) approval from the competition authorities of South Africa, Namibia and Botswana, (ii) exchange control approval from the financial surveillance department of the South African Reserve Bank, and (iii) obtaining certain third-party consents.

In addition, the closing of the transaction is subject to entry into definitive agreements by Net1 SA for an aggregate of ZAR 2.35 billion in debt financing to be provided by Rand Merchant Bank and satisfying the conditions precedent for funding thereunder.

The Company signed non-binding term sheets for a ZAR 2.35 billion ($ 154.4 million) debt package with Rand Merchant Bank.

These include a credit enhancement mechanism of ZAR 350 million ($ 23.0 million), which will be provided by investment funds managed by the Company’s largest shareholder, Value Capital Partners (Pty) Ltd, on commercially agreed terms, which include a contingent subscription for new shares.

If certain conditions related to Net1 SA’s debt financing are not satisfied by their respective due dates for fulfilment for any reason, Net1 SA agreed to pay to the Sellers an amount of ZAR 50,000,000 .

If certain undertakings by the Sellers are not completed by their respective due dates for fulfilment for any reason and the Sale Agreement is terminated, the Seller responsible for such failure will pay to Net1 SA an amount of ZAR 50,000,000 .

The Sale Agreement may be terminated under certain customary and limited circumstances at any time prior to the closing of the transactions contemplated thereby.

On October 29, 2021, the USD/ZAR exchange rate was $1.00 / ZAR 15.22 .

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