What changed in this filing

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Item 1. Financial Statements

2022-02-09 compared with 2021-11-08 · 438 added, 260 removed, 679 unchanged (51% 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 - September:

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

$ 34,643 June:

21 unchanged sentences

200,000,000 with $ 0.001 par value;

Issued and outstanding shares, net of treasury - September:

Issued and outstanding shares, net of treasury - December:

57,657,172 June:

16 unchanged sentences

Three months ended

September 30,

Six months ended

(In thousands, except per share data)

REVENUE (Note 15)

2 unchanged sentences

Depreciation and amortization

Transaction costs related to Connect Group acquisition

OPERATING LOSS

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 4 and 5)

UNREALIZED LOSS RELATED TO FAIR VALUE ADJUSTMENT TO CURRENCY OPTIONS (Note 4)

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 5)

INTEREST INCOME

INTEREST EXPENSE

LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)

INCOME TAX EXPENSE (BENEFIT) (Note 18)

LOSS BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE (Note 18)

NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS

LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

NET LOSS ATTRIBUTABLE TO NET1

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

1 unchanged sentence

Diluted loss attributable to Net1 shareholders

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

See Notes to Unaudited Condensed Consolidated Financial Statements

2 unchanged sentences

Three months ended

September 30,

Six months ended

(In thousands)

Other comprehensive (loss) income, net of taxes

2 unchanged sentences

Total other comprehensive (loss) income, net of taxes

Comprehensive loss

Add comprehensive loss attributable to non-controlling interest

Comprehensive loss attributable to Net1

Comprehensive (loss) income

Comprehensive (loss) income attributable to Net1

See Notes to Unaudited Condensed Consolidated Financial Statements

12 unchanged sentences

Redeemable common stock

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

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

Balance – October 1, 2020

( 24,891,292 )

Stock-based compensation charge (Note 12)

Reversal of stock-based compensation charge (Note 12)

Other comprehensive income (Note 11)

Balance – December 31, 2020

( 24,891,292 )

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

Balance – July 1, 2020

2 unchanged sentences

Reversal of stock-based compensation charge (Note 12)

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

Stock-based compensation charge related to equity-accounted investment

Proceeds from disgorgement of shareholders' short-swing profits

Other comprehensive income (Note 11)

Balance – September 30, 2020

Balance – December 31, 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 September 30, 2021 (dollar amounts in thousands)

Balance – July 1, 2021

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

Balance – October 1, 2021

( 24,891,292 )

Restricted stock granted (Note 12)

Exercise of stock option (Note 12)

Stock-based compensation charge (Note 12)

Reversal of stock-based compensation charge (Note 12)

Other comprehensive loss (Note 11)

Balance – December 31, 2021

( 24,891,292 )

For the six months ended December 31, 2021 (dollar amounts in thousands)

Balance – July 1, 2021

( 24,891,292 )

Restricted stock granted

Exercise of stock option (Note 12)

Stock-based compensation charge (Note 12)

Reversal of stock-based compensation charge (Note 12)

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

Other comprehensive loss (Note 11)

Balance – September 30, 2021

Balance – December 31, 2021

( 24,891,292 )

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.

1 unchanged sentence

Three months ended

September 30,

Six months ended

(In thousands)

Cash flows from operating activities

Depreciation and amortization

Impairment loss

Impairment loss (Note 6)

Movement in allowance for doubtful accounts receivable

1 unchanged sentence

Movement in allowance for doubtful loans to equity-accounted investments

Change in fair value of equity securities (Note 4 and 5)

Fair value adjustment related to financial liabilities

Unrealized loss related to fair value adjustment to currency options (Note 4)

Interest payable

Profit on disposal of property, plant and equipment

Loss on disposal of equity-accounted investment (Note 5)

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

Stock-based compensation charge (Note 12)

Dividends received from equity accounted investments

Decrease (Increase) in accounts receivable and finance loans receivable

Decrease in inventory

Decrease in accounts payable and other payables

Increase (Decrease) in taxes payable

Decrease in deferred taxes

(Increase) Decrease in accounts receivable and finance loans receivable

(Increase) Decrease in inventory

Increase (Decrease) in accounts payable and other payables

(Decrease) Increase in taxes payable

Increase (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 Net1 Korea

Proceeds from disposal of equity-accounted investment - Bank Frick, net of expenses (Note 5)

Proceeds from disposal of Net1 Korea, net of cash disposed

Proceeds from disposal of DNI as equity-accounted investment

Loan to equity-accounted investment

Loan to equity-accounted investment (Note 5)

Repayment of loans by equity-accounted investments

Net change in settlement assets

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Cash flows from financing activities

Proceeds from exercise of stock options

Proceeds from bank overdraft (Note 8)

2 unchanged sentences

Net change in settlement obligations

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

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

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

Cash, cash equivalents and restricted cash – beginning of period

3 unchanged sentences

Notes to the Unaudited Condensed Consolidated Financial Statements

for the three months ended September 30, 2021 and 2020

for the three and six months ended December 31, 2021 and 2020

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

4 unchanged sentences

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

The results of operations for the three months ended September 30, 2021 and 2020, are not necessarily indicative of the results for the full year.

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

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

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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, 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.

5 unchanged sentences

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.

The South African government commenced its vaccination program in early calendar 2021, and the latest statistics indicate that around 40% of the population is fully vaccinated.

During the recent fourth wave, which started in December 2021, South Africa remained on adjusted level 1.

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

11 unchanged sentences

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 believes that these losses suffered through destruction of property will be fully covered under its various insurance policies, through the government backed SASRIA cover, and received ZAR 26.0 million from SASRIA during the three and six months ended December 31, 2021.

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 banks’ 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.

million ($ 0.4 million) during the six months ended December 31, 2021, as a result of this decision.

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

Recent accounting pronouncements adopted

9 unchanged sentences

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

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

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

15 unchanged sentences

Accounts receivable, net and other receivables

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,

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

Accounts receivable, trade, net

11 unchanged sentences

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 related to the sale of Bank Frick.

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

The loan of $ 3.0 million 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 to new repayment terms as of December 31, 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 of $ 3.0 million due to these circumstances and ongoing operating 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 carrying value as of each of December 31, 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).

1 unchanged sentence

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:

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

Estimated fair value (1)

7 unchanged sentences

Finance loans receivable, net

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

September 30,

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

Microlending finance loans receivable, net

5 unchanged sentences

Foreign currency adjustment

Total accounts receivable, net

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

September 30,

Total finance loans receivable, net

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

Finished goods

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.

As of December 31, 2021 and June 30, 2021, respectively finished goods includes $ 14.5 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.

15 unchanged sentences

Fair value of financial instruments (continued)

Risk management (continued)

Interest rate risk

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

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

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

Weighted Average Cost of Capital ("WACC"):

4 unchanged sentences

Minority discount:

Net adjusted external debt - September 30, 2021:

Net adjusted external debt - December 31, 2021:

ZAR 11.5 billion ($ 0.7 billion), no lease liabilities included

2 unchanged sentences

(1) translated from ZAR to U.S.

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

dollars at exchange rates applicable as of December 31, 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 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:

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 December 31, 2021, all amounts translated at exchange rates applicable as of December 31, 2021:

Sensitivity for fair value of Cell C investment

2 unchanged sentences

EBITDA margin

The fair value of the Cell C shares as of September 30, 2021, represented 0 % of the Company’s total assets, including these shares.

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

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

Derivative transactions - Foreign exchange contracts

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts.

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies in respect of operational costs using foreign exchange contracts.

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

2 unchanged sentences

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 had no outstanding foreign exchange contracts as of December 31, 2021.

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

1 unchanged sentence

July 02, 2021

Derivative transactions - Foreign exchange option contracts

The Company holds a significant amount of U.S.

dollars and intends to use a portion of these funds to settle part of the purchase consideration related to the Connect Group acquisition.

The purchase consideration will be settled in ZAR.

Accordingly, the Company entered into foreign exchange option contracts with FirstRand Bank Limited acting through Rand Merchant Bank division (“RMB”) in November 2021 in order to manage the risk of currency volatility and to fix the ZAR amount to be utilized for part of the purchase consideration settlement.

These foreign exchange option contracts, also known as synthetic forwards, are over-the-counter derivative transactions (Level 2).

The Company purchased foreign currency put options and sold foreign currency call options at the same strike price.

The strike price of the synthetic forwards on the date of entering into the contracts was equal to the exchange rate of a traditional forward exchange contract at that time.

The Company expects to record a realized currency gain if the USD/ ZAR spot price on the maturity date is below the strike price because, as the holder of the put options, the Company would exercise the put option and receive a higher rate of exchange compared to the spot price.

The call options sold would be out-of-the-money on the maturity date and would expire unexercised.

On the other hand, the Company expects to incur a realized currency loss if the USD/ ZAR spot price on the maturity date is above the strike price because the put options would be out-of-the-money and would expire unexercised, but RMB would exercise its call options and the Company would be required to deliver USD at a lower ZAR rate than the spot price.

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:

Financial instruments

Derivative transactions - Foreign exchange option contracts (continued)

The Company has marked-to-market the synthetic forwards as of December 31, 2021, using a Black-Scholes option pricing model which determines the respective fair value of the options utilizing current market parameters, and recorded an unrealized loss of $ 2.4 million, which is included in the caption unrealized loss related to fair value adjustment to currency options in the Company’s unaudited condensed consolidated statements of operations for the three and six months ended December 31, 2021.

RMB’s long-term credit rating is “BB”.

The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value of the foreign exchange option contracts (Level 2).

The Company’s outstanding foreign exchange option contracts as of December 31, 2021, were as follows:

Notional amount ('000)

Purchased put options

February 24, 2022

Sold call options

February 24, 2022

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

Quoted Price in Active Markets for Identical Assets

6 unchanged sentences

Total assets at fair value

Foreign exchange options

Total liabilities 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 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:

There have been no transfers in or out of Level 3 during the three and six months ended December 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 six months ended December 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 six months ended December 31, 2021:

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of September 30, 2021

Balance as of December 31, 2021

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

dollar on the carrying value.

Fair value of financial instruments (continued)

Carrying value

Balance as at June 30, 2020

Balance as of June 30, 2020

Foreign currency adjustment (1)

Balance as of September 30, 2020

Balance as of December 31, 2020

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

9 unchanged sentences

Equity-accounted investments

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

September 30,

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

Finbond Group Limited (“Finbond”)

3 unchanged sentences

Equity-accounted investments (continued)

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.

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

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

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

The Company considered the combination of the slow-down in business activity and the lower share price as impairment indicators.

The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020.

The Company recorded an impairment loss of $ 16.8 million during the quarter ended September 30, 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).

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 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:

As of December 31, 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 December 31, 2021, the last trading day of the month, was ZAR 0.99 per share.

The market value, using the December 31, 2021, closing price, of the Company’s holding in Finbond on December 31, 2021, was ZAR 266.1 million ($ 16.7 million translated at exchange rates applicable as of December 31, 2021).

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

Investment in equity

7 unchanged sentences

Foreign currency adjustment (2)

Balance as of September 30, 2021

Balance as of December 31, 2021

Carrying amount as of :

June 30, 2021

September 30, 2021

December 31, 2021

(1) Includes Carbon and SmartSwitch Namibia.

3 unchanged sentences

Other long-term assets

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

September 30,

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

Total equity investments

Investment in 15 % of Cell C, at fair value (Note 4)

Investment in 12 % of MobiKwik

Investment in 10 % of MobiKwik (June 30, 2021:

Investment in 87.5 % of CPS (1)

6 unchanged sentences

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

(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.

(2) The note is included in accounts receivable, net and other receivables as of December 31, 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 from the purchaser in July 2022 and is included in accounts receivable, net, and other receivables as of December 31, 2021 (refer to Note 2).

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:

The Company’s investment percentage as of December 31, 2021, was 10.2 % following an issuance in December 2021, which the Company did not consider as an observable orderly transaction because it was made to an existing shareholder (i.e., a related party to MobiKwik), as well as the issuance of shares into an Employee Share Option Plan.

There was no change in the fair value of MobiKwik during the three and six months ended December 31, 2021.

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

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

The change in the fair value of MobiKwik during the three and six months ended December 31, 2020, of $ 15.1 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 six months ended December 31, 2020.

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

Unrealized holding

5 unchanged sentences

Investment in Cedar Cellular notes (Note 2)

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

Other long-term assets (continued)

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:

7 unchanged sentences

Goodwill and intangible assets, net

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

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

Accumulated impairment

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of September 30, 2021

Balance as of December 31, 2021

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

dollar on the carrying value.

Refer to Note 17 for additional information regarding changes to the Company’s reportable segments during the three months ended December 31, 2021.

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

Financial services

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of September 30, 2021

Balance as of December 31, 2021

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

dollar on the carrying value.

Goodwill and intangible assets, net (continued)

Intangible assets, net

Carrying value and amortization of intangible assets

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

As of September 30, 2021

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

As of December 31, 2021

As of June 30, 2021

9 unchanged sentences

Total finite-lived 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 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.

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

Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2021 and 2020, was approximately $ 0.1 million and $ 0.2 million, respectively.

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

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

Reinsurance Assets (1)

4 unchanged sentences

Foreign currency adjustment (3)

Balance as of September 30, 2021

Balance as of December 31, 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 three months ended September 30, 2021:

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

Investment contracts (2)

3 unchanged sentences

Foreign currency adjustment (3)

Balance as of September 30, 2021

Balance as of December 31, 2021

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

5 unchanged sentences

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.

As of December 31, 2021, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was ZAR 1.4 billion ($ 87.9 million, translated at exchange rates applicable as of December 31, 2021).

As of December 31, 2021, the Company had utilized approximately ZAR 0.8 billion ($ 48.0 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 %.

The interest rate on this facility is equal to the prime rate.

The prime rate on December 31, 2021, was 7.25 %, and increased to 7.50 % on January 28, 2022, following an increase in the South African repo rate.

Nedbank facility, comprising short-term facilities

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).

As of December 31, 2021, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 406.6 million ($ 25.5 million).

The credit facility comprises an overdraft facility of up to ZAR 250.0 million ($ 15.7 million), which may only be used to fund mobile ATMs and indirect and derivative facilities of up to ZAR 156.6 million ($ 9.8 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 Company has entered into cession and pledge agreements with Nedbank related to certain of its Nedbank credit facilities (the indirect and derivative 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 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:

These funds, of ZAR 156.6 million ($ 9.8 million translated at exchange rates applicable as of December 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 December 31, 2021.

As of December 31, 2021, the interest rate on the overdraft facility was 6.10 %, and increased to 6.35 %, on January 28, 2022, following an increase in the South African repo rate.

As of December 31, 2021 and June 30, 2021, the Company had utilized approximately ZAR 156.6 million ($ 9.8 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 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

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

Short-term facilities available as of December 31, 2021

Overdraft restricted as to use for ATM funding only

5 unchanged sentences

Foreign currency adjustment (1)

Balance as of September 30, 2021

Balance as of December 31, 2021

Restricted as to use for ATM funding only

Movement in utilized indirect and derivative

Movement in utilized indirect and derivative facilities:

Balance as of June 30, 2021 (2)

Foreign currency adjustment (1)

Balance as of September 30, 2021 (2)

Balance as of December 31, 2021 (2)

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

Other payables

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

September 30,

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

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 as of September 30, 2021 and 2020, respectively:

September 30,

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

Number of shares, net of treasury:

3 unchanged sentences

Accumulated other comprehensive loss

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

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

Three months ended

September 30, 2021

December 31, 2021

Accumulated foreign currency translation reserve

Balance as of July 1, 2021

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

Balance as of October 1, 2021

Movement in foreign currency translation reserve

Balance as of September 30, 2021

Balance as of December 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 September 30, 2020:

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

Three months ended

September 30, 2020

December 31, 2020

Accumulated foreign currency translation reserve

Balance as of October 1, 2020

Movement in foreign currency translation reserve

Balance as of December 31, 2020

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

Six months ended

December 31, 2021

Accumulated foreign currency translation reserve

Balance as of July 1, 2021

1 unchanged sentence

Movement in foreign currency translation reserve

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.

Balance as of December 31, 2021

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

Six months ended

December 31, 2020

Accumulated foreign currency translation reserve

Balance as of July 1, 2020

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

Movement in foreign currency translation reserve

Balance as of December 31, 2020

There were no reclassifications from accumulated other comprehensive loss to comprehensive (loss) income during the three and six months ended December 31, 2021 and 2020.

Stock-based compensation

1 unchanged sentence

Stock option and restricted stock activity

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

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

Number of shares

4 unchanged sentences

Outstanding - June 30, 2021

Outstanding - September 30, 2021

Outstanding - December 31, 2021

Outstanding - June 30, 2020

Granted – August 2020

Outstanding - September 30, 2020

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

Granted – November 2020

Outstanding - December 31, 2020

No stock options were awarded during the three and six months ended December 31, 2021.

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

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

1 unchanged sentence

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

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.

No stock options were forfeited during the three months ended December 31, 2021.

Employees forfeited 85,000 stock options during the six months ended December 31, 2021.

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

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

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.

The estimated expected volatility is calculated based on the Company’s 750 -day volatility.

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 three months ended September 30, 2020:

Three months ended

September 30,

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

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

Six months ended

Expected volatility

4 unchanged sentences

Options (continued)

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

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

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Vested and expecting to vest - September 30, 2021

Vested and expecting to vest - December 31, 2021

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

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

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

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Exercisable - September 30, 2021

During the three months ended September 30, 2021 and 2020, respectively, 231,333 and , 156333 stock options became exercisable.

Exercisable - December 31, 2021

During the three months ended December 31, 2021 and 2020, respectively, 145,015 and 181,333 stock options became exercisable.

During the six months ended December 31, 2021 and 2020, respectively, 376,348 and 337,666 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 three months ended September 30, 2021 and 2020:

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

Number of shares of restricted stock

1 unchanged sentence

Non-vested – June 30, 2021

Total granted

Granted – July 2021

Granted – August 2021

Non-vested – September 30, 2021

Granted – November and December 2021

Granted – December 2021

Total granted and vested - November and December 2021

Granted - November and December 2021

Vested - November and December 2021

Non-vested – December 31, 2021

Non-vested – June 30, 2020

1 unchanged sentence

Vested – September 2020 - accelerated vesting

Non-vested – September 30, 2020

Non-vested – December 31, 2020

Stock-based compensation (continued)

11 unchanged sentences

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 August 2021 and December 2021, the Company awarded 44,986 and 50,300 shares of restricted stock, respectively, to employees which have time and performance-based (market conditions related to share price performance) vesting conditions.

Upon joining the Company, each of Messrs.

Meyer and Lincoln C.

Mali, where entitled to receive an award of shares of restricted stock which were subject to them purchasing an agreed value of shares (“matching awards”) in the market during a prescribed period of time.

However, these executives were unable to purchase shares in the market during that period due to a Company-imposed insider-trading restriction placed on them.

On November 15, 2021, the Company amended the terms of these awards in order to put the executives into an economically equivalent position, as follows:

(i) assume that the executives would have purchased their agreed allocation within their first 30 days post commencement of employment had they not been embargoed;

(ii) require the executives to fulfill their agreed allocations within a short period following release of the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2021;

(iii) to the extent that the price per share actually paid is greater than the 30 -day volume-weighted average price (“VWAP”) in their respective first months of employment, award the executives a top-up (“top up awards”) which amounts to the after-tax difference between (a) number of shares purchased at the 30 -day VWAP in their respective first months of employment and (b) number of shares purchased at the actual share price paid.

The top-up will be settled as follows:

(a) 55 % in shares of the Company’s common stock and (b) 45 %, at the election of the executive, as either shares of the Company’s common stock or cash.

The top up awards were not subject to any vesting conditions and vested immediately;

(iv) adjust the initial matching awards to the aggregate number of shares acquired in terms of (ii) and (iii).

The matching awards vest ratably over a period of three years commencing on the first anniversary of the grant of the matching awards.

The executives acquired shares during November and December 2021, and the Company granted the executives 326,158 matching awards and 71,647 top up awards.

Except as discussed above, no shares of restricted stock vested during the three months ended December 31, 2021.

During the three and six months ended December 31, 2021, 30,000 shares of restricted stock were forfeited by an executive officer as the market condition (related to share price performance) was not achieved

During the six months ended December 31, 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 66,800 shares of restricted stock which were granted in February 2020, and which were subject to time-based vesting.

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

The 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.

The 510,200 shares of restricted stock that were forfeited during the six months ended December 31, 2020, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

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

The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2021 and 2020, of $ 0.8 million and $ 0.2 million, respectively, which comprised:

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

Allocated to selling, general and administration

Three months ended September 30, 2021

Three months ended December 31, 2021

Stock-based compensation charge

Total - three months ended December 31, 2021

Three months ended December 31, 2020

Stock-based compensation charge

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

Total - three months ended September 30, 2021

Three months ended September 30, 2020

Total - three months ended December 31, 2020

The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2021 and 2020, of $ 1.1 million and $ 0.6 million respectively, which comprised:

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

Allocated to selling, general and administration

Six months ended December 31, 2021

Stock-based compensation charge

Reversal of stock compensation charge related to stock options forfeited

Total - six months ended December 31, 2021

Six months ended December 31, 2020

Stock-based compensation charge

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

Total - three months ended September 30, 2020

Total - six months ended December 31, 2020

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

As of 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.

As of December 31, 2021, the total unrecognized compensation cost related to stock options was approximately $ 0.4 million, which the Company expects to recognize over approximately two years .

As of December 31, 2021, the total unrecognized compensation cost related to restricted stock awards was approximately $ 4.0 million, which the Company expects to recognize over approximately three years .

As of December 31, 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 December 31, 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 September 30, 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 December 31, 2021 and 2020.

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

1 unchanged sentence

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

Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended September 30, 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 December 31, 2021 and 2020 , reflects only undistributed earnings.

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

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 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 Company has excluded employee stock options to purchase 199,218 and 165,218 shares of common stock from the calculation of diluted loss per share during the three and six months ended December 31, 2021, because the effect would be antidilutive.

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, August 2021, November 2021, and December 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

September 30,

Six months ended

(in thousands except

per share data)

Net loss attributable to Net1

Undistributed (loss) earnings

Percent allocated to common shareholders (Calculation 1)

Numerator for (loss) earnings per share:

Percent allocated to common shareholders

(Calculation 1)

Numerator for loss per share:

basic and diluted

1 unchanged sentence

weighted-average common shares outstanding

Effect of dilutive securities:

Denominator for diluted (loss) earnings per share:

adjusted weighted average common shares outstanding and assuming conversion

(Loss) Earnings per share:

Loss per share:

(Calculation 1)

1 unchanged sentence

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

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.

Percent allocated to common shareholders

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

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

Supplemental cash flow information

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

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

Three months ended

September 30,

Six months ended

Cash received from interest

1 unchanged sentence

Cash paid for income taxes

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,

Supplemental cash flow information (continued)

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 8 for additional information regarding the Company’s facilities.

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

December 31, 2021

December 31, 2020

June 30, 2021

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 six months ended December 31, 2021 and 2020:

Three months ended December 31,

Six months ended December 31,

Cash paid for amounts included in the measurement of lease liabilities

4 unchanged sentences

Disaggregation of revenue

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 2021:

Financial services

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

Processing fees

7 unchanged sentences

Rest of world

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

(as restated)

(as restated) (1)

Revenue recognition (continued)

Disaggregation of revenue (continued)

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

Processing fees

8 unchanged sentences

Rest of world

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

The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2021:

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

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

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

The Company has entered into leasing arrangements classified as operating leases under accounting guidance.

2 unchanged sentences

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

The Company’s operating lease expense during each of the three months ended 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’s operating lease expense during the three months ended December 31, 2021 and 2020 was $ 0.8 million and $ 1.0 million, respectively.

The Company’s operating lease expense during the six months ended December 31, 2021 and 2020 was $ 1.8 million and $ 1.9 million, respectively.

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

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

The Company’s short-term lease expense during the three months ended 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 September 30, 2021 and June 30, 2021 :

September 30,

The Company’s short-term lease expense during the three months ended December 31, 2021 and 2020 , was $ 1.3 million and $ 0.9 million, respectively.

The Company’s short-term lease expense during the six months ended December 31, 2021 and 2020 , was $ 2.6 million and $ 2.0 million, respectively.

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

Right of use assets obtained in exchange for lease obligations:

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Weighted average discount rate (percent)

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

September 30,

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

Maturities of operating lease liabilities

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

Year ended June 30,

2022 (excluding six months to December 31, 2021)

Total undiscounted operating lease liabilities

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Operating segments

Change to internal reporting structure and restatement of previously reported information

During November 2021, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures following the establishment of a new management team and the Company’s decision to focus primarily on the South African market.

The chief operating decision maker has decided to analyze the Company’s operating performance primarily based on operational lines which group financial services provided to customers (consumers) into the Consumer operating segment and goods and services provided to corporate and other juristic entities into the Merchant operating segment.

Reallocation of certain activities among operating segments

During the second quarter of fiscal 2022, the Company reorganized its operating segments by combining financial services provided to consumers (primarily individuals) from the Financial services operating segment with processing activities provided for customers within the Consumer operating segment, and by allocating processing activities performed for merchants (primarily corporate and juristic customers) from the Processing operating segment to the Merchant operating segment.

Sales of hardware and licenses to customers (primarily corporate entities) included in the Technology operating segment have been allocated to the Merchant operating segment.

Lastly, processing activities performed outside of South Africa have been allocated from the Processing operating segment to the Other operating segment.

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

Previously reported information has been restated.

Operating segments (continued)

Operating segments

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The Company currently has three reportable segments:

Processing, Financial services and Technology.

All three segments operate mainly within South Africa and certain of our activities outside of South Africa have been allocated to Processing.

Consumer, Merchant and Other.

Consumer and Merchant operate mainly within South Africa and certain of the Company’s current and legacy activities outside of South Africa have been allocated to our Other operating segment.

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

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.

The Company provides its customers with transaction processing services that involve the collection, transmittal and retrieval of all transaction data.

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

The Company charges monthly administration fees for all bank accounts.

Customers that have a bank account managed by the Company are issued cards that can be utilized to withdraw funds at an ATM or to transact at a merchant point of sale device (“POS”).

The Company earns processing fees from transactions processed for these customers.

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 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.

The Company charges monthly administration fees for all bank accounts.

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

The Company provides short-term loans to customers in South Africa for which it earns initiation and monthly service fees.

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

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

The Merchant segment includes activities related to the provision of goods and services provided to corporate and other juristic entities.

The Company earns fees from processing activities performed for its customers and revenue generated from the distribution of prepaid airtime.

The Company provides its customers with transaction processing services that involve the collection, transmittal and retrieval of all transaction data.

This segment also includes sales of hardware and licenses to customers.

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

Licenses include the right to use certain technology developed by the Company.

The Other segment includes our operations outside South Africa and IPG’s processing activities for the applicable period through to the year ended June 30, 2021.

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

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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)

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

Reportable Segment

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From external customers

Financial services

Total for the three months ended September 30, 2021

Processing (1)

Financial services

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.

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:

Total for the three months ended December 31, 2021

Total for the three months ended December 31, 2020

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

Reportable Segment

Inter-segment

From external customers

Total for the six months ended December 31, 2021

Total for the six months ended December 31, 2020

The Company evaluates segment performance based on segment earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”).

The Company does not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), non-recurring items (including gains or losses on disposal of investments, fair value adjustments to equity securities, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to its reportable segments.

The Lease adjustments reflects lease charge excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as a reconciling item to reconcile the reportable segments Segment Adjusted EBITDA to the Company’s loss before income tax expense.

Operating segments (continued)

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

Three months ended

September 30,

Six months ended

Reportable segments measure of profit or loss

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Corporate/Eliminations

Lease adjustments

Depreciation and amortization

Change in fair value of equity securities

Unrealized loss related to fair value adjustment to currency options

Loss on disposal of equity-accounted investment - Bank Frick

Interest income

Interest expense

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:

Loss before income taxes

The following tables summarize supplemental segment information for the three and six months ended December 31, 2021 and 2020:

Three months ended

September 30,

(as restated) (1)

Financial services

Operating (loss) income

Financial services

Operating segments

Six months ended

Segment Adjusted EBITDA

Corporate/Eliminations

Lease adjustments

Depreciation and amortization

Financial services

Total operating loss

Depreciation and amortization

Operating segments

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Expenditures for long-lived assets

Financial services

Operating segments

Corporate/Eliminations

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

Operating segments (continued)

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.

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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 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

For the three and six months ended December 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 5), 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 (including the unrealized loss on the foreign currency options (refer to Note 4)).

For the three months ended December 31, 2020, the Company’s effective tax rate was impacted by the tax effect of the change in the fair value of our equity securities (refer to Note 5), which is at a lower tax rate than the South African statutory rate, which was partially offset by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

For the six months ended December 31, 2020, the Company’s effective tax rate was impacted by the tax effect of the change in fair value referred to above, tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment (refer to Note 5).

Uncertain tax positions

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

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

2 unchanged sentences

federal jurisdiction.

As of 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.

As of December 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, 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 ($ 10.4 million, translated at exchange rates applicable as of September 30, 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 ($ 9.8 million, translated at exchange rates applicable as of December 31, 2021) thereby utilizing part of the Company’s short-term facilities.

The Company pays commission of between 0.4 % per annum to 1.82 % per annum of the face value of these guarantees and does not recover any of the commission from third parties.

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).

Commitments and contingencies (continued)

Guarantees (continued)

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

The maximum potential amount that the Company could pay under these guarantees is ZAR 156.6 million ($ 9.8 million, translated at exchange rates applicable as of December 31, 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 ($ 9.8 million translated at exchange rates applicable as of December 31, 2021).

The guarantees have reduced the amount available under its indirect and derivative facilities in the Company’s short-term credit facility described in Note 8.

3 unchanged sentences

Subsequent events

Agreement to acquire a controlling interest in the Connect Group

Commencement of financial services restructuring in January 2022

The Company has incurred significant losses since its contract to distribute social grants expired in September 2018.

A strategic imperative for the Company is to return its South African financial services business to breakeven and then profitability as soon as possible.

As part of a cost optimization process completed in late calendar 2021, the Company performed a review of its labor structure and determined that a number of its defined employee roles would need to be terminated due to redundancy.

The Company therefore determined to embark on a retrenchment process pursuant to Section 189A of the South African Labour Relations Act (“Labour Act”).

The Section 189A process requires an employer, before retrenching, to consult with any person affected by the retrenchment process for 60 days and the Company commenced this process on January 10, 2022.

Depending on the nature and outcome of the retrenchment process, the Company expects to incur cash costs during the third quarter of fiscal 2022 of between ZAR 85.0 million to ZAR 105.0 million, or USD 5.5 million to USD 6.7 million at the USD/ ZAR exchange rate of USD 1:

ZAR 15.57, principally consisting of severance and related payments.

This process, along with significant other operational cost savings initiatives, are designed to support the sustainability of the financial services business in the long-term.

Agreement to acquire a controlling interest in the Connect Group – January 2022 definitive loan agreements signed

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”).

1 unchanged sentence

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.

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 3.7 billion, after deducting an aggregate amount of ZAR 175.9 million representing awards to certain members of management, subject to certain adjustments.

The ZAR 3.7 billion 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.

1 unchanged sentence

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.

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.

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, of which ZAR 1.1 billion relates to the financing agreements described below and ZAR 1.25 billion related to finance agreements signed between CCMS and RMB.

The definitive loan agreements were entered into on January 24, 2022 but remain subject to conditions precedent.

Subsequent events (continued)

Agreement to acquire a controlling interest in the Connect Group – January 2022 definitive loan agreements signed (continued)

On January 24, 2022, Net1, through Net1 SA, entered into a Fourth Amendment and Restatement Agreement, which includes, among other agreements, an Amended and Restated Common Terms Agreement, a Senior Facility G Agreement and a Senior Facility H Agreement (collectively, the “Loan Documents”) with RMB and Main Street 1692 (RF) Proprietary Limited (“Debt Guarantor”), a South African company incorporated for the sole purpose of holding collateral for the benefit of the Lenders and acting as debt guarantor, and certain other parties.

Net1 agreed to guarantee the obligations of Net1 SA to the Lenders.

The Loan Documents will become effective upon closing the transaction to acquire the Target Companies.

The Loan Documents contain customary covenants that require Net1 SA to maintain a specified total asset cover ratio, maintain group cash balances (as defined in the Loan Documents) above ZAR 300.0 million, and restrict the ability of Net1, Net1 SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities.

Pursuant to the Senior Facility G Agreement, Net1 SA may borrow up to an aggregate of ZAR 750.0 million (“Facility G”) for the sole purposes of funding the acquisition of the Target Companies and paying transaction costs.

Facility G is required to be repaid on the date which is 18 months after the first utilization of Facility G.

Interest on Facility G is payable quarterly in arrears based on the 3-month Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time plus a margin of (i) 3.00 % per annum for the first nine months occurring after the effective date (as defined in the Loan Documents);

and then (ii) from the date after the nine month period in (i), (x) 2.50 % per annum if the Facility G balance outstanding is less than or equal to ZAR 250.0 million, or (y) 3.00 % per annum if the Facility G balance is between ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50 % per annum if the Facility G balance is greater than ZAR 450.0 million.

The JIBAR rate was 3.89 % on January 24, 2022.

Net1 SA will pay a non-refundable deal origination fee of ZAR 11.25 million to the Lenders related to Facility G.

Pursuant to the Senior Facility H Agreement (“Facility H Agreement”), Net1 SA may borrow up to an aggregate of ZAR 350.0 million (“Facility H”) for the sole purposes of funding the acquisition of the Target Companies and paying transaction costs.

Facility H is required to be repaid on the date which is 18 months after the first utilization of Facility H.

Interest on Facility H is payable quarterly in arrears based on JIBAR in effect from time to time plus a margin of 2.00 % per annum and increase by a further 2.00 % per annum in the event of default (as defined in the Loan Documents).

Net1 SA will pay a non-refundable deal origination fee of ZAR 5.25 million to the Lenders related to Facility H.

The Facility H Agreement provides the Lenders with a right to discuss the capitalization of the Net1 group with its management and Value Capital Partners Proprietary Limited (“VCP”) if Net1’s market capitalization on the NASDAQ Stock Market (based on the closing price on the NASDAQ Stock Market) on any day falls below the USD equivalent of ZAR 3.250 billion.

VCP is required to maintain an asset cover ratio above 5.00 :1.00, calculated as the total VCP investment fund net asset value (as defined in the Facility H agreement) divided by the Facility H borrowings outstanding, measured as of March, June, September and December each year (as applicable) (each a “Measurement Date”).

The Lenders require Net1 SA to deliver a compliance certificate procured from VCP as of each applicable Measurement Date, which shows the computation of the asset cover ratio.

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 .

1 unchanged sentence

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