What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2022-02-09 · 385 added, 288 removed, 829 unchanged (45% of the section changed)

12 unchanged sentences

Total current assets

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

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

$ 37,708 June:

21 unchanged sentences

200,000,000 with $ 0.001 par value;

Issued and outstanding shares, net of treasury - December:

Issued and outstanding shares, net of treasury - March:

57,921,062 June:

16 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands, except per share data)

4 unchanged sentences

Depreciation and amortization

Reorganization costs (Note 1)

Transaction costs related to Connect Group acquisition

1 unchanged sentence

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

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

GAIN RELATED TO FAIR VALUE ADJUSTMENT TO CURRENCY OPTIONS (Note 4)

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

GAIN ON DISPOSAL OF EQUITY SECURITIES (Note 5)

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

INTEREST INCOME

2 unchanged sentences

INCOME TAX EXPENSE (Note 18)

NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS

LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

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

EARNINGS (LOSS) FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

NET LOSS ATTRIBUTABLE TO NET1

6 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands)

Other comprehensive (loss) income, net of taxes

Other comprehensive income (loss), net of taxes

Movement in foreign currency translation reserve

Release of foreign currency translation reserve related to disposal of Finbond equity securities (Note 11)

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

Release of foreign currency translation reserve related to disposal of Bank Frick (Note 11)

Total other comprehensive (loss) income, net of taxes

Comprehensive (loss) income

Comprehensive (loss) income attributable to Net1

Comprehensive income (loss)

Comprehensive income (loss) attributable to Net1

See Notes to Unaudited Condensed Consolidated Financial Statements

12 unchanged sentences

Redeemable common stock

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

Balance – October 1, 2020

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

Balance – January 1, 2021

( 24,891,292 )

Exercise of stock options

Stock-based compensation charge (Note 12)

Reversal of stock-based compensation charge (Note 12)

Other comprehensive income (Note 11)

Balance – December 31, 2020

Other comprehensive loss (Note 11)

Balance – March 31, 2021

( 24,891,292 )

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

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

Balance – July 1, 2020

( 24,891,292 )

Exercise of stock options

Stock-based compensation charge (Note 12)

3 unchanged sentences

Other comprehensive income (Note 11)

Balance – December 31, 2020

Balance – March 31, 2021

( 24,891,292 )

13 unchanged sentences

Redeemable common stock

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

Balance – October 1, 2021

For the three months ended March 31, 2022 (dollar amounts in thousands)

Balance – January 1, 2022

( 24,891,292 )

3 unchanged sentences

Reversal of stock-based compensation charge (Note 12)

Other comprehensive loss (Note 11)

Balance – December 31, 2021

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

Other comprehensive income (Note 11)

Balance – March 31, 2022

( 24,891,292 )

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

For the nine months ended March 31, 2022 (dollar amounts in thousands)

Balance – July 1, 2022

5 unchanged sentences

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

Other comprehensive loss (Note 11)

Balance – December 31, 2021

Other comprehensive income (Note 11)

Balance – March 31, 2022

( 24,891,292 )

3 unchanged sentences

Three months ended

Six months ended

Nine months ended

(In thousands)

2 unchanged sentences

Depreciation and amortization

Impairment loss (Note 6)

Impairment loss

Movement in allowance for doubtful accounts receivable

Loss from equity-accounted investments (Note 5)

Interest payable

(Gain) Loss related to fair value adjustment to currency options (Note 4)

Fair value adjustment related to financial liabilities

Gain on disposal of equity securities (Note 5)

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

Loss on disposal of equity-accounted investment - Bank Frick

(Earnings) Loss from equity-accounted investments

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

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

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

3 unchanged sentences

(Increase) Decrease in inventory

Increase (Decrease) in accounts payable and other payables

(Decrease) Increase in taxes payable

Increase (Decrease) in deferred taxes

(Decrease) Increase in accounts payable and other payables

Increase (Decrease) in taxes payable

(Decrease) Increase in deferred taxes

Net cash used in operating activities

2 unchanged sentences

Proceeds from disposal of property, plant and equipment

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

Proceeds from disposal of equity securities (Note 5)

Proceeds from disposal of equity-accounted investment (Note 5)

Proceeds from disposal of equity-accounted investment - Bank Frick, net of expenses

Proceeds from disposal of Net1 Korea, net of cash disposed

10 unchanged sentences

Net change in settlement obligations

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

5 unchanged sentences

Notes to the Unaudited Condensed Consolidated Financial Statements

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

for the three and nine months ended March 31, 2022 and 2021

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

The results of operations for the three and nine months ended March 31, 2022 and 2021, 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.

6 unchanged sentences

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

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

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.

South Africa operated at adjusted Level 1 during its most recent fiscal quarter, which had a limited impact on the Company’s businesses, and which ceased to be in operation on April 4, 2022.

South Africa is subject to limited COVID-19 restrictions following the lifting of the National State of Disaster in South Africa on April 5, 2022.

These restrictions are expected to have a limited impact on the Company’s business.

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

6 unchanged sentences

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

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

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

1 unchanged sentence

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

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

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

The Company’s insurance claims to recover the cost of approximately ZAR 40.0 million to repair and replace its branches and ATMs have been met in full.

The Company received ZAR 12.6 million and ZAR 38.6 million from SASRIA during the three and nine months ended March 31, 2022, respectively.

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 six months ended December 31, 2021, as a result of this decision.

The Company lost transaction fee revenue of approximately ZAR 6.0 million ($ 0.4 million) during the nine months ended March 31, 2022, as a result of this decision.

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

Reorganization charge - financial services restructuring

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 a breakeven position 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 embarked on a retrenchment process pursuant to Section 189A of the South African Labour Relations Act (“Labour Act”) on January 10, 2022.

The Company incurred cash costs of approximately $ 6.7 million (ZAR 103.4 million) during the three and nine months ended March 31, 2022, principally consisting of severance and related payments and the payment of unutilized leave days.

The Company has recorded an expense of $ 5.9 million in the caption reorganization costs in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2022.

The primary difference between the reorganization charge amount and the total cash paid relates to leave pay which was accrued in prior periods.

Impact of events in Russia and Ukraine

The Company does not expect its operations to be significantly impacted by events unfolding in Russia and Ukraine.

The Company believes that these events may adversely impact South African gross domestic product and rates of inflation as a result of the recent increases in crude oil prices, which is likely to impact economic activity in South Africa and therefore indirectly affect the Company.

It may also lead to higher input prices for certain of the goods and services the Company procures.

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 December 31, 2021

Recent accounting pronouncements not yet adopted as of March 31, 2022

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

13 unchanged sentences

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

In October 2021, the FASB issued guidance which amends guidance in Business Combinations (Topic 805) regarding the recognition and measurement of contract assets and liabilities in a business combination.

These items are recognized at fair value on acquisition under current guidance.

The new guidance requires an acquiring entity to apply guidance in Revenue Recognition (Topic 606) to recognize and measure contract assets and contract liabilities in a business combination.

This guidance is effective for the Company beginning July 1, 2022.

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

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

Accounts receivable, net and other receivables

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

The Company’s accounts receivable, net, and other receivables as of March 31, 2022, and June 30, 2021 , are presented in the table below:

Accounts receivable, trade, net

14 unchanged sentences

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.

The parties had not agreed to new repayment terms as of March 31, 2022.

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 December 31, 2021 and June 30, 2021, respectively was $ 0 (nil).

The carrying value as of each of March 31, 2022 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 December 31, 2021:

Summarized below is the contractual maturity of the Company’s held to maturity investment as of March 31, 2022:

Estimated fair value (1)

7 unchanged sentences

Finance loans receivable, net

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

The Company’s finance loans receivable, net, as of March 31, 2022, and June 30, 2021 , are presented in the table below:

Microlending finance loans receivable, net

6 unchanged sentences

Total finance loans receivable, net

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

The Company’s inventory comprised the following categories as of March 31, 2022, and June 30, 2021 :

Finished goods

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.

As of March 31, 2022, and June 30, 2021, finished goods includes $ 15.7 million and $ 16.5 million, respectively, 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.

18 unchanged sentences

As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities.

Interest rates in South Africa are trending upwards and the Company expects higher interest rates in the foreseeable future which will increase its cost of borrowing.

The Company periodically evaluates the cost and effectiveness of interest rate hedging strategies to manage this risk.

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

Microlending credit risk

The Company is exposed to credit risk in its microlending activities, which provide unsecured short-term loans to qualifying customers.

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

The Company is exposed to credit risk in its microlending activities, which provides unsecured short-term loans to qualifying customers.

Credit bureau checks as well as an affordability test are conducted as part of the risk management process, both of which being in line with local regulations.

The affordability test takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

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

18 unchanged sentences

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

The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of December 31, 2021, and June 30, 2021, and valued Cell C at $ 0.0 (zero) at December 31, 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 March 31, 2022, and June 30, 2021, and valued Cell C at $ 0.0 (zero) at March 31, 2022, 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 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.

The Company utilized the latest revised business plan provided by Cell C management for the period ended December 31, 2025, for the March 31, 2022 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 December 31, 2021 and June 30, 2021:

The following key valuation inputs were used as of March 31, 2022 and June 30, 2021:

Weighted Average Cost of Capital ("WACC"):

4 unchanged sentences

Minority discount:

Net adjusted external debt - December 31, 2021:

Net adjusted external debt - March 31, 2022:

ZAR 11.7 billion ($ 0.8 billion), no lease liabilities included

2 unchanged sentences

(1) translated from ZAR to U.S.

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

dollars at exchange rates applicable as of March 31, 2022.

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

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 3.3% increase and 2.5% decrease in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on March 31, 2022, all amounts translated at exchange rates applicable as of March 31, 2022:

Sensitivity for fair value of Cell C investment

2 unchanged sentences

EBITDA margin

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

The fair value of the Cell C shares as of March 31, 2022, represented 0 % of the Company’s total assets, including these shares.

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

5 unchanged sentences

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

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

The Company had no outstanding foreign exchange contracts as of March 31, 2022.

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

2 unchanged sentences

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.

The Company held a significant amount of U.S.

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

The purchase consideration was expected to be settled in ZAR.

Accordingly, the Company entered into foreign exchange option contracts with FirstRand Bank Limited acting through its 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)

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:

The Company marked-to-market the synthetic forwards as of December 31, 2021, using a Black-Scholes option pricing model which determined the respective fair value of the options utilizing current market parameters, and recorded an unrealized loss of $ 2.4 million during the three months ended December 31, 2021.

These currency options matured on February 24, 2022.

The Company generated a realized gain of $ 3.7 million upon maturity.

During the three and nine months ended March 31, 2022, the Company recorded a net gain of $ 6.1 million (which includes the reversal of the $ 2.4 .

million unrealized loss which was previously recorded) and $ 3.7 million, respectively.

The net gain is included in the caption gain related to fair value adjustment to currency options in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2022.

Fair value of financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of March 31, 2022, 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)

8 unchanged sentences

Total assets at fair value

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:

There have been no transfers in or out of Level 3 during the three and nine months ended March 31, 2022 and 2021, respectively.

There was no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three and nine months ended March 31, 2022 and 2021.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the nine months ended March 31, 2022:

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of December 31, 2021

Balance as of March 31, 2022

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

dollar on the carrying value.

Fair value of financial instruments (continued)

Carrying value

1 unchanged sentence

Foreign currency adjustment (1)

Balance as of December 31, 2020

Balance as of March 31, 2021

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

4 unchanged sentences

An impairment charge is recorded when the cost of the asset exceeds its fair value and the excess is determined to be other-than-temporary.

Refer to Note 5 for impairment charges recorded during the reporting periods presented herein.

Refer to Note 5 for any impairment charges recorded during the reporting periods presented herein.

The Company has no liabilities that are measured at fair value on a nonrecurring basis.

2 unchanged sentences

Equity-accounted investments

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

The Company’s ownership percentage in its equity-accounted investments as of March 31, 2022, and June 30, 2021, was as follows:

Finbond Group Limited (“Finbond”)

3 unchanged sentences

Equity-accounted investments (continued)

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:

As of March 31, 2022, the Company owned 247,438,164 shares in Finbond representing approximately 29.0 % of its issued and outstanding ordinary shares.

Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on March 31, 2022, the last trading day of the month, was ZAR 0.50 per share.

The market value, using the March 31, 2022, closing price, of the Company’s holding in Finbond on March 31, 2022, was ZAR 123.7 million ($ 8.5 million translated at exchange rates applicable as of March 31, 2022).

The Company sold 21,382,769 shares in Finbond for cash during the three and nine months ended March 31, 2022, and recorded a loss of $ 0.3 million in the caption loss on equity-accounted investment in the Company’s unaudited condensed consolidated statements of operations.

The following table presents the calculation of the loss on disposal of Finbond shares during the three and nine months ended March 31, 2022:

Three and nine months ended March 31,

Loss on disposal of Finbond shares:

Consideration received in cash

carrying value of Finbond shares sold

release of foreign currency translation reserve from accumulated other comprehensive loss

release of stock-based compensation charge related to equity-accounted investment

Loss on sale of Finbond shares

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the nine months ended March 31, 2022:

Investment in equity

6 unchanged sentences

Dividends received

Disposal of Finbond shares

Foreign currency adjustment (2)

Balance as of December 31, 2021

Balance as of March 31, 2022

Carrying amount as of :

June 30, 2021

December 31, 2021

March 31, 2022

(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 December 31, 2021, and June 30, 2021:

Summarized below is the breakdown of other long-term assets as of March 31, 2022, and June 30, 2021:

Total equity investments

9 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 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).

(2) The note is included in accounts receivable, net and other receivables as of March 31, 2022 (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.

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.

The Company’s investment percentage as of March 31, 2022, was 10.2 %.

The Company did not identify any observable transactions during the three and nine months ended March 31, 2022, and therefore there was no change in the fair value of MobiKwik during these periods.

The Company used a transaction, at a price of $ 245.50 per share in June 2021, as the basis for a fair value adjustment to its investment in MobiKwik during the fourth quarter of fiscal 2021.

This fair value adjustment increased the carrying value of its investment in MobiKwik by $ 23.4 million from $ 52.9 million to $ 76.3 million as of June 30, 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:

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

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

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

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

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

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

Other long-term assets (continued)

In February 2022, the Company sold its entire interest in Revix UK Limited for cash of $ 0.7 million because the Company did not consider the investment core to its strategy to operate primarily in Southern Africa.

The Company had previously written this investment to $ 0 (nil) and recognized a gain on disposal of $ 0.7 million, which is included in the caption gain on disposal of equity securities in the Company’s unaudited condensed consolidated statements of operations for the three and nine months ended March 31, 2022.

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of March 31, 2022:

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 six months ended December 31, 2021:

Summarized below is the movement in the carrying value of goodwill for the nine months ended March 31, 2022:

Accumulated impairment

2 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2021

Balance as of March 31, 2022

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

5 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2021

Balance as of March 31, 2022

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

3 unchanged sentences

Carrying value and amortization of intangible assets

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

Summarized below is the carrying value and accumulated amortization of intangible assets as of March 31, 2022, and June 30, 2021:

As of March 31, 2022

As of June 30, 2021

9 unchanged sentences

Total finite-lived intangible assets

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.

Aggregate amortization expense on the finite-lived intangible assets for each of the three months ended March 31, 2022 and 2021, was approximately $ 0.1 million.

Aggregate amortization expense on the finite-lived intangible assets for the nine months ended March 31, 2022 and 2021, was approximately $ 0.1 million and $ 0.3 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on March 31, 2022, is presented in the table below.

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

2 unchanged sentences

Reinsurance assets and policyholder liabilities under insurance contracts

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

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the nine months ended March 31, 2022:

Reinsurance Assets (1)

4 unchanged sentences

Foreign currency adjustment (3)

Balance as of December 31, 2021

Balance as of March 31, 2022

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

3 unchanged sentences

The value of insurance contract liabilities is based on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa.

The process of deriving the best estimates assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).

The process of deriving the best estimate assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).

Assets and policyholder liabilities under investment contracts

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

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the nine months ended March 31, 2022:

Investment contracts (2)

1 unchanged sentence

Increase in policy holder benefits under investment contracts

Claims and decrease in policyholders’ benefits under investment contracts

Foreign currency adjustment (3)

Balance as of December 31, 2021

Balance as of March 31, 2022

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

5 unchanged sentences

Available short-term facility - Facility E

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.

As of March 31, 2022, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was ZAR 1.4 billion ($ 96.2 million, translated at exchange rates applicable as of March 31, 2022).

As of March 31, 2022, the Company had utilized approximately ZAR 0.7 billion ($ 45.7 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 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.

The prime rate on March 31, 2022, was 7.75 %.

Nedbank facility, comprising short-term facilities

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).

As of March 31, 2022, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 406.6 million ($ 27.9 million).

The credit facility comprises an overdraft facility of up to ZAR 250.0 million ($ 17.2 million), which may only be used to fund mobile ATMs and indirect and derivative facilities of up to ZAR 156.6 million ($ 10.8 million), which include guarantees, letters of credit and forward exchange contracts.

1 unchanged sentence

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 ($ 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:

These funds, of ZAR 155.1 million ($ 10.7 million translated at exchange rates applicable as of March 31, 2022), are included within the caption restricted cash related to ATM funding and credit facilities to the Company’s unaudited condensed consolidated balance sheet as of March 31, 2022.

As of March 31, 2022, the interest rate on the overdraft facility was 6.60 %.

As of March 31, 2022 and June 30, 2021, the Company had utilized approximately ZAR 155.1 million ($ 10.7 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 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

Summarized below are the Company’s short-term facilities as of March 31, 2022, and the movement in the Company’s short-term facilities from as of June 30, 2022 to as of March 31, 2021, as well as the respective interest rates applied to the borrowings as of March 31, 2022:

Short-term facilities available as of March 31, 2022

Overdraft restricted as to use for ATM funding only

5 unchanged sentences

Foreign currency adjustment (1)

Balance as of December 31, 2021

Balance as of March 31, 2022

Restricted as to use for ATM funding only

1 unchanged sentence

Balance as of June 30, 2021

Guarantees cancelled

Foreign currency adjustment (1)

Balance as of December 31, 2021 (2)

Balance as of March 31, 2022 (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 December 31, 2021, and June 30, 2021:

Summarized below is the breakdown of other payables as of March 31, 2022, 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 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:

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the nine months ended March 31, 2022 and 2021, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the nine months ended March 31, 2022 and 2021, respectively:

Number of shares, net of treasury:

3 unchanged sentences

Accumulated other comprehensive loss

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

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended March 31, 2022:

Three months ended

December 31, 2021

March 31, 2022

Accumulated foreign currency translation reserve

Balance as of October 1, 2021

Balance as of January 1, 2022

Release of foreign currency translation reserve related to the disposal of Finbond equity securities (Note 5)

Movement in foreign currency translation reserve

Balance as of December 31, 2021

Balance as of March 31, 2022

Accumulated other comprehensive loss (continued)

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

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

Three months ended

December 31, 2020

March 31, 2021

Accumulated foreign currency translation reserve

Balance as of October 1, 2020

Balance as of January 1, 2021

Release of foreign currency translation reserve related to disposal of Bank Frick

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

Balance as of March 31, 2021

The table below presents the change in accumulated other comprehensive (loss) income per component during the nine months ended March 31, 2022:

Nine months ended

March 31, 2022

Accumulated foreign currency translation reserve

Balance as of July 1, 2021

Release of foreign currency translation reserve related to disposal of Finbond equity securities (Note 5)

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

Movement in foreign currency translation reserve

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

Balance as of March 31, 2022

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

Nine months ended

March 31, 2021

Accumulated foreign currency translation reserve

Balance as of July 1, 2020

Release of foreign currency translation reserve related to disposal of Bank Frick

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.

Balance as of March 31, 2021

During the three and nine months ended March 31, 2022, the Company reclassified $ 0.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond.

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

Stock-based compensation

1 unchanged sentence

Stock option and restricted stock activity

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

The following table summarizes stock option activity for the nine months ended March 31, 2022 and 2021:

Number of shares

4 unchanged sentences

Outstanding - June 30, 2021

Outstanding - December 31, 2021

Granted - February 2022

Outstanding - March 31, 2022

Outstanding - June 30, 2020

1 unchanged sentence

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.

Outstanding - March 31, 2021

The Company awarded 137,620 stock options to employees during the three and nine months ended March 31, 2022.

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

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

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

1 unchanged sentence

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

No stock options were 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.

Employees forfeited 94,404 and 10,000 stock options during the three months ended March 31, 2022 and 2021, respectively.

Employees forfeited 188,332 and 205,999 stock options during the nine months ended March 31, 2022 and 2021, respectively.

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

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

1 unchanged sentence

The estimated expected life of the option was determined based on 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

The table below presents the range of assumptions used to value stock options granted during the nine months ended March 31, 2022 and 2021:

Nine months ended

Expected volatility

Expected dividends

Expected life (in years)

3 unchanged sentences

Options (continued)

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

The following table presents stock options vested and expected to vest as of March 31, 2022:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

Vested and expecting to vest - December 31, 2021

Vested and expecting to vest - March 31, 2022

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

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

The following table presents stock options that are exercisable as of March 31, 2022:

Weighted average exercise price

1 unchanged sentence

Aggregate intrinsic value

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.

Exercisable - March 31, 2022

No stock options became exercisable during the three months ended March 31, 2022 and 2021.

During the nine months ended March 31, 2022 and 2021, 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 six months ended December 31, 2021 and 2020:

The following table summarizes restricted stock activity for the nine months ended March 31, 2022 and 2021:

Number of shares of restricted stock

6 unchanged sentences

Granted – December 2021

Granted – February 2022

Granted – March 2022

Total granted and vested - November and December 2021

1 unchanged sentence

Vested - November and December 2021

Non-vested – December 31, 2021

Non-vested – March 31, 2022

Non-vested – June 30, 2020

1 unchanged sentence

Vested – September 2020 - accelerated vesting

Non-vested – December 31, 2020

Non-vested – March 31, 2021

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 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.

On March 1, 2022, the Company awarded 207,859 shares of restricted stock to executive officers and vesting of these awards is subject to the executive’s continuous service through the applicable vesting date, one third of which vests on each of the first, second and third anniversaries of the grant date.

In August 2021, December 2021 and February 2022, the Company awarded 44,986 , 50,300 and 29,920 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.

Mali, were 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.

9 unchanged sentences

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.

Except as discussed above, no shares of restricted stock vested during the three and nine months ended March 31, 2022.

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

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

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

The 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.

During the nine months ended March 31, 2022, 30,000 shares of restricted stock were forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

The 510,200 shares of restricted stock that were forfeited during the nine months ended March 31, 2021, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

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

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

Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

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

Stock option and restricted stock activity (continued)

Restricted stock (continued)

Effective January 1, 2022, the Company agreed to grant an advisor shares in lieu of cash for services provided to the Company during a contract term that will expire on December 31, 2022.

The contract may be terminated early if certain agreed events occur.

The advisor has agreed to receive 6,481 shares of the Company’s common stock per month as payment for services rendered and is not entitled to receive additional shares if the contract is terminated early due to the occurrence of the agreed events.

The 6,481 shares granted per month was calculated using an agreed monthly fee of $ 35,000 divided by the Company’s closing market price on January 3, 2022, on the Nasdaq Global Select Market.

The Company and the advisor have agreed that the Company will issue the shares to the advisor, in arrears, on a quarterly basis and that the shares may not be transferred until the earlier of December 31, 2022, or the occurrence of the agreed event.

During the three months ended March 31, 2022, the Company recorded a stock-based compensation charge of $ 0.1 million and included the issuance of 19,443 shares of common stock in its issued and outstanding share count.

The Company recorded a stock-based compensation charge, net during the three months ended March 31, 2022 and 2021, of $ 0.6 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 December 31, 2021

Stock-based compensation charge

Total - three months ended December 31, 2021

Three months ended December 31, 2020

Three months ended March 31, 2022

Stock-based compensation charge

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

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:

Total - three months ended March 31, 2022

Three months ended March 31, 2021

Stock-based compensation charge

Total - three months ended March 31, 2021

The Company recorded a stock-based compensation charge, net during the nine months ended March 31, 2022 and 2021, of $ 1.7 million and $ 0.9 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

Nine months ended March 31, 2022

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

Total - nine months ended March 31, 2022

Nine months ended March 31, 2021

Stock-based compensation charge

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

Total - six months ended December 31, 2020

Total - nine months ended March 31, 2021

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

As of December 31, 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.

Stock-based compensation (continued)

As of March 31, 2022, the total unrecognized compensation cost related to stock options was approximately $ 0.5 million, which the Company expects to recognize over approximately two years .

As of March 31, 2022, the total unrecognized compensation cost related to restricted stock awards was approximately $ 4.8 million, which the Company expects to recognize over approximately three years .

As of March 31, 2022, and June 30, 2021, respectively, the Company recorded a deferred tax asset of approximately $ 0.3 million and $ 0.1 million, related to the stock-based compensation charge recognized related to employees of Net1.

As of March 31, 2022, and June 30, 2021, respectively, the Company recorded a valuation allowance of approximately $ 0.3 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 December 31, 2021 and 2020.

There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended March 31, 2022 and 2021.

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

1 unchanged sentence

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

Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended December 31, 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 March 31, 2022 and 2021 , 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 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 Company has excluded employee stock options to purchase 185,902 and 172,113 shares of common stock from the calculation of diluted loss per share during the three and nine months ended March 31, 2022, 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, December 2021, February 2022 and March 2022, 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.

2 unchanged sentences

Three months ended

Six months ended

Nine months ended

(in thousands except

3 unchanged sentences

Net loss attributable to Net1

Undistributed (loss) earnings

Undistributed loss

Percent allocated to common shareholders

5 unchanged sentences

Effect of dilutive securities:

Stock options

Denominator for diluted (loss) earnings per share:

5 unchanged sentences

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.

Options to purchase 408,252 shares of the Company’s common stock at prices ranging from $ 4.87 to $ 11.23 per share were outstanding during the three and nine months ended March 31, 2022, 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 425,784 shares of the Company’s common stock at prices ranging from $ 6.20 to $ 11.23 per share were outstanding during the three and nine months ended March 31, 2021, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock.

The options, which expire at various dates through February 3, 2032, were still outstanding as of March 31, 2022.

Supplemental cash flow information

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

The following table presents supplemental cash flow disclosures for the three and nine months ended March 31, 2022 and 2021:

Three months ended

Six months ended

Nine months ended

Cash received from interest

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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.

2 unchanged sentences

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

The following table presents the disaggregation of cash, cash equivalents and restricted cash as of March 31, 2022 and 2021, and June 30, 2021:

March 31, 2022

March 31, 2021

June 30, 2021

2 unchanged sentences

Cash, cash equivalents and restricted cash

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

Three months ended December 31,

Six months ended December 31,

The following table presents supplemental cash flow disclosure related to leases for the three and nine months ended March 31, 2022 and 2021:

Three months ended March 31,

Nine months ended March 31,

Cash paid for amounts included in the measurement of lease liabilities

4 unchanged sentences

Disaggregation of revenue

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

The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended March 31, 2022:

Processing fees

9 unchanged sentences

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:

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

Processing fees

8 unchanged sentences

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, 2021:

The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the nine months ended March 31, 2022:

Processing fees

7 unchanged sentences

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:

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

Processing fees

12 unchanged sentences

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

The Company’s operating lease expense during the three months ended 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’s operating lease expense during the three months ended March 31, 2022 and 2021 was $ 0.9 million and $ 1.1 million, respectively.

The Company’s operating lease expense during the nine months ended March 31, 2022 and 2021 was $ 2.7 million and $ 2.9 million, respectively.

The Company does not have any significant leases that have not commenced as of March 31, 2022 .

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

The Company’s short-term lease expense during the three months ended December 31, 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 :

The Company’s short-term lease expense during the three months ended March 31, 2022 and 2021 , was $ 1.3 million and $ 1.0 million, respectively.

The Company’s short-term lease expense during the nine months ended March 31, 2022 and 2021 , was $ 3.9 million and $ 3.1 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 March 31, 2022 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 December 31, 2021, are presented below:

The maturities of the Company’s operating lease liabilities as of March 31, 2022, are presented below:

Maturities of operating lease liabilities

Year ended June 30,

2022 (excluding six months to December 31, 2021)

2022 (excluding nine months to March 31, 2022)

Total undiscounted operating lease liabilities

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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.

Segment results for the three and nine months ended March 31, 2022, reflect these changes to the operating segments.

Previously reported information has been restated.

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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 December 31, 2021 and 2020, is as follows:

The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended March 31, 2022 and 2021, is as follows:

Reportable Segment

1 unchanged sentence

From external customers

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:

Total for the three months ended March 31, 2022

Total for the three months ended March 31, 2021

The reconciliation of the reportable segment’s revenue to revenue from external customers for the nine months ended March 31, 2022 and 2021, is as follows:

Reportable Segment

1 unchanged sentence

From external customers

Total for the six months ended December 31, 2021

Total for the six months ended December 31, 2020

Total for the nine months ended March 31, 2022

Total for the nine months ended March 31, 2021

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”).

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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:

The reconciliation of the reportable segments measures of profit or loss to income before income taxes for the three and nine months ended March 31, 2022 and 2021, is as follows:

Three months ended

Six months ended

Nine months ended

Reportable segments measure of profit or loss

4 unchanged sentences

Change in fair value of equity securities

Unrealized loss related to fair value adjustment to currency options

Gain related to fair value adjustment to currency options

Gain on disposal of equity securities

Loss on disposal of equity-accounted investment - Bank Frick

Loss on disposal of equity-accounted investment

Interest income

1 unchanged sentence

Loss before income taxes

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

Operating segments (continued)

The following tables summarize supplemental segment information for the three and nine months ended March 31, 2022 and 2021:

Three months ended

Six months ended

Nine months ended

Segment Adjusted EBITDA

Total Segment Adjusted EBITDA

Corporate/Eliminations

8 unchanged sentences

Corporate/Eliminations

Operating segments (continued)

(1) Consumer Segment Adjusted EBITDA for the three and nine months ended March 31, 2022, includes reorganization costs of $ 5.9 million (refer also Note 1).

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

5 unchanged sentences

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

For the three 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).

The South African corporate income tax rate is expected to reduce from 28 % to 27 % from July 1, 2022.

The change in the income tax rate has not been enacted as of March 31, 2022, and accordingly all deferred taxes assets and liabilities related to the Company’s South African operations are still recorded using the enacted corporate income tax rate of 28 %.

For the three and nine months ended March 31, 2022, 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.

For the three months ended March 31, 2021, the Company’s effective tax rate was impacted by the tax effect of the change in the fair value of our equity securities (refer to Note 5), which is at a lower tax rate than the South African statutory rate, the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

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

Uncertain tax positions

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 had no significant uncertain tax positions during the three months ended March 31, 2022, and therefore, the Company had no accrued interest related to uncertain tax positions on its balance sheet.

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

2 unchanged sentences

federal jurisdiction.

As of December 31, 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 March 31, 2022, 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 ($ 9.8 million, translated at exchange rates applicable as of December 31, 2021) thereby utilizing part of the Company’s short-term facilities.

Nedbank has issued guarantees to these third parties amounting to ZAR 155.1 million ($ 10.7 million, translated at exchange rates applicable as of March 31, 2022) 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.

1 unchanged sentence

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 Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of March 31, 2022.

The maximum potential amount that the Company could pay under these guarantees is ZAR 155.1 million ($ 10.7 million, translated at exchange rates applicable as of March 31, 2022).

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 155.1 million ($ 10.7 million translated at exchange rates applicable as of March 31, 2022).

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

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.

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”).

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

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

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.

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

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

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

2022 Acquisitions

April 2022 acquisition of Connect

The transaction closed on April 14, 2022.

The Company has commenced the purchase price allocation related to this transaction however the process had not been completed as of the date of filing this Quarterly Report on Form 10-Q on May 10, 2022.

The Company expects to include its preliminary allocation of the purchase consideration related to this acquisition in its audited financial statements to be included in its Annual Report on Form 10-K for the year ended June 30, 2022.

The total purchase consideration was ZAR 3.8 billion ($ 262.0 million), comprising ZAR 3.5 billion ($ 238.2 million) in cash and ZAR 0.4 billion ($ 23.9 million) in 3,185,079 shares of the Company’s common stock.

The 3,185,079 shares of common stock will be issued in three tranches on each of the first, second and third anniversaries of the closing and was calculated as ZAR 350.0 million divided by the sum of $ 7.50 multiplied by the closing date exchange rate (as defined in the Sale Agreement) of $1:ZAR 14.65165 .

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

In addition, the closing of the transaction was subject to entry into definitive financing agreements by each of Net1 SA and CCMS for an aggregate of ZAR 2.35 billion in debt financing 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.

Of the ZAR 1.25 billion related to CCMS, ZAR 250 million related to new debt as part of the funding of the acquisition.

The definitive loan agreements became effective upon closing the transaction.

The South African competition authorities approved the transaction subject to certain public interest conditions relating to employment, increasing the spread of ownership by historically disadvantaged people (“HDPs”) and workers, and investing in supplier and enterprise development.

Further to increasing the spread of ownership by HDPs, Net1 is required to establish an employee share ownership scheme (“ESOP”) within 24 months of the implementation of the Connect acquisition, that complies with certain design principles for the benefit of the workers of the merged entity to receive a shareholding in Net1 equal in value to at least 3 % of the issued shares in Net1 at the date of the Connect acquisition.

If within 24 months of the implementation date of the transaction, Net1generates a positive net profit for three consecutive quarters, the ESOP shall increase to 5 % of the issued shares in Net1 at the date of the Connect acquisition.

The final structure of the ESOP is contingent on Net1 shareholder approval and relevant regulatory and governance approvals.

The ESOP had not been established as of May 10, 2022.

The Company believes that the acquisition significantly advances its vision to transform into the leading fintech platform for underserved consumers and merchants in South Africa.

The combination is strategically important because it combines complementary product offerings to drive stronger unit economics, facilitates expansion of the addressable market to informal MSMEs, Connect has an attractive financial profile with strong and profitable growth, merges highly skilled teams with complementary expertise and allows the combined group to better serve the underserved in South Africa through the provision of dignified financial services to people and businesses who are underserved by the financial system.

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.

New borrowings – South Africa

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

Long-term facilities - Facility G and Facility H

The Company, 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.

The Loan Documents were further amended through letter agreements, which form part of the Loan Documents, in March 2022 and the disclosure in this note includes the amended terms.

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 became effective upon closing the transaction and the Company drew down on the facilities on April 14, 2022.

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.

The group cash balances may go below ZAR 300 million to the extent equivalent credit support is provided by the VCP Investment Fund and/ or VCP Investment Portfolios (“VCP Investors”), and such support exceeds ZAR 350 million, but such reduction below ZAR 300 million is limited by a further ZAR 80 million to ZAR 220 million.

Pursuant to the Senior Facility G Agreement, Net1 SA may borrow up to an aggregate of ZAR 768.975 million (“Facility G”) for the sole purposes of funding the acquisition of the Target Companies and paying transaction costs.

2 unchanged sentences

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.

The interest rate shall increase by a further 2.00 % per annum in the event of default (as defined in the Loan Documents).

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

Pursuant to the Senior 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.

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 which increases by a further 2.00 % per annum in the event of default (as defined in the Loan Documents).

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

Facility G and Facility H are secured by a pledge of certain of the Company’s bank accounts, and the cession of Net1’s shareholding in certain of its subsidiaries.

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 Global Select Market (based on the closing price on the NASDAQ Global Select Market) on any day falls below the USD equivalent of ZAR 3.250 billion (or such other amount agreed by the parties).

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 .

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

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

Subsequent events (continued)

Connect’s borrowing

The Company, through CCMS, entered into a Facilities Agreement (the “CCMS Facilities Agreement”) with RMB in January 2022.

The CCMS Facilities Agreement was further amended through letter agreements, which form part of the CCMS Facilities Agreement, in March and April 2022, respectively, and the disclosure in this note includes the amended terms.

The CCMS Facilities Agreement became effective upon closing the transaction.

The CCMS Facilities Agreement provides for total facilities of ZAR 1.3 billion comprising a Facility A term loan of ZAR 700 million (“Facility A Loan”), a Facility B term loan of ZAR 350 million (“Facility B Loan”), and a general banking facility of ZAR 205.0 million.

The amount available under the general banking facility will reduce to ZAR 125.0 million on March 23, 2023.

CCMS paid a non-refundable structuring fee of approximately ZAR 4.8 million in April 2022.

Interest on the loans is payable quarterly based on JIBAR plus a margin in effect from time to time.

On April 14, 2022, the CCMS utilized the entire amount of Facility A and Facility B and approximately ZAR 211.0 million of the general banking facility to repay its existing borrowings and to settle obligations under the Sales Agreement.

Principal repayments related to the Facility A Loan and the Facility B Loan are due at the end of each of the Company’s fiscal quarters.

The table below presents payments due within the twelve months ended March 31, for each of the periods specified:

Facility A Loan

Facility B Loan

Total facility

Repayments due within the twelve months ended:

March 31, 2023

March 31, 2024

March 31, 2025

March 31, 2026

March 31, 2027

March 31, 2028

Borrowings under the CCMS Facilities Agreement are secured by a pledge by CCMS of, among other things, all of its equity shares, its entire equity interests in equity securities it owns and any claims outstanding.

The CCMS Facilities Agreement contains customary covenants that require CCMS to maintain a specified debt service and interest cover and leverage ratio.

Interest on the Facility A Loan and the Facility B Loan is payable quarterly in arrears based on the Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time for the interest period (as defined in the CCMS Facilities Agreement) plus a margin of (i) 4.00 % per annum while the leverage ratio is greater than or equal to 3.50 times;

(ii) 3.75 % per annum while the leverage ratio is between 2.50 times and 3.50 times, or (iii) 3.40 % per annum while the leverage ratio is less than or equal to 2.50 times.

VCP Securities Purchase Agreement

On March 22, 2022, Net1 and Net1 SA entered into a Securities Purchase Agreement (the “VCP Agreement”) with Value Capital Partners Proprietary Limited (“VCP”) whereby VCP will procure that one or more funds under its management (the “Purchasing Funds”) will subscribe for, and Net1 will have the obligation to issue and sell to the Purchasing Funds, ZAR 350.0 million of common stock of Net1 if (i) an event of default occurs under Facility G or Facility H, (ii) Net1 SA fails to pay all outstanding amounts in respect of Facility H on the maturity date of such facility, or (iii) the market capitalization of Net1 on the Nasdaq Global Select Market (based on the closing price on such exchange) falls and remains below the U.S.

dollar equivalent of ZAR 2.6 billion on more than one day.

The VCP Agreement contains customary representations and warranties from Net1 and VCP and covenants from Net1 and Net1 SA.

In connection with the VCP Agreement, Net1 SA agreed to pay VCP a commitment fee in an amount equal to ZAR 5.25 million.

Additionally, Net1, Net1 SA and VCP entered into a Step-In Rights Letter on March 22, 2022 with RMB, which provides RMB with step in rights to perform the obligations or enforce the rights of Net1 and Net1 SA under the VCP Agreement to the extent that Net1 and Net1 SA fail to do so and do not remedy such failure within two business days of notice of such failure.

Grant of shares of restricted stock to Connect employees

On April 14, 2022, the Company granted 1,250,486 shares of restricted stock to employees of Connect pursuant to the Sale Agreement.

The award includes an equalization mechanism to maintain a return of $ 7.50 per share of restricted stock upon vesting through the issue of restricted stock units.

The conversion of restricted stock units to shares cannot exceed 50 % under the terms of the award.

The Company has not finalized the accounting for the grant of these equity awards and expects to conclude this matter together with its purchase accounting process referenced above.

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