LESAKA TECHNOLOGIES INC 10-Q

Item 1. Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Balance Sheets September 30, June 30, 2022 2022 (A) (In thousands, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents $ 30,140 $ 43,940 Restricted cash related to ATM funding and credit facilities (Note 8) 63,231 60,860 Accounts receivable, net and other receivables (Note 2) 29,356 28,898 Finance loans receivable, net (Note 2) 33,484 33,892 Inventory (Note 3) 31,164 34,226 Total current assets before settlement assets 187,375 201,816 Settlement assets 16,286 15,916 Total current assets 203,661 217,732 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $ 32,987 June: $ 35,249 24,385 24,599 OPERATING LEASE RIGHT-OF-USE (Note 16) 5,943 7,146 EQUITY-ACCOUNTED INVESTMENTS (Note 5) 5,111 5,861 GOODWILL (Note 6) 147,167 162,657 INTANGIBLE ASSETS, NET (Note 6) 137,984 156,702 DEFERRED INCOME TAXES 3,685 3,776 OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7) 77,834 78,092 TOTAL ASSETS 605,770 656,565 LIABILITIES CURRENT LIABILITIES Short-term credit facilities for ATM funding (Note 8) 57,951 51,338 Short-term credit facilities (Note 8) 11,381 14,880 Accounts payable 19,281 18,572 Other payables (Note 9) 28,426 34,362 Operating lease liability - current (Note 16) 1,772 2,498 Current portion of long-term borrowings (Note 8) 6,365 6,804 Income taxes payable 2,554 2,140 Total current liabilities before settlement obligations 127,730 130,594 Settlement obligations 15,811 15,276 Total current liabilities 143,541 145,870 DEFERRED INCOME TAXES 48,977 54,211 OPERATING LEASE LIABILITY - LONG TERM (Note 16) 4,333 4,827 LONG-TERM BORROWINGS (Note 8) 121,435 134,842 OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) 2,192 2,466 TOTAL LIABILITIES 320,478 342,216 REDEEMABLE COMMON STOCK 79,429 79,429 EQUITY COMMON STOCK (Note 10) Authorized: 200,000,000 with $ 0.001 par value; Issued and outstanding shares, net of treasury - September: 62,522,384 June: 62,324,321 83 83 PREFERRED STOCK Authorized shares: 50,000,000 with $ 0.001 par value; Issued and outstanding shares, net of treasury: September: - June: - - - ADDITIONAL PAID-IN-CAPITAL 329,365 327,891 TREASURY SHARES, AT COST: September: 24,926,752 June: 24,891,292 ( 287,136 ) ( 286,951 ) ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11) ( 188,490 ) ( 168,840 ) RETAINED EARNINGS 352,041 362,737 TOTAL LESAKA EQUITY 205,863 234,920 NON-CONTROLLING INTEREST - - TOTAL EQUITY 205,863 234,920 TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY $ 605,770 $ 656,565 (A) – Derived from audited financial statements See Notes to Unaudited Condensed Consolidated Financial Statements 2 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations Three months ended September 30, 2022 2021 (In thousands, except per share data) REVENUE (Note 15) $ 124,786 $ 34,504 EXPENSE Cost of goods sold, IT processing, servicing and support 100,528 24,207 Selling, general and administration (1) 22,931 20,442 Depreciation and amortization 5,998 895 Transaction costs related to Connect acquisition (1) - 185 OPERATING LOSS ( 4,671 ) ( 11,225 ) NET GAIN ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENTS (Note 5) 248 - INTEREST INCOME 411 389 INTEREST EXPENSE 4,036 816 LOSS BEFORE INCOME TAX EXPENSE ( 8,048 ) ( 11,652 ) INCOME TAX EXPENSE (Note 18) 31 186 NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS ( 8,079 ) ( 11,838 ) LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5) ( 2,617 ) ( 1,156 ) NET LOSS $ ( 10,696 ) $ ( 12,994 ) Net loss per share, in United States dollars (Note 13): Basic loss attributable to Lesaka shareholders $ ( 0.17 ) $ ( 0.23 ) Diluted loss attributable to Lesaka shareholders $ ( 0.17 ) $ ( 0.23 ) (1) $ 185,000 of transaction costs previously included in the caption selling, general and administration and has been reclassified to the caption transaction costs related to Connect acquisition in order to conform with the Company's presentation for the year ended June 30, 2022 See Notes to Unaudited Condensed Consolidated Financial Statements 3 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income Three months ended September 30, 2022 2021 (In thousands) Net loss $ ( 10,696 ) $ ( 12,994 ) Other comprehensive (loss) income, net of taxes Movement in foreign currency translation reserve ( 22,093 ) ( 5,913 ) Movement in foreign currency translation reserve related to equity-accounted investments 2,441 ( 644 ) Release of foreign currency translation reserve related to disposal of Finbond equity securities 2 - Total other comprehensive (loss) income, net of taxes ( 19,650 ) ( 6,557 ) Comprehensive loss ( 30,346 ) ( 19,551 ) Add comprehensive loss attributable to non-controlling interest - - Comprehensive loss attributable to Lesaka $ ( 30,346 ) $ ( 19,551 ) See Notes to Unaudited Condensed Consolidated Financial Statements 4 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Changes in Equity Lesaka Technologies, Inc. Shareholders Number of Shares Amount Number of Treasury Shares Treasury Shares Number of shares, net of treasury Additional Paid-In Capital Retained Earnings Accumulated other comprehensive loss Total Lesaka Equity Non-controlling Interest Total Redeemable common stock For the three months ended September 30, 2021 (dollar amounts in thousands) Balance – July 1, 2021 81,607,912 $ 80 ( 24,891,292 ) $ ( 286,951 ) 56,716,620 $ 301,959 $ 406,613 $ ( 145,721 ) $ 275,980 $ - $ 275,980 $ 84,979 Restricted stock granted (Note 12) 279,594 279,594 - - Stock-based compensation charge (Note 12) - 344 344 344 Reversal of stock-based compensation charge (Note 12) - - ( 35 ) ( 35 ) ( 35 ) Stock-based compensation charge related to equity-accounted investment (Note 5) - 9 9 9 Net loss - ( 12,994 ) ( 12,994 ) - ( 12,994 ) Other comprehensive loss (Note 11) ( 6,557 ) ( 6,557 ) - ( 6,557 ) Balance – September 30, 2021 81,887,506 $ 80 ( 24,891,292 ) $ ( 286,951 ) 56,996,214 $ 302,277 $ 393,619 $ ( 152,278 ) $ 256,747 $ - $ 256,747 $ 84,979 5 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Changes in Equity Lesaka Technologies, Inc. Shareholders Number of Shares Amount Number of Treasury Shares Treasury Shares Number of shares, net of treasury Additional Paid-In Capital Retained Earnings Accumulated other comprehensive loss Total Lesaka Equity Non-controlling Interest Total Redeemable common stock For the three months ended September 30, 2022 (dollar amounts in thousands) Balance – July 1, 2022 87,215,613 $ 83 ( 24,891,292 ) $ ( 286,951 ) 62,324,321 $ 327,891 $ 362,737 $ ( 168,840 ) $ 234,920 $ - $ 234,920 $ 79,429 Shares repurchased (Note 12) ( 35,460 ) ( 185 ) ( 35,460 ) ( 185 ) ( 185 ) Restricted stock granted (Note 12) 231,523 231,523 - - Exercise of stock option (Note 12) 2,000 - 2,000 6 6 6 Stock-based compensation charge (Note 12) 1,462 1,462 1,462 Stock-based compensation charge related to equity-accounted investment (Note 5) 6 6 6 Net loss ( 10,696 ) ( 10,696 ) - ( 10,696 ) Other comprehensive loss (Note 11) ( 19,650 ) ( 19,650 ) - ( 19,650 ) Balance – September 30, 2022 87,449,136 $ 83 ( 24,926,752 ) $ ( 287,136 ) 62,522,384 $ 329,365 $ 352,041 $ ( 188,490 ) $ 205,863 $ - $ 205,863 $ 79,429 See Notes to Unaudited Condensed Consolidated Financial Statements 6 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows Three months ended September 30, 2022 2021 (In thousands) Cash flows from operating activities Net loss $ ( 10,696 ) $ ( 12,994 ) Depreciation and amortization 5,998 895 Movement in allowance for doubtful accounts receivable 1,049 386 Loss from equity-accounted investments (Note 5) 2,617 1,156 Fair value adjustment related to financial liabilities 63 ( 90 ) Interest payable 26 11 Facility fee amortized 249 - Net gain on disposal of equity-accounted investments (Note 5) ( 248 ) - Profit on disposal of property, plant and equipment (1) ( 208 ) ( 25 ) Stock-based compensation charge (Note 12) 1,462 309 Dividends received from equity-accounted investments 21 137 (Increase) Decrease in accounts receivable and finance loans receivable ( 6,524 ) 1,188 (Increase) Decrease in inventory ( 279 ) 1,583 Increase (Decrease) in accounts payable and other payables ( 438 ) ( 431 ) Increase in taxes payable 642 294 Decrease in deferred taxes ( 1,394 ) ( 367 ) Net cash used in operating activities ( 7,660 ) ( 7,948 ) Cash flows from investing activities Capital expenditures ( 4,501 ) ( 698 ) Proceeds from disposal of property, plant and equipment 417 231 Proceeds from disposal of equity-accounted investments (Note 5) 253 - Loan to equity-accounted investment ( 112 ) - Repayment of loans by equity-accounted investments 112 - Net change in settlement assets ( 1,884 ) - Net cash used in investing activities ( 5,715 ) ( 467 ) Cash flows from financing activities Proceeds from bank overdraft (Note 8) 146,068 138,905 Repayment of bank overdraft (Note 8) ( 136,922 ) ( 98,908 ) Long-term borrowings utilized (Note 8) 1,059 - Repayment of long-term borrowings (Note 8) ( 1,580 ) - Acquisition of treasury stock (Note 12) ( 185 ) Proceeds from exercise of stock options 6 - Net change in settlement obligations 1,987 - Net cash provided by financing activities 10,433 39,997 Effect of exchange rate changes on cash ( 8,487 ) ( 4,926 ) Net increase in cash, cash equivalents and restricted cash ( 11,429 ) 26,656 Cash, cash equivalents and restricted cash – beginning of period 104,800 223,765 Cash, cash equivalents and restricted cash – end of period (Note 14) $ 93,371 $ 250,421 (1) Impairment losses of $ 140,000 previously reported in a separate caption during the three months ended September 30, 2021, have been included in the caption profit on disposal of property, plant and equipment for the three months ended September 30, 2021 See Notes to Unaudited Condensed Consolidated Financial Statements 7 LESAKA TECHNOLOGIES, INC Notes to the Unaudited Condensed Consolidated Financial Statements for the three months ended September 30, 2022 and 2021 (All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated) 1. Basis of Presentation and Summary of Significant Accounting Policies Unaudited Interim Financial Information The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three months ended September 30, 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. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented. References to “Lesaka” are references solely to Lesaka Technologies, Inc. References to the “Company” refer to Lesaka and its consolidated subsidiaries, collectively, unless the context otherwise requires. Recent accounting pronouncements adopted In October 2021, the Financial Accounting Standards Board (“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. The guidance became effective for the Company beginning July 1, 2022. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures. Recent accounting pronouncements not yet adopted as of September 30, 2022 In June 2016, the FASB issued guidance regarding Measurement of Credit Losses on Financial Instruments . The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2023. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material. In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The guidance provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and Other (ASC 350). The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023. 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. 8 2. 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 September 30, 2022, and June 30, 2022 , are presented in the table below: September 30, June 30, 2022 2022 Accounts receivable, trade, net $ 12,332 $ 13,904 Accounts receivable, trade, gross 12,604 14,413 Allowance for doubtful accounts receivable, end of period 272 509 Beginning of period 509 267 Reversed to statement of operations ( 3 ) ( 133 ) Charged to statement of operations 422 779 Utilized ( 414 ) ( 154 ) Foreign currency adjustment ( 242 ) ( 250 ) Current portion of amount outstanding related to sale of interest in Carbon, net of allowance: September 2022: $ 250 - - Loans provided to Carbon, net of allowance: June 2022: $ 3,000 - - Current portion of total held to maturity investments - - Investment in 7.625 % of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625 % notes - - Other receivables 17,024 14,994 Total accounts receivable, net and other receivables $ 29,356 $ 28,898 Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related to the sale of Carbon Tech Limited (“Carbon”), an equity-accounted investment of $ 0.25 million, net of an allowance for doubtful loans receivable of $ 0.25 million, refer to Note 5 for additional information. 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 June 30, 2022. In June 2021, the Company determined to create an allowance for doubtful loans receivable of $ 3.0 million due to these circumstances and the ongoing operating losses incurred by Carbon. The loan was sold in September 2022 for $ 0.75 million (refer to Note 5). Investment in 7.625 % of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625 % notes represents the investment in a note which was due to mature in August 2022 and formed part of Cell C’s capital structure. The carrying value as of each of September 30, 2022 and June 30, 2022, respectively was $ 0 (nil). Other receivables includes prepayments, deposits, income taxes receivable and other receivables, as well as transactions-switching funds receivable of $ 3.2 million which was received in full in November 2022. Contractual maturities of held to maturity investments Summarized below is the contractual maturity of the Company’s held to maturity investment as of September 30, 2022: Cost basis Estimated fair value (1) Due in one year or less $ - $ - Due in one year through five years (2) - - Due in five years through ten years - - Due after ten years - - Total $ - $ - (1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the assets held by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C. (2) The cost basis is zero ($ 0.0 million). 9 2. Accounts receivable, net and other receivables and finance loans receivable, net (continued) Finance loans receivable, net The Company’s finance loans receivable, net, as of September 30, 2022, and June 30, 2022, is presented in the table below: September 30, June 30, 2022 2022 Microlending finance loans receivable, net $ 18,227 $ 20,058 Microlending finance loans receivable, gross 19,494 21,452 Allowance for doubtful finance loans receivable, end of period 1,267 1,394 Beginning of period 1,394 2,349 Reversed to statement of operations - ( 805 ) Charged to statement of operations 264 1,268 Utilized ( 258 ) ( 1,179 ) Foreign currency adjustment ( 133 ) ( 239 ) Merchant finance loans receivable, net 15,257 13,834 Merchant finance loans receivable, gross 15,770 14,131 Allowance for doubtful finance loans receivable, end of period 513 297 Beginning of period 297 - Reversed to statement of operations ( 3 ) - Charged to statement of operations 366 442 Utilized - - Foreign currency adjustment ( 147 ) ( 145 ) Total finance loans receivable, net $ 33,484 $ 33,892 Total finance loans receivable, net, comprises microlending finance loans receivable related to the Company’s microlending operations in South Africa as well as its merchant finance loans receivable related to Connect’s lending activities in South Africa. Certain merchant finance loans receivable have been pledged as security for the Company’s revolving credit facility (refer to Note 8). 3. Inventory The Company’s inventory comprised the following categories as of September 30, 2022, and June 30, 2022 : September 30, June 30, 2022 2022 Raw materials $ 2,238 $ 2,446 Work-in-progress 277 147 Finished goods 28,649 31,633 $ 31,164 $ 34,226 As of September 30, 2022 and June 30, 2022, finished goods includes $ 11.0 million and $ 13.7 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 and pursuant to Cell C’s recapitalization process, the Company limited the resale of this airtime to its own distribution channels. On September 30, 2022, Cell C concluded its recapitalization process and the Company and Cell C entered into an agreement under which Cell C agreed to repurchase, from October 2023, up to ZAR 10 million of Cell C inventory from the Company per month. The amount to be repurchased by Cell C will be calculated as ZAR 10 million less the face value of any sales made by the Company during that month. The Company has continued to sell a minimum amount of Cell C airtime through its internal channels in late fiscal 2022/ early fiscal 2023 in support of Cell C’s liquidity position. However, its ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is a significant reseller of Cell C airtime. As a result, and depending on prevailing conditions in the airtime market, the Company intends to sell a higher volume of airtime through this channel than it did prior to the Cell C recapitalization. If the Company is able to sell at least ZAR 10 million a month through this channel from October 1, 2023, then Cell C would not be required to repurchase any airtime from the Company during any specific month. The Company has agreed to notify Cell C prior to selling any of this airtime, however, there is no restriction placed on the Company on the sale of the airtime. 10 4. Fair value of financial instruments Initial recognition and measurement Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs. Risk management The Company manages its exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price and liquidity risks as discussed below. Currency exchange risk The Company is subject to currency exchange risk because it purchases components for safe assets, that the Company assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand. Translation risk Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to the ZAR exchange rate has fluctuated significantly over the past three years. As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition. Interest rate risk 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 surplus cash in cash equivalents and held to maturity investments and has occasionally invested in marketable securities. Credit risk Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings. Microlending credit risk 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 are in accordance 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. Equity price and liquidity risk Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value. Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange-traded price, or at all. 11 4. Fair value of financial instruments (continued) Financial instruments The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value. In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments. Asset measured at fair value using significant unobservable inputs – investment in Cell C The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of September 30, 2022 and June 30, 2022, respectively, and valued Cell C at $ 0.0 (zero) at each of September 30, 2022, and June 30, 2022. 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 has increased the marketability discount from 10 % to 20 % and the minority discount from 15 % to 30 % due to the reduction in our shareholding percentage from 15 % to 5 % as well as current market conditions. The Company utilized the latest revised business plan provided by Cell C management for the period ended December 31, 2025, for the September 30, 2022, and June 30, 2022 valuations. Adjustments have been made to the WACC rate to reflect the Company’s assessment of risk to Cell C achieving its business plan. The following key valuation inputs were used as of September 30, 2022 and June 30, 2022: Weighted Average Cost of Capital ("WACC"): Between 20 % and 31 % over the period of the forecast Long term growth rate: 3 % ( 3 % as of June 30, 2022) Marketability discount: 20 % ( 10 % as of June 30, 2022) Minority discount: 30 % ( 15 % as of June 30, 2022) Net adjusted external debt - September 30, 2022: (1) ZAR 7.7 billion ($ 0.4 billion), no lease liabilities included Net adjusted external debt - June 30, 2022: (2) ZAR 13.5 billion ($ 0.8 billion), no lease liabilities included (1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2022. (2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2022. The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% increase and 1.0% decrease in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on September 30, 2022, all amounts translated at exchange rates applicable as of September 30, 2022: Sensitivity for fair value of Cell C investment 1.0% increase 1.0% decrease WACC rate $ - $ 226 EBITDA margin $ 1,246 $ - The fair value of the Cell C shares as of September 30, 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. Derivative transactions - Foreign exchange contracts As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy. The Company had no outstanding foreign exchange contracts as of September 30, 2022. The Company had no outstanding foreign exchange contracts as of June 30, 2022. 12 4. Fair value of financial instruments (continued) The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2022, according to the fair value hierarchy: Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets Investment in Cell C $ - $ - $ - $ - Related to insurance business: Cash, cash equivalents and restricted cash (included in other long-term assets) 261 - - 261 Fixed maturity investments (included in cash and cash equivalents) 2,710 - - 2,710 Total assets at fair value $ 2,971 $ - $ - $ 2,971 The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2022, according to the fair value hierarchy: Quoted Price in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets Investment in Cell C $ - $ - $ - $ - Related to insurance business Cash and cash equivalents (included in other long-term assets) 371 - - 371 Fixed maturity investments (included in cash and cash equivalents) 1,196 - - 1,196 Total assets at fair value $ 1,567 $ - $ - $ 1,567 There have been no transfers in or out of Level 3 during the three months ended September 30, 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 months ended September 30, 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 three months ended September 30, 2022: Carrying value Assets Balance as of June 30, 2022 $ - Foreign currency adjustment (1) - Balance as of September 30, 2022 $ - (1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. 13 4. Fair value of financial instruments (continued) Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2021: Carrying value Assets Balance as of June 30, 2021 $ - Foreign currency adjustment (1) - Balance as of September 30, 2021 $ - (1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. Assets measured at fair value on a nonrecurring basis The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. 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. The Company has no liabilities that are measured at fair value on a nonrecurring basis 5. Equity-accounted investments and other long-term assets Refer to Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022, for additional information regarding its equity-accounted investments and other long-term assets. Equity-accounted investments The Company’s ownership percentage in its equity-accounted investments as of September 30, 2022, and June 30, 2022, was as follows: September 30, June 30, 2022 2021 Finbond Group Limited (“Finbond”) 29.3 % 29.3 % Sandulela Technology (Pty) Ltd ("Sandulela") 49.0 % 49.0 % Carbon Tech Limited (“Carbon”) - % 25.0 % SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”) 50.0 % 50.0 % Finbond As of September 30, 2022, the Company owned 245,897,968 shares in Finbond representing approximately 29.3 % of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 30, 2022, the last trading day of the month, was ZAR 0.49 per share. The market value, using the September 30, 2022, closing price, of the Company’s holding in Finbond on September 30, 2022, was ZAR 120.5 million ($ 6.7 million translated at exchange rates applicable as of September 30, 2022). The Company sold 81,935 shares in Finbond for cash during the three months ended September 30, 2022, and recorded a loss of $ 0.002 million which is included in the caption net gain on disposal of equity-accounted investments in the Company’s unaudited condensed consolidated statements of operations. 14 5. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) Finbond (continued) The following table presents the calculation of the loss on disposal of Finbond shares during the three months ended September 30, 2022: Three months ended September 30, 2022 Loss on disposal of Finbond shares: Consideration received in cash $ 3 Less: carrying value of Finbond shares sold ( 3 ) Less: release of foreign currency translation reserve from accumulated other comprehensive loss ( 2 ) Add: release of stock-based compensation charge related to equity-accounted investment - Loss on sale of Finbond shares $ ( 2 ) The Company considered the combination of the ongoing losses incurred and reported by Finbond and its lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2022. The Company recorded an impairment loss of $ 1.1 million during the quarter ended September 30, 2022, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). There continues to be limited trading in Finbond shares on the JSE because a small number of shareholders own approximately 80 % of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a liquidity discount of 25 % to the September 30, 2022, Finbond closing price of ZAR 0.49 . The Company has increased the liquidity discount from 15 % (used in the previous impairment assessment) to 25 % as a result of the ongoing limited trading activity observed on the JSE. Carbon In September 2022, the Company, through its wholly-owned subsidiary, Net1 Applied Technologies Netherlands B.V. (“Net1 BV”), entered into a binding term sheet with the Etobicoke Limited (“Etobicoke”) to sell its entire interest, or 25 %, in Carbon to Etobicoke for $ 0.5 million and a loan due from Carbon, with a face value of $ 3 million, to Etobicoke for $ 0.75 million. Both the equity interest and the loan had a carrying value of $ 0 (nil) at June 30, 2022. The parties have agreed that Etobicoke pledge the Carbon shares purchased as security for the amounts outstanding under the binding term sheet. The Company received $ 0.25 million on closing and the outstanding balance due by Etobicoke is expected to be paid as follows: (i) $ 0.25 million on September 30, 2023, which is included in the caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2022, and (ii) the remaining amount, of $ 0.75 million in March 2024, which is included in the caption other long-term assets, including reinsurance assets in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2022. The Company has allocated the $ 0.25 million received to the sale of the equity interest and will allocate the funds received first to the sale of the equity interest and then to the loans. The Company currently believes that the fair value of the Carbon shares provided as security is $ 0 (nil), in line with the carrying value as of June 30, 2022, and has created an allowance for doubtful loans receivable related to the $ 1.0 million due from Etobicoke. The Company did not incur any significant transaction costs. The Company has included the gain of $ 0.25 million related to the sale of the Carbon equity interest in the caption net gain on disposal of equity-accounted investments in the Company’s unaudited condensed consolidated statements of operations. The following table presents the calculation of the gain on disposal of Carbon in September 2022: Three months ended September 30, 2022 Gain on disposal of Carbon shares: Consideration received in cash in September 2022 $ 250 Less: carrying value of Carbon - Gain on disposal of Carbon shares: (1) $ 250 (1) The Company does not expect to pay taxes related to the sale of Carbon because the base cost of its investment exceeds the sales consideration received. The Company does not believe that it will be able to utilize the loss generated because Net1 BV does not generate taxable income. 15 5. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the three months ended September 30, 2022: Finbond Other (1) Total Investment in equity Balance as of June 30, 2022 $ 5,760 $ 101 $ 5,861 Stock-based compensation 6 - 6 Comprehensive income: ( 190 ) 14 ( 176 ) Other comprehensive income 2,441 - 2,441 Equity accounted (loss) earnings ( 2,631 ) 14 ( 2,617 ) Share of net (loss) earnings ( 1,521 ) 14 ( 1,507 ) Impairment ( 1,110 ) - ( 1,110 ) Dividends received - ( 21 ) ( 21 ) Disposal of Finbond shares ( 3 ) - ( 3 ) Foreign currency adjustment (2) ( 546 ) ( 10 ) ( 556 ) Balance as of September 30, 2022 $ 5,027 $ 84 $ 5,111 Investment in loans: Balance as of June 30, 2022 $ - $ - $ - Loans granted - 112 112 Loans repaid - ( 112 ) ( 112 ) Foreign currency adjustment (2) - - - Balance as of September 30, 2022 $ - $ - $ - Equity Loans Total Carrying amount as of : June 30, 2022 $ 5,861 $ - $ 5,861 September 30, 2022 $ 5,111 $ - $ 5,111 (1) Includes Carbon, Sandulela, and SmartSwitch Namibia; (2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR, Nigerian naira and Namibian dollar, against the U.S. dollar on the carrying value. Other long-term assets Summarized below is the breakdown of other long-term assets as of September 30, 2022, and June 30, 2022: September 30, June 30, 2022 2022 Total equity investments $ 76,297 $ 76,297 Investment in 5 % of Cell C (June 30, 2022: 15 %) at fair value (Note 4) - - Investment in 10 % of MobiKwik (June 30, 2022: 10 %) (1) 76,297 76,297 Investment in 87.5 % of CPS (June 30, 2022: 87.5 %) at fair value (1)(2) - - Long-term portion of amount due related to sale of loan to Carbon (3) - - Policy holder assets under investment contracts (Note 7) 261 371 Reinsurance assets under insurance contracts (Note 7) 1,276 1,424 Total other long-term assets $ 77,834 $ 78,092 (1) The Company determined that MobiKwik and CPS do not have readily determinable fair values and therefore elected to record these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. (2) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation. (3) Long-term portion of amount due related to sale of loan to Carbon represents $ 0.75 million related to the sale of a loan with a face value of $ 3.0 million which was sold in September 2022 for $ 0.75 million, net of an allowance for doubtful loans receivable of $ 0.75 million. 16 5. Equity-accounted investments and other long-term assets (continued) Other long-term assets Cell C - reduced effective percentage holding following recapitalization On September 30, 2022, Cell C completed its recapitalization process which includes the issuance of additional equity instruments by Cell C. The Company’s effective percentage holding in Cell C’s equity has reduced from 15 % to 5 % following the recapitalization. Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of September 30, 2022: Cost basis Unrealized holding Unrealized holding Carrying gains losses value Equity securities: Investment in MobiKwik $ 26,993 $ 49,304 $ - $ 76,297 Investment in CPS - - - - Held to maturity: Investment in Cedar Cellular notes (Note 2) - - - - Total $ 26,993 $ 49,304 $ - $ 76,297 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, 2022: Cost basis Unrealized holding Unrealized holding Carrying gains losses value Equity securities: Investment in MobiKwik $ 26,993 $ 49,304 $ - $ 76,297 Investment in CPS - - - - Held to maturity: Investment in Cedar Cellular notes - - - - Total $ 26,993 $ 49,304 $ - $ 76,297 6. Goodwill and intangible assets, net Goodwill Summarized below is the movement in the carrying value of goodwill for the three months ended September 30, 2022: Gross value Accumulated impairment Carrying value Balance as of June 30, 2022 $ 175,476 $ ( 12,819 ) $ 162,657 Foreign currency adjustment (1) ( 16,162 ) 672 ( 15,490 ) Balance as of September 30, 2022 $ 159,314 $ ( 12,147 ) $ 147,167 (1) – The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. Goodwill has been allocated to the Company’s reportable segments as follows: Consumer Merchant Other Carrying value Balance as of June 30, 2022 $ - $ 162,000 $ 657 $ 162,657 Foreign currency adjustment (1) - ( 15,490 ) - ( 15,490 ) Balance as of September 30, 2022 $ - $ 146,510 $ 657 $ 147,167 (1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand against the U.S. dollar on the carrying value. 17 6. Goodwill and intangible assets, net (continued) Intangible assets, net Carrying value and amortization of intangible assets Summarized below is the carrying value and accumulated amortization of intangible assets as of September 30, 2022, and June 30, 2022: As of September 30, 2022 As of June 30, 2022 Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value Finite-lived intangible assets: Customer relationships $ 26,123 $ ( 10,545 ) $ 15,578 $ 26,937 $ ( 9,140 ) $ 17,797 Software, integrated platform and unpatented technology 115,566 ( 5,662 ) 109,904 127,785 ( 3,075 ) 124,710 FTS patent 2,127 ( 2,127 ) - 2,352 ( 2,352 ) - Brands and trademarks 14,487 ( 1,985 ) 12,502 16,018 ( 1,823 ) 14,195 Total finite-lived intangible assets $ 158,303 $ ( 20,319 ) $ 137,984 $ 173,092 $ ( 16,390 ) $ 156,702 Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30, 2022 and 2021, was approximately $ 4.0 million and $ 0.1 million, respectively. Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30, 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. Fiscal 2023 (nine months ended June 30, 2023) $ 11,202 Fiscal 2024 14,938 Fiscal 2025 14,938 Fiscal 2026 14,938 Fiscal 2027 14,881 Thereafter 67,087 Total future estimated annual amortization expense $ 137,984 7. Assets and policyholder liabilities under insurance and investment contracts Reinsurance assets and policyholder liabilities under insurance contracts Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the three months ended September 30, 2022: Reinsurance Assets (1) Insurance contracts (2) Balance as of June 30, 2022 $ 1,424 $ ( 1,955 ) Increase in policy holder benefits under insurance contracts 381 ( 2,199 ) Claims and decrease in policyholders’ benefits under insurance contracts ( 394 ) 2,165 Foreign currency adjustment (3) ( 135 ) 188 Balance as of September 30, 2022 $ 1,276 $ ( 1,801 ) (1) Included in other long-term assets (refer to Note 5); (2) Included in other long-term liabilities; (3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar. The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however, if the reinsurer is unable to meet its obligations, the Company retains the liability. 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 estimate assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience). 18 7. Assets and policyholder liabilities under insurance and investment contracts (continued) Assets and policyholder liabilities under investment contracts Summarized below is the movement in assets and policyholder liabilities under investment contracts during the three months ended September 30, 2022: Assets (1) Investment contracts (2) Balance as of June 30, 2022 $ 371 $ ( 349 ) Increase in policy holder benefits under investment contracts 7 ( 7 ) Claims and decrease in policyholders’ benefits under investment contracts ( 81 ) 81 Foreign currency adjustment (3) ( 36 ) 30 Balance as of September 30, 2022 $ 261 $ ( 245 ) (1) Included in other long-term assets (refer to Note 5); (2) Included in other long-term liabilities; (3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar. The Company does not offer any investment products with guarantees related to capital or returns. 8. Borrowings Refer to Note 12 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022, for additional information regarding its borrowings. South Africa The amounts below have been translated at exchange rates applicable as of the dates specified. RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term borrowings Long-term borrowings - Facility G and Facility H The Company’s credit agreement with FirstRand Bank Limited, acting through its Rand Merchant Bank division (“RMB”), requires that the Company achieve certain milestones by September 30, 2022, failing which the Company would be required to place ZAR 250 million into bank accounts with RMB. The Company was unable to achieve the required milestones by September 30, 2022. However, RMB did not require the Company to place cash into the RMB bank accounts nor did RMB declare an event of default as a result of the Company’s failure to do so. The Company is currently renegotiating the terms of these lending arrangements with RMB. Available short-term facility - Facility E As of September 30, 2022, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was ZAR 1.4 billion ($ 77.7 million). As of September 30, 2022, the Company had utilized approximately ZAR 1.0 billion ($ 58.0 million) of this overdraft facility. This overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s ATMs is considered restricted cash. The interest rate on this facility is equal to the prime rate. The prime rate on September 30, 2022, was 9.75 %. Connect Facilities, comprising long-term borrowings and a short-term facility As of September 30, 2022, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR 248.0 million (of which ZAR 205.0 million has been utilized); (ii) Facility A of ZAR 700.0 million; (iii) Facility B of ZAR 350.0 million (both fully utilized); and (iv) an asset-backed facility of ZAR 100.0 million (of which ZAR 90.2 million has been utilized). The amount available under the general banking facility will reduce to ZAR 205.0 million in mid-November 2022. In November 2022, the Company, through its wholly owned subsidiaries, Cash Connect Rentals (Pty) Ltd and Main Street 1723 (Pty) Ltd, increased its aggregate asset-backed facilities from ZAR 100 million to ZAR 200 million. 19 8. Borrowings (continued) South Africa (continued) K2020 facility, comprising long-term borrowings The Company, through its wholly owned subsidiary, K2020, entered into a revolving credit facility agreement with RMB on February 15, 2021. The revolving credit facility is for an amount of ZAR 150.0 million and matured on August 12, 2022. The facility continues to operate normally in agreement with K2020’s lender, while the parties conclude the legal agreements to significantly increase and extend the facility. Interest on the revolving credit facility is payable quarterly in arrears based on the prime rate in effect from time to time plus a margin. A commitment fee of 1.5 % per annum is charged on the undrawn available facility amount. RMB facility, comprising indirect facilities As of September 30, 2022, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB was ZAR 135.0 million ($ 7.5 million), which includes facilities for guarantees, letters of credit and forward exchange contracts. As of September 30, 2022 and June 30, 2022, the Company had utilized approximately ZAR 33.1 million ($ 1.8 million) and ZAR 5.1 million ($ 0.3 million), respectively, of its indirect and derivative facilities of ZAR 135.0 million (June 30, 2022: ZAR 135.0 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19). Nedbank facility, comprising short-term facilities As of September 30, 2022, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 156.6 million ($ 8.7 million). The credit facility represents indirect and derivative facilities of up to ZAR 156.6 million ($ 8.7 million), which include guarantees, letters of credit and forward exchange contracts. As of September 30, 2022 and June 30, 2022, the Company had utilized approximately ZAR 92.1 million ($ 5.1 million) and ZAR 92.1 million ($ 5.7 million), respectively, of its indirect and derivative facilities of ZAR 156.6 million (June 30, 2022: ZAR 156.6 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19). Movement in short-term credit facilities Summarized below are the Company’s short-term facilities as of September 30, 2022, and the movement in the Company’s short-term facilities from as of June 30, 2022 to as of September 30, 2022: RMB RMB RMB Nedbank Facility E Indirect Connect Facilities Total Short-term facilities available as of September 30, 2022 $ 77,723 $ 7,495 $ 13,766 $ 8,691 $ 107,675 Overdraft - - 13,766 - 13,766 Overdraft restricted as to use for ATM funding only 77,723 - - - 77,723 Indirect and derivative facilities - 7,495 - 8,691 16,186 Movement in utilized overdraft facilities: Restricted as to use for ATM funding only 51,338 - - - 51,338 No restrictions as to use - - 14,880 - 14,880 Balance as of June 30, 2022 51,338 - 14,880 - 66,218 Utilized 145,497 - 571 - 146,068 Repaid ( 134,130 ) - ( 2,792 ) - ( 136,922 ) Foreign currency adjustment (1) ( 4,754 ) - ( 1,278 ) - ( 6,032 ) Balance as of September 30, 2022 57,951 - 11,381 - 69,332 Restricted as to use for ATM funding only 57,951 - - - 57,951 No restrictions as to use $ - $ - $ 11,381 $ - $ 11,381 Interest rate as of September 30, 2022 (%) (2) 9.75 9.65 - Movement in utilized indirect and derivative facilities: Balance as of June 30, 2022 $ - $ 313 $ - $ 5,654 $ 5,967 Utilized - 1,634 - - 1,634 Foreign currency adjustment (1) - ( 109 ) - ( 540 ) ( 649 ) Balance as of September 30, 2022 $ - $ 1,838 $ - $ 5,114 $ 6,952 (1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar. (2) Facility E interest set at prime and the Connect facility at prime less 0.10 %. 20 8. Borrowings (continued) Movement in long-term borrowings Summarized below is the movement in the Company’s long-term borrowing from as of as of June 30, 2022 to as of September 30, 2022: Facilities G & H A&B K2020 Asset backed Total Included in current $ - $ 4,604 $ - $ 2,200 $ 6,804 Included in long-term 63,354 59,868 8,346 3,274 134,842 Opening balance as of June 30, 2022 63,354 64,472 8,346 5,474 141,646 Facilities utilized - - 476 583 1,059 Facilities repaid - ( 1,067 ) - ( 513 ) ( 1,580 ) Non-refundable fees paid - - - - - Non-refundable fees amortized - - - - - Foreign currency adjustment (1) ( 5,853 ) ( 6,123 ) ( 815 ) ( 534 ) ( 13,325 ) Closing balance as of September 30, 2022 57,501 57,282 8,007 5,010 127,800 Included in current - 4,164 - 2,201 6,365 Included in long-term 57,501 53,118 8,007 2,809 121,435 Unamortized fees ( 678 ) ( 276 ) - - ( 954 ) Due within 2 years 58,179 4,510 8,007 1,956 72,652 Due within 3 years - 5,899 - 798 6,697 Due within 4 years - 7,286 - 55 7,341 Due within 5 years $ - $ 35,699 $ - $ - $ 35,699 Interest rates as of September 30, 2022 (%): 8.5 - 9.5 10.22 11.00 10.50 Base rate (%) 6.47 6.47 9.75 9.75 Margin (%) Varies 3.75 1.25 0.75 Footnote number (2)(3) (4) (5) (6) (1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar. (2) Interest on Facility G is calculated based on the 3-month JIBAR in effect from time to time plus a margin of (i) 3.00 % per annum until January 13, 2023; and then (ii) from January 14, 2023, (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 interest rate shall increase by a further 2.00 % per annum in the event of default (as defined in the Loan Documents). (3) Interest on Facility H is calculated 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). (4) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of approximately 3.75 %, in effect from time to time. (5) Interest is charged at prime plus 1.25 % per annum on the utilized balance. (6) Interest is charged at prime plus 1.00 % per annum on the utilized balance. Interest expense incurred under the Company’s South African long-term borrowings and included in the caption interest expense on the condensed consolidated statement of operations during the three months ended September 30, 2022, was $ 2.7 million. There was no interest expense incurred during the three months ended September 30, 2021. Prepaid facility fees amortized included in interest expense during the three months ended September 30, 2022, were $ 0.2 million. There was no prepaid facility fee amortization during the three months ended September 30, 2021. Interest expense incurred under the Company’s K2020 facility relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and this interest expense of $ 0.2 million is included in the caption cost of goods sold, IT processing, servicing and support on the condensed consolidated statement of operations for the three months ended September 30, 2022. 21 9. Other payables Summarized below is the breakdown of other payables as of September 30, 2022, and June 30, 2022: September 30, June 30, 2022 2022 Accruals $ 7,135 $ 9,948 Provisions 7,270 7,365 Value-added tax payable 783 845 Payroll-related payables 1,178 1,306 Participating merchants' settlement obligation 103 114 Vendor consideration due to sellers of Connect - 1,459 Other 11,957 13,325 $ 28,426 $ 34,362 Other includes transactions-switching funds payable, deferred income, client deposits and other payables. 10. Capital structure The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity as of September 30, 2022 and 2021, respectively: September 30, September 30, 2022 2021 Number of shares, net of treasury: Statement of changes in equity 62,522,384 56,996,214 Non-vested equity shares that have not vested as of end of period 2,518,546 664,154 Number of shares, net of treasury, excluding non-vested equity shares that have not vested 60,003,838 56,332,060 11. Accumulated other comprehensive loss The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30, 2022: Three months ended September 30, 2022 Accumulated foreign currency translation reserve Total Balance as of July 1, 2022 $ ( 168,840 ) $ ( 168,840 ) Release of foreign currency translation reserve related to the disposal of Finbond equity securities (Note 5) 2 2 Movement in foreign currency translation reserve related to equity-accounted investment 2,441 2,441 Movement in foreign currency translation reserve ( 22,093 ) ( 22,093 ) Balance as of September 30, 2022 $ ( 188,490 ) $ ( 188,490 ) 22 11. Accumulated other comprehensive loss (continued) The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30, 2021: Three months ended September 30, 2021 Accumulated foreign currency translation reserve Total Balance as of July 1, 2021 $ ( 145,721 ) $ ( 145,721 ) Movement in foreign currency translation reserve related to equity-accounted investment ( 644 ) ( 644 ) Movement in foreign currency translation reserve ( 5,913 ) ( 5,913 ) Balance as of September 30, 2021 $ ( 152,278 ) $ ( 152,278 ) During the three months ended September 30, 2022, the Company reclassified $ 0.002 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to Note 5). There were no reclassifications from accumulated other comprehensive loss to net (loss) income during the three months ended September 30, 2021. 12. Stock-based compensation The Company’s Amended and Restated 2015 Stock Incentive Plan and the vesting terms of certain stock-based awards granted are described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022. Stock option and restricted stock activity Options The following table summarizes stock option activity for the three months ended September 30, 2022 and 2021: Number of shares Weighted average exercise price ($) Weighted average remaining contractual term (in years) Aggregate intrinsic value ($'000) Weighted average grant date fair value ($) Outstanding - June 30, 2022 926,225 4.14 6.60 1,249 1.60 Exercised ( 2,000 ) 3.07 - 1 - Outstanding - September 30, 2022 924,225 4.14 6.36 226 1.60 Outstanding - June 30, 2021 1,294,832 3.93 7.68 1,624 1.45 Forfeited ( 85,000 ) 3.48 1.34 Outstanding - September 30, 2021 1,209,832 3.96 7.63 1,445 1.46 23 12. Stock-based compensation (continued) Stock option and restricted stock activity (continued) Options (continued) The following table presents stock options vested and expected to vest as of September 30, 2022: Number of shares Weighted average exercise price ($) Weighted average remaining contractual term (in years) Aggregate intrinsic value ($’000) Vested and expecting to vest - September 30, 2022 924,225 4.14 6.36 226 These options have an exercise price range of $ 3.01 to $ 11.23 . The following table presents stock options that are exercisable as of September 30, 2022: Number of shares Weighted average exercise price ($) Weighted average remaining contractual term (in years) Aggregate intrinsic value ($’000) Exercisable - September 30, 2022 378,674 5.01 5.19 35 No stock options became exercisable during the three months ended September 30, 2022. During the three months ended September 30, 2021, 75,000 stock options became exercisable. The Company issues new shares to satisfy stock option exercises. Restricted stock The following table summarizes restricted stock activity for the three months ended September 30, 2022 and 2021: Number of shares of restricted stock Weighted average grant date fair value ($’000) Non-vested – June 30, 2022 2,385,267 11,879 Total granted 212,080 1,167 Granted – July 2022 32,582 172 Granted – August 2022 179,498 995 Total vested ( 78,801 ) 410 Vested – July 2022 ( 78,801 ) 410 Non-vested – September 30, 2022 2,518,546 12,568 Non-vested – June 30, 2021 384,560 1,123 Total Granted 279,594 1,155 Granted – July 2021 234,608 963 Granted – August 2021 44,986 192 Non-vested – September 30, 2021 664,154 2,610 24 12. Stock-based compensation (continued) Stock option and restricted stock activity (continued) Restricted stock (continued) Grants In July 2022, the Company granted 32,582 shares of restricted stock to employees which have time -based vesting conditions. The Company agreed to match, on a one -for-one basis, an employee’s purchase of up to $ 1.0 million worth of the Company’s shares of common stock in open market purchases, and in August 2022, the Company granted 179,498 shares of restricted stock to the employee . These shares of restricted stock contain time-based vesting conditions. On July 1, 2021, the Company granted its Group Chief Executive Officer, 117,304 shares of restricted stock, which are subject to time-based vesting conditions and vest in full on June 30, 2024, subject to Mr. Meyer’s continued service to the Company through June 30, 2024. Mr. Meyer was also awarded 117,304 shares of restricted stock which include performance-based conditions and which only vest on June 30, 2024 if the performance conditions are met and Mr. Meyer remains employed with the Company through June 30, 2024. Vesting of half of these awards, or 58,652 shares of restricted stock, is subject to the Company achieving its three-year financial services plan during the specific measurement period from June 30, 2021, to June 30, 2024, and the other half is subject to share price growth targets, and only vest if the Company’s share price is $ 8.14 or higher on June 30, 2024. In August 2021, the Company awarded 44,986 shares of restricted stock to an employee which contained time and performance-based (market conditions related to share price performance) vesting conditions. As fully described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022, the Company granted a further 19,443 shares to an advisor during the three months ended September 30, 2022, which may not be transferred until the earlier of December 31, 2022, or the occurrence of the agreed event. Vesting In July 2022, 78,801 shares of restricted stock granted to Mr. Meyer vested and he elected for 35,460 shares to be withheld to satisfy the withholding tax liability on the vesting of these shares. These 35,460 shares have been included in our treasury shares. The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2022 and 2021, of $ 1.5 million and $ 0.3 million, respectively, which comprised: Total charge Allocated to cost of goods sold, IT processing, servicing and support Allocated to selling, general and administration Three months ended September 30, 2022 Stock-based compensation charge $ 1,462 $ - $ 1,462 Total - three months ended September 30, 2022 $ 1,462 $ - $ 1,462 Three months ended September 30, 2021 Stock-based compensation charge $ 344 $ - $ 344 Reversal of stock compensation charge related to stock options and restricted stock forfeited ( 35 ) - ( 35 ) Total - three months ended September 30, 2021 $ 309 $ - $ 309 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. 25 12. Stock-based compensation (continued) As of September 30, 2022, the total unrecognized compensation cost related to stock options was approximately $ 0.3 million, which the Company expects to recognize over approximately two years . As of September 30, 2022, the total unrecognized compensation cost related to restricted stock awards was approximately $ 9.9 million, which the Company expects to recognize over approximately three years . As of September 30, 2022, and June 30, 2022, respectively, the Company recorded a deferred tax asset of approximately $ 0.4 million and $ 0.3 million, related to the stock-based compensation charge recognized related to employees of Lesaka. As of September 30, 2022, and June 30, 2022, respectively, the Company recorded a valuation allowance of approximately $ 0.4 million and $ 0.3 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. 13. (Loss) Earnings per share The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method. There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended September 30, 2022 and 2021. Accordingly, the two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is described in Note 14 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022. Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended September 30, 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. Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. 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 210,530 shares of common stock from the calculation of diluted loss per share during the three months ended September 30, 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 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 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022. 26 13. (Loss) Earnings per share (continued) The following table presents net loss attributable to Lesaka and the share data used in the basic and diluted (loss) earnings per share computations using the two-class method: Three months ended September 30, 2022 2021 (in thousands except percent and per share data) Numerator: Net loss attributable to Lesaka $ ( 10,696 ) $ ( 12,994 ) Undistributed (loss) earnings $ ( 10,696 ) $ ( 12,994 ) Percent allocated to common shareholders (Calculation 1) 96 99 Numerator for (loss) earnings per share: basic and diluted ( 10,277 ) ( 12,915 ) Continuing ( 10,277 ) ( 12,915 ) Denominator Denominator for basic (loss) earnings per share: Weighted-average common shares outstanding 59,996 56,332 Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion 59,996 56,463 (Loss) Earnings per share: Basic $ ( 0.17 ) $ ( 0.23 ) Diluted $ ( 0.17 ) $ ( 0.23 ) (Calculation 1) Basic weighted-average common shares outstanding (A) 59,996 56,332 Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B) 62,445 56,678 Percent allocated to common shareholders (A) / (B) 96 99 Options to purchase 324,619 shares of the Company’s common stock at prices ranging from $ 4.87 to $ 11.23 per share were outstanding during the three months ended September 30, 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 270,832 shares of the Company’s common stock at prices ranging from $ 6.20 to $ 11.23 per share were outstanding during the three months ended September 30, 2021, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which expire at various dates through February 3, 2032, were still outstanding as of September 30, 2022. 14. Supplemental cash flow information The following table presents supplemental cash flow disclosures for the three months ended September 30, 2022 and 2021: Three months ended September 30, 2022 2021 Cash received from interest $ 409 $ 382 Cash paid for interest $ 4,011 $ 804 Cash paid for income taxes $ 677 $ 11 27 14. Supplemental cash flow information (continued) Leases The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 2022 and 2021: Three months ended September 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 805 $ 925 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 5,734 $ 504 15. Revenue recognition 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 September 30, 2022: Consumer Merchant Other Total Processing fees $ 6,535 $ 26,923 $ 374 $ 33,832 South Africa 6,535 26,028 - 32,563 Rest of world - 895 374 1,269 Technology products 37 3,897 - 3,934 South Africa 37 3,830 - 3,867 Rest of world - 67 - 67 Telecom products and services - 76,120 - 76,120 South Africa - 72,029 - 72,029 Rest of world - 4,091 - 4,091 Lending revenue 4,711 - - 4,711 Interest from customers - 1,223 - 1,223 Insurance revenue 2,181 - - 2,181 Account holder fees 1,411 - - 1,411 Other 129 1,245 - 1,374 South Africa 129 1,201 - 1,330 Rest of world - 44 - 44 Total revenue, derived from the following geographic locations 15,004 109,408 374 124,786 South Africa 15,004 104,311 - 119,315 Rest of world $ - $ 5,097 $ 374 $ 5,471 28 15. Revenue recognition (continued) Disaggregation of revenue (continued) The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 2021: Consumer Merchant Other Total Processing fees $ 7,659 $ 8,008 $ 427 $ 16,094 South Africa 7,659 8,008 - 15,667 Rest of world - - 427 427 Technology products 132 4,953 - 5,085 Telecom products and services - 2,277 - 2,277 Lending revenue 5,376 - - 5,376 Insurance revenue 2,193 - - 2,193 Account holder fees 1,443 - - 1,443 Other 361 1,675 - 2,036 Total revenue, derived from the following geographic locations 17,164 16,913 427 34,504 South Africa 17,164 16,913 - 34,077 Rest of world $ - $ - $ 427 $ 427 16. Leases The Company has entered into leasing arrangements classified as operating leases under accounting guidance. These leasing arrangements relate primarily to the lease of its corporate head office, administration offices and branch locations through which the Company operates its financial services business in South Africa. The Company’s operating leases have remaining lease terms of between one and five years . 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 September 30, 2022 and 2021 was $ 0.8 million and $ 0.9 million, respectively. The Company does not have any significant leases that have not commenced as of September 30, 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 September 30, 2022 and 2021 , was $ 1.1 million and $ 1.3 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 September 30, 2022 and June 30, 2022 : September 30, June 30, 2022 2022 Right of use assets obtained in exchange for lease obligations: Weighted average remaining lease term (years) 2.93 2.77 Weighted average discount rate (percent) 9.5 9.6 The maturities of the Company’s operating lease liabilities as of September 30, 2022, are presented below: Maturities of operating lease liabilities Year ended June 30, 2023 (excluding three months to September 30, 2022) $ 1,929 2024 1,812 2025 1,110 2026 892 2027 908 Thereafter 802 Total undiscounted operating lease liabilities 7,453 Less imputed interest 1,348 Total operating lease liabilities, included in 6,105 Operating lease liability - current 1,772 Operating lease liability - long-term $ 4,333 29 17. Operating segments Operating segments The Company discloses segment information as reflected in the management information systems reports that its chief operating decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in Note 21 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022. The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended September 30, 2022 and 2021, is as follows: Revenue Reportable Segment Inter-segment From external customers Consumer $ 15,004 $ - $ 15,004 Merchant 109,437 29 109,408 Other 374 - 374 Total for the three months ended September 30, 2022 $ 124,815 $ 29 $ 124,786 Consumer $ 17,164 $ - $ 17,164 Merchant 17,072 159 16,913 Other 427 - 427 Total for the three months ended September 30, 2021 $ 34,663 $ 159 $ 34,504 The Company evaluates segment performance based on segment earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”). The Company does not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), other items (including gains or losses on disposal of investments, fair value adjustments to equity securities, stock-based compensation charges, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to its reportable segments. The Lease adjustments reflect lease charges and the Stock-based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss before income tax expense. The reconciliation of the reportable segments’ measures of profit or loss to loss before income tax expense for the three months ended September 30, 2022 and 2021, is as follows: Three months ended September 30, 2022 2021 Reportable segments measure of profit or loss $ 6,499 $ ( 7,281 ) Operating loss: Corporate/Eliminations ( 2,898 ) ( 1,816 ) Lease adjustments ( 812 ) ( 924 ) Stock-based compensation charge adjustments ( 1,462 ) ( 309 ) Depreciation and amortization ( 5,998 ) ( 895 ) Gain on disposal of equity-accounted investments 248 - Interest income 411 389 Interest expense ( 4,036 ) ( 816 ) Loss before income tax expense (benefit) $ ( 8,048 ) $ ( 11,652 ) 30 17. Operating segments (continued) The following tables summarize segment information that is prepared in accordance with GAAP for the three months ended September 30, 2022 and 2021: Three months ended September 30, 2022 2021 Revenues Consumer $ 15,004 $ 17,164 Merchant 109,437 17,072 Other 374 427 Total reportable segment revenue 124,815 34,663 Segment Adjusted EBITDA Consumer ( 1,394 ) ( 9,356 ) Merchant 7,852 1,932 Other 41 143 Total Segment Adjusted EBITDA 6,499 ( 7,281 ) Corporate/Eliminations ( 2,898 ) ( 1,816 ) Subtotal 3,601 ( 9,097 ) Less: Lease adjustments 812 924 Less: Stock-based compensation adjustments 1,462 309 Less: Depreciation and amortization 5,998 895 Total operating loss ( 4,671 ) ( 11,225 ) Depreciation and amortization Consumer 245 652 Merchant 1,789 210 Other 12 15 Subtotal: Operating segments 2,046 877 Corporate/Eliminations 3,952 18 Total 5,998 895 Expenditures for long-lived assets Consumer 628 642 Merchant 3,868 56 Other 5 - Subtotal: Operating segments 4,501 698 Corporate/Eliminations - - Total $ 4,501 $ 698 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. The Company does not have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation and segment asset allocation is therefore not presented. 18. Income tax Income tax in interim periods For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related expenses that are reported separately, and have an impact on the tax charge. 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. The South African corporate income tax rate was expected to reduce from 28 % to 27 % from July 1, 2022. The change in the income tax rate has not been enacted as of September 30, 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 %. 31 18. Income tax (continued) Income tax in interim periods (continued) For the three months ended September 30, 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 September 30, 2021, the Company’s effective tax rate was impacted by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities. Uncertain tax positions The Company had no significant uncertain tax positions during the three months ended September 30, 2022, and therefore, the Company had no accrued interest related to uncertain tax positions on its balance sheet. The Company does no t 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. The Company has no unrecognized tax benefits. The Company files income tax returns mainly in South Africa, Germany, Hong Kong, India, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of September 30, 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, 2018. 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. 19. Commitments and contingencies Guarantees The South African Revenue Service and certain of the Company’s customers, suppliers and other business partners have asked the Company to provide them with guarantees, including standby letters of credit, issued by South African banks. 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 92.1 million ($ 5.1 million, translated at exchange rates applicable as of September 30, 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. RMB has issued guarantees to these third parties amounting to ZAR 33.1 million ($ 1.8 million, translated at exchange rates applicable as of September 30, 2022) thereby utilizing part of the Company’s short-term facilities. The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of September 30, 2022. The maximum potential amount that the Company could pay under these guarantees is ZAR 125.2 million ($ 7.0 million, translated at exchange rates applicable as of September 30, 2022). As discussed in Note 8, the Company has ceded and pledged certain bank accounts to Nedbank as security for the guarantees issued by them with an aggregate value of ZAR 95.1 million ($ 5.3 million, translated at exchange rates applicable as of September 30, 2022). The guarantees have reduced the amount available under its indirect and derivative facilities in the Company’s short-term credit facilities described in Note 8. Contingencies The Company is subject to a variety of insignificant claims and suits that arise from time to time in the ordinary course of business. Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows. 32