LESAKA TECHNOLOGIES INC 10-Q

Item 1. Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Balance Sheets September 30, June 30, 2023 2023 (A) (In thousands, except share data) ASSETS CURRENT ASSETS Cash and cash equivalents $ 35,141 $ 35,499 Restricted cash related to ATM funding and credit facilities (Note 8) 19,865 23,133 Accounts receivable, net and other receivables (Note 2) 27,939 25,665 Finance loans receivable, net (Note 2) 35,735 36,744 Inventory (Note 3) 27,754 27,337 Total current assets before settlement assets 146,434 148,378 Settlement assets 26,352 15,258 Total current assets 172,786 163,636 PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $ 35,331 June: $ 36,563 27,663 27,447 OPERATING LEASE RIGHT-OF-USE (Note 16) 5,655 4,731 EQUITY-ACCOUNTED INVESTMENTS (Note 5) 2,253 3,171 GOODWILL (Note 6) 133,139 133,743 INTANGIBLE ASSETS, NET (Note 6) 117,595 121,597 DEFERRED INCOME TAXES 9,859 10,315 OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7) 77,822 77,594 TOTAL ASSETS 546,772 542,234 LIABILITIES CURRENT LIABILITIES Short-term credit facilities for ATM funding (Note 8) 19,754 23,021 Short-term credit facilities (Note 8) 8,983 9,025 Accounts payable 13,595 12,380 Other payables (Note 9) 35,105 36,297 Operating lease liability - current (Note 16) 1,722 1,747 Current portion of long-term borrowings (Note 8) 3,630 3,663 Income taxes payable 1,292 1,005 Total current liabilities before settlement obligations 84,081 87,138 Settlement obligations 25,362 14,774 Total current liabilities 109,443 101,912 DEFERRED INCOME TAXES 45,713 46,840 OPERATING LEASE LIABILITY - LONG TERM (Note 16) 4,081 3,138 LONG-TERM BORROWINGS (Note 8) 130,587 129,455 OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) 2,253 1,982 TOTAL LIABILITIES 292,077 283,327 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: 63,638,912 June: 63,640,246 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 337,490 335,696 TREASURY SHARES, AT COST: September: 25,244,286 June: 25,244,286 ( 288,238 ) ( 288,238 ) ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11) ( 196,081 ) ( 195,726 ) RETAINED EARNINGS 322,012 327,663 TOTAL LESAKA EQUITY 175,266 179,478 NON-CONTROLLING INTEREST - - TOTAL EQUITY 175,266 179,478 TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY $ 546,772 $ 542,234 (A) – Derived from audited financial statements See Notes to Unaudited Condensed Consolidated Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Operations 3 Three months ended September 30, 2023 2022 (In thousands, except per share data) REVENUE (Note 15) $ 136,089 $ 124,786 EXPENSE Cost of goods sold, IT processing, servicing and support 107,490 100,528 Selling, general and administration 22,515 22,931 Depreciation and amortization 5,856 5,998 OPERATING INCOME (LOSS) 228 ( 4,671 ) REVERSAL OF (ALLOWANCE) OF EMI DOUBTFUL DEBT (Note 2 and 5) 250 - NET GAIN ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENTS (Note 5) - 248 INTEREST INCOME 449 411 INTEREST EXPENSE 4,909 4,036 LOSS BEFORE INCOME TAX EXPENSE ( 3,982 ) ( 8,048 ) INCOME TAX EXPENSE (Note 18) 264 31 NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS ( 4,246 ) ( 8,079 ) LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5) 1,405 2,617 NET LOSS $ ( 5,651 ) $ ( 10,696 ) Net loss per share, in United States dollars (Note 13): Basic loss attributable to Lesaka shareholders $ ( 0.09 ) $ ( 0.17 ) Diluted loss attributable to Lesaka shareholders $ ( 0.09 ) $ ( 0.17 ) See Notes to Unaudited Condensed Consolidated Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income 4 Three months ended September 30, 2023 2022 (In thousands) Net loss $ ( 5,651 ) $ ( 10,696 ) Other comprehensive (loss) income, net of taxes Movement in foreign currency translation reserve ( 844 ) ( 22,093 ) Movement in foreign currency translation reserve related to equity-accounted investments 489 2,441 Release of foreign currency translation reserve related to disposal of Finbond equity securities - 2 Total other comprehensive loss, net of taxes ( 355 ) ( 19,650 ) Comprehensive loss ( 6,006 ) ( 30,346 ) Add comprehensive loss attributable to non-controlling interest - - Comprehensive loss attributable to Lesaka $ ( 6,006 ) $ ( 30,346 ) See Notes to Unaudited Condensed Consolidated Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Changes in Equity 5 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 options 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 LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Changes in Equity 6 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, 2023 (dollar amounts in thousands) Balance – July 1, 2023 88,884,532 $ 83 ( 25,244,286 ) $ ( 288,238 ) 63,640,246 $ 335,696 $ 327,663 $ ( 195,726 ) $ 179,478 $ - $ 179,478 $ 79,429 Exercise of stock option (Note 12) 6,793 - 6,793 21 21 21 Stock-based compensation charge (Note 12) - - 1,768 1,768 1,768 Reversal of stock-based compensation charge (Note 12) ( 8,127 ) ( 8,127 ) ( 9 ) ( 9 ) ( 9 ) Stock-based compensation charge related to equity-accounted investment (Note 5) 14 14 14 Net loss ( 5,651 ) ( 5,651 ) - ( 5,651 ) Other comprehensive loss (Note 11) ( 355 ) ( 355 ) - ( 355 ) Balance – September 30, 2023 88,883,198 $ 83 ( 25,244,286 ) $ ( 288,238 ) 63,638,912 $ 337,490 $ 322,012 $ ( 196,081 ) $ 175,266 $ - $ 175,266 $ 79,429 See Notes to Unaudited Condensed Consolidated Financial Statements LESAKA TECHNOLOGIES, INC. Unaudited Condensed Consolidated Statements of Cash Flows 7 Three months ended September 30, 2023 2022 (In thousands) Cash flows from operating activities Net loss $ ( 5,651 ) $ ( 10,696 ) Depreciation and amortization 5,856 5,998 Movement in allowance for doubtful accounts receivable and finance loans receivable 1,525 1,049 Loss from equity-accounted investments (Note 5) 1,405 2,617 Movement in allowance for doubtful loans to equity-accounted investments ( 250 ) - Fair value adjustment related to financial liabilities ( 34 ) 63 Interest payable 1,764 26 Facility fee amortized 227 249 Net gain on disposal of equity-accounted investments (Note 5) - ( 248 ) Profit on disposal of property, plant and equipment ( 36 ) ( 208 ) Stock-based compensation charge (Note 12) 1,759 1,462 Dividends received from equity-accounted investments - 21 Increase in accounts receivable and other receivables ( 2,345 ) ( 2,943 ) Increase in finance loans receivable ( 488 ) ( 3,581 ) Increase in inventory ( 479 ) ( 279 ) Increase (Decrease) in accounts payable and other payables 375 ( 438 ) Increase in taxes payable 308 642 Decrease in deferred taxes ( 562 ) ( 1,394 ) Net cash provided by (used in) operating activities 3,374 ( 7,660 ) Cash flows from investing activities Capital expenditures ( 2,809 ) ( 4,501 ) Proceeds from disposal of property, plant and equipment 284 417 Acquisition of intangible assets ( 135 ) - 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 ( 11,237 ) ( 1,884 ) Net cash used in investing activities ( 13,897 ) ( 5,715 ) Cash flows from financing activities Proceeds from bank overdraft (Note 8) 59,574 146,068 Repayment of bank overdraft (Note 8) ( 62,793 ) ( 136,922 ) Long-term borrowings utilized (Note 8) 2,471 1,059 Repayment of long-term borrowings (Note 8) ( 2,629 ) ( 1,580 ) Acquisition of treasury stock (Note 12) - ( 185 ) Proceeds from exercise of stock options 21 6 Net change in settlement obligations 10,696 1,987 Net cash provided by financing activities 7,340 10,433 Effect of exchange rate changes on cash ( 443 ) ( 8,487 ) Net decrease in cash, cash equivalents and restricted cash ( 3,626 ) ( 11,429 ) Cash, cash equivalents and restricted cash – beginning of period 58,632 104,800 Cash, cash equivalents and restricted cash – end of period (Note 14) $ 55,006 $ 93,371 See Notes to Unaudited Condensed Consolidated Financial Statements 8 LESAKA TECHNOLOGIES, INC Notes to the Unaudited Condensed Consolidated Financial Statements for the three months ended September 30, 2023 and 2022 (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, 2023 and 2022, 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, 2023. 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 June 2016, the Financial Accounting Standards Board 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. The guidance became effective for the Company beginning July 1, 2023. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures, refer to Note 2. 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 guidance became effective for the Company beginning July 1, 2023. The adoption of this guidance did not have a material impact on the Company’s financial statements and related disclosures, refer to Note 2. The Company’s updated accounting policy regarding allowance for credit losses is as follows: Allowance for doubtful accounts receivable Allowance for doubtful finance loans receivable The Company uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for its lending books. The allowance for credit losses related to Consumer finance loans receivables is calculated by multiplying the lifetime loss rate with the month-end outstanding lending book. The allowance for credit losses related to Merchant finance loans receivables is calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding lending book. Prior to July 1, 2023, the Company regularly reviewed the ageing of outstanding amounts due from borrowers and adjusted its allowance based on management’s estimate of the recoverability of the finance loans receivable. The Company writes off microlending finance loans receivable and related service fees and interest if a borrower is in arrears with repayments for more than three months or is deceased. The Company writes off merchant and working capital finance receivables and related fees when it is evident that reasonable recovery procedures, including where deemed necessary, formal legal action, have failed. 9 1. Basis of Presentation and Summary of Significant Accounting Policies (continued) Allowance for doubtful accounts receivable (continued) Allowance for doubtful accounts receivable The Company uses a lifetime loss rate by expressing write-off experience as a percentage of corresponding invoice amounts (as opposed to outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the lifetime loss rate with recent invoice/origination amounts. Prior to July 1, 2023, A specific provision is established where it is considered likely that all or a portion of the amount due from customers renting safe assets, point of sale (“POS”) equipment, receiving support and maintenance or transaction services or purchasing licenses or SIM cards from the Company will not be recovered. Non- recoverability is assessed based on a quarterly review by management of the ageing of outstanding amounts, the location and the payment history of the customer in relation to those specific amounts. Recent accounting pronouncements not yet adopted as of September 30, 2023 There are no recent accounting pronouncements that have not yet been adopted as of September 30, 2023. 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, 2023, and June 30, 2023, are presented in the table below: September 30, June 30, 2023 2023 Accounts receivable, trade, net $ 10,231 $ 11,037 Accounts receivable, trade, gross 10,401 11,546 Allowance for doubtful accounts receivable, end of period 170 509 Beginning of period 509 509 Reallocation to allowance for doubtful finance loans receivable - ( 418 ) Reversed to statement of operations ( 235 ) ( 31 ) Charged to statement of operations 179 2,005 Utilized ( 284 ) ( 1,645 ) Foreign currency adjustment 1 89 Current portion of amount outstanding related to sale of interest in Carbon, net of allowance: September 2023: $ 750 ; June 2023: $ 750 250 - 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 17,458 14,628 Total accounts receivable, net and other receivables $ 27,939 $ 25,665 Trade receivables include amounts due from customers which generally have a very short-term life from date of invoice or service provided to settlement. The duration is less than a year in all cases and generally less than 30 days in many instances. The short-term nature of these exposures often results in balances at month-end that are disproportionately small compared to the total invoiced amounts. The month-end outstanding balance are more volatile than the monthly invoice amounts because they are affected by operational timing issues and the fact that a balance is outstanding at month-end is not necessarily an indication of increased risk but rather a matter of operational timing. Credit risk in respect of trade receivables are generally not significant and the Company has not developed a sophisticated model for these basic credit exposures. The Company determined to use a lifetime loss rate by expressing write-off experience as a percentage of corresponding invoice amounts (as opposed to outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the lifetime loss rate with recent invoice/origination amounts. Management actively monitors performance of these receivables over short periods of time. Different balances have different rules to identify an account in distress but, generally speaking, account balances in distress are identified very early and specific allowances are immediately created. Subsequent recovery from distressed accounts are generally limited. 10 2. Accounts receivable, net and other receivables and finance loans receivable, net (continued) Accounts receivable, net and other receivables (continued) Current portion of amount outstanding related to sale of interest in Carbon represents the amount due from the purchaser related to the sale of the Company’s interest in Carbon Tech Limited (“Carbon”), an equity-accounted investment of $ 0.25 million, net of an allowance for doubtful loans receivable of $ 0.25 million as of June 30, 2023, and an amount due related to the sale of the 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, refer to Note 5 for additional information. The Company received the outstanding $ 0.25 million related to the sale of the equity-accounted investment in October 2023, and has reversed the allowance for doubtful loans receivable of $ 0.25 million during the three months ended September 30, 2023. 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 forms part of Cell C’s capital structure. The carrying value as of each of September 30, 2023, and June 30, 2023, respectively was $ 0 (zero). Other receivables includes prepayments, deposits, income taxes receivable and other receivables. Contractual maturities of held to maturity investments Summarized below is the contractual maturity of the Company’s held to maturity investment as of September 30, 2023: 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). 11 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, 2023, and June 30, 2023, is presented in the table below: September 30, June 30, 2023 2023 Microlending finance loans receivable, net $ 20,877 $ 20,605 Microlending finance loans receivable, gross 22,328 22,037 Allowance for doubtful finance loans receivable, end of period 1,451 1,432 Beginning of period 1,432 1,394 Reversed to statement of operations ( 27 ) - Charged to statement of operations 416 1,452 Utilized ( 364 ) ( 1,214 ) Foreign currency adjustment ( 6 ) ( 200 ) Merchant finance loans receivable, net 14,858 16,139 Merchant finance loans receivable, gross 17,800 18,289 Allowance for doubtful finance loans receivable, end of period 2,942 2,150 Beginning of period 2,150 297 Reallocation from allowance for doubtful accounts receivable - 418 Reversed to statement of operations ( 202 ) ( 1,268 ) Charged to statement of operations 1,394 3,068 Utilized ( 376 ) - Foreign currency adjustment ( 24 ) ( 365 ) Total finance loans receivable, net $ 35,735 $ 36,744 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). Allowance for credit losses Microlending finance loans receivable Microlending finance loans receivable related to the Company’s microlending operations in South Africa whereby it provides unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to six months , with the majority of loans originated having a tenor of six months . The Company analyses this lending book as a single portfolio because the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk of the lending book. Refer to Note 4 related to the Company risk management process related to these receivables. The Company has operated this lending book for more than five years and uses historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for the lending book. The allowance for credit losses related to these microlending finance loans receivables is calculated by multiplying the lifetime loss rate with the month end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and September 30, 2023, was 6.50 %. The performing component (that is, outstanding loan payments not in arrears) of the book exceeds more than 99 % of outstanding lending book as of September 30, 2023. Merchant finance loans receivable Merchant finance loans receivable related to the Company’s Merchant lending activities in South Africa whereby it provides unsecured short-term loans to qualifying customers. Loans to customers have a tenor of up to twelve months , with the majority of loans originated having a tenor of approximately seven months . The Company analyses this lending book as a single portfolio because the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk of the lending book. Refer to Note 4 related to the Company risk management process related to these receivables. 12 2. Accounts receivable, net and other receivables and finance loans receivable, net (continued) Finance loans receivable, net (continued) Allowance for credit losses (continued) Microlending finance loans receivable (continued) The Company has recently (in the past two years ) commenced lending to merchant customers and uses historical default experience over the lifetime of loans generated thus far in order to calculate a lifetime loss rate for the lending book. The allowance for credit losses related to these merchant finance loans receivables is calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and September 30, 2023, was approximately 1.18 %. The performing component (that is, outstanding loan payments not in arrears), under- performing component (that is, outstanding loan payments that are in arrears) and non-performing component (that is, outstanding loans for which payments appeared to have ceased) of the book represents approximately 84 %, 11 % and 5 %, respectively, of the outstanding lending book as of September 30, 2023. 3. Inventory The Company’s inventory comprised the following categories as of September 30, 2023, and June 30, 2023: September 30, June 30, 2023 2023 Raw materials $ 2,642 $ 2,819 Work-in-progress 230 30 Finished goods 24,882 24,488 $ 27,754 $ 27,337 As of September 30, 2023 and June 30, 2023, finished goods includes $ 8.5 million and $ 8.6 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 is calculated as ZAR 10 million less the face value of any sales made by the Company during that month. The Company’s 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, the Company has sold higher volumes of airtime through this channel than it did prior to the Cell C recapitalization, however, continued sales at these volumes is dependent on prevailing conditions continuing in the airtime market. 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. 13 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 its 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. Consumer microlending credit risk The Company is exposed to credit risk in its Consumer 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 origination process, both of which are in line with local regulations. The Company considers this policy to be appropriate because the affordability test it performs takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional allowances may be required should the ability of its customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation of the creditworthiness of each customer. Merchant lending The Company maintains an allowance for doubtful finance loans receivable related to its Merchant services segment with respect to short-term loans to qualifying merchant customers. The Company’s risk management procedures include adhering to its proprietary lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit bureau checks. The Company considers these procedures to be appropriate because it takes into account a variety of factors such as the customer’s credit capacity and customer-specific risk factors when originating a loan. 14 4. Fair value of financial instruments (continued) Risk management (continued 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. 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, 2023 and June 30, 2023, respectively, and valued Cell C at $ 0.0 (zero) and $ 0.0 (zero) as of September 30, 2023, and June 30, 2023, respectively. 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 24 % due to the reduction in the Company’s 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, 2023, and June 30, 2023, 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, 2023 and June 30, 2023: Weighted Average Cost of Capital ("WACC"): Between 20 % and 31 % over the period of the forecast Long term growth rate: 4.5 % ( 4.5 % as of June 30, 2023) Marketability discount: 20 % ( 20 % as of June 30, 2023) Minority discount: 24 % ( 24 % as of June 30, 2023) Net adjusted external debt - September 30, 2023: (1) ZAR 8 billion ($ 0.4 billion), no lease liabilities included Net adjusted external debt - June 30, 2023: (2) ZAR 8.1 billion ($ 0.4 billion), no lease liabilities included (1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2023. (2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023. 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, 2023, all amounts translated at exchange rates applicable as of September 30, 2023: Sensitivity for fair value of Cell C investment 1.0% increase 1.00% decrease WACC rate $ - $ 621 EBITDA margin $ 1,954 $ - The fair value of the Cell C shares as of September 30, 2023, 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 that Cell C remains in a turnaround process. 15 4. Fair value of financial instruments (continued) Financial instruments 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, 2023, and June 30, 2023. The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30, 2023, 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) 251 - - 251 Fixed maturity investments (included in cash and cash equivalents) 3,661 - - 3,661 Foreign exchange contracts - - - - Total assets at fair value $ 3,912 $ - $ - $ 3,912 The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2023, 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) 258 - - 258 Fixed maturity investments (included in cash and cash equivalents) 3,119 - - 3,119 Total assets at fair value $ 3,377 $ - $ - $ 3,377 There have been no transfers in or out of Level 3 during the three months ended September 30, 2023 and 2022, 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, 2023 and 2022. 16 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, 2023: Carrying value Assets Balance as of June 30, 2023 $ - Foreign currency adjustment (1) - Balance as of September 30, 2023 $ - (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. 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, 2023 $ - (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, 2023, 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, 2023, and June 30, 2023, was as follows: September 30, June 30, 2023 2023 Finbond Group Limited (“Finbond”) 27.8 % 27.8 % Sandulela Technology (Pty) Ltd ("Sandulela") 49.0 % 49.0 % SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”) 50.0 % 50.0 % Finbond As of September 30, 2023, the Company owned 220,523,358 shares in Finbond representing approximately 27.8 % of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 29, 2023, the last trading day of the month, was ZAR 0.41 per share. The market value, using the September 29, 2023, closing price, of the Company’s holding in Finbond on September 30, 2023, was ZAR 90.4 million ($ 4.8 million translated at exchange rates applicable as of September 30, 2023). 17 5. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) Finbond (continued) August 2023 agreement to sell entire stake in Finbond On August 10, 2023, the Company, through its wholly owned subsidiary Net1 Finance Holdings (Pty) Ltd, entered into an agreement with Finbond to sell its remaining shareholding to Finbond for a cash consideration of ZAR 64.2 million ($ 3.4 million using exchange rates applicable as of September 30, 2023), or ZAR 0.2911 per share. The transaction is subject to certain conditions, including regulatory and shareholder approvals, and all conditions are required to be fulfilled on or before December 31, 2023, otherwise the transaction will lapse. Sale of Finbond shares during the three months ended September 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. 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 ) Finbond impairments recorded during the three months ended September 30, 2023 As noted earlier, the Company has entered into an agreement to exit its position in Finbond and the Company considered this an impairment indicator. The Company is required to include any foreign currency translation reserve and other equity account amounts in its impairment assessment if it considers exiting an equity method investment. The Company performed an impairment assessment of its holding in Finbond, including the foreign currency translation reserve and other equity account amounts, as of September 30, 2023. The Company recorded an impairment loss of $ 1.2 million during the quarter ended September 30, 2023, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value, including the foreign currency translation reserve (before the impairment). The Company used the price of ZAR 0.2911 referenced in the August 2023 agreement referred to above to calculate the determined fair value for Finbond. Finbond impairments recorded during the three months ended September 30, 2022 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). The Company observed continued limited trading in Finbond shares on the JSE during the three months ended September 30, 2022, because a small number of shareholders owned 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 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. 18 5. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) 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 $ 3.0 million, to Etobicoke for $ 0.75 million. Both the equity interest and the loan had a carrying value of $ 0 (zero) 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 (the amount was received in October 2023), and (ii) the remaining amount, of $ 0.75 million in March 2024. Both amounts are included in the caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2023. 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 (zero), which is 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. Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the three months ended September 30, 2023: Finbond Other (1) Total Investment in equity Balance as of June 30, 2023 $ 3,040 $ 131 $ 3,171 Stock-based compensation 14 - 14 Comprehensive income: ( 956 ) 40 ( 916 ) Other comprehensive income 489 - 489 Equity accounted (loss) earnings ( 1,445 ) 40 ( 1,405 ) Share of net (loss) earnings ( 278 ) 40 ( 238 ) Impairment ( 1,167 ) - ( 1,167 ) Foreign currency adjustment (2) ( 14 ) ( 2 ) ( 16 ) Balance as of September 30, 2023 $ 2,084 $ 169 $ 2,253 (1) Includes Sandulela, and SmartSwitch Namibia; (2) The foreign currency adjustment represents the effects of the fluctuations of the ZAR and Namibian dollar, against the U.S. dollar on the carrying value. 19 5. Equity-accounted investments and other long-term assets (continued) Other long-term assets Summarized below is the breakdown of other long-term assets as of September 30, 2023, and June 30, 2023: September 30, June 30, 2023 2023 Total equity investments $ 76,297 $ 76,297 Investment in 5 % of Cell C (June 30, 2023: 5 %) at fair value (Note 4) - - Investment in 10 % of MobiKwik (June 30, 2023: 10 %) (1) 76,297 76,297 Investment in 87.5 % of CPS (June 30, 2023: 87.5 %) at fair value (1)(2) - - Policy holder assets under investment contracts (Note 7) 251 257 Reinsurance assets under insurance contracts (Note 7) 1,274 1,040 Total other long-term assets $ 77,822 $ 77,594 (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. 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, 2023: 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, 2023: 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 20 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, 2023: Gross value Accumulated impairment Carrying value Balance as of June 30, 2023 $ 152,619 $ ( 18,876 ) $ 133,743 Foreign currency adjustment (1) ( 664 ) 60 ( 604 ) Balance as of September 30, 2023 $ 151,955 $ ( 18,816 ) $ 133,139 (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 Carrying value Balance as of June 30, 2023 $ - $ 133,743 $ 133,743 Foreign currency adjustment (1) - ( 604 ) ( 604 ) Balance as of September 30, 2023 $ - $ 133,139 $ 133,139 (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. 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, 2023, and June 30, 2023: As of September 30, 2023 As of June 30, 2023 Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value Finite-lived intangible assets: Customer relationships $ 24,865 $ ( 12,005 ) $ 12,860 $ 24,978 $ ( 11,565 ) $ 13,413 Software, integrated platform and unpatented technology 110,535 ( 16,419 ) 94,116 110,906 ( 13,711 ) 97,195 FTS patent 2,025 ( 2,025 ) - 2,034 ( 2,034 ) - Brands and trademarks 13,789 ( 3,170 ) 10,619 13,852 ( 2,863 ) 10,989 Total finite-lived intangible assets $ 151,214 $ ( 33,619 ) $ 117,595 $ 151,770 $ ( 30,173 ) $ 121,597 Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30, 2023 and 2022, was approximately $ 3.6 million and $ 4.0 million, respectively. Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30, 2023, 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 2024 (three months ended September 30, 2023) $ 10,742 Fiscal 2025 14,327 Fiscal 2026 14,328 Fiscal 2027 14,274 Fiscal 2028 14,232 Thereafter 49,692 Total future estimated annual amortization expense $ 117,595 21 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, 2023: Reinsurance Assets (1) Insurance contracts (2) Balance as of June 30, 2023 $ 1,040 $ ( 1,600 ) Increase in policy holder benefits under insurance contracts 378 ( 1,952 ) Claims and decrease in policyholders’ benefits under insurance contracts ( 136 ) 1,671 Foreign currency adjustment (3) ( 8 ) 10 Balance as of September 30, 2023 $ 1,274 $ ( 1,871 ) (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). 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, 2023: Assets (1) Investment contracts (2) Balance as of June 30, 2023 $ 257 $ ( 241 ) Increase in policy holder benefits under investment contracts 3 ( 3 ) Foreign currency adjustment (3) ( 9 ) 1 Balance as of September 30, 2023 $ 251 $ ( 243 ) (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. 22 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, 2023, for additional information regarding its borrowings. South Africa The amounts below have been translated at exchange rates applicable as of the dates specified. The 3-month Johannesburg Interbank Agreed Rate (“JIBAR”) on September 30, 2023, was 8.33 %. The prime rate on September 30, 2023, was 11.75 %. RMB Facilities, as amended, comprising a short-term facility (Facility E) and long-term borrowings Long-term borrowings - Facility G and Facility H As of September 30, 2023, the Company’s had utilized ZAR 10.0 million ($ 0.5 million) of its ZAR 200 million Facility G revolving credit facility. The interest rate on this facility as of September 30, 2023, was JIBAR plus 5.50 %. Available short-term facility - Facility E As of September 30, 2023, the aggregate amount of the Company’s short-term South African overdraft facility with RMB was ZAR 1.4 billion ($ 74.0 million). As of September 30, 2023, the Company had utilized approximately ZAR 0.4 billion ($ 19.8 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. Connect Facilities, comprising long-term borrowings and a short-term facility As of September 30, 2023, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR 205.0 million (of which ZAR 170.0 million has been utilized); (ii) Facility A of ZAR 700.0 million; (iii) Facility B of ZAR 550.0 million (both fully utilized); and (iv) an asset-backed facility of ZAR 200.0 million (of which ZAR 152.5 million has been utilized). CCC Revolving Credit Facility, comprising long-term borrowings As of September 30, 2023, the amount of the CCC Revolving Credit Facility was ZAR 300.0 million (of which ZAR 205.5 million has been utilized). Interest on the Revolving Credit Facility is payable on the last business day of each calendar month and is based on the South African prime rate in effect from time to time plus a margin of 0.95 % per annum. RMB facility, comprising indirect facilities As of September 30, 2023, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB was ZAR 135.0 million ($ 7.1 million), which includes facilities for guarantees, letters of credit and forward exchange contracts. As of September 30, 2023 and June 30, 2023, the Company had utilized approximately ZAR 33.1 million ($ 1.7 million) and ZAR 33.1 million ($ 1.8 million), respectively, of its indirect and derivative facilities of ZAR 135.0 million (June 30, 2023: 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, 2023, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 156.6 million ($ 8.3 million). The credit facility represents indirect and derivative facilities of up to ZAR 156.6 million ($ 8.3 million), which include guarantees, letters of credit and forward exchange contracts. As of September 30, 2023 and June 30, 2023, the Company had utilized approximately ZAR 2.1 million ($ 0.1 million) and ZAR 2.1 million ($ 0.1 million), respectively, of its indirect and derivative facilities of ZAR 156.6 million (June 30, 2023: ZAR 156.6 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19). 23 8. Borrowings (continued) Movement in short-term credit facilities Summarized below are the Company’s short-term facilities as of September 30, 2023, and the movement in the Company’s short- term facilities from as of June 30, 2023 to as of September 30, 2023: RMB RMB RMB Nedbank Facility E Indirect Connect Facilities Total Short-term facilities available as of September 30, 2023 $ 73,982 $ 7,134 $ 10,833 $ 8,273 $ 100,222 Overdraft - - 10,833 - 10,833 Overdraft restricted as to use for ATM funding only 73,982 - - - 73,982 Indirect and derivative facilities - 7,134 - 8,273 15,407 Movement in utilized overdraft facilities: Restricted as to use for ATM funding only 23,021 - - - 23,021 No restrictions as to use - - 9,025 - 9,025 Balance as of June 30, 2023 23,021 - 9,025 - 32,046 Utilized 59,574 - - - 59,574 Repaid ( 62,793 ) - - - ( 62,793 ) Foreign currency adjustment (1) ( 48 ) - ( 42 ) - ( 90 ) Balance as of September 30, 2023 19,754 - 8,983 - 28,737 Restricted as to use for ATM funding only 19,754 - - - 19,754 No restrictions as to use $ - $ - $ 8,983 $ - $ 8,983 Interest rate as of September 30, 2023 (%) (2) 11.75 - 11.65 - Movement in utilized indirect and derivative facilities: Balance as of June 30, 2023 $ - $ 1,757 $ - $ 112 $ 1,869 Foreign currency adjustment (1) - ( 8 ) - - ( 8 ) Balance as of September 30, 2023 $ - $ 1,749 $ - $ 112 $ 1,861 (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 %. 24 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, 2023 to as of September 30, 2023: Facilities G & H A&B CCC Asset backed Total Included in current $ - $ - $ - $ 3,663 $ 3,663 Included in long-term 48,965 64,436 11,802 4,252 129,455 Opening balance as of June 30, 2023 48,965 64,436 11,802 7,915 133,118 Facilities utilized 1,372 - - 1,099 2,471 Facilities repaid ( 797 ) - ( 904 ) ( 928 ) ( 2,629 ) Non-refundable fees paid - - - - - Non-refundable fees amortized 202 12 13 - 227 Capitalized interest 1,756 - - - 1,756 Capitalized interest repaid ( 58 ) - - - ( 58 ) Foreign currency adjustment (1) ( 297 ) ( 293 ) ( 50 ) ( 28 ) ( 668 ) Closing balance as of September 30, 2023 51,143 64,155 10,861 8,058 134,217 Included in current - - - 3,630 3,630 Included in long-term 51,143 64,155 10,861 4,428 130,587 Unamortized fees ( 397 ) ( 210 ) ( 53 ) - ( 660 ) Due within 2 years - - - 3,179 3,179 Due within 3 years 51,540 4,954 10,914 1,142 68,550 Due within 4 years - 7,596 - 104 7,700 Due within 5 years $ - $ 51,815 $ - $ 3 $ 51,818 Interest rates as of September 30, 2023 (%): 13.83 12.08 12.70 12.50 Base rate (%) 8.33 8.33 11.75 11.75 Margin (%) 5.50 3.75 0.95 0.75 Footnote number (2) (3) (4) (5) (1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar. (2) Interest on Facility G and Facility H is calculated based on the 3-month JIBAR in effect from time to time plus a margin of, from January 1, 2023: (i) 5.50 % for as long as the aggregate balance under the Facilities is greater than ZAR 800 million; (ii) 4.25 % if the aggregate balance under the Facilities is equal to or less than ZAR 800 million, but greater than ZAR 350 million; or (iii) 2.50 % if the aggregate balance under the Facilities is less than ZAR 350 million (3) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of 3.75 %, in effect from time to time. (4) Interest is charged at prime plus 0.95 % per annum on the utilized balance. (5) Interest is charged at prime plus 0.75 % 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, 2023 and 2022, was $ 4.0 million and $ 2.7 million, respectively. Prepaid facility fees amortized included in interest expense during the three months ended September 30, 2023 and 2022, respectively, were $ 0.2 million and $ 0.2 million, respectively. Interest expense incurred under the Company’s K2020 and CCC facilities relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and this interest expense of $ 0.4 million and $ 0.2 million, respectively, 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, 2023 and 2022. 25 9. Other payables Summarized below is the breakdown of other payables as of September 30, 2023, and June 30, 2023: September 30, June 30, 2023 2023 Accruals $ 6,619 $ 7,078 Provisions 3,282 7,429 Value -added tax payable 983 1,247 Payroll-related payables 2,125 1,038 Participating merchants' settlement obligation 39 39 Other 22,057 19,466 $ 35,105 $ 36,297 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, 2023 and 2022, respectively: September 30, September 30, 2023 2022 Number of shares, net of treasury: Statement of changes in equity 63,638,912 62,522,384 Non-vested equity shares that have not vested as of end of period 2,527,492 2,518,546 Number of shares, net of treasury, excluding non-vested equity shares that have not vested 61,111,420 60,003,838 11. Accumulated other comprehensive loss The table below presents the change in accumulated other comprehensive loss per component during the three months ended September 30, 2023: Three months ended September 30, 2023 Accumulated foreign currency translation reserve Total Balance as of July 1, 2023 $ ( 195,726 ) $ ( 195,726 ) Movement in foreign currency translation reserve related to equity-accounted investment 489 489 Movement in foreign currency translation reserve ( 844 ) ( 844 ) Balance as of September 30, 2023 $ ( 196,081 ) $ ( 196,081 ) 26 11. Accumulated other comprehensive loss (continued) The table below presents the change in accumulated other comprehensive loss 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 disposal of Finbond equity securities 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 ) There were no reclassifications from accumulated other comprehensive loss to net (loss) income during the three months ended September 30, 2023. 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). 12. Stock-based compensation The Company’s Amended and Restated 2022 Stock Incentive Plan (“20 22 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, 2023. Stock option and restricted stock activity Options The following table summarizes stock option activity for the three months ended September 30, 2023 and 2022: 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, 2023 673,274 4.37 5.14 239 1.67 Exercised ( 6,793 ) 3.07 - 5 - Forfeited ( 175,776 ) 3.58 - - 1.22 Outstanding - September 30, 2023 490,705 4.68 6.30 199 1.82 Outstanding - June 30, 2022 926,225 4.14 6.60 1,249 1.60 Exercised ( 2,000 ) 3.07 - 1 - Forfeited - - - - - Outstanding - September 30, 2022 924,225 4.14 6.36 226 1.60 No stock options were awarded during each of the three months ended September 30, 2023 and 2022. During the three months ended September 30, 2023 and 2022, respectively, the Company received approximately $ 0.02 million and $ 0.006 million from the exercise of 6,793 and 2,000 stock options. Employees and a non-employee director forfeited an aggregate of 175,776 stock options during the three months ended September 30, 2023. No stock options were forfeited during the three months ended September 30, 2022. 27 12. Stock-based compensation Stock option and restricted stock activity Options The following table presents stock options vested and expected to vest as of September 30, 2023: 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, 2023 490,705 4.68 6.30 199 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, 2023: Number of shares Weighted average exercise price ($) Weighted average remaining contractual term (in years) Aggregate intrinsic value ($’000) Exercisable - September 30, 2023 341,317 5.05 5.77 121 No stock options became exercisable during each of the three months ended September 30, 2023 and 2022. 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, 2023 and 2022: Number of shares of restricted stock Weighted average grant date fair value ($’000) Non-vested – June 30, 2023 2,614,419 11,869 Total vested ( 78,800 ) 302 Forfeitures ( 8,127 ) 32 Non-vested – September 30, 2023 2,527,492 11,475 Non-vested – June 30, 2022 2,385,267 11,879 Total Granted 212,080 1,167 Granted – July 2021 32,582 172 Granted – August 2021 179,498 995 Total vested ( 78,801 ) 410 Vested – July 2022 ( 78,801 ) 410 Non-vested – September 30, 2022 2,518,546 12,568 28 12. Stock-based compensation (continued) Stock option and restricted stock activity (continued) Restricted stock (continued) Grants No restricted stock was awarded during the three months ended September 30, 2023. 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. In October 2023, the Company awarded 225,000 shares of restricted stock to an executive officer which vest on June 30, 2025, except if the executive officer is terminated for cause, in which case the award will be forfeited. The Company also awarded 310,916 shares of restricted stock to three of its executive officers which are subject to a time-based vesting condition and a market condition and vest in full only on the date, if any, that the following conditions are satisfied: (1) a compounded annual 10 % appreciation in the Company’s stock price off a base price of $ 4.00 over the measurement period commencing on September 30, 2023 through November 17, 2026, and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The Company’s closing price on September 30, 2023, was $ 3.90 . The appreciation levels (times and price) and vesting percentages as of each period ended are as follows: ● Prior to the first anniversary of the grant date: 0 %; ● Fiscal 2025, the Company’s 30-day volume weighted-average stock price (“VWAP”) before November 17, 2024 is approximately 1.10 times higher (i.e. $ 4.40 or higher) than $ 4.00 : 33 %; ● Fiscal 2026, the Company’s VWAP before November 17, 2025 is 1.21 times higher (i.e. $ 4.84 or higher) than $ 4.00 : 67 %; ● Fiscal 2027, the Company’s VWAP before November 1, 2026 is 1.33 times higher (i.e. $ 5.32 ) than $ 4.00 : 100 %. The Company also awarded 333,080 shares of restricted stock with time-based vesting conditions to approximately 150 employees in October 2023, which are subject to the employees continued employment with the Company through the applicable vesting dates. The Company has not yet determined the fair value of these shares of restricted stock awarded in October 2023. 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, 2023, the Company granted 19,443 shares to an advisor during the three months ended September 30, 2022 which were ineligible for transfer until the earlier of December 31, 2022, or the occurrence of the agreed event. Vesting In July 2023, 78,800 shares of restricted stock granted to Mr. Meyer vested. 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. The 35,460 shares have been included in the Company’s treasury shares. Forfeitures During the three months ended September 30, 2023, employees forfeited 8,127 shares of restricted stock following their termination of employment with the Company. No shares of restricted stock were forfeited during the three months ended September 30, 2022. 29 12. Stock-based compensation (continued) Stock-based compensation charge and unrecognized compensation cost The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2023 and 2022, of $ 1.8 million and $ 1.5 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, 2023 Stock-based compensation charge $ 1,768 $ - $ 1,768 Reversal of stock compensation charge related to stock options and restricted stock forfeited ( 9 ) - ( 9 ) Total - three months ended September 30, 2023 $ 1,759 $ - $ 1,759 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 The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees. As of September 30, 2023, the total unrecognized compensation cost related to stock options was approximately $ 0.1 million, which the Company expects to recognize over approximately two years . As of September 30, 2023, the total unrecognized compensation cost related to restricted stock awards was approximately $ 5.8 million, which the Company expects to recognize over approximately two years . As of September 30, 2023, and June 30, 2023, respectively, the Company recorded a deferred tax asset of approximately $ 0.6 million and $ 0.6 million, related to the stock-based compensation charge recognized related to employees of Lesaka. As of September 30, 2023, and June 30, 2023, respectively, the Company recorded a valuation allowance of approximately $ 0.6 million and $ 0.6 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, 2023 and 2022. 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, 2023. 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, 2023 and 2022, 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 41,809 and 210,530 shares of common stock from the calculation of diluted loss per share during the three months ended September 30, 2023 and 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, 2023. 30 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 per share computations using the two-class method: Three months ended September 30, 2023 2022 (in thousands except percent and per share data) Numerator: Net loss attributable to Lesaka $ ( 5,651 ) $ ( 10,696 ) Undistributed (loss) earnings $ ( 5,651 ) $ ( 10,696 ) Percent allocated to common shareholders (Calculation 1) 96 96 Numerator for (loss) earnings per share: basic and diluted ( 5,402 ) ( 10,277 ) Continuing ( 5,402 ) ( 10,277 ) Denominator Denominator for basic (loss) earnings per share: Weighted-average common shares outstanding 60,990 59,996 Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion 60,990 59,996 (Loss) Earnings per share: Basic $ ( 0.09 ) $ ( 0.17 ) Diluted $ ( 0.09 ) $ ( 0.17 ) (Calculation 1) Basic weighted-average common shares outstanding (A) 60,990 59,996 Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B) 63,805 62,445 Percent allocated to common shareholders (A) / (B) 96 96 Options to purchase 262,506 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, 2023, 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 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. The options, which expire at various dates through February 3, 2032, were still outstanding as of September 30, 2023. 14. Supplemental cash flow information The following table presents supplemental cash flow disclosures for the three months ended September 30, 2023 and 2022: Three months ended September 30, 2023 2022 Cash received from interest $ 445 $ 409 Cash paid for interest $ 2,925 $ 4,011 Cash paid for income taxes $ 604 $ 677 31 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, 2023 and 2022: Three months ended September 30, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 693 $ 805 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 1,543 $ 61 15. Revenue recognition Disaggregation of revenue The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to reportable segments for the three months ended September 30, 2023: Merchant Consumer Total Processing fees $ 28,760 $ 5,733 $ 34,493 South Africa 27,400 5,733 33,133 Rest of world 1,360 - 1,360 Technology products 2,037 19 2,056 South Africa 1,986 19 2,005 Rest of world 51 - 51 Telecom products and services 87,313 41 87,354 South Africa 82,559 41 82,600 Rest of world 4,754 - 4,754 Lending revenue - 5,373 5,373 Interest from customers 1,520 - 1,520 Insurance revenue - 2,611 2,611 Account holder fees - 1,368 1,368 Other 879 435 1,314 South Africa 830 435 1,265 Rest of world 49 - 49 Total revenue, derived from the following geographic locations 120,509 15,580 136,089 South Africa 114,295 15,580 129,875 Rest of world $ 6,214 $ - $ 6,214 32 15. Revenue recognition (continued) The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to reportable segments for the three months ended September 30, 2022: Merchant Consumer Total Processing fees $ 27,297 $ 6,535 $ 33,832 South Africa 26,028 6,535 32,563 Rest of world 1,269 - 1,269 Technology products 3,897 37 3,934 South Africa 3,830 37 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 1,245 129 1,374 South Africa 1,201 129 1,330 Rest of world 44 - 44 Total revenue, derived from the following geographic locations 109,782 15,004 124,786 South Africa 104,311 15,004 119,315 Rest of world $ 5,471 $ - $ 5,471 33 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 consumer 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 consumer 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, 2023 and 2022 was $ 0.7 million and $ 0.8 million, respectively. The Company has also entered into short-term leasing arrangements, primarily for the lease of branch locations and other locations, to operate its consumer business in South Africa. The Company’s short-term lease expense during the three months ended September 30, 2023 and 2022, was $ 0.9 million and $ 1.1 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 September 30, 2023 and June 30, 2023: September 30, June 30, 2023 2023 Right of use assets obtained in exchange for lease obligations: Weighted average remaining lease term (years) 3.71 1.77 Weighted average discount rate (percent) 10.1 9.7 The maturities of the Company’s operating lease liabilities as of September 30, 2023, are presented below: Maturities of operating lease liabilities Year ended June 30, 2024 (excluding three months to September 30, 2023) $ 1,699 2025 1,638 2026 1,305 2027 1,239 2028 1,159 Thereafter 120 Total undiscounted operating lease liabilities 7,160 Less imputed interest 1,357 Total operating lease liabilities, included in 5,803 Operating lease liability - current 1,722 Operating lease liability - long-term $ 4,081 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, 2023. The Company analyzes its business and operations in terms of two inter-related but independent operating segments: (1) Consumer Division (“Consumer”) and (2) Merchant Division (“Merchant ”). 34 17. Operating segments (continued) Operating segments (continued) The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended September 30, 2023 and 2022, is as follows: Revenue Reportable Segment Inter- segment From external customers Merchant $ 121,361 $ 852 $ 120,509 Consumer 15,580 - 15,580 Total for the three months ended September 30, 2023 $ 136,941 $ 852 $ 136,089 Merchant $ 109,782 $ - $ 109,782 Consumer 15,004 - 15,004 Total for the three months ended September 30, 2022 $ 124,786 $ - $ 124,786 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 once- off items, stock-based compensation charges, certain lease charges (“Lease adjustments”), depreciation and amortization, impairment of goodwill or other intangible assets, other items (including gains or losses on disposal of investments, fair value adjustments to equity securities), interest income, interest expense, income tax expense or loss from equity-accounted investments to its reportable segments. Group costs generally include: employee related costs in relation to employees specifically hired for group roles and related directly to managing the US-listed entity; expenditures related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; legal fees; group and US-listed related audit fees; and directors and officer’s insurance premiums. Once-off items represents non- recurring expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued. Unrealized loss FV for currency adjustments represents foreign currency mark-to-market adjustments on certain intercompany accounts. 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, 2023 and 2022, is as follows: Three months ended September 30, 2023 2022 Reportable segments measure of profit or loss $ 10,541 $ 6,499 Operating loss: Group costs ( 1,822 ) ( 2,300 ) Once-off costs ( 78 ) ( 598 ) Unrealized Loss FV for currency adjustments ( 102 ) - Lease adjustments ( 696 ) ( 812 ) Stock-based compensation charge adjustments ( 1,759 ) ( 1,462 ) Depreciation and amortization ( 5,856 ) ( 5,998 ) Reversal of allowance of EMI doubtful debt 250 - Gain on disposal of equity-accounted investments - 248 Interest income 449 411 Interest expense ( 4,909 ) ( 4,036 ) Loss before income tax expense $ ( 3,982 ) $ ( 8,048 ) 35 17. Operating segments (continued) Operating segments (continued) The following tables summarize segment information that is prepared in accordance with GAAP for the three months ended September 30, 2023 and 2022: Three months ended September 30, 2023 2022 Revenues Merchant $ 121,361 $ 109,782 Consumer 15,580 15,004 Total reportable segment revenue 136,941 124,786 Segment Adjusted EBITDA Merchant (1) 8,061 7,893 Consumer (1) 2,480 ( 1,394 ) Total Segment Adjusted EBITDA 10,541 6,499 Depreciation and amortization Merchant 2,078 1,825 Consumer 169 245 Subtotal: Operating segments 2,247 2,070 Group costs 3,609 3,928 Total 5,856 5,998 Expenditures for long-lived assets Merchant 2,763 3,873 Consumer 46 628 Subtotal: Operating segments 2,809 4,501 Group costs - - Total $ 2,809 $ 4,501 (1) Segment Adjusted EBITDA for Merchant includes retrenchment costs of $ 0.2 million (ZAR 4.6 million) and Consumer includes retrenchment costs of $ 0.1 million (ZAR 1.5 million) for the three months ended September 30, 2023. 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. For the three months ended September 30, 2023, 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, 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. 36 18. Income tax (continued) Uncertain tax positions (continued) The Company had no significant uncertain tax positions during the three months ended September 30, 2023, 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, Botswana and in the U.S. federal jurisdiction. As of September 30, 2023, 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, 2019. 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. RMB has issued guarantees to these third parties amounting to ZAR 33.1 million ($ 1.7 million, translated at exchange rates applicable as of September 30, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of between 3.42 % per annum to 3.44 % per annum of the face value of these guarantees and does not recover any of the commission from third parties. Nedbank has issued guarantees to these third parties amounting to ZAR 2.1 million ($ 0.1 million, translated at exchange rates applicable as of September 30, 2023) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of between 0.47 % per annum to 1.84 % per annum of the face value of these guarantees and does not recover any of the commission from third parties. The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of September 30, 2023. The maximum potential amount that the Company could pay under these guarantees is ZAR 35.2 million ($ 1.9 million, translated at exchange rates applicable as of September 30, 2023). 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 2.1 million ($ 0.1 million, translated at exchange rates applicable as of September 30, 2023). 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. 37