Companies: 10,645     total market cap: $140.845 T
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Lesaka Technologies
LSAK
#7717
Rank
$0.36 B
Marketcap
๐Ÿ‡ฟ๐Ÿ‡ฆ South Africa
Country
$4.37
Share price
-2.46%
Change (1 day)
-12.25%
Change (1 year)
๐Ÿ’ณ Financial services๐Ÿ‘ฉโ€๐Ÿ’ป Tech
Categories
  1. Lesaka Technologies
  2. Annual Reports (10-K)
  3. Financial Year 2021

Lesaka Technologies - 10-K annual report 2021


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7.625200,000,00050,000,0008.6250.0010.00187.502021FY--06-300001041514false000<div>Certain amounts have been restated to correct the misstatement discussed in Note 1.</div>☒☐NoNoAccelerated 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-K
 
(Mark One)
☒
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
June 30, 2021
 
OR
 
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
To
 
Commission file number:
 
000-31203
 
 
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
 
 
President Place
,
4th Floor
,
Cnr. Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg
2196
,
South Africa
(Address of principal executive offices, including zip code)
 
Registrant’s telephone number,
 
including area code:
27
-
11
-
343-2000
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
UEPS
NASDAQ
 
Global Select Market
 
Securities registered pursuant to Section 12(g) of the Act:
 
Indicate by check
 
mark if the
 
registrant is a
 
well-known seasoned issuer, as
 
defined in Rule
 
405 of the
 
Securities
Act.
 
 
Yes
 
☐
 
No
☒
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of
 
the
 
Act.
 
Yes
 
☐
 
No
☒
 
 
Indicate by check mark whether
 
the registrant (1) has filed
 
all reports required to be
 
filed by Section 13 or
 
15(d)
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934
 
during
 
the
 
preceding
 
12
 
months
 
(or
 
for
 
such
 
shorter
 
period
 
that
 
the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes
☒
 
No
☐
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
 
File required
to
 
be
 
submitted
 
pursuant
 
to
 
Rule
 
405
 
of
 
Regulation
 
S-T
 
(§232.405
 
of
 
this
 
chapter)
 
during
 
the
 
preceding
 
12
months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
 
No
☐
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller
 
reporting company
 
or an
 
emerging growth
 
company. See the
 
definitions of
 
“large accelerated
 
filer,”
“accelerated
 
filer,”
 
“smaller
 
reporting
 
company,”
 
and
 
“emerging
 
growth
 
company”
 
in
 
Rule 12b-2
 
of
 
the
Exchange Act (check one):
 
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
 
If an
 
emerging
 
growth company,
 
indicate by
 
check mark
 
if the
 
registrant has
 
elected not
 
to use
 
the extended
transition
 
period for
 
complying with
 
any new
 
or revised
 
financial
 
accounting standards
 
provided pursuant
 
to
Section 13(a) of the Exchange Act.
 
☐
 
 
Indicate
 
by
 
check
 
mark
 
whether
 
the
 
registrant
 
has
 
filed
 
a
 
report
 
on
 
and
 
attestation
 
to
 
its
 
management’s
assessment
 
of
 
the
 
effectiveness
 
of
 
its
 
internal
 
control
 
over
 
financial
 
reporting
 
under
 
Section
 
404(b)
 
of
 
the
Sarbanes-Oxley Act
 
(15
 
U.S.C.
 
7262(b)) by
 
the registered
 
public
 
accounting firm
 
that prepared
 
or
 
issued its
audit report.
☒
 
 
Indicate by
 
check mark
 
whether the
 
registrant is
 
a shell
 
company (as
 
defined in
 
Rule 12b-2
 
of the
 
Exchange
Act). Yes
☐
 
No
☒
 
 
The
 
aggregate
 
market
 
value
 
of
 
the
 
registrant’s
 
common
 
stock
 
held
 
by
 
non-affiliates
 
of
 
the
 
registrant
 
as
 
of
December
 
31,
 
2020
 
(the
 
last
 
business
 
day
 
of
 
the registrant’s
 
most
 
recently completed
 
second fiscal
 
quarter),
based upon the closing price of the common stock as reported by The NASDAQ Global Select Market on such
date, was $
177,551,120
. This calculation
 
does not reflect
 
a determination that
 
persons are affiliates
 
for any other
purposes.
 
 
As of September 6,
 
2021,
56,996,214
 
shares of the registrant’s
 
common stock, par value
 
$0.001 per share, net
of treasury shares, were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Certain
 
portions
 
of
 
the
 
definitive
 
Proxy
 
Statement
 
for
 
our
 
2021
 
Annual
 
Meeting
 
of
 
Shareholders
 
are
 
incorporated by reference into Part III of this Form 10-K.
 
2
PART
 
I
FORWARD
 
LOOKING STATEMENTS
 
In addition
 
to historical
 
information, this
 
Annual Report
 
on Form
 
10-K contains
 
forward-looking statements
 
that involve
 
risks
and uncertainties
 
that could
 
cause our
 
actual results
 
to differ
 
materially from
 
those projected,
 
anticipated or
 
implied in
 
the forward-
looking statements. Factors
 
that might cause or
 
contribute to such differences
 
include, but are not
 
limited to, those
 
discussed in Item
1A—“Risk Factors.”
 
In some
 
cases, you
 
can identify
 
forward-looking
 
statements by
 
terminology such
 
as “may,”
 
“will,” “should,”
“could,”
 
“would,” “expects,”
 
“plans,”
 
“intends,” “anticipates,”
 
“believes,”
 
“estimates,” “predicts,”
 
“potential”
 
or “continue”
 
or the
negative of such terms and other comparable terminology.
 
You
 
should not place undue reliance on these forward-looking statements,
which reflect our
 
opinions only as of
 
the date of this
 
Annual Report. We
 
undertake no obligation to
 
release publicly any revisions
 
to
the forward-looking
 
statements after
 
the date
 
of this
 
Annual Report.
 
You
 
should carefully
 
review the
 
risk factors
 
described in
 
other
documents we file
 
from time to time
 
with the Securities
 
and Exchange Commission,
 
or the SEC, including
 
the Quarterly Reports on
Form 10-Q to be filed by us during our 2022 fiscal year,
 
which runs from July 1, 2021 to June 30, 2022.
 
All references
 
to “the
 
Company,”
 
“we,” “us,”
 
or “our”
 
are references
 
to Net
 
1 UEPS
 
Technologies,
 
Inc. and
 
its consolidated
subsidiaries, collectively,
 
and all
 
references to
 
“Net1” are
 
to Net
 
1 UEPS
 
Technologies,
 
Inc. only,
 
except as
 
otherwise indicated
 
or
where the context indicates otherwise.
 
 
ITEM
 
1.
 
BUSINESS
 
 
 
Overview
 
Our
 
vision
 
is
 
to
 
build
 
and
 
operate
 
the
 
leading
 
South
 
African
 
full-service
 
fintech
 
platform
 
offering
 
payment
 
processing
 
and
financial services to underserved merchants and consumers.
 
Our
 
core
 
purpose
 
is
 
to
 
improve
 
people’s
 
lives
 
by
 
bringing
 
financial
 
inclusion
 
to
 
South
 
Africa’s
 
underbanked
 
customers
 
and
helping
 
small
 
businesses
 
access
 
the
 
financial
 
services
 
they
 
need
 
to
 
prosper.
 
We
 
will
 
achieve
 
this
 
through
 
our
 
unique
 
ability
 
to
efficiently digitize
 
the last
 
mile of financial
 
inclusion and
 
to provide
 
a full-service
 
fintech platform,
 
across cash
 
and digital, serving
the needs of both, while also facilitating the secular shift from cash to digital
 
that is taking place.
 
 
In South Africa,
 
our core competencies
 
are centered around
 
the provision of
 
low-cost financial services
 
to underserved consumers
and payment
 
processing.
 
We
 
have developed
 
and own
 
most of
 
our payment
 
technologies, and
 
we aim
 
to utilize
 
this technology
 
to
provide financial and value-added services to our customers by
 
including them into the formal financial system.
 
Low-cost
 
financial
 
services
 
to
 
consumers
—We
 
provide
 
a
 
suite
 
of
 
low-cost
 
financial
 
services
 
to
 
underserved
 
and
 
unbanked
customers today,
 
through a
 
combination of
 
digital and
 
brick-and-mortar distribution
 
platforms. We
 
provide unsecured
 
micro-credit,
transactional banking, funeral insurance and airtime and value-added
 
services.
 
 
Payment
 
processing
—
Our
 
core
 
technologies
 
leverage
 
biometric
 
authentication,
 
last
-
mile
 
distribution,
 
and
 
cash
 
handling/distribution to enable payments, while EasyPay is a transaction switch and bill payments platform. We also own and operate
POS and ATM
 
networks.
 
 
End-to-end
 
fintech
 
platforms
 
layer
 
multiple
 
services
 
into
 
their
 
merchant
 
and
 
consumer
 
propositions,
 
increasing
 
revenue
 
and
customer stickiness. We believe
 
our consumer proposition is well-positioned for organic growth, and we intend to rapidly expand our
cardholder base and our transacting network. Despite being well-positioned to serve the micro, small and medium-sized enterprise, or
MSME,
 
market,
 
our
 
MSME
 
merchant
 
offering
 
is
 
less
 
well-developed.
 
We
 
plan
 
to
 
substantially
 
grow
 
our
 
presence
 
in
 
the
 
MSME
merchant space through
 
a focus on building
 
a leading POS distribution
 
capability to MSMEs. We
 
will seek to achieve
 
this through a
combination of organic growth, acquisitions and partnerships,
 
as appropriate, in order to
 
accelerate the implementation of our
 
business
plan.
 
 
 
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3
Building the Leading Full-Service Fintech Platform for South Africa
 
 
 
 
Market Opportunity
 
Secular
 
shift
 
to
 
electronic
 
payments:
Globally,
 
there
 
is
 
a
 
secular
 
shift
 
from
 
cash
 
and
 
checks
 
to
 
various
 
forms
 
of
 
electronic
payments and while
 
most developed economies
 
perform the
 
majority of their
 
consumer payments electronically, developing economies
remain
 
largely
 
cash
 
driven
 
countries.
 
South
 
Africa
 
too,
 
remains
 
predominantly
 
a
 
cash-based
 
economy,
 
with
 
an
 
estimated
 
60%
 
of
consumer payments made in cash.
 
 
Consumer financial services for the
 
unbanked:
 
Our focus is on the Living Standards
 
Measure, or LSM, 1-6 population in South
Africa, which represents approximately 26 million adults in the country. The total addressable market
 
for consumer financial services
is an estimated ZAR 57 billion including transactional banking,
 
short-term and unsecured lending, and insurance.
 
Total
 
Addressable Market for Consumer Financial Services in South Africa
 
for LSM 1-6
 
 
 
Source: South
 
African Reserve Bank Long-Term
 
Insurance Industry (2017), Solidarity
 
Bank Charges
 
Report (2019), Finscope South
 
Africa (2013), NCR
 
Consumer
Credit Report (2019)
 
 
form10kp6i0.gif
 
 
4
Merchant payment
 
and financial services
 
for MSMEs:
 
Bill payments are
 
an attractive customer
 
acquisition channel and
 
we are
one of the leading
 
bill payment platforms in
 
South Africa. The total addressable
 
market for merchant payment
 
and financial services
is an estimated ZAR 100 billion including bill payments, merchant
 
payments, and merchant lending.
 
Total
 
Addressable Market for Merchant Payment and
 
Financial Services in South Africa for MSMEs
 
 
 
Source: Genisis Analytics (2018), BIS Data, Electrum, IFC Report (The Unseen
 
Sector – A report on the MSME Opportunity in South Africa)
 
We
 
believe there
 
is a
 
big opportunity
 
for neo-,
 
or challenger,
 
banks and
 
fintech companies
 
to improve
 
reach and
 
coverage for
MSMEs and accelerate access to, and reduce the cost of, banking and financial services. Estimates suggest that approximately 33% of
South Africa’s
 
700,000 formal MSMEs are unable
 
to accept electronic payments.
 
Tier 1 merchants are
 
actively serviced by the large
local
 
banks
 
while
 
Tier
 
2
 
to
 
4
 
merchants
 
are
 
underserved.
 
In
 
addition,
 
it
 
is
 
estimated
 
that
 
there
 
are
 
a
 
further
 
1.4
 
million
 
informal
merchants active in South Africa that have similar needs but are currently
 
largely ignored by the traditional market players.
 
Competition
 
We
 
intend to differentiate
 
our value proposition
 
for our end-users
 
by offering
 
a seamless financial
 
and technology platform
 
for
underserved
 
consumers
 
and
 
small
 
merchants
 
while
 
leveraging
 
a
 
multichannel
 
distribution
 
network.
 
In
 
South
 
Africa,
 
there
 
are
competitors
 
for
 
individual
 
products,
 
services
 
or technologies,
 
though
 
few,
 
if
 
any,
 
with an
 
end-to-end
 
offering,
 
particularly
 
for
 
our
target customer segments.
 
For consumers, there are
 
a number of
 
traditional and digital
 
providers of low-cost transactional
 
bank accounts and micro
 
financial
services. These
 
include the
 
large South
 
African banks
 
such as FNB,
 
Standard Bank,
 
Absa, Nedbank
 
and Capitec, the
 
South African
Post
 
Office,
 
or
 
SAPO,
 
and
 
digital
 
banks
 
such
 
as
 
Discovery
 
Bank,
 
African
 
Bank,
 
Tyme
 
and
 
Bank
 
Zero.
 
Other
 
financial
 
services
providers include Old Mutual, Sanlam, Capfin, Letsatsi, Bayport and
 
Finbond.
 
 
For
 
EasyPay,
 
our
 
South
 
African
 
transaction
 
processing
 
business,
 
competitors
 
include
 
BankservAfrica,
 
Pay@,
 
eCentric
 
and
Transaction Junction.
 
BankservAfrica is the
 
largest transaction processor
 
in South Africa, which
 
processes all transactions
 
on behalf
of the South African banks and processes more than 2.5 billion transactions
 
annually.
 
 
In
 
the
 
South
 
African
 
ATM
 
network
 
market,
 
we
 
compete
 
against
 
the
 
South
 
African
 
banks,
 
ATM
 
Solutions
 
and
 
Spark
 
ATM
Systems, which collectively have a market share in excess of 90%.
 
Intellectual Property
 
 
Our success depends
 
in part on our
 
ability to develop, maintain
 
and protect our intellectual
 
property.
 
We
 
rely on a combination
of patents, copyrights, trademarks and trade secret laws, as well as non-disclosure agreements to protect our intellectual property.
 
We
seek to protect new intellectual
 
property developed by us by filing
 
new patents worldwide. We hold a number of trademarks
 
in various
countries.
 
Human Capital Resources
 
We
 
have been able
 
to bring on
 
board high-caliber
 
individuals, from different
 
organizations, to
 
form our leadership
 
group. This
leadership group
 
is deeply committed
 
to building
 
a high-performance culture
 
that is based
 
on a foundation
 
of care and
 
development
for
 
our
 
people.
 
 
 
5
As such we are on path towards building an aspirational work environment
 
that is characterized by:
 
•
 
Open and honest engagements;
 
•
 
Flat organizational structures;
 
•
 
Humility and respect;
 
•
 
Embracing diversity,
 
inclusion and a sense of belonging;
 
•
 
A spirit of generosity for our people, customers and our communities;
 
•
 
A willingness to partner with our stakeholders towards common
 
goals;
•
 
A deep connection to our shared purpose of inclusive financial services; and
 
•
 
A culture of learning and curiosity.
 
Employee training and skills development
 
We strongly believe that learning
 
is an ongoing process and that the majority of learning is in the doing. As such, while we offer
a range of
 
formal programs (as
 
listed further below), more
 
importantly, we continue to build
 
a culture of
 
lifelong learning in everything
that we do.
 
Sustainable
 
employee
 
training and
 
development
 
programs impact
 
employee
 
retention,
 
and
 
we believe
 
that our
 
willingness to
invest
 
in
 
employee
 
development
 
contributes
 
to
 
employee
 
satisfaction
 
and
 
belonging.
 
This
 
increases
 
loyalty,
 
which
 
will
 
in
 
turn
contribute to employee retention. We
 
offer the following development programs to enhance employee
 
performance and skills:
 
•
 
unemployed and employed learnerships;
•
 
leadership development programs;
•
 
training programs;
•
 
mentorship programs;
•
 
other in-house and cross-functional training to aid with career advancement;
 
and
•
 
succession planning – training interventions.
 
Equal opportunity
 
Having an inclusive
 
and diverse workforce
 
which reflects our
 
economically active
 
population and society
 
in general, is
 
crucial
for helping the organization attract and retain talent and is important for long-term organizational
 
success. Our human resources team
emphasizes recruiting
 
and retaining
 
a talented
 
and diverse
 
workforce
 
with special
 
focus on
 
hiring previously
 
disadvantaged groups
whenever possible. We
 
are committed to hiring qualified candidates without
 
regard to their personal status, while taking into account
the
 
unique
 
circumstances
 
affecting
 
our
 
operations
 
in
 
South
 
Africa
 
and
 
the
 
need
 
to
 
uplift
 
previously
 
disadvantaged
 
groups.
 
This
commitment extends to all levels of our organization,
 
including within senior management and our board of directors.
 
As of June 30, 2021, the composition of our workforce was:
 
•
 
54% female and 46% male;
•
 
41% between 18 and 34 years old, 56% between 35 and 54 years old, and 3% over
 
55 years old; and
•
 
76% Black, 14% two or more races, 5% Indian and 5% White.
 
We have no
 
female named executive officers.
 
In the
 
last year
 
we have
 
taken positive
 
strides to
 
help build
 
a more
 
inclusive workforce
 
and to
 
enhance our
 
pay structures
 
by
taking
 
measures
 
to eliminate
 
potential
 
discrimination
 
in our
 
pay
 
structures
 
and
 
to help
 
close gender
 
pay
 
gaps in
 
order to
 
progress
towards gender equality
 
at work. We
 
have implemented a
 
job evaluation system that
 
allows the corporate
 
hierarchy and functions
 
to
be mapped
 
out in
 
an objective
 
manner.
 
In this
 
way,
 
remuneration levels
 
can be
 
set for
 
every function
 
with reference
 
to the
 
external
market, and people in similar functions can be paid equally.
 
Employee compensation programs
 
We
 
are committed to
 
ensuring that
 
all of
 
our employees
 
are paid
 
fair and
 
competitive remuneration.
 
To
 
that end,
 
we offer the
following to our employees:
 
 
•
 
Access to a comprehensive medical, dental, and vision plan that our
 
employees have the option to join;
•
 
Access to a defined contribution retirement plan that our employees have
 
the option to join;
•
 
Paid sick, annual and family responsibility leave;
•
 
Maternity benefits;
•
 
Life and disability insurance coverage;
•
 
Employee assistance programs; and
•
 
Product
 
discounts.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
Annual
 
increases
 
and
 
incentive
 
compensation
 
are
 
based
 
on
 
merit,
 
which
 
is
 
communicated
 
to
 
employees
 
upon
 
hire
 
and
 
documented as part of our annual performance review process.
 
Our number of employees allocated on a segmental basis as of the years ended June
 
30, is presented in the table below:
 
Number of employees
2021
2020
2019
Management
164
167
179
Processing
(1)
1,108
1,141
1,227
Financial services
1,778
1,531
1,443
Technology
29
36
40
Total
3,079
2,875
2,889
 
(1) Processing includes employees allocated to corporate/ eliminations
 
activities.
 
 
On a
 
functional basis,
 
three of
 
our employees
 
were part
 
of executive
 
management, 17
 
were employed
 
in sales
 
and marketing,
116
 
were
 
employed
 
in
 
finance
 
and
 
administration,
 
175
 
were
 
employed
 
in
 
information
 
technology
 
and
 
2,768
 
were
 
employed
 
in
operations.
 
Health and safety laws and regulations
 
We
 
are
 
subject
 
to various
 
South
 
African
 
laws and
 
regulations
 
that
 
regulate
 
the health
 
and
 
safety of
 
our
 
South
 
African-based
workforce, including
 
those laws monitored
 
by the
 
South African
 
Department of
 
Employment and
 
Labour which
 
stipulates the
 
legal
framework within which we need to function. This framework comprises
 
the Occupational Health and Safety Act, Act 85 of 1993, or
OHSA,
 
the
 
Compensation
 
for
 
Occupational
 
Injuries
 
and
 
Diseases
 
Act,
 
Act
 
130
 
of
 
1993,
 
or
 
COIDA,
 
the
 
Basic
 
Conditions
 
of
Employment
 
Act, Act
 
75 of
 
1997, or
 
BCEA and
 
the Labour
 
Relations Act,
 
Act 66
 
of 1995,
 
or LRA.
 
Compliance with
 
COVID-19
regulations remains
 
regulated by
 
the National
 
Institute of
 
Occupational
 
Health, or
 
NIOH, and
 
the Occupational
 
Health Surveillance
System, or
 
OHSS, the
 
Centre for
 
Scientific Industrial
 
Research, or
 
CSIR and
 
the National
 
Institute for
 
Communicable Diseases,
 
or
NICD.
 
People
 
are ultimately
 
the most
 
important
 
assets in
 
any organization,
 
therefore successfully
 
managing health
 
and safety
 
in the
workplace remains paramount. Successfully managing health and safety in the workplace relies
 
on commitment, consultation, and co-
operation.
 
In order to maintain OHSA compliance, we ensure that:
 
 
•
 
Internal health and safety policies remain regularly updated and accessible
 
to all staff;
•
 
All departments/branches keep a summary of applicable Health and Safety legislation and display a
 
summary of such at their
respective premises for ease of reference;
•
 
Each of
 
our branches
 
has a
 
designated health
 
and safety
 
representative, a
 
first aider
 
and fire
 
marshal tasked
 
with ensuring
compliance as well as being able to assist in an emergency situation when required, each of whom is trained every two years
as per stipulated regulations.
•
 
Every
 
branch
 
manager
 
is
 
a
 
delegated
 
assistant
 
to
 
our
 
Chief
 
Executive
 
Officer:
 
Southern
 
Africa
 
who
 
ensures
 
OHSA
compliance and
 
that employees
 
have the
 
necessary knowledge
 
and understanding
 
of applicable
 
health and
 
safety rules and
procedures.
•
 
Quarterly inspections are
 
conducted by delegated officials
 
at the respective branches
 
so as to report
 
on any non-compliance
or health and safety issues which need tending to.
 
•
 
Quarterly meetings are conducted with our National Health and Safety Officer to
 
report in on company-wide compliance and
any health and safety issues which require tending to.
 
•
 
Managers are trained in in the correct reporting procedures and proper
 
incident/ accident investigation.
 
Our Executive Officers
 
The table below presents our executive officers, their
 
ages and their titles:
 
Name
Age
Title
Chris G.B. Meyer
50
Group Chief Executive Officer and Director
Alex M.R. Smith
52
Chief Financial Officer,
 
Treasurer, Secretary,
 
and Director
Lincoln C. Mali
53
Chief Executive Officer: Southern Africa
Chris
 
G.B.
 
Meyer
 
has
 
been
 
our
 
Group
 
Chief
 
Executive
 
Officer
 
of
 
since
 
July
 
1,
 
2021.
 
Prior to
 
joining
 
Net1, Mr.
 
Meyer
 
was
the Head of
 
Corporate &
 
Investment Banking
 
and Joint
 
Managing Director
 
at Investec
 
Bank Plc,
 
an LSE-listed
 
specialist bank
 
and
wealth
 
manager,
 
having
 
served
 
in
 
many
 
different
 
roles
 
within
 
the Investec
 
Group
 
since
 
2001.
 
He
 
was
 
also
 
an
 
executive
 
director
for various
 
international
 
and
 
regional
 
subsidiaries
 
of
 
Investec
 
Bank
 
Plc.
 
Mr.
 
Meyer
 
is
 
a member
 
of
 
the
 
South
 
African
 
Institute
 
of
Chartered Accountants,
 
holds an MSc
 
Finance from
 
the London
 
Business School and
 
a Post Graduate
 
Diploma in
 
Accounting from
the University of Cape Town.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
Alex M.R. Smith
 
has been our
 
Chief Financial Officer,
 
Treasurer and
 
Secretary since March 1,
 
2018. Prior to
 
joining Net1, Mr.
Smith was employed
 
by Allied Electronics
 
Corporation Limited, or
 
Altron, a JSE-listed
 
company, from 2006 to 2018
 
and, from August
2008 until
 
February 2018,
 
served as a
 
director and
 
its Chief Financial
 
Officer.
 
Prior to joining
 
Altron, Mr.
 
Smith worked in
 
various
positions at
 
PricewaterhouseCoopers
 
in Edinburgh,
 
Scotland and
 
Johannesburg
 
from 1991
 
to 2005.
 
Mr.
 
Smith holds
 
a Bachelor
 
of
Law (Honours) degree from the University of Edinburgh
 
and is a member of the Institute of Chartered Accountants of Scotland.
 
Lincoln
 
C.
 
Mali
 
has
 
been
 
our
 
Chief
 
Executive
 
Officer:
 
Southern
 
Africa
 
since
 
May
 
1,
 
2021.
 
Mr.
 
Mali
 
is
 
a
 
financial
 
services
executive with over 25 years in the
 
industry. Until April 2021, he was the Head of Group Card
 
and Payments at Standard Bank Group,
and previously
 
served in many
 
different roles
 
within that organization
 
since 2001. Mr.
 
Mali chaired the
 
board of directors
 
of Diners
Club South Africa until
 
April 2021, and was
 
a member of the Central
 
and Eastern Europe, Middle
 
East and Africa Business
 
Council
for Visa. Mr.
 
Mali holds Bachelor of Arts (BA) and Bachelor of Laws (LLB) degrees from Rhodes University,
 
an MBA from Henley
Management College, various diplomas and attended an Advanced
 
Management Program at Harvard Business School.
 
Financial Information about Geographical Areas and Operating Segments
 
Note 20
 
to our
 
audited consolidated
 
financial statements
 
included in
 
this annual
 
report contains
 
detailed financial
 
information
about
 
our
 
operating
 
segments
 
for
 
fiscal
 
2021,
 
2020
 
and
 
2019.
 
Revenues
 
based
 
on
 
the
 
geographic
 
location
 
from
 
which
 
the
 
sale
originated and geographic location where long-lived assets are
 
held for the years ended June 30,
 
are presented in the table below:
 
Revenue
(R)
Long lived assets
2021
2020
2019
2021
2020
2019
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
127,468
139,258
150,793
50,754
68,521
141,235
South Korea
-
-
-
-
-
149,390
Liechtenstein (Bank Frick)
-
-
-
-
29,739
47,240
India (MobiKwik)
-
-
-
76,297
26,993
26,993
Rest of the world
3,318
5,041
9,842
6,962
9,119
9,739
Total
130,786
144,299
160,635
134,013
134,372
374,597
 
(R) South
 
Africa and
 
total amounts
 
for 2020
 
and 2019
 
have been
 
restated by
 
$ 6,698
 
and $
 
5,592, respectively,
 
to correct
 
the
misstatement discussed in Note 1 to our audited consolidated financial
 
statements.
 
Corporate history
 
Net1 was incorporated in Florida in May 1997. In
 
2004, Net1 acquired Net1 Applied Technology
 
Holdings Limited, or Aplitec,
a public company listed on the Johannesburg Stock Exchange, or JSE. In 2005, Net1 completed an initial public
 
offering and listed on
the NASDAQ Stock Market. In 2008, Net1 listed on the JSE
 
in a secondary listing, which enabled the former Aplitec shareholders (as
well as South African residents generally) to hold Net1 common stock directly.
 
Available information
 
We
 
maintain a website
 
at www.net1.com.
 
Our annual report on
 
Form 10-K, quarterly reports
 
on Form 10-Q, current
 
reports on
Form 8-K, and
 
amendments to those
 
reports, as well
 
as our proxy statements,
 
are available free
 
of charge
 
through the “SEC filings”
portion of our website, as soon
 
as reasonably practicable after they are filed
 
with the SEC. The information contained
 
on, or accessible
through, our website is not incorporated into this Annual Report on Form
 
10-K.
 
 
The SEC
 
maintains a
 
website at
 
www.sec.gov
 
that contains
 
reports, proxy
 
and information
 
statements, and
 
other information
regarding issuers that file electronically with the SEC.
 
 
8
ITEM 1A. RISK FACTORS
 
 
OUR OPERATIONS
 
AND FINANCIAL
 
RESULTS
 
ARE SUBJECT
 
TO VARIOUS
 
RISKS AND
 
UNCERTAINTIES,
INCLUDING
 
THOSE
 
DESCRIBED
 
BELOW,
 
THAT
 
COULD
 
ADVERSELY
 
AFFECT
 
OUR
 
BUSINESS,
 
FINANCIAL
CONDITION, RESULTS
 
OF OPERATIONS,
 
CASH FLOWS, AND THE TRADING PRICE OF OUR COMMON
 
STOCK
 
Risks Relating to Our Business
 
We
 
are unable
 
to ascertain
 
the full
 
impact the
 
COVID-19 pandemic
 
will have
 
on our
 
future financial
position, operations, cash flows and stock price.
 
Our business
 
has been,
 
and continues
 
to be, impacted
 
by government
 
restrictions and
 
quarantines related
 
to COVID-19.
 
South
Africa operates with a
 
five-level COVID-19 alert system,
 
with Level 1 being
 
the least restrictive
 
and Level 5 being
 
the most restrictive.
South Africa
 
is currently
 
at adjusted Level
 
3, which
 
has a limited
 
impact on
 
our businesses.
 
However,
 
the pandemic
 
did impact our
insurance business during fiscal 2021 as we
 
experienced a higher level of benefit
 
claims. Should there be further increases
 
in mortality
rates across our customer base, we may see an increase in funeral policy
 
claim payouts.
 
Some of
 
our employees
 
continue to
 
work from
 
home following
 
the publication
 
of government-supported
 
initiatives to
 
combat
the spread
 
of COVID-19.
 
As a result
 
of the work
 
from home environment,
 
we face additional
 
challenges providing
 
employees with
secure
 
remote
 
access
 
to
 
computer
 
networks
 
as
 
well
 
as
 
initiating
 
and
 
accepting
 
instructions
 
via
 
e-mail
 
or
 
other
 
electronic
 
media.
Although the
 
government initiatives are
 
not mandatory,
 
we believe that
 
our business activities
 
may be
 
adversely impacted if
 
stricter
restrictions are reintroduced to combat the spread of the pandemic.
 
The South Africa government commenced its vaccination program in early calendar 2021, with a stated goal of vaccinating 67%
of the South African
 
population by the end of
 
the calendar year.
 
As of September 7, 2021,
 
the government reported that 13.9
 
million
doses had been administered and approximately 10.2 million people (26%
 
of the adult population)
 
were fully vaccinated. The pace of
the government’s
 
vaccination rollout
 
program is seen
 
as critical to
 
the re-opening
 
of the South
 
African economy.
 
Failure to achieve
rollout targets
 
could result
 
in further
 
COVID-19 outbreaks,
 
with detrimental
 
consequences for
 
the South
 
African economy,
 
and our
business.
 
Following a
 
comprehensive strategic review,
 
we have
 
decided to
 
prioritize Southern
 
Africa as our
 
core
market. Our
 
future success,
 
and our
 
ability to
 
return to
 
profitability and
 
positive cash
 
flow is
 
substantially
dependent on our ability to implement this strategy successfully.
 
Our board conducted an extensive review
 
of our business strategy and operations
 
in July 2020, and decided
 
to focus on our
 
South
African operations
 
and other
 
business opportunities
 
in South
 
Africa and,
 
to a
 
lesser extent,
 
the rest
 
of the
 
African continent,
 
and to
exit or
 
reduce our
 
presence in
 
other geographies.
 
Our future success
 
will depend
 
on our
 
ability to
 
effectively and
 
efficiently deploy
the significant levels of cash
 
generated from our dispositions. Therefore,
 
we cannot assure you that we will
 
be able to implement our
new strategy successfully and return to profitability and positive
 
cash flow.
 
Even if we do return to profitability, achieving net income does not necessarily
 
ensure positive cash flows. Future periods of net
losses
 
from
 
operations
 
could
 
result
 
in
 
negative
 
cash
 
flow
 
and
 
may
 
hamper
 
ongoing
 
operations
 
or
 
prevent
 
us
 
from
 
sustaining
 
or
expanding our business. We cannot assure you that we will achieve, sustain or increase profitability in the future and if we do not, our
business will be materially and adversely affected.
 
Additionally,
 
our
 
reputation
 
in South
 
Africa has
 
been
 
tarnished
 
as a
 
result
 
of public
 
accusations,
 
which
 
accusations
 
we have
publicly denied and believe
 
have no merit,
 
against us for
 
illegally providing our
 
services and defrauding social
 
welfare grant recipients.
We have
 
attempted to refute these allegations
 
and have appointed a
 
public relations firm to
 
assist us in communicating
 
effectively to
the public
 
and our
 
stakeholders
 
that our
 
business practices
 
comply
 
with South
 
African law
 
and
 
are fair
 
to the
 
social welfare
 
grant
recipients who
 
purchase the financial
 
services products
 
that we offer.
 
If we are
 
unable to communicate
 
this persuasively,
 
our ability
to successfully execute our new strategy may be adversely affected.
 
We
 
face
 
challenges
 
in
 
transforming
 
our
 
South
 
African
 
operations
 
to
 
a
 
business-to-consumer
 
model
through our various bank account products and ATM infrastructure.
 
 
Following the conclusion of our contract with
 
SASSA, we refocused our resources and technology
 
on the provision of financial
inclusion services
 
to our target
 
market and
 
currently have an
 
established base
 
of approximately
 
one million
 
customers. Our strategy
involves expanding this base to at least three million customers over the next three years. While we believe that our financial services
offerings are convenient and cost-effective, the success of our strategy will depend on the extent to which we successfully market our
offering
 
to
 
grow
 
the
 
customer
 
base.
 
 
 
 
9
Factors that
 
may prevent
 
us from
 
successfully
 
operating
 
and further
 
expanding
 
our South
 
African
 
financial services
 
business
include, but are not limited to:
 
•
 
insufficient adoption and utilization of our products and
 
services;
•
 
inability to access sufficient funding for our ATM
 
infrastructure;
•
 
increased competition in the
 
marketplace and restrictions imposed
 
by SASSA or
 
the South African
 
government on the
 
manner
in which grant recipients may transact;
•
 
political interference and changes in the regulatory environment;
•
 
further civil unrest similar to that experienced in July 2021;
•
 
loss of key technical and operations staff; and
•
 
logistical and communications challenges.
 
We may undertake acquisitions
 
that could
 
increase our
 
costs or
 
liabilities or
 
be disruptive
 
to our
 
business.
 
Acquisitions are
 
an integral part
 
of our new
 
growth strategy
 
as we seek
 
to expand our
 
business and deploy
 
our technologies
 
in
new markets
 
in Southern
 
Africa. However,
 
we may
 
not be
 
able to
 
locate suitable
 
acquisition
 
candidates at
 
prices that
 
we consider
appropriate.
 
If
 
we
 
do
 
identify an
 
appropriate
 
acquisition
 
candidate,
 
we
 
may
 
not be
 
able to
 
successfully
 
negotiate
 
the
 
terms
 
of
 
the
transaction, finance it or,
 
if the
 
transaction occurs, integrate the
 
new business into
 
our existing business.
 
These transactions may
 
require
debt financing or additional equity financing, resulting in additional
 
leverage or dilution of ownership.
 
 
Acquisitions of businesses
 
or other material
 
operations and the
 
integration of these
 
acquisitions or their
 
businesses will require
significant attention
 
from members
 
of our senior
 
management team,
 
which may
 
divert their
 
attention from
 
our day-to-day
 
business.
The difficulties
 
of integration
 
may be
 
increased by
 
the necessity
 
of integrating
 
personnel with
 
disparate business
 
backgrounds
 
and
combining
 
different
 
corporate cultures.
 
We
 
also may
 
not be
 
able to
 
retain key
 
employees or
 
customers
 
of an
 
acquired business
 
or
realize
 
cost
 
efficiencies
 
or
 
synergies
 
or
 
other
 
benefits
 
that
 
we
 
anticipated
 
when
 
selecting
 
our
 
acquisition
 
candidates.
 
Acquisition
candidates may have liabilities or adverse operating issues that we fail
 
to discover through due diligence prior to the acquisition.
 
We
 
may
 
need
 
to record
 
write-downs
 
from future
 
impairments of
 
goodwill or
 
other intangible
 
assets, which
 
could reduce
 
our
future
 
reported
 
earnings.
 
During
 
fiscal
 
2020
 
and
 
2019,
 
we
 
recognized
 
impairment
 
losses
 
of
 
$6.3
 
million
 
and
 
$14.4
 
million,
respectively.
 
A prolonged economic
 
slowdown or lengthy
 
or severe recession
 
in South Africa
 
or elsewhere could
 
harm
our operations.
A prolonged economic
 
downturn or recession
 
in South Africa
 
could materially
 
impact our results
 
from operations, particularly
in light
 
of the
 
COVID-19 pandemic,
 
recent social
 
unrest in
 
South
 
Africa and
 
our strategic
 
decision
 
to focus
 
on our
 
South African
operations.
 
Economic
 
confidence
 
in
 
South
 
Africa,
 
our
 
main operating
 
environment,
 
is currently
 
low and,
 
as a
 
result, the
 
risk
 
of a
prolonged
 
economic
 
downturn
 
is
 
enhanced,
 
which
 
could
 
have
 
a
 
negative
 
impact
 
on
 
mobile
 
phone
 
operators,
 
our
 
cardholders
 
and
retailers
 
and/or
 
reduce
 
the
 
level
 
of
 
transactions
 
we
 
process,
 
the
 
take-up
 
of
 
the
 
financial
 
services
 
we
 
offer
 
and
 
the
 
ability
 
of
 
our
customers
 
to
 
repay
 
our
 
microloans
 
or
 
to
 
pay
 
their
 
insurance premiums.
 
If
 
financial
 
institutions
 
and
 
retailers
 
experience
 
decreased
demand for their products and services, our hardware, software and related
 
technology sales could decrease.
 
Our investment in MobiKwik
 
subjects us to certain
 
risks, including the possibility
 
of fluctuations in the
carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in
MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.
 
 
We
 
have elected to
 
account for our investment
 
in MobiKwik 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 because it does
 
not
have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments
and estimates and we are required to
 
base our estimates on assumptions which we
 
believe to be reasonable, but these
 
assumptions may
be unpredictable and inherently
 
uncertain. The value of
 
our investment in MobiKwik
 
as of June 30, 2021
 
was $76.3 million and was
determined based
 
on a
 
share issuance
 
concluded
 
by MobiKwik
 
in June
 
2021, implying
 
a fair
 
value per
 
share of
 
$245.50. We
 
have
recorded a non-cash fair value adjustment of $49.3 million during
 
the year ended June 30, 2021.
 
We
 
may
 
need to
 
record a
 
write-down of
 
the carrying
 
value of
 
our investment
 
in MobiKwik
 
in the
 
future (i)
 
if it
 
is unable
 
to
successfully complete its contemplated initial public offering, (ii) due to fluctuations in its market price upon listing, including during
the 12 month
 
lock up period
 
after its initial
 
public offering,
 
or (iii) if
 
it has not
 
listed, there is
 
an observable
 
transaction indicating
 
a
fair value per
 
share which is
 
lower than our
 
June 30, 2021
 
price per share.
 
Furthermore, it may
 
be difficult
 
to dispose of some
 
or all
of our investment on acceptable terms, if at all, if MobiKwik fails to list.
 
 
 
10
Our
 
ability
 
to
 
fund
 
our
 
ATM
 
network
 
requires
 
that
 
we
 
continue
 
to
 
have
 
access
 
to
 
sufficient
 
lending
facilities, which require compliance with restrictive and financial covenants.
 
The expansion
 
of our
 
ATM
 
network, along
 
with an
 
increase in
 
our consumer
 
banking client
 
base, necessitates
 
access to
 
large
amounts of
 
cash to
 
stock the
 
ATMs
 
and maintain
 
uninterrupted service
 
levels. We
 
have credit
 
facilities from
 
South African
 
banks
which includes security arrangements as
 
well as restrictive and
 
financial covenants. The security arrangements
 
and covenants included
in our lending facilities may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us.
If we are
 
unable to comply
 
with the covenants
 
in South Africa,
 
we could be
 
in default and
 
the indebtedness
 
could be accelerated.
 
If
this were to occur,
 
we might not be
 
able to obtain
 
waivers of default
 
or to refinance
 
the debt with another
 
lender and as a
 
result, our
business and financial condition would suffer.
 
We may not be able to extend the terms
 
of these debt facilities or
 
refinance them, in each case, on
 
commercially reasonable terms
or at all. Our
 
ability to continue the
 
uninterrupted operation of
 
our ATM
 
network will be adversely
 
impacted by our failure
 
to renew
our debt facilities, any adverse change to the terms
 
of our credit facilities, or a
 
significant reduction in the amounts available under our
credit facilities,
 
or our
 
failure to
 
increase our
 
facilities if
 
required. We
 
may also
 
suffer reputational
 
damage if
 
our service
 
levels are
negatively impacted due to the unavailability of cash.
 
We may be unable to recover the carrying value of certain
 
Cell C airtime that we own
 
which is subject to
resale restrictions.
 
We
 
own a
 
substantial amount
 
of Cell
 
C airtime
 
inventory ($16.4
 
million translated
 
at exchange
 
rates applicable
 
as of June
 
30,
2021). In support
 
of Cell C’s
 
liquidity position,
 
we are limiting
 
our resale of
 
this airtime to
 
our own distribution
 
channels until such
time as Cell C’s recapitalisation
 
process is concluded, which exposes us to market risk for this inventory.
 
Due to wholesale discounts
in the distribution
 
market for this
 
airtime, it
 
is not readily
 
saleable in
 
the current
 
market without
 
realising a loss.
 
In light
 
of this, we
recorded a
 
loss of
 
$1.3 million
 
during fiscal
 
2020, related
 
to this
 
airtime inventory.
 
Whilst no
 
further losses
 
were recorded
 
in fiscal
2021,
 
we may
 
be required
 
to record
 
further
 
losses in
 
the future
 
or we
 
may
 
be unable
 
to recover
 
the carrying
 
value
 
of this
 
airtime
inventory
 
as a
 
result of
 
the business
 
failure
 
of Cell
 
C. Failure
 
to recover
 
the carrying
 
value of
 
this inventory
 
may
 
have a
 
material
adverse effect on our results of operations or financial
 
condition.
 
Our
 
microlending
 
loan
 
book
 
exposes
 
us
 
to
 
credit
 
risk
 
and
 
our
 
allowance
 
for
 
doubtful
 
finance
 
loans
receivable may not be sufficient to absorb future write-offs.
 
 
All of
 
our microfinance
 
loans made
 
are for
 
a period
 
of six
 
months or
 
less. We
 
have created
 
an allowance
 
for doubtful
 
finance
loans receivable related to this book. When creating the
 
allowance, management considered factors including the period of the
 
finance
loan
 
outstanding,
 
creditworthiness
 
of
 
the
 
customers
 
and
 
the
 
past
 
payment
 
history
 
of
 
the
 
borrower.
 
We
 
consider
 
this
 
policy
 
to
 
be
appropriate as it takes into account factors such as historical bad debts, current economic trends and changes in
 
our customer payment
patterns. However, additional allowances may be required should the ability of our customers to make payments when due deteriorate
in the future.
 
In particular,
 
we cannot predict
 
the impact the
 
COVID-19 pandemic
 
may have on
 
collections, though
 
to date we
 
have
not
 
experienced
 
any
 
material
 
deterioration
 
in collection
 
rates.
 
A significant
 
amount
 
of
 
judgment
 
is required
 
to
 
assess
 
the
 
ultimate
recoverability of these microfinance loan receivables.
 
We may face competition from other
 
companies that offer innovative
 
payment technologies and payment
processing,
 
which
 
could
 
result
 
in
 
the
 
loss
 
of
 
our
 
existing
 
business
 
and
 
adversely
 
impact
 
our
 
ability
 
to
successfully market additional products and services.
 
 
Our primary competitors in
 
the payment processing market
 
include other independent processors,
 
as well as
 
financial institutions,
independent
 
sales
 
organizations,
 
new
 
digital
 
and
 
fintech
 
entrants
 
and,
 
potentially
 
card
 
networks.
 
Many
 
of
 
our
 
competitors
 
are
companies who
 
are larger
 
than we
 
are and
 
have greater
 
financial and
 
operational resources
 
than we
 
have. These
 
factors may
 
allow
them to offer better pricing
 
terms or incentives to customers, which
 
could result in a loss of our potential
 
or current customers and/or
force us to lower our prices. Either of these actions could have a significant
 
effect on our revenues and earnings.
 
 
 
11
Our
 
future
 
success
 
will
 
depend
 
in
 
part
 
on
 
our
 
ability
 
to
 
attract,
 
integrate,
 
retain
 
and
 
incentivize
 
key
personnel
 
and
 
a
 
sufficient
 
number
 
of
 
skilled
 
employees,
 
particularly
 
in
 
the
 
technical,
 
sales
 
and
 
senior
management areas.
 
Our group has undergone a significant change in management over the last twelve months, with various long-serving executives
having resigned from the organization. Therefore, we are in the process of building a new
 
management team with the right experience
and skills to execute on our new strategic direction. Further, in order to succeed in
 
our product development and marketing efforts, we
need to identify, attract, motivate and retain sufficient numbers of qualified technical and sales personnel. As a result, we must attract,
retain and motivate a number of highly-qualified and experienced employees and an inability
 
to hire and retain such employees would
adversely
 
affect
 
our
 
ability
 
to
 
enhance
 
our
 
existing
 
intellectual
 
property,
 
to
 
introduce
 
new
 
generations
 
of
 
technology
 
and
 
to
 
keep
abreast of
 
current developments
 
in technology.
 
We
 
may face
 
difficulty
 
in managing
 
the transition
 
to a
 
new management
 
team and
assimilating
 
our
 
newly-hired
 
personnel,
 
which
 
may
 
adversely
 
affect
 
our
 
business.
 
Competitors
 
may
 
attempt
 
to
 
recruit
 
our
 
top
management and employees.
 
In order to attract
 
and retain personnel
 
in a competitive
 
marketplace, we must
 
provide competitive pay
packages, including cash
 
and equity-based compensation
 
and the volatility in
 
our stock price may
 
from time to time
 
adversely affect
our ability to recruit or
 
retain employees. We
 
do not maintain any
 
“key person” life insurance policies.
 
If we fail to attract, integrate,
retain and
 
incentivize key
 
personnel and
 
skilled employees,
 
our ability
 
to manage
 
and grow
 
our business
 
could be
 
harmed and
 
our
product development and marketing activities could be negatively affected.
 
 
System failures, including breaches in the security of our system, could harm our business.
 
We
 
may experience
 
system failures
 
from time
 
to time,
 
and any
 
lengthy interruption
 
in the availability
 
of our
 
back-end system
computers could
 
harm our business and
 
could subject us
 
to the scrutiny
 
of our customers.
 
Frequent or persistent
 
interruptions in our
services could
 
cause current
 
or potential
 
customers and
 
users to
 
believe that
 
our systems
 
are unreliable,
 
leading them
 
to avoid
 
our
technology altogether,
 
and could permanently harm
 
our reputation and brands.
 
These interruptions would increase
 
the burden on our
staff,
 
which,
 
in
 
turn,
 
could
 
delay
 
our
 
introduction
 
of
 
new
 
applications
 
and
 
services.
 
Finally,
 
because
 
our
 
customers
 
may
 
use
 
our
products for critical transactions, any system
 
failures could result in damage
 
to our customers’ businesses. These
 
customers could seek
significant compensation from us
 
for their losses. Even if
 
unsuccessful, this type of claim could
 
be time-consuming and costly for
 
us
to address.
 
Although our systems
 
have been designed
 
to reduce downtime in
 
the event of outages
 
or catastrophic occurrences,
 
they remain
vulnerable
 
to
 
damage
 
or
 
interruption
 
from
 
earthquakes,
 
floods,
 
fires,
 
power
 
loss,
 
telecommunication
 
failures,
 
terrorist
 
attacks,
computer viruses, computer denial-of-service attacks and similar events. Some
 
of our systems are not
 
fully redundant, and our disaster
recovery planning may not be sufficient for all eventualities.
 
 
Protection against fraud is of key
 
importance to the purchasers and end
 
users of our solutions. We
 
incorporate security features,
including encryption
 
software, biometric
 
identification and
 
secure hardware,
 
into our solutions
 
to protect
 
against fraud in
 
electronic
transactions and
 
to provide for
 
the privacy
 
and integrity of
 
cardholder data.
 
Our solutions may
 
be vulnerable to
 
breaches in security
due to
 
defects in
 
the security
 
mechanisms, the
 
operating system
 
and applications
 
or the
 
hardware platform.
 
Security vulnerabilities
could
 
jeopardize
 
the
 
security
 
of
 
information
 
transmitted
 
using
 
our
 
solutions.
 
If
 
the
 
security
 
of
 
our
 
solutions
 
is
 
compromised,
 
our
reputation and marketplace acceptance
 
of our solutions may be adversely
 
affected, which would cause our
 
business to suffer,
 
and we
may become subject to damage claims. We
 
have not yet experienced any significant security breaches
 
affecting our business.
 
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our system
 
could
result in lengthy interruptions
 
in our services. Our current
 
business interruption insurance may
 
not be sufficient to
 
compensate us for
losses that may result from interruptions in our service as a result of system failures.
 
Cash
 
Paymaster
 
Services,
 
or
 
CPS,
 
has
 
been
 
placed
 
into
 
liquidation.
 
While
 
no
 
claim
 
has
 
been
 
made
against Net1 for CPS’ obligations, we cannot provide assurance that no such claim will be made.
 
 
 
CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While
no claim
 
has been made
 
against Net1 to
 
be held liable
 
for CPS’
 
current obligations
 
or any future
 
obligations under
 
any future
 
court
judgments, and while we do not believe that there would be a legitimate legal basis for any such claims, we cannot assure you that no
such claim
 
will be
 
made against
 
us. If
 
SASSA or
 
another
 
third party
 
were to
 
seek and
 
ultimately succeed
 
in obtaining
 
a judgment
against us in respect of CPS’ liabilities, any such judgment would have
 
a material adverse effect on our financial condition, results of
operations and cash flows.
 
 
 
12
Defending
 
our
 
intellectual
 
property
 
rights
 
or
 
defending
 
ourselves
 
in
 
infringement
 
suits
 
that
 
may
 
be
brought against us is expensive and time-consuming and may not be successful.
 
 
Litigation to
 
enforce our
 
patents, trademarks
 
or other
 
intellectual property
 
rights or
 
to protect
 
our trade
 
secrets could
 
result in
substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish
our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our
intellectual property
 
rights to
 
the same
 
extent as
 
do the
 
laws in
 
countries where
 
we currently
 
have patent
 
protection. Our
 
means of
protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in
which we operate, may not be
 
adequate to fully protect our intellectual property rights.
 
Similarly, if third parties claim that we infringe
their intellectual property rights, we may be required to incur significant
 
costs and devote substantial resources to the defense of such
claims,
 
to
 
discontinue
 
using
 
and
 
selling
 
any
 
infringing
 
technology
 
and
 
services,
 
to
 
expend
 
resources
 
to
 
develop
 
non-infringing
technology or
 
to purchase
 
licenses or
 
pay royalties
 
for other
 
technology.
 
In addition,
 
if we
 
are unsuccessful
 
in defending
 
any such
third-party
 
claims, we
 
could
 
suffer
 
costly judgments
 
and
 
injunctions
 
that could
 
materially
 
adversely
 
affect
 
our business,
 
results of
operations or financial condition.
 
 
We
 
may
 
incur
 
material
 
losses
 
in
 
connection
 
with
 
our
 
distribution
 
of
 
cash
 
through
 
our
 
payment
 
infrastructure in South Africa.
 
Many
 
cardholders
 
use our
 
services to
 
access cash
 
using
 
their debit
 
cards.
 
We
 
use armored
 
vehicles
 
and
 
our own
 
fixed ATM
infrastructure to
 
deliver large
 
amounts of
 
cash to rural
 
areas across
 
South Africa
 
to enable these
 
cardholders to
 
receive this cash.
 
In
some cases, we also store the cash that will be delivered by the armored vehicles in depots overnight or over the weekend to facilitate
delivery to these rural areas. We cannot insure against certain risks of loss or theft of cash
 
from our delivery vehicles, ATMs or depots
and we
 
will therefore
 
bear the
 
full cost
 
of certain
 
uninsured losses
 
or theft
 
in connection
 
with the
 
cash handling
 
process, and
 
such
losses could
 
materially and
 
adversely affect
 
our financial
 
condition, cash
 
flows and results
 
of operations.
 
We
 
have not
 
incurred any
material losses resulting from cash distribution in recent
 
years, but there is no assurance
 
that we will not incur
 
any such material losses
in the future.
 
We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations,
which could harm our business.
 
We obtain our smart
 
cards, ATMs, POS devices and
 
the other
 
hardware we use
 
in our
 
business from a
 
limited number of
 
suppliers,
and
 
do
 
not
 
manufacture
 
this
 
equipment
 
ourselves.
 
We
 
generally
 
do
 
not
 
have
 
long-term
 
agreements
 
with
 
our
 
manufacturers
 
or
component suppliers. If our
 
suppliers become unwilling or unable
 
to provide us with adequate supplies
 
of parts or products when we
need them, or if they increase
 
their prices, we may not
 
be able to find alternative
 
sources in a timely manner
 
and could be faced with
a critical shortage.
 
This could harm
 
our ability to
 
implement new systems
 
and cause
 
our revenues
 
to decline.
 
Even if we
 
are able to
secure alternative
 
sources in a
 
timely manner,
 
our costs could
 
increase. A supply
 
interruption, such
 
as the current
 
global shortage of
semiconductors, or
 
an increase
 
in demand
 
beyond current
 
suppliers’ capabilities
 
could harm
 
our ability
 
to distribute
 
our equipment
and thus to
 
acquire a new
 
source of customers
 
who use our
 
technology.
 
Any interruption in
 
the supply of
 
the hardware necessary
 
to
operate our technology, or our inability to obtain substitute equipment at
 
acceptable prices in a timely
 
manner, could impair our ability
to meet the demand of our customers, which would have an adverse effect
 
on our business.
 
Our Smart Life business exposes us to risks typically experienced by life assurance companies.
 
Smart Life is a life insurance company and exposes us to risks typically experienced by life assurance
 
companies. Some of these
risks
 
include
 
the
 
extent
 
to
 
which
 
we
 
are
 
able
 
to
 
continue
 
to
 
reinsure
 
our
 
risks
 
at
 
acceptable
 
costs,
 
reinsurer
 
counterparty
 
risk,
maintaining regulatory capital adequacy, solvency and
 
liquidity requirements, our ability
 
to price our
 
insurance products appropriately,
the risk
 
that actual
 
claims experience
 
may exceed
 
our estimates, the
 
ability to
 
recover policy
 
premiums from
 
our customers
 
and the
competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance
 
at prices that we
consider acceptable, we would have to either
 
accept an increase in our exposure risk
 
or reduce our insurance writings.
 
If our reinsurers
are unable
 
to meet
 
their commitments
 
to us
 
in a
 
timely manner,
 
or at
 
all, we may
 
be unable
 
to discharge
 
our obligations
 
under our
insurance contracts. As such, we are exposed to counterparty risk,
 
including credit risk, of these reinsurers.
 
Our
 
product
 
pricing
 
includes
 
long
-
term
 
assumptions
 
regarding
 
investment
 
returns,
 
mortality,
 
morbidity,
 
persistency
 
and
 
operating
 
costs
 
and
 
expenses
 
of
 
the
 
business.
 
Using
 
the
 
wrong
 
assumptions
 
to
 
price
 
our
 
insurance
 
products
 
could
 
materially
 
and
adversely affect our financial
 
position, results of
 
operations and cash flows.
 
If our actual
 
claims experience is
 
higher than our
 
estimates,
particularly in
 
the light
 
of the
 
COVID-19 pandemic,
 
our financial
 
position, results
 
of operations
 
and cash
 
flows could
 
be adversely
affected. Finally, the South African
 
insurance industry is
 
highly competitive. Many
 
of our competitors
 
are well-established, represented
nationally and market similar products and we therefore may not be able
 
to effectively penetrate the South African insurance market.
 
 
 
 
13
Risks Relating to Operating in South Africa and Other Foreign Markets
 
Operating in South Africa and other emerging markets subjects
 
us to greater risks than those we would
face if
 
we
 
operated
 
in
 
more developed
 
markets.
 
For
 
example, we
 
saw
 
significant
 
disruption
 
from the
 
civil
unrest experienced in early July 2021.
 
Emerging
 
markets
 
such
 
as
 
South
 
Africa,
 
as
 
well
 
as
 
some
 
of
 
the
 
other
 
markets
 
in
 
which
 
we
 
have
 
investments
 
or
 
operations,
including
 
African
 
countries
 
outside
 
South
 
Africa
 
and
 
countries in
 
Asia,
 
are
 
subject
 
to
 
greater
 
risks
 
than
 
more
 
developed
 
markets.
While we
 
focus our
 
business primarily
 
on emerging
 
markets because
 
that is
 
where we
 
perceive the
 
greatest opportunities
 
to market
our products and services successfully, the political, economic and
 
market conditions in many of
 
these markets present risks that
 
could
make it more difficult to operate our business successfully.
 
Some of these risks include:
•
 
political, legal and economic instability,
 
including higher rates of inflation and currency fluctuations;
•
 
high levels of corruption, including bribery of public officials;
•
 
loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
•
 
a lack of well-developed
 
legal systems which could
 
make it difficult for us
 
to enforce our intellectual
 
property and contractual
rights;
•
 
logistical, utilities (including electricity and water supply) and communications
 
challenges;
•
 
potential adverse changes in laws and regulatory practices, including
 
import and export license requirements and restrictions,
tariffs, legal structures and tax laws;
•
 
difficulties in staffing and managing operations
 
and ensuring the safety of our employees;
•
 
restrictions on the right to convert or repatriate currency or export assets;
•
 
greater risk of uncollectible accounts and longer collection cycles;
•
 
indigenization and empowerment programs;
 
•
 
exposure to liability under the UK Bribery Act; and
•
 
exposure to liability under U.S. securities and foreign trade laws, including the Foreign Corrupt Practices Act, or FCPA,
 
and
regulations established by the U.S. Department of Treasury’s
 
Office of Foreign Assets Control, or OFAC.
 
Many of these
 
countries and
 
regions are in
 
various stages of
 
developing institutions
 
and political, legal
 
and regulatory
 
systems
that are characteristic of democracies. However, institutions in these countries
 
and regions may not yet
 
be as firmly established as
 
they
are in
 
democracies in
 
the developed
 
world. Many
 
of these
 
countries and
 
regions are
 
also in the
 
process of
 
transitioning to
 
a market
economy and, as
 
a result, are experiencing
 
changes in their
 
economies and their
 
government policies that
 
can affect our
 
investments
in these countries and regions.
 
 
Moreover,
 
the
 
procedural
 
safeguards
 
of
 
the
 
new
 
legal
 
and
 
regulatory
 
regimes
 
in
 
these
 
countries
 
and
 
regions
 
are
 
still
 
being
developed and, therefore, existing
 
laws and regulations may be
 
applied inconsistently.
 
In some circumstances, it may
 
not be possible
to obtain
 
the legal
 
remedies
 
provided under
 
those laws
 
and regulations
 
in a
 
timely manner.
 
As these
 
political,
 
economic and
 
legal
environments remain subject to continuous development, investors in these countries and regions face uncertainty as to the
 
security of
their investments.
 
If
 
we
 
do
 
not
 
achieve
 
applicable
 
Broad-Based
 
Black
 
Economic
 
Empowerment
 
objectives in
 
our
 
South
African businesses, we
 
may be subject
 
to fines and
 
we risk losing
 
our government and/or
 
private contracts.
In addition,
 
it is
 
possible that
 
we may
 
be required
 
to increase
 
the Black
 
shareholding of
 
our company
 
in a
manner that
 
could dilute
 
your ownership
 
and/or change
 
the companies
 
from which
 
we purchase
 
goods or
procure services (to companies with a better BEE Contributor Status Level).
 
The legislative framework for the promotion of Broad-Based Black Economic Empowerment, or BEE, in South Africa has been
established through
 
the Broad-Based
 
Black Economic
 
Empowerment
 
Act, No.
 
53 of
 
2003, as
 
amended from
 
time to
 
time, and
 
the
Amended
 
BEE
 
Codes
 
of
 
Good
 
Practice,
 
2013,
 
or
 
BEE
 
Codes,
 
and
 
any
 
sector-specific
 
codes
 
of
 
good
 
practice,
 
or
 
Sector
 
Codes,
published pursuant
 
thereto. Sector
 
Codes are
 
fully binding
 
between and
 
among businesses
 
operating in
 
a sector
 
for which
 
a Sector
Code has been
 
published. Achievement
 
of BEE objectives
 
is measured by
 
a scorecard which
 
establishes a weighting
 
for the various
elements. Scorecards
 
are independently
 
reviewed by
 
accredited BEE
 
verification agencies
 
which issue
 
a certificate
 
that presents
 
an
entity’s
 
BEE Contributor
 
Status Level.
 
This BEE
 
verification process
 
must be
 
conducted on
 
an annual
 
basis, and
 
the resultant
 
BEE
compliance certificate is only valid for a period of 12 months.
 
Certain of our South African businesses are subject to either the
 
Information, Communications and Technology
 
Sector Code, or
ICT Sector Code,
 
or the Financial
 
Services Sector Code,
 
or the FS
 
Sector Code. The
 
ICT Sector Code
 
and the FS Sector
 
Code have
been
 
amended
 
and
 
aligned
 
with
 
the
 
new
 
BEE
 
Codes
 
and
 
were
 
promulgated
 
in
 
November
 
2016
 
and
 
December
 
2017,
 
respectively.
 
 
 
14
The BEE scorecard includes
 
a component relating to management
 
control, which serves to determine
 
the participation of Black
people at
 
various levels
 
of management
 
within a
 
measured entity
 
(including,
inter alia
, at
 
the board
 
level, Executive
 
Management,
Senior Management,
 
Middle Management
 
and Junior
 
Management). The
 
BEE Codes
 
and/or Sector
 
Codes define
 
the terms
 
"
Senior
Management
", "
Middle Management
" and "
Junior Management
" as those
 
occupational categories as
 
determined in accordance
 
with
the Employment Equity Regulations. Annexure EEA9 to the Employment Equity Regulations sets out the various occupational levels
which are determined in
 
accordance with the relevant
 
grading systems applied by
 
the measured entity and
 
referred to in said
 
Annexure.
Employment equity legislation seeks
 
to drive the
 
alignment of the
 
workforce with the
 
racial composition of
 
South Africa and
 
accelerate
the achievement
 
of employment
 
equity targets,
 
introducing monetary
 
fines for
 
non-achievement.
 
Failing to
 
meet these
 
targets
 
may
expose us to fines.
 
We
 
have taken a
 
number of actions
 
as a company
 
to increase empowerment
 
of Black (as
 
defined under applicable
 
regulations)
South Africans. However,
 
it is possible that these actions
 
may not be sufficient
 
to enable us to achieve applicable
 
BEE objectives. In
that event,
 
in order to
 
avoid risking the
 
loss of our
 
government and private
 
contracts, we
 
may have
 
to seek to
 
comply through
 
other
means, including by
 
selling or placing additional
 
shares of Net1 or of
 
our South African subsidiaries
 
to Black South Africans
 
(either
directly or indirectly). Such sales or placements of shares could have a dilutive impact on
 
your ownership interest, which could cause
the market price of our stock to decline.
 
We
 
expect that
 
our BEE Contributor
 
Status Level will
 
be important
 
in order for
 
us to remain
 
competitive in
 
the South African
marketplace and we continually seek ways to improve our BEE Contributor Status Level, especially the ownership element (so-called
“equity
 
element”)
 
thereof.
 
We
 
have
 
entered
 
into various
 
BEE
 
transactions
 
in the
 
past
 
in an
 
effort
 
to improve
 
our
 
score,
 
including
transactions in which we
 
issued equity to
 
BEE partners. It
 
is possible that
 
we may find
 
it necessary to
 
issue additional equity
 
to improve
our BEE
 
Contributor Status
 
Level, in
 
which case
 
we cannot
 
predict what
 
the dilutive
 
effect of
 
such a
 
transaction would
 
be on
 
your
ownership or how
 
it would affect the market price of our stock.
 
Fluctuations in
 
the value
 
of the
 
South African
 
rand have
 
had, and
 
will continue
 
to have,
 
a significant
impact
 
on
 
our
 
reported
 
results
 
of
 
operations,
 
which
 
may
 
make
 
it
 
difficult
 
to
 
evaluate
 
our
 
business
 
performance between reporting periods and may also adversely affect our stock price.
 
The South
 
African rand,
 
or ZAR,
 
is the
 
primary operating
 
currency for
 
our business
 
operations while
 
our financial
 
results are
reported in U.S. dollars. Therefore, any depreciation in
 
the ZAR against the U.S. dollar, would negatively impact
 
our reported revenue
and net
 
income. The
 
U.S. dollar/ZAR
 
exchange rate
 
has historically
 
been volatile
 
and we
 
expect this
 
volatility to
 
continue (refer
 
to
Item
 
7—“Management’s
 
Discussion
 
and
 
Analysis
 
of
 
Financial
 
Condition
 
and
 
Results
 
of
 
Operations—Currency
 
Exchange
 
Rate
Information.”).
 
Due
 
to
 
the
 
significant
 
fluctuation
 
in
 
the
 
value
 
of
 
the
 
ZAR
 
and
 
its
 
impact
 
on
 
our
 
reported
 
results,
 
you
 
may
 
find
 
it
difficult to
 
compare our results
 
of operations between
 
financial reporting periods
 
even though we
 
provide supplemental information
about our
 
results of
 
operations determined
 
on a
 
ZAR basis.
 
Similarly,
 
depreciation in
 
the ZAR
 
may negatively
 
impact the
 
prices at
which our stock trades.
 
We generally do not engage in any currency hedging
 
transactions intended to reduce the
 
effect of fluctuations in foreign currency
exchange rates on our results of
 
operations, other than economic hedging
 
using forward contracts relating
 
to our inventory purchases
which are settled in U.S.
 
dollars or euros. We
 
cannot guarantee that we will
 
enter into hedging transactions
 
in the future or,
 
if we do,
that these transactions will successfully protect us against currency fluctuations
 
.
 
South Africa’s
 
high levels of
 
poverty, unemployment
 
and crime may
 
increase our costs
 
and impair our
ability to maintain a qualified workforce
 
While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment,
relative to peer
 
countries in Africa
 
and other emerging
 
economies, and there
 
are significant differences
 
in the level
 
of economic and
social development among its people,
 
with large parts of the population,
 
particularly in rural areas, having
 
limited access to adequate
education, healthcare, housing and other
 
basic services, including water
 
and electricity. In addition, South Africa has
 
a high prevalence
of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of
citizens
 
under
 
previous
 
governments
 
may
 
increase
 
our
 
costs and
 
reduce
 
our
 
profitability,
 
all of
 
which
 
could
 
negatively
 
affect
 
our
business.
 
These
 
problems
 
may
 
prompt
 
emigration
 
of
 
skilled
 
workers,
 
hinder
 
investment
 
into
 
South
 
Africa
 
and
 
impede
 
economic
growth. As a result, we may have difficulties attracting
 
and retaining qualified employees.
 
 
 
 
15
We
 
may
 
not
 
be
 
able
 
to
 
effectively
 
and
 
efficiently
 
manage
 
the
 
electricity
 
supply
 
disruptions
 
in
 
South
Africa,
 
which
 
could
 
adversely
 
affect
 
our
 
results
 
of
 
operations,
 
financial
 
position,
 
cash
 
flows
 
and
 
future
growth.
 
Our businesses in
 
South Africa are
 
dependent on electricity
 
generated and supplied
 
by the state-owned
 
utility,
 
Eskom, in order
to operate, and Eskom has been unable to generate and supply the amount of electricity required which has resulted in significant and
often unpredictable electricity
 
supply disruptions. Eskom
 
has implemented a
 
number of short-
 
and long-term mitigation
 
plans to correct
these issues but supply disruptions continue to occur regularly and with
 
no predictability. Eskom requires significant funding from the
South African
 
government in
 
order to
 
continue to
 
operate. As
 
part of
 
our business
 
continuity programs,
 
we have
 
installed back
 
-up
diesel generators in order for us to continue to operate our core data processing facilities in the event of intermittent disruptions to our
electricity supply. We have to perform regular monitoring and maintenance of these generators and
 
also source and manage diesel
 
fuel
levels. We may
 
also be required to replace these generators on a more frequent basis due to the additional
 
burden placed on them.
 
Our results of
 
operations, financial position,
 
cash flows and
 
future growth could
 
be adversely affected
 
if Eskom is unable
 
raise
sufficient funding to operate
 
and/or commission new electricity-generating
 
power stations in accordance with its
 
plans, or at all, or if
we are unable to effectively and efficien
 
tly test, maintain, source fuel for, and replace, our generators
 
.
 
The
 
economy
 
of
 
South
 
Africa
 
is
 
exposed
 
to
 
high
 
rates
 
of
 
inflation,
 
interest
 
and
 
corporate
 
tax,
 
which
could
 
increase
 
our
 
operating
 
costs
 
and
 
thereby
 
reduce
 
our
 
profitability.
 
Furthermore,
 
the
 
South
 
African
government requires additional
 
income to fund
 
future government
 
expenditures and may
 
be required,
 
among
other things, to increase
 
existing income taxes rates,
 
including the corporate
 
income tax rate,
 
amend existing
tax legislation or introduce additional taxes.
 
The economy of
 
South Africa in the
 
past has been, and
 
in the future may
 
continue to be, characterized
 
by rates of inflation
 
and
interest that
 
are substantially
 
higher than
 
those prevailing
 
in the United
 
States and
 
other highly-developed
 
economies. High
 
rates of
inflation could increase our South African-based costs and decrease our operating margins. High interest rates increase the cost of our
debt financing, though conversely they
 
also increase the amount of
 
income we earn on
 
any cash balances. The
 
South African corporate
income tax
 
rate, of
 
28%, is
 
higher than
 
the U.S.
 
federal income
 
tax rate,
 
of 21%.
 
The South
 
African government
 
has announced
 
a
number of programs and initiatives
 
that may require funding from a
 
variety of sources, including from
 
an increase in existing tax
 
rates,
including the corporate income
 
tax rate; amendments
 
to existing South
 
African tax legislation;
 
or through the
 
introduction of additional
taxes.
 
An
 
increase
 
in
 
the
 
effective
 
South
 
African
 
corporate
 
income
 
tax
 
rate
 
will
 
adversely
 
impact
 
our
 
profitability
 
and
 
cash
 
flow
generation.
 
Risks Relating to Government Regulation
 
The
 
South
 
African
 
National
 
Credit
 
Regulator,
 
or
 
NCR,
 
has
 
applied
 
to
 
cancel
 
the
 
registration
 
of
 
our
subsidiary, Moneyline
 
Financial Services (Pty) Ltd, or
 
Moneyline, as a credit
 
provider. If
 
the registration is
cancelled, we may not be able to provide loans to our customers.
 
Moneyline
 
provides
 
microloans
 
to
 
our
 
EPE
 
cardholders.
 
Moneyline
 
is
 
a
 
registered
 
credit
 
provider
 
under
 
the
 
South
 
African
National Credit
 
Act, or
 
NCA, and
 
is required
 
to comply
 
with the
 
NCA in
 
the operation
 
of its lending
 
business. In
 
September 2014,
based on an
 
investigation it conducted,
 
the NCR applied
 
to the National
 
Consumer Tribunal
 
to cancel Moneyline’s
 
registration.
 
The
NCR has alleged, among other things, that Moneyline
 
contravened the NCA by including child support
 
grants and foster child grants
in the affordability assessments performed by Moneyline prior to granting credit to these borrowers,
 
and that the procedures followed
and
 
documentation
 
maintained
 
by
 
Moneyline
 
are
 
not
 
in
 
accordance
 
with
 
the
 
NCA.
 
We
 
believe
 
that
 
Moneyline
 
has
 
conducted
 
its
business
 
in
 
compliance
 
with
 
NCA
 
and
 
we
 
are
 
opposing
 
the
 
NCR’s
 
application. However,
 
if
 
the
 
NCR’s
 
application
 
is
 
successful,
Moneyline would be prohibited from operating its microlending business, which could have a material adverse effect on our results
 
of
operations and cash flows.
 
We
 
are required to
 
comply with
 
certain laws
 
and regulations, including
 
economic and trade
 
sanctions,
which could adversely impact our future growth.
 
We
 
are
 
subject
 
to U.S.
 
and
 
other
 
trade
 
controls,
 
economic sanctions
 
and
 
similar
 
laws and
 
regulations,
 
including
 
those in
 
the
jurisdictions
 
where
 
we
 
operate.
 
Our
 
failure
 
to
 
comply
 
with
 
these
 
laws
 
and
 
regulations
 
could
 
subject
 
us
 
to
 
civil,
 
criminal
 
and
administrative
 
penalties
 
and
 
harm
 
our
 
reputation.
 
These
 
laws and
 
regulations
 
place
 
restrictions
 
on
 
our
 
operations,
 
trade
 
practices,
partners
 
and
 
investment
 
decisions.
 
In particular,
 
our operations
 
are subject
 
to U.S.
 
and
 
foreign
 
trade
 
control laws
 
and
 
regulations,
including various export controls and economic sanctions programs, such as those administered by OFAC. We monitor compliance in
accordance with
 
the 10
 
principles as
 
set out
 
in the
 
United Nations
 
Global Compact
 
Principles, the
 
Organisation
 
for Economic
 
Co-
operation and
 
Development recommendations
 
relating to
 
corruption, and
 
the International
 
Labor Organization
 
Protocol in
 
terms of
certain of the items to be
 
monitored. As a result of doing business
 
in foreign countries and with foreign
 
partners, we are exposed to a
heightened
 
risk
 
of
 
violating
 
trade
 
control
 
law
s
 
as
 
well
 
as
 
sanctions
 
regulations.
 
 
 
16
Violations
 
of
 
trade
 
control
 
laws and
 
sanctions
 
regulations
 
are
 
punishable
 
by civil
 
penalties,
 
including
 
fines,
 
denial
 
of export
privileges,
 
injunctions,
 
asset seizures,
 
debarment
 
from
 
government
 
contracts
 
and revocations
 
or restrictions
 
of licenses,
 
as well
 
as
criminal fines and imprisonment.
 
We have
 
developed policies and procedures as
 
part of a company-wide compliance
 
program that is
designed to
 
assist our compliance
 
with applicable
 
U.S. and international
 
trade control laws
 
and regulations,
 
including trade controls
and sanctions programs administered
 
by OFAC,
 
and provide regular training
 
to our employees to create
 
awareness about the risks of
violations of trade
 
control laws and
 
sanctions regulations and
 
to ensure compliance
 
with these laws
 
and regulations.
 
However, there
can be no assurance that all of our employees, consultants,
 
partners, agents or other associated persons will not act in violation
 
of our
policies and these laws and regulations, or that our policies and procedures will
 
effectively prevent us from violating these regulations
in every transaction
 
in which we
 
may engage, or
 
provide a defense
 
to any alleged
 
violation. In particular,
 
we may be
 
held liable for
the actions that our
 
local, strategic or joint venture
 
partners take inside or outside
 
of the United States, even
 
though our partners may
not be
 
subject to
 
these laws.
 
Such a
 
violation, even
 
if our
 
policies prohibit
 
it, could
 
materially and
 
adversely affect
 
our reputation,
business,
 
results
 
of
 
operations
 
and
 
financial
 
condition.
 
Our
 
expansion
 
in
 
developing
 
countries,
 
and
 
our
 
development
 
of
 
new
partnerships and joint venture relationships, could increase the
 
risk of OFAC violations
 
in the future.
 
In addition,
 
our payment
 
processing activities
 
are subject
 
to extensive
 
regulation. Compliance
 
with the requirements
 
under the
various regulatory regimes may cause
 
us to incur significant
 
additional costs and failure to
 
comply with such requirements could
 
result
in the shutdown of the non-complying facility,
 
the imposition of liens, fines and/or civil or criminal liability.
 
 
We
 
are
 
required
 
to
 
comply
 
with
 
anti-corruption
 
laws
 
and
 
regulations,
 
including
 
the
 
FCPA
 
and
 
UK
Bribery Act, in the
 
jurisdictions in which we
 
operate our business, which could
 
adversely impact our future
growth.
 
The FCPA prohibits
 
us from providing anything of value to foreign
 
officials for the purposes of obtaining or retaining business,
or
 
securing
 
any
 
improper
 
business
 
advantage,
 
and
 
requires
 
us
 
to
 
keep
 
books
 
and
 
records
 
that
 
accurately
 
and
 
fairly
 
reflect
 
our
transactions.
 
As part
 
of
 
our
 
business,
 
we
 
may
 
deal
 
with
 
state-owned
 
business
 
enterprises,
 
the
 
employees
 
of
 
which
 
are
 
considered
foreign
 
officials
 
for
 
purposes of
 
the FCPA.
 
The UK
 
Bribery
 
Act includes
 
provisions
 
that extend
 
beyond bribery
 
of foreign
 
public
officials and also apply to
 
transactions with individuals not employed
 
by a government and
 
the act is also
 
more onerous than the FCPA
in a number of other respects, including
 
jurisdiction, non-exemption of facilitation
 
payments and penalties. Some of the international
locations in which we operate or have investments lack a developed
 
legal system and have higher than normal levels of corruption.
 
Any
 
failure
 
by
 
us
 
to
 
adopt
 
appropriate
 
compliance
 
procedures
 
and
 
ensure
 
that
 
our
 
employees,
 
agents
 
and
 
business
 
partners
comply with
 
the anti-corruption
 
laws and
 
regulations could
 
subject us
 
to substantial
 
penalties, and
 
the requirement
 
that we
 
comply
with these laws could
 
put us at a
 
competitive disadvantage against
 
companies that are not
 
required to comply.
 
For example, in many
emerging
 
markets,
 
there
 
may be
 
significant
 
levels
 
of official
 
corruption,
 
and
 
thus, bribery
 
of public
 
officials
 
may
 
be
 
a commonly
accepted cost
 
of doing
 
business. Our
 
refusal to
 
engage in
 
illegal behavior,
 
such as
 
paying bribes,
 
may result
 
in us not
 
being able
 
to
obtain business that we
 
might otherwise have been able
 
to secure or possibly
 
even result in unlawful,
 
selective or arbitrary action
 
being
taken against us.
 
Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and
imprisonment. We
 
have developed policies
 
and procedures as part
 
of a company-wide
 
compliance program that
 
is designed to assist
our
 
compliance
 
with
 
applicable
 
U.S.
 
and
 
international
 
anti-corruption
 
laws
 
and
 
regulations,
 
and
 
provide
 
regular
 
training
 
to
 
our
employees
 
to comply
 
with these
 
laws and
 
regulations.
 
However,
 
there
 
can be
 
no assurance
 
that all
 
of
 
our employees,
 
consultants,
partners, agents or other
 
associated persons will not take
 
actions in violation of our
 
policies or these laws and
 
regulations, or that our
policies and procedures
 
will effectively prevent
 
us from violating these
 
regulations in every
 
transaction in which
 
we may engage, or
provide a defense to any alleged violation. In particular,
 
we may be held liable for the actions that our local, strategic
 
or joint venture
partners take inside or outside of the United States, even
 
though our partners may not be subject to these laws. Such a violation,
 
even
if our policies prohibit it, could materially and adversely affect
 
our reputation, business, results of operations and financial condition.
 
We
 
do not
 
have a South
 
African banking
 
license and, therefore,
 
we provide our
 
EPE solution
 
through
an arrangement with
 
a third-party bank,
 
which limits our
 
control over this
 
business and the
 
economic benefit
we derive from it.
 
If this arrangement were
 
to terminate, we would
 
not be able to operate
 
our EPE business
without alternate means of access to a banking license.
 
The
 
South
 
African
 
retail
 
banking
 
market
 
is highly
 
regulated.
 
Under
 
current
 
law
 
and
 
regulations,
 
our
 
EPE
 
business
 
activities
require us to be
 
registered as a
 
bank in South Africa
 
or to have
 
access to an existing
 
banking license. We are not currently so
 
registered,
but we have
 
an agreement with
 
Grindrod Bank that
 
enables us to
 
implement our EPE
 
program in compliance
 
with the relevant
 
laws
and regulations. If this agreement were to be terminated, we would not be able to operate these services unless we were able to obtain
access to a banking license through alternate means. We are also dependent
 
on Grindrod Bank to defend us against attacks from other
South African banks who may regard our products as
 
disruptive to their funds transfer or other businesses
 
and may seek governmental
or other
 
regulatory intervention.
 
Furthermore, we
 
have to
 
comply with
 
the strict
 
anti-money laundering
 
and customer
 
identification
regulations of the South African
 
Reserve Bank, or SARB,
 
when we open new bank
 
accounts for our customers and
 
when they transact.
Failure to effectively implement and monitor responses to these regulations
 
may result in significant fines or prosecution of Grindrod
Bank
 
and
 
ourselves.
 
 
 
 
17
In
 
addition,
 
the
 
South
 
African
 
Financial
 
Advisory
 
and
 
Intermediary
 
Services
 
Act,
 
2002,
 
requires
 
persons
 
who
 
act
 
as
 
intermediaries between financial product suppliers and consumers
 
in South Africa to register
 
as financial service providers. Smart
 
Life
was granted an
 
Authorized Financial Service
 
Provider, or
 
FSP,
 
license on June
 
9, 2015, and
 
Moneyline Financial Services
 
(Pty) Ltd
and Net1 Mobile Solutions
 
(Pty) Ltd were each
 
granted FSP licenses on
 
July 11, 2017.
 
If our FSP licenses are
 
cancelled, we may be
stopped from continuing our financial services businesses in South Africa.
 
Furthermore, the proposed
 
Conduct of Financial
 
Institutions Bill will make
 
significant changes to
 
the current licensing
 
regime.
The second
 
draft of
 
the Conduct
 
of Financial
 
Institutions Bill
 
was published
 
for public
 
comment on
 
29 September
 
2020. While
 
the
proposals currently
 
indicate that
 
existing licenses
 
will be converted,
 
if we are
 
not successful in
 
our efforts
 
to obtain
 
a conversion
 
of
the existing
 
licenses or
 
cannot comply
 
with the
 
new conduct
 
standards to
 
be published
 
at the
 
same time
 
under the
 
Financial Sector
Regulation Act, No. 9 of 2017, we may be stopped from continuing
 
our financial services businesses in South Africa.
 
We
 
may
 
be
 
subject
 
to
 
regulations
 
regarding
 
privacy,
 
data
 
use
 
and/or
 
security,
 
which
 
could
 
adversely
affect our business.
 
 
We are
 
subject to regulations in
 
a number of the countries
 
in which we operate relating
 
to the processing (which
 
includes,
inter
alia
, the collection, use, retention, security and transfer) of
 
personal information about the people (whether natural or juristic)
 
who use
our products
 
and services.
 
The interpretation
 
and application
 
of user
 
data protection
 
laws are
 
in a
 
state of
 
flux. These
 
laws may
 
be
interpreted
 
and
 
applied
 
inconsistently
 
from
 
country
 
to
 
country
 
and
 
our
 
current
 
data
 
protection
 
policies
 
and
 
practices
 
may
 
not
 
be
consistent with those interpretations and applications.
 
Complying with these varying requirements could cause us
 
to incur substantial
costs or require us to change our business practices in a manner
 
adverse to our business and any failure, or perceived
 
failure, by us to
comply with any regulatory requirements or
 
international privacy or consumer protection-related laws and
 
regulations could result in
proceedings
 
or
 
actions
 
against
 
us
 
by
 
governmental
 
entities
 
or
 
others,
 
subject
 
us
 
to
 
significant
 
penalties
 
and
 
negative
 
publicity.
 
In
addition, as
 
noted above,
 
we are
 
subject to
 
the possibility
 
of security
 
breaches, which
 
themselves may
 
result in
 
a violation
 
of these
laws.
 
Amendments to
 
the NCA
 
were signed into
 
law in
 
South Africa
 
in August 2019.
 
Compliance with
 
these
amendments may adversely impact our micro-lending operations in South Africa.
 
In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa.
 
The effective date
of
 
the
 
debt-relief
 
bill
 
has
 
not yet
 
been
 
announced.
 
We
 
believe
 
that
 
the
 
debt-relief
 
bill
 
will restrict
 
the
 
ability
 
of
 
financial
 
services
providers to provide lending products
 
to certain low-income earners and
 
will increase the cost
 
of credit to these
 
consumers. As a result,
compliance with the debt-relief bill may adversely
 
impact our micro-lending operations in South Africa. Furthermore,
 
we expect that
it will take
 
us, and other
 
financial services providers,
 
some time to
 
fully understand,
 
interpret and
 
implement this new
 
legislation in
our
 
lending
 
processes
 
and
 
practices.
 
Non-compliance
 
with
 
the
 
provisions
 
of
 
this
 
new
 
legislation
 
may
 
result
 
in
 
financial
 
loss
 
and
penalties, reputational loss or other administrative punishment.
 
Risks Relating to our Common Stock
 
We
 
may
 
be
 
deemed
 
to
 
be
 
an
 
investment
 
company
 
under
 
the
 
Investment
 
Company
 
Act
 
of
 
1940,
 
or
Investment Company Act.
 
We
 
are an operating
 
company whose business
 
is focused on developing
 
and offering payment
 
solutions, transaction processing
services and financial technologies across
 
multiple industries directly and through
 
our wholly-owned subsidiaries. Our conduct,
 
public
filings and
 
announcements
 
hold us
 
out
 
as such
 
an operating
 
company
 
and
 
do not
 
hold
 
us out
 
as being
 
engaged
 
in the
 
business of
investing, reinvesting or trading in
 
securities. However, we own certain assets
 
that may be deemed
 
to be “investment securities”
 
within
the meaning
 
of Section
 
3(a)(2) of
 
the Investment
 
Company Act.
 
We
 
acquired these
 
assets pursuant
 
to our
 
former business
 
strategy,
which
 
involved
 
entering
 
into
 
strategic
 
partnership
 
arrangements
 
with
 
other
 
companies
 
in
 
a
 
number
 
of
 
emerging
 
and
 
developing
economies.
 
When we
 
acquired
 
minority
 
interests in
 
these companies,
 
we would
 
typically have
 
board
 
representation
 
or rights
 
with
regard to significant decisions.
 
During fiscal
 
2021, after
 
a comprehensive
 
strategic review,
 
we shifted our
 
strategy to focus
 
primarily on
 
our Southern African
operations and other business opportunities in Southern Africa and determined
 
to exit or reduce our presence in other geographies. In
furtherance
 
of
 
this
 
strategy
 
and
 
also
 
due
 
to
 
the
 
enormous
 
uncertainties
 
and
 
disruptions
 
caused
 
by
 
the
 
COVID-19
 
pandemic,
 
we
cancelled our option
 
to acquire an
 
additional 35% interest
 
in Bank Frick
 
(which would have
 
increased our interest
 
to 70%) and
 
disposed
of the 35% that we
 
owned. Further,
 
during fiscal 2020, we sold
 
KSNET,
 
our wholly-owned Korean
 
subsidiary,
 
as well as other non-
core
 
businesses,
 
which
 
resulted
 
in
 
a
 
large
 
infusion
 
of
 
cash
 
which
 
we
 
have
 
not
 
yet
 
deployed
 
into
 
our
 
operating
 
businesses.
 
These
dispositions and the Bank
 
Frick transactions, when combined with
 
the fluctuating value of those
 
of our assets that may
 
be deemed to
be investment securities,
 
could cause us
 
to be deemed
 
to be an investment
 
company within the
 
meaning of Section
 
3(a)(1)(C) of the
Investment Company Act. Regardless of the value of these assets at any particular time, we believe we should be viewed as primarily
engaged
 
in
 
a
 
business
 
other
 
than
 
i
nvesting,
 
reinvesting,
 
owning,
 
holding,
 
or
 
trading
 
in
 
securities.
 
 
 
18
If we are deemed
 
an investment company
 
and not entitled to
 
an exception or
 
exemption from registration
 
under the Investment
Company Act, we would have to register as
 
an investment company, modify our asset profile or otherwise change our business so that
it falls outside
 
the definition
 
of an investment
 
company under the
 
Investment Company
 
Act. Registering
 
as an investment
 
company
pursuant to
 
the Investment
 
Company Act
 
could, among
 
other things,
 
materially limit
 
our ability
 
to borrow
 
funds or
 
engage in
 
other
transactions and
 
otherwise would
 
subject us
 
to substantial
 
and costly
 
regulation. Failure
 
to register,
 
if required,
 
would significantly
impair our ability to continue to engage in our business and would have a material
 
adverse impact on our business and operations.
 
Our stock price has been and may continue to be volatile.
 
Our stock price has periodically experienced significant volatility. During the 2021 fiscal year, our stock
 
price ranged from a low
of $2.87 to a high of $6.62. We
 
expect that the trading price of our common stock may
 
continue to be volatile as a result of a number
of factors, including, but not limited to the following:
•
 
any adverse developments in litigation or regulatory actions in which
 
we are involved;
•
 
fluctuations
 
in currency exchange rates, particularly the U.S. dollar/ZAR exchange rate;
•
 
announcement of additional BEE transactions, especially one involving the issuance or
 
potential issuance of equity securities
or dilution or sale of our existing business in South Africa;
•
 
quarterly variations in our operating results;
•
 
significant fair value adjustments or impairment in respect of investments
 
or intangible assets;
•
 
announcements of acquisitions or disposals;
•
 
the timing of, or delays in the commencement, implementation
 
or completion of major projects;
•
 
large purchases or sales of our common stock; and
•
 
general conditions in the markets in which we operate.
 
Additionally,
 
shares of
 
our common
 
stock can
 
be expected
 
to be
 
subject to
 
volatility resulting
 
from purely
 
market forces
 
over
which
 
we
 
have
 
no
 
control.
 
If
 
our
 
business
 
development
 
plans
 
are
 
successful,
 
we
 
may
 
require
 
additional
 
financing
 
to
 
continue
 
to
develop
 
and
 
exploit
 
existing
 
and
 
new
 
technologies,
 
to
 
expand
 
into
 
new
 
markets
 
and
 
to
 
make
 
acquisitions,
 
all
 
of
 
which
 
may
 
be
dependent upon our ability to obtain financing through debt and equity
 
or other means.
 
The put
 
right we granted
 
to the IFC
 
Investors on the
 
occurrence of certain
 
triggering events may
 
have
adverse impacts on us.
 
In May
 
2016, we
 
issued an
 
aggregate of
 
9,984,311
 
shares of
 
our common
 
stock to
 
the IFC Investors,
 
of which,
 
as of
 
June 30,
2021,
 
the
 
IFC
 
Investors
 
held
 
7,881,142
 
shares.
 
We
 
granted
 
the
 
IFC
 
Investors
 
certain
 
rights,
 
including
 
the
 
right
 
to
 
require
 
us
 
to
repurchase
 
any
 
share held
 
by the
 
IFC
 
Investors
 
pursuant
 
to
 
the
 
May
 
2016 transaction
 
upon
 
the occurrence
 
of specified
 
triggering
events,
 
which
 
we refer
 
to as
 
a
 
“put
 
right.”
 
The put
 
price
 
per share
 
will be
 
the higher
 
of the
 
price
 
per
 
share paid
 
to us
 
by
 
the IFC
Investors and
 
the volume-weighted
 
average price
 
per share prevailing
 
for the 60
 
trading days preceding
 
the triggering
 
event, except
that with respect
 
to a put right
 
triggered by rejection
 
of a bona
 
fide offer,
 
the put price
 
per share will
 
be the highest
 
price offered
 
by
the offeror.
 
If a put triggering event occurs, it could adversely
 
impact our liquidity and capital resources. In addition,
 
the existence of
the put right could also affect whether or on what terms a third party might in the future offer to purchase our company.
 
Our response
to any such offer could also be complicated, delayed or
 
otherwise influenced by the existence of the put right.
 
Approximately
 
36%
 
of
 
our
 
outstanding
 
common
 
stock
 
is
 
owned by
 
two shareholders.
 
The
 
interests of
these shareholders may conflict with those of our other shareholders.
 
There is a concentration of ownership
 
of our outstanding common stock because
 
approximately 36% of our outstanding common
stock is owned by two
 
shareholders. Based on their most
 
recent SEC filings disclosing
 
ownership of our shares, Value Capital Partners
(Pty) Ltd, or VCP,
 
and IFC Investors, beneficially own approximately 22% and 14% of our outstanding
 
common stock, respectively.
 
VCP has agreed, pursuant to an Amended Cooperation Agreement dated December 9, 2020, to refrain from acquiring more than
24.9% of our outstanding common stock or taking certain
 
actions, including acting in concert with others, that
 
could result in a change
of control
 
of the
 
Company.
 
These restrictions
 
remain in
 
effect through
 
to the
 
business day
 
immediately following
 
our 2022
 
annual
meeting of shareholders.
 
The interests of
 
VCP and the
 
IFC Investors may
 
be different
 
from or conflict
 
with the interests
 
of our other
 
shareholders. As a
result of the significant combined ownership by VCP and the IFC Investors, subject
 
to the limitations applicable to VCP contained in
the
 
Amended
 
Cooperation
 
Agreement,
 
they
 
may
 
be
 
able, if
 
they
 
act
 
together,
 
to
 
significantly
 
influence
 
the
 
voting
 
outcome
 
of
 
all
matters requiring
 
shareholder approval.
 
This concentration
 
of ownership
 
may have
 
the effect
 
of delaying
 
or preventing
 
a change
 
of
control
 
of
 
our
 
company,
 
thus
 
depriving
 
shareholders
 
of
 
a
 
premium
 
for
 
their
 
shares,
 
or
 
facilitating
 
a
 
change
 
of
 
control
 
that
 
other
shareholders
 
may
 
oppose.
 
 
 
19
We may seek to raise
 
additional financing by
 
issuing new securities
 
with terms or
 
rights superior to
 
those
of shares of our common stock, which could adversely affect the market price of such shares.
 
We
 
may require
 
additional financing
 
to fund future
 
operations, including
 
expansion in
 
current and new
 
markets, programming
development and acquisition,
 
capital costs and
 
the costs of any
 
necessary implementation of
 
technological innovations or
 
alternative
technologies, or
 
to fund
 
acquisitions. Because
 
of the
 
exposure to
 
market risks
 
associated with
 
economies in
 
emerging markets,
 
we
may not be able
 
to obtain financing on favorable
 
terms or at all.
 
If we raise additional funds
 
by issuing equity securities, the
 
percentage
ownership of our current
 
shareholders will be reduced,
 
and the holders of the new
 
equity securities may have
 
rights superior to those
of the holders of shares of common stock,
 
which could adversely affect the market price and
 
voting power of shares of common stock.
If we raise additional
 
funds by issuing debt
 
securities, the holders of
 
these debt securities would
 
similarly have some rights
 
senior to
those of
 
the holders
 
of shares
 
of common
 
stock, and
 
the terms
 
of these
 
debt securities
 
could impose
 
restrictions on
 
operations and
create a significant interest expense for us.
 
Issuances
 
of significant
 
amounts
 
of stock
 
in the
 
future
 
could potentially
 
dilute
 
your equity
 
ownership
and adversely affect the price of our common stock.
 
We
 
believe that
 
it is necessary
 
to maintain
 
a sufficient
 
number of
 
available authorized
 
shares of our
 
common stock
 
in order
 
to
provide
 
us
 
with
 
the flexibility
 
to
 
issue
 
shares
 
for
 
business
 
purposes
 
that
 
may
 
arise
 
from time
 
to
 
time.
 
For example,
 
we
 
could
 
sell
additional shares to
 
raise capital
 
to fund our
 
operations or to
 
acquire other businesses,
 
issue shares in
 
a BEE
 
transaction, issue additional
shares under our
 
stock incentive plan
 
or declare a
 
stock dividend. Our
 
board may authorize
 
the issuance of
 
additional shares of
 
common
stock
 
without
 
notice
 
to,
 
or
 
further
 
action
 
by,
 
our
 
shareholders,
 
unless
 
shareholder
 
approval
 
is
 
required
 
by
 
law
 
or
 
the
 
rules
 
of
 
the
NASDAQ Stock Market. The issuance of additional shares could
 
dilute the equity ownership of our current
 
shareholders and any such
additional shares would likely be freely tradable, which could adversely
 
affect the trading price of our common stock.
 
Failure to maintain effective internal control over financial
 
reporting in accordance with Section 404
 
of
the Sarbanes-Oxley Act, especially
 
over companies that we may
 
acquire, could have a material
 
adverse effect
on our business and stock price.
 
 
Under Section 404
 
of the Sarbanes-Oxley
 
Act of 2002,
 
or Sarbanes, we
 
are required to
 
furnish a management
 
certification and
auditor attestation regarding the
 
effectiveness of our internal
 
control over financial reporting.
 
We are
 
required to report, among other
things, control deficiencies that constitute a “material weakness”
 
or changes in internal control that
 
materially affect, or are reasonably
likely
 
to
 
materially
 
affect,
 
internal
 
control
 
over
 
financial
 
reporting.
 
A
 
“material
 
weakness”
 
is
 
a
 
deficiency,
 
or
 
a
 
combination
 
of
deficiencies, in internal control
 
over financial reporting such
 
that there is
 
a reasonable possibility
 
that a material
 
misstatement of annual
or interim financial statements will not be prevented or detected on
 
a timely basis.
 
The
 
requirement
 
to
 
evaluate
 
and
 
report
 
on
 
our
 
internal
 
controls
 
also
 
applies
 
to
 
companies
 
that
 
we
 
acquire.
 
Some
 
of
 
these
companies may not
 
be required
 
to comply with
 
Sarbanes prior
 
to the
 
time we
 
acquire them.
 
The integration of
 
these acquired
 
companies
into our internal
 
control over financial
 
reporting could require significant
 
time and resources
 
from our management
 
and other
 
personnel
and may increase our compliance costs.
 
If we fail to successfully
 
integrate the operations of these
 
acquired companies into our internal
control over financial reporting, our internal control over financial reporting
 
may not be effective.
 
While
 
we
 
continue
 
to
 
dedicate
 
resources
 
and
 
management
 
time
 
to
 
ensuring
 
that
 
we
 
have
 
effective
 
controls
 
over
 
financial
reporting, failure to
 
achieve and maintain
 
an effective internal
 
control environment could
 
have a material
 
adverse effect on
 
the market’s
perception of our business and our stock price.
 
You
 
may
 
experience
 
difficulties
 
in
 
effecting
 
service
 
of
 
legal
 
process,
 
enforcing
 
foreign
 
judgments
 
or
bringing
 
original
 
actions
 
based
 
upon
 
U.S.
 
laws,
 
including
 
federal
 
securities
 
laws
 
or
 
other
 
foreign
 
laws,
against us or certain of our directors and officers and experts.
 
 
While Net1
 
is incorporated
 
in the state
 
of Florida,
 
United States,
 
the company
 
is headquartered
 
in Johannesburg,
 
South Africa
and substantially all of the company’s assets are located outside the United States. In addition, the majority of Net1’s
 
directors and all
its officers reside outside of the
 
United States and the majority
 
of our experts, including our
 
independent registered public accountants,
are based in South Africa.
 
As a result, even though
 
you could effect service
 
of legal process upon Net1,
 
as a Florida corporation, in
 
the United States, you
may not be able to collect any judgment obtained against Net1
 
in the United States, including any judgment based on the
 
civil liability
provisions of
 
U.S. federal
 
securities laws,
 
because substantially
 
all of
 
our assets
 
are located
 
outside the
 
United States.
 
Moreover,
 
it
may not be possible for you to
 
effect service of legal process upon the majority
 
of our directors and officers or upon our
 
experts within
the
 
United
 
States or
 
elsewhere
 
outside
 
South
 
Africa
 
and
 
any
 
judgment
 
obtained
 
against any
 
of
 
our
 
foreign
 
directors,
 
officers
 
and
experts
 
in
 
the
 
United
 
States,
 
including
 
one
 
based
 
on
 
the
 
civil
 
liability
 
provisions
 
of
 
the
 
U.S.
 
federal
 
securities
 
laws,
 
may
 
not
 
be
collectible
 
in
 
th
e
 
United
 
States
 
and
 
may
 
not
 
be
 
enforced
 
by
 
a
 
South
 
African
 
court.
 
 
 
20
South Africa
 
is not
 
a party
 
to any
 
treaties regarding
 
the enforcement
 
of foreign
 
commercial judgments,
 
as opposed
 
to foreign
arbitral awards.
 
Accordingly,
 
a foreign judgment
 
is not directly
 
enforceable in
 
South Africa, but
 
constitutes a cause
 
of action
 
which
may be enforced by South African courts provided that:
•
 
the court which pronounced the judgment had international jurisdiction and
 
competence to entertain the case according to
 
the
principles recognized by South African law with reference to the jurisdiction
 
of foreign courts;
 
•
 
the judgment is final and conclusive (that is, it cannot be altered by the court
 
which pronounced it);
 
•
 
the judgment
 
has not lapsed;
•
 
the recognition
 
and enforcement
 
of the
 
judgment by
 
South African
 
courts would
 
not be
 
contrary to
 
public policy
 
in South
Africa, including
 
observance of the
 
rules of natural
 
justice which require
 
that no award
 
is enforceable
 
unless the defendant
was duly served with documents initiating proceedings, that he or she was given a fair opportunity to be heard and that he or
she enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal;
 
•
 
the judgment was not obtained by improper or fraudulent means;
•
 
the
 
judgment
 
does
 
not
 
involve
 
the
 
enforcement
 
of
 
a
 
penal
 
or
 
foreign
 
revenue
 
law
 
or
 
any
 
award
 
of
 
multiple
 
or
 
punitive
damages; and
 
•
 
the enforcement of
 
the judgment is
 
not otherwise precluded
 
by the provisions
 
of the Protection
 
of Business Act
 
99 of 1978
(as amended), of the Republic of South Africa.
 
It has been the policy
 
of South African courts to award
 
compensation for the loss or damage
 
actually sustained by the person
 
to
whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as
a result
 
of a
 
diminution in
 
the value
 
of their
 
shares based
 
on various
 
actions by
 
the corporation
 
and its
 
management. Although
 
the
award of punitive
 
damages is generally
 
unknown to the
 
South African legal
 
system, that does
 
not mean that
 
such awards are
 
necessarily
contrary to public policy.
 
 
Whether a judgment
 
was contrary to
 
public policy
 
depends on the
 
facts of each
 
case. Exorbitant,
 
unconscionable, or
 
excessive
awards will generally be contrary to public policy. South African courts cannot
 
enter into the merits of a foreign judgment and cannot
act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African
 
court, it will be
payable
 
in South
 
African currency.
 
Also, under
 
South
 
Africa’s
 
exchange
 
control laws,
 
the approval
 
of SARB
 
is required
 
before a
defendant resident in South Africa may pay money to a non-resident plaintiff in satisfaction of a foreign judgment enforced by a court
in South Africa.
 
 
It is
 
doubtful
 
whether an
 
original
 
action based
 
on United
 
States federal
 
securities laws
 
may
 
be brought
 
before South
 
African
courts. A plaintiff who
 
is not resident in South Africa
 
may be required to provide security
 
for costs in the event of proceedings
 
being
initiated in
 
South Africa.
 
Furthermore, the
 
Rules of
 
the High
 
Court of
 
South Africa
 
require that
 
documents executed
 
outside South
Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South
Africa, we consulted with our South African legal counsel, Cliffe
 
Dekker Hofmeyr Inc.
 
21
ITEM 1B.
 
UNRESOLVED
 
STAFF COMMENTS
 
None.
 
ITEM
 
2.
 
PROPERTIES
 
 
 
We lease our corporate
 
headquarters facility which consists of approximately 93,000 square feet in Johannesburg,
 
South Africa.
We also lease properties throughout South Africa, including a 12,088 square foot manufacturing facility in Lazer Park, Johannesburg,
257 financial services branches, 76
 
financial service express stores and
 
40 satellite branches. We
 
also lease additional office
 
space in
Johannesburg,
 
Cape Town
 
and Durban,
 
South Africa;
 
and Gaborone,
 
Botswana. These
 
leases expire
 
at various
 
dates through
 
2024,
assuming the exercise of options to extend. We
 
believe
 
that we have adequate facilities for our current business operations.
 
22
ITEM
 
3.
 
 
LEGAL
 
PROCEEDINGS
 
 
 
NCR application for the cancelation of Moneyline’s
 
registration as a credit provider
 
 
In September 2014, the NCR applied to the South African National Consumer Tribunal, or Tribunal, to cancel the registration of
our subsidiary, Moneyline, for breach of the NCA based on an investigation concluded by it. We raised a number of procedural points
in defense and argument
 
on these points was heard
 
on November 27, 2015,
 
before three tribunal members.
 
Two ruled
 
against us and
one upheld our points. We
 
are appealing the majority ruling to the High Court. This matter
 
was heard on December 4, 2018, by a full
bench
 
of the
 
Pretoria
 
High
 
Court.
 
In opposing
 
this appeal,
 
the
 
NCR contended
 
that
 
our
 
appeal
 
had
 
no
 
basis and
 
they
 
raised,
 
as a
procedural point,
 
that we should
 
have joined
 
the Tribunal
 
as a party
 
to the
 
appeal proceedings.
 
On August
 
30, 2019,
 
it was ordered
that the Tribunal be included in the appeal proceedings and this appeal will be heard on October 27, 2021. If we are successful, it will
dispose of the
 
application. If we
 
do not
 
prevail, then
 
the NCR’s application will
 
be set
 
down before
 
the Consumer
 
Tribunal for argument
on the main issues raised by the NCR, as dealt with above. We
 
cannot predict the outcome of this litigation.
 
Withdrawal of legal proceedings against a PG
 
Purchasing customer regarding non-payment of working capital
 
finance
loans receivable
 
In January
 
2019, we
 
filed a
 
Petition with
 
the District
 
Court of
 
Dallas County,
 
Texas
 
(“Texas
 
district court
 
lawsuit”), naming
Permian
 
Crude
 
Transport,
 
LP,
 
f/k/a
 
Permian
 
Crude
 
Transport,
 
LLC,
 
d/b/a
 
Permian
 
Transport
 
&
 
Trading
 
(“PCT”),
 
and
 
Centurion
Marketing, LLC
 
d/b/a Jupiter Marketing
 
& Trading,
 
LLC (“Centurion”
 
and collectively
 
with PCT,
 
“PCT/Centurion”) as
 
defendants
regarding
 
the
 
recovery
 
of
 
working
 
capital
 
finance
 
loans
 
receivable
 
made
 
to
 
PCT/Centurion
 
by
 
our
 
wholly-owned
 
subsidiary,
 
PG
Purchasing. This lawsuit was in its initial stages and trial was
 
set for December 2, 2019. However, the Texas district court lawsuit was
administratively closed
 
following PCT’s
 
filing for bankruptcy
 
in June 2019
 
and Centurion’s
 
filing for bankruptcy
 
in July 2019.
 
The
Texas district court
 
lawsuit may be re-opened if the PCT/Centurion bankruptcy matters are lifted.
 
 
However,
 
on December 3,
 
2020, we filed
 
a notice with
 
the United States
 
Bankruptcy Court
 
for the Northern
 
District of Texas,
Dallas Division
 
withdrawing
 
our claim
 
as we
 
do not
 
believe we
 
will be
 
able to
 
successfully
 
recover
 
all or
 
a part
 
of the
 
receivable
outstanding within a reasonable period of time and without further undue
 
cost and effort.
 
Litigation related to CPS
 
 
As
 
a
 
result
 
of
 
significant
 
obligations
 
relating
 
to,
 
and
 
ongoing
 
litigation
 
arising
 
out
 
of,
 
CPS’
 
SASSA
 
contract,
 
including
 
the
exhaustion of CPS’ legal appeals
 
against a court judgment to repay
 
additional SASSA implementation costs, CPS has
 
been placed into
liquidation. As a result, CPS’ provisional liquidators are currently in control of all of CPS’ affairs.
 
No other Net1 group company is a
party to any of these proceedings and we are no longer involved in the management
 
of these matters.
 
There are no other material pending legal proceedings, other than
 
ordinary routine litigation incidental to our business, to which
we are a party or of which any of our property is the subject.
 
23
ITEM
 
4.
 
MINE
 
SAFETY
 
DISCLOSURES
 
 
Not applicable.
 
24
PART
 
II
 
ITEM
 
5.
 
MARKET
 
FOR
 
REGISTRANT’S
 
COMMON
 
EQUITY,
 
RELATED
 
STOCKHOLDER
 
MATTERS AND ISSUER PURCHASES
 
OF EQUITY SECURITIES
 
Market information
 
 
Our common stock is listed on
 
The NASDAQ Global Select Market, or
 
Nasdaq, in the United States under
 
the symbol “UEPS”
and on the JSE in South Africa under the symbol “NT1.” The Nasdaq is our principal
 
market for the trading of our common stock.
 
Our transfer
 
agent in
 
the United
 
States is
 
Computershare Shareowner
 
Services LLC,
 
480 Washington
 
Blvd, Jersey
 
City,
 
New
Jersey,
 
07310. According
 
to the
 
records of
 
our transfer
 
agent, as
 
of September
 
3, 2021,
 
there were
 
9 shareholders
 
of record
 
of our
common stock.
 
We
 
believe that
 
a substantially
 
greater number
 
of beneficial
 
owners of
 
our common
 
stock hold
 
their shares
 
though
banks, brokers,
 
and other financial
 
institutions (i.e. “street
 
name”). Our transfer
 
agent in South
 
Africa is JSE
 
Investor Services (Pty)
Ltd, 13th Floor, Rennie House, 19
 
Ameshoff Street, Braamfontein, 2001, South Africa.
 
Dividends
 
We
 
have not
 
paid any
 
dividends on
 
shares of our
 
common stock
 
during our
 
last two
 
fiscal years
 
and presently
 
intend to
 
retain
future earnings to finance the expansion of the
 
business. We do not anticipate
 
paying any cash dividends in the foreseeable
 
future. The
future dividend policy will depend on our earnings, capital requirements, debt commitments, expansion plans, financial condition and
other relevant factors.
 
Issuer purchases of equity securities
 
On
 
February
 
5,
 
2020,
 
our
 
board
 
of
 
directors
 
approved
 
the
 
replenishment
 
of
 
our
 
existing
 
share
 
repurchase
 
authorization
 
to
repurchase up to an aggregate of $100 million of common stock. The authorization has no expiration date. We
 
did not repurchase any
shares of our common stock during fiscal 2021.
 
 
form10kp27i0.gif
 
25
Share performance graph
 
The chart
 
below compares
 
the five-year
 
cumulative return,
 
assuming the
 
reinvestment of
 
dividends, where
 
applicable, on
 
our
common stock with that of the S&P 500 Index and the NASDAQ Industrial Index. This graph assumes $100
 
was invested on June 30,
2016, in each of our common stock, the companies in the S&P 500 Index, and the
 
companies in the NASDAQ Industrial
 
Index.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26
ITEM
 
6.
 
SELECTED
 
FINANCIAL
 
DATA
 
 
The following
 
selected historical
 
consolidated financial
 
data should be
 
read together
 
with Item 7—“Management’s
 
Discussion
and Analysis
 
of Financial
 
Condition and
 
Results of
 
Operations” and
 
Item 8—“Financial
 
Statements and
 
Supplementary Data”.
 
The
following
 
selected historical
 
financial
 
data as
 
of June
 
30,
 
2021 and
 
2020,
 
and for
 
the three
 
years ended
 
June 30,
 
2021, have
 
been
derived
 
from our
 
audited consolidated
 
financial
 
statements inclu
 
ded
 
elsewhere
 
in this
 
Annual
 
Report
 
on Form
 
10-K. The
 
selected
historical consolidated financial data
 
presented below as of June
 
30, 2019, 2018 and 2017
 
and for the years ended
 
June 30, 2018 and
2017, have been derived from our audited consolidated financial statements, which
 
are not included herein, and have been restated as
noted below, which restatement
 
is unaudited. The selected historical financial data as of each date and for each period presented have
been prepared in
 
accordance with U.S.
 
GAAP.
 
These historical results
 
are not necessarily
 
indicative of results
 
to be expected
 
in any
future period.
 
As
 
discussed
 
in
 
Note
 
1
 
to
 
our
 
audited
 
consolidated
 
financial
 
statements
 
included
 
in
 
Item
 
8—“Financial
 
Statements
 
and
Supplementary
 
Data,”
 
our
 
historical
 
audited
 
consolidated
 
financial
 
statements
 
have
 
been corrected
 
to give
 
effect
 
to
 
a restatement.
Accordingly,
 
certain of
 
the selected
 
consolidated financial
 
data presented
 
in the
 
table below
 
has been
 
corrected to
 
give effect
 
to the
restatement as indicated.
 
Consolidated Statements of Operations Data
(in thousands, except per share data)
Year
 
ended June 30,
2021
2020
(R)(1)
2019
(R)
2018
2017
(as restated)
(as restated)
Revenue
(3)
$
130,786
$
144,299
$
160,635
$
459,575
$
456,663
Cost of goods sold, IT processing, servicing and
support
96,248
102,308
124,104
243,554
236,179
Selling, general and administration
(2) (4)
84,063
75,256
144,920
130,822
124,086
Depreciation and amortisation
4,347
4,647
12,103
10,473
12,679
Impairment loss
-
6,336
14,440
20,917
-
Operating (loss) income
(53,872)
(44,248)
(134,932)
53,809
83,719
Change in fair value of equity securities
49,304
-
(167,459)
32,473
-
Termination
 
fee paid to cancel Bank Frick option
-
17,517
-
-
-
Interest income
2,416
2,805
5,424
16,845
20,014
Interest expense
2,982
7,641
9,860
8,569
2,174
Impairment of Cedar Cellular note
-
-
12,793
-
-
(Loss) Income before income tax expense (benefit)
(5,619)
(65,016)
(319,443)
94,558
101,559
Income tax expense (benefit)
7,560
2,656
(5,072)
45,106
38,175
(Loss) income from equity accounted investments
(5)
(24,878)
(29,542)
1,258
1,810
2,814
Net (loss) income from continuing operations
(38,057)
(97,214)
(313,113)
51,262
66,198
Gain (loss) on disposal of discontinued operation, net
of tax
-
12,454
(9,175)
-
-
Net (loss) income attributable to Net1 - continuing
operations
$
(38,057)
$
(97,214)
$
(311,761)
$
52,142
$
64,504
(Loss) Income from continuing operations per share:
Basic
$
(0.67)
$
(1.70)
$
(5.49)
$
0.92
$
1.18
Diluted
$
(0.67)
$
(1.70)
$
(5.49)
$
0.92
$
1.17
 
(R) Refer to Note 1 to the audited consolidated financial statements for
 
additional information regarding the restatement.
(1) Includes
 
the impact
 
of the
 
COVID-19
 
pandemic lockdown
 
restrictions,
 
which directly
 
impacted elements
 
of the
 
business from
March 27, 2020 to June 1, 2020.
 
(2) Impacted by expiration of SASSA contract in September 2018.
(3) Revenue for the year
 
ended June 30, 2019,
 
includes revenue that has
 
been reversed of $19.7
 
million (ZAR 277.6 million)
 
as a result
of the September
 
2019 Supreme Court ruling,
 
and selling, general and
 
administration includes $14.3
 
million (ZAR 201.8
 
million) of
expenses related to the Supreme Court ruling.
 
(4) Includes
 
an allowance
 
for doubtful
 
financial loans
 
receivable of
 
$28.8 million
 
in fiscal
 
2019 and
 
a separation
 
payment of
 
$8.0
million paid to our former chief executive officer
 
in fiscal 2017.
(5) Includes impairments of
 
$21.1 million and
 
$33.8 million in
 
fiscal 2021 and
 
2020,
 
respectively, as discussed in Note
 
8 to our
 
audited
consolidated
 
financial
 
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27
Additional Operating Data:
(in thousands, except percentages)
 
Year
 
ended June 30,
2021
(1)
2020
(1)
2019
(1)
2018
(1)
2017
(1)
Cash flows (used in) provided by operating activities
$
(58,371)
$
(46,045)
$
(4,460)
$
132,305
$
97,161
Cash flows provided by (used in) investing activities
47,775
223,117
64,476
180,748
(114,071)
Cash flows (used in) provided by financing activities
$
(13,081)
$
(48,838)
$
(24,714)
$
(473,479)
$
40,469
Operating (loss) income margin
(2)
(41.2%)
(30.7%)
(84.0%)
11.7%
15.9%
 
(1) Cash flows provided by (used in) investing activities include movements in settlement assets and cash flows (used in) provided by
financing activities include movement in settlement liabilities.
(2) Fiscal 2021 operating
 
loss margin was
 
(41.2%). Fiscal 2020 operating
 
loss margin was
 
(25.4%) before impairment losses
 
(refer
to Note
 
9 of
 
our audited
 
consolidated financial
 
statements for
 
a full
 
description of
 
fiscal 2020
 
and 2019
 
impairment losses).
 
Fiscal
2019 operating loss margin
 
was
 
(71.1%) before retrenchment costs,
 
the impact of the SASSA implementation
 
costs accrual (refer to
Note 12 of
 
our audited consolidated
 
financial statements),
 
and impairment losses.
 
Fiscal 2018 operating
 
income margin
 
was
 
18.0%
before the impairment
 
loss and an allowance
 
for doubtful finance
 
loans receivable.
 
Fiscal 2017 operating income
 
margin was 18.0%
before the separation payment of $8.0 million paid to our former chief
 
executive officer.
 
Consolidated Balance Sheet Data:
(in thousands)
Year
 
ended June 30,
2021
2020
2019
2018
2017
Cash, cash equivalents and restricted cash
$
223,765
$
232,485
$
95,460
$
57,607
$
210,396
Total current
 
assets before settlement assets
293,851
311,292
153,285
169,619
369,241
Equity-accounted investments
10,004
65,836
148,427
83,234
25,935
Goodwill
29,153
24,169
37,316
52,799
75,598
Intangible assets
357
612
2,228
9,405
13,666
Total assets
428,330
453,678
670,247
1,214,532
1,448,829
Total current
 
liabilities before settlement obligations
52,024
63,288
155,808
94,090
54,957
Total long-term
 
debt
-
-
-
5,469
-
Total equity
$
275,980
$
290,213
$
317,342
$
638,827
$
596,074
 
28
ITEM
 
7.
 
MANAGEMENT’S
 
DISCUSSION
 
AND
 
ANALYSIS
 
OF
 
FINANCIAL
 
CONDITION
 
AND
 
RESULTS
 
OF OPERATIONS
 
The
 
following
 
discussion
 
and
 
analysis
 
should
 
be
 
read
 
in
 
conjunction
 
with
 
Item
 
6—“Selected
 
Financial
 
Data”
 
and
 
Item
 
8—
“Financial Statements and Supplementary Data.” In addition to historical consolidated financial information, the following discussion
and analysis contains forward-looking statements that involve
 
risks, uncertainties and assumptions. See Item
 
1A— “Risk Factors” and
“Forward Looking Statements.”
 
Overview
 
We are a provider of financial technology,
 
or fintech, products and services to unbanked and underbanked individuals and small
businesses, predominantly
 
in South Africa.
 
We
 
have developed and
 
own most of
 
our payment technologies,
 
and where possible,
 
we
utilize
 
this
 
technology
 
to provide
 
financial
 
and value
 
-added
 
services
 
to our
 
customers
 
by including
 
them into
 
the formal
 
financial
system.
 
Sources of Revenue
 
We
 
generate our
 
revenues by
 
charging
 
transaction fees
 
to merchants,
 
financial service
 
providers, utility
 
providers, bill
 
issuers
and
 
cardholders;
 
by
 
providing
 
loans
 
and
 
insurance
 
products
 
and
 
by
 
selling
 
hardware,
 
licensing
 
software
 
and
 
providing
 
related
technology services.
 
We
 
have
 
structured
 
our
 
business
 
and
 
our
 
business
 
development
 
efforts
 
around
 
several
 
related
 
but
 
separate
 
approaches
 
to
deploying our technology.
 
In our most
 
basic approach, we
 
act as a
 
supplier, selling
 
our equipment, software,
 
and related technology
to a customer. The revenue
 
and costs associated with this approach are reflected in our technology segment.
 
 
We
 
have
 
found
 
that
 
we
 
have
 
greater
 
revenue
 
and
 
profit
 
opportunities,
 
however,
 
by
 
acting
 
as
 
a
 
service
 
provider
 
instead
 
of
 
a
supplier. In this approach
 
we own and operate the technology and apply it in a system ourselves, charging
 
one-time and ongoing fees
for the use of the system either on a fixed or ad valorem basis. This
 
is the case in South Africa, where we provide bank
 
accounts on a
monthly fee basis, and charge fees on an
 
ad valorem basis for goods and
 
services purchased. Usage of our bank accounts
 
also provides
our customers
 
with access
 
to short-term
 
loans and
 
life insurance
 
products. The
 
revenue and
 
costs associated
 
with this
 
approach are
reflected in our processing and financial services segments.
 
 
In South
 
Africa, we also
 
generate fees from
 
debit and credit
 
card transaction
 
processing, the provision
 
of value-added
 
services
such as bill payments, mobile top-up and prepaid utility sales, and from
 
providing a payroll transaction management service (up until
the disposal of this business
 
in December 2019). The revenue
 
and costs associated with these
 
services are reflected in our
 
processing
and technology segments.
 
Developments during Fiscal 2021
 
Leadership changes
 
On July 1, 2021,
 
Mr. Chris
 
G.B. Meyer joined us
 
as Group CEO, following
 
the resignation of
 
Mr. Herman
 
G. Kotzé in August
2020. Mr.
 
Alex M.R. Smith, our
 
current CFO, assumed
 
the role of interim
 
Group CEO, from
 
Mr. Kotze’s
 
resignation through to
 
the
appointment of Mr. Chris G.B. Meyer
 
.
 
On May 1, 2021, Mr. Lincoln
 
Mali joined us as CEO of Net1 Southern Africa, a new position within our
 
organization.
 
 
On March
 
15, 2021,
 
Mr.
 
Nunthakumarin Pillay
 
resigned his
 
position as
 
Managing Director:
 
Southern Africa
 
after 21
 
years of
service to our
 
company in order
 
to pursue other
 
opportunities. Mr.
 
N. Pillay’s
 
last day of
 
employment was
 
April 30, 2021.
 
We
 
have
reorganized certain of
 
our internal
 
business reporting lines
 
following the resignation
 
of Mr. N.
 
Pillay, which did not
 
impact our business
or processes significantly.
 
Financial Services Activities in South Africa
 
We continue to focus our South African financial inclusion activities on a business-to-consumer, or B2C, model. We
 
believe our
EPE bank account, known
 
in the communities it
 
serves as ‘the
 
green card’, has a
 
strong brand position in
 
our target market and
 
benefits
from significant loyalty.
 
We
 
have been working
 
on enhancing its presence
 
through localized marketing
 
which, when combined
 
with
some of the challenges of other service providers into this market, we
 
expect to result in a return to growing customer numbers.
 
 
 
 
 
29
Customer additions
 
have improved significantly
 
since June 2021,
 
following the launch
 
of a targeted
 
marketing campaign.
 
This
momentum
 
was impacted
 
by the
 
civil unrest
 
in July
 
2021, referred
 
to above;
 
however,
 
we experienced
 
strong additions
 
in August
2021. We recorded gross customer additions of approximately 167,000 during fiscal 2021, with approximately
 
43,000 recorded in the
fourth
 
quarter,
 
while
 
net
 
additions
 
amounted
 
to
 
approximately
 
84,000
 
customers
 
during
 
fiscal
 
2021,
 
with
 
approximately
 
23,000
recorded
 
in
 
the
 
fourth
 
quarter.
 
Gross
 
and
 
net
 
additions
 
for
 
the
 
first
 
two
 
calendar
 
months
 
of
 
fiscal
 
2022
 
were
 
75,000
 
and
 
61,000
respectively. We
 
continue to see delays in the transfer of income for a significant portion of these customers, which means we are not
seeing the full benefit of this customer growth in
 
our financial performance. To date, only approximately 50% of these gross customer
additions have become active and commenced transacting on their
 
account.
 
 
Processing Activities in South Africa
 
Our processing activities in South Africa are focused around
 
our ATM network, which largely services a consumer base, and our
transaction processing for businesses, anchored around our EasyPay offering. As articulated in respect of our revised strategy, we aim
to grow our business to business, or B2B,
 
operations through the servicing of small and micro enterprises. We continue to see a steady
growth in the number of customers utilizing our
 
ATM infrastructure over the last quarter, though transaction volumes were lower than
the previous quarter.
 
Our B2B operations
 
performed broadly in
 
line with expectations
 
with volumes lower
 
than the previous
 
quarter
in
 
line
 
with
 
expected
 
seasonal
 
trends.
 
Opportunities
 
related
 
to
 
the
 
expansion
 
of
 
the
 
processing
 
business
 
into
 
the
 
small
 
and
 
micro
enterprises space have been identified and are being progressed.
 
Impact of COVID-19
 
Our business
 
has been,
 
and continues
 
to be, impacted
 
by government
 
restrictions and
 
quarantines related
 
to COVID-19.
 
South
Africa operates with a
 
five-level COVID-19 alert system,
 
with Level 1 being
 
the least restrictive
 
and Level 5 being
 
the most restrictive.
South Africa is currently at adjusted
 
Level 3, which has a
 
limited impact on our businesses.
 
The South Africa government commenced
its vaccination program
 
in early calendar
 
2021, with a
 
stated goal of vaccinating
 
67% of the
 
South African population
 
by the end
 
of
the calendar year.
 
Business and operations
 
Our operations
 
largely operated
 
as normal
 
during fiscal
 
2021. Most
 
of the
 
impact of
 
the pandemic
 
on our
 
operations resulted
from
 
the
 
indirect
 
effect
 
of
 
lower
 
economic
 
activity
 
in
 
the
 
South
 
African
 
economy.
 
Our
 
loan
 
business
 
was
 
able
 
to
 
originate
 
loans
normally and we
 
have not seen
 
any deterioration in
 
collection levels over
 
the period. Our
 
insurance business has
 
seen a higher
 
level
of benefit claims
 
during fiscal 2021.
 
We
 
continue to incur direct
 
expenditure on the
 
purchase of sanitizers,
 
masks and gloves for
 
our
employees and for the use of customers in our branches, but this is not significant
 
in the context of our cost base.
 
 
Employees
 
 
Regrettably,
 
five
 
of
 
our
 
employees
 
passed
 
away
 
during
 
fiscal 2021
 
due
 
to
 
COVID-19,
 
as well
 
as
 
our
 
chairman
 
Mr.
 
Jabu
 
A.
Mabuza.
 
Where
 
possible,
 
we
 
have
 
continued
 
to
 
provide
 
the
 
necessary
 
facilities
 
(computer
 
equipment,
 
data
 
cards,
 
etc.)
 
for
 
our
employees to operate remotely
 
and continue to encourage them
 
to do so where this is practical
 
and effective. We
 
continue to provide
the
 
necessary
 
protective
 
equipment
 
and
 
sanitization
 
facilities
 
for
 
those
 
employees
 
that
 
operate
 
within
 
our
 
offices
 
and
 
operating
locations.
 
Cash resources and
 
liquidity
 
We
 
believe
 
we
 
have
 
sufficient
 
cash
 
reserves
 
to
 
support
 
us
 
through
 
the
 
next
 
twelve
 
months.
 
Together
 
with
 
our
 
existing
 
cash
reserves, we also believe that our credit facilities are sufficient to fund our ATM
 
network. We do not believe there will be any further
significant adverse effects
 
on our liquidity
 
from the pandemic,
 
unless there is a
 
resumption of
 
the higher level
 
of restrictions seen in
April and May 2020 in South
 
Africa. We believe that our South African insurance business is
 
adequately capitalized and do not expect
to have to provide additional funding to the business in the foreseeable future.
 
 
Financial position and impairments
 
Except for the impact on Finbond’s
 
business during fiscal 2021, we do not
 
believe that the pandemic has significantly
 
impacted
the carrying value of our long-lived assets and equity method investments
 
to date.
 
 
Control environment
 
We do not
 
expect the pandemic to have a significant impact on our internal control environment.
 
 
 
 
 
 
 
30
While we have not incurred significant disruptions thus
 
far from the COVID-19 outbreak, we are
 
unable to accurately predict the
impact that
 
COVID-19 will
 
have due
 
to numerous
 
uncertainties, including
 
the severity
 
of the
 
disease, the
 
duration of
 
the outbreak,
actions that
 
may be
 
taken by
 
governmental authorities,
 
the impact
 
on our
 
customers and
 
other factors
 
identified in
 
Part I,
 
Item 1A.
“Risk
 
Factors—
 
We
 
are
 
unable
 
to
 
ascertain
 
the
 
full
 
impact
 
the
 
COVID-19
 
pandemic
 
will
 
have
 
on
 
our
 
future
 
financial
 
position,
operations, cash flows and stock price”. We will continue to evaluate the nature and extent of the impact to our business, consolidated
results of operations, and financial condition.
 
 
July 2021 civil unrest in South Africa
 
Two
 
of South
 
Africa’s
 
nine provinces
 
experienced
 
significant civil
 
unrest in
 
July 2021
 
resulting in
 
mass looting,
 
loss of
 
life,
disruption of
 
transport and
 
supply routes,
 
and widespread
 
destruction of
 
property.
 
In total
 
337 South
 
Africans lost
 
their lives
 
in the
unrest - fortunately none of our employees were injured or harmed. There was widespread damage to bank and ATM
 
infrastructure in
the affected
 
provinces. In
 
total approximately
 
1,800 ATMs
 
and 300 branches
 
were damaged,
 
and the
 
Banking Association
 
of South
Africa, or BASA, estimates that total damage to banking infrastructure
 
amounted to ZAR 1.6 billion. The South African Special
 
Risks
Insurance Association,
 
or SASRIA, a
 
public enterprise
 
and a non-life
 
insurance company that
 
provides coverage
 
for damage caused
by special risks
 
such as politically
 
motivated malicious
 
acts, riots, strikes
 
and terrorism and
 
public disorders, estimates
 
that the total
damage to property across South Africa will be in the order of between
 
ZAR 19.0 to ZAR 20.0 billion.
 
 
We
 
suffered damage
 
at 19 of our branches
 
and to 173 ATMs.
 
The disruption and
 
related closure of
 
branches has also
 
impacted
our efforts to grow EPE customer
 
numbers. We have also seen an impact on
 
transaction volumes at our ATMs with July 2021 volumes
13% lower than June 2021, and August 2021 3% lower than July 2021.
 
 
We
 
estimate it will cost
 
approximately ZAR 40
 
.0 million to repair
 
our branches and damaged
 
ATMs
 
and to replace ATMs
 
that
have been completely destroyed. We believe that these losses suffered through destruction of property will be fully covered under our
various insurance policies, through the government backed SASRIA cover.
 
As
 
a
 
result
 
of
 
the
 
disruption
 
to
 
ATM
 
coverage
 
and
 
availability,
 
BASA
 
and
 
South
 
Africa’s
 
banks
 
agreed
 
that
 
the
 
fee
 
which
customers pay to utilize
 
other banks’
 
ATMs will be waived for August
 
and September 2021.
 
We estimate that we will
 
forgo transaction
fee revenue of approximately ZAR 6.0. million during the first quarter
 
of fiscal 2022 as a result of this decision.
 
 
MobiKwik
 
India – In July 2021, MobiKwik filed its
 
draft red herring prospectus with the appropriate Indian regulator related
 
to its proposed
initial public offering process. We have increased the carrying value of our investment in MobiKwik, refer to “— Critical Accounting
Policies—Recoverability of equity-accounted investments and
 
other equity securities” below.
 
Status of Cell C recapitalization
 
 
We
 
continued
 
to
 
carry
 
the
 
value
 
of
 
our
 
Cell
 
C
 
investment
 
at
 
$0
 
(zero)
 
as
 
of
 
June
 
30,
 
2021.
 
Cell
 
C
 
remains
 
focused
 
on
 
its
recapitalization and implementing various initiatives to improve its operational
 
performance. While it remains in default on
 
its various
lending
 
arrangements,
 
Cell
 
C
 
and
 
its
 
lenders
 
continue
 
to
 
work
 
constructively
 
and
 
are
 
makin
g
 
steady
 
progress
 
towards
 
its
 
recapitalization.
 
Disposal of Bank Frick and wind-down of IPG
 
Bank Frick – In line with our new strategic direction, on February 3, 2021, we entered into a share sale agreement with the Frick
Family Foundation,
 
or KFS, to sell
 
our entire interest,
 
or 35%, in Bank
 
Frick to KFS for
 
$30 million. Refer
 
to Note 8
 
to our audited
consolidated financial statements for additional information related
 
to this transaction.
 
IPG – The
 
process to close
 
our IPG business
 
is well-advanced and
 
all processing activities
 
ceased by the
 
third quarter of
 
fiscal
2021,
 
with most employees leaving the
 
organization during the second quarter of
 
fiscal 2021. We are largely complete with the
 
closure
and do
 
not expect
 
to incur
 
any further
 
significant cash
 
costs. A
 
number of
 
the statutory
 
IPG entities have
 
been deregistered
 
and we
only have routine liquidation and deregistration processes to follow for the
 
remaining existing entities.
 
Restatement of revenue and cost of goods sold, IT processing, servicing and support
 
In November
 
2020, we
 
identified an
 
error with
 
respect to
 
the recognition
 
of certain
 
revenue and
 
related cost
 
of goods
 
sold, IT
processing,
 
servicing
 
and
 
support
 
during
 
our
 
assessment
 
and
 
systems
 
development
 
of new
 
products.
 
The
 
error did
 
not impact
 
our
operating income (loss), net income (loss), balance sheet or cash flows. We determined that the error impacted reported results for the
period from July 1,
 
2018 to September 30,
 
2020. The error impacted our
 
reported results and we
 
have restated our audited
 
consolidated
statement of
 
operations and
 
certain note
 
presentation for
 
fiscal 2020
 
and 2019,
 
refer to
 
Note 1
 
to our
 
audited consolidated
 
financial
statements
 
for
 
additional
 
information
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31
The table below
 
presents the unaudited
 
impact of the restatement
 
on our revenue
 
and related cost of
 
goods sold, IT processing,
servicing and support for the first quarter of fiscal 2021, fiscal 2020 and 2019,
 
including each fiscal quarter within those fiscal years:
 
Table 1
Revenue (quarter information
unaudited)
Cost of goods sold, IT processing,
servicing and support (quarter
information unaudited)
As
reported
Correction
As restated
As
reported
Correction
As restated
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Fiscal 2021:
Q1 2021
37,113
(1,977)
35,136
28,437
(1,977)
26,460
Fiscal 2020:
Year
 
ended 2020
150,997
(6,698)
144,299
109,006
(6,698)
102,308
Q4 2020
25,978
(1,427)
24,551
22,400
(1,427)
20,973
Q3 2020
36,514
(1,900)
34,614
25,783
(1,900)
23,883
Q2 2020
40,567
(1,649)
38,918
28,395
(1,649)
26,746
Q1 2020
47,938
(1,722)
46,216
32,428
(1,722)
30,706
Fiscal 2019
Year
 
ended 2019
166,227
(5,592)
160,635
129,696
(5,592)
124,104
Q4 2019
17,053
(1,692)
15,361
26,225
(1,692)
24,533
Q3 2019
36,586
(1,371)
35,215
29,423
(1,371)
28,052
Q2 2019
42,042
(1,948)
40,094
27,291
(1,948)
25,343
Q1 2019
70,546
(581)
69,965
46,757
(581)
46,176
 
The
 
restatement
 
only
 
impacted
 
revenue
 
allocated
 
to
 
our
 
Processing
 
operating
 
segment.
 
Refer
 
to
 
“Presentation
 
of
 
quarterly
revenue and
 
operating (loss)
 
income by
 
segment for
 
fiscal 2020
 
and 2019”
 
below for
 
additional information
 
regarding our
 
restated
operating segments for fiscal 2020 and 2019, including each fiscal quarter
 
within those fiscal years.
 
Critical Accounting Policies
 
Our audited consolidated
 
financial statements have
 
been prepared in
 
accordance with U.S. GAAP,
 
which requires management
to
 
make
 
estimates
 
and
 
assumptions
 
about
 
future
 
events
 
that
 
affect
 
the
 
reported
 
amount
 
of
 
assets
 
and
 
liabilities
 
and
 
disclosure
 
of
contingent assets and liabilities.
 
As future events and
 
their effects cannot be
 
determined with absolute certainty,
 
the determination of
estimates requires
 
management’s
 
judgment based
 
on a
 
variety of
 
assumptions and
 
other determinants
 
such as
 
historical experience,
current
 
and
 
expected
 
market
 
conditions
 
and
 
certain
 
scientific
 
evaluation
 
techniques.
 
Management
 
believes
 
that
 
the
 
following
accounting policies
 
are critical due
 
to the degree
 
of estimation required
 
and the impact
 
of these policies
 
on the understanding
 
of the
results of our operations and financial condition.
 
Valuation
 
of investment in Cell C
 
We have elected to measure
 
our investment in
 
Cell C, an
 
unlisted equity security, at fair
 
value using the
 
fair value option.
 
Changes
in
 
the
 
fair
 
value
 
of
 
this
 
equity
 
security
 
are
 
recognized
 
in
 
the
 
caption
 
“change
 
in
 
fair
 
value
 
of
 
equity
 
securities”
 
in
 
our
 
audited
consolidated statements of operations. The tax impact related to the change
 
in fair value of equity securities is included in income tax
expense in our audited
 
consolidated statements of operation.
 
The determination of
 
the fair value of this
 
equity security requires us
 
to
make significant judgments
 
and estimates.
 
We base our estimates
 
on assumptions we
 
believe to be
 
reasonable but that
 
are unpredictable
and inherently uncertain. Refer
 
to Note 5
 
of our audited consolidated
 
financial statements regarding the
 
valuation inputs and
 
sensitivity
related to our investment in Cell C.
 
We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2021 and 2020,
 
and
valued Cell
 
C at
 
$0.0 (zero)
 
as of
 
each of
 
June 30,
 
2021 and
 
2020. We
 
changed certain
 
valuation assumptions
 
when preparing
 
our
December 31, 2020, valuation compared with our June 30, 2020, valuation
 
and we have used these new valuation assumptions in our
June 30, 2021, valuation.
 
For the June 30, 2021, valuation, we incorporated the payments under the lease liabilities into the cash flow
forecasts instead of
 
including the June 30,
 
2021, carrying value
 
in net debt and
 
assumed that the deferred
 
tax asset would be
 
utilized
over the forecast period instead of including the
 
fair value of the deferred tax asset as of June
 
30, 2020, in the valuation. For the June
30, 2020, valuation, we included the carrying value of the lease liabilities within net debt and included the June
 
30, 2020, fair value of
the
 
deferred
 
tax
 
asset
 
in
 
the
 
valuation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32
We utilized
 
the latest approved business
 
plan provided by Cell C
 
management for the period
 
ended December 31, 2025, for
 
the
June 30,
 
2020 valuation
 
and the
 
period ended
 
December 31,
 
2024 for
 
the June
 
30, 2020
 
valuation, and
 
the following
 
key valuation
inputs were used:
 
Weighted Average
 
Cost of Capital:
Between 16% and 24% over the period of the forecast
Long-term growth rate:
3% (3% as of June 30, 2020)
Marketability discount:
10%
Minority discount:
15%
Net adjusted external debt - June 30, 2021:
(1)
ZAR 11.2 billion ($0.8 billion), no
 
lease liabilities included
Net adjusted external debt - June 30, 2020:
(2)
ZAR 15.8 billion ($0.9 billion), includes ZAR4.4 billion of lease
liabilities
Deferred tax (incl, assessed tax losses) - June 30, 2020:
(2)
ZAR 2.9 billion ($167.3 million)
 
(1) translated from ZAR to U.S. dollars at exchange rates applicable
 
as of June 30, 2021.
(2) translated from ZAR to U.S. dollars at exchange rates applicable
 
as of June 30, 2020.
 
 
We
 
believe the
 
Cell C
 
business plan
 
is reasonable
 
based on
 
the current
 
performance and
 
the expected
 
changes in
 
the business
model. Refer to the sensitivity analysis included
 
in Note 5 to our audited consolidated financial
 
statements related to our valuation of
Cell C as of June 30, 2021.
 
Recoverability of equity-accounted investments and other equity securities
 
We
 
review
 
our
 
equity-accounted
 
investments
 
and
 
other
 
equity
 
securities
 
for
 
impairment
 
whenever
 
events
 
or
 
circumstances
indicate that the carrying amount of the investment may not
 
be recoverable. In performing this review, we are required to estimate the
fair value
 
of our
 
equity-accounted investments
 
and other
 
equity securities.
 
The determination
 
of the
 
fair value
 
of these
 
investments
requires us to make significant judgments and estimates.
 
We
 
performed impairment assessments
 
during fiscal 2021
 
and 2020,
 
for certain of our
 
equity-accounted investments following
the
 
identification
 
of
 
certain
 
impairment
 
indicators.
 
The
 
results
 
of
 
our
 
impairment
 
tests
 
during
 
fiscal
 
2021
 
and
 
2020,
 
resulted
 
in
impairments
 
of $21.1
 
million and
 
$33.8
 
million,
 
respectively,
 
related
 
to our
 
equity-accounted
 
investments.
 
These impairments
 
are
discussed in Note 8 to our audited consolidated financial statements.
 
We did not identify any impairment indicators during fiscal 2019
and therefore did not recognize any impairment losses related to our equity-accounted
 
investments during that year.
 
For fiscal 2021, in determining the fair value of certain of our equity-accounted investments, we have considered (i) for Finbond
specifically,
 
as it is listed on the
 
Johannesburg Stock Exchange,
 
its market price as of the impairment
 
assessment date, adjusted for
 
a
liquidity
 
discount
 
of
 
15%,
 
and
 
(ii)
 
the
 
net
 
asset
 
value
 
of
 
the
 
equity-accounted
 
investment
 
being
 
assessed
 
as
 
a
 
proxy
 
of
 
fair
 
value
because reasonable cash flow forecasts were not available.
 
For fiscal
 
2020, in
 
determining the
 
fair value
 
of certain
 
of our
 
equity-accounted investments,
 
we have
 
considered (i)
 
for DNI
specifically, the fair value
 
of consideration received
 
on April
 
1, 2020, adjusted
 
for the
 
accumulated foreign currency
 
translation reserve,
(ii) dividend discount models based on projected cash flows, adjusted for identified risks,
 
(iii) various multiples applicable to peer and
industry comparables of
 
certain of our equity-accounted
 
investments, and (iv) the
 
net asset value of
 
the equity-accounted investment
being assessed as a proxy of fair value because reasonable cash flow forecasts
 
are not available.
 
 
We
 
base our estimates on
 
assumptions we believe to
 
be reasonable but that
 
are unpredictable and inherently
 
uncertain. The fair
value of our investment in Finbond is sensitive to movements in its market price, which is quoted in ZAR, because we use the market
price as the
 
basis of our
 
valuation. We
 
have no other
 
significant equity accounted
 
investments as of
 
June 30, 2021,
 
because we sold
our interest in Bank Frick in February 2021 and our interest in DNI in April 2020.
 
Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable
fair
 
values
 
and
 
therefore
 
we
 
have
 
elected
 
to
 
measure
 
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.
 
If
 
we
identify an impairment indicator related
 
to these equity
 
securities, we are required
 
to assess the
 
carrying value of these
 
equity securities
against their fair value. We did not identify any impairment indicators during each of fiscal 2021, 2020 and
 
2019 and therefore did not
recognize any impairment losses related to these equity securities during
 
those years.
 
The determination of the fair value of an investment requires
 
us to make significant judgments and estimates. We are required to
base our estimates on assumptions which would believe
 
to be reasonable,
 
but these assumptions may be unpredictable and inherently
uncertain.
 
 
 
33
During the year
 
ended June 30,
 
2021, MobiKwik
 
entered into a
 
number of separate
 
agreements with new
 
shareholders to raise
additional capital
 
through the issuance
 
of additional
 
shares. Specifically,
 
we used the
 
following transactions
 
as the basis
 
for our fair
value
 
adjustments
 
to our
 
investment in
 
MobiKwik
 
during the
 
year
 
ended June
 
30, 2021:
 
(i) in
 
early November
 
2020, $135.54
 
per
share; March 2021, $170.33 per
 
share;
 
and June 2021, $245.50 per
 
share. We considered each of these transactions to
 
be an observable
price change in
 
an orderly transaction for
 
similar or identical equity
 
securities issued by MobiKwik.
 
Accordingly,
 
the carrying value
of our investment
 
in MobiKwik increased
 
from $27.0 million
 
as of June
 
30, 2020, to
 
$76.3 million as of
 
June 30, 2021.
 
The change
in the fair value
 
of MobiKwik for the
 
year ended June 30,
 
2021, of $49.3
 
million, is included in
 
the caption “Change in
 
fair value of
equity securities” in our audited consolidated statement of operations for
 
the year ended June 30, 2021.
 
Business Combinations and the Recoverability of Goodwill
 
 
A component of our
 
growth strategy has been
 
to acquire and integrate businesses
 
that complement our
 
existing operations. The
purchase price
 
of an acquired
 
business is allocated
 
to the tangible
 
and intangible
 
assets acquired
 
and liabilities assumed
 
based upon
their estimated fair value
 
at the date of
 
purchase. The difference between the
 
purchase price and the
 
fair value of the
 
net assets acquired
is recorded
 
as goodwill.
 
In determining
 
the fair
 
value of
 
assets acquired
 
and liabilities
 
assumed
 
in a
 
business combination,
 
we use
various
 
recognized
 
valuation
 
methods,
 
including
 
present
 
value
 
modeling.
 
Further,
 
we
 
make
 
assumptions
 
using
 
certain
 
valuation
techniques, including discount rates and timing of future cash flows.
 
 
We review the carrying value of goodwill
 
annually or more frequently if circumstances indicating impairment have occurred. In
performing this review,
 
we are required to estimate
 
the fair value of goodwill that
 
is implied from a valuation of
 
the reporting unit to
which the goodwill
 
has been allocated
 
after deducting
 
the fair values of
 
all the identifiable
 
assets and liabilities
 
that form part
 
of the
reporting unit.
 
The determination
 
of the fair
 
value of a
 
reporting unit requires
 
us to make
 
significant judgments
 
and estimates. In
 
determining
the fair value of reporting units for fiscal 2021 and 2020,
 
we considered country and entity-specific growth rates, future expected cash
flows
 
to
 
be
 
used
 
in
 
our
 
discounted
 
cash
 
flow
 
model,
 
and
 
the
 
weighted-average
 
cost
 
of
 
capital
 
applicable
 
to
 
peer
 
and
 
industry
comparables of the reporting units.
 
We base
 
our estimates on assumptions we
 
believe to be reasonable but
 
that are unpredictable
 
and
inherently uncertain. In addition, we make
 
judgments and assumptions in allocating assets
 
and liabilities to each of
 
our reporting units.
 
In determining the fair value of reporting
 
units in our previous fiscal years
 
to 2019,
 
we considered the EBITDA and the EBITDA
multiples applicable to
 
peer and industry
 
comparables of the reporting
 
units. We
 
based our estimates
 
on assumptions we
 
believed to
be reasonable but that are
 
unpredictable and inherently uncertain. In addition,
 
we made judgments and
 
assumptions in allocating assets
and liabilities to each of our reporting units.
 
 
The results of our impairment tests during fiscal 2021
 
indicated that the fair value of our reporting units exceeded
 
their carrying
values and therefore our reporting units
 
were not at risk
 
of potential impairment. The results of
 
our impairment tests during fiscal
 
2020
indicated that the
 
fair value of
 
our reporting units
 
exceeded their carrying
 
values, with the
 
exception of the
 
$5.6 million of
 
goodwill
impaired during fiscal 2020, as discussed in Note 9 to our audited consolidated
 
financial statements.
 
 
Intangible Assets Acquired Through Acquisitions
 
The
 
fair values
 
of the
 
identifiable
 
intangible
 
assets acquired
 
through
 
acquisitions
 
were determined
 
by management
 
using
 
the
purchase method of
 
accounting. We
 
completed acquisitions during
 
fiscal 2018 where we
 
identified and recognized intangible
 
assets.
We have used the relief from royalty method, the multi-period excess earnings
 
method, the income approach and the cost approach
 
to
value
 
acquisition-related
 
intangible assets.
 
In so
 
doing,
 
we made
 
assumptions
 
regarding
 
expected
 
future
 
revenues and
 
expenses
 
to
develop the underlying forecasts, applied contributory asset charges, discount rates, exchange rates, cash tax charges
 
and useful lives.
As of
 
June
 
30,
 
2021,
 
we
 
do not
 
have
 
any
 
significant
 
intangible
 
assets, however,
 
this ba
 
lance
 
could
 
increase
 
following
 
a
 
business
combination.
 
The valuations were based on information available at the
 
time of the acquisition and the expectations and
 
assumptions that were
deemed reasonable by us. No assurance can be given, however,
 
that the underlying assumptions or events associated with such assets
will occur as
 
projected. For these
 
reasons, among others,
 
the actual cash
 
flows may vary
 
from forecasts
 
of future cash
 
flows. To
 
the
extent actual cash
 
flows vary,
 
revisions to the
 
useful life or impairment
 
of intangible assets may
 
be necessary.
 
For instance, in fiscal
2019,
 
we
 
recorded
 
an
 
impairment
 
loss
 
of
 
$5.3
 
million
 
related
 
to
 
intangible
 
assets
 
acquired
 
(customer
 
relationships)
 
in
 
the
 
DNI
acquisition as a result of Cell C entering into a roaming arrangement with another South African mobile telecommunications network
provider which extended Cell C’s network
 
coverage. This arrangement impacted the identified customer relationship
 
recognized.
 
Deferred Taxation
 
We
 
estimate
 
our
 
tax
 
liability
 
through
 
the
 
calculations
 
done
 
for
 
the
 
determination
 
of
 
our
 
current
 
tax
 
liability,
 
together
 
with
assessing
 
temporary differences
 
resulting
 
from the
 
different
 
treatment of
 
items for
 
tax and
 
accounting
 
purposes.
 
These differences
result
 
in
 
deferred
 
tax
 
assets
 
and
 
liabilities
 
which
 
are
 
disclosed
 
on
 
our
 
balance
 
sheet.
 
 
 
 
34
Management then
 
has to assess
 
the likelihood
 
that deferred tax
 
assets are more
 
likely than not
 
to be realized
 
in the foreseeable
future. A valuation allowance is
 
created if it is determined
 
that a deferred tax asset will not
 
be realized in the foreseeable future.
 
Any
change to the valuation allowance
 
would be charged or
 
credited to income in the period
 
such determination is made. In
 
assessing the
need for a valuation allowance,
 
historical levels of income, expectations
 
and risks associated with estimates
 
of future taxable income
and
 
ongoing
 
prudent
 
and
 
practicable
 
tax
 
planning
 
strategies
 
are
 
considered.
 
During
 
fiscal
 
2021,
 
2020
 
and
 
2019,
 
respectively,
 
we
recorded a net increase of $1.5 million, $13.4 million and $78.2 million
 
to our valuation allowance. As of June 30, 2021 and 2020, the
valuation allowance related to deferred tax assets was $118.8 and
 
$106.4 million, respectively.
 
Stock-based Compensation
 
Management is required to make estimates and assumptions related to our valuation and recording
 
of stock-based compensation
charges under
 
current accounting standards.
 
These standards require
 
all share-based compensation
 
to employees to
 
be recognized in
the
 
statement
 
of
 
operations
 
based on
 
their
 
respective
 
grant date
 
fair
 
values
 
over
 
the requisite
 
service
 
periods
 
and
 
also
 
requires
 
an
estimation of forfeitures when calculating compensation expense.
 
 
We utilize the Cox Ross
 
Rubinstein binomial model to
 
measure the fair
 
value of stock
 
options granted to
 
employees and directors.
We
 
have also utilized
 
a bespoke adjusted
 
Monte Carlo simulation discounted
 
cash flow model to
 
measure the fair value
 
of restricted
stock with market
 
conditions granted to
 
employees and directors.
 
The stock-based compensation
 
cost related to
 
these valuations has
been
 
recognized
 
on
 
a
 
straight-line
 
basis.
 
These
 
valuation
 
models
 
require
 
estimates
 
of
 
a
 
number
 
of
 
key
 
valuation
 
inputs
 
including
expected volatility, expected dividend yield, expected term and
 
risk-free interest rate. Our
 
management has estimated forfeitures based
on
 
historic
 
employee
 
behavior
 
under
 
similar
 
compensation
 
plans.
 
The
 
fair
 
value
 
of
 
stock
 
options
 
is
 
affected
 
by
 
the
 
assumptions
selected. The fair value calculation is especially sensitive to
 
our valuation assumption with respect to expected volatility. For instance,
a 5%
 
increase (to
 
67%) or
 
decrease (to
 
57%) in
 
the expected
 
volatility used
 
(of 62%)
 
to value
 
stock options
 
granted in
 
November
2020, would result in a charge that was 7% higher (if
 
67% were used) or 7% lower (if 57% were used). Net
 
stock-based compensation
expense from continuing operations was $0.3 million, $1.7 million and $0.4
 
million for fiscal 2021, 2020 and 2019, respectively.
 
Accounts Receivable and Allowance for Doubtful Accounts Receivable
 
We
 
maintain an allowance
 
for doubtful accounts
 
receivable related to
 
our Processing and Technology
 
segments with respect to
sales or rental of
 
hardware, support and maintenance services provided; or
 
sale of licenses to
 
customers; or the provision of
 
transaction
processing services to our customers; or our working capital financing provided.
 
Our
 
policy
 
is
 
to
 
regularly
 
review
 
the
 
aging
 
of
 
outstanding
 
amounts
 
due
 
from
 
customers
 
and
 
adjust
 
the
 
provision
 
based
 
on
management’s estimate of
 
the recoverability of the amounts outstanding.
 
Management
 
considers
 
factors including
 
period outstanding,
 
creditworthiness
 
of the
 
customers, past
 
payment
 
history and
 
the
results of discussions by our credit
 
department with the customer. We consider this policy to be appropriate taking into account
 
factors
such as
 
historical bad
 
debts, current
 
economic trends
 
and changes
 
in our
 
customer payment
 
patterns. Additional
 
provisions may
 
be
required should the
 
ability of our customers
 
to make payments when
 
due deteriorate in
 
the future. Judgment is
 
required to assess the
ultimate recoverability of these receivables, including ongoing evaluation
 
of the creditworthiness of each customer.
 
Microlending
 
We
 
maintain
 
an
 
allowance
 
for
 
doubtful
 
finance
 
loans
 
receivable
 
related
 
to
 
our
 
Financial
 
services
 
segment
 
with
 
respect
 
to
microlending loans provided to
 
our customers. Our
 
policy is to
 
regularly review the
 
ageing of outstanding
 
amounts due from
 
borrowers
and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. We write off microlending
loans and related service fees if a borrower is in arrears with repayments for more
 
than three months or dies.
 
Management considers factors including the period of the microlending loan outstanding, creditworthiness
 
of the customers and
the past payment history and trends
 
of its established microlending book. We consider this policy to
 
be appropriate taking into account
factors such
 
as historical
 
bad debts,
 
current economic
 
trends and
 
changes in
 
our customer
 
payment patterns.
 
Additional allowances
may be
 
required should
 
the ability of
 
our customers
 
to make payments
 
when due deteriorate
 
s
 
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.
 
Revenue – variation in transaction price following September 2019 Supreme Court ruling
 
 
In
 
fiscal
 
2019,
 
the
 
Supreme
 
Court
 
denied
 
our
 
appeal
 
and
 
we
 
have
 
recorded
 
a
 
liability
 
of
 
$34.0
 
million
 
as of
 
June
 
30,
 
2019,
c
omprising
 
a
 
revenue
 
refund
 
of
 
$19.7
 
million
 
(ZAR
 
277.6
 
million),
 
and
 
other
 
expenses
 
totaling
 
$14.3
 
million
 
(ZAR
 
201.8
 
million).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
Management considered a component of the $34.0
 
million to be refunded to SASSA, specifically the ZAR 277.6
 
million ($19.7
million) of revenue
 
recorded in fiscal 2014
 
related to a
 
June 2012 agreement,
 
to be a variation
 
in the price
 
charged to SASSA
 
under
our February 2012
 
SASSA contract. Even
 
though it is
 
an involuntary refund
 
to be paid
 
to SASSA, the
 
Supreme Court ruled
 
that we
were not
 
entitled to charge
 
SASSA for the
 
additional enrolments
 
performed because,
 
in the courts
 
view,
 
the February 2012
 
contract
contained all the performance obligations
 
and pricing parameters related to the enrolment
 
of all beneficiaries, and not just cardholder
recipients, and we should not have sought a recovery of
 
implementation costs in fiscal 2014 from SASSA for the
 
additional enrolment
services provided under the June 2012 agreement. As noted above, management does not agree with
 
the findings of the courts and has
had to exercise its judgment
 
in determining whether the reversal
 
of revenue represents a price variation
 
(accounted for as a reduction
in revenue in fiscal 2019) or a nonreciprocal transfer.
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements adopted
 
Refer
 
to
 
Note
 
2 of
 
our
 
audited consolidated
 
financial
 
statements for
 
a full
 
description
 
of recent
 
accounting
 
pronouncements,
including the dates of adoption and effects on financial
 
condition, results of operations and cash flows.
 
 
Recent accounting pronouncements not yet adopted as of June 30, 2021
 
Refer to Note 2
 
of our audited consolidated
 
financial statements for
 
a full description of
 
recent accounting pronouncements
 
not
yet adopted as of June 30, 2021, including the expected dates of adopti
 
on and effects on financial condition, results of operations
 
and
cash flows.
 
Currency Exchange Rate Information
 
 
Actual exchange rates
 
The actual exchange rates for and at the end of the periods presented
 
were as follows:
 
Table 2
June 30,
2021
2020
2019
ZAR : $ average exchange rate
 
15.4146
15.6775
14.1926
Highest ZAR : $ rate during period
 
17.6866
19.0569
15.4335
Lowest ZAR : $ rate during period
 
13.4327
13.8973
13.1528
Rate at end of period
 
14.3010
17.3326
14.0840
 
 
 
 
 
 
 
 
 
 
 
 
 
 
form10kp38i0.gif
 
36
 
 
Translation Exchange Rates
 
 
We are required
 
to translate our results of operations from ZAR to U.S. dollars on a monthly
 
basis. Thus, the average rates used
to translate this data for the years ended June 30,
 
2021, 2020 and 2019,
 
vary slightly from the averages shown in the table above. The
translation rates we use in presenting our results of operations are the rates
 
shown in the following table:
 
Table 3
June 30,
2021
2020
2019
Income and expense items: $1 = ZAR
 
15.7162
17.5686
14.2688
Balance sheet items: $1 = ZAR
 
14.3010
17.3326
14.0840
 
Results of operations
 
 
The
 
discussion
 
of our
 
consolidated overall
 
results of
 
operations is
 
based on
 
amounts
 
as reflected
 
in our
 
audited consolidated
financial statements which are prepared in accordance
 
with U.S. GAAP.
 
We analyze our
 
results of operations both in U.S. dollars, as
presented in the audited consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the
entities which contribute the majority of our results and is the currency
 
in which the majority of our transactions are initially incurred
and measured.
 
Due to
 
the significant
 
impact of
 
currency fluctuations
 
between the
 
U.S. dollar
 
and ZAR
 
on our
 
reported results
 
and
because we use the U.S. dollar as our reporting currency,
 
we believe that the supplemental presentation of our results of operations in
ZAR is useful to investors to understand the changes in the underlying trends of
 
our business.
 
 
Our
 
operating
 
segment
 
revenue
 
presented
 
in
 
“—Results
 
of
 
operations
 
by
 
operating
 
segment”
 
represents
 
total
 
revenue
 
per
operating segment before intercompany eliminations.
 
A reconciliation between total
 
operating segment revenue and
 
revenue presented
in our audited consolidated financial statements is included in Note 20
 
to those statements.
 
We deconsolidated CPS from June
 
1, 2020 and
 
its results are
 
excluded from that
 
date. We disposed of our
 
South Korean operation
in the third quarter of
 
fiscal 2020 and it
 
has been presented as a discontinued
 
operation for fiscal 2020
 
and 2019. We
 
used the equity
method to account for DNI in fiscal 2020 and accounted
 
for DNI as a discontinued operation in fiscal 2019. We
 
disposed of FIHRST
during the second quarter of fiscal 2020 and its contribution
 
to our reported results is excluded from December
 
1, 2019. Refer also to
Note 23,
 
Note 8 and Note 24 to the audited consolidated financial statements for additional
 
information regarding these transactions.
 
We
 
analyze our
 
business and operations
 
in terms of
 
three inter-related
 
but independent operating
 
segments: (1) Processing,
 
(2)
Financial services and
 
(3) Technology.
 
In addition, corporate
 
and corporate office
 
activities that are
 
impracticable to ascribe directly
to
 
any
 
of
 
the
 
other
 
operating
 
segments,
 
as
 
well
 
as
 
any
 
inter
-
segment
 
eliminations,
 
are
 
included
 
in
 
Corporate/Eliminations
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Fiscal 2021 Compared to Fiscal 2020
 
The following factors had
 
a significant influence on
 
our results of
 
operations during fiscal 2021
 
as compared with
 
the same period
in the prior year:
 
●
 
Lower revenue:
Our revenues decreased
 
19% in ZAR primarily due to
 
fewer prepaid airtime and hardware
 
sales and lower
transaction and account fee revenue, which was partially offset by
 
modestly higher lending and insurance revenue;
 
●
 
Ongoing operating
 
losses:
Operating
 
costs were
 
largely in
 
line with
 
the prior
 
period in
 
ZAR due
 
to the
 
largely fixed
 
cost
nature of the costs base. As a result, we continue to experience operating losses because of depressed
 
revenues;
 
●
 
Non-cash increase in fair value of MobiKwik:
We recorded a non-cash fair value gain during the year to date of fiscal 2021
of $49.3 million related to the change in fair value of MobiKwik; and
●
 
Foreign exchange movements:
 
The U.S. dollar
 
was
 
11% weaker
 
against the ZAR during
 
fiscal 2021, which
 
impacted our
reported results.
 
Consolidated overall results of operations
 
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
 
The following tables show the changes in the items comprising our statements of
 
operations, both in U.S. dollars and in ZAR:
 
 
Table 4
In U.S. Dollars
Year
 
ended June 30,
2021
2020
(R)(1)
(as restated)
$ %
 
$ ’000
$ ’000
change
Revenue
 
130,786
144,299
(9%)
Cost of goods sold, IT processing, servicing and support
 
96,248
102,308
(6%)
Selling, general and administration
 
84,063
75,256
12%
Depreciation and amortization
 
4,347
4,647
(6%)
Impairment loss
-
6,336
nm
Operating loss
(53,872)
(44,248)
22%
Change in fair value of equity securities
49,304
-
nm
Loss on disposal of Bank Frick
472
-
nm
Loss on disposal of equity-accounted investment
13
-
nm
Gain on disposal of FIHRST
-
9,743
nm
Loss on disposal of DNI
-
1,010
nm
Loss on deconsolidation of CPS
-
7,148
nm
Termination
 
fee paid to cancel Bank Frick option
-
17,517
nm
Interest income
 
2,416
2,805
(14%)
Interest expense
 
2,982
7,641
(61%)
Net loss before tax
(5,619)
(65,016)
(91%)
Income tax expense
7,560
2,656
185%
Net loss before loss from equity-accounted investments
 
(13,179)
(67,672)
(81%)
Loss from equity-accounted investments
 
(24,878)
(29,542)
(16%)
Net loss from continuing operations
(38,057)
(97,214)
(61%)
Net income from discontinued operations
-
6,402
nm
Gain from disposal of discontinued operations, net of tax
-
12,454
nm
Net loss
(38,057)
(78,358)
(51%)
Net (loss) income attributable to us
 
(38,057)
(78,358)
(51%)
Continuing
 
(38,057)
(97,214)
(61%)
Discontinued
 
-
18,856
nm
 
(R) Refer to Note 1 to the audited consolidated financial statements
 
for additional information regarding the restatement.
(1) Refer to Note 24 to the audited consolidated financial statements
 
for discontinued operations disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Table 5
In South African Rand
Year
 
ended June 30,
2021
2020
(R)(1)
(as restated)
ZAR %
 
ZAR ’000
ZAR ’000
change
Revenue
 
2,055,459
2,535,131
(19%)
Cost of goods sold, IT processing, servicing and support
 
1,512,653
1,797,408
(16%)
Selling, general and administration
 
1,321,151
1,322,142
(0%)
Depreciation and amortization
 
68,318
81,641
(16%)
Impairment loss
-
111,315
nm
Operating loss
(846,663)
(777,375)
9%
Change in fair value of equity securities
774,872
-
nm
Loss on disposal of Bank Frick
7,418
-
nm
Loss on disposal of equity-accounted investment
204
-
nm
Gain on disposal of FIHRST
-
171,171
nm
Loss on disposal of DNI
-
17,744
nm
Loss on deconsolidation of CPS
-
125,580
nm
Termination
 
fee paid to cancel Bank Frick option
-
307,749
nm
Interest income
 
37,970
49,280
(23%)
Interest expense
 
46,866
134,242
(65%)
Net loss before tax
(88,309)
(1,142,239)
(92%)
Income tax expense
118,814
46,662
155%
Net loss before loss from equity-accounted investments
 
(207,123)
(1,188,901)
(83%)
Loss from equity-accounted investments
 
(390,988)
(519,012)
(25%)
Net loss from continuing operations
(598,111)
(1,707,913)
(65%)
Net income from discontinued operations
-
112,474
nm
Gain from disposal of discontinued operations, net of tax
-
218,799
nm
Net loss
(598,111)
(1,376,640)
(57%)
Net (loss) income attributable to us
 
(598,111)
(1,376,640)
(57%)
Continuing
 
(598,111)
(1,707,913)
(65%)
Discontinued
 
-
331,273
nm
 
(R) Refer to Note 1 to the audited consolidated financial statements
 
for additional information regarding the restatement.
(1)
 
Refer to Note 24 to the audited consolidated financial statements
 
for discontinued operations disclosures.
 
The decrease
 
in revenue
 
was primarily
 
due to
 
fewer prepaid
 
airtime and
 
hardware sales
 
and lower
 
transaction and
 
account fee
revenue, which was partially offset by modestly higher
 
lending and insurance revenue.
 
The decrease in cost of goods sold, IT processing, servicing and
 
support was primarily due to lower cost of prepaid airtime
 
sales,
which was partially offset by higher costs related to transaction
 
fees and an increase in insurance-related claims experience.
 
In ZAR,
 
the decrease
 
in selling,
 
general and
 
administration expense
 
was primarily
 
due to the
 
impact of
 
currency weakness
 
($/
ZAR) on U.S.
 
dollar-denominated expenses measured in ZAR
 
and lower stock-based compensation
 
charges,
 
which was partially
 
offset
by the
 
year-over-year
 
impact
 
of inflationary
 
increases on
 
employee-related
 
expenses, and
 
allowances
 
for doubtful
 
loans receivable
from equity-accounted investments created during fiscal 2021.
 
Depreciation
 
and amortization
 
decreased
 
primarily
 
due to
 
lower overall
 
depreciation
 
related to
 
tangible assets
 
that were
 
fully
depreciated during the year to date of fiscal 2021.
 
During fiscal 2020, we recorded
 
an impairment loss of $5.6
 
million related to the
 
impairment of a portion of
 
our EasyPay business
unit’s
 
allocated goodwill
 
and a $0.7
 
million impairment
 
loss related to
 
our Maltese e-money
 
license. Refer to
 
Note 9 of
 
our audited
consolidated financial statements for additional information regarding
 
these impairment losses.
 
Our
 
operating
 
loss margin
 
for
 
fiscal
 
2021
 
and
 
2020
 
was
 
(41.2%)
 
and
 
(30.7%),
 
respectively.
 
We
 
discuss
 
the
 
components
 
of
operating (loss) income margin under “—Results of operations
 
by operating segment.”
 
 
The change in fair value of equity securities during fiscal 2021 represents a non-cash fair value gain related to MobiKwik. There
was no
 
change in
 
the fair
 
value of
 
equity securities
 
during fiscal
 
2020. We
 
continue to
 
carry our
 
investment in
 
Cell C
 
at $0
 
(zero).
Refer to Note 8 to
 
our audited consolidated financial
 
statements for the methodology
 
and inputs used in the
 
fair value calculation for
MobiKwik
 
and
 
Note
 
5
 
for
 
the
 
methodology
 
and
 
inputs
 
used
 
in
 
the
 
fair
 
value
 
calculation
 
for
 
Cell
 
C.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
We
 
recorded
 
a
 
loss
 
of
 
$0.5
 
million
 
related
 
to
 
the
 
disposal
 
of
 
Bank
 
Frick
 
during
 
fiscal
 
2021,
 
refer
 
to
 
Note
 
8
 
to
 
our
 
audited
consolidated financial statements for additional information regarding
 
this transaction.
 
We
 
recorded a
 
gain of
 
$9.7 million
 
related to
 
the disposal
 
of FIHRST
 
during fiscal
 
2020, which
 
was partially
 
offset by
 
a $1.0
million loss on
 
the disposal of
 
our remaining
 
interest in DNI
 
and a $7.1
 
million loss on
 
the deconsolidation
 
of CPS. We
 
also paid a
termination fee of $17.5 million in respect of our decision not to exercise
 
our option to acquire control of Bank Frick
 
Interest on surplus cash decreased to $2.4 million (ZAR
 
38.0 million) from $2.8 million (ZAR 49.3 million),
 
due primarily to the
higher average daily
 
cash balances following
 
the increase in
 
our cash reserves
 
as a result
 
of the disposal
 
of certain business
 
in fiscal
2020, which was more than offset by lower rates of interest earned
 
on surplus cash.
 
Interest expense
 
decreased to
 
$3.0 million
 
(ZAR 46.9
 
million) from
 
$7.6 million
 
(ZAR 134.2
 
million), primarily
 
as a result
 
of
lower borrowings,
 
a reduction
 
in South
 
African interest
 
rates and
 
lower utilization
 
of our
 
ATM
 
facilities because
 
we used
 
our cash
reserves to fund our ATMs.
 
Fiscal 2021 tax expense was $7.6 million (ZAR 118.8 million) compared
 
to $2.7 million (ZAR 46.7 million) in fiscal 2020.
 
Our
effective tax
 
rate for fiscal
 
2021 was impacted
 
by the tax
 
effect on the
 
change in the
 
fair value of
 
our equity securities,
 
which is at a
lower tax rate than
 
the South African statutory
 
rate, the tax charge
 
related to our profitable
 
South African operations,
 
non-deductible
expenses, the
 
on-going
 
losses incurred
 
by certain
 
of our
 
South African
 
businesses and
 
the associated
 
valuation
 
allowances created
related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the
reversal of the deferred tax liability related to one of our equity-accounted
 
investments following its impairment.
 
Fiscal 2020
 
tax expense
 
was $2.7
 
million (ZAR
 
46.7 million)
 
compared to
 
$(5.1) million
 
(ZAR (72.4)
 
million) in
 
fiscal 2019.
Our effective tax rate for fiscal 2020,
 
was impacted by the tax-neutral disposals of FIHRST
 
and DNI, the tax-neutral deconsolidation
of CPS,
 
non-deductible
 
impairment
 
losses, the
 
option
 
termination
 
fee paid,
 
the ongoing
 
losses incurred
 
by IPG
 
and
 
certain
 
of our
South African businesses and the associated valuation allowances created related to the deferred tax
 
assets recognized regarding those
net operating losses, other non-deductible expenses, including
 
certain corporate transactions-related expenditure, and
 
the tax expense
recorded by our profitable businesses, primarily in South Africa.
 
The disposal of certain of our equity-accounted investments in the last two fiscal
 
years, as well as a number of impairments, has
adversely impacted the comparability of our loss from equity-accounted investments. We disposed of our investment in Bank Frick in
fiscal
 
2021
 
and
 
disposed
 
of
 
our
 
investment
 
in
 
DNI
 
in
 
fiscal
 
2020.
 
The
 
largest
 
impairment
 
recorded
 
in
 
fiscal
 
2021
 
related
 
to
 
our
investment in Finbond
 
following a slow-down
 
in its business activity
 
and lower traded
 
share price. The
 
largest impairment recorded
in fiscal
 
2020 related
 
to our investment
 
in Bank
 
Frick following
 
our decision
 
not to
 
exercise our
 
option to
 
take control
 
of the
 
bank.
Refer to Note
 
8 to
 
our audited
 
consolidated financial statements
 
for additional information
 
regarding our equity-accounted
 
investments,
including disclosure
 
regarding the disposals
 
and impairments. Finbond
 
is listed on
 
the Johannesburg
 
Stock Exchange and
 
reports its
six-month
 
results
 
during
 
our
 
first
 
half
 
and
 
its
 
annual
 
results
 
during
 
our
 
fourth
 
quarter.
 
The
 
table
 
below
 
presents
 
the
 
relative
 
loss
(earnings) from our equity accounted investments:
 
Table 6
Year
 
ended June 30,
2021
2020
$ %
$ ’000
$ ’000
change
Bank Frick
1,156
(17,273)
nm
Share of net income
 
1,156
1,421
(19%)
Amortization of intangible assets, net of deferred tax
 
-
(433)
nm
Impairment
-
(18,261)
nm
Finbond
(22,009)
1,840
nm
Share of net (loss) income
 
(4,359)
1,840
nm
Impairment
(17,650)
-
nm
DNI
 
-
(9,744)
nm
Share of net income
 
-
4,676
nm
Amortization of intangible assets, net of deferred tax
 
-
(1,350)
nm
Impairment
-
(13,070)
nm
Other
(4,025)
(4,365)
(8%)
Share of net loss
(531)
(1,865)
(72%)
Impairment
(3,494)
(2,500)
40%
Total
 
loss from equity-accounted investment
(24,878)
(29,542)
(16%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Results of operations by operating segment
 
 
The composition of revenue and the contributions of our business activities to
 
operating (loss) income are illustrated below:
 
 
Table 7
In U.S. Dollars
(R)
Year
 
ended June 30,
2021
2020
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
82,435
63%
91,786
64%
(10%)
IPG
1,693
1%
3,310
2%
(49%)
All other
80,742
62%
88,476
62%
(9%)
Financial services
38,996
30%
46,870
32%
(17%)
Technology
17,751
14%
18,071
13%
(2%)
Subtotal: Operating segments
 
139,182
106%
156,727
109%
(11%)
Corporate/Eliminations
 
(8,396)
(6%)
(12,428)
(9%)
(32%)
Consolidated revenue
 
130,786
100%
144,299
100%
(9%)
Operating (loss) income:
Processing
(34,283)
64%
(33,836)
76%
1%
IPG
(10,727)
20%
(12,348)
28%
(13%)
All other
(23,556)
44%
(21,488)
48%
10%
Financial services
(8,429)
16%
(3,621)
8%
133%
Technology
2,627
(5%)
2,815
(6%)
(7%)
Subtotal: Operating segments
 
(40,085)
74%
(34,642)
78%
16%
Corporate/eliminations
 
(13,787)
26%
(9,606)
22%
44%
Consolidated operating loss
(53,872)
100%
(44,248)
100%
22%
 
(R) Consolidated revenue-Processing-All others for fiscal 2020
 
has been restated for the error described in 1 to the audited consolidated
 
financial statements.
There was no impact on operating loss as a result
 
of the restatement.
 
 
Table 8
In South African Rand
(R)
Year
 
ended June 30,
2021
2020
% of
(as restated)
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Revenue:
Processing
1,295,565
63%
1,612,552
64%
(20%)
IPG
26,608
1%
58,153
2%
(54%)
All other
1,268,957
62%
1,554,399
62%
(18%)
Financial services
612,869
30%
823,440
32%
(26%)
Technology
278,978
14%
317,482
13%
(12%)
Subtotal: Operating segments
 
2,187,412
106%
2,753,474
109%
(21%)
Corporate/Eliminations
 
(131,953)
(6%)
(218,343)
(9%)
(40%)
Consolidated revenue
 
2,055,459
100%
2,535,131
100%
(19%)
Operating (loss) income:
Processing
(538,798)
64%
(594,451)
76%
(9%)
IPG
(168,587)
20%
(216,937)
28%
(22%)
All other
(370,211)
44%
(377,514)
48%
(2%)
Financial services
(132,472)
16%
(63,616)
8%
108%
Technology
41,286
(5%)
49,456
(6%)
(17%)
Subtotal: Operating segments
 
(629,984)
74%
(608,611)
78%
4%
Corporate/eliminations
 
(216,679)
26%
(168,764)
22%
28%
Consolidated operating loss
(846,663)
100%
(777,375)
100%
9%
 
(R) Consolidated revenue-Processing-All others for fiscal 2020
 
has been restated for the error described in 1 to the audited consolidated
 
financial statements.
There was no impact on operating loss as a result
 
of the restatement.
 
 
 
 
 
41
Processing
 
 
Excluding IPG,
 
segment revenue
 
decreased primarily
 
due to
 
fewer prepaid
 
airtime sales
 
and lower
 
volume-driven transaction
fees. Excluding
 
IPG, Processing
 
operating loss
 
has been
 
impacted by
 
lower revenue
 
and by
 
an increase
 
in transaction-based
 
costs.
Operating
 
loss for
 
fiscal
 
2020 includes
 
a $1.3
 
million
 
inventory
 
write-down
 
related
 
to prepaid
 
airtime
 
inventory.
 
Fiscal 2020
 
also
includes the impact of the
 
$5.6 million EasyPay goodwill impairment
 
loss. IPG incurred an
 
operating loss but is
 
in the process of
 
being
closed down.
 
Our operating
 
loss margin
 
for fiscal 2021
 
and 2020 was
 
(41.6%) and
 
(36.9%),
 
respectively.
 
Our operating
 
loss and operating
loss margin for fiscal 2020 excluding the goodwill impairment
 
of $5.6 million was $26.9 million and
 
(25.4%), respectively.
 
Financial services
 
 
Segment revenue
 
decreased due
 
to lower
 
account fee
 
revenue, whilst
 
lending and
 
insurance revenues
 
were moderately
 
higher
compared
 
to the
 
prior period.
 
The segment
 
incurred an
 
operating loss
 
compared
 
with fiscal
 
2020 primarily
 
due to
 
the reduction
 
in
account fee revenue as well as higher employee-related costs and
 
an increase in insurance claims experience.
 
 
Our operating loss margin for fiscal 2021 and 2020 was
 
(21.6%) and
 
(7.7%),
 
respectively.
 
Technology
 
Segment revenue decreased due to fewer hardware sales compared with fiscal 2021. Operating income for fiscal
 
2021 was lower
than fiscal 2020 due lower revenues, however,
 
margins on the sale of various product lines have remained consistent year over
 
year.
 
Our operating income margin for the Technology
 
segment was
 
14.8% and
 
15.6% during fiscal 2021 and 2020, respectively.
 
Corporate/ Eliminations
 
Our corporate expenses generally
 
include acquisition-related intangible asset
 
amortization; expenses incurred related
 
to corporate
actions;
 
expenditure
 
related
 
to
 
compliance
 
with
 
the
 
Sarbanes-Oxley
 
Act
 
of
 
2002;
 
non-employee
 
directors’
 
fees;
 
employee
 
and
executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer’s
 
insurance premiums; telecommunications
expenses; and elimination entries.
 
Our corporate expenses increased
 
primarily due to allowances for
 
doubtful loans receivable from
 
equity-accounted investments
created during
 
fiscal 2021,
 
higher legal
 
fees, and
 
foreign exchange
 
losses, which
 
were partially
 
offset
 
by lower
 
audit fees
 
in fiscal
2021 and an unrealized foreign exchange gain recognized in fiscal 2020.
 
Fiscal 2020 Compared to Fiscal 2019
 
The following factors had
 
a significant influence on
 
our results of
 
operations during fiscal 2020
 
as compared with
 
the same period
in the prior year:
 
●
 
Decline in revenue:
Excluding the impact
 
of the 2019
 
SASSA implementation
 
fee reversal, our
 
revenues declined
 
11% in
ZAR primarily due to
 
the expiration of our
 
SASSA contract, the decline
 
in EPE account numbers
 
driven by SASSA’s
 
auto-
migration of accounts
 
to SAPO, a reduction
 
in EPE-related financial
 
and value-added services and
 
transaction fees due to
 
a
smaller customer
 
base, and
 
the impact
 
of the
 
pandemic, which
 
was partially
 
offset by
 
higher terminal
 
and prepaid
 
airtime
sales;
 
●
 
Ongoing operating losses:
We continue to experience operating
 
losses primarily in
 
South Africa as
 
a result
 
of lower revenues,
coupled with a high fixed-cost infrastructure, despite a significant reduction in this cost base over the last two years.
 
We also
recorded impairment losses of $6.3 million and $14.4 million,
 
during fiscal 2020 and 2019, respectively;
 
●
 
Fiscal 2019 implementation costs to be refunded to SASSA of $34.0 million:
 
During fiscal 2019, we recorded an accrual of
$34.0 million related to the September 2019 Supreme Court
 
ruling comprising a revenue refund of $19.7 million (ZAR
 
277.6
million), accrued interest of $11.4 million (ZAR 161.0 million), unclaimed indirect taxes of $2.8 million (ZAR 39.4 million)
and estimated costs of $0.1 million (ZAR 1.4 million);
 
●
 
Corporate transactions:
In fiscal
 
2020 we
 
recorded a
 
gain of
 
$9.7 million
 
related to
 
the disposal
 
of FIHRST
 
in December
2019, which
 
was partially
 
offset by
 
a $1.0 million
 
loss on
 
the disposal of
 
our remaining
 
interest in
 
DNI and a
 
$7.1 million
loss on the deconsolidation of CPS. We also paid a termination
 
fee of $17.5 million in respect of our decision not to exercise
our option to acquire control of Bank Frick. In fiscal 2019, we recorded a fair
 
value adjustment loss of $167.5 million related
to our investment in Cell C equity and a $12.8 million impairment of our Cedar
 
Cellular note; and
●
 
Adverse foreign exchange
 
movements:
 
The U.S. dollar
 
appreciated
 
23% against the
 
ZAR compared to
 
the same period
 
in
fiscal
 
2019,
 
which
 
adversely
 
impacted
 
our
 
reported
 
results
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
42
The following tables show the changes in the items comprising our statements of
 
operations, both in U.S. dollars and in ZAR:
 
Table 9
In U.S. Dollars
Year
 
ended June 30,
2020
(R)(1)
2019
(R)(1)
(as restated)
(as restated)
$ %
 
$ ’000
$ ’000
change
Revenue
 
144,299
160,635
(10%)
Cost of goods sold, IT processing, servicing and support
 
102,308
124,104
(18%)
Selling, general and administration
 
75,256
144,920
(48%)
Depreciation and amortization
 
4,647
12,103
(62%)
Impairment loss
6,336
14,440
(56%)
Operating loss
(44,248)
(134,932)
(67%)
Change in fair value of equity securities
-
(167,459)
nm
Gain on disposal of FIHRST
9,743
-
nm
(Loss) Gain on disposal of DNI
(1,010)
177
nm
Loss on deconsolidation of CPS
7,148
-
nm
Termination
 
fee paid to cancel Bank Frick option
17,517
-
nm
Interest income
 
2,805
5,424
(48%)
Interest expense
 
7,641
9,860
(23%)
Impairment of Cedar Cellular note
-
12,793
nm
Loss before income tax expense (benefit)
 
(65,016)
(319,443)
(80%)
Income tax expense (benefit)
 
2,656
(5,072)
nm
Net loss before (loss) earnings from equity-accounted investments
 
(67,672)
(314,371)
(78%)
(Loss) Earnings from equity-accounted investments
 
(29,542)
1,258
nm
Net loss from continuing operations
(97,214)
(313,113)
(69%)
Net income from discontinued operations
6,402
13,630
(53%)
Gain (Loss) from disposal of discontinued operations, net of tax
12,454
(9,175)
nm
Net loss
(78,358)
(308,658)
Less (Add) net income (loss) attributable to non-controlling interest
 
-
2,349
nm
Continuing
 
-
(1,352)
nm
Discontinued
 
-
3,701
nm
Net (loss) income attributable to us
 
(78,358)
(311,007)
(75%)
Continuing
 
(97,214)
(311,761)
(69%)
Discontinued
 
18,856
754
2,401%
 
(R) Refer to Note 1 to the audited consolidated financial statements
 
for additional information regarding the restatement. There was
 
no impact on operating
loss as a result of the restatement.
(1)
 
Refer to Note 24 to the audited consolidated financial statements
 
for discontinued operations disclosures.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
Table 10
In South African Rand
(US GAAP)
Year
 
ended June 30,
2020
(R)(1)
2019
(R)(1)
(as restated)
(as restated)
ZAR %
 
ZAR ’000
ZAR ’000
change
Revenue
 
2,535,131
2,292,181
11%
Cost of goods sold, IT processing, servicing and support
 
1,797,408
1,770,902
1%
Selling, general and administration
 
1,322,142
2,067,935
(36%)
Depreciation and amortization
 
81,641
172,704
(53%)
Impairment loss
111,315
206,052
(46%)
Operating loss
(777,375)
(1,925,412)
(60%)
Change in fair value of equity securities
-
(2,389,556)
nm
Gain on disposal of FIHRST
171,171
-
nm
(Loss) Gain on disposal of DNI
(17,744)
2,526
nm
Loss on deconsolidation of CPS
125,580
-
nm
Termination
 
fee paid to cancel Bank Frick option
307,749
-
nm
Interest income
 
49,280
77,398
(36%)
Interest expense
 
134,242
140,697
(5%)
Impairment of Cedar Cellular note
-
182,550
nm
Loss before income tax expense (benefit)
 
(1,142,239)
(4,558,291)
(75%)
Income tax expense (benefit)
 
46,662
(72,375)
nm
Net loss before (loss) earnings from equity-accounted investments
 
(1,188,901)
(4,485,916)
(73%)
(Loss) Earnings from equity-accounted investments
 
(519,012)
17,951
nm
Net loss from continuing operations
(1,707,913)
(4,467,965)
(62%)
Net income from discontinued operations
112,474
194,493
(42%)
Gain (Loss) from disposal of discontinued operations, net of tax
218,799
(130,923)
nm
Net loss
(1,376,640)
(4,404,395)
Less (Add) net income (loss) attributable to non-controlling interest
 
-
33,519
nm
Continuing
 
-
(19,292)
nm
Discontinued
 
-
52,811
nm
Net (loss) income attributable to us
 
(1,376,640)
(4,437,914)
(69%)
Continuing
 
(1,707,913)
(4,448,673)
(62%)
Discontinued
 
331,273
10,759
2,979%
 
(R) Refer to Note 1 to the audited consolidated financial statements
 
for additional information regarding the restatement. There was
 
no impact on operating
loss as a result of the restatement.
(1)
 
Refer to Note 24 to the audited consolidated financial statements
 
for discontinued operations disclosures.
 
Excluding the impact
 
of the
 
2019 SASSA
 
implementation fee reversal,
 
the decrease in
 
revenue was
 
primarily due to
 
the expiration
of our SASSA contract, the decline in EPE account numbers
 
driven by SASSA’s
 
auto-migration of accounts to SAPO, a reduction
 
in
EPE-related financial
 
and value-added
 
services and transaction
 
fees due to
 
a smaller customer
 
base, and the
 
impact of the
 
pandemic
which was partially offset by higher terminal and prepaid
 
airtime sales.
 
 
The decrease in
 
cost of goods
 
sold, IT processing,
 
servicing and support
 
was primarily due
 
to fewer SASSA
 
Grindrod-account
grant recipients utilizing the South African National Payment System
 
which resulted in lower transaction costs incurred by
 
us, which
was partially offset by higher costs related to terminal and prepaid
 
airtime sales.
 
 
The decrease in selling, general and administration expense was primarily due to lower fixed costs (including premises and staff
costs) incurred
 
during fiscal 2020
 
largely as
 
a result of
 
the extensive cost
 
cutting delivered
 
over the
 
last 18 months.
 
Our fiscal 2019
expense includes
 
an increase
 
in our
 
allowance for
 
doubtful finance
 
loans receivable
 
of approximately
 
$23.4 million
 
(resulting from
SASSA’s
 
auto-migration of EPE accounts) and the payment of $5.2 million
 
(ZAR 73.7 million) of retrenchment packages.
 
 
Depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized
and tangible assets that are fully depreciated during fiscal 2020.
 
During fiscal 2020,
 
we recorded an
 
impairment loss of
 
$5.6 million related
 
to the impairment
 
of a portion
 
of our EasyPay
 
business
unit’s allocated goodwill and a
 
$0.7 million impairment loss
 
related to our
 
Maltese e-money license.
 
During fiscal 2019, we
 
recognized
an impairment loss of approximately $14.4 million, which
 
included $7.0 million related to the entire
 
amount of IPG goodwill and $6.2
million primarily
 
related to
 
the impairment
 
of goodwill
 
recognized pursuant
 
to the
 
2004 Aplitec
 
transaction. Refer
 
to Note
 
9 of
 
our
audited
 
consolidated
 
financial
 
statements
 
for
 
additional
 
information
 
regarding
 
thes
e
 
impairment
 
losses.
 
 
 
44
Our
 
operating
 
loss margin
 
for fiscal
 
2020
 
and 2019
 
was
 
(30.7%)
 
and
 
(84.0%), respectively.
 
We
 
discuss the
 
components
 
of
operating (loss) income margin under “—Results of operations
 
by operating segment.”
 
 
The change in fair value of
 
equity securities represents a non-cash
 
fair value adjustment loss related
 
to Cell C of $167.5 million
during fiscal 2019. The
 
fiscal 2019 adjustment was caused
 
by the challenges faced
 
by Cell C’s
 
business at that time.
 
Refer to Note 5
of our audited consolidated financial statements for the methodology
 
and inputs used in the fair value calculation.
 
We
 
recorded a
 
gain of
 
$9.7 million
 
related to
 
the disposal
 
of FIHRST
 
during fiscal
 
2020, which
 
was partially
 
offset by
 
a $1.0
million loss on
 
the disposal of
 
our remaining
 
interest in DNI
 
and a $7.1
 
million loss on
 
the deconsolidation
 
of CPS. We
 
also paid a
termination fee of $17.5 million in respect of our decision not to exercise
 
our option to acquire control of Bank Frick
 
Interest on surplus cash decreased to $2.8 million (ZAR
 
49.3 million) from $5.4 million (ZAR 77.4 million),
 
due primarily to the
lower average daily cash balances and cash used to fund the operating losses in
 
the South African operations.
 
Interest expense decreased to $7.6 million (ZAR 134.2 million from $9.9 million (ZAR 140.7 million), due to
 
a reduction in our
long-term South African
 
debt, which
 
was partially offset
 
by interest
 
expense related to
 
cash borrowed to
 
stock our
 
ATMs and utilization
of our overdraft facilities.
 
During fiscal 2019, we recorded an impairment loss of $12.8 million related to our Cedar Cellular note as discussed in Note
 
8
 
of
our audited consolidated financial statements.
 
Fiscal 2020
 
tax expense
 
was $2.7
 
million (ZAR
 
46.7 million)
 
compared to
 
$(5.1) million
 
(ZAR (72.4)
 
million) in
 
fiscal 2019.
Our effective tax rate for fiscal 2020,
 
was impacted by the tax-neutral disposals of FIHRST
 
and DNI, the tax-neutral deconsolidation
of CPS,
 
non-deductible
 
impairment
 
losses, the
 
option
 
termination
 
fee paid,
 
the ongoing
 
losses incurred
 
by IPG
 
and
 
certain
 
of our
South African businesses and the associated valuation allowances created related to the deferred tax
 
assets recognized regarding those
net operating losses, other non-deductible expenses, including
 
certain corporate transactions-related expenditure, and
 
the tax expense
recorded by our profitable businesses, primarily in South Africa.
 
Our effective tax rate
 
for fiscal 2019
 
was adversely impacted
 
by the valuation allowances
 
created related to
 
the deferred tax
 
assets
recognized in respect of net operating losses incurred by
 
our South African businesses, the non-deductible impairment losses, the
 
DNI
disposal gain, and other
 
non-deductible expenses, including transaction
 
-related expenditure and non-deductible
 
interest on our South
African long-term debt facility.
 
The deferred tax impact
 
of the change in the
 
fair value of our investment
 
in Cell C also impacted the
effective rate
 
for fiscal 2019,
 
as this amount
 
is recorded at
 
a lower rate (at
 
a capital gains
 
rate) than the
 
South African statutory
 
rate.
During fiscal 2019, we reversed the entire deferred tax liability of approximately $6.1 million
 
recorded as of June 30, 2018, as a
 
result
of the decrease in the carrying
 
value of Cell C to
 
below the initial cost. In
 
addition, the June 30, 2019, carrying
 
value of our investment
in Cell C is less than its
 
initial cost which results
 
in a capital gains tax benefit for
 
tax purposes. However,
 
we do not expect to realize
any significant capital gains
 
in the foreseeable future and
 
have provided a valuation allowance
 
of $31.7 million related to this
 
capital
gains
 
tax
 
benefit
 
deferred
 
tax
 
asset.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
45
DNI was accounted for using the equity method during fiscal 2020. The accounting for DNI as a discontinued operation in fiscal
2019,
 
as well
 
as a
 
number
 
of impairments,
 
has adversely
 
impacted the
 
comparability of
 
our (loss)
 
earnings from
 
equity-accounted
investments during fiscal 2020. The largest
 
impairment was in respect of
 
our investment in Bank
 
Frick and followed from our
 
decision
not to exercise our option to take control of the bank. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month
results during our first half
 
and its annual results during our fourth
 
quarter. The
 
table below presents the relative earnings
 
(loss) from
our equity accounted investments:
 
 
Table 11
Year
 
ended June 30,
2020
2019
$ ’000
$ ’000
$ % change
Bank Frick
(17,273)
(1,542)
1,020%
Share of net income
 
1,421
1,109
28%
Amortization of intangible assets, net of deferred tax
 
(433)
(567)
(24%)
Impairment
(18,261)
-
nm
Other
-
(2,084)
nm
DNI
 
(9,744)
865
nm
Share of net income
 
4,676
1,380
239%
Amortization of intangible assets, net of deferred tax
 
(1,350)
(515)
162%
Impairment
(13,070)
-
nm
Finbond
1,840
2,619
(30%)
Other
(4,365)
(684)
538%
Share of net loss
(1,865)
(684)
173%
Impairment
(2,500)
-
nm
Total
 
(loss) earnings from equity-accounted investments
(29,542)
1,258
nm
 
Results of operations by operating segment
 
 
The composition of revenue and the contributions of our business activities to
 
operating income are illustrated below:
 
Table 12
In U.S. Dollars
(R)
Year
 
ended June 30,
2020
2019
(as restated)
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
91,786
64%
118,088
74%
(22%)
IPG
3,310
2%
8,157
5%
(59%)
All other
88,476
61%
109,931
68%
(20%)
Financial services
46,870
32%
57,034
36%
(18%)
Technology
18,071
13%
20,115
13%
(10%)
Subtotal: Operating segments
 
156,727
172%
195,237
196%
(20%)
Corporate/Eliminations
 
(12,428)
(72%)
(34,602)
(96%)
(64%)
Consolidated revenue
 
144,299
100%
160,635
100%
(10%)
Operating (loss) income:
Processing
(33,836)
76%
(51,575)
38%
(34%)
IPG
(12,348)
28%
(16,101)
12%
(23%)
All other
(21,488)
49%
(35,474)
26%
(39%)
Financial services
(3,621)
8%
(30,068)
22%
(88%)
Technology
2,815
(6%)
(5,294)
4%
nm
Subtotal: Operating segments
 
(34,642)
155%
(86,937)
102%
(60%)
Corporate/eliminations
 
(9,606)
(55%)
(47,995)
(2%)
(80%)
Consolidated operating loss
(44,248)
100%
(134,932)
100%
(67%)
 
(R) Consolidated
 
revenue-Processing-All others for
 
fiscal 2020
 
and 2019
 
has been
 
restated for
 
the error
 
described in
 
1 to
 
the audited
 
consolidated financial
statements.
 
There
 
was
 
no
 
impact
 
on
 
operating
 
loss
 
as
 
a
 
result
 
of
 
the
 
restatement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
Table 13
In South African Rand
(R)
Year
 
ended June 30,
2020
2019
(as restated)
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
1,612,552
64%
1,685,057
74%
(4%)
IPG
58,153
2%
116,397
5%
(50%)
All other
1,554,399
62%
1,568,660
69%
(1%)
Financial services
823,440
32%
813,846
36%
1%
Technology
317,482
13%
287,031
13%
11%
Subtotal: Operating segments
 
2,753,474
109%
2,785,934
122%
(1%)
Corporate/Eliminations
 
(218,343)
(9%)
(493,753)
(22%)
(56%)
Consolidated revenue
 
2,535,131
100%
2,292,181
100%
11%
Operating (loss) income:
Processing
(594,451)
76%
(735,949)
38%
(19%)
IPG
(216,937)
28%
(229,753)
12%
(6%)
All other
(377,514)
48%
(506,196)
26%
(25%)
Financial services
(63,616)
8%
(429,055)
22%
(85%)
Technology
49,456
(6%)
(75,543)
4%
nm
Subtotal: Operating segments
 
(608,611)
78%
(1,240,547)
64%
(51%)
Corporate/eliminations
 
(168,764)
22%
(684,865)
36%
(75%)
Consolidated operating loss
(777,375)
100%
(1,925,412)
100%
(60%)
 
(R) Consolidated
 
revenue-Processing-All others for
 
fiscal 2020
 
and 2019
 
has been
 
restated for
 
the error
 
described in
 
1 to
 
the audited
 
consolidated financial
statements. There was no impact on operating loss as a result
 
of the restatement.
 
 
Processing
 
The decrease
 
in segment
 
revenue was
 
primarily due
 
to the
 
substantial decrease
 
in the
 
number of
 
SASSA grant
 
recipients paid
under our
 
SASSA contract
 
as the
 
contract expired
 
at the
 
end of
 
the first
 
quarter of
 
fiscal 2019
 
and the
 
significant reduction
 
in the
number of SASSA
 
grant recipients with
 
SASSA-branded cards
 
linked to Grindrod
 
bank accounts as
 
well as a
 
lower number of
 
EPE
accounts.
 
These decreases were partially offset by higher transaction revenue as a result of increased usage
 
of our ATMs and EasyPay
and
 
higher
 
prepaid
 
airtime
 
sales. The
 
reduction
 
in
 
the
 
operating
 
loss reflects
 
the
 
cost
 
reductions
 
that
 
occurred
 
during
 
fiscal
 
2020.
Operating
 
loss for
 
fiscal
 
2020 included
 
a
 
$5.6 million
 
impairment
 
loss.
 
for
 
Operating
 
loss for
 
fiscal
 
2019 included
 
a $1.1
 
million
impairment loss and retrenchment costs of $4.7 million (ZAR 65.9
 
million).
 
Our operating
 
loss margin
 
for fiscal 2020
 
and 2019 was
 
(36.9%) and
 
(43.7%),
 
respectively.
 
Our operating
 
loss and operating
loss margin for fiscal
 
2020 excluding the goodwill
 
impairment of $5.6 million
 
was $26.9 million
 
and
 
(25.4%), respectively. Excluding
the impairment losses of $8.2 million and restructuring costs of $4.7 million, the segment operating loss and operating loss
 
margin for
fiscal 2019 were $38.7 million and
 
(25.4%), respectively.
 
Financial services
 
Segment
 
revenue
 
for
 
fiscal
 
2020
 
decreased
 
due
 
to
 
lower
 
account
 
fee,
 
lending
 
and
 
insurance
 
revenues
 
compared
 
to
 
the
 
prior
period. Fiscal 2019
 
includes an allowance
 
for doubtful finance
 
loans receivable of
 
$23.4 million recognized
 
in the second quarter
 
of
fiscal 2019, restructuring costs of $1.6 million and expenses incurred to
 
maintain and expand our financial service infrastructure.
 
 
Our operating loss margin for fiscal 2020 and 2019 was
 
(7.7%) and
 
(52.7%), respectively.
 
Technology
 
Segment revenue decreased
 
primarily due to
 
fewer prepaid airtime
 
and value-added services
 
sales. However,
 
operating income
for fiscal 2020 improved compared with fiscal 2019 due to improved margins on the sale of various product lines within the segment.
Operating loss for this operating segment for fiscal 2019 included and impairment
 
loss of $6.2 million.
 
Our
 
operating
 
income
 
(loss)
 
margin
 
for
 
the
 
Technology
 
segment
 
was
 
15.6%
 
and
 
(26.3%)
 
during
 
fiscal
 
2020
 
and
 
2019,
respectively.
 
Excluding the
 
impairment loss
 
of $6.2
 
million,
 
the segment
 
operating income
 
and operating
 
income margin
 
for fiscal
2019
 
were
 
$1.0
 
million
 
and
 
 
4.7%
,
 
respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
Corporate/Eliminations
 
Our corporate
 
expenses increased
 
primarily due
 
to the
 
accrual of
 
$14.3 million
 
related to
 
the September
 
2019 Supreme
 
Court
ruling,
 
a
 
$5.3
 
million
 
impairment
 
loss
 
as
 
well
 
as
 
higher
 
acquired
 
intangible
 
asset
 
amortization,
 
non-employee
 
director
 
expenses,
tran
saction
-
related
 
expenditures
 
and
 
external
 
service
 
provider
 
fees,
 
and
 
were
 
partially
 
offset
 
by
 
the
 
reversal
 
of
 
stock
-
based
 
compensation charges of $1.9 million related to forfeiture of awards. Corporate/ Eliminations for fiscal 2019, also includes the
 
impact
of the reversal of revenue related to the September 2019 Supreme Court ruling.
 
Presentation of Quarterly Revenue and Operating (Loss) Income by Segment for Fiscal 2020 and 2019
 
The tables
 
below present
 
quarterly revenue
 
and operating
 
(loss) income
 
generated by
 
our three
 
reportable segments
 
for fiscal
2020 and
 
2019, and
 
reconciliations to
 
consolidated revenue
 
and operating
 
(loss) income,
 
as well
 
as the
 
U.S. dollar/
 
ZAR exchange
rates applicable per fiscal quarter and year:
 
Table 14
Fiscal 2020
(R)
In United States Dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2020
$ '000
$ '000
$ '000
$ '000
$ '000
Revenues
Processing
28,295
25,022
22,078
16,391
91,786
IPG
793
432
1,164
921
3,310
All Other
27,502
24,590
20,914
15,470
88,476
Financial services
14,168
12,268
11,683
8,751
46,870
Technology
 
and Other
7,209
4,890
4,040
1,932
18,071
Subtotal: Operating segments
 
49,672
42,180
37,801
27,074
156,727
Corporate/Eliminations
 
(3,456)
(3,262)
(3,187)
(2,523)
(12,428)
Total
 
46,216
38,918
34,614
24,551
144,299
Operating (loss) income
Processing
(5,505)
(5,848)
(12,394)
(10,089)
(33,836)
IPG
(1,973)
(2,920)
(3,175)
(4,280)
(12,348)
All Other
(3,532)
(2,928)
(9,219)
(5,809)
(21,488)
Financial services
345
(1,249)
(1,701)
(1,016)
(3,621)
Technology
 
and Other
1,145
589
945
136
2,815
Subtotal: Operating segments
 
(4,015)
(6,508)
(13,150)
(10,969)
(34,642)
Corporate/Eliminations
 
(2,421)
(3,912)
(1,062)
(2,211)
(9,606)
Total
 
(6,436)
(10,420)
(14,212)
(13,180)
(44,248)
Income and expense items: $1 = ZAR
14.7520
14.6022
15.3667
17.2810
17.5686
 
(R) Revenues-Processing-All others has been restated
 
for the error described in Note 1
 
to the audited consolidated financial statements.
 
There was no impact on
operating
 
loss
 
as
 
a
 
result
 
of
 
the
 
restatement.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
Table 15
Fiscal 2019
(R)
In United States Dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2019
$ '000
$ '000
$ '000
$ '000
$ '000
Revenues
Processing
45,658
26,807
21,959
23,664
118,088
IPG
2,404
2,300
1,892
1,561
8,157
All Other
43,254
24,507
20,067
22,103
109,931
Financial services
25,442
11,779
10,550
9,263
57,034
Technology
 
and Other
4,748
4,796
5,277
5,294
20,115
Subtotal: Operating segments
 
75,848
43,382
37,786
38,221
195,237
Corporate/Eliminations
 
(5,883)
(3,288)
(2,571)
(22,860)
(34,602)
Total
 
69,965
40,094
35,215
15,361
160,635
Operating (loss) income
Processing
(7,091)
(23,481)
(15,431)
(5,572)
(51,575)
IPG
(2,238)
(9,425)
(1,877)
(2,561)
(16,101)
All Other
(4,853)
(14,056)
(13,554)
(3,011)
(35,474)
Financial services
4,038
(25,144)
(4,477)
(4,485)
(30,068)
Technology
 
and Other
210
335
164
(6,003)
(5,294)
Subtotal: Operating segments
 
(2,843)
(48,290)
(19,744)
(16,060)
(86,937)
Corporate/Eliminations
 
(4,492)
(3,175)
(4,032)
(36,296)
(47,995)
Total
 
(7,335)
(51,465)
(23,776)
(52,356)
(134,932)
Income and expense items: $1 = ZAR
14.8587
14.3236
14.1703
14.2884
14.2695
 
(R) Revenues-Processing-All others has been restated
 
for the error described in Note 1
 
to the audited consolidated financial statements.
 
There was no impact on
operating loss as a result of the restatement.
 
Liquidity and Capital Resources
 
 
At June
 
30,
 
2021, our
 
cash and
 
cash equivalents
 
were $198.6
 
million
 
and comprised
 
of U.S.
 
dollar-denominated
 
balances of
$169.8 million, ZAR-denominated balances of ZAR 0.4 billion ($26.5
 
million), and other currency deposits, primarily Botswana
 
pula,
of $2.3 million, all amounts translated at exchange rates
 
applicable as of June 30, 2021. The
 
decrease in our unrestricted cash balances
from June 30, 2020, was primarily due to the payment of Federal income taxes, weak trading activities
 
and an increase in our lending
book, which was partially offset by the receipt of the outstanding proceeds related to the sale of our South Korean business, receipt of
proceeds related to the disposal of
 
Bank Frick and the receipt of the
 
outstanding loan related to the
 
disposal of our remaining interest
in DNI.
 
We generally
 
invest any surplus cash held by
 
our South African operations in overnight
 
call accounts that we maintain at
 
South
African banking institutions,
 
and any surplus
 
cash held by
 
our non-South African
 
companies in
 
U.S. dollar-denominated money market
accounts.
 
 
Historically,
 
we have financed
 
most of our
 
operations, research and
 
development, working capital,
 
and capital expenditures,
 
as
well
 
as
 
acquisitions
 
and
 
strategic
 
investments,
 
through
 
internally
 
generated
 
cash
 
and
 
our
 
financing
 
facilities.
 
When
 
considering
whether to borrow under our financing
 
facilities, we consider the cost
 
of capital, cost of financing, opportunity cost
 
of utilizing surplus
cash
 
and
 
availability
 
of
 
tax
 
efficient
 
structures
 
to
 
moderate
 
financing
 
costs.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
49
Available short-term
 
borrowings
 
Summarized below are our short-term facilities available and utilized
 
as of June 30, 2021:
 
Table 16
RMB
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
 
short-term facilities available, comprising:
Overdraft restricted as to use
(1)
83,910
1,200,000
17,481
250,000
Total overdraft
83,910
1,200,000
17,481
250,000
Indirect and derivative facilities
(2)
-
-
10,947
156,556
Total
 
short-term facilities available
83,910
1,200,000
28,428
406,556
Utilized short-term facilities:
Overdraft restricted as to use
(1)
14,245
203,726
-
-
Indirect and derivative facilities
(2)
-
-
10,947
156,556
RMB interest rate, based on South African prime rate
-
7.00%
-
-
Interest rate, based on South African prime rate less 1.15%
-
-
-
5.85%
 
(1) Overdraft may only be used to fund mobile ATMs
 
and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward
 
exchange contracts to support
guarantees issued by Nedbank to various third parties on our behalf.
 
Restricted cash
 
We
 
have
 
credit facilities
 
with RMB
 
and
 
Nedbank
 
in order
 
to access
 
cash to
 
fund our
 
ATMs
 
in South
 
Africa. Our
 
cash, cash
equivalents and restricted
 
cash presented in our
 
audited consolidated statement
 
of cash flows as of
 
June 30, 2021, includes
 
restricted
cash of approximately $25.2 million related to cash withdrawn
 
from our various debt facilities to fund ATMs.
 
This cash may only be
used to
 
fund ATMs
 
and
 
is considered
 
restricted
 
as to
 
use and
 
therefore is
 
classified as
 
restricted
 
cash on
 
our audited
 
consolidated
balance sheet.
 
 
We
 
have also
 
entered into
 
cession and
 
pledge agreements
 
with Nedbank
 
related to
 
certain of
 
our Nedbank
 
credit facilities
 
and
we have ceded
 
and pledged certain
 
bank accounts to
 
Nedbank. The funds
 
included in these bank
 
accounts are restricted
 
as they may
not be withdrawn without the express permission of Nedbank. Our cash, cash equivalents and restricted
 
cash presented in our audited
consolidated statement of cash flows as of June 30, 2021,
 
includes restricted cash of approximately $10.9 million that has been ceded
and pledged.
 
Cash flows from operating activities
 
Net cash used in operating activities during fiscal 2021 was $58.4 million (ZAR 917.4 million) compared to $46.0 million (ZAR
808.9 million) during fiscal
 
2020. Excluding the impact
 
of income taxes, our cash
 
used in operating activities during
 
the year to date
of fiscal 2021 was impacted by
 
the cash losses incurred by the
 
majority of our continuing operations and the
 
payment of a $3.6 million
settlement (refer
 
to Note 8).
 
Our net cash
 
used in operating
 
activities during
 
the year to
 
date of fiscal
 
2020 includes the
 
contribution
from our South Korean operations for eight months of $14.6 million (refer to
 
Note 24).
 
Net cash used in operating
 
activities during fiscal 2020 was $46.0
 
million (ZAR 808.9 million) compared
 
to $4.5 million (ZAR
63.6 million)
 
generated during
 
fiscal 2019.
 
The change
 
is primarily
 
due to
 
weaker trading
 
activity during
 
fiscal 2020
 
compared
 
to
2019, the payment of $17.5 million termination fee to cancel our Bank Frick option, as well as the
 
purchase of Cell C prepaid airtime
that is subject to sale restrictions,
 
which was partially offset by the
 
net unwind in our lending book following
 
the temporary COVID-
19 restrictions imposed on our lending activities in the latter half
 
of fiscal 2020.
 
During fiscal 2021,
 
we made our first
 
provisional South African
 
tax payment of
 
$0.9 million (ZAR 12.7
 
million) related to our
2021 tax year. During fiscal 2021,
 
we also made our second provisional South African tax payment of $0.2 million (ZAR 2.9 million)
related to our
 
2021 tax year
 
and made an additional
 
tax payment of
 
$0.2 million (ZAR 3.4
 
million) related to
 
our 2020 tax year.
 
We
also paid taxes totaling $15.4 million in other tax jurisdictions, primarily
 
in the U.S.
 
 
During fiscal 2020,
 
we made our first
 
provisional South African
 
tax payment of
 
$0.8 million (ZAR 11.9
 
million) related to our
2020 tax year. During fiscal 2020,
 
we also made our second provisional South African tax payment of $0.5 million (ZAR 8.0 million)
related to our 2020 tax year and made an additional
 
tax payment of $0.8 million (ZAR 11.6
 
million) related to our 2019 tax year.
 
We
also
 
paid
 
taxes
 
totaling
 
$4.3
 
million
 
in
 
other
 
tax
 
jurisdictions,
 
primarily
 
South
 
Korea.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
50
During fiscal 2019,
 
we made our first
 
provisional South African
 
tax payment of
 
$6.5 million (ZAR 92.0
 
million) related to our
2019 tax year. During fiscal 2019,
 
we also made our
 
second provisional South African tax
 
payment of $0.8 million
 
(ZAR 11.0 million)
related to
 
our 2019
 
tax year and
 
made an
 
additional tax payment
 
of $1.4 million
 
(ZAR 20.9 million)
 
related to our
 
2018 tax year
 
in
South Africa. We
 
also paid taxes totaling $4.7 million in other tax jurisdictions, primarily South
 
Korea.
 
Taxes paid during
 
fiscal 2021, 2020 and 2019 were as follows:
 
Table 17
Year
 
ended June 30,
2021
2020
2019
2021
2020
2019
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
First provisional payments
 
853
825
6,450
12,680
11,934
91,994
Second provisional payments
 
209
470
752
2,907
8,038
10,952
Taxation paid related
 
to prior years
 
205
782
1,426
3,423
11,620
20,880
Tax refund received
(13)
(1,339)
(254)
(225)
(19,245)
(3,864)
Total South African
 
taxes paid
 
1,254
738
8,374
18,785
12,347
119,962
Foreign taxes paid
15,354
4,263
4,736
256,616
62,302
66,519
Total
 
tax paid
 
16,608
5,001
13,110
275,401
74,649
186,481
 
We do not expect to make any additional provisional income tax payments in South Africa related to our 2021 tax
 
year in the first
quarter of fiscal 2022.
 
Cash flows from investing activities
 
Cash used in investing activities for fiscal 2021 included
 
capital expenditures of $4.3 million (ZAR 67.3 million), primarily due
to the
 
acquisition of
 
motor vehicles,
 
which largely
 
comprises a
 
fleet of
 
customized mobile
 
ATMs
 
used to
 
deliver a
 
service to
 
rural
communities, computer equipment and leasehold
 
improvements in South Africa. In February 2021, we disposed
 
of our investment in
Bank Frick and received $18.6 million of the $30.0 million sales proceeds, the remainder of which will be received in fiscal 2022 and
2023.
 
We
 
received $20.1
 
million
 
in September
 
2020 related
 
to the
 
sale of
 
our South
 
Korean business
 
in fiscal
 
2020 following
 
the
successful refund
 
application of
 
the amounts
 
withheld and paid
 
to the South
 
Korean tax authorities
 
pursuant to
 
that transaction.
 
We
received $6.0 due on the deferred sale proceeds related to fiscal 2020 sale of DNI, which has now been paid in full. We
 
also extended
loan funding of $1.0 million to V2 and $0.2 million to Revix.
 
During fiscal
 
2020,
 
we paid approximately
 
$5.9 million (ZAR
 
104.3 million),
 
related to capital
 
expenditures, primarily
 
related
to the acquisition of
 
ATMs
 
and computer equipment
 
in South Africa, leasehold
 
improvements in Malta and
 
processing equipment in
South Korea to maintain operations. During fiscal 2020, we received a net $192.6 million from the sale of our
 
South Korean business,
paid transaction costs
 
related to this disposal
 
of $7.5 million, and
 
received $10.9 million from
 
the sale of FIHRST.
 
We
 
also received
$42.5 million related
 
to the sale of the
 
majority of our remaining
 
interest in DNI. We
 
also made a further equity
 
contribution of $2.5
million to V2, extended loan funding of $1.5 million
 
to our equity-accounted investments, and received $4.3 million from DNI
 
related
to the settlement of a ZAR 60.0 million loan outstanding as of June 30, 2019.
 
During fiscal
 
2019, we paid
 
approximately $9.4
 
million (ZAR 134.5
 
million), related
 
to capital expenditures,
 
primarily related
to the acquisition of ATMs
 
in South Africa and the expansion of
 
our branch network. We
 
also paid $2.5 million for a 50% interest in
V2 Limited,
 
acquired customer
 
bases in
 
DNI for
 
$1.4 million,
 
made a
 
further equity
 
contribution of
 
$1.1 million
 
to MobiKwik
 
and
received $1.0 million from Finbond related to the settlement of a ZAR 15.0 million
 
loan outstanding.
 
Cash flows from financing activities
 
During fiscal 2021, we utilized approximately $360.1
 
million from our South African overdraft facilities to fund
 
our ATMs
 
and
repaid $365.4 million of these facilities.
 
During fiscal 2020,
 
we utilized approximately
 
$672.4 million from
 
our South African overdraft
 
facilities, primarily to
 
fund our
ATMs,
 
and repaid $721.0 million of these facilities.
 
We utilized
 
approximately $14.8 million of our borrowings
 
to fund the purchase
of Cell C prepaid airtime
 
that was subject to sale restrictions.
 
We repaid
 
the amount in full, paying $14.5
 
million, with the difference
of
 
$0.3
 
million
 
reflecting
 
the
 
impact
 
of
 
changes
 
in
 
ZAR
 
against
 
the
 
U.S
 
dollar.
 
We
 
also
 
repaid
 
$26.9
 
million
 
of
 
our
 
Bank
 
Frick
overdraft and utilized $17.4 million of this overdraft to fund our operations.
 
During
 
fiscal 2019,
 
we utilized
 
approximately
 
$822.8 million
 
from our
 
overdraft
 
facilities, primarily
 
to fund
 
our ATMs,
 
and
repaid $741.0 million of these facilities. We
 
also utilized approximately $14.6 million of DNI’s
 
revolving credit facility to lend funds
to Cell C to finance the
 
acquisition and/or requisition of telecommunication towers and other
 
specific uses pre-approved by the lender.
We
 
also
 
made
 
scheduled
 
South African
 
debt
 
facility payments
 
of $31.8
 
million,
 
repaid $4.9
 
million
 
under DNI’s
 
revolving
 
credit
facility and paid non-refundable origination
 
fees of approximately $0.4 million related
 
to the credit facilities. We
 
also paid dividends
of
 
approximately
 
$4.1
 
million
 
to
 
certain
 
of
 
our
 
non
-
controlling
 
interests,
 
principally
 
in
 
DNI.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
51
Contractual Obligations
 
 
The following table sets forth our contractual obligations as of June
 
30, 2021:
 
 
Table 18
Payments due by Period, as of June 30, 2021 (in $ ’000s)
Total
Less than 1
year
2-3 years
3-5 years
Thereafter
Short-term credit facilities for ATM
 
funding
(A)
14,245
14,245
-
-
-
Operating lease liabilities, including imputed interest
(B)
5,187
3,117
1,870
200
-
Purchase obligations
2,463
2,463
-
-
-
Capital commitments
315
315
-
-
-
Other long-term obligations reflected on our balance
sheet
(C)(D)
2,576
-
-
-
2,576
Total
24,786
20,140
1,870
200
2,576
 
(A)
 
– Refer to Note 11 to our audited consolidated financial
 
statements.
(B)
 
– Refer to Note 7 to our audited consolidated financial statements.
(C)
 
– Includes policyholder liabilities of $2.6
 
million related to our insurance business. All amounts are translated at exchange
rates applicable as of June 30, 2021.
 
(D)
 
– We
 
have excluded cross-guarantees in
 
the aggregate amount of $10.9
 
million issued as of June 30,
 
2021, to Nedbank to
secure guarantees it has
 
issued to third parties
 
on our behalf as the
 
amounts that will be
 
settled in cash are not
 
known and
the timing of any payments is uncertain.
 
Off-Balance Sheet Arrangements
 
 
We have no off
 
-balance sheet arrangements.
 
 
Capital Expenditures
 
 
Capital expenditures for the years ended June 30, 2021, 2020 and
 
2019 were as follows:
 
Table 19
Year
 
ended June 30,
2021
2020
2019
2021
2020
2019
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
Processing
1,173
4,297
4,419
18,435
75,492
63,054
Financial services
174
138
1,142
2,735
2,424
16,295
Technology
2,938
-
181
46,174
-
2,583
Total
4,285
4,435
5,742
67,344
77,916
81,932
 
Our capital expenditures
 
for fiscal 2021,
 
2020 and 2019, are
 
discussed under “—Liquidity
 
and Capital Resources—Cash
 
flows
from investing activities.”
 
All of our capital
 
expenditures for the past
 
three fiscal years were
 
funded through internally-generated funds. We had outstanding
capital commitments
 
as of June 30,
 
2021, of $0.3
 
million. We
 
expect to fund
 
these expenditures through
 
internally-generated funds.
In addition
 
to these
 
capital expenditures,
 
we expect
 
that capital
 
spending for
 
fiscal 2022
 
will also
 
primarily relate
 
to expanding
 
our
operations in South Africa.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
ITEM 7A. QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
 
 
We seek to manage our exposure to currency exchange, translation, interest rate, customer concentration, credit, and equity price
and liquidity risks as discussed below.
 
Currency Exchange Risk
 
We
 
are
 
subject
 
to
 
currency
 
exchange
 
risk
 
because
 
we
 
purchase
 
inventories
 
that we
 
are required
 
to
 
settle in
 
other
 
currencies,
primarily
 
the
 
euro
 
and
 
U.S.
 
dollar.
 
We
 
have
 
used
 
forward
 
contracts
 
to
 
limit
 
our
 
exposure
 
in
 
these
 
transactions
 
to
 
fluctuations
 
in
exchange rates between the ZAR, on the one hand, and the U.S. dollar and
 
the euro, on the other hand.
 
 
The Company’s outstanding
 
foreign exchange contracts as of June 30, 2021 were as follows:
 
 
Table 20
Notional amount ('000)
Strike price
Fair market
Maturity
EUR
6
USD
1.1911
USD
1.1859
July 2, 2021
 
The Company had no outstanding foreign exchange contracts as of June
 
30, 2020.
 
Translation Risk
 
Translation risk relates to the risk that our
 
results of operations will vary significantly as
 
the U.S. dollar is our
 
reporting currency,
but
 
we
 
earn
 
most
 
of
 
our
 
revenues
 
and
 
incur
 
most
 
of
 
our
 
expenses
 
in
 
ZAR.
 
The
 
U.S.
 
dollar
 
to
 
ZAR
 
exchange
 
rate
 
has
 
fluctuated
significantly over the past three years. As
 
exchange rates are outside our control,
 
there can be no assurance
 
that future fluctuations will
not adversely affect our results of operations and financial
 
condition.
 
Interest Rate Risk
 
As a result of our normal
 
lending activities, our operating
 
results are exposed to fluctuations
 
in interest rates, which we
 
manage
primarily through our
 
regular financing activities.
 
We generally maintain limited
 
investments in
 
cash equivalents and
 
have occasionally
invested in marketable securities.
 
We have short
 
-term borrowings which attract interest at rates that fluctuate
 
based on changes in the South African prime interest
rate. The following table illustrates the effect on our
 
annual expected interest charge, translated at exchange rates
 
applicable as of June
30, 2021,
 
as a
 
result of
 
changes in
 
the South
 
African prime
 
interest rate,
 
assuming hypothetical
 
short-term borrowings
 
of ZAR
 
1.0
billion as
 
of June
 
30, 2021.
 
The effect
 
of a
 
hypothetical 1%
 
(i.e. 100
 
basis points)
 
increase and
 
a 1% decrease
 
in the
 
South African
prime interest rate as of June 30, 2021, are shown. The selected 1% hypothetical change does not reflect what could be considered the
best or worst case scenarios.
 
Table 21
As of June 30, 2021
Annual expected
interest charge
 
($ ’000)
Hypothetical
change in
interest rates
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
 
($ ’000)
Interest on South Africa overdraft (South African prime interest
rate)
4,895
1%
5,594
(1%)
4,195
 
Credit Risk
 
 
Credit risk
 
relates to the
 
risk of
 
loss that we
 
would incur
 
as a
 
result of non-performance
 
by counterparties.
 
We
 
maintain credit
risk
 
policies
 
with
 
regard
 
to
 
our
 
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
 
our
 
management
 
deems
appropriate.
 
With
 
respect to
 
credit risk
 
on financial
 
instruments, we
 
maintain 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.
 
 
 
 
 
53
Microlending Credit Risk
 
We are
 
exposed to credit risk in our microlending
 
activities, which provide unsecured short-term
 
loans to qualifying customers.
We manage this risk by performing an
 
affordability test for each prospective
 
customer and assigning a
 
“creditworthiness score”, which
takes into account a variety of factors such as other debts and total expenditures
 
on normal household and lifestyle expenses.
 
Equity Securities Price Risk
 
Equity price risk relates to the risk
 
of loss that we would incur as
 
a result of the volatility in the exchange
 
-traded price of equity
securities that
 
we hold
 
and the
 
risk that
 
we may
 
not be
 
able to
 
liquidate these
 
securities. As
 
of June
 
30, 2021,
 
we did
 
not have
 
any
equity
 
securities
 
that
 
were
 
exchange-traded
 
and
 
held
 
as
 
available
 
for
 
sale.
 
Historically,
 
exchange-traded
 
equity
 
securities
 
held
 
as
available for
 
sale were
 
expected to
 
be held
 
for an
 
extended period
 
of time
 
and we
 
were not
 
concerned with
 
short-term equity
 
price
volatility
 
with
 
respect
 
to
 
these
 
securities
 
provided
 
that
 
the
 
underlying
 
business,
 
economic
 
and
 
management
 
characteristics
 
of
 
the
company remain sound.
 
 
The market price of these exchange-traded equity securities may fluctuate for a variety of reasons and,
 
consequently, the amount
we may obtain in a subsequent sale of these securities may significantly
 
differ from the reported market value.
 
Equity Securities Liquidity Risk
 
 
Liquidity risk
 
relates to the
 
risk of
 
loss that we
 
would incur
 
as a result
 
of the lack
 
of liquidity
 
on the
 
exchange on
 
which these
securities are listed. We 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.
 
 
We monitor these investments for impairment and make appropriate reductions in carrying value when an impairment is deemed
to be other-than-temporary.
 
We
 
have invested
 
in approximately
 
31.5% of
 
the issued
 
share capital
 
of Finbond
 
which are
 
exchange-traded equity
 
securities,
however, from April 1, 2016, we have accounted for them using the equity method. The fair value of these securities of $29
 
.9 million
as of June 30, 2021, represented approximately 7.0% of our total assets, including
 
these securities.
 
54
ITEM
 
8.
 
FINANCIAL
 
STATEMENTS
 
AND
 
SUPPLEMENTARY
 
DATA
 
 
Our
 
audited
 
consolidated
 
financial
 
statements,
 
together
 
with the
 
report of
 
our
 
independent
 
registered
 
public
 
accounting
 
firm,
appear on pages F-1 through F-82 of this Annual Report on Form 10-K.
 
55
ITEM
 
9.
 
CHANGES
 
IN
 
AND
 
DISAGREEMENTS
 
WITH
 
ACCOUNTANTS
 
ON
 
ACCOUNTING
 
AND FINANCIAL DISCLOSURE
 
Not applicable.
 
 
 
ITEM 9A. CONTROLS
 
AND PROCEDURES
 
 
Evaluation of disclosure controls
 
and procedures
 
 
Under the supervision and with the participation of
 
our management, including our Group Chief Executive Officer and our
 
Chief
Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such
 
term is defined under Rule 13a-15(e)
under the Securities Exchange
 
Act of 1934, as
 
amended (the “Exchange Act”).
 
Based on this evaluation,
 
our Group Chief Executive
Officer and Chief Financial Officer concluded
 
that our disclosure controls and procedures were effective as of
 
June 30, 2021.
 
 
Internal Control over Financial Reporting
 
Internal control over financial reporting is a process designed by, or under the supervision of,
 
our Group Chief Executive Officer
and Chief Financial
 
Officer, or
 
persons performing similar
 
functions, and effected
 
by our board of
 
directors, management, and
 
other
personnel, to provide
 
reasonable assurance regarding
 
the reliability of
 
financial reporting and
 
the preparation of
 
financial statements
for external purposes in accordance with U.S. GAAP.
 
Internal control over financial reporting includes
 
those policies and procedures that
 
(1) pertain to the
 
maintenance of records that,
in reasonable detail, accurately and fairly
 
reflect the transactions and dispositions of
 
our assets; (2) provide reasonable assurance
 
that
transactions are recorded as
 
necessary to permit preparation
 
of financial statements in accordance
 
with U.S. GAAP,
 
and that receipts
and expenditures of the company are being made only in accordance with authorizations of our officers and directors; and (3) provide
reasonable assurance regarding
 
prevention or timely detection
 
of unauthorized acquisition, use
 
or disposition of our
 
assets that could
have a material effect on our audited consolidated financial statements.
 
Inherent Limitations in Internal Control
 
over Financial Reporting
 
Internal control over financial reporting cannot provide absolute assurance of achieving
 
financial reporting objectives because of
its inherent
 
limitations.
 
Internal
 
control
 
over
 
financial reporting
 
is a
 
process
 
that involves
 
human
 
diligence
 
and
 
compliance
 
and
 
is
subject
 
to
 
lapses
 
in
 
judgment and
 
breakdowns
 
resulting
 
from human
 
failures.
 
Internal
 
control over
 
financial
 
reporting
 
also
 
can be
circumvented by collusion or improper
 
management override. Because of such
 
limitations, there is a risk that
 
material misstatements
may not
 
be prevented
 
or detected
 
on a
 
timely basis
 
by internal
 
control over
 
financial reporting.
 
However,
 
these inherent
 
limitations
are known features of the financial reporting
 
process. Therefore, it is possible to design into the process
 
safeguards to reduce, though
not eliminate, this risk.
 
Management’s
 
Report on Internal Control Over Financial
 
Reporting
 
Management, including
 
our Group Chief
 
Executive Officer and
 
our Chief Financial
 
Officer, is
 
responsible for establishing
 
and
maintaining
 
adequate
 
internal
 
control
 
over
 
our
 
financial
 
reporting.
 
Management
 
conducted
 
an
 
evaluation
 
of
 
the
 
effectiveness
 
of
internal control over financial reporting based on criteria established in Internal Control – Integrated Framework
 
(2013) issued by the
Committee
 
of Sponsoring
 
Organizations
 
of the
 
Treadway
 
Commission
 
(COSO). Based
 
on this
 
evaluation, management
 
concluded
that our internal control over financial reporting was effective as of
 
June 30, 2021. Deloitte & Touche (South Africa), our independent
registered public accounting firm, has issued an audit report on our internal
 
control over financial reporting.
 
Changes in Internal Control over Financial
 
Reporting
 
There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended June 30, 2021,
that have materially affected, or are reasonably
 
likely to materially affect, our internal control over financial reporting.
 
Remediation and testing of material weakness
 
 
We identified a material weakness in fiscal 2019 whereby the control over the review of the accounting for non-routine complex
transactions was deemed ineffective and concluded
 
to represent a material weakness in the Company’s
 
internal control over financial
reporting. In fiscal 2020, we enhanced this control through the
 
re-design and establishment of a specific in-house accounting technical
review executed
 
by senior
 
members of
 
our finance
 
team with
 
the necessary
 
competency and
 
experience, supplemented
 
by external
expertise as deemed necessary in addition to our Chief Financial Offic
 
er.
 
 
We did
 
not have sufficient evidence
 
that the material weakness was fully
 
remediated as of June 30, 2021.
 
However, the review
control described above operated effectively
 
during fiscal 2021 and therefore, management has concluded
 
that the material weakness
has been remediated as of June 30, 2021.
 
 
 
56
REPORT OF INDEPENDENT REGISTERED
 
PUBLIC ACCOUNTING FIRM
 
To the shareholders
 
and the Board of Directors of Net 1 UEPS Technologies,
 
Inc.
 
Opinion on Internal Control over Financial Reporting
 
We
 
have
 
audited
 
the
 
internal
 
control
 
over
 
financial
 
reporting
 
of
 
Net
 
1
 
UEPS
 
Technologies,
 
Inc.
 
and
 
subsidiaries
 
(the
“Company”)
 
as of
 
June 30,
 
2021,
 
based
 
on criteria
 
established
 
in
Internal
 
Control
 
— Integrated
 
Framework (2013)
 
issued by
 
the
Committee
 
of
 
Sponsoring
 
Organizations
 
of
 
the
 
Treadway
 
Commission
 
(COSO).
 
In
 
our
 
opinion,
 
the
 
Company
 
maintained,
 
in
 
all
material
 
respects,
 
effective
 
internal
 
control
 
over
 
financial
 
reporting
 
as
 
of
 
June
 
30,
 
2021,
 
based
 
on
 
criteria
 
established
 
in
Internal
Control — Integrated Framework (2013)
 
issued by COSO.
 
We
 
have
 
also audited,
 
in accordance
 
with the
 
standards of
 
the Public
 
Company Accounting
 
Oversight Board
 
(United States)
(PCAOB), the
 
consolidated
 
financial statements
 
as of
 
and for
 
the year
 
ended June
 
30, 2021,
 
of the
 
Company and
 
our report
 
dated
September 13, 2021, expressed an unqualified opinion on those financial
 
statements.
 
Basis for Opinion
 
The
 
Company’s
 
management
 
is
 
responsible
 
for
 
maintaining
 
effective
 
internal
 
control
 
over
 
financial
 
reporting
 
and
 
for
 
its
assessment of
 
the effectiveness
 
of internal
 
control over
 
financial reporting,
 
included in
 
the accompanying
 
Management’s
 
Report on
Internal Control over Financial Reporting. Our responsibility
 
is to express an
 
opinion on the Company’s internal control over financial
reporting based
 
on our
 
audit. We
 
are a
 
public accounting
 
firm registered
 
with the
 
PCAOB and
 
are required
 
to be
 
independent with
respect to the
 
Company in accordance
 
with the U.S.
 
federal securities laws and
 
the applicable rules
 
and regulations of
 
the Securities
and Exchange Commission and the PCAOB.
 
We conducted
 
our audit in accordance with
 
the standards of the PCAOB. Those
 
standards require that we
 
plan and perform the
audit to
 
obtain reasonable
 
assurance about
 
whether effective
 
internal control
 
over financial
 
reporting was
 
maintained in
 
all material
respects. Our audit
 
included obtaining an understanding
 
of internal control over
 
financial reporting, assessing
 
the risk that a
 
material
weakness
 
exists,
 
testing
 
and
 
evaluating
 
the
 
design
 
and
 
operating
 
effectiveness
 
of
 
internal
 
control
 
based
 
on
 
the
 
assessed
 
risk,
 
and
performing such
 
other procedures as
 
we considered
 
necessary in
 
the circumstances.
 
We
 
believe that our
 
audit provides a
 
reasonable
basis for our opinion.
 
Definition and Limitations of Internal Control over
 
Financial Reporting
 
A
 
company’s
 
internal
 
control
 
over
 
financial
 
reporting
 
is
 
a
 
process
 
designed
 
to
 
provide
 
reasonable
 
assurance
 
regarding
 
the
reliability of financial reporting
 
and the preparation
 
of financial statements
 
for external purposes
 
in accordance with generally
 
accepted
accounting principles. A company’s
 
internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and
 
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted
 
accounting principles, and that
 
receipts and expenditures of the
 
company are being made only
 
in
accordance
 
with
 
authorizations
 
of
 
management
 
and
 
directors
 
of
 
the
 
company;
 
and
 
(3)
 
provide
 
reasonable
 
assurance
 
regarding
prevention or timely detection of
 
unauthorized acquisition, use, or disposition
 
of the company’s assets that could have
 
a material effect
on the financial statements.
 
Because
 
of
 
its
 
inherent
 
limitations,
 
internal
 
control
 
over
 
financial
 
reporting
 
may
 
not
 
prevent
 
or
 
detect
 
misstatements.
 
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies
 
or procedures may deteriorate.
 
/s/ Deloitte & Touche
 
Deloitte & Touche
Registered Auditors
 
Johannesburg, South Africa
 
September 13, 2021
 
57
ITEM 9B.
 
OTHER INFORMATION
 
 
None.
 
 
 
58
PART
 
III
 
ITEM
 
10.
 
DIRECTORS,
 
EXECUTIVE
 
OFFICERS
 
AND
 
CORPORATE
 
GOVERNANCE
 
 
Information
 
about
 
our
 
executive
 
officers
 
is
 
set
 
out
 
in
 
Part
 
I,
 
Item
 
1
 
under
 
the
 
caption
 
“Our
 
Executive
 
Officers.”
 
The
 
other
information required
 
by this
 
Item is incorporated
 
by reference
 
to the
 
sections of
 
our definitive
 
proxy statement
 
for our
 
2021 annual
meeting of shareholders entitled “Board of Directors and Corporate
 
Governance” and “Additional Information.”
 
ITEM
 
11.
 
EXECUTIVE
 
COMPENSATION
 
 
The information required by this Item is incorporated by reference to the sections of our definitive
 
proxy statement for our 2021
annual meeting of shareholders entitled
 
“Executive Compensation,” “Board of
 
Directors and Corporate Governance—Compensation
of Directors” and “—Remuneration Committee Interlocks and Insider Participation.”
 
ITEM
 
12.
 
SECURITY
 
OWNERSHIP
 
OF
 
CERTAIN
 
BENEFICIAL
 
OWNERS
 
AND
 
MANAGEMENT
 
AND RELATED STOCKHOLDER
 
MATTERS
 
 
The information required by this Item is incorporated by reference to the sections of our definitive
 
proxy statement for our 2021
annual
 
meeting
 
of
 
shareholders
 
entitled
 
“Security
 
Ownership
 
of
 
Certain
 
Beneficial
 
Owners
 
and
 
Management”
 
and
 
“Equity
 
Compensation Plan Information.”
 
ITEM
 
13.
 
CERTAIN
 
RELATIONSHIPS
 
AND
 
RELATED
 
TRANSACTIONS,
 
AND
 
DIRECTOR
 
INDEPENDENCE
 
The information required by this Item is incorporated by reference to the sections of our definitive
 
proxy statement for our 2021
annual
 
meeting
 
of
 
shareholders
 
entitled
 
“Certain
 
Relationships
 
and
 
Related
 
Transactions”
 
and
 
“Board
 
of
 
Directors
 
and
 
Corporate
Governance.”
 
ITEM
 
14.
 
PRINCIPAL
 
ACCOUNTANT
 
FEES
 
AND
 
SERVICES
 
 
The information required by this Item is incorporated by reference to the sections of our definitive
 
proxy statement for our 2021
annual meeting of shareholders entitled “Audit and Non-Audit Fees.”
 
 
 
 
 
 
 
 
59
PART
 
IV
 
ITEM
 
15.
 
EXHIBITS
 
AND
 
FINANCIAL
 
STATEMENT
 
SCHEDULES
 
 
 
a)
 
The
 
following
 
documents
 
are
 
filed
 
as
 
part
 
of
 
this
 
report
 
 
1. Financial Statements
 
 
The following financial statements are included on pages F-1 through F-82
 
.
 
Report of the Independent Registered Public Accounting Firm –
 
Deloitte & Touche (South Africa)
Consolidated statements of operations for the years ended June 30, 2021,
 
2020 (as restated) and 2019 (as
restated)
 
2. Financial Statement Schedules
 
 
Financial statement schedules have been
 
omitted since they are
 
either not required, not
 
applicable, or the information
 
is otherwise
included.
 
 
 
(b) Exhibits
 
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
3.1
 
8-K
 
3.1
December 1, 2008
3.2
8-K
3.2
May 14, 2020
4.1
S-1
4.1
June 20, 2005
4.2
X
10.1*
 
10-K
10.13
August 23, 2012
10.2*
 
10-K
10.14
August 23, 2012
10.3*
10-K
10.15
August 23, 2012
10.4*
10-K
10.32
August 25, 2016
10.5*
10-K
10.5
August 24, 2017
10.6*
 
14A
A
October 2, 2015
10.7*
8-K
10.80
March 1, 2018
10.8*
8-K
10.81
March 1, 2018
10.9*
8-K
10.82
March 1, 2018
10.10*
8-K
10.83
March 1, 2018
 
 
 
60
10.11*
8-K
10.1
February 11, 2021
10.12*
8-K
10.2
February 11, 2021
10.13*
8-K
10.1
June 30,
 
2021
10.14*
8-K
10.2
June 30,
 
2021
10.15*
8-K
10.3
June 30,
 
2021
10.16*
8-K
10.4
June 30,
 
2021
10.17*
8-K
10.2
August 5, 2020
10.18*
8-K
10.1
August 5, 2020
10.19
10-Q
10.25
May 9, 2013
10.20
10-Q
10-60
May 4, 2017
10.21
10-Q
10.79
February 8, 2018
10.22
8-K
10.25
December 10, 2013
10.23
8-K
10.27
December 19, 2013
10.24
certain of its subsidiaries, dated December 7, 2016
8-K
10.50
December 9, 2016
10.25
10-Q
10.28
February 6, 2014
 
 
 
61
10.26
8-K
10.30
March 18, 2014
10.27
10-Q
10.29
November 6, 2014
10.28
8-K
10.31
April 12, 2016
10.29
8-K
10.32
April 12, 2016
10.30
8-K
10.1
May 14, 2020
10.31
8-K
10.1
December 10, 2020
10.32
8-K
10.69
June 26, 2017
10.33
8-K
10.96
October 2, 2018
10.34
8-K
10.102
September 13, 2019
 
 
 
 
62
10.35
8-K
10.103
September 13, 2019
10.36
8-K
10.104
September 13, 2019
10.37
8-K
10.1
February 9, 2021
10.38
8-K
10.2
February 9, 2021
10.39
8-K
10.3
February 9, 2021
14
X
21
X
23
X
31.1
X
31.2
X
32
X
101.INS
XBRL Instance Document
 
X
101.SCH
XBRL Taxonomy
 
Extension Schema
 
X
101.CAL
XBRL Taxonomy
 
Extension Calculation Linkbase
 
X
101.DEF
XBRL Taxonomy
 
Extension Definition Linkbase
 
X
101.LAB
XBRL Taxonomy
 
Extension Label Linkbase
 
X
101.PRE
XBRL Taxonomy
 
Extension Presentation Linkbase
 
X
104
Cover Page Interactive Data File (formatted as inline
XBRL and continued in Exhibit 101)
X
 
* Indicates a management contract or compensatory plan or arrangement.
 
ITEM
 
1
6
.
 
FORM
 
10
-
K
 
SUMMARY
 
 
None.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
63
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
 
Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
 
authorized.
NET 1 UEPS TECHNOLOGIES, INC.
 
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer and Director
 
 
Date: September 13, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
 
this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
 
the dates indicated.
 
NAME
TITLE
DATE
 
 
 
/s/ Kuben Pillay
Chairman of the Board and Director
September 13, 2021
Kuben Pillay
 
 
 
 
/s/ Chris G.B. Meyer
Group Chief Executive Officer and Director (Principal
Executive Officer)
September 13, 2021
Chris G.B. Meyer
 
 
 
 
/s/ Alex M.R. Smith
Chief Financial Officer, Treasurer,
 
Secretary and
Director (Principal Financial and Accounting Officer)
September 13, 2021
Alex M.R. Smith
 
 
 
 
/s/ Antony C. Ball
Director
September 13, 2021
Antony C. Ball
/s/ Nonkululeko N. Gobodo
Director
September 13, 2021
Nonkululeko N. Gobodo
/s/ Ian O. Greenstreet
Director
September 13, 2021
Ian O. Greenstreet
/s/ Javed Hamid
Director
September 13, 2021
Javed Hamid
/s/ Lincoln C. Mali
Director
September 13, 2021
Lincoln C. Mali
/s/ Ali Mazanderani
Director
September 13, 2021
Ali Mazanderani
/s/ Monde Nkosi
Director
September 13, 2021
Monde Nkosi
/s/ Ekta Singh-Bushell
Director
September 13, 2021
Ekta Singh-Bushell
 
 
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the shareholders
 
and the Board of Directors of Net 1 UEPS Technologies,
 
Inc.
 
 
Opinion on the Financial Statements
 
 
We
 
have
 
audited
 
the
 
accompanying
 
consolidated
 
balance
 
sheets
 
of
 
Net
 
1
 
UEPS
 
Technologies,
 
Inc.
 
and
 
subsidiaries
 
(the
"Company") as of
 
June 30, 2021 and
 
2020, the related
 
consolidated statements of
 
operations, comprehensive (loss)
 
income, changes
in equity,
 
and cash flows, for each of the
 
three years in the period ended
 
June 30, 2021, and the related notes
 
(collectively referred to
as the "financial statements").
 
In our opinion, the
 
financial statements present
 
fairly, in
 
all material respects, the
 
financial position of
the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three
 
years in the period
ended June 30, 2021, in conformity with accounting principles generally
 
accepted in the United States of America.
 
 
We
 
have
 
also audited,
 
in accordance
 
with the
 
standards of
 
the Public
 
Company Accounting
 
Oversight Board
 
(United States)
(PCAOB), the Company's internal
 
control over financial reporting
 
as of June
 
30, 2021, based
 
on criteria established in
Internal Control
— Integrated Framework (2013)
 
issued by the Committee of
 
Sponsoring Organizations of the
 
Treadway Commission and
 
our report
dated September 13, 2021, expressed an unqualified opinion
 
on the Company's internal control over financial reporting.
 
 
Basis for Opinion
 
 
These financial statements
 
are the responsibility
 
of the Company's
 
management. Our
 
responsibility is to express
 
an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to
 
be
 
independent
 
with
 
respect
 
to
 
the
 
Company
 
in
 
accordance
 
with
 
the
 
U.S.
 
federal
 
securities
 
laws
 
and
 
the
 
applicable
 
rules
 
and
regulations of the Securities and Exchange Commission and the PCAOB.
 
 
We conducted our audits in accordance
 
with the standards of the PCAOB. Those standards require
 
that we plan and perform the
audit to obtain reasonable assurance about whether
 
the financial statements are free of material misstatement, whether
 
due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing
 
procedures that respond to those risks. Such
 
procedures included examining, on a test
 
basis, evidence
regarding the amounts and
 
disclosures in the financial statements.
 
Our audits also included evaluating
 
the accounting principles used
and significant estimates made by
 
management, as well as evaluating
 
the overall presentation of the financial
 
statements. We
 
believe
that our audits provide a reasonable basis for our opinion.
 
 
Critical Audit Matter
 
 
The critical
 
audit matter
 
communicated below
 
is a matter
 
arising from
 
the current-period
 
audit of
 
the financial
 
statements that
was communicated
 
or required
 
to be
 
communicated
 
to
 
the audit
 
committee
 
and
 
that (1)
 
relates
 
to
 
accounts
 
or disclosures
 
that
 
are
material to the
 
financial statements and
 
(2) involved our
 
especially challenging, subjective, or
 
complex judgments. The
 
communication
of
 
critical
 
audit
 
matters
 
does
 
not
 
alter
 
in
 
any
 
way
 
our
 
opinion
 
on
 
the
 
financial
 
statements,
 
taken
 
as
 
a
 
whole,
 
and
 
we
 
are
 
not,
 
by
communicating the critical
 
audit matter
 
below, providing a separate
 
opinion on the
 
critical audit
 
matter or
 
on the
 
accounts or
 
disclosures
to which it relates.
 
 
Other long-term assets – Investment in MobiKwik – Refer to note 8 of the consolidate
 
d
 
financial statements
 
 
Critical Audit Matter Description
 
 
The investment
 
in MobiKwik
 
is measured
 
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.
 
 
The investment in
 
MobiKwik was remeasured
 
during the current financial
 
year due to three
 
separate transactions that
 
occurred
during the
 
fiscal year which
 
were each
 
individually considered
 
to represent an
 
observable price change
 
in an orderly
 
transaction for
similar
 
or
 
identical
 
equity
 
securities
 
issued
 
by
 
MobiKwik.
 
The
 
change
 
in
 
fair value
 
of
 
equity
 
securities
 
resulted
 
in
 
an
 
increase
 
of
approximately
 
$49
 
million
 
during
 
the
 
fiscal
 
year
 
across
 
the
 
three
 
transactions.
 
There
 
is
 
subjectivity
 
in
 
determining
 
whether
 
each
transaction constitutes an observable price or not.
 
 
We identified
 
the Company's valuation of the investment in MobiKwik as a critical audit matter because of the judgments made
by management to evaluate whether
 
each transaction represents an observable
 
price change in an orderly transaction
 
for the identical
investment in
 
MobiKwik. A
 
high degree
 
of auditor
 
judgment and
 
an increased
 
extent of
 
audit effort
 
was required
 
when performing
audit procedures to evaluate the appropriateness of management's conclusions.
 
 
 
 
 
F-3
How the Critical Audit Matter Was
 
Addressed in the Audit
 
 
Our principal
 
audit procedures
 
related to
 
the evaluation
 
of whether
 
each transaction
 
constitutes an
 
observable price
 
change or
not
 
that resulted in a change in fair value of the investment in MobiKwik and
 
included the following, among others:
 
 
●
 
We
 
evaluated management’s
 
application
 
of the
 
accounting criteria
 
relating to
 
whether the
 
observable
 
price changes
 
result
from an orderly
 
transaction between market
 
participants in which the
 
fair value of the
 
consideration received is
 
readily determinable
or observable and included public searches for corroborating or contradictory
 
information.
 
●
 
We obtained and read the contractual
 
agreements between MobiKwik and
 
the respective buyers and
 
other relevant documents
for each transaction.
 
●
 
We
 
evaluated
 
management’s
 
conclusion
 
that
 
none
 
of
 
the
 
transactions
 
occurred
 
in
 
circumstances
 
that
 
may
 
indicate
 
that
 
a
transaction is not orderly or with related parties.
 
●
 
We tested the effectiveness
 
of controls over the review of the accounting for non-routine complex
 
transactions.
 
 
/s/ Deloitte & Touche
 
 
Deloitte & Touche
 
Registered Auditors
 
Johannesburg, South Africa
 
 
September 13, 2021
 
 
We have served
 
as the Company's auditor since 2004.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
as of June 30, 2021 and 2020
 
F-4
June 30,
June 30,
2021
2020
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
198,572
$
217,671
Restricted cash related to ATM funding
 
(Note 11)
25,193
14,814
Accounts receivable, net and other receivables (Note 3)
26,583
43,068
Finance loans receivable, net (Note 3)
21,142
15,879
Inventory (Note 4)
22,361
19,860
Total current assets before settlement assets
293,851
311,292
Settlement assets
466
8,014
Total current assets
294,317
319,306
PROPERTY,
 
PLANT AND EQUIPMENT, NET (Note 6)
7,492
6,656
OPERATING LEASE RIGHT-OF-USE
 
(Note 7)
4,519
5,395
EQUITY-ACCOUNTED INVESTMENTS
 
(Note 8)
10,004
65,836
GOODWILL (Note 9)
29,153
24,169
INTANGIBLE ASSETS, NET (Note 9)
357
612
DEFERRED INCOME TAXES
622
358
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 8 and 10)
81,866
31,346
TOTAL ASSETS
428,330
453,678
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 11)
14,245
14,814
Short-term credit facilities (Note 11)
-
-
Accounts payable
7,113
6,287
Other payables (Note 12)
27,588
23,779
Operating lease liability - current (Note 7)
2,822
2,251
Income taxes payable
256
16,157
Total current liabilities before settlement obligations
52,024
63,288
Settlement obligations
466
8,015
Total current liabilities
52,490
71,303
DEFERRED INCOME TAXES
10,415
1,859
OPERATING LEASE LIABILITY - LONG TERM (Note 7)
1,890
3,312
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 10)
2,576
2,012
TOTAL LIABILITIES
67,371
78,486
REDEEMABLE COMMON STOCK (Note 13)
84,979
84,979
EQUITY
COMMON STOCK (Note 13)
Authorized:
200,000,000
 
with $
0.001
 
par value;
Issued and outstanding shares, net of treasury - 2021:
56,716,620
; 2020:
57,118,925
80
80
PREFERRED STOCK
Authorized shares:
50,000,000
 
with $
0.001
 
par value;
Issued and outstanding shares, net of treasury:
 
2021:
-
 
; 2020:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
301,959
301,489
TREASURY SHARES, AT
 
COST: 2021:
24,891,292
; 2020:
24,891,292
(286,951)
(286,951)
ACCUMULATED OTHER
 
COMPREHENSIVE LOSS (Note 14)
(145,721)
(169,075)
RETAINED EARNINGS
406,613
444,670
TOTAL NET1 EQUITY
275,980
290,213
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
275,980
290,213
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
428,330
$
453,678
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
 
OF OPERATIONS
for the years ended June 30, 2021, 2020 and 2019
F-5
2021
2020
2019
(as
restated)
(A)
(as
restated)
(A)
(In thousands, except per share data)
REVENUE (Note 15)
$
130,786
$
144,299
$
160,635
Services rendered
95,398
110,627
137,339
Loan-based fees received
20,511
19,955
27,525
Sale of goods
14,877
13,717
15,480
Variation
 
of price related to SASSA Revenue
-
-
(19,709)
EXPENSE
Cost of goods sold, IT processing, servicing and support
96,248
102,308
124,104
Selling, general and administration
84,063
75,256
144,920
Depreciation and amortization
4,347
4,647
12,103
Impairment loss (Note 9)
-
6,336
14,440
OPERATING LOSS
(53,872)
(44,248)
(134,932)
CHANGE IN FAIR VALUE
 
OF EQUITY SECURITIES (Note 5 and 8)
49,304
-
(167,459)
LOSS ON DISPOSAL OF BANK FRICK (Note 8)
472
-
-
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 8)
13
-
-
GAIN ON DISPOSAL OF FIHRST (Note 23)
-
9,743
-
(LOSS) GAIN ON DISPOSAL OF DNI (Note 8)
-
(1,010)
177
LOSS ON DECONSOLIDATION
 
OF CPS (Note 23)
-
7,148
-
TERMINATION
 
FEE PAID TO CANCEL BANK FRICK OPTION (Note 8)
-
17,517
-
INTEREST INCOME
2,416
2,805
5,424
INTEREST EXPENSE
2,982
7,641
9,860
IMPAIRMENT OF CEDAR CELLULAR NOTE (Note 8)
-
-
12,793
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)
(5,619)
(65,016)
(319,443)
INCOME TAX EXPENSE (BENEFIT) (Note 17)
7,560
2,656
(5,072)
LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS
(13,179)
(67,672)
(314,371)
(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 8)
(24,878)
(29,542)
1,258
NET LOSS FROM CONTINUING OPERATIONS
(38,057)
(97,214)
(313,113)
NET INCOME FROM DISCONTINUED OPERATIONS (Note 23)
-
6,402
13,630
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATION, net of tax (Note 23)
-
12,454
(9,175)
NET LOSS
(38,057)
(78,358)
(308,658)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
 
TO NON-CONTROLLING
INTEREST
-
-
2,349
Continuing
-
-
(1,352)
Discontinued
-
-
3,701
NET (LOSS) INCOME ATTRIBUTABLE
 
TO NET1
(38,057)
(78,358)
(311,007)
Continuing
(38,057)
(97,214)
(311,761)
Discontinued
$
-
$
18,856
$
754
Net (loss) earnings per share, in United States dollars
(Note 18):
Basic (loss) earnings attributable to Net1 shareholders
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
Diluted (loss) earnings attributable to Net1 shareholders
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
(A) - Certain amounts have been restated to correct the misstatement discussed in Note 1.
See Notes to audited Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
 
OF COMPREHENSIVE (LOSS) INCOME
for the years ended June 30, 2021, 2020 and 2019
F-6
2021
2020
2019
(In thousands)
Net loss
$
(38,057)
$
(78,358)
$
(308,658)
Other comprehensive income (loss), net of taxes:
Movement in foreign currency translation reserve
27,178
(35,070)
(26,148)
Movement in foreign currency translation reserve related to equity
 
-accounted
investments (Note 14)
(1,967)
2,227
4,251
Release of foreign currency translation reserve related to disposal of
 
Bank Frick
(Note 8
 
and Note 14)
(2,462)
-
-
Release of foreign currency translation reserve related to liquidation of subsidiaries
(Note 14)
605
-
-
Release of foreign currency translation reserve related to deconsolidation
 
of CPS
(Note 23 and Note 14)
-
32,451
-
Release of foreign currency translation reserve related to disposal of Net1
 
Korea
(Note 23 and Note 14)
-
14,228
-
Release of foreign currency translation reserve related to disposal of
 
DNI (Note 23,
Note 8 and Note 14)
-
11,323
5,679
Release of foreign currency translation reserve related to disposal of FIHRST
 
(Note
23 and Note 14)
-
1,578
-
Total other comprehensive
 
income (loss), net of taxes
23,354
26,737
(16,218)
Comprehensive loss
(14,703)
(51,621)
(324,876)
Add comprehensive income attributable to non-
controlling interest
-
-
2,407
Comprehensive loss attributable to Net1
$
(14,703)
$
(51,621)
$
(322,469)
See accompanying notes to consolidated financial statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30,
 
2019 (dollar amounts in thousands)
F-7
Net 1 UEPS 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 Net1
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
Balance – July
1, 2018
81,577,217
$
80
(24,891,292)
$
(286,951)
56,685,925
$
276,201
$
834,035
$
(184,350)
$
639,015
$
95,911
$
734,926
$
107,672
Restricted stock granted
148,000
148,000
-
-
Stock-based compensation charge (Note
16)
2,319
2,319
2,319
Reversal of stock-based compensation
charge (Note 16)
(265,500)
(265,500)
(1,926)
(1,926)
(1,926)
Stock-based compensation charge related
to equity-accounted investment
117
117
117
Acquisition of non-controlling interest
286
286
466
752
Dividends paid to non-controlling
interest
-
(4,104)
(4,104)
Deconsolidation of DNI (Note 23)
-
(89,866)
(89,866)
Net (loss) income
(311,007)
(311,007)
2,349
(308,658)
Other comprehensive loss (Note 14)
(11,462)
(11,462)
(4,756)
(16,218)
Balance – June 30, 2019
81,459,717
$
80
(24,891,292)
$
(286,951)
56,568,425
$
276,997
$
523,028
$
(195,812)
$
317,342
$
-
$
317,342
$
107,672
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2020 (dollar amounts in thousands)
F-8
Net 1 UEPS 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 Net1
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
Balance – July
1, 2019
81,459,717
$
80
(24,891,292)
$
(286,951)
56,568,425
$
276,997
$
523,028
$
(195,812)
$
317,342
$
-
$
317,342
$
107,672
Restricted stock granted
568,000
568,000
-
-
Stock-based compensation charge (Note
16)
1,873
1,873
1,873
Reversal of stock-based compensation
charge (Note 16)
(17,500)
(17,500)
(145)
(145)
(145)
Stock-based compensation charge
related to equity-accounted investment
(Note 8)
71
71
71
Transfer from redeemable common
stock to additional paid-in-capital (Note
13)
22,693
22,693
22,693
(22,693)
Net loss
(78,358)
(78,358)
-
(78,358)
Other comprehensive income (Note 14)
26,737
26,737
-
26,737
Balance – June 30, 2020
82,010,217
$
80
(24,891,292)
$
(286,951)
57,118,925
$
301,489
$
444,670
$
(169,075)
$
290,213
$
-
$
290,213
$
84,979
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2021 (dollar amounts in thousands)
F-9
Net 1 UEPS 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 Net1
Equity
Non-
controlling
Interest
Total
Redeemable
common
stock
For the years ended June 30, 2021 (dollar amounts
 
in thousands)
Balance – July 1,
 
2020
82,010,217
$
80
(24,891,292)
$
(286,951)
57,118,925
$
301,489
$
444,670
$
(169,075)
$
290,213
$
-
$
290,213
$
84,979
Restricted stock granted
254,560
254,560
-
-
-
Exercise of stock options
17,335
17,335
53
53
53
Stock-based compensation charge (Note
16)
1,430
1,430
1,430
Reversal of stock-based compensation
charge (Note 16)
(674,200)
(674,200)
(1,086)
(1,086)
(1,086)
Stock-based compensation charge
related to equity-accounted investment
(Note 8)
(25)
(25)
(25)
Proceeds from disgorgement of
shareholders' short-swing profits (Note
22)
98
98
98
-
Net loss
(38,057)
(38,057)
-
(38,057)
Other comprehensive income (Note 14)
23,354
23,354
-
23,354
Balance – June 30, 2021
81,607,912
$
80
(24,891,292)
$
(286,951)
56,716,620
$
301,959
$
406,613
$
(145,721)
$
275,980
$
-
$
275,980
$
84,979
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
 
OF CASHFLOWS
for the years ended June 30, 2021, 2020 and 2019
F-10
2021
2020
2019
(In thousands)
Cash flows from operating activities
Net loss
$
(38,057)
$
(78,358)
$
(308,658)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
4,347
13,299
37,349
Impairment loss (Note 23 and Note 9)
-
6,336
19,745
Movement in allowance for doubtful accounts receivable
110
743
32,786
Fair value adjustment related to financial liabilities
840
(340)
73
Loss (Profit) on disposal of property, plant and equipment
480
(127)
(486)
Stock-based compensation charge (Note 16)
344
1,728
393
Inventory net realizable value adjustment (Note 4)
-
1,298
-
Change in fair value of equity securities (Note 5 and 8)
(49,304)
-
167,459
Loss on disposal of Bank Frick (Note 23)
472
-
-
Loss on disposal of equity-accounted investment (Note 23)
13
-
-
(Gain) Loss on disposal of discontinued operation (Note 23)
-
(12,454)
9,175
Gain on disposal of FIHRST (Note 23)
-
(9,743)
-
Loss on deconsolidation of CPS (Note 23)
-
7,148
-
Loss (Gain) on disposal of DNI (Note 23)
-
1,010
(177)
Interest payable
(1)
1,758
237
Facility fee amortized
-
-
321
Interest on Cedar Cellular note (Note 8)
-
-
(2,397)
Impairment of Cedar Cellular note (Note 8)
-
-
12,793
Loss (Earnings) from equity-accounted investments (Note 8)
24,878
29,542
(1,273)
Movement in allowance for doubtful loans to equity-accounted investments
4,739
1,035
-
Dividends received from equity-accounted investments
194
3,549
1,318
Implementation costs to be refunded to SASSA (Note 12)
-
-
34,039
Decrease in accounts receivable, pre-funded social welfare grants receivable and finance
loans receivable
3,751
8,818
11,663
Decrease (Increase) in inventory
1,279
(19,328)
4,042
Decrease in accounts payable and other payables
(335)
(139)
(14,538)
(Decrease) Increase in taxes payable
(17,210)
(1,427)
3,428
Increase (Decrease) in deferred taxes
5,089
(393)
(11,752)
Net cash used in operating activities
(58,371)
(46,045)
(4,460)
Cash flows from investing activities
Capital expenditures
(4,285)
(5,938)
(9,416)
Proceeds from disposal of property, plant and equipment
571
578
1,045
Proceeds from disposal of Net1 Korea, net of cash disposed (Note 23)
20,114
192,619
-
Transaction costs paid related to disposal of Net1 Korea (Note 23)
-
(7,458)
-
Proceeds from disposal of equity-accounted investment - Bank Frick (Note 8)
18,568
-
-
Proceeds from disposal of DNI as equity-accounted investment (Note 8 and Note 19)
6,010
42,477
-
Transaction costs paid related to disposal of DNI as equity-accounted investment (Note 8)
-
(1,010)
-
Loans to equity-accounted investment (Note 8)
(1,238)
(1,230)
-
Repayment of loans by equity-accounted investments
134
4,268
1,029
Proceeds from disposal of subsidiaries, net of cash disposed (Note 23 and Note 19)
-
10,895
(2,114)
Deconsolidation of CPS - cash disposed (Note 23)
-
(328)
-
Investment in equity-accounted investments (Note 8)
-
(2,500)
(2,989)
Acquisition of intangible assets
-
-
(1,384)
Investment in MobiKwik
-
-
(1,056)
Return on investment
-
-
284
Net change in settlement assets
7,901
(9,256)
79,077
Net cash provided by investing activities
47,775
223,117
64,476
Cash flows from financing activities
Proceeds from bank overdraft (Note 11)
360,083
689,763
822,754
Repayment of bank overdraft (Note 11)
(365,440)
(747,935)
(740,969)
Proceeds from disgorgement of shareholders' short-swing profits (Note 22)
124
-
-
Proceeds from exercise of stock options
53
-
-
Long-term borrowings utilized (Note 11)
-
14,798
14,613
Repayment of long-term borrowings (Note 11)
-
(14,503)
(37,357)
Guarantee fee
-
(148)
(394)
Finance lease capital repayments
-
(69)
-
Acquisition of non-controlling interests
-
-
(180)
Dividends paid to non-controlling interest
-
-
(4,104)
Net change in settlement obligations
(7,901)
9,256
(79,077)
Net cash used in financing activities
(13,081)
(48,838)
(24,714)
Effect of exchange rate changes on cash
14,957
(17,260)
(3,845)
Net (decrease) increase in cash, cash equivalents and restricted cash
(8,720)
110,974
31,457
Cash, cash equivalents and restricted cash – beginning of period
232,485
121,511
90,054
Cash, cash equivalents and restricted cash – end of period (Note 19)
$
223,765
$
232,485
$
121,511
See accompanying notes to consolidated financial statements
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-11
1.
 
 
DESCRIPTION
 
OF
 
BUSINESS
 
AND
 
BASIS
 
OF
 
PRESENTATION
 
 
Description of Business
 
Net 1 UEPS Technologies, Inc. (“Net1” and
 
collectively with its consolidated subsidiaries, the “Company”) was incorporated in
the
 
State
 
of
 
Florida
 
on
 
May 8,
 
1997.
 
The
 
Company
 
is a
 
provider
 
of financial
 
technology,
 
or fintech,
 
products
 
and
 
services to
 
the
unbanked and
 
underbanked primarily
 
in South
 
Africa and
 
neighboring
 
countries. Its
 
universal electronic
 
payment system
 
(“UEPS”)
uses biometrically
 
secure smart
 
cards that
 
operate in
 
real-time but
 
offline, which
 
allows users
 
to enter
 
into transactions
 
at any
 
time
with
 
other
 
card
 
holders
 
in
 
even
 
the
 
most
 
remote
 
areas.
 
The
 
Company
 
also
 
develops
 
and
 
provides
 
secure
 
transaction
 
technology
solutions and services,
 
and offers transaction
 
processing and financial
 
solutions. The Company’s
 
technology is widely used
 
in South
Africa today,
 
where it provides financial services (banking, lending and insurance
 
products), processes debit and credit card payment
transactions on behalf
 
of retailers through
 
its EasyPay system
 
and processes value-added
 
services such as
 
bill payments and
 
prepaid
electricity for the major bill issuers and local councils in South Africa.
 
Basis of presentation
 
The
 
accompanying
 
consolidated
 
financial
 
statements
 
include
 
subsidiaries
 
over
 
which
 
Net1
 
exercises
 
control
 
and
 
have
 
been
prepared in accordance with accounting principles generally accepted
 
in the United States of America (“GAAP”).
 
 
Impact of COVID-19 on the Company’s
 
business
 
 
The Company’s business has been, and continues to be, impacted by government restrictions and quarantines
 
related to COVID-
19. South Africa operates with a five-level COVID-19 alert system, with
 
Level 1 being the least restrictive and Level 5
 
being the most
restrictive. South Africa is
 
currently at adjusted Level
 
3, which has a limited impact
 
on the Company’s
 
businesses. The South Africa
government commenced
 
its vaccination program
 
in early calendar
 
2021, with a
 
stated goal of
 
vaccinating 67% of
 
the South African
population by the end of the calendar year.
 
 
The broader
 
implications of
 
COVID-19 on
 
the Company’s
 
results of
 
operations and
 
overall financial
 
performance continue
 
to
remain uncertain.
 
While the Company
 
has not incurred
 
significant disruptions thus
 
far from the
 
COVID-19 outbreak,
 
apart from the
two months in April
 
and May 2020 when loan
 
origination was curtailed, the
 
Company is unable to accurately
 
predict the impact that
COVID-19 will have due to numerous uncertainties, including the severity and duration of the outbreak, actions that may be taken by
governmental authorities, the impact on
 
the Company’s customers and other
 
factors. The Company will
 
continue to evaluate the
 
nature
and extent of the impact on its business, consolidated results of operations,
 
and financial condition.
 
 
Restatement of financial statements
 
 
Related to overstatement of revenue and cost of goods
 
sold, IT processing, servicing and support
 
 
In November 2020, the Company
 
identified an error with respect to the
 
recognition of certain revenue and related
 
cost of goods
sold, IT processing, servicing and support during its assessment and systems development of new products. The Company incorrectly
duplicated the recognition of acquiring fees in revenue and recorded
 
an equal and opposite entry in cost of goods sold, IT processing,
servicing and support
 
in its consolidated statement
 
of operations due
 
to the misinterpretation
 
of certain system reports.
 
The error did
not impact on the
 
Company’s operating
 
loss, net loss, balance
 
sheet or cash flows.
 
The Company determined
 
that the error impacted
reported results
 
for the
 
period from
 
July 1,
 
2018 to
 
September 30,
 
2020. The
 
error impacts
 
the Company’s
 
reported results
 
and the
Company has
 
restated its consolidated
 
statement of
 
operations and certain
 
note presentation, primarily
 
Note 15 (Revenue)
 
and Note
20 (Operating segments) for the years ended June 30, 2020 and 2019,
 
to correct for the error.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-12
1.
 
 
DESCRIPTION
 
OF
 
BUSINESS
 
AND
 
BASIS
 
OF
 
PRESENTATION
 
(continued)
 
 
Restatement of financial statements (continued)
 
 
Related to overstatement of revenue and cost of goods
 
sold, IT processing, servicing and support (continued)
 
 
The
 
tables below
 
present
 
the impact
 
of the
 
restatement
 
on the
 
Company’s
 
consolidated
 
statement
 
of
 
operations
 
for
 
the years
ended June 30, 2020 and 2019
:
 
 
Consolidated statement of operations
Year
 
ended June 30, 2020
As reported
Correction
As restated
(in thousands)
Revenue
$
150,997
$
(6,698)
$
144,299
Cost of goods sold, IT processing, servicing and support
$
109,006
$
(6,698)
$
102,308
Year
 
ended June 30, 2019
As reported
Correction
As restated
(in thousands)
Revenue
$
166,227
$
(5,592)
$
160,635
Cost of goods sold, IT processing, servicing and support
$
129,696
$
(5,592)
$
124,104
 
Related to overstatement of revenue and cost
 
of goods sold, IT processing, servicing and support
 
(continued)
 
The table below presents
 
the impact of the restatement on the affected lines in the Processing
 
and Total columns
 
included in the
revenue note (Note 15) for the years ended June 30, 2020 and 2019:
 
Years
 
ended
June 30, 2020
June 30, 2019
Processing
Total
Processing
Total
Processing fees - as restated
$
55,992
$
60,895
$
82,995
$
83,090
As reported
62,690
67,593
88,587
88,682
Correction
(6,698)
(6,698)
(5,592)
(5,592)
South Africa - as restated
50,951
55,854
73,153
73,248
As reported
57,649
62,552
78,745
78,840
Correction
(6,698)
(6,698)
(5,592)
(5,592)
Rest of world
$
5,041
$
5,041
$
9,842
$
9,842
Total revenue,
 
derived from the following geographic locations - as
restated
$
83,628
$
144,299
$
107,422
$
160,635
As reported
90,326
150,997
113,014
166,227
Correction
(6,698)
(6,698)
(5,592)
(5,592)
South Africa - as restated
78,587
139,258
97,580
150,793
As reported
85,285
145,956
103,172
156,385
Correction
(6,698)
(6,698)
(5,592)
(5,592)
Rest of world
$
5,041
$
5,041
$
9,842
$
9,842
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-13
1.
 
 
DESCRIPTION
 
OF
 
BUSINESS
 
AND
 
BASIS
 
OF
 
PRESENTATION
 
(continued)
 
 
Restatement of financial statements (continued)
 
Related to overstatement of revenue and cost of goods
 
sold, IT processing, servicing and support (continued)
 
The table
 
below presents
 
the impact
 
of the restatement
 
on the Processing
 
operating segment
 
revenue included
 
in the operating
segment note (Note 20) for the years ended June 30, 2020 and 2019:
 
Revenue (as restated)
Reportable
Segment
Corporate/
Eliminations
Inter-
segment
From
external
customers
Processing - as restated
$
91,786
$
-
$
8,158
$
83,628
As reported
98,484
-
8,158
90,326
Correction
(6,698)
-
-
(6,698)
Total for the year
 
ended June 30, 2020 - as restated
156,727
-
12,428
144,299
As reported
163,425
-
12,428
150,997
Correction
(6,698)
-
-
(6,698)
Processing - as restated
$
118,088
$
-
$
10,666
$
107,422
As reported
123,680
-
10,666
113,014
Correction
(5,592)
-
-
(5,592)
Total for the year
 
ended June 30, 2019 - as restated
195,237
(19,709)
14,893
160,635
As reported
200,829
(19,709)
14,893
166,227
Correction
$
(5,592)
$
-
$
-
$
(5,592)
 
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
 
Principles of consolidation
 
The financial
 
statements of
 
entities which
 
are controlled
 
by Net1,
 
referred to
 
as subsidiaries,
 
are consolidated.
 
Inter-company
accounts and transactions are eliminated upon consolidation.
 
 
The Company, if it is the primary beneficiary,
 
consolidates entities which are considered to be variable interest entities (“VIE”).
The primary beneficiary is considered
 
to be the entity that will absorb
 
a majority of the entity's expected losses,
 
receive a majority of
the entity's expected residual returns, or both. No entities were required to be consolidated as a result of these requirements during the
years ended June 30, 2021, 2020 and 2019.
 
 
Business combinations
 
 
The
 
Company
 
accounts
 
for
 
its
 
business
 
acquisitions
 
under
 
the
 
acquisition
 
method
 
of
 
accounting.
 
The
 
total
 
value
 
of
 
the
consideration paid
 
for acquisitions is
 
allocated to
 
the underlying
 
net assets acquired,
 
based on their
 
respective estimated fair
 
values.
The Company uses a number
 
of valuation methods to
 
determine the fair value of
 
assets and liabilities acquired,
 
including discounted
cash
 
flows,
 
external
 
market
 
values,
 
valuations
 
on
 
recent
 
transactions
 
or
 
a
 
combination
 
thereof,
 
and
 
believes
 
that
 
it
 
uses
 
the
 
most
appropriate
 
measure
 
or
 
a
 
combination
 
of
 
measures
 
to
 
value
 
each
 
asset
 
or
 
liability.
 
The Company
 
recognizes
 
measurement-period
adjustments in the reporting period in which the adjustment amounts are determined.
 
 
Use of estimates
 
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
 
that
affect
 
the
 
reported
 
amounts
 
of
 
assets
 
and
 
liabilities
 
and
 
disclosure
 
of
 
contingent
 
assets
 
and
 
liabilities
 
at
 
the
 
date
 
of
 
the
 
financial
statements
 
and
 
the reported
 
amounts
 
of
 
revenues
 
and
 
expenses during
 
the reporting
 
period.
 
Actual results
 
could
 
differ
 
from
 
those
estimates.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-14
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Translation of foreign
 
currencies
 
The primary functional currency of the consolidated entities is the South African Rand (“ZAR”) and its reporting currency is the
U.S. dollar.
 
Assets and
 
liabilities are
 
translated at
 
the exchange
 
rates in
 
effect at
 
the balance
 
sheet date.
 
Revenues and
 
expenses are
translated at
 
average rates
 
for the
 
period. Translation
 
gains and
 
losses are
 
reported in
 
accumulated other
 
comprehensive income
 
in
total
 
equity.
 
The Company
 
releases the
 
foreign
 
currency
 
translation
 
reserve
 
included
 
in accumulated
 
other
 
comprehensive
 
income
attributable to a foreign entity upon sale or complete, or
 
substantially complete, liquidation of the investment in that foreign entity and
includes the release in the gain or loss reported
 
related to the sale or liquidation of the foreign entity.
 
Foreign exchange transactions are translated at the spot rate ruling at the date of the transaction. Monetary items are translated at
the closing
 
spot rate
 
at the
 
balance sheet
 
date. Transactional
 
gains and
 
losses are
 
recognized
 
in selling,
 
general and
 
administration
expense on the Company’s consolidated
 
statement of operations for the period.
 
Cash, cash equivalents and restricted cash
 
Cash and cash equivalents
 
include cash on hand and
 
funds deposited in bank accounts
 
with financial institutions that
 
are liquid,
unrestricted
 
and readily
 
available. Cash
 
that is
 
restricted
 
as to
 
use is
 
classified as
 
restricted
 
cash and
 
includes cash
 
in certain
 
bank
accounts that have been ceded to Nedbank Limited
 
(“Nedbank”) as well as cash drawn under the Company’s
 
borrowings and used to
fund its ATMs,
 
refer to Note 11.
 
Allowance for doubtful accounts receivable
 
 
Allowance for doubtful finance loans receivable
 
The
 
Company
 
regularly
 
reviews the
 
ageing
 
of outstanding
 
amounts
 
due
 
from
 
borrowers
 
and
 
adjusts
 
the
 
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 dies.
 
The
Company
 
writes
 
off
 
working
 
capital
 
finance
 
receivables
 
and
 
related
 
fees
 
when
 
it
 
is
 
evident
 
that
 
reasonable
 
recovery
 
procedures,
including where deemed necessary,
 
formal legal action, have failed.
 
Allowance for doubtful accounts receivable
 
A specific
 
provision is
 
established where
 
it is considered
 
likely that all
 
or a portion
 
of the amount
 
due from customers
 
renting
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
 
review by
 
management of
 
the ageing
 
of outstanding
amounts, the location and the payment history of the customer in relation
 
to those specific amounts.
 
 
Inventory
 
Inventory
 
is valued
 
at the
 
lower of
 
cost and
 
net realizable
 
value. Cost
 
is determ
 
ined on
 
a first-in,
 
first-out basis
 
and includes
transport and handling costs.
 
Property,
 
plant and equipment
 
Property,
 
plant and
 
equipment are
 
shown at
 
cost less accumulated
 
depreciation. Property,
 
plant and
 
equipment are
 
depreciated
on the straight-line basis at rates
 
which are estimated to amortize the
 
assets to their anticipated residual values
 
over their useful lives.
Within the following asset classifications, the
 
expected economic lives are approximately:
 
Computer
 
equipment
 
3
 
to
 
8
 
years
 
Office
 
equipment
 
2
 
to
 
10
 
years
 
Vehicles
 
3
 
to
 
8
 
years
 
Furniture
 
and
 
fittings
 
3
 
to
 
10
 
years
 
 
The gain or loss arising
 
on the disposal or retirement
 
of an asset is determined
 
as the difference between
 
the sales proceeds and
the
 
carrying
 
amount
 
of
 
the
 
asset
 
and
 
is
 
recognized
 
in
 
income.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-15
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POL
ICIES
 
(continued)
 
 
Leases
 
The Company determines whether an arrangement is a lease at
 
inception. Operating leases are included in operating lease right-
of-use assets (“ROU”),
 
operating lease liability
 
- current, and
 
operating lease liability
 
– long term
 
in its consolidated
 
balance sheets.
The Company
 
does not
 
have any
 
significant finance
 
leases as
 
of June
 
30, 2021
 
and 2020,
 
respectively,
 
but its
 
policy is
 
to include
finance leases in property and equipment, other payables,
 
and other long-term liabilities in its consolidated balance sheets.
 
A ROU asset
 
represents the
 
Company’s
 
right to use
 
an underlying
 
asset for the
 
lease term and
 
the lease liabilities
 
represent its
obligation to
 
make lease
 
payments arising
 
from the
 
lease arrangement.
 
Operating lease
 
ROU assets
 
and liabilities
 
are recognized
 
at
commencement date based on
 
the present value of
 
lease payments over the
 
lease term. As
 
most of the
 
Company’s leases do not provide
an implicit rate,
 
the Company generally
 
uses its incremental
 
borrowing rate
 
based on
 
the estimated rate
 
of interest for
 
collateralized
borrowing over
 
a similar term
 
of the lease
 
payments at commencement
 
date. The operating
 
lease ROU asset
 
also includes any
 
lease
prepayments made
 
and excludes lease
 
incentives. The
 
terms of the
 
Company’s
 
lease arrangements may
 
include options to
 
extend or
terminate
 
the
 
lease
 
when
 
it is
 
reasonably
 
certain
 
that
 
the Company
 
will exercise
 
that
 
option.
 
Lease
 
expense
 
for
 
lease payments
 
is
recognized on a straight-line basis over the lease term.
 
The Company does not recognize right-of-use assets and lease liabilities for lease arrangements with a term of twelve months or
less. The Company
 
accounts for all
 
components in a
 
lease arrangement as
 
a single combined
 
lease component. Costs
 
incurred in the
adaptation of leased properties to
 
serve the requirements of
 
the Company (leasehold improvements) are
 
capitalized and amortized over
the shorter of the estimated useful life of the asset and the remaining term of
 
the lease.
 
Equity-accounted investments
 
 
The Company uses the equity
 
method to account for
 
investments in companies when
 
it has significant influence but
 
not control
over
 
the operations
 
of the
 
company.
 
Under the
 
equity method,
 
the Company
 
initially records
 
the investment
 
at cost
 
and
 
thereafter
adjusts the carrying value of the investment to recognize
 
the proportional share of the equity-accounted company’s net income or loss.
In addition, when an investment qualifies for the equity
 
method (as a result of an increase in the level of ownership
 
interest or degree
of influence),
 
the cost
 
of acquiring
 
the additional
 
interest in
 
the investee
 
is added
 
to the
 
current basis
 
of the
 
Company’s
 
previously
held interest and the equity method would be applied
 
subsequently from the date on which the
 
Company obtains the ability to exercise
significant influence over the investee.
 
 
The Company
 
releases a
 
pro rata
 
portion of
 
the foreign
 
currency translation
 
reserve related
 
to an
 
equity-accounted investment
that is
 
included
 
in accumulated
 
other comprehensive
 
income to
 
earnings upon
 
the sale
 
of a
 
portion of
 
its ownership
 
interest in
 
the
equity-accounted
 
investment.
 
The
 
release
 
of
 
the
 
pro
 
rata
 
portion
 
of
 
the
 
foreign
 
currency
 
translation
 
reserve
 
is
 
included
 
in
 
the
measurement of
 
the gain
 
or loss
 
on sale
 
of a
 
portion of
 
the Company’s
 
ownership interest
 
in the
 
equity-accounted investment.
 
The
Company does not recognize cumulative losses in excess of its investment or
 
loans in an equity-accounted investment except if it has
an obligation to provide additional financial support.
 
 
Dividends received from an equity-accounted investment reduce the carrying value
 
of the Company’s investment. The Company
has elected to classify distributions received from equity method investees using the nature of the distribution approach.
 
This election
requires the Company to evaluate
 
each distribution received on
 
the basis of the source of
 
the payment and classify the
 
distribution as
either
 
operating
 
cash
 
inflows
 
or
 
investing
 
cash
 
inflows.
 
The
 
Company
 
reviews
 
its
 
equity-accounted
 
investments
 
for
 
impairment
whenever events or circumstances indicate that the carrying amount of
 
the investment may not be recoverable.
 
 
Goodwill
 
Goodwill
 
represents
 
the
 
excess
 
of
 
the
 
purchase
 
price
 
of
 
an
 
acquired
 
enterprise
 
over
 
the
 
fair
 
values
 
of
 
the
 
identifiable
 
assets
acquired and liabilities assumed. The Company tests for impairment
 
of goodwill on an annual basis and at any other time if events
 
or
circumstances change that would more likely than not reduce the fair
 
value of the reporting unit goodwill below its carrying amount.
 
 
Circumstances that
 
could trigger
 
an impairment test
 
include but are
 
not limited to:
 
a significant adverse
 
change in the
 
business
climate or legal
 
factors; an adverse
 
action or assessment
 
by a regulator;
 
unanticipated competition; loss
 
of key personnel;
 
the likelihood
that a reporting unit or
 
significant portion of a reporting
 
unit will be sold
 
or otherwise disposed; and results
 
of testing for recoverability
of a significant asset group within a reporting unit. If goodwill is allocated to a reporting unit
 
and the carrying amount of the reporting
unit exceeds
 
the fair value
 
of that reporting
 
unit, an impairment
 
loss is recorded
 
in the statement
 
of operations.
 
Measurement of
 
the
fair value
 
of a reporting
 
unit is based
 
on one
 
or more
 
of the following
 
fair value
 
measures: the amount
 
at which the
 
unit as a
 
whole
could be
 
bought or sold
 
in a current
 
transaction between
 
willing parties; present
 
value techniques
 
of estimated
 
future cash flows;
 
or
valuation
 
techniques
 
based
 
on
 
mul
tiples
 
of
 
earnings
 
or
 
revenue,
 
or
 
a
 
similar
 
performance
 
measure.
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-16
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Intangible assets
 
Intangible assets are shown at
 
cost less accumulated amortization. Intangible assets
 
are amortized over the following useful
 
lives:
 
Customer
 
relationships
 
1
 
to
 
15
 
years
 
Software
 
and
 
unpatented
 
technology
 
3
 
to
 
5
 
years
 
FTS
 
patent
 
10
 
years
 
Exclusive
 
licenses
 
7
 
years
 
Trademarks
 
3
 
to
 
20
 
years
 
 
Intangible assets
 
are periodically
 
evaluated for
 
recoverability,
 
and those
 
evaluations take
 
into account
 
events or
 
circumstances
that warrant revised estimates of useful lives or that indicate that impairment
 
exists.
 
Debt and equity securities
 
Debt securities
 
The Company is required to
 
classify all applicable debt securities
 
as either trading securities, available for
 
sale or held to
 
maturity
upon investment in the security.
 
 
Trading
 
Debt securities
 
acquired by
 
the Company
 
which it
 
intends
 
to sell
 
in the
 
short-term
 
are classified
 
as trading
 
securities and
 
are
initially measured
 
at fair
 
value. These
 
debt securities
 
are subsequently
 
measured at
 
fair value
 
and realized
 
and unrealized
 
gains and
losses
 
from
 
these
 
trading
 
securities
 
are
 
included
 
in
 
the
 
Company’s
 
consolidated
 
statement
 
of
 
operations.
 
Classification
 
of
 
a
 
debt
security as a trading
 
security is not precluded
 
simply because the Company
 
does not intend to sell
 
the security in the
 
short term. The
Company had no debt securities that were classified as trading securities as of
 
June 30, 2021 and 2020,
 
respectively.
 
Available for sale
 
Debt
 
securities
 
acquired
 
by the
 
Company
 
that
 
have
 
readily
 
determinable
 
fair values
 
are classified
 
as available
 
for
 
sale if
 
the
Company has not classified them as trading securities or if it does not
 
have the ability or positive intent to hold the debt security until
maturity.
 
The Company is
 
required to make
 
an election to
 
account for these
 
debt securities as
 
available for
 
sale. These available
 
for
sale debt securities
 
are initially measured
 
at fair value. These
 
debt securities are
 
subsequently measured at
 
fair value with unrealized
gains
 
and
 
losses
 
from
 
available
 
for
 
sale
 
investments
 
in
 
debt
 
securities
 
reported
 
as
 
a
 
separate
 
component
 
of
 
accumulated
 
other
comprehensive income, net of deferred income
 
taxes, in shareholders’ equity. The Company had no
 
debt securities that were classified
as available for sale securities as of June 30, 2021 and 2020, respectively.
 
Held to maturity
 
Debt securities acquired by the Company which it has the ability and the positive intent to hold to maturity are classified as held
to maturity debt securities. The Company is required to make an election to classify these debt securities as held to maturity and these
securities are carried at amortized cost. The amortized cost
 
of held to maturity debt securities
 
is adjusted for amortization of premiums
and accretion of discounts to maturity.
 
Interest received from the held to
 
maturity security together with this amortization
 
is included
in interest income in the Company’s consolidated statement of operations. The Company had a
 
held to maturity security as of June
 
30,
20
2
1
 
and
 
20
20
,
 
respectively,
 
refer
 
to
 
Note
 
8
.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-17
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Debt and equity securities (continued)
 
Debt securities (continued)
 
Impairment of debt securities
 
The Company’s
 
available for sale
 
and held
 
to maturity debt
 
securities with unrealized
 
losses are reviewed
 
quarterly to identify
other-than-temporary impairments in value.
 
With regard to available for sale and held to maturity debt securities, the Company considers (i) the ability and intent to hold the
debt security for a
 
period of time to
 
allow for recovery of
 
value (ii) whether it
 
is more likely than
 
not that the Company
 
will be required
to sell the debt security;
 
and (iii) whether it
 
expects to recover the
 
entire carrying amount of
 
the debt security.
 
The Company records
an impairment
 
loss in its
 
consolidated statement
 
of operations representing
 
the difference between
 
the debt securities
 
carrying value
and the current fair value as
 
of the date of the impairment
 
if the Company determines that
 
it intends to sell the debt
 
security or if that
it is
 
more likely
 
than not
 
that it
 
will be
 
required to
 
sell the
 
debt security
 
before recovery
 
of the
 
amortized cost
 
basis. However,
 
the
impairment loss
 
is split
 
between a
 
credit loss
 
and a
 
non-credit loss
 
for debt
 
securities that
 
the Company
 
determines that
 
it does
 
not
intend to sell or that it is more likely than not that it will
 
not be required to sell the debt securities before the recovery of the amortized
cost basis. The credit loss portion, which is measured as the difference
 
between the debt security’s cost
 
basis and the present value of
expected future cash flows,
 
is recognized in the Company’s
 
consolidated statement of operations.
 
The non-credit loss portion,
 
which
is measured
 
as the
 
difference between
 
the debt
 
security’s
 
cost basis and
 
its current
 
fair value,
 
is recognized
 
in other
 
comprehensive
income, net of applicable taxes.
 
Equity securities
 
Equity
 
securities
 
are
 
measured
 
at
 
fair
 
value.
 
Changes
 
in
 
the
 
fair
 
value
 
of
 
equity
 
securities
 
are
 
recorded
 
in
 
the
 
Company’s
consolidated statement
 
of operations within
 
the caption titled
 
“change in fair
 
value of equity
 
securities”. The
 
Company may elect
 
to
measure equity securities without readily determinable fair
 
values at its 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 (“cost minus
 
changes
in observable
 
prices equity
 
securities”). Changes
 
in the fair
 
value of
 
the Company’s
 
cost minus
 
changes in
 
observable prices
 
equity
securities during the year ended June 30, 2021,
 
are discussed in Note 8. There were
 
no changes in the fair value
 
of the Company’s cost
minus
 
changes
 
in
 
observable
 
prices
 
equity
 
securities
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2020.
 
The
 
Company
 
performs
 
a
 
qualitative
assessment on
 
a quarterly
 
basis and
 
recognizes an
 
impairment loss
 
if there
 
are sufficient
 
indicators that
 
the fair
 
value of
 
the equity
security is less than its carrying value.
 
Policy reserves and liabilities
 
 
Reserves for policy benefits and claims payable
 
The Company determines its reserves for policy benefits under
 
its life insurance products using a model which estimates claims
incurred
 
that have
 
not been
 
reported
 
and
 
total
 
present
 
value
 
of disability
 
claims-in-payment
 
at
 
the balance
 
sheet
 
date. This
 
model
allows for
 
best estimate
 
assumptions based
 
on experience
 
(where sufficient)
 
plus prescribed
 
margins,
 
as required
 
in the
 
markets in
which these products are offered, namely South Africa.
 
The best estimate assumptions include (i) mortality and morbidity assumptions reflecting the company’s
 
most recent experience
and (ii) claim reporting delays reflecting Company specific and industry experience. Most of the disability claims-in-payment reserve
is
 
reinsured
 
and
 
the
 
reported
 
values
 
were
 
based
 
on
 
the
 
reserve
 
held
 
by
 
the
 
relevant
 
reinsurer.
 
The
 
values
 
of
 
matured
 
guaranteed
endowments are increased by late payment interest (net of the asset manageme
 
nt fee and allowance for tax on investment income).
 
Deposits on investment contracts
 
For
 
the
 
Company’s
 
interest
-
sensitive
 
life
 
contracts,
 
liabilities
 
approximate
 
the
 
policyholder’s
 
account
 
value.
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-18
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Reinsurance contracts held
 
The Company enters into reinsurance
 
contracts with reinsurers under
 
which the Company is compensated
 
for the entire amount
or a portion of losses arising on one or more of the insurance contracts it issues.
 
The expected benefits to which the Company is entitled
 
under its reinsurance contracts held are recognized as reinsurance assets.
These assets consist
 
of short-term
 
balances due from
 
reinsurers (classified within
 
Accounts receivable,
 
net and other
 
receivables) as
well as long-term receivables (classified within other long-term assets) that are dependent on the expected claims and benefits arising
under the
 
related reinsurance
 
contracts. Amounts
 
recoverable from
 
or due
 
to reinsurers
 
are measured
 
consistently with
 
the amounts
associated with the reinsured contracts and
 
in accordance with the terms of each reinsurance contract. Reinsurance assets are assessed
for impairment at
 
each balance sheet
 
date. If there
 
is reliable
 
objective evidence that
 
amounts due may
 
not be recoverable,
 
the Company
reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes that impairment loss in its consolidated
statement of operations. Reinsurance premiums are recognized
 
when due for payment under each reinsurance contract.
 
 
Redeemable common stock
 
Common stock
 
that is
 
redeemable (1)
 
at a
 
fixed or
 
determinable price
 
on a
 
fixed or
 
determinable date,
 
(2) at
 
the option
 
of the
holder, or (3) upon the occurrence of an
 
event that is not solely
 
within the control of Company is
 
presented outside of total Net1 equity
(i.e. permanent equity). Redeemable common stock is initially recognized at issuance
 
date fair value and the Company does not
 
adjust
the issuance date fair value if redemption is not
 
probable. The Company re-measures the redeemable
 
common stock to the maximum
redemption
 
amount
 
at
 
the
 
balance
 
sheet
 
date
 
once
 
redemption
 
is
 
probable.
 
Reduction
 
in
 
the
 
carrying
 
amount
 
of
 
the
 
redeemable
common
 
stock is
 
only appropriate
 
to the
 
extent that
 
the Company
 
has previously
 
recorded increases
 
in the
 
carrying
 
amount of
 
the
redeemable equity instrument as the redeemable common stock may be not be carried at an amount that is less than the initial amount
reported outside of permanent equity.
 
Redeemable common stock is reclassified as permanent equity when presentation outside
 
permanent equity is no longer required
(if, for example, a redemption
 
feature lapses, or there
 
is a modification of the
 
terms of the instrument). The
 
existing carrying amount
of the redeemable common
 
stock is reclassified to permanent
 
equity at the date of
 
the event that caused the
 
reclassification and prior
period consolidated financial statements are not adjusted.
 
 
Revenue recognition
 
 
The
 
Company
 
recognizes
 
revenue
 
upon
 
transfer
 
of
 
control
 
of
 
promised
 
products
 
or
 
services
 
to
 
customers
 
in
 
an
 
amount
 
that
reflects
 
the
 
consideration
 
the
 
Company
 
expects
 
to
 
receive
 
in
 
exchange
 
for
 
those
 
products
 
or
 
services.
 
The
 
Company
 
enters
 
into
contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted
for as separate performance obligations. Revenue is recognized net of allowances
 
for returns and any taxes collected from customers,
which are subsequently remitted to governmental authorities.
 
Nature of products and services
 
Processing fees
 
 
The Company
 
earns processing
 
fees from
 
transactions processed
 
for its
 
customers. The
 
Company provides
 
its customers
 
with
transaction processing services that
 
involve the collection, transmittal
 
and retrieval of
 
all transaction data
 
in exchange for
 
consideration
upon completion of
 
the transaction. In
 
certain instances, the
 
Company also provides
 
a funds collection
 
and settlement service
 
for its
customers. The Company considers these services as a single performance obligation.
 
The Company’s contracts specify a transaction
price for
 
services provided.
 
Processing revenue
 
fluctuates based
 
on the
 
type and
 
the volume
 
of transactions
 
processed. Revenue
 
is
recognized on the completion of the processed transaction.
 
Customers that have a bank account managed by the
 
Company are issued cards that can be
 
utilized to withdraw funds at an ATM
or to transact
 
at a merchant
 
point of sale
 
device (“POS”). The
 
Company earns processing
 
fees from transactions
 
processed for
 
these
customers. The
 
Company’s
 
contracts specify
 
a transaction
 
price for
 
each service
 
provided (for
 
instance, ATM
 
withdrawal, balance
enquiry,
 
etc.). Processing
 
revenue fluctuates
 
based on
 
the type
 
and volume
 
of transactions
 
performed
 
by the
 
customer.
 
Revenue is
recognized
 
on
 
the
 
completion
 
of
 
the
 
processed
 
transaction.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-19
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Revenue recognition (continued)
 
Nature of products and services (continued)
 
Account holder fees
 
The Company
 
provides bank accounts
 
to customers
 
and this service
 
is underwritten
 
by a regulated
 
banking institution
 
because
the Company is
 
not a bank. The
 
Company charges its
 
customers a fixed
 
monthly bank account
 
administration fee for
 
all active bank
accounts regardless of
 
whether the account
 
holder has transacted
 
or not.
 
The Company recognizes
 
account holder fees
 
on a monthly
basis on all active bank accounts. Revenue from account holder’s
 
fees fluctuates based on the number of active bank accounts.
 
Lending revenue
 
The Company
 
provides short-term
 
loans to customers
 
in South Africa
 
and charges
 
up-front initiation fees
 
and monthly service
fees. Initiation fees are recognized
 
using the effective interest rate
 
method, which requires the utilization of
 
the rate of return implicit
in the loan,
 
that is, the
 
contractual interest
 
rate adjusted
 
for any
 
net deferred
 
loan fees or
 
costs, premium,
 
or discount
 
existing at the
origination or acquisition of the loan. Monthly service fee revenue is recognized under the contractual terms of the loan. The monthly
service fee amount is fixed upon initiation and does not change over the
 
term of the loan.
 
Technology
 
products
 
 
 
The Company supplies hardware and licenses for its customers to use the Company’s
 
technology. Hardware includes the sale of
POS devices, SIM cards and other consumables which can
 
occur on an ad hoc
 
basis. The Company recognizes revenue from hardware
at the transaction price specified
 
in the contract as the hardware is
 
delivered to the customer.
 
Licenses include the right to use
 
certain
technology developed by the Company and the associated revenue
 
is recognized ratably over the license period.
 
 
Insurance revenue
 
The Company writes
 
life insurance contracts, and
 
policy holders pay
 
the Company a
 
monthly insurance premium at
 
the beginning
of each month. Premium revenue
 
is recognized on a monthly basis net
 
of policy lapses. Policy lapses are provided
 
for on the basis of
expected non-payment of policy premiums.
 
Welfare
 
benefit distribution fees
 
The Company provided
 
a welfare benefits distribution
 
service in South Africa
 
to a customer under
 
a contract which expired
 
on
September
 
30,
 
2018.
 
The
 
Company
 
was
 
required
 
to
 
distribute
 
social
 
welfare
 
grants
 
to
 
identified
 
recipients
 
using
 
an
 
internally
developed
 
payment platform
 
at designated
 
distribution
 
points (pay
 
points) which
 
enabled the
 
recipients
 
to access
 
their grants.
 
The
contract specified a
 
fixed fee per
 
account for one
 
or more grants
 
received by a
 
recipient. The Company
 
recognized revenue for
 
each
grant recipient paid at the fixed fee.
 
Telecom
 
products and services
 
Through DNI, the Company entered into
 
contracts with mobile networks in
 
South Africa to distribute subscriber identity
 
modules
(“SIM”) cards on their behalf. The Company was entitled to receive consideration based on the activation of each SIM as well as from
a percentage of
 
the value loaded onto
 
each SIM. The Company
 
recognizes revenue from these
 
services once the
 
criteria specified for
activation had
 
been met
 
as well
 
as when
 
it was
 
entitled to
 
its consideration
 
related to
 
the value
 
loaded onto
 
the SIM.
 
Revenue from
contracts with
 
mobile networks
 
fluctuates based
 
on the
 
number of
 
SIMs activated
 
as well
 
as on
 
the value
 
loaded onto
 
the SIMs.
 
As
described in Note 23,
 
the Company disposed of its controlling interest in DNI on March 31, 2019.
 
The
 
Company
 
purchases
 
airtime
 
for
 
resale
 
to
 
customers.
 
The
 
Company
 
recognizes
 
revenue
 
as
 
the
 
airtime
 
is
 
delivered
 
to
 
the
customer.
 
Revenue
 
from
 
the
 
resale
 
of
 
airtime
 
to
 
customers
 
fluctuates
 
based
 
on
 
the
 
volume
 
of
 
airtime
 
sold.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-20
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Revenue recognition (continued)
 
Significant judgments and estimates
 
The Company was
 
subject to a
 
court process regarding
 
the determination of
 
the price to
 
be charged for
 
welfare benefit distribution
services provided
 
from April
 
1, 2018
 
to September
 
30, 2018.
 
In December
 
2018, the
 
Constitutional Court
 
of South
 
Africa clarified
that it was not required to ratify the price and stated that the parties should reach an agreement on the price, failing which they should
approach
 
the
 
lower
 
courts
 
in
 
South
 
Africa.
 
The
 
Company
 
had
 
initiated
 
discussions
 
with
 
SASSA,
 
but
 
the
 
parties
 
had
 
not
 
reached
agreement regarding the pricing for services provided through September 30, 2018. Management determined, under previous revenue
guidance, that
 
there was
 
no evidence
 
of an
 
arrangement at
 
a fixed
 
and determinable
 
price other
 
than that
 
noted in
 
the court
 
ordered
extension provided
 
in March
 
2018 and
 
did not
 
record any
 
additional revenue
 
related to
 
the services
 
provided from
 
April 1,
 
2018 to
June 30, 2018, and recorded revenue at the rate specified in the contract. Upon adoption of the new revenue guidance on July 1, 2018,
the Company determined that it was unable to estimate
 
the amount of revenue that it is entitled to receive
 
because no agreement with
SASSA had been
 
reached at
 
that date. Accordingly,
 
the Company did
 
not record any
 
additional revenue during
 
the year ended
 
June
30, 2020 and 2019,
 
respectively, related to the price
 
to be charged for
 
welfare benefit distribution services
 
provided through September
30, 2018. The Company recorded
 
revenue at the rate
 
specified in the contract.
 
The Company expected to
 
record any additional revenue
once there was agreement between the Company and SASSA on the fee.
 
However, agreement had not been reached by May 31, 2020,
and following
 
the deconsolidation of
 
CPS, refer to
 
Note 23, any
 
additional revenue earned
 
by CPS after
 
June 1, 2020,
 
would not be
included in the Company’s consolidated
 
financial statements and therefore this matter is no longer considered an area of judgment
 
.
 
Accounts Receivable, Contract Assets and Contract Liabilities
 
The
 
Company
 
recognizes
 
accounts
 
receivable
 
when
 
its
 
right
 
to
 
consideration
 
under
 
its
 
contracts
 
with
 
customers
 
becomes
unconditional. The Company has no contract assets or contract liabilities.
 
 
Research and development expenditure
 
Research and
 
development
 
expenditure is
 
charged to
 
net income
 
in the
 
period in
 
which it
 
is incurred.
 
During the
 
years ended
June 30, 2021,
 
2020 and 2019, the
 
Company incurred research
 
and development expenditures
 
of $
0.3
 
million, $
1.6
 
million and $
0.7
million, respectively.
 
Computer software development
 
Product
 
development
 
costs in
 
respect
 
of
 
software
 
intended
 
for
 
sale
 
to
 
licensees
 
are
 
expensed
 
as
 
incurred
 
until
 
technological
feasibility is attained.
 
Technological
 
feasibility is attained
 
when the Company’s
 
software has completed
 
system testing and has
 
been
determined to be viable for
 
its intended use. The time between
 
the attainment of technological feasibility
 
and completion of software
development is generally short with immaterial amounts of development
 
costs incurred during this period.
 
 
Costs in
 
respect of
 
the development
 
of software
 
for the
 
Company’s
 
internal use
 
are expensed
 
as incurred,
 
except to
 
the extent
that
 
these
 
costs
 
are
 
incurred
 
during
 
the
 
application
 
development
 
stage.
 
All
 
other
 
costs
 
including
 
those
 
incurred
 
in
 
the
 
project
development and post-implementation stages are expensed as incurred.
 
 
Income taxes
 
 
The
 
Company
 
provides
 
for
 
income taxes
 
using
 
the asset
 
and
 
liability
 
method.
 
This
 
approach recognizes
 
the amount
 
of taxes
payable
 
or
 
refundable
 
for
 
the
 
current
 
year,
 
as
 
well
 
as
 
deferred
 
tax
 
assets
 
and
 
liabilities
 
for
 
the
 
future
 
tax
 
consequence
 
of
 
events
recognized in the financial statements and tax returns. Deferred
 
income taxes are adjusted to reflect the effects of
 
changes in tax laws
or enacted tax rates.
 
 
The Company measured its South African
 
income taxes and deferred income taxes for
 
the years ended June 30, 2021, 2020 and
2019, using the enacted statutory tax rate in South Africa of
28
%.
 
 
In establishing the appropriate deferred tax asset valuation allowances, the Company assesses the realizability of its deferred tax
assets, and based on all available evidence, both
 
positive and negative, determines whether it is more likely than
 
not that the deferred
tax
 
assets
 
or
 
a
 
portion
 
thereof
 
will
 
be
 
realized.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-21
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Income taxes (continued)
 
Reserves for uncertain tax positions are recognized in the financial statements
 
for positions which are not considered more likely
than not
 
of being
 
sustained based
 
on the
 
technical merits
 
of the
 
position on
 
audit by
 
the tax
 
authorities. For
 
positions that
 
meet the
more
 
likely
 
than
 
not standard,
 
the measurement
 
of the
 
tax benefit
 
recognized
 
in the
 
financial statements
 
is based
 
upon
 
the largest
amount of tax benefit that, in management’s judgement, is greater than 50% likely of being realized
 
based on a cumulative probability
assessment
 
of
 
the
 
possible
 
outcomes.
 
The
 
Company’s
 
policy
 
is
 
to
 
include
 
interest
 
related
 
to
 
unrecognized
 
tax
 
benefits
 
in
 
interest
expense and penalties in selling, general and administration in the consolidated
 
statements of operations.
 
The Company has elected the period cost method
 
and records U.S. inclusions in taxable income related to
 
global intangible low
taxed income (“GILTI”)
 
as a current-period expense when incurred.
 
Stock-based compensation
 
Stock-based compensation represents the
 
cost related to
 
stock-based awards granted.
 
The Company measures
 
equity-based stock-
based compensation cost at
 
the grant date, based on
 
the estimated fair value of
 
the award, and recognizes the
 
cost as an expense on
 
a
straight-line basis (net of estimated forfeitures) over the requisite
 
service period. In respect of awards with only service
 
conditions that
have a graded
 
vesting schedule, the
 
Company recognizes compensation
 
cost on a straight-line
 
basis over the
 
requisite service period
for the
 
entire award.
 
The forfeiture
 
rate is
 
estimated using
 
historical trends
 
of the
 
number of
 
awards forfeited
 
prior to
 
vesting. The
expense is recorded in
 
the statement of operations and
 
classified based on the recipients’
 
respective functions. The Company
 
records
deferred tax
 
assets for awards
 
that result in
 
deductions on the
 
Company’s
 
income tax returns,
 
based on the
 
amount of compensation
cost recognized and the Company’s
 
statutory tax rate in the jurisdiction
 
in which it will receive a deduction.
 
Differences between the
deferred tax
 
assets recognized
 
for financial
 
reporting purposes
 
and the
 
actual tax
 
deduction reported
 
on the
 
Company’s
 
income tax
return are recorded in taxation expense in the statement of operations.
 
Equity instruments issued to third parties
 
Equity instruments issued
 
to third parties represents
 
the cost related to
 
equity instruments granted.
 
The Company measures this
cost at the grant date, based on the
 
estimated fair value of the award, and recognizes the cost as
 
an expense on a straight-line basis (net
of estimated forfeitures) over
 
the requisite service period. The
 
forfeiture rate is estimated based
 
on the Company’s
 
expectation of the
number of
 
awards that will
 
be forfeited
 
prior to vesting.
 
The Company
 
records deferred tax
 
assets for equity
 
instrument awards that
result
 
in
 
deductions
 
on
 
the
 
Company’s
 
income
 
tax
 
returns,
 
based
 
on
 
the
 
amount
 
of
 
equity
 
instrument
 
cost
 
recognized
 
and
 
the
Company’s
 
statutory
 
tax
 
rate
 
in
 
the
 
jurisdiction
 
in
 
which
 
it
 
will
 
receive
 
a
 
deduction.
 
Differences
 
between
 
the
 
deferred
 
tax
 
assets
recognized for financial reporting purposes and the actual tax deduction reported on the Company’s
 
income tax return are recorded in
the statement of operations.
 
Settlement assets and settlement obligations
 
 
Settlement assets comprise (1) cash received from credit card
 
companies (as well as other types of
 
payment services) which have
business relationships
 
with merchants
 
selling goo
 
ds and
 
services via
 
the internet
 
that are
 
the Company’s
 
customers
 
and
 
on whose
behalf it
 
processes the
 
transactions between
 
various parties,
 
(2),
 
up until
 
the sale
 
of FIHRST,
 
refer to
 
Note 23,
 
cash received
 
from
customers on whose behalf the Company processes payroll payments that the Company will disburse to
 
customer employees, payroll-
related payees and other payees designated by the
 
customer, and (3),
 
up until the expiration of the SASSA contract on September 30,
2018, cash
 
received from
 
the South
 
African government
 
that the
 
Company holds
 
pending disbursement
 
to recipient
 
cardholders of
social welfare grants.
 
Settlement obligations comprise (1)
 
amounts that the Company
 
is obligated to disburse
 
to merchants selling goods
 
and services
via the internet that are the
 
Company’s customers and on whose behalf it processes the
 
transactions between various parties and settles
the funds
 
from the credit
 
card companies
 
to the
 
Company’s
 
merchant customers,
 
(2), up until
 
the sale of
 
FIHRST,
 
amounts that
 
the
Company
 
is obligated to pay to customer employees, payroll-related payees and other payees designated
 
by the customer, and (3), up
until the
 
expiration of
 
the SASSA
 
contract on
 
September
 
30, 2018,
 
amounts that
 
the Company
 
is obligated
 
to disburse
 
to recipient
cardholders of social welfare grants.
 
 
The balances
 
at each reporting
 
date may vary
 
widely depending on
 
the timing of
 
the receipts and
 
payments of these
 
assets and
obligations.
 
Recent accounting pronouncements adopted
 
There
 
were
 
no
 
new
 
accounting
 
pronouncements
 
adopted
 
by
 
the
 
Company
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2021.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-22
2.
 
 
SIGNIFICANT
 
ACCOUNTING
 
POLICIES
 
(continued)
 
 
Recent accounting pronouncements not yet adopted
 
as of June 30, 2021
 
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance
 
replaces the
 
incurred loss impairment
 
methodology in
 
current GAAP
 
with a methodology
 
that
reflects expected credit losses and
 
requires consideration of a
 
broader range of reasonable and
 
supportable information to inform credit
loss estimates. For
 
trade and
 
other receivables,
 
loans, and
 
other financial
 
instruments, an entity
 
is required
 
to use a
 
forward-looking
expected loss
 
model rather
 
than the incurred
 
loss model for
 
recognizing credit
 
losses, which reflects
 
losses that are
 
probable. Credit
losses relating to available
 
for sale debt
 
securities will also be
 
recorded through an allowance
 
for credit losses rather
 
than as a
 
reduction
in the
 
amortized
 
cost basis
 
of the
 
securities. This
 
guidance is
 
effective
 
for the
 
Company beginning
 
July 1,
 
2023.
 
The Company
 
is
currently assessing the
 
impact of this
 
guidance on its
 
financial statements and
 
related disclosures, but
 
does not expect
 
the impact on
its financial results to be material.
 
In August 2018, the FASB issued guidance
 
regarding
Disclosure Framework: Changes to the Disclosure Requirements
 
for Fair
Value
 
Measurement.
 
The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective
for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this
 
guidance
on its financial statement’s disclosure.
 
In November
 
2019,
 
the FASB
 
issued guidance
 
regarding
 
Financial
 
Instruments—Credit
 
Losses (Topic
 
326),
 
Derivatives and
Hedging
 
(Topic
 
815),
 
and
 
Leases
 
(Topic
 
842).
 
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, and defers
 
the adoption guidance
 
regarding
Disclosure Framework:
Changes to the Disclosure Requirements
 
for Fair Value
 
Measurement
 
by the Company from July 1, 2020 to July 1, 2021.
 
In January 2020, the FASB issued guidance regarding
 
Clarifying the Interactions Between Topic 321, Topic
 
323, and Topic 815.
 
The guidance
 
clarifies that an
 
entity should
 
consider observable
 
transactions that
 
require an
 
entity to either
 
apply or
 
discontinue the
equity
 
method
 
of
 
accounting
 
for
 
the
 
purposes
 
of
 
applying
 
the
 
measurement
 
alternative
 
in
 
accordance
 
with
 
U.S
 
GAAP
 
guidance
immediately
 
before
 
applying
 
or
 
upon
 
discontinuing
 
the
 
equity
 
method.
 
The
 
guidance
 
also
 
clarifies
 
that,
 
when
 
determining
 
the
accounting for certain forward
 
contracts and purchased options an
 
entity should not consider,
 
whether upon settlement or exercise,
 
if
the
 
underlying
 
securities
 
would
 
be
 
accounted
 
for
 
under
 
the equity
 
method
 
or
 
fair
 
value
 
option.
 
This
 
guidance
 
is
 
effective
 
for
 
the
Company beginning July 1, 2021. Early
 
adoption is permitted. The Company is currently assessing the
 
impact of this guidance on its
financial statement’s disclosure.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-23
3.
 
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
 
June 30,
 
2021, and June
 
30, 2020,
 
are presented in
 
the
table below:
 
 
 
 
June 30,
June 30,
2021
2020
Accounts receivable, trade, net
 
$
10,493
$
8,458
Accounts receivable, trade, gross
 
10,760
8,711
Allowance for doubtful accounts receivable, end of period
267
253
Beginning of period
253
661
Reversed to statement of operations
(183)
(155)
Charged to statement of operations
 
233
181
Utilized
 
(59)
(151)
Deconsolidation
-
(178)
Foreign currency adjustment
 
23
(105)
Current portion of amount outstanding related to sale of interest in Bank Frick
 
(Note 8)
7,500
-
Loans provided to Carbon, net of allowance: 2021: $
3,000
; 2020: $
-
-
3,000
Taxes refundable
 
related to sale of Net1 Korea (Note 23)
-
19,796
Loan provided to DNI
-
2,756
Other receivables
 
8,590
9,058
Total accounts receivable,
 
net
 
$
26,583
$
43,068
 
Accounts receivable,
 
trade, gross
 
includes amounts
 
due from
 
customers from
 
the provision
 
of transaction
 
processing services,
from the
 
sale of hardware,
 
software licenses and
 
SIM cards and
 
rentals from POS
 
equipment. The
 
Company did not
 
record any bad
debt expense during the
 
year ended June 30,
 
2021 and 2020, respectively
 
and bad debts incurred
 
were written off against the
 
allowance
for doubtful accounts receivable.
 
Current portion
 
of amount
 
outstanding related
 
to sale
 
of interest
 
in Bank
 
Frick represents
 
the amount
 
due by
 
the purchaser
 
in
October 2021 related to the sale of Bank Frick, refer to Note 8 for additional information
 
regarding the sale.
 
Taxes
 
refundable related to
 
sale of Net1 Korea
 
relates to the disposal
 
of KSNET as discussed
 
in Note 23 and
 
the entire amount
outstanding, or approximately $
20.1
 
million (KRW
23.8
 
billion), was received in September 2020.
 
 
The
 
current
 
portion
 
of
 
amount
 
outstanding
 
related
 
to
 
sale
 
of
 
remaining
 
interest
 
in
 
DNI
 
as
 
of
 
June
 
30,
 
2020,
 
relates
 
to
 
the
transaction completed in
 
April 2020 (refer
 
to Note 8). On
 
October 26, 2020, DNI
 
settled the full
 
amount outstanding of
 
$
5.7
 
million
related to
 
the sale
 
of the
 
remaining interest
 
in DNI,
 
including the
 
amounts included
 
in other
 
long-term assets,
 
refer to
 
Note 6.
 
The
Company received $
0.3
 
million on September 30, 2020, for total receipts of $
6.0
 
million.
 
 
The loan provided to Carbon was scheduled to be repaid before June 30, 2020, however, Carbon requested a payment
 
holiday as
a result
 
of the
 
impact of
 
the COVID-19
 
pandemic on
 
its business.
 
The parties
 
had not
 
agreed new
 
repayment terms
 
as of
 
June 30,
2021. However,
 
the Company acknowledges
 
the unexpected and
 
ongoing challenges
 
facing Carbon and
 
determined in June
 
2021 to
create an allowance for doubtful loans receivable due to these circumstances
 
and ongoing consolidated losses incurred by Carbon.
 
 
Other
 
receivables
 
include
 
prepayments,
 
deposits
,
 
income
 
taxes
 
receivable
 
and
 
other
 
receivables.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-24
3.
 
 
ACCOUNTS
 
RECEIVABLE,
 
net
 
an
d
 
OTHER
 
RECEIVABLES
 
and
 
FINANCE
 
LOANS
 
RECEIVABLE,
 
net
 
(continued)
 
 
Finance loans receivable, net
 
The Company’s finance
 
loans receivable, net, as of June 30, 2021, and June 30, 2020, is presented in the table
 
below:
 
June 30,
June 30,
2021
2020
Microlending finance loans receivable, net
$
21,142
$
15,879
Microlending finance loans receivable, gross
23,491
17,737
Allowance for doubtful finance loans receivable, end of period
2,349
1,858
Beginning of period
1,858
3,199
Reversed to statement of operations
 
(1,004)
(492)
Charged to statement of operations
 
2,060
1,211
Utilized
 
(967)
(1,451)
Foreign currency adjustment
 
402
(609)
Working
 
capital finance loans receivable, net
-
-
Working
 
capital finance loans receivable, gross
-
5,800
Allowance for doubtful finance loans receivable, end of period
-
5,800
Beginning of period
5,800
5,800
Utilized
 
(5,800)
-
Total accounts receivable,
 
net
 
$
21,142
$
15,879
 
Total
 
finance
 
loans
 
receivable,
 
net,
 
comprises
 
microlending
 
finance
 
loans
 
receivable
 
related
 
to
 
the
 
Company’s
 
microlending
operations in South Africa.
 
 
Gross microlending finance loans receivable as of June 30, 2021, was
 
higher than as of June 30, 2020,
 
partially due to the impact
of COVID-19 on the Company’s
 
microlending business in 2020.
 
The Company was unable to originate loans in April and
 
early May
2020, and therefore the lending book
 
reduced significantly as customers made
 
scheduled repayments. South Africa was placed
 
under
an adjusted Level 4 lockdown towards the end of June 2021, due to an increase in COVID-19 infections, however, this did not impact
the gross lending book for June 2021 because the majority of loan originations
 
are made within the first two weeks of a month.
 
The
 
Company
 
created
 
an allowance
 
for
 
doubtful
 
working
 
capital finance
 
loans
 
receivable related
 
to
 
a
 
receivable
 
due from
 
a
customer based
 
in the
 
United States
 
during the
 
year ended
 
June 30,
 
2018. The
 
Company commenced
 
legal proceedings
 
against the
customer in 2018.
 
The customer is
 
engaged in bankruptcy
 
proceedings. In December
 
2020, the Company
 
withdrew its claim
 
lodged
in the bankruptcy
 
proceedings because it
 
did not believe
 
it would recover
 
the receivable via
 
these proceedings, or
 
via any other
 
process.
In
 
December
 
2020,
 
the
 
Company
 
utilized
 
the
 
entire
 
allowance
 
for
 
doubtful
 
working
 
capital
 
finance
 
loans
 
receivable
 
against
 
the
outstanding receivable.
 
4.
 
INVENTORY
 
 
The Company’s inventory
 
comprised the following categories as of June 30, 2021, and 2020.
 
June 30,
June 30,
2021
2020
Finished goods
 
$
22,361
$
15,618
Finished goods subject to sale restrictions
-
4,242
$
22,361
$
19,860
 
Finished goods subject to sale
 
restrictions represents airtime inventory
 
purchased in March 2020, that
 
could only be sold by the
Company from October 1, 2020. As of June 30, 2021, finished goods includes $
16.5
 
million of airtime inventory that was previously
classified
 
as
 
finished
 
goods
 
subject
 
to
 
sale
 
restr
ictions
.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-25
4.
 
INVENTORY
 
(continued)
 
 
In support of Cell C’s liquidity position, the Company has limited the resale of this airtime through its distribution channels
 
until
such time as
 
Cell C’s
 
recapitalisation process
 
is concluded. In
 
light of the
 
dynamics in
 
the wholesale
 
airtime inventory
 
market as of
June
 
30,
 
2020,
 
the
 
Company
 
believed
 
the
 
net
 
realizable
 
value
 
of
 
certain
 
airtime
 
inventory
 
held
 
as
 
of
 
June
 
30,
 
2020,
 
measured
 
at
amounts reflecting
 
existing market conditions,
 
was below its cost.
 
Accordingly,
 
the Company recorded
 
a loss of $
1.3
 
million during
the year
 
ended June
 
30, 2020, related
 
to this airtime
 
inventory.
 
The Company
 
believes that
 
these market
 
dynamics in
 
the wholesale
airtime inventory market continue as of June 30, 2021, but no further
 
adjustment is necessary.
 
5.
 
 
FAIR
 
VALUE
 
OF
 
FINANCIAL
 
INSTRUMENTS
 
 
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, customer
 
concentration, credit
 
and equity
price and liquidity risks as discussed below.
 
 
Currency exchange risk
 
The Company is subject to currency exchange
 
risk because it purchases inventories that it
 
is required to settle in
 
other currencies,
primarily
 
the euro
 
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 and,
 
prior to the sale
of its Korean
 
business, in Korean
 
won (“KRW”). The U.S.
 
dollar to both
 
the ZAR and
 
KRW exchange rates has
 
fluctuated significantly
over the past
 
three years. The
 
Company’s
 
translation risk exposure
 
to KRW
 
was eliminated following
 
the disposal of
 
Net1 Korea in
March
 
2020,
 
refer
 
to
 
Note
 
23,
 
and
 
receipt
 
of
 
all
 
cash
 
outstanding
 
related
 
to
 
the
 
transaction.
 
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. The Company generally maintains investments in cash equivalents and held
to maturity investments and has occasionally invested in marketable
 
securities.
 
Credit risk
 
Credit
 
risk
 
relates
 
to
 
the
 
risk
 
of
 
loss
 
that
 
the
 
Company
 
would
 
incur
 
as
 
a
 
result
 
of
 
non-performance
 
by
 
counterparties.
 
The
Company
 
maintains
 
credit
 
risk
 
policies
 
in
 
respect
 
of
 
its
 
counterparties
 
to
 
minimize
 
overall
 
credit
 
risk.
 
These
 
policies
 
include
 
an
evaluation
 
of
 
a
 
potential
 
counterparty’s
 
financial
 
condition,
 
credit
 
rating,
 
and
 
other
 
credit
 
criteria
 
and
 
risk
 
mitigation
 
tools
 
as
 
the
Company’s
 
management deems appropriate.
 
With respect
 
to credit risk on
 
financial instruments, the
 
Company maintains a
 
policy of
entering
 
into such
 
transactions only
 
with South
 
African
 
and European
 
financial institutions
 
that have
 
a credit
 
rating of
 
“B” (or
 
its
equivalent) or better, as determined by credit
 
rating agencies such as Standard & Poor’s, Moody’s
 
and Fitch Ratings.
 
Microlending credit
 
risk
 
 
The
 
Company is
 
exposed to
 
credit risk
 
in its
 
microlending activities,
 
which
 
provide unsecured
 
short-term
 
loans to
 
qualifying
customers.
 
The
 
Company
 
manages
 
this
 
risk
 
by
 
performing
 
an
 
affordability
 
test
 
for
 
each
 
prospective
 
customer
 
and
 
assigning
 
a
“creditworthiness score”, which takes into account a variety of factors such as other debts
 
and total expenditures on normal household
and
 
lifestyle
 
expenses.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-26
5.
 
 
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
 
Fair value
 
is defined
 
as the price
 
that would
 
be received
 
upon sale
 
of an
 
asset or
 
paid upon
 
transfer of
 
a liability
 
in an orderly
transaction between
 
market participants
 
at the
 
measurement date
 
and in
 
the principal
 
or most
 
advantageous market
 
for that
 
asset or
liability. The
 
fair value should be calculated
 
based on assumptions that market
 
participants would use in pricing
 
the asset or liability,
not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk
including the Company’s own credit
 
risk.
 
 
Fair value measurements and inputs are categorized into a
 
fair value hierarchy which prioritizes the inputs into
 
three levels based
on the
 
extent to
 
which inputs used
 
in measuring
 
fair value
 
are observable
 
in the
 
market. Each fair
 
value measurement
 
is reported in
one of the three levels which is determined by the lowest level input that is significant
 
to the fair value measurement in its entirety.
 
 
These levels are:
 
●
 
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments
 
traded in active markets.
 
●
 
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in
 
markets that
 
are not
 
active, and
 
model-based valuation
 
techniques for
 
which all
 
significant assumptions
 
are
observable
 
in the
 
market or
 
can be
 
corroborated
 
by observable
 
market
 
data for
 
substantially the
 
full term
 
of the
 
assets or
liabilities.
 
●
 
Level
 
3
 
–
 
inputs
 
are
 
generally
 
unobservable
 
and
 
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.
 
The following
 
section describes
 
the valuation
 
methodologies the
 
Company uses
 
to measure
 
its significant
 
financial assets
 
and
liabilities
 
at
 
fair
 
value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-27
5.
 
 
FAIR
 
VALUE
 
OF
 
FINANCIAL
 
INSTRUMENTS
 
(continued)
 
 
Financial instruments (continued)
 
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 June
 
30, 2021
 
and 2020,
 
and valued
 
Cell C
 
at $
0.0
 
(zero) at
 
June 30,
 
2021 and
 
2020. The
 
Company
believes the Cell C business plan utilized in
 
the Company’s valuation is reasonable based on the current performance and
 
the expected
changes in
 
Cell C’s
 
business model.
 
The Company
 
changed certain
 
valuation assumptions
 
when preparing
 
the December
 
31, 2020,
valuation compared with the June 30, 2020, valuation, and these updated assumptions have been used for the June 30, 2021 valuatio
 
n
as well. Similar to the approach taken for December 31, 2020, the June 30, 2021, valuation incorporated the payments under the lease
liabilities into the cash flow forecasts instead of including the carrying value in net debt and assumed that the
 
deferred tax asset would
be utilized over the forecast period instead of including the fair value of the deferred
 
tax asset in the valuation. For the June 30, 2020,
valuation, the Company
 
included the carrying
 
value of the lease
 
liabilities within net
 
debt and included
 
the fair value of
 
the deferred
tax asset
 
in the
 
valuation.
 
The Company
 
utilized the
 
latest approve
 
d
 
business plan
 
provided by
 
Cell C
 
management for
 
the period
ended December 31, 2025, for the June 30, 2021,
 
valuation and the period ended December 31, 2024 for the June 30, 2020 valuation.
 
The following key valuation inputs were used as of June 30, 2021 and 2020:
 
Weighted Average
 
Cost of Capital ("WACC"):
Between
16
% and
24
% over the period of the forecast
Long-term growth rate:
3
% (
3
% as of June 30, 2020)
Marketability discount:
10
%
Minority discount:
15
%
Net adjusted external debt - June 30, 2021:
(1)
ZAR
11.2
 
billion ($
0.8
 
billion), no lease liabilities included
Net adjusted external debt - June 30, 2020:
(2)
ZAR
15.8
 
billion ($
0.9
 
billion), includes ZAR
4.4
 
billion of lease liabilities
Deferred tax (incl, assessed tax losses) - June 30,
2020:
(2)
ZAR
2.9
 
billion ($
167.3
 
million)
 
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
 
June 30, 2021.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of
 
June 30, 2020.
 
The fair value
 
of Cell C
 
as of June
 
30, 2021,
 
utilizing the discounted
 
cash flow valuation
 
model developed
 
by the Company
 
is
sensitive to the following inputs: (i) the ability of Cell C
 
to achieve the forecasts in their business case; (ii) the weighted
 
average cost
of capital
 
(“WACC”)
 
rate used;
 
and (iii)
 
the minority
 
and marketability
 
discount used.
 
Utilization of
 
different inputs,
 
or changes
 
to
these inputs, may result in a significantly higher or lower fair value measurement.
 
 
The following table presents the impact on the carrying
 
value of the Company’s Cell C investment
 
of a
3.0
% increase and
2.0
%
decrease in the WACC rate and the
 
EBITDA margins used in
 
the Cell C valuation
 
on June 30, 2021,
 
all amounts translated at
 
exchange
rates applicable as of June 30, 2021:
 
Sensitivity for fair value of Cell C investment
3.0% increase
(A)
2.0% decrease
(A)
WACC
 
rate
$
-
$
3,055
EBITDA margin
$
4,873
$
-
 
(A) the carrying value of
 
the Cell C investment is not
 
impacted by a
1.0
% increase or a
1.0
% decrease and therefore
 
the impact
of a
3.0
% increase and a
2.0
% decrease is presented.
 
The fair value of
 
the Cell C shares as
 
of June 30, 2021,
 
represented approximately
0
% of the Company’s
 
total assets, including
these shares. The Company
 
expects to hold these
 
shares for an extended
 
period of time and
 
that there will be
 
short-term equity price
volatility
 
with
 
respect
 
to
 
these
 
shares
 
particularly
 
given
 
the
 
current
 
situation
 
of
 
Cell
 
C’s
 
business.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-28
5.
 
 
FAIR
 
VALUE
 
OF
 
FINANCIAL
 
INSTRUMENTS
 
(continued)
 
 
Financial instruments (continued)
 
Liability measured at fair value using significant unobservable inputs – DNI contingent
 
consideration
 
 
The salient terms
 
of the Company’s
 
investment in DNI
 
is described in
 
Note 23.
 
Under the terms of
 
its subscription agreements
with DNI, the Company agreed to pay to DNI an additional amount of up to
 
ZAR
400.0
 
million ($
27.6
 
million, translated at exchange
rates applicable as
 
of June
 
30, 2019),
 
in cash,
 
subject to the
 
achievement of certain
 
performance targets by
 
DNI. The Company
 
expected
to pay the additional
 
amount during the first
 
quarter of the year
 
ended June 30, 2020,
 
and recorded an amount
 
of ZAR
373.6
 
million
($
27.2
 
million), in long-term liabilities as of
 
June 30, 2018, which amount
 
represented the present value of
 
the ZAR 400.0 million to
be paid (amounts
 
translated at the exchange
 
rate applicable as of
 
June 30, 2018, respectively).
 
As described in Note
 
23 and Note 19,
the Company settled the ZAR
400
 
million ($
27.6
 
million) due to DNI as of March 31, 2019. The Company recorded accreted interest
during the year ended June 30, 2019, of
 
$
1.8
 
million (ZAR
26.4
 
million, translated at the applicable average exchange rates during the
periods specified).
 
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’s outstanding
 
foreign exchange contracts are as follows:
 
 
As of June 30, 2021
 
Notional amount ('000)
Strike price
Fair market
Maturity
EUR
5.7
USD
1.1911
USD
1.1859
July 02, 2021
 
The Company had
no
 
outstanding foreign exchange contracts as of June 30, 2020.
 
The following table presents the
 
Company’s assets measured
 
at fair value on a recurring basis as of
 
June 30, 2021, according to
the fair value hierarchy:
 
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)
 
381
-
-
381
Fixed maturity investments
(included in cash and cash
equivalents)
3,158
-
-
3,158
Total assets at fair value
 
$
3,539
$
-
$
-
$
3,539
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-29
5.
 
FAIR
 
VALUE
 
OF
 
FINANCIAL
 
INSTRUMENTS
 
(continued)
 
 
Financial instruments (continued)
 
The following table presents the
 
Company’s assets measured
 
at fair value on a recurring basis as of
 
June 30, 2020, 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)
490
-
-
490
Fixed maturity investments
(included in cash and cash
equivalents)
4,198
-
-
4,198
Total assets at fair value
 
$
4,688
$
-
$
-
$
4,688
 
There have been no transfers in or out of Level 3 during the years ended June
 
30, 2021, 2020 and 2019,
 
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 years ended June 30, 2021 and
 
2020. Summarized below is the movement in the
 
carrying value of assets measured at fair
value on a recurring basis, and categorized within Level 3, during the year
 
ended June 30, 2021:
 
 
Carrying value
Assets
Balance as of June 30, 2020
$
-
Foreign currency adjustment
(1)
-
Balance as of June 30, 2021
$
-
 
(1) The
 
foreign currency
 
adjustment represents
 
the effects
 
of the
 
fluctuations of
 
the South
 
African rand
 
and 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 year ended June 30, 2020:
 
Carrying value
Assets
Balance as at June 30, 2019
$
-
Foreign currency adjustment
(1)
-
Balance as of June 30, 2020
$
-
 
(1) The
 
foreign currency
 
adjustment represents
 
the effects
 
of the
 
fluctuations of
 
the South
 
African rand
 
and the U.S.
 
dollar on
the carrying value.
 
Trade, finance loans and other receivables
 
Trade,
 
finance loans
 
and other
 
receivables originated
 
by the
 
Company
 
are stated
 
at cost
 
less allowance
 
for doubtful
 
accounts
receivable. The fair value
 
of trade, finance loans
 
and other receivables approximates their
 
carrying value due to
 
their short-term nature.
 
Trade and other payables
 
The
 
fair
 
values
 
of
 
trade
 
and
 
other
 
payables
 
approximates
 
their
 
carrying
 
amounts,
 
due
 
to
 
their
 
short
-
term
 
nature.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-30
5.
 
 
FAIR
 
VALUE
 
OF
 
FINANCIAL
 
INSTRUMENTS
 
(continued)
 
 
Financial instruments (continued)
 
Assets and liabilities 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
 
8
 
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.
 
 
6.
 
 
PROPERTY,
 
PLANT
 
AND
 
EQUIPMENT,
 
net
 
 
Summarized below
 
is the cost,
 
accumulated depreciation
 
and carrying amount
 
of property,
 
plant and
 
equipment as of
 
June 30,
2021 and 2020:
 
June 30,
June 30,
2021
2020
Cost
Computer equipment
$
33,476
$
26,575
Furniture and office equipment
7,492
7,732
Motor vehicles
5,059
1,873
$
46,027
$
36,180
Accumulated depreciation:
Computer equipment
29,662
22,810
Furniture and office equipment
6,587
5,101
Motor vehicles
2,286
1,613
$
38,535
$
29,524
Carrying amount:
Computer equipment
3,814
3,765
Furniture and office equipment
905
2,631
Motor vehicles
2,773
260
$
7,492
$
6,656
 
7
.
 
LEASES
 
 
The
 
Company
 
has
 
entered into
 
leasing
 
arrangements
 
classified
 
as operating
 
leases under
 
accounting
 
guidance.
 
These leasing
arrangements relate primarily
 
to the lease of
 
its corporate head office,
 
administration offices and
 
branch locations through
 
which the
Company operates
 
its financial services
 
business in South
 
Africa and, until
 
its closure, its
 
transaction processing
 
activities in Malta.
The Company’s
 
operating leases have
 
a remaining lease
 
term of between
one year
 
to
six years
. The Company’s
 
lease of property
 
in
Malta included
five
 
separate
one year
 
options to extend the lease, which
 
effectively extended the lease
 
term from
three years
 
to
eight
years
. At lease inception,
 
the Company expected
 
to exercise these options
 
and these options
 
were included as
 
part of its right-of-use
assets and liabilities. The
 
Company has exited this
 
lease following the closure
 
of its Malta operations during
 
the year ended June
 
30,
2021. The Company
 
also operates parts
 
of its financial
 
services business from
 
locations which it
 
leases for a
 
period of less
 
than
one
year
.
 
 
The
 
Company’s
 
operating
 
lease expense
 
during
 
the years
 
ended
 
June 30,
 
2021 and
 
2020, was
 
$
4.1
 
million
 
and $
3.6
 
million,
respectively.
 
The Company does not have any significant leases that have not commenced as of
 
June 30, 2021.
 
The Company
 
has entered into
 
short-term leasing
 
arrangements, primarily
 
for the lease
 
of branch
 
locations and other
 
locations
to operate
 
its financial
 
services business
 
in South
 
Africa.
 
The Company’s
 
short-term lease
 
expense during
 
the years
 
ended June
 
30,
2021
 
and
 
20
20
,
 
was
 
$
4.1
 
million
 
and
 
$
4.2
 
million
,
 
respectively
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-31
7
.
 
LEASES
 
(continued)
 
 
The following
 
table presents
 
supplemental
 
balance sheet
 
disclosure related
 
to our
 
right-of-use assets
 
and our
 
operating leases
liabilities as of June 30, 2021 and 2020:
 
June 30,
June 30,
2021
2020
Right-of-use assets obtained in exchange for lease obligations
Weighted average
 
remaining lease term (years)
2.77
3.94
Weighted average
 
discount rate
9.6
%
9.3
%
Maturities of operating lease liabilities
2022
$
3,117
2023
1,278
2024
592
2025
200
2026
-
Thereafter
-
Total undiscounted
 
operating lease liabilities
5,187
Less imputed interest
475
Total operating lease liabilities,
 
included in
4,712
Operating lease right-of-use lease liability - current
2,822
Right-of-use operating lease liability - long-term
$
1,890
 
Operating lease payments related to premises and equipment were $
10.6
 
million for the year ended June 30, 2019.
 
8
.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
 
Equity-accounted investments
 
The Company’s ownership
 
percentage in its equity-accounted investments as of June 30, 2021 and 2020, was as follows:
 
June 30,
June 30,
2021
2020
Finbond Group Limited (“Finbond”)
31
 
%
31
 
%
Carbon Tech Limited
 
(“Carbon”), formerly OneFi Limited
25
 
%
25
 
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50
 
%
50
 
%
Revix (“Revix”)
15
 
%
25
 
%
Bank Frick & Co AG (“Bank Frick”)
-
 
35
 
%
V2 Limited (“V2”)
-
 
50
 
%
Walletdoc Proprietary
 
Limited (“Walletdoc”)
-
 
20
 
%
 
Finbond
 
As of June 30, 2021,
 
the Company owned
268,820,933
 
shares in Finbond representing approximately
 
31.47
% of its issued and
outstanding ordinary
 
shares. Finbond
 
is listed
 
on the
 
Johannesburg
 
Stock Exchange
 
and its
 
closing price
 
on June
 
30, 2021,
 
the last
trading day
 
of the
 
month, was
 
ZAR
1.59
 
per share.
 
The market
 
value of
 
the Company’s
 
holding in
 
Finbond on
 
June 30,
 
2021, was
ZAR
427.4
 
million ($
29.9
 
million translated at
 
exchange rates applicable
 
as of June 30,
 
2021). On or about
 
March 9, 2020,
 
Finbond
repurchased
47
 
million of
 
its shares
 
for ZAR
2.91123
 
per share,
 
or a
 
total consideration
 
of ZAR
136.8
 
million, in
 
cash, from
 
other
Finbond shareholders
 
which resulted
 
in an
 
increase in
 
the Company’s
 
shareholding in
 
Finbond. On
 
August 2,
 
2019, the
 
Company,
pursuant to its election, received an additional
1,148,901
 
shares in Finbond as a capitalization share issue in lieu of a dividend.
 
Finbond published its
 
half-year results to
 
August 2020 in
 
October 2020, which
 
included the financial
 
impact of the
 
COVID-19
pandemic
 
on
 
its reported
 
results during
 
that
 
reporting
 
period.
 
Finbond
 
incurred
 
losses during
 
the
 
six
 
months
 
to
 
August 2020,
 
and
experienced a slow-down in
 
its lending activities. Finbond reported
 
that its lending activities had increased
 
again since August 2020,
albeit at a
 
slower pace compared
 
with the prior
 
calendar period. Finbond’s
 
share price declined
 
substantially during
 
the period from
its fiscal
 
year end
 
(February 2020)
 
to September
 
30, 2020, and
 
the weakness
 
in its
 
traded share
 
price continued
 
post September
 
30,
2020.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-32
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Equity-accounted investments (continued)
 
Finbond
 
The
 
Company
 
considered
 
the
 
combination
 
of
 
the
 
slow-down
 
in
 
business
 
activity
 
and
 
the
 
lower
 
share
 
price
 
as
 
impairment
indicators. The
 
Company performed
 
an impairment
 
assessment of
 
its holding
 
in Finbond
 
as of
 
September 30,
 
2020. The
 
Company
recorded
 
an
 
impairment
 
loss
 
of
 
$
16.8
 
million
 
during
 
the
 
quarter
 
ended
 
September
 
30,
 
2020,
 
related
 
to
 
the
 
other-than-temporary
decrease in Finbond’s value, which represented the difference between the
 
determined fair value of the
 
Company’s interest in Finbond
and the Company’s carrying value (before
 
the impairment). There is limited trading in Finbond shares on the JSE because it has
three
shareholders that
 
own approximately
90
% of
 
its issued
 
and outstanding
 
shares between
 
them. The
 
Company calculated
 
a fair
 
value
per share for Finbond by applying a liquidity discount of
15
% to the September 30, 2020, Finbond closing price of ZAR
1.04
.
 
The Company performed a
 
further impairment assessment of
 
its holding in
 
Finbond as of
 
December 31, 2020, following
 
a modest
further decline
 
in its
 
market price
 
during the
 
quarter ended December
 
31, 2020.
 
The Company
 
recorded an
 
impairment loss
 
of $
0.8
million
 
during
 
the
 
quarter
 
ended
 
December
 
31,
 
2020,
 
related
 
to
 
the
 
other-than-temporary
 
decrease
 
in
 
Finbond’s
 
value,
 
which
represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s
 
carrying value
(before the
 
impairment). The
 
Company calculated
 
a fair
 
value per
 
share for
 
Finbond by
 
applying a
 
liquidity discount
 
of
15
% to the
December 31,
 
2020, Finbond
 
closing price
 
of ZAR
0.99
. The
 
total impairment
 
charge for
 
the year
 
ended June
 
30, 2021,
 
was $
17.7
million.
 
Bank Frick
 
On February 3, 2021,
 
the Company, through its wholly-owned subsidiary, Net1 Holdings LI AG
 
(“Net1 LI”), entered into
 
a share
sales agreement
 
with the Frick
 
Family Foundation
 
(“KFS”) to sell
 
its entire interest,
 
or
35
%, in Bank
 
Frick to KFS
 
for $
30
 
million.
Net1 and certain entities within
 
the IPG group also entered
 
into an indemnity and release
 
agreement with KFS and Bank
 
Frick under
which
 
the
 
parties
 
agreed
 
to
 
terminate
 
all
 
existing
 
arrangements
 
with
 
Bank
 
Frick
 
and
 
settle all
 
liabilities
 
related
 
to
 
the
 
Company’s
activities with Bank Frick
 
through the payment of
 
$
3.6
 
million to KFS. The Company
 
received $
15.0
 
million, net, on closing, which
comprised $
18.6
 
million less the
 
$
3.6
 
million due to
 
KFS to terminate
 
all existing arrangements
 
with Bank Frick
 
and settle all
 
liabilities
related to IPG’s
 
activities with Bank
 
Frick. The Company included
 
the $
18.6
 
million within cash flows
 
from investing activities and
the $
3.6
 
million within
 
cash flows from
 
operating activities
 
in the
 
consolidated statement
 
of cash
 
flows for
 
the year
 
ended June 30,
2021. The outstanding balance due by KFS is expected
 
to be paid as follows: (i) $
7.5
 
million on October 30, 2021, which is included
in the caption accounts receivable, net and other receivables in the Company’s consolidated balance sheet as of June 30,
 
2021, and (ii)
the remaining amount, of $
3.9
 
million on July 15, 2022, which is included in the caption other long-term assets, including reinsurance
assets in
 
the Company’s
 
consolidated
 
balance sheet
 
as of
 
June 30,
 
2021. The
 
parties entered
 
into a
 
security
 
and pledge
 
agreement
under which KFS pledged the Bank Frick shares purchased as security for
 
the amounts outstanding under the share sales agreement.
 
The Company incurred transaction costs of approximately $
0.04
 
million.
 
 
The following table presents the calculation of the loss on disposal of Bank Frick
 
on February 3, 2021:
 
February 3,
2021
Loss on sale of Bank Frick:
Consideration received in cash on February 3, 2021
$
18,600
Consideration received with note on February 3, 2021, refer to (Note 3) and
 
other long-term assets below
11,400
Less: transaction costs
(42)
Less: carrying value of Bank Frick
(32,892)
Add: release of foreign currency translation reserve from accumulated other
 
comprehensive loss
2,462
Loss on sale of Bank Frick
(1)
$
(472)
 
(1)
 
The Company does not
 
expect to pay taxes related
 
to the sale of Bank
 
Frick because the base
 
cost of its investment
 
exceeds
the sales consideration received. The Company does not
 
believe that it will be able
 
to utilize any capital loss, if
 
any, generated because
Net1
 
LI
 
does
 
not
 
own
 
any
 
other
 
capital
 
assets.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-33
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Equity-accounted investments (continued)
 
Bank Frick
 
Payment of option termination fee in April 2020
 
On October 2, 2019, the Company exercised its option to
 
acquire an additional
35
% interest in Bank Frick from the
 
Frick Family
Foundation. The
 
Company had
 
agreed to
 
pay an
 
amount, the
 
“Option Price
 
Consideration”, for
 
an additional
35
% interest
 
in Bank
Frick, which represented the higher of CHF
46.4
 
million ($
46.5
 
million at exchange rates on October 2, 2019) or
35
% of 15 times the
average
 
annual
 
normalized
 
net
 
income
 
of
 
the
 
Bank
 
over
 
the
 
two
 
years
 
ended
 
December
 
31,
 
2018.
 
The
 
shares
 
would
 
have
 
only
transferred on payment
 
of the Option
 
Price Consideration,
 
which was expected
 
to occur on
 
the later of
 
(i) 180 days
 
after the date
 
of
exercise
 
of
 
the
 
option;
 
(ii)
 
in
 
the
 
event
 
of
 
any
 
regulatory
 
approvals
 
being
 
required,
 
10
 
days
 
after
 
receipt
 
of
 
approval
 
(either
unconditionally or on
 
terms acceptable to
 
both parties); and (iii)
 
10 days after
 
the date on which
 
the Option Price
 
Consideration was
agreed or
 
finally determined.
 
On April
 
9, 2020,
 
the Company,
 
through its
 
wholly owned
 
subsidiary,
 
Net1 Holdings
 
LI AG,
 
entered
into a termination agreement
 
pursuant to which the
 
option to acquire a
 
further
35
% of Bank Frick was
 
cancelled. On April 15,
 
2020,
the Company paid a termination fee of CHF
17.0
 
million ($
17.5
 
million) to the Frick Family to cancel the option.
 
Bank Frick impairment recorded
 
during the year ended June 30, 2020
 
The Company
 
considered the
 
termination of
 
the exercise
 
of the
 
option to
 
acquire a
 
further
35
% of
 
Bank Frick
 
an impairment
indicator. The
 
Company recorded an impairment loss
 
of $
18.3
 
million during the quarter ended
 
March 31, 2020, related to the other-
than-temporary decrease in Bank Frick’s value, which represented the difference between the determined fair value of the Company’s
interest
 
in
 
Bank
 
Frick
 
and
 
the
 
Company
 
carrying
 
value
 
(before
 
the
 
impairment).
 
The
 
Company,
 
with
 
the
 
assistance
 
of
 
external
consultants,
 
considered
 
a
 
multiple
 
based
 
valuation
 
approach
 
in
 
respect
 
of
 
the
 
March
 
31,
 
2020
 
balance
 
sheet
 
date. The
 
Company
believes that
 
a price
 
to book
 
methodology
 
is the
 
most appropriate
 
for a
 
valuing a
 
bank, but
 
also took
 
into account
 
a price
 
earnings
approach to support the primary methodology. An appropriate peer group was selected based on the activities of Bank Frick and, after
applying a
 
regression analysis
 
to compensate
 
for differences
 
in the
 
return on
 
equity in
 
the peer
 
group, a
 
price to
 
book ratio
 
of
1.15
times was determined, but
 
the multiple ranged from
0.7
 
times to
4.7
 
times. The Company determined
 
to use a price to
 
book multiple
of approximately
0.9
 
times to value its investment in Bank Frick
 
as of March 31, 2020. The Company used a
 
multiple at the lower end
of the
 
peer group
 
range as
 
a result
 
of Bank
 
Frick’s
 
size (based
 
on net
 
asset value)
 
and product
 
mix relative
 
to the
 
peer group.
 
The
Company’s
35
% portion
 
of approximately
0.9
 
times Bank
 
Frick’s
 
March 31,
 
2020, net
 
asset value
 
was lower
 
than the
 
Company’s
carrying value in Bank Frick as of March 31, 2020. On April 13,
 
2020, the Company received a cash dividend of approximately CHF
1.3
 
million ($
1.3
 
million).
 
 
V2 Limited
 
In August
 
2019, the Company
 
made a further
 
equity contribution
 
of $
1.3
 
million to V2
 
Limited (“V2”)
 
and in January
 
2020 it
made its final committed equity
 
contribution of $
1.3
 
million bringing the total
 
equity contribution to $
5.0
 
million. For its
 
quarter ended
March 2020,
 
the Company recorded
 
an impairment loss
 
of $
2.5
 
million, related
 
to the other-than-temporary
 
decrease in V2’s
 
value.
The Company believed
 
that V2’s
 
March 2020 net
 
asset value represented
 
its fair value
 
because it did
 
not have supportable
 
forecasts
available
 
at
 
that
 
time
 
to
 
apply
 
other
 
valuation
 
models,
 
including
 
a
 
discounted
 
cash
 
flow.
 
The
 
carrying
 
value
 
of
 
the
 
Company’s
investment in V2 (before the impairment) was higher than its portion of V2’s
 
net asset value and therefore the Company recorded the
impairment loss. In December
 
2020, the Company no
 
longer expected to recover its
 
carrying value in V2 and
 
impaired its remaining
interest in
 
V2, recording
 
an impairment
 
loss of
 
$
0.5
 
million during
 
the nine
 
months ended
 
March 31,
 
2021. The
 
Company sold
 
its
investment in V2 on April 22, 2021, for
one
 
dollar.
 
The
 
Company
 
had
 
also
 
committed
 
to
 
provide
 
V2
 
with
 
a
 
working
 
capital
 
facility
 
of
 
$
5.0
 
million,
 
which
 
was
 
subject
 
to
 
the
achievement of certain pre-defined objectives, and in June 2020 it provided $
0.5
 
million to V2 under this facility. In September 2020,
the Company and
 
V2 agreed to reduce
 
the $
5.0
 
million working capital
 
facility to $
1.5
 
million. In October
 
2020, V2 drew down
 
the
remaining available $
1.0
 
million of the working
 
capital facility.
 
The Company created
 
an allowance for
 
doubtful loans receivable
 
of
$
1.5
 
million
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
related
 
to
 
the
 
full
 
amount
 
outsta
nding
 
as
 
of
 
June
 
30,
 
2021.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-34
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Equity-accounted investments (continued)
 
Carbon
 
The Company recorded
 
an impairment loss
 
of $
2.9
 
million during the
 
fourth quarter of
 
fiscal 2021, related
 
to the other-
than-temporary decrease in Carbon’s value. As of June 30, 2021, Carbon had a negative net book value and incurred an operating loss
during
 
the
 
twelve
 
months
 
to
 
June
 
30,
 
2021.
 
The
 
Company
 
considered
 
these
 
operating
 
losses
 
and
 
the
 
negative
 
net
 
book
 
value
 
as
impairment indicators and performed an impairment
 
assessment as of June 30, 2021.
 
The Company considered a variety of valuation
techniques, including
 
the revenue multiple
 
and price to
 
book ratio techniques,
 
and determined to
 
value its interest
 
in Carbon
 
using a
price
 
to book
 
ratio.
 
The Company
 
included
 
the price
 
to book
 
ratio of
 
a number
 
of African
 
banks
 
and digital
 
banks in
 
its peer
 
set.
However, as Carbon had a negative book value as of June 30,
 
2021, the result would always be nil regardless of the
 
price to book ratio
of
 
the
 
peer
 
group.
 
Therefore,
 
the
 
Company
 
concluded
 
that
 
its
 
investment
 
in
 
Carbon
 
had
 
a
 
fair
 
value
 
of
 
$
0
 
(nil)
 
and
 
impaired
 
the
carrying value in Carbon to $
0
 
(nil).
 
Walletdoc
 
In November 2020, the Company’s
 
subsidiary, Net1 SA, signed
 
an agreement with Walletdoc
 
under which Walletdoc
 
agreed to
repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest
 
in Walletdoc to Walletdoc.
 
DNI
 
As of
 
June 30,
 
2019, the
 
Company owned
30
% of
 
the voting
 
and economic
 
rights of
 
DNI. In
 
February 2020,
 
the Company’s
ownership percentage in
 
DNI reduced from approximately
30
% to
27
% following the issuance
 
by DNI of additional
 
ordinary no par
value shares. The Company did not acquire additional ordinary shares in DNI
 
and therefore its ownership percentage was diluted. The
terms
 
and
 
conditions
 
of
 
the
 
option
 
referred
 
to
 
below
 
were
 
unaffected
 
by
 
the
 
additional
 
issuance
 
by
 
DNI.
 
The
 
Company
 
sold
 
its
remaining interest in DNI in April 2020.
 
Sale of remaining interest
 
in April 2020
 
In May
 
2019, Net1 Applied
 
Technologies South Africa Proprietary
 
Limited (“Net1 SA”)
 
granted an
 
option to DNI,
 
or its
 
nominee,
to acquire
 
the
30,394,765
 
DNI shares
 
Net1 SA
 
held. The
 
option strike
 
price was
 
calculated as
 
ZAR
2.827
 
billion ($
158.0
 
million,
translated
 
at exchange
 
rates applicable
 
as of
 
March 31,
 
2020) less
 
any
 
special distribution
 
made by
 
DNI multiplied
 
by Net1
 
SA’s
retained interest (i.e.
 
assuming no special
 
distribution, the strike
 
price for the
 
retained interest was
 
ZAR
859.3
 
million, or $
48.0
 
million,
translated at exchange
 
rates applicable as
 
of June 30,
 
2020).
 
It was permissible
 
for the call
 
option to be
 
split into smaller
 
denominations,
but Net1 SA could not
 
be left with less than
20
% unless the whole remaining
 
interest was disposed of.
 
DNI was entitled to nominate
another party to
 
exercise the call
 
option in the
 
place of DNI,
 
provided that the
 
nominated party
 
acquired call options
 
representing at
least
2.5
% of DNI’s voting and participation
 
interests.
 
 
The option was
 
exercised on March 31,
 
2020. DNI nominated
 
MIC Investment Holdings Proprietary
 
Limited (“MIC”) to
 
exercise
a
 
portion
 
of
 
the
 
option
 
to
 
acquire
26,886,310
 
of
 
the
30,394,765
 
DNI
 
shares
 
for
 
ZAR
760.0
 
million
 
($
42.5
 
million,
 
translated
 
at
exchange rates
 
applicable as of
 
March 31, 2020)
 
from Net1 SA.
 
The transaction
 
closed on April
 
1, 2020 and
 
MIC settled the
 
option
consideration in cash. On March 31, 2020, and together with the
 
MIC transaction, DNI exercised a portion
 
of the option to acquire the
remaining
3,508,455
 
DNI shares from
 
Net1 SA for
 
ZAR
99.2
 
million ($
5.5
 
million, translated at
 
exchange rates applicable as
 
of March
31, 2020) through the issue of a note to Net1 SA. The transaction also closed
 
on April 1, 2020.
 
 
The note
 
was unsecured. The
 
note principal
 
was repayable
 
in
18
 
equal monthly installments
 
of ZAR
5.5
 
million ($
0.3
 
million,
translated at exchange rates applicable
 
as of June 30, 2020) commencing
 
on October 31, 2020. Interest was
 
charged at a fixed rate of
7.25
% per annum and accrued monthly from October 1, 2020 and was repayable together with the principal payments. The Company
adjusted the
 
12-month JIBAR
 
interest rate
 
of
6.33
% quoted
 
by Rand
 
Merchant Bank
 
by
0.30
% to
 
derive a
 
24-month rate
 
of
6.63
%
which was
 
used to
 
determine
 
the present
 
value of
 
the ZAR
99.2
 
million note.
 
The present
 
value of
 
the note
 
as of
 
March 31,
 
2020,
using the
 
derived interest
 
rate and
 
the expected
 
cash repayments
 
was ZAR
95.7
 
million ($
5.4
 
million, translated
 
at exchange
 
rates
applicable as of March 31, 2020). The portion of the note that was expected to be repaid during the twelve months following June 30,
2020, was
 
included in
 
accounts receivable,
 
net and
 
other receivables
 
in the
 
consolidated balance
 
sheet as
 
of June
 
30, 2020
 
(refer to
Note 3). The remaining amount (the long-term portion) was included in other
 
long-term assets in the consolidated balance sheet as of
June 30, 2020 (refer also to the section “Other long-term assets” below)
 
.
 
Th
e
 
Company
 
incurred
 
transaction
 
costs
 
of
 
approximately
 
$
1.0
 
million
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-35
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Equity-accounted investments (continued)
 
DNI
 
Sale of remaining interest
 
in April 2020
 
The following table presents the calculation of the loss on disposal of DNI on
 
April 1, 2020:
 
April 1
2020
Consideration received in cash on April 1, 2020 -
26,886,310
 
shares
$
42,477
Consideration received with note on April 1, 2020 - present value of note
 
-
3,508,455
 
shares
5,354
Less: transaction costs
(1,010)
Less: carrying value of DNI
(36,508)
Less: release of foreign currency translation reserve from accumulated other
 
comprehensive loss
(11,323)
Loss on sale of DNI before tax
(1,010)
Taxes related to sale of
 
DNI
-
Capital gains tax related to sale of DNI
(1)
2,475
Utilization of capital loss carryforwards
(1)
(2,475)
Loss on disposal of DNI after tax
$
(1,010)
 
(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but
 
not utilized. The Company utilized
approximately $
12.0
 
million of these unutilized capital losses as a result of the disposal of its remaining interest in DNI in April 2020
and, therefore, the equivalent portion of the valuation allowance
 
created was released.
 
Sale of 8% in May 2019
 
On
 
May
 
3,
 
2019,
 
Net1
 
SA
 
entered
 
into
 
a
 
transaction
 
with
 
FirstRand
 
Bank
 
Limited,
 
acting
 
through
 
its
 
Rand
 
Merchant
 
Bank
division
 
(“RMB”),
 
in
 
terms
 
of
 
which
 
Net1
 
SA
 
reduced
 
its
 
shareholding
 
in
 
DNI
 
from
38
%
 
to
30
%
 
through
 
the
 
sale
 
of
7,605,235
ordinary “A” shares
 
in DNI for a transaction
 
consideration of ZAR
215.0
 
million ($
15.0
 
million) (the “RMB Disposal”).
 
The parties
used a cashless
 
settlement process on
 
closing. The transaction
 
closed on May
 
3, 2019, and the
 
Company used the
 
proceeds from the
sale of
 
these DNI
 
shares and
 
ZAR
15.0
 
million of
 
its existing
 
cash reserves
 
to settle
 
its outstanding
 
long-term borrowings
 
of ZAR
230.0
 
million in full.
 
 
The following table presents the calculation of the gain on disposal of the 8%
 
retained interest in DNI on May 3, 2019:
 
May 3,
2019
May 3, 2019 fair value of consideration received
$
15,011
Less: equity-method interest sold
(14,996)
Less: released from accumulated other comprehensive loss – foreign
 
currency translation reserve (as restated)
(Note 1 and Note 14)
162
May 2019 gain recognized on disposal, before tax
177
Capital loss related to disposal
(1)
-
Gain recognized on disposal, after tax, as of May 3, 2019
$
177
 
(1)
 
The disposal
 
of the
8
% interest
 
in DNI
 
resulted
 
in a
 
capital loss
 
for
 
tax purposes
 
of approximately
 
$
23.9
 
million and
 
the
Company provided a
 
valuation allowance of
 
$
23.9
 
million against this capital
 
loss because it did
 
not have any
 
capital gains to offset
against this amount at the time.
 
 
DNI impairments recorded
 
during the year ended June 30, 2020
 
During year ended June 30, 2020, the Company recorded impairment losses of $
13.1
 
million. These impairment losses included
(i) an
 
amount of
 
$
11.5
 
million related
 
to the difference
 
between the
 
fair value
 
of consideration
 
received on
 
April 1, 2020
 
following
the
 
sale
 
of
 
its remaining
 
interest,
 
and
 
the
 
carrying
 
value
 
of DNI
 
as of
 
March
 
31,
 
2020,
 
which
 
included
 
$
11.3
 
million
 
included
 
in
accumulated other
 
comprehensive loss as
 
of March 31,
 
2020, and (ii)
 
an amount of
 
$
1.6
 
million representing
 
the excess of
 
recorded
earnings from DNI over
 
its carrying value, calculated
 
as the amount that
 
the Company could receive pursuant
 
to the call option
 
granted
to
 
DNI
 
in
 
May
 
2019
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-36
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Equity-accounted investments (continued)
 
 
Summarized below is the movement in equity-accounted investments during the years ended 2021 and 2020,
 
which includes the
investment in equity and the investment in loans provided to equity-accounted
 
investees:
 
Finbond
Bank Frick
DNI
Other
(1)
Total
Investment in equity
Balance as of June 30, 2019
$
32,611
$
47,240
$
61,030
$
7,398
$
148,279
Acquisition of shares
 
274
-
-
2,500
2,774
Stock-based compensation
 
71
-
-
-
71
Comprehensive (loss) income:
4,067
(17,273)
(9,744)
(4,365)
(27,315)
Other comprehensive income
 
2,227
-
-
-
2,227
Equity accounted (loss) earnings
1,840
(17,273)
(9,744)
(4,365)
(29,542)
Share of net income (loss)
1,857
1,421
4,676
(1,865)
6,089
Amortization of acquired intangible
assets
 
-
(569)
(1,874)
-
(2,443)
Deferred taxes on acquired intangible
assets
 
-
136
524
-
660
Dilution resulting from corporate
transactions
 
(17)
-
-
-
(17)
Impairment
-
(18,261)
(13,070)
(2,500)
(33,831)
Dividends received
 
(274)
(1,308)
(1,787)
(454)
(3,823)
Sale of DNI
-
-
(36,508)
-
(36,508)
Foreign currency adjustment
(2)
(5,873)
1,080
(12,991)
(478)
(18,262)
Balance as of June 30, 2020
30,876
29,739
-
4,601
65,216
Stock-based compensation
 
(25)
-
-
-
(25)
Comprehensive (loss) income:
(23,976)
1,156
-
(4,025)
(26,845)
Other comprehensive income
 
(1,967)
-
-
-
(1,967)
Equity accounted (loss) earnings
(22,009)
1,156
-
(4,025)
(24,878)
Share of net income (loss)
(4,359)
1,156
-
(531)
(3,734)
Impairment
(17,650)
-
-
(3,494)
(21,144)
Dividends received
 
-
-
-
(194)
(194)
Sale of DNI
-
(32,892)
-
(13)
(32,905)
Foreign currency adjustment
(2)
2,947
1,997
-
(187)
4,757
Balance as of June 30, 2021
$
9,822
$
-
$
-
$
182
$
10,004
Investment in loans:
Balance as of June 30, 2019
$
-
$
-
$
-
$
148
$
148
Loans granted
-
-
-
1,230
1,230
Allowance for doubtful loans
-
-
-
(730)
(730)
Foreign currency adjustment
(2)
-
-
-
(28)
(28)
Balance as of June 30, 2020
-
-
-
620
620
Loans repaid
-
-
-
(134)
(134)
Loans granted
-
-
-
1,238
1,238
Allowance for doubtful loans
-
-
-
(1,738)
(1,738)
Foreign currency adjustment
(2)
-
-
-
14
14
Balance as of June 30, 2021
$
-
$
-
$
-
$
-
$
-
Equity
Loans
Total
Carrying amount as of :
June 30, 2020
$
65,216
 
$
620
 
$
65,836
 
June 30, 2021
$
10,004
 
$
-
 
$
10,004
 
 
(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc;
(2)
 
The
 
foreign
 
currency
 
adjustment
 
represents
 
the
 
effects
 
of
 
the
 
fluctuations
 
of
 
the
 
Swiss
 
franc,
 
ZAR,
 
Nigerian
 
naira
 
and
Namibian
 
dollar,
 
against
 
the
 
U.S.
 
dollar
 
on
 
the
 
carrying
 
value.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-37
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Summary financial information of equity-accounted
 
investments
Summarized
 
below
 
is the
 
financial
 
information
 
of
 
equity-accounted
 
investments
 
(during
 
the
 
Company’s
 
reporting
 
periods
 
in
which investments were carried using the equity-method, unless otherwise noted)
 
as of the stated reporting period of the investee and
translated at the applicable closing or average foreign exchange
 
rates (as applicable):
 
Finbond
(1)
Bank Frick
(2)
DNI
Other
(3)
Balance sheet, as of
February 28
June 30
June 30
Various
Current assets
(4)
2021
$
n/a
$
n/a
$
n/a
$
24,066
2020
n/a
n/a
n/a
19,910
Long-term assets
2021
289,260
n/a
n/a
4,977
2020
294,734
1,042,366
n/a
6,145
Current liabilities
(4)
2021
n/a
n/a
n/a
26,983
2020
n/a
n/a
n/a
7,824
Long-term liabilities
2021
208,043
n/a
n/a
5,732
2020
189,159
940,948
n/a
18,076
Non-controlling interest
2021
13,574
n/a
n/a
-
2020
15,795
-
n/a
(73)
Statement of operations, for the period ended
February 28
June 30
(2)
June 30
(5)
Various
Revenue
2021
95,847
35,641
n/a
6,404
2020
161,378
37,864
68,983
7,862
2019
174,177
41,126
15,898
33,707
Operating income (loss)
2021
(18,980)
3,860
n/a
(2,413)
2020
17,483
4,815
24,563
(5,064)
2019
20,355
3,633
5,814
(753)
Income (loss) from continuing operations
2021
(15,466)
3,303
n/a
(2,539)
2020
14,449
4,053
17,092
(5,116)
2019
17,761
3,169
4,306
(915)
Net income (loss)
2021
(17,889)
3,303
n/a
(2,539)
2020
6,433
4,053
15,772
(5,014)
2019
$
9,385
$
3,169
$
4,481
$
(1,029)
 
(1) Finbond balances included were derived from its publicly
 
available information and presented for its years ended February;
(2) Bank Frick
 
disposed of in February
 
2021. Statement of operations
 
information for Bank
 
Frick is for the
 
period from July 1,
2020 to January 31, 2021, and the full twelve months for both fiscal 2020
 
and 2019.
(3) Includes
 
Carbon, SmartSwitch
 
Namibia, Revix,
 
Walletdoc
 
and V2,
 
as appropriate.
 
Balance sheet
 
information
 
for Carbon,
SmartSwitch Namibia, Revix and
 
V2 is as of June 30,
 
2021 and 2020,
 
and Walletdoc
 
as of February 29, 2021 and
 
February 28,
2020,
 
respectively.
 
Statement of
 
operations information
 
for Carbon,
 
SmartSwitch Namibia,
 
Revix, and
 
V2 for
 
the year
 
ended
June 30, and Walletdoc
 
for the year ended February 28/29 (as appropriate);
(4) Bank Frick and Finbond are banks and do not present current and
 
long-term assets and liabilities. All assets and liabilities of
these two entities are included under the long-term caption;
(5) Statement of operations information for DNI is for the period from July 1,
 
2019 to March 31, 2020, and April 1, 2019 to
 
June
30,
 
2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-38
8.
 
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 June 30,
 
2021, and June 30, 2020:
 
June 30,
June 30,
2021
2020
Total equity investments
 
$
76,297
$
26,993
Investment in
11
% (2020:
12
%) of MobiKwik
(1)
76,297
26,993
Investment in
15
%
 
of Cell C, at fair value (Note 5)
-
-
Investment in
87.50
% of CPS (Note 23)
(1)(2)
-
-
Total held to maturity
 
investments
 
-
-
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes
-
-
Long-term portion of amount due related to sale of interest in Bank Frick
(3)
3,890
-
Long-term portion of amount due from DNI related to sale of remaining interest
 
in DNI
-
2,857
Policy holder assets under investment contracts (Note 10)
381
490
Reinsurance assets under insurance contracts (Note 10)
1,298
1,006
Total other long-term
 
assets
$
81,866
$
31,346
 
(1)
 
The Company
 
determined
 
that
 
MobiKwik
 
and CPS
 
do not
 
have
 
readily
 
determinable
 
fair
 
values
 
and
 
therefore
 
elected to
record these investments
 
at cost minus impairment,
 
if any,
 
plus or minus changes
 
resulting from observable
 
price changes in orderly
transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020,
 
the High Court of
 
South Africa, Gauteng Division, Pretoria
 
ordered that CPS be
 
placed into liquidation.
(3) Long-term portion of amount due related to sale of interest in Bank Frick represents the amount due by the purchaser
 
in July
2022.
 
MobiKwik
 
The Company
 
signed a
 
subscription agreement
 
with MobiKwik,
 
which is
 
one of
 
India’s
 
largest independent
 
mobile payments
networks,
 
with over
100
 
million
 
users and
2.3
 
million merchants.
 
Pursuant
 
to the
 
subscription
 
agreement,
 
the Company
 
agreed
 
to
make an equity investment of up
 
to $
40.0
 
million in MobiKwik over a
24
-month period. The Company made
 
an initial $
15.0
 
million
investment in
 
August 2016 and
 
a further $
10.6
 
million investment in
 
June 2017, under
 
this subscription agreement.
 
During the year
ended June 30, 2019, the
 
Company paid $
1.1
 
million to subscribe for additional
 
shares in MobiKwik. As of
 
June 30, 2021 and 2020,
respectively, the
 
Company owned approximately
11
% and
12
% of MobiKwik’s issued share capital.
 
During the year
 
ended June 30,
 
2021, MobiKwik
 
entered into a
 
number of separate
 
agreements with new
 
shareholders to
 
raise
additional capital through the issuance of additional shares. Specifically, the Company used the following transactions as the basis for
its fair value
 
adjustments to
 
its investment in
 
MobiKwik during
 
the year ended
 
June 30, 2021:
 
(i) in early
 
November 2020,
 
$
135.54
per share; March 2021,
 
$
170.33
 
per share; and June
 
2021, $
245.50
 
per share. The Company
 
considered each of these
 
transactions to
be an observable
 
price change in an
 
orderly transaction for
 
similar or identical equity
 
securities issued by MobiKwik.
 
The Company
used the
 
November 2020
 
valuation as
 
the basis
 
for its
 
adjustment to
 
increase the
 
carrying value
 
in its
 
investment in
 
MobiKwik by
$
15.1
 
million from $
27.0
 
million to $
42.1
 
million as of December 31, 2020. The Company
 
used the March 2021 valuation as the basis
for its adjustment to increase
 
the carrying value in
 
its investment in MobiKwik
 
by $
10.8
 
million from $
42.1
 
million to $
52.9
 
million
as of March 31,
 
2021. The Company used
 
the June 2021 valuation
 
as the basis for its
 
adjustment to increase the
 
carrying value in its
investment in
 
MobiKwik by
 
$
24.0
 
million from
 
$
52.9
 
million to $
76.3
 
million as
 
of June 30,
 
2021. The
 
change in
 
the fair
 
value of
MobiKwik for the year ended June 30, 2021, of $
49.3
 
million, is included in the caption “Change in fair value of equity securities” in
the consolidated statement of operations for the year ended June 30,
 
2021.
 
Cell C
 
 
On
 
August
 
2,
 
2017,
 
the
 
Company,
 
through
 
its
 
subsidiary,
 
Net1SA,
 
purchased
75,000,000
 
class
 
“A”
 
shares
 
of
 
Cell
 
C
 
for
 
an
aggregate purchase price of ZAR
2.0
 
billion ($
151.0
 
million) in cash. The Company funded the transaction
 
through a combination of
cash and a
 
borrowing facility.
 
Net1 SA has
 
pledged, among other
 
things, its entire
 
equity interest in
 
Cell C as
 
security for the
 
South
African facilities described in Note 11 used to partially fund the acquisition of Cell C. The Company’s
 
investment in Cell is carried at
fair
 
value.
 
Refer
 
to
 
Note
 
5
 
for
 
additional
 
information
 
regarding
 
changes
 
in
 
the
 
fair
 
value
 
of
 
Cell
 
C.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-39
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Other long-term assets (continued)
 
CPS
 
The Company deconsolidated its investment in CPS in May
 
2020, refer to Note 23. As of June 30, 2021 and 20
 
20, respectively,
the Company owned
87.5
% of CPS’ issued share capital.
 
Cedar Cellular
 
No
 
interest income from the Cedar Cellular note was recorded during the years ended June 30, 2021 and 2020, respectively. The
Company recognized interest income of $
2.4
 
million related to the Cedar Cellular notes during the year ended June 30, 2019. Interest
on this investment will only
 
be paid, at Cedar Cellular’s
 
election, on maturity
 
in August 2022. The
 
Company’s effective
 
interest rate
on the Cedar Cellular note was
24.82
% as of June 30, 2019.
 
The Company does
 
not expect to
 
recover the amortized
 
cost basis of
 
the Cedar Cellular
 
notes due to
 
a reduction in
 
the amount
of future cash flows expected to be collected from the
 
debt security compared to previous expectations. The Company does not
 
expect
to generate any cash flows from the debt security at
 
maturity in August 2022 or prior to the maturity date
 
due to the current challenges
facing the business and the uncertainties over the future value of the current equity in Cell C. Accordingly, the Company believes it is
unlikely that
 
Cedar Cellular will
 
generate sufficient
 
cash inflows to
 
settle any outstanding
 
accumulated interest
 
and principal due
 
to
the note holders on maturity in August 2022.
 
The Company cannot
 
calculate an effective
 
interest rate on the
 
Cedar Cellular note
 
because the carrying
 
value is currently zero
($
0.0
 
million) as of June 30, 2021 and 2020. The Company
 
therefore cannot calculate the present value of the
 
expected cash flows to
be collected
 
from the
 
debt security
 
by discounting
 
these cash
 
flows at the
 
interest rate
 
implicit in
 
the security
 
upon acquisition
 
(at a
rate of
24.82
%) because there are no future cash flows to
 
discount. The present value of the expected cash flows of zero
 
($
0.0
 
million)
is less than
 
the amortized
 
cost basis recorded
 
of $
12.8
 
million (before the
 
cumulative 2019 impairments
 
for the year
 
ended June 30,
2019). Accordingly,
 
the Company
 
recorded an
 
other-than-temporary
 
impairment related
 
to a
 
credit loss
 
of $
12.8
 
million during
 
the
year
 
ended June
 
30, 2019.
 
The impairment
 
of $
12.8
 
million is
 
included
 
in the
 
caption “Impairment
 
of Cedar
 
Cellular note”
 
in the
consolidated statement of operations for the year ended June 30,
 
2019.
 
Summarized below
 
are the components
 
of the Company’s
 
equity securities
 
without readily
 
determinable fair
 
value and held
 
to
maturity investments as of June 30, 2021:
 
 
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
 
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, 2020:
 
 
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
-
$
-
$
26,993
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
 
-
-
-
-
Total
 
$
26,993
$
-
$
-
$
26,993
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-40
8.
 
EQUITY
-
ACCOUNTED
 
INVESTMENTS
 
AND
 
OTHER
 
LONG
-
TERM
 
ASSETS
 
(continued)
 
 
Contractual maturities of held to maturity investments
 
Summarized below is the contractual maturity of the Company’s
 
held to maturity investment as of June 30, 2021:
 
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
 
security
provided to the Company by Cedar Cellular, namely,
 
Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
0.0
 
million).
 
 
9.
 
GOODWILL
 
AND
 
INTANGIBLE
 
ASSETS
,
 
net
 
 
Goodwill
 
Summarized below is the movement in the carrying value of goodwill
 
for the years ended June 30, 2021, 2020 and 2019:
 
Gross value
Accumulated
impairment
Carrying value
Balance as of July 1, 2018
$
73,572
$
(20,773)
$
52,799
Impairment loss
-
(14,440)
(14,440)
Foreign currency adjustment
(1)
(1,099)
56
(1,043)
Balance as of June 30, 2019
72,473
(35,157)
37,316
Impairment loss
-
(5,589)
(5,589)
Disposal of FIHRST (Note 23)
(599)
-
(599)
Deconsolidation of CPS (Note 23)
(1,346)
1,346
-
Foreign currency adjustment
(1)
(7,334)
375
(6,959)
Balance as of June 30, 2020
63,194
(39,025)
24,169
Liquidation of subsidiaries
(2)
(26,629)
26,629
-
Foreign currency adjustment
(1)
6,384
(1,400)
4,984
Balance as of June 30, 2021
$
42,949
$
(13,796)
$
29,153
 
(1)
 
– The foreign
 
currency adjustment represents
 
the effects
 
of the fluctuations
 
between the South
 
African Rand and
 
the Euro,
and the U.S. dollar on the carrying value.
(2) – The Company deconsolidated the goodwill and accumulated impairment
 
related to entities it substantially liquidated
during the year ended June 30, 2021.
 
 
Impairment loss
 
 
The Company assesses the carrying
 
value of goodwill for impairment
 
annually, or
 
more frequently,
 
whenever events occur and
circumstances change indicating potential impairment. The Company
 
performs its annual impairment test as at June 30 of each year.
 
Year ended
 
June 30, 2021
 
 
The
 
Company
 
did
 
no
t
 
impair
 
any
 
goodwill
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2021.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-41
9.
 
GOODWILL
 
AND
 
INTANGIBLE
 
ASSETS
,
 
net
 
(continued)
 
 
Goodwill (continued)
 
Impairment loss (continued)
 
 
Year ended
 
June 30, 2020 (continued)
 
 
During the
 
third quarter
 
of fiscal
 
2020, the
 
Company performed
 
an impairment
 
analysis and
 
recognized an
 
impairment loss
 
of
$
5.6
 
million, related to goodwill allocated to its EasyPay business within its South
 
African transaction processing operating segment.
The impairment loss resulted from a reassessment of the business’s growth
 
prospects given the challenging economic environment in
South Africa. The impairment
 
is included within the
 
caption impairment loss in the
 
consolidated statement of operations
 
for the year
ended June 30, 2020.
 
In order to determine the amount of the EasyPay goodwill impairment, the estimated fair value of EasyPay’s business assets and
liabilities were compared
 
to the carrying value
 
of its assets and liabilities.
 
The Company used a
 
discounted cash flow model
 
in order
to determine the
 
fair value of
 
EasyPay.
 
Based on this
 
analysis, the Company
 
determined that the
 
carrying value of
 
EasyPay’s assets
and liabilities exceeded their fair value at the reporting date.
 
Year ended
 
June 30, 2019
 
 
During the second quarter of fiscal 2019, the Company performed an impairment analysis and recognized an impairment
 
loss of
approximately
 
$
8.2
 
million,
 
of
 
which
 
approximately
 
$
7.0
 
million
 
related
 
to
 
goodwill
 
allocated
 
to
 
its
 
IPG
 
business
 
within
 
its
international
 
transaction
 
processing
 
operating
 
segment
 
and
 
$
1.2
 
million
 
related
 
to
 
goodwill
 
within
 
its
 
South
 
African
 
transaction
processing operating segment.
 
Given the consolidation
 
and restructuring of
 
IPG over the
 
period to December
 
31, 2018, several
 
business
lines were terminated or meaningfully reduced, resulting in lower than expected revenues, profits and cash flows. IPG’s new business
initiatives were still in their infancy,
 
and it was expected to generate lower cash flows than initially forecast.
 
In order to determine the amount of the
 
IPG goodwill impairment, the estimated fair value of
 
the Company’s IPG business assets
and liabilities was compared to the carrying value of IPG’s
 
assets and liabilities. The Company used a discounted cash flow model
 
in
order to determine
 
the fair value
 
of IPG. The
 
allocation of the
 
fair value of
 
IPG required the
 
Company to make
 
a number of
 
assumptions
and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this
analysis, the Company determined that the carrying value of IPG’s assets and liabilities exceeded their fair value at the reporting date.
 
The
 
Company
 
also identified
 
and
 
recognized an
 
impairment loss
 
of $
6.2
 
million related
 
to goodwill
 
allocated
 
to its
 
financial
inclusion
 
and
 
applied
 
technologies
 
operating
 
segment
 
as
 
a
 
result
 
of
 
its
 
June
 
30,
 
2019,
 
annual
 
impairment
 
test.
 
The
 
June
 
2019
impairment loss resulted from on-going losses incurred in the latter half
 
of the fiscal year that were greater than, and were
 
incurred for
a longer duration, than initially expected.
 
The estimated fair value of
 
the business assets and liabilities
 
were compared to the
 
carrying value of the assets and
 
liabilities of
the reporting
 
unit within
 
the financial
 
inclusion and
 
applied technologies
 
operating segment
 
in order
 
to determine
 
the $
6.2
 
million
goodwill impairment. The Company
 
used an EV/EBITDA multiple valuation model to determine the fair value
 
of the reporting unit.
 
The allocation of the fair value of
 
the reporting unit required the Company to make
 
a number of assumptions and estimates about
the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this analysis, except for
the impairments
 
recognized, the
 
Company determined
 
that the
 
carrying value
 
of the
 
reporting unit’s
 
assets and
 
liabilities exceeded
their fair value at the reporting date.
 
 
In the event
 
that there is
 
deterioration in the
 
Company’s operating
 
segments, or in
 
any other of
 
the Company’s
 
businesses, this
may
 
lead
 
to
 
additional
 
impairments
 
in
 
future
 
periods
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-42
9.
 
GOODWILL
 
AND
 
INTANGIBLE
 
AS
SETS
,
 
net
 
(continued)
 
 
Goodwill (continued)
 
Refer to Note 20 for additional information regarding changes to
 
the Company’s reportable segments during the year ended June
30, 2021. Goodwill has been allocated to the Company’s
 
reportable segments as follows:
 
Processing
Financial services
Technology
Carrying value
Balance as of July 1, 2018
$
28,614
$
-
$
24,185
$
52,799
Impairment loss
(8,191)
-
(6,249)
(14,440)
Foreign currency adjustment
(1)
(558)
-
(485)
(1,043)
Balance as of June 30, 2019
19,865
-
17,451
37,316
Impairment loss
(5,589)
-
-
(5,589)
Disposal of FIHRST (Note 23)
(599)
(599)
Foreign currency adjustment
(1)
(3,688)
-
(3,271)
(6,959)
Balance as of June 30, 2020
9,989
-
14,180
24,169
Foreign currency adjustment
(1)
1,978
-
3,006
4,984
Balance as of June 30, 2021
$
11,967
$
-
$
17,186
$
29,153
 
(1)
 
– The
 
foreign currency
 
adjustment represents
 
the effects
 
of the
 
fluctuations between
 
the South
 
African rand
 
and the Euro,
and the U.S. dollar on the carrying value.
 
Intangible assets
 
Impairment loss
 
 
The Company
 
assesses the carrying
 
value of
 
intangible assets
 
for impairment
 
whenever events
 
occur or
 
circumstances change
indicating that
 
the carrying
 
amount of
 
the intangible
 
asset may
 
not be
 
recoverable. Except
 
as discussed
 
below,
no
 
intangible assets
have been impaired during the years ended June 30, 2021, 2020 and 2019,
 
respectively.
 
Year ended
 
June 30, 2020
 
During
 
the third
 
quarter of
 
fiscal 2020
 
,
 
the Company
 
determined
 
that its
 
indefinite-lived
 
intangible
 
asset, a
 
Maltese e-money
license, of
 
$
0.7
 
million was
 
impaired. The
 
facts and
 
circumstances leading
 
up to
 
the impairment
 
include the
 
losses incurred
 
by the
Company’s
 
IPG business
 
unit. In
 
fiscal 2019,
 
IPG formulated
 
a plan
 
to return
 
to profitability,
 
however,
 
it missed
 
a number
 
of key
deliverable deadlines and
 
was reformulating its growth
 
plans following the decision
 
not to acquire a controlling
 
stake in Bank Frick.
The impairment is included within the caption impairment loss to the consolidated statement of operations for the year ended June 30,
2020
.
 
The
 
intangible
 
asset
 
was
 
not
 
allocated
 
to
 
an
 
operating
 
segment
 
and
 
is
 
included
 
within
 
corporate/
 
eliminations
 
(refer
 
to
 
Note
 
20
).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-43
9.
 
GOODWILL
 
AND
 
INTANGIBLE
 
ASSETS
,
 
net
 
 
Intangible assets (continued)
 
Carrying value and amortization of intangible assets
 
 
Summarized below is the carrying value and accumulated amortization of the intangible assets as of June 30, 2021, and June 30,
2020:
 
As of June 30, 2021
As of June 30, 2020
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
10,340
$
(10,340)
$
-
$
19,064
$
(18,806)
$
258
Software and unpatented
technology
1,726
(1,726)
-
3,931
(3,931)
-
FTS patent
 
2,679
(2,679)
-
2,211
(2,211)
-
Trademarks
 
2,015
(1,658)
357
2,731
(2,377)
354
Total finite-lived
 
intangible
assets
 
$
16,760
$
(16,403)
357
$
27,937
$
(27,325)
612
Indefinite-lived intangible assets:
Financial institution licenses
(1)
-
-
Total indefinite
 
-lived
intangible assets
 
-
-
Total intangible
 
assets
 
$
357
$
612
 
(1)
 
The Company
 
deconsolidated the
 
Malta e-money
 
licence following
 
the substantial
 
liquidation of
 
its Malta
 
business during
the year ended June 30, 2021.
 
 
Aggregate
 
amortization
 
expense
 
on
 
the
 
finite-lived
 
intangible
 
assets for
 
the
 
years
 
ended
 
June
 
30,
 
2021,
 
2020
 
and
 
2019,
 
was
approximately $
0.4
 
million, $
0.3
 
million and $
7.1
, respectively.
 
 
Future estimated annual amortization expense for
 
the next five fiscal
 
years and thereafter, assuming exchange rates that
 
prevailed
on June
 
30, 2021,
 
is presented in
 
the table below.
 
Actual amortization
 
expense in future
 
periods could differ
 
from this estimate
 
as a
result of acquisitions, changes in useful lives, exchange rate fluctuations
 
and other relevant factors.
 
Fiscal 2022
$
72
Fiscal 2023
72
Fiscal 2024
71
Fiscal 2025
71
Fiscal 2026
71
Total future
 
estimated annual amortization expense
$
357
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-44
10
.
 
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 years
ended June 30, 2021 and 2020:
 
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of July 1, 2019
$
1,163
$
(1,880)
Increase in policy holder benefits under insurance contracts
 
509
(3,024)
Claims and policyholders’ benefits under insurance contracts
(449)
3,182
Foreign currency adjustment
(3)
(217)
352
Balance as of June 30, 2020
1,006
(1,370)
Increase in policy holder benefits under insurance contracts
 
711
8,032
Claims and policyholders’ benefits under insurance contracts
(632)
(8,383)
Foreign currency adjustment
(3)
213
(290)
Balance as of June 30, 2021
$
1,298
$
(2,011)
 
(1) Included in other long-term assets (refer to Note 8);
(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 large 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 estimates
 
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 years
 
ended June
30, 2021 and 2020:
 
Assets
(1)
Investment
contracts
(2)
Balance as of July 1, 2019
$
619
$
(619)
Increase in policy holder benefits under investment contracts
 
17
(17)
Claims and decrease in policyholders’ benefits under investment contracts
 
(29)
29
Foreign currency adjustment
(3)
(117)
117
Balance as of June 30, 2020
490
(490)
Increase in policy holder benefits under investment contracts
 
13
(13)
Claims and decrease in policyholders’ benefits under investment contracts
 
(227)
227
Foreign currency adjustment
(3)
105
(105)
Balance as of June 30, 2021
$
381
$
(381)
 
(1) Included in other long-term assets (refer to Note 8);
(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.
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-45
11
.
 
BORROWINGS
 
 
South Africa
 
The amounts below have been translated at exchange rates applicable
 
as of the dates specified.
 
July 2017 Facilities, as amended, comprising long-term borrowings (all repaid)
 
and a short-term facility (Facility E)
 
On July 21, 2017, Net1 SA entered into a Common Terms Agreement, Subordination Agreement, Security Cession & Pledge and
certain ancillary loan documents (collectively, the “Original Loan Documents”) with RMB, a South African corporate and investment
bank,
 
and Nedbank
 
Limited (acting
 
through
 
its Corporate
 
and
 
Investment
 
Banking division),
 
an African
 
corporate and
 
investment
bank (collectively, the “Lenders”). Since 201
 
7, these agreements have been amended to add additional facilities. Facilities A, B, C, D
and F have been repaid and cancelled. As of June 30, 2021, the only remaining available facility is an overdraft facility (“Facility E”).
 
Available short-term facility - Facility
 
E
 
On September 26, 2018, Net1 SA further revised its amended
 
July 2017 Facilities agreement with RMB to include Facility E, an
overdraft facility
 
of up
 
to ZAR
1.5
 
billion ($
104.5
 
million, translated
 
at exchange
 
rates applicable
 
as of
 
June 30,
 
2021) to
 
fund the
Company’s ATMs. The Facility E overdraft
 
facility was
 
subsequently reduced to
 
ZAR
1.2
 
billion ($
83.9
 
million, translated at
 
exchange
rates applicable as of June 30, 2021) in September 2019.
 
On August 2, 2021, Net1 SA and RMB entered into a Letter of Amendment
to increase Facility
 
E from ZAR
1.2
 
billion to ZAR
1.4
 
billion ($
97.9
 
million, translated at
 
exchange rates
 
applicable as of
 
June 30,
2021). Interest on the
 
overdraft facility is payable
 
on the first
 
day of month following
 
utilization of the facility
 
and on the
 
final maturity
date based on the
 
South African prime rate.
 
The overdraft facility amount
 
utilized must be repaid
 
in full within one
 
month of utilization
and at least
90
% of the
 
amount utilized must
 
be repaid
 
within
25 days
. The overdraft
 
facility is secured
 
by a pledge
 
by Net1 SA
 
of,
among
 
other
 
things,
 
cash
 
and
 
certain
 
bank
 
accounts
 
utilized
 
in
 
the
 
Company’s
 
ATM
 
funding
 
process,
 
the
 
cession
 
of
 
Net1
 
SA’s
shareholding in
 
Cell C, the
 
cession of
 
an insurance
 
policy with Senate
 
Transit Underwriters
 
Managers Proprietary
 
Limited, and any
rights and
 
claims Net1
 
SA has against
 
Grindrod Bank
 
Limited. As
 
at June
 
30, 2021,
 
the Company
 
had utilized
 
approximately ZAR
0.2
 
billion ($
14.2
 
million) of this overdraft facility. This overdraft facility may only be used to fund ATMs and therefore the overdraft
utilized and converted to
 
cash to fund
 
the Company’s ATMs is considered restricted cash. The
 
prime rate on
 
June 30, 2021,
 
was 7.00%.
 
Repaid and cancelled facilities - Facility A, B, C, D and F
 
As part of
 
the Original
 
Loan Documents
 
concluded on
 
July 21, 2017,
 
Net1 SA also
 
entered into
 
Senior Facility A
 
Agreement,
Senior Facility B Agreement and Senior Facility C Agreement,
 
pursuant to which, among other things, Net1 SA borrowed
 
ZAR
1.25
billion to finance
 
a portion of its investment
 
in Cell C and
 
to fund its on-going
 
working capital requirements.
 
On March 8, 2018,
 
the
Company amended its South African long-term facility to include an additional term loan, Facility D, of up to ZAR
210.0
 
million. All
amounts under these facilities were repaid in full during the year ended
 
June 30, 2019.
 
On September 4,
 
2019, Net1 SA
 
further amended
 
the July 2017
 
Facilities agreement,
 
which included adding
 
Main Street 1692
(RF) Proprietary Limited (“Debt Guarantor”), a South African company incorporated for the sole purpose of holding collateral for the
benefit of
 
the Lenders
 
and acting
 
as debt
 
guarantor.
 
The covenants
 
were also
 
amended and
 
now include
 
customary covenants
 
that
require Net1 SA to maintain
 
a specified total asset
 
cover ratio and restrict the
 
ability of Net1 SA,
 
and certain of its subsidiaries
 
to make
certain distributions with
 
respect to their capital
 
stock, prepay other debt,
 
encumber their assets, incur
 
additional indebtedness, make
investment above specified levels, engage in certain business combinations
 
and engage in other corporate activities. Net1 also agreed
that in
 
the event
 
of any
 
sale of
 
KSNET,
 
Inc., it
 
would deposit
 
a portion
 
of the
 
proceeds in
 
an amount
 
of the
 
USD equivalent
 
of the
Facility F
 
loan and
 
the Nedbank
 
general banking
 
facility commitment
 
into a
 
bank account
 
secured in
 
favor of
 
the Debt
 
Guarantor.
Net1 SA also entered
 
into a pledge and
 
cession agreement with the
 
Debt Guarantor pursuant to
 
which, among other things,
 
Net1 SA
agreed to
 
cede its
 
shareholdings in
 
Cell C,
 
DNI and
 
Net1 FIHRST
 
Holdings (Pty)
 
Ltd to
 
the Debt
 
Guarantor.
 
The shareholdings
 
in
DNI and Net 1 FIHRST Holdings (Pty) Ltd were released pursuant
 
to the transactions to dispose of these investments.
 
On September 4, 2019, Net1 SA further amended its
 
amended July 2017 Facilities agreement with RMB and
 
Nedbank to include
a facility (“Facility F”) of up to ZAR
300.0
 
million ($
17.3
 
million, translated at exchange rates applicable as of June 30, 2020) for the
sole purpose of funding the acquisition of airtime
 
from Cell C. Net1 SA could not dispose
 
of the airtime acquired from Cell C before
April 1, 2020, without the prior consent of RMB, Absa Bank Limited and Investec Asset Management Proprietary Limited. Facility F
comprised (i)
 
a first
 
Senior Facility
 
F loan
 
of ZAR
220.0
 
million (ii)
 
a second
 
Senior Facility
 
F loan
 
of ZAR
80.0
 
million, or
 
such
lesser amount
 
as may
 
be agreed
 
by the
 
facility agent.
 
The first
 
loan was
 
utilized on
 
September 5,
 
2019, while
 
the second
 
loan was
never utilized.
 
Facility F
 
was required
 
to be
 
repaid in
 
full within
 
nine months
 
following the
 
first utilization
 
of the
 
facility.
 
Net1 SA
was required to prepay Facility F subject to customary prepayment terms. Interest on Facility F was based on JIBAR plus a margin of
5.50
% per annum and was due in full on repayment of the loan. The
 
margin on the Facility F increased by 1% on November
 
1, 2019,
because
 
the
 
Company
 
had
 
not
 
disposed
 
of
 
its
 
remaining
 
shareholding
 
in
 
DNI
 
and
 
FIHRST
 
by
 
that
 
date.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-46
11
.
 
BORROWINGS
 
(continued)
 
 
South Africa (continued
 
July
 
2017
 
Facilities,
 
as
 
amended,
 
comprising
 
long-term
 
borrowings
 
(all
 
repaid)
 
and
 
a
 
short-term
 
facility
 
(Facility
 
E)
(continued)
 
 
Repaid and cancelled facilities - Facility A, B, C, D and F (continued)
 
Net1 SA
 
paid a
 
non-refundable
 
structuring
 
fee of
 
ZAR
2.2
 
million
 
($
0.1
 
million)
 
to the
 
Lenders
 
in September
 
2019, and
 
the
Company expensed this amount in full during the
 
first quarter of fiscal 2020. The
 
Company settled the facility in full on
 
April 1, 2020,
utilizing a portion of the proceeds received from the sale of its remaining stake
 
in DNI, and the facility was cancelled.
 
Nedbank facility, comprising short-term facilities
 
As of June 30, 2021, the aggregate amount of
 
the Company’s short-term South African credit facility with Nedbank Limited was
ZAR
406.6
 
million ($
28.4
 
million). The
 
credit facility
 
comprises an
 
overdraft facility
 
of up
 
to ZAR
250.0
 
million ($
17.5
 
million),
which may only be used to
 
fund mobile ATMs and indirect and derivative facilities of up to ZAR
156.6
 
million ($
10.9
 
million), which
include guarantees, letters of credit and forward exchange contracts.
 
 
On November 2, 2020, the Company amended its short
 
-term South African credit facility with Nedbank Limited
 
to increase the
indirect
 
and
 
derivative
 
facilities
 
component
 
of
 
the
 
facility
 
from
 
ZAR
150.0
 
million
 
to
 
ZAR
159.0
 
million.
 
On
 
June
 
1,
 
2021,
 
the
Company
 
further
 
amended
 
its short-term
 
South
 
African
 
credit facility
 
with Nedbank
 
Limited
 
to reduce
 
the indirect
 
and derivative
facilities component of the facility
 
from ZAR
159.0
 
million to ZAR
157.0
 
million, and to cancel its ZAR
50
 
million general banking
facility.
 
The Company
 
has entered
 
into cession
 
and pledge
 
agreements with
 
Nedbank related
 
to certain
 
of its
 
Nedbank credit
 
facilities
(the general banking
 
facility and a
 
portion of the
 
indirect facility) and
 
the Company has
 
ceded and pledged
 
certain bank accounts
 
to
Nedbank and also provided a
 
the cession of Net1
 
SA’s
 
shareholding in Cell C.
 
The funds included in these
 
bank accounts are restricted
as they may
 
not be withdrawn
 
without the express
 
permission of Nedbank.
 
These funds, of
 
ZAR
156.6
 
million ($
10.9
 
million translated
at exchange
 
rates applicable
 
as of June
 
30, 2021),
 
are included within
 
the caption restricted
 
cash related
 
to ATM
 
funding and
 
credit
facilities on the Company’s consolidated
 
balance sheet as of June 30, 2021.
 
The Company
 
has also
 
ceded all
 
of its
 
title and
 
interest in
 
an insurance
 
policy issued
 
by Fidelity
 
Risk Proprietary
 
Limited as
security for its repayment obligations under the facility.
 
A commitment fee of
0.35
% per annum is payable on the monthly unutilized
amount of the
 
overdraft portion of
 
the short-term facility. The Company
 
is required to
 
comply with customary non-financial
 
covenants,
including, without
 
limitation, covenants
 
that restrict
 
its ability
 
to dispose
 
of or
 
encumber its assets,
 
incur additional
 
indebtedness or
engage in certain business combinations.
 
 
The short-term facility
 
provides Nedbank with
 
the right to set
 
off funds held
 
in certain identified
 
Company bank accounts with
Nedbank against any amounts owed to Nedbank under
 
the facility. As of June 30,
 
2021, the Company had total funds of $
0.2
 
million
in
 
bank
 
accounts
 
with
 
Nedbank
 
which
 
have
 
been
 
set off
 
against $
0.2
 
million
 
drawn
 
under
 
the Nedbank
 
facility,
 
for a
 
net
 
utilized
facility balance of
 
$
0
 
(nil) as of June
 
30, 2021. As of
 
June 30, 2020, the
 
Company had total funds
 
of $
12.4
 
million in bank accounts
with Nedbank
 
which have
 
been set
 
off
 
against $
12.4
 
million drawn
 
under
 
the Nedbank
 
facility,
 
for a
 
net amount
 
drawn under
 
the
facility of $
0.1
 
million. As of June 30, 2021, the interest rate on the overdraft facility was
5.85
%.
 
As of June 30, 2021, the Company had not utilized its ZAR
250.0
 
million overdraft facility to fund ATMs.
 
As of June 30, 2020,
the Company
 
had utilized
 
approximately ZAR
1.0
 
million ($
0.1
 
million) of
 
its ZAR
300.0
 
million overdraft
 
facility to fund
 
ATMs,
and
none
 
of
 
its
 
ZAR
50.0
 
million
 
general
 
banking
 
facility.
 
As
 
of
 
June
 
30,
 
2021
 
and
 
June
 
30,
 
2020,
 
the
 
Company
 
had
 
utilized
approximately
 
ZAR
156.6
 
million
 
($
10.9
 
million) and
 
ZAR
93.6
 
million ($
5.4
 
million), respectively,
 
of its
 
indirect and
 
derivative
facilities of ZAR
156.6
 
million (2020: ZAR
150
 
million) to enable the bank to issue
 
guarantees, letters of credit and forward exchange
contracts,
 
in order for the Company to honor its obligations to third parties requiring
 
such guarantees (refer to Note 21).
 
United States, a short-term facility (this facility has been repaid
 
and cancelled)
 
On September 14, 2018, the Company renewed its $
10.0
 
million overdraft facility from Bank Frick and on February 4, 2019, the
Company increased the overdraft facility to $
20.0
 
million. As of June 30, 2019, the Company had utilized approximately $
9.5
 
million
of this facility. The Company’s
 
$
20
 
million facility from Bank Frick was settled in full and cancelled in March 2020. The facility was
secured
 
by
 
a
 
pledge
 
of
 
the
 
Company’s
 
investment
 
in
 
Bank
 
Frick
 
and
 
the
 
shares
 
under
 
the
 
pledge
 
were
 
released
 
upon
 
cancellation
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-47
11
.
 
BORROWINGS
 
(continued)
 
 
Movement
 
in short-term credit facilities
 
Summarized below are the Company’s short
 
-term facilities as of June 30, 2021, and the movement in the Company’s short-term
facilities from as of June 30, 2020 to as of June 30, 2021:
 
South Africa
United
States
Amended
July 2017
Nedbank
Bank Frick
Total
Short-term facilities available as of June 30, 2021
$
83,910
$
28,428
$
112,338
Overdraft restricted as to use for ATM
 
funding only
83,910
17,481
101,391
Indirect and derivative facilities
 
-
10,947
10,947
Movement in utilized overdraft facilities:
 
Balance as of June 30, 2019
69,566
5,880
$
9,544
84,990
Utilized
 
603,134
69,245
17,384
689,763
Repaid
(647,990)
(73,017)
(26,928)
(747,935)
Foreign currency adjustment
(1)
(9,954)
(2,050)
-
(12,004)
Balance as of June 30, 2020
(2)
14,756
58
-
14,814
Restricted as to use for ATM
 
funding only
14,756
58
14,814
No restrictions as to use
 
-
-
-
Utilized
 
340,655
19,428
360,083
Repaid
(346,187)
(19,253)
(365,440)
Foreign currency adjustment
(1)
5,021
(233)
4,788
Balance as of June 30, 2021
(3)
14,245
-
14,245
Restricted as to use for ATM
 
funding only
14,245
-
14,245
Movement in utilized indirect and derivative facilities:
Balance as of June 30, 2019
-
6,643
-
6,643
Foreign currency adjustment
(1)
-
(1,245)
-
(1,245)
Balance as of June 30, 2020
-
5,398
-
5,398
Utilized
 
-
4,009
-
4,009
Foreign currency adjustment
(1)
-
1,540
-
1,540
Balance as of June 30, 2021
$
-
$
10,947
$
-
$
10,947
 
(1) Represents the effects of the fluctuations between the
 
ZAR and the U.S. dollar.
 
(2) As of June 30, 2020, there were
no
 
amounts offset against the Nedbank overdraft facilities.
(3) As of June 30, 2021, there was $
0.2
 
million offset against the Nedbank overdraft facilities.
 
Movement in long-term borrowings
 
The Company
 
had no long-term
 
borrowings as
 
of June 30,
 
2021. Summarized
 
below is the
 
movement in
 
the Company’s
 
long-
term borrowing from as of June 30, 2019, to as of June 30, 2020:
 
South Africa
Amended July
2017
Total
Balance as of July 1, 2019
$
-
$
-
Utilized
14,798
14,798
Repaid from sale of DNI shares (Note 8)
(14,503)
(14,503)
Foreign currency adjustment
(1)
(295)
(295)
Balance as of June 30, 2020
$
-
$
-
 
(1) Represents the effects of the fluctuations between the
 
ZAR and the U.S. dollar.
 
 
Interest expense
 
incurred under
 
the Company’s
 
South African
 
long-term borrowing
 
during the
 
years ended
 
June 30,
 
2020 and
2019, was $
0.6
 
million and $
2.9
 
million, respectively.
 
There was
no
 
prepaid facility fee
 
amortization during the
 
year ended June 30,
2020. Prepaid facility fees amortized during the years ended June 30, 2019,
 
was $
0.3
 
million.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-48
12
.
 
OTHER
 
PAYABLES
 
 
Summarized below is the breakdown of other payables as of June 30,
 
2021 and 2020:
 
June 30,
June 30,
2021
2020
Accruals
$
7,501
$
6,045
Provisions
5,343
4,926
Payroll-related payables
884
887
Participating merchants' settlement obligation
137
463
Value
 
-added tax payable
435
129
Other
13,288
11,329
$
27,588
$
23,779
 
Other includes transactions-switching funds payable, deferred income,
 
client deposits and other payables.
 
13
.
 
COMMON
 
STOCK
 
 
Common stock
 
Holders
 
of shares
 
of Net1’s
 
common
 
stock are
 
entitled to
 
receive dividends
 
and other
 
distributions
 
when
 
declared
 
by Net1’s
board of
 
directors out
 
of legally
 
available funds.
 
Payment of
 
dividends and
 
distributions is
 
subject to
 
certain restrictions
 
under the
Florida Business Corporation Act, including the requirement that after
 
making any distribution Net1 must be able to meet its debts as
they become due in the usual course of its business.
 
 
Upon voluntary or involuntary
 
liquidation, dissolution or winding
 
up of Net1, holders
 
of common stock share
 
ratably in the
 
assets
remaining after payments to creditors and provision for the preference of any preferred stock according to its terms. There are no pre-
emptive or other
 
subscription rights, conversion
 
rights or redemption
 
or scheduled installment
 
payment provisions relating
 
to shares
of common stock. All of the outstanding shares of common stock are fully
 
paid and non-assessable.
 
Each holder of
 
common stock is
 
entitled to one
 
vote per share
 
for the election
 
of directors and
 
for all other
 
matters to be
 
voted
on by shareholders. Holders
 
of common stock may
 
not
 
cumulate their votes
 
in the election
 
of directors, and are
 
entitled to share
 
equally
and ratably in the dividends that may be declared by the board of directors, but only after payment of dividends required to be paid on
outstanding shares of preferred stock according to its terms. The shares
 
of Net1 common stock are not subject to redemption.
 
 
The Company’s
 
number of
 
shares, net
 
of treasury,
 
presented in
 
the consolidated
 
balance sheets
 
and consolidated
 
statement of
changes in
 
equity includes
 
participating non-vested
 
equity shares (specifically
 
contingently returnable
 
shares) as described
 
below in
Note 16 “— Amended and Restated Stock Incentive Plan—Restricted Stock—General
 
Terms of Awards”.
 
 
The
 
following
 
table
 
presents
 
a
 
reconciliation
 
between
 
the
 
number
 
of
 
shares,
 
net
 
of
 
treasury,
 
presented
 
in
 
the
 
consolidated
statement
 
of changes
 
in equity
 
and
 
the number
 
of shares,
 
net of
 
treasury,
 
excluding non-vested
 
equity
 
shares that
 
have not
 
vested
during the years ended June 30, 2021, 2020 and 2019:
 
2021
2020
2019
Number of shares, net of treasury:
Statement of changes in equity – common stock
56,716,620
57,118,925
56,568,425
Less: Non-vested equity shares that have not vested as of end of year (Note 16)
384,560
1,115,500
583,908
Number of shares, net of treasury excluding non-vested equity shares that have not
vested
56,332,060
56,003,425
55,984,517
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-49
13.
 
COMMON
 
STOCK
 
(continued)
 
 
Redeemable common stock issued pursuant to transaction with the IFC Investors
 
Holders of redeemable common
 
stock have all the rights enjoyed by
 
holders of common stock, however,
 
holders of redeemable
common
 
stock
 
have
 
additional
 
contractual
 
rights.
 
On
 
April
 
11,
 
2016,
 
the
 
Company
 
entered
 
into
 
a
 
Subscription
 
Agreement
 
(the
“Subscription
 
Agreement”)
 
with
 
International
 
Finance
 
Corporation,
 
IFC
 
African,
 
Latin
 
American
 
and
 
Caribbean
 
Fund,
 
LP,
 
IFC
Financial
 
Institutions
 
Growth
 
Fund,
 
LP,
 
and
 
Africa
 
Capitalization
 
Fund,
 
Ltd.
 
(collectively,
 
the
 
“IFC
 
Investors”).
 
Under
 
the
 
Subscription Agreement,
 
the IFC Investors purchased,
 
and the Company
 
sold in the
 
aggregate, approximately
9.98
 
million shares of
the
 
Company’s
 
common
 
stock,
 
par
 
value
 
$
0.001
 
per
 
share,
 
at
 
a
 
price
 
of
 
$
10.79
 
per
 
share,
 
for
 
gross
 
proceeds
 
to
 
the
 
Company
 
of
approximately $
107.7
 
million. The Company has accounted
 
for these
9.98
 
million shares as redeemable
 
common stock as a result
 
of
the put option discussed below.
 
On May
 
19, 2020,
 
the Africa
 
Capitalization Fund,
 
Ltd sold
 
its entire
 
holding of
2,103,169
 
shares of
 
the Company’s
 
common
stock and
 
therefore the
 
additional contractual
 
rights, including
 
the put
 
option rights
 
related to
 
these
2,103,169
 
shares, expired.
 
The
Company reclassified $
22.7
 
million related to
 
these
2,103,169
 
shares sold from
 
redeemable common stock to
 
additional paid-in-capital
during the year ended June 30, 2020.
 
The Company has entered
 
into a Policy Agreement
 
with the IFC Investors
 
(the “Policy Agreement”).
 
The material terms of the
Policy Agreement are described below.
 
 
Board Rights
 
For so long as the IFC Investors in aggregate beneficially own shares representing at least
5
% of the Company’s common stock,
the IFC Investors will have the right to nominate one director to the Company’s board of directors. For so long as the IFC Investors in
aggregate beneficially
 
own shares representing
 
at least
2.5
% of the
 
Company’s
 
common stock, the
 
IFC Investors will
 
have the right
to appoint
 
an observer
 
to the
 
Company’s
 
board of
 
directors at
 
any time
 
when they
 
have not
 
designated, or
 
do not
 
have the
 
right to
designate, a director.
 
Put Option
 
Each IFC Investor will have
 
the right, upon the occurrence of specified
 
triggering events, to require the Company
 
to repurchase
all of the shares
 
of its common stock purchased by
 
the IFC Investors pursuant to
 
the Subscription Agreement (or upon exercise
 
of their
preemptive rights
 
discussed below).
 
Events triggering
 
this put
 
right relate
 
to (1)
 
the Company
 
being the
 
subject of
 
a governmental
complaint alleging, a court judgment finding or an indictment alleging that the Company (a) engaged
 
in specified corrupt, fraudulent,
coercive, collusive or obstructive practices; (b) entered into transactions with targets of economic sanctions; or (c) failed to operate its
business in compliance with anti-money laundering and anti-terrorism laws; or (2) the Company rejecting a bona fide offer to acquire
all of its outstanding Common Stock at a time when it has in place or implements a shareholder rights plan, or adopting a shareholder
rights plan triggered by a beneficial ownership
 
threshold of less than
twenty
 
percent. The put price per share will
 
be the higher of the
price per
 
share paid
 
by the
 
IFC Investors
 
pursuant to
 
the Subscription
 
Agreement (or
 
paid when
 
exercising their
 
preemptive rights)
and the
 
volume weighted
 
average price
 
per share
 
prevailing for
 
the
60
 
trading days
 
preceding the
 
triggering event,
 
except that
 
with
respect to a put right triggered by rejection of a bona fide offer, the put price per share will be the highest price offered
 
by the offeror.
The Company believes that the
 
put option has no
 
value and, accordingly, has not recognized the put
 
option in its consolidated
 
financial
statements.
 
Registration Rights
 
The Company has agreed
 
to grant certain registration
 
rights to the IFC Investors
 
for the resale of their
 
shares of the Company’s
common stock, including filing a resale shelf registration statement and
 
taking certain actions to facilitate resales thereunder.
 
Preemptive Rights
 
For so long as the IFC Investors hold in aggregate
5
% of the outstanding shares of common stock of
 
the Company, each Investor
will have the right to purchase its pro-rata share of new issuances of securities by
 
the Company, subject to certain
 
exceptions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-50
13.
 
COMMON
 
STOCK
 
(continued)
 
 
Common stock repurchases
 
Executed under share repurchase authorizations
 
On
 
February 5, 2020,
 
the
 
Company’s
 
Board
 
of Directors
 
approved
 
the replenishment
 
of its
 
share
 
repurchase
 
authorization
 
to
repurchase
 
up
 
to
 
an
 
aggregate
 
of
 
$
100
 
million
 
of
 
common
 
stock.
 
The
 
authorization
 
has
 
no
 
expiration
 
date.
 
The
 
share
 
repurchase
authorization will be
 
used at
 
management’s discretion, subject to
 
limitations imposed by
 
SEC Rule
 
10b-18 and other
 
legal requirements
and subject to price and other internal limitations established by the
 
Board. Repurchases will be funded from the Company’s available
cash.
 
Share
 
repurchases
 
may be
 
made
 
through open
 
market purchases,
 
privately
 
negotiated
 
transactions,
 
or both.
 
There can
 
be no
assurance
 
that
 
the
 
Company
 
will
 
purchase
 
any
 
shares
 
or
 
any
 
particular
 
number
 
of
 
shares.
 
The
 
authorization
 
may
 
be
 
suspended,
terminated or
 
modified at
 
any time
 
for any
 
reason, including
 
market conditions,
 
the cost
 
of repurchasing
 
shares, liquidity
 
and other
factors that management deems appropriate. The Company did
no
t repurchase any of its shares during the years ended June 30, 2021,
2020 and 2019,
 
respectively, either under or outside
 
of the authorization.
 
 
14
.
 
ACCUMULATED
 
OTHER
 
COMPREHENSIVE
 
(LOSS)
 
INCOME
 
 
The table below
 
presents the change
 
in accumulated other
 
comprehensive (loss) income
 
per component during
 
the years ended
June 30, 2021, 2020 and 2019:
 
Accumulated
foreign currency
translation
reserve
Total
Balance as of July 1, 2018
$
(184,350)
$
(184,350)
Release of foreign currency translation reserve related to DNI disposal (Note
 
23)
5,841
5,841
Release of foreign currency translation reserve related to disposal of DNI
 
interest as
an equity method investment (Note 8)
 
(162)
(162)
Movement in foreign currency translation reserve related to equity
 
-accounted
investment
4,251
4,251
Movement in foreign currency translation reserve
 
(21,392)
(21,392)
Balance as of July 1, 2019
(195,812)
(195,812)
Release of foreign currency translation reserve related to deconsolidation
 
of CPS
(Note 23)
32,451
32,451
Release of foreign currency translation reserve related to disposal of Net1
 
Korea
(Note 23)
14,228
14,228
Release of foreign currency translation reserve related to disposal of DNI
 
interest as
an equity method investment (Note 8)
 
11,323
11,323
Release of foreign currency translation reserve related to disposal of FIHRST
 
(Note
23)
1,578
1,578
Movement in foreign currency translation reserve related to equity
 
-accounted
investment
2,227
2,227
Movement in foreign currency translation reserve
 
(35,070)
(35,070)
Balance as of July 1, 2020
(169,075)
(169,075)
Release of foreign currency translation reserve related to the disposal of Bank
 
Frick
(Note 8)
 
(2,462)
(2,462)
Release of foreign currency translation reserve related to liquidation of subsidiaries
605
605
Movement in foreign currency translation reserve related to equity
 
-accounted
investment
(1,967)
(1,967)
Movement in foreign currency translation reserve
 
27,178
27,178
Balance as of June 30, 2021
$
(145,721)
$
(145,721)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-51
14
.
 
ACCUMULATED
 
OTHER
 
C
OMPREHENSIVE
 
(LOSS)
 
INCOME
 
(continued)
 
 
During the year
 
ended June 30, 2021,
 
the Company reclassified
 
the following amounts
 
from accumulated other
 
comprehensive
loss (accumulated foreign currency translation reserve) to net loss: $
2.5
 
million related to the disposal of Bank Frick (refer to 23) and
(ii) $
0.6
 
million related to the liquidation of subsidiaries.
 
During the year
 
ended June 30, 2020,
 
the Company reclassified
 
the following amounts
 
from accumulated other
 
comprehensive
loss (accumulated
 
foreign currency
 
translation reserve)
 
to net (loss)
 
income: (i)
 
$
32.5
 
million related
 
to the deconsolidation
 
of CPS
(refer to Note 23),
 
(ii) $
14.2
 
million related to
 
the disposal of Net1
 
Korea (refer to Note 23);
 
(iii) $
1.6
 
million related to the
 
disposal
of FIHRST (refer to Note 23), and (iv) $
11.3
 
million related to the disposal of its DNI interest (refer to Note 8).
 
During the year
 
ended June 30, 2019,
 
the Company reclassified
 
the following amounts
 
from accumulated other
 
comprehensive
loss (accumulated foreign currency translation reserve) to net (loss) income: (i) $
5.8
 
million related to the DNI disposal (refer to Note
23) and (ii) $
0.2
 
million related to the disposal of the DNI interest as an equity method investment
 
(refer to Note 8).
 
15.
 
REVENUE
 
 
The
 
Company
 
is a
 
provider
 
of transaction
 
processing
 
services, financial
 
inclusion
 
products and
 
services
 
and
 
secure payment
technology. The Company operates market-leading payment
 
processors in South Africa. The Company
 
offers debit, credit and prepaid
processing and issuing services for all major payment networks. In South Africa, the Company provides innovative low-cost financial
inclusion products, including banking, lending and insurance.
 
Disaggregation of revenue
 
The
 
following
 
table
 
represents
 
our
 
revenue
 
disaggregated
 
by
 
major
 
revenue
 
streams,
 
including
 
reconciliation
 
to
 
operating
segments for the year ended June 30, 2021:
 
Processing
Financial
services
Technology
Total
Processing fees
$
60,982
$
2,338
$
-
$
63,320
South Africa
57,664
2,338
-
60,002
Rest of world
3,318
-
-
3,318
Technology
 
products
2,054
330
16,630
19,014
Telecom products
 
and services
 
13,422
-
-
13,422
Lending revenue
-
20,672
-
20,672
Insurance revenue
-
6,605
-
6,605
Account holder fees
-
5,342
-
5,342
Other
1,204
318
889
2,411
Total revenue, derived
 
from the following geographic
locations
77,662
35,605
17,519
130,786
South Africa
74,344
35,605
17,519
127,468
Rest of world
$
3,318
$
-
$
-
$
3,318
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-52
15.
 
REVENUE
 
(continued)
 
 
The
 
following
 
table
 
represents
 
our
 
revenue
 
disaggregated
 
by
 
major
 
revenue
 
streams,
 
including
 
reconciliation
 
to
 
operating
segments for the year ended June 30, 2020:
 
Processing
Financial
services
Technology
Total
(as restated)
(as restated)
(1)
Processing fees
$
55,992
$
4,903
$
-
$
60,895
South Africa
(1)
50,951
4,903
-
55,854
Rest of world
5,041
-
-
5,041
Technology
 
products
981
-
17,280
18,261
Telecom products
 
and services
 
22,631
-
-
22,631
Lending revenue
-
19,955
-
19,955
Insurance revenue
-
5,212
-
5,212
Account holder fees
-
12,628
-
12,628
Other
4,024
626
67
4,717
Total revenue, derived
 
from the following geographic
locations
83,628
43,324
17,347
144,299
South Africa
78,587
43,324
17,347
139,258
Rest of world
$
5,041
$
-
$
-
$
5,041
 
(1) Processing fees South Africa and Total
 
columns have been restated for the error described in Note 1.
 
The
 
following
 
table
 
represents
 
our
 
revenue
 
disaggregated
 
by
 
major
 
revenue
 
streams,
 
including
 
reconciliation
 
to
 
operating
segments for the year ended June 30, 2019:
 
 
Processing
Financial
services
Technology
Corporate/
Total
(as restated)
Eliminations
(as
restated)
(1)
Processing fees
$
82,995
$
95
$
-
$
-
$
83,090
South Africa
(1)
73,153
95
-
-
73,248
Rest of world
9,842
-
-
-
9,842
Technology
 
products
1,928
-
18,666
-
20,594
Telecom products
 
and services
 
15,025
-
-
-
15,025
Welfare benefit
 
distribution
3,086
-
-
-
3,086
Lending revenue
-
27,512
-
-
27,512
Insurance revenue
-
5,858
-
-
5,858
Account holder fees
-
17,428
-
-
17,428
Other
4,388
280
3,083
-
7,751
Revenue refund related to CPS
-
-
-
(19,709)
(19,709)
Total revenue, derived
 
from the following
geographic locations
107,422
51,173
21,749
(19,709)
160,635
South Africa
97,580
51,173
21,749
(19,709)
150,793
Rest of world
$
9,842
$
-
$
-
$
-
$
9,842
 
(1) Processing fees South Africa and Total
 
columns have been restated for the error described in Note 1.
 
As the Company previously disclosed,
 
in June 2014, the Company received
 
approximately ZAR
317.0
 
million, including VAT,
from
 
SASSA,
 
related
 
to
 
the
 
recovery
 
of
 
additional
 
implementation
 
costs
 
its
 
subsidiary,
 
CPS,
 
incurred
 
during
 
the
 
beneficiary
 
re-
registration process in fiscal 2012 and 2013.
 
After the
 
award of
 
the tender,
 
SASSA requested
 
that CPS
 
biometrically
 
register all
 
social grant
 
beneficiaries (including
 
child
grant beneficiaries) and collect additional information
 
for each child grant recipient. CPS agreed to SASSA’s
 
request and, as a result,
it
 
performed
 
approximately
11
 
million
 
additional
 
registrations
 
beyond
 
those
 
that
 
CPS
 
tendered
 
for
 
in
 
the
 
quoted
 
service
 
fee.
Accordingly, CPS sought
 
reimbursement from SASSA of the cost of this exercise, supported
 
by a factual findings certificate from an
independent
 
auditing
 
firm.
 
SASSA
 
paid
 
CPS
 
ZAR
317.0
 
million,
 
including
 
VAT,
 
as
 
full
 
settlement
 
of
 
the
 
additional
 
costs
 
CPS
incurred.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-53
15.
 
REVENUE
 
(continued)
 
 
In March
 
2015, Corruption
 
Watch,
 
a South
 
African non-profit
 
civil society
 
organization, commenced
 
legal proceedings
 
in the
Gauteng Division,
 
Pretoria of
 
the High
 
Court of South
 
Africa (“High
 
Court”) seeking
 
an order by
 
the High
 
Court to
 
review and
 
set
aside the decision of SASSA’s Chief Executive Officer to approve a payment
 
to CPS of ZAR
317.0
 
million and directing CPS
 
to repay
the aforesaid
 
amount, plus
 
interest. Corruption
 
Watch
 
claimed that
 
there was no
 
lawful basis to
 
make the
 
payment to
 
CPS, and that
the decision
 
was unreasonable
 
and irrational
 
and did not
 
comply with South
 
African legislation.
 
CPS was named
 
as a respondent
 
in
this legal proceeding.
 
On February
 
22, 2018,
 
the matter
 
was heard
 
by the
 
High Court.
 
On March
 
23, 2018,
 
the High Court
 
ordered that
 
the June
 
15,
2012 variation
 
agreement
 
between SASSA
 
and
 
CPS be
 
reviewed
 
and
 
set aside.
 
CPS was
 
ordered
 
to refund
 
ZAR
317.0
 
million
 
to
SASSA, plus interest from June 2014 to date of payment.
 
 
On September 30, 2019, the Supreme Court declined CPS’
 
appeal and awarded costs against CPS. CPS
 
is liable to repay SASSA
ZAR
317.0
 
million, plus interest from June 2014 to date of payment. As a result, CPS recorded the liability at June 30, 2019, of $
34.0
million (ZAR
479.4
 
million, translated at exchange rates applicable as of June 30,
 
2019, comprising a revenue refund of $
19.7
 
million
(ZAR
277.6
 
million),
 
accrued interest
 
of
 
$
11.4
 
million
 
(ZAR
161.0
 
million),
 
unclaimed
 
indirect
 
taxes
 
of
 
$
2.8
 
million
 
(ZAR
39.4
million)
 
and
 
estimated costs
 
of $
0.1
 
million
 
(ZAR
1.4
 
million)).
 
The
 
Company
 
reduced
 
revenue
 
by
 
$
19.7
 
million
 
during
 
the year
ended June
 
30, 2019,
 
because it
 
interpreted the
 
Supreme Court
 
ruling as
 
a price
 
variation and
 
not a
 
nonreciprocal transaction.
 
The
Company deconsolidated the accrual for the refund of implementation costs
 
in May 2020, following the deconsolidation of CPS
 
(refer
to Note 23).
 
 
16.
 
STOCK
-
BASED
 
COMPENSATION
 
 
Amended and Restated Stock Incentive Plan
 
The
 
Company’s
 
Amended
 
and
 
Restated
 
2015
 
Stock
 
Incentive
 
Plan
 
(the
 
“Plan”)
 
was
 
most
 
recently
 
amended
 
and
 
restated
 
on
November 11, 2015, after approval
 
by shareholders. No evergreen provisions are included in
 
the Plan. This means that the maximum
number of shares issuable under the
 
Plan is fixed and cannot be increased
 
without shareholder approval, the plan
 
expires by its terms
upon a specified date, and no new stock options are awarded automatically upon exercise of an outstanding stock option. Shareholder
approval is required for the repricing of awards or the implementation
 
of any award exchange program.
 
 
The Plan
 
permits Net1
 
to grant
 
to its
 
employees, directors
 
and consultants
 
incentive stock
 
options, nonqualified
 
stock options,
stock appreciation rights, restricted stock, performance-based awards
 
and other awards based on its
 
common stock. The Remuneration
Committee of the Company’s Board
 
of Directors (“Remuneration Committee”) administers the Plan.
 
The total number
 
of shares of common
 
stock issuable under the
 
Plan is
11,052,580
. The maximum
 
number of shares for
 
which
awards, other than performance-based awards,
 
may be granted
 
in any combination during
 
a calendar year to
 
any participant is
569,120
.
The maximum
 
limits on
 
performance-based
 
awards that
 
any participant
 
may be
 
granted during
 
a calendar
 
year are
569,120
 
shares
subject to stock option awards
 
and $
20
 
million with respect to awards
 
other than stock options. Shares
 
that are subject to awards
 
which
terminate or lapse without the payment of
 
consideration may be granted again under the
 
Plan. Shares delivered to the Company as
 
part
or full payment for
 
the exercise of an option or to satisfy withholding obligations upon the exercise of an option may be granted again
under the
 
Plan in
 
the Remuneration
 
Committee’s
 
discretion. No
 
awards may
 
be granted
 
under the
 
Plan after
 
August 19,
 
2025, but
awards granted on or before such date may extend to later dates.
 
 
Options
 
General Terms of
 
Awards
 
 
Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant,
with vesting conditioned upon the recipient’s continuous service through the applicable vesting date and expire
10
 
years after the date
of grant. The options generally become exercisable in accordance with a
 
vesting schedule ratably over a period of
three years
 
from the
date of grant. The Company issues new shares to satisfy stock option award
 
exercises but may also use treasury shares.
 
Valuation
 
Assumptions
 
 
The
 
fair
 
value
 
of
 
each
 
option
 
is
 
estimated
 
on
 
the
 
date
 
of
 
grant
 
using the
 
Cox
 
Ross
 
Rubinstein
 
binomial
 
model
 
that
 
uses the
assumptions
 
noted
 
in
 
the
 
table
 
below.
 
The
 
estimated
 
expected
 
volatility
 
is
 
generally
 
calculated
 
based
 
on
 
the
 
Company’s
750
-day
volatility.
 
The
 
estimated
 
expected life
 
of
 
the option
 
was determined
 
based
 
on historical
 
behavior
 
of
 
employees
 
who were
 
granted
options
 
with
 
similar
 
terms.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-54
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Amended and Restated Stock Incentive Plan (continued)
 
Options (continued)
 
Valuation
 
Assumptions (continued)
 
 
The table below presents the range of assumptions used to value options
 
granted during the years ended 2021, 2020 and 2019:
 
2021
2020
2019
Expected volatility
 
62
%
57
%
44
%
Expected dividends
 
0
%
0
%
0
%
Expected life (in years)
 
3
3
3
Risk-free rate
 
0.19
%
1.57
%
2.75
%
 
Restricted Stock
 
General Terms of
 
Awards
 
Shares of restricted stock are
 
considered to be participating non-vested equity shares
 
(specifically contingently returnable shares)
for the
 
purposes of
 
calculating earnings per
 
share (refer
 
to Note
 
18)
 
because, as discussed
 
in more
 
detail below, the recipient
 
is obligated
to transfer any unvested
 
restricted stock back
 
to the Company for
 
no consideration
 
and these shares of
 
restricted stock are eligible
 
to
receive non-forfeitable
 
dividend equivalents
 
at the same
 
rate as common
 
stock. Restricted
 
stock generally
 
vests ratably
 
over a
three
year
 
period, with
 
vesting conditioned
 
upon the
 
recipient’s
 
continuous service
 
through the
 
applicable vesting
 
date and
 
under certain
circumstances, the achievement of certain performance targets,
 
as described below.
 
 
Recipients
 
are
 
entitled
 
to
 
all
 
rights
 
of
 
a
 
shareholder
 
of
 
the
 
Company
 
except
 
as
 
otherwise
 
provided
 
in
 
the
 
restricted
 
stock
agreements.
 
These
 
rights
 
include
 
the
 
right
 
to
 
vote
 
and
 
receive
 
dividends
 
and/or
 
other
 
distributions.
 
However,
 
the
 
restricted
 
stock
agreements generally
 
prohibit transfer
 
of any
 
nonvested and
 
forfeitable restricted
 
stock. If
 
a recipient
 
ceases to
 
be a
 
member of
 
the
Board of
 
Directors or
 
an employee
 
for any
 
reason, all
 
shares of
 
restricted stock
 
that are
 
not then
 
vested and
 
nonforfeitable will
 
be
immediately forfeited and transferred to the Company for no consideration. Forfeited shares of restricted stock
 
are available for future
issuances by the Remuneration Committee.
 
 
The Company issues new shares to satisfy restricted stock awards.
 
Valuation
 
Assumptions
 
The fair value
 
of restricted stock
 
is generally based
 
on the closing
 
price of the
 
Company’s stock
 
quoted on The
 
Nasdaq Global
Select Market on the date of grant.
 
 
Forfeiture of 150,000 shares
 
of restricted stock with Performance Conditions awarded
 
in August 2016
 
In August 2016, the
 
Remuneration Committee approved an
 
award of
350,000
 
shares of restricted stock to executive
 
officers. In
May 2017, the
 
Company determined
 
to accelerate the
 
vesting of all
 
(
200,000
) of the
 
shares of restricted
 
stock awarded to
 
its former
CEO. The shares of restricted stock awarded to executive
 
officers in August 2016 were subject to time-based
 
and performance-based
vesting conditions.
 
In order
 
for any
 
of the
 
shares to
 
vest, the
 
recipient was
 
required to
 
remain employed
 
by the
 
Company on
 
a full-
time basis on the date that it
 
files its Annual Report on Form
 
10-K for the fiscal year ended
 
June 30, 2019. If that condition is
 
satisfied,
then the shares will vest based on the level of Fundamental EPS the Company achieves for the fiscal
 
year ended June 30, 2019 (“2019
Fundamental EPS”), as follows:
 
●
 
One-third of the shares will vest if the Company achieves 2019 Fundamental
 
EPS of $
2.60
;
●
 
Two-thirds of the
 
shares will vest if the Company achieves 2019 Fundamental EPS of $
2.80
; and
●
 
All of the shares will vest if the Company achieves 2019 Fundamental EPS of $
3.00
.
 
At levels of 2019 Fundamental EPS greater
 
than $
2.60
 
and less than $
3.00
, the number of shares
 
that will vest will be
 
determined
by linear interpolation relative to 2019 Fundamental EPS of
 
$
2.80
. All shares of restricted stock have been
 
valued utilizing the closing
price
 
of
 
shares
 
of
 
the
 
Company’s
 
common
 
stock
 
quoted
 
on
 
The
 
Nasdaq
 
Global
 
Select
 
Market
 
on
 
the
 
date
 
of
 
grant
.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-55
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Amended and Restated Stock Incentive Plan (continued)
 
Restricted Stock (continued)
 
Forfeiture of 150,000 shares
 
of restricted stock with Performance Conditions awarded
 
in August 2016 (continued)
 
Any shares that did
 
not vest in accordance
 
with the above-described conditions
 
would be forfeited. During
 
the year ended June
30, 2019, the Company reversed
 
the stock-based compensation charge recognized related to
150,000
 
shares of restricted stock because
the Company did not achieve the 2019 Fundamental EPS target.
 
The
150,000
 
shares of restricted stock were forfeited.
 
Forfeiture of 150,000 shares
 
of restricted stock with Market Conditions awarded
 
in August 2017
 
 
In August 2017, the Remuneration Committee approved an award
 
of
210,000
 
shares of restricted stock to executive officers. The
shares of restricted
 
stock awarded to
 
executive officers
 
in August 2017
 
were subject to
 
a time-based vesting
 
condition and a
 
market
condition and would vest
 
in full only on
 
the date, if any,
 
that the following conditions
 
were satisfied: (1) the
 
price of the Company’s
common stock must equal or exceed certain agreed VWAP
 
levels (as described below) during a measurement period commencing on
the date that
 
it filed its Annual
 
Report on Form
 
10-K for the
 
fiscal year ended
 
June 30, 2020
 
and ending on
 
December 31, 2020
 
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 was
not satisfied, then none of the shares of restricted stock
 
would vest and they would be forfeited. The $
23.00
 
price target represents an
approximate
35
% increase,
 
compounded annually,
 
in the
 
price of
 
the Company’s
 
common stock
 
on Nasdaq
 
over the
 
$
9.38
 
closing
price on August 23, 2017.
 
The VWAP
 
levels and vesting percentages related to such levels were as follows:
●
 
Below $
15.00
 
(threshold)—
0
%
●
 
At or above $
15.00
 
and below $
19.00
—
33
%
●
 
At or above $
19.00
 
and below $
23.00
—
66
%
●
 
At or above $
23.00
—
100
%
 
 
The
210,000
 
shares of restricted stock were effectively forward starting knock-in barrier options with multi-strike prices of
zero
.
The fair
 
value of
 
these shares
 
of restricted
 
stock was calculated
 
utilizing a
 
Monte Carlo
 
simulation model
 
which was
 
developed for
the purpose
 
of the
 
valuation of
 
these shares.
 
For each
 
simulated share
 
price path,
 
the market
 
share price
 
condition was
 
evaluated to
determine whether
 
or not
 
the shares would
 
vest under
 
that simulation.
 
A standard
 
Geometric Brownian
 
motion process
 
was used
 
in
the forecasting
 
of the share
 
price instead of
 
a “jump diffusion”
 
model, as the
 
share price volatility
 
was more stable
 
compared to
 
the
highly volatile regime
 
of previous
 
years. Therefore, the
 
simulated share
 
price paths
 
capture the idiosyncrasies
 
of the
 
observed Company
share price movements.
 
 
In scenarios where
 
the shares do not
 
vest, the final vested
 
value at maturity is
 
zero. In scenarios where
 
vesting occurs, the final
vested value on maturity is
 
the share price on vesting date. The
 
value of the grant is the
 
average of the discounted vested values.
 
The
Company used an expected volatility of
44.0
%, an expected life of
 
approximately
three years
, a risk-free rate ranging between
1.275
%
to
1.657
% and
no
 
future dividends
 
in its
 
calculation of
 
the fair
 
value of
 
the restricted
 
stock. The
 
estimated expected
 
volatility was
calculated based on the Company’s
30 day
 
VWAP
 
share price using the exponentially weighted moving average of returns.
 
On August 5, 2020,
 
the Company and its
 
then chief executive officer and
 
member of its board
 
of directors, Mr. Herman G. Kotzé,
entered into
 
a Separation
 
and Release of
 
Claims Agreement
 
(the “Separation
 
Agreement”). The
 
parties agreed
 
that Mr.
 
Kotzé’s
 
last
day
 
of
 
employment
 
with
 
the Company
 
would
 
be
 
September
 
30,
 
2020,
 
unless
 
terminated
 
earlier
 
by
 
the
 
Company
 
for
 
cause.
 
Upon
separation
 
from
 
the
 
Company,
 
Mr.
 
Kotzé
 
forfeited
150,000
 
shares
 
of
 
restricted
 
stock
 
that
 
were
 
subject
 
to
 
the
 
market
 
conditions
described above
 
because he was
 
no longer
 
an employee of
 
the Company as
 
of the vesting
 
date. The
 
VWAP
 
market conditions were
not
 
achieved
 
and
 
all
 
outstanding
 
shares
 
of
 
restricted
 
stock
 
wer
e
 
forfeited
 
on
 
December
 
31,
 
2020
.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-56
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Amended and Restated Stock Incentive Plan (continued)
 
Restricted Stock (continued)
 
Market Conditions - Restricted Stock Granted in September 2018
 
 
In September 2018, the Remuneration Committee approved an award of
148,000
 
shares of restricted stock to executive officers.
The
148,000
 
shares of restricted stock awarded to
 
executive officers in September
 
2018 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) the
 
price of
 
the Company’s
common stock must equal or exceed certain agreed VWAP
 
levels (as described below) during a measurement period commencing on
the date that
 
it files its
 
Annual Report on
 
Form 10-K for
 
the fiscal year
 
ended June 30,
 
2021 and ending
 
on December 31,
 
2021 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
 
$
23.00
 
price
 
target
 
represents
 
an
approximate
55
% increase,
 
compounded annually,
 
in the
 
price of
 
the Company’s
 
common stock
 
on Nasdaq
 
over the
 
$
6.20
 
closing
price on September 7, 2018.
 
The VWAP
 
levels and vesting percentages related to such levels are as follows:
 
●
 
Below $
15.00
 
(threshold)—
0
%
●
 
At or above $
15.00
 
and below $
19.00
—
33
%
●
 
At or above $
19.00
 
and below $
23.00
—
66
%
●
 
At or above $
23.00
—
100
%
 
 
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of
 
a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for the Company’s
 
VWAP
 
price, but also the observation of the strike structure of
volatility
 
(i.e.
 
skew
 
and
 
smile)
 
for
 
out-of-the
 
money
 
calls
 
and
 
out-of-the
 
money
 
puts
 
versus
 
at-the-money
 
options
 
for
 
both
 
the
Company’s stock and NASDAQ futures.
 
In scenarios where
 
the shares do not
 
vest, the final vested
 
value at maturity is
 
zero. In scenarios where
 
vesting occurs, the final
vested value on maturity is the share price on vesting
 
date. In its calculation of the fair value of
 
the restricted stock, the Company used
an average volatility of
37.4
% for the VWAP
 
price, a discounting based on USD overnight indexed swap rates for
 
the grant date, and
no future dividends. The average volatility was extracted from the time series for VWAP prices as the standard deviation of log prices
for the
three years
 
preceding the grant date. The mean reversion
 
of volatility and the volatility of
 
volatility parameters of the stochastic
volatility process
 
were extracted
 
by regressing
 
log differences
 
against log
 
levels of
 
volatility from
 
the time
 
series for
 
at-the-money
options
30 day
 
volatility quotes, which were available from January 2, 2018 onwards.
 
Executive officers forfeited
88,000
 
shares of restricted
 
stock that were
 
subject to the
 
market conditions described above
 
following
their separation from the Company during the year ended June 30, 2021.
 
 
Performance Conditions - Restricted Stock Granted in February 2020
 
 
The
454,400
 
shares of restricted
 
stock awarded to
 
executive officers in February
 
2020 are subject
 
to time-based and
 
performance-
based vesting conditions and vest in full only on the date, if any,
 
that the following conditions are satisfied: (1) the achievement of an
agreed return on average net equity per year during a
 
measurement period commencing from July 1, 2021, through June 30, 2023,
 
and
(2) the recipient
 
is employed by
 
the Company
 
on a full-time
 
basis when the
 
condition in
 
(1) is met.
 
Net equity
 
is calculated as
 
total
equity attributable
 
to the
 
Company’s
 
shareholders plus
 
redeemable common
 
stock, in
 
conformity with
 
GAAP.
 
The net
 
equity as
 
of
June 30, 2021, was
 
set as the base
 
year for the measurement period. The
 
average net equity is
 
calculated as the simple average
 
between
the opening
 
net equity
 
and closing
 
net equity
 
during each
 
fiscal year
 
within the
 
measurement
 
period.
 
The targeted
 
return per
 
year
within the measurement period is derived from GAAP net income
 
attributable to the Company per fiscal year.
 
The performance-based awards vest
 
based on the achievement of
 
the following targeted return
 
on average net equity during
 
the
measurement period, of:
●
 
8
% per year:
50
% vest;
●
 
14
% per year:
100
% vest.
 
No
 
shares of restricted
 
stock will vest
 
at a return
 
on average net
 
equity of less
 
than
8
%. Calculation of
 
the award based
 
on the
returns between
8
% and
14
% will be interpolated
 
on a linear basis.
 
The Company’s
 
Remuneration Committee may
 
use its discretion
to
 
adjust
 
any
 
component
 
of
 
the
 
calculation
 
of
 
the
 
award
 
on
 
a
 
fact
-
by
-
fact
 
basis,
 
for
 
instance,
 
as
 
the
 
result
 
of
 
an
 
acquisition.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-57
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Amended and Restated Stock Incentive Plan (continued)
 
Restricted Stock (continued)
 
Performance Conditions - Restricted Stock Granted in February 2020
 
(continued)
 
 
Executive
 
officers
 
forfeited
374,400
 
shares
 
of
 
restricted
 
stock
 
that
 
were
 
subject
 
to
 
the
 
performance
 
conditions
 
described
following their separation from the Company during the year ended June
 
30, 2021.
 
Market Conditions - Restricted Stock Granted in May 2021
 
 
In May 2021,
 
the Remuneration
 
Committee approved an
 
award of
158,734
 
shares of restricted
 
stock to executive
 
officers. The
158,734
 
shares of restricted
 
stock awarded to
 
executive officers in
 
May 2021 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
20
% appreciation
in the Company’s stock price over the measurement period commencing on
 
June 30, 2021 through June 30,
 
2024,
 
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 stock price
 
on Nasdaq on
 
June 30,
2021, was $
4.71
.
 
 
The appreciation levels (times and price) and vesting percentages as of each
 
period ended related to such levels are as follows:
●
 
Prior to the first anniversary of the grant date:
0
%
●
 
Fiscal 2022, stock price as of June 30, 2022 is
1.2
 
times higher (i.e. $
5.65
 
or higher) than $
4.71
:
33
%;
●
 
Fiscal 2023, stock price as of June 30, 2023 is
1.44
 
times higher (i.e. $
6.78
 
or higher) than $
4.71
:
67
%;
●
 
Fiscal 2024, stock price as of June 30, 2024 is
1.728
 
times higher (i.e. $
8.14
) than $
4.71
:
100
%.
 
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of
 
a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for
 
the Company’s closing price, but also the observation
 
of the strike structure of
volatility
 
(i.e.
 
skew
 
and
 
smile)
 
for
 
out-of-the
 
money
 
calls
 
and
 
out-of-the
 
money
 
puts
 
versus
 
at-the-money
 
options
 
for
 
both
 
the
Company’s stock and NASDAQ futures.
 
In scenarios where the
 
shares do not vest, the
 
final vested value at maturity
 
is zero. In scenarios
 
where vesting occurs, the
 
final
vested value on maturity is the share price on vesting
 
date. In its calculation of the fair value of
 
the restricted stock, the Company used
an average volatility of
61.6
% for the closing price, a discounting based on USD overnight
 
indexed swap rates for the grant date, and
no future dividends. The average volatility was extracted from the time series for closing prices as the standard deviation of log prices
for the three years preceding the grant
 
date. The mean reversion of volatility
 
and the volatility of volatility parameters of
 
the stochastic
volatility process
 
were extracted
 
by regressing
 
log differences
 
against log
 
levels of
 
volatility from
 
the time
 
series for
 
at-the-money
options
30 day
 
volatility quotes, which were available for the three years preceding
 
May 5, 2021.
 
Stock Appreciation Rights
 
 
The Remuneration Committee may also grant stock appreciation rights, either singly
 
or in tandem with underlying stock options.
Stock appreciation rights entitle the holder upon exercise to receive an amount in any combination of cash or shares of common stock
(as determined by the Remuneration Committee) equal
 
in value to the excess
 
of the fair market value
 
of the shares covered by
 
the right
over
 
the
 
grant
 
price.
 
No
 
stock
 
appreciation
 
rights
 
have
 
been
 
granted.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-58
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Stock option and restricted stock activity
 
 
Options
 
The following table summarizes stock option activity for the years ended
 
June 30, 2021, 2020 and 2019:
 
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 - July 1, 2018
809,274
13.99
2.67
370
4.20
Granted – September 2018
600,000
6.20
10.00
1,212
2.02
Expired unexercised
(370,000)
19.27
-
5.00
Forfeited
(174,695)
6.65
-
2.00
Outstanding - June 30, 2019
864,579
7.81
7.05
-
2.62
Granted – October 2019
561,000
3.07
10.00
676
1.20
Forfeited
(93,928)
7.50
-
2.81
Outstanding - June 30, 2020
1,331,651
5.83
7.56
-
2.01
Granted – August 2020
150,000
3.50
3.00
166
1.11
Granted – November 2020
560,000
3.01
10.00
691
1.23
Exercised
(17,335)
3.07
35
Forfeited
(729,484)
6.65
-
2.24
Outstanding - June 30, 2021
1,294,832
3.93
7.68
1,624
1.45
 
These options have an exercise price range of $3.01 to $11.23.
 
On August 5, 2020, the
 
Company granted one of its
 
non-employee directors, Mr. Ali Mazanderani, in his capacity as
 
a consultant
to the Company,
150,000
 
stock options with an exercise price
 
of $
3.50
. These stock options are subject to
 
the non-employee director’s
continuous service through the applicable vesting date, and half of the options vest on each of the first and second anniversaries of the
grant date.
 
 
During the years ended June 30,
 
2021 and 2020,
331,833
 
and
170,335
 
stock options became exercisable, respectively.
No
 
stock
options
 
became
 
exercisable
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2019.
 
During
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
the
 
Company
 
received
approximately $
0.5
 
million from the
 
exercise of
17,335
 
stock options.
No
 
stock options were
 
exercised during
 
the years ended
 
June
30, 2020 and 2019, respectively.
 
 
During
 
the
 
years
 
ended
 
June
 
30,
 
2021,
 
2020
 
and
 
2019,
 
employees
 
forfeited
729,484
,
93,928
 
and
174,695
 
stock
 
options,
respectively.
 
The number
 
of forfeitures
 
during the
 
year ended
 
June 30,
 
2021, increased
 
significantly compared
 
to prior
 
periods as
 
a
result of the closure of our IPG operations during the latter half of calendar 2020 and the unrelated
 
(to the IPG closure) resignation of
various employees in
 
the first half of calendar
 
2021. These stock options
 
forfeited had strike prices
 
ranging from $
3.01
 
to $
11.23
. In
addition, the Company’s former chief executive officer forfeited
250,034
 
stock options with strike
 
prices ranging from $
6.20
 
to $
11.23
per share following his separation from the Company. During the year ended June 30, 2019,
200,000
 
stock options awarded in August
2008
 
and
 
170,000
 
stock
 
options
 
awarded
 
in
 
May
 
2009
 
expired
 
unexercised.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-59
1
6.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Options (continued)
 
The following table presents stock options vested and expected to vest as of
 
June 30, 2021:
 
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
 
and expecting to vest - June 30, 2021
1,294,832
3.93
7.68
1,624
 
These options have an exercise price range of $
3.01
 
to $
11.23
.
 
The following table presents stock options that are exercisable as of June 30,
 
2021:
 
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - June 30, 2021
326,677
5.57
7.43
206
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-60
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Restricted stock
 
The following table summarizes restricted stock activity for the years
 
ended June 30, 2021, 2020 and 2019:
 
Number of
shares of
restricted
stock
Weighted
average
grant date
fair value
($’000)
Non-vested – July 1, 2018
765,411
6,162
Granted – September 2018
148,000
114
Total vested
(64,003)
503
Vested
 
– August 2018
(52,594)
459
Vested
 
– March 2019
(11,409)
44
Total forfeitures
(265,500)
1,060
Forfeitures – employee terminations
(115,500)
460
Forfeitures – August 2016 awards with performance conditions
(150,000)
600
Non-vested – June 30, 2019
583,908
3,410
Granted – February 2020
568,000
2,300
Total vested
(18,908)
70
Vested
 
– March 2020
(11,408)
42
Vested
 
– March 2020 - accelerated vesting
 
(7,500)
28
Forfeitures
(17,500)
65
Non-vested – June 30, 2020
1,115,500
5,354
Granted – May 2021
254,560
1,035
Total vested
(311,300)
1,037
Vested
 
– August 2020
(244,500)
812
Vested
 
– September 2020 - accelerated vesting
 
(66,800)
225
Total forfeitures
(674,200)
2,690
Forfeitures - employee terminations
(644,200)
2,542
Forfeitures – August 2017 awards with market conditions
 
(30,000)
148
Non-vested – June 30, 2021
384,560
1,123
 
The
 
May
 
2021
 
grants
 
comprise
158,734
 
shares
 
of
 
restricted
 
stock
 
awarded
 
to
 
executive
 
officers
 
that
 
are
 
subject
 
to
 
a
 
market
condition (related
 
to share
 
price performance)
 
and time-based
 
vesting, and
95,826
 
shares of
 
restricted stock
 
awarded to
 
employees,
including
77,040
 
shares of restricted stock awarded
 
to Mr. Mali, our Chief Executive
 
Officer: Southern Africa, that are
 
subject to time-
based vesting. During
 
the year ended June
 
30, 2021,
244,500
 
shares of restricted stock
 
with time-based vesting
 
conditions vested. In
connection with the
 
Company’s former
 
chief executive officer’s
 
separation, the Company
 
agreed to accelerate
 
the vesting of
66,800
shares
 
of
 
restricted
 
stock
 
which
 
were
 
granted
 
in
 
February
 
2020,
 
and
 
which
 
were
 
subject
 
to
 
time-based
 
vesting.
 
These
 
shares
 
of
restricted stock vested
 
on September 30,
 
2020. The
644,200
 
shares of restricted
 
stock that were forfeited
 
during the year ended
 
June
30, 2021,
 
includes
475,200
 
shares of restricted
 
stock forfeited
 
by the Company’s
 
former chief
 
executive officer
 
upon his separation
from
 
the
 
Company.
 
The
30,000
 
shares
 
were
 
forfeited
 
by
 
an
 
executive
 
officer
 
as
 
the
 
market
 
condition
 
(related
 
to
 
share
 
price
performance) was not achieved.
 
The
 
February 2020
 
grants comprise
113,600
 
shares of
 
restricted stock
 
awarded to
 
executive officers
 
that are
 
subject to
 
time-
based vesting
 
and
454,400
 
shares of
 
restricted
 
stock awarded
 
to executive
 
officers
 
that are
 
subject to
 
performance
 
and time-based
vesting. On
 
March 1,
 
2018,
22,817
 
shares of
 
restricted stock
 
with time-based
 
vesting conditions
 
were granted
 
to our chief
 
financial
officer and these awards vest in two tranches, of which
11,408
 
vested on March 1, 2020, and
11,409
 
vested on March 1, 2019. During
the year
 
ended June
 
30, 2020,
 
employees forfeited
17,500
 
shares of
 
restricted stock
 
upon termination
 
and
7,500
 
shares (50%
 
of the
original award) of restricted stock with time-based vesting conditions were forfeited by an executive officer upon the disposal of Net1
Korea. The Company’s Board of
 
Directors accelerated the vesting of the other half of the award and
7,500
 
vested.
 
The September 2018 grants comprise
148,000
 
shares of restricted stock awarded
 
to executive officers that are
 
subject to market
and time-based vesting. On
 
March 1, 2019,
11,409
 
of the
22,817
 
shares of restricted
 
stock awarded to
 
our chief financial
 
officer vested.
The 52,594
 
shares of
 
restricted stock
 
represent awards
 
made to
 
non-employee directors
 
that vested.
 
During the
 
year ended
 
June 30,
2019, employees
 
forfeited
115,500
 
shares of restricted
 
stock upon termination
 
which had either
 
time-based or
 
market conditions.
 
In
addition,
 
an
 
executive
 
officer
 
forfeited
 
150,000
 
shares
 
of
 
restricted
 
stock
 
as
 
the
 
performance
 
conditions
 
were
 
not
 
achieved.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-61
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Restricted stock (continued)
 
The fair
 
value of
 
restricted stock
 
which vested
 
during the
 
years ended
 
June 30,
 
2021, 2020
 
and 2019,
 
was $
1.0
 
million, $
0.1
million and $
0.5
 
million, respectively.
 
 
July 1 award to new Group
 
Chief Executive Officer
 
On June 30,
 
2021, the Company
 
entered into employment
 
agreements
 
with Mr.
 
Chris G.B. Myer,
 
under which Mr.
 
Meyer was
appointed Group Chief Executive Officer of the Company effective July 1,
 
2021. Mr. Meyer was awarded
117,304
 
shares of restricted
stock on July
 
1, 2021, which were
 
subject to time-based
 
vesting and vest
 
in full on
June 30, 2024
, subject to Mr.
 
Meyer’s continued
service to the
 
Company through June
 
30, 2024.
 
In addition, under
 
the terms of
 
Mr. Meyer’s engagement, the Company’s Remuneration
Committee also awarded Mr.
 
Meyer
117,304
 
shares of restricted stock which
 
include performance conditions
 
and which only vested
on June
 
30, 2024
 
if the
 
conditions are
 
met and
 
Mr.
 
Meyer remains
 
employed
 
with the
 
Company through
 
June 30,
 
2024. Vesting
 
of
half of
 
these awards,
 
or
58,652
 
shares of
 
restricted stock,
 
is subject
 
to the
 
Company achieving
 
its
three-year
 
financial services
 
plan
during the specific measurement
 
period from June
 
30, 2021, to
 
June 30, 2024,
 
and the other
 
half is subject
 
to share price
 
growth targets,
and only vest if the Company’s share price
 
is $
8.14
 
or higher on June 30, 2024.
 
The parties also agreed that, on or about January
 
1, 2022, the Company will issue such number of shares
 
of restricted stock equal
to the aggregate
 
amount of the
 
Company’s common stock purchased by Mr. Meyer
 
between when the
 
Company files its
 
Annual Report
on Form 10-K for the year ended June 30, 2021, and December 31, 2021. The number of shares of restricted to stock to be issued will
be calculated using a base amount of up to $ 1.0 million, in each case, divided by the Fair Market Value (as defined in the Company’s
Amended and Restated 2015 Stock Incentive Plan) of the
 
Company’s common stock
 
as determined by the Company’s
 
Remuneration
Committee.
 
These
 
shares of
 
restricted
 
stock
 
are also
 
expected to
 
include
 
time-based
 
vesting
 
conditions
 
and will
 
be subject
 
to
 
Mr.
Meyer’s continuous service
 
to the Company through the applicable vesting date.
 
Stock-based compensation charge and unrecognized compensation
 
cost
 
The Company has
 
recorded a net stock
 
compensation charge
 
of $
0.3
 
million, $
1.7
 
million and $
0.4
 
million for the
 
years ended
June 30, 2021, 2020 and 2019, respectively,
 
which comprised:
 
 
 
Total
 
charge
Allocated to IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Year
 
ended June 30, 2021
Stock-based compensation charge
 
$
1,430
$
-
$
1,430
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(1,086)
-
(1,086)
Total - years ended
 
June 30, 2021
$
344
$
-
$
344
Year
 
ended June 30, 2020
Stock-based compensation charge
 
$
1,873
$
-
$
1,873
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(145)
-
(145)
Total - years ended
 
June 30, 2020
$
1,728
$
-
$
1,728
Year
 
ended June 30, 2019
Stock-based compensation charge
 
$
2,319
$
-
$
2,319
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(1,926)
-
(1,926)
Total - years ended
 
June 30, 2019
$
393
$
-
$
393
 
The
 
stock-based
 
compensation
 
charges
 
and
 
reversal
 
have
 
been
 
allocated
 
to
 
selling,
 
general
 
and
 
administration
 
based
 
on
 
the
allocation
 
of
 
the
 
cash
 
compensation
 
paid
 
to
 
the
 
relevant
 
employees.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-62
16.
 
STOCK
-
BASED
 
COMPENSATION
 
(continued)
 
 
Stock-based compensation charge and unrecognized compens
 
ation cost (continued)
 
As of June
 
30, 2021, the
 
total unrecognized
 
compensation cost related
 
to stock options
 
was approximately
 
$
0.8
 
million, which
the
 
Company
 
expects
 
to
 
recognize
 
over
 
approximately
two years
.
 
As of
 
June
 
30,
 
2021,
 
the
 
total
 
unrecognized
 
compensation
 
cost
related to restricted stock awards was approximately $
1.2
 
million, which the Company expects to recognize over approximately
three
years
.
 
 
Tax
 
consequences
 
The Company
 
recorded a
 
deferred tax
 
asset of
 
approximately $
0.1
 
million and
 
$
0.4
 
million, respectively,
 
for the
 
years ended
June 30, 2021 and June 30, 2020. As of June 30, 2021 and 2020,
 
the Company recorded a valuation allowance of approximately $
0.1
million and $
0.4
 
million respectively,
 
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 date
 
of exercise
 
by the
 
option recipient
 
and the
 
exercise
 
price
 
from income
 
subject to
taxation in the United States.
 
17.
 
I
NCOME
 
TAX
 
 
Income tax provision
 
The table below presents
 
the components of (loss)
 
income before income taxes
 
for the years
 
ended June 30, 2021,
 
2020 and 2019:
 
2021
2020
2019
South Africa
$
(30,825)
$
(26,230)
$
(273,265)
United States
(6,686)
(8,984)
(23,479)
Liechtenstein
(810)
(17,519)
-
Other
32,702
(12,283)
(22,699)
Loss before income taxes
$
(5,619)
$
(65,016)
$
(319,443)
 
Presented below is the provision
 
for income taxes by location of
 
the taxing jurisdiction
 
for the years ended June 30, 2021,
 
2020
and 2019:
 
2021
2020
2019
Current income tax expense (benefit)
$
859
$
1,652
$
4,789
South Africa
866
1,552
3,689
United States
(75)
12
1,100
Other
68
88
-
Deferred taxation charge (benefit)
6,691
932
(8,917)
South Africa
(2,039)
653
(8,538)
United States
9,136
-
4
Other
(406)
279
(383)
Foreign tax credits generated – United States
10
72
(944)
Income tax provision (benefit)
$
7,560
$
2,656
$
(5,072)
 
There were
no
 
changes to the enacted tax rate in the years ended June 30, 2021, 2020 and 2019.
 
 
During the years
 
ended June 30, 2021, 2020 and 2019,
 
the Company incurred net operating losses through certain of it its South
African wholly-owned
 
subsidiaries and recorded a
 
deferred taxation benefit related to
 
these losses. However, the Company has
 
created
a valuation allowance for these net operating losses which reduced
 
the deferred taxation benefit recorded.
 
The Company incurred a net
 
capital gain, after the application
 
of capital loss carryforwards, related
 
to the internal restructuring
of a wholly-owned subsidiary during the year ended June 30, 2020. The Company also generated taxable capital gains during the year
ended June 30, 2020, related to the disposal of
 
FIHRST (refer to Note 23) and the sale
 
of DNI (refer to Note 8) but
 
utilized capital loss
carryforwards
 
to
 
reduce
 
the
 
capital
 
gains
 
on
 
these
 
transactions
 
to
 
zero
 
($
0
).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-63
17.
 
INCOME
 
TAX
 
(continued)
 
 
Income tax provision (continued)
 
The Company calculated its Transition Tax liability as of June 30, 2018, and incurred a Transition Tax, before the application of
any foreign
 
tax credits,
 
of $
55.8
 
million, and
 
has no
 
liability after
 
the application
 
of generated
 
foreign tax
 
credits. During
 
the year
ended June 30,
 
2019, the Company
 
recorded the difference
 
of $
1.1
 
million between the Transition
 
Tax
 
liability of $
56.9
 
million and
the provisional
 
Transition
 
Tax
 
liability of
 
$
55.8
 
million in
 
current income
 
tax, United
 
States. During
 
the year
 
ended June 30,
 
2019,
the Company also included the
 
additional foreign tax credits utilized
 
of $
1.1
 
million against this Transition
 
Tax in foreign
 
tax credits
generated – United States.
 
 
A reconciliation
 
of income
 
taxes, calculated
 
at the
 
fully-distributed South
 
African income
 
tax rate
 
to the
 
Company’s
 
effective
tax rate, for the years ended June 30, 2021, 2020 and 2019, is as follows:
 
2021
2020
2019
Income taxes at fully-distributed South African tax rates
28.00
%
28.00
%
28.00
%
Movement in valuation allowance
(250.16)
%
1.64
%
(22.98)
%
Non-deductible items
(58.40)
%
(10.38)
%
(3.33)
%
Foreign tax rate differential
51.21
%
(4.17)
%
(0.07)
%
Capital gains differential
93.03
%
(1.59)
%
(1.46)
%
Prior year adjustments
1.77
%
(0.01)
%
(0.03)
%
Release from FCTR
-
 
-
 
(14.65)
%
-
 
-
 
Subpart F inclusions
-
 
-
 
(2.85)
%
-
 
-
 
Foreign tax credits
-
 
-
 
(0.08)
%
0.35
%
Taxation on deemed
 
dividends in the United States
-
 
-
 
-
 
-
 
1.45
%
Transition Tax
-
 
-
 
-
 
-
 
(0.34)
%
Income tax provision
(134.55)
%
(4.09)
%
1.59
%
 
Percentages included in the 2021, 2020 and 2019 columns
 
in the reconciliation of income taxes presented above are impacted by
the loss incurred
 
by the Company
 
during the
 
year ended
 
June 30, 2021,
 
2020 and
 
2019. For instance,
 
the income
 
tax provision
 
of $
7.6
 
million represents (
134.55
%) multiplied by the net loss before tax of $(
5,619
). Movement in the valuation allowance for the year
ended June
 
30, 2021,
 
includes allowances
 
created related
 
to net
 
operating losses
 
incurred during
 
the year.
 
Non-deductible items
 
for
the year ended June 30, 2021, includes the impact of the allowance for doubtful loans created.
 
The foreign tax rate differential relates
primarily to the difference between
 
the fully-distributed South African income
 
tax rate and
 
the rate used (
21
%) to measure the
 
deferred
tax
 
liability
 
created
 
related
 
to
 
the
 
fair
 
adjustment
 
to
 
the
 
Company’s
 
investment
 
in
 
MobiKwik
 
(refer
 
to
 
Note
 
8).
 
The capital
 
gains
differential
 
for the
 
year ended
 
June 30,
 
2021, represents
 
the impact
 
of the
 
reversal of
 
the deferred
 
tax liability
 
related to
 
one of
 
the
Company’s equity-accounted
 
investments following its impairment (refer to Note 8).
 
Movement in the valuation allowance
 
for the year ended
 
June 30, 2020,
 
includes allowances created related to
 
net operating losses
incurred during the year and
 
valuation allowances
 
created for a deferred tax
 
asset recorded related to the deconsolidation
 
of CPS and
other corporate
 
transactions. Release
 
from FCTR
 
for the
 
year
 
ended June
 
30, 2020,
 
relates to
 
the releases
 
from accumulated
 
other
comprehensive loss (refer to Note 14) that are not deductible for
 
tax purposes. Non-deductible items for the year ended June 30, 2020,
includes the option termination fee paid and the goodwill impairment
 
loss recognized.
 
Movement in the valuation allowance
 
for the year ended
 
June 30, 2019, includes
 
allowances created related to
 
net operating losses
incurred during the year and a valuation
 
allowance created for a deferred tax
 
asset recorded related to the DNI disposal
 
capital losses
generated (refer to Note
 
8) and the Cell C capital
 
loss following the fair
 
value adjustment (refer to Note
 
5). Non-deductible items for
the
 
year
 
ended
 
June
 
30,
 
2019,
 
includes
 
the
 
impairment
 
losses
 
recognized
 
related
 
to
 
goodwill
 
impaired.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-64
17.
 
INCOME
 
TAX
 
(continued)
 
 
Deferred tax assets and liabilities
 
Deferred
 
income taxes
 
reflect the
 
temporary
 
differences
 
between
 
the financial
 
reporting and
 
tax bases
 
of assets
 
and
 
liabilities
using enacted tax rates
 
in effect for the
 
year in which
 
the differences are expected
 
to reverse. The
 
primary components of the
 
temporary
differences that gave rise to the Company’s
 
deferred tax assets and liabilities as of June 30, and their classification, were as follows:
 
June 30,
June 30,
2021
2020
Total
 
deferred tax assets
Capital losses related to investments
$
47,518
$
36,721
Net operating loss carryforwards
36,329
32,459
Foreign tax credits
32,737
32,799
Provisions and accruals
2,123
3,936
FTS patent
163
181
Other
654
815
Total
 
deferred tax assets before valuation allowance
119,524
106,911
Valuation
 
allowances
(118,777)
(106,433)
Total
 
deferred tax assets, net of valuation allowance
747
478
Total
 
deferred tax liabilities:
Intangible assets
100
171
Investments
10,354
1,755
Other
87
53
Total
 
deferred tax liabilities
10,541
1,979
Reported as
Long-term deferred tax assets
622
358
Long-term deferred tax liabilities
10,415
1,859
Net deferred income tax liabilities
$
9,793
$
1,501
 
Increase in total net deferred income tax liabilities
 
Capital losses related to investments
 
Capital losses as of June 30,
 
2021 and 2020,
 
comprises the capital loss arising from
 
the difference between the amount
 
paid for
Cell C in August 2017 and the its fair value as of the respective year end, of $
0.0
 
million, and difference between the amount paid for
CPS in 2004
 
and the its
 
fair value
 
as of the
 
respective year
 
end, of
 
$
0.0
 
million. The
 
change in capital
 
losses related
 
to investments
relates primarily to the impact of currency changes between the South Africa
 
Rand against the United States dollar.
 
 
Net operating loss carryforwards
 
Net operating loss carryforwards have increased due
 
to losses incurred by certain of the Company’s
 
subsidiaries and the impact
of currency changes between the South Africa Rand
 
against the United States dollar, which was partially offset by
 
net operating losses
carryforwards forfeited following the substantial liquidation of
 
certain of the Company’s subsidiaries.
 
 
Investments
 
Investment increased during the year
 
ended June 30, 2021,
 
primarily as a result
 
of the fair value
 
adjustments to the carrying
 
value
of MobiKwik (refer to Note 8).
 
Decrease in valuation allowance
 
At
 
June
 
30,
 
2021,
 
the
 
Company
 
had
 
deferred
 
tax
 
assets of
 
$
0.7
 
million
 
(2020:
 
$
0.5
 
million), net
 
of the
 
valuation
 
allowance.
Management believes,
 
based on
 
the weight
 
of available
 
positive and
 
negative evidence
 
it is
 
more likely
 
than not
 
that the
 
Company
will realize the benefits of these deductible differences, net of the valuation
 
allowance. However, the amount of the deferred
 
tax asset
considered realizable could be adjusted in the future if estimates of taxable
 
income are revised.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-65
17.
 
INCOME
 
TAX
 
(continued)
 
 
Deferred tax assets and liabilities (continued)
 
Decrease in valuation allowance (continued)
 
At June
 
30, 2021,
 
the Company
 
had a
 
valuation allowance
 
of $
118.8
 
million (2020:
 
$
106.4
 
million) to
 
reduce its
 
deferred tax
assets to estimated
 
realizable value. The movement in
 
the valuation allowance for
 
the years ended
 
June 30, 2021
 
and 2020, is
 
presented
below:
 
Total
Capital losses
related to
investments
Net operating
loss carry-
forwards
Foreign tax
credits
Other
July 1, 2019
$
125,887
$
43,569
$
35,861
$
32,799
$
13,658
Charged to statement of operations
27,700
5,399
20,602
-
1,699
Reversed to statement of operations
(14,314)
(5,486)
(77)
-
(8,751)
Deconsolidation
(16,130)
-
(15,830)
-
(300)
Utilized
(3,896)
-
(3,632)
-
(264)
Foreign currency adjustment
(12,814)
(6,761)
(4,651)
-
(1,402)
June 30, 2020
106,433
36,721
32,273
32,799
4,640
Charged to statement of operations
16,376
3,532
13,264
-
(420)
Reversed to statement of operations
(14,840)
-
(13,687)
(62)
(1,091)
Utilized
(1,422)
-
(135)
-
(1,287)
Foreign currency adjustment
12,230
7,265
4,555
-
410
June 30, 2021
$
118,777
$
47,518
$
36,270
$
32,737
$
2,252
 
Net operating loss carryforwards and foreign tax credits
 
United States
 
Net operating
 
loss generated are
 
carried forward
 
indefinitely,
 
but the loss
 
carryforward
 
that may be
 
used against future
 
taxable
income is limited to 80% of taxable income before the net operating loss deduction.
 
In March 2020,
 
the Coronavirus Aid,
 
Relief and Economic
 
Security Act (the
 
“Cares Act”) was enacted.
 
The Cares Act, among
other items,
 
provides for
 
a temporary
 
repeal of
 
the 80 percent
 
net operating
 
loss limitation and
 
provides temporary
 
modifications to
the limitation on deductibility of business interest.
 
As of June 30, 2021, Net1 had net operating loss carryforwards that will expire,
 
if unused, as follows:
 
Year
 
of expiration
 
U.S. net
operating loss
carry
forwards
2024
$
775
 
Net1 had no net unused foreign tax credits that
 
are more likely than not to be realized as
 
of June 30, 2021 and 2020, respectively.
 
 
Uncertain tax positions
 
As of June 30, 2021 and 2020, the Company had
no
 
unrecognized tax benefits which would impact the Company’s
 
effective tax
rate.
 
The
 
Company
 
files
 
income
 
tax
 
returns
 
mainly
 
in
 
South
 
Africa,
 
Germany,
 
Hong
 
Kong,
 
India,
 
Malta,
 
the
 
United
 
Kingdom,
Botswana and in the U.S. federal jurisdiction. As of June 30, 2021, the Company’s South African subsidiaries are no longer subject to
income tax examination
 
by the South African
 
Revenue Service for periods
 
before June 30, 2017.
 
The Company is subject
 
to income
tax in other
 
jurisdictions outside South Africa,
 
none of which
 
are individually material to
 
its financial position, statement
 
of cash flows,
or results of operations.
 
The Company does not
 
expect the change related
 
to unrecognized tax benefits will
 
have a significant impact
on its results of operations or financial position in the next 12 months.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-66
18.
 
(LOSS)
 
EARNINGS
 
PER
 
SHARE
 
 
The Company has
 
issued redeemable common
 
stock (refer to Note
 
13) 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 years ended
 
June 30, 2021,
 
2020 and 2019.
 
Accordingly,
the two-class method presented below does not include the impact of
 
any redemption.
 
 
Basic (loss) earnings per share include 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 years ended
 
June 30, 2021, 2020 and 2019,
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 have
 
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 calculation
 
of diluted
 
(loss) earnings
 
per share
 
includes the
dilutive effect of
 
a portion of the
 
restricted stock granted
 
to employees in Augu
 
st 2016, August 2017,
 
March 2018, September
 
2018,
February 2020 and May 2021
 
as these shares of restricted
 
stock are considered contingently returnable
 
shares for the purposes of
 
the
diluted (loss) earnings per share calculation and the vesting conditions in respect of
 
a portion of the restricted stock had been
 
satisfied.
The
 
vesting
 
conditions
 
are
 
discussed
 
in
 
Note
 
16
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-67
18.
 
(LOSS)
 
EARNINGS
 
PER
 
SHARE
 
(continued)
 
 
The following table presents net (loss) income attributable
 
to Net1 and the share
 
data used in the basic and
 
diluted (loss) earnings
per share computations using the two-class method for the years ended
 
June 30, 2021, 2020 and 2019:
 
2021
2020
2019
(in thousands except percent and per share data)
Numerator:
Net loss attributable to Net1
$
(38,057)
$
(78,358)
$
(311,007)
Undistributed (loss) earnings
(38,057)
(78,358)
(311,007)
Continuing
(38,057)
(97,214)
(311,761)
Discontinued
$
-
$
18,856
$
754
Percent allocated to common shareholders
(Calculation 1)
99%
98%
99%
Numerator for (loss) earnings per share: basic and diluted
$
(37,825)
$
(76,827)
$
(306,640)
Continuing
(37,825)
(95,315)
(307,383)
Discontinued
$
-
$
18,488
$
743
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
56,332
56,003
55,963
Effect of dilutive securities:
Stock options
259
-
18
Denominator for diluted (loss) earnings per share: adjusted
weighted average common shares outstanding and assumed
conversion
56,591
56,003
55,981
(Loss) Earnings per share:
Basic
 
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
Diluted
 
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
(Calculation 1)
Basic weighted-average common shares outstanding (A)
 
56,332
56,003
55,963
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest (B)
 
56,678
57,119
56,760
Percent allocated to common shareholders
 
(A) / (B)
 
99%
98%
99%
 
Options to
 
purchase
282,832
,
1,331,651
 
and
864,579
 
shares of
 
the Company’s
 
common stock
 
at prices
 
ranging from
 
$
6.20
 
to
$
11.23
 
(2021), $
3.07
 
to $
11.23
 
(2020) and
 
$
6.20
 
to $
11.23
 
(2019) per
 
share were outstanding
 
during the year
 
ended June 30,
 
2021,
2020 and 2019,
 
respectively, but were not included
 
in the computation
 
of diluted (loss)
 
earnings per share
 
because the options’
 
exercise
prices were greater
 
than the average
 
market price of
 
the Company’s common shares.
 
The options, which
 
expire at various
 
dates through
October 14, 2029, were still outstanding as of June 30, 2021.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-68
19.
 
SUPPLEMENTAL
 
CASH
 
FLOW
 
INFORMATION
 
 
The following table presents supplemental cash flow disclosures for
 
the years ended June 30, 2021, 2020 and 2019:
 
 
2021
2020
2019
Cash received from interest
 
$
2,222
$
3,057
$
5,596
Cash paid for interest
 
$
3,056
$
6,050
$
10,636
Cash paid for income taxes
 
$
16,608
$
5,001
$
13,110
 
Investing activities
 
The transaction referred to in
Note 23
 
under which the Company reduced its shareholding in DNI from
55
% to
38
% and used the
proceeds, of $
27.6
 
million, from the sale to settle its obligation, of $
27.6
 
million, to subscribe for additional shares in DNI was closed
using a cashless settlement process.
 
Therefore, the proceeds from
 
sale and the settlement of the
 
obligation to subscribe for additional
shares in DNI
 
were not included
 
in net cash
 
provided by investing
 
activities in the
 
Company’s
 
consolidated statement of
 
cash flows
for the year ended June 30, 2019.
 
 
The transaction referred to in
Note 23
 
and Note 11 under which the Company reduced its shareholding in DNI from
38
% to
30
%
and
 
used the
 
proceeds
 
from
 
the sale
 
to
 
settle a
 
portion
 
of its
 
long-term
 
borrowings,
 
of $
15.0
 
million,
 
was closed
 
using
 
a
 
cashless
settlement process.
 
Therefore, the
 
proceeds from
 
sale was
 
not included
 
in net
 
cash provided
 
by (used
 
in) investing
 
activities in
 
the
Company’s consolidated
 
statement of cash flows for the year ended June 30, 2019.
 
 
Financing activities
 
The transaction referred to
 
in
Note 23
 
and Note 8 under which the
 
Company reduced its shareholding
 
in DNI from
38
% to
30
%
and
 
used
 
the
 
proceeds
 
from
 
the
 
sale
 
to
 
settle
 
a
 
portion
 
of its
 
long-term
 
borrowings,
 
of $
15.0
 
million
 
was
 
closed
 
using
 
a
 
cashless
settlement process.
 
Therefore,
 
the part
 
settlement of
 
the long-term
 
borrowings
 
was not
 
included
 
in net
 
cash (used
 
in) provided
 
by
financing activities in the Company’s
 
consolidated statement of cash flows for the year ended June 30, 2019.
 
 
Disaggregation of cash, cash equivalents and restricted cash
 
Cash, cash equivalents
 
and restricted cash
 
included on
 
the Company’s
 
consolidated statement
 
of cash flows
 
includes restricted
cash related to cash withdrawn from the Company’s
 
various debt facilities to fund ATMs.
 
This cash may only be used to fund ATMs
and
 
is considered
 
restricted
 
as to
 
use
 
and
 
therefore
 
is classified
 
as restricted
 
cash.
 
Cash,
 
cash
 
equivalents
 
and
 
restricted
 
cash
 
also
includes cash in certain bank accounts that have been ceded to
 
Nedbank. As this cash has been pledged and ceded it
 
may not be drawn
and is considered restricted
 
as to use and therefore is classified
 
as restricted cash as well. Refer
 
to Note 11 for
 
additional information
regarding the Company’s facilities. The following table presents the disaggregation
 
of cash, cash equivalents and restricted cash as of
June 30, 2021, 2020 and 2019:
 
2021
 
2020
 
2019
 
Continuing
$
198,572
$
217,671
$
20,014
Discontinued
-
-
26,051
Cash and cash equivalents
198,572
217,671
46,065
Restricted cash
25,193
14,814
75,446
Cash, cash equivalents and restricted cash
$
223,765
$
232,485
$
121,511
 
Leases
 
 
The following table presents supplemental cash flow disclosure related
 
to leases for the years ended June 30, 2021 and 2020:
 
2021
 
2020
 
Cash paid related to lease liabilities
Operating cash flows from operating leases
$
4,050
$
3,603
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
3,000
$
2,974
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-69
20.
 
OPERATING
 
SEGMENTS
 
 
Change to internal reporting structure and restatement
 
of previously reported information
 
During September 2020, the Company’s chief operating decision maker
 
changed the Company’s operating and internal reporting
structures
 
following
 
the
 
Company’s
 
decisions
 
to
 
focus
 
primarily
 
on
 
the
 
South
 
African
 
market
 
and
 
to
 
exit
 
its
 
operating
 
activities
performed through IPG.
 
The chief operating decision
 
maker has decided to
 
analyze the Company’s
 
operating performance primarily
based on
 
reported information
 
for statutory
 
entities, statutory
 
groups, clustered
 
statutory entities
 
or clustered
 
statutory groups,
 
with
certain reallocations, based on the activity of the reporting unit. Previous
 
ly reported information has been restated.
 
Reallocation of certain activities among operating segments
 
During the first quarter of fiscal 2021, the Company reorganized
 
its operating segments by combining what were previously the
South African
 
transaction processing
 
segment and
 
the International
 
transaction processing
 
segment into
 
what is now
 
the Processing
segment and bifurcating what
 
was previously the Financial
 
inclusion and applied
 
technologies segment into what
 
are now the
 
Financial
services segment and the
 
Technology segment. Segment results for the
 
year ended June 30,
 
2021,
 
reflect these changes to
 
the 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.
 
The Company currently has
 
three reportable segments: Processing,
 
Financial services and Technology. All three segments operate
mainly
 
within South
 
Africa and
 
certain of
 
our activities
 
outside of
 
South Africa
 
have been
 
allocated to
 
Processing. The
 
Company’s
reportable
 
segments
 
offer
 
different
 
products
 
and
 
services
 
and
 
require
 
different
 
resources
 
and
 
marketing
 
strategies
 
but
 
share
 
the
Company’s assets.
 
 
The Processing segment includes
 
fees earned by
 
the Company from
 
processing activities performed for
 
its customers and
 
revenue
generated
 
from
 
the
 
distribution
 
of
 
prepaid
 
airtime.
 
The
 
Company
 
provides
 
its
 
customers
 
with
 
transaction
 
processing
 
services
 
that
involve the collection, transmittal and retrieval of all transaction
 
data. Customers that have a bank account managed by
 
the Company
are issued
 
cards that
 
can be
 
utilized to
 
withdraw
 
funds
 
at an
 
ATM
 
or to
 
transact at
 
a merchant
 
point
 
of sale
 
device
 
(“POS”). The
Company
 
earns
 
processing
 
fees
 
from
 
transactions
 
processed
 
for
 
these
 
customers.
 
The
 
Company
 
also
 
earns
 
fees
 
on
 
transactions
performed by other
 
banks’ customers utilizing
 
its ATM,
 
POS or bill payment
 
infrastructure. The Processing
 
segment includes IPG’s
processing activities. During
 
the years ended June 30,
 
2020 and 2019, the operating
 
segment incurred goodwill impairment
 
losses of
$
5.6
 
million and $
8.2
 
million, respectively (refer to Note 9).
 
The Financial
 
services segment
 
includes activities
 
related to
 
the provision
 
of financial
 
services to
 
customers, including
 
a bank
account,
 
loans
 
and
 
insurance
 
products.
 
The
 
Company
 
charges
 
monthly
 
administration
 
fees
 
for
 
all
 
bank
 
accounts.
 
The
 
Company
provides short-term loans to customers in South Africa for
 
which it earns initiation and monthly service fees. The
 
Company writes life
insurance contracts, primarily funeral-benefit policies, and
 
policy holders pay the Company a monthly insurance premium.
 
 
The Technology segment includes sales of hardware and licenses to customers. Hardware includes the sale of POS devices, SIM
cards and other
 
consumables which can
 
occur on an
 
ad hoc basis.
 
Licenses include
 
the right to
 
use certain technology
 
developed by
the Company. During the year ended June 30, 2019,
 
the operating segment incurred goodwill impairment losses of $6.2 million (refer
to Note 9).
 
Corporate/Eliminations
 
includes the
 
Company’s
 
head office
 
cost center
 
and the
 
amortization
 
of
 
acquisition-related
 
intangible
assets. The
 
$
17.5
 
million termination
 
fee paid
 
to terminate
 
the Bank
 
Frick option
 
(refer to
 
Note 8)
 
during the
 
year ended
 
June 30,
2020,
 
has
 
been
 
allocated
 
t
o
 
corporate/
 
elimination.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-70
20.
 
OPERATING
 
SEGMENTS
 
(continued)
 
 
Operating segments (continued)
 
 
The reconciliation
 
of the
 
reportable segment’s
 
revenue to
 
revenue from
 
external customers
 
for the
 
years ended
 
June 30,
 
2021,
2020 and 2019, respectively,
 
is as follows:
 
Revenue (as restated)
(1)
Reportable
Segment
Corporate/
Elimination
s
Inter-
segment
From
external
customers
Processing
$
82,435
$
-
$
4,773
$
77,662
Financial services
38,996
-
3,391
35,605
Technology
17,751
-
232
17,519
Total for the years
 
ended June 30, 2021
$
139,182
$
-
$
8,396
$
130,786
Processing
(1)
$
91,786
$
-
$
8,158
$
83,628
Financial services
46,870
-
3,546
43,324
Technology
18,071
-
724
17,347
Total for the years
 
ended June 30, 2020
$
156,727
$
-
$
12,428
$
144,299
Processing
(1)
$
118,088
$
-
$
10,666
$
107,422
Financial services
57,034
-
5,861
51,173
Technology
20,115
-
(1,634)
21,749
Reportable segments
195,237
-
14,893
180,344
Corporate/Eliminations – revenue refund (Note 15)
-
(19,709)
-
(19,709)
Total for the years
 
ended June 30, 2019
$
195,237
$
(19,709)
$
14,893
$
160,635
 
(1) Processing for the years ended June 30, 2020 and 2019, has been restated
 
for the error described in Note 1.
 
The Company does not allocate interest income, interest
 
expense or income tax expense to
 
its reportable segments. The Company
evaluates
 
segment
 
performance
 
based
 
on
 
segment
 
operating
 
income
 
before
 
acquisition-related
 
intangible
 
asset
 
amortization
 
which
represents operating income before acquisition-related intangible asset amortization and expenses allocated to Corporate/Eliminations,
all under GAAP.
 
The reconciliation of
 
the reportable segments
 
measures of profit or
 
loss to income before
 
income taxes for the
 
years ended June
30, 2021, 2020 and 2019, respectively,
 
is as follows:
 
2021
2020
(1)
2019
Reportable segments measure of profit or loss
 
$
(40,085)
$
(34,642)
$
(86,937)
Operating loss: Corporate/Eliminations
 
(13,787)
(9,606)
(47,995)
Change in fair value of equity securities (Note 23)
49,304
-
(167,459)
Loss on disposal of equity-accounted investment - Bank Frick (Note
 
8)
(472)
-
-
Loss on disposal of equity-accounted investment (Note 8)
(13)
-
-
Gain on disposal of FIHRST (Note 23)
-
9,743
-
(Loss) Gain on disposal of DNI interest as an equity method investment
(Note 23)
-
(1,010)
177
Loss on deconsolidation of CPS (Note 23)
-
(7,148)
-
Termination
 
fee to cancel Bank Frick option
-
(17,517)
-
Interest income
 
2,416
2,805
5,424
Interest
 
expense
 
(2,982)
(7,641)
(9,860)
Impairment of Cedar Cellular Note
-
-
(12,793)
Loss before income taxes
 
$
(5,619)
$
(65,016)
$
(319,443)
 
(1)
 
-
 
Operating
 
loss:
 
Corporate/Eliminations
 
includes
 
$
34.0
 
million
 
related
 
to
 
an
 
accrual
 
CPS
 
recorded
 
at
 
June
 
30,
 
2019,
comprising a revenue refund of $
19.7
 
million (ZAR
277.6
 
million), accrued interest of $
11.4
 
million (ZAR
161.0
 
million), unclaimed
indirect
 
taxes
 
of
 
$
2.8
 
million
 
(ZAR
 
39.4
 
million)
 
and
 
estimated
 
costs
 
of
 
$
0.1
 
million
 
(ZAR
 
1.4
 
million)
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-71
20.
 
OPERATIN
G
 
SEGMENTS
 
(continued)
 
 
Operating segments (continued)
 
 
The following tables summarize segment information for the years
 
ended June 30, 2021, 2020 and 2019:
 
 
2021
2020
2019
(as restated)
(1)
(as restated)
(1)
Revenues
Processing
$
82,435
$
91,786
$
118,088
All others
80,742
88,476
109,931
IPG
1,693
3,310
8,157
Financial services
38,996
46,870
57,034
Technology
17,751
18,071
20,115
Total
 
139,182
156,727
195,237
Operating (loss) income
Processing
(2)
(34,283)
(33,836)
(51,575)
All others
(2)
(23,556)
(21,488)
(35,474)
IPG
(10,727)
(12,348)
(16,101)
Financial services
(2)
(8,429)
(3,621)
(30,068)
Technology
2,627
2,815
(5,294)
Subtotal: Operating segments
(2)
(40,085)
(34,642)
(86,937)
Corporate/Eliminations
 
(13,787)
(9,606)
(47,995)
Total
(2)
(53,872)
(44,248)
(134,932)
Depreciation and amortization
Processing
2,900
3,298
3,915
Financial services
473
790
1,002
Technology
615
168
90
Subtotal: Operating segments
 
3,988
4,256
5,007
Corporate/Eliminations
 
359
391
7,096
Total
 
4,347
4,647
12,103
Expenditures for long-lived assets
Processing
1,173
4,297
4,419
Financial services
174
138
1,142
Technology
2,938
-
181
Subtotal: Operating segments
 
4,285
4,435
5,742
Corporate/Eliminations
 
-
-
-
Total
 
$
4,285
$
4,435
$
5,742
 
(1) Revenues-Processing
 
-All others
 
for the
 
years ended
 
June 30,
 
2020 and
 
2019, have
 
been restated
 
for the
 
error described
 
in
Note 1.
 
(2)
 
Processing
 
and
 
Financial
 
services
 
include
 
retrenchment
 
costs
 
for
 
the
 
year
 
ended
 
June
 
30,
 
2019,
 
of:
 
$
4,665
 
and
 
$
1,604
,
respectively,
 
for total retrenchment costs for the
 
year ended June 30, 2019, of $
6,269
. The retrenchment costs are included
 
in selling,
general and administration expense on the consolidated statement of operations
 
for the year ended June 30, 2019.
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-72
20.
 
OPERATING
 
SEGMENTS
 
(continued)
 
 
Geographic Information
 
Long-lived assets based on the geographic location
 
for the years ended June 30, 2021, 2020 and 2019, are presented
 
in the table
below:
 
Long-lived assets
2021
2020
2019
South Africa
$
50,754
$
68,521
$
141,235
Liechtenstein - investment in Bank Frick (Note 8)
-
29,739
47,240
India - investment in MobiKwik (Note 8)
76,297
26,993
26,993
South Korea (Note 23)
-
-
149,390
Rest of world
6,962
9,119
9,739
Total
$
134,013
$
134,372
$
374,597
 
21.
 
COMMITMENTS
 
AND
 
CONTINGENCIES
 
 
Capital commitments
 
 
As
 
of
 
June
 
30,
 
2021
 
and
 
2020,
 
the
 
Company
 
had
 
outstanding
 
capital
 
commitments
 
of
 
approximately
 
$
0.3
 
million
 
and
 
$
0.1
million, respectively.
 
 
Purchase obligations
 
As of June
 
30, 2021 and 2020,
 
the Company had
 
purchase obligations totaling
 
$
2.5
 
million and $
1.7
 
million, respectively.
 
The
purchase obligations as of June
 
30, 2021, primarily include inventory
 
that will be delivered to the
 
Company and sold to customers in
the second half of calendar 2021.
 
 
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 a
 
South African bank.
 
The Company
 
is
required to procure these guarantees for these third parties to operate
 
its business.
 
 
Nedbank has issued guarantees to
 
these third parties amounting to
 
ZAR
156.6
 
million ($
10.9
 
million, translated at exchange rates
applicable
 
as
 
of
 
June
 
30,
 
2021)
 
thereby
 
utilizing
 
part
 
of
 
the
 
Company’s
 
short-term
 
facilities.
 
The
 
Company
 
pays
 
commission
 
of
between
0.4
% per annum to
1.94
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
 
The Company has not recognized any obligation related to
 
these guarantees in its consolidated balance sheet as of
 
June 30, 2021.
The maximum potential
 
amount that the Company
 
could pay under
 
these guarantees is ZAR
156.6
 
million ($
10.9
 
million, translated
at exchange rates applicable as of June 30, 2021).
 
As discussed in Note 11, the Company has ceded and pledged certain
 
bank accounts
to
 
Nedbank
 
as security
 
for
 
certain
 
of
 
these
 
guarantees
 
with
 
an
 
aggregate
 
value
 
of
 
ZAR 156.6
 
million
 
($10.9
 
million
 
translated
 
at
exchange rates
 
applicable as
 
of June
 
30, 2021).
 
The guarantees
 
have reduced
 
the amount
 
available under
 
its indirect
 
and derivative
facilities
 
in
 
the
 
Company’s
 
short
-
term
 
credit
 
facility
 
described
 
in
 
Note
 
11.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-73
21.
 
COMMITMENTS
 
AND
 
CONTINGENCIES
 
(continued)
 
 
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.
 
22.
 
RELATED
 
PARTY
 
TRANSACTIONS
 
 
Disgorgement proceeds from VCP
 
In late September 2020, Value
 
Capital Partners (Pty) Ltd (“VCP”), a significant shareholder, notified the Company that it would
make payment to
 
the Company
 
related to the
 
disgorgement of short-swing
 
profits from the
 
purchase of
 
common stock by
 
VCP pursuant
to
 
Section
 
16(b)
 
of
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934,
 
as
 
amended
 
and
 
the
 
Company’s
 
insider
 
trading
 
policy.
 
The
 
Company
recognized these proceeds
 
as a capital contribution
 
from shareholders and recorded
 
an increase of $
0.1
 
million, net of taxes
 
of $
0.02
million, to additional paid-in capital
 
in its unaudited condensed consolidated
 
statement of changes in equity
 
for the three months
 
ended
September 30, 2020.
 
The gross proceeds of
 
$
0.12
 
million are recorded within
 
cash flows from financing
 
activities in the Company’s
consolidated statement of cash flow
 
for the year ended June 30,
 
2021. The Company expects to
 
pay the taxes due of $
0.02
 
million in
calendar 2021.
 
Transactions between an executive officer
 
and a company controlled by the executive officer’s
 
spouse
 
A
 
subsidiary,
 
Transact24,
 
had
 
an
 
existing
 
relationship
 
in
 
place
 
between
 
itself
 
and
 
a
 
company
 
controlled
 
by
 
the
 
spouse
 
of
Transact24’s
 
Managing
 
Director
 
at the
 
time of
 
the Transact24
 
acquisition
 
during
 
the year
 
ended
 
June
 
30, 2016.
 
This arrangement
therefore was also in
 
place before the Managing
 
Director became an executive
 
officer of the Company. This relationship was
 
disclosed
to the
 
Company during
 
the due
 
diligence process
 
and was
 
considered by
 
the Company’s
 
management
 
to be
 
critical to
 
the ongoing
operations
 
of
 
Transact24.
 
The
 
company
 
controlled
 
by
 
the
 
spouse
 
of
 
the
 
managing
 
director
 
performed
 
transaction
 
processing
 
and
Transact24 provided
 
technical and administration services to
 
the company. These services ceased during the
 
year ended June
 
30, 2019.
 
The Company
 
has recorded
 
revenue of
 
approximately $
0.4
 
million related
 
to this
 
relationship during
 
the years
 
ended June
 
30,
2019. Transact24’s Managing Director had
 
an indirect interest in these transactions as a
 
result of his relationship with his spouse, with
an approximate value of
 
$
0.1
 
million during the year
 
ended June 30, 2019.
 
Transact24’s
 
Managing Director resigned
 
on October 30,
2020.
 
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
 
Acquisitions
 
The Company did not make any acquisitions during the years ended
 
June 30, 2021, 2020 and 2019.
 
Dispositions
 
2020 Dispositions
 
March 2020 disposal of KSNET
 
 
On January 23,
 
2020, the Company,
 
through its wholly
 
owned subsidiary Net1
 
Applied Technologies
 
Netherlands B.V.
 
(“Net1
BV”), a limited liability private company
 
incorporated in The Netherlands, entered into
 
an agreement with PayletterHoldings LLC,
 
a
limited
 
liability
 
private
 
company
 
incorporated
 
in
 
the
 
Republic
 
of
 
Korea,
 
in
 
terms
 
of
 
which
 
Net1
 
BV
 
agreed
 
to
 
sell
 
its
 
entire
shareholding
 
in Net1
 
Applied Technologies
 
Korea Limited
 
(“Net1 Korea”),
 
a limited
 
liability private
 
company incorporated
 
in the
Republic
 
of Korea
 
and
 
the sole
 
shareholder
 
of KSNET,
 
Inc. for
 
$
237.2
 
million.
 
The transaction
 
was subject
 
to customary
 
closing
conditions
 
and
 
closed on
 
March 9,
 
2020.
 
The Company
 
no longer
 
controls Net1
 
Korea
 
and
 
its subsidiaries
 
and
 
deconsolidated
 
its
investment effective March 1, 2020,
 
and had no continued involvement going forward.
 
KSNET was acquired
 
in October 2010,
 
and was a profitable
 
and cash generative
 
business, but operated
 
autonomously and in
 
a
more
 
developed
 
economy,
 
with limited
 
overlap
 
with the
 
Company’s
 
other activities.
 
The Company
 
also believe
 
d
 
that the
 
intrinsic
value of KSNET was not
 
appropriately reflected in the
 
Company’s overall
 
valuation. The Company’s
 
board of directors commenced
a strategic review of its
 
various businesses and investments during
 
calendar 2019,
 
and ultimately evaluated and decided
 
to sell KSNET
in
 
January
 
2020
 
in
 
order
 
to
 
focus
 
more
 
on
 
the
 
Company’s
 
core
 
strategy,
 
boost
 
liquidity
 
and
 
to
 
maximize
 
shareholder
 
returns.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-74
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
(continued)
 
 
Dispositions (continued)
 
2020 Dispositions (continued)
 
March 2020 disposal of KSNET (continued)
 
 
The table below presents the impact of the deconsolidation of Net1 Korea and its subsidiaries
 
and the calculation of the net gain
recognized on deconsolidation:
 
 
Net1 Korea
March 2020
Proceeds from disposal of Net1 Korea, net of cash disposed
$
192,619
Add: Cash and cash equivalents disposed
23,473
Add: Cash withheld by purchaser to settle South Korean taxes
(1)
21,128
Fair value of consideration received
237,220
Less: carrying value of Net1 Korea, comprising
200,843
Cash and cash equivalents
23,473
Accounts receivable, net
30,467
Finance loans receivable, net
13,695
Inventory
2,377
Property, plant and equipment,
 
net
7,601
Operating lease right of use asset
181
Goodwill (Note 9)
107,964
Intangible assets, net
4,655
Deferred income taxes assets
1,719
Other long-term assets
10,984
Accounts payable
(5,484)
Other payables
(5,523)
Operating lease liability - current
(69)
Income taxes payable
(3,481)
Deferred income taxes liabilities
(1,497)
Operating lease liability – long-term
(112)
Other long-term liabilities
(335)
Released from accumulated other comprehensive income – foreign
 
currency translation reserve (Note 14)
14,228
Settlement assets
44,111
Settlement liabilities
(44,111)
Gain recognized on disposal, before transaction costs and tax
36,377
Transaction costs
(2)
8,644
Gain recognized on disposal, before tax
27,733
Taxes related to gain
 
recognized on disposal
(1)
15,279
Gain recognized on disposal, after tax
$
12,454
 
(1) Represents taxes
 
paid related to the
 
disposal of Net1 Korea
 
(refer to Note 17).
 
The Company also agreed
 
that the purchaser
withhold potential
 
capital gains
 
taxes of
 
$
19.9
 
million (approximately
 
KRW
23.8
 
billion) and
 
non-refundable securities
 
transaction
taxes of $
1.2
 
million (approximately KRW
1.4
 
billion), for a total withholding of $
21.1
 
million, from the purchase price and pay such
amounts, on behalf of Net1 BV,
 
to the South Korean tax authorities. Net1 BV commenced a process to claim a refund from the South
Korean tax authorities of the potential amount withheld and received this amount of approximately
 
$
20.1
 
million (KRW
23.8
 
billion)
in September
 
2020.
 
The Company
 
included
 
the expected
 
amount to
 
be refunded
 
in the
 
caption Accounts
 
receivable, net
 
and other
receivables in its consolidated balance sheet as of June 30, 2020, refer
 
also to Note 3.
(2) Transaction
 
costs include expenses
 
incurred by the
 
Company of $
7.5
 
million directly related
 
to the disposal
 
of Net1 Korea
and paid in cash and a
 
non-refundable securities transfer tax of approximately $
1.2
 
million which was also withheld from
 
the purchase
price and paid to the South Korean tax authorities directly by the purchaser.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-75
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
(continued)
 
 
Dispositions (continued)
 
2020 Dispositions (continued)
 
December 2019 disposal of FIHRST
 
In November
 
2019, the
 
Company
 
through its
 
wholly owned
 
subsidiary,
 
Net1 Applied
 
Technologies
 
South
 
Africa Proprietary
Limited (“Net1
 
SA”), entered into
 
an agreement
 
with Transaction
 
Capital Payment
 
Solutions Proprietary
 
Limited, or
 
its nominee,
 
a
limited liability
 
private company
 
incorporated in
 
the Republic
 
of South
 
Africa, pursuant
 
to which
 
Net1 SA
 
agreed to
 
sell its
 
entire
shareholding
 
in
 
Net1
 
FIHRST
 
Holdings
 
Proprietary
 
Limited
 
(“FIHRST”)
 
for
 
$
10.9
 
million
 
(ZAR
159.7
 
million).
 
The
 
transaction
closed in
 
December 2019.
 
FIHRST was
 
deconsolidated following
 
the closing
 
of the
 
transaction. Net1
 
SA was obliged
 
to utilize
 
the
full purchase price received from
 
the sale of FIHRST to partially settle its
 
obligations under its lending arrangements
 
and applied the
proceeds received against its outstanding borrowings – refer to
Note 11
.
 
 
The
 
table
 
below
 
presents
 
the
 
impact
 
of
 
the
 
deconsolidation
 
of
 
FIHRST
 
and
 
the
 
calculation
 
of
 
the
 
net
 
gain
 
recognized
 
on
deconsolidation:
 
 
FIHRST
December 31,
2019
Proceeds from disposal of FIHRST,
 
net of cash disposed
$
10,895
Add: Cash and cash equivalents disposed
854
Fair value of consideration received
11,749
Less: carrying value of FIHRST,
 
comprising
1,870
Cash and cash equivalents
854
Accounts receivable, net
367
Property, plant and equipment,
 
net
64
Goodwill (Note 9)
599
Intangible assets, net
30
Deferred income taxes assets
42
Accounts payable
(7)
Other payables
(1,437)
Income taxes payable
(220)
Released from accumulated other comprehensive income – foreign
 
currency translation reserve (Note 14)
1,578
Settlement assets
17,406
Settlement liabilities
(17,406)
Gain recognized on disposal, before tax
9,879
Taxes related to gain
 
recognized on disposal, comprising:
-
Capital gains tax
 
2,654
Release of valuation allowance related to capital losses previously unutilized
(1)
(2,654)
Transaction costs
136
Gain recognized on disposal, after tax
$
9,743
 
(1) Net1
 
SA recorded
 
a valuation
 
allowance related
 
to capital
 
losses previously
 
generated but
 
not utilized.
 
A portion
 
of these
unutilized
 
capital
 
losses was
 
utilized
 
as
 
a
 
result
 
of
 
the
 
disposal
 
of
 
FIHRST
 
and,
 
therefore,
 
the
 
equivalent
 
portion
 
of the
 
valuation
allowance created was released.
 
May 2020 deconsolidation of CPS
 
On February 5, 2020, the Constitutional Court of South Africa denied CPS’
 
leave to appeal lower court judgments ordering CPS
to repay additional implementation costs that SASSA
 
paid to CPS in 2014, thereby exhausting
 
all legal recourse for CPS in
 
the matter.
As a result,
 
CPS’ board of
 
directors adopted a
 
resolution to put
 
CPS into business
 
rescue under South African
 
law and filed
 
the required
resolution with the
 
Companies and Intellectual
 
Property Commission. On
 
May 18, 2020,
 
the resolution was
 
officially registered
 
and
business rescue practitioners were appointed. The business rescue
 
process could have led to either a compromise with creditors and
 
a
continuation
 
of
 
CPS’
 
business
 
or
 
the
 
liquidation
 
of
 
CPS. The
 
Company
 
had
 
no
 
means
 
of
 
exercising
 
any
 
control
 
over
 
CPS
 
or
 
the
business rescue process because the Company has ceded control of CPS to the business rescue practitioners on the commencement of
the business rescue
 
process.
 
The business rescue
 
practitioners are independent
 
third parties and
 
controlled CPS through
 
the business
rescue
 
process.
 
The
 
Company
 
no
 
longer
 
controls
 
CPS
 
and
 
therefore
 
it
 
determined
 
to
 
deconsolidate
 
CPS.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-76
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
(continued)
 
 
Dispositions (continued)
 
2020 Dispositions (continued)
 
May 2020 deconsolidation of CPS (continued)
 
 
As a practical matter, the Company deconsolidated CPS as of May 31, 2020.
 
The Company does not believe that the utilization
of this date, compared to May 18, 2020, has had a significant impact on
 
its consolidated financial statements.
 
On March 26, 2020, CPS’ holding company, Net1 SA, submitted a filing to Gauteng Division of the High Court of South Africa
(“High Court”)
 
under which
 
it
 
commenced a
 
process to
 
place CPS into
 
business rescue
 
due to
 
administrative delays
 
experienced in
the CPS business rescue
 
application process. Net1
 
SA proposed in its
 
March 2020 High Court
 
filing that it was
 
willing to contribute
ZAR
50.0
 
million ($
2.9
 
million translated
 
at exchange
 
rates applicable
 
as of June
 
30, 2020) into
 
CPS if CPS
 
and SASSA
 
reached a
settlement on
 
their claims
 
and counterclaims.
 
Given that
 
SASSA was contesting
 
the CPS
 
business rescue
 
process (refer
 
below),
 
the
Company did not believe that it, through Net1 SA, would be required to make the investment of ZAR
50.0
 
million and therefore it did
not recorded
 
a liability as
 
of June 30,
 
2020. On June
 
18, 2020, SASSA
 
launched an
 
urgent application
 
with the High
 
Court to place
CPS into liquidation
 
and declare the business
 
rescue process invalid.
 
On July 7, 2020,
 
the business rescue
 
practitioners, on behalf
 
of
CPS, responded to this application correcting a number of inaccuracies contained therein. The matter was heard on October 16, 2020,
and the High Court ordered that CPS be placed into liquidation.
 
The Company provided
 
accounting, tax and general administrative services to
 
CPS while it was in
 
business rescue and continues
to provide these
 
services during the
 
liquidation process. In
 
addition, the Company
 
had an arrangement with
 
CPS to rent
 
certain bespoke
payment
 
vehicles
 
from
 
CPS,
 
and
 
it was
 
expected
 
that
 
this arrangement
 
would
 
continue
 
while
 
CPS
 
was
 
in
 
business
 
rescue.
 
These
vehicles largely
 
comprise the
 
fleet of
 
customized mobile
 
ATMs
 
used to
 
deliver a
 
service to
 
rural communities.
 
The value
 
of these
arrangements
 
was not
 
significant
 
and
 
was determined
 
on an
 
arms-length
 
basis. On
 
October
 
15, 2020,
 
the Company
 
purchased
 
the
bespoke vehicles
 
from CPS
 
for an
 
arms-length price
 
of ZAR
50.0
 
million (approximately
 
$
3.0
 
million, translated
 
at the
 
applicable
exchange rate) to use in its mobile ATM
 
business.
 
The
 
table
 
below
 
presents
 
the
 
impact
 
of
 
the
 
deconsolidation
 
of
 
CPS
 
and
 
the
 
calculation
 
of
 
the
 
net
 
loss
 
recognized
 
on
 
deconsolidation:
 
 
CPS
May
2020
Fair value of consideration received
$
-
Less: carrying value of CPS, comprising
(68)
Cash and cash equivalents
328
Accounts receivable, net
303
Inventory
12
Property, plant and equipment,
 
net
236
Goodwill (Note 9)
-
Deferred income taxes assets (Note 17)
-
Accounts payable
(238)
Other payables
(33,160)
Released from accumulated other comprehensive income – foreign
 
currency translation reserve (Note 14)
32,451
Gain recognized on deconsolidation, before tax
68
Intercompany accounts written off/ provided for
(1)
7,216
Taxes related to loss recognized
 
on deconsolidation, comprising:
-
Capital loss generated upon deconsolidation
(2)
5,399
Valuation
 
allowance related to capital losses generated upon deconsolidation
(2)
(5,399)
Loss recognized on deconsolidation, after tax
$
7,148
(1) Certain of the Company’s
 
subsidiaries had funds due from CPS
 
as of May 31, 2020. The Company
 
wrote these amounts off
as it did not believe that they were recoverable.
(2) The Company recorded a deferred tax asset related to the capital loss generated on deconsolidation of CPS. The Company is
only able
 
to claim
 
the capital loss
 
for South
 
African capital
 
gains tax
 
purposes once
 
it deregisters or
 
disposes of
 
its interest in
 
CPS.
The Company has recorded a valuation allowance related to the full CPS capital loss deferred tax asset recognized because it does not
believe that this capital loss will be utilized in the foreseeable future.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-77
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
(continued)
 
 
Dispositions (continued)
 
2019 Dispositions
 
March 2019 disposal of DNI
 
On February 28, 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies
 
South Africa Proprietary
Limited
 
(“Net1
 
SA”),
 
entered
 
into
 
a
 
transaction
 
with
 
JAA
 
Holdings
 
Proprietary
 
Limited,
 
a
 
limited
 
liability
 
private
 
company
 
duly
incorporated
 
in
 
the
 
Republic
 
of
 
South
 
Africa,
 
and
 
PK
 
Gain
 
Investment
 
Holdings
 
Proprietary
 
Limited,
 
a
 
limited
 
liability
 
private
company duly incorporated in the Republic of South Africa, in terms of which Net1 SA reduced its shareholding in DNI from
55
% to
38
%. The transaction closed on March
 
31, 2019. The parties used a cashless
 
settlement process on closing, refer to
Note 19
. Net1 SA
used the proceeds from the sale of the DNI shares to settle its ZAR
400
 
million ($
27.6
 
million, translated at exchange rates applicable
as of March 31,
 
2019), obligation to DNI
 
to subscribe for an
 
additional share as part
 
of the contingent consideration settlement
 
process.
The Company no longer controlled DNI and deconsolidated its investment in
 
DNI effective March 31, 2019.
 
The
 
table
 
below
 
presents
 
the
 
impact
 
of
 
the
 
deconsolidation
 
of
 
DNI
 
and
 
the
 
calculation
 
of
 
the
 
net
 
loss
 
recognized
 
on
 
deconsolidation:
 
DNI
Equity method investment
as of June 30, 2019
Total
17% sold
8% retained
interest sold
in May 2019
30%
retained
interest
Attributed to
non-
controlling
interest
Fair value of consideration received
 
$
27,626
$
27,626
$
-
$
-
$
-
Fair value of retained interest in DNI
(1)
74,195
-
14,849
59,346
-
Carrying value of non-controlling interest
 
88,934
-
-
-
88,934
Subtotal
 
190,755
27,626
14,849
59,346
88,934
Less: carrying value of DNI, comprising
 
199,930
38,346
14,540
58,110
88,934
Cash and cash equivalents
 
2,114
354
158
633
969
Accounts receivable, net
24,577
4,116
1,841
7,358
11,262
Finance loans receivable, net
1,030
173
77
308
472
Inventory
 
893
149
66
268
410
Property, plant and equipment,
 
net
 
1,265
212
95
379
579
Equity-accounted investments
 
242
41
19
72
110
Goodwill
113,003
18,924
8,466
33,834
51,779
Intangible assets, net
 
80,769
13,526
6,051
24,183
37,009
Deferred income taxes
 
28
5
2
8
13
Other long-term assets
26,553
4,447
1,989
7,950
12,167
Accounts payable
 
(5,186)
(868)
(389)
(1,553)
(2,376)
Other payables
(2)
(16,484)
(2,760)
(1,235)
(4,936)
(7,553)
Income taxes payable
 
(2,482)
(416)
(186)
(743)
(1,137)
Deferred income taxes
 
(22,083)
(3,698)
(1,654)
(6,612)
(10,119)
Long-term debt
(10,150)
(1,700)
(760)
(3,039)
(4,651)
Released from accumulated other comprehensive
income – foreign currency translation reserve
(Note 14)
 
5,841
5,841
-
-
-
Loss recognized on disposal, before tax,
comprising
 
(9,175)
(10,720)
309
1,236
-
Related to sale of
17
% of DNI
(10,720)
(10,720)
-
-
Related to fair value adjustment of retained
interest in
38
% of DNI
1,545
-
309
1,236
Taxes related to gain
 
recognized on
disposal
(3)
-
505
(3,836)
3,331
Loss recognized on disposal of
discontinued operation, after tax
$
(9,175)
$
(11,225)
$
4,145
$
(2,095)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-78
23.
 
ACQUISITIONS
 
AND
 
DISPOSITIONS
 
(continued)
 
 
Dispositions (continued)
 
2019 Dispositions
 
March 2019 disposal of DNI (continued)
 
(1) The fair value of the retained
 
interest in
38
% of DNI of $
74.2
 
million ($
14.9
 
million plus $
59.3
 
million) was calculated using
the implied fair
 
value of
 
DNI pursuant
 
to the
 
RMB Disposal
 
and was calculated
 
as ZAR
215.0
 
million divided by
7.605235
% multiplied
by
38
%, translated to dollars at the March 31, 2019, rate of exchange.
(2) Other
 
payables include
 
a short-term
 
loan of
 
ZAR
60.5
 
million ($
4.3
 
million, translated
 
at exchange
 
rates applicable
 
as of
June 30, 2019)
 
due to the
 
Company. The short-term loan
 
is included in
 
accounts receivable, net
 
and other receivables
 
on the
 
Company’s
consolidated balance sheet as of June 30, 2019, and
 
was repaid in full on July 31, 2019. Interest on the loan
 
was charged at the South
African prime rate.
(3) Amounts presented are net of a valuation allowance provided. The disposal of DNI resulted in a capital loss for tax purposes
of approximately $
1.5
 
million and the Company provided a valuation allowance of $
1.5
 
million against this capital loss because it did
not have any
 
capital gains to offset
 
against this amount at
 
the time. On an
 
individual basis, the transaction
 
to dispose of
17
% of DNI
resulted in
 
a capital
 
gain of
 
$
0.5
 
million and
 
the re-measurement
 
of the
 
retained
38
% interest
 
has resulted
 
in a
 
capital loss
 
of $
2.0
million ($
5.3
 
million (8%
 
transaction) less
 
$
3.3
 
million (30%
 
transaction)).
 
The valuation
 
allowance of
 
$
1.5
 
million was
 
provided
against the $
5.3
 
million, for a net amount presented in the table above of $
3.8
 
million ($
5.3
 
million less $
1.5
 
million).
 
24
.
 
DISCONTINUED
 
OPERATION
S
 
 
Discontinued operations – Net1 Korea and DNI
 
The Company determined
 
that, following the
 
disposal of its controlling
 
interest, Net1 Korea (in
 
fiscal 2020) and
 
DNI (in fiscal
2019) (refer to
 
Note 23), should
 
be classified as
 
discontinued operations because the
 
disposal of these
 
businesses represented a
 
strategic
shift that
 
would have
 
a major
 
effect on
 
the Company’s
 
operations and
 
financial results.
 
The facts
 
and circumstanc
 
es leading
 
to the
disposal of
 
Net1 Korea and
 
DNI are described
 
in Note 23.
 
The gain related
 
to the disposal
 
of Net1 Korea
 
and the loss
 
related to the
disposal of DNI are presented in Note 23.
 
 
Net1 Korea, as a stand-alone holding company,
 
and the amortization of intangible assets identified and recognized related to the
KSNET acquisition, were allocated to corporate/eliminations and
 
Net1 Korea’s subsidiaries, including
 
KSNET, were allocated to
 
the
Company’s international transaction processing operating
 
segment prior to the re-segmentation of the Company’s
 
operating segments
during the year
 
ended June 30,
 
2021. Net1 Korea
 
did not have
 
any equity method
 
investments or any
 
non-controlling interests. DNI
was allocated
 
to the
 
Company’s
 
financial inclusion
 
and applied
 
technologies operating
 
segment, prior
 
to the
 
re-segmentation of
 
the
Company’s
 
operating
 
segments
 
during
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
and
 
the
 
amortization
 
of
 
intangible
 
assets
 
identified
 
and
recognized
 
related
 
to
 
the
 
DNI
 
acquisition
 
were
 
allocated
 
to
 
corporate/eliminations.
 
Net1
 
Korea
 
and
 
DNI
 
are
 
not
 
included
 
in
 
the
operating segments
 
presented in
 
Note 20
 
because these
 
entities are
 
discontinued operations
 
and the
 
operating segments
 
in Note
 
20
only presents operating segment information for continuing operations
 
.
 
 
The Company retained
 
a continuing involvement in
 
DNI through its
38
% interest in DNI (refer
 
to Note 8) following
 
the March
31, 2019, transaction disclosed in Note 23. As disclosed in Note 8, the Company sold an
8
% interest in DNI in May 2019, and entered
into an agreement under which it
 
provided a call option to DNI to
 
repurchase the then remaining
30
% interest in DNI. The Company
recorded earnings
 
under the equity
 
method related
 
to its retained
 
investment in
 
DNI during the
 
nine months
 
ended March
 
31, 2020,
refer to
 
Note 8. The
 
Company recorded
 
earnings under
 
the equity
 
method related
 
to its
 
retained investment
 
in DNI
 
during the
 
three
months
 
ended
 
June
 
30,
 
2019
 
of
 
$
0.9
 
million,
 
which
 
comprised
 
the
 
Company’s
 
share
 
of
 
DNI’s
 
net
 
income
 
of
 
$
1.4
 
million,
 
less
amortization of acquired intangible assets, net, of $
0.5
 
million (gross $
0.7
 
million less deferred taxes of $
0.2
 
million). The table below
presents revenues
 
and expenses
 
between the
 
Company and
 
DNI, after
 
the DNI
 
disposal transaction,
 
during the
 
year ended
 
June 30,
2020 (i.e. for the nine months ended March 31, 2020), and 2019 (i.e. for the
 
three months ended June 30, 2019), respectively:
 
DNI
Years
 
ended June 30,
2020
 
2019
 
Revenue generated from transactions with DNI
$
-
$
-
Expenses incurred related to transactions with DNI
$
-
$
2,902
Refer to Note 8 for the dividends
 
received from DNI and accounted for under
 
the equity method during the year ended
 
June 30,
2020. The Company received dividends of $
0.9
 
million during the year ended June 30, 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-79
24.
 
DISCONTINUED
 
OPERATION
S
 
(
continued)
 
 
Discontinued operations – Net1 Korea and DNI (continued)
 
The
 
table
 
below
 
presents
 
certain
 
major
 
captions
 
to
 
the
 
Company’s
 
consolidated
 
statement
 
of
 
operations
 
and
 
consolidated
statement
 
of
 
cash flows
 
for
 
the years
 
ended June
 
30,
 
2020 and
 
2019,
 
that
 
have
 
not been
 
separately
 
presented
 
on those
 
statements
related to the presentation of Net1 Korea and DNI as discontinued operations:
 
2020
 
2019
 
Total
(Net1
Korea)
Total
Net1 Korea
DNI
Consolidated statement of operations
Discontinued:
Revenue
$
85,375
$
194,763
$
138,426
$
56,337
Cost of goods sold, IT processing, servicing and support
37,377
85,652
57,984
27,668
Selling, general and administration
30,562
57,136
53,479
3,657
Depreciation and amortization
8,652
25,246
17,220
8,026
Impairment loss
-
5,305
-
5,305
Operating income
8,784
21,424
9,743
11,681
Interest income
678
1,805
1,098
707
Interest expense
106
864
52
812
Net income before tax
9,356
22,365
10,789
11,576
Income tax expense
2,954
8,750
4,989
3,761
Net income before earnings from equity-accounted investments
6,402
13,615
5,800
7,815
Earnings from equity-accounted investments
-
15
-
15
Net income from discontinued operations
$
6,402
$
13,630
$
5,800
$
7,830
Consolidated statement of cash flows
Discontinued:
Total net cash provided
 
by operating activities
(1)
$
3,758
$
11,976
$
5,341
$
6,635
Total net cash provided
 
by (used) in investing activities
$
1,524
$
(6,816)
$
(6,300)
$
(516)
 
(1) Total net cash (used in) provided by operating activities for
 
the year ended June 30,
 
2019, includes dividends received of $
0.9
million (refer to Note 8) from DNI while it was accounted for using the
 
equity method during the three months ended June 30, 2019.
 
25
.
 
UNAUDITED
 
QUARTERLY
 
RESULTS
 
 
Restatement of financial statements – impact on unaudited quarterly results
 
Related to overstatement of revenue and cost of goods
 
sold, IT processing, servicing and support
 
As discussed in
 
Note 1, in
 
November 2020,
 
the Company
 
identified an error
 
with respect to
 
the recognition
 
of certain
 
revenue
and related cost of goods sold, IT processing, servicing
 
and support during its assessment and systems development
 
of new products.
The
 
error
 
impacts
 
the
 
Company’s
 
reported
 
results
 
for
 
three
 
months
 
ended
 
September
 
30,
 
2020,
 
and
 
the
 
Company
 
restated
 
its
consolidated statement of operations and
 
certain note presentation, primarily Revenue
 
and Operating segments, to
 
correct for the error.
The tables below
 
present the impact of
 
the restatement on the
 
Company’s unaudit
 
ed condensed consolidated
 
statement of operations
for the three months ended September 30, 2020:
 
Unaudited condensed consolidated statement of operations
Three months ended September 30, 2020
(1)
As reported
Correction
As restated
(in thousands)
Revenue
$
37,113
$
(1,977)
$
35,136
Cost of goods sold, IT processing, servicing and support
$
28,437
$
(1,977)
$
26,460
 
(1)
 
The error for the three
 
months ended September 30, 2020,
 
also impacted the year ended
 
June 30, 2021, by the
 
same amount
and
 
therefore
 
the
 
amounts
 
reported
 
for
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
includes
 
the
 
correction
 
of
 
the
 
error.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-80
25.
 
UNAUDITED
 
QUARTERLY
 
RESULTS
 
(continued)
 
 
Restatement of financial statements – impact on unaudited quarterly results
 
(continued)
 
Related to overstatement of revenue and cost of goods
 
sold, IT processing, servicing and support (continued)
 
The
 
table
 
below
 
presents
 
the
 
unaudited
 
impact
 
of
 
the
 
restatement
 
on
 
the
 
affected
 
lines
 
in
 
the
 
Processing
 
and
 
Total
 
columns
included in the revenue note for the three months ended September 30, 2020:
 
Unaudited
Three months ended
September 30, 2020
Processing
Total
Processing fees - as restated
(1)
$
16,330
$
16,929
As reported
18,307
18,906
Correction
(1,977)
(1,977)
South Africa - as restated
14,774
15,373
As reported
16,751
17,350
Correction
(1,977)
(1,977)
Rest of world
$
1,556
$
1,556
Total revenue, derived
 
from the following geographic locations - as restated
$
21,518
$
35,136
As reported
23,495
37,113
Correction
(1,977)
(1,977)
South Africa - as restated
19,962
33,580
As reported
21,939
35,557
Correction
(1,977)
(1,977)
Rest of world
$
1,556
$
1,556
 
(1) The error for the
 
three months ended September
 
30, 2020, also impacted the
 
year ended June 30, 2021
 
,
 
by the same amount
and therefore the amounts reported for the year ended June 30, 2021, include
 
the correction of the error.
 
The table
 
below presents
 
the unaudited impact
 
of the restatement
 
on the Processing
 
operating segment
 
revenue included in
 
the
operating segment note for the three months ended September 30, 2020:
 
Unaudited
Revenue (as restated)
Reportable
Segment
Corporate/
Eliminations
Inter-
segment
From
external
customers
Processing - as restated
(1)
$
22,506
$
-
$
988
$
21,518
As reported
24,483
-
988
23,495
Correction
(1,977)
-
-
(1,977)
Total for the three
 
months ended September 30, 2020 - as restated
36,982
-
1,846
35,136
As reported
38,959
-
1,846
37,113
Correction
$
(1,977)
$
-
$
-
(1,977)
 
(1) The error for the
 
three months ended September 30,
 
2020, also impacted the year
 
ended June 30, 2021, by
 
the same amount
and
 
therefore
 
the
 
amounts
 
reported
 
for
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
include
 
the
 
correction
 
of
 
the
 
error.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-81
25.
 
UNAUDITED
 
QUARTERLY
 
RESULTS
 
(continued)
 
 
The following tables contain selected
 
unaudited consolidated statements of operations
 
information for each quarter
 
of fiscal 2021
and 2020:
 
Three months ended
Jun 30, 2021
Mar 31, 2021
Dec 31, 2020
Sep 30, 2020
June 30, 2021
(In thousands except per share data)
Revenue
$
34,517
$
28,828
$
32,305
$
35,136
$
130,786
Operating loss
(13,600)
(14,292)
(15,205)
(10,775)
(53,872)
Net income (loss) attributable to Net1
$
1,639
$
(6,204)
$
(4,534)
$
(28,958)
$
(38,057)
Net earnings (loss) per share, in United
States dollars
 
Basic earnings (loss) attributable to Net1
shareholders
$
0.03
$
(0.11)
$
(0.08)
$
(0.51)
$
(0.67)
Diluted earnings (loss) attributable to Net1
shareholders
$
0.03
$
(0.10)
$
(0.08)
$
(0.52)
$
(0.67)
 
Three months ended
Jun 30, 2020
Mar 31, 2020
Dec 31, 2019
Sep 30, 2019
June 30, 2020
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(In thousands except per share data)
Revenue
$
24,551
$
34,614
$
38,918
$
46,216
$
144,299
Operating loss
(13,180)
(14,212)
(10,420)
(6,436)
(44,248)
Net (loss) income attributable to Net1
(38,880)
(34,881)
(205)
(4,392)
(78,358)
Continuing
(38,601)
(48,361)
(2,925)
(7,327)
(97,214)
Discontinued
$
(279)
$
13,480
$
2,720
$
2,935
$
18,856
Net (loss) income per share, in United
States dollars
 
Basic (loss) earnings attributable to Net1
shareholders
$
(0.68)
$
(0.61)
$
-
$
(0.08)
$
(1.37)
Continuing
$
(0.68)
$
(0.85)
$
(0.05)
$
(0.13)
$
(1.70)
Discontinued
$
-
$
0.24
$
0.05
$
0.05
$
0.33
Diluted (loss) earnings attributable to Net1
shareholders
$
(0.69)
$
(0.62)
$
-
$
(0.08)
$
(1.37)
Continuing
$
(0.69)
$
(0.86)
$
(0.05)
$
(0.13)
$
(1.70)
Discontinued
$
-
$
0.24
$
0.05
$
0.05
$
0.33
 
 
(A) Certain amounts have been restated to correct the
 
misstatements
 
discussed in Note 1. The impact of the restatements for
 
the
years
 
ended June 30, 2020 and 2019, were first recorded in the unaudited condensed consolidated financial statements included in the
Company’s
 
Quarterly Report on
 
Form 10-Q for
 
the three and
 
six months
 
ended December 31,
 
2020 which was
 
filed on February
 
4,
2021.
 
 
26
.
 
 
SUBSEQUENT
 
EVENTS
 
 
July 2021 civil unrest in South Africa
 
Two
 
of South
 
Africa’s
 
nine provinces
 
experienced significant
 
civil unrest
 
in July
 
2021 resulting
 
in mass
 
looting, loss
 
of life,
disruption of
 
transport and
 
supply routes,
 
and widespread
 
destruction of
 
property.
 
In total
 
337 South
 
Africans lost
 
their lives
 
in the
unrest
 
- fortunately
 
none of
 
the Company’s
 
employees were
 
injured
 
or harmed.
 
There was
 
widespread
 
damage
 
to bank
 
and
 
ATM
infrastructure
 
in
 
the
 
affected
 
provinces.
 
In
 
total
 
approximately
 
1,800
 
ATMs
 
and
 
300
 
branches
 
were
 
damaged,
 
and
 
the
 
Banking
Association of South Africa, or BASA, estimates that total damage to banking infrastructure amounted
 
to ZAR 1.6 billion. The South
African Special Risks Insurance Association,
 
or SASRIA, a public
 
enterprise and a non-life
 
insurance company that provides coverage
for
 
damage
 
caused
 
by
 
special
 
risks
 
such
 
as
 
politically
 
motivated
 
malicious
 
acts,
 
riots,
 
strikes
 
and
 
terrorism
 
and
 
public
 
disorders,
estimates
 
that
 
the
 
total
 
damage
 
to
 
property
 
across
 
South
 
Africa
 
will
 
be
 
in
 
the
 
order
 
of
 
between
 
ZAR
 
19.0
 
to
 
20.0
 
billion.
 
 
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-82
26
.
 
 
SUBSEQUENT
 
EVENTS
 
(continued)
 
 
July 2021 civil unrest in South Africa (continued)
 
The Company suffered
 
damage at
19
 
of its branches and
 
to
173
 
ATMs.
 
The disruption and related
 
closure of branches has also
impacted
 
the
 
Company’s
 
efforts
 
to
 
grow
 
EPE
 
customer
 
numbers.
 
The
 
Company
 
has
 
also
 
seen
 
an
 
impact
 
on
 
transaction
 
volumes
through its ATMs
 
with July 2021 volumes
13
% lower than June 2021, and August 2021
3
% lower than July 2021.
 
The
 
Company
 
estimates
 
that
 
it
 
will
 
cost
 
approximately
 
ZAR
40.0
 
million
 
to
 
repair
 
its
 
branches
 
and
 
damaged
 
ATMs
 
and
 
to
replace ATMs
 
that have been completely destroyed. The Company believes
 
that these losses suffered through destruction of property
will be fully covered under its various insurance policies, through
 
the government backed SASRIA cover.
 
As
 
a
 
result
 
of
 
the
 
disruption
 
to
 
ATM
 
coverage
 
and
 
availability,
 
BASA
 
and
 
South
 
Africa’s
 
banks
 
agreed
 
that
 
the
 
fee
 
which
customers pay to utilize other bank’s ATMs will be waived for August and September 2021. The Company estimates that it will forgo
transaction fee revenue of approximately ZAR
6.0
. million during the first quarter of fiscal 2022 as a result of this decision.
 
*****************************

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