~~UNITED STATES~~
~~SECURITIES AND EXCHANGE COMMISSION~~
~~Washington, D.C. 20549~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2013~~2014

[ ] 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, 4^th 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:~~code:27-11-343-2000

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
YES [X] NO [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

[ ]	Large accelerated filer	[X]	Accelerated filer

[ ]	Non-accelerated filer	[ ]	Smaller reporting company
	(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO ~~[X ]~~[X]

As of ~~February 6,~~May 8, 2014 (the latest practicable date), ~~45,773,342~~50,183,342 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC.

Table of Contents

			Page No.
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Unaudited Condensed Consolidated Balance Sheets at ~~December~~March 31, ~~2013~~2014 and June 30, 2013	2
		Unaudited Condensed Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2013~~2014 and ~~2012~~ 2013	3
		Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2013~~2014 and ~~2012~~ 2013	4
		Unaudited Condensed Consolidated Statement of Changes in Equity for the ~~Six Months~~Nine months Ended ~~December~~March 31, ~~2013~~ 2014	5
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three and ~~Six~~Nine Months Ended ~~December~~March 31, ~~2013~~2014 and ~~2012~~ 2013	6
		Notes to Unaudited Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2425
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
	~~Item 4.~~	~~Controls and Procedures~~	41
~~PART II. OTHER INFORMATION~~
	~~Item 1.~~	~~Legal Proceedings~~	42
	~~Item 1A.~~	~~Risk Factors~~	42
	~~Item 5.~~	~~Other information~~	43
Item 4.	~~Item 6.~~Controls and Procedures	~~Exhibits~~	43
PART II. OTHER INFORMATION
Item 1.	~~Signatures~~	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 6.	Exhibits	45
Signatures		45
EXHIBIT ~~10.25~~10.30
EXHIBIT 10.31	~~EXHIBIT 10.26~~
EXHIBIT 31.1	~~EXHIBIT 10.27~~
EXHIBIT 31.2	~~EXHIBIT 10.28~~
	EXHIBIT ~~10.29~~32
	~~EXHIBIT 31.1~~
	~~EXHIBIT 31.2~~
	~~EXHIBIT 32~~

~~Part I. Financial Information~~

~~Item 1. Financial Statements~~

~~NET 1 UEPS TECHNOLOGIES, INC.~~
~~Unaudited Condensed Consolidated Balance Sheets~~

Unaudited (A)
December 31, June 30,
2013 2013
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22,362 $ 53,665
Pre-funded social welfare grants receivable (Note 2) 7,971 2,934
Accounts receivable, net of allowances of – December: $1,326; June: $4,701 125,062 102,614
Finance loans receivable, net of allowances of – December: $1,813; June: $- 42,847 8,350
Inventory (Note 3) 13,537 12,222
Deferred income taxes 5,001 4,938
Total current assets before settlement assets 216,780 184,723
Settlement assets (Note 4) 466,599 752,476
Total current assets 683,379 937,199
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –
December: $87,536; June: $84,808 47,619 48,301
EQUITY-ACCOUNTED INVESTMENTS 1,290 1,183
GOODWILL (Note 6) 181,111 175,806
INTANGIBLE ASSETS, net (Note 6) 73,874 77,257
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7) 34,271 36,576
TOTAL ASSETS 1,021,544 1,276,322
LIABILITIES
CURRENT LIABILITIES
Bank overdraft (Note 8) 24,256 -
Accounts payable 13,689 26,567
Other payables 34,386 33,808
Current portion of long-term borrowings (Note 9) 14,108 14,209
Income taxes payable 3,479 2,275
Total current liabilities before settlement obligations 89,918 76,859
Settlement obligations (Note 4) 466,599 752,476
Total current liabilities 556,517 829,335
DEFERRED INCOME TAXES 18,261 18,727
LONG-TERM BORROWINGS (Note 9) 57,452 66,632
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) 20,131 21,659
TOTAL LIABILITIES 652,361 936,353
COMMITMENTS AND CONTINGENCIES (Note 17)
EQUITY
COMMON STOCK (Note 10)
Authorized: 200,000,000 with $0.001 par value;
                 Issued and outstanding shares, net of treasury - December: 45,773,342;
                 June: 45,592,550

59

59
PREFERRED STOCK
                 Authorized shares: 50,000,000 with $0.001 par value;
                 Issued and outstanding shares, net of treasury: December: -; June: -

-

-
ADDITIONAL PAID-IN-CAPITAL 164,060 160,670
TREASURY SHARES, AT COST: December: 13,455,090; June: 13,455,090 (175,823 ) (175,823 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (96,103 ) (100,858 )
RETAINED EARNINGS 476,963 452,618
TOTAL NET1 EQUITY 369,156 336,666
NON-CONTROLLING INTEREST 27 3,303
TOTAL EQUITY 369,183 339,969
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,021,544 $ 1,276,322

Part I. Financial Information

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Balance Sheets

		Unaudited			(A)
		March 31,			June 30,
		2014			2013
		(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	30,875		$	53,665
Pre-funded social welfare grants receivable (Note 2)		4,728			2,934
Accounts receivable, net of allowances of – March: $1,592; June: $4,701		132,356			102,614
Finance loans receivable, net of allowances of – March: $1,815; June: $-		42,379			8,350
Inventory (Note 3)		10,491			12,222
Deferred income taxes		5,350			4,938
Total current assets before settlement assets		226,179			184,723
Settlement assets (Note 4)		744,782			752,476
Total current assets		970,961			937,199

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – March: $92,314; June: $84,808		46,150			48,301
EQUITY-ACCOUNTED INVESTMENTS		1,347			1,183
GOODWILL (Note 6)		179,832			175,806
INTANGIBLE ASSETS, net (Note 6)		69,265			77,257
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7)		34,338			36,576
TOTAL ASSETS		1,301,893			1,276,322
LIABILITIES
CURRENT LIABILITIES
Bank overdraft (Note 8)		-			-
Accounts payable		14,592			26,567
Other payables		35,682			33,808
Current portion of long-term borrowings (Note 9)		14,005			14,209
Income taxes payable		11,749			2,275
Total current liabilities before settlement obligations		76,028			76,859
Settlement obligations (Note 4)		744,782			752,476
Total current liabilities		820,810			829,335
DEFERRED INCOME TAXES		17,343			18,727
LONG-TERM BORROWINGS (Note 9)		58,061			66,632
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)		20,117			21,659
TOTAL LIABILITIES		916,331			936,353
COMMITMENTS AND CONTINGENCIES (Note 17)
EQUITY
COMMON STOCK (Note 10)
Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury - March: 45,783,342; June: 45,592,550		59			59
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury: March: -; June: -		-			-
ADDITIONAL PAID-IN-CAPITAL		165,076			160,670
TREASURY SHARES, AT COST: March: 13,455,090; June: 13,455,090		(175,823	)		(175,823	)
ACCUMULATED OTHER COMPREHENSIVE LOSS		(97,910	)		(100,858	)
RETAINED EARNINGS		494,145			452,618
TOTAL NET1 EQUITY		385,547			336,666
NON-CONTROLLING INTEREST		15			3,303
TOTAL EQUITY		385,562			339,969
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,301,893		$	1,276,322

(A) – Derived from audited financial statements

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Operations

Three months ended Six months ended
December 31, December 31,
2013 2012 2013 2012
(In thousands, except per share data) (In thousands, except per share data)

REVENUE $ 137,283 $ 111,442 $ 260,777 $ 223,124

EXPENSE
Cost of goods sold, IT processing, servicing
and support 67,883 47,227 124,442 92,328
Selling, general and administration 40,824 48,756 81,330 96,008
Depreciation and amortization 9,774 10,487 19,803 20,491

OPERATING INCOME 18,802 4,972 35,202 14,297

INTEREST INCOME 3,236 2,589 6,555 5,680

INTEREST EXPENSE 2,226 2,023 3,978 4,094

INCOME BEFORE INCOME TAXES 19,812 5,538 37,779 15,883

INCOME TAX EXPENSE (Note 16) 7,099 2,971 13,584 6,700

NET INCOME BEFORE EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS
12,713
2,567
24,195
9,183

EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS
47
54
150
182

NET INCOME 12,760 2,621 24,345 9,365

LESS (ADD) NET INCOME (LOSS)

ATTRIBUTABLE TO NON-CONTROLLING
INTEREST
11
(8 )
-
(8 )

NET INCOME ATTRIBUTABLE TO NET1 $ 12,749 $ 2,629 $ 24,345 $ 9,373

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

         Basic earnings attributable to Net1
         shareholders
$0.28
$0.06
$0.53
$0.21
         Diluted earnings attributable to Net1
         shareholders
$0.28
$0.06
$0.53
$0.21

		Three months ended						Nine months ended
		March 31,						March 31,
		2014			2013			2014			2013
		(In thousands, except per share data)						(In thousands, except per share data)

REVENUE	$	138,126		$	111,141		$	398,903		$	334,265

EXPENSE

Cost of goods sold, IT processing, servicing and support		63,149			51,461			187,591			143,789

Selling, general and administration		40,586			53,846			121,916			149,854

Depreciation and amortization		10,442			10,560			30,245			31,051

OPERATING INCOME (LOSS)		23,949			(4,726	)		59,151			9,571

INTEREST INCOME		3,438			2,515			9,993			8,195

INTEREST EXPENSE		1,734			2,023			5,712			6,117

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		25,653			(4,234	)		63,432			11,649

INCOME TAX EXPENSE (note 16)		8,535			472			22,119			7,172

NET INCOME (LOSS) BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		17,118			(4,706	)		41,313			4,477

EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		52			22			202			204

NET INCOME (LOSS)		17,170			(4,684	)		41,515			4,681

ADD NET LOSS ATTRIBUTABLE TO NON- CONTROLLING INTEREST		(12	)		(3	)		(12	)		(11	)

NET INCOME (LOSS) ATTRIBUTABLE TO NET1	$	17,182		$	(4,681	)	$	41,527		$	4,692

Net income (loss) per share, in United Statesdollars(note 13)
Basic earnings (loss) attributable to Net1 shareholders	$	0.38		$	(0.10	)	$	0.91		$	0.10
Diluted earnings (loss) attributable to Net1 shareholders	$	0.37		$	(0.10	)	$	0.90		$	0.10

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Comprehensive Income

Three months ended Six months ended
December 31, December 31,
2013 2012 2013 2012
(In thousands) (In thousands)

Net income $ 12,760 $ 2,621 $ 24,345 $ 9,365

Other comprehensive (loss) income
       Net unrealized income (loss) on asset
       available for sale, net of tax
216
258
(39 )
258
       Movement in foreign currency translation
       reserve
(2,597 )
5,927
4,972
10,182
                 Total other comprehensive (loss)
                 income, net of taxes

(2,381
)

6,185

4,933

10,440

Comprehensive income 10,379 8,806 29,278 19,805
(Less) Add comprehensive (income)
                 loss attributable to non-controlling interest (11 ) 8 - 8
                   Comprehensive income attributable to Net1 $ 10,368 $ 8,814 $ 29,278 $ 19,813

		Three months ended						Nine months ended
		March 31,						March 31,
		2014			2013			2014		2013
		(In thousands)						(In thousands)

Net income (loss)	$	17,170		$	(4,684	)	$	41,515	$	4,681

Other comprehensive (loss) income
Net unrealized income on asset available for sale, net of tax		327			-			288		258
Movement in foreign currency translation reserve		(2,134	)		(22,993	)		2,838		(12,811	)
Total other comprehensive (loss) income, net of taxes		(1,807	)		(22,993	)		3,126		(12,553	)

Comprehensive income (loss)		15,363			(27,677	)		44,641		(7,872	)
Add comprehensive loss attributable to non-controlling interest		12			3			12		11
Comprehensive income (loss) attributable to Net1	$	15,375		$	(27,674	)	$	44,653	$	(7,861	)

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPSTECHNOLOGIES, INC.
ConsolidatedStatement ofChanges in Equity (dollaramounts inthousands)

	Net 1 UEPS Technologies, Inc. Shareholder
																		Accumulated											Net 1 UEPS Technologies, Inc. Shareholder
					Number of					Number of			Additional					other						Non-																						Accumulated
	Number of				Treasury			Treasury		shares, net of			Paid-In			Retained		comprehensive			Total Net1			controlling									Number of					Number of			Additional					other						Non-
	Shares			Amount	Shares			Shares		treasury			Capital			Earnings		(loss) income			Equity			Interest			Total		Number of				Treasury			Treasury		shares, net of			Paid-In			Retained		comprehensive			Total Net1			controlling
																													Shares			Amount	Shares			Shares		treasury			Capital			Earnings		(loss) income			Equity			Interest			Total
Balance – July 1, 2013	59,047,640		$	59	(13,455,090	)	$	(175,823	)	45,592,550		$	160,670		$	452,618	$	(100,858	)	$	336,666		$	3,303		$	339,969		59,047,640		$	59	(13,455,090	)	$	(175,823	)	45,592,550		$	160,670		$	452,618	$	(100,858	)	$	336,666		$	3,303		$	339,969

Restricted stock granted	187,963									187,963											-						-		187,963									187,963											-						-

Exercise of stock option																													10,000									10,000			88								88						88
Stock-based compensation charge													1,904								1,904						1,904														2,826								2,826						2,826

Reversal of stock-based compensation charge	(7,171	)								(7,171	)		(6	)							(6	)					(6	)	(7,171	)								(7,171	)		(6	)							(6	)					(6	)

Income tax benefit from vested stock awards													6								6						6														6								6						6

Acquisition of KSNET non-controlling interest (Note 10)													1,486					(178	)		1,308			(3,276	)		(1,968	)													1,492					(178	)		1,314			(3,276	)		(1,962	)

Net income																24,345					24,345			-			24,345																	41,527					41,527			(12	)		41,515

Other comprehensive income																		4,933			4,933			-			4,933																			3,126			3,126			-			3,126

Balance – December 31, 2013	59,228,432		$	59	(13,455,090	)	$	(175,823	)	45,773,342		$	164,060		$	476,963	$	(96,103	)	$	369,156		$	27		$	369,183
Balance – March 31, 2014																													59,238,432		$	59	(13,455,090	)	$	(175,823	)	45,783,342		$	165,076		$	494,145	$	(97,910	)	$	385,547		$	15		$	385,562

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statements of Cash Flows

		Three months ended						Six months ended						Three months ended						Nine months ended
		December 31,						December 31,						March 31,						March 31,
		2013			2012			2013			2012			2014			2013			2014			2013
		(In thousands)						(In thousands)						(In thousands)						(In thousands)
Cash flows from operating activities
Net income	$	12,760		$	2,621		$	24,345		$	9,365
Net income (loss)													$	17,170		$	(4,684	)	$	41,515		$	4,681
Depreciation and amortization		9,774			10,487			19,803			20,491			10,442			10,560			30,245			31,051
Earnings from equity-accounted investments		(47	)		(54	)		(150	)		(182	)		(52	)		(22	)		(202	)		(204	)
Fair value adjustments		72			1,000			(61	)		707			110			(299	)		49			408
Interest payable		694			1,117			1,666			2,309			30			1,054			1,696			3,363
Profit on disposal of property, plant and equipment		(15	)		(86	)		(16	)		(86	)
(Profit) loss on disposal of property, plant and equipment														(26	)		3			(42	)		(83	)
Stock-based compensation charge		968			1,117			1,898			2,233			922			1,092			2,820			3,325
Facility fee amortized		509			76			578			164			79			71			657			235
(Increase) Decrease in accounts receivable, pre-
funded social welfare grants receivable and finance
loans receivable		(37,977	)		(5,061	)		(61,078	)		831
Increase in inventory		(2,853	)		(6,250	)		(1,842	)		(7,209	)
Decrease in accounts payable and other payables		(4,883	)		(4,939	)		(13,551	)		(6,288	)
(Decrease) increase in taxes payable		(5,559	)		(6,032	)		1,362			(594	)
Increase in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable														(6,443	)		(4,818	)		(67,521	)		(3,987	)
Decrease (Increase) in inventory														2,821			4,949			979			(2,260	)
Increase (Decrease) in accounts payable and other payables														2,656			4,533			(10,895	)		(1,755	)
Increase in taxes payable														8,069			948			9,431			354
Decrease in deferred taxes		(691	)		(916	)		(1,878	)		(2,932	)		(1,141	)		(1,201	)		(3,019	)		(4,133	)
Net cash (used in ) provided by operating activities		(27,248	)		(6,920	)		(28,924	)		18,809
Net cash provided by operating activities														34,637			12,186			5,713			30,995
Cash flows from investing activities
Capital expenditures		(6,845	)		(5,597	)		(12,461	)		(12,050	)		(4,848	)		(5,053	)		(17,309	)		(17,103	)
Proceeds from disposal of property, plant and
equipment		1,953			251			2,001			356
Acquisitions, net of cash acquired (Note 2)		-			(230	)		-			(2,143	)
Repayment of loan by equity-accounted investment		-			-			-			3
Proceeds from maturity of investments related to
insurance business		-			-			-			545
Other investing activities		-			-			(1	)		-
Proceeds from disposal of property, plant and equipment														123			31			2,124			387
Acquisitions, net of cash acquired														-			-			-			(2,143	)
(Investment in equity in) Repayment of loan by equity-accounted investment														(25	)		-			(25	)		3
Proceeds from maturity of investments related to insurance business														-			-			-			545
Other investing activities, net														571			-			570			-
Net change in settlement assets		204,730			(72,835	)		256,503			(12,056	)		(277,912	)		(156,363	)		(21,409	)		(168,419	)
Net cash provided by (used in) investing activities		199,838			(78,411	)		246,042			(25,345	)
Net cash used in investing activities														(282,091	)		(161,385	)		(36,049	)		(186,730	)
Cash flows from financing activities
Long-term borrowings obtained (Note 9)		71,605			-			71,605			-			1,028			-			72,633			-
Repayment of long-term borrowings (Note 9)		(87,008	)		(7,307	)		(87,008	)		(7,307	)		-			-			(87,008	)		(7,307	)
Payment of facility fee (Note 9)		(872	)		-			(872	)		-			-			-			(872	)		-
Proceeds from bank overdraft		24,580			-			24,580			-			-			-			24,580			-
Repayment of bank overdraft														(23,335	)		-			(23,335	)		-
Acquisition of interests in KSNET (Note 10)		(1,968	)		-			(1,968	)		-			-			-			(1,968	)		-
Proceeds from issue of common stock		-			-			-			240			88			-			88			240
Net change in settlement obligations		(204,730	)		72,835			(256,503	)		12,056			277,912			156,363			21,409			168,419
Net cash (used in) provided by financing activities		(198,393	)		65,528			(250,166	)		4,989
Net cash provided by financing activities														255,693			156,363			5,527			161,352
Effect of exchange rate changes on cash		495			375			1,745			540			274			(2,664	)		2,019			(2,124	)
Net decrease in cash and cash equivalents		(25,308	)		(19,428	)		(31,303	)		(1,007	)
Net increase (decrease) in cash and cashequivalents														8,513			4,500			(22,790	)		3,493
Cash and cash equivalents – beginning of period		47,670			57,544			53,665			39,123			22,362			38,116			53,665			39,123
Cash and cash equivalents – end of period	$	22,362		$	38,116		$	22,362		$	38,116		$	30,875		$	42,616		$	30,875		$	42,616

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.
~~NET 1 UEPS TECHNOLOGIES, INC.~~
~~Notes to the Unaudited Condensed Consolidated Financial Statements~~
~~for the three and six months ended December 31, 2013 and 2012~~
~~(All amounts in tables stated in thousands or thousands of United States Dollars, unless otherwise stated)~~
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2014 and 2013
(All amounts in tables stated in thousands or thousands of United States Dollars, unless otherwise stated)

1. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with US generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

References to the “Company” refer to Net1 and its consolidated subsidiaries, unless the context otherwise requires. References to Net1 are references solely to Net 1 UEPS Technologies, Inc.

The Company has updated its accounting policy for the allowance for doubtful finance loans receivable as a result of the increase in its UEPS-based lending book which is included in finance loans receivable in its unaudited condensed consolidated balance sheet. The Company does not believe that an allowance for doubtful finance loans receivable is required for finance loans receivable as of June 30, 2013, because this was an established book and has been recovered. However, the profile of the loan book has changed due to the expansion of the UEPS-based lending book during the ~~six~~nine months ended ~~December~~March 31, ~~2013,~~2014, and accordingly an allowance for doubtful finance loans receivable is deemed required by the Company.

Loan provisions and allowance for doubtful accounts receivable

UEPS-based lending

The Company’s 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. The Company writes off UEPS-based loans and related service fees if a borrower is in arrears with repayments for more than three months or dies.

Recent accounting pronouncements adopted

In February 2013, the FASB issued guidance regardingReporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This guidance requires entities to present (either on the face of the statement of operations or in the notes) the effects on the line items of the statement of operations for amounts reclassified out of accumulated other comprehensive income. The guidance is effective for the Company beginning July 1, 2013 and is applied prospectively. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent accounting pronouncements not yet adopted as of ~~December~~March 31, ~~2013~~2014

In March 2013, the FASB issued guidance regardingParent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity. This guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance is effective for the Company beginning July 1, 2014. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its financial statements on adoption.

2. Pre-funded social welfare grants receivable

Pre-funded social welfare grants receivable represents amounts pre-funded by the Company to certain merchants participating in the merchant acquiring system. The ~~January~~April 2014 payment service commenced on ~~January~~April 1, 2014, but the Company pre-funded certain merchants participating in the merchant acquiring system ~~during~~on the last ~~two days~~day of ~~December 2013.~~March 2014.

3. Inventory

The Company’s inventory comprised the following categories as of ~~December~~March 31, ~~2013~~2014 and June 30, 2013.

December 31, June 30,
2013 2013
Finished goods $ 13,537 $ 12,222
$ 13,537 $ 12,222

		March 31,		June 30,
		2014		2013
Finished goods	$	10,491	$	12,222
	$	10,491	$	12,222

4. Settlement assets and settlement obligations

Settlement assets comprise (1) cash received from the South African government that the Company holds pending disbursement to beneficiaries of social welfare grants, (2) cash received from health care plans which the Company disburses to health care service providers once it adjudicates claims and (3) 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.

Settlement obligations comprise (1) amounts that the Company is obligated to disburse to beneficiaries of social welfare grants, (2) amounts which are due to health care service providers after claims have been adjudicated and reconciled, provided that the Company shall have previously received such funds from health care plan customers and (3) amounts that the Company is obligated to pay to customer employees, payroll-related payees and other payees designated by the customer.

The balances at each reporting date may vary widely depending on the timing of the receipts and payments of these assets and obligations

5.Fair value of financial instruments and equity-accounted investments

Fair value of financial instruments

Risk management

The Company seeks to reduce its exposure to currencies other than the South African rand through a policy of matching, to the extent possible, assets and liabilities denominated in those currencies. In addition, the Company uses financial instruments in order to economically hedge its exposure to exchange rate and interest rate fluctuations arising from its operations. The Company is also exposed to equity price and liquidity risks as well as credit risks.

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 US dollar. The Company ~~has used~~uses 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 US dollar and the euro, on the other hand.

The Company’s outstanding foreign exchange contracts are as follows:

As of ~~December~~March 31, ~~2013~~2014

				Fair market
Notional amount		Strike price		value price		Maturity
EUR	192,375	ZAR	14.9984	ZAR	14.5664	April 22, 2014
EUR	192,375	ZAR	15.1351	ZAR	14.5664	April 22, 2014
EUR	192,195	ZAR	15.2014	ZAR	14.6290	May 20, 2014
EUR	192,195	ZAR	15.0637	ZAR	14.6290	May 20, 2014
EUR	180,023	ZAR	15.2750	ZAR	14.7011	June 20, 2014
EUR	180,023	ZAR	15.1349	ZAR	14.7011	June 20, 2014
EUR	182,273	ZAR	15.2077	ZAR	14.7778	July 21, 2014
EUR	182,273	ZAR	15.3488	ZAR	14.7778	July 21, 2014
EUR	180,023	ZAR	15.4228	ZAR	14.8537	August 20, 2014
EUR	180,023	ZAR	15.2819	ZAR	14.8537	August 20, 2014
EUR	180,023	ZAR	15.3623	ZAR	14.9372	September 22, 2014
EUR	180,023	ZAR	15.5041	ZAR	14.9372	September 22, 2014

5. Fair value of financial instruments and equity-accounted investments (continued)

Fair value of financial instruments (continued)

Risk management (continued)

~~None.~~Currency exchange risk (continued)

As of March 31, 2014 (continued)

				Fair market
Notional amount		Strike price		value price		Maturity
EUR	181,571	ZAR	15.5739	ZAR	15.0122	October 20, 2014
EUR	181,571	ZAR	15.4316	ZAR	15.0122	October 20, 2014
EUR	180,023	ZAR	15.6552	ZAR	15.0976	November 20, 2014
EUR	180,023	ZAR	15.5136	ZAR	15.0976	November 20, 2014
EUR	180,023	ZAR	15.5970	ZAR	15.1859	December 22, 2014
EUR	180,023	ZAR	15.7391	ZAR	15.1859	December 22, 2014
EUR	174,425	ZAR	15.8119	ZAR	15.2688	January 20, 2015
EUR	174,425	ZAR	15.6729	ZAR	15.2688	January 20, 2015

As of June 30, 2013

Fair market

Notional amount

Strike price

value price

Maturity

Notional amount

Strike price

value price

Maturity

USD

4,000,000

ZAR

9.06

ZAR

10.1397

September 30, 2013

4,000,000

ZAR

9.0600

ZAR

10.1397

September 30, 2013

Translation risk

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the US dollar is its reporting currency, but it earns most of its revenues and incurs most of its expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated significantly over the past two years. As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.

~~5. Fair value of financial instruments and equity-accounted investments (continued)~~

~~Fair value of financial instruments (continued)~~

~~Risk management (continued)~~

Interest rate risk

As a result of its normal borrowing and leasing 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 limited investment in cash equivalents 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 with regard to 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 BBB or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

UEPS-based microlending credit risk

The Company is exposed to credit risk in its UEPS-based microlending activities, which provides unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigns a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

5.Fair value of financial instruments and equity-accounted investments (continued)

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 and the risk that it may not be able to liquidate these securities. The market price of these securities may fluctuate for a variety of reasons, consequently, the amount the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

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 these 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.

The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value.

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments are included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments.

Asset measured at fair value using significant unobservable inputs – investment in Finbond Group Limited (“Finbond”)

The Company's Level 3 asset represents an investment of 156,788,712 shares of common stock of Finbond, which are exchange-traded equity securities. Finbond’s shares are traded on the JSE Limited (“JSE”) and the Company has designated such shares as available for sale investments. The Company has concluded that the market for Finbond shares is not active and consequently has employed alternative valuation techniques in order to determine the fair value of such stock. Currently, the operations of Finbond relate primarily to the provision of microlending products. ~~Finbond was recently issued~~In addition, it has a mutual banking licence and ~~intends to offer~~issues financial products under this licence. In determining the fair value of Finbond, the Company has considered amongst other things Finbond’s historical financial information (including its most recent public accounts), press releases issued by Finbond and its published net asset value. The Company believes that the best indicator of fair value of Finbond is its published net asset value and has used this value to determine the fair value.

~~5. Fair value of financial instruments and equity-accounted investments (continued)~~

~~Asset measured at fair value using significant unobservable inputs – investment in Finbond Group Limited (“Finbond”) (continued)~~

The fair value of these securities as of ~~December~~March 31, ~~2013,~~2014, represented approximately 1% of the Company’s total assets, including these securities.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~December~~March 31, ~~2013,~~2014, according to the fair value hierarchy:

Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
Related to insurance business (included in
other long-term assets):

Cash and cash equivalents $ 1,769 $ - $ - $ 1,769
Investment in Finbond (available for sale
assets included in other long-term assets)
-
-
7,721
7,721
Other - 139 - 139
Total assets at fair value $ 1,769 $ 139 $ 7,721 $ 9,629

		Quoted
		Price in
		Active		Significant
		Markets for		Other		Significant
		Identical		Observable		Unobservable
		Assets		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Assets
Related to insurance business (included in other long-term assets):
Cash and cash equivalents	$	1,778	$	-	$	-	$	1,778
Investment in Finbond (available for sale assets included in other long-term assets)		-		-		7,662		7,662
Other		-		138		-		138
Total assets at fair value	$	1,778	$	138	$	7,662	$	9,578

5. Fair value of financial instruments and equity-accounted investments (continued)

		Quoted
		Price in
		Active		Significant
		Markets for		Other		Significant
		Identical		Observable		Unobservable
		Assets		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Liabilities
Foreign exchange contracts	$	-	$	170	$	-	$	170
Total liabilities at fair value	$	-	$	170	$	-	$	170

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2013, according to the fair value hierarchy:

Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
Related to insurance business (included in
other long-term assets):

Cash and cash equivalents $ 1,833 $ - $ - $ 1,833
Investment in Finbond (available for sale
assets included in other long-term assets)
-
-
8,303
8,303
Other - 147 - 147
Total assets at fair value $ 1,833 $ 147 $ 8,303 $ 10,283

Liabilities
Foreign exchange contracts $ - $ 436 $ - $ 436
Total liabilities at fair value $ - $ 436 $ - $ 436

		Quoted
		Price in
		Active		Significant
		Markets for		Other		Significant
		Identical		Observable		Unobservable
		Assets		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Assets
Related to insurance business (included in other long-term assets):
Cash and cash equivalents	$	1,833	$	-	$	-	$	1,833
Investment in Finbond (available for sale assets included in other long-term assets)		-		-		8,303		8,303
Other		-		147		-		147
Total assets at fair value	$	1,833	$	147	$	8,303	$	10,283

Liabilities
Foreign exchange contracts	$	-	$	436	$	-	$	436
Total liabilities at fair value	$	-	$	436	$	-	$	436

Changes in the Company’s investment in Finbond (Level 3 that are measured at fair value on a recurring basis) were insignificant during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively. There have been no transfers in or out of Level 3 during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively.

Assets and liabilities measured at fair value on a nonrecurring basis

The Company measures its assets at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The Company has no liabilities that are measured at fair value on a nonrecurring basis. The Company reviews the carrying values of its assets when events and circumstances warrant and considers all available evidence in evaluating when declines in fair value are other-than-temporary.

~~5. Fair value of financial instruments and equity-accounted investments (continued)~~
~~Assets and liabilities measured at fair value on a nonrecurring basis (continued)~~
    The fair values of the Company’s assets are determined 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 assets exceeds its fair value and the excess is determined to be other-than-temporary. The Company has not recorded any impairment charges during the reporting periods presented herein.
11
6. Goodwill and intangible assets
Goodwill
     ~~Goodwill~~
Summarized below is the movement in the carrying value of goodwill for the ~~six~~nine months ended ~~December~~March 31, ~~2013:~~2014:
Accumulated Carrying
Gross value impairment value
Balance as of June 30, 2013 $ 218,558 $ (42,752 ) $ 175,806
Foreign currency adjustment⁽¹⁾ 7,383 (2,078 ) 5,305
Balance as of December 31, 2013 $ 225,941 ($44,830 ) $ 181,111
Accumulated Carrying
Gross value impairment value
Balance as of June 30, 2013 $ 218,558 $ (42,752 ) $ 175,806
Foreign currency adjustment⁽¹⁾ 6,032 (2,006 ) 4,026
Balance as of March 31, 2014 $ 224,590 $ ($44,758 ) $ 179,832
     (1) – the foreign currency adjustment represents the effects of the fluctuations between the South African rand and the Korean won, and the US dollar on the carrying value.
     Goodwill has been allocated to the Company’s reportable segments as follows:
As of As of
December 31, June 30,
2013 2013
SA transaction-based activities $ 28,749 $ 30,525
International transaction-based activities 122,538 113,972
Smart card accounts - -
Financial services - -
Hardware, software and related technology sales 29,824 31,309
Total $ 181,111 $ 175,806
As of As of
March 31, June 30,
2014 2013
SA transaction-based activities $ 28,532 $ 30,525
International transaction-based activities 121,656 113,972
Smart card accounts - -
Financial services - -
Hardware, software and related technology sales 29,644 31,309
Total $ 179,832 $ 175,806
Intangible assets
Carrying value and amortization of intangible assets
  Summarized below is the carrying value and accumulated amortization of the intangible assets as of ~~December~~March 31, ~~2013~~2014 and June 30, 2013:
As of December 31, 2013 As of June 30, 2013
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
value amortization value value amortization value
Finite-lived intangible assets:
Customer relationships $ 95,000 $ (35,332 ) $ 59,668 $ 90,469 $ (29,818 ) $ 60,651
     Software and unpatented technology 36,116 (25,531 ) 10,585 34,951 (22,151 ) 12,800
FTS patent 3,648 (3,648 ) - 3,873 (3,873 ) -
Exclusive licenses 4,506 (4,506 ) - 4,506 (4,506 ) -
Trademarks 6,721 (3,100 ) 3,621 6,611 (2,805 ) 3,806
Customer database 579 (579 ) - 614 (614 ) -
     Total finite-lived intangible assets $ 146,570 $ (72,696 ) $ 73,874 $ 141,024 $ (63,767 ) $ 77,257
As of March 31, 2014 As of June 30, 2013
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
value amortization value value amortization value
Finite-lived intangible assets:
Customer relationships $ 94,309 $ (37,373 ) $ 56,936 $ 90,469 $ (29,818 ) $ 60,651
Software and unpatented technology 35,851 (27,512 ) 8,339 34,951 (22,151 ) 12,800
FTS patent 3,620 (3,620 ) - 3,873 (3,873 ) -
Exclusive licenses 4,506 (4,506 ) - 4,506 (4,506 ) -
Trademarks 6,671 (2,681 ) 3,990 6,611 (2,805 ) 3,806
Customer database 574 (574 ) - 614 (614 ) -
     Total finite-lived intangible assets $ 145,531 $ (76,266 ) $ 69,265 $ 141,024 $ (63,767 ) $ 77,257
  Aggregate amortization expense on the finite-lived intangible assets for the three and ~~six~~nine months ended ~~December~~March 31, 2014, was approximately $4.6 million and $12.5 million, respectively (three and nine months ended March 31, 2013, was approximately ~~$4.1~~$4.4 million and ~~$7.8 million, respectively (three and six months ended December 31, 2012, was approximately $4.9 million and $9.6~~$14.0 million, respectively).
11
~~6. Goodwill and intangible assets (continued) Intangible assets (continued)~~
Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates prevailing on ~~December~~March 31, ~~2013,~~2014, 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.
2014 $ 15,793 $ 16,229
2015 15,742 15,080
2016 11,361 11,280
2017 9,023 8,958
2018 9,023 8,958
Thereafter $ 20,823 $ 20,671
12
7. Reinsurance assets and policy holder liabilities under insurance and investment contracts
      Reinsurance assets and policy holder liabilities under insurance contracts
            Summarized below is the movement in reinsurance assets and policy holder liabilities under insurance contracts during the ~~six~~nine months ended ~~December~~March 31, ~~2013:~~2014:
Reinsurance Insurance
assets (1) contracts (2)
Balance as of June 30, 2013 $ 19,557 $ (19,711 )
Foreign currency adjustment⁽³⁾ (1,138 ) 1,147
Balance as of December 31, 2013 $ 18,419 $ (18,564 )
Reinsurance Insurance
assets (1) contracts (2)
Balance as of June 30, 2013 $ 19,557 $ (19,711 )
     Foreign currency adjustment⁽³⁾ (1,276 ) 1,287
          Balance as of March 31, 2014 $ 18,281 $ (18,424 )

(1)
Included in other long-term assets.
(2)
Included in other long-term liabilities.
(3)
The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US 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 best estimates 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 future mortality and morbidity (an appropriate base table of standard mortality is chosen depending on the type of contract and class of business), withdrawals (based on recent withdrawal investigations and expected future trends), investment returns (based on government treasury rates adjusted by an applicable margin), expense inflation (based on a 10 year real return on CPI-linked government bonds from the risk-free rate and adding an allowance for salary inflation and book shrinkage of 1% per annum) and claim reporting delays (based on average industry experience).
      Assets and policy holder liabilities under investment contracts
            Summarized below is the movement in assets and policy holder liabilities under investment contracts during the ~~six~~nine months ended ~~December~~March 31, ~~2013:~~2014:
Investment
Assets (1) contracts (2)
Balance as of June 30, 2013 $ 953 $ (953 )
Foreign currency adjustment⁽³⁾ (56 ) 56
Balance as of December 31, 2013 $ 897 $ (897 )
Investment
Assets (1) contracts (2)
Balance as of June 30, 2013 $ 953 $ (953 )
     Foreign currency adjustment⁽³⁾ (62 ) 62
          Balance as of March 31, 2014 $ 891 $ (891 )

(1)
Included in other long-term assets.
(2)
Included in other long-term liabilities.
(3)
The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.
The Company does not offer any investment products with guarantees related to capital or returns.
12
8. Short-term credit facility South Africa
            ~~During December 2013, the Company increased its~~The Company’s short-term South African credit facility with Nedbank Limited ~~to ZAR 650 million ($61.9 million, translated at exchange rates applicable as of December 31, 2013) through March 31, 2014. The short-term facility~~ comprises an overdraft facility of up to ZAR ~~500~~250 million and indirect and derivative facilities of up to ZAR 150 million, which include letters of guarantee, letters of credit and forward exchange contracts. The Company temporarily increased its overdraft facility ofto ZAR 500 million ~~will revert~~for the four months to March 31, 2014, after which it reverted back to ZAR 250 ~~million on~~million. As of March 31, ~~2014. As of December 31, 2013,~~2014, the interest rate on the overdraft facility was ~~7.35%~~7.85% . The Company has ceded its investment in Cash Paymaster Services Proprietary Limited (“CPS”), a wholly owned South African subsidiary, as security for its repayment obligations under the facility. A commitment fee of 0.35% per annum is payable on the monthly unutilized amount of the overdraft portion of the short-term facility. The Company is required to comply with customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to dispose of or encumber its assets, incur additional indebtedness or engage in certain business combinations. As of ~~December~~March 31, ~~2013,~~2014, the Company had not utilized any of its ZAR ~~254.8~~250.0 million ($~~24.3~~23.6 million, translated at exchange rates applicable as of ~~December~~March 31, ~~2013) of the~~2014) overdraft ~~facility and~~facility. The Company had utilized approximately ZAR ~~132.0~~143.1 million ($~~12.6~~13.5 million, translated at exchange rates applicable as of ~~December~~March 31, ~~2013)~~2014) of ~~this~~its facility to enable the bank to issue guarantees, including stand-by letters of credit, in order for the Company to honor its obligations to third parties requiring such guarantees (Refer to Note 17). As of June 30, 2013, the Company had utilized none of this facility.
13
8.Short-term credit facility Korea
            The Company obtained a KRW 10 billion short-term overdraft facility from Hana Bank, a Korean bank, in January 2014. As of March 31, 2014, the interest rate on the overdraft facility was 4.98% . The Company has ceded the warehouse it owns in Korea as security for its repayment obligations under the facility. As of March 31, 2014, the Company had not utilized any of its KRW 10.0 billion ($9.3 million, translated at exchange rates applicable as of March 31, 2014) overdraft facility. The facility expires in January 2015.
9. Long-term borrowings
            In October 2013, the Company refinanced its existing long-term Korean credit facility and signed a new five-year senior secured facilities agreement (the “Facilities Agreement”) with a consortium of Korean banks. The Facilities Agreement provides for three separate facilities to the Company’s wholly owned subsidiary, Net1 Applied Technologies Korea (“Net1 Korea”): a Facility A loan of up to KRW 60.0 billion ($~~56.4~~56.0 million), a Facility B loan of up to KRW 15 billion ($~~14.1~~14.0 million) and a Facility C revolving credit facility of up to KRW 10.0 billion ($~~9.4~~9.3 million) (all facilities denominated in KRW and translated at exchange rates applicable as of ~~December~~March 31, ~~2013)~~2014).
            The Facility A and B loans were fully drawn on October 29, 2013, and used to repay KRW 75.0 billion ($70.6 million) of the KRW 92.4 billion ($87.0 million) loan outstanding under the existing facility. The remaining outstanding KRW 17.4 billion ($16.4 million) balance of that facility was paid from cash on hand on October 29, 2013. In addition, the Company drew KRW 1.1 billion ($1.0 million) of the revolving credit facility on October 29, 2013, to pay fees and expenses related to the Facilities Agreement and drew a further KRW 1.1 billion ($1.0 million) in January 2014 to pay interest due under the Facilities Agreement.
            Interest on the loans and revolving credit facility is payable quarterly and is based on the Korean CD rate in effect from time to time plus a margin of 3.10% for the Facility A loan and Facility C revolving credit facility; and a margin of 2.90% for the Facility B loan. The CD rate was ~~2.66%~~2.65% on ~~December~~March 31, ~~2013~~2014 and therefore the interest rate in effect as of ~~December~~March 31, ~~2013,~~2014, for the Facility A loan and Facility C revolving credit facility was ~~5.76%~~5.75% and for the Facility B loan was ~~5.56%~~5.55%, respectively. The Company paid facilities fees of approximately KRW 0.9 billion on October 29, 2013 and amortized approximately $0.1 million and $0.6 million, respectively, during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013.~~2014. A commitment fee of 0.3% is payable on any un-drawn and un-cancelled amount of the revolving credit facility. Total interest expense related to the new and refinanced facilities during the three and ~~six~~nine months ended ~~December~~March 31, 2014 and 2013, ~~and 2012,~~ was ~~$1.8~~$1.1 million and ~~$1.8~~$3.7 million; and ~~$3.6~~$1.7 million and ~~$3.6~~$5.3 million, respectively.
            The Facility A loan is repayable in three scheduled annual installments of KRW 10 billion each beginning 30 months after initial drawdown and one final installment of KRW 30 billion on the maturity date, namely October 29, 2018. The Facility B loan is repayable in full on October 29, 2014. The Facility C revolving credit facility is repayable in full on the maturity date. Prepayment of the revolving credit facility may be withdrawn at any time up to three ~~and six~~ months before the maturity date.
            The loans under the Facilities Agreement are secured by a pledge by Net1 Korea of its entire equity interest in KSNET and a pledge by the immediate parent of Net1 Korea (also one of the Company’s subsidiaries) of its entire equity interest in Net1 Korea. The Facilities Agreement contains customary covenants that require Net1 Korea to maintain agreed leverage and debt service coverage ratios and restricts Net1 Korea’s ability to make certain distributions with respect to its capital stock, prepay other debt, encumber its assets, incur additional indebtedness, or engage in certain business combinations. The loans under the Facilities Agreement are without recourse to, and the covenants and other agreements contained therein do not apply to, the Company or any of the Company’s subsidiaries (other than Net1 Korea).
            The Company’s refinanced KRW 92.4 billion Korean senior secured loan facility is described in Note 13 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2013. The Company has expensed the remaining prepaid facility fees related to the refinanced facility of approximately $0.4 million during the ~~three and six~~nine months ended ~~December~~March 31, ~~2013.~~2014. The third scheduled repayment related to this refinanced facility of $7.3 million was paid on October 29, 2012.
1314
10.      Capital structure
            The following table presents reconciliation between the number of shares, net of treasury, presented in the consolidated statement of changes in equity during the ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the ~~six~~nine months ended ~~December~~March 31, 2014 and 2013, ~~and 2012,~~ respectively:
Six months ended Nine months ended
December 31, March 31,
2013 2012 2014 2013
‘000 ‘000
Number of shares, net of treasury:
Statement of changes in equity 45,773,342 45,600,471 45,783,342 45,600,471
Less: Non-vested equity shares that have
not vested
(569,111 )
(644,750 ) (385,778 ) (461,417 )
Number of shares, net of treasury
excluding non-vested equity shares
that have not vested 45,204,231 44,955,721 45,397,564 45,139,054
December 2013 Black Economic Empowerment transactions
            On December 10, 2013, the Company entered into definitive agreements relating to two Black Economic Empowerment (“BEE”) transactions. As of March 31, 2014, the transactions had not been implemented because the agreed conditions had not been satisfied. Subsequently, the conditions were satisfied and the transactions were implemented on April 16, 2014.
Pursuant to ~~the~~these Relationship Agreements ~~dated December 10, 2013~~ between the Company and its BEE partners, the Company ~~will sell~~sold an aggregate of 4,400,000 shares of its common stock (“BEE shares”) for a purchase price of ZAR 60.00 per share. Closing of these BEE transactions is subject to the satisfaction of certain conditions contained in the Relationship Agreements, including receipt of any required regulatory approvals (including approval of the South African Reserve Bank) and the finalization of ancillary agreements. Closing of one transaction is not contingent on the closing of the other transaction. As of December 31, 2013, the transactions had not been implemented because the agreed conditions had not been satisfied. As of January 31, 2014, the closing conditions had not yet been met and therefore the parties extended the date to satisfy all closing conditions to March 15, 2014.
The ZAR 60.00 per share purchase price for the BEE shares, which ~~will be~~are contractually restricted as to resale as described below, ~~will be~~was paid in ZAR and represents 75% of the closing price of the Company’s common stock on the JSE on December 6, 2013, the date the Company completed final negotiation of the terms of these BEE transactions.
            The Relationship Agreements ~~provide~~provided that the entire purchase price for the BEE shares ~~will~~ be financed through a five-year loan to be extended to each of the BEE partners by a South African subsidiary of the Company. The obligations of the BEE partners under the loans are several, and not joint. Each of the BEE partners ~~will grant~~granted the lender a security interest in all the BEE shares ~~being~~ purchased by such BEE partner to secure the repayment of its loan. The principal amount of the loans being made by the subsidiary ~~will be~~was contributed by Net1 to the equity capital of the subsidiary. As a result of the making of the loans, the net cash position of the Company after the sale of the BEE shares ~~will remain~~remained unchanged.
            The loans ~~will~~ bear interest at a rate equal to the Johannesburg Interbank Rate ~~(550~~(638 basis points as of ~~December~~March 31, ~~2013)~~2014) plus 300 basis points. Interest on the loans is payable semi-annually in arrears on January 1 and July 1 of each year. 10% of the outstanding principal amount of the loans will be payable on each of the first and second anniversaries of the date of issuance of the BEE shares, 15% of the outstanding principal amount of the loans will be payable on each of the third and fourth anniversaries of the date of issuance of the BEE shares and the remaining outstanding principal amount of the loans will be payable on the fifth anniversary of the date of issuance of the BEE shares. Further, the entire outstanding principal amount of the loans will be payable if the price of the Company’s common stock on the JSE equals or exceeds ZAR 120.00 per share at any time during term of the loans. Upon the occurrence of certain “trigger events” with respect to a BEE partner, the BEE shares held by that BEE partner may be repurchased by the Company or one of its designees. These trigger events include the following:
failure by the BEE partner to pay any amount due on its loan (including interest) to the lender (in this case, the Company may repurchase only that number of shares which would raise sufficient funds to settle any amount due and unpaid);
any other breach by the BEE partner (or in certain circumstances its shareholders) of any provision of the Relationship Agreement, including without limitation, its failure to maintain its BEE status;
the Company’s common stock trades at or below ZAR 60.00 on the JSE or at or below the equivalent trading price on Nasdaq;
the occurrence of certain insolvency events or liquidation proceedings affecting the BEE partner; or
the BEE partner fails to satisfy any judgment or arbitration award granted or made against it within 7 days.
1415
10.      Capital structure (continued)
      December 2013 Black Economic Empowerment transactions (continued)
            If the trigger event involves a failure by a BEE partner to pay any amount due on its loan, then the repurchase price is the volume-weighted average price of the Company’s common stock on the Nasdaq for the period of 30 trading days prior to the trigger event, or 30-day VWAP. In the case of other trigger events, the repurchase price is the lower of the 30-day VWAP or ZAR 60.00 per share.
            The BEE shares ~~will be~~are contractually restricted as to resale for a period of five years from the date of issuance, with the exception of periodic sales which may be made to fund the repayment of principal and interest on the loans. In addition, the Company may call the BEE shares then owned by the BEE partners, either in exchange for a minority interest in CPS or for a cash payment equal to the 30-day VWAP. Further, after the fifth anniversary of the date of issuance of the BEE shares, the Company will have a right of first refusal on the shares owned by the BEE partners.
            The loans to the BEE partners do not provide that they are recourse only to the BEE shares. Nevertheless, the Company expects that the sole source of repayment of the loans will be proceeds from the sale of its shares by the BEE partners from time to time, in open market or in privately negotiated transactions.
             Acquisition of KSNET non-controlling interests
            The Company acquired ~~substantially~~ all of the issued share capital of KSNET, Inc. that it did not previously own for approximately $2.0 million in cash. ~~After the acquisition of the additional shares, the Company now owns almost 100% of KSNET and intends to purchase the remaining shares it does not yet own.~~ The Company ~~believes that it will~~intends to realize certain Korean tax efficiencies in the future ~~if it~~and is ~~able to acquire~~currently discussing the ~~remaining KSNET shares that it does not own.~~feasibility with its Korean tax advisors. The transaction was accounted for as an equity transaction with a non-controlling interest and accordingly, no gain or loss was recognized in the Company’s consolidated statement of operations. The carrying amount of the non-controlling interest was adjusted to reflect the change in ownership interest in KSNET. The difference between the fair value of the consideration paid and the amount by which the non-controlling interest was adjusted, of $1.5 million, was recognized in equity attributable to Net1.
11.      Accumulated other comprehensive (loss) income
            The table below presents the change in accumulated other comprehensive (loss) income per component during the ~~six~~nine months ended ~~December~~March 31, ~~2013:~~2014:
Six months ended
December 31, 2013
Net
unrealized
income
(loss) on
Foreign asset
currency available
translation for sale, net
reserve of tax Total
‘000 ‘000 ‘000
Balance as of June 30, 2013 $ (101,188 ) $ 330 $ (100,858 )
Movement in foreign currency translation reserve 4,794 - 4,794
Unrealized loss on asset available for sale, net of tax of $15 - (39 ) (39 )
Balance as of December 31, 2013 $ (96,394 ) $ 291 $ (96,103 )
Nine months ended
March 31, 2014
Net
unrealized
income
(loss) on
Foreign asset
currency available
translation for sale, net
reserve of tax Total
‘000 ‘000 ‘000
Balance as of June 30, 2013 $ (101,188 ) $ 330 $ (100,858 )
Movement in foreign currency translation reserve 2,660 - 2,660
     Unrealized loss on asset available for sale, net of
         tax of $112 - 288 288
Balance as of March 31, 2014 $ (98,528 ) $ 618 $ (97,910 )
            There were no ~~reclassification~~reclassifications from accumulated other comprehensive loss to comprehensive (loss) income during the ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 or ~~2012,~~2013, respectively.
1516
12.      Stock-based compensation
Stock option and restricted stock activity
             Options
            The following table summarizes stock option activity for the ~~three and six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012:~~2013:
Weighted Weighted
Weighted Average Average
average Remaining Aggregate Grant
exercise Contractual Intrinsic Date Fair
Number of price Term Value Value
shares ($) (in years) ($’000) ($)

Outstanding – June 30, 2013 2,648,583 15.15 5.98 313
Granted under Plan: August 2013 224,896 7.35 10.00 568 2.53
Outstanding – December 31, 2013 2,873,479 14.54 5.79 1,037

Outstanding – June 30, 2012 2,247,583 16.28 6.43 602
Granted under Plan: August 2012 431,000 8.75 10.00 1,249 2.90
Exercised (30,000 ) 7.98 24
Outstanding – December 31, 2012 2,648,583 15.15 6.74 978
Weighted Weighted
Weighted Average Average
average Remaining Aggregate Grant
exercise Contractual Intrinsic Date Fair
Number of price Term Value Value
shares ($) (in years) ($’000) ($)

Outstanding – June 30, 2013 2,648,583 15.15 5.98 313
Granted under Plan: August 2013 224,896 7.35 10.00 568 2.53
Exercised (10,000 ) 8.75 12
Forfeited (136,420 ) 23.51
       Outstanding – March 31, 2014 2,727,059 14.12 5.63 2,290

Outstanding – June 30, 2012 2,247,583 16.28 6.43 602
Granted under Plan: August 2012 431,000 8.75 10.00 1,249 2.90
Exercised (30,000 ) 7.98 24
       Outstanding – March 31, 2013 2,648,583 15.15 6.74 978
            The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 250 day volatility. The estimated expected life of the option was determined based historical behavior of employees who were granted options with similar terms. The Company has estimated no forfeitures for options awarded in August 2013 and ~~2012,~~2014, respectively. The table below presents the range of assumptions used to value options granted during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012:~~2013:
Three and six months ended
December 31,
2013 2012
Expected volatility 50% 49%
Expected dividends 0% 0%
Expected life (in years) 3 3
Risk-free rate 0.9% 0.3%
Three and nine months ended
March 31,
2014 2013
Expected volatility 50% 49%
Expected dividends 0% 0%
Expected life (in years) 3 3
Risk-free rate 0.9% 0.3%
            During the three and nine months ended March 31, 2014, terminated employees forfeited 136,420 stock options. There were no forfeitures during the three and nine months ended March 31, 2013.
            The following table presents stock options vesting and expecting to vest as of ~~December~~March 31, ~~2013:~~2014:
Weighted
Weighted Average
average Remaining Aggregate
exercise Contractual Intrinsic
Number of price Term Value
shares ($) (in years) ($’000)
Vested and expecting to vest
– December 31, 2013

2,873,479

14.54

5.79

1,037
Weighted
Weighted Average
average Remaining Aggregate
exercise Contractual Intrinsic
Number of price Term Value
shares ($) (in years) ($’000)
Vested and expecting to vest – March 31, 2014 2,727,059 14.12 5.63 2,290
            These options have an exercise price range of $6.59 to $24.46.
1617
12.      Stock-based compensation (continued)
       Stock option and restricted stock activity (continued)
             Options (continued)
Weighted
Average
Weighted Remaining Aggregate
average Contractual Intrinsic
Number of exercise Term Value
shares price ($) (in years) ($’000)
Exercisable 2,144,917 16.51 4.97 566
Weighted
Average
Weighted Remaining Aggregate
average Contractual Intrinsic
Number of exercise Term Value
shares price ($) (in years) ($’000)
Exercisable 1,998,497 16.08 4.80 1,057
            During each of the three months ended ~~December~~March 31, 2014 and 2013, ~~and 2012,~~ respectively, ~~159,666~~no stock options became exercisable. During the ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively, 358,333 and 244,666 stock options became exercisable. Included in the 244,666 stock options are 30,000 stock options with respect to which the Remuneration Committee of the Board agreed to accelerate vesting, in August 2012, prior to the resignation of a non-employee director. During the ~~six~~three and nine months ended ~~December~~March 31, ~~2012,~~2014, the Company received approximately $0.1 million from 10,000 stock options exercised. During the nine months ended March 31, 2013, the Company received approximately $0.2 million from 30,000 stock options exercised by the non-employee director that resigned. No stock options were exercised during the three ~~and six~~ months ended ~~December~~March 31, ~~2013 or during the three months ended December 31, 2012.~~2013. The Company issues new shares to satisfy stock option exercises.
             Restricted stock
            The following table summarizes restricted stock activity for the ~~three and six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012:~~2013:
Weighted
Number of Average
Shares of Grant Date
Restricted Fair Value
Stock ($’000)
Non-vested – June 30, 2013 405,226 4,393
Granted – August 2013 187,963 1,382
Vested – August 2013 (16,907 ) 161
Forfeitures – October 2013 (7,171 ) 161
Non-vested – December 31, 2013 569,111 5,572

Non-vested – June 30, 2012 646,617 7,061
Granted – August 2012 21,569 189
Vested – August 2012 (23,436 ) 216
Non-vested – December 31, 2012 644,750 7,021
Weighted
Number of Average
Shares of Grant Date
Restricted Fair Value
Stock ($’000)
Non-vested – June 30, 2013 405,226 4,393
Granted – August 2013 187,963 1,382
Vested – August 2013 (16,907 ) 161
Vested – February 2014 (183,333 ) 1,742
Forfeitures – October 2013 (7,171 ) 84
Non-vested – March 31, 2014 385,778 3,534

Non-vested – June 30, 2012 646,617 7,061
Granted – August 2012 21,569 189
Granted – February 2013 (183,333 ) 1,016
Vested – August 2012 (23,436 ) 216
Non-vested – March 31, 2013 461,417 4,988
     ~~No restricted stock vested during the three months ended December 31, 2013 and 2012, respectively.~~            The fair value of restricted stock vesting during the ~~six~~three months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively, was ~~$0.2~~$1.7 million and ~~$0.2~~$1.0 million. The fair value of restricted stock vesting during the nine months ended March 31, 2014 and 2013, respectively, was $1.9 million and $1.2 million. A non-employee director resigned during the ~~three~~nine months ended ~~December~~March 31, ~~2013,~~2014, and forfeited 7,171 shares of restricted stock. Included in the 23,436 shares of restricted stock that vested in August 2012 are 8,547 shares with respect to which the Remuneration Committee of the Board agreed to accelerate vesting prior to the resignation of a non-employee director.
            The fair value of restricted stock is based on the closing price of the Company’s stock quoted on The Nasdaq Global Select Market on the date of grant.
1718
12.      Stock-based compensation (continued)
Stock-based compensation charge and unrecognized compensation cost
            The Company has recorded a stock compensation charge of ~~$1.0~~$0.9 million and $1.1 million for the three months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively, which comprised:
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Three months ended December 31, 2013
Stock-based compensation charge $ 974 - $ 974
  Reversal of stock compensation charge related to
restricted stock forfeited
(6 )
-
(6 )
Total – three months ended December 31, 2013 . $ 968 $ - $ 968

Three months ended December 31, 2012
  Stock-based compensation charge $ 1,117 $ - $ 1,117
Total – three months ended December 31, 2012 . $ 1,117 $ - $ 1,117
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
     Three months ended March 31, 2014
       Stock-based compensation charge $ 922 $ - $ 922
Total – three months ended March 31, 2014 $ 922 $ - $ 922

     Three months ended March 31, 2013
       Stock-based compensation charge $ 1,092 $ - $ 1,092
Total – three months ended March 31, 2013 $ 1,092 $ - $ 1,092
            The Company has recorded a stock compensation charge of ~~$1.9~~$2.8 million and ~~$2.2~~$3.3 million for the ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, respectively, which comprised:
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Six months ended December 31, 2013
Stock-based compensation charge $ 1,904 $ - $ 1,904
Reversal of stock compensation charge related to
restricted stock forfeited
(6 )
-
(6 )
Total – six months ended December 31, 2013 $ 1,898 $ - $ 1,898

Six months ended December 31, 2012
Stock-based compensation charge $ 2,233 $ - $ 2,233
Total – six months ended December 31, 2012 $ 2,233 $ - $ 2,233
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Nine months ended March 31, 2014
Stock-based compensation charge $ 2,826 $ - $ 2,826
Reversal of stock compensation charge related to restricted stock forfeited (6 ) - (6 )
Total – nine months ended March 31, 2014 $ 2,820 $ - $ 2,820

Nine months ended March 31, 2013
Stock-based compensation charge $ 3,325 $ - $ 3,325
Total – nine months ended March 31, 2013 $ 3,325 $ - $ 3,325
            The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the employees.
            As of ~~December~~March 31, ~~2013,~~2014, the total unrecognized compensation cost related to stock options was approximately ~~$1.3~~$1.1 million, which the Company expects to recognize over approximately three years. As of ~~December~~March 31, ~~2013,~~2014, the total unrecognized compensation cost related to restricted stock awards was approximately ~~$3.6~~$3.0 million, which the Company expects to recognize over approximately two years.
            As of each of ~~December~~March 31, ~~2013~~2014 and June 30, 2013, respectively, the Company has recorded a deferred tax asset of approximately ~~$1.4~~$1.5 million related to the stock-based compensation charge recognized related to employees and directors of Net1 as it is able to deduct the grant date fair value for taxation purposes in the United States.
13.      Earnings per share
            Basic 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 earnings per share have been calculated using the two-class method and basic earnings per share for the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, reflects only undistributed earnings. The computation below of basic earnings per share excludes the net income 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.
1819
13.     Earnings per share (continued)
            Diluted earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the calculation of diluted 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 earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in February 2012 and August 2013 as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted 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 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2013.
            The following table presents net income attributable to Net1 (income from continuing operations) and the share data used in the basic and diluted earnings per share computations using the two-class method:
Three months ended Six months ended
December 31, December 31,
2013 2012 2013 2012
(in thousands except percent (in thousands except percent
and and
per share data) per share data)
Numerator:
Net income attributable to Net1 $ 12,749 $ 2,629 $ 24,345 $ 9,373
Undistributed earnings 12,749 2,629 24,345 9,373
     Percent allocated to common shareholders
     (Calculation 1) 99% 99% 99% 99%
     Numerator for earnings per share: basic and
     diluted $ 12,594 $ 2,597 $ 24,075 $ 9,256

Denominator:
Denominator for basic earnings per share:
     weighted-average common shares
     outstanding
45,221
44,989
45,218
44,981
Effect of dilutive securities:
             Performance shares related to
             acquisition
-
-
-
-
Stock options 156 26 113 37
                    Denominator for diluted earnings per
                    share: adjusted weighted average
                    common shares outstanding and
                    assumed conversion

45,377

45,015

45,331

45,018

Earnings per share:
Basic $ 0.28 $ 0.06 $ 0.53 $ 0.21
Diluted $ 0.28 $ 0.06 $ 0.53 $ 0.21

(Calculation 1)
     Basic weighted-average common shares
     outstanding (A)
45,221
44,989
45,218
44,981
     Basic weighted-average common shares
     outstanding and unvested restricted shares
     expected to vest (B)

45,776

45,550

45,725

45,550
     Percent allocated to common shareholders
     (A) / (B)
99%
99%
99%
99%
Three months ended Nine months ended
March 31, March 31,
2014 2013 2014 2013
(in thousands except percent (in thousands except percent
and and
per share data) per share data)
Numerator:
Net income (loss) attributable to Net1 $ 17,182 $ (4,681 ) $ 41,527 $ 4,692
Undistributed earnings (loss) 17,182 (4,681 ) 41,527 4,692
     Percent allocated to common shareholders (Calculation 1) 99% 99% 99% 99%
     Numerator for earnings (loss) per share: basic and diluted $ 16,944 $ (4,634 ) $ 40,917 $ 4,637

Denominator:
     Denominator for basic earnings per share: weighted-average
     common shares outstanding 45,142 45,098 45,070 45,018
Effect of dilutive securities:
             Performance shares related to acquisition - 16 - 5
Stock options 91 26 106 37
                     Denominator for diluted earnings per share:
                     adjusted weighted average common shares
                     outstanding and assumed conversion 45,233 45,140 45,176 45,060

Earnings (loss) per share:
Basic $ 0.38 $ (0.10 ) $ 0.91 $ 0.10
Diluted $ 0.37 $ (0.10 ) $ 0.90 $ 0.10

(Calculation 1)
     Basic weighted-average common shares outstanding (A) 45,142 45,098 45,070 45,018
     Basic weighted-average common shares outstanding
     and unvested restricted shares expected to vest (B) 45,776 45,557 45,742 45,552
     Percent allocated to common shareholders (A) / (B) 99% 99% 99% 99%
            Options to purchase ~~1,530,863~~2,040,339 shares of the Company’s common stock at prices ranging from ~~$13.14~~$7.35 to $24.46 per share were outstanding during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013,~~2014, but were not included in the computation of diluted earnings per share because the options’ exercise price were greater than the average market price of the Company’s common shares. The options, which expire at various dates through August 21, 2023, were still outstanding as of ~~December~~March 31, ~~2013.~~2014.
1920
14.      Supplemental cash flow information
            The following table presents the supplemental cash flow disclosures for the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012:~~2013:
Three months ended Six months ended Three months ended Nine months ended
December 31, December 31, March 31, March 31,
2013 2012 2013 2012 2014 2013 2014 2013
Cash received from interest $ 3,223 $ 2,584 $ 6,464 $ 5,709 $ 3,422 $ 2,395 $ 9,886 $ 8,104
Cash paid for interest $ 2,027 $ 2,053 $ 3,666 $ 4,053 $ 1,651 $ 2,020 $ 5,317 $ 6,073
Cash paid for income taxes $ 14,029 $ 10,137 $ 14,527 $ 10,479 $ 1,570 $ 1,701 $ 16,097 $ 12,180
15.     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, major customers, and the countries in which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in Note 22 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2013.
            The following tables summarize segment information which is prepared in accordance with GAAP:
Three months ended Six months ended
December 31, December 31,
2013 2012 2013 2012

Revenues from external customers
SA transaction-based activities $ 72,237 $ 60,764 $ 135,269 $ 122,128
International transaction-based activities 37,288 33,113 74,105 64,762
Smart card accounts 11,237 8,219 22,566 16,583
Financial services 6,199 1,448 8,626 2,832
Hardware, software and related technology sales 10,322 7,898 20,211 16,819
Total 137,283 111,442 260,777 223,124
Inter-company revenues
SA transaction-based activities 2,957 3,885 5,232 7,868
International transaction-based activities - - - -
Smart card accounts - - - -
Financial services 273 401 525 787
Hardware, software and related technology sales 349 379 519 587
Total 3,579 4,665 6,276 9,242
Operating income (loss)
SA transaction-based activities 13,398 1,933 26,680 8,333
International transaction-based activities 1,365 202 3,416 31
Smart card accounts 3,203 2,342 6,431 4,727
Financial services 1,727 1,048 1,783 2,145
Hardware, software and related technology sales 1,592 795 4,540 2,779
Subtotal: Operating segments 21,285 6,320 42,850 18,015
Corporate/Eliminations (2,483 ) (1,348 ) (7,648 ) (3,718 )
                  Total 18,802 4,972 35,202 14,297
Interest income
SA transaction-based activities - - - -
International transaction-based activities - - - -
Smart card accounts - - - -
Financial services - - - -
Hardware, software and related technology sales - - - -
Subtotal: Operating segments - - - -
Corporate/Eliminations 3,236 2,589 6,555 5,680
                  Total $ 3,236 $ 2,589 $ 6,555 $ 5,680
Three months ended Nine months ended
March 31, March 31,
2014 2013 2014 2013

Revenues from external customers
SA transaction-based activities $ 64,864 $ 59,009 $ 200,133 $ 181,137
International transaction-based activities 34,994 33,119 109,099 97,881
Smart card accounts 10,612 8,657 33,178 25,240
Financial services 11,099 1,651 19,725 4,483
Hardware, software and related technology sales 16,557 8,705 36,768 25,524
Total 138,126 111,141 398,903 334,265
Inter-company revenues
SA transaction-based activities 3,433 1,492 8,665 9,360
International transaction-based activities - - - -
Smart card accounts - - - -
Financial services 259 308 784 1,095
Hardware, software and related technology sales 76 135 595 722
              Total 3,768 1,935 10,044 11,177
Operating income (loss)
SA transaction-based activities 11,145 (4,197 ) 37,825 4,136
International transaction-based activities 1,322 (1,362 ) 4,738 (1,331 )
Smart card accounts 3,025 2,467 9,456 7,194
Financial services 5,119 1,147 6,902 3,292
Hardware, software and related technology sales 4,000 1,699 8,540 4,478
Subtotal: Operating segments 24,611 (246 ) 67,461 17,769
Corporate/Eliminations (662 ) (4,480 ) (8,310 ) (8,198 )
              Total 23,949 (4,726 ) 59,151 9,571
Interest income
SA transaction-based activities - - - -
International transaction-based activities - - - -
Smart card accounts - - - -
Financial services - - - -
Hardware, software and related technology sales - - - -
Subtotal: Operating segments - - - -
Corporate/Eliminations 3,438 2,515 9,993 8,195
              Total $ 3,438 $ 2,515 $ 9,993 $ 8,195
2021
15.     Operating segments (continued)
Three months ended Six months ended
December 31, December 31,
2013 2012 2013 2012

Interest expense
SA transaction-based activities $ 20 $ 202 $ 43 $ 345
International transaction-based activities - - 44 -
Smart card accounts - - - -
Financial services 338 - 389 -
Hardware, software and related technology sales 198 56 359 126
Subtotal: Operating segments 556 258 835 471
Corporate/Eliminations 1,670 1,765 3,143 3,623
Total 2,226 2,023 3,978 4,094
Depreciation and amortization
SA transaction-based activities 2,485 3,289 4,932 6,430
International transaction-based activities 7,064 7,025 14,470 13,704
Smart card accounts - - - -
Financial services 116 97 233 184
Hardware, software and related technology sales 109 76 168 173
Subtotal: Operating segments 9,774 10,487 19,803 20,491
Corporate/Eliminations - - - -
Total 9,774 10,487 19,803 20,491
Income taxation expense (benefit)
SA transaction-based activities 3,746 483 7,458 2,236
International transaction-based activities 487 (147 ) 644 (580 )
Smart card accounts 896 655 1,799 1,323
Financial services 393 298 403 610
Hardware, software and related technology sales 309 192 1,002 630
Subtotal: Operating segments 5,831 1,481 11,306 4,219
Corporate/Eliminations 1,268 1,490 2,278 2,481
Total 7,099 2,971 13,584 6,700
Net income (loss)
SA transaction-based activities 9,632 1,247 19,179 5,751
International transaction-based activities 1,049 492 2,986 835
Smart card accounts 2,307 1,686 4,631 3,402
Financial services 1,011 769 1,038 1,570
Hardware, software and related technology sales 1,088 552 3,183 2,029
Subtotal: Operating segments 15,087 4,746 31,017 13,587
Corporate/Eliminations (2,338 ) (2,117 ) (6,672 ) (4,214 )
Total 12,749 2,629 24,345 9,373
Expenditures for long-lived assets
SA transaction-based activities 1,743 1,375 2,299 4,969
International transaction-based activities 4,682 4,067 9,513 6,770
Smart card accounts - - - -
Financial services (14 ) 127 186 272
Hardware, software and related technology sales 434 28 463 39
Subtotal: Operating segments 6,845 5,597 12,461 12,050
Corporate/Eliminations - - - -
Total $ 6,845 $ 5,597 $ 12,461 $ 12,050
Three months ended Nine months ended
March 31, March 31,
2014 2013 2014 2013

Interest expense
SA transaction-based activities $ 28 $ 244 $ 71 $ 589
International transaction-based activities 2 - 46 -
Smart card accounts - - - -
Financial services 418 - 807 -
Hardware, software and related technology sales 181 81 540 207
Subtotal: Operating segments 629 325 1,464 796
Corporate/Eliminations 1,105 1,698 4,248 5,321
Total 1,734 2,023 5,712 6,117
Depreciation and amortization
SA transaction-based activities 2,895 3,198 7,827 9,628
International transaction-based activities 7,364 7,049 21,834 20,753
Smart card accounts - - - -
Financial services 115 163 348 347
Hardware, software and related technology sales 68 150 236 323
Subtotal: Operating segments 10,442 10,560 30,245 31,051
Corporate/Eliminations - - - -
Total 10,442 10,560 30,245 31,051
Income taxation expense (benefit)
SA transaction-based activities 3,113 (1,245 ) 10,571 991
International transaction-based activities 17 (587 ) 661 (1,167 )
Smart card accounts 848 691 2,647 2,014
Financial services 1,320 327 1,723 937
Hardware, software and related technology sales 1,095 409 2,097 1,039
Subtotal: Operating segments 6,393 (405 ) 17,699 3,814
Corporate/Eliminations 2,142 877 4,420 3,358
Total 8,535 472 22,119 7,172
Net income (loss) attributable to Net1
SA transaction-based activities 8,003 (3,199 ) 27,182 2,552
International transaction-based activities 1,591 (642 ) 4,577 193
Smart card accounts 2,177 1,776 6,808 5,178
Financial services 3,394 839 4,432 2,409
Hardware, software and related technology sales 2,729 1,210 5,912 3,239
Subtotal: Operating segments 17,894 (16 ) 48,911 13,571
Corporate/Eliminations (712 ) (4,665 ) (7,384 ) (8,879 )
Total 17,182 (4,681 ) 41,527 4,692
Expenditures for long-lived assets
SA transaction-based activities 302 2,583 2,601 7,552
International transaction-based activities 4,231 2,074 13,744 8,844
Smart card accounts - - - -
Financial services 222 357 408 629
Hardware, software and related technology sales 93 39 556 78
Subtotal: Operating segments 4,848 5,053 17,309 17,103
Corporate/Eliminations - - - -
Total $ 4,848 $ 5,053 $ 17,309 $ 17,103
            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.
            It is impractical to disclose revenues from external customers for each product and service or each group of similar products and services.
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16.      Income tax
      Income tax in interim periods
            For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax effect of significant unusual or extraordinary items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete event in the interim period in which the enactment date occurs.
            For the three and ~~six~~nine months ended ~~December~~March 31, ~~2013,~~2014, the tax charge was calculated using the expected effective tax rate for the year. The Company’s effective tax rate for the three and ~~six~~nine months ended ~~December~~March 31, ~~2013,~~2014, was ~~35.8%~~33.3% and ~~35.9%~~34.9%, respectively, and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges).
            The Company’s effective tax rate for the three ~~and six~~ months ended ~~December~~March 31, ~~2012,~~2013, was ~~53.6%~~(11.1%) and ~~42.2%, respectively,~~is negative as a result of the loss before income taxes and differed from the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes. The Company’s effective tax rate for the nine months ended March 31, 2013, was 61.6% and was higher than the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.
      Uncertain tax positions
            There were no changes during the three and ~~six~~nine months ended ~~December~~March 31, ~~2013.~~2014. As of ~~December~~March 31, ~~2013,~~2014, the Company had accrued interest related to uncertain tax positions of approximately $0.2 million on its balance sheet.
            The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.
            The Company files income tax returns mainly in South Africa, Korea, Austria, Botswana, the Russian Federation and in the US federal jurisdiction. As of ~~December~~March 31, ~~2013,~~2014, the Company is no longer subject to any new income tax examination by the South African Revenue Service for years before June 30, 2009. In 2011, the Korea National Tax Service had completed the examination of the Company’s returns in Korea related to years 2006 through 2010. The Company is subject to income tax in other jurisdictions outside South Africa and Korea, none of which are individually material to its financial position, cash flows, or results of operations.
17.      Commitments and contingencies
       Guarantees
            The South African Revenue Service and certain of the ~~Company��s~~Company’s customers, suppliers and other business partners have asked the Company to provide them with guarantees, including standby letters of credit, issued by a South African bank. The Company is required to procure these guarantees for these third parties to operate its business.
            Nedbank has issued guarantees to these third parties amounting to ZAR ~~132.0~~143.1 million ($~~12.6~~13.5 million, translated at exchange rates applicable as of ~~December~~March 31, ~~2013)~~2014) and thereby utilizing part of the Company’s short-term facility. The Company in turn has provided nonrecourse, unsecured counter-guarantees to Nedbank for the same amount. The Company pays commission of between 0.2% per annum to 2.0% 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 counter-guarantees in its unaudited condensed consolidated balance sheet as of ~~December~~March 31, ~~2013.~~2014. The maximum potential amount that the Company could pay under these guarantees is ZAR ~~132.0~~143.1 million ($~~12.6~~13.5 million, translated at exchange rates applicable as of ~~December~~March 31, ~~2013)~~2014). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in ~~note~~Note 8.
23
17.      Commitments and contingencies (continued)
      Contingencies
             Securities Litigation
            On December 24, 2013, Net1, its chief executive officer and its chief financial officer were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws.
22
~~17. Commitments and~~ ~~contingencies (continued)~~
~~Contingencies (continued)~~
~~Securities Litigation (continued)~~
            The lawsuit alleges that Net1 made materially false and misleading statements regarding its business and compliance policies in its SEC filings and other public disclosures. The lawsuit was brought on behalf of a purported shareholder of Net1 and all other similarly situated shareholders who purchased its securities between August 27, 2009 and November 27, 2013. The lawsuit seeks unspecified damages. The Company believes this lawsuit has no merit and intends to defend it vigorously.
            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 matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations and cash flows.
2318. Subsequent events
            On April 17, 2014, the South African Constitutional Court (“Court”) ruled on the appropriate remedy following its declaration on November 29, 2013, that the tender process followed by the South African Social Security Agency (“SASSA”) in awarding a contract to the Company’s wholly-owned subsidiary, CPS, was constitutionally invalid. The declaration of invalidity of the contract between SASSA and CPS was upheld, but suspended until a new tender is awarded, or for the remainder of the existing contract period if no tender is awarded. SASSA is required to initiate a new tender process within 30 days of the Court's ruling and any award must be for a period of five years. In addition, the Court required new and independent Bid Evaluation and Bid Adjudication Committees to be appointed to evaluate and adjudicate the new tender process. If a new tender is not awarded, the declaration of invalidity of the current contract between SASSA and CPS will further be suspended until the completion of the five-year period for which the contract was originally awarded.
24
      Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
            The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2013, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.
Forward-looking statements
            Some of the statements in this Form 10-Q constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. Such factors include, among other things, those listed under Item 1A.—“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended June 30, 2013, and Item 1A—“Risk Factors” and elsewhere in this Form 10-Q. 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.
            Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.
            You should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto and which we have filed with the Securities and Exchange Commission completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Recent Developments
~~AllPay Challenge to Tender Award~~    Constitutional Court pronounces remedy for SASSA tender award
            On ~~November 29, 2013,~~April 17, 2014, the South African Constitutional Court, or Constitutional Court, ruled on the appropriate remedy following its declaration on November 29, 2013, that the tender process followed by the South African Social Security Agency, or SASSA, in awarding a ~~five-year social welfare grants distribution~~ contract to usNet1's wholly-owned subsidiary, Cash Paymaster Services, or CPS, was constitutionally invalid. ~~However,~~The declaration of invalidity of the contract between SASSA and CPS was upheld, but suspended until a new tender is awarded, or for the remainder of the existing contract period if no tender is awarded. SASSA is required to initiate a new tender process within 30 days of the Constitutional Court's ruling and any award must be for a period of five years. In addition, the Constitutional Court ~~suspended its~~required new and independent Bid Evaluation and Bid Adjudication Committees to be appointed to evaluate and adjudicate the new tender process. If a new tender is not awarded, the declaration of invalidity ~~pending determination~~ of ~~a just~~the current contract between SASSA and ~~equitable remedy. The grant~~CPS will further be suspended until the completion of ~~a just and equitable remedy~~the five-year period for which the contract was ~~reserved pending a further hearing, which has been set for February 11, 2014. As ordered by the Constitutional Court, the parties have submitted additional information on affidavit.~~originally awarded.
            See Part II, Item 1—“Legal ~~Proceedings.~~Proceedings,” for additional details.
    Implementation of December 2013 Black Economic Empowerment, or BEE, transactions
            On ~~December 10, 2013,~~April 16, 2014, we ~~entered into definitive agreements relating~~implemented our two previously-announced BEE transactions and issued an aggregate of 4,400,000 shares of our common stock to ~~two~~our BEE ~~transactions.~~partners for ZAR 60.00 per share. Refer to note 10 to our unaudited condensed consolidated financial statements for a full description of the BEE transactions.
       Growth in mobile value-added services
            Our Net1 Mobile Solutions business unit introduced a new suite of mobile value-added services, commencing with a prepaid airtime product ~~called Umoya Manje~~ during the first quarter of fiscal 2014. We continued to see adoption of this product ~~increase in~~during the ~~second~~third quarter of fiscal 2014. This product allows our customers in South Africa to electronically purchase prepaid airtime without having to visit a physical prepaid airtime vendor. Net1 Mobile Solutions also introduced a similar service under the brand "Pasavute" in partnership with Telecom Networks Malawi during the third quarter of fiscal 2014.
            Traditional prepaid airtime procurement is usually time consuming for the customer and results in them having to pay additional costs. Our product allows our customers, many of whom do not have their own means of transport or ready access to transport, to purchase prepaid airtime without having to travel. We also believe that our product is substantially cheaper than traditional prepaid airtime channels, which often require customers to pay a substantial premium to obtain airtime.
25
            At ~~December~~March 31, ~~2013,~~2014, we had over 2.4 million registered users, effecting more than one million transactions per day during peak periods. In December 2013, Net1 Mobile Solutions launched ~~other~~additional mobile value-added services, including prepaid electricity, and ~~expects the~~ adoption rates of these products tocould be similar to its prepaid airtime offering. We believe that these new products are also cheaper than existing offerings and will make a meaningful difference in the lives of users of these new products.
24
~~Expansion of financial service offering~~   Pay in Private
            During the ~~second~~third quarter of fiscal 2014, our Net1 Mobile Solutions business unit launched our Mobile Virtual Card, or MVC, technology through Pay in Private in the United States in partnership with a US-based marketer with experience in online financial services. The Pay in Private solution offers unmatched security and accessibility to transact online using a mobile handset using our proprietary one-time use MVC Debit MasterCard generated by a smart phone app.
     Financial services
            In the beginning of fiscal 2014, our Financial Services business unit ~~continued~~commenced the national rollout of our financial services offering in the six provinces in which we did not offer our product during fiscal 2013.
~~Acquisition~~ We have experienced significant growth in our lending book during fiscal 2014 compared with 2013, however, during the third quarter of ~~KSNET non-controlling interests~~
     ~~We acquired substantially all~~fiscal 2014, the growth rate slowed down as it appears there is less demand for our financial services offering during the beginning of the ~~issued share capital of KSNET that we did not previously own for approximately $2.0 million~~calendar year, following the summer holiday period in ~~cash. Refer~~South Africa. This seasonal trend seems to ~~note 10 to our unaudited condensed consolidated financial statements for a full description~~be confirmed by the re-acceleration of the ~~acquisition of KSNET non-controlling interests.~~growth rate during March and April 2014.
Critical Accounting Policies
            Our unaudited condensed consolidated financial statements have been prepared in accordance with US 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.
            Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially may result in materially different results under different assumptions and conditions. Management has identified the following critical accounting policies that are described in more detail in our Annual Report on Form 10-K for the year ended June 30, 2013:
Business combinations and the recoverability of goodwill;
Intangible assets acquired through acquisitions;
Deferred taxation;
Stock-based compensation and equity instrument issued pursuant to BEE transaction;
Accounts receivable and allowance for doubtful accounts receivable; and
Research and development.
            During ~~the first half of~~fiscal 2014, we created an allowance for doubtful finance loans receivable related to our financial services segment as a result of UEPS-based 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 UEPS-based loans and related service fees if a borrower is in arrears with repayments for more than three months or dies.
            This is a new allowance and management considered factors including the period of the UEPS-loan outstanding, creditworthiness of the customers and the past payment history and trends of its established UEPS-based lending 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 in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including on-going evaluation of the creditworthiness of each customer.
Recent accounting pronouncements adopted
            Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements adopted, including the dates of adoption and the effects on our condensed consolidated financial statements.
26
      Recent accounting pronouncements not yet adopted as of ~~December~~March 31, ~~2013~~2014
            Refer to ~~note~~Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of ~~December~~March 31, ~~2013,~~2014, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.
25
Currency Exchange Rate Information
Actual exchange rates
            The actual exchange rates for and at the end of the periods presented were as follows:
Table 1 Three months ended Six months ended Year ended Three months ended Nine months ended Year ended
December 31, December 31, June 30, March 31, March 31, June 30,
2013 2012 2013 2012 2013 2014 2013 2014 2013 2013
ZAR : $ average exchange rate 10.1603 8.7029 10.0809 8.4836 8.8462 10.8622 8.9461 �� 10.3375 8.6355 8.8462
Highest ZAR : $ rate during period 10.5730 9.0047 10.5730 9.0047 10.3587 11.2667 9.3645 11.2667 9.3645 10.3587
Lowest ZAR : $ rate during period 9.7143 8.1933 9.5436 8.0444 8.0444 10.4848 8.4067 9.6324 8.0444 8.0444
Rate at end of period 10.5037 8.4875 10.5037 8.4875 9.8925 10.5833 9.2451 10.5833 9.2451 9.8925

KRW : $ average exchange rate 1,065 1,095 1,089 1,116 1,112 1,071 1,090 1,083 1,107 1,112
Highest KRW : $ rate during period 1,077 1,116 1,152 1,156 1,162 1,089 1,126 1,168 1,156 1,162
Lowest KRW : $ rate during period 1,031 1,039 1,031 1,039 1,019 1,053 1,019 1,052 1,019 1,019
Rate at end of period 1,063 1,068 1,063 1,068 1,144 1,071 1,121 1,071 1,121 1,144
2627
      Translation exchange rates for financial reporting purposes
            For financial reporting purposes we are required to translate our results of operations from ZAR and KRW to US dollars on a monthly basis. Thus, the average rates used to translate this data for the three and ~~six~~nine months ended ~~December~~March 31, ~~2013~~2014 and ~~2012,~~2013, vary 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 2 Three months ended Six months ended Year ended Three months ended Nine months ended Year ended
December 31, December 31, June 30, March 31, March 31, June 30,
2013 2012 2013 2012 2013 2014 2013 2014 2013 2013
Income and expense items: $1 = ZAR . 10.1592 8.7405 10.0809 8.4571 8.7105 10.8743 8.4662 10.3801 8.4578 8.7105
Income and expense items: $1 = KRW 1,021 1,084 1,087 1,111 1,072 1,070 1,113 1,076 1,112 1,072
- -
Balance sheet items: $1 = ZAR 10.5037 8.4875 10.5037 8.4875 9.8925 10.5833 9.2451 10.5833 9.2451 9.8925
Balance sheet items: $1 = KRW 1,063 1,068 1,063 1,068 1,144 1,071 1,121 1,071 1,121 1,144
Results of operations
            The discussion of our consolidated overall results of operations is based on amounts as reflected in our unaudited condensed consolidated financial statements which are prepared in accordance with US GAAP. We analyze our results of operations both in US dollars, as presented in the consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities which contribute the majority of our profits 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 US dollar and ZAR on our reported results and because we use the US 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.
            ~~Three and six~~Nine months ended ~~December~~March 31, ~~2012,~~2013, includes SmartSwitch Botswana from December 1, 2012 and Pbel (renamed Net1 Mobile Solutions during the third quarter of fiscal 2014) from September 1, 2012.
2728
            We analyze our business and operations in terms of five inter-related but independent operating segments: (1) South African transaction-based activities, (2) international transaction-based activities, (3) smart card accounts, (4) financial services, and (5) hardware, software and related technology sales. 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.
       ~~Second~~     Third quarter of fiscal 2014 compared to ~~second~~third quarter of fiscal 2013
            The following factors had an influence on our results of operations during the ~~second~~third quarter of fiscal 2014 as compared with the same period in the prior year:
Unfavorable impact from the strengthening of the US dollar against the ZAR:The US dollar appreciated by ~~16%~~28% against the ZAR during the ~~second~~third quarter of fiscal 2014, which negatively impacted our reported results;
SASSA implementation complete:Our SASSA contract implementation is complete. We incurred implementation-related expenditure, including smart card costs, of approximately ~~$21.0~~$20.6 million during the ~~second~~third quarter of fiscal 2013;
Growth in financial services:The year-over-year expansion of our financial services offering during the third quarter of fiscal 2014, resulted in higher revenue and operating income from UEPS-based lending;
Higher revenue resulting from an increase in low-margin prepaid airtime sales:Our revenue has increased as a result of the growth of our ~~Umoya Manje~~ prepaid airtime offering during the ~~second~~third quarter of fiscal 2014, which has lower margins compared with our other South African businesses;
~~National rollout of~~Increased contribution by KSNET:Our results were positively impacted by growth in our ~~financial services offering:~~We continued the national rollout of our financial services offering during the second quarter of fiscal 2014, which resulted in higher revenue from UEPS-based lending. Profitability in the financial services segment however was lower due to rollout costs, including hiring and training of additional staff and infrastructure deployment as well as the creation of an allowance for doubtful finance loans receivable;Korean operations;
Ad hoc hardware sales in fiscal 2014:We sold more terminals and cards during the ~~second~~third quarter of fiscal 2014 as a result of ad hoc orders received from our customers; ~~and~~
~~Higher DOJ~~Lower US government investigation-related and ~~SEC investigation-related~~US lawsuit expenses:We incurred ~~DOJ and SEC~~fewer US government investigation-related expenses ~~of $1.6 million~~ during the ~~second~~third quarter of fiscal 2014 compared to ~~$0.5~~during 2013, which was partially offset by an increase in US lawsuit-related expenses; and
Fiscal 2013 bad debt provision:In fiscal 2013 we provided $2.3 million ~~during 2013.~~related to the expired NUETS Iraqi customer contracts.
      Consolidated overall results of operations
            This discussion is based on the amounts which were prepared in accordance with US GAAP.
            The following tables show the changes in the items comprising our statements of operations, both in US dollars and in ZAR:
In United States Dollars In United States Dollars
Table 3 (US GAAP) (US GAAP)
Three months ended December 31, Three months ended March 31,
2013 2012 $ % 2014 2013 $%
$ ’000 $ ’000 change $ ’000 $ ’000 change
Revenue 137,283 111,442 23% 138,126 111,141 24%
Cost of goods sold, IT processing, servicing and support 67,883 47,227 44% 63,149 51,461 23%
Selling, general and administration 40,824 48,756 (16% ) 40,586 53,846 (25% )
Depreciation and amortization 9,774 10,487 (7% ) 10,442 10,560 (1% )
Operating income 18,802 4,972 278%
Operating income (loss) 23,949 (4,726 ) nm
Interest income 3,236 2,589 25% 3,438 2,515 37%
Interest expense 2,226 2,023 10% 1,734 2,023 (14% )
Income before income tax expense 19,812 5,538 258%
Income (loss) before income tax expense 25,653 (4,234 ) nm
Income tax expense 7,099 2,971 139% 8,535 472 1,708%
Net income before earnings from equity-accounted investments 12,713 2,567 395%
Net income (loss) before earnings from equity-accounted investments 17,118 (4,706 ) nm
Earnings from equity-accounted investments 47 54 (13% ) 52 22 136%
Net income 12,760 2,621 387%
Less (Add) net income (loss) attributable to non-controlling interest 11 (8 ) nm
Net income attributable to us 12,749 2,629 385%
Net income (loss) 17,170 (4,684 ) nm
Add net loss attributable to non-controlling interest (12 ) (3 ) 300%
Net income (loss) attributable to us 17,182 (4,681 ) nm
2829

In South African Rand In South African Rand
Table 4 (US GAAP) (US GAAP)
Three months ended December 31, Three months ended March 31,
2013 2012 2014 2013
ZAR ZAR ZAR % ZAR ZAR ZAR %
’000 ’000 change ’000 ’000 change
Revenue 1,394,685 974,058 43% 1,502,024 940,942 60%
Cost of goods sold, IT processing, servicing and support 689,636 412,787 67% 686,701 435,680 58%
Selling, general and administration 414,740 426,152 (3% ) 441,345 455,871 (3% )
Depreciation and amortization 99,296 91,661 8% 113,549 89,403 27%
Operating income 191,013 43,458 340%
Operating income (loss) 260,429 (40,012 ) nm
Interest income 32,875 22,629 45% 37,386 21,292 76%
Interest expense 22,614 17,682 28% 18,856 17,127 10%
Income before income tax expense 201,274 48,405 316%
Income (loss) before income tax expense 278,959 (35,847 ) nm
Income tax expense 72,120 25,968 178% 92,812 3,996 2,223%
Net income before earnings from equity-accounted investments 129,154 22,437 476%
Net income (loss) before earnings from equity-accounted investments 186,147 (39,843 ) nm
Earnings from equity-accounted investments 477 472 1% 565 186 204%
Net income 129,631 22,909 466%
Less (Add) net income (loss) attributable to non-controlling interest 112 (70 ) nm
Net income attributable to us 129,519 22,979 464%
Net income (loss) 186,712 (39,657 ) nm
Add net loss attributable to non-controlling interest (130 ) (25 ) 420%
Net income (loss) attributable to us 186,842 (39,632 ) nm
            The increase in revenue was primarily due to a higher contribution from KSNET, more ad hoc terminal and card sales, more low-margin transaction fees generated from beneficiaries using the South African National Payment System, higher prepaid airtime sales driven by the rollout of our ~~Umoya Manje~~prepaid airtime product, and an increase in the number of ~~UEPS-loans made.~~UEPS-based loans.
            The increase in cost of goods sold, IT processing, servicing and support was primarily due to higher expenses incurred from increased usage of the South African National Payment System by beneficiaries and higher prepaid airtime, terminal and card sales. These increases were offset by the substantial elimination of expenses related to our SASSA contract implementation, which we completed in the fourth quarter of fiscal 2013.
            Our selling, general and administration expense decreased due to the substantial elimination of SASSA contract implementation costs and fewer legal and other fees incurred related to the US government investigations and the US lawsuit, which ~~were~~was partially offset by increases in goods and services purchased from third ~~parties and increase in legal fees to approximately $1.6 million (ZAR 16.4 million) compared with $0.5 million (ZAR 4.9 million) in connection with the US government investigations.~~parties.
            Our operating income (loss) margin for the ~~second~~third quarter of fiscal 2014 and 2013 was ~~14%~~17% and 4%(4)%, respectively. We discuss the components of operating income (loss) margin under “—Results of operations by operating segment.” The increase is primarily attributable to the elimination of implementation costs in fiscal 2014.
            In ZAR, depreciation and amortization were higher primarily as a result of an increase in depreciation related to assets used to service our obligations under our SASSA contract, which was partially offset by no MediKredit ~~and~~or FIHRST intangible asset amortization as the these intangible assets were fully amortized at the end of June 2013. The tables below present the acquisition-related intangible asset amortization that has been allocated to our operating segments:
Three months ended Three months ended
Table 5 December 31, March 31,
2013 2012 2014 2013
$ ’000 $ ’000 $ ’000 $ ’000
Amortization included in depreciation and amortization expense: 4,107 4,861 4,587 4,384
South African transaction-based activities 518 1,465 1,163 1,070
International transaction-based activities 3,518 3,313 3,358 3,228
Hardware, software and related technology sales 71 83 66 86

Three months ended Three months ended
Table 6 December 31, March 31,
2013 2012 2014 2013
ZAR ’000 ZAR ’000 ZAR ’000 ZAR ’000
Amortization included in depreciation and amortization expense: 41,719 42,485 49,881 37,113
South African transaction-based activities 5,262 12,811 12,648 9,067
International transaction-based activities 35,740 28,957 36,516 27,329
Hardware, software and related technology sales 717 717 717 717
2930
            Interest on surplus cash increased to ~~$3.2~~$3.4 million (ZAR ~~32.9~~37.4 million) from ~~$2.6~~$2.5 million (ZAR ~~22.6~~21.3 million) due primarily to higher average daily ZAR cash balances.
            In US dollars, interest expense ~~increased~~decreased to ~~$2.2~~$1.7 million (ZAR ~~22.6~~18.9 million) from $2.0 million (ZAR ~~17.7~~17.1 million) primarily due to ~~the write-off of facilities fees related to the 2010 Korean debt financing, but partially offset by~~ a lower average long-term debt ~~balance.~~balance on our Korean debt as well as lower interest rate resulting from our refinancing concluded in October 2013.
            ~~Second~~Third quarter fiscal 2014 tax expense was ~~$7.1~~$8.5 million (ZAR ~~72.1~~92.8 million) compared to ~~$3.0~~$0.5 million (ZAR ~~26.0~~4 million) in fiscal 2013. Our effective tax rate for fiscal 2014 was ~~35.8%~~33.3% and was higher than the South African statutory rate as a result of non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges). Our effective tax rate for the ~~second quarter of fiscal~~three months ended March 31, 2013, was ~~53.6%~~(11.1)% and ~~was higher than~~is negative as a result of the loss before income taxes and differed from the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.
Results of operations by operating segment
            The composition of revenue and the contributions of our business activities to operating income are illustrated below.
Table 7 In United States Dollars (US GAAP) In United States Dollars (US GAAP)
Three months ended December 31, Three months ended March 31,
2013 % of 2012 % of % 2014 % of 2013 % of %
Operating Segment $ ’000 total $ ’000 total change $ ’000 total $ ’000 total change
Consolidated revenue:
SA transaction-based activities 72,237 53% 60,764 55% 19% 64,864 47% 59,009 53% 10%
International transaction-based activities 37,288 27% 33,113 30% 13% 34,994 25% 33,119 30% 6%
Smart card accounts 11,237 8% 8,219 7% 37% 10,612 8% 8,657 8% 23%
Financial services 6,199 5% 1,448 1% 328% 11,099 8% 1,651 1% 572%
Hardware, software and related technology sales 10,322 7% 7,898 7% 31% 16,557 12% 8,705 8% 90%
Total consolidated revenue 137,283 100% 111,442 100% 23% 138,126 100% 111,141 100% 24%
Consolidated operating (loss) income:
SA transaction-based activities 13,398 71% 1,933 39% 593% 11,145 47% (4,197 ) 89% (366% )
Operating income before amortization 13,916 3,398 12,308 (3,127 ) nm
Amortization of intangible assets (518 ) (1,465 ) (1,163 ) (1,070 ) 9%
International transaction-based activities 1,365 7% 202 4% 576% 1,322 6% (1,362 ) 29% nm
Operating income before amortization 4,883 3,515 4,680 1,866 151%
Amortization of intangible assets (3,518 ) (3,313 ) (3,358 ) (3,228 ) 4%
Smart card accounts 3,203 17% 2,342 47% 37% 3,025 13% 2,467 (52% ) 23%
Financial services 1,727 9% 1,048 21% 65% 5,119 21% 1,147 (24% ) 346%
Hardware, software and related technology sales 1,592 8% 795 16% 100% 4,000 17% 1,699 (36% ) 135%
Operating income before amortization 1,663 878 4,066 1,785 128%
Amortization of intangible assets (71 ) (83 ) (66 ) (86 ) (23% )
Corporate/eliminations (2,483 ) (12% ) (1,348 ) (27% ) 84% (662 ) (4% ) (4,480 ) 94% (85% )
Total consolidated operating income 18,802 100% 4,972 100% 278%
Total consolidated operating income (loss) 23,949 100% (4,726 ) 100% nm
3031

Table 8 In South African Rand (US GAAP) In South African Rand (US GAAP)
Three months ended December 31, Three months ended March 31,
2013 2012 2014 2013
ZAR % of ZAR % of % ZAR % of ZAR % of %
Operating Segment ’000 total ’000 total change ’000 total ’000 total change
Consolidated revenue:
SA transaction-based activities 733,870 �� 53% 531,108 55% 38% 705,351 47% 499,582 53% 41%
International transaction-based activities 378,816 27% 289,424 30% 31% 380,535 25% 280,392 30% 36%
Smart card accounts 114,159 8% 71,838 7% 59% 115,398 8% 73,292 8% 57%
Financial services 62,977 5% 12,656 1% 398% 120,694 8% 13,978 1% 763%
Hardware, software and related technology sales 104,863 7% 69,032 7% 52% 180,046 12% 73,698 8% 144%
Total consolidated revenue 1,394,685 100% 974,058 100% 43% 1,502,024 100% 940,942 100% 60%
Consolidated operating (loss) income:
SA transaction-based activities 136,113 71% 16,895 39% 706% 121,194 47% (35,533 ) 89% (441% )
Operating income before amortization 141,375 29,706 133,842 (26,466 ) nm
Amortization of intangible assets (5,262 ) (12,811 ) (12,648 ) (9,067 ) 39%
International transaction-based activities 13,867 7% 1,766 4% 685% 14,376 6% (11,531 ) 29% nm
Operating income before amortization 49,607 30,723 50,892 15,798 222%
Amortization of intangible assets (35,740 ) (28,957 ) (36,516 ) (27,329 ) 34%
Smart card accounts 32,540 17% 20,470 47% 59% 32,895 13% 20,886 (52% ) 57%
Financial services 17,545 9% 9,160 21% 92% 55,666 21% 9,711 (24% ) 473%
Hardware, software and related technology sales 16,173 8% 6,949 16% 133% 43,497 17% 14,384 (36% ) 202%
Operating income before amortization 16,890 7,666 44,214 15,101 193%
Amortization of intangible assets (717 ) (717 ) (717 ) (717 ) -
Corporate/eliminations (25,225 ) (12% ) (11,782 ) (27% ) 114% (7,199 ) (4% ) (37,929 ) 94% (81% )
Total consolidated operating income 191,013 100% 43,458 100% 340%
Total consolidated operating income (loss) 260,429 100% (40,012 ) 100% nm
             South African transaction-based activities
            In ZAR, the ~~increases~~increase in segment revenue ~~were~~was primarily due to more low-margin transaction fees generated from beneficiaries using the South African National Payment System, incremental prepaid airtime sales driven by the rollout of our ~~Umoya Manje~~prepaid airtime product, and reflect the elimination of inter-company transactions.
            Our operating income margin for fiscal 2014 and 2013 was ~~19%~~17% and 3%(7)%, respectively, and has increased primarily due to the elimination of SASSA implementation costs in fiscal 2014, ~~and~~ partially offset by the increase in low-margin prepaid airtime sales.
                    South African transaction processors:
            The table below presents the total volume and value processed during the ~~second~~third quarter of fiscal 2014 and 2013:
Table 9
Total volume (‘000s) Total value $ (‘000) Total value ZAR (‘000) Total volume (‘000s) Total value $ (‘000) Total value ZAR (‘000)
Transaction processor 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
CPS 28,538 28,373 2,715,356 2,971,163 27,585,846 25,969,448 28,829 28,727 2,517,122 3,031,625 27,371,937 25,666,342
EasyPay 106,772 111,380 2,881,624 2,960,166 29,274,995 25,873,334 99,706 105,708 2,438,669 2,815,953 26,518,814 23,840,425
Net1 Mobile Solutions (A) 39,641 6,178 2,274,810 2,503,633 23,110,247 21,883,006 45,629 5,933 1,925,571 2,381,514 20,939,237 20,162,374
MediKredit 2,245 2,353 200,446 160,204 2,036,370 1,400,261 2,677 2,706 257,479 175,651 2,799,902 1,487,096
            (A) – during fiscal 2014 FIHRST was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent FIHRST only.
            CPS volumes ~~were flat year over year~~moderately increased due to the organic growth in the number of beneficiaries added by SASSA, partially offset by SASSA’s suspension of former grant recipient cardholders who had not presented themselves for enrollment during the ~~second~~third quarter of fiscal 2014. These grant recipient cardholders will have to apply for restoration of their grant and present themselves for enrollment should they want to reinstate their grants. Our pension and welfare operations continue to generate the majority of our revenues and operating income in this operating segment and overall. EasyPay volumes have decreased due to fewer sales of prepaid airtime, but the decrease was partially offset by an increase in transaction switching and other value-added services. Net1 Mobile Solutions volumes ~~and values~~ have increased primarily due to the launch of ~~Umoya Manje~~prepaid airtime product in fiscal 2014.
3132
             International transaction-based activities
            KSNET continues to contribute the majority of our revenues and operating income in this operating segment. Revenue increased primarily due to KSNET’s revenue growth during the ~~second~~third quarter of fiscal 2014 and was partially offset by the expiration and non-renewal of NUETS’ contract with its Iraqi customer in the third quarter of fiscal 2013. Operating income during the ~~second~~third quarter of fiscal 2014 was higher due to increase in revenue contribution from KSNET and due to the NUETS Iraqi customer bad debt provision in fiscal 2013, but partially offset by ~~the loss of the NUETS Iraqi contract as well as~~ ongoing losses related to our XeoHealth launch in the United States and at Net1 Virtual Card, as well as ongoing competition in the Korean marketplace.
            Operating income margin for the segment is lower than for most of our South African transaction-based businesses. Operating income margin for the ~~second~~third quarter of fiscal 2014 and 2013 was 4% and 1%(4)%, respectively (excluding intangible amortization, 13% and ~~11%~~6%, respectively.)
             Smart card accounts
            In ZAR, our revenue from this operating segment was higher because the number of smart card-based accounts has increased as a result of full implementation of the SASSA contract. Operating income margin from providing smart card accounts for the ~~second~~third quarter of fiscal 2014 and 2013 was 29% and 28%, respectively.
            In ZAR, revenue from the provision of smart card-based accounts increased in proportion to the increased number of recipients serviced through our SASSA contract. Approximately 9.6 million smart card-based accounts were active at ~~December~~March 31, ~~2013~~2014 compared to approximately ~~6.2~~6.5 million active accounts as at ~~December~~March 31, ~~2012.~~2013.
             Financial services
            UEPS-based lending contributes the majority of the revenue and operating income in this operating segment. Revenue and operating income increased primarily due to the year-over-year increase in the number of loans granted as we rolled out our product ~~nationally.~~nationally in the first half of fiscal 2014. The increase in operating income was partially offset by ~~an increase~~the higher UEPS-based lending operating cost base in ~~start-up expenses, establishment of the allowance for doubtful finance loans receivable~~fiscal 2014 and the re-allocation of UEPS-based lending corporate and administration overhead expenses to this segment. Smart Life did not contribute to operating income in the ~~second~~third quarter of fiscal 2014 as it is currently unable to issue new insurance policies as a result of the suspension of its license by the Financial Services Board, or FSB, in January 2013.
            ~~Second~~Third quarter of fiscal 2014 includes the re-allocation of UEPS-based lending corporate administration and overhead expenses to this segment from the South African transaction-based activities segment. We were not able to accurately quantify these expenses for last year and therefore did not allocate such costs to this segment during the ~~second~~third quarter of fiscal 2013.
            Operating income margin for the financial services segment decreased to ~~28%~~46% from ~~72%~~69%, primarily as a result of the ~~roll-out expenditures, allowance for doubtful finance loans receivable~~higher UEPS-based lending operating cost base in fiscal 2014 and corporate overhead expense re-allocation described above.
             Hardware, software and related technology sales
            In ZAR, the increase in revenue and operating income resulted from more ad hoc terminal and smart card sales. We continue to expect significant quarter over quarter fluctuations in revenue, operating income and operating margin due to the ad hoc nature of orders in this operating segment.
             Corporate/eliminations
            The ~~increase~~decrease in our corporate expenses resulted primarily from fewer legal fees we incurred in connection with the ~~DOJ and SEC~~US government investigations ~~and~~compared the third quarter of fiscal 2014, partially offset by higher other corporate head office-related expenses.
            Our corporate expenses also include expenditure related to compliance with Sarbanes; non-executive directors’ fees; employee and executive salaries and bonuses; stock-based compensation; legal and audit fees; directors and officers insurance premiums; telecommunications expenses; property-related expenditures including utilities, rental, security and maintenance; and elimination entries.
3233
~~First half of~~Year to date fiscal 2014 compared to ~~first half of~~year to date fiscal 2013
            The following factors had an influence on our results of operations during the ~~first half of~~year to date fiscal 2014 as compared with the same period in the prior year:
Unfavorable impact from the strengthening of the US dollar against the ZAR:The US dollar appreciated by ~~19%~~23% against the ZAR during the ~~first half of~~year to date fiscal 2014 which negatively impacted our reported results;
SASSA implementation complete:We incurred implementation-related expenditure, including smart card costs, of approximately ~~$36.8~~$57.5 million during the ~~first half of~~year to date fiscal 2013;
Higher revenue resulting from an increase in low-margin prepaid airtime sales:Our revenue has increased as a result of the deployment of our ~~Umoya Manje~~ prepaid airtime ~~offering~~product during the ~~first half of~~year to date fiscal 2014, which has lower margins compared with our other South African businesses;
National rollout of our financial services offering:The national rollout of our financial services offering resulted in higher revenue from UEPS-based lending. Profitability in the financial services segment however was lower due to rollout costs, including hiring and training of additional staff and infrastructure deployment as well as the creation of an allowance for doubtful finance loans receivable;
Ad hoc hardware sales in fiscal 2014:We sold more terminals and cards during the ~~first half of~~year to date fiscal 2014 as a result of ad hoc orders received from our customers; ~~and~~
~~DOJ and SEC~~Fewer US government investigation-related expenses:We incurred ~~DOJ and SEC~~fewer US government investigation-related expenses ~~of $3.8 million~~ during the ~~first half of~~year to date fiscal 2014 compared with ~~$0.5~~2013; and
Fiscal 2013 bad debt provision:In fiscal 2013 we provided $2.3 million ~~in 2013.~~related to the expired NUETS Iraqi customer contracts.
      Consolidated overall results of operations
            This discussion is based on the amounts which were prepared in accordance with US GAAP.
            The following tables show the changes in the items comprising our statements of operations, both in US dollars and in ZAR:
In United States Dollars In United States Dollars
Table 10 (US GAAP) (US GAAP)
Six months ended December 31, Nine months ended March 31,
2013 2012 $ % 2014 2013 $ %
$ ’000 $ ’000 change $ ’000 $ ’000 change
Revenue 260,777 223,124 17% 398,903 334,265 19%
Cost of goods sold, IT processing, servicing and support 124,442 92,328 35% 187,591 143,789 30%
Selling, general and administration 81,330 96,008 (15% ) 121,916 149,854 (19% )
Depreciation and amortization 19,803 20,491 (3% ) 30,245 31,051 (3% )
Operating income 35,202 14,297 146% 59,151 9,571 518%
Interest income 6,555 5,680 15% 9,993 8,195 22%
Interest expense 3,978 4,094 (3% ) 5,712 6,117 (7% )
Income before income tax expense 37,779 15,883 138% 63,432 11,649 445%
Income tax expense 13,584 6,700 103% 22,119 7,172 208%
Net income before earnings from equity-accounted investments 24,195 9,183 163% 41,313 4,477 823%
Earnings from equity-accounted investments 150 182 (18% ) 202 204 (1% )
Net income 24,345 9,365 160% 41,515 4,681 787%
Less (Add) net income (loss) attributable to non-controlling interest - (8 ) nm
Add net loss attributable to non-controlling interest (12 ) (11 ) 9%
Net income attributable to us 24,345 9,373 160% 41,527 4,692 785%
3334

In South African Rand In South African Rand
Table 11 (US GAAP) (US GAAP)
Six months ended December 31, Nine months ended March 31,
2013 2012 2014 2013
ZAR ZAR ZAR % ZAR ZAR ZAR %
’000 ’000 change ’000 ’000 change
Revenue 2,628,867 1,886,983 39% 4,140,654 2,827,147 46%
Cost of goods sold, IT processing, servicing and support 1,254,488 780,827 61% 1,947,214 1,216,139 60%
Selling, general and administration 819,880 811,950 1% 1,265,501 1,267,435 (0% )
Depreciation and amortization 199,633 173,295 15% 313,947 262,624 20%
Operating income 354,866 120,911 193% 613,992 80,949 658%
Interest income 66,080 48,036 38% 103,728 69,312 50%
Interest expense 40,102 34,623 16% 59,291 51,736 15%
Income before income tax expense 380,844 134,324 184% 658,429 98,525 568%
Income tax expense 136,939 56,663 142% 229,597 60,659 279%
Net income before earnings from equity-accounted investments 243,905 77,661 214% 428,832 37,866 1,032%
Earnings from equity-accounted investments 1,512 1,539 (2% ) 2,097 1,725 22%
Net income 245,417 79,200 210% 430,929 39,591 988%
Less (Add) net income (loss) attributable to non-controlling interest - (68 ) nm
Add net loss attributable to non-controlling interest (125 ) (93 ) 34%
Net income attributable to us 245,417 79,268 210% 431,054 39,684 986%
            The increase in revenue was primarily due to a higher contribution from KSNET, more ad hoc terminal and card sales, more low-margin transaction fees generated from beneficiaries using the South African National Payment System, higher prepaid airtime sales driven by the rollout of our ~~Umoya Manje~~prepaid airtime product, and an increase in the number of ~~UEPS-loans made.~~UEPS-based loans.
            The increase in cost of goods sold, IT processing, servicing and support was primarily due to higher expenses incurred from increased usage of the South African National Payment System by beneficiaries and higher prepaid airtime, terminal and card sales. These increases were offset by the substantial elimination of expenses related to our SASSA contract implementation, which we completed in the fourth quarter of fiscal 2013.
            In ~~ZAR,~~USD, our selling, general and administration expense ~~increased~~decreased due to the substantial elimination of SASSA contract implementation costs and fewer legal fees in connection with the US government investigations in the current year, which was offset by increases in goods and services purchased from third parties and an increase in legal fees to approximately $3.8 million (ZAR 38.0 million) compared with $0.5 million (ZAR 4.9 million) in connection with the US government investigations, which were offset by the substantial elimination of SASSA contract implementation costs.parties.
            Our operating income margin for the ~~first half of~~year to date fiscal 2014 and 2013, was ~~13%~~15% and 6%3%, respectively. We discuss the components of operating income margin under “—Results of operations by operating segment.” The increase is primarily attributable to the substantial elimination of implementation costs in fiscal 2014.
            In ZAR, depreciation and amortization were higher primarily as a result of an increase in depreciation related to assets used to service our obligations under our SASSA contract, which was partially offset by no MediKredit and FIHRST intangible asset amortization as the these intangible assets were fully amortized at the end of June 2013. The tables below present the acquisition-related intangible asset amortization that has been allocated to our operating segments:
Six months ended Nine months ended
Table 12 December 31, March 31,
2013 2012 2014 2013
$ ’000 $ ’000 $ ’000 $ ’000
Amortization included in depreciation and amortization expense: 7,795 9,568 12,453 13,954
South African transaction-based activities 1,044 2,931 2,232 4,003
International transaction-based activities 6,608 6,468 10,013 9,697
Hardware, software and related technology sales 143 169 208 254

Six months ended Nine months ended
Table 13 December 31, March 31,
2013 2012 2014 2013
ZAR ’000 ZAR ’000 ZAR ’000 ZAR ’000
Amortization included in depreciation and amortization expense: 78,569 80,919 129,253 118,024
South African transaction-based activities 10,519 24,783 23,165 33,857
International transaction-based activities 66,615 54,701 103,936 82,015
Hardware, software and related technology sales 1,435 1,435 2,152 2,152
3435
            Interest on surplus cash increased to ~~$6.6~~$10.0 million (ZAR ~~66.1~~103.7 million) from ~~$5.7~~$8.2 million (ZAR ~~48.0~~69.3 million), due primarily to higher average daily ZAR cash balances.
            In US dollars, interest expense decreased to ~~$4.0~~$5.7 million (ZAR ~~40.1~~59.3 million) from ~~$4.1~~$6.1 million (ZAR ~~34.6~~51.7 million) due to a lower average long-term debt ~~balance.~~balance on our Korean debt as well as lower interest rate resulting from our refinancing concluded in October 2013.
            ~~First half~~Year to date fiscal 2014 tax expense was ~~$13.6~~$22.1 million (ZAR ~~136.9~~229.6 million) compared to ~~$6.7~~$7.2 million (ZAR ~~56.7~~60.7 million) in fiscal 2013. Our effective tax rate for fiscal 2014, was ~~35.9%~~34.9% and was higher than the South African statutory rate as a result of non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges). Our effective tax rate for the ~~first half of~~year to date fiscal 2013, was ~~42.2%~~61.6% and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.
      Results of operations by operating segment
            The composition of revenue and the contributions of our business activities to operating income are illustrated below.
Table 14 In United States Dollars (US GAAP) In United States Dollars (US GAAP)
Six months ended December 31, Nine months ended March 31,
2013 % of 2012 % of % 2014 % of 2013 % of %
Operating Segment $ ’000 total $ ’000 total change $’000 total $ ’000 total change
Consolidated revenue:
SA transaction-based activities 135,269 52% 122,128 55% 11% 200,133 50% 181,137 54% 10%
International transaction-based activities 74,105 28% 64,762 29% 14% 109,099 27% 97,881 29% 11%
Smart card accounts 22,566 9% 16,583 7% 36% 33,178 8% 25,240 8% 31%
Financial services 8,626 3% 2,832 1% 205% 19,725 5% 4,483 1% 340%
Hardware, software and related technology sales 20,211 8% 16,819 8% 20% 36,768 10% 25,524 8% 44%
Total consolidated revenue 260,777 100% 223,124 100% 17% 398,903 100% 334,265 100% 19%
Consolidated operating (loss) income:
SA transaction-based activities 26,680 76% 8,333 58% 220% 37,825 64% 4,136 43% 815%
Operating income before amortization 27,724 11,264 40,057 8,139 392%
Amortization of intangible assets (1,044 ) (2,931 ) (2,232 ) (4,003 ) (44% )
International transaction-based activities 3,416 10% 31 - nm
4,738 8% (1,331 ) (14% ) nm
Operating income before amortization 10,024 6,499 14,751 8,366 76%
Amortization of intangible assets (6,608 ) (6,468 ) (10,013 ) (9,697 ) 3%
Smart card accounts 6,431 18% 4,727 33% 36% 9,456 16% 7,194 75% 31%
Financial services 1,783 5% 2,145 15% (17% ) 6,902 12% 3,292 34% 110%
Hardware, software and related technology sales 4,540 13% 2,779 19% 63% 8,540 14% 4,478 47% 91%
Operating income before amortization 4,683 2,948 8,748 4,732 85%
Amortization of intangible assets (143 ) (169 ) (208 ) (254 ) (18% )
Corporate/eliminations (7,648 ) (22% ) (3,718 ) (25% ) 106% (8,310 ) (14% ) (8,198 ) (85% ) 1%
Total consolidated operating income 35,202 100% 14,297 100% 146% 59,151 100% 9,571 100% 518%
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Table 15 In South African Rand (US GAAP) In South African Rand (US GAAP)
Six months ended December 31, Nine months ended March 31,
2013 2012 2014 2013
ZAR % of ZAR % of % ZAR % of ZAR % of %
Operating Segment ’000 total ’000 total change ’000 total ’000 total change
Consolidated revenue:
SA transaction-based activities 1,363,633 52% 1,032,849 55% 32% 2,077,401 50% 1,532,021 54% 36%
International transaction-based activities 747,045 28% 547,699 29% 36% 1,132,459 27% 827,858 29% 37%
Smart card accounts 227,486 9% 140,244 7% 62% 344,391 8% 213,475 8% 61%
Financial services 86,958 3% 23,951 1% 263% 204,747 5% 37,916 1% 440%
Hardware, software and related technology sales 203,745 8% 142,240 8% 43% 381,656 10% 215,877 8% 77%
Total consolidated revenue 2,628,867 100% 1,886,983 100% 39% 4,140,654 100% 2,827,147 100% 46%
Consolidated operating (loss) income:
SA transaction-based activities 268,958 76% 70,473 58% 282% 392,627 64% 34,981 43% 1,022%
Operating income before amortization 279,477 95,256 415,792 68,838 504%
Amortization of intangible assets (10,519 ) (24,783 ) (23,165 ) (33,857 ) (32% )
International transaction-based activities 34,436 10% 262 - nm 49,181 8% (11,257 ) (14% ) nm
Operating income before amortization 101,051 54,963 153,117 70,758 116%
Amortization of intangible assets (66,615 ) (54,701 ) (103,936 ) (82,015 ) 27%
Smart card accounts 64,830 18% 39,977 33% 62% 98,154 16% 60,845 75% 61%
Financial services 17,974 5% 18,140 15% (1% ) 71,643 12% 27,843 34% 157%
Hardware, software and related technology sales 45,767 13% 23,502 19% 95% 88,646 14% 37,874 47% 134%
Operating income before amortization 47,202 24,937 90,798 40,026 127%
Amortization of intangible assets (1,435 ) (1,435 ) (2,152 ) (2,152 ) -
Corporate/eliminations (77,099 ) (22% ) (31,443 ) (25% ) 145% (86,259 ) (14% ) (69,337 ) (85% ) 24%
Total consolidated operating income 354,866 100% 120,911 100% 193% 613,992 100% 80,949 100% 658%
             South African transaction-based activities
            In ZAR, the increases in segment revenue were primarily due to more low-margin transaction fees generated from beneficiaries using the South African National Payment System, incremental prepaid airtime sales driven by the rollout of our ~~Umoya Manje~~prepaid airtime product, and reflect the elimination of inter-company transactions.
            Our operating income margin for fiscal 2014 and 2013 was ~~20%~~19% and 7%2%, respectively, and has increased primarily due to the substantial elimination of SASSA implementation costs in fiscal 2014 and partially offset by the increase in low-margin prepaid airtime sales.
                    South African transaction processors:
            The table below presents the total volume and value processed during the ~~first half of~~year to date fiscal 2014 and 2013:
Table 16
Total volume (‘000s) Total value $ (‘000) Total value ZAR (‘000) Total volume (‘000s) Total value $ (‘000) Total value ZAR (‘000)
Transaction processor 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
CPS 56,863 56,942 5,413,098 6,150,616 54,568,900 52,016,377 85,692 85,669 7,894,032 9,184,743 81,940,837 77,682,718
EasyPay 205,917 213,800 5,540,372 5,706,997 55,851,933 48,264,644 305,623 319,508 7,935,448 8,525,275 82,370,747 72,105,069
Net1 Mobile Solutions (A) 58,631 12,165 4,341,321 4,905,921 43,764,420 41,489,867
Net1 Mobile Solutions (A) . 104,311 18,098 6,233,573 7,289,395 64,705,111 61,652,241
MediKredit 4,838 4,977 401,982 333,066 4,052,336 2,816,769 7,514 7,684 660,132 508,863 6,852,238 4,303,865
            (A) – during fiscal 2014 FIHRST was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent FIHRST only.
            CPS volumes ~~were flat year over year~~moderately increased due to the organic growth in the number of beneficiaries added by SASSA, partially offset by SASSA’s suspension of former grant recipient cardholders who had not presented themselves for enrollment during the ~~first half~~third quarter of fiscal 2014. EasyPay volumes have decreased due to fewer sales of prepaid airtime, but the decrease was partially offset by an increase in transaction switching and other value-added services. Net1 Mobile Solutions volumes ~~and values~~ have increased primarily due to the launch of ~~Umoya Manje~~prepaid airtime product in fiscal 2014.
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             International transaction-based activities
            Revenue increased primarily due to KSNET’s revenue growth during the ~~first half of~~year to date fiscal 2014 and was partially offset by the expiration and non-renewal of NUETS’ contract with its Iraqi customer in the third quarter of fiscal 2013. Operating income during the ~~first half of~~year to date fiscal 2014 was higher due to increase in revenue contribution from KSNET, but partially offset by the loss of the NUETS Iraqi contract as well as ongoing losses related to our XeoHealth launch in the United States and at Net1 Virtual Card, as well as ongoing competition in the Korean marketplace.
            Operating income margin for the ~~first half of~~year to date fiscal 2014 and 2013 was 5%4% and 0%(1)%, respectively (excluding intangible amortization, 14% and ~~10%~~9%, respectively.)
             Smart card accounts
            In ZAR, our revenue from this operating segment was higher because the number of smart card-based accounts has increased as a result of full implementation of the SASSA contract. Operating income margin from providing smart card accounts for the ~~first half of~~year to date fiscal 2014 and 2013 was ~~28%~~29% and 29%, respectively.
            In ZAR, revenue from the provision of smart card-based accounts increased in proportion to the increased number of recipients serviced through our SASSA contract. Approximately 9.6 million smart card-based accounts were active at ~~December~~March 31, ~~2013~~2014 compared to approximately ~~6.2~~6.5 million active accounts as at ~~December~~March 31, ~~2012.~~2013.
             Financial services
            Revenue increased primarily due to the increase in the number of loans granted as we rolled out our product nationally. Operating income decreased primarily as a result of related start-up expenses, establishment of the allowance for doubtful finance loans receivable and the re-allocation of UEPS-based lending corporate and administration overhead expenses to this segment. Smart Life did not contribute to operating income in the ~~first half of~~year to date fiscal 2014 due to the FSB suspension.
            ~~First half of~~Year to date fiscal 2014 includes the re-allocation of UEPS-based lending corporate administration and overhead expenses to this segment from the South African transaction-based activities segment. We were not able to accurately quantify these expenses for last year and therefore did not allocate such costs to this segment during the ~~first half of~~year to date fiscal 2013.
            Operating income margin for the financial services segment decreased to ~~21%~~35% from ~~76%~~73%, primarily as a result of the roll-out expenditures, allowance for doubtful finance loans receivable and corporate overhead expense re-allocation described above.
             Hardware, software and related technology sales
            In ZAR, the increase in revenue and operating income resulted from more ad hoc terminal and smart card sales. We continue to expect significant quarter over quarter fluctuations in revenue, operating income and operating margin due to the ad hoc nature of orders in this operating segment.
             Corporate/eliminations
            The increase in our corporate expenses resulted primarily from increases in general corporate legal fees, ~~we incurred in connection with the US government investigations~~executive emoluments and other corporate head office-related expenses purchased from third parties, partially offset by lower US government investigation expenses.
            Our corporate expenses also include expenditure related to compliance with Sarbanes; ~~non-executive~~non-employee directors’ fees; employee and executive salaries and bonuses; stock-based compensation; ~~legal and~~ audit fees; directors and officers insurance premiums; telecommunications expenses; property-related expenditures including utilities, rental, security and maintenance; and elimination entries.
Liquidity and Capital Resources
            At ~~December~~March 31, ~~2013,~~2014, our cash balances were ~~$22.4~~$30.9 million, which comprised mainly ZAR-denominated balances of ZAR ~~8.9~~157.8 million ($~~0.9~~14.9 million), KRW-denominated balances of KRW ~~16.4~~11.2 billion ($~~15.5~~10.5 million) and US dollar-denominated balances of ~~$3.9~~$4.3 million and other currency deposits, primarily euro, of ~~$2.1~~$1.1 million. The decrease in our cash balances from June 30, 2013, was primarily due to the expansion of our UEPS-based lending business, working capital changes, the repayment of a portion of our Korean debt and acquisition of ~~substantially~~ all of the remaining shares of KSNET that we did not already own.
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            We currently believe that our cash and credit facilities are sufficient to fund our future operations for at least the next four quarters.
            We generally invest the surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and surplus cash held by our non-South African companies in the US and European money markets. We have invested surplus cash in Korea in short-term investment accounts at Korean banking institutions.
            Historically, we have financed most of our operations, research and development, working capital, capital expenditures and acquisitions through our internally generated cash. 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.
            ~~During December 2013, we increased our short-term~~We have a ZAR 400 million South African Rand-denominated short-term credit facility with Nedbank Limited, ~~to ZAR 650 million ($61.9 million) through March 31, 2014. The~~a South African bank. This short-term facility comprises of an overdraft facility of up to ZAR ~~500~~250 million and indirect and derivative facilities of up to ZAR 150 million, which includes letters of guarantee, letters of credit and forward exchange contracts. ~~The overdraft facility~~As of ~~ZAR 500 million will revert to ZAR 250 million on~~ March 31, ~~2014. As of December 31, 2013,~~2014, we ~~have used ZAR 254.8 million ($24.3 million) of~~had no amounts outstanding under the overdraft facility ~~to fund our working capital requirements~~ and had utilized ZAR ~~132.0~~143.1 million ($~~12.6 million)~~13.5 million, translated at exchange rates applicable as of March 31, 2014) of the indirect and derivative facilities to support cross-guarantees issued to Nedbank for guarantees issued by Nedbank to various third parties on our behalf. As of March 31, 2014, the interest rate on the overdraft facility was 7.85% . The short-term facility is repayable on demand. Refer to ~~note~~Note 8 to the unaudited condensed consolidated financial statements for more information about the terms of ~~our new short-term~~ South African short-term facility.
            We also have a KRW 10 billion Korean won denominated overdraft facility with Hana Bank, a Korean bank. As of ~~December~~March 31, ~~2013,~~2014, we had no amounts outstanding under the overdraft facility. As of March 31, 2014, the interest rate on the overdraft facility was 4.98% . Any amounts outstanding under this overdraft facility are repayable in full in January 2015. Refer to Note 8 to the unaudited condensed consolidated financial statements for more information about the terms of Korean overdraft facility.
            We have a KRW 85.0 billion Korean won denominated five-year senior secured term loan and revolving credit facility with a group of group of Korean banks. As of March 31, 2014, we had outstanding long-term debt of KRW ~~71.6~~77.2 billion (approximately ~~$67.3~~$71.2 million translated at exchange rates applicable as of ~~December~~March 31, 2013) under credit facilities with a group of Korean banks. In October 2013, we refinanced our Korean long-term debt facility with a new KRW 85.0 billion five-year senior secured term loan and revolving credit facility.2014). The loans bear interest at the Korean CD rate in effect from time to time ~~(2.66%~~(2.65% as of ~~December~~March 31, ~~2013)~~2014) plus a margin of 3.10% for one of the term loan facilities and the revolver and a margin of 2.90% for the other term loan facility. Scheduled repayments of the term loans and loan under the revolving credit facility are as follows: October 2014 (KRW 15 billion), April 2016, 2017 and 2018 (KRW 10 billion each) and October 2018 (KRW 30 billion plus all outstanding loans under our revolving credit facility). Refer to ~~note~~Note 9 to the unaudited condensed consolidated financial statements for more information about the terms of our ~~new~~ long-term Korean facility.
           Cash flows from operating activities
             ~~Second~~Third quarter of fiscal 2014
            Net cash ~~utilized in~~provided by operating activities for the ~~second~~third quarter of fiscal 2014 was ~~$27.2~~$34.6 million (ZAR ~~276.9~~376.2 million) compared to ~~$6.9~~$12.2 million (ZAR ~~60.5~~103.2 million) for the ~~second~~third quarter of fiscal 2013. Excluding the impact of interest received, interest paid under our Korean debt and taxes presented in the table below, the increase in cash from operating activities resulted from improved trading activity, the substantial elimination of implementation costs related to our SASSA contract in fiscal 2014, partially offset by the expansion of our UEPS-based lending book.
            We paid no taxes in South Africa during the third quarter of fiscal 2014. We paid provisional Korean taxes of $1.6 million related to our tax year ended December 31, 2013. During the third quarter of fiscal 2013, we paid first and second provisional South African taxes of $0.47 million (ZAR 4.3 million) and $0.1 million (ZAR 0.7 million), respectively, related to our 2013 tax year and dividend withholding tax of $0.2 million (ZAR 1.9 million). We also paid provisional Korean taxes of $0.9 million related to our tax year ended December 31, 2012.
39
            Taxes paid during the third quarter of fiscal 2014 and 2013 were as follows:
Table 17 Three months ended March 31,
2014 2013 2014 2013
$ $ ZAR ZAR
‘000 ‘000 ‘000 ‘000
First provisional payments - 473 - 4,339
Second provisional tax payment - 82 - 728
Taxation refunds received (36 ) - (400 ) (4 )
Dividend withholding taxation - 213 - 1,871
Total South African taxes paid (36 ) 768 (400 ) 6,934
Foreign taxes paid: primarily Korea 1,606 933 17,330 8,180
             Total tax paid 1,570 1,701 16,930 15,114
            We expect to pay our second provisional payments in South Africa related to our 2014 tax year in the fourth quarter of fiscal 2014.
Year to date fiscal 2014
            Net cash provided by operating activities for the year to date fiscal 2014 was $5.7 million (ZAR 59.1 million) compared to cash provided by operating activities of $31.0 million (ZAR 262.1 million) for the year to date fiscal 2013. Excluding the impact of interest received, interest paid under our Korean debt and taxes presented in the table below, the decrease in cash from operating activities resulted from the expansion of our UEPS-based lending book, ~~and the timing of prefunding related to the January 2014 payment cycle,~~ offset by cash inflows from improved ~~cash generated from operating activities~~trading activity and the substantial elimination of implementation costs related to our SASSA contract in fiscal 2014.
            During the ~~second quarter of fiscal 2014, we paid South African tax of $13.3 million (ZAR 137.8 million) related~~year to our 2013 tax year and $0.2 million (ZAR 2.4 million) related to prior tax years. We also paid provisional Korean taxes of $0.5 million related to our tax year ended December 31, 2013. During the second quarter of fiscal 2013, we paid South African tax of $6.3 million (ZAR 54.4 million) related to our 2013 tax year, $3.1 million (ZAR 27.0 million) related to prior tax years and dividend withholding taxes of $0.4 million (ZAR 3.5 million). We also paid provisional Korean taxes of $0.4 million related to our tax year ended December 31, 2012.
     ~~Taxes paid during the second quarter of fiscal 2014 and 2013 were as follows:~~
Table 17 Three months ended December 31,
2013 2012 2013 2012
$ $ ZAR ZAR
‘000 ‘000 ‘000 ‘000
First provisional payments 13,292 6,284 137,773 54,354
Taxation paid related to prior years 228 3,110 2,360 26,978
Taxation refunds received - (63 ) - (542 )
Dividend withholding taxation - 398 - 3,500
Total South African taxes paid 13,520 9,729 140,133 84,290
Foreign taxes paid: primarily Korea 509 408 5,193 3,533
            Total tax paid 14,029 10,137 145,326 87,823
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~~First half of fiscal 2014~~
     Net cash utilized in operating activities for the first quarter of fiscal 2014 was $28.9 million (ZAR 291.6 million) compared to cash generated from operating activities of $18.8 million (ZAR 159.1 million) for the first half of fiscal 2013. Excluding the impact of interest received, interest paid under our Korean debt and taxes presented in the table below, the decrease in cash from operating activities resulted from the expansion of our UEPS-based lending book and the timing of prefunding related to the January 2014 payment cycle, offset by improved cash generated from operating activities and the substantial elimination of implementation costs related to our SASSA contract in fiscal 2014.
     ~~During the first half of~~date fiscal 2014, we paid South African tax of $13.3 million (ZAR 137.8 million) related to our 2014 tax year and $0.2 million (ZAR 2.4 million) related to prior tax years. We also paid provisional Korean taxes of ~~$1.0~~$2.6 million related to our tax year ended December 31, 2013. During the ~~first half of~~year to date fiscal 2013, we paid first and second provisional South African ~~tax~~taxes of ~~$6.3~~$6.8 million (ZAR ~~54.4~~54.7 million) and $0.08 million (ZAR 0.7 million), respectively, related to our 2013 tax year, $3.1 million (ZAR 27.0 million) related to prior tax years and dividend withholding taxes of ~~$0.4~~$0.6 million (ZAR ~~3.5~~5.4 million). We also paid provisional Korean taxes of ~~$0.8~~$1.7 million related to our tax year ended December 31, 2012.
            Taxes paid during the ~~first half of~~year to date fiscal 2014 and 2013 were as follows:
Table 18 Three months ended December 31, Nine months ended March 31,
2013 2012 2013 2012 2014 2013 2014 2013
$ $ ZAR ZAR $ $ ZAR ZAR
‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000
First provisional payments 13,292 6,284 137,773 54,354 13,292 6,757 137,773 58,693
Second provisional payments - 82 - 728
Taxation paid related to prior years 228 3,110 2,360 26,978 228 3,110 2,360 26,978
Taxation refunds received - (118 ) - (1,006 ) (36 ) (118 ) (400 ) (1,010 )
Dividend withholding taxation - 398 - 3,500 - 611 - 5,371
Total South African taxes paid 13,520 9,674 140,133 83,826 13,484 10,442 139,733 90,760
Foreign taxes paid: primarily Korea 1,007 805 10,177 6,812 2,613 1,738 27,507 14,992
Total tax paid 14,527 10,479 150,310 90,638 16,097 12,180 167,240 105,752
      Cash flows from investing activities
             ~~Second~~Third quarter of fiscal 2014
            Cash used in investing activities for the ~~second~~third quarter of fiscal 2014 includes capital expenditure of ~~$6.8~~$4.8 million (ZAR ~~69.5~~52.7 million), primarily for the acquisition of payment processing terminals in Korea.
            Cash used in investing activities for the ~~second~~third quarter of fiscal 2013 includes capital expenditure of ~~$5.6~~$5.1 million (ZAR ~~47.5~~46.7 million), primarily for ~~payment vehicles and related~~computer equipment for our ~~new~~ SASSA contract and acquisition of payment processing terminals in Korea. ~~During the second quarter of fiscal 2013 we paid, net of cash acquired, $0.2 million for SmartSwitch Botswana.~~
40
             ~~First half of~~Year to date fiscal 2014
            Cash used in investing activities for the ~~first half of~~year to date fiscal 2014 includes capital expenditure of ~~$12.5~~$17.3 million (ZAR ~~125.6~~178.9 million), primarily for the acquisition of payment processing terminals in Korea.
            Cash used in investing activities for the ~~first half of~~year to date fiscal 2013 includes capital expenditure of ~~$12.1~~$17.1 million (ZAR ~~101.9~~144.7 million), primarily for computer equipment, payment vehicles and related equipment for our ~~new~~ SASSA contract and acquisition of payment processing terminals in Korea. During the ~~first half of~~year to date fiscal 2013 we paid, net of cash acquired, $1.9 million (ZAR 16.2 million) for ~~Pbel~~Net1 Mobile Solutions and $0.2 million for SmartSwitch Botswana.
      Cash flows from financing activities
             ~~Second~~Third quarter of fiscal 2014
            During the ~~second~~third quarter of fiscal 2014, we utilized approximately $1.0 million of our Korean borrowings to pay quarterly interest due.
            There were no cash flows from financing activities during the third quarter of fiscal 2013.
Year to date fiscal 2014
            During the year to date fiscal 2014, we refinanced our Korean debt and received ~~$85~~$87 million from Korean banks. WeIn October 2013, we used ~~$71.6~~$72.6 million of these new borrowings and ~~$15.4~~$14.4 million of our surplus cash to repay the $87.0 million due under our old facility. In addition, we paid the facility fees related to our new Korean borrowings of approximately $0.9 million. In January 2014, we utilized approximately $1.0 million of these new borrowings to pay quarterly interest due in ~~October 2013.~~Korea.
            We ~~also~~ paid approximately $2.0 million for substantially all of the shares of KSNET we did not already own during the second quarter of fiscal 2014. As discussed above, we utilized our South African short-term facility during the year to date fiscal 2014 and owe approximately $37.8 million as of March 31, 2014.
            During the ~~second quarter of~~year to date fiscal 2013, we made a scheduled $7.3 million long-term debt ~~repayment.~~
39
~~First half of fiscal 2014~~
     ~~We had no cash flows from financing activities for the first half of fiscal 2014, except as described above.~~
     ~~In addition to the cash flows from financing activities during the second quarter of fiscal 2013 described above, during the first half of fiscal 2013, we~~repayment and received $0.2 million from the exercise of stock options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Capital Expenditures
            We expect capital spending for the ~~third~~fourth quarter of fiscal 2014 to primarily include the acquisition of payment terminals for the expansion of our operations in Korea.
            Our historical capital expenditures for the ~~second~~third quarter of fiscal 2014 and 2013 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 ~~December~~March 31, ~~2013,~~2014, of $0.1 million related mainly to computer equipment. We expect to fund these expenditures through internally-generated funds.
41
Contingent Liabilities, Commitments and Contractual Obligations
            The following table sets forth our contractual obligations as of ~~December~~March 31, ~~2013:~~2014:
Table 19 Payments due by Period, as of December 31, 2013 (in $ ’000s) Payments due by Period, as of March 31, 2014 (in $ ’000s)
Less More Less More
than 1 1-3 3-5 than 5 than 1 1-3 3-5 than 5
Total year years years years Total year years years years
Long-term debt obligations (A) 85,794 18,094 25,067 42,633 - 84,420 17,820 24,869 41,731 -
Bank overdraft 24,256 24,256 - - -
Operating lease obligations 9,133 4,098 4,327 708 - 7,853 3,787 3,742 324 -
Purchase obligations 8,125 8,125 - - - 6,507 6,507 - - -
Capital commitments 114 114 - - - 125 125 - - -
Other long-term obligations (B)(C) 20,131 - - - 20,131 20,117 - - - 20,117
Total 147,553 54,687 29,394 43,341 20,131 119,022 28,239 28,611 42,055 20,117

(A)
– Includes ~~$71.6~~$72.1 million of long-term debt and interest payable at the rate applicable on ~~December~~March 31, ~~2013,~~2014, under our Korean debt facility.
(B)
– Includes policy holder liabilities of ~~$19.5~~$19.3 million related to our insurance business.
(C)
– We have excluded cross-guarantees in the aggregate amount of ~~$12.6~~$13.5 million issued as of ~~December~~March 31, ~~2013,~~2014, to Nedbank to secure guarantees it has issued to third parties on our behalf as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
            In addition to the tables below, see note 5 to the unaudited condensed consolidated financial statements for a discussion of market risk.
            The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of ~~December~~March 31, ~~2013,~~2014, as a result of changes in the Korean ~~CD rate and our South African overdraft facility interest rate.~~CD. The effect of a hypothetical 1% increase and a 1% decrease in each of the Korean CD rate ~~and the agreed South African overdraft facility interest rate~~ as of ~~December~~March 31, ~~2013,~~2014, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.
As of December 31, 2013 As of March 31, 2014
Table 20 Hypothetical Estimated annual Hypothetical Estimated annual
change in expected interest change in expected interest
Korean CD charge after Korean CD charge after
rate or South hypothetical change in rate or South hypothetical change in
Annual Africa Korean CD rate or Annual Africa Korean CD rate or
expected overdraft South African expected overdraft South African
interest facility rate, overdraft facility rate, interest facility rate, overdraft facility rate,
charge as as appropriate charge as as appropriate
($ ’000) appropriate ($ ’000) ($ ’000) appropriate ($ ’000)
Interest on Korean long-term debt 4,103 1% 4,818 4,125 1% 4,845
(1% ) 3,387 (1% ) 3,404

Interest on South African overdraft 1,783 1% 2,025
facility (1% ) 1,540
             The following table summarizes our exchange-traded equity securities with equity price risk as of ~~December~~March 31, ~~2013.~~2014. The effects of a hypothetical 10% increase and a 10% decrease in market prices as of ~~December~~March 31, ~~2013,~~2014, is also shown. The selected 10% hypothetical change does not reflect what could be considered the best or worst case scenarios. Indeed, results could be far worse due both to the nature of equity markets and the aforementioned liquidity risk.
As of December 31, 2013 As of March 31, 2014
Table 21
Hypothetical Hypothetical
Estimated fair Percentage Estimated fair Percentage
value after Increase value after Increase
Fair hypothetical (Decrease) in Fair hypothetical (Decrease) in
value Hypothetical change in price Shareholders’ value Hypothetical change in price Shareholders’
($ ’000) price change ($ ’000) Equity ($ ’000) price change ($ ’000) Equity
Exchange-traded equity securities 7,721 10% 8,493 0.21% 7,662 10% 8,428 0.20%
(10% ) 6,949 (0.21% ) (10% ) 6,896 (0.20% )
Item 4. Controls and Procedures
       Evaluation of disclosure controls and procedures
            Under the supervision and with the participation of our management, including our 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) promulgated under the Securities Exchange Act of 1934, as amended, as of ~~December~~March 31, ~~2013.~~2014. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the chief executive officer and the chief financial officer concluded that our disclosure controls and procedures were effective as of ~~December~~March 31, ~~2013.~~2014.
Changes in Internal Control over Financial Reporting
            There have not been any changes in our internal control over financial reporting during the fiscal quarter ended ~~December~~March 31, ~~2013,~~2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
~~AllPay Challenge to Tender Award~~Constitutional Court pronounces remedy for SASSA tender award
            On ~~November 29, 2013,~~April 17, 2014, the South African Constitutional Court, ~~ruled~~the highest court in South Africa, issued its ruling on an appropriate remedy following its declaration on November 29, 2013, that the tender process followed by SASSA in awarding a ~~five-year social welfare grants distribution~~ contract to us was constitutionally invalid. ~~However, the~~The Constitutional Court ~~suspended its~~upheld the declaration of invalidity ~~pending determination~~of our SASSA contract, but suspended such declaration until the awarding of a ~~just and equitable remedy. The grant of a just and equitable remedy was reserved pending a further hearing, which has been set~~new tender by SASSA in accordance with the ruling or if no tender is awarded, for ~~February 11, 2014. As ordered by~~ the Constitutional Court, we the parties have submitted additional information on affidavit. The Constitutional Court also ordered the CEO of SASSA, SASSA and us to pay costs, including the cost of three counsel, in the High Court, the South African Supreme Court of Appeal and the Constitutional Court to AllPay Consolidated Investment Holdings Limited, or AllPay.
     ~~We cannot predict what the outcome~~remainder of the ~~February 2014 hearing will be or when the Constitutional Court will issue its ruling regarding an appropriate remedy. Our SASSA~~existing five-year contract ~~remains in full force and effect until the Constitutional Court determines an appropriate remedy.~~period, as further described below.
            The Constitutional Court ordered SASSA to initiate a new tender process within 30 days after the ruling. The request for proposals for the new tender must contain adequate safeguards to ensure that no loss of lawful existing social grants occurs, the payment of lawful existing grants is not interrupted, and personal data obtained in the ~~highest court~~payment process remains private and may not be used in ~~South Africa and this judgment follows an appeal by AllPay, an unsuccessful bidder, against the unanimous judgment~~any manner for any purpose other than payment of grants or for any purpose sanctioned by the ~~South African Supreme~~Minister of Social Development. The new tender must be for a period of five years and a new and independent Bid Evaluation and Bid Adjudication Committee must be appointed to evaluate and adjudicate the new tender process. Their evaluation and adjudication must be made public by filing, with the Registrar of the Constitutional Court, a status report on the first Monday of ~~Appeal on March 27, 2013,~~every quarter of the year until completion of the process.
            The Constitutional Court further ruled that if SASSA does not award a new tender, the declaration of invalidity of our current SASSA contract will be further suspended until completion of the five-year year period for which the contract was originally awarded. In this event, SASSA must, within 14 days of its decision not to award the tender, ~~process~~lodge a report to the Registrar of the Constitutional Court setting out all the relevant information on whether and when it will be ready to assume the duty to pay grants itself. Furthermore, our wholly owned subsidiary that won the 2012 tender, namely Cash Paymaster Services Proprietary Limited, must in this event file with the Constitutional Court an audited statement of expenses incurred, income received and net profit earned by it during the five year completed contract period, which statement must also be verified by an independent auditor appointed by SASSA and filed with the Constitutional Court. Finally, AllPay was ~~valid and legal.~~
~~Securities Litigation~~
     ~~On December 24, 2013, Net1, our chief executive officer~~ordered to pay SASSA’s and our ~~chief financial officer were named as defendants~~costs in ~~a purported class action lawsuit filed~~relation to the application to lead further evidence brought in the United States District Court for the Southern District of New York alleging violations of the federal securities laws. The lawsuit alleges that we made materially false and misleading statements regarding our business and compliance policies in our SEC filings and other public disclosures. The lawsuit was brought on behalf of a purported shareholder of Net1main merits application and all ~~other similarly situated shareholders who purchased our securities between August 27, 2009 and November 27, 2013. The lawsuit seeks unspecified damages. We believe this lawsuit has no merit and intend~~parties were ordered to ~~defend~~pay their own costs related to the provision of further evidence to the Constitutional Court in order for it ~~vigorously.~~to determine the ruling described above.
Item 1A. Risk Factors
            See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, for a discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government regulation, and (iv) our common stock. Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013.
            The South African Constitutional Court has ordered SASSA to run a new tender process for the payment of social grants. As a result, ~~of the Constitutional Court’s ruling that SASSA’s tender process was constitutionally invalid,~~ we cannot predict whether our SASSA contract will remain ~~effective~~in effect for the remainder of its five-year term. We derive a substantial portion of our revenues from this contract and iffrom the provision of financial and other services to our cardholder base. If we were to lose ~~it,~~our SASSA contract, our business would suffer significantly.
            On ~~November 29, 2013,~~April 17, 2014, the South African Constitutional Court ~~ruled~~issued its ruling on an appropriate remedy following its declaration on November 29, 2013 that the tender process followed by SASSA in awarding a ~~five-year social welfare grants distribution~~ contract to us ~~in January 2012~~ was constitutionally invalid. ~~However,~~In its ruling, the Constitutional Court ~~suspended its~~upheld the declaration of invalidity ~~pending determination~~ of ~~a just and equitable remedy. The grant of a just and equitable remedy was reserved pending a further hearing, which is scheduled for February 11, 2014. Although~~ our SASSA contract, ~~remains in full force and effect~~but suspended such declaration until the awarding of a new tender by SASSA in accordance with the ruling or if no tender is awarded, for the remainder of the existing five-year contract period, as further described below.
            The Constitutional Court ~~determines an appropriate remedy, we~~ordered SASSA to initiate a new tender process within 30 days after the ruling. The new tender must be for a period of five years and a new and independent Bid Evaluation and Bid Adjudication Committee must be appointed to evaluate and adjudicate the new tender process. The Constitutional Court further ruled that if SASSA does not award a new tender, the declaration of invalidity of our current SASSA contract will be further suspended until completion of the five-year year period for which the contract was originally awarded.
            We cannot predict what the timing or outcome of the ~~February 2014 hearing~~new tender process will be, or ~~when the Constitutional Court will issue its ruling regarding an appropriate remedy.~~
     ~~If the Constitutional Court decides that an appropriate remedy would be to set aside our contract, SASSA may be required to conduct~~if a new tender ~~process,~~award will be made at all after the new tender process. We intend to participate in the new tender, which ~~would~~will consume a substantial portion of our management’s time and ~~attention as well as create uncertainty regarding~~attention. If SASSA awards the ~~timing and ultimate outcome of any such~~new tender ~~process. We could be required~~ to continue providing our payment service to SASSA during such a tender period. In addition, we have made major capital investments to implement this contract. If our contract were to be set aside, it is likely thatanother bidder, we would ~~suffer a significant loss on these investments.~~lose the benefit of the remaining portion of our contract.
4244
            IfIn addition, our SASSA contract has enabled us to offer a variety of innovative financial and other services, such as UEPS-based loans and procurement of prepaid airtime, to our social welfare recipient cardholders. Although we ~~do not complete~~believe that our ~~BEE transactions,~~offerings frequently represent the lowest-cost alternative for our ~~business~~customers for these types of services, if were to lose our SASSA contract, it might be less convenient for our cardholder customers to purchase these services from us and ~~stock price~~thus, we may ~~suffer.~~
     ~~On December 10, 2013, we entered into definitive agreements relating to two Black Economic Empowerment,~~have difficulty growing or ~~BEE, transactions, pursuant to which we have agreed to sell to two BEE partners an aggregate of 4,400,000 shares~~even maintaining this aspect of our common stock at a price of ZAR 60.00 per share. Closing of these BEE transactions is subject to the satisfaction of certain conditions contained in the transaction agreements, including receipt of any required regulatory approvals (including approval of the South African Reserve Bank) and the finalization of ancillary agreements. Closing of one transaction is not contingent on the closing of the other transaction. As of January 31, 2014, the closing conditions had not yet been met and therefore the parties extended the date to satisfy all closing conditions to March 15, 2014. We cannot predict whether or when the closing conditions will be satisfied.
     ~~We entered into these BEE transactions as part of~~business, which would negatively affect our ongoing efforts to strengthen the development of our business plan, and in compliance with South African regulation and business practice. We expect that completion of the transactions will help us achieve applicable BEE objectives. However, if we are unable to complete the transactions, we would not achieve these expected benefits and our business could be adversely impacted. In addition, we are lending the BEE partners the purchase price for the shares and are relying in part on the future appreciation of our stock price to enable the BEE partners to repay the loans. We also cannot predict how the announcement of the completion or non-completion of the transactions will affect the trading price of our common stock.operating performance.
~~Item 5. Other Information~~
     On January 31, 2014, we signed an addendum to each of the Relationship Agreements discussed in note 10 to our unaudited condensed consolidated financial statements in order to extend the date to meet all conditions contained in the Relationship Agreements from January 31, 2014 to March 15, 2014.
Item 6. Exhibits
            The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit Included
No. Description of Exhibit Herewith Form Exhibit Filing Date

10.25 Relationship Agreement dated December 10, 2013 between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Business Venture Investments No 1567 (Proprietary) Limited (RF) and Mosomo Investment Holdings (Proprietary) Limited. 8-K 10.25 December 10, 2013
10.26 Relationship Agreement dated December 10, 2013 between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Born Free Investments 272 (Pty) Ltd and Mazwi Yako. 8-K 10.26 December 10, 2013
10.27 Facility Letter between Nedbank Limited and Net1 Applied Technologies South Africa Limited and certain of its subsidiaries dated as of December 13, 2013 and First Addendum thereto dated as of December 18, 2013 8-K 10.27 December 19, 2013
10.28 Addendum dated January 31, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Business Venture Investments No 1567 (Proprietary) Limited (RF) and Mosomo Investment Holdings (Proprietary) Limited. X
43

~~10.29~~ Addendum dated January 31, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Born Free Investments 272 (Pty) Ltd and Mazwi Yako. X
~~31.1~~ ~~Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act~~ X
~~31.2~~ ~~Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act~~ X
32 ~~Certification pursuant to 18 USC Section 1350~~ 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
Incorporated by Reference Herein
Exhibit Included
No. Description of Exhibit Herewith Form Exhibit Filing Date
10.30 Second Addendum dated March 14, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Business Venture Investments No 1567 (Proprietary) Limited (RF) and Mosomo Investment Holdings (Proprietary) Limited. 8-K 10.30 March 18, 2014
10.31 Second Addendum dated March 14, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Born Free Investments 272 (Pty) Ltd and Mazwi Yako. 8-K 10.31 March 18, 2014
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act X
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act X
32 Certification pursuant to 18 USC Section 1350 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
SIGNATURES
            Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~February 6,~~May 8, 2014.
Net 1 UEPS Technologies, Inc. - Form 10-Q -
NET 1 UEPS TECHNOLOGIES, INC.
By: /s/ Dr. Serge C.P. Belamant
Dr. Serge C.P. Belamant
Chief Executive Officer, Chairman of the Board and Director
By: /s/ Herman Gideon Kotzé
Herman Gideon Kotzé
Chief Financial Officer, Treasurer and Secretary, Director
4445

				Accumulated			Carrying
		Gross value		impairment			value
Balance as of June 30, 2013	$	218,558	$	(42,752	)	$	175,806
Foreign currency adjustment⁽¹⁾		7,383		(2,078	)		5,305
Balance as of December 31, 2013	$	225,941		($44,830	)	$	181,111

		As of		As of
		December 31,		June 30,
		2013		2013
SA transaction-based activities	$	28,749	$	30,525
International transaction-based activities		122,538		113,972
Smart card accounts		-		-
Financial services		-		-
Hardware, software and related technology sales		29,824		31,309
Total	$	181,111	$	175,806

		As of December 31, 2013							As of June 30, 2013
		Gross					Net		Gross					Net
		carrying		Accumulated			carrying		carrying		Accumulated			carrying
		value		amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships	$	95,000	$	(35,332	)	$	59,668	$	90,469	$	(29,818	)	$	60,651
Software and unpatented technology		36,116		(25,531	)		10,585		34,951		(22,151	)		12,800
FTS patent		3,648		(3,648	)		-		3,873		(3,873	)		-
Exclusive licenses		4,506		(4,506	)		-		4,506		(4,506	)		-
Trademarks		6,721		(3,100	)		3,621		6,611		(2,805	)		3,806
Customer database		579		(579	)		-		614		(614	)		-
Total finite-lived intangible assets	$	146,570	$	(72,696	)	$	73,874	$	141,024	$	(63,767	)	$	77,257

		As of March 31, 2014							As of June 30, 2013
		Gross					Net		Gross					Net
		carrying		Accumulated			carrying		carrying		Accumulated			carrying
		value		amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships	$	94,309	$	(37,373	)	$	56,936	$	90,469	$	(29,818	)	$	60,651
Software and unpatented technology		35,851		(27,512	)		8,339		34,951		(22,151	)		12,800
FTS patent		3,620		(3,620	)		-		3,873		(3,873	)		-
Exclusive licenses		4,506		(4,506	)		-		4,506		(4,506	)		-
Trademarks		6,671		(2,681	)		3,990		6,611		(2,805	)		3,806
Customer database		574		(574	)		-		614		(614	)		-
Total finite-lived intangible assets	$	145,531	$	(76,266	)	$	69,265	$	141,024	$	(63,767	)	$	77,257

2014	$	15,793	$	16,229
2015		15,742		15,080
2016		11,361		11,280
2017		9,023		8,958
2018		9,023		8,958
Thereafter	$	20,823	$	20,671

		Reinsurance			Insurance
		assets (1)			contracts (2)
Balance as of June 30, 2013	$	19,557		$	(19,711	)
Foreign currency adjustment⁽³⁾		(1,138	)		1,147
Balance as of December 31, 2013	$	18,419		$	(18,564	)

		Reinsurance			Insurance
		assets (1)			contracts (2)
Balance as of June 30, 2013	$	19,557		$	(19,711	)
Foreign currency adjustment⁽³⁾		(1,276	)		1,287
Balance as of March 31, 2014	$	18,281		$	(18,424	)

	(1)	Included in other long-term assets.
	(2)	Included in other long-term liabilities.
	(3)	The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.

					Investment
		Assets (1)			contracts (2)
Balance as of June 30, 2013	$	953		$	(953	)
Foreign currency adjustment⁽³⁾		(56	)		56
Balance as of December 31, 2013	$	897		$	(897	)

		Six months ended
		December 31, 2013
					Net
					unrealized
					income
					(loss) on
		Foreign			asset
		currency			available
		translation			for sale, net
		reserve			of tax			Total
		‘000			‘000			‘000
Balance as of June 30, 2013	$	(101,188	)	$	330		$	(100,858	)
Movement in foreign currency translation reserve		4,794			-			4,794
Unrealized loss on asset available for sale, net of tax of $15		-			(39	)		(39	)
Balance as of December 31, 2013	$	(96,394	)	$	291		$	(96,103	)

					Nine months ended
					March 31, 2014
					Net
					unrealized
					income
					(loss) on
		Foreign			asset
		currency			available
		translation			for sale, net
		reserve			of tax		Total
		‘000			‘000		‘000
Balance as of June 30, 2013	$	(101,188	)	$	330	$	(100,858	)
Movement in foreign currency translation reserve		2,660			-		2,660
Unrealized loss on asset available for sale, net of tax of $112		-			288		288
Balance as of March 31, 2014	$	(98,528	)	$	618	$	(97,910	)

				Weighted		Weighted
			Weighted	Average		Average
			average	Remaining	Aggregate	Grant
			exercise	Contractual	Intrinsic	Date Fair
	Number of		price	Term	Value	Value
	shares		($)	(in years)	($’000)	($)

Outstanding – June 30, 2013	2,648,583		15.15	5.98	313
Granted under Plan: August 2013	224,896		7.35	10.00	568	2.53
Outstanding – December 31, 2013	2,873,479		14.54	5.79	1,037

Outstanding – June 30, 2012	2,247,583		16.28	6.43	602
Granted under Plan: August 2012	431,000		8.75	10.00	1,249	2.90
Exercised	(30,000	)	7.98		24
Outstanding – December 31, 2012	2,648,583		15.15	6.74	978

	Three and six months ended
	December 31,
	2013	2012
Expected volatility	50%	49%
Expected dividends	0%	0%
Expected life (in years)	3	3
Risk-free rate	0.9%	0.3%

	Three and nine months ended
	March 31,
	2014	2013
Expected volatility	50%	49%
Expected dividends	0%	0%
Expected life (in years)	3	3
Risk-free rate	0.9%	0.3%

					Allocated to cost
					of goods sold, IT		Allocated to
					processing,		selling, general
		Total			servicing and		and
		charge			support		administration
Three months ended December 31, 2013
Stock-based compensation charge	$	974			-	$	974
Reversal of stock compensation charge related to restricted stock forfeited		(6	)		-		(6	)
Total – three months ended December 31, 2013 .	$	968		$	-	$	968

Three months ended December 31, 2012
Stock-based compensation charge	$	1,117		$	-	$	1,117
Total – three months ended December 31, 2012 .	$	1,117		$	-	$	1,117

Table 1	Three months ended		Six months ended		Year ended	Three months ended			Nine months ended		Year ended
	December 31,		December 31,		June 30,	March 31,			March 31,		June 30,
	2013	2012	2013	2012	2013	2014	2013		2014	2013	2013
ZAR : $ average exchange rate	10.1603	8.7029	10.0809	8.4836	8.8462	10.8622	8.9461	��	10.3375	8.6355	8.8462
Highest ZAR : $ rate during period	10.5730	9.0047	10.5730	9.0047	10.3587	11.2667	9.3645		11.2667	9.3645	10.3587
Lowest ZAR : $ rate during period	9.7143	8.1933	9.5436	8.0444	8.0444	10.4848	8.4067		9.6324	8.0444	8.0444
Rate at end of period	10.5037	8.4875	10.5037	8.4875	9.8925	10.5833	9.2451		10.5833	9.2451	9.8925

KRW : $ average exchange rate	1,065	1,095	1,089	1,116	1,112	1,071	1,090		1,083	1,107	1,112
Highest KRW : $ rate during period	1,077	1,116	1,152	1,156	1,162	1,089	1,126		1,168	1,156	1,162
Lowest KRW : $ rate during period	1,031	1,039	1,031	1,039	1,019	1,053	1,019		1,052	1,019	1,019
Rate at end of period	1,063	1,068	1,063	1,068	1,144	1,071	1,121		1,071	1,121	1,144

Table 2	Three months ended		Six months ended		Year ended	Three months ended		Nine months ended		Year ended
	December 31,		December 31,		June 30,	March 31,		March 31,		June 30,
	2013	2012	2013	2012	2013	2014	2013	2014	2013	2013
Income and expense items: $1 = ZAR .	10.1592	8.7405	10.0809	8.4571	8.7105	10.8743	8.4662	10.3801	8.4578	8.7105
Income and expense items: $1 = KRW	1,021	1,084	1,087	1,111	1,072	1,070	1,113	1,076	1,112	1,072
		-		-
Balance sheet items: $1 = ZAR	10.5037	8.4875	10.5037	8.4875	9.8925	10.5833	9.2451	10.5833	9.2451	9.8925
Balance sheet items: $1 = KRW	1,063	1,068	1,063	1,068	1,144	1,071	1,121	1,071	1,121	1,144

	In United States Dollars					In United States Dollars
Table 3	(US GAAP)					(US GAAP)
	Three months ended December 31,					Three months ended March 31,
	2013	2012		$ %		2014		2013		$%
	$ ’000	$ ’000		change		$ ’000		$ ’000		change
Revenue	137,283	111,442		23%		138,126		111,141		24%
Cost of goods sold, IT processing, servicing and support	67,883	47,227		44%		63,149		51,461		23%
Selling, general and administration	40,824	48,756		(16%	)	40,586		53,846		(25%	)
Depreciation and amortization	9,774	10,487		(7%	)	10,442		10,560		(1%	)
Operating income	18,802	4,972		278%
Operating income (loss)						23,949		(4,726	)	nm
Interest income	3,236	2,589		25%		3,438		2,515		37%
Interest expense	2,226	2,023		10%		1,734		2,023		(14%	)
Income before income tax expense	19,812	5,538		258%
Income (loss) before income tax expense						25,653		(4,234	)	nm
Income tax expense	7,099	2,971		139%		8,535		472		1,708%
Net income before earnings from equity-accounted investments	12,713	2,567		395%
Net income (loss) before earnings from equity-accounted investments						17,118		(4,706	)	nm
Earnings from equity-accounted investments	47	54		(13%	)	52		22		136%
Net income	12,760	2,621		387%
Less (Add) net income (loss) attributable to non-controlling interest	11	(8	)	nm
Net income attributable to us	12,749	2,629		385%
Net income (loss)						17,170		(4,684	)	nm
Add net loss attributable to non-controlling interest						(12	)	(3	)	300%
Net income (loss) attributable to us						17,182		(4,681	)	nm

	In South African Rand					In South African Rand
Table 4	(US GAAP)					(US GAAP)
	Three months ended December 31,					Three months ended March 31,
	2013	2012				2014		2013
	ZAR	ZAR		ZAR %		ZAR		ZAR		ZAR %
	’000	’000		change		’000		’000		change
Revenue	1,394,685	974,058		43%		1,502,024		940,942		60%
Cost of goods sold, IT processing, servicing and support	689,636	412,787		67%		686,701		435,680		58%
Selling, general and administration	414,740	426,152		(3%	)	441,345		455,871		(3%	)
Depreciation and amortization	99,296	91,661		8%		113,549		89,403		27%
Operating income	191,013	43,458		340%
Operating income (loss)						260,429		(40,012	)	nm
Interest income	32,875	22,629		45%		37,386		21,292		76%
Interest expense	22,614	17,682		28%		18,856		17,127		10%
Income before income tax expense	201,274	48,405		316%
Income (loss) before income tax expense						278,959		(35,847	)	nm
Income tax expense	72,120	25,968		178%		92,812		3,996		2,223%
Net income before earnings from equity-accounted investments	129,154	22,437		476%
Net income (loss) before earnings from equity-accounted investments						186,147		(39,843	)	nm
Earnings from equity-accounted investments	477	472		1%		565		186		204%
Net income	129,631	22,909		466%
Less (Add) net income (loss) attributable to non-controlling interest	112	(70	)	nm
Net income attributable to us	129,519	22,979		464%
Net income (loss)						186,712		(39,657	)	nm
Add net loss attributable to non-controlling interest						(130	)	(25	)	420%
Net income (loss) attributable to us						186,842		(39,632	)	nm

	Three months ended		Three months ended
Table 5	December 31,		March 31,
	2013	2012	2014	2013
	$ ’000	$ ’000	$ ’000	$ ’000
Amortization included in depreciation and amortization expense:	4,107	4,861	4,587	4,384
South African transaction-based activities	518	1,465	1,163	1,070
International transaction-based activities	3,518	3,313	3,358	3,228
Hardware, software and related technology sales	71	83	66	86

	Three months ended		Three months ended
Table 6	December 31,		March 31,
	2013	2012	2014	2013
	ZAR ’000	ZAR ’000	ZAR ’000	ZAR ’000
Amortization included in depreciation and amortization expense:	41,719	42,485	49,881	37,113
South African transaction-based activities	5,262	12,811	12,648	9,067
International transaction-based activities	35,740	28,957	36,516	27,329
Hardware, software and related technology sales	717	717	717	717

Table 7	*In United States Dollars (US GAAP)*									*In United States Dollars (US GAAP)*
	Three months ended December 31,									Three months ended March 31,
	2013		% of		2012		% of		%	2014		% of		2013		% of		%
Operating Segment	$ ’000		total		$ ’000		total		change	$ ’000		total		$ ’000		total		change
Consolidated revenue:
SA transaction-based activities	72,237		53%		60,764		55%		19%	64,864		47%		59,009		53%		10%
International transaction-based activities	37,288		27%		33,113		30%		13%	34,994		25%		33,119		30%		6%
Smart card accounts	11,237		8%		8,219		7%		37%	10,612		8%		8,657		8%		23%
Financial services	6,199		5%		1,448		1%		328%	11,099		8%		1,651		1%		572%
Hardware, software and related technology sales	10,322		7%		7,898		7%		31%	16,557		12%		8,705		8%		90%
Total consolidated revenue	137,283		100%		111,442		100%		23%	138,126		100%		111,141		100%		24%
Consolidated operating (loss) income:
SA transaction-based activities	13,398		71%		1,933		39%		593%	11,145		47%		(4,197	)	89%		(366%	)
Operating income before amortization	13,916				3,398					12,308				(3,127	)			nm
Amortization of intangible assets	(518	)			(1,465	)				(1,163	)			(1,070	)			9%
International transaction-based activities	1,365		7%		202		4%		576%	1,322		6%		(1,362	)	29%		nm
Operating income before amortization	4,883				3,515					4,680				1,866				151%
Amortization of intangible assets	(3,518	)			(3,313	)				(3,358	)			(3,228	)			4%
Smart card accounts	3,203		17%		2,342		47%		37%	3,025		13%		2,467		(52%	)	23%
Financial services	1,727		9%		1,048		21%		65%	5,119		21%		1,147		(24%	)	346%
Hardware, software and related technology sales	1,592		8%		795		16%		100%	4,000		17%		1,699		(36%	)	135%
Operating income before amortization	1,663				878					4,066				1,785				128%
Amortization of intangible assets	(71	)			(83	)				(66	)			(86	)			(23%	)
Corporate/eliminations	(2,483	)	(12%	)	(1,348	)	(27%	)	84%	(662	)	(4%	)	(4,480	)	94%		(85%	)
Total consolidated operating income	18,802		100%		4,972		100%		278%
Total consolidated operating income (loss)										23,949		100%		(4,726	)	100%		nm

Table 8	*In South African Rand (US GAAP)*										*In South African Rand (US GAAP)*
	Three months ended December 31,										Three months ended March 31,
	2013					2012					2014				2013
	ZAR			% of		ZAR		% of		%	ZAR		% of		ZAR		% of		%
Operating Segment	’000			total		’000		total		change	’000		total		’000		total		change
Consolidated revenue:
SA transaction-based activities	733,870		��	53%		531,108		55%		38%	705,351		47%		499,582		53%		41%
International transaction-based activities	378,816			27%		289,424		30%		31%	380,535		25%		280,392		30%		36%
Smart card accounts	114,159			8%		71,838		7%		59%	115,398		8%		73,292		8%		57%
Financial services	62,977			5%		12,656		1%		398%	120,694		8%		13,978		1%		763%
Hardware, software and related technology sales	104,863			7%		69,032		7%		52%	180,046		12%		73,698		8%		144%
Total consolidated revenue	1,394,685			100%		974,058		100%		43%	1,502,024		100%		940,942		100%		60%
Consolidated operating (loss) income:
SA transaction-based activities	136,113			71%		16,895		39%		706%	121,194		47%		(35,533	)	89%		(441%	)
Operating income before amortization	141,375					29,706					133,842				(26,466	)			nm
Amortization of intangible assets	(5,262	)				(12,811	)				(12,648	)			(9,067	)			39%
International transaction-based activities	13,867			7%		1,766		4%		685%	14,376		6%		(11,531	)	29%		nm
Operating income before amortization	49,607					30,723					50,892				15,798				222%
Amortization of intangible assets	(35,740	)				(28,957	)				(36,516	)			(27,329	)			34%
Smart card accounts	32,540			17%		20,470		47%		59%	32,895		13%		20,886		(52%	)	57%
Financial services	17,545			9%		9,160		21%		92%	55,666		21%		9,711		(24%	)	473%
Hardware, software and related technology sales	16,173			8%		6,949		16%		133%	43,497		17%		14,384		(36%	)	202%
Operating income before amortization	16,890					7,666					44,214				15,101				193%
Amortization of intangible assets	(717	)				(717	)				(717	)			(717	)			-
Corporate/eliminations	(25,225	)		(12%	)	(11,782	)	(27%	)	114%	(7,199	)	(4%	)	(37,929	)	94%		(81%	)
Total consolidated operating income	191,013			100%		43,458		100%		340%
Total consolidated operating income (loss)											260,429		100%		(40,012	)	100%		nm

	Total volume (‘000s)		Total value $ (‘000)		Total value ZAR (‘000)		Total volume (‘000s)		Total value $ (‘000)		Total value ZAR (‘000)
Transaction processor	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013
CPS	28,538	28,373	2,715,356	2,971,163	27,585,846	25,969,448	28,829	28,727	2,517,122	3,031,625	27,371,937	25,666,342
EasyPay	106,772	111,380	2,881,624	2,960,166	29,274,995	25,873,334	99,706	105,708	2,438,669	2,815,953	26,518,814	23,840,425
Net1 Mobile Solutions (A)	39,641	6,178	2,274,810	2,503,633	23,110,247	21,883,006	45,629	5,933	1,925,571	2,381,514	20,939,237	20,162,374
MediKredit	2,245	2,353	200,446	160,204	2,036,370	1,400,261	2,677	2,706	257,479	175,651	2,799,902	1,487,096

	In United States Dollars					In United States Dollars
Table 10	(US GAAP)					(US GAAP)
	Six months ended December 31,					Nine months ended March 31,
	2013	2012		$ %		2014		2013		$ %
	$ ’000	$ ’000		change		$ ’000		$ ’000		change
Revenue	260,777	223,124		17%		398,903		334,265		19%
Cost of goods sold, IT processing, servicing and support	124,442	92,328		35%		187,591		143,789		30%
Selling, general and administration	81,330	96,008		(15%	)	121,916		149,854		(19%	)
Depreciation and amortization	19,803	20,491		(3%	)	30,245		31,051		(3%	)
Operating income	35,202	14,297		146%		59,151		9,571		518%
Interest income	6,555	5,680		15%		9,993		8,195		22%
Interest expense	3,978	4,094		(3%	)	5,712		6,117		(7%	)
Income before income tax expense	37,779	15,883		138%		63,432		11,649		445%
Income tax expense	13,584	6,700		103%		22,119		7,172		208%
Net income before earnings from equity-accounted investments	24,195	9,183		163%		41,313		4,477		823%
Earnings from equity-accounted investments	150	182		(18%	)	202		204		(1%	)
Net income	24,345	9,365		160%		41,515		4,681		787%
Less (Add) net income (loss) attributable to non-controlling interest	-	(8	)	nm
Add net loss attributable to non-controlling interest						(12	)	(11	)	9%
Net income attributable to us	24,345	9,373		160%		41,527		4,692		785%

	In South African Rand					In South African Rand
Table 11	(US GAAP)					(US GAAP)
	Six months ended December 31,					Nine months ended March 31,
	2013	2012				2014		2013
	ZAR	ZAR		ZAR %		ZAR		ZAR		ZAR %
	’000	’000		change		’000		’000		change
Revenue	2,628,867	1,886,983		39%		4,140,654		2,827,147		46%
Cost of goods sold, IT processing, servicing and support	1,254,488	780,827		61%		1,947,214		1,216,139		60%
Selling, general and administration	819,880	811,950		1%		1,265,501		1,267,435		(0%	)
Depreciation and amortization	199,633	173,295		15%		313,947		262,624		20%
Operating income	354,866	120,911		193%		613,992		80,949		658%
Interest income	66,080	48,036		38%		103,728		69,312		50%
Interest expense	40,102	34,623		16%		59,291		51,736		15%
Income before income tax expense	380,844	134,324		184%		658,429		98,525		568%
Income tax expense	136,939	56,663		142%		229,597		60,659		279%
Net income before earnings from equity-accounted investments	243,905	77,661		214%		428,832		37,866		1,032%
Earnings from equity-accounted investments	1,512	1,539		(2%	)	2,097		1,725		22%
Net income	245,417	79,200		210%		430,929		39,591		988%
Less (Add) net income (loss) attributable to non-controlling interest	-	(68	)	nm
Add net loss attributable to non-controlling interest						(125	)	(93	)	34%
Net income attributable to us	245,417	79,268		210%		431,054		39,684		986%

	Six months ended		Nine months ended
Table 12	December 31,		March 31,
	2013	2012	2014	2013
	$ ’000	$ ’000	$ ’000	$ ’000
Amortization included in depreciation and amortization expense:	7,795	9,568	12,453	13,954
South African transaction-based activities	1,044	2,931	2,232	4,003
International transaction-based activities	6,608	6,468	10,013	9,697
Hardware, software and related technology sales	143	169	208	254

	Six months ended		Nine months ended
Table 13	December 31,		March 31,
	2013	2012	2014	2013
	ZAR ’000	ZAR ’000	ZAR ’000	ZAR ’000
Amortization included in depreciation and amortization expense:	78,569	80,919	129,253	118,024
South African transaction-based activities	10,519	24,783	23,165	33,857
International transaction-based activities	66,615	54,701	103,936	82,015
Hardware, software and related technology sales	1,435	1,435	2,152	2,152

Table 14	*In United States Dollars (US GAAP)*										*In United States Dollars (US GAAP)*
	Six months ended December 31,										Nine months ended March 31,
	2013		% of		2012		% of		%		2014		% of		2013		% of		%
Operating Segment	$ ’000		total		$ ’000		total		change		$’000		total		$ ’000		total		change
Consolidated revenue:
SA transaction-based activities	135,269		52%		122,128		55%		11%		200,133		50%		181,137		54%		10%
International transaction-based activities	74,105		28%		64,762		29%		14%		109,099		27%		97,881		29%		11%
Smart card accounts	22,566		9%		16,583		7%		36%		33,178		8%		25,240		8%		31%
Financial services	8,626		3%		2,832		1%		205%		19,725		5%		4,483		1%		340%
Hardware, software and related technology sales	20,211		8%		16,819		8%		20%		36,768		10%		25,524		8%		44%
Total consolidated revenue	260,777		100%		223,124		100%		17%		398,903		100%		334,265		100%		19%
Consolidated operating (loss) income:
SA transaction-based activities	26,680		76%		8,333		58%		220%		37,825		64%		4,136		43%		815%
Operating income before amortization	27,724				11,264						40,057				8,139				392%
Amortization of intangible assets	(1,044	)			(2,931	)					(2,232	)			(4,003	)			(44%	)
International transaction-based activities	3,416		10%		31		-		nm
											4,738		8%		(1,331	)	(14%	)	nm
Operating income before amortization	10,024				6,499						14,751				8,366				76%
Amortization of intangible assets	(6,608	)			(6,468	)					(10,013	)			(9,697	)			3%
Smart card accounts	6,431		18%		4,727		33%		36%		9,456		16%		7,194		75%		31%
Financial services	1,783		5%		2,145		15%		(17%	)	6,902		12%		3,292		34%		110%
Hardware, software and related technology sales	4,540		13%		2,779		19%		63%		8,540		14%		4,478		47%		91%
Operating income before amortization	4,683				2,948						8,748				4,732				85%
Amortization of intangible assets	(143	)			(169	)					(208	)			(254	)			(18%	)
Corporate/eliminations	(7,648	)	(22%	)	(3,718	)	(25%	)	106%		(8,310	)	(14%	)	(8,198	)	(85%	)	1%
Total consolidated operating income	35,202		100%		14,297		100%		146%		59,151		100%		9,571		100%		518%

Table 15	*In South African Rand (US GAAP)*										*In South African Rand (US GAAP)*
	Six months ended December 31,										Nine months ended March 31,
	2013				2012						2014				2013
	ZAR		% of		ZAR		% of		%		ZAR		% of		ZAR		% of		%
Operating Segment	’000		total		’000		total		change		’000		total		’000		total		change
Consolidated revenue:
SA transaction-based activities	1,363,633		52%		1,032,849		55%		32%		2,077,401		50%		1,532,021		54%		36%
International transaction-based activities	747,045		28%		547,699		29%		36%		1,132,459		27%		827,858		29%		37%
Smart card accounts	227,486		9%		140,244		7%		62%		344,391		8%		213,475		8%		61%
Financial services	86,958		3%		23,951		1%		263%		204,747		5%		37,916		1%		440%
Hardware, software and related technology sales	203,745		8%		142,240		8%		43%		381,656		10%		215,877		8%		77%
Total consolidated revenue	2,628,867		100%		1,886,983		100%		39%		4,140,654		100%		2,827,147		100%		46%
Consolidated operating (loss) income:
SA transaction-based activities	268,958		76%		70,473		58%		282%		392,627		64%		34,981		43%		1,022%
Operating income before amortization	279,477				95,256						415,792				68,838				504%
Amortization of intangible assets	(10,519	)			(24,783	)					(23,165	)			(33,857	)			(32%	)
International transaction-based activities	34,436		10%		262		-		nm		49,181		8%		(11,257	)	(14%	)	nm
Operating income before amortization	101,051				54,963						153,117				70,758				116%
Amortization of intangible assets	(66,615	)			(54,701	)					(103,936	)			(82,015	)			27%
Smart card accounts	64,830		18%		39,977		33%		62%		98,154		16%		60,845		75%		61%
Financial services	17,974		5%		18,140		15%		(1%	)	71,643		12%		27,843		34%		157%
Hardware, software and related technology sales	45,767		13%		23,502		19%		95%		88,646		14%		37,874		47%		134%
Operating income before amortization	47,202				24,937						90,798				40,026				127%
Amortization of intangible assets	(1,435	)			(1,435	)					(2,152	)			(2,152	)			-
Corporate/eliminations	(77,099	)	(22%	)	(31,443	)	(25%	)	145%		(86,259	)	(14%	)	(69,337	)	(85%	)	24%
Total consolidated operating income	354,866		100%		120,911		100%		193%		613,992		100%		80,949		100%		658%