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UEPS Net 1 UEPS

Filed: 9 Feb 21, 4:07pm

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

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 9, 2021 ( February 3, 2021 )

NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Florida000-3120398-0171860
(State or other jurisdiction(Commission(IRS Employer
of incorporation)File Number)Identification No.)

President Place, 4th Floor, Cnr.
Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg, South Africa
(Address of principal executive offices) (ZIP Code)

Registrant’s telephone number, including area code: 011-27-11-343-2000

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class Trading Symbols Name of each exchange on which registered
Common Shares UEPS NASDAQ Global Select Market
     

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b -2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Item 2.01. Completion of Acquisition or Disposition of Assets.

On February 3, 2021, Net 1 UEPS Technologies, Inc. (the "Company"), through its wholly owned subsidiary, Net1 Holdings LI AG, ("Net1 AG"), entered into a share purchase agreement (the "Purchase Agreement") with Kuno Frick Familienstiftung (the "Purchaser") and Bank Frick & Co. AG ("Bank Frick"), pursuant to which Net1 AG agreed to sell 14,000 voting shares and 3,500 non-voting shares (collectively, the "Sale Shares"), representing Net1 AG's entire interest in, or 35% of, Bank Frick to the Purchaser for an aggregate purchase price of $30,000,000 (the "Purchase Price").

The Purchase Price will be payable in three installments: $18,610,500 was paid on February 4, 2021 (net of a credit of $3,610,500 from the Company to the Purchaser under the Release and Indemnity (as defined and described below)), $7,500,000 due and payable on October 30, 2021 and $3,889,500 due and payable on July 15, 2022, subject to the Purchaser's option to prepay the whole or any part of the outstanding balance of the Purchase Price at any time.

In connection and contemporaneously with the Purchase Agreement, Net1 AG, the Purchaser and Bank Frick entered into a security pledge and cession (the "Security Pledge and Cession"), pursuant to which the Purchaser pledged and ceded as security the Sale Shares to Net1 AG in order to secure all payment obligations by it in favor of Net1 AG under the Purchase Agreement.

In connection and contemporaneously with the Purchase Agreement, the Company, the Purchaser, Bank Frick, and certain other parties entered into a release and indemnity agreement (the "Release and Indemnity"), pursuant to which the Company and its affiliates were released from any and all liabilities to Bank Frick and all such liabilities were delegated and transferred to the Purchaser. In exchange for the Purchaser accepting the delegation and transfer of such liabilities, the Company agreed to make a one-time payment of $3,610,500 to the Purchaser, which was paid by way of set-off against the Purchaser's obligation to make the first installment payment referred to above.

The descriptions of the Purchase Agreement, Security Pledge and Cession and Release and Indemnity above do not purport to be complete and are qualified in their entirety by reference to the full text of the agreements, copies of which are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.

Item 7.01. Regulation FD Disclosure.

On February 4, 2021, the Company issued a press release announcing the agreement to sell its entire interest in Bank Frick as described in Item 2.01 above. A copy of Net1's press release is attached as Exhibit 99.1.

Item 9.01. Financial Statements and Exhibits.

(b) Pro forma financial information

Unaudited Pro Forma Consolidated Financial Statements for Net1 comprising: 
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2020F-1
Unaudited Pro Forma Consolidated Statement of Operations for the year ended June 30, 2020F-2
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended December 31, 2020F-3
Notes to the Unaudited Pro Forma Consolidated Financial StatementsF-4

(d) Exhibits

Exhibit
No.
Description
10.1Share Purchase Agreement, dated February 3, 2021, between Net1 Holdings LI AG, Kuno Frick Familienstiftung and, as Object of Sale, Bank Frick & Co. AG
10.2Release and Indemnity Agreement, dated February 3, 2021, between Net 1 UEPS Technologies, Inc., Masterpayment Ltd, Masterpayment AG, Summit Payment Services AG, Ceevo Financial Services (Malta) Limited, Kuno Frick Familienstiftung and Bank Frick & Co. AG
10.3Security Pledge and Cession, dated February 3, 2021, given by Kuno Frick Familienstiftung in favour of Net1 Holdings LI AG, with the main holder being, Bank Frick & Co. AG
99.1Press Release, dated February 4, 2021, issued by Net1


NET 1 UEPS TECHNOLOGIES, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Overview

The following unaudited pro forma consolidated financial statements have been prepared to give effect to Net 1 UEPS Technologies, Inc. (the "Company"), through its wholly owned subsidiary Net1 Holdings LI AG, disposing of its entire shareholding in Bank Frick & Co. (the "Disposal"). The Company accounted for its non-controlling interest in Bank Frick using the equity method and Bank Frick was classified as an equity-accounted investment. The Company has prepared these unaudited pro forma consolidated financial statements based on (a) its historical unaudited consolidated financial statements as of and for the six months ended December 31, 2020, (b) its historical audited consolidated financial statements as of and for the year ended June 30, 2020 (refer also to Note 1 below regarding a restatement affecting the consolidated statement of operations), and (c) financial information for Bank Frick as of the same date and for the same periods which has been derived as described below. The unaudited pro forma consolidated financial statements present the pro forma financial position and results of operations of the consolidated company based on the historical financial information and after giving effect to the Disposal and certain adjustments which the Company believes to be (a) directly attributable to the Disposal, (b) factually supportable, and (c) in the case of certain income adjustments, expected to have a continuing impact, as described in the notes to the unaudited pro forma consolidated financial statements.

The Company has presented an unaudited pro forma consolidated balance sheet which removes the equity method entries related to Bank Frick from the Company as of December 31, 2020, as if the Disposal had occurred on that date. The Company has presented an unaudited pro forma consolidated statement of operations of the Company for the six months ended December 31, 2020, and the year ended June 30, 2020, which removes the historical equity method entries related to Bank Frick from the Company for the periods presented as if the disposal had occurred on July 1, 2019.

No account has been taken within these unaudited pro forma consolidated financial statements of any future changes in accounting policies which may or may not occur as a result of the Disposal.

The pro forma adjustments are based on information that is currently available and contain certain preliminary estimates and assumptions and thus the actual effects of the Disposal may differ from the effects reflected herein. These unaudited pro forma consolidated financial statements are not intended to be indicative of the consolidated results of operations or financial position of the consolidated company that would have been reported had the Disposal been completed as of the dates presented, and are not representative of future consolidated results of operations or financial condition of the consolidated company.

You should read these unaudited pro forma consolidated financial statements in conjunction with the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, filed on September 10, 2020, and its unaudited condensed consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the six months ended December 31, 2020, filed on February 4, 2021.


UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of December 31, 2020, in $ '000

  Net1  Pro forma adjustments  Notes  Pro forma 
ASSETS            
Current assets    18,600  2 (b)    
Cash and cash equivalents 206,251  (3,600) 2 (b)  221,251 
Restricted cash related to ATM funding 60,803  -     60,803 
Accounts receivable, net and other receivables 24,447  7,500  2 (b)  31,947 
Finance loans receivable, net 21,620  -     21,620 
Inventory 20,939  -     20,939 
Total current assets before settlement assets 334,060  22,500     356,560 
Settlement assets 2,814  -     2,814 
Total current assets 336,874  22,500     359,374 
Property, plant and equipment, net 8,687  -     8,687 
Operating lease right-of-use 5,112  -     5,112 
Equity-accounted investments 53,126  (33,019) 2 (a)  20,107 
Goodwill 28,455  -     28,455 
Intangible assets, net 536  -     536 
Deferred income taxes 281  -     281 
Other long-term assets, including reinsurance assets 43,907  3,900  2 (b)  47,807 
TOTAL ASSETS 476,978  (6,619)    470,359 
             
LIABILITIES            
Current liabilities            
Short-term credit facilities for ATM funding 60,803  -     60,803 
Accounts payable 6,109  -     6,109 
Other payables 25,066  (1,483) 2 (b)  23,583 
Operating lease liability - current 2,585  -     2,585 
Income taxes payable 984  -     984 
Total current liabilities before settlement obligations 95,547  (1,483)    94,064 
Settlement obligations 2,814  -     2,814 
Total current liabilities 98,361  (1,483)    96,878 
Deferred income taxes 3,262  -     3,262 
Operating lease liability - long term 2,715  -     2,715 
Other long-term liabilities, including insurance policy liabilities 2,400  -     2,400 
TOTAL LIABILITIES 106,738  (1,483)    105,255 
             
Redeemable common stock 84,979  -     84,979 
     -       
EQUITY            
Common stock 80  -     80 
Additional paid-in-capital 302,196  -     302,196 
Treasury shares (286,951) -     (286,951)
Accumulated other comprehensive loss (141,242) (2,766) 2 (a)  (144,008)
Retained earnings 411,178  (2,117)
(253
) 2 (b)
2 (c)
  408,808 
TOTAL NET1 EQUITY 285,261  (5,136)    280,125 
Non-controlling interest -  -     - 
TOTAL EQUITY 285,261  (5,136)    280,125 
             
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY 476,978  (6,619)    470,359 

See accompanying notes to unaudited pro forma consolidated financial statements.


UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the year ended June 30, 2020

(in $ '000, except per share data or unless otherwise indicated)

  Net1
(as restated)
(Note 1)
  Pro forma adjustments  Notes  Pro forma 
Revenue 144,299  -     144,299 
Expenses            
Cost of goods sold, IT processing, servicing and support 102,308  -     102,308 
Selling, general and administration 75,256  -     75,256 
Depreciation and amortization 4,647  -     4,647 
Impairment losses 6,336  -     6,336 
Operating loss (44,248) -     (44,248)
Gain on disposal of FIHRST 9,743  -     9,743 
Loss on disposal of DNI 1,010  -     1,010 
Loss on deconsolidation of CPS 7,148  -     7,148 
Termination fee paid to cancel Bank Frick option 17,517  -     17,517 
Interest income 2,805  -     2,805 
Interest expense 7,641  -     7,641 
Loss before income tax expense (65,016) -     (65,016)
Income tax expense 2,656  -     2,656 
Net loss before loss from equity-accounted investments (67,672) -     (67,672)
Loss from equity-accounted investments (29,542) 17,273  2 (a)  (12,269)
Net loss from continuing operations (97,214) 17,273     (79,941)
Net income from discontinued operations 6,402  -     6,402 
Gain on disposal of discontinued operations 12,454  -     12,454 
Net loss (78,358) 17,273     (61,085)
Net loss attributable to Net1 (78,358) 17,273     (61,085)
Continuing (97,214) 17,273     (79,941)
Discontinued 18,856  -     18,856 
Loss per share attributable to Net1 shareholders:            
Basic loss: (1.37)       (1.07)
Continuing (1.70)       (1.40)
Discontinued 0.33        0.33 
Diluted loss: (1.37)       (1.05)
Continuing (1.70)       (1.37)
Discontinued 0.33        0.32 
Weighted-average number of outstanding shares of common stock used to calculate basic loss per share 56,003        56,003 
Weighted-average number of outstanding shares of common stock used to calculate diluted loss per share 57,119        57,119 

See accompanying notes to unaudited pro forma consolidated financial statements.


UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the six months ended December 31, 2020

(in $ '000, except per share data or unless otherwise indicated)

  Net1  Pro forma adjustments  Notes  Pro forma 
             
Revenue 67,441  -     67,441 
             
Expenses            
Cost of goods sold, IT processing, servicing and support 50,799  -     50,799 
Selling, general and administration 40,625  -     40,625 
Depreciation and amortization 1,997  -     1,997 
             
Operating loss (25,980) -     (25,980)
             
Change in fair value of equity securities 15,128  -     15,128 
             
Loss on disposal of equity-accounted investment 13  -     13 
             
Interest income 1,328  -     1,328 
             
Interest expense 1,424  -     1,424 
             
Loss before income tax expense (10,961) -     (10,961)
             
Income tax expense 2,378  -     2,378 
             
Net loss before loss from equity-accounted investments (13,339) -     (13,339)
             
Loss from equity-accounted investments (20,153) (979) 2(a)  (21,132)
             
Net loss from continuing operations (33,492) (979)    (34,471)
             
Net loss attributable to Net1 (33,492) (979)    (34,471)
             
Loss per share attributable to Net1 shareholders:            
Basic loss (0.59)       (0.61)
Diluted loss (0.59)       (0.60)
             
Weighted-average number of outstanding shares of common stock used to calculate basic loss per share 56,211        56,211 
             
Weighted-average number of outstanding shares of common stock used to calculate diluted loss per share 56,880        56,880 

See accompanying notes to unaudited pro forma consolidated financial statements.


NET 1 UEPS TECHNOLOGIES, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation

The accompanying unaudited pro forma consolidated financial statements present the pro forma financial position and results of operations of the consolidated company based on the historical financial information and after giving effect to the Disposal and certain adjustments which the Company believes to be (a) directly attributable to the Disposal, (b) factually supportable, and (c) in the case of certain income adjustments, expected to have a continuing impact, which are described in these notes. Please refer to "Overview" for further discussion of the basis of presentation of these unaudited pro forma consolidated financial statements.

Restatement of consolidated statement of operations from Form 10-K

As reported in the Company's Form 10-Q filed on February 4, 2021, In November 2020, the Company identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during its assessment and systems development of new products. The Company incorrectly duplicated the recognition of acquiring fees in revenue and recorded an equal and opposite entry in cost of goods sold, IT processing, servicing and support in its unaudited condensed consolidated statement of operations due to the misinterpretation of certain system reports. The error had no impact on the Company's operating income (loss), net income, balance sheet or cash flows. The Company determined that the error impacted reported results for the period from July 1, 2018 to September 30, 2020. The error impacts the Company's reported results and the Company has restated revenue and related cost of goods sold, IT processing, servicing and support included in the consolidated statement of operations for the year ended June 30, 2020, by decreasing both captions by $6.7 million as follows:

  As reported  Correction  As restated 
  $ '000  $ '000  $ '000 
          
Revenue 150,997  (6,698) 144,299 
Cost of goods sold, IT processing, servicing and support 109,006  (6,698) 102,308 

2. Pro forma adjustments

The following are descriptions of each of the pro forma adjustments included in the unaudited pro forma consolidated financial statements:

(a) Reversal of equity method entries related to Bank Frick

Impact on balance sheet as of December 31, 2020

The table below presents the impact of the Bank Frick equity method entries on the Company's December 31, 2020, balance sheet. These entries have been reversed from the Company's unaudited pro forma consolidated balance sheet as a result of the Disposal:

  Bank Frick 
  December 31, 2020 
  USD '000 
ASSETS   
Equity-accounted investments 33,019 
TOTAL ASSETS 33,019 
    
EQUITY   
Accumulated other comprehensive loss 2,766 
Retained earnings (18,442)
TOTAL NET1 EQUITY (15,676)
    
TOTAL EQUITY (15,676)
    
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (15,676)



Consolidated statement of operations for the six months ended December 31, 2020 and the year ended June 30, 2020

The table below presents the impact of the Bank Frick equity method entries on the Company's consolidated statement of operations for the six months ended December 31, 2020, and the year ended June 30, 2020. These entries have been reversed from the Company's unaudited pro forma consolidated statement of operations as a result of the Disposal:

  Bank Frick 
  Six months
ended
December 31,
2020
  Year ended
June 30, 2020
 
  $ '000  $ '000 
       
Earnings (Loss) from equity-accounted investments 979  (17,273)

(b) Consideration received on Disposal

The fair value of the consideration received on Disposal was $30.0 million and $15.0 million was received in cash, representing $18.6 million related to the first payment by the Kuno Frick Familienstiftung, net of $3.6 million paid to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG's activities with Bank Frick. The remaining amounts are expected to be received as follows: (i) $ 7.5 million on October 30, 2021, and (ii) the remaining amount, of $3.9 million on July 15, 2022. The $3.6 million comprises an amount to settle future obligations due of $2.1 million, and not reflected in the Company's December 31, 2020, consolidated balance sheet, and EUR 1.2 million ($1.5 million using exchange rates applicable as of December 31, 2020), representing liabilities included within other payables as of December 31, 2020. Because the Company is required to expense this liability as if it had been incurred, it has charged the liability of $2.1 million to retained earnings as of December 31, 2020. No adjustment has been made to the unaudited pro forma consolidated statement of operations for this liability as they are non-recurring.

(c) Loss recognized on Disposal

The table below presents the calculation of the loss recognized on Disposal:

  As of
December 31,
2020
 
  $ '000 
    
Fair value of consideration received 30,000 
Less: carrying value of Bank Frick in the Company's accounts (33,019)
Add: release of foreign currency translation reserve included in accumulated other comprehensive loss 2,766 
Loss on Disposal(1) (253)

(1) The Company does not expect to incur any tax expense related to the disposal.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

NET 1 UEPS TECHNOLOGIES, INC.

Date: February 9, 2021

By: /s/ Alex M.R. Smith

Name: Alex M.R. Smith

Title: Chief Financial Officer