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UEPS Net 1 UEPS

Filed: 4 Feb 21, 4:15pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended December 31, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from

 

To

 

 

Commission file number: 000-31203

 

NET 1 UEPS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Florida

 

 

 

98-0171860

(State or other jurisdiction

 

(IRS Employer

of incorporation or organization)

 

 

 

Identification No.)

 

 

President Place, 4 Floor, Cnr. Jan Smuts Avenue and Bolton Road,

Rosebank, Johannesburg, 2196, South Africa

(Address of principal executive offices, including zip code)

 

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

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common stock, par value $0.001 per share

UEPS

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

 

 


 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

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

 

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

 

As of February 2, 2021 (the latest practicable date), 56,614,559 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 as of December 31, 2020 and June 30, 2020

2

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2020 and 2019 (as restated)

3

 

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended December 31, 2020 and 2019

4

 

Unaudited Condensed Consolidated Statement of Changes in Equity for the three and six months ended December 31, 2020 and 2019

5

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended December 31, 2020 and 2019

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4.

Controls and Procedures

57

Part II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

58

Item 6.

Exhibits

58

Signatures

 

58

EXHIBIT 10.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1


 

Part I. Financial information

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

2020(A)

 

 

 

 

 

 

(In thousands, except share data)

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

$

206,251

 

$

217,671

 

Restricted cash related to ATM funding (Note 9)

 

60,803

 

 

14,814

 

Accounts receivable, net and other receivables (Note 3)

 

24,447

 

 

43,068

 

Finance loans receivable, net (Note 3)

 

21,620

 

 

15,879

 

Inventory (Note 4)

 

20,939

 

 

19,860

 

 

Total current assets before settlement assets

 

334,060

 

 

311,292

 

 

 

Settlement assets

 

2,814

 

 

8,014

 

 

 

 

Total current assets

 

336,874

 

 

319,306

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $35,954 June: $29,524

 

8,687

 

 

6,656

OPERATING LEASE RIGHT-OF-USE (Note 17)

 

5,112

 

 

5,395

EQUITY-ACCOUNTED INVESTMENTS (Note 6)

 

53,126

 

 

65,836

GOODWILL (Note 7)

 

28,455

 

 

24,169

INTANGIBLE ASSETS, NET (Note 7)

 

536

 

 

612

DEFERRED INCOME TAXES

 

281

 

 

358

OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and 8)

 

43,907

 

 

31,346

TOTAL ASSETS

 

476,978

 

 

453,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Short-term credit facilities for ATM funding (Note 9)

 

60,803

 

 

14,814

 

Accounts payable

 

6,109

 

 

6,287

 

Other payables (Note 10)

 

25,066

 

 

23,779

 

Operating lease liability - current (Note 17)

 

2,585

 

 

2,251

 

Income taxes payable

 

984

 

 

16,157

 

 

Total current liabilities before settlement obligations

 

95,547

 

 

63,288

 

 

 

Settlement obligations

 

2,814

 

 

8,015

 

 

 

 

Total current liabilities

 

98,361

 

 

71,303

DEFERRED INCOME TAXES

 

3,262

 

 

1,859

OPERATING LEASE LIABILITY - LONG TERM (Note 17)

 

2,715

 

 

3,312

OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8)

 

2,400

 

 

2,012

TOTAL LIABILITIES

 

106,738

 

 

78,486

REDEEMABLE COMMON STOCK

 

84,979

 

 

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

COMMON STOCK (Note 11)

 

 

 

 

 

 

Authorized: 200,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury - December: 56,614,559 June: 57,118,925

 

80

 

 

80

 

 

 

 

 

 

 

 

 

 

 

PREFERRED STOCK

 

 

 

 

 

 

Authorized shares: 50,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury: December: 0 June: 0

 

-

 

 

-

ADDITIONAL PAID-IN-CAPITAL

 

302,196

 

 

301,489

TREASURY SHARES, AT COST: December: 24,891,292 June: 24,891,292

 

(286,951)

 

 

(286,951)

ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12)

 

(141,242)

 

 

(169,075)

RETAINED EARNINGS

 

411,178

 

 

444,670

TOTAL NET1 EQUITY

 

285,261

 

 

290,213

NON-CONTROLLING INTEREST

 

0

 

 

0

TOTAL EQUITY

 

285,261

 

 

290,213

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY

$

476,978

 

$

453,678

 

 

 

 

 

 

 

 

 

 

 

 

(A) – Derived from audited financial statements

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

2


 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

(as restated)(A)

 

 

 

(as restated)(A)

 

 

 

 

 

 

 

 

(In thousands, except per share data)

 

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE (Note 16)

 

$

32,305

 

$

38,918

 

$

67,441

 

$

85,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, IT processing, servicing and support

 

 

24,339

 

 

26,746

 

 

50,799

 

 

57,452

 

Selling, general and administration

 

 

22,097

 

 

21,418

 

 

40,625

 

 

42,040

 

Depreciation and amortization

 

 

1,074

 

 

1,174

 

 

1,997

 

 

2,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(15,205)

 

 

(10,420)

 

 

(25,980)

 

 

(16,856)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 5 and 6)

 

 

15,128

 

 

0

 

 

15,128

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAIN ON DISPOSAL OF FIHRST (Note 2)

 

 

0

 

 

9,743

 

 

0

 

 

9,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 6)

 

 

13

 

 

0

 

 

13

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME

 

 

717

 

 

1,082

 

 

1,328

 

 

1,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

677

 

 

3,129

 

 

1,424

 

 

4,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

 

 

(50)

 

 

(2,724)

 

 

(10,961)

 

 

(10,144)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE (Note 19)

 

 

3,468

 

 

707

 

 

2,378

 

 

1,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS

 

 

(3,518)

 

 

(3,431)

 

 

(13,339)

 

 

(11,821)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 6)

 

 

(1,016)

 

 

506

 

 

(20,153)

 

 

1,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM CONTINUING OPERATIONS

 

 

(4,534)

 

 

(2,925)

 

 

(33,492)

 

 

(10,252)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME FROM DISCONTINUED OPERATIONS (Note 21)

 

 

0

 

 

2,720

 

 

0

 

 

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(4,534)

 

 

(205)

 

 

(33,492)

 

 

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

 

 

(4,534)

 

 

(205)

 

 

(33,492)

 

 

(4,597)

 

Continuing

 

 

(4,534)

 

 

(2,925)

 

 

(33,492)

 

 

(10,252)

 

Discontinued

 

$

0

 

$

2,720

 

$

0

 

$

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings per share, in United States dollars (Note 14):

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings attributable to Net1 shareholders

 

$

(0.08)

 

$

0

 

$

(0.59)

 

$

(0.08)

 

Continuing

 

$

(0.08)

 

$

(0.05)

 

$

(0.59)

 

$

(0.18)

 

Discontinued

 

$

0

 

$

0.05

 

$

0

 

$

0.10

Diluted (loss) earnings attributable to Net1 shareholders

 

$

(0.08)

 

$

0

 

$

(0.59)

 

$

(0.08)

 

Continuing

 

$

(0.08)

 

$

(0.05)

 

$

(0.59)

 

$

(0.18)

 

Discontinued

 

$

0

 

$

0.05

 

$

0

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A) Certain amounts have been restated to correct the misstatement discussed in Note 1.

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

3


 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

 

 

 

 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(4,534)

 

$

(205)

 

$

(33,492)

 

$

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

Movement in foreign currency translation reserve

 

20,003

 

 

19,114

 

 

26,145

 

 

1,029

 

Release of foreign currency translation reserve related to disposal of FIHRST

 

0

 

 

1,578

 

 

0

 

 

1,578

 

Movement in foreign currency translation reserve related to equity-accounted investments

 

0

 

 

(491)

 

 

1,688

 

 

2,227

 

 

 

Total other comprehensive income, net of taxes

 

20,003

 

 

20,201

 

 

27,833

 

 

4,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

15,469

 

 

19,996

 

 

(5,659)

 

 

237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Net1

$

15,469

 

$

19,996

 

$

(5,659)

 

$

237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Changes in Equity

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

For the three months ended December 31, 2019 (dollar amounts in thousands)

 

Balance – October 1, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,455

$

518,636

$

(211,179)

$

298,041

$

0

$

298,041

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

436

 

 

 

 

 

436

 

 

 

436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(205)

 

 

 

(205)

 

0

 

(205)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,201

 

20,201

 

0

 

20,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,891

$

518,431

$

(190,978)

$

318,473

$

0

$

318,473

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended December 31, 2019 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

276,997

$

523,028

$

(195,812)

$

317,342

$

0

$

317,342

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

823

 

 

 

 

 

823

 

 

 

823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity accounted investment

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

71

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(4,597)

 

 

 

(4,597)

 

0

 

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,834

 

4,834

 

0

 

4,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,891

$

518,431

$

(190,978)

$

318,473

$

0

$

318,473

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

5


 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Changes in Equity

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended December 31, 2020 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – October 1, 2020

81,530,017

$

80

 

(24,891,292)

$

(286,951)

 

56,638,725

$

301,946

$

415,712

$

(161,245)

$

269,542

$

0

$

269,542

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock option (Note 13)

5,834

 

0

 

 

 

 

 

5,834

 

18

 

 

 

 

 

18

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

246

 

 

 

 

 

246

 

 

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of stock-based compensation charge (Note 13)

(30,000)

 

 

 

 

 

 

 

(30,000)

 

(14)

 

 

 

 

 

(14)

 

 

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(4,534)

 

 

 

(4,534)

 

0

 

(4,534)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,003

 

20,003

 

0

 

20,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2020

81,505,851

$

80

 

(24,891,292)

$

(286,951)

 

56,614,559

$

302,196

$

411,178

$

(141,242)

$

285,261

$

0

$

285,261

$

84,979

 

 

For the six months ended December 31, 2020 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2020

82,010,217

$

80

 

(24,891,292)

$

(286,951)

 

57,118,925

$

301,489

$

444,670

$

(169,075)

$

290,213

$

0

$

290,213

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock option (Note 13)

5,834

 

0

 

 

 

 

 

5,834

 

18

 

 

 

 

 

18

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

928

 

 

 

 

 

928

 

 

 

928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of stock-based compensation charge (Note 13)

(510,200)

 

 

 

 

 

 

 

(510,200)

 

(297)

 

 

 

 

 

(297)

 

 

 

(297)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity accounted investment (Note 6)

 

 

 

 

 

 

 

 

 

 

(40)

 

 

 

 

 

(40)

 

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

 

 

 

 

 

 

 

 

 

 

98

 

 

 

 

 

98

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(33,492)

 

 

 

(33,492)

 

0

 

(33,492)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,833

 

27,833

 

0

 

27,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2020

81,505,851

$

80

 

(24,891,292)

$

(286,951)

 

56,614,559

$

302,196

$

411,178

$

(141,242)

$

285,261

$

0

$

285,261

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

6


 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

Three months ended

 

 

Six months ended

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(4,534)

 

$

(205)

 

$

(33,492)

 

$

(4,597)

 

Depreciation and amortization

 

1,074

 

 

4,381

 

 

1,997

 

 

9,146

 

Movement in allowance for doubtful accounts receivable

 

100

 

 

(429)

 

 

614

 

 

83

 

Loss from equity-accounted investments (Note 6)

 

1,016

 

 

(506)

 

 

20,153

 

 

(1,569)

 

Movement in allowance for doubtful loans to equity-accounted investments

 

661

 

 

620

 

 

739

 

 

620

 

Change in fair value of equity securities (Note 5 and 6)

 

(15,128)

 

 

0

 

 

(15,128)

 

 

0

 

Fair value adjustment related to financial liabilities

 

790

 

 

147

 

 

1,676

 

 

234

 

Interest payable

 

42

 

 

526

 

 

(21)

 

 

1,158

 

Gain on disposal of FIHRST (Note 2)

 

0

 

 

(9,743)

 

 

0

 

 

(9,743)

 

Loss on disposal of equity-accounted investment (Note 2)

 

13

 

 

0

 

 

13

 

 

0

 

Loss (Profit) on disposal of property, plant and equipment

 

752

 

 

(49)

 

 

742

 

 

(203)

 

Stock-based compensation charge (Note 13)

 

232

 

 

436

 

 

631

 

 

823

 

Dividends received from equity accounted investments

 

68

 

 

380

 

 

125

 

 

1,448

 

Decrease (Increase) in accounts receivable and finance loans receivable

 

6,559

 

 

8,767

 

 

(1,556)

 

 

3,101

 

(Increase) Decrease in inventory

 

(145)

 

 

(682)

 

 

2,214

 

 

(12,995)

 

(Decrease) Increase in accounts payable and other payables

 

(3,084)

 

 

3,132

 

 

(3,499)

 

 

(264)

 

(Decrease) Increase in taxes payable

 

(421)

 

 

(2,244)

 

 

(15,338)

 

 

(956)

 

Increase (Decrease) in deferred taxes

 

26

 

 

(117)

 

 

(1,729)

 

 

(205)

 

 

Net cash (used in) provided by operating activities

 

(11,979)

 

 

4,414

 

 

(41,859)

 

 

(13,919)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(3,023)

 

 

(827)

 

 

(3,298)

 

 

(3,451)

Proceeds from disposal of property, plant and equipment

 

75

 

 

90

 

 

91

 

 

303

Proceeds from disposal of DNI as equity-accounted investment (Note 3)

 

5,815

 

 

0

 

 

6,144

 

 

0

Proceeds from disposal of Net1 Korea, net of cash disposed (Note 2)

 

0

 

 

0

 

 

20,114

 

 

0

Proceeds from disposal of FIHRST, net of cash disposed (Note 2)

 

0

 

 

10,895

 

 

0

 

 

10,895

Investment in equity-accounted investments (Note 6)

 

0

 

 

0

 

 

0

 

 

(1,250)

Loan to equity-accounted investment (Note 6)

 

(1,160)

 

 

(612)

 

 

(1,238)

 

 

(612)

Repayment of loans by equity-accounted investments

 

0

 

 

0

 

 

0

 

 

4,268

Net change in settlement assets

 

1,377

 

 

3,371

 

 

5,445

 

 

(10,138)

 

Net cash provided by investing activities

 

3,084

 

 

12,917

 

 

27,258

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

Proceeds from bank overdraft (Note 9)

 

137,333

 

 

207,876

 

 

206,479

 

 

391,550

Repayment of bank overdraft (Note 9)

 

(88,258)

 

 

(193,725)

 

 

(165,108)

 

 

(378,554)

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

 

26

 

 

0

 

 

124

 

 

0

Proceeds from exercise of stock options

 

18

 

 

0

 

 

18

 

 

0

Long-term borrowings utilized (Note 9)

 

0

 

 

0

 

 

0

 

 

14,798

Repayment of long-term borrowings (Note 9)

 

0

 

 

(11,313)

 

 

0

 

 

(11,313)

Guarantee fee

 

0

 

 

0

 

 

0

 

 

(148)

Finance lease capital repayments

 

0

 

 

(26)

 

 

0

 

 

(52)

Net change in settlement obligations

 

(1,377)

 

 

(3,371)

 

 

(5,445)

 

 

10,138

 

Net cash provided by (used in) financing activities

 

47,742

 

 

(559)

 

 

36,068

 

 

26,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

12,296

 

 

7,508

 

 

13,102

 

 

1,053

Net increase in cash, cash equivalents and restricted cash

 

51,143

 

 

24,280

 

 

34,569

 

 

13,568

Cash, cash equivalents and restricted cash – beginning of period

 

215,911

 

 

110,799

 

 

232,485

 

 

121,511

Cash, cash equivalents and restricted cash – end of period (Note 15)

$

267,054

 

$

135,079

 

$

267,054

 

$

135,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

7


 

NET 1 UEPS TECHNOLOGIES, INC

Notes to the Unaudited Condensed Consolidated Financial Statements

for the three and six months ended December 31, 2020 and 2019

(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)

 

1. Basis of Presentation and Summary of Significant Accounting Policies

 

Unaudited Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three months ended December 31, 2020 and 2019, 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, 2020. 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 “Net1” are references solely to Net 1 UEPS Technologies, Inc. References to the “Company” refer to Net1 and its consolidated subsidiaries, collectively, unless the context otherwise requires.

 

Impact of COVID-19 on the Company’s business

 

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three and six months ended December 31, 2020, compared to the last four months of the year ended June 30, 2020. However, on December 28, 2020, the country moved back to Level 3 restrictions which remain in place as of the date of this report. This level of restrictions is not as severe as that applied during April and May 2020 but is greater than was applied through most of the six months ended December 31, 2020. The increase in restrictions was in response to a second wave of infections, which has been more severe than the first wave. While all the Company’s businesses continue to operate, it has increased preventive measures and it is unclear to what extent activity levels will be affected. The Company has experienced an increase in claims in its life insurance business, which the Company believes is linked to the second wave.

 

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance continue to remain uncertain. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, apart from the two months in April and May 2020 when loan origination was curtailed, the Company is unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and duration of the outbreak, actions that may be taken by governmental authorities, the impact on the Company’s customers and other factors. The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition.

 

Recent accounting pronouncements adopted

 

There were no new accounting pronouncements adopted by the Company during the three and six months ended December 31, 2020.

 

Recent accounting pronouncements not yet adopted as of December 31, 2020

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2023. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material.

 

In August 2018, the FASB issued guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

8


 

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Recent accounting pronouncements not yet adopted as of December 31, 2020 (continued)

 

In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The guidance provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and Other (ASC 350). The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023, and defers the adoption guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement by the Company from July 1, 2020 to July 1, 2021.

 

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The guidance clarifies that an entity should consider observable transactions that require an entity to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with U.S GAAP guidance immediately before applying or upon discontinuing the equity method. The guidance also clarifies that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

 

 

 

Restatement of financial statements

 

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support

 

In November 2020, the Company identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during its assessment and systems development of new products. The Company incorrectly duplicated the recognition of acquiring fees in revenue and recorded an equal and opposite entry in cost of goods sold, IT processing, servicing and support in its unaudited condensed consolidated statement of operations due to the misinterpretation of certain system reports. The error did not 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 its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 16 (Revenue) and Note 18 (Operating segments) for the three and six months ended December 31, 2019, to correct for the error.

 

The tables below present the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

Three months ended September 30, 2020(1)

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

37,113

 

$

(1,977)

 

$

35,136

 

 

Cost of goods sold, IT processing, servicing and support

$

28,437

 

$

(1,977)

 

$

26,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

40,567

 

$

(1,649)

 

$

38,918

 

 

Cost of goods sold, IT processing, servicing and support

$

28,395

 

$

(1,649)

 

$

26,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended December 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

88,505

 

$

(3,371)

 

$

85,134

 

 

Cost of goods sold, IT processing, servicing and support

$

60,823

 

$

(3,371)

 

$

57,452

 

 

 

 

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amounts reported for the six months ended December 31, 2020, include the correction of the error.

 

 

9


 

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Restatement of financial statements (continued)

 

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support (continued)

 

The table below presents the impact of the restatement on the affected lines in the Processing and Total columns included in the revenue note (Note 16) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

 

 

 

 

Three months ended

 

Three months ended

 

Six months ended

 

 

 

 

September 30, 2020(1)

 

December 31, 2019

 

 

 

 

Processing

 

Total

 

Processing

 

Total

 

Processing

 

Total

 

Processing fees - as restated

$

16,330

 

$

16,929

 

$

14,938

 

$

16,236

 

$

29,132

 

$

31,679

 

 

As reported

 

18,307

 

 

18,906

 

 

16,587

 

 

17,885

 

 

32,503

 

 

35,050

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

South Africa - as restated

 

14,774

 

 

15,373

 

 

14,088

 

 

15,386

 

 

27,083

 

 

29,630

 

 

 

As reported

 

16,751

 

 

17,350

 

 

15,737

 

 

17,035

 

 

30,454

 

 

33,001

 

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

Rest of world

$

1,556

 

$

1,556

 

$

850

 

$

850

 

$

2,049

 

$

2,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue, derived from the following geographic locations - as restated

$

21,518

 

$

35,136

 

$

22,847

 

$

38,918

 

$

48,940

 

$

85,134

 

 

As reported

 

23,495

 

 

37,113

 

 

24,496

 

 

40,567

 

 

52,311

 

 

88,505

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

South Africa - as restated

 

19,962

 

 

33,580

 

 

21,997

 

 

38,068

 

 

46,891

 

 

83,085

 

 

 

As reported

 

21,939

 

 

35,557

 

 

23,646

 

 

39,717

 

 

50,262

 

 

86,456

 

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

Rest of world

$

1,556

 

$

1,556

 

$

850

 

$

850

 

$

2,049

 

$

2,049

 

 

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amount reported for the six months ended December 31, 2020, includes the correction of the error.

 

The table below presents the impact of the restatement to the Processing operating segment revenue included in the operating segment note (Note 18) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

 

 

 

 

 

Revenue (as restated)

 

 

 

 

 

 

Reportable Segment

 

Inter-segment

 

From external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated(1)

$

22,506

 

$

988

 

$

21,518

 

 

As reported

 

24,483

 

 

988

 

 

23,495

 

 

Correction

 

(1,977)

 

 

0

 

 

(1,977)

 

Total for the three months ended September 30, 2020 - as restated

 

36,982

 

 

1,846

 

 

35,136

 

 

As reported

 

38,959

 

 

1,846

 

 

37,113

 

 

Correction

 

(1,977)

 

 

0

 

 

(1,977)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated

$

25,022

 

$

2,175

 

$

22,847

 

 

As reported

 

26,671

 

 

2,175

 

 

24,496

 

 

Correction

 

(1,649)

 

 

0

 

 

(1,649)

 

Total for the three months ended December 31, 2019 - as restated

 

42,180

 

 

3,262

 

 

38,918

 

 

As reported

 

43,829

 

 

3,262

 

 

40,567

 

 

Correction

 

(1,649)

 

 

0

 

 

(1,649)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated

$

53,317

 

$

4,377

 

$

48,940

 

 

As reported

 

56,688

 

 

4,377

 

 

52,311

 

 

Correction

 

(3,371)

 

 

0

 

 

(3,371)

 

Total for the six months ended December 31, 2019 - as restated

 

91,852

 

 

6,718

 

 

85,134

 

 

As reported

 

95,223

 

 

6,718

 

 

88,505

 

 

Correction

$

(3,371)

 

$

0

 

$

(3,371)

 

 

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amounts reported for the six months ended December 31, 2020, include the correction of the error.

 

10


 

2.Disposal of controlling interest in FIHRST

 

2020 Disposals

 

December 2019 disposal of FIHRST

 

In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited (“FIHRST”) for $11.7 million (ZAR 172.2 million). The transaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings.

 

The table below presents the impact of the deconsolidation of FIHRST and the calculation of the net gain recognized on deconsolidation:

 

 

 

FIHRST

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2019

 

Fair value of consideration received

$

11,749

 

Less: carrying value of FIHRST, comprising

 

1,870

 

 

Cash and cash equivalents

 

854

 

 

Accounts receivable, net

 

367

 

 

Property, plant and equipment, net

 

64

 

 

Goodwill (Note 7)

 

599

 

 

Intangible assets, net

 

30

 

 

Deferred income taxes assets

 

42

 

 

Accounts payable

 

(7)

 

 

Other payables

 

(1,437)

 

 

Income taxes payable

 

(220)

 

 

Released from accumulated other comprehensive income – foreign currency translation reserve (Note 12)

 

1,578

 

 

Settlement assets

 

17,406

 

 

Settlement liabilities

 

(17,406)

 

 

 

Gain recognized on disposal, before tax

 

9,879

 

 

 

Taxes related to gain recognized on disposal, comprising:

 

0

 

 

 

 

Capital gains tax

 

2,418

 

 

 

 

Release of valuation allowance related to capital losses previously unutilized(1)

 

(2,418)

 

 

 

Transaction costs

 

136

 

 

 

 

 

Gain recognized on disposal, after tax

$

9,743

 

 

 

 

 

 

 

 

(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but not utilized. A portion of these unutilized capital losses was utilized as a result of the disposal of FIHRST and, therefore, the equivalent portion of the valuation allowance created was released.

11


 

 

3. Accounts receivable, net and other receivables and finance loans receivable, net

 

Accounts receivable, net and other receivables

 

The Company’s accounts receivable, net, and other receivables as of December 31, 2020, and June 30, 2020, are presented in the table below:

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade, net

$

 

10,288

 

 

$

 

8,458

 

 

Accounts receivable, trade, gross

 

 

10,647

 

 

 

 

8,711

 

 

Allowance for doubtful accounts receivable, end of period

 

 

359

 

 

 

 

253

 

 

 

Beginning of period

 

 

253

 

 

 

 

661

 

 

 

Reversed to statement of operations

 

 

0

 

 

 

 

(155)

 

 

 

Charged to statement of operations

 

 

70

 

 

 

 

181

 

 

 

Utilized

 

 

(11)

 

 

 

 

(151)

 

 

 

Deconsolidation

 

 

0

 

 

 

 

(178)

 

 

 

Foreign currency adjustment

 

 

47

 

 

 

 

(105)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes refundable related to sale of Net1 Korea

 

 

0

 

 

 

 

19,796

 

 

Loans provided to Carbon

 

 

3,000

 

 

 

 

3,000

 

 

Current portion of amount outstanding related to sale of remaining interest in DNI

 

 

0

 

 

 

 

2,756

 

 

Other receivables

 

 

11,159

 

 

 

 

9,058

 

 

 

Total accounts receivable, net and other receivables

$

 

24,447

 

 

$

 

43,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In January 2020, the Company agreed that the purchaser of Net1 Korea would withhold potential capital gains taxes of approximately $19.8 million (KRW 23.8 billion) from the Net1 Korea transaction price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities. Net1 BV commenced a process to claim a refund from the South Korean tax authorities of the potential amount withheld and received this amount of approximately $20.1 million (KRW 23.8 billion) in September 2020.

 

On October 26, 2020, DNI settled the full amount outstanding of $5.7 million related to sale of the remaining interest in DNI, including the amounts included in other long-term assets, refer to Note 6. The Company received $0.3 million on September 30, 2020, for total receipts of $6.0 million.

 

Other receivables include prepayments, deposits and other receivables.

 

Finance loans receivable, net

 

The Company’s finance loans receivable, net, as of December 31, 2020, and June 30, 2020, is presented in the table below:

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Microlending finance loans receivable, net

$

 

21,620

 

 

$

 

15,879

 

 

Microlending finance loans receivable, gross

 

 

24,017

 

 

 

 

17,737

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

2,397

 

 

 

 

1,858

 

 

 

Beginning of period

 

 

1,858

 

 

 

 

3,199

 

 

 

Reversed to statement of operations

 

 

(557)

 

 

 

 

(492)

 

 

 

Charged to statement of operations

 

 

1,105

 

 

 

 

1,211

 

 

 

Utilized

 

 

(369)

 

 

 

 

(1,451)

 

 

 

Foreign currency adjustment

 

 

360

 

 

 

 

(609)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital finance loans receivable, gross

 

 

0

 

 

 

 

5,800

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

0

 

 

 

 

5,800

 

 

 

Beginning of period

 

 

5,800

 

 

 

 

5,800

 

 

 

Utilized

 

 

(5,800)

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total accounts receivable, net

$

 

21,620

 

 

$

 

15,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross microlending finance loans receivable as of December 31, 2020, increased compared to June 30, 2020, following subdued lending activity due to COVID-19 restrictions in April and early May 2020. The Company was unable to originate any significant loans in April and early May 2020.

12


 

3. Accounts receivable, net and other receivables and finance loans receivable, net (continued)

 

Finance loans receivable, net (continued)

 

The Company created an allowance for doubtful working capital finance receivables related to a receivable due from a customer based in the United States during the year ended June 30, 2018. The Company commenced legal proceedings against the customer in 2018. The customer is engaged in bankruptcy proceedings. In December 2020, the Company withdrew its claim lodged in the bankruptcy proceedings because it does not believe it will recover the receivable via these proceedings, or via any other process. In December 2020, the Company utilized the entire allowance for doubtful working capital finance receivables against the outstanding receivable.

 

4. Inventory

 

The Company’s inventory comprised the following categories as of December 31, 2020, and June 30, 2020:

 

 

 

December 31,

 

 

June 30,

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

Finished goods

$

20,939

 

$

15,618

 

 

Finished goods subject to sale restrictions

 

0

 

 

4,242

 

 

 

$

20,939

 

$

19,860

 

 

Finished goods subject to sale restrictions represents airtime inventory purchased in March 2020, that could only be sold by the Company from October 1, 2020.As of December 31, 2020, finished goods includes $16.4 million of airtime inventory that was previously classified as finished goods subject to sale restrictions.

 

 

5. Fair value of financial instruments

 

Initial recognition and measurement

 

Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs.

 

Risk management

 

The Company manages its exposure to currency exchange, translation, interest rate, customer concentration, credit and equity price and liquidity risks as discussed below.

 

Currency exchange risk

 

The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.

 

Translation risk

 

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

 

Interest rate risk

 

As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. The Company generally maintains investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities.

 

Microlending credit risk

 

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

13


 

5. Fair value of financial instruments (continued)

 

Risk management (continued)

 

Credit risk

 

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies in respect of its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

 

Equity price and liquidity risk

 

Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

 

Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which those securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange traded price, or at all.

 

Financial instruments

 

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

 

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

 

Asset measured at fair value using significant unobservable inputs – investment in Cell C

 

The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of December 31, 2020, and June 30, 2020, and valued Cell C at $0.0 (zero) at December 31, 2020, and June 30, 2020. The Company believes the Cell C business plan utilized in the Company’s valuation is reasonable based on the current performance and the expected changes in Cell C’s business model. The Company changed certain valuation assumptions when preparing the December 31, 2020, valuation compared with the June 30, 2020, valuation. For the December 31, 2020, valuation, the Company incorporated the payments under the lease liabilities into the cash flow forecasts instead of including the December 31, 2020, carrying value in net debt and assumed that the deferred tax asset would be utilized over the forecast period instead of including the fair value of the deferred tax asset as of December 31, 2020, in the valuation. For the June 30, 2020, valuation, the Company included the carrying value of the lease liabilities within net debt and included the June 30, 2020, fair value of the deferred tax asset in the valuation. The Company utilized the latest approved business plan provided by Cell C management for the period ended December 31, 2025, for the December 31, 2020 valuation and the period ended December 31, 2024 for the June 30, 2020 valuation, and the following key valuation inputs were used as of December 31, 2020 and June 30, 2020:

 

 

Weighted Average Cost of Capital ("WACC"):

Between 17% and 22% over the period of the forecast

 

Long term growth rate:

3% (3% as of June 30, 2020)

 

Marketability discount:

10%

 

Minority discount:

15%

 

Net adjusted external debt - December 31, 2020:(1)

ZAR 11.2 billion ($0.8 billion), includes no lease liabilities

 

Net adjusted external debt - June 30, 2020:(2)

ZAR 15.8 billion ($0.9 billion), includes ZAR4.4 billion of lease liabilities

 

Deferred tax (incl, assessed tax losses) - December 31, 2020:(1)

ZAR 0 ($0)

 

Deferred tax (incl, assessed tax losses) - June 30, 2020:(2)

ZAR 2.9 billion ($167.3 million)

(1) translated from ZAR to U.S. dollars at exchange rates applicable as of December 31, 2020.

(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2020.

14


 

5. Fair value of financial instruments (continued)

 

Financial instruments (continued)

 

Asset measured at fair value using significant unobservable inputs – investment in Cell C (continued)

 

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 1.0% increase and 1.0% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on December 31, 2020, all amounts translated at exchange rates applicable as of December 31, 2020:

 

 

Sensitivity for fair value of Cell C investment

 

1.0% increase

 

1.0% decrease

 

 

WACC rate

$

0

$

1,514

 

 

EBITDA margin

$

627

$

0

 

 

The fair value of the Cell C shares as of December 31, 2020, represented 0% of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given the current situation of Cell C’s business.

 

Derivative transactions - Foreign exchange contracts

 

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. All of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that are measured under Level 1 or 3 of the fair value hierarchy. The Company had 0 outstanding foreign exchange contracts as of December 31, 2020, or June 30, 2020.

 

The following table presents the Company’s assets measured at fair value on a recurring basis as of December 31, 2020, according to the fair value hierarchy:

 

 

 

 

 

 

 

Quoted Price in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cell C

$

0

 

$

0

 

$

0

 

$

0

 

 

Related to insurance business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash (included in other long-term assets)

 

593

 

 

0

 

 

0

 

 

593

 

 

 

Fixed maturity investments (included in cash and cash equivalents)

 

0

 

 

0

 

 

0

 

 

0

 

 

 

Total assets at fair value

$

593

 

$

0

 

$

0

 

$

593

 

 

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2020, according to the fair value hierarchy:

 

 

 

 

 

 

 

Quoted Price in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cell C

$

0

 

$

0

 

$

0

 

$

0

 

 

Related to insurance business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (included in other long-term assets)

 

490

 

 

0

 

 

0

 

 

490

 

 

 

Fixed maturity investments (included in cash and cash equivalents)

 

4,198

 

 

0

 

 

0

 

 

4,198

 

 

 

 

Total assets at fair value

$

4,688

 

$

0

 

$

0

 

$

4,688

 

15


 

 

5. Fair value of financial instruments (continued)

 

There have been 0 transfers in or out of Level 3 during the three and six months ended December 31, 2020 and 2019, respectively.

 

There was 0 movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three and six months ended December 31, 2020 and 2019.

 

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the six months ended December 31, 2020:

 

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as of June 30, 2020

$

0

 

 

 

Foreign currency adjustment(1)

 

0

 

 

 

 

Balance as of December 31, 2020

$

0

 

 

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

 

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the six months ended December 31, 2019:

 

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as at June 30, 2019

$

0

 

 

 

Foreign currency adjustment(1)

 

0

 

 

 

 

Balance as of December 31, 2019

$

0

 

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

 

Assets measured at fair value on a nonrecurring basis

 

The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value and the excess is determined to be other-than-temporary. Refer to Note 6 for impairment charges recorded during the reporting periods presented herein. The Company has no liabilities that are measured at fair value on a nonrecurring basis.

 

 

 

6.Equity-accounted investments and other long-term assets

 

Refer to Note 10 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding its equity-accounted investments and other long-term assets.

 

Equity-accounted investments

 

The Company’s ownership percentage in its equity-accounted investments as of December 31, 2020, and June 30, 2020, was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2020

 

 

Bank Frick & Co AG (“Bank Frick”)

 

35

%

 

35

%

 

 

Finbond Group Limited (“Finbond”)

 

31

%

 

31

%

 

 

Carbon Tech Limited (“Carbon”)

 

25

%

 

25

%

 

 

Revix (“Revix”)

 

25

%

 

25

%

 

 

SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)

 

50

%

 

50

%

 

 

V2 Limited (“V2”)

 

50

%

 

50

%

 

 

Walletdoc Proprietary Limited (“Walletdoc”)

 

0

 

 

20

%

 

 

16


 

6.Equity-accounted investments and other long-term assets (continued)

 

Equity-accounted investments (continued)

 

Finbond

 

As of December 31, 2020, the Company owned 268,820,933 shares in Finbond representing approximately 31% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on December 31, 2020, the last trading day of the month, was ZAR 0.99 per share. The market value, using the December 31, 2020, closing price, of the Company’s holding in Finbond on December 31, 2020, was ZAR 266.1 million ($18.2 million translated at exchange rates applicable as of December 31, 2020).

 

Finbond published its half-year results to August 2020 in October 2020, which included the financial impact of the COVID-19 pandemic on its reported results during the reporting period. Finbond incurred losses during the six months to August 2020, and experienced a slow-down in its lending activities. Finbond reported that its lending activities have increased again since August 2020, albeit at a slower pace compared with the prior calendar period. Finbond’s share price declined substantially during the period from its fiscal year end (February 2020) to September 30, 2020, and the weakness in its traded share price continued post September 30, 2020. The Company considered the combination of the slow-down in business activity and the lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020. The Company recorded an impairment loss of $16.8 million during the quarter ended September 30, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). There is limited trading in Finbond shares on the JSE because it has 3 shareholders that own approximately 90% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the September 30, 2020, Finbond closing price of $1.04.

 

The Company performed a further impairment assessment of its holding in Finbond as of December 31, 2020, following a modest decline in its market price during the quarter ended December 31, 2020. The Company recorded an impairment loss of $0.8 million during the quarter ended December 31, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the December 31, 2020, Finbond closing price. The total impairment charge for the six months ended December 31, 2020, was $17.6 million.

 

V2 Limited

 

In June 2020, V2 Limited drew down $0.5 million of the $5.0 million working capital facility granted by the Company to V2. In September 2020, the Company agreed to grant V2 an option to acquire the Company’s entire interest in V2 for an option price of $5.0 million plus the face value of the outstanding working capital facility. The option expired on December 31, 2020. The Company and V2 also agreed to reduce the $5.0 million working capital facility to $1.5 million. In October 2020, V2 drew down the remaining available $1.0 million of the working capital facility. The Company does not expect to recover its carrying value in V2 and has impaired its remaining interest in V2, recording an impairment loss of $0.5 million during the three and six months ended December 31, 2020. The Company also created an allowance for doubtful loans receivable of $0.5 million during the three and six months ended December 31, 2020, related to a portion of the working capital facility outstanding as of December 31, 2020.

 

Other

 

In November 2020, the Company’s subsidiary, Net1 SA, signed an agreement with Walletdoc under which Walletdoc agreed to repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest in Walletdoc to Walletdoc.

17


 

6.Equity-accounted investments and other long-term assets (continued)

 

Equity-accounted investments (continued)

 

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the six months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

Bank Frick

 

Finbond

 

Other(1)

 

Total

 

 

Investment in equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

29,739

 

$

30,876

 

$

4,601

 

$

65,216

 

 

 

 

Stock-based compensation

 

0

 

 

(40)

 

 

0

 

 

(40)

 

 

 

 

Comprehensive (loss) income:

 

979

 

 

(18,579)

 

 

(865)

 

 

(18,465)

 

 

 

 

 

Other comprehensive income

 

0

 

 

1,688

 

 

0

 

 

1,688

 

 

 

 

 

Equity accounted (loss) earnings

 

979

 

 

(20,267)

 

 

(865)

 

 

(20,153)

 

 

 

 

 

 

Share of net (loss) income

 

979

 

 

(2,617)

 

 

(317)

 

 

(1,955)

 

 

 

 

 

 

Impairment

 

0

 

 

(17,650)

 

 

(548)

 

 

(18,198)

 

 

 

 

Dividends received

 

0

 

 

0

 

 

(125)

 

 

(125)

 

 

 

 

Disposal of equity-accounted investment

 

0

 

 

0

 

 

(13)

 

 

(13)

 

 

 

 

Foreign currency adjustment(2)

 

2,301

 

 

3,178

 

 

74

 

 

5,553

 

 

 

Balance as of December 31, 2020

$

33,019

 

$

15,435

 

$

3,672

 

$

52,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

0

 

$

0

 

$

620

 

$

620

 

 

 

 

Loans granted

 

0

 

 

0

 

 

1,238

 

 

1,238

 

 

 

 

Allowance for doubtful loans

 

0

 

 

0

 

 

(738)

 

 

(738)

 

 

 

 

Loans repaid

 

0

 

 

0

 

 

(134)

 

 

(134)

 

 

 

 

Foreign currency adjustment(2)

 

0

 

 

0

 

 

14

 

 

14

 

 

 

Balance as of December 31, 2020

$

0

 

$

0

 

$

1,000

 

$

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

Loans

 

Total

 

 

Carrying amount as of :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

$

65,216

 

$

620

 

$

65,836

 

 

 

 

December 31, 2020

 

 

 

$

52,126

 

$

1,000

 

$

53,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc.

(2) The foreign currency adjustment represents the effects of the fluctuations of the Swiss franc, ZAR, Nigerian naira and Namibian dollar, against the U.S. dollar on the carrying value.

 

Other long-term assets

 

Summarized below is the breakdown of other long-term assets as of December 31, 2020, and June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity investments

$

42,121

 

$

26,993

 

 

 

Investment in 15% of Cell C, at fair value (Note 5)

 

0

 

 

0

 

 

 

Investment in 12% of MobiKwik

 

42,121

 

 

26,993

 

 

 

Investment in 87.5% of CPS(1)

 

0

 

 

0

 

Total held to maturity investments

 

-

 

 

-

 

 

 

Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes

 

0

 

 

0

 

Long-term portion of amount due from DNI related to sale of remaining interest in DNI

 

0

 

 

2,857

 

Policy holder assets under investment contracts (Note 8)

 

593

 

 

490

 

Reinsurance assets under insurance contracts (Note 8)

 

1,193

 

 

1,006

 

 

 

Total other long-term assets

$

43,907

 

$

31,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.

 

18


 

6.Equity-accounted investments and other long-term assets (continued)

 

Other long-term assets (continued)

 

MobiKwik

 

In early November 2020, MobiKwik entered into an agreement to raise additional capital through the issuance of additional shares to a new shareholder at a valuation of $135.54 per share. The Company considered this transaction to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik. The Company used this valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $15.1 million from $27.0 million to $42.1 million as of December 31, 2020. The change in the fair value of MobiKwik of $15.1 million is included in the caption “Change in fair value of equity securities” in the unaudited condensed consolidated statement of operations for the three and six months ended December 31, 2020.

 

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

15,128

 

$

0

 

$

42,121

 

 

 

Investment in CPS

 

0

 

 

0

 

 

0

 

 

0

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

0

 

 

0

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

15,128

 

$

0

 

$

42,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

0

 

$

0

 

$

26,993

 

 

 

Investment in CPS

 

0

 

 

0

 

 

0

 

 

0

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

0

 

 

0

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

0

 

$

0

 

$

26,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturities of held to maturity investments

 

Summarized below is the contractual maturity of the Company’s held to maturity investment as of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Estimated fair value(1)

 

 

Due in one year or less

$

0

 

$

0

 

 

Due in one year through five years(2)

 

0

 

 

0

 

 

Due in five years through ten years

 

0

 

 

0

 

 

Due after ten years

 

0

 

 

0

 

 

 

 

Total

$

0

 

$

0

 

 

 

(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.

(2) The cost basis is zero ($0.0 million).

19


 

 

 

 

7.Goodwill and intangible assets, net

 

Goodwill

 

Summarized below is the movement in the carrying value of goodwill for the six months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross value

 

 

Accumulated impairment

 

 

Carrying value

 

 

 

Balance as of June 30, 2020

 

$

63,194

 

$

(39,025)

 

$

24,169

 

 

 

 

Foreign currency adjustment (1)

 

 

5,490

 

 

(1,204)

 

 

4,286

 

 

 

 

 

Balance as of December 31, 2020

 

$

68,684

 

$

(40,229)

 

$

28,455

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the U.S. dollar on the carrying value.

 

Refer to Note 18 for additional information regarding changes to the Company’s reportable segments during the six months ended December 31, 2020. Goodwill has been allocated to the Company’s reportable segments as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

 

Financial services

 

 

Technology

 

 

Carrying value

 

 

Balance as of June 30, 2020

 

$

9,989

 

$

0

 

$

14,180

 

$

24,169

 

 

 

Foreign currency adjustment (1)

 

 

1,701

 

 

0

 

 

2,585

 

 

4,286

 

 

 

 

Balance as of December 31, 2020

 

$

11,690

 

$

0

 

$

16,765

 

$

28,455

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the U.S. dollar on the carrying value.

 

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 31, 2020, and June 30, 2020:

 

 

 

 

 

 

As of December 31, 2020

 

As of June 30, 2020

 

 

 

 

 

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

20,620

 

$

(20,467)

 

$

153

 

$

19,064

 

$

(18,806)

 

$

258

 

 

 

Software and unpatented

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

technology

 

4,190

 

 

(4,190)

 

 

0

 

 

3,931

 

 

(3,931)

 

 

0

 

 

 

FTS patent

 

2,614

 

 

(2,614)

 

 

0

 

 

2,211

 

 

(2,211)

 

 

0

 

 

 

Trademarks

 

3,034

 

 

(2,651)

 

 

383

 

 

2,731

 

 

(2,377)

 

 

354

 

 

 

Total finite-lived intangible assets

$

30,458

 

$

(29,922)

 

$

536

 

$

27,937

 

$

(27,325)

 

$

612

 

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial institution licenses

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

Total infinite-lived intangible assets

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

 

 

 

 

 

$

536

 

 

 

 

 

 

 

$

612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20


 

7.Goodwill and intangible assets, net (continued)

 

Intangible assets (continued)

 

Aggregate amortization expense on the finite-lived intangible assets for the three months ended December 31, 2020 and 2019, was approximately $0.1 million and $0.1 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2020 and 2019, was approximately $0.2 million and $0.2 million, respectively.

 

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on December 31, 2020, is presented in the table below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.

 

 

Fiscal 2021

 

$

376

 

 

Fiscal 2022

 

 

70

 

 

Fiscal 2023

 

 

70

 

 

Fiscal 2024

 

 

70

 

 

Fiscal 2025

 

 

69

 

 

Thereafter

 

 

70

 

 

 

Total future estimated annual amortization expense

 

 

 

 

 

 

 

 

$

725

 

 

8.Assets and policyholder liabilities under insurance and investment contracts

 

Reinsurance assets and policyholder liabilities under insurance contracts

 

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the six months ended December 31, 2020:

 

 

 

 

 

 

Reinsurance Assets(1)

 

 

Insurance contracts(2)

 

 

Balance as of June 30, 2020

$

1,006

 

$

(1,370)

 

 

 

Increase in policy holder benefits under insurance contracts

 

220

 

 

3,721

 

 

 

Claims and policyholders’ benefits under insurance contracts

 

(216)

 

 

(3,729)

 

 

 

Foreign currency adjustment(3)

 

183

 

 

(249)

 

 

 

 

Balance as of December 31, 2020

$

1,193

 

$

(1,627)

 

(1) Included in other long-term assets (refer to Note 6);

(2) Included in other long-term liabilities;

(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.

 

The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however, if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa. The process of deriving the best estimates assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).

 

Assets and policyholder liabilities under investment contracts

 

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the six months ended December 31, 2020:

 

 

 

 

 

Assets(1)

 

Investment contracts(2)

 

 

Balance as of June 30, 2020

$

490

 

$

(490)

 

 

 

Increase in policy holder benefits under investment contracts

 

13

 

 

(13)

 

 

 

Foreign currency adjustment (3)

 

90

 

 

(90)

 

 

 

 

Balance as of December 31, 2020

$

593

 

$

(593)

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included in other long-term assets (refer to Note 6);

(2) Included in other long-term liabilities;

(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.

 

The Company does not offer any investment products with guarantees related to capital or returns.

21


 

 

9.Borrowings

 

Refer to 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, 2020, for additional information regarding its borrowings.

 

South Africa

 

Nedbank facility, comprising short-term facilities

 

On November 2, 2020, the Company amended its short-term South African credit facility with Nedbank Limited to increase the indirect and derivative facilities component of the facility from ZAR 150.0 million to ZAR 159.0 million. As of December 31, 2020, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 459.0 million ($31.3 million). The credit facility comprises an overdraft facility of (i) up to ZAR 300.0 million ($20.5 million), which is further split into (a) a ZAR 250.0 million ($17.1 million) overdraft facility which may only be used to fund mobile ATMs and (b) a ZAR 50.0 million ($3.4 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 159.0 million ($10.8 million), which include guarantees, letters of credit and forward exchange contracts.

 

Movement in short-term credit facilities

 

Summarized below are the Company’s short-term facilities as of December 31, 2020, and the movement in the Company’s short-term facilities from as of June 30, 2020 to as of December 31, 2020, as well as the respective interest rates applied to the borrowings as of December 31, 2020:

 

 

 

 

 

 

 

 

South Africa

 

 

Total

 

 

 

 

 

 

 

RMB

 

Nedbank

 

 

 

 

 

Short-term facilities available as of December 31, 2020

$

81,852

 

$

31,310

 

$

113,162

 

 

 

Overdraft

 

0

 

 

3,410

 

 

3,410

 

 

 

Overdraft restricted as to use for ATM funding only

 

81,852

 

 

17,052

 

 

98,904

 

 

 

Indirect and derivative facilities

 

0

 

 

10,848

 

 

10,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate (%), based on South African prime rate

 

7.00

 

 

 

 

 

 

 

 

Interest rate (%), based on South African prime rate less 1.15%

 

 

 

 

5.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized overdraft facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

14,756

 

 

58

 

 

14,814

 

 

 

 

Utilized

 

189,928

 

 

16,551

 

 

206,479

 

 

 

 

Repaid

 

(155,670)

 

 

(9,438)

 

 

(165,108)

 

 

 

 

Foreign currency adjustment(1)

 

4,720

 

 

(102)

 

 

4,618

 

 

 

 

 

Balance as of December 31, 2020

 

53,734

 

 

7,069

 

 

60,803

 

 

 

 

 

 

Restricted as to use for ATM funding only

 

53,734

 

 

7,069

 

 

60,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized indirect and derivative

 

 

 

 

 

 

 

 

 

 

facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020(2)

 

0

 

 

5,398

 

 

5,398

 

 

 

 

Utilized

 

0

 

 

3,826

 

 

3,826

 

 

 

 

Foreign currency adjustment(1)

 

0

 

 

1,455

 

 

1,455

 

 

 

 

 

Balance as of December 31, 2020(2)

$

0

 

$

10,679

 

$

10,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

(2) As of December 31, 2020 and June 30, 2020, the Company had utilized approximately ZAR 156.6 million ($10.7 million) and ZAR 93.6 million ($5.4 million), respectively, of its indirect and derivative facilities of ZAR 159.0 million (June 30, 2020: ZAR 150 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note 20).

22


 

10.Other payables

 

Summarized below is the breakdown of other payables as of December 31, 2020, and June 30, 2020:

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

Accruals

 

$

7,073

 

$

6,045

 

 

Provisions

 

 

3,048

 

 

4,926

 

 

Other

 

 

13,140

 

 

11,329

 

 

Value-added tax payable

 

 

215

 

 

129

 

 

Payroll-related payables

 

 

1,039

 

 

887

 

 

Participating merchants' settlement obligation

 

 

551

 

 

463

 

 

 

 

$

25,066

 

$

23,779

 

 

 

 

 

 

 

 

 

 

 

 

Other includes transactions-switching funds payable, deferred income, client deposits and other payables.

 

11.Capital structure

 

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the six months ended December 31, 2020 and 2019, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the six months ended December 31, 2020 and 2019, respectively:

 

 

 

 

December 31,

 

December 31,

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Number of shares, net of treasury:

 

 

 

 

 

 

Statement of changes in equity

56,614,559

 

56,568,425

 

 

 

Non-vested equity shares that have not vested as of end of period

294,000

 

583,908

 

 

Number of shares, net of treasury, excluding non-vested equity shares that have not vested

56,320,559

 

55,984,517

 

 

12.Accumulated other comprehensive loss

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of October 1, 2020

 

 

 

 

$

(161,245)

 

$

(161,245)

 

 

 

Movement in foreign currency translation reserve

 

 

20,003

 

 

20,003

 

 

 

 

Balance as of December 31, 2020

 

 

 

 

$

(141,242)

 

$

(141,242)

 

23


 

12.Accumulated other comprehensive loss (continued)

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2019:

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of October 1, 2019

 

$

(211,179)

 

$

(211,179)

 

 

 

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

 

 

1,578

 

 

1,578

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

(491)

 

 

(491)

 

 

 

Movement in foreign currency translation reserve

 

 

19,114

 

 

19,114

 

 

 

 

Balance as of December 31, 2019

 

$

(190,978)

 

$

(190,978)

 

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2020 (as restated, Note 1)

 

 

 

 

$

(169,075)

 

$

(169,075)

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

1,688

 

 

1,688

 

 

 

Movement in foreign currency translation reserve

 

 

26,145

 

 

26,145

 

 

 

 

Balance as of December 31, 2020

 

 

 

 

$

(141,242)

 

$

(141,242)

 

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2019:

 

 

 

 

 

 

Six months ended

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2019

 

$

(195,812)

 

$

(195,812)

 

 

 

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

 

 

1,578

 

 

1,578

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

2,227

 

 

2,227

 

 

 

Movement in foreign currency translation reserve

 

 

1,029

 

 

1,029

 

 

 

 

Balance as of December 31, 2019

 

$

(190,978)

 

$

(190,978)

 

There were 0 reclassifications from accumulated other comprehensive loss to net (loss) income during the three and six months ended December 31, 2020. During the three and six months ended December 31, 2019, the Company reclassified $1.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the FIHRST disposal (refer to Note 2).

24


 

 

 

13.Stock-based compensation

 

The Company’s Amended and Restated 2015 Stock Incentive Plan and the vesting terms of certain stock-based awards granted are described in Note 18 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

 

Stock option and restricted stock activity

 

Options

 

The following table summarizes stock option activity for the six months ended December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($'000)

 

Weighted average grant date fair value

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2020

 

1,331,651

 

 

5.83

 

 

7.56

 

 

0

 

2.01

 

 

Granted - August 2020

 

150,000

 

 

3.50

 

 

3.00

 

 

166

 

1.11

 

 

Granted - November 2020

 

560,000

 

 

3.01

 

 

10.00

 

 

691

 

1.23

 

 

Exercised

 

(5,834)

 

 

3.07

 

 

-

 

 

21

 

0

 

 

Forfeited

 

(456,033)

 

 

7.03

 

 

-

 

 

-

 

2.26

 

 

 

Outstanding - December 31, 2020

 

1,579,784

 

 

4.28

 

 

8.04

 

 

2,104

 

1.59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2019

 

864,579

 

 

7.81

 

 

7.05

 

 

-

 

2.62

 

 

Granted – October 2019

 

561,000

 

 

3.07

 

 

10.00

 

 

676

 

1.20

 

 

 

Outstanding - December 31, 2019

 

1,425,579

 

 

5.94

 

 

7.81

 

 

365

 

2.07

 

On August 5, 2020, the Company granted one of its non-employee directors, Mr. Ali Mazanderani, in his capacity as a consultant to the Company, 150,000 stock options with an exercise price of $3.50. These stock options are subject to the non-employee director’s continuous service through the applicable vesting date, and half of the options vest on each of the first and second anniversaries of the grant date. The Company awarded 560,000 and 561,000 stock options to employees during the three and six months ended December 31, 2020 and 2019, respectively. During the six months ended December 31, 2020, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $6.20 to $11.23 per share following his separation from the Company. Employees forfeited 205,999 stock options during the three and six months ended December 31, 2020. NaN stock options were forfeited during the three and six months ended December 31, 2019.

 

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 750-day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms.

 

The table below presents the range of assumptions used to value stock options granted during the six months ended December 31, 2020 and 2019:

 

 

 

 

 

 

Six months ended

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

2020

 

 

 

2019

 

 

Expected volatility

 

62

%

 

 

57

%

 

Expected dividends

 

0

%

 

 

0

%

 

Expected life (in years)

 

3

 

 

 

3

 

 

Risk-free rate

 

0.19

%

 

 

1.57

%

25


 

13.Stock-based compensation (continued)

 

Stock option and restricted stock activity (continued)

 

Options (continued)

 

The following table presents stock options vested and expected to vest as of December 31, 2020:

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expecting to vest - December 31, 2020

 

 

1,579,784

 

 

4.28

 

 

8.04

 

 

2,104

 

 

 

These options have an exercise price range of $3.01 to $11.23.

 

The following table presents stock options that are exercisable as of December 31, 2020:

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2020

 

 

472,299

 

 

6.37

 

 

7.17

 

 

274

 

 

 

During the three months ended December 31, 2020, ,181333 stock options became exercisable. NaN stock options became exercisable during the three months ended December 31, 2019. During the six months ended December 31, 2020 and 2019, respectively, 337,666 and 170,335 stock options became exercisable. The Company issues new shares to satisfy stock option exercises.

 

Restricted stock

 

The following table summarizes restricted stock activity for the six months ended December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

Number of shares of restricted stock

 

 

 

Weighted average grant date fair value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2020

 

 

1,115,500

 

 

 

5,354

 

 

 

 

Total vested

 

 

(311,300)

 

 

 

(1,037)

 

 

 

 

 

Vested – August 2020

 

 

(244,500)

 

 

 

(812)

 

 

 

 

 

Vested – September 2020 - accelerated vesting

 

 

(66,800)

 

 

 

(225)

 

 

 

Forfeitures

 

 

(510,200)

 

 

 

(1,766)

 

 

 

 

 

Non-vested – December 31, 2020

 

 

294,000

 

 

 

994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2019

 

 

583,908

 

 

 

3,410

 

 

 

 

 

 

Non-vested – December 31, 2019

 

 

583,908

 

 

 

3,410

 

 

 

During the six months ended December 31, 2020, 244,500 shares of restricted stock with time-based vesting conditions vested. In connection with the Company’s former chief executive officer’s separation, the Company agreed to accelerate the vesting of 66,800 shares of restricted stock which were granted in February 2020, and which were subject to time-based vesting. These shares of restricted stock vested on September 30, 2020. The ,510200 shares of restricted stock that were forfeited during the six months ended December 31, 2020, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

 

 

26


 

13.Stock-based compensation (continued)

 

Stock-based compensation charge and unrecognized compensation cost

 

The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2020 and 2019, of $0.2 million and $0.4 million, respectively, which comprised:

 

 

 

 

 

 

 

Total charge

 

Allocated to cost of goods sold, IT processing, servicing and support

 

Allocated to selling, general and administration

 

 

Three months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

246

 

$

-

 

$

246

 

 

 

 

Reversal of stock compensation charge related to stock options and restricted stock forfeited

 

 

(14)

 

 

-

 

 

(14)

 

 

 

 

 

Total - three months ended December 31, 2020

 

$

232

 

$

0

 

$

232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

436

 

$

-

 

$

436

 

 

 

 

 

Total - three months ended December 31, 2019

 

$

436

 

$

0

 

$

436

 

The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2020 and 2019, of $0.6 million and $0.8 million respectively, which comprised:

 

 

 

 

 

 

 

Total charge

 

Allocated to cost of goods sold, IT processing, servicing and support

 

Allocated to selling, general and administration

 

 

Six months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

928

 

$

0

 

$

928

 

 

 

 

Reversal of stock compensation charge related to stock options and restricted stock forfeited

 

$

(297)

 

$

0

 

$

(297)

 

 

 

 

 

Total - six months ended December 31, 2020

 

$

631

 

$

0

 

$

631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

823

 

$

-

 

$

823

 

 

 

 

 

Total - six months ended December 31, 2019

 

$

823

 

$

0

 

$

823

 

 

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.

 

As of December 31, 2020, the total unrecognized compensation cost related to stock options was approximately $1.3 million, which the Company expects to recognize over approximately three years. As of December 31, 2020, the total unrecognized compensation cost related to restricted stock awards was approximately $0.7 million, which the Company expects to recognize over approximately two years.

 

As of December 31, 2020, and June 30, 2020, respectively, the Company recorded a deferred tax asset of approximately $0.04 million and $0.4 million, related to the stock-based compensation charge recognized related to employees of Net1. As of December 31, 2020, and June 30, 2020, respectively, the Company recorded a valuation allowance of approximately $0.04 million and $0.4 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States. The Company deducts the difference between the market value on the date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.

27


 

 

14.(Loss) Earnings per share

 

The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method. There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended December 31, 2020 and 2019. Accordingly, the two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is described in Note 15 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended December 31, 2020 and 2019, reflects only undistributed earnings. The computation below of basic (loss) earnings per share excludes the net loss attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.

 

Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities, as the stock options do not contain non-forfeitable dividend rights.

 

The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in August 2017, March 2018, May 2018, September 2018 and February 2020, as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss) earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied. The vesting conditions for all awards made are discussed in Note 18 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

28


 

14.(Loss) Earnings per share (continued)

 

The following table presents net loss attributable to Net1 and the share data used in the basic and diluted (loss) earnings per share computations using the two-class method:

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

(in thousands except

 

 

 

(in thousands except

 

 

 

 

 

 

 

 

 

 

percent and

 

 

 

percent and

 

 

 

 

 

 

 

 

 

 

per share data)

 

 

 

per share data)

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Net1

 

$

(4,534)

 

 

$

(205)

 

 

$

(33,492)

 

 

$

(4,597)

 

 

 

 

Undistributed (loss) earnings

 

 

(4,534)

 

 

 

(205)

 

 

 

(33,492)

 

 

 

(4,597)

 

 

 

 

 

 

Continuing

 

 

(4,534)

 

 

 

(2,925)

 

 

 

(33,492)

 

 

 

(10,252)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

2,720

 

 

$

0

 

 

$

5,655

 

 

 

 

Percent allocated to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Calculation 1)

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

 

Numerator for (loss) earnings per share: basic and diluted

 

 

(4,508)

 

 

 

(202)

 

 

 

(33,098)

 

 

 

(4,549)

 

 

 

 

 

 

Continuing

 

 

(4,508)

 

 

 

(2,894)

 

 

 

(33,098)

 

 

 

(10,146)

 

 

 

 

 

 

Discontinued

 

 

0

 

 

 

2,692

 

 

 

0

 

 

 

5,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

weighted-average common shares outstanding

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

 

 

Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

 

$

0

 

 

$

(0.59)

 

 

$

(0.08)

 

 

 

 

 

 

Continuing

 

$

(0.08)

 

 

$

(0.05)

 

 

$

(0.59)

 

 

$

(0.18)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

$

0

 

 

$

0.10

 

 

 

 

Diluted

 

$

(0.08)

 

 

$

0

 

 

$

(0.59)

 

 

$

(0.08)

 

 

 

 

 

 

Continuing

 

$

(0.08)

 

 

$

(0.05)

 

 

$

(0.59)

 

 

$

(0.18)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

$

0

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Calculation 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding (A)

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B)

 

 

56,641

 

 

 

56,568

 

 

 

56,880

 

 

 

56,568

 

 

 

 

Percent allocated to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A) / (B)

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

29


 

14.(Loss) Earnings per share (continued)

 

Options to purchase 1,579,784 shares of the Company’s common stock at prices ranging from $3.01 to $11.23 per share were outstanding during the three and six months ended December 31, 2020, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock. Options to purchase 1,425,579 shares of the Company’s common stock at prices ranging from $3.07 to $11.23 per share were outstanding during the three and six months ended December 31, 2019, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which expire at various dates through November 4, 2030, were still outstanding as of December 31, 2020.

 

 

15.Supplemental cash flow information

The following table presents supplemental cash flow disclosures for the three and six months ended December 31, 2020 and 2019:

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from interest

 

$

714

 

$

1,042

 

$

1,209

 

$

1,779

 

 

 

Cash paid for interest

 

$

636

 

$

2,293

 

$

1,544

 

$

3,107

 

 

 

Cash paid for income taxes

 

$

765

 

$

2,004

 

$

16,171

 

$

3,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disaggregation of cash, cash equivalents and restricted cash

 

Cash, cash equivalents and restricted cash included on the Company’s unaudited condensed consolidated statement of cash flows includes restricted cash related to cash withdrawn from the Company’s various debt facilities to fund ATMs. This cash may only be used to fund ATMs and is considered restricted as to use and therefore is classified as restricted cash. Refer to Note 9 for additional information regarding the Company’s facilities. The following table presents the disaggregation of cash, cash equivalents and restricted cash as of December 31, 2020 and 2019, and June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

June 30, 2020

 

 

Continuing

 

$

206,251

 

$

19,390

 

$

217,671

 

 

Discontinued

 

 

0

 

 

31,329

 

 

0

 

 

 

Cash and cash equivalents

 

 

206,251

 

 

50,719

 

 

217,671

 

 

 

Restricted cash

 

 

60,803

 

 

84,360

 

 

14,814

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

267,054

 

$

135,079

 

$

232,485

 

 

Leases

The following table presents supplemental cash flow disclosure related to leases for the three and six months ended December 31, 2020 and 2019:

 

 

 

 

 

 

 

Three months ended December 31,

 

 

Six months ended December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,007

 

$

1,108

 

$

1,879

 

$

2,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

$

1,611

 

$

2,260

 

$

1,701

 

$

2,490

 

 

 

30


 

16.Revenue recognition

 

Disaggregation of revenue

 

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2020:

 

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

Processing fees

$

14,755

 

$

575

 

$

0

 

$

15,330

 

 

South Africa

 

13,877

 

 

575

 

 

0

 

 

14,452

 

 

Rest of world

 

878

 

 

0

 

 

0

 

 

878

 

Technology products

 

665

 

 

70

 

 

4,346

 

 

5,081

 

Telecom products and services

 

3,148

 

 

0

 

 

0

 

 

3,148

 

Lending revenue

 

0

 

 

5,288

 

 

0

 

 

5,288

 

Insurance revenue

 

0

 

 

1,613

 

 

0

 

 

1,613

 

Account holder fees

 

0

 

 

1,273

 

 

0

 

 

1,273

 

Other

 

244

 

 

76

 

 

252

 

 

572

 

 

Total revenue, derived from the following geographic locations

 

18,812

 

 

8,895

 

 

4,598

 

 

32,305

 

 

 

South Africa

 

17,934

 

 

8,895

 

 

4,598

 

 

31,427

 

 

 

Rest of world

$

878

 

$

0

 

$

0

 

$

878

 

As discussed in Note 18, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures during the three months ended September 30, 2020. Previously reported information has been restated.

 

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2019:

 

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

 

 

 

(as restated)

 

 

 

 

 

(as restated)(1)