Net 1 UEPS Technologies, Inc.: Form 10-Q - Filed by newsfilecorp.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 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, 4th Floor, Cnr. Jan Smuts Avenue and Bolton Road

Rosebank, Johannesburg 2196, South Africa

(Address of principal executive offices, including zip code)

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

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 [X] 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 [X] 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

[X]

Accelerated filer

 

 

 

 

[   ]

Non-accelerated filer

[X]

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 [X]

As of May 25, 2020 (the latest practicable date), 57,118,925 shares of the registrant's common stock, par value $0.001 per share, net of treasury shares, were outstanding.


EXPLANATORY NOTE

As previously disclosed in the Current Report on Form 8-K filed by Net 1 UEPS Technologies, Inc. (the "Company") on May 1, 2020, the Company expected that the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the "Report"), originally due on May 11, 2020, would be delayed due to disruptions caused by the novel coronavirus ("COVID-19") pandemic. The COVID-19 pandemic led to disruptions in the Company's day-to-day activities, including reducing its staffing levels and limiting their access to facilities and certain technology systems that the Company relies on to timely prepare its Quarterly Report on Form 10-Q. As a result, the Company required additional time to develop and process its financial information as well as prepare the required disclosures related to the impact of COVID-19 for the quarter ended March 31, 2020.

The Company relied on Release No. 34-88465 issued by the Securities and Exchange Commission on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, to delay the filing of this Quarterly Report.


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 March 31, 2020 and June 30, 2019 (as restated) 2

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2020 and 2019 (as restated) 3

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended March 31, 2020 and 2019 (as restated) 4

Unaudited Condensed Consolidated Statement of Changes in Equity for the three and nine months ended March 31, 2020 (as restated) and 2019 5

Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine months ended March 31, 2020 and 2019 (as restated) 7

Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 50
Item 3. Quantitative and Qualitative Disclosures About Market Risk 71
Item 4. Controls and Procedures 71
Part II. OTHER INFORMATION  
Item 1. Legal Proceedings 72
Item 1A. Risk Factors 72
Item 6. Exhibits 74
Signatures
74
EXHIBIT 10.66    
1

Part I. Financial information

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Balance Sheets

              March 31,     June 30,  
              2020     2019(A)  
                    (as restated)(B)  
              (In thousands, except share data)  
          ASSETS            
CURRENT ASSETS            
  Cash and cash equivalents $ 209,290   $ 20,014  
  Restricted cash (Note 10)   51,370     75,446  
  Accounts receivable, net and other receivables (Note 3)   45,842     31,135  
  Finance loans receivable, net (Note 3)   8,781     20,981  
  Inventory (Note 4)   19,328     5,709  
    Total current assets before settlement assets   334,611     153,285  
      Settlement assets (Note 5)   8,037     24,523  
      Current assets of discontinued operation (Note 2)   -     117,842  
        Total current assets   342,648     295,650  
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - March: $46,026 June: $55,427   6,150     8,227  
OPERATING LEASE RIGHT-OF-USE (Note 18)   6,060     -  
EQUITY-ACCOUNTED INVESTMENTS (Note 7)   102,515     151,116  
GOODWILL (Note 8)   23,434     37,316  
INTANGIBLE ASSETS, NET (Note 8)   840     2,228  
DEFERRED INCOME TAXES   206     234  
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7 and 9)   28,380     28,775  
LONG-TERM ASSETS OF DISCONTINUED OPERATION (Note 2)   -     149,390  
TOTAL ASSETS   510,233     672,936  
                       
          LIABILITIES            
CURRENT LIABILITIES            
  Short-term credit facilities for ATM funding (Note 10)   51,370     75,446  
  Short-term credit facilities (Note 10)   -     9,544  
  Accounts payable   7,257     9,866  
  Other payables (Note 11)   47,374     59,622  
  Operating lease right of use lease liability - current (Note 18)   2,520     -  
  Current portion of long-term borrowings (Note 10)   3,190     -  
  Income taxes payable   16,170     1,330  
    Total current liabilities before settlement obligations   127,881     155,808  
      Settlement obligations (Note 5)   8,037     24,523  
      Current liabilities of discontinued operation (Note 2)   -     57,815  
        Total current liabilities   135,918     238,146  
DEFERRED INCOME TAXES   1,922     1,926  
RIGHT-OF-USE OPERATING LEASE LIABILITY - LONG TERM (Note 18)   3,694     -  
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 9)   1,985     2,499  
LONG-TERM LIABILITIES OF DISCONTINUED OPERATION (Note 2)   -     3,264  
TOTAL LIABILITIES   143,519     245,835  
REDEEMABLE COMMON STOCK   107,672     107,672  
                       
          EQUITY            
COMMON STOCK (Note 12)            
  Authorized: 200,000,000 with $0.001 par value;            
  Issued and outstanding shares, net of treasury - March: 57,118,925 June: 56,568,425   80     80  
                       
PREFERRED STOCK            
  Authorized shares: 50,000,000 with $0.001 par value;            
  Issued and outstanding shares, net of treasury: March: - June: -   -     -  
ADDITIONAL PAID-IN-CAPITAL   278,238     276,997  
TREASURY SHARES, AT COST: March: 24,891,292 June: 24,891,292   (286,951 )   (286,951 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 13)   (218,196 )   (196,046 )
RETAINED EARNINGS   485,871     525,349  
TOTAL NET1 EQUITY   259,042     319,429  
NON-CONTROLLING INTEREST   -     -  
TOTAL EQUITY   259,042     319,429  
                       
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY $ 510,233   $ 672,936  

(A) - Derived from audited financial statements

(B) - Refer to Note 1

See Notes to Unaudited Condensed Consolidated Financial Statements

 

2

 


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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

March 31,

 

 

March 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 17)

$

$36,514

 

$

$36,586

 

$

$125,019

 

$

$149,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, IT processing, servicing and support

 

25,783

 

 

29,423

 

 

86,606

 

 

103,471

 

Selling, general and administration

 

17,454

 

 

27,597

 

 

59,494

 

 

111,004

 

Depreciation and amortization

 

1,153

 

 

3,342

 

 

3,651

 

 

9,084

 

Impairment loss (Note 8)

 

6,336

 

 

-

 

 

6,336

 

 

8,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

(14,212)

 

 

(23,776)

 

 

(31,068)

 

 

(82,576)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 6 and 7)

 

-

 

 

(26,263)

 

 

-

 

 

(42,099)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAIN ON DISPOSAL OF FIHRST (Note 2)

 

-

 

 

-

 

 

9,743

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME

 

570

 

 

1,204

 

 

2,015

 

 

4,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

1,886

 

 

3,092

 

 

6,362

 

 

8,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IMPAIRMENT OF CEDAR CELLULAR NOTE (Note 7)

 

-

 

 

2,622

 

 

-

 

 

5,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)

 

(15,528)

 

 

(54,549)

 

 

(25,672)

 

 

(133,794)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE (BENEFIT) (Note 20)

 

640

 

 

(3,551)

 

 

2,317

 

 

(5,344)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS

 

(16,168)

 

 

(50,998)

 

 

(27,989)

 

 

(128,450)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 7)

 

(32,193)

 

 

(537)

 

 

(30,624)

 

 

(353)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM CONTINUING OPERATIONS

 

(48,361)

 

 

(51,535)

 

 

(58,613)

 

 

(128,803)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME FROM DISCONTINUED OPERATIONS (Note 2)

 

747

 

 

1,163

 

 

6,402

 

 

12,358

GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATION, net of tax (Note 2)

 

12,733

 

 

(9,175)

 

 

12,733

 

 

(9,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

(34,881)

 

 

(59,547)

 

 

(39,478)

 

 

(125,620)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ADD) LESS NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST

 

-

 

 

(728)

 

 

-

 

 

2,339

 

Continuing

 

-

 

 

(485)

 

 

-

 

 

(1,362)

 

Discontinued

 

-

 

 

(243)

 

 

-

 

 

3,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

 

(34,881)

 

 

(58,819)

 

 

(39,478)

 

 

(127,959)

 

Continuing

 

(48,361)

 

 

(51,050)

 

 

(58,613)

 

 

(127,441)

 

Discontinued

$

13,480

 

$

(7,769)

 

$

19,135

 

$

(518)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings per share, in United States dollars (Note 15):

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings attributable to Net1 shareholders

$

(0.61)

 

$

(1.03)

 

$

(0.69)

 

$

(2.25)

 

Continuing

$

(0.85)

 

$

(0.90)

 

$

(1.03)

 

$

(2.24)

 

Discontinued

$

0.24

 

$

(0.13)

 

$

0.34

 

$

(0.01)

Diluted (loss) earnings attributable to Net1 shareholders

$

(0.61)

 

$

(1.03)

 

$

(0.69)

 

$

(2.25)

 

Continuing

$

(0.85)

 

$

(0.90)

 

$

(1.03)

 

$

(2.24)

 

Discontinued

$

0.24

 

$

(0.13)

 

$

0.34

 

$

(0.01)


(A) - Refer to Note 1

See Notes to Unaudited Condensed Consolidated Financial Statements



NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

              Three months ended     Nine months ended  
              March 31,     March 31,  
              2020     2019     2020     2019  
                    (as restated)(A)           (as restated)(A)  
              (In thousands)     (In thousands)  
                                   
Net loss $ (34,881 ) $ (59,547 ) $ (39,478 ) $ (125,620 )
                                   
Other comprehensive (loss) income, net of taxes                        
    Movement in foreign currency translation reserve   (41,212 )   (8,351 )   (40,183 )   (32,026 )
    Release of foreign currency translation reserve related to disposal of FIHRST   -     -     1,578     -  
    Release of foreign currency translation reserve related to disposal of Net1 Korea   14,228     -     14,228     -  
    Release of foreign currency translation reserve related to disposal of DNI   -     5,841     -     5,841  
    Movement in foreign currency translation reserve related to equity-accounted investments   -     -     2,227     5,430  
            Total other comprehensive loss, net of taxes   (26,984 )   (2,510 )   (22,150 )   (20,755 )
                                   
       Comprehensive (loss) income   (61,865 )   (62,057 )   (61,628 )   (146,375 )
                 Add comprehensive loss attributable to non-controlling interest   -     1,207     -     2,549  
                                   
                      Comprehensive loss attributable to Net1 $ (61,865 ) $ (60,850 ) $ (61,628 ) $ (143,826 )

Refer to Note 1
See Notes to Unaudited Condensed Consolidated Financial Statements



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 (as restated)(A)     Accumulated other comprehensive loss (as restated)(A)     Total Net1 Equity     Non-controlling Interest     Total     Redeemable common stock  
    For the three months ended March 31, 2019 (dollar amounts in thousands)  
Balance - January 1, 2019   81,725,217   $ 80     (24,891,292 ) $ (286,951 )   56,833,925   $ 277,463   $ 767,054   $ (198,374 ) $ 559,272   $ 91,632   $ 650,904   $ 107,672  
Stock-based compensation charge (Note 14)                                 578                 578           578        
Reversal of stock-based compensation charge (Note 14)   (18,000 )                     (18,000 )   (91 )               (91 )         (91 )      
Dividends paid to non-controlling interest                                                   -     (1,148 )   (1,148 )      
Disposal of DNI (Note 2)                                                   -     (88,934 )   (88,934 )      
Net loss (as restated) (Note 1)                                       (58,819 )         (58,819 )   (728 )   (59,547 )      
Other comprehensive loss (as restated (Note 1 and Note 13)                                             (2,031 )   (2,031 )   (479 )   (2,510 )      
Balance - March 31, 2019   81,707,217   $ 80     (24,891,292 ) $ (286,951 )   56,815,925   $ 277,950   $ 708,235   $ (200,405 ) $ 498,909   $ 343   $ 499,252   $ 107,672  

 

    For the nine months ended March 31, 2019 (dollar amounts in thousands)  
Balance - July 1, 2018   81,577,217   $ 80     (24,891,292 ) $ (286,951 )   56,685,925   $ 276,201   $ 836,194   $ (184,538 ) $ 640,986   $ 95,911   $ 736,897   $ 107,672  
                                                                         
Restricted stock granted   148,000                       148,000                       -           -        
Stock-based compensation charge (Note 14)                                 1,763                 1,763           1,763        
Reversal of stock-based compensation charge (Note 14)   (18,000 )                     (18,000 )   (91 )               (91 )         (91 )      
Stock-based compensation charge related to equity accounted investment                                 77                 77           77        
Dividends paid to non-controlling interest                                                   -     (4,085 )   (4,085 )      
Disposal of DNI (Note 2)                                                   -     (88,934 )   (88,934 )      
Net (loss) income (as restated) (Note 1)                                       (127,959 )         (127,959 )   2,339     (125,620 )      
Other comprehensive loss (as restated) (Note 1 and Note 13)                                             (15,867 )   (15,867 )   (4,888 )   (20,755 )      
Balance - March 31, 2019   81,707,217   $ 80     (24,891,292 ) $ (286,951 )   56,815,925   $ 277,950   $ 708,235   $ (200,405 ) $ 498,909   $ 343   $ 499,252   $ 107,672  

Refer to Note 1

See Notes to Unaudited Condensed Consolidated Financial Statements



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(A)     Accumulated other comprehensive loss (As restated)(A)     Total Net1 Equity     Non-controlling Interest     Total     Redeemable common stock  
    For the three months ended March 31, 2020 (dollar amounts in thousands)  
Balance - January 1, 2020 Note 1   81,459,717   $ 80     (24,891,292 ) $ (286,951 )   56,568,425   $ 277,891   $ 520,752   $ (191,212 ) $ 320,560   $ -   $ 320,560   $ 107,672  
                                                                         
Restricted stock granted (Note 14)   568,000                       568,000                       -           -        
Stock-based compensation charge (Note 14)                                 492                 492           492        
Reversal of stock-based compensation charge (Note 14)   (17,500 )                     (17,500 )   (145 )               (145 )         (145 )      
Net loss                                       (34,881 )         (34,881 )   -     (34,881 )      
Other comprehensive loss (Note 13)                                             (26,984 )   (26,984 )   -     (26,984 )      
Balance - March 31, 2020   82,010,217   $ 80     (24,891,292 ) $ (286,951 )   57,118,925   $ 278,238   $ 485,871   $ (218,196 ) $ 259,042   $ -   $ 259,042   $ 107,672  

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


    For the nine months ended March 31, 2020 (dollar amounts in thousands)  
Balance - July 1, 2019 Note 1   81,459,717   $ 80     (24,891,292 ) $ (286,951 )   56,568,425   $ 276,997   $ 525,349   $ (196,046 ) $ 319,429   $ -   $ 319,429   $ 107,672  
Restricted stock granted   568,000                       568,000     -                 -           -        
Stock-based compensation charge (Note 14)                                 1,315                 1,315           1,315        
Reversal of stock-based compensation charge (Note 14)   (17,500 )                     (17,500 )   (145 )               (145 )         (145 )      
Stock-based compensation charge related to equity accounted investment (Note 7)                                 71                 71           71        
Net loss                                       (39,478 )         (39,478 )   -     (39,478 )      
Other comprehensive loss (Note 13)                                             (22,150 )   (22,150 )   -     (22,150 )      
Balance - March 31, 2020   82,010,217   $ 80     (24,891,292 ) $ (286,951 )   57,118,925   $ 278,238   $ 485,871   $ (218,196 ) $ 259,042   $ -   $ 259,042   $ 107,672  

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

See Notes to Unaudited Condensed Consolidated Financial Statements



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

        Three months ended     Nine months ended  
        March 31,     March 31,  
        2020     2019     2020     2019  
              (as restated)(A)           (as restated)(A)  
        (In thousands)     (In thousands)  
                             
Cash flows from operating activities                        
  Net loss $ (34,881 ) $ (59,547 ) $ (39,478 ) $ (125,620 )
  Depreciation and amortization   3,157     9,881     12,303     30,528  
  Impairment loss (Note 2 and Note 8)   6,336     5,305     6,336     13,496  
  Movement in allowance for doubtful accounts receivable   277     396     360     31,638  
  Loss from equity-accounted investments (Note 7)   32,193     464     30,624     338  
  Movement in allowance for doubtful loans   99     -     719     -  
  Interest on Cedar Cellular note (Note 7)   -     (578 )   -     (1,950 )
  Impairment of Cedar Cellular note (Note 7)   -     2,622     -     5,354  
  Change in fair value of equity securities (Note 6 and 7)   -     26,263     -     42,099  
  Fair value adjustment related to financial liabilities   (987 )   90     (753 )   91  
  Interest payable   597     53     1,755     294  
  Facility fee amortized   -     51     -     206  
  Gain on disposal of Net1 Korea (Note 2)   (12,733 )   -     (12,733 )   -  
  Gain on disposal of FIHRST (Note 2)   -     -     (9,743 )   -  
  Loss on disposal of DNI (Note 2)   -     9,175     -     9,175  
  Loss (Profit) on disposal of property, plant and equipment   108     (147 )   (95 )   (413 )
  Stock-based compensation charge (Note 14)   347     487     1,170     1,672  
  Dividends received from equity accounted investments   677     -     2,125     454  
  Decrease (Increase) in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable   10,596     (14,938 )   13,697     6,533  
  (Increase) Decrease in inventory   (5,041 )   1,451     (18,036 )   3,612  
  (Decrease) Increase in accounts payable and other payables   (4,396 )   8,196     (4,660 )   (11,339 )
  (Decrease) Increase in taxes payable   (131 )   795     (1,087 )   2,142  
  Increase in deferred taxes   (413 )   (4,153 )   (618 )   (11,223 )
    Net cash used in operating activities   (4,195 )   (14,134 )   (18,114 )   (2,913 )
                             
Cash flows from investing activities                        
Capital expenditures   (1,042 )   (1,615 )   (4,493 )   (7,280 )
Proceeds from disposal of property, plant and equipment   59     295     362     781  
Proceeds from disposal of Net1 Korea, net of cash disposed (Note 2)   192,619     -     192,619     -  
Transaction costs paid related to disposal of Net1 Korea (Note 2)   (7,458 )   -     (7,458 )   -  
Proceeds from disposal of FIHRST, net of cash disposed (Note 2)   -     -     10,895     -  
Investment in equity-accounted investments (Note 7)   (1,250 )   (489 )   (2,500 )   (2,989 )
Loan to equity-accounted investment (Note 7)   (99 )   -     (711 )   -  
Repayment of loans by equity-accounted investments   -     -     4,268     -  
Disposal of DNI (Note 2 and Note 16)   -     (2,114 )   -     (2,114 )
Acquisition of intangible assets   -     -     -     (1,384 )
Investment in MobiKwik   -     -     -     (1,056 )
Return on investment   -     -     -     284  
Net change in settlement assets   864     (1,083 )   (9,274 )   76,879  
  Net cash provided by (used in) investing activities   183,693     (5,006 )   183,708     63,121  
                             
Cash flows from financing activities                        
Proceeds from bank overdraft (Note 10)   193,723     278,288     585,273     584,525  
Repayment of bank overdraft (Note 10)   (226,699 )   (257,097 )   (605,253 )   (502,823 )
Long-term borrowings utilized (Note 10)   -     3,609     14,798     14,613  
Repayment of long-term borrowings (Note 10)   -     (12,499 )   (11,313 )   (36,310 )
Guarantee fee   -     -     (148 )   (394 )
Finance lease capital repayments   (17 )   -     (69 )   -  
Dividends paid to non-controlling interest   -     (1,148 )   -     (4,085 )
Net change in settlement obligations   (864 )   1,083     9,274     (76,879 )
  Net cash (used in) provided by financing activities   (33,857 )   12,236     (7,438 )   (21,353 )
                             
Effect of exchange rate changes on cash   (20,060 )   (3,199 )   (19,007 )   (5,971 )
Net increase (decrease) in cash, cash equivalents and restricted cash   125,581     (10,103 )   139,149     32,884  
Cash, cash equivalents and restricted cash - beginning of period   135,079     133,041     121,511     90,054  
Cash, cash equivalents and restricted cash - end of period (Note 16) $ 260,660   $ 122,938   $ 260,660   $ 122,938  

(A) Refer to Note 1

See Notes to Unaudited Condensed Consolidated Financial Statements



NET 1 UEPS TECHNOLOGIES, INC

Notes to the Unaudited Condensed Consolidated Financial Statements

for the three and nine months ended March 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 and nine months ended March 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, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

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

Impact of COVID-19 on the Company's business

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The Company's operations were impacted by government-imposed restrictions to contain the spread of the COVID-19 pandemic. Specifically, on March 27, 2020, the South African government imposed certain emergency measures to combat the spread of COVID-19, including implementation of travel bans and closures of factories, schools, public buildings, and businesses, which remain largely in place at the date of this report. In addition to limiting movement of employees and access to the Company's corporate head office and operating branches, the following restrictions directly impacted the Company's South African operations: (i) suspension of new lending and other financial services activities, and (ii) limitations on the amount of banking-related fees that may be charged to customers.

The broader implications of COVID-19 on the Company's results of operations and overall financial performance remain uncertain. The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where the Company, its customers, suppliers or third-party business partners conduct business and as a result, the Company has begun to experience more pronounced disruptions to its operations. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, 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 identified in Part II, Item 1A. "Risk Factors" in this Form 10-Q. The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition. Refer also to Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Resolution of going concern risk

As previously reported, the Company's management implemented a number of plans to alleviate the substantial doubt about the Company's ability to continue as a going concern including the disposal of its Korean business unit (refer to Note 2) and its April 2020 sale of its remaining interest in DN Invest Proprietary Limited ("DNI") (refer to Note 7). The cash received from the disposal of its Korean business unit during the three months ended March 31, 2020 resulted in the resolution and mitigation of the going concern risk. The Company's management has determined that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after these unaudited condensed consolidated financial statements are issued as the Company believes it has sufficient cash reserves.


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

Restatement of financial statements

Related to DNI discontinued operations presentation

Subsequent to the issuance of the Company's Annual Report on Form 10-K for the year ended June 30, 2019 and its Quarterly Reports on Form 10-Q for the three months ended September 30, 2019 and the three and nine months ended March 31, 2019, it determined that its presentation of the discontinued operations of DNI-4PL Contracts Proprietary Limited in the unaudited condensed consolidated statements of operations included in those filings was incorrect. In these previous filings, the gross amounts of DNI's operations upon classification as a discontinued operation remained in the unaudited condensed consolidated statements of operations which totalled to net (loss) income. Two captioned lines below net (loss) income were presented to show the composition of the net (loss) income between continuing and discontinued operations and the details of amounts relating to DNI's discontinued operations were separately disclosed in a note. The correct presentation removes the gross amounts of a discontinued operation from the unaudited condensed consolidated statements of operations, which totals to the net (loss) income from continuing operations before presenting net income from discontinued operations and then totalling to net (loss) income.

The Company has revised the previous presentations on the unaudited condensed consolidated statements of operations and corrected them in this filing where these amounts are presented as comparative prior period amounts. The impact of these revisions has reduced each of the previously-presented line items in the unaudited condensed consolidated statements of operations preceding net income by the amounts shown in the note disclosure for DNI's discontinued operations. The revisions had no effect on previously presented net (loss) income, net (loss) income for continuing operations, net income from discontinued operations or the note disclosures for DNI's discontinued operations, excluding the effects of the disposal of Net1 Korea and the error relating to the release of the foreign currency translation reserve on deconsolidation of DNI.

Related to error identified - release of entire foreign currency translation reserve on deconsolidation of DNI in March 2019

In May 2020, the Company identified an error in assessing the accounting related to the disposal of its remaining interest in DNI in April 2020. This error relates to the misapplication of U.S. GAAP as the Company was required to release the full amount of DNI's foreign currency translation reserve from accumulated other comprehensive loss to net income when it deconsolidated DNI. The Company only released a portion of the foreign currency translation reserve related to the sale of 17% of DNI in March 2019, refer to Note 2, and should have released an additional $4.0 million in March 2019. During the three months ended June 30, 2019, the Company also sold an additional interest in DNI, refer to Note 2, and released a portion ($0.8 million) of the $4.0 million during this period, and therefore the error as of June 30, 2019, was $3.2 million. The error impacts the Company's reported results and the Company has restated its financial statements for the three and nine months ended March 31, 2019 and June 30, 2019 to correct for the error.

The tables below present the impact of the restatement on each of the Company's financial statements for the three and nine months ended March 31, 2019 and June 30, 2019:

    Condensed consolidated balance sheet  
    June 30, 2019  
    As reported     Correction     As restated  
    (in thousands)  
Accumulated other comprehensive loss $ (199,273 ) $ 3,227   $ (196,046 )
Retained earnings $ 528,576   $ (3,227 ) $ 525,349  


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

Restatement of financial statements (continued)

Related to error identified - release of entire foreign currency translation reserve on deconsolidation of DNI in March 2019 (continued)

 

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

Three months ended March 31, 2019

 

Nine months ended March 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands, except per share data)

 

(in thousands, except per share data)

 

 

Loss on disposal of discontinued operation, net of tax

$

5,140

 

$

4,035

 

$

9,175

 

$

5,140

 

$

4,035

 

$

9,175

 

 

Net loss

 

55,512

 

 

4,035

 

 

59,547

 

 

121,585

 

 

4,035

 

 

125,620

 

 

Net (loss) income attributable to Net1

 

(54,784)

 

 

(4,035)

 

 

(58,819)

 

 

(123,924)

 

 

(4,035)

 

 

(127,959)

 

 

 

Continuing

 

(51,050)

 

 

-

 

 

(51,050)

 

 

(127,441)

 

 

-

 

 

(127,441)

 

 

 

Discontinued

$

(3,734)

 

$

(4,035)

 

$

(7,769)

 

$

3,517

 

$

(4,035)

 

$

(518)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) income per share attributable to Net1 shareholders

$

(0.96)

 

$

(0.07)

 

$

(1.03)

 

$

(2.18)

 

$

(0.07)

 

$

(2.25)

 

 

 

Continuing

$

(0.90)

 

$

-

 

$

(0.90)

 

$

(2.24)

 

$

-

 

$

(2.24)

 

 

 

Discontinued

$

(0.06)

 

$

(0.07)

 

$

(0.13)

 

$

0.06

 

$

(0.07)

 

$

(0.01)

 

 

Diluted (loss) income per share attributable to Net1 shareholders

$

(0.96)

 

$

(0.07)

 

$

(1.03)

 

$

(2.18)

 

$

(0.07)

 

$

(2.25)

 

 

 

Continuing

$

(0.90)

 

$

-

 

$

(0.90)

 

$

(2.24)

 

$

-

 

$

(2.24)

 

 

 

Discontinued

$

(0.06)

 

$

(0.07)

 

$

(0.13)

 

$

0.06

 

$

(0.07)

 

$

(0.01)

 


 

 

 

Unaudited condensed consolidated statement of comprehensive (loss) income

 

 

 

 

Three months ended March 31, 2019

 

Nine months ended March 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

(in thousands)

 

 

Net loss

$

55,512

 

$

4,035

 

$

59,547

 

$

121,585

 

$

4,035

 

$

125,620

 

 

Release of foreign currency translation reserve related to disposal of DNI

 

1,806

 

 

4,035

 

 

5,841

 

 

1,806

 

 

4,035

 

 

5,841

 

 

Total other comprehensive income (loss), net of taxes

$

(6,545)

 

$

4,035

 

$

(2,510)

 

$

(24,790)

 

$

4,035

 

$

(20,755)

 


 

 

Unaudited condensed consolidated statement of changes in equity

 

 

 

Three months ended March 31, 2020

 

Nine months ended March 31, 2020

 

 

 

As reported

 

As restated

 

As reported

 

As restated

 

 

 

(in thousands)

 

(in thousands)

 

 

As reported - beginning of period

$

523,979

 

$

(194,439)

 

$

528,576

 

$

(199,273)

 

 

Correction of misstatement

 

(3,227)

 

 

3,227

 

 

(3,227)

 

 

3,227

 

 

As restated - beginning of period

$

520,752

 

$

(191,212)

 

$

525,349

 

$

(196,046)

 


 

 

 

Unaudited condensed consolidated statement of cash flows

 

 

 

 

Three months ended March 31, 2019

 

Nine months ended March 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

(in thousands)

 

 

Net loss

$

55,512

 

$

4,035

 

$

59,547

 

$

121,585

 

$

4,035

 

$

125,620

 

 

Loss on disposal of discontinued operation, net of tax

$

5,140

 

$

4,035

 

$

9,175

 

$

5,140

 

$

4,035

 

$

9,175

 



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

Recent accounting pronouncements adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance regarding Leases. The guidance increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. The amendments to current lease guidance include the recognition of assets and liabilities by lessees for those leases currently classified as operating leases. The guidance also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance was effective for the Company beginning July 1, 2019. Refer to Note 18 for the impact of the adoption of this guidance on its condensed consolidated financial statements.

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

In June 2016, the 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, 2020. Early adoption is permitted beginning July 1, 2019. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures.

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, 2020. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

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 statements disclosure.

2. Disposal of controlling interest in KSNET, FIHRST and DNI

2020 Disposals

March 2020 disposal of KSNET

On January 23, 2020, the Company, through its wholly owned subsidiary Net1 Applied Technologies Netherlands B.V. ("Net1 BV"), a limited liability private company incorporated in The Netherlands, entered into an agreement with PayletterHoldings LLC, a limited liability private company incorporated in the Republic of Korea, in terms of which Net1 BV agreed to sell its entire shareholding in Net1 Applied Technologies Korea Limited ("Net1 Korea"), a limited liability private company incorporated in the Republic of Korea and the sole shareholder of KSNET, Inc. for $237.2 million. The transaction was subject to customary closing conditions and closed on March 9, 2020. The Company no longer controls Net1 Korea and its subsidiaries and deconsolidated its investment effective March 1, 2020, and will have no continued involvement going forward.

KSNET was acquired in October 2010, and is a profitable and cash generative business, but operated autonomously and in a more developed economy, with limited overlap with the Company's other activities. The Company also believed that the intrinsic value of KSNET was not appropriately reflected in the Company's overall valuation. The Company's board of directors commenced a strategic review of its various businesses and investments last year, and ultimately evaluated and decided to sell KSNET in January 2020 in order to focus more on the Company's core strategy, boost liquidity and to maximize shareholder returns.


2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2020 Disposals (continued)

March 2020 disposal of KSNET (continued)

The table below presents the impact of the deconsolidation of Net1 Korea and its subsidiaries and the calculation of the net gain recognized on deconsolidation:

 

Net1 Korea

 

 

 

 

 

 

 

March 2020

 

Proceeds from disposal of Net1 Korea, net of cash disposed

$

192,619

 

Add: Cash and cash equivalents disposed

 

23,473

 

Add: Cash withheld by purchaser to settle South Korean taxes(1)

 

21,128

 

Fair value of consideration received

 

237,220

 

Less: carrying value of Net1 Korea, comprising

 

200,843

 

 

Cash and cash equivalents

 

23,473

 

 

Accounts receivable, net

 

30,467

 

 

Finance loans receivable, net

 

13,695

 

 

Inventory

 

2,377

 

 

Property, plant and equipment, net

 

7,601

 

 

Operating lease right of use asset

 

181

 

 

Goodwill (Note 8)

 

107,964

 

 

Intangible assets, net

 

4,655

 

 

Deferred income taxes assets

 

1,719

 

 

Other long-term assets

 

10,984

 

 

Accounts payable

 

(5,484)

 

 

Other payables

 

(5,523)

 

 

Operating lease right of use lease liability - current

 

(69)

 

 

Income taxes payable

 

(3,481)

 

 

Deferred income taxes liabilities

 

(1,497)

 

 

Right-of-use operating lease liability - long-term

 

(112)

 

 

Other long-term liabilities

 

(335)

 

 

Released from accumulated other comprehensive income - foreign currency translation reserve (Note 13)

 

14,228

 

 

Settlement assets

 

44,111

 

 

Settlement liabilities

 

(44,111)

 

 

 

Gain recognized on disposal, before transaction costs and tax

 

36,377

 

 

 

Transaction costs(2)

 

8,644

 

 

 

 

Gain recognized on disposal, before tax

 

27,733

 

 

 

 

Taxes related to gain recognized on disposal(1)

 

15,000

 

 

 

 

 

Gain recognized on disposal, after tax

$

12,733

(1) The Company is currently analyzing the tax impact of the sale of Net1 Korea on its reported results and has made a preliminary estimate of its tax exposure as $15.0 million, which amount represents approximately 21% of its expected taxable gain related to the disposal. The Company also agreed that the purchaser withhold capital gains taxes of $19.9 million (approximately KRW 23.8 billion) and non-refundable securities transaction taxes of $1.2 million (approximately KRW 1.4 billion), for a total withholding of $21.1 million, from the purchase price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities. Net1 BV has commenced the process to approach the South Korean tax authorities in order to claim a refund, in full, of the capital gains taxes withheld. The Company has included the expected amount to be refunded in the caption Accounts receivable, net and other receivables in its unaudited condensed consolidated balance sheet as of March 31, 2020, refer also to Note 3.

(2) Transaction costs include expenses incurred by the Company of $7.5 million directly related to the disposal of Net1 Korea and paid in cash and a non-refundable securities transfer tax of approximately $1.2 million which was also withheld from the purchase price and paid to the South Korean tax authorities directly by the purchaser.

Discontinued operation - Net1 Korea

The Company determined that the disposal of Net1 Korea represents a discontinued operation because it represents a strategic shift that has had a major effect on the Company's operations and financial results. The facts and circumstances leading to the disposal of Net1 Korea are described above. The gain related to the disposal of Net1 Korea is presented above. Net1 Korea, as a stand-alone holding company, and the amortization of intangible assets identified and recognized related to the KSNET acquisition were allocated to corporate/eliminations and Net1 Korea's subsidiaries, including KSNET, were allocated to the Company's international transaction processing operating segment. Net1 Korea did not have any equity method investments or any non-controlling interests. The impact of the disposal of a controlling interest in Net1 Korea on the Company's operating segments is presented in Note 19.


 

2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2020 Disposals (continued)

Discontinued operation - Net1 Korea

The table below presents certain major captions to the Company's unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and nine months ended March 31, 2020, respectively, that have not been separately presented on those statements related to the presentation of Net1 Korea as a discontinued operation (refer below for presentation related to the three and nine months ended March 31, 2019):

 

 

Net1 Korea

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

March 31,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2020

 

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

 

 

 

Revenue

$

19,044

 

$

85,375

 

 

 

 

 

Cost of goods sold, IT processing, servicing and support

 

8,246

 

 

37,377

 

 

 

 

 

Selling, general and administration

 

7,278

 

 

30,562

 

 

 

 

 

Depreciation and amortization

 

2,004

 

 

8,652

 

 

 

 

 

Operating income

 

1,516

 

 

8,784

 

 

 

 

 

Interest income

 

129

 

 

678

 

 

 

 

 

Interest expense

 

6

 

 

106

 

 

 

 

 

Net income before tax

 

1,639

 

 

9,356

 

 

 

 

 

Income tax expense

 

892

 

 

2,954

 

 

 

 

 

 

Net income from discontinued operations

$

747

 

$

6,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposal of discontinued operation

 

 

 

 

 

 

 

 

 

Gain on disposal of discontinued operation

$

27,733

 

$

27,733

 

 

 

 

Taxes related to disposal of discontinued operation

 

15,000

 

 

15,000

 

 

 

 

 

Gain on disposal of discontinued operation after tax

$

12,733

 

$

12,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited condensed consolidated statement of cash flow

 

 

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

 

 

 

Total net cash provided by operating activities

$

3,758

 

$

18,323

 

 

 

 

 

Total net cash provided by (used in) investing activities

$

1,524

 

$

(8,281)

 

The table below presents the Net1 Korea balances included on the Company's condensed consolidated balance sheet as of June 30, 2019, translated at the foreign exchange rates applicable as of June 30, 2019:

 

Net1 Korea

 

 

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

 

 

2019

 

 

Current assets of discontinued operation

$

117,842

 

 

 

Cash and cash equivalents

 

26,051

 

 

 

Accounts receivable, net

 

41,359

 

 

 

Finance loans receivable, net

 

9,650

 

 

 

Inventory

 

1,826

 

 

 

Settlement assets

 

38,956

 

 

Long-term assets of discontinued operation

 

149,390

 

 

 

Property, plant and equipment, net

 

10,327

 

 

 

Goodwill (Note 8)

 

112,071

 

 

 

Intangible assets, net

 

9,661

 

 

 

Deferred income taxes assets

 

1,917

 

 

 

Other long-term assets

 

15,414

 

 

Current liabilities of discontinued operation

 

57,815

 

 

 

Accounts payable

 

7,139

 

 

 

Other payables

 

6,827

 

 

 

Income taxes payable

 

4,893

 

 

 

Settlement liabilities

 

38,956

 

 

Long-term liabilities of discontinued operation

 

3,264

 

 

 

Deferred income taxes liabilities

 

2,756

 

 

 

Other long-term liabilities

$

508

 



2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2020 Disposals (continued)

December 2019 disposal of FIHRST

In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited ("FIHRST") for $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 - refer to Note 10.

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 8)

 

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 13)

 

1,578

 

 

Settlement assets

 

17,406

 

 

Settlement liabilities

 

(17,406)

 

 

 

Gain recognized on disposal, before tax

 

9,879

 

 

 

Taxes related to gain recognized on disposal, comprising:

 

-

 

 

 

 

Capital gains tax

 

2,418

 

 

 

 

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.

2019 Disposal

Disposal of a controlling interest in DNI

Transaction to sell 17% during the three and nine months ended March 31, 2019

On February 28, 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into a transaction with JAA Holdings Proprietary Limited, a limited liability private company duly incorporated in the Republic of South Africa, and PK Gain Investment Holdings Proprietary Limited, a limited liability private company duly incorporated in the Republic of South Africa, in terms of which Net1 SA reduced its shareholding in DNI from 55% to 38%. The transaction closed on March 31, 2019. The parties used a cashless settlement process on closing, refer to Note 16. Net1 SA used the proceeds from the sale of the DNI shares to settle its ZAR 400 million ($27.6 million, translated at exchange rates applicable as of March 31, 2019) obligation to DNI to subscribe for an additional share as part of the contingent consideration settlement process. The Company no longer controlled DNI and deconsolidated its investment in DNI effective March 31, 2019.


2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2019 Disposal (continued)

Disposal of a controlling interest in DNI (continued)

Transaction to sell 8% in May 2019

On May 3, 2019, Net1 SA entered into a transaction with FirstRand Bank Limited, acting through its Rand Merchant Bank division ("RMB"), in terms of which Net1 SA further reduced its shareholding in DNI from 38% to 30% through the sale of 7,605,235 ordinary "A" shares in DNI for a transaction consideration of ZAR 215.0 million ($15.0 million) (the "RMB Disposal"). The parties used a cashless settlement process on closing. The transaction closed on May 3, 2019, and the Company used the proceeds from the sale of these DNI shares and ZAR 15.0 million of its existing cash reserves to settle its outstanding long-term borrowings of ZAR 230.0 million in full.

As of March 31, 2020, the Company owned 27.4% of the voting and economic rights of DNI and has accounted for its investment in DNI using the equity method, refer to Note 7.

The table below presents the impact of the deconsolidation of DNI and the calculation of the net loss recognized on deconsolidation:

DNI (as restated, refer to Note 1)

 

 

 

 

 

 

 

 

 

 

 

Equity method investment as of March 31, 2019

 

 

 

 

 

 

 

 

 

Total

 

17% sold

 

8% retained interest sold in May 2019

 

30% retained interest

 

Attributed to non-controlling interest

 

Fair value of consideration received

$

27,626

$

27,626

$

-

$

-

$

-

 

Fair value of retained interest in 30% of DNI(1)

 

74,195

 

-

 

14,849

 

59,346

 

-

 

Carrying value of non-controlling interest

 

88,934

 

-

 

-

 

-

 

88,934

 

Subtotal

 

190,755

 

27,626

 

14,849

 

59,346

 

88,934

 

Less: carrying value of DNI, comprising

 

199,930

 

38,346

 

14,540

 

58,110

 

88,934

 

 

Cash and cash equivalents

 

2,114

 

354

 

158

 

633

 

969

 

 

Accounts receivable, net

 

24,577

 

4,116

 

1,841

 

7,358

 

11,262

 

 

Finance loans receivable, net

 

1,030

 

173

 

77

 

308

 

472

 

 

Inventory

 

893

 

149

 

66

 

268

 

410

 

 

Property, plant and equipment, net

 

1,265

 

212

 

95

 

379

 

579

 

 

Equity-accounted investments

 

242

 

41

 

19

 

72

 

110

 

 

Goodwill

 

113,003

 

18,924

 

8,466

 

33,834

 

51,779

 

 

Intangible assets, net

 

80,769

 

13,526

 

6,051

 

24,183

 

37,009

 

 

Deferred income taxes

 

28

 

5

 

2

 

8

 

13

 

 

Other long-term assets, including

 

 

 

 

 

 

 

 

 

 

 

 

reinsurance assets

 

26,553

 

4,447

 

1,989

 

7,950

 

12,167

 

 

Accounts payable

 

(5,186)

 

(868)

 

(389)

 

(1,553)

 

(2,376)

 

 

Other payables(2)

 

(16,484)

 

(2,760)

 

(1,235)

 

(4,936)

 

(7,553)

 

 

Income taxes payable

 

(2,482)

 

(416)

 

(186)

 

(743)

 

(1,137)

 

 

Deferred income taxes

 

(22,083)

 

(3,698)

 

(1,654)

 

(6,612)

 

(10,119)

 

 

Long-term debt

 

(10,150)

 

(1,700)

 

(760)

 

(3,039)

 

(4,651)

 

 

Released from accumulated other comprehensive income - foreign currency translation reserve (as restated) (Note 1 and Note 13)

 

5,841

 

5,841

 

-

 

-

 

-

 

 

 

Loss recognized on disposal, before tax, comprising

 

(9,175)

 

(10,720)

 

309

 

1,236

 

-

 

 

 

 

Related to sale of 17% of DNI

 

(10,720)

 

(10,720)

 

-

 

-

 

 

 

 

 

 

Related to fair value adjustment of retained interest in 38% of DNI

 

1,545

 

-

 

309

 

1,236

 

 

 

 

 

 

Taxes related to gain recognized on disposal(3)

 

-

 

505

 

(3,836)

 

3,331

 

 

 

 

 

 

 

Loss recognized on disposal, after tax (as restated)

$

(9,175)

$

(11,225)

$

4,145

$

(2,095)

 

 

 



2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2019 Disposal (continued)

Disposal of a controlling interest in DNI (continued)

Transaction to sell 8% in May 2019 (continued0

(1) The fair value of the retained interest in 38% of DNI of $74.2 million ($14.9 million plus $59.3 million has been calculated using the implied fair value of DNI pursuant to the RMB Disposal and has been calculated as ZAR 215.0 million divided by 7.605235% multiplied by 38%, translated to dollars at the March 31, 2019, rate of exchange. The fair value of the retained interest in DNI was included in equity-accounted investments on the Company's unaudited condensed consolidated balance sheet as of March 31, 2019.

(2) Other payables include a short-term loan of ZAR 60.5 million ($4.2 million, translated at exchange rates applicable as of March 31, 2019) due to the Company and included in accounts receivable, net on the Company's unaudited condensed consolidated balance sheet as of March 31, 2019. The loan was repaid in full in July 2019. Interest on the loan was charged at the South African prime rate.

(3) Amounts presented are net of a valuation allowance provided. Overall, the disposal of DNI resulted in a capital loss for tax purposes of approximately $1.5 million and the Company provided a valuation allowance of $1.5 million against this capital loss because it does not have any capital gains to offset against this amount. On an individual basis, the transaction to dispose of 17% of DNI resulted in a capital gain of $0.5 million and the re-measurement of the retained 38% interest resulted in a capital loss of $2.0 million ($5.3 million (8% transaction) less $3.3 million (30% transaction)). The valuation allowance of $1.5 million was provided against the $5.3 million, for a net amount presented in the table above of $3.8 million ($5.3 million less $1.5 million).

Discontinued operation - DNI and Net1 Korea

The Company determined that, following the disposal of its controlling interest, DNI should be classified as a discontinued operation because it represented a strategic shift that would have a major effect on the Company's operations and financial results as a result. Refer to Note 3 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding the deconsolidation of DNI. As discussed above, the Company has also classified Net1 Korea as a discontinued operation.

The table below presents certain major captions to the Company's unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and nine months ended March 31, 2019, that have not been separately presented on those statements related to the presentation of Net1 Korea and DNI as discontinued operations:

 

 

 

 

Three months ended March 31, 2019

 

Nine months ended March 31, 2019

 

 

 

 

 

Net1 Korea

 

DNI

 

Total

 

Net1 Korea

 

DNI

 

Total

 

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

32,056

 

$

17,842

 

$

49,898

 

$

104,007

 

$

56,337

 

$

160,344

 

 

 

Cost of goods sold, IT processing, servicing and support

 

 

13,254

 

 

7,502

 

 

20,756

 

 

42,541

 

 

27,668

 

 

70,209

 

 

 

Selling, general and administration

 

 

13,270

 

 

1,935

 

 

15,205

 

 

41,015

 

 

3,657

 

 

44,672

 

 

 

Depreciation and amortization

 

 

4,112

 

 

2,427

 

 

6,539

 

 

13,418

 

 

8,026

 

 

21,444

 

 

 

Impairment loss

 

 

-

 

 

5,305

 

 

5,305

 

 

-

 

 

5,305

 

 

5,305

 

 

 

Operating income

 

 

1,420

 

 

673

 

 

2,093

 

 

7,033

 

 

11,681

 

 

18,714

 

 

 

Interest income

 

 

251

 

 

208

 

 

459

 

 

797

 

 

707

 

 

1,504

 

 

 

Interest expense

 

 

5

 

 

396

 

 

401

 

 

17

 

 

812

 

 

829

 

 

 

Net income before tax

 

 

1,666

 

 

485

 

 

2,151

 

 

7,813

 

 

11,576

 

 

19,389

 

 

 

Income tax expense

 

 

915

 

 

146

 

 

1,061

 

 

3,285

 

 

3,761

 

 

7,046

 

 

 

Net income before earnings from equity-accounted investments

 

 

751

 

 

339

 

 

1,090

 

 

4,528

 

 

7,815

 

 

12,343

 

 

 

Earnings from equity-accounted investments(1)

 

 

-

 

 

73

 

 

73

 

 

-

 

 

15

 

 

15

 

 

 

Net income from discontinued operations

 

$

751

 

$

412

 

$

1,163

 

$

4,528

 

$

7,830

 

$

12,358

 



2. Disposal of controlling interest in KSNET, FIHRST and DNI (continued)

2019 Disposal (continued)

Discontinued operation - DNI and Net1 Korea (continued)

 

 

 

 

Three months ended March 31, 2019

 

Nine months ended March 31, 2019

 

 

 

 

Net1 Korea

 

DNI

 

Total

 

Net1 Korea

 

DNI

 

Total

 

 

Loss on disposal of discontinued operation (as restated, refer to Note 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on disposal of discontinued operation (as restated)

 

$

-

 

$

(9,175)

 

$

(9,175)

 

$

-

 

$

(9,175)

 

$

(9,175)

 

 

Taxes related to disposal of discontinued operation

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

Loss on disposal of discontinued operation after tax (as restated)

 

$

-

 

$

(9,175)

 

$

(9,175)

 

$

-

 

$

(9,175)

 

$

(9,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited condensed consolidated statement of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net cash provided by (used in) operating activities

 

$

5,341

 

$

(393)

 

$

4,948

 

$

19,161

 

$

6,635

 

$

25,796

 

 

Total net cash used in investing activities

 

$

(6,300)

 

$

(319)

 

$

(6,619)

 

$

(14,328)

 

$

(516)

 

$

(14,844)

(1) Earnings from equity-accounted investments for the three and nine months ended March 31, 2019, represents earnings attributed to equity-accounted investments owned by DNI and included in the Company's results as a result of the consolidation of DNI.

The Company retained a continuing involvement in DNI, refer to Note 7. The Company recorded earnings under the equity method related to its retained investment in DNI during the three and nine months ended March 31, 2020, refer to Note 7. The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the three and nine months ended March 31, 2020:

 

 

DNI

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

Revenue generated from transactions with DNI

 

 

 

 

 

 

 

$

-

 

$

-

 

 

 

Expenses incurred related to transactions with DNI

 

 

 

 

 

 

 

$

295

 

$

2,902

 

Refer to Note 7 for the dividends received from DNI and accounted for under the equity method during the nine months ended March 31, 2020.


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 March 31, 2020, and June 30, 2019, are presented in the table below:

 

 

 

 

 

 

March 31,

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade, net

$

 

12,691

 

 

$

 

12,637

 

 

 

Accounts receivable, trade, gross

 

 

13,076

 

 

 

 

13,298

 

 

 

Allowance for doubtful accounts receivable, end of period

 

 

385

 

 

 

 

661

 

 

 

 

Beginning of period

 

 

661

 

 

 

 

678

 

 

 

 

Reversed to statement of operations

 

 

(183)

 

 

 

 

(22)

 

 

 

 

Charged to statement of operations

 

 

145

 

 

 

 

3,118

 

 

 

 

Utilized

 

 

(128)

 

 

 

 

(3,059)

 

 

 

 

Deconsolidation

 

 

-

 

 

 

 

(38)

 

 

 

 

Foreign currency adjustment

 

 

(110)

 

 

 

 

(16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes refundable related to sale of Net1 Korea (Note 2)

 

 

19,473

 

 

 

 

-

 

 

 

Loans provided to Carbon

 

 

3,000

 

 

 

 

3,000

 

 

 

Loan provided to DNI

 

 

-

 

 

 

 

4,260

 

 

 

Other receivables

 

 

10,678

 

 

 

 

11,238

 

 

 

 

Total accounts receivable, net

$

 

45,842

 

 

$

 

31,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The loan provided to DNI was repaid in full in July 2019. Other receivables include prepayments, deposits and other receivables.

Finance loans receivable, net

The Company's finance loans receivable, net, as of March 31, 2020, and June 30, 2019, is presented in the table below:

 

 

 

 

 

 

March 31,

 

 

 

June 30,

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Microlending finance loans receivable, net

$

 

8,781

 

 

$

 

20,981

 

 

 

Microlending finance loans receivable, gross

 

 

10,509

 

 

 

 

24,180

 

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

1,728

 

 

 

 

3,199