UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]

(Mark One)

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

For the fiscal year endedJune 30, 20192022

or

[   ]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

LESAKA TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

President Place, 4^th Floor, Cnr. Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg 2196, South Africa
(Address of principal executive offices)

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

Securities registered pursuant to sectionSection 12(b) of the Act:

Securities registered pursuant to sectionSection 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [   ]☐ No [X]☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ]☐ No [X]☒

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 filingsfiling 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 and post such files).
Yes [X]☒ No [   ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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:Act (check one):

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of December 31, 20182021 (the last business day of the registrant’s most recently completed second fiscal quarter), based upon the closing price of the common stock as reported by The NasdaqNASDAQ Global Select Market on such date, was $174,172,483.$165,756,225. This calculation does not reflect a determination that persons are affiliates for any other purposes.

As of October 18, 2019,56,568,425September 6, 2022, 59,312,436 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the definitive Proxy Statement for our 20192022 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

NET 1 UEPS

LESAKA TECHNOLOGIES, INC.INC

INDEX TO ANNUAL REPORT ON FORM 10-K

Year Ended June 30, 2019
2022

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PART I

FORWARD LOOKING STATEMENTSForward Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Item 1A—“Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms and other comparable terminology. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Annual Report. We undertake no obligation to release publicly any revisions to the forward-looking statements after the date of this Annual Report. You should carefully review the risk factors described in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including the Quarterly Reports on Form 10-Q to be filed by us during our 20202023 fiscal year, which runs from July 1, 20192022 to June 30, 2020.2023.

ITEM 1.   BUSINESS

Overview

            We are a leading provider of financial technology, or fintech, products and services to the unbanked and underbanked in a number of emerging and developed economies. In emerging economies these customers are typically individuals, while in developed countries, they are primarily small businesses. We have developed and own most of our payment technologies, and where possible, utilize this technology to provide financial and value-added services to our customers by including them into the formal financial system.

            Our core payment technology is called the Universal Electronic Payment System, or UEPS, and its EMV interoperable derivative, UEPS/EMV, utilizes a form of distributed ledger technology, providing decentralized and biometrically secure smart cards that operate in real-time but both off-line and on-line, unlike traditional payment systems offered by major banking institutions that require immediate access through a communications network to a centralized computer.

            Our off-line UEPS system also offers the highest level of availability and affordability by removing any components that are costly and prone to outages. Our UEPS/EMV solution enables our traditional proprietary UEPS system to interoperate with the global EMV standard and allows card holders to transact at any EMV-enabled point of sale terminal or automated teller machine, or ATM. The UEPS/EMV technology has been deployed on an extensive scale in South Africa through the issuance of MasterCard-branded UEPS/EMV cards to our under-banked customers, including social welfare grant recipients. In addition to effecting purchases, cash-backs and any form of payment, our system can be used for banking, healthcare management, money transfers, voting and identification.

            Our transaction processing services include multiple forms of payment processing. We operate leading merchant processors in South Africa through EasyPay and in South Korea through KSNET, a fixed and mobile ATM infrastructure in South Africa, as well as end-to-end issuing, acquiring and processing services across Asia and Europe through our International Payments Group, or IPG. We managed more than 300,000 merchants worldwide and processed more than three billion transactions in Fiscal 2019. With two decades of experience in cryptography and secure transactions, through IPG, we have established a leadership position in partnership with Bank Frick & Co. AG, or Bank Frick, a Liechtenstein-based bank, in Europe focused on cryptocurrency processing and the development of a number of block-chain related products such as our new crypto-asset storage product.

            Our financial inclusion products and services are delivered through our UEPS-based core banking system, providing a low-cost, biometrically secure transactional bank account to our customers, and distributing a number of financial, telecom and other value-added products through this platform in order to garner a greater share of wallet. In South Africa, this system is currently deployed under the brand EasyPay Everywhere, or EPE, and at June 30, 2019, we have approximately 1.1 million active customers on the platform.

            Our technology businesses include the development and deployment of our UEPS and Mobile Virtual Card, or MVC, solutions worldwide, cryptographic solutions including the STS-6 standard for utility vending solutions, hardware security modules or HSM, chip and subscriber identity module, or SIM, cards, and the reselling of point of sale equipment.

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All references to “the Company,” “we,” “us,” or “our” are references to Net 1 UEPSLesaka Technologies, Inc. and its consolidated subsidiaries, collectively, and all references to “Net1”“Lesaka” are to Net 1 UEPSLesaka Technologies, Inc. only, except as otherwise indicated or where the context indicates otherwise.

Market Opportunity

ITEM 1.BUSINESS

Services for the under-banked: Dozens of national governments have adopted policies

Overview

At Lesaka, our mission and core purpose is to expandbring financial inclusion to their citizens. According to the most recent World Bank’s 2017 Global Findex Database, 69% of adults worldwide have access to an account atmerchants and consumers in Southern Africa by building a financial institution or through a mobile money service. In developing economies, this percentageworld-class fintech platform. Our vision is 63%. As a result, 1.7 billion adults around the world remain entirely excluded from the financial system. Globally, 20% of the banked population have inactive accounts, i.e. no transactions for twelve months, taking the market opportunity to well over 2 billion adults. This situation arises when banking fees are either too high relative to an individual’s income, a bank account provides little or no meaningful benefit or there is insufficient infrastructure to provide financial services economically in the individual’s geographic location. We refer to these people as the unbanked and the under-banked. These individuals typically receive wages, welfare benefits, money transfers or loans in the form of cash, and conduct commercial transactions, including the purchase of food and clothing, also in cash.

            Our target under-banked customer base in most emerging economies, and particularly in sub-Saharan Africa, has limited access to formal financial services and therefore relies heavily on the unregulated informal sector for such services. The power of financial technology to expand access to, and use of accounts is particularly relevant in sub-Saharan Africa, where 21% of adults have a mobile money account. Globally, the share of adults who borrow from formal sources, has remained flat between 2014 and 2017 at 23%, which implies that half of the borrowers globally rely on informal lenders resulting in exorbitant borrowing costs, questionable recovery practices and the inevitable downward debt spiral. By leveraging our smart card and mobile technologies, we are able to offer affordable, secure and reliable financial services such as transacting accounts, loans and insurance products to these consumers and alleviate some of the challenges they face in dealing with the informal sector, while also allowing them to build a credit history and gain access tooperate the broader formal financial services industry.

            Over the past two decades we have issued millions of cards across more than ten developing countries, and therefore our track record and scale uniquely position us to continue further geographical penetration of our technology in additional emerging countries.

            Similarly, in developed countries, Small and Micro Enterprises, or SMEs, frequently fall into the underbanked category due to cumbersome and costly efforts to secure banking relationships,leading South African full service fintech platform, offering cash management, payment processing and credit. According to a Deloitte report, titled Digital banking for small and medium-sized enterprises Improving access to finance for the underserved, on Digital Banking for Small Businesses, several factors drive low financial inclusion of SMEs, including 1) limited financial infrastructure such as poor coverage by credit bureaus limit availability and cost of securing credit; 2) inadequate distribution channels limit banks from reaching and servicing SMEs in either the physical or digital space; 3) lack of cash-flow visibility forces banks to adopt stringent collateral-based credit risk models which hinder lending to SMEs without collateral; and 4) regulations and compliance costs adversely impact banks from serving small customers and invariably drive up costs.

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            These inefficiencies have created an opportunity for neo-or-challenger banks and fintech companies to improve reach and coverage for SMEs and accelerate access to, and reduce cost of banking and financial services. Our issuing, acquiring and platforms together with our e-money licenses and relationship with Bank Frick, a European bank in which we have a sizeable strategic investment, allows SMEs to open accounts and accept electronic payments almost instantly, letting them focus on running their core business.

Transaction processing services: The continued global growth of retail credit, debit and prepaid card transactions is reflected in the May 2019 Nilson Report, according to which worldwide annual general purpose card dollar volume increased 19.1% to $33.7 trillion in 2018, while transaction volume increased by 22.4% to 406.3 billion transactions and cards issued increased by 10.4% to 13.2 billion cards during the same period. General purpose cards include the major card network brands such as MasterCard, Visa, UnionPay and American Express. In South Africa, we operate the largest bank-independent transaction processing service through EasyPay, where we have developed a suite of value-added services such as bill payment, airtime top-up, gift card, money transfer and prepaid utility purchases that we offer as a complete solution to merchants and retailers. In South Korea, through KSNET, we are one of the largest Value-added network, or VAN, processors, and we provide card processing, banking value-added services and payment gateway functionality to more than 223,000 retailers. IPG operates as an established end-to-end provider of issuing, acquiring, and processing, particularly for small merchants or those with significant cross-border operations. Another key differentiator of IPG is its extensive catalog of licenses and regulated entities, including some within the fast-growing fields of cryptocurrencies and blockchain. IPG is ably supported by Bank Frick.

Mobile payments: The rapid growth of online commerce and the emergence of mobile devices as the preferred access channel for transacting online has created a global opportunity for the provision of secure payment services to online retailers and service providers. Our MVC technology focuses on card-not-present transactions and enables interoperability between closed or semi-closed networks, and has been deployed in South Africa, India and the United States. Additionally, through ZappGroup Africa, one of our strategic investments, we are able to provide QR technology to emerging countries in Africa, allowing them leapfrog the 50+ year old card technology and go straight to mobile, as many countries like China, India, Nigeria, Ghana and Kenya have done.

            Despite lacking access to formal financial services, large proportions of the under-banked customer segment own and utilize mobile phones. The World Bank’s research has confirmed the rising popularity of using mobile phones to transfer money and for banking that often does not require setting up an account at a brick-and-mortar bank. The World Bank has stated that mobile banking, which allows account holders to pay bills, make deposits or conduct other transactions via text messaging, has rapidly expanded in Sub-Saharan Africa, where traditional banking has been hampered by transportation and other infrastructure problems. The 2017 Global Findex Database: Measuring Financial Inclusion and the Fintech Revolution states that 21% of adults in Sub-Saharan Africa have a mobile-money account – nearly twice the percentage compared to 2014. In developing economies, 19% of adults reported making at least one direct payment using a mobile money account, a mobile phone, or the internet.

            Mobile phones are therefore increasingly viewed as a channel through which this underserved population can gain access to formal financial and other services. Our UEPS, MVC and QR code solutions are enabled to run on the SIM cards in or as applications on mobile phones and provide our users with secure payment and banking functionality.

Our Strategy

Our core purpose is to improve people’s lives by bringing financial inclusion to the world’s under-bankedSouth Africa’s underserved and underbanked customers, and helping small businesses access the financial services they need to prosper. We achieve this through our unique ability to efficiently digitize or tokenize the expensive and difficult to achieve last mile of financial inclusion.inclusion, and to provide a full-service fintech platform across cash and digital, serving the needs of both, while also facilitating the secular shift from cash to digital that is currently taking place.

            Our strategy varies by geography and service, and accordingly our approach is based on four pillars which

We are supplemented by our strategic investments:

South Africa—we own or control most of the components of the vertical chain in South Africa, from corebuilding a dual-sided financial ecosystem offering banking, to lending and insurance to payments, processingconsumers, and value-added services as well as a significant last mile distribution network.cash, card, capital, payment and Value Added Services (“VAS”) solutions to micro, small and medium enterprises (“MSMEs”). Our dual-sided financial ecosystem has two overlapping segments: Merchants and Consumers.

Customers— In our B2C Consumer Segment, our focus remains squarelyis on the underbanked population wholower end of the market that has traditionally been under-banked. Our products are low-wage earners or those receiving welfare grants, as well as any customers accessing our payment infrastructure, ATMs and bill payment platforms.

            Our EPE banking product provides our target market with an affordable all-inclusive transactional bank account with accessdesigned for consumers within Living Standards Measures (“LSMs”) 1 to financially inclusive services such as microloans, life insurance, remittances, value added services such as prepaid utilities and bill payments through their mobile phones and our national network of ATMs and POS devices. At June 30, 2019, we had6, which comprises approximately 26 million people. We currently have over 1.1 million active EPE customers. Going forward, we will also work more closely with Finbond Group Limited, or Finbond, acustomers who are predominantly recipients of social grants offered by the South African bank inGovernment.

In our B2B Merchant Segment, we recently completed the acquisition of the Connect Group during the year ended June 30, 2022, which significantly advanced our vision and is truly transformational for our company. The acquisition adds significant scale to our existing B2B offering which mainly services formal merchants, bringing over 51,000 MSMEs into the Merchant business segment. Through the introduction of a suite of solutions and technologies targeted at the MSME merchant sector where we have a significant strategic investment, to issue newwere previously under-represented, we can address the needs of approximately 1.4 million informal and expanded banking and financial services offerings. Additionally, our combined branch, point-of-sale and ATM network with Finbond, would make us the second largest bankapproximately 700,000 formal MSMEs in South Africa from a distributionAfrica.

The informal sector merchants are generally smaller and coverage perspective.

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            We are also one of the leading independent transaction processors,operate in rural areas or in informal urban areas and have deployed the most extensive distribution network comprising of mobile and fixed ATM’s and POS devices to the country’s large unbanked and under-banked population, we are the largest third-party processor of retail merchant transactions, bill payments and third-party payroll payments. We believe that our large cardholder base, specialized technology and payment infrastructure, together with our strong business relationships, position us at the epicenter of commerce in the country. Through our national distribution platform and relationships with a number of leading companies across multiple industries, we believe that we can provide many of the services consumed by our cardholders who would normallydo not have access to traditional banking products. The formal merchants are generally in urban areas, have larger turnovers and have ready access to multiple service providers. We operate separate brands in these services or would otherwise have to rely ontwo sectors of the informal sector. economy.

Products—We haveoffer a networkcomprehensive set of mobile ATMs to provideproducts and services to our cardholders,consumer and merchant customers.

In our Consumer Segment, our products include transactional banking, short-term loans, a digital wallet as well as insurance and various VAS to consumers underserved in South Africa, aligning with our purpose of improving people’s lives and increasing financial inclusion. Our value proposition and products are designed to be simple, relevant and cost effective for our target market.

In our Merchant Segment, to the MSME customers, we offer cash management and digitization, card acquiring, growth capital, VAS and bill and supplier payments. At a larger enterprise level we offer bill and supplier payments and VAS through our proprietary financial switch, as well as point of sale devices and maintenance, bank and SIM card production and other specialized technology products.

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Market Opportunity

There are real challenges to delivering financial inclusion and digitization in the South Africa market. One of these major challenges is the deep distrust and a lack of understanding of cash alternatives, which is driven by low levels of financial literacy. Adding to this challenge is the relatively high connectivity costs in South Africa – airtime is an expensive and prized commodity – and smartphone penetration remains low in South Africa where many South Africans still use older style feature phones. Taken together, this all means that although almost 90% of South Africans have established a national fixed ATMbank account, a significant majority treat them as post boxes – withdrawing their money in one transaction. This has real implications for both merchants and POS network.consumers.

            We aim to increase

On the adoptionmerchant side, less than 8% of our existing services by expanding our cardholder base and our transacting network, and increase our service offerings by developing new products and distribution networks and by forging partnerships with industry participants who share our vision and can accelerate the implementation of our business plan.

Africa—Depending on the country, only 10% to 30% of the adult populationsmerchants have access to financial servicesformal credit and thusless than 4% of informal merchants can accept digital payments. And for consumers, approximately 20% of the deploymentestimated 26 million South African consumers in LSM 1-6 have access to credit and savings and a significant majority of cloud-based bank-in-a-boxthe approximately 12 million permanent grant recipients require immediate cash withdrawals of their grant.

These sources of friction and mobile-based solutions, together with strong local partners, remainschallenges present a substantialsignificant market opportunity for us. Today we are operational in nine African countries through our Virtual Top Up, or VTU, offerings in partnership with MTN, UEPS is deployed as the national payment system in GhanaLesaka to provide innovative solutions to both merchants and extensively used in Namibiaconsumers, and Botswana,more importantly, to facilitate wider financial inclusion and digitization. Lesaka has for a rapidly growing digital consumer finance business in Nigeria through OneFi, and our relatively new QR-based payment initiatives through ZappGroup Africa. We also intend to increase cooperation across our operations in various African countries to build a substantial continent-wide fintech platform that is home to a billion people.

            Our mobile-first approach is predicated on the belief that mobile payments, mobile wallets and the related applications should be a critical component of a payment processor’s future strategy and we have dedicated a significant portion of our research and development and business development resources to ensure that we remainlong time been at the forefront of this rapidly evolving technological space.

Europe and Asia (ex-Korea)—This opportunity is driven by IPG and focuses primarily on the SME market as well as solutions utilizing blockchain and cryptocurrencies. IPG was created by combining a number of regional assets and licenses to form a comprehensive international payments business providing issuing, acquiring and processing, supported by Bank Frick in Europe. IPG has developed new, state-of-the-art issuing and acquiring platforms that have now been certified by Visa and MasterCard.

            In India, we own an interest in MobiKwik, one of the largest digital financial services platforms in India with over 80 million users. MobiKwik helps us gain entry to a large and complex market and we have already deployed our MVC technology, allowing their wallet to become interoperable and offering an effective disbursement tool for their loan products.

South Korea—KSNET in Korea is one of the largest VANs in the country with 223,000 merchants and over 359,000 POS deployed. It processed in excess of 1.7 billion transactions in fiscal 2019. KSNET is also the only one of the large VANs that provides Card VAN, Banking VAN and payment gateway, or PG, services. Banking VAN and payment gateway markets are faster growing and are an area of focus for KSNET. We are introducing new products such as working capital finance to leverage their high-fixed cost infrastructure.

Our Businesses

            Our company is organized into the following business lines:

South African Banking and Financial Services

            We have developed a suite of financial services that is offered to customers utilizing our payment solutions. We are able to provide our UEPS/EMV cardholders with competitive transacting accounts, microfinance, life insurance and money transfer products based on our understanding of their risk profiles, demographics and lifestyle requirements. Our financial services offerings are designed on the principles of simplicity and cost-efficiency as they bring financial inclusion to our millions of cardholders who were previously unable to access any formal financial services in a convenient or cost-effective manner. Our banking product, EPE, provides our target market with an affordable all-inclusive transactional bank account with unfettered access to financial services such as microloans, life insurance, remittances, value added services such as prepaid utilities and bill payments through their mobile phones and our national network of ATMs and POS devices.

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            Our largest financial services offering is the provision of short-term microloans to our South African UEPS/EMV cardholders, where we provide the loans using our surplus cash reserves and earn revenue from the service fees charged on these loans. We believe our loans are the most affordable form of credit available to our target market as, unlike our competitors, we do not charge interest or credit life insurance premiums on our loans. We also offer our customer base affordable insurance products relevant to this market segment, focusing on group life and funeral insurance policies.

            This business unit has been allocated to our South African transaction processing and financial inclusion and applied technologies reporting segments.digitization for consumers and merchants in this space.

EasyPay

Consumer financial services for the unbanked: Our EasyPay business unit operatesfocus is on the largest bank-independent financial switchLSM 1 to 6 population in South Africa, andwhich represents approximately 26 million adults in the country. Within that, we estimate there to be approximately 12 million people reliant on permanent grants. South Africa is basedprimarily a cash-based economy, with approximately 60% of transactions still conducted in Cape Town, South Africa. EasyPay focusescash. In the Consumer Segment, we currently have just over 1.1 million active account holders which represents approximately 4% share of our total addressable market. Our focus is on the provision of high-volume, secure and convenient payment, prepayment and value-added services to the South African market. EasyPay’s infrastructure connects into all major South African banks and switches both debit and credit card EFT transactions for somegovernment social grant recipients, of South Africa’s leading retailers and petroleum companies. Itwhich there are over 12 million, the majority of whom are being inadequately served by the current system. Lesaka is a South African Reserve Bank, or SARB, approved third-party payment processor. In additionwell placed to its core transaction processing and switching operations, EasyPay provides a complete end-to-end reconciliation and settlement service to its customers.

            This business unit has been allocated to our South African transaction processing reporting segment.

KSNET

            Our KSNET business unit is based in Seoul, South Korea, and is a national payment solutions provider. KSNET has one of the broadest product offerings in the South Korean payment solutions market, a base of approximately 223,000 merchants and an extensive direct and indirect sales network. The merchant base is predominantly serviced via a network of independent agents. KSNET’s core operations comprise three primary product offerings, namely card VAN, PG, and Banking VAN. KSNET is able to realize significant synergies across these core operations because it is the only payment solutions provider that offers all three of these offerings in South Korea. Approximately 78% of KSNET’s revenue comes from the provision of payment processing services to merchants and card issuers through its card VAN. KSNET has also started providing working capital financing to those merchants where we provide payment processing services.

            This business unit has been allocated to our International transaction processing reporting segment.

International Payments Group

            IPG is based out of Hong Kong, China, and is an end-to-end payment service provider. IPG includes our processing business based in Munich, Germany, and holds e-money licenses in the United Kingdom and in Europe, and provides debit and credit card acquiring in Europe, the UK, and Asia including China. Additionally, IPG provides Automated Clearing House, or ACH, processing in the United States, and card acquiring services for cryptocurrency exchanges such as Bitstamp and Bitpanda.

            In collaboration with Bank Frick, IPG provides a number of banking and processing services to small merchants. Through a joint, collaborative approach, IPG and Bank Frick have established a blockchain development division to create new, first-to market differentiated solutions to harness the capabilities of a bank and a processor.

            This business unit has been allocated to our International transaction processing reporting segment.

Applied Technology

            Our Applied Technology business unit is managed from Johannesburg, South Africa, and is responsible for various individual lines of business:

• Payment Infrastructure—The deployment of our South African ATM and POS network and the sale of biometric and POS solutions to various South African banks, retailers and financial services providers. Our biometrically-enabled ATM network is fully EMV-compliant and integrated into the South African national payment system. We deploy our ATMs in areas where our UEPS/EMV cardholders have limited access to the national payment system, or where the cost of accessing the national payment system through other service providers is prohibitive for our cardholders.
• Chip & SIM—Through our partnerships with MNOs as well as card and semiconductor manufacturers, we provide a strong lineup of feature rich chip and SIM solutions. All of these offerings include our wide range of GSM Masks and custom software that enables mobile telephony, transactions and on-chip VAS. We support the above chip and SIM developments with dedicated chip-card based commerce frameworks. These incorporate POS, terminal and interbank transaction switching and clearance aimed at national government, petroleum and retail industries.

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• Cryptography—Our Cryptography business line focuses on security-orientated products which include our range of PIN encryption devices, card acceptance modules and hardware security modules. These focus on financial, retail, cryptocurrency, telecommunications, utilities and petroleum sectors. In order to constantly enhance and improve our product offerings, special attention is placed on the development of security initiatives including Triple Data Encryption Algorithm, also known as TDES, EMV and Payment Card Industry, or PCI. We are a member of the STS Association, actively participating in developing new and improved standards that address the needs of these consumers with its large informal market distribution and affordable financial services.

  Merchant payment and financial services for MSMEs. There are approximately 2.1 million MSMEs in South Africa, of which around 1.4 million operate in the modern cryptographicinformal market, and it is estimated that only 4% of these can accept digital payments. Lesaka has a comprehensive product suite of cash and digital solutions which provide a significant opportunity to assist these businesses to grow, reduce risks and be more efficient. This is an underserved market and so increasing our penetration is not about taking market share from competitors but rather about providing product sets that encourage the adoption of more formalized and non-cash transacting.

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While the informal market presents a major growth opportunity, Lesaka also has a comprehensive offering to the formal MSME and enterprise market.

            This business unit has been allocated

Lesaka, with its significant distribution footprint of over 58,000 points of presence, across Merchant and Consumer, is well positioned to bring these two sides of the ecosystem together by incentivizing both merchants and consumers to utilize our solutions which will further enhance our growth opportunity.

Competition

With our comprehensive offering to consumers and merchants we compete with a wide range of service providers. There are competitors for individual products and services, though few with an end-to-end offering, particularly at the lower end of the consumer market and the informal merchant market where we have significant footprint and penetration. We believe our ability to bring a large consumer base to our financial inclusionmerchant customers, and applied technologies reporting segments.offer our consumers incentives to use our merchants, is a compelling proposition.

Corporate

            The Corporate unit provides global support services toWe do have competitors in parts of our business units, joint ventures and investments for the following activities:

• Group executive—Responsible for the overall company management, defining our global strategy, investor relations and corporate finance activities.
• Finance and administration—Provides company-wide support in the areas of accounting, treasury, human resources, administration, legal, secretarial, taxation, compliance and internal audit.
• Group information technology—Defines our overall IT strategy and the overall systems architecture and is responsible for the identification and management of the group’s research and development activities.
• Joint ventures and investments unit—Provides governance support to our joint ventures and assists with the evaluation of new investment opportunities.

Competition

            In addition to competition that our UEPS system faces from the use of cash, checks, credit and debit cards, existing payment systems and the providers of financial services,ecosystem. For consumers, there are a number of other products that use smart card technology in connection with a funds transfer system. While it is impossible for us to estimate the total number of competitors in the global payments marketplace, we believe that the most competitive product in this marketplace is EMV, a system that is promoted by most of the major card companies such as Visa, MasterCard, JCB and American Express. The competitive advantage of our UEPS offering is that our technology can operate real-time, but in an off-line environment, using biometric identification instead of the standard PIN methodology employed by our competitors. We have enhanced our competitive advantage through the development of our latest version of the UEPS technology that has been certified by EMV, which facilitates our traditionally proprietary UEPS system to interoperate with the global EMV standard and allows card holders to transact at any EMV-enabled point of sale terminal or ATM. The UEPS/EMV technology has been deployed on an extensive scale in South Africa through the issuance of MasterCard-branded UEPS/EMV cards to our unbanked and underbanked cardholders.

            We further intend to differentiate our value proposition for our end users by offering bundled lifestyle products to include affordable telephony solutions in addition to banking and finance, as well as the development of new payment technologies specifically for mobile phones. We estimate that we process less than 1% of all global payment transactions in the international marketplace.

            In South Africa, and specifically in the payment of salaries and wages and our affordable EPE transactional account and our financial services offering, our competitors include the local traditional and digital banks, insurance companies, micro-lendersproviders of low-cost transactional bank accounts and other transaction processors. Themicro financial services. These include the large South African banks such as FNB, Standard Bank, Absa, Nedbank, African Bank and Capitec, the South African Post Office, or SAPO, also offer low cost bank accounts that enable account holders to receive their salaries, wages or social grants through the formal banking payment networks.

            EasyPay’s competitors include BankservAfrica, UCS, eCentric and Transaction Junction. BankservAfrica is the largest transaction processor in South Africa, which processes all transactions on behalf of the South Africandigital banks such as, Tyme Bank and processes more than 2.5 billion transactions per annum.

Bank Zero. In the South African ATM network market, we compete against the South African banks, ATM Solutions and Spark ATM Systems, whowhich collectively have a market share in excess of 90%.

In the informal merchant sector, there are no competitors which offer a comprehensive product set of cash, card, payment, VAS and capital solutions, such as ours. In the formal merchant sector there is significantly more competition, with banks and non-bank fintech companies targeting these merchants.

In card acquiring, competitors include Yoco, iKhokha, Sureswipe and the South African banks; in VAS and bill payments, they include Flash, Blue Label, Shop2Shop, Pay@ and Ukeshe; in lending, they include Lulalend, Merchant Capital, Retail Capital and the South African banks; and in cash management, they include Fidelity, G4S, Cashnet and the South African banks.

At an enterprise level, our financial switch and VAS and bill payments business competes with BankservAfrica, Pay@, eCentric and Transaction Junction.

Human Capital Resources

We have identified 13 major card VAN companieshired a diverse team of high-caliber individuals, from different organizations, to form our leadership group. This leadership group is deeply committed to building a high-performance culture that is based on a foundation of care and development for our people.

As such we are on path towards building an aspirational work environment that is characterized by:

•Open and honest engagements;

•Flat organizational structures;

•Humility and respect;

•Embracing diversity, inclusion and a sense of belonging;

•A spirit of generosity for our people, customers and our communities;

•A willingness to partner with our stakeholders towards common goals;

•A deep connection to our shared purpose of inclusive financial services; and

•A culture of learning and curiosity.

Employee training and skills development

We strongly believe that learning is an ongoing process and that the majority of learning is in the doing. As such, while we offer a range of formal programs (as listed further below), more importantly, we continue to build a culture of lifelong learning in everything that we do.

Sustainable employee training and development programs impact employee retention, and we believe that our willingness to invest in employee development contributes to employee satisfaction and belonging. This increases loyalty, which will in turn contribute to employee retention. We offer the following development programs to enhance employee performance and skills:

•unemployed and employed learnerships;

•leadership development programs;

•training programs;

•mentorship programs;

•other in-house and cross-functional training to aid with career advancement; and

•succession planning – training interventions.

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Equal opportunity

Having an inclusive and diverse workforce which reflects our economically active population and society in general, is crucial for helping the organization attract and retain talent and is important for long-term organizational success. Our human resources team emphasizes recruiting and retaining a talented and diverse workforce with special focus on hiring previously disadvantaged groups whenever possible. We are committed to hiring qualified candidates without regard to their personal status, while taking into account the unique circumstances affecting our operations in South Korea,Africa and the need to uplift previously disadvantaged groups. This commitment extends to all levels of which KSNET is oneour organization, including within senior management and our board of the largest. The other two large VAN companies are NICE Information & Telecommunication Inc. and Korea Information & Communications Company, Inc. Entities operating in the VAN industry in South Korea compete on pricing and customer service.directors.

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            IPG competitors typically include local or regional issuers, acquirers and processors as well as a few large multinational companies such as Wirecard and WorldPay. A number of new fintech entrants and neo-banks, usually locally or occasionally regionally such as Stripe, Revolut, N26, Klarna, Transferwise, and Digibank are also rapidly establishing their market presence.

            In addition to our traditional competitors, we expect that we will increasingly compete with a number of emerging entities in the mobile payments industry. While the industry is still rapidly evolving, a number of entities are establishing their presence in this space. Specifically identified entities include traditional payment networks such as Visa, MasterCard and American Express; commercial banks such as Barclays and Citigroup; established technology companies such as Apple, Google, Facebook, Samsung and PayPal; local and global fintech companies; as well as companies specifically focused on mobile payments such as Ant Financial, WeChat, M-Pesa and Square.

Intellectual Property

            Our success depends in part on our ability to develop, maintain and protect our intellectual property. We rely on a combination of patents, copyrights, trademarks and trade secret laws, as well as non-disclosure agreements to protect our intellectual property. We seek to protect new intellectual property developed by us by filing new patents worldwide. We hold a number of trademarks in various countries.

Financial Information about Geographical Areas and Operating Segments

            Note 21 to our audited consolidated financial statements included in this annual report contains detailed financial information about our operating segments for fiscal 2019, 2018 and 2017. Revenues based on the geographic location from which the sale originated and geographic location where long-lived assets are held for the years ended June 30, are presented in the table below:

            (R) Long-lived assets asAs of June 30, 20182022, the composition of our workforce was:

•63% female and 2017, restated37% male;

•41% between 18 and 34 years old, 56% between 35 and 54 years old, and 3% over 55 years old; and

•72% Black, 18% two or more races, 5% Indian and 5% White.

We have no female named executive officers.

We continue to correctstrive to build a more inclusive workforce and to enhance our pay structures by taking measures to eliminate potential remuneration discrimination and to help close gender pay gaps to progress towards gender equality at work. We have taken positive strides towards a rewards philosophy that not only allows the misstatement discussedcorporate hierarchy and its systems to be mapped out in Note 1an objective manner, but will reward high performance. In this way, remuneration levels can be set for every function with reference to the audited consolidated financial statements. Long-lived assetsexternal market, and people in similar functions can be paid equally.

Employee compensation programs

We are committed to ensuring that all our employees are paid fair and competitive remuneration. To that end, we offer the following to our employees:

•Access to a comprehensive medical, dental, and vision plan that our employees have the option to join;

•Access to a defined contribution retirement plan that our employees have the option to join;

•Paid sick, study, annual and family responsibility leave;

•Maternity benefits;

•Life and disability insurance coverage;

•Employee assistance programs; and

•Product discounts.

Annual increases and incentive compensation are based on merit, which is communicated to employees at onboarding and documented as part of June 30, 2018 and 2017, decreased by $2.0 million and 1.9 million, respectively, following the restatement.our annual performance review process.

Employees

Our number of employees allocated on a segmental basis as of the years ended June 30, are2022, 2021 and 2020, is presented in the table below:

(1) Fiscal 2018 number of employees2022 Consumer includes 2,651 DNI employees, of which 51 are included in managementthree executive officers and 2,600 are included in Financial inclusion and applied technologies. We sold our controlling interest in DNI during fiscal 2019.
            (2) Financial inclusion and applied technologiesMerchant includes employees allocated to corporate/ eliminations activities.two executive officers.

On a functional basis, five of our employees were part of executive management, 148254 were employed in sales and marketing, 181253 were employed in finance and administration, 271237 were employed in information technology and 2,5411,908 were employed in operations. Our staffing levels have reduced significantly from fiscal 2018 following

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Health and safety laws and regulations

We are subject to various South African laws and regulations that regulate the expirationhealth and safety of our SASSA contract in September 2018South African-based workforce, including those laws monitored by the South African Department of Employment and Labour which stipulates the legal framework within which we need to function. This framework comprises the Occupational Health and Safety Act, Act 85 of 1993 (“OHSA”), the Compensation for Occupational Injuries and Diseases Act, Act 130 of 1993 (“COIDA”), the Basic Conditions of Employment Act, Act 75 of 1997 (“BCEA”) and the deconsolidationLabour Relations Act, Act 66 of DNI1995 (“LRA”). Compliance with COVID-19 regulations remains regulated by the National Institute of Occupational Health (“NIOH”), and the Occupational Health Surveillance System (“OHSS”), the Centre for Scientific Industrial Research (“CSIR”) and the National Institute for Communicable Diseases (“NICD”).

People are ultimately the most important assets in March 2019.any organization, therefore successfully managing health and safety in the workplace remains paramount. Successfully managing health and safety in the workplace relies on commitment, consultation, and co-operation.

            As

In order to maintain OHSA compliance, we ensure that:

•Internal health and safety policies remain regularly updated and accessible to all staff;

•All departments/branches keep a summary of June 30, 2019, approximately 195applicable Health and Safety legislation and display a summary of such at their respective premises for ease of reference;

•Each of our branches has a designated health and safety representative, a first aider and fire marshal tasked with ensuring compliance as well as being able to assist in an emergency situation when required, each of whom is trained every two years as per stipulated regulations;

•Every branch manager is a delegated official to our Chief Executive Officer: Southern Africa who ensures OHSA compliance and that employees have the 257 employees we have in South Korea who perform international transaction-based activities were membersnecessary knowledge and understanding of a union in Korea. We believe that we have a good relationshipapplicable health and safety rules and procedures;

•Quarterly inspections are conducted by delegated officials at the respective branches so as to report on any non-compliance or health and safety issues which need tending to;

•Quarterly meetings are conducted with our employeesNational Health and these unions.Safety Officer to report in on company-wide compliance and any health and safety issues which require tending to; and

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Corporate history•Managers are trained in in the correct reporting procedures and proper incident/ accident investigation.

     Net1 was incorporated in Florida in May 1997. In 2004, Net1 acquired Net1 Applied Technology Holdings Limited, or Aplitec, a public company listed on the Johannesburg Stock Exchange, or JSE. In 2005, Net1 completed an initial public offering and listed on the Nasdaq Stock Market. In 2008, Net1 listed on the JSE in a secondary listing, which enabled the former Aplitec shareholders (as well as South African residents generally) to hold Net1 common stock directly.

Available information6

     We maintain a website at www.net1.com.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “SEC filings” portion of our website, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission. The information contained on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K.

Executive Officers of the Registrant

The table below presents our executive officers, their ages and their titles:

Herman Kotzé

Christopher G.B. Meyer has been our Group Chief Executive Officer since May 2017 and was our Chief Financial Officer, Secretary and Treasurer from June 2004 to February 2018. From January 2000 until June 2004, he served on the board of Aplitec as Group Financial Director. Mr. Kotzé joined Aplitec in November 1998 as a strategic financial analyst.July 1, 2021. Prior to joining Aplitec,Lesaka, Mr. KotzéMeyer was a business analystthe Head of Corporate & Investment Banking and Joint Managing Director at Investec Bank Plc (“Investec”), an LSE-listed specialist bank and wealth manager, having served in many different roles within the Industrial Development CorporationInvestec Group since 2001. He was also an executive director for various international and regional subsidiaries of South Africa.Investec Bank Plc. Mr. Kotzé has a bachelor of commerce honors degree, a post graduate diploma in treasury management, a higher diploma in taxation, completed his articles at KPMG, andMeyer is a member of the South African Institute of Chartered Accountants.Accountants, holds an MSc Finance from the London Business School and a Post Graduate Diploma in Accounting from the University of Cape Town.

Alex M.R. Smith

Naeem E. Kola has been our Group Chief Financial Officer, Treasurer and Secretary since March 1, 2022. Mr. Kola has held progressively senior finance roles in Dubai, most notably as Chief Financial Officer of the Emerging Markets Payments Group (“EMP”), a high-growth fintech business that grew materially and successfully concluded and integrated five acquisitions during his six-year tenure as Chief Financial Officer. Prior to becoming Chief Financial Officer, Mr. Kola was Senior Vice President for Investments, Strategy and Business Planning at EMP. Since the acquisition of EMP by Network International in 2017, Mr. Kola has been an Operations Director and Strategic Advisor to the emerging market private equity firm Actis, where he again focused on fintech businesses.

Lincoln C. Mali has been our Chief Executive Officer: Southern Africa since May 1, 2021. Mr. Mali is a financial services executive with over 25 years in the industry. Until April 2021, he was the Head of Group Card and Payments at Standard Bank Group, and previously served in many different roles within that organization since 2001. Mr. Mali chaired the board of directors of Diners Club South Africa until April 2021, and was a member of the Central and Eastern Europe, Middle East and Africa Business Council for Visa. Mr. Mali holds Bachelor of Arts (BA) and Bachelor of Laws (LLB) degrees from Rhodes University, an MBA from Henley Management College, various diplomas and attended an Advanced Management Program at Harvard Business School.

Steven J. Heilbron has been the Chief Executive Officer of the Connect Group since 2013 and joined us following the acquisition of Connect in the same capacity. Mr. Heilbron has two decades of financial services experience, having spent 19 years working for Investec in South Africa and the UK, where he served as Global Head of Private Banking and Joint Chief Executive Officer of Investec. He led a private consortium that acquired Cash Connect Management Solutions (Pty) Ltd (“CCMS”) in 2013. Mr. Heilbron has presided over significant organic growth in the rebranded Connect, as well as spearheading the successful acquisition and integration of Kazang and EFTpos acquired from the Paycorp Group in February 2020. He is a member of the South African Institute of Chartered Accountants.

Alex M.R. Smith has been our Chief Accounting Officer since March 1, 2022, and previously served as our Chief Financial Officer, Treasurer and Secretary from March 1, 2018. Prior to joining Lesaka, Mr. Smith joinedwas employed by Allied Electronics Corporation Limited or Altron,(“Altron”), a JSE-listed company, infrom 2006 to 2018 and, from August 2008 until February 2018, Mr. Smith served as a director and its Chief Financial Officer. Prior to joining Altron, Mr. Smith worked in various positions at PricewaterhouseCoopers in Edinburgh, Scotland and Johannesburg from 1991 to 2005. Mr. Smith holds a bachelorBachelor of law (honours)Law (Honours) degree from the University of Edinburgh and is a member of the Institute of Chartered Accountants of Scotland.

Philip Meyer has been

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Financial Information about Geographical Areas and Operating Segments

Refer to Note 21 to our audited consolidated financial statements included in this annual report contains detailed financial information about our operating segments for fiscal 2022, 2021 and 2020. Revenues based on the Managing Director of IPG since February 2018geographic location from which the sale originated and also serves asgeographic location where long-lived assets are held for the Managing Director of Transact24 Limited since he founded the company in 2006. Mr. Meyer has workedyears ended June 30, are presented in the payments industrytable below:

(1) Refer to Note 16 to our audited consolidated financial statements included in this annual report contains detailed financial information about our revenue for over 20 years. Priorfiscal 2022, 2021 and 2020.

Corporate history

Lesaka was incorporated in Florida in May 1997 as Net 1 UEPS Technologies, Inc. and changed its name to incorporating Transact24, he was employed by Naspers,Lesaka Technologies, Inc. on May 12, 2022. In 2004, Lesaka acquired Net1 Applied Technology Holdings Limited (“Aplitec”), a global media group,public company listed on the Johannesburg Stock Exchange (“JSE”). In 2005, Lesaka completed an initial public offering and listed on the NASDAQ Stock Market. In 2008, Lesaka listed on the JSE in a secondary listing, which enabled the former Aplitec shareholders (as well as its Chief Executive: Information TechnologySouth African residents generally) to hold Lesaka common stock directly.

Available information

We maintain a website at www.lesakatech.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and New Media and was responsible for all existing and new technology and media for Naspers. Mr. Meyer is a qualified engineer with a masters degree in engineering (electronic) and has a postgraduate diploma in strategic management. Mr. Meyer is registeredamendments to those reports, as well as our proxy statements, are available free of charge through the “SEC filings” portion of our website, as soon as reasonably practicable after they are filed with the Engineering Counsel of South Africa,SEC. The information contained on, or accessible through, our website is not incorporated into this Annual Report on Form 10-K.

The SEC maintains a member ofwebsite at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the South Africa Institute of Electrical Engineers and is also a member of the Digital, Information & Telecommunications Committee and Asia & Africa Committee, Hong Kong General Chamber of Commerce.SEC.

Phil-Hyun Oh has served as Chief Executive Officer and President of KSNET since 2007. He is the Chairman of the VAN Association in South Korea. Prior to that, he was the Managing Partner at Dasan Accounting Firm and was the Head of the Investment Banking Division at Daewoo Securities. Mr. Oh is responsible for the day to day operations of KSNET and as its Chief Executive Officer and President is instrumental in setting and implementing its strategy and objectives.8

Nanda Pillayjoined us in May 2000 and is responsible for our Southern African operations, including Financial Services, EasyPay, and SmartSwitch Botswana.

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ITEM 1A. RISK FACTORS

OUR OPERATIONS AND FINANCIAL RESULTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW, THAT COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH FLOWS, AND THE TRADING PRICE OF OUR COMMON STOCK

Risks Relating to Our Business

     Management has identified certain conditions or events, which, considered

We may not be able to successfully integrate Connect’s operations with our business.

On April 14, 2022, we, through our wholly owned subsidiary Lesaka Technologies (Pty) Ltd (“Lesaka SA”), formerly Net1 Applied Technologies South Africa (Pty) Ltd, announced the closing of our ZAR 3.8 billion ($258.9 million) acquisition of Connect. The acquisition of Connect is strategically important for us because we believe that (i) the combination of complementary product offerings will assist us to drive stronger unit economics, (ii) the transaction facilitates expansion of our addressable market in the aggregate, could raise  substantial doubt aboutinformal MSME sector, (iii) Connect has an attractive financial profile with a track record of strong and profitable growth opportunities, (iv) we have merged highly skilled teams with complementary expertise, and (v) we will be able to better serve the underserved.

Integrating Connect into our company will require significant attention from our senior management, which may divert their attention from our existing businesses. The difficulties of integration may be increased by cultural differences between our two organizations and the potential difficulties in retaining and integrating personnel, including Connect’s key employees and management team. The services of these individuals will be important to the continued growth and success of Connect’s business and to our ability to continueintegrate the two organizations. If we were to lose the services of these key employees or we fail to sufficiently integrate them, our ability to operate Connect successfully would likely be materially and adversely impacted.

As such, if we are unable to successfully integrate Connect’s operations into our business we could be required to record material impairments and our financial condition, results of operations, cash flows and stock price could suffer.

We may not achieve the expected benefits from our acquisition of Connect.

Our expectations regarding Connect’s business and prospects may not be realized, including as a going concernresult of changes in the financial condition of the markets that Connect serves. In addition, there are risks associated with Connect’s operations, including the risk of reduced cash settlements through Connect’s vault infrastructure or higher cash losses, lower than expected growth in Connect’s value-added services, lower than expected customer acquisition rates or higher than expected customer churn, lower than expected levels of loan advances or higher credit losses and slower than expected growth in card transactions. Furthermore, attempting to combine and integrate service offerings may be disruptive to us or unsuccessful, and our auditorscustomers may not use our combined services to the extent that we hope they will. Any such failure could adversely impact our own business as well as Connect’s, which could then reduce the value of our investment and adversely impact our other business and operational relationships.

Our inability to achieve the expected benefits from the Connect transaction may have drawn attention to this uncertainty in their reporta material adverse effect on our consolidatedbusiness, results of operations or financial statements. Management has developedcondition. For example, our revenues and operating income may be adversely affected and we could be required to impair all, or a planpart of, our investment in Connect. If some or all of the aforementioned or other risks materialize, our ability to mitigaterealize the anticipated benefits of the Connect acquisition could be materially impaired, and as a result, our going concern risk.financial condition, results of operations, cash flows and stock price could suffer.

We have a significant amount of indebtedness that requires us to comply with restrictive and financial covenants. If we are unable to executecomply with these covenants, we could default on this debt, which would have a material adverse effect on our plan, it is possiblebusiness and financial condition.

We financed our recent acquisition of Connect through South African bank borrowings of ZAR 1.1 billion ($71.7 million, translated at closing date exchange rate (as defined in the Sale Agreement) of $1:ZAR 14.65165). The borrowings are secured by a pledge of certain of our bank accounts, and the cession of Lesaka’s shareholding in certain of its subsidiaries. These borrowings contain customary covenants that werequire Lesaka SA to maintain a specified total asset cover ratio and restrict the ability of Lesaka, Lesaka SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities.

The loan agreements also include a credit enhancement mechanism of ZAR 350 million ($23.9 million, translated at closing date exchange rate), which has been provided by investment funds managed by Lesaka’s largest shareholder, Value Capital Partners (Pty) Ltd (“VCP”) which includes a contingent subscription for new shares. There can be no assurance that VCP will exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our shareholders would likely lose most or all of their investment in us.

     Our audited consolidated financial statements were preparedperform under the assumption that we would continuecommercially agreed terms and failure by it to fulfil its obligation under the credit enhancement mechanism may put our operations asfunding or future repayments at risk.

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The Connect credit facilities include (i) an overdraft facility (general banking facility) of ZAR 248.0 million; (ii) Facility A of ZAR 700.0 million (a long-term facility with a going concern. Our independent registered public accounting firm includedbullet repayment); (iii) Facility B of ZAR 350.0 million (a long-term facility with amortizing repayments commencing September 2022); and (iv) an explanatory paragraph regardingasset-backed facility of ZAR 70.7 million. The amount available under the general banking facility will reduce to ZAR 125.0 million on March 23, 2023. These borrowings are secured by a going concern uncertaintypledge of, among other things, CCMS’ entire equity interests in its report onsubsidiaries and investments and any claims outstanding. These borrowings contain customary covenants that require CCMS to maintain specified debt service, interest cover and leverage ratios.

These security arrangements and covenants may reduce our consolidated financial statements as of, and for the year ended, June 30, 2019, indicating that, as discussed in Note 1 to such audited consolidated financial statements, we are experiencing difficulty in generating sufficient cash flow to meet our obligations and sustain our operations, which raises substantial doubt aboutoperating flexibility or our ability to continue as a going concern. Continued operations and our ability to continue as a going concern are dependent on our ability to execute our plan describedengage in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Consideration of Going Concern,” and there are no assurances that we will be able to execute such plan. Uncertainty concerning our ability to continue as a going concern may also hinder our ability to obtain future financing.

     Our audited consolidated financial statements do not include any adjustmentsother transactions that may result from the outcome of this uncertainty.be beneficial to us. If we are unable to execute our plan, it is possible thatcomply with the covenants, we will exhaust our resourcescould be in default and willthe indebtedness could be unableaccelerated. If this were to continue operations. Ifoccur, we cannot continuemight not be able to obtain waivers of default or to refinance the debt with another lender and as a viable entity,result, our shareholdersbusiness, financial condition and stock price would likely lose most or all of their investment in us. See also “—suffer.

We have decided to prioritize Southern Africa as our core market. Our future success, and our ability to return to profitability and positive cash flow is substantially dependent on our ability to execute our strategic plan in South Africa” and “—Ongoing losses and cash demands may place the group under liquidity pressure, particularly if various asset realizations are not concluded.implement this strategy successfully.

SASSA’s migration of EPE customers to the SAPO account during the first half of fiscal 2019 resulted in the loss of a significant portion

Our board conducted an extensive review of our EPE customer base. Unless we are ablebusiness strategy and operations in July 2020, and decided to maintain our EPE customer base, our South African financial services business will likely become unsustainable and result in the closure of most or all of that business.

     During September and October 2018, SASSA migrated those of our EPE customers who had not submitted to SASSA a signed Annexure C form and failed to process many of the Annexure C forms submitted by our potential customers. As a result, we experienced a decline in the EPE customer base to under 1.1 million EPE accounts receiving grants during December 2018 and January 2019. These same factors have had an adverse impactfocus on our ability to sign up new customers to the EPE product and, as a result, we have experienced very low levels of gross new EPE accounts. As described under “Item 3.—Legal Proceedings—Legal proceedings against SASSA in respect of transfer of grant payments from EPE to SAPO accounts”, we commenced legal proceedings against SASSA challenging its actions but, in late January 2019, the High Court ruled that SASSA may pay grants into SAPO accounts unless the grant recipient has delivered a signed Annexure C form to SASSA.

     While our EPE customer base has been relatively stable since November 2018, any decision by SASSA to migrate more of our EPE customers to SAPO accounts would threaten our entire South African financial services business and materially and adversely affect our business, results of operations, financial condition and cash flows.

Even if we are able to maintain a sufficient EPE customer base, we may still face challenges in transforming our South African operations and other business opportunities in South Africa and, to a business-to-consumer model through our EPE bank account and ATM infrastructure.

     Followinglesser extent, the conclusionrest of the SASSA contract on September 30, 2018, we refocused our resources and technology on the provisionAfrican continent. The acquisition of financial inclusion services to our target market. In particular we enabled our mobile ATM payment infrastructure to becomeConnect is part of the South African National Payment Systemthis business strategy. We cannot assure you that we will be able to implement our new strategy successfully and concentrated on taking our ATMs to the rural populations of South Africa so that they have the same access to financial inclusion as they had during the tenure of our contract, without the many inconveniences and inefficiencies of SASSA’s new payment model.

     While we believe that our financial services offerings are convenient and cost-effective, the success of our strategy will depend on the extent to which South African customers continue to use our financial products and services on a widespread basis.

     As discussed in the risk factor immediately above, SASSA’s unilateral decision to move EPE customers to the SASSA account and the subsequent judgment that has limited our ability to oppose SASSA’s actions, will likely make it more difficult for us to attract and retain as many EPE customers as we had previously planned.

     Even if we continue to maintain our current EPE customer base, to the extent where such business remains viable, other factors may prevent us from successfully operating and growing our South African financial services business include, but are not limited to:

• reduced adoption and utilization of our EPE accounts and related products and services;
• insufficient utilization of our ATM infrastructure, especially our mobile ATM infrastructure;
• inability to access sufficient funding for our ATM infrastructure;
• competition in the marketplace;
• restrictions imposed by SASSA or government on the manner in which recipients may transact;
• additional and/ or protracted legal proceedings with SASSA or other parties;
• political interference;
• changes in the regulatory environment;
• dependence on existing suppliers to provide the hardware (such as ATMs, cards and POS devices) we require to execute our rollout as anticipated;
• logistical and communications challenges; and
• loss of key technical and operations staff.

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Our ability to return to profitability and positive cash flow is substantially dependent on our ability to execute our strategic plan in South Africa.flow.

     No assurance can be provided that, if we fail to effectively execute our strategic plan in South Africa, we will be able to return to profitability and, even

Even if we do return to profitability, extended periods of profitability andachieving net income dodoes not assurenecessarily ensure positive cash flows. Future periods of net losses from operations could result in negative cash flow and may hamper ongoing operations andor prevent us from sustaining or expanding our business. We cannot assure you that we will achieve, sustain or increase profitability on a quarterly or annual basis in the future. Iffuture and if we do not, achieve, sustain or increase profitability, our business will be materially and adversely affected andaffected.

Additionally, our share price may decline.

Ongoing losses and cash demands may place the group under liquidity pressure, particularly if various asset realizations are not concluded.

     During the last twelve months, we have seen a significant decline in our cash balances due to significant operating losses, which were attributed primarily to the significant losses we incurred during the six-month extension of the SASSA contract and the exceptional bad debt write-offs caused by the migration of EPE customers to SAPO accounts by SASSA. While we have taken significant actions in the last six months to reduce the debt on our balance sheet, should our operating performance not improve, or if various adverse events occur, then our liquidity may come under significant pressure. This would have a material adverse effect on our business, cash flows, results of operations and financial condition.

Our ability to operate effectively and efficientlyreputation in South Africa in the future will be adversely impacted if we are unable to communicate persuasively that our business practices comply with South African law and are fair to the customers who purchase our financial services products.

     The South Africanhas been tarnished as a result of public media, non-governmental organizations and political parties have utilized a number of platforms, including social media, to criticize SASSA over its failure to implement the orders of the Constitutional Court over the last two years and express their dissatisfaction with the state of affairs. Among the criticisms,accusations against us, which we have been accused of being responsiblepublicly denied and believe have no merit, for SASSA’s inability to bring the payment service in-house. In addition, we were publicly accused of illegally providing our services and defrauding social welfare grant recipients. We have publicly denied these accusations and believe they have no merit.

     Our reputation in South Africa has been tarnished as a result of these accusations. We have attempted to refute thethese allegations made against us and have appointed a public relations firm to assist us in communicating effectively to the public and our stakeholders that our business practices comply with South African law and are fair to the social welfare grant recipients who purchase the financial services products that we offer. It is difficult to quantify to what extent we have been successful in effectively repudiating these unsubstantiated allegations against us. If we are unable to communicate this persuasively, that our business practices complyability to successfully execute our new strategy may be adversely affected.

We need to significantly grow our consumer operations in order to ensure their profitability and long term sustainability.

Following the conclusion of our contract with South African lawSASSA, we refocused our resources and are fairtechnology on the provision of financial inclusion services to our target market and currently have an established base of approximately one million customers. Our strategy involves significantly expanding this base over the customers who purchasecoming years. While we believe that our financial services offerings are convenient and cost-effective, the success of our strategy will depend on the extent to which we successfully market our offering to grow the customer base.

Factors that may prevent us from successfully operating and expanding our South African financial services business include, but are not limited to:

•insufficient adoption and utilization of our products and services;

•inability to access sufficient funding for our ability to operate effectively and efficiently in South AfricaATM infrastructure;

•increased competition in the future will be adversely impacted,marketplace and our results of operations, financial position and cash flows would be adversely affected.

We have been orderedrestrictions imposed by the Supreme Court to repay to SASSA certain reimbursed implementation costs. We are analyzingor the ruling in order to determine our next course of action, but if we are ultimately required to repay substantial monies to SASSA, such repayment would adversely affect our results of operations, financial position and cash flows.

     In March 2015, Corruption Watch, a South African non-profit civil society organization, commenced a legal proceedinggovernment on the manner in which grant recipients may transact;

•political interference and changes in the High Court seeking an order by the Courtregulatory environment;

•further civil unrest similar to reviewthat experienced in July 2021;

•loss of key technical and set aside the decision of SASSA’s Chief Executive Officer to approve a payment to us of ZAR 317.0 million (approximately ZAR 277 million, excluding VAT)operations staff; and directed us to repay the aforesaid amount, plus interest. Corruption Watch claimed that there was no lawful basis to make the payment to us,

•logistical and that the decision was unreasonable and irrational and did not comply with South African legislation. We were named as a respondent in this legal proceeding.communications challenges.

     On February 22, 2018, the matter was heard by the Gauteng Division, Pretoria of the High Court of South Africa. On March 23, 2018, the High Court ordered that the June 15, 2012 variation agreement between SASSA and CPS be reviewed and set aside. CPS was ordered to refund ZAR 317.0 million to SASSA, plus interest from June 2014 to date of payment. On April 4, 2018, we filed an application seeking leave to appeal the whole order and judgment of the High Court because we believed that the High Court erred in its application of the law and/or in fact in its findings. On April 25, 2018, the High Court rejected the application seeking leave to appeal. CPS filed an application seeking leave to appeal the whole order and judgment of the High Court with the Supreme Court of Appeal. In September 2018, CPS received notification from the Supreme Court that its petition seeking leave to appeal had been granted. The matter was heard on September 10, 2019.

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     On September 30, 2019 the Supreme Court dismissed our appeal and ordered us to pay Corruption Watch’s costs. We are analyzing the ruling in order to determine our next course of action. We have recorded a liability of $34.0 million (ZAR 479.4 million, translated at exchange rates applicable as of June 30, 2019, comprising the refund of ZAR 317.0 million, accrued interest of ZAR 161.0 million and estimated costs of ZAR 1.4 million) in our audited consolidated balance sheet as of June 30, 2019 in the caption other payables.

     In addition, in an April 2014 ruling, the Constitutional Court ordered SASSA to re-run the tender process and required us to file with the Court, after completion of our SASSA contract in March 2017, an audited statement of our expenses, income and net profit under the contract. The March 2018 Constitutional Court order contains a similar requirement that we file an audited statement of our expenses, income and net profit within 30 days of the completion of the contract. We have filed the required independently audited information with the Constitutional Court as ordered and the auditors expressed an unqualified opinion with an emphasis of matter regarding the basis of preparation and restriction as to use. The Constitutional Court also ordered SASSA to audit the audited information filed with the Constitutional Court and SASSA appointed an independent firm to audit our submission. The independent audit is currently underway and we understand that the independent firm is due to file its report by October 31, 2019. Parties to the March 2018 court proceedings also requested the Constitutional Court to consider further orders, including the repayment of any profits derived by CPS under its SASSA contract. The Constitutional Court did not provide for this in its March 2018 order; however, one or more third parties may in the future institute litigation challenging our right to retain a portion of the amounts we will have received from SASSA under our contract. We cannot predict whether any such litigation will be instituted, or if it is, whether it would be successful.

     Any successful challenge to our right to receive and retain payments from SASSA that requires substantial repayments would adversely affect our results of operations, financial position and cash flows.

The pricing recommended by National Treasury to the Constitutional Court for our services provided at pay points for the period from April 1, 2018 through September 30, 2018, has not yet been paid and we have commenced legal action for payment against SASSA. If we are not paid, or if the amount ultimately paid to us is not commercially reasonable, our results of operations, financial position and cash flows would be adversely affected.

     Under the Constitutional Court order of March 23, 2018, related to the extension of the SASSA contract to September 30, 2018 in respect of the recipients paid at cash pay points, we were granted permission to approach National Treasury to request revised pricing of the contract. National Treasury provided a recommendation to the Constitutional Court in compliance with their order at a price per recipient of R51.00 (VAT inclusive) per month. Although we offered to accept this amount in respect of the three months ended June 30, 2018 when the number of recipients paid approximated two million per month, we asked the Constitutional Court to reconsider the last three months of the contract. In line with SASSA’s public statements, there was a material reduction in the number of recipients paid at the pay points during July, August and September 2018.

In December 2018, we received correspondence from the Constitutional Court informing the parties that it believes that “nothing prevents the parties from coming to an agreement on increased payments without court sanction, and if they do not, normal legal processes in other courts must be filed to determine the effects.” We engaged SASSA directly in order to resolve this matter however we were not able to reach an amicable agreement and have commenced legal action as described under “Item 3.—Legal Proceedings—Dispute with SASSA regarding payment of fees for the last six months of the contract”. If we do not receive payment from SASSA, our results of operations, financial position and cash flows would be adversely affected.

We may undertake acquisitions or make strategic investments that could increase our costs or liabilities or be disruptive to our business.

Acquisitions and strategic investments are an integral part of our long-termnew growth strategy as we seek to growexpand our business internationally and to deploy our technologies in new markets both inside and outside Southin Southern Africa. However, we may not be able to locate suitable acquisition or investment candidates at prices that we consider appropriate. If we do identify an appropriate acquisition or investment candidate, we may not be able to successfully negotiate the terms of the transaction, finance it or, if the transaction occurs, integrate the new business into our existing business. These transactions may require debt financing or additional equity financing, resulting in additional leverage or dilution of ownership. For instance, in July 2017, we invested in Cell C Proprietary Limited, or Cell C, utilizing a combination of existing cash reserves and external debt from South African banks.

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Acquisitions of businesses or other material operations and the integration of these acquisitions or their businesses will require significant attention from members of our senior management team, which may divert their attention from our day to dayday-to-day business. The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. We also may not be able to retain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits that we anticipated when selecting our acquisition candidates. Acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition.

     In addition, we

We may need to record write-downs from future impairments of goodwill or other intangible assets, which could reduce our future reported earnings. For instance, in December 2018, we recorded an impairment loss

Geopolitical conflicts, including the conflict between Russia and Ukraine, may adversely affect our business and results of $7.0 million related to goodwill identifiedoperations.

The current conflict between Russia and Ukraine is creating substantial uncertainty about the future of the global economy. Countries across the globe are instituting sanctions and other penalties against Russia. The retaliatory measures that have been taken, and could be taken in the T24 acquisitionfuture, by the U.S., NATO, and other countries have created global security concerns that could result in March 2019, we recorded an impairment lossbroader European military and political conflicts and otherwise have a substantial impact on regional and global economies, any or all of $5.3 million related towhich could adversely affect our business.

While the certain intangible assets identified inbroader consequences are uncertain at this time, the DNI acquisition.

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   In March 2018, we recorded an impairment loss of $19.9 million related to the goodwill identified in the Masterpayment and Masterpayment Financial Services acquisitions. Finally, acquisition candidates may have liabilities continuation and/or adverse operating issues that we fail to discover through due diligence prior to the acquisition.

We have not achieved the expected benefits from our Cell C and DNI investments and may incur further losses related to these investments.

     We invested more than $240 million, in aggregate, to acquire a 15% interest in Cell C and a 55% controlling interest in DNI. At the time of each investment, we believed that there were potential synergies that we could derive from each of these transactions, including the integration of certain of our service offerings with those of Cell C and DNI. However, we have not yet realized someescalation of the synergiesRussian and Ukraine conflict, along with any expansion of the conflict to surrounding areas, create a number of risks that we had anticipated to achieve by now, and it is possible that we may not realize such synergies at all.

     Attempting to integrate these service offerings may be disruptive to us, and we may not be able to integrate these offerings successfully. Even if we are able to achieve this integration, our customers may not use these services to the extent that we expect they will. Any such failure could adversely impact our business, including:

•increased inflation and significant volatility in the macroeconomic environment;

•disruptions to our technology infrastructure, including through cyberattacks, ransom attacks or cyber-intrusion;

•adverse changes in international trade policies and relations;

•disruptions in global supply chains; and

•constraints, volatility or disruption in the businessescredit and capital markets.

All of Cell Cthese risks could materially and DNI,adversely affect our business and results of operations. We are continuing to monitor the situation in Ukraine and globally and assessing the potential impact on our business.

A prolonged economic slowdown or lengthy or severe recession in South Africa or elsewhere could harm our operations.

A prolonged economic downturn or recession in South Africa could materially impact our results from operations, particularly in light of severe electricity disruptions in calendar 2022, the July 2021 social unrest in South Africa and our strategic decision to focus on our South African operations. Economic confidence in South Africa, our main operating environment, is currently low and, as a result, the risk of a prolonged economic downturn is increased, which could have a negative impact on merchants and retailers; mobile phone operators; our account holders; the level of transactions we process; the take-up of the financial services we offer and the ability of our customers to repay our loans or to pay their insurance premiums. If financial institutions and retailers experience decreased demand for their products and services, our hardware, software, related technology sales and processing revenue could decrease.

Our investment in turn, reduceMobiKwik subjects us to certain risks, including the possibility of fluctuations in the carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.

We have elected to account for our investment in MobiKwik at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar instrument of the same issuer because it does not have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments and estimates and we are required to base our estimates on assumptions which we believe to be reasonable, but these assumptions may be unpredictable and inherently uncertain. The value of our investment in MobiKwik as of June 30, 2022 and 2021, was $76.3 million and was determined based on a share issuance concluded by MobiKwik in June 2021, implying a fair value per equity share of $12.275. We did not identify any observable price changes during fiscal 2022 and therefore did not adjust the value of our investments in them. Additionally, attempting to integrate Cell C’s and DNI’s offerings with our own may adversely impact our other business and operational relationships. Our inability to achieve the expected synergies from the Cell C and DNI transactions may have a material adverse effect on our business, results of operations or financial condition.

     In addition, Cell C and DNI may not be able to successfully execute their respective business plans, which may adversely affect, or impair, the carrying value of our investments in them. As an example,investment during the year ended June 30, 2019, we2022. We recorded a loss related to the change innon-cash fair value for Cell Cadjustment of $167.5 million which adversely impacted our results of operations and financial position. Our investments in Cell C and Cedar Cellular Investment 1 (RF) (Pty) Ltd, or Cedar Cellular, 8.625% notes were carried at $0 as of June 30, 2019, refer to Notes 7 and 9 to our audited consolidated financial statements for additional information regarding these investments. We also incurred a loss of $5.8$49.3 million during the year ended June 30, 2019, related2021.

MobiKwik filed its draft red herring prospectus in July 2021, with the original intention of completing its initial public offering in November 2021. MobiKwik decided to delay its initial public offering given prevailing market conditions and will reassess their options as market conditions change.

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We may need to record a write-down of the reduction incarrying value of our investment in DNI from 55%MobiKwik in the future (i) if it is unable to 30%.

We have grantedsuccessfully complete its contemplated initial public offering, (ii) due to fluctuations in its market price upon listing, including during the lock up period after its initial public offering, or (iii) if it has not listed, there is an observable transaction indicating a call option to DNI to acquirefair value per share which is lower than our remaining 30% interest in DNI in order to improve our liquidity. If we are unableJune 30, 2022 price per share. Furthermore, it may be difficult to dispose of our entire,some or a partial interest in DNI, in the short-term our financial position and cash flows may be adversely affected.

     We have determined to sell all or a portion of our remaining investment in DNI in orderon acceptable terms, if at all, if MobiKwik fails to generate additional liquiditylist.

Our ability to fund certain of our other businesses. On May 3, 2019, our wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited, or Net1 SA, entered into an agreement pursuantATM network requires that we continue to have access to sufficient lending facilities, which it granted a call option to DNI to acquire Net1 SA’s remaining 30% interest in DNI. The option expires on December 31, 2019, but may be exercised at any time prior to expiration. The option strike price is calculated as ZAR 2.827 billion ($200.8 million, translated at exchange rates applicable as of June 30, 2019) less any special distribution made by DNI multiplied by Net1 SA’s retained interest (i.e. assuming no special distribution, the strike price for the 30% retained interest is ZAR 859.3 million, or $61.0 million, translated at exchange rates applicable as of June 30, 2019). The call option may be split into smaller denominations, but Net1 SA cannot be left with less than 20% unless the whole remaining interest is disposed of. DNI may nominate another party to exercise the call option in the place of DNI, provided that the nominated party acquires call options representing at least 1.0% of DNI’s voting and participation interests.

     If we are unable to dispose of our entire, or a partial interest in DNI, in the short-term our financial position and cash flows may be adversely affected.

DNI generates most of its revenue by providing services to or on behalf of Cell C, principally through the sale of mobile phone starter packs. Our results of operations, financial condition and cash flow would suffer materially if DNI were to lose its contractual relationships with Cell C.

     DNI’s business comprises of a number of separate entities that are primarily involved in the distribution of mobile phone starter packs, mainly on behalf of Cell C. DNI also provides funding for the expansion of Cell C’s mobile telecommunications infrastructure.

     If Cell C were to terminate any of these contractual relationships that have multi-year notice periods, it would have a material adverse effect on our results of operations, financial condition and cash flow as a consequence of the impact on DNI. In particular our remaining 30% interest in DNI is likely to be worth less in the event that these contractual relationships are terminated.

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We have indebtedness that requires us to complycompliance with restrictive and financial covenants. If we are unable

The operational maintenance of our ATM network, along with an increase in our consumer banking client base, necessitates access to comply with these covenants, we could default on this debt, which would have a material adverse effect on our businesslarge amounts of cash to stock the ATMs and financial condition.

maintain uninterrupted service levels. We have credit facilities from Rand Merchant Bank, a division of FirstRand Bank Limited, or RMB, and Nedbank Limited, South African banks.bank which includes security arrangements as well as restrictive and financial covenants. The facilities are secured by intercompany cross-guarantees, a guarantee from Net1 and a pledge by Net1 SA of its entire equity interests in Cell C, DNI and FIHRST. The terms of the lending arrangement contain covenants that require Net1 SA to maintain certain asset cover ratios and restrict the ability of Net1 SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities without the approval of the lenders.

     In addition, DNI has a three year revolving credit facility of ZAR 200 million ($14.2 million, translated at exchange rates applicable as of June 30, 2019) from RMB to expand its operations. We are a reversionary guarantor of this credit facility as a result of our shareholding in DNI. The revolving credit facility is secured by intercompany cross-guarantees within the DNI group and a pledge by DNI of its entire equity interests in its subsidiaries. The terms of the lending arrangement contain customary covenants that require DNI to remain in accordance with specified net senior debt to EBITDA and EBITDA to net senior interest ratios and restrict the ability of DNI, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities without the approval of the lenders.

     These security arrangements and covenants included in our lending facilities may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us. If we are unable to comply with the covenants in South Africa, we could be in default and the indebtedness could be accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business and financial condition would suffer.

We may not be unableable to secureextend the necessaryterms of these debt facilities that will enable usor refinance them, in each case, on commercially reasonable terms or at all. Our ability to maintaincontinue the cash requirements foruninterrupted operation of our ATM network

     The expansion of will be adversely impacted by our fixed and mobile ATM network, along with an increase infailure to renew our consumer banking client base, necessitates access to large amounts of cash to stock the ATMs and maintain uninterrupted service levels. We currently utilize debt facilities, that expire in September 2020 to fund these ATMs. Anyany adverse change to the terms of theseour credit facilities, or a significant reduction in the amounts available under theseour credit facilities, or our failure to increase our facilities if required, will have an adverse impact on our ability to continue uninterrupted operation of our ATM network and our revenues from this business.required. We willmay also suffer reputational damage if our service levels are negatively impacted due to the unavailability of cash.

We face competition frommay be unable to recover the incumbent retail banks in South Africa and SAPOcarrying value of certain Cell C airtime that we own.

We own a substantial amount of Cell C airtime inventory ($13.7 million translated at exchange rates applicable as of June 30, 2022). In support of Cell C’s liquidity position, we are limiting our resale of this airtime to our own distribution channels until such time as Cell C’s recapitalisation process is concluded, which exposes us to market risk for this inventory. Due to wholesale discounts in the unbankeddistribution market segment, which could limit our growth.

     Certain South African banks have also developed their own low-cost banking products targeted atfor this airtime, it is not readily saleable in the unbankedcurrent market without realising a loss. In light of this, we recorded a loss of $1.3 million during fiscal 2020, related to this airtime inventory. While no further losses were recorded in fiscal 2022 and under-banked market segment. According to the 2018 FinScope SA 2018 Fact Sheet, a survey conducted by the FinMark Trust, a nonprofit independent trust, 80% of South Africans are banked. As the competition to bank the unbanked in South Africa intensifies,2021, we may not be successfulrequired to record further losses in marketingthe future or we may be unable to recover the carrying value of this airtime inventory as a result of the business failure of Cell C. Failure to recover the carrying value of this inventory may have a material adverse effect on our low-cost products to our target population. Moreover, as our product offerings increase, gain market acceptance and pose a competitive threat in South Africa, especially our UEPS/EMV product with biometric verification and ourresults of operations or financial services offerings, the banks and SAPO may seek governmental or other regulatory intervention if they view us as disrupting their transactional or other businesses.condition.

Our consumer microlending loan book exposesand merchant lending book expose us to credit risk and our allowance for doubtful finance loans receivable may not be sufficient to absorb future write-offs.

All of theseour microfinance loans made are for a period of six months or less.less and all of our merchant lending through Connect is for a period of less than 12 months. We have created an allowance for doubtful finance loans receivable related to this book. Management hasthese books. When creating the allowance, management considered factors including the period of the finance loan outstanding, creditworthiness of the customers and the past payment history of the borrower when creating the allowance.borrower. We consider this policy to be appropriate takingas it takes into account factors such as historical bad debts, current economic trends and changes in our customer payment patterns.

However, additional allowances may be required should the ability of our customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these financemicrofinance loan receivables, including on-going evaluation of the creditworthiness of each customer.receivables.

     Furthermore, as a result of SASSA’s migration of customers to SAPO during the first half of fiscal 2019, we saw a significant increase in the number of our customers no longer receiving their grant income into their EPE bank account. This resulted in a very significant increase in unrecoverable amounts and a significant bad debt expense.

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   As EPE accounts have remained largely stable since November 2018, we have seen our recoverability risk return to levels consistent with our previous experience. Nevertheless, these events have increased our recoverability risk and the risk that our allowance is insufficient.

Our working capital financing and supply chain solutions receivables expose us to credit risk and our allowance for doubtful working capital finance loans receivable may not be sufficient to absorb future write-offs.

     We have created an allowance for doubtful working capital finance receivables related to our Korean lending activities and previously to our Mastertrading business. We have considered factors including the period of the working capital receivable outstanding, creditworthiness of the customers and the past payment history of the borrower when creating the allowance. A significant amount of judgment is required to assess the ultimate recoverability of these and other working capital finance receivables because these are new offerings and we continue to refine and improve our processes, including the maximum amount of exposure per customer that we are willing to accept and the on-going evaluation of the creditworthiness of each customer.

     A determination that requires a change in our allowance for doubtful working capital finance receivables, or a failure by one or more of our customers to pay a significant portion of outstanding working capital finance receivables, could have a negative impact on our business, operating results, cash flows and financial condition.

We may face competition from other companies that offer innovative payment technologies and payment processing, which could result in the loss of our existing business and adversely impact our ability to successfully market additional products and services.

Our primary competitors in the payment processing market include other independent processors, as well as financial institutions, independent sales organizations, new digital and fintech entrants and, potentially card networks. Many of our competitors are companies who are larger than we are and have greater financial and operational resources than we have. These factors may allow them to offer better pricing terms or incentives to customers, which could result in a loss of our potential or current customers and/or could force us to lower our prices as well.prices. Either of these actions could have a significant effect on our revenues and earnings.

     In addition to competition that our UEPS system faces from the use of cash, checks, credit and debit cards, existing payment systems and the providers of financial services and low cost bank accounts, there are a number of other products that use smart card technology in connection with a funds transfer system. During the past several years, smart card technology has become increasingly prevalent. We believe that the most competitive product in this marketplace is EMV, a system that is promoted by most of the major card companies such as Visa, MasterCard, JCB and American Express. Also, governments and financial institutions are, to an increasing extent, implementing general-purpose reloadable prepaid cards as a low-cost alternative to provide financial services to the unbanked population. Moreover, as the acceptance of using a mobile phone to facilitate financial services has increased exponentially, other companies have introduced such services to the marketplace successfully and customers may prefer those services to ours, based on technology, price or other factors.

A prolonged economic slowdown or lengthy or severe recession in South Africa or elsewhere could harm our operations.

     A prolonged economic downturn or recession could materially impact our results from operations. Also, economic confidence in South Africa, our main operating environment, is currently low and as a result the risk of an economic downturn is inflated. A recessionary economic environment could have a negative impact on mobile phone operators, our cardholders and retailers and could reduce the level of transactions we process, the sales of mobile phone starter packs, the take-up of the financial services we offer and the ability of our customers to repay our microloans or to pay their insurance premiums, which would, in turn, negatively impact our financial results. If financial institutions and retailers experience decreased demand for their products and services our hardware, software and related technology sales will reduce, resulting in lower revenue.12

The loss of the services of certain of our executive officers would adversely affect our business.

Our future financial and operational performance depends,success will depend in large part on the continued contributions of our senior management, in particular, Mr. Herman Kotzé, our Chief Executive Officer, and Mr. Alex Smith, our Chief Financial Officer. Many of our key responsibilities in South Africa are currently performed by Messrs. Kotzé and Smith, as well as by Mr. Nanda Pillay, our Managing Director: Southern Africa. The loss of the services of any of these executives would disrupt our development efforts or business relationships and our ability to continue to innovateattract, integrate, retain and to meet customers’ needs, which could have a material adverse effect on our businessincentivize key personnel and financial performance.

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     The success of our KSNET business depends heavily on the continued services of its president, Phil-Hyun Oh and the other senior members of the KSNET management team. In addition, the growth and future profitability of IPG is reliant on Mr. Philip Meyer’s leadership, industry knowledge and contacts. We do not maintain any “key person” life insurance policies.

We face a highly competitive employment market and may not be successful in attracting and retaining a sufficient number of skilled employees, particularly in the technical, and sales areas and senior management.management areas.

Our future success dependsgroup has undergone a significant change in management over the last twelve months, with various long-serving executives having resigned from the organization and new management joining us through the Connect acquisition. We believe we now have in place a management team that has the right experience and skills to execute on our ability to continue to develop new products and to market these products to our targeted users. Instrategic direction. However, in order to succeed in our product development and marketing efforts, we may need to identify and attract motivate and retain sufficient numbers ofnew qualified technical and sales personnel. Anpersonnel, as well as motivate and retain our existing employees. As a result, an inability to hire and retain such technical personnelemployees would adversely affect our ability to enhanceachieve our existing intellectual property,strategic goals and maintain our technological relevance. We may face difficulty in managing the transition to introducea new generations of technologymanagement team, including team members from Connect, and assimilating our newly-hired personnel, which may adversely affect our business. Competitors may attempt to keep abreast of current developments in technology. Demand for personnel with the range of capabilitiesrecruit our top management and experience we require is highemployees. In order to attract and there is no assurance that we will be successful in attracting and retaining these employees. The risk exists that our technical skills and sales base may be depleted over time because of natural attrition. Furthermore, social and economic factors in South Africa have led, and continue to lead, to numerous qualified individuals leaving the country, thus depleting the availability of qualifiedretain personnel in South Africa. In addition,a competitive marketplace, we must provide competitive pay packages, including cash and equity-based compensation and the volatility in our multi-country strategy will also require usstock price may from time to hire andtime adversely affect our ability to recruit or retain highly qualified managerial personnel in each of these markets.employees. We do not maintain any “key person” life insurance policies. If we cannot recruitfail to attract, integrate, retain and retain people with the appropriate capabilitiesincentivize key personnel and experienceskilled employees, our ability to manage and effectively integrate these people intogrow our business it could negatively affectbe harmed and our product development and marketing activities.activities could be negatively affected.

System failures, including breaches in the security of our system, could harm our business.

We may experience system failures from time to time, and any lengthy interruption in the availability of our back-end system computercomputers could harm our revenuesbusiness and profits, and could subject us to the scrutiny ofseverely affect our customers.customer relationships. Frequent or persistent interruptions in our services could cause current or potential customers and users to believe that our systems are unreliable, leading them to avoid our technology altogether, and could permanently harm our reputation and brands. These interruptions would increase the burden on our engineering staff, which, in turn, could delay our introduction of new applications and services. Finally, because our customers may use our products for critical transactions, any system failures could result in damage to our customers’ businesses. These customers could seek significant compensation from us for their losses. Even if unsuccessful, this type of claim could be time consumingtime-consuming and costly for us to address.

Although certain of our systems have been designed to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities.

Protection against fraud is of key importance to the purchasers and end users of our solutions. We incorporate security features, including encryption software, biometric identification and secure hardware, into our solutions to protect against fraud in electronic transactions and to provide for the privacy and integrity of card holdercardholder data. Our solutions may be vulnerable to breaches in security due to defects in the security mechanisms, the operating system and applications or the hardware platform. Security vulnerabilities could jeopardize the security of information transmitted using our solutions. If the security of our solutions is compromised, our reputation and marketplace acceptance of our solutions willmay be adversely affected, which would cause our business to suffer, and we may become subject to damage claims. We have not yet experienced any significant security breaches affecting our business.

Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our system could result in lengthy interruptions into our services. Our current business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures.

Our proprietary rights may

Cash Paymaster Services, or CPS, has been placed into liquidation. While no claim has been made against Lesaka for CPS’ obligations, we cannot provide assurance that no such claim will be made.

CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While no claim has been made against Lesaka to be held liable for CPS’ current obligations or any future obligations under any future court judgments, and while we do not adequately protect our technologies.

     Our success dependsbelieve that there would be a legitimate legal basis for any such claims, we cannot assure you that no such claim will be made against us. If SASSA or another third party were to seek and ultimately succeed in partobtaining a judgment against us in respect of CPS’ liabilities, any such judgment would have a material adverse effect on our obtainingfinancial condition, results of operations and maintaining patent, trade secret, copyright and trademark protection of our technologies in the United States and other jurisdictions as well as successfully enforcing this intellectual property and defending this intellectual property against third-party challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable intellectual property protections, such as patents or trade secrets, cover them. In particular, we place considerable emphasis on obtaining patent and trade secret protection for significant new technologies, products and processes. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.cash flows.

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 We cannot predict the breadth of claims that may be allowed or enforced in our patents. For example, we might not have been the first to make the inventions covered by each of our patents and patent applications or to file patent applications and it is possible that none of our pending patent applications will result in issued patents. It is possible that others may independently develop similar or alternative technologies. Also, our issued patents may not provide a basis for commercially viable products, or may not provide us with any competitive advantages or may be challenged, invalidated or circumvented by third parties.

     We also rely on trade secrets to protect our technology, especially where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. We have confidentiality agreements with employees, and consultants to protect our trade secrets and proprietary know-how. These agreements may be breached and or may not have adequate remedies for such breach. While we use reasonable efforts to protect our trade secrets, our employees, consultants or others may unintentionally or willfully disclose our information to competitors. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, our enforcement efforts would be expensive and time consuming, and the outcome would be unpredictable. Moreover, if our competitors independently develop equivalent knowledge, methods and know-how, it will be more difficult for us to enforce our rights and our business could be harmed. If we are not able to defend the patent or trade secret protection position of our technologies, then we will not be able to exclude competitors from developing or marketing competing technologies.

     We also rely on trademarks to establish a market identity for some of our products. To maintain the value of our trademarks, we might have to file lawsuits against third parties to prevent them from using trademarks confusingly similar to or dilutive of our registered or unregistered trademarks. Also, we might not obtain registrations for our pending trademark applications, and might have to defend our registered trademark and pending trademark applications from challenge by third parties.13

Defending our intellectual property rights or defending ourselves in infringement suits that may be brought against us is expensive and time-consuming and may not be successful.

Litigation to enforce our patents, trademarks or other intellectual property rights or to protect our trade secrets could result in substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws in countries where we currently have patent protection. Our means of protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in which we operate, may not be adequate to fully protect our intellectual property rights. Similarly, if third parties claim that we infringe their intellectual property rights, we may be required to incur significant costs and devote substantial resources to the defense of such claims. We may be requiredclaims, to discontinue using and selling any infringing technology and services, to expend resources to develop non-infringing technology or to purchase licenses or pay royalties for other technology. In addition, if we are unsuccessful in defending any such third-party claims, we could suffer costly judgments and injunctions that could materially adversely affect our business, results of operations or financial condition.

Our strategy of partnering with companies outside South Africa may not be successful.

     In order for us to expand our operations into foreign markets, it may be necessary for us to establish partnering arrangements with companies outside South Africa, such as the one we have co-established in Namibia and Mauritius (in V2 Limited) and our non-controlling investments in Nigeria, Liechtenstein and India. The success of these endeavors is, however, subject to a number of factors over which we have little or no control, such as finding suitable partners with the appropriate financial, business and technical backing and continued governmental support for planned implementations. In some countries, finding suitable partners and obtaining the appropriate support from the government involved may take a number of years before we can commence implementation. Some of these partnering arrangements may take the form of joint ventures in which we receive a non-controlling interest. Non-controlling ownership carries with it numerous risks, including dependence on partners to provide knowledge of local market conditions and to facilitate the acquisition of any necessary licenses and permits, as well as the inability to control the joint venture vehicle and to direct its policies and strategies.

     Such a lack of control could result in the loss of all or part of our investment in such entities. In addition, our foreign partners may have different business methods and customs which may be unfamiliar to us and with which we disagree. Our joint venture partners may not be able to implement our business model in new areas as efficiently and quickly as we have been able to do in South Africa. Furthermore, limitations imposed on our South African subsidiaries by South African exchange control regulations, as well as limitations imposed on us by the Investment Company Act of 1940, may limit our ability to establish partnerships or entities in which we do not obtain a controlling interest.

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We pre-fund certain merchant and customer payments in South Africa and South Korea and a significant level of payment defaults by these merchants or customers would adversely affect us.

     We pre-fund the settlement of funds to certain merchants and customers in South African and South Korea. These pre-funding obligations expose us to the risk of default by these merchants and customers. Although we have not experienced any material defaults by merchants or customers in the return of pre-funded amounts to us, we cannot guarantee that material defaults will not occur in the future. A material level of merchant or customer defaults could have a material adverse effect on us, our financial position and results of operations.

We may incur material losses in connection with our distributionmovement of cash through our payment infrastructure in South Africa.

     Many

In our consumer business, many cardholders use our services to access cash using their debit cards. We use armored vehicles and our own fixed ATM infrastructure to deliver large amounts of cash to rural areas across South Africa to enable these cardholders to receive this cash. In some cases, we also store the cash that will be delivered by the armored vehicles in depots overnight or over the weekend to facilitate delivery to these rural areas.

In our merchant business we collect and process large volumes of cash from our customers, assuming the risk of loss from the moment that cash is deposited into our vaults. We are then responsible for its collection and transportation to processing centers, which we outsource to various cash in transit service providers. These services extend across all areas of South Africa.

South Africa suffers from high levels of crime and in particular cash in transit heists. We cannot insure against certain risks of loss or theft of cash from our delivery and collection vehicles, ATMs or depots and we will therefore bear the full cost of certain uninsured losses or theft in connection with the cash handling process, and such losses could materially and adversely affect our financial condition, cash flows and results of operations. We have not incurred any material losses resulting from cash distribution in recent years, but there is no assurance that we will not incur any such material losses in the future.

We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

We obtain our smart cards, ATMs, POS devices, components for our safe assets, and the other hardware we use in our business from a limited number of suppliers, and do not manufacture this equipment ourselves. We generally do not have long-term agreements with our manufacturers or component suppliers. If our suppliers become unwilling or unable to provide us with adequate supplies of parts or products when we need them, or if they increase their prices, we may not be able to find alternative sources in a timely manner and could be faced with a critical shortage. This could harm our ability to implement new systemsmeet customer demand and cause our revenues to decline. Even if we are able to secure alternative sources in a timely manner, our costs could increase.increase as a result of supply or geopolitical shocks, which may lead to an increase in the prices of goods and services from third parties. A supply interruption, such as the current global shortage of semiconductors, or an increase in demand beyond current suppliers’ capabilities could harm our ability to distribute our equipment and thus to acquire a new source of customers who use our UEPS technology. Any interruption in the supply of the hardware necessary to operate our technology, or our inability to obtain substitute equipment at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

Our Smart Life business exposes us to risks typically experienced by life assurance companies.

Smart Life is a life insurance company and exposes us to risks typically experienced by life assurance companies. Some of these risks include the extent to which we are able to continue to reinsure our risks at acceptable costs, reinsurer counterparty risk, maintaining regulatory capital adequacy, solvency and liquidity requirements, our ability to price our insurance products appropriately, the risk that actual claims experience may exceed our estimates, the ability to recover policy premiums from our customers and the competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance at prices that we consider acceptable, we would have to either accept an increase in our risk exposure risk or reduce our insurance writings. If our reinsurers are unable to meet their commitments to us in a timely manner, or at all, we may be unable to discharge our obligations under our insurance contracts. As such, we are exposed to counterparty risk, including credit risk, of these reinsurers.

Our product pricing includes long-term assumptions regarding investment returns, mortality, morbidity, persistency and operating costs and expenses of the business. Using the wrong assumptions to price our insurance products could materially and adversely affect our financial position, results of operations and cash flows.

If our actual claims experience is higher than our estimates, as we have seen during the recent COVID-19 pandemic, our financial position, results of operations and cash flows could be adversely affected.

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Finally, the South African insurance industry is highly competitive. Many of our competitors are well-established, represented nationally and market similar products and we therefore may not be able to effectively penetrate the South African insurance market.

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We are unable to ascertain the full impact the COVID-19 pandemic will have on our future financial position, operations, cash flows and stock price.

Our business was impacted by government restrictions and quarantines related to COVID-19. South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive. South Africa is currently not subject to any formal COVID-19 restrictions. However, the pandemic did impact our insurance business during fiscal 2022 and 2021 as we experienced a higher level of benefit claims in these years. Should there be further increases in mortality rates across our customer base, we may see an increase in funeral policy claim payouts. We believe that our business activities may be adversely impacted if strict government-enforced restrictions are reintroduced to combat the spread of COVID-19 or similar pandemics.

Some of our employees worked from home following the publication of government-supported initiatives to combat the spread of COVID-19. As a result of the work from home environment, we may face additional challenges providing employees with secure remote access to computer networks as well as initiating and accepting instructions via e-mail or other electronic media should there be a resurgence of the virus or as a result of a similar event requiring our employees to work from home.

Risks Relating to Operating in South Africa and Other Foreign Markets

Operating in Southern Africa, an emerging market, subjects us to greater risks than those we would face if we operated in more developed markets. For example, we saw significant disruption from the civil unrest experienced in early July 2021.

Emerging markets such as Southern Africa are subject to greater risks than more developed markets. While we focus our business primarily on emerging markets because that is where we perceive the greatest opportunities to market our products and services successfully, the political, economic and market conditions these markets present risks that could make it more difficult to operate our business successfully.

Some of these risks include:

•political, legal and economic instability, including higher rates of inflation and currency fluctuations;

•high levels of corruption, including bribery of public officials;

•loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;

•a lack of well-developed legal systems which could make it difficult for us to enforce our intellectual property and contractual rights;

•logistical, utilities (including electricity and water supply) and communications challenges;

•potential adverse changes in laws and regulatory practices, including import and export license requirements and restrictions, tariffs, legal structures and tax laws;

•difficulties in staffing and managing operations and ensuring the safety of our employees;

•restrictions on the right to convert or repatriate currency or export assets;

•greater risk of uncollectible accounts and longer collection cycles;

•indigenization and empowerment programs;

•exposure to liability under the UK Bribery Act; and

•exposure to liability under U.S. securities and foreign trade laws, including the Foreign Corrupt Practices Act, or FCPA, and regulations established by the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC.

If we do not achieve applicable broad-based black economic empowermentBroad-Based Black Economic Empowerment objectives in our South African businesses, we may be subject to fines and we risk losing our government and/or private contracts and/or risk not being in compliance with any government and/or private contracts which we have already entered into.contracts. In addition, it is possible that we may be required to increase the blackBlack shareholding of our company in a manner that could dilute your ownership and/or change the companies from which we purchase goods or procure services (to companies with a better BEE Contributor Status Level).

The legislative framework for the promotion of broad-based black economic empowerment, or BEE,Broad-Based Black Economic Empowerment (“BEE”), in South Africa has been established through the Broad-Based Black Economic Empowerment Act, No. 53 of 2003, as amended from time to time, and the Amended BEE Codes of Good Practice, 2013, or BEE Codes, and any sector-specific codes of good practice, or Sector Codes, published pursuant thereto. Sector Codes are fully binding between and among businesses operating in a sector for which a Sector Code has been published. Achievement of BEE objectives is measured by a scorecard which establishes a weighting for the various elements. Save for certain instances where entities are only required to obtain an affidavit (for example, exempted micro enterprises and a qualifying small enterprise that is 51% Black Owned or 100% Black Owned (as defined in the BEE Codes and/or Sector Codes)), scorecardsScorecards are independently reviewed by accredited BEE verification agencies which issue a certificate that presents an entity’s BEE Contributor Status Level. This BEE verification process must be conducted on an annual basis, and the resultant BEE compliance certificate is only valid for a period of 12 months from the conclusion of the verification.

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Certain of our South African businesses are subject to either the Information, Communications and Technology Sector Code, or ICT Sector Code, or the Financial Services Sector Code, or the FS Sector Code. The ICT Sector Code hasand the FS Sector Code have been amended and aligned with the new BEE Codes and waswere promulgated onin November 7, 2016. Likewise,2016 and December 2017, respectively. Licensing and/ or regulation authorities overseeing these businesses may set minimum adherence requirements to BEE standards as a condition for an operating license to trade.

The BEE scorecard includes a component relating to management control, which serves to determine the Financial Servicesparticipation of Black people within the board, as well as at various levels of management within a measured entity (including, inter alia, Executive Management, Senior Management, Middle Management and Junior Management). The BEE Codes and/or Sector Code has been amendedCodes define the terms "Senior Management", "Middle Management" and aligned"Junior Management" as those occupational categories as determined in accordance with the new BEE Codes,Employment Equity Regulations, with specific emphasis on improving participation in proportion to the demographics of the Economically Active Population of South Africa, as determined quarterly by Statistics South Africa. Employment Equity legislation seeks to drive the alignment of the workforce with the racial composition of South Africa and was promulgated on December 1, 2017.accelerate the achievement of employment equity targets, introducing monetary fines for non-achievement and misrepresented submissions. Failing to meet these targets may expose us to fines. Annexure EEA9 to the Employment Equity Regulations sets out the various occupational levels which are determined in accordance with the relevant grading systems applied by the measured entity and referred to in said Annexure.

We have taken a number of actions as a company to increase empowerment of blackBlack (as defined under applicable regulations) South Africans. For instance, the South African competition authorities approved the Connect transaction subject to certain public interest conditions relating to employment, increasing the spread of ownership by historically disadvantaged people (“HDPs”), and investing in both enterprise and supplier development. Further to increasing the spread of ownership by HDPs, we are required to establish an Employee Share Ownership Plan scheme (“ESOP”) within 24 months of the implementation of the transaction that complies with certain design principles. This will benefit the workers of the merged entity and result in them receiving a shareholding in our company equal in value to at least 3% of the issued shares in our company as of April 14, 2022. If within 24 months of the implementation date of the transaction, we generate a positive net profit for three consecutive quarters, the ESOP shall increase to 5% of the issued shares in in our company as of April 14, 2022. The final structure of the ESOP is contingent on shareholder approval and relevant regulatory and governance approvals. The ESOP had not been established as of the date of this Annual Report on Form 10-K.

During fiscal 2022, we provided 10,500 families with flood relief support in response to the devastating impact of the April 2022 KwaZulu-Natal floods, leveraging our branch footprint and proximity to the most affected areas. We have empowered more than 160 young South Africans with learnership opportunities to improve their skills and readiness to participate in the mainstream economy. We have also made an investment into establishing the infrastructure for a multi-year value chain framework that will cut across various BEE pillars and businesses in South Africa. However, it is possible that these actions may not be sufficient to enable us to achieve the applicable BEE objectives.objectives set out for specific financial years. In that event, in order to avoid risking the loss of ourmaintain competitiveness with both government and private contracts,sector clients, we may have to seek to complyincrease compliance through other means, including by selling or placing additional shares of Net1Lesaka or of our South African subsidiaries to blackBlack South Africans (either directly or indirectly)., over and above what has already been approved. Such sales or placements of shares could have a dilutive impact on your ownership interest, which could cause the market price of our stock to decline.

We expect that our BEE Contributor Status Level will be important in order for us in order to remain competitive in the South African marketplace and we continually seek ways to improve our BEE Contributor Status Level, especially the ownership element (so-called “equity element”) element thereof.

We may not be able to effectively and efficiently manage the disruption to our operations as a result of erratic electricity supply in South Africa, which could adversely affect our, financial position, cash flows and future growth.

Our businesses in South Africa are dependent on electricity generated and supplied by the state-owned utility, Eskom, in order to operate, and Eskom has been unable to generate and supply the amount of electricity required by the South African economy which has resulted in significant and often unpredictable electricity supply disruptions. Eskom has implemented a number of short- and long-term mitigation plans to correct these issues but supply disruptions continue to occur regularly and with no predictability. As part of our business continuity programs, we have installed back-up diesel generators in order for us to continue to operate our core data processing facilities in the event of intermittent disruptions to our electricity supply. We have entered into various BEE transactionsto perform regular monitoring and maintenance of these generators and also source and manage diesel fuel levels. We may also be required to replace these generators on a more frequent basis due to the additional burden placed on them.

Our results of operations, financial position, cash flows and future growth could be adversely affected if Eskom is unable to raise sufficient funding to operate and/or commission new electricity-generating power stations in the past in an effortaccordance with its plans, or at all, or if we are unable to improveeffectively and efficiently test, maintain, source fuel for, and replace, our score, including transactions in which we issued equity to BEE partners.generators.

     It is possible that we may find it necessary to issue additional shares to improve our BEE Contributor Status Level. If we enter into further BEE transactions that involve the issuance of equity, we cannot predict what the dilutive effect of such a transaction would be on your ownership or how it would affect the market price of our stock.

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Fluctuations in the value of the South African rand have had, and will continue to have, a significant impact on our reported results of operations, which may make it difficult to evaluate our business performance between reporting periods and may also adversely affect our stock price.

The South African rand, or ZAR, is the primary operating currency for our business operations while our financial results are reported in U.S. dollars. This means that as long as the ZAR remains our primary operating currency,Therefore, any depreciation in the ZAR against the U.S. dollar, and to a lesser extent, the South Korean won against the U.S. dollar, would negatively impact our reported revenue and net income, while a strengthening of the ZAR and the South Korean won would have the opposite effect. Depreciation in the ZAR may negatively impact the prices at which our stock trades.income. The U.S. dollar/ZAR exchange rate has historically been volatile and we expect this volatility to continue. We provide detailed information about historical exchange rates incontinue (refer to Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Currency Exchange Rate Information.”

). Due to the significant fluctuation in the value of the ZAR and its impact on our reported results, you may find it difficult to compare our results of operations between financial reporting periods even though we provide supplemental information about our results of operations determined on a ZAR basis. This difficulty may increase as we expand our business internationally and record additional revenue and expensesSimilarly, depreciation in the euro and other currencies. ItZAR may also have a negativenegatively impact onthe prices at which our stock price.trades.

We generally do not engage in any currency hedging transactions intended to reduce the effect of fluctuations in foreign currency exchange rates on our results of operations, other than economic hedging using forward contracts relating to our inventory purchases which are settled in U.S. dollars or euros.

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     We have used forward contracts in order to hedge our economic exposure to the ZAR/U.S. dollar and ZAR/euro exchange rate fluctuations from these foreign currency transactions. We cannot guarantee that we will enter into hedging transactions in the future or, if we do, that these transactions will successfully protect us against currency fluctuations.

South Africa’s high levels of poverty, unemployment and crime may increase our costs and impair our ability to maintain a qualified workforce

While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment, relative to peer countries in Africa and other emerging economies, and there are significant differences in the level of economic and social development among its people, with large parts of the population, particularly in the rural areas, having limited access to adequate education, healthcare, housing and other basic services, including water and electricity. In addition, South Africa has a high prevalence of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of citizens under previous governments may increase our costs and reduce our profitability, all of which could negatively affect our business. These problems may prompt emigration of skilled workers, hinder investment into South Africa and impede economic growth. As a result, we may have difficulties attracting and retaining qualified employees.

We may not be able to effectively and efficiently manage the electricity supply disruptions in South Africa, which could adversely affect our results of operations, financial position, cash flows and future growth.

     Our businesses in South Africa are dependent on electricity generated and supplied by the state-owned utility, Eskom, in order to operate. In recent years, Eskom has been unable to generate and supply the amount of electricity required by South Africans, and the entire country experienced significant and often unpredictable electricity supply disruptions. Eskom has implemented a number of short- and long-term mitigation plans to correct these issues and the number of supply disruptions has decreased since calendar 2016, but there was a brief reoccurrence in early calendar 2019. Eskom requires significant funding from the South African government in order to continue to operate.

     As part of our business continuity programs, we have installed back-up diesel generators in order for us to continue to operate our core data processing facilities in Cape Town and Johannesburg in the event of intermittent disruptions to our electricity supply. We have to perform regular monitoring and maintenance of these generators as well as sourcing and managing diesel fuel levels. We may also be required to replace these generators on a more frequent basis due to the additional burden placed on them.

     Our results of operations, financial position, cash flows and future growth could be adversely affected if Eskom is unable raise sufficient funding to operate and/ or to commission new electricity-generating power stations in accordance with its plans, or at all, or if we are unable to effectively and efficiently test, maintain, source fuel for and replace our generators.

The economy of South Africa is exposed to high rates of inflation, interest rates and rates of corporate tax, which could increase our operating costs and thereby reduce our profitability. Furthermore, the South African government requires additional income to fund future government expenditures and may be required, among other things, to increase existing income taxestax rates, including the corporate income tax rate, amend existing tax legislation or introduce additional taxes.

The economy of South Africa in the past has been, and in the future may continue to be, characterized by rates of inflation and interest rates that are substantially higher than those prevailing in the United States and other highly developedhighly-developed economies. High rates of inflation could increase our South African-based costs and decrease our operating margins. HigherHigh interest rates increase the cost of our debt financing, though conversely, they also increase the amount of income we earn on any cash balances. The South African corporate income tax rate, of 28%, is higher than the FederalU.S. federal income tax rate, of 21%, as a result of changes to U.S. tax legislation following. While the enactment of the Tax Cuts and Jobs Act in December 2017.

     The South African government has announced a number of new programs and initiatives that may require funding from a variety of sources, including from an increase existing income taxes rates, including the corporate income tax rate; amendmentsrate is expected to existing South African tax legislation; or through the introduction of additional taxes. Anreduce to 27% in fiscal 2023, any subsequent increase in the effective South African corporate income tax rate willwould adversely impact our profitability and cash flow generation.

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South African exchange control regulations could hinder our ability to make foreign investments and obtain foreign-denominated financing.

     South Africa’s exchange control regulations restrict the export of capital from South Africa, the Republic of Namibia and the Kingdoms of Lesotho and Swaziland, known collectively as the Common Monetary Area, without the prior approval of SARB. While the South African government has relaxed exchange controls in recent years, it is difficult to predict whether or how it will further relax or abolish exchange control measures in the foreseeable future.

     Although Net1 is a U.S. corporation and is not itself subject to South African exchange control regulations, these regulations do restrict the ability of our South African subsidiaries to raise and deploy capital outside the Common Monetary Area, to borrow money in currencies other than the South African rand and to hold foreign currency. Exchange control restrictions may also affect the ability of these subsidiaries to pay dividends to Net1 unless the affected subsidiary can show that any payment of such dividend will not place it in an over-borrowed position. As of June 30, 2019, approximately 29% of our cash and cash equivalents (excluding restricted cash) were held by our South African subsidiaries. Exchange control regulations could make it difficult for our South African subsidiaries to: (i) export capital from South Africa; (ii) hold foreign currency or incur indebtedness denominated in foreign currencies without the approval of SARB; (iii) acquire an interest in a foreign venture without the approval of SARB and first having complied with the investment criteria of SARB; or (iv) repatriate to South Africa profits of foreign operations. These regulations could also limit our ability to utilize profits of one foreign business to finance operations of a different foreign business.

     Under current exchange control regulations, SARB approval would be required for any acquisition of our company which would involve payment to our South African shareholders of any consideration other than South African rand. This restriction could limit our management in its ability to consider strategic options and thus, our shareholders may not be able to realize the premium over the current trading price of our shares.

Operating in South Africa and other emerging markets subjects us to greater risks than those we would face if we operated in more developed markets.

     Emerging markets such as South Africa, as well as some of the other markets into which we have recently begun to expand, including African countries outside South Africa, South and Southeast Asia and Central Europe, are subject to greater risks than more developed markets. While we focus our business primarily on emerging markets because that is where we perceive to be the greatest opportunities to market our products and services successfully, the political, economic and market conditions in many of these markets present risks that could make it more difficult to operate our business successfully.

Some of these risks include:

  Many of these countries and regions are in various stages of developing institutions and political, legal and regulatory systems that are characteristic of democracies. However, institutions in these countries and regions may not yet be as firmly established as they are in democracies in the developed world. Many of these countries and regions are also in the process of transitioning to a market economy and, as a result, are experiencing changes in their economies and their government policies that can affect our investments in these countries and regions. Moreover, the procedural safeguards of the new legal and regulatory regimes in these countries and regions are still being developed and, therefore, existing laws and regulations may be applied inconsistently. In some circumstances, it may not be possible to obtain the legal remedies provided under those laws and regulations in a timely manner.

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 As the political, economic and legal environments remain subject to continuous development, investors in these countries and regions face uncertainty as to the security of their investments. Any unexpected changes in the political or economic conditions in these or neighboring countries or others in the region may have a material adverse effect on the international investments that we have made or may make in the future, which may in turn have a material adverse effect on our business, operating results, cash flows and financial condition.

Our KSNET operations may be adversely affected by tension in the Korean peninsula.

     Our KSNET operations contributed $138.4 million and $9.7 million of our revenue and operating income, respectively, for our 2019 fiscal year. In the last few years, tension in the Korean peninsula has increased because of concern about potential acts of military aggression or cyber-attacks. KSNET is a transaction processor and its operations are dependent on continuing high levels of consumer activity and the availability of data communication infrastructure. Acts of military aggression in the Korean peninsula, other hostile acts or economic weakness that reduces spending by South Korean consumers is likely to materially and adversely impact our KSNET operations as well as our business, operating results, cash flows and financial condition.

Risks Relating to Government Regulation

The South African National Credit Regulator has applied to cancel the registration of our subsidiary, Moneyline Financial Services (Pty) Ltd, as a credit provider. If the registration is cancelled, we will not be able to provide loans to our customers, which would harm our business.

     Moneyline provides microloans to our EPE cardholders. Moneyline is a registered credit provider under the South African National Credit Act, or NCA, and is required to comply with the NCA in the operation of its lending business. In September 2014, the South African National Credit Regulator, or NCR, applied to the National Consumer Tribunal to cancel Moneyline’s registration, based on an investigation concluded by the NCR.

     The NCR has alleged, among other things, that Moneyline contravened the NCA by including child support grants and foster child grants in the affordability assessments performed by Moneyline prior to granting credit to these borrowers, and that the procedures followed and documentation maintained by Moneyline are not in accordance with the NCA. We believe that Moneyline has conducted its business in compliance with NCA and we are opposing the NCR’s application. However, if the NCR’s application is successful, Moneyline would be prohibited from operating its microlending business, which could have a material adverse effect on our results of operations and cash flows.

We are required to comply with certain U.S. laws and regulations, including economic and trade sanctions, which could adversely impact our future growth.

We are subject to U.S. and other trade controls, economic sanctions and similar laws and regulations, including those in the jurisdictions where we operate. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative penalties and harm our reputation. Doing business on a worldwide basis requires us to comply with the laws and regulations of various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners and investment decisions. In particular, our operations are subject to U.S. and foreign trade control laws and regulations, including various export controls and economic sanctions programs, such as those administered by OFAC, as well as European sanctions.OFAC. We monitor compliance in accordance with the 10 principles as set out in the United Nations Global Compact Principles, the Organisation for Economic Co-operation and Development recommendations relating to corruption, and the International Labor Organization Protocol in terms of certain of the items to be monitored. As a result of doing business in foreign countries and with foreign partners, we are exposed to a heightened risk of violating trade control laws as well as sanctions regulations.

     Economic sanctions programs restrict our business dealings with certain sanctioned countries, persons and entities. In addition, because we act through dealers and distributors, we face the risk that our dealers, distributors and customers might further distribute our products to a sanctioned person or entity, or an ultimate end-user in a sanctioned country, which might subject us to an investigation concerning compliance with OFAC or other sanctions regulations.

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Violations of trade control laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have developed policies and procedures as part of a company-wide compliance program that is designed to assist our compliance with applicable U.S. and international trade control laws and regulations, including trade controls and sanctions programs administered by OFAC, and provide regular training to our employees to complycreate awareness about the risks of violations of trade control laws and sanctions regulations and to ensure compliance with these laws and regulations. However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not take actions in violation of our policies and these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation.

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However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not take actionsact in violation of our policies and these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition. Our continued internationalAny expansion including ininto developing countries, and our development of new partnerships and joint venture relationships, worldwide, could increase the risk of OFAC violations in the future.

In addition, our payment processing and financial services activities are subject to extensive regulation. Compliance with the requirements under the various regulatory regimes may cause us to incur significant additional costs and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.

We are required to comply with anti-corruption laws and regulations, including the FCPA and UK Bribery Act, in the jurisdictions in which we operate our business, which could adversely impact our future growthgrowth.

The FCPA prohibits us from providing anything of value to foreign officials for the purposes of obtaining or retaining business, or securing any improper business advantage. It alsoadvantage, and requires us to keep books and records that accurately and fairly reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA.

     In addition, we have to comply with theThe UK Bribery Act which includes provisions that extend beyond bribery of foreign public officials and also apply to transactions with individuals not employed by a government. The provisions ofgovernment and the UK Bribery Act areact is also more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments and penalties. Some of the international locations in which we operate or have investments lack a developed legal system and have higher than normal levels of corruption.

Any failure by us to adopt appropriate compliance procedures and ensure that our employees, agents and business partners comply with the FCPAanti-corruption laws and regulations could subject us to substantial penalties. In addition,penalties, and the requirement that we comply with the FCPAthese laws could put us at a competitive disadvantage withagainst companies that are not required to comply with the FCPA or could otherwise harm our business.comply. For example, in many emerging markets, there may be significant levels of official corruption, and thus, bribery of public officials may be a commonly accepted cost of doing business. Our refusal to engage in illegal behavior, such as paying bribes, may result in us not being able to obtain business that we might otherwise have been able to secure or possibly even result in unlawful, selective or arbitrary action being taken against us by foreign officials..

     Our current and potential competitors may use U.S. laws and regulations, including the FCPA, to disrupt our business operations and harm our reputation in the territories in which we operate or in which we intend to expand into. For instance, as we have previously reported, in November 2012, the U.S. Department of Justice commenced an investigation into whether we violated the FCPA and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the South Africa government in connection with securing our 2012 SASSA contract and whether we violated federal securities laws in connection with statements made by us in our SEC filings regarding this contract. The investigations commenced as a result of reports made to the relevant U.S. authorities by a losing bidder to the 2012 SASSA contract. While these investigations have all been concluded with no adverse findings against us, during the course of the investigations, management’s time was diverted from other matters relating to our business and we suffered harm to our business reputation. Furthermore, in fiscal 2013, the FSB suspended Smart Life’s insurance license. Our management has to spend a disproportionate amount of time explaining the circumstances surrounding, and the result of the investigations, when engaging new business partners, shareholders or regulators.

Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and imprisonment. We have developed policies and procedures as part of a company-wide compliance program that is designed to assist our compliance with applicable U.S., South African and other international anti-corruption laws and regulations, and provide regular training to our employees to comply with these laws and regulations. However, there can be no assurance that all of our employees, consultants, partners, agents or other associated persons will not take actions in violation of our policies andor these laws and regulations, or that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage, or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our local, strategic or joint venture partners take inside or outside of the United States, even though our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could materially and adversely affect our reputation, business, results of operations and financial condition.

     Since less developed countries present some of the best opportunities for us to expand our business internationally, restrictions against entering into transactions with those foreign countries, as well as with certain entities and individuals in those countries, can adversely affect our ability to grow our business.

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We do not have a South African banking license and, therefore, we provide our EPE solution through an arrangement with a third-party bank, which limits our control over this business and the economic benefit we derive from it. If this arrangement were to terminate, we would not be able to operate our EPE business without alternate means of access to a banking license.

The South African retail banking market is highly regulated. Under current law and regulations, our EPE business activities requiresrequire us to be registered as a bank in South Africa or to have access to an existing banking license.

We are not currently so registered, but we have an agreement with Grindrod Bank that enables us to implement our EPE solutionprogram in compliance with the relevant laws and regulations. If thethis agreement were to be terminated, we would not be able to operate these services unless we were able to obtain access to a banking license through alternate means. We are also dependent on Grindrod Bank to defend us against attacks from the other South African banks who may regard the rapid market acceptance of our UEPS/EMV product with biometric verification as disruptive to their funds transfer or other businesses and may seek governmental or other regulatory intervention. Furthermore, we have to comply with the strict anti-money laundering and customer identification regulations of the SARBSouth African Reserve Bank (“SARB”), when we open new bank accounts for our customers and when they transact. Failure to effectively implement and monitor responses to these regulations may result in significant fines or prosecution of Grindrod Bank and ourselves.

     We have

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It has recently commenced issuing consumer banking products throughbeen announced that Grindrod Bank will be acquired by African Bank which operates across the lower end of the South African financial services market. It is not yet clear how African Bank will view our relationshipcurrent arrangement with Finbond, inGrindrod Bank and whether this changes the formrisk of our Kanako and Infinity products, with Finbond taking the place of Grindrod in respect of these products. However, it would not be readily achievable to transfer our EPE solution from Grindrod to Finbond.termination.

In addition, the South African Financial Advisory and Intermediary Services Act, 2002, requires persons who act as intermediaries between financial product suppliers and consumers in South Africa to register as financial service providers. Smart Life was granted an Authorized Financial Service Provider, or FSP, license on June 9, 2015, and Moneyline Financial Services (Pty) Ltd and Net1 Mobile Solutions (Pty) Ltd were each granted FSP licenses on July 11, 2017. If our FSP licenses are cancelled, we may be stopped from continuing our financial services businesses in South Africa.

Our payment processing businesses

Furthermore, the proposed Conduct of Financial Institutions Bill will make significant changes to the current licensing regime. The second draft of the Conduct of Financial Institutions Bill was published for public comment on 29 September 2020. While the proposals currently indicate that existing licenses will be converted, if we are subjectnot successful in our efforts to substantial governmental regulation andobtain a conversion of the existing licenses or cannot comply with the new conduct standards to be published at the same time under the Financial Sector Regulation Act, No. 9 of 2017, we may be adversely affected by liability under, or any future inability to comply with, existing or future regulations or requirements.stopped from continuing our financial services businesses in South Africa.

     Our payment processing activities are subject to extensive regulation. Compliance with the requirements under the various regulatory regimes may cause us to incur significant additional costs and failure to comply with such requirements could result in the shutdown of the non-complying facility, the imposition of liens, fines and/or civil or criminal liability.

We may be subject to regulations regarding privacy, data use and/or security, which could adversely affect our business.

We are subject to regulations in a number of the countries in which we operate relating to the processing (which includes, inter alia, the collection, use, retention, security and transfertransfer) of personally identifiablepersonal information about the people (whether natural or juristic) who use our products and services, in particular, “Know Your Customer” and personal financial information. New laws in this area, such as GDPR, have been passed by several jurisdictions, and other jurisdictions are considering imposing additional restrictions.services. The interpretation and application of user data protection laws are in a state of flux. These laws may be interpreted and applied inconsistently from country to country and our current data protection policies and practices may not be consistent with those interpretations and applications. Complying with these varying requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

     The General Data Protection Regulation, or GDPR, took effect on May 25, 2018, in the European Union and introduced direct compliance obligations for data controllers and data processors. National Data Protection Agencies, or NDPAs, are now able to impose fines for violations ranging from 2% to 4% of annual worldwide turnover, or 10 million to 20 million euro, whichever is greater. NDPAs have the power to carry out audits, request information, and obtain access to premises. Businesses must be able to demonstrate that the personal data of any data subject can be lawfully processed on one of the six specified grounds. The GDPR adopts a risk-based approach to compliance, under which businesses bear responsibility for assessing the degree of risk that their processing activities pose to data subjects. Businesses are required to perform data protection impact assessments before any processing that uses new technology and is likely to result in a high risk to data subjects. The GDPR requires businesses to maintain records of their processing activities. Clear rules around data breach notifications and the processing of personal data in such a manner that the personal data can no longer be attributed to a specific individual have been set out by the GDPR. In addition, under the GDPR, data subjects have new rights, for example, the right to request that businesses delete their personal data (the right to be forgotten); to object to their personal data being processed; and to obtain a copy of their personal data within a set time frame.

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   Complying with these varying requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. Any failure, or perceived failure, by us to comply with any regulatory requirements or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity and adversely affect us.publicity. In addition, as noted above, we are subject to the possibility of security breaches, which themselves may result in a violation of these laws.

Amendments to the NCA were signed into law in South Africa in August 2019. There is general consensus in the financial services communityCompliance with these amendments may adversely impact our micro-lending operations in South AfricaAfrica.

In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa. The effective date of the debt-relief bill has not yet been announced. We believe that the debt-relief bill will restrict the ability of financial services providers to provide lending products to certain low-income earners and will increase the cost of credit to these consumers. Compliance with these amendments may adversely impact our micro-lending operations in South Africa.

     In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa. The effective date of the debt-relief bill has not yet been announced. There is general consensus in the financial services community in South Africa that the debt-relief bill will restrict the ability of financial services providers to provide lending products to certain low-income earners and will increase the cost of credit to these consumers. ComplianceAs a result, compliance with the debt-relief bill may adversely impact our micro-lending operations in South Africa.

     The debt-relief bill is a debt-relief intervention that forms part of an amendment to the NCA and is intended to assist over-indebted individuals who earn less than a prescribed monthly minimum, currently ZAR 7,500, and have unsecured debt of no more than ZAR 50,000. Individuals that have not commenced a debt counseling process, have not been sequestrated and are not subject to an administration order may seek debt relief under the debt-relief bill. Applications for debt relief are expected to be processed by the NCR and will then be submitted to the National Consumer Tribunal, or NCT.

     The NCR will first assess whether an applicant can meet its debt obligations by paying a lower installment over an extended period of no more than five years, a so called debt re-arrangement. This process is similar to the debt counseling provisions in existing legislation, except the applicant would not pay for the debt counselor and therefore does not enjoy the services of the counselor. If the applicant has no income, the NCR will recommend that the applicant’s debts be suspended for 24 months in the hopes that the applicant’s circumstances improve in order to service the debt over time. During this period, interest and fees under the debt arrangement will cease and the applicant is required to attend a financial literacy program provided by the NCR. If the applicant’s circumstances improve during this period, and the applicant is able to meet its debt obligations, the NCR will recommend a debt re-arrangement to the NCT. If the applicant’s circumstances do not improve after 24 months, the NCR will apply to the NCT for the debt to be written off.

     A credit provider may not enforce any rights under a credit agreement if the associated debt is written off. All or part of a credit agreement will be deemed reckless under the NCA if a credit provider enters into a credit agreement (other than a consolidated loan) with an applicant while under debt relief. An applicant furnishing false information when applying for debt relief may be fined or imprisoned for not longer than two years, or both, and is permanently prohibited from applying for debt relief.

     We Furthermore, we expect that it will take us, and other financial services providers, some time to fully understand, interpret and implement this new legislation in our lending processes and practices. Non-compliance with the provisionprovisions of this new legislation may result in financial loss and penalties, reputational loss or other administrative punishment.

Risks Relating to our Common Stock

If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to conduct our business as an operating company and could have a material adverse effect on our business.

We are an operating company whose business is focused on developing and offering payment solutions, transaction processing services and financial technologies across multiple industries directly and through our wholly-owned subsidiaries. Our conduct, public filings and announcements hold us out as such an operating company and do not hold us out as being engaged in the business of investing, reinvesting or trading in securities. We own, and in the past have owned, certain assets that may be deemed to be “investment securities” within the meaning of Section 3(a)(2) of the Investment Company Act. The fluctuating value of our assets that may be deemed to be investment securities, could cause us to be deemed to be an “investment company” under the Investment Company Act if the value of such investment securities exceeds certain defined thresholds.

If we are deemed an investment company and not entitled to an exception or exemption from registration under the Investment Company Act, we would have to register as an investment company, modify our asset profile or otherwise change our business so that it falls outside the definition of an investment company under the Investment Company Act. Registering as an investment company pursuant to the Investment Company Act could, among other things, materially limit our ability to borrow funds or engage in other transactions and otherwise would subject us to substantial and costly regulation. Failure to register, if required, would significantly impair our ability to continue to engage in our business and would have a material adverse impact on our business and operations.

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Our stock price has been and may continue to be volatile.

Our stock price has periodically experienced recent significant volatility. During the 20192022 fiscal year, our stock price ranged from a low of $2.78$3.84 to a high of $9.66.$6.97. We expect that the trading price of our common stock may continue to be volatile as a result of a number of factors, including, but not limited to the following:

• •any adverse developments in litigation or regulatory actions in which we are involved;

• •fluctuations in currency exchange rates, particularly the U.S. dollar/ZAR exchange rate;

• •announcement of additional BEE transactions, especially one involving the issuance or potential issuance of equity securities or dilution or sale of our existing business in South Africa;

• •quarterly variations in our operating results, especially if our operating results fall below the expectations of securities analysts and investors;

• results;

  •significant fair value adjustments or impairment in respect of investments;

• investments or intangible assets;

  •announcements of acquisitions disposals or impairments of intangible assets;

• disposals;

  •the timing of, or delays in the commencement, implementation or completion of investments or major projects;

• •large purchases or sales of our common stock;

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• •general conditions in the markets in which we operate;operate.

  Additionally, shares of our common stock can be expected to be subject to volatility resulting from purely market forces over which we have no control. If our business development plans are successful, we may require additional financing to continue to develop and

• economic exploit existing and financial conditions.

The put right we have agreed to grantgranted to the IFC Investors on the occurrence of certain triggering events may have adverse impacts on us.

In May 2016, we issued an aggregate of 9,984,311 shares of our common stock to the IFC Investors.Investors, of which, as of June 30, 2022, the IFC Investors held 7,366,866 shares. We granted the IFC Investors certain rights, including the right to require us to repurchase any shares we have soldshare held by the IFC Investors pursuant to the IFC InvestorsMay 2016 transaction upon the occurrence of specified triggering events, which we refer to as a “put right.” Events triggering the put right relate to (1) us being the subject of a governmental complaint alleging, a court judgment finding or an indictment alleging that we (a) engaged in specified corrupt, fraudulent, coercive, collusive or obstructive practices; (b) entered into transactions with targets of economic sanctions; or (c) failed to operate our business in compliance with anti-money laundering or anti-terrorism laws; or (2) we reject a bona fide offer to acquire all of our outstanding shares at a time when we have in place or implement a shareholder rights plan, or adopt a shareholder rights plan triggered by a beneficial ownership threshold of less than twenty percent. The put price per share will be the higher of the price per share paid to us by the IFC Investors and the volume-weighted average price per share prevailing for the 60 trading days preceding the triggering event, except that with respect to a put right triggered by rejection of a bona fide offer, the put price per share will be the highest price offered by the offeror. If a put triggering event occurs, it could adversely impact our liquidity and capital resources. In addition, the existence of the put right could also affect whether or on what terms a third party might in the future offer to purchase our company. Our response to any such offer could also be complicated, delayed or otherwise influenced by the existence of the put right.

Approximately 39%33% of our outstanding common stock is owned by threetwo shareholders. The interests of these shareholders may conflict with those of our other shareholders.

There is a concentration of ownership of our outstanding common stock because approximately 38%33% of our outstanding common stock is owned by threetwo shareholders. Based on their most recent SEC filings disclosing ownership of our shares, Value Capital Partners (Pty) Ltd, or VCP, and IFC Investors, International Value Advisers, LLC, or IVA,beneficially own approximately 21% and Prescott Group Management, LLC, beneficially owned approximately 18%, 14% and 8%12% of our outstanding common stock as of June 30, 2022, respectively.

VCP has agreed, pursuant to an Amended Cooperation Agreement dated December 9, 2020, to refrain from acquiring more than 24.9% of our outstanding common stock, excluding shares that may be issued pursuant to a stock purchase agreement dated March 22, 2022, or taking certain actions, including acting in concert with others, that could result in a change of control of the Company. These restrictions remain in effect through to the business day immediately following our 2022 annual meeting of shareholders.

The interests of VCP and the IFC Investors IVA and Prescott, may be different from or conflict with the interests of our other shareholders. As a result of the significant combined ownership by VCP and the IFC Investors, IVA and Prescott,subject to the limitations applicable to VCP contained in the Amended Cooperation Agreement, they willmay be able, if they act together, to significantly influence our management and affairs andthe voting outcome of all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions.approval. This concentration of ownership may have the effect of delaying or preventing a change of control of our company, thus depriving shareholders of a premium for their shares, or facilitating a change of control that other shareholders may oppose.

We may seek to raise additional financing by issuing new securities with terms or rights superior to those of our shares of our common stock, which could adversely affect the market price of our shares of common stock.such shares.

We may require additional financing to fund future operations, including expansion in current and new markets, programming development and acquisition, capital costs and the costs of any necessary implementation of technological innovations or alternative technologies, or to fund acquisitions. We may also wish to raise additional equity funding to reduce the amount of debt funding on our balance sheet.

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Because of the exposure to market risks associated with economies in emerging markets, we may not be able to obtain financing on favorable terms or at all.

If we raise additional funds by issuing equity securities, the percentage ownership of our current shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of common stock, which could adversely affect the market price and voting power of shares of common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of the holders of shares of common stock, and the terms of these debt securities could impose restrictions on operations and create a significant interest expense for us.

We may have difficulty raising necessary capital to fund operations or acquisitions as a result of market price volatility for our shares of common stock.

     In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performance, underlying asset values or prospects of such companies. For these reasons, our shares of common stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies, to expand into new markets and to make acquisitions, all of which may be dependent upon our ability to obtain financing through debt and equity or other means.

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Issuances of significant amounts of stock in the future could potentially dilute your equity ownership and adversely affect the price of our common stock.

We believe that it is necessary to maintain a sufficient number of available authorized shares of our common stock in order to provide us with the flexibility to issue shares for business purposes that may arise from time to time. For example, we could sell additional shares to raise capital to fund our operations, to reduce debt or to acquire other businesses, issue shares in a BEE transaction, issue additional shares under our stock incentive plan or declare a stock dividend. Our board may authorize the issuance of additional shares of common stock without notice to, or further action by, our shareholders, unless shareholder approval is required by law or the rules of the NASDAQ Stock Market. The issuance of additional shares could dilute the equity ownership of our current shareholders. In addition,shareholders and any such additional shares that we issue would likely be freely tradable, which could adversely affect the trading price of our common stock.

     We

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, especially over companies that we may acquire, could have identified a material weakness inadverse effect on our business and stock price. Our management evaluation and auditor attestation regarding the effectiveness of our internal control over financial reporting that, ifas of June 30, 2022, excluded the operations of Connect. If we are not remediated, could result in additional material misstatements inable to integrate Connect’s operations into our internal control over financial statements.reporting, our internal control over financial reporting may not be effective.

Under Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes, we are required to furnish a management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting. We are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal control that materially affect, or are reasonably likely to materially affect, internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

The requirement to evaluate and report on our internal controlcontrols also applies to companies that we acquire. SomeAs a group of theseprivate companies, mayConnect was not be required to comply with Sarbanes prior to the time we acquire them.acquired it. The integration of these acquired companiesConnect into our internal control over financial reporting couldis expected to require significant time and resources from our management and other personnel and may increase our compliance costs. If we fail to successfully integrate the operations of these acquired companiesConnect, and any other acquisitions, into our internal control over financial reporting, our internal control over financial reporting may not be effective.

     We identified a material weakness in our internal control over financial reporting where the control over the review of the accounting for non-routine complex transactions did not operate effectively. As a result, the control did not operate effectively in determining the correct classification in the statement of operations of the $34.0 million accrual for the implementation costs to be refunded to SASSA following the September 30, 2019 Supreme Court ruling. Accordingly, the material weakness remains unremediated as of June 30, 2019.

     Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were not effective as of June 30, 2019, due to the material weakness in internal control over financial reporting as described above.

     We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent potential future material weaknesses. While we continue to dedicate resources and management time to ensuring that we have effective internal controlcontrols over financial reporting, including with respect to Connect’s operations, failure to achieve and maintain an effective internal control environment could have a material adverse effect on the market'smarket’s perception of our business and our stock price.price.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions based upon U.S. laws, including the federal securities laws or other foreign laws, against us or certain of our directors and officers and experts.

While Net1Lesaka is incorporated in the state of Florida, United States, the company is headquartered in Johannesburg, South Africa and substantially all of the company’s assets are located outside the United States. In addition, the majority of Net1’sLesaka’s directors and all its officers reside outside of the United States and the majority of our experts, including our independent registered public accountants, are based in South Africa.

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As a result, even though you could effect service of legal process upon Net1,Lesaka, as a Florida corporation, in the United States, you may not be able to collect any judgment obtained against Net1Lesaka in the United States, including any judgment based on the civil liability provisions of the U.S. federal securities laws, because substantially all of our assets are located outside the United States. Moreover, it may not be possible for you to effect service of legal process upon the majority of our directors and officers or upon our experts within the United States or elsewhere outside South Africa and any judgment obtained against any of our foreign directors, officers and experts in the United States, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by a South African court.

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South Africa is not a party to any treaties regarding the enforcement of foreign commercial judgments, as opposed to foreign arbitral awards. Accordingly, a foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which may be enforced by South African courts provided that:

• •the court which pronounced the judgment had international jurisdiction and competence to entertain the case according to the principles recognized by South African law with reference to the jurisdiction of foreign courts;

• •the judgment is final and conclusive (that is, it cannot be altered by the court which pronounced it);

• •the judgment has not lapsed;

• •the recognition and enforcement of the judgment by South African courts would not be contrary to public policy in South Africa, including observance of the rules of natural justice which require that no award is enforceable unless the defendant was duly served with documents initiating proceedings, that he or she was given a fair opportunity to be heard and that he or she enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal;

• •the judgment was not obtained by improper or fraudulent means;

• •the judgment does not involve the enforcement of a penal or foreign revenue law or any award of multiple or punitive damages; and

• •the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of Business Act 99 of 1978 (as amended), of the Republic of South Africa.

It has been the policy of South African courts to award compensation for the loss or damage actually sustained by the person to whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as a result of a diminution in the value of their shares based on various actions by the corporation and its management. Although the award of punitive damages is generally unknown tounenforceable in the South African legal system, that does not mean that such awards are necessarily contrary to public policy. The award of punitive damages is governed by the relevant South African legislation, the Conventional Penalties Act 15 of 1962 (as amended).

Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant, unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African court, it will be payable in South African currency unless approval is obtained from SARB or an Authorised Dealer of SARB, to settle the judgement in another currency. Also, under South Africa’s exchange control laws, the approval of SARB or an Authorised Dealer is required before a defendant resident in South Africa may pay money to a non-resident plaintiff in satisfaction of a foreign judgment enforced by a court in South Africa.

It is doubtful whether an original action based on United States federal securities laws may be brought before South African courts. A plaintiff who is not resident in South Africa may be required to provide security for costs in the event of proceedings being initiated in South Africa. Furthermore, the Rules of the High Court of South Africa require that documents executed outside South Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South Africa, we consulted with our South African legal counsel, Cliffe Dekker Hofmeyr Inc.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

None.

ITEM 2.PROPERTIES

We lease our corporate headquarters facility which consists of approximately 93,00087,000 square feet in Johannesburg, South Africa. We also lease properties throughout South Africa, including a 12,088an approximately 36,000 square foot manufacturing facility in Lazer Park, Johannesburg, 224213 financial services branches, 9880 financial service express stores and 40 depot facilities.29 satellite branches. We also lease additional office space in Johannesburg, Cape Town and Durban, South Africa; London, United Kingdom; Seoul, South Korea; Hong Kong; Mumbai, India; Pietà Malta and Black River, Mauritius.Gaborone, Botswana. These leases expire at various dates through 2022. We own land and buildings in Ahnsung, Kyung-gi, South Korea, that is used for2028, assuming the storageexercise of business documents.options to extend. We believe that we have adequate facilities for our current business operations.

ITEM 3. LEGAL PROCEEDINGS

Legal proceedings against SASSA in respect

Resolution of transfer of grant payments from EPE to SAPO accounts

     On November 13, 2018, a number of grant beneficiaries and Moneyline Financial Service Proprietary Limited, or Moneyline, one of our subsidiaries, filed an urgent application with the Gauteng Division of the High Court of South Africa seeking among other things, an order (1) declaring that biometric consent for the transfer of grant payments to EPE accounts conforms with the requirements of the Social Assistance Regulations, (2) prohibiting SASSA from stopping the payment of social grants into EPE accounts that were opened with biometric consent prior to January 1, 2018, when SASSA issued a new directive that completion by recipients of a SASSA-prescribed “Annexure C” form would be required in order for those recipients to have their grant payments deposited into their private bank accounts (as opposed to SAPO bank accounts), (3) directing SASSA to process all Annexure C forms within two weeks of submission and (4) directing SASSA to make all grant payments in accordance with duly completed and submitted Annexure C forms.

     On November 28, 2018, the High Court issued an interim order directing SASSA to pay the social grants of those EPE clients who had previously provided biometric consent and elected to receive their social grants into their EPE accounts, pending the issuance of a final judgment. SASSA was also ordered to process any Annexure C forms within two weeks of the submission of such forms.

     On January 29, 2019, the High Court handed down its final judgment, reversing the portion of its November 28, 2018, interim order that directed SASSA to pay grants into the EPE accounts of recipients who made those biometric elections without submitting the Annexure C forms. The effect of the final judgment is that while SASSA is required to promptly pay social grants into EPE accounts of those recipients who have signed the Annexure C forms electing to have their grants paid that way, SASSA is not required to pay grants into the EPE accounts of those recipients who have not submitted the Annexure C forms, despite having provided their previous biometric consent and may continue to auto-migrate those grants to SAPO accounts. The court did not award costs.

     On February 13, 2019, we applied for leave to appeal the order granted on January 29, 2019 and were granted leave on March 12, 2019. We filed the record on July 10, 2019 and the Supreme Court directed the parties to file their respective heads of argument. Once the directive has been complied with, the Supreme Court will allocate a hearing date for the appeal. We cannot predict how the Supreme Court will rule on the matter.

     On February 8, 2019, Moneyline launched an application to interdict SASSA from taking any steps of its own volition to direct payment of the social grants of the grants recipients, who received payment of their grants into their EPE accounts in January, 2019, into any accounts other than their EPE accounts into which SASSA had made payments in January 2019. The application was heard on February 28, 2019 and the High Court handed down an order directing Moneyline to provide SASSA with a list of the 696,246 individuals who opened EPE accounts in 2018 and who were not paid by SASSA into those accounts in January 2019. SASSA was ordered to verify the information provided by Moneyline within 14 days and to file an affidavit within a further 15 days, with the outcome of the verification process and detailing procedures followed by it, including a description of how SASSA administered the migration of beneficiaries to SAPO. The High Court furthermore ordered that any party is entitled to approach it for appropriate relief thereafter. SASSA filed its supplementary affidavit on April 23, 2019. On May 16, 2019, Moneyline filed a replying affidavit to SASSA’s supplementary affidavit. SASSA’s attorneys have indicated that SASSA undertook to file a further supplementary affidavit, but to date we have not received same. Moneyline will, after consultation with its legal counsel, decide whether to seek any further relief from the High Court.

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Constitutional Court order regarding extension of contract with SASSA for six months for cash payments

March 2017 Constitutional Court order

     On March 17, 2017, the Constitutional Court delivered its order regarding the continued payment of social grants upon the expiration of the contract between our subsidiary, CPS, and SASSA on March 31, 2017, or the March 2017 order. The Constitutional Court ordered that SASSA and CPS were under a constitutional obligation to ensure payment of social welfare grants from April 1, 2017 and ordered CPS and SASSA to ensure payment of grants, for a period of 12-months, on the same terms and conditions as those included in the expiring contract plus additional requirements to (i) adequately safeguard personal data obtained during the payment process and ensure that it remains private and may not be used for any purpose other than the payment of grants, and (ii) preclude anyone from inviting beneficiaries to “opt-in” to the sharing of confidential information for the marketing of goods and services. The Constitutional Court also ordered that CPS may request National Treasury to investigate and make a recommendation regarding the price charged by CPS in the extension contract and stated that National Treasury must file a report with the Constitutional Court stating its findings in this regard.

     The March 2017 order also included public accountability provisions that directly impacted CPS. These provisions are similar to those included in the Constitutional Court’s April 2014 order, and require CPS to provide the Constitutional Court with an audited statement of expenses incurred, income received and net profit earned under the 12-month extension contract ending March 31, 2018. CPS duly complied with the order in that it filed the previously mentioned statements for the period ended March 31, 2017 on May 30, 2017. SASSA was also required to obtain an independent audit of the audited information provided by CPS. Furthermore, the Constitutional Court has instructed SASSA to send this audited information to National Treasury for its approval prior to submission to the Constitutional Court.

     The Constitutional Court included additional public accountability provisions that impact the Minister of Social Development and SASSA. These provisions required the Minister and SASSA to file reports, on affidavit, with the Constitutional Court every three months, commencing on June 19, 2017, setting out how they planned to ensure the payment of social grants after the end of the 12-month contract extension period, details of the steps taken in that regard, what further steps they would take, and when they would take each future step, so as to ensure that the payment of all social grants is made when due after the expiry of the 12-month period. The Constitutional Court also directed that these reports must include the applicable time-frames for the various deliverables which formed part of the plan, whether the time frames have been complied with, and if not, why that is the case and what will be done to remedy the situation. The Minister and SASSA were also required to immediately report to the Constitutional Court and explain the reasons for and consequences of any material changes to the circumstances included in the reports previously submitted to the Constitutional Court.

     The Constitutional Court also ordered SASSA to ensure that any new payment method would (i) adequately safeguard personal data obtained during the payment process and ensure that such data remain private and may not be used for any purpose other than the payment of grants; and (ii) preclude a contracting party from inviting beneficiaries to “opt-in” to the sharing of confidential information for the marketing of goods and services.

     The Constitutional Court order also invited parties involved in the Constitutional Court proceedings to provide the name and consent of independent legal practitioners and technical experts, together with the Auditor-General of South Africa, to oversee the implementation of the payment of social welfare grants during the period to March 31, 2018, as well as oversee SASSA’s conduct to appoint a new service provider from April 1, 2018, or to perform the grant distribution service in-house. The Constitutional Court appointed a panel of ten such experts on June 6, 2017.

March 2018 Constitutional Court order

     Further to the March 2017 order, SASSA and certain other parties, including the independent panel of experts appointed by the Constitutional Court, have made various submissions to the Constitution Court. Argument was heard on March 6, 2018 and on March 23, 2018, the Constitutional Court issued an order reiterating that SASSA and CPS have a constitutional obligation to pay social welfare grants and that the contract between SASSA and CPS, for the payment of social grants to beneficiaries who are paid in cash (i.e. those grant recipients who receive their grants at pay points), be extended for a further six months to September 30, 2018, or March 2018 order. The Constitutional Court’s order provides for the payment of these grants under the extended contract’s terms and conditions. The Constitutional Court permitted CPS to request National Treasury to evaluate and recommend the price to be charged by CPS for the payment of grants in cash under the extended contract. National Treasury submitted its recommendations to the Constitutional Court on April 30, 2018, proposing fee levels that were materially lower than CPS had requested, but significantly higher than the current fee levels. We submitted a responding affidavit to the Constitutional Court on May 11, 2018, in which we requested the Constitutional Court to direct that the matter be referred back to Treasury to recommend a minimum monthly fee. In December 2018, we received correspondence from the Constitutional Court informing the parties that it believes that “nothing prevents the parties from coming to an agreement on increased payments without court sanction, and if they do not, normal legal processes in other courts must be filed to determine the effects.” We decided not to enter into further negotiations with SASSA and invoiced it in accordance with Treasury’s recommendations. SASSA only paid us a portion of the amount invoiced and refuses to pay the balance. On June 6, 2019, we instituted legal action against SASSA for the outstanding fees of ZAR 358.2 million.

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 The Constitutional Court included public accountability provisions in its March 2018 order that directly impact CPS. These provisions are similar to those included in the Constitutional Court’s April 2014 and March 2017 orders and require CPS to provide SASSA with an independently audited statement of expenses incurred, income received and profit earned under the contract. We have filed the required independently audited information with the Constitutional Court as ordered for the period ended September 30, 2018, on November 8, 2018, and the auditors expressed an unqualified opinion with an emphasis of matter regarding the basis of preparation and restriction as to use. The Constitutional Court also ordered SASSA to audit the audited information filed with the Constitutional Court and SASSA appointed an independent firm to audit our submission. The independent audit is currently underway and the independent firm is due to file its report by October 10, 2019. Furthermore, the Constitutional Court directed SASSA to send this audited information to National Treasury for its approval prior to submission to the Constitutional Court.

     The Constitutional Court also included public accountability provisions in its March 2018 order that impact the Minister of Social Development and SASSA. These provisions are similar to those included in the March 2017 order and require the Minister and SASSA to file reports with the Constitutional Court at the end of every month, commencing in April 2018 and ending in August 2018, regarding the implementation of the Constitutional Court’s order. The Minister and SASSA are also required to immediately report and explain any material changes, and the consequences of such changes, to the circumstances included in the reports previously submitted to the Constitutional Court.

     The Constitutional Court also ordered SASSA to ensure that the payment method determined by it must (i) adequately safeguard beneficiaries’ personal data obtained during the payment process and ensure that such data remains private and not used for any purpose other than the payment of grants; and (ii) preclude a contracting party from inviting beneficiaries to “opt-in” to share confidential information for the marketing of goods and services.

     The independent panel of experts, appointed by the Constitutional Court, was directed to (i) evaluate the implementation of the cash payment of social grants from the date of the order until September 2018, (ii) evaluate the steps proposed and taken by SASSA for any competitive bidding process or any other processes aimed at the appointment of a new contract or contracts for the cash payment of social grants by SASSA, (iii) evaluate the steps proposed or taken by SASSA for SASSA itself to administer and pay grants in the future, and (iv) file reports with the Constitutional Court, by the 15th of each month from May 2018 to September 2018, relating to the period from April 1, 2018 to the date of each report, describing the steps that the panel has taken to evaluate the matters referred to in (i) through (iii) above, the results of their evaluation and any recommendations.

     On August 31, 2018, SASSA and its Chief Executive Officer, in her official capacity, were ordered by the Constitutional Court to pay the costs related to the March 2018 Order.

Dispute with SASSA regarding payment of fees for the last six months of the contract

     Following the March 23, 2018 Constitutional Court order for a six-month extension of our contract with SASSA for payment of grants in cash at pay points only, we were allowed to charge our monthly fee based on the previously contracted rate of ZAR 16.44 (including VAT) per cash pay point recipient. Given that we only serviced the highest-cost beneficiaries, the Constitutional Court allowed us to approach the National Treasury in order for them to make a fair determination of the price we should be paid for services rendered. National Treasury recommended a rate of ZAR 51.00 (including VAT) per cash pay point recipient per month to the Constitutional Court. Contrary to SASSA’s stance, the Constitutional Court on December 5, 2018, ruled that they are not required to ratify the Treasury recommended rate, and that CPS and SASSA must agree on the pricing. To date we have not reached an agreement with SASSA on the pricing and have issued summons to commence legal proceedings to record an amount in accordance with National Treasury recommendation. We cannot predict whether we will be successful in these legal proceedings, if the matter will be heard or how the Court will rule on the matter if it is heard.

Litigation Regarding Legality of Debit Orders under Social Assistance Act Regulations

     On June 3, 2016, we filed for a declaratory order with the High Court of the Republic of South Africa Gauteng Division, Pretoria, or Pretoria High Court, to provide certainty to us, as well as other industry stakeholders, on the interpretation of the Social Assistance Act and recent regulations promulgated in terms thereof, or the Regulations. The Regulations sought to restrict deductions from social grants paid to beneficiaries to direct deductions only. We interpret the meaning of the word “deductions” to be specific to the practice of deducting amounts, historically limited to life insurance premiums from grants,before the grants are paid to social welfare beneficiaries’ bank accounts, and are of the opinion that the legislature did not intend to curtail the rights of beneficiaries to transact freelyafter the money is deposited into their bank accounts.

     We brought the application for a declaratory order because SASSA sought to lend a broader interpretation to the meaning of the term “deductions” to include any debit orders, EFT debits, purchase transactions, or fund transfers that are effected after the transfer of social grants to beneficiaries’ bank accounts. If SASSA’s interpretation were to prevail, debit transactions could no longer be used as a method for beneficiaries to make payments for financial services such as insurance premiums, loan repayments, electricity and other purchases, money transfers or any other electronic payments.

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 We believe that SASSA’s broad interpretation of the Regulations is flawed and inaccurate for a number of reasons, including but not limited to, the following:

 Several other industry participants launched similar proceedings, and the SARB also filed an affidavit in which it sets out its position.

     The matter was heard on October 17 and 18, 2016 and on May 9, 2017, the Pretoria High Court issued a declaratory order that the Social Assistance Act and Regulationsdo not restrict social grant recipients in the operation of their bank accounts. The order clarified that recipients may continue to initiate debit order instructions with any service provider, including our subsidiaries, against their bank accounts for the payment of goods and services. SASSA, its Chief Executive Officer and the Minister of Social Development were ordered to pay the costs of the application. The Pretoria High Court also refused the Black Sash Trust’s, or Black Sash, application to intervene in the matter. In support of its application, the Black Sash made several allegations of “illegal deductions” which we denied in our answering affidavits.

     On June 20, 2017, the Pretoria High Court refused the Minister of Social Development, SASSA and Black Sash’s applications for leave to appeal the Pretoria High Court’s May 9, 2017, declaratory order. SASSA, its Chief Executive Officer and the Minister of Social Development were ordered to pay the costs of the application for the leave to appeal.

     On July 19, 2017, SASSA and the Black Sash served applications petitioning the Supreme Court to grant them leave to appeal to either the Supreme Court or to a full bench of the Pretoria High Court. On September 29, 2017, the Supreme Court referred the petitions to oral argument. The oral argument in respect of the petitions was heard on August 16 and 17, 2018. The matter was heard on August 16, 2018, by the Supreme Court. The Supreme Court granted the Black Sash the right to intervene but dismissed the application for leave to appeal with costs.

Challenge to Payment by SASSA of Additional Implementation Costs

     As previously disclosed, in June 2014, we received approximately ZAR 277.0 million, excluding VAT, from SASSA, related to the recovery of additional implementation costs we incurred during the beneficiary re-registration process in fiscal 2012 and 2013. After the award of the tender, SASSA requested that CPS biometrically register all social grant beneficiaries (including child grant beneficiaries) and collect additional information for each child grant recipient. CPS agreed to SASSA’s request and, as a result, performed approximately 11.0 million additional registrations beyond those that CPS tendered for the quoted service fee. Accordingly, we sought reimbursement from SASSA, supported by a factual findings certificate from an independent auditing firm. SASSA agreed to pay us the ZAR 277.0 million as full settlement of the additional costs we incurred.

     In March 2015, Corruption Watch, a South African non-profit civil society organization, commenced legal proceedings in the Pretoria High Court of South Africa seeking an order by the Pretoria High Court to review and set aside the decision of SASSA’s Chief Executive Officer to approve payment to us of ZAR 317.0 million (approximately ZAR 277 million, excluding VAT) and directing us to repay the aforesaid amount, plus interest. Corruption Watch claimed that there was no lawful basis to make the payment to us, and that the decision was unreasonable and irrational and did not comply with South African legislation. CPS was named as a respondent in this legal proceeding.

     On February 22, 2018, the matter was heard by the Pretoria High Court. On March 23, 2018, the Pretoria High Court ordered that the June 15, 2012 variation agreement between SASSA and CPS be reviewed and set aside. CPS was ordered to refund ZAR 317.0 million to SASSA, plus interest from June 2014 to date of payment. On April 4, 2018, we filed an application seeking leave to appeal the whole order and judgment of the Pretoria High Court with the Pretoria High Court because we believed that it erred in its application of the law and/or in fact in its findings. On April 25, 2018, the Pretoria High Court refused the application seeking leave to appeal.

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On May 23, 2018, CPS delivered its petition seeking leave to appeal the whole order and judgment of the Pretoria High Court with the Supreme Court. On June 21, 2018, Corruption Watch delivered a responding affidavit and, on July 4, 2018, CPS delivered its replying affidavit. In September 2018, CPS received notification from the Supreme Court that its petition seeking leave to appeal had been granted. The matter was heard on September 10, 2019. On September 30, 2019, the Supreme Court dismissed the appeal and ordered us to pay Corruption Watch’s costs, including that of two counsel. We are discussing further legal steps with our counsel.

     On July 9, 2019, the Supreme Court issued correspondence demanding an explanation from SASSA as to why it decided to abandon its defense in the matter and instructed SASSA to be legally represented at the hearing on September 10, 2019. SASSA filed its explanatory affidavit on August 2, 2019.

NCR application for the cancelation of Moneyline’s registration as a credit provider

In September 2014, the NCR applied to the South African National Consumer Tribunal, or Tribunal, to cancel the registration of our subsidiary, Moneyline, for breach of the NCA based on an investigation concluded by it. Pursuant to the investigation, the NCA also issued two Compliance Notices – one to CPS and one to Moneyline. The Compliance Notice issued to Moneyline accused it of “having access into the Grindrod Bank Accounts of social grant beneficiaries which enables them(sic)to see the spending patterns of beneficiaries and deposit loan amounts into such accounts.” The Compliance Notice issued to CPS accused it of providing “information about social grant beneficiaries” to Moneyline in breach of section 68(1) of the NCA. The Compliance Notices demanded that both CPS and Moneyline take the appropriate steps to address the alleged non-compliance with the NCA and to report in writing to the NCR, along with an independent audit report, that they were no longer non-compliant as alleged by the Compliance Notices.

We objected to the Compliance Notices and the Tribunal set both Compliance Notices aside.

     Regarding the NCR’s application to cancel the registration of Moneyline, we raised a number of procedural points in defense, and argument on these points was heard on November 27, 2015, before three tribunal members. Two ruled against us and one upheld our points. We are appealingappealed the majority ruling to the High Court. This matter was heard on December 4, 2018, by a full bench of the Pretoria High Court. We still await judgment. IfIn opposing this appeal, the NCR contended that our appeal had no basis and they raised, as a procedural point, that we are successful,should have joined the Tribunal as a party to the appeal proceedings. On August 30, 2019, it will disposewas ordered that the Tribunal be included in the appeal proceedings and this appeal was scheduled to be heard on October 27, 2021.

The parties settled the matter out of court in mid-October 2021. The settlement process included the NCR withdrawing its application to cancel our NCA registration with the Tribunal and we agreed to withdraw our appeal with the High Court. The settlement was made an order of the application. If we do not prevail, thenHigh Court on October 27, 2021. The parties agreed to pay their own costs related to this matter.

Litigation related to CPS

As a result of significant obligations relating to, and ongoing litigation arising out of, CPS’ SASSA contract, including the NCR’s application will be set down before the Consumer Tribunal for argument on the main issues raised by the NCR, as dealt with above. We cannot predict the outcomeexhaustion of this litigation.

Initiation ofCPS’ legal proceedingsappeals against a PG Purchasing customer regarding non-payment of working capital finance loans receivable

     In January 2019, we filedcourt judgment to repay additional SASSA implementation costs, CPS was placed into liquidation in October 2020. As a Petition with the District Court of Dallas County, Texas (“Texas district court lawsuit”), naming Permian Crude Transport, LP, f/k/a Permian Crude Transport, LLC, d/b/a Permian Transport & Trading (“PCT”), and Centurion Marketing, LLC d/b/a Jupiter Marketing & Trading, LLC (“Centurion” and collectively with PCT, “PCT/Centurion”) as defendants regarding the recovery of working capital finance loans receivable made to PCT/Centurion by our wholly owned subsidiary, PG Purchasing. This lawsuitwasresult, CPS’ liquidators are currently in its initial stages. Trial was set for December 2, 2019. However, the Texas district court lawsuit was administratively closed following PCT’s filing for bankruptcy in June 2019 and Centurion’s filing for bankruptcy in July 2019(“PCT/Centurion bankruptcy matters”). The Texas district court lawsuit may be re-opened if the PCT/Centurion bankruptcy matters are lifted.

     We cannot predict if the Texas district court lawsuit will be re-opened, and if it is re-opened, the outcomecontrol of the matter.Also, we cannot predictCPS liquidated estate and are managing the outcome ofaffairs in relation thereto. We have proven our claims and are noted as a creditor along with other creditors in the PCT/Centurion bankruptcy matters.liquidated estate.

There are no other material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or of which any of our property is the subject.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market information

Our common stock is listed on The NasdaqNASDAQ Global Select Market, or Nasdaq, in the United States under the symbol “UEPS”“LSAK” and on the JSE in South Africa under the symbol “NT1.“LSK.” The Nasdaq is our principal market for the trading of our common stock.

Our transfer agent in the United States is Computershare Shareowner Services LLC, 480 Washington Blvd, Jersey City, New Jersey, 07310. According to the records of our transfer agent, as of September 12, 2019,August 31, 2022, there were 128 shareholders of record of our common stock. AWe believe that a substantially greater number of holdersbeneficial owners of our common stock are beneficial holders whose shareholders of record arehold their shares though banks, brokers, and other financial institutions (i.e. “street name”). Our transfer agent in South Africa is Link MarketJSE Investor Services South Africa (Pty) Ltd, 13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001, South Africa.

Dividends

Dividends

We have not paid any dividends on our shares of our common stock during our last two fiscal years and presently intend to retain future earnings to finance the expansion of the business. We do not anticipate paying any cash dividends in the foreseeable future. The future dividend policy will depend on our earnings, capital requirements, debt commitments, expansion plans, financial condition and other relevant factors.

Issuer purchases of equity securities

On February 3, 2016,5, 2020, our board of directors approved the replenishment of our existing share repurchase authorization to repurchase up to an aggregate of $100 million of common stock and, as of June 30, 2019, we had utilized approximately $47.5 million of this authorization and approximately $52.5 million remains available.stock. The authorization has no expiration date. We did not repurchase any shares of our common stock during fiscal 2019.2022.

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Share performance graph

The chart below compares the five-year cumulative return, assuming the reinvestment of dividends, where applicable, on our common stock with that of the S&P 500 Index and the NASDAQ Industrial Index. This graph assumes $100 was invested on June 30, 2014,2017, in each of our common stock, the companies in the S&P 500 Index, and the companies in the NASDAQ Industrial Index.

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ITEM 6.    SELECTED FINANCIAL DATA[RESERVED]

 The following selected historical consolidated financial data should be read together with Item 7—“

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ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8—“Financial Statements and Supplementary Data.” The following selected historical financial data as of June 30, 2019 and 2018, and for the three years ended June 30, 2019, have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected historical consolidated financial data presented below as of June 30, 2017, 2016 and 2015 and for the years ended June 30, 2016 and 2015, have been derived from our consolidated financial statements, which are not included herein, and have been restated as noted below, which is unaudited. The selected historical financial data as of each date and for each period presented have been prepared in accordance with U.S. GAAP. These historical results are not necessarily indicative of results to be expected in any future period.Operations

     As discussed in the Note 1 to our audited consolidated financial statements included in Item 8—“Financial Statements and Supplementary Data.”, our historic consolidated financial statements have been corrected to give effect to the restatement. Accordingly, certain of the selected consolidated financial data presented in the table below has been corrected to give effect to the restatement as indicated.

Consolidated Statements of Operations Data
(in thousands, except per share data)

(R) Income tax expense, net income attributable to Net1 and Income from continuing operations per share: Basic and Diluted for the years ended June 30, 2018 and 2017, restated to correct the misstatement discussed in Note 1 to the audited consolidated financial statements. Year ended June 30, 2016, restated as follows: Income tax expense (decreased by 0.1 million), net income attributable to Net1 (decreased by 0.2 million) and Income from continuing operations per share: Basic (unchanged) and Diluted (unchanged).
(1) Impacted by expiration of SASSA contract in September 2018. Also impacted by inclusion of DNI for the first nine months of fiscal 2019 – refer to Note 3 to the audited consolidated financial statements, which also includes discontinued operation disclosures related to DNI.
(2) Revenue for the year ended June 30, 2019, includes revenue that has been reversed of $19.7 million (ZAR 277.6 million) as a result of the Supreme Court ruling discussed in Note 13 to our audited consolidated financial statements, and selling, general and administrative includes $14.3 million (ZAR 201.8 million) related to the Supreme Court ruling.
(3) Includes an allowance for doubtful financial loans receivable of $28.8 million in 2019 and separation payment of $8.0 million paid to our former chief executive officer in 2017.

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Additional Operating Data:
(in thousands, except percentages)

(1) Cash flows provided by (used in) investing activities include movements in settlement assets and cash flows (used in) provided by financing activities include movement in settlement liabilities.
(2) Fiscal 2019 operating loss margin was (14%) before retrenchment costs, the impact of the SASSA implementation costs accrual (refer to Note 13 of our audited consolidated financial statements), and impairment losses (refer to Note 10 of our audited consolidated financial statements for a full description of the impairment losses). Fiscal 2018 operating income margin was 13% before the impairment loss (Refer to Note 10 of our audited consolidated financial statements for a full description of the impairment loss). Fiscal 2017 operating income margin was 18% before the separation payment of $8.0 million paid to our former chief executive officer

Consolidated Balance Sheet Data:
(in thousands)

^(R) Total assets and total equity as of June 30, 2018, restated to correct the misstatement discussed in Note 1 to the audited consolidated financial statements. As of June 30, 2017, 2016 and 2015, restated as follows: total assets (2017 and 2016: decreased by 1.9 million; 2015: decreased by 1.8 million) and total equity (2017: decreased by 1.5 million; 2016 and 2015: decreased by 1.4 million).

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Item 6—“Selected Financial Data” and Item 8—“Financial Statements and Supplementary Data.” In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See Item 1A— “Risk Factors” and “Forward Looking Statements.”

Overview

Overview

We are a leading provider of financial technology, or fintech, products and services to the unbanked and underbanked individuals and small businesses, predominantly in a number of emerging and developed economies. In emerging economies these customers are typically individuals, while in developed countries, they are primarily small businesses.South Africa. We have developed and own most of our payment technologies, and where possible, we utilize this technology to provide financial and value-added services to our customers.customers by including them in the formal financial system.

Sources of Revenue

We generate our revenues by charging transaction fees to merchants, financial service providers, utility providers, bill issuers employers, and cardholders;consumers; by selling pinned airtime to merchants; by providing loans to merchants and consumers, and insurance products to consumers and by selling hardware, licensing software and providing related technology services.services to merchants.

We have structured our business and our business development efforts around four related but separate approaches to deploying our technology. In our most basic approach, we act as a supplier, selling our equipment, software, and related technology to a customer. The revenue and costs associated with this approach are reflected in our Financial inclusion and applied technologies segment. We have found that we have greater revenue and profit opportunities, however, by acting as a service provider instead of a supplier. In this approachwhereby we own and operate the UEPStechnology and apply it in a system ourselves, charging one-time and ongoing fees for the use of the system either on a fixed or ad valorem basis. ThisFor instance, through the acquisition of Connect, we now provide cash management and payment services to merchant customers through a digital vault (safe asset) which is located at the casecustomer’s premises and generate processing revenue from the provision of these services. We also offer merchant customers access to platforms through which we (a) generate revenue from the sale of prepaid airtime and (b) generate fees from distribution of VAS, including prepaid airtime, prepaid electricity, gaming voucher, and other services, to users of our platforms. We also generate fees from debit and credit card transaction processing and interest revenue from qualifying merchant customers who are able to access short-term loans. The revenue and costs associated with these services and sales are included in South Africa, where weour merchant operating segment.

We provide consumers with bank accounts onfrom which we generate a monthly fee basis, and also charge fees on an ad valorem basis for goods and services purchased usingpurchased. Usage of our smart card.bank accounts also provides our customers with access to short-term loans and life insurance products. We also generate fees from consumers utilizing our ATM network. The revenue and costs associated with this approach are reflected in our consumer operating segment.

Developments during Fiscal 2022

This year has been one of enormous change for the Company with some transformational events occurring which we believe will set Lesaka on a new path of exciting growth, focused on the South African transaction processingmarket as well as some of its neighboring countries. All of these events align with our mission of striving to bring financial inclusion to Merchants and FinancialConsumers in South Africa and building a world class fintech platform.

Adopting a new brand and identity

As we embarked on creating a world class financial technology platform and repositioning ourselves for growth, it became evident we required a new identity that would resonate with our customers and employees. It was important for our new identity to authentically express our commitment to the local communities we serve and our ambition to drive financial inclusion by giving ordinary people and applied technologies segments.small businesses access to essential financial services.

            Because

For thousands of years, livestock have been seen as a symbol of security, community and wealth and protecting one’s livestock was central to preserving the dignity and pride of a community. To ensure the best possible protection, an enclosure commonly known as a “kraal” in South Africa was built in the center of the community. A kraal is seen as the social and economic heart of a village and only the most reliable people are entrusted with its care and protection. The word Lesaka means Kraal in Setswana and Sesotho, two of South Africa’s official languages, and it was agreed by our smart cards are designedshareholders that the existing company name Net1 should change to enable the delivery of more advanced servicesLesaka, which aptly represents our new group and products,its vision.

As Lesaka, we are also willingon a mission to supply those servicesbuild and products directly whereprotect the business casefinancial wellbeing of our communities and our intention is compelling. For instance, we provide short-term loansto protect the vulnerable and underserved, by providing widespread access to essential financial services.

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Acquisition of Connect

On April 14, 2022 the Company completed its acquisition of Connect in South Africa, for ZAR 3.8 billion. The acquisition of Connect, a profitable, high-growth and leading South African fintech company, is transformational for Lesaka in its journey to become South Africa’s leading fintech platform.

The acquisition of Connect significantly advances Lesaka’s vision and is truly transformational for the Company. The acquisition adds significant scale to our smart card holders. Here we can act aslegacy B2B offering, bringing 44,000 micro, small and medium enterprises into the principalMerchant business segment. We expect the complementary product offerings to create significant growth opportunities by enabling us to address the needs of approximately 1.4 million informal and approximately 700,000 formal micro, small and medium enterprises in operatingSouth Africa.

Connect has demonstrated its ability to deliver excellent growth and profitability through its innovative solutions for micro, small and medium enterprises across South Africa, and its combination with Lesaka’s existing B2B operations creates a business that can be better delivered through our UEPS. The revenuewith significant scale across all tiers.

Connect is highly profitable with strong unit economics – delivering an historic three-year compound annual growth rate in EBITDA in excess of 40% for its financial year ended February 28, 2022.

Connect has significant opportunities for continued growth within its current addressable market, estimated at more than ZAR 100 billion ($6.6 billion), in merchant financial services for MSMEs in South Africa. Further, this addressable market has strong secular growth due to MSMEs shifting from manual to digitized cash management and costs are reflectedfrom physical cash to digital payment methods.

Connect fills four key gaps in our Financial inclusion and applied technologies segment.

            In South Africa, we also generate fees from debit and credit card transaction processing,Lesaka’s product offering, namely the provision of value-added services such as bill payments, mobile top-updirectly to MSME’s, digitized cash management, merchant acquiring and prepaid utility sales,merchant lending. On the other hand, Net1’s legacy businesses bring issuing, insurance and from providing a payroll transaction management service. The revenue and costs associated with theseconsumer financial services are reflected in our South African transaction processing and Financial inclusion and applied technologies segments.

            Through KSNET, we earn most of our revenue from payment processing services we provideinfrastructure to approximately 223,000 merchants and to card issuers in South Korea through our value-added-network. Through IPG we generate fee revenue through the provision of payment service provider and card issuing and acquiring services in primarily Europe, China and the U.S. The revenue and costs at of all of these businesses are reflected in our International transaction processing segment.

            Finally, we have investments, business partnerships or joint ventures to provide us with an opportunity to introduce our financial technology solutions to markets such as Bank Frick in Europe, Finbond in South Africa and North America, OneFi in Nigeria, V2 in sub-Sahara Africa, and MobiKwik in India. In these situations, we take an equity position in the business while also acting as a supplier of technology. In evaluating these types of opportunities, we seek to maintain a highly disciplined approach, carefully selecting partners, participating closely in the development of the business plan and remaining actively engaged in the management of the new business. In most instances, the joint venture or partnership has a license to use our proprietary technologies in the specific territory, including the back-end system.

            We believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology.

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Developments during Fiscal 2019

Restructuring of South African operations and strategy for financial inclusion initiatives in South Africa

            Following the auto-migration of a substantial portion of our EPE customers in fiscal 2019, we faced a significant reduction in the number of accounts, transactions, fees, and consumption of financial and value-added services. In addition, customers who had loans or insurance policies and had been migrated, unwittingly defaulted on their regular payments. Our rural-South African distribution business has a high-fixed cost structure with physical locations, assets and employees. The decline in revenue coupled with the high-fixed costs resulted in significant operating losses for the company over the past year. Beginning in late January, we commenced an aggressive restructuring initiative to reduce our physical infrastructure and headcount in order to right size the business given the current level of business activity. We have made meaningful progress in this regard and achieved our target of reaching a breakeven EBITDA on a monthly basis for the month of July 2019, one month later than originally expected.

Restructuring of South African operations – In late January 2019, we commenced with an extensive cost reduction exercise, which included a reduction of over 2,500 employees (being close to 50% of our original staff complement), a reduction in the availability of our mobile ATM infrastructure, and the termination of certain leases. During the second half of 2019, we incurred retrenchment costs of $6.3 million related to the reduction of personnel both in the field and at the head office level.

Increasing collaboration with Finbond - We have actively worked with the Finbond teams to identify synergies between our organizations in order to address the market opportunity for the millions of unbanked and under-banked South Africans. Finbond has been certified to become an issuer of UEPS/EMV cards, and in early Q4 2019, we initiated a pilot using our biometrically-enabled UEPS/EMV cards. We expect to commercially launch this initiative during Q2 2020, at which point we believe we can once again start growing our customer base.

Stabilization of financial services - Our lending and insurance businesses have stabilized in the second half of fiscal 2019 dueConnect. Offering multiple products to a steadier base of active EPE accounts. This stability now provides us with the opportunitysingle customer reduces churn, increases take-rate and improves unit economics.

Refer to re-direct our efforts to growing these business lines, although this will be done cautiously to manage the risk of any potential future auto-migration of customers. We have begun discussions with other financial services providers, including Finbond, to use our EPE base as a distribution channel for their own lending products.

            Our loan book increased slightly in the fourth quarter of fiscal 2019 and, following the write off of the loans that were provided against in Q2 2019, we have seen the level of non-performing loans return broadly to historical levels. For insurance, the number of policies paid up has also stabilized and the lapses related to the increased non-payment returned to more normal levels in the fourth quarter of fiscal 2019.

SASSA Contract Expiration

            Although we have not been involved operationally with SASSA since September 30, 2018, we have been actively trying to resolve all legal and legacy outstanding items that would allow us to focus on our core business.

Settlement of payment of fees due for the last six months of the SASSA contract – Following the March 23, 2018 Constitutional Court order for a six-month extension of our contract with SASSA for payment of grants in cash at pay points only, we were allowed to charge our monthly fee based on the previously contracted rate of ZAR 16.44 (including VAT) per cash pay point recipient. Given that we only serviced the highest-cost beneficiaries, the Constitutional Court allowed us to approach the National Treasury in order for them to make a fair determination of the price we should be paid for services rendered. National Treasury recommended a rate of ZAR 51.00 (including VAT) per cash pay point recipient per month to the Constitutional Court. Contrary to SASSA’s stance, the Constitutional Court on December 5, 2018, ruled that they are not required to ratify the Treasury recommended rate, and that CPS and SASSA must agree on the pricing. To date we have not reached an agreement with SASSA on the pricing and have commenced legal proceedings to receive an amount in accordance with National Treasury recommendation.

Auto-migration of EPE customers to SAPO – As part of SASSA’s migration to SAPO, a number of EPE customers were auto-migrated by SASSA between August and October 2018, where post office accounts were unilaterally opened for beneficiaries by SASSA, often without the customer’s consent. We initiated a legal process to halt this migration and to try and recover some of our EPE customers who had been migrated despite completing the mandatory documentation for electing to be paid in a private bank account. On January 29, 2019, we received an adverse order in that the court declined to reverse the auto-migration process. Following this order, we followed a multi-faceted approach to try and address the auto-migration issue. First, we were granted leave to appeal the order, which we are pursuing. Second, the court granted an order requiring SASSA to account for the process to auto-migrate approximately 700,000 of the EPE accounts who had submitted Annexure C forms to SAPO. Third, we are considering taking the decision of the minister for administrative review.

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            While the first and third actions are longer processes, we are currently reviewing SASSA’s response to the second action and will determine if there is any further action that can be taken as a result. The risk of our remaining EPE customers being auto-migrated still exists, but there has been no further auto-migration since November 2018.

            We are relieved that we have finally concluded our contract with SASSA on September 30, 2018. We are extremely proud of our achievements of uninterrupted grant delivery to 11.0 million social grant recipients since the inception of our contract in April 2012, and the annual saving of more than ZAR 2.0 billion that our biometric payment technology realized for government due to the elimination of fraudulent grants.

Progress on various corporate activities

            As part of the extensive strategic review of all of our businesses and investments, we have made progress on multiple fronts:

Disposal of DNI – We have concluded two transactions to reduce our investment in DNI. First, in March 2019, we reduced our holding in DNI from 55% to 38% through the sale of 17% in DNI for ZAR 400 million. We utilized the proceeds from this sale to settle the contingent purchase consideration of ZAR 400 million, which related to the achievement of certain performance targets by DNI. Second, in May 2019, we sold an additional 8% of DNI to RMB, and used the proceeds to early-settle the majority of our outstanding long-term borrowings. Third, also in May 2019, we granted DNI a call option to acquire our remaining 30% interest in DNI at a strike price of ZAR 859 million, or $61.0 million translated at exchange rates applicable as of June 30, 2019, in order to monetize our remaining investment in DNI. We expect the call option to be exercised prior to the expiry on December 31, 2019.

Early repayment of long-term debt – We utilized ZAR 15.0 million of our cash reserves and the proceeds from the sale of an 8% interest in DNI to early-settle our ZAR 230.0 million long-term borrowings in full. This has strengthened our balance sheet and improved our liquidity profile in South Africa as we reposition the business.

Progress in Korea – Our advisors assisting with improving the growth and profitability in Korea completed the first phase of their project during our third quarter of 2019, which consisted of the identification of actionable items. In phase two, which commenced at the end of our fourth quarter of 2019, they are working with management to implement the near-term action items identified in the first phase. We expect the overall exercise to take another 6-12 months before we see meaningful improvements in operating performance. In parallel, our board is reviewing the strategic alternatives for this business and we appointed a financial advisor, FT Partners, to assist us in evaluating such alternatives.

Cell C – Cell C has had a difficult six months and has come under increasing pressure on its liquidity due to its high level of debt and the associated servicing costs. During the third quarter of fiscal 2019, Cell C signed a term sheet with the Buffet consortium, but the implementation of this capitalization has been delayed. As a result, Cell C requested shareholder support and in September 2019, we agreed to provide up to ZAR 300 million of support to the company through the purchase of prepaid airtime. This, along with support from Blue Label Telecoms and Cell C’s debt providers, should provide a liquidity platform to Cell C to enable it to conclude revised commercial arrangements with MTN, as well as a recapitalization of the business. Our investments in Cell C and Cedar Cellular notes were carried at $0 as of June 30, 2019, refer to Notes 7 and 9Note 3 to our audited consolidated financial statements for additional information regarding these investments.related to the acquisition.

International Activities

IPG – The restructuring and re-organization of IPG is now complete with Malta having becomeOur strategic focus areas

During this fiscal year, we communicated the centralized operationfollowing four key pillars which we believe are critical to the successful transformation of our international activities. IPG’s new card issuingcompany to becoming a leading South African full-service fintech platform:

Rapidly growing the merchant business;

Returning the consumer business to profitability;

Transforming our organization into a world class fintech platform; and

Strengthening our relationships with key stakeholders.

Focused effort throughout the year on each of these pillars has delivered positive momentum, repositioning the business to capture the long-term growth opportunities across both our merchant acquiring platformsand consumer businesses.

Rapid growth of our merchant business

As discussed above, the transformational acquisition of Connect, was key in delivering on this focus area. With market leading affordable products and technologies, Connect is well positioned to continue its growth in the MSME sector. Connect’s MSME offering, combined with our EasyPay platform targeting the larger merchants, and our point-of-sale business, provides a suite of products and services to address the needs of the entire spectrum of merchants in South Africa.

Mr. Steve Heilbron, CEO of Connect, joined our board on April 14, 2022, and will be responsible for heading up our Merchant business. Integrating Connect will be a focus area for us going forward, to ensure we capitalize on the growth opportunity delivered by this acquisition.

Returning the Consumer business to profitability

We have made significant progress in returning the Consumer segment to profitability as is evident from our segment reporting. However, transforming the business and culture, from one which was focused on the logistics of efficiently distributing grants to over ten million grant recipients each month, to a sales focused organization remains a challenge we are focused on. We have spent a lot of time and resources on training and building our sales force, but this remains a work in progress.

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The Consumer segment has shown considerable improvement in performance from a year ago and the positive momentum has been certified. As part of Visa’s mergerachieved through focusing on three key levers:

Increasing active EPE account numbers, through driving customer acquisition;

Improving ARPU, underpinned by increased cross selling; and

Optimizing the cost structure, in line with Visa Europe, Bank Frick is required to undergo recertification with Visa, which is currently underway and expected to be completed during calendar 2019. Once completed, IPG is expected to begin the deployment of its new products to the European SME market. a focus on customer centricity.

Progress on driving customer acquisition

During fiscal 2019, IPG also secured approval from2022, we grew our total customer base by approximately 157,000 net active customers of which around 31,000 were EPE lite customers and around 126,000 were EPE customers, ending the Mauritian regulatorsyear with just over 1.168 million active customers. This active account growth is slower than what we had anticipated. We did, however, register 256,000 gross account openings during the year, and have started to becomesee the benefits of a principal member of China UnionPay for international issuingworkstream focusing on improving account activation and acquiring. This approvalutilization that was initiated during the third quarter.

There has been sharedenormous focus during the year on how to optimize our points of presence and upskill our employees in order to drive these numbers. This process has taken longer than originally expected, but with UnionPay,our improved data analytics and we are awaiting their acceptance of the same. Our beta prototype crypto-asset storage product is now ready, andongoing market research we believe we will begin commercially rolling out this market-leading product with Bank Frickhave made major progress and expect to see improvements in the first halfnext fiscal year arising from this customer centric approach.

Progress on cross selling

ARPU remains broadly within our targeted ARPU range. We had approximately 396,000 active loans at the end of fiscal 2020.

Bank Frick – Bank Frick continuesthe quarter, representing a 36% penetration of our active EPE customer base, with a total loan book of ZAR 349 million ($21.5 million) as of June 30, 2022, up 4% in ZAR compared with June 2021. The average loan size grew to develop its capacity and expertise in relation to cryptocurrency and blockchain technology. It has expanded its headcount; however, its performance was slightly lower than anticipated, which was largely due to investments in expanding headcount and improving systems. Bank Frick continues to work closely with IPG regarding our acquiring, processing and cryptocurrency storage solution initiatives.

            On October 2, 2019, we exercised an option to acquire an additional 35% interest in Bank Frick fromZAR 1,461, while the Kuno Frick Family Foundation. We will pay an amount,portfolio loss ratio, calculated as the “Option Price Consideration”,loans written off during the period as a percentage of the total loan book, remains encouragingly low at around 1.00% for the additional 35% interest in Bank Frick, which represents the higherquarter (i.e. approximately 4% per annum), as a result of CHF 46.4 million ($46.5 million at exchange rates on October 2, 2019) or 35%our ongoing application of 15 times the average annual normalized net incomeprudent credit scoring and a culture of responsible lending.

Our funeral insurance product provides an important growth opportunity for our cross-selling strategy, with penetration levels now around 19% of the Bank overactive account base. Over 40,500 new standalone policies were initiated during the two years ended December 31, 2018.year, growing the total number of active policies to approximately 259,000, up 8.3% compared with June 2021.

            The shares will only transfer

Progress on paymentcost optimization

In order to optimize the overall cost base and to move the business towards a sales-focused and client solution driven financial services organization, we launched Project Spring during the 2022 financial year. Project Spring focused on the restructuring of our financial services business and the rationalization of the Option Price Consideration, which shall occur on the later of (i) 180 days after the date of exercisedistribution network. Pursuant to Project Spring, a detailed review of the option; (ii)distribution network was performed to identify underperforming branches and optimize our points of presence to meet the needs of our customer base.

We also embarked on a retrenchment process that resulted in the event of any regulatory approvals being required, 10 days after receipt of approval (either unconditionally or on terms acceptable to both parties); and (iii) 10 days after the date on which the Option Price Consideration is agreed or finally determined.

ZappGroup – Our new Africa-focused investment, ZappGroup, made significant strides in its first year of existence. During Q2 2019, ZappGroup signed up the largest bank in Ghana and went live withour headcount reducing by approximately 800 at a beta product. Duringtotal cost during the third quarter of fiscal 2019, ZappGroup progressed its live testing2022 of $5.9 million. Please refer to Note 1 to our audited consolidated financial statements for additional information.

In addition, significant progress has been made on optimizing our cash distribution and also signed up twoATM network. Our large fleet of mobile ATMs and the associated distribution and security costs have been eliminated. Following a review of the three largest mobile operatorsATM placements, over 50% of our ATM network are now positioned in Ghana.retailers, providing greater footfall and longer operating hours compared to our branches.

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            ZappGroupWe estimate that the aggregate annualized cost saving for Project Spring is over ZAR 300.0 million.

We continue with our cost optimization efforts despite the completion of Project Spring and its significant achievements. In particular, we are re-examining the performance of all our points of presence and increasingly looking to partner with various retailers, rather than having our own dedicated brick and mortar branches. Furthermore, following the recent acquisition of Connect we are working on how to optimize the cash movement processes of the two businesses.

Transforming our organization into a world class fintech platform

Building a world class fintech platform requires highly talented people, an environment where they can outperform and a clear vision and strategy, where everyone is aligned and understands their role in achieving that vision.

During the fiscal year, we brought in a significant number of experienced, high quality executives to enhance the leadership of the organization. This has also integrated withbeen further enhanced by the largest merchant network (allowing it to reach many more merchants) and is expecting to achieve commercial launch in the second quarter of fiscal 2020. ZappGroup also commenced activities to sign customer contracts in Nigeria and is working closely with us and OneFi.

OneFi – Givenstrong management team that has driven the success of it digital lending product, Pay-Later,Connect. The leadership team has deep and relevant experience to deliver on the mission of the Company, with the necessary governance structures in place.

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The South African Competition Tribunal’s approval of the Connect acquisition was subject to the company implementing an employee share transaction (“ESOP”) of at least 3% of the issued shares of the company, to increase the spread of ownership by historically disadvantaged people and workers. If within 24 months of the implementation date of the Connect transaction, the company generates a positive net profit for 3 consecutive quarters, the ESOP shall increase to 5% of the issued shares. The final structure of the ESOP is contingent on shareholder approval and relevant regulatory and governance approvals and will only be implemented during fiscal 2019, OneFi has rebranded as Carbon, expanding its offering as2023.

Strengthening our relationships with key stakeholders

We continue to build our relationship with SASSA through proactive engagement at a full-fledged digital financial services platform that offers bill payments, fund transferslocal, provincial and savings, in additionnational level, to loans. OneFi is currently disbursing approximately 50,000 new loans per month.gain a better understanding of their needs and how we can help and improve the delivery of social grants to over 12 million grant recipients.

India –

We have deployedalso made good progress on building relationships with our virtual card technology with MobiKwik to its users. In fiscal 2019, MobiKwik applied for direct membership with Visavarious key stakeholders, be it shareholders, regulators, suppliers and became an associate memberother participants in Q4 2019. Given this is the first time a non-bankour sectors.

Investments

There has been approvedno change to the carrying value of our investment in MobiKwik during fiscal 2022. MobiKwik filed its draft red herring prospectus in July 2021, with the original intention of completing its initial public offering in November 2021. MobiKwik decided to delay its initial public offering given prevailing market conditions and will reassess their options as a Visa member in India, the Visa/market conditions change. MobiKwik application has been submittedfocusing on its buy now pay later (“BNPL”) offering and has seen significant growth in that area in the last year. It continues to grow strongly and is also considering plans for raising additional capital privately.

On March 15, 2022, Blue Label Telecoms Limited, the central banklargest shareholder in Cell C, announced that it has concluded a non-binding term sheet (“Umbrella Restructure Term Sheet”) with Cell C and various Cell C financial stakeholders. In terms of the Umbrella Restructure Term Sheet, Cell C will be restructured and refinanced with the purpose of deleveraging its balance sheet, providing it with liquidity with which to operate and grow its businesses and to position itself to achieve long term success for approval. Once approved, itthe benefit of its customers, employees, creditors, shareholders, and other stakeholders. The long form agreements, which will be binding, are currently in process of preparation and will incorporate the terms and conditions contained in the Umbrella Restructure Term Sheet. The latest public announcements have indicated that the recapitalization is expected to allow MobiKwik to expand issuing virtual cards to its millionsclose by the middle of customers. MobiKwik itself has performed aheadSeptember 2022. Our investment in Cell C is held at a carrying value of expectations, primarily due to its successful transition to being a digital financial services provider. In June 2019, MobiKwik recorded unaudited annualized revenue of $55 million, up from $17 million in June 2018. It has been contribution margin positive since October 2018 and was close to EBITDA breakeven at the end$0 (zero) as of June 2019. Digital financial services now account for approximately 25%30, 2022.

Impact of MobiKwik’s total monthly revenue, compared to zero duringCOVID-19

During the previous fiscal year, we did not experience any significant disruptions from the COVID-19 outbreak, and it is currently disbursing in excess of 70,000 new loans per month.the risk relating to the outbreak appears to have substantially reduced.

Critical Accounting Policies

Our audited consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques. Management believes that the following accounting policies are critical due to the degree of estimation required and the impact of these policies on the understanding of the results of our operations and financial condition.

Valuation of investment in Cell C

            We have elected to measure our investment in Cell C, an unlisted equity security, at fair value using the fair value option. Changes in the fair value of this equity security are recognized in the caption change in fair value of equity securities in our audited consolidated statements of operations. The tax impact related to the change in fair value of equity securities is included in income tax expense in our audited consolidated statements of operation. The determination of the fair value of this equity security requires us to make significant judgments and estimates. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Refer to Note 7 of our audited consolidated financial statements regarding the valuation inputs and sensitivity related to our investment in Cell C.

            We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2019, and valued Cell C at $0.0 (zero) at June 30, 2019. We have changed our valuation methodology from an EV/ EBITDA model to a discounted cash flow approach due to anticipated changes in Cell C’s business model and the current challenges faced by the business, which would not have been captured by the previous valuation approach. We utilized the latest business plan provided by Cell C management for the period ending December 31, 2024, and the following key valuation inputs were used:

            (1) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2019.

            We believe the Cell C business plan is reasonable based on the current performance and the expected changes in the business model.

            We used an adjusted EV/ EBITDA model to determine the fair value of our investment in Cell C for the first, second and third quarter of fiscal 2019 and for fiscal 2018, and we considered Cell C’s adjusted earnings before interest, taxation, depreciation and amortization, or EBITDA, and its historical net debt position. We were also required to select an appropriate EBITDA multiple based on Cell C’s peer group, which comprises various African and emerging market mobile telecommunications operators and the appropriate marketability discount related to the investment in order to determine its fair value.

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Business Combinations and the Recoverability of Goodwill

A significant component of our growth strategy has beenis to acquire and integrate businesses that complement our existing operations. The purchase price of an acquired business is allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair value at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill. In determining the fair value of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods, including present value modeling. Further, we make assumptions using certain valuation techniques, including discount rates and timing of future cash flows.

We review the carrying value of goodwill annually or more frequently if circumstances indicateindicating impairment may have occurred. In performing this review, we are required to estimate the fair value of goodwill that is implied from a valuation of the reporting unit to which the goodwill has been allocated after deducting the fair values of all the identifiable assets and liabilities that form part of the reporting unit.

The determination of the fair value of a reporting unit requires us to make significant judgments and estimates. In determining the fair value of reporting units for fiscal 2022 and 2021, we consider the earnings before interest, taxation, depreciation and amortization, or EBITDA,considered entity-specific growth rates, future expected cash flows to be used in our discounted cash flow model, and the EBITDA multiplesweighted-average cost of capital applicable to peer and industry comparables of the reporting units. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. In addition, we make judgments and assumptions in allocating assets and liabilities to each of our reporting units.

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The results of our impairment tests during fiscal 20192022 and 2021 indicated that the fair value of our reporting units exceeded their carrying values with the exception of the $14.4 million of goodwill impaired during fiscal 2019, as discussed in Note 10 to our audited consolidated financial statements.and so did not require impairment.

Intangible Assets Acquired Through Acquisitions

The fair values of the identifiable intangible assets acquired through acquisitions were determined by management using the purchase method of accounting. We completed acquisitionsthe acquisition of Connect during fiscal 2018 and 20172022 where we identified and recognized intangible assets. We used the relief from royalty method to value identified brands and the multi-period excess earnings method to value the integrated platform and identified customer relationships. We have used the relief from royalty method, the multi-period excess earnings method, the income approach and the cost approach to value other historic acquisition-related intangible assets. In so doing, we made assumptions regarding expected future revenues and expenses to develop the underlying forecasts, applied contributory asset charges, discount rates, exchange rates, cash tax charges and useful lives.

The valuations were based on information available at the time of the acquisition and the expectations and assumptions that have beenwere deemed reasonable by us. No assurance can be given, however, that the underlying assumptions or events associated with such assets will occur as projected. For these reasons, among others, the actual cash flows may vary from forecasts of future cash flows. To the extent actual cash flows vary, revisions to the useful life or impairment of intangible assets may be necessary. Management assess the useful life of the acquired intangible assets upon initial recognition and revisions to the useful life or impairment of these intangible assets may be necessary in the future. For instance, in fiscal 2019,the recently closed Connect transaction, management has assigned useful lives to the acquired intangible assets as follows: (a) integrated platform – 10 years; (b) customer relationships – 8 years; and (c) brands – 10 years.

Revenue recognition – principal versus agent considerations

We generate revenue from the provision of transaction-processing services through our various platforms and service offerings. We use these platforms to (a) sell prepaid airtime and (b) distribute VAS, including prepaid airtime, prepaid electricity, gaming voucher, and other services, to users of our platforms. The determination of whether we recordedact as a principal or as an impairment lossagent when providing these services requires a significant amount of $5.3 millionjudgement and is based on whether (i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer and (iii) we have discretion in establishing the price for the specified good or service. When we are the principal in a transaction, such as when we purchase (and thus control and assume inventory risk) prepaid airtime before selling it to customers utilizing our platform, revenue is reported on a gross basis. When we are an agent in a transaction, such as when we distribute VAS on behalf of our customers, and do not control the good or service to be provided, revenue is recognized based on the amount that we are contractually entitled to receive for performing the distribution service on behalf of our customers using our platform.

Valuation of investment in Cell C

We have elected to measure our investment in Cell C, an unlisted equity security, at fair value using the fair value option. Changes in the fair value of this equity security are recognized in the caption “change in fair value of equity securities” in our audited consolidated statements of operations. The tax impact related to intangible assets acquired (customer relationships)the change in fair value of equity securities is included in income tax expense in our audited consolidated statements of operation. The determination of the fair value of this equity security requires us to make significant judgments and estimates. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Refer to Note 6 of our audited consolidated financial statements regarding the valuation inputs and sensitivity related to our investment in Cell C.

We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2022 and 2021, and valued Cell C at $0.0 (zero) as of each of June 30, 2022 and 2021. We utilized the latest approved business plan provided by Cell C management for the period ended December 31, 2026, for the June 30, 2022 and 2021 valuations, and the following key valuation inputs were used:

(1) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2022.

(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2021.

We believe the Cell C business plan is reasonable based on the current performance and the expected changes in the DNI acquisition as a resultbusiness model. Refer to the sensitivity analysis included in Note 6 to our audited consolidated financial statements related to our valuation of Cell C enteringas of June 30, 2022.

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Recoverability of equity securities and equity-accounted investments

We review our equity securities and equity-accounted investments for impairment whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. In performing this review, we are required to estimate the fair value of our equity-accounted investments and other equity securities. The determination of the fair value of these investments requires us to make significant judgments and estimates.

Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable fair values and therefore we have elected to measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. If we identify an impairment indicator related to these equity securities, we are required to assess the carrying value of these equity securities against their fair value. We did not identify any impairment indicators during each of fiscal 2022, 2021 and 2020, and therefore did not recognize any impairment losses related to these equity securities during those years.

The determination of the fair value of an investment requires us to make significant judgments and estimates. We are required to base our estimates on assumptions which we believe to be reasonable, but these assumptions may be unpredictable and inherently uncertain.

The Company did not identify any observable transactions during the year ended June 30, 2022, and therefore there was no change in the fair value of MobiKwik during the year. During the year ended June 30, 2021, MobiKwik entered into a roaming arrangementnumber of separate agreements with another South African mobile telecommunications network providernew shareholders to raise additional capital through the issuance of additional shares. Specifically, we used the following transactions as the basis for our fair value adjustments to our investment in MobiKwik during the year ended June 30, 2021: (i) in early November 2020, $135.54 per share; (ii) in March 2021, $170.33 per share; and (iii) in June 2021, $245.50 per share. We considered each of these transactions to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik. Accordingly, the carrying value of our investment in MobiKwik increased from $27.0 million as of June 30, 2020, to $76.3 million as of June 30, 2021. The change in the fair value of MobiKwik for the year ended June 30, 2021, of $49.3 million, is included in the caption “Change in fair value of equity securities” in our audited consolidated statement of operations for the year ended June 30, 2021.

We did not identify any impairment indicators during fiscal 2022 and therefore did not recognize any impairment losses related to our equity-accounted investments during that year. We performed impairment assessments during fiscal 2021 and 2020, for certain of our equity-accounted investments following the identification of certain impairment indicators. The results of our impairment tests during fiscal 2021 and 2020, resulted in impairments of $21.1 million and $33.8 million, respectively, related to our equity-accounted investments. These impairments are discussed in Note 9 to our audited consolidated financial statements.

For fiscal 2021, in determining the fair value of certain of our equity-accounted investments, we have considered (i) for Finbond specifically, as it is listed on the Johannesburg Stock Exchange, its market price as of the impairment assessment date, adjusted for a liquidity discount of 15%, and (ii) the net asset value of the equity-accounted investment being assessed as a proxy of fair value because reasonable cash flow forecasts were not available.

For fiscal 2020, in determining the fair value of certain of our equity-accounted investments, we have considered (i) for DNI specifically, the fair value of consideration received on April 1, 2020, adjusted for the accumulated foreign currency translation reserve, (ii) dividend discount models based on projected cash flows, adjusted for identified risks, (iii) various multiples applicable to peer and industry comparables of certain of our equity-accounted investments, and (iv) the net asset value of the equity-accounted investment being assessed as a proxy of fair value because reasonable cash flow forecasts were not available.

We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. The fair value of our investment in Finbond is sensitive to movements in its market price, which extended Cell C’s network coverage. This arrangement impactedis quoted in ZAR, because we use the identified customer relationship recognized.market price as the basis of our valuation.

Deferred Taxation

We estimate our tax liability through the calculations done for the determination of our current tax liability, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are disclosed on our balance sheet.

Management then has to assess the likelihood that deferred tax assets are more likely than not to be realized in the foreseeable future. A valuation allowance is created if it is determined that a deferred tax asset will not be realized in the foreseeable future. Any change to the valuation allowance would be charged or credited to income in the period such determination is made. In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered. During fiscal 2019,2022, we recorded a net decrease of $1.7 million, to our valuation allowance, and during fiscal 20182021 and 2017,2020, respectively, we recorded a net increase of $68.6 million, $9.6$1.5 million and $0.1 million to our valuation allowance.$13.4 million. As of June 30, 20192022 and 2018,2021, the valuation allowance related to deferred tax assets was $116.4$117.1 million and $48.7$118.8 million, respectively.

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Stock-based Compensation

Management is required to make estimates and assumptions related to our valuation and recording of stock-based compensation charges under current accounting standards. These standards require all share-based compensation to employees to be recognized in the statement of operations based on their respective grant date fair values over the requisite service periods and also requires an estimation of forfeitures when calculating compensation expense.

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We utilize the Cox Ross Rubinstein binomial model to measure the fair value of stock options granted to employees and directors. We have also utilized a bespoke adjusted Monte Carlo simulation discounted cash flow model to measure the fair value of restricted stock with market conditions granted to employees and directors. The stock-based compensation cost related to these valuations has been recognized on a straight linestraight-line basis. These valuation models require estimates of a number of key valuation inputs including expected volatility, expected dividend yield, expected term and risk-free interest rate. Our management has estimated forfeitures based on historic employee behavior under similar compensation plans. The fair value of stock options is affected by the assumptions selected. The fair value calculation is especially sensitive to our valuation assumption with respect to expected volatility. For instance, a 5% increase (to 55%) or decrease (to 45%) in the expected volatility used (of 50%) to value stock options granted in February 2022, would result in a charge that was 9% higher (if 55% were used) or 9% lower (if 45% were used). Net stock-based compensation expense from continuing operations was $0.4$3.0 million, $2.6$0.3 million and $2.0$1.7 million for fiscal 2019, 20182022, 2021 and 2017,2020, respectively.

Accounts Receivable and Allowance for Doubtful Accounts Receivable

We maintain an allowance for doubtful accounts receivable related to our Financial inclusionConsumer and applied technologies and International transaction-based activitiesMerchant segments with respect to sales or rental of hardware, support and maintenance services provided; or sale of licenses to customers; or the provision of transaction processing services to our customers; or our working capital financing provided.customers.

Our policy is to regularly review the aging of outstanding amounts due from customers and adjust the provision based on management’s estimate of the recoverability of the amounts outstanding.

Management considers factors including period outstanding, creditworthiness of the customers, past payment history and the results of discussions by our credit department (and in some cases including our sales and finance teams) with the customer. We consider this policy to be appropriate taking into account factors such as historical bad debts, current economic trends and changes in our customer payment patterns. Additional provisions may be required should the ability of our customers to make payments when due deteriorate in the future. Judgment is required to assess the ultimate recoverability of these receivables, including on-goingongoing evaluation of the creditworthiness of each customer.

Microlending

Lending

Consumer microlending

We maintain an allowance for doubtful finance loans receivable related to our Financial inclusion and applied technologiesConsumer services segment with respect to microlendingshort-term loans provided to ourqualifying customers. Our policy is to regularly review the ageing of outstanding amounts due from borrowers and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. We write off microlending loans and related service fees if a borrower is in arrears with repayments for more than three months or dies.

            Management considers factors including the period

Credit bureau checks as well as an affordability test are conducted as part of the microlending loan outstanding, creditworthinessorigination process, both of the customers and the past payment history and trends of its established microlending book.which being in line with local regulations. We consider this policy to be appropriate takingbecause the affordability test we perform takes into account a variety of factors such as historical badother debts current economic trends and changes in our customer payment patterns.total expenditures on normal household and lifestyle expenses. Additional allowances may be required should the ability of our customers to make payments when due deterioratedeteriorates in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including on-goingongoing evaluation of the creditworthiness of each customer.

Accounting

Merchant lending

We maintain an allowance for transactions following September 2019 Supreme Court ruling

            As discussed under Item 3-"Legal Proceedings- Challengedoubtful finance loans receivable related to Payment by SASSAour Merchant services segment with respect to short-term loans to qualifying merchant customers. Our policy is to regularly review the ageing of Additional Implementation Costs"outstanding amounts due from these merchants and an allowance is created for the Supreme Court deniedfull amount outstanding if the customer is in arrears for more than 15 days. We write off loans and related interest and fees when it is evident that reasonable recovery procedures, including where deemed necessary, formal legal action, have failed.

Our risk management procedures include adhering to our appealproprietary lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and we have recorded a liability of $34.0 million as of June 30, 2019, comprising a revenue refund of $19.7 million (ZAR 277.6 million), and other expenses totaling $14.3 million (ZAR 201.8 million).

Other payables - accrual of implementation costscredit bureau checks. We consider these procedures to be refunded to SASSA

            On September 30, 2019,appropriate because it takes into account a variety of factors such as the Supreme Court delivered its ruling in the matter, declining CPS' appealcustomer’s credit capacity and awarding costs against CPS. CPS is liable to repay SASSA ZAR 317.0 million, plus interest from June 2014 to date of payment. Ascustomer-specific risk factors when originating a result, we have recorded the liability at June 30, 2019, of $34.0 million (ZAR 479.4 million, translated at exchange rates applicable as of June 30, 2019, comprising a revenue refund of $19.7 million (ZAR 277.6 million), accrued interest of $11.4 million (ZAR 161.0 million), unclaimed indirect taxes of $2.8 million (ZAR 39.4 million) and estimated costs of $0.1 million (ZAR 1.4 million)).

            We are discussing further legal steps with our counsel. Management does not agree with the findings of the Supreme Court and may appeal the matter with the Constitutional Court. While management believes that its arguments in defense of the matter have merit, it has had to apply its judgment, including the fact that both the High Court and the Supreme Court have ruled against CPS, to determine whether to record a liability as of June 30, 2019. If management determines to further appeal the matter, it is unable to predict (a) whether the Constitutional Court will hear the matter, or (b) if they do hear the matter, the outcome of those additional proceedings.

            While management does not agree with the Supreme Court ruling, we respect the rule of law in South Africa, and will discharge our legal obligations as mandated under South African law as they fall due once all available legal process available to us have been exhausted. We considered the High Court and Supreme Court rulings and the uncertainty regarding the further appeal process in our assessment that it is probable that an amount will need to be refunded to SASSA, although this is not an admission that our legal arguments do not have merit. This, taken together with the rulings that specify a quantifiable amount payable to SASSA, formed the basis for the accrual of the liability of $34.0 million as of June 30, 2019.

Revenue - variation in transaction price following September 2019 Supreme Court ruling

            Management considers a component of the $34.0 million to be refunded to SASSA, specifically the ZAR 277.6 million ($19.7 million) of revenue recorded in fiscal 2014 related to a June 2012 agreement, to be a variation in the price charged to SASSA under our February 2012 SASSA contract. Even though it is an involuntary refund to be paid to SASSA, the Supreme Court ruled that we were not entitled to charge SASSA for the additional enrolments performed because, in the courts view, the February 2012 contract contained all the performance obligations and pricing parameters related to the enrolment of all beneficiaries, and not just cardholder recipients, and we should not have sought a recovery of implementation costs in fiscal 2014 from SASSA for the additional enrolment services provided under the June 2012 agreement. As noted above, management does not agree with the findings of the courts and has had to exercise its judgment in determining whether the reversal of revenue represents a price variation (accounted for as a reduction in revenue in fiscal 2019) or a nonreciprocal transfer.loan.

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Recent Accounting Pronouncements

Recent accounting pronouncements adopted

Refer to Note 2 of our audited consolidated financial statements for a full description of recent accounting pronouncements, including the dates of adoption and effects on financial condition, results of operations and cash flows.

Recent accounting pronouncements not yet adopted as of June 30, 20192022

Refer to Note 2 of our audited consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of June 30, 2019,2022, including the expected dates of adoption and effects on financial condition, results of operations and cash flows.

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Currency Exchange Rate Information

Actual Exchange Ratesexchange rates

The actual exchange rates for and at the end of the periods presented were as follows: