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

FORM 10-Q

(Mark One)

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

For the quarterly period endedSeptember 30, ~~2013~~2014

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

For the transition period from ~~_________________~~__________________ To ~~_________________~~____________________

Commission file number:000-31203

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

Florida	98-0171860
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [X] NO [ ]

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

[ ]	Large accelerated filer	[X]	Accelerated filer

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

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

As of November ~~7, 2013~~4, 2014 (the latest practicable date), ~~45,735,236~~46,475,623 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC.

Table of Contents

				Page No.
PART I. FINANCIAL INFORMATION			2
	Item 1.	Financial Statements		2
			Unaudited Condensed Consolidated Balance Sheets at September 30, ~~2013~~2014 and June 30, ~~2013~~2014	2
			Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	3
			Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	4
			Unaudited Condensed Consolidated Statement of Changes in Equity for the Three Months Ended September 30, ~~2013~~2014	5
			Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, ~~2013~~2014 and ~~2012~~2013	6
			Notes to Unaudited Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2123
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3132
	Item 4.	Controls and Procedures		3132
PART II. OTHER INFORMATION			32
	Item 1.	Legal Proceedings		3233
	Item 1A.	Risk Factors		3233
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 6.	Exhibits		32
	~~Signatures~~			3234
Signatures			~~EXHIBIT 31.1~~			35
			EXHIBIT ~~31.2~~		10.29
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

Part I. Financial Information

Item 1. Financial Statements

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

		Unaudited			(A)			Unaudited			(A)
		September 30,			June 30,			September 30,			June 30,
		2013			2013			2014			2014
		(In thousands, except share data)						(In thousands, except share data)
ASSETS	ASSETS						ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	47,670		$	53,665		$	81,185		$	58,672
Pre-funded social welfare grants receivable (Note 2)		4,263			2,934			4,863			4,809
Accounts receivable, net of allowances of – September: $935; June: $4,701		118,025			102,614
Finance loans receivable, net of allowances of – September: $701; June: $-		17,338			8,350
Accounts receivable, net of allowances of – September: $2,075; June: $1,313								136,701			148,067
Finance loans receivable, net of allowances of – September: $3,136; June: $3,083								53,884			53,124
Inventory (Note 3)		11,063			12,222			12,200			10,785
Deferred income taxes		5,125			4,938			7,045			7,451
Total current assets before settlement assets		203,484			184,723			295,878			282,908
Settlement assets (Note 4)		685,305			752,476			724,279			725,987
Total current assets		888,789			937,199			1,020,157			1,008,895
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF – September: $92,099; June: $84,808		48,716			48,301
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – September: $92,753; June: $91,422								48,739			47,797
EQUITY-ACCOUNTED INVESTMENTS		1,270			1,183			934			878
GOODWILL (Note 6)		180,950			175,806			179,003			186,576
INTANGIBLE ASSETS, net (Note 6)		76,915			77,257			62,148			68,514
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7)		36,150			36,576
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and Note 7)								36,533			38,285
TOTAL ASSETS		1,232,790			1,276,322			1,347,514			1,350,945
LIABILITIES	LIABILITIES						LIABILITIES
CURRENT LIABILITIES
Accounts payable		14,036			26,567			14,941			17,101
Other payables		38,802			33,808			43,346			42,257
Current portion of long-term borrowings (Note 9)		15,007			14,209			14,276			14,789
Income taxes payable		9,261			2,275			13,581			7,676
Total current liabilities before settlement obligations		77,106			76,859			86,144			81,823
Settlement obligations (Note 4)		685,305			752,476			724,279			725,987
Total current liabilities		762,411			829,335			810,423			807,810
DEFERRED INCOME TAXES		18,703			18,727			14,078			15,522
LONG-TERM BORROWINGS (Note 9)		70,374			66,632			61,288			62,388
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)		21,499			21,659			22,396			23,477
TOTAL LIABILITIES		872,987			936,353			908,185			909,197
COMMITMENTS AND CONTINGENCIES (Note 16)
COMMITMENTS AND CONTINGENCIES (Note 17)
EQUITY	EQUITY						EQUITY
COMMON STOCK (Note 10)
Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury - September: 45,780,513; June: 45,592,550		59			59
Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury - September: 46,475,623; June: 47,819,299								64			63
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury: September: -; June: -		-			-			-			-
ADDITIONAL PAID-IN-CAPITAL		161,605			160,670			210,708			202,401
TREASURY SHARES, AT COST: September: 13,455,090; June: 13,455,090		(175,823	)		(175,823	)
TREASURY SHARES, AT COST: September: 18,057,228; June: 15,883,212								(214,520	)		(200,681	)
ACCUMULATED OTHER COMPREHENSIVE LOSS		(93,544	)		(100,858	)		(104,126	)		(82,741	)
RETAINED EARNINGS		464,214			452,618			547,222			522,729
TOTAL NET1 EQUITY		356,511			336,666			439,348			441,771
NON-CONTROLLING INTEREST		3,292			3,303			(19	)		(23	)
TOTAL EQUITY		359,803			339,969			439,329			441,748
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,232,790		$	1,276,322		$	1,347,514		$	1,350,945

(A) – Derived from audited financial statements

See Notes to Unaudited Condensed Consolidated Financial Statements

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

		Three months ended					Three months ended
		September 30,					September 30,
		2013			2012		2014		2013
		(In thousands, except per share data)					(In thousands, except per share data)

REVENUE	$	123,494		$	111,682	$	156,441	$	123,494

EXPENSE

Cost of goods sold, IT processing, servicing and support		56,559			45,101		74,406		56,559

Selling, general and administration		40,506			47,252		38,736		40,506

Depreciation and amortization		10,029			10,004		10,174		10,029

OPERATING INCOME		16,400			9,325		33,125		16,400

INTEREST INCOME		3,319			3,091		4,090		3,319

INTEREST EXPENSE		1,752			2,071		1,312		1,752

INCOME BEFORE INCOME TAX EXPENSE		17,967			10,345		35,903		17,967

INCOME TAX EXPENSE (note 15)		6,485			3,729
INCOME TAX EXPENSE (Note 16)							11,648		6,485

NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		11,482			6,616		24,255		11,482

EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		103			128		92		103

NET INCOME		11,585			6,744		24,347		11,585

(ADD) NET (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(11	)		-
LESS (ADD) NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST							258		(11	)

NET INCOME ATTRIBUTABLE TO NET1	$	11,596		$	6,744	$	24,089	$	11,596

Net income per share, in United States dollars(note 12)
Net income per share, in United States dollars(Note 13)
Basic earnings attributable to Net1 shareholders	$	0.25		$	0.15	$	0.51	$	0.25
Diluted earnings attributable to Net1 shareholders	$	0.25		$	0.15	$	0.51	$	0.25

See Notes to Unaudited Condensed Consolidated Financial Statements

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

		Three months ended					Three months ended
		September 30,					September 30,
		2013			2012		2014			2013
		(In thousands)					(In thousands)

Net income	$	11,585		$	6,744	$	24,347		$	11,585

Other comprehensive (loss) income
Net unrealized loss on asset available for sale, net of tax		(255	)		-		(226	)		(255	)
Movement in foreign currency translation reserve		7,569			4,255		(21,185	)		7,569
Total other comprehensive income, net of taxes		7,314			4,255
Total other comprehensive (loss) income, net of taxes							(21,411	)		7,314

Comprehensive income		18,899			10,999		2,936			18,899
Add comprehensive loss attributable to non-controlling interest		11			-
(Less) Add comprehensive (income) loss attributable to non-controlling interest							(232	)		11
Comprehensive income attributable to Net1	$	18,910		$	10,999	$	2,704		$	18,910

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPSTECHNOLOGIES, INC.
UnauditedCondensedConsolidatedStatement ofChanges in Equity for the threemonths endedSeptember 30, 2014 (dollaramounts inthousands)

Net 1 UEPS Technologies, Inc. Shareholder
Accumulated
Number of Number of Additional other Non-
Number of Treasury Treasury shares, net of Paid-In Retained comprehensive Total Net1 controlling
Shares Amount Shares Shares treasury Capital Earnings (loss) income Equity Interest Total

Balance – July 1, 2013 59,047,640 $ 59 (13,455,090 ) $ (175,823 ) 45,592,550 $ 160,670 $ 452,618 $ (100,858 ) $ 336,666 $ 3,303 $ 339,969

Restricted stock granted 187,963 187,963 - -

Stock-based compensation charge 930 930 930

Income tax benefit from vested stock awards 5 5 5

Net income 11,596 11,596 (11 ) 11,585

Other comprehensive income 7,314 7,314 7,314

Balance – September 30, 2013 59,235,603 $ 59 (13,455,090 ) $ (175,823 ) 45,780,513 $ 161,605 $ 464,214 $ (93,544 ) $ 356,511 $ 3,292 $ 359,803

	Net 1 UEPS Technologies, Inc. Shareholders
																Accumulated
				Number of					Number of			Additional				other						Non-
	Number of			Treasury			Treasury		shares, net of			Paid-In		Retained		comprehensive			Total Net1			controlling
	Shares		Amount	Shares			Shares		treasury			Capital		Earnings		loss			Equity			Interest			Total

Balance – July 1, 2014	63,702,511	$	63	(15,883,212	)	$	(200,681	)	47,819,299		$	202,401	$	522,729	$	(82,741	)	$	441,771		$	(23	)	$	441,748

Repurchase of common stock (Note 10)				(1,837,432	)		(9,151	)	(1,837,432	)									(9,151	)					(9,151	)

Restricted stock granted (Note 12)	141,707								141,707										-						-

Exercise of stock option (Note 12)	688,633		1	(336,584	)		(4,688	)	352,049			5,677							990						990

Stock-based compensation charge (Note 12)												916							916						916

Income tax benefit from vested stock awards												483							483						483

Transactions with non-controlling interests (Note 10)												1,231		404					1,635			(228	)		1,407

Net income														24,089					24,089			258			24,347

Other comprehensive loss (Note 11)																(21,385	)		(21,385	)		(26	)		(21,411	)

Balance – September 30, 2014	64,532,851	$	64	(18,057,228	)	$	(214,520	)	46,475,623		$	210,708	$	547,222	$	(104,126	)	$	439,348		$	(19	)	$	439,329

See Notes to Unaudited Condensed Consolidated Financial Statements

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

		Three months ended						Three months ended
		September 30,						September 30,
		2013			2012			2014			2013
		(In thousands)						(In thousands)
Cash flows from operating activities
Net income	$	11,585		$	6,744		$	24,347		$	11,585
Depreciation and amortization		10,029			10,004			10,174			10,029
Earnings from equity-accounted investments		(103	)		(128	)		(92	)		(103	)
Fair value adjustments		(133	)		(293	)		413			(133	)
Interest payable		972			1,192			1,159			972
Profit on disposal of plant and equipment		(1	)		-			(122	)		(1	)
Stock-based compensation charge		930			1,116			916			930
Facility fee amortized		69			88			82			69
(Increase) Decrease in accounts receivable, pre-funded social welfare grants receivable
and finance loans receivable		(23,101	)		5,892
Decrease (Increase) in inventory		1,011			(959	)
Decrease (Increase) in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable								9,470			(23,101	)
(Increase) Decrease in inventory								(2,123	)		1,011
Decrease in accounts payable and other payables		(8,668	)		(1,349	)		(10,933	)		(8,668	)
Increase in taxes payable		6,921			5,438			6,611			6,921
Decrease in deferred taxes		(1,187	)		(2,016	)		(390	)		(1,187	)
Net cash (used in) provided by operating activities		(1,676	)		25,729
Net cash provided by (used in) operating activities								39,512			(1,676	)

Cash flows from investing activities
Capital expenditures		(5,616	)		(6,453	)		(9,378	)		(5,616	)
Proceeds from disposal of property, plant and equipment		48			105			241			48
Acquisitions, net of cash acquired		-			(1,913	)
Repayment of loan by equity-accounted investment		-			3
Proceeds from sale of business (Note 14)								1,895			-
Other investing activities, net		(1	)		-			-			(1	)
Proceeds from maturity of investments related to insurance business		-			545
Net change in settlement assets		51,773			60,779			(43,054	)		51,773
Net cash provided by investing activities		46,204			53,066
Net cash (used in) provided by investing activities								(50,296	)		46,204

Cash flows from financing activities
Acquisition of treasury stock (Note 10)								(9,151	)		-
Sale of equity to non-controlling interest (Note 10)								1,407			-
Long-term borrowings utilized								1,097			-
Proceeds from issue of common stock		-			240			989			-
Net change in settlement obligations		(51,773	)		(60,779	)		43,054			(51,773	)
Net cash used in financing activities		(51,773	)		(60,539	)
Net cash provided by (used in) financing activities								37,396			(51,773	)

Effect of exchange rate changes on cash		1,250			165			(4,099	)		1,250
Net (decrease) increase in cash and cash equivalents		(5,995	)		18,421
Net increase (decrease) in cash and cash equivalents								22,513			(5,995	)
Cash and cash equivalents – beginning of period		53,665			39,123			58,672			53,665
Cash and cash equivalents – end of period	$	47,670		$	57,544		$	81,185		$	47,670

See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, ~~2013~~2014 and ~~2012~~2013
(All amounts in tables stated in thousands or thousands of United States Dollars, unless otherwise stated)

1. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with US generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2013.~~2014. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

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

Recent accounting pronouncements adopted

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

~~Recent accounting pronouncements not yet adopted as of September 30, 2013~~

In March 2013, the FASB issued guidance regardingParent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity. This guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The guidance is effective for the Company beginning July 1, ~~2014.~~2014, and is applied prospectively. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Recent accounting pronouncements not yet adopted as of September 30, 2014

In May 2014, the FASB issued guidance regardingRevenue from Contracts with Customers. This guidance requires an entity to recognize revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for the Company beginning July 1, 2017. Early adoption is not permitted. The Company expects that this guidance will have a material impact on its financial statements and is currently evaluating the impact of this guidance on its financial statements on adoption.

In August 2014, the FASB issued guidance regardingDisclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This guidance requires an entity to perform interim and annual assessments of its ability to continue as a going concern within one year of the date that its financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The guidance is effective for the Company for beginning July 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

2. Pre-funded social welfare grants receivable

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

3. Inventory

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

September 30, June 30,
2013 2013
Finished goods $ 11,063 $ 12,222
$ 11,063 $ 12,222

		September 30,		June 30,
		2014		2014
Finished goods	$	12,200	$	10,785
	$	12,200	$	10,785

4. Settlement assets and settlement obligations

Settlement assets comprise (1) cash received from the South African government that the Company holds pending disbursement to ~~beneficiaries~~recipient cardholders of social welfare grants ~~(2) cash received from health care plans which the Company disburses to health care service providers once it adjudicates claims~~ and ~~(3)~~(2) cash received from customers on whose behalf the Company processes payroll payments that the Company will disburse to customer employees, payroll-related payees and other payees designated by the customer.

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

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

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

Fair value of financial instruments

Initial recognition and measurement

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

Risk ~~management~~management

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

Currency exchange risk

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

~~The Company’s outstanding foreign exchange contracts are as follows: As of September 30, 2013 None.~~

~~As of June 30, 2013~~

Fair market
Notional amount Strike price value price Maturity
USD 4,000,000 ZAR 9.06 ZAR 10.1397 September 30, 2013

Translation risk

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

Interest rate risk

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

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

Fair value of financial instruments (continued)

Risk management (continued)

Credit risk

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard to its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate.

With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of BBB or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

UEPS-based microlending credit risk

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

Equity price and liquidity risk

Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds and the risk that it may not be able to liquidate these securities. The market price of these securities may fluctuate for a variety of reasons, consequently, the amount the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

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

Financial instruments

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

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

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

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

5. Fair value of financial instruments (continued)
Financial instruments (continued)
Asset measured at fair value using significant unobservable inputs – investment in Finbond Group Limited (“Finbond”) (continued)
     The fair value of these securities as of September 30, ~~2013,~~2014, represented approximately 1% of the Company’s total assets, including these securities. The Company expects to hold these securities for an extended period of time and it is not concerned with short-term equity price volatility with respect to these securities provided that the underlying business, economic and management characteristics of the company remain sound.
9Derivative transactions - Foreign exchange contracts
     As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. Substantially all of the Company’s derivative exposures are with counterparties that have long-term credit ratings of BBB or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (level 2). The Company has no derivatives that require fair value measurement under level 1 or 3 of the fair value hierarchy.
     The Company’s outstanding foreign exchange contracts are as follows:
     As of September 30, 2014
Fair market
Notional amount Strike price value price Maturity
EUR 181,570.50 ZAR 15.5739 ZAR 14.3053 October 20, 2014
EUR 181,570.50 ZAR 15.4316 ZAR 14.3053 October 20, 2014
EUR 180,022.50 ZAR 15.6552 ZAR 14.3818 November 20, 2014
EUR 180,022.50 ZAR 15.5136 ZAR 14.3818 November 20, 2014
EUR 180,022.50 ZAR 15.5970 ZAR 14.4701 December 22, 2014
EUR 180,022.50 ZAR 15.7391 ZAR 14.4701 December 22, 2014
EUR 174,424.50 ZAR 15.8119 ZAR 14.5511 January 20, 2015
EUR 174,424.50 ZAR 15.6729 ZAR 14.5511 January 20, 2015
     As of June 30, 2014
Fair market
Notional amount Strike price value price Maturity
EUR 182,272.50 ZAR 15.2077 ZAR 14.5803 July 21, 2014
EUR 182,272.50 ZAR 15.3488 ZAR 14.5803 July 21, 2014
EUR 180,022.50 ZAR 15.4228 ZAR 14.6542 August 20, 2014
EUR 180,022.50 ZAR 15.2819 ZAR 14.6542 August 20, 2014
EUR 180,022.50 ZAR 15.3623 ZAR 14.7367 September 22, 2014
EUR 180,022.50 ZAR 15.5041 ZAR 14.7367 September 22, 2014
EUR 181,570.50 ZAR 15.5739 ZAR 14.8119 October 20, 2014
EUR 181,570.50 ZAR 15.4316 ZAR 14.8119 October 20, 2014
EUR 180,022.50 ZAR 15.6552 ZAR 14.8982 November 20, 2014
EUR 180,022.50 ZAR 15.5136 ZAR 14.8982 November 20, 2014
EUR 180,022.50 ZAR 15.5970 ZAR 14.9874 December 22, 2014
EUR 180,022.50 ZAR 15.7391 ZAR 14.9874 December 22, 2014
EUR 174,424.50 ZAR 15.8119 ZAR 15.0671 January 20, 2015
EUR 174,424.50 ZAR 15.6729 ZAR 15.0671 January 20, 2015
10
5. Fair value of financial instruments ~~and equity-accounted investments~~ (continued)
     The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2013,~~2014, according to the fair value hierarchy:
Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
Related to insurance business (included in other long-term assets):
Cash and cash equivalents $ 1,816 $ - $ - $ 1,816
Investment in Finbond (available for sale assets included in other long-term assets) - - 8,019 8,019
Other - 155 - 155
Total assets at fair value $ 1,816 $ 155 $ 8,019 $ 9,990
Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
   Related to insurance business (included in
   other long-term assets):
Cash and cash equivalents $ 1,716 $ - $ - $ 1,716
   Investment in Finbond (available for sale assets
   included in other long-term assets) - - 7,584 7,584
Other - 45 - 45
Total assets at fair value $ 1,716 $ 45 $ 7,584 $ 9,345
Liabilities
Foreign exchange contracts $ - $ 152 $ - $ 152
Total liabilities at fair value $ - $ 152 $ - $ 152
     The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, ~~2013,~~2014, according to the fair value hierarchy:
Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
   Related to insurance business (included in other
   long-term assets):
Cash and cash equivalents $ 1,833 $ - $ - $ 1,833
   Investment in Finbond (available for sale assets
   included in other long-term assets) - - 8,303 8,303
Other - 147 - 147
Total assets at fair value $ 1,833 $ 147 $ 8,303 $ 10,283

Liabilities
Foreign exchange contracts $ - $ 436 $ - $ 436
Total liabilities at fair value $ - $ 436 $ - $ 436
Quoted
Price in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3) Total
Assets
   Related to insurance business (included in
   other long-term assets):
Cash and cash equivalents $ 1,800 $ - $ - $ 1,800
   Investment in Finbond (available for sale assets
   included in other long-term assets) - - 8,068 8,068
Other - 47 - 47
Total assets at fair value $ 1,800 $ 47 $ 8,068 $ 9,915
Liabilities
Foreign exchange contracts $ - $ 164 $ - $ 164
Total liabilities at fair value $ - $ 164 $ - $ 164
     Changes in the Company’s investment in Finbond (Level 3 that are measured at fair value on a recurring basis) were insignificant during the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively. There have been no transfers in or out of Level 3 during the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively.
          Assets and liabilities measured at fair value on a nonrecurring basis
     The Company measures its assets at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The Company has no liabilities that are measured at fair value on a nonrecurring basis. The Company reviews the carrying values of its assets when events and circumstances warrant and considers all available evidence in evaluating when declines in fair value are other-than-temporary. The fair values of the Company’s assets are determined using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the assets exceeds its fair value and the excess is determined to be other-than-temporary. The Company has not recorded any impairment charges during the reporting periods presented herein.
1011
6.Goodwill and intangible assets, net
Goodwill
     Summarized below is the movement in the carrying value of goodwill for the three months ended September 30, ~~2013:~~2014:
Accumulated Carrying
Gross value impairment value
Balance as of June 30, 2013 $ 218,558 $ (42,752) $ 175,806
Foreign currency adjustment ⁽¹⁾ 5,067 77 5,144
Balance as of September 30, 2013 $ 223,625 $ (42,675) $ 180,950
Accumulated Carrying
Gross value impairment value
Balance as of June 30, 2014 $ 186,576 $ - $ 186,576
Foreign currency adjustment⁽¹⁾ (7,573 ) - (7,573 )
Balance as of September 30, 2014 $ 179,003 $ 0 $ 179,003
     (1) – the foreign currency adjustment represents the effects of the fluctuations between the South African rand and the Korean won, and the US dollar on the carrying value.
     Goodwill has been allocated to the Company’s reportable segments as follows:
As of As of
September 30, June 30,
2013 2013
SA transaction-based activities $ 29,861 $ 30,525
International transaction-based activities 120,334 113,972
Smart card accounts - -
Financial services - -
Hardware, software and related technology sales 30,755 31,309
Total $ 180,950 $ 175,806
As of As of
September 30, June 30,
2014 2014

South African transaction processing $ 26,808 $ 28,517
International transaction processing 123,993 128,427
Financial inclusion and applied technologies 28,202 29,632
Total $ 179,003 $ 186,576
     Intangible assets, net
          Carrying value and amortization of intangible assets
  ��  Summarized below is the carrying value and accumulated amortization of the intangible assets as of September 30, ~~2013~~2014 and June 30, ~~2013:~~2014:
As of September 30, 2013 As of June 30, 2013
Gross Net Gross Net
carrying Accumulated carrying   carrying Accumulated carrying
value amortization value value amortization value
Finite-lived intangible assets:
Customer relationships $ 94,206 ($32,986 ) $ 61,220 $ 90,469 $ (29,818 ) $ 60,651
Software and unpatented
technology 36,052 (24,129 ) 11,923 34,951 (22,151 ) 12,800
FTS patent 3,789 (3,789 ) - 3,873 (3,873 ) -
Exclusive licenses 4,506 (4,506 ) - 4,506 (4,506 ) -
Trademarks 6,755 (2,983 ) 3,772 6,611 (2,805 ) 3,806
Customer database 601 (601 ) - 614 (614 ) -
     Total finite-lived intangible
           assets $ 145,909 ($68,994 ) $ 76,915 $ 141,024 $ (63,767 ) $ 77,257
As of September 30, 2014 As of June 30, 2014
Gross Net Gross Net
carrying Accumulated carrying carrying Accumulated carrying
value amortization value value amortization value
Finite-lived intangible assets:
Customer relationships $ 94,844 $ (41,881 ) $ 52,963 $ 98,676 $ (41,273 ) $ 57,403
Software and unpatented
technology 32,271 (26,478 ) 5,793 33,604 (26,207 ) 7,397
FTS patent 3,402 (3,402 ) - 3,619 (3,619 ) -
Exclusive licenses 4,506 (4,506 ) - 4,506 (4,506 ) -
Trademarks 6,583 (3,191 ) 3,392 6,890 (3,176 ) 3,714
     Total finite-lived intangible assets $ 141,606 $ (79,458 ) $ 62,148 $ 147,295 $ (78,781 ) $ 68,514
     Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30, 2014 and 2013, was approximately $3.9 million and $3.7 million, ~~(three months ended September 30, 2012, was approximately $4.7 million).~~respectively.
     Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates prevailing on September 30, ~~2013,~~2014, is presented in the table below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.
2014 $ 15,637
2015 15,583 $ 15,239
2016 11,228 11,394
2017 8,896 9,080
2018 8,896 9,080
2019 8,745
Thereafter $ 20,575 $ 12,146
1112
7. Reinsurance assets and policy holder liabilities under insurance and investment contracts
     Reinsurance assets and policy holder liabilities under insurance contracts
     Summarized below is the movement in reinsurance assets and policy holder liabilities under insurance contracts during the three ~~month~~months ended September 30, ~~2013:~~2014:
Reinsurance Insurance
assets (1) contracts (2)
Balance as of June 30, 2013 $ 19,557 $ (19,711 )
Foreign currency adjustment⁽³⁾ (425 ) 428
Balance as of September 30, 2013 $ 19,132 $ (19,283 )
Reinsurance Insurance
assets (1) contracts (2)
Balance as of June 30, 2014 $ 21,062 $ (21,478 )
Foreign currency adjustment⁽³⁾ (1,263 ) 1,288
Balance as of September 30, 2014 $ 19,799 $ (20,190 )
     (1) Included in other long-term assets.
~~(1)~~
~~Included in other long-term assets.~~     (2) Included in other long-term liabilities.
     (3) The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.
~~(2)~~
~~Included in other long-term liabilities.~~
~~(3)~~
~~The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.~~
     The Company has agreements with reinsurance companies in order to limit its losses from large insurance contracts, however, if the reinsurer is unable to meet its obligations, the Company retains the liability.
     The value of insurance contract liabilities is based on best estimates assumptions of future experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa. The process of deriving the best estimates assumptions plus prescribed margins includes assumptions related to future mortality and morbidity (an appropriate base table of standard mortality is chosen depending on the type of contract and class of business), withdrawals (based on recent withdrawal investigations and expected future trends), investment returns (based on government treasury rates adjusted by an applicable margin), expense inflation (based on a ~~10 year~~10-year real return on CPI-linked government bonds from the risk-free rate and adding an allowance for salary inflation and book shrinkage of 1% per annum) and claim reporting delays (based on average industry experience).
     Assets and policy holder liabilities under investment contracts
     Summarized below is the movement in assets and policy holder liabilities under investment contracts during the three months ended September 30, ~~2013:~~2014:
Investment
Assets (1) contracts (2)
Balance as of June 30, 2013 $ 953 $ (953 )
Foreign currency adjustment⁽³⁾ (21 ) 21
Balance as of September 30, 2013 $ 932 $ (932 )
Investment
Assets (1) contracts (2)
Balance as of June 30, 2014 $ 688 $ (688 )
Foreign currency adjustment⁽³⁾ (41 ) 41
Balance as of September 30, 2014 $ 647 $ (647 )

~~(1)~~
~~Included in other long-term assets.~~
~~(2)~~
~~Included in other long-term liabilities.~~
~~(3)~~
~~The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.~~
     (1) Included in other long-term assets.
     (2) Included in other long-term liabilities.
     (3) The foreign currency adjustment represents the effects of the fluctuations between the ZAR against the US dollar.
The Company does not offer any investment products with guarantees related to capital or returns.
8. Short-term credit facility
     The Company’s short-term credit facilities are described in Note 12 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2014.
South Africa
     As of September 30, 2014, and June 30, 2014, the Company ~~has a~~had not utilized any of its ZAR ~~250~~250.0 million ($~~24.7~~22.2 million, translated at exchange rates applicable as of September 30, ~~2013) short-term South African credit facility from Nedbank Limited (“Nedbank”). As of September 30, 2013, the~~2014) overdraft ~~rate on this facility was 7.35% . The Company has ceded its investment in Cash Paymaster Services (Proprietary) Limited, a wholly owned South African subsidiary, as security for the~~ facility. As of September 30, ~~2013,~~2014, the interest rate on the overdraft facility was 8.10% . At September 30, 2014, the Company had utilized approximately ZAR ~~130~~137.2 million ($12.2 million, translated at exchange rates applicable as of ~~this facility~~September 30, 2014) of its indirect and derivative facilities to obtain foreign exchange contracts from the bank and to enable the bank ~~providing the short-term credit facility~~ to issue guarantees, including stand-by letters of credit, in order for the Company to honor its obligations to third parties requiring such guarantees ~~(Refer~~(refer to Note ~~16)~~17). As of June 30, ~~2013,~~2014, the Company had utilized ~~none~~approximately ZAR 139.0 million ($13.1 million, translated at exchange rates applicable as of ~~this facility.~~June 30, 2014) of its indirect and derivative facilities.
13
8. Short-term credit facility (continued)
     Korea
     The Company ~~believes that this facility is sufficient in order to meet~~had not utilized any of its ~~future obligations as they arise.~~
12
9.~~Long-term borrowings~~
~~2010 Senior Facilities Agreement~~
          ~~The Company’s~~ KRW ~~92.4~~10 billion ($~~85.4~~9.5 million, translated at exchange rates applicable as of September 30, ~~2013)~~2014) overdraft facility as of September 30, 2014 and June 30, 2014. As of September 30, 2014, the interest rate on the overdraft facility was 4.71% . The facility expires in January 2015.
9. Long-term borrowings
     The Company’s Korean senior secured loan facility is described in Note 13 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, ~~2013.~~2014. The current carrying value as of September 30, ~~2013,~~2014, is ~~$85.4~~$75.6 million. As of September 30, ~~2013,~~2014, the carrying amount of the long-term borrowings approximated fair value. The interest rate in effect on September 30, ~~2013,~~2014, was ~~6.76%~~5.75% .
     Interest expense incurred during the three months ended September 30, 2014 and 2013, was $1.1 million and ~~2012, was~~ $1.4 million, respectively. During each of the three months ended September 30, 2014 and ~~$1.9 million, respectively.~~2013, respectively, the Company amortized prepaid facility fees of approximately $0.1 million.
     The ~~fifth and sixth~~first scheduled principal ~~repayments are $7.5~~repayment of $14.3 million, ~~each,~~ translated at exchange rates applicable as of September 30, ~~2013,~~2014, was paid on October 29, 2014, and ~~have~~has been classified as current in the Company’s unaudited condensed consolidated balance sheet. The Company repaid the full amount outstanding of KRW 92.4 billion on October 29, 2013, using a combination of cash on hand and loan proceeds from the new facility described below. The Company has expensed the remaining prepaid facility fees of approximately $0.4 million during the three months ended December 31, 2013. The third scheduled repayment of $7.3 million was paid on October 29, 2012.
~~2013 Senior Facilities Agreement~~
          On October 28, 2013, the Company signed a new five-year senior secured facilities agreement (the “New Facilities Agreement”) provided by a consortium of Korean banks. The New Facilities Agreement provides for three separate facilities to the Company’s wholly owned subsidiary, Net1 Applied Technologies Korea (“Net1 Korea”): a Facility A loan of up to KRW 60.0 billion ($55.5 million), a Facility B loan of up to KRW 15 billion ($13.9 million) and a Facility C revolving credit facility of up to KRW 10.0 billion ($9.2 million) (all facilities denominated in KRW and translated at exchange rates applicable as of September 30, 2013).
          The Facility A and B loans were fully drawn on October 29, 2013, and used to repay KRW 75.0 billion of the KRW 92.4 billion loan outstanding under the 2010 senior facilities agreement. The remaining outstanding balance under the 2010 facility of KRW 17.4 billion was paid from cash on hand on October 29, 2013. In addition, the Company drew KRW 1.1 billion of the revolving credit facility on October 29, 2013, to pay fees and expenses related to the New Facilities Agreement.
          Interest on the loans and revolving credit facility is payable quarterly and is based on the Korean CD rate in effect from time to time plus a margin of 3.10% for the Facility A loan and Facility C revolving credit facility; and a margin of 2.90% for the Facility B loan. The CD rate was 2.66% on September 30, 2013. The Company paid facilities fees of approximately KRW 0.9 billion. A commitment fee of 0.3% is payable on any un-drawn and un-cancelled amount of the revolving credit facility.
          The Facility A loan is repayable in three scheduled annual installments of KRW 10 billion each beginning 30 months after initial drawdown and one final installment of KRW 30 billion on the maturity date, namely October 29, 2018. The Facility B loan is repayable in full on October 29, 2014. The Facility C revolving credit facility is repayable in full on the maturity date. Prepayment of the revolving credit facility may be withdrawn at any time up to three months before the maturity date.
          The loans under the New Facilities Agreement are secured by a pledge by Net1 Korea of its entire equity interest in KSNET and a pledge by the immediate parent of Net1 Korea (also one of the Company’s subsidiaries) of its entire equity interest in Net1 Korea. The Facilities Agreement contains customary covenants that require Net1 Korea to maintain agreed leverage and debt service coverage ratios and restricts Net1 Korea’s ability to make certain distributions with respect to its capital stock, prepay other debt, encumber its assets, incur additional indebtedness, or engage in certain business combinations. The loans under the Facilities Agreement are without recourse to, and the covenants and other agreements contained therein do not apply to, the Company or any of the Company’s subsidiaries (other than Net1 Korea).
10. Capital structure
~~Common stock repurchases~~
          ~~The Company did not repurchase any of its shares during the three months ended September 30, 2013 and 2012, respectively.~~
13
~~10.    Capital structure (continued)~~
     The following table presents reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively:
2013 2012 2014 2013

Number of shares, net of treasury:
Statement of changes in equity 45,780,513 45,600,471 46,475,623 45,780,513
Less: Non-vested equity shares that have not vested (576,282 ) (644,750 )
Less: Non-vested equity shares that have not vested (Note 12) (453,333 ) (576,282 )
Number of shares, net of treasury excluding non-vested
equity shares that have not vested 45,204,231 44,955,721 46,022,290 45,204,231
Common stock repurchases and transaction with noncontrolling interests
     The Company did not repurchase any of its shares during the three months ended September 30, 2014 and 2013, under its share repurchase authorization. However, on August 27, 2014, the Company entered into a Subscription and Sale of Shares Agreement with Business Venture Investments No 1567 Proprietary Limited (RF) (“BVI”), one of the Company’s BEE partners, in preparation for any new potential SASSA tender. Pursuant to the agreement: (i) the Company repurchased BVI’s remaining 1,837,432 shares of the Company’s common stock for approximately ZAR 97.4 million in cash ($9.2 million translated at exchange rates prevailing as of August 27, 2014) and (ii) BVI has subscribed for new ordinary shares of Cash Paymaster Services (Pty) Ltd (“CPS”) representing approximately 12.5% of CPS’ ordinary shares outstanding after the subscription for ZAR 15.0 million in cash (approximately $1.4 million translated at exchange rates prevailing as of August 27, 2014). In connection with transactions described above, the CPS shareholder agreement that was negotiated as part of the original December 2013 Relationship Agreement became effective.
14
11. Accumulated other comprehensive loss
     The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30, 2014:
Three months ended
September 30, 2014
Accumulated
Net
unrealized
Accumulated income (loss)
Foreign on asset
currency available for
translation sale, net of
reserve tax Total
‘000 ‘000 ‘000
Balance as of June 30, 2014 $ (83,359 ) $ $618 $ (82,741 )
Movement in foreign currency translation reserve (21,159 ) - (21,159 )
     Unrealized loss on asset available for sale, net of tax of $88 - (226 ) (226 )
Balance as of September 30, 2014 $ (104,518 ) $ 392 $ (104,126 )
     There were no reclassifications from accumulated other comprehensive loss to comprehensive (loss) income during the three months ended September 30, 2014 or 2013, respectively.
12. Stock-based compensation
     Stock option and restricted stock activity
          Options
     The following table summarizes stock option activity for the three months ended September 30, ~~2013~~2014 and ~~2012:~~2013:
Weighted Weighted
Weighted Average Average
average Remaining Aggregate Grant
exercise Contractual Intrinsic Date Fair
Number of price Term Value Value
shares ($) (in years) ($’000) ($)

Outstanding – June 30, 2013 2,648,583 15.15 5.98 313
Granted under Plan: August 2013 224,896 7.35 10.00 568 2.53
     Outstanding – September 30, 2013 2,873,479 14.54 6.06 4,841

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

Outstanding – June 30, 2014 2,710,392 14.16 5.38 3,909
Granted under Plan: August 2014 464,410 11.23 10.00 2,113 4.55
Exercised (688,633 ) 8.24 3,697
     Outstanding – September 30, 2014 2,486,169 15.24 5.45 1,820

Outstanding – June 30, 2013 2,648,583 15.15 5.98 313
Granted under Plan: August 2013 224,896 7.35 10.00 568 2.53
     Outstanding – September 30, 2013 2,873,479 14.54 6.06 4,841
     The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 250 day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms. The Company has estimated no forfeitures for options awarded in August 2013 and ~~2012,~~2014, respectively.
15
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Options (continued)
     The table below presents the range of assumptions used to value options granted during the three months ended September 30, ~~2013~~2014 and ~~2012:~~2013:
Three months ended
September 30,
2013 2012 2014 2013
Expected volatility 50% 49% 60% 50%
Expected dividends 0% 0% 0% 0%
Expected life (in years) 3 3 3 3
Risk-free rate 0.9% 0.3% 1.0% 0.9%
14
~~11.    Stock-based compensation (continued)~~
~~Stock option~~     There were no forfeitures during the three months ended September 30, 2014 and ~~restricted stock activity (continued)~~
~~Options (continued)~~2013.
     The following table presents stock options ~~vesting~~vested and expecting to vest as of September 30, ~~2013:~~2014:
Weighted
Weighted Average
average Remaining Aggregate
exercise Contractual Intrinsic
Number of price Term Value
shares ($) (in years) ($’000)
Vested and expecting to vest – September 30, 2013 2,873,479 14.54 6.06 4,841
Weighted
Weighted Average
average Remaining Aggregate
exercise Contractual Intrinsic
Number of price Term Value
shares ($) (in years) ($’000)
Vested and expecting to vest – September 30, 2014 2,486,169 15.24 5.45 1,820
     These options have an exercise price range of ~~$6.59~~$7.35 to $24.46.
Weighted
Average
Weighted Remaining Aggregate
average Contractual Intrinsic
Number of exercise Term Value
shares price ($) (in years) (’000)
Exercisable 1,985,250 $ 17.07 5.05 $ 1,963
     The following table presents stock options that are exercisable as of September 30, 2014:
Weighted
Average
Weighted Remaining Aggregate
average Contractual Intrinsic
Number of exercise Term Value
shares price ($) (in years) ($’000)
Exercisable – September 30, 2014 1,670,829 17.88 3.64 573
     During the three months ended September 30, 2014 and 2013, respectively, 273,633 and ~~2012, respectively,~~ 198,667 ~~and 85,000~~ stock options became exercisable. Included in the 85,000 stock options are 30,000 stock options with respect to which the Remuneration Committee of the Board agreed to accelerate vesting, in August 2012, prior to the resignation of a non-employee director. During the three months ended September 30, ~~2012,~~2014, the Company received approximately ~~$0.2~~$1.0 million from ~~the 30,000~~116,395 stock options exercised. The remaining 572,238 stock options were exercised bythrough recipients delivering 336,584 shares of the ~~non-employee director that resigned.~~Company’s common stock to the Company on September 9, 2014, to settle the exercise price due. No stock options were exercised during the three months ended September 30, 2013. The Company issues new shares to satisfy stock option exercises.
16
12. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
          Restricted stock
     The following table summarizes restricted stock activity for the three months ended September 30, ~~2013~~2014 and ~~2012:~~2013:
Weighted Weighted
Number of Average Number of Average
Shares of Grant Date Shares of Grant Date
Restricted Fair Value Restricted Fair Value
Stock ($’000) Stock ($’000)
Non-vested – June 30, 2014 385,778 3,534
Granted – August 2014 141,707 581
Vested – August 2014 (74,152 ) 828
Non-vested – September 30, 2014 453,333 3,568

Non-vested – June 30, 2013 405,226 $ 4,393 405,226 4,393
Granted – August 2013 187,963 1,382 187,963 1,382
Vested – August 2013 (16,907 ) 161 (16,907 ) 161
Non-vested – September 30, 2013 576,282 5,630 576,282 5,630

Non-vested – June 30, 2012 646,617 7,061
Granted – August 2012 21,569 189
Vested – August 2012 (23,436 ) 216
Non-vested – September 30, 2012 644,750 $ 7,021
     Included in the 141,707 shares of restricted stock granted are 127,626 shares of restricted stock granted to employees on August 27, 2014, that will vest in full only on the date, if any, the following conditions are satisfied: (1) the closing price of the Company’s common stock equals or exceeds $19.41 (subject to appropriate adjustment for any stock split or stock dividend) for a period of 30 consecutive trading days during a measurement period commencing on the date that the Company files its Annual Report on Form 10-K for the fiscal year ended 2017 and ending on December 31, 2017 and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The $19.41 price target represents a 20% increase, compounded annually, in the price of the Company’s common stock on Nasdaq over the $11.23 closing price on August 27, 2014.
     These 127,626 shares of restricted stock are effectively forward starting knock-in barrier options with a strike price of zero. The fair value of these shares of restricted stock was calculated utilizing an adjusted Monte Carlo simulation discounted cash flow model which was developed for the purpose of the valuation of these shares. For each simulated share price path, the market share price condition was evaluated to determine whether or not the shares would vest under that simulation. The “adjustment” to the Monte Carlo simulation model incorporates a “jump diffusion” process to the standard Geometric Brownian Motion simulation, in order to capture the discontinuous share price jumps observed in the Company’s share price movements on stock exchanges on which it is listed. Therefore, the simulated share price paths capture the idiosyncrasies of the observed Company share price movements.
     In scenarios where the shares do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share price on vesting date. The value of the grant is the average of the discounted vested values. The Company used an expected volatility of 76.01%, an expected life of approximately three years, a risk-free rate of 1.27% and no future dividends in its calculation of the fair value of the restricted stock. The estimated expected volatility was calculated based on the Company’s 30 day VWAP share price using the exponentially weighted moving average of returns.
     The fair value of restricted stock vesting during the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively, was ~~$0.2~~$0.8 million and $0.2 million. Included in the 23,436 shares of restricted stock that vested in August 2012 are 8,547 shares with respect to which the Remuneration Committee of the Board agreed to accelerate vesting prior to the resignation of a non-employee director.
The fair value of restricted stock is based on the closing price of the Company’s stock quoted on The Nasdaq Global Select Market on the date of grant.
1517
~~11.~~12. Stock-based compensation (continued)
     Stock-based compensation charge and unrecognized compensation cost
     The Company has recorded a ~~stock~~stock-based compensation charge of $0.9 million ~~and $1.1 million for~~during each of the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, respectively, which comprised:
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Three months ended September 30, 2013
Stock-based compensation charge $ 930 $ - $ 930
Total – three months ended September 30, 2013 . $ 930 $ - $ 930

Three months ended September 30, 2012
Stock-based compensation charge $ 1,116 $ - $ 1,116
Total – three months ended September 30, 2012 . $ 1,116 $ - $ 1,116
Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Three months ended September 30, 2014
Stock-based compensation charge $ 916 $ - $ 916
Total – three months ended September 30, 2014 $ 916 $ - $ 916

Three months ended September 30, 2013
Stock-based compensation charge $ 930 $ - $ 930
Total – three months ended September 30, 2013 $ 930 $ - $ 930
     The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the employees.
     As of September 30, ~~2013,~~2014, the total unrecognized compensation cost related to stock options was approximately ~~$1.6~~$2.8 million, which the Company expects to recognize over approximately three years. As of September 30, ~~2013,~~2014, the total unrecognized compensation cost related to restricted stock awards was approximately ~~$4.3~~$2.2 million, which the Company expects to recognize over approximately ~~three~~two years.
     As of each of September 30, ~~2013~~2014 and June 30, ~~2013,~~2014, respectively, the Company has recorded a deferred tax asset of approximately ~~$1.4~~$1.2 million related to the stock-based compensation charge recognized related to employees and directors of Net1 as it is able to deduct the grant date fair value for taxation purposes in the United States.
~~12.~~13. Earnings per share
     Basic earnings per share include shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Basic earnings per share have been calculated using the two-class method and basic earnings per share for the three months ended September 30, ~~2013~~2014 and ~~2012,~~2013, reflects only undistributed earnings. The computation below of basic earnings per share excludes the net income attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.
     Diluted earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the calculation of diluted earnings per share utilizing the treasury stock method and are not considered to be participating securities as the stock options do not contain non-forfeitable dividend rights. The calculation of diluted earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in February 2012, August 2013 and August ~~2013~~2014 as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied. The vesting conditions are discussed in Note 1718 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, ~~2013.~~2014.
1618
~~12.~~13. Earnings per share (continued)
     The following table presents net income attributable to Net1 (income from continuing operations) and the share data used in the basic and diluted earnings per share computations using the two-class method:
Three months ended
September 30,
2013 2012
(in thousands except percent
and
per share data)
Numerator:
Net income attributable to Net1 $ 11,596 $ 6,744
Undistributed earnings 11,596 6,744
Percent allocated to common shareholders (Calculation 1) 99% 99%
Numerator for earnings per share: basic and diluted $ 11,495 $ 6,659

Denominator:
Denominator for basic earnings per share: weighted-average common
shares outstanding 45,216 44,968
Effect of dilutive securities:
Performance shares related to acquisition - -
Stock options 71 48
                    Denominator for diluted earnings per share: adjusted weighted average common
                    shares outstanding and assumed conversion 45,287 45,016

Earnings per share:
Basic $ 0.25 $ 0.15
Diluted $ 0.25 $ 0.15

(Calculation 1)
Basic weighted-average common shares outstanding (A) 45,216 44,968
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest (B) 45,613 45,544
Percent allocated to common shareholders (A) / (B) 99% 99%
Three months ended
September 30,
2014 2013
(in thousands except percent
and
per share data)
Numerator:
Net income attributable to Net1 $ 24,089 $ 11,596
Undistributed earnings 24,089 11,596
Percent allocated to common shareholders (Calculation 1) 99% 99%
Numerator for earnings per share: basic and diluted $ 23,847 $ 11,495

Denominator:
     Denominator for basic earnings per share: weighted-average common
     shares outstanding 46,751 45,216
Effect of dilutive securities:
Stock options 109 71
                     Denominator for diluted earnings per share: adjusted weighted
                     average common shares outstanding and assumed conversion 46,860 45,287

Earnings per share:
Basic $ 0.51 $ 0.25
Diluted $ 0.51 $ 0.25

(Calculation 1)
Basic weighted-average common shares outstanding (A) 46,751 45,216
     Basic weighted-average common shares outstanding and unvested
     restricted shares expected to vest (B) 47,226 45,613
Percent allocated to common shareholders (A) / (B) 99% 99%
     Options to purchase ~~2,493,759~~1,858,853 shares of the Company’s common stock at prices ranging from ~~$7.35~~$11.23 to $24.46 per share were outstanding during the three months ended September 30, ~~2013,~~2014, but were not included in the computation of diluted earnings per share because the options’ exercise price were greater than the average market price of the Company’s common ~~shares.~~stock. The options, which expire at various dates through August ~~21, 2023,~~27, 2024, were still outstanding as of September 30, ~~2013.~~2014.
~~13.~~14. Supplemental cash flow information
     The following table presents ~~the~~ supplemental cash flow disclosures for the three months ended September 30, ~~2013~~2014 and ~~2012:~~2013:
Three months ended Three months ended
September 30, September 30,
2013 2012 2014 2013
Cash received from interest $ 3,241 $ 3,125 $ 4,163 $ 3,241
Cash paid for interest $ 1,639 $ 2,000 $ 1,218 $ 1,639
Cash paid for income taxes $ 498 $ 342 $ 5,160 $ 498
~~14.~~     The sale of the Company’s NUETS business is described in Note 19 to its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2014. The Company received cash sale proceeds of $1.9 million related to this transaction in July 2014.
     As discussed in Note 12, during the three months ended September 30, 2014, employees exercised stock options through the delivery 336,584 shares of the Company’s common stock at the closing price on September 9, 2014 or $13.93 under the terms of their option agreements. These shares are included in the Company’s total share count and amount reflected as treasury shares on the unaudited condensed consolidated balance sheet as of September 30, 2014 and unaudited condensed consolidated statement of changes in equity for the three months ended September 30, 2014.
19
15. Operating segments
     The Company discloses segment information as reflected in the management information systems reports that its chief operating decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets or reports material revenues. A description of the Company’s operating segments is contained in Note 2223 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, ~~2013.~~2014.
17
~~14.    Operating~~     The reconciliation of the reportable segments ~~(continued)~~revenue to revenue from external customers for the three months ended September 30, 2014 and 2013, respectively, is as follows:
Revenue
From
Reportable Inter- external
Segment segment customers
South African transaction processing $ 60,252 $ 5,121 $ 55,131
International transaction processing 43,204 - 43,204
Financial inclusion and applied technologies 65,197 7,091 58,106
Total for the three months ended September 30, 2014 168,653 12,212 156,441

South African transaction processing 57,161 700 56,461
International transaction processing 37,541 - 37,541
Financial inclusion and applied technologies 36,796 7,304 29,492
Total for the three months ended September 30, 2013 $ 131,498 $ 8,004 $ 123,494
     The Company does not allocate interest income, interest expense or income tax expense to its reportable segments. The Company evaluates segment performance based on segment operating income before acquisition-related intangible asset amortization which represents operating income before acquisition-related intangible asset amortization and allocation of expenses allocated to Corporate/Eliminations, all under GAAP. The reconciliation of the reportable segments measure of profit or loss to income before income taxes for the three months ended September 30, 2014 and 2013, respectively, is as follows:
For the three months
ended September 30,
2014 2013
Reportable segments measure of profit or loss $ 38,595 $ 24,820
Operating income: Corporate/Eliminations (5,470 ) (8,420 )
Interest income 4,090 3,319
Interest expense (1,312 ) (1,752 )
Income before income taxes $ 35,903 $ 17,967
     The following tables summarize segment information which is prepared in accordance with ~~GAAP:~~GAAP for the three months ended September 30, 2014 and 2013:
Three months ended
September 30,
2013 2012
Revenues from external customers
SA transaction-based activities $ 63,032 $ 61,364
International transaction-based activities 36,817 31,649
Smart card accounts 11,329 8,364
Financial services 2,427 1,384
Hardware, software and related technology sales 9,889 8,921
Total 123,494 111,682
Inter-company revenues
SA transaction-based activities 2,275 3,983
International transaction-based activities - -
Smart card accounts - 386
Financial services 252 -
Hardware, software and related technology sales 170 208
Total 2,697 4,577
Operating (loss) income
SA transaction-based activities 13,282 6,400
International transaction-based activities 2,051 (171 )
Smart card accounts 3,228 2,385
Financial services 56 1,097
Hardware, software and related technology sales 2,948 1,984
Corporate/Eliminations (5,165 ) (2,370 )
Total 16,400 9,325
Interest income
SA transaction-based activities - -
International transaction-based activities - -
Smart card accounts - -
Financial services - -
Hardware, software and related technology sales - -
Corporate/Eliminations 3,319 3,091
Total 3,319 3,091
Interest expense
SA transaction-based activities 23 143
International transaction-based activities 44 -
Smart card accounts - -
Financial services 51 -
Hardware, software and related technology sales 161 70
Corporate/Eliminations 1,473 1,858
Total 1,752 2,071
Depreciation and amortization
SA transaction-based activities 2,447 3,141
International transaction-based activities 7,406 6,679
Smart card accounts - -
Financial services 117 87
Hardware, software and related technology sales 59 97
Corporate/Eliminations - -
Total 10,029 10,004
Income taxation (benefit) expense
SA transaction-based activities 3,712 1,753
International transaction-based activities 157 (433 )
Smart card accounts 903 668
Financial services 10 312
Hardware, software and related technology sales 693 438
Corporate/Eliminations 1,010 991
Total $ 6,485 $ 3,729
For the three months
ended September 30,
2014 2013
Revenues
South African transaction processing $ 60,252 $ 57,161
International transaction processing 43,204 37,541
Financial inclusion and applied technologies 65,197 36,796
Total 168,653 131,498
Operating income (loss)
South African transaction processing 13,639 6,461
International transaction processing 7,349 5,524
Financial inclusion and applied technologies 17,607 12,835
Subtotal: Operating segments 38,595 24,820
Corporate/Eliminations (5,470 ) (8,420 )
Total $ 33,125 $ 16,400
1820
~~14.~~15. Operating segments (continued)
Three months ended
September 30,
2013 2012
Net (loss) income
SA transaction-based activities $ 9,547 $ 4,504
International transaction-based activities 1,937 343
Smart card accounts 2,324 1,716
Financial services 27 801
Hardware, software and related technology sales 2,095 1,477
Corporate/Eliminations (4,334 ) (2,097 )
Total 11,596 6,744
Expenditures for long-lived assets
SA transaction-based activities 556 3,594
International transaction-based activities 4,831 2,703
Smart card accounts - -
Financial services 200 145
Hardware, software and related technology sales 29 11
Corporate/Eliminations - -
Total $ 5,616 $ 6,453
For the three months
ended September 30,
2014 2013
Depreciation and amortization
South African transaction processing $ 1,722 $ 1,873
International transaction processing 4,372 4,259
Financial inclusion and applied technologies 179 149
Subtotal: Operating segments 6,273 6,281
Corporate/Eliminations 3,901 3,748
Total 10,174 10,029
Expenditures for long-lived assets
South African transaction processing 682 556
International transaction processing 8,327 4,831
Financial inclusion and applied technologies 369 229
Subtotal: Operating segments 9,378 5,616
Corporate/Eliminations - -
Total $ 9,378 $ 5,616
     The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per segment as all of the significant assets are used in the operations of all, rather than any one, of the segments. The Company does not have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation and segment asset allocation is therefore not presented.
     It is impractical to disclose revenues from external customers for each product and service or each group of similar products and services.
~~15.~~16. Income tax
     Income tax in interim periods
     For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax effect of significant unusual or extraordinary items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete event in the interim period in which the enactment date occurs.
     For the three months ended September 30, ~~2013,~~2014, the tax charge was calculated using the expected effective tax rate for the year. The Company’s effective tax rate for ~~each~~the three months ended September 30, 2014, was 32.4% and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including consulting and legal fees, interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges).
     The Company’s effective tax rate for the three months ended September 30, 2013, ~~and 2012, respectively,~~ was ~~36%~~36.1% and was higher than the South African statutory rate as a result of non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges).
     Uncertain tax positions
     There were no changes during the three months ended September 30, ~~2013.~~2014. As of September 30, ~~2013,~~2014, the Company had accrued interest related to uncertain tax positions of approximately $0.2 million on its balance sheet.
     The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.
     As of September 30, 2014 and June 30, 2014, respectively the Company has unrecognized tax benefits of $1.1 million and $1.2 million, all of which would impact the Company’s effective tax rate. The Company files income tax returns mainly in South Africa, South Korea, Austria, Botswana ~~the Russian Federation~~ and in the US federal jurisdiction. As of September 30, ~~2013,~~2014, the ~~Company is~~Company’s South African subsidiaries are no longer subject to ~~any new~~ income tax examination by the South African Revenue Service for ~~years~~periods before June 30, 2009. ~~In 2011, the Korea National Tax Service had completed the examination of the Company’s returns in Korea related to years 2006 through 2010.~~ The Company is subject to income tax in other jurisdictions outside South Africa, ~~and Korea,~~ none of which are individually material to its financial position, statement of cash flows, or results of operations.
1921
~~16.~~17. Commitments and contingencies
     Guarantees
     The South African Revenue Service and certain of the Company’s customers, suppliers and other business partners have asked the Company to provide them with guarantees, including standby letters of credit, issued by a South African bank. The Company is required to procure these guarantees for these third parties to operate its business.
     Nedbank has issued guarantees to these third parties amounting to ZAR ~~131.2~~135.0 million ($~~13.0~~12.0 million, translated at exchange rates applicable as of September 30, ~~2013)~~2014) and thereby utilizing part of the Company’s short-term facility. The Company in turn has provided nonrecourse, unsecured counter-guarantees to Nedbank for ~~the same amount.~~ZAR 125.0 million ($11.1 million, translated at exchange rates applicable as of September 30, 2014). The Company pays commission of between 0.2% per annum to 2.0% per annum of the face value of these guarantees and does not recover any of the commission from third parties.
     The Company has not recognized any obligation related to these counter-guarantees in its ~~unaudited condensed~~ consolidated balance sheet as of September 30, ~~2013.~~2014 and June 30, 2014. The maximum potential amount that the Company could pay under these guarantees is ZAR ~~131.2~~135.0 million ($~~13.0~~12.0 million, translated at exchange rates applicable as of September 30, ~~2013)~~2014). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in ~~note~~Note 8.
     Contingencies
Securities Litigation
     On December 24, 2013, Net1, its chief executive officer and its chief financial officer were named as defendants in a purported class action lawsuit filed in the United States District Court for the Southern District of New York alleging violations of the federal securities laws. The lawsuit was brought on behalf of a purported shareholder of Net1 and all other similarly situated shareholders who purchased Net1’s securities between August 27, 2009 and November 27, 2013. On July 23, 2014, the Court appointed a lead plaintiff and lead counsel. On September 22, 2014, the lead plaintiff filed an amended complaint alleging that Net1 made materially false and misleading statements in that it failed to disclose material adverse information and misrepresented the truth about the Company’s finances and business prospects. The amended complaint seeks unspecified damages on behalf of the lead plaintiff and all other similarly situated shareholders who purchased Net1’s securities between January 18, 2012 and December 4, 2012, which is a shorter class period than proposed in the original complaint. No motion for class certification has been filed. The Company believes this lawsuit has no merit and intends to defend it vigorously.
     The Company is subject to a variety of insignificant claims and suits that arise from time to time in the ordinary course of business.
     Management currently believes that the resolution of these matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations and cash flows.
~~17.~~18. Subsequent events
     ~~2013 Senior Facilities Agreement~~
As ~~described~~ordered by the South African Constitutional Court in ~~Note 9, the Company signed~~its April 2014 ruling, SASSA has initiated a new tender process for a five-year ~~senior secured facilities agreement provided by~~contract relating to the payment of social grants. SASSA issued a ~~consortium of banks~~request for proposals on October ~~28, 2013.~~
~~November 2013 Broad Based Black Economic Empowerment deal~~
          ~~On November 6, 2013,~~22, 2014. Bidders are required to submit proposals by December 12, 2014. The Company cannot predict with certainty what the ~~Company signed a letter of intent to issue 4,400,000 shares of its common stock at a price of ZAR 88.50 per share (calculated as 75%~~timing or ultimate outcome of the ~~closing price of the Company’s common stock on the JSE Limited on November 5, 2013) to Business Venture Investments 1567 (Proprietary) Limited (RF), a special purpose entity, pursuant to~~tender process will be, or if a new ~~Broad Based Black Economic Empowerment transaction. Issue of~~tender award will be made at all after the ~~shares~~process is ~~subject to the conclusion of an agreement which will include certain conditions, including obtaining the relevant regulatory approvals.~~complete.
2022
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, ~~2013,~~2014, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.
Forward-looking statements
     Some of the statements in this Form 10-Q constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. Such factors include, among other things, those listed under Item 1A.—“Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended June 30, ~~2013~~2014, and Item 1A—“Risk Factors” and elsewhere in this Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms and other comparable terminology.
     Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.
     You should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto and which we have filed with the Securities and Exchange Commission completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Recent Developments
     ~~Letter of Intent~~Transactions in preparation for ~~New Broad-Based Black Economic Empowerment, or BEE, Transaction~~new SASSA tender
     On ~~November 6, 2013,~~August 27, 2014, we ~~signed~~entered into a ~~letter~~Subscription and Sale of ~~intent to issue 4,400,000 shares, or BVI~~ Shares which will be contractually restricted as to resale as described below, of our common stock at a price of ZAR 88.50 per share (calculated as 75% of the closing price of our common stock on the JSE Limited on November 5, 2013) toAgreement with Business Venture Investments No 1567 ~~(Proprietary)~~Proprietary Limited (RF), or BVI, ~~a special purpose entity owned by a~~one of our BEE ~~consortium, pursuant~~partners, in preparation for any new potential SASSA tender. Pursuant to athe agreement: (i) we repurchased BVI’s remaining 1,837,432 shares of Net1 common stock for approximately ZAR 97.4 million in cash ($9.2 million translated at exchange rates prevailing as of August 27, 2014) and (ii) BVI has subscribed for new ~~BEE transaction. Issuance~~ordinary shares of Cash Paymaster Services (Pty) Ltd, or CPS, representing approximately 12.5% of CPS’ ordinary shares outstanding after the subscription for ZAR 15.0 million in cash (approximately $1.4 million translated at exchange rates prevailing as of August 27, 2014). In connection with transactions described above, the CPS shareholder agreement that was negotiated as part of the ~~BVI Shares is subject to the conclusion of a~~original December 2013 Relationship Agreement before December 1, 2013, which will include certain conditions, including obtaining the relevant regulatory approvals. Under certain circumstances we may call the BVI Shares then owned, in exchange for a minority interest in our wholly-owned subsidiary Cash Paymaster Service Proprietary Limited.became effective.
          Similar to our January 2012 proposed BEE transaction, the lead partner in the BEE consortium is Mosomo Investment Holdings (Pty) Ltd, a well-known black empowerment investment company headed by former Net1 non-executive director Brian Mosehla, with a proven track record in transformation, and with experience in mining, financial services and mass banking concepts. Other partners in the BEE consortium will include community-focused organizations led by black women and community development enterprises.
          This BEE transaction is part of our efforts to strengthen the development of our business plan, and is in compliance with South African regulation and business practice. Our actions in support of achieving a stronger BEE standing build on our prior efforts, and the proposed structure is similar to transactions pursued by other leading South African companies across multiple industries.
          The letter of intent provides that BVI will pay the purchase price of ZAR 88.50 per share in ZAR. The BVI Shares will be locked-up for a period of five years from date of issue, with the exception of periodic sales in order to fund the repayment of the loan and related interest as described below.
          Our wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited, will lend BVI the funds to effect the purchase of the BVI Shares and these shares will act as the collateral on the loan. The key terms of the loan are:
~~The loan will bear interest at rate equal to Johannesburg Interbank rate, or JIBAR (currently 550 basis points) plus 300 basis points;~~
The loan principal is to be repaid as follows, 10% each after the first and second years, 15% each after the third and fourth years, and 50% after the fifth year. Interest payments on the loan are due semi-annually;
~~After five years, Net1 will have the right, but not the obligation, to repurchase all or any portion of any remaining shares; and~~
The loan will be repaid in full using the proceeds from the sale of a sufficient amount of BVI Shares if our share price is or exceeds ZAR 177.00 per share (200% of ZAR 88.50 per share) on the JSE at any time during term of the loan. As of November 5, 2013, our closing price on the JSE was ZAR 118.00 per share.
     ~~South African Constitutional Court~~Commencement of new SASSA tender process
     On ~~September~~October 10, ~~2013,~~2014, SASSA announced the commencement of a new tender process in the South African ~~Constitutional Court heard oral arguments~~Government Gazette by inviting proposals for the provision of payment services for social assistance benefits, or RFP. According to information provided on the ~~appeal by AllPay Consolidated Investment Holdings (Pty) Ltd,~~website www.sa-tenders.co.za, the following is applicable to this process:
Bids will be evaluated on functionality as stipulated in the Terms of References and only service providers who score a minimum of 70 percent on functionality will proceed to be evaluated further on price and B-BBEE level of contribution.
Bids will be evaluated in accordance with the 90/10 preference point system, where a weighting of 90 is allocated to price and a weighting of 10 is awarded to bidders in accordance with their B-BBEE contributor status level.
     As reported on SASSA's website, the submission date was initially November 21, 2014. However, as per notices on the SASSA website, the bid submission date has been extended a number of times and currently the submission date is December 12, 2014. The bid instructions state that neither bidders nor their agents are allowed to circulate any news or ~~AllPay, against~~press releases concerning the ~~ruling by~~RFP, or the ~~South African Supreme Court of Appeal upholding the award~~awarding of the ~~SASSA tender to us. The Constitutional Court has reserved judgment.~~RFP or any resulting agreements without the written consent of, or in consultation with SASSA. We cannot predict ~~when~~the timing of the tender process or ~~how it~~what the outcome will ~~rule on the matter.~~          be.
     See Part II, Item 1—1A.—“~~Legal Proceedings”~~Risk Factors,” for ~~an update on legal proceedings associated with our SASSA contract.~~additional details.
~~South Africa~~
~~SASSA~~
          We completed bulk enrollment during fiscal 2013, in accordance with the implementation plan agreed with SASSA. During the first quarter of fiscal 2014, we continued to enroll eligible and new grant recipient cardholders and grant beneficiaries.
          During March 2013, the Minister of Social Development and SASSA announced that the deadline for the enrollment of grant recipient cardholders would be extended to April 30, 2013. SASSA sent termination notices to all grant recipient cardholders and grant beneficiaries who had not presented themselves for enrollment during May, June and July 2013 in terms of the Promotion of Administrative Justice Act. As of September 30, 2013, there were an estimated 292,000 former grant recipient cardholders who had not presented themselves for enrollment and whose grants had therefore been suspended by SASSA in September 2013. These grant recipient cardholders would have to apply for restoration of their grant and present themselves for enrollment should they wish to have their grants reinstated.
          Due to the suspension of these grants and therefore lower volumes, we experienced a modest negative impact on our results of operations during the first quarter of fiscal 2014. We expect a similar adverse impact on our volumes and revenue for the remainder of fiscal 2014, but we expect this decrease in volume and revenue to be partially offset by new grant recipient cardholders approved by SASSA during the year.
~~New prepaid airtime product (“Umoya Manje”)~~
          During the first quarter of fiscal 2014, our Net1 Mobile Solutions business unit introduced our new prepaid airtime product called Umoya Manje. This product allows our customers in South Africa to electronically purchase prepaid airtime without having to visit a physical prepaid airtime vendor.
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          Traditional prepaid airtime procurement is usually time consuming for the customer and results in them having to pay additional costs. Our product allows our customers, many of whom do not have their own means of transport or ready access to transport, to purchase prepaid airtime without having to travel. We also believe that our product is substantially cheaper than traditional prepaid airtime channels, which often require customers to pay a substantial premium to obtain airtime. We exceeded one million registered users during our second month of operation, effecting more than 250,000 transactions per day during peak periods.
~~Rollout of financial service offering~~
          During the first quarter of fiscal 2014, our Financial Services business unit commenced the national roll out of our financial services offering and began introducing UEPS-based loans in the six provinces in which we did not offer our product during fiscal 2013. The rollout has required us to employ and train additional staff and incur set up costs, and rent additional premises in order to establish a physical presence in these six provinces.
Critical Accounting Policies
     Our unaudited condensed consolidated financial statements have been prepared in accordance with US GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques.
     Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially may result in materially different results under different assumptions and conditions. Management has identified the following critical accounting policies that are described in more detail in our Annual Report on Form 10-K for the year ended June 30, ~~2013:~~2014:
Business combinations and the recoverability of goodwill;
Intangible assets acquired through acquisitions;
Deferred taxation;
Stock-based compensation and equity instrument issued pursuant to BEE transaction;
Accounts receivable and allowance for doubtful accounts receivable; and
Research and development.
     Recent accounting pronouncements adopted
     Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements adopted, including the dates of adoption and the effects on our condensed consolidated financial statements.
     Recent accounting pronouncements not yet adopted as of September 30, ~~2013~~2014
     Refer to ~~note~~Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of September 30, ~~2013,~~2014, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.
Currency Exchange Rate Information
     Actual exchange rates
     The actual exchange rates for and at the end of the periods presented were as follows:
Table 1 Three months ended Year Three months ended Year ended
September 30, ended
June 30, September 30, June 30,
2013 2012 2013 2014 2013 2014
ZAR : $ average exchange rate 10.0015 8.2644 8.8462 10.7581 10.0015 10.3798
Highest ZAR : $ rate during period 10.4936 8.5470 10.3587 11.2641 10.4936 11.2579
Lowest ZAR : $ rate during period 9.5436 8.0444 8.0444 10.5128 9.5436 9.6259
Rate at end of period 10.1123 8.3172 9.8925 11.2641 10.1123 10.5887
KRW : $ average exchange rate 1,113 1,137 1,112 1,027 1,113 1,068
Highest KRW : $ rate during period 1,152 1,156 1,162 1,051 1,152 1,147
Lowest KRW : $ rate during period 1,045 1,080 1,019 1,009 1,045 1,014
Rate at end of period 1,083 1,125 1,144 1,051 1,083 1,014
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ZAR: US $ Exchange Rates
23
KRW: US $ Exchange Rates
25
     Translation exchange rates for financial reporting purposes
     ~~For financial reporting purposes we~~We are required to translate our results of operations from ZAR and KRW to US dollars on a monthly basis. Thus, the average rates used to translate this data for the three months ended September 30, 2014 and 2013, ~~and 2012,~~ vary slightly from the averages shown in the table above. The translation rates we use in presenting our results of operations are the rates shown in the following table:
Table 2 Three months ended Year ended Three months ended Year ended
September 30, June 30, September 30, June 30,
2013 2012 2013 2014 2013 2014
Income and expense items: $1 = ZAR . 10.0001 8.2606 8.7105 10.7431 10.0001 10.3966
Income and expense items: $1 = KRW 1,141 1,140 1,072 1,029 1,141 1,049

Balance sheet items: $1 = ZAR 10.1123 8.3172 9.8925 11.2641 10.1123 10.5887
Balance sheet items: $1 = KRW 1,083 1,125 1,144 1,051 1,083 1,014
Results of operations
     The discussion of our consolidated overall results of operations is based on amounts as reflected in our unaudited condensed consolidated financial statements which are prepared in accordance with US GAAP. We analyze our results of operations both in US dollars, as presented in the consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities which contribute the majority of our profits and is the currency in which the majority of our transactions are initially incurred and measured. Due to the significant impact of currency fluctuations between the US dollar and ZAR on our reported results and because we use the US dollar as our reporting currency, we believe that the supplemental presentation of our results of operations in ZAR is useful to investors to understand the changes in the underlying trends of our business.
     ~~Three months ended September 30, 2013,~~Fiscal 2015 does not include MediKredit and the NUETS business and fiscal 2014 includes ~~SmartSwitch Botswana~~MediKredit and ~~Pbel~~the NUETS business for the entire period. ~~Three months ended September 30, 2012, does not include SmartSwitch Botswana,~~
     Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before inter-segment eliminations. A reconciliation between total operating segment revenue and ~~includes Pbel from September 1, 2012.~~revenue presented in our consolidated financial statements is included in Note 15 to those statements.
     We analyze our business and operations in terms of ~~five~~three inter-related but independent operating segments: (1) South African ~~transaction-based activities,~~transaction processing, (2) ~~international transaction-based activities,~~International transaction processing and (3) ~~smart card accounts, (4) financial services,~~Financial inclusion and ~~(5) hardware, software and related technology sales.~~applied technologies. In addition, corporate and corporate office activities that are impracticable to ascribe directly to any of the other operating segments, as well as any inter-segment eliminations, are included in corporate/eliminations.
     First quarter of fiscal ~~2014~~2015 compared to first quarter of fiscal ~~2013~~2014
     The following factors had ana significant influence on our results of operations during the first quarter of fiscal ~~2014~~2015 as compared with the same period in the prior year:
•
~~Unfavorable impact from the strengthening of the US dollar against the ZAR:~~~~The US dollar appreciated by 21% against the ZAR during the first quarter of fiscal 2014 which negatively impacted our reported results;~~
•
~~SASSA implementation complete:~~Our SASSA contract implementation is complete and the first quarter of fiscal 2014 was the first full quarter without any implementation-related expenditure since the tender was awarded to us in January 2012. We incurred implementation-related expenditure, including smart card costs, of approximately $15.8 million during the first quarter of fiscal 2013;
•
~~Higher revenue resulting from an increase in low-margin prepaid airtime sales:~~~~Our revenue has increased as a result of the deployment of our Umoya Manje prepaid airtime offering during the quarter, which has lower margins compared with our other South African businesses;~~
•
~~National rollout of our financial services offering:~~We commenced the national roll out of our financial services offering during the first quarter of fiscal 2014, which resulted in higher revenue from UEPS-based loans. Profitability in the financial services segment however was lower due to rollout costs, including hiring and training of additional staff and infrastructure deployment;
•
~~Ad hoc hardware sales in fiscal 2014:~~~~We sold more terminals and cards during the first quarter of fiscal 2014 as a result of ad hoc orders received from our customers; and~~
•
~~DOJ and SEC investigation-related expenses:~~~~We incurred DOJ and SEC investigation-related expenses of $2.1 million during the first quarter of fiscal 2014.~~
Unfavorable impact from the strengthening of the US dollar against the ZAR:The US dollar appreciated by 7% against the ZAR during the first quarter of fiscal 2015, which negatively impacted our reported results;
Increased contribution by KSNET:Our results were positively impacted by growth in our Korean operations;
Increase in the number of SASSA grants paid:Our revenue and operating income has increased as a result of the higher number of SASSA UEPS/EMV cardholders paid during fiscal 2015 compared with 2014; and
Continued growth in financial inclusion services:We continued to grow our financial inclusion services offerings during the first quarter of fiscal 2015, which has result in higher revenues and operating income from more sales of low-margin prepaid airtime and UEPS-based lending.
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     Consolidated overall results of operations
     This discussion is based on the amounts which were prepared in accordance with US GAAP.
24
     The following tables show the changes in the items comprising our statements of operations, both in US dollars and in ZAR:
In United States Dollars In United States Dollars
Table 3 (US GAAP) (US GAAP)
Three months ended September 30, Three months ended September 30,
2013 2012 $ % 2014 2013 $%
$’000 $’000 change $’000 $’000 change
Revenue 123,494 111,682 11% 156,441 123,494 27%
Cost of goods sold, IT processing, servicing and support 56,559 45,101 25% 74,406 56,559 32%
Selling, general and administration 40,506 47,252 (14% ) 38,736 40,506 (4% )
Depreciation and amortization 10,029 10,004 0% 10,174 10,029 1%
Operating income 16,400 9,325 76% 33,125 16,400 102%
Interest income 3,319 3,091 7% 4,090 3,319 23%
Interest expense 1,752 2,071 (15% ) 1,312 1,752 (25% )
Income before income tax expense 17,967 10,345 74% 35,903 17,967 100%
Income tax expense 6,485 3,729 74% 11,648 6,485 80%
Net income before earnings from equity-accounted investments 11,482 6,616 74% 24,255 11,482 111%
Earnings from equity-accounted investments 103 128 (20% ) 92 103 (11% )
Net income 11,585 6,744 72% 24,347 11,585 110%
Add net loss attributable to non-controlling interest (11 ) - nm
Less (Add) net income (loss) attributable to non-controlling interest 258 (11 ) nm
Net income attributable to us 11,596 6,744 72% 24,089 11,596 108%

In South African Rand In South African Rand
Table 4 (US GAAP) (US GAAP)
Three months ended September 30, Three months ended September 30,
2013 2012 2014 2013
ZAR ZAR ZAR % ZAR ZAR ZAR %
’000 ’000 change ’000 ’000 change
Revenue 1,234,965 922,561 34%
1,680,661 1,234,965 36%
Cost of goods sold, IT processing, servicing and support 565,601 372,561 52% 799,351 565,601 41%
Selling, general and administration 405,069 390,330 4% 416,145 405,069 3%
Depreciation and amortization 100,292 82,640 21% 109,300 100,292 9%
Operating income 164,003 77,030 113% 355,865 164,003 117%
Interest income 33,191 25,534 30% 43,939 33,191 32%
Interest expense 17,520 17,108 2% 14,095 17,520 (20% )
Income before income tax expense 179,674 85,456 110% 385,709 179,674 115%
Income tax expense 64,851 30,804 111% 125,136 64,851 93%
Net income before earnings from equity-accounted investments 114,823 54,652 110% 260,573 114,823 127%
Earnings from equity-accounted investments 1,030 1,057 (3% ) 988 1,030 (4% )
Net income 115,853 55,709 108% 261,561 115,853 126%
Add net loss attributable to non-controlling interest (110 ) - nm
Less (Add) net income (loss) attributable to non-controlling interest 2,772 (110 ) nm
Net income attributable to us 115,963 55,709 108% 258,789 115,963 123%
     The increase in revenue was primarily due to higher prepaid airtime sales, more low-margin transaction fees generated from beneficiaries using the South African National Payment System, ~~higher prepaid airtime sales driven by~~an increase in the ~~rollout~~number of ~~our Umoya Manje product, more ad hoc terminal and card sales~~UEPS-based loans, an increase in the number of SASSA UEPS/ EMV cardholders paid and a higher contribution from KSNET.
     The increase in cost of goods sold, IT processing, servicing and support was primarily due to higher expenses incurred from increased usage of the South African National Payment System by beneficiaries and higher prepaid airtime, terminal and card sales. These increases were offset by the substantial elimination of expenses related to our SASSA contract implementation, which we completed in the fourth quarter of fiscal 2013.airtime.
     In ZAR, our selling, general and administration expense increased due to increases in goods and services purchased from third parties and legal fees of approximately $2.1 million (ZAR 21.4 million) in connection with the government investigations, which were offset by the substantial elimination of SASSA contract implementation costs.parties.
     Our operating income margin for ~~the~~ first quarter of fiscal 2015 and 2014 was 21% and ~~2013, was~~ 13% ~~and 8%~~, respectively. We discuss the components of operating income margin under “—Results of operations by operating segment.” The increase is primarily attributable to ~~the elimination~~higher volumes of ~~implementation costs~~transaction in ~~fiscal 2014.~~South Africa, including prepaid airtime sales, lending and SASSA grants paid.
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     In ZAR, depreciation and amortization were higher primarily as a result of an increase in depreciation related to ~~assets~~more terminals used to ~~service our obligations under our SASSA contract,~~provide transaction processing in Korea, which was partially offset by no ~~MediKredit and FIHRST~~Eason intangible asset amortization as ~~the~~ these intangible assets were fully amortized at the end of June ~~2013. The tables below present the acquisition-related intangible asset amortization that has been allocated to our operating segments:~~2014.
Table 5 Three months ended
September 30,
2013 2012
$’000 $ ’000
Amortization included in depreciation and amortization expense:
3,748 4,689
South African transaction-based activities
526 1,449
International transaction-based activities
3,149 3,152
Hardware, software and related technology sales
73 88

Table 6 Three months ended
September 30,
2013 2012
ZAR ’000 ZAR ’000
Amortization included in depreciation and amortization expense:
37,474 38,732
South African transaction-based activities
5,267 11,978
International transaction-based activities
31,490 26,037
Hardware, software and related technology sales
717 717
     Interest on surplus cash increased to $4.1 million (ZAR 43.9 million) from $3.3 million (ZAR 33.2 ~~million) from $3.1 million (ZAR 25.5~~ million), due primarily to higher average daily ZAR cash balances.
     ~~In US dollars, interest~~Interest expense decreased to $1.3 million (ZAR 14.1 million) from $1.8 million (ZAR 17.5 million) ~~from $2.1 million (ZAR 17.1 million)~~, due to a lower average long-term debt ~~balance.~~balance on our South Korean debt and a lower interest rate.
     ~~First quarter fiscal 2014~~Fiscal 2015 tax expense was $11.6 million (ZAR 125.1 million) compared to $6.5 million (ZAR 64.9 million) ~~compared to $3.7 million (ZAR 30.8 million)~~ in fiscal ~~2013.~~2014. Our effective tax rate for ~~each~~fiscal 2015, was 32.4% and was higher than the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees, the interest expense related to our long-term South Korean borrowings and stock-based compensation charges). Our effective tax rate for fiscal 2014, ~~and 2013,~~ was ~~36%~~36.1% and was higher than the South African statutory rate as a result of non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges).
     Results of operations by operating segment
     The composition of revenue and the contributions of our business activities to operating income are illustrated ~~below.~~below
Table 7 In United States Dollars (US GAAP)
Three months ended September 30,
2013 % of 2012 % of %
Operating Segment $’000 total $ ’000 total change
Consolidated revenue:
SA transaction-based activities 63,032 51% 61,364 55% 3%
International transaction-based activities 36,817 30% 31,649 28% 16%
Smart card accounts 11,329 9% 8,364 7% 35%
Financial services 2,427 2% 1,384 1% 75%
Hardware, software and related technology sales 9,889 8% 8,921 9% 11%
Total consolidated revenue 123,494 100% 111,682 100% 11%
Consolidated operating (loss) income:
SA transaction-based activities 13,282 81% 6,400 69% 108%
Operating income before amortization 13,808 7,850
Amortization of intangible assets (526 ) (1,450 )
International transaction-based activities 2,051 13% (171 ) (2% ) nm
Operating income before amortization 5,200 2,981
Amortization of intangible assets (3,149 ) (3,152 )
Smart card accounts 3,228 20% 2,385 26% 35%
Financial services 56 - 1,097 12% (95% )
Hardware, software and related technology sales 2,948 18% 1,984 21% 49%
Operating income before amortization 3,021 2,071
Amortization of intangible assets (73 ) (87 )
Corporate/eliminations (5,165 ) (32% ) (2,370 ) (26% ) 118%
Total consolidated operating income 16,400 100% 9,325 100% 76%
Table 5 In United States Dollars (US GAAP)
Three months ended September 30,
2014 % of 2013 % of %
Operating Segment $’000 total $’000 total change
Revenue:
South African transaction processing 60,252 39% 57,161 46% 5%
International transaction processing 43,204 28% 37,541 30% 15%
Financial inclusion and applied technologies 65,197 42% 36,796 30% 77%
Subtotal: Operating segments 168,653 109% 131,498 106% 28%
Intersegment eliminations (12,212 ) (9% ) (8,004 ) (6% ) 53%
               Consolidated revenue 156,441 100% 123,494 100% 27%
Operating income (loss):
South African transaction processing 13,639 41% 6,461 39% 111%
International transaction processing 7,349 22% 5,524 34% 33%
Financial inclusion and applied technologies 17,607 53% 12,835 78% 37%
Subtotal: Operating segments 38,595 116% 24,820 151% 55%
Corporate/Eliminations (5,470 ) (16% ) (8,420 ) (51% ) (35% )
Consolidated operating income 33,125 100% 16,400 100% 102%

Table 6 In South African Rand (US GAAP)
Three months ended September 30,
2014 2013
ZAR % of ZAR % of %
Operating Segment ’000 total ’000 total change
Revenue:
South African transaction processing 647,293 39% 571,622 46% 13%
International transaction processing 464,145 28% 375,418 30% 24%
Financial inclusion and applied technologies 700,418 42% 367,967 30% 90%
Subtotal: Operating segments 1,811,856 109% 1,315,007 106% 38%
Intersegment eliminations (131,195 ) (9% ) (80,042 ) (6% ) 64%
               Consolidated revenue 1,680,661 100% 1,234,965 100% 36%
Operating income (loss):
South African transaction processing 146,525 41% 64,611 39% 127%
International transaction processing 78,951 22% 55,241 34% 43%
Financial inclusion and applied technologies 189,154 53% 128,353 78% 47%
Subtotal: Operating segments 414,630 116% 248,205 151% 67%
Corporate/Eliminations (58,765 ) (16% ) (84,202 ) (51% ) (30% )
Consolidated operating income 355,865 100% 164,003 100% 117%
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Table 8 In South African Rand (US GAAP)
Three months ended September 30,
2013 2012
ZAR % of ZAR % of %
Operating Segment ’000 total ’000 total change
Consolidated revenue:
SA transaction-based activities 630,326 51% 506,903 55% 24%
International transaction-based activities 368,174 30% 261,440 28% 41%
Smart card accounts 113,291 9% 69,092 7% 64%
Financial services 24,270 2% 11,433 1% 112%
Hardware, software and related technology sales 98,891 8% 73,692 9% 34%
Total consolidated revenue 1,234,952 100% 922,560 100% 34%
Consolidated operating (loss) income:
SA transaction-based activities 132,821 81% 52,868 69% 151%
Operating income before amortization 138,088 64,846
Amortization of intangible assets (5,267 ) (11,978 )
International transaction-based activities 20,510 13% (1,413 ) (2% ) nm
Operating income before amortization 52,000 24,624
Amortization of intangible assets (31,490 ) (26,037 )
Smart card accounts 32,280 20% 19,702 26% 64%
Financial services 560 - 9,062 12% (94% )
Hardware, software and related technology sales 29,480 18% 16,389 21% 80%
Operating income before amortization 30,197 17,106
Amortization of intangible assets (717 ) (717 )
Corporate/eliminations (51,651 ) (32% ) (19,578 ) (26% ) 164%
Total consolidated operating income 164,000 100% 77,030 100% 113%
     South African ~~transaction-based activities~~transaction processing
     In ZAR, the ~~increases~~increase in segment ~~revenue were~~revenues was primarily due to more low-margin transaction fees generated from beneficiaries using the South African National Payment System ~~incremental prepaid airtime sales driven~~and more inter-segment transaction processing activities. In addition, revenue from the distribution of social welfare grants grew modestly during the year and was in-line with the increase in unique welfare cardholder recipients, net of removal of invalid and fraudulent beneficiaries, partially offset by the ~~rollout~~loss of ~~our Umoya Manje product, and reflect~~MediKredit revenue as a result of the ~~elimination~~sale of ~~inter-company transactions.~~that business.
     Our operating income margin for the first quarter of fiscal 2015 and 2014 was 23% and ~~2013 was 21% and 10%~~11%, respectively, and has increased primarily due to more higher-margin inter-segment transaction processing activities, the elimination of ~~SASSA implementation costs~~MediKredit losses and an increase in the number of beneficiaries paid in fiscal ~~2014.~~2015.
     ~~South African transaction processors:~~International transaction-based activities
     ~~The table below presents the total~~Revenue and operating income increased primarily due to higher transaction volume ~~and value processed~~at KSNET during the first quarter of fiscal ~~2014 and 2013:~~
Table 9
Transaction Total volume (‘000s) Total value $ (‘000) Total value ZAR (‘000)
processor 2014 2013 2014 2013 2014 2013
CPS 28,325 28,373 2,698,278 3,143,773 26,983,054 25,969,448
EasyPay 99,145 102,420 2,657,667 2,710,615 26,576,938 22,391,310
MediKredit 2,593 2,624 201,595 171,478 2,015,966 1,416,508
FIHRST 5,628 5,987 2,058,717 2,373,540 20,587,371 19,606,861
          CPS volumes were flat year over year due to SASSA’s suspension of former grant recipient cardholders who had not presented themselves for enrollment during the first quarter of fiscal 2014. These grant recipient cardholders will have to apply for restoration of their grant and present themselves for enrollment should they want to reinstate their grants. Our pension and welfare operations continue to generate the majority of our revenues and operating income, before implementation costs, in this operating segment and overall.
~~International transaction-based activities~~
          KSNET continues to contribute the majority of our revenues and operating income in this operating segment. Revenue increased primarily due to KSNET’s revenue growth during the first quarter of fiscal 2014 and was partially offset by the expiration and non-renewal of NUETS’ contract with its Iraqi customer in the third quarter of fiscal 2013.2015. Operating income during the first quarter of fiscal 2014 was negatively impacted by the loss of this contract as well as ongoing losses related to our XeoHealth launch in the United States and at Net1 Virtual Card, as well as ongoing competition in the Korean marketplace, but was partially offset by increased revenue contributions from KSNET.
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          ~~Operating~~ margin for the segment is lower than for most of our South African ~~transaction-based~~transaction processing businesses. Operating income margin for the first quarter of fiscal 2015 and 2014, was 17% and ~~2013 was 6% and (1%), respectively. Excluding amortization of intangibles, our operating margin for the first quarter of fiscal 2014 and 2013 was 14% and 9%, respectively.~~
~~Smart card accounts~~
          In ZAR, our revenue from this operating segment was higher because the number of smart card-based accounts has increased as a result of the new SASSA contract. Operating income margin from providing smart card accounts for the first quarter of fiscal 2014 and 2013 was 28% and 29%15%, respectively.
     In ZAR, revenue from the provision of smart card-based accounts increased in proportion to the increased number of recipients serviced through our SASSA contract. Approximately 9.4 million smart card-based accounts were active at September 30, 2013 compared to approximately 5.8 million active accounts as at September 30, 2012.
Financial ~~services~~inclusion and applied technologies
     ~~UEPS-based lending contributes the majority of the~~Financial inclusion and applied technologies revenue and operating income in this operating segment. Our current UEPS-based lending portfolio comprises loans made to qualifying old age grant recipients in all of the provinces where we distribute social welfare grants. Revenue increased primarily due to higher prepaid airtime sales driven by the ~~substantial~~rollout of our prepaid airtime product, an increase in the number of UEPS-based loans ~~granted~~ as we rolled out our product ~~nationally. Operating~~nationally and an increase in intersegment revenues, offset by lower ad hoc terminal and smart card sales. Fiscal 2014 operating income ~~decreased primarily as a result~~includes expenses related to the national roll-out of ~~related start-up expenses~~our UEPS-based lending offering and the ~~re-allocation~~establishment of ~~UEPS-based lending corporate and administration overhead expenses.~~the allowance for doubtful finance loans in fiscal 2014. Smart Life did not contribute to operating income in fiscal 2015 and 2014 due to the ~~first quarter of fiscal 2014 as it is currently unable to issue new insurance policies as a result of the~~FSB suspension of its ~~license by~~license.
     Notwithstanding the ~~Financial Services Board~~national roll-out expenses incurred in fiscal ~~2013.~~
          ~~First quarter of fiscal~~ 2014, includes the re-allocation of UEPS-based lending corporate administration and overhead expenses to this segment from the South African transaction-based activities segment. We were not able to accurately quantify these expenses for last year and therefore did not allocate such costs to this segment during the first quarter of fiscal 2013.
          ~~Operating~~operating income margin for the ~~financial services~~Financial inclusion and applied technologies segment decreased to 2%27% from ~~79%~~35%, primarily as a result of more low-margin prepaid airtime and the ~~roll-out expenditures and corporate overhead expense re-allocation described above.~~sale of competitively-priced financial inclusion products to address the needs of the broader market.
     ~~Hardware, software and related technology sales~~Corporate/ Eliminations
          In ZAR, the increase in revenue and operating income resulted from more ad hoc terminal and smart card sales. We continue to expect significant quarter over quarter fluctuations in revenue, operating income and operating margin due to the ad hoc nature of orders in this operating segment.
~~Corporate/eliminations~~
          ~~The increase in our corporate expenses resulted primarily from legal fees we incurred in connection with the DOJ and SEC investigations and other corporate head office-related expenses.~~
     Our corporate expenses ~~also~~generally include acquisition-related intangible asset amortization; expenditure related to compliance with ~~Sarbanes; non-executive~~the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive ~~salaries and~~ bonuses; stock-based compensation; legal ~~and~~fees; audit fees; directors and officers insurance premiums; telecommunications expenses; property-related expenditures including utilities, rental, security and maintenance; and elimination entries.
     The decrease in our corporate expenses was primarily due to lower US government investigations-related and US lawsuit expenses, audit fees and other corporate head office-related expenses, which was partially offset by increases in acquisition-related intangible asset amortization.
Liquidity and Capital Resources
     At September 30, ~~2013,~~2014, our cash balances were ~~$47.7~~$81.2 million, which comprised mainly ZAR-denominated balances of ZAR ~~75.6~~612.0 million ($~~7.5~~54.3 million), KRW-denominated balances of KRW ~~33.5~~20.6 billion ($~~30.9~~19.6 million) and US dollar-denominated balances of ~~$6.8~~$5.1 million and other currency deposits, primarily ~~euro,~~Botswana Pula, of ~~$2.5~~$2.2 million. The ~~decrease~~increase in our cash balances from June 30, ~~2013,~~2014, was primarily due to the expansion of our ~~UEPS-based lending business, offset by~~all of our core businesses during the quarter, and to a lesser extent due to the cash ~~generated~~conservation resulting from ~~operations.~~the sale of loss-incurring businesses.
     We currently believe that our cash and credit facilities are sufficient to fund our future operations for at least the next four quarters.
     We generally invest the surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and surplus cash held by our non-South African companies in the US ~~and European~~ money markets. We have invested surplus cash in Korea in short-term investment accounts at Korean banking institutions.
28
     Historically, we have financed most of our operations, research and development, working capital, capital expenditures and acquisitions through our internally generated cash. When considering whether to borrow under our financing facilities, we consider the cost of capital, cost of financing, opportunity cost of utilizing surplus cash and availability of tax efficient structures to moderate financing costs.
29
     We have a short-term South African credit facility with Nedbank Limited of ZAR 400 million ($35.5 million). The short-term facility comprises an overdraft facility of up to ZAR 250 million and indirect and derivative facilities of up to ZAR 150 million, which includes letters of guarantee, letters of credit and forward exchange contracts. As of September 30, ~~2013,~~2014, we have ~~a South African short-term credit facility~~used none of ~~approximately~~the overdraft and ZAR ~~250~~135.0 million ($~~24.7~~12.0 million) of ~~which approximately ZAR 130 million ($ 13.0 million) has been utilized~~the indirect and derivative facilities to ~~support cross-guarantees issued~~obtain foreign exchange contracts and to ~~Nedbank Limited for~~support guarantees issued by Nedbank to various third parties on our behalf. Refer to Note 12 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2014, for additional information related to our short-term facilities.
     As of September 30, ~~2013,~~2014, we had outstanding long-term debt of KRW ~~92.4~~79.4 billion (approximately ~~$85.4~~$75.6 million translated at exchange rates applicable as of September 30, ~~2013)~~2014) under credit facilities with a group of South Korean banks. ~~We refinanced this debt on October 28, 2013 with a new KRW 85.0 billion five-year senior secured term loan and revolving credit facility.~~ The loans bear interest at the South Korean CD rate in effect from time to time ~~(2.66%~~(2.65% as of September 30, ~~2013)~~2014) plus a margin of 3.10% for one of the term loan facilities and the revolver and a margin of 2.90% for the other term loan facility. Scheduled repayments of the term loans and loan under the revolving credit facility are as follows: October 2014 (KRW 15 billion), April 2016, 2017 and 2018 (KRW 10 billion each) and October 2018 (KRW 30 billion plus all outstanding loans under our revolving credit facility). Refer to ~~note~~Note 9 to ~~the~~our unaudited condensed consolidated financial statements for ~~more~~the three months ended September 30, 2014, for additional information ~~about the terms of~~related to our ~~new facility.~~long-term borrowings.
     Cash flows from operating activities
          First quarter of fiscal 2015
Net cash ~~utilized in~~provided by operating activities for the first quarter of fiscal ~~2014~~2015 was $39.5 million (ZAR 424.6 million) compared to cash utilized in operating activities of $1.7 million (ZAR 16.8 ~~million) compared to cash generated from operating activities of $25.7 million (ZAR 212.5~~ million) for the first quarter of fiscal ~~2013.~~2014. Excluding the impact of interest received, interest paid under our Korean debt and taxes presented in the table below, the ~~decrease~~increase in cash from operating activities resulted from improved trading activity during fiscal 2015.
     During the ~~expansion~~first quarter of ~~our UEPS-based lending book and the timing~~fiscal 2015, we made additional tax payment of ~~prefunding related to the October 2013 payment cycle, offset by improved cash generated from operating activities and the elimination of implementation costs~~$2.4 million (ZAR 26.4 million) related to our ~~SASSA contract~~2014 tax year in ~~fiscal 2014.~~
South Africa. We also paid taxes totaling $1.6 million in other tax jurisdictions, primarily South Korea. There were no significant tax payments during the first quarter of fiscal ~~2014 and 2013, respectively.~~2014.
     Taxes paid during the first quarter of fiscal ~~2014~~2015 and ~~2013~~2014 were as follows:
Table 10 Three months ended September 30,
Table 7 Three months ended September 30,
2013 2012 2013 2012 2014 2013 2014 2013
$ $ ZAR ZAR $ $ ZAR ZAR
‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 ‘000
Taxation paid related to prior years 2,408 - 26,392 -
Taxation refunds received - (55 ) - (464 ) (35 ) - (365 ) -
Total South African taxes refunded - (55 ) - (464 )
Total South African taxes paid 2,374 - 26,027 -
Foreign taxes paid: primarily Korea 498 397 4,984 3,279 2,786 498 30,170 4,984
Total tax paid 498 342 4,984 2,815 5,160 498 56,197 4,984
     We expect to pay our ~~second~~first provisional payments in South Africa related to our ~~2014~~2015 tax year in the second quarter of fiscal ~~2014.~~2015.
     Cash flows from investing activities
First quarter of fiscal 2015
     Cash used in investing activities for the first quarter of fiscal 2015 includes capital expenditure of $9.4 million (ZAR 100.9 million), primarily for the acquisition of payment processing terminals in Korea. We also received approximately $1.9 million resulting from the sale of NUETS business.
     Cash used in investing activities for the first quarter of fiscal 2014 includes capital expenditure of $5.6 million (ZAR 56.2 million), primarily for the acquisition of payment processing terminals in Korea.
          Cash used in investing activities for the first quarter of fiscal 2013 includes capital expenditure of $6.5 million (ZAR 53.7 million), primarily for payment vehicles and related equipment for our new SASSA contract and acquisition of payment processing terminals in Korea. During that quarter, we also paid $1.9 million (ZAR 16.2 million) for Pbel.30
     Cash flows from financing activities
First quarter of fiscal 2015
     During the first quarter of fiscal 2015, we repurchased BVI’s remaining 1,837,432 shares of Net1 common stock for approximately $9.2 million and BVI paid $1.4 million for 12.5% of CPS’ issued and outstanding ordinary shares. We also utilized approximately $1.1 million of our Korean borrowings to pay quarterly interest due and received approximately $1.0 million from the exercise of stock options during the first quarter of fiscal 2015.
     There were no cash flows from financing activities during the first quarter of fiscal 2014. ~~During the first quarter of fiscal 2013, we received $0.2 million from the exercise of stock options.~~
Off-Balance Sheet Arrangements
     We have no off-balance sheet arrangements.
29
Capital Expenditures
     We expect capital spending for the second quarter of fiscal ~~2014~~2015 to primarily include the acquisition of payment terminals for the expansion of our operations in Korea.
     Our historical capital expenditures for the first quarter of fiscal ~~2014~~2015 and ~~2013~~2014 are discussed under “—Liquidity and Capital Resources—Cash flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally-generated funds. We had outstanding capital commitments as of September 30, ~~2013,~~2014, of ~~$0.4~~$0.3 million related mainly to computer equipment. We expect to fund these expenditures through internally-generated funds.
Contingent Liabilities, Commitments and Contractual Obligations
     The following table sets forth our contractual obligations as of September 30, ~~2013:~~2014:
Table 11 Payments due by Period, as of September 30, 2013(in $ ’000s)
Table 8 Payments due by Period, as of September 30, 2014(in $ ’000s)
Less More Less More
than 1 1-3 3-5 than 5 than 1 1-3 3-5 than 5
Total year years years years Total year years years years
Long-term debt obligations (A) 92,997 20,102 72,895 - - 83,935 17,753 24,847 41,335 -
Operating lease obligations 8,932 3,854 4,216 862 - 6,913 3,330 3,426 157 -
Purchase obligations 2,869 2,869 - - - 9,090 9,090 - - -
Capital commitments 398 398 - - - 304 304 - - -
Other long-term obligations (B)(C) 21,499 - - - 21,499 22,396 - - - 22,396
Total 126,695 27,223 77,111 862 21,499 122,638 30,477 28,273 41,492 22,396

(A)
– Includes ~~$85.4~~$75.6 million of long-term debt and interest payable at the rate applicable on September 30, ~~2013,~~2014, under our Korean debt ~~facility, which we refinanced in October 2013. See “—Liquidity and capital resources.”~~facility.
(B)
– Includes policy holder liabilities of ~~$20.2~~$20.8 million related to our insurance business.
(C)
– We have excluded cross-guarantees in the aggregate amount of ~~$13.0~~$12.0 million issued as of September 30, ~~2013,~~2014, to Nedbank to secure guarantees it has issued to third parties on our behalf as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.
3031
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     In addition to the tables below, see ~~note~~Note 5 to the unaudited condensed consolidated financial statements for a discussion of market risk.
     The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of September 30, ~~2013,~~2014, as a result of ~~a change~~changes in the Korean ~~CD rate.~~CD. The ~~effects~~effect of a hypothetical 1% increase and a 1% decrease in each of the Korean CD rate as of September 30, ~~2013, is~~2014, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.
As of September 30, 2013 As of September 30, 2014
Table 12 Estimated
annual
Table 9 Hypothetical Estimated annual
expected change in expected interest
interest charge Korean CD charge after
after rate or South hypothetical change in
Annual hypothetical Annual Africa Korean CD rate or
expected Hypothetical change in expected overdraft South African
interest change in Korean CD interest facility rate, overdraft facility rate,
charge Korean CD rate charge as as appropriate
($ ’000) rate ($ ’000) ($ ’000) appropriate ($ ’000)
Interest on Korean long-term debt 5,772 1% 6,626 4,316 1% 5,080
(1% ) 4,918 (1% ) 3,569
      The following table summarizes our exchange-traded equity securities with equity price risk as of September 30, ~~2013.~~2014. The effects of a hypothetical 10% increase and a 10% decrease in market prices as of September 30, ~~2013,~~2014, is also shown. The selected 10% hypothetical change does not reflect what could be considered the best or worst case scenarios. Indeed, results could be far worse due both to the nature of equity markets and the aforementioned liquidity risk.
As of September 30, 2013 As of September 30, 2014
Table 13
Table 10
Hypothetical Hypothetical
Estimated fair Percentage Estimated fair Percentage
value after Increase value after Increase
Fair hypothetical (Decrease) in Fair hypothetical (Decrease) in
value Hypothetical change in price Shareholders’ value Hypothetical change in price Shareholders’
($ ’000) price change ($ ’000) Equity ($ ’000) price change ($ ’000) Equity
Exchange-traded equity securities 8,019 10% 8,821 0.22% 7,584 10% 8,342 0.17%
(10% ) 7,217 (0.22% ) 7,584 (10% ) 6,826 (0.17% )
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
     Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30, ~~2013.~~2014. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the chief executive officer and the chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2013.~~2014.
Changes in Internal Control over Financial Reporting
     There have not been any changes in our internal control over financial reporting during the fiscal quarter ended September 30, ~~2013,~~2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
3132
Part II. Other Information
Item 1. Legal Proceedings
     ~~AllPay Challenge to Tender Award~~United States securities litigation
     On ~~September 10,~~December 24, 2013, Net1, our chief executive officer and our chief financial officer were named as defendants in a purported class action lawsuit filed in the ~~South African Constitutional~~United States District Court ~~heard oral arguments on~~for the ~~appeal by AllPay against the ruling by the South African Supreme Court~~Southern District of ~~Appeal upholding the award~~New York alleging violations of the ~~SASSA tender~~federal securities laws. The lawsuit was brought on behalf of a purported shareholder of Net1 and all other similarly situated shareholders who purchased our securities between August 27, 2009 and November 27, 2013. On July 23, 2014, the Court appointed a lead plaintiff and lead counsel. On September 22, 2014, the lead plaintiff filed an amended complaint alleging that we made materially false and misleading statements in that we failed to ~~us.~~disclose material adverse information and misrepresented the truth about our finances and business prospects. The ~~Constitutional Court~~amended complaint seeks unspecified damages on behalf of the lead plaintiff and all other similarly situated shareholders who purchased our securities between January 18, 2012 and December 4, 2012, which is a shorter class period than proposed in the original complaint. No motion for class certification has ~~reserved judgment.~~been filed. We ~~cannot predict when or how~~believe this lawsuit has no merit and intend to defend it ~~will rule on the matter.~~vigorously.
Item 1A. Risk Factors
     See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2013,~~2014, for a discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government regulation, and (iv) our common stock. Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2013.~~2014.
SASSA has initiated a new tender process for the payment of social grants. As a result, we cannot predict whether our current SASSA contract will remain in effect for the remainder of its five-year term. We derive a substantial portion of our revenues from this contract and from the provision of financial and other services to our cardholder base. If we were to lose our SASSA contract or we were to obtain a new contract on terms that are substantially inferior to our current contract, our business would suffer significantly.
     As ordered by the South African Constitutional Court in its April 2014 ruling, SASSA has initiated a new tender process for a five-year contract relating to the payment of social grants. SASSA issued a request for proposals on October 22, 2014. Bidders are required to submit proposals by December 12, 2014.
     We cannot predict with certainty what the timing or ultimate outcome of the tender process will be, or if a new tender award will be made at all after the process is complete. We intend to participate in the new tender, which, as with prior SASSA tenders, will consume a substantial amount of our management’s time and attention and will impact their ability to focus on other matters, including other South African and international business development activities. We cannot assure you that the current tender process will result in our receiving a contract to continue to distribute social welfare grants nationally. If a new contract is awarded and we are not the winning bidder, we would lose the benefit of the remaining portion of our current contract. Even if we win the tender and do receive a new contract, we cannot predict the terms that such contract will contain. Any new contract we receive may contain pricing or other terms that would be less favorable to us than the terms of our current contract.
     In addition, our SASSA contract has enabled us to offer a variety of innovative financial and other services, such as UEPS-based loans and procurement of prepaid airtime, to our social welfare recipient cardholders. Although we believe that our offerings frequently represent the lowest-cost alternative for our customers for these types of services, if we were to lose our SASSA contract or if our SASSA contract were to limit the provision of these services, it might be less convenient for our cardholder customers to purchase these services from us and thus, we may have difficulty growing or even maintaining this aspect of our South African business, which would negatively affect our future operating performance.
     Further, in connection with the litigation challenging the award of the previous SASSA tender to us, we included our entire 2011 SASSA tender submission in the court record, which court record is in the public domain. Our previous tender submission contained competitively sensitive business information. As a result of this disclosure, our existing and future competitors have access to this information which could adversely affect our competitive position in the current tender process to the extent that such information continues to remain competitively sensitive.
     Finally, if we were to be awarded one or more contracts by SASSA, an unsuccessful tenderor could seek to challenge the award, which could result in the contract being set aside or could require us to expend time and resources in an attempt to defeat any such challenge.
33
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 UEPS-based loans to our customers, which would harm our business.
     Moneyline provides microloans to our UEPS/EMV 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. On September 22, 2014, the South African National Credit Regulator, or NCR, issued a press release stating that it has applied to the National Consumer Tribunal to cancel Moneyline’s registration, based on an investigation concluded by the NCR. The NCR's press release alleges, 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 have ~~signed~~reviewed NCR’s application and believe that it contains numerous factual inaccuracies. We believe that Moneyline has conducted its business in compliance with NCA. However, if the NCR’s application is successful, Moneyline would be prohibited from operating its microlending business, which could have a ~~non-binding letter~~material adverse effect on our results of ~~intent~~operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     As described in further detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Transactions in Preparation for ~~a proposed BEE Transaction. If~~New SASSA Tender,” on August 27, 2014, we ~~do not complete the transaction, our business and stock price may suffer.~~
          ~~On November 6, 2013, we signed a non-binding letter of intent to issue 4,400,000~~repurchased 1,837,432 shares of our common stock from one of our BEE partners at a price of ZAR ~~88.50~~52.99 per share to a consortium of investors pursuant to a new BEE transaction. The letter of intent provides, among other things, that one of our South African subsidiaries would extend a five-year loan to the BEE consortium to provide it with the funds to pay the purchase price of the shares, with the shares serving as collateral security for repayment of the loan. Completion of the transaction, is subject to the conclusion of definitive agreements which will include certain conditions to the issuance of the shares, including obtaining the relevant regulatory approvals. We cannot assure you that we will be able to complete the proposed transaction on the proposed terms, if at all.share.
          The proposed BEE transaction is part of our ongoing efforts to strengthen the development of our business plan, and is in compliance with South African regulation and business practice. We expect that completion of the proposed transaction will help us achieve applicable BEE objectives. However, if we are unable to complete the transaction as proposed, we would not achieve these expected benefits and our business could be adversely impacted. In addition, we are lending the BEE consortium the purchase price for the shares and are relying in part on the future appreciation of our stock price to enable the BEE consortium to repay the loan. We also cannot predict how the announcement of the letter of intent, or the completion or non-completion of the transaction on the contemplated terms, will affect the trading price of our common stock.
Item 6. Exhibits
     The following exhibits are filed as part of this Form 10-Q:
Incorporated by Reference Herein
Exhibit Included
No. Description of Exhibit Herewith Form Exhibit Filing Date

10.24 KRW 85,000,000,000 Senior Facilities Agreement dated October 28, 2013, between Net 1 Applied Technologies Korea, as borrower, Hana Bank, as agent and security agent, financial institutions listed therein as original lenders and Hana Daetoo Securities Co., Ltd., as mandated lead arranger. 8-K 10.24 October 31, 2013
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act X
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act X
32 Certification pursuant to 18 USC Section 1350 X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema X
101.CAL XBRL Taxonomy Extension Calculation Linkbase X
101.DEF XBRL Taxonomy Extension Definition Linkbase X
101.LAB XBRL Taxonomy Extension Label Linkbase X
101.PRE XBRL Taxonomy Extension Presentation Linkbase X
Incorporated by Reference Herein
Exhibit Included
No. Description of Exhibit Herewith Form Exhibit Filing Date
10.29 Subscription and Sale of Shares Agreement dated August 27, 2014, between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Business Venture Investments No 1567 (Proprietary) Limited (RF), Mosomo Investment Holdings (Proprietary) Limited and Cash Paymaster Services (Proprietary) Ltd X
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act X
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act X
32 Certification pursuant to 18 USC Section 1350 X
101.INS XBRL Instance Document X
101.SCH XBRL Taxonomy Extension Schema X
101.CAL XBRL Taxonomy Extension Calculation Linkbase X
101.DEF XBRL Taxonomy Extension Definition Linkbase X
101.LAB XBRL Taxonomy Extension Label Linkbase X
101.PRE XBRL Taxonomy Extension Presentation Linkbase X
34
SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November ~~7, 2013.~~6, 2014.
NET 1 UEPS TECHNOLOGIES, INC.
By: /s/ Dr. Serge C.P. Belamant
Dr. Serge C.P. Belamant
Chief Executive Officer, Chairman of the Board and Director
By: /s/ Herman Gideon Kotzé
Herman Gideon Kotzé
Chief Financial Officer, Treasurer and Secretary, Director
3235

				Fair market
Notional amount		Strike price		value price		Maturity
USD	4,000,000	ZAR	9.06	ZAR	10.1397	September 30, 2013

		Fair market
Notional amount	Strike price	value price	Maturity
EUR 181,570.50	ZAR 15.5739	ZAR 14.3053	October 20, 2014
EUR 181,570.50	ZAR 15.4316	ZAR 14.3053	October 20, 2014
EUR 180,022.50	ZAR 15.6552	ZAR 14.3818	November 20, 2014
EUR 180,022.50	ZAR 15.5136	ZAR 14.3818	November 20, 2014
EUR 180,022.50	ZAR 15.5970	ZAR 14.4701	December 22, 2014
EUR 180,022.50	ZAR 15.7391	ZAR 14.4701	December 22, 2014
EUR 174,424.50	ZAR 15.8119	ZAR 14.5511	January 20, 2015
EUR 174,424.50	ZAR 15.6729	ZAR 14.5511	January 20, 2015

		Quoted
		Price in
		Active		Significant
		Markets for		Other		Significant
		Identical		Observable		Unobservable
		Assets		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Assets
Related to insurance business (included in other long-term assets):
Cash and cash equivalents	$	1,816	$	-	$	-	$	1,816
Investment in Finbond (available for sale assets included in other long-term assets)		-		-		8,019		8,019
Other		-		155		-		155
Total assets at fair value	$	1,816	$	155	$	8,019	$	9,990

				Accumulated		Carrying
		Gross value		impairment		value
Balance as of June 30, 2013	$	218,558	$	(42,752)	$	175,806
Foreign currency adjustment ⁽¹⁾		5,067		77		5,144
Balance as of September 30, 2013	$	223,625	$	(42,675)	$	180,950

		As of		As of
		September 30,		June 30,
		2013		2013
SA transaction-based activities	$	29,861	$	30,525
International transaction-based activities		120,334		113,972
Smart card accounts		-		-
Financial services		-		-
Hardware, software and related technology sales		30,755		31,309
Total	$	180,950	$	175,806

		As of September 30, 2013						As of June 30, 2013
		Gross				Net		Gross					Net
		carrying	Accumulated			carrying		carrying		Accumulated			carrying
		value	amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships	$	94,206	($32,986	)	$	61,220	$	90,469	$	(29,818	)	$	60,651
Software and unpatented
technology		36,052	(24,129	)		11,923		34,951		(22,151	)		12,800
FTS patent		3,789	(3,789	)		-		3,873		(3,873	)		-
Exclusive licenses		4,506	(4,506	)		-		4,506		(4,506	)		-
Trademarks		6,755	(2,983	)		3,772		6,611		(2,805	)		3,806
Customer database		601	(601	)		-		614		(614	)		-
Total finite-lived intangible assets	$	145,909	($68,994	)	$	76,915	$	141,024	$	(63,767	)	$	77,257

		As of September 30, 2014							As of June 30, 2014
		Gross					Net		Gross					Net
		carrying		Accumulated			carrying		carrying		Accumulated			carrying
		value		amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships	$	94,844	$	(41,881	)	$	52,963	$	98,676	$	(41,273	)	$	57,403
Software and unpatented
technology		32,271		(26,478	)		5,793		33,604		(26,207	)		7,397
FTS patent		3,402		(3,402	)		-		3,619		(3,619	)		-
Exclusive licenses		4,506		(4,506	)		-		4,506		(4,506	)		-
Trademarks		6,583		(3,191	)		3,392		6,890		(3,176	)		3,714
Total finite-lived intangible assets	$	141,606	$	(79,458	)	$	62,148	$	147,295	$	(78,781	)	$	68,514

2014	$	15,637
2015		15,583	$	15,239
2016		11,228		11,394
2017		8,896		9,080
2018		8,896		9,080
2019				8,745
Thereafter	$	20,575	$	12,146

		Reinsurance			Insurance
		assets (1)			contracts (2)
Balance as of June 30, 2013	$	19,557		$	(19,711	)
Foreign currency adjustment⁽³⁾		(425	)		428
Balance as of September 30, 2013	$	19,132		$	(19,283	)

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

					Investment
		Assets (1)			contracts (2)
Balance as of June 30, 2013	$	953		$	(953	)
Foreign currency adjustment⁽³⁾		(21	)		21
Balance as of September 30, 2013	$	932		$	(932	)

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

		Three months ended
		September 30, 2014
					Accumulated
					Net
					unrealized
		Accumulated			income (loss)
		Foreign			on asset
		currency			available for
		translation			sale, net of
		reserve			tax			Total
		‘000			‘000			‘000
Balance as of June 30, 2014	$	(83,359	)	$	$618		$	(82,741	)
Movement in foreign currency translation reserve		(21,159	)		-			(21,159	)
Unrealized loss on asset available for sale, net of tax of $88		-			(226	)		(226	)
Balance as of September 30, 2014	$	(104,518	)	$	392		$	(104,126	)

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

Outstanding – June 30, 2013	2,648,583		15.15	5.98	313
Granted under Plan: August 2013	224,896		7.35	10.00	568	2.53
Outstanding – September 30, 2013	2,873,479		14.54	6.06	4,841

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

				Allocated to cost
				of goods sold, IT		Allocated to
				processing,		selling, general
		Total		servicing and		and
		charge		support		administration
Three months ended September 30, 2013
Stock-based compensation charge	$	930	$	-	$	930
Total – three months ended September 30, 2013 .	$	930	$	-	$	930

Three months ended September 30, 2012
Stock-based compensation charge	$	1,116	$	-	$	1,116
Total – three months ended September 30, 2012 .	$	1,116	$	-	$	1,116

				Revenue
						From
		Reportable		Inter-		external
		Segment		segment		customers
South African transaction processing	$	60,252	$	5,121	$	55,131
International transaction processing		43,204		-		43,204
Financial inclusion and applied technologies		65,197		7,091		58,106
Total for the three months ended September 30, 2014		168,653		12,212		156,441

South African transaction processing		57,161		700		56,461
International transaction processing		37,541		-		37,541
Financial inclusion and applied technologies		36,796		7,304		29,492
Total for the three months ended September 30, 2013	$	131,498	$	8,004	$	123,494

		For the three months
		ended September 30,
		2014			2013
Reportable segments measure of profit or loss	$	38,595		$	24,820
Operating income: Corporate/Eliminations		(5,470	)		(8,420	)
Interest income		4,090			3,319
Interest expense		(1,312	)		(1,752	)
Income before income taxes	$	35,903		$	17,967

		Three months ended
		September 30,
		2013			2012
Net (loss) income
SA transaction-based activities	$	9,547		$	4,504
International transaction-based activities		1,937			343
Smart card accounts		2,324			1,716
Financial services		27			801
Hardware, software and related technology sales		2,095			1,477
Corporate/Eliminations		(4,334	)		(2,097	)
Total		11,596			6,744
Expenditures for long-lived assets
SA transaction-based activities		556			3,594
International transaction-based activities		4,831			2,703
Smart card accounts		-			-
Financial services		200			145
Hardware, software and related technology sales		29			11
Corporate/Eliminations		-			-
Total	$	5,616		$	6,453

Table 1	Three months ended		Year	Three months ended		Year ended
	September 30,		ended
			June 30,	September 30,		June 30,
	2013	2012	2013	2014	2013	2014
ZAR : $ average exchange rate	10.0015	8.2644	8.8462	10.7581	10.0015	10.3798
Highest ZAR : $ rate during period	10.4936	8.5470	10.3587	11.2641	10.4936	11.2579
Lowest ZAR : $ rate during period	9.5436	8.0444	8.0444	10.5128	9.5436	9.6259
Rate at end of period	10.1123	8.3172	9.8925	11.2641	10.1123	10.5887
KRW : $ average exchange rate	1,113	1,137	1,112	1,027	1,113	1,068
Highest KRW : $ rate during period	1,152	1,156	1,162	1,051	1,152	1,147
Lowest KRW : $ rate during period	1,045	1,080	1,019	1,009	1,045	1,014
Rate at end of period	1,083	1,125	1,144	1,051	1,083	1,014

Table 2	Three months ended		Year ended	Three months ended		Year ended
	September 30,		June 30,	September 30,		June 30,
	2013	2012	2013	2014	2013	2014
Income and expense items: $1 = ZAR .	10.0001	8.2606	8.7105	10.7431	10.0001	10.3966
Income and expense items: $1 = KRW	1,141	1,140	1,072	1,029	1,141	1,049

Balance sheet items: $1 = ZAR	10.1123	8.3172	9.8925	11.2641	10.1123	10.5887
Balance sheet items: $1 = KRW	1,083	1,125	1,144	1,051	1,083	1,014

	•	*~~Unfavorable impact from the strengthening of the US dollar against the ZAR:~~*~~The US dollar appreciated by 21% against the ZAR during the first quarter of fiscal 2014 which negatively impacted our reported results;~~
	•	*~~SASSA implementation complete:~~*Our SASSA contract implementation is complete and the first quarter of fiscal 2014 was the first full quarter without any implementation-related expenditure since the tender was awarded to us in January 2012. We incurred implementation-related expenditure, including smart card costs, of approximately $15.8 million during the first quarter of fiscal 2013;
	•	*~~Higher revenue resulting from an increase in low-margin prepaid airtime sales:~~*~~Our revenue has increased as a result of the deployment of our Umoya Manje prepaid airtime offering during the quarter, which has lower margins compared with our other South African businesses;~~
	•	*~~National rollout of our financial services offering:~~*We commenced the national roll out of our financial services offering during the first quarter of fiscal 2014, which resulted in higher revenue from UEPS-based loans. Profitability in the financial services segment however was lower due to rollout costs, including hiring and training of additional staff and infrastructure deployment;
	•	*~~Ad hoc hardware sales in fiscal 2014:~~*~~We sold more terminals and cards during the first quarter of fiscal 2014 as a result of ad hoc orders received from our customers; and~~
	•	*~~DOJ and SEC investigation-related expenses:~~*~~We incurred DOJ and SEC investigation-related expenses of $2.1 million during the first quarter of fiscal 2014.~~

	In United States Dollars					In United States Dollars
Table 3	(US GAAP)					(US GAAP)
	Three months ended September 30,					Three months ended September 30,
	2013		2012	$ %		2014	2013		$%
	$’000		$’000	change		$’000	$’000		change
Revenue	123,494		111,682	11%		156,441	123,494		27%
Cost of goods sold, IT processing, servicing and support	56,559		45,101	25%		74,406	56,559		32%
Selling, general and administration	40,506		47,252	(14%	)	38,736	40,506		(4%	)
Depreciation and amortization	10,029		10,004	0%		10,174	10,029		1%
Operating income	16,400		9,325	76%		33,125	16,400		102%
Interest income	3,319		3,091	7%		4,090	3,319		23%
Interest expense	1,752		2,071	(15%	)	1,312	1,752		(25%	)
Income before income tax expense	17,967		10,345	74%		35,903	17,967		100%
Income tax expense	6,485		3,729	74%		11,648	6,485		80%
Net income before earnings from equity-accounted investments	11,482		6,616	74%		24,255	11,482		111%
Earnings from equity-accounted investments	103		128	(20%	)	92	103		(11%	)
Net income	11,585		6,744	72%		24,347	11,585		110%
Add net loss attributable to non-controlling interest	(11	)	-	nm
Less (Add) net income (loss) attributable to non-controlling interest						258	(11	)	nm
Net income attributable to us	11,596		6,744	72%		24,089	11,596		108%

	In South African Rand					In South African Rand
Table 4	(US GAAP)					(US GAAP)
	Three months ended September 30,					Three months ended September 30,
	2013		2012			2014	2013
	ZAR		ZAR	ZAR %		ZAR	ZAR		ZAR %
	’000		’000	change		’000	’000		change
Revenue	1,234,965		922,561	34%
						1,680,661	1,234,965		36%
Cost of goods sold, IT processing, servicing and support	565,601		372,561	52%		799,351	565,601		41%
Selling, general and administration	405,069		390,330	4%		416,145	405,069		3%
Depreciation and amortization	100,292		82,640	21%		109,300	100,292		9%
Operating income	164,003		77,030	113%		355,865	164,003		117%
Interest income	33,191		25,534	30%		43,939	33,191		32%
Interest expense	17,520		17,108	2%		14,095	17,520		(20%	)
Income before income tax expense	179,674		85,456	110%		385,709	179,674		115%
Income tax expense	64,851		30,804	111%		125,136	64,851		93%
Net income before earnings from equity-accounted investments	114,823		54,652	110%		260,573	114,823		127%
Earnings from equity-accounted investments	1,030		1,057	(3%	)	988	1,030		(4%	)
Net income	115,853		55,709	108%		261,561	115,853		126%
Add net loss attributable to non-controlling interest	(110	)	-	nm
Less (Add) net income (loss) attributable to non-controlling interest						2,772	(110	)	nm
Net income attributable to us	115,963		55,709	108%		258,789	115,963		123%

Table 5	Three months ended September 30,
	2013	2012
	$’000	$ ’000
Amortization included in depreciation and amortization expense:	3,748	4,689
South African transaction-based activities	526	1,449
International transaction-based activities	3,149	3,152
Hardware, software and related technology sales	73	88

Table 6	Three months ended September 30,
	2013	2012
	ZAR ’000	ZAR ’000
Amortization included in depreciation and amortization expense:	37,474	38,732
South African transaction-based activities	5,267	11,978
International transaction-based activities	31,490	26,037
Hardware, software and related technology sales	717	717

Table 7	*In United States Dollars (US GAAP)*
	Three months ended September 30,
	2013		% of		2012		% of		%
Operating Segment	$’000		total		$ ’000		total		change
Consolidated revenue:
SA transaction-based activities	63,032		51%		61,364		55%		3%
International transaction-based activities	36,817		30%		31,649		28%		16%
Smart card accounts	11,329		9%		8,364		7%		35%
Financial services	2,427		2%		1,384		1%		75%
Hardware, software and related technology sales	9,889		8%		8,921		9%		11%
Total consolidated revenue	123,494		100%		111,682		100%		11%
Consolidated operating (loss) income:
SA transaction-based activities	13,282		81%		6,400		69%		108%
Operating income before amortization	13,808				7,850
Amortization of intangible assets	(526	)			(1,450	)
International transaction-based activities	2,051		13%		(171	)	(2%	)	nm
Operating income before amortization	5,200				2,981
Amortization of intangible assets	(3,149	)			(3,152	)
Smart card accounts	3,228		20%		2,385		26%		35%
Financial services	56		-		1,097		12%		(95%	)
Hardware, software and related technology sales	2,948		18%		1,984		21%		49%
Operating income before amortization	3,021				2,071
Amortization of intangible assets	(73	)			(87	)
Corporate/eliminations	(5,165	)	(32%	)	(2,370	)	(26%	)	118%
Total consolidated operating income	16,400		100%		9,325		100%		76%

Table 6	*In South African Rand (US GAAP)*
	Three months ended September 30,
	2014				2013
	ZAR		% of		ZAR		% of		%
Operating Segment	’000		total		’000		total		change
Revenue:
South African transaction processing	647,293		39%		571,622		46%		13%
International transaction processing	464,145		28%		375,418		30%		24%
Financial inclusion and applied technologies	700,418		42%		367,967		30%		90%
Subtotal: Operating segments	1,811,856		109%		1,315,007		106%		38%
Intersegment eliminations	(131,195	)	(9%	)	(80,042	)	(6%	)	64%
Consolidated revenue	1,680,661		100%		1,234,965		100%		36%
Operating income (loss):
South African transaction processing	146,525		41%		64,611		39%		127%
International transaction processing	78,951		22%		55,241		34%		43%
Financial inclusion and applied technologies	189,154		53%		128,353		78%		47%
Subtotal: Operating segments	414,630		116%		248,205		151%		67%
Corporate/Eliminations	(58,765	)	(16%	)	(84,202	)	(51%	)	(30%	)
Consolidated operating income	355,865		100%		164,003		100%		117%

Table 8	*In South African Rand (US GAAP)*
	Three months ended September 30,
	2013				2012
	ZAR		% of		ZAR		% of		%
Operating Segment	’000		total		’000		total		change
Consolidated revenue:
SA transaction-based activities	630,326		51%		506,903		55%		24%
International transaction-based activities	368,174		30%		261,440		28%		41%
Smart card accounts	113,291		9%		69,092		7%		64%
Financial services	24,270		2%		11,433		1%		112%
Hardware, software and related technology sales	98,891		8%		73,692		9%		34%
Total consolidated revenue	1,234,952		100%		922,560		100%		34%
Consolidated operating (loss) income:
SA transaction-based activities	132,821		81%		52,868		69%		151%
Operating income before amortization	138,088				64,846
Amortization of intangible assets	(5,267	)			(11,978	)
International transaction-based activities	20,510		13%		(1,413	)	(2%	)	nm
Operating income before amortization	52,000				24,624
Amortization of intangible assets	(31,490	)			(26,037	)
Smart card accounts	32,280		20%		19,702		26%		64%
Financial services	560		-		9,062		12%		(94%	)
Hardware, software and related technology sales	29,480		18%		16,389		21%		80%
Operating income before amortization	30,197				17,106
Amortization of intangible assets	(717	)			(717	)
Corporate/eliminations	(51,651	)	(32%	)	(19,578	)	(26%	)	164%
Total consolidated operating income	164,000		100%		77,030		100%		113%

Table 9
Transaction	Total volume (‘000s)		Total value $ (‘000)		Total value ZAR (‘000)
processor	2014	2013	2014	2013	2014	2013
CPS	28,325	28,373	2,698,278	3,143,773	26,983,054	25,969,448
EasyPay	99,145	102,420	2,657,667	2,710,615	26,576,938	22,391,310
MediKredit	2,593	2,624	201,595	171,478	2,015,966	1,416,508
FIHRST	5,628	5,987	2,058,717	2,373,540	20,587,371	19,606,861

Table 10	Three months ended September 30,
Table 7							Three months ended September 30,
	2013	2012		2013	2012		2014		2013	2014		2013
	$	$		ZAR	ZAR		$		$	ZAR		ZAR
	‘000	‘000		‘000	‘000		‘000		‘000	‘000		‘000
Taxation paid related to prior years							2,408		-	26,392		-
Taxation refunds received	-	(55	)	-	(464	)	(35	)	-	(365	)	-
Total South African taxes refunded	-	(55	)	-	(464	)
Total South African taxes paid							2,374		-	26,027		-
Foreign taxes paid: primarily Korea	498	397		4,984	3,279		2,786		498	30,170		4,984
Total tax paid	498	342		4,984	2,815		5,160		498	56,197		4,984