UNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 endedMarch 31, 20142015

OR

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

For the transition period from _________________________________ To _________________________________

Commission file number:000-31203

NET 1 UEPS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

President Place, 4th Floor, Cnr. Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg 2196, South Africa

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: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]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][X ]

As of May 8, 20145, 2015 (the latest practicable date), 50,183,34246,607,153 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC.

Table of Contents

  Page No.
PART I. FINANCIAL INFORMATION 
 Item 1.Financial Statements
Unaudited Condensed Consolidated Balance Sheets at March 31, 20142015 and June 30, 201320142
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Endedmonths ended March 31, 20142015 and 201320143
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Endedmonths ended March 31, 20142015 and 201320144
Unaudited Condensed Consolidated Statement of Changes in Equity for the Nine months EndedMonths ended March 31, 201420155
Unaudited Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Endedmonths ended March 31, 20142015 and 201320146
 Notes to Unaudited Condensed Consolidated Financial Statements7
 Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2524
 Item 3.Quantitative and Qualitative Disclosures About Market Risk4338
 Item 4.Controls and Procedures4338
PART II. OTHER INFORMATION 
 Item 1.Legal Proceedings4439
 Item 1A.Risk Factors4439
 Item 6.Exhibits4541
 Signatures4541
 EXHIBIT 10.3031.1 
 EXHIBIT 10.3131.2 
 EXHIBIT 31.1
     EXHIBIT 31.2
EXHIBIT 32  

1


Part I. Financial Information

Item 1. Financial Statements

Part I. Financial Information
Item 1. Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Balance Sheets

 Unaudited  (A)  Unaudited  (A) 
 March 31,  June 30,  March 31,  June 30, 
 2014  2013  2015  2014 
 (In thousands, except share data)  (In thousands, except share data) 
ASSETS ASSETS  ASSETS  
CURRENT ASSETS            
Cash and cash equivalents$ 30,875 $ 53,665 $ 111,002 $ 58,672 
Pre-funded social welfare grants receivable (Note 2) 4,728  2,934  2,853  4,809 
Accounts receivable, net of allowances of – March: $1,592; June: $4,701 132,356  102,614 
Finance loans receivable, net of allowances of – March: $1,815; June: $- 42,379  8,350 
Accounts receivable, net of allowances of – March: $2,347; June: $1,313 136,520  148,067 
Finance loans receivable, net of allowances of – March: $4,707; June: $3,083 44,935  53,124 
Inventory (Note 3) 10,491  12,222  12,095  10,785 
Deferred income taxes 5,350  4,938  6,828  7,451 
Total current assets before settlement assets 226,179  184,723  314,233  282,908 
Settlement assets (Note 4) 744,782  752,476  651,615  725,987 
Total current assets 970,961  937,199  965,848  1,008,895 
      
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – March: $92,314; June: $84,808 46,150  48,301 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – March: $98,213; June: $91,422 48,395  47,797 
EQUITY-ACCOUNTED INVESTMENTS 1,347  1,183  930  878 
GOODWILL (Note 6) 179,832  175,806  169,433  186,576 
INTANGIBLE ASSETS, net (Note 6) 69,265  77,257  51,665  68,514 
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7) 34,338  36,576 
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and Note 7) 35,781  38,285 
TOTAL ASSETS 1,301,893  1,276,322  1,272,052  1,350,945 
LIABILITIES LIABILITIES  LIABILITIES  
CURRENT LIABILITIES            
Bank overdraft (Note 8) -  - 
Accounts payable 14,592  26,567  15,341  17,101 
Other payables 35,682  33,808  41,087  42,257 
Current portion of long-term borrowings (Note 9) 14,005  14,209  -  14,789 
Income taxes payable 11,749  2,275  10,215  7,676 
Total current liabilities before settlement obligations 76,028  76,859  66,643  81,823 
Settlement obligations (Note 4) 744,782  752,476  651,615  725,987 
Total current liabilities 820,810  829,335  718,258  807,810 
DEFERRED INCOME TAXES 17,343  18,727  11,841  15,522 
LONG-TERM BORROWINGS (Note 9) 58,061  66,632  60,027  62,388 
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) 20,117  21,659  20,250  23,477 
TOTAL LIABILITIES 916,331  936,353  810,376  909,197 
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 - March: 45,783,342; June: 45,592,550		 59  59 
Authorized: 200,000,000 with $0.001 par value;      
Issued and outstanding shares, net of treasury - March: 46,607,153; 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: March: -; June: -		 -  - 
Authorized shares: 50,000,000 with $0.001 par value;      
Issued and outstanding shares, net of treasury: March: -; June: - -  - 
ADDITIONAL PAID-IN-CAPITAL 165,076  160,670  213,264  202,401 
TREASURY SHARES, AT COST: March: 13,455,090; June: 13,455,090 (175,823) (175,823)
TREASURY SHARES, AT COST: March: 18,057,228; June: 15,883,212 (214,520) (200,681)
ACCUMULATED OTHER COMPREHENSIVE LOSS (97,910) (100,858) (131,415) (82,741)
RETAINED EARNINGS 494,145  452,618  593,954  522,729 
TOTAL NET1 EQUITY 385,547  336,666  461,347  441,771 
NON-CONTROLLING INTEREST 15  3,303  329  (23)
TOTAL EQUITY 385,562  339,969  461,676  441,748 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$ 1,301,893 $ 1,276,322 $ 1,272,052 $ 1,350,945 

(A) – Derived from audited financial statements

See Notes to Unaudited Condensed Consolidated Financial Statements

2

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

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
  (In thousands, except per share data)  (In thousands, except per share data) 
             
REVENUE$ 138,126 $ 111,141 $ 398,903 $ 334,265 
             
EXPENSE            
             
        Cost of goods sold, IT processing, servicing 
        and support		 63,149  51,461  187,591  143,789 
             
         Selling, general and administration 40,586  53,846  121,916  149,854 
             
         Depreciation and amortization 10,442  10,560  30,245  31,051 
             
OPERATING INCOME (LOSS) 23,949  (4,726) 59,151  9,571 
             
INTEREST INCOME 3,438  2,515  9,993  8,195 
             
INTEREST EXPENSE 1,734  2,023  5,712  6,117 
             
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 25,653  (4,234) 63,432  11,649 
             
INCOME TAX EXPENSE (note 16) 8,535  472  22,119  7,172 
             
NET INCOME (LOSS) BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 17,118  (4,706) 41,313  4,477 
             
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 52  22  202  204 
             
NET INCOME (LOSS) 17,170  (4,684) 41,515  4,681 
             
ADD NET LOSS ATTRIBUTABLE TO NON- CONTROLLING INTEREST (12) (3) (12) (11)
             
NET INCOME (LOSS) ATTRIBUTABLE TO NET1$ 17,182 $ (4,681)$ 41,527 $ 4,692 
             
Net income (loss) per share, in United Statesdollars(note 13)        
        Basic earnings (loss) attributable to 
        Net1 shareholders		$0.38 $(0.10)$0.91 $0.10 
        Diluted earnings (loss) attributable to 
        Net1 shareholders		$0.37 $(0.10)$0.90 $0.10 
  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
  (In thousands, except per share data)  (In thousands, except per share data) 
REVENUE$ 151,121 $ 138,126 $ 461,693 $ 398,903 
EXPENSE            
         Cost of goods sold, IT processing, servicing and support 71,094  63,149  217,274  187,591 
         Selling, general and administration 38,001  40,586  118,122  121,916 
         Depreciation and amortization 10,060  10,442  30,391  30,245 
OPERATING INCOME 31,966  23,949  95,906  59,151 
INTEREST INCOME 4,211  3,438  11,888  9,993 
INTEREST EXPENSE 941  1,734  3,360  5,712 
INCOME BEFORE INCOME TAX EXPENSE 35,236  25,653  104,434  63,432 
INCOME TAX EXPENSE (Note 16) 10,305  8,535  32,156  22,119 
NET INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 24,931  17,118  72,278  41,313 
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 65  52  233  202 
NET INCOME 24,996  17,170  72,511  41,515 
LESS (ADD) NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST 638  (12) 1,690  (12)
NET INCOME ATTRIBUTABLE TO NET1$ 24,358 $ 17,182 $ 70,821 $ 41,527 
Net income per share, in United States dollars (Note 13)        
         Basic earnings attributable to Net1 shareholders$0.52 $0.38 $1.51 $0.91 
         Diluted earnings attributable to Net1 shareholders$0.52 $0.37 $1.51 $0.90 

See Notes to Unaudited Condensed Consolidated Financial Statements

3

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

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
  (In thousands)  (In thousands) 
             
Net income (loss)$ 17,170 $ (4,684)$ 41,515 $ 4,681 
             
Other comprehensive (loss) income            
      Net unrealized income on asset available for sale, 
        net of tax		 327  -  288  258 
       Movement in foreign currency translation reserve (2,134) (22,993) 2,838  (12,811)
             Total other comprehensive (loss) income, net 
             of taxes		 (1,807) (22,993) 3,126  (12,553)
             
Comprehensive income (loss) 15,363  (27,677) 44,641  (7,872)
             Add comprehensive loss attributable to 
             non-controlling interest		 12  3  12  11 
                    Comprehensive income (loss) attributable
                    to Net1		$ 15,375 $ (27,674)$ 44,653 $ (7,861)
  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
  (In thousands)  (In thousands) 
             
Net income$ 24,996 $ 17,170 $ 72,511 $ 41,515 
             
Other comprehensive income (loss)            
       Net unrealized gain on asset available for sale, net of tax 648  327  422  288 
       Movement in foreign currency translation reserve (11,596) (2,134) (49,182) 2,838 
                  Total other comprehensive (loss) income, net of taxes (10,948) (1,807) (48,760) 3,126 
             
Comprehensive income 14,048  15,363  23,751  44,641 
                  (Less) Add comprehensive (income)
                  loss attributable to non-controlling interest		 (601) 12  (1,604) 12 
                            Comprehensive income attributable to Net1$ 13,447 $ 15,375 $ 22,147 $ 44,653 

See Notes to Unaudited Condensed Consolidated Financial Statements

4

NET 1 UEPSTECHNOLOGIES, INC.
ConsolidatedStatement ofChanges in Equity (dollaramounts inthousands)
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statement of Changes in Equity for the nine months ended March 31, 2015 (dollar amounts in thousands)

  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           -     - 
Exercise of stock option 10,000           10,000  88        88     88 
Stock-based compensation charge                2,826        2,826     2,826 
Reversal of stock-based compensation charge (7,171)       (7,171) (6)     (6)   (6)
Income tax benefit from vested stock awards           6      6    6 
Acquisition of KSNET non-controlling interest (Note 10)           1,492    (178) 1,314  (3,276) (1,962)
Net income                   41,527     41,527  (12) 41,515 
Other comprehensive income                      3,126  3,126  -  3,126 
Balance – March 31, 2014 59,238,432 $59  (13,455,090)$(175,823) 45,783,342 $165,076 $494,145 $(97,910)$385,547 $15 $385,562 
  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) 213,237           213,237           -     - 
Exercise of stock option (Note 12) 748,633  1  (336,584) (4,688) 412,049  6,467        1,780     1,780 
Stock-based compensation charge (Note 12)           2,682      2,682    2,682 
Income tax benefit from vested stock awards           483      483    483 
Transactions with non-controlling interest (Note 10)           1,231  404    1,635  (228) 1,407 
Dividends paid to non-controlling interest                         -  (1,024) (1,024)
Net income                   70,821     70,821  1,690  72,511 
Other comprehensive loss (Note 11)                      (48,674) (48,674) (86) (48,760)
Balance – March 31, 2015 64,664,381 $64  (18,057,228)$(214,520) 46,607,153 $213,264 $593,954 $(131,415)$461,347 $329 $461,676 

See Notes to Unaudited Condensed Consolidated Financial Statements

5

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

 Three months ended  Nine months ended  Three months ended  Nine months ended 
 March 31,  March 31,  March 31,  March 31, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 (In thousands)  (In thousands)  (In thousands)  (In thousands) 
Cash flows from operating activities                        
Net income (loss)$ 17,170 $ (4,684)$ 41,515 $ 4,681 
Net income$ 24,996 $ 17,170 $ 72,511 $ 41,515 
Depreciation and amortization 10,442  10,560  30,245  31,051  10,060  10,442  30,391  30,245 
Earnings from equity-accounted investments (52) (22) (202) (204) (65) (52) (233) (202)
Fair value adjustments 110  (299) 49  408  (449) 110  (270) 49 
Interest payable 30  1,054  1,696  3,363  (23) 30  1,276  1,696 
(Profit) loss on disposal of property, plant and equipment (26) 3  (42) (83)
Profit on disposal of property, plant and equipment (64) (26) (295) (42)
Stock-based compensation charge 922  1,092  2,820  3,325  731  922  2,682  2,820 
Facility fee amortized 79  71  657  235  36  79  170  657 
Increase in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable (6,443) (4,818) (67,521) (3,987)
Decrease (Increase) in inventory 2,821  4,949  979  (2,260)
Decrease (Increase) in accounts receivable, pre- funded social welfare grants receivable and finance loans receivable 3,379  (6,443) 5,534  (67,521)
(Increase) Decrease in inventory (26) 2,821  (2,771) 979 
Increase (Decrease) in accounts payable and other payables 2,656  4,533  (10,895) (1,755) 4,735  2,656  (7,654) (10,895)
Increase in taxes payable 8,069  948  9,431  354  7,465  8,069  4,113  9,431 
Decrease in deferred taxes (1,141) (1,201) (3,019) (4,133) (1,467) (1,141) (2,025) (3,019)
Net cash provided by operating activities 34,637  12,186  5,713  30,995  49,308  34,637  103,429  5,713 
Cash flows from investing activities                        
Capital expenditures (4,848) (5,053) (17,309) (17,103) (6,307) (4,848) (24,822) (17,309)
Proceeds from disposal of property, plant and equipment 123  31  2,124  387  163  123  777  2,124 
Acquisitions, net of cash acquired -  -  -  (2,143)
Proceeds from sale of business (Note 14) -  -  1,895  - 
(Investment in equity in) Repayment of loan by equity-accounted investment (25) -  (25) 3  -  (25) -  (25)
Proceeds from maturity of investments related to insurance business -  -  -  545 
Other investing activities, net 571  -  570  - 
Other investing activities -  571  (29) 570 
Net change in settlement assets (277,912) (156,363) (21,409) (168,419) (188,315) (277,912) 10,283  (21,409)
Net cash used in investing activities (282,091) (161,385) (36,049) (186,730) (194,459) (282,091) (11,896) (36,049)
Cash flows from financing activities                        
Long-term borrowings obtained (Note 9) 1,028  -  72,633  - 
Repayment of long-term borrowings (Note 9) -  -  (87,008) (7,307) -  -  (14,128) (87,008)
Payment of facility fee (Note 9) -  -  (872) - 
Long-term borrowings utilized 798  1,028  2,976  72,633 
Acquisition of treasury stock (Note 10) -  -  (9,151) - 
Sale of equity to non-controlling interest (Note 10) -  -  1,407  - 
Dividends paid to non-controlling interest (1,024) -  (1,024) - 
Proceeds from issue of common stock 791  88  1,780  88 
Payment of facility fee -  -  -  (872)
Proceeds from bank overdraft -  -  24,580  -  -  -  -  24,580 
Repayment of bank overdraft (23,335) -  (23,335) -  -  (23,335) -  (23,335)
Acquisition of interests in KSNET (Note 10) -  -  (1,968) -  -  -  -  (1,968)
Proceeds from issue of common stock 88  -  88  240 
Net change in settlement obligations 277,912  156,363  21,409  168,419  188,315  277,912  (10,283) 21,409 
Net cash provided by financing activities 255,693  156,363  5,527  161,352 
Net cash provided (used in) by financingactivities 188,880  255,693  (28,423) 5,527 
Effect of exchange rate changes on cash 274  (2,664) 2,019  (2,124) (3,708) 274  (10,780) 2,019 
Net increase (decrease) in cash and cashequivalents 8,513  4,500  (22,790) 3,493 
Net increase (decrease) in cash and cashequivalents 40,021  8,513  52,330  (22,790)
Cash and cash equivalents – beginning of period 22,362  38,116  53,665  39,123  70,981  22,362  58,672  53,665 
Cash and cash equivalents – end of period$ 30,875 $ 42,616 $ 30,875 $ 42,616 $ 111,002 $ 30,875 $ 111,002 $ 30,875 

See Notes to Unaudited Condensed Consolidated Financial Statements

6


NET 1 UEPS TECHNOLOGIES, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2015 and 2014
(All amounts in tables stated in thousands or thousands of United States Dollars, unless otherwise stated)

NET 1 UEPS TECHNOLOGIES, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and nine months ended March 31, 2014 and 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 and nine months ended March 31, 20142015 and 2013,2014, 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.

        The Company has updated its accounting policy for the allowance for doubtful finance loans receivable as a result of the increase in its UEPS-based lending book which is included in finance loans receivable in its unaudited condensed consolidated balance sheet. The Company does not believe that an allowance for doubtful finance loans receivable is required for finance loans receivable as of June 30, 2013, because this was an established book and has been recovered. However, the profile of the loan book has changed due to the expansion of the UEPS-based lending book during the nine months ended March 31, 2014, and accordingly an allowance for doubtful finance loans receivable is deemed required by the Company.

    Loan provisions and allowance for doubtful accounts receivable

              UEPS-based lending

    The Company’s policy is to regularly review the ageing of outstanding amounts due from borrowers and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. The Company writes off UEPS-based loans and related service fees if a borrower is in arrears with repayments for more than three months or dies.

Recent accounting pronouncements adopted

    In February 2013, the FASB issued guidance regardingReporting 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 March 31, 2014

     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 March 31, 2015

     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 beginning July 1, 2017. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

     In February 2015, the FASB issued guidance regardingAmendments to the Consolidation Analysis. This guidance amends both the variable interest entity and voting interest entity consolidation models. The requirement to assess an entity under a different consolidation model may change previous consolidation conclusions. The guidance is effective for the Company beginning July 1, 2016. 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 April 20142015 payment service commenced on April 1, 2014,2015, but the Company pre-funded certain merchants participating in the merchant acquiring system on the last daytwo days of March 2014.2015.

7

3. Inventory

     The Company’s inventory comprised the following categories as of March 31, 20142015 and June 30, 2013.2014.

   March 31,  June 30, 
   2014  2013 
 Finished goods$10,491 $ 12,222 
  $10,491 $12,222 
  March 31,  June 30, 
  2015  2014 
Finished goods$12,095 $10,785 
 $12,095 $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 beneficiariesrecipient 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 beneficiariesrecipient 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)(2) 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 obligationsobligations.

5.Fair value of financial instruments

Initial recognition and equity-accounted investmentsmeasurement

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

          Risk management    Fair value of financial instruments

              Risk management

     The Company seeks to reduce its exposure to currencies other than the South African randRand (“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 useshas used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the 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 March 31, 2014

    Fair market 
Notional amount   Strike pricevalue priceMaturity
EUR192,375ZAR14.9984ZAR14.5664April 22, 2014
EUR192,375ZAR15.1351ZAR14.5664April 22, 2014
EUR192,195ZAR15.2014ZAR14.6290May 20, 2014
EUR192,195ZAR15.0637ZAR14.6290May 20, 2014
EUR180,023ZAR15.2750ZAR14.7011June 20, 2014
EUR180,023ZAR15.1349ZAR14.7011June 20, 2014
EUR182,273ZAR15.2077ZAR14.7778July 21, 2014
EUR182,273ZAR15.3488ZAR14.7778July 21, 2014
EUR180,023ZAR15.4228ZAR14.8537August 20, 2014
EUR180,023ZAR15.2819ZAR14.8537August 20, 2014
EUR180,023ZAR15.3623ZAR14.9372September 22, 2014
EUR180,023ZAR15.5041ZAR14.9372September 22, 2014

8

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

Fair value of financial instruments (continued)

              Risk management (continued)

Currency exchange risk (continued)

As of March 31, 2014 (continued)

    Fair market 
Notional amount   Strike pricevalue priceMaturity
EUR181,571ZAR15.5739ZAR15.0122October 20, 2014
EUR181,571ZAR15.4316ZAR15.0122October 20, 2014
EUR180,023ZAR15.6552ZAR15.0976November 20, 2014
EUR180,023ZAR15.5136ZAR15.0976November 20, 2014
EUR180,023ZAR15.5970ZAR15.1859December 22, 2014
EUR180,023ZAR15.7391ZAR15.1859December 22, 2014
EUR174,425ZAR15.8119ZAR15.2688January 20, 2015
EUR174,425ZAR15.6729ZAR15.2688January 20, 2015

As of June 30, 2013

    Fair market 
Notional amount   Strike pricevalue priceMaturity
USD4,000,000ZAR9.0600ZAR10.1397September 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 twothree 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.

8

5. Fair value of financial instruments (continued)

Risk management (continued)

Credit risk

     Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies 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. 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.

9

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

Fair value of financial instruments (continued)

              Risk management (continued)

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 LimitedJohannesburg 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. In addition, it hasissues financial products and services under a mutual banking licence and issues 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.

9

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 March 31, 2014,2015, 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.

          Derivative transactions - Foreign exchange contracts

     As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. 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 March 31, 2015

Fair market
Notional amountStrike pricevalue priceMaturity
EUR 706,205.00ZAR 14.8645ZAR 13.0822April 20, 2015
EUR 512,865.00ZAR 14.9455ZAR 13.1517May 20, 2015
EUR 526,263.00ZAR 15.0345ZAR 13.2305June 22, 2015
EUR 526,263.00ZAR 15.1145ZAR 13.3002July 20, 2015
EUR 526,263.00ZAR 15.2025ZAR 13.3786August 20, 2015
EUR 526,263.00ZAR 15.2944ZAR 13.4595September 21, 2015
EUR 526,263.00ZAR 15.3809ZAR 13.5353October 20, 2015
EUR 509,516.00ZAR 15.4728ZAR 13.6178November 20, 2015
EUR 529,865.00ZAR 15.5654ZAR 13.7004December 21, 2015
EUR 526,663.00ZAR 15.6625ZAR 13.7827January 20, 2016

     As of June 30, 2014

Fair market
Notional amountStrike pricevalue priceMaturity
EUR 182,272.50ZAR 15.2077ZAR 14.5803July 21, 2014
EUR 182,272.50ZAR 15.3488ZAR 14.5803July 21, 2014
EUR 180,022.50ZAR 15.4228ZAR 14.6542August 20, 2014
EUR 180,022.50ZAR 15.2819ZAR 14.6542August 20, 2014
EUR 180,022.50ZAR 15.3623ZAR 14.7367September 22, 2014
EUR 180,022.50ZAR 15.5041ZAR 14.7367September 22, 2014
EUR 181,570.50ZAR 15.5739ZAR 14.8119October 20, 2014
EUR 181,570.50ZAR 15.4316ZAR 14.8119October 20, 2014
EUR 180,022.50ZAR 15.6552ZAR 14.8982November 20, 2014
EUR 180,022.50ZAR 15.5136ZAR 14.8982November 20, 2014
EUR 180,022.50ZAR 15.5970ZAR 14.9874December 22, 2014
EUR 180,022.50ZAR 15.7391ZAR 14.9874December 22, 2014
EUR 174,424.50ZAR 15.8119ZAR 15.0671January 20, 2015
EUR 174,424.50ZAR 15.6729ZAR 15.0671January 20, 2015

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5. Fair value of financial instruments (continued)

     The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2014,2015, 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$1,778 $- $- $1,778 
   Investment in Finbond (available for sale assets 
  included in other long-term assets)		 -  -  7,662  7,662 
   Other -  138  -  138 
      Total assets at fair value$1,778 $138 $7,662 $9,578 
  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$1,643 $- $- $1,643 
   Investment in Finbond (available for sale assets included in other long-term assets) -  -  7,608  7,608 
   Other -  1,300  -  1,300 
       Total assets at fair value$1,643 $1,300 $7,608 $10,551 
Liabilities            
   Foreign exchange contracts$- $819 $- $819 
       Total liabilities at fair value$- $819 $- $819 

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

   Quoted          
   Price in          
   Active  Significant       
   Markets for  Other  Significant    
   Identical  Observable  Unobservable    
   Assets  Inputs  Inputs    
   (Level 1)  (Level 2)  (Level 3)  Total 
 Liabilities            
 Foreign exchange contracts$- $170 $- $170 
 Total liabilities at fair value$- $170 $- $170 

     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 and nine months ended March 31, 20142015 and 2013,2014, respectively. There have been no transfers in or out of Level 3 during the three and nine months ended March 31, 20142015 and 2013,2014, 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.

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6. Goodwill and intangible assets,

Goodwill net

     Goodwill

Summarized below is the movement in the carrying value of goodwill for the nine months ended March 31, 2014:2015:

      Accumulated  Carrying 
   Gross value  impairment  value 
 Balance as of June 30, 2013$218,558 $(42,752)$175,806 
      Foreign currency adjustment(1) 6,032  (2,006) 4,026 
              Balance as of March 31, 2014$224,590 $($44,758)$179,832 
     Accumulated  Carrying 
  Gross value  impairment  value 
Balance as of June 30, 2014$186,576 $- $186,576 
     Foreign currency adjustment(1) (17,143) -  (17,143)
             Balance as of March 31, 2015$169,433 $- $169,433 

     (1) – theThe 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 
  March 31,  June 30, 
  2014  2013 
SA transaction-based activities$28,532 $30,525 
International transaction-based activities 121,656  113,972 
Smart card accounts -  - 
Financial services -  - 
Hardware, software and related technology sales 29,644  31,309 
   Total$179,832 $175,806 
  As of  As of 
  March 31,  June 30, 
  2015  2014 
       
South African transaction processing$24,974 $28,517 
International transaction processing 117,788  128,427 
Financial inclusion and applied technologies 26,671  29,632 
   Total$169,433 $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 March 31, 20142015 and June 30, 2013:2014:

 As of March 31, 2014  As of June 30, 2013  As of March 31, 2015  As of June 30, 2014 
 Gross     Net  Gross     Net  Gross     Net  Gross     Net 
 carrying  Accumulated   carrying  carrying  Accumulated  carrying  carrying  Accumulated   carrying   carrying  Accumulated  carrying 
 value  amortization  value  value  amortization  value  value  amortization  value  value  amortization  value 
Finite-lived intangible assets:                                    
Customer relationships$94,309 $(37,373)$56,936 $90,469 $(29,818)$60,651 $89,797 $(43,972)$45,825 $98,676 $(41,273)$57,403 
Software and unpatented technology 35,851  (27,512) 8,339  34,951  (22,151) 12,800  30,534  (27,585) 2,949  33,604  (26,207) 7,397 
FTS patent 3,620  (3,620) -  3,873  (3,873) -  3,169  (3,169) -  3,619  (3,619) - 
Exclusive licenses 4,506  (4,506) -  4,506  (4,506) -  4,506  (4,506) -  4,506  (4,506) - 
Trademarks 6,671  (2,681) 3,990  6,611  (2,805) 3,806  6,205  (3,314) 2,891  6,890  (3,176) 3,714 
Customer database 574  (574) -  614  (614) - 
Total finite-lived intangible assets$145,531 $(76,266)$69,265 $141,024 $(63,767)$77,257 $134,211 $(82,546)$51,665 $147,295 $(78,781)$68,514 

     Aggregate amortization expense on the finite-lived intangible assets for the three and nine months ended March 31, 2014,2015, was approximately $4.6$3.6 million and $12.5$11.3 million, respectively (three and nine months ended March 31, 2013,2014, was approximately $4.4$4.6 million and $14.0$12.5 million, respectively).

     Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates prevailing on March 31, 2014,2015, 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$16,229 
2015 15,080 $14,446 
2016 11,280  10,800 
2017 8,958  8,611 
2018 8,958  8,612 
2019 8,293 
Thereafter$20,671 $11,507 

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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 nine months ended March 31, 2014:2015:

  Reinsurance  Insurance 
  assets (1)  contracts (2) 
Balance as of June 30, 2013$19,557 $(19,711)
     Foreign currency adjustment(3) (1,276) 1,287 
          Balance as of March 31, 2014$18,281 $(18,424)
  Reinsurance  Insurance 
  assets (1) contracts (2)
Balance as of June 30, 2014$21,062 $(21,478)
   Foreign currency adjustment(3) (2,617) 2,668 
      Balance as of March 31, 2015$18,445 $(18,810)

     (1) Included in other long-term assets.
(1)

Included in other long-term assets.

(2)

Included in other long-term liabilities.

(3)

     (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 year10-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 nine months ended March 31, 2014:2015:

     Investment 
  Assets (1)  contracts (2) 
Balance as of June 30, 2013$953 $(953)
     Foreign currency adjustment(3) (62) 62 
          Balance as of March 31, 2014$891 $(891)
     Investment 
  Assets (1) contracts (2)
Balance as of June 30, 2014$688 $(688)
   Foreign currency adjustment(3) (85) 85 
      Balance as of March 31, 2015$603 $(603)

     (1) Included in other long-term assets.
(1)

Included in other long-term assets.

(2)

Included in other long-term liabilities.

(3)

     (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 South Africa

     The Company’s short-term South African credit facility with Nedbank Limited comprises an overdraft facility of upfacilities are described in Note 12 to ZAR 250 million and indirect and derivative facilities of up to ZAR 150 million, which include letters of guarantee, letters of credit and forward exchange contracts. The Company temporarily increasedthe Company’s audited consolidated financial statements included in its overdraft facility to ZAR 500 millionAnnual Report on Form 10-K for the four months to March 31, 2014, after which it reverted back to ZAR 250 million.year ended June 30, 2014.

South Africa

     As of March 31, 2014, the interest rate on the overdraft facility was 7.85% . The Company has ceded its investment in Cash Paymaster Services Proprietary Limited (“CPS”), a wholly owned South African subsidiary, as security for its repayment obligations under the facility. A commitment fee of 0.35% per annum is payable on the monthly unutilized amount of the overdraft portion of the short-term facility. The Company is required to comply with customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to dispose of or encumber its assets, incur additional indebtedness or engage in certain business combinations. As of March 31,2015, and June 30, 2014, the Company had not utilized any of its ZAR 250.0 million ($23.620.7 million, translated at exchange rates applicable as of March 31, 2014)2015) overdraft facility. TheAs of March 31, 2015, the interest rate on the overdraft facility was 8.10%. At March 31, 2015, the Company had utilized approximately ZAR 143.1137.2 million ($13.511.3 million, translated at exchange rates applicable as of March 31, 2014)2015) of its facilityZAR 150 million indirect and derivative facilities to obtain foreign exchange contracts from the bank and to enable the bank 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 17). As of June 30, 2013,2014, the Company had utilized noneapproximately 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 obtained a KRW 10 billion short-term overdraft facility from Hana Bank, a Korean bank, in January 2014. As of March 31, 2014, the interest rate on the overdraft facility was 4.98% . The Company has ceded the warehouse it owns in Korea as security for its repayment obligations under the facility. As of March 31, 2014, the Company had not utilized any of its KRW 10.010 billion ($9.39.0 million, translated at exchange rates applicable as of March 31, 2014)2015) overdraft facility.facility as of March 31, 2015 and June 30, 2014. As of March 31, 2015, the interest rate on the overdraft facility was 3.80%. The facility expires in January 2015.2016.

9. Long-term borrowings

            In October 2013, the Company refinanced its existing long-term Korean credit facility and signed a new five-year senior secured facilities agreement (the “Facilities Agreement”) with a consortium of Korean banks. The 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 ($56.0 million), a Facility B loan of up to KRW 15 billion ($14.0 million) and a Facility C revolving credit facility of up to KRW 10.0 billion ($9.3 million) (all facilities denominated in KRW and translated at exchange rates applicable as of March 31, 2014).

            The Facility A and B loans were fully drawn on October 29, 2013, and used to repay KRW 75.0 billion ($70.6 million) of the KRW 92.4 billion ($87.0 million) loan outstanding under the existing facility. The remaining outstanding KRW 17.4 billion ($16.4 million) balance of that facility was paid from cash on hand on October 29, 2013. In addition, the Company drew KRW 1.1 billion ($1.0 million) of the revolving credit facility on October 29, 2013, to pay fees and expenses related to the Facilities Agreement and drew a further KRW 1.1 billion ($1.0 million) in January 2014 to pay interest due under the 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 2.65% on March 31, 2014 and therefore the interest rate in effect as of March 31, 2014, for the Facility A loan and Facility C revolving credit facility was 5.75% and for the Facility B loan was 5.55%, respectively. The Company paid facilities fees of approximately KRW 0.9 billion on October 29, 2013 and amortized approximately $0.1 million and $0.6 million, respectively, during the three and nine months ended March 31, 2014. A commitment fee of 0.3% is payable on any un-drawn and un-cancelled amount of the revolving credit facility. Total interest expense related to the new and refinanced facilities during the three and nine months ended March 31, 2014 and 2013, was $1.1 million and $3.7 million; and $1.7 million and $5.3 million, respectively.

            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 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).

     The Company’s refinanced KRW 92.4 billion 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 Company has expensedcurrent carrying value as of March 31, 2015, is $60.0 million. As of March 31, 2015, the carrying amount of the long-term borrowings approximated fair value. The interest rate in effect on March 31, 2015, was 5.22%.

     Interest expense incurred during the three and nine months ended March 31, 2015 and 2014, was $0.8 million and $2.2 million; and $1.1 million and $3.7 million, respectively. Prepaid facility fees amortized during the three and nine months ended March 31, 2015 and 2014, was $0.04 million and $0.2 million; and $0.1 million and $0.7 million, respectively. Prepaid facility fees amortized during the nine months ended March 31, 2014, include the remaining prepaid facility fees related to the refinanced facility of approximately $0.4 million during the nine months endedthat were expensed.

     The next scheduled principal payment of $9.0 million (translated at exchange rates applicable as of March 31, 2014. The third scheduled repayment related to this refinanced facility of $7.3 million was paid2015) will be made on OctoberApril 29, 2012.2016.

14

10. Capital structure

     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 nine months ended March 31, 20142015 and 2013,2014, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the nine months ended March 31, 20142015 and 2013,2014, respectively:

 Nine months ended 
 March 31, 
 2014  2013  2015  2014 
            
Number of shares, net of treasury:            
Statement of changes in equity 45,783,342  45,600,471  46,607,153  45,783,342 
Less: Non-vested equity shares that have not vested (385,778) (461,417)
Less: Non-vested equity shares that have not vested (Note 12) (341,529) (385,778)
Number of shares, net of treasury excluding non-vested
equity shares that have not vested		 45,397,564  45,139,054  46,265,624  45,397,564 

December 2013 Black Economic Empowerment transactionsCommon stock repurchases and transaction with non-controlling interests

     On December 10, 2013,The Company did not repurchase any of its shares during the three and nine months ended March 31, 2015 and 2014, under its share repurchase authorization. However, on August 27, 2014, the Company entered into definitive agreements relating to two Black Economic Empowermenta Subscription and Sale of Shares Agreement with Business Venture Investments No 1567 Proprietary Limited (RF) (“BEE”BVI”) transactions. As, one of March 31, 2014, the transactions had not been implemented because the agreed conditions had not been satisfied. Subsequently, the conditions were satisfied and the transactions were implemented on April 16, 2014.

Company’s BEE partners, in preparation for any new potential SASSA tender. Pursuant to these Relationship Agreements betweenthe agreement: (i) the Company and its BEE partners, the Company sold an aggregate of 4,400,000repurchased BVI’s remaining 1,837,432 shares of its common stock (“BEE shares”) for a purchase price of ZAR 60.00 per share. The ZAR 60.00 per share purchase price for the BEE shares, which are contractually restricted as to resale as described below, was paid in ZAR and represents 75% of the closing price of the Company’s common stock onfor 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 JSE on December 6, 2013,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 date the Company completed final negotiationCPS shareholder agreement that was negotiated as part of the terms of these BEE transactions.

            The Relationship Agreements provided that the entire purchase price for the BEE shares be financed through a five-year loan to be extended to each of the BEE partners by a South African subsidiary of the Company. The obligations of the BEE partners under the loans are several, and not joint. Each of the BEE partners granted the lender a security interest in all the BEE shares purchased by such BEE partner to secure the repayment of its loan. The principal amount of the loans being made by the subsidiary was contributed by Net1 to the equity capital of the subsidiary. As a result of the making of the loans, the net cash position of the Company after the sale of the BEE shares remained unchanged.

            The loans bear interest at a rate equal to the Johannesburg Interbank Rate (638 basis points as of March 31, 2014) plus 300 basis points. Interest on the loans is payable semi-annually in arrears on January 1 and July 1 of each year. 10% of the outstanding principal amount of the loans will be payable on each of the first and second anniversaries of the date of issuance of the BEE shares, 15% of the outstanding principal amount of the loans will be payable on each of the third and fourth anniversaries of the date of issuance of the BEE shares and the remaining outstanding principal amount of the loans will be payable on the fifth anniversary of the date of issuance of the BEE shares. Further, the entire outstanding principal amount of the loans will be payable if the price of the Company’s common stock on the JSE equals or exceeds ZAR 120.00 per share at any time during term of the loans. Upon the occurrence of certain “trigger events” with respect to a BEE partner, the BEE shares held by that BEE partner may be repurchased by the Company or one of its designees. These trigger events include the following:

15

10.      Capital structure (continued)

December 2013 Black Economic Empowerment transactions (continued)

            If the trigger event involves a failure by a BEE partner to pay any amount due on its loan, then the repurchase price is the volume-weighted average price of the Company’s common stock on the Nasdaq for the period of 30 trading days prior to the trigger event, or 30-day VWAP. In the case of other trigger events, the repurchase price is the lower of the 30-day VWAP or ZAR 60.00 per share.

            The BEE shares are contractually restricted as to resale for a period of five years from the date of issuance, with the exception of periodic sales which may be made to fund the repayment of principal and interest on the loans. In addition, the Company may call the BEE shares then owned by the BEE partners, either in exchange for a minority interest in CPS or for a cash payment equal to the 30-day VWAP. Further, after the fifth anniversary of the date of issuance of the BEE shares, the Company will have a right of first refusal on the shares owned by the BEE partners.

            The loans to the BEE partners do not provide that they are recourse only to the BEE shares. Nevertheless, the Company expects that the sole source of repayment of the loans will be proceeds from the sale of its shares by the BEE partners from time to time, in open market or in privately negotiated transactions.became effective.

     Acquisition of KSNET non-controlling interests

     TheDuring the nine months ended March 31, 2014, the Company acquired all of the issued share capital of KSNET, Inc. that it did not previously own for approximately $2.0 million in cash. The Company intends to realize certain Korean tax efficiencies in the future and is currently discussing the feasibility with its Korean tax advisors. The transaction was accounted for as an equity transaction with a non-controlling interest and accordingly, no gain or loss was recognized in the Company’s consolidated statement of operations. The carrying amount of the non-controlling interest was adjusted to reflect the change in ownership interest in KSNET. The difference between the fair value of the consideration paid and the amount by which the non-controlling interest was adjusted, of $1.5 million, was recognized in equity attributable to Net1.

14

11. Accumulated other comprehensive (loss) incomeloss

     The table below presents the change in accumulated other comprehensive (loss) income per component during the nine months ended March 31, 2014:2015:

     Nine months ended    
     March 31, 2014    
     Net    
     unrealized    
     income    
     (loss) on    
  Foreign  asset    
  currency  available    
  translation  for sale, net    
  reserve  of tax  Total 
  ‘000  ‘000  ‘000 
Balance as of June 30, 2013$(101,188)$330 $(100,858)
     Movement in foreign currency translation reserve 2,660  -  2,660 
     Unrealized loss on asset available for sale, net of
         tax of $112		 -  288  288 
             Balance as of March 31, 2014$(98,528)$618 $(97,910)
  Nine months ended 
  March 31, 2015 
     Accumulated    
     Net    
     unrealized    
  Accumulated  income (loss)    
  Foreign  on asset    
  currency  available for    
  translation  sale, net of    
  reserve  tax  Total 
          
Balance as of June 30, 2014$(83,359)$618 $(82,741)
     Movement in foreign currency translation reserve (49,096) -  (49,096)
    Unrealized gain on asset available for sale, net of tax of $97 -  422  422 
             Balance as of March 31, 2015$(132,455)$1,040 $(131,415)

     There were no reclassifications from accumulated other comprehensive loss to comprehensive (loss) income during the three and nine months ended March 31, 2015 or 2014, or 2013, respectively.

16

12. Stock-based compensation

Stock option and restricted stock activity

          Options

     The following table summarizes stock option activity for the nine months ended March 31, 20142015 and 2013:2014:

       Weighted     Weighted        Weighted     Weighted 
    Weighted  Average     Average     Weighted  Average     Average 
    average  Remaining  Aggregate  Grant     average  Remaining  Aggregate  Grant 
    exercise  Contractual  Intrinsic  Date Fair     exercise  Contractual  Intrinsic  Date Fair 
 Number of  price  Term  Value  Value  Number of  price  Term  Value  Value 
 shares  ($)  (in years)  ($’000)  ($)  shares  ($)  (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 (748,633) 8.64     3,750    
Outstanding – March 31, 2015 2,426,169  15.30  4.99  4,570   
               
Outstanding – June 30, 2013 2,648,583  15.15  5.98  313     2,648,583  15.15  5.98  313    
Granted under Plan: August 2013 224,896  7.35  10.00  568  2.53  224,896  7.35  10.00  568  2.53 
Exercised (10,000) 8.75     12     (10,000) 8.75     12    
Forfeited (136,420) 23.51           (136,420) 23.51          
Outstanding – March 31, 2014 2,727,059  14.12  5.63  2,290    2,727,059  14.12  5.63  2,290   
               
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 – March 31, 2013 2,648,583  15.15  6.74  978   

     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 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 nine months ended March 31, 2015 and 2014:

  Nine months ended 
  March 31, 
  2015  2014 
Expected volatility 60%  50% 
Expected dividends 0%  0% 
Expected life (in years) 3  3 
Risk-free rate 1.0%  0.9% 

     There were no forfeitures during the three and nine months ended March 31, 2014 and 2013:

 Three and nine months ended
 March 31,
 2014 2013
Expected volatility50% 49%
Expected dividends0% 0%
Expected life (in years)3 3
Risk-free rate0.9% 0.3%

2015. During the three and nine months ended March 31, 2014, terminated employees forfeited 136,420 stock options. There were no forfeitures during the three and nine months ended March 31, 2013.

     The following table presents stock options vestingvested and expecting to vest as of March 31, 2014:2015:

        Weighted    
     Weighted  Average    
     average  Remaining  Aggregate 
     exercise  Contractual  Intrinsic 
  Number of  price  Term  Value 
  shares  ($)  (in years)  ($’000) 
Vested and expecting to vest – March 31, 2014 2,727,059  14.12  5.63  2,290 
        Weighted    
     Weighted  Average    
     average  Remaining  Aggregate 
     exercise  Contractual  Intrinsic 
  Number of  price  Term  Value 
  shares  ($)  (in years)  ($’000)
Vested and expecting to vest – March 31, 2015 2,426,169  15.30  4.99  4,570 

These options have an exercise price range of $6.59$7.35 to $24.46.

17The following table presents stock options that are exercisable as of March 31, 2015:

12.      Stock-based compensation (continued)

        Weighted    
     Weighted  Average    
     average  Remaining  Aggregate 
     exercise  Contractual  Intrinsic 
  Number of  price  Term  Value 
  shares  ($)  (in years)  ($’000)
Exercisable – March 31, 2015 1,668,163  17.71  3.24  1,775 

          Stock option and restrictedNo stock activity (continued)

Options (continued)

        Weighted    
        Average    
     Weighted  Remaining  Aggregate 
     average  Contractual  Intrinsic 
  Number of  exercise  Term  Value 
  shares  price ($)  (in years)  ($’000) 
Exercisable 1,998,497  16.08  4.80  1,057 

            During each ofoptions became exercisable during the three months ended March 31, 2015 and 2014, and 2013, respectively, no stock options became exercisable.respectively. During the nine months ended March 31, 2015 and 2014, respectively, 330,967 and 2013, respectively, 358,333 and 244,666 stock options became exercisable. Included inDuring the 244,666three months ended March 31, 2015, the Company received approximately $0.8 million from 60,000 stock options are 30,000exercised. During the nine months ended March 31, 2015, the Company received approximately $1.8 million from 176,395 stock options with respect to which the Remuneration Committeeexercised. The remaining 572,238 stock options were exercised through recipients delivering 336,584 shares of the Board agreed to accelerate vesting, in August 2012, priorCompany’s common stock to the resignation of a non-employee director.Company on September 9, 2014, to settle the exercise price due. During the three and nine months ended March 31, 2014, the Company received approximately $0.1 million from 10,000 stock options exercised. During the nine months ended March 31, 2013, the Company received approximately $0.2 million from 30,000 stock options exercised by the non-employee director that resigned. No stock options were exercised during the three months ended March 31, 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 nine months ended March 31, 2015 and 2014:

     Weighted 
  Number of  Average 
  Shares of  Grant Date 
  Restricted  Fair Value 
  Stock  ($’000)
Non-vested – June 30, 2014 385,778  3,534 
 Granted – August 2014 141,707  581 
 Granted – November 2014 71,530  229 
 Vested – August 2014 (74,152) 828 
 Vested – February 2015 (183,334) 2,400 
     Non-vested – March 31, 2015 341,529  1,759 
       
Non-vested – June 30, 2013 405,226  4,393 
 Granted – August 2013 187,963  1,382 
 Vested – August 2013 (16,907) 161 
 Vested – February 2014 (183,333) 1,742 
 Forfeitures – October 2013 (7,171) 84 
     Non-vested – March 31, 2014 385,778  3,534 

     The August 2014 grants comprise 127,626 and 2013:14,081 shares of restricted stock awarded to employees and non-employee directors, respectively. All of the November 2014 grants were awarded to employees. The 127,626 and 71,530 shares of restricted stock 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.

     Weighted 
  Number of  Average 
  Shares of  Grant Date 
  Restricted  Fair Value 
  Stock  ($’000) 
Non-vested – June 30, 2013 405,226  4,393 
 Granted – August 2013 187,963  1,382 
 Vested – August 2013 (16,907) 161 
 Vested – February 2014 (183,333) 1,742 
 Forfeitures – October 2013 (7,171) 84 
     Non-vested – March 31, 2014 385,778  3,534 
       
Non-vested – June 30, 2012 646,617  7,061 
 Granted – August 2012 21,569  189 
 Granted – February 2013 (183,333) 1,016 
 Vested – August 2012 (23,436) 216 
     Non-vested – March 31, 2013 461,417  4,988 

     The 127,626 and 71,530 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 127,626 shares of restricted stock. The Company used an expected volatility of 63.73%, an expected life of approximately three years, a risk-free rate of 1.21% and no future dividends in its calculation of the fair value of the 71,530 shares of restricted stock. 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 March 31, 20142015 and 2013,2014, respectively, was $1.7$2.4 million and $1.0$1.7 million. The fair value of restricted stock vesting during the nine months ended March 31, 20142015 and 2013,2014, respectively, was $1.9$3.2 million and $1.2$1.9 million. A non-employee director resigned during the nine months ended March 31, 2014, and forfeited 7,171 shares of restricted stock. 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.

1817

12. Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

     The Company has recorded a stockstock-based compensation charge of $0.7 million and $0.9 million, and $1.1 million forrespectively, during the three months ended March 31, 20142015 and 2013, respectively,2014, which comprised:

    Allocated to cost        Allocated to cost    
    of goods sold, IT  Allocated to     of goods sold, IT  Allocated to 
    processing,  selling, general     processing,  selling, general 
 Total  servicing and  and  Total  servicing and  and 
 charge  support  administration  charge  support  administration 
Three months ended March 31, 2015         
Stock-based compensation charge$731 $- $731 
Total – three months ended March 31, 2015$731 $- $731 
         
Three months ended March 31, 2014                  
Stock-based compensation charge$922 $- $922 $922 $- $922 
Total – three months ended March 31, 2014$922 $- $922 $922 $- $922 
         
Three months ended March 31, 2013         
Stock-based compensation charge$1,092 $- $1,092 
Total – three months ended March 31, 2013$1,092 $- $1,092 

     The Company has recorded a stockstock-based compensation charge of $2.7 million and $2.8 million, and $3.3 million forrespectively, during the nine months ended March 31, 20142015 and 2013, respectively,2014, which comprised:

    Allocated to cost        Allocated to cost    
    of goods sold, IT  Allocated to     of goods sold, IT  Allocated to 
    processing,  selling, general     processing,  selling, general 
 Total  servicing and  and  Total  servicing and  and 
 charge  support  administration  charge  support  administration 
Nine months ended March 31, 2015         
Stock-based compensation charge$2,682 $- $2,682 
Total – nine months ended March 31, 2015$2,682 $- $2,682 
         
Nine months ended March 31, 2014                  
Stock-based compensation charge$2,826 $- $2,826 $2,826 $- $2,826 
Reversal of stock compensation charge related to restricted stock forfeited (6) -  (6) (6) -  (6)
Total – nine months ended March 31, 2014$2,820 $- $2,820 $2,820 $- $2,820 
         
Nine months ended March 31, 2013         
Stock-based compensation charge$3,325 $- $3,325 
Total – nine months ended March 31, 2013$3,325 $- $3,325 

     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 March 31, 2014,2015, the total unrecognized compensation cost related to stock options was approximately $1.1$2.1 million, which the Company expects to recognize over approximately three years. As of March 31, 2014,2015, the total unrecognized compensation cost related to restricted stock awards was approximately $3.0$1.3 million, which the Company expects to recognize over approximately two years.

     As of each of March 31, 20142015 and June 30, 2013,2014, respectively, the Company has recorded a deferred tax asset of approximately $1.5$1.3 million and $1.6 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.

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 and nine months ended March 31, 20142015 and 2013,2014, 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.

1918

13. Earnings per share (continued)

     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, and August 2013, August 2014 and November 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.

     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  Nine months ended  Three months ended  Nine months ended 
 March 31,  March 31,  March 31,  March 31, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 (in thousands except percent  (in thousands except percent  (in thousands except percent  (in thousands except percent 
 and  and  and  and 
 per share data)  per share data)  per share data)  per share data) 
Numerator:                        
Net income (loss) attributable to Net1$17,182 $(4,681)$41,527 $4,692 
Undistributed earnings (loss) 17,182  (4,681) 41,527  4,692 
Net income attributable to Net1$24,358 $17,182 $70,821 $41,527 
Undistributed earnings 24,358  17,182  70,821  41,527 
Percent allocated to common shareholders (Calculation 1) 99%  99%  99%  99%  99%  99%  99%  99% 
Numerator for earnings (loss) per share: basic and diluted$16,944 $(4,634)$40,917 $4,637 
Numerator for earnings per share: basic and diluted$24,102 $16,944 $70,011 $40,917 
                        
Denominator:                        
Denominator for basic earnings per share: weighted-average
common shares outstanding		 45,142  45,098  45,070  45,018  46,071  45,142  46,235  45,070 
Effect of dilutive securities:                        
Performance shares related to acquisition -  16  -  5 
Stock options 91  26  106  37  178  91  137  106 
Denominator for diluted earnings per share:
adjusted weighted average common shares
outstanding and assumed conversion		 45,233  45,140  45,176  45,060  46,249  45,233  46,372  45,176 
                        
Earnings (loss) per share:            
Earnings per share:            
Basic$0.38 $(0.10)$0.91 $0.10 $0.52 $0.38 $1.51 $0.91 
Diluted$0.37 $(0.10)$0.90 $0.10 $0.52 $0.37 $1.51 $0.90 
                        
(Calculation 1)                        
Basic weighted-average common shares outstanding (A) 45,142  45,098  45,070  45,018  46,071  45,142  46,235  45,070 
Basic weighted-average common shares outstanding
and unvested restricted shares expected to vest (B)		 45,776  45,557  45,742  45,552  46,561  45,776  46,770  45,742 
Percent allocated to common shareholders (A) / (B) 99%  99%  99%  99%  99%  99%  99%  99% 

     Options to purchase 2,040,3391,798,853 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 and nine months ended March 31, 2014,2015, 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 March 31, 2014.2015.

2019

14. Supplemental cash flow information

     The following table presents the supplemental cash flow disclosures for the three and nine months ended March 31, 2015 and 2014:

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
Cash received from interest$4,200 $3,422 $11,940 $9,886 
Cash paid for interest$915 $1,651 $3,328 $5,317 
Cash paid for income taxes$3,086 $1,570 $28,639 $16,097 

     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 nine months ended March 31, 2015, 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 2013:amount reflected as treasury shares on the unaudited condensed consolidated balance sheet as of March 31, 2015 and unaudited condensed consolidated statement of changes in equity for the nine months ended March 31, 2015.

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
Cash received from interest$3,422 $2,395 $9,886 $8,104 
Cash paid for interest$1,651 $2,020 $5,317 $6,073 
Cash paid for income taxes$1,570 $1,701 $16,097 $12,180 

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.

     The reconciliation of the reportable segments revenue to revenue from external customers for the three months ended March 31, 2015 and 2014, respectively, is as follows:

  Revenue 
        From 
  Reportable  Inter-  external 
  Segment  segment  customers 
South African transaction processing$57,999 $5,359 $52,640 
International transaction processing 38,311  -  38,311 
Financial inclusion and applied technologies 66,830  6,660  60,170 
 Total for the three months ended March 31, 2015 163,140  12,019  151,121 
          
South African transaction processing 57,397  3,886  53,511 
International transaction processing 35,245  -  35,245 
Financial inclusion and applied technologies 56,226  6,856  49,370 
 Total for the three months ended March 31, 2014$148,868 $10,742 $138,126 

     The reconciliation of the reportable segments revenue to revenue from external customers for the nine months ended March 31, 2015 and 2014, respectively, is as follows:

  Revenue 
        From 
  Reportable  Inter-  external 
  Segment  segment  customers 
South African transaction processing$176,678 $15,917 $160,761 
International transaction processing 121,981  -  121,981 
Financial inclusion and applied technologies 199,558  20,607  178,951 
 Total for the nine months ended March 31, 2015$498,217 $36,524 $461,693 

20

15. Operating segments (continued)

  Revenue 
        From 
  Reportable  Inter-  external 
  Segment  segment  customers 
South African transaction processing$173,312 $6,866 $166,446 
International transaction processing 110,524  -  110,524 
Financial inclusion and applied technologies 143,502  21,569  121,933 
 Total for the nine months ended March 31, 2014$427,338 $28,435 $398,903 

     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 and nine months ended March 31, 2015 and 2014, respectively, is as follows:

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
Reportable segments measure of profit or loss$37,703 $30,238 $112,751 $80,590 
 Operating income: Corporate/Eliminations (5,737) (6,289) (16,845) (21,439)
 Interest income 4,211  3,438  11,888  9,993 
 Interest expense (941) (1,734) (3,360) (5,712)
     Income before income taxes$35,236 $25,653 $104,434 $63,432 

     The following tables summarize segment information which is prepared in accordance with GAAP:GAAP for the three and nine months ended March 31, 2015 and 2014:

  Three months ended  Nine months ended 
  March 31,  March 31, 
  2014  2013  2014  2013 
             
Revenues from external customers            
     SA transaction-based activities$64,864 $59,009 $200,133 $181,137 
     International transaction-based activities 34,994  33,119  109,099  97,881 
     Smart card accounts 10,612  8,657  33,178  25,240 
     Financial services 11,099  1,651  19,725  4,483 
     Hardware, software and related technology sales 16,557  8,705  36,768  25,524 
              Total 138,126  111,141  398,903  334,265 
Inter-company revenues            
     SA transaction-based activities 3,433  1,492  8,665  9,360 
     International transaction-based activities -  -  -  - 
     Smart card accounts -  -  -  - 
     Financial services 259  308  784  1,095 
     Hardware, software and related technology sales 76  135  595  722 
              Total 3,768  1,935  10,044  11,177 
Operating income (loss)            
     SA transaction-based activities 11,145  (4,197) 37,825  4,136 
     International transaction-based activities 1,322  (1,362) 4,738  (1,331)
     Smart card accounts 3,025  2,467  9,456  7,194 
     Financial services 5,119  1,147  6,902  3,292 
     Hardware, software and related technology sales 4,000  1,699  8,540  4,478 
         Subtotal: Operating segments 24,611  (246) 67,461  17,769 
             Corporate/Eliminations (662) (4,480) (8,310) (8,198)
              Total 23,949  (4,726) 59,151  9,571 
Interest income            
     SA transaction-based activities -  -  -  - 
     International transaction-based activities -  -  -  - 
     Smart card accounts -  -  -  - 
     Financial services -  -  -  - 
     Hardware, software and related technology sales -  -  -  - 
         Subtotal: Operating segments -  -  -  - 
             Corporate/Eliminations 3,438  2,515  9,993  8,195 
              Total$3,438 $2,515 $9,993 $8,195 
  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
Revenues            
     South African transaction processing$57,999 $57,397 $176,678 $173,312 
     International transaction processing 38,311  35,245  121,981  110,524 
     Financial inclusion and applied technologies 66,830  56,226  199,558  143,502 
         Total 163,140  148,868  498,217  427,338 
Operating income (loss)            
     South African transaction processing 13,218  9,137  39,740  22,726 
     International transaction processing 6,579  4,642  19,671  15,305 
     Financial inclusion and applied technologies 17,906  16,459  53,340  42,559 
        Subtotal: Operating segments 37,703  30,238  112,751  80,590 
            Corporate/Eliminations (5,737) (6,289) (16,845) (21,439)
                Total 31,966  23,949  95,906  59,151 
 Depreciation and amortization            
     South African transaction processing 1,726  1,653  5,271  5,475 
     International transaction processing 4,560  3,959  13,224  11,822 
     Financial inclusion and applied technologies 207  172  589  495 
         Subtotal: Operating segments 6,493  5,784  19,084  17,792 
              Corporate/Eliminations 3,567  4,658  11,307  12,453 
                  Total$10,060 $10,442 $30,391 $30,245 

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15. Operating segments (continued)

   Three months ended  Nine months ended 
   March 31,  March 31, 
   2014  2013  2014  2013 
              
 Interest expense            
    SA transaction-based activities$28 $244 $71 $589 
    International transaction-based activities 2  -  46  - 
    Smart card accounts -  -  -  - 
    Financial services 418  -  807  - 
    Hardware, software and related technology sales 181  81  540  207 
        Subtotal: Operating segments 629  325  1,464  796 
            Corporate/Eliminations 1,105  1,698  4,248  5,321 
                    Total 1,734  2,023  5,712  6,117 
 Depreciation and amortization            
    SA transaction-based activities 2,895  3,198  7,827  9,628 
    International transaction-based activities 7,364  7,049  21,834  20,753 
    Smart card accounts -  -  -  - 
    Financial services 115  163  348  347 
    Hardware, software and related technology sales 68  150  236  323 
        Subtotal: Operating segments 10,442  10,560  30,245  31,051 
            Corporate/Eliminations -  -  -  - 
                    Total 10,442  10,560  30,245  31,051 
 Income taxation expense (benefit)            
    SA transaction-based activities 3,113  (1,245) 10,571  991 
    International transaction-based activities 17  (587) 661  (1,167)
    Smart card accounts 848  691  2,647  2,014 
    Financial services 1,320  327  1,723  937 
    Hardware, software and related technology sales 1,095  409  2,097  1,039 
        Subtotal: Operating segments 6,393  (405) 17,699  3,814 
            Corporate/Eliminations 2,142  877  4,420  3,358 
                    Total 8,535  472  22,119  7,172 
 Net income (loss) attributable to Net1            
    SA transaction-based activities 8,003  (3,199) 27,182  2,552 
    International transaction-based activities 1,591  (642) 4,577  193 
    Smart card accounts 2,177  1,776  6,808  5,178 
    Financial services 3,394  839  4,432  2,409 
    Hardware, software and related technology sales 2,729  1,210  5,912  3,239 
        Subtotal: Operating segments 17,894  (16) 48,911  13,571 
            Corporate/Eliminations (712) (4,665) (7,384) (8,879)
                    Total 17,182  (4,681) 41,527  4,692 
 Expenditures for long-lived assets            
    SA transaction-based activities 302  2,583  2,601  7,552 
    International transaction-based activities 4,231  2,074  13,744  8,844 
    Smart card accounts -  -  -  - 
    Financial services 222  357  408  629 
    Hardware, software and related technology sales 93  39  556  78 
        Subtotal: Operating segments 4,848  5,053  17,309  17,103 
            Corporate/Eliminations -  -  -  - 
                    Total$4,848 $5,053 $17,309 $17,103 
  Three months ended  Nine months ended 
  March 31,  March 31, 
  2015  2014  2015  2014 
Expenditures for long-lived assets            
   South African transaction processing$1,514 $303 $3,678 $2,903 
   International transaction processing 4,561  4,231  20,167  13,747 
   Financial inclusion and applied technologies 232  314  977  659 
      Subtotal: Operating segments 6,307  4,848  24,822  17,309 
           Corporate/Eliminations -  -  -  - 
                   Total$6,307 $4,848 $24,822 $17,309 

     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.

22

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 and nine months ended March 31, 2014,2015, the tax charge was calculated using the expected effective tax rate for the year. The Company’s effective tax rate for the three and nine months ended March 31, 2015, was 29.2% and 30.8%, respectively, and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including consulting and legal fees and interest expense related to the Company’s long-term Korean borrowings).

     The Company’s effective tax rate for the three and nine months ended March 31, 2014, was 33.3% and 34.9%, respectively, and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including 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 March 31, 2013, was (11.1%) and is negative as a result of the loss before income taxes and differed from the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes. The Company’s effective tax rate for the nine months ended March 31, 2013, was 61.6% and was higher than the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to the Company’s long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.

Uncertain tax positions

     There were no changesThe Company increased its unrecognized tax benefits by $1.2 million during the three and nine months ended March 31, 2014.2015. As of March 31, 2014,2015, 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 March 31, 2015 and June 30, 2014, the Company has unrecognized tax benefits of $2.3 million and $1.2 million, respectively, 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 March 31, 2014,2015, the Company isCompany’s South African subsidiaries are no longer subject to any new income tax examination by the South African Revenue Service for yearsperiods 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, cash flows, or results of operations.operations or cash flows.

22

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 143.1135.0 million ($13.511.2 million, translated at exchange rates applicable as of March 31, 2014)2015) 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 ($10.3 million, translated at exchange rates applicable as of March 31, 2015). 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 March 31, 2015 and June 30, 2014. The maximum potential amount that the Company could pay under these guarantees is ZAR 143.1135.0 million ($13.511.2 million, translated at exchange rates applicable as of March 31, 2014)2015). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in Note 8.

23

17.      Commitments and contingencies (continued)

     Contingencies

          Securities Litigation

     On December 24, 2013, Net1,March 6, 2015, the plaintiff filed an opposition to the Company’s motion to dismiss its chief executive officercomplaint and its chief financial officer were named as defendants inthe Company filed 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 alleges that Net1 made materially false and misleading statements regarding its business and compliance policies in its SEC filings and other public disclosures. The lawsuit was broughtreply brief on behalf of a purported shareholder of Net1 and all other similarly situated shareholders who purchased its securities between AugustMarch 27, 2009 and November 27, 2013. The lawsuit seeks unspecified damages. The Company believes this lawsuit has no merit and intends to defend it vigorously.2015.

     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 andor cash flows.

18. Subsequent events

            On April 17, 2014, the South African Constitutional Court (“Court”) ruled on the appropriate remedy following its declaration on November 29, 2013, that the tender process followed by the South African Social Security Agency (“SASSA”) in awarding a contract to the Company’s wholly-owned subsidiary, CPS, was constitutionally invalid. The declaration of invalidity of the contract between SASSA and CPS was upheld, but suspended until a new tender is awarded, or for the remainder of the existing contract period if no tender is awarded. SASSA is required to initiate a new tender process within 30 days of the Court's ruling and any award must be for a period of five years. In addition, the Court required new and independent Bid Evaluation and Bid Adjudication Committees to be appointed to evaluate and adjudicate the new tender process. If a new tender is not awarded, the declaration of invalidity of the current contract between SASSA and CPS will further be suspended until the completion of the five-year period for which the contract was originally awarded.

2423

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—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 thereto 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

    Constitutional Court pronounces remedy forUpdate on SASSA tender awardprocess

     On April 17, 2014,As ordered by the South African Constitutional Court or Constitutional Court, ruled on the appropriate remedy followingin its declaration on November 29, 2013, that the tender process followed by the South African Social Security Agency, orApril 2014 ruling, SASSA in awarding a contract to Net1's wholly-owned subsidiary, Cash Paymaster Services, or CPS, was constitutionally invalid. The declaration of invalidity of the contract between SASSA and CPS was upheld, but suspended until a new tender is awarded, or for the remainder of the existing contract period if no tender is awarded. SASSA is required to initiateinitiated a new tender process within 30 daysfor a five-year contract relating to the payment of social grants by issuing an initial Request for Proposal, or RFP, in October 2014. Following a detailed analysis of the Constitutional Court'stender specifications, we concluded that the tender specifications were not sufficiently clear regarding a number of critical points and failed to comply with the RFP requirements specified in the Court’s ruling and, any awardin November 2014, we applied to the Court for an order setting aside the RFP and directing SASSA to issue a corrected RFP. Although the Court did not set aside the RFP, it did order SASSA to issue a draft amended RFP. SASSA issued amended RFPs on two separate occasions (in December 2014 and February 2015). We continued to object to deficiencies in the amended RFPs and made further applications to the Court setting forth our objections. In February 2015, SASSA applied to the Court for an extension of time to address our objections.

     In orders dated March 19 and 24, 2015, the Court ordered SASSA to effect further amendments to the RFP to address our objections. The Court ordered that, absent further objections (1) SASSA must circulate a further amended draft RFP by April 17, 2015; (2) all bids must be for a period of five years. In addition, the Constitutional Court required newsubmitted by May 17, 2015 and independent Bid Evaluation and Bid Adjudication Committees to be appointed to evaluate and adjudicate(3) SASSA shall award the new tender process. Ifby October 15, 2015. The Court’s April 2014 ruling does not require SASSA to award a new tender, isthough we expect that any decision not awarded, the declaration of invalidityto make an award would be subject to judicial review and scrutiny. On April 17, 2015, SASSA issued and circulated an amended RFP to all prospective bidders. The amended RFP specifies that bidders must submit their proposals to SASSA on or before May 18, 2015 and also states that no part of the current contract between SASSA and CPS will further be suspended until the completioncontents of the five-year periodRFP may be used, copied, disclosed or conveyed in whole or in part to any party in any manner whatsoever other than for which the contract was originally awarded.purpose of the proposal.      

     We are currently analyzing the RFP to determine whether it is in the best interest of the Company to participate in the tender process or to focus on our other financial services businesses without being a contractor to SASSA. We have not yet made a final determination but expect to do so by the tender deadline. In any event, we cannot predict 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.

     See Part II, Item 1—1A.—“Legal Proceedings,Risk Factors,” for additional details.

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    Implementation of December 2013 Black Economic Empowerment, or BEE, transactionsATMs in South Africa

     On April 16, 2014,We have deployed ATMs, which are both EMV-and UEPS-compliant, and provide biometric verification as well as proof of life functionality, in South Africa. We have been able to expand our customer base because our ATMs accept all EMV-compliant cards. We currently have approximately 400 operational ATMs and we implementedare actively deploying more ATMs in high demand areas. We have placed these ATMs with our two previously-announced BEE transactionsmerchant partners and issued an aggregate of 4,400,000 shareswithin our own branches, creating a new delivery channel that did not exist before. Although capital intensive, our ATM rollout has already begun to make a positive contribution to our reported results.

ZAZOO

     We established ZAZOO to oversee the global expansion of our common stock to our BEE partners for ZAR 60.00 per share. Refer to note 10 to our unaudited condensed consolidated financial statements for a full description of the BEE transactions.

     Growth in mobile value-added services

            Our Net1 Mobile Solutions business unit introduced a new suite of mobilepayments and value-added services commencingbusinesses, including the activities currently conducted through our N1MS business unit. ZAZOO’s management is focused on worldwide growth opportunities, especially in the UK, Europe, the USA, India and other developed and emerging markets. ZAZOO coordinates all research and development, operations and marketing activities associated with a prepaid airtime product during the first quarterN1MS’ mobile businesses.

     ZAZOO entered into strategic collaborations with Uber, Microsoft and Cell C (one of fiscal 2014. We continued to see adoption of this productSouth Africa’s largest mobile operators) during the third quarter of fiscal 2014. This product allows2015 for our customersVCPay mobile application. VCPay is a mobile phone-based application that generates transaction specific virtual MasterCards that can be used for online purchases, or in brick-and-mortar retailers, that accept manual Card-Not-Present payments. Users can also send a virtual card to friends or family anywhere via email, SMS, MMS or WhatsApp, making it simpler than ever before to send money to third parties. VCPay is fully interoperable and does not require merchants to change the way in which payments are accepted online or via mobile applications, like Uber. We believe that VCPay bridges the electronic payment requirement gap for online or in-application payments by providing an immediate, safe and secure payment solution to anybody, regardless of their banking status.

     Under the collaboration with Uber in South Africa, people who do not own credit cards are now able to electronically purchase prepaid airtime without havinguse VCPay to visit a physical prepaid airtime vendor. Net1 Mobile Solutions also introduced a similar service under the brand "Pasavute" in partnership with Telecom Networks Malawi during the third quarter of fiscal 2014.

            Traditional prepaid airtime procurement is usually time consumingpay for the customerUber service.

     Under the collaboration with Microsoft and resultsCell C, ZAZOO agreed to sponsor a R250 VCPay voucher to consumers who purchase the new Microsoft Lumia 535 on a Cell C contract. The new device became available on Cell C’s talk and data contracts beginning February 1, 2015, and the initial batch was packaged with the VCPay voucher for new owners to use in them havingcompleting a purchase of their choice when using our VCPay service.

World Food Program

     The Southern Africa Regional Office of the United Nations World Food Program, or the WFP, has awarded us a tender for 12 countries that are members of the Southern African Development Community. The contract is for the distribution of cash and food grants to pay additional costs.hundreds of thousands of WFP beneficiaries in these territories.

     Our producttechnology makes use of any infrastructure present in each territory, and allows for the biometric verification of all beneficiaries regardless of the infrastructure being utilized even when such infrastructure is not biometrically enabled. In these scenarios, we utilize our customers, many of whompatented variable PIN technology in conjunction with fingerprint or voice verification methods using any mobile phone. We do not have their own means of transport or ready access to transport, to purchase prepaid airtime without having to travel. We alsoexpect that this socially responsible initiative will necessarily translate into a meaningful financial contributor for us in the short term, but we strongly believe that the exposure and credibility associated with winning and operating a project of this nature and scale will create further opportunities for us to implement the same or similar solutions in other contexts. We are currently finalizing our product is substantially cheaper than traditional prepaid airtime channels, which often require customers to pay a substantial premium to obtain airtime.

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            At March 31, 2014, we had over 2.4 million registered users, effecting more than one million transactions per day during peak periods. In December 2013, Net1 Mobile Solutions launched additional mobile value-added services, including prepaid electricity, and adoption rates of these products could be similar to its prepaid airtime offering. We believe that these new products are also cheaper than existing offerings and will make a meaningful difference indeployment contract with the lives of users of these new products.

   Pay in Private

            During the third quarter of fiscal 2014, our Net1 Mobile Solutions business unit launched our Mobile Virtual Card, or MVC, technology through Pay in Private in the United States in partnership with a US-based marketer with experience in online financial services. The Pay in Private solution offers unmatched security and accessibility to transact online using a mobile handset using our proprietary one-time use MVC Debit MasterCard generated by a smart phone app.

     Financial services

            In the beginning of fiscal 2014, our Financial Services business unit commenced the national rollout of our financial services offering in the six provinces in which we did not offer our product during fiscal 2013. We have experienced significant growth in our lending book during fiscal 2014 compared with 2013, however, during the third quarter of fiscal 2014, the growth rate slowed down as it appears there is less demand for our financial services offering during the beginning of the calendar year, following the summer holiday periodWFP office based in South Africa. This seasonal trend seems to be confirmed by the re-acceleration of the growth rate during March and April 2014.

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.

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     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:

     During fiscal 2014, we created an allowance for doubtful finance loans receivable related to our financial services segment as a result of UEPS-based loans provided to our customers. Our policy is to regularly review the ageing of outstanding amounts due from borrowers and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. We write off UEPS-based loans and related service fees if a borrower is in arrears with repayments for more than three months or dies.

            This is a new allowance and management considered factors including the period of the UEPS-loan outstanding, creditworthiness of the customers and the past payment history and trends of its established UEPS-based lending book. We consider this policy to be appropriate taking into account factors such as historical bad debts, current economic trends and changes in our customer payment patterns. Additional allowances may be required should the ability of our customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including on-going evaluation of the creditworthiness of each customer.

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.

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     Recent accounting pronouncements not yet adopted as of March 31, 20142015

     Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of March 31, 2014,2015, 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  Nine months ended  Year ended  Three months ended  Nine months ended  Year ended 
 March 31,  March 31,  June 30,  March 31,  March 31,  June 30, 
 2014  2013  2014  2013  2013  2015  2014  2015  2014  2014 
ZAR : $ average exchange rate 10.8622  8.9461�� 10.3375  8.6355  8.8462  11.7422  10.8622  11.2377  10.3375  10.3798 
Highest ZAR : $ rate during period 11.2667  9.3645  11.2667  9.3645  10.3587  12.4792  11.2667  12.4792  11.2667  11.2579 
Lowest ZAR : $ rate during period 10.4848  8.4067  9.6324  8.0444  8.0444  11.3622  10.4848  10.5128  9.6324  9.6259 
Rate at end of period 10.5833  9.2451  10.5833  9.2451  9.8925  12.0907  10.5833  12.0907  10.5833  10.5887 
                              
KRW : $ average exchange rate 1,071  1,090  1,083  1,107  1,112  1,101  1,071  1,072  1,083  1,068 
Highest KRW : $ rate during period 1,089  1,126  1,168  1,156  1,162  1,139  1,089  1,139  1,168  1,147 
Lowest KRW : $ rate during period 1,053  1,019  1,052  1,019  1,019  1,077  1,053  1,009  1,052  1,014 
Rate at end of period 1,071  1,121  1,071  1,121  1,144  1,106  1,071  1,106  1,071  1,014 

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ZAR: US $ Exchange Rates


KRW: US $ Exchange Rates


27

     Translation exchange rates for financial reporting purposes

     For financial reporting purposes weWe 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 and nine months ended March 31, 2015 and 2014, and 2013, 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  Nine months ended  Year ended  Three months ended  Nine months ended  Year ended 
 March 31,  March 31,  June 30,  March 31,  March 31,  June 30, 
 2014  2013  2014  2013  2013  2015  2014  2015  2014  2014 
Income and expense items: $1 = ZAR . 10.8743  8.4662  10.3801  8.4578  8.7105 
Income and expense items: $1 = ZAR 11.7218  10.8743  11.2251  10.3801  10.3966 
Income and expense items: $1 = KRW 1,070  1,113  1,076  1,112  1,072  1,101  1,070  1,064  1,076  1,049 
                              
Balance sheet items: $1 = ZAR 10.5833  9.2451  10.5833  9.2451  9.8925  12.0907  10.5833  12.0907  10.5833  10.5887 
Balance sheet items: $1 = KRW 1,071  1,121  1,071  1,121  1,144  1,106  1,071  1,106  1,071  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.

     Nine months ended March 31, 2013,Fiscal 2015 does not include MediKredit and the NUETS business and fiscal 2014 includes SmartSwitch Botswana from December 1, 2012MediKredit and Pbel (renamed Net1 Mobile Solutions during the third quarterNUETS business for the entire period.

     Our operating segment revenue presented in “—Results of fiscal 2014) from September 1, 2012.operations by operating segment” represents total revenue per operating segment before inter-segment eliminations. A reconciliation between total operating segment revenue and revenue presented in our consolidated financial statements is included in Note 15 to those statements.

28

     We analyze our business and operations in terms of fivethree 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.

     Third quarter of fiscal 20142015 compared to third quarter of fiscal 20132014

     The following factors had ana significant influence on our results of operations during the third quarter of fiscal 20142015 as compared with the same period in the prior year:

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     Consolidated overall results of operations

     This discussion is based on the amounts which were prepared in accordance with US GAAP.

     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 
Table 3 (US GAAP) 
  Three months ended March 31, 
  2014  2013  $% 
  $ ’000  $ ’000  change 
Revenue 138,126  111,141  24% 
Cost of goods sold, IT processing, servicing and support 63,149  51,461  23% 
Selling, general and administration 40,586  53,846  (25%)
Depreciation and amortization 10,442  10,560  (1%)
Operating income (loss) 23,949  (4,726) nm 
Interest income 3,438  2,515  37% 
Interest expense 1,734  2,023  (14%)
Income (loss) before income tax expense 25,653  (4,234) nm 
Income tax expense 8,535  472  1,708% 
Net income (loss) before earnings from equity-accounted investments 17,118  (4,706) nm 
Earnings from equity-accounted investments 52  22  136% 
Net income (loss) 17,170  (4,684) nm 
Add net loss attributable to non-controlling interest (12) (3) 300% 
Net income (loss) attributable to us 17,182  (4,681) nm 

29

  In United States Dollars 
Table 3 (US GAAP) 
  Three months ended March 31, 
  2015  2014 $ % 
 $ ’000 $ ’000  change 
Revenue 151,121  138,126  9% 
Cost of goods sold, IT processing, servicing and support 71,094  63,149  13% 
Selling, general and administration 38,001  40,586  (6%)
Depreciation and amortization 10,060  10,442  (4%)
Operating income 31,966  23,949  33% 
Interest income 4,211  3,438  22% 
Interest expense 941  1,734  (46%)
Income before income tax expense 35,236  25,653  37% 
Income tax expense 10,305  8,535  21% 
Net income before earnings from equity-accounted investments 24,931  17,118  46% 
Earnings from equity-accounted investments 65  52  25% 
Net income 24,996  17,170  46% 
Less (Add) net income (loss) attributable to non-controlling interest 638  (12) nm 
Net income attributable to us 24,358  17,182  42% 

 In South African Rand  In South African Rand 
Table 4 (US GAAP)  (US GAAP) 
 Three months ended March 31,  Three months ended March 31, 
 2014  2013     2015  2014    
 ZAR  ZAR  ZAR %  ZAR  ZAR  ZAR % 
 ’000  ’000  change  ’000  ’000  change 
Revenue 1,502,024  940,942  60%  1,771,411  1,502,024  18% 
Cost of goods sold, IT processing, servicing and support 686,701  435,680  58%  833,350  686,701  21% 
Selling, general and administration 441,345  455,871  (3%) 445,440  441,345  1% 
Depreciation and amortization 113,549  89,403  27%  117,921  113,549  4% 
Operating income (loss) 260,429  (40,012) nm 
Operating income 374,700  260,429  44% 
Interest income 37,386  21,292  76%  49,360  37,386  32% 
Interest expense 18,856  17,127  10%  11,030  18,856  (42%)
Income (loss) before income tax expense 278,959  (35,847) nm 
Income before income tax expense 413,030  278,959  48% 
Income tax expense 92,812  3,996  2,223%  120,793  92,812  30% 
Net income (loss) before earnings from equity-accounted investments 186,147  (39,843) nm 
Net income before earnings from equity-accounted investments 292,237  186,147  57% 
Earnings from equity-accounted investments 565  186  204%  762  565  35% 
Net income (loss) 186,712  (39,657) nm 
Add net loss attributable to non-controlling interest (130) (25) 420% 
Net income (loss) attributable to us 186,842  (39,632) nm 
Net income 292,999  186,712  57% 
Less (Add) net income (loss) attributable to non-controlling interest 7,479  (130) nm 
Net income attributable to us 285,520  186,842  53% 

     The increase in revenue was primarily due to a higher contribution from KSNET, more ad hoc terminal and cardprepaid airtime sales, more low-margin transaction fees generated from beneficiaries using the South African National Payment System, higher prepaid airtime sales driven by the rollout of our prepaid airtime product, and an increase in the number of UEPS-based loans.loans, an increase in the number of SASSA UEPS/ EMV cardholders paid, a higher contribution from KSNET and more ad hoc terminal and card sales.

     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 highermore 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.sold.

     OurIn ZAR, our selling, general and administration expense decreasedincreased due to the substantial elimination of SASSA contract implementation costs and fewer legal and other fees incurred related to the US government investigations and the US lawsuit, which was partially offset by increases in goods and services purchased from third parties.

     Our operating income (loss) margin for the third quarter of fiscal 2015 and 2014 was 21% and 2013 was 17% and (4)%, respectively. We discuss the components of operating income (loss) margin under “—Results of operations by operating segment.” The increase is primarily attributable to the elimination of implementation costshigher transaction volumes in fiscal 2014.South Africa, including prepaid airtime sales, lending and SASSA grants paid.

            In ZAR, depreciation29

     Depreciation and amortization were higher primarily as a result of an increase in depreciation related to assetsmore terminals used to service our obligations under our SASSA contract,provide transaction processing in Korea, which was partially offset by no MediKredit or FIHRSTEason 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.

  Three months ended 
Table 5 March 31, 
  2014   2013 
  $ ’000   $ ’000 
Amortization included in depreciation and amortization expense: 4,587   4,384 
     South African transaction-based activities 1,163   1,070 
     International transaction-based activities 3,358   3,228 
     Hardware, software and related technology sales 66   86 

  Three months ended 
Table 6 March 31, 
  2014   2013 
  ZAR ’000   ZAR ’000 
Amortization included in depreciation and amortization expense: 49,881   37,113 
     South African transaction-based activities 12,648   9,067 
     International transaction-based activities 36,516   27,329 
     Hardware, software and related technology sales 717   717 

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     Interest on surplus cash increased to $4.2 million (ZAR 49.4 million) from $3.4 million (ZAR 37.4 million) from $2.5 million (ZAR 21.3 million), due primarily to higher average daily ZAR cash balances.

     In US dollars, interestInterest expense decreased to $0.9 million (ZAR 11.0 million) from $1.7 million (ZAR 18.9 million) from $2.0 million (ZAR 17.1 million) primarily, due to a lower average long-term debt balance on our South Korean debt as well asand a lower interest rate resulting from our refinancing concluded in October 2013.rate.

     Third quarter fiscal 2014Fiscal 2015 tax expense was $10.3 million (ZAR 120.8 million) compared to $8.5 million (ZAR 92.8 million) compared to $0.5 million (ZAR 4 million) in fiscal 2013.2014. Our effective tax rate for fiscal 2015, was 29.2% and was higher than the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees and the interest expense related to our long-term South Korean borrowings). Our effective tax rate for fiscal 2014, was 33.3% 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). Our effective tax rate for the three months ended March 31, 2013, was (11.1)% and is negative as a result of the loss before income taxes and differed from the South African statutory rate primarily as a result of a valuation allowance for foreign tax credits, non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.

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 March 31, 
  2014   % of   2013   % of   % 
Operating Segment $ ’000   total   $ ’000   total   change 
Consolidated revenue:                   
SA transaction-based activities 64,864   47%   59,009   53%   10% 
International transaction-based activities 34,994   25%   33,119   30%   6% 
Smart card accounts 10,612   8%   8,657   8%   23% 
Financial services 11,099   8%   1,651   1%   572% 
Hardware, software and related technology sales 16,557   12%   8,705   8%   90% 
     Total consolidated revenue 138,126   100%   111,141   100%   24% 
Consolidated operating (loss) income:                   
SA transaction-based activities 11,145   47%   (4,197)  89%   (366%)
     Operating income before amortization 12,308       (3,127)      nm 
     Amortization of intangible assets (1,163)      (1,070)      9% 
International transaction-based activities 1,322   6%   (1,362)  29%   nm 
     Operating income before amortization 4,680       1,866       151% 
     Amortization of intangible assets (3,358)      (3,228)      4% 
Smart card accounts 3,025   13%   2,467   (52%)  23% 
Financial services 5,119   21%   1,147   (24%)  346% 
Hardware, software and related technology sales 4,000   17%   1,699   (36%)  135% 
     Operating income before amortization 4,066       1,785       128% 
     Amortization of intangible assets (66)      (86)      (23%)
Corporate/eliminations (662)  (4%)  (4,480)  94%   (85%)
     Total consolidated operating income (loss) 23,949   100%   (4,726)  100%   nm 
Table 5 In United States Dollars (US GAAP) 
  Three months ended March 31, 
  2015  % of  2014  % of  % 
Operating Segment$ ’000  total $ ’000  total  change 
Revenue:               
South African transaction processing 57,999  38%  57,397  42%  1% 
International transaction processing 38,311  25%  35,245  26%  9% 
Financial inclusion and applied technologies 66,830  44%  56,226  41%  19% 
       Subtotal: Operating segments 163,140  107%  148,868  109%  10% 
       Intersegment eliminations (12,019) (7%) (10,742) (9%) 12% 
               Consolidated revenue 151,121  100%  138,126  100%  9% 
Operating income (loss):               
South African transaction processing 13,218  41%  9,137  38%  45% 
International transaction processing 6,579  21%  4,642  19%  42% 
Financial inclusion and applied technologies 17,906  56%  16,459  69%  9% 
       Subtotal: Operating segments 37,703  118%  30,238  126%  25% 
       Corporate/Eliminations (5,737) (18%) (6,289) (26%) (9%)
               Consolidated operating income 31,966  100%  23,949  100%  33% 

Table 6 In South African Rand (US GAAP) 
  Three months ended March 31, 
  2015     2014       
  ZAR  % of  ZAR  % of  % 
Operating Segment ’000  total  ’000  total  change 
Revenue:               
South African transaction processing 679,853  38%  624,153  42%  9% 
International transaction processing 449,074  25%  383,265  26%  17% 
Financial inclusion and applied technologies 783,368  44%  611,418  41%  28% 
       Subtotal: Operating segments 1,912,295  107%  1,618,836  109%  18% 
       Intersegment eliminations (140,884) (7%) (116,812) (9%) 21% 
              Consolidated revenue 1,771,411  100%  1,502,024  100%  18% 
Operating income (loss):               
South African transaction processing 154,939  41%  99,359  38%  56% 
International transaction processing 77,118  21%  50,478  19%  53% 
Financial inclusion and applied technologies 209,891  56%  178,980  69%  17% 
       Subtotal: Operating segments 441,948  118%  328,817  126%  34% 
       Corporate/Eliminations (67,248) (18%) (68,388) (26%) (2%)
               Consolidated operating income 374,700  100%  260,429  100%  44% 

3130


Table 8 In South African Rand (US GAAP) 
  Three months ended March 31, 
  2014       2013         
  ZAR   % of   ZAR   % of   % 
Operating Segment ’000   total   ’000   total   change 
Consolidated revenue:                   
SA transaction-based activities 705,351   47%   499,582   53%   41% 
International transaction-based activities 380,535   25%   280,392   30%   36% 
Smart card accounts 115,398   8%   73,292   8%   57% 
Financial services 120,694   8%   13,978   1%   763% 
Hardware, software and related technology sales 180,046   12%   73,698   8%   144% 
     Total consolidated revenue 1,502,024   100%   940,942   100%   60% 
Consolidated operating (loss) income:                   
SA transaction-based activities 121,194   47%   (35,533)  89%   (441%)
     Operating income before amortization 133,842       (26,466)      nm 
     Amortization of intangible assets (12,648)      (9,067)      39% 
International transaction-based activities 14,376   6%   (11,531)  29%   nm 
     Operating income before amortization 50,892       15,798       222% 
     Amortization of intangible assets (36,516)      (27,329)      34% 
Smart card accounts 32,895   13%   20,886   (52%)  57% 
Financial services 55,666   21%   9,711   (24%)  473% 
Hardware, software and related technology sales 43,497   17%   14,384   (36%)  202% 
     Operating income before amortization 44,214       15,101       193% 
     Amortization of intangible assets (717)      (717)      - 
Corporate/eliminations (7,199)  (4%)  (37,929)  94%   (81%)
     Total consolidated operating income (loss) 260,429   100%   (40,012)  100%   nm 

          South African transaction-based activitiestransaction processing

     In ZAR, the increase in segment revenuerevenues was primarily due to more low-margin transaction fees generated from beneficiaries using the South African National Payment System incrementaland 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 loss of MediKredit revenue as a result of the sale of that business.

     Our operating income margin for the third quarter of fiscal 2015 and 2014 was 23% and 16%, respectively, and has increased primarily due to more higher-margin inter-segment transaction processing activities, the elimination of MediKredit losses and an increase in the number of beneficiaries paid in fiscal 2015.

International transaction-based activities

     Revenue increased primarily due to higher transaction volume at KSNET during the third quarter of fiscal 2015. Operating income during the year to date fiscal 2015 was higher due to increase in revenue contribution from KSNET, but partially offset by Zazoo start-up costs in the UK and India. Operating income and margin for the third quarter of fiscal 2015, was also positively impacted by a refund of approximately $1.7 million that had been paid several years ago in connection with industry-wide litigation that has now been finalized. Operating income margin for the third quarter of fiscal 2015 and 2014 was 17% and 13%, respectively, and was higher in fiscal 2015 primarily due to the refund referred to above.

Financial inclusion and applied technologies

     Financial inclusion and applied technologies revenue and operating income increased primarily due to higher prepaid airtime sales driven by the rollout of our prepaid airtime product, and reflect the elimination of inter-company transactions.

            Our operating income margin for fiscal 2014 and 2013 was 17% and (7)%, respectively, and has increased primarily due to the elimination of SASSA implementation costs in fiscal 2014, partially offset by the increase in low-margin prepaid airtime sales.

South African transaction processors:

            The table below presents the total volume and value processed during the third quarter of fiscal 2014 and 2013:

Table 9

  Total volume (‘000s)  Total value $ (‘000)  Total value ZAR (‘000) 
Transaction processor 2014  2013  2014  2013  2014  2013 
CPS 28,829  28,727  2,517,122  3,031,625  27,371,937  25,666,342 
EasyPay 99,706  105,708  2,438,669  2,815,953  26,518,814  23,840,425 
Net1 Mobile Solutions (A) 45,629  5,933  1,925,571  2,381,514  20,939,237  20,162,374 
MediKredit 2,677  2,706  257,479  175,651  2,799,902  1,487,096 

            (A) – during fiscal 2014 FIHRST was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent FIHRST only.

            CPS volumes moderately increased due to the organic growth in the number of beneficiaries added by SASSA, partially offset by SASSA’s suspension of former grant recipient cardholders who had not presented themselves for enrollment during the third quarter of fiscal 2014. EasyPay volumes have decreased due to fewer sales of prepaid airtime, but the decrease was partially offset by an increase in transaction switching and other value-added services. Net1 Mobile Solutions volumes have increased primarily due to the launch of prepaid airtime product in fiscal 2014.

32

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 third 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. Operating income during the third quarter of fiscal 2014 was higher due to increase in revenue contribution from KSNET and due to the NUETS Iraqi customer bad debt provision in fiscal 2013, but partially offset by 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.

            Operating income margin for the segment is lower than for most of our South African transaction-based businesses. Operating income margin for the third quarter of fiscal 2014 and 2013 was 4% and (4)%, respectively (excluding intangible amortization, 13% and 6%, 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 full implementation of the SASSA contract. Operating income margin from providing smart card accounts for the third quarter of fiscal 2014 and 2013 was 29% and 28%, 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 9.6 million smart card-based accounts were active at March 31, 2014 compared to approximately 6.5 million active accounts as at March 31, 2013.

Financial services

            UEPS-based lending contributes the majority of the revenue and operating income in this operating segment. Revenue and operating income increased primarily due to the year-over-year increase in the number of UEPS-based loans granted as we rolled out our product nationally, more ad hoc terminal and card sales and, in the first half of fiscal 2014. TheZAR, an increase in operating income was partially offset by the higher UEPS-based lending operating cost base in fiscal 2014 and the re-allocation of UEPS-based lending corporate and administration overhead expenses to this segment.intersegment revenues. Smart Life did not contribute to operating income in fiscal 2015 and 2014 due to the thirdFSB suspension of its license.

     The South African National Credit Act, or NCA, made certain industry-wide amendments, which became effective March 13, 2015. These amendments were introduced primarily to address over-indebtedness of South African consumers and now require lenders to perform a stricter affordability assessment. We expect that compliance with the amended legislation will have a modest impact on our UEPS-based lending businesses in the fourth quarter of fiscal 2014 as it is currently unable to issue new insurance policies as a result of the suspension of its license by the Financial Services Board, or FSB, in January 2013.

            Third 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 third quarter of fiscal 2013.2015.

     Operating income margin for the financial servicesFinancial inclusion and applied technologies segment decreased to 46% from 69%was 27% and 29%, primarily as a resultrespectively, during of the higher UEPS-based lending operating cost base in fiscal 2014 and corporate overhead expense re-allocation described above.

Hardware, software and related technology sales

            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 decrease in our corporate expenses resulted primarily from fewer legal fees incurred in connection with the US government investigations compared the third quarter of fiscal 2015 and 2014, partially offset by higher other corporate head office-related expenses.and has decreased primarily due to the sale of more low-margin prepaid airtime and the sale of competitively-priced financial inclusion products to address the needs of the broader market.

Corporate/ Eliminations

     Our corporate expenses alsogenerally include acquisition-related intangible asset amortization; expenditure related to compliance with Sarbanes; non-executivethe Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive salaries and bonuses; stock-based compensation; legal andfees; audit fees; directors and officers insurance premiums; telecommunications expenses; property-related expenditures including utilities, rental, security and maintenance; and elimination entries.

33     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.

     Year to date fiscal 20142015 compared to year to date fiscal 20132014

     The following factors had ana significant influence on our results of operations during the year to date fiscal 20142015 as compared with the same period in the prior year:

31

     Consolidated overall results of operations

     This discussion is based on the amounts which were prepared in accordance with US GAAP.

     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 
Table 10 (US GAAP) 
  Nine months ended March 31, 
  2014  2013  $ % 
  $ ’000  $ ’000  change 
Revenue 398,903  334,265  19% 
Cost of goods sold, IT processing, servicing and support 187,591  143,789  30% 
Selling, general and administration 121,916  149,854  (19%)
Depreciation and amortization 30,245  31,051  (3%)
Operating income 59,151  9,571  518% 
Interest income 9,993  8,195  22% 
Interest expense 5,712  6,117  (7%)
Income before income tax expense 63,432  11,649  445% 
Income tax expense 22,119  7,172  208% 
Net income before earnings from equity-accounted investments 41,313  4,477  823% 
Earnings from equity-accounted investments 202  204  (1%)
Net income 41,515  4,681  787% 
Add net loss attributable to non-controlling interest (12) (11) 9% 
Net income attributable to us 41,527  4,692  785% 

34

  In United States Dollars 
Table 7 (US GAAP) 
  Nine months ended March 31, 
  2015  2014  $ % 
 $ ’000 $ ’000  change 
Revenue 461,693  398,903  16% 
Cost of goods sold, IT processing, servicing and support 217,274  187,591  16% 
Selling, general and administration 118,122  121,916  (3%)
Depreciation and amortization 30,391  30,245  0% 
Operating income 95,906  59,151  62% 
Interest income 11,888  9,993  19% 
Interest expense 3,360  5,712  (41%)
Income before income tax expense 104,434  63,432  65% 
Income tax expense 32,156  22,119  45% 
Net income before earnings from equity-accounted investments 72,278  41,313  75% 
Earnings from equity-accounted investments 233  202  15% 
Net income 72,511  41,515  75% 
Less (add) net income (loss) attributable to non-controlling interest 1,690  (12) nm 
Net income attributable to us 70,821  41,527  71% 

 In South African Rand  In South African Rand 
Table 11 (US GAAP) 
Table 8 (US GAAP) 
 Nine months ended March 31,  Nine months ended March 31, 
 2014  2013     2015  2014    
 ZAR  ZAR  ZAR %  ZAR  ZAR  ZAR % 
 ’000  ’000  change  ’000  ’000  change 
Revenue 4,140,654  2,827,147  46%  5,182,550  4,140,654  25% 
Cost of goods sold, IT processing, servicing and support 1,947,214  1,216,139  60%  2,438,922  1,947,214  25% 
Selling, general and administration 1,265,501  1,267,435  (0%) 1,325,932  1,265,501  5% 
Depreciation and amortization 313,947  262,624  20%  341,142  313,947  9% 
Operating income 613,992  80,949  658%  1,076,554  613,992  75% 
Interest income 103,728  69,312  50%  133,444  103,728  29% 
Interest expense 59,291  51,736  15%  37,716  59,291  (36%)
Income before income tax expense 658,429  98,525  568%  1,172,282  658,429  78% 
Income tax expense 229,597  60,659  279%  360,954  229,597  57% 
Net income before earnings from equity-accounted investments 428,832  37,866  1,032%  811,328  428,832  89% 
Earnings from equity-accounted investments 2,097  1,725  22%  2,615  2,097  25% 
Net income 430,929  39,591  988%  813,943  430,929  89% 
Add net loss attributable to non-controlling interest (125) (93) 34% 
Less (add) net income (loss) attributable to non-controlling interest 18,970  (125) nm 
Net income attributable to us 431,054  39,684  986%  794,973  431,054  84% 

     The increase in revenue was primarily due to a higher contribution from KSNET, more ad hoc terminal and cardprepaid airtime sales, more low-margin transaction fees generated from beneficiaries using the South African National Payment System, higher prepaid airtime sales driven by the rollout of our prepaid airtime product, and an increase in the number of UEPS-based loans.loans, an increase in the number of SASSA UEPS/ EMV cardholders paid, a higher contribution from KSNET and more ad hoc terminal and card sales.

     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 highermore 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.sold.

     In USD,ZAR, our selling, general and administration expense decreasedincreased due to the substantial elimination of SASSA contract implementation costs and fewer legal fees in connection with the US government investigations in the current year, which was offset by increases in goods and services purchased from third parties.

     Our operating income margin for the year to date fiscal 2015 and 2014 was 21% and 2013, was 15% and 3%, respectively. We discuss the components of operating income margin under “—Results of operations by operating segment.” The increase is primarily attributable to the substantial elimination of implementation costshigher transaction volumes in fiscal 2014.South Africa, including prepaid airtime sales, lending and SASSA grants paid.

            In ZAR, depreciation32

     Depreciation and amortization were higher primarily as a result of an increase in depreciation related to assetsmore terminals used to service our obligations under our SASSA contract,provide transaction processing in Korea, which was partially offset by no MediKredit and FIHRSTEason 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.

  Nine months ended 
Table 12 March 31, 
  2014   2013 
  $ ’000   $ ’000 
Amortization included in depreciation and amortization expense: 12,453   13,954 
     South African transaction-based activities 2,232   4,003 
     International transaction-based activities 10,013   9,697 
     Hardware, software and related technology sales 208   254 

  Nine months ended 
Table 13 March 31, 
  2014   2013 
  ZAR ’000   ZAR ’000 
Amortization included in depreciation and amortization expense: 129,253   118,024 
     South African transaction-based activities 23,165   33,857 
     International transaction-based activities 103,936   82,015 
     Hardware, software and related technology sales 2,152   2,152 

35

     Interest on surplus cash increased to $11.9 million (ZAR 133.4 million) from $10.0 million (ZAR 103.7 million) from $8.2 million (ZAR 69.3 million), due primarily to higher average daily ZAR cash balances.

     In US dollars, interestInterest expense decreased to $3.4 million (ZAR 37.7 million) from $5.7 million (ZAR 59.3 million) from $6.1 million (ZAR 51.7 million), due to a lower average long-term debt balance on our South Korean debt as well asand a lower interest rate resulting from our refinancing concluded in October 2013.rate.

     Year to date fiscal 2014Fiscal 2015 tax expense was $32.2 million (ZAR 361.0 million) compared to $22.1 million (ZAR 229.6 million) compared to $7.2 million (ZAR 60.7230.0 million) in fiscal 2013.2014. Our effective tax rate for fiscal 2015, was 30.8% and was higher than the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees and the interest expense related to our long-term South Korean borrowings). Our effective tax rate for fiscal 2014, was 34.9% 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). Our effective tax rate for the year to date fiscal 2013, was 61.6% and was higher than the South African statutory rate primarily as a result of non-deductible expenses (including interest expense related to our long-term Korean borrowings and stock-based compensation charges) and South African dividend withholding taxes.

     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 14 In United States Dollars (US GAAP) 
  Nine months ended March 31, 
  2014   % of  2013   % of  % 
Operating Segment $’000   total  $ ’000   total  change 
Consolidated revenue:                 
SA transaction-based activities 200,133   50%  181,137   54%  10% 
International transaction-based activities 109,099   27%  97,881   29%  11% 
Smart card accounts 33,178   8%  25,240   8%  31% 
Financial services 19,725   5%  4,483   1%  340% 
Hardware, software and related technology sales 36,768   10%  25,524   8%  44% 
     Total consolidated revenue 398,903   100%  334,265   100%  19% 
Consolidated operating (loss) income:                 
SA transaction-based activities 37,825   64%  4,136   43%  815% 
     Operating income before amortization 40,057      8,139      392% 
     Amortization of intangible assets (2,232)     (4,003)     (44%)
International transaction-based activities                 
  4,738   8%  (1,331)  (14%) nm 
     Operating income before amortization 14,751      8,366      76% 
     Amortization of intangible assets (10,013)     (9,697)     3% 
Smart card accounts 9,456   16%  7,194   75%  31% 
Financial services 6,902   12%  3,292   34%  110% 
Hardware, software and related technology sales 8,540   14%  4,478   47%  91% 
     Operating income before amortization 8,748      4,732      85% 
     Amortization of intangible assets (208)     (254)     (18%)
Corporate/eliminations (8,310)  (14%) (8,198)  (85%) 1% 
     Total consolidated operating income 59,151   100%  9,571   100%  518% 
Table 9 In United States Dollars (US GAAP) 
  Nine months ended March 31, 
  2015  % of  2014  % of  % 
Operating Segment$ ’000  total $ ’000  total  change 
Revenue:               
South African transaction processing 176,678  38%  173,312  43%  2% 
International transaction processing 121,981  26%  110,524  28%  10% 
Financial inclusion and applied technologies 199,558  43%  143,502  36%  39% 
       Subtotal: Operating segments 498,217  107%  427,338  107%  17% 
       Intersegment eliminations (36,524) (7%) (28,435) (7%) 28% 
              Consolidated revenue 461,693  100%  398,903  100%  16% 
Operating income (loss):               
South African transaction processing 39,740  41%  22,726  38%  75% 
International transaction processing 19,671  21%  15,305  26%  29% 
Financial inclusion and applied technologies 53,340  56%  42,559  72%  25% 
       Subtotal: Operating segments 112,751  118%  80,590  136%  40% 
       Corporate/Eliminations (16,845) (18%) (21,439) (36%) (21%)
               Consolidated operating income 95,906  100%  59,151  100%  62% 

Table 10 In South African Rand (US GAAP) 
  Nine months ended March 31, 
  2015     2014       
  ZAR  % of  ZAR  % of  % 
Operating Segment ’000  total  ’000  total  change 
Revenue:               
South African transaction processing 1,983,228  38%  1,798,996  43%  10% 
International transaction processing 1,369,249  26%  1,147,251  28%  19% 
Financial inclusion and applied technologies 2,240,059  43%  1,489,565  36%  50% 
       Subtotal: Operating segments 5,592,536  107%  4,435,812  107%  26% 
       Intersegment eliminations (409,986) (7%) (295,158) (7%) 39% 
               Consolidated revenue 5,182,550  100%  4,140,654  100%  25% 
Operating income (loss):               
South African transaction processing 446,085  41%  235,898  38%  89% 
International transaction processing 220,809  21%  158,867  26%  39% 
Financial inclusion and applied technologies 598,747  56%  441,766  72%  36% 
       Subtotal: Operating segments 1,265,641  118%  836,531  136%  51% 
       Corporate/Eliminations (189,087) (18%) (222,539) (36%) (15%)
               Consolidated operating income 1,076,554  100%  613,992  100%  75% 

3633


Table 15 In South African Rand (US GAAP) 
  Nine months ended March 31, 
  2014      2013        
  ZAR   % of  ZAR   % of  % 
Operating Segment ’000   total  ’000   total  change 
Consolidated revenue:                 
SA transaction-based activities 2,077,401   50%  1,532,021   54%  36% 
International transaction-based activities 1,132,459   27%  827,858   29%  37% 
Smart card accounts 344,391   8%  213,475   8%  61% 
Financial services 204,747   5%  37,916   1%  440% 
Hardware, software and related technology sales 381,656   10%  215,877   8%  77% 
     Total consolidated revenue 4,140,654   100%  2,827,147   100%  46% 
Consolidated operating (loss) income:                 
SA transaction-based activities 392,627   64%  34,981   43%  1,022% 
     Operating income before amortization 415,792      68,838      504% 
     Amortization of intangible assets (23,165)     (33,857)     (32%)
International transaction-based activities 49,181   8%  (11,257)  (14%) nm 
     Operating income before amortization 153,117      70,758      116% 
     Amortization of intangible assets (103,936)     (82,015)     27% 
Smart card accounts 98,154   16%  60,845   75%  61% 
Financial services 71,643   12%  27,843   34%  157% 
Hardware, software and related technology sales 88,646   14%  37,874   47%  134% 
     Operating income before amortization 90,798      40,026      127% 
     Amortization of intangible assets (2,152)     (2,152)     - 
Corporate/eliminations (86,259)  (14%) (69,337)  (85%) 24% 
     Total consolidated operating income 613,992   100%  80,949   100%  658% 

          South African transaction-based activitiestransaction processing

     In ZAR, the increasesincrease in segment revenue wererevenues was primarily due to more low-margin transaction fees generated from beneficiaries using the South African National Payment System incrementaland 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 loss of MediKredit revenue as a result of the sale of that business.

     Our operating income margin for the year to date fiscal 2015 and 2014 was 22% and 13%, respectively, and has increased primarily due to more higher-margin inter-segment transaction processing activities, the elimination of MediKredit losses and an increase in the number of beneficiaries paid in fiscal 2015.

International transaction-based activities

     Revenue and operating income increased primarily due to higher transaction volume at KSNET during the year to date fiscal 2015. Operating income margin for the year to date fiscal 2015 and 2014, was 16% and 14%, respectively.

Financial inclusion and applied technologies

     Financial inclusion and applied technologies revenue and operating income increased primarily due to higher prepaid airtime sales driven by the rollout of our prepaid airtime product, and reflect the elimination of inter-company transactions.

            Our operating income margin for fiscal 2014 and 2013 was 19% and 2%, respectively, and has increased primarily due to the substantial elimination of SASSA implementation costs in fiscal 2014 and partially offset by the increase in low-margin prepaid airtime sales.

South African transaction processors:

            The table below presents the total volume and value processed during the year to date fiscal 2014 and 2013:

Table 16                  
  Total volume (‘000s)  Total value $ (‘000)  Total value ZAR (‘000) 
Transaction processor 2014  2013  2014  2013  2014  2013 
CPS 85,692  85,669  7,894,032  9,184,743  81,940,837  77,682,718 
EasyPay 305,623  319,508  7,935,448  8,525,275  82,370,747  72,105,069 
Net1 Mobile Solutions (A) . 104,311  18,098  6,233,573  7,289,395  64,705,111  61,652,241 
MediKredit 7,514  7,684  660,132  508,863  6,852,238  4,303,865 

            (A) – during fiscal 2014 FIHRST was integrated into Net1 Mobile Solutions. Volumes and values for 2013 represent FIHRST only.

            CPS volumes moderately increased due to the organic growth in the number of beneficiaries added by SASSA, partially offset by SASSA’s suspension of former grant recipient cardholders who had not presented themselves for enrollment during the third quarter of fiscal 2014. EasyPay volumes have decreased due to fewer sales of prepaid airtime, but the decrease was partially offset by an increase in transaction switching and other value-added services. Net1 Mobile Solutions volumes have increased primarily due to the launch of prepaid airtime product in fiscal 2014.

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International transaction-based activities

            Revenue increased primarily due to KSNET’s revenue growth during the year to date 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. Operating income during the year to date fiscal 2014 was higher due to increase in revenue contribution from KSNET, but partially offset by the loss of the NUETS Iraqi 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.

            Operating income margin for the year to date fiscal 2014 and 2013 was 4% and (1)%, respectively (excluding intangible amortization, 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 full implementation of the SASSA contract. Operating income margin from providing smart card accounts for the year to date fiscal 2014 and 2013 was 29% and 29%, 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 9.6 million smart card-based accounts were active at March 31, 2014 compared to approximately 6.5 million active accounts as at March 31, 2013.

Financial services

            Revenue increased primarily due to the increase in the number of UEPS-based loans granted as we rolled out our product nationally. Operatingnationally, and, in ZAR, an increase in intersegment revenues. Fiscal 2014 operating income decreased primarily as a resultincludes expenses related to the national roll-out of related start-up expenses,our UEPS-based lending offering and the establishment of the allowance for doubtful finance loans receivable and the re-allocation of UEPS-based lending corporate and administration overhead expenses to this segment.in fiscal 2014. Smart Life did not contribute to operating income in the year to date fiscal 2015 and 2014 due to the FSB suspension.suspension of its license.

     Year to dateNotwithstanding the national roll-out expenses incurred in 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 year to date fiscal 2013.

            Operatingoperating income margin for the financial servicesFinancial inclusion and applied technologies segment decreased to 35%27% from 73%30%, primarily as a result of more low-margin prepaid airtime and the roll-out expenditures, allowance for doubtful finance loans receivable 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 salesCorporate/ 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 increases in general corporate legal fees, executive emoluments and other corporate head office-related expenses purchased from third parties, partially offset by lower US government investigation expenses.

     Our corporate expenses alsogenerally include acquisition-related intangible asset amortization; expenditure related to compliance with Sarbanes;the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive salaries and bonuses; stock-based compensation; legal 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.

Liquidity and Capital Resources

     At March 31, 2014,2015, our cash balances were $30.9$111.0 million, which comprised mainly ZAR-denominated balances of ZAR 157.8 million1.2 billion ($14.9103.6 million), KRW-denominated balances of KRW 11.21.6 billion ($10.51.5 million) and US dollar-denominated balances of $4.3 million and other currency deposits, primarily euro,Botswana Pula, of $1.1$1.7 million. The decreaseincrease in our cash balances from June 30, 2013,2014, was primarily due to the expansion of our UEPS-based lending business, working capital changes, the repayment of a portionall of our core businesses, and to a lesser extent, to the cash conservation resulting from the sale of loss-incurring businesses, offset by provisional tax payments and the scheduled Korean debt and acquisition of all of the remaining shares of KSNET that we did not already own.repayment in October 2014.

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     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.

     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.

34

     We have a ZAR 400 millionshort-term South African Rand-denominated short-term credit facility with Nedbank Limited a South African bank. Thisof ZAR 400 million ($33.1 million). The short-term facility comprises of 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 March 31, 2014,2015, we had no amounts outstanding underhave used none of the overdraft facility and had utilized ZAR 143.1137.2 million ($13.5 million, translated at exchange rates applicable as of March 31, 2014)11.3 million) of the indirect and derivative facilities to support cross-guarantees issuedobtain foreign exchange contracts and to Nedbank forsupport 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 March 31, 2014, the interest rate on the overdraft facility was 7.85% . The short-term facility is repayable on demand. Refer to Note 8 to the unaudited condensed consolidated financial statements for more information about the terms of South African short-term facility.

            We also have a KRW 10 billion Korean won denominated overdraft facility with Hana Bank, a Korean bank. As of March 31, 2014, we had no amounts outstanding under the overdraft facility. As of March 31, 2014, the interest rate on the overdraft facility was 4.98% . Any amounts outstanding under this overdraft facility are repayable in full in January 2015. Refer to Note 8 to the unaudited condensed consolidated financial statements for more information about the terms of Korean overdraft facility.

            We have a KRW 85.0 billion Korean won denominated five-year senior secured term loan and revolving credit facility with a group of group of Korean banks. As of March 31, 2014,2015, we had outstanding long-term debt of KRW 77.266.4 billion (approximately $71.2$60.0 million translated at exchange rates applicable as of March 31, 2014).2015) under credit facilities with a group of South Korean banks. The loans bear interest at the South Korean CD rate in effect from time to time (2.65%(2.12% as of March 31, 2014)2015) 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. We repaid the KRW 15 billion other term loan facility in full in October 2014 in accordance with the repayment schedule. Scheduled remaining 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 9 to theour unaudited condensed consolidated financial statements for morethe three and nine months ended March 31, 2015, for additional information about the terms ofrelated to our long-term Korean facility.borrowings.

     Cash flows from operating activities

          Third quarter of fiscal 2015 and 2014

     Net cash provided by operating activities for the third quarter of fiscal 20142015 was $49.3 million (ZAR 578.0 million) compared to cash provided by operating activities of $34.6 million (ZAR 376.2 million) compared to $12.2 million (ZAR 103.2 million) for the third 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 increase in cash from operating activities resulted from improved trading activity during fiscal 2015.

     We paid taxes totaling $0.1 million (ZAR 1.6 million) in South Africa during the substantial eliminationthird quarter of implementation costs related to our SASSA contractfiscal 2015. We also paid taxes totaling $3.0 million in fiscal 2014, partially offset by the expansion of our UEPS-based lending book.

other tax jurisdictions, primarily South Korea. We paid no taxes in South Africa during the third quarter of fiscal 2014. We paid provisional Korean taxes of $1.6 million related to our tax year ended December 31, 2013. During the third quarter of fiscal 2013, we paid first and second provisional South African taxes of $0.47 million (ZAR 4.3 million) and $0.1 million (ZAR 0.7 million), respectively, related to our 2013 tax year and dividend withholding tax of $0.2 million (ZAR 1.9 million). We also paid provisional Korean taxes of $0.9 million related to our tax year ended December 31, 2012.

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     Taxes paid during the third quarter of fiscal 20142015 and 20132014 were as follows:

Table 17 Three months ended March 31, 
Table 11 Three months ended March 31, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 $  $  ZAR  ZAR $  $   ZAR  ZAR 
 ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000 
First provisional payments -  473  -  4,339  135  -  1,564  - 
Second provisional tax payment -  82  -  728 
Taxation refunds received (36) -  (400) (4) (40) (36) (468) (400)
Dividend withholding taxation -  213  -  1,871 
Total South African taxes paid (36) 768  (400) 6,934  95  (36) 1,096  (400)
Foreign taxes paid: primarily Korea 1,606  933  17,330  8,180  2,991  1,606  36,042  17,330 
Total tax paid 1,570  1,701  16,930  15,114  3,086  1,570  37,138  16,930 

     We expect to pay our second provisional payments in South Africa related to our 20142015 tax year in the fourth quarter of fiscal 2014.2015.

          Year to date fiscal 2015 and 2014

     Net cash provided by operating activities for the year to date fiscal 20142015 was $5.7$103.4 million (ZAR 59.1 million)1.2 billion) compared to cash provided by operating activities of $31.0$5.7 million (ZAR 262.159.1 million) for the year to date fiscal 2013.2014. Excluding the impact of interest received, interest paid under our Korean debt and taxes presented in the table below, the decreaseincrease in cash from operating activities resulted from the expansion of our UEPS-based lending book, offset by cash inflows from improved trading activity andduring fiscal 2015.

     During the substantial eliminationyear to date fiscal 2015, we paid South African tax of implementation costs$18.9 million (ZAR 217.2 million) related to our SASSA contract2015 tax year and $2.4 million (ZAR 26.4 million) related to prior tax years. We also paid taxes totaling $7.6 million in fiscal 2014.

other tax jurisdictions, primarily South Korea. During the year to date fiscal 2014, we paid South African tax of $13.3 million (ZAR 137.8 million) related to our 2014 tax year and $0.2 million (ZAR 2.4 million) related to prior tax years. We also paid provisional Korean taxes of $2.6 million related to our tax year ended December 31, 2013. During the year to date fiscal 2013, we paid first and second provisional South African taxes of $6.8 million (ZAR 54.7 million) and $0.08 million (ZAR 0.7 million), respectively, related to our 2013 tax year, $3.1 million (ZAR 27.0 million) related to prior tax years and dividend withholding taxes of $0.6 million (ZAR 5.4 million). We also paid provisional Korean taxes of $1.7 million related to our tax year ended December 31, 2012.

35

     Taxes paid during the year to date fiscal 20142015 and 20132014 were as follows:

Table 18 Nine months ended March 31, 
Table 12 Nine months ended March 31, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 $  $  ZAR  ZAR $  $   ZAR  ZAR 
 ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000 
First provisional payments 13,292  6,757  137,773  58,693  18,910  13,292  217,241  137,773 
Second provisional payments -  82  -  728 
Taxation paid related to prior years 228  3,110  2,360  26,978  2,408  228  26,395  2,360 
Taxation refunds received (36) (118) (400) (1,010) (317) (36) (3,533) (400)
Dividend withholding taxation -  611  -  5,371 
Total South African taxes paid 13,484  10,442  139,733  90,760  21,001  13,484  240,103  139,733 
Foreign taxes paid: primarily Korea 2,613  1,738  27,507  14,992  7,638  2,613  86,857  27,507 
Total tax paid 16,097  12,180  167,240  105,752  28,639  16,097  326,960  167,240 

     Cash flows from investing activities

          Third quarter of fiscal 2015and 2014

     Cash used in investing activities for the third quarter of fiscal 2015 includes capital expenditure of $6.3 million (ZAR 74.1 million), primarily for the acquisition of payment processing terminals in Korea and the rollout of ATMs in South Africa.

     Cash used in investing activities for the third quarter of fiscal 2014 includes capital expenditure of $4.8 million (ZAR 52.7 million), primarily for the acquisition of payment processing terminals in Korea.

          Year to date fiscal 2015 and 2014

Cash used in investing activities for the third quarter ofyear to date fiscal 20132015 includes capital expenditure of $5.1$24.8 million (ZAR 46.7278.9 million), primarily for computer equipment for our SASSA contract andthe acquisition of payment processing terminals in Korea.

40

Year to date fiscal 2014 We also received approximately $1.9 million resulting from the sale of NUETS business.

     Cash used in investing activities for the year to date fiscal 2014 includes capital expenditure of $17.3 million (ZAR 178.9 million), primarily for the acquisition of payment processing terminals in Korea.

     Cash used in investing activities for the year to date fiscal 2013 includes capital expenditure of $17.1 million (ZAR 144.7 million), primarily for computer equipment, payment vehicles and related equipment for our SASSA contract and acquisition of payment processing terminals in Korea. During the year to date fiscal 2013 we paid, net of cash acquired, $1.9 million (ZAR 16.2 million) for Net1 Mobile Solutions and $0.2 million for SmartSwitch Botswana.

Cash flows from financing activities

          Third quarter of fiscal 2015 and 2014

     During the third quarter of fiscal 2015, we utilized approximately $0.8 million of our Korean borrowings to pay quarterly interest due and received approximately $0.8 million from the exercise of stock options. We also paid a dividend of $1.0 million to certain of our non-controlling interests.

     During the third quarter of fiscal 2014, we utilized approximately $1.0 million of our Korean borrowings to pay quarterly interest due.due and received approximately $0.1 million from the exercise of stock options.

            There were no cash flows from financing activities during the third quarter of fiscal 2013.

          Year to date fiscal 2015 and 2014

     During the year to date fiscal 2015, we made a scheduled Korean debt repayment of $14.1 million, repurchased BVI’s remaining 1,837,432 shares of Net1 common stock for approximately $9.2 million, received $1.4 million from BVI for 12.5% of CPS’ issued and outstanding ordinary shares and paid a dividend of $1.0 million to certain of our non-controlling interests. We also utilized approximately $3.0 million of our Korean borrowings to pay quarterly interest due and received approximately $1.8 million from the exercise of stock options during the first quarter of fiscal 2015.

     During the year to date fiscal 2014, we refinanced our Korean debt and received $87 million from Korean banks. In October 2013, we used $72.6 million of these new borrowings and $14.4 million of our surplus cash to repay the $87.0 million due under our old facility. In addition, we paid the facility fees related to our new Korean borrowings of approximately $0.9 million. In January 2014, we utilized approximately $1.0 million of these new borrowings to pay quarterly interest due in Korea.

     We paid approximately $2.0 million for substantially all of the shares of KSNET we did not already own during the second quarter of fiscal 2014. As discussed above, weWe also utilized our South African short-term facility during the year to date fiscal 2014 and owe approximately $37.8 million as of March 31, 2014.fund our working capital requirements.

            During the year to date fiscal 2013, we made a scheduled $7.3 million long-term debt repayment and received $0.2 million from the exercise of stock options.36

Off-Balance Sheet Arrangements

     We have no off-balance sheet arrangements.

Capital Expenditures

     We expect capital spending for the fourth quarter of fiscal 20142015 to primarily include the acquisition of payment terminals for the expansion of our operations in Korea.

     Our historical capital expenditures for the third quarter of fiscal 20142015 and 20132014 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 March 31, 2014,2015, of $0.1$0.4 million related mainly to computer equipment. We expect to fund these expenditures through internally-generated funds.

41

Contingent Liabilities, Commitments and Contractual Obligations

     The following table sets forth our contractual obligations as of March 31, 2014:2015:

Table 19 Payments due by Period, as of March 31, 2014 (in $ ’000s) 
Table 13 Payments due by Period, as of March 31, 2015 (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) 84,420  17,820  24,869  41,731  -  68,869  3,656  23,007  42,206  - 
Operating lease obligations 7,853  3,787  3,742  324  -  7,915  3,941  3,451  523  - 
Purchase obligations 6,507  6,507  -  -  -  7,011  7,011  -  -  - 
Capital commitments 125  125  -  -  -  403  403  -  -  - 
Other long-term obligations (B)(C) 20,117  -  -  -  20,117  20,250  -  -  -  20,250 
Total 119,022  28,239  28,611  42,055  20,117  104,448  15,011  26,458  42,729  20,250 

 (A)

– Includes $72.1$60.0 million of long-term debt and interest payable at the rate applicable on March 31, 2014,2015, under our Korean debt facility.

 (B)

– Includes policy holder liabilities of $19.3$19.4 million related to our insurance business.

 (C)

– We have excluded cross-guarantees in the aggregate amount of $13.5$12.0 million issued as of March 31, 2014,2015, 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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     In addition to the tables below, see noteNote 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 March 31, 2014,2015, as a result of changes in the Korean CD. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in each of the Korean CD rate as of March 31, 2014,2015, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.

 As of March 31, 2014  As of March 31, 2015 
Table 20    Hypothetical  Estimated annual 
Table 14    Hypothetical  Estimated annual 
    change in  expected interest     change in  expected interest 
    Korean CD  charge after     Korean CD  charge after 
    rate or South  hypothetical change in     rate or South  hypothetical change in 
 Annual  Africa  Korean CD rate or  Annual  Africa  Korean CD rate or 
 expected  overdraft  South African  expected  overdraft  South African 
 interest  facility rate,  overdraft facility rate,  interest  facility rate,  overdraft facility rate, 
 charge  as  as appropriate  charge  as  as appropriate 
 ($ ’000)  appropriate  ($ ’000)  ($ ’000) appropriate  ($ ’000)
Interest on Korean long-term debt 4,125  1%  4,845  3,133  1%  3,734 
    (1%) 3,404     (1%) 2,533 

      The following table summarizes our exchange-traded equity securities with equity price risk as of March 31, 2014.2015. The effects of a hypothetical 10% increase and a 10% decrease in market prices as of March 31, 2014,2015, 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 March 31, 2014  As of March 31, 2015 
Table 21            
Table 15            
          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 7,662  10%  8,428  0.20%  7,608  10%  8,369  0.16% 
    (10%) 6,896  (0.20%)    (10%) 6,847  (0.16%)

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 March 31, 2014.2015. 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 March 31, 2014.2015.

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 March 31, 2014,2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

Constitutional Court pronounces remedy forProceedings Relating to SASSA Tender Process

     See disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Update on SASSA tender awardprocess” for an update regarding the proceedings in the Constitutional Court in connection with the new SASSA tender process.

Challenge to Payment by SASSA of Additional Implementation Costs

     On April 17, 2014, the2, 2015, Corruption Watch, a South African Constitutionalnon-profit civil society organization, filed a Notice of Motion with the High Court the highest court inof South Africa, issued its ruling onnotifying the Court that it intends to apply for an appropriate remedy following its declaration on November 29, 2013,order by the Court to review and set aside the decision of SASSA’s Chief Executive Officer to approve the payment to us of ZAR317 million (approximately approximately ZAR 277 million, excluding VAT). Corruption Watch claims that there was no lawful basis for the decision to make the payment to us, and that the tenderdecision was unreasonable and irrational and did not comply with South African legislation. We have been named as a respondent in the Notice of Motion. On April 17, 2015 we filed a Notice of Intention to Oppose with the Court.

     As we previously disclosed, in June 2014, we received approximately ZAR 277 million, excluding VAT, from SASSA, related to the recovery of additional implementation costs we incurred during the beneficiary re-registration process followed by SASSA in awarding a contract to us was constitutionally invalid. The Constitutional Court upheld the declaration of invalidity offiscal 2012 and 2013. After we signed our SASSA contract, but suspended such declaration untilSASSA requested that we biometrically register all social grant beneficiaries (including child grant beneficiaries), in addition to the awarding of a new tender by SASSA in accordancegrant recipients who were issued with the ruling or if no tender is awarded,SASSA-branded UEPS/EMV smart cards. We agreed to SASSA’s request, and as a result, we performed approximately 11 million additional registrations beyond those that we were contractually required to perform in consideration for our monthly service fee. Accordingly, we claimed a cost recovery from SASSA, supported by a factual findings certificate from an independent auditing firm. SASSA agreed to pay us the remainderZAR 277 million as full settlement of the existing five-year contract period, as further described below.additional costs we incurred.

     The ConstitutionalWe believe that Corruption Watch’s claim is without merit and we intend to defend it vigorously. However, we cannot predict how the Court ordered SASSA to initiate a new tender process within 30 days after the ruling. The request for proposals for the new tender must contain adequate safeguards to ensure that no loss of lawful existing social grants occurs, the payment of lawful existing grants is not interrupted, and personal data obtained in the payment process remains private and may not be used in any manner for any purpose other than payment of grants or for any purpose sanctioned by the Minister of Social Development. The new tender must be for a period of five years and a new and independent Bid Evaluation and Bid Adjudication Committee must be appointed to evaluate and adjudicate the new tender process. Their evaluation and adjudication must be made public by filing, with the Registrar of the Constitutional Court, a status reportwill rule on the first Monday of every quarter of the year until completion of the process.matter.

     The Constitutional Court further ruled that if SASSA does not awardUnited States securities litigation

     On March 6, 2015, plaintiff filed an opposition to our motion to dismiss its complaint and we filed a new tender, the declaration of invalidity of our current SASSA contract will be further suspended until completion of the five-year year period for which the contract was originally awarded. Inreply brief on March 27, 2015. We continue to believe this event, SASSA must, within 14 days of its decision not to award the tender, lodge a report to the Registrar of the Constitutional Court setting out all the relevant information on whetherlawsuit has no merit and whenare defending it will be ready to assume the duty to pay grants itself. Furthermore, our wholly owned subsidiary that won the 2012 tender, namely Cash Paymaster Services Proprietary Limited, must in this event file with the Constitutional Court an audited statement of expenses incurred, income received and net profit earned by it during the five year completed contract period, which statement must also be verified by an independent auditor appointed by SASSA and filed with the Constitutional Court. Finally, AllPay was ordered to pay SASSA’s and our costs in relation to the application to lead further evidence brought in the main merits application and all parties were ordered to pay their own costs related to the provision of further evidence to the Constitutional Court in order for it to determine the ruling described above.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 and in “Item 1A RISK FACTORS in Part II of our Form 10-Q for the quarters ended September 30 and December 31, 2014, 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.

  The South African Constitutional Court has ordered SASSA to run a new tender process for the payment of social grants. As a result, we cannot predict whether our SASSA contract will remain in effect for the remainder of its five-year term.   We currently derive a substantial portion of our revenues from thisour SASSA contract for the payment of social grants and from the provision of financial and other services to our cardholder base. SASSA has initiated a new tender process. We have not yet determined whether we will participate in the process. If either we weredo not participate or we participate but do not win any new contract that may be awarded, we would need to lose our SASSA contract,replace the lost revenue from other sources or our business would suffer significantly. If we do participate and win a new contract, the terms might be substantially inferior to our current contract.

     On April 17, 2014,As ordered by the South African Constitutional Court issuedin its April 2014 ruling, onSASSA initiated a new tender process for a five-year contract relating to the payment of social grants by issuing an appropriate remedy following its declaration on November 29, 2013initial RFP in October 2014. Following a detailed analysis of the tender specifications, we concluded that the tender process followed by SASSA in awardingspecifications were not sufficiently clear regarding a contractnumber of critical points and failed to us was constitutionally invalid. In its ruling, the Constitutional Court upheld the declaration of invalidity of our SASSA contract, but suspended such declaration until the awarding of a new tender by SASSA in accordancecomply with the RFP requirements specified in the Court’s ruling or if no tender is awarded,and, in November 2014, we applied to the Court for an order setting aside the remainderRFP and directing SASSA to issue a corrected RFP. Although the Court did not set aside the RFP, it did order SASSA to issue a draft amended RFP. SASSA issued amended RFPs on two separate occasions (in December 2014 and February 2015). We continued to object to deficiencies in the amended RFPs and made further applications to the Court setting forth our objections. In February 2015, SASSA applied to the Court for an extension of the existing five-year contract period, as further described below.time to address our objections.

            The Constitutional39

     In orders dated March 19 and 24, 2015, the Court ordered SASSA to initiateeffect further amendments to the RFP to address our objections. The Court ordered that, absent further objections (1) SASSA must circulate a new tender process within 30 days after the ruling. The new tenderfurther amended draft RFP by April 17, 2015; (2) all bids must be for a period of five yearssubmitted by May 17, 2015 and a new and independent Bid Evaluation and Bid Adjudication Committee must be appointed to evaluate and adjudicate(3) SASSA shall award the new tender process.by October 15, 2015. The Constitutional Court further ruled that ifCourt’s April 2014 ruling does not require SASSA does notto award a new tender, though we expect that any decision not to make an award would be subject to judicial review and scrutiny. On April 17, 2015, SASSA issued and circulated an amended RFP to all prospective bidders. The amended RFP specifies that bidders must submit their proposals to SASSA on or before May 18, 2015.      

     We are currently analyzing the declaration of invalidity of our current SASSA contract will be further suspended until completionRFP to determine whether it is in the best interest of the five-year year period for whichCompany to participate in the contract was originally awarded.

tender process or to focus on our other financial services businesses without being a contractor to SASSA. We have not yet made a final determination but expect to do so by the tender deadline. In any event, we cannot predict what the timing or ultimate outcome of the new tender process will be, or if a new tender award will be made at all after the new tender process. We intendprocess is complete. If we choose not to participate in the new tender, then our current contract may be canceled in the event that SASSA awards a new contract to a third party, in which case we would lose the revenues we currently receive from our SASSA contract. In that event, we would need to replace the lost revenue with alternate sources of revenues.

     As with prior SASSA tenders, any participation in the new tender, unless it is concluded promptly, will consume a substantial portionamount of our management’s time and attention.attention and impact their ability to focus on other matters, including other South African and international business development activities. If SASSA awardswe do participate in the tender process, we cannot assure you we will win a contract to continue to distribute social welfare grants nationally. If a new tender to anothercontract 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 will likely contain pricing or other terms that would be less favorable to us than the terms of our current contract.

44     The Court's November 29, 2013 judgment also stated that CPS is deemed to be an “organ of state” for the purpose of the contract concluded pursuant to the previous tender process. The Court stated that, in this regard, CPS has “constitutional obligations” that go beyond its contractual obligations. It is not clear what these obligations may entail in respect of the current and any potential future government contract in South Africa. We cannot predict what the financial implications may be if we are required to continue with the provision of our services without a valid contract, or during any transitional period required for the orderly transfer of our current services to the successful bidder.

     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.

We are, and in the future may be, subject to litigation in which private parties may seek to recover, on behalf of SASSA, amounts paid to us under our SASSA contract. If such litigation were to be successful and require us to repay substantial monies to SASSA, such repayment would adversely affect our results of operations, financial position and cash flows.

     On April 2, 2015, Corruption Watch, a South African non-profit civil society organization, filed a Notice of Motion with the High Court of South Africa, notifying the Court that it intends to apply for an order by the Court to review and set aside the decision of SASSA’s Chief Executive Officer to approve the payment to us of ZAR317 million. Corruption Watch claims that there was no lawful basis for the decision to make the payment to us, and that the decision was unreasonable and irrational and did not comply with South African legislation. We have been named as a respondent in the Notice of Motion. On April 17, 2015 we filed a Notice of Intention to Oppose with the Court.

     As discussed in “Item 1—Legal Proceedings,” the payments being challenged by Corruption Watch represent amounts paid to us by SASSA for the costs we incurred in performing additional beneficiary registrations beyond those that we were contractually required to perform under our SASSA contract. These amounts were paid in full settlement of the claim we submitted to SASSA for these additional costs. We believe that Corruption Watch’s claim is without merit and we intend to defend it vigorously. However, we cannot predict how the Court will rule on the matter.

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     In addition, the April 2014 Constitutional Court ruling ordering SASSA to re-run the tender process requires us to file with the Court, after completion of our SASSA contract, has enabled usan audited statement of our expenses, income and net profit under the contract. It is conceivable that one or more third parties may in the future institute litigation challenging our right to offerretain a varietyportion of innovative financial and other services,the amounts we will have received from SASSA under our contract. We cannot predict whether any such as UEPS-based loans and procurement of prepaid airtime,litigation will be instituted, or if it is, whether it would be successful.

     Any successful challenge to our social welfare recipient cardholders. Although we believeright to receive and retain payments from SASSA that our offerings frequently represent the lowest-cost alternative for our customers for these types of services, if were to lose our SASSA contract, 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, whichrequires substantial repayments would negativelyadversely affect our future operating performance.results of operations, financial position and cash flows.

Item 6. Exhibits

The following exhibits are filed as part of this Form 10-Q:

  Incorporated by Reference Herein
Exhibit Included   
No.Description of ExhibitHerewithFormExhibitFiling Date
10.30Second Addendum dated March 14, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Business Venture Investments No 1567 (Proprietary) Limited (RF) and Mosomo Investment Holdings (Proprietary) Limited.8-K10.30March 18, 2014
10.31Second Addendum dated March 14, 2014, to the Relationship Agreement between Net 1 UEPS Technologies, Inc., Net 1 Applied Technologies South Africa (Proprietary) Limited, Born Free Investments 272 (Pty) Ltd and Mazwi Yako.8-K10.31March 18, 2014
31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange ActX
31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange ActX
32Certification pursuant to 18 USC Section 1350X   
101.INSXBRL Instance DocumentX   
101.SCHXBRL Taxonomy Extension SchemaX   
101.CALXBRL Taxonomy Extension Calculation LinkbaseX
101.DEFXBRL Taxonomy Extension Definition LinkbaseX
101.LABXBRL Taxonomy Extension Label LinkbaseX   
101.PREXBRL Taxonomy Extension Presentation LinkbaseX
Incorporated by Reference Herein
ExhibitIncluded
No.Description of ExhibitHerewithFormExhibitFiling Date
31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange ActX
31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange ActX
32Certification pursuant to 18 USC Section 1350X
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension SchemaX
101.CALXBRL Taxonomy Extension Calculation LinkbaseX
101.DEFXBRL Taxonomy Extension Definition LinkbaseX
101.LABXBRL Taxonomy Extension Label LinkbaseX
101.PREXBRL Taxonomy Extension Presentation LinkbaseX

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 May 8, 2014.7, 2015.

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

Net 1 UEPS Technologies, Inc. - Form 10-Q -

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

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