UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedMarch December 31, 2017

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)

Florida98-0171860
(State or other jurisdiction(IRS Employer
of incorporation or organization)Identification No.)

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

(Address of principal executive offices, including zip code)

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

Not Applicable

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

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”, “smaller reporting company”, and “emerging growth 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) 
  
[   ]Emerging growth company 

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

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

As of May 2, 2017February 6, 2018 (the latest practicable date), [57,590,085]56,832,370 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 MarchDecember 31, 2017 and June 30, 201620172
 Unaudited Condensed Consolidated Statements of Operations for the three and ninesix months ended MarchDecember 31, 2017 and 20163
 Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and ninesix months ended MarchDecember 31, 2017 and 20164
 Unaudited Condensed Consolidated Statement of Changes in Equity for the ninesix months ended MarchDecember 31, 20175
 Unaudited Condensed Consolidated Statements of Cash Flows for the three and ninesix months ended MarchDecember 31, 2017 and 20166
 Notes to Unaudited Condensed Consolidated Financial Statements7
     Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2830
     Item 3.Quantitative and Qualitative Disclosures About Market Risk4548
     Item 4.Controls and Procedures4548
PART II. OTHER INFORMATION 
     Item 1.Legal Proceedings4649
     Item 1A.Risk Factors46
Item 6.Exhibits4649
     SignaturesSignatures50
     EXHIBIT 10.5010.79 
     EXHIBIT 10.5131.1 
     EXHIBIT 10.5231.2 
     EXHIBIT 10.53
EXHIBIT 10.55
EXHIBIT 10.55
EXHIBIT 10.56
EXHIBIT 10.57
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 10.60
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32 

1

Part I. Financial Information

Item 1. Financial Statements

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

Unaudited Condensed Consolidated Balance Sheets

 Unaudited  (A)  Unaudited  (A) 
 March 31,  June 30,  December 31,  June 30, 
 2017  2016  2017  2017 
 (In thousands, except share data)  (In thousands, except share data) 
ASSETS ASSETS  ASSETS  
CURRENT ASSETS            
Cash and cash equivalents (Note 15)$ 222,972 $ 223,644 
Restricted cash (Note 15) 44,735  - 
Pre-funded social welfare grants receivable (Note 3) 1,615  1,580 
Accounts receivable, net of allowances of – March: $3,362; June: $1,669 122,540  107,805 
Finance loans receivable, net of allowances of – March: $3,536; June: $4,494 43,539  37,009 
Inventory (Note 4) 10,560  10,004 
Deferred income taxes 6,841  6,956 
Cash and cash equivalents$ 64,896 $ 258,457 
Pre-funded social welfare grants receivable (Note 2) 3,300  2,322 
Accounts receivable, net of allowances of – December: $1,251; June: $1,255 128,543  111,429 
Finance loans receivable, net of allowances of – December: $17,213; June: $7,469 105,697  80,177 
Inventory (Note 3) 12,482  8,020 
Deferred income taxes (Note 1) -  5,330 
Total current assets before settlement assets 452,802  386,998  314,918  465,735 
Settlement assets (Note 5) 513,713  536,725 
Settlement assets (Note 4) 412,177  640,455 
Total current assets 966,515  923,723  727,095  1,106,190 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of –      
March: $124,527; June: $99,969 43,901  54,977 
EQUITY-ACCOUNTED INVESTMENTS 38,920  25,645 
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – December: $136,996; June: $120,212 32,852  39,411 
EQUITY-ACCOUNTED INVESTMENTS (Note 6) 147,392  27,862 
GOODWILL (Note 7) 190,174  179,478  199,495  188,833 
INTANGIBLE ASSETS, net (Note 7) 42,904  48,556  34,604  38,764 
DEFERRED INCOME TAXES (Note 1) 3,342  - 
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and Note 8) 39,281  31,121  225,463  49,696 
TOTAL ASSETS 1,321,695  1,263,500  1,370,243  1,450,756 
      
LIABILITIES LIABILITIES  LIABILITIES  
CURRENT LIABILITIES            
Short-term credit facilities (Note 9) -  -  35,553  16,579 
Accounts payable 13,555  14,097  16,971  15,136 
Other payables 38,319  37,479  39,168  34,799 
Current portion of long-term borrowings (Note 10) 8,941  8,675  50,530  8,738 
Income taxes payable 11,223  5,235  5,311  5,607 
Total current liabilities before settlement obligations 72,038  65,486  147,533  80,859 
Settlement obligations (Note 5) 513,713  536,725 
Settlement obligations (Note 4) 412,177  640,455 
Total current liabilities 585,751  602,211  559,710  721,314 
DEFERRED INCOME TAXES 11,143  12,559 
DEFERRED INCOME TAXES (Note 1) 9,866  11,139 
LONG-TERM BORROWINGS (Note 10) 16,335  43,134  19,867  7,501 
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8) 2,725  2,376  2,449  2,795 
TOTAL LIABILITIES 615,954  660,280  591,892  742,749 
COMMITMENTS AND CONTINGENCIES (Note 18)            
REDEEMABLE COMMON STOCK (Note 1) 107,672  107,672 
EQUITY EQUITY  EQUITY  
COMMON STOCK (Note 11)            
Authorized: 200,000,000 with $0.001 par value;            
Issued and outstanding shares, net of treasury -
March: 57,590,085; June: 55,271,954		 79  74 
Issued and outstanding shares, net of treasury - December: 56,832,370; June: 56,369,737 80  80 
PREFERRED STOCK            
Authorized shares: 50,000,000 with $0.001 par value;            
Issued and outstanding shares, net of treasury: March: -; June: - -  - 
Issued and outstanding shares, net of treasury: December: -; June: - -  - 
ADDITIONAL PAID-IN-CAPITAL 269,533  223,978  274,961  273,733 
TREASURY SHARES, AT COST: March: 23,621,541; June: 20,483,932 (273,238) (241,627)
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292 (286,951) (286,951)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12) (164,510) (189,700) (123,359) (162,569)
RETAINED EARNINGS 761,987  700,322  802,381  773,276 
TOTAL NET1 EQUITY 593,851  493,047  667,112  597,569 
REDEEMABLE COMMON STOCK 107,672  107,672 
NON-CONTROLLING INTEREST 4,218  2,501  3,567  2,766 
TOTAL EQUITY 705,741  603,220 
      
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$ 1,321,695 $ 1,263,500 
TOTAL EQUITY (Note 1) 670,679  600,335 
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK ANDSHAREHOLDERS’ EQUITY$ 1,370,243 $ 1,450,756 

(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,  Three months ended  Six months ended 
 2017  2016  2017  2016  December 31,  December 31, 
 (In thousands, except per share data)  (In thousands, except per share data)  2017  2016  2017  2016 
             (In thousands, except per share data)  (In thousands, except per share data) 
REVENUE$ 147,944 $134,736 $ 455,010 $439,490 $ 148,416 $ 151,433 $ 300,974 $ 307,066 
            
EXPENSE                        
            
Cost of goods sold, IT processing, servicing and support 70,912  63,266  219,210  219,316  73,994  73,518  148,646  148,298 
            
Selling, general and administration 42,195  35,998  122,366  108,007  49,392  41,703  93,326  80,171 
            
Depreciation and amortization 10,290  9,281  31,117  29,982  8,723  10,623  17,689  20,827 
            
OPERATING INCOME 24,547  26,191  82,317  82,185  16,307  25,589  41,313  57,770 
            
INTEREST INCOME 5,124  3,345  14,489  11,284  4,705  5,061  9,749  9,365 
            
INTEREST EXPENSE 467  852  1,773  2,880  2,325  510  4,446  1,306 
            
INCOME BEFORE INCOME TAX EXPENSE 29,204  28,684  95,033  90,589  18,687  30,140  46,616  65,829 
            
INCOME TAX EXPENSE (Note 17) 10,233  9,816  32,320  31,306  10,062  10,984  20,339  22,087 
            
NET INCOME BEFORE EARNINGS FROM            
            
EQUITY-ACCOUNTED INVESTMENTS 18,971  18,868  62,713  59,283 
            
NET INCOME BEFORE EARNINGS FROM EQUITY- ACCOUNTED INVESTMENTS 8,625  19,156  26,277  43,742 
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 45  2  778  578  1,354  74  3,429  733 
            
NET INCOME 19,016  18,870  63,491  59,861  9,979  19,230  29,706  44,475 
            
LESS NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST 624  450  1,826  1,763 
            
LESS NET INCOME ATTRIBUTABLE TO NON-            
CONTROLLING INTEREST 357  589  601  1,202 
NET INCOME ATTRIBUTABLE TO NET1$ 18,392 $18,420 $ 61,665 $58,098 $ 9,622 $ 18,641 $ 29,105 $ 43,273 
            
Net income per share, in U.S. dollars(Note 14)                        
Basic earnings attributable to Net1 shareholders$0.34 $0.40 $1.16 $1.24 $0.17 $0.35 $0.51 $0.81 
Diluted earnings attributable to Net1 shareholders$0.34 $0.40 $1.16 $1.23 $0.17 $0.35 $0.51 $0.81 

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, 
  2017  2016  2017  2016 
  (In thousands)  (In thousands) 
             
Net income$ 19,016 $18,870 $ 63,491 $ 59,861 
             
Other comprehensive income (loss)            
        Net unrealized income on asset available for 
        sale, net of tax		 -  642  -  692 
        Movement in foreign currency translation reserve 24,158  14,359  25,694  (46,297)
             Total other comprehensive income 
              (loss), net of taxes		 24,158  15,001  25,694  (45,605)
             
Comprehensive income 43,174  33,871  89,185  14,256 
               Less comprehensive income attributable 
               to non-controlling interest		 (649) (509) (2,330) (1,359)
                             Comprehensive income attributable
                              to Net1		$ 42,525 $33,362 $ 86,855 $ 12,897 
  Three months ended  Six months ended 
  December 31,  December 31, 
  2017  2016  2017  2016 
  (In thousands)  (In thousands) 
             
Net income$ 9,979 $ 19,230 $ 29,706 $ 44,475 
             
Other comprehensive income (loss)            
         Movement in foreign currency translation reserve 53,517  (20,766) 39,637  1,536 
         Movement in foreign currency translation reserve related to equity-accounted investments -  -  (227) - 
                   Total other comprehensive income (loss), net of taxes 53,517  (20,766) 39,410  1,536 
             
             Comprehensive income (loss) 63,496  (1,536) 69,116  46,011 
                    Less comprehensive income attributable to non- controlling interest (668) (624) (801) (1,681)
                               Comprehensive income (loss) attributable to Net1$ 62,828 $ (2,160)$ 68,315 $ 44,330 

See Notes to Unaudited Condensed Consolidated Financial Statements

4

NET 1 UEPSTECHNOLOGIES, INC.
UnauditedCondensedConsolidatedStatement ofChanges in Equity for the ninemonths ended March 31, 2017 (dollaramounts inthousands)
NET 1 UEPS TECHNOLOGIES, INC.
Unaudited Condensed Consolidated Statement of Changes in Equity for the six months ended December 31, 2017 (dollar amounts in thousands)

  Net 1 UEPS Technologies, Inc. Shareholders          
        Number              Accumulated             
  Number     of     Number of  Additional     Other  Total  Redeemable  Non-    
  of     Treasury  Treasury  Shares, Net  Paid-In  Retained  Comprehensive  Net1  Common  Controlling    
  Shares  Amount  Shares  Shares  of Treasury  Capital  Earnings  (Loss) Income  Equity  Stock  Interest  Total 
                                     
Balance – July 1, 2016 75,755,886 $74  (20,483,932)$(241,627) 55,271,954 $223,978 $700,322 $(189,700)$493,047 $107,672 $2,501 $603,220 
                                     
Sale of common stock (Note 11) 5,000,000  5        5,000,000  44,995        45,000        45,000 
                                     
Repurchase of common stock (Note 11)     (3,137,609) (31,611) (3,137,609)       (31,611)     (31,611)
                                     
Restricted stock granted (Note 13) 387,000           387,000           -        - 
                                     
Exercise of stock option (Note 13) 68,740           68,740  629        629        629 
                                     
Stock-based compensation charge (Note 13)           1,759      1,759      1,759 
                                     
Reversal of stock compensation charge (Note 13)           (1,827)     (1,827)     (1,827)
                                     
Utilization of APIC pool related to vested restricted stock           (1)     (1)     (1)
                                     
Dividends paid to non-controlling interest                 -    (613) (613)
                                     
Net income                   61,665     61,665     1,826  63,491 
                                     
Other comprehensive income (Note 12)               25,190  25,190    504  25,694 
                                     
Balance – March 31, 2017 81,211,626 $79  (23,621,541)$(273,238) 57,590,085 $269,533 $761,987 $(164,510)$593,851 $107,672 $4,218 $705,741 
  Net 1 UEPS Technologies, Inc. Shareholders          
        Number              Accumulated           Redeemable 
  Number     of     Number of  Additional     Other  Total  Non-     Common 
  of     Treasury  Treasury  Shares, Net  Paid-In  Retained  Comprehensive  Net1  Controlling     Stock 
  Shares  Amount  Shares  Shares  of Treasury  Capital  Earnings  (Loss) Income  Equity  Interest  Total  (Note 1)
                                     
Balance – July 1, 2017 81,261,029 $80  (24,891,292)$(286,951) 56,369,737 $273,733 $773,276 $(162,569)$597,569 $2,766 $600,335 $107,672 
Restricted stock granted (Note 13) 588,594           588,594           -     -    
Stock-based compensation charge (Note 13)           1,477      1,477    1,477   
Reversal of stock compensation charge (Note 13) (125,961)       (125,961) (42)     (42)   (42)  
                                     
Reversal of stock based- compensation charge related to equity-accounted investment           (207)     (207)   (207)  
Net income                   29,105     29,105  601  29,706    
Other comprehensive income (Note 12)               39,210  39,210  200  39,410   
Balance – December 31, 2017 81,723,662 $80  (24,891,292)$(286,951) 56,832,370 $274,961 $802,381 $(123,359)$667,112 $3,567 $670,679 $107,672 

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  Six months ended 
 March 31,  March 31,  December 31,  December 31, 
 2017  2016  2017  2016  2017  2016  2017  2016 
 (In thousands)  (In thousands)  (In thousands)  (In thousands) 
Cash flows from operating activities                        
Net income$ 19,016 $ 18,870 $ 63,491 $ 59,861 $ 9,979 $ 19,230 $ 29,706 $ 44,475 
Depreciation and amortization 10,290  9,281  31,117  29,982  8,723  10,623  17,689  20,827 
Earnings from equity-accounted investments (45) (2) (778) (578) (1,354) (74) (3,429) (733)
Fair value adjustments (50) (2,387) (61) 613  (372) 72  (281) (11)
Interest payable 75  343  84  1,697  (159) (23) (247) 9 
Profit on disposal of property, plant and equipment (98) (29) (571) (113)
Gain on fair value of T24 -  (1,909) -  (1,909)
Facility fee amortized 214  31  347  67 
Loss (Profit) on disposal of property, plant and equipment 16  (539) 121  (473)
Profit on disposal of business (463) -  (463) - 
Stock-based compensation charge (reversal), net (Note 13) 621  954  (68) 2,645  608  635  1,435  (689)
Facility fee amortized 27  34  94  103 
Dividends received from equity-accounted investments -  -  370  - 
(Increase) Decrease in accounts receivable, pre- funded social welfare grants receivable and finance loans receivable (16,612) 15,914  (2,261) (15,211)
Decrease (Increase) in inventory 3,893  (340) 308  (495)
Dividends received from equity accounted investments 1,253  -  2,165  370 
(Increase) Decrease in accounts receivable, pre-funded social            
welfare grants receivable and finance loans receivable 6,005  6,585  (33,136) 14,351 
Increase in inventory (2,322) (3,481) (3,848) (3,585)
(Decrease) Increase in accounts payable and other payables (1,486) 4,009  (4,386) 1,563  (481) (5,940) 2,948  (2,900)
Increase in taxes payable 6,678  4,479  5,819  3,444 
Decrease in deferred taxes (506) (19) (1,752) (256)
Decrease in taxes payable (9,754) (11,815) (916) (859)
Increase (Decrease) in deferred taxes 1,419  386  428  (1,246)
Net cash provided by operating activities 21,803  49,198  91,406  81,346  13,312  15,690  12,519  69,603 
 
Cash flows from investing activities                        
Capital expenditures (1,949) (8,053) (8,498) (28,698) (2,103) (3,126) (3,576) (6,549)
Proceeds from disposal of property, plant and equipment 330  136  1,344  753  99  945  415  1,014 
Investment in Cell C (Note 6) -  -  (151,003) - 
Investment in equity of equity-accounted investments (Note 6) (40,892) -  (113,738) - 
Acquisition of held to maturity investment (Note 6) (9,000) -  (9,000) - 
Investment in MobiKwik -  -  (15,347) -  -  -  -  (15,347)
Loans to equity accounted investments (Note 6) (2,000) -  (12,044) -     (10,044)    (10,044)
Acquisitions, net of cash acquired (Note 2) -  (1,666) (4,651) (1,666)
Acquisition of available for sale securities -  (8,900) -  (8,900)
Acquisitions, net of cash acquired -  (4,651) -  (4,651)
Other investing activities -  (5) -  (5) (154) -  (154) - 
Net change in settlement assets (Note 5) (165,945) (111,118) 54,827  171,516 
Net change in settlement assets (Note 4) 24,519  258,166  237,168  220,772 
Net cash (used in) provided by investingactivities (169,564) (129,606) 15,631  133,000  (27,531) 241,290  (39,888) 185,195 
 
Cash flows from financing activities                        
Proceeds from issue of common stock (Note 11 and Note 13) 45,629  -  45,629  3,762 
Long-term borrowings utilized (Note 10) -  -  95,431  247 
Repayment of long-term borrowings (Note 10) (30,881) (1,824) (45,141) (28,493)
Proceeds from bank overdraft (Note 9) 690  -  32,570  - 
Repayment of bank overdraft (Note 9) (11,391) -  (14,343) - 
Guarantee fee paid (Note 10) -  (1,145) (552) (1,145)
Acquisition of treasury stock (Note 11) -  (12,726) (32,081) (23,912) -  -  -  (32,081)
Repayment of long-term borrowings (Note 10) -  -  (28,493) - 
Guarantee fee paid (Note 10) -  -  (1,145) - 
Dividends paid to non-controlling interest -  -  (613) -  -  (58) -  (613)
Long-term borrowings utilized (Note 10) 274  676  521  2,107 
Net change in settlement obligations (Note 5) 165,955  111,118  (54,817) (171,516)
Net cash used in (provided by) financingactivities 211,858  99,068  (70,999) (189,559)
Net change in settlement obligations (Note 4) (24,519) (258,166) (237,168) (220,772)
Net cash used in financing activities (66,101) (261,193) (169,203) (282,857)
         
Effect of exchange rate changes on cash 4,719  3,192  8,025  (19,101) 6,857  (2,225) 3,011  3,306 
Net increase in cash, cash equivalents andrestricted cash 68,816  21,852  44,063  5,686 
Net decrease in cash, cash equivalents and restricted cash (73,463) (6,438) (193,561) (24,753)
Cash, cash equivalents and restricted cash –beginning of period 198,891  101,417  223,644  117,583  138,359  205,329  258,457  223,644 
Cash, cash equivalents and restricted cash – endof period (Note 15)$ 267,707 $ 123,269 $ 267,707 $ 123,269 
Cash, cash equivalents and restricted cash – end of period (1)$ 64,896 $ 198,891 $ 64,896 $ 198,891 

See Notes to Unaudited Condensed Consolidated Financial Statements

(1) Cash, cash equivalents and restricted cash as of December 31, 2016, includes restricted cash of approximately $43.7 million related to the guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division). This cash was placed into an escrow account and was considered restricted as to use and therefore was classified as restricted cash. The restriction lapsed upon expiry of the guarantee.

6


NET 1 UEPS TECHNOLOGIES, INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three and six months ended December 31, 2017 and 2016
(All amounts in tables stated in thousands or thousands of U.S. 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, 2017 and 2016
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)

1. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three and ninesix months ended MarchDecember 31, 2017 and 2016, 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, 2016.2017. 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. During the three months ended December 31, 2017, the Company reclassified redeemable common stock out of total equity because redeemable common stock is required to be presented outside of permanent equity. The Company has restated these amounts in its unaudited condensed consolidated balance sheet as at June 30, 2017 and unaudited condensed consolidated statement of changes in equity for the six months ended December 31, 2017. The reclassification resulted in a decrease in total equity by approximately $107.7 million and an increase in redeemable common stock, presented outside of permanent equity, of approximately $107.7 million. This reclassification had no impact on the Company’s previously reported consolidated income, comprehensive income or cash flows.

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

Recent accounting pronouncements adopted

             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. The adoption of this guidance did not have a material impact on the Company’s financial statements.

             In November 2016, the FASB issued guidance regardingRestricted Cash - a consensus of the FASB Emerging Issues Task Force.This guidance amends current guidance to add or clarify the classification and presentation of restricted cash in the statement of cash flows. The guidance is effective for the Company beginning July 1, 2018, however the Company has early adopted the guidance, effective December 31, 2016. 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, 2017

             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 was to be effective for the Company beginning July 1, 2017, however in August 2015, the FASB issued guidance regardingRevenue from Contracts with Customers, Deferral of the Effective Date. This guidance defers the required implementation date specified inRevenue from Contracts with Customers to March 2017. Public companies may elect to adopt the standard along the original timeline. The guidance is effective for the Company beginning July 1, 2018. The Company expects that this guidance may 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. EarlyThe adoption is permitted. The Company is currently assessing the impact of this guidance did not have a material impact on itsthe Company’s financial statements disclosure.disclosures.

7

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

Recent accounting pronouncements not yet adopted as of March 31, 2017 (continued)

In July 2015, the FASB issued guidance regardingSimplifying the Measurement of Inventory. This guidance requires entities to measure most inventory “at the lower of cost and net realizable value,” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures). The guidance will not apply to inventories that are measured by using either the last-in, first-out (“LIFO”) method or the retail inventory method (“RIM”). The guidance is effective for the Company beginning July 1, 2017. EarlyThe adoption is permitted. The Company is currently assessing the impact of this guidance did not have a material impact on itsthe Company’s financial statements disclosure.statements.

In November 2015, the FASB issued guidance regardingBalance Sheet Classification of Deferred Taxes. This guidance requires that deferred tax liabilities and assets are to be classified as non-current in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this update. This guidance is effective for the Company beginning July 1, 2017, with early adoption permittedand has been applied on a prospective or retrospective basis. The adoption of this guidance has resulted in the reclassification of current deferred tax assets and liabilities as non-current deferred tax assets and liabilities in the unaudited condensed consolidated balance sheet as of December 31, 2017. Prior period current deferred tax assets have not been reclassified as non-current in the unaudited condensed consolidated balance sheet as of June 30, 2017.

In March 2016, the FASB issued guidance regardingImprovements to Employee Share-Based Payment Accounting. The guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance is effective for the Company beginning July 1, 2017. The adoption of this guidance did not have a material impact on the Company’s financial statements. The Company has elected to continue to estimate the number of forfeitures when an award is made.

7

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

Recent accounting pronouncements not yet adopted as of December 31, 2017

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 was originally set to be effective for the Company beginning July 1, 2017, however in August 2015, the FASB issued guidance regardingRevenue from Contracts with Customers, Deferral of the Effective Date. This guidance defers the required implementation date specified inRevenue from Contracts with Customers to December 2017. Public companies may elect to adopt the standard along the original timeline.

The guidance is effective for the Company beginning July 1, 2018. The Company expects that this guidance may have a material impact on its financial statements and is currently assessingevaluating the impact of this guidance on its financial statements disclosures.on adoption.

In January 2016, the FASB issued guidance regardingRecognition and Measurement of Financial Assets and Financial Liabilities. The guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance requires changes in the fair value of the Company’s equity investments, with certain exceptions, to be recognized through net income rather than other comprehensive income. In addition, the guidance clarifies the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This guidance is effective for the Company beginning July 1, 2018, and early adoption is not permitted, with certain exceptions. The amendments are required to be applied by means of a cumulative-effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

In February 2016, the FASB issued guidance regardingLeases. The guidance increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. The amendments to current lease guidance include the recognition of assets and liabilities by lessees for those leases currently classified as operating leases. The guidance also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for the Company beginning July 1, 2019. Early adoption is permitted. The Company expects that this guidance may have a material impact on its financial statements and is currently evaluating the impact of this guidance on its financial statements on adoption.

             In March 2016, the FASB issued guidance regardingImprovements to Employee Share-Based Payment Accounting. The guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This 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 June 2016, the FASB issued guidance regardingMeasurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2020. Early adoption is permitted beginning July 1, 2019. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

In June 2016, the FASB issued guidance regardingClassification of Certain Cash Receipts and Cash Payments. The guidance is intended to reduce diversity in practice and explains how certain cash receipts and payments are presented and classified in the statement of cash flows, including beneficial interests in securitization, which would impact the presentation of the deferred purchase price from sales of receivables. This guidance is effective for the Company beginning July 1, 2018, and must be applied retrospectively. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

8

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

Recent accounting pronouncements not yet adopted as of March 31, 2017 (continued)

In January 2017, the FASB issued guidance regardingClarifying the Definition of a Business.This guidance provides a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. The guidance is effective for the Company beginning July 1, 2018. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

In January 2017, the FASB issued guidance regardingSimplifying the Test for Goodwill Impairment.This guidance removes the requirement for an entity to calculate the implied fair value of goodwill (as part of step 2 of the current goodwill impairment test) in measuring a goodwill impairment loss. The guidance is effective for the Company beginning July 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the impact of this guidance.

8

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

Recent accounting pronouncements not yet adopted as of December 31, 2017 (continued)

In May 2017, the FASB issued guidance regardingCompensation—Stock Compensation (Topic 718): Scope of Modification Accounting.The guidance amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The guidance is effective for the Company beginning July 1, 2018. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.

2. Acquisitions

             The cash paid, net of cash received related to the Company’s various acquisitions during the nine months ended March 31, 2017, are summarized in the table below:

  2017 
C4U-Malta Limited (“C4U Malta”)$2,940 
Pros Software (Pty) Ltd (“Pros Software”) 1,711 
 Total cash paid, net of cash received$4,651 

C4U Malta

             In November 2016, the Company acquired a 100% interest in C4U Malta, a licensed Malta Financial Services Authority-supervised electronic money institution, for approximately $3.9 million (€3.6 million translated at the foreign exchange rates applicable on the date of acquisition). C4U Malta’s license has been passported across all member states of the European Union. The Company intends to apply for a principal membership with the major card associations and to integrate a robust and reliable issuing and acquiring processing platform in C4U Malta to enable the issuance of electronic money instruments, such as electronic money accounts, prepaid cards and virtual cards, after a transitional period of integration and technology adaption. The Company plans to build and reinforce C4U Malta such that it operates as its principal regulated electronic money institution with the ability to cover all of the Company’s financial services activities and business in the European Union.

Pros Software

             In October 2016, the Company acquired a 100% interest in Pros Software, a software development and consulting services company based near Johannesburg, South Africa, for ZAR 25.0 million ($1.8 million, translated at the foreign exchange rates applicable on the date of acquisition). Pros Software performs software development and consulting services for a number of clients, including for the Company, and has a specialty practice in business intelligence.

            The preliminary purchase price allocation of the C4U Malta and Pros Software acquisitions, translated at the foreign exchange rates applicable on the date of acquisition, is provided in the table below:

   C4U Malta  Pros Software  Total 
 Cash and cash equivalents$999 $110 $1,109 
 Accounts receivable 983  165  1,148 
 Property, plant and equipment, net 30  9  39 
 Intangible assets (Note 7) 1,078  2,311  3,389 
 Goodwill (Note 7) 2,475  -  2,475 
 Accounts payables and other payables (1,570) (58) (1,628)
 Income taxes payable -  (69) (69)
 Deferred tax liabilities (56) (647) (703)
                   Total purchase price$3,939 $1,821 $5,760 

9

2. Acquisitions (continued)

             The preliminary purchase price allocations are based on management estimates as of March 31, 2017, and may be adjusted up to one year following the closing of the C4U Malta and Pros Software acquisitions. The Company expects to finalize the purchase price allocation on or before June 30, 2017. Pro forma results of operations have not been presented because the effect of the C4U Malta and Pros Software acquisitions, individually and in the aggregate, were not material to the Company. During the nine months ended March 31, 2017, the Company incurred acquisition-related expenditure of $0.2 million related to the C4U Malta and Pros Software acquisitions. Since the closing of the C4U Malta acquisition on November 1, 2016, it has contributed revenue and a net loss after acquired intangible asset amortization, net of taxation, of $0.2 million and $0.4 million, respectively. Since the closing of the Pros Software acquisition on October 1, 2016, it has contributed revenue and a net loss after acquired intangible asset amortization, net of taxation, of $0.4 million and $1.2 million, respectively.

3. Pre-funded social welfare grants receivable

Pre-funded social welfare grants receivable represents primarily amounts pre-funded by the Company to certain merchants participating in the merchant acquiring system. The AprilJanuary 2018 payment service commenced on January 2, 2018, but the Company pre-funded certain merchants participating in the merchant acquiring systems on December 30, 2017. The July 2017 payment service commenced on AprilJuly 1, 2017, but the Company pre-funded certain merchants participating in the merchant acquiring systemsystems on March 31,the last day of June 2017.

4. 3. Inventory

The Company’s inventory comprised the following category as of MarchDecember 31, 2017 and June 30, 2016.2017.

  March 31,  June 30, 
  2017  2016 
Finished goods$10,560 $10,004 
 $10,560 $10,004 
  December 31,  June 30, 
  2017  2017 
Finished goods$12,482 $8,020 
 $12,482 $8,020 

5. 4. Settlement assets and settlement obligations

Settlement assets comprise (1) cash received from the South African government that the Company holds pending disbursement to recipient beneficiariescardholders of social welfare grants and (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 recipient cardholders of social welfare grants, and (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 obligations.

             Net change in settlement assets and net change in settlement obligations included in the unaudited condensed consolidated statement5. Fair value of cash flows for the three and nine months ended March 31, 2016, have been increased by $19.7 million and $59.5 million, respectively, as a result of the restatement described in Note 2—(Significant accounting policies—Settlement assets and settlement obligations) to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016.instruments

6. Fair value of financial instruments

Initial recognition and measurement

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

Risk management

The Company seeks to reduce its exposure to currencies other than the South African rand through a policy of matching, to the extent possible, assets and liabilities denominated in those currencies. In addition, the Company usesutilized 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 translation, interest rate, customer concentration, credit, and equity price and liquidity risks as well as credit risks.

10

6. Fair value of financial instruments (continued)

Risk management (continued)

Currency exchange risk

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

9

5. Fair value of financial instruments (continued)

Fair value of financial instruments (continued)

Risk management (continued)

Translation risk

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns most of its revenues and incurs most of its expenses in ZAR. The U.S. dollar to ZAR exchange rate has fluctuated significantly over the past three years. As exchange rates are outside of 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 leasinglending 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 investmentinvestments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities.

Working capital finance customer concentration risk

Working capital finance customer concentration risk relates to the risk of loss that the Company would incur as a result of its concentration of working capital financing receivables. During the year ended June 30, 2017, the Company commenced marketing activities to develop and expand its working capital financing receivables base. The Company manages the risk through on-going marketing efforts to further expand its customer base as well as through regular contact with its customer to assess their need for the Company’s product.

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-“BB+” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

Microlending credit risk

The Company is exposed to credit risk in its 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.

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 and, consequently, the amount that 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.

10

5. Fair value of financial instruments (continued)

Financial instruments (continued)

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 applieswould apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments arewould be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

11

6. Fair value of financial instruments (continued)

Financial instruments (continued)

The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments.

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

The Company's Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C (Pty) Limited (“Cell C”), a leading mobile provider in South Africa (refer to Note 6). The Company has designated such shares as available for sale investments. Cell C shares are not listed and there is no readily determinable market value for the shares. The Company has developed an adjusted EBITDA multiple valuation model in order to determine the fair value of the Cell C shares. The primary inputs to the valuation model are Cell C’s adjusted EBITDA, an EBITDA multiple and Cell C’s external debt. The EBITDA multiple was determined based on an analysis of Cell C’s peer group, which comprises the primary mobile operators (Vodacom, MTN and Telkom) in the South African marketplace.

The fair value of the Cell C shares as of December 31, 2017, represented approximately 12% of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and it is not concerned with short-term equity price volatility with respect to these shares 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-“BB+“ (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy.

The Company’sCompany had no outstanding foreign exchange contracts are as follows:

              As of MarchDecember 31, 2017

              None.

              As of and June 30, 20162017, respectively.

Fair market
Notional amountStrike pricevalue priceMaturity
EUR 573,765.00ZAR 15.9587ZAR 16.3393July 20, 2016
EUR 554,494.50ZAR 16.0643ZAR 16.4564August 19, 2016
EUR 465,711.00ZAR 16.1798ZAR 16.582September 20, 2016
EUR 393,675.00ZAR 16.2911ZAR 16.7017October 20, 2016
EUR 302,368.50ZAR 16.4085ZAR 16.8301November 21, 2016

The following table presents the Company’s assets measured at fair value on a recurring basis as of MarchDecember 31, 2017, 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$605 $- $- $605 
  Other -  38  -  38 
      Total assets at fair value$605 $38 $- $643 
  Quoted          
  price in          
  active  Significant       
  markets for  other  Significant    
  identical  observable  unobservable    
  assets  inputs  inputs    
  (Level 1) (Level 2) (Level 3) Total 
Assets            
 Investment in Cell C$- $- $161,695 $161,695 
 Related to insurance business:            
     Cash and cash equivalents (included in other long-term assets) 664  -  - $664 
     Fixed maturity investments (included in cash and cash equivalents) 7,458  -  -  7,458 
 Other -  40  -  40 
     Total assets at fair value$8,122 $40 $161,695 $169,857 

1211

6. 5. Fair value of financial instruments (continued)

Financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2016,2017, 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$533 $- $- $533 
  Foreign exchange contracts -  62  -  62 
  Other -  37  -  37 
      Total assets at fair value$533 $99 $- $632 
  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:            
     Cash and cash equivalents (included in other long-term assets)$627 $- $- $627 
     Fixed maturity investments (included in cash and cash equivalents) 5,160  -  -  5,160 
 Other -  37  -  37 
     Total assets at fair value$5,787 $37 $- $5,824 

             Changes in the Company’s investment in Finbond Group Limited, or Finbond, (Level 3 that are measured at fair value on a recurring basis) were insignificant during the nine months ended March 31, 2016. There have been no transfers in or out of Level 3 during the three and ninesix months ended MarchDecember 31, 2017 and during the three months ended March 31, 2016, 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.

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

Equity accountedEquity-accounted investments

FinbondThe Company’s ownership percentage in its equity-accounted investments as of December 31, 2017 and June 30, 2017, was as follows:

  December 31,  June 30, 
  2017  2017 
DNI-4PL (Pty) Ltd (“DNI”) 45%  - 
Bank Frick & Co AG (“Bank Frick”) 30%  - 
Finbond Group Limited (“Finbond”) 27%  26% 
KZ One Limited (formerly One Credit Limited) (“KZ One”) 25%  25% 
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”) 50%  50% 
Walletdoc Proprietary Limited (“Walletdoc”) 20%  20% 

On October 7, 2016,July 27, 2017, the Company providedsubscribed for 44,999,999 ordinary A shares in DNI, representing a loan45% voting and economic interest in DNI, for a subscription price of ZAR 139.2945.0 million ($10.072.0 million) in cash. Under the terms of the Company’s agreements with DNI, the Company is required to pay to DNI an additional amount of up to ZAR 360 million ($29.1 million, translated at the foreign exchange rates applicable onas of December 31, 2017), in cash, subject to the dateachievement of the loan) to Finbond in order for Finbond to partially finance its expansion strategy in the United States. Interest on the loan is payable quarterly in arrears and is based on the London Interbank Offered Rate (“LIBOR”) in effect from time to time plus a margin of 10.00% . The LIBOR rate was 1.064% on March 31, 2017. The loan was initially repayable in full at the earlier of Finbond concluding a rights offer or February 28, 2017, but the agreement has subsequently been amended to extend this date to August 31, 2017.certain performance targets by DNI. The Company has provided an irrevocable undertakingnot accrued for this contingent consideration as of December 31, 2017. Net1 SA has pledged, among other things, its entire equity interest in DNI as security for the South African facilities described in Note 10 used to participate inpartially fund the rights offeringacquisition of Cell C.

12

6. Equity-accounted investments and convert the ZAR 139.2 million loan to Finbond shares as part of this process.other long-term assets (continued)

StrategicEquity-accounted investments (continued)

Bank Frick

On January 12,October 2, 2017, the Company entered into a share purchase agreement with the Kuno Frick Family Foundation (“Frick Foundation”) to acquireacquired a 30% interest in Bank Frick, & Co AG (“Bank Frick”), a fully licensed bank based in Balzers, Liechtenstein, from the Kuno Frick Family Foundation (“Frick Foundation”) for approximately CHF 39.8 million ($39.7 million translated at exchange rates applicable as of March 31, 2017). The completion of40.9 million) in cash. On January 26, 2018, the investment is subjectparties entered into an addendum to approvalthe Bank Frick shareholders agreement pursuant to which the Company agreed to purchase an additional 5% in Bank Frick from the Financial Market Authority Liechtenstein. FollowingFrick Foundation for CHF 10.4 million ($10.7 million) and the successful completionFrick Foundation agreed to contribute approximately CHF 3.8 million ($3.9 million) to Bank Frick to facilitate the development of this investment, theBank Frick’s Fintech and blockchain businesses. The Company will have a two-yearhas an option, exercisable until October 2, 2019, to acquire a furtheran additional 35% interest in Bank Frick.

13

6.Fair value of financial instruments (continued)

Strategic investments (continued)

Bank Frick provides a complete suite of banking services, with one of its key strategic pillars being the provision of payment services and funding of financial technology opportunities. Bank Frick holds acquiring licenses from both Visa and MasterCard and operates a branch in London. The Company and Bank Frick have jointly identified several funding opportunities, including for the Company’s working capital finance, card issuing and acquiring and transaction processing activities.activities as well new opportunities in cryptocurrency and blockchain. The pending investment in Bank Frick has the potential to provide the Company with a stable, long termlong-term and strategic relationship with a fully licensedfully-licensed bank.

As of December 31, 2017, the Company owned 205,483,967 shares in Finbond. Finbond is listed on the Johannesburg Stock Exchange and its closing price on December 29, 2017, the last trading day of the quarter, was R3.39 per share. The aggregate value of the Company’s holding in Finbond on December 31, 2017 was R696.6 million ($56.3 million translated at exchange rates applicable as of December 31, 2017). On July 13, 2017, the Company acquired an additional 3.6 million shares in Finbond for approximately ZAR 11.2 million ($0.8 million). On July 17, 2017, the Company, pursuant to its election, received an additional 4,361,532 shares in Finbond as a capitalization share issue in lieu of a dividend.

On October 7, 2016, the Company provided a loan of ZAR 139.2 million ($10.0 million, translated at the foreign exchange rates applicable on the date of the loan) to Finbond in order to partially finance Finbond’s expansion strategy in the United States. The loan is included in accounts receivable, net, on the Company’s unaudited condensed consolidated balance sheet as of December 31, 2017 and June 30, 2017. Interest on the loan is payable quarterly in arrears and is based on the London Interbank Offered Rate (“LIBOR”) in effect from time to time plus a margin of 12.00%. The LIBOR rate was 1.4874% on December 31, 2017. The loan was initially set to mature at the earlier of Finbond concluding a rights offer or February 28, 2017, but the agreement was subsequently amended to extend the repayment date to on or before February 28, 2018, or such later date as may be mutually agreed by the parties in writing. The Company and Bank Frick havehas the right to elect for the loan to be repaid in either Finbond ordinary shares, including through a rights offering, (in accordance with an agreed that approximately $30 millionmechanism) or in cash. The Company must make a repayment election within 180 days after the repayment date otherwise the repayment election will automatically default to repayment in ordinary shares. Finbond has undertaken to perform all necessary steps reasonably required to effect the issuance of shares to settle the repayment of the Bank Frick’s free equity will be utilizedloan if that option is elected by the Company.

The Company has provided a credit facility of up to $10 million in the form of convertible debt to KZ One, of which $2 million had been drawn as seed capitalof December 31, 2017 and June 30, 2017.

Summarized below is the movement in equity-accounted investments during the six months ended December 31, 2017:

  DNI  Bank Frick  Finbond  Other(1) Total 
Investment in equity:               
      Balance as of June 30, 2017$- $- $18,961 $6,742 $25,703 
             Acquisition of shares 72,001  40,892  1,941  -  114,834 
             Stock-based compensation -  -  (207) -  (207)
             Comprehensive income (loss): 1,911  322  874  95  3,202 
                     Other comprehensive loss -  -  (227) -  (227)
                     Equity accounted earnings (loss) 1,911  322  1,101  95  3,429 
                             Share of net income (loss) 3,240  487  1,931  95  5,753 
                             Amortization of acquired intangible assets (1,845) (219) -  -  (2,064)
                             Deferred taxes on acquired intangible assets 516  54  -  -  570 
                             Dilution resulting from corporate transactions -  -  (830) -  (830)
             Dividends received (1,765) -  (1,096) (400) (3,261)
             Foreign currency adjustment(2) 4,369  (169) 1,134  (381) 4,953 
     Balance as of December 31, 2017$76,516 $41,045 $21,607 $6,056 $145,224 

13

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

Equity-accounted investments (continued)

                                                                                                                                            DNI  Bank Frick  Finbond  Other(1)  Total 
Investment in loans:               
     Balance as of June 30, 2017$- $- $- $2,159 $2,159 
             Foreign currency adjustment(2) -  -  -  9  9 
     Balance as of December 31, 2017$- $- $- $2,168 $2,168 
                
        Equity  Loans  Total 
Carrying amount as of:               
             June 30, 2017      $25,703 $2,159 $27,862 
             December 31, 2017      $145,224 $2,168 $147,392 

(1) Includes KZ One, SmartSwitch Namibia and Walletdoc;
(2) The foreign currency adjustment represents the effects of the fluctuations South African rand, Nigerian naira and the Namibian dollar, and the U.S. dollar on the carrying value.

Other long-term assets

Summarized below is the breakdown of other long-term assets as of December 31, 2017, and June 30, 2017:

  December 31,  June 30, 
  2017  2017 
       
Investment in 15% of Cell C (Pty) Limited (“Cell C”), at fair value(1)$161,695 $- 
Investment in 12% of One MobiKwik Systems Private Limited (“MobiKwik”), at cost 27,598  26,317 
     Total equity investments 189,293  26,317 
Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes due in 2022 9,182  - 
     Total held to maturity investments 9,182  - 
     Long-term portion of payments to agents in South Korea amortized over the contract period 20,512  17,290 
     Policy holder assets under investment contracts (Note 8) 664  627 
     Reinsurance assets under insurance contracts Note 8) 212  191 
     Other long-term assets 5,600  5,271 
               Total other long-term assets$225,463 $49,696 

(1) The notes to the unaudited condensed consolidated financial statements included in the Company’s Form 10-Q for the three months ended September 30, 2017, stated that the Cell C investment was carried at cost rather than at fair value. As of September 30, 2017, the fair value of the investment in Cell C approximated its cost.

On August 2, 2017, the Company, through its subsidiary, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), purchased 75,000,000 class “A” shares of Cell C for an aggregate purchase price of ZAR 2.0 billion ($151.0 million) in cash. The Company funded the transaction through a fund dedicatedcombination of cash and the facilities described in Note 14 to the Company’s future activities.audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2017. Net1 SA has pledged, among other things, its entire equity interest in Cell C as security for the South African facilities described in Note 10 used to partially fund the acquisition of Cell C.

The Company has signed a subscription agreement with MobiKwik, which is India’s largest independent mobile payments network, with over 65 million users and 2.0 million merchants. Pursuant to the subscription agreement, the Company agreed to make an equity investment of up to $40.0 million in MobiKwik over a 24 month period. The Company made an initial $15.0 million investment in August 2016 and a further $10.6 million investment in June 2017, under this subscription agreement. As of June 30, 2017, the Company owned approximately 13.5% of MobiKwik. In August 2017, MobiKwik raised additional funding through the issuance of additional shares to a new shareholder at a 90% premium to the Company’s investments and the Company’s percentage ownership was diluted to 12.0%. In addition, through a technology agreement, the Company’s Virtual Card technology will be integrated across all MobiKwik wallets in order to provide ubiquity across all merchants in India, and as part of the Company’s continued strategic relationship, a number of our other products including our digital banking platform, are expected to be deployed by MobiKwik over the next year.

In December 2017, the Company purchased, for cash, $9.0 million of notes, with a face value of $20.5 million, issued by Cedar Cellular Investment 1 (RF) (Pty) Ltd (“Cedar Cellular”), a Cell C shareholder, representing 7.625% of the issuance. The investment in the notes was made in connection with the Cell C investment discussed above. The notes bear interest semi-annually at 8.625% per annum on the face value and interest is payable in cash or deferred, at Cedar Cellular’s election, for payment on the maturity date. The notes mature on August 2, 2022. The notes are secured by all of Cedar Cellular’s investment in Cell C (59,000,000 class “A” shares) and the fair value of the Cell C shares pledged exceeds the carrying value of the notes as of December 31, 2017. The notes are listed on The International Stock Exchange. The Company has elected to treat the investment in the notes as held to maturity securities.

14

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

Available for sale and held to maturity investments (continued)

Other long-term assets (continued)

Summarized below are the components of the Company’s available for sale and held to maturity investments as of December 31, 2017:

     Unrealized  Unrealized    
     holding  holding  Carrying 
  Cost basis  gains  losses  value 
Available for sale:            
     Investment in Cell C$161,695 $- $- $161,695 
Held to maturity:            
     Investment in Cedar Cellular notes 9,000  182  -  9,182 
           Total 170,695 $- $- $170,695 

The Company had no available for sale or held to maturity investments as of June 30, 2017.

Contractual maturities of held to maturity investments

Summarized below are the contractual maturities of the Company’s held to maturity investment as of December 31, 2017:

  Cost  Estimated 
  basis  fair value 
Due in one year or less$- $- 
Due in one year through five years 9,000  9,182 
Due in five years through ten years -  - 
Due after ten years -  - 
     Total$9,000 $9,182 

7. Goodwill and intangible assets, net

Goodwill

Summarized below is the movement in the carrying value of goodwill for the ninesix months ended MarchDecember 31, 2017:

      Accumulated  Carrying 
   Gross value  impairment  value 
 Balance as of June 30, 2016$179,478 $- $179,478 
      Acquisition of C4U Malta (Note 2) 2,475  -  2,475 
      Foreign currency adjustment(1) 8,221  -  8,221 
               Balance as of March 31, 2017$190,174 $- $190,174 
     Accumulated  Carrying 
  Gross value  impairment  value 
Balance as of June 30, 2017$188,833 $- $188,833 
     Foreign currency adjustment(1) 10,662  -  10,662 
             Balance as of December 31, 2017$199,495 $- $199,495 

(1) – Represents the effects of the fluctuations between the South African rand, euro and the Korean won, and the U.S. dollar on the carrying value.

Goodwill has been allocated to the Company’s reportable segments as follows:

   South     Financial    
   African  International  inclusion and    
   transaction  transaction  applied  Carrying 
   processing  processing  technologies  value 
 Balance as of June 30, 2016$20,425 $136,185 $22,868 $179,478 
      Acquisition of C4U Malta (Note 2) -  2,475  -  2,475 
      Foreign currency adjustment(1) 2,087  4,387  1,747  8,221 
           Balance as of March 31, 2017$22,512 $143,047 $24,615 $190,174 
  South     Financial    
  African  International  inclusion and    
  transaction  transaction  applied  Carrying 
  processing  processing  technologies  value 
Balance as of June 30, 2017$23,131 $140,570 $25,132 $188,833 
     Foreign currency adjustment(1) 1,282  8,310  1,070  10,662 
             Balance as of December 31, 2017$24,413 $148,880 $26,202 $199,495 

(1) – Represents the effects of the fluctuations between the South African rand, euro and the Korean won, and the U.S. dollar on the carrying value.

Intangible assets, net

Intangible assets acquired

             Summarized below is the fair value of the Pros Software and C4U Malta intangible assets acquired, translated at the exchange rate applicable as of the acquisition date, and the weighted-average amortization period of the intangible assets:

  Fair valueWeighted- 
  as ofaverage 
  acquisitionamortization period 
  date(in years) 
Finite-lived intangible asset:      
 Customer relationships – Pros Software$2,311  0.75 
 Customer relationships – C4U Malta$186  0.65 
 Software and unpatented technology$147  1.25 
Infinite-lived intangible asset:      
 Financial institution license$745  n/a 

             On acquisition, the Company recognized a deferred tax liability of approximately $0.7 million related to the acquisition of the intangible assets.

1415

7. Goodwill and intangible assets, net (continued)

Intangible assets, net (continued)

Carrying value and amortization of intangible assets

Summarized below is the carrying value and accumulated amortization of the intangible assets as of MarchDecember 31, 2017 and June 30, 2016:2017:

 As of March 31, 2017  As of June 30, 2016  As of December 31, 2017  As of June 30, 2017 
 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 (1)$100,487 $(62,992)$37,495 $94,529 $(51,557)$42,972 $105,365 $(75,089)$30,276 $99,209 $(65,595)$33,614 
Software and unpatented                  
technology (1) 32,951  (30,682) 2,269  31,452  (28,791) 2,661 
Software and unpatented technology 35,227  (33,587) 1,640  33,273  (31,112) 2,161 
FTS patent 2,857  (2,857) -  2,592  (2,592) -  3,098  (3,098) -  2,935  (2,935) - 
Exclusive licenses 4,506  (4,506) -  4,506  (4,506) -  4,506  (4,506) -  4,506  (4,506) - 
Trademarks 6,998  (4,583) 2,415  6,685  (3,762) 2,923  7,361  (5,486) 1,875  6,972  (4,759) 2,213 
Total finite-lived intangible assets 147,799  (105,620) 42,179  139,764  (91,208) 48,556  155,557  (121,766) 33,791  146,895  (108,907) 37,988 
Infinite-lived intangible assets:                  
Indefinite-lived intangible assets:                  
Financial institution license 725  -  725  -  -  -  813  -  813  776  -  776 
Total infinite-lived intangible assets 725  -  725  -  -  - 
Total indefinite-lived intangible assets 813  -  813  776  -  776 
Total intangible assets$148,524 $(105,620)$42,904 $139,764 $(91,208)$48,556 $156,370 $(121,766)$34,604 $147,671 $(108,907)$38,764 

(1) Includes the customer relationships acquired as part of the Pros Software acquisition in October 2016, and the customer relationships and software and unpatented technology acquired as part of the C4U Malta acquisition in November 2016.

Aggregate amortization expense on the finite-lived intangible assets for the three months ended MarchDecember 31, 2017 and 2016, was approximately $3.7$2.9 million and $2.3$3.6 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the ninesix months ended MarchDecember 31, 2017 and 2016, was approximately $10.2$5.8 million and $8.2$6.5 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on MarchDecember 31, 2017, 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.

2017$14,922 
2018 11,655 
2019 10,961 
2020 10,254 
2021 4,428 
Thereafter$380 
Fiscal 2018$12,838 
Fiscal 2019 11,369 
Fiscal 2020 10,653 
Fiscal 2021 4,582 
Fiscal 2022 81 
Thereafter 330 
     Total future estimated annual amortization expense$39,853 

8. Reinsurance assets and policyholder liabilities under insurance and investment contracts

Reinsurance assets and policyholder liabilities under insurance contracts

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the ninesix months ended MarchDecember 31, 2017:

  Reinsurance  Insurance 
  assets(1)  contracts(2) 
Balance as of June 30, 2016$171 $(1,078)
     Increase in policyholder benefits under insurance contracts 454  (3,178)
     Claims and policyholders’ benefits under insurance contracts . (448) 2,539 
     Foreign currency adjustment(3) 18  (110)
         Balance as of March 31, 2017$195 $(1,827)
  Reinsurance  Insurance 
  assets(1) contracts(2)
Balance as of June 30, 2017$191 $(1,611)
     Increase in policyholder benefits under insurance contracts (355) (4,932)
     Claims and policyholders’ benefits under insurance contracts 366  4,884 
     Foreign currency adjustment(3) 10  (89)
         Balance as of December 31, 2017$212 $(1,748)

(1)

Included in other long-term assets.

(2)

Included in other long-term liabilities.

(3)

Represents the effects of the fluctuations between the ZAR against the U.S. dollar.

(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) Represents the effects of the fluctuations between the ZAR against the U.S. dollar.

1516

8. Reinsurance assets and policyholder liabilities under insurance and investment contracts (continued)

Reinsurance assets and policyholder liabilities under insurance contracts (continued)

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 Company determines its reserves for future policy benefits under its life insurance products using a model which estimates claims incurred that have not been reported at the balance sheet date. This model includes best estimate assumptions of experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa. The best estimate assumptions include those assumptions related to mortality, morbidity and claim reporting delays, and the main assumptions used to calculate the reserve for future policy benefits include (i) mortality and morbidity assumptions reflecting the company’s most recent experience and (ii) claim reporting delays reflecting Company specific and industry experience. The values of matured guaranteed endowments were increased by late payment interest (net of the asset management fee and allowance for tax on investment income).

Assets and policyholder liabilities under investment contracts

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the ninesix months ended MarchDecember 31, 2017:

      Investment 
   Assets(1)  contracts(2) 
 Balance as of June 30, 2016$528 $(528)
      Increase in policyholder benefits under investment contracts 35  (35)
      Maturity of claims under investment contracts (13) 13 
      Foreign currency adjustment(3) 55  (55)
          Balance as of March 31, 2017$605 $(605)
     Investment 
  Assets(1) contracts(2)
Balance as of June 30, 2017$627 $(627)
     Increase in policyholder benefits under investment contracts 2  (2)
     Foreign currency adjustment(3) 35  (35)
         Balance as of December 31, 2017$664 $(664)

(1)

Included in other long-term assets.

(2)

Included in other long-term liabilities.

(3)

Represents the effects of the fluctuations between the ZAR against the U.S. dollar.

(1) Included in other long-term assets.
(2) Included in other long-term liabilities.
(3) Represents the effects of the fluctuations between the ZAR against the U.S. dollar.

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

9. Short-term credit facilities

Summarized below are the Company’s available short-term facilities and the amounts utilized as of December 31, 2017 and June 30, 2017, all amounts below were translated at the exchange rates applicable as of the date presented:

  December 31, 2017  June 30, 2017 
  Available  Utilized  Available  Utilized 
             
Europe:            
     Bank Frick(1)$68,405 $35,553 $66,579 $16,579 
South Africa:            
     Nedbank Limited 32,400  10,190  30,600  10,000 
             Overdraft facility(1) 20,200  -  19,109  - 
             Indirect and derivative facilities (Note 18)$12,200 $10,190 $11,491 $10,000 

(1) Utilized amount included in short-term facilities on the unaudited condensed consolidated balance sheets.

Europe

The Company’s short-termCompany has obtained EUR 40.0 million ($47.9 million) and CHF 20 million ($20.5 million) revolving overdraft facilities from Bank Frick. As of December 31, 2017, the Company had utilized approximately CHF 4.7 million ($4.8 million) of the CHF 20 million facility and approximately EUR 25.7 million ($30.7 million) of the EUR 40 million facility. All amounts have been translated at exchange rates applicable as of December 31, 2017. As of June 30, 2017, the Company had utilized approximately CHF 15.9 million ($16.6 million) of the CHF 20 million facility and had not utilized any of the EUR 40 million facility. All amounts have been translated at exchange rates applicable as of June 30, 2017.

As of December 31, 2017, the interest rate on these facilities was 5.00%. The Company assigned all claims against amounts due from Masterpayment customers, which have been financed from the CHF 20 million facility, plus all secondary rights and preferential rights as collateral for this facility to Bank Frick. Masterpayment was required to open a primary business account with Bank Frick and this account has been pledged to Bank Frick as collateral for the EUR 40 million facility. Net1 also stands as guarantor for both of these facilities.

17

9. Short-term credit facilities are described(continued)

Europe (continued)

The initial term of the EUR 40 million facility ends on December 31, 2019 and will automatically be extended for one additional year if not terminated with 12 months written notice. The CHF 20 million facility does not have a fixed term; however, it may be terminated by either party at the end of a calendar month with six months written notice. In January 2018, the Company settled the EUR 40 million and CHF 20 million revolving overdraft facilities in Note 12 tofull and these facilities will be cancelled and Net1 will be released from the guarantees.

United States

On January 29, 2018, the Company obtained a $10 million overdraft facility from Bank Frick. The interest rate on the facilities is 4.50% plus 3 month US Dollar LIBOR and interest is payable quarterly commencing on March 31, 2018. The facility has no fixed term, however, it may be terminated by either party with six weeks written notice. The facility is secured by a pledge of the Company’s audited consolidated financial statements includedinvestment in its Annual Report on Form 10-K for the year ended June 30, 2016.Bank Frick.

South Africa

The aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited (“Nedbank”) was ZAR 400 million ($29.832.4 million) and consists of (i) a primary amount of up to ZAR 200 million ($14.9 million), which is immediately available,16.2 million, and (ii) a secondary amount of up to ZAR 200 million ($14.916.2 million), which is not immediately available (all amounts denominated in ZAR and translated at exchange rates applicable as of MarchDecember 31, 2017). The primary amount comprises an overdraft facility of up to ZAR 50 million ($3.74.0 million) and indirect and derivative facilities of up to ZAR 150 million ($11.212.2 million), which include letters of guarantee, letters of credit and forward exchange contracts (all amounts denominated in ZAR and translated at exchange rates applicable as of MarchDecember 31, 2017).

             On December 9, 2016, Nedbank issued a letter (the “Nedbank Facility Letter”) to the Company under which it agreed to temporarily increase the overdraft facility by the secondary amount of ZAR 200 million to ZAR 250 million. The increase in the overdraft to ZAR 250 million is available until the earlier of the day on which the Company issues shares to the value of $45.0 million (refer to Note 11) or the day on which FirstRand Bank Limited (acting through its Rand Merchant Bank division) repays ZAR 600 million back to the Company that is currently held in escrow related to the issuance of a ZAR 2 billion guarantee to Net1 SA (refer to Note 10).

As of MarchDecember 31, 2017, the interest rate on the overdraft facility was 9.35% 9.10%. The Company has ceded its investment in Cash Paymaster Services Proprietary Limited (“CPS”), a 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 primary amount.short-term facility. The Company is required to comply with customary non-financial covenants, including, without limitation, covenants that restrict its ability to dispose of or encumber its assets, incur additional indebtedness or engage in certain business combinations.

16

9. Short-term credit facilities (continued)

South Africa (continued)

As of Marcheach of December 31, 2017 and June 30, 2016,2017, respectively, the Company had not utilized any of its overdraft facility. As of MarchDecember 31, 2017, the Company had utilized approximately ZAR 130.5126.0 million ($9.710.2 million, translated at exchange rates applicable as of MarchDecember 31, 2017) of its ZAR 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 to Note 18). As of June 30, 2016,2017, the Company had utilized approximately ZAR 131.1130.5 million ($8.910.0 million, translated at exchange rates applicable as of June 30, 2016)2017) of its ZAR 150 million indirect and derivative facilities.

Korea

             The Company had not utilized any of its KRW 10 billion ($8.9 million, translated at exchange rates applicable as of March 31, 2017) overdraft facility as of March 31, 2017 or June 30, 2016. As of March 31, 2017, the interest rate on the overdraft facility was 3.40% . The facility expires in January 2018.

10. Long-term borrowings

    KoreaSouth Africa

The Company’s Korean senior secured loanSouth African long-term facility agreement is described in Note 1314 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016. The current carrying value as2017. As of MarchDecember 31, 2017, is $25.3 million. As of March 31, 2017,$70.4 million was outstanding under the Company’s South African long-term facility agreement, and the carrying amount of the long-term borrowings approximated fair value. The interest rateJohannesburg Interbank Agreed Rate (“JIBAR”) has been set at 7.158% for the period to March 29, 2018.

On July 26, 2017, the Company utilized ZAR 1.25 billion (approximately $92.2 million) of its South African long-term facility to partially fund the acquisition of 15% of Cell C. Principal repayments on the facilities are due in effecteight quarterly installments commencing on September 29, 2017 and the Company has made scheduled repayments of ZAR 375.0 million ($28.5 million) during the six months ended December 31, 2017. The next scheduled principal payment of ZAR 187.5 million ($15.2 million, translated at exchange rates applicable as of December 31, 2017) will be made on March 31, 2018.

The Company paid a non-refundable deal origination fee of approximately ZAR 6.3 million ($0.6 million) in August 2017. Interest expense incurred during the three and six months ended December 31, 2017, was 4.59% .$1.9 million and $3.6 million, respectively. During the three and six months ended December 31, 2017, $0.1 million and $0.2 million, respectively, of prepaid facility fees were amortized. All amounts are translated at exchange rates applicable as of December 31, 2017.

             On July 29, 2016,18

10. Long-term borrowings (continued)

South Korea

The South Korean senior secured loan facility is described in Note 14 to the Company utilized approximately KRW 0.3 billion ($0.2 million) ofCompany’s audited consolidated financial statements included in its Facility C revolving credit facility to pay interest due. OnAnnual Report on Form 10-K for the same day, the Company made unscheduled payments of KRW 20 billion ($17.8 million) towards its Facility A loan, and KRW 10 billion ($8.9 million) towards its Facility C revolving credit facility.year ended June 30, 2017. On October 31, 2016,20, 2017, the Company made an unscheduled paymentrepayment of KRW 2.1 billion ($1.8 million) towards its Facility A loan as a result of a distribution from KSNET paid$16.6 million and settled the full outstanding balance, including interest, related to Net1 Korea which was contractually required to be applied against interest and principal outstanding. these borrowings.

On JanuaryJuly 29, 2017, the Company utilized approximately KRW 0.3 billion ($0.3 million) of its Facility C revolving credit facility under the Company’s South Korean long-term facility agreement to pay interest due. On April 29, 2017, the Company made a scheduled repayment of $8.9 million (translated at exchange rates applicable as of March 31, 2017). The next scheduled principal payment of $8.9 million (translated at exchange rates applicable as of March 31, 2017) is due on April 29, 2018.the Company’s South Korean senior secured loan facility.

Interest expense incurred during the three months ended MarchDecember 31, 2017 and 2016, was $0.3$0.1 million and $0.7$0.2 million, respectively. Interest expense incurred during the ninesix months ended MarchDecember 31, 2017 and 2016, was $0.9$0.4 million and $2.1$0.7 million, respectively. Prepaid facility fees amortized during the three months ended MarchDecember 31, 2017 and 2016, was $0.03$0.1 million and $0.04$0.03 million respectively. Prepaid facility fees amortized during the ninesix months ended MarchDecember 31, 2017 and 2016, was $0.09$0.1 million and $0.1$0.07 million, respectively.

     South Africa

             On October 4, 2016, the Company, through one of its subsidiaries, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), entered into a Subscription Agreement (the “Blue Label Subscription Agreement”) with Blue Label Telecoms Limited (“Blue Label”), a JSE-listed company which is a leading provider of prepaid electricity and airtime in South Africa. Pursuant to the Blue Label Subscription Agreement, Net1 SA will subscribe for approximately 117.9 million ordinary shares of Blue Label at a price of ZAR 16.96 per share, for an aggregate price of ZAR 2.0 billion.

             On October 20, 2016, Net1 SA and Blue Label signed an addendum to the Blue Label Subscription Agreement which, among other things, established the subscription date and required FirstRand Bank Limited (acting through its Rand Merchant Bank division) (“RMB”) to issue a guarantee to Blue Label for the purchase price of the Blue Label shares to be purchased by Net1 SA (the “Guarantee”). On that same date, and in connection with the Blue Label Subscription Agreement, Net1 SA entered into a Common Terms Agreement, a Senior Facility A Agreement, Senior Facility B Agreement, Senior Facility C Agreement, Subordination Agreement, Security Cession & Pledge and certain ancillary loan documents (collectively, the “Loan Documents”) with RMB, pursuant to which, among other things, Net1 SA may borrow up to an aggregate of ZAR 1.4 billion ($104.4 million, translated at exchange rates applicable as of March 31, 2017) to finance a portion of its working capital requirements and a portion of its investment in Blue Label. The amounts available under these loans and an escrow deposit of ZAR 600 million ($44.7 million, translated at exchange rates applicable as of March 31, 2017) made by Net1 SA serve as security for the Guarantee. Net1 and certain of the Company’s other subsidiaries have agreed to guarantee the obligations of Net1 SA to RMB and subordinate any claims they may have against Net1 SA and certain of its subsidiaries to RMB’s claims against such persons.

17

10.      Long-term borrowings (continued)

     South Africa (continued)

             The Loan Documents provide for a Facility A term loan of up to ZAR 500 million ($37.3 million), a Facility B term loan of up to ZAR 900 million ($67.1 million), amounts translated at exchange rates applicable as of March 31, 2017, and a Facility C term loan in an amount equal to the aggregate amount of voluntary prepayments of the outstanding principal amount of the Facility A loan.

             On November 15, 2016, RMB, the Company, Net1 SA and certain of their respective affiliates entered into a letter agreement (the “Guarantee Letter”) amending the Loan Documents to extend the term of the Guarantee, as referenced therein, to February 28, 2017. On November 16, 2016, Net1 SA and Blue Label entered into an Amended and Restated Subscription Agreement (the “A&R Agreement”) which, among other things, extended the subscription date to a date, to be specified by Blue Label, during the period between January 23, 2017 and February 28, 2017 (inclusive). On November 15, 2016, RMB issued a new guarantee in favor of Blue Label for the purchase price of the Blue Label shares to be purchased by Net1 SA (the “New Guarantee”). In accordance with the terms of the Guarantee Letter, the New Guarantee was scheduled to expire on February 28, 2017. Upon closing under the A&R Agreement, Net1 SA expects Blue Label to deliver the New Guarantee to RMB for payment of the subscription price of the Blue Label shares.

             On February 28, 2017, RMB, the Company, Net1 SA and certain of their respective affiliates entered into a new letter agreement (the “February 2017 Guarantee Letter”) amending the Loan Documents to extend the term of the New Guarantee, as referenced therein, to May 31, 2017, and to correct certain outdated terms to Loan Documents, and RMB issued a new guarantee (the “February 2017 Guarantee”) in favor of Blue Label for the purchase price of the Blue Label shares to be purchased by Net1 SA. In accordance with the terms of the February 2017 Guarantee Letter, this guarantee will expire on May 31, 2017.

             On February 28, 2017, RMB, the Company, Net1 SA and certain of their respective affiliates entered into a letter agreement under which the parties agreed to amend the Loan Documents by March 15, 2017, to contemplate and permit various guarantors to provide guarantees and to ensure that only the original senior lenders retain the benefits of all amounts credited to the escrow account and security in respect thereof. On March 15, 2017, the parties signed the necessary agreements to amend and restate the Loan Documents.

             The Company paid a guarantee fee of approximately ZAR 16.0 million ($1.1 million) during the three months ended March 31, 2017. Interest on the loans is payable monthly based on the Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time plus a margin of 1.35% for the Facility A and Facility C loans and 2.75% for the Facility B loan. The JIBAR rate was 7.4% on March 31, 2017.

             Principal repayments on the Facility A and Facility B loans are due in eight equal quarterly installments, beginning on a date to be determined by the parties upon draw down, and all of the loans two years after draw down. Principal repayment on the Facility C loan is due in quarterly installments to be determined by RMB subject to the date of borrowing thereunder. Voluntary prepayments are permitted without early repayment fees or penalties.

             The loans are secured by a pledge by Net1 SA of its entire equity interest in Blue Label. The Loan Documents contain customary covenants that require Net1 SA to maintain a specified total net leverage ratio and restrict the ability of Net1 SA, and certain of its subsidiaries to make certain distributions with respect to their capital stock, prepay other debt, encumber their assets, incur additional indebtedness, make investment above specified levels, engage in certain business combinations and engage in other corporate activities.

11. 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 ninesix months ended MarchDecember 31, 2017 and 2016, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the ninesix months ended MarchDecember 31, 2017 and 2016, respectively:

 March 31,  March 31,  December 31,  December 31, 
 2017  2016  2017  2016 
            
Number of shares, net of treasury:            
Statement of changes in equity 57,590,085  45,636,435  56,832,370  52,521,345 
Less: Non-vested equity shares that have not vested (Note 13) (904,356) (589,447) (911,856) (904,356)
Number of shares, net of treasury excluding non-vested
equity shares that have not vested		 56,685,729  45,046,988  55,920,514  51,616,989 

18

11.      Capital structure (continued)

    Sale of common stock

             In February 2017, the Company sold a total of five million shares of its common stock at a price of $9.00 per share to two investors, for aggregate gross proceeds to the Company of $45.0 million. These sales were made pursuant to stock purchase agreements entered into on October 6, 2016, as amended. One of the investors was contractually restricted from disposing of the shares until April 6, 2017, and the other is restricted until August 16, 2017. The sale of the shares has been registered under the Securities Act of 1933, as amended, pursuant to the Company’s shelf registration statement on Form S-3.

Common stock repurchases

Executed under share repurchase authorizations

The Company did not repurchase any of its shares during the three and six months ended December 31, 2017, or during the three months ended December 31, 2016.

In February 2016, the Company’s Boardboard of Directorsdirectors approved the replenishment of its share repurchase authorization to repurchase up to an aggregate of $100 million of common stock. The authorization has no expiration date. On June 29, 2016, the Company adopted a Rule 10b5-1 trading plan for the purpose of repurchasing approximately $50 million of its common stock, which was included within the original share repurchase authorization. The Company did not repurchase any of its shares duringDuring the threesix months ended March 31, 2017. During the three months ended MarchDecember 31, 2016, the Company repurchased 1,328,699 shares for approximately $12.7 million under its share repurchase authorization. During the nine months ended March 31, 2017 and 2016, the Company repurchased 3,137,609 shares for approximately $31.6 million and 2,077,912 shares for approximately $23.9 million, respectively, under its share repurchase authorizations.

19

12. Accumulated other comprehensive loss

The table below presents the change in accumulated other comprehensive (loss) income per component during the ninesix months ended MarchDecember 31, 2017:

     Nine months ended    
     March 31, 2017    
     Accumulated    
     net    
     unrealized    
  Accumulated  income on    
  foreign  asset    
  currency  available for    
  translation  sale, net of    
  reserve  tax  Total 
          
Balance as of June 30, 2016$(189,700)$- $(189,700)
     Movement in foreign currency translation reserve 25,190  -  25,190 
             Balance as of March 31, 2017$(164,510)$- $(164,510)
  Six months ended 
  December 31, 2017 
     Accumulated    
     net    
     unrealized    
  Accumulated  income on    
  foreign  asset    
  currency  available for    
  translation  sale, net of    
  reserve  tax  Total 
          
Balance as of June 30, 2017$(162,569)$- $(162,569)
     Movement in foreign currency translation reserve related to equity accounted investment (227) -  (227)
     Movement in foreign currency translation reserve 39,437  -  39,437 
             Balance as of December 31, 2017$(123,359)$- $(123,359)

There were no reclassifications from accumulated other comprehensive loss to comprehensive (loss) income during the three and ninesix months ended MarchDecember 31, 2017 or 2016, respectively.2016.

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19

13. Stock-based compensation

Stock option and restricted stock activity

Options

The following table summarizes stock option activity for the ninesix months ended MarchDecember 31, 2017 and 2016:

        Weighted       
     Weighted  average     Weighted 
     average  remaining  Aggregate  average 
     exercise  contractual  intrinsic  grant date 
  Number of  price  term  value  fair value 
  shares  ($)  (in years)  ($’000)  ($) 
                
Outstanding – June 30, 2016 2,077,524  15.92  3.65  926    
 Exercised (68,740) 9.15     882    
 Expired unexercised (474,443) 22.51          
     Outstanding – March 31, 2017 . 1,534,341  14.19  3.88  2,150    
                
Outstanding – June 30, 2015 2,401,169  15.34  4.74  11,516    
 Exercised (323,645) 11.62     2,669    
     Outstanding – March 31, 2016 . 2,077,524  15.92  3.89  654    
        Weighted       
     Weighted  average     Weighted 
     average  remaining  Aggregate  average 
     exercise  contractual  intrinsic  grant date 
  Number of  price  term  value  fair value 
  shares  ($)  (in years)  ($’000) ($) 
                
Outstanding – June 30, 2017 846,607  13.87  3.80  486    
 Forfeitures (37,333) 11.23          
     Outstanding – December 31, 2017 809,274  13.99  3.15  1,022    
                
Outstanding – June 30, 2016 2,077,524  15.92  3.65  926    
 Expired unexercised (474,443) 22.51          
     Outstanding – December 31, 2016 1,603,081  13.98  4.25  1,685    

No stock options were awarded during the three and ninesix months ended MarchDecember 31, 2017 or 2016. There were no forfeitures during the three months ended MarchDecember 31, 2017. During the six months ended December 31, 2017, oremployees forfeited 37,333 stock options. There were no forfeitures during the three and ninesix months ended MarchDecember 31, 2016; however, during the ninethree and six months ended MarchDecember 31, 2017,2016, 474,443 stock options awarded in August 2006, expired unexercised.

The following table presents stock options vested and expecting to vest as of MarchDecember 31, 2017:

         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, 2017 1,534,341  14.19  3.88  2,150 
        Weighted    
     Weighted  average    
     average  remaining  Aggregate 
     exercise  contractual  intrinsic 
  Number of  price  term  value 
  shares  ($)  (in years)  ($’000)
Vested and expecting to vest – December 31, 2017 809,274  13.99  3.15  1,022 

20

13. Stock-based compensation

Stock option and restricted stock activity (continued)

Options (continued)

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

The following table presents stock options that are exercisable as of MarchDecember 31, 2017:

         Weighted    
      Weighted  average    
      average  remaining  Aggregate 
      exercise  contractual  intrinsic 
   Number of  price  term  value 
   shares  ($)  (in years)  ($’000) 
 Exercisable – March 31, 2017 1,379,538  14.53  3.49  1,996 
        Weighted    
     Weighted  average    
     average  remaining  Aggregate 
     exercise  contractual  intrinsic 
  Number of  price  term  value 
  shares  ($)  (in years)  ($’000) 
Exercisable – December 31, 2017 809,274  13.99  3.15  1,022 

No stock options became exercisable during the three months ended MarchDecember 31, 2017 and 2016, respectively. During the ninesix months ended MarchDecember 31, 2017 and 2016, respectively, 154,803105,982 and 373,435154,803 stock options became exercisable. The Company received approximately $0.6 million from the exercise of 68,740 stock options, during the three and nine months ended March 31, 2017. No stock options were exercised during the three months ended March 31, 2016. The Company received approximately $3.8 million from the exercise of 323,645 stock options, during the nine months ended March 31, 2016. The Company issues new shares to satisfy stock option exercises.

20

13.      Stock-based compensation (continued)

    Stock option and restricted stock activity (continued)

Restricted stock

The following table summarizes restricted stock activity for the ninesix months ended MarchDecember 31, 2017 and 2016:

  Number of  Weighted 
  shares of  average grant 
  restricted  date fair value 
  stock  ($’000) 
Non-vested – June 30, 2016 589,447  7,622 
 Granted – August 2016 387,000  4,145 
 Vested – August 2016 (72,091) 735 
     Non-vested – March 31, 2017 904,356  11,142 
       
Non-vested – June 30, 2015 341,529  1,759 
 Granted – August 2015 319,492  6,406 
 Vested – August 2015 (71,574) 1,435 
     Non-vested – March 31, 2016 589,447  7,622 
  Number of  Weighted 
  shares of  average grant 
  restricted  date fair value 
  stock  ($’000)
Non-vested – June 30, 2017 505,473  11,173 
 Granted – August 2017 588,594  4,288 
 Vested – August 2017 (56,250) 527 
 Forfeitures (30,635) 358 
 Forfeitures – August and November 2014 awards with market conditions (95,326) 1,133 
     Non-vested – December 31, 2017 911,856  9,365 
       
Non-vested – June 30, 2016 589,447  7,622 
 Granted – August 2016 387,000  4,145 
 Vested – August 2016 (72,091) 735 
     Non-vested – December 31, 2016 904,356  11,142 

The August 2017 grants comprises (i) 326,000 shares of restricted stock awarded to executive officers and employees that are subject to time-based vesting, (ii) 210,000 shares of restricted stock awarded to executive officers that are subject to market and time-based vesting, and (iii) 52,594 shares of restricted stock awarded to non-employee directors. The August 2016 grants comprise 350,000 and 37,000 shares of restricted stock awarded to executive officers and non-employee directors, respectively.

The 326,000 shares of restricted stock will only vest if the recipient is employed by the Company on a full-time basis on August 23, 2020. The 52,594 shares of restricted stock awarded to non-employee directors will only vest if the recipient is a director on August 23, 2018.

Market Conditions - Restricted Stock Granted in August 2017

The 210,000 shares of restricted stock awarded to executive officers in August 2017 are subject to time-based and performance-based (a market condition) vesting conditions and vest in full only on the date, if any, the following conditions are satisfied: (1 the price of the Company’s common stock must equal or exceed certain agreed VWAP levels (as described below) during a measurement period commencing on the date that it files its Annual Report on Form 10-K for the fiscal year ended 2020 and ending on December 31, 2020 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 $23.00 price target represents an approximate 35% increase, compounded annually, in the price of the Company’s common stock on Nasdaq over the $9.38 closing price on August 23, 2017.

21

13. Stock-based compensation (continued)

Stock option and restricted stock activity (continued)

Restricted stock (continued)

Performance Conditions - Market Conditions - Restricted Stock Granted in August 2017(continued)

The VWAP levels and vesting percentages related to such levels are as follows:

These 210,000 shares of restricted stock are effectively forward starting knock-in barrier options with multi-strike prices of zero. The fair value of these shares of restricted stock was calculated utilizing a Monte Carlo simulation 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. A standard Geometric Brownian motion process was used in the forecasting of the share price instead of a “jump diffusion” model, as the share price volatility was more stable compared to the highly volatile regime of previous years. 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 44.0%, an expected life of approximately three years, a risk-free rate ranging between 1.275% to 1.657% and no future dividends in its calculation of the fair value of the restricted stock. The estimated expected volatility was calculated based on the Company’s 30 day VWAP share price using the exponentially weighted moving average of returns.

Performance Conditions - Restricted Stock Granted in August 2016

In August 2016 arethe Company awarded 350,000 shares of restricted stock to executive officers. In May 2017, the Company agreed to accelerate the vesting of 200,000 of these shares of restricted stock granted to the Company’s former Chief Executive Officer. These remaining 150,000 shares continue to be subject to time-based and performance-based vesting conditions. In order for any of the shares to vest, the recipient must remain employed by the Company on a full-time basis on the date that it files its Annual Report on Form 10-K for the fiscal year ended June 30, 2019. If that condition is satisfied, then the shares will vest based on the level of Fundamental EPS the Company achieves for the fiscal year ended June 30, 2019 (“2019 Fundamental EPS”), as follows:

At levels of 2019 Fundamental EPS greater than $2.60 and less than $3.00, the number of shares that will vest will be determined by linear interpolation relative to 2019 Fundamental EPS of $2.80. Any shares that do not vest in accordance with the above-described conditions will be forfeited. All shares of restricted stock have been valued utilizing the closing price of shares of the Company’s common stock quoted on The Nasdaq Global Select Market on the date of grant.

             ThePerformance Conditions - Restricted Stock Granted in August 2015 grants comprise

In August 2015 the Company awarded 301,537 and 17,955 shares of restricted stock awarded to employeesexecutive officers and non-employee directors, respectively. Theemployees. These shares of restricted stock awarded to employees in August 2015 are subject to time-based and performance-based vesting conditions. In order for any of the shares to vest, the recipient must remain employed by the Company on a full-time basis on the date that it files its Annual Report on Form 10-K for the fiscal year ended June 30, 2018. If that condition is satisfied, then the shares will vest based on the level of Fundamental EPS the Company achieves for the fiscal year ended June 30, 2018 (“2018 Fundamental EPS”), as follows:

At levels of 2018 Fundamental EPS greater than $2.88 and less than $3.76, the number of shares that will vest will be determined by linear interpolation relative to 2018 Fundamental EPS of $3.30. Any shares that do not vest in accordance with the above-described conditions will be forfeited. All shares of restricted stock have been valued utilizing the closing price of shares of the Company’s common stock quoted on The Nasdaq Global Select Market on the date of grant. The

22

13. Stock-based compensation (continued)

Stock option and restricted stock activity (continued)

Restricted stock (continued)

Performance Conditions - Restricted Stock Granted in August 2015 (continued)

During the three and six months ended December 31, 2016, the Company has reversed the stock-based compensation charge recognized to date related to the 301,537 shares of restricted stock because it believesbelieved that it iswas unlikely that the 2018 Fundamental EPS target willwould be achieved due to the dilutive impact on the fundamental EPS calculation as a result of issuance of the approximate 10 million shares to the IFC in May 2016.

Vesting of all non-employee director shares issued prior to June 30, 2017

Grants of restricted stock to non-employee directors made during fiscal 2017, as well as those grants made in prior years, originally vested over a three-year period. After the end of fiscal 2017, the Company’s board consulted with Pay Governance, an independent compensation consultant, and determined that one-year vesting of restricted stock grants is a more common compensation practice for independent directors and therefore, amended the terms of outstanding awards to vest one-year after grant. As a result of this amendment, 61,995 shares of restricted stock held by the non-employee directors as of June 30, 2017, were fully-vested.

Forfeiture of restricted stock awarded in August and November 2014 that did not achieve targeted market conditions

During the three and six months ended December 31, 2017, restricted stock with market conditions awarded in August and November 2014, were forfeited, because the target market conditions were not achieved. The stock-based compensation charge related to these awards was not reversed upon forfeiture because these awards contained market conditions.

The fair value of restricted stock vesting during the ninesix months ended MarchDecember 31, 2017 and 2016, respectively, was $0.7$0.5 million and $1.4$0.7 million.

21

13. Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

The Company has recorded a stock-based compensation charge during each of $0.6 million and $1.0 million, respectively, during the three months ended MarchDecember 31, 2017 and 2016 of $0.6 million, which comprised:

     Allocated to cost    
     of goods sold, IT  Allocated to 
     processing,  selling, general 
  Total  servicing and  and 
  charge  support  administration 
Three months ended March 31, 2017         
Stock-based compensation charge$621 $- $621 
           Total – three months ended March 31, 2017$621 $- $621 
          
Three months ended March 31, 2016         
Stock-based compensation charge$954 $- $954 
           Total – three months ended March 31, 2016$954 $- $954 
     Allocated to cost    
     of goods sold, IT  Allocated to 
     processing,  selling, general 
  Total  servicing and  and 
  charge  support  administration 
Three months ended December 31, 2017         
 Stock-based compensation charge$608 $- $608 
           Total – three months ended December 31, 2017$608 $- $608 
          
Three months ended December 31, 2016         
 Stock-based compensation charge$635 $- $635 
           Total – three months ended December 31, 2016$635 $- $635 

23

13. Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost (continued)

The Company has recorded a stock-based compensation (reversal) charge net of ($0.1 million) and $2.6 million, respectively,(reversal) during the ninesix months ended MarchDecember 31, 2017 and 2016 of $1.4 million and ($0.7 million), respectively, which comprised:

     Allocated to cost    
     of goods sold, IT  Allocated to 
     processing,  selling, general 
  Total  servicing and  and 
  charge  support  administration 
Nine months ended March 31, 2017         
 Stock-based compensation charge$1,759 $- $1,759 
 Reversal of stock compensation charge related to
 restricted stock		 (1,827) -  (1,827)
           Total – nine months ended March 31, 2017$(68)$- $(68)
          
Nine months ended March 31, 2016         
 Stock-based compensation charge$2,645 $- $2,645 
           Total – nine months ended March 31, 2016$2,645 $- $2,645 
     Allocated to cost    
     of goods sold, IT  Allocated to 
     processing,  selling, general 
  Total  servicing and  and 
  charge  support  administration 
Six months ended December 31, 2017         
 Stock-based compensation charge$1,477 $- $1,477 
 Reversal of stock compensation charge related to stock options forfeited (42) -  (42)
           Total – six months ended December 31, 2017$1,435 $- $1,435 
          
Six months ended December 31, 2016         
 Stock-based compensation charge$1,138 $- $1,138 
 Reversal of stock compensation charge related to restricted stock (1,827) -  (1,827)
           Total – six months ended December 31, 2016$(689)$- $(689)

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 MarchDecember 31, 2017, the totalthere was no unrecognized compensation cost related to stock options was approximately $0.3 million, which the Company expects to recognize over approximately one year.because all stock options granted have vested. As of MarchDecember 31, 2017, the total unrecognized compensation cost related to restricted stock awards was approximately $3.6$4.5 million, which the Company expects to recognize over approximately two years. This amount excludes the total unrecognized compensation cost as of MarchDecember 31, 2017, of approximately $3.9 million, related to restricted stock awards that the Company expects will not vest due to it not achieving the 2018 Fundamental EPS of approximately $6.0 million.EPS. As of MarchDecember 31, 2017, the cumulative unrecorded stock-based compensation charge related to these awards of restricted stock that the Company has determined are expected not to vest and has not expensed in its consolidated statement of operations is approximately $3.4$3.2 million (which amount includes the $1.8 million reversed)reversed during the six months ended December 31, 2016).

As of each of MarchDecember 31, 2017 and June 30, 2016, respectively,2017, the Company has recorded a deferred tax asset of approximately $1.8$0.7 million and $0.9 million, respectively, related to the stock-based compensation charge recognized related to employees of Net1. The Company deducts the difference between the market value on date of exercise by the option recipient and directors of Net1 as it is ablethe exercise price from income subject to deducttaxation in the grant date fair value for taxation purposes.United States.

14. Earnings per share

The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method. There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three and ninesix months ended MarchDecember 31, 2017 or 2016. Accordingly, the two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is described in Note 1415 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016.2017.

22

14.      Earnings per share (continued)

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 ninesix months ended MarchDecember 31, 2017 and 2016, reflects only undistributed earnings. The computation below of basic earnings per share excludes the net income attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.

Diluted earnings per share have 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.

24

14. Earnings per share (continued)

The calculation of diluted earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in August 2013, August 2014, November 2014, August 2015, August 2016 and August 2016,2017, 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 for awards made in August 2017, August 2016 and August 2015 are discussed in Note 13 and the vesting conditions for all other awards are discussed in Note 18 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016.2017.

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  Six months ended 
 March 31,  March 31,  December 31,  December 31, 
 2017  2016  2017  2016  2017  2016  2017  2016 
 (in thousands except  (in thousands except  (in thousands except  (in thousands except 
 percent and  percent and  percent and  percent and 
 per share data)  per share data)  per share data)  per share data) 
Numerator:                        
Net income attributable to Net1$18,392 $18,420 $61,665 $58,098 $9,622 $18,641 $29,105 $43,273 
Undistributed earnings 18,392  18,420  61,665  58,098  9,622  18,641  29,105  43,273 
Percent allocated to common shareholders (Calculation 1) 98%  99%  98%  99%  99%  98%  98%  98% 
Numerator for earnings per share: basic and diluted$18,064 $18,158 $60,609 $57,334 $9,481 $18,296 $28,664 $42,561 
                        
Denominator:                        
Denominator for basic earnings per share: weighted-            
average common shares outstanding 53,666  45,683  52,054  46,171 
Denominator for basic earnings per share: weighted-average common shares outstanding 55,923  51,549  55,902  52,301 
Effect of dilutive securities:                        
Stock options 169  89  127  288  52  122  50  106 
Denominator for diluted earnings per share:            
adjusted weighted average common shares
outstanding and assumed conversion		 53,835  45,772  52,181  46,459 
Denominator for diluted earnings per share: adjusted weighted average common
shares outstanding and assumed conversion		 55,975  51,671  55,952  52,407 
                        
Earnings per share:                        
Basic$0.34 $0.40 $1.16 $1.24 $0.17 $0.35 $0.51 $0.81 
Diluted$0.34 $0.40 $1.16 $1.23 $0.17 $0.35 $0.51 $0.81 
                        
(Calculation 1)                        
Basic weighted-average common shares outstanding            
(A) 53,666  45,683  52,054  46,171 
Basic weighted-average common shares outstanding (A) 55,923  51,549  55,902  52,301 
Basic weighted-average common shares outstanding
and unvested restricted shares expected to vest (B)		 54,639  46,341  52,961  46,786  56,755  52,521  56,762  53,176 
Percent allocated to common shareholders (A) / (B) 98%  99%  98%  99%  99%  98%  98%  98% 

Options to purchase 502,161357,643 shares of the Company’s common stock at prices ranging from $13.16$10.59 to $24.46 per share were outstanding during the three and ninesix months ended MarchDecember 31, 2017, 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 stock. The options, which expire at various dates through August 27, 2024, were still outstanding as of MarchDecember 31, 2017.

23

15. Supplemental cash flow information

             Cash, cash equivalents and restricted cash as of March 31, 2017, presented in the unaudited condensed consolidated statements of cash flows includes restricted cash of approximately $44.7 million related to the guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division) as described in Note 10. This cash has been placed into an escrow account and is considered restricted as to use and therefore is classified as restricted cash and presented as restricted cash in the March 31, 2017, unaudited condensed consolidated balance sheet. The restriction will lapse once the guarantee expires, is utilized or is cancelled.

The following table presents supplemental cash flow disclosures for the three and ninesix months ended MarchDecember 31, 2017 and 2016:

   Three months ended  Nine months ended 
   March 31,  March 31, 
   2017  
2016
  2017  2016 
 Cash received from interest$5,265 $3,341 $14,600 $11,262 
 Cash paid for interest$435 $813 $2,007 $2,864 
 Cash paid for income taxes$3,631 $4,052 $27,698 $28,374 
  Three months ended  Six months ended 
  December 31,  December 31, 
  2017  2016  2017  2016 
Cash received from interest$4,562 $5,050 $9,848 $9,335 
Cash paid for interest$2,330 $496 $4,418 $1,572 
Cash paid for income taxes$18,613 $22,564 $20,649 $24,067 

25

15. Supplemental cash flow information (continued)

Treasury shares, at cost included in the Company’s condensed consolidated balance sheet as of June 30, 2016, includes 47,056 shares of the Company’s common stock acquired for approximately $0.5 million which were paid for on July 1, 2016. The liability for this payment was included in accounts payable on the Company’s condensed consolidated balance sheet as of June 30, 2016. The payment of approximately $0.5 million is included in acquisition of treasury stock in the Company’s condensed consolidated statement of cash flows for the ninesix months ended MarchDecember 31, 2017.

             On January 20, 2016, the Company issued 391,645 shares of its common stock with an aggregate issue date fair value of approximately $4.0 million as part consideration for the Company’s 56% interest in T24.2016.

16. 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 23 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2016.2017.

The reconciliation of the reportable segments revenue to revenue from external customers for the three months ended MarchDecember 31, 2017 and 2016, respectively, is as follows:

      Revenue    
         From 
   Reportable  Inter-  external 
   Segment  segment  customers 
 South African transaction processing$63,967 $7,331 $56,636 
 International transaction processing 41,514  -  41,514 
 Financial inclusion and applied technologies 56,881  7,087  49,794 
  Total for the three months ended March 31, 2017$162,362 $14,418 $147,944 
           
 South African transaction processing$50,594 $5,621 $44,973 
 International transaction processing 40,588  -  40,588 
 Financial inclusion and applied technologies 54,286  5,111  49,175 
  Total for the three months ended March 31, 2016$145,468 $10,732 $134,736 
  Revenue 
        From 
  Reportable  Inter-  external 
  Segment  segment  customers 
South African transaction processing$64,148 $6,181 $57,967 
International transaction processing 44,185  -  44,185 
Financial inclusion and applied technologies 54,131  7,867  46,264 
 Total for the three months ended December 31, 2017$162,464 $14,048 $148,416 
          
South African transaction processing$59,862 $5,395 $54,467 
International transaction processing 44,000  -  44,000 
Financial inclusion and applied technologies 59,258  6,292  52,966 
 Total for the three months ended December 31, 2016$163,120 $11,687 $151,433 

24

16.       Operating segments (continued)

The reconciliation of the reportable segments revenue to revenue from external customers for the ninesix months ended MarchDecember 31, 2017 and 2016, respectively, is as follows:

      Revenue    
         From 
   Reportable  Inter-  external 
   Segment  segment  customers 
 South African transaction processing$181,397 $18,127 $163,270 
 International transaction processing 131,704  -  131,704 
 Financial inclusion and applied technologies 179,681  19,645  160,036 
  Total for the nine months ended March 31, 2017$492,782 $37,772 $455,010 
           
 South African transaction processing$158,997 $12,598 $146,399 
 International transaction processing 122,653  -  122,653 
 Financial inclusion and applied technologies 187,332  16,894  170,438 
  Total for the nine months ended March 31, 2016$468,982 $29,492 $439,490 
  Revenue 
        From 
  Reportable  Inter-  external 
  Segment  segment  customers 
South African transaction processing$130,585 $12,326 $118,259 
International transaction processing 90,207  -  90,207 
Financial inclusion and applied technologies 108,444  15,936  92,508 
 Total for the six months ended December 31, 2017$329,236 $28,262 $300,974 
          
South African transaction processing$117,430 $10,796 $106,634 
International transaction processing 90,190  -  90,190 
Financial inclusion and applied technologies 122,800  12,558  110,242 
 Total for the six months ended December 31, 2016$330,420 $23,354 $307,066 

26

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 ninesix months ended MarchDecember 31, 2017 and 2016, respectively, is as follows:

   Three months ended  Nine months ended 
   March 31,  March 31, 
   2017  2016  2017  2016 
 Reportable segments measure of profit or loss$31,563 $29,415 $99,494 $95,862 
  Operating income: Corporate/Eliminations (7,016) (3,224) (17,177) (13,677)
  Interest income 5,124  3,345  14,489  11,284 
  Interest expense (467) (852) (1,773) (2,880)
      Income before income taxes$29,204 $28,684 $95,033 $90,589 
  Three months ended  Six months ended 
  December 31,  December 31, 
  2017  2016  2017  2016 
Reportable segments measure of profit or loss$21,216 $33,383 $52,784 $67,931 
 Operating income: Corporate/Eliminations (4,909) (7,794) (11,471) (10,161)
 Interest income 4,705  5,061  9,749  9,365 
 Interest expense (2,325) (510) (4,446) (1,306)
     Income before income taxes$18,687 $30,140 $46,616 $65,829 

The following tables summarize segment information that is prepared in accordance with GAAP for the three and ninesix months ended MarchDecember 31, 2017 and 2016:

   Three months ended  Nine months ended 
   March 31,  March 31, 
   2017  2016  2017  2016 
 Revenues            
      South African transaction processing$63,967 $50,594 $181,397 $158,997 
      International transaction processing 41,514  40,588  131,704  122,653 
      Financial inclusion and applied technologies 56,881  54,286  179,681  187,332 
          Total 162,362  145,468  492,782  468,982 
 Operating income (loss)            
      South African transaction processing 15,531  13,133  44,451  38,724 
      International transaction processing 1,968  4,813  11,689  15,596 
      Financial inclusion and applied technologies 14,064  11,469  43,354  41,542 
         Subtotal: Operating segments 31,563  29,415  99,494  95,862 
             Corporate/Eliminations (7,016) (3,224) (17,177) (13,677)
                 Total 24,547  26,191  82,317  82,185 
  Depreciation and amortization            
      South African transaction processing 1,139  1,463  3,433  4,858 
      International transaction processing 5,083  5,232  16,440  15,991 
      Financial inclusion and applied technologies 365  272  1,056  844 
         Subtotal: Operating segments 6,587  6,967  20,929  21,693 
             Corporate/Eliminations 3,703  2,314  10,188  8,289 
                 Total$10,290 $9,281 $31,117 $29,982 

25

16.      Operating segments (continued)

 Three months ended  Nine months ended  Three months ended  Six months ended 
 March 31,  March 31,  December 31,  December 31, 
 2017  2016  2017  2016  2017  2016  2017  2016 
Revenues            
South African transaction processing$64,148 $59,862 $130,585 $117,430 
International transaction processing 44,185  44,000  90,207  90,190 
Financial inclusion and applied technologies 54,131  59,258  108,444  122,800 
Total 162,464  163,120  329,236  330,420 
Operating income (loss)            
South African transaction processing 13,470  15,372  25,802  28,920 
International transaction processing (4,991) 3,904  325  9,721 
Financial inclusion and applied technologies 12,737  14,107  26,657  29,290 
Subtotal: Operating segments 21,216  33,383  52,784  67,931 
Corporate/Eliminations (4,909) (7,794) (11,471) (10,161)
Total 16,307  25,589  41,313  57,770 
Depreciation and amortization            
South African transaction processing 1,087  1,137  2,240  2,294 
International transaction processing 4,381  5,521  9,013  11,357 
Financial inclusion and applied technologies 309  354  664  691 
Subtotal: Operating segments 5,777  7,012  11,917  14,342 
Corporate/Eliminations 2,946  3,611  5,772  6,485 
Total 8,723  10,623  17,689  20,827 
Expenditures for long-lived assets                        
South African transaction processing$448 $926 $1,490 $3,469  900  635  1,377  1,042 
International transaction processing 1,309  6,864  6,275  23,107  892  2,167  1,798  4,966 
Financial inclusion and applied technologies 192  263  733  2,122  311  324  401  541 
Subtotal: Operating segments 1,949  8,053  8,498  28,698  2,103  3,126  3,576  6,549 
Corporate/Eliminations -  -  -  -  -  -  -  - 
Total$1,949 $8,053 $8,498 $28,698 $2,103 $3,126 $3,576 $6,549 

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.

27

17. 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 ninesix months ended MarchDecember 31, 2017, the tax charge was calculated using the expected effective tax rate for the year. The Company’s effective tax rate for the three and ninesix months ended MarchDecember 31, 2017, was 35.0%53.8% and 34.0%43.6%, respectively, was higher than the South African statutory rate as a result of a valuation allowance provided related to an allowance for doubtful working capital finance receivables created, non-deductible expenses (including transaction-related expenditure and non-deductible interest on our South African long-term facility) and the impact of the changes in U.S. federal statutory tax rates described below.

For the three and six months ended December 31, 2016, the tax charge was calculated using the expected effective tax rate for the year. The Company’s effective tax rate for the three and six months ended December 31, 2016, was 36.4% and 33.6%, respectively, and was higher than the South African statutory rate as a result of additional taxes payable resulting from the finalization of a tax review in South Korea, non-deductible expenses and the tax impact attributable to distributions from our South African subsidiary.

             ForNew U.S. Tax Legislation

On December 22, 2017, the Tax Cuts and Jobs Act (the “ TCJA”), was enacted into law, significantly modifying U.S. federal tax laws. The TCJA reduces the federal statutory tax rate for corporations from 35% to 21% effective from January 1, 2018, eliminates alternative minimum tax for corporations, limits net operating loss carryforwards (and eliminates carrybacks), limits the deductibility of interest expense and transitions the system of U.S. international taxation of corporations from a worldwide tax system to a territorial tax system. Specifically, the transition to a territorial tax system is not expected to have a significant impact on the Company’s future consolidated effective tax rate as it generates the majority of its taxable income in tax jurisdictions with tax rates higher (mainly South Africa, where its income is taxed at 28%, and Korea, where our income is taxed at 22%) than the new federal statutory tax rate of 21%.

The Company is currently analyzing the impact of these changes; therefore, an estimate of the full impact on deferred tax assets and liabilities, income tax expense, net income and other affected accounts is not yet available. The Company has a June year end and therefore it will use a blended rate of 28.10% for its tax year ending June 30, 2018, in the U.S. Certain of the Company’s deferred tax assets and liabilities which it expects will be utilized/ reversed during the period ended June 30, 2018, have been re-measured at this blended rate and those deferred taxes that the Company believes will only be utilized/ reversed in subsequent tax years, have been remeasured at 21%. The impact of the change in the tax rate on the Company’s deferred taxes included in income tax expense during the three and ninesix months ended MarchDecember 31, 2016, the tax charge2017, 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, 2016, was 34.2% and 34.6%, respectively, and was higher than the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees) and the tax impact, including withholding taxes, of distributions from subsidiary companies in foreign jurisdictions.

     Uncertain tax positions

             There were no changes during the three months ended March 31, 2017.$0.3 million. The Company utilizedhas also provided an additional valuation allowance of approximately $0.3$0.6 million of its unrecognized tax benefits during the nine months ended March 31, 2017related to net operating loss carryforwards that it does not believe will be utilized as a result of the finalizationenactment of the TCJA.

The TCJA also requires a U.S. shareholder of a specified foreign corporation to include a deemed repatriation of foreign earnings as part of the transition to a territorial tax review in South Korea.system; however, the Company does not currently believe that it has a deemed repatriation transition tax liability.

Uncertain tax positions

There were no significant changes during the three and six months ended December 31, 2017. As of MarchDecember 31, 2017, the Company had accrued interest related to uncertain tax positions of approximately $0.1 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 MarchDecember 31, 2017 and June 30, 2016,2017, the Company hashad unrecognized tax benefits of $1.8$0.5 million and $1.9$0.5 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, Germany, Hong Kong, India, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of MarchDecember 31, 2017, the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2012.2013. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations or cash flows.operations.

2628

18. 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 130.5126.0 million ($9.710.2 million, translated at exchange rates applicable as of MarchDecember 31, 2017) and thereby utilizing part of the Company’s short-term facility. The Company in turn has provided nonrecourse, unsecured counter-guarantees to Nedbank for ZAR 130.5126.0 million ($9.710.2 million, translated at exchange rates applicable as of MarchDecember 31, 2017). The Company pays commission of between 0.4% 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 consolidated balance sheet as of MarchDecember 31, 2017 and June 30, 2016.2017. The maximum potential amount that the Company could pay under these guarantees is ZAR 130.5126.0 million ($9.710.2 million, translated at exchange rates applicable as of MarchDecember 31, 2017). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in Note 9.

As described in Note 9, Net1 has specifically provided guarantees to Bank Frick related to the EUR 40.0 million ($47.9 million) and CHF 20 million ($20.5 million) revolving overdraft facilities provided to Masterpayment. As of December 31, 2017, Masterpayment had utilized approximately $30.7 million of the EUR 40.0 million facility and $4.8 million of the CHF 20 million facility and these obligations are recorded as short-term facilities in the Company’s consolidated balance sheet. The maximum potential amount that the Company could pay under the guarantees to Bank Frick was $35.5 million. As described in Note 9, the overdraft facilities were repaid in full in January 2018 and Net1 will be released from these guarantees once the facilities have been cancelled.

Contingencies

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 or cash flows.

2729

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, 2016,2017, 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, 2016 and in this Quarterly Report on Form 10-Q.2017. 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 United States 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

SASSA contract extended to March 31, 2018Update

Our current contract signed in February 2012 with SASSA wasis scheduled to expire on March 31, 2017. At2018. SASSA and the expert panel appointed by the court filed the regular progress reports in accordance with the Constitutional Court’s order. We have provided the expert panel with all the information required from us.

On December 10, 2017, the Minister in the Presidency, Jeff Radebe, announced that the Inter-ministerial Committee appointed by the South African President to oversee the transition of grant payments brokered a Parliamentary briefing session on February 1, 2017,high-level cooperation agreement between the South African Post Office, or SAPO, and SASSA, informedin terms of which SAPO will assume responsibility for the meeting that it would not be ready to assume the payment function ondistribution of social grants with effect from April 1, 2017.2018.

On January 15, 2018, SASSA expressed its intention to approachfiled a report with the Constitutional Court stating the following: “The process of continuing with cash payments will require a tender process, since SAPO has indicated that they are unable to obtain permissionundertake the cash payment function within the time period left, although they indicated that they can do this by December 2018.” On January 12, 2018, SASSA issued a tender for the cash payment of grants for a five year period which is due for submission on February 28, 2018. SAPO issued three tenders on December 22, 2018, for the production of smart cards, a multi-mode biometric verification engine and an integrated grant payments system.

In the same report to the court, SASSA also stated: “A phase in period of at least 6 months would be required to take over payments from the existing provider, CPS. This implies that the court will have to be approached to extend our contract. the suspension of the invalidity of the current payment contract until 30 September 2018, to allow for a managed phase out process over a period of 6 months, which will see the new service provider progressively taking more responsibility for payments, while CPS is still in the background. This process will be managed by SASSA.”

On February 9, 2017, we received6, 2018, SASSA filed a letter from SASSA that essentially was an invitation to meet to discuss an interim arrangement to continuenotice of motion with the payment of social welfare grants after March 31, 2017, for a limited period. The parties agreed to meet in the first week of March 2017.

             On February 28, 2017, a South African non-profit organization initiated a court process for the Constitutional Court, applying for the following order: " Cash Paymaster Services (CPS) is to continue to provide cash payment services to the social grant beneficiaries of South AfricaSASSA who receive their social grants by way of cash payments without personal identification numbers on an interim basis and on the same terms and conditions as to hear a matter that was describedpayment as those currently in place between CPS and SASSA for the public interestperiod 1 April 2018 up to 30 September 2018, provided CPS shall be paid only in respect of such limited services to be rendered to SASSA and in respect of this categories (sic) of beneficiaries only."

In line with the interest of all grant beneficiaries. The applicant sought reinstatement ofrecommendations made by the oversight role ofexpert panel in its second and third reports to the Constitutional Court, we wrote a letter to SASSA on December 27, 2017 advocating the use of commercial bank accounts, subsidized by SASSA to limit the impact of bank charges, for the paymentdistribution of social grantsgrant payments. SASSA has indicated that the subsidization of bank accounts will be considered if agreement can be reached with prospective participating banks regarding the functionality of the accounts being offered. SASSA has since engaged the South African banks to ensure compliance by SASSAdetermine the feasibility of such an approach.

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On February 6, 2018, CPS launched an application with its constitutional obligations to provide social assistance in a lawful manner that is in line with constitutional rights and values. In early March 2017, other entities joined these proceedings. We did not oppose the applications made.

             In early March 2017, we met with SASSA to discuss the interim arrangement referred to above. The parties agreed on draft terms following these discussions. These draft terms were subject to approval by National Treasury or the Constitutional Court.

             The Constitutional Court heard the matter referred to above on March 15, 2017, and issued itsseeking an order on March 17, 2017. The impact ofdeclaring that CPS is not prohibited by the Constitutional Court’s order on usof March 17, 2017, from participating in the tender for “the provision of cash payment services for social assistance” issued by SASSA, because SASSA has previously reported that CPS is summarized below under “Item 1—Legal Proceedings.” The order effectively extends the expiringnot entitled to participate in any future tenders.

We continue to deliver our grant payment solution in accordance with our current agreement and we have paid all 10.7 million social grant recipients, without interruption, every month since our contract and the suspension of the declaration of invaliditywas extended in March 2017. We will continue to March 31, 2018, under the expiring contract’s terms and conditions, augmented by certain additional terms and conditions as described below under “Item 1—Legal Proceedings.”

             On March 31, 2017, we signed an addendum to the expiring contractcooperate with SASSA, which extends the contractexpert panel and any other delegated government entity to March 31, 2018, underassist them in finding a solution and ensuring a smooth handover to any entity legally appointed to render the expiring contracts terms and conditions and includes the specific terms as ordered by the Constitutional Court.

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     Progress of acquisition of a strategic stake in Blue Label, Cell C and DNI

             In February 2017, we agreed with Blue Label Telecoms Limited, or Blue Label, to extend the subscription date for our proposed 15% investment in Blue Label from February 28, 2017, to no later than June 30, 2017, in order to afford Blue Label the necessary flexibility to close its proposed Cell C transaction. We also agreed with Blue Label and FirstRand Bank Limited, acting through its Rand Merchant Bank division, or RMB, to amend the ZAR 2 billion guarantee issued by RMB in favor of Blue Label by extending the expiry date to May 31, 2017. In March 2017 we amended and restated our lending documents to extend the term of the guarantee to May 31, 2017, correct certain outdated terms in the lending documents, permit various guarantors to provide guarantees and to ensure that only the original senior lenders retain the benefits of all amounts credited to the escrow account and security in respect thereof.

             In addition, on February 27, 2017 Blue Label announced that it was party to a binding umbrella restructure agreement with Cell C and other relevant parties, in terms of which Blue Label’s proposed subscription for 45% of the share capital of Cell C was confirmed. The binding restructure agreement is subject to the conclusion of the relevant transaction agreements by no later than June 30, 2017. We are also a party to the umbrella restructure agreement with Cell C and have offered to acquire a direct stake of 15% of the issued share capital of Cell C for a consideration of ZAR 2 billion.

             In February 2017, we entered into a memorandum of understanding to acquire 49.6% of DNI-4PL Contracts (Pty) Ltd, or DNI, with an option to acquire a controlling stake in DNI in the future. DNI is the leading distributor of mobile subscriber starter packs for Cell C and also distributes pre-paid airtime through an extensive network of field operatives and agents.

             The proposed investments in Cell C and DNI are subject to certain conditions, including the satisfactory completion of due diligence, the required internal and external approvals and the execution of definitive transaction agreements. The Company intends to settle the purchase consideration for these two investments using a combination of surplus cash, debt and a new equity placement.grant payment service.

    Bank Frick

             On January 12, 2017, we entered into a share purchase agreement to acquire a 30% interest in Bank Frick & Co AG, or Bank Frick, a fully licensed bank based in Balzers, Liechtenstein, for approximately CHF 39.8 million ($39.7 million translated at exchange rates applicable as of March 31, 2017). The completion of the investment is subject to approval from the Financial Market Authority Liechtenstein. Following the successful completion of this investment, the Company will have a two-year option to acquire a further 35% in Bank Frick.

             Bank Frick provides a complete suite of banking services, with one of its key strategic pillars being the provision of payment services and funding of financial technology opportunities. Bank Frick holds acquiring licenses from both Visa and MasterCard and operates a branch in London. We have jointly identified several exciting opportunities with Bank Frick’s management team that would require funding, including for the Company’s working capital finance, card issuing and acquiring and transaction processing activities. The investment in Bank Frick provides us with a stable, long term and strategic relationship with a fully licensed bank. We have agreed with Bank Frick that approximately $30 million of the bank’s free equity will be utilized as seed capital for a fund dedicated to our future activities.

Progress of financial inclusion initiatives in South Africa

In June 2015, we began the rollout of EPE, our business-to-consumer, or B2C, offering in South Africa. At April 28, 2017,January 31, 2018, we had more than 1.952.3 million active EPE accounts, compared to 1.82.1 million at February 6,October 31, 2017. EPE is a fully transactional, low cost account created to serve the needs of South Africa’s unbanked and under-banked population, most of whom are social grant recipients. The EPE account offers customers a comprehensive suite of financial and various financial inclusion services, such as prepaid products, in an economical, convenient and secure solution. EPE provides account holders with a UEPS-EMV debit MasterCard, mobile and internet banking services, ATM and POS services, as well as loans, insurance and other financial products and value-added services. However, SASSA is challengingand a non—profit organization continue to challenge the ability of beneficiaries to freely transact with the grants that they receive.receive as described under “Item 1—Legal Proceedings.”

In order for us to address the sizeable opportunity for EPE and related financial inclusion services in South Africa, in fiscal 2016, we have hadstarted to expand our brick-and-mortar financial services branch infrastructure, and supplementwhich supplements our nationwide distribution, with a UEPS/EMV-enabled ATM network, as well asand hired a dedicated sales force. We believe that the growth in our brick-and-mortar branch infrastructure has reached saturation and therefore we have embarked on a program to increase our financial services revenues through a roaming sales force equipped with a UEPS/EMV-enabled card-issuing work station. In January 2018, we deployed 500 portable card-issuing working stations and employed 625 temporary staff to achieve this objective. At MarchJanuary 31, 2018, we had 152 branches (October 31, 2017: 146), 1,073 ATMs (October 31, 2017: 1,008), and 2,394 (October 31, 2017: 1,925) dedicated employees, including the temporary staff.

During the seven months since July 1, 2017, we had 147 branches, 940 ATMs, and 1,834 dedicated employees.

             In March 2015, we resumed marketing and business development activities in selected areas for the distribution ofsold approximately 109,000 new policies related to our simple, low-cost life insurance products, and have sold approximately 330,000 new policies through April 16, 2017, in addition to the free basic life insurance policy provided with every EPE account opened. We continue to recruit additional and oftentimes specialized staff to expand our insurance activities during fiscal 2017.

             We experienced higher year-over-year growth in the demand for our loans, which are among the most affordable available to our customers. Tougher economic conditions in South Africa, aggravated by rising food prices as a result of widespread drought conditions and a weakening currency, has had an impact on the number of clients who qualify for our loan products.

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             Our business practices and products have come under intense public scrutiny over the last several months. We have recently undertaken a concerted effort to refute the accusations made against us and to assist us in communicating effectively to the public and our stakeholders that our business practices comply with South African law and are fair to the social welfare grant recipients who purchase the financial services products that we offer. In addition to our press releases and independent verification reports, we have added a “Frequently Asked Questions” section to our website to describe our financial inclusion business practices and products.

The graph below presents the growth of the number of EPE cards and Smart Life policies:

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Strategic investments

Investments in Cell C Proprietary Limited and DNI-4PL Contracts Proprietary Limited

On August 2, 2017, we purchased 15% of Cell C, for an aggregate purchase price of ZAR 2.0 billion ($151.0 million)) in cash. Cell C is one of the three major licensed mobile operators in South Africa with approximately 16 million active subscribers. We funded the transaction through a combination of cash and credit facilities.

On July 27, 2017, we subscribed for 44,999,999 ordinary A shares in DNI, representing a 45% voting and economic interest in DNI, for a subscription price of ZAR 945.0 million ($72.0 million) in cash. Under the terms of our agreements with DNI, we are required to pay to DNI an additional amount of up to ZAR 360 million ($29.1 million, translated at the foreign exchange rates applicable as of December 31, 2017), in cash, subject to the achievement of certain performance targets by DNI.

The investments in Cell C and DNI are consistent with our approach of leveraging our significant and established infrastructures, and pursuing strategic acquisition opportunities or partnerships to gain access to new markets or complementary products. We identified the need to offer customers a truly bespoke, affordable and comprehensive package that will go beyond basic telephony. An integrated mobile-based digital product will therefore likely differentiate the offerings of all the relevant stakeholders in this transaction including Net1. The Cell C and DNI investments allow us to address the needs of the broader South African population through ownership in the value chain including the network, payment, product, distribution and hardware. We have pledged, among other things, our entire equity interests in Cell C and DNI as security for the South African facilities used to partially fund the acquisition of Cell C, refer also Note 10 to our unaudited condensed consolidated financial statements.

Investment in Bank Frick

On October 2, 2017, we acquired a 30% interest in Bank Frick & Co AG, a fully licensed bank based in Balzers, Liechtenstein, from the Kuno Frick Family Foundation for approximately CHF 39.8 million ($40.8 million translated at exchange rates applicable as of December 31, 2017). On January 26, 2018, the parties entered into an addendum to the Bank Frick shareholders agreement pursuant to which we agreed to purchase an additional 5% in Bank Frick from the Frick Foundation for CHF 10.43 million ($10.9 million) and the Frick Foundation agreed to contribute approximately CHF 3.8 million ($3.9 million) to Bank Frick to facilitate the development of Bank Frick’s Fintech and blockchain businesses. We have an option, exercisable until October 2, 2019, to acquire an additional 35% interest in Bank Frick.

Bank Frick provides a complete suite of banking services, with one of its key strategic pillars being the provision of payment services and funding of financial technology opportunities. Bank Frick holds acquiring licenses from both Visa and MasterCard and operates a branch in London. We have jointly identified several funding opportunities, including for our card issuing and acquiring, remittance and transaction processing activities as well new opportunities in cryptocurrency and blockchain. The investment in Bank Frick has the potential to provide us with a stable, long term and strategic relationship with a fully licensed bank.

Masterpayment – Processing for Bitstamp

In November 2017, Masterpayment was appointed as a new partner for credit card processing and acquiring for cryptocurrency purchases for Bitstamp, a leading global digital currency exchange and the largest Bitcoin exchange in the EU in terms of volume. This partnership will allow Bitstamp customers to enjoy faster and more convenient transactions, while maintaining the same high-caliber security and has resulted in higher processing revenue as of a result of the increase in the number of transactions processed by Masterpayment. Masterpayment transaction volumes in December 2017 more than doubled compared to November 2017 as a result of its new cryptocurrency processing initiatives.

Mastertrading - Exit from Working Capital Financing and Supply Chain Solutions Business

During the second quarter of fiscal 2018, we re-evaluated the operating performance and ongoing viability of Masterpayment’s working capital financing and supply chain solutions offering and have determined to exit this portion of its business. While we believe we could scale this offering in the medium to long-term by focusing on customers and industries outside our initial target market, this standalone offering does not fit the International Payments Group strategy of providing payment solutions and working capital to small and medium-sized merchants. In order to focus on our stated international strategy, we have decided to wind-down the traditional working capital finance book issued to non-payment solutions customers.

The working capital book has reduced to $35.8 million, net of an allowance of $11.8 million allowance, as of December 31, 2017, from $56.5 million, net of an allowance of $4.0 million, as of September 2017. We have performed a detailed analysis of our U.S. and European books and have identified two customers included on the U.S. book servicing customers in the petroleum industry, totaling approximately $7.8 million, that we believe may not be able to settle their loan obligations due to us. We had expected repayment of the amounts due by these customers by November 2017, however, repayments were not received and we have not been able to negotiate a reasonable settlement plan with them.

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While we continue to discuss recovery alternatives and procedures with these customers and our lawyers, it appears more likely than not at this stage that these customers will not be able to settle their obligations due to us in full, or even in part. We have created an allowance for doubtful working capital finance receivables related to the total amount due to us by these two customers.

Regarding the European component of the book, we have entered into an arrangement with Bank Frick under which they purchased the remaining book of $35.8 million from us in January 2018 at its face value. We have used the proceeds from this transaction to settle the amounts due by us to Bank Frick under the EUR 40 million and CHF 20 million revolving overdraft facilities in full and these facilities will be cancelled and we will be released from our guarantees.

Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques.

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, 2016:2017:

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 MarchDecember 31, 2017

Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of MarchDecember 31, 2017, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.

New U.S. Tax Legislation

On December 22, 2017, the “Tax Cuts and Jobs Act”, or TCJA, was enacted into law, significantly modifying U.S. federal tax laws. The TCJA reduces the federal statutory tax rate for corporations from 35% to 21% effective from January 1, 2018, eliminates alternative minimum tax for corporations, limits net operating loss carryforwards (and eliminates carrybacks), limits the deductibility of interest expense and transitions the system of U.S. international taxation of corporations from a worldwide tax system to a territorial tax system. Specifically, the transition to a territorial tax system is not expected to have a significant impact on our future consolidated effective tax rate as we generate the majority of our taxable income in tax jurisdictions with tax rates higher (mainly South Africa, where our income is taxed at 28%, and Korea, where our income is taxed at 22%) than the new federal statutory tax rate of 21%.

We are currently analyzing the impact of these changes on us; therefore, an estimate of the full impact on our deferred tax assets and liabilities, income tax expense, net income and other affected accounts is not yet available. We have a June year end and therefore we will use a blended rate of 28.10% for our tax year ending June 30, 2018, in the U.S. Certain of our deferred tax assets and liabilities which we expect will be utilized/ reversed during the period ended June 30, 2018, have been re-measured at this blended rate and those deferred taxes that we believe will only be utilized/ reversed in subsequent tax years, have been re-measured at 21%. The impact of the change in the tax rate on our deferred taxes included in our income tax expense during the three and six months ended December 31, 2017, was $0.3 million. We have also provided an additional valuation allowance of approximately $0.6 million related to net operating loss carryforwards that we do not believe will be utilized as a result of the enactment of the TCJA.

The TCJA also requires a U.S. shareholder of a specified foreign corporation to include a deemed repatriation of foreign earnings as part of the transition to a territorial tax system; however, we do not currently believe that we have a deemed repatriation transition tax liability.

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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  Six months ended  Year ended 
 March 31,  March 31,  June 30,  December 31,  December 31,  June 30, 
 2017  2016  2017  2016  2016  2017  2016  2017  2016  2017 
ZAR : $ average exchange rate 13.2272  15.8201  13.7526  14.3395  14.5062  13.6318  13.9300  13.4025  14.0095  13.6147 
Highest ZAR : $ rate during period 13.7630  16.8231  14.8114  16.8231  16.8231  14.4645  14.4618  14.4645  14.8114  14.8114 
Lowest ZAR : $ rate during period 12.4379  14.8330  12.4379  12.1965  12.1965  12.3268  13.3634  12.3268  13.3000  12.4379 
Rate at end of period 13.4124  14.8330  13.4124  14.8330  14.7838  12.3689  13.7392  12.3689  13.7392  13.0535 
                              
KRW : $ average exchange rate 1,154  1,201  1,144  1,176  1,173  1,107  1,159  1,120  1,140  1,141 
Highest KRW : $ rate during period 1,207  1,245  1,210  1,245  1,245  1,148  1,210  1,156  1,210  1,210 
Lowest KRW : $ rate during period 1,111  1,143  1,092  1,122  1,122  1,067  1,100  1,067  1,092  1,092 
Rate at end of period 1,118  1,143  1,118  1,143  1,153  1,067  1,207  1,067  1,207  1,144 

ZAR: US $ Exchange Rates

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KRW: US $ Exchange Rates

Translation exchange rates for financial reporting purposes

We are required to translate our results of operations from ZAR and KRW to U.S. dollars on a monthly basis. Thus, the average rates used to translate this data for the three and ninesix months ended MarchDecember 31, 2017 and 2016, 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  Six months ended  Year ended 
 March 31,  March 31,  June 30,  December 31,  December 31,  June 30, 
 2017  2016  2017  2016  2016  2017  2016  2017  2016  2017 
Income and expense items: $1 = ZAR . 13.2226  15.8185  13.7681  14.1683  14.3842 
Income and expense items: $1 = ZAR 13.6675  13.9434  13.4127  14.0292  13.6182 
Income and expense items: $1 = KRW 1,160  1,198  1,155  1,178  1,172  1,107  1,172  1,125  1,152  1,146 
                              
Balance sheet items: $1 = ZAR 13.4124  14.8330  13.4124  14.8330  14.7838  12.3689  13.7392  12.3689  13.7392  13.0535 
Balance sheet items: $1 = KRW 1,118  1,143  1,118  1,143  1,153  1,067  1,207  1,067  1,207  1,144 

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 U.S. GAAP. We analyze our results of operations both in U.S. 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 U.S. dollar and ZAR on our reported results and because we use the U.S. 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.

Fiscal 2018 includes the results of Pros Software and C4U Malta for the entire period and excludes XeoHealth from November 1, 2017 as a result of the sale of the business. Fiscal 2017 includes the results of Masterpayment and T24 for the entire period, Pros Software from October 1, 2016, and C4U Malta from November 1, 2016. Fiscal 2016 includes the results of T24 from the third quarter of fiscal 2016 and does not include Masterpayment, Pros Software or C4U Malta.

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Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before inter-segment eliminations. Reconciliation between total operating segment revenue and revenue presented in our unaudited condensed consolidated financial statements is included in Note 16 to those statements.

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We analyze our business and operations in terms of three inter-related but independent operating segments: (1) South African transaction processing, (2) International transaction processing and (3) Financial inclusion and 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.

     ThirdSecond quarter of fiscal 20172018 compared to thirdsecond quarter of fiscal 20162017

The following factors had a significant influence on our results of operations during the thirdsecond quarter of fiscal 20172018 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 prepared in accordance with U.S. GAAP.

The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR:

 In U.S. Dollars  In U.S. Dollars 
Table 3 (U.S. GAAP)  (U.S. GAAP) 
 Three months ended March 31,  Three months ended December 31, 
 2017  2016  $ %  2017  2016 $ % 
 $ ’000  $’000  change $ ’000 $ ’000  change 
Revenue 147,944  134,736  10%  148,416  151,433  (2%)
Cost of goods sold, IT processing, servicing and support 70,912  63,266  12%  73,994  73,518  1% 
Selling, general and administration 42,195  35,998  17%  49,392  41,703  18% 
Depreciation and amortization 10,290  9,281  11%  8,723  10,623  (18%)
Operating income 24,547  26,191  (6%) 16,307  25,589  (36%)
Interest income 5,124  3,345  53%  4,705  5,061  (7%)
Interest expense 467  852  (45%) 2,325  510  356% 
Income before income tax expense 29,204  28,684  2%  18,687  30,140  (38%)
Income tax expense 10,233  9,816  4%  10,062  10,984  (8%)
Net income before earnings from equity-accounted investments 18,971  18,868  1%  8,625  19,156  (55%)
Earnings from equity-accounted investments 45  2  nm  1,354  74  1,730% 
Net income 19,016  18,870  1%  9,979  19,230  (48%)
Less net income attributable to non-controlling interest 624  450  39%  357  589  (39%)
Net income attributable to us 18,392  18,420  (0%) 9,622  18,641  (48%)

 In South African Rand  In South African Rand 
Table 4 (U.S. GAAP)  (U.S. GAAP) 
 Three months ended March 31,  Three months ended December 31, 
 2017  2016     2017  2016    
 ZAR  ZAR  ZAR %  ZAR  ZAR  ZAR % 
 ’000  ’000  change  ’000  ’000  change 
Revenue 1,956,205  2,131,321  (8%) 2,028,475  2,111,493  (4%)
Cost of goods sold, IT processing, servicing and support 937,642  1,000,774  (6%) 1,011,312  1,025,093  (1%)
Selling, general and administration 557,928  569,435  (2%) 675,065  581,482  16% 
Depreciation and amortization 136,060  146,811  (7%) 119,222  148,120  (20%)
Operating income 324,575  414,301  (22%) 222,876  356,798  (38%)
Interest income 67,753  52,913  28%  64,306  70,568  (9%)
Interest expense 6,175  13,477  (54%) 31,777  7,111  347% 
Income before income tax expense 386,153  453,737  (15%) 255,405  420,255  (39%)
Income tax expense 135,307  155,274  (13%) 137,522  153,154  (10%)
Net income before earnings from equity-accounted investments 250,846  298,463  (16%) 117,883  267,101  (56%)
Earnings from equity-accounted investments 595  32  nm  18,506  1,032  1,693% 
Net income 251,441  298,495  (16%) 136,389  268,133  (49%)
Less net income attributable to non-controlling interest 8,251  7,118  16%  4,879  8,213  (41%)
Net income attributable to us 243,190  291,377  (17%) 131,510  259,920  (49%)

             In ZAR, theThe decrease in revenue was primarily due to lower prepaid airtime sales, fewer ad hoc terminal sales, and a lower contribution from KSNET due to regulatory changes in South Korea, which was partially offset by an improved contribution from Masterpayment, more fees generated from our EPE and ATM offerings, improved lending and insurance activities, the inclusion of Masterpayment’s businesses, and ana modest increase in the number of SASSA UEPS/EMV beneficiaries paid.

In ZAR, the decrease in cost of goods sold, IT processing, servicing and support was primarily due to fewer prepaid airtime and ad hoc terminal sales, which was partially offset by increases in goods and services purchased from third parties, higher expenses incurred due to increased usage of the South African National Payment System by beneficiaries and expenses incurred to operate our EPE and ATM offerings, and the inclusion of Masterpayment’s businesses.offerings.

34

             In ZAR, ourThe increase in selling, general and administration expense increasedwas primarily due to a higher staff complement resulting from our EPE roll-out in fiscal 2016,an allowance for doubtful working capital finance receivables of $7.8 million, the impact of October 20162017 annual salary increases for our South African and UK-based employees, an increase in our allowance for doubtful finance loans receivable resulting from a commensurate increase in our lending book in the last lending cycle of calendar 2017, as well as increases in goods and services purchased from third parties. Our third quarterThese increases were partially offset by fewer agent incentive costs paid in Korea due to weaker trading conditions in fiscal 2018, lower executive remuneration and lower transaction-related expenditures of fiscal 2016 selling, general$0.6 million, compared to $1.2 million in the prior year.

37

Depreciation and administration expense includes a $1.9 million gain relatedamortization decreased primarily due to the T24 acquisition.lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated.

Our operating income margin for thirdsecond quarter of fiscal 2018 and 2017 was 11% and 2016 was 17% and 19% respectively. Operating income margin excluding the $7.8 million valuation allowance would have been 16% in fiscal 2018. We discuss the components of operating income margin under “—Results of operations by operating segment.” The decrease was primarily attributable to higher cost of goods sold, IT processing, servicing and support referredrelative to above.the reduction in revenue.

             In ZAR, depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated. These decreases were partially offset by an increase in depreciation related to more ATMs in South Africa and an increase in acquisition-related intangible asset amortization resulting from recent transactions, including Masterpayment.

Interest on surplus cash increaseddecreased to $4.7 million (ZAR 64.3 million) from $5.1 million (ZAR 67.8 million) from $3.3 million (ZAR 52.970.6 million), due primarily to the interest on the loan to Finbond and higherlower average daily ZAR cash balances, and ZAR interest rates, partially offset by the lower interest earned on the U.S. dollar cash reserves that we converted from ZAR through distributions from our South African subsidiary.loan to Finbond.

Interest expense decreasedincreased to $2.3 million (ZAR 31.8 million) from $0.5 million (ZAR 6.27.1 million) from $0.9 million (ZAR 13.4 million), due primarily to ainterest on the South African facility we obtained to partially fund our investment in Cell C, partially offset by lower average long-term debt balance on our South Korean debt andas a lower interest rate.result of repayment of the debt in full in October 2017.

Fiscal 20172018 tax expense was $10.2$10.1 million (ZAR 135.3137.5 million) compared to $9.8$11.0 million (ZAR 155.3153.2 million) in fiscal 2016.2017. Our effective tax rate for fiscal 2018, was 53.8% and was higher than the South African statutory rate as a result of a valuation allowance provided related to an allowance for doubtful working capital finance receivables created, non-deductible expenses (including transaction-related expenditure and non-deductible interest on our South African long-term facility) and the impact of the changes in U.S. federal statutory tax law. Our effective tax rate for fiscal 2017, was 35.0%36.4% and was higher than the South African statutory rate as a result of non-deductible expenses. Our effective tax rate for fiscal 2016, was 34.2%

Earnings from equity-accounted investments increased primarily due to the inclusion of our portion of DNI and was higher thanBank Frick. The table below presents the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees) and the tax impact, including withholding taxes, of approximately $2.1 million attributable to a further distributionrelative earnings (loss) from our South African subsidiary, which were intended to further help reduce the impact of a weakening ZAR on our reported cash balances.equity accounted investments:

Table 5 Three months ended December 31, 
  2017  2016 $ % 
 $ ’000 $ ’000  change 
DNI 1,046  -  nm 
       Share of net income 1,832  -  nm 
       Amortization of intangible assets, net of deferred tax (786) -  nm 
Bank Frick 322  -  nm 
       Share of net income 487  -  nm 
       Amortization of intangible assets, net of deferred tax (165) -  nm 
Finbond -  -  nm 
Other (14) 74  (119%)
       Earnings from equity accounted investments 1,354  74  1,730% 

38

Results of operations by operating segment

The composition of revenue and the contributions of our business activities to operating income are illustrated below:

Table 5 In U.S. Dollars (U.S. GAAP) 
  Three months ended March 31, 
  2017  % of  2016  % of  % 
Operating Segment $’000  total  $’000  total  change 
Revenue:               
South African transaction processing 63,967  43%  50,594  38%  26% 
International transaction processing 41,514  28%  40,588  30%  2% 
Financial inclusion and applied technologies 56,881  38%  54,286  40%  5% 
       Subtotal: Operating segments 162,362  109%  145,468  108%  12% 
       Intersegment eliminations (14,418) (9%) (10,732) (8%) 34% 
                Consolidated revenue 147,944  100%  134,736  100%  10% 
Operating income (loss):               
South African transaction processing 15,531  63%  13,133  50%  18% 
International transaction processing 1,968  8%  4,813  18%  (59%)
Financial inclusion and applied technologies 14,064  57%  11,469  44%  23% 
       Subtotal: Operating segments 31,563  128%  29,415  112%  7% 
       Corporate/Eliminations (7,016) (28%) (3,224) (12%) 118% 
               Consolidated operating income 24,547  100%  26,191  100%  (6%)

35

Table 6 In U.S. Dollars (U.S. GAAP) 
  Three months ended December 31, 
  2017  % of  2016  % of  % 
Operating Segment$ ’000  total $ ’000  total  change 
Revenue:               
South African transaction processing 64,148  43%  59,862  40%  7% 
International transaction processing 44,185  30%  44,000  29%  - 
Financial inclusion and applied technologies 54,131  36%  59,258  39%  (9%)
       Subtotal: Operating segments 162,464  109%  163,120  108%  - 
       Intersegment eliminations (14,048) (9%) (11,687) (8%) 20% 
              Consolidated revenue 148,416  100%  151,433  100%  (2%)
Operating income (loss):               
South African transaction processing 13,470  83%  15,372  60%  (12%)
International transaction processing (4,991) (31%) 3,904  15%  (228%)
Financial inclusion and applied technologies 12,737  78%  14,107  55%  (10%)
       Subtotal: Operating segments 21,216  130%  33,383  130%  (36%)
       Corporate/Eliminations (4,909) (30%) (7,794) (30%) (37%)
               Consolidated operating income 16,307  100%  25,589  100%  (36%)

Table 6 In South African Rand (U.S. GAAP) 
Table 7 In South African Rand (U.S. GAAP) 
 Three months ended March 31,  Three months ended December 31, 
 2017     2016        2017     2016       
 ZAR  % of  ZAR  % of  %  ZAR  % of  ZAR  % of  % 
Operating Segment ’000  total  ’000  total  change  ’000  total  ’000  total  change 
Revenue:                              
South African transaction processing 845,810  43%  800,321  38%  6%  876,743  43%  834,680  40%  5% 
International transaction processing 548,923  28%  642,041  30%  (15%) 603,898  30%  613,510  29%  (2%)
Financial inclusion and applied technologies 752,115  38%  858,723  40%  (12%) 739,835  36%  826,258  39%  (10%)
Subtotal: Operating segments 2,146,848  109%  2,301,085  108%  (7%) 2,220,476  109%  2,274,448  108%  (2%)
Intersegment eliminations (190,643) (9%) (169,764) (8%) 12%  (192,001) (9%) (162,955) (8%) 18% 
Consolidated revenue 1,956,205  100%  2,131,321  100%  (8%) 2,028,475  100%  2,111,493  100%  (4%)
Operating income (loss):                              
South African transaction processing 205,360  63%  207,744  50%  (1%) 184,101  83%  214,338  60%  (14%)
International transaction processing 26,022  8%  76,134  18%  (66%) (68,214) (31%) 54,435  15%  (225%)
Financial inclusion and applied technologies 185,963  57%  181,422  44%  3%  174,083  78%  196,700  55%  (11%)
Subtotal: Operating segments 417,345  128%  465,300  112%  (10%) 289,970  130%  465,473  130%  (38%)
Corporate/Eliminations (92,770) (28%) (50,999) (12%) 82%  (67,094) (30%) (108,675) (30%) (38%)
Consolidated operating income 324,575  100%  414,301  100%  (22%) 222,876  100%  356,798  100%  (38%)

South African transaction processing

             In ZAR, theThe increase in segment revenue was primarily due to higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities and a modest increase in the number of social welfare grants distributed. Operating income decreased primarily due to an increase in inter-segment charges, the impact of annual salary increases granted to our South African employees in October 2017 and increases in goods and services purchased from third parties. These decreases were partially offset by higher EPE transaction revenue as a result of increased usage of our ATMs and a modest increasethe aforementioned increases in the number of social welfare grants distributed.segment revenue.

Our operating income margin for the thirdsecond quarter of fiscal 2018 and 2017 and 2016 was 24%21% and 26%, respectively. Our fiscal 20172018 margin includes higher EPE revenue as a result of increased ATM transactions, and an increase inwas adversely impacted by the number of beneficiaries paid in the third quarter of fiscal 2017, which was partially offset by annual salary increases granted.granted to our South African employees in October 2017 and increases in goods and services purchased from third parties.

International transaction-based activities

             In calendar 2016, South Korean regulators introduced specific regulations governingSegment revenue was slightly higher during the fees that may be charged on card transactions, as is the case in most other developed economies. These regulations have a directsecond quarter of fiscal 2018, primarily due to ongoing impact on card issuersof regulatory changes in South Korea and consistent with global practices, card issuers have renegotiated their fees with South Korean VAN companies, including KSNET, which has had an adverse impact on KSNET’s financial performance.

             Segment revenue, increased during the third quarter of fiscal 2017, primarily due to the inclusion of Masterpayment; however, this growth was partiallylargely offset by a lower contributionincreased contributions from KSNET due to the regulatory changes described above.Masterpayment. Operating income during the thirdsecond quarter of fiscal 20172018 was lower due to an allowance for doubtful working capital finance receivable of $7.8 million, a decrease in revenue at KSNET and losses incurred by Masterpayment as it grows its staff complementall other major contributors to execute its expansion plan into new markets,the segment. Operating income and ongoing ZAZOO start-up costs inmargin for the UK and India, whichsecond quarter of fiscal 2017 was partially offsetpositively impacted by a positive contribution by T24.refund of approximately $0.8 million that had been paid several years ago in connection with industry-wide litigation that has now been finalized.

39

Operating (loss) income margin for the thirdsecond quarter of fiscal 2018 and 2017 was (11%) and 2016 was 5%9%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance receivables, segment operating income and 12%,margin were $2.8 million and 6% respectively.

Financial inclusion and applied technologies

             In ZAR, Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value added services sales, as well as fewerlower ad hoc terminal sales, partially offset by increased volumes in our lending and insurance businesses, and an increase in inter-segment revenues. Operating income was also impacted by these factors as well as an increase in the allowance for doubtful finance loans receivable resulting from a commensurate increase in our lending book in the last lending cycle of calendar 2017.

Operating income margin for the Financial inclusion and applied technologies segment was 25% and 21%24% during each of the thirdsecond quarter of fiscal 20172018 and 2016,2017, respectively, and has increased primarily due towas impacted by fewer low margin prepaid product sales, improved revenues from our lending and insurance businesses and an increase in inter-segment revenues, and fewer low margin prepaid product sales, offset by fewer ad hoc terminal and annual salary increases granted to our South African employees.employees and the increase in the allowance for credit losses.

36

Corporate/Eliminations

Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to acquisitions and investments pursued; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive 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.

Our corporate expenses have increaseddecreased primarily due to higherlower transaction-related expenditures, higher amortization costsa $0.5 million profit related to the sale of XeoHealth, and lower executive compensation, which was partially offset by a modest increases in U.S. dollar denominated goods and services purchased from third parties and directors’ fees. Our corporate expenses for the third quarter

First half of fiscal 2016, includes a gain related to the acquisition of T24.

Year to date fiscal 20172018 compared to year to datefirst half of fiscal 20162017

The following factors had a significant influence on our results of operations during the year to datefirst half of fiscal 20172018 as compared with the same period in the prior year:

3740

Consolidated overall results of operations

This discussion is based on the amounts prepared in accordance with U.S. GAAP.

The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR:

 In U.S. Dollars  In U.S. Dollars 
Table 7 (U.S. GAAP) 
Table 8 (U.S. GAAP) 
 Nine months ended March 31,  Six months ended December 31, 
 2017  2016  $ %  2017  2016 $ % 
 $’000   $’000  change $ ’000 $ ’000  change 
Revenue 455,010  439,490  4%  300,974  307,066  (2%)
Cost of goods sold, IT processing, servicing and support 219,210  219,316  (0%) 148,646  148,298  0% 
Selling, general and administration 122,366  108,007  13%  93,326  80,171  16% 
Depreciation and amortization 31,117  29,982  4%  17,689  20,827  (15%)
Operating income 82,317  82,185  0%  41,313  57,770  (28%)
Interest income 14,489  11,284  28%  9,749  9,365  4% 
Interest expense 1,773  2,880  (38%) 4,446  1,306  240% 
Income before income tax expense 95,033  90,589  5%  46,616  65,829  (29%)
Income tax expense 32,320  31,306  3%  20,339  22,087  (8%)
Net income before earnings from equity-accounted investments 62,713  59,283  6%  26,277  43,742  (40%)
Earnings from equity-accounted investments 778  578  35%  3,429  733  368% 
Net income 63,491  59,861  6%  29,706  44,475  (33%)
Less net income attributable to non-controlling interest 1,826  1,763  4%  601  1,202  (50%)
Net income attributable to us 61,665  58,098  6%  29,105  43,273  (33%)

 In South African Rand  In South African Rand 
Table 8 (U.S. GAAP) 
Table 9 (U.S. GAAP) 
 Nine months ended March 31,  Six months ended December 31, 
 2017  2016     2017  2016    
 ZAR  ZAR  ZAR %  ZAR  ZAR  ZAR % 
 ’000  ’000  change  ’000  ’000  change 
Revenue 6,264,623  6,226,825  1%  4,036,874  4,307,891  (6%)
Cost of goods sold, IT processing, servicing and support 3,018,105  3,107,334  (3%) 1,993,745  2,080,503  (4%)
Selling, general and administration 1,684,748  1,530,276  10%  1,251,754  1,124,735  11% 
Depreciation and amortization 428,422  424,793  1%  237,257  292,187  (19%)
Operating income 1,133,348  1,164,422  (3%) 554,118  810,466  (32%)
Interest income 199,486  159,875  25%  130,760  131,383  (0%)
Interest expense 24,411  40,805  (40%) 59,633  18,322  225% 
Income before income tax expense 1,308,423  1,283,492  2%  625,245  923,527  (32%)
Income tax expense 444,985  443,553  0%  272,801  309,863  (12%)
Net income before earnings from equity-accounted investments 863,438  839,939  3%  352,444  613,664  (43%)
Earnings from equity-accounted investments 10,712  8,189  31%  45,992  10,283  347% 
Net income 874,150  848,128  3%  398,436  623,947  (36%)
Less net income attributable to non-controlling interest 25,141  24,979  1%  8,061  16,863  (52%)
Net income attributable to us 849,009  823,149  3%  390,375  607,084  (36%)

             In ZAR, the increaseThe decrease in revenue was primarily due to more fees generated from our EPE and ATM offerings, improved lending and insurance activities, the inclusion of T24 and Masterpayment’s businesses, and an increase in the number of SASSA UEPS/EMV beneficiaries paid, which was partially offset by lower prepaid airtime sales, fewer ad hoc terminal sales, and a lower contribution from KSNET due to regulatory changes in South Korea.Korea, which was partially offset by an improved contribution from Masterpayment and Transact 24, more fees generated from our EPE and ATM offerings, improved insurance activities, and an increase in the number of SASSA UEPS/EMV beneficiaries paid.

In ZAR, the decrease in cost of goods sold, IT processing, servicing and support was primarily due to fewer prepaid airtime and ad hoc terminal sales, which was partially offset by increases in goods and services purchased from third parties, higher expenses incurred fromdue to increased usage of the South African National Payment System by beneficiaries, and expenses incurred to operate our EPE and ATM offerings and expanding our branch network, and the inclusion of T24 and Masterpayment’s businesses.offerings.

41

Our selling, general and administration expense increased primarily due to a higher staff complement resulting from our EPE roll-out in fiscal 2016,an allowance for doubtful working capital finance receivables of $7.8 million, the impact of October 20162017 annual salary increases for our South African employees, an increase in our allowance for doubtful finance loans receivable, higher transaction related expenditures, and UK-based employees, as well as increasesan increase in goods and services purchased from third parties. These increases were partially offset by fewer agent incentive costs paid in Korea due to weaker trading conditions in fiscal 2018 and lower executive remuneration in fiscal 2018. Fiscal 2017 includes $1.8 million related to the reversal of stock-based compensation charges related to awards of restricted stock with performance conditions which we believe will not be achieved.

38Depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated.

Our operating income margin for year to datefirst half of fiscal 2018 and 2017 and 2016 was 18%14% and 19% respectively. Excluding the $7.8 million valuation allowance for Masterpayment, fiscal 2018 operating income margin would have been 16%. We discuss the components of operating income margin under “—Results of operations by operating segment.” The decrease was primarily dueattributable to higher cost of goods sold, IT processing, servicing and support relative to the additional employment costs as it grows its staff complement to execute its expansion plan into new markets and intangible asset amortization expense, partially offset by the reversal of stock-based compensation charges.reduction in revenue.

             Depreciation and amortization increased primarily due to an increase in depreciation related to more ATMs in South Africa and terminals used to provide transaction processing in Korea as well as an increase in acquisition-related intangible asset amortization resulting from acquisitions, including T24 and Masterpayment. These increases were partially offset by lower overall amortization of intangible assets that are fully amortized and tangible assets that are fully depreciated.

             InterestIn ZAR, interest on surplus cash increaseddecreased to $14.5$9.6 million (ZAR 199.5130.8 million) from $11.3$9.4 million (ZAR 159.9131.4 million), due primarily to the interest on the loan to Finbond and higherlower average daily ZAR cash balances, and ZAR interest rates, partially offset by the lower interest earned on the U.S. dollar cash reserves that we convertedloan to Finbond.

Interest expense increased to $4.4 million (ZAR 59.6 million) from ZAR through distributions from our$1.3 million (ZAR 18.3 million), due primarily to interest on the South African subsidiary.

             Interest expense decreasedfacility we obtained to $1.8 million (ZAR 24.4 million) from $2.9 million (ZAR 40.8 million) due to apartially fund our investment in Cell C, somewhat offset by lower average long-term debt balance on our South Korean debt and a lower interest rate.

Fiscal 20172018 tax expense was $32.3$20.3 million (ZAR 445.0272.8 million) compared to $31.3$21.9 million (ZAR 443.6239.7 million) in fiscal 2016.2017. Our effective tax rate for fiscal 2018, was 43.6% and was higher than the South African statutory rate as a result of a valuation allowance provided related to an allowance for doubtful working capital finance receivables created, non-deductible expenses (including transaction-related expenditure and non-deductible interest on our South African long-term facility) and the impact of the changes in U.S. federal statutory tax law. Our effective tax rate for fiscal 2017, was 34.0%33.6% and was higher than the South African statutory rate as a result of non-deductible expenses and the tax impact attributable to distributions from our South African subsidiary. Our effective tax rate for the year to date fiscal 2016, was 34.6% and was higher than the South African statutory rate as a result of non-deductible expenses (including consulting and legal fees) and the tax impact, including withholding taxes, of approximately $5.0 million attributable to distributions from our South African subsidiary.

Earnings from equity-accounted investments for the year to date fiscal 2017 have increased primarily due to the inclusion of our portion of DNI and Bank Frick and an increase, in USD, in Finbond’s net income. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first half and its annual results during our fourth quarter. We have includedThe table below presents the relative earnings (loss) from our portion of its interim net income in our first half 2017 results and expect to record the last six months of its fiscal year ended February 2017 net income in our fourth quarter of fiscal 2017 results.equity accounted investments:

Table 10 Six months ended December 31, 
  2017   2016 $ % 
 $ ’000  $ ’000  change 
DNI 1,911   -  nm 
       Share of net income 3,240   -  nm 
       Amortization of intangible assets, net of deferred tax (1,329)  -  nm 
Bank Frick 322   -  nm 
       Share of net income 487   -  nm 
       Amortization of intangible assets, net of deferred tax (165)  -  nm 
Finbond 1,101   930  18% 
Other 95   (197) (148%)
       Earnings from equity accounted investments 3,429   733  368% 

42

Results of operations by operating segment

The composition of revenue and the contributions of our business activities to operating income are illustrated below:

Table 9 In U.S. Dollars (U.S. GAAP) 
Table 11 In U.S. Dollars (U.S. GAAP) 
 Nine months ended March 31,  Six months ended December 31, 
 2017  % of  2016  % of  %  2017  % of  2016  % of  % 
Operating Segment $’000  total   $’000  total  change $ ’000  total $ ’000  total  change 
Revenue:                              
South African transaction processing 181,397  40%  158,997  36%  14%  130,585  43%  117,430  38%  11% 
International transaction processing 131,704  29%  122,653  28%  7%  90,207  30%  90,190  29%  - 
Financial inclusion and applied technologies 179,681  39%  187,332  43%  (4%) 108,444  36%  122,800  40%  (12%)
Subtotal: Operating segments 492,782  108%  468,982  107%  5%  329,236  109%  330,420  107%  - 
Intersegment eliminations (37,772) (8%) (29,492) (7%) 28%  (28,262) (9%) (23,354) (7%) 21% 
Consolidated revenue 455,010  100%  439,490  100%  4%  300,974  100%  307,066  100%  (2%)
Operating income (loss):                              
South African transaction processing 44,451  54%  38,724  47%  15%  25,802  62%  28,920  50%  (11%)
International transaction processing 11,689  14%  15,596  19%  (25%) 325  1%  9,721  17%  (97%)
Financial inclusion and applied technologies 43,354  53%  41,542  51%  4%  26,657  65%  29,290  51%  (9%)
Subtotal: Operating segments 99,494  121%  95,862  117%  4%  52,784  128%  67,931  118%  (22%)
Corporate/Eliminations (17,177) (21%) (13,677) (17%) 26%  (11,471) (28%) (10,161) (18%) 13% 
Consolidated operating income 82,317  100%  82,185  100%  0%  41,313  100%  57,770  100%  (28%)

Table 12 In South African Rand (U.S. GAAP) 
  Six months ended December 31, 
  2017     2016       
  ZAR  % of  ZAR  % of  % 
Operating Segment ’000  total  ’000  total  change 
Revenue:               
South African transaction processing 1,751,497  43%  1,647,449  38%  6% 
International transaction processing 1,209,919  30%  1,265,294  29%  (4%)
Financial inclusion and applied technologies 1,454,527  36%  1,722,786  40%  (16%)
       Subtotal: Operating segments 4,415,943  109%  4,635,529  107%  (5%)
       Intersegment eliminations (379,069) (9%) (327,638) (7%) 16% 
              Consolidated revenue 4,036,874  100%  4,307,891  100%  (6%)
Operating income (loss):               
South African transaction processing 346,074  62%  405,724  50%  (15%)
International transaction processing 4,359  1%  136,378  17%  (97%)
Financial inclusion and applied technologies 357,542  65%  410,915  51%  (13%)
       Subtotal: Operating segments 707,975  128%  953,017  118%  (26%)
       Corporate/Eliminations (153,857) (28%) (142,551) (18%) 8% 
               Consolidated operating income 554,118  100%  810,466  100%  (32%)

39


Table 10 In South African Rand (U.S. GAAP) 
  Nine months ended March 31, 
  2017     2016       
  ZAR  % of  ZAR  % of  % 
Operating Segment ’000  total  ’000  total  change 
Revenue:               
South African transaction processing 2,497,492  40%  2,252,717  36%  11% 
International transaction processing 1,813,314  29%  1,737,784  28%  4% 
Financial inclusion and applied technologies 2,473,866  39%  2,654,176  43%  (7%)
       Subtotal: Operating segments 6,784,672  108%  6,644,677  107%  2% 
       Intersegment eliminations (520,049) (8%) (417,852) (7%) 24% 
                Consolidated revenue 6,264,623  100%  6,226,825  100%  1% 
Operating income (loss):               
South African transaction processing 612,006  54%  548,653  47%  12% 
International transaction processing 160,935  14%  220,969  19%  (27%)
Financial inclusion and applied technologies 596,902  53%  588,580  51%  1% 
       Subtotal: Operating segments 1,369,843  121%  1,358,202  117%  1% 
       Corporate/Eliminations (236,495) (21%) (193,780) (17%) 22% 
               Consolidated operating income 1,133,348  100%  1,164,422  100%  (3%)

South African transaction processing

             In ZAR, theThe increase in segment revenue and operating income was primarily due to higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities and a modest increase in the number of social welfare grants distributed.

             Our operating Operating income margin for the yeardecreased primarily due to date fiscal 2017 and 2016 was 25% and 24%, respectively. Our fiscal 2017 margin includes higher EPE revenue as a result of increased ATM transactions, an increase in inter-segment transaction processing activities, an increase incharges, the numberimpact of beneficiaries paid in the year to date fiscal 2017 and a modest increase in the margin of transaction fees generated from cardholders using the South African National Payment System, which was partially offset by annual salary increases granted to our South African employees.employees in October 2017 and increases in goods and services purchased from third parties, partially offset by higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities and a modest increase in the number of social welfare grants distributed.

Our operating income margin for the first half of fiscal 2018 and 2017 was 20% and 25%, respectively. Our fiscal 2018 margin was adversely impacted by the annual salary increases granted to our South African employees in October 2017 and increases in goods and services purchased from third parties.

International transaction-based activities

Segment revenue increasedwas slightly higher during the year to datefirst half of fiscal 2017,2018, primarily due to increased contributions from Masterpayment and Transact24, largely offset by the inclusionongoing impact of T24 and Masterpayment; however, this growthregulatory changes in South Korea on KSNET’s revenue. Operating income during the first half of fiscal 2018 was lower due to an allowance for doubtful working capital finance receivable of $7.8 million, a decrease in revenue at KSNET, partially offset by a lower contribution from KSNET due to the regulatory changes. Operating income during the year to date fiscal 2017 was lower due to a decrease in revenue and higher depreciation expenses at KSNET, lossessmaller loss incurred by Masterpayment as it grows its staff complement to execute its expansion plan into new markets, and ongoing ZAZOO start-up costs in the UK and India, which was partially offset by a positive contribution by T24. Masterpayment.

43

Operating income and margin for the year to datefirst half of fiscal 2017, was also positively impacted by a refund of approximately $0.8 million that had been paid several years ago in connection with industry-wide litigation that has now been finalized.

Operating income margin for the year to datefirst half of fiscal 2018 and 2017 was 0% and 2016 was 9% and 13%11%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance receivables, segment operating income and margin were $8.1 million and 9% respectively.

Financial inclusion and applied technologies

             In ZAR, Financial inclusion and applied technologies revenue decreased primarily due to the introduction of our new biometric linking feature forfewer prepaid airtime and other value added services which adversely impacted sales, as well as fewerlower ad hoc terminal sales, partially offset by increased volumes in our lending and insurance businesses, and an increase in inter-segment revenues and higher card sales.revenues. Operating income was also impacted by these factors as well as an increase in the allowance for doubtful finance loans receivable resulting from a commensurate increase in our lending book in the last lending cycle of calendar 2017.

Operating income margin for the Financial inclusion and applied technologies segment forwas 25% and 24% during the year to datefirst half of fiscal 20172018 and 2016 was 24% and 22%,2017, respectively, and has increased primarily due to fewer low margin prepaid product sales, improved revenues from our lending and insurance businesses and an increase in inter-segment revenues, and fewer low margin prepaid product sales, offset by fewer ad hoc terminal sales and annual salary increases granted to our South African employees.employees and the increase in the allowance for credit losses.

Corporate/Eliminations

Our corporate expenses generally include acquisition-related intangible asset amortization; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive 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.

40

             In USD, our corporate expenses have marginally decreasedincreased primarily due to reversal of stock-based compensation charges, lower provision for incentives, and the impact of the stronger U.S. dollar on goods and services procured in other currencies, primarily the ZAR, partially offset by higher transaction-related expenditures and amortization costs and modest increases in U.S. dollar denominated goods and services purchased from third parties and directors’ fees. Our corporate expenses for the first half of fiscal 2017, includes the reversal of $1.8 million of stock-based compensation charges.

Liquidity and Capital Resources

At MarchDecember 31, 2017, our cash and cash equivalents were $223.0$64.9 million and excludes the $44.7comprised mainly KRW-denominated balances of KRW 28.1 billion ($24.4 million), ZAR-denominated balances of ZAR 272.0 million of restricted cash discussed below, and comprised mainly($22.0 million), U.S. dollar-denominated balances of $91.1$11.4 million, ZAR-denominated balances of ZAR 1.1 billion ($82.0 million), KRW-denominated balances of KRW 48.8 billion ($43.6 million) and other currency deposits, primarily euros, of $6.3$7.1 million, all amounts translated at exchange rates applicable as of MarchDecember 31, 2017. The decrease in our cash balances from June 30, 2016,2017, was primarily due to repurchase of shares of our common stock; unscheduledinvestments in DNI, Bank Frick, Cell C and a $9 million listed note, scheduled repayments of our South African long-term debt, unscheduled repayment of Korean debt; payment of taxes; the investmentdebt in MobiKwik, C4U Malta and Pros Software; a loan to Finbondfull, growth in our South African lending book, and capital expenditures, which was partially offset by the sale of 5 million shares of our common stock and expansion ofcash generated by most of our core businesses.

We currently believe that our cash and credit facilities are sufficient to fund our future operations for at least the next four quarters.

We generally invest the surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and surplus cash held by our non-South African companies in U.S. dollar denominated money market accounts. 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 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. For instance, in October 2016, we obtained loan facilities from RMB to fund a portion of our working capital requirements and a portion of the Blue Label investment. Refer to Note 10 to our unaudited condensed consolidated financial statements for the three months ended March 31, 2017 for additional information related to these loan facilities.

             Restricted cash of approximately $44.7 million included on our unaudited condensed consolidated balance sheet as of March 31, 2017, relates to the guarantee issued by RMB as described in Note 10 to the unaudited condensed consolidated financial statements. This cash has been placed into an escrow account and is considered restricted as to use and therefore is classified as restricted cash. The restriction will lapse once the guarantee expires, is utilized or is cancelled.

We have a short-term South African credit facility with Nedbank of ZAR 400 million ($29.832.3 million), which consists of (i) a primary amount of up to ZAR 200 million, which is immediately available, and (ii) a secondary amount of up to ZAR 200 million, which is not immediately available.million. The primary amounts comprise an overdraft facility of up to ZAR 50 million and indirect and derivative facilities of up to ZAR 150 million, which includesinclude letters of guarantee, letters of credit and forward exchange contracts. On December 9, 2016, Nedbank issued a letter to us under which it agreed to temporarily increase the overdraft facility by the secondary amount of ZAR 200 million to ZAR 250 million. The increase in the overdraft to ZAR 250 million is available until the earlier of the day on which we issue shares to the value of $45.0 million or the day on which RMB repays ZAR 600 million back to us that is currently held in escrow related to the issuance of a ZAR 2 billion guarantee to us.

As of MarchDecember 31, 2017, we had used none of the overdraft and ZAR 130.5126.0 million ($9.710.2 million, translated at exchange rates applicable as of MarchDecember 31, 2017) of the indirect and derivative facilities to obtain foreign exchange contracts and to support guarantees issued by Nedbank to various third parties on our behalf.

We obtained EUR 40.0 million ($47.9 million) and CHF 20 million ($20.5 million) revolving overdraft facilities from Bank Frick. As of December 31, 2017, we had utilized approximately EUR 25.7 million ($30.7 million) of the EUR 40 million facility and CHF 4.7 million ($4.8 million) of the CHF 20 million facility. As of December 31, 2017, the interest rate on each of these facilities was 5.00%. We have assigned all claims against amounts due from Masterpayment customers, which have been financed from the CHF 20 million facility, plus all secondary rights and preferential rights as collateral for this facility to Bank Frick. Our Masterpayment subsidiary was required to open a primary business account with Bank Frick, and this account has been pledged to Bank Frick as collateral for the EUR 40 million facility. The initial term of the EUR 40 million facility ends on December 31, 2019, but it will automatically be extended for one year if it is not terminated with 12 months written notice.

44

The CHF 20 million facility does not have a fixed term; however, it may be terminated by either party with six months written notice at the end of a calendar month. 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, 2016,2017, for additional information related to our short-term facilities.

             As of March 31, 2017, we had outstanding long-term debt of KRW 28.3 billion (approximately $25.3 million translated at exchange rates applicable as of March 31, 2017) 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 (1.49% as of March 31, 2017) plus a margin of 3.10% for one of the term loan facilities and the revolver. Scheduled remaining repayments of the term loans and loan under the revolving credit facility are as follows: April 2017 and 2018 (KRW 10 billion each) and October 2018 (KRW 8.9 billion plus all outstanding loans under our revolving credit facility). Refer to Note 13 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2016 and Note 109 to our unaudited condensed consolidated financial statements for the three and six months ended MarchDecember 31, 2017, for additional information related to our short-term facilities.

As of December 31, 2017, we had outstanding long-term borrowings.debt of ZAR 870.7 million (approximately $70.4 million translated at exchange rates applicable as of December 31, 2017) under our loan South African facilities. Interest due on the facility is based on the Johannesburg Interbank Agreed Rate, or JIBAR, in effect from time to time plus a margin of 2.25% for the Facility A loan, 3.5% for the Facility B loan and 2.25% for the Facility C loan. The JIBAR rate has been set at 7.158% for the period to March 29, 2018. Principal repayments on the Facility A and Facility B loans are due in eight equal quarterly installments, which began on September 30, 2017. Principal repayment on the Facility C loan is to be determined by the Lenders based on the date of the repayment of any borrowings under the Facility A loan. Voluntary prepayments are permitted without early repayment fees or penalties.

41

Cash flows from operating activities

   ThirdSecond quarter

Net cash provided by operating activities for the thirdsecond quarter of fiscal 20172018 was $21.8$13.3 million (ZAR 288.3182.0 million) compared to $49.2$15.7 million (ZAR 778.3218.8 million) for the thirdsecond quarter of fiscal 2016.2017. Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes presented in the table below, in ZAR, the decrease relates primarily to timingthe expansion of receipts of amounts from customers, offset by an increase in cash from operating activities resulted from improvedour South African lending book and weaker trading activity during fiscal 2017.2018 compared to 2017, offset partially by the receipt of certain working capital loans outstanding.

During the thirdsecond quarter of fiscal 2017,2018, we paid South African tax of $0.4$16.5 million (ZAR 5.4216.7 million) related to our 20172018 tax year in South Africa and $0.4 million (ZAR 5.6 million) related to prior years. We also paid taxes totaling $2.8 million in other tax jurisdictions, primarily South Korea. During the third quarter of fiscal 2016, we paid South African tax of $0.1 million (ZAR 1.8 million) related to our 2016 tax year in South Africa. We paid dividend withholding taxes of $1.6 million (ZAR 25.0 million) during the third quarter of fiscal 2016. We also paid taxes totaling $2.4 million in other tax jurisdictions, primarily South Korea. During the second quarter of fiscal 2017, we paid South African tax of $17.8 million (ZAR 246.6 million) related to our 2017 tax year in South Africa. We also paid taxes totaling $5.0 million in other tax jurisdictions, primarily South Korea.

Taxes paid during the second quarter of fiscal 2018 and 2017 were as follows:

Table 13 Three months ended December 31, 
  2017  2016  2017  2016 
 $  $   ZAR  ZAR 
  ‘000  ‘000  ‘000  ‘000 
First provisional payments 16,511  17,775  216,654  246,558 
Taxation paid related to prior years -  1  -  13 
Taxation refunds received (251) (166) (3,292) (2,315)
       Total South African taxes paid 16,260  17,610  213,362  244,256 
       Foreign taxes paid 2,353  4,954  32,738  69,186 
            Total tax paid 18,613  22,564  246,100  313,442 

We expect to make additional first provisional tax payments in South Africa of approximately $1.1 million (ZAR 14 million), translated at exchange rates applicable as of December 31, 2017, related to our 2018 tax year in the third quarter of fiscal 2017 and 2016 were as follows:2018.

Table 11 Three months ended March 31, 
  2017  2016  2017  2016 
  $  $  ZAR  ZAR 
  ‘000  ‘000  ‘000  ‘000 
First provisional payments 417  115  5,410  1,812 
Taxation paid related to prior years 437  -  5,644  - 
Dividend withholding taxation -  1,573  -  25,000 
       Total South African taxes paid 854  1,688  11,054  26,812 
       Foreign taxes paid 2,777  2,364  35,871  36,846 
                Total tax paid 3,631  4,052  46,925  63,658 

     Year to dateFirst half

Net cash provided by operating activities for the year to datefirst half of fiscal 20172018 was $91.4$12.5 million (ZAR 1.3 billion)167.9 million) compared to $81.4cash provided by operating activities of $69.6 million (ZAR 1.2 billion)976.5 million) for the year to datefirst half of fiscal 2016.2017. Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes presented in the table below, in ZAR, the increase in cash from operating activities resulted from improveddecrease relates primarily to the expansion of our lending book and weaker trading activity during fiscal 2017, offset by the timing of receipts of amounts from customers.2018 compared to 2017.

During the first half of fiscal 2018, we paid South African tax of $16.5 million (ZAR 216.7 million) related to our 2017 tax year in South Africa. During the first half of fiscal 2017, we made an additional tax payment of $1.2 million (ZAR 16.7 million) related to dateour 2016 tax year in South Africa and received a refund of approximately $0.3 million (ZAR 3.3 million) related to taxes overpaid in previous tax years in South Africa. We also paid taxes totaling $2.5 million in other tax jurisdictions, primarily South Korea. During the first half of fiscal 2017, we paid South African tax of $18.2$17.8 million (ZAR 252.0246.6 million) related to our 2017 tax year and $1.6$1.2 million (ZAR 22.416.7 million) related to prior tax years. We also received a refund of approximately $1.4 million (ZAR 18.9 million) related to taxes overpaid in previous tax years in South Africa. We paid dividend withholding taxes of $1.5 million (ZAR 21.3 million) during the year to datefirst half of fiscal 2017. We also paid taxes totaling $7.8 million in other tax jurisdictions, primarily South Korea. During the year to date fiscal 2016, we paid South African tax of $16.0 million (ZAR 239.9 million) related to our 2016 tax year and $3.4 million (ZAR 46.8 million) related to prior tax years. We paid dividend withholding taxes of $4.2 million (ZAR 60.0 million) during the year to date fiscal 2016. We also paid taxes totaling $5.0 million in other tax jurisdictions, primarily South Korea.

45

Taxes paid during the year to datefirst half of fiscal 20172018 and 20162017 were as follows:

Table 12 Nine months ended March 31, 
Table 14 Six months ended December 31, 
 2017  2016  2017  2016  2017  2016  2017  2016 
 $  $  ZAR  ZAR $  $   ZAR  ZAR 
 ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000  ‘000 
First provisional payments 18,192  15,956  251,968  239,939  16,511  17,775  216,654  246,558 
Taxation paid related to prior years 1,624  3,436  22,365  46,840  1,919  1,187  25,227  16,721 
Taxation refunds received (1,369) (176) (18,878) (2,402) (251) (1,369) (3,292) (18,878)
Dividend withholding taxation 1,471  4,183  21,300  60,000  -  1,471  -  21,300 
Total South African taxes paid 19,918  23,399  276,755  344,377  18,179  19,064  238,589  265,701 
Foreign taxes paid 7,780  4,975  105,748  74,602  2,470  5,003  34,276  69,877 
Total tax paid 27,698  28,374  382,503  418,979  20,649  24,067  272,865  335,578 

42

Cash flows from investing activities

ThirdSecond quarter

Cash used in investing activities for the thirdsecond quarter of fiscal 2018 includes capital expenditure of $2.1 million (ZAR 28.7 million), primarily for the acquisition of payment processing terminals in Korea. We also paid approximately $40.9 million for a 30% interest in Bank Frick and $9.0 million for a 7.625% interest in a listed note.

Cash used in investing activities for the second quarter of fiscal 2017 includes capital expenditure of $1.9$3.1 million (ZAR 25.843.6 million), primarily for the acquisition of payment processing terminals in Korea. Our Korean capital expenditures have declined due to regulatory changes in South Korea which now prohibit the provision of payment equipment to the majority of merchants. We also provided a $2.0$10.0 million loan to our KZ One, the holding companyFinbond and paid approximately $2.9 million and $1.7 million, respectively, net of our Nigerian initiative One Credit.cash received, to acquire 100% of each of C4U Malta and Pros Software’s ordinary shares.

First half

Cash used in investing activities for the third quarterfirst half of fiscal 20162018 includes capital expenditure of $8.1$3.6 million (ZAR 127.448.0 million), primarily for the acquisition of payment processing terminals in Korea. In addition, we exercised our rights under the Finbond Group Limited, or Finbond, rights offer and paid approximately $8.9 million (ZAR 136.1 million) for 40,733,723 shares. We also paid approximately $1.7$151.0 million net of cash received,(ZAR 2.0 billion) for approximately 56% of T24’s ordinary shares that we did not previously own.a 15% interest in Cell C, $72.0 million (ZAR 945.0 million) for a 45% interest in DNI, $40.9 million for a 30% interest in Bank Frick and $9.0 million for a 7.625% interest in a listed note.

Year to date

Cash used in investing activities for the year to datefirst half of fiscal 2017 includes capital expenditure of $8.5$6.5 million (ZAR 117.091.9 million), primarily for the acquisition of payment processing terminals in Korea. We also paid approximately $15.3 million for a 7.5% interest in MobiKwik; provided a $10.0 million loan to Finbond; provided a $2.0 million loan to KZ OneFinbond and paid approximately $2.9 million and $1.7 million, respectively, net of cash received, to acquire 100% of each of C4U Malta and Pros Software’s ordinary shares.

             Cash used in investing activities for the year to date fiscal 2016 includes capital expenditure of $28.7 million (ZAR 411.5 million), primarily for the acquisition of payment processing terminals in Korea and the rollout of ATMs in South Africa. In addition, we exercised our rights under the Finbond rights offer and paid approximately $8.9 million (ZAR 136.1 million) for 40,733,723 shares. We also paid approximately $1.7 million, net of cash received, for approximately 56% of T24’s ordinary shares that we did not own.

Cash flows from financing activities

ThirdSecond quarter

During the thirdsecond quarter of fiscal 2018, we made an unscheduled $16.6 million repayment to settle our outstanding South Korean debt facility in full and made a scheduled South African debt facility payment of $14.3 million (ZAR 187.5 million). We also repaid $11.4 million of our overdraft facilities.

During the second quarter of fiscal 2017, we sold 5made a $1.8 million sharesunscheduled repayment of our common stock for $45.0Korean debt and paid a guarantee fee of $1.1 million and receivedrelated to the guarantee issued by RMB.

First half

During the first half of fiscal 2018, we utilized approximately $0.6$94.3 million from the exercise(ZAR 1.25 billion) of stock options. We alsoour South African facility to part-fund our investment in Cell C and utilized approximately $0.3 million of our Korean borrowingsfacility to pay a portion of our quarterly interest due.

             During the third quarter We made accumulated scheduled South African debt facility payments of fiscal 2016, we acquired 1,328,699 shares of$28.5 million (ZAR 375 million) and made a $16.6 million payment to settle our common stock for approximately $12.7 million andoutstanding South Korean debt facility in full. We also utilized approximately $0.7$32.6 million of our Korean borrowings to pay quarterly interest due.overdraft facilities and repaid $14.3 million of these overdraft facilities.

     Year to date

During the year to datefirst half of fiscal 2017, we sold 5 million shares of our common stock for $45.0 million and received approximately $0.6 million from the exercise of stock options. We also paid approximately $31.6 million to repurchase 3,137,609 shares of our common stock and also paid $0.5 million, on July 1, 2016, related to settlement of amounts outstanding related to the repurchases at the end of June 2016. We also made a $28.5 million unscheduled repayment of our Korean debt utilized approximately $0.5 million of our Korean borrowings to pay quarterly interest due.debt. In addition, we paid a guarantee fee of $1.1 million related to the guarantee issued by RMB and paid a dividend of approximately $0.6 million to certain of our non-controlling interests.

             During the year to date fiscal 2016, we received approximately $3.8 million from the exercise of stock options, acquired 2,077,912 shares of our common stock for approximately $23.9 million, and utilized approximately $2.1 million of our Korean borrowings to pay quarterly interest due.46

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Capital Expenditures

We expect capital spending for the third quarter of fiscal 20172018 to primarily include the acquisition of payment terminals for the expansion of our operations in Korea and expansion of our ATM infrastructure and branch network in South Africa.

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Our historical capital expenditures for the second quarter of fiscal 20172018 and 20162017 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 MarchDecember 31, 2017, of $0.1$0.7 million related mainly to the procurement of equipment.ATMs. We expect to fund these expenditures through internally generated funds.

Contingent Liabilities, Commitments and Contractual Obligations

The following table sets forth our contractual obligations as of MarchDecember 31, 2017:

Table 13 Payments due by Period, as of March 31, 2017(in $ ’000s)  
     Less        More 
     than 1  1-3  3-5  than 5 
  Total  year  years  years  years 
Acquisition of Blue Label (A) 149,116  149,116  -  -  - 
Acquisition of Cell C (B) 149,116  149,116  -  -  - 
Acquisition of Bank Frick (C) 39,716  39,716  -  -  - 
Long-term debt obligations (D) 26,196  9,919  16,277  -  - 
Operating lease obligations 7,685  5,249  2,178  258  - 
Purchase obligations 1,197  1,197  -  -  - 
Capital commitments 146  146  -  -  - 
Other long-term obligations (E)(F) 2,725  -  -  -  2,725 
       Total 375,897  354,459  18,455  258  2,725 
Table 15 Payments due by Period, as of December 31, 2017 (in $ ’000s) 
     Less        More 
     than 1  1-3  3-5  than 5 
  Total  year  years  years  years 
South African long-term debt obligations (A) 76,494  55,515  20,979  -  - 
Contingent amount related to DNI investment (B) 29,105  29,105  -  -  - 
Short-term credit facilities 35,553  35,553  -  -  - 
Operating lease obligations 8,501  4,275  3,514  712  - 
Purchase obligations 3,211  3,211  -  -  - 
Capital commitments 659  659  -  -  - 
Other long-term obligations (C)(D) 2,449  -  -  -  2,449 
       Total 155,972  128,318  24,493  712  2,449 

 (A)

– We have agreed to purchase 117.9 million ordinary shares of Blue Label for an aggregate purchase price of ZAR 2.0 billion ($149.1 million, translated at exchange rates applicable as of March 31, 2017), and expect to fund the transaction through a combination of cash on hand and a portion of a ZAR 1.4 billion loan facility to be provided to us by RMB (refer also Note 10 to our unaudited condensed consolidated financial statements).

(B)

– We have offered to acquire a direct stake of 15% of the issued share capital of Cell C for a consideration of ZAR 2 billion ($149.1 million, translated at exchange rates applicable as of March 31, 2017). Our investment is conditional and has been made pursuant to a binding restructure agreement, which is subject to the conclusion of the relevant transaction agreements by no later than June 30, 2017.

(C)

– We have agreed to purchase 30% of Bank Frick for an aggregate purchase price of approximately CHF 39.8 million ($39.7 million translated at exchange rates applicable as of March 31, 2017) (refer also Note 6 to our unaudited condensed consolidated financial statements).

(D)

– Includes $25.3$70.7 million of long-term debt and interest payable at the rate applicable on MarchDecember 31, 2017, under our KoreanSouth Africa debt facility.

 (E)(B)

– Under the DNI transaction agreements, we are obliged to pay to DNI an additional amount not exceeding ZAR 360 million ($29.1 million translated at exchange rates applicable as of December 31, 2017) in cash, subject to DNI achieving certain performance targets.

(C)

– Includes policyholder liabilities of 2.4$2.4 million related to our insurance business.

 (F)(D)

– We have excluded a cross-guarantees in the aggregate amount of $9.7$10.2 million issued as of MarchDecember 31, 2017, 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. We have also excluded contractual commitments to invest approximately $25$15 million in MobiKwik, subject to the achievement of certain contractual conditions.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In addition to the tables below, see Note 65 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 MarchDecember 31, 2017, as a result of changes in the Korean CD rate.JIBAR rates. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in each of the Korean CD rateJIBAR rates as of MarchDecember 31, 2017, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.

  As of March 31, 2017 
Table 14       Estimated annual 
        expected interest 
  Annual  Hypothetical  charge after 
  expected  change in  hypothetical change in 
  interest  Korean CD  Korean CD rate, as 
  charge  rate, as  appropriate 
  ($ ’000)  appropriate  ($ ’000) 
Interest on Korean long-term debt 1,160  1%  1,413 
     (1%) 907 
  As of December 31, 2017 
Table 16       Estimated annual 
  Annual     expected interest 
  expected     charge after 
  interest  Hypothetical  hypothetical change in 
  charge  change in  JIBAR 
  ($ ’000) JIBAR  ($ ’000)
Interest on South Africa long-term debt (JIBAR) 7,158  1%  7,865 
     (1%) 6,450 

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 MarchDecember 31, 2017. 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 MarchDecember 31, 2017.

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 MarchDecember 31, 2017, 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

Litigation Regarding Legality of Debit Orders under Social Assistance Act Regulations

As previously disclosed, each of SASSA and the Black Sash Trust, or Black Sash, served applications petitioning the South African Supreme Court of Appeal, or the Supreme Court, to grant them leave to appeal to either the Supreme Court or to a full bench of the High Court of the Republic of South Africa Gauteng Division, Pretoria.

On September 29, 2017, the Supreme Court referred the petitions to oral argument. The record of appeal has been filed and SASSA and the Black Sash must file written arguments by February 28, 2018, and we must file our written arguments within one month of receipt of SASSA and Black Sash’s written arguments. The Supreme Court will provide a hearing date after all written arguments have been filed.

We believe that SASSA and the Black Sash’s claim is without merit, and we intend to defend it vigorously. However, we cannot predict how the courts will rule on the matter.

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

Our appeal of the November 27, 2015, High Court ruling in this matter was initially scheduled to be heard on December 6, 2017, however, the matter was subsequently removed from the roll and a new hearing date has not been set. If we are successful, it will dispose of the application. If we do not prevail, then the National Credit Regulator’s, or NCR’s, application will be set down before the Consumer Tribunal for argument on the main issues raised by the NCR, as dealt with above. We cannot predict the outcome of this litigation.

Constitutional Court order regarding extension of contract with SASSA for 12 months

             OnVarious reports have been filed by SASSA and the panel of experts pursuant to the Constitutional Court’s March 17, 2017 the Constitutional Court delivered its order regarding the continued payment of social grants upon the expiration of the contract between our subsidiary, Cash Paymaster Services (Pty) Ltd, or CPS, and SASSA on March 31, 2017. The Constitutional Court essentially ordered that SASSA and CPS have a constitutional obligation to pay social welfare grantsvarious directives received from April 1, 2017 and ordered CPS and SASSA to ensure payment of grants under the expiring contract’s terms and conditions, augmented by certain additional terms and conditions. These included amendments to (i) adequately safeguard personal data obtained during the payment process and ensure that it remains private and may not be used for any purpose other than the payment of grants, and (ii) preclude anyone from inviting beneficiaries to “opt-in” to the sharing of confidential information for the marketing of goods and services. The Constitutional Court also ordered that CPS may request National Treasury to investigate and make a recommendation regarding the price charged by CPS in the extension contract and stated that National Treasury must file a reportit. On February 6, 2018, we launched an application with the Constitutional Court stating its findingsrequesting clarity on whether CPS may participate in this regard.

             The Constitutional Court also included a public accountability provision in its March 2017 order that impact CPS directly. These provisions are similar to those included in its April 2014 order and require that CPS provideany future SASSA with an independently audited statement of expenses incurred, income received and profit earned under the 12 month extension contract. SASSA is also required to obtain an independent audit of the audited information provided by CPS. Furthermore, the Constitutional Court has instructed SASSA to send this audited information to National Treasury for its approval prior to submission to the Constitutional Court.

             The Constitutional Court has included additional public accountability provisions that impact the Minister of Social Development and SASSA. These provisions require the Minister and SASSA to file reports on affidavit with the Constitutional Court every three months, commencing on March 17, 2017, setting out how they plan to ensure the payment of social grants after the end of the 12-month contract extension period, what steps they have taken in that regard, what further steps they will take, and when they will take each future step, so as to ensure that the payment of all social grants is made when they fall due after the expiry of the 12-month period. The reports filed by the Minister and SASSA must include, but is not limited to, the applicable time-frames for the various deliverables which form part of the plan, whether the time-frames have been complied with, and if not, why that is the case and what will be done to remedy the situation. The Minister and SASSA are also required to immediately report and explain any material changes to the circumstances included in the reports previously submitted to the Constitutional Court.

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

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

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, 2016, 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 quarter ended September 30, 2016, 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, 2016.

Our SASSA contract has been extended and now expires at the end of March 2018 following an order issued by the Constitutional Court on March 17, 2017. It is unclear to us whether SASSA will issue a new grant payments tender or if it intends to take over the distribution of social grants when our contract expires. We derive a significant portion of our revenue from our SASSA contract, which we will lose if and when we no longer provide a service to SASSA.processes.

             We derive a significant portion of our revenues from our contract with SASSA for the payment of social grants. Our current five-year SASSA contract, which we were awarded through a competitive tender process in 2012, was scheduled to expire in March 2017.

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             The Constitutional Court ordered that SASSA and CPS have a constitutional obligation to pay social welfare grants from April 1, 2017 and ordered CPS and SASSA to ensure payment of grants under the expiring contract’s terms and conditions, augmented by certain additional terms and conditions. Accordingly, on March 31, 2017, we signed an addendum to the expiring contract with SASSA which extends the contract to March 31, 2018, under the expiring contracts terms and conditions and includes the specific terms as ordered by the Constitutional Court. Refer to “Item 1—Legal Proceedings” for a summary of the Constitutional Courts order.

             We will lose the SASSA revenues after March 2018 if we then no longer have a contract with SASSA, which would occur if SASSA follows a tender process and awards the tender to a new service provider or providers or performs the social grants distribution service itself. Unless we are able to replace most or all of these revenues from other sources, our results of operations, financial position, cash flows and future growth are likely to suffer materially.

              It is possible that SASSA might request us to enter a transition agreement in order to phase out our services. The Constitutional Court has reaffirmed in its March 2017 ruling that CPS is deemed to be an “organ of state” for the purposes of the contract between SASSA and it, and that 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 SASSA.

Our South African business practices have come under intense scrutiny in the South African media, especially during the last several months. We have recently undertaken efforts to publicly refute what we believe to be misleading or factually incorrect statements that have damaged our reputation. However, our ability to operate effectively and efficiently in South Africa in the future will be adversely impacted if we are unable to communicate persuasively that our business practices comply with South African law and are fair to the customers who purchase our financial services products.

             Our contract with SASSA was expected to expire on March 31, 2017, and by the end of February 2017, it became apparent that SASSA did not intend to bring the social welfare payment service in-house after the contract expiration. The risk of there being no payment service, or a limited service, to social welfare grant recipients in April 2017 and beyond, resulted in a public furor in South Africa in March 2017, despite SASSA’s continued assurance that grants would be paid on time in April 2017. The South African public, media, non-governmental organizations and political parties were particularly angered by SASSA’s failure to have a plan to perform the service itself and utilized a number of platforms, including social media, to ventilate their dissatisfaction with the state of affairs. They specifically accused us of bearing responsibility for SASSA’s inability to bring the payment service in-house. In addition, we were publicly accused of illegally providing our services and defrauding social welfare grant recipients. We have publicly denied these accusations and believe they have no merit.

             Our reputation in South Africa has been tarnished as a result of these accusations. We have recently undertaken a concerted effort to refute the accusations made against us and to assist us in communicating effectively to the public and our stakeholders that our business practices comply with South African law and are fair to the social welfare grant recipients who purchase the financial services products that we offer. However, if these efforts are unsuccessful, our operations, financial position, cash flows and future growth are likely to suffer.

SASSA has challenged our ability to conduct certain aspects of our financial services business in a commercial manner through its interpretation of recently adopted regulations under the Social Assistance Act. We are in litigation with SASSA over its interpretation of these regulations. If SASSA were to prevail in this legal proceeding, our business will suffer.

             SASSA has challenged our ability to operate certain aspects of our financial services business in a commercial manner by adopting an interpretation of the South African Social Assistance Act of 2004, or Assistance Act, and recently-adopted regulations thereunder that would prohibit us and Grindrod Bank Limited, or Grindrod, from processing debit orders from social welfare beneficiaries’ bank accounts. We believe that SASSA’s interpretation is erroneous and on June 3, 2016, we filed for a declaratory order with the High Court of the Republic of South Africa Gauteng Division, Pretoria, to provide certainty to us, as well as other industry stakeholders, on the interpretation of the Assistance Act and regulations. On June 15, 2016, SASSA brought criminal charges against Grindrod Bank and us for failing to act in accordance with their instructions to stop processing debit orders. On June 28, 2016, the High Court issued an order scheduling arguments on the declaratory order that we are seeking on October 17 and 18, 2016 and prohibited SASSA from taking certain actions in furtherance of the criminal charges, pending a determination of the dispute. The matter was heard by the Court on October 17 and 18, 2016, and it has reserved judgment. We cannot predict how or when the Court will rule on our declaratory order application.

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             On August 8, 2016 we were informed that the South African National Prosecuting Authority, or NPA, had reached a “no prosecution” decision on the criminal charges filed by SASSA. We cannot predict whether SASSA might attempt to bring new charges at any time or ask the NPA to revisit its decision in future.

             If we were not to prevail, our ability to operate our business, specifically our micro-lending and insurance activities in a commercially viable manner would be impaired, which would likely have a material adverse effect on our business and might harm our reputation. Regardless of the outcome, management will be required to devote significant time and resources to these legal proceedings, which may impact their ability to focus their attention on our business.

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.

             In April 2015, Corruption Watch, a South African non-profit civil society organization, commenced a legal proceeding in the High Court of South Africa, seeking an order by the Court to review and set aside the decision of SASSA’s Chief Executive Officer to approve a payment to us of approximately ZAR 317 million including VAT, or 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 decision was unreasonable and irrational and did not comply with South African legislation. We are named as a respondent in this proceeding.

             The payments being challenged by Corruption Watch represent amounts paid to us by SASSA for the costs we incurred in performing additional beneficiary registrations and gathering information 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 are defending it vigorously. However, we cannot predict how the Court will rule on the matter.

             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 in March 2017, an audited statement of our expenses, income and net profit under the contract. We expect to file the required information with the Constitutional Court. The March 2017 Constitutional Court order contains a similar requirement that we file an audited statement of our expenses, income and net profit under our amended contract that expires in March 2018. It is conceivable that one or more third parties may in the future institute litigation challenging our right to retain a portion of the amounts we will have received from SASSA under our contract. We cannot predict whether any such litigation will be instituted, or if it is, whether it would be successful.

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

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
10.50First Addendum to Amended and Restated Subscription Agreement, dated February 28, 2017, between Net1 Applied Technologies South Africa Proprietary Limited and Blue Label Telecoms Limited  8-K10.50March 2, 2017
10.51Amendment Letter from FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) to Net1 Applied Technologies South Africa Proprietary Limited, dated February 28, 2017  8-K10.51March 2, 2017
10.52Side Letter from FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) to Net1 Applied Technologies South Africa Proprietary Limited, dated February 28, 2017  8-K10.52March 2, 2017

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10.53Bank Guarantee issued by FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) in favor of Blue Label Telecoms Limited, dated February 28, 2017 8-K10.53March 2, 2017
10.54First Amendment and Restatement Agreement, dated March 15, 2017, by and among Net1 Applied Technologies South Africa Proprietary Limited, Net 1 UEPS Technologies, Inc. and FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) 8-K10.54March 20, 2017
10.55Amended and Restated Common Terms Agreement, dated October 20, 2016, as amended and restated on March 15, 2017, by and among Net1 Applied Technologies South Africa Proprietary Limited, Net 1 UEPS Technologies, Inc. and FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) 8-K10.55March 20, 2017
10.56Senior Facility A Agreement dated October 20, 2016, as amended and restated on March 15, 2017, by and between Net1 Applied Technologies South Africa Proprietary Limited and FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) 8-K10.56March 20, 2017
10.57Senior Facility B Agreement dated October 20, 2016, as amended and restated on March 15, 2017, by and between Net1 Applied Technologies South Africa Proprietary Limited and FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) 8-K10.57March 20, 2017
10.58Senior Facility C Agreement dated October 20, 2016, as amended and restated on March 15, 2017, by and between Net1 Applied Technologies South Africa Proprietary Limited and FIRSTRAND Bank Limited (acting through its Rand Merchant Bank Division) 8-K10.58March 20, 2017
10.59Addendum dated March 31, 2017, to the Contract and related Service Level Agreement for the Payment of Social Grants dated February 3, 2012 between South African Social Security Agency and Cash Paymaster Services (Pty) Ltd. 8-K10.59March 31, 2017
10.60Addendum to the Lease Agreement made and entered into by and between Buzz Trading 199 (Pty) Ltd and Net 1 Applied Technologies South Africa (Pty) Ltd dated November 18, 2016X     
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
10.79Proposed Agreement of Lease between Buzz Trading 199 (Pty) Ltd and Net 1 Applied Technologies South Africa LimitedX
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

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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 4, 2017.February 8, 2018.

NET 1 UEPS TECHNOLOGIES, INC.
By: /s/ Serge C.P. Belamant
Serge C.P. Belamant
Chief Executive Officer and Director
By: /s/ Herman G. Kotzé
Herman G. Kotzé
Chief Financial Officer, Treasurer and Secretary, Director

NET 1 UEPS TECHNOLOGIES, INC.

By: /s/ Herman G. Kotzé

Herman G. Kotzé
Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary, Director

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