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

FORM 10-Q

(Mark One)

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

For the quarterly period endedSeptember 30, 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)

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

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

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

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

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

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

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

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

As of November 7, 2017February 6, 2018 (the latest practicable date), 56,927,69656,832,370 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

1

Part I. Financial Information

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Balance Sheets

Unaudited Condensed Consolidated Balance Sheets

(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

See Notes to Unaudited Condensed Consolidated Financial Statements

3

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

See Notes to Unaudited Condensed Consolidated Financial Statements

4

NET 1 UEPSTECHNOLOGIES, INC.
UnauditedCondensedConsolidatedStatement ofChanges in Equity for the threemonths endedSeptember 30, 2017 (dollaramounts inthousands)

See Notes to Unaudited Condensed Consolidated Financial Statements

5

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

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 months ended September 30, 2017 and 2016

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) 1. Basis of Presentation and Summary of Significant Accounting Policies 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 six months ended September 30,December 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, 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 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. The adoption of this guidance did not have a material impact on the Company’s financial statements disclosures. 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. The adoption of this guidance did not have a material impact on the Company’s financial 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, and has been applied on a prospective 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 September 30,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 September 30,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. 7 1. Basis of Presentation and Summary of Significant Accounting Policies (continued) Recent accounting pronouncements not yet adopted as of September 30, 2017 (continued) 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 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 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. 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. 8 2. 2. 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 October 2017January 2018 payment service commenced on October 1, 2017,January 2, 2018, but the Company pre-funded certain merchants participating in the merchant acquiring systems on the last day of SeptemberDecember 30, 2017. The July 2017 payment service commenced on July 1, 2017, but the Company pre-funded certain merchants participating in the merchant acquiring systems on the last day of June 2017. 3. 3. Inventory The Company’s inventory comprised the following category as of September 30,December 31, 2017 and June 30, 2017.       September 30,     June 30,         2017     2017     Finished goods $ 9,278   $ 8,020       $ 9,278   $ 8,020   4.     December 31,     June 30,       2017     2017   Finished goods $ 12,482   $ 8,020     $ 12,482   $ 8,020   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 cardholders 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. 5. Fair value of financial instruments 5. Fair value of financial instruments 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 utilized 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. 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 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 lending 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 investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities. 9 5. Fair value of financial instruments (continued) Fair value of financial instruments (continued)     Risk management (continued) 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 initial concentration of customers as it grows its working capital financing receivables base in Europe and the United States.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 “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 would 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 would 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. 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. 10 5. Fair value of financial instruments (continued) Financial instruments (continued)     Derivative transactions - Foreign exchange contracts (continued) The Company had no outstanding foreign exchange contracts as of September 30,December 31, 2017 and June 30, 2017, respectively. The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30,December 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:                                Cash and cash equivalents (included in other long-term assets) $ 599 $ - $ - $ 599        Fixed maturity investments (included in cash and cash equivalents) 5,796 - - 5,796    Other   -     37     -     37          Total assets at fair value $ 6,395   $ 37   $ -   $ 6,432       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   11 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, 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:                              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   There have been no transfers in or out of Level 3 during the three and six months ended September 30,December 31, 2017 and 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. 11 6. Equity-accounted investments and other long-term assets 6. Equity-accounted investments and other long-term assets Equity-accounted investments The Company’s ownership percentage in its equity-accounted investments as of September 30,December 31, 2017 and June 30, 2017, was as follows:       September 30,     June 30,         2017     2017     DNI-4PL (Pty) Ltd (“DNI”)   45%     -     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%       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 July 27, 2017, the Company 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 the Company’s agreements with DNI, the Company is required to pay to DNI an additional amount of up to ZAR 360 million ($26.529.1 million, translated at the foreign exchange rates applicable as of September 30,December 31, 2017), in cash, subject to the achievement of certain performance targets by DNI. The Company has not accrued for this contingent consideration as of September 30,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 partially fund the acquisition of Cell C. 12 6. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) On October 2, 2017, the Company acquired a 30% interest in Bank Frick, a fully licensed bank based in Balzers, Liechtenstein, from the Kuno Frick Family Foundation (“Frick Foundation”) for approximately CHF 39.8 million ($40.9 million) in cash. On January 26, 2018, the parties entered into an addendum to the Bank Frick shareholders agreement pursuant to which the Company agreed to purchase an additional 5% in Bank Frick from the Frick Foundation for CHF 10.4 million ($10.7 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. The Company has 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. The Company and Bank Frick have jointly identified several funding opportunities, including for the Company’s card issuing and acquiring and transaction processing activities as well new opportunities in cryptocurrency and blockchain. The investment in Bank Frick has the potential to provide the Company with a stable, long-term and strategic relationship with a fully-licensed bank. As of September 30,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 SeptemberDecember 29, 2017, the last trading day of the quarter, was R3.20R3.39 per share. The aggregate value of the Company’s holding in Finbond on September 30,December 31, 2017 was R657.5R696.6 million ($48.556.3 million translated at exchange rates applicable as of September 30,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 September 30,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 1.3339%1.4874% on September 30,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 rights offerrepayment date to November 30, 2017.on or before February 28, 2018, or such later date as may be mutually agreed by the parties in writing. The Company has 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 mechanism) 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 loan 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 of September 30,December 31, 2017 and June 30, 2017. 12 6. Equity-accounted investments and other long-term assets (continued) Equity-accounted investments (continued) Summarized below is the movement in equity-accounted investments during the threesix months ended September 30,December 31, 2017:       DNI     Finbond     KZ One     Other(1)   Total     Investment in equity:                                      Balance as of June 30, 2017 $ -   $ 18,961   $ 5,945   $ 797   $ 25,703                  Acquisition of shares   72,001     1,941     -     -     73,942                  Stock-based compensation   -     (207 )   -     -     (207 )                Comprehensive income (loss):   865     874     (54 )   163     1,848                          Other comprehensive loss   -     (227 )   -     -     (227 )                        Equity accounted earnings (loss)   865     1,101     (54 )   163     2,075                                  Share of net income (loss)   1,408     1,931     (54 )   163     3,448                                  Amortization of acquired intangible assets   (753 )   -     -     -     (753 )                                Deferred taxes on acquired intangible assets   210     -     -     -     210                                  Dilution resulting from corporate transactions   -     (830 )   -     -     (830 )                 Dividends received   (616 )   (1,096 )   -     (296 )   (2,008 )                Foreign currency adjustment(2)   (2,327 )   (767 )   (502 )   (33 )   (3,629 )        Balance as of September 30, 2017 $ 69,923   $ 19,706   $ 5,389   $ 631   $ 95,649                                       Investment in loans:                                      Balance as of June 30, 2017 $ -   $ -   $ 2,000   $ 159   $ 2,159                  Foreign currency adjustment(2)   -     -     -     (6 )   (6 )        Balance as of September 30, 2017 $ 0   $ 0   $ 2,000   $ 153   $ 2,153                     Equity     Loans     Total     Carrying amount as of:                                              June 30, 2017             $ 25,703   $ 2,159   $ 27,862                  September 30, 2017             $ 95,649   $ 2,153   $ 97,802       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 Nairanaira and the Namibian dollar, and the U.S. dollar on the carrying value. Strategic investment Bank Frick On October 2, 2017, the Company acquired 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 ($40.8 million translated at exchange rates applicable as of September 30, 2017). Following the successful completion of this investment, the Company has a two-year option 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. 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. The investment in Bank Frick has the potential to provide the Company with a stable, long term and strategic relationship with a fully licensed bank. The Company and Bank Frick have agreed that approximately $30 million of the Bank Frick’s free equity will be utilized as seed capital for a fund dedicated to the Company’s future activities. 13 6. Equity-accounted investments and other long-term assets (continued) Other long-term assets Summarized below is the breakdown of other long-term assets as of September 30,December 31, 2017, and June 30, 2017:       September 30,     June 30,         2017     2017                     Investment in 15% of Cell C (Proprietary) Limited (“Cell C”), at cost $ 147,473   $ -     Investment in 12% of One MobiKwik Systems Private Limited (“MobiKwik”), at cost   27,218     26,317          Total investments   174,691     26,317     Long-term portion of payments to agents in South Korea amortized over the contract period 20,413 17,290   Policy holder assets under investment contracts (Note 8)   599     627     Reinsurance assets under insurance contracts Note 8)   182     191     Other long-term assets   5,281     5,271          Total other long-term assets $ 201,166   $ 49,696       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 Proprietary Limited (“Cell C”), a leading mobile provider in South Africa, for an aggregate purchase price of ZAR 2.0 billion ($151.0 million) in cash. The Company funded the transaction through a combination of cash and the facilities described in Note 14 to the Company’s 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 5565 million users and 1.52.0 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 itsthe 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. 7. Goodwill and intangible assets, net 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 threesix months ended September 30,December 31, 2017:             Accumulated     Carrying         Gross value     impairment     value     Balance as of June 30, 2017 $ 188,833   $ -   $ 188,833          Foreign currency adjustment(1)   (2,294 )   -     (2,294 )                Balance as of September 30, 2017 $ 186,539   $ -   $ 186,539             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, 2017 $ 23,131   $ 140,570   $ 25,132   $ 188,833          Foreign currency adjustment(1)   (866 )   (703 )   (725 )   (2,294 )                Balance as of September 30, 2017 $ 22,265   $ 139,867   $ 24,407   $ 186,539       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. 1415 7. Goodwill and intangible assets, net (continued) 7. Goodwill and intangible assets, net (continued) Intangible assets, net Carrying value and amortization of intangible assets Summarized below is the carrying value and accumulated amortization of the intangible assets as of September 30,December 31, 2017 and June 30, 2017:       As of September 30, 2017     As of June 30, 2017         Gross           Net     Gross           Net         carrying     Accumulated     carrying     carrying     Accumulated     carrying         value     amortization     value     value     amortization     value     Finite-lived intangible assets:                                            Customer relationships $ 98,124     ($67,181 ) $ 30,943   $ 99,209   $ (65,595 ) $ 33,614          Software and unpatented technology 32,834 (30,974 ) 1,860 33,273 (31,112 ) 2,161        FTS patent   2,825     (2,825 )   -     2,935     (2,935 )   -          Exclusive licenses   4,506     (4,506 )   -     4,506     (4,506 )   -          Trademarks   6,863     (4,884 )   1,979     6,972     (4,759 )   2,213          Total finite-lived intangible assets 145,152 (110,370 ) 34,782 146,895 (108,907 ) 37,988   Indefinite-lived intangible assets:                                            Financial institution license   802     -     802     776     -     776          Total indefinite-lived intangible assets 802 - 802 776 - 776                Total intangible assets $ 145,954   $ (110,370 ) $ 35,584   $ 147,671   $ (108,907 ) $ 38,764       As of December 31, 2017     As of June 30, 2017       Gross           Net     Gross           Net       carrying     Accumulated      carrying      carrying     Accumulated     carrying         value     amortization     value     value     amortization     value   Finite-lived intangible assets:                                          Customer relationships $ 105,365   $ (75,089 ) $ 30,276   $ 99,209   $ (65,595 ) $ 33,614        Software and unpatented technology   35,227     (33,587 )   1,640     33,273     (31,112 )   2,161        FTS patent   3,098     (3,098 )   -     2,935     (2,935 )   -        Exclusive licenses   4,506     (4,506 )   -     4,506     (4,506 )   -        Trademarks   7,361     (5,486 )   1,875     6,972     (4,759 )   2,213        Total finite-lived intangible assets   155,557     (121,766 )   33,791     146,895     (108,907 )   37,988   Indefinite-lived intangible assets:                                          Financial institution license   813     -     813     776     -     776        Total indefinite-lived intangible assets   813     -     813     776     -     776                Total intangible assets $ 156,370   $ (121,766 ) $ 34,604   $ 147,671   $ (108,907 ) $ 38,764   Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30,December 31, 2017 and 2016, was approximately $2.8$2.9 million and $2.9$3.6 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2017 and 2016, was approximately $5.8 million and $6.5 million, respectively. Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30,December 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.   Fiscal 2018 $ 12,173     Fiscal 2019   10,728     Fiscal 2020   10,027     Fiscal 2021   4,350     Fiscal 2022   74     Thereafter   301          Total future estimated annual amortization expense $ 37,653   8. Reinsurance assets and policyholder liabilities under insurance and investment contracts 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 threesix months ended September 30,December 31, 2017:       Reinsurance     Insurance         assets(1)   contracts(2)   Balance as of June 30, 2017 $ 191   $ (1,611 )        Increase in policyholder benefits under insurance contracts   (556 )   (2,502 )        Claims and policyholders’ benefits under insurance contracts .   555     2,421          Foreign currency adjustment(3)   (8 )   60              Balance as of September 30, 2017 $ 182   $ (1,632 )     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) (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. 15 8. Reinsurance assets and policyholder liabilities under insurance and investment contracts (continued) 16 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 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 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 threesix months ended September 30,December 31, 2017:             Investment         Assets(1)   contracts(2)   Balance as of June 30, 2017 $ 627   $ (627 )        Decrease in policyholder benefits under investment contracts .   (4 )   4          Foreign currency adjustment(3)   (24 )   24              Balance as of September 30, 2017 $ 599   $ (599 )           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) (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. 9. Short-term credit facilities Summarized below are the Company’s available short-term facilities and the amounts utilized as of September 30,December 31, 2017 and June 30, 2017, all amounts below were translated at the exchange rates applicable as of the date presented:       September 30, 2017     June 30, 2017         Available     Utilized     Available     Utilized                                 Europe:                                Bank Frick(1) $ 67,958   $ 45,737   $ 66,579   $ 16,579     South Africa:                                Nedbank Limited (“Nedbank”   29,400     9,519     30,600     10,000                  Overdraft facility(1)   18,300     -     19,109     -                  Indirect and derivative facilities (Note 18) $ 11,100   $ 9,519   $ 11,491   $ 10,000       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 has obtained EUR 40.0 million ($47.347.9 million) and CHF 20 million ($20.720.5 million) revolving overdraft facilities from Bank Frick. As of September 30,December 31, 2017, the Company had utilized approximately CHF 17.04.7 million ($17.64.8 million) of the CHF 20 million facility and approximately CHF 23.8EUR 25.7 million ($28.130.7 million) of the EUR 40 million facility. All amounts have been translated at exchange rates applicable as of September 30,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 September 30,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. 1617 9. 9. Short-term credit facilities (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 full 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 investment in 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 ($29.432.4 million) and consists of (i) a primary amount of up to ZAR 200 million ($14.716.2 million, and (ii) a secondary amount of up to ZAR 200 million ($14.716.2 million) (all amounts denominated in ZAR and translated at exchange rates applicable as of September 30,December 31, 2017). The primary amount comprises an overdraft facility of up to ZAR 50 million ($3.64.0 million) and indirect and derivative facilities of up to ZAR 150 million ($11.112.2 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 September 30,December 31, 2017). As of September 30,December 31, 2017, the interest rate on the overdraft facility was 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 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. As of each of September 30,December 31, 2017 and June 30, 2017, respectively, the Company had not utilized any of its overdraft facility. As of September 30,December 31, 2017, the Company had utilized approximately ZAR 129.1126.0 million ($9.510.2 million, translated at exchange rates applicable as of September 30,December 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, 2017, the Company had utilized approximately ZAR 130.5 million ($10.0 million, translated at exchange rates applicable as of June 30, 2017) of its ZAR 150 million indirect and derivative facilities. 10. Long-term borrowings 10. Long-term borrowings South Africa The Company’s South African long-term facility agreement is described in Note 14 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2017. As of September 30,December 31, 2017, $77.9$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 JIBAR rateJohannesburg Interbank Agreed Rate (“JIBAR”) has been set at 6.99%7.158% for the period to DecemberMarch 29, 2017.2018. 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 eight 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 $13.8ZAR 187.5 million will be made on December 29, 2017. All amounts($15.2 million, translated at exchange rates applicable as of September 30, 2017.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 September 30,December 31, 2017, was $1.7 million.$1.9 million and $3.6 million, respectively. During the three and six months ended September 30,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. 18 10. Long-term borrowings (continued) South Korea The South Korean senior secured loan facility is described in Note 14 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2017. AsOn October 20, 2017, the Company made an unscheduled repayment of September 30, 2017, $16.3$16.6 million wasand settled the full outstanding under the Company’s South Korean senior secured loan facility, and the carrying amount of the long-term borrowings approximated fair value. Thebalance, including interest, rate in effect on September 30, 2017 was 4.51% .related to these borrowings. On July 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 AfricanKorean long-term facility agreement to pay interest due on the Company’s South Korean senior secured loan facility. The next scheduled principal payment of $8.7 million (translated at exchange rates applicable as of September 30, 2017) was due on April 29, 2018, however, the Company settled the full outstanding balance, including interest, related to these borrowings on October 20, 2017. 17 10. Long-term borrowings(continued) South Korea (continued) Interest expense incurred during the three months ended September 30,December 31, 2017 and 2016, was $0.1 million and $0.2 million, respectively. Interest expense incurred during the six months ended December 31, 2017 and $0.52016, was $0.4 million and $0.7 million, respectively. Prepaid facility fees amortized during the three months ended September 30,December 31, 2017 and 2016, was $0.1 million and $0.03 million and $0.04 million, respectively. The unamortized prepaidPrepaid facility fees of approximately $0.1 million, as of September 30, 2017, will be expensedamortized during the three and six months ended December 31, 2017.2017 and 2016, was $0.1 million and $0.07 million, respectively. 11. 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 threesix months ended September 30,December 31, 2017 and 2016, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the threesix months ended September 30,December 31, 2017 and 2016, respectively:       September 30,     September 30,         2017     2016                     Number of shares, net of treasury:                    Statement of changes in equity   56,927,696     52,521,345          Less: Non-vested equity shares that have not vested (Note 13)   (1,007,182 )   (904,356 )                Number of shares, net of treasury excluding non-              vested equity shares that have not vested 55,920,514 51,616,989     December 31,     December 31,       2017     2016                 Number of shares, net of treasury:                  Statement of changes in equity   56,832,370     52,521,345        Less: Non-vested equity shares that have not vested (Note 13)   (911,856 )   (904,356 )                Number of shares, net of treasury excluding non-vested equity shares that have not vested   55,920,514     51,616,989   Common stock repurchases Executed under share repurchase authorizations The Company did not repurchase any of its shares during the three and six months ended September 30, 2017.December 31, 2017, or during the three months ended December 31, 2016. In February 2016, the Company’s board of directors 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. During the threesix months ended September 30,December 31, 2016, the Company repurchased 1,328,699 shares for approximately $12.7 million under its share repurchase authorization. 12. 19 12. Accumulated other comprehensive loss The table below presents the change in accumulated other comprehensive (loss) income per component during the threesix months ended September 30,December 31, 2017:             Three months ended                     September 30, 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 ) $ 0   $ (162,569 )        Movement in foreign currency translation reserve related to equity accounted investment (227 ) - (227 )        Movement in foreign currency translation reserve   (13,769 )   -     (13,769 )                Balance as of September 30, 2017 $ (176,565 ) $ 0   $ (176,565 )     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 six months ended September 30,December 31, 2017 or 2016. 1813. Stock-based compensation 13. Stock-based compensation Stock option and restricted stock activity Options The following table summarizes stock option activity for the threesix months ended September 30,December 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)   ($)                                       Outstanding – June 30, 2017   846,607     13.87     3.80     486            Forfeitures   (37,333 )   11.23                            Outstanding – September 30, 2017   809,274     13.99     3.40     468                                             Outstanding – June 30, 2016   2,077,524     15.92     3.65     926            Expired unexercised   (474,443 )   22.51                            Outstanding – September 30, 2016   1,603,081     13.98     4.50     452                         Weighted                         Weighted     average           Weighted             average     remaining     Aggregate     average             exercise     contractual     intrinsic     grant date       Number of     price     term     value     fair value       shares     ($)     (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 six months ended September 30,December 31, 2017 or 2016. DuringThere were no forfeitures during the three months ended September 30,December 31, 2017. During the six months ended December 31, 2017, employees forfeited 37,333 stock options. There were no forfeitures during the three and six months ended September 30,December 31, 2016; however, during the three and six months ended September 30,December 31, 2016, 474,443 stock options awarded in August 2006, expired unexercised. The following table presents stock options vested and expecting to vest as of September 30,December 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 – September 30, 2017 809,274 13.99 3.40 468                 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 $24.46. The following table presents stock options that are exercisable as of September 30,December 31, 2017:                   Weighted                     Weighted     average                     average     remaining     Aggregate               exercise     contractual     intrinsic         Number of     price     term     value         shares     ($)     (in years)     ($’000)   Exercisable – September 30, 2017   809,274     13.99     3.40     468                   Weighted                   Weighted     average                   average     remaining     Aggregate             exercise     contractual     intrinsic       Number of     price     term     value       shares     ($)     (in years)     ($’000)   Exercisable – December 31, 2017   809,274     13.99     3.15     1,022   DuringNo stock options became exercisable during the three months ended September 30,December 31, 2017 and 2016, respectively. During the six months ended December 31, 2017 and 2016, respectively, 105,982 and 154,803 stock options became exercisable. No stock options were exercised during the three months ended September 30, 2017 and 2016. The Company issues new shares to satisfy stock option exercises. 19 13. Stock-based compensation (continued) Stock option and restricted stock activity (continued) Restricted stock (continued) The following table summarizes restricted stock activity for the threesix months ended September 30,December 31, 2017 and 2016:       Number of     Weighted         shares of     average grant         restricted     date fair value         stock     ($’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          Non-vested – September 30, 2017   1,007,182     9,689                     Non-vested – June 30, 2016   589,447     7,622      Granted – August 2016   387,000     4,145      Vested – August 2016   (72,091 )   735          Non-vested – September 30, 2016   904,356     11,142       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: • Below $15.00 (threshold)—0% • At or above $15.00 and below $19.00—33% • At or above $19.00 and below $23.00—66% • At or above $23.00—100% Below $15.00 (threshold)—0% At or above $15.00 and below $19.00—33% At or above $19.00 and below $23.00—66% At or above $23.00—100% 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. 20 13. Stock-based compensation (continued) Stock option and restricted stock activity (continued)     Restricted stock (continued) Performance Conditions - Restricted Stock Granted in August 2016 In August 2016 the 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: • One-third of the shares will vest if the Company achieves 2019 Fundamental EPS of $2.60; • Two-thirds of the shares will vest if the Company achieves 2019 Fundamental EPS of $2.80; and • All of the shares will vest if the Company achieves 2019 Fundamental EPS of $3.00. One-third of the shares will vest if the Company achieves 2019 Fundamental EPS of $2.60; Two-thirds of the shares will vest if the Company achieves 2019 Fundamental EPS of $2.80; and All of the shares will vest if the Company achieves 2019 Fundamental EPS of $3.00. 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. Performance Conditions - Restricted Stock Granted in August 2015 In August 2015 the Company awarded 301,537 shares of restricted stock to executive officers and employees. These shares of restricted stock 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: • One-third of the shares will vest if the Company achieves 2018 Fundamental EPS of $2.88; • Two-thirds of the shares will vest if the Company achieves 2018 Fundamental EPS of $3.30; and • All of the shares will vest if the Company achieves 2018 Fundamental EPS of $3.76. One-third of the shares will vest if the Company achieves 2018 Fundamental EPS of $2.88; Two-thirds of the shares will vest if the Company achieves 2018 Fundamental EPS of $3.30; and All of the shares will vest if the Company achieves 2018 Fundamental EPS of $3.76. 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. 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 September 30,December 31, 2016, the Company reversed the stock-based compensation charge recognized to date related to the 301,537 shares of restricted stock because it believed that it was unlikely that the 2018 Fundamental EPS target would 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 threesix months ended September 30,December 31, 2017 and 2016, respectively, was $0.5 million and $0.7 million. 21 13. Stock-based compensation (continued) Stock-based compensation charge and unrecognized compensation cost The Company recorded a stock-based compensation charge during each of the three months ended December 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 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 recorded a stock-based compensation charge (reversal) during the threesix months ended September 30,December 31, 2017 and 2016 of $0.8$1.4 million and ($1.30.7 million), respectively, which comprised:         Allocated to cost                 Allocated to cost                 of goods sold, IT     Allocated to           of goods sold, IT     Allocated to           processing,     selling, general           processing,     selling, general     Total     servicing and     and     Total     servicing and     and     charge     support     administration     charge     support     administration   Three months ended September 30, 2017                   Six months ended December 31, 2017                   Stock-based compensation charge $ 869   $ -   $ 869   $ 1,477   $ -   $ 1,477   Reversal of stock compensation charge related to stock options forfeited (42 ) - (42 )   (42 )   -     (42 ) Total – three months ended September 30, 2017 $ 827   $ -   $ 827   Total – six months ended December 31, 2017 $ 1,435   $ -   $ 1,435                                       Three months ended September 30, 2016                   Six months ended December 31, 2016                   Stock-based compensation charge $ 503   $ -   $ 503   $ 1,138   $ -   $ 1,138   Reversal of stock compensation charge related to restricted stock (1,827 ) - (1,827 )   (1,827 )   -     (1,827 ) Total – three months ended September 30, 2016 $ (1,324 ) $ -   $ (1,324 ) 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 September 30,December 31, 2017, the there was no unrecognized compensation cost related to stock options because all stock options granted have vested. As of September 30,December 31, 2017, the total unrecognized compensation cost related to restricted stock awards was approximately $5.1$4.5 million, which the Company expects to recognize over approximately two years. This amount excludes the total unrecognized compensation cost as of September 30,December 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. As of September 30,December 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 $2.9$3.2 million (which amount includes the $1.8 million reversed during the threesix months ended September 30,December 31, 2016). As of September 30,December 31, 2017 and June 30, 2017, the Company recorded a deferred tax asset of approximately $0.6$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 the exercise price from income subject to taxation in the United States. 14. 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 six months ended September 30,December 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 15 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2017. 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 six months ended September 30,December 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. 2224 14. 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 2014, November 2014, August 2015, August 2016 and August 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, 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         September 30,         2017     2016         (in thousands except percent         and         per share data)     Numerator:                    Net income attributable to Net1 $ 19,483   $ 24,632          Undistributed earnings   19,483     24,632          Percent allocated to common shareholders (Calculation 1)   99%     99%          Numerator for earnings per share: basic and diluted $ 19,267   $ 24,276                     Denominator:                    Denominator for basic earnings per share: weighted-average common                    shares outstanding   56,562     53,053          Effect of dilutive securities:                            Stock options   47     91                          Denominator for diluted earnings per share: adjusted weighted                       average common shares outstanding and assumed conversion 56,609 53,144                   Earnings per share:                    Basic $ 0.34   $ 0.46          Diluted $ 0.34   $ 0.46                     (Calculation 1)                    Basic weighted-average common shares outstanding (A)   56,562     53,053          Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B) 57,196 53,832        Percent allocated to common shareholders (A) / (B)   99%     99%       Three months ended     Six months ended       December 31,     December 31,       2017     2016     2017     2016       (in thousands except     (in thousands except       percent and     percent and       per share data)     per share data)   Numerator:                              Net income attributable to Net1 $ 9,622   $ 18,641   $ 29,105   $ 43,273        Undistributed earnings   9,622     18,641     29,105     43,273        Percent allocated to common shareholders (Calculation 1)   99%     98%     98%     98%        Numerator for earnings per share: basic and diluted $ 9,481   $ 18,296   $ 28,664   $ 42,561                             Denominator:                              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   52     122     50     106                                      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 $ 0.17   $ 0.35   $ 0.51   $ 0.81        Diluted $ 0.17   $ 0.35   $ 0.51   $ 0.81                             (Calculation 1)                              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)   56,755     52,521     56,762     53,176        Percent allocated to common shareholders (A) / (B)   99%     98%     98%     98%   Options to purchase 409,148357,643 shares of the Company’s common stock at prices ranging from $10.59 to $24.46 per share were outstanding during the three and six months ended September 30,December 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 September 30,December 31, 2017. 15. 15. Supplemental cash flow information The following table presents supplemental cash flow disclosures for the three and six months ended September 30,December 31, 2017 and 2016:       Three months ended         September 30,         2017     2016     Cash received from interest $ 5,286   $ 4,285                     Cash paid for interest $ 2,088   $ 1,076                     Cash paid for income taxes $ 2,036   $ 1,503       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   2325 15. 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 threesix months ended September 30,December 31, 2016. 16. 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, 2017. The reconciliation of the reportable segments revenue to revenue from external customers for the three months ended September 30,December 31, 2017 and 2016, is as follows:       Revenue                     From         Reportable     Inter-     external         Segment     segment     customers     South African transaction processing $ 66,437   $ 6,145   $ 60,292     International transaction processing   46,022     -     46,022     Financial inclusion and applied technologies   54,313     8,069     46,244       Total for the three months ended September 30, 2017 $ 166,772   $ 14,214   $ 152,558                           South African transaction processing $ 57,568   $ 5,401   $ 52,167     International transaction processing   46,190     -     46,190     Financial inclusion and applied technologies   63,542     6,266     57,276       Total for the three months ended September 30, 2016 $ 167,300   $ 11,667   $ 155,633       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   The reconciliation of the reportable segments revenue to revenue from external customers for the six months ended December 31, 2017 and 2016, is as follows:     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 six months ended September 30,December 31, 2017 and 2016, is as follows:       Three months ended         September 30,         2017     2016     Reportable segments measure of profit or loss $ 31,568   $ 34,548      Operating income: Corporate/Eliminations   (6,562 )   (2,367 )    Interest income   5,044     4,304      Interest expense   (2,121 )   (796 )        Income before income taxes $ 27,929   $ 35,689       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 six months ended September 30,December 31, 2017 and 2016:       Three months ended         September 30,         2017     2016     Revenues                    South African transaction processing $ 66,437   $ 57,568          International transaction processing   46,022     46,190          Financial inclusion and applied technologies   54,313     63,542              Total $ 166,772   $ 167,300   24 16. Operating segments (continued)       Three months ended         September,         2017     2016     Operating income (loss)                  South African transaction processing $ 12,332   $ 13,548        International transaction processing   5,316     5,817        Financial inclusion and applied technologies   13,920     15,183           Subtotal: Operating segments   31,568     34,548              Corporate/Eliminations   (6,562 )   (2,367 )               Total   25,006     32,181     Depreciation and amortization                  South African transaction processing   1,153     1,157        International transaction processing   4,632     5,836        Financial inclusion and applied technologies   355     337           Subtotal: Operating segments   6,140     7,330              Corporate/Eliminations   2,826     2,874                 Total   8,966     10,204     Expenditures for long-lived assets                  South African transaction processing   477     407        International transaction processing   906     2,799        Financial inclusion and applied technologies   90     217           Subtotal: Operating segments   1,473     3,423              Corporate/Eliminations   -     -                 Total $ 1,473   $ 3,423       Three months ended     Six months ended       December 31,     December 31,       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   900     635     1,377     1,042        International transaction processing   892     2,167     1,798     4,966        Financial inclusion and applied technologies   311     324     401     541            Subtotal: Operating segments   2,103     3,126     3,576     6,549                   Corporate/Eliminations   -     -     -     -                             Total $ 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. 17. Income tax 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 six months ended September 30,December 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 six months ended September 30,December 31, 2017, was 36.8%53.8% and 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(including transaction-related expenditure and non-deductible interest on our South African long-term facility.facility) and the impact of the changes in U.S. federal statutory tax rates described below. For the three and six months ended September 30,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 September 30,December 31, 2016, was 31.1%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. New 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 six months ended December 31, 2017, was $0.3 million. The Company has also provided an additional valuation allowance of approximately $0.6 million related to net operating loss carryforwards that it does 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, 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 September 30,December 31, 2017. As of September 30,December 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. 25 17. Income tax (continued) Uncertain tax positions (continued) As of September 30,December 31, 2017 and June 30, 2017, the Company had unrecognized tax benefits of $0.5 million and $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 September 30,December 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, 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. 18. Commitments and contingencies 28 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 129.1126.0 million ($9.510.2 million, translated at exchange rates applicable as of September 30,December 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 129.1126.0 million ($9.510.2 million, translated at exchange rates applicable as of September 30,December 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 September 30,December 31, 2017. The maximum potential amount that the Company could pay under these guarantees is ZAR 129.1126.0 million ($9.510.2 million, translated at exchange rates applicable as of September 30,December 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 ($47.347.9 million) and CHF 20 million ($20.720.5 million) revolving overdraft facilities provided to Masterpayment. As of September 30,December 31, 2017, Masterpayment had utilized approximately $28.1$30.7 million of the EUR 40.0 million facility and $17.6$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 $45.7$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. 2629 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, 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, 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 Update Our current contract with SASSA is scheduled to expire on March 31, 2018. In accordance with the Constitutional Court’s order to file quarterly progress reports, SASSA filed its second progress report with the court on September 15, 2017 and the expert panel appointed by the court filed its firstthe regular progress reportreports in accordance with the court on September 14, 2017.Constitutional Court’s order. We have provided the expert panel with all the information required from us and we also met withus. On December 10, 2017, the panel subsequentMinister in the Presidency, Jeff Radebe, announced that the Inter-ministerial Committee appointed by the South African President to oversee the filingtransition of its first report. SASSA’s second progress report indicated that it is considering the appointment ofgrant payments brokered a high-level cooperation agreement between the South African Post Office, or SAPO, to assistand SASSA, in terms of which SAPO will assume responsibility for the distribution of social grants with certain aspectseffect from April 1, 2018. On January 15, 2018, SASSA filed a report with the Constitutional Court stating the following: “The process of the grant payment process, in accordancecontinuing with a waiver obtained from the National Treasury of South Africa to contract directly with another organ of state without the need forcash payments will require a tender process, andsince SAPO has indicated that tenders will bethey are unable to undertake 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 payment components that cannotpayments system. In the same report to the court, SASSA also stated: “A phase in period of at least 6 months would be delivered by SAPO. SASSA has issued no such tenders. The expert panel’s first report expressed reservations regarding SASSA’s ability to complete a processrequired to take over payments from the existing provider, CPS. This implies that the court will have to be approached to extend 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 6, 2018, SASSA filed a notice of motion with 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 SASSA 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 payment as those currently in place between CPS and SASSA for the period 1 April 1, 2018 up to 30 September 2018, provided CPS shall be paid only in respect of such limited services to be rendered to SASSA and contained several recommendations. Thein respect of this categories (sic) of beneficiaries only." In line with the recommendations made by the expert 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 distribution of grant payments. SASSA has not issued any orders pursuant toindicated that the filingsubsidization of bank accounts will be considered if agreement can be reached with prospective participating banks regarding the functionality of the expert panel’s first progress report. According to the Department of Social Development’s website, following a limited due diligence review conducted byaccounts being offered. SASSA has since engaged the South African Councilbanks to determine the feasibility of such an approach. 30 On February 6, 2018, CPS launched an application with the Constitutional Court seeking an order declaring that CPS is not prohibited by the Constitutional Court’s order of March 17, 2017, from participating in the tender for Scientific and Industrial Research, or CSIR”) SASSA extended a formal offer to SAPO to develop an integrated grant“the provision of cash payment solution, which is one of the four components identifiedservices for social assistance” issued by SASSA, that comprise the grant payment process. On October 20, 2017, SAPO informedbecause SASSA that it could not accept the offer on the basis that the four components identified by SASSA could not be separated, and requested SASSA to reconsider its original offer. On October 31, 2017, SASSA and SAPO were called to a joint meeting of the South African Parliament’s Portfolio Committee on Social Development and Standing Committee on Public Accounts (‘joint committee”) to provide a progress report. SASSA and SAPO indicated that they had not reached an agreement. SASSA and SAPO were requested to find a solution and report back to the joint committee on November 1. 2017. At that meeting, SASSA and SAPOhas previously reported that an agreement hadCPS is not been reached. The joint committee requested that the National Treasury perform a review of the current procurement process initiated by SASSA and that an Interministerial Committee that was establishedentitled to participate in March 2017 should provide guidance on the way forward. On November 8, 2017, the Interministerial Committee reported to a joint committee meeting that a cooperation agreement between SASSA and SAPO will be signed by November 17, 2017any 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 was extended in March 2017. We will continue to cooperate with SASSA, the expert panel and any other delegated government entity to assist them in finding a solution and ensuring a smooth handover to any entity legally appointed to render the grant payment service. 27 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 OctoberJanuary 31, 2017,2018, we had more than 2.142.3 million active EPE accounts, compared to 2.02.1 million at JulyOctober 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 and a non—profit organization continue to challenge the ability of beneficiaries to freely transact with the grants that they 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 started to expand our brick-and-mortar financial services branch infrastructure, which supplements our nationwide distribution, with a UEPS/EMV-enabled ATM network, and 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 OctoberJanuary 31, 2017,2018, we had 146152 branches (July(October 31, 2017: 149)146), 1,0081,073 ATMs (July(October 31, 2017: 980)1,008), and 1,925 (July2,394 (October 31, 2017: 1,822)1,925) dedicated employees.employees, including the temporary staff. During the fourseven months since July 1, 2017, we sold approximately 59,000109,000 new policies related to our simple, low-cost life insurance products, in addition to the free basic life insurance policy provided with every EPE account opened. The graph below presents the growth of the number of EPE cards and Smart Life policies: 31 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 ($26.529.1 million, translated at the foreign exchange rates applicable as of September 30,December 31, 2017), in cash, subject to the achievement of certain performance targets by DNI. 28 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 September 30,December 31, 2017). FollowingOn January 26, 2018, the successful completionparties 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 this investment, weBank Frick’s Fintech and blockchain businesses. We have a two-yearan 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 working capital finance, card issuing and acquiring, remittance and transaction processing activities.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 agreedperformed 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 approximately $30 millionwe 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. 32 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’s free equityFrick 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 utilized as seed capital for a fund dedicated tocancelled and we will be released from our future activities.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, 2017: • Business combinations and the recoverability of goodwill; • Intangible assets acquired through acquisitions; • Deferred taxation; • Stock-based compensation; and • Accounts receivable and allowance for doubtful accounts receivable. Business combinations and the recoverability of goodwill; Intangible assets acquired through acquisitions; Deferred taxation; Stock-based compensation; and Accounts receivable and allowance for doubtful accounts receivable. Recent accounting pronouncements adopted Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements adopted, including the dates of adoption and the effects on our condensed consolidated financial statements. Recent accounting pronouncements not yet adopted as of September 30,December 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 September 30,December 31, 2017, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows. 29New 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. 33 Currency Exchange Rate Information Actual exchange rates The actual exchange rates for and at the end of the periods presented were as follows: Table 1   Three months ended     Year ended     Three months ended     Six months ended     Year ended     September 30,     June 30,     December 31,     December 31,     June 30,     2017     2016     2017     2017     2016     2017     2016     2017   ZAR : $ average exchange rate   13.1731     14.0890     13.6147     13.6318     13.9300     13.4025     14.0095     13.6147   Highest ZAR : $ rate during period   13.5643     14.8114     14.8114     14.4645     14.4618     14.4645     14.8114     14.8114   Lowest ZAR : $ rate during period   12.8160     13.3000     12.4379     12.3268     13.3634     12.3268     13.3000     12.4379   Rate at end of period   13.5618     13.8630     13.0535     12.3689     13.7392     12.3689     13.7392     13.0535                                                   KRW : $ average exchange rate   1,133     1,121     1,141     1,107     1,159     1,120     1,140     1,141   Highest KRW : $ rate during period   1,156     1,163     1,210     1,148     1,210     1,156     1,210     1,210   Lowest KRW : $ rate during period   1,115     1,092     1,092     1,067     1,100     1,067     1,092     1,092   Rate at end of period   1,152     1,102     1,144     1,067     1,207     1,067     1,207     1,144   3034 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 six months ended September 30,December 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     Year ended     Three months ended     Six months ended     Year ended     September 30,     June 30,     December 31,     December 31,     June 30,     2017     2016     2017     2017     2016     2017     2016     2017   Income and expense items: $1 = ZAR .   13.1691     14.1048     13.6182   Income and expense items: $1 = ZAR   13.6675     13.9434     13.4127     14.0292     13.6182   Income and expense items: $1 = KRW   1,133     1,127     1,146     1,107     1,172     1,125     1,152     1,146                                                   Balance sheet items: $1 = ZAR   13.5618     13.8630     13.0535     12.3689     13.7392     12.3689     13.7392     13.0535   Balance sheet items: $1 = KRW   1,152     1,102     1,144     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 fiscalexcludes XeoHealth from November 1, 2017 does not include these entities.as a result of the sale of the business. Fiscal 2017 includes the results of Pros Software from October 1, 2016, and C4U Malta from November 1, 2016. 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. 3135 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. FirstSecond quarter of fiscal 2018 compared to firstsecond quarter of fiscal 2017 The following factors had a significant influence on our results of operations during the firstsecond quarter of fiscal 2018 as compared with the same period in the prior year: • Favorable impact from the weakening of the U.S. dollar against South African Rand:The U.S. dollar depreciated by 6% against the ZAR during the first quarter of fiscal 2018, which positively impacted our reported results; • Growth in insurance businesses:We continued to experience volume growth and operating efficiencies in our insurance businesses during the first quarter of fiscal 2018, which has resulted in an improved contribution to our financial inclusion revenue and operating income; • Ongoing contributions from EasyPay Everywhere:EPE revenue and operating income growth was driven primarily by ongoing EPE adoption as we further expanded our customer base utilizing our ATM infrastructure; • Higher equity accounted earnings related to DNI:The acquisition of 45% of DNI has positively impacted our reported results by approximately $1.4 million, before amortization of intangible assets, net of deferred taxes; • Adverse impact on interest income from utilization of surplus cash to invest in Cell C and DNI:Our interest income was adversely impacted by approximately $1.2 million, before the impact of any taxes, as a result of our utilization of approximately ZAR 1.4 billion and $23.0 million, respectively, of our surplus cash reserves to partially fund our investments in Cell C and DNI; • Higher interest expense resulting from South African facility:Our interest expense increased due to the South African lending facility we obtained in August 2017, to partially fund our 15% investment in Cell C; • Masterpayment expansion costs:Masterpayment has incurred additional employment costs as it grows its staff complement to execute its expansion plan into new markets; • Lower prepaid sales and ad hoc terminal sales:The number of transacting users purchasing prepaid products through our mobile channel decreased due to security features introduced in fiscal 2017. In addition, our results were adversely impacted by few ad hoc terminal sales; and • Higher transaction-related costs in fiscal 2018:We incurred $1.5 million in transaction-related costs pertaining to various acquisition and investment initiatives pursued during the first quarter of fiscal 2018. Favorable impact from the weakening of the U.S. dollar against South African Rand:The U.S. dollar depreciated by 2% against the ZAR and 6% against the KRW during the second quarter of fiscal 2018, which positively impacted our reported results; Growth in insurance and lending businesses:Volume growth and operating efficiencies in our insurance and lending businesses during the second quarter of fiscal 2018, resulted in an improved contribution to our financial inclusion revenue and operating income. The significant growth in our South African lending book during December 2017 resulted in a substantial increase in the allowance for doubtful finance loans receivable, in accordance with our policy of providing for doubtful finance loans receivable at the time that a loan is originated; Ongoing contributions from EasyPay Everywhere:EPE revenue and operating income growth was driven primarily by ongoing EPE adoption as we further expanded our customer base utilizing our ATM infrastructure; Higher equity-accounted earnings related to DNI and Bank Frick:The acquisition of 45% of DNI and 30% of Bank Frick positively impacted our reported results by approximately $2.3 million, before amortization of intangible assets, net of deferred taxes; Higher revenue from Masterpayment and allowance for credit losses:Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to its cryptocurrency processing launched in December 2017, as well as from its working capital financing and supply chain solutions. An allowance for credit losses related to doubtful working capital finance receivable of $7.8 million was created. A valuation allowance has been provided for any potential tax benefit from this event as it is unlikely that this amount would be utilized for taxation purposes; Regulatory changes in South Korea pertaining to fees on card transactions:The regulations governing the fees that may be charged on card transactions adversely impacted our revenues and operating income in South Korea; Lower net interest income resulting from investments in Cell C, DNI and Bank Frick:Interest income was $1.8 million lower as a result of cash utilized to purchase non-controlling stakes in Cell C, DNI and Bank Frick, while interest expense increased due to the South African lending facility we obtained in August 2017 to partially fund our 15% investment in Cell C; Lower prepaid sales and ad hoc terminal sales:The number of transacting users purchasing prepaid products through our mobile channel decreased due to security features introduced in fiscal 2017. In addition, our results were adversely impacted by fewer ad hoc terminal sales; and Lower transaction-related costs in fiscal 2018:We incurred $0.6 million in transaction-related costs in connection with various investment initiatives pursued during the second quarter of fiscal 2018 compared with $1.2 million in fiscal 2017. 36 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 September 30,     Three months ended December 31,     2017     2016   $  %     2017     2016   $  %   $ ’000   $ ’000     change   $ ’000   $ ’000     change   Revenue   152,558     155,633     (2% )   148,416     151,433     (2% ) Cost of goods sold, IT processing, servicing and support   74,652     74,780     (0% )   73,994     73,518     1%   Selling, general and administration   43,934     38,468     14%     49,392     41,703     18%   Depreciation and amortization   8,966     10,204     (12% )   8,723     10,623     (18% ) Operating income   25,006     32,181     (22% )   16,307     25,589     (36% ) Interest income   5,044     4,304     17%     4,705     5,061     (7% ) Interest expense   2,121     796     166%     2,325     510     356%   Income before income tax expense   27,929     35,689     (22% )   18,687     30,140     (38% ) Income tax expense   10,277     11,103     (7% )   10,062     10,984     (8% ) Net income before earnings from equity-accounted investments   17,652     24,586     (28% )   8,625     19,156     (55% ) Earnings from equity-accounted investments   2,075     659     215%     1,354     74     1,730%   Net income   19,727     25,245     (22% )   9,979     19,230     (48% ) Less net income attributable to non-controlling interest   244     613     (60% )   357     589     (39% ) Net income attributable to us   19,483     24,632     (21% )   9,622     18,641     (48% )     In South African Rand   Table 4   (U.S. GAAP)       Three months ended December 31,       2017     2016             ZAR     ZAR     ZAR %       ’000     ’000     change   Revenue   2,028,475     2,111,493     (4% ) Cost of goods sold, IT processing, servicing and support   1,011,312     1,025,093     (1% ) Selling, general and administration   675,065     581,482     16%   Depreciation and amortization   119,222     148,120     (20% ) Operating income   222,876     356,798     (38% ) Interest income   64,306     70,568     (9% ) Interest expense   31,777     7,111     347%   Income before income tax expense   255,405     420,255     (39% ) Income tax expense   137,522     153,154     (10% ) Net income before earnings from equity-accounted investments   117,883     267,101     (56% ) Earnings from equity-accounted investments   18,506     1,032     1,693%   Net income   136,389     268,133     (49% ) Less net income attributable to non-controlling interest   4,879     8,213     (41% ) Net income attributable to us   131,510     259,920     (49% ) 32The 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 insurance activities, and a 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. The increase in selling, general and administration expense was primarily due to an allowance for doubtful working capital finance receivables of $7.8 million, the impact of October 2017 annual salary increases for our South African 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. These 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 $0.6 million, compared to $1.2 million in the prior year. 37 Depreciation 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 second quarter of fiscal 2018 and 2017 was 11% and 17% 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 relative to the reduction in revenue. Interest on surplus cash decreased to $4.7 million (ZAR 64.3 million) from $5.1 million (ZAR 70.6 million), due primarily to the lower average daily ZAR cash balances, partially offset by interest earned on the loan to Finbond. Interest expense increased to $2.3 million (ZAR 31.8 million) from $0.5 million (ZAR 7.1 million), due primarily to interest 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 as a result of repayment of the debt in full in October 2017. Fiscal 2018 tax expense was $10.1 million (ZAR 137.5 million) compared to $11.0 million (ZAR 153.2 million) in fiscal 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 36.4% and was higher than the South African statutory rate as a result of non-deductible expenses. Earnings from equity-accounted investments increased primarily due to the inclusion of our portion of DNI and Bank Frick. The table below presents the relative earnings (loss) from our 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 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% )     In South African Rand   Table 4   (U.S. GAAP)       Three months ended September 30,       2017     2016             ZAR     ZAR     ZAR %       ’000     ’000     change   Revenue   2,011,951     2,195,171     (8% ) Cost of goods sold, IT processing, servicing and support   984,518     1,054,755     (7% ) Selling, general and administration   579,406     542,583     7%   Depreciation and amortization   118,245     143,926     (18% ) Operating income   329,782     453,907     (27% ) Interest income   66,521     60,707     10%   Interest expense   27,972     11,227     149%   Income before income tax expense   368,331     503,387     (27% ) Income tax expense   135,534     156,606     (13% ) Net income before earnings from equity-accounted investments   232,797     346,781     (33% ) Earnings from equity-accounted investments   27,365     9,295     194%   Net income   260,162     356,076     (27% ) Less net income attributable to non-controlling interest   3,218     8,646     (63% ) Net income attributable to us   256,944     347,430     (26% ) Table 7   In South African Rand (U.S. GAAP)       Three months ended December 31,       2017           2016                   ZAR     % of     ZAR     % of     %   Operating Segment   ’000     total     ’000     total     change   Revenue:                               South African transaction processing   876,743     43%     834,680     40%     5%   International transaction processing   603,898     30%     613,510     29%     (2% ) Financial inclusion and applied technologies   739,835     36%     826,258     39%     (10% )        Subtotal: Operating segments   2,220,476     109%     2,274,448     108%     (2% )        Intersegment eliminations   (192,001 )   (9% )   (162,955 )   (8% )   18%                 Consolidated revenue   2,028,475     100%     2,111,493     100%     (4% ) Operating income (loss):                               South African transaction processing   184,101     83%     214,338     60%     (14% ) International transaction processing   (68,214 )   (31% )   54,435     15%     (225% ) Financial inclusion and applied technologies   174,083     78%     196,700     55%     (11% )        Subtotal: Operating segments   289,970     130%     465,473     130%     (38% )        Corporate/Eliminations   (67,094 )   (30% )   (108,675 )   (30% )   (38% )                Consolidated operating income   222,876     100%     356,798     100%     (38% ) South African transaction processing The 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 the aforementioned increases in segment revenue. Our operating income margin for the second quarter of fiscal 2018 and 2017 was 21% and 26%, 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 was slightly higher during the second quarter of fiscal 2018, primarily due to ongoing impact of regulatory changes in South Korea on KSNET’s revenue, largely offset by increased contributions from Masterpayment. Operating income during the second quarter 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 and losses incurred by all other major contributors to the segment. Operating income and margin for the second quarter of fiscal 2017 was 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. 39 Operating (loss) income margin for the second quarter of fiscal 2018 and 2017 was (11%) and 9%, respectively. Excluding the Mastertrading allowance for doubtful working capital finance receivables, segment operating income and margin were $2.8 million and 6% respectively. Financial inclusion and applied technologies Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value added services sales, as well as lower ad hoc terminal sales, partially offset by increased volumes in our 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 24% during each of the second quarter of fiscal 2018 and 2017, respectively, and was impacted by fewer low margin prepaid product sales, improved revenues from our insurance businesses and an increase in inter-segment revenues, offset by fewer ad hoc terminal and annual salary increases granted to our South African employees and the increase in the allowance for credit losses. 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 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 decreased primarily due to lower transaction-related expenditures, a $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. First half of fiscal 2018 compared to first half of fiscal 2017 The following factors had a significant influence on our results of operations during the first half of fiscal 2018 as compared with the same period in the prior year: Favorable impact from the weakening of the U.S. dollar against South African Rand:The U.S. dollar depreciated by 4% against the ZAR during the first half of fiscal 2018, which positively impacted our reported results; Growth in insurance businesses:Volume growth and operating efficiencies in our insurance businesses during the first half of fiscal 2018, resulted in an improved contribution to our financial inclusion revenue and operating income. The significant growth in our South African lending book during December 2017 resulted in a substantial increase in the allowance for doubtful finance loans receivable, in accordance with our policy of providing for doubtful finance loans receivable at the time that a loan is originated; Ongoing contributions from EasyPay Everywhere:EPE revenue and operating income growth was driven primarily by ongoing EPE adoption as we further expanded our customer base utilizing our ATM infrastructure; Higher equity-accounted earnings related to DNI:The acquisition of 45% of DNI has positively impacted our reported results by approximately $3.7 million, before amortization of intangible assets, net of deferred taxes; Higher revenue from Masterpayment and allowance for credit losses:Masterpayment contributed higher revenues as a result of an increase in processing activities, particularly related to its cryptocurrency processing launched in December 2017, as well as from its working capital financing and supply chain solutions. An allowance for credit losses related to doubtful working capital finance receivable of $7.8 million was created. A valuation allowance has been provided for any potential tax benefit from this event as it is unlikely that this amount would be utilized for taxation purposes; Lower net interest income resulting from investments in Cell C, DNI and Bank Frick:Interest income was $2.9 million lower as a result of cash utilized to purchase non-controlling stakes in Cell C, DNI and Bank Frick, while interest expense increased due to the South African lending facility we obtained in August 2017 to partially fund our 15% investment in Cell C; Regulatory changes in South Korea pertaining to fees on card transactions:The regulations governing the fees that may be charged on card transactions adversely impacted our revenues and operating income in South Korea; Lower prepaid sales and ad hoc terminal sales:The number of transacting users purchasing prepaid products through our mobile channel decreased due to security features introduced in fiscal 2017. In addition, our results were adversely impacted by few ad hoc terminal sales; and Higher transaction-related costs in fiscal 2018:We incurred $2.1 million in transaction-related costs in connection with various acquisition and investment initiatives pursued during the first half of fiscal 2018 compared with $1.5 million in fiscal 2017. 40 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   Table 8   (U.S. GAAP)       Six months ended December 31,       2017     2016   $ %     $ ’000   $ ’000     change   Revenue   300,974     307,066     (2% ) Cost of goods sold, IT processing, servicing and support   148,646     148,298     0%   Selling, general and administration   93,326     80,171     16%   Depreciation and amortization   17,689     20,827     (15% ) Operating income   41,313     57,770     (28% ) Interest income   9,749     9,365     4%   Interest expense   4,446     1,306     240%   Income before income tax expense   46,616     65,829     (29% ) Income tax expense   20,339     22,087     (8% ) Net income before earnings from equity-accounted investments   26,277     43,742     (40% ) Earnings from equity-accounted investments   3,429     733     368%   Net income   29,706     44,475     (33% ) Less net income attributable to non-controlling interest   601     1,202     (50% ) Net income attributable to us   29,105     43,273     (33% )     In South African Rand   Table 9   (U.S. GAAP)       Six months ended December 31,       2017     2016             ZAR     ZAR     ZAR %       ’000     ’000     change   Revenue   4,036,874     4,307,891     (6% ) Cost of goods sold, IT processing, servicing and support   1,993,745     2,080,503     (4% ) Selling, general and administration   1,251,754     1,124,735     11%   Depreciation and amortization   237,257     292,187     (19% ) Operating income   554,118     810,466     (32% ) Interest income   130,760     131,383     (0% ) Interest expense   59,633     18,322     225%   Income before income tax expense   625,245     923,527     (32% ) Income tax expense   272,801     309,863     (12% ) Net income before earnings from equity-accounted investments   352,444     613,664     (43% ) Earnings from equity-accounted investments   45,992     10,283     347%   Net income   398,436     623,947     (36% ) Less net income attributable to non-controlling interest   8,061     16,863     (52% ) Net income attributable to us   390,375     607,084     (36% ) The 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 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 due to increased usage of the South African National Payment System by beneficiaries, and expenses incurred to operate our EPE and ATM offerings, and higher Masterpayment employment costs related to the first quarter of fiscal 2018.offerings. 41 Our selling, general and administration expense increased primarily due to 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, as well as increasesan increase in our allowance for doubtful finance loans receivable, higher transaction related expenditures, and an increase in goods and services purchased from third parties. OurThese increases were partially offset by fewer agent incentive costs paid in Korea due to weaker trading conditions in fiscal 2018 expense also includes transaction-related expenditures of $1.5 million, compared to $0.2 millionand lower executive remuneration in the prior year.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. Depreciation 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 first quarterhalf of fiscal 2018 and 2017 was 16%14% and 21%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 attributable to higher cost of goods sold, IT processing, servicing and support relative to the reduction in revenue, higher transaction-related expenditure and the reversal of stock-based compensation charges referred to above.revenue. Depreciation and amortization decreased primarily due to lower overall depreciation as a result of additional tangible assets becoming fully depreciated, partially offset by an increase in depreciation related to more ATMs in South Africa. InterestIn ZAR, interest on surplus cash increaseddecreased to $5.0$9.6 million (ZAR 66.5130.8 million) from $4.3$9.4 million (ZAR 60.7131.4 million), due primarily to thelower average daily ZAR cash balances, partially offset by interest earned on the loan to Finbond, partially offset by lower average daily ZAR cash balances.Finbond. Interest expense increased to $2.1$4.4 million (ZAR 28.059.6 million) from $0.8$1.3 million (ZAR 11.218.3 million), due primarily to interest on the South African facility we obtained to partially 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 2018 tax expense was $10.3$20.3 million (ZAR 135.5272.8 million) compared to $11.1$21.9 million (ZAR 156.6239.7 million) in fiscal 2017. Our effective tax rate for fiscal 2018, was 36.8%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 expensesexpenditure 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 31.1%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. 33 Earnings from equity-accounted investments 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 quarterhalf and its annual results during our fourth quarter. The table below presents the relative earnings (loss) from our equity accounted investments: Table 5   Three months ended September 30,   Table 10   Six months ended December 31,     2017     2016   $ %     2017   2016   $ %   $ ’000   $ ’000     change   $ ’000     $ ’000   change   DNI   865     -     nm     1,911       -     nm   Share of net income   1,408     -     nm     3,240       -     nm   Amortization of intangible assets, net of deferred tax   (543)     -     nm     (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%     1,101   930   18%   Other   109     (271 )   nm     95       (197 )   (148% ) Earnings from equity accounted investments   2,075     659     297%     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 6   In U.S. Dollars (U.S. GAAP)   Table 11   In U.S. Dollars (U.S. GAAP)     Three months ended September 30,     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   66,437     44%     57,568     37%     15%     130,585     43%     117,430     38%     11%   International transaction processing   46,022     30%     46,190     30%     -     90,207     30%     90,190     29%     -   Financial inclusion and applied technologies   54,313     36%     63,542     41%     (15% )   108,444     36%     122,800     40%     (12% ) Subtotal: Operating segments   166,772     110%     167,300     108%     -     329,236     109%     330,420     107%     -   Intersegment eliminations   (14,214 )   (10% )   (11,667 )   (8% )   22%     (28,262 )   (9% )   (23,354 )   (7% )   21%   Consolidated revenue   152,558     100%     155,633     100%     (2% )   300,974     100%     307,066     100%     (2% ) Operating income (loss):                                                             South African transaction processing   12,332     49%     13,548     42%     (9% )   25,802     62%     28,920     50%     (11% ) International transaction processing   5,316     21%     5,817     18%     (9% )   325     1%     9,721     17%     (97% ) Financial inclusion and applied technologies   13,920     56%     15,183     47%     (8% )   26,657     65%     29,290     51%     (9% ) Subtotal: Operating segments   31,568     126%     34,548     107%     (9% )   52,784     128%     67,931     118%     (22% ) Corporate/Eliminations   (6,562 )   (26% )   (2,367 )   (7% )   177%     (11,471 )   (28% )   (10,161 )   (18% )   13%   Consolidated operating income   25,006     100%     32,181     100%     (22% )   41,313     100%     57,770     100%     (28% ) Table 7   In South African Rand (U.S. GAAP)   Table 12   In South African Rand (U.S. GAAP)     Three months ended September 30,     Six 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   876,178     44%     811,985     37%     8%     1,751,497     43%     1,647,449     38%     6%   International transaction processing   606,943     30%     651,501     30%     (7% )   1,209,919     30%     1,265,294     29%     (4% ) Financial inclusion and applied technologies   716,285     36%     896,247     41%     (20% )   1,454,527     36%     1,722,786     40%     (16% ) Subtotal: Operating segments   2,199,406     110%     2,359,733     108%     (7% )   4,415,943     109%     4,635,529     107%     (5% ) Intersegment eliminations   (187,455 )   (10% )   (164,562 )   (8% )   14%     (379,069 )   (9% )   (327,638 )   (7% )   16%   Consolidated revenue   2,011,951     100%     2,195,171     100%     (8% )   4,036,874     100%     4,307,891     100%     (6% ) Operating income (loss):                                                             South African transaction processing   162,636     49%     191,092     42%     (15% )   346,074     62%     405,724     50%     (15% ) International transaction processing   70,108     21%     82,048     18%     (15% )   4,359     1%     136,378     17%     (97% ) Financial inclusion and applied technologies   183,578     56%     214,153     47%     (14% )   357,542     65%     410,915     51%     (13% ) Subtotal: Operating segments   416,322     126%     487,293     107%     (15% )   707,975     128%     953,017     118%     (26% ) Corporate/Eliminations   (86,540 )   (26% )   (33,386 )   (7% )   159%     (153,857 )   (28% )   (142,551 )   (18% )   8%   Consolidated operating income   329,782     100%     453,907     100%     (27% )   554,118     100%     810,466     100%     (32% ) 34 South African transaction processing The 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 20162017 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 quarterhalf of fiscal 2018 and 2017 was 19%20% and 24%25%, respectively. Our fiscal 2018 margin was adversely impacted by the annual salary increases granted to our South African employees in October 20162017 and increases in goods and services purchased from third parties. International transaction-based activities Segment revenue was moderately lowerslightly higher during the first quarterhalf of fiscal 2018, primarily due to increased contributions from Masterpayment and Transact24, largely offset by the ongoing impact of regulatory changes in South Korea on KSNET’s revenue, largely offset by increased contributions from Masterpayment and Transact24.revenue. Operating income during the first quarterhalf 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, losses incurred by Masterpayment as it grows its staff complement to execute its expansion plan into new markets, and ongoing operating costs in India, which was partially offset by a positive contributionsmaller loss incurred by T24.Masterpayment. 43 Operating income and margin for the first 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 first quarterhalf of fiscal 2018 and 2017 was 12%0% 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 Financial inclusion and applied technologies revenue decreased primarily due to fewer prepaid airtime and other value added services sales, as well as lower ad hoc terminal sales, partially offset by increased volumes in our 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 26%25% and 24% during the first quarterhalf of fiscal 2018 and 2017, respectively, and has increased primarily due to fewer low margin prepaid product sales, improved revenues from our insurance businesses and an increase in inter-segment revenues, 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. 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 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 increased primarily due to higher transaction-related expenditures and modest increases in U.S. dollar denominated goods and services purchased from third parties and directors’ fees. Our corporate expenses for the first quarterhalf of fiscal 2017, includes the reversal of $1.8 million of stock-based compensation charges. Liquidity and Capital Resources At September 30,December 31, 2017, our cash and cash equivalents were $138.4$64.9 million and comprised mainly KRW-denominated balances of KRW 52.628.1 billion ($45.7 million), CHF-denominated balances of CHF 40.5 million ($41.524.4 million), ZAR-denominated balances of ZAR 501.2272.0 million ($37.022.0 million), U.S. dollar-denominated balances of $6.9$11.4 million, and other currency deposits, primarily euros, of $7.3$7.1 million, all amounts translated at exchange rates applicable as of September 30,December 31, 2017. The decrease in our cash balances from June 30, 2017, was primarily due to our investments in DNI, andBank Frick, Cell C and a $9 million listed note, scheduled repaymentrepayments of our South African long-term debt, unscheduled repayment of Korean debt in full, growth in our South African lending book, and capital expenditures, which was partially offset by cash generated by most of our core businesses. We converted some of our USD reserves to CHF in late September 2017 in order to settle the investment consideration related to the Bank Frick transaction in early October 2017. 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. 35 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. We have a short-term South African credit facility with Nedbank of ZAR 400 million ($29.432.3 million), which consists of (i) a primary amount of up to ZAR 200 million, and (ii) a secondary amount of up to ZAR 200 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 include letters of guarantee, letters of credit and forward exchange contracts. As of September 30,December 31, 2017, we had used none of the overdraft and ZAR 129.1126.0 million ($9.510.2 million, translated at exchange rates applicable as of September 30,December 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 ($47.347.9 million) and CHF 20 million ($20.720.5 million) revolving overdraft facilities from Bank Frick. As of September 30,December 31, 2017, we had utilized approximately CHF 23.8EUR 25.7 million ($28.130.7 million) of the EUR 40 million facility and CHF 17.04.7 million ($17.64.8 million) of the CHF 20 million facility. As of September 30,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, 2017, for additional information related to our short-term facilities and Note 9 to our unaudited condensed consolidated financial statements for the three and six months ended September 30,December 31, 2017, for additional information related to our short-term facilities. As of September 30,December 31, 2017, we had outstanding long-term debt of ZAR 1.1 billion870.7 million (approximately $77.9$70.4 million translated at exchange rates applicable as of September 30,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 6.99%7.158% for the period to DecemberMarch 29, 2017.2018. Principal repayments on the Facility A and Facility B loans are due in eight equal quarterly installments, beginningwhich 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. As of September 30, 2017, we had outstanding long-term debt of KRW 18.8 billion (approximately $16.3 million translated at exchange rates applicable as of September 30, 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 (1.41% as of September 30, 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 2018 (KRW 10 billion) and October 2018 (all outstanding loans under our revolving credit facility). We settled the full outstanding balance, including interest, related to these borrowings on October 20, 2017. Refer to Note 14 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2017, and Note 10 to our unaudited condensed consolidated financial statements for the three months ended September 30, 2017, for additional information related to our long-term borrowings. Cash flows from operating activities FirstSecond quarter Net cash used inprovided by operating activities for the firstsecond quarter of fiscal 2018 was $0.8$13.3 million (ZAR 10.4182.0 million) compared to cash provided by operating activities of $53.5$15.7 million (ZAR 755.2218.8 million) for the firstsecond quarter of fiscal 2017. Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes presented in the table below, the decrease relates primarily to the growthexpansion of Masterpayment’sour South African lending book and weaker trading activity during fiscal 2018 compared to 2017, offset partially by the receipt of certain working capital finance offeringloans outstanding. During the second quarter of fiscal 2018, we paid South African tax of $16.5 million (ZAR 216.7 million) related to our 2018 tax year in South Africa. 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 2018. First half Net cash provided by operating activities for the first half of fiscal 2018 was $12.5 million (ZAR 167.9 million) compared to cash provided by operating activities of $69.6 million (ZAR 976.5 million) for the first half of fiscal 2017. Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes presented in the table below, the decrease relates primarily to the expansion of our lending book and weaker trading activity during fiscal 2018 compared to 2017. During the first quarterhalf of fiscal 2018, we paid South African tax of $1.9$16.5 million (ZAR 25.2216.7 million) related to our 2017 tax year in South Africa. During the first quarterhalf of fiscal 2017, we made an additional tax payment of $1.2 million (ZAR 16.7 million) related to our 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 $17.8 million (ZAR 246.6 million) related to our 2017 tax year and $1.2 million (ZAR 16.616.7 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 first quarterhalf of fiscal 2017. We also paid taxes totaling $5.0 million in other tax jurisdictions, primarily South Korea. 3645 Taxes paid during the first quarterhalf of fiscal 20172018 and 20162017 were as follows: Table 8   Three months ended September 30,   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   16,511     17,775     216,654     246,558   Taxation paid related to prior years   1,919     1,186     25,227     16,708     1,919     1,187     25,227     16,721   Taxation refunds received   -     (1,203 )   -     (16,563 )   (251 )   (1,369 )   (3,292 )   (18,878 ) Dividend withholding taxation   -     1,471     -     21,300     -     1,471     -     21,300   Total South African taxes paid   1,919     1,454     25,227     21,445     18,179     19,064     238,589     265,701   Foreign taxes paid   117     49     1,538     691     2,470     5,003     34,276     69,877   Total tax paid   2,036     1,503     26,765     22,136     20,649     24,067     272,865     335,578   Cash flows from investing activities FirstSecond quarter Cash used in investing activities for the firstsecond quarter of fiscal 2018 includes capital expenditure of $1.5$2.1 million (ZAR 19.428.7 million), primarily for the acquisition of payment processing terminals in Korea. We also paid approximately $72.0$40.9 million (ZAR 945.0 million) for a 45%30% interest in DNIBank Frick and $151.0$9.0 million (ZAR 2.0 billion) for a 15%7.625% interest in Cell C.a listed note. Cash used in investing activities for the firstsecond quarter of fiscal 2017 includes capital expenditure of $3.4$3.1 million (ZAR 48.343.6 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 $10.0 million loan to Finbond 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. First half Cash used in investing activities for the first half of fiscal 2018 includes capital expenditure of $3.6 million (ZAR 48.0 million), primarily for the acquisition of payment processing terminals in Korea. We also paid approximately $151.0 million (ZAR 2.0 billion) for 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. Cash used in investing activities for the first half of fiscal 2017 includes capital expenditure of $6.5 million (ZAR 91.9 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.MobiKwik; provided a $10.0 million loan to Finbond 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 flows from financing activities Second quarter During the second 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 made a $1.8 million unscheduled repayment of our Korean debt and paid a guarantee fee of $1.1 million related to the guarantee issued by RMB. First quarterhalf During the first quarterhalf of fiscal 2018, we utilized approximately $94.3 million (ZAR 1.25 billion) of our South African facility to part-fund our investment in Cell C and utilized approximately $0.3 million of our Korean facility to pay a portion of our quarterly interest due. We also made aaccumulated scheduled South African debt facility payments of $28.5 million (ZAR 375 million) and made a $16.6 million payment to settle our outstanding South Korean debt facility in full. We also utilized $32.6 million of our overdraft facilities and repaid $14.3 million (ZAR 187.5 million).of these overdraft facilities. During the first quarterhalf of fiscal 2017, we 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 $26.7$28.5 million unscheduled repayment of our Korean debt and utilized approximately $0.5 million of our Korean facility to pay a portion of our 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. 46 Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Capital Expenditures We expect capital spending for the secondthird quarter of fiscal 2018 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. Our historical capital expenditures for the firstsecond quarter of fiscal 2018 and 2017 are discussed under “—Liquidity and Capital Resources—Cash flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally generated funds. We had outstanding capital commitments as of September 30,December 31, 2017, of $0.9$0.7 million related mainly to the procurement of ATMs. We expect to fund these expenditures through internally generated funds. 37 Contingent Liabilities, Commitments and Contractual Obligations The following table sets forth our contractual obligations as of September 30,December 31, 2017: Table 9   Payments due by Period, as of September 30, 2017 (in $ ’000s) Table 15   Payments due by Period, as of December 31, 2017 (in $ ’000s)           Less                 More           Less                 More           than 1     1-3     3-5     than 5           than 1     1-3     3-5     than 5     Total     year     years     years     years     Total     year     years     years     years   South African long-term debt obligations (A)   85,488     56,454     29,034     -     -     76,494     55,515     20,979     -     -   South Korean long-term debt obligations (B)   17,020     9,460     7,560     -     -   Acquisition of Bank Frick (C)   40,794     40,794     -     -     -   Contingent amount related to DNI investment (D)   26,545     26,545     -     -     -   Contingent amount related to DNI investment (B)   29,105     29,105     -     -     -   Short-term credit facilities   45,737     45,737     -     -     -     35,553     35,553     -     -     -   Acquisition of 8.625% notes in Cell C (E)   9,000     9,000     -     -     -   Operating lease obligations   6,463     4,594     1,551     318     -     8,501     4,275     3,514     712     -   Purchase obligations   3,467     3,467     -     -     -     3,211     3,211     -     -     -   Capital commitments   901     901     -     -     -     659     659     -     -     -   Other long-term obligations (F)(G)   2,965     -     -     -     2,965   Other long-term obligations (C)(D)   2,449     -     -     -     2,449   Total   238,380     196,952     38,145     318     2,965     155,972     128,318     24,493     712     2,449     (A) – Includes $78.3$70.7 million of long-term debt and interest payable at the rate applicable on September 30,December 31, 2017, under our South Africa debt facility.   (B) – Includes $16.1 million of long-term debt and interest payable at the rate applicable on September 30, 2017, under our South Korean debt facility. (C) – Under the DNI transaction agreements, we are obliged to pay to DNI an additional amount not exceeding ZAR 360 million ($26.529.1 million translated at exchange rates applicable as of September 30,December 31, 2017) in cash, subject to DNI achieving certain performance targets.   (D) – On October 2, 2017, we purchased 30% of Bank Frick for an aggregate purchase price of approximately CHF 39.8 million ($40.1 million translated at exchange rates applicable as of September 30, 2017) (refer also Note 6 to our unaudited condensed consolidated financial statements). (E) – We have agreed to purchase a Cell C issued USD-denominated 8.625% note that matures in 2022 for $9 million. (F)(C) – Includes policyholder liabilities of $2.2$2.4 million related to our insurance business.   (G)(D) – We have excluded a cross-guarantees in the aggregate amount of $9.6$10.2 million issued as of September 30,December 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 $15 million in MobiKwik, subject to the achievement of certain contractual conditions. 3847 Item 3. Quantitative and Qualitative Disclosures About Market Risk In addition to the tables below, see Note 5 to the unaudited condensed consolidated financial statements for a discussion of market risk. The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of September 30,December 31, 2017, as a result of changes in JIBAR and the South Korean CD rates. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in each of JIBAR and the South Korean CD rates as of September 30,December 31, 2017, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.     As of September 30, 2017   Table 10               Estimated annual             Hypothetical     expected interest             change in     charge after       Annual     JIBAR or     hypothetical change in       expected     South     JIBAR or South       interest     Korean CD     Korean CD rate, as       charge     rate, as     appropriate       ($ ’000)   appropriate     ($ ’000) Interest on South Africa long-term debt (JIBAR)   7,631     1%     8,414             (1% )   6,847                       Interest on South Korean long-term debt (CD rate)   736     1%     899             (1% )   573       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 September 30,December 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 September 30,December 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 September 30,December 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 3948 Part II. Other Information Item 1. Legal Proceedings Litigation Regarding Legality of Debit Orders under Social Assistance Act Regulations On June 3, 2016, we filed for a declaratory order with the High Court of the Republic of South Africa Gauteng Division, Pretoria, or Pretoria High Court, to provide certainty to us, as well as other industry stakeholders, on the interpretation of the Social Assistance Act and recent Regulations promulgated in terms thereof, or the Regulations. The Regulations limit direct deductions from social grants paid to beneficiaries. We interpret the meaning of the word “deductions” to be specific to the practice of deducting amounts, historically limited to life insurance premiums from grants,before the grants are paid to social welfare beneficiaries’ bank accounts, and are of the opinion that the legislature did not intend to curtail the right of beneficiaries to transact freelyafter the money is deposited into their bank accounts. We brought the application for a declaratory order because SASSA seeks to lend a broader interpretation to the meaning of the term “deductions” to incorporate any debit orders, EFT debits, purchase transactions, or fund transfers that are effected after the transfer of social grants to beneficiaries’ bank accounts. If SASSA’s interpretation were to prevail, debit transactions could no longer be used as a method for beneficiaries to make payments for financial services such as insurance premiums, loan re-payments, electricity and other purchases, money transfers or any other electronic payments. We believe that forcing beneficiaries to pay for these products or services in cash would be a major setback to the national objective of financial inclusiveness, introduce financial and security risks for beneficiaries and result in significant price increases for these products and services. We further believe that SASSA’s interpretation of the Social Assistance Act and the Regulations is erroneous for a number of reasons including, but not limited to, our belief that such an interpretation violates beneficiaries’ constitutional rights by limiting their fundamental right to enter into contracts and that such interpretation impermissibly encroaches on the jurisdiction and powers of the SARB and the Payments Association of South Africa, which regulate the national payment system. SASSA's interpretation effectively prohibits the social welfare recipient community from enjoying the benefits of a convenient, low-cost, reliable and ubiquitous payment system that enables the recipients to procure financial services at highly competitive rates. We were joined in our application by several other industry participants, and the SARB also filed a responding affidavit. On June 15, 2016, SASSA brought criminal charges against us and Grindrod Bank for contravening the Social Assistance Act, alleging that we and Grindrod Bank failed to act in accordance with SASSA’s instructions by processing debit orders against social welfare beneficiaries’ bank accounts after the Regulations came into effect. On June 28, 2016, the Pretoria High Court scheduled a hearing on our application for a declaratory order for October 17 and 18, 2016. In its order, the Pretoria High Court prohibited SASSA from making any representations to the South African Police Services and the National Prosecuting Authority regarding the criminal charges brought against us and Grindrod Bank pending the determination of the dispute, including the determination of any appeals. In addition, the order prevented SASSA from issuing further demands to us and Grindrod Bank to stop the processing of debit transactions against SASSA bank accounts pending the determination of the dispute, including the determination of any appeals. On August 8, 2016, we were informed that the NPA had reached a “no prosecution” decision on the criminal charges filed by SASSA. The matter was heard on October 17 and 18, 2016 and on May 9, 2017, the Pretoria High Court issued the declaratory order sought by us that the Social Assistance Act and Regulationsdo not restrict social grant recipients in the operation of their banks accounts. The order clarifies that recipients may continue to initiate debit order instructions with any service provider, including our subsidiaries, against their bank accounts for the payment of goods and services. SASSA, its Chief Executive Officer and the Minister of Social Development were ordered to pay the costs of the application. The Pretoria High Court also refused the Black Sash Trust’s, or Black Sash, application to intervene in the matter. In support of its application, the Black Sash made several allegations of “illegal deductions” which we denied in our answering affidavits. On May 17, 2017, the NPA reaffirmed its “no prosecution decision” reached in August 2016 on the criminal charges brought by SASSA against us and Grindrod Bank. In addition, the NPA notified us that no further action will be taken and that we can consider the case closed. On June 20, 2017, the Pretoria High Court refused the applicants, including the Minister of Social Development, SASSA and Black Sash, application for leave to appeal the Pretoria High Court’s May 9, 2017, declaratory order. SASSA, its Chief Executive Officer and the Minister of Social Development were ordered to pay the costs of the application for the leave to appeal. On July 19, 2017,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 Pretoria High Court.Court of the Republic of South Africa Gauteng Division, Pretoria. 40 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 the record of appeal hasall written arguments have been filed. SASSA and the Black Sash have three months from the date of the order to deliver the record of appeal. We believe that SASSA and the Black Sash’s claim is without merit, and we intend to defendingdefend it vigorously. However, we cannot predict how the courts will rule on the matter. ChallengeNCR 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 Paymentbe 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 Various reports have been filed by SASSA and the panel of Additional Implementation Costs In March 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 the payment to us of ZAR 317 million (approximately ZAR 277 million, excluding VAT) and directing us to repay the aforesaid amount. 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 legal proceeding. As we previously disclosed, in June 2014, we received approximately ZAR 277 million, excluding VAT, from SASSA, relatedexperts pursuant to the recovery of additional implementation costsConstitutional Court’s March 17, 2017 order and various directives received from it. On February 6, 2018, we incurred duringlaunched an application with the beneficiary re-registration processConstitutional Court requesting clarity on whether CPS may participate in fiscal 2012 and 2013. After the award of theany future SASSA tender SASSA requested that we biometrically register all social grant beneficiaries (including child grant beneficiaries) and collect additional information for each child grant recipient. We agreed to SASSA’s request, and as a result we performed approximately 11 million additional registrations beyond those that we tendered to register for the quoted service fee. Accordingly, we claimed a cost recovery from SASSA, supported by a factual findings certificate from an independent auditing firm. SASSA agreed to pay us the ZAR 277 million as full settlement of the additional costs we incurred.processes. Corruption Watch applied for a hearing date and it was initially set down for hearing during the week commencing November 6, 2017. However, the hearing has now been moved to February 22, 2018, as a result of certain scheduling conflicts. 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. 41 Item 6. Exhibits The following exhibits are filed as part of this Form 10-Q:       Incorporated by Reference Herein   Exhibit   Included       No. Description of Exhibit Herewith Form    Exhibit Filing Date 10.71 Common Terms Agreement, dated July 21, 2017, among Net1 Applied Technologies South Africa Proprietary Limited, Net 1 UEPS Technologies, Inc., the parties listed in Part I of Schedule 1 thereto, as the original guarantors, FirstRand Bank Limited (acting through its Rand Merchant Bank division), as an arranger, Nedbank Limited (acting through its Corporate and Investment Banking division), as an arranger, the parties listed in Part II of Schedule 1 thereto, as the original lenders, and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as agent. 8-K 10.70 July 26, 2017 10.72 Senior Facility A Agreement, dated July 21, 2017, among Net1 Applied Technologies South Africa Proprietary Limited, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and Nedbank Limited (acting through its Corporate and Investment Banking division), as lenders, and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as agent. 8-K 10.71 July 26, 2017 10.73 Senior Facility B Agreement, dated July 21, 2017, among Net1 Applied Technologies South Africa Proprietary Limited, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and Nedbank Limited (acting through its Corporate and Investment Banking division), as lenders, and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as agent. 8-K 10.72 July 26, 2017 10.74 Senior Facility C Agreement, dated July 21, 2017, among Net1 Applied Technologies South Africa Proprietary Limited, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and Nedbank Limited (acting through its Corporate and Investment Banking division), as lenders, and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as agent. 8-K 10.73 July 26, 2017 10.75 Subordination Agreement, dated July 21, 2017, among Net1 Applied Technologies South Africa Proprietary Limited, Net 1 UEPS Technologies, Inc., the parties listed in Schedule 1 thereto, as subordinated creditors, the parties listed in Schedule 2 thereto, as intergroup debtors, the parties listed in Schedule 3 thereto, as senior creditors, and FirstRand Bank Limited (acting through its Rand Merchant Bank division), as agent. 8-K 10.74 July 26, 2017 Incorporated by Reference Herein Exhibit Included No. Description of Exhibit Herewith Form Exhibit Filing Date 10.79 Proposed Agreement of Lease between Buzz Trading 199 (Pty) Ltd and Net 1 Applied Technologies South Africa Limited X 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act X 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act X 32 Certification pursuant to 18 USC Section 1350 X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema X 101.CAL XBRL Taxonomy Extension Calculation Linkbase X 101.DEF XBRL Taxonomy Extension Definition Linkbase X 101.LAB XBRL Taxonomy Extension Label Linkbase X 101.PRE XBRL Taxonomy Extension Presentation Linkbase X 4249 10.76 Security Cession & Pledge, dated July 21, 2017, by Net1 Applied Technologies South Africa Proprietary Limited in favor of FirstRand Bank Limited (acting through its Rand Merchant Bank division), as a secured creditor, Nedbank Limited (acting through its Corporate and Investment Banking division), as a secured creditor, and each of the other Secured Creditors (as defined therein). 8-K 10.75 July 26, 2017 10.77 Letter, dated July 26, 2017, to Net1 Applied Technologies South Africa Proprietary Limited from FirstRand Bank Limited (acting through its Rand Merchant Bank division), in its capacity as arranger, original senior lender and facility agent, and Nedbank Limited (acting through its Corporate and Investment Banking division), in its capacity as arranger and original senior lender. 8-K 10.76 July 29, 2017 10.78 Master Implementation and Funds Flow Agreement, dated July 25, 2017, among Net1 Applied Technologies South Africa Proprietary Limited and the other parties listed in Schedule 1 thereto. 8-K 10.77 July 31, 2017 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act X 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act X 32 Certification pursuant to 18 USC Section 1350 X     101.INS XBRL Instance Document X     101.SCH XBRL Taxonomy Extension Schema X     101.CAL XBRL Taxonomy Extension Calculation Linkbase X 101.DEF XBRL Taxonomy Extension Definition Linkbase X 101.LAB XBRL Taxonomy Extension Label Linkbase X     101.PRE XBRL Taxonomy Extension Presentation Linkbase X SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 9, 2017.February 8, 2018. NET 1 UEPS TECHNOLOGIES, INC. By: /s/ Herman G. Kotzé Herman G. Kotzé Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary, Director 4350