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

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

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)

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 or an emerging growth company. See the definitions of “large accelerated ~~filer”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”,~~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 ~~February 6,~~November 9, 2018 (the latest practicable date), ~~56,832,370~~56,833,925 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

NET 1 UEPS TECHNOLOGIES, INC.
Unaudited (A)
December 31, June 30,
2017 2017
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 64,896 $ 258,457
Pre-funded social welfare grants receivable (Note 2) 3,300 2,322
Accounts receivable, net of allowances of – December: $1,251; June: $1,255 128,543 111,429
Finance loans receivable, net of allowances of – December: $17,213; June: $7,469 105,697 80,177
Inventory (Note 3) 12,482 8,020
Deferred income taxes (Note 1) - 5,330
Total current assets before settlement assets 314,918 465,735
Settlement assets (Note 4) 412,177 640,455
                           Total current assets 727,095 1,106,190
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – December: $136,996; June: $120,212 32,852 39,411
EQUITY-ACCOUNTED INVESTMENTS (Note 6) 147,392 27,862
GOODWILL (Note 7) 199,495 188,833
INTANGIBLE ASSETS, net (Note 7) 34,604 38,764
DEFERRED INCOME TAXES (Note 1) 3,342 -
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and Note 8) 225,463 49,696
TOTAL ASSETS 1,370,243 1,450,756
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities (Note 9) 35,553 16,579
Accounts payable 16,971 15,136
Other payables 39,168 34,799
Current portion of long-term borrowings (Note 10) 50,530 8,738
Income taxes payable 5,311 5,607
Total current liabilities before settlement obligations 147,533 80,859
Settlement obligations (Note 4) 412,177 640,455
                              Total current liabilities 559,710 721,314
DEFERRED INCOME TAXES (Note 1) 9,866 11,139
LONG-TERM BORROWINGS (Note 10) 19,867 7,501
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8) 2,449 2,795
TOTAL LIABILITIES 591,892 742,749
COMMITMENTS AND CONTINGENCIES (Note 18)
REDEEMABLE COMMON STOCK (Note 1) 107,672 107,672
EQUITY
COMMON STOCK (Note 11)
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - December: 56,832,370; June: 56,369,737 80 80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: - - -
ADDITIONAL PAID-IN-CAPITAL 274,961 273,733
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292 (286,951 ) (286,951 )
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12) (123,359 ) (162,569 )
RETAINED EARNINGS 802,381 773,276
TOTAL NET1 EQUITY 667,112 597,569
NON-CONTROLLING INTEREST 3,567 2,766
              TOTAL EQUITY (Note 1) 670,679 600,335
                         TOTAL LIABILITIES, REDEEMABLE COMMON STOCK ANDSHAREHOLDERS’ EQUITY $ 1,370,243 $ 1,450,756
Unaudited Condensed Consolidated Balance Sheets

(A) – ~~Derived from audited~~Certain amounts shown here do not correspond to the Company’s 2018 financial statements

and reflects an adjustment made, refer to Note 1 See Notes to Unaudited Condensed Consolidated Financial Statements

NET 1 UEPS TECHNOLOGIES, INC.

~~NET 1 UEPS TECHNOLOGIES, INC.~~

~~Unaudited Condensed Consolidated Statements of Operations~~

Unaudited Condensed Consolidated Statements of Operations
Three months ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(In thousands, except per share data) (In thousands, except per share data)
REVENUE $ 148,416 $ 151,433 $ 300,974 $ 307,066
EXPENSE
Cost of goods sold, IT processing, servicing and support 73,994 73,518 148,646 148,298
Selling, general and administration 49,392 41,703 93,326 80,171
Depreciation and amortization 8,723 10,623 17,689 20,827
OPERATING INCOME 16,307 25,589 41,313 57,770
INTEREST INCOME 4,705 5,061 9,749 9,365
INTEREST EXPENSE 2,325 510 4,446 1,306
INCOME BEFORE INCOME TAX EXPENSE 18,687 30,140 46,616 65,829
INCOME TAX EXPENSE (Note 17) 10,062 10,984 20,339 22,087
NET INCOME BEFORE EARNINGS FROM EQUITY- ACCOUNTED INVESTMENTS 8,625 19,156 26,277 43,742
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS 1,354 74 3,429 733
NET INCOME 9,979 19,230 29,706 44,475
LESS NET INCOME ATTRIBUTABLE TO NON-
CONTROLLING INTEREST 357 589 601 1,202
NET INCOME ATTRIBUTABLE TO NET1 $ 9,622 $ 18,641 $ 29,105 $ 43,273
Net income per share, in U.S. dollars(Note 14)
Basic earnings attributable to Net1 shareholders $ 0.17 $ 0.35 $ 0.51 $ 0.81
Diluted earnings attributable to Net1 shareholders $ 0.17 $ 0.35 $ 0.51 $ 0.81

NET 1 UEPS TECHNOLOGIES, INC.

~~NET 1 UEPS TECHNOLOGIES, INC.~~

~~Unaudited Condensed Consolidated Statements of Comprehensive Income~~

Unaudited Condensed Consolidated Statements of Comprehensive Income
Three months ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(In thousands) (In thousands)

Net income $ 9,979 $ 19,230 $ 29,706 $ 44,475

Other comprehensive income (loss)
Movement in foreign currency translation reserve 53,517 (20,766 ) 39,637 1,536
         Movement in foreign currency translation reserve related to equity-accounted investments - - (227 ) -
                   Total other comprehensive income (loss), net of taxes 53,517 (20,766 ) 39,410 1,536

Comprehensive income (loss) 63,496 (1,536 ) 69,116 46,011
                    Less comprehensive income attributable to non- controlling interest (668 ) (624 ) (801 ) (1,681 )
                               Comprehensive income (loss) attributable to Net1 $ 62,828 $ (2,160 ) $ 68,315 $ 44,330

NET 1 UEPSTECHNOLOGIES, INC.

~~NET 1 UEPS TECHNOLOGIES, INC.~~

~~Unaudited Condensed Consolidated Statement of Changes in Equity for the six months ended December 31, 2017 (dollar amounts in thousands)~~

UnauditedCondensedConsolidatedStatement ofChanges in Equity for the threemonths endedSeptember 30, 2017 (dollaramounts inthousands)
Net 1 UEPS Technologies, Inc. Shareholders
Number Accumulated Redeemable
Number of Number of Additional Other Total Non- Common
of Treasury Treasury Shares, Net Paid-In Retained Comprehensive Net1 Controlling Stock
Shares Amount Shares Shares of Treasury Capital Earnings (Loss) Income Equity Interest Total (Note 1)

Balance – July 1, 2017 81,261,029 $ 80 (24,891,292 ) $ (286,951 ) 56,369,737 $ 273,733 $ 773,276 $ (162,569 ) $ 597,569 $ 2,766 $ 600,335 $ 107,672
Restricted stock granted (Note 13) 588,594 588,594 - -
Stock-based compensation charge (Note 13) 1,477 1,477 1,477
Reversal of stock compensation charge (Note 13) (125,961 ) (125,961 ) (42 ) (42 ) (42 )

Reversal of stock based- compensation charge related to equity-accounted investment (207 ) (207 ) (207 )
Net income 29,105 29,105 601 29,706
Other comprehensive income (Note 12) 39,210 39,210 200 39,410
Balance – December 31, 2017 81,723,662 $ 80 (24,891,292 ) $ (286,951 ) 56,832,370 $ 274,961 $ 802,381 $ (123,359 ) $ 667,112 $ 3,567 $ 670,679 $ 107,672

	Net 1 UEPS Technologies, Inc. Shareholders
					Number													Accumulated
	Number				of					Number of			Additional					Other			Total			Non-						Redeemable
	of				Treasury			Treasury		Shares, Net			Paid-In			Retained		Comprehensive			Net1			Controlling						Common
	Shares			Amount	Shares			Shares		of Treasury			Capital			Earnings		(Loss) Income			Equity			Interest			Total			Stock

Balance – July 1, 2017	81,261,029		$	80	(24,891,292	)	$	(286,951	)	56,369,737		$	273,733		$	773,276	$	(162,569	)	$	597,569		$	2,766		$	600,335		$	107,672

Restricted stock granted (Note 13)	588,594									588,594											-						-

Stock-based compensation charge (Note 13)													869								869						869

Reversal of stock compensation charge (Note 13)	(30,635	)								(30,635	)		(42	)							(42	)					(42	)

Reversal of stock based- compensation charge related to equity-accounted investment													(207	)							(207	)					(207	)

Net income																19,483					19,483			244			19,727

Other comprehensive income																		(13,996	)		(13,996	)		(111	)		(14,107	)

Balance – September 30, 2017	81,818,988		$	80	(24,891,292	)	$	(286,951	)	56,927,696		$	274,353		$	792,759	$	(176,565	)	$	603,676		$	2,899		$	606,575		$	107,672

NET 1 UEPSTECHNOLOGIES, INC.

~~NET 1 UEPS TECHNOLOGIES, INC.~~

~~Unaudited Condensed Consolidated Statements of Cash Flows~~

UnauditedCondensedConsolidatedStatement ofChanges in Equity for the threemonths endedSeptember 30, 2018 (dollaramounts inthousands)
Three months ended Six months ended
December 31, December 31,
2017 2016 2017 2016
(In thousands) (In thousands)
Cash flows from operating activities
Net income $ 9,979 $ 19,230 $ 29,706 $ 44,475
Depreciation and amortization 8,723 10,623 17,689 20,827
Earnings from equity-accounted investments (1,354 ) (74 ) (3,429 ) (733 )
Fair value adjustments (372 ) 72 (281 ) (11 )
Interest payable (159 ) (23 ) (247 ) 9
Facility fee amortized 214 31 347 67
Loss (Profit) on disposal of property, plant and equipment 16 (539 ) 121 (473 )
Profit on disposal of business (463 ) - (463 ) -
Stock-based compensation charge (reversal), net (Note 13) 608 635 1,435 (689 )
Dividends received from equity accounted investments 1,253 - 2,165 370
(Increase) Decrease in accounts receivable, pre-funded social
welfare grants receivable and finance loans receivable 6,005 6,585 (33,136 ) 14,351
Increase in inventory (2,322 ) (3,481 ) (3,848 ) (3,585 )
(Decrease) Increase in accounts payable and other payables (481 ) (5,940 ) 2,948 (2,900 )
Decrease in taxes payable (9,754 ) (11,815 ) (916 ) (859 )
Increase (Decrease) in deferred taxes 1,419 386 428 (1,246 )
Net cash provided by operating activities 13,312 15,690 12,519 69,603

Cash flows from investing activities
Capital expenditures (2,103 ) (3,126 ) (3,576 ) (6,549 )
Proceeds from disposal of property, plant and equipment 99 945 415 1,014
Investment in Cell C (Note 6) - - (151,003 ) -
Investment in equity of equity-accounted investments (Note 6) (40,892 ) - (113,738 ) -
Acquisition of held to maturity investment (Note 6) (9,000 ) - (9,000 ) -
Investment in MobiKwik - - - (15,347 )
Loans to equity accounted investments (Note 6) (10,044 ) (10,044 )
Acquisitions, net of cash acquired - (4,651 ) - (4,651 )
Other investing activities (154 ) - (154 ) -
Net change in settlement assets (Note 4) 24,519 258,166 237,168 220,772
Net cash (used in) provided by investing activities (27,531 ) 241,290 (39,888 ) 185,195

Cash flows from financing activities
Long-term borrowings utilized (Note 10) - - 95,431 247
Repayment of long-term borrowings (Note 10) (30,881 ) (1,824 ) (45,141 ) (28,493 )
Proceeds from bank overdraft (Note 9) 690 - 32,570 -
Repayment of bank overdraft (Note 9) (11,391 ) - (14,343 ) -
Guarantee fee paid (Note 10) - (1,145 ) (552 ) (1,145 )
Acquisition of treasury stock (Note 11) - - - (32,081 )
Dividends paid to non-controlling interest - (58 ) - (613 )
Net change in settlement obligations (Note 4) (24,519 ) (258,166 ) (237,168 ) (220,772 )
Net cash used in financing activities (66,101 ) (261,193 ) (169,203 ) (282,857 )

Effect of exchange rate changes on cash 6,857 (2,225 ) 3,011 3,306
Net decrease in cash, cash equivalents and restricted cash (73,463 ) (6,438 ) (193,561 ) (24,753 )
Cash, cash equivalents and restricted cash – beginning ofperiod 138,359 205,329 258,457 223,644
Cash, cash equivalents and restricted cash – end of period (1) $ 64,896 $ 198,891 $ 64,896 $ 198,891

	Net 1 UEPS Technologies, Inc. Shareholders
				Number												Accumulated
	Number			of					Number of		Additional					Other			Total			Non-						Redeemabl
	of			Treasury			Treasury		Shares, Net		Paid-In		Retained			Comprehensive			Net1			Controlling						Common
	Shares		Amount	Shares			Shares		of Treasury		Capital		Earnings			(Loss) Income			Equity			Interest			Total			Stock

Balance – July 1, 2018	81,577,217	$	80	(24,891,292	)	$	(286,951	)	56,685,925	$	276,201	$	812,426		$	(159,237	)	$	642,519		$	95,911		$	738,430		$	107,672

Correction of error (Note 1)													25,199			(25,199	)		-						-

Balance – July 1, 2018 as restated	81,577,217	$	80	(24,891,292	)	$	(286,951	)	56,685,925	$	276,201	$	837,625		$	(184,436	)	$	642,519		$	95,911		$	738,430		$	107,672

Restricted stock granted (Note 13)	148,000								148,000										-						-

Stock-based compensation charge (Note 13)											587								587						587

Stock-based compensation charge related to equity-accounted investment (Note 7)											77								77						77

Dividends paid to non-controlling interest																						(1,729	)		(1,729	)

Net (loss) income													(5,199	)					(5,199	)		95			(5,104	)

Other comprehensive loss income (Note 12)																(5,092	)		(5,092	)		(2,800	)		(7,892	)

Balance – September 30, 2018	81,725,217	$	80	(24,891,292	)	$	(286,951	)	56,833,925	$	276,865	$	832,426		$	(189,528	)	$	632,892		$	91,477		$	724,369		$	107,672

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

(1) Cash, cash equivalents and restricted cash as of ~~December 31, 2016,~~September 30, 2018, includes restricted cash of approximately ~~$43.7~~$84.8 million related to cash withdrawn from the ~~guarantee issued by FirstRand Bank Limited (acting through its Rand Merchant Bank division).~~Company’s various debt facilities to fund ATMs. This cash ~~was placed into an escrow account~~may only be used to fund ATMs and ~~was~~is considered restricted as to use and therefore ~~was~~is classified as restricted cash. ~~The restriction lapsed upon expiry of~~Refer to Note 10 for additional information regarding the ~~guarantee.~~Company’s facilities.

NET 1 UEPS TECHNOLOGIES, INC.

~~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)~~

Notes to the Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 2018 and 2017
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)

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 ~~December 31,~~September 30, 2018 and 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.~~2018. 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~~Restatement of Form10-K for the year ended June 30, 2018

~~In August 2014,~~ Subsequent to the ~~FASB issued guidance regarding~~~~Disclosure 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~~issuance of the ~~date~~Form 10-K, and as disclosed in the Form 8-K dated November 8, 2018, the Company announced that it would restate its consolidated 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 year ended June 30, 2018, included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018, due to the identification of an error in its accounting for its investment in an equity security. The Company ~~beginning July 1, 2017.~~incorrectly classified and recorded its investment in Cell C Proprietary Limited (“Cell C”), an unlisted company that the Company elected to carry at fair value using the fair value option, as available-for-sale and recorded the change in its fair value of $25.2 million, net of taxation of $7.3 million, in other comprehensive income for the year ended June 30, 2018. The ~~adoption~~Company has now determined that the investment in Cell C should have been accounted at fair value with changes in fair value recorded in the statement of ~~this guidance did not have a material~~operations. The tables below present the impact of the restatement on each of the Company’s financial statements ~~disclosures.~~

~~In July 2015, the FASB issued guidance regarding~~~~Simplifying 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 regarding~~~~Balance 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 December 31, 2017. Prior period current deferred tax assets have not been reclassified as non-current in the unaudited condensed consolidated balance sheet as ofyear ended June 30, ~~2017.~~2018:

~~In March 2016, the FASB issued guidance regarding~~~~Improvements 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.

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

The restatement does not affect the current financial results reported on this Quarterly Report on Form 10-Q. For more information concerning the restatement, please see the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (“SEC”) on November 8, 2018.

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

In May 2014, the ~~FASB~~Financial Accounting Standards Board (“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~~deferred the required implementation date specified inRevenue from Contracts with Customersto December 2017. Public companies may elect to adopt the standard along the original timeline.

The guidance isbecame effective for the Company beginning July 1, 2018. The Company ~~expects that~~elected the modified retrospective transition method upon adoption of this guidance. The adoption of this guidance ~~may~~did not have a material impact on ~~its~~the Company’s financial statements, ~~and is currently evaluating~~except for the ~~impact of this guidance on its financial statements on adoption.~~additional footnote disclosures provided.

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

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

Equity securities are measured at fair value. The Company may elect to measure equity securities without readily determinable fair values at cost with adjustments for observable changes in price or impairments for the identical or a similar investment of the same issuer. We perform a qualitative assessment on a quarterly basis and recognize an impairment loss if there are sufficient indicators that the fair value of the equity security is less than carrying value. There were no changes in the fair value of our equity securities recorded during the three months ended September 30, 2018. Changes in fair value will be recorded in our condensed consolidated statement of operations in future periods within a caption titled “changes in fair value of equity securities”

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 became effective for the Company beginning July 1, 2018, and must be applied retrospectively. The Company has elected to classify distributions received from equity method investees using the nature of the distribution approach. This election requires the Company to evaluate each distribution received on the basis of the source of the payment and classify the distribution as either operating cash inflows or investing cash inflows. The adoption of this guidance did not have a material impact on the Company’s financial statements ~~disclosure.~~and the Company was not required to make any retrospective adjustments.

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 became effective for the Company beginning July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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 has elected to early adopt this guidance beginning July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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 became effective for the Company beginning July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In June 2018, the FASB issued guidance regardingImprovements to Nonemployee Share-Based Payment Accounting. The guidance simplifies the accounting for share-based payments granted to non-employees for goods and services and aligns the guidance for these share-based payments with guidance applicable to accounting for share-based payments granted to employees. The guidance is effective for the Company beginning July 1, 2019. Early adoption is permitted. The Company has elected to early adopt this guidance beginning July 1, 2018. The adoption of this guidance did not have a material impact on the Company’s financial statements.

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.

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

Recent accounting pronouncements not yet adopted as of September 30, 2018 (continued)

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,~~August 2018, the FASB issued guidance regarding~~Classification of Certain Cash Receipts and Cash Payments~~Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement.. The guidance ~~is intended~~modifies the disclosure requirements related 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.fair value measurement. 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 regarding~~~~Clarifying 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 regarding~~~~Simplifying 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.~~

~~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 regarding~~~~Compensation—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.

Pre-funded social welfare grants receivable represents primarily amounts pre-funded by the Company to certain merchants participating in the merchant acquiring system. The ~~January~~Company’s contract with the South African Social Security Agency expired on September 30, 2018, ~~payment service commenced on January 2, 2018, but~~and therefore the Company ~~pre-funded certain merchants participating in the merchant acquiring systems on December 30, 2017.~~no longer pre-funds social welfare grants. The July ~~2017~~2018 payment service commenced on July 1, ~~2017,~~2018 but the Company pre-funded certain merchants participating in the merchant acquiring systems on the last day of June ~~2017.~~2018.

3. Accounts receivable, net and finance loans receivable, net

Accounts receivable, net

The Company’s accounts receivable, net, as of September 30, 2018 and June 30, 2018, is presented in the table below:

The Company’s finance loans receivable, net, as of September 30, 2018 and June 30, 2018, is presented in the table below:

The Company’s inventory comprised the following category as of ~~December 31, 2017~~September 30, 2018 and June 30, ~~2017.~~2018.

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.

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

The Company ~~seeks to reduce~~manages 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 tocurrency 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.~~risks as discussed below.

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 (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.

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.

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.

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

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

The Company is exposed to credit risk in its microlending activities, which ~~provides~~provide unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and ~~assigns~~assigning 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 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.

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

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology 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~~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 telecoms 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.~~Africa. The Company has developed an adjusted EV/EBITDA multiple valuation model in order to determine the fair value of the Cell C shares. The primary inputs to the valuation model as of September 30, 2018, are unchanged from June 30, 2018. The primary inputs to the valuation model are Cell C’s annualized adjusted EBITDA for the 11 months ended June 30, 2018, of ZAR 3.9 billion ($275.8 million, translated at exchange rates applicable as of September 30, 2018), an EBITDA multiple ~~and~~of 6.75, Cell C’s net external ~~debt.~~debt of ZAR 8.8 billion ($622.3 million, translated at exchange rates applicable as of September 30, 2018) and a marketability discount of 10% as Cell C is not currently listed, but has publicly stated its intention to list. The EBITDA multiple was determined based on an analysis of Cell C’s peer group, which comprises various African and emerging market mobile telecommunications operators. The fair value of Cell C utilizing the ~~primary mobile operators (Vodacom, MTN~~adjusted EV/EBITDA valuation model developed by the Company is sensitive to the following inputs: (i) the Company’s determination of adjusted EBITDA (ii) the EBITDA multiple used and ~~Telkom)~~(iii) the marketability discount used. Utilization of different inputs, or changes to these inputs, may result in significantly higher or lower fair value measurement.

The following table presents the impact of a 0.50 increase and 0.50 decrease to the EBITDA multiple used in the ~~South African marketplace.~~Cell C valuation on the September 30, 2018, carrying value of the Company’s Cell C investment (all amounts translated at exchange rates applicable as of September 30, 2018):

The fair value of the Cell C shares as of ~~December 31, 2017,~~September 30, 2018, represented approximately ~~12%~~14% 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.

Liability measured at fair value using significant unobservable inputs – DNI contingent consideration

The salient terms of the Company’s investment in DNI is described in Note 3 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2018. Under the terms of its subscription agreements with DNI, the Company has agreed to pay to DNI an additional amount of up to ZAR 400.0 million ($28.3 million, translated at exchange rates applicable as of September 30, 2018), in cash, subject to the achievement of certain performance targets by DNI. The Company expects to pay the additional amount during the first quarter of the year ended June 30, 2020, and has recorded an amount of ZAR 379.6 million ($26.8 million) and ZAR 373.6 million ($27.2 million), in other payables in its unaudited condensed consolidated balance sheet as of September 30, 2018, and in long-term liabilities as of June 30, 2018, respectively, which amount represents the present value of the ZAR 400.0 million to be paid (amounts translated at exchange rates applicable as of September 30, 2018 and June 30, 2018, respectively).

Liability measured at fair value using significant unobservable inputs – DNI contingent consideration (continued)

The present value of ZAR 379.6 million has been calculated using the following assumptions (a) the maximum additional amount of ZAR 400.0 million will be paid on August 1, 2019 and (b) an interest rate of 6.3 % (the rate used to calculate interest earned by the Company on its surplus South African funds) has been used to discount the ZAR 400.0 million to its present value as of September 30, 2018. Utilization of different inputs, or changes to these inputs, may result in significantly higher or lower fair value measurement.

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 ~~“BB+“~~“B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that require fair value measurement under Level 1 or 3 of the fair value hierarchy.

The Company’s outstanding foreign exchange contracts are as follows as of September 30, 2018:

		Fair market
Notional amount	Strike price	value price	Maturity
USD 269,800	ZAR 14.2023	ZAR 14.1489	October 2, 2018
USD 280,000	ZAR 15.2480	ZAR 14.2466	November 23, 2018
USD 420,000	ZAR 15.3071	ZAR 14.2993	December 21, 2018
USD 420,000	ZAR 15.3801	ZAR 14.3647	January 25, 2019
USD 140,000	ZAR 15.4386	ZAR 14.4168	February 22, 2019
USD 420,000	ZAR 15.4939	ZAR 14.4652	March 20, 2019
USD 420,000	ZAR 15.5704	ZAR 14.5334	April 26, 2019

The Company had no outstanding foreign exchange contracts as of ~~December 31, 2017 and~~ June 30, ~~2017, respectively.~~2018.

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~December 31, 2017,~~September 30, 2018, 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
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

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, ~~2017,~~2018, according to the fair value hierarchy:

There have been no transfers in or out of Level 3 during the three ~~and six~~ months ended ~~December 31,~~September 30 2018 and 2017, ~~and 2016,~~ respectively.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 2018:

Assets		Carrying value
Balance as at June 30, 2018	$	172,948
Foreign currency adjustment		(5,113	)
Balance as of September 30, 2018	$	167,835
Liabilities
Balance as at June 30, 2018	$	27,222
Accretion of interest		422
Foreign currency adjustment⁽¹⁾		(805	)
Balance as of September 30, 2018	$	26,839

(1) The foreign currency adjustment represents the effects of the fluctuations of the South African rand and the U.S. dollar on the carrying value.

~~The Company measures its assets at~~ We measure equity investments without readily determinable 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~~values 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~~these investments are determined based on valuation techniques 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.

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

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

On 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 Refer to pay to DNI an additional amount of up to ZAR 360 million ($29.1 million, translated at the foreign exchange rates applicable as of December 31, 2017), in cash, subject to the achievement of certain performance targets by DNI. The Company has not accrued for this contingent consideration as of December 31, 2017. Net1 SA has pledged, among other things, its entire equity interest in DNI as security for the South African facilities described in Note ~~10 used to partially fund the acquisition of Cell C.~~

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

On October 7, 2016, the Company provided a loan of ZAR 139.2 million ($10.0 million, translated at the foreign exchange rates applicable on the date of the loan) to Finbond in order to partially finance Finbond’s expansion strategy in the United States. The loan is included in accounts receivable, net, on the Company’s unaudited condensed consolidated balance sheet as of December 31, 2017 and June 30, 2017. Interest on the loan is payable quarterly in arrears and is based on the London Interbank Offered Rate (“LIBOR”) in effect from time to time plus a margin of 12.00%. The LIBOR rate was 1.4874% on December 31, 2017. The loan was initially set to mature at the earlier of Finbond concluding a rights offer or February 28, 2017, but the agreement was subsequently amended to extend the repayment date to on or before February 28, 2018, or such later date as may be mutually agreed by the parties in writing. The Company 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 December 31, 2017 and June 30, 2017.~~

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

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

DNI Bank Frick Finbond Other⁽¹⁾ Total
Investment in loans:
Balance as of June 30, 2017 $ - $ - $ - $ 2,159 $ 2,159
Foreign currency adjustment⁽²⁾ - - - 9 9
Balance as of December 31, 2017 $ - $ - $ - $ 2,168 $ 2,168

Equity Loans Total
Carrying amount as of:
June 30, 2017 $ 25,703 $ 2,159 $ 27,862
December 31, 2017 $ 145,224 $ 2,168 $ 147,392

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

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

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

On August 2, 2017, the Company, through its subsidiary, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), purchased 75,000,000 class “A” shares of Cell C for an aggregate purchase price of ZAR 2.0 billion ($151.0 million) in cash. The Company funded the transaction through a combination of cash and the facilities described in Note 149 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~~2018, for additional information regarding its equity-accounted investments and other ~~things,~~long-term assets.

The Company’s ownership percentage in its ~~entire equity~~equity-accounted investments as of September 30, 2018 and June 30, 2018, was as follows:

	September	June 30,
	30, 2018	2018
Bank Frick & Co AG (“Bank Frick”)	35%	35%
Fanaka Holdings (Pty) Ltd (“Fanaka”)	40%	-
Finbond Group Limited (“Finbond”)	29%	29%
OneFi Limited (formerly KZ One) (“OneFi”)	25%	25%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)	50%	50%
Speckpack Field Services (Pty) Ltd (“Speckpack”)	50%	50%
Walletdoc Proprietary Limited (“Walletdoc”)	20%	20%

As of September 30, 2018, the Company owned 267,672,032 shares in Finbond. Finbond is listed on the Johannesburg Stock Exchange and its closing price on September 28, 2018, the last trading day of the quarter, was R3.60 per share. The market value of the Company’s holding in Finbond on September 30, 2018 was ZAR 1.0 billion ($72 million translated at exchange rates applicable as of September 30, 2018). On July 11, 2018, the Company, pursuant to its election, received an additional 6,602,551 shares in Finbond as a capitalization share issue in lieu of a dividend.

On October 4, 2018, the Company acquired a 50% voting and economic interest in ~~Cell C as security~~V2 Limited (“V2”) for $2.5 million. V2 is an Africa-focused technology provider dedicated to providing financial inclusion to the ~~South African facilities described in Note 10 used to partially fund~~roughly one billion underbanked citizens on the ~~acquisition of Cell C.~~

continent. The Company has ~~signed~~committed to provide V2 with a ~~subscription agreement with MobiKwik,~~further equity contribution of $2.5 million and a working capital facility of $5.0 million, which ~~is India’s largest independent mobile payments network, with over 65 million users and 2.0 million merchants. Pursuant~~are both subject to the ~~subscription agreement, the Company agreed~~achievement of certain pre-defined objectives. V2 will have access 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 tolicense Zapper’s quick response (“QR”) payment technology as well as the Company’s ~~investments~~various payment solutions such as UEPS/EMV and mobile virtual card. Zapper’s QR technology and payment platform is one of the most advanced and complete QR payment offerings, and it has operations currently in South Africa, the United Kingdom and the ~~Company’s percentage ownership was diluted~~United States. V2 will partner with Zapper to ~~12.0%. In addition, through~~launch ZappGroup Africa, 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,company focused on deploying a ~~number of our other products including our digital banking platform, are expected to be deployed by MobiKwik over the next year.~~universal white-label QR payment solution.

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.

~~Available for sale and held to maturity~~Equity-accounted investments (continued)

Summarized below is the movement in equity-accounted investments during the three months ended September 30, 2018:

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

Summarized below is the breakdown of other long-term assets as of September 30, 2018, and June 30, 2018:

(1) The Company has determined that MobiKwik does not have readily determinable fair value and has therefore elected to recorded this investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company accounted for its investment in MobiKwik at cost as of June 30, 2018.

Summarized below are the components of the Company’s ~~available for sale and~~ held to maturity investments as of ~~December 31, 2017:~~September 30, 2018:

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~~ Summarized below are the components of the Company’s held to maturity investments as of June 30, ~~2017.~~2018:

The unrealized holding gains related to the investment in Cedar Cellular notes were recorded in interest income in the consolidated statement of operations. Interest on this investment will only be paid, at Cedar Cellular’s election, on maturity in August 2022. The Company’s effective interest rate on the Cedar Cellular note is 19.15% as of September 30, 2018, and it has recognized unrealized holding gains of $0.2 million during the three months ended September 30, 2018, which includes unrealized losses attributable to changes in the effective interest rate.

Summarized below ~~are~~is the contractual ~~maturities~~maturity of the Company’s held to maturity investment as of ~~December 31, 2017:~~September 30, 2018:

7. (1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.

Summarized below is the movement in the carrying value of goodwill for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2018:

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

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

Summarized below is the carrying value and accumulated amortization of the intangible assets as of ~~December 31, 2017~~September 30, 2018 and June 30, ~~2017:~~2018:

Aggregate amortization expense on the finite-lived intangible assets for the three months ended ~~December 31,~~September 30, 2018 and 2017, ~~and 2016,~~ was approximately ~~$2.9~~$6.0 million and ~~$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~~$2.8 million, respectively.

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on ~~December 31, 2017,~~September 30, 2018, 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.

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

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2018:

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 )

		Reinsurance			Insurance
		assets⁽¹⁾			contracts⁽²⁾
Balance as of June 30, 2018	$	633		$	(2,032	)
Increase in policyholder benefits under insurance contracts		169			(2,901	)
Claims and policyholders’ benefits under insurance contracts .		(164	)		2,690
Foreign currency adjustment⁽³⁾		(19	)		61
Balance as of September 30, 2018	$	619		$	(2,182	)

(1) Included in other long-term assets.

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

~~8. Reinsurance assets~~ and ~~policyholder liabilities under insurance and investment contracts (continued)~~the U.S. dollar.

~~Reinsurance assets and policyholder liabilities under insurance contracts (continued)~~

The Company has agreements with reinsurance companies in order to limit its losses from ~~large~~certain 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 and total present value of disability claims-in-payment at the balance sheet date. This model ~~includes~~allows for best estimate assumptions ofbased on experience (where sufficient) 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~~Most of the ~~asset management fee~~disability claims-in-payment reserve is reinsured and ~~allowance for tax~~the reported values were based on ~~investment income).~~the reserve held by the relevant reinsurer.

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2018:

(1) Included in other long-term assets.

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

~~Summarized below are the Company’s available short-term facilities and the amounts utilized as of December 31, 2017 and June 30, 2017, all~~South Africa

The amounts below ~~were translated at the exchange rates applicable as of the date presented:~~

December 31, 2017 June 30, 2017
Available Utilized Available Utilized

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

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

The Company has obtained EUR 40.0 million ($47.9 million) and CHF 20 million ($20.5 million) revolving overdraft facilities from Bank Frick. As of December 31, 2017, the Company had utilized approximately CHF 4.7 million ($4.8 million) of the CHF 20 million facility and approximately EUR 25.7 million ($30.7 million) of the EUR 40 million facility. All amounts have been translated at exchange rates applicable as of ~~December 31, 2017. As of~~the dates specified.

July 2017 Facilities, as amended, comprising a short-term facility and long-term borrowings

The Company’s South African amended July 2017 Facilities 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,~~2018. The carrying value of these long-term borrowings as of September 30, 2018, was ZAR 529.9 million ($37.5 million), net of deferred fees of ZAR 2.6 million ($0.2 million), and the ~~Company had utilized approximately CHF 15.9 million ($16.6 million)~~carrying amount approximated its fair value. Interest on these term loans is payable on the last business day of March, June, September and December of each year and on the final maturity date based on the Johannesburg Interbank Agreed Rate (“JIBAR”) in effect from time to time plus a margin of 2.75% . The JIBAR has been set at 7.00% for the period to December 28, 2018, in respect of the ~~CHF 20~~loans provided under the South African long-term facilities agreement. The next scheduled principal repayment of ZAR 151.3 million ~~facility and had not utilized any of the EUR 40~~($10.7 million, ~~facility. All amounts have been~~ translated at exchange rates applicable as of ~~June~~September 30, ~~2017.~~2018) is due on December 28, 2018.

On September 26, 2018, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”) further amended its amended July 2017 Facilities agreement with Rand Merchant Bank, a division of ~~December 31, 2017,~~FirstRand Bank Limited (“RMB”) to include an overdraft facility (“Facility E”) of up to ZAR 1.5 billion ($106.1 million) to fund the ~~interest~~Company’s ATMs. Interest on the overdraft facility is payable on the last day of each month and on the final maturity date based on South African prime rate ~~on these facilities was 5.00%~~less a margin of 1.00% . The ~~Company assigned all claims against amounts due from Masterpayment customers, which have been financed from the CHF 20 million~~overdraft facility ~~plus all secondary rights~~matures on September 26, 2019. The overdraft facility amount utilized must be repaid in full within one month of utilization 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.

~~The initial term~~at least 90% of the ~~EUR 40 million facility ends on December 31, 2019 and will automatically~~amount utilized must be ~~extended for one additional year if not terminated~~repaid with ~~12 months written notice.~~25 days. 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.~~

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 by Net1 SA of, among other things, cash and certain bank accounts utilized in the Company’s ~~investment~~ATM funding process, the cession of an insurance policy with Senate Transit Underwriters Managers Proprietary Limited, and any rights and claims Net1 SA has against Grindrod Bank Limited. The Company paid a non-refundable origination fee of approximately ZAR 3.6 million ($0.2 million) in ~~Bank Frick.~~October 2018. As at September 30, 2018, the Company had utilized approximately ZAR 1.1 billion ($76.6 million translated at exchange rates applicable as of September 30, 2018) of this overdraft facility. This ZAR 1.5 billion overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s ATMs is considered restricted cash. The prime rate on September 30, 2018, was 10.0% .

~~The~~ As of September 30, 2018, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR ~~400~~700.0 million ($~~32.4~~49.5 million) and consists of (i) a primary amount of up to ZAR ~~200~~450 million ($~~16.2~~31.8 million), (ii) a temporary amount of ZAR 250.0 million ($17.7 million), and ~~(ii)~~(iii) a secondary amount, ~~of up to ZAR 200 million ($16.2 million) (all amounts denominated in ZAR and translated at exchange rates applicable~~which has been temporarily withdrawn as ~~of December 31, 2017).~~discussed below. The primary amount comprises an overdraft facility of (i) up to ZAR 300 million ($21.2 million), which is further split into (a) a ZAR 250.0 million ($17.7 million) overdraft facility which may only be used to fund ATMs used at pay points and (b) a ZAR 50 million ($~~4.0~~3.5 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 150 million ($~~12.2~~10.6 million), which include letters of ~~guarantee,~~guarantees, letters of credit and forward exchange ~~contracts (all amounts denominated~~contracts. The temporary amount has been made available until January 31, 2019, at which time any amount utilized must be repaid in full and the secondary amount of ZAR 200.0 million ($14.1 million) will be made available again. The ZAR 250.0 million component of the primary amount may only be used to fund ATMs and ~~translated at exchange rates applicable as~~therefore this component of ~~December 31, 2017).~~the primary amount utilized and converted to cash to fund our ATMs is considered restricted cash.

As of ~~December 31, 2017,~~September 30, 2018, the interest rate on the overdraft facility was ~~9.10%~~8.85% . The Company has ceded its investment in Cash Paymaster Services Proprietary Limited (“CPS”), a South African subsidiary, as well as all of its rights, title and interest in an insurance policy issued by Fidelity Risk Proprietary Limited 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~~September 30, 2018, the Company has utilized approximately ZAR 115.6 million ($8.2 million) of ~~December 31, 2017~~its ZAR 250 million overdraft facility to fund ATMs. As of September 30, 2018 and June 30, ~~2017, respectively, the Company had not utilized any of its overdraft facility. As of December 31, 2017,~~2018, the Company had utilized approximately ZAR ~~126.0~~132.2 million ($~~10.2~~9.3 million) and ZAR 108.0 million ~~translated at exchange rates applicable as~~($7.9 million), respectively, of ~~December 31, 2017) of~~ its ~~ZAR 150 million~~ indirect and derivative facilities ~~to obtain foreign exchange contracts from the bank and~~of ZAR 150 million to enable the bank to issue ~~guarantees, including stand-by~~guarantee, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note ~~18)~~19). 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.

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~~2018. The current carrying value as of ~~December 31, 2017, $70.4~~September 30, 2018, was ZAR 115.0 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 Johannesburg Interbank Agreed Rate (“JIBAR”) has been set at 7.158% for the period to March 29, 2018.

~~On July 26, 2017, the Company utilized ZAR 1.25 billion (approximately $92.2~~($8.1 million) ~~of its South African long-term facility to partially fund the acquisition of 15% of Cell C. Principal repayments~~. Interest on the ~~facilities are due~~revolving credit facility is payable quarterly based on JIBAR in ~~eight quarterly installments commencing on September 29, 2017 and the Company has made scheduled repayments~~effect from time to time plus a margin of ZAR 375.0 million ($28.5 million) during the six months ended December 31, 2017. The next scheduled principal payment of ZAR 187.5 million ($15.2 million, translated at exchange rates applicable as of December 31, 2017) will be made on March 31, 2018.

2.75% . The Company paid a non-refundable ~~deal~~ origination fee of approximately ZAR ~~6.3~~2.0 million ($~~0.6~~0.1 million) ~~in August 2017. Interest expense incurred~~ during the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2018.

On September 14, 2018, the Company renewed its $10.0 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 September 30, 2018. The 3-month US dollar LIBOR rate was ~~$1.9~~2.39838% on September 28, 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. As of September 30, 2018, the Company had utilized approximately $3.3 million ~~and $3.6 million, respectively. During the three and six months ended December 31, 2017, $0.1 million and $0.2 million, respectively,~~ of ~~prepaid facility fees were amortized. All amounts are translated at exchange rates applicable as of December 31, 2017.~~this facility.

The Company’s South Korean senior secured loan facility is described in Note 14 to ~~the Company’s~~its audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2018. On July 29, 2017, the Company utilized approximately KRW 0.3 billion ($0.3 million) of its Facility C revolving credit facility to pay interest due on the Company’s South Korean senior secured loan facility. On October 20, 2017, the Company made an unscheduled repayment of $16.6 million and settled the full outstanding balance, including interest, related to these borrowings.

Summarized below are the Company’s short-term facilities as of September 30, 2018, and the movement in the Company’s short-term facilities from as of June 30, 2018 to as of September 30, 2018:

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

Summarized below is the movement in the Company’s long term borrowing from as of June 30, 2018 to as of September 30, 2018:

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

The Company ~~utilized~~paid a non-refundable deal origination fee of approximately ~~KRW 0.3 billion~~ZAR 6.3 million ($~~0.3~~0.6 million) ~~of its Facility C revolving credit facility~~in August 2017. Interest expense incurred under the Company’s South ~~Korean~~African long-term ~~facility agreement to pay interest due on the Company’s South Korean senior secured loan facility.~~

~~Interest expense incurred~~borrowing during the three months ended ~~December 31,~~September 30, 2018 and 2017, was $1.1 million and ~~2016,~~$1.7 million, respectively. The prepaid facility fees amortization charged included in interest expense during each of the three months ended September 30, 2018 and 2017, was $0.1 million, ~~and $0.2 million,~~ respectively.

Interest expense incurred ~~during~~under the ~~six months ended December 31, 2017 and 2016, was $0.4 million and $0.7 million, respectively. Prepaid facility fees amortized~~Company South Korean long-term borrowings during the three months ended ~~December 31,~~September 30, 2017, ~~and 2016,~~ was ~~$0.1~~$0.2 million and ~~$0.03 million respectively. Prepaid~~prepaid facility fees amortized ~~during the six months ended December 31, 2017 and 2016, was $0.1 million and $0.07 million, respectively.~~were $0.03 million.

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the ~~six~~three months ended ~~December 31,~~September 30, 2018 and 2017, ~~and 2016,~~ respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the ~~six months ended December 31, 2017 and 2016, respectively:~~

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

~~The Company did not repurchase any of its shares during the three and six months ended December 31, 2017, or during the~~ three months ended ~~December 31, 2016.~~September 30, 2018 and 2017, respectively:

	September 30,	September 30,
	2018	2017

Number of shares, net of treasury:
Statement of changes in equity	56,833,925	56,927,696
Less: Non-vested equity shares that have not vested (Note 13)	860,817	1,007,182
Number of shares, net of treasury excluding non- vested equity shares that have not vested	55,973,108	55,920,514

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 six months ended December 31, 2016, the Company repurchased 1,328,699 shares for approximately $12.7 million under its share repurchase authorization.

The table below presents the change in accumulated other comprehensive (loss) income per component during the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2018:

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~~net (loss) income during the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2018 or ~~2016.~~2017.

The following table summarizes stock option activity for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2018 and ~~2016:~~2017:

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

				Weighted
			Weighted	average		Weighted
			average	remaining	Aggregate	average
			exercise	contractu	intrinsic	grant date
	Number of		price	al term	value	fair value
	shares		($)	(in years)	($’000)	($)

Outstanding – June 30, 2018	809,274		13.99	2.67	370	4.20
Granted – September 2018	600,000		6.20	10.00	1,212	2.02
Forfeitures	(200,000	)	24.46			7.17
Outstanding – September 30, 2018	1,209,274		8.41	6.59	1,322	2.62

Outstanding – June 30, 2017	846,607		13.87	3.80	486	4.21
Forfeitures	(37,333	)	11.23			4.55
Outstanding – September 30, 2017	809,274		13.99	3.40	468	4.20

During the three months ended September 30, 2018, 600,000 stock options were awarded to executive officers and employees. No stock options were awarded during the three ~~and six~~ months ended ~~December 31, 2017 or 2016. There were no forfeitures during~~September 30, 2017. During the three months ended ~~December 31, 2017.~~September 30, 2018, executive officers forfeited 200,000 stock options granted in August 2008, with a strike price of $24.46 per share, as these stock options expired unexercised. During the ~~six~~three months ended ~~December 31,~~September 30, 2017, employees forfeited 37,333 stock options. ~~There~~

The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750 day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were ~~no forfeitures during the three and six months ended December 31, 2016; however, during the three and six months ended December 31, 2016, 474,443 stock~~granted options ~~awarded in August 2006, expired unexercised.~~with similar terms.

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

The table below presents the range of assumptions used to value options granted during the three months ended September 30, 2018:

The following table presents stock options vested and expected to vest as of September 30, 2018:

These options have an exercise price range of ~~$7.35~~$6.20 to ~~$24.46.~~$13.16.

The following table presents stock options that are exercisable as of ~~December 31, 2017:~~September 30, 2018:

No During the three months ended September 30, 2018, no stock options became ~~exercisable~~exercisable. However, during the three months ended ~~December 31,~~September 30, 2017 ~~and 2016, respectively. During the six months ended December 31, 2017 and 2016, respectively,~~ 105,982 ~~and 154,803~~ stock options became exercisable. The Company issues new shares to satisfy stock option exercises.

The following table summarizes restricted stock activity for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2018 and ~~2016:~~2017:

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

	Number of		Weighted
	shares of		average grant
	restricted		date fair value
	stock		($’000)
Non-vested – June 30, 2018	765,411		6,162
Granted – September 2018	148,000		114
Vested – August 2018	(52,594	)	459
Non-vested – September 30, 2018	860,817		5,785

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

The September 2018 grants comprise 148,000 shares of restricted stock awarded to executive officers that are subject to market and time-based vesting. The August 2017 grants ~~comprises~~comprise (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~~in August 2017 vested on August 23, 2018. During the three months ended September 30, 2017, 56,250 shares of restricted stock granted to non-employee directors vested and employees forfeited 30,635 shares of restricted stock with either market or performance conditions upon their termination from the Company.

The 148,000 shares of restricted stock awarded to executive officers in September 2018 are subject to time-based and performance-based (a market condition) vesting conditions and vest in full only ~~vest~~on the date, if any, that 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 2021 and ending on December 31, 2021 and (2) the recipient is employed by the Company on a ~~director~~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 55% increase, compounded annually, in the price of the Company’s common stock on ~~August 23,~~Nasdaq over the $6.20 closing price on September 7, 2018.

The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of a stochastic volatility process. The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observation of larger than expected moves in the daily time series for the Company’s VWAP price, but also the observation of the strike structure of volatility (i.e. skew and smile) for out-of-the money calls and out-of-the money puts versus at-the-money options for both the Company’s stock and NASDAQ futures.

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. In its calculation of the fair value of the restricted stock, the Company used an average volatility of 37.4% for the VWAP price, a discounting based on USD overnight indexed swap rates for the grant date, and no future dividends. The average volatility was extracted from the time series for VWAP prices as the standard deviation of log prices for the three years preceding the grant date. The mean reversion of volatility and the volatility of volatility parameters of the stochastic volatility process were extracted by regressing log differences against log levels of volatility from the time series for at-the-money options 30 day volatility quotes, which were available from January 2, 2018 onwards.

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, that the following conditions are satisfied: (1(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.

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

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.

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~~The remaining 150,000 shares continue to be subject to time-based and performance-based vesting conditions. In order for any of the shares to vest, the recipient must remain employed by the Company on a full-time basis on the date that it files its Annual Report on Form 10-K for the fiscal year ended June 30, 2019. If that condition is satisfied, then the shares will vest based on the level of Fundamental EPS the Company achieves for the fiscal year ended June 30, 2019 (“2019 Fundamental EPS”), as follows:

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

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:

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.

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

During the three and six months ended 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.

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 ~~six~~three months ended ~~December 31,~~September 30, 2018 and 2017, ~~and 2016, respectively,~~ was $0.5 ~~million and $0.7~~ million.

The Company recorded a stock-based compensation charge during each of the three months ended ~~December 31,~~September 30, 2018 and 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

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

~~The Company recorded a stock-based compensation charge (reversal) during the six months ended December 31, 2017 and 2016 of $1.4~~$0.8 million ~~and ($0.7 million),~~ respectively, which comprised:

Allocated to cost
of goods sold, IT Allocated to
processing, selling, general
Total servicing and and
charge support administration
Six months ended December 31, 2017
Stock-based compensation charge $ 1,477 $ - $ 1,477
Reversal of stock compensation charge related to stock options forfeited (42 ) - (42 )
Total – six months ended December 31, 2017 $ 1,435 $ - $ 1,435

Six months ended December 31, 2016
Stock-based compensation charge $ 1,138 $ - $ 1,138
Reversal of stock compensation charge related to restricted stock (1,827 ) - (1,827 )
Total – six months ended December 31, 2016 $ (689 ) $ - $ (689 )

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.

As of ~~December 31, 2017, there was no~~September 30, 2018, the total unrecognized compensation cost related to stock options ~~because all stock options granted have vested.~~was approximately $1.2 million, which the Company expects to recognize over approximately three years. As of ~~December 31, 2017,~~September 30, 2018, the total unrecognized compensation cost related to restricted stock awards was approximately ~~$4.5~~$3.1 million, which the Company expects to recognize over approximately two years. This amount excludes the total unrecognized compensation cost as of 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 ~~December 31, 2017, the cumulative unrecorded stock-based compensation charge related to these awards~~each of restricted stock that the Company has determined are expected not to vest and has not expensed in its consolidated statement of operations is approximately $3.2 million (which amount includes the $1.8 million reversed during the six months ended December 31, 2016).

~~As of December 31, 2017~~September 30, 2018 and June 30, ~~2017,~~2018, respectively, the Company recorded a deferred tax asset of approximately $0.7 million, ~~and $0.9 million, respectively,~~ related to the stock-based compensation charge recognized related to employees of Net1. As of each of September 30, 2018, and June 30, 2018, respectively, the Company recorded a valuation allowance of approximately $0.7 million related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States. 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.

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 ~~December 31, 2017~~September 30, 2018 or ~~2016.~~2017. 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.~~2018.

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 ~~December 31,~~September 30, 2018 and 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.

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,~~2016, August ~~2015, August 2016~~2017, March 2018, May 2018 and ~~August 2017,~~September 2018 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 September 2018, March 2018, August 2017 ~~August 2016~~ and August ~~2015~~2016 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.~~2018.

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:

Options to purchase ~~357,643~~503,698 shares of the Company’s common stock at prices ranging from ~~$10.59~~$8.75 to ~~$24.46~~$13.16 per share were outstanding during the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2018, but were not included in the computation of diluted earnings per share because the options’ exercise price ~~were~~was 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 ~~December 31, 2017.~~September 30, 2018.

The following table presents supplemental cash flow disclosures for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2018 and ~~2016:~~2017:

The Company is a leading provider of transaction processing services, financial inclusion products and services and secure payment technology. The Company operates market-leading payment processors in South Africa and internationally. The Company offers debit, credit and prepaid processing and issuing services for all major payment networks. In South Africa, The Company provides innovative low-cost financial inclusion products, including banking, lending and insurance, and is a leading distributor of mobile subscriber starter packs for Cell C, a South African mobile network operator.

The following table represents our revenue disaggregated by major revenue streams, including reconciliation to operating segments for the three months ended September 30, 2018:

						Rest of
		South				the
		Africa		Korea		world		Total
South African transaction processing
Processing fees	$	30,229	$	-	$	-	$	30,229
Welfare benefit distributions fees		3,086		-		-		3,086
Other		1,148		-		-		1,148
Sub-total		34,463		-		-		34,463
International transaction processing
Processing fees		-		34,589		2,655		37,244
Other		-		1,962		181		2,143
Sub-total		-		36,551		2,836		39,387
Financial inclusion and applied technologies
Telecom products and services		19,147		-		-		19,147
Account holder fees		10,605		-		-		10,605
Lending revenue		9,977		-		-		9,977
Technology products		4,268		-		-		4,268
Insurance revenue		2,515		-		-		2,515
Other		5,522		-		-		5,522
Sub-total		52,034		-		-		52,034
	$	86,497	$	36,551	$	2,836	$	125,884

The Company earns processing fees from transactions processed for its customers. The Company provides its customers with transaction processing services that involve the collection, transmittal and retrieval of all transaction data in exchange for consideration upon completion of the transaction. In certain instances, the Company also provides a funds collection and settlement service for its customers. The Company considers these services as a single performance obligation. The Company’s contracts specify a transaction price for services provided. Processing revenue fluctuates based on the type and the volume of transactions processed. Revenue is recognized on the completion of the processed transaction.

Customers that have a bank account managed by the Company are issued cards that can be utilized to withdraw funds at an ATM or to transact at a merchant point of sale device (“POS”). The Company earns processing fees from transactions processed for these customers. The Company’s contracts specify a transaction price for each service provided (for instance, ATM withdrawal, balance enquiry, etc.). Processing revenue fluctuates based on the type and the volume of transactions performed by the customer. Revenue is recognized on the completion of the processed transaction.

The Company’s provided a welfare benefits distribution service in South Africa to a customer under a contract which expired on September 30, 2018. The Company was required to distribute social welfare grants to identified recipients using an internally developed payment platform at ~~cost included~~designated distribution points (pay points) which enabled the recipients to access their grants. The contract specified a fixed fee per account for one or more grants received by a recipient. The Company recognized revenue for each grant recipient paid at the fixed fee.

The Company has entered into contracts with mobile networks in South Africa to distribute subscriber identity modules (“SIM”) cards on their behalf. The Company is entitled to receive consideration based on the activation of each SIM as well as from a percentage of the value loaded onto each SIM. The Company recognizes revenue from these services once the criteria specified for activation have been met as well as when it is entitled to its consideration related to the value loaded onto the SIM. Revenue from contracts with mobile networks fluctuates based on the number of SIMs activated as well as on the value loaded onto the SIM.

The Company purchases airtime for resale to customers. The Company recognizes revenue as the airtime is delivered to the customer. Revenue from the resale of airtime to customers fluctuates based on volume of airtime sold.

The Company provides bank accounts to customers and this service is underwritten by a regulated banking institution because the Company is not a bank. The Company charges its customers a fixed monthly bank account administration fee for all active bank accounts regardless of whether the account holder has transacted or not. The Company recognizes account holder fees on a monthly basis on all active bank accounts. Revenue from account holder’s fees fluctuates based on the number of active bank accounts.

The Company provides short-term loans to customers in South Africa and charges up-front initiation fees and monthly service fees. Initiation fees are recognized using the effective interest rate method, which requires the utilization of the rate of return implicit in the loan, that is, the contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or acquisition of the loan. Monthly service fee revenue is recognized under the contractual terms of the loan. The monthly service fee amount is fixed upon initiation and does not change over the term of the loan.

The Company supplies hardware and licenses for its customers to use the Company’s ~~condensed consolidated balance sheet~~technology. Hardware includes the sale of POS devices, SIM cards and other consumables which can occur on an ad hoc basis. The Company recognizes revenue from hardware at the transaction price specified in the contract as the hardware is delivered to the customer. Licenses include right to use certain technology developed by the Company and is recognized ratably over the license period.

The Company writes life insurance contracts, and policy holders pay the Company a monthly insurance premium at the beginning of each month. Premium revenue is recognized on a monthly basis net of policy lapses. Policy lapses are provided for on the basis of expected non-payment of policy premiums.

The Company is subject to a court process regarding determining the price to be charged for welfare benefit distribution services provided from April 1, 2018 to September 30, 2018. Management determined, under previous revenue guidance, that there was no evidence of an arrangement at a fixed and determinable price other than that noted in the court ordered extension and did not record any additional revenue related to the services provided from April 1, 2018 to June 30, ~~2016, includes 47,056 shares~~2018, and recorded revenue at the rate specified in the contract. Upon adoption of the ~~Company’s common stock acquired~~new revenue guidance, the Company has determined it is unable to estimate the amount of revenue that it is entitled to receive because the court has not yet confirmed the amount. Accordingly, the Company has not recorded any additional revenue during the three months ended September 30, 2018, related to the price to be charged for ~~approximately $0.5 million which were paid for on July 1, 2016.~~welfare benefit distribution services provided that is subject to the courts confirmation. The ~~liability for this payment was included in accounts payable on~~Company continues to record revenue at 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~~rate specified in the ~~Company’s condensed consolidated statement of cash flows for~~contact. The Company expects to record any additional revenue in the ~~six months ended December 31, 2016.~~month that the court confirms the fee that the Company is entitled to charge.

The Company recognizes accounts receivable when its right to consideration under its contracts with customers becomes unconditional. The Company has no contract assets or contract liabilities.

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 2322 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2018.

The reconciliation of the reportable ~~segments~~segment’s revenue to revenue from external customers for the three months ended ~~December 31,~~September 30, 2018 and 2017, ~~and 2016,~~ is as follows:

~~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

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 ~~December 31,~~September 30, 2018 and 2017, ~~and 2016,~~ is as follows:

The following tables summarize segment information that is prepared in accordance with GAAP for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2018 and ~~2016:~~2017:

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.

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 ~~December 31, 2017,~~September 30, 2018, the ~~tax charge was calculated using the expected effective tax rate for the year. The~~ Company’s effective tax rate ~~for the three and six months ended December 31, 2017,~~ was ~~53.8% and 43.6%, respectively, was~~significantly higher than the South African statutory rate as a result of a valuation allowance ~~provided~~created related to ~~an allowance~~net operating losses of approximately ZAR 223.4 million ($15.1 million translated at the average exchange rate for ~~doubtful working capital finance receivables created,~~the three months ended September 30, 2018) incurred by its South African subsidiary, CPS, and non-deductible expenses, ~~(including~~including transaction-related expenditure and non-deductible interest on ~~our~~the Company’s South African long-term ~~facility) and the impact of the changes in U.S. federal statutory tax rates described below.~~debt facility.

~~For the three and six months ended December 31, 2016, the tax charge was calculated using the expected effective tax rate for the year.~~ The Company’s effective tax rate for the three ~~and six~~ months ended ~~December 31, 2016,~~September 30, 2017, was ~~36.4% and 33.6%, respectively,~~36.8% 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, including transaction-related expenditure and non-deductible interest on the ~~tax impact attributable to distributions from our~~Company’s South African ~~subsidiary.~~long-term facility.

On December 22, 2017, the Tax Cuts and Jobs Act (the ~~“ TCJA”~~“TCJA”), was enacted into law, which significantly ~~modifying~~changes existing U.S. ~~federal~~ tax ~~laws. The TCJA reduces~~law and includes numerous provisions that affect the Company’s business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. During the year ended June 30, 2018, the TCJA required the Company to incur a transition tax on deferred foreign income not previously subject to U.S. income tax at a rate of 15.5% for ~~corporations~~foreign cash and certain other net current assets, and 8% on the remaining income. The TCJA also reduced the U.S. federal statutory tax rate from 35% to 21% effective ~~from~~ January 1, 2018. The TCJA includes a provision to tax global intangible low taxed income (“GILTI”) of foreign subsidiaries which is effective for the Company beginning July 1, 2018.

The TCJA was effective in the second quarter of fiscal year 2018. As of September 30, 2018, ~~eliminates alternative minimum~~the Company has not completed its accounting for the estimated tax ~~for corporations, limits~~effects of the TCJA. Due to the timing of the enactment and the complexity in applying the provisions of the TCJA, the provisional net ~~operating loss carryforwards (and eliminates carrybacks), limits~~charge is subject to revisions as the ~~deductibility~~Company continues to complete its analysis of ~~interest expense~~the TCJA, collect 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 significantprepare necessary data, and interpret additional guidance issued by standard-setting and regulatory bodies. Adjustments may materially impact on the Company’s ~~future consolidated~~provision for income taxes and effective tax rate ~~as it generates~~in the ~~majority~~period in which the adjustments are made. The Company’s accounting for the estimated tax effects of the TCJA will be completed during the measurement period, which should not extend beyond one year from the enactment date. The impacts of the Company’s estimates are described further below.

The Company has made a reasonable estimate of its Transition Tax liability as of June 30, 2018, and recorded a provisional Transition Tax, before the application of any foreign tax credits, of $55.8 million, and has no liability after the application of generated foreign tax credits. In fact, the Company believes that it may generate excess foreign tax credits based on its preliminary calculations. The Company continues to gather additional information to more precisely compute the final amount of the Transition Tax to be included in its income tax return filings with the U.S. tax authorities.

The Company re-measured its deferred taxes to reflect the reduced rate that will apply when these deferred taxes are settled or realized in future periods. The TCJA subjects a U.S. corporation to tax on its GILTI. Due to the complexity of the new GILTI tax rules, the Company continues to evaluate this provision of the TCJA and the application of GAAP. Under GAAP, the Company has the option to make an accounting policy election of either (i) treating taxes due on future U.S. inclusions in taxable income ~~in tax jurisdictions with tax rates higher (mainly South Africa, where~~related to GILTI as a current-period expense when incurred (the “period cost method”) or (ii) factoring such amounts into a company’s measurement of its ~~income is taxed at 28%, and Korea, where our income is taxed at 22%~~deferred taxes (the “deferred method”) ~~than the new federal statutory tax rate of 21%~~.

The Company is ~~currently analyzing~~not yet able to reasonably estimate the ~~impact~~effect of ~~these changes; therefore, an estimate~~this provision of the ~~full impact~~TCJA on ~~deferred tax assets and liabilities,~~it because whether it expects to have future U.S. inclusions in taxable income ~~tax expense, net income and other affected accounts is not yet available. The Company has~~related to GILTI depends on a ~~June year end and therefore it will use a blended rate~~number of ~~28.10% for its tax year ending June 30, 2018, in the U.S. Certain~~different aspects 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~~estimated future results of global operations. Therefore, 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~~not made any adjustments related to ~~net operating loss carryforwards that it does not believe will be utilized as a result of the enactment of the TCJA.~~potential GILTI tax in its financial statements.

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.

There were no significant changes in the Company’s uncertain tax positions during the three ~~and six~~ months ended ~~December 31, 2017.~~September 30, 2018. As of ~~December 31, 2017,~~September 30, 2018, the Company had accrued interest related to uncertain tax positions of approximately $0.1 million on its balance sheet.

The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.

As of ~~December 31, 2017~~September 30, 2018 and June 30, ~~2017,~~2018, the Company had unrecognized tax benefits of ~~$0.5~~$0.9 million and ~~$0.5~~$0.8 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 ~~December 31, 2017,~~September 30, 2018, 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.~~2014. 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.

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 ~~126.0~~96.0 million ($~~10.2~~6.8 million, translated at exchange rates applicable as of ~~December 31, 2017)~~September 30, 2018) and thereby utilizing part of the Company’s short-term facility. The Company in turn has provided nonrecourse, unsecured counter-guarantees to Nedbank for ZAR ~~126.0~~96.0 million ($~~10.2~~6.8 million, translated at exchange rates applicable as of ~~December 31, 2017)~~September 30, 2018). The Company pays commission of between 0.4% per annum to ~~2.0%~~1.94% 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 ~~December 31, 2017.~~September 30, 2018. The maximum potential amount that the Company could pay under these guarantees is ZAR ~~126.0~~96.0 million ($~~10.2~~6.8 million, translated at exchange rates applicable as of ~~December 31, 2017)~~September 30, 2018). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in Note 9.10.

~~As described in Note 9, Net1 has specifically provided guarantees~~Contingencies

Challenge to ~~Bank Frick related~~Payment by SASSA of Additional Implementation Costs

On March 23, 2018, the High Court ordered that the June 15, 2012 variation agreement between SASSA and CPS be reviewed and set aside. CPS was ordered to refund ZAR 317.0 million to SASSA, plus interest from June 2014 to date of payment. On April 4, 2018, CPS filed an application seeking leave to appeal the ~~EUR 40.0 million ($47.9 million)~~whole order and ~~CHF 20 million ($20.5 million) revolving overdraft facilities provided to Masterpayment. As of December 31, 2017, Masterpayment had utilized approximately $30.7 million~~judgment of the ~~EUR 40.0 million facility and $4.8 million~~High Court with the High Court because its believes that the High Court erred in its application of the ~~CHF 20 million facility~~law and/or in fact in its findings. On April 25, 2018, the High Court refused the application seeking leave to appeal.

In May 2018, CPS delivered its petition seeking leave to appeal the whole order and ~~these obligations are recorded as short-term facilities in~~judgment of the ~~Company’s consolidated balance sheet.~~High Court with the Supreme Court of Appeal. In September 2018, CPS received notification from the Supreme Court that its petition seeking leave to appeal had been granted. The ~~maximum potential amount that~~matter is expected to be heard during the first half of calendar 2019. The Company ~~could pay under~~cannot predict how the ~~guarantees to Bank Frick was $35.5 million. As described in Note 9,~~Supreme Court will rule on the ~~overdraft facilities were repaid in full in January 2018 and Net1 will be released from these guarantees once the facilities have been cancelled.~~matter.

The Company is subject to a variety of other insignificant claims and suits that arise from time to time in the ordinary course of business.

Management currently believes that the resolution of these other 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.

Other payables, as of September 30, 2018, include a loan of approximately $0.1 million obtained from JAA Holdings Proprietary Limited, a South African private company partly owned by Mr. A.J. Dunn, an executive officer of the Company. The loan is payable on demand and interest is payable at the South African prime rate, which was 10.0% as of September 30, 2018. The loan was repaid in full on October 31, 2018.

DNI leases a building that is owned by a company in which Mr. A.J. Dunn has a direct shareholding of 16%. During the three months ended September 30, 2018, DNI paid rental of approximately $1.0 million.

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,~~2018, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.

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.~~2018. 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.

~~Our current~~ On March 23, 2018, the Constitutional Court ordered a six-month extension of our contract with SASSA, is scheduled to expire on March 31, 2018. SASSA and the expert panel appointed by the court filed the regular progress reports in accordance with the Constitutional Court’s order. We have provided the expert panel with all the information required from us.

On December 10, 2017, the Minister in the Presidency, Jeff Radebe, announced that the Inter-ministerial Committee appointed by the South African President to oversee the transition of grant payments brokered a high-level cooperation agreement between the South African Post Office, or SAPO, and SASSA, in terms of which SAPO will assume responsibility for the ~~distribution of social grants with effect from April 1, 2018.~~

On January 15, 2018, SASSA filed a report with the Constitutional Court stating the following: “The process of continuing with cash payments will require a tender process, since SAPO has indicated that they are unable to 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 payments system.

~~In the same report to the court, SASSA also stated: “A phase~~ in ~~period of~~cash at least 6 months would be required to take over payments from the existing provider, CPS. This implies that the court will have to be approached to extend 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 andpay points only, on the same terms and conditions as the contract that was due to ~~payment~~expire on March 31, 2018. Since the filing of our Form 10-K on September 12, 2018, we continued to pay grant recipients at pay points in accordance with the court order and in line with our constitutional obligations. Our contract with SASSA terminated on September 30, 2018. The number of recipients paid at pay points in the first quarter of fiscal 2019 declined significantly over the three months, with only 225,000 recipients paid in September and yet we were unable to significantly reduce our cost structures due to the timing of notifications from SASSA and the requirement to comply with the terms of our contract. This resulted in CPS incurring significant operating losses as ~~those currently~~we continued to recognize revenue at the old contract rate. Given the significant decline in ~~place between CPS~~recipients we incurred significant losses during the quarter, even if we had invoiced SASSA at National Treasury’s recommended rate.

The Constitutional Court further ordered that we may approach the National Treasury to investigate and ~~SASSA for~~make a recommendation regarding the ~~period 1 April 2018 up~~price to ~~30 September 2018, provided CPS shall~~ be paid ~~only in respect of such limited~~for our contracted services ~~to be rendered to SASSA and in respect of this categories (sic) of beneficiaries only."~~

~~In line with~~during 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 indicated that the subsidization of bank accounts will be considered if agreement can be reached with prospective participating banks regarding the functionality of the accounts being offered. SASSA has since engaged the South African banks to determine the feasibility of suchsix-month period. Despite having filed an ~~approach.~~

~~On February 6, 2018, CPS launched an~~urgent application with the Constitutional Court, ~~seeking~~requesting that the National Treasury recommendation be made an order ~~declaring that CPS is~~of the court to enable SASSA to pay us, with a further request to engage with National Treasury to determine a fair price for the last three months of our contract period where there has been a significant decline in the number of recipients we paid, while we have maintained our full payment infrastructure, we still have not ~~prohibited~~received any response from the Constitutional Court regarding this application. For additional information refer to our Form 10-K and “Item 1A.—Risk Factors—The pricing recommended by National Treasury to the Constitutional Court for our services provided at pay points for the period from April 1, 2018 through September 30, 2018, has not yet been approved by the Constitutional ~~Court’s order of March 17, 2017, from participating in~~Court. If the ~~tender for “the provision of cash payment services for social assistance” issued by SASSA, because SASSA has previously reported that CPS~~amount payable to us is not ~~entitled to participate in any future tenders.~~commercially reasonable, our results of operations, financial position and cash flows may be adversely affected.”

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.

Following the successful conclusion of the SASSA contract on September 30, 2018, we have refocused our resources and technology on the provision of financial inclusion services to our target market. In ~~June 2015,~~particular, we ~~began~~have enabled our mobile ATM payment infrastructure to become part of the ~~rollout~~South African National Payment System and are now concentrated on taking our ATMs to the rural populations of South Africa so that they have the same access to financial inclusion as they had during the tenure of our contract, without the many inconveniences and inefficiencies of SASSA’s new payment model. We are now able perform cash withdrawals at our mobile ATM's for all Visa/Mastercard cardholders from any South African card issuer.

Our financial inclusion initiatives in South Africa include a card issuing offering, namely EPE, a payment acquiring and cash distribution network and other financial inclusion products, including loans, insurance and value-added services.

The events of the last quarter related to the SASSA transition from CPS to SAPO as a grant payments service provider have had far reaching effects on the roll-out of our financial inclusion initiatives. In particular, SASSA’s apparently unilateral decision to move approximately 900,000 EPE customers to the SAPO/ SASSA account during the quarter without their knowledge or consent, as well as their aggressive marketing campaigns in respect of the new SAPO card have materially reduced the number of active EPE accounts to 1.7 million as of the end of October 2018. Despite our efforts to amicably resolve this matter with the Minister and SASSA, they have not acknowledged any wrongdoing and therefore, we are in the process of taking the appropriate legal steps. The SASSA transition has also had an adverse impact on the rate at which we have been able grow our EPE customer base historically. Going forward, we are expanding our own marketing efforts, but have reduced our expectations for the growth in the number of EPE accounts over the remainder of this fiscal year. The biggest risk to our ~~business-to-consumer, or B2C, offering in South Africa. At January~~goal is that SASSA unilaterally and unlawfully moves more EPE accounts onto the SAPO platform. We are monitoring the situation closely and will take the appropriate legal action if required.

We continue to grow our infrastructure and as of October 31, 2018, we had ~~more than 2.3 million active EPE accounts, compared to 2.1 million at October~~214 branches (July 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 January2018: 169), 1,270 ATMs (July 31, ~~2018, we had 152 branches (October 31, 2017: 146), 1,073 ATMs (October 31, 2017: 1,008)~~2018: 1,175), and ~~2,394 (October~~2,542 (July 31, ~~2017: 1,925)~~2018: 2,977) dedicated employees, including the temporary staff.

~~During~~ Our lending and insurance businesses have been adversely impacted by the seven months since July 1, 2017, we sold approximately 109,000 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~~lower number of EPE ~~cards~~accounts because we now have fewer users of our financial inclusion products. In addition, as discussed above, we believe that a number of EPE account holders have had their grants redirected to SAPO/ SASSA accounts without their permission and therefore have involuntarily defaulted on their loan repayments and/ or have not met their monthly insurance premium obligation. We believe that these actions directly violate these consumers' rights and we have reported these actions by SAPO/ SASSA to the relevant regulatory bodies in an effort to remedy this unfortunate situation, but we have not received any response to date. Both our loan default rate and our policy lapse rate have increased and we have instituted a number of steps in order to assist our customers to honor their commitments, including establishing a call centre to specifically assist with recovery of outstanding balances and offering alternative payment channels utilizing our EasyPay platform.

Our loan book under Moneyline has declined given our tightening of the lending criteria (these are only provided to EPE cardholders) as well as the reduction we have seen in EPE accounts. We have also seen an increase in non-performing loans and have increased our allowance for credit losses accordingly. We witnessed our first quarterly decline in active Smart Life policies as a result of increased lapse rates and lower number of new policies written. Of concern is the 230,000 debit order rejections Smart Life experienced in October 2018 as these could potentially turn into lapsed policies over the next quarter. We have initiated various new collection mechanisms to deal with the issues in both Moneyline and Smart Life ~~policies:~~

~~Investments in~~and these have had limited, though increasing, success to date. In terms of our telecoms initiatives, we continue to collaborate with Cell C ~~Proprietary Limited~~ and ~~DNI-4PL Contracts Proprietary Limited~~

~~On August 2, 2017,~~DNI over low-cost mobile telephony and data packages but we ~~purchased 15% of~~only expect to gain meaningful traction once 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~~C’s recently concluded infrastructure sharing deal in South Africa with ~~approximately 16~~MTN is fully operational in our primary target rural geographies, which is currently expected to be in January 2019. Our Manje Mobile business unit has seen significant declines in prepaid volumes in the quarter as we halted access to all non-EPE account holders.

Since the acquisition of a controlling interest in DNI on June 30, 2018, we have been focused on the integration of its operations and management teams into Net1, and we are working together with them on identifying the most meaningful of the many opportunities that we see from cross-selling our products and services into each other’s customer bases. In addition to the telecoms opportunity discussed above, we expect to launch some new micro-insurance products through the DNI infrastructure towards during the third quarter of fiscal 2019.

Cell C is performing broadly in line with our expectations. As previously communicated we are now supplying SIMs into Cell C, whose volume requirements are around 35 million ~~active subscribers.~~units a year as well as working with them on the new telecoms products referred to above.

Bank Frick continues to develop its capacity and expertise in relation to cryptocurrency and blockchain technology. It has expanded its headcount and is tracking its projected calendar 2018 performance despite subdued market conditions during the last quarter. Bank Frick continues to work closely with IPG regarding our acquiring, processing and cryptocurrency storage solution initiatives.

We ~~funded~~expect our first Finbond sponsored biometrically-enabled UEPS/EMV cards to be issued in January 2019, which will mark the ~~transaction through~~beginning of a ~~combination~~strong partnership to further expand our businesses into our combined target markets. Our complementary branch network and breadth of ~~cash~~products and ~~credit facilities.~~

~~On July 27, 2017,~~services will position us well and should supplement our growth efforts with our EPE products. Following the receipt of a capitalization share issue from Finbond during the quarter, we ~~subscribed for 44,999,999 ordinary A~~now own 267,672,032 shares in ~~DNI, representing~~Finbond, or 29% of the issued equity.

We completed the restructuring and re-organization of IPG by consolidating all our e-money licenses and international card issuing, acquiring and processing activities (excluding South Korea and India) under a ~~45%~~single management structure and have moved the majority of the processing systems to our Malta office. It has recently completed the new automated underwriting and onboarding solution, which we believe will provide a differentiated processing solution to the thousands of SME businesses in Europe and elsewhere, who battle to readily access these services. In addition, IPG continues to work in close collaboration with Bank Frick and our other specialist departments to develop bespoke blockchain-based solutions, including a highly secure but easily accessible crypto-asset storage solution for crypto-asset investors and exchanges, which we hope to launch in the third quarter of fiscal 2019.

In April 2018, MobiKwik launched its virtual MobiKwik Visa Exclusive card utilizing our mobile virtual card, or MVC technology. We have continued to grow our user base despite dealing with limitations on the number of users placed by our issuing bank partner, which is currently in the midst of a merger with another financial institution. We have seen very positive trends in the take up and usage among the registered user base, and the number of transactions for the three-month period ending September 30, 2018, increased over 250% compared to the three-month period ending June 30, 2018.

Recent regulations enacted by the Reserve Bank of India are widely regarded as beneficial to the providers in the mobile wallet space as they will enhance interoperability between wallets as well as with banks; and permit wallets to become a direct card issuer without having reliance on an issuing bank partner.

On October 4, 2018, we acquired a 50% voting and economic interest in ~~DNI,~~V2 Limited, or V2, for $2.5 million. V2 will have access to license quick response (“QR”) payment technology from Zapper, the leading South African QR payments company, as well as our various payment solutions such as UEPS/EMV and mobile virtual card. Zapper has more than a ~~subscription price~~million customers and its QR technology and payment platform is one of ~~ZAR 945.0 million ($72.0 million)~~the most advanced and complete QR payment offerings. V2 has partnered with Zapper to launch ZappGroup, a company focused on deploying a universal white-label QR payment solution in ~~cash. Under~~key regions across West and East Africa, from which regional hubs will be created for further rollouts. QR technology has revolutionized mobile-based payments in China and other parts of Asia due to its ease of use and low infrastructure cost and we believe that the ~~terms~~combination of our agreements with DNI, we are required to pay to DNI an additional amount of up to ZAR 360 million ($29.1 million, translated at the foreign exchange rates applicable as of December 31, 2017), in cash, subject to the achievement of certain performance targets by DNI.

~~The investments in Cell C~~various payment technologies 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 customersQR technology provides 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 securitycompelling solution 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.~~

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

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

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

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

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

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

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

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

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~~We have 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:~~2018:

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 unaudited condensed consolidated financial statements.

Recent accounting pronouncements not yet adopted as of ~~December 31, 2017~~September 30, 2018

Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of ~~December 31, 2017,~~September 30, 2018, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.

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.

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

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 ~~December 31,~~September 30, 2018 and 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:

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~~ DNI was accounted for using the equity method from August 1, 2017 until June 30, 2018, the date upon which we obtained control of DNI through the acquisition of additional voting and economic interest. Accordingly, the first quarter of fiscal 2019 includes ~~the results of Pros Software and C4U Malta~~DNI for the entire period ~~and excludes XeoHealth from November 1, 2017~~ as a ~~result~~consolidated subsidiary and the first quarter of ~~the sale of the business. Fiscal 2017~~fiscal 2018 includes ~~the results of Pros Software from October 1, 2016, and C4U Malta from November 1, 2016.~~DNI as an equity-accounted investment for two months.

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 1617 to those statements.

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.

~~Second~~First quarter of fiscal ~~2018~~2019 compared to ~~second~~first quarter of fiscal ~~2017~~2018

The following factors had a significant influence on our results of operations during the ~~second~~first quarter of fiscal ~~2018~~2019 as compared with the same period in the prior year:

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

The decrease in revenue was primarily due to lower ~~prepaid airtime sales, fewer ad hoc terminal sales,~~contributions received from our South African operations as a result of the expiration of the CPS contract with SASSA and a decrease in our lending business and lower ~~contribution from KSNET due to regulatory changes~~revenue in ~~South Korea,~~the international payments group, which was partially offset by ~~an improved contribution from Masterpayment, more fees generated~~the inclusion of DNI, higher fee and transaction income from our EPE and ATM offerings, higher transaction fee revenue, improved insurance ~~activities, and a modest increase in the number of SASSA UEPS/EMV beneficiaries paid.~~activities. KSNET revenue was relatively stable.

In ZAR, the ~~decrease~~increase 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~~the inclusion of DNI, increased usage of the South African National Payment System ~~by beneficiaries~~ and expenses ~~incurred~~ to ~~operate~~support and expand our EPE and ATM ~~offerings.~~offerings, partially offset by lower operating costs associated with our exit from Masterpayment’s working capital finance activities. We were largely unable to reduce the costs in our CPS business, despite lower revenue, due to our constitutional obligations to continue honoring the terms of the contract in respect of cash payments until the contract expiry date on September 30, 2018.

In ZAR, the increase in selling, general and administration expense was primarily due to inclusion of DNI, an ~~allowance for doubtful working capital finance receivables~~increase in costs at the international payments group as part of ~~$7.8 million, the impact of October 2017 annual salary increases for our South African employees,~~its restructuring, an increase in our allowance for doubtful finance loans receivable, ~~resulting from a commensurate increase in our lending book in~~higher compliance costs and costs associated with the ~~last lending cycle of calendar 2017, as well as increases in goods and services purchased from third parties.~~company’s strategic positioning. 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.

Depreciation and amortization ~~decreased~~increased primarily due to ~~lower overall~~the amortization of acquired intangible assets ~~that are fully amortized and~~related to the DNI acquisition, partially offset by an increase in the number of tangible assets that are fully depreciated.

Our operating income margin for ~~second~~first quarter of fiscal 2019 and 2018 was 0.7% and ~~2017 was 11% and 17%~~16.4% 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~~Our operating margin declined primarily ~~attributable to higher cost of goods sold, IT processing, servicing and support relative~~due to the ~~reduction in revenue.~~losses incurred by CPS during the final months of its contract with SASSA as its fixed costs were not recoverable given the old contract price and a rapidly declining base of grant recipients paid.

Interest on surplus cash decreased to ~~$4.7~~$1.9 million (ZAR ~~64.3~~27.9 million) from ~~$5.1~~$5.0 million (ZAR ~~70.6~~66.5 million), due primarily to the lower average daily ZAR cash balances ~~partially offset by interest earned on~~given the ~~loan to Finbond.~~significant investments over the last 15 months.

Interest expense increased to ~~$2.3~~$2.8 million (ZAR ~~31.8~~41.0 million) from ~~$0.5~~$2.1 million (ZAR ~~7.1~~28.0 million), due ~~primarily~~ to ~~interest on the South African facility~~increased borrowings which we obtained to partially fund our ~~investment in Cell C, partially~~strategic investments, marginally offset by ~~lower average long-term debt balance~~the absence of interest expense on our South Korean debt as a result of its full repayment ~~of the debt in full~~ in October 2017.

Fiscal ~~2018~~2019 tax expense was ~~$10.1~~$6.5 million (ZAR ~~137.5~~96.4 million) compared to ~~$11.0~~$10.3 million (ZAR ~~153.2~~135.5 million) in fiscal ~~2017.~~2018. Our effective tax rate for fiscal ~~2018,~~2019, was ~~53.8% and was~~significantly higher than the South African statutory rate as a result of a valuation allowance ~~provided~~created related to ~~an allowance~~net operating losses of approximately ZAR 223.4 million ($15.1 million translated at the average exchange rate for ~~doubtful working capital finance receivables created,~~the three months ended September 30, 2018) incurred by our South African subsidiary, CPS, and non-deductible expenses, ~~(including~~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%

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

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.

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.

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 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.

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.

~~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:~~

~~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:~~

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.

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 2017 annual salary increases for our South African employees, an increase in our allowance for doubtful finance loans receivable, higher transaction related expenditures, and an increase in goods and services purchased from third parties. These increases were partially offset by fewer agent incentive costs paid in Korea due to weaker trading conditions in fiscal 2018 and lower executive remuneration in fiscal 2018. Fiscal 2017 includes $1.8 million related to the reversal of stock-based compensation charges related to awards of restricted stock with performance conditions which we believe will not be achieved.

~~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 half of fiscal 2018 and 2017 was 14% and 19% respectively. Excluding the $7.8 million valuation allowance for Masterpayment, fiscal 2018 operating income margin would have been 16%. We discuss the components of operating income margin under “—Results of operations by operating segment.” The decrease was primarily attributable to higher cost of goods sold, IT processing, servicing and support relative to the reduction in revenue.

In ZAR, interest on surplus cash decreased to $9.6 million (ZAR 130.8 million) from $9.4 million (ZAR 131.4 million), due primarily to lower average daily ZAR cash balances, partially offset by interest earned on the loan to Finbond.

Interest expense increased to $4.4 million (ZAR 59.6 million) from $1.3 million (ZAR 18.3 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 $20.3 million (ZAR 272.8 million) compared to $21.9 million (ZAR 239.7 million) in fiscal 2017.~~facility. Our effective tax rate for fiscal 2018, was 43.6% and was higher than the South African statutory rate as a result of a valuation allowance provided related to an allowance for doubtful working capital finance receivables created, non-deductible expenses (including transaction-related expenditure and non-deductible interest on our South African long-term facility) and the impact of the changes in U.S. federal statutory tax law. Our effective tax rate for fiscal 2017, was 33.6%36.8% and was higher than the South African statutory rate as a result of non-deductible expenses (including transaction-related expenses and ~~the tax impact attributable to distributions from~~non-deductible interest on our South African ~~subsidiary.~~long-term facility).

~~Earnings~~ The consolidation of DNI has adversely impacted our (loss) earnings from equity-accounted investments ~~increased primarily due~~because it no longer contributes to equity-accounted earnings as it is no longer accounted for using the ~~inclusion of our portion of DNI and Bank Frick and an increase, in USD, in Finbond’s net income.~~equity method. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first half and its annual results during our fourth quarter. The table below presents the relative (loss) earnings ~~(loss)~~ from our equity accounted investments:

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

The ~~increase~~decrease in segment revenue and operating income was primarily due to ~~higher EPE transaction revenue as a result of increased usage of our ATMs, increased inter-segment transaction processing activities and a modest increase~~the substantial decrease in the number of ~~social welfare grants distributed. Operating~~SASSA grant recipients paid under our SASSA contract at the old contracted rate. Our revenue and operating income ~~decreased primarily due~~was also adversely impacted by the significant reduction in the number of SASSA grant recipients with SASSA-branded Grindrod cards linked to ~~an increase~~Grindrod bank accounts. These decreases in ~~inter-segment charges, the impact of annual salary increases granted to our South African employees in October 2017~~revenue and ~~increases in goods and services purchased from third parties,~~operating income were 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.~~ATMs.

Our operating (loss) income margin for the first ~~half~~quarter of fiscal 2019 and 2018 was (9.3%) and ~~2017 was 20% and 25%~~18.6%, 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.~~

Segment revenue was ~~slightly higher~~lower during the first ~~half~~quarter of fiscal 2019, primarily due to a contraction in IPG transactions processed, specifically meaningfully lower China processing activity due to ongoing global trade negotiations, no Mastertrading working capital finance activities and marginally lower KSNET revenue. Operating income during the first quarter of fiscal 2019 was lower due to the decrease in IPG revenues and ongoing losses at Masterpayment, but partially offset by an increased contribution from KSNET.

Operating income margin for the first quarter of fiscal 2019 and 2018 was 7.0% and 11.6%, respectively.

In ZAR, segment revenue increased primarily due to the inclusion of DNI and increased volumes in our insurance businesses, partially offset by fewer prepaid airtime and value-added services sales, lending revenues, and a decrease in inter-segment revenues. Operating income was moderately higher than first quarter of fiscal 2018, primarily due to ~~increased contributions from Masterpayment~~the inclusion of DNI. DNI generated revenue of approximately ZAR 266.5 million and ~~Transact24, largely offset by the ongoing impact~~operating income of ~~regulatory changes in South Korea on KSNET’s revenue. Operating income~~approximately ZAR 112.8 million during the first ~~half~~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, partially offset by a smaller loss incurred by Masterpayment.~~2019.

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

Operating income margin for the Financial inclusion and applied technologies segment was ~~25%~~21.2% and ~~24%~~25.6% during the first ~~half~~quarter of fiscal 2019 and 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 and the increase in the allowance for credit losses.respectively.

Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to acquisitions and investments pursued; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer’s insurance premiums; telecommunications expenses; and elimination entries.

Our corporate expenses have increased primarily due to higher acquired intangible asset amortization and 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 half of fiscal 2017, includes the reversal of $1.8 million of stock-based compensation charges.expenditures.

At ~~December 31, 2017,~~September 30, 2018, our cash and cash equivalents were ~~$64.9~~$98.6 million and comprised mainly ZAR-denominated balances of ZAR 732.5 million ($51.8 million), KRW-denominated balances of KRW ~~28.1~~41.3 billion ($~~24.4 million), ZAR-denominated balances of ZAR 272.0 million ($22.0~~37.2 million), U.S. dollar-denominated balances of ~~$11.4~~$4.1 million, and other currency deposits, primarily ~~euros,~~Botswana pula, of ~~$7.1~~$5.5 million, all amounts translated at exchange rates applicable as of ~~December 31, 2017.~~September 30, 2018. The ~~decrease~~increase in our cash balances from June 30, ~~2017,~~2018, was primarily due the utilization of our debt facilities to fund our ~~investments in DNI, Bank Frick,~~ATMs and to finance our lending to Cell C to fund the construction of mobile telephony network infrastructure, the contribution from the inclusion of DNI, and a ~~$9 million listed note, scheduled repayments of our South African long-term debt, unscheduled repayment of Korean debt in full, growth~~marginal decrease in our South African lending book, ~~and capital expenditures,~~ which was partially offset by ~~cash generated by most of our core businesses.~~significantly weaker trading activities, scheduled debt repayments, dividend payments to non-controlling interests and capital expenditures.

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

We generally invest the surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and surplus cash held by our non-South African companies in U.S. dollar denominated money market accounts. We have invested surplus cash in Korea in short-term investment accounts at Korean banking institutions.

Historically, we have financed most of our operations, research and development, working capital, and capital expenditures, as well as acquisitions and ~~acquisitions~~strategic investments, through internally generated ~~cash.~~cash and our financing facilities. 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 also have a short-term South African credit facility with Nedbank of ZAR ~~400~~700.0 million ($~~32.3~~49.5 million), which consists of (i) a primary amount of up to ZAR ~~200~~450 million, ($31.8 million). (ii) a temporary amount of ZAR 250.0 million ($17.7 million), and ~~(ii)~~(iii) a secondary amount, ~~of up to ZAR 200 million.~~which has been temporarily withdrawn as discussed below. The primary ~~amounts comprise~~amount comprises an overdraft facility of (i) up to ZAR 300 million ($21.2 million), which is further split into (a) a ZAR 250.0 million ($17.7 million) overdraft facility which may only be used to fund ATMs used at pay points and (b) a ZAR 50 million ($3.5 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 150 million ($10.6 million), which include letters of guarantee, letters of credit and forward exchange contracts.

The temporary amount of ZAR 250.0 million has been made available until January 31, 2019, at which time any amount utilized must be repaid in full and the secondary amount of ZAR 200.0 million ($14.1 million) will be made available again. As of ~~December 31, 2017,~~September 30, 2018, the interest rate on the overdraft facility was 8.85% . As of September 30, 2018, we had ~~used none~~utilized approximately ZAR 115.6 million ($8.2 million) of the ZAR 250 million overdraft ~~and~~facility to fund ATMs. As of September 30, 2018, we had utilized approximately ZAR ~~126.0~~132.2 million ($~~10.2 million, translated at exchange rates applicable as of December 31, 2017)~~9.3 million) 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~~now have a short-term South African credit facility with Rand Merchant Bank, a division of FirstRand Bank Limited, or RMB, of ZAR 1.5 billion ($~~47.9~~106.1 million) ~~and CHF 20 million ($20.5 million) revolving overdraft facilities from Bank Frick.~~which may only be used to fund our ATMs in South Africa. As of ~~December 31, 2017,~~September 28, 2018, the interest rate on the overdraft facility was 9.00% (South African prime less a margin of 1%). As of September 30, 2018, we had utilized approximately ~~EUR 25.7 million~~ZAR 1.1 billion ($~~30.7~~76.6 million) of ~~the EUR 40 million~~this facility.

We have a short-term U.S. dollar-denominated overdraft facility ~~and CHF 4.7 million ($4.8 million)~~with Bank Frick of ~~the CHF 20 million facility.~~$10.0 million. As of ~~December 31, 2017, the~~September 30, 2018, we had utilized approximately $3.3 million of this facility The interest rate on ~~each of these facilities~~the facility is 4.50% plus 3 month US dollar LIBOR and interest is payable on a quarterly basis. The 3 month US dollar LIBOR rate was ~~5.00%. We have assigned all claims against amounts due from Masterpayment customers, which have been financed from the CHF 20 million~~2.39838% on September 28, 2018. The 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~~no fixed 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.~~

~~The CHF 20 million facility does not have a fixed term;~~ however, it may be terminated by either party with six ~~months~~weeks 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 December 31, 2017, for additional information related to our short-term facilities.notice.

As of ~~December 31, 2017,~~September 30, 2018, we had outstanding long-term debt of ZAR ~~870.7~~115.0 million (approximately ~~$70.4~~$8.1 million translated at exchange rates applicable as of ~~December 31, 2017)~~September 30, 2018) under our ZAR 200.0 million RMB revolving credit facility agreement. The loan expires in June 2021 and may only be used to finance the acquisition and/ or requisition of telecommunication towers.

As of September 30, 2018, we also had outstanding long-term debt, net of deferred fees, of ZAR 529.9 million (approximately $37.5 million translated at exchange rates applicable as of September 30, 2018) under our South African ~~facilities.~~facilities, comprising (i) ZAR 225 million under Facility A, (ii) ZAR 150 million under Facility B and ZAR 157.5 million under Facility D. 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 (i) 2.25% for the Facility A loan, (ii) 3.5% for the Facility B loan, and ~~2.25%~~(iii) 2.75% for the Facility CD loan. The JIBAR rate has been set at ~~7.158%~~7.00% for the period to ~~March 29,~~December 28, 2018. Principal repayments on the outstanding Facility A and Facility B loans are due in ~~eight equal~~three quarterly installments ~~which began on September 30, 2017.~~of ZAR 125.0 million each commencing December 28, 2018. Principal ~~repayment~~repayments on the Facility CD loan ~~is to be determined by the Lenders based~~are due in six quarterly installments, of ZAR 26.3 million each, commencing on ~~the date of the repayment of any borrowings under the Facility A loan.~~December 28, 2018. Voluntary prepayments are permitted without early repayment fees or penalties.

Net cash provided by operating activities ~~for~~during the ~~second~~first quarter of fiscal ~~2018~~2019 was ~~$13.3~~$16.5 million (ZAR ~~182.0~~244.5 million) compared to ~~$15.7~~$0.8 million (ZAR ~~218.8~~10.4 million) ~~for~~used in operating activities during the ~~second~~first quarter of fiscal ~~2017. Excluding the impact of interest received, interest paid under our Korean and South Africa debt and taxes presented~~2018. The increase in ~~the table below, the~~cash provided is primarily due to a decrease ~~relates primarily to the expansion of~~in our South African lending book, partially offset by an increase in lending to Cell C to finance the acquisition and/ or requisition of telecommunication towers and significantly weaker trading activity during fiscal ~~2018~~2019 compared to ~~2017, offset partially by the receipt of certain working capital loans outstanding.~~2018.

During the ~~second~~first quarter of fiscal 2019, we paid South African tax of $1.4 million (ZAR 20.4 million) related to our 2018 tax year. During the first quarter of fiscal 2018, we paid South African tax of ~~$16.5~~$1.9 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 246.625.2 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.~~year.

~~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.

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 half of fiscal 2018, we paid South African tax of $16.5 million (ZAR 216.7 million) related to our 2017 tax year in South Africa. During the first half of fiscal 2017, we made an additional tax payment of $1.2 million (ZAR 16.7 million) related to 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 16.7 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 half of fiscal 2017. We also paid taxes totaling $5.0 million in other tax jurisdictions, primarily South Korea.

Taxes paid during the first ~~half~~quarter of fiscal ~~2018~~2019 and ~~2017~~2018 were as follows:

Cash used in investing activities for the ~~second~~first quarter of fiscal 2019 includes capital expenditure of $3.1 million (ZAR 46.3 million), which increased primarily due to the acquisition of ATMs in South Africa and the expansion of our branch network.

Cash used in investing activities for the first quarter of fiscal 2018 includes capital expenditure of ~~$2.1~~$1.5 million (ZAR ~~28.7~~19.4 million), primarily for the acquisition of payment processing terminals in Korea. We also paid approximately ~~$40.9~~$72.8 million (ZAR 945.0 million) for a ~~30%~~45% interest in ~~Bank Frick~~DNI and ~~$9.0 million for a 7.625% interest in a listed note.~~

Cash used in investing activities for the second quarter of fiscal 2017 includes capital expenditure of $3.1 million (ZAR 43.6 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.

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.~~C.

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; 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.48

During the ~~second~~first quarter of fiscal ~~2018,~~2019, we ~~made an unscheduled $16.6~~utilized approximately $84.7 million ~~repayment~~from our South African overdraft facilities to ~~settle~~fund our ~~outstanding South Korean debt~~ATMs and utilized approximately $7.8 million of our revolving credit facility ~~in full and~~to lend funds to Cell C to finance the acquisition and/or requisition of telecommunication towers. We also made a scheduled South African debt facility payment of ~~$14.3~~$10.3 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~~non-refundable origination fee of ~~$1.1~~approximately ZAR 2.0 million ($0.1 million) related to the ~~guarantee issued by RMB.~~revolving credit facility.

During the first ~~half~~quarter of fiscal 2018, we utilized approximately $94.3 million (ZAR 1.25 billion) of our South African facility to ~~part-fund~~partially 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 ~~accumulated~~a scheduled South African debt facility ~~payments~~payment of ~~$28.5~~$14.3 million (ZAR ~~375~~187.5 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 of these overdraft facilities..

During the first half 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 $28.5 million unscheduled repayment of our Korean 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.

We expect capital spending for the ~~third~~second quarter of fiscal ~~2018~~2019 to primarily include the ~~acquisition of payment terminals for the expansion of our operations in Korea and expansion of~~investments into our ATM infrastructure and branch network in South Africa.

Our ~~historical~~ capital expenditures for the ~~second~~first quarter of fiscal ~~2018~~2019 and ~~2017~~2018 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 ~~December 31, 2017,~~September 30, 2018, of ~~$0.7~~$0.4 million related mainly to the procurement of ATMs. We expect to fund these expenditures through internally generated funds.

The following table sets forth our contractual obligations as of ~~December 31, 2017:~~September 30, 2018:

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 ~~December 31, 2017,~~September 30, 2018, as a result of changes in the JIBAR ~~rates.~~rate. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in ~~each of~~the JIBAR ~~rates~~rate as of ~~December 31, 2017,~~September 30, 2018, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.

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 (the "Exchange Act"), as of ~~December 31, 2017.~~September 30, 2018. 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, and in light of the material weakness in the design and operation of our internal control over financial reporting related to the material weakness identified in November 2018 discussed below, our chief executive officer and the chief financial officer concluded that our disclosure controls and procedures over internal controls over financial reporting were not effective as of ~~December 31, 2017.~~September 30, 2018 , due to the material weakness in internal control over financial reporting described below.

~~There have not been any changes~~ We identified a material weakness in our internal control over financial reporting where the control over the our review of the accounting for non-routine complex transactions was not appropriately designed. The material weakness resulted in the misapplication of GAAP on the recognition of revenue from our SASSA contract extension, specifically, the complexity around the contract extension by the court order, which is considered non-routine, resulted in recognition of revenue at an incorrect rate. In November 2018, the material weakness resulted in adjustments to our financial statements as of and for the year ended June 30, 2018, due to the misapplication of GAAP on the accounting treatment for the investment in Cell C Proprietary Limited, which is currently being restated.

Our remedial procedures include the appointment of a technical resource to review the accounting for non-routine transactions, and the establishment of an in-house accounting technical committee, which will assist in the review of the accounting for all non-routine transactions, including assessing the appropriateness of the accounting treatment adopted. This technical committee will also assess the need to consult external experts on the accounting of non-routine transactions. The aforementioned remediation plan was designed during the ~~fiscal quarter~~three months period ended ~~December 31, 2017, that have materially affected, or are reasonably~~September 30, 2018 and has likely not been implemented for a sufficient period of time to ~~materially affect,~~assess its effectiveness. Management believes the foregoing efforts will effectively remediate the material weakness. As we continue to evaluate and work to improve our internal control over financial ~~reporting.~~reporting, management may modify the remediation plan.

Litigation Regarding Legality of Debit Orders under Social Assistance Act Regulations

~~As previously disclosed, each~~ On September 27, 2018, the Supreme Court of Appeal of South Africa, the Supreme Court, denied the petitions of SASSA and the Black Sash ~~Trust,~~ for leave to appeal the May 2017 declaratory order of the High Court sought by us that the Social Assistance Act of 2004 and Regulations thereunder in terms thereof do not restrict social grant recipients in their operation of their bank’s accounts. The May 2017 declaratory order clarified that recipients may continue to initiate debit order instructions with any service provider, including the Company and its subsidiaries, against their bank accounts for the payment of goods and services. In accordance with industry practice, recipients may also query and request the reversal of disputed debits.

SASSA, its Chief Executive Officer and the Minister of Social Development were ordered to pay the costs of the application. We believe that this matter is now closed.

In March 2018, the High Court ordered that the June 2012 variation agreement between SASSA and CPS be reviewed and set aside. CPS was ordered to refund ZAR 317.0 million to SASSA, plus interest from June 2014 to the date of payment. In April 2018, we filed an application seeking leave to appeal the whole order and judgment of the High Court with the High Court because we believe that the High Court erred in its application of the law and/or ~~Black Sash, served applications petitioning~~in fact in its findings. The High Court refused our application. We appealed the ~~South African~~High Court’s decision to the Supreme Court of Appeal, ~~or the Supreme Court, to grant them~~which has granted our leave to ~~appeal~~appeal. The matter is expected to ~~either~~be heard during the ~~Supreme Court or to a full bench~~first half of ~~the High Court of the Republic of South Africa Gauteng Division, Pretoria.~~

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

calendar 2019. We ~~believe that SASSA and the Black Sash’s claim is without merit, and we intend to defend it vigorously. However, we~~ cannot predict how the ~~courts~~Supreme Court will rule on the matter.

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

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

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

~~Various reports have been~~ On November 9, 2018, CPS filed bythe requisite independently audited statement of expenses incurred, income received and profit earned under the SASSA ~~and the panel of experts pursuant to the Constitutional Court’s March 17, 2017 order and various directives received from it. On February 6, 2018, we launched an application~~contract with the Constitutional Court ~~requesting clarity~~as required by its March 23, 2018 order. In addition, the Constitutional Court permitted CPS to request National Treasury to evaluate and recommend the price to be charged by CPS for the payment of grants in cash under the extended contract. National Treasury submitted its recommendations to the Constitutional Court on April 30, 2018, proposing fee levels that were materially lower than CPS had requested, but significantly higher than the current fee levels. We submitted various correspondence and requests to the Constitutional Court for an order on the matter, but, until the Constitutional Court issues an order, we do not have certainty around CPS’s compensation for providing this service.

Initiation of legal proceedings against SASSA in respect of transfer of grant payments from EPE to SAPO accounts

On November 13, 2018, a number of grant beneficiaries and Moneyline Financial Service Proprietary Limited , one of our subsidiaries, filed an urgent application with the Gauteng Division of the High Court of South Africa seeking among other things, a declaration that biometric consent for the transfer of grant payments to EPE accounts conforms with the requirements of the Social Assistance Regulations, interdicting SASSA from stopping the payment of social grants into EPE accounts that were opened with biometric consent prior to January 1, 2018 when the new directive was issued, directing SASSA to process all Annexure C forms (the currently required form that has to be completed to transfer a grant payment to a private bank account) within two weeks of submission and directing SASSA to make all grant payments in accordance with duly completed and submitted Annexure C forms. We have applied for the matter to be heard before the end of November 2018, but we cannot predict whether ~~CPS~~the matter will be heard in the requested timelines or how the High Court will rule on the matter.

See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, for a discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government regulation, and (iv) our common stock. Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

SASSA’s apparently unilateral decision to move grant recipients to the SAPO/ SASSA account without the recipients' knowledge or consent, as well as their aggressive marketing campaigns in respect of the new SAPO card, have materially reduced the number of our active EPE accounts. Should this behavior continue, as has been threatened, and if we are unable to effectively challenge these actions, it could further reduce the number of active EPE accounts, which would be likely to have a material adverse effect on our results of operations, financial position and cash flows.

SASSA's apparently unilateral decision to move approximately 900,000 EPE customers to the SAPO/ SASSA account without their knowledge or consent, as well as their aggressive marketing campaigns in respect of the new SAPO card have materially reduced the number of active EPE accounts to 1.7 million in October 2018. Despite our efforts to amicably resolve this matter with the Minister and SASSA, they have not acknowledged any wrongdoing and we are in the process of taking the appropriate legal steps.have initiated legal proceedings against them in this regard. We cannot assure you that our legal challenge will be successful. The SASSA transition has also had an adverse impact on the rate at which we have been able grow our EPE customer base historically. The risk remains that SASSA continues to unilaterally move more EPE accounts onto the SAPO platform. In recent private correspondence they have threatened to transfer all EPE accounts for which they do not have on record the Annexure C form, which is the form required to be submitted by beneficiaries designating their election to have their grants paid into private bank accounts, and indicated that to date, they have currently received only 125,000 Annexure C forms. Should this behavior continue and if we are unable to effectively challenge these actions, it could further reduce the number of active EPE accounts, which would be likely to have a material adverse effect on our results of operations, financial position and cash flows.

We are in the process of transforming our South African operations to a business-to-consumer model through our EPE bank account and ATM infrastructure. Future increases in our revenues and operating income will depend in part on our ability to continue to expand this business.

Following the successful conclusion of the SASSA contract on September 30, 2018, we have refocused our resources and technology on the provision of financial inclusion services to our target market. In particular we have enabled our mobile ATM payment infrastructure to become part of the South African National Payment System and are now concentrated on taking our ATMs to the rural populations of South Africa so that they have the same access to financial inclusion as they had during the tenure of our contract, without the many inconveniences and inefficiencies of SASSA’s new payment model.

While we believe that our financial services offerings are convenient and cost-effective, our continued success will depend on the extent to which South African customers continue to use our financial products and services on a widespread basis. Factors which may ~~participate~~prevent us from successfully operating and growing our South African financial services business include, but are not limited to:

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 ~~February 8,~~November 14, 2018.

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

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

[ ]	Large accelerated filer	[~~X ]~~ X]	Accelerated filer

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

[ ]	Emerging growth company

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets at ~~December 31, 2017~~September 30, 2018 and June 30, ~~2017~~2018 (as restated)	2
	Unaudited Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	4
	Unaudited Condensed Consolidated Statement of Changes in Equity for the ~~six~~three months ended ~~December 31,~~September 30, 2018 (as restated) and 2017	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the three ~~and six~~ months ended ~~December 31,~~September 30, 2018 and 2017 ~~and 2016~~	67
	Notes to Unaudited Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3037
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4850
Item 4.	Controls and Procedures	4850
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4951
Item 1A.	Risk Factors	51
Item 6.	Exhibits	4953
Signatures		5054
EXHIBIT ~~10.79~~10.95
EXHIBIT ~~31.1~~10.96
EXHIBIT ~~31.2~~10.97
EXHIBIT 10.98
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

		Unaudited			As restated^(A)
		September 30,			June 30,
		2018			2018
		(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	98,555		$	90,054
Restricted cash (Note 10)		84,778			-
Pre-funded social welfare grants receivable (Note 2)		-			2,965
Accounts receivable, net (Note 3)		113,924			109,683
Finance loans receivable, net (Note 3)		50,811			62,205
Inventory (Note 4)		10,369			12,887
Total current assets before settlement assets		358,437			277,794
Settlement assets (Note 5)		68,566			149,047
Total current assets		427,003			426,841
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – September: $130,655; June: $129,185		25,222			27,054
EQUITY-ACCOUNTED INVESTMENTS (Note 7)		94,241			88,331
GOODWILL (Note 8)		279,158			283,240
INTANGIBLE ASSETS, net (Note 8)		121,824			131,132
DEFERRED INCOME TAXES		8,007			6,312
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 7 and Note 9)		245,150			256,380
TOTAL ASSETS		1,200,605			1,219,290
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 10)		84,778			-
Short-term credit facilities (Note 10)		3,313			-
Accounts payable		23,134			35,055
Other payables		82,292			47,994
Current portion of long-term borrowings (Note 10)		33,937			44,695
Income taxes payable		13,898			5,742
Total current liabilities before settlement obligations		241,352			133,486
Settlement obligations (Note 5)		68,566			149,047
Total current liabilities		309,918			282,533
DEFERRED INCOME TAXES		43,567			46,606
LONG-TERM BORROWINGS (Note 10)		11,660			5,469
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 9)		3,419			38,580
TOTAL LIABILITIES		368,564			373,188
COMMITMENTS AND CONTINGENCIES (Note 19)
REDEEMABLE COMMON STOCK		107,672			107,672
EQUITY
COMMON STOCK (Note 11)
Authorized: 200,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury - September: 56,833,925; June: 56,685,925		80			80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value; Issued and outstanding shares, net of treasury: September: -; June: -		-			-
ADDITIONAL PAID-IN-CAPITAL		276,865			276,201
TREASURY SHARES, AT COST: September: 24,891,292; June: 24,891,292		(286,951	)		(286,951	)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 1 and 12)		(189,528	)		(184,436	)
RETAINED EARNINGS (Note 1)		832,426			837,625
TOTAL NET1 EQUITY		632,892			642,519
NON-CONTROLLING INTEREST		91,477			95,911

TOTAL EQUITY		724,369			738,430

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY	$	1,200,605		$	1,219,290

		Three months ended
		September 30,
		2018			2017
		(In thousands, except per share
		data)

REVENUE	$	125,884		$	152,558

EXPENSE

Cost of goods sold, IT processing, servicing and support		72,316			74,652

Selling, general and administration		41,878			43,934

Depreciation and amortization		10,794			8,966

OPERATING INCOME		896			25,006

INTEREST INCOME		1,876			5,044

INTEREST EXPENSE		2,759			2,121

INCOME BEFORE INCOME TAX EXPENSE		13			27,929

INCOME TAX EXPENSE (Note 18)		6,490			10,277

NET (LOSS) INCOME BEFORE EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		(6,477	)		17,652

EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		1,373			2,075

NET (LOSS) INCOME		(5,104	)		19,727

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST		95			244

NET (LOSS) INCOME ATTRIBUTABLE TO NET1	$	(5,199	)	$	19,483

Net (loss) income per share, in U.S. dollars(Note 14)
Basic (loss) earnings attributable to Net1 shareholders		$(0.09	)	$	0.34
Diluted (loss) earnings attributable to Net1 shareholders		$(0.09	)	$	0.34

		Unaudited			(A)
		December 31,			June 30,
		2017			2017
		(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	64,896		$	258,457
Pre-funded social welfare grants receivable (Note 2)		3,300			2,322
Accounts receivable, net of allowances of – December: $1,251; June: $1,255		128,543			111,429
Finance loans receivable, net of allowances of – December: $17,213; June: $7,469		105,697			80,177
Inventory (Note 3)		12,482			8,020
Deferred income taxes (Note 1)		-			5,330
Total current assets before settlement assets		314,918			465,735
Settlement assets (Note 4)		412,177			640,455
Total current assets		727,095			1,106,190
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of – December: $136,996; June: $120,212		32,852			39,411
EQUITY-ACCOUNTED INVESTMENTS (Note 6)		147,392			27,862
GOODWILL (Note 7)		199,495			188,833
INTANGIBLE ASSETS, net (Note 7)		34,604			38,764
DEFERRED INCOME TAXES (Note 1)		3,342			-
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and Note 8)		225,463			49,696
TOTAL ASSETS		1,370,243			1,450,756
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities (Note 9)		35,553			16,579
Accounts payable		16,971			15,136
Other payables		39,168			34,799
Current portion of long-term borrowings (Note 10)		50,530			8,738
Income taxes payable		5,311			5,607
Total current liabilities before settlement obligations		147,533			80,859
Settlement obligations (Note 4)		412,177			640,455
Total current liabilities		559,710			721,314
DEFERRED INCOME TAXES (Note 1)		9,866			11,139
LONG-TERM BORROWINGS (Note 10)		19,867			7,501
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8)		2,449			2,795
TOTAL LIABILITIES		591,892			742,749
COMMITMENTS AND CONTINGENCIES (Note 18)
REDEEMABLE COMMON STOCK (Note 1)		107,672			107,672
EQUITY
COMMON STOCK (Note 11)
Authorized: 200,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury - December: 56,832,370; June: 56,369,737		80			80
PREFERRED STOCK
Authorized shares: 50,000,000 with $0.001 par value;
Issued and outstanding shares, net of treasury: December: -; June: -		-			-
ADDITIONAL PAID-IN-CAPITAL		274,961			273,733
TREASURY SHARES, AT COST: December: 24,891,292; June: 24,891,292		(286,951	)		(286,951	)
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12)		(123,359	)		(162,569	)
RETAINED EARNINGS		802,381			773,276
TOTAL NET1 EQUITY		667,112			597,569
NON-CONTROLLING INTEREST		3,567			2,766
TOTAL EQUITY (Note 1)		670,679			600,335
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK ANDSHAREHOLDERS’ EQUITY	$	1,370,243		$	1,450,756

		Three months ended				Six months ended
		December 31,				December 31,
		2017		2016		2017		2016
		(In thousands, except per share data)				(In thousands, except per share data)
REVENUE	$	148,416	$	151,433	$	300,974	$	307,066
EXPENSE
Cost of goods sold, IT processing, servicing and support		73,994		73,518		148,646		148,298
Selling, general and administration		49,392		41,703		93,326		80,171
Depreciation and amortization		8,723		10,623		17,689		20,827
OPERATING INCOME		16,307		25,589		41,313		57,770
INTEREST INCOME		4,705		5,061		9,749		9,365
INTEREST EXPENSE		2,325		510		4,446		1,306
INCOME BEFORE INCOME TAX EXPENSE		18,687		30,140		46,616		65,829
INCOME TAX EXPENSE (Note 17)		10,062		10,984		20,339		22,087
NET INCOME BEFORE EARNINGS FROM EQUITY- ACCOUNTED INVESTMENTS		8,625		19,156		26,277		43,742
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS		1,354		74		3,429		733
NET INCOME		9,979		19,230		29,706		44,475
LESS NET INCOME ATTRIBUTABLE TO NON-
CONTROLLING INTEREST		357		589		601		1,202
NET INCOME ATTRIBUTABLE TO NET1	$	9,622	$	18,641	$	29,105	$	43,273
Net income per share, in U.S. dollars(Note 14)
Basic earnings attributable to Net1 shareholders	$	0.17	$	0.35	$	0.51	$	0.81
Diluted earnings attributable to Net1 shareholders	$	0.17	$	0.35	$	0.51	$	0.81

Consolidated balance sheet
		As of June 30, 2018
		As						As
		Reported			Correction			Restated
					(in thousands)
Accumulated other comprehensive loss	$	(159,237	)	$	(25,199	)	$	(184,436	)
Retained earnings		812,426			25,199			837,625
Total equity	$	738,430		$	-		$	738,430

Consolidated statement of operations
		Year ended June 30, 2018
		As				As
		Reported		Correction		Restated
		(in thousands, except per share data)
Change in fair value of equity securities	$	-	$	32,473	$	32,473
Income before income taxes		67,893		32,473		100,366
Income tax expense		41,353		7,274		48,627
Net income before earnings from equity-accounted investments		26,540		25,199		51,739
Net income		38,270		25,199		63,469
Net income attributable to Net1	$	39,150	$	25,199	$	64,349
Net income per share, in United States dollars:
Basic earnings attributable to Net1 shareholders		0.69		0.44		1.13
Diluted earnings attributable to Net1 shareholders		0.69		0.44		1.13

Consolidated statement of comprehensive income
		Year ended June 30, 2018
		As					As
		Reported		Correction			Restated
				(in thousands)
Net income	$	38,270	$	25,199		$	63,469
Net unrealized income on asset available for sale, net of tax		25,199		(25,199	)		-
Total other comprehensive income (loss)		3,234		(25,199	)		(21,965	)
Comprehensive income	$	41,504	$	-		$	41,504

Consolidated statement of changes in equity
		Retained		Accumulated other
		earnings		comprehensive loss
		(in thousands)
As reported – June 30, 2018	$	812,426	$	(159,237)
Correction of misstatement		25,199		(25,199	)
As restated – June 30, 2018	$	837,625	$	(184,436	)

Consolidated statement of cash flows
		Year ended June 30, 2018
		As						As
		Reported			Correction			Restated
					(in thousands)
Net income	$	38,270		$	25,199		$	63,469
Fair value adjustment		212			(32,473	)		(32,685	)
Increase (Decrease) in deferred taxes		(1,308	)		7,274			5,966
Net cash provided by operating activities	$	132,605		$	-		$	132,605

		Sensitivity for
		fair value of
		Cell C investment
EBITDA multiple of 6.25 times	$	149,179
EBITDA multiple of 6.75 times	$	167,835
EBITDA multiple of 7.25 times	$	186,490

		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

		Quoted price in		Significant
		active markets		other		Significant
		for identical		observable		unobservable
		assets		inputs		inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Assets
Investment in Cell C	$	-	$	-	$	167,835	$	167,835
Related to insurance business:
Cash, cash equivalents and restricted cash (included in other long-term assets)		598		-		-		598
Fixed maturity investments (included in cash and cash equivalents)		7,853		-		-		7,853
Other		-		18		-		18
Total assets at fair value	$	8,451	$	18	$	167,835	$	176,304
Liabilities
DNI contingent consideration	$	-	$	-	$	26,839	$	26,839
Foreign exchange contracts		-		152		-		152
Total liabilities at fair value	$	-	$	152	$	26,839	$	26,991

		Carrying value
Assets
Acquisition of investment in Cell C	$	151,003
Foreign currency adjustment		(3,530	)
Balance as of September 30, 2017	$	147,473

		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

		Bank
		Frick			Finbond			Other⁽¹⁾			Total
Investment in equity:
Balance as of June 30, 2018	$	48,129		$	30,958		$	6,092		$	85,179
Acquisition of shares		-			1,920			-			1,920
Stock-based compensation		-			77			-			77
Comprehensive income (loss):		(588	)		7,305			86			6,803
Other comprehensive loss		-			5,430			-			5,430
Equity accounted earnings (loss)		(588	)		1,875			86			1,373
Share of net income		162			1,852			86			2,100
Amortization of acquired intangible assets		(189	)		-			-			(189	)
Deferred taxes on acquired intangible assets		45			-			-			45
Dilution resulting from corporate transactions		-			23			-			23
Other		(606	)		-			-			(606	)
Dividends received		-			(1,920	)		-			(1,920	)
Return on investment		-			-			(284	)		(284	)
Foreign currency adjustment⁽²⁾		435			(1,059	)		(57	)		(681	)
Balance as of September 30, 2018	$	47,976		$	37,281		$	5,837		$	91,094

Investment in loans:
Balance as of June 30, 2018	$	-		$	-		$	3,152		$	3,152
Foreign currency adjustment⁽²⁾		-			-			(5	)		(5	)
Balance as of September 30, 2018	$	-		$	-		$	3,147		$	3,147

		Equity		Loans		Total
Carrying amount as of:
June 30, 2018	$	85,179	$	3,152	$	88,331
September 30, 2018	$	91,094	$	3,147	$	94,241

				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

								Estimated
		Cost		Estimated		Cost		fair
		basis		fair value		basis		value⁽¹⁾
Due in one year or less	$	-	$	-	$	-	$	-
Due in one year through five years		9,000		9,182		9,000		9,625
Due in five years through ten years		-		-		-		-
Due after ten years		-		-		-		-
Total	$	9,000	$	9,182	$	9,000	$	9,625

				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

		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

		As of December 31, 2017							As of June 30, 2017							As of September 30, 2018							As of June 30, 2018
		Gross					Net		Gross					Net		Gross					Net		Gross					Net
		carrying		Accumulated			carrying		carrying		Accumulated			carrying		carrying		Accumulated			carrying		carrying		Accumulated			carrying
		value		amortization			value		value		amortization			value		value		amortization			value		value		amortization			value
Finite-lived intangible assets:
Customer relationships	$	105,365	$	(75,089	)	$	30,276	$	99,209	$	(65,595	)	$	33,614	$	193,995	$	(80,786	)	$	113,209	$	197,676	$	(76,237	)	$	121,439
Software and unpatented technology		35,227		(33,587	)		1,640		33,273		(31,112	)		2,161		34,175		(32,546	)		1,629		35,730		(32,342	)		3,388
FTS patent		3,098		(3,098	)		-		2,935		(2,935	)		-		2,709		(2,709	)		-		2,792		(2,792	)		-
Exclusive licenses		4,506		(4,506	)		-		4,506		(4,506	)		-		4,506		(4,506	)		-		4,506		(4,506	)		-
Trademarks		7,361		(5,486	)		1,875		6,972		(4,759	)		2,213
Trademarks and brands																12,345		(6,147	)		6,198		11,101		(5,589	)		5,512
Total finite-lived intangible assets		155,557		(121,766	)		33,791		146,895		(108,907	)		37,988		247,730		(126,694	)		121,036		251,805		(121,466	)		130,339
Indefinite-lived intangible assets:
Financial institution license		813		-			813		776		-			776		788		-			788		793		-			793
Total indefinite-lived intangible assets		813		-			813		776		-			776		788		-			788		793		-			793
Total intangible assets	$	156,370	$	(121,766	)	$	34,604	$	147,671	$	(108,907	)	$	38,764	$	248,518	$	(126,694	)	$	121,824	$	252,598	$	(121,466	)	$	131,132

Fiscal 2018	$	12,838
Fiscal 2019		11,369	$	24,469
Fiscal 2020		10,653		19,285
Fiscal 2021		4,582		13,811
Fiscal 2022		81		10,604
Fiscal 2023				10,604
Thereafter		330		48,473
Total future estimated annual amortization expense	$	39,853	$	127,246

				Investment						Investment
		Assets⁽¹⁾		contracts⁽²⁾			Assets⁽¹⁾			contracts⁽²⁾
Balance as of June 30, 2017	$	627	$	(627	)
Balance as of June 30, 2018						$	610		$	(610	)
Increase in policyholder benefits under investment contracts		2		(2	)		6			(6	)
Foreign currency adjustment⁽³⁾		35		(35	)		(18	)		18
Balance as of December 31, 2017	$	664	$	(664	)
Balance as of September 30, 2018						$	598		$	(598	)

		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

		South Africa					United States
		Amended
		July 2017		Nedbank			Bank Frick		Total
Short-term facilities as of September 30, 2018:	$	106,054	$	49,492		$	10,000	$	165,546
Overdraft		-		21,211			10,000		31,211
Overdraft restricted as to use for ATM funding only		106,054		17,676			-		123,730
Indirect and derivative facilities		-		10,605			-		10,605

Movement in utilized overdraft facilities:
Balance as of June 30, 2018		-		-			-		-
Utilized		73,500		7,842			3,313		84,655
Foreign currency adjustment⁽¹⁾		3,105		331			-		3,436
Balance as of September 30, 2018		76,605		8,173			3,313		88,091
Restricted as to use for ATM funding only		76,605		8,173			-		84,778
No restrictions as to use		-		-			3,313		3,313

Movement in utilized indirect and derivative facilities:
Balance as of June 30, 2018		-		7,871			-		7,871
Guarantees cancelled		-		(848	)		-		(848	)
Utilized		-		2,436			-		2,436
Foreign currency adjustment⁽¹⁾		-		(110	)		-		(110	)
Balance as of September 30, 2018	$	-	$	9,349		$	-	$	9,349

		South Africa
		Amended			June 2018
		July 2017			Facility		Total

Included in current portion of long-term borrowings	$	44,695		$	-	$	44,695
Included in long-term borrowings		5,469			-		5,469
Balance as of June 30, 2018		50,164			-		50,164
Utilized		-			7,801		7,801
Repaid		(10,260	)		-		(10,260	)
Foreign currency adjustment⁽¹⁾		(2,438	)		330		(2,108	)
Balance as of September 30, 2018		37,466			8,131		45,597
Included in current portion of long-term borrowings		33,937			-		33,937
Included in long-term borrowings	$	3,529		$	8,131	$	11,660

	Three months
	ended
	September 30,
	2018
Expected volatility	44%
Expected dividends	0%
Expected life (in years)	3
Risk-free rate	2.75%

				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

		Revenue						Revenue
						From						From
		Reportable		Inter-		external		Reportable		Inter-		external
		Segment		segment		customers		Segment		segment		customers
South African transaction processing	$	64,148	$	6,181	$	57,967	$	37,749	$	3,286	$	34,463
International transaction processing		44,185		-		44,185		39,387		-		39,387
Financial inclusion and applied technologies		54,131		7,867		46,264		53,206		1,172		52,034
Total for the three months ended December 31, 2017	$	162,464	$	14,048	$	148,416
Total for the three months ended September 30, 2018							$	130,342	$	4,458	$	125,884

South African transaction processing	$	59,862	$	5,395	$	54,467	$	66,437	$	6,145	$	60,292
International transaction processing		44,000		-		44,000		46,022		-		46,022
Financial inclusion and applied technologies		59,258		6,292		52,966		54,313		8,069		46,244
Total for the three months ended December 31, 2016	$	163,120	$	11,687	$	151,433
Total for the three months ended September 30, 2017							$	166,772	$	14,214	$	152,558

Table 1	Three months ended		Six months ended		Year ended	Three months ended		Year ended
	December 31,		December 31,		June 30,	September 30,		June 30,
	2017	2016	2017	2016	2017	2018	2017	2018
ZAR : $ average exchange rate	13.6318	13.9300	13.4025	14.0095	13.6147	14.0683	13.1731	12.8557
Highest ZAR : $ rate during period	14.4645	14.4618	14.4645	14.8114	14.8114	15.4335	13.5643	14.4645
Lowest ZAR : $ rate during period	12.3268	13.3634	12.3268	13.3000	12.4379	13.1528	12.8160	11.5526
Rate at end of period	12.3689	13.7392	12.3689	13.7392	13.0535	14.1437	13.5618	13.7255

KRW : $ average exchange rate	1,107	1,159	1,120	1,140	1,141	1,121	1,133	1,098
Highest KRW : $ rate during period	1,148	1,210	1,156	1,210	1,210	1,135	1,156	1,156
Lowest KRW : $ rate during period	1,067	1,100	1,067	1,092	1,092	1,108	1,115	1,056
Rate at end of period	1,067	1,207	1,067	1,207	1,144	1,110	1,152	1,114

Table 2	Three months ended		Six months ended		Year ended	Three months ended		Year ended
	December 31,		December 31,		June 30,	September 30,		June 30,
	2017	2016	2017	2016	2017	2018	2017	2018
Income and expense items: $1 = ZAR	13.6675	13.9434	13.4127	14.0292	13.6182
Income and expense items: $1 = ZAR .						14.8587	13.1691	12.6951
Income and expense items: $1 = KRW	1,107	1,172	1,125	1,152	1,146	1,121	1,133	1,095

Balance sheet items: $1 = ZAR	12.3689	13.7392	12.3689	13.7392	13.0535	14.1437	13.5618	13.7255
Balance sheet items: $1 = KRW	1,067	1,207	1,067	1,207	1,144	1,110	1,152	1,114

	In U.S. Dollars					In U.S. Dollars
Table 3	(U.S. GAAP)					(U.S. GAAP)
	Three months ended December 31,					Three months ended September 30,
	2017	2016	$	%		2018		2017	$ %
	$ ’000	$ ’000		change		$’000		$ ’000	change
Revenue	148,416	151,433		(2%	)	125,884		152,558	(17%	)
Cost of goods sold, IT processing, servicing and support	73,994	73,518		1%		72,316		74,652	(3%	)
Selling, general and administration	49,392	41,703		18%		41,878		43,934	(5%	)
Depreciation and amortization	8,723	10,623		(18%	)	10,794		8,966	20%
Operating income	16,307	25,589		(36%	)	896		25,006	(96%	)
Interest income	4,705	5,061		(7%	)	1,876		5,044	(63%	)
Interest expense	2,325	510		356%		2,759		2,121	30%
Income before income tax expense	18,687	30,140		(38%	)	13		27,929	(100%	)
Income tax expense	10,062	10,984		(8%	)	6,490		10,277	(37%	)
Net income before earnings from equity-accounted investments	8,625	19,156		(55%	)
Net (loss) income before earnings from equity-accounted investments						(6,477	)	17,652	nm
Earnings from equity-accounted investments	1,354	74		1,730%		1,373		2,075	(34%	)
Net income	9,979	19,230		(48%	)
Net (loss) income						(5,104	)	19,727	nm
Less net income attributable to non-controlling interest	357	589		(39%	)	95		244	(61%	)
Net income attributable to us	9,622	18,641		(48%	)
Net (loss) income attributable to us						(5,199	)	19,483	nm