UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 9, 2021 ( February 3, 2021 )
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 000-31203 | 98-0171860 |
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
President Place, 4th Floor, Cnr.
Jan Smuts Avenue and Bolton Road
Rosebank, Johannesburg, South Africa
(Address of principal executive offices) (ZIP Code)
Registrant’s telephone number, including area code: 011-27-11-343-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||
| Common Shares | UEPS | NASDAQ Global Select Market | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b -2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.01. Completion of Acquisition or Disposition of Assets.
On February 3, 2021, Net 1 UEPS Technologies, Inc. (the "Company"), through its wholly owned subsidiary, Net1 Holdings LI AG, ("Net1 AG"), entered into a share purchase agreement (the "Purchase Agreement") with Kuno Frick Familienstiftung (the "Purchaser") and Bank Frick & Co. AG ("Bank Frick"), pursuant to which Net1 AG agreed to sell 14,000 voting shares and 3,500 non-voting shares (collectively, the "Sale Shares"), representing Net1 AG's entire interest in, or 35% of, Bank Frick to the Purchaser for an aggregate purchase price of $30,000,000 (the "Purchase Price").
The Purchase Price will be payable in three installments: $18,610,500 was paid on February 4, 2021 (net of a credit of $3,610,500 from the Company to the Purchaser under the Release and Indemnity (as defined and described below)), $7,500,000 due and payable on October 30, 2021 and $3,889,500 due and payable on July 15, 2022, subject to the Purchaser's option to prepay the whole or any part of the outstanding balance of the Purchase Price at any time.
In connection and contemporaneously with the Purchase Agreement, Net1 AG, the Purchaser and Bank Frick entered into a security pledge and cession (the "Security Pledge and Cession"), pursuant to which the Purchaser pledged and ceded as security the Sale Shares to Net1 AG in order to secure all payment obligations by it in favor of Net1 AG under the Purchase Agreement.
In connection and contemporaneously with the Purchase Agreement, the Company, the Purchaser, Bank Frick, and certain other parties entered into a release and indemnity agreement (the "Release and Indemnity"), pursuant to which the Company and its affiliates were released from any and all liabilities to Bank Frick and all such liabilities were delegated and transferred to the Purchaser. In exchange for the Purchaser accepting the delegation and transfer of such liabilities, the Company agreed to make a one-time payment of $3,610,500 to the Purchaser, which was paid by way of set-off against the Purchaser's obligation to make the first installment payment referred to above.
The descriptions of the Purchase Agreement, Security Pledge and Cession and Release and Indemnity above do not purport to be complete and are qualified in their entirety by reference to the full text of the agreements, copies of which are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
On February 4, 2021, the Company issued a press release announcing the agreement to sell its entire interest in Bank Frick as described in Item 2.01 above. A copy of Net1's press release is attached as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits.
(b) Pro forma financial information
(d) Exhibits
NET 1 UEPS TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Overview
The following unaudited pro forma consolidated financial statements have been prepared to give effect to Net 1 UEPS Technologies, Inc. (the "Company"), through its wholly owned subsidiary Net1 Holdings LI AG, disposing of its entire shareholding in Bank Frick & Co. (the "Disposal"). The Company accounted for its non-controlling interest in Bank Frick using the equity method and Bank Frick was classified as an equity-accounted investment. The Company has prepared these unaudited pro forma consolidated financial statements based on (a) its historical unaudited consolidated financial statements as of and for the six months ended December 31, 2020, (b) its historical audited consolidated financial statements as of and for the year ended June 30, 2020 (refer also to Note 1 below regarding a restatement affecting the consolidated statement of operations), and (c) financial information for Bank Frick as of the same date and for the same periods which has been derived as described below. The unaudited pro forma consolidated financial statements present the pro forma financial position and results of operations of the consolidated company based on the historical financial information and after giving effect to the Disposal and certain adjustments which the Company believes to be (a) directly attributable to the Disposal, (b) factually supportable, and (c) in the case of certain income adjustments, expected to have a continuing impact, as described in the notes to the unaudited pro forma consolidated financial statements.
The Company has presented an unaudited pro forma consolidated balance sheet which removes the equity method entries related to Bank Frick from the Company as of December 31, 2020, as if the Disposal had occurred on that date. The Company has presented an unaudited pro forma consolidated statement of operations of the Company for the six months ended December 31, 2020, and the year ended June 30, 2020, which removes the historical equity method entries related to Bank Frick from the Company for the periods presented as if the disposal had occurred on July 1, 2019.
No account has been taken within these unaudited pro forma consolidated financial statements of any future changes in accounting policies which may or may not occur as a result of the Disposal.
The pro forma adjustments are based on information that is currently available and contain certain preliminary estimates and assumptions and thus the actual effects of the Disposal may differ from the effects reflected herein. These unaudited pro forma consolidated financial statements are not intended to be indicative of the consolidated results of operations or financial position of the consolidated company that would have been reported had the Disposal been completed as of the dates presented, and are not representative of future consolidated results of operations or financial condition of the consolidated company.
You should read these unaudited pro forma consolidated financial statements in conjunction with the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, filed on September 10, 2020, and its unaudited condensed consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the six months ended December 31, 2020, filed on February 4, 2021.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 2020, in $ '000
| Net1 | Pro forma adjustments | Notes | Pro forma | |||||||||
| ASSETS | ||||||||||||
| Current assets | 18,600 | 2 (b) | ||||||||||
| Cash and cash equivalents | 206,251 | (3,600 | ) | 2 (b) | 221,251 | |||||||
| Restricted cash related to ATM funding | 60,803 | - | 60,803 | |||||||||
| Accounts receivable, net and other receivables | 24,447 | 7,500 | 2 (b) | 31,947 | ||||||||
| Finance loans receivable, net | 21,620 | - | 21,620 | |||||||||
| Inventory | 20,939 | - | 20,939 | |||||||||
| Total current assets before settlement assets | 334,060 | 22,500 | 356,560 | |||||||||
| Settlement assets | 2,814 | - | 2,814 | |||||||||
| Total current assets | 336,874 | 22,500 | 359,374 | |||||||||
| Property, plant and equipment, net | 8,687 | - | 8,687 | |||||||||
| Operating lease right-of-use | 5,112 | - | 5,112 | |||||||||
| Equity-accounted investments | 53,126 | (33,019 | ) | 2 (a) | 20,107 | |||||||
| Goodwill | 28,455 | - | 28,455 | |||||||||
| Intangible assets, net | 536 | - | 536 | |||||||||
| Deferred income taxes | 281 | - | 281 | |||||||||
| Other long-term assets, including reinsurance assets | 43,907 | 3,900 | 2 (b) | 47,807 | ||||||||
| TOTAL ASSETS | 476,978 | (6,619 | ) | 470,359 | ||||||||
| LIABILITIES | ||||||||||||
| Current liabilities | ||||||||||||
| Short-term credit facilities for ATM funding | 60,803 | - | 60,803 | |||||||||
| Accounts payable | 6,109 | - | 6,109 | |||||||||
| Other payables | 25,066 | (1,483 | ) | 2 (b) | 23,583 | |||||||
| Operating lease liability - current | 2,585 | - | 2,585 | |||||||||
| Income taxes payable | 984 | - | 984 | |||||||||
| Total current liabilities before settlement obligations | 95,547 | (1,483 | ) | 94,064 | ||||||||
| Settlement obligations | 2,814 | - | 2,814 | |||||||||
| Total current liabilities | 98,361 | (1,483 | ) | 96,878 | ||||||||
| Deferred income taxes | 3,262 | - | 3,262 | |||||||||
| Operating lease liability - long term | 2,715 | - | 2,715 | |||||||||
| Other long-term liabilities, including insurance policy liabilities | 2,400 | - | 2,400 | |||||||||
| TOTAL LIABILITIES | 106,738 | (1,483 | ) | 105,255 | ||||||||
| Redeemable common stock | 84,979 | - | 84,979 | |||||||||
| - | ||||||||||||
| EQUITY | ||||||||||||
| Common stock | 80 | - | 80 | |||||||||
| Additional paid-in-capital | 302,196 | - | 302,196 | |||||||||
| Treasury shares | (286,951 | ) | - | (286,951 | ) | |||||||
| Accumulated other comprehensive loss | (141,242 | ) | (2,766 | ) | 2 (a) | (144,008 | ) | |||||
| Retained earnings | 411,178 | (2,117) (253 | ) | 2 (b) 2 (c) | 408,808 | |||||||
| TOTAL NET1 EQUITY | 285,261 | (5,136 | ) | 280,125 | ||||||||
| Non-controlling interest | - | - | - | |||||||||
| TOTAL EQUITY | 285,261 | (5,136 | ) | 280,125 | ||||||||
| TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY | 476,978 | (6,619 | ) | 470,359 |
See accompanying notes to unaudited pro forma consolidated financial statements.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended June 30, 2020
(in $ '000, except per share data or unless otherwise indicated)
| Net1 (as restated) (Note 1) | Pro forma adjustments | Notes | Pro forma | |||||||||
| Revenue | 144,299 | - | 144,299 | |||||||||
| Expenses | ||||||||||||
| Cost of goods sold, IT processing, servicing and support | 102,308 | - | 102,308 | |||||||||
| Selling, general and administration | 75,256 | - | 75,256 | |||||||||
| Depreciation and amortization | 4,647 | - | 4,647 | |||||||||
| Impairment losses | 6,336 | - | 6,336 | |||||||||
| Operating loss | (44,248 | ) | - | (44,248 | ) | |||||||
| Gain on disposal of FIHRST | 9,743 | - | 9,743 | |||||||||
| Loss on disposal of DNI | 1,010 | - | 1,010 | |||||||||
| Loss on deconsolidation of CPS | 7,148 | - | 7,148 | |||||||||
| Termination fee paid to cancel Bank Frick option | 17,517 | - | 17,517 | |||||||||
| Interest income | 2,805 | - | 2,805 | |||||||||
| Interest expense | 7,641 | - | 7,641 | |||||||||
| Loss before income tax expense | (65,016 | ) | - | (65,016 | ) | |||||||
| Income tax expense | 2,656 | - | 2,656 | |||||||||
| Net loss before loss from equity-accounted investments | (67,672 | ) | - | (67,672 | ) | |||||||
| Loss from equity-accounted investments | (29,542 | ) | 17,273 | 2 (a) | (12,269 | ) | ||||||
| Net loss from continuing operations | (97,214 | ) | 17,273 | (79,941 | ) | |||||||
| Net income from discontinued operations | 6,402 | - | 6,402 | |||||||||
| Gain on disposal of discontinued operations | 12,454 | - | 12,454 | |||||||||
| Net loss | (78,358 | ) | 17,273 | (61,085 | ) | |||||||
| Net loss attributable to Net1 | (78,358 | ) | 17,273 | (61,085 | ) | |||||||
| Continuing | (97,214 | ) | 17,273 | (79,941 | ) | |||||||
| Discontinued | 18,856 | - | 18,856 | |||||||||
| Loss per share attributable to Net1 shareholders: | ||||||||||||
| Basic loss: | (1.37 | ) | (1.07 | ) | ||||||||
| Continuing | (1.70 | ) | (1.40 | ) | ||||||||
| Discontinued | 0.33 | 0.33 | ||||||||||
| Diluted loss: | (1.37 | ) | (1.05 | ) | ||||||||
| Continuing | (1.70 | ) | (1.37 | ) | ||||||||
| Discontinued | 0.33 | 0.32 | ||||||||||
| Weighted-average number of outstanding shares of common stock used to calculate basic loss per share | 56,003 | 56,003 | ||||||||||
| Weighted-average number of outstanding shares of common stock used to calculate diluted loss per share | 57,119 | 57,119 |
See accompanying notes to unaudited pro forma consolidated financial statements.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended December 31, 2020
(in $ '000, except per share data or unless otherwise indicated)
| Net1 | Pro forma adjustments | Notes | Pro forma | |||||||||
| Revenue | 67,441 | - | 67,441 | |||||||||
| Expenses | ||||||||||||
| Cost of goods sold, IT processing, servicing and support | 50,799 | - | 50,799 | |||||||||
| Selling, general and administration | 40,625 | - | 40,625 | |||||||||
| Depreciation and amortization | 1,997 | - | 1,997 | |||||||||
| Operating loss | (25,980 | ) | - | (25,980 | ) | |||||||
| Change in fair value of equity securities | 15,128 | - | 15,128 | |||||||||
| Loss on disposal of equity-accounted investment | 13 | - | 13 | |||||||||
| Interest income | 1,328 | - | 1,328 | |||||||||
| Interest expense | 1,424 | - | 1,424 | |||||||||
| Loss before income tax expense | (10,961 | ) | - | (10,961 | ) | |||||||
| Income tax expense | 2,378 | - | 2,378 | |||||||||
| Net loss before loss from equity-accounted investments | (13,339 | ) | - | (13,339 | ) | |||||||
| Loss from equity-accounted investments | (20,153 | ) | (979 | ) | 2(a) | (21,132 | ) | |||||
| Net loss from continuing operations | (33,492 | ) | (979 | ) | (34,471 | ) | ||||||
| Net loss attributable to Net1 | (33,492 | ) | (979 | ) | (34,471 | ) | ||||||
| Loss per share attributable to Net1 shareholders: | ||||||||||||
| Basic loss | (0.59 | ) | (0.61 | ) | ||||||||
| Diluted loss | (0.59 | ) | (0.60 | ) | ||||||||
| Weighted-average number of outstanding shares of common stock used to calculate basic loss per share | 56,211 | 56,211 | ||||||||||
| Weighted-average number of outstanding shares of common stock used to calculate diluted loss per share | 56,880 | 56,880 |
See accompanying notes to unaudited pro forma consolidated financial statements.
NET 1 UEPS TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited pro forma consolidated financial statements present the pro forma financial position and results of operations of the consolidated company based on the historical financial information and after giving effect to the Disposal and certain adjustments which the Company believes to be (a) directly attributable to the Disposal, (b) factually supportable, and (c) in the case of certain income adjustments, expected to have a continuing impact, which are described in these notes. Please refer to "Overview" for further discussion of the basis of presentation of these unaudited pro forma consolidated financial statements.
Restatement of consolidated statement of operations from Form 10-K
As reported in the Company's Form 10-Q filed on February 4, 2021, In November 2020, the Company identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during its assessment and systems development of new products. The Company incorrectly duplicated the recognition of acquiring fees in revenue and recorded an equal and opposite entry in cost of goods sold, IT processing, servicing and support in its unaudited condensed consolidated statement of operations due to the misinterpretation of certain system reports. The error had no impact on the Company's operating income (loss), net income, balance sheet or cash flows. The Company determined that the error impacted reported results for the period from July 1, 2018 to September 30, 2020. The error impacts the Company's reported results and the Company has restated revenue and related cost of goods sold, IT processing, servicing and support included in the consolidated statement of operations for the year ended June 30, 2020, by decreasing both captions by $6.7 million as follows:
| As reported | Correction | As restated | |||||||
| $ '000 | $ '000 | $ '000 | |||||||
| Revenue | 150,997 | (6,698 | ) | 144,299 | |||||
| Cost of goods sold, IT processing, servicing and support | 109,006 | (6,698 | ) | 102,308 |
2. Pro forma adjustments
The following are descriptions of each of the pro forma adjustments included in the unaudited pro forma consolidated financial statements:
(a) Reversal of equity method entries related to Bank Frick
Impact on balance sheet as of December 31, 2020
The table below presents the impact of the Bank Frick equity method entries on the Company's December 31, 2020, balance sheet. These entries have been reversed from the Company's unaudited pro forma consolidated balance sheet as a result of the Disposal:
| Bank Frick | |||
| December 31, 2020 | |||
| USD '000 | |||
| ASSETS | |||
| Equity-accounted investments | 33,019 | ||
| TOTAL ASSETS | 33,019 | ||
| EQUITY | |||
| Accumulated other comprehensive loss | 2,766 | ||
| Retained earnings | (18,442 | ) | |
| TOTAL NET1 EQUITY | (15,676 | ) | |
| TOTAL EQUITY | (15,676 | ) | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | (15,676 | ) |
Consolidated statement of operations for the six months ended December 31, 2020 and the year ended June 30, 2020
The table below presents the impact of the Bank Frick equity method entries on the Company's consolidated statement of operations for the six months ended December 31, 2020, and the year ended June 30, 2020. These entries have been reversed from the Company's unaudited pro forma consolidated statement of operations as a result of the Disposal:
| Bank Frick | ||||||
| Six months ended December 31, 2020 | Year ended June 30, 2020 | |||||
| $ '000 | $ '000 | |||||
| Earnings (Loss) from equity-accounted investments | 979 | (17,273 | ) | |||
(b) Consideration received on Disposal
The fair value of the consideration received on Disposal was $30.0 million and $15.0 million was received in cash, representing $18.6 million related to the first payment by the Kuno Frick Familienstiftung, net of $3.6 million paid to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG's activities with Bank Frick. The remaining amounts are expected to be received as follows: (i) $ 7.5 million on October 30, 2021, and (ii) the remaining amount, of $3.9 million on July 15, 2022. The $3.6 million comprises an amount to settle future obligations due of $2.1 million, and not reflected in the Company's December 31, 2020, consolidated balance sheet, and EUR 1.2 million ($1.5 million using exchange rates applicable as of December 31, 2020), representing liabilities included within other payables as of December 31, 2020. Because the Company is required to expense this liability as if it had been incurred, it has charged the liability of $2.1 million to retained earnings as of December 31, 2020. No adjustment has been made to the unaudited pro forma consolidated statement of operations for this liability as they are non-recurring.
(c) Loss recognized on Disposal
The table below presents the calculation of the loss recognized on Disposal:
| As of December 31, 2020 | |||
| $ '000 | |||
| Fair value of consideration received | 30,000 | ||
| Less: carrying value of Bank Frick in the Company's accounts | (33,019 | ) | |
| Add: release of foreign currency translation reserve included in accumulated other comprehensive loss | 2,766 | ||
| Loss on Disposal(1) | (253 | ) |
(1) The Company does not expect to incur any tax expense related to the disposal.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NET 1 UEPS TECHNOLOGIES, INC. |
Date: February 9, 2021 | By: /s/ Alex M.R. Smith Name: Alex M.R. Smith Title: Chief Financial Officer |