Description Of Business And Basis Of Presentation

12 Months Ended

Jun. 30, 2020

Description Of Business And Basis Of Presentation [Abstract]

Description Of Business And Basis Of Presentation

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

Net 1 UEPS Technologies, Inc. (“Net1” and collectively with its consolidated subsidiaries, the “Company”) was incorporated in the State of Florida on May 8, 1997. The Company is a provider of financial technology, or fintech, products and services to the unbanked and underbanked in a number of emerging and developed economies. Its universal electronic payment system (“UEPS”) uses biometrically secure smart cards that operate in real-time but offline, which allows users to enter into transactions at any time with other card holders in even the most remote areas. The Company also develops and provides secure transaction technology solutions and services, and offers transaction processing and financial solutions. The Company’s technology is widely used in South Africa today, where it provides financial services (banking, lending and insurance products), processes debit and credit card payment transactions on behalf of retailers through its EasyPay system, processes value-added services such as bill payments and prepaid electricity for the major bill issuers and local councils in South Africa, and provides mobile telephone top-up transactions for the major South African mobile carriers. The Company has card issuing and acquiring capabilities in Hong Kong and Malta and provides value added payment services to online retailers across Europe through its International Payments Group (“IPG”). The Company leverages its strategic equity investments in Finbond Group Limited (“Finbond”) and Bank Frick & Co. AG (“Bank Frick”) (both regulated banks) to introduce products to new customers and geographies.

Basis of presentation

The accompanying consolidated financial statements include subsidiaries over which Net1 exercises control and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Impact of COVID-19 on the Company’s business

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The Company’s operations were impacted by government-imposed restrictions to contain the spread of the COVID-19 pandemic. Specifically, on March 27, 2020, the South African government imposed certain emergency measures to combat the spread of COVID-19, including implementation of travel bans and closures of factories, schools, public buildings, and businesses. In addition to limiting movement of employees and access to the Company’s corporate head office and operating branches, the following restrictions directly impacted the Company’s South African operations: (i) suspension of new lending and other financial services activities, and (ii) limitations on the amount of banking-related fees that may be charged to customers. These measures continued until May 31, 2020 when the restrictions highlighted above as directly affecting the Company were eased. Nevertheless, as the date of this report, South Africa remains under various lockdown restrictions that affect the broader economy and these affect the Company to the extent they affect activity levels in the South African economy.

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance remain uncertain. The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where the Company, its customers, suppliers or third-party business partners conduct business. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, apart from the two months when loan origination was curtailed, the Company is unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and duration of the outbreak, actions that may be taken by governmental authorities, the impact on the Company’s customers and other factors. The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition.

Resolution of going concern risk

As previously reported, the Company’s management implemented a number of plans to alleviate the substantial doubt about the Company’s ability to continue as a going concern including the disposal of its March 2020 Korean business unit (refer to Note 3) and its April 2020 sale of its remaining interest in DN Invest Proprietary Limited (“DNI”) (refer to Note 10). The cash received from the disposal of its Korean business unit in March 2020 resulted in the resolution of the going concern risk. The Company’s management has determined that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after these consolidated financial statements are issued as the Company believes it has sufficient cash reserves.

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)

Restatement of financial statements

Related to DNI discontinued operations presentation

Subsequent to the issuance of the Company’s Annual Report on Form 10-K for the year ended June 30, 2019 and its Quarterly Reports on Form 10-Q for the three months ended September 30, 2019 and the three and nine months ended March 31, 2019, it determined that its presentation of the discontinued operations of DNI in theconsolidated statements of operations included in those filings was incorrect. In these previous filings, the gross amounts of DNI’s operations upon classification as a discontinued operation remained in the consolidated statements of operations which totalled to net (loss) income. Two captioned lines below net (loss) income were presented to show the composition of the net (loss) income between continuing and discontinued operations and the details of amounts relating to DNI’s discontinued operations were separately disclosed in a note. The correct presentation removes the gross amounts of a discontinued operation from the consolidated statements of operations, which totals to the net (loss) income from continuing operations before presenting net income from discontinued operations and then totalling to net (loss) income.

The Company has revised the previous presentations on the consolidated statements of operations for the years ended June 30, 2019, and June 30, 2018,and corrected them in this filing where these amounts are presented as comparative prior period amounts. The impact of these revisions has reduced each of the previously-presented line items in the consolidated statements of operations preceding net income by the amounts shown in the note disclosure for DNI’s discontinued operations. The revisions had no effect on previously presented net (loss) income, net (loss) income from continuing operations, net income from discontinued operations or the note disclosures for DNI’s discontinued operations, excluding the effects of the disposal of Net1 Korea and the error relating to the release of the foreign currency translation reserve on deconsolidation of DNI.

Related to error identified – release of entire foreign currency translation reserve on deconsolidation of DNI in March 2019

In May 2020, the Company identified an error during its assessment of the accounting related to the disposal of its remaining interest in DNI in April 2020. The error relates to the misapplication of U.S. GAAP as the Company was required to release the full amount of DNI’s foreign currency translation reserve from accumulated other comprehensive loss to net income when it deconsolidated DNI in March 2019. The Company only released a portion of the foreign currency translation reserve related to the sale of 17% of DNI in March 2019, refer to Note 3, and should have released an additional $4.0 million in March 2019. During the three months ended June 30, 2019, the Company also sold an additional interest in DNI, refer to Note 3, and released a portion ($0.8 million) of the $4.0 million during this period. Therefore, the error as of June 30, 2019, was $3.2 million. The error impacts the Company’s reported results and the Company has restated its financial statements for the year ended June 30,2019to correct for the error.

Related to Finbond error reported in its fiscal 2020 annual report

On May 29, 2020, Finbond released its February 2020 summarized annual results and announced that it had identified a number of errors in its previously issued audited financial statements and had restated those audited financial statements. The Finbond restatement impacts the Company’s reported results and the Company has restated its 2019 and 2018 financial statements to correct for the Finbond restatement. The errors identified by Finbond relate to (i) an ageing issue within one of its subsidiary’s loan management system, which prompted a broader review of its management systems and which further resulted in the identification of a lending book that was incorrectly recognized; (ii) the impairment of goodwill following the identification of errors in (i); and (iii) the identification of certain liabilities that should have been recognized in prior periods.

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)

The tables below present the impact of the restatements on each of the Company’s financial statements for the

Consolidated balance sheet
	June 30, 2019
	As reported		Correction - DNI		Correction - Finbond		As restated
	(in thousands)
Equity-accounted investments	$	151 116	$	-	$	(2 689)	$	148 427
Total assets		672 936		-		(2 689)		670 247
Deferred tax liabilities		1 926		-		(602)		1 324
Total liabilities		245 835		-		(602)		245 233
Accumulated other comprehensive loss		(199 273)		3 227		234		(195 812)
Retained earnings		528 576		(3 227)		(2 321)		523 028
Total equity	$	319 429	$	-	$	(2 087)	$	317 342

Consolidated statement of operations
		Year ended June 30, 2019
		As reported		Correction - DNI		Correction - Finbond		As restated
		(in thousands, except per share data)
Gain on disposal of DNI		$	(631)	$	808	$	-	$	177
Loss before income tax			(320 251)		808		-		(319 443)
Income tax benefit			(5 025)		-		(47)		(5 072)
Net loss before earnings from equity-accounted investments			(315 226)		808		47		(314 371)
Earnings from equity-accounted investments			1 467		-		(209)		1 258
Net loss from continuing operations			(313 759)		808		(162)		(313 113)
Loss on disposal of discontinued operation, net of tax			(5 140)		(4 035)		-		(9 175)
Net loss			(305 269)		(3 227)		(162)		(308 658)
Net loss attributable to Net1			(307 618)		(3 227)		(162)		(311 007)
	Continuing		(312 407)		808		(162)		(311 761)
	Discontinued	$	4 789	$	(4 035)	$	-	$	754
Basic (loss) income per share attributable to Net1 shareholders		$	(5,42)	$	(0,06)	$	(0,00)	$	(5,48)
	Continuing	$	(5,50)	$	0,01	$	(0,00)	$	(5,49)
	Discontinued	$	0,08	$	(0,07)	$	-	$	0,01
Diluted (loss) income per share attributable to Net1 shareholders		$	(5,42)	$	(0,06)	$	(0,00)	$	(5,48)
	Continuing	$	(5,50)	$	0,01	$	(0,00)	$	(5,49)
	Discontinued	$	0,08	$	(0,07)	$	-	$	0,01

		Year ended June 30, 2018
		As reported		Correction - DNI		Correction - Finbond		As restated
		(in thousands, except per share data)
Income tax expense		$	45 729	$	-	$	(623)	$	45 106
Net income before earnings from equity-accounted investments			48 829		-		623		49 452
Earnings from equity-accounted investments			4 592		-		(2 782)		1 810
Net income from continuing operations			53 421		-		(2 159)		51 262
Net income			63 366		-		(2 159)		61 207
Net income attributable to Net1			64 246		-		(2 159)		62 087
	Continuing		54 301		-		(2 159)		52 142
	Discontinued	$	9 945	$	-	$	-	$	9 945
Basic income (loss) per share attributable to Net1 shareholders		$	1,13	$	-	$	(0,04)	$	1,10
	Continuing	$	0,95	$	-	$	(0,04)	$	0,92
	Discontinued	$	0,18	$	-	$	-	$	0,18
Diluted income (loss) per share attributable to Net1 shareholders		$	1,13	$	-	$	(0,04)	$	1,09
	Continuing	$	0,96	$	-	$	(0,04)	$	0,92
	Discontinued	$	0,17	$	-	$	-	$	0,17

Consolidated statement of comprehensive (loss) income
	Year ended June 30, 2019
	As reported		Correction - DNI		Correction - Finbond		As restated
	(in thousands)
Net loss	$	(305 269)	$	(3 227)	$	(162)	$	(308 658)
Movement in foreign currency translation reserve		(26 194)		-		46		(26 148)
Release of foreign currency translation reserve related to disposal of DNI		2 452		3 227		-		5 679
Total other comprehensive loss		(19 491)		3 227		46		(16 218)
Comprehensive loss		(324 760)		-		(116)		(324 876)
Comprehensive loss attributed to Net1	$	(322 353)	$	-	$	(116)	$	(322 469)

	Year ended June 30, 2018
	As reported		Correction - DNI		Correction - Finbond		As restated
	(in thousands)
Net income	$	63 366	$	-	$	(2 159)	$	61 207
Comprehensive income		41 466		-		(1 971)		39 495
Comprehensive income attributed to Net1	$	42 444	$	-	$	(1 971)	$	40 473

Consolidated statement of changes in equity
	Retained earnings		Accumulated other comprehensive loss
	(in thousands)
As reported – June 30, 2018	$	836 194	$	(184 538)
Correction of misstatement - Finbond		(2 159)		188
As restated – June 30, 2018		834 035		(184 350)
As reported – June 30, 2019		528 576		(199 273)
Correction of misstatement - DNI		(3 227)		3 227
Correction of misstatement - Finbond		(2 321)		234
As restated – June 30, 2019	$	523 028	$	(195 812)

Consolidated statement of cash flows
	Year ended June 30, 2019
	As reported		Correction - DNI		Correction - Finbond		As restated
	(in thousands)
Net loss	$	(305 269)	$	(3 227)	$	(162)	$	(308 658)
Loss from equity-accounted investment		(1 482)		-		209		(1 273)
Loss on disposal of discontinued operation		5 140		4 035		-		9 175
Gain on disposal of DNI		631		(808)		-		(177)
(Decrease) Increase in deferred taxes	$	(11 705)	$	-	$	(47)	$	(11 752)

	Year ended June 30, 2018
	As reported		Correction - DNI		Correction - Finbond		As restated
	(in thousands)
Net income	$	63 366	$	-	$	(2 159)	$	61 207
Earnings from equity-accounted investment		(11 597)		-		2 782		(8 815)
Increase (Decrease) in deferred taxes	$	5 936	$	-	$	(623)	$	5 313