Basis Of Presentation And Summary Of Significant Accounting Policies

9 Months Ended

Mar. 31, 2021

Basis Of Presentation And Summary Of Significant Accounting Policies [Abstract]

Basis Of Presentation And Summary Of Significant Accounting Policies

1. Basis of Presentation and Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three and nine months ended March 31, 2021 and 2020, 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 unaudited condensed consolidated 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, 2020. 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.

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

Impact of COVID-19 on the Company’s business

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three and nine months ended March 31, 2021, compared to the last four months of the year ended June 30, 2020. South Africa has been at an adjusted Level 1 since March 1, 2021. On December 28, 2020, the country moved back to Level 3 restrictions which remained in place through to February 28, 2021. South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive. The country went into lockdown (Level 5) towards the end of March 2020 and gradually eased restrictions for the remainder of the 2020 calendar year (to Level 4 from May 1, to Level 3 from June 1, to Level 2 from August 18 and to Level 1 from September 21). The increase at the end of December 2020 back to Level 3 was in response to a second wave of infections, which was more severe than the first wave. The South Africa government commenced its vaccination program in early calendar 2021, with a stated goal of vaccinating 67% of the South African population by the end of the calendar year. With the winter months approaching, there are concerns over the potential for a third wave, particularly as there have been several delays in the vaccination program to date.

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance continue to remain uncertain. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, apart from the two months in April and May 2020 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.

Recent accounting pronouncements adopted

There were no new accounting pronouncements adopted by the Company during the three and nine months ended March 31, 2021.

Recent accounting pronouncements not yet adopted as of March 31, 2021

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Measurement 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, 2023. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material.

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

Recent accounting pronouncements not yet adopted as of March 31, 2021 (continued)

In August 2018, the FASB issued guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). The guidance provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and Other (ASC 350). The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023, and defers the adoption guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement by the Company from July 1, 2020 to July 1, 2021.

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The guidance clarifies that an entity should consider observable transactions that require an entity to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with U.S GAAP guidance immediately before applying or upon discontinuing the equity method. The guidance also clarifies that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

Restatement of financial statements

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support

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 did not impact on the Company’s operating loss, net loss, 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 its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 16 (Revenue) and Note 18 (Operating segments) for the three and nine months ended March 31, 2020, to correct for the error. The tables below present the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations for the three months ended September 30, 2020, and the three and nine months ended March 31, 2020:

Unaudited condensed consolidated statement of operations
	Three months ended September 30, 2020(1)
	As reported		Correction		As restated
	(in thousands)
Revenue	$	37,113	$	(1,977)	$	35,136
Cost of goods sold, IT processing, servicing and support	$	28,437	$	(1,977)	$	26,460
	Three months ended March 31, 2020
	As reported		Correction		As restated
	(in thousands)
Revenue	$	36,514	$	(1,900)	$	34,614
Cost of goods sold, IT processing, servicing and support	$	25,783	$	(1,900)	$	23,883
	Nine months ended March 31, 2020
	As reported		Correction		As restated
	(in thousands)
Revenue	$	125,019	$	(5,271)	$	119,748
Cost of goods sold, IT processing, servicing and support	$	86,606	$	(5,271)	$	81,335

(1) The error for the three months ended September 30, 2020, also impacted the nine months ended March 31, 2021, by the same amount and therefore the amounts reported for the nine months ended March 31, 2021, include the correction of the error.

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

Restatement of financial statements (continued)

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support (continued)

The table below presents the impact of the restatement on the affected lines in the Processing and Total columns included in the revenue note (Note 16) for the three months ended September 30, 2020, and the three and nine months ended March 31, 2020:

			Three months ended				Three months ended				Nine months ended
			September 30, 2020(1)				March 31, 2020
			Processing		Total		Processing		Total		Processing		Total
Processing fees - as restated			$	16,330	$	16,929	$	15,527	$	16,820	$	44,659	$	48,499
	As reported			18,307		18,906		17,427		18,720		49,930		53,770
	Correction			(1,977)		(1,977)		(1,900)		(1,900)		(5,271)		(5,271)
	South Africa - as restated			14,774		15,373		13,963		15,256		41,046		44,886
		As reported		16,751		17,350		15,863		17,156		46,317		50,157
		Correction		(1,977)		(1,977)		(1,900)		(1,900)		(5,271)		(5,271)
	Rest of world		$	1,556	$	1,556	$	1,564	$	1,564	$	3,613	$	3,613
Total revenue, derived from the following geographic locations - as restated			$	21,518	$	35,136	$	20,025	$	34,614	$	68,965	$	119,748
	As reported			23,495		37,113		21,925		36,514		74,236		125,019
	Correction			(1,977)		(1,977)		(1,900)		(1,900)		(5,271)		(5,271)
	South Africa - as restated			19,962		33,580		18,461		33,050		65,352		116,135
		As reported		21,939		35,557		20,361		34,950		70,623		121,406
		Correction		(1,977)		(1,977)		(1,900)		(1,900)		(5,271)		(5,271)
	Rest of world		$	1,556	$	1,556	$	1,564	$	1,564	$	3,613	$	3,613

(1) The error for the three months ended September 30, 2020, also impacted the nine months ended March 31, 2021, by the same amount and therefore the amount reported for the nine months ended March 31, 2021, includes the correction of the error.

The table below presents the impact of the restatement to the Processing operating segment revenue included in the operating segment note (Note 18) for the three months ended September 30, 2020, and the three and nine months ended March 31, 2020:

		Revenue (as restated)
		Reportable Segment		Inter-segment		From external customers
Processing - as restated(1)		$	22,506	$	988	$	21,518
	As reported		24,483		988		23,495
	Correction		(1,977)		-		(1,977)
Total for the three months ended September 30, 2020 - as restated			36,982		1,846		35,136
	As reported		38,959		1,846		37,113
	Correction		(1,977)		-		(1,977)
Processing - as restated		$	22,078	$	2,053	$	20,025
	As reported		23,978		2,053		21,925
	Correction		(1,900)		-		(1,900)
Total for the three months ended March 31, 2020 - as restated			37,801		3,187		34,614
	As reported		39,701		3,187		36,514
	Correction		(1,900)		-		(1,900)
Processing - as restated		$	75,395	$	6,430	$	68,965
	As reported		80,666		6,430		74,236
	Correction		(5,271)		-		(5,271)
Total for the nine months ended March 31, 2020 - as restated			129,653		9,905		119,748
	As reported		134,924		9,905		125,019
	Correction	$	(5,271)	$	-	$	(5,271)

(1) The error for the three months ended September 30, 2020, also impacted the nine months ended March 31, 2021, by the same amount and therefore the amounts reported for the nine months ended March 31, 2021, include the correction of the error.