EX-99.2 4 ex992.htm EX-99.2 ex992
Exhibit 99.2
1
LESAKA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Overview
The following
 
unaudited pro
 
forma combined
 
financial statements have
 
been prepared
 
to give effect
 
to the Acquisition.
 
The Company
 
has
prepared
 
these unaudited
 
pro forma
 
combined financial
 
statements based
 
on (a)
 
its historical
 
unaudited
 
condensed consolidated
 
financial
statements as
 
of and
 
for the
 
six months
 
ended December
 
31, 2021,
 
(b) its
 
historical audited
 
consolidated financial
 
statements for
 
the year
ended June 30, 2021, and (c) the
 
combined financial information for Connect as of
 
February 28, 2022, and for the
 
six months ended February
28, 2022,
 
and the
 
twelve months
 
ended August
 
31, 2021,
 
which has
 
been derived
 
as described
 
below.
 
The unaudited
 
pro forma
 
combined
financial
 
statements
 
are
 
based
 
on
 
the
 
historical
 
financial
 
information
 
statements
 
of
 
the
 
Company
 
and
 
historical
 
financial
 
information
 
of
Connect after giving effect
 
to the Acquisition and certain
 
assumptions, reclassifications and
 
adjustments which we believe
 
to be reasonable
and factually supportable as described in the notes to the unaudited pro forma
 
combined financial statements.
The Company has presented
 
an unaudited pro forma combined
 
balance sheet which combines
 
the historical balance sheets
 
of the Company
as of December 31, 2021, and Connect as of February 28, 2022 as if the Acquisition had occurred on December 31, 2021. The Company has
presented an unaudited
 
combined pro forma
 
statement of operations
 
for (a) the
 
six months ended
 
December 31, 2021,
 
of the Company
 
and
Connect
 
which
 
combines
 
the histori
 
cal
 
statements
 
of
 
operations
 
of
 
the
 
Company
 
for
 
the
 
six
 
months
 
ended
 
December
 
31,
 
2021,
 
and
 
the
combined financial information for Connect for the six months ended February 28, 2022, as if the Acquisition had occurred on July 1, 2020,
and (b) the twelve months ended June 30, 2021,
 
of the Company and Connect which combines the historical statements
 
of operations of the
Company for
 
the year
 
ended June
 
30, 2021,
 
and the
 
combined financial
 
information for
 
Connect for
 
the twelve
 
months ended
 
August 31,
2021, as if the Acquisition had occurred on July 1, 2020.
The Company’s
 
fiscal year ends
 
on June 30
 
and Connect’s
 
fiscal year ends
 
on the last
 
day of February
 
.
 
SEC rules require
 
the Company
 
to
prepare the pro forma statement
 
of operations by using its
 
most recently completed fiscal
 
quarter prior to concluding the transaction
 
(which
was December 31, 2021,
 
upon closing the Acquisition on
 
April 14, 2022) and bring
 
Connect’s statement of
 
operations up to within 93
 
days
of the
 
Company’s
 
most recent
 
fiscal quarter
 
end. Thus,
 
the Company
 
used Connect’s
 
balance sheet
 
on February
 
28, 2022
 
for purposes
 
of
combining with the Company for the pro forma
 
balance sheet as of December 31, 2021 and has prepared
 
the pro forma combined statement
of operations to coincide with its fiscal reporting periods as follows:
●
The Company
 
used Connect
 
’s
 
statement of
 
operations
 
for the
 
twelve months
 
ended February
 
28, 2022,
 
and deducted
 
the six
 
months
ended August 31, 2021, to produce the statement of operations for the
 
six months ended February 28, 2022; and
●
The Company
 
used Connect
 
’s
 
statement of
 
operations
 
for
 
the twelve
 
months
 
ended
 
February
 
28, 2021,
 
added the
 
six months
 
ended
August 31,
 
2021, and
 
deducted the
 
six months
 
ended August
 
31, 2020,
 
to produce
 
the statement
 
of operations
 
for the
 
twelve months
ended August 31, 2021.
 
A tax rate of
 
28%, the South
 
African statutory rate,
 
has been applied
 
when calculating taxation
 
impacts unless otherwise
 
specified. Certain
Connect balances have been reclassified to conform to the balance sheet and
 
statement of operations presentation of the Company.
The historical consolidated financial statements of the Company are prepared in accordance with
 
accounting principles generally accepted in
the United States of America (“U.S. GAAP”) and
 
are shown in U.S. dollars. The
 
combined financial information of Connect, which has been
derived as described above,
 
was prepared in
 
accordance with International Financial
 
Reporting Standard for
 
Small and Medium-sized Entities
(“IFRS for
 
SMEs”) issued
 
by the
 
International Accounting
 
Standards Board
 
(“IASB”), which
 
differs in
 
certain respects
 
from U.S.
 
GAAP.
Necessary adjustments have been made
 
to reconcile the combined financial information
 
of Connect to U.S. GAAP.
 
The combined financial
information
 
of
 
Connect
 
is
 
denominated
 
in
 
South
 
African
 
Rand
 
(“ZAR”).
 
Therefore
 
for
 
purposes
 
of
 
presenting
 
the
 
unaudited
 
pro
 
forma
combined financial
 
statements an exchange
 
rate of $1
 
/ ZAR 15.930554
 
has been used
 
to translate Connect’s
 
historical balance
 
sheet as of
February 28, 2022,
 
from ZAR to
 
U.S. dollars, based
 
on the closing
 
exchange rate as
 
of December 31,
 
2021, as reported
 
by an independent
external
 
source
 
(www.oanda.com)
 
(“Oanda”).
 
An
 
exchange
 
rate
 
of
 
$1/
 
ZAR
 
14.974825
 
has
 
been
 
used
 
to
 
translate
 
Connect’s
 
results
 
of
operations for the six
 
months ended February 28,
 
2022, from ZAR
 
to U.S. dollars, based
 
on the average daily
 
exchange rate for
 
the six months
ended December
 
31, 2021, as
 
reported by
 
Oanda. An
 
exchange rate
 
of $1/
 
ZAR 15.716182
 
has been used
 
to translate Connect’s
 
results of
operations for the twelve months ended August 31, 2021, from ZAR to U.S. dollars, based on the average daily exchange rate for the twelve
months ended June 30, 2021, as
 
reported by Oanda. The Company has used
 
the exchange rates for its
 
reporting periods to translate Connect’s
ZAR-reported balances because, upon consolidation (or combination), Connect is consolidated first into
 
Net1 SA’s
 
reported numbers (which
are also prepared in ZAR) and then the consolidated Net1 SA group is converted to
 
USD and consolidated into Lesaka.
2
The
 
Acquisition
 
has
 
been
 
recorded
 
using
 
the
 
purchase
 
method
 
of
 
accounting.
 
Under
 
the
 
purchase
 
method
 
of
 
accounting,
 
the
 
aggregate
consideration
 
paid
 
is allocated
 
to the
 
tangible
 
and identifiable
 
intangible
 
assets acquired
 
and
 
liabilities assumed
 
on the
 
basis of
 
their fair
values
 
on
 
the
 
transaction
 
date.
 
Any
 
purchase
 
price
 
in
 
excess
 
of
 
net
 
assets
 
acquired
 
is
 
recorded
 
as
 
goodwill.
 
These
 
unaudited
 
pro
 
forma
combined
 
financial
 
statements
 
have
 
been
 
prepared
 
based
 
on
 
preliminary
 
estimates
 
of
 
fair
 
values
 
based
 
on
 
information
 
that
 
is
 
currently
available.
 
The actual amounts
 
and the allocation
 
between net tangible
 
and intangible
 
assets ultimately recorded
 
may differ
 
materially from
the information presented in these unaudited pro forma combined financial statements, including property,
 
plant and equipment, identifiable
intangible assets and
 
residual goodwill.
 
The preliminary estimates
 
of the fair
 
values of the
 
assets acquired and
 
liabilities assumed
 
reflected
herein are subject to change based upon completion of the valuation of
 
the assets acquired and liabilities assumed as of the closing date.
The
 
South
 
African
 
competition
 
authorities
 
approved
 
the
 
transaction
 
subject
 
to
 
certain
 
public
 
interest
 
conditions
 
relating
 
to
 
employment,
increasing the
 
spread of
 
ownership by
 
historically disadvantaged
 
people (“HDPs”),
 
and investing
 
in supplier
 
and enterprise
 
development.
Further
 
to increasing
 
the spread
 
of ownership
 
by HDPs,
 
Lesaka
 
is required
 
to establish
 
an
 
employee
 
share ownership
 
scheme
 
(“ESOP”)
within 24 months of the implementation of the Acquisition,
 
that complies with certain design principles for the benefit of the workers
 
of the
merged entity to receive
 
a shareholding in Lesaka equal
 
in value to at least 3% of
 
the issued shares in Lesaka
 
at the date of the Acquisition.
If within 24
 
months of the
 
implementation date of
 
the transaction, Lesaka
 
generates a positive
 
net profit for
 
three consecutive quarters,
 
the
ESOP shall increase to 5% of the issued
 
shares in Lesaka at the date of the
 
Connect acquisition. The final structure of the ESOP
 
is contingent
on Lesaka shareholder approval and relevant
 
regulatory and governance approvals. The ESOP had
 
not been established as of the date
 
of the
preparation
 
of this
 
pro
 
forma information
 
and
 
therefore
 
no account
 
of these
 
equity
 
transactions is
 
included
 
in
 
these unaudited
 
pro
 
forma
combined financial statements.
No account has been
 
taken within these unaudited
 
pro forma combined financial
 
statements of any future
 
changes in accounting policies
 
or
any synergies (including
 
cost savings), all of
 
which may or may
 
not occur as a
 
result of the Acquisition.
 
In addition, the impact
 
of ongoing
integration activities and other changes in Connect’s
 
assets and liabilities could cause material differences in the information
 
presented.
These unaudited pro forma
 
combined financial statements are
 
for illustrative purposes only
 
and are not
 
necessarily indicative of the
 
combined
results of operations or financial position of the combined company that would have been reported had the Acquisition been completed as of
the dates presented, and are not necessarily representative of future consolidated results of operations or financial condition of
 
the combined
company.
You
 
should
 
read
 
these
 
unaudited
 
pro
 
forma
 
combined
 
financial
 
statements
 
in
 
conjunction
 
with
 
the
 
historical
 
audited
 
combined
 
financial
statements and accompanying notes (including the reconciliation from IFRS for SMEs to US GAAP) of Connect included in Item 9.01(a)
 
of
this Form 8-K/A and the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K and
unaudited condensed
 
consolidated financial
 
statements include
 
in the
 
Company’s
 
Quarterly Report
 
on Form
 
10-Q for
 
the quarterly
 
period
ended March 31, 2022.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2021
(in USD thousands, unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
ASSETS
Current assets
85,092
4(h)
(51,974)
4(h)
(14,196)
4(f)
70,240
4(e)
(1,191)
4(e)
Cash and cash equivalents
182,356
14,106
(236,697)
4(a)
47,736
Restricted cash
57,788
-
57,788
Accounts receivable, net and other receivables
20,701
8,997
29,698
Finance loans receivable, net
21,571
12,694
34,265
Inventory
20,005
11,014
31,019
Total current assets before settlement assets
302,421
46,811
(148,726)
200,506
Settlement assets
369
22,321
22,690
Total current assets
302,790
69,132
(148,726)
223,196
Property, plant and equipment, net
5,389
18,489
23,878
Operating lease right-of-use
3,611
728
4,339
Equity-accounted investments
7,217
73
7,290
(25,888)
4(c)
Goodwill
26,239
25,888
155,253
4(b)
181,492
(24,227)
4(c)
Intangible assets, net
288
24,227
163,583
4(c)
163,871
Deferred income taxes
868
850
1,758
4(f)
3,476
Other long-term assets, including reinsurance assets
77,821
49
77,870
TOTAL ASSETS
424,223
139,436
121,753
685,412
LIABILITIES
Current liabilities
Short-term credit facilities for ATM funding
47,960
-
47,960
15,316
4(h)
Short-term credit facilities
-
15,237
(7,598)
4(h)
22,955
Accounts payable
3,539
12,138
15,677
Other payables
30,248
3,777
3,578
4(d)
37,603
Operating lease liability - current
2,516
433
2,949
(18,421)
4(h)
Current portion of long-term borrowings
-
18,421
3,531
4(h)
3,531
Income taxes payable
271
595
(1,533)
4(f)
(667)
Total current liabilities before settlement obligations
84,534
50,601
(5,127)
130,008
Settlement obligations
369
22,321
22,690
Total current liabilities
84,903
72,922
(5,127)
152,698
(6,784)
4(c)
Deferred income taxes
10,402
5,655
45,803
4(c)
55,076
Operating lease liability - long term
1,281
346
1,627
66,592
4(h)
(347)
4(h)
(25,955)
4(h)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
70,240
4(e)
Long-term borrowings
-
25,955
(1,191)
4(e)
135,294
Other long-term liabilities, including insurance policy liabilities
2,391
-
2,391
TOTAL LIABILITIES
98,977
104,878
143,231
347,086
Redeemable common stock
84,979
-
84,979
EQUITY
LESAKA EQUITY:
Common stock
80
-
-
80
Preferred stock
-
-
-
(10,730)
4(f)
(43,331)
4(c)
Other invested equity
34,415
19,646
4(i)
-
Additional paid-in-capital
303,804
-
16,658
4(a)
320,462
Treasury shares, at cost
(286,951)
-
(286,951)
Accumulated other comprehensive loss
(157,879)
(32)
32
4(i)
(157,879)
Retained earnings
381,213
-
(3,578)
4(d)
377,635
Total Lesaka equity
240,267
34,383
(21,303)
253,347
Non-controlling interest
-
175
(175)
4(f)
-
TOTAL EQUITY
240,267
34,558
(21,478)
253,347
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK
AND SHAREHOLDERS’ EQUITY
424,223
139,436
121,753
685,412
See accompanying notes to unaudited pro forma combined financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
UNAUDITED PRO FORMA COMBINED STATEMENT
 
OF OPERATIONS
For the six months ended December 31, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
65,618
169,728
235,346
EXPENSE
Cost of goods sold, IT processing, servicing and support
44,787
145,593
190,380
Selling, general and administration
38,188
10,497
1,450
4(g)
50,135
(1,608)
4(c)
Depreciation and amortization
1,621
3,263
8,950
4(c)
12,226
Transaction costs related to Connect Group acquisition
1,674
486
2,160
OPERATING
 
(LOSS) INCOME
(20,652)
9,889
(8,792)
(19,555)
UNREALIZED LOSS RELATED
 
TO FAIR VALUE
 
ADJUSTMENT
TO CURRENCY OPTIONS
2,429
2,429
INTEREST INCOME
702
195
(115)
4(a)
782
2,995
4(e)
(2,204)
4(h)
INTEREST EXPENSE
1,581
2,849
3,089
4(h)
8,310
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(23,960)
7,235
(12,787)
(29,512)
(451)
4(c)
2,506
4(c)
(617)
4(h)
INCOME TAX EXPENSE
284
1,826
617
4(h)
4,165
NET (LOSS) INCOME BEFORE (LOSS) EARNINGS FROM
EQUITY-ACCOUNTED
 
INVESTMENTS
(24,244)
5,409
(14,842)
(33,677)
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS
(1,156)
105
(1,051)
NET INCOME FROM CONTINUING OPERATIONS
(25,400)
5,514
(14,842)
(34,728)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
 
TO NON-
CONTROLLING INTEREST
-
48
(48)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE
 
TO LESAKA
(25,400)
5,466
(14,794)
(34,728)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.44)
(0.56)
Diluted loss attributable to Lesaka shareholders
(0.44)
(0.56)
See accompanying notes to unaudited pro forma combined financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
UNAUDITED PRO FORMA COMBINED STATEMENT
 
OF OPERATIONS
For the year ended June 30, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
130,786
305,691
436,477
EXPENSE
Cost of goods sold, IT processing, servicing and support
96,248
270,722
366,970
9,544
4(f)
2,367
4(f)
Selling, general and administration
84,063
15,573
2,763
4(g)
114,310
(3,065)
4(c)
Depreciation and amortization
4,347
7,332
17,055
4(c)
25,669
Transaction costs related to Connect Group acquisition
-
76
3,578
4(d)
3,654
OPERATING
 
(LOSS) INCOME
(53,872)
11,988
(32,242)
(74,126)
CHANGE IN FAIR VALUE
 
OF EQUITY SECURITIES
49,304
49,304
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED
 
INVESTMENT -
BANK FRICK
472
472
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED
 
INVESTMENT
13
13
INTEREST INCOME
2,416
207
(307)
4(a)
2,316
5,404
4(e)
(4,199)
4(h)
INTEREST EXPENSE
2,982
4,076
6,316
4(h)
14,579
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(5,619)
8,119
(40,070)
(37,570)
(2,672)
4(f)
(663)
4(f)
(860)
4(c)
4,776
4(c)
(1,176)
4(h)
INCOME TAX EXPENSE
7,560
2,332
1,176
4(h)
10,473
NET (LOSS) INCOME BEFORE LOSS FROM EQUITY-
ACCOUNTED INVESTMENTS
(13,179)
5,787
(40,651)
(48,043)
LOSS FROM EQUITY-ACCOUNTED
 
INVESTMENTS
(24,878)
-
(24,878)
NET INCOME FROM CONTINUING OPERATIONS
(38,057)
5,787
(40,651)
(72,921)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
 
TO NON-
CONTROLLING INTEREST
-
73
(73)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE
 
TO LESAKA
(38,057)
5,714
(40,578)
(72,921)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.67)
(1.18)
Diluted loss attributable to Lesaka shareholders
(0.67)
(1.18)
See accompanying notes to unaudited pro forma combined financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
LESAKA TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
 
STATEMENTS
1. Basis of presentation
 
The accompanying
 
unaudited pro forma
 
combined financial statements
 
are prepared under
 
U.S. GAAP and
 
present the pro
 
forma financial
position and results
 
of operations of
 
the combined company based
 
on the historical financial
 
information of the
 
Company and Connect
 
and
after giving effect
 
to the
 
Acquisition and certain
 
adjustments which we
 
believe to be
 
reasonable and factually
 
supportable, which are
 
described
in these notes. The Acquisition
 
has been recorded using the
 
purchase method of accounting,
 
with the Company as the
 
acquirer. Please
 
refer
to “Overview” for further discussion of the basis of presentation of these unaudited
 
pro forma combined financial statements.
Certain Connect balances have been reclassified to conform to the balance sheet and statement of operations presentation of the Company as
described in Note 2.
2. Combined Connect balance sheet and statements of operations
(a) Combined balance sheet
The table below presents Connect’s combined balance sheet, in ZAR, as of February 28, 2022, adjusted for reclassifications to conform with
Lesaka’s presentation, and
 
then converted to USD, translated using the exchange rate applicable as of December
 
31, 2021):
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Assets
Non-current assets
Property, plant and equipment
294,543
-
294,543
18,489
Goodwill
412,413
-
412,413
25,888
Intangible assets
385,943
-
385,943
24,227
Investments
 
in associates
1,169
-
1,169
73
Loans to shareholders
784
(784)
(i)
-
-
Deferred tax
13,537
-
13,537
850
Operating lease right-of-use
11,602
-
11,602
728
Other long-term assets, including reinsurance assets
-
784
(i)
784
49
Total long-term assets
1,119,991
-
1,119,991
70,304
Current assets
Inventories
175,453
-
175,453
11,014
Current tax receivable
6,241
(6,241)
(ii)
-
-
Trade and other receivables
339,315
(195,980)
(ii)(iii)
143,335
8,997
Finance loans receivable, net
-
202,221
(iii)
202,221
12,694
Cash and cash equivalents
580,302
(355,583)
(iv)
224,719
14,106
Settlement assets
-
355,583
(iv)
355,583
22,321
Total current
 
assets
1,101,311
-
1,101,311
69,132
Total assets
2,221,302
-
2,221,302
139,436
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(516)
-
(516)
(32)
Other invested equity
548,257
-
548,257
34,415
Total invested equity attributable to Parent entities
547,741
-
547,741
34,383
Non-controlling interest
2,789
-
2,789
175
Total equity
550,530
-
550,530
34,558
Non-current liabilities
Loans from financial institutions
413,478
-
413,478
25,955
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
Operating lease liability - long-term
5,513
-
5,513
346
Deferred tax
90,089
-
90,089
5,655
Total long-term liabilities
509,080
-
509,080
31,956
Current liabilities
Loans from financial institutions
536,190
(242,733)
(v)
293,457
18,421
Current tax payable
9,472
-
9,472
595
Accounts payable
-
193,369
(vi)
193,369
12,138
Trade and other payables
609,136
(548,952)
(vi)(vii)
60,184
3,777
Operating lease liability - current
6,894
-
6,894
433
Bank overdraft
-
242,733
(v)
242,733
15,237
Settlement obligations
-
355,583
(vii)
355,583
22,321
Total current
 
liabilities
1,161,692
-
1,161,692
72,922
Total liabilities
1,670,772
-
1,670,772
104,878
Total
 
equity and liabilities
2,221,302
-
2,221,302
139,436
(i) Loans to shareholders reclassified to other long-term assets, including
 
reinsurance assets in Lesaka’s balance
 
sheet;
(ii) Current tax receivable reclassified to accounts receivable, net
 
and other receivables in Lesaka’s balance
 
sheet;
(iii) Loans to customers (net of allowance for doubtful debts) included within
 
Connect’s trade and other receivables
 
reclassified to Finance
loans receivable, net in Lesaka’s balance
 
sheet;
(iv) Cash held by Cash Connect Collateral Holdings Trust
 
included within cash and cash equivalents represents funds held on behalf
 
of
customers with an equivalent amount recorded as the settlement control
 
payable included in Connect’s trade
 
and other payables. The cash
held has been reclassified from cash and cash equivalents to settlement assets in Lesaka’s
 
balance sheet;
(v) Overdraft and revolving credit facilities included within Connect’s
 
current liabilities - loans from financial institutions are short-term
credit facilities and have been reallocated from loans from financial institutions
 
to short-term credit facilities in Lesaka’s
 
balance sheet;
(vi) Connect’s trade payables included
 
within trade and other payables have been reclassified to accounts payable in Lesaka’s
 
balance
sheet;
(vii) As noted in (iv) above, funds held on behalf of customers and due to customers is included
 
in the settlement control payable included
in Connect’s trade and other payables
 
and has been reclassified from trade and other payables to settlement liabilities in
 
Lesaka’s balance
sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9
(b) Combined statements of operations
The table
 
below presents
 
Connect’s
 
combined statement
 
of operations,
 
in ZAR,
 
for the
 
six months
 
ended February
 
28, 2022,
 
adjusted for
reclassifications to conform with Lesaka’s presentation, and then
 
converted to USD, translated using the average exchange rate for Lesaka’s
six months ended December 31, 2021
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
2,497,767
43,882
(i)
2,541,649
169,728
Cost of sales
(2,204,641)
24,405
(ii)
(2,180,236)
(145,593)
Gross profit
293,126
68,287
361,413
24,135
Other income
52,221
(52,221)
(i)(iii)(iv)
-
-
Operating expenses
(195,696)
38,506
(iii)(v)(vi)
(157,190)
(10,497)
Depreciation and amortisation
(48,867)
(v)
(48,867)
(3,263)
Transaction costs related to Connect Group acquisition
(7,271)
(vi)
(7,271)
(486)
Operating profit
149,651
(1,566)
148,085
9,889
Finance income
2,914
2,914
195
Interest paid
(42,658)
(42,658)
(2,849)
Profit before taxation
109,907
(1,566)
108,341
7,235
Taxation
(27,342)
(27,342)
(1,826)
Profit after tax before earnings (loss) from equity-
accounted investment
82,565
(1,566)
80,999
5,409
Earnings (loss) from equity-accounted investment
-
1,566
(iv)
1,566
105
Profit for the year
82,565
-
82,565
5,514
Other comprehensive income
-
-
-
Total comprehensive
 
income/(loss) for the year
82,565
-
82,565
5,514
Non-controlling interest
717
717
48
Total comprehensive
 
income/(loss) attributable to
Connect
81,848
-
81,848
5,466
(i) Certain items presented within Connect’s
 
other income reclassified to revenue in Lesaka’s
 
statement of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization
 
in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general
 
and administration in Lesaka’s statement
 
of operations;
(iv) Earnings from equity-accounted investments presented within other
 
income reclassified to loss from equity-accounted investments in
Lesaka’s statement of operations;
(v) Depreciation included within operating expenses allocated to
 
depreciation and amortization in Lesaka’s
 
statement of operations;
(vi) Transaction costs related to the Connect
 
Group acquisition included within operating expenses allocated to a separate caption
 
in
Lesaka’s statement of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
The table below presents
 
Connect’s combined
 
statement of operations, in
 
ZAR, for the twelve
 
months ended August
 
31, 2021, adjusted for
reclassifications to conform with Lesaka’s presentation,
 
and then converted to USD, translated using the average exchange rate for Lesaka’s
year ended June 30, 2021:
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
4,788,302
16,000
(i)
4,804,302
305,691
Cost of sales
(4,308,638)
53,925
(ii)
(4,254,713)
(270,722)
Gross profit
479,664
69,925
549,589
34,969
Other income
47,329
(47,329)
(i)(iii)
-
-
Operating expenses
(338,582)
93,838
(iii)(iv)(v)
(244,744)
(15,573)
Depreciation and amortisation
(115,234)
(iv)
(115,234)
(7,332)
Transaction costs related to Connect Group acquisition
-
(1,200)
(v)
(1,200)
(76)
Operating profit
188,411
-
188,411
11,988
Finance income
3,246
3,246
207
Interest paid
(64,053)
(64,053)
(4,076)
Profit before taxation
127,604
-
127,604
8,119
Taxation
(36,651)
(36,651)
(2,332)
Profit after tax before earnings (loss) from equity-
accounted investment
90,953
-
90,953
5,787
Earnings (loss) from equity-accounted investment
-
-
-
-
Profit for the year
90,953
-
90,953
5,787
Other comprehensive income
-
-
-
Total comprehensive
 
income/(loss) for the year
90,953
-
90,953
5,787
Non-controlling interest
1,140
1,140
73
Total comprehensive
 
income/(loss) attributable to
Connect
89,813
89,813
5,714
(i) Certain items presented within Connect’s
 
other income reclassified to revenue in Lesaka’s statement
 
of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization
 
in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general
 
and administration in Lesaka’s statement
 
of operations;
(iv) Depreciation included within operating expenses allocated
 
to depreciation and amortization in Lesaka’s
 
statement of operations;
(v) Transaction costs related to the Connect Group acquisition included within operating expenses allocated to a
 
separate caption in Lesaka’s
statement of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
11
3. Acquisition of Connect
The following
 
table sets
 
forth the
 
components of
 
the purchase
 
price for
 
the Acquisition
 
(using the
 
USD/ ZAR
 
closing exchange
 
rate as
 
of
April 13, 2022, for cash paid at closing):
 
USD '000
Cash paid at closing to former Connect shareholders, comprising:
236,697
Utilization of existing cash reserves
147,322
Bank borrowings
70,240
Increase in Connect bank borrowings
(1)
19,135
Lesaka shares to be issued pursuant to the Acquisition
(2)
16,658
Total purchase
 
consideration
253,355
(1) Connect refinanced
 
its borrowings prior to
 
closing the transaction and
 
the Company utilized certain
 
of the increased borrowin
 
gs (which
were included
 
in Connect’s
 
closing balance
 
sheet) at
 
the date
 
of the
 
Acquisition, as
 
part of
 
the post-closing
 
transaction steps,
 
to fund
 
the
Acquisition.
(2) Calculated as 3,185,079 shares of Lesaka common stock multiplied
 
by the April 13, 2022, closing price on the NasdaqGS of $5.23.
The following table sets forth the preliminary allocation of the purchase price
 
,
 
translated at the exchange rate as of December 31, 2021:
USD '000
Cash and cash equivalents
 
33,028
Accounts receivable
8,997
Finance loans receivable
12,694
Inventory
 
11,014
Settlement assets
 
22,321
Property, plant and equipment
18,489
Operating lease right-of-use asset
728
Equity-accounted investment
73
Goodwill
 
155,253
Intangible assets
163,583
Deferred income tax assets
2,608
Other long-term assets
 
49
Trade payables
 
(12,138)
Other payables
 
(3,777)
Short-term borrowings
 
(22,955)
Operating lease liability - current
(433)
Current portion of long-term borrowings
 
(3,531)
Income taxes (payable) receivable
938
Settlement obligations
 
(22,321)
Deferred income taxes - long-term liabilities
 
(44,674)
Operating lease liability - long-term
(346)
Long-term borrowings
(66,245)
Total purchase
 
price
253,355
The
 
preliminary
 
purchase
 
price
 
allocation
 
is
 
based
 
on
 
management
 
estimates
 
as
 
of
 
June
 
30,
 
2022,
 
and
 
may
 
be
 
adjusted
 
up
 
to
 
one
 
year
following the closing of the Acquisition. Management
 
has not yet completed its valuation analysis and calculations necessary
 
to finalize the
determination of
 
the fair
 
value of
 
the assets
 
acquired and
 
liabilities assumed,
 
along with
 
the related
 
allocations of
 
goodwill and
 
intangible
assets. We
 
expect to finalize
 
the purchase price allocation
 
on or before December
 
31, 2022. The actual
 
amounts and the allocation
 
between
net tangible
 
and intangible
 
assets ultimately
 
recorded
 
may differ
 
materially from
 
the information
 
presented
 
in these
 
unaudited pro
 
forma
combined financial statements, including property,
 
plant and equipment, identifiable intangible assets and residual goodwill.
 
12
4. Pro forma adjustments
 
The following are descriptions of each of the pro forma adjustments included
 
in the unaudited pro forma combined financial statements:
 
(a) Reduction in cash and cash equivalents and interest income
 
Represents the estimated reduction in interest income of $0.1 million and $0.3 million on the Company’s
 
cash reserves of $124.4 million
(which is the USD equivalent of the ZAR cash reserves utilized using the $:ZAR exchange rate of 17.197978 on July 1, 2020) for the six
months ended December 31, 2021, and the year ended June 30, 2021, which
 
was used to fund a portion of the Acquisition at an assumed
pre-tax
 
USD
 
interest
 
rate
 
of
 
approximately
 
0.19%
 
and
 
0.24%,
 
respectively.
 
The
 
Company
 
was
 
in
 
a
 
net
 
operating
 
loss carry
 
forward
position
 
(with an
 
allowance
 
for
 
unutilized
 
net operating
 
loss carryforwards
 
created
 
in full)
 
and
 
therefore
 
there was
 
no net
 
tax
 
benefit
during the periods presented.
The components of the
 
cash paid of $236.7 million
 
is presented in Note 3.
 
The amount is presented
 
as a pro forma adjustment
 
to reduce
cash and cash equivalents
 
in the pro forma combined balance sheet as of December 31, 2021.
(b) Goodwill
 
The amount of $155.3 million represents the excess of the
 
purchase price over the fair value of net assets
 
acquired as presented within the
preliminary purchase price allocation in Note 2 above.
(c) Acquired intangible assets and amortization expense and reversal
 
of Connect pre-acquisition intangible assets
Represents
 
the
 
portion
 
of
 
the
 
purchase
 
price
 
allocated
 
to
 
Connect’s
 
intangible
 
assets
 
acquired,
 
at
 
estimated
 
fair
 
values
 
based
 
on
management’s
 
estimates.
 
As
 
of
 
February
 
28,
 
2022,
 
these
 
assets
 
(comprising
 
goodwill
 
and
 
intangible
 
assets)
 
had
 
a
 
carrying
 
value
 
on
Connect’s
 
balance sheet
 
of approximately
 
$50.1 million.
 
As noted
 
above, this
 
identification and
 
estimation of
 
fair value
 
is provisional
and may
 
change when
 
the final purchase
 
price allocation
 
is made.
 
Since the
 
tax basis of
 
these identifiable
 
intangible assets is
 
less than
their accounting basis, the purchase price allocated to these assets results in additional
 
deferred tax liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
The table
 
below presents
 
the fair
 
value of
 
the acquired
 
intangible assets
 
(in ZAR
 
and USD)
 
the estimated
 
used life
 
(in years)
 
of these
acquired intangible assets and the amortization expense and related tax
 
effect (in ZAR and USD) for the identified periods presented:
Six months ended
 
December 31,
Year
 
ended
 
June 30, 2021
Fair value
Fair value
Estimated
useful life
Intangible
asset
amortizatio
n expense
Deferred
tax impact
Intangible
asset
amortizatio
n expense
Deferred
tax impact
ZAR '000
USD '000
(in years)
USD '000
(1)
USD '000
USD '000
(2)
USD '000
Finite lived intangibles assets
Customer relationships
297,870
18,698
8
1,243
348
2,369
663
Integrated network
2,075,970
130,314
10
6,932
1,941
13,209
3,699
Trade names
232,120
14,571
10
775
217
1,477
414
Total
2,605,960
163,583
8,950
2,506
17,055
4,776
Deferred tax liabilities
Customer relationships
83,404
5,235
Integrated network
581,272
36,488
Trade names
64,994
4,080
Total
729,670
45,803
(1) Using
 
the average
 
exchange rate
 
for the
 
six months
 
ended December
 
31, 2021,
 
the amortization
 
expense related
 
to these intangible
assets was $9.0
 
million. The deferred
 
tax effect
 
of $2.5
 
million related
 
to this adjustment
 
is included
 
on the income
 
tax expense line
 
in
the unaudited pro forma combined statement of operations.
(2) Using
 
the average
 
exchange rate
 
for the year
 
ended June
 
30, 2021,
 
the total
 
annual amortization
 
expense related
 
to these
 
intangible
assets was $17.1
 
million. The deferred tax
 
effect of $4.8 million
 
related to this adjustment
 
is included on the
 
income tax expense line
 
in
the unaudited pro forma combined statement of operations.
 
 
 
 
 
 
 
 
 
 
 
 
 
14
The table below
 
presents Connect’s
 
intangible assets (including
 
goodwill) and related
 
deferred tax liabilities
 
that have been
 
reversed on
acquisition (in ZAR and USD), and the reversal of Connect’s amortization expense
 
and related tax effect in its historical accounts for the
identified periods presented (in ZAR and USD):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
As of December 31, 2021
Goodwill reversed on acquisition
412,413
25,888
Intangible assets, net reversed on acquisition
385,943
24,227
Total intangible
 
assets, net reversed
798,356
50,115
Deferred tax liability reversed on acquisition
(108,073)
(6,784)
Impact on other invested equity
690,283
43,331
Pro forma six months ended December 31, 2021
Intangible asset amortization reversed
24,084
1,608
Deferred tax related to intangible asset amortization reversed
6,759
451
Pro forma year ended June 30, 2021
Intangible asset amortization reversed
48,167
3,065
Deferred tax related to intangible asset amortization reversed
13,518
860
(1) Using the average exchange rate for the six
 
months ended December 31, 2021. This adjustment is included in
 
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
 
exchange rate for the year
 
ended June 30, 2021. This adjustment
 
is included in the unaudited
 
pro forma combined
statement of operations for the year ended June 30, 2021.
(d) Transaction costs adjustments
Represents the Company’s estimate of the
 
expected Connect acquisition costs of $3.6 million owing to external professional advisors for
services provided which
 
are not reflected
 
in the Company’s December
 
31, 2021 consolidated
 
balance sheet. These
 
costs have been
 
accrued
as
 
a
 
current
 
liability.
 
The
 
Company
 
does
 
not
 
expect
 
to
 
deduct
 
these
 
expenses
 
for
 
tax
 
purposes.
 
Because
 
the
 
Company
 
is
 
required
 
to
expense
 
these
 
costs
 
as
 
they
 
are
 
incurred,
 
it has
 
charged
 
them
 
to
 
retained
 
earnings
 
as
 
of
 
December
 
31,
 
2021.
 
This
 
adjustment
 
is
 
also
included
 
in
 
the
 
unaudited
 
pro
 
forma
 
combined
 
statement
 
of
 
operations
 
for
 
the
 
year
 
ended
 
June
 
30,
 
2021.
 
There
 
were
 
no
 
significant
transaction
 
costs
 
actually
 
incurred
 
by
 
the
 
Company
 
during
 
the
 
year
 
ended
 
June 30,
 
2021.
 
These
 
costs
 
will
 
not
 
affect
 
the
 
Company’s
statement of operations beyond 12 months after the acquisition date.
 
The
 
Company’s
 
consolidated
 
statement
 
of
 
operations
 
for
 
the six
 
months
 
ended December
 
31,
 
2021,
 
include
 
transaction
 
costs of
 
$1.7
million.
 
Connect’s
 
combined
 
statement
 
of
 
operations
 
for
 
the
 
six
 
months
 
ended
 
February
 
28,
 
2022,
 
and
 
year
 
ended
 
August
 
31,
 
2021,
 
include
transaction costs
 
of $0.5 million
 
and $0.1 million
 
(translated at average
 
exchange rates
 
for the periods
 
identified),
 
respectively,
 
paid on
behalf of the sellers.
(e) Borrowings, non-refundable deal origination fees and interest expense
 
The Company used aggregate borrowings of ZAR 1.1 billion ($70.2
 
million, translated at the exchange rate as of December 31, 2021)
 
to
partially fund the
 
Acquisition and procured
 
these lending facilities
 
(Facility G and
 
Facility H) from
 
FirstRand Bank Limited
 
acting through
Rand Merchant Bank division (“RMB”) and concluded agreements (“Loans
 
Documents”) in January 2022 to arrange this funding.
 
The Company paid non-refundable
 
deal origination fees of ZAR 19.0
 
million ($1.2 million, translated at
 
exchange rates applicable as of
December 31,
 
2021) upon
 
drawing down
 
the available
 
funding under
 
the Loan
 
Documents. Accordingly,
 
an amount
 
of $1.2
 
million is
included
 
in
 
accounts
 
payable
 
and
 
long-term
 
borrowings
 
(as
 
prepaid
 
facility
 
fees)
 
as of
 
December
 
31,
 
2021.
 
The non
 
-refundable
 
deal
origination fees are amortized over the applicable lending period using
 
the effective interest rate method.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15
Interest on Facility G and Facility
 
H is payable quarterly in arrears.
 
Interest on Facility G is
 
based on the 3-month Johannesburg Interbank
Agreed Rate
 
(“JIBAR”) in
 
effect from
 
time to
 
time plus
 
a margin
 
of (i)
 
3.00% per
 
annum for
 
the first
 
nine months
 
occurring after
 
the
effective date (as defined
 
in the Loan Documents);
 
and then (ii) from
 
the date after the nine
 
month period in (i),
 
(x) 2.50% per annum
 
if
the Facility G balance outstanding is less
 
than or equal to ZAR 250.0 million,
 
or (y) 3.00% per annum if
 
the Facility G balance is between
ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50% per annum if the
 
Facility G balance is greater than ZAR 450.0 million. Interest on
Facility H is
 
based on
 
JIBAR plus a
 
margin of
 
2.00% per annum
 
and increase by
 
a further 2.00%
 
per annum in
 
the event of
 
default (as
defined in the Loan Documents).
The average JIBAR during the six months ended December
 
31, 2021, was 3.68%
 
and, together with the applicable margin of 3.20%,
 
the
interest expense for this period included in the pro forma combined statement of operations has been calculated using a rate
 
of 6.89% and
the ZAR 1.1 billion borrowings outstanding.
 
The average JIBAR during the year ended June 30, 2021, was 3.64% and,
 
together with the
applicable margin
 
of 2.82%,
 
the interest
 
expense for
 
this period
 
included in
 
the pro
 
forma combined
 
statement of
 
operations has
 
been
calculated using a rate of 6.46% and the ZAR 1.1 billion borrowings outstanding
 
.
The table
 
below presents
 
the borrowings
 
utilized (translated
 
to USD
 
at the
 
exchange rates
 
applicable as
 
of December
 
31, 2021)
 
by the
Company,
 
the repayment
 
terms, the
 
interest
 
rate determination,
 
and
 
the non
 
-refundable
 
deal
 
origination
 
fees
 
paid
 
included
 
in the
 
pro
forma combined balance sheet as of December 31,2021, and the aggregated amortization of the deal origination fees and interest expense
during
 
the
 
six
 
months
 
ended
 
December,
 
2021,
 
and
 
the
 
year
 
ended
 
June
 
30,
 
2021,
 
included
 
in
 
the
 
pro
 
forma
 
combined
 
statements
 
of
operations (translated to USD at the applicable average exchange rate
 
applicable for the periods presented):
ZAR '000
USD '000
Repayment date
Interest rate
Borrowing utilized, comprising:
1,118,975
70,240
Facility G
750,000
47,079
October 14, 2023
JIBAR plus variable margin
Facility G, deal origination costs
18,975
1,191
October 14, 2023
JIBAR plus variable margin
Facility H
350,000
21,970
October 14, 2023
JIBAR plus 2%
Less: deal original fees accrued
18,975
1,191
Borrowing utilized less deal origination fees
 
1,100,000
69,049
Six months ended
Year
 
ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
(1)
USD '000
(2)
Deal origination fees amortized
6,325
422
Interest expense
38,527
2,573
Total interest
 
expense
44,852
2,995
Deal origination fees amortized
12,650
805
Interest expense
72,283
4,599
Total interest
 
expense
84,933
5,404
(1) Using the average exchange rate for the six
 
months ended December 31, 2021. This adjustment is included in
 
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
 
exchange rate for the year
 
ended June 30, 2021. This adjustment
 
is included in the unaudited
 
pro forma combined
statement of operations for the year ended June 30, 2021.
A change of one percentage point in JIBAR results in a change of ZAR 11.2
 
million ($0.7 million) in the annual interest expense.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
16
(f) Pre-closing payments made by Connect
Connect was required
 
to make certain pre
 
-closing payments as a
 
condition to the
 
sales agreement. All amounts
 
in this note translated
 
to
USD at
 
the exchange
 
rates applicable
 
as of
 
December 31,
 
2021 for
 
balance sheet
 
items and
 
the average
 
rates for
 
the six months
 
ended
December 31, 2021, and the year ended June 30, 2021, for statement of operations
 
items.
 
Prior to closing, Connect was required to pay:
●
the Connect
 
CEO a restraint of trade
 
payment of ZAR 150.0 million ($9.4
 
million in the pro forma
 
combined balance sheet). The
Company expects to qualify for a tax deduction and will deduct the
 
amount rateably over a period of three years. The Company
recorded a
 
pro forma
 
adjustment of
 
ZAR 150.0
 
million ($9.5
 
million), tax
 
impact of
 
$2.7 million,
 
in its
 
unaudited pro
 
forma
combined statements of operations for the year ended June 30, 2021.
 
This expense is considered non-recurring;
 
●
cash
 
bonuses
 
of
 
ZAR 37.2
 
million
 
($2.3
 
million
 
in
 
the pro
 
forma
 
combined
 
balance
 
sheet) to
 
a
 
group
 
of identified
 
Connect
employees).
 
The Company
 
expects
 
to
 
qualify
 
for
 
a
 
tax deduction
 
and
 
will deduct
 
the
 
amount
 
in the
 
period
 
the
 
expense was
incurred. The Company
 
recorded a pro
 
forma adjustment of ZAR
 
37.2 million ($2.4
 
million), tax impact
 
of $0.7 million,
 
in its
unaudited
 
pro
 
forma
 
combined
 
statements
 
of
 
operations
 
for
 
the
 
year
 
ended
 
June
 
30,
 
2021.
 
This
 
expense
 
is
 
considered
 
non-
recurring;
●
ZAR
 
26.4
 
million
 
($1.7
 
million
 
in
 
the
 
pro
 
forma
 
combined
 
balance
 
sheet)
 
to
 
repurchase
 
Connect’s
 
issued
 
and
 
outstanding
preference shares. Connect settled this transaction in two parts, the first was a dividend distribution of ZAR 24.0 million and the
balance
 
as
 
the
 
acquisition
 
of
 
the
 
preference
 
shares
 
at
 
historical
 
cost.
 
This
 
payment
 
did
 
not
 
impact
 
the
 
unaudited
 
pro
 
forma
combined statements of operations for the year ended June 30, 2021,
 
and for the six months ended December 31, 2021; and
●
ZAR 12.5 million
 
($0.8 million in
 
the pro forma
 
combined balance sheet)
 
to acquire its remaining
 
non-controlling interest in a
subsidiary.
 
This transaction has been accounted for as a transaction between owners and a loss on acquisition of the outstanding
interest was recorded directly in equity.
The table
 
below presents
 
a summary
 
of pre-closing
 
payments made
 
and the
 
allocation of
 
these adjustments
 
in the
 
pro forma
 
combined
balance sheet:
ZAR '000
USD '000
Restraint payment - Gross (A)
150,000
9,416
Restraint payment - Tax Payable (B)
14,000
879
Restraint payment - Deferred tax assets (C)
28,000
1,758
Restraint payment, net (D)
108,000
6,779
Bonuses payment - Gross (A)
37,200
2,335
Bonuses payment - Tax Payable (B)
10,416
654
Bonuses payment, net (D)
26,784
1,681
Preferences share repurchase payment (A)
26,446
1,660
Preference shares (allocate to Other equity items (D)
2,446
154
Loss on repurchase (allocate to Other equity items (D))
24,000
1,506
Buy out non-controlling interest payment (A)
12,500
785
Non-controlling interest (E)
2,789
175
Loss on repurchase (allocate to Other equity items (D))
9,711
610
Allocated to:
Cash and cash equivalents (sum of (A))
226,146
14,196
Tax payable (sum of (B))
24,416
1,533
Deferred tax asset (sum of (C))
28,000
1,758
Other invested equity (sum of (D))
170,941
10,730
Non-controlling interest (sum of (E))
2,789
175
 
 
 
 
 
 
 
 
 
 
 
17
(g) Stock-based compensation
 
The
 
Company
 
agreed
 
to
 
award
 
a
 
group
 
of
 
identified
 
Connect
 
employees
 
1,250,486
 
shares
 
of
 
restricted
 
stock
 
upon
 
closing
 
of
 
the
Acquisition. The Company also awarded
 
this group 1,250,486 restricted stock units
 
which award contains an equalization
 
mechanism to
maintain a return of $7.50 per
 
share of restricted stock upon vesting. The conversion
 
of restricted stock units to shares
 
cannot exceed 50%
(or
 
625,243
 
shares)
 
under
 
the
 
terms
 
of
 
the
 
award.
 
These
 
awards
 
vest
 
equally
 
over
 
a
 
period
 
of
 
three
 
years
 
commencing
 
on
 
the
 
first
anniversary of the closing of the Acquisition.
 
The estimated grant date fair value of the shares
 
of restricted stock has been determined using the 1,250,486 shares of restricted
 
stock and
the closing price of the Company’s stock on Nasdaq on the closing date ($5.23). The estimated
 
grant date fair value of the restricted stock
units has been determined using the 1,250,486 restricted stock units and an estimate price per unit ($2.62) assuming that only 25%
 
of the
restricted
 
stock
 
units
 
will
 
vest
 
based
 
on
 
the
 
impact
 
of
 
the
 
equalization
 
mechanism.
 
The
 
Company
 
is
 
currently
 
seeking
 
tax
 
advice
 
to
determine whether it may claim a tax deduction of these stock-based
 
compensation charges for tax purposes and therefore
 
no tax-related
adjustment has been made to the pro forma adjustment.
The table
 
below presents
 
the grant
 
date fair
 
value of
 
the awards
 
and estimated
 
stock-based compensation
 
changes included
 
in the
 
pro
forma combined statement of operations for the periods presented
 
(translated at applicable exchange rates for the periods identified):
Six months ended
Year
 
ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Estimated grant date fair value:
1,250,486 shares of restricted stock granted to employees
104,186
6,540
1,250,486 shares of restricted units granted to employees
26,094
1,638
Total
130,280
8,178
Stock-based compensation charges
21,713
1,450
Stock-based compensation charges
43,427
2,763
(1) Using the average exchange rate for the six
 
months ended December 31, 2021. This adjustment is included in
 
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
 
exchange rate for the year
 
ended June 30, 2021. This adjustment
 
is included in the unaudited
 
pro forma combined
statement of operations for the year ended June 30, 2021.
(h) Refinancing of Connect lending facilities
Connect refinanced its long-term borrowings pursuant to the Acquisition.
The
 
Connect
 
facilities
 
include
 
(i)
 
an
 
overdraft
 
facility
 
(general
 
banking
 
facility)
 
of
 
ZAR 244.0
 
million;
 
(ii)
 
Facility
 
A of
 
ZAR 700.0
million
 
(a
 
long-term
 
facility
 
with
 
a
 
bullet
 
repayment);
 
(iii)
 
Facility
 
B
 
of
 
ZAR
 
350.0
 
million
 
(a
 
long-term
 
facility
 
with
 
amortizing
repayments commencing September 2022); and (iv)
 
an asset-backed facility of ZAR
 
67.1 million. The amount available
 
under the general
banking facility will reduce to ZAR 205.0 million in
 
mid-November 2022. CCMS paid a non-refundable structuring fee of
 
approximately
ZAR 5.5
 
million. Interest
 
on Facility A
 
and Facility
 
B is payable
 
quarterly based
 
on JIBAR plus
 
a margin,
 
of approximately
 
3.75%, in
effect from time to time.
An adjustment has been made
 
in the pro forma combined
 
balance sheet to record the new
 
borrowings utilized by Connect and to
 
eliminate
the existing Connect borrowings as they were repaid on closing.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18
The table below presents
 
the (i) Connect borrowings
 
repaid, (ii) borrowings utilized
 
(translated to USD at
 
the exchange rates applicable
as of December
 
31, 2021) by Connect
 
to settle its existing
 
borrowings and the
 
non-refundable deal origination
 
fees paid included
 
in the
pro forma
 
combined balance
 
sheet as
 
of December
 
31, 2021,
 
(iii) the
 
aggregated amortization
 
of the
 
deal origination
 
fees and
 
interest
expense during the six months ended December,
 
2021, and the year ended June 30, 2021, and
 
(iv) the reversal of the amounts of interest
under the
 
existing Connect
 
borrowings that
 
were extinguished
 
at closing,
 
included in
 
the pro
 
forma combined
 
statements of
 
operations
(translated to USD at the applicable average exchange rate applicable
 
for the periods presented):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Borrowing repaid
827,974
51,974
Short-term credit facilities
121,040
7,598
Current portion of long-term borrowings
293,456
18,421
Long-term borrowings
413,478
25,955
Borrowing utilized
1,361,093
85,439
Short-term credit facilities
244,000
15,316
Current portion of long-term borrowings
56,250
3,531
Long-term borrowings
1,060,843
66,592
Less: deal original fees accrued
5,520
347
Borrowing utilized less deal origination fees
 
1,355,573
85,092
Deal origination fees amortized
552
37
Interest expense
45,705
3,052
Total interest
 
expense
46,257
3,089
Tax impact on interest expense
(3)
9,240
617
Deal origination fees amortized
1,104
70
Interest expense
98,167
6,246
To
tal interest expense
99,271
6,316
Tax impact on interest expense
(3)
18,480
1,176
Interest expense under repaid lending facilities reversed
33,000
2,204
Tax expense adjustment related to reversal of interest
adjustment
(3)
9,240
617
Interest expense under repaid lending facilities reversed
66,000
4,199
Tax expense adjustment related to reversal of interest
adjustment
(3)
18,480
1,176
(1) Using the average exchange rate for the six
 
months ended December 31, 2021. This adjustment is included in
 
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
 
exchange rate for the year
 
ended June 30, 2021. This adjustment
 
is included in the unaudited
 
pro forma combined
statement of operations for the year ended June 30, 2021.
(3) The amount of interest
 
deductible for tax purposes in
 
South Africa is subject to
 
a limitation. The Company
 
does not expect to obtain
an incremental
 
deduction from
 
the higher
 
interest expense
 
and therefore
 
has capped
 
the pro forma
 
tax deduction
 
of interest expense
 
on
the new borrowing at the same amount as for the refinanced Connect borrowings
 
.
A change of one percentage point in JIBAR results in a change of ZAR 13.1 million
 
($0.8 million) in the annual interest expense.
 
(i) Elimination of Connect’s shareholders’
 
equity
 
Represents
 
the
 
elimination
 
of
 
Connect’s
 
other
 
invested
 
equity
 
of
 
$34.4
 
million,
 
net
 
of
 
closing
 
adjustments
 
in
 
notes
 
(c)
 
and
 
(f),
 
and
accumulated other comprehensive income of $0.03 million acquired by
 
the Company.
 
19
 
(j) Reversal of net income attributable to non-controlling interest in statement of
 
operations
 
Represents the elimination of income attributable to non-controlling
 
interests as Connect is a wholly owned by the Company.