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 provides payment solutions and transaction processing services across a wide range of industries and in various geographies. It has developed and markets a smart-card based alternative payment system for the unbanked and underbanked populations of developing 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 distributes welfare payments to recipient cardholders in South Africa, provides financial services, 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, processes third-party and associated payroll payments for employees and provides mobile telephone top-up transactions for the major South African mobile carriers. The Company recently acquired DNI-4PL Proprietary Limited ("DNI"), the leading distributor of mobile subscriber starter packs for Cell C Proprietary Limited ("Cell C") in South Africa. Through KSNET, the Company offers card processing, payment gateway ("PG") and banking value-added network services ("VAN") in South Korea. The Company has card issuing and acquiring capabilities through Transact24 in Hong Kong and provides value added payment services to online retailers across Europe through Masterpayment in Germany. The Company leverages its strategic equity investments in Finbond Group Limited ("Finbond") and Bank Frick & Co. AG ("Bank Frick") (both regulated banks), and Cell C 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").

Restatement of financial statements

Subsequent to the issuance of the Company's 2018 consolidated financial statements, the Company's management determined that the Company incorrectly classified and recorded its investment in Cell C as available-for-sale and recorded the change in its fair value of $25.2 million, net of taxation of $7.3 million, in other comprehensive income for the year ended June 30, 2018. The Company has now determined that, due to the election of the fair value option on acquisition, the investment in Cell C should have been accounted at fair value with changes in fair value recorded in the statement of operations. The tables below present the impact of the restatement on each of the Company's financial statements for the year ended June 30, 2018:


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


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


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


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


Consolidated statement of cash flows
	Year ended June 30, 2018
		As						As
		reported			Correction			restated
	(in thousands)
Net income	$	38,270		$	25,199		$	63,469
Fair value adjustment^A		(212	)		(31,847	)		(32,059	)
Increase (Decrease) in deferred taxes		(1,308	)		7,274			5,966
Net cash provided by operating activities^A	$	132,605		$	(300	)	$	132,305

(A) The Company also identified and corrected other insignificant misstatements in its consolidated statement of cash flows for the year ended June 30, 2018. The correction of these insignificant changes decreased net cash provided by operating activities with a corresponding increase in net cash provided by investing activities. The correction of these insignificant changes did not affect the net decrease increase in cash, cash equivalents and restricted cash for the year ended June 30, 2018.

Reclassification of redeemable common stock outside of permanent equity

During the three months ended December 31, 2017, the Company reclassified redeemable common stock out of total equity because redeemable common stock is required to be presented outside of permanent equity. The Company has restated these amounts in its consolidated balance sheet as at June 30, 2017, and each of the consolidated statement of changes in equity for the years ended June 30, 2018, 2017 and 2016. The reclassification resulted in a decrease in total equity by approximately $107.7 million and an increase in redeemable common stock, presented outside of permanent equity, of approximately $107.7 million. This reclassification had no impact on the Company's previously reported consolidated income, comprehensive income or cash flows.