3. ACQUISITIONS AND DISPOSITIONS

The Company did not make any acquisitions during the year ended June 30, 2019. The cash paid, net of cash received related to the Company's various acquisitions during the years ended June 30, 2018 and 2017 is summarized in the table below:


		2018		2017
DNI⁽¹⁾	$	6,202	$	-
Ceevo Financial Services (Malta) Limited ("Ceevo FS")		-		2,940
Pros Software Proprietary Limited ("Pros Software")		-		1,711
Total cash paid, net of cash received	$	6,202	$	4,651

(1) – represents the cash paid, net of cash acquired, to acquire a further 6% voting and economic interest, which resulted in the Company obtaining a controlling stake in DNI. As described below, the acquisition of DNI occurred in stages and DNI was accounted for using the equity method until June 30, 2018, being the point at which the Company obtained control over DNI. The total cash paid, net of cash acquired, to obtain a 55% voting and economic interest in DNI was $85.7 million.

2019 acquisition

None.

2019 dispositions

2019 disposal of a controlling interest in DNI

On February 28, 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into a transaction with JAA Holdings Proprietary Limited, a limited liability private company duly incorporated in the Republic of South Africa, and PK Gain Investment Holdings Proprietary Limited, a limited liability private company duly incorporated in the Republic of South Africa, in terms of which Net1 SA reduced its shareholding in DNI from 55% to 38%. The transaction closed on March 31, 2019. The parties used a cashless settlement process on closing, refer to Note 20. Net1 SA used the proceeds from the sale of the DNI shares to settle its ZAR 400 million ($27.6 million, translated at exchange rates applicable as of March 31, 2019) obligation to DNI to subscribe for an additional share as part of the contingent consideration settlement process.

The Company no longer controls DNI and deconsolidated its investment in DNI effective March 31, 2019.

2019 further DNI disposition to reduce holding to 30%

In April 2019, the Company's management approved and commenced a process to sell its retained interest in DNI.

On May 3, 2019, Net1 SA entered into a transaction with FirstRand Bank Limited, acting through its Rand Merchant Bank division ("RMB"), in terms of which Net1 SA further reduced its shareholding in DNI from 38% to 30% through the sale of 7,605,235 ordinary "A" shares in DNI for a transaction consideration of ZAR 215.0 million ($15.0 million) (the "RMB Disposal"). The parties used a cashless settlement process on closing. The transaction closed on May 3, 2019, and the Company used the proceeds from the sale of these DNI shares and ZAR 15.0 million of its existing cash reserves to settle its outstanding long-term borrowings of ZAR 230.0 million in full, refer to Note 12.

On May 3, 2019, Net1 SA entered into an agreement pursuant to which it granted a call option to DNI to acquire Net1 SA's remaining 30% interest in DNI. The option expires on December 31, 2019, but may be exercised at any time prior to expiration. The option strike price is calculated as ZAR 2.827 billion ($200.8 million, translated at exchange rates applicable as of June 30, 2019) less any special distribution made by DNI multiplied by Net1 SA's retained interest (i.e. assuming no special distribution, the strike price for the 30% retained interest is ZAR 859.3 million, or $61.0 million, translated at exchange rates applicable as of June 30, 2019). The call option may be split into smaller denominations, but Net1 SA cannot be left with less than 20% unless the whole remaining interest is disposed of. DNI may nominate another party to exercise the call option in the place of DNI, provided that the nominated party acquires call options representing at least 1.0% of DNI's voting and participation interests.

As of June 30, 2019, the Company owned 30% of the voting and economic rights of DNI. The Company accounted for its 30% investment in DNI using the equity method, refer to Note 9.

Loss recorded on disposal of DNI

The table below presents the impact of the deconsolidation of DNI and the calculation of the net loss recognized on deconsolidation:


								Equity method as of
								June 30, 2019
														Attributed
											30%			to non-
					17%			8%			retained			controlling
		Total			sold			sold			interest			interest
Fair value of consideration received	$	27,626		$	27,626		$	-		$	-		$	-
Fair value of retained interest of 30% in DNI⁽¹⁾		74,195			-			14,849			59,346			-
Carrying value of non-controlling interest		88,934			-			-			-			88,934
Subtotal		190,755			27,626			14,849			59,346			88,934
Cash and cash equivalents		2,114			354			158			633			969
Accounts receivable, net and other receivables		24,577			4,116			1,841			7,358			11,262
Finance loans receivable, net		1,030			173			77			308			472
Inventory		893			149			66			268			410
Property, plant and equipment, net		1,265			212			95			379			579
Equity-accounted investments (Note 9)		242			41			19			72			110
Goodwill (Note 10)		113,003			18,924			8,466			33,834			51,779
Intangible assets, net		80,769			13,526			6,051			24,183			37,009
Deferred income taxes		28			5			2			8			13
Other long-term assets		26,553			4,447			1,989			7,950			12,167
Accounts payable		(5,186	)		(868	)		(389	)		(1,553	)		(2,376	)
Other payables⁽²⁾		(16,484	)		(2,760	)		(1,235	)		(4,936	)		(7,553	)
Income taxes payable		(2,482	)		(416	)		(186	)		(743	)		(1,137	)
Deferred income taxes		(22,083	)		(3,698	)		(1,654	)		(6,612	)		(10,119	)
Long-term debt (Note 12)		(10,150	)		(1,700	)		(760	)		(3,039	)		(4,651	)
Released from accumulated other comprehensive
loss – foreign currency translation reserve (Note 15)		1,806			1,806			-			-			-
Less: March 31, 2019, carrying value of DNI		195,895			34,311			14,540			58,110			88,934
March 2019 loss recognized on disposal, before
tax, comprising		(5,140	)		(6,685	)		309			1,236
Related to fair value adjustment of retained interest
in 38% of DNI		1,545			-			309			1,236
Related to sale of 17% of DNI		(6,685	)		(6,685	)		-			-
Taxes related to disposal⁽³⁾		-			505			(3,836	)		3,331
Loss recognized on disposal, after tax, as of March
2019 = A	$	(5,140	)	$	(7,190	)	$	4,145		$	(2,095	)
May 3, 2019 fair value of consideration received	$	15,011		$	-		$	15,011		$	-
Less: equity-method interest sold (Note 9)		(14,996	)		-			(14,996	)		-
Less: released from accumulated other comprehensive
loss – foreign currency translation reserve (Note 15)		(646	)		-			(646	)		-
May 2019 loss recognized on disposal, before tax		(631	)		-			(631	)		-
Taxes related to disposal⁽⁴⁾		-			-			-			-
Loss recognized on disposal, after tax, as of May 3,
2019 = B		(631	)		-			(631	)		-

Loss on disposal of DNI (A + B)	$	(5,771	)	$	(7,190	)	$	3,514		$	(2,095	)

(1) The fair value of the retained interest in 38% of DNI as of March 31, 2019, of $74.2 million ($14.9 million plus $59.3 million) has been calculated using the implied fair value of DNI pursuant to the RMB Disposal and has been calculated as ZAR 215.0 million divided by 7.605235% multiplied by 38%, translated to dollars at the March 31, 2019, rate of exchange.

(2) Other payables include a short-term loan of ZAR 60.5 million ($4.3 million, translated at exchange rates applicable as of June 30, 2019) due to the Company. The short-term loan is included in accounts receivable, net and other receivables on the Company's consolidated balance sheet as of June 30, 2019. The loan was repaid in full on July 31, 2019. Interest on the loan was charged at the South African prime rate.

(3) Amounts presented are net of a valuation allowance provided. The disposal of DNI resulted in a capital loss for tax purposes of approximately $1.5 million and the Company has provided a valuation allowance of $1.5 million against this capital loss because it does not have any capital gains to offset against this amount. On an individual basis, the transaction to dispose of 17% of DNI resulted in a capital gain of $0.5 million and the re-measurement of the retained 38% interest has resulted in a capital loss of $2.0 million ($5.3 million (8% transaction) less $3.3 million (30% transaction)). The valuation allowance of $1.5 million has been provided against the $5.3 million, for a net amount presented in the table above of $3.8 million ($5.3 million less $1.5 million).

(4) The disposal of the 8% interest in DNI resulted in a capital loss for tax purposes of approximately $23.9 million and the Company has provided a valuation allowance of $23.9 million against this capital loss because it does not have any capital gains to offset against this amount.

Discontinued operation

The Company has determined that the disposal of its controlling interest in DNI represents a discontinued operation because it represents a strategic shift that will have a major effect on the Company's operations and financial results as a result of the sale of a significant portion of its investment in DNI. The facts and circumstances leading to the disposal of a controlling interest are described above. The loss related to the disposal of a controlling interest in DNI is presented above. DNI was allocated to the Company's financial inclusion and applied technologies operating segment and the amortization of intangible assets identified and recognized related to the DNI acquisition were allocated to corporate/eliminations. The impact of the disposal of a controlling interest on the Company's operating segments is presented in Note 21.

The Company retained a continuing involvement in DNI through its 38% interest in DNI (refer above and to Note 9) following the March 31, 2019 transaction disclosed above. The Company expects to retain an interest in DNI for less than 12 months. As disclosed above, the Company sold an 8% interest in DNI in May 2019, and has entered into an agreement under which it has provided a call option to DNI to repurchase the remaining 30% interest in DNI. The Company recorded earnings under the equity method related to its retained investment in DNI during the three months ended June 30, 2019, refer to Note 9. The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the year ended June 30, 2019 (i.e. for the three months ended June 30, 2019):


		Year ended
		June 30, 2019
Revenue generated from transactions with DNI	$	-
Expenses incurred related to transactions with DNI	$	63

Refer to note 9 for the dividends received from DNI under the equity method following the sale of DNI in March 2019.

The table below presents the impact of the deconsolidation of DNI on certain major captions to the Company's consolidated statement of operations and consolidated statement of cash flows for the year ended June 30, 2019, 2018 and 2017, that have not been separately presented on those statements:


DNI
		Year ended June 30,
		2019		2018		2017
Consolidated statement of operations
Discontinued:
Revenue	$	56,337	$	-	$	-
Cost of goods sold, IT processing, servicing and support		27,667		-		-
Selling, general and administration		4,295		-		-
Depreciation and amortization		8,026		-		-
Impairment loss		5,305		-		-
Operating income		11,044		-		-
Interest income		707		-		-
Interest expense		812		-		-
Net income before tax (includes loss on disposal of DNI of $5,771)		5,168		-		-
Income tax expense		3,124		-		-
Net income before earnings from equity-accounted investments		2,675		-		-
DNI consolidated - Earnings from equity-accounted investments⁽¹⁾		15		-		-
DNI equity method investment - Earnings from equity-accounted investments ⁽²⁾.	$	-	$	7,005	$	-
Consolidated statement of cash flows
Discontinued:
Total net cash (used in) provided by operating activities⁽³⁾⁽⁴⁾	$	6,635	$	1,765	$	-
Total net cash (used in) provided by investing activities	$	(516)	$	-	$	-

(1) Earnings from equity-accounted investments for the year ended June 30, 2019, include earnings attributed to an equity-accounted investment owned by DNI of $0.2 million and are included in the Company's results as a result of the consolidation of DNI.

(2) Earnings from equity-accounted investments for the years ended June 30, 2018, represents DNI earnings (net of amortization of acquired intangibles and related deferred tax) attributed to the Company as a result of the Company using the equity method to account for its investment in DNI during the period (refer to Note 9).

(3) Total net cash (used in) provided by operating activities for the year ended June 30, 2019, includes dividends received of $0.9 million (refer to Note 9) from DNI while it was accounted for using the equity method during the three months ended June 30, 2019.

(4) Total net cash (used in) provided by operating activities for the year ended June 30, 2018, represents dividends received from DNI during the period.

2018 acquisition

DNI acquisition

The Company accounted for its interest in DNI using the equity method from August 1, 2017, until June 30, 2018, the date upon which it acquired further voting and economic interest in DNI, taking its ownership to 55%. The transaction actually closed on June 28, 2018, however, for practical purposes the Company has used June 30, 2018, as the date from which it accounted for a controlling stake in DNI. Therefore the Company consolidated DNI from June 30, 2018. Refer to Note 9, for additional information regarding DNI's contribution to the Company's reported results under the equity method.

On July 27, 2017, the Company subscribed for 44,999,999 ordinary A shares in DNI, representing a 45% voting and economic interest in DNI, for a subscription price of ZAR 945.0 million ($72.0 million) in cash. On March 9, 2018, the Company subscribed for an additional 4,000,000 ordinary A shares in DNI for a subscription price of ZAR 89.3 million ($7.5 million), in cash, which increased its voting and economic interest in DNI to 49%, but did not give it control. On March 9, 2018, the Company also agreed to subscribe for an additional 6,000,000 ordinary A shares in DNI for an aggregate subscription price of ZAR 126.0 million ($9.2 million). The subscription was subject to certain suspensive conditions, including obtaining South African Competition Commission approval which was eventually obtained on June 21, 2018. Accordingly, on June 28, 2018, all conditions were met and the Company subscribed for 6,000,000 ordinary A shares in DNI for a subscription price of ZAR 126.0 million ($9.2 million) in cash, increasing its voting and economic interest in DNI to 55%. Under the terms of its subscription agreements with DNI, the Company agreed to pay to DNI an additional amount of up to ZAR 400.0 million ($29.1 million, translated at exchange rates applicable as of June 30, 2018), in cash, subject to the achievement of certain performance targets by DNI. The Company expected to pay the additional amount during the first quarter of the year ended June 30, 2020, and recorded an amount of ZAR 373.6 million ($27.2 million), in other long-term liabilities in its consolidated balance sheet as of June 30, 2018, which amount represented the present value of the ZAR 400 million ($29.1 million) to be paid (amounts translated at exchange rates applicable as of June 30, 2018). The present value of ZAR 373.6 million ($27.2 million) was calculated using the following assumptions (a) the maximum additional amount of ZAR 400 million will be paid on August 1, 2019 and (b) an interest rate of 6.3 % (the rate used to calculate interest earned by the Company on its surplus South African funds) has been used to discount the ZAR 400.0 million to its present value as of June 30, 2018. Utilization of different inputs, or changes to these inputs, may result in significantly higher or lower fair value measurement. The ZAR 400 million was settled in full on March 31, 2019. Refer to discussion above under "—2019 dispositions—2019 disposal of a controlling interest in DNI" and to Note 7.

As described in Note 9, on March 9, 2018, the Company obtained financing to partially fund the acquisition of the additional ordinary A DNI shares and Net1 SA pledged, among other things, its entire equity interest in DNI as security for the South African facilities described in Note 12.

On March 9, 2018, the Company provided DNI with an interest-free loan of ZAR 126.0 million ($10.6 million) which was repayable at the earlier of June 30, 2018, or within twenty days of the 6,000,000 ordinary A share subscription agreement (i) becoming unconditional, (ii) lapsing because the Competition Commission prohibits the subscription, or (iii) the agreement being cancelled for any reason. As described in Note 9, on March 9, 2018, the Company obtained financing to provide the loan to DNI. On June 28, 2018, DNI repaid the ZAR 126 million ($9.2 million) loan in full and the Company used the proceeds from the repayment of the loan to fund the subscription for 6,000,000 ordinary A shares in DNI.

DNI purchase price allocation

During the third quarter of fiscal 2019, the Company determined that certain customer relationships of $7.0 million should not have been separately identified and recorded as intangible assets because there were no separately identified cash flows related to these customer relationships. These customer relationships, net of deferred taxes of $2 million, should have been recorded as a component of goodwill. During the third quarter of fiscal 2019, the Company determined that DNI is a discontinued operation.

The table below presents the DNI balances included on the Company's consolidated balance sheet as of June 30, 2018, as well as the amended purchase price allocation ("PPA") of the DNI acquisition, translated at the foreign exchange rates applicable on the date of acquisition:


		DNI PPA – discontinued operation
		as of June 30, 2018
		Initial			Amendment			Amended
Current assets of discontinued operation:	$	22,482		$	-		$	22,482
Cash and cash equivalents		2,979			-			2,979
Accounts receivable (Note 5)		16,235			-			16,235
Finance loans receivable (Note 5)		742			-			742
Inventory (Note 6)		2,526			-			2,526
Long-term assets of discontinued operation:		242,704			(1,951	)		240,753
Property, plant and equipment		1,317			-			1,317
Equity-accounted investment (Note 9)		339			-			339
Goodwill (Note 10)		114,161			5,017			119,178
Intangible assets (Note 10)		104,003			(6,968	)		97,035
Deferred tax assets		1,536			-			1,536
Other long-term assets (Note 9)		21,348			-			21,348
Current liabilities of discontinued operation:		(20,914	)		-			(20,914	)
Accounts payables		(13,949	)		-			(13,949	)
Other payables		(6,349	)		-			(6,349	)
Current portion of long-term borrowings (Note 12)		(616	)		-			(616	)
Long-term liabilities of discontinued operation:		(38,387	)		1,951			(36,436	)
Other long-term liabilities⁽¹⁾		(8,291	)		-			(8,291	)
Deferred tax liabilities		(30,096	)		1,951			(28,145	)
Fair value of assets and liabilities on acquisition	$	205,885		$	-		$	205,885
Less: fair value attributable to controlling interests on acquisition date								(94,123	)
Less: fair value of equity-accounted investment, comprising:								(100,947	)
Add: loss on re-measurement of previously held interest								4,614
Less: Contingent payment recognized related to 49% interest acquired								(25,589	)
Less: carrying value at the acquisition date (Note 9)								(79,972	)
Less: Contingent payment recognized related to 6% interest acquired								(1,633	)
Total purchase price							$	9,182

(1) –DNI concluded an acquisition in November 2017 and other long-term liabilities includes a contingent purchase consideration of ZAR 113.8 million ($8.3 million) due to the sellers and other long-term assets includes an amount due from the DNI shareholders, excluding the Company. DNI is obligated under the terms of this obligation to pay 50% of the purchase consideration plus or (less) a contingent amount (refund) calculated on a multiple of excess (deficit) earnings over (less) an agreed earnings amount. The other DNI shareholders have agreed to reimburse DNI the 50% consideration plus (less) the contingent amount (refund) payable in full. Therefore, other long-term asset includes the amounts due from the DNI shareholder, excluding the Company, and other long-term liabilities includes the contingent consideration due under the November 2017 acquisition. The Company expects DNI to pay, and to be reimbursed, the additional amount during the first quarter of the year ended June 30, 2020, which amount represents the present value of the ZAR 129.0 million ($9.4 million) to be paid (amounts translated at exchange rates applicable as of June 30, 2018). The present value of ZAR 113.8 million ($8.3 million) was calculated using the following assumptions (a) the maximum additional amount of ZAR 129.0 million will be paid on August 1, 2019 and (b) an interest rate of 10.0 % (the rate used to calculate interest earned by DNI on its surplus South African funds) has been used to discount the ZAR 129.0 million to its present value as of June 30, 2018. Utilization of different inputs, or changes to these inputs, may result in significantly higher or lower fair value measurement.

The Company recorded intangible asset amortization, deferred taxes and non-controlling interest entries related to these customer relationships that should have been included in goodwill during the six months ended December 31, 2018. The Company reversed these entries during the nine months ended March 31, 2019. The table below presents the impact of the reversal of these entries on the Company's audited consolidated statement of operations for the year ended June 30, 2019 and the caption in which the impact is included:


		Year ended
		June 30,
		2019
Reversal of intangible asset amortization - decrease depreciation and amortization	$	506
Deferred tax impact related to reversal of intangible asset amortization - decrease income tax benefit		142
Increase in non-controlling interest	$	164

Pro forma results related to acquisition

Pro forma results of operations have not been presented because the effect of the DNI acquisition was not material to the Company. During the year ended June 30, 2018, the Company incurred acquisition-related expenditure of $0.5 million related to this acquisition, which has been included in selling, general and administration expenses in the consolidated statement of operations. The DNI acquisition closed on the last day of the Company's fiscal year and therefore it has not contributed to revenue and net income as a subsidiary for the year ended June 30, 2018. Refer to Note 9 for DNI's contribution to net income under the equity method.

2018 Fair value of intangible assets acquired

Summarized below is the fair value of the DNI intangible assets acquired and the weighted-average amortization period:


		Fair value as of	Weighted-average
		acquisition date	amortization period (in years)
Finite-lived intangible asset:
Acquired during the year ended June 30, 2018
DNI – customer relationships acquired	$	97,255	5.00– 15.00
DNI – software and unpatented technology		2,609	5.00
DNI – trademarks	$	4,139	5.00

On acquisition, the Company recognized deferred tax liabilities of approximately $29.1 million related to the acquisition of intangible assets during the year ended June 30, 2018.

2019 intangible asset impairment loss

The Company identified and recognized certain customer relationships as part of its acquisition of DNI, which included relationships related to an agreement with Cell C under which DNI shared in revenues earned by Cell C from other mobile telecommunications networks renting ("tenant rentals") certain Cell C infrastructure that was constructed utilizing funding provided by DNI. Cell C expected to utilize the funding provided by DNI to construct 1,000 towers. Cell C recently entered into a roaming arrangement with another South African mobile telecommunications network provider which will extend its network coverage. Cell C utilized funding from DNI to construct approximately 22% of the towers that it had originally estimated to complete, however, the conclusion of the roaming arrangement has resulted in Cell C halting the construction of further network infrastructure.

2019 intangible asset impairment loss

The Company expects DNI to earn fewer tenant rentals than initially planned due to the lower number of towers constructed. During the third quarter of fiscal 2019, the Company updated the discounted cash flow model used to calculate the fair value of the customer relationships acquired on acquisition of DNI to assess the impact of the lower number of towers on its projected cash flows from the tenant rentals customer relationship. The lower number of towers has significantly reduced the projected cash flows earned from tenant rentals which resulted in a lower fair value attributed to the customer relationship. The Company compared the updated fair value of the customer relationship to the carrying amount and determined that the customer relationship is impaired. The Company recorded an impairment loss of $5.3 million in the impairment loss caption on its consolidated statement of operations for the year ended June 30, 2019. The customer relationship was not allocated to an operating segment and the impairment loss is included in corporate/eliminations. The economics of the tenant rentals arrangement between DNI and Cell C was excluded from the performance targets agreed between DNI and the Company because the arrangement was outside of DNI's core business.

2017 acquisitions

Ceevo FS

In November 2016, the Company acquired a 100% interest in Ceevo FS, a licensed Malta Financial Services Authority-supervised electronic money institution, for approximately €3.6 million ($3.9 million translated at the foreign exchange rates applicable on the date of acquisition). Ceevo FS' license was passported across all member states of the European Union which allows Ceevo FS to operate in these territories.

Pros Software

In October 2016, the Company acquired a 100% interest in Pros Software, a software development and consulting services company based near Johannesburg, South Africa, for ZAR 25.0 million ($1.8 million, translated at the foreign exchange rates applicable on the date of acquisition). Pros Software performs software development and consulting services for a number of clients, including for the Company, and has a specialty practice in business intelligence.

The final purchase price allocation of the acquisitions is provided in the table below:


		Ceevo FS			Pros Software			Total
Cash and cash equivalents	$	999		$	110		$	1,109
Accounts receivable		983			165			1,148
Property, plant and equipment		30			9			39
Intangible assets (Note 10)		1,078			2,311			3,389
Goodwill (Note 10)		2,475			-			2,475
Accounts payables and other payables		(1,570	)		(58	)		(1,628	)
Income taxes payable		-			(69	)		(69	)
Deferred tax liabilities		(56	)		(647	)		(703	)
Total purchase price	$	3,939		$	1,821		$	5,760

Pro forma results of operations have not been presented because the effect of the Ceevo FS and Pros Software acquisitions, individually and in the aggregate, were not material to the Company. During the year ended June 30, 2017, the Company incurred acquisition-related expenditure of $0.5 million related to the Ceevo FS and Pros Software acquisitions. Since the closing of the Ceevo FS acquisition on November 1, 2016, it has contributed revenue and a net loss after acquired intangible asset amortization, net of taxation, of $0.2 million and $0.7 million, respectively, for the year ended June 30, 2017. Since the closing of the Pros Software acquisition on October 1, 2016, it has contributed revenue and a net loss after acquired intangible asset amortization, net of taxation, of $0.5 million and $1.8 million, respectively, for the year ended June 30, 2017.