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Stock-Based Compensation

6 Months Ended

Dec. 31, 2021

12.Stock-based compensation

The Company’s Amended and Restated 2015 Stock Incentive Plan and the vesting terms of certain stock-based awards granted are described in Note 16 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021.

Stock option and restricted stock activity

Options

The following table summarizes stock option activity for the six months ended December 31, 2021 and 2020 :


			Number of shares	Weighted average exercise price ($)	Weighted average remaining contractual term (in years)	Aggregate intrinsic value ($'000)	Weighted average grant date fair value ($)

Outstanding - June 30, 2021			1,294,832	3.93	7.68	1,624	1.45
	Exercised		(242,853)	3.05	-	457	-
	Forfeited		(85,000)	3.48	-	-	1.34
		Outstanding - December 31, 2021	966,979	4.19	6.76	1,056	1.53

Outstanding - June 30, 2020			1,331,651	5.83	7.56	-	2.01
	Granted – August 2020		150,000	3.50	3.00	166	1.11
	Granted – November 2020		560,000	3.01	10.00	691	1.23
	Exercised		(5,834)	3.07	-	21	-
	Forfeited		(456,033)	7.03	-	-	2.26
		Outstanding - December 31, 2020	1,579,784	4.28	8.04	2,104	1.59

No stock options were awarded during the three and six months ended December 31, 2021. The Company awarded 560,000 stock options to employees during the three and six months ended December 31, 2020. On August 5, 2020, the Company granted one of its non-employee directors, Mr. Ali Mazanderani, in his capacity as a consultant to the Company, 150,000 stock options with an exercise price of $3.50. These stock options are subject to the non-employee director’s continuous service through the applicable vesting date, and half of the options vest on each of the first and second anniversaries of the grant date.

No stock options were forfeited during the three months ended December 31, 2021. Employees forfeited 85,000 stock options during the six months ended December 31, 2021. During the six months ended December 31, 2020, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $6.20 to $11.23 per share following his separation from the Company. Employees forfeited 205,999 stock options during the three and six months ended December 31, 2020.

The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750-day volatility. The estimated expected life of the option was determined based on the historical behavior of employees who were granted options with similar terms.

The table below presents the range of assumptions used to value stock options granted during the six months ended December 31, 2020:

	Six months ended
	December 31,
		2020
Expected volatility		62	%
Expected life (in years)		3
Risk-free rate		0.19	%

12.Stock-based compensation (continued)

Stock option and restricted stock activity (continued)

Options (continued)

The following table presents stock options vested and expected to vest as of December 31, 2021:

Number of

Weighted average exercise price

($)

Weighted average remaining contractual term

(in years)

Aggregate intrinsic value

($’000)

Vested and expecting to vest - December 31, 2021

966,979

4.19

6.76

1,056

These options have an exercise price range of $3.01 to $11.23.

The following table presents stock options that are exercisable as of December 31, 2021:

Number of

Weighted average exercise price

($)

Weighted average remaining contractual term

(in years)

Aggregate intrinsic value

($’000)

Exercisable - December 31, 2021

487,842

5.26

6.09

151

During the three months ended December 31, 2021 and 2020, respectively, 145,015 and 181,333 stock options became exercisable. During the six months ended December 31, 2021 and 2020, respectively, 376,348 and 337,666 stock options became exercisable. The Company issues new shares to satisfy stock option exercises.

Restricted stock

The following table summarizes restricted stock activity for the six months ended December 31, 2021 and 2020:

				Number of shares of restricted stock	Weighted average grant date fair value ($’000)




Non-vested – June 30, 2021				384,560	1,123
	Total granted			656,052	3,190
		Granted – July 2021		234,608	963
		Granted – August 2021		44,986	192
		Granted – November and December 2021		326,158	1,766
		Granted – December 2021		50,300	269
	Total granted and vested - November and December 2021			-	-
		Granted - November and December 2021		71,647	393
		Vested - November and December 2021		(71,647)	393
Forfeitures				(30,000)	(160)
		Non-vested – December 31, 2021		1,010,612	4,629

Non-vested – June 30, 2020				1,115,500	5,354
Total vested				(311,300)	(1,037)
		Vested – August 2020		(244,500)	(812)
		Vested – September 2020 - accelerated vesting		(66,800)	(225)
	Forfeitures			(510,200)	(1,766)
			Non-vested – December 31, 2020	294,000	994

12.Stock-based compensation (continued)

Stock option and restricted stock activity (continued)

Restricted stock (continued)

On June 30, 2021, the Company entered into employment agreements with Mr. Chris G.B. Meyer, under which Mr. Meyer was appointed Group Chief Executive Officer of the Company effective July 1, 2021. Mr. Meyer was awarded 117,304 shares of restricted stock on July 1, 2021, which were subject to time-based vesting and vest in full on June 30, 2024, subject to Mr. Meyer’s continued service to the Company through June 30, 2024. In addition, under the terms of Mr. Meyer’s engagement, the Company’s Remuneration Committee also awarded Mr. Meyer 117,304 shares of restricted stock which include performance conditions and which only vest on June 30, 2024 if the performance conditions are met and Mr. Meyer remains employed with the Company through June 30, 2024. Vesting of half of these awards, or 58,652 shares of restricted stock, is subject to the Company achieving its three-year financial services plan during the specific measurement period from June 30, 2021, to June 30, 2024, and the other half is subject to share price growth targets, and only vest if the Company’s share price is $8.14 or higher on June 30, 2024. In August 2021 and December 2021, the Company awarded 44,986 and 50,300 shares of restricted stock, respectively, to employees which have time and performance-based (market conditions related to share price performance) vesting conditions.

Upon joining the Company, each of Messrs. Meyer and Lincoln C. Mali, where entitled to receive an award of shares of restricted stock which were subject to them purchasing an agreed value of shares (“matching awards”) in the market during a prescribed period of time. However, these executives were unable to purchase shares in the market during that period due to a Company-imposed insider-trading restriction placed on them. On November 15, 2021, the Company amended the terms of these awards in order to put the executives into an economically equivalent position, as follows:

(i) assume that the executives would have purchased their agreed allocation within their first 30 days post commencement of employment had they not been embargoed;

(ii) require the executives to fulfill their agreed allocations within a short period following release of the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2021;

(iii) to the extent that the price per share actually paid is greater than the 30-day volume-weighted average price (“VWAP”) in their respective first months of employment, award the executives a top-up (“top up awards”) which amounts to the after-tax difference between (a) number of shares purchased at the 30-day VWAP in their respective first months of employment and (b) number of shares purchased at the actual share price paid. The top-up will be settled as follows: (a) 55% in shares of the Company’s common stock and (b) 45%, at the election of the executive, as either shares of the Company’s common stock or cash. The top up awards were not subject to any vesting conditions and vested immediately; and

(iv) adjust the initial matching awards to the aggregate number of shares acquired in terms of (ii) and (iii). The matching awards vest ratably over a period of three years commencing on the first anniversary of the grant of the matching awards.

The executives acquired shares during November and December 2021, and the Company granted the executives 326,158 matching awards and 71,647 top up awards.

Except as discussed above, no shares of restricted stock vested during the three months ended December 31, 2021. During the three and six months ended December 31, 2021, 30,000 shares of restricted stock were forfeited by an executive officer as the market condition (related to share price performance) was not achieved

During the six months ended December 31, 2020, 244,500 shares of restricted stock with time-based vesting conditions vested. In connection with the Company’s former chief executive officer’s separation, the Company agreed to accelerate the vesting of 66,800 shares of restricted stock which were granted in February 2020, and which were subject to time-based vesting. These shares of restricted stock vested on September 30, 2020. The 510,200 shares of restricted stock that were forfeited during the six months ended December 31, 2020, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

12.Stock-based compensation (continued)

Stock-based compensation charge and unrecognized compensation cost

The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2021 and 2020, of $0.8 million and $0.2 million, respectively, which comprised:

			Total charge		Allocated to cost of goods sold, IT processing, servicing and support		Allocated to selling, general and administration
Three months ended December 31, 2021
	Stock-based compensation charge		$	788	$	-	$	788
		Total - three months ended December 31, 2021	$	788	$	-	$	788

Three months ended December 31, 2020
	Stock-based compensation charge		$	246	$	-	$	246
	Reversal of stock compensation charge related to stock options and restricted stock forfeited			(14)		-		(14)
		Total - three months ended December 31, 2020	$	232	$	-	$	232

The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2021 and 2020, of $1.1 million and $0.6 million respectively, which comprised:

a				Total charge		Allocated to cost of goods sold, IT processing, servicing and support		Allocated to selling, general and administration
	Six months ended December 31, 2021
		Stock-based compensation charge		$	1,132	$	-	$	1,132
		Reversal of stock compensation charge related to stock options forfeited			(35)		-		(35)
			Total - six months ended December 31, 2021	$	1,097	$	-	$	1,097

	Six months ended December 31, 2020
		Stock-based compensation charge		$	928	$	-	$	928
		Reversal of stock compensation charge related to stock options and restricted stock forfeited			(297)		-		(297)
			Total - six months ended December 31, 2020	$	631	$	-	$	631

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.

As of December 31, 2021, the total unrecognized compensation cost related to stock options was approximately $0.4 million, which the Company expects to recognize over approximately two years. As of December 31, 2021, the total unrecognized compensation cost related to restricted stock awards was approximately $4.0 million, which the Company expects to recognize over approximately three years.

As of December 31, 2021, and June 30, 2021, respectively, the Company recorded a deferred tax asset of approximately $0.4 million and $0.1 million, related to the stock-based compensation charge recognized related to employees of Net1. As of December 31, 2021, and June 30, 2021, respectively, the Company recorded a valuation allowance of approximately $0.4 million and $0.1 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States. The Company deducts the difference between the market value on the date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.