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UNITED STATESSECURITIES OF EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2008

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from 
to

Commission file number:000-31203

NET 1 UEPS TECHNOLOGIES,
INC.(Exact name of registrant as specified in its
charter)

|Florida                           | 98-0171860         
|--------------------------------- | -------------------
|(State or other jurisdiction      | (I.R.S. Employer   
|of incorporation or organization) | Identification No.)

President Place, 4thFloor, Cnr. Jan
Smuts Avenue and Bolton RoadRosebank, Johannesburg 2196, South
Africa(Address of principal executive offices)

Registrants telephone number, including area code: 27-11-343-2000

Securities registered pursuant to section 12(b) of the Act:

|Title of Each Class        | Name of Each Exchange on Which Registered
|-------------------------- | -----------------------------------------
|Common Stock,              |                                          
|par value $0.001 per share | NASDAQ Global Select Market              

Securities registered pursuant to section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[X]   No [   ]

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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ 
 ]   No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filings requirements for the past 90 days. Yes
[X]   No [   ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act (Check one):

|[X]   | Large accelerated filer                             | [   ] | Accelerated filer        
|----- | --------------------------------------------------- | ----- | -------------------------
|      |                                                     |       |                          
|[   ] | Non-accelerated filer                               | [   ] | Smaller reporting company
|      | (Do not check if a smaller
      reporting company) |       |                          

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ 
 ]   No [X]

The aggregate market value of the registrant's common stock held
by non-affiliates of the registrant as of December 31, 2007 (the last
business day of the registrants most recently completed second fiscal
quarter), based upon the closing price of the common stock as reported by
The Nasdaq Global Select Market on such date, was $1,038,513,406. This
calculation does not reflect a determination that persons are affiliates for
any other purposes.

As of July 31, 2008, 53,142,911 shares of the registrants
common stock, par value $0.001 per share, and 4,856,801 shares of the
registrants special convertible preferred stock, par value $0.001 per share,
which are convertible into common stock on a one-for-one basis, were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the definitive Proxy Statement to be
delivered to shareholders in connection with the 2008 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.

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NET 1 UEPS TECHNOLOGIES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K Year Ended June 30,
2008

|                                                                                                                           | Page
|-------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                           |     
|PART I                                                                                                                     |     
|Item 1. Business                                                                                                           | 2   
|Item 1A. Risk Factors                                                                                                      | 30  
|Item 1B. Unresolved Staff Comments                                                                                         | 46  
|Item 2. Properties                                                                                                         | 47  
|Item 3. Legal Proceedings                                                                                                  | 47  
|Item 4. Submission of Matters to a Vote of Security Holders                                                                | 47  
|                                                                                                                           |     
|PART II                                                                                                                    |     
|Item 5. Market for Registrants Common Equity, Related
      Shareholder Matters and Issuer Purchases of Equity Securities | 48  
|Item 6. Selected Financial Data                                                                                            | 50  
|Item 7. Managements Discussion and Analysis of Financial
      Condition and Results of Operations                        | 52  
|Item 7A. Quantitative and Qualitative Disclosures About
      Market Risk                                                  | 92  
|Item 8. Financial Statements and Supplementary Data                                                                        | 93  
|Item 9. Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure                         | 94  
|Item 9A. Controls and Procedures                                                                                           | 94  
|Item 9B. Other Information                                                                                                 | 96  
|                                                                                                                           |     
|PART III                                                                                                                   |     
|Item 10. Directors, Executive Officers and Corporate Governance                                                            | 97  
|Item 11. Executive Compensation                                                                                            | 97  
|Item 12. Security Ownership of Certain Beneficial Owners
      and Management and Related Shareholder Matters              | 97  
|Item 13. Certain Relationships and Related Transactions,
      and Director Independence                                   | 97  
|Item 14. Principal Accountant Fees and Services                                                                            | 97  
|                                                                                                                           |     
|PART IV                                                                                                                    |     
|Item 15. Exhibits and Financial Statement Schedules                                                                        | 98  
|                                                                                                                           |     
|Signatures                                                                                                                 | 102 
|Financial Statements                                                                                                       | F-1 

1

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PART I

FORWARD LOOKING STATEMENTS

In addition to historical
information, this Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties that could cause our actual results to
differ materially. Factors that might cause or contribute to such differences
include, but are not limited to, those discussed in Item 1A. Risk Factors. In
some cases, you can identify forward-looking statements by terminology such as
may, will, should, could, would, expects, plans, intends,
anticipates, believes, estimates, predicts, potential or continue or
the negative of such terms and other comparable terminology. You should not
place undue reliance on these forward-looking statements, which reflect our
opinions only as of the date of this Annual Report. We undertake no obligation
to release publicly any revisions to the forward-looking statements after the
date of this Annual Report. You should carefully review the risk factors
described in other documents we file from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by
us in our 2009 fiscal year, which runs from July 1, 2008 to June 30, 2009.

ITEM 1. BUSINESS

Overview

We provide our universal
electronic payment system, or UEPS, as an alternative payment system for the
unbanked and under-banked populations of developing economies. We believe that
we are the first company worldwide to implement a system that can enable the
estimated four billion people who generally have limited or no access to a bank
account to enter affordably into electronic transactions with each other,
government agencies, employers, merchants and other financial service providers.
To accomplish this, we have developed and deployed the UEPS. This system uses
secure smart cards that operate in real-time but offline, unlike traditional
payment systems offered by major banking institutions that require immediate
access through a communications network to a centralized computer. This offline
capability means that users of our system can enter into transactions at any
time with other card holders in even the most remote areas so long as a smart
card reader, which is often portable and offline, is available. In addition to
payments and purchases, our system can be used for banking, health care
management, international money transfers, voting and identification.

We generate our revenues by
charging transaction fees to government agencies, employers, merchants,
retailers, petroleum suppliers and other financial service providers, by
providing financial services such as loans and insurance products and by selling
hardware, licensing software and providing related technology services including
secure online transaction processing, cryptography and integrated circuit card
(chip/smart card) technologies. Our technology is widely used in South Africa
today, where we have over 4.0 million clients in five provinces who receive
social welfare grants using our smart cards and increasingly use their smart
cards at participating merchants to receive and spend their grants. In addition,
our technology has been selected and implemented by the Central Bank of Ghana as
the common electronic payment platform in Ghana and we are in the process of
completing a project to provide a consortium in Iraq with a customized UEPS
banking and payment system that we will operate on an outsourced basis. As part
of our strategy to expand into new geographical markets we have formed joint
ventures in Namibia and Botswana to operate UEPS smart card-based switching
systems in those countries and in Colombia and Vietnam to implement and operate
virtual top-up, or VTU, solutions for mobile phone-based prepaid airtime
vending. As these UEPS systems become operational, we generate revenues from
sales of equipment, software and related technology to the joint ventures and
from our share of the revenues earned by the ventures from operation of the
switching systems.

We are headquartered in
Johannesburg, South Africa. Net 1 UEPS Technologies, Inc. was incorporated in
1997 as a Florida corporation and is the successor to operations originally
begun in 1989. Under -Corporate History below, we describe the historical
development of our business, including the June 2004 acquisition of Net1 Applied
Technologies Holdings Limited, or Aplitec, which was a South African public
company. All references to Net1, the Company, we, us, or our are
references to Net 1 UEPS Technologies, Inc. and its consolidated subsidiaries,
collectively, except as otherwise indicated or where the context indicates
otherwise.

On August 27, 2008, we acquired
80.10% of BGS Smartcard Systems AG, or BGS, an Austrian private company that
provides smart card-based payment systems to banks, enterprises and government
authorities in Russia, Ukraine, Uzbekistan, India and Oman. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
OperationsTrends and Material Developments Affecting our BusinessAcquisition
of BGS Smartcard Systems AG.

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Market Opportunity

According to the United States
Census Bureau, the worlds population currently exceeds 6.7 billion people. Yet
of this total, it has been reported that over four billion people earn less than
the purchasing parity equivalent of two dollars per day. In general, these
people either have no bank account or very limited access to banking services.
This situation arises when banking fees are too high relative to an individuals
income, a bank account provides little or no meaningful benefit or there is
insufficient infrastructure to provide banking services economically in the
individuals geographic location. We refer to these people as the unbanked and
the under-banked. These individuals generally receive wages, welfare benefits,
money transfers or loans in the form of cash and conduct commercial
transactions, including buying food and clothing, in cash.

The use of cash, however,
presents significant problems. In the case of recipients, they generally have no
secure way of protecting their cash other than by converting it immediately into
goods, carrying it with them or hiding it. In cases where an individual has
access to a bank account, the typical deposit, withdrawal and account fees
meaningfully reduce the money available to meet basic needs. For government
agencies and employers, using cash to pay welfare benefits or wages results in
significant expense due to the logistics of obtaining that cash, moving it to
distribution points and protecting it from theft.

The use of cash or lack of access
to a bank account can dramatically increase the cost to, and in some cases
completely prevent, individuals from engaging in basic financial transactions.
These basic transactions include the routine payment of insurance premiums, the
transfer of money to relatives and the use of credit. Without a bank account, it
is also difficult for an individual to obtain a loan on attractive terms since
that individual lacks a credit history and usually cannot present a reliable
means of repayment to the lender.

For governments, assistance
programs face significant challenges when dependent on the use of cash. In
addition to the costs and difficulties of using cash, corruption becomes an even
more challenging problem since there is no clear audit trail. In fact, the
absence of an electronic system for the distribution of goods, including
foodstuff or medicine, or welfare benefits presents a significant obstacle to
ensuring the fair and reliable implementation of government policy or deployment
of foreign aid.

Traditional payment systems
offered today by the major banking institutions do not address the key
requirements of the unbanked and the under-banked populations. In addition to
the high cost of maintaining a bank account relative to a customers income
level, customers must generally have basic literacy, administrative and
record-keeping abilities and a minimum income level. Additionally, banks operate
through online transaction settlement systems, which are often unavailable or
costly to implement in undeveloped areas. Finally, having a bank account does
not eliminate the need for significant quantities of cash in many instances
because customers must withdraw large sums at one time to avoid incremental
transaction fees.

Our Solution

We believe that we are the first
company to enable the affordable delivery of financial products and services to
the worlds unbanked and under-banked people. Our approach takes full advantage
of moving processing away from a centralized point to the computer chip embedded
on a smart card. A smart card reader, or POS device, is used to enable
communication between smart cards in real-time during a transaction and
indirectly with our mainframe computer at a later time. This architecture has
significant implications in terms of the products and services that we can
deliver compared to those offered by banking institutions or other card
providers.

First, our system enables offline
transactions, which is essential in serving the unbanked and under-banked.
Second, it means that while offline, the smart card can engage in sophisticated
transaction processing, using data encryption and biometric fingerprint
protection to ensure security. In fact, our smart cards can calculate the
interest owed to the card holder for having funds recorded onto our system
without ever coming online. Third, with all of the software and transaction
records on the smart card, the POS device itself requires far fewer components,
circuitry and memory, substantially reducing costs. Fourth, each transaction is
recorded on both participating smart cards, copied in subsequent transactions to
additional smart cards, and ultimately reported to our mainframe computer. This
creates a full audit trail that significantly reduces the potential for
corruption, theft and fraud. Lastly, instead of having to build the overall
system to handle peak loads, our system further reduces costs by smoothing the
transaction flow over time.

3

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We believe that our solution
delivers benefits to each of the users of our system, including:

Individuals.There is no
minimum income requirement for individuals to use our smart card, making our
solution universally accessible. It is also inexpensive since the overall cost
of the system is much less than widely available solutions, including cash, bank
accounts and bank cards that require online access. Our solution additionally
has the advantage of working everywhere, including remote areas where many
unbanked and under-banked people live. Even more importantly, our solution is
secure and smart cards are replaceable. This means that individuals do not have
to fear that their money will be stolen or that they will be charged for
fraudulent transactions as all transactions are verified biometrically through
fingerprints. Since the smart card performs all of the required computing
processing and contains all of the different service features, the smart card
can be tailored to meet the needs of the individual. Card holders can also
receive interest on their card balances, a benefit not available to them when
transacting solely in cash. We believe our solution has the potential to enhance
significantly the living standards of the unbanked and under-banked by reducing
transaction costs and providing them with new and additional financial products
and services.

Merchants and Financial
Service Providers. Merchants derive several different benefits from our
system. Our system decreases the amount of cash they must hold, improving
security and reducing expenses, such as cash deposit fees and cash losses. By
providing financial services through our POS devices, merchants also benefit
from new income streams at no additional incremental cost. In addition, our
system provides a record of transactions that is useful for administrative
purposes. For formal financial service providers, the use of smart cards
provides opportunities to directly sell products and services to a market that
was previously difficult to reach. For instance, insurance companies can offer
their products with the premium deducted directly from the individuals smart
card. In the case of lending, administrative costs are decreased along with the
expense of holding cash. Again, the collection of payments can occur directly
from the smart card, reducing credit risk and helping to establish credit
history.

Employers. Our system
enables employers to eliminate cash from the wage payment process. This reduces
expenses by avoiding cash handling and management, the need to insure, secure
and transport that cash and the bank transaction fees associated with obtaining
cash in the first place. The process of paying employees using cash is also time
consuming, taking up to half a day per pay period in some instances. The use of
our system eliminates this process and thereby increases productivity. In
addition, because cash payments are distributed in packets to employees,
disputes can arise as to the amount of cash in the packet. Our system also
eliminates this problem since the amount reflected on the card holders accounts
are recorded on the back-end system and then distributed on the smart cards.
Finally, employers frequently provide additional services to their employees out
of necessity, particularly loans. Our system enables other service providers to
deliver these products.

Government Agencies.A
fundamental policy goal for almost any government is to enhance the welfare of
the poorest citizens in the country. Yet the use of cash is a poor method for
delivering social welfare grants since it is difficult to track, and the
recipients endure a range of expenses and dangers that reduce their options. By
using our system, government agencies enjoy reduced costs in the delivery of
benefits to recipients by eliminating the use of cash while increasing the
options available to the recipient. This use of our system intrinsically
increases the welfare that government agencies can provide from the same amount
of taxes collected. Our system also has the potential to increase the amount of
taxes collected by bringing informal businesses into the formal economy. The
presence of a full audit trail also means that government agencies can combat
corruption. Moreover, the use of smart cards for the delivery of additional
services, including insurance products, means that regulatory bodies can expand
their oversight of transactions for individuals who are frequently least able to
protect themselves. In regard to medical benefits, our system provides
comprehensive inventory management and has the potential to improve the
treatment of patients significantly.

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Our Business Strengths

We believe our business strengths
include:

Technology Leadership. We
believe we are the first company to develop, implement and operate an
affordable, flexible and secure electronic payment system for the unbanked and
under-banked that works offline. Of equal importance, our smart cards are
secured through biometric fingerprint authentication and have a broad range of
additional functionality through the use of wallets that can be turned on as
needed or as services become available. We can deliver these services to the
unbanked population at a fraction of the cost of traditional systems. Our
ability to implement an HIV/AIDS system on the same smart card as financial
services demonstrates the flexibility of our approach. In addition, we have
validated the security of our smart cards along with our overall system, forming
the foundation for a trusted solution. Independent third parties have reviewed
and published our security protocols and we have refined our system in a way to
provide system integrity over the life of the smart cards. From our inception in
1989 to date, we have not suffered any security breaches or losses of
transactions or funds on our system. In addition, our acquisition of Prism gave
us access to well-established core cryptography, software, hardware, embedded
chip, wireless and payment expertise.

Proven Solution. Our
system is proven is widely used. Today over 4 million clients in South Africa
receive monthly welfare or pension payments through our system under contracts
with five provinces. Historically, welfare and pension recipients would only
download cash from smart cards, but since we began our merchant acquiring
initiative in July 2004, these recipients increasingly choose to use their smart
cards at merchant locations, which generate additional revenues for us. During
the year ended June 30, 2008, the number of our clients that opted to receive
their grants through our retail infrastructure grew to approximately 1,426,000,
an increase from approximately 1,129,000 and 849,000 during fiscal 2007 and
2006, respectively. For the years ended June 30, 2008 and 2007, the total value
of transactions processed through our UEPS merchant network was approximately
$1,078 million and $875 million, respectively. As of June 30, 2008, we had 4,394
POS devices installed at 2,454 participating retail merchants compared to June
30, 2007, when we had 4,357 POS devices installed at 2,598 participating retail
merchants

Versatile Application.Once an individual begins using our smart card, we become a logical provider
of a broad range of additional products and services. For instance, a card
holder using our system for the administration of medical treatment can also use
the same smart card for receiving welfare payments or wages as well as making
purchases. Because use of each smart card is secured biometrically, the smart
card can also be used for identification and voting. The additional uses mean
that once we have enrolled and delivered a smart card to an individual, our
revenue potential increases significantly beyond the initial service for which
that individual has signed up.

Broad Appeal that Drives
Opportunities.Becauseour system provides economic benefits to all
participants, we believe there are strong incentives for government agencies and
employers to adopt our system in many developing countries. Our solution is also
appealing because a single deployment enables the delivery of a broad array of
new services to those who are potentially most in need of them, often at a lower
cost than alternative distribution methods.

Increasing Returns to
Scale. The initial establishment of our system in a province or country
requires upfront expenditures for computers, distribution infrastructure and
card holder registration. Once in place, though, the cost to us of supplying
additional products to users is low. For instance, if a customer receives
welfare payments on one of our smart cards and then chooses to purchase
insurance through our system, there is almost no additional expense for us to
deduct the insurance premium regularly. As a result, the operating margin for
that customer increases significantly, offset only by any marketing or
administrative costs associated with that product.

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Our Strategy

We intend to provide the leading
system for the worlds estimated four billion unbanked and under-banked people
to engage in electronic transactions globally. To achieve this goal, we intend
to pursue the following strategies:

Disciplined Approach to New
Markets. We carefully evaluate new opportunities in order to deploy our
business development resources effectively. We believe there are significant
opportunities for our system in the developing countries of Africa, Central and
South America, the Middle East, the Asia-Pacific Rim and Central and Eastern
Europe, where the unbanked and under-banked comprise a majority of the
population. Where we believe it makes sense, we will use partnerships or make
acquisitions to accelerate our entry into new markets. For instance, during our
2007 and 2006 fiscal year, we established, together with local investors,
companies to create and implement UEPS systems in three African countries,
Namibia, Botswana and Nigeria. In other instances we may implement UEPS systems
in a particular market. For instance, during fiscal 2008 we implemented a
National Switch and Smart Card Payment System in Ghana and we entered into a
contract with an Iraqi consortium to provide a customized UEPS banking and
payment system that we will operate on an outsourced basis.

Unlock Target Markets with a
Key Product. The first step in establishing our system within a new province
or country is to establish a broad base of smart card users around a single
application. One of our preferred routes is to secure contracts to implement
payment systems for government programs having large numbers of potential card
holders. We believe another effective route will be the delivery of medical
management applications, such as for HIV/AIDS. However, we are not dependent on
government agencies to establish an initial base. In South Africa, employers
have examined our system to address their wage payment challenges and we are
currently pursuing opportunities to deliver this solution. Similarly, banking
institutions implement the UEPS banking application and distribute smart cards
to their clients to replace ageing legacy systems, including paper or book-
based systems.

Expand Our Products Within the
Markets We Serve. With the establishment of a strong base of card holders
and related infrastructure, we can then move to providing additional products
and services. As part of broadening our card holders options, we will also sell
our smart card readers and POS devices to merchants to enable them to enter into
transactions. Additionally, we will work to establish relationships with post
offices, banks and other financial service providers with the goal of making our
system ubiquitous in the markets we serve.

Provide Products and Services
Ourselves Where the Profit Potential is Compelling. Our system can
dramatically reduce transaction costs and improve data collection for a broad
set of products and services. We intend to offer those products and services
ourselves where the profit potential is significant. For instance, we engage in
lending in South Africa. We are able to offer this service at a lower interest
rate than competitors due to our ability to deduct interest and principal
directly from a borrowers smart card and our knowledge of that individuals
payment history.

Establish Partnerships or Make
Acquisitions When Appropriate. As part of our disciplined approach to
growing our presence globally, we will evaluate and enter into partnerships or
outsourcing agreements where we can draw on local knowledge and infrastructure
to drive the rapid adoption of our system. We believe that this will enable us
to focus on our core strength in technology as well as product development and
delivery. In some instances, we will make acquisitions where we believe that our
approach will enable us to gain customers and realize operational benefits
rapidly from the deployment of our more efficient solution.

Our Technology

We developed our technology to
enable the affordable delivery of financial products and services to the worlds
unbanked and under-banked people. Our proprietary technology is designed to
provide the secure delivery of these products and services in the most
under-developed or rural environments, even in those that have little or no
communications infrastructure. Unlike a traditional credit or debit card where
the operation of the account occurs on a centralized computer, each of our smart
cards effectively operates as an individual bank account for all types of
transactions. All transactions that take place through our system occur between
two smart cards at the point of service, or POS, as all of the relevant
information necessary to perform and record transactions reside on the smart
cards.

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The transfer of money or other
information can take place without any communication with a centralized computer
since all validation, creation of audit records, encryption, decryption and
authorization take place on, or are generated between, the smart cards
themselves. Importantly, the cards are protected through the use of biometric
fingerprint identification, which is designed to ensure the security of funds
and card holder information. Transactions are generally settled by merchants and
other commercial participants in the system by sending transaction data to a
mainframe computer on a batch basis. Settlements can be performed online or
offline. The mainframe computer provides a central database of transactions,
creating a complete audit trail that enables us to replace lost smart cards
while preserving the notional account balance, and to identify fraud.

***System Components***

Our platform consists of three
fundamental components: (1) our FTS patent, (2) our UEPS and (3) our security
protocol.

FTS Patent. The FTS patent
describes a method by which funds can be transferred from one smart card to
another in a secure and offline manner. The term offline refers to
transactions that are effected without the need to contact or communicate with
the issuer when the transactions occur, as the smart cards themselves perform
the authorizations required. The FTS patent also describes how smart cards can
be loaded or re-loaded with funds and how these can be redeemed for value in
either banking or non-banking environments.

UEPS. Our UEPS is a suite
of software programs that make use of the FTS methodology to deliver an
integrated information, payment, switching and settlement environment that
underpins our transaction processing system. Our software principally runs on
three devices: the smart card, the POS device and the back-end system mainframe.
When we sell a complete system to a customer or license our technology, we
provide all of the software required to operate the UEPS, including the smart
card functionality, the POS devices that allow our smart cards to transact with
each other in an offline manner and our back-end system that primarily stores an
audit trail of all transactions effected.

The primary strengths of the UEPS
are its affordability, security and flexibility. The system is affordable
because the computer chips on the smart cards contain all the software necessary
to process UEPS transactions, thereby allowing the POS devices required to
conduct these transactions to contain far fewer components and less circuitry
than traditional POS devices. There is also a reduced need for processing power
and on-board memory given that online communication is not necessary. This
eliminates the need for an internal or external modem and its associated
hardware, maintenance and call costs. As a result, the UEPS terminals are
relatively inexpensive and do not require specialized technical expertise for
installation. The UEPS also reduces or eliminates the need for national
infrastructures, including electricity, telephone or data transmission. The UEPS
is secure because the funds in each smart card are protected from illegal access
through biometric fingerprint technology. In addition, every transaction is
verified by the two smart cards involved in the transaction using
state-of-the-art cryptographic systems in conjunction with protocols and
techniques that we have developed. Finally, our UEPS is flexible because
transactions are completed offline, eliminating virtually all restrictions where
verified transactions can occur.

We released the first version of
our UEPS in 1991. It included software to operate each smart card as well as the
main payment system. Later versions of our UEPS provided all of the functions
necessary to issue and manage a smart card and terminal base as well as those
needed to effect settlement between all of the operators and participants. Our
UEPS is fully traceable and auditable. It can also provide advanced capabilities
including loss tolerance and smart card-based interest distribution. Finally,
our UEPS is scalable and capable of working in small applications including a
hospital setting as well as large settings such as country-wide implementations.

Security Protocol. Our
security protocol was designed to prevent opportunistic fraud and enforce the
correct transaction flow. The symmetric triple data encryption standard, or DES,
is used extensively in association with a native random number generator that
ensures that all transactions are performed by using a random session key pair.
The DES encryption algorithm can be easily modified to use alternative symmetric
or asymmetric encryption algorithms such as the Rivest, Shamir and Adleman or
elliptic curves. Each message exchanged during a transaction names both
transacting parties, includes unique information to guarantee freshness and
depends explicitly on all the messages that occur before it.

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Our UEPS Platform

The following diagram depicts how our UEPS platform is
constructed.

UEPS PLATFORMFully-functional
      and integrated payment and settlement system, capable of operating all
      UEPS products and systems.




COMPLETE
      SYSTEMSCombination of products meeting a clients particular
      requirements.




STAND-ALONE
      PRODUCTSFinancial
      transaction applications (S2S products).




FUNCTIONALITYCombination of Hardware and Operating Systems on smart
      cards enable the creation of UEPS applications which can be customized for
      the particular needs of a client.




OPERATING
        SYSTEMSThird-party software.
      UEPS software programmed by us.




SMART CARDS / SIM CARDS (Hardware)Cards sourced from
      third-party vendors.




HARDWAREPOS devices, ATMs, mobile phones, back-end computer
      systems sourced from third-party vendors.


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The UEPS we sell to clients is a
platform with the potential to provide all of the products we develop which,
when grouped together, form complete systems serving the specific needs of
various business segments. Depending on the requirements of a particular
customer, we assist the customer in the setup of its application which is
tailored to provide only the products and services initially required, although
the UEPS can later be updated to provide additional products. We outsource the
manufacturing of the hardware components of our system, including smart cards,
POS devices, automated teller machines, or ATMs, PCs and back-end mainframes.
However, we have developed all of our application software modules so that they
will run on different hardware platforms which allow us to be
hardware-independent and to provide our customers with the latest and most
economical hardware solutions.

Scalability. Our UEPS can
be implemented in different environments, from small closed systems to national
implementations. In closed-system environments, the UEPS front-end equipment is
personal computer-based and can therefore be implemented at relatively low cost.
In these instances, we provide the back-end system on a transaction fee basis,
thus limiting the overall set up cost. This approach can also be used whenever
larger implementations are required but where the customer prefers to focus on
marketing and selling its products rather than initially concentrating on
operating the back-end system. The cost to entry can thus be greatly reduced as
the operations can first become profitable before expending large amounts of
capital. On the other hand, large governmental institutions, financial
institutions or medical insurers typically prefer to maintain control over the
entire payment system and therefore invest in a full system implementation. The
time to launch these projects tends to be longer due to the time that is
required to train the end-user to operate the system.

Once a UEPS is installed on
behalf of a customer, we believe that we are well-positioned to benefit from the
scalability of the system as minimal changes are required to be made to the
application base for the system to manage significantly greater numbers of
users. We can therefore provide additional smart cards while leveraging the
existing cost base in a market. In addition, we have a dedicated team of
technicians and developers and an infrastructure capable of supporting a
significant volume of customers and their transactions. As a result, we expect
to benefit from economies of scale that pertain to increases in the number of
products and services using the infrastructures we sell and/or implement.

***UEPS Smart Card
Functionality***

We have combined these
technologies to create a smart card application that incorporates and controls
the functionality that is normally found on banking host systems. Our technology
reverses the traditional approach where the card acts as an access mechanism to
a host-managed account. Instead, the smart card controls the account itself
while the host system is relegated to backing up and creating an audit trail for
the smart card base.

As a result, our technology
provides extensive and flexible functionality through a system that is
practical, secure and auditable. The following list itemizes some of the unique
and critical functions provided by our smart card technology.

Identification,
Authentication, Non-Repudiation and Affirmation of UEPS Transactions.
Traditional payment systems provide customers with paper receipts that reflect
transaction details. Customers normally keep these receipts to reconcile their
monthly account statements. During reconciliation, customers can detect
fraudulent transactions and errors by matching account entries against their
paper receipts, which may lead to disputes, financial losses and the repudiation
of transactions. Fraud committed by people taking advantage of the inherent
security weaknesses of traditional payment systems increases the cost of
managing transactions effected through these systems. As a result, financial
institutions and other system participants must invest significant resources to
minimize the risk associated with fraud and errors.

A fundamental element of the UEPS
is that all payment and money transfer transactions take place between two UEPS
smart cards  the smart card to be debited and the smart card to be credited.
During the transfer of value between the two smart cards, the transaction is
written to a dedicated history file on each of the smart cards. These history
files are subsequently used to ensure settlement either directly or through the
activation of the UEPS multiple streams audit trail feature. Thus, smart card
holders can reconcile their monthly accounts directly from the smart cards
transaction history file. Also, each smart card authorizes all debit
transactions through the presentation and verification of one of the card
holders biometric fingerprint templates that are stored in the smart card, and
each UEPS transaction is signed by both smart cards. Taken together, these
features of the UEPS help prevent the fraudulent creation, duplication or
alteration of a transaction, as well as any potential repudiation of a
transaction. As a result, the UEPS helps to minimize the costs associated with
account management and inquiry resolution and helps ensure that customers do not
incur losses from undetected errors, fraud or transaction mismanagement.

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Continuous Debit. People
with limited economic means or un-established credit histories may find it
difficult to obtain access to public utility services such as telephone, fuel,
water or electricity unless they purchase pre-paid units for these services. A
prepaid unit of service may be a liter of fuel, a kiloliter of water, ten
minutes of electricity or a two minute local phone call, and may need to be used
within a specified period of time before it expires. Pre-paying for services can
deprive purchasers of flexibility to redeploy their funds to meet other
financial needs.

The continuous debit feature of
the UEPS eliminates the need for customers to buy pre-paid units by allowing
them to use their smart cards to pay for these services as and when they need
and use them. All a customer needs to do is to insert his smart card into the
utility equipment and the smart card will debit itself whenever a unit of
service is used. The continuous debit feature provides significant financial
flexibility to customers and can be tailored to be used in any pay as you go
environment, including Internet access.

Continuous debit transactions are
typically a large number of small transactions that can quickly fill up the
space on a smart cards transaction file. We eliminated this problem by
designing the UEPS to minimize the file space that these transactions require by
enabling subsequent transactions to replace and aggregate with earlier ones,
thereby treating multiple transactions as one global transaction.

Multiple and Restricted
Wallets. Unbanked people who keep their cash at home risk the loss of their
funds from misplacement, theft or disasters such as floods or fires, which can
have a devastating impact on their financial lives. Keeping funds at home does
not generate any interest income and cannot help demonstrate financial
responsibility or provide collateral security for the extension of credit.
Finally, keeping funds in cash can make it more difficult for people to
segregate their funds for specific purposes, whereas having one or more bank
accounts can facilitate budgeting for various categories of expenses.

The multiple wallet feature
allows card holders to use their smart cards to help manage their budgets. Up to
255 wallets can be configured and activated per card holder depending on the
electrically erasable programmable read-only memory, or EEPROM, available on the
particular smart card. Each of the wallets can be configured to meet the
specific requirements of the card holder, and can be used for
interest-generating savings, pre-paid utilities, medication management, credit,
debit orders and for many other purposes. In addition, a wallet can be either
protected or unprotected. Protected wallets require the biometric verification
of the card holder to effect transactions. Unprotected wallets are normally used
for low value transactions such as transportation for which speed of processing
is critical.

Since the audit trail of all
transactions performed by the active wallets is stored on the smart cards
history file, card holders can provide third parties with a comprehensive record
of their transaction histories, which can help evidence payments, such as
insurance premiums and demonstrate a regular income stream from wages or other
sources. This audit trail can provide unbanked people the opportunity to obtain
affordable services from formal financial service providers which might
otherwise deny or limit services to them.

Wallets can also be restricted.
Restricted wallets allow transactions to be performed only at specific
merchants. For example, if an employer desire to subsidize an employees
transportation costs, a wallet can be configured that permits the holder to
spend the value loaded into that wallet only at specified transportation points.
Restricted wallets can also be used by governments to prevent social welfare
grant recipients from using payment for particular goods or services.

Offline Loading. The use
of payment systems that depend on online authorizations is difficult to
implement in developing economies and countries that do not have advanced or
reliable telecommunication infrastructures. Online systems include magnetic
stripe-based solutions that are widely used in first world economies and require
that all transactions, including retail sales, the dispensing of cash, the
loading of value to smart cards and the authorization of credit transactions, be
performed only at self-service terminals, or SSTs, ATMs or POS devices that
operate online. Thus, online systems cannot be used to provide financial or
banking services to the millions of people, such as those in developing
countries, that live in geographical areas that have little or no
infrastructure. Most smart card systems therefore, such as Europay, MasterCard
and VISA, or EMV, also operate online. We believe that this reliance on online
communication has limited the exploitation of smart card technology, has
resulted in high system implementation and operational costs and has not
addressed many of the needs of the worlds unbanked population.

Our offline loading feature has
been designed to solve these problems associated with reliance on limited
infrastructures and allows value to be distributed through existing
infrastructures such as the postal service, fixed line telephones, cellular
phones, verbal communication and newspapers. Our solution is a unique ten-digit
signature code that the UEPS back-end system generates to enable specific
amounts to be loaded to specific smart cards. When a ten-digit signature code is
presented at any offline POS device to the smart card for which it was created,
the code will, after validation, allow the smart card to credit one or a number
of its internal wallets in the appropriate amount.

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The offline loading function can
be used to transfer funds remotely for payments such as wages, pensions, welfare
grants, refunds and third party transfers. When a number of ten-digit signature
codes are created for a specific smart card, each ten-digit signature code can
then only be applied to that smart card once. Ten-digit signature codes can be
presented to a smart card in a different order from the one in which the codes
were created but can be effected only by that particular smart card.

Biometric Identification.
The magnetic stripe credit and debit card systems available today use a written
signature or a personal identification number, or PIN, in an effort to verify
the customers identity minimize the repudiation of transactions. However, PINs
can be compromised, magnetic stripes can be cloned and if a card is stolen
together with its PIN number, the card can be used to transact until it is
reported stolen or its offline limits are reached. The PIN and card can also be
used to gain access to back-end account information to defraud further the
genuine card holder. Therefore, positive offline card holder verification is
critical to ensure that a payment system does not effect fraudulent
transactions. At the same time, the system must ensure that the genuine card
holders transactions are not rejected.

As an alternative form of
customer identification, the UEPS supports biometrics in the form of fingerprint
recognition. Biometric scanners are used to record a customers fingerprint
images. The fingerprint templates that result are stored in the holders smart
card and used for identification whenever the smart card is used.

Before a smart card is issued,
the following fingerprint recordation process occurs:

- All ten fingers are captured, with three fingerprint images captured per
  finger.
- The three fingerprint images for each finger are consolidated and filtered
  to create the best image for that finger. This results in ten high-quality
  fingerprint images.
- The ten fingerprint images are used to generate fingerprint templates. A
  fingerprint template is a unique geometric representation of one fingerprint.
- The card holder is verified against these templates using the highest
  fingerprint matching threshold to ensure the best recordation process. This
  process assists to eliminate the false rejection of genuine card holders due
  to initial bad fingerprint template recordation.
- The fingerprint templates are signed by an issuing UEPS smart card and
  stored on the card holders smart card.

When a transaction is performed,
the card holders fingerprints are verified against those stored on the smart
card. The verification process occurs in a secure session between the smart card
and the fingerprint scanner. During the verification phase, a moderate matching
threshold is used to compensate for the changes in the card holders fingerprint
conditions.

Our biometric identification
feature is designed to protect our card holders against fraud, helps eliminate
transaction repudiation and reduces the complexity associated with hot card
management systems and hot line centers, as well as the cost of the systems that
are utilized to deal with stolen and lost cards.

Automatic Credit. The
distribution of social welfare benefits, unemployment insurance, food parcels or
vouchers and medical supplies is personnel intensive. Furthermore, beneficiaries
must present themselves regularly at designated distribution locations in order
to receive their benefits. These requirements create a number of operational and
logistical problems, which increase the direct or indirect costs for system
owners, operators and members, including:

- The costs of transporting beneficiaries and payment personnel to and from
  distribution points;
- The time beneficiaries must spend waiting in line at distribution points
  rather than working or engaging in other activities;
- The need to provide adequate staff, water, toilets, medical emergency
  services, shelters and security at distribution points;
- The need to provide personnel to deal with beneficiary communications and
  inquiries; and
- The need to create itineraries and schedules for payment delivery
  personnel, as well as to establish distribution centers and purchase vehicles
  to travel to distribution points.

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Thus, governments incur
significant costs in distributing social welfare payments at fixed or movable
locations, and banking institutions must spend large sums to provide branches
and ATMs where their customers can obtain cash. Many of these costs cannot be
passed onto the client. We have developed the capacity in the UEPS to facilitate
the distribution of cash at retail merchants in a manner that eliminates or
reduces the need for social welfare beneficiaries and customers to travel to a
specific ATM location, reduces merchants costs of depositing excess cash and
that enables banks to reduce their costs associated with providing, maintaining
and servicing brick and mortar infrastructures.

We developed our automatic credit
feature to allow our smart card holders to receive regular, fixed amount
payments at POS devices that may not have the capability to perform online
functions. The participants in an automatic credit transaction are the automatic
credit initiator, the smart card holder and the merchant. The automatic credit
initiator is the issuer which creates an automatic credit instruction for a
particular wallet of a specific card holder. The smart card holder is the
beneficiary of the automatic credit instruction which has been approved by the
initiator. The merchant is any retailer which participates in the UEPS system
and has a POS device for a card holder to activate automatic credit
instructions.

Card holders go to designated
points to register for an automatic credit instruction. While at the POS device,
the credit initiator submits an application for an automatic credit instruction
to the back-end system. The application can occur offline or online. Once the
back-end system has validated the beneficiarys information, it creates an
automatic credit instruction signature which is sent back to the POS device and
is then recorded on the smart card. On the day that the card holder is due to
receive a payment, the card holder inserts his smart card into any POS device.
In the event that the automatic credit instruction is due and valid, the smart
card of the card holder is automatically loaded.

Interest on Card. Unbanked
people transact mainly with cash. One of the most fundamental disadvantages of
cash is that it cannot generate interest income for the holder and that its
value depreciates with inflation. The UEPS was designed, in essence, to be an
alternative to a formal banking account that allows a smart card holder to earn
interest on the value contained in his various wallets. The ability to earn
interest provides an incentive for people to maintain balances on their smart
cards rather than convert the full balances to cash or to unload them to a
traditional banking account where they would not earn any interest.

There are numerous possible types
of interest calculations, including simple, compound, continuous, minimum
balance, average balance, daily and monthly interest. The UEPS uses the compound
interest methodology, calculated daily on the previous days closing balance. In
order to calculate interest correctly, the client smart card requires a host
date certificate, or HDC. This date originates from the back-end system, and is
updated on the merchant smart card when it settles its transactions. The
merchant smart card in turn passes the HDC to the card holders smart card,
which enables the client smart card to calculate the interest for any wallet
that bears interest. The system is designed to ensure that the client smart card
only calculates the interest using the latest HDC, and not any date given to it
from an unsettled or inactive merchant smart card. Once interest is added to an
interest-bearing wallet, a notification record is written to the card holders
smart card history file and forwarded to the merchant smart card for settlement.
This record informs the back-end system of the interest amount credited.

UEPS Morphing. The UEPS is
proprietary. It is designed for a specific market that requires specific
features and as such is not compliant or compatible with other smart card
systems. If it were compatible with other systems, the usefulness of the UEPS
would be as limited as these other systems and could not provide a solution for
the unbanked populations of the world. However, we have designed the UEPS in
such a way so that it can inter-operate with other standard payment systems such
as EMV, one of the more widely-used standards in the banking sector. In the
future, smart card holders may wish to use their smart cards in environments
that are currently enabled for other smart card-based payment systems. The UEPS
morphing feature allows our smart cards to transact at EMV POS devices as if our
smart cards were in fact EMV smart cards. Our card holders can thus transact at
EMV POS devices but the functionality provided at these POS devices is limited
to that offered by the EMV system. Our smart cards, when required, can morph
into the standards supported by the POS devices thus minimizing the cost of
deploying another POS infrastructure.

Our UEPS morphing feature is not
merely a collection of multiple applications grouped together into a single
smart card. This feature also enables inter-operability between these
applications. The EMV standard is mainly an online application that requires
offline card authentication, online host authorization and online card issuer
authentication. The EMV payment application is invoked by the POS device using
the application selection methodology. The UEPS smart card can recognize the
type of environment in which it is used through the command structure passed to
it from the ATM, SST, POS device or any other smart card reader conducting the
transaction. Once the smart card has sensed the system in use, it immediately
morphs this application and behaves as such for the duration of the transaction.
The morphing feature is not limited to EMV, but can also be used with CEPS, Visa
Horizon and Mondex, among other systems. It places the UEPS card holder in a
unique position to possess a single smart card, and use it at any POS device,
ATM or SST of his choice, without having to have different smart cards for every
payment application.

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Automatic Debit.
Currently, payees experience various administrative problems and other
challenges in collecting payments due to them through the formal banking system
for insurance premiums, micro-loan payments and governmental statutory
deductions for items such as unemployment insurance. In addition, collectors
suffer payment losses as a result of insufficient funds, closed accounts, or
charge back transactions, and may incur significant personnel costs for
employees to attempt to collect from non-payors. Payees may find that their
accounts are incorrectly debited, unauthorized debits are made or they pay high
fees for debit orders which are not processed.

For unbanked people, their
problems are often even greater since their only means of payment is cash. To
pay a premium, they have to present themselves at the office of the financial
service provider and pay their premium in cash. These offices are typically in
urban areas and therefore unbanked people have to pay for transportation in
order to make their monthly payments. Carrying substantial amounts of cash over
long distances involves risks of theft and loss.

We created the automatic debit
feature to allow a smart card to reduce the balance in any of its active wallets
on a specific date and for a predetermined amount. This function can take place
in an offline environment at any POS device. The automatic debit feature reduces
the risks associated with collection of insurance premiums and other regularly
scheduled payments by ensuring that any funds loaded to the smart card are first
used to service the automatic debit before being transferred for the card
holders general use.

The participants in an automatic
debit transaction are the automatic debit initiator, the merchant and the smart
card holder. The automatic debit initiator is the issuer which will create an
automatic debit instruction for a particular wallet of a specific smart card
holder. The merchant is any retailer which is a participant in the system and
has a POS device for a card holder to activate automatic debit instructions. The
card holder is the person who must pay the premium or other payment.

Card holders register for
automatic debit instruction at the offices of the automatic debit initiator.
While at the POS device, they submit an application for an automatic debit
instruction to the back-end system. This can occur offline or online. Once the
back-end system has validated the beneficiarys information, it creates an
automatic debit instruction signature which is sent back to the POS device and
is then recorded on the smart card. On the day that the card holder is due to
pay a premium or other payment, the card holder inserts his smart card into any
POS device. In the event that the automatic debit instruction is due, the smart
card of the card holder is automatically debited.

Multiple Streams Audit Trails
for Offline UEPS Transactions. The UEPS, as an offline system, must ensure
that all transactions effected offline are settled, at some point in time, by
the back-end system. Settlement is critical to guarantee that no funds can be
lost by card holders even when a POS device, its paper audit trail or its
merchant smart card is lost, stolen or destroyed. Importantly, smart card
transactions, including automatic credits, automatic debits, interest accruals,
agent transfers, cash downloads and purchases all have a financial effect on
individual smart card balances and must therefore be settled in order to
preserve system integrity. The UEPS multiple streams audit trail functionality
is designed to ensure that the replacement smart card contains the correct
amount of funds when a lost, stolen or defective card is replaced.

The UEPS provides the ability to
activate multiple streams audit trails through POS device profile downloading.
Multiple streams audit trails are distributed through the active smart card base
and are completely transparent to all card holders. Multiple streams audit
trails can only be implemented on smart cards which have an adequate amount of
EEPROM memory as the size of the transaction file created on smart cards will at
least double. The multiple streams audit trails functionality is especially
useful in environments where either the POS device is offline or may be damaged
or destroyed due to the harsh environmental conditions in which it operates or
where there is a perceived risk that the POS device may be stolen.

When a client smart card is
inserted into any POS device to perform one or more transactions, including a
sale, load, unload, automatic credit, automatic debit or interest accrual
transaction, the current transaction is written to both the client and the
merchant smart cards. The previous transaction performed by the client smart
card at another POS device is also written to the currently transacting merchant
smart card transaction file as a piggy back record. The previous transaction
or transaction group written to the merchant smart card from another client is
also written to the client smart card of the currently transacting client.

This process ensures that each
transaction or transaction group effected on a client smart card is distributed
directly to a second merchant smart card and indirectly to a third merchant
smart card. The third transfer occurs by writing the transaction or transaction
group to another client smart card which in turn transfers the same to a
different merchant smart card. The number of different audit trails streams can
be selected through the POS device or merchant profiles.

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Upon settlement of the merchant
smart card, the transactions which were performed at other merchants will
therefore also be settled. Each merchant smart card becomes the carrier for
transactions that have occurred at other merchants. All client smart cards
become the multiple streams that facilitate the movement of transaction data
among unrelated merchant smart cards. This process occurs in an offline
environment.

In the event of the loss or
destruction of any POS device or its associated merchant smart card or paper
audit trail, all transactions that have been piggy backed can be recovered
through the settlement of other merchant smart cards. The speed at which these
transactions can be recovered will depend on how frequently the client smart
cards that are used to piggy back transactions have transacted at other UEPS
merchants. The multiple streams audit trails functionality provides complete and
independent audit trails that help prevent fraud by single or colluding
parties.

Transparent and Automatic
Recovery for Offline UEPS Transactions. The UEPS, as an offline system, must
ensure that all transactions effected offline complete successfully or that, in
the event of a failure, the transaction in progress can be restarted without any
loss being incurred by either the client or merchant concerned. Failure of the
POS device or the premature removal of either of the smart cards involved during
a transaction may lead to the client smart card being debited without the
corresponding credit being reflected on the merchant smart card. Although the
premature removal of either of the smart cards can be prevented by introducing
motorized smart card readers, the cost involved is prohibitive and the solution
does not address other possible failures due to POS device hardware problems or
power failures, which are common in areas with unreliable power
infrastructures.

The UEPS is designed to recover
failed transactions through its transparent and automatic recovery feature. This
feature is activated during the session key establishment phase that occurs
whenever two smart cards transact. During the session key establishment phase,
each smart card generates an eight-byte natural random number and triple-DES
encrypts it with its generic UEPS key pair. These two encrypted blocks are then
exchanged by the two smart cards, and once decrypted, used by each smart card to
generate a random DES key pair. This new key pair is used to exchange further
information between the smart cards until the transaction is completed.

During the next phase, each smart
card passes to the other its smart card unique serial number and its current
transaction counter. At this stage, the client smart card is now able to
determine if the last transaction written to its transaction file was indeed
also effected on the merchant smart card. If not, the client smart card simply
unrolls its last transaction thus restoring the correct data image as it was
prior to the transaction. This feature can also be used whenever a POS device is
disabled for whatever reason. In this instance, the two smart cards can simply
be inserted into any other working POS device and the two smart cards will
automatically re-synchronize themselves. Further transaction processing can then
resume normally. As a result of this feature, transactions such as transaction
cancellation and reversals can be performed offline in a secure manner.

Mechanics of Loading, Spending and Settlement

The following describes how card
holders can load value onto their smart cards and spend the value they receive.
It also describes how merchants settle transactions with our back-end system.

Loading. All card holders
  that receive social welfare grants or whose employers participate in our system
  can load their smart cards at any POS device located in merchant stores. Card
  holders can load their smart cards in several different ways. If the card holders
  electronic value was created through the ten-digit signature code, then the
  card holder has three options. He can effect an online auto load, in which case
  the POS device connects in real time to the back-end system, which then forwards
  any available ten-digit signature codes present in the account of the card holder.
  These codes will be loaded to the smart card automatically. If the communications
  network is erratic or unreliable, ten-digit signature codes can be downloaded
  to the POS device of a nearby participating merchant where and when the network
  is operational. The card holder can then perform an offline auto load whereby
  any ten-digit signature codes present in the POS device will be loaded to his
  smart card. If a network connection is not available, the card holder can key
  in his ten-digit signature code and amount to be loaded. In all scenarios the
  smart card will be credited only if the ten-digit signature code is decrypted
  successfully by the smart card. If the card holders smart card is initialized
  with one or a number of automatic credit instructions, the smart card will credit
  itself as we describe under Automatic Credit feature.

Spending.Once value has
been loaded to a smart card, card holders may purchase goods or services, make
cash withdrawals, initiate money transfers, request automatic loans, effect
third party payments and invoke automatic credits and debit orders, all offline
at any participating merchant store. To perform a transaction, the card holder
inserts his smart card into the top smart card reader of the POS device and
selects the appropriate function. Biometric fingerprint identification is
required for most functions to protect card holders against the unintended or
fraudulent usage of their funds. A printed receipt displays the details of the
transaction performed and includes other system audit trail information.

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Settlement. As spending on
a UEPS smart card occurs offline, the settlement of the merchant transactions
with the back-end system needs to take place within the two day window
settlement period provided for in the contract, or as and when the merchant
smart card becomes full. Settlement can be performed online or offline.
Merchants who have access to a network infrastructure can use the settlement
option on their POS devices to connect to the back-end system and settle their
merchant smart cards online. During the settlement process, merchants choose
whether to have the funds settled deposited to a traditional bank account or
transferred to a client smart card.

Once the merchant selects the
settlement option, the transactions are stripped off the merchant smart card,
and the accumulated transaction values, less the transaction fees which the
merchant is contractually required to pay to us, are paid to the merchant.
Payment occurs either through the countrys traditional banking clearing system,
by check or is credited to the merchants client smart card for immediate or
future use. The last option is extremely beneficial for rural merchants who
purchase their goods from larger wholesalers. Their funds are, upon settlement,
immediately available. Therefore, they can purchase goods using their client
smart card and/or withdraw cash at other participating merchants. Merchants who
do not have access to a network infrastructure can insert their merchant smart
card into any POS device that has online connectivity and perform the settlement
process. Many merchants can share any POS device.

If a merchant does not have
access to a communication network, the merchant can use our milking function
with a milking smart card. This smart card has greater functionality than a
regular smart card and therefore requires a large memory chip for storing
multiple transactions, hot card files, a freshness certificate, and any other
variables, including fees and/or interest rates that need to be updated on
merchant smart cards which operate in deep rural areas. The milking smart card
is inserted in the bottom smart card reader of a POS device and the merchant
inserts the merchant smart cards to be milked into the top smart card reader.
During this settlement process, the transactions are stripped from the
transaction history file of the merchant smart card and at the same time, the
new hot card file, freshness certificate, fee structure, interest rates and any
other parameter that requires modification are updated. The milking smart card
is then physically handed over to the central office in order to update the
back-end system. At the time of settlement, all transactions are stripped from
the merchant smart card, aggregated and paid into the nominated bank account of
the merchant. Merchants can select their client smart card as their nominated
account, in which case the amount to be paid is added to the merchants client
smart card.

We have designed and developed a
dual functionality smart card called the Net1 Combi-Card for use in rural
environments and for very small merchant stores or hawkers. Hawkers are
typically small merchants that sell food or merchandise from a stand on the side
of road or on a pavement. This smart card is initialized with both merchant and
client functionality. While trading, the merchant section of the smart card is
used for transaction storage which once settled will allow the merchant to use
the same smart card to perform purchases or any other financial function.

Our UEPS Products

The following table summarizes
each of our smart card to smart card, or S2S, products, including:

- the market introduction date;
- the key features of the product;
- the features of our UEPS technology which each product uses;
- the types of fees we charge or currently plan to charge for the product;
  and
- the target markets for the product:

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Product
      Year of Market
      Introduction
      Features
      Types of Fees
      Target MarketsS2S Pension and Welfare
      • 2000-2004
      • Ten-Digit Signature Codes  Offline
        and Online Loading 
        • Automatic Credit 
        • Multiple Audit Trail 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification
      • Loading Fee per Beneficiary 
        • Sales of Smart cards 
        • Registration and Enrollment
      • Government 
        • Social Welfare Grant BeneficiariesS2S Wage Payment
      • 2005
      • Ten-Digit Signature Codes  Offline
        and Online Loading 
        • Multiple Wallets 
        • Restricted Wallets 
        • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification 
        • Interest Calculations  • Wage Loading Fee per Employee per Month
        
        • Equipment Sales per Payroll Clerk plus POS Terminals for the Payment
        of Wages in the Field or Factory 
        • Sales of Smart cards 
        • Mass Registration and Enrollment per Employee if Performed by
        us 
        • Monthly Smart Card Account Fee per Employee per Month
      • Employers 
        • EmployeesS2S Cash Advance
      • 2006
      • Ten-Digit Signature Codes  Offline
        and Online Loading 
        • Multiple Wallets 
        • Restricted Wallets 
        • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification 
        • Automatic credit scoring 
        • Automatic debit and credit 
        • Interest Calculations
      • Interest earned if we assume the credit
        risk 
        • Loading fee per cash advance 
        • Debit order fee 
        • Sales of Smart cards 
        • Mass Registration and Enrollment per Employee if Performed by
        us
      • Employers 
        • EmployeesS2S Loans to Card
      • 2006
      • Ten-Digit Signature Codes  Offline
        and Online Loading 
        • Multiple Wallets 
        • Restricted Wallets 
        • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification 
        • Automatic credit scoring 
        • Automatic debit and credit 
        • Interest Calculations 
        • Electronic card audit trail of all active loans 
        • Enforcement of minimum disposable income rules
      • Interest earned if we assume the credit
        risk 
        • Loading fee per cash advance 
        • Debit order fee 
        • Sales of Smart cards 
        • Mass Registration and Enrollment per Employee if Performed by
        us
      • Financial institutions 
        • Employees


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Product
      Year of Market Introduction
      Features
      Types of Fees
      Target MarketsS2S Medical Management, Patient Monitoring and
        Distribution
      • 2005
      • Multiple Wallets 
        • Restricted Wallets 
        • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification
      • Technology Processing 
        Fee per Smart Card
      per Month (Volume Based) 
        • UEPS Software Fee (Volume Based) 
        • Database Capturing Module per Patient 
        • Patient License Fee per Hospital/Clinic/Health Care Facility 
        • Equipment Sales for Hospital/Clinic and Health Care Facility 
        • Sales of Smart cards  • Non-Governmental Organizations 
        • Government Paid Contractors 
        • GovernmentsS2S Retail and Wholesale
      • 2004
      • Ten-Digit Signature Codes 
         Offline and
      Online Loading 
        • Automatic Credit 
        • Multiple Wallets 
        • Restricted Wallets 
        • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification 
        • Interest Calculations 
        • Settlement  Offline and Online  • Merchant Transaction Fee 
        • Cash Withdrawal Fee from 
        UEPS Card Holders Excluding Social Grant
      Recipients 
        • Hardware Equipment Sales or Rentals 
        • Smart Card Sales 
        • Installation & Training Fee 
        • Reports and Banking Fees 
        • Monthly Card Account Fee per Retailer per Month
      • Retailers 
        • Wholesale Retailers 
        • UEPS Client Card HoldersS2S Insurance System
      • 2004
      • Multiple Audit Trails 
        • Mutual Authentication 
        • Transparent and Automatic Recovery 
        • Biometric Identification 
        • Settlement  Offline and Online
      • Insurance Merchant Transaction Fee 
        • Debit Order Collection Fee 
        • Hardware Equipment Sales or Rentals 
        • Smart card Sales 
        • Installation and Training Fee 
        • Reports and Banking Fees
      • Insurance Underwriter/Broker (External
    Insurance Merchants)


The following describes in more
detail how our S2S products work and the benefits of each product.

***S2S Pension and
Welfare***

S2S Pension and Welfare provides
a secure and affordable transacting channel between social welfare grant
beneficiaries, governmental agencies and formal businesses. Through this
product, we distribute social welfare benefits to the unbanked and under-banked
populations, and allow the recipients of these benefits to transact with formal
businesses.

How it works. We enroll
social welfare grant beneficiaries by issuing them a UEPS smart card that
digitally stores their biometric fingerprint templates on the smart card,
enabling them to access their social welfare grants securely at any time or
place. The smart card, with its pre-printed and unique serial number, or USN, is
issued to the beneficiary on site. Optical fingerprint sensor technology
identifies and verifies beneficiaries. The fingerprint reader is programmed to
create a random cryptographic session between itself and an inserted smart card,
thereby limiting the possibility of fraudulent storage and replay of digital
templates.

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The smart card provides the
holder with access to all of the UEPS functionality, which includes the ability
to have the smart card funded with wage, pension or welfare payments, make
retail purchases, enjoy the convenience of pre-paid facilities and qualify for a
range of affordable financial services, including insurance and short-term
loans. The smart card also offers the card holder the ability to make debit
order payments to a variety of third parties, including utility companies,
schools and retail merchants, with which the holder maintains an account. The
card holder can also use the smart card as a savings account. Depending on a
countrys specific requirements, holders load their smart card using one of two
methods  ten-digit signature code creation or automatic credit. We describe
both of these methods under Our Technology  UEPS Smart Card Functionality 
Offline Loading and  Automatic Credit.

When the ten-digit signature code
method is used, the government agency submits to us a simple payroll file
containing the beneficiarys identity number and the value of the grant. We then
process this file and, using the identification number of each beneficiary,
create a ten-digit signature code. The ten-digit signature code can only be
loaded on to the smart card for which it was created. These ten-digit signature
codes can be distributed to the memory of POS devices or other compatible
devices, including fixed or mobile ATM dispensers or remote personal computers,
by accessing a communication network such as satellite, X.25, TCP/IP or
GPRS-GSM. Thereafter, the beneficiary can load the smart card offline. If a GPRS
 GSM communication network is available, the beneficiary can load the smart
card online.

The beneficiary simply inserts a
smart card into the POS device and is prompted to present his fingerprint. If
the fingerprint matches the one stored on the smart card, the smart card is
loaded with the ten-digit signature code created for that particular smart card.
The POS device then prints a receipt that outlines the amount of the grant paid
to the beneficiary.

The automatic credit feature
allows a smart card holder to receive regular, fixed-amount payments such as
welfare grants or other benefits, food parcels, meal vouchers and/or medical
supplies at POS devices that operate offline. Automatic credit instructions are
recorded on the smart card at the time they are granted by the issuer. Each
automatic credit instruction recorded embodies a number of parameters such as
the amount and the wallet to be credited, the frequency at which the credit
should occur and the commencement and expiration date of the instruction.

When the beneficiary inserts a
smart card into a POS device or any other compatible device, the automatic
credit feature will be automatically invoked. During this process, each
automatic credit instruction previously recorded on the smart card will be
reviewed. If all related parameters such as timing, commencement and expiration
date are all correct the smart card is credited with the funds due. When this
happens, the transaction is recorded immediately on the merchant smart card
present in the POS device at the time that the beneficiarys smart card is
credited. Since the electronic funds have been created offline, automatic credit
transactions must be forwarded to the back-end system through a merchant
settlement or through our multiple audit trail facility. We are able to claim
the actual funds loaded to beneficiaries smart cards from the government agency
at the end of each business day because the back-end system is informed of all
of the electronic values created.

Benefits. Our S2S Pension
and Welfare system provides numerous benefits to governments agencies and
beneficiaries. The system offers provincial governments a reliable service at a
reasonable price. For beneficiaries, our smart card offers convenience,
security, affordability and flexibility. They can avoid long waiting lines at
payment locations and do not have to get to payment locations on scheduled
payment dates to receive cash. They do not lose money if they lose their smart
cards, since a lost smart card is replaceable and the biometric fingerprint
identification technology helps prevent fraud. Their personal security risks are
reduced since they do not have to safeguard their cash. Beneficiaries have
access to affordable financial services, can save and earn interest on their
smart cards and can perform money transfers to friends and relatives living in
other provinces. Finally, beneficiaries pay no transaction charges to load their
smart cards, perform balance inquiries, make purchases or downloads or effect
monthly debit orders. For us, the system allows us to reduce our operating costs
by reducing the amount of cash we have to transport.

***S2S Wage Payment***

S2S Wage Payment allows an
employer to pay employee wages electronically, either online or offline, by
transferring the precise amount of the wage payment directly onto a smart card,
thus eliminating the need for the employer to store and handle cash at the
workplace. We originally designed this product for unbanked and under-banked
workforces and their employers. However, employers of employees who often have
bank accounts have expressed interest in this product as well, which we
attribute to its affordability, convenience and security.

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How it works. Employees of
participating employers receive smart cards which we issue to them. We download
a ten-digit signature code for each employee wage payment to a POS device, and
the employer takes the POS device to the pay site on payday. The employee
inserts his smart card into the POS device which then searches for any ten-digit
signature codes created for that particular smart card. Once the POS device
locates and decrypts the ten-digit signature code, it immediately loads the
smart card with the wage payment. The POS device prints a receipt which acts as
a pay stub by including the amount of the wage paid and any deductions made. The
receipt also indicates the balance of the savings wallet, if available. The
process takes up to six seconds from insertion of the smart card to completion
of printing. Personal identification through finger print authentication is not
necessary to perform a load as the ten-digit signature code is uniquely linked
to the USN number of the employees smart card.

Benefits. S2S Wage Payment
provides numerous benefits to employers and to employees. For employers, the
system helps to increase productivity in the work environment and reduce
administration and labor costs associated with the management, transportation,
delivery and general handling of cash. Electronic payment requires less time
than manual distribution of cash pay packets, thereby reducing the amount of
employee downtime. Employers in rural and semi-rural areas no longer need to
incur the inconvenience and expense of transporting their employees to urban
areas to enable them to receive their wages from ATMs nor to have to advance
funds whenever these ATMs run out of cash. In addition, the system is
configurable for each employer so that the database can be split up into
departmental or company sub-databases, if required.

Further, employers of unbanked
and under-banked employees are frequently put into a position of having to
provide savings, loans, burial insurance and other financial services to their
workers. With S2S wage payment, the employee can opt to have a portion of his
wage loaded directly to a separate savings wallet on the smart card. Interest is
calculated on the current daily balance and paid monthly to the card holder. The
card holder can also qualify for an affordable loan, provided by us or another
participating service provider, which is loaded onto his smart card. The smart
card informs the back-end system of the monthly loan repayment which is applied
against the wage after loading the amount due to the smart card. Finally,
instead of the employer having to negotiate the most cost effective burial
insurance for his employees, he can take advantage of the insurance we negotiate
with selected insurance companies on behalf of many employers. The issuance of
the insurance policy is recorded in the chip of the smart card. For employees,
S2S wage payment offers all of the benefits described above under S2S Pension
and Welfare. Additional benefits include fees for cash withdrawals that are
typically lower than bank charges for the same transaction.

***S2S Cash Advance***

The S2S Cash Advance product will
provide an issuer with the facility to offer small monthly cash advances to UEPS
cardholders at UEPS POS terminals installed at participating merchants, bank
branches and the offices of micro-financiers.

The product allows the cardholder
to receive a cash advance, calculated offline by the client's card, taking into
account the monthly salary or wage income previously received by the card as
well as any current deductions in respect of short or medium term loans. For
example, when the next wage is paid on the card, the full amount of the
previously granted cash advance plus associated finance charges will be
automatically deducted and remitted to the financier. The card holder will then
be in a position to qualify for a new cash advance as and when required.

How it works. When
a client presents his/her client card in the top slot of the POS device and the
client selects the Cash Advance function on the POS device, the POS device
will interrogate the client card for a previous Cash Advance that has not been
repaid via debit order instructions. If a Cash Advance exists, this transaction
will be denied. The POS device will prompt the client to select one of the Cash
Advance options. The POS screen will display the Cash Advance option as well as
the Cash Advance amount calculated. Once a Cash Advance has been granted and the
client has been successfully biometrically verified, the client card will credit
itself with the amount of the Cash Advance.

Benefits. S2S Cash Advance
has many benefits for card holders, merchants and financiers. For card holders,
the system provides a cost effective and flexible method to apply for a Cash
Advance at any registered merchant, bank branch or micro-financier that
participates in the system. The system gives a card holder convenient access to
credit as the credit check is performed by the client card itself in order to
grant the Cash Advance, at an affordable low interest rate charged. Merchants
benefit through the creation of a new revenue stream as they will be paid a fee
for each Cash Advance loaded. Finally, the system benefits financiers as it
provides a cost effective way of granting affordable Cash Advances without the
cost of labor, stationary, infrastructure and administration.

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***S2S Loans to a Card***

The S2S Loans to a Card was
designed for financiers to be able to participate in our SmartSwitch systems and
utilize the UEPS technology to minimize the cash amount being paid out to their
clients in respect of loans. Loans which are being made to cardholders can be
loaded electronically on to their smart cards instead of dispensing cash.

How it works. In order to
participate in the system, the financiers will have to be registered onto the
SmartSwitch system. A legal contract is completed between SmartSwitch and the
Financier/ Merchant stating the specific hardware equipment requirements.
Arrangements are made between SmartSwitch and the Financier/ Merchant for
installation, implementation and training of the product.

In order to perform offline loads
to a client card, the first step will be to request the amount of electronic
funds required for the days/weeks transfers to cards. The amount required plus
a fee levied by SmartSwitch must be paid into a nominated bank account of
SmartSwitch as stipulated in the merchant contract. If the fee is not included,
the SmartSwitch system will automatically deduct the fee from the total funds
requested. The merchant / financier will advise SmartSwitch as soon as funds
have been transferred into the nominated bank account in the contract. The value
will be credited to the financier / merchants instant bank account, or IBA,
held on the back-end system and linked to the Merchant/Agent Card Reference
Number. Using the POS device, the merchant will select the option to perform a
funds load transaction for the value required. The POS will go online to the
system host, access the funds available in the merchant IBA and load the
merchants agent transfer card accordingly. When a loan is granted, the client
card is inserted into the top reader of the POS device and the amount of the
loan is transferred electronically from the merchant/agent card to the client
card. A slip is printed verifying the amount of the loan loaded. The client can
then perform a limited cash withdrawal if required and utilize the balance at
merchant stores for spending and/or cash withdrawals. A sales transaction for
the monthly repayment of the loan can be performed immediately, limiting the
risks and costs involved in finding the client for repayment purposes or a third
party deduction file will be forwarded to SmartSwitch. At the end of each
business day, merchants will be required to settle their merchant agent cards to
the SmartSwitch system host for reporting purposes.

Benefits. The benefits of
S2S Loans to a Card are multiple. The system reduces cash held at a lending
branch as there is no need to dispense cash to the client in respect of a loan.
The loan value is electronically loaded to the smart card. The risks associated
with fraud and theft is minimized as there is no need to hold large amounts of
cash on the premises. Instead of collecting cash, the monthly loan repayment can
be performed electronically by performing a sales transaction using the same POS
device or third party deduction. The result is a reduction in overall operating
costs as security and insurance costs are reduced. The system also prevents the
granting of fraudulent loans as biometric fingerprint verification is required
from both the cardholder and the agent merchant card managing the loan. Finally,
the merchant has easy access to a full audit trail of all electronic loans
loaded from the merchant card to the cardholders card and detailed management
reports are made available to the merchant on a daily and monthly basis.

***S2S Medical
Management***

Our S2S Medical Management
product applies the UEPS technology in a non-financial environment to facilitate
the management, distribution and control of the anti-retroviral, or ARV, drugs
used to combat HIV/AIDS. The system is designed to operate in the deepest rural
areas where no meaningful infrastructure exists. It is also designed to form a
basis for the implementation of other drug distribution programs.

Governments and charitable
organizations face many challenges in the distribution and control of ARV drugs.
Patients who do not strictly adhere to the required drug regimen for the rest of
their lives face the risk of drug resistance, which can lead to death. The
toxicity of ARV drugs requires effective patient monitoring. Data needs to be
collected to evaluate the effectiveness of drugs available for treatment.

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How it works.We issue
smart cards to participating hospitals, dispensaries and doctors and to their
AIDS/HIV patients. The smart cards use biometric fingerprint identification
technology and act as portable electronic medical record books that allow
patients to be serviced anywhere without relying on centralized systems and
communications networks. The smart cards carry all patient-related information,
including personal details, drug regimens, prescriptions, visitation history,
doctors details, dispensary information and other data. This data allows us to
populate and update databases that track each patients progress, each doctors
performance, each and every prescription dispensed and each dispensarys drug
inventory levels. The system monitors patient activities, and is designed to
ensure the integrity of data, reduce fraud, manage drug inventories and, control
drug delivery, ensure patient anonymity and privacy, and distribute payment for
goods and services. Each day, all registration information, changes to patient
information, and information regarding drug dispensation is encrypted and
communicated to our back-end system for batch processing. Once validated this
information is forwarded directly to a confidential server managed by the
government and/or funding organizations.

Benefits.S2S Medical
Management offers many benefits to government organizations, medical
professionals and health care workers, and patients. For government
organizations, the system helps save money by improving the efficiency of ARV
drug distribution and by reducing the potential for fraud and falsification of
data. For medical professionals and health care workers, the system facilitates
the real time but offline registration of patients and the storage of crucial
patient information, such as the patients last visit date, changes in
information such as height and weight and the most recent prescription. For
patients, the portability of the electronic medical record allows them to be
treated anywhere, without relying on centralized systems and communications
networks. The system, which is provided free of charge to the patient, is
designed to ensure patient privacy. Finally, our technology preserves the
patients information, even if the smart card is lost.

***S2S Retail and
Wholesale***

Our S2S Retail and Wholesale
product enables retailers, wholesalers and financial service providers to effect
commercial transactions with one another and with unbanked and under-banked
customers. Many merchants who service the unbanked and under-banked operate in
underdeveloped areas where traditional financial institutions and their products
are unavailable or limited due to the lack of communication infrastructures. In
addition, these merchants do not meet the selection criteria imposed by
financial service providers, including banks and credit card companies, either
for financial reasons or because they cannot meet or adhere to the rules and
regulations these formal institutions demand. The system permits participants,
which include merchants, wholesalers and financial service providers to effect
payments for goods and services, and to dispense cash from one smart card to
another in a secure offline manner. The system is designed to eliminate
unauthorized use by ensuring that all transactions are biometrically approved by
the card holders. The system guarantees integrity by providing an audit trail
for each transaction that is stored on both the customer and merchant smart
cards.

How it works.The
participants in this system are merchants whom we enroll and consumers who are
smart card holders. When we enroll a merchant, we issue a smart card to the
merchant that contains its profile as well as the stores merchant reference
number and install an appropriate POS device that takes into account the type of
power and communications infrastructure available at the merchants location.
The POS device is either battery-operated or uses a municipal power supply. All
our POS devices can use GSM/GPRS, TCP/IP, X.25 or satellite networks to perform
loading and settlement functions. The smart card is inserted in the bottom smart
card reader of the POS device to perform on-line transactions with customers. We
sign a contract with each merchant that is tailored to the needs of each
merchant, reflecting the number of stores to be serviced and the specific
hardware we agree to install. We provide each merchant with installation, system
implementation and training. We also provide merchants with our marketing
material for display at their locations so that their customers know that the
merchant offers our services. The transactions stored on merchant smart cards
cannot be overwritten until they have been settled by using our offline
milking facility or connecting online to the back-end system.

Benefits.S2S Retail and
Wholesale provides numerous benefits to merchants and to customers. A growing
smart card base offers merchants a larger number of customers who can shop in
their stores. The system also provides them with the opportunity to realize new
income streams from the fees they collect by providing at their locations our
broad range of financial services and products, including cash downloads, money
transfers, loans and burial insurance. Finally, their security risks and
expenses associated with handling cash can be significantly reduced, including
banking charges and communications costs. The benefits of the system for
customers are a combination of the ones we describe above under S2S Pension and
Welfare and S2S Wage Payment.

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***S2S Insurance***

Our S2S Insurance intermediary
product enables unbanked and under-banked consumers to obtain affordable and
reliable burial insurance policies. In South Africa, cultural reasons make
burial insurance important to many people. Our system enables insurance
companies to access this customer base. The insurance industry is subject to
various laws and regulations which are designed to protect policyholders and our
system ensures compliance with these laws and regulations by utilizing the key
features of the UEPS technology.

How it works. In order to
participate in the system, card holders and insurance brokers must be enrolled
in our system. The broker enrollment procedure is similar to the procedure we
use for merchants. The insurance brokers merchant smart card is created
centrally and loaded with the brokers burial insurance product options.
Individual brokers receive smart cards which digitally store their biometric
fingerprint templates on the smart card. After completion of the enrollment
process, we issue an insurance merchant smart card to the insurance broker. We
provide the insurance broker with installation, implementation and training.

When an applicant applies for an
insurance policy, the insurance broker explains relevant information, including
the different policy options, waiting options and the 30-day cooling off
period. The 30-day cooling off period allows the policy holder who has decided
to buy a policy issued by another insurance company to change is mind and to
keep the original policy instead. The system informs all parties involved,
including the brokers for the previous insurer and the new insurer that the
client is in a 30-day cooling off period. This makes the insurance broker of the
previous insurer aware of the clients intention, and allows the insurance
broker to contact the client in an effort to keep the client.

When a broker sells a policy to a
client, the first check performed by the smart card is to ascertain if the
client has already signed up for a similar product, which may be accomplished
offline. If not, the client accepts the new policy by presenting his fingerprint
for verification by the smart card. The broker also presents his fingerprint to
prove that he sold the policy and thereby allow him to receive his sales
commission. The system then writes the policy number and details, including the
amount of the premium, to the card holders smart card. This reduces the risk of
future disputes regarding the policy. When an insured individual dies, the
beneficiary presents the identity document, the insureds smart card and death
certificate, and the original policy document. This information is checked
against the information stored on the smart card by simply inserting the
deceaseds smart card into a POS device and printing the data associated with
burial policy information. If valid, the claim is paid out to the beneficiary
immediately.

Benefits. Our S2S
Insurance intermediary product offers numerous benefits to insurance brokers and
policyholders. For brokers, the system provides improved access to its potential
client base, minimizes the risks associated with fraud through biometric
fingerprint identification, facilitates legal compliance and provides a secure
channel for collection of premiums. In addition, brokerage commissions can be
managed through the system. The benefits for policyholders are generally the
same as for customers as described above under S2S Retail and Wholesale. In
addition, because the system reduces premium collection risk to the insurance
company, it provides consumers with access to more affordable insurance products
of a higher quality than would otherwise be available.

Our Easypay Offering

We own 100% of EasyPay
(Proprietary) Limited, or EasyPay, which operates the largest bank-independent
financial switch in Southern Africa. EasyPay focuses on the provision of
high-volume, secure and convenient payment, prepayment and value-added services
to the South African market. EasyPays infrastructure connects into all major
South African banks and switches both debit and credit card electronic funds
transfer, or EFT, transactions for some of South Africas leading retailers and
petroleum companies. It is a South African Reserve Bank, or SARB, approved
third-party payment processor.

In addition to its core business
of transaction processing and switching, EasyPay provides a complete end-to-end
reconciliation and settlement service to its customers. This service includes
dynamic reconciliation as well as easy-to-use report and screen-query tools for
down-to-store-level, management and control purposes.

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The EasyPay suite of services includes:

- EFT - EasyPay switches credit, debit and fleet card transactions for
  leading South African retailers and petroleum companies;
- EasyPay Bill Payment - As part of its value-added services offering,
  EasyPay has developed and operates a consumer bill payment service introduced
  at retail point-of sale over 10 years ago. Known and marketed as EasyPay,
  the service is integrated into a large number of national retailers, mobile
  channels and is available over the internet at www.easypay.co.za. EasyPay
  processes monthly account payment transactions for approximately 200 different
  bill issuers including major local Authorities, telephone companies,
  utilities, medical service providers, traffic departments, mail order
  companies, banks and insurance companies;
- EasyPay Prepaid Electricity - This service enables local utility companies
  such as Eskom Holdings Limited, or Eskom, and a growing number of local
  authorities on a national basis to sell prepaid electricity to their
  customers;
- Prepaid Airtime - EasyPay vends airtime at retail POS for all the South
  African network operators;
- Electronic Gift Voucher - EasyPay supports the electronic generation,
  issuance and redemption of paper or card- based gift vouchers;
- EasyPay Licenses - EasyPay enables the issuance of new South African
  Broadcasting television licenses and the capturing of existing license details
  within retail environments via a web-based user interface;
- Third Party Switching and Processing Support  EasyPay switches
  transactions from retail POS systems to the relevant back-end systems; and
- Hosting Services - EasyPays infrastructure supports the hosting of
  payment servers and applications on behalf of third parties, including
  financial institutions.

EasyPay provides 24x7 monitoring
and support services, reconciliation, automated clearing bureau, or ACB,
settlement, reporting, full disaster recovery and redundancy services.

Our Other Products

Our acquisition of Prism in
fiscal 2007 gave us access to additional products. Where applicable, we have
integrated these products into our UEPS product and service offerings. These
other products are:

***Chip and wireless***

We are a supplier of chip cards
into the South African and other international markets. We work with mobile
network operators, card manufacturers and semiconductor manufacturers to provide
card technology, solutions and software that enable mobile telephony, mobile
transactions and value-added services to take place in a trusted, secure and
convenient manner. These chip products and technology include operating system
and application development, card manufacture and production, from concept and
design through, printing, packaging and distribution. At the core of our chip
business is the strategy of licensing chip software to a wide spectrum of other
industry participants.

Our VTU solution facilitates
mobile phone-based prepaid airtime vending. The VTU technology enables prepaid
cell phone users to purchase additional airtime simply, securely and
conveniently. The vendor uses its Global Systems for Mobile Communications, or
GSM, handset to purchase bulk airtime from a mobile network operator. Airtime
value, as opposed to a virtual voucher, is then transferred directly from the
vendors cellular handset to that of the customer. When the vendor runs out of
airtime value, it is a simple task to purchase more to resell to customers.

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***Payment Solutions***

Our secure integrated POS payment
products and systems include:

- FlexiLANE  A core component of the Prism Electronic Payment System
  architecture is an in-store controller ideally suited to multi-lane retail and
  petroleum station environments. The in-store controller forms an interfacing
  and concentration layer between a group of distributed terminal devices and a
  centralized payment and value added service, or VAS, aggregator. This helps
  large retailers and petroleum companies to overcome the challenges associated
  with processing multiple transactions from multiple access devices using
  multiple tender types;
- FlexiGATE  A terminal and payment gateway that manages the routing of all
  FlexiLANE traffic and enables retailers to supply VAS such as airtime top-up,
  electricity payment and bill payment;
- FlexiPOS  An innovative retail solution that allows the retailer's
  various payment and VAS solution requirements to be streamlined into a single
  payment terminal. FlexiPOS transforms the POS terminal into a convenient and
  consumer friendly place of purchase, place of payment and place of service;
  and
- EMV  Prism payment technology helps ensure that retailers together with
  their acquirers meet the requirements of upgrading software, terminals and
  security for conformity with the latest international chip card standards.

***Transaction security***

Our Triple Data Encryption
Standard, or TDES, and EMV security initiatives are conducted by a specialized
business unit within our Prism operations through close collaboration with
suppliers of payment processing devices to help their technologies meet the
stringent security standards required by the card associations.

Our self-developed range of PIN
encryption devices, card acceptance modules and outdoor payment terminals are
primarily aimed at the retail and petroleum sectors. These devices and modules
are suited for high-speed transaction processing requirements, acceptance of
multiple payment tokens, value-added services at point of transaction, and
adherence to stringent transaction security and payment association standards
such as TDES and EMV.

Sales and Marketing

We market our products and
services primarily through our own sales and service organization which is
headed by Brenda Stewart, our Senior Vice President, Sales and Marketing.

We have 65 employees in the Sales
and Marketing division, who operate from our head-office in South Africa and
from our regional offices in South Africa, Nigeria, Malaysia and joint venture
offices in Namibia, Botswana, Colombia and Vietnam.

Our sales and marketing
activities are currently focused on the sales of UEPS systems into the
international market, with specific emphasis on Africa and the Middle East. We
focus on identifying, defining and activating an entry point in a specific
country to commence operations.

Competition

In addition to competition that
we face from the use of cash, checks, credit and debit cards, existing payment
systems and the providers of financial services, we have identified a number of
other products currently being produced that use smart card technology in
connection with a funds transfer system and the companies that promote them.
These include: EMV, a system that is being promoted by Visa International
Service Association, MasterCard International and Europay International; Mondex
International Limited, a subsidiary of MasterCard; and Proton World
International N.V., a subsidiary of STMicroelectronics Belgium N.V. In South
Africa, and specifically in the payment of social welfare grants, our
competitors also include AllPay Consolidated Investment Holdings (Pty) Ltd.,
which is responsible for social welfare payments in the Free State, Gauteng and
Western Cape provinces and a small portion of the Eastern Cape province, and
Empilweni Payout Services, which is responsible for payments in the Mpumalanga
province.

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The incumbent South African
retail banks have a joint initiative that has created a common banking product
to offer to the significant portion of South Africas population that does not
have access to traditional banking services, or the unbanked. This bank account,
generally referred to as the Mzansi account, was introduced in October 2004
and offers limited transactional capabilities at reduced charges, when compared
to the accounts traditionally offered by these banks. According to the FinScope
2006 survey 2,800,000 people (approximately 6% of the population) in South
Africa claim to have an Mzanzi account, although the exact number of accounts is
unknown. The social welfare beneficiaries who are currently paid through our
smart card system may elect to use these accounts to receive their grants. A
decision by a substantial number of these beneficiaries to elect to use these
accounts rather than our smart card system may have a material adverse effect on
our financial condition, cash flows and results of operations.

We also may face competition from
companies to which we have licensed rights to our technology, including Visa.
Moreover, as our product offerings increase and gain market acceptance, banks in
South Africa and other jurisdictions in which we operate may seek governmental
or other regulatory intervention if they view us as infringing on their funds
transfer businesses.

Research and Development

Our business activities and
product offerings depend on our proprietary UEPS software. As a result, we have
a large group of software engineers and developers who are constantly revising
and improving the core UEPS software and its functionality.

We believe that our smart card
system is the most advanced system of its kind in the world today. However, we
use a number of hardware platforms that are not proprietary to us and which are
continuously being improved. These platforms include smart cards
micro-controllers, POS devices, biometric readers and other back-end computer
hardware. We continually work to take advantage of these improvements in our
attempt to stay at the head of the competitive curve. A faster micro-controller
on a smart card may allow us to process transactions faster and with more
security. A larger memory smart card allows us to store more transactions and to
load larger software applications. Larger memories also allow our smart cards to
be used for more than one application at a time, thus eliminating the cost and
the management of multiple smart card systems.

Our smart card system is designed
to manage tokens of value such as cash, credit, savings, medical history,
identification criteria, finger print templates and insurance policies. Security
is therefore of prime importance as any breach would result in the loss of our
system integrity. This would be followed by a loss of confidence and credibility
that would jeopardize our growth and market penetration. We therefore continue
to advance our security protocols and algorithms to combat the potential attacks
that have currently been identified. These include crypto- analysis techniques
as well as reverse engineering. Attacks such as the latest differential power
analysis, or DPA, must also be circumvented.

We continue our research in new
and more secure algorithms, such as the Rivest, Shamir and Adleman, or RSA, as
well as new competitive asymmetric algorithms such as elliptic curves. We
develop and implement these techniques ourselves and own the software that we
create. We are also involved in extensive research and development in GSM,
cryptography, POS, retail and card not present payment applications.

Lastly, we continue to study the
needs of our target market and develop new UEPS features that satisfy these
needs. As our UEPS system is implemented in more and more developing countries,
we create greater connectivity between our systems to subsequently activate
international transactions and cross-border money transfers.

Intellectual Property

Our success depends in part on
our ability to develop and maintain a competitive intellectual property
advantage over potential competitors in the electronic financial services
industry. We believe that we have developed the first payment system based on
technology that is protected by our FTS patents. We rely on know-how, including
trade secrets and other confidential information, continuing technological
innovation and licensing opportunities to further develop our proprietary
position. Our ability and the ability of our licensors to obtain intellectual
property protection for the UEPS technology and related processes, including any
improvements to and developments of them, to operate without infringing the
intellectual property rights of others and to prevent others from infringing our
intellectual property rights will be important factors to our success.

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The FTS patents, which include
aspects of the UEPS technology, have been issued in the United States, Hong
Kong, South Africa, Botswana, Namibia and Swaziland. The FTS patent in the
United States was granted as US Patent No. 5,175,416 on December 29, 1992. The
patent was reissued as US Patent No. RE36,788 on July 25, 2000, and will expire
on May 17, 2011. It currently remains in full force and effect, and we are not
aware of any challenges to its enforceability. The FTS patent in Hong Kong was
granted on December 11, 1998, and will expire in 2010. The Hong Kong FTS patent
is jointly owned by us and the estate of a co-inventor. The FTS patents in South
Africa, Botswana, Namibia and Swaziland were granted on September 25, 1991,
March 9, 1993, April 7, 1993 and December 9, 1992, respectively. The Namibia FTS
patent expired in 2007. The South Africa, Botswana and Swaziland patents remain
in full force and effect, and we are not aware of any challenges to their
enforceability. The FTS patents expire in 2009 in South Africa, Botswana and
Swaziland.

A European FTS patent was filed
in October 1990 and granted in December 1994. The European Patent Convention
provides for an opposition period of nine months following the grant of a
European patent, and six parties filed an opposition to the grant of the FTS
patent. The case was heard before a Board of the Opposition Division in March
1998 and the patent was upheld. Following this decision, a number of the
original opponents filed an appeal. The oral proceedings for the appeal were
heard on October 10, 2002 and the Appeal Board reversed the earlier decision.
The formal written decision from the Appeal Board was received on December 24,
2002. Consequently, the European patent has been revoked and there is no
possibility of any further appeal.

However, our business plan and
forecast do not account for such royalties as a source of revenue in the medium
to long-term, as the key to our operations in Europe is based on our know-how
and ability to exploit the technology rather than on the European patent.
Accordingly, we do not expect this ruling to have a material adverse effect on
us in the future.

Aspects of the UEPS technology
are described in US Patent No. RE36,788. This patent, entitled Funds Transfer
System, is directed to a method of transferring funds between financial
institutions via a smart card. In particular, the method includes linking a
smart card (first device) to a first financial institution, debiting an account
held at the financial institution and recording a corresponding credit value in
the smart card. The smart card is then linked to a second, similar device,
wherein the credit value in the smart card is reduced and a corresponding credit
value is recorded in the second device. The second device is then linked to a
second financial institution, wherein the credit value in the second device is
reduced and a corresponding credit value is recorded in an account held at the
second financial institution. The smart card and the second device each store at
least a portion of a program which is run in a synchronized interactive manner
between the devices.

In 1997, we entered into a
technology license agreement with Visa International Service Association, or
Visa. Under that agreement, Visa purchased a non-exclusive, perpetual, worldwide
license to our technology rights that are defined in the agreement to mean all
our then-current worldwide patent rights, copyrights, mask work rights, trade
secrets and other intellectual property rights relating to our UEPS technology.
This Visa license includes an exclusive, perpetual, worldwide license under our
patents, as defined in the agreement, licensed to Visa that is exclusive to the
financial services industry, as defined in the agreement. The agreement defines
patents as meaning our current worldwide patents and patent rights, including US
Patent No. 5,171,416, including without limitation, enhancements, improvements
and expansions to all of the licensed patents and any foreign patent
applications corresponding to any patent associated with any of our products or
services that use technology related to financial services or can be used in the
financial services industry. The agreement defines financial services industry
as persons or companies that are directly or indirectly making loans; taking
deposits; selling, brokering, or factoring securities, insurance, mortgages or
receivables; and providing payment services, such as issuing charge cards,
credit cards, payment cards, debit cards or any other system that could compete
with such payment methods. Our Visa agreement grants back to us the
non-exclusive right under our Visa-licensed patents to make, use and sell our
payment systems and other products in the financial services industry as defined
in the agreement. In our Visa agreement, Visa agrees not to grant a sublicense
to any payment system to any entities in the financial services industry who are
not members of Visa already if such entity already has a right to use such
payment systems from us. The agreement permits Visa to sublicense our licensed
technology rights to any of its member, any entity in the financial services
industry or any entity outside of the financial services industry that provides
products to Visa or its sublicensees. The agreement prohibits us from licensing
our technology rights, not just our licensed patents, to any of Visas
competitors, including MasterCard, Europay, American Express Company, Discover
Financial Services, Diners Club International Credit Card Co., Carte Blanche
Card or JCB International Credit Card Co. or any of their parents, subsidiaries
or affiliates. We have also licensed our foreign FTS patents in South Africa,
Botswana, Namibia and Swaziland to Visa, Nedbank and First National Bank of
South Africa.

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The patent position of companies
like ours is generally uncertain and involves complex legal and factual
questions. Our ability to maintain and solidify a proprietary position for our
technology will depend on our success in obtaining effective claims and
enforcing those claims once granted. The FTS patents and related patents that
may issue in the future, or those licensed to us, may be challenged, invalidated
or circumvented, which could limit our ability to stop competitors from
marketing our product or the length of term of patent protection that we may
have for our processes. In addition, the rights granted under any issued patents
may not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Because of the extensive time required for
development and testing of a potential product, it is possible that, before any
of our products can be commercialized, any related patent may expire or remain
in force for only a short period following commercialization, thereby reducing
any advantage of the patent.

We hold trademarks in South
Africa, Botswana, Namibia, Lesotho, Swaziland and France.

We own the exclusive copyrights
in the current version of the UEPS programs, subject to any copyrights in
preexisting materials in earlier versions of the UEPS programs that are jointly
owned by us and other parties under various agreements. Effective October 1,
1990, we entered into an agreement with Metrolink (Proprietary) Limited, a
Nedbank subsidiary, assigning Metrolink the then-current copyrights in the UEPS
programs with respect to South Africa, Namibia, Botswana, Lesotho, Swaziland,
Mozambique and Zimbabwe. Under this agreement with Metrolink, we retained the
worldwide copyright rights in the UEPS programs outside of the seven listed
countries, and acquired the worldwide copyright rights in the Metrolink system
(later known as the Megalink system) for all countries outside of the same seven
listed countries.

In July 1997, we confirmed our
joint ownership with Nedbank of the copyright ownership in the then-current UEPS
programs on a worldwide basis and agreed with Nedbank that neither Nedbank nor
we had any obligation to share with each other any income or other monies either
of us derived from the UEPS software. Then, on July 11, 2000, we agreed again by
written agreement with Nedbank that all copyrights in the then-current UEPS
programs as of June 2000 would be jointly owned by Nedbank and us. Since July
2000, there have been no further agreements respecting copyright ownership in
the UEPS programs. We are the sole copyright owner of all original material in
the UEPS programs developed by us since July 2000.

Financial Information about Geographical Areas and Operating
Segments

For the year ended June 30, 2008,
we derived substantially all of our revenues from customers located in South
Africa and the Central Bank of Ghana in Ghana and substantially all of our
assets were located in South Africa. For each of the years ended 2007 and 2006,
we derived substantially all of our revenues from customers located in South
Africa and substantially all of our assets were located in South Africa. See
Note 18 to our consolidated financial statements included in this Annual Report
on Form 10-K for financial information about our operating segments.

Employees

As of June 30, 2008, we had 2,079
employees. On a segmental basis, 221 employees were part of our management,
1,293 were employed in transaction-based activities, 166 were employed in
financial services and 399 were employed in smart card, hardware, software and
related technology sales and corporate activities.

On a functional basis, four of
our employees were part of executive management, 65 were employed in sales and
marketing, 101 were employed in finance and administration, 184 were employed in
information technology and 1,725 were employed in operations.

As of June 30, 2008, 123 of 276,
or 44.6%, of our employees in the Limpopo Province who were performing
transaction-based activities were members of the South African Commercial
Catering and Allied Workers Union, or SACCAWU and all 19 of our weekly paid
employees who perform hardware, software and related technology sales activities
were members of the National Union of Metalworkers of South Africa, or NUMSA. We
believe we have a good relationship with our employees and SACCAWU and
NUMSA.

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Corporate history

Net 1 UEPS Technologies, Inc. was
incorporated in Florida in May 1997. Until June 2004, Net 1 UEPS Technologies,
Inc. was a development stage company and its business consisted only of
acquiring a license to the US FTS patent and obtaining an exclusive marketing
agreement for the universal electronic payment system, or UEPS, technology
outside South Africa, Namibia, Botswana and Swaziland. In 2004, Net 1 acquired
Net1 Applied Technologies Holdings Limited, or Aplitec, a public company listed
on the JSE Securities Exchange South Africa. Aplitec owned the FTS patent in
South Africa, Namibia, Botswana and Swaziland and one of its subsidiaries was
the other party to the marketing agreement described above. The primary purpose
of the Aplitec transaction was to consolidate into one group the intellectual
property rights relating to the FTS patent and the UEPS technology, to establish
a first-mover advantage in developing economies for the commercialization of the
UEPS technology, and to exploit market opportunities for growth through
strategic alliances and acquisitions. The transaction permitted Aplitecs
shareholders to reinvest the sale proceeds in Net 1, but under South African
exchange control regulations, shareholders of Aplitec were not permitted to hold
Net 1s securities directly. Therefore, in order to comply with these
regulations, these reinvesting shareholders received, through an interest in a
South African trust, securities of a newly-formed Net 1 subsidiary that acquired
Aplitec (New Aplitec), consisting of B class loan accounts and B class
preference shares. The A class loan accounts and A class preference shares of
New Aplitec are held by Net1. These reinvesting holders also obtained the right
to receive, for no additional consideration, shares of our special convertible
preferred stock which are held by a Cayman Islands trust. We refer to the B
class loan accounts, B class preference shares and special convertible preferred
stock that we and New Aplitec issued in the transaction as the linked units.
The special convertible preferred stock is structured so as to be economically
equivalent to common stock and has substantially the same rights as our common
stock. The special convertible preferred stock is convertible on a one-for-one
basis into our common stock upon the occurrence of a trigger event, and holders
are entitled to vote on an as-converted basis. Upon conversion of the special
convertible preferred stock into shares of our common stock upon the occurrence
of a trigger event, the linked unit holder cedes to Net1 the B class loan
accounts and B class preference shares that were part of the linked unit. A
trigger event includes any of the following: (1) giving of a conversion notice
by a linked unit holder, (2) the abolition or relaxation of South African
exchange control regulations or (3) the liquidation of New Aplitec or Net1.

We describe the Aplitec
transaction and our special convertible preferred stock and the New Aplitec B
class loans and B class preference shares in more detail in notes 1 and 11 to
our consolidated financial statements included in this Annual Report on Form
10-K.

During the period from the
completion of the Aplitec transaction through June 30, 2008, an aggregate of
27,278,761 shares of special convertible preferred stock were converted into an
equal number of shares of common stock, and the number of outstanding shares of
special convertible preferred stock was correspondingly reduced.

Available information

We maintain an Internet website
at www.net1ueps.com. Our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports are available
free of charge through the SEC filings portion of our website, as soon as
reasonably practicable after they are filed with the Securities and Exchange
Commission. The information posted on our website is not incorporated into this
Annual Report on Form 10-K.

Executive Officers and Significant Employees of the
Registrant

The table below presents our
executive officers, their ages and their titles:

|Name                    | Age | Title                                                           
|----------------------- | --- | ----------------------------------------------------------------
|Dr. Serge C.P. Belamant | 54  | Chief executive
      officer, chairman and director            
|Mr. Herman G. Kotze     | 38  | Chief financial officer,
      treasurer, secretary and director
|Ms. Brenda L. Stewart   | 51  | Senior vice
      president sales and marketing                 
|Mr. Nitin Soma          | 41  | Senior vice president information
      technology              

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Dr. Belamant has been our
chief executive officer since October 2000 and the chairman of our board since
February 2003. From June 1997 until June 2004, Dr. Belamant served as chief
executive officer and a director of Net 1 Applied Technology Holdings, or
Aplitec, whose business was acquired by Net 1 in June 2004. From 1996 to 1997,
Dr. Belamant served as a consultant in the development of Chip Off-Line
Pre-Authorized Card, which is a Visa product. From October 1989 to September
1995, Dr. Belamant served as the managing director of Net 1 (Pty) Limited, a
privately owned South African company specializing in the development of
advanced technologies in the field of transaction processing and payment
systems. Dr. Belamant also serves on the boards of a number of other companies
that perform welfare distribution services and the provision of microfinance to
customers. Dr. Belamant spent ten years working as a computer scientist for
Control Data Corporation where he won a number of international awards. Later,
he was responsible for the design, development, implementation and operation of
the Saswitch ATM network in South Africa that rates today as the third largest
ATM switching system in the world. Dr. Belamant has patented a number of
inventions besides the FTS patent ranging from biometrics to gaming-related
inventions. Dr. Belamant has more than 27 years of experience in the fields of
operations research, security, biometrics, artificial intelligence and online
and offline transaction processing systems. Dr. Belamant holds a PhD in
Information Technology and Management.

Mr. Kotze has been our
chief financial officer, secretary and treasurer since June 2004. From January
2000 until June 2004, he served on the board of Aplitec as group financial
director. In mid-1997 until October 1998, Mr. Kotzé worked for the Industrial
Development Corporation of South Africa Limited as a business analyst. Mr. Kotzé
served his articles from 1994 to 1996 at KPMG in Pretoria, South Africa, and in
1997 he became the audit manager for several major corporations in the
manufacturing, mining, retail and financial services industries. Mr. Kotzé
joined Aplitec in November 1998 as a strategic financial analyst. Mr. Kotzé is a
member of the South African Institute of Chartered Accountants.

Ms. Stewarthas served as
our Senior Vice President of Sales and Marketing since June 2004. Ms. Stewarts
primary function is to manage all sales and marketing activities for us. Her
secondary function is to oversee implementation and operation of specific
projects such as in Ghana, Iraq, Namibia and Botswana. Ms. Stewart was a
director of Net1 Investment Holdings (Pty) Limited, Net1 Solutions (Pty) Limited
and a director of Net1 Southern Africa (Pty) Limited which were subsidiaries of
Aplitec until June 2004. Ms. Stewart joined Aplitec in 1997, and has worked with
Dr. Belamant for over 20 years at various companies including, Volkskas
Industrial Bank, SASWITCH and Net 1 Southern Africa (Pty) Limited, Net 1
Solutions (Pty) Limited and Net 1 Investment Holdings (Pty) Limited.

Mr. Soma has served as our
  Senior Vice President of Information Technology since June 2004. Mr. Soma joined
  Aplitec in 1997. He specializes in transaction switching and interbank settlements.
  Mr. Soma represented Nedcor Bank in assisting with the technical specifications
  for the South African Interbank Standards. He is also responsible for the ATM
  settlement process to balance ATMs with the host as well as balance the
  host with different card users. Mr. Soma designed the Stratus Back-End System
  for Aplitec, and is responsible for the Nedbank Settlement System for the Point
  of Sales Devices. Mr. Soma has over 12 years of experience in the development
  and design of smart card payment systems.

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**ITEM 1A. RISK
FACTORS**

INVESTING IN OUR COMMON STOCK
INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION IN THIS FORM 10-K,
BEFORE DECIDING TO INVEST IN OUR SHARES OF COMMON STOCK. IF ANY OF THE FOLLOWING
RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS,
CASH FLOWS AND LIQUIDITY WOULD SUFFER. IF THIS HAPPENS, THE TRADING PRICE
OF OUR COMMON STOCK WOULD LIKELY DECLINE AND YOU MIGHT LOSE ALL OR PART OF YOUR
INVESTMENT IN OUR COMMON STOCK.

The South African Social
Security Agency, or SASSA, is in the process of conducting a national tender for
the distribution of welfare grants in which bidders had the opportunity to bid
for all of South Africa or on a province-by-province basis. If we were not to
receive contracts to continue to distribute these grants in each of the
provinces where we currently distribute them, or if we do win these contracts,
but the terms are not as favorable to us as our current contracts, our financial
condition, results of operations and cash flows would be materially and
adversely affected.

We currently derive a majority of
our revenues from contracts to distribute social welfare grants on behalf of
five of the nine provincial governments of South Africa. For the foreseeable
future, our revenues, results of operations and cash flows will depend on this
concentrated group of customers. During the years ended June 30, 2008, 2007 and
2006, we derived approximately 67%, 70% and 77%, respectively, of our revenues
from payments made to us by these provinces under our government social welfare
contracts.

The South African Social Security
Agency, or SASSA, is in the process of conducting a national tender for the
distribution of welfare grants in which bidders had the opportunity to bid for
all of South Africa or on a province-by-province basis. On May 4, 2007, we filed
proposals for each of South Africas nine provinces, as well as a proposal for
the entire country. SASSA provided an indicative time-frame for the evaluation
of the tender proposals and the award of the contract to successful bidders, but
all of the key dates have already been missed. As part of the evaluation process
for the tender, all bidders were requested to demonstrate their proposed payment
solution to SASSA. Our response to the request for proposal was demonstrated to
the SASSA evaluation committee on October 25, 2007. In December 2007, we
received a notice to bidders from SASSA requesting further details of our
financial proposals in a standard format provided in the notice to bidders by no
later than December 28, 2007. We provided our response to the notice to bidders
to SASSA on December 28, 2007.

On January 31, 2008 we received a
further notice to bidders from SASSA advising bidders that, due to unforeseen
circumstances, the tender evaluation process had not been completed and, as a
result, SASSA was requesting tenderers to extend the validity period of their
tender responses from February 9, 2008 to March 31, 2008. We agreed to this
extension. On March 10, 2008, SASSA extended our five existing contracts to
provide welfare administration and distribution services by 12 months to March
31, 2009. SASSA reserves the right to terminate any of the five existing
contracts on 30 days written notice, but only after an initial period of six
months which ends on September 30, 2008.

On March 27, 2008, we received a
further notice to bidders from SASSA advising bidders that, due to unforeseen
circumstances, the tender evaluation process had still not been completed and,
as a result, SASSA was requesting tenderers to extend the validity period of
their tender responses by a further three months to June 30, 2008. We responded
to SASSA in writing stating that we would extend the validity of our proposal as
requested.

On April 21, 2008, SASSA
announced an update on the progress of the social grants tender process. It
stated that the evaluation committee that has been processing the nine
provincial tenders has completed its work, and that at this time, there is being
constituted an adjudication committee which will deliberate on the tender and
make a final recommendation on the award per province to the accountable
authority. SASSA stated that the process is on track and that the outcome will
be announced as soon as the process is finalized. SASSA did not provide any
additional indication of when there would be further announcements or when the
process would be completed. It also did not indicate how the process it
described would adjudicate proposals, as in the case of one of the proposals we
submitted that covered the entire country rather than just certain
provinces.

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On June 30, 2008 we received a
further notice to bidders from SASSA advising bidders that the tender evaluation
process had still not been completed. Bidders were advised that the Evaluation
Committee appointed to evaluate the bid proposals had submitted its
recommendations to an Adjudication Committee for consideration, and that the
Adjudication Committee is currently in the process of reviewing the
recommendations of the Evaluation Committee in order to provide a recommendation
to the Chief Executive Officer of SASSA on the preferred bidder(s) for each
province. As a result, SASSA requested tenderers to extend the validity period
of their tender responses by a further three months to September 30, 2008. We
have responded in writing stating that the Company is prepared to extend the
validity period of its bid proposal to September 30, 2008 but that the Company
will seek legal guidance from the South African High Court to ensure the timely
and orderly conclusion of the tender evaluation process.

Because of the extensive delays
in the tender award process, we cannot predict whether or not contracts will
ultimately be awarded on the basis of the current proposals, whether SASSA will
seek further extensions of proposals or whether a new process might be initiated
by SASSA. Furthermore, there can be no assurance that the tender will result in
our receiving contracts to continue to distribute social welfare grants in each
of the five South African provinces where we currently distribute them past
March 31, 2009, which is when the extension we received by SASSA terminates.
Even if we do receive new contracts, we cannot predict the terms that such
contracts will contain. Any new contract we receive may contain pricing or other
terms, such as provisions relating to early termination, that are not as
favorable to us as the contracts under which we currently operate. In addition,
according to the new tender specification, any new contract will require the
successful bidder to pre-fund the social welfare grants in the relevant province
for a one month period, which will result in significant cash flow funding
requirements for the contractor. The time and attention required by our
management in connection with the tender process and the uncertainty surrounding
the tender process has consumed a great deal of our managements time and
attention during the past year and until the process is complete, will continue
to do so, which may have a disruptive effect on our business.

Moreover, because we incur a
significant portion of the expenses associated with these contracts during the
initial implementation phase, we have historically enjoyed higher profit margins
on these contracts after the completion of the implementation period, which
averages approximately 18 months. Therefore, to the extent that we are not
successful in obtaining new provincial contracts, or if a new contract were to
be terminated for any reason during the implementation period, our profit
margins would also be adversely affected.

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Finally, if we were to be awarded
one or more contracts by SASSA, an unsuccessful tenderor could seek to challenge
the award, which could result in the contract being set aside or could require
us to expend time and resources in an attempt to defeat any such challenge. For
example, the November 2002 award to us of the Limpopo provincial contract, which
was executed in 2003, was challenged by a disqualified bidder for the contract.
A South African court set aside the contract in 2005, although the Limpopo
province reinstated the contract in terms of its emergency powers. Nevertheless,
the court challenge created uncertainty, consumed management time and attention
and required us to incur substantial legal expenses.

We may undertake
acquisitions that could increase our costs or liabilities or be disruptive to
our business.

Acquisitions will be a
significant part of our long-term growth strategy as we seek to grow our
business internationally and to deploy our technologies in new markets outside
South Africa. However, we may not be able to locate suitable acquisition
candidates at prices that we consider appropriate. If we do identify an
appropriate acquisition candidate, we may not be able to successfully negotiate
the terms of an acquisition, finance the acquisition or, if the acquisition
occurs, integrate the acquired business into our existing business. These
transactions may require debt financing or additional equity financing,
resulting in additional leverage or dilution of ownership. Acquisitions of
businesses or other material operations and the integration of these
acquisitions will require significant attention from our senior management which
may divert their attention from our day to day business. The difficulties of
integration may be increased by the necessity of coordinating geographically
dispersed organizations, integrating personnel with disparate business
backgrounds and combining different corporate cultures. We also may not be able
to maintain key employees or customers of an acquired business or realize cost
efficiencies or synergies or other benefits that we anticipated when selecting
our acquisition candidates. In addition, we may need to record write downs from
future impairments of intangible assets, which could reduce our future reported
earnings. At times, acquisition candidates may have liabilities or adverse
operating issues that we fail to discover through due diligence prior to the
acquisition.

There are risks relating to
operating in South Africa that could adversely affect our business, operating
results, cash flows and financial condition.

Our primary operations are
located in South Africa and we currently generate substantially all of our
revenues from our operations in South Africa. As a result, we are subject to any
political, economic, regulatory and other uncertainties in South Africa from
time to time.

The changing political and
social environment. South Africa faces certain social, political and
economic challenges, which may adversely affect our business, operating results,
cash flows and financial condition. The country is experiencing high levels of
crime and unemployment and there are significant differences in the level of
economic and social development among its people, with large parts of the
population, particularly in the rural areas, having limited access to education,
healthcare, housing and other basic services. Furthermore, South Africa faces
challenges in building adequate infrastructure. These problems, together with a
shortage of skilled labor, may in the future have an adverse impact on
productivity. Furthermore, the general elections scheduled for 2009 may result
in a change in governments social and economic policies that may adversely
affect the sustainability, operation and profitability of our South African
businesses.

Inflation and interest
rates. From 2003 until the end of fiscal 2007 the economy of South Africa
was characterized by relatively low inflation and interest rates. For instance,
as of June 2007, the inflation rate was approximately 6.4% and the SARBs base
lending rate was approximately 10.0% per annum. As of June 2008, the inflation
rate, as quoted by Statistics South Africa, was 12.20% and the SARBs base
lending rate had increased to 11.50% per annum. The economy of South Africa in
the past has been, and in the future may be characterized by higher rates of
inflation and higher interest rates. Higher rates of inflation could increase
our South African-based costs and decrease our operating margins. Higher
interest rates could adversely affect our ability to obtain cost-effective debt
financing in South Africa.

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Regulatory uncertainty
regarding black economic empowerment. The South African government, through
the Broad Based Black Economic Empowerment Act, 2003, or the BBBEE Act,
established a legislative framework for the promotion of black economic
empowerment. The BBBEE Act allows the Minister of Trade and Industry, or the
Minister, by notice in the Government Gazette to issue Codes of Good Practice on
black economic empowerment, or BEE. In addition, the Minister must publish in
the Government Gazette for general information and promote a transformation
charter for a particular sector of the economy, if the Minister is satisfied
that it is developed by major stakeholders in the relevant sector and advances
the objectives of the BBBEE Act. On 9 February 2007 the Minister published the
Codes of Good Practice on BEE pursuant to section 9(1) of the BBBEE Act. The
information and communication technology sector, or ICT sector, and the
financial services sector are among the sectors that have developed
transformation charters. On February 9, 2007 the Minister issued the Financial
Sector Charter pursuant to section 9 of the BBBEE Act. The ICT charter has not
yet been published in the Government Gazette by the Minster and, consequently,
it does not currently enjoy any formal status. The ICT sector has attempted to
ensure as great a degree of compatibility between its transformation charter and
the Codes of Good Practice, thereby assuring the probable publication of that
charter in the Government Gazette by the Minister of Trade and Industry. We are
likely to be subject to the ICT sector's charter if this document is published
in the Government Gazette as a Sector Code or a transformation charter. The ICT
charter applies, among others, to companies that manufacture equipment for, or
provide services relating to, the electronic capturing, transmission and display
of data and information. Compliance with the charter is not enforced through
civil or criminal sanction, but only through its effect on the ability to secure
contracts in the public and private sectors. One of the components of BEE is
that a certain percentage of ownership by black South Africans of our South
African business should be achieved over a period of time. The Codes of Good
Practice will be reviewed by the Minister in February 2017 which is the end of
the tenth year after they commenced. Although BEE is not expropriatory in
nature, there may be a dilutive effect to current shareholders in the South
African business and there may be a cost associated with increasing the level of
black South African shareholders, both of which factors may represent a risk.
However, given that non-BEE compliance may place in jeopardy existing and future
South African public and private sector contracts, the loss of which could cause
a loss of revenue, the attendant risk associated with BEE non-compliance is
material.

Exchange control
regulation. South Africas exchange control regulations restrict the export
of capital from South Africa, the Republic of Namibia and the Kingdoms of
Lesotho and Swaziland, known collectively as the Common Monetary Area. These
regulations apply to transactions involving South African residents, including
both natural persons and legal entities, and are enforced by SARB. In October
2004, the South African exchange control regulations were liberalized by the
abolishment of exchange control limits on new investments outside of South
Africa by South African companies. However, according to the circular giving
notice of this liberalization, SARB retains an oversight function, the exact
nature of which is unclear from the circular. According to the circular, South
African companies investing outside of South Africa must now apply to SARB only
for monitoring purposes and for the approval of SARB pursuant to existing
foreign direct investment criteria, including demonstrated benefit to South
Africa. SARB reserves the right to stagger capital outflows relating to very
large investments outside of South Africa by South African companies, so as to
manage any potential impact on the foreign exchange market. Also, these
liberalization measures permit South African companies to retain, outside of
South Africa, dividends received in relation to shares held by them in non-South
African companies.

South African exchange controls
are expected to continue for the foreseeable future. The South African
government, however, has committed itself to gradually relaxing exchange
controls, and significant relaxations have occurred in recent years.
Nevertheless, under the current exchange control regulations, our management may
be limited in its ability to consider strategic options and our shareholders may
not be able to realize the premium over the current trading price of our shares.

Although Net 1 UEPS Technologies,
Inc. is a US corporation and is not itself subject to these regulations, the
ability of New Aplitec to raise and deploy capital outside the Common Monetary
Area is restricted. As of June 30, 2008, approximately 83% of our cash and cash
equivalents were held by New Aplitec and its subsidiaries. During the year ended
June 30, 2008, substantially all of our revenues were generated by New Aplitec
and its subsidiaries. In particular, New Aplitec will generally not be permitted
to export capital from South Africa or to hold foreign currency without the
approval of SARB. This restriction may affect New Aplitecs ability to pay
dividends to Net 1 UEPS Technologies, Inc., unless New Aplitec can show that any
payment of such dividend will not place it in an over borrowed position.
Moreover, although the requirement that SARB approve investments by South
African companies outside of South Africa has been relaxed, this requirement
could restrict our future international expansion, to the extent that New
Aplitec cannot show that such expansion will be self-sustainable and beneficial
to the South African economy in general.

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SARB approval is required for New
Aplitec to receive loans from and repay loans to non-residents of the Common
Monetary Area. In addition, New Aplitec may not use income earned in South
Africa to repay or service foreign debts, including the loan accounts between
New Aplitec and Net 1 UEPS Technologies, Inc., without SARBs approval.
Repayment of principal and interest on such loans will usually be approved at
the time of the granting of such loans, where the payment is limited to the
amount borrowed and a market related rate of interest. New Aplitec will also
need SARB approval to raise capital involving a currency other than South
African rand, which approval may be provided subject to conditions. Thus, unless
we can obtain funding at the Net 1 UEPS Technologies, Inc. level, these
restrictions could prevent us from obtaining adequate funding on acceptable
terms for acquisitions and other business opportunities outside South Africa.

Irregular electricity
supply. Since December 2007, South Africa has experienced rolling blackouts
due to, among others, an increasing demand for electricity. The number of
rolling blackouts significantly reduced during the three months ended July 2008.
Although these blackouts have not affected our pension and welfare delivery
performance because our UEPS-based technology can operate without the need for
consistent networking or power infrastructure, they have adversely affected the
productivity of certain portions of our South African workforce, including our
head office and information technology personnel, and our manufacturing
activities. In addition, even though we believe that we currently have adequate
backup power facilities in the form of petrol and diesel generators to support
our back-end processing activities, the strain on these generators caused by
more frequent usage may shorten their lifespan. Although we have ordered
additional generators for our head office, demand for backup generators is high
and the lead time for delivery of new generators is currently approximately
three months. We believe that the irregular supply of electricity may last for
several years unless other short-term solutions are found.

There have been a number of press
reports discussing the negative impact of the irregular electricity supply on
the South African economy. We could be adversely affected by such a downturn,
and although we can not predict precisely how such a downturn would affect us,
we currently believe that the most significant adverse impact would be a
decreasing volume in our transactions-based activities and a significant
weakening of the South African Rand, our functional currency, against the US
Dollar, our reporting currency.

Trade unions and labor
laws. Most of South Africas major industries are unionized, and the
majority of employees belong to trade unions. In the past, trade unions have had
a significant impact on the collective bargaining process as well as on social
and political reform in South Africa in general. We currently have approximately
142 unionized employees which represents approximately 6.8% of our workforce.
Although in recent years we have not experienced any labor disruptions, such
labor disruptions may occur in the future. In addition, the cost of complying
with labor laws may adversely affect our operations.

Regional instability.
Historically, there has been regional, political, and economic instability in
the countries surrounding South Africa. Such political or economic instability
in neighboring countries could affect the social, political and economic
conditions in South Africa, for example, as a result of immigration, and this
could have a negative impact on our ability to manage our operations in the
country. In particular, the recent political unrest in Zimbabwe has resulted in
increased immigration into South Africa which has been partly blamed for recent
xenophobic violence in areas in which these foreigners reside or operate
businesses.

HIV/AIDS. HIV/AIDS and
tuberculosis, which is exacerbated in the presence of HIV/AIDS, are major
healthcare challenges in South Africa and other sub-Saharan countries. Due to
the high prevalence of HIV/AIDS in South Africa, we may incur costs relating to
the loss of personnel and the related loss of productivity as well as the costs
relating to recruiting and training of new personnel. In addition, the potential
for increased mortality rates due to HIV/AIDS deaths to reduce or slow the
growth of the South African population could aversely impact our growth. We are
not able to quantify the impact of HIV/AIDS on our growth or costs and cannot
assure you that the costs we will incur in connection with this epidemic will
not have a material adverse effect on us and our financial condition.

The loss of the services of
Dr. Belamant or any of our other executive officers would adversely affect our
business.

Our future financial and
operational performance depends, in large part, on the continued contributions
of our Chief Executive Officer and Chairman, Dr. Serge Belamant, as well as Mr.
Herman Kotze, our Chief Financial Officer, Ms. Brenda Stewart, our Senior Vice
President Sales and Marketing, and Mr. Nitin Soma, our Senior Vice President
Information Technology. Many of our key responsibilities are performed by these
four individuals, and the loss of the services of any of them could disrupt our
development efforts or business relationships and our ability to continue to
innovate and to meet customers needs, which could have a material adverse
effect on our business and financial performance. We do not have employment
agreements with our executive officers, any of whom may terminate their
employment at any time, nor do we maintain any key person life insurance
policies.

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We face a highly
competitive employment market and may not be successful in attracting and
retaining a sufficient number of skilled employees, particularly in the
technical and sales areas and senior management.

Our future success depends on our
ability to continue to develop new products that use our UEPS technology and to
market these products to our target users. In order to succeed in our product
development and marketing efforts, we need to identify, attract, motivate and
retain sufficient numbers of qualified technical and sales personnel. An
inability to hire and retain such technical personnel would adversely affect our
ability to enhance our existing intellectual property, to introduce new
generations of technology and to keep abreast of current developments in
technology. Demand for personnel with the range of capabilities and experience
we require is high and there is no assurance that we will be successful in
attracting and retaining these employees. The risk exists that our technical
skills and sales base may be depleted over time because of natural attrition.
Furthermore, social and economic factors in South Africa have led, and continue
to lead, numerous qualified individuals to leave the country, thus depleting the
availability of qualified personnel in South Africa. In addition, our
multi-country strategy will also require us to hire and retain highly qualified
managerial personnel in each of these markets. If we cannot recruit and retain
people with the appropriate capabilities and experience and effectively
integrate these people into our business, it could negatively affect our product
development and marketing activities.

***Our strategy of
partnering with companies outside South Africa may not be successful.***

In order for us to expand our
operations into foreign markets, it may be necessary for us to establish
partnering arrangements with companies outside South Africa, such as the ones we
have established in Namibia, Botswana, Nigeria, Colombia and Vietnam. The
success of these endeavors is, however, subject to a number of factors over
which we have little or no control, such as finding suitable partners with the
appropriate financial, business and technical backing and continued governmental
support for planned implementations. In some countries, finding suitable
partners and obtaining the appropriate support from the government involved may
take a number of years before we can commence implementation. Some of these
partnering arrangements may take the form of joint ventures in which we receive
a minority interest. Minority ownership carries with it numerous risks,
including dependence on partners to provide knowledge of local market conditions
and to facilitate the acquisition of any necessary licenses and permits, as well
as the inability to control the joint venture vehicle and to direct its policies
and strategies. Such a lack of control could result in the loss of all or part
of our investment in such entities. In addition, our foreign partners may have
different business methods and customs which may be unfamiliar to us and with
which we disagree. Our joint venture partners may not be able to implement our
business model in new areas as efficiently and quickly as we have been able to
do in South Africa. Furthermore, limitations imposed on New Aplitec by South
African exchange control regulations, as well as limitations imposed on us by
the Investment Company Act of 1940, may limit our ability to establish
partnerships or entities in which we do not obtain a controlling interest. In
addition, certain of our licensees, including Visa, have become our competitors
and this could occur with our joint venture partners in the future.

***We may not maintain
our current level of profitability or rates of growth.***

We believe that our continued
profitability and growth will depend in large part on our ability to do the
following:

|- | continue to enroll new smart card users and participating
      merchants in South Africa;                                                                               
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | achieve growth in the number and value of transactions
      processed using our smart cards;                                                                            
|- | expand our business internationally by properly
      identifying new markets and business partners for those markets;                                                   
|- | identify and execute suitable acquisitions in our target
      markets;                                                                                                  
|- | hire and train personnel capable of marketing, installing
      and integrating our solution, supporting customers and managing
      operations;                        
|- | continue to expand the range of applications that use our
      technology and to market these applications successfully; and                                            
|- | manage the costs of our business, including the costs
      associated with maintaining and developing our technology and expanding
      our operations internationally.

If we are not able to achieve any
or all of the above, our profitability and/or growth rate will likely decline.

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Changes in current
government regulations relating to social welfare grants could adversely affect
our revenues and cash flows.

We derive a substantial portion
of our current business from the distribution of social welfare grants onto
smart cards in South Africa and the transaction fees resulting from use of these
smart cards. Because social welfare eligibility and grant amounts are regulated
by the government, any changes to or reinterpretations of the government
regulations relating to social welfare may result in the non-renewal or
reduction of grants for certain individuals, or a determination that currently
eligible social welfare grant recipients are no longer eligible. If any of these
changes were to occur, the number of smart cards in use could decrease, the
amount of money on any particular smart card could decrease or the amount of
transactions effected on any particular smart card may decrease, all of which
could result in a reduction of our revenues and cash flows.

We may have difficulty
managing our growth which could limit our ability to increase sales and cash
flow.

We continue to experience
significant growth, both in the scope of our operations and size of our
organization. This growth is placing significant demands on our management, as
well as on our operational resources. In order to achieve our business
objectives, however, we anticipate that we will need this growth to continue.
Continued growth would increase the challenges involved in:

|- | implementing appropriate
      operational and financial systems;                        
|- | -----------------------------------------------------------------------------------------
|- | expanding our sales and marketing
      infrastructure and capabilities;                 
|- | providing adequate training and
      supervision to maintain high quality standards; and
|- | preserving our culture and
      values.                                                 

Additionally, continued growth
will place significant additional demands on our management and our financial
and operational resources, and will require that we continue to develop and
improve our operational, financial and other internal controls. If we cannot
scale and manage our business appropriately, we will not experience our
projected growth and our financial results may suffer.

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There are risks relating to
other countries in which we intend to operate that could adversely affect our
future business, operating results, cash flows and financial condition.

We intend to expand operations
into countries and regions, including African countries outside South Africa,
South America, Southeast Asia and Central and Eastern Europe, that are subject
to significantly differing political, economic and market conditions. Specific
country and regional risks that may have a material impact on our business,
operating results, cash flows and financial condition include:

|- | political and economic instability;                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | oss due to civil strife, acts of war, guerrilla
      activities and insurrection;                                                                                                            
|- | competition from existing market participants that may
      have a longer history in or greater familiarity with the foreign markets
      we enter;                                         
|- | government interventions and protectionism;                                                                                                                                                   
|- | potential adverse changes in laws and regulatory
      practices, including import and export license requirements, tariffs,
      legal structures and tax laws;                             
|- | cancellation of contractual rights;                                                                                                                                                           
|- | -trade barriers;                                                                                                                                                                              
|- | difficulties in staffing and managing operations;                                                                                                                                             
|- | import and export restrictions;                                                                                                                                                               
|- | adverse tax consequences;                                                                                                                                                                     
|- | the lack of well-developed legal systems which could make
      it difficult for us to enforce our intellectual property and contractual
      rights;                                        
|- | security and safety of employees;                                                                                                                                                             
|- | restrictions on the right to convert or repatriate
      currency or export assets;                                                                                                           
|- | greater risk of uncollectible accounts and longer
      collection cycles;                                                                                                                    
|- | currency fluctuations;                                                                                                                                                                        
|- | indigenization and empowerment programs;                                                                                                                                                      
|- | logistical and communications challenges;                                                                                                                                                     
|- | changes in labor conditions;                                                                                                                                                                  
|- | discrimination against US companies; and                                                                                                                                                      
|- | exposure to liability under US securities and foreign
      trade laws, including the Foreign Corrupt Practices Act and regulations
      established by the Office of Foreign Assets Control.

Many of these countries and
regions are in various stages of developing institutions and legal and
regulatory systems that are characteristic of democracies. However, institutions
in these countries and regions may not yet be as firmly established as they are
in democracies in the developed world. Many of these countries and regions are
also in the process of transitioning to a market economy and, as a result, are
experiencing changes in their economies and their government policies that can
affect our investments in these countries and regions. Moreover, the procedural
safeguards of the new legal and regulatory regimes in these countries and
regions are still being developed and, therefore, existing laws and regulations
may be applied inconsistently. In some circumstances, it may not be possible to
obtain the legal remedies provided under those laws and regulations in a timely
manner.

As the political, economic and
legal environments remain subject to continuous development, investors in these
countries and regions face uncertainty as to the security of their investments.
Any unexpected changes in the political or economic conditions in these or
neighboring countries or others in the region may have a material adverse effect
on the international investments that we have made or may make in the future,
which may in turn have a material adverse effect on our business, operating
results, cash flows and financial condition.

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Volatility in the South
African Rand to US dollar exchange rate may adversely affect our reported
operating results.

The South African rand, or ZAR,
is the primary operating currency for our business operations while our
financial results are reported in US dollars. Because our sales are primarily
denominated in ZAR, a decline in the value of the ZAR against the US dollar may
have a significant adverse effect on our reported results of operations. During
the three years ended June 30, 2008, the ZAR/US dollar exchange rate has been
volatile. Refer to Item 7 Currency Exchange Rate InformationActual exchange
ratestable 3.

The current exchange rate
volatility between the US dollar and the South African rand is caused by a
number of factors outside our control, including, but not limited to, the recent
credit crisis experienced primarily in the United States and certain European
countries and the global socio-economic and political climate, including actual
or perceived political instability such as is currently being experienced in
Zimbabwe.

As a result of this volatility
our reported results of operations were adversely affected for fiscal 2008 as
compared to fiscal 2007 and fiscal 2007 as compared to fiscal 2006. These
fluctuations may make it more difficult for investors and others to understand
how our business has performed without regard to these currency exchange rate
changes. We expect that exchange rate volatility will continue in the
foreseeable future.

Trends in revenues and profits
may experience significant fluctuations as the rate of exchange between the ZAR
and the US dollar fluctuates. We cannot assure you what effect, if any, changes
in the exchange rate of the ZAR against the US dollar will have on our results
of operations and financial condition.

We do not currently engage in any
currency hedging transactions intended to reduce the effect of fluctuations in
foreign currency exchange rates on our results of operations, other than
economic hedging relating to our inventory purchases which are settled in US
dollars or euros. We have used forward contracts in order to hedge our economic
exposure to the ZAR/US dollar and ZAR/euro exchange rate fluctuations from these
foreign currency transactions. We cannot guarantee that we will enter into
hedging transactions in the future or, if we do, that these transactions will
successfully protect us against currency fluctuations.

We pre-fund the payment of
social welfare grants on behalf of our South African government customers and
any payment defaults by these customers would adversely affect our operations.

We use our internal cash
resources and facilities to fund the payment of social welfare grants under our
contracts with the KwaZulu-Natal and Eastern Cape provincial governments. We
recover these funds from the KwaZulu-Natal provincial government on a seven-day
cyclical basis and from the Eastern Cape provincial government on a 14-day
cyclical basis. In addition, through our merchant acquiring system, we may also
pre-fund social welfare grants in the provinces where we operate. All of these
pre-funding obligations expose us to the risk of default by the applicable
provincial government. In addition, the number of social welfare grant
beneficiaries in these provinces, as well as the number of beneficiaries
receiving payment through our merchant acquiring system, increased significantly
during fiscal 2008 and 2007, which increased our pre-funding requirements.
Although no provincial government has ever defaulted on a repayment of funds at
the end of the payment cycle, we cannot guarantee that such a default will not
occur in the future. Any such default could have a material adverse effect on
us, our financial position and results of operations.

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We do not have a South
African banking license and therefore we provide our wage payment solution
through an arrangement with a third party bank, which limits our control over
this business and the economic benefit we derive from it. If this arrangement
were to terminate, we would not be able to operate our wage payment business
without alternate means of access to a banking license

The South African retail banking
market is highly regulated, but the South African government has identified the
need to service the unbanked market through the liberalization of the regulatory
environment in order for retailers and non-banking service providers to innovate
products and delivery channels for the unbanked market. However, under current
law and regulations, a portion of our South African wage payment business
activities in the unbanked market requires us to be registered as a bank in
South Africa or to have access to an existing banking license. We are not
currently so registered, but we have entered into an agreement with Grindrod
Bank in terms of which our wage payment solution will be implemented by Grindrod
Banks retail division. As a result of this arrangement, we do not have complete
control over the marketing and implementation of our wage payment system and we
have to share the economic benefits with Grindrod Bank. If the co-operation
agreement were to be terminated we would not be able to operate our wage payment
business unless we were able to obtain access to a banking license through
alternate means.

In addition, the South African
Financial Advisory and Intermediary Services Act, 2002, requires persons who
give advice regarding the purchase of financial products or who act as
intermediaries between financial product suppliers and consumers in South Africa
to register as financial service providers. We have applied for a license under
this Act in order to continue to provide advice and intermediary services in
respect of the financial products on which we advise and the payment processing
services we provide in South Africa on behalf of insurers and other financial
product suppliers. While the license application is pending, we are entitled to
continue this part of our business in South Africa. If we fail to obtain this
license, we may be stopped from continuing this part of our business in South
Africa.

We may face competition
from the incumbent retail banks in South Africa in the unbanked market segment.

The incumbent South African
retail banks have created a common banking product, generally referred to as a
Mzansi account, for unbanked South Africans, which offers limited
transactional capabilities at reduced charges, when compared to the accounts
traditionally offered by these banks. According to the FinScope 2006 survey
2,800,000 people (approximately 6% of the population) in South Africa claim to
have an Mzanzi account, although the exact number of accounts is unknown. The
social welfare beneficiaries who are currently paid through our smart card
system may elect to use these accounts to receive their grants. A decision by a
substantial number of these beneficiaries to elect to use these accounts rather
than our smart card system may have a material adverse effect on our financial
condition, cash flows and results of operations.

We may face increased competition as our sales and
product offerings increase.

In addition to competition that
we face from the use of cash, checks, credit and debit cards, existing payment
systems and the providers of financial services, we have identified a number of
other products currently being produced that use smart card technology in
connection with a funds transfer system and the companies that promote them.
These include EMV, a system that is being promoted by Visa, MasterCard
International and Europay International; Mondex International Limited, a
subsidiary of MasterCard; and Proton World International N.V., a subsidiary of
STMicroelectronics Belgium N.V. In South Africa, and specifically in the payment
of social welfare grants, our competitors also include AllPay Consolidated
Investment Holdings (Pty) Ltd., which is responsible for social welfare payments
in the Free State, Gauteng and Western Cape provinces and a small portion of the
Eastern Cape province, and Empilweni Payout Services, which is responsible for
payments in the Mpumalanga province. We also may face competition from companies
to which we have licensed our technology, including Visa. Moreover, as our
product offerings increase and gain market acceptance, banks in South Africa and
other jurisdictions in which we operate may seek governmental or other
regulatory intervention if they view us as infringing on their funds transfer or
other businesses.

39

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Patent competition may
adversely affect our products or processes, and limited patent protection, a
lack of proprietary protection and the potential to incur costly litigation
could be harmful to our operations.

Our products and technology have
unique characteristics and structures and, as a result, are subject to patent
protection, the extent of which varies from country to country. During the life
of a patent, a product is only subject to competition by non-infringing
products. However, aggressive patenting by our competitors and potential patent
piracy may threaten protected products and processes and may result in an
increased patent infringement risk, especially in emerging economies such as
those where we currently operate. The expiration of a patent may also result in
increased competition in the market for the previously patented products and
processes. The patents for our FTS will expire, at the latest, in South Africa,
Botswana, Swaziland and Hong Kong in 2009; and in the United States in 2011. In
addition, our European Union FTS patent was challenged and revoked.
Consequently, we do not have any patent protection in the member countries of
the European Union. Additionally, we could have difficulty asserting the Hong
Kong patent as it is not registered in our name and it could be difficult to
record our ownership of that patent. As a result of the revocation of our
European Union FTS patent there is a risk that customers may refuse to pay
license fees due to us. Moreover, although we have certain patent rights in the
United States, these are not expected to have significant utility in our
business given that our management does not expect the US market to become a
material part of our business in the near future. Each of these factors could
have a material adverse effect on our business, operating results, cash flows
and financial condition. In addition, to date, we have relied not only on patent
protections, but also on trade secret, trademark and copyright laws, as well as
nondisclosure, licensing and other contractual arrangements to protect the
proprietary aspects of our solutions. Other than the patents discussed above, we
do not own any other patents that protect important aspects of our current
solutions. We will, however, prepare patent applications where possible for
technology related to our smart cards and UEPS system when we believe it is
appropriate to do so. These applications and contractual arrangements and our
reliance on these laws may not be successful.

Litigation to enforce our
intellectual property rights or protect our trade secrets could result in
substantial costs and may not be successful. Any loss of, or inability to
protect, intellectual property in our technology could diminish our competitive
advantage and also seriously harm our business, operating results, cash flows
and financial condition. In addition, the laws of certain foreign countries may
not protect our intellectual property rights to the same extent as do the laws
of South Africa, Botswana, Swaziland, the United States and the European Union.
Our means of protecting our intellectual property rights in South Africa,
Botswana, Swaziland, the United States and the European Union or any other
country in which we operate, may not be adequate to fully protect our
intellectual property rights. Similarly, if third parties claim that we infringe
their intellectual property rights, we may be required to incur significant
costs and devote substantial resources to the defense of such claims. We may be
required to discontinue using and selling any infringing technology and
services, to expend resources to develop non-infringing technology or to
purchase licenses or pay royalties for other technology. In addition, if we are
unsuccessful in defending any such third-party claims, we could suffer costly
judgments and injunctions that could materially adversely affect our business,
results of operations or financial condition.

The copyrights and certain
related intellectual property rights in earlier versions of our UEPS software
are jointly owned and potentially subject to non-exclusive rights, which may
reduce our future revenues.

While we own the exclusive
copyrights in the current version of the UEPS software, these copyrights are
subject to the preexisting copyrights in the earlier versions of our software
that are owned jointly by us and Nedbank. As joint owners of the copyrights in
these earlier versions of our software that existed prior to July 2000, there is
a risk that Nedbank could license these works to others and otherwise
commercially exploit these earlier works. Under our Nedbank agreements, Nedbank
also acquired the right to request a license of our South African and US FTS
patents and of all technology and know-how relating to the UEPS described in
those earlier patents from us for entities partly owned by Nedbank that are
located anywhere within South Africa and neighboring countries. Under these
licenses, Nedbank would pay us a license fee, with us supplying smart cards or
being paid a royalty if the cards are obtained from a third party. If Nedbank
licenses our works to others or otherwise commercially exploits our technology
and know-how related to UEPS, our future revenues may be reduced.

40

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Our current license
agreement with Visa imposes long-term restrictions on our ability to license
rights in our technology and could inhibit our ability to realize additional
revenue from these rights in our technology.

In 1997, we entered into a
technology license agreement with Visa. Under that agreement, Visa purchased a
non-exclusive, perpetual, worldwide license to our technology rights, as defined
in the agreement, relating to our UEPS technology and an exclusive, perpetual,
worldwide license under our patents, as defined in the agreement, licensed to
Visa that is exclusive to the financial services industry, as defined in the
agreement. Our Visa agreement grants back to us the non-exclusive right under
our Visa-licensed patents to make, use and sell our payment systems and other
products in the financial services industry as discussed in the agreement. In
our Visa agreement, Visa agrees not to grant a sublicense to any payment system
to any entities in the financial services industry who are not members of Visa
already if such entity already has a right to use such payment systems from us.
The agreement permits Visa to sublicense our licensed technology rights to any
of its members, any entity in the financial services industry or any entity
outside of the financial services industry that provides products to Visa or its
sublicensees. The agreement prohibits us from licensing our technology rights,
not just our licensed patents, to any of Visas competitors, including
MasterCard, Europay, American Express Company, Discover Financial Services,
Diners Club International Credit Card Co., Carte Blanche Card or JCB
International Credit Card Co. or any of their parents, subsidiaries or
affiliates. We may need Visas consent, not to be unreasonably withheld, in
order to transfer or assign our rights and obligations under the agreement. As
this agreement does not contain a termination date and contains restrictions on
our ability to license our technology rights in the financial services industry
and to competitors of Visa, we may not be able to realize the full value of our
technology rights.

Our license agreement with
Visa substantially impacts our ability to defend and enforce our patents
licensed to Visa and could substantially inhibit our ability to protect the
rights in our technology.

Under our license agreement with
Visa, we are restricted from suing Visa, its members and any third-party vendors
or customers of Visa or its members for infringement of our technology rights
licensed to Visa in connection with their manufacture, use or sale of any
product or service offered by Visa. The license also grants Visa sole discretion
with regard to enforcement of any of the licensed technology rights against
third parties in the financial services industry. Under the agreement, Visa has
the right to control the prosecution and maintenance of the patents and related
patent applications we have licensed to Visa in all jurisdictions, and we are
obligated to cooperate and support any of Visas actions in this regard. This
arrangement could substantially impact our ability to defend these patents, and
could make enforcement actions against our competitors more difficult.

We depend upon third-party
suppliers, making us vulnerable to supply shortages and price fluctuations,
which could harm our business.

We obtain our smart cards, POS
devices and the other hardware we use in our business from a limited number of
suppliers, and do not manufacture this equipment ourselves. We generally do not
have long-term agreements with our manufacturers or component suppliers. If our
suppliers become unwilling or unable to provide us with adequate supplies of
parts or products when we need them, or if they increase their prices, we may
not be able to find alternative sources in a timely manner and could be faced
with a critical shortage. This could harm our ability to implement new systems
and cause our revenues to decline. Even if we are able to secure alternative
sources in a timely manner, our costs could increase. A supply interruption or
an increase in demand beyond current suppliers capabilities could harm our
ability to distribute our equipment and thus, to acquire a new source of
customers who use our UEPS technology. Any interruption in the supply of the
hardware necessary to operate our technology, or our inability to obtain
substitute equipment at acceptable prices in a timely manner, could impair our
ability to meet the demand of our customers, which would have an adverse effect
on our business.

Escalating pricing pressures from our retail customers
may adversely affect our business.

We have experienced pressure from
our retail merchant customers seeking to negotiate the fees we charge them. This
pricing pressure could cause us to reduce the level of the fees we charge to
these customers, which could adversely impact our revenues and profit margins.

41

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***System failures,
including breaches in the security of our system, could harm our business.***

We may experience system failures
from time to time, and any lengthy interruption in the availability of our
back-end system computer, could harm our revenues and profits, and could subject
us to the scrutiny of our government customers. Frequent or persistent
interruptions in our services could cause current or potential customers and
users to believe that our systems are unreliable, leading them to avoid our
technology altogether, and could permanently harm our reputation and brands.
These interruptions would increase the burden on our engineering staff, which,
in turn, could delay our introduction of new applications and services. Finally,
because our customers may use our products for critical transactions, any system
failures could result in damage to our customers businesses. These customers
could seek significant compensation from us for their losses. Even if
unsuccessful, this type of claim could be time consuming and costly for us to
address.

Although our systems have been
designed to reduce downtime in the event of outages or catastrophic occurrences,
they remain vulnerable to damage or interruption from earthquakes, floods,
fires, power loss, telecommunication failures, terrorist attacks, computer
viruses, computer denial-of-service attacks and similar events. Some of our
systems are not fully redundant, and our disaster recovery planning may not be
sufficient for all eventualities.

Protection against fraud is of
key importance to the purchasers and end users of our solutions. We incorporate
security features, including encryption software, biometric identification and
secure hardware, into our solutions to protect against fraud in electronic
transactions and to provide for the privacy and integrity of card holder data.
Our solutions may be vulnerable to breaches in security due to defects in the
security mechanisms, the operating system and applications or the hardware
platform. Security vulnerabilities could jeopardize the security of information
transmitted using our solutions. If the security of our solutions is
compromised, our reputation and marketplace acceptance of our solutions will be
adversely affected, which would cause our business to suffer, and we may become
subject to damage claims. We have not yet experienced any security breaches
affecting our business.

Despite any precautions we may
take, the occurrence of a natural disaster or other unanticipated problems with
our system could result in lengthy interruptions in our services. Our current
business interruption insurance may not be sufficient to compensate us for
losses that may result from interruptions in our service as a result of system
failures.

We may not be able to
exploit technological advances quickly and successfully, which could impair our
competitive position and operations.

Most of our operations depend on
the use of advanced technological methods, which must keep pace with rapid
technological changes, new product introductions by competitors, evolving
industry and government performance and security standards and changes in
customer and end-user requirements. The use of the appropriate advanced
technological procedures can affect, among other things, the competitiveness of
our products, the safety of transactions performed using our products, the
continuity of our operations and the capacity and efficiency of our production.

We believe that new technologies
may emerge and that existing technologies may be further developed in the fields
in which we operate. Unexpected rapid changes in employed technologies that
affect our operations and product range could render the technologies we use
obsolete or less competitive in the future. Difficulties in accessing new
technologies may impede us from implementing them and competitive pressures may
force us to implement these new technologies at a substantial cost. In addition,
limited access to sources of new capital to acquire new technologies may
adversely affect our results of operations and financial condition.

We cannot predict the effect of
technological changes on our business or on our ability to provide competitive
products. Our ability to meet the competition will depend on our timely and
cost-effective implementation of new technological advances. It will also depend
on our success in commercializing these advances in spite of competition we face
by patents registered by our competitors. If we are unable to implement new
technologies in a timely or cost-efficient basis or penetrate new markets in a
timely manner in response to changing market conditions or customer
requirements, we could experience a material adverse effect on our business,
operating results, cash flows and financial condition.

42

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We may incur material
losses in connection with our distribution of cash to recipients of social
welfare grants.

Many social welfare recipients
use our services to access cash using their smart cards. We use armored vehicles
to deliver large amounts of cash to rural areas across South Africa to enable
these welfare recipients to receive this cash. In some cases, we also store the
cash that will be delivered by the armored vehicles in depots overnight or over
the weekend to facilitate delivery to these rural areas. We cannot insure
against the risk of loss or theft of cash from our delivery vehicles as we have
not identified any insurance underwriters willing to accept this risk on
reasonable terms. Therefore, we will bear the full cost of any loss or theft in
connection with the delivery process, and such loss could materially and
adversely affect our financial condition, cash flows and results of operations.
During fiscal 2008, 2007 and 2006, we incurred losses in connection with our
cash delivery system of $3.0 million, $3.0 million and $2.1 million,
respectively.

***We may not recover
outstanding amounts owed to our micro-finance businesses.***

We operate a traditional
micro-finance business, with approximately 71 branches throughout South Africa.
To May 31, 2007, these branches extended short-term loans for periods ranging
from 30 days to four months at loans bearing interest rates of 15% to 30% per
month. From June 1, 2007, these branches extended short-term loans for periods
ranging from 30 days to four months at loans bearing interest at a maximum of 5%
per month. In addition, these branches, from June 1, 2007, charge an initiation
fee and a monthly service fee. Despite the fact that we attempt to reduce credit
risk by employing credit profiling techniques, the rate of default on loans has
been high due to the high credit risk of these borrowers and the difficulty of
collecting outstanding repayments. We may therefore not recover some or all of
the principal and interest amounts currently owed by our borrowers, which on
June 30, 2008, totaled $2.9 million. Our inability to recover some or all of
these amounts may have a material adverse effect on our financial position and
results of operations.

EasyPay is subject to
substantial governmental regulation and may be adversely affected by liability
under, or any future inability to comply with, existing or future regulations or
requirements

EasyPays business is subject to
extensive regulation. Compliance with the requirements under these various
regulatory regimes may cause us to incur significant additional costs and
failure to comply with such requirements could result in the shutdown of the
non-complying facility, the imposition of liens, fines and/or civil or criminal
liability.

***We may be subject to
privacy laws in South Africa and other jurisdictions in which we operate.***

Our collection, storage and
processing, and any disclosure of, customer and employee personal information
must comply with South Africas privacy laws, which are at various stages of
legislative and judicial development. However, South African common law and the
Constitution of the Republic of South Africa, 1996, do recognize an individuals
right to privacy, and there are some statutes and other regulations which have
been enacted that apply to us and the way we operate our business. For example,
one statute sets out a framework for the electronic collection, processing,
storage and disclosure of personal information. Although compliance with this
statute is voluntary, a South African court could determine that we would be
violating an individuals right to privacy if we do not operate in compliance
with this framework. In addition, South African law requires that we must keep
confidential the HIV status of the people that participate in any HIV/AIDS
program.

New privacy laws may be enacted
in the future which could adversely affect the way we do business, and we could
be required to devote substantial management time and resources to comply with
these new laws. In addition, if we violate, or are judged to have violated, the
privacy rights of people whose information we collect, store and process, we
could become liable for damages, which could have a material adverse effect on
our financial condition, cash flows or results of operations.

43

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As a US company, we are
required to comply with certain laws and regulations that affect our
international operations and could adversely impact our future growth.

We must comply with the Foreign
Corrupt Practices Act, or FCPA, which prohibits US companies or their agents and
employees from providing anything of value to a foreign official for the
purposes of influencing any act or decision of these individuals in their
official capacity to help obtain or retain business, direct business to any
person or corporate entity or obtain any unfair advantage. Any failure by us to
adopt appropriate compliance procedures and ensure that our employees and agents
comply with the FCPA and applicable laws and regulations in foreign
jurisdictions could result in substantial penalties and/or restrictions in our
ability to conduct business in certain foreign jurisdictions. Our requirement to
comply with the FCPA could put us at a competitive disadvantage with companies
that are not required to comply with the FCPA or similar legislation enacted in
other countries. In addition, the US Department of Treasurys Office of Foreign
Assets Control, or OFAC, administers and enforces economic and trade sanctions
against targeted foreign countries, entities and individuals based on US foreign
policy and national security goals. As a result, we are restricted from entering
into transactions with certain targeted foreign countries, entities and
individuals except as permitted by OFAC which may reduce our future growth.

We may be required to raise
additional financing by issuing new securities with terms or rights superior to
those of our shares of common stock, which could adversely affect the market
price of our shares of common stock.

We may require additional
financing to fund future operations, including expansion in current and new
markets, programming development and acquisition, capital costs and the costs of
any necessary implementation of technological innovations or alternative
technologies. Because of the exposure to market risks associated with economies
in emerging markets, we may not be able to obtain financing on favorable terms
or at all. If we raise additional funds by issuing equity securities, the
percentage ownership of our current shareholders will be reduced, and the
holders of the new equity securities may have rights superior to those of the
holders of shares of common stock, which could adversely affect the market price
and voting power of shares of common stock. If we raise additional funds by
issuing debt securities, the holders of these debt securities would similarly
have some rights senior to those of the holders of shares of common stock, and
the terms of these debt securities could impose restrictions on operations and
create a significant interest expense for us.

We may have difficulty
raising necessary capital to fund operations as a result of market price
volatility for our shares of common stock.

In recent years, the securities
markets in the United States have experienced a high level of price and volume
volatility, and the market price of securities of many companies have
experienced wide fluctuations that have not necessarily been related to the
operations, performances, underlying asset values or prospects of such
companies. For these reasons, our shares of common stock can also be expected to
be subject to volatility resulting from purely market forces over which we will
have no control. If our business development plans are successful, additional
financing may be required to continue to develop and exploit existing and new
technologies and to expand into new markets. The exploitation of our
technologies may, therefore, be dependent upon our ability to obtain financing
through debt and equity or other means.

44

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Our quarterly operating
results may fluctuate significantly as a result of factors outside of our
control, which could cause the market price of our common stock to decline.

We expect our revenues and
operating results to vary from quarter to quarter. As a consequence, our
operating results in any single quarter may fall below the expectations of
securities analysts and investors, which could cause the price of our common
stock to decline. Factors that may affect our operating results include:

|- | demand for and acceptance of our new product offerings;                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|- | delays in the implementation and delivery of our products
      and services, which may impact the timing of our recognition of revenue;     
|- | variations in product mix and cost during any period;                                                                                        
|- | development of new relationships and maintenance and
      enhancement of existing relationships with customers and strategic
      partners;
|- | difficulties with component supplies, manufacturing or
      distribution;                                                                   
|- | deferral of customer contracts in anticipation of product
      or service enhancements;                                                     
|- | timing of acquisitions or disposals of major assets or
      businesses;                                                                     
|- | timing of commencement, implementation or completion of
      major projects;                                                                
|- | the relative mix of revenues from established markets,
      including South Africa, and unestablished markets;                              
|- | fluctuations in currency exchange rates;                                                                                                     
|- | the fixed nature of many of our expenses; and                                                                                                
|- | industry and economic conditions, including competitive
      pressures and inventory obsolescence.                                          

In particular, differences in
relative growth rates between our businesses in our established markets for
certain products and unestablished markets may have a significant effect on our
operating results, particularly our reported operating profit margin, in any
individual quarter, with unestablished market sales typically carrying lower
margins in the initial phases of our operations in a new area or the
introduction of a new product to an area in which we already operate. Certain
transactions are difficult to predict and may have a significant effect on our
operating results. Sales of this nature include hardware sales to customers and
to our SmartSwitch investments and cause fluctuations in revenue and operating
income when they occur.

The period between our
initial contact with a potential customer and the sale of our products or
services to that customer tends to be long and may be subject to delays which
may have an impact on our revenues.

The period between our initial
contact with a potential customer and the purchase of our products and services
is often long and subject to delays associated with the budgeting, approval and
competitive evaluation processes that frequently accompany significant capital
expenditures. A lengthy sales cycle may have an impact on the timing of our
revenues, which may cause our quarterly operating results to fall below investor
expectations. A customers decision to purchase our products and services is
often discretionary, involves a significant commitment of resources, and is
influenced by customer budgetary cycles. To sell our products and services
successfully we generally must educate our potential customers regarding the
uses and benefits of our products and services, which can require the
expenditure of significant time and resources; however, there can be no
assurance that this significant expenditure of time and resources will result in
actual sales of our products and services.

We may become subject to a
US tax liability for failing to withhold on certain distributions on instruments
issued in connection with the Aplitec transaction.

There is no statutory, judicial
or administrative authority that directly addresses the tax treatment of non-US
holders that elected to receive units in a trust representing beneficial
interests in B class preference shares and B class loan accounts issued by New
Aplitec pursuant to the reinvestment option in connection with our acquisition
of Aplitec. We believe these interests should be treated for United States
federal income tax purposes as, and we did treat them as, separate and distinct
interests in New Aplitec. As such, we and our affiliates do not presently intend
to withhold any amounts for US federal taxes in respect of any distributions
paid on such interests. There is a risk, however, that these interests, together
with the special convertible preferred stock, may be treated as representing a
single direct equity interest in us for US federal income tax purposes. In such
case, distributions received with respect to the B class preference shares and B
class loan accounts could be subject to US federal withholding tax, and we could
be liable for failure to withhold such taxes in our capacity as withholding
agent. In addition, our failure to collect and remit US federal withholding tax
may also subject us to penalties.

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Shipments of our electronic
payment systems may be delayed by factors outside of our control, which can harm
our reputation and our relationships with our customers.

The shipment of payment systems
requires us or our manufacturers, distributors or other agents to obtain customs
or other government certifications and approvals and, on occasion, to submit to
physical inspection of our systems in transit. Failure to satisfy these
requirements, and the very process of trying to satisfy them, can lead to
lengthy delays in the delivery of our solutions to our direct or indirect
customers. Delays and unreliable delivery by us may harm our reputation in the
industry and our relationships with our customers.

Failure to maintain
effective internal controls in accordance with Section 404 of the Sarbanes-Oxley
Act, especially over companies that we may acquire, could have a material
adverse effect on our business and stock price.

The Sarbanes-Oxley Act of 2002,
or Sarbanes, particularly Section 404 of Sarbanes, requires us to evaluate
annually the effectiveness of our internal controls over financial reporting as
of the end of each fiscal year and to include a management report assessing the
effectiveness of our internal controls over financial reporting in our annual
report. If we fail to maintain the adequacy of our internal controls, we may not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal control over financial reporting in accordance with Sarbanes.
The requirement to evaluate and report on our internal controls also applies to
companies that we may acquire and therefore, this assessment may be complicated
by any future acquisitions we may complete.

While we continue to dedicate
resources and management time to ensuring that we have effective controls over
financial reporting, failure to achieve and maintain an effective internal
control environment could have a material adverse effect on the markets
perception of our business and our stock price.

Force majeure events, such
as terrorist attacks, other acts of violence or war, political instability and
health epidemics may adversely affect us.

Terrorist attacks, war and
international political instability, along with health epidemics, may disrupt
our ability to generate revenues. These events may negatively affect our ability
to maintain sales revenue and to develop new business relationships. Because a
substantial and growing part of our revenues is derived from sales and services
to customers outside of the United States and we have our electronic payment
systems manufactured outside the United States, terrorist attacks, war and
international political instability anywhere may decrease international demand
for our products and inhibit customer development opportunities abroad, disrupt
our supply chain and impair our ability to deliver our electronic payment
systems, which could materially adversely affect our net revenues or results of
operations. Any of these events may also disrupt global financial markets and
precipitate a decline in the price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

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ITEM 2. PROPERTIES

We lease our corporate
headquarters facility which consists of 84,193 square feet in Johannesburg,
South Africa. We also lease properties throughout South Africa, including a
12,088 square foot manufacturing facility in Lazer Park and 134 depot
facilities. We also lease additional office space in Johannesburg; Cape Town;
Durban; Kuala Lumpur, Malaysia; Lagos, Nigeria and a 14,230 square foot
manufacturing facility in Brakpan, South Africa. These leases expire at various
dates through the year 2008 and 2013, respectively. We believe we have adequate
facilities for our current business operations.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending
legal proceedings, other than ordinary routine litigation incidental to our
business, to which we are a party or of which any of our property is the
subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted
to a vote of our security holders during the fourth quarter of the year ended
June 30, 2008.

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The
Nasdaq Global Select Market under the symbol UEPS.

The following table sets forth,
for the periods indicated, the high and low sales prices of our common stock as
reported by Nasdaq since our Nasdaq listing. All share and per share information
presented in this Form 10-K has been retroactively restated to reflect the
effect of our June 13, 2005, 1-for-6 reverse stock split.

Period
      High
      LowQuarter ended September 30,
      2006
      $27.30
      $21.00Quarter ended December 31, 2006
      $31.20
      $21.58Quarter ended March 31, 2007
      $30.18
      $24.83Quarter ended June 30, 2007
      $26.97
      $23.97Quarter ended September 30,
      2007
      $27.98
      $21.25Quarter ended December 31, 2007
      $33.82
      $27.18Quarter ended March 31, 2008
      $31.60
      $22.41Quarter ended June 30, 2008
      $29.92
      $22.45


Our transfer agent is The Bank of
New York Mellon, One Wall Street, New York, New York, 10286. According to the
records of our transfer agent, as of July 31, 2008, there were 34 shareholders
of record of our common stock. A substantially greater number of holders of our
common stock are street name or beneficial holders, whose shares are held of
record by banks, brokers, and other financial institutions.

*Dividends*

We have not paid any dividends on
our shares of common stock during our last two fiscal years and presently intend
to retain future earnings to finance the expansion of the business. We do not
anticipate paying any cash dividends in the foreseeable future. The future
dividend policy will depend on our earnings, capital requirements, expansion
plans, financial condition and other relevant factors. New Aplitecs future
dividend policy also has to comply with the restrictions placed by SARB as a
condition of its approval of the Aplitec transaction. These restrictions will
apply until such time as all of our special convertible preferred stock has been
converted into common stock. These restrictions provide that dividends may be
declared by the New Aplitec board of directors only if (i) declaration of the
dividend is approved by a majority of the holders of New Aplitec B class
preference shares, (ii) all loan accounts have been paid by New Aplitec and
(iii) the dividend does not exceed 50% of New Aplitecs annual earnings. In
addition, under South African law, New Aplitec will only be entitled to pay a
dividend if it meets the solvency and liquidity tests set out in the South
African Companies Act. However, the New Aplitec board is appointed by Net 1 UEPS
Technologies Inc., which will ultimately determine whether any dividends are
declared by New Aplitec, subject to the above conditions. Any dividends declared
by New Aplitec will be distributed to the holders of A class and B class
preference shareholders pro rata in accordance with their respective ownership
interests in New Aplitec.

*Securities authorized for
issuance under equity compensation plans*

The table below presents the
number of securities to be issued upon exercise of outstanding options, warrants
and rights; the weighted average exercise price of outstanding options, warrants
and rights and the number of securities remaining available for future issuance
approved by security holders and individual compensation arrangements.

|                                 | Number of securities to be | Weighted average exercise |                     
|-------------------------------- | -------------------------- | ------------------------- | --------------------
|                                 | issued upon exercise of    | price of outstanding      | Number of securities
|                                 | outstanding options,       | options, warrants and     | remaining available 
|Plan Category                    | warrants and rights        | rights                    | for future issuance 
|Equity compensation plans        |                            |                           |                     
|approved by security holders:    |                            |                           |                     
|2004
      Stock Incentive Plan  | 723,332                    | $16.83                    | 1,707,360           
|                                 |                            |                           |                     
|Individual compensation          |                            |                           |                     
|arrangements:                    |                            |                           |                     
|Stock
      granted to employees |                            |                           |                     
|of Prism                         | 230,046                    | $22.51                    | -                   
|                                 |                            |                           |                     
|Total                            | 953,378                    |                           | 1,707,360           

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*Markets*

As discussed above, our common
stock is currently listed on The Nasdaq Global Select Market. In July 2008, we
initiated the process of obtaining an inward listing of our common stock
underlying our special convertible preferred stock on the Johannesburg
Securities Exchange Limited, or the JSE, in South Africa. The listing in South
Africa will require regulatory approval from SARB, who considers exchange
control applications, and the JSE. We have received approval from SARB that our
inward listing on the JSE would constitute a trigger event which would result in
the winding up of the New Aplitec Participation Trust. As a result of this
trigger event all the special convertible preferred stock would be converted
into common stock and the B class shares and B class loans attached to the
special convertible preferred stock would be ceded to Net1.

If the JSE listing and therefore
the trigger event occurs, we will no longer present special convertible
preferred stock or B class preference shares related to the Aplitec transaction
completed in 2004 in our consolidated balance sheet. Currently, unit holders can
only dispose of their units by initiating a sale instruction. We believe the
listing on the JSE will provide these unit holders with the ability to trade
their investment in us on a recognized exchange and allow new South African
shareholders to acquire our stock. The inward listing, if completed, will result
in a simplified capital structure. Except for the common shares underlying the
special convertible preferred stock, no additional common stock will be issued
to unit holders as a result of the listing on the JSE.

*Share buy back
program*

In May 2007, our Board of
Directors approved our share buy back program which authorized us to repurchase
up to $50 million of our common stock at any time and from time to time through
June 30, 2008.

We did not repurchase any of our
shares of common stock in the fourth quarter of fiscal 2008. The share buy back
program expired on its terms on June 30, 2008, and our Board of Directors has
not renewed it.

*Share performance graph*

The chart below compares the
five-year cumulative return, assuming the reinvestment of dividends, on our
common stock with that of the S&P 500 Index and the NASDAQ Industrial Index.
This graph assumes $100 was invested on June 30, 2003, in each of our common
stock, the S&P 500 companies, and the companies in the NASDAQ Industrial
Index.



49

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial
data should be read together with Item 7 - Managements Discussion and Analysis
of Financial Condition and Results of Operations and Item 8 - Financial
Statements and Supplementary Data.

Consolidated Statements of Operations Data(in
thousands, except per share data)

Year Ended June 302008
      
      
      2007
      
      
      2006
      
      
      2005
      
      
      2004Revenue
      $
      254,056
      
      $
      223,968
      
      $
      196,098
      
      $
      176,290
      
      $
      131,098Cost of goods sold, IT processing, servicing and support(1)
      
      67,486
      
      
      54,417
      
      
      50,619
      
      
      50,682
      
      
      39,134Selling, general and administrative (1)
      
      65,362
      
      
      61,625
      
      
      48,627
      
      
      45,897
      
      
      39,677Depreciation and amortization
      
      10,822
      
      
      11,050
      
      
      5,710
      
      
      6,591
      
      
      5,676Costs related to public offering and Nasdaq
        listing
      
      -
      
      
      -
      
      
      1,529
      
      
      1,817
      
      
      -Reorganization costs(2)
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      11,113Operating income
      
      110,386
      
      
      96,876
      
      
      89,613
      
      
      71,303
      
      
      35,478Interest income, net
      
      15,722
      
      
      4,401
      
      
      5,889
      
      
      2,389
      
      
      3,640Income before income taxes
      
      126,108
      
      
      101,277
      
      
      95,502
      
      
      73,692
      
      
      39,118Income tax expense(3)
      
      39,192
      
      
      37,574
      
      
      36,653
      
      
      29,666
      
      
      25,927Income from continuing operations
      
      86,695
      
      
      63,679
      
      
      59,232
      
      
      44,562
      
      
      13,278Net income attributable to shareholders
      
      86,695
      
      
      63,679
      
      
      59,232
      
      
      44,562
      
      
      13,278Income from continuing operations per share
        (4):Basic
      $
      1.52
      
      $
      1.12
      
      $
      1.05
      
      $
      0.81
      
      $
      0.40Diluted
      $
      1.50
      
      $
      1.11
      
      $
      1.03
      
      $
      0.80
      
      $
      0.38Cash dividend per share (4)
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      $
      1.14


(1) Financial Accounting Standards Board Statement No. 123(R)
(revised 2004), Share-Based Payment, was adopted in 2006 in accordance
with the modified prospective method and the 2008, 2007 and 2006 data include a
charge of $4.0 million, $0.9 million and $0.2 million, respectively, in respect
of stock-based compensation. Prior periods were not restated and are therefore
not presented on a comparable basis. (2) These costs comprise legal,
accounting, regulatory and other professional fees related to the Aplitec
transaction, as well as a charge of $4.4 million related to the June 2004
issuance of other stock-based awards under our 2004 Stock Incentive Plan.
(3) Our income tax expense for fiscal 2008 includes the impact of the change
in the fully distributed rate from 36.89% in fiscal 2007 to 35.45% in fiscal
2008. The fully distributed rate for fiscal 2007 was 36.89% . Our income tax
expense for fiscal 2006 includes the impact of the change in the fully
distributed rate from 37.78% to 36.89% . The fully distributed rate for 2005 and
2004 was 37.78% . (4) Basic and diluted income from continuing operations
and cash dividends per share for 2004 was previously restated to reflect the
issuance of shares of common stock and special convertible preferred stock in
connection with the Aplitec transaction and the one-for-six reverse stock split
effected on June 13, 2005.

50

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Additional Operating Data:(in thousands, except
percentages)

Year ended June 30,2008
      
      
      2007
      
      
      2006
      
      
      2005
      
      
      2004Cash flows provided by operating activities
      $
      118,760
      
      $
      65,466
      
      $
      75,777
      
      $
      38,142
      
      $
      41,895Cash flows used in investing activities
      
      3,903
      
      
      91,540
      
      
      5,505
      
      
      3,397
      
      
      5,721Cash flows provided by (used in) financingactivities
      $
      2,864
      
      $
      3,225
      
      $
      29,723
      
      $
      (19
      )
      $
      (24,060
      )Operating income margin
      
      43%
      
      
      43%
      
      
      46%
      
      
      40%
      
      
      27%


Consolidated Balance Sheet Data:(in thousands)

As of June 30,2008
      
      
      2007
      
      
      2006
      
      
      2005
      
      
      2004Cash and cash equivalents
      $
      272,475
      
      $
      171,727
      
      $
      189,735
      
      $
      107,749
      
      $
      80,282Total current assets
      
      345,734
      
      
      247,982
      
      
      240,718
      
      
      150,664
      
      
      117,412Total assets
      
      454,071
      
      
      376,090
      
      
      269,979
      
      
      181,754
      
      
      152,632Total current liabilities
      
      76,503
      
      
      54,698
      
      
      43,123
      
      
      34,353
      
      
      47,831Total debt
      
      3,766
      
      
      4,100
      
      
      -
      
      
      -
      
      
      252Total shareholders equity
      $
      340,328
      
      $
      281,073
      
      $
      209,010
      
      $
      137,002
      
      $
      95,588


51

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and
analysis should be read in conjunction with Item 6  Selected Financial Data
and Item 8  Financial Statements and Supplementary Data. In addition to
historical consolidated financial information, the following discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. See  1A. Risk Factors. In accordance with US generally
accepted accounting principles, or US GAAP, we accounted for the Aplitec
transaction as a reverse acquisition, which requires that the company whose
shareholders retain a majority voting interest in a combined business be treated
as the acquirer for accounting purposes. Therefore, for all periods after June
7, 2004, our consolidated financial statements and the discussion and analysis
below reflect the operations of Net 1 UEPS Technologies, Inc. and its
consolidated subsidiaries and, for prior periods, reflect the operations of
Aplitec and its consolidated subsidiaries, but not Net 1 UEPS Technologies, Inc.

Overview

We provide our universal
electronic payment system technology as an alternative payment system to the
un-banked and under-banked populations of developing economies. We believe that
we are the first company worldwide to implement a system that can enable the
estimated four billion people who generally have limited or no access to a bank
account to effect affordably electronic transactions with one another,
government agencies, employers, merchants and other financial services
providers. To do this, we have developed and deployed the universal electronic
payment system, or UEPS. This system uses secure smart cards that operate in
real time but offline, unlike traditional payment systems offered by major
banking institutions that require immediate access through a communications
network to a centralized computer. This offline capability means that users of
our system can enter into transactions at any time with other card holders in
even the most remote areas so long as a portable offline card reader is
available. In addition to payments and purchases, our system can be used for
banking, health care management, international money transfers, voting and
identification.

South Africa is the first major
market where we achieved significant success and a high penetration rate in the
areas we targeted. We believe that our operating experience in South Africa
demonstrates the success of our business model in a developing economy.
According to estimates published by Statistics South Africa, as of mid-2007,
South Africa had a population of approximately 47.9 million people, of which an
estimated 50% lived below the poverty line and, as of September 2007, the South
African unemployment rate was estimated at approximately 23.0% . The success we
have achieved in South Africa has primarily resulted from servicing the needs of
the poorest section of the population  those who are dependent on government
social welfare grants. We have designed and implemented a complete business
model involving the payment, and subsequent spending, of these grants through
our smart cards and UEPS technology, which provides us with the opportunity to
earn multiple sources of revenue and provides our card holders with affordable
functionality and lifestyle improvement

In July 2004, we began a major
drive to install POS devices at merchants located in rural areas where the
majority of our card holders spend their social welfare grants. The ability of
our card holders to load their grants at these retailers and to spend these
grants securely on goods and services, without the need to withdraw the full
amount in cash, represents one of the basic underlying principles of the UEPS
functionality. We believe that the installation of these POS devices has
resulted in a significant improvement in the lifestyle of our card holders,
while introducing a new revenue source for us in the form of merchant acquiring
and other transaction fees. Use of the POS devices also lowers our costs by
reducing the amount of cash we need to deliver to social welfare beneficiaries
in cash at our mobile paypoints. We discuss the progress of our merchant
acquiring efforts since implementation of these efforts under Results of
OperationsResults of Operations by Operating SegmentTransaction-based
ActivitesContinued Adoption of Our Merchant Acquiring System.

The implementation of new UEPS
systems, particularly in developing economies outside our current markets, is a
vital component of our future growth. We have implemented or are in the process
of implementing our systems on the African continent outside South Africa.
During fiscal 2006, we formed joint ventures with government entities and
financial institutions to operate UEPS smart card-based switching systems in
Namibia, Botswana and Nigeria. During fiscal 2007 we were awarded the tender to
provide Ghana with a National Switch and Smart Card Payment System, or e-zwich.
We have substantially completed the initial phases of this project and the
system was officially launched in April 2008. In addition, during fiscal 2008 we
signed a contract with a consortium comprising the Iraqi government and local
Iraqi banks for the use of our UEPS technology in Iraq. These joint ventures and
projects, which are described in more detail under International Expansion,
are in various stages of development and operation.

52

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In July 2006, we acquired Prism
Holding Limited, or Prism, which owns EasyPay (Pty) Ltd, or EasyPay, the largest
bank-independent financial switch, or transaction processor, in Southern Africa.
The bulk of the 517 million transactions processed by EasyPay during fiscal
2008, on behalf of retailers, bill issuers and financial institutions were
transacted through a base of approximately 50,000 customer-owned terminals, the
majority of which are installed at all the retail locations of South Africas
two largest retailers, who have approximately 65% of the South African retail
market share between them. The addition of the Prism merchant acquiring network
will extend our footprint in South Africa from the deep rural areas, where we
are active today, to the urban environment. We have commenced the upgrade, where
appropriate, of the 50,000 terminals that formed part of Prisms network to
accommodate our biometric-based UEPS technology, which will significantly
enhance our wage payment program once we launch that service.

We believe that the acquisition
of Prism has assisted us to extend our ability to deliver solutions across the
entire spectrum of transaction processing and in expanding our international
operations throughout Africa, Asia and Europe. The results of Prisms operations
are reflected in our financial statements from July 3, 2006. We have also
concluded strategic partnership and business opportunities across the Americas
and Asia. For example, we have launched VTU solutions in Colombia and Vietnam.

In January 2007, we signed a
co-operation agreement with Grindrod Bank Limited, or Grindrod Bank, a fully
registered bank in South Africa, for the establishment of a retail banking
division within Grindrod Bank that will focus on deploying our wage payment
solution in South Africa. In May 2008, the first wage payments using our UEPS
were made to employees in the KwaZulu-Natal province.

On August 27, 2008, we acquired
  80.10% of BGS Smartcard Systems AG, or BGS, an Austrian private company that
  provides smart card-based payment systems to banks, enterprises and government
  authorities in Russia, Ukraine, Uzbekistan, India and Oman. See Trends
  and Material Developments Affecting our Business Acquisition of BGS Smartcard
  Systems AG.

Sources of Revenue

We have structured our business
and our business development efforts around four related but separate approaches
to deploying our technology. In our most basic approach, we act as a supplier,
selling our equipment, software, and related technology to a customer. As an
example, in Ghana, we sold a complete UEPS to the Central Bank, which owns and
operates the resulting transaction settlement system. The revenue and costs
associated with this approach is reflected in our Hardware, software and related
technology sales segment.

We have found that we have
greater revenue opportunities, however, by acting as a service provider instead
of a supplier. In this approach we own and operate the UEPS ourselves, charging
one-time and on-going fees for the use of the system either on a fixed or ad
valorem basis. This is the case in South Africa, where we distribute welfare
grants on behalf of the provincial governments and employers on a fixed basis,
but charge a fee on an ad valorem basis for goods purchased using our smart
card. The revenue and cost associated with this approach are reflected in our
Smart card accounts, Transaction-based activities and Financial services
segments. Three of the provincial governments each provide more than 10 per cent
of our total revenues and the loss of any one of these customers may have a
material adverse effect on us. We have adopted a variation of this approach in
Iraq, where we will operate a UEPS system on an outsourced basis on behalf of a
consortium consisting of the Iraqi government and Iraqi Banks, in return for
transaction fees based on the volume and value of transactions processed through
the system.

Because our smart cards are
designed to enable the delivery of more advanced services and products, we are
also willing to supply those services and products where the profit potential is
compelling. For instance, we act as a lender today. This is an example of the
third approach that we have taken. Here we can act as the principal in operating
a business that can be better delivered through our UEPS. We can also act as an
agent, for instance, in the provision of insurance policies. In both cases, the
revenue and costs associated with this approach are reflected in our Financial
services segment.

Finally, we have entered into
business partnerships or joint ventures to introduce our UEPS and VTU solutions
to new markets such as Botswana, Namibia, Nigeria, Colombia and Vietnam. In
these situations, we take an equity position in the business while also acting
as a supplier of technology. In evaluating these types of opportunities, we seek
to maintain a highly disciplined approach, carefully selecting partners,
participating closely in the development of the business plan and remaining
actively engaged in the management of the new business. In most instances, the
joint venture or partnership has an exclusive license to use the UEPS in the
specific territory, including the back-end system. We account for our equity
investments using the equity method. When we equity-account these investments,
we are required under US GAAP to eliminate our share of the net income generated
from sales of hardware and software to the investee. We recognize this net
income from these during the period in which the hardware and software is
utilized in the investees operations, or has been sold to third party
customers, as the case may be.

We believe that this flexible
approach enables us to drive adoption of our solution while capturing the value
created by the implementation of our technology.

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Trends and Material Developments Affecting our Business

***Status of South
African Provincial Contracts for the Distribution of Welfare Grants***

See Item 1A. Risk FactorsThe
South African Social Security Agency, or SASSA, is in the process of conducting
a national tender for the distribution of welfare grants in which bidders had
the opportunity to bid for all of South Africa or on a province-by-province
basis. If we were not to receive contracts to continue to distribute these
grants in each of the provinces where we currently distribute them, or if we do
win these contracts, but the terms are not as favorable to us as our current
contracts, our financial condition, results of operations and cash flows would
be materially and adversely affected.

We believe that our successful
record with our provincial government contracts will provide us with a good
opportunity to benefit from the transition to national administration of social
welfare grants because we may be able to obtain contracts to distribute grants
in provinces with which we do not currently have a contractual relationship.
However, there is a chance that a national tender could lead to our losing one
or more of our current contracts if SASSA decides to appoint a single (or other)
contractor to provide social welfare grant distribution and we are not chosen.
During this transition period our existing provincial government contracts will
continue to be governed by their respective terms.

On March 10, 2008 we received
official notification from SASSA that our five existing contracts, which expired
at the end of March 2007, have been extended until March 31, 2009. SASSA
reserves the right to terminate any of the service level agreements on 30 days
written notice, but only after an initial period of six months which ends on
September 30, 2008. The following table shows the current status of each of our
provincial government contracts:

Table 1
    KwaZulu-Natal
    Limpopo
    North West
    Northern Cape
    Eastern CapeOriginal year of
      contract      award
    1992
    1996
    1995
    1997
    2002Date acquired by Net1
    October 1998
    October 1998
    October 1998
    October 1998
    n/aDate of first Net1
      contract
    January 2000
    December 2003
    July
      2000
    January 2000
    November 2003UEPS smart
      card      implementation date
    January 2000
    January 2004
    October 2000
    September 2001
    November 2003Merchant
      acquiring      rollout date
    December 2004
    March 2005
    June 2005
    July 2004
    October 2004Current
      contract      expiration
      date      (including extensions)
    March 2009
    March 2009
    March 2009
    March 2009
    March 2009Further
      possible      extensions
    Negotiable
    Negotiable
    Negotiable
    Negotiable
    NegotiableNumber of
      beneficiaries      grants paid by CPS
      (as      of June 30, 2008)
    1,731,476
    987,352
    455,315
    165,550
  682,500


We believe that based on the
number of beneficiaries, we currently have approximately 45% of the market share
in South Africa for the distribution of social welfare grants. Our main
competitors are the South African Post Office and the formal banking sector.

***Acquisition of BGS
Smartcard Systems AG***

BGS’s system, Dual Universal Electronic Transactions, or DUET, was developed by BGS as a derivative of the first version of our UEPS technology that we licensed to BGS in 1993. BGS’ largest customer is Sberbank, the largest financial institution in Russia, which owns the remaining 19.90% of the company. In the acquisition, we paid the selling shareholders approximately €71.5 million, approximately $112.9 million at the year end exchange rate of $1: €0.6334, in cash and issued certain shareholders an aggregate of 40,134 shares of our common stock. We financed the cash portion of the purchase price with the proceeds of bank financing. We expect to repay the bank financing from internally generated funds in the next six months.

We believe that the acquisition of BGS offers us numerous
potential strategic benefits, including the following:

- Increasing our revenues from providing our financial services and
  value-added products to a new cardholder base. BGS has historically employed a
  business model which focused on selling its product offering into various
  countries. In contrast, our service-based business model focuses on generating
  continuing revenues from our cardholder base through transaction-based fees,
  financial services and value-added products. We believe that the geographical
  footprint of BGS is now large enough to allow us to overlay our service-based
  model onto the various DUET systems operating in Russia and other countries,
  thereby creating new revenue streams for BGS and system operators.

54

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- Enhancing our product offering by leveraging our technology platforms and
  IT development resources. We believe that our technological leadership in
  fields such as biometric identification and in the integration of our UEPS
  technology with GSM will allow us to create new business opportunities for BGS
  such as national identification, voting and welfare distribution systems and
  cell phone-based payment solutions. We expect that the addition of BGS
  skilled human resources in the information technology area will greatly assist
  us in the ongoing development of our technologies and maintenance of our
  existing systems.
- Increasing the depth of our management team with the addition of
  experienced executives. We believe that the expertise and experience of BGS
  senior management will greatly assist us in our global expansion initiatives.
- Accelerating the rollout of UEPS in Russia and other new territories.
  There is little geographical overlap in our and BGS operations and thus, the
  acquisition offers us the opportunity to establish relationships in countries
  where we believe there are exciting opportunities for the implementation
  technology but where we have minimal current relationships. We believe that
  having a local partner is important to the success of international
  implementation of our systems. Thus, we believe that Sberbank, through its
  leading market position in Russia, can offer us its extensive business network
  to implement our complete suite of products there and will be motivated to do
  so by virtue of its continued participation as a shareholder in BGS.

***International
Expansion***

Our preferred approach to enter a
new country or market is to identify an entry point for our products and
services that will result in ready acceptance by a new card holder base. We
enter new markets both directly, as we have done in Ghana and Iraq, or through
joint ventures with local partners, as we have done in Namibia, Botswana,
Nigeria, Colombia and Vietnam. If we decide to form a joint venture to enter the
market, we seek to identify suitable partners who exhibit one or more of the
following qualities:

- access to a client base that has a need for our products and services;
- ability to fund a proportion of the capital expenditures and operating
  costs required to establish a new venture; or
- expert knowledge of the culture, political and economic dynamics of the
  country or market they operate in.

Where required we incorporate an
appropriate corporate entity, usually under the name SmartSwitch (if
available) for entities implementing new systems to use our UEPS technology with
the shareholding proportions determined by the funding committed by ourselves
and the other shareholders. We enter into shareholder agreements with our
partners and service level agreements with our clients prior to the commencement
of activities. When all the shareholders have transferred their respective
capital contributions through a combination of capital and loan contributions,
as determined in the shareholders agreements, we appoint a local management team
in collaboration with our partners and commence with the establishment of the
infrastructure required to operate a UEPS system. This process generally takes
six to 12 months, depending on the size of the system required, the local state
authority approvals processes and the number of products and services that will
be initially introduced. We license the core UEPS system, and sell the related
hardware, customization and training to the corporate entity on normal
commercial terms. The management team of the corporate entity is responsible for
the initial implementation, the daily operations of the business and the
continued growth of the venture through the introduction of new products and
services, as the card holder base expands. Depending on the nature and size of
our shareholding, we either consolidate or equity-account the results of these
corporate entities.

*Iraq*

During the third quarter of
fiscal 2008 we signed a contract with a consortium comprising the Iraqi
government and local Iraqi banks for the use of our UEPS technology in Iraq.
Under the contract, we will directly provide a customized UEPS banking and
payment system to the consortium and will not form a new entity. Accordingly we
will not equity-account the results of transactions in Iraq.

The consortium selected us as its
partner to assist with the challenges currently encountered with the payment and
distribution of cash disbursements in Iraq. It is expected that the UEPS
technology will also be utilized by Iraqi citizens living abroad, via bank
branches in other countries.

The deployment of the UEPS will
provide a ubiquitous platform for retail payment transactions in Iraq by
providing interoperability between automatic teller machines, point of sale
devices and bank branches. The UEPS technology will provide offline and online
transaction processing solutions to enable affordable products and services to
be offered to Iraqi citizens irrespective of where they reside. Projects
identified include the payment of social grants to war victims, employee
salary/wage payments, banking products and financial services. The first UEPS
transaction was performed in August 2008, in Baghdad, Iraq, during the official
launch of the UEPS smart card technology with the two state banks namely,
Rafidain Bank and Rasheed Bank. Our first project in Iraq is a pilot involving
100,000 beneficiaries. The pilot calls for implementation of our UEPS technology
across selected bank branches and will enable the distribution and payment of
government grants to war victims and martyrdom beneficiaries, as well as salary
and wage distribution and payment to employees of the two state banks.

55

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We expect to generate revenue in
the first quarter of fiscal 2009. Under the agreement, we will receive ongoing
transaction and license fees, as well as payments for the provision of
outsourcing services and the sale of hardware.

*Ghana*

In June 2007 we were awarded the
National Switch and Smart Card Payment System tender by the Central Bank of
Ghana. The tender was issued pursuant to the vision of the Central Bank of Ghana
to provide the Ghanaian financial services industry access to a robust
technological platform that will allow for the switching of all existing payment
instruments and introduce a new biometrically protected smart card designed to
deliver affordable financial services to the majority of Ghanaian citizens. We
believe this to be the first time that a national electronic payment system will
allow so many different technologies to inter-operate with each other for the
benefits of all stakeholders.

The initial contract value for
the delivery, installation and customization of the switch and UEPS hardware and
software was estimated at approximately $20 million. The solution was
implemented during fiscal 2008 and is designed to achieve interoperability
between all the existing ATMs, POSs and teller terminals owned by individual
banks, will deploy new ATMs and POSs which will be connected directly to the new
processing system and will introduce our UEPS smart card to be issued by the
switch and all Ghanaian banks. The system will also incorporate a card risk
management applet as well as the ability to provide biometric protection to PIN
based applications as an additional, but independent, verification process.

We expect to generate a license
fee based on the number of smart cards acquired for use through the Ghanaian
national switch. At this stage we can not reasonably quantify the volume and
timing of the smart cards acquired for use and can not provide a reasonable
estimate of the quantum of the annual license fees.

In many developing economies, the
number of individuals with bank accounts seldom exceeds 20% of the economically
active population and traditional payment channels offered do not operate
successfully in rural environments where infrastructures such as electricity,
water, communication and buildings are lacking or simply not affordable. There
is also a need for local businesses to accept payment tenders such as
international branded credit and debit cards like Visa and MasterCard. More
pressing, however, is the need for a payment instrument that can be issued to
all Ghanaians regardless of their financial status or location that will offer
them a range of financial services and products such as pre-paid utilities,
money transfers, loan and insurance management, savings accounts, third party
payments and the like, in a way that will preserve their integrity, dignity and
security.

We believe the award of this
tender to us could precipitate further engagements by neighboring countries to
also implement our technology in order to provide the same functionality and to
enable cross border transactions.

We commenced and substantially
completed software development and customization activities related to the
Ghanaian National Switch and Smart Card Payment System during fiscal 2008. In
addition, the data room was built by the Central Bank of Ghana and delivered
hardware required in terms of the tender specifications to Ghana. The Ghanaian
National Switch and Smart Card Payment System was officially launched during the
fourth quarter of fiscal 2008.

During January 2008, the Central
Bank of Ghana announced that it is mandatory for all financial institutions,
including banks, community banks and credit unions to participate in the UEPS
national switch. As a result, we anticipate that 169 different financial
institutions will join the payment system. The Central Bank of Ghana has also
ordered a further 2.5 million smart cards, 5,484 terminals, 1,338 registration
workstations, 324 wage payment workstations and have asked us to upgrade all
existing ATMs in Ghana to be UEPS-compatible. We commenced delivery of the
additional terminals during fiscal 2008 and anticipate delivery of the
additional requirements during the first two quarters of fiscal 2009.

*Namibia*

We own 50% of SmartSwitch Namibia
(Pty) Limited, or SmartSwitch Namibia, and the other 50% is owned by Namibia
Post Limited, or NamPost, a government entity which provides post office and
banking services across Namibia. SmartSwitch Namibia operates a national UEPS
smart card-based switching and settlement system in Namibia and provided NamPost
with a UEPS banking platform. The UEPS system will also be offered to employers,
retailers, medical insurance companies and other government institutions.
SmartSwitch Namibia has been granted a permanent license by the Central Bank of
Namibia to operate as a multilateral payment system service provider in Namibia.

The system, the first of its kind
in Namibia, is intended to improve the banking system in the country. NamPost,
as the first customer of the switch, is expected to increase its market share in
the financial services arena and position itself as the leading service provider
for the un-banked and under-banked citizens of Namibia. NamPost has informed us
that as of June 30, 2008, it had acquired 125,586 new clients as a direct result
of the implementation of the UEPS technology.

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As of June 30, 2008, SmartSwitch
Namibia has activated 231,703 UEPS smart cards and has signed up 180 merchants
to accept the UEPS smart cards. SmartSwitch Namibia has launched our UEPS-based
prepaid electricity system with Payzone, a Namibian-based company that
distributes pre-paid electricity vouchers on behalf of the Windhoek Town
Council. This solution will facilitate the sale of prepaid electricity in rural
and urban areas using the UEPS system to secure, authenticate and collect
payments on behalf of the participating municipalities.

Negotiations are currently
underway with other financial institutions and companies that wish to
participate as customers of SmartSwitch Namibia. SmartSwitch Namibia is
currently expanding its offering to include medical identification and life
insurance sales and premium collection. Negotiations with the service providers
are at an advanced stage. We expect the suite of smart card applications to
include banking, retail, money transfers, third party bill payments, wages and
social security grants.

During fiscal 2008 we completed
the development of NamPosts investment products including Save as you Earn,
Saving Certificates and Fixed Term Deposits which are now being used by local
and foreign depositors.

SmartSwitch Namibia officially
commenced operations during February 2006. During the year ended June 30, 2006,
software and hardware were made available for collection to SmartSwitch Namibia.
We have recognized net income related to 50% of these software and hardware
sales during the year ended June 30, 2008 and 2007 as we were required to defer
this income until such time as SmartSwitch Namibia used or sold this software
and hardware, as the case may be.

Botswana

We own 50% of SmartSwitch
Botswana (Pty) Ltd, or SmartSwitch Botswana, and the other 50% is owned by
Capricorn Investment Holdings (Botswana) Proprietary Limited, or Capricorn,
which owns 100% of Botswana-based Bank Gaborone Limited and the majority holding
in a number of financial services companies operating in Botswana. SmartSwitch
Botswana is the first system of its kind in Botswana and we expect that it will
have a substantial impact on the financial industry in Botswana.

In February 2007, SmartSwitch
Botswana entered into a Micro Lender Deductions Service Level Agreement with
Lesaka Information Technology Services (Proprietary) Limited, or LITS. LITS has
been contracted by the Government of Botswana in the capacity of a Central Loan
Registry to facilitate the following functions:

- receiving loan approval requests from accredited micro financiers that are
  LITS-accredited micro financiers that provide loans to employees of the
  Government of Botswana, or Micro Financiers, and have procured the services of
  LITS and/or SmartSwitch Botswana;
- screening and vetting of loan applications in terms of established loan
  criteria and onward transmission of approvals or repudiations to the Micro
  Financiers;
- receiving monthly loan deduction requests from Micro Financiers;
- testing monthly deduction files to ensure compliance with the rules by the
  Micro Financiers;
- onward transmission of monthly deduction files to the Ministry of Finance
  and Development Planning, or MFDP;
- receiving payment of the monthly deductions from the MFDP; and
- reconciling the monthly deduction payment from MFDP for onward payment to
  the respective Micro Financiers.

SmartSwitch Botswana has been
appointed by LITS as its technology service provider to provide the technology
needed to perform these functions. During fiscal 2007, SmartSwitch Botswana
concluded a successful pilot to perform the required functions. The monthly
deduction file was used to run deductions against the Government of Botswanas
pay file from April 2007. During the month of June 2008, SmartSwitch Botswana
ran 28,651 deductions against the Government of Botswanas pay file.

SmartSwitch Botswana commenced
pilot UEPS-based transactions with merchants, employers and card holders, and
these transactions are underwritten by Bank Gaborone. The preliminary phases of
the pilot were completed successfully during fiscal 2008.

Towards the end of fiscal 2008
SmartSwitch Botswana was selected as the preferred distribution channel of
government grants from the Botswana Department of Social Services. The Botswana
tender required a system to provide a monthly delivery of food coupons for about
100,000 destitute persons, orphans and community home based care patients, such
that the integrity of the awards was not undermined or compromised.

The Botswana Department of Social
Services called for the tender after a review analysis showed a need to upgrade
the existing distribution system, which had been using traditional paper based
coupon systems for the distribution of food parcels. As described under Item 1.
BusinessOur Technologymultiple and restricted wallets, our UEPS system allows
for the restriction of wallets on our UEPS system, thus, restricted wallets
allow transactions to be performed only at specific merchants. We believe that
this functionality was the key determinant in the tender award. We expect that
SmartSwitch Botswana will receive a monthly per user fee for the provision of
these services and we expect launch of this initiative during the first quarter
of fiscal 2009.

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We believe that this tender award
in Botswana will demonstrate to potential customers in Botswana the merit of our
system. SmartSwitch Botswana currently uses the UEPS-based technology to perform
the deduction of loan repayments from borrowers salaries on behalf of Micro
Financiers in Botswana.

*Nigeria*

We consolidate SmartSwitch
Nigeria Limited, or SmartSwitch Nigeria, for financial accounting purposes as we
own 80% of the equity. This differs from the equity accounting treatment of our
investments in SmartSwitch Namibia and SmartSwitch Botswana. SmartSwitch Nigeria
acquired UEPS hardware and software valued at approximately $14.0 million from
us. The revenue and profit arising from these transactions between us and
SmartSwitch Nigeria have been eliminated upon consolidation and we have fully
consolidated the start-up losses incurred during fiscal 2008 and 2007 by
SmartSwitch Nigeria. We estimate to incur total start-up losses of approximately
$2.0 million during the implementation period.

One of SmartSwitch Nigerias
initial objectives is to have an impact on the financial industry in Nigeria,
where approximately 90% of the population of 140 million people is un-banked and
transacts in cash. SmartSwitch Nigerias other objectives will be to deploy the
UEPS technology through several applications, including banking, health care,
money transfers, pre-paid utilities and telephony and voting.

We have delivered 50,000 smart
cards to Diamond Bank, one of Nigerias largest banking institutions, for its
initial deployment into village community banks. SmartSwitch Nigeria has
received approval from the Central Bank of Nigeria to:

- conduct a multi-lateral clearing and settlement system that will allow
  other financial institutions to participate in the switch; and
- utilize the UEPS smart card as a payment system in Nigeria.

We expect SmartSwitch Nigeria to
become operative during the first half of fiscal 2009.

*Colombia*

We own 50% of VTU De Colombia SA,
or VTU Colombia, and have fully installed and integrated the VTU system in
Colombia. The VTU system in Colombia is now active with Colombias first and
third largest mobile operators. VTU Colombia currently operates in Bogotá,
Baranquilla and Cartegena and VTU Colombia is expected to further expand the VTU
system nationally in the next four quarters. In addition, agreements have been
entered into with VTU Colombias initial and primary distribution partner to
deploy VTU enabled handsets through its national distribution and sales
force.

58

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VTU Colombia commenced VTU
operations in August 2007 and generates revenues from mobile phone users when
they purchase airtime using the VTU system. The following chart presents the
growth in VTU Colombia revenue, in Colombia Pesos, or COP, and the number of
transactions during the eleven month period ended June 30, 2008:



The average exchange rate during
the eleven months ended June 30, 2008 was US$ 1: COP 1,958.

*Vietnam*

We own 30% of Vietnam Payment
Technologies Joint Stock Company, or VinaPay, which was authorized and licensed
to commence business activities at the end of May 2007. The VTU system became
fully operational and the first commercial transactions were performed by
customers in late December 2007. VinaPay experienced strong revenue growth
during the third quarter of fiscal 2008. In addition, we continue preliminary
discussions with two of Vietnams other mobile operators to utilize the VTU
system.

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VinaPay commenced VTU operations
in late December 2007 and generates revenues from mobile phone users when they
purchase airtime using the VTU system. The following chart presents the growth
in VinaPay revenue, in Vietnamese Dong, or VND, and the number of transactions
during the six month period ended June 30, 2008:



The average exchange rate during
the six months ended June 30, 2008 was US$ 1: VND 16,329.

*Other Countries*

We have also implemented UEPS
systems in Rwanda, Burundi, Malawi and Mozambique, some of which are considered
among the poorest countries in the world. In Malawi, our system has been
implemented by the Reserve Bank of Malawi as a national payment system.

In addition, our relationship
with MTN Group (Africa/Middle Easts largest mobile operator group) regarding
VTU continues to progress. Both MTN Ivory Coast and MTN Rwanda have purchased
VTU systems, bringing the number of MTN operators using VTU for electronic
pre-paid airtime top-up to six.

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***Progress of wage
payment implementation***

The implementation of our wage
payment initiative in South Africa requires us to be registered as a bank in
South Africa, or to have access to an existing deposit taking license. Our
approach to obtaining our own license, or gain access to one was via one of the
following channels:

- applying for a new banking license;
- purchasing an existing banking license; and
- entering into a joint venture arrangement with an existing banking
  institution to gain access to its banking license.

In January 2007, we signed a
co-operation agreement with Grindrod Bank, a fully registered bank in South
Africa, for the establishment of a retail banking division within Grindrod Bank
that will focus on deploying our wage payment solution in South Africa. Under
the agreement, Grindrod Bank is responsible for the human resources,
administration, compliance, risk management and financial affairs of the
division. Net1 is responsible for the supply and maintenance of all UEPS
hardware and software required to implement and run its wage payment system, for
which it will charge a monthly fee per smart card account at Net1s cost price,
and will receive ongoing fee payments based on the amount of business transacted
by the division utilizing the UEPS technology. Net1 will assist Grindrod Bank
with the implementation of the business plan and operational activities and both
parties initially contributed $0.7 million (ZAR 5.0 million) to assist with the
set-up costs of the division. The division will report to an executive committee
consisting of two Net1 and two Grindrod representatives.

Since the establishment of the
division during the third quarter of fiscal 2007, all the relevant technological
platforms have been installed, where required, or integrated between Net1 and
Grindrod. Grindrod Bank, with Net1s assistance, has successfully joined the
South African National Payment System and the various payment clearing houses in
South Africa.

The target markets for the wage
payment system are the un-banked and under-banked wage earners in South Africa,
estimated at five million people. These wage earners are typically paid in cash
on a weekly, bi-weekly or monthly basis and have all the risks associated with
cash payments, but none of the benefits associated with having a formal bank
account. Net1 and Grindrod Bank plan to offer these wage earners a UEPS smart
card that will allow the card holder to receive payment, transact and access
other financial services in a secure, cost-effective way.

In parallel, Net1 and Grindrod
Bank have defined the products, pricing and marketing strategy for the wage
payment system. We officially launched the wage payment system in the
KwaZulu-Natal province on May 12, 2008 and we have successfully implemented
several systems with smaller employers in the area, mainly in the agricultural
sector. We are currently negotiating agreements with larger employers and with
established agents who will act as originators of bank accounts in the
communities and industries where they have established relationships. We have
concluded agreements with the relevant financial services providers to ensure
that we offer our customer base a complete suite of financial solutions.

***Proposed Abolishment
of Secondary Taxation on Companies***

On February 21, 2007, the South
African Minister of Finance announced in his National Budget speech that the
National Government intends to phase out Secondary Taxation on Companies, or
STC, and introduce a dividend tax at a shareholder level. Currently, South
African companies are required to pay STC at a rate of 10.00% on dividends
distributed, subject to certain exemptions. If a dividend tax is introduced
South African companies will no longer be liable to pay STC and the shareholder
will be liable to pay the dividend tax. Treaty relief would be available for
foreign shareholders.

The reform is being implemented
in two phases. The first phase entailed a reduction of the STC rate, effective
October 1, 2007, to 10.00% and the second phase, now expected in calendar 2010
will result in a total conversion to a dividend tax. It is likely that South
African companies will be required to withhold the dividend tax on all dividends
paid. On January 8, 2008, the Revenue Laws Second Amendment Act (Act 36 of
2007), or the Revenue Laws Act, was promulgated. The Revenue Laws Act included
the enabling legislation to reduce the rate of STC from 12.50% to 10.00%,
effective October 1, 2007. As a result our fully distributed tax rate was
reduced to 35.45% from 36.89% during fiscal 2008.

We can not reasonably determine
whether the second phase will be enacted as proposed and we will comply with
that new tax legislation once it has been enacted. If the announcements made by
the South African Minister of Finance in his National Budget speeches regarding
the second phase are enacted, under current enacted tax legislation, we expect
the proposed replacement of STC with a dividend tax to reduce our current fully
distributed rate of 35.45% to 29%. Under US GAAP, we apply the fully distributed
tax rate of 35.45% to our deferred taxation assets and liabilities. We have not
yet determined whether we would qualify for the treaty relief available to
foreign shareholders.

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Included in our earnings for the
fiscal 2008, is deferred income tax expense of approximately $4.3 million (ZAR
31.1 million) related to the application of the fully distributed rate of 35.45%
compared with the South African statutory rate of 29% to our Income before
income taxes. The following table illustrates the effect on our June 30, 2008,
income tax expense, earnings per share and net deferred tax liability as if the
second phase described above had been enacted on July 1, 2007:

|Table 2                                                              |   | Year ended     |  
|-------------------------------------------------------------------- | - | -------------- | -
|                                                                     |   | June 30, 2008  |  
|                                                                     |   |                |  
|                                                                     |   | Actual         |  
|                                                                     |   | $ 000         |  
|                                                                     |   | except percent |  
|                                                                     |   | and earnings   |  
|                                                                     |   | per share      |  
|                                                                     |   |                |  
|Fully distributed tax rate                                           |   | 35.45%         |  
|                                                                     |   |                |  
|Income tax expense before change in fully
      distributed tax rate | $ | 44,589         |  
|Reduction in income tax
      expense resulting from change in       |   |                |  
|fully
      distributed rate during fiscal 2008                      |   | (5,397         | )
|Income tax expense                                                   | $ | 39,192         |  
|                                                                     |   |                |  
|Net deferred tax liability reversal to net income
      (2)          |   | -              |  
|                                                                     |   |                |  
|Basic earnings per share, in $                                       |   | 1.52           |  
|                                                                     |   |                |  
|Net deferred tax liability as at June 30, 2008                       | $ | 27,877         |  

(1) Illustrates the abolishment
of STC had this been enacted on July 1, 2007. Accordingly, the fully distributed
rate decreases from 36.89% (effective as at July 1, 2007) to 29%. All South
African deferred tax assets and liabilities would then be measured at 29% which
would result in a reversal of a portion of the net deferred tax liabilities
recognized.

(2) The net deferred tax
liability reversal to net income represents the portion of the net deferred tax
liability rate adjustment as of June 30, 2008 translated at rates applicable as
of June 30, 2008 assuming the fully distributed tax rate is 29%.

As discussed above, we can not
reasonably determine whether, or when, the phase two amendments will be enacted
as proposed and what the ultimate effect on our reported earnings will be.

***Seasonality of
Transaction-Based Activities***

We experience seasonality in our
transaction-based activities operating segment. Our beneficiaries are able to
load their grants onto their cards as soon as the grant payment file is
activated, which typically happens during the week preceding the commencement of
a calendar month. We recognize the fee revenue related to the distribution of
welfare grants when the beneficiaries load the grants to their cards. The
general exception to this rule is the January payment cycle, when the activation
of the payment file is done on a limited basis at merchant locations only. As a
result, the revenue recognized in the second quarter of our fiscal year is
generally lower than the other three quarters due to the limited number of
grants distributed during the last week of December. The activation of the
payment file for any month also depends on whether the first calendar day of a
month is a weekday, or a Saturday, Sunday or public holiday.

***Description of Our
Business and Operating Segments***

We analyze our business and
operations in terms of four inter-related but independent operating segments:
(1) transaction-based activities, (2) smart card accounts, (3) financial
services, and (4) hardware, software and related technology sales. In addition,
corporate and corporate office activities that are impracticable to ascribe
directly to any of the other operating segments, as well as any inter-segment
eliminations are included in corporate/ eliminations.

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***Transaction-Based
Activities***

The transaction-based activities
operating segment consists primarily of our contracts to distribute social
welfare payments in South Africa through our subsidiary Cash Paymaster Services
(Proprietary) Limited, or CPS, and its operating subsidiaries and our EasyPay
operation. CPSs operating subsidiaries utilize the UEPS technology to
administer and distribute social welfare grants in five of South Africas nine
provinces. Revenues from transaction-based activities include all fees that we
earn from provincial governments and participating retail merchants from
recurring UEPS transactions that we process through our back-end system, such as
the payment of social welfare grants, debit orders, payment of wages, point of
sale spending, distribution of medicine, money transfers and prepayment of
utility bills and transaction fees from customers of EasyPay. The expenses
associated with our provincial contracts transaction-based activities are
primarily variable expenses such as security and guarding expenses we incur to
help insure the security of the cash we transport and the safety of our
employees who transport the cash, banking fees we incur when we withdraw and
redeposit cash, insurance and fixed expenses such as salaries and property
rental. The expenses associated with our EasyPay transaction-based activities
are primarily variable expenses such as data communication charges in order to
switch transactions and fixed expenses such as salaries, depreciation of switch
fixed assets and property rental.

Historically, a substantial
majority of the revenues we derive from transaction-based activities has
consisted of the service delivery component of the fee we charge to the
provincial governments with whom we contract for the distribution of social
welfare grants. The portion of the fee that relates to the provision of the
smart card account is included in the smart card accounts segment. We earn
further transaction fees from participating merchants as a result of social
welfare beneficiaries electing to receive and spend their grants at a POS
installed at participating merchants, instead of visiting a pay-site.

South African social welfare
grants consist of eight different grant types, including social security, child
support and disability grants. A smart card-based biometric, or fingerprint,
identification system is used to verify beneficiaries and effect payments of
social welfare grants onto individual smart cards, with each card acting as an
account for the beneficiary. The beneficiary then has the choice of either
converting the electronic value to cash using automated cash dispensers or
effecting electronic payments through the smart card for a range of services
such as the purchase of goods, loan repayments and insurance premium payments.
The systems biometric verification and audit capabilities help to reduce the
risks of fraud and theft traditionally associated with the use and storage of
cash.

Historically, due to the limited
number of services available, almost all of the beneficiaries have downloaded
the value of their grant payments onto their smart cards and then immediately
accessed the full amount as cash. Our revenue has therefore been limited to fees
we earn on the loading and redemption of value on the cards as well as the
registration of beneficiaries rather than the provision of other services. We
are, however, expanding the services available to beneficiaries to include debit
orders, point of service spending and money transfers. We believe that by making
these services available to beneficiaries, we have the potential to earn
additional revenues in the future.

Our merchant acquiring system
deployed into merchant stores throughout the Northern Cape, Eastern Cape,
KwaZulu-Natal, Limpopo and North West provinces of South Africa allows all our
card holders to load their social welfare grants or salaries onto their smart
cards at any participating merchant. Once their smart cards have been loaded,
card holders have the flexibility to either purchase goods or receive cash
offline.

We believe that the support from
South African merchants has been highly favorable and we have signed contracts
with merchants in rural, semi-urban and urban areas, including large chain
stores. Potential benefits to merchants from participation in the system include
increased sales from a growing smart card client base, reduced banking charges,
reduced communications and reconciliation costs and a reduction of the risks
associated with fraud and theft.

Participating merchants can also
generate new income streams for themselves by selling a range of financial
products that we offer.

Our operations through EasyPay
focus on the provision of high-volume, secure and convenient payment, prepayment
and value-added services to the South African market. We charge our customers a
transaction fee for these services. EasyPays infrastructure connects into all
major South African banks and switches both debit and credit card EFT
transactions for some of South Africas leading retailers and petroleum
companies.

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***Smart Card Accounts***

Our smart card accounts operating
segment derives revenue from the provision of smart card accounts to our card
holders, which currently primarily consist of social welfare grant
beneficiaries. As described under Transaction-Based Activities above, we
provide a smart card account to all social welfare beneficiaries to whom we
distribute payments. A portion of the fee we earn for the delivery of the
service is for the provision of the smart card account and is therefore included
in the smart card accounts operating segment. The fixed costs included in this
operating segment are primarily computer equipment-related and personnel costs
associated with the operation of the smart card accounts.

***Financial Services***

Our financial services operating
segment derives revenues from providing financial services to card holders
through our smart card delivery channel. These financial services consist
primarily of short-term loans and life insurance products. We provide the loans
ourselves and generate revenue from the service fees charged and interest earned
on these loans. We sell life insurance products on behalf of registered
underwriters and earn revenue through the commissions we receive on the sale of
policies. The fees we earn for the collection of insurance policy premiums
through our debit order system is included in the transaction-based activities
operating segment. The fixed expenses associated with the financial services
operating segment consist primarily of costs of administrative personnel and
depreciation of computer equipment.

We also operate a traditional
microlending business with approximately 71 branches located throughout South
Africa. These branches extend short-term loans for periods ranging from 30 days
up to four months, with the majority of loans being 30-day loans. The fixed
costs associated with the provision of these accounts are primarily the leasing
of office premises and salaries associated with the extension of microlending
loans.

***Hardware, Software
and Related Technology Sales***

We have developed a range of
technological competencies to service our own internal needs and to provide
links with our client enterprises. We derive revenues from the hardware,
software and related technology sales operating segment by providing to
customers the hardware and software required to implement our UEPS system.
Typical components for a UEPS system installation are:

- hardware for the back-end switching and settlement system;
- customization of the UEPS software to suit local conditions, including
  UEPS management system, automated teller machine, or ATM, integration and POS
  device integration;
- customization of an applications suite to clients specific requirements,
  such as banking, retail or wage payments;
- ongoing software and hardware support/maintenance; and
- license fees.

Two of our largest customers in
this segment are the Central Bank of Ghana and Nedbank Limited, one of South
Africas largest banks by asset size. Our transactions with the Central Bank of
Ghana during fiscal 2008 are discussed above under International
ExpansionGhana. We have an arrangement with Nedbank relating to
the outsourcing of its entire POS device management system, front-end switching
Stratus computer platform, development of their software systems, smart cards
and POS device maintenance. We also supply hardware to Nedbank in the form of
POS devices and card readers on an ad hoc basis.

Included in our hardware,
software and related technology sales segment are chip and wireless, payment
solutions and transactions solutions businesses.

Description of Income Statement Line Items

***Revenue***

Revenue includes (1) fees from
provincial governments and participating merchants for transactions effected
using our smart cards, including payment of social welfare grants and purchasing
goods and services and switching fees generated by EasyPay; (2) once-off fixed
fees we charge to provincial governments and employers for providing a smart
card account to each card holder; (3) interest and service fees we earn on
UEPS-based and traditional microlending and commissions from life insurance
products that we sell on behalf of registered underwriters and (4) proceeds from
the sale of hardware, software (including license fees) and related technology.

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***Cost of Goods Sold,
IT Processing, Servicing and Support***

Cost of goods sold, IT
processing, servicing and support includes all costs we incur to provide our
systems. The most significant elements of these costs include (1) security and
guarding expenses which we incur to help protect the security of the cash we
transport and the safety of our employees who transport the cash, (2) banking
expenses we incur when we withdraw and redeposit cash, (3) transportation
expenses we incur, including fuel, maintenance and insurance for the automotive
vehicles that travel throughout the provinces to distribute social welfare
payments, (4) personnel expenses other than for our executive and administration
employees, (5) rental and utilities for the facilities we operate and (6)
inventory expenses, which consist primarily of spare parts to perform hardware
repairs.

***Selling, General and
Administration***

Selling, general and
administration expenses consist primarily of (1) personnel expenses for our
executive and administration employees (including stock-based compensation
charges), (2) costs associated with our head office facility, (3) costs
associated with the compliance with the Sarbanes-Oxley Act of 2002, or Sarbanes,
particularly Section 404 of Sarbanes, (4) professional fees, such as audit,
legal, advisory and tax and (5) marketing, selling and travel expenses.

***Depreciation and
Amortization***

Depreciation and amortization
consists of depreciation of property, plant and equipment and amortization of
intangible assets.

***Interest Income, Net***

Interest income, net consists of
interest we receive on our surplus cash in our bank accounts, net of the
interest we pay on short-term borrowings. Interest paid to tax authorities or
interest received from tax authorities is included in interest income, net.
Interest income we earn from our business of providing short-term loans is
included in revenue and is not included in interest income.

***Income Tax Expense***

We account for income taxes using
the asset and liability method. This approach recognizes the amount of taxes
payable or refundable for the current year, as well as deferred tax assets and
liabilities for the future tax consequence of events we recognize in the
financial statements and tax returns. Deferred income taxes are adjusted to
reflect the effects of changes in tax laws or enacted tax rates. See Proposed
Abolishment of Secondary Taxation on Companies.

***(Loss) Earnings from
Equity-Accounted Investments***

We use the equity method to
account for investments in a company when we have a significant influence, but
not control, over the operations of the investee company. Under the equity
method, we initially record the investment at cost on our balance sheet. We
reflect in our statements of operations our proportionate share of the investee
companys net income or loss and we adjust the carrying value of the investment
to reflect this net income or loss. Our interest in equity-accounted investments
is summarized as follows:

|Entity name                                                           | Interest
|--------------------------------------------------------------------- | --------
|SmartSwitch Namibia                                                   | 50.00%  
|SmartSwitch Botswana                                                  | 50.00%  
|VTU Colombia                                                          | 50.00%  
|Vinapay                                                               | 30.00%  
|Permit Group 2 (Proprietary) Limited, or
      Permit (sold May 2007) | 43.16%  

Permit owned 95% of the common
stock of New Era Life Insurance Company, a provider of various insurance
products to the South African market.

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Critical Accounting Policies

Our annual financial statements
have been prepared in accordance with US GAAP, which requires management to make
estimates and assumptions about future events that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities. As
future events and their effects cannot be determined with absolute certainty,
the determination of estimates requires managements judgment based on a variety
of assumptions and other determinants such as historical experience, current and
expected market conditions and certain scientific evaluation techniques.
Management believes that the following accounting policies are critical due to
the degree of estimation required and the impact of these policies on the
understanding of the results of our operations.

***Revenue Recognition 
System Implementation Projects***

We undertake smart card system
implementation projects. The hardware and software installed in these projects
are in the form of customized systems, which ordinarily involve modification to
meet the customers specifications. Software delivered under such arrangements
is available to the customer permanently, subject to the payment of annual
license fees. Revenue for such arrangements is recognized under the percentage
of completion method, save for annual license fees, which are recognized in the
period to which they relate. Up-front and interim payments received are recorded
as client deposits until customer acceptance. For fiscal 2008 we recognized
revenue of approximately $14.2 million using the percentage of completion method
related to a contract with the Central Bank of Ghana. During fiscal 2007 and
2006 we did not recognize any revenue using the percentage of completion method.

***Deferred Taxation***

We estimate our tax liability
through the calculations done for the determination of our current tax liability
when tax returns are filed, together with assessing temporary differences
resulting from the different treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities which are
disclosed on our balance sheet. Management then has to assess the likelihood
that deferred tax assets will be recovered from future taxable income. To the
extent that we believe recovery is unlikely, we create a valuation reserve. The
carrying value of our net deferred tax assets assumes that we will be able to
generate sufficient future taxable income, based on estimates and assumptions.
Management has considered future taxable income over a five year forecasting
period and ongoing feasible tax strategies in determining the need for the
valuation allowance, but in the event that we were to determine that we would be
able to realize deferred tax assets in the future, a valuation allowance may not
be required which would increase net income in the period that such
determination is made.

***Stock-based
Compensation***

Effective July 1, 2005, we
adopted Statement of Financial Accounting Standards No. 123R, Share-Based
Payment, or FAS 123R. Estimates and assumptions required to be made by FAS
123R require our managements judgment. FAS 123R requires all share-based
compensation to employees to be recognized in the statement of operations based
on their respective grant date fair values over the requisite service periods
and also requires an estimation of forfeitures when calculating compensation
expense. We utilize the Cox Ross Rubinstein binomial model to measure the fair
value of stock options granted to employees and directors and recognizes
compensation cost on a straight line basis. Option-pricing models require
estimates of a number of key valuation inputs including expected volatility,
expected dividend yield, expected term and risk-free interest rate. Our
management has estimated forfeitures based on historic employee behavior under
similar compensation plans. Accordingly, the fair value of stock options is
affected by the assumptions selected. Stock-based compensation expense from
continuing operations was $4.0 million, $0.9 million and $0.2 million for the
years ended June 30, 2008, 2007 and 2006, respectively.

***Intangible Assets
Acquired Through the Acquisition of Prism***

The fair values of the
identifiable intangible assets acquired through the acquisition of Prism were
determined by management and guidance provided by FAS 141, Business
Combinations. During fiscal 2007, Prism and EasyPay intangible assets were
valued separately. The relief from royalty method was used to value trademarks,
the multi-period excess earnings was used to value customer relationships and
the cost approach method was used to software and unpatented technology.
Management was required to make assumptions regarding revenue and cost of sales
forecasts, applied contributory asset charges, discount rates, exchange rates,
cash tax charges and useful lives.

The valuations were based on
information at the time of the acquisition and the expectations and assumptions
that have been deemed reasonable by us. No assurance can be given, however, that
the underlying assumptions or events associated with such assets will occur as
projected. For these reasons, among others, the actual cash flows may vary from
forecasts of future cash flows.

66

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***Accounts Receivable
and Provision for Doubtful Debts***

We maintain a provision for
doubtful debts in our microlending business resulting from the inability of
certain of our clients to make the required payments. Our policy is to provide
for the full outstanding amount for all debts which are outstanding for 150 days
and longer. As of June 30, 2008, the full amount of such debt outstanding
totaled $4.3 million (ZAR 34.3 million), which is a 16% decrease, in ZAR terms,
over the amount outstanding at June 30, 2007 ($5.8 million or ZAR 40.7 million).
We consider this policy to be appropriate taking into account factors such as
historical bad debts, current economic trends and changes in our customer
payment patterns. Additional provisions may be required should the ability of
our clients to make payments when due deteriorate in the future. A significant
amount of judgment is required to assess the ultimate recoverability of these
receivables, including on-going evaluation of the creditworthiness of each
client.

We also maintain a provision for
doubtful debts related to our hardware, software and related technology sales
segment as a result of sales or rental of hardware, support and maintenance
services provided or sale of licenses to customers. Our policy is to regularly
review the aging of outstanding amounts due from customers and adjust the
provision based on managements estimate of the recoverability of the amounts
outstanding. Management considers factors including period outstanding,
creditworthiness of the customers, past payment history and the results of
discussions by our credit department with the customer. We consider this policy
to be appropriate taking into account factors such as historical bad debts,
current economic trends and changes in our customer payment patterns. Additional
provisions may be required should the ability of our customers to make payments
when due deteriorate in the future. A significant amount of judgment is required
to assess the ultimate recoverability of these receivables, including on-going
evaluation of the creditworthiness of each customer.

***Research and
Development***

Our business activities and
product offerings depend on our proprietary UEPS software. As a result, we have
a large group of software engineers and developers who are constantly revising
and improving the core UEPS software. We account for the development cost of
software intended for sale to licensees in accordance with FAS No. 86,
Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, or FAS 86. FAS 86 requires product development costs to be charged
to expenses as incurred until technological feasibility is attained.
Technological feasibility is attained when our software has completed system
testing and has been determined viable for its intended use. The time between
the attainment of technological feasibility and completion of software
development has been short. Accordingly, we did not capitalize any development
costs during the years ended June 30, 2008, 2007 or 2006, particularly because
the main part of our development is the enhancement and upgrading of existing
products.

We account for the costs to
develop software for our internal use in accordance with Statement of Position
98-1 Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, or SOP 98-1, issued by the American Institute of Certified
Public Accountants. SOP 98-1 requires these costs to be expensed as incurred,
except to the extent that these costs are incurred during the application
development stage. All other costs including those incurred in the project
development and post-implementation stages are expensed as incurred.

A significant amount of judgment
is required to separate research costs, new development costs and ongoing
development costs based as the transition between these stages. A multitude of
factors need to be considered by management, including an assessment of the
state of readiness of the software and the existence of markets for the
software. The possibility of capitalizing development costs in the future,
within the criteria set by FAS 86 or SOP 98-1, may have a material impact on the
groups profitability in the period when the costs are capitalized, and in
subsequent periods when the capitalized costs are amortized.

Recent Accounting Pronouncements

*Recent accounting
pronouncements adopted*

Refer to Note 2 of our
consolidated financial statements included under Item 8 Financial
Statements and Supplementary Data for a full description of recent accounting
pronouncements, including the expected dates of adoption and effects on
financial condition, results of operations and cash flows.

*Recent accounting
pronouncements not yet adopted as of June 30, 2008*

Refer to Note 2 of our
consolidated financial statements included under Item 8 Financial
Statements and Supplementary Data for a full description of recent accounting
pronouncements not yet adopted as of June 30, 2008, including the expected dates
of adoption and effects on financial condition, results of operations and cash
flows.

67

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Currency Exchange Rate Information

***Actual exchange rates***

The actual exchange rates for and
at the end of the periods presented were as follows:

Table 3
    
    Year ended June 30,2008
    2007
    2006ZAR : $ average exchange rate
    7.3123
    7.2188
    6.4283Highest ZAR : $ rate during period
    8.2440
    7.9748
    7.5323Lowest ZAR : $ rate during
      period
    6.4262
    6.7193
    5.9256Rate at end of period
    7.9645
    7.0760
    7.2701




***Translation exchange
rates***

We are required to translate our
results of operations from ZAR to US dollars on a monthly basis. Thus, the
average rates used to translate this data for the years ended June 30, 2008,
2007 and 2006, vary slightly from the averages shown in the table above. The
translation rates we use in presenting our results of operations are the rates
shown in the following table:

Year endedTable 4
      
      June 30,2008
      2007
      2006Income and expense items: $1
      = ZAR .
      7.2905
      7.2100
      6.4127Balance sheet items: $1 = ZAR
      7.9645
      7.0760
      7.2701


68

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Results of Operations

The discussion of our
consolidated overall results of operations is based on amounts as reflected in
our audited consolidated financial statements which are prepared in accordance
with US GAAP. Our discussion analyzes our results of operations both in US
dollars, as presented in the consolidated financial statements, and
supplementally in ZAR, because ZAR is the functional currency of the entities
which contribute the majority of our profits and is the currency in which the
majority of our transactions are initially incurred and measured. Due to the
significant impact of currency fluctuations between the US dollar and ZAR on our
reported results and because we use the US dollar as our reporting currency, we
believe that the supplemental presentation of our results of operations in ZAR
is useful to investors to understand the changes in the underlying trends of our
business. Our results of operations for the year ended June 30, 2006 do not
reflect the operations of Prism as we completed that acquisition after the end
of the 2006 fiscal year. Prisms operations are included in our consolidated
financial statements from July 3, 2006.

***Fiscal 2008 Compared
to Fiscal 2007***

The following factors had a
significant influence on our results of operations for the 2008 fiscal year as
compared to the 2007 fiscal year:

- weakening of the ZAR, our functional currency, against the US dollar, our
  reporting currency, which had a negative impact on our revenues and net income
  in US dollars;
- settlement payment received from SASSA during fiscal 2007 which affects
  the comparability of revenue and net income between the periods due to the
  non-recurring nature of a substantial portion of that payment;
- increased revenues from price increases under all of our provincial
  contracts;
- increased number of grants paid in all provinces, particularly in the
  North West province;
- commencement of the contract to provide the Central Bank of Ghana with a
  National Switch and Smart Card Payment System utilizing our UEPS technology;
- increased revenues from continued adoption of our merchant acquiring
  system by cardholders;
- increased stock-based compensation charges resulting from restricted stock
  grants in fiscal 2008;
- increased interest income resulting from higher deposit rates and higher
  overall cash balances; and
- change in our fully distributed tax rate from 36.89% to 35.45%, which had
  a positive impact on our net income.

**Consolidated overall
results of operations**

This discussion is based on the
amounts which were prepared in accordance with US GAAP.

The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:

|                                                               |  | In United States Dollars  |  
|-------------------------------------------------------------- |  | ------------------------- | -
|Table 5                                                        |  | (US
      GAAP)           |  
|                                                               |  | Year
      ended June 30, |  
|                                                               |  | 2008                      |  
|                                                               |  | $ 000                    |  
|Revenue                                                        |  | 254,056                   |  
|Cost of goods sold, IT processing, servicing and support       |  | 67,486                    |  
|Selling, general and administration                            |  | 65,362                    |  
|Depreciation and amortization                                  |  | 10,822                    |  
|Operating income                                               |  | 110,386                   |  
|Interest income, net                                           |  | 15,722                    |  
|Income before income taxes                                     |  | 126,108                   |  
|Income tax expense                                             |  | 39,192                    |  
|Income before minority interest and (loss)
      earnings from |  |                           |  
|equity-accounted investments                                   |  | 86,916                    |  
|Minority interest                                              |  | (815                      | )
|(Loss) Earnings from equity-accounted investments              |  | (1,036                    | )
|Net income                                                     |  | 86,695                    |  

69

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|                                                               |  | In South African Rand     |  
|-------------------------------------------------------------- |  | ------------------------- | -
|Table 6                                                        |  | (US
      GAAP)           |  
|                                                               |  | Year
      ended June 30, |  
|                                                               |  | 2008                      |  
|                                                               |  | ZAR                       |  
|                                                               |  | 000                      |  
|Revenue                                                        |  | 1,852,188                 |  
|Cost of goods sold, IT processing, servicing and support       |  | 492,005                   |  
|Selling, general and administration                            |  | 476,520                   |  
|Depreciation and amortization                                  |  | 78,897                    |  
|Operating income                                               |  | 804,766                   |  
|Interest income, net                                           |  | 114,621                   |  
|Income before income taxes                                     |  | 919,387                   |  
|Income tax expense                                             |  | 285,728                   |  
|Income before minority interest and (loss)
      earnings from |  |                           |  
|equity-accounted investments                                   |  | 633,659                   |  
|Minority interest                                              |  | (5,942                    | )
|(Loss) Earnings from equity-accounted investments              |  | (7,553                    | )
|Net income                                                     |  | 632,048                   |  

Analyzed in ZAR, the increase in
revenue and cost of goods sold, IT processing, servicing and support for fiscal
2008, was primarily due to the higher volumes in our transaction-based
activities, a greater number of UEPS-based smart card holders and the sale of
hardware and the provision of software development and customization services to
the Central Bank of Ghana.

Our overall operating income
margin remained constant at 43% but varied by operating segment as discussed in
further detail in our segment discussion below.

Cost of goods sold, IT
processing, servicing and support during fiscal 2008 and 2007 includes a
stock-based compensation charge of $0.2 million (ZAR 1.3 million) and $0.3
million (ZAR 2.0 million), respectively, related to options granted to
employees. These amounts are net of adjustments resulting from forfeitures of
$0.1 million (ZAR 1.1 million) and $0.2 million (ZAR 1.5 million),
respectively.

Selling, general and
administration expenses increased during fiscal 2008 from the comparable period
in fiscal 2007 primarily due to the stock-based compensation charge related to
the restricted stock grants awarded in the first and third quarters of fiscal
2008 and increases in goods and services purchased from third parties, including
the effects of the increase in inflation in South Africa. Selling, general and
administration expenses during fiscal 2008 and 2007 includes a stock-based
compensation charge of $4.0 million (ZAR 29.2 million) and $0.6 million (ZAR 4.6
million), respectively, related to options and restricted stock granted to
employees, executive officers and directors. These amounts are net of
adjustments resulting from forfeitures of $0.1 million (ZAR 1.0 million) and
$0.2 million (ZAR 4.4 million), respectively.

Our direct costs of maintaining a
listing on Nasdaq as well as compliance with Sarbanes includes independent
directors fees, legal fees, fees paid to Nasdaq, our compliance officers
salary, fees paid to consultants who assist with compliance with Sarbanes and
fees paid to our independent accountants related to the audit and review
process. This has resulted in expenditures of $1.9 million (ZAR 13.8 million)
and $1.5 million (ZAR 10.8 million) during fiscal 2008 and 2007, respectively.

Depreciation and amortization
includes the amortization charge related to the acquisition of Prism of $5.5
million (ZAR 39.8 million) and $5.4 million (ZAR 39.0 million), respectively,
for fiscal 2008 and 2007. The deferred tax benefit included in our statement of
operations related to the intangible amortization charge for fiscal 2008 and
2007 was $1.9 million (ZAR 13.9 million) and $2.0 million (ZAR 14.2 million),
respectively. Property, plant and equipment acquired to provide administration
and distribution services to our customers is depreciated over the shorter of
expected useful life and the contract period with the provincial government. We
are currently in an extension phase with all our contracts and the majority of
our property, plant and equipment related to the administration and distribution
of social welfare grants has been written off. Accordingly, depreciation expense
related to these activities decreased during fiscal 2008, which was partially
offset by the increase in depreciation of our participating merchant POS
terminals. We expect our depreciation charge to increase during fiscal 2009 as a
result of the acquisition of the latest generation Stratus backend processing
computers for current and new operations, improvements to our smart card
manufacturing facility, and the replacement of motor vehicles in certain
provinces where we provide a social welfare distribution and administration
service.

70

---

Interest on surplus cash during
fiscal 2008 increased to $27.4 million (ZAR 199.7 million) from $16.4 million
(ZAR 118.2 million) during fiscal 2007. The increase in interest on surplus cash
held in South Africa was due to a higher average daily ZAR cash balance during
fiscal 2008 compared with fiscal 2007 and the higher deposit rates resulting
from the adjustment in the South African prime interest rate from an average of
approximately 12.12% per annum during fiscal 2007, to 14.21% per annum during
fiscal 2008.

During fiscal 2008, our finance
costs decreased due to an increase in available cash for our pre-funding
obligation which resulted in less utilization of our short-term facilities which
was offset by the increase in the average rates of interest on short-term
facilities. Finance costs decreased from $12.0 million (ZAR 86.5 million) during
fiscal 2007 to $11.7 million (ZAR 85.3 million) during fiscal 2008.

Total tax expense for fiscal 2008
was $39.0 million (ZAR 284.5 million) compared with $37.6 million (ZAR 270.9
million) during fiscal 2007. Deferred tax assets and liabilities are measured
utilizing the enacted fully distributed tax rate. Accordingly, a reduction in
the fully distributed tax rate from 36.89% to 35.45% results in lower deferred
tax assets and liabilities and the net effect of the change in tax rate of $5.4
million (ZAR 38.5 million) is included in our income tax expense in our audited
consolidated statement of operations for fiscal 2008. If the effect of the
change in our fully distributed tax rate is ignored, the increase in total tax
expense was primarily due to our increased profitability in our
transaction-based and hardware, software and related technology sales
activities. Our effective tax rate during fiscal 2008 was 31.0%, compared to
37.1% during fiscal 2007. The change in our effective tax rate was primarily due
to reduction in our fully distributed tax rate to 35.45% and fewer
non-deductible expenses during fiscal 2008 compared to fiscal 2007. The adoption
of FIN 48 did not have a significant impact on our effective tax rate during
fiscal 2008.

In February 2008, the South
African Finance Minister announced a reduction in the corporate rate of taxation
for South African companies from 29% to 28%. We only recognize changes in
taxation legislation applicable in South Africa in our reported results once it
has been promulgated in South Africa. The change in the corporate rate of
taxation for South African companies had not been promulgated as of June 30,
2008. The change in the corporate rate of taxation for South African companies
was enacted on July 22, 2008, and we will reflect the change in our fully
distributed rate during the first quarter of fiscal 2009.

Loss from equity-accounted
investments for fiscal 2008, of $1.0 million (ZAR 7.6 million) does not include
equity-accounted earnings attributable to Permit because Permit was sold in the
fourth quarter of fiscal 2007. Earnings from equity-accounted investments during
2007 of $0.2 million (ZAR 1.3 million) does not include equity-accounted losses
attributable to VinaPay because we had not invested in this entity as of June
30, 2007. During fiscal 2008, we recognized income from license fees, software
and hardware sales made to equity-accounted investees in prior periods of
approximately $0.6 million (ZAR 4.2 million). Eliminations of hardware sales and
other services and income from license fees, software and hardware sales made in
prior periods have been included in (loss) earnings from equity-accounted
investments.

Results of operations by operating segment

The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.

Table 7
      
      In United States Dollars (US GAAP)Year ended June 30,2008
      
      
      % of
      
      
      2007
      
      
      % of
      
      
      %Operating Segment
      
      $ 000
      
      
      total
      
      
      $000
      
      
      total
      
      
      changeConsolidated revenue:Transaction-based activities
      
      153,444
      
      
      60%
      
      
      139,006
      
      
      62%
      
      
      10%Smart card accounts
      
      35,914
      
      
      14%
      
      
      34,562
      
      
      15%
      
      
      4%Financial services
      
      8,251
      
      
      3%
      
      
      11,241
      
      
      5%
      
      
      (27)%Hardware, software and related technology
        sales
      
      56,447
      
      
      23%
      
      
      39,159
      
      
      18%
      
      
      44%Total consolidated revenue
      
      254,056
      
      
      100%
      
      
      223,968
      
      
      100%
      
      
      13%Consolidated operating income (loss):Transaction-based activities
      
      84,229
      
      
      76%
      
      
      78,785
      
      
      81%
      
      
      7%Smart card accounts
      
      16,325
      
      
      15%
      
      
      15,710
      
      
      16%
      
      
      4%Financial services
      
      1,935
      
      
      2%
      
      
      3,351
      
      
      3%
      
      
      (42)%Hardware, software and related technology
        sales
      
      11,708
      
      
      11%
      
      
      6,115
      
      
      6%
      
      
      91%Corporate/ Eliminations
      
      (3,811
      )
      
      (4)%
      
      
      (7,085
      )
      
      (6)%
      
      
      (46)%Total consolidated
        operating income
      
      110,386
      
      
      100%
      
      
      96,876
      
      
      100%
      
      
      14%


71

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|Table 8                                         |  | In
      South African Rand (US GAAP) |  
|----------------------------------------------- |  | ------------------------------------- | -
|                                                |  | Year
      ended June 30,             |  
|                                                |  | 2008                                  |  
|                                                |  | ZAR                                   |  
|Operating Segment                               |  | 000                                  |  
|Consolidated revenue:                           |  |                                       |  
|Transaction-based activities                    |  | 1,118,679                             |  
|Smart card accounts                             |  | 261,830                               |  
|Financial services                              |  | 60,154                                |  
|Hardware, software and related technology sales |  | 411,525                               |  
|Total consolidated revenue                      |  | 1,852,188                             |  
|Consolidated operating income (loss):           |  |                                       |  
|Transaction-based activities                    |  | 614,069                               |  
|Smart card accounts                             |  | 119,017                               |  
|Financial services                              |  | 14,107                                |  
|Hardware, software and related technology sales |  | 85,357                                |  
|Corporate/ Eliminations                         |  | (27,784                               | )
|Total consolidated operating
      income       |  | 804,766                               |  

Transaction-based activities

In US dollars, revenues increased
by 10% for the year ended June 30, 2008, from the year ended June 30, 2007.
Operating income increased by 7% for the year ended June 30, 2008, from the year
ended June 30, 2007.

In ZAR, revenues increased by 12%
for the year ended June 30, 2008, from the year ended June 30, 2007. Operating
income increased by 8% for the year ended June 30, 2008, from the year ended
June 30, 2007.

These increases in revenues were
due primarily to the price increases in all provinces, higher number of grants
paid under four of our provincial contracts, continued adoption of our merchant
acquiring system in the provinces where we distribute welfare grants and
increased transacting ability at participating retailers POS devices in these
provinces. These increases in revenues and operating income were partially
offset by the fact that a substantial portion of the settlement payments that we
received from SASSA during the third quarter of fiscal 2007 was non-recurring.
We discuss these factors in more detail below.

Revenues for transaction-based
activities include the transaction fees we earn through our merchant acquiring
system and reflect the elimination of inter-company transactions.

Operating income margin of our
recurring transaction-based activities during fiscal 2008 decreased to 55% from
57% during fiscal 2007. These profit margin decreases were mainly due to:

- inflationary increases in our cost components that were higher than the
  increases we negotiated with our customers;
- timing differences relating to our annual price increase negotiations,
  specifically in the Limpopo province where we received a back-dated price
  increase during fiscal 2007; and
- costs incurred during fiscal 2008 for the registration of 180,000 new
  beneficiaries in the North West province.

These operating income margin
decreases were partially offset by the increased revenues from price increases
from all the provinces where we perform welfare distribution and administration
services and improved margins from EasyPay.

***Settlement payment
received from SASSA***

During fiscal 2007, we received
approximately $6.9 million (ZAR 49.5 million) from SASSA as a result of the
settlement of contract deviations that occurred during the implementation phases
in the Eastern Cape province and for annual inflation price increases over the
last three years which were not forthcoming. During fiscal 2007, the price
charged per beneficiary in the Eastern Cape province was increased as a result
of the settlement reached. The settlement amount of approximately $6.9 million
(ZAR 49.5 million) contained elements of a recurring and non-recurring nature.
The recurring amount was due to price increases that relate to our third quarter
of fiscal 2007 and continued to have a beneficial impact on our operating income
until the end of the contract period and amounted to approximately $0.9 million
(ZAR 6.5 million). The non-recurring amount included in our operating income
amounted to approximately $4.0 million (ZAR 28.8 million).

72

---

The tables below present the
components of our reported transaction-based activities revenue, operating
income and operating income margin during fiscal 2008 and 2007:

|Table 9                                      |  | In
      United States Dollars(US GAAP) | 
|-------------------------------------------- |  | --------------------------------------- | 
|                                             |  | Year
      ended June 30,               | 
|                                             |  | 2008                                    | 
|                                             |  | $ 000                                  | 
|Reported revenue                             |  | 153,444                                 | 
|Consisting of:                               |  |                                         | 
|Recurring transaction-based
      activities |  | 153,444                                 | 
|Non-recurring portion of settlement payment  |  |                                         | 
|received from SASSA                          |  | -                                       | 
|                                             |  |                                         | 
|Reported operating income                    |  | 84,229                                  | 
|Consisting of:                               |  |                                         | 
|Recurring transaction-based
      activities |  | 84,229                                  | 
|Non-recurring portion of settlement payment  |  |                                         | 
|received from SASSA                          |  | -                                       | 
|                                             |  |                                         | 
|Operating income margin as reported          |  | 55%                                     | 
|Consisting of:                               |  |                                         | 
|Recurring transaction-based
      activities |  | 55%                                     | 
|Non-recurring portion of settlement payment  |  |                                         | 
|received from SASSA                          |  | -                                       | 

|Table 10                                     |  | In
      South African Rand (US GAAP) | 
|-------------------------------------------- |  | ------------------------------------- | 
|                                             |  | Year
      ended June 30,             | 
|                                             |  | 2008                                  | 
|                                             |  | ZAR                                   | 
|                                             |  | 000                                  | 
|Reported revenue                             |  | 1,118,790                             | 
|Consisting of:                               |  |                                       | 
|Recurring transaction-based
      activities |  | 1,118,790                             | 
|Non-recurring portion of settlement payment  |  |                                       | 
|received from SASSA                          |  | -                                     | 
|                                             |  |                                       | 
|Reported operating income                    |  | 614,130                               | 
|Consisting of:                               |  |                                       | 
|Recurring transaction-based
      activities |  | 614,130                               | 
|Non-recurring portion of settlement payment  |  |                                       | 
|received from SASSA                          |  | -                                     | 
|                                             |  |                                       | 
|Operating income margin as reported          |  | 55%                                   | 
|Consisting of:                               |  |                                       | 
|Recurring transaction-based
      activities |  | 55%                                   | 
|Non-recurring portion of settlement payment  |  |                                       | 
|received from SASSA                          |  | -                                     | 

***Continued adoption of
our merchant acquiring system:***

We have installed our POS
terminals in those merchant locations we deem the most important to service the
bulk of our cardholder base. The productivity of the existing terminal base
continues to improve, as is evident from the increase in the number of
transactions processed per POS terminal installed. We believe that the existing
terminal base and number of participating UEPS retail locations has reached or
is close to saturation and do not expect significant growth in the future. The
acquisition of EasyPay provides us with potential access to an existing terminal
base of approximately 50,000 customer-owned terminals, the majority of which are
situated in retailers in the urban and semi-urban areas of South Africa. These
50,000 terminals were acquired from Prism in prior periods and are owned by the
retailers. In order for these terminals to become UEPS enabled, we will need to
equip these terminals with biometric readers and install our UEPS software. We
have already successfully demonstrated the integration of the biometric readers
to the major retailers and we are currently negotiating the commercial terms and
conditions of implementing the biometric solution.

73

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The key statistics and indicators
of our merchant acquiring system on a quarterly basis during the last 18 months
in each of the South African provinces where we distribute social welfare grants
are summarized in the table below:

Table 11
      
      Three months endedMar. 31,
      
      
      Jun. 30,
      
      
      Sept. 30,
      
      
      Dec. 31,
      
      
      Mar. 31,
      
      
      Jun. 30,2007
      
      
      2007
      
      
      2007
      
      
      2007
      
      
      2008
      
      
      2008Total POS devices installed
      
      4,179
      
      
      4,357
      
      
      4,305
      
      
      4,304
      
      
      4,222
      
      
      4,394Number of participating UEPS retail locations
      
      2,511
      
      
      2,598
      
      
      2,578
      
      
      2,532
      
      
      2,468
      
      
      2,454Value of transactions processed through POSdevices during the quarter (1) (in $ 000)
      
      237,993
      
      
      249,859
      
      
      266,934
      
      
      258,852
      
      
      264,525
      
      
      287,725Value of transactions processed through POSdevices during the completed pay cycles for thequarter (2) (in $ 000)
      
      225,294
      
      
      249,902
      
      
      266,810
      
      
      275,456
      
      
      268,085
      
      
      279,390Value of transactions processed through POSdevices during the quarter (1) (in ZAR 000)
      
      1,726,532
      
      
      1,777,436
      
      
      1,901,570
      
      
      1,757,836
      
      
      1,996,072
      
      
      2,243,592Value of transactions processed through POSdevices during the completed pay cycles for
        thequarter (2) (in ZAR 000)
      
      1,634,410
      
      
      1,777,738
      
      
      1,900,684
      
      
      1,870,595
      
      
      2,022,938
      
      
      2,178,596Number of grants paid through POS devicesduring the quarter (1)
      
      3,517,338
      
      
      3,460,025
      
      
      3,716,230
      
      
      3,439,226
      
      
      3,910,667
      
      
      4,158,161Number of grants paid through POS devicesduring the completed pay cycles for the quarter(2)
      
      3,359,772
      
      
      3,458,035
      
      
      3,715,383
      
      
      3,661,101
      
      
      3,979,363
      
      
      4,030,571Average number of grants processed perterminal during the quarter (1)
      
      845
      
      
      811
      
      
      858
      
      
      799
      
      
      917
      
      
      965Average number of grants processed perterminal during the completed pay cycles
        forthe quarter (2)
      
      807
      
      
      810
      
      
      858
      
      
      851
      
      
      933
      
      
      936


| | (1) | Refers to events occurring during the quarter (i.e.,
      based on three calendar months).
| | --- | -------------------------------------------------------------------------------------------
| | (2) | Refers to events occurring during the completed pay
      cycle.                           

74

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The following chart presents the
number of POS devices installed and the average spend per POS device, per pay
cycle and calendar month, during the 18 month period ended June 30, 2008:



The following chart presents the
growth in the value of loads at merchant locations processed through our
installed base of POS devices, per pay cycle and calendar month, during
the 18 month period ended June 30, 2008:



75

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The following graph presents the
number of social welfare grants loaded at merchant locations, per pay cycle
and calendar month, for the 18 month period ended June 30, 2008:



***Higher number of
grants paid and pricing increases under our provincial
contracts*:**

During fiscal 2008, we
experienced an increase in the number of grants paid in four of the provinces
where we administer payments of social welfare grants. This growth was mainly
due to an increase in the number of child support grants and disability grants
approved by the various provincial governments. In total, the number of payments
processed during fiscal 2008 increased 5.0% to 47,591,554 from fiscal 2007.

76

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The higher number of grants paid
under existing provincial contracts during the year ended June 30, 2008, as well
as average revenue per grant paid, are detailed below:

|Table 12           |  | Year
      ended June 30, | 
|------------------ |  | ------------------------- | 
|                   |  | Number of                 | 
|                   |  | Grants
      Paid         | 
|Province           |  | 2008                      | 
|KwaZulu-Natal (A). |  | 20,337,526                | 
|Limpopo (B)        |  | 11,791,095                | 
|North West (C)     |  | 4,984,479                 | 
|Northern Cape (D)  |  | 1,986,525                 | 
|Eastern Cape (E)   |  | 8,491,929                 | 
|**Total**          |  | 47,591,554                | 

*(1) Average Revenue per Grant
Paid excludes $ 0.75 (ZAR 5.50) related to the provision of smart card accounts.*

*(2) Average Revenue per Grant
Paid excludes $ 0.76 (ZAR 5.50) related to the provision of smart card accounts.*

A - in ZAR, the increase
in the Average Revenue per Grant Paid in KwaZulu-Natal was due to price
adjustments effective from July 2007.

B - in ZAR, the increase
in the Average Revenue per Grant Paid in Limpopo was due to the negotiated
annual price adjustment effective from January 2008.

C - in ZAR, the increase
in the Average Revenue per Grant Paid in North West was due to the negotiated
annual price adjustment approved by the provincial government in September 2007.

D - in ZAR, the increase
in the Average Revenue per Grant Paid in Northern Cape was due to the negotiated
annual price adjustment effective from January 2008.

E - in ZAR, the increase
in the Average Revenue per Grant Paid in Eastern Cape was due to negotiated
price increases effective from January 2008.

***EasyPay transaction
fees:***

During fiscal 2008 and 2007,
EasyPay processed 516.8 million and 441.4 million transactions with an
approximate value of $15.9 billion (ZAR 115.6 billion) and $13.8 billion (ZAR
99.4 billion), respectively. The average fee per transaction during each of
fiscal 2008 and 2007, was $0.03 (ZAR 0.21), respectively. We do not expect a
significant fluctuation, in ZAR, in the average fee per transaction during the
first quarter of fiscal 2009.

Operating income margins
generated by EasyPay during fiscal 2008 increased to 34% from 28% in fiscal 2007
primarily due to an increase in the number of transactions processed in fiscal
2008 which was offset by costs incurred related to the implementation of a new
integrated switch and restructuring costs. Once the new switch is completed we
expect improved operating efficiencies and reduced costs at EasyPay and also
expect the new switch to greatly enhance our offering at EasyPay and enable us
to take advantage of new business opportunities. We expect the new switch to be
full operating capacity during the first quarter of fiscal 2009.

Amortization of EasyPay
intangible assets during fiscal 2008 and 2007, of approximately $1.8 million
(ZAR 12.9 million) and $1.7 million, (ZAR 12.1 million), respectively, is
included in the calculation of EasyPay operating margins. Operating income
margin before amortization of EasyPay intangible assets during fiscal 2008 and
2007 was 46% and 41%, respectively.

**Smart card accounts**

In US dollars, revenues and
operating income each increased by 4% for the year ended June 30, 2008, from the
year ended June 30, 2007.

In ZAR, revenues and operating
income each increased by 5% for the year ended June 30, 2008, from the year
ended June 30, 2007.

Operating income margin from providing
  smart card accounts was fairly constant at 45% for each of the years ended June
  30, 2008 and 2007.

77

---

Revenue from the provision of
smart card-based accounts grew in proportion to the higher number of
beneficiaries serviced through our social welfare payment contracts. A total
number of 4,022,193 smart card-based accounts were active at June 30, 2008,
compared to 3,812,273 active accounts as at June 30, 2007. The increase in the
number of active accounts resulted from an increase in the number of
beneficiaries in all provinces qualifying for government grants due to the
efforts of the South African government to provide social assistance to the very
old and very young.

**Financial services**

In US dollars, revenues decreased
by 27% for the year ended June 30, 2008, from the year ended June 30, 2007.
Operating income decreased by 42% for the year ended June 30, 2008 from the year
ended June 30, 2007.

In ZAR, revenues decreased by 26%
for the year ended June 30, 2008, from the year ended June 30, 2007. Operating
income decreased by 42% for the year ended June 30, 2008 from the year ended
June 30, 2007.

Revenues from UEPS-based lending
decreased during fiscal 2008 compared with fiscal 2007 primarily due to the
lower number of loans granted during fiscal 2008 compared to fiscal 2007. In
addition, on average, the return on these UEPS-based loans was lower during
fiscal 2008 compared with fiscal 2007 due to the implementation of the
provisions of the National Credit Act, or NCA. We offer the UEPS-based loans to
our beneficiaries with the primary purpose of assisting them to repay expensive
loans with other loan providers and to escape the debt spiral that they are
trapped in. Once our UEPS-based loans are repaid, we believe that the
beneficiaries have an enhanced ability to remain debt-free, or take loans in
amounts smaller than the original refinancing facility we offered to them. We
believe that once cardholders escape the debt spiral they will have more
disposable income to spend, including through our merchant acquiring system.

Revenues from our traditional
microlending business decreased during fiscal 2008, due to increased
competition, stringent lending requirements introduced by the South African
National Credit Regulator through the NCA, and our strategic decision not to
grow this business. The loan portfolio of the traditional microlending
businesses has declined as a result of our strategic decision not to grow this
business.

Our current UEPS-based lending
portfolio comprises loans made to elderly pensioners in some of the provinces
where we distribute social welfare grants. We insure the UEPS-based lending book
against default and thus no allowance is required. We consider UEPS-based
lending less risky than traditional microfinance loans because the grants are
distributed to these lenders by us and these loans are insured. We establish an
allowance for doubtful traditional microlending loans in respect of which we
consider it likely that all or a portion of the principal amount of the loan or
interest thereon will not be repaid by the borrower. We consider default likely
after a specified period of non-payment, which is generally not more than 150
days. We assess this allowance based on a review by management of the aging of
outstanding amounts, the payment history in relation to those specific accounts
and the overall default history.

Some of the key indicators of
these businesses are illustrated below:

|Table 13                                   |  | As
      at June 30, |  
|------------------------------------------ |  | -------------------- | -
|                                           |  | 2008                 |  
|                                           |  |                      |  
|                                           |  | $ 000               |  
|Traditional microlending:                  |  |                      |  
|Finance loans receivable  gross           |  | 2,864                |  
|Allowance for doubtful
      finance loans |  |                      |  
|receivable                                 |  | (1,007               | )
|Finance
      loans receivable  net       |  | 1,857                |  
|                                           |  |                      |  
|UEPS-based lending:                        |  |                      |  
|Finance loans receivable net and          |  |                      |  
|gross
      (i.e., no allowance)           |  | 2,444                |  
|Total
      finance loans receivable,      |  |                      |  
|net                                        |  | 4,301                |  

Operating income margin for the
financial services segment decreased to 23% during fiscal 2008 from 30% during
fiscal 2007, primarily due to lower interest rates offered on our UEPS-based
lending products and continued difficult operating conditions in our traditional
micro-lending operations,.

78

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**Hardware, software and
related technology sales**

In US dollars, revenues increased
by $17.3 million for the year ended June 30, 2008, from the year ended June 30,
2007. Operating income increased by $5.6 million for the year ended June 30,
2008, from the year ended June 30, 2007.

In ZAR, revenues increased by ZAR
129.2 million for the year ended June 30, 2008, from the year ended June 30,
2007. Operating income increased by ZAR 41.2 million for the year ended June 30,
2008, from the year ended June 30, 2007.

Revenue and operating income for
fiscal 2008 comprises:

- software development and customization related to our Ghana contract;
- sales of terminals under our Ghana contract and to retailers and other
  customers;
- sales of smart cards under our Ghana contract;
- sales of SIM cards to customers;
- sales of cryptographic solutions to customers;
- rental of terminals to merchants participating in our merchant acquiring
  system; and
- repairs and maintenance services to customers.

Segment revenues include
approximately $14.2 million (ZAR 102.8 million) from software development and
customization activities and hardware under our Ghana contract. These are high
margin activities for us and contributed to the increase in operating income for
the segment during fiscal 2008.

Initially we expected to generate
revenues of approximately $19.0 million, excluding travel related expenditures,
from our Ghana contract during fiscal 2008. However, we allowed the client to
procure approximately $1.6 million (ZAR 4.4 million) of low margin hardware for
its data room from local Ghanaian suppliers and we agreed that the bank will not
be required to reimburse us for any loss of margin. We believe that this
concession will improve the already strong working relationship we have with the
client. In addition, at present we believe that the client will not require us
to deliver items with a value of $0.6 million (ZAR 4.4 million) as they no
longer require them. As a result, under the Ghana contract, we are still
required to deliver software and hardware with a value of approximately $2.6
million (ZAR 19.0 million), which we expect to deliver during the first quarter
of fiscal 2009.

As of June 30, 2008, we had
received additional hardware orders from the bank to the value of approximately
$9.9 million (ZAR 72.2 million) of which we have recognized revenue of
approximately $1.6 million (ZAR 11.6 million) during fiscal 2008. We expect to
deliver the remaining additional hardware order during the first two quarters of
fiscal 2009.

Our revenues for fiscal 2008 and
2007, includes approximately $3.2 million (ZAR 23.6 million) and $4.4 million
(ZAR 32.0 million), respectively, from sales to Nedbank. Sales of hardware to
Nedbank occur on an ad hoc basis.

Amortization of Prism intangible
assets during fiscal 2008 and 2007, respectively, was approximately $3.7 million
(ZAR 26.9 million) and reduced our operating income.

Revenues from sales of hardware
to SmartSwitch Botswana during fiscal 2007, totaled approximately $2.1 million
(ZAR 14.9 million) of which approximately $0.4 million (ZAR 3.2 million), after
taxation, was eliminated and will be recognized in future periods. The
elimination has been included in the Corporate/Eliminations. Our operating
margin on these sales was significantly higher than other items included within
the hardware, software and related technology sales segment.

As we expand internationally,
whether through traditional selling arrangements to provide products and
services (such as in Ghana and Iraq) or through joint ventures (such as in
Namibia, Botswana, Colombia and Vietnam), we expect to receive revenues from
sales of hardware and from software customization and licensing to establish the
infrastructure of POS terminals and smart cards necessary to enable utilization
of the UEPS technology in a particular country. To the extent that we enter into
joint ventures and account for the investment as an equity investment, we are
required to eliminate the sale of hardware, software and licenses to the
investees. The sale of hardware, software and licenses under these arrangements
occur on an ad hoc basis as new arrangements are established, which can
materially affect our revenues and operating income in this segment from period
to period.

79

---

**Corporate/ Eliminations**

In US dollars, operating loss
decreased by $3.3 million for the year ended June 30, 2008, from the year ended
June 30, 2007.

In ZAR, operating loss decreased
by ZAR 23.3 million for the year ended June 30, 2008, from the year ended June
30, 2007.

The decrease in our operating
losses was mainly due to higher administration fees charged by our corporate
head offices to operating segments.

Corporate/eliminations during
fiscal 2007 includes the non-recurring charges of approximately $1.6 million
(ZAR 11.7 million) related to an acquisition we ultimately decided not to
pursue.

Our operating losses include
expenditure related to compliance with Sarbanes, non-executive directors fees;
employee and executive salaries and bonuses; stock-based compensation; legal and
auditor fees; directors and officers insurance premiums; telecommunications
expenses; property-related expenditures including utilities, rental, security
and maintenance; and elimination entries. Ignoring the effects of exchange
rates, we expect inflationary increases to these and other expenses during
fiscal 2009.

***Fiscal 2007 Compared
to Fiscal 2006***

The following factors had a
significant influence on our results of operations during fiscal 2007 as
compared to fiscal 2006:

- significant weakening of the South African rand, or ZAR, our functional
  currency, against the US dollar, our reporting currency, which had a negative
  impact on our reported revenues and net income in US dollars;
- impact of the Prism acquisition, which has increased our reporting
  revenues and net income but had a negative impact on our operating margin;
- amortization of Prism-related intangibles, which had a negative impact on
  our net income;
- revenues from hardware and software sales to SmartSwitch Botswana, which
  increased our revenue and net income;
- continued decrease in margins in our traditional micro-lending operations;
- reduced interest income, net resulting from the utilization of cash
  resources for the acquisition of Prism at the beginning of the year;
- receipt of a settlement payment from SASSA related to contract variation
  fees and price increases; and
- increased use by grant recipients of their smartcards at participating
  retailers to receive and spend their grants, which resulted in higher volumes
  in our transaction-based activities.

**Consolidated overall
results of operations**

This discussion is based on the
amounts which were prepared in accordance with US GAAP.

The following tables show the
changes in the items comprising our statements of operations, both in US dollars
and in ZAR:

|                                                          |   | In United States Dollars  | 
|--------------------------------------------------------- | - | ------------------------- | 
|Table 14                                                  |   | (US
      GAAP)           | 
|                                                          |   | Year
      ended June 30, | 
|                                                          |   | 2007                      | 
|                                                          |   | $000                     | 
|Revenue                                                   | $ | 223,968                   | 
|Cost of goods sold, IT processing, servicing and support  |   | 54,417                    | 
|Selling, general and administration                       |   | 61,625                    | 
|Depreciation and amortization                             |   | 11,050                    | 
|Costs related to public offering and Nasdaq
      listing |   | -                         | 
|Operating income                                          |   | 96,876                    | 
|Interest income, net                                      |   | 4,401                     | 
|Income before income taxes                                |   | 101,277                   | 
|Income tax expense                                        |   | 37,574                    | 
|Income before minority interest and earnings from         |   |                           | 
|equity-accounted investments                              |   | 63,703                    | 
|Minority interest                                         |   | 205                       | 
|Earnings from equity-accounted investments                |   | 181                       | 
|Net income                                                | $ | 63,679                    | 

80

---

|                                                          |  | In South African Rand     | 
|--------------------------------------------------------- |  | ------------------------- | 
|Table 15                                                  |  | (US
      GAAP)           | 
|                                                          |  | Year
      ended June 30, | 
|                                                          |  | 2007                      | 
|                                                          |  | ZAR                       | 
|                                                          |  | 000                      | 
|Revenue                                                   |  | 1,614,809                 | 
|Cost of goods sold, IT processing, servicing and support  |  | 392,347                   | 
|Selling, general and administration                       |  | 444,316                   | 
|Depreciation and amortization                             |  | 79,670                    | 
|Costs related to public offering and Nasdaq
      listing |  | -                         | 
|Operating income                                          |  | 698,476                   | 
|Interest income, net                                      |  | 31,731                    | 
|Income before income taxes                                |  | 730,207                   | 
|Income tax expense                                        |  | 270,908                   | 
|Income before minority interest and earnings from         |  |                           | 
|equity-accounted investments                              |  | 459,299                   | 
|Minority interest                                         |  | 1,478                     | 
|Earnings from equity-accounted investments                |  | 1,305                     | 
|Net income                                                |  | 459,126                   | 

Analyzed in ZAR, the increase in
revenue and cost of goods sold, IT processing, servicing and support for the
year ended June 30, 2007, was primarily due to the higher volumes in our
transaction-based activities, a greater number of UEPS-based smart card holders,
a contract variation fee settlement payment received from SASSA and the
inclusion of the operations of Prism from July 3, 2006.

Our operating income margin for
fiscal 2007, decreased to 43% compared with 46% for fiscal 2006. The inclusion
of Prism operations during fiscal 2007 has reduced our overall operating margin
as Prism operations generate a lower operating margin than our historical
operations. In addition, our margin during fiscal 2007 was further reduced by
intangible amortization charges related to Prism intangible assets acquired.
This reduction was partially offset by the continued adoption of our merchant
acquiring system, increased volumes and pricing in our pension and welfare
business and the SASSA settlement payment.

Cost of goods sold, IT
processing, servicing and support includes a stock-based compensation charge of
$0.3 million (ZAR 2.0 million) related to options granted to Prism employees.
Selling, general and administration expenses includes a stock-based compensation
charge of $0.6 million (ZAR 4.6 million) related to options granted to
employees. The stock-based compensation charges included in cost of goods sold,
IT processing, servicing and support and selling, general and administration are
net of adjustments as a result of forfeitures of $0.2 million (ZAR 1.5 million)
and $0.4 million (ZAR 3.0 million), respectively.

Selling, general and
administration expenses increased during fiscal 2007 from the comparable period
in 2006 primarily due to the inclusion of Prisms operations and increases in
goods and services purchased from third parties, including the effects of the
increase in inflation in South Africa and expenses of $1.6 million (ZAR 11.7
million) relating to a potential acquisition which we ultimately determined not
to pursue. Selling, general and administration also includes the stock-based
compensation charge of $0.07 million (ZAR 0.5 million) related to options
granted to an employee in January 2006. The employee resigned before any of the
options vested and accordingly the stock-based compensation charge of $0.2
million (ZAR 1.4 million) recorded from January to September 2006 has been
reversed. The reversal has been included in selling, general and administration.

Our total costs of maintaining a
listing on Nasdaq as well as compliance with Sarbanes, particularly Section 404
of Sarbanes, resulted in expenditures of $1.5 million (ZAR 10.8 million) and
$3.0 million (ZAR 19.5 million) during fiscal 2007 and 2006, respectively. We
completed our public offering and Nasdaq listing in August 2005. We incurred
approximately $1.5 million (ZAR 9.8 million) during fiscal 2006 related to legal
fees, printing costs, registration and filing and accounting fees.

81

---

The increase in depreciation and
amortization during fiscal 2007 compared to fiscal 2006 was mainly due to the
amortization of intangible assets acquired related to the Prism acquisition and
acquisition of the remaining 25.1% of EasyPay. The total amortization of these
intangible assets during fiscal 2007 was approximately $5.4 million (ZAR 39.0
million). The deferred tax benefit included in our statement of operations
related to the intangible amortization charge for fiscal 2007 was $2.0 million
(ZAR 14.2 million). Property, plant and equipment acquired to provide
administration and distribution services to our customers is depreciated over
the shorter of expected useful life and the contract period with the provincial
government. We are currently in an extension phase with all of our contracts and
the majority of our property, plant and equipment related to the administration
and distribution of social welfare grants has been written off. Accordingly,
depreciation expense related to these activities decreased fiscal 2007 compared
with fiscal 2006. This reduction was partially offset by the increase in
depreciation of our participating merchant POS terminals and Prism property,
plant and equipment acquired.

Interest on surplus cash for
fiscal 2007 increased to $16.4 million (ZAR 118.2 million) from $14.6 million
(ZAR 93.6 million) for fiscal 2006. The increase in interest on surplus cash
held in South Africa was due to a higher deposit rates resulting from the
adjustment in the South African prime interest rate from an average of
approximately 10.50% per annum for fiscal 2006, to 12.12% per annum for fiscal
2007. The increase in South African prism interest rate was offset by lower
surplus cash balances as a result of the $95.2 million paid in cash for the
acquisition of Prism.

During fiscal 2007, our finance
costs increased due to an increase in our pre-funding obligation. Finance costs
increased to $12.0 million (ZAR 86.5 million) for fiscal 2007, from $8.7 million
(ZAR 55.8 million) for fiscal 2006.

Total tax expense for fiscal 2007
was $37.6 million (ZAR 270.9 million) compared with $36.7 million (ZAR 235.0
million) during the same period in the comparable prior fiscal year. The
increase was due to our increased profitability in our transaction-based
activities and the settlement payment received.

Our effective tax rate for fiscal
June 30, 2007 was 37.10%, compared to 38.38% for fiscal 2006. Our effective tax
rate for fiscal 2007 was lower than the statutory tax rate due to foreign tax
credits and fewer non-deductible expenses incurred during fiscal 2007. The
effect of the change in tax rate during fiscal 2006 is included in our tax
expense and was approximately $0.2 million (ZAR 1.0 million).

For fiscal 2007 and 2006,
earnings from Permit totaled approximately $1.3 million and $1.0 million (ZAR
9.4 million and ZAR 6.4 million), respectively. In May 2007 we sold our 43.16%
interest in the outstanding share capital of Permit and incurred a loss of
approximately $0.6 million (ZAR 4.1 million).

Included in earnings from
equity-accounted investments are losses from equity accounted investment of
approximately $0.3 million (ZAR 2.5 million) and $0.07 million (ZAR 0.4
million), before the realization of income from prior periods, related to
SmartSwitch Namibia for fiscal 2007 and 2006, respectively. During fiscal 2007
we realized income from license fees, software and hardware sales made to
SmartSwitch Namibia in prior periods of approximately $0.09 million (ZAR 0.6
million). This income has been included in earnings from equity-accounted
investments. During fiscal 2006 we eliminated hardware sales and other services
made to SmartSwitch Namibia of approximately $0.5 million (ZAR 3.2 million).

Earnings from equity-accounted
investments included a loss of $0.2 million (ZAR 1.8 million) for fiscal 2007
related to SmartSwitch Botswana. During the fourth quarter of fiscal 2007
SmartSwitch Botswana commenced operations and we do not expect it to generate
net income during its first year of operations.

82

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**Results of operations by
operating segment**

The composition of revenue and
the contributions of our business activities to operating income are illustrated
below.

Table 16
      
      In United States Dollars (US GAAP)Year ended June 30,2007
      
      
      % of
      
      
      2006
      
      
      % of
      
      
      %Operating Segment
      
      $ 000
      
      
      total
      
      
      $ 000
      
      
      total
      
      
      changeConsolidated revenue:Transaction-based activities
      
      139,006
      
      
      62%
      
      
      117,186
      
      
      60%
      
      
      19%Smart card accounts
      
      34,562
      
      
      15%
      
      
      36,220
      
      
      18%
      
      
      (5)%Financial services
      
      11,241
      
      
      5%
      
      
      16,129
      
      
      8%
      
      
      (30)%Hardware, software and related technology
        sales
      
      39,159
      
      
      18%
      
      
      26,563
      
      
      14%
      
      
      47%Total consolidated revenue
      
      223,968
      
      
      100%
      
      
      196,098
      
      
      100%
      
      
      14%Consolidated operating income (loss):Transaction-based activities
      
      78,785
      
      
      81%
      
      
      60,653
      
      
      68%
      
      
      30%Smart card accounts
      
      15,710
      
      
      16%
      
      
      16,464
      
      
      18%
      
      
      (5)%Financial services
      
      3,351
      
      
      3%
      
      
      6,929
      
      
      8%
      
      
      (52)%Hardware, software and related technology
        sales
      
      6,115
      
      
      6%
      
      
      16,721
      
      
      19%
      
      
      (63)%Corporate/ Eliminations
      
      (7,085
      )
      
      (6)%
      
      
      (11,154
      )
      
      (13)%
      
      
      (36)%Total consolidated
        operating income
      
      96,876
      
      
      100%
      
      
      89,613
      
      
      100%
      
      
      8%


Table 17
      
      In South African Rand (US GAAP)Year ended June 30,2007
      
      
      
      
      
      2006ZAR
      
      
      % of
      
      
      ZAR
      
      
      % of
      
      
      %Operating Segment
      
      000
      
      
      total
      
      
      000
      
      
      total
      
      
      changeConsolidated revenue:Transaction-based activities
      
      1,002,233
      
      
      62%
      
      
      751,483
      
      
      60%
      
      
      33%Smart card accounts
      
      249,192
      
      
      15%
      
      
      232,269
      
      
      18%
      
      
      7%Financial services
      
      81,048
      
      
      5%
      
      
      103,431
      
      
      8%
      
      
      (22)%Hardware, software and related technology
        sales
      
      282,336
      
      
      18%
      
      
      170,342
      
      
      14%
      
      
      66%Total consolidated revenue
      
      1,614,809
      
      
      100%
      
      
      1,257,525
      
      
      100%
      
      
      28%Consolidated operating income (loss):Transaction-based activities
      
      568,040
      
      
      81%
      
      
      388,952
      
      
      68%
      
      
      46%Smart card accounts
      
      113,269
      
      
      16%
      
      
      105,579
      
      
      18%
      
      
      7%Financial services
      
      24,161
      
      
      3%
      
      
      44,434
      
      
      8%
      
      
      (46)%Hardware, software and related technology
        sales
      
      44,089
      
      
      6%
      
      
      107,227
      
      
      19%
      
      
      (59)%Corporate/ Eliminations
      
      (51,083
      )
      
      (6)%
      )%
      
      (71,528
      )
      
      (13)%
      )%
      
      (29)%Total consolidated
        operating income
      
      698,476
      
      
      100%
      
      
      574,664
      
      
      100%
      
      
      22%


**Transaction-based
activities**

In US dollars, revenues increased
by 19% for the year ended June 30, 2007, from the year ended June 30, 2006.
Operating income increased by 30% for the year ended June 30, 2007, from the
year ended June 30, 2006.

In ZAR, revenues increased by 33%
for the year ended June 30, 2007, from the year ended June 30, 2006. Operating
income increased by 46% for the year ended June 30, 2007, from the year ended
June 30, 2006.

These increases in revenues and
operating income were due primarily to the continued adoption of our merchant
acquiring system in the provinces where we distribute welfare grants, increased
transacting ability at participating retailers POS devices in these provinces,
higher number of grants paid under all of our provincial contracts, the
settlement payment received from SASSA and the inclusion of transaction fees
generated by EasyPay. We discuss these factors in more detail below.

Revenues for transaction-based
activities include the transaction fees we earn through our merchant acquiring
system and reflect the elimination of inter-company transactions.

83

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Operating income margin for
fiscal 2007 increased to 57% from 52% for fiscal 2006. These profit margin
improvements were mainly due to:

- the increased volumes as detailed in the table below;
- the inflation adjustment to the price charged in the Limpopo, North West
  and Eastern Cape provinces;
- the increase in the number of social grant beneficiaries paid through our
  POS device infrastructure at participating retailers, instead of payment using
  more costly automated cash dispensers; and
- the settlement payment received.

***Continued adoption of
our merchant acquiring system:***

Refer to discussion under
Fiscal 2008 Compared to Fiscal 2007Results of OperationsResults of
Operations by Operating SegmentTransaction-based ActivitesContinued Adoption
of Our Merchant Acquiring System.

***Higher number of
grants paid under our provincial contracts*:**

During fiscal 2007 we experienced
an increase in the number of grants paid in all of the provinces where we
administer payments of social welfare grants. This growth was mainly due to an
increase in the number of child support grants and disability grants approved by
the various provincial governments. In total, the number of payments processed
during fiscal 2007 increased 7.3% to 45,332,242 from fiscal 2006.

The higher number of grants paid
under existing provincial contracts during the year ended June 30, 2007, as well
as average revenue per grant paid, are detailed below:

Table 18
      
      Year ended June 30,Number of
      
      
      Average Revenue per Grant PaidGrants
        Paid
      
      
      2007
      
      
      2006
      
      
      2007
      
      
      2006Province
      
      2007
      
      
      2006
      
      $
      (1)
      
      $
      (2)
      
      
      ZAR(1)
      
      
      ZAR(2)KwaZulu-Natal (A).
      
      20,080,685
      
      
      18,117,676
      
      
      2.78
      
      
      3.13
      
      
      20.04
      
      
      20.14Limpopo (B)
      
      11,662,537
      
      
      11,154,040
      
      
      2.26
      
      
      2.43
      
      
      16.32
      
      
      15.59North West (C)
      
      3,351,477
      
      
      3,181,242
      
      
      2.87
      
      
      2.82
      
      
      20.73
      
      
      18.10Northern Cape (D)
      
      1,669,037
      
      
      1,585,846
      
      
      2.58
      
      
      3.00
      
      
      18.64
      
      
      19.30Eastern Cape (E)
      
      8,568,506
      
      
      8,204,977
      
      
      1.79
      
      
      1.87
      
      
      12.90
      
      
      12.04**Total**
      
      45,332,242
      
      
      42,243,781


*(1) Average Revenue per Grant
Paid excludes $ 0.76 (ZAR 5.50) related to the provision of smart card accounts.*

*(2) Average Revenue per Grant
Paid excludes $ 0.86 (ZAR 5.50) related to the provision of smart card accounts.*

A - in ZAR, the decrease
in the Average Revenue per Grant Paid in KwaZulu-Natal was primarily due to a
lower average grant paid per beneficiary as more child support grant recipients
are registered on the system. Child Support grants are significantly less than
other grant types. Our fee in this province is based on a percentage of the
amount paid to beneficiaries.

B - in ZAR, the increase
in the Average Revenue per Grant Paid in Limpopo is due to the annual inflation
price adjustment effective from December 2005.

C - in ZAR, the increase
in the Average Revenue per Grant Paid in North West is due to the annual
inflation price adjustment approved by the provincial government in October
2006. The annual inflation price increase is effective from July 1, 2006 and
resulted in higher Average Revenue per Grant Paid for fiscal 2007, compared with
fiscal 2006.

**D** - in ZAR, the
decrease in the Average Revenue per Grant Paid in Northern Cape is primarily due
to fewer registrations.

E - in ZAR, the increase
in the Average Revenue per Grant Paid in Eastern Cape was due to inflation price
increases effective January 1, 2007.

84

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***Settlement payment
received from SASSA***

Refer to discussion under
Fiscal 2008 Compared to Fiscal 2007Results of operations by operating
segmentTransaction-based activitiesSettlement payment received from SASSA.

***EasyPay transaction
fees:***

During the fiscal 2007 EasyPay
processed 441.4 million transactions with an approximate value of $13.8 billion,
(ZAR 99.4 billion). The average fee per transaction during fiscal 2007 was $0.03
(ZAR 0.21) . EasyPay transaction fees are not included in our results for fiscal
2006 as we acquired EasyPay on July 3, 2006.

Operating income margins
generated by EasyPay, before amortization of EasyPay intangibles, during fiscal
2007 were 41% (28% operating income margin after amortization of EasyPay
intangibles), which was lower than those generated by our pension and welfare
business and reduced the operating income margins within our transaction-based
activities segment. Amortization of EasyPay intangible assets during fiscal 2007
of approximately $1.7 million (ZAR 12.1 million) is included in the calculation
of EasyPay operating margins.

**Smart card accounts**

In US dollars, revenues and
operating income each decreased by 5% for the year ended June 30, 2007, from the
year ended June 30, 2006.

In ZAR, revenues and operating
income each increased by 7% for the year ended June 30, 2007, from the year
ended June 30, 2006.

Operating income margin from providing
  smart card accounts was fairly constant at 45% for each of the years ended June
  30, 2007 and 2006.

Revenue from the provision of
smart card-based accounts grew in proportion to the higher number of
beneficiaries serviced through our social welfare payment contracts. A total
number of 3,812,273 smart card-based accounts were active at June 30, 2007,
compared to 3,653,696 active accounts as at June 30, 2006. The increase in the
number of active accounts resulted from an increase in the number of
beneficiaries in all provinces qualifying for government grants due to the
efforts of the South African government to provide social assistance to the very
old and very young.

**Financial services**

In US dollars, revenues decreased
by 30% for the year ended June 30, 2007, from the year ended June 30, 2006.
Operating income decreased by 52% for the year ended June 30, 2007 from the year
ended June 30, 2006.

In ZAR, revenues decreased by 22%
for the year ended June 30, 2007, from the year ended June 30, 2006. Operating
income decreased by 46% for the year ended June 30, 2007 from the year ended
June 30, 2006.

Revenues from UEPS-based lending
decreased during fiscal 2007 compared with fiscal 2006 primarily due to the
lower number of loans granted during fiscal 2007 compared to fiscal 2006. In
addition, on average, the rate of interest charged on these UEPS-based loans was
lower during fiscal 2007 compared with fiscal 2006. We offer the UEPS-based
loans to our beneficiaries with the primary purpose of assisting them to repay
expensive loans with other loan providers and to escape the debt spiral that
they are trapped in. Once our UEPS-based loans are repaid, we believe that the
beneficiaries have an enhanced ability to remain debt-free, or take loans in
amounts smaller than the original refinancing facility we offered to them. In
addition, we continuously revise the interest rates charged on our UEPS-based
loans, as part of our ongoing commitment to the South African government to
provide affordable financial services to the unbanked population of that
country. We believe that once cardholders escape the debt spiral they will have
more disposable income to spend, including through our merchant acquiring
system.

Revenues from our traditional
microlending business decreased during fiscal 2007, due to increased
competition, the implementation of the NCA and our strategic decision not to
grow this business and lower interest rates charged on traditional microlending
loans. The loan portfolio of the traditional microlending businesses declined as
a result of our strategic decision not to grow this business.

85

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Our current UEPS-based lending
portfolio comprises loans made to elderly pensioners in some of the provinces
where we distribute social welfare grants. We insure the UEPS-based lending book
against default and thus no allowance is required. We consider UEPS-based
lending less risky than traditional microfinance loans because the grants are
distributed to these lenders by us and these loans are insured. We establish an
allowance for doubtful traditional microlending loans in respect of which we
consider it likely that all or a portion of the principal amount of the loan or
interest thereon will not be repaid by the borrower. We consider default likely
after a specified period of non-payment, which is generally not more than 150
days. We assess this allowance based on a review by management of the ageing of
outstanding amounts, the payment history in relation to those specific accounts
and the overall default history.

Some of the key indicators of
these businesses are illustrated below:

Table 19
      
      As at June 30,2007
      
      
      2006
      
      
      
      
      
      2007
      
      
      2006%
      
      
      ZAR
      
      
      ZAR
      
      
      ZAR %$ 000
      
      
      $000
      
      
      change
      
      
      000
      
      
      000
      
      
      changeTraditional microlending:Finance loans receivable  gross
      
      5,263
      
      
      7,169
      
      
      (27)%
      
      
      37,244
      
      
      52,117
      
      
      (29)%Allowance for doubtful
        finance loansreceivable
      
      (2,773
      )
      
      (3,448
      )
      
      (20)%
      
      
      (19,622
      )
      
      (25,061
      )
      
      (22)%Finance
        loans receivable  net
      
      2,490
      
      
      3,721
      
      
      (33)%
      
      
      17,622
      
      
      27,056
      
      
      (35)%UEPS-based lending:Finance loans receivable net andgross
        (i.e., no allowance)
      
      3,265
      
      
      2,992
      
      
      9%
      
      
      23,103
      
      
      21,750
      
      
      6%Total
        finance loans receivable,net
      
      5,755
      
      
      6,713
      
      
      
      
      
      40,725
      
      
      48,806


Operating income margin for the
financial services segment decreased to 30% for fiscal 2007 from 43% for fiscal
2006, primarily due to lower interest rates offered on our UEPS-based lending
products and continued difficult operating conditions in our traditional
micro-lending operations, as well as the effect of implementing the NCA.

**Hardware, software and
related technology sales**

In US dollars, revenues increased
by $12.6 million for the year ended June 30, 2007, from the year ended June 30,
2006. Operating income decreased by $10.6 million for the year ended June 30,
2007, from the year ended June 30, 2006.

In ZAR, revenues increased by ZAR
112.0 million for the year ended June 30, 2007, from the year ended June 30,
2006. Operating income decreased by ZAR 63.1 million for the year ended June 30,
2007, from the year ended June 30, 2006.

All activities related to Prisms
products and services, other than EasyPay, have been included in our hardware,
software and related technology sales segment.

Revenue and operating income for fiscal 2007 comprises:

- sales of terminals to retailers and other customers;
- sales of SIM cards to customers;
- sales of cryptographic solutions to customers;
- rental of terminals to merchants participating in our merchant acquiring
  system; and
- repairs and maintenance services to customers.

The SIM card market is currently
in a state of flux. Sales prices for SIM cards continue to decline due to price
competition from manufacturers located in countries with lower production costs,
global over-supply and global surplus manufacturing capacity. We expect this
trend to continue into the foreseeable future. As a result we incurred a loss
related to the sale of SIM cards during the year ended June 30, 2007.

86

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Revenues from sales of hardware
to SmartSwitch Botswana during fiscal 2007, totaled approximately $2.1 million
(ZAR 14.9 million) of which approximately $0.4 million (ZAR 3.2 million), after
taxation, was eliminated and will be recognized in future periods. The
elimination has been included in the Corporate/Eliminations. Our operating
margin on these sales was significantly higher than other items, including Prism
products and services, included within the hardware, software and related
technology sales segment.

During fiscal 2007 sales of
hardware to Nedbank was approximately $4.4 million (ZAR 32.0 million). There
were less sales of hardware to Nedbank during fiscal 2007, compared with fiscal
2006, due to Nedbank replacing its terminal base in order to make it EMV
compliant.

Amortization of Prism intangible
assets during fiscal 2007 was approximately $3.7 million (ZAR 26.9 million) and
reduced our operating income.

Total revenues from the Nedbank
orders during fiscal 2006, were approximately $13.3 million (approximately ZAR
85.3 million). Revenues from sales of hardware, software and licenses to
SmartSwitch Namibia during fiscal 2006, totaled approximately $3.9 million (ZAR
24.9 million) of which approximately $0.5 million (ZAR 3.3 million), after
taxation, has been eliminated and will be recognized in future periods. The
elimination has been included in the Corporate/ Eliminations segment.

**Corporate/ Eliminations**

In US dollars, operating loss
decreased by $4.1 million for the year ended June 30, 2007, from the year ended
June 30, 2006.

In ZAR, operating loss decreased
by ZAR 20.4 million for the year ended June 30, 2007, from the year ended June
30, 2006.

The decrease in our operating
losses for fiscal 2007 compared with fiscal 2006 was mainly due to reduction in
legal fees and other regulatory fees and higher administration fees charged by
our corporate head offices to operating segments. These reductions were
partially offset by the inclusion of Prisms corporate head office charges,
inflationary increases in goods and services purchased from third parties and
stock compensation charges. Operating losses for fiscal 2007 include all
corporate activities of Prism.

In addition, Corporate/
Eliminations for fiscal 2006 included the non-recurring charges related to our
public offering and Nasdaq listing of $1.5 million (ZAR 9.6 million) incurred
primarily in the three months ended September 30, 2005.

Our operating losses also include
expenditure related to compliance with Sarbanes, non-executive directors fees
resulting from the election of independent directors to our board, employee and
executives salaries and bonuses, legal and auditor fees, directors and officers
insurance premiums, telecommunications and property related expenditures
including utilities, rental, security and maintenance.

Liquidity and Capital Resources

Our business has historically generated and continues to generate high levels of cash. At June 30, 2008, our cash balances were $272.5 million, which comprised mainly ZAR-denominated balances of ZAR 1,766.9 million ($221.8 million) and US dollar-denominated balances of $37.1 million. Our cash balances increased from June 30, 2007 levels mainly as a result of cash generated by operating activities.  On August 27, 2008, we pledged $25 million of our $37.1 million US dollar-denominated balances as partial security for the bank finance required to complete the BGS acquisition. We expect to repay the amount obtained from the bank from internally generated funds within six months from the date of draw down and to be released from the pledge after the repayment.

Surplus cash held by our South
African operations is invested in overnight call accounts that we maintain at
South African banking institutions, and surplus cash held by our non-South
African companies is invested in the US and European money markets.

Historically, we have financed
all operations, research and development, working capital, capital expenditures
and acquisitions through our internally generated cash. We have aggregate credit
facilities of $62.8 million (ZAR 500.0 million). We take the following factors
into account when considering whether to borrow under our financing facilities:

- cost of capital;
- cost of financing;
- opportunity cost of utilizing surplus cash; and
- availability of tax efficient structures to moderate financing costs.

87

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We have a unique cash flow cycle
due to our obligations to pre-fund the payments of social welfare grants in the
KwaZulu-Natal and Eastern Cape provinces. We provide the funds required for the
grant payments on behalf of these provincial governments from our own cash
resources and are reimbursed within two weeks by the KwaZulu-Natal and Eastern
Cape governments, thus exposing ourselves to these provinces credit risk. These
obligations result in a peak funding requirement, on a monthly basis, of
approximately $48.9 million (ZAR 340 million) for each of the KwaZulu-Natal and
Eastern Cape contracts. The funding requirements are at peak levels for the
first three weeks of every month during the year.

The amount disbursed through
merchants during June 2008 was reimbursed to us by the provincial governments
during the first two weeks of July 2008. We settle our obligation to merchants
within 48 hours of the distribution of the grant by the merchant to the social
welfare beneficiaries, however, the provincial governments reimburse the amount
due to us within two weeks after the distribution date. This practice results in
a significant net cash outflow at the end of a month, and a quarter, however,
the situation is typically reversed within a week.

We currently believe that our
cash and credit facilities are sufficient to fund our current operations for at
least the next four quarters. However, if we are awarded additional provinces in
the SASSA tender, we will likely need additional funding to pre-fund the payment
of social welfare grants for these additional provinces. In anticipation of this
need, we have sought and received a letter of intent from a major South African
banking institution to increase the amount of our credit facilities. In
addition, we may seek to access the global debt capital markets for this
purpose. However, there can be no assurance that we will be able to increase our
credit facilities or raise other debt capital on satisfactory terms, or at
all.

***Cash flows from
operating activities***

Cash flows from operating
activities for fiscal 2008 increased to $118.8 million (ZAR 865.9 million) from
$65.5 million (ZAR 472.3 million) for fiscal 2007. The increase is largely due
to the factors described under Results of Operations that contributed to the
increase in revenues and operating income in our transaction-based activities
and hardware, software and related technology sales segments and to better
working capital management. Another contributing factor was that the July 2008
pay cycle was opened at merchants on June 30, 2008 and the merchants were
reimbursed in the first two days of July 2008.

During fiscal 2008 we paid
provisional taxes of approximately $12.5 million (ZAR 90.9 million) related to
the tax year ended June 30, 2007 and provisional taxes of approximately $23.4
million (ZAR 170.7 million) related to the tax year ended June 30, 2008. During
fiscal 2007, we paid provisional taxes of approximately $10.6 million (ZAR 78.0
million) related to the tax year ended June 30, 2006 and provisional taxes of
approximately $18.8 million (ZAR 134.2 million) related to the tax year ended
June 30, 2007.

Taxes paid during fiscal 2008 and
2007 were as follows:

|Table 20                             |  | Year
      ended June 30, |  
|------------------------------------ |  | ------------------------- | -
|                                     |  | 2008                      |  
|                                     |  | $                         |  
|                                     |  | 000                      |  
|                                     |  |                           |  
|First provisional payments           |  | 13,641                    |  
|Second provisional payments          |  | 9,776                     |  
|Third provisional payments           |  | 3,861                     |  
|Taxation paid related to prior years |  | 8,358                     |  
|Taxation refunds received            |  | (252                      | )
|Secondary taxation on companies      |  | -                         |  
|Total tax paid                       |  | 35,384                    |  

The South African Revenue Service
has increased our second provisional payments for certain of our South African
subsidiaries and has requested that we pay approximately $7.2 million (based on
the year end exchange rate of $1: ZAR 7.96) (ZAR 57.0 million). We expect that
these payments will have a negative impact on our cash flows from operating
activities for the first quarter of 2009.

Cash flows from operating
activities for fiscal 2007 decreased to $65.5 million (ZAR 472.3 million) from
$75.8 million (ZAR 486.6 million) in fiscal June 30, 2006. The decrease was
largely due to the July 2007 pay cycle which was opened at merchants in the last
five days of June 2007 and merchants are traditionally reimbursed within 48
hours of distributing the grant to the beneficiary. The provincial governments
typically repay us between seven and 14 days of distributing the grant.

88

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***Cash flows from
investing activities***

Cash used in investing activities
for fiscal 2008 includes capital expenditures of $3.6 million (ZAR 26.0
million), of which $0.5 million (ZAR 3.5 million) relates to renovations of the
transaction-based activities segment head office and data room, $0.4 million
(ZAR 2.8 million) relates to hardware and software acquired, including hardware
to perform switching activities and software to interface with customers and
perform database management, $0.3 million (ZAR 2.4 million) relates to vehicles
acquired to distribute social welfare grants, $0.5 million (ZAR 3.7 million)
relates to capital expenditure to maintain and expand our EasyPay operations,
and $0.6 million (ZAR 4.4 million) relates the acquisition of POS terminals for
our merchant acquiring system.

Cash used in investing activities
for fiscal 2007 includes capital expenditures of $3.7 million (ZAR 26.8
million), of which $0.4 million (ZAR 2.9 million) relates to the purchase of
enrollment equipment and vehicles for the North West province, $0.5 million (ZAR
3.5 million) relates to the purchase of equipment and furniture for SmartSwitch
Nigerias data room in Nigeria and $0.8 million (ZAR 5.6 million) related to the
purchase of equipment and other property plant and equipment by EasyPay in order
to maintain operations.

During fiscal 2007, we lent an
additional $0.3 million (ZAR 2.2 million) to SmartSwitch Botswana.

During fiscal 2007, we paid $82.1
million (ZAR 591.1 million), net of cash received, for the entire issued and
outstanding ordinary capital of Prism and approximately $9.7 million (ZAR 70
million) in cash as consideration for the remaining 25.1% of EasyPay. In
addition, we sold our 43.16% interest in the outstanding ordinary share capital
of Permit for $2.3 million (ZAR 16.6 million) and the outstanding loans of $1.6
million (ZAR 11.5 million) were repaid to us by Permit and its 56.74%
shareholder.

Cash used in investing activities
for fiscal 2006 includes capital expenditures of $1.8 million (ZAR 11.5
million), of which $0.6 million (ZAR 3.7 million) related to the purchase of POS
and pin-pad devices for use at retailers participating in our merchant acquiring
project. During fiscal 2006, we invested $0.6 million (ZAR 4.0 million) in
equity and lent $2.0 million (ZAR 12.5 million) to SmartSwitch Namibia. During
the fourth quarter of fiscal 2006 we invested $0.7 million (ZAR 4.5 million) in
equity and lent $0.7 million (ZAR 4.5 million) to SmartSwitch Botswana, a UEPS
based switching system established in Botswana.

***Cash flows from
financing activities***

During fiscal 2008 we received
approximately $0.6 million (ZAR 4.0 million) from employees to repay loans
associated with stock options granted to them as well as the interest thereon.
In addition, we received approximately $2.9 million (ZAR 21.3 million) from the
proceeds of stock options exercises.

During fiscal 2007 we were
required to utilize our ZAR based-credit facilities in order to meet our
obligations to distribute social welfare grants to beneficiaries. As our
reporting currency is the US dollar and our functional currency is the ZAR the
exchange rate fluctuations during fiscal 2007 resulted in reporting
discrepancies between the proceeds from bank overdrafts and the repayment of
bank overdrafts presented in our audited consolidated statement of cash flow for
fiscal 2007. The result of these exchange rate fluctuations is included in
Effect of exchange rate changes on cash in our audited consolidated statement
of cash flow for fiscal 2007.

During fiscal 2007 we also
received approximately $0.6 million (ZAR 4.3 million) from employees to repay
loans associated with stock options granted to them as well as the interest
thereon. In addition, we received approximately $3.7 million (ZAR 26.7 million)
from the proceeds of stock options exercises. During fiscal 2007 the other
shareholders of SmartSwitch Nigeria lent $3.5 million (ZAR 25.6 million) to the
entity under the terms of the shareholders agreement.

During fiscal 2007 we used
approximately $1.0 million (ZAR 7.21 million) to repurchase 40,100 shares of our
common stock under our stock repurchase program.

During fiscal 2006 we received
approximately $31.5 million (ZAR 202.0 million), net of share issue costs of
approximately $2.4 million (ZAR 15.6 million), from the underwriters of our
public offering exercising their option to acquire 1,538,794 shares of our
common stock. We also received approximately $1.1 million (ZAR 7.1 million) from
employees to repay loans associated with stock options granted to them as well
as the interest thereon. In addition, we received approximately $1.0 million
(ZAR 6.4 million) from the proceeds of stock options exercises by directors and
executive officers.

During fiscal 2006, we paid $4.0
million (ZAR 25.7 million) to repurchase 147,973 shares of our common stock.

Off-Balance Sheet Arrangements

We have no off-balance sheet
arrangements.

89

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Capital Expenditures

Capital expenditures for the
years ended June 30, 2008, 2007 and 2006 were as follows:

|Table 21                       |  | Year
      ended June 30, | 
|------------------------------ |  | ------------------------- | 
|                               |  |                           | 
|                               |  | 2008                      | 
|Operating Segment              |  | $000                     | 
|                               |  |                           | 
|Transaction-based activities   |  | 2,774                     | 
|Smart card accounts            |  | -                         | 
|Financial services             |  | 562                       | 
|Hardware, software and related |  |                           | 
|technology sales               |  | 227                       | 
|Corporate / Eliminations       |  | -                         | 
|**Consolidated total**         |  | 3,563                     | 

We operate in an environment
where our contracts for the payment of social welfare grants require substantial
capital investment to establish our operational infrastructure when a contract
commences. Further capital investment is required when the number of
beneficiaries increases to the point where the maximum capacity of the original
infrastructure is exceeded.

As mentioned above, our capital
expenditures for fiscal 2008 related mainly to the acquisition of:

- hardware and software, including hardware to perform switching activities
  and software to interface with customers and perform database management;
- hardware and software acquired;
- vehicles acquired to distribute social welfare grants; and
- POS terminals for our merchant acquiring system.

In addition, during fiscal 2008
we renovated our transaction-based activities segment head office and data room
and incurred expenditures to maintain and expand our EasyPay operations.

Our capital expenditures for
fiscal 2007 related mainly to the acquisition of:

- enrollment equipment and vehicles to service the North West province;
- equipment and furniture by SmartSwitch Nigeria to set up its data room; and
- equipment by EasyPay in order to maintain operations.

Our capital expenditures for
fiscal 2006 related mainly to the acquisition of POS and pin-pad devices that we
lease to participating retailers.

All of our capital expenditures
for the past three fiscal years were funded through internally generated funds.
We had outstanding capital commitments as of June 30, 2008 related mainly to
computer equipment ordered in order to maintain and expand activities. We
anticipate that capital spending for the first quarter of fiscal 2009 will
relate primarily to on-going replacement of equipment used to administer and
distribute social welfare grants and provide a switching service through
EasyPay. We expect to fund these expenditures through internally generated
funds.

90

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Contingent Liabilities, Commitments and Contractual
Obligations

We lease various premises under
operating leases. Our minimum future commitments for lease premises as well as
other commitments are as follows:

Table 22
      
      Payments
        due by Period, as of June 30, 2008 (in $ 000s)Less
      
      
      
      
      
      
      
      
      Morethan 1
      
      
      1-3
      
      
      3-5
      
      
      than 5Total
      
      
      year
      
      
      years
      
      
      years
      
      
      yearsInterest bearingliabilities
      
      3,766
      
      
      -
      
      
      -
      
      
      -
      
      
      3,766Operating leaseobligations
      
      5,573
      
      
      1,771
      
      
      2,943
      
      
      859
      
      
      -Purchase obligations
      
      6,929
      
      
      6,929
      
      
      -
      
      
      -
      
      
      -Capital commitments
      
      1,338
      
      
      1,338
      
      
      -
      
      
      -
      
      
      -Total
      
      17,606
      
      
      10,038
      
      
      2,943
      
      
      859
      
      
      3,766


Employee Benefits

We do not provide retirement
benefits to any of our employees. We provide our South African employees with a
choice of two health care service providers for which we pay the monthly
contribution. We do not provide any post-retirement health care benefits.

Insurance

We annually assess our risk
exposure. At June 30, 2008, we believe that all risks were adequately covered by
third party insurers, except where we considered the cost of insurance coverage
to be excessive in relation to the probability and extent of loss or we were
unable to find any insurance underwriters willing to accept the risks associated
with certain aspects of our business. We have confronted the latter with respect
to insurance for losses or theft of cash from our delivery vehicles.

The main categories of our
insurance are: directors and officers liability; loss or damage to vehicles,
electronic equipment and other assets; business interruption; motor vehicle
third party claims; group personal accident; and employment practices liability.

91

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

We seek to reduce our exposure to
currencies other than the South African rand through a policy of matching, to
the extent possible, assets and liabilities denominated in those currencies. In
addition, we use financial instruments to economically hedge our exposure to
exchange rate and interest rate fluctuations arising from our operations. We are
also exposed to credit risks.

**Currency Exchange Risk**

We are subject to currency
exchange risk because we purchase inventories that we are required to settle in
other currencies, primarily the euro and US dollar. We have used forward
contracts to limit our exposure in these transactions to fluctuations in
exchange rates between the South African rand, on the one hand, and the US
dollar and the euro, on the other hand. As of June 30, 2008 and 2007, our
outstanding foreign exchange contracts were as follows:

**As of June 30, 2008**

Fair marketNotional amount
      
      Strike price
      
      value price
      
      MaturityEUR
      1,995
      
      ZAR
      12.3688
      
      ZAR
      12.4508
      
      July 7, 2008EUR
      6,000
      
      ZAR
      12.0701
      
      ZAR
      12.4508
      
      July 7, 2008EUR
      2,400
      
      ZAR
      12.5100
      
      ZAR
      12.4618
      
      July 11, 2008EUR
      689,200
      
      ZAR
      12.1065
      
      ZAR
      12.4782
      
      July 17, 2008EUR
      1,995
      
      ZAR
      12.1772
      
      ZAR
      12.5085
      
      July 28, 2008EUR
      32,331
      
      ZAR
      12.4862
      
      ZAR
      12.5167
      
      July 31, 2008EUR
      140,000
      
      ZAR
      12.4730
      
      ZAR
      12.5167
      
      July 31, 2008EUR
      140,000
      
      ZAR
      11.9793
      
      ZAR
      12.5167
      
      July 31, 2008EUR
      (140,000)
      
      ZAR
      12.3395
      
      ZAR
      12.4319
      
      July 31, 2008EUR
      8,750
      
      ZAR
      12.0207
      
      ZAR
      12.5167
      
      July 31, 2008EUR
      245,250
      
      ZAR
      12.1800
      
      ZAR
      12.5573
      
      August 15, 2008EUR
      4,550
      
      ZAR
      12.6757
      
      ZAR
      12.5842
      
      August 25, 2008USD
      542,500
      
      ZAR
      7.9100
      
      ZAR
      7.9484
      
      August 28, 2008EUR
      86,178
      
      ZAR
      12.6631
      
      ZAR
      12.6057
      
      September 2, 2008EUR
      1,470
      
      ZAR
      12.7000
      
      ZAR
      12.6277
      
      September 10, 2008USD
      24,600
      
      ZAR
      8.0090
      
      ZAR
      8.0405
      
      October 10, 2008EUR
      82,400
      
      ZAR
      12.2199
      
      ZAR
      12.7685
      
      October 31, 2008EUR
      (82,400)
      
      ZAR
      12.5773
      
      ZAR
      12.6764
      
      October 31, 2008EUR
      82,400
      
      ZAR
      12.7820
      
      ZAR
      12.8456
      
      November 28, 2008


**As of June 30, 2007**

Fair marketNotional amount
      
      Strike price
      
      value price
      
      MaturityUSD
      102,000
      
      ZAR
      7.1600
      
      ZAR
      7.1180
      
      August 31, 2007EUR
      572,900
      
      ZAR
      9.7360
      
      ZAR
      9.6639
      
      September 14, 2007


**Translation Risk**

Translation risk relates to the
risk that our results of operations will vary significantly as the US dollar is
our reporting currency, but we earn most of our revenues and incur most of our
expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated significantly
over the past three years. As exchange rates are outside our control, there can
be no assurance that future fluctuations will not adversely affect our results
of operations and financial condition.

**Interest Rate Risk**

As a result of our normal
borrowing and leasing activities, our operating results are exposed to
fluctuations in interest rates, which we manage primarily through our regular
financing activities. We generally maintain limited investment in cash
equivalents and have occasionally invested in marketable securities. Typically,
for every 1% increase in SARBs repurchase, or repo, rate, our interest expense
on pre-funding social welfare grants in the KwaZulu-Natal and Eastern Cape
provinces increases by $20,633 per month, while interest earned per month on any
surplus cash increases by $11,274 per $12.6 million (ZAR 100 million).

92

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**Credit Risk**

Credit risk relates to the risk
of loss that we would incur as a result of non-performance by counterparties. We
maintain credit risk policies with regard to our counterparties to minimize
overall credit risk. These policies include an evaluation of a potential
counterpartys financial condition, credit rating, and other credit criteria and
risk mitigation tools as our management deems appropriate.

With respect to credit risk on
financial instruments, we maintain a policy of entering into such transactions
only with South African and European financial institutions that have a credit
rating of BBB or better, as determined by credit rating agencies such as
Standard & Poors, Moodys and Fitch Ratings.

**Micro-lending Credit
Risk**

We are exposed to credit risk in
our microlending activities, which provides unsecured short-term loans to
qualifying customers. We manage this risk by assigning each prospective customer
a creditworthiness score, which takes into account a variety of factors such
as employment status, salary earned, other debts and total expenditures on
normal household and lifestyle expenses.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial
statements, together with the report of our independent registered public
accounting firm, appear on pages F-1 through F-47 of this Annual Report on Form
10-K.

93

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

***Evaluation of
disclosure controls and procedures***

Under the supervision and with
  the participation of our management, including our chief executive officer and
  our chief financial officer, we conducted an evaluation of our disclosure controls
  and procedures, as such term is defined under Rule 13a-15(e) under the Securities
  Exchange Act of 1934. Based on this evaluation, the chief executive officer
  and the chief financial officer concluded that our disclosure controls and procedures
  were effective as of June 30, 2008.

*Internal Control over
Financial Reporting*

Internal control over financial
reporting is a process designed by, or under the supervision, of the companys
chief executive officer (CEO) and chief financial officer (CFO), or persons
performing similar functions, and effected by the companys board of directors,
management, and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America (GAAP).

Internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a
material effect on the consolidated financial statements.

*Inherent Limitations in
Internal Control over Financial Reporting*

Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is
subject to lapses in judgment and breakdowns resulting from human failures.
Internal control over financial reporting also can be circumvented by collusion
or improper management override. Because of such limitations, there is a risk
that material misstatements may not be prevented or detected on a timely basis
by internal control over financial reporting. However, these inherent
limitations are known features of the financial reporting process. Therefore, it
is possible to design into the process safeguards to reduce, though not
eliminate, this risk.

*Managements Report on
Internal Control Over Financial Reporting*

Management, including our chief
executive officer and our chief financial officer, is responsible for
establishing and maintaining adequate internal control over our financial
reporting. Management conducted an evaluation of the effectiveness of internal
control over financial reporting based on the Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that our internal
control over financial reporting was effective as of June 30, 2008.

*Changes in Internal Control
over Financial Reporting*

Our general computer controls
were enhanced and subsequently tested for operating effectiveness during the
fourth quarter of fiscal 2008. There were no other changes in our internal
control over financial reporting during the most recent fiscal quarter ended
June 30, 2008, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

94

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Shareholders of Net 1 UEPS Technologies, Inc.

We have audited the internal
controls over financial reporting of Net 1 UEPS Technologies, Inc. and
subsidiaries (the Company) as of June 30, 2008, based on criteria established
in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying report in the Form 10-K. Our
responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.

A company's internal control over
financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons
performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of the inherent
limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2008, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year
ended June 30, 2008 of the Company and our report dated August 28, 2008
expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche (South Africa) Chartered
Accountants (SA) Johannesburg, Republic of South Africa August
28, 2008

95

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ITEM 9B. OTHER INFORMATION

Not applicable.

96

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PART III

**ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

Information about our executive
officers is set out in Part I, Item 1 under the caption Executive Officers and
Significant Employees of the Registrant. The other information required by this
Item is incorporated by reference to the sections of our definitive proxy
statement for our annual meeting of shareholders to be held in 2008, entitled
Board of Directors and Corporate Governance and Additional Information, to
be filed with the SEC within 120 days after the end of the fiscal year covered
by this Form 10-K.

**ITEM 11. EXECUTIVE
COMPENSATION**

The information required by this
Item is incorporated by reference to the sections of our definitive proxy
statement for our annual meeting of shareholders to be held in 2008, entitled
Compensation Discussion and Analysis, Summary Compensation Table, Grants of
Plan-Based Awards, Outstanding Equity Awards at 2008 Fiscal Year-End,
Options Exercised and Stock Vested, Compensation of Directors, Potential
Payments Upon Termination or Changein-Control and Remuneration Committee
Report to be filed with the SEC within 120 days after the end of the fiscal
year covered by this Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDERS
MATTERS

The information required by this
Item is incorporated by reference to the sections of our definitive proxy
statement for our annual meeting of shareholders to be held in 2008, entitled
Outstanding Equity Awards at 2008 Fiscal Year-End and Security Ownership of
Certain Beneficial Owners, to be filed with the SEC within 120 days after the
end of the fiscal year covered by this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this
Item is incorporated by reference to the sections of our definitive proxy
statement for our annual meeting of shareholders to be held in 2008, entitled
Certain Relationships and Related Transactions and Board of Directors and
Corporate Governance, to be filed with the SEC within 120 days after the end of
the fiscal year covered by this Form 10-K.

**ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES**

The information required by this
Item is incorporated by reference to the sections of our definitive proxy
statement for our annual meeting of shareholders to be held in 2008, entitled
Audit and Non-Audit Fees, to be filed with the SEC within 120 days after the
end of the fiscal year covered by this Form 10-K.

97

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PART IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES

|a) | The following documents are filed
      as part of this report                                                              |    
|-- | --------------------------------------------------------------------------------------------------------------------------- | ---
|   |                                                                                                                             |    
|   | 1. Financial Statements                                                                                                     |    
|   |                                                                                                                             |    
|   | The following financial
      statements are included on pages F-1 through F-47                                             |    
|   |                                                                                                                             |    
|   | Report
      of the Independent Registered Public Accounting Firm  Deloitte &
      Touche (South Africa)                  | F-2
|   |                                                                                                                             |    
|   | Consolidated
      Balance Sheets  as of June 30, 2008 and 2007                                                            | F-3
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Operations  for the years ended June 30, 2008, 2007 and
      2006                        | F-4
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Movements in Shareholders Equity  for the years ended June
      30, 2008, 2007 and 2006 | F-5
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Cash Flows  for the years ended June 30, 2008, 2007 and
      2006                        | F-6
|   |                                                                                                                             |    
|   | Notes
      to the Consolidated Financial Statements                                                                        | F-7

2. Financial Statement
Schedules

Financial statement schedules
have been omitted since they are either not required, not applicable, or the
information is otherwise included.

(b) Exhibits

|Exhibit |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2.1     | Sale Agreement, dated October 31, 2003 between Net 1
      Applied Technology Holdings Limited, Net 1 Investment Holdings
      (Proprietary) Limited, Net 1 Support Services (Proprietary) Limited and
      Newshelf 713 (Proprietary) Limited. (Incorporated by reference to Exhibit
      2.1 to our Registration Statement on Form S-4 filed February 3, 2004
      (Commission File No. 333-112463))                                                                                                                    
|2.2     | Subscription Agreement, dated as of October 31, 2003,
      between Net 1 UEPS Technologies, Inc. and Newshelf 713 (Proprietary)
      Limited (Incorporated by reference to Exhibit 2.2 to our Registration
      Statement on Form S-4 filed February 3, 2004 (Commission File No.
      333-112463))                                                                                                                                                                                                                       
|2.3     | Asset Purchase Agreement, dated as of January 30, 2004,
      between Net 1 Holdings S.a.r.l. and Net 1 UEPS Technologies, Inc.
      (Incorporated by reference to Exhibit 2.3 to our Registration Statement on
      Form S-4 filed February 3, 2004 (Commission File No. 333-112463))                                                                                                                                                                                                                                      
|2.4     | Common Stock Purchase Agreement , dated as of January 30,
      2004, between Net 1 UEPS Technologies, Inc and SAPEF III International
      G.P. Limited (or its nominees). (Incorporated by reference to Exhibit 2.4
      to our Registration Statement on Form S-4 filed February 3, 2004
      (Commission File No. 333-112463))                                                                                                                                                                                         
|2.5     | Subscription Agreement, dated November 10, 2003, between
      the Trustees for the time being of the New Aplitec Participation Trust and
      Newshelf 713 (Proprietary) Limited. (Incorporated by reference to Exhibit
      2.5 to our Registration Statement on Form S-4 filed February 3, 2004
      (Commission File No. 333-112463))                                                                                                                                                                                  
|2.6     | Trust Deed for the Aplitec Holding Participation Trust,
      dated October 31, 2003, entered into between Newshelf 713 (Proprietary)
      Limited and Brait Capital Partners Trustees (Proprietary) Limited.
      (Incorporated by reference to Exhibit 2.6 to our Registration Statement on
      Form S-4 filed February 3, 2004 (Commission File No. 333- 112463))                                                                                                                                                      
|2.7     | Trust Deed for the Aplitec Holdings Participation Trust,
      dated January 30, 2004, between Walker SPV, SAPEF III International G.P.
      Limited (in its capacity as original enforcer), Brait Capital Partners
      Trustees (Proprietary) Limited (in its capacity as trustee of the New
      Aplitec Participation Trust) and Net 1 UEPS Technologies, Inc.
      (Incorporated by reference to Exhibit 2.7 to our Registration Statement on
      Form S-4 filed February 3, 2004 (Commission File No. 333-112463))
|2.8     | Umbrella Agreement, dated November 10, 2003, South
      African Private Equity Trust III and South African Private Equity Fund III
      L.P. and Newshelf 713 (Proprietary) Limited. (Incorporated by reference to
      Exhibit 2.8 to our Registration Statement on Form S-4 filed February 3,
      2004 (Commission File No. 333-112463))                                                                                                                                                                               

98

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|2.9   | Underwriting Agreement, dated November 10, 2003, between
      South African Private Equity Trust III and South African Private Equity
      Fund III, L.P. and Newshelf 713 (Proprietary) Limited (Incorporated by
      reference to Exhibit 2.9 to our Registration Statement on Form S-4 filed
      February 3, 2004 (Commission File No. 333- 112463))                                                                                                                                                                                                                                                                                                                               
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.10  | Agreement, dated as of March 3, 2006, between Net 1
      Applied Technologies South Africa Limited and Prism Holdings Limited, as
      amended (incorporated by reference to Exhibit 2.1 to our Form 8-K/A (SEC
      File No. 000-31203)), filed on April 7, 2006                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.11  | Second Addendum, dated as of August 29, 2006 to the
      Implementation Agreement, dated as of March 3, 2006, between Net 1 Applied
      Technologies South Africa Limited and Prism Holdings Limited (incorporated
      by reference to Exhibit 2.1 to Net 1 UEPS Technologies Form 8-K filed on
      August 31, 2006 (SEC File No. 000- 31203))                                                                                                                                                                                                                                                                                                                                     
|3.1   | Articles of Incorporation of Net 1 UEPS Technologies,
      Inc., as amended (incorporated by reference to Exhibit 3.1 to our Form
      10-K for the year ended June 30, 2005 (SEC File No. 000-31203)) filed on
      September 13, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2   | Amended and Restated By-Laws of Net 1 UEPS Technologies,
      Inc. (Incorporated by reference to Exhibit 3.2 to our Form 8-K filed on
      August 30, 2007 (SEC File No. 000-31203)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1   | Form of common stock certificate (Incorporated by
      reference to Exhibit 4.1 to our Registration Statement on Form S-1 filed
      June 17, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1  | Distribution Agreement, dated July 1, 2002, between Net 1
      UEPS Technologies, Inc. and Net 1 Investment Holdings (Pty) Limited
      (Incorporated by reference to Exhibit 10.1 to our Registration Statement
      on Form S-4 filed February 3, 2004 (Commission File No. 333-112463))                                                                                                                                                                                                                                                                                                                                                                                              
|10.2  | Patent and Technology Agreement, dated June 19, 2000, by
      and between Net 1 Holdings S.a.r.l. and Net 1 UEPS Technologies, Inc.
      (Incorporated by reference to Exhibit 10.2 to our Registration Statement
      on Form S-4 filed February 3, 2004 (Commission File No. 333-112463))                                                                                                                                                                                                                                                                                                                                                                                             
|10.3  | Technology License Agreement between Net 1 Investment
      Holdings (Proprietary) Limited and Visa International Service Association
      (Incorporated by reference to Exhibit 10.11 to our Registration Statement
      on Form S-1/A filed August 1, 2005 (Commission File No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                                           
|10.4  | Product License Agreement between Net 1 Holdings S.a.r.l.
      and Net 1 Operations S.a.r.l. (Incorporated by reference to Exhibit 10.8
      to Amendment No. 2 to our Registration Statement on Form S-4/A, filed on
      April 21, 2004 (Commission File No. 333-112463))                                                                                                                                                                                                                                                                                                                                                                                                             
|10.5  | Procurement and Commissioning Agreement between Net 1
      Investment Holdings (Proprietary) Limited and Reserve Bank of Malawi
      (Incorporated by reference to Exhibit 10.9 to Amendment No. 2 to our
      Registration Statement on Form S-4/A, filed on April 21, 2004 (Commission
      File No. 333-112463))                                                                                                                                                                                                                                                                                                                                                                    
|10.6  | Non Exclusive UEPS License Agreement between Net 1
      Investment Holdings (Proprietary) Limited and SIA Netcards (Incorporated
      by reference to Exhibit 10.10 to Amendment No. 2 to our Registration
      Statement on Form S-4/A, filed on April 21, 2004 (Commission File No.
      333-112463))                                                                                                                                                                                                                                                                                                                                                                                
|10.7  | Assignment of Copyright and License of Patents and Trade
      Marks between MetroLink (Proprietary) Limited and Net 1 Products
      (Proprietary) Limited (Incorporated by reference to Exhibit 10.17 to our
      Registration Statement on Form S-1/A filed August 1, 2005 (Commission File
      No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                     
|10.8  | Agreement between Nedcor Bank Limited and Net 1 Products
      (Proprietary) Limited (Incorporated by reference to Exhibit 10.16 to our
      Registration Statement on Form S-1/A filed August 1, 2005 (Commission File
      No. 333- 125273))                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.9  | Patent and Technology Agreement by and between Net 1
      Investment Holdings (Proprietary) Limited and Nedcor Bank Limited
      (Incorporated by reference to Exhibit 10.18 to our Registration Statement
      on Form S-1/A filed August 1, 2005 (Commission File No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10 | Patent and Technology Agreement by and between Net 1
      Holdings S.a.r.l. and Net 1 Applied Technology Holdings Limited and Nedcor
      Bank Limited (Incorporated by reference to Exhibit 10.19 to our
      Registration Statement on Form S-1/A filed August 1, 2005 (Commission File
      No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                        
|10.11 | Agreement between Nedbank Limited and Net 1 UEPS
      Technologies, Inc. and Net 1 Applied Technologies South Africa Limited
      (Incorporated by reference to Exhibit 10.20 to our Registration Statement
      on Form S-1/A filed August 1, 2005 (Commission File No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                                                   
|      | Stock Purchase Agreement dated July 18, 2005, by and
      among CI Law Trustees Limited for the San Roque Trust, Dr. Serge C.P.
      Belamant, South African Private Equity Fund III, L.P., South African
      Private Equity Trust III, Brenthurst Private Equity II Limited, Brenthurst
      Private Equity South Africa I Limited, General Atlantic Partners 80, L.P.,
      GapStar, LLC, GAP Coinvestments III, Brait International Limited, LLC, GAP
      Coinvestments IV, LLC, GAPCO GmbH & Co. KG and Net 1 UEPS
      Technologies, Inc. (Incorporated by reference to Exhibit 10.21 to our
      Registration Statement on Form S-1/A filed August 1, 2005 (Commission File
|10.12 | No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.13 | Amendment No. 1 to the Stock Purchase Agreement dated as
      of August 11, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.14 | Banking Facility between Nedbank Limited and Net 1
      Applied Technology Holdings Limited (Incorporated by reference to Exhibit
      10.13 to our Registration Statement on Form S-1/A filed August 1, 2005
      (Commission File No. 333-125273))                                                                                                                                                                                                                                                                                                                                                                                                                                    

99

---

|10.15   | Facility between
        Cash Paymaster Services Eastern Cape and Nedbank Limited (Incorporated
        by reference to Exhibit 10.14 to our Registration Statement on Form S-1/A
        filed August 1, 2005 (Commission File No. 333- 125273))                                                                                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16   | Addendum to Facility Letter
         Approval of Increase Bridging Loan Facilities between Nedbank Limited
        and Net 1 Applied Technology Holdings Limited (Incorporated by reference
        to Exhibit 10.15 to our Registration Statement on Form S-1/A filed August
        1, 2005 (Commission File No. 333-125273))                                                                                                  
|10.17   | Service Level
        Agreement between the Department of Social Welfare and Population Development,
        Kwa-Zulu Natal and Cash Paymaster Services KwaZulu-Natal (Pty) Limited
        (Incorporated by reference to Exhibit 10.4 to our Registration Statement
        on Form S-4 filed February 3, 2004 (Commission File No. 333-112463))                                                                                 
|10.18   | Addendum to service level agreement
        dated as of April 14, 2006, entered into by and between the Kwa-Zulu Natal
        Provincial Government, in its Department of Welfare and Population Development
        and Cash Paymaster Services (KwaZulu-Natal) (Pty) (Ltd) (Incorporated
        by reference to Exhibit 10.26 to our Annual Report on Form 10-K filed
        August 29, 2006 (Commission File No. 000-31203))
|10.19   | Letter agreement
        effective January 31, 2007 between Net 1 UEPS Technologies, Inc. and the
        South African Social Security Agency extending Net1s service level
        agreement in the Kwa-Zulu Natal province (incorporated by reference to
        Exhibit 10.31 to Net 1 UEPS Technologies Form 10-Q filed on February
        7, 2007 (SEC File No. 000-31203))                                              
|10.20** | Letter
        agreement effective March 7, 2008 between Net 1 UEPS Technologies, Inc.
        and the South African Social Security Agency extending Net1s service
        level agreement in the Kwa-Zulu Natal province                                                                                                                                                                                                       
|10.21   | Service Level
        Agreement between the Province of Eastern Cape Department of Social Development
        and CPS Eastern Cape (Proprietary) Limited (Incorporated by reference
        to Exhibit 10.12 to our Registration Statement on Form S-1/A filed August
        1, 2005 (Commission File No. 333-125273))                                                                                                           
|10.22   | Letter agreement effective January
        31, 2007 between Net 1 UEPS Technologies, Inc. and the South African Social
        Security Agency extending Net1s service level agreement in the Eastern
        Cape province (incorporated by reference to Exhibit 10.33 to Net 1 UEPS
        Technologies Form 10-Q filed on February 7, 2007 (SEC File No. 000-31203))                                                        
|10.23** | Letter
        agreement effective March 7, 2008 between Net 1 UEPS Technologies, Inc.
        and the South African Social Security Agency extending Net1s service
        level agreement in the Eastern Cape province                                                                                                                                                                                                         
|10.24   | Service level agreement dated
        March 31, 2006, between the Limpopo Provincial Government in its Department
        of Health and Social Development and Cash Paymaster Services (Northern)
        (Pty) Ltd (Incorporated by reference to Exhibit 10.26 to our Quarterly
        Report on Form 10-Q filed May 9, 2006 (Commission File No. 000-31203))                                                                   
|10.25   | Letter agreement
        effective January 31, 2007 between Net 1 UEPS Technologies, Inc. and the
        South African Social Security Agency extending Net1s service level
        agreement in the Limpopo (formerly Northern) province (incorporated by
        reference to Exhibit 10.32 to Net 1 UEPS Technologies Form 10-Q
        filed on February 7, 2007 (SEC File No. 000-31203))                                 
|10.26** | Letter agreement effective March
        7, 2008 between Net 1 UEPS Technologies, Inc. and the South African Social
        Security Agency extending Net1s service level agreement in the Limpopo
    province                                                                                                                                                                                                                  
|10.27   | Letter agreement effective January
        31, 2007 between Net 1 UEPS Technologies, Inc. and the South African Social
        Security Agency extending Net1s service level agreement in the North
        West province (incorporated by reference to Exhibit 10.34 to Net 1 UEPS
        Technologies Form 10-Q filed on February 7, 2007 (SEC File No. 000-31203))                                                          
|10.28** | Letter
        agreement effective March 7, 2008 between Net 1 UEPS Technologies, Inc.
        and the South African Social Security Agency extending Net1s service
        level agreement in the North West province                                                                                                                                                                                                           
|10.29   | Letter agreement effective January
        31, 2007 between Net 1 UEPS Technologies, Inc. and the South African Social
        Security Agency extending Net1s service level agreement in the Northern
        Cape province (incorporated by reference to Exhibit 10.35 to Net 1 UEPS
        Technologies Form 10-Q filed on February 7, 2007 (SEC File No. 000-31203))                                                       
|10.30** | Letter
        agreement effective March 7, 2008 between Net 1 UEPS Technologies, Inc.
        and the South African Social Security Agency extending Net1s service
        level agreement in the Northern Cape province                                                                                                                                                                                                        
|10.31*  | Amended and Restated 2004 Stock
        Incentive Plan of Net 1 UEPS Technologies, Inc. (incorporated by reference
        to Exhibit A to Proxy Statement filed on October 27, 2006)                                                                                                                                                                                                                                             
|10.32*  | Form of Stock
        Option Agreement dated as of August 24, 2006, by and between Net 1 UEPS
        Technologies, Inc. and employees of Prism Holdings Limited (incorporated
        by reference to Exhibit 10.27 to Net 1 UEPS Technologies Form 10-Q
        filed on November 8, 2006 (SEC File No. 000-31203))                                                                                                            

100

---

|10.33* | Form of Stock Option Agreement,
        by and between Net 1 UEPS Technologies, Inc. and recipients of stock options
        under the Amended and Restated 2004 Stock Option Incentive Plan of Net
        1 UEPS Technologies, Inc. (incorporated by reference to Exhibit 99.3 to
        Form S-8 filed on January 17, 2007 (SEC File No. 000-31203))
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.34* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Serge Christian Pierre Belamant
        (incorporated by reference to Exhibit 10.36 to Net 1 UEPS Technologies
        Form 10-K filed on August 29, 2007 (SEC File No. 000-31203))                                                                                
|10.35* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Herman Gideon Kotze (incorporated
        by reference to Exhibit 10.37 to Net 1 UEPS Technologies Form 10-K
        filed on August 29, 2007 (SEC File No. 000-31203))                                                                                            
|10.36* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Brenda Lynn Stewart (incorporated
        by reference to Exhibit 10.38 to Net 1 UEPS Technologies Form 10-K
        filed on August 29, 2007 (SEC File No. 000-31203))                                                                                            
|10.37* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Nitin Soma (incorporated
        by reference to Exhibit 10.39 to Net 1 UEPS Technologies Form 10-K
        filed on August 29, 2007 (SEC File No. 000-31203))                                                                                                     
|10.38* | Form of Restricted Stock Agreement
        by and between Net 1 UEPS Technologies, Inc. and employees of Net 1 UEPS
        Technologies, Inc. (incorporated by reference to Exhibit 10.40 to Net
        1 UEPS Technologies Form 10-K filed on August 29, 2007 (SEC File
        No. 000-31203))                                                     
|10.39* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Christopher Stefan Seabrooke
        dated February 11, 2008 (incorporated by reference to Exhibit 10.41 to
        Net 1 UEPS Technologies Form 10-Q filed on May 8, 2008 (SEC File
        No. 000-31203))                                                       
|10.40* | Restricted Stock Agreement by
        and between Net 1 UEPS Technologies, Inc. and Paul Edwards dated February
        12, 2008 (incorporated by reference to Exhibit 10.42 to Net 1 UEPS Technologies
        Form 10-Q filed on May 8, 2008 (SEC File No. 000-31203))                                                                               
|14     | Amended and Restated Code of
        Ethics (Incorporated by reference to Exhibit 14.1 to our Form 8-K filed
        June 7, 2005)                                                                                                                                                                                                                      
|21     | Subsidiaries
        of Registrant                                                                                                                                                                                                                                                                                                                      
|23     | Consent
        of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                        
|31.1   | Certification
        of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
        under the Securities Exchange Act of 1934, as amended                                                                                                                                                                                            
|31.2   | Certification
        of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
        under the Securities Exchange Act of 1934, as amended                                                                                                                                                                                            
|32     | Certification
        pursuant to 18 USC. Section 1350                                                                                                                                                                                                                                                                                                  

________________________* Indicates a management contract
or compensatory plan or arrangement. ** Filed herewith

101

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

NET 1 UEPS TECHNOLOGIES, INC.

By: /s/ Serge C.P. Belamant Serge
C.P. BelamantChief Executive Officer, Chairman of the Board and Director

Date: August 28, 2008

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

|NAME                               | TITLE                                                       | DATE           
|---------------------------------- | ----------------------------------------------------------- | ---------------
|                                   |                                                             |                
|                                   | Chief Executive Officer and Chairman of the
      Board and | August 28, 2008
|/s/ Serge C.P. Belamant            | Director (Principal Executive Officer)                      |                
|Serge C.P. Belamant                |                                                             |                
|                                   |                                                             |                
|                                   |                                                             |                
|                                   | Chief Financial Officer, Treasurer and
      Secretary and  | August 28, 2008
|/s/ Herman Gideon Kotze            | Director (Principal Financial and Accounting
      Officer) |                
|Herman Gideon Kotze                |                                                             |                
|                                   |                                                             |                
|/s/ Antony Charles Ball            | Director                                                    | August 28, 2008
|Antony Charles Ball                |                                                             |                
|                                   |                                                             |                
|/s/ Christopher Stefan Seabrooke   | Director                                                    | August 28, 2008
|Christopher Stefan Seabrooke       |                                                             |                
|                                   |                                                             |                
|/s/ Alasdair Jonathan Kemsley Pein | Director                                                    | August 28, 2008
|Alasdair Jonathan Kemsley Pein     |                                                             |                
|                                   |                                                             |                
|/s/ Paul Edwards                   | Director                                                    | August 28, 2008
|Paul Edwards                       |                                                             |                
|                                   |                                                             |                
|/s/ Florian P. Wendelstadt         | Director                                                    | August 28, 2008
|Florian P. Wendelstadt             |                                                             |                

102

---

FORM 10-K  ITEM 8

NET 1 UEPS TECHNOLOGIES, INC.

LIST OF CONSOLIDATED FINANCIAL STATEMENTS



|Report
      of the Independent Registered Public Accounting Firm  Deloitte &
      Touche (South Africa)                | F-2
|------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                          |    
|Consolidated
      balance sheets as of June 30, 2008 and 2007                                                            | F-3
|                                                                                                                          |    
|Consolidated
      statements of operations for the years ended June 30, 2008, 2007 and 2006                              | F-4
|                                                                                                                          |    
|Consolidated
      statements of movements in shareholders equity for the years ended June
      30, 2008, 2007 and 2006 | F-5
|                                                                                                                          |    
|Consolidated
      statements of cash flows for the years ended June 30, 2008, 2007 and 2006                              | F-6
|                                                                                                                          |    
|Notes
      to the consolidated financial statements                                                                      | F-7

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Shareholders of Net 1 UEPS Technologies, Inc.

We have audited the accompanying
  consolidated balance sheets of Net 1 UEPS Technologies, Inc. and subsidiaries
  (the Company) as of June 30, 2008 and 2007 and the related consolidated
  statements of operations, of movements in shareholders equity and cash flows
  for each of the three years in the period ended June 30, 2008. These financial
  statements are the responsibility of the Companys management. Our
  responsibility is to express an opinion on these financial statements based on
  our audits.

We conducted our audits in
  accordance with standards of the Public Company Accounting Oversight Board
  (United States). Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements. An audit
  also includes assessing the accounting principles used and significant estimates
  made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

In our opinion, such consolidated
  financial statements, referred to above, present fairly, in all material
  respects, the financial position of Net 1 UEPS Technologies, Inc. and
  subsidiaries at June 30, 2008 and 2007, the results of their operations and
  their cash flows for each of the three years in the period ended June 30, 2008
  in conformity with accounting principles generally accepted in the United States
  of America.

We have also audited, in
  accordance with the standards of the Public Company Accounting Oversight Board
  (United States), the Company's internal control over financial reporting as of
  June 30, 2008, based on the criteria established in Internal
    ControlIntegrated Framework issued by the Committee of Sponsoring
  Organizations of the Treadway Commission and our report dated August 28, 2008,
  expressed an unqualified opinion on the Company's internal control over
  financial reporting.

/s/ Deloitte & Touche (South Africa)



Chartered Accountants (SA) Johannesburg, Republic
      of South Africa 
      August 28, 2008

F-2

---

NET 1 UEPS TECHNOLOGIES, INC. 
  CONSOLIDATED BALANCE
  SHEETS 
  as of June 30, 2008 and 2007

|                                                                               |   | 2008                              |   |   | 2007    |  
|------------------------------------------------------------------------------ | - | --------------------------------- | - | - | ------- | -
|                                                                               |   | (In thousands, except share data) |  
|                                                                               |   |                                   |   |   |         |  
|ASSETS                                                                         |   |                                   |   |   |         |  
|CURRENT ASSETS                                                                 |   |                                   |   |   |         |  
|Cash and cash equivalents                                                      | $ | 272,475                           |   | $ | 171,727 |  
|Pre-funded
      social welfare grants receivable                              |   | 35,434                            |   |   | 26,817  |  
|Accounts receivable, net                                                       |   | 21,797                            |   |   | 30,503  |  
|Finance
      loans receivable, net                                            |   | 4,301                             |   |   | 5,755   |  
|Deferred expenditure on smart cards                                            |   | 78                                |   |   | 507     |  
|Inventory                                                                      |   | 6,052                             |   |   | 5,645   |  
|Deferred income taxes                                                          |   | 5,597                             |   |   | 7,028   |  
|Total current assets                                                           |   | 345,734                           |   |   | 247,982 |  
|                                                                               |   |                                   |   |   |         |  
|LONG-TERM RECEIVABLES                                                          |   | 207                               |   |   | 54      |  
|PROPERTY, PLANT AND EQUIPMENT, net                                             |   | 6,291                             |   |   | 7,582   |  
|EQUITY-ACCOUNTED INVESTMENTS                                                   |   | 2,685                             |   |   | 2,992   |  
|GOODWILL                                                                       |   | 76,938                            |   |   | 85,871  |  
|INTANGIBLE ASSETS, net                                                         |   | 22,216                            |   |   | 31,609  |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL ASSETS                                                                   |   | 454,071                           |   |   | 376,090 |  
|                                                                               |   |                                   |   |   |         |  
|LIABILITIES                                                                    |   |                                   |   |   |         |  
|CURRENT LIABILITIES                                                            |   |                                   |   |   |         |  
|Bank
      overdraft                                                           |   | -                                 |   |   | 16      |  
|Accounts payable                                                               |   | 4,909                             |   |   | 5,879   |  
|Other
      payables                                                           |   | 57,432                            |   |   | 34,457  |  
|Income taxes payable                                                           |   | 14,162                            |   |   | 14,346  |  
|Total current liabilities                                                      |   | 76,503                            |   |   | 54,698  |  
|                                                                               |   |                                   |   |   |         |  
|DEFERRED INCOME TAXES                                                          |   | 33,474                            |   |   | 36,219  |  
|                                                                               |   |                                   |   |   |         |  
|INTEREST BEARING LIABILITIES  outside shareholders loans                      |   | 3,766                             |   |   | 4,100   |  
|                                                                               |   |                                   |   |   |         |  
|COMMITMENTS AND CONTINGENCIES                                                  |   | -                                 |   |   | -       |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL LIABILITIES                                                              |   | 113,743                           |   |   | 95,017  |  
|                                                                               |   |                                   |   |   |         |  
|SHAREHOLDERS EQUITY                                                           |   |                                   |   |   |         |  
|COMMON STOCK                                                                   |   |                                   |   |   |         |  
|Authorized
      shares: 83,333,333 with $0.001 par value;                     |   |                                   |   |   |         |  
|Issued and outstanding shares: 2008: 53,423,552; 2007: 51,730,547              |   | 52                                |   |   | 52      |  
|                                                                               |   |                                   |   |   |         |  
|SPECIAL CONVERTIBLE PREFERRED STOCK                                            |   |                                   |   |   |         |  
|Authorized
      shares: 50,000,000 with $0.001 par value;                     |   |                                   |   |   |         |  
|Issued and outstanding shares: 2008: 4,882,429; 2007: 5,656,110                |   | 5                                 |   |   | 5       |  
|                                                                               |   |                                   |   |   |         |  
|B CLASS PREFERENCE SHARES                                                      |   |                                   |   |   |         |  
|Authorized
      shares: 330,000,000 with $0.001 par value;                    |   |                                   |   |   |         |  
|Issued and outstanding shares (net of shares held by the Company):
      2008: |   |                                   |   |   |         |  
|35,975,818;
      2007: 41,676,625                                             |   | 6                                 |   |   | 7       |  
|                                                                               |   |                                   |   |   |         |  
|ADDITIONAL PAID-IN CAPITAL                                                     |   | 119,283                           |   |   | 112,167 |  
|                                                                               |   |                                   |   |   |         |  
|TREASURY SHARES, AT COST: 2008: 306,269; 2007: 299,821                         |   | (7,950                            | ) |   | (7,795  | )
|                                                                               |   |                                   |   |   |         |  
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                           |   | (37,820                           | ) |   | (3,915  | )
|                                                                               |   |                                   |   |   |         |  
|RETAINED EARNINGS                                                              |   | 266,752                           |   |   | 180,552 |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                     |   | 340,328                           |   |   | 281,073 |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                     | $ | 454,071                           |   | $ | 376,090 |  

See accompanying notes to consolidated financial statements.

F-3

---

NET 1 UEPS TECHNOLOGIES, INC. CONSOLIDATED
      STATEMENTS OF OPERATIONS for the years ended June 30, 2008, 2007 and
    2006

|                                                               |   | 2008                                  |   |   | 2007    |  |   | 2006    | 
|-------------------------------------------------------------- | - | ------------------------------------- | - | - | ------- |  | - | ------- | 
|                                                               |   | (In thousands, except per share data) |  
|REVENUE                                                        | $ | 254,056                               |   | $ | 223,968 |  | $ | 196,098 | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Sale of goods                                                  |   | 39,021                                |   |   | 27,716  |  |   | 17,867  | 
|Loan-based interest and fees received                          |   | 8,585                                 |   |   | 11,460  |  |   | 15,017  | 
|Services rendered                                              |   | 206,450                               |   |   | 184,792 |  |   | 163,214 | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|EXPENSE                                                        |   |                                       |   |   |         |  |   |         | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Cost of goods sold, IT
      processing, servicing and support |   | 67,486                                |   |   | 54,417  |  |   | 50,619  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Selling, general and administration                            |   | 65,362                                |   |   | 61,625  |  |   | 48,627  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Depreciation and amortization                                  |   | 10,822                                |   |   | 11,050  |  |   | 5,710   | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Costs related to public
      offering and Nasdaq listing      |   | -                                     |   |   | -       |  |   | 1,529   | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|OPERATING INCOME                                               |   | 110,386                               |   |   | 96,876  |  |   | 89,613  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|INTEREST INCOME, net                                           |   | 15,722                                |   |   | 4,401   |  |   | 5,889   | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|INCOME BEFORE INCOME TAXES                                     |   | 126,108                               |   |   | 101,277 |  |   | 95,502  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|INCOME TAX EXPENSE                                             |   | 39,192                                |   |   | 37,574  |  |   | 36,653  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|NET INCOME BEFORE MINORITY INTEREST AND (LOSS)
      EARNINGS  |   |                                       |   |   |         |  |   |         | 
|FROM EQUITY-ACCOUNTED INVESTMENTS                              |   | 86,916                                |   |   | 63,703  |  |   | 58,849  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|MINORITY INTEREST                                              |   | (815                                  | ) |   | 205     |  |   | -       | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|(LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS              |   | (1,036                                | ) |   | 181     |  |   | 383     | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|NET INCOME                                                     | $ | 86,695                                |   | $ | 63,679  |  | $ | 59,232  | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Net income per share                                           |   |                                       |   |   |         |  |   |         | 
|                                                               |   |                                       |   |   |         |  |   |         | 
|Basic earnings  common stock and
      linked units, in $     |   | 1.52                                  |   |   | 1.12    |  |   | 1.05    | 
|Diluted earnings 
      common stock and linked units, in $   |   | 1.50                                  |   |   | 1.11    |  |   | 1.03    | 

See accompanying notes to consolidated financial statements.

F-4

---

NET 1 UEPS Technologies, Inc.CONSOLIDATED
    STATEMENTS OF MOVEMENTS IN SHAREHOLDERS' EQUITY 
    for the years ended June 30,
    2008, 2007 and 2006

Special Convertible
      
      
      B ClassCommon Stock
      
      
      Preferred Stock
      
      
      Preference Shares
      
      
      
      
      
      AccumulatedNumber
      
      
      
      
      
      Number
      
      
      
      
      
      Additional
      
      
      Number
      
      
      
      
      
      Number
      
      
      
      
      
      
      
      
      Otherof
      
      
      
      
      
      of treasury
      
      
      **Treasury**
      
      
      Paid-in
      
      
      of
      
      
      
      
      
      of
      
      
      
      
      
      Retained
      
      
      Comprehensive
      
      
      
      
      
      ComprehensiveShares
      
      
      Amount
      
      
      shares
      
      
      shares
      
      
      Capital
      
      
      Shares
      
      
      Amount
      
      
      Shares
      
      
      Amount
      
      
      Earnings
      
      
      Income (loss)
      
      
      Total
      
      
      Income (loss)'000
      
      
      
      
      
      '000
      
      
      '000
      
      
      
      
      
      '000
      
      
      
      
      
      '000
      
      
      '000
      
      
      '000
      
      
      '000
      
      
      '000Balance - July 1, 2005
      28,548,269
      
      $
      29
      
      
      -
      
      
      -
      
      $
      71,960
      
      
      26,733,521
      
      $
      27
      
      
      196,983,841
      
      $
      31
      
      $
      57,641
      
      $
      7,314
      
      $
      137,002Net Income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      59,232
      
      
      
      
      
      59,232
      
      $
      59,232Issue of shares in public
        offering
      1,538,794
      
      
      1
      
      
      
      
      
      
      
      
      33,852
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      33,853Share issue costs
      
      
      
      
      
      
      
      
      
      
      
      
      (2,370
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (2,370
      )Exercise of options by
        holders
      239,367
      
      
      
      
      
      
      
      
      
      
      
      1,605
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,605Settlement of loan noteconsideration for stock issuedin accordance with 2004 StockIncentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      1,130
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,130Loan note consideration forstock issued in accordance
        with2004 Stock Incentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      (557
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (557
      )Stock compensation charge
      
      
      
      
      
      
      
      
      
      
      
      
      150
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      150Conversion from specialconvertible preferred stock
        tocommon stock and cession of Bclass preference shares and Bclass loans to Net 1 as a result oftrigger events
      19,418,422
      
      
      20
      
      
      
      
      
      
      
      
      22
      
      
      (19,418,422
      )
      
      (20
      )
      
      (143,083,089
      )
      
      (22
      )
      
      
      
      
      
      
      
      -Acquisition of treasury
        sharesat market value
      
      
      
      -
      
      
      (147,973
      )
      $
      (3,958
      )
      
      -
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (3,958
      )Movement in Foreign CurrencyTranslation Reserve
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (17,077
      )
      
      (17,077
      )
      
      (17,077
      )Balance - June 30,
        2006
      49,744,852
      
      
      50
      
      
      (147,973
      )
      
      (3,958
      )
      
      105,792
      
      
      7,315,099
      
      
      7
      
      
      53,900,752
      
      
      9
      
      
      116,873
      
      
      (9,763
      )
      
      209,010
      
      
      42,155Net Income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      63,679
      
      
      
      
      
      63,679
      
      
      63,679Exercise of options by
        holders
      326,706
      
      
      
      
      
      
      
      
      
      
      
      3,723
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      3,723Shares withheld by the
        Company onautomatic exercise of employee stockoptions
      
      
      
      
      
      
      (111,748
      )
      
      (2,837
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (2,837
      )Settlement of loan noteconsideration for stock issuedin accordance with 2004 StockIncentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      551
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      551Loan note consideration forstock issued in accordance
        with2004 Stock Incentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      (528
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (528
      )Stock compensation charge
      
      
      
      
      
      
      
      
      
      
      
      
      1,126
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,126Reversal of stock
        compensation charge
      
      
      
      
      
      
      
      
      
      
      
      
      (216
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (216
      )Income tax benefits from
        options soldby employees
      
      
      
      
      
      
      
      
      
      
      
      
      1,717
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,717Conversion from specialconvertible preferred stock
        tocommon stock and cession of Bclass preference shares and Bclass loans to Net 1 as a result oftrigger events
      1,658,989
      
      
      2
      
      
      
      
      
      
      
      
      2
      
      
      (1,658,989
      )
      
      (2
      )
      
      (12,224,127
      )
      
      (2
      )
      
      
      
      
      
      
      
      -Acquisition of treasury
        sharesat market value
      
      
      
      -
      
      
      (40,100
      )
      
      (1,000
      )
      
      -
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,000
      )Movement in Foreign CurrencyTranslation Reserve
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      5,848
      
      
      5,848
      
      
      5,848Balance - June 30,
        2007
      51,730,547
      
      
      52
      
      
      (299,821
      )
      
      (7,795
      )
      
      112,167
      
      
      5,656,110
      
      
      5
      
      
      41,676,625
      
      
      7
      
      
      180,552
      
      
      (3,915
      )
      
      281,073
      
      
      69,527Adoption of FIN 48 -
        adjustment toopening retained earnings
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (495
      )
      
      
      
      
      (495
      )Net Income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      86,695
      
      
      
      
      
      86,695
      
      
      86,695Restricted stock granted
      594,782Exercise of options by holders
      324,542
      
      
      
      
      
      
      
      
      
      
      
      2,919
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      2,919Shares withheld by the Company onautomatic exercise of
        employee stockoptions
      
      
      
      
      
      
      (6,448
      )
      
      (155
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (155
      )Settlement of loan noteconsideration for stock
        issuedin accordance with 2004 StockIncentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      544
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      544Loan note consideration forstock issued in accordance with2004 Stock Incentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      (463
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (463
      )Stock compensation charge
      
      
      
      
      
      
      
      
      
      
      
      
      4,257
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,257Reversal of stock compensation charge
      
      
      
      
      
      
      
      
      
      
      
      
      (286
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (286
      )Income tax benefits from options soldby employees
      
      
      
      
      
      
      
      
      
      
      
      
      144
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      144Conversion from specialconvertible preferred stock tocommon stock and cession of Bclass preference shares and Bclass loans to Net 1 as a
        result oftrigger events
      773,681
      
      
      
      
      
      
      
      
      
      
      
      1
      
      
      (773,681
      )
      
      
      
      
      (5,700,807
      )
      
      (1
      )
      
      
      
      
      
      
      
      -Movement in Foreign CurrencyTranslation Reserve
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (33,905
      )
      
      (33,905
      )
      
      (33,905
      )Balance - June 30,
        2008
      53,423,552
      
      $
      52
      
      
      (306,269
      )
      $
      (7,950
      )
      $
      119,283
      
      
      4,882,429
      
      $
      5
      
      
      35,975,818
      
      $
      6
      
      $
      266,752
      
      $
      (37,820
      )
      $
      340,328
      
      $
      52,790


See accompanying notes to consolidated financial
  statements.

F-5

---

NET 1 UEPS TECHNOLOGIES, INC. CONSOLIDATED
      STATEMENTS OF CASH FLOWS for the years ended June 30, 2008, 2007 and
    2006

|                                                                                       |   | 2008           |   |   | 2007    |   |   | 2006    |  
|-------------------------------------------------------------------------------------- | - | -------------- | - | - | ------- | - | - | ------- | -
|                                                                                       |   | (In thousands) |  
|                                                                                       |   |                |   |   |         |   |   |         |  
|Cash flows from operating activities                                                   |   |                |   |   |         |   |   |         |  
|Net income                                                                             | $ | 86,695         |   | $ | 63,679  |   | $ | 59,232  |  
|Adjustments to reconcile net income to net cash provide by
      operating activities: |   |                |   |   |         |   |   |         |  
|Depreciation and amortization                                                          |   | 10,822         |   |   | 11,050  |   |   | 5,710   |  
|Loss (earnings) from equity-accounted investments                                      |   | 1,036          |   |   | (181    | ) |   | (383    | )
|Fair value adjustment related
      to financial liabilities                           |   | (197           | ) |   | 161     |   |   | 6       |  
|Fair value adjustments of FAS 133 derivative
      instruments                         |   | (72            | ) |   | 25      |   |   | (90     | )
|Interest payable                                                                       |   | 434            |   |   | 234     |   |   | -       |  
|Profit on disposal of property, plant and
      equipment                              |   | (110           | ) |   | (286    | ) |   | (210    | )
|Loss on disposal of equity-accounted
      investment  Permit Group 2 (Pty) Ltd       |   | -              |   |   | 586     |   |   | -       |  
|Profit on disposal of business                                                         |   | -              |   |   | -       |   |   | (10     | )
|Minority interest                                                                      |   | (815           | ) |   | 205     |   |   | -       |  
|Stock compensation charge, net of forfeitures                                          |   | 3,971          |   |   | 910     |   |   | 150     |  
|Write down of property,
      plant and equipment                                      |   | -              |   |   | -       |   |   | 314     |  
|Increase in accounts receivable, pre-funded
      social welfare grants                |   |                |   |   |         |   |   |         |  
|receivable and finance
      loans receivable                                          |   | (9,983         | ) |   | (9,469  | ) |   | (13,870 | )
|Decrease in deferred expenditure on smart
      cards                                  |   | 416            |   |   | 155     |   |   | 3,199   |  
|Increase in inventory                                                                  |   | (1,138         | ) |   | (2,203  | ) |   | (109    | )
|Increase (Decrease) in accounts payable
      and other payables                       |   | 24,353         |   |   | (1,470  | ) |   | 13,183  |  
|Increase (Decrease) in
      taxes payable                                             |   | 1,369          |   |   | 268     |   |   | (471    | )
|Increase in deferred taxes                                                             |   | 1,979          |   |   | 1,802   |   |   | 9,126   |  
|**Net cash provided by operating activities                                            |   | 118,760        |   |   | 65,466  |   |   | 75,777  |  
|                                                                                       |   |                |   |   |         |   |   |         |  
|Cash flows from investing activities                                                   |   |                |   |   |         |   |   |         |  
|Capital expenditures                                                                   |   | (3,563         | ) |   | (3,745  | ) |   | (1,821  | )
|Proceeds from disposal of property, plant and
      equipment                          |   | 160            |   |   | 685     |   |   | 336     |  
|Proceeds from disposal of business                                                     |   | -              |   |   | -       |   |   | 10      |  
|Proceeds from disposal of equity-accounted
      investment                            |   |                |   |   |         |   |   |         |  
|- Permit Group 2 (Pty) Ltd                                                             |   | -              |   |   | 2,301   |   |   | -       |  
|Long-term receivables and loan to equity-accounted
      investment repaid             |   | -              |   |   | 1,622   |   |   | -       |  
|Acquisition of and advance of loans to equity-accounted investments                    |   | (500           | ) |   | (360    | ) |   | (4,030  | )
|Acquisition of Prism Holdings Limited and remaining
      25.1% of EasyPay, net of     |   |                |   |   |         |   |   |         |  
|cash acquired                                                                          |   | -              |   |   | (92,043 | ) |   | -       |  
|Net cash used in investing
      activities                                            |   | (3,903         | ) |   | (91,540 | ) |   | (5,505  | )
|                                                                                       |   |                |   |   |         |   |   |         |  
|Cash flows from financing activities                                                   |   |                |   |   |         |   |   |         |  
|Proceeds from issue of common stock                                                    |   | 2,845          |   |   | 909     |   |   | 33,661  |  
|Acquisition of treasury stock                                                          |   | -              |   |   | (1,000  | ) |   | (3,958  | )
|Proceeds from bank overdraft                                                           |   | 1,462          |   |   | 84,657  |   |   | 20      |  
|Repayment of bank overdraft                                                            |   | (1,443         | ) |   | (84,854 | ) |   | -       |  
|Proceeds from interest bearing liabilities                                             |   | -              |   |   | 3,513   |   |   | -       |  
|Net cash provided by
      financing activities                                        |   | 2,864          |   |   | 3,225   |   |   | 29,723  |  
|                                                                                       |   |                |   |   |         |   |   |         |  
|Effect of exchange rate changes on cash                                                |   | (16,973        | ) |   | 4,841   |   |   | (18,009 | )
|                                                                                       |   |                |   |   |         |   |   |         |  
|Net increase (decrease) in cash and cash
      equivalents                             |   | 100,748        |   |   | (18,008 | ) |   | 81,986  |  
|                                                                                       |   |                |   |   |         |   |   |         |  
|Cash and cash equivalents  beginning
      of year                                    |   | 171,727        |   |   | 189,735 |   |   | 107,749 |  
|                                                                                       |   |                |   |   |         |   |   |         |  
|Cash and cash equivalents at end of year                                               | $ | 272,475        |   | $ | 171,727 |   | $ | 189,735 |  

See accompanying notes to consolidated financial statements.

F-6

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                     
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts
      stated in thousands of United States Dollars, unless otherwise stated)

1.**DESCRIPTION OF
  BUSINESS AND BASIS OF PRESENTATION

Description of Business

Net 1 UEPS Technologies, Inc.
  (Net1) was incorporated in the State of Florida on May 8, 1997, and was, prior
  to the transaction described below, engaged in the business of commercializing
  the smart card technology based on the Universal Electronic Payment System
  (UEPS) and Funds Transfer System (FTS) through the development of strategic
  alliances with national and international bank and card service organizations.

Net 1 Applied Technology Holdings
  Limited (Aplitec) was a holding company established and existing under the
  laws of Republic of South Africa. Aplitecs subsidiaries employed specialized
  smart card technologies to add efficiency to commercial activities requiring
  money transfers, payment systems, and other electronic data applications.
  Through its subsidiaries, Aplitec was involved in the administration, management
  and payment of social welfare grants and handled the payment of pensions on
  behalf of the government in five of the nine provinces of South Africa. Aplitec
  also operated micro-lending businesses with more than 100 branches throughout
  South Africa and developed, marketed and licensed administrative and payment
  solutions for the micro-lending industry. In addition, Aplitec provided
  financial services to its customers through its proprietary smart card platform
  and provided technical, operational, business solutions and outsourcing services
  to companies.

As a result of the transaction
  described below, the shareholders of Aplitec obtained a majority voting interest
  in Net1 on June 7, 2004. Generally accepted accounting principles require that
  the company whose shareholders retain a majority interest in a combined business
  be treated as the acquirer for accounting purposes. Consequently, this
  transaction has been accounted for as a reverse acquisition with Net1 as the
  acquired entity. We refer to the continuing combined entity of Net1 and Aplitec
  and their consolidated subsidiaries as the Company. We refer to the historic
  Aplitec business before the transaction as Aplitec, and the subsidiary that
  legally acquired the business of Aplitec as New Aplitec. Net1 refers solely
  to the Florida corporation and the business of Net1 prior to the Aplitec
  transaction.

Although Aplitec is deemed to be
  the acquiring company for financial and reporting purposes, the legal status of
  Net1 as the surviving corporation has not changed.

******The Aplitec
  transaction had the following elements:

- On June 7, 2004, Net1 Applied Technologies South Africa Limited (New
      Aplitec), a holding company established and existing under the laws of South
      Africa, completed a transaction whereby it acquired substantially all of the
      assets and liabilities of Aplitec for $127.53 million (or ZAR825,641,638) (the
      net purchase price). The net purchase price together with the cash retained
      in Aplitec was distributed as an advance distribution to Aplitec shareholders.
- The New Aplitec Participation Trust (the South African Trust) is a South
      African bewind trust established and existing under the laws of South Africa.
- The Aplitec Holdings Participation Trust (the Cayman Trust) is a purpose
      trust created under Part VIII of the Trust Law (2001 Revision) of the Cayman
      Islands.
- The Aplitec shareholders had the option of either electing to receive 190
      South African cents per share and an investment in New Aplitec in the form of
      a nil paid renounceable letter of allocation representing an interest in a New
      Aplitec B class preference share (B class preference shares) and B class
      loans held by the South African Trust (collectively the reinvestment option)
      or cash of 500 South African cents per share. Shareholders who elected to
      receive the reinvestment option are described as reinvesting shareholders.
      In addition to the liquidation dividend, reinvesting shareholders were
      granted, units in the South African Trust with the right to receive, for no
      additional consideration, special convertible preferred stock of Net1, which
      are held by the Cayman Trust. These shares may be converted, upon the
      occurrence of a trigger event, to Net1 common stock on a one-for-one basis. A
      trigger event can occur when a unit holder gives notice to the South African
      Trust in writing of its intention to convert some or all of its B class
      preference shares and B class loans. A trigger event also includes the
      abolition or relaxation of Exchange Controls by the South African Reserve Bank
      to permit reinvesting shareholders to hold Net1 common stock directly or the
      winding up or placing under judicial management of New Aplitec or Net1.

F-7

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

1.** DESCRIPTION OF
  BUSINESS AND BASIS OF PRESENTATION (continued)

Description of Business (continued)

- Upon receipt of notice of a trigger event, the trustee of the South African
      Trust will request delivery from the Cayman Trust of the number of shares of
      Net1s special convertible preferred stock attributable to the units being
      converted. Upon delivery by the Cayman Trust, the South African Trust will
      transfer these shares of special convertible preferred stock, along with a
      proportionate number of B class preference shares and loan accounts to Net1 in
      exchange for shares of Net1s common stock.
- On June 25, 2004, shareholders holding 1,849,119 of Aplitecs issued shares
      elected the cash option. The remaining shareholders holding 235,128,068 shares
      elected the reinvestment option. Aplitec entered into an underwriting
      agreement with South African Private Equity Trust III (SAPET) and South
      African Private Equity Fund III L.P. (SAPEF and, together with SAPET, the
      Underwriters). In terms of this arrangement the Underwriters agreed to take
      up all of the rights in the South African Trust of the reinvestment option not
      taken up by Aplitecs shareholders, up to the maximum of $70 million (or
      ZAR437 million), which was equivalent to 64.7% of the reinvestment option, at
      a price of $0.45 (or ZAR2.85) per Aplitec share not involved in the
      reinvestment. The Underwriters paid $0.84 million (or ZAR5,269,989) for
      1,849,119 units in the South African Trust in terms of the underwriting
      agreement.
- On May 27, 2004, Net1 issued the equivalent of 32,161,190 of its special
      convertible preferred stock to the Cayman Trust, to be held for the benefit of
      Aplitecs shareholders that elected the reinvestment option and the
      Underwriters.
- The combination of instruments issued to the reinvesting shareholders (B
      class preference shares and B Class loans in New Aplitec as well as rights to
      receive special convertible preferred stock in Net1) are referred to as
      linked units and the reinvesting shareholders that hold these instruments
      are referred to as linked unit holders. Both the Net1 common stock and the
      linked units have been reflected as shareholders equity. Refer to Note 11 
      Capital Structure and Creditor Rights Attached to the B Class Loans for a
      detailed explanation of this treatment.

On July 3, 2006, the Company
  acquired the entire outstanding ordinary share capital of Prism Holdings Limited
  (Prism), a South Africa company listed on the JSE Limited until June 30, 2006,
  for approximately $95.2 million in cash. This transaction is discussed in more
  detail in Note 23.

2.** SIGNIFICANT
  ACCOUNTING POLICIES

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).

F-8

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT ACCOUNTING
  POLICIES (continued)

Principles of consolidation

The financial statements of
  entities which are controlled by Net1, referred to as subsidiaries, are
  consolidated. Inter-company accounts and transactions are eliminated upon
  consolidation.

Financial Account Standards
  Interpretation Note No. 46R, Consolidation of Variable Interest Entities, an
    Interpretation of ARB 51, Revised December 2003 (FIN 46R), clarifies the
  application of Accounting Research Bulletin No. 51, Consolidated Financial
    Statements to certain entities in which equity investors do not have the
  characteristics of a controlling financial interest or do not have sufficient
  equity at risk for the entity to finance its activities without additional
  subordinated financial support. As required by FIN 46R the Company, if it is the
  primary beneficiary, consolidates entities which are considered to be Variable
  Interest Entities (VIE). FIN 46R considers the primary beneficiary to be the
  entity that will absorb a majority of the entity's expected losses, receive a
  majority of the entity's expected residual returns, or both. No entities were
  required to be consolidated in terms of the requirements of FIN 46R during the
  years ended June 30, 2008 and 2007.

Use of estimates

The preparation of financial
  statements in conformity with GAAP requires management to make estimates and
  assumptions that affect the reported amounts of assets and liabilities and
  disclosure of contingent assets and liabilities at the date of the financial
  statements and the reported amounts of revenues and expenses during the
  reporting period. Actual results could differ from those estimates.

Property, plant and equipment

Property, plant and equipment are
  shown at cost less accumulated depreciation. Property, plant and equipment are
  depreciated on the straight-line basis at rates which are estimated to amortize
  the assets to their anticipated residual values over their useful lives. Within
  the following asset classifications, the expected economic lives are
  approximately:

| | Computer equipment     | 3 years      
| | ---------------------- | -------------
| | Office equipment       | 3 to 6 years 
| | Vehicles               | 4 to 5 years 
| | Furniture and fittings | 5 to 10 years
| | Plant and equipment    | 5 years      

The gain or loss arising on the
  disposal or retirement of an asset is determined as the difference between the
  sales proceeds and the carrying amount of the asset and is recognized in income.

Leasehold improvement costs

Costs incurred in the adaptation
  of leased properties to serve the requirements of the Company are capitalized
  and amortized over the shorter of the term of the lease and the contract for
  which the lease has been entered into.

Sales taxes

******Revenue and
  expenses are presented net of sales, use and value added taxes, as the case may
  be.

F-9

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT ACCOUNTING
  POLICIES (continued)

Income taxes

The Company provides for income
  taxes using the asset and liability method. This approach recognizes the amount
  of taxes payable or refundable for the current year, as well as deferred tax
  assets and liabilities for the future tax consequence of events recognized in
  the financial statements and tax returns. Deferred income taxes are adjusted to
  reflect the effects of changes in tax laws or enacted tax rates.

The tax rate in South Africa
  varies depending on whether income is distributed. Accordingly, the income tax
  rate is currently 29%, but upon distribution an additional tax (STC) of 10.0% is
  due based on the amount of dividends declared net of dividends received during a
  dividend cycle. The Company therefore measures its income taxes and deferred
  income taxes using a combined rate of 35.45% . The income tax rate during the
  years ended June 30, 2007 and 2006 was 29%, and the STC rate was 12.5%, which
  resulted in a combined rate of 36.89% for those years.

In establishing the appropriate
  income tax valuation allowances, the Company assesses the realizability of its
  net deferred tax assets, and based on all available evidence, both positive and
  negative, determines whether it is more likely than not that the net deferred
  tax assets or a portion thereof will be realized.

On July 1, 2007, the Company
  adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
    Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty
  in tax positions. Uncertain tax positions are recognized in the financial
  statements for positions which are considered more likely than not of being
  sustained based on the technical merits of the position on audit by the tax
  authorities. The measurement of the tax benefit recognized in the financial
  statements is based upon the largest amount of tax benefit that, in managements
  judgement, is greater than 50% likely of being realized based on a cumulative
  probability assessment of the possible outcomes. See note 14 - Income taxes for
  a discussion of the impact that the adoption of FIN 48 has had on the Companys
  financial position and results of operations.

The Companys policy is to
  include interest related to unrecognized tax benefits in interest income, net
  and penalties in selling, general and administration in the consolidated
  statements of operations.

Goodwill

Goodwill represents the excess of
  the purchase price of an acquired enterprise over the fair values of the
  identifiable assets acquired and liabilities assumed. The Company tests for
  impairment of goodwill on an annual basis and at any other time if events or
  circumstances change that would more likely than not reduce the fair value of
  the reporting unit goodwill below its carrying amount.

Circumstances that could trigger
  an impairment test include but are not limited to: a significant adverse change
  in the business climate or legal factors; an adverse action or assessment by a
  regulator; unanticipated competition; loss of key personnel; the likelihood that
  a reporting unit or significant portion of a reporting unit will be sold or
  otherwise disposed; and, results of testing for recoverability of a significant
  asset group within a reporting unit.

If the carrying amount of the
  reporting unit goodwill exceeds the implied fair value of that goodwill, an
  impairment loss is recorded in net income. Measurement of the fair value of a
  reporting unit is based on one or more of the following fair value measures: the
  amount at which the unit as a whole could be bought or sold in a current
  transaction between willing parties; present value techniques of estimated
  future cash flows; or valuation techniques based on multiples of earnings or
  revenue, or a similar performance measure.

F-10

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT ACCOUNTING
  POLICIES (continued)

Intangible assets

Intangible assets are shown at
  cost less accumulated amortization and are amortized over their useful lives,
  which vary between three and 20 years. Intangible assets are periodically
  evaluated for recoverability, and those evaluations take into account events or
  circumstances that warrant revised estimates of useful lives or that indicate
  that impairment exists.

Equity-accounted
  investments

The Company uses the equity
  method to account for investments in companies when it has a significant
  influence but not control over the operations of the equity-accounted company.
  Under the equity method, the Company initially records the investment at cost
  and then adjusts the carrying value of the investment to recognize the
  proportional share of the equity-accounted companys net income (loss). In
  addition, dividends received from the equity-accounted company reduce the
  carrying value of the Companys investment.

Inventory

Inventory is valued at the lower
  of cost and market value. Cost is determined on a first-in, first-out basis and
  includes transport and handling costs.

Translation of foreign
  currencies

The functional currency of the
  Company is the South African rand and its reporting currency is the US dollar.
  The current rate method is used to translate the financial statements of the
  Company to US dollars. This method is also used to translate the results of
  operations whose functional currency is not the South African Rand. Under the
  current rate method, assets and liabilities are translated at the exchange rates
  in effect at the balance sheet date. Revenues and expenses are translated at
  average rates for the period. Translation gains and losses are reported in
  accumulated other comprehensive loss in shareholders equity.

Foreign exchange transactions are
  translated at the spot rate ruling at the date of the transaction. Monetary
  items are translated at the closing spot rate at the balance sheet date.
  Transactional gains and losses are recognized in income for the period

Revenue recognition

******The Company
  recognizes revenue when:

- there is persuasive evidence of an agreement or arrangement;
- delivery of products has occurred or services have been rendered;
- the sellers price to the buyer is fixed or determinable;
- collectibility is reasonably assured.

******The
  Companys principal revenue streams and their respective accounting treatments
  are discussed below:

******Fees and
  commissions

The Company provides a state
  welfare benefit distribution service to provincial governments in South Africa.
  Fees are computed based on the number of beneficiaries included in the
  government payfile. Fee income received for these services is recognized in the
  statement of operations when distributions have been made to the beneficiaries.

Beneficiaries are able to load
  their welfare grants at merchants enrolled in the Companys participating
  retailer program in certain provinces. There is no charge to the beneficiary to
  load the grant onto a smart card at the merchant location, however, a fee is
  charged to the merchant for purchases made at the merchant using the smart card.
  A fee is charged to the merchant when the beneficiary makes a cash withdrawal.
  Fee income received for these services is recognized in the statement of
  operations when the transaction occurs.

F-11

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2.** SIGNIFICANT
  ACCOUNTING POLICIES (continued)

Revenue recognition
  (continued)

******Fees and
  commissions (continued)

The Company provides an automated
  payment collection service to third parties, for which it charges monthly fees.
  These fees are recognized in the statement of operations as the underlying
  services are performed.

******Contract
  variations fees

******The Company
  records additional revenue from variations to contracts for the provision of
  state welfare benefits, if:

- there is persuasive evidence of an agreement; and
- collectibility is reasonably assumed; and
- all material terms and conditions of the agreement have been adhered to.

******Hardware
  sales

Revenue from hardware sales is
  recognized when risk of loss has transferred to the customer and there are no
  unfulfilled company obligations that affect the customers final acceptance of
  the arrangement. Any cost of warranties and remaining obligations that are
  inconsequential or perfunctory are accrued when the corresponding revenue is
  recognized.

To the extent that sales of
  hardware are made in an arrangement that includes software that is more than
  incidental, the Company applies the guidance in American Institute of Certified
  Public Accountants Statement of Position 97-2, Software Revenue Recognition,
    as amended (SOP 97-2). This requires consideration of post contract
  maintenance and technical support or other future obligations which could impact
  the timing and amount of revenue recognized.

******Software

Revenue from licensed software is
  recognized on a subscription basis over the period that the client is entitled
  to use the license. Revenue from the sale of software is recognized if all
  revenue recognition criteria have been met. Post contract maintenance and
  technical support in respect of software is generally negotiated and sold as a
  separate service and is recognized over the period such items are delivered.

******Interest
  income

Interest income earned from
  micro-lending activities is recognized in the statement of operations as it
  falls due, using the effective interest rate method by reference to the constant
  interest rate stated in each loan agreement. Fees earned for establishing loans
  are recognized over the period of the loan as interest income.

Capital and interest that is in
  arrears and determined to be doubtful is provided for in full if the capital
  outstanding has not been insured. The Company insures against losses of capital
  related to certain loans. For these loans, provision is made for the amount of
  interest previously recognized in the statement of operations if it is
  determined that the interest outstanding will not be collected.

******Systems
  implementation projects

The Company undertakes smart card
  system implementation projects. The hardware and software installed in these
  projects are in the form of customized systems, which ordinarily involve
  modification to meet the customers specifications. Software delivered under
  such arrangements is available to the customer permanently, subject to the
  payment of annual license fees. Revenue for such arrangements is recognized
  under the percentage of completion method, save for annual license fees, which
  are recognized in the period to which they relate. Up-front and interim payments
  received are recorded as client deposits until customer acceptance.

F-12

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT
  ACCOUNTING POLICIES (continued)

Revenue recognition
  (continued)

******Systems
  implementation projects (continued)

The Companys customer
  arrangements may have multiple deliverables. Generally, the Companys multiple
  element arrangements fall within the scope of specific accounting standards that
  provide guidance regarding the separation of elements in multiple-deliverable
  arrangements and the allocation of consideration among those elements in terms
  of SOP 97-2. If not, the Company applies the separation provisions of the
  Emerging Issues Task Force (EITF) consensus on Issue No. 00-21, Revenue
    Arrangements with Multiple Deliverables(EITF 00-21). The provisions of
  EITF 00-21 require the Company to unbundle multiple element arrangements into
  separate units of accounting when the delivered element(s) has stand-alone value
  and fair value of the undelivered element(s) exists.

******Terminal
  rental income

The Company leases terminals to
  merchants enrolled in its merchant retail application. Operating rental income
  is recognized monthly on a straight-line basis in accordance with the lease
  agreement.

******Other
  income

Revenue from service and
  maintenance activities is charged to customers on a time-and-materials basis and
  is recognized in the statement of operations as services are delivered to
  customers.

Research and development
  expenditure

Research and development
  expenditures is charged to net income in the period in which it is incurred.
  During the years ended June 30, 2008, 2007 and 2006, the Company incurred
  research and development expenditures of $5.7 million, $4.9 million and $0.6
  million, respectively.

Computer software development

Costs in respect of the
  development of software intended for sale to licensees is accounted for in
  accordance with Financial Accounting Standards Board (FASB) Statement (SFAS)
  No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or
    Otherwise Marketed(FAS 86). FAS 86 requires product development
  costs to be charged to expenses as incurred until technological feasibility is
  attained. Technological feasibility is attained when the Companys software has
  completed system testing and has been determined viable for its intended use.
  The time between the attainment of technological feasibility and completion of
  software development is generally short with immaterial amounts of development
  costs incurred during this period.

Costs in respect of the
  development of software for the Companys internal use are accounted for in
  accordance with Statement of Position 98-1 Accounting for the Costs of
    Computer Software Developed or Obtained for Internal Use(SOP 98-1),
  issued by the American Institute of Certified Public Accountants. SOP 98-1
  requires these costs to be expensed as incurred, except to the extent that these
  costs are incurred during the application development stage. All other costs
  including those incurred in the project development and post-implementation
  stages are expensed as incurred.

Loan provisions and allowance
  for doubtful debts

******Traditional microlending

A specific provision is
  established for all loans where it is considered likely that all or a portion of
  the principal amount of the loan or interest thereon will not be repaid by the
  borrower. Default is considered likely after a specified period of repayment
  default, which is generally not more than 150 days. The provision is assessed
  based on a review by management of the ageing of outstanding amounts, the
  payment history in relation to those specific accounts and the overall default
  history.

F-13

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT
  ACCOUNTING POLICIES (continued)

****Loan provisions
  and allowance for doubtful debts (continued)

******UEPS-based lending

No provision is required for
  UEPS-based lending. The principal amount of the loan is insured and the amount
  due to be recovered from the insurer is recorded as a receivable once the amount
  is deemed unrecoverable. Default is considered when the beneficiary dies or can
  not be found. Once the loan is deemed unrecoverable, deferred interest or
  service fees related to the unrecoverable insured loan is not recognized.

******Allowance
  for doubtful debts

A specific provision is established
  where it is considered likely that all or a portion of the amount due from customers
  renting point of sale (POS) equipment, receiving support and maintenance
  services or purchasing licenses from the Company will not be recovered. Non-recoverability
  is assessed based on a review by management of the ageing of outstanding amounts,
  the location of the customer and the payment history in relation to those specific
  amounts.

Stock-based compensation

Stock-based compensation
  represents the cost related to stock-based awards granted to employees. The
  Company measures stock-based compensation cost at the grant date, based on the
  estimated fair value of the award, and recognizes the cost as an expense on a
  straight-line basis (net of estimated forfeitures) over the employee requisite
  service period. In respect of awards with only service conditions that have a
  graded vesting schedule, the Company recognizes compensation cost on a straight
  line basis over the requisite service period for the entire award. The
  forfeiture rate is estimated using historical trends of the number of awards
  forfeited prior to vesting. The expense is recorded in the statement of
  operations based on the employees respective functions.

The Company records deferred tax
  assets for awards that result in deductions on the Companys income tax returns,
  based on the amount of compensation cost recognized and the Companys statutory
  tax rate in the jurisdiction in which it will receive a deduction. Differences
  between the deferred tax assets recognized for financial reporting purposes and
  the actual tax deduction reported on the Companys income tax return are
  recorded in additional paid-in capital (if the tax deduction exceeds the
  deferred tax asset) or in the statement of operations (if the deferred tax asset
  exceeds the tax deduction and no additional paid-in capital exists from previous
  awards).

Recent accounting pronouncements
  not yet adopted as of June 30, 2008

In September 2006, the FASB
  issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair
    Value Measurements(FAS 157).FAS 157 defines fair value,
  establishes a framework for measuring fair value in generally accepted
  accounting principles, and expands disclosures about fair value measurements.
  FAS 157 does not require any new fair value measurements, but provides guidance
  on how to measure fair value by providing a fair value hierarchy used to
  classify the source of the information. FAS 157 is effective for financial
  statements issued for fiscal years beginning after November 15, 2007, and
  interim periods within those fiscal years. Earlier adoption is permitted. The
  Company is currently assessing FAS 157 and has not yet determined the impact
  that the adoption of this standard will have on its financial position or
  results of operations.

In February 2008, the FASB issued
  FASB Statement of Position (FSP) FAS 157-2, Effective Date of FASB
    Statement No. 157 (FSP FAS 157-2) which delays the effective date of FAS
  157 for all nonrecurring fair value measurements of nonfinancial assets and
  nonfinancial liabilities until fiscal years beginning after November 15, 2008.
  Entities are encouraged to adopt FAS 157 for measurements of nonfinancial assets
  and nonfinancial liabilities in its entirety as long as they have not yet issued
  financial statements during that year. An entity that chooses to adopt FAS 157
  in its entirety must do so for all nonfinancial assets and nonfinancial
  liabilities within its scope. The Company is currently assessing FSP FAS 157-2
  and has not yet determined the impact that its adoption will have on the
  Companys financial position or results of operations.

F-14

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2. **SIGNIFICANT ACCOUNTING
  POLICIES (continued)

Recent accounting pronouncements
  not yet adopted as of June 30, 2008(continued)

In February 2007, the FASB issued
  SFAS No. 159, The Fair Value Option for Financial Assets and Financial
  Liabilities - Including an Amendment of FASB Statement No. 115 (FAS 159). FAS
  159 permits an entity to choose to measure many financial instruments and
  certain other items at fair value. The unrealized gains and losses on items for
  which the fair value option has been elected will be reported in earnings at
  each subsequent reporting date. The fair value option: (a) may be applied
  instrument by instrument, with a few exceptions, such as investments otherwise
  accounted for by the equity method; (b) is irrevocable (unless a new election
  date occurs); and (c) is applied only to entire instruments and not to portions
  of instruments. FAS 159 is effective for fiscal years beginning after November
  15, 2007 and for interim periods within those fiscal years. The Company is
  currently assessing FAS 159 and has not yet determined the impact that the
  adoption of this standard will have on its financial position or results of
  operations.

In December 2007, the FASB issued
  SFAS No. 141(revised 2007), Business Combinations (FAS 141R). FAS 141R
  replaces SFAS No. 141, Business Combinations (FAS 141). FAS 141R
  retains the fundamental requirements in FAS 141 that the acquisition method of
  accounting (defined in FAS 141 as the purchase method) be used for all business
  combinations and for an acquirer to be identified for each business combination.
  FAS 141R requires the acquiring entity in a business combination to recognize
  the assets acquired and liabilities assumed at the acquisition date. FAS 141R
  also requires acquisition-related costs to be recognized separately from the
  business combination. FAS 141R applies prospectively to business combinations
  for which the acquisition date is on or after the beginning of the first annual
  reporting period beginning on or after December 15, 2008. The Company is
  currently assessing FAS 141R and has not yet determined the impact that the
  adoption of this standard will have on its financial position or results of
  operations.

In December 2007, the FASB issued
  SFAS No. 160, Noncontrolling Interests in Consolidated Financial
    Statements (FAS 160). FAS 160 establishes a single method of accounting
  for changes in a parents ownership interest in a subsidiary that does not
  result in deconsolidation. FAS 160 clarifies that all of those transactions are
  equity transactions if the parent retains its controlling financial interest in
  the subsidiary. FAS 160 is effective for fiscal years, and interim periods
  within those fiscal years, beginning on or after December 15, 2008. Earlier
  adoption is prohibited. However, FAS 160 shall be applied prospectively as of
  the beginning of the fiscal year in which it is initially applied, except for
  the presentation and disclosure requirements. The presentation and disclosure
  requirements shall be applied retrospectively for all periods presented. The
  Company is currently assessing FAS 160 and has not yet determined the impact
  that the adoption of this standard will have on its financial position or
  results of operations.

In March 2008 the FASB issued
  SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities
   an amendment of FASB No. 133 (FAS 161). FAS 161 requires enhanced
  disclosures about an entitys derivative and hedging activities and thereby
  improves the transparency of financial reporting. FAS 161 is effective for
  financial statements issued for fiscal years and interim periods beginning after
  November 15, 2008 with early application encouraged. FAS 161 encourages, but
  does not require, comparative disclosures for earlier periods at initial
  adoption. The Company is currently assessing FAS 161 and has not yet determined
  the impact that the adoption of this standard will have on its financial
  position or results of operations.

In May 2008, the FASB issued SFAS
  No. 162, The Hierarchy of Generally Accepted Accounting Principles (FAS
  162). FAS 162 identifies the sources of accounting principles and the framework
  for selecting the principles to be used in the preparation of financial
  statements under US GAAP. FAS 162 is effective 60 days following the SECs
  approval of the Public Company Accounting Oversight Board amendments to AU
  Section 411, The Meaning of Present Fairly in Conformity With Generally
    Accepted Accounting Principles. The adoption of FAS 162 is not expected to
  change current practice.

In April 2008, the FASB issued
  FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in
  developing renewal or extension assumptions used to determine the useful life of
  a recognized intangible asset under SFAS No. 142, Goodwill and Other
    Intangible Assets (FAS 142). The intent of FSP 142-3 is to improve the
  consistency between the useful life of an intangible asset determined under FAS
  142 and the period of expected cash flows used to measure the fair value of the
  asset under FAS 141. FSP 142-3 is effective for financial statements issued for
  fiscal years beginning after December 15, 2008, and interim periods within those
  fiscal years. Early adoption is prohibited. The Company is currently assessing
  FSP FAS 157-2 and has not yet determined the impact that its adoption will have
  on the Companys financial position or results of operations.

F-15

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**3.**     **PRE-FUNDED
  SOCIAL WELFARE GRANTS RECEIVABLE**

The pre-funded social welfare
  grants receivable represents the amounts due from provincial governments, as the
  Company pre-funds social welfare grant payments on behalf of the government in
  these provinces. The pre-funded amounts are typically reimbursed to the Company
  within two weeks after the disbursement of the grants. The grant payment service
  normally commences during the week before the start of a calendar month at
  government pay points and merchant locations. The July 2008 payment service
  commenced on June 30, 2008 and was offered at merchant locations only.

**4.**     **ACCOUNTS
  RECEIVABLE AND FINANCE LOANS RECEIVABLE**

|                                                                    |  |   | 2008   |   |  |  |   | 2007   |   | 
|------------------------------------------------------------------- |  | - | ------ | - |  |  | - | ------ | - | 
|Accounts receivable, trade, net                                     |  | $ | 13,693 |   |  |  | $ | 24,026 |   | 
|Accounts receivable, trade, gross                                   |  |   | 13,953 |   |  |  |   | 24,581 |   | 
|Allowance for doubtful
      accounts receivable, end of year       |  |   | 260    |   |  |  |   | 555    |   | 
|Allowance for doubtful
      accounts receivable, beginning of year |  |   |        |   |  |  |   |        |   | 
|re-measured at year end rates                                       |  |   | 496    |   |  |  |   | 163    |   | 
|Allowance (reversed)
      charged to statement of operations, re-  |  |   |        |   |  |  |   |        |   | 
|measured
      at year end rates                                    |  |   | (172   | ) |  |  |   | 558    |   | 
|Amount utilized,
      re-measured at year end rates                |  |   | (64    | ) |  |  |   | (166   | ) | 
|Prepaid establishment costs related to
      Grindrod opportunity   |  |   | 568    |   |  |  |   | 707    |   | 
|Other receivables                                                   |  |   | 7,536  |   |  |  |   | 5,770  |   | 
|Total accounts receivable, net                                      |  |   | 21,797 |   |  |  |   | 30,503 |   | 
|                                                                    |  |   |        |   |  |  |   |        |   | 
|Finance loans receivable, net                                       |  |   |        |   |  |  |   |        |   | 
|UEPS-based lending                                                  |  |   | 2,444  |   |  |  |   | 3,265  |   | 
|Traditional microlending  net                                      |  |   | 1,857  |   |  |  |   | 2,490  |   | 
|Traditional microlending
       gross                              |  |   | 2,864  |   |  |  |   | 5,263  |   | 
|Allowance
      for doubtful microlending loans, end of year        |  |   | 1,007  |   |  |  |   | 2,773  |   | 
|Allowance
      for doubtful microlending loans, beginning of year  |  |   |        |   |  |  |   |        |   | 
|re-measured at year end rates                                       |  |   | 2,464  |   |  |  |   | 3,542  |   | 
|Allowances
      charged to the statement of operations, re-        |  |   |        |   |  |  |   |        |   | 
|measured at year end rates                                          |  |   | 371    |   |  |  |   | 1,426  |   | 
|Amounts
      utilized, re-measured at year end rates               |  |   | (1,828 | ) |  |  |   | (2,195 | ) | 
|                                                                    |  |   |        |   |  |  |   |        |   | 
|Total finance loans receivable, net                                 |  | $ | 4,301  |   |  |  | $ | 5,755  |   | 

Receivables from customers
  renting POS equipment from the Company are included in accounts receivable,
  trade, and are stated net of an allowance for certain amounts that the Companys
  management has identified may be unrecoverable. During the year ended June 30,
  2008, the Company reversed approximately $0.3 million from the allowance for
  doubtful accounts receivable to the consolidated statement of operations as a
  result of amounts recovered from customers which the Companys management
  previously considered unrecoverable as of June 30, 2007.

Accounts receivable, trade, also
  includes amounts due by customers from the sale of hardware and SIM cards.

In January 2007, the Company
  entered into a co-operation agreement with Grindrod Bank Limited (Grindrod)
  for the establishment of a retail banking division within Grindrod that will
  focus on deploying its wage payment solution in South Africa. Under the
  co-operation agreement, the Company was required to initially invest $0.7
  million to facilitate the establishment of this retail banking decision. The
  Company opened a bank account with Grindrod and transferred the funds and these
  funds are drawn down as and when required by the retail banking division. A
  portion of these funds have been utilized as of June 30, 2008 and the remaining
  portion of these funds is $0.6 million.

F-16

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**5.**     **DEFERRED EXPENDITURE ON SMART CARDS**

The deferred expenditure on smart
  cards represents amounts paid for smart cards used in the administration and
  distribution of grants to beneficiaries. These expenditures are deferred and
  written off over the period of the contract, including mutually-agreed extension
  periods, with the provincial government.

**6.**     **INVENTORY**

The Companys inventory comprised
  of the following categories as of June 30, 2008 and 2007.

|               |   | 2008  |  |   | 2007  | 
|-------------- | - | ----- |  | - | ----- | 
|               |   |       |  |   |       | 
|Raw materials  | $ | 111   |  | $ | 588   | 
|Finished goods |   | 5,941 |  |   | 5,057 | 
|               | $ | 6,052 |  | $ | 5,645 | 

Inventories as of June 30, 2008,
  are stated net of provisions of $1.2 million (June 30, 2007: $0). The Company
  created the allowance for slow moving inventories during the year ended June 30,
  2008, for identified items of inventory that the Company believes will not be
  sold in the foreseeable future.

**7.**     **EQUITY-ACCOUNTED
  INVESTMENTS AND LONG-TERM RECEIVABLE**

*SmartSwitch Namibia
  (Proprietary) Limited (SmartSwitch Namibia)*

In September 2005, the Company
  obtained a 50% interest in the issued and outstanding ordinary share capital and
  loans of SmartSwitch Namibia. The Company determined that SmartSwitch Namibia is
  a VIE, as the loan to SmartSwitch Namibia represents a variable interest but
  that the Company is not the primary beneficiary. Therefore, the Company has not
  consolidated SmartSwitch Namibia, and has accounted for this investment using
  the equity method. The interest earned on the loan to SmartSwitch Namibia has
  been eliminated.

*SmartSwitch Botswana
  (Proprietary) Limited (SmartSwitch Botswana)*

In May 2006, the Company obtained
  a 50% interest in the issued and outstanding ordinary share capital and loans of
  SmartSwitch Botswana. The Company determined that SmartSwitch Botswana is a VIE,
  as the loan to SmartSwitch Botswana represents a variable interest but that the
  Company is not the primary beneficiary. Therefore, the Company has not
  consolidated SmartSwitch Botswana, and has accounted for this investment using
  the equity method. The interest earned on the loan to SmartSwitch Botswana has
  been eliminated.

*VTU De Colombia S.A. (VTU
  Colombia)*

In January 2007, the Company
  acquired a 50% interest in the issued and outstanding ordinary share capital and
  loans of VTU Colombia. The Company determined that VTU Colombia is a VIE, as the
  loan to VTU Colombia represents a variable interest but that the Company is not
  the primary beneficiary. Therefore, the Company has not consolidated VTU
  Colombia, and has accounted for this investment using the equity method.

*Vietnam Payment Technologies
  Joint Stock Company (VinaPay)*

In June 2007, the Company
  acquired a 30% interest in the issued and outstanding ordinary share capital of
  VinaPay.

F-17

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**7.**     **EQUITY-ACCOUNTED
  INVESTMENTS AND LONG-TERM RECEIVABLE (continued)**

*Permit Group 2 (Proprietary)
  Limited (Permit)*

In May 2007, the Company agreed
  to dispose of its 43% interest in Permit to Imvume for $2.3 million and incurred
  a loss of approximately $0.6 million on the sale of the equity-accounted
  investment. On April 1, 2004, the Company had granted a loan of approximately $1
  million to Imvume, for the purpose of enabling Imvume to make a loan to Permit.
  The loan to Imvume, together with the required interest thereon, was repaid in
  full in May 2007.

The Company has sold hardware,
  software and/or licenses to SmartSwitch Namibia, SmartSwitch Botswana and VTU
  Colombia and defers recognition of 50% of the net income after tax related to
  these sales until SmartSwitch Namibia, SmartSwitch Botswana and VTU Colombia has
  used the purchased asset or has sold it to a third party. The deferral of the
  net income after tax is shown in the Elimination column in the table below.

The functional currency of the
  Companys equity-accounted investments is not the US dollar and thus the
  investments are restated at the period end US dollar/foreign currency exchange
  rate with an entry against accumulated other comprehensive loss. The functional
  currency of SmartSwitch Namibia is the Namibian dollar, the functional currency
  of SmartSwitch Botswana is the Botswana pula, the functional currency of VTU
  Colombia is the Colombian peso, the functional currency of Vinapay is the
  Vietnamese dong, and the functional currency of Permit is the South African
  rand.

Summarized below is the Companys
  interest in equity-accounted investments as of June 30, 2007 and 2008:

EarningsEquity
      
      
      Loans
      
      
      (Loss)
      
      
      Elimination
      
      
      TotalBalance as of June 30, 2006
      $
      1,125
      
      $
      2,987
      
      $
      1,099
      
      $
      (225
      )
      $
      4,986Share capital acquired/ loansextended
      
      50
      
      
      1,202
      
      
      -
      
      
      -
      
      
      1252Share capital acquired/ loansextended  VTU Colombia
      
      50
      
      
      892
      
      
      -
      
      
      -
      
      
      942Loans extended  SmartSwitchBotswana
      
      -
      
      
      310
      
      
      -
      
      
      -
      
      
      310Earnings (Loss) from equity-accounted investments
      
      -
      
      
      -
      
      
      609
      
      
      (428
      )
      
      181(Loss) Earnings from equity-accounted investment SmartSwitch Namibia(1)
      
      -
      
      
      -
      
      
      (347
      )
      
      85
      
      
      (262
      )(Loss) Earnings from equity-accounted investment SmartSwitch
        Botswana(1)
      
      -
      
      
      -
      
      
      (245
      )
      
      (348
      )
      
      (593
      )Loss from equity-accountedinvestment  VTU
        Colombia(1)
      
      -
      
      
      -
      
      
      (113
      )
      
      (266
      )
      
      (379
      )Earnings from equity-accountedinvestment 
        Permit(1)
      
      -
      
      
      -
      
      
      1,314
      
      
      101
      
      
      1,415Sale of Permit
      
      -
      
      
      (677
      )
      
      (2,481
      )
      
      (324
      )
      
      (3,482
      )Foreign currency adjustment(2)
      
      14
      
      
      65
      
      
      (18
      )
      
      (6
      )
      
      55Balance as of June 30, 2007
      
      1,189
      
      
      3,577
      
      
      (791
      )
      
      (983
      )
      
      2,992


(1)  includes the recognition of
  realized net income as described below.

(2)  the foreign currency
  adjustment represents the effects of the combined net fluctuations between the
  functional currency of the equity-accounted investments and the US dollar.

F-18

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**7.**     **EQUITY-ACCOUNTED
  INVESTMENTS AND LONG-TERM RECEIVABLE (continued)**

EarningsEquity
      
      
      Loans
      
      
      (Loss)
      
      
      Elimination
      
      
      TotalBalance as of June 30, 2007
      
      1,189
      
      
      3,577
      
      
      (791
      )
      
      (983
      )
      
      2,992Share capital acquired/ loansextended
      
      928
      
      
      -
      
      
      -
      
      
      -
      
      
      928Share capital acquired  VinaPay
      
      428
      
      
      -
      
      
      -
      
      
      -
      
      
      428Share capital acquired  VTUColombia
      
      500
      
      
      -
      
      
      -
      
      
      -
      
      
      500(Loss) Earnings from equity-accounted investments
      
      -
      
      
      -
      
      
      (1,608
      )
      
      572
      
      
      (1,036
      )(Loss) Earnings from equity-accounted investment SmartSwitch Namibia(1)
      
      -
      
      
      -
      
      
      (289
      )
      
      304
      
      
      15(Loss) Earnings from equity-accounted investment SmartSwitch Botswana(1)
      
      -
      
      
      -
      
      
      (365
      )
      
      268
      
      
      (97
      )Loss from equity-accountedinvestment  VTU Colombia
      
      -
      
      
      -
      
      
      (792
      )
      
      -
      
      
      (792
      )Loss from equity-accountedinvestment  VinaPay
      
      -
      
      
      -
      
      
      (162
      )
      
      -
      
      
      (162
      )Foreign currency adjustment(2)
      
      (133
      )
      
      (265
      )
      
      104
      
      
      95
      
      
      (199
      )Balance as of June 30, 2008
      $
      1,984
      
      $
      3,312
      
      $
      (2,295
      )
      $
      (316
      )
      $
      2,685


(1)  includes the recognition of
  realized net income as described below.

(2)  the foreign currency
  adjustment represents the effects of the combined net fluctuations between the
  functional currency of the equity-accounted investments and the US dollar.

There were no significant sales
  during the year ended June 30, 2008. During the year ended June 30, 2007 the
  Company sold a license to VTU Colombia. During the year ended June 30, 2007,
  the Company sold hardware and software to SmartSwitch Botswana. The Company
  will recognize this net income from these hardware and software sales during
  the period in which the hardware and software it has sold to SmartSwitch Namibia,
  SmartSwitch Botswana and VTU Colombia are utilized in its operations, or has
  been sold to third party customers, as the case may be.

F-19

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**8.**     **PROPERTY,
  PLANT AND EQUIPMENT, net**

|                               |   | 2008   |  |   | 2007   | 
|------------------------------ | - | ------ |  | - | ------ | 
|                               |   |        |  |   |        | 
|Cost:                          |   |        |  |   |        | 
|Computer equipment             | $ | 15,912 |  | $ | 16,289 | 
|Furniture and office equipment |   | 5,275  |  |   | 4,827  | 
|Motor vehicles                 |   | 7,640  |  |   | 8,470  | 
|Plant and equipment            |   | 2,217  |  |   | 2,402  | 
|                               |   | 31,044 |  |   | 31,988 | 
|Accumulated depreciation:      |   |        |  |   |        | 
|Computer equipment             |   | 13,162 |  |   | 12,834 | 
|Furniture and office equipment |   | 3,169  |  |   | 2,763  | 
|Motor vehicles                 |   | 6,761  |  |   | 7,449  | 
|Plant and equipment            |   | 1,661  |  |   | 1,360  | 
|                               |   | 24,753 |  |   | 24,406 | 
|Carrying amount:               |   |        |  |   |        | 
|Computer equipment             |   | 2,750  |  |   | 3,455  | 
|Furniture and office equipment |   | 2,106  |  |   | 2,064  | 
|Motor vehicles                 |   | 879    |  |   | 1,021  | 
|Plant and equipment            |   | 556    |  |   | 1,042  | 
|                               | $ | 6,291  |  | $ | 7,582  | 

**9.**     **GOODWILL
  AND INTANGIBLE ASSETS, net**

**Goodwill**

Summarized below is the movement
  in the carrying value of goodwill for the years ended June 30, 2008 and
  2007:

|                                                                        |   | Carrying |  
|----------------------------------------------------------------------- | - | -------- | -
|                                                                        |   | value    |  
|Balance as of July 1, 2006                                              | $ | 13,923   |  
|Goodwill associated with the acquisition of
      Prism (see note 23)   |   | 64,255   |  
|Goodwill associated with the
      acquisition of EasyPay (see note 23) |   | 5,586    |  
|Foreign currency adjustment (1)                                         |   | 2,107    |  
|Balance as of June 30, 2007                                             |   | 85,871   |  
|Foreign currency adjustment (1)                                         |   | (8,933   | )
|Balance as of June 30, 2008                                             | $ | 76,938   |  

(1)  the foreign currency
  adjustment represents the effects of the fluctuations between the South African
  rand and the US dollar on the carrying value.

As required by FAS 141 goodwill
  has been allocated to the Companys reportable segments as follows:

|                                                |   | 2008   |  |   | 2007   | 
|----------------------------------------------- | - | ------ |  | - | ------ | 
|                                                |   |        |  |   |        | 
|Transaction-based activities                    | $ | 34,997 |  | $ | 39,391 | 
|Smart card accounts                             |   | -      |  |   | -      | 
|Financial services                              |   | 4,455  |  |   | 5,014  | 
|Hardware, software and related technology sales |   | 37,486 |  |   | 41,466 | 
|Total                                           | $ | 76,938 |  | $ | 85,871 | 

F-20

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

9.    GOODWILL AND INTANGIBLE ASSETS, net
  (continued)

**Intangible assets, net**

Summarized below is the carrying
  value and accumulated amortization of the intangible assets as of June 30, 2008
  and 2007:

As
        of June 30, 2008
      
      
      As
        of June 30, 2007Gross
      
      
      
      
      
      Net
      
      
      Gross
      
      
      
      
      
      Netcarrying
      
      
      Accumulated
      
      
      **carrying**
      
      
      carrying
      
      
      **Accumulated**
      
      
      carryingvalue
      
      
      amortization
      
      
      value
      
      
      value
      
      
      amortization
      
      
      valueFinite-lived intangible assets:Customer relationships
      $
      15,679
      
      $
      (2,581
      )
      
      13,098
      
      $
      17,649
      
      $
      (1,419
      )
      $
      16,230Software and unpatented technology
      
      9,974
      
      
      (6,638
      )
      
      3,336
      
      
      11,227
      
      
      (3,717
      )
      
      7,510FTS patent
      
      4,811
      
      
      (3,850
      )
      
      961
      
      
      5,415
      
      
      (3,792
      )
      
      1,623Exclusive licenses
      
      4,506
      
      
      (2,645
      )
      
      1,861
      
      
      4,506
      
      
      (1,997
      )
      
      2,509Trademarks
      
      3,618
      
      
      (674
      )
      
      2,944
      
      
      4,072
      
      
      (375
      )
      
      3,697Customer contracts
      
      114
      
      
      (98
      )
      
      16
      
      
      114
      
      
      (74
      )
      
      40Total finite-lived
        intangible assets
      $
      38,702
      
      $
      (16,486
      )
      $
      22,216
      
      $
      42,983
      
      $
      (11,374
      )
      $
      31,609


The Company obtained its customer
  relationships intangible asset on the acquisition of Prism and the remaining
  25.1% of EasyPay on July 3, 2006 and October 1, 2006, respectively. On
  acquisition, the customer relationships intangible asset represented the fair
  value of relationships developed with customers of Prism and EasyPay in the
  information and communications technology and financial services industries as
  valued by the Companys management. The customer relationships are amortized
  over three to 15 years. Aggregate amortization expense on the customer
  relationships for each of the years ended June 30, 2008 and 2007, was
  approximately $1.4 million.

The Company obtained its software
  and unpatented technology intangible asset on the acquisition of Prism and the
  remaining 25.1% of EasyPay on July 3, 2006 and October 1, 2006, respectively.
  The software and unpatented technology was valued by Prisms technical team and
  includes the development of software across all divisions within Prism and
  EasyPay. The software and unpatented technology is amortized over three years.
  Aggregate amortization expense on the software and unpatented technology for
  each of the years ended June 30, 2008 and 2007, was approximately $3.6 million.

The Company obtained its FTS
  patent on its acquisition of Net 1 Investment Holdings (Proprietary) Limited
  (Net 1 Holdings) on July 12, 2000. 100% of Net 1 Holdings issued share
  capital was acquired for a historical cost of approximately $3.2 million (or
  $3.2 million at the year end exchange rate of $1: ZAR7.97), which was satisfied
  through the issuance of 9,750,000 shares of the Companys common stock. In
  addition, a deferred taxation adjustment was required to increase the historical
  carrying value to $1.6 million (or $1.6 million at the year end exchange rate of
  $1:ZAR7.97) . Net 1 Holdings was a holding company that did not generate
  significant revenues or expenses and did not have significant assets or
  liabilities other than the FTS patent rights for South Africa and surrounding
  territories, on which the Companys smart card applications are based. The FTS
  patent is amortized over ten years. Aggregate amortization expense on the FTS
  patent for the year ended June 30, 2008 was approximately $0.5 million (2007:
  $0.5 million, 2006: $0.6 million).

The Company obtained its
  trademarks on the acquisition of Prism and the remaining 25.1% of EasyPay on
  July 3, 2006 and October 1, 2006, respectively. These trademarks represent
  registered trademarks of Prism and EasyPay that were valued by the Companys
  management. The trademarks are amortized over five to 20 years. Aggregate
  amortization expense on the trademarks for each of the years ended June 30, 2008
  and 2007, was approximately $0.4 million.

As a result of the accounting for
  the Aplitec transaction as a reverse acquisition, the assets and liabilities of
  the Company were valued in accordance with the requirements of FAS 141. The
  customer contracts and exclusive licenses were valued at approximately $0.1
  million and $4.5 million, respectively, with estimated useful lives of five and
  seven years respectively. Amortization expense for the customer contracts and
  exclusive licenses for the year ended June 30, 2008, was $0.02 million and $0.6
  million, respectively, (2007: $0.02 million and $0.6 million, respectively 2006:
  $0.02 million and $0.6 million, respectively).

F-21

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**9.**     **GOODWILL
  AND INTANGIBLE ASSETS, net (continued)**

Intangible assets, net
  (continued)

Future annual amortization
  expense is estimated at $6.7 million per annum. Actual annual amortization
  expense to be reported in future periods could differ from this estimate as a
  result of new intangible asset acquisitions, changes in useful lives, exchange
  rate fluctuations and other relevant factors.

10.    OTHER PAYABLES

|                                                    |   | 2008   |  |   | 2007   | 
|--------------------------------------------------- | - | ------ |  | - | ------ | 
|                                                    |   |        |  |   |        | 
|Participating merchants settlement
      obligation | $ | 29,597 |  | $ | 11,241 | 
|Payroll-related payables                            |   | 1,759  |  |   | 1,308  | 
|Accruals                                            |   | 7,364  |  |   | 6,725  | 
|Value-added tax payable                             |   | 1,539  |  |   | 1,968  | 
|Other                                               |   | 9,713  |  |   | 6,825  | 
|Provisions                                          |   | 7,460  |  |   | 6,390  | 
|                                                    | $ | 57,432 |  | $ | 34,457 | 

11.    CAPITAL STRUCTURE AND CREDITOR RIGHTS
  ATTACHED TO THE B CLASS LOANS

The Companys balance sheet
  reflects two classes of equity - common stock and linked units.

The linked units comprise the
  following instruments which are linked and cannot be traded separately:

- a right to special convertible preferred stock,
- B Class preference shares in New Aplitec and
- B Class loans issued by New Aplitec.

Although the linked units include
  certain instruments (the B Class preference shares and the B Class loans) that
  are legally equity of a subsidiary of Net1, they have been treated as equity of
  Net1 and recorded as part of shareholders equity in these consolidated
  financial statements, in recognition of their substance, which is economically
  equivalent to that of common stock.

The B Class loans referred to
  above are not considered to be a liability in accordance with FAS 150, Accounting for Certain Financial Instruments with Characteristics of Both
    Equity and Liability, as New Aplitec does not have an obligation to transfer
  assets to its shareholders in respect of the loans. In addition, any
  distributions relating to the loans are solely at the discretion of New
  Aplitec.

Voting rights  Holders of
  shares of special convertible preferred stock have the same voting rights as
  holders of common stock. Therefore, a linked unit-holder is able to vote on the
  same matters as a holder of common stock, including the selection of directors,
  corporate decisions submitted to shareholder vote, and decisions regarding
  distribution of earnings. In addition, the special convertible preferred stock
  does not provide any additional rights with respect to control of Net1 not
  shared by holders of common stock.

*Dividend rights* 
  Holders of common stock and linked units have similar rights to the distribution
  of Net1s earnings.

Liquidation rights  In
  the event of a liquidation of Net1 or New Aplitec, the linked units are
  automatically convertible into common stock of Net1, thereby allowing a linked
  unit holder to have identical liquidation rights to a holder of common stock in
  the event of liquidation.

Sale rights  A linked
  unit holder can only dispose of its interest in Net1 by 1) converting the linked
  units into common stock and 2) selling the common stock on the open market.
  Therefore, a holder of the linked units receives the same risk and rewards in
  market price fluctuation as a common stockholder of Net1.

F-22

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

11.    CAPITAL STRUCTURE AND CREDITOR RIGHTS
  ATTACHED TO THE B CLASS LOANS (continued)

*Common stock*

Holders of shares of Net1s
  common stock are entitled to receive dividends and other distributions when
  declared by Net1s board of directors out of funds available. Payment of
  dividends and distributions is subject to certain restrictions under the Florida
  Business Corporation Act, including the requirement that after making any
  distribution Net1 must be able to meet its debts as they become due in the usual
  course of its business.

Upon voluntary or involuntary
  liquidation, dissolution or winding up of Net1, holders of common stock share
  ratably in the assets remaining after payments to creditors and provision for
  the preference of any preferred stock according to its terms. There are no
  pre-emptive or other subscription rights, conversion rights or redemption or
  scheduled installment payment provisions relating to shares of common stock. All
  of the outstanding shares of common stock are fully paid and non-assessable.

Each holder of common stock is
  entitled to one vote per share for the election of directors and for all other
  matters to be voted on by shareholders. Holders of common stock may not cumulate
  their votes in the election of directors, and are entitled to share equally and
  ratably in the dividends that may be declared by the board of directors, but
  only after payment of dividends required to be paid on outstanding shares of
  preferred stock according to its terms. The shares of Company common stock are
  not subject to redemption.

*Special convertible preferred
  stock*

The special convertible preferred
  stock ranks, on parity, without preference and priority, with Net1s common
  stock with respect to dividend rights (except as described below) or rights upon
  liquidation, dissolution or winding-up of Net1. The special convertible
  preferred stock is junior in preference and priority to each other class or
  series of preferred stock or other equity security of Net1 under terms which may
  be determined by the board of directors to expressly provide that such other
  security rank senior in preference or priority to the special convertible
  preferred stock with respect to dividend rights or rights upon liquidation,
  dissolution or winding-up of Net1.

So long as any shares of special
  convertible preferred stock are outstanding, Net1s board will determine
  immediately prior to the declaration of any dividend or distribution (i) the
  portion, if any, of Net1s assets available for such dividend of distribution
  that are attributable to funds or assets from New Aplitec, regardless of the
  manner received (the South African Amount) and (ii) the portion of such funds
  or assets that is not from New Aplitec (the Non-South African Amount). The
  South African Amount will not include amounts received from New Aplitec due to
  its liquidation, distribution or dividend after insolvency or winding up.

So long as any shares of special
  convertible preferred stock are outstanding, (i) any dividends or distributions
  by Net1s board of Non-South African Amounts must be paid pro rata to all
  holders of common stock and special convertible preferred stock and (ii) and
  dividends or distributions by Net1s board of South African Amounts can be paid
  only to holders of common stock. Net1s board has complete discretion to declare
  a dividend or distribution with respect to South African Amounts or Non-South
  African Amounts.

In the event of the voluntary or
  involuntary liquidation, dissolution, distribution of assets or winding-up of
  Net1, all outstanding shares of special convertible preferred stock will
  automatically convert and holders of such stock will be entitled to receive pari passu with holders of common stock, any assets of Net1 distributed
  for the benefit of its shareholders.

Holders of special convertible
  preferred stock have the right to receive notice of, attend, speak and vote at
  meetings of Net1s shareholders, and are entitled to vote on all matters on
  which holders of common stock are entitled to vote. Each holder of special
  convertible preferred stock present in person, or the person representing such
  holder, is entitled to a number of votes equal to the number of shares of common
  stock that would be issued upon conversion of the special convertible preferred
  stock held by such holder on the record date.

F-23

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

11.    CAPITAL STRUCTURE AND CREDITOR RIGHTS
  ATTACHED TO THE B CLASS LOANS (continued)

*B class preference
  shares*

Net1 owns 100% of the A class
  common stock and A class loans in issue of New Aplitec. The B class preference
  shares rank pari passu with the New Aplitec A class stock in respect of
  participation in dividends and return of capital prior to winding-up of New
  Aplitec. The B class preference shares shall not, however, participate in
  dividends or a return of capital on a winding-up of New Aplitec for any reason.
  However, the unit holders will participate, as the B class preference stock will
  automatically convert into Company common stock on a winding-up of New Aplitec.
  The B class preference shares cannot be sold or transferred other than to Net1
  pursuant to the occurrence of a trigger event. Therefore, the B class preference
  shares, the B class loans and the rights to receive Company special convertible
  preferred stock are linked together and cannot be traded separately.

The holders of B class preference
  shares will only be entitled to vote on matters which directly affect the rights
  attaching to the B class preference shares. At every general meeting of New
  Aplitec at which more than one class of shareholders are present and entitled to
  vote, unit holders of the South African Trust which in turn holds the B class
  preference shares, shall be entitled, upon a poll, to that proportion of the
  total votes in New Aplitec which the aggregate number of B class preference
  shares held bears to the aggregate number of all shares entitled to be voted at
  such meeting (provided that no resolution for the declaration of a dividend or
  for the disposal of any intellectual property of New Aplitec shall be passed
  unless unit holders representing 50.1% of the B class preference shares present
  at the meeting in person or represented by proxy vote in favor of such
  resolution).

*B class loans*

The B class loans are unsecured
  and repayable as and when directed by the board of directors of New Aplitec
  provided that no capital may be repaid until at least 30 days have lapsed from
  the date of drawdown of the loans, and subject to South African Exchange Control
  approval. The loans will bear interest at such rates as may be determined by the
  board of directors of New Aplitec at the beginning of each year, but shall not
  be more than the prime rate as quoted by Standard Bank of South Africa Limited
  from time to time. Interest, if so declared by the board of directors of New
  Aplitec, will be payable by New Aplitec semi-annually in arrears.

*Conversion of special
  convertible preferred stock to common stock*

Special convertible preferred
  stock is convertible into shares of common stock on a one-for-one basis upon the
  occurrence of a trigger event. With each converted share of special convertible
  preferred stock that is converted, Net1 receives:

- 7.368421056 B class preference shares; and
- such holders interest in the New Aplitec B loan accounts.

Upon conversion, all rights with
  respect to shares for special convertible preferred stock will cease. Converted
  shares are cancelled and have the status of authorized but unissued preferred
  stock, without designation as to series until such shares are once more
  designated as part of a particular series by the board of directors.

During the year ended June 30,
  2008, 773,681 shares of special convertible preferred stock were converted to
  common stock. The trigger events that gave rise to these conversions were
  requests by linked unit-holders to sell and/or convert 5,700,807 linked units
  during year ended June 30, 2008. The net result of these conversions was that
  5,700,807 B class preference shares and B class loans were ceded to Net1 during
  the year ended June 30, 2008, which converted 773,681 shares of special
  convertible preferred stock to 773,681 common stock in return for the ownership
  of the 5,700,807 B class preferred shares and B class loans. As a result of the
  conversion, the number of outstanding shares of common stock has increased by
  773,681 and the number of outstanding shares of special convertible preferred
  stock has decreased by 773,681. In addition, as a consequence of the conversion,
  at June 30, 2008, Net1 owned 201,001,369 B class preferred shares and B class
  loans. The reduction in the B class preference shares from $0.007 million to
  $0.006 million is due to the cession to Net1 of the B class preference shares as
  a result of the trigger events.

F-24

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

11.    CAPITAL STRUCTURE AND CREDITOR RIGHTS
  ATTACHED TO THE B CLASS LOANS (continued)

*Conversion of special
  convertible preferred stock to common stock (continued)*

During the year ended June 30,
  2007, 1,658,989 shares of special convertible preferred stock were converted to
  common stock. The trigger events that gave rise to these conversions were
  requests by linked unit-holders to sell and/or convert 12,224,127 linked units
  during year ended June 30, 2007. The net result of these conversions was that
  12,224,127 B class preference shares and B class loans were ceded to Net1 during
  the year ended June 30, 2007, which converted 1,658,989 shares of special
  convertible preferred stock to 1,658,989 common stock in return for the
  ownership of the 12,224,127 B class preferred shares and B class loans. As a
  result of the conversion, the number of outstanding shares of common stock has
  increased by 1,658,989 and the number of outstanding shares of special
  convertible preferred stock has decreased by 1,658,989. In addition, as a
  consequence of the conversion, at June 30, 2007, Net1 owned 195,300,562 B class
  preferred shares and B class loans. The reduction in the B class preference
  shares from $0.009 million to $0.007 million is due to the cession to Net1 of
  the B class preference shares as a result of the trigger events.

12.    REVENUE

|                                                     |   | 2008    |  |   | 2007    |  |   | 2006    | 
|---------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
|                                                     |   |         |  |   |         |  |   |         | 
|Sale of goods  comprising mainly hardware
      and |   |         |  |   |         |  |   |         | 
|software sales                                       | $ | 39,021  |  | $ | 27,716  |  | $ | 17,867  | 
|Loan-based interest and fees received                |   | 8,585   |  |   | 11,460  |  |   | 15,017  | 
|Services rendered  comprising mainly fees and       |   |         |  |   |         |  |   |         | 
|commissions and contract variation fees              |   | 206,450 |  |   | 184,792 |  |   | 163,214 | 
|                                                     | $ | 254,056 |  | $ | 223,968 |  | $ | 196,098 | 

System implementation revenue,
  arising from the contract with the Central Bank of Ghana amounted $14.2 million
  for the year ended June, 2008. System implementation revenue is recognized using
  the percentage of completion method. Sale of goods  comprising mainly hardware
  and software sales includes approximately $7.2 million related to hardware
  sales. Services rendered  comprising mainly fees and commissions and contract
  variation fees includes approximately $7.0 million related to services rendered
  which is primarily software customization services performed. During the years
  ended June 30, 2007 and 2006 the Company had no revenue that it may have
  recognized using the percentage of completion method.

13.    STOCK-BASED COMPENSATION

***Amended and Restated
  2004 Stock Incentive Plan***

The shareholders of Net1
  originally approved the 2004 Stock Incentive Plan (the Plan) on May 27, 2004.
  On December 1, 2006, the shareholders of the Company approved the amendment and
  restatement of the Plan to increase the number of shares issuable under the Plan
  and to make other administrative revisions. The Plan permits Net1 to grant to
  its employees, directors and consultants incentive stock options, nonqualified
  stock options, stock appreciation rights, restricted stock, performance-based
  awards and other awards based on its common stock. The Remuneration Committee of
  Net1s board of directors administers the Plan.

Term

No awards may be granted under
  the Plan after the tenth anniversary of the effective date of the Plan, but
  awards granted before such tenth anniversary may extend beyond that date.

F-25

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

13.    STOCK-BASED COMPENSATION
  (continued)

Shares Reserved for Awards and
  Limits on Awards

The total number of shares of
  common stock available under the Plan is 5,752,580. The maximum number of shares
  for which stock options and stock appreciation rights, or for which other
  stock-based awards may be granted during a calendar year to any participant is
  569,120.

Options Granted under 2004 Stock
  Incentive Plan

In 2004, all stock options then
  available for grant under the Plan were granted to the Companys directors,
  officers, other employees and other eligible participants as non-qualified stock
  options. Of these options, 20% became exercisable on the date of grant, and 20%
  of the remaining options become exercisable on first, second, third and fourth
  anniversaries of the date of grant. The options expire ten years from date of
  grant. Under the rules governing the stock options, those stock options held by
  persons other than directors and executive officers are automatically exercised
  on the date they first become exercisable, with payment upon exercise provided
  by a loan from the Company to the option holder. Such loans are on a recourse
  basis and bear interest at market rates. Stock options held by directors and
  executive officers are not automatically exercised when they first become
  exercisable and no loan is extended for the payment for the exercise price upon
  exercise. All shares acquired upon exercise, whether held by directors,
  executive officers or others, may only be sold eleven months after they become
  exercisable, except as otherwise permitted by the Companys Remuneration
  Committee.

On August 24, 2006, the Company
  granted 569,120 options at an exercise price of $22.51 to employees of the
  Company, subject to the approval of the increase in the number of shares
  issuable under the Plan which was approved on December 1, 2006. These options
  become exercisable over a period of four and three quarter years commencing May
  8, 2007. The period during which the options become exercisable are presented in
  the table below. The Company believes that it is reasonably likely that the
  employees will exercise the options as they become exercisable. Any unexercised
  options granted to the employee expire on August 24, 2016. The options were
  valued using the Cox Ross Rubinstein binomial model using the following
  assumptions:

Marketand
      
      Expected
      
      
      
      Risk free
      
      EstimatedExercise
      
      life
      
      Dividend
      
      rate of
      
      expectedOption exercisable
      
      Price ($)
      
      (in days)
      
      yield
      
      return
      
      volatilityOn or after May 8, 2007 and
        prior to May 8, 2008
      
      22.51
      
      257
      
      0%
      
      4.8745%
      
      25%On or after May 8, 2008 and prior to May 8,
        2009
      
      22.51
      
      622
      
      0%
      
      4.8053%
      
      26%On or after May 8, 2009 and
        prior to May 8, 2010
      
      22.51
      
      987
      
      0%
      
      4.7572%
      
      30%On or after May 8, 2010 and prior to May 8,
        2011
      
      22.51
      
      1,352
      
      0%
      
      4.7664%
      
      33%On or after May 8, 2011
      
      22.51
      
      1,717
      
      0%
      
      4.7905%
      
      35%


The estimated expected volatility
  was calculated based on the volatilities of similar listed companies within the
  payment processing industry. Using the Cox Ross Rubinstein binomial model, the
  fair value of these options on the grant date was approximately $3.0 million.
  There are no tax consequences related to options granted to employees of Company
  subsidiaries incorporated in South Africa. As of June 30, 2008, the Company has
  recorded a deferred tax asset of approximately $0.1 million related to the
  stock-based compensation charge recognized related to employees of Net1 as it is
  able to deduct the difference between the market value on date of sale by the
  option recipient and the exercise price from income subject to taxation in the
  United States.

Awards that expire or are
  cancelled without delivery of shares generally become available for issuance
  under the Plan.

Stock Appreciation Rights

The Remuneration Committee also
  may grant stock appreciation rights, either singly or in tandem with underlying
  stock options. Stock appreciation rights entitle the holder upon exercise to
  receive an amount in any combination of cash or shares of our common stock (as
  determined by the Remuneration Committee) equal in value to the excess of the
  fair market value of the shares covered by the right over the grant price. No
  stock appreciation rights have been granted.

F-26

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

13.    STOCK-BASED COMPENSATION
  (continued)

Other Stock-Based Awards granted
  under 2004 Stock Incentive Plan

In 2004, as a condition precedent
  to the Aplitec transaction, other stock-based awards available for grant under
  the Plan were granted to directors, officers and other persons. These grants
  were valued at $3.00 per other stock-based award, vest immediately and can be
  exercised ratably, on an annual basis, over a period of five years, commencing
  with the grant date. Market value for the shares was determined to be the price
  that the private equity funds that funded the Aplitec transaction paid for their
  shares in Net1. The Plan permits the Remuneration Committee to grant awards that
  are valued by reference to, or otherwise based on the fair market value of, our
  common stock. These awards will be in such form and subject to such conditions,
  as the Remuneration Committee may determine, including the satisfaction of
  performance goals, the completion of periods of service or the occurrence of
  events.

In August 2007, the Remuneration
  Committee of the Board of Directors of the Company approved an award of 591,500
  restricted shares of the Companys common stock to executive officers and other
  employees of the Company. These restricted shares are referred to as non-vested
  equity shares in terms of FAS 123R and the Company has accounted for the
  restricted shares awarded in terms of the guidance provided in FAS 123R.

One-third of the award shares
  will vest on each of September 1, 2009, 2010 and 2011. Vesting of the award
  shares is conditioned upon each recipients continuous service through the
  applicable vesting date and the Company achieving the financial performance
  target set for that vesting date. Specifically, the financial performance
  targets shall be set based on a 20% increase, compounded annually, in
  fundamental diluted earnings per share (expressed in South African rand)
  (Fundamental EPS) above the Fundamental EPS for the fiscal year ended June 30,
  2007; provided, however, that in the case of Dr. Belamant and Mr. Kotze, the
  annual required increase shall be 25% rather than 20%. For this purpose,
  Fundamental EPS are calculated by adjusting GAAP diluted earnings per share (as
  reflected in the Companys audited consolidated financial statements) to exclude
  the effects related to the amortization of intangible assets, stock-based
  compensation charges, one-time, large, unusual expenses as determined in the
  discretion of the Remuneration Committee, and assuming a constant tax rate of
  30%. If the Fundamental EPS for the specified fiscal year do not equal or exceed
  the Fundamental EPS target for such year, no award shares will become vested or
  nonforfeitable on the corresponding vesting date. Any award shares that do not
  become vested and nonforfeitable because the Fundamental EPS target is not met
  for the specified fiscal year remain outstanding and are available to become
  vested and nonforfeitable as of a subsequent vesting date if the Fundamental EPS
  target for a subsequent fiscal year is met; provided that the recipients
  service continues through such subsequent vesting date. Any outstanding award
  shares that have not become vested and nonforfeitable as of September 1, 2011,
  will be forfeited by the recipient on September 1, 2011 and transferred to the
  Company for no consideration.

The grant date fair value of the
  591,500 restricted shares was based on the closing price of the Companys stock
  quoted on The Nasdaq Global Select Market on the date of grant. The stock-based
  compensation charge for this award is recognized over the service period of four
  years. There are no tax consequences related to restricted shares granted to
  employees of Company subsidiaries incorporated in South Africa.

On February 6, 2008, the
  Remuneration Committee approved an award of 3,282 restricted shares of the
  Companys common stock to two directors of the Company. One-third of the
  restricted shares will vest on each of February 6, 2009, 2010 and 2011. Vesting
  of the restricted shares is conditioned upon each recipients continuous service
  with the Company as a member of its Board of Directors through the applicable
  vesting dates. If either recipient ceases to be a member of the Board of
  Directors for any reason, all of his restricted shares that are not then vested
  and nonforfeitable will be immediately forfeited and transferred to the Company
  upon such cessation for no consideration. Until 11 months after the restricted
  shares becomes vested and nonforfeitable, it may not be sold, assigned,
  transferred, pledged, hypothecated, exchanged, or disposed of in any way
  (whether by operation of law or otherwise).

The grant date fair value of the
  3,282 restricted shares was based on the closing price of the Companys stock
  quoted on The Nasdaq Global Select Market on the date of grant. The stock-based
  compensation charge for this award is recognized over the service period of
  three years. Once vested a tax deduction for the 3,282 restricted shares granted
  is allowed.

F-27

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

13.    STOCK-BASED COMPENSATION
  (continued)

***Other stock options***

In January 2006, 200,000
  non-qualified stock options were issued at an exercise price of $30.71 per
  option to a new employee of the Company. These options were scheduled to become
  exercisable ratably over a period of five years commencing January 9, 2007. The
  employee resigned on September 13, 2006. Because none of these options had
  become exercisable prior to the resignation date, the compensation charge of
  approximately $0.2 million included in additional paid in capital and retained
  earnings has been reversed. In addition, the deferred tax asset and associated
  valuation allowance related to the 200,000 stock options has been reversed. The
  reversal of the stock compensation charge has been allocated to selling, general
  and administration and the reversal of the deferred tax charge and associated
  valuation allowance has been allocated to income tax expense.

***Options granted to
  employees of Prism***

In August 2006, 904,674
  non-qualified stock options were issued at an exercise price of $22.51 per
  option to employees of Prism. These options become exercisable over a period of
  four and three quarter years commencing May 8, 2007. The period during which the
  options become exercisable are presented in the table below. The Company
  believes that it is reasonably likely that the Prism employees will exercise the
  options one year after the option becomes exercisable. Any unexercised options
  granted to the employee expire on August 24, 2016. The options were valued using
  the Cox Ross Rubinstein binomial model using the following assumptions:

Marketand
      
      Expected
      
      
      
      Risk free
      
      EstimatedExercise
      
      life
      
      Dividend
      
      rate of
      
      expectedOption exercisable
      
      Price ($)
      
      (in days)
      
      yield
      
      return
      
      volatilityOn or after May 8, 2007 and
        prior to May 8, 2008
      
      22.51
      
      730
      
      0%
      
      4.8745%
      
      25%On or after May
        8, 2008 and prior to May 8, 2009
      
      22.51
      
      1,095
      
      0%
      
      4.8053%
      
      26%On or after May 8, 2009 and
        prior to May 8, 2010
      
      22.51
      
      1,460
      
      0%
      
      4.7572%
      
      30%On or after May
        8, 2010 and prior to May 8, 2011
      
      22.51
      
      1,825
      
      0%
      
      4.7664%
      
      33%On or after May 8, 2011
      
      22.51
      
      2,190
      
      0%
      
      4.7905%
      
      35%


The estimated expected volatility
  was calculated based on the volatilities of similar listed companies within the
  payment processing industry. Using the Cox Ross Rubinstein binomial model, the
  fair value of these options on the grant date was approximately $5.7 million.
  Management has estimated forfeitures based on historic employee behavior under
  similar compensation plans. There are no tax consequences related to these
  options.

F-28

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

13.    STOCK-BASED COMPENSATION (continued)

**Activity under the 2004
  Stock Incentive Plan, other stock options and options granted to employees of
  Prism**

Activity under the Plan, the
  options granted to the new employee in January 2006 and options granted to Prism
  employees for the years ended June 30, 2008, 2007 and 2006 is summarized as
  follows:

| |                                                     |  |           |   |   |          |  |  | Weighted    |  |   |           | 
| | --------------------------------------------------- |  | --------- | - | - | -------- |  |  | ----------- |  | - | --------- | 
| |                                                     |  |           |   |   |          |  |  | Average     |  |   |           | 
| |                                                     |  |           |   |   | Weighted |  |  | Remaining   |  |   | Aggregate | 
| |                                                     |  |           |   |   | average  |  |  | Contractual |  |   | Intrinsic | 
| |                                                     |  | Number of |   |   | exercise |  |  | Term        |  |   | Value     | 
| |                                                     |  | shares    |   |   | price    |  |  | (in years)  |  |   | ($000)   | 
| | Balance outstanding  July 1, 2005                  |  | 872,094   |   |   | 3.00     |  |  | 9.00        |  |   | 14,302    | 
| | Granted to new employee                             |  | 200,000   |   |   | 30.71    |  |  | 10.00       |  |   |           | 
| | Exercised                                           |  | (239,367  | ) |   | 3.00     |  |  | -           |  |   | 6,331     | 
| | Balance outstanding  June 30, 2006                 |  | 832,727   |   |   | 9.66     |  |  | 8.36        |  |   | 22,775    | 
| | Options granted
      to Prism employees            |  | 904,674   |   |   | 22.51    |  |  | 10          |  |   | -         | 
| | Options granted under Plan on
      August 24, 2006 |  | 569,120   |   |   | 22.51    |  |  | 10          |  |   | -         | 
| | Exercised                                           |  | (326,706  | ) |   | -        |  |  | -           |  |   | 4,565     | 
| | Forfeitures                                         |  | (605,272  | ) |   | -        |  |  | -           |  |   | -         | 
| | Balance outstanding  June 30, 2007                 |  | 1,374,543 |   | $ | 16.3     |  |  | 8.2         |  | $ | 10,840    | 
| | Exercised                                           |  | (324,542  | ) |   | -        |  |  | -           |  |   | 7,320     | 
| | Forfeitures                                         |  | (96,623   | ) |   | -        |  |  | -           |  |   | -         | 
| | Balance outstanding  June 30, 2008                 |  | 953,378   |   | $ | 18.20    |  |  | 7.4         |  | $ | 5,813     | 

During the years ended June 30,
  2008 and 2007, Prism employee resignations and terminations resulted in
  forfeitures of approximately 96,623 and 405,000 options, respectively.

| | Exercisable |  | 344,897 |  | $ | 13.08 |  |  | 6.9 |  | $ | 3,869 | 
| | ----------- |  | ------- |  | - | ----- |  |  | --- |  | - | ----- | 

During each of the years ended
  June 30, 2008, 2007 and 2006, approximately 430,000, 537,000 and 300,000,
  respectively, stock options became exercisable.

Options granted to certain
  employees on August 24, 2006, were automatically exercised on May 8, 2008 and
  2007, as the employees did not provide the Company with an automatic exercise
  waiver notice. In accordance with the terms of the option agreements, 6,448 and
  111,748 shares were withheld from these employees to settle the exercise price.
  These 6,448 and 111,748 shares are reflected as treasury shares and 1,951 of
  these shares are available to the Company for issue under the Plan.

During the years ended June 30,
  2008 and 2007, respectively, the Company received approximately $2.3 million and
  $3.7 million from employees exercising stock options and approximately $0.5
  million and $0.6 million from employees repaying loans granted.

The Company issues new shares to
  satisfy stock option exercises.

F-29

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

13.    STOCK-BASED COMPENSATION
  (continued)

**Stock-based compensation
  charge and unrecognized compensation cost**

The Company has recorded a net
  stock compensation charge of $4.0 million, $0.9 million and $0.2 million for the
  year ended June, 2008, 2007 and 2006, respectively, which comprised:

| |                                                                       |   |            |   |   | Allocated to  |   |   |                |  
| | --------------------------------------------------------------------- | - | ---------- | - | - | ------------- | - | - | -------------- | -
| |                                                                       |   |            |   |   | cost of goods |   |   |                |  
| |                                                                       |   |            |   |   | sold, IT      |   |   | Allocated to   |  
| |                                                                       |   | Total      |   |   | processing,   |   |   | selling,       |  
| |                                                                       |   | charge     |   |   | servicing     |   |   | general and    |  
| |                                                                       |   | (reversal) |   |   | and support   |   |   | administration |  
| | Year ended June 30, 2008                                              |   |            |   |   |               |   |   |                |  
| | Stock-based compensation
      charge                                 | $ | 4,257      |   | $ | 319           |   | $ | 3,938          |  
| | Benefit
      of stock compensation charge related to options         |   |            |   |   |               |   |   |                |  
| | forfeited                                                             |   | (286       | ) |   | (147          | ) |   | (139           | )
| | Total  year ended June 30, 2008                                      | $ | 3,971      |   | $ | 172           |   | $ | 3,799          |  
| |                                                                       |   |            |   |   |               |   |   |                |  
| | Year ended June 30, 2007                                              |   |            |   |   |               |   |   |                |  
| | Stock-based compensation charge                                       | $ | 1,126      |   | $ | 272           |   | $ | 854            |  
| | Benefit of stock compensation
      charge related to options granted |   |            |   |   |               |   |   |                |  
| | in January 2006                                                       |   | (216       | ) |   | -             |   |   | (216           | )
| | Total  year ended June 30, 2007                                      | $ | 910        |   | $ | 272           |   | $ | 638            |  
| |                                                                       |   |            |   |   |               |   |   |                |  
| | Year ended June 30, 2006                                              |   |            |   |   |               |   |   |                |  
| | Stock-based compensation charge                                       | $ | 216        |   | $ | -             |   | $ | 216            |  
| | Total  year ended June 30, 2006                                      | $ | 216        |   | $ | -             |   | $ | 216            |  

The stock compensation charge and
  benefit have been allocated to cost of goods sold, IT processing, servicing and
  support and selling, general and administration based on the allocation of the
  cash compensation paid to the employees.

As of June 30, 2008, the total
  unrecognized compensation cost related to stock options was approximately $3.1
  million, which the Company expects to recognize over approximately three years.
  As of June 30, 2008, the total unrecognized compensation cost related to
  restricted stock awards was approximately $10.6 million, which the Company
  expects to recognize over approximately three years. As of June 30, 2008,
  interest due from employees related to loans extended to fund stock option
  exercises was approximately $0.01 million.

The Company has recognized a
  deferred tax asset of approximately $0.4 million and $0.05 million,
  respectively, for the years ended June 30, 2008 and 2007, related to its stock
  compensation charge under FAS 123R.

F-30

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.    INCOME TAXES

Presented below is the analysis
  of the income tax provision for each of the years ended June 30, and the
  reconciliation of income taxes, calculated at the fully distributed South
  African income tax rate, to the income tax provision included in the
  accompanying statements of operations for each of the years ended June 30:

|                                                                |   | 2008    |   |   | 2007    |   |   | 2006    |  
|--------------------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|Income tax provision                                            |   |         |   |   |         |   |   |         |  
|Current
      income tax provision                              | $ | 45,520  |   | $ | 40,778  |   | $ | 35,027  |  
|Change in tax rate                                              |   | (5,397  | ) |   | -       |   |   | (155    | )
|Deferred
      taxation charge (benefit)                        |   | (931    | ) |   | (3,204  | ) |   | 1,781   |  
|Income tax provision                                            | $ | 39,192  |   | $ | 37,574  |   | $ | 36,653  |  
|                                                                |   |         |   |   |         |   |   |         |  
|Income tax rate reconciliation                                  |   |         |   |   |         |   |   |         |  
|Income taxes at fully distributed South
      African tax rates |   | 35.45%  |   |   | 36.89%  |   |   | 36.89%  |  
|Permanent items                                                 |   | 0.02%   |   |   | 0.40%   |   |   | 0.63%   |  
|Foreign tax credits                                             |   | -%      |   |   | (2.57)% |   |   | -%      |  
|Movement in valuation allowance                                 |   | (0.11)% |   |   | 2.38%   |   |   | 1.02%   |  
|Change in tax rate                                              |   | (4.28)% |   |   | -%      |   |   | (0.16)% |  
|Income tax provision                                            |   | 31.08%  |   |   | 37.10%  |   |   | 38.38%  |  
|Current                                                         |   | 36.10%  |   |   | 40.26%  |   |   | 36.68%  |  
|Change in tax rate                                              |   | (4.28)% |   |   | -%      |   |   | (0.16)% |  
|Deferred                                                        |   | (0.74)% |   |   | (3.16)% |   |   | 1.86%   |  

On January 8, 2008, the Revenue
  Laws Second Amendment Act (Act 36 of 2007) (Revenue Laws Act), was promulgated
  in South Africa. The Revenue Laws Act included the legislation to reduce the
  rate of STC from 12.50% to 10.00%, effective October 1, 2007 which resulted in
  an enacted tax rate of 35.45% for the year ended June 30, 2008.

In February 2008, the South
  African Finance Minister announced a reduction in the corporate rate of taxation
  for South African companies from 29% to 28%. The Company only recognizes changes
  in taxation legislation in its reported results once it has been promulgated in
  South Africa. The change in the corporate rate of taxation for South African
  companies had not been promulgated as of June 30, 2008. The change in the
  corporate rate of taxation for South African companies was enacted on July 22,
  2008, and the Company will reflect the change in its fully distributed rate
  during the three months ended September 30, 2008.

There were no changes to the
  enacted tax rate in the year ended June 30, 2007.

The enacted tax rate in South
  Africa changed from 37.78% to 36.89% during the year ended June 30, 2006.

F-31

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.    INCOME TAXES (continued)

The following table shows the
  significant components included in deferred income taxes as at June 30:

|                                                              |   | 2008   |   |   | 2007   |  
|------------------------------------------------------------- | - | ------ | - | - | ------ | -
|                                                              |   |        |   |   |        |  
|Deferred tax assets                                           |   |        |   |   |        |  
|                                                              |   |        |   |   |        |  
|Assessed
      losses                                         | $ | 2,502  |   | $ | 4,623  |  
|Provisions and accruals                                       |   | 2,453  |   |   | 2,093  |  
|FTS
      patent                                              |   | 1,987  |   |   | 2,472  |  
|Stock-based compensation                                      |   | 364    |   |   | -      |  
|Deferred
      income                                         |   | 264    |   |   | 189    |  
|Intangible assets                                             |   | 682    |   |   | 540    |  
|Foreign
      tax credits                                     |   | 2,399  |   |   | 2,399  |  
|Other                                                         |   | 1,801  |   |   | 1,694  |  
|Total deferred tax assets before valuation allowance          |   | 12,452 |   |   | 14,010 |  
|Valuation allowances                                          |   | (4,872 | ) |   | (5,284 | )
|Total deferred tax
        assets, net of valuation allowance |   | 7,580  |   |   | 8,726  |  
|                                                              |   |        |   |   |        |  
|Total deferred tax liabilities:                               |   |        |   |   |        |  
|                                                              |   |        |   |   |        |  
|Intangible assets                                             |   | 7,769  |   |   | 10,709 |  
|Prepaid expenses                                              |   | 69     |   |   | 252    |  
|STC
      liability, net of STC credits                       |   | 26,820 |   |   | 26,235 |  
|FIN 48 related
      adjustments                              |   | 426    |   |   | -      |  
|Other                                                         |   | 373    |   |   | 721    |  
|Total deferred tax liabilities                                |   | 35,457 |   |   | 37,917 |  
|                                                              |   |        |   |   |        |  
|Reported as                                                   |   |        |   |   |        |  
|Current
      deferred tax assets                             |   | 5,597  |   |   | 7,028  |  
|Long term deferred tax
      liabilities                      |   | 33,474 |   |   | 36,219 |  
|                                                              |   |        |   |   |        |  
|Net deferred income tax liabilities                           | $ | 27,877 |   | $ | 29,191 |  

*Net1 - Movement in valuation
  allowance*

The utilization of deferred tax
  assets is dependent on the Companys future operating profits. Management is not
  aware of any trends, events, or transactions that are expected to affect future
  levels of taxable income. Management is of the opinion that based on the weight
  of available positive and negative evidence it is more likely than not that the
  results of future operations will generate sufficient taxable income to realize
  the deferred tax assets above, except for certain tax losses discussed below.

Management has provided a
  valuation allowance for the Net1 net operating loss carry forward incurred in
  periods prior to June 2004 as a result of limitations imposed by current United
  States tax legislation on net operating loss carry forwards available to a
  company when there is a change in ownership.

Net1 management believes that
  Net1 will be able to utilize some of its net operating loss carry forward during
  the year ended June 30, 2009. Accordingly, a valuation allowance has been
  provided for the net operating loss carry forward which management believes it
  is more likely than not that there will not be sufficient taxable income to
  utilize the net operating loss carry forward. As of June 30, 2008, Net1 has
  provided a valuation allowance of $1.8 million. During the year ended June 30,
  2008, Net1 utilized approximate $2.1 million of its net operating loss carry
  forward against taxable income. No new net operating loss deferred tax assets
  were created for Net1 during the year ended June 30, 2008.

During the year ended June 30,
  2007, Net1 utilized approximately $1.1 million of its net operating loss carry
  forward against taxable income and reversed approximately $0.1 million of its
  2006 net operating loss carry forward deferred tax asset.

F-32

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.    INCOME TAXES (continued)

*Net1 - Movement in valuation
  allowance (continued)*

Net1s management has been
  advised that a deferred tax asset is required for the difference between the
  accounting basis of its equity-accounted investments and its tax base.
  Accordingly, the Company has recognized a deferred tax asset of approximately
  $1.0 million related losses incurred by its equity-accounted investments.
  Management has provided a valuation allowance for the full amount of the
  equity-accounted investments deferred tax asset as it does not believe it will
  have taxable income to utilize these deferred tax assets. Accumulated other
  comprehensive loss includes these entries related to the deferred tax assets and
  valuation allowance recognized.

Net1 has incurred net operating
  losses as detailed in the following table:

|Year of loss |   | Amount |  |  | Year of    | 
|------------ | - | ------ |  |  | ---------- | 
|             |   |        |  |  | Expiration | 
|2001         | $ | 555    |  |  | 2016       | 
|2002         |   | 166    |  |  | 2017       | 
|2003         |   | 282    |  |  | 2018       | 
|2004         |   | 4,532  |  |  | 2019       | 
|             | $ | 5,535  |  |  |            | 

*Net1 - Foreign tax credits*

Net1 has unused foreign tax
  credits as of June 30, 2008 and 2007, which its management believes will be
  utilized in future periods. The unused foreign tax credits expire after ten
  years and accordingly $0.9 million and $1.5 million, respectively, expire in
  2016 and 2017.

*South African subsidiaries 
  movement in valuation allowance*

Net operating losses

Net operating losses incurred in
  South Africa generally expire if a company does not trade during the year. In
  South Africa, the subsidiary companies that incurred the losses are currently
  trading and will continue to trade for the foreseeable future. The South African
  subsidiary companies net operating losses are presented in the following table:

Year of loss
      
      Amount2007 (at June 30, 2008 rate of $1: ZAR
        7.96)
      $
      2,7462008
      
      -$
      2,746


During the year ended June 30,
  2008, subsidiary companies in South Africa utilized $4.4 million of its net
  operating losses carried forward from prior years against taxable income
  generated during the current year.

F-33

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.    INCOME TAXES (continued)

*South African subsidiaries 
  movement in valuation allowance (continued)*

Intangible assets

At the end of the 2005 fiscal
  year it was determined that certain intangible assets and the FTS patent had new
  tax bases as a result of certain reorganizations that occurred in connection
  with the Aplitec transaction. Consequently a gross deferred tax asset of $6.9
  million was recognized in respect of these deductible temporary differences and
  the other side of the entry was recorded directly in equity in accordance with
  the requirements of EITF Issue No. 94-10, Accounting by a Company for the
    Income Tax Effects of Transactions Among or With Its Shareholders Under FASB
    Statement No. 109. The tax deduction for the intangible asset is claimable
  in two equal amounts beginning in the tax year ended June 30, 2005. The tax
  deduction for the FTS patent is claimable over a 20 year period beginning in the
  tax year ended June 30, 2005. Management has considered all available evidence,
  both positive and negative, including forecasts of taxable income over its
  five-year forecasting period, and determined based on the weight of that
  evidence, that as at 30 June 2008, a valuation allowance is needed for
  approximately 69% (2007: 71%) of the deduction claimable related to the FTS
  patent as there may not be sufficient taxable income in the future to offset
  this deduction. The valuation allowance of $2.3 million recognized on initial
  recognition of the deferred tax asset has also been charged directly against
  equity resulting in a net credit to equity of $4.6 million. There was no
  significant movement in the valuation allowance during the years ended June 30,
  2008 and 2007 and the valuation allowance as of June 30, 2008 and 2007,
  respectively, is approximately $1.4 million and $1.7 million.

*Adoption of Fin 48 during
  fiscal 2008*

The adoption of FIN 48 on July 1,
  2007, has resulted in the recognition of gross unrecognized tax benefits for
  uncertain tax positions of $0.2 million and a reduction in deferred tax assets
  of $0.3 million. There was no cumulative effect adjustment to the opening
  balance of retained earnings arising as a result of the adoption of FIN 48 and
  the adjustment on adoption of FIN48 was recorded directly to retained earnings
  for the year ended June 30, 2008. This adjustment is presented in our
  consolidated statements of movements in shareholders equity. FIN 48 requires
  adoption on a prospective basis and prior periods have not been restated to
  account for any uncertain tax positions that may or may not have been in
  existence in those fiscal periods or at the close of such fiscal period.

On adoption, the amount of
  unrecognized tax benefits that, if recognized, would impact the Companys
  effective tax rate was $0.5 million, which was included as a reduction to the
  beginning balance of retained earnings on the balance sheet. As of July 1, 2007,
  the Company had accrued interest related to uncertain tax positions of
  approximately $0.1 million on its balance sheet. The Company files income tax
  returns mainly in South Africa and in the US federal jurisdiction. As of July 1,
  2007, the Company is no longer subject to income tax examination by the South
  African Revenue Service for years before July 1, 2003. The Company is subject to
  income tax in other jurisdictions outside South Africa, none of which are
  individually material to its financial position, statement of cash flows, or
  results of operations.

The Company increased its
  unrecognized tax benefits by $0.2 million and reduced its deferred tax assets by
  approximately $0.1 million during the year ended June 30, 2008.

The following is a reconciliation
  of the total amounts of unrecognized tax benefits for the year ended June 30,
  2008:

2008Unrecognized tax benefits recognized on
        adoption of FIN 48
      $
      496Gross increases - tax positions in current period
      
      417Foreign currency adjustment
      
      (100
      )Unrecognized tax benefits - closing balance
      $
      813


As of June 30, 2008, the Company
  had accrued interest related to uncertain tax positions of approximately $0.1
  million on its balance sheet.

During the year ended June 30,
  2008, the amount of unrecognized tax benefits that, if recognized, would impact
  the Companys effective tax rate was $0.4 million.

F-34

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.    INCOME TAXES (continued)

*Adoption of Fin 48 during
  fiscal 2008 (continued)*

The Company does not expect the
  change related to unrecognized tax benefits will have a significant impact on
  its results of operations or financial position in the next 12 months.

As of June 30, 2008, the Company
  is no longer subject to income tax examination by the South African Revenue
  Service for years before June 30, 2004.

15.    EARNINGS PER SHARE

The entire consolidated net
  income of the Company is attributable to the shareholders of the Company
  comprising both the holders of Net1 common stock and the holders of linked
  units. As described in Note 11, the linked units have the same rights and
  entitlements as those attached to common stock.

As the linked units owned by
  holders are exchangeable for special convertible preferred stock at the ratio of
  7.37:1, which is then converted to common stock at the ratio of 1:1, the basic
  earnings per share for the year ended June 30, 2007, for the common stock and
  linked units are the same and is calculated by dividing the net income by the
  combined number (57.2 million) of weighted average common stock (52.3 million)
  and special convertible preferred stock (4.9 million) in issue. Diluted earnings
  per share has been calculated to give effect to the number of additional common
  stock/ linked units that would have been outstanding if the potential dilutive
  instruments had been issued in each period. The calculation of diluted earnings
  per share for the year ended June 30, 2008, includes the dilutive effect of a
  portion of the restricted stock awards granted to employees in August 2007 as
  these restricted stock awards are considered contingently issuable shares for
  the purposes of the diluted earnings per share calculation and as of June 30,
  2008, the vesting conditions in respect of a portion of the awards had been
  satisfied. The vesting conditions are discussed in note 13  Stock-based
  compensation.

The basic earnings per share for
  the year ended June 30, 2007, for the common stock and linked units are the same
  and is calculated by dividing the net income by the combined number (56.9
  million) of common stock (51.3 million) and special convertible preferred stock
  (5.6 million) in issue.

The basic earnings per share for
  the year ended June 30, 2006, for the common stock and linked units are the same
  and is calculated by dividing the net income by the combined number (56.5
  million) of common stock (49.2 million) and special convertible preferred stock
  (7.3 million) in issue. Included in the weighted average number of shares in
  issue to calculate earnings and diluted earnings per share were 1,538,794 shares
  of the Companys common stock issued in connection with the Companys August
  2005 public offering.

The weighted average number of
  outstanding shares presented below includes the common stock as well as the
  special convertible preferred stock, as the holders of special convertible
  preferred stock have the same rights and entitlements as those attached to the
  common stock.

F-35

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

15.    EARNINGS PER SHARE (continued)

The following tables detail the
  weighted average number of outstanding shares used for the calculation of
  earnings per share as of June 30, 2008, 2007 and 2006.

|                                                                                      |  | 2008   |  |  | 2007   |  |  | 2006   | 
|------------------------------------------------------------------------------------- |  | ------ |  |  | ------ |  |  | ------ | 
|                                                                                      |  | 000   |  |  | 000   |  |  | 000   | 
|Weighted average number of outstanding
      shares of common stock  basic           |  | 52,355 |  |  | 51,280 |  |  | 49,198 | 
|Weighted average effect of dilutive securities: employee
      stock options          |  | 343    |  |  | 453    |  |  | 712    | 
|Weighted average number of outstanding
      shares of common stock  diluted         |  | 52,698 |  |  | 51,733 |  |  | 49,910 | 
|                                                                                      |  |        |  |  |        |  |  |        | 
|                                                                                      |  | 2008   |  |  | 2007   |  |  | 2006   | 
|                                                                                      |  | 000   |  |  | 000   |  |  | 000   | 
|Weighted average number of outstanding
      linked units  basic                     |  | 4,882  |  |  | 5,656  |  |  | 7,315  | 
|Weighted average effect of dilutive securities: employee
      stock options          |  | 32     |  |  | 50     |  |  | 106    | 
|Weighted average number of outstanding
      linked units  diluted                   |  | 4,914  |  |  | 5,706  |  |  | 7,421  | 
|                                                                                      |  |        |  |  |        |  |  |        | 
|                                                                                      |  | 2008   |  |  | 2007   |  |  | 2006   | 
|                                                                                      |  | 000   |  |  | 000   |  |  | 000   | 
|Total weighted average number of
      outstanding shares used to calculated earnings |  |        |  |  |        |  |  |        | 
|per share  basic                                                                     |  | 57,237 |  |  | 56,936 |  |  | 56,513 | 
|                                                                                      |  |        |  |  |        |  |  |        | 
|Total weighted average number of outstanding shares used to
      calculated earnings |  |        |  |  |        |  |  |        | 
|per share  diluted                                                                   |  | 57,612 |  |  | 57,439 |  |  | 57,331 | 

16.    COMPREHENSIVE INCOME (LOSS)

The Companys comprehensive
  income (loss) consists of net income and foreign currency translation gains and
  losses which, under GAAP, are excluded from net income. Total comprehensive
  income (loss) for each of the three years ended June 30, 2008 was:

|                                         |   | 2008    |   |   | 2007   |  |   | 2006    |  
|---------------------------------------- | - | ------- | - | - | ------ |  | - | ------- | -
|Net income                               | $ | 86,695  |   | $ | 63,679 |  | $ | 59,232  |  
|Foreign currency translation adjustments |   | (33,905 | ) |   | 5,848  |  |   | (17,077 | )
|                                         | $ | 52,790  |   | $ | 69,527 |  | $ | 42,155  |  

17.    SUPPLEMENTAL CASH FLOW INFORMATION

*Supplemental cash flow
  information:*

The following table presents the
  supplemental cash flow disclosures for the years ended June 30, 2008, 2007 and
  2006:

|                            |   | 2008   |  |   | 2007   |  |   | 2006   | 
|--------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
|Cash received from interest | $ | 27,366 |  | $ | 16,139 |  | $ | 14,496 | 
|Cash paid for interest      | $ | 11,255 |  | $ | 11,462 |  | $ | 8,741  | 
|Cash paid for income taxes  | $ | 35,384 |  | $ | 29,520 |  | $ | 27,857 | 

*Supplemental non-cash
  financing activities:*

Financing activities

As discussed in Note 13, during
  the years ended June 30, 2008 and 2007, the Company acquired 6,448 and 111,748
  of the Companys common stock at $24.00 and $25.39 per share, respectively, from
  employees exercising stock options as a result of net share exercises under the
  terms of the option agreements. These shares are included in the share count and
  amount reflected as treasury shares issued on the consolidated balance sheet as
  of June 30, 2008 and 2007.

F-36

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

18.    OPERATING SEGMENTS

The Company discloses segment
  information in accordance with FAS No. 131, Disclosure About Segments of an
    Enterprise and Related Information (FAS 131), which requires companies to
  determine and review their segments as reflected in the management information
  systems reports that their managers use in making decisions and to report
  certain entity-wide disclosures about products and services, major customers,
  and the material countries in which the entity holds assets and reports
  revenues.

The Company currently has four
  reportable segments which each operate mainly within South Africa:
  Transaction-based activities, Smart card accounts, Financial services and
  Hardware, software and related technology sales. The Companys reportable
  segments offer different products and services and require different resources
  and marketing strategies and share the Companys assets.

The Transaction-based activities
  segment currently consists mainly of a state welfare benefit distribution
  service provided to provincial governments in South Africa and transaction
  processing for retailers, utilities and banks. Fee income is earned based on the
  number of beneficiaries included in the government pay-file as well as from
  merchants and card holders using the Companys merchant retail application. In
  addition, utility providers and bankers are charged a fee for transaction
  processing services performed on their behalf at retailers. This segment has
  individually significant customers that each provides more than 10% of the total
  revenue of the Company. For the year ended June 30, 2008, there were three such
  customers, providing 31%, 16% and 10% of total revenue (2007: three such
  customers, providing 31%, 17% and 11% of total revenue; 2006: three such
  customers, providing 38%, 19% and 12% of total revenue).

The Smart card accounts segment
  derives revenue from the provision of smart card accounts, as a fixed monthly
  fee per card is charged for the maintenance of these accounts.

The Financial services segment
  provides short-term loans as a principal and life insurance products on an
  agency basis and generates interest income and initiation and services fees.
  Interest income is recognized in the consolidated statement of operations as it
  falls due, using the interest method by reference to the constant interest rate
  stated in each loan agreement.

The Hardware, software-related
  and technology sales segment markets, sells and implements the UEPS as well as
  develops and provides Prism secure transaction technology, solutions and
  services. The segment undertakes smart card system implementation projects,
  delivering hardware, software and business solutions in the form of customized
  systems. Sales of hardware, SIM cards, cryptography services, and SIM card
  licenses are recorded within this segment. This segment also generates rental
  income from hardware provided to merchants enrolled in the Companys merchant
  retail application. Sales to SmartSwitch Nigeria Limited and the related
  taxation implications are not reflected in revenue to external customers,
  operating income, income taxation expense or net income after taxation presented
  in the tables below.

Corporate/Eliminations includes
  the Companys head office cost centers in addition to the elimination of
  inter-segment transactions.

F-37

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

18.    OPERATING SEGMENTS (continued)

The Company evaluates segment
  performance based on operating income. The following tables summarize segment
  information which is prepared in accordance with GAAP:

|                                                      |   |         |   |   | June 30, |   |   |         |  
|----------------------------------------------------- | - | ------- | - | - | -------- | - | - | ------- | -
|                                                      |   | 2008    |   |   | 2007     |   |   | 2006    |  
|                                                      |   |         |   |   |          |   |   |         |  
|Revenues                                              |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          | $ | 153,444 |   | $ | 139,006  |   | $ | 117,186 |  
|Smart card accounts                                   |   | 35,914  |   |   | 34,562   |   |   | 36,220  |  
|Financial services                                    |   | 8,251   |   |   | 11,241   |   |   | 16,129  |  
|Hardware, software and
      related technology sales |   | 56,447  |   |   | 39,159   |   |   | 26,563  |  
|Total                                                 |   | 254,056 |   |   | 223,968  |   |   | 196,098 |  
|                                                      |   |         |   |   |          |   |   |         |  
|Inter-company Revenues                                |   |         |   |   |          |   |   |         |  
|Transaction-based
      activities                    |   | 4,243   |   |   | 4,087    |   |   | 4,257   |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | -       |   |   | -        |   |   | -       |  
|Hardware, software and related
      technology sales |   | 1,107   |   |   | 1,618    |   |   | -       |  
|Total                                                 |   | 5,350   |   |   | 5,705    |   |   | 4,257   |  
|                                                      |   |         |   |   |          |   |   |         |  
|Operating income                                      |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 84,229  |   |   | 78,785   |   |   | 60,653  |  
|Smart card accounts                                   |   | 16,325  |   |   | 15,710   |   |   | 16,464  |  
|Financial services                                    |   | 1,935   |   |   | 3,351    |   |   | 6,929   |  
|Hardware, software and
      related technology sales |   | 11,708  |   |   | 6,115    |   |   | 16,721  |  
|Corporate/ Eliminations                               |   | (3,811  | ) |   | (7,085   | ) |   | (11,154 | )
|Total                                                 |   | 110,386 |   |   | 96,876   |   |   | 89,613  |  
|                                                      |   |         |   |   |          |   |   |         |  
|Interest earned                                       |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | -       |   |   | -        |   |   | -       |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | -       |   |   | -        |   |   | -       |  
|Hardware, software and
      related technology sales |   | -       |   |   | -        |   |   | -       |  
|Corporate/ Eliminations                               |   | 27,411  |   |   | 16,413   |   |   | 14,638  |  
|Total                                                 |   | 27,411  |   |   | 16,413   |   |   | 14,638  |  
|                                                      |   |         |   |   |          |   |   |         |  
|Interest expense                                      |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 11,590  |   |   | 11,823   |   |   | 8,700   |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | -       |   |   | 1        |   |   | 11      |  
|Hardware, software and
      related technology sales |   | 79      |   |   | 16       |   |   | 38      |  
|Corporate/ Eliminations                               |   | 20      |   |   | 172      |   |   | -       |  
|Total                                                 |   | 11,689  |   |   | 12,012   |   |   | 8,749   |  
|                                                      |   |         |   |   |          |   |   |         |  
|Depreciation and amortization                         |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 4,755   |   |   | 4,959    |   |   | 4,046   |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | 434     |   |   | 392      |   |   | 470     |  
|Hardware, software and
      related technology sales |   | 4,312   |   |   | 4,343    |   |   | -       |  
|Corporate/ Eliminations                               |   | 1,321   |   |   | 1,356    |   |   | 1,194   |  
|Total                                                 | $ | 10,822  |   | $ | 11,050   |   | $ | 5,710   |  

F-38

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

18.    OPERATING SEGMENTS (continued)

|                                                      |   |        |  |   | June 30, |  |   |        |  
|----------------------------------------------------- | - | ------ |  | - | -------- |  | - | ------ | -
|                                                      |   | 2008   |  |   | 2007     |  |   | 2006   |  
|                                                      |   |        |  |   |          |  |   |        |  
|Income taxation expense                               |   |        |  |   |          |  |   |        |  
|Transaction-based activities                          | $ | 21,512 |  | $ | 19,544   |  | $ | 15,032 |  
|Smart card accounts                                   |   | 4,735  |  |   | 4,556    |  |   | 4,774  |  
|Financial services                                    |   | 559    |  |   | 971      |  |   | 2,005  |  
|Hardware, software and related
      technology sales |   | 3,809  |  |   | 5,777    |  |   | 4,838  |  
|Corporate/ Eliminations                               |   | 8,577  |  |   | 6,726    |  |   | 10,004 |  
|Total                                                 |   | 39,192 |  |   | 37,574   |  |   | 36,653 |  
|                                                      |   |        |  |   |          |  |   |        |  
|Net income                                            |   |        |  |   |          |  |   |        |  
|Transaction-based activities                          |   | 51,942 |  |   | 47,418   |  |   | 36,919 |  
|Smart card accounts                                   |   | 11,592 |  |   | 11,154   |  |   | 11,690 |  
|Financial services                                    |   | 1,371  |  |   | 2,376    |  |   | 4,913  |  
|Hardware, software and related
      technology sales |   | 7,797  |  |   | 273      |  |   | 11,847 |  
|Corporate/ Eliminations                               |   | 13,993 |  |   | 2,458    |  |   | (6,137 | )
|Total                                                 |   | 86,695 |  |   | 63,679   |  |   | 59,232 |  
|                                                      |   |        |  |   |          |  |   |        |  
|Expenditures for long-lived assets                    |   |        |  |   |          |  |   |        |  
|Transaction-based activities                          |   | 2,774  |  |   | 3,093    |  |   | 1,372  |  
|Smart card accounts                                   |   | -      |  |   | -        |  |   | -      |  
|Financial services                                    |   | 562    |  |   | 279      |  |   | 449    |  
|Hardware, software and related
      technology sales |   | 227    |  |   | 373      |  |   | -      |  
|Corporate/ Eliminations                               |   | -      |  |   | -        |  |   | -      |  
|Total                                                 | $ | 3,563  |  | $ | 3,745    |  | $ | 1,821  |  

The segment information as
  reviewed by the chief operating decision maker does not include a measure of
  segment assets per segment as all of the significant assets are used in the
  operations of all, rather than any one, of the segments. The Company does not
  have dedicated assets assigned to a particular operating segment. Accordingly,
  it is not meaningful to attempt an arbitrary allocation and segment asset
  allocation is therefore not presented.

It is impractical to disclose
  revenues from external customers for each product and service or each group of
  similar products and services.

19.    FAIR VALUE OF FINANCIAL INSTRUMENTS

*Initial recognition and
  measurement*

Financial instruments are
  recognized when the Company becomes a party to the transaction. Initial
  measurements are at cost, which includes transaction costs subsequent to initial
  recognition. These instruments are measured as set out below:

*Trade and other receivables*

Trade and other receivables
  originated by the Company are stated at cost less allowance for doubtful debts.
  The fair value of trade and other receivables approximate their carrying value
  due to their short-term nature.

*Trade and other payables*

The fair values of trade and
  other payables approximates their carrying amounts, due to their short-term
  nature.

F-39

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

19.    FAIR VALUE OF FINANCIAL INSTRUMENTS
  (continued)

*Risk management*

The Company seeks to reduce its
  exposure to currencies other than the South African rand through a policy of
  matching, to the extent possible, assets and liabilities denominated in those
  currencies. In addition, the Company uses financial instruments in order to
  economically hedge its exposure to exchange rate and interest rate fluctuations
  arising from our operations. The Company is also exposed to credit risks.

**Currency exchange risk**

The Company is subject to
  currency exchange risk because it purchases inventories that it is required to
  settle in other currencies, primarily the euro and US dollar. The Company has
  used forward contracts in order to limit its exposure in these transactions to
  fluctuations in exchange rates between the South African rand, on the one hand,
  and the US dollar and the euro, on the other hand.

As of June 30, 2008, 2007 and
  2006, the outstanding foreign exchange contracts are as follows:

**As of June 30, 2008**

|                |           |              |     |             |  | Fair market |         | 
|--------------- | --------- | ------------ | --- | ----------- |  | ----------- | ------- | 
|Notional amount |           | Strike price |     | value price |  | Maturity   
|EUR             | 1,995     |              | ZAR | 12.3688     |  | ZAR         | 12.4508 | 
|EUR             | 6,000     |              | ZAR | 12.0701     |  | ZAR         | 12.4508 | 
|EUR             | 2,400     |              | ZAR | 12.5100     |  | ZAR         | 12.4618 | 
|EUR             | 689,200   |              | ZAR | 12.1065     |  | ZAR         | 12.4782 | 
|EUR             | 1,995     |              | ZAR | 12.1772     |  | ZAR         | 12.5085 | 
|EUR             | 32,331    |              | ZAR | 12.4862     |  | ZAR         | 12.5167 | 
|EUR             | 140,000   |              | ZAR | 12.4730     |  | ZAR         | 12.5167 | 
|EUR             | 140,000   |              | ZAR | 11.9793     |  | ZAR         | 12.5167 | 
|EUR             | (140,000) |              | ZAR | 12.3395     |  | ZAR         | 12.4319 | 
|EUR             | 8,750     |              | ZAR | 12.0207     |  | ZAR         | 12.5167 | 
|EUR             | 245,250   |              | ZAR | 12.1800     |  | ZAR         | 12.5573 | 
|EUR             | 4,550     |              | ZAR | 12.6757     |  | ZAR         | 12.5842 | 
|USD             | 542,500   |              | ZAR | 7.9100      |  | ZAR         | 7.9484  | 
|EUR             | 86,178    |              | ZAR | 12.6631     |  | ZAR         | 12.6057 | 
|EUR             | 1,470     |              | ZAR | 12.7000     |  | ZAR         | 12.6277 | 
|USD             | 24,600    |              | ZAR | 8.0090      |  | ZAR         | 8.0405  | 
|EUR             | 82,400    |              | ZAR | 12.2199     |  | ZAR         | 12.7685 | 
|EUR             | (82,400)  |              | ZAR | 12.5773     |  | ZAR         | 12.6764 | 
|EUR             | 82,400    |              | ZAR | 12.7820     |  | ZAR         | 12.8456 | 

**As of June 30, 2007**

|                |         |              |     |             |  | Fair market |        | 
|--------------- | ------- | ------------ | --- | ----------- |  | ----------- | ------ | 
|Notional amount |         | Strike price |     | value price |  | Maturity   
|USD             | 102,000 |              | ZAR | 7.1600      |  | ZAR         | 7.1180 | 
|EUR             | 572,900 |              | ZAR | 9.7360      |  | ZAR         | 9.6639 | 

**As of June 30, 2006**

|                |           |              |     |             |  | Fair market |        | 
|--------------- | --------- | ------------ | --- | ----------- |  | ----------- | ------ | 
|Notional amount |           | Strike price |     | value price |  | Maturity   
|EUR             | 627,372   |              | ZAR | 8.0529      |  | ZAR         | 9.3259 | 
|EUR             | 17,091    |              | ZAR | 8.5339      |  | ZAR         | 9.1744 | 
|EUR             | (627,372) |              | ZAR | 8.2625      |  | ZAR         | 9.3259 | 

F-40

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

19.    FAIR VALUE OF FINANCIAL INSTRUMENTS
  (continued)

**Translation risk**

Translation risk relates to the
  risk that the Companys results of operations will vary significantly as the US
  dollar is its reporting currency, but it earns most of its revenues and incurs
  most of its expenses in ZAR. The US dollar to ZAR exchange rate has fluctuated
  significantly over the past two years. As exchange rates are outside the
  Companys control, there can be no assurance that future fluctuations will not
  adversely affect the Companys results of operations and financial condition.

**Interest rate risk**

As a result of our normal
  borrowing and leasing activities, the Companys operating results are exposed to
  fluctuations in interest rates, which it manages primarily through our regular
  financing activities. The Company generally maintains limited investment in cash
  equivalents and has occasionally invested in marketable securities.

**Credit risk**

Credit risk relates to the risk
  of loss that the Company would incur as a result of non-performance by
  counterparties. The Company maintains credit risk policies with regard to its
  counterparties to minimize overall credit risk. These policies include an
  evaluation of a potential counterpartys financial condition, credit rating, and
  other credit criteria and risk mitigation tools as the Companys management
  deems appropriate.

With respect to credit risk on
  financial instruments, the Company maintains a policy of entering into such
  transactions only with South African and European financial institutions that
  have a credit rating of BBB or better, as determined by credit rating agencies
  such as Standard & Poors, Moodys and Fitch Ratings.

**Microlending credit
  risk**

The Company is exposed to credit
  risk in its microlending activities, which provides unsecured short-term loans
  to qualifying customers. The Company manages this risk by assigning each
  prospective customer a creditworthiness score, which takes into account a
  variety of factors such as employment status, salary earned, other debts and
  total expenditures on normal household and lifestyle expenses.

20.    COMMITMENTS AND CONTINGENCIES

*Operating lease commitments*

The Company leases certain
  premises. At June 30, 2008, the future minimum payments under operating leases
  consist of:

Due within 1 year
      $
      1,771Due within 2 years
      
      1,586Due within 3 years
      
      1,357Due within 4 years
      
      668Due within 5 years
      $
      191


Operating lease payments related
  to the premises and equipment were $4.2 million, $4.0 million and $3.3 million,
  respectively, for the years ended June 2008, 2007 and 2006, respectively.

*Capital commitments*

As of June 30, 2008 and 2007, the
  Company had outstanding capital commitments of approximately $1.3 million and
  $0.07 million, respectively which had been approved by the directors.

*Purchase obligations*

As of June 30, 2008 and 2007, the
  Company has purchase obligations totaling $6.9 million and $5.8 million,
  respectively.

F-41

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

20.    COMMITMENTS AND CONTINGENCIES (continued)

Guarantees

In 2001, Aplitec issued a
  guarantee of $3.2 million (R20 million) to Nedbank Limited (Nedbank),
  regarding the guarantee provided by Nedbank to the Eastern Cape provincial
  government. The guarantee was required by the provincial government that Cash
  Paymaster Services (Proprietary) Limited, a wholly owned subsidiary of Aplitec,
  would perform under the contract for the provision of welfare grants to
  beneficiaries in the province. The maximum potential amount that Aplitec could
  pay is $2.5 million (R20 million), re-measured at the year end exchange rate of
  $1:ZAR7.96. This bank guarantee is in respect of the Companys own performance
  of the contract and the Company is not guaranteeing the performance of any other
  party.

Contingencies

The Company is subject to a
  variety of insignificant claims and suits that arise from time to time in the
  ordinary course of our business.

Management of the Company
  currently believes that the resolution of these matters, individually or in the
  aggregate, will not have a material adverse impact on our financial position or
  our results of operations.

21.    SHORT-TERM FACILITIES

As of June 30, 2008, the Company
  had short-term facilities in South African Rand of approximately $62.8 million,
  translated at exchange rates applicable as of June 30, 2008. The interest rate
  applicable to these short-term facilities is the South African prime overdraft
  rate (15.50% per annum at June 30, 2008) less 225 basis points. As of June 30,
  2008, the Company had not utilized its short-term facilities. The Companys
  management believes its current short-term facilities are adequate in order to
  meet its future obligations to distribute social welfare grants.

On August 27, 2008, the Company pledged $25 million of its US dollar-denominated balances as partial security for the bank finance required to complete the BGS acquisition. The Company expects to repay the amount obtained from the bank from internally generated funds within six months from the date of draw down and to be released from the pledge after the repayment.

22.    RELATED PARTY TRANSACTIONS

The Company provides Nedbank with
  POS terminals and other pay processing hardware. In addition, the Company has a
  technology service and maintenance contract with Nedbank and provides other
  sundry services. During the year ended June 30, 2006, the Company earned $1.8
  million under the technology service and maintenance contract and $13.3 million
  in hardware sales from Nedbank. Nedbank was a related party until the public
  offering and Nasdaq listing. Prior to the public offering and Nasdaq listing,
  Nedbank beneficially owned 23% of the Companys common stock.

The South African Trust was
  created as a result of the Aplitec transaction to hold the units of reinvesting
  shareholders. The Company does not have any interests in the trust nor does it
  have any involvement in the day-to-day operations of the trust. The Company pays
  the expenses of the trust which comprise mainly the administrative costs related
  to the conversion by unit holders to Net1 common stock. During the years ended
  June 30, 2008, 2007 and 2006, the Company incurred expenses of approximately
  $0.1 million, $0.2 million and $0.1 million, respectively, related to these
  administrative costs. As of June 30, 2008, $0.02 million is included in accounts
  payable and should be paid by September 2008.

23.    ACQUISITIONS

2007 Acquisitions

Prism

On July 3, 2006, the Company
  acquired the entire issued and outstanding share capital of Prism for ZAR1.16
  per share (approximately $0.16, at the USD:ZAR exchange rate as of July 3, 2006)
  for a total consideration of $95.2 million which was paid in cash. The
  acquisition has been accounted for as a purchase business combination in
  accordance with FAS 141.

F-42

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

23.    ACQUISITIONS (continued)

2007 Acquisitions (continued)

Prism (continued)

Prism is a company focused on the
  development and provision of secure transaction technology, solutions and
  services. Prisms core competencies around secure online transaction processing,
  cryptography and integrated circuit card (chip/smart card) technologies are
  principally applied to electronic commerce transactions in the
  telecommunications, banking, retail, petroleum and utilities market sectors.
  These technologies form the cornerstones of what Prism calls the trusted
  transactions environment and provide Prism with the building blocks for
  developing secure end-to-end payment solutions.

The Company acquired Prism
  because it fits in well with the Companys strategy, particularly in South
  Africa. On July 3, 2006, Prism owned a 74.9% interest in EasyPay (Proprietary)
  Limited (EasyPay), the largest bank-independent financial switch, or
  transaction processor, in South Africa. Effective October 1, 2006, Prism
  acquired the remaining 25.1% interest in EasyPay. This transaction is discussed
  in more detail below.

During fiscal 2007 and 2006,
  EasyPay processed approximately 441 million and 358 million, respectively,
  transactions on behalf of retailers, bill issuers and financial institutions.
  The bulk of these transactions were acquired through a base of approximately
  50,000 customer-owned terminals, the majority of which are installed at all the
  retail locations of South Africas two largest retailers, who have approximately
  65% of the South African retail market share between them. Prism has also
  developed a core competency in mobile communications and licenses its
  intellectual property to manufacturers of Global System for Mobile Communication
  (GSM) Subscriber Identity Module (SIM) cards and mobile operators.

Prism has developed a number of
  innovative payment technologies for mobile phones including Virtual Top-up
  (VTU) that enables individuals to purchase any amount of mobile airtime and
  resell this airtime from their phones to other mobile phones without the need
  for additional authorization codes or physical vouchers. The addition of
  customers that engage Prism to provide switching services may extend the
  Companys merchant acquiring footprint in South Africa from the deep rural
  areas, where it is active today, to the urban environment. The Company intends
  to upgrade the 50,000 terminals that form part of Prisms network to accommodate
  its biometric-based UEPS technology, which will significantly enhance its wage
  payment program once it launches that service. The Company will also be able to
  capitalize on the convergence of technologies such as the mobile phone, UEPS and
  banking whereby it will be able to provide transacting and financial services to
  all segments of the population, regardless of their financial status or place of
  residence. In addition, the Company will continue with its strategy as a
  significant participant in the switching and settlement of formal credit and
  debit card transactions on behalf of formal banks and large retailers.

The following table sets forth the
  amount paid for Prism using exchange rates applicable as of July 3, 2006:

|Acquisition of the entire issued and
      outstanding share capital of Prism for cash | $ | 95,178 | 
|-------------------------------------------------------------------------------------- | - | ------ | 
|Costs directly related to the acquisition                                              |   | 2,342  | 
|Total
      purchase price                                                             | $ | 97,520 | 

The following table sets forth the
  final allocation of the purchase price using exchange rates applicable as of
  July 3, 2006:

|Cash and cash equivalents     | $ | 15,090  |  
|----------------------------- | - | ------- | -
|Accounts receivable, net      |   | 7,756   |  
|Inventory                     |   | 1,497   |  
|Property, plant and equipment |   | 4,211   |  
|Intangible assets             |   | 27,900  |  
|Trade and other payables      |   | (13,842 | )
|Income taxes payable          |   | (1,223  | )
|Deferred tax assets           |   | 2,993   |  
|Deferred tax liabilities      |   | (10,366 | )
|Minority interests            |   | (751    | )
|Goodwill (see Note 9)         |   | 64,255  |  
|Total purchase price          | $ | 97,520  |  

F-43

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

23.    ACQUISITIONS (continued)

2007 Acquisitions (continued)

Prism (continued)

The purchase price allocation was performed
  by the Companys management as of June 30, 2007.

The results of Prisms
  operations, including 74.9% of EasyPay, are reflected in the Companys financial
  statements from July 3, 2006.

The following pro forma
  consolidated results of operations have been prepared as if the acquisition of
  Prism had occurred at July 1, 2005:

Pro forma results forthe year ended June30, 2006Revenue
      $
      249,948Net income before minority interest and
        earningsfrom equity-accounted investments
      $
      54,675Net income
      $
      54,185Earnings per share  basic (in cents)
      
      0.96Earnings per share  diluted (in cents)
      
      0.95Weighted-average number of outstanding shares ofcommon stock and linked units used to
        calculatebasic earnings per share
      
      56,513,568Weighted-average number of outstanding shares ofcommon stock and linked units used to
        calculatediluted earnings per share
      
      57,331,281


The pro forma financial
  information above reflects the following pro forma adjustments applied using the
  principles of Article 11 of Regulation S-X under the Securities Exchange Act of
  1934:

a) An adjustment to increase
  operating expenses by $1.1 million for the cost of stock-based compensation
  charges related to options granted to Prism employees to purchase 904,674 shares
  of the Companys common stock at an exercise price of $22.51 per share. These
  options vest and become exercisable ratably over a period of approximately five
  years.;

b) An adjustment to increase
  amortization expense based on the estimated fair value of identifiable
  intangible assets from the purchase price allocation, which are being amortized
  over their estimated useful lives over a range of three to 20 years, of
  approximately $5.7 million for the year ended June 30, 2006 as well as the
  related adjustment to deferred tax of $2.1 million.;

c) an adjustment to decrease
  interest income by $8.2 million to reflect the interest foregone on the
  Companys cash resources used to finance the acquisition of Prism. The
  adjustment has been tax-effected using a fully distributed rate of 36.89% .

The pro forma consolidated
  results of operations for the year ended June 30, 2006 presented in the table
  above include non-recurring expenses of approximately $0.6 million for
  transaction-related services performed by external advisors.

F-44

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|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

23.      ACQUISITIONS
  (continued)

2007 Acquisitions
  (continued)

EasyPay

The remaining 25.1% interest in
  EasyPay was acquired by Prism effective October 1, 2006 for $8.8 million, at the
  USD:ZAR exchange rate as of October 1, 2006. The Companys management believes
  the acquisition of the remaining 25.1% of EasyPay will enable the Company to
  pursue its strategy related to the Prism acquisition as it eliminates the
  consideration of minority interest.

The following table sets forth the
  amount paid for EasyPay using exchange rates applicable as of October 1,
  2006:

|Acquisition of the remaining 25.1% of
      EasyPay from minority shareholder | $ | 8,773 | 
|----------------------------------------------------------------------------- | - | ----- | 
|Costs directly related to the acquisition                                     |   | 22    | 
|Total
      purchase price                                                    | $ | 8,795 | 

FAS 141 requires the acquisition
  of some or all of the noncontrolling equity interests in a subsidiary, whether
  acquired by the parent, the subsidiary itself, or another affiliate, to be
  accounted for using the purchase method. Accordingly the fair value of assets
  and liabilities acquired were determined by management as of October 1, 2006.
  The following table sets forth the final allocation of the purchase price using
  exchange rates applicable as of October 1, 2006:

|Property, plant and equipment                     | $ | 1,848  |  
|------------------------------------------------- | - | ------ | -
|Trade and other receivables                       |   | 1,202  |  
|Cash and cash equivalents                         |   | 2,477  |  
|Trade and other payables                          |   | (3,864 | )
|Amounts owing to group companies                  |   | (158   | )
|Taxation                                          |   | (324   | )
|Intangible assets                                 |   | 16,155 |  
|Deferred tax assets                               |   | 132    |  
|Deferred tax liabilities                          |   | (4,685 | )
|Total value of EasyPay                            |   | 12,783 |  
|                                                  |   |        |  
|Fair value of remaining 25.1% of EasyPay acquired |   | 3,209  |  
|                                                  |   |        |  
|Purchase price                                    |   | 8,795  |  
|                                                  |   |        |  
|Goodwill acquired (see Note 9)                    | $ | 5,586  |  

The results of the remaining
  25.1% of EasyPays operations acquired effective October 1, 2006 are reflected
  in the Companys financial statements from October 1, 2006.

The purchase price of $8.8 million,
  translated at exchange rates prevailing on October 1, 2006, was paid in January
  2007.

F-45

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

23.    ACQUISITIONS (continued)

2007 Acquisitions (continued)

SmartSwitch Nigeria

During the year ended June 30,
  2007, the Company established SmartSwitch Nigeria Limited (SmartSwitch
  Nigeria) and owns 80% of the 1,000,000 shares of SmartSwitch Nigeria. In
  addition, as of June 30, 2008, the Company has provided loan funding totaling
  approximately $1.2 million to SmartSwitch Nigeria. This loan funding was set off
  against amounts due by SmartSwitch Nigeria to the Company related to sales of
  hardware and services provided to SmartSwitch Nigeria by the Company.

In addition, shareholders owning
  20% of SmartSwitch Nigeria has provided loan funding of $3.5 million to
  SmartSwitch Nigeria. This loan funding is presented as interest bearing
  liabilities  outside shareholders loans on the consolidated balance sheet as of
  June 30, 2008 and 2007.

The Company established
  SmartSwitch Nigeria in order to have an impact on the financial industry in
  Nigeria, where approximately 90% of the population of 140 million people is
  un-banked and transacts in cash. Through SmartSwitch Nigeria the Company intends
  to deploy its UEPS technology through several applications, including banking,
  health care, money transfers, pre-paid utilities and telephony and voting.

24.    COSTS RELATED TO PUBLIC OFFERING AND
  NASDAQ LISTING

Net1 completed a public offering
  and Nasdaq listing in August 2005. The Company incurred the following costs in
  connection with this transaction during the year ended June 30, 2006:

|                                                                |   | Year ended | 
|--------------------------------------------------------------- | - | ---------- | 
|                                                                |   | June 30,   | 
|                                                                |   | 2006       | 
|Legal fees                                                      | $ | 1,007      | 
|Printing                                                        |   | 243        | 
|Accounting fees                                                 |   | 25         | 
|Regulatory and filing fees                                      |   | 165        | 
|Other                                                           |   | 89         | 
|Total costs related to
      public offering and Nasdaq listing | $ | 1,529      | 

The Other category includes costs
  related to venue hire, travel, bank charges and other miscellaneous expenses
  related to the public offering and Nasdaq listing. All costs related to the
  public offering are non-deductible for taxation purposes.

Share issue costs of $2.4 million
  were incurred relating to the underwriters exercising their over allotment option.
  The share issue costs have been charged directly to additional paid-in capital.

F-46

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2008, 2007 and 2006                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

25.    UNAUDITED QUARTERLY RESULTS

The following tables contain selected unaudited consolidated
  statements of income for each quarter of fiscal 2008 and 2007:

Three months endedJun 30,
      
      
      Mar 31,
      
      
      Dec 31,
      
      
      Sep 30,
      
      
      Total2008
      
      
      2008
      
      
      2007
      
      
      2007
      
      
      YTD(In thousands except per share data)Revenue
      $
      62,231
      
      $
      63,066
      
      $
      68,500
      
      $
      60,259
      
      $
      254,056Operating income
      
      27,604
      
      
      28,650
      
      
      28,226
      
      
      25,906
      
      
      110,386Net income
      
      21,482
      
      
      26,967
      
      
      20,318
      
      
      17,928
      
      
      86,695Earnings per share (common stock and linked units)Basic earnings per share, in $
      
      0.38
      
      
      0.47
      
      
      0.36
      
      
      0.31
      
      
      1.52Diluted earnings per share, in $
      $
      0.38
      
      $
      0.47
      
      $
      0.35
      
      $
      0.31
      
      $
      1.50


Three months endedJun 30,
      
      
      Mar 31,
      
      
      Dec 31,
      
      
      Sep 30,
      
      
      Total2007
      
      
      2007
      
      
      2006
      
      
      2006
      
      
      YTD(In thousands except per share data)Revenue
      $
      60,196
      
      $
      61,275
      
      $
      49,571
      
      $
      52,926
      
      $
      223,968Operating income
      
      24,491
      
      
      29,068
      
      
      20,142
      
      
      23,175
      
      
      96,876Net income
      
      17,531
      
      
      18,253
      
      
      12,823
      
      
      15,072
      
      
      63,679Earnings per share (common stock and linked units)Basic earnings per share, in $
      
      0.31
      
      
      0.32
      
      
      0.23
      
      
      0.27
      
      
      1.12Diluted earnings per share, in $
      $
      0.31
      
      $
      0.32
      
      $
      0.22
      
      $
      0.26
      
      $
      1.11


26.     SUBSEQUENT EVENTS

Acquisition of BGS

On August 27, 2008, the Company acquired 80.10% of BGS Smartcard Systems AG, (“BGS”), an Austrian private company that provides smart card-based payment systems to banks, enterprises and government authorities in Russia, Ukraine, Uzbekistan, India and Oman. BGS’s system, Dual Universal Electronic Transactions, (“DUET”), was developed by BGS as a derivative of the first version of the Company’s UEPS technology that it licensed to BGS in 1993. BGS’ largest customer is Sberbank, the largest financial institution in Russia, which owns the remaining 19.90% of the company. In the acquisition, the Company paid the selling shareholders approximately €71.5 million, approximately $112.9 million at the year end exchange rate of $1: €0.6334, in cash and issued certain shareholders an aggregate of 40,134 shares of the Company’s common stock. The Company financed the cash portion of the purchase price with the proceeds of bank financing. The Company expects to repay the bank financing from internally generated funds in the next six months.

Listing on JSE and trigger event

The Company has initiated the
  process of obtaining an inward listing of its common stock on the Johannesburg
  Securities Exchange Limited (JSE), in South Africa. The listing in South
  Africa will require regulatory approval from the South African Reserve Bank
  (SARB), who considers exchange control applications, and the JSE. The Company
  has received approval from SARB that its inward listing on the JSE would
  constitute a trigger event which would result in the winding up of the New
  Aplitec Participation Trust. As a result of this trigger event all the special
  convertible preferred stock would be converted into common stock and the B class
  shares and B class loans attached to the special convertible preferred stock
  would be ceded to Net1. If the JSE listing and therefore the trigger event
  occurs, the Company will no longer present special convertible preferred stock
  or B class preference shares related to the Aplitec transaction completed in
  2004 in its consolidated balance sheet.

*********************

F-47

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