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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, 2007**

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 Road Rosebank, Johannesburg, 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:
Common stock, par value $0.001 per share

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 in
response to Item 405 of Regulation S-K, (§229.405 of this chapter) 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, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (check one):

[X] Large accelerated filer    
 [   ] Accelerated filer    
 [   ] Non-accelerated filer

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 29, 2006 (the last
business day of the registrants most recently completed second fiscal quarter)
was $987,372,816. This calculation does not reflect a determination that
persons are affiliates for any other purposes.

As of July 31, 2007, 51,546,502 shares of the registrants
common stock, par value $0.001 per share, and 5,540,334 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 specified portions of the definitive Proxy Statement to
be delivered to shareholders in connection with the 2007 Annual Meeting of
Shareholders are incorporated by reference in Part III.

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NET 1 UEPS TECHNOLOGIES, INC.

INDEX TO ANNUAL REPORT ON FORM 10-K Year Ended June 30,
2007

|                                                                                                                                 | Page
|-------------------------------------------------------------------------------------------------------------------------------- | ----
|PART
      I                                                                                                                     |     
|Item
      1. Business                                                                                                           | 2   
|Item
      1A. Risk Factors                                                                                                      | 31  
|Item
      1B. Unresolved Staff Comments                                                                                         | 45  
|Item
      2. Properties                                                                                                         | 346 
|Item
      3. Legal Proceedings                                                                                                  | 46  
|Item
      4. Submission of Matters to a Vote of Security Holders                                                                | 46  
|                                                                                                                                 |     
|PART
      II                                                                                                                    |     
|Item
      5. Market for Registrants Common Equity, Related Shareholder Matters and
      Issuer Purchases of Equity Securities | 47  
|Item
      6. Selected Financial Data                                                                                            | 49  
|Item
      7. Managements Discussion and Analysis of Financial Condition and Results
      of Operations                        | 51  
|Item
      7A. Quantitative and Qualitative Disclosures About Market Risk                                                        | 90  
|Item
      8. Financial Statements and Supplementary Data                                                                        | 91  
|Item
      9. Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure                         | 92  
|Item
      9A. Controls and Procedures                                                                                           | 92  
|Item
      9B. Other Information                                                                                                 | 94  
|                                                                                                                                 |     
|PART
      III                                                                                                                   |     
|Item
      10. Directors, Executive Officers and Corporate Governance                                                            | 95  
|Item
      11. Executive Compensation                                                                                            | 95  
|Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Shareholder Matters              | 95  
|Item
      13. Certain Relationships, Related Transactions, and Director Independence                                            | 95  
|Item
      14. Principal Accountant Fees and Services                                                                            | 95  
|                                                                                                                                 |     
|PART
      IV                                                                                                                    |     
|Item
      15. Exhibits and Financial Statement Schedules                                                                        | 96  
|                                                                                                                                 |     
|Signatures                                                                                                                       | 100 
|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 2008 fiscal year, which runs from
July 1, 2007 to June 30, 2008.

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 and other financial service providers, by providing
financial services such as loans and insurance products and by selling hardware,
software and related technology. Our technology is widely used in South Africa
today, where we have over 3.8 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. As part of
our strategy to expand into new geographical markets we have formed joint
ventures in Namibia, Botswana and Nigeria to operate UEPS smart card-based
switching systems in those countries. 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.

On
July 3, 2006, we acquired Prism Holdings Limited, or Prism, a South African
public company, which focuses 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 the trusted
transactions environment and provide us with the building blocks for developing
secure end-to-end payment solutions. We believe that Prism will help us expand
our merchant footprint in South Africa, extend our ability to deliver solutions
across the entire spectrum of transaction processing and assist us in expanding
our international operations. Since our acquisition of Prism, we have formed
joint ventures in Colombia and Vietnam to implement the Prism virtual top-up, or
VTU, solution for mobile phone-based prepaid airtime vending.

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 Net 1 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.

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Market Opportunity

According
to the United States Census Bureau, the worlds population currently exceeds 6.6
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. For instance, we have deployed
an artificial intelligence program on our smart cards used for the treatment of
HIV/AIDS in South Africa that can be used to adjust a patients prescription
based on data entered by a trained medical worker through the POS device.

4

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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, Prism gives us access to
Prisms well-established core cryptography, software, hardware, embedded chip,
wireless and payment expertise.

Proven
Solution. Our system is proven and has been increasingly used. Today over
3.9 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
generates additional revenue for us. During the year ended June 30, 2007, the
number of our clients that opted to receive their grants through our retail
infrastructure grew to approximately 1,129,000, an increase from approximately
849,000 during fiscal 2006. For the years ended June 30, 2007 and 2006, the
total value of transactions processed through our UEPS merchant network was
approximately $875 million and $614 million, respectively. As of June 30, 2007,
we had 4,357 POS devices installed at 2,598 participating retail merchants
compared to June 30, 2006, when we had 4,038 POS devices installed at 2,381
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.

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 and the Asia-Pacific Rim, 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. 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.

5

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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.
Employers are widely examining 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 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.

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.

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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.

7

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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 (Hardware)Cards sourced from third-party vendors.




HARDWAREPOS devices, ATMs, 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 allows 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 unestablished 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 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 scored and the four highest scoring 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 four 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 four 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 holder 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 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.

Prism Products

Prism
has traditionally been a product-focused business. Our acquisition of Prism
gives us access to the Prism product base, which we have been integrating into
our UEPS product and service offerings. The current main Prism products are:

Chip and wireless

Prism
is a supplier of chip cards into the South African and other international
markets. Prism works 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. Prisms 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 Prisms chip business is the strategy of
licensing chip software to a wide spectrum of other industry participants.

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Prisms
Virtual Top-Up, or 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.

Easypay

Prism
owns 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.

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.

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Payment Solutions

Prisms
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. Prism FlexiPOS transforms the POS terminal
      into a convenient and consumer friendly place of purchase, place of
      payment and place of service;                                                                                                                                                                                                                                                                             
|• | VeriFone  Prism is a VeriFone partner for the
      Sub-Saharan and Indian Ocean Island regions. In addition, and as a
      complementary technology, Prism has recently become a value-added reseller
      of VIVOtech contactless payments and solutions. The regions of
      representation will be Africa and South East Asia; 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

Prisms
Triple Data Encryption Standard , or TDES, and EMV security initiatives are
conducted by a specialized business unit through close collaboration with
suppliers of payment processing devices to help their technologies meet the
stringent security standards required by the card associations. As a Thales
e-Security Gold partner, Prism is a value added reseller of Thales transaction
security technology into the Southern African region.

Prism's
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 58 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, Namibia and the Botswana.

Our
sales & marketing activities are currently focused on the sales of UEPS
systems into the international market, with specific emphasis on Africa. 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.

24

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The
incumbent South African retail banks recently announced a joint initiative to
create 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 and BGS Smart Card Systems AG, or BGS. 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.

Following
our acquisition of Prism, we are also involved in extensive research and
development in GSM, cryptography, POS and retail 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.

25

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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 U.S. Patent No. 5,175,416 on
December 29, 1992. The patent was reissued as U.S. 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.

As
a result of this ruling, BGS, the local system operator in the Commonwealth of
Independent States, or CIS, has stopped paying us any patent royalties. 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 U.S. 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 U.S. 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.

26

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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
each of the years ended 2007, 2006 and 2005, 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 19 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, 2007, we had 2,099 employees. On a segmental basis, 264 employees
were part of our management, 1,356 were employed in transaction-based
activities, 175 were employed in financial services and 304 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, 58
were employed in sales and marketing, 101 were employed in finance and
administration, 178 were employed in information technology and 1,757 were
employed in operations.

As
of June 30, 2007, 140 of 268, or 52.2%, 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 20 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.

27

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Corporate history

Net
1 UEPS Technologies, Inc. was incorporated in Florida in May 1997. Until June 7,
2004, Net 1 UEPS Technologies, Inc. was a development stage company and its
business consisted only of acquiring a license to the U.S. FTS patent and
obtaining an exclusive marketing agreement for the universal electronic payment
system, or UEPS, technology outside South Africa, Namibia, Botswana and
Swaziland. On June 7, 2004, through a newly-formed subsidiary, Net 1 Applied
Technologies South Africa Limited, or New Aplitec, we acquired substantially all
of the assets and assumed all of the liabilities of Net 1 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 company 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. In the Aplitec transaction, the shareholders of
Aplitec obtained a majority voting interest in Net 1 UEPS Technologies, Inc.
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. The Aplitec transaction is described in
more detail below.

Between
1998 and 2000, Aplitec made three strategic acquisitions for the purpose of
building a critical mass of smart card users. In May 1998, Aplitec acquired Net1
Southern Africa (Proprietary) Limited, a supplier of smart cards and terminals
which serviced the POS terminal network of Nedbank Limited, or Nedbank, a major
South African banking group. This transaction allowed us to develop a
relationship with Nedbank.

In
1999, Aplitec acquired Cash Paymaster Services (Proprietary) Limited, or CPS, a
company engaged in the distribution of social welfare grants on behalf of
several of the provincial governments of South Africa. This transaction enabled
Aplitec to convert CPSs customer base of approximately 1.5 million people from
a cash distribution system to a smart card-based system, and to acquire a
logistics and implementation infrastructure. Aplitec began converting grant
beneficiaries shortly after the acquisition. Conversion has allowed us to
eliminate a portion of the costs we incur in connection with the distribution of
cash, and thus to reduce our operating costs. The conversion has also provided
us with the opportunity to sell products and services to these same
customers.

During
the course of 1999 and 2000, Aplitec acquired Moneyline Financial Services
(Proprietary) Limited and New World Finance (Proprietary) Limited, each of which
was engaged in the microlending business. Microlending involves extending cash
loans for periods ranging from 30 days to several months. Aplitec made these
acquisitions primarily for the purpose of gaining exposure to an additional base
of potential smart card users in order to deploy its microlending administration
and payment products. We have actively engaged in converting traditional
microlending customers to UEPS-based lending, which has also helped us improve
the profit margins on our lending business by reducing the expenses associated
with non-collection of traditional loans.

After
completing these three acquisitions, we sought to create an infrastructure of
point of sale, or POS, terminals that would permit businesses and merchants to
engage in smart card transactions with their card holder base. In June 2004, we
implemented a merchant rollout in the Northern Cape province of South Africa,
supplying merchants with smart cards and POS terminals in order to permit smart
card holders to transact with one another. With the increasing opportunity to
conduct transactions using smart cards, by June 30, 2004, approximately 60% of
welfare and pension beneficiaries in the Northern Cape province had kept value
on their cards on at least one occasion rather than immediately converting their
entire payments to cash. With the subsequent rollout of terminals at selected
merchants in other provinces of South Africa, more beneficiaries have started
using their smart cards for transacting with merchants.

At
the same time that we were building the UEPS infrastructure and distributing our
smart cards, we were also seeking to expand the range of products and services
available to smart card holders. In 2001, we developed a suite of financial
services targeted at social welfare beneficiaries, utilizing our issued base of
smart cards as a delivery channel. We currently have approximately 78,000
customers in these two provinces, to whom we make loans on which we earn
interest and to whom we sell insurance policies on behalf of insurers for which
we collect both a commission for the sale of a policy and a fee for the monthly
premium deduction. According to research by the FinMark Trust, 29% of all South
Africans have a form of burial saving or insurance policy, but the collection of
policy premiums remains a problem for insurance companies due to the limited
penetration of bank accounts. However, using the UEPS technology allows
automatic deduction of premiums from a persons smart card at pre-designated
times. Going forward, we plan to grow and develop this business under different
brands by launching new products and by introducing the service to social
welfare beneficiaries in the other provinces where we administer social welfare
grants and to employees utilizing our wage payment system.

28

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We
have also begun to expand our business into other countries. Our technology is
operated by third parties in Malawi, Mozambique, Zimbabwe, Ghana, Rwanda,
Burundi and Latvia. We are currently at different stages of establishing UEPS
card holder bases and POS device infrastructures with partners in Nigeria,
Namibia and Botswana.

On
June 7, 2004, we acquired the business of Aplitec for a purchase price of
approximately $127.5 million. Under the exchange control regulations of SARB,
South African reinvesting shareholders were not permitted to hold our securities
directly. Therefore, in order to comply with these regulations, these
reinvesting shareholders received, through an interest in a South African trust,
securities of 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 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 SARBs exchange
control regulations or (3) the liquidation of New Aplitec or Net1.

We
describe our special convertible preferred stock and the New Aplitec B class
loans and B class preference shares in more detail in note 12 to our
consolidated financial statements included in this Annual Report on Form 10-K.

In
connection with the Aplitec transaction, the total number of our pre-reverse
stock split outstanding shares of capital stock increased from 15.9 million
shares prior to the transaction to 328.2 million after the transaction. Of these
328.2 million shares, we issued 193.0 million shares of our special convertible
preferred stock. Our 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. During the period from the completion of the Aplitec
transaction through June 30, 2007, an aggregate of 26,505,080 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 | 53  | Chief executive officer,
      chairman and director            
|Mr. Herman G. Kotze     | 37  | Chief financial officer, treasurer, secretary
      and director
|Ms. Brenda L. Stewart   | 50  | Senior vice president sales and
      marketing                 
|Mr. Nitin Soma          | 40  | Senior vice president information technology                    

29

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Dr.
Belamant has been a director since our inception in May 1997, our chief
executive officer since October 2000 and the chairman of our board since
February 2003. He has also been a director of our subsidiary, Net 1 Applied
Technologies South Africa Limited, or New Aplitec, since its inception in June
2004. From June 1997 until June 2004, Dr. Belamant served as chief executive
officer and a director of Net 1 Applied Technology Holdings, or Aplitec. From
1996 to 1997, Dr. Belamant served as a consultant in the development of Chip
Off-Line Pre-Authorized Card, or COPAC, 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 board 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 ranging from biometrics to gaming-related inventions.
Dr. Belamant has more than twenty-five 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 a director and our secretary, treasurer and chief financial
officer since June 2004. Mr. Kotze is a member of the South African Institute of
Chartered Accountants, or SAICA, who joined Aplitec in November 1998 as a
strategic financial analyst. He has also been a director of New Aplitec since
June 2004. From January 2000 until June 2004, he served on the board of Aplitec
as Group Financial Director. Mr. Kotze served his articles from 1993 to 1997 at
KPMG in Pretoria, South Africa, where he was the audit manager for several major
corporations in the manufacturing, mining, retail and financial services
industries. During 1998, he joined the Industrial Development Corporation of
South Africa Limited, or IDC, as a business analyst. His main duties at the IDC
were the evaluation and investigation of ventures requiring funding from the
IDC, from small manufacturing concerns to huge multinational projects, as well
as the structuring and implementation of loan and equity products for these
concerns.

Ms.
Stewarthas served as our Senior Vice President of Marketing and Sales since
June 2004. Ms. Stewarts primary function is to manage all marketing and sales
activities for us. Her secondary function is to oversee implementation and
operation of specific projects such as Namibia and Botswana as well as our
pension and welfare systems. Ms. Stewart was a director of Net 1 Investment and
a director of Net 1 Holdings 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, Net 1 Solutions and Net 1 Investment.

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 11 years
  of experience in the development and design of smart card payment systems.

30

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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 AND
RESULTS OF OPERATIONS 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, 2007, 2006 and 2005, we derived approximately 70%, 77% and 79%,
respectively, of our revenues from payments made to us by these provinces under
our government social welfare contracts.

The
South African national government created SASSA in 2004 to consolidate at the
central government level the administration of social welfare grants. SASSA has
recently begun the process of conducting a national tender for the distribution
of social welfare grants in which bidders will have the opportunity to bid for
all of South African or on a province-by-province basis. In late July 2006,
SASSA published a request for pre-qualification of bidders, or RFQ which
included a proposed timetable for pre-qualifying bidders, distributing requests
for proposals, or RFPs, from pre-qualified bidders and evaluating RFP
submissions, indicating that the process should be completed by late November
2006. However, in mid-August 2006, SASSA withdrew the RFQ without providing any
reasons. SASSA recommenced the tender process in March 2007 and on May 4, 2007
we submitted a proposal for each one of the nine South African 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 some of the key dates have already been
missed.

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. 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. In addition, although we believe that our existing contracts
will be extended if the tender process is not completed on time, there can be no
assurance whether such extensions will in fact occur, or if they do, what the
length or terms of such extensions will be.

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.

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.

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***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.
During fiscal 2006, we established three such partnerships in Namibia, Botswana
and Nigeria, and we are currently exploring a number of other opportunities to
implement UEPS systems and to participate as an investor in these projects. 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 BGS and 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;                                                   
| | - | 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.

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.

32

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

We
have recently been experiencing 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.

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 and regulatory uncertainties
in South Africa.

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 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.

Inflation
and interest rates. The economy of South Africa is currently characterized
by low inflation and interest rates. As of June 2007, the inflation rate was
approximately 6.4% . The Reserve Banks base lending rate is currently
approximately 10.0% per annum. However, 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.

33

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Regulatory uncertainty regarding black economic
empowerment. The South African government, through the Broad Based Black
Economic Empowerment Act 53 of 2003, or the BBBEE Act, established a legislative
framework for the promotion of black economic empowerment. In order to promote
the purpose and objectives of the BBBEE Act it allows the Minister by notice in
the Government Gazette to issue Codes of Good Practice on Black Economic
Empowerment. 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 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 Black Economic Empowerment
pursuant to section 9(1) of the BBBEE Act. The information and communication
technology sector, or ICT sector, and the financial services sector have both
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.
Transactions between South African residents, including companies, and
non-residents of the Common Monetary Area are subject to exchange controls
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 not entirely clear 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 U.S. 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, 2007,
approximately 77.4% of our cash and cash equivalents were held by New Aplitec
and its subsidiaries. During the year ended June 30, 2007, 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.

34

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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, 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.

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 160 unionized employees which represents
approximately 7.6% 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.

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. HIV
infection among women in antenatal clinics throughout South Africa has risen
from 1% in 1990 to nearly 25% in 2000. According to the most recent research
published by Statistics South Africa, over five million South Africans are HIV
positive, resulting in a total population prevalence rate of approximately 11%.
Under South African law, we are generally prohibited from testing employees to
determine their HIV status. 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. We are not able to quantify these costs accurately 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.

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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
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;                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | loss 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 U.S. companies; and                                                                                                                       
| | - | exposure to liability under U.S. securities laws,
      including the Foreign Corrupt Practices Act.                                                             

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.

Volatility
in the South African Rand to U.S. 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 U.S. dollars. Because our
sales are primarily denominated in ZAR, a decline in the value of the ZAR
against the U.S. dollar may have a significant adverse effect on our reported
results of operations. During the three years ended June 30, 2007, the ZAR/U.S.
dollar exchange rate has been volatile. Refer to Item 7 Currency Exchange Rate
InformationActual exchange ratestable 4 and the graph beneath table 4.

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As
a result of this volatility, although our reported results of operations were
positively affected by currency fluctuations for the 2005 fiscal year compared
to fiscal 2004, these fluctuations adversely affected our reported results for
fiscal 2007 as compared to fiscal 2006 and fiscal 2006 as compared to fiscal
2005. 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 sales and profits may experience significant fluctuations as the rate of
exchange between the ZAR and the U.S. dollar fluctuates. We cannot assure you
what effect, if any, changes in the exchange rate of the ZAR against the U.S.
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 U.S. dollars or euros. We have used forward contracts in
order to hedge our economic exposure to the ZAR/U.S. 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.

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-Marketing and Sales, 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.

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.

37

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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 programme system, increased
significantly during fiscal 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.

Our
ability to operate our wage payment and insurance products businesses may be
limited by existing South African banking and financial services laws and
regulations.

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s Bank 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. In addition, Grindrod Bank has to be registered as a participant in the
South African payment system which is a lengthy and complicated process as
multiple applications for membership to the Payment Association of South Africa
and the various payment clearing houses must be made and approved. While we
believe that we will obtain authorized access to the South African payment
system, there is a possibility that our applications may not be successful or
that a grant of the memberships we seek may be delayed. 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 recently announced a joint initiative to
create 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.

38

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***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 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. We also may face competition from companies to which we have licensed
our technology, including Visa and BGS Smart Card Systems AG. 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.

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 has been
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. Further, BGS,
the local system operator in the Commonwealth of Independent States has stopped
paying licensing fees to us on the grounds that the revocation of the European
FTS patent relieves it from the obligation to pay such fees, although we believe
that the licensing fees relate to BGSs use of our UEPS technology rather than
the FTS patent. There is a risk that a similar refusal to pay our licensing fees
can occur elsewhere. 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 U.S. 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.

39

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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 U.S. 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.

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.

40

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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.

***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.

41

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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.

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. 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 the years ended June 30, 2007, 2006 and 2005, we incurred losses in
connection with our cash delivery system of $3.0 million, $2.1 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 77 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, 2007, totaled $2.5 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.

42

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

One
of our strategies is to pursue selective acquisitions. Although we do not
currently have any commitments, contracts or understandings to acquire any
specific businesses or other material operations, we have made a number of
acquisitions in the past and will consider other acquisitions in the future. We
may not be able to locate suitable acquisition candidates at prices that we
consider appropriate or to finance acquisitions on terms that are satisfactory
to us. 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. Acquisitions of businesses or other material operations
may require debt financing or additional equity financing, resulting in
additional leverage or dilution of ownership. Integration of acquired business
operations could disrupt our business by diverting management away from
day-to-day operations. 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.

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 South African Constitution 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 our 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.

Our
international operations require us to comply with a number of U.S. and
international regulations.

We
need to comply with a number of international regulations in countries outside
of the United States. In addition, we must comply with the Foreign Corrupt
Practices Act, or FCPA, which prohibits U.S. 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. The U.S.
Department of The Treasurys Office of Foreign Asset Control, or OFAC,
administers and enforces economic and trade sanctions against targeted foreign
countries, entities and individuals based on U.S. 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.

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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 early stage of development of our
operations and 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.

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 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 percentage, 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.

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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 U.S. 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-U.S. 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 U.S. 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 U.S.
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
U.S. 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 U.S. federal withholding tax may also subject us to penalties.

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.

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 approximately 55,000
square feet in Johannesburg, South Africa. We also lease properties throughout
South Africa, including a 1,200 square foot manufacturing facility in Lazer Park
and 137 depot facilities. We also lease additional office space in Johannesburg,
Cape Town and Durban, South Africa and Kuala Lumpur, Malaysia and a
manufacturing facility in Springs, South Africa. These leases expire at various
dates through the year 2007 and 2012, 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, 2007.

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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. Prior to August 3, 2005, our common stock was quoted on the OTC Bulletin
Board, or OTCBB.

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, and
prior to our Nasdaq listing, the high and low bid quotations of our common stock
on the OTCBB. With respect to OTCBB quotations, these quotations reflect prices
between dealers and do not include retail mark-ups, mark-downs, and commissions
and may not necessarily represent actual transactions. 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,
      2005
    $29.60
    $16.40Quarter ended December 31, 2005
    $29.95
    $19.07Quarter ended March 31, 2006
    $33.75
    $28.10Quarter ended June 30, 2006
    $32.40
    $23.70Quarter 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
    $23.97


Our
transfer agent is The Bank of New York, One Wall Street, New York, New York,
10286. According to the records of our transfer agent, as of July 31, 2007,
there were 42 shareholders of record of our common stock.

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.

Share buy back program

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

The
share repurchase authorization will be used in managements discretion, subject
to limitations imposed by SEC Rule 10b-18 and other legal requirements and
subject to price and any other internal limitations that may be established by
our Board from time to time. Repurchases will be funded from our available cash.
Share repurchases may be made through open market purchases, privately
negotiated transactions, or both. There can be no assurance that we will
purchase any shares or any particular number of shares.

The
authorization may be suspended, terminated or modified at any time for any
reason, including market conditions, the cost of repurchasing shares, liquidity
and other factors that management deems appropriate.

On
June 8, 2007, we repurchased 40,100 of our shares of common stock through open
market purchases at an average purchase price of $24.91 per share.

47

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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.

|Plan Category                    | Number of securities to be
      issued upon exercise of outstanding options,
      warrants and rights | Weighted average exercise price
      of outstanding options, warrants and rights | Number of securities
      remaining available for future issuance
|-------------------------------- | ------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------
|Equity compensation plans        |                                                                                                         |                                                                                   |                                                                   
|approved by security holders:    |                                                                                                         |                                                                                   |                                                                   
|2004 Stock Incentive
      Plan  | 986,759                                                                                                 | $13.81                                                                            | 2,276,480                                                         
|                                 |                                                                                                         |                                                                                   |                                                                   
|Individual compensation          |                                                                                                         |                                                                                   |                                                                   
|arrangements (1):                |                                                                                                         |                                                                                   |                                                                   
|Stock granted
      to employees |                                                                                                         |                                                                                   |                                                                   
|of Prism                         | 387,784                                                                                                 | $22.51                                                                            | -                                                                 
|                                 |                                                                                                         |                                                                                   |                                                                   
|Total                            | 1,374,543                                                                                               |                                                                                   | 2,276,480                                                         

(1) Represents stock options granted to employees of Prism on
August 24, 2006.

*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, 2002,
in each of our common stock, the S&P 500 companies, and the companies in the
NASDAQ Industrial Index.



48

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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 302007
      
      
      2006
      
      
      2005
      
      
      2004
      
      
      2003Revenue
      $
      223,968
      
      $
      196,098
      
      $
      176,290
      
      $
      131,098
      
      $
      74,924Cost of goods sold, IT processing, servicing and support
      
      54,417
      
      
      50,619
      
      
      50,682
      
      
      39,134
      
      
      25,935Selling, general and administrative charges
      
      61,625
      
      
      48,627
      
      
      45,897
      
      
      39,677
      
      
      26,399Depreciation & amortization
      
      11,050
      
      
      5,710
      
      
      6,591
      
      
      5,676
      
      
      3,323Costs related to public offering and Nasdaq
        listing
      
      -
      
      
      1,529
      
      
      1,817
      
      
      -
      
      
      -Reorganization costs(1)
      
      -
      
      
      -
      
      
      -
      
      
      11,113
      
      
      -Operating income
      
      96,876
      
      
      89,613
      
      
      71,303
      
      
      35,478
      
      
      19,267Interest, net
      
      4,401
      
      
      5,889
      
      
      2,389
      
      
      3,640
      
      
      2,600Income before income taxes
      
      101,277
      
      
      95,502
      
      
      73,692
      
      
      39,118
      
      
      21,867Income tax expense
      
      37,574
      
      
      36,653
      
      
      29,666
      
      
      25,927
      
      
      9,473Income from continuing operations
      
      63,679
      
      
      59,232
      
      
      44,562
      
      
      13,278
      
      
      11,942Net income attributable to shareholders(2)
      
      63,679
      
      
      59,232
      
      
      44,562
      
      
      13,278
      
      
      13,117Income from continuing operations per share
        (3):Basic
      $
      1.12
      
      $
      1.05
      
      $
      0.81
      
      $
      0.40
      
      $
      0.37Diluted
      $
      1.11
      
      $
      1.03
      
      $
      0.80
      
      $
      0.38
      
      $
      0.37Cash dividend per share (3)
      
      -
      
      
      -
      
      
      -
      
      $
      1.14
      
      $
      0.12


(1) 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. (2) Net income attributable to common
shareholders for 2003 includes an extraordinary item of $0.9 million and the
results of a change in accounting policy of $0.3 million as a result of the
adoption and application of Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. (3) Basic and diluted income
from continuing operations and cash dividends per share for 2004 and 2003 were
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. (4)
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 2007 and 2006 data includes a charge of $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.

49

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Additional Operating Data:(in thousands, except
percentages)

Year ended June 30,2007
      
      
      2006
      
      
      2005
      
      
      2004
      
      
      2003Cash flows provided by operating activities
      $
      65,466
      
      $
      75,777
      
      $
      38,142
      
      $
      41,895
      
      $
      17,644Cash flows used in investing activities
      
      91,540
      
      
      5,505
      
      
      3,397
      
      
      5,721
      
      
      7,393Cash flows provided by (used in) financingactivities
      $
      3,225
      
      $
      29,723
      
      $
      (19
      )
      $
      (24,060
      )
      $
      (2,266
      )Operating income margin
      
      43%
      
      
      46%
      
      
      40%
      
      
      27%
      
      
      26%


Consolidated Balance Sheet Data:(in thousands)

Year Ended June 30,2007
      
      
      2006
      
      
      2005
      
      
      2004
      
      
      2003Cash and cash equivalents
      $
      171,727
      
      $
      189,735
      
      $
      107,749
      
      $
      80,282
      
      $
      54,313Total current assets
      
      247,982
      
      
      240,718
      
      
      150,664
      
      
      117,412
      
      
      78,705Total assets
      
      376,090
      
      
      269,979
      
      
      181,754
      
      
      152,632
      
      
      98,359Total current liabilities
      
      54,698
      
      
      43,123
      
      
      34,353
      
      
      47,831
      
      
      19,861Total debt
      
      4,100
      
      
      -
      
      
      -
      
      
      252
      
      
      -Total shareholders equity
      $
      281,073
      
      $
      209,010
      
      $
      137,002
      
      $
      95,588
      
      $
      70,504


50

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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 U.S. 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 2006, the South African unemployment rate was estimated at
approximately 25.5% . 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. The South African government is also actively involved in a number
of initiatives which may present us with opportunities to export our South
African achievements, such as the New Partnership for Africas Development and
the India-Brazil-South Africa Dialogue Forum, which resulted in the
establishment of an economic trade bloc between these three countries.

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
Progress 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. These joint
ventures, which are described in more detail under International Expansion,
are in various stages of development and operation.

In
July 2006, we acquired Prism which owns EasyPay, the largest bank-independent
financial switch, or transaction processor, in Southern Africa. The bulk of the
441 million transactions processed by EasyPay during the year ended June 30,
2007, 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 intend to upgrade, where
appropriate, the 50,000 terminals that form 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.

51

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We
believe that the acquisition of Prism will also help us extend our ability to
deliver solutions across the entire spectrum of transaction processing and
assist us 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 begun to explore strategic
partnership and business opportunities across the Americas and Asia. For
example, we are in the process of launching 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.

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 Malawi, 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.

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, such as
SmartSwitch Namibia and SmartSwitch Botswana (Proprietary) Limited, or
SmartSwitch Botswana, to introduce our solution to new markets. 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.

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.

Trends and Material Developments Affecting out Business

***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.

***Status
of South African Provincial Contracts***

We
currently derive the majority of our revenues from our contracts with various
South African provincial governments. The South African national government
passed legislation in 2004 for the creation of the South African Social Security
Agency, or SASSA. The primary purpose of SASSA is to consolidate at the central
government level the administration of social welfare grants. SASSA commenced
operations on April 1, 2006.

52

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SASSA
commenced operations on April 1, 2006 and 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.
In late July 2006, SASSA published a request for pre-qualification of bidders,
or RFQ, which included a proposed timetable for pre-qualifying bidders,
distributing requests for proposals, or RFPs, from pre-qualified bidders and
evaluating RFP submissions, indicating that the process should be completed by
late November 2006. However, in mid-August 2006, SASSA withdrew the RFQ. In
February 2007 SASSA issued a request to submit proposals for the provision of
payments services to social assistance grant recipients, or RFP. Pursuant to the
RFP, potential bidders are invited to submit proposals for the provision of a
payment service to social welfare grant recipients on province-by-province basis
or for all of South Africa's nine provinces. According to the RFP, submissions
of proposals were due by May 4, 2007, the final evaluation process was to be
completed by July 13, 2007, and implementation of the new contract will commence
on April 1, 2008. 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 some of the key dates have already
been missed.

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
January 31, 2007 we received official notification from SASSA that our five
existing contracts, which expired at the end of December 2006, have been
extended until March 31, 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 2008
    March 2008
    March 2008
    March 2008
    March 2008Further possible extensions
    Negotiable
    Negotiable
    Negotiable
    Negotiable
    NegotiableNumber of beneficiaries grants paid by CPS
      (as of June 30, 2007)
    1,685,887
    978,112
    294,894
    140,687
    712,693


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.

***Progress
of Our Merchant Acquiring System***

We
have completed the installation of our POS terminals at the majority of 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 has
reached or is close to saturation and do not expect significant growth in
future. Our ongoing POS deployment plan is now focused on secondary locations
and retailers, where we will install fewer terminals over a longer period of
time. 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.

53

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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 2
    
    
    
    
    
    Three months endedMar. 31,
    
    Jun. 30,
    
    Sept. 30,
    
    Dec. 31,
    
    Mar. 31,
    
    Jun. 30,2006
    
    2006
    
    2006
    
    2006
    
    2007
    
    2007NC, EC,
      
      NC, EC,
      
      NC, EC,
      
      NC, EC,
      
      NC, EC,
      
      NC, EC,KZN, L
      
      KZN, L
      
      KZN, L
      
      KZN, L
      
      KZN, L
      
      KZN, LProvince included (1)
      
      and NW
      
      and NW
      
      and NW
      
      and NW
      
      and NW
      
      and NWTotal POS devices installed
      
      3,905
      
      4,038
      
      4,169
      
      4,145
      
      4,179
      
      4,357Number of participating UEPS retail locations
      
      2,352
      
      2,381
      
      2,468
      
      2,443
      
      2,511
      
      2,598Value of transactions processed through POSdevices during the quarter (2) (in $ 000)
      
      187,841
      
      189,649
      
      202,299
      
      185,190
      
      237,993
      
      249,859Value of transactions processed through POSdevices during the completed pay cycles for thequarter (3) (in $ 000)
      
      171,022
      
      187,769
      
      189,139
      
      188,074
      
      225,294
      
      249,902Value of transactions processed through POSdevices during the quarter (2) (in ZAR 000)
      
      1,158,546
      
      1,225,168
      
      1,449,071
      
      1,355,399
      
      1,726,532
      
      1,777,436Value of transactions processed through POSdevices during the completed pay cycles for thequarter (3) (in ZAR 000)
      
      1,055,203
      
      1,213,026
      
      1,354,805
      
      1,376,509
      
      1,634,410
      
      1,777,738Number of grants paid through POS devicesduring the quarter (2)
      
      2,518,296
      
      2,554,616
      
      2,976,558
      
      2,788,529
      
      3,517,338
      
      3,460,025Number of grants paid through POS devicesduring the completed pay cycles for the quarter(3)
      
      2,288,883
      
      2,537,377
      
      2,784,170
      
      2,838,969
      
      3,359,772
      
      3,458,035Average number of grants processed perterminal during the quarter (2)
      
      643
      
      643
      
      725
      
      671
      
      845
      
      811Average number of grants processed perterminal during the completed pay cycles forthe quarter (3)
      
      584
      
      639
      
      678
      
      683
      
      807
      
      810


(1) NC = Northern Cape, EC = Eastern Cape, KZN = KwaZulu-Natal,
L = Limpopo, NW = North West. (2) Refers to events occurring during the
quarter (i.e., based on three calendar months). (3) Refers to events
occurring during the completed pay cycle. As discussed above under -Overview -
Seasonality of Transaction-based Activities the grant payment file is typically
activated during the week preceding the commencement of a calendar month.

54

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The
following chart presents the number of POS devices installed and the average
spend per POS device, per pay cycle, during the 18 month period ended
June 30, 2007:



The
following chart presents the number of POS devices installed and the average
spend per POS device, per calendar month, during the 18 month period
ended June 30, 2007:



55

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The
following chart presents the growth in the value of loads at merchant locations
and the transactions (expenditures) processed through our installed base of POS
devices, per pay cycle, during the 18 month period ended June 30, 2007:



The
following chart presents the growth in the value of loads at merchant locations
and the transactions (expenditures), per calendar month, processed
through our installed base of POS devices during the 18 month period ended June
30, 2007:



56

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The
following graph presents the number of social welfare grants loaded at merchant
locations, per pay cycle, for the 18 month period ended June 30, 2007:



The
following graph presents the number of social welfare grants loaded at merchant
locations, per calendar month, for the 18 month period ended June 30,
2007:



57

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***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. At the same time, we also 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.

We
then 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 three to six months, depending on the size of the system
required 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.

*Namibia*

We
own 50% of 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.

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, 2007, it had acquired
77,089 new clients as a direct result of the implementation of the UEPS
technology.

As
of June 30, 2007, SmartSwitch Namibia has activated 177,494 UEPS smart cards and
has signed up 140 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.

Phase
1 of the project involved the transfer of all of NamPosts banking products to
the smart card, offering affordability, security, simplicity and flexibility.
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
the third quarter of fiscal 2007 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.
During the fourth quarter of fiscal 2007, SmartSwitch Namibia was granted a
permanent license by the Central Bank of Namibia to operate as a multilateral
payment system service provider in Namibia in terms of Section 3(6)(a) of the
Payment System Management Act, 2003.

As
we own 50% of SmartSwitch Namibia, we are required under US GAAP to eliminate
50% of the net income generated from sales to SmartSwitch Namibia. In accordance
with US GAAP, we will recognize this net income from these hardware and software
sales during the period in which the hardware and software we have sold to
SmartSwitch Namibia is utilized in its operations, or has been sold to third
party customers, as the case may be.

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, 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.

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*Botswana*

During
the third quarter of fiscal 2006, we formed SmartSwitch Botswana, to launch and
operate a national UEPS smart card-based switching and settlement system in
Botswana. We own 50% of the company 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.

We
believe that SmartSwitch Botswana will be the first system of its kind in
Botswana and we expect that it will have a substantial impact on the financial
industry in Botswana. Capricorn, as the first user of the UEPS technology in
Botswana, has advised us that it believes that it can substantially increase its
market share in the financial services industry and position its group as the
front runner in serving the un-banked and under-banked citizens of Botswana. The
initial smart card applications offered to Capricorns customer base will
include banking and a suite of financial services and products such as
micro-finance, short- and long-term insurance, health care, third party
deductions, third party payments, money transfers, wage payments and retail.

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
the third quarter of fiscal 2007, SmartSwitch Botswana concluded a successful
pilot to perform the required functions. On March 19, 2007, the first monthly
loan deductions request was received from a micro financier by SmartSwitch
Botswana. The monthly deduction file was tested for compliance with the rules by
SmartSwitch Botswana and was transmitted to the MFDP on March 20, 2007. 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 2007, SmartSwitch
Botswana ran 42,718 deductions against the Government of Botswanas pay
file.

*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 requires UEPS hardware and software to the value
of approximately $14 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
the year ended June 30, 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.

Diamond
Bank, one of Nigerias largest banking institutions, has ordered 50,000 smart
cards from us for their 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.

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SmartSwitch
Nigeria, as a member of the CHAMS consortium, tendered to provide the Nigerian
government with a multi-purpose smart card. The multi-purpose card tender
comprises:

- a national identity authentication/ verification system,
- a government financial payments for services system, and
- an affordable banking solution.

The
Nigerian government has awarded the above tender jointly to the two shortlisted
bidders, the CHAMS and IRIS consortia. Negotiations are currently underway to
define the responsibilities of each of the consortia, which will ultimately
determine the role of SmartSwitch Nigeria in this tender.

We
expect SmartSwitch Nigeria to become fully operative during the first half of
fiscal 2008.

*Colombia
and Vietnam*

We
are at various stages of implementation of our VTU solution in Colombia and
Vietnam. We have concluded shareholder and loans agreements with partners in
Colombia and Vietnam to set up VTU services. In Colombia, we own 50% of VTU De
Colombia SA, or VTU Colombia, and have fully installed and integrated the VTU
system and have commenced a limited and low profile pilot in Bogotá with
Colombias third largest mobile operator. In addition, agreements have been
concluded with VTU Colombias initial and primary distribution partner to deploy
VTU enabled handsets through its national distribution and sales force. VTU
Colombia has also commenced preliminary discussions with Colombias largest
mobile operator.

In
Vietnam, we own 30% of Vietnam Payment Technologies, or Vinapay. During the
fourth quarter of fiscal 2007, Vinapay was authorized and licensed to commence
activities. We expect systems installation and integration to the first mobile
operator to be concluded by October 2007. In addition, we have commenced
preliminary discussions with two of Vietnams other mobile operators and the
country's largest internet gaming operator.

*Other
Countries*

We
have also implemented UEPS systems in Ghana, 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.

***Ghanaian
National Switch and Smart Card Payment System Tender***

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 is estimated at approximately US$20
million. The solution will be implemented over the first three quarters of
fiscal 2008 and is designed to achieve interoperability between all the existing
ATMs, POSs and teller terminals owned by individual banks, will deploy new
ATMs and POSs 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.

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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.

***Prism
Acquisition***

On
July 3, 2006, we completed our acquisition of Prism and the results of Prism are
included in our financial statements from that date.

We
believe that the acquisition of Prism will provide us with a number of important
strategic benefits including the following:

Merchant
Footprint in South Africa. Prism owns EasyPay, the largest bank-independent
financial switch in Southern Africa. Prism processed approximately 441 million
transactions in fiscal 2007 on behalf of retailers, bill issuers and financial
institutions. With the addition of EasyPay our overall footprint in South Africa
now extends from the deep rural areas to the urban environment. We intend to
upgrade the existing POS devices in the Prism merchant acquiring network to
accommodate UEPS based smart cards. We believe this will significantly enhance
our wage payment program once we launch that service.

Technology.
Prism currently has several important technologies that we believe will extend
our ability to deliver solutions across the entire spectrum of transaction
processing from our existing offline, smart card based offerings to Visa and
MasterCard transactions. We also believe that the Prism acquisition will enable
us to enter entirely new areas. In particular, Prism licenses its intellectual
property to makers of global system for mobile communications, or GSM,
subscriber identity module, or SIM, computer chips. We believe that Prism's
global market share for SIMs (inclusive of licensing and the manufacturing of
physical SIM cards) to be approximately 2%. Prism's customers include the
largest mobile operator in the Philippines, where Prism operating system works
on the majority of SIM's in use. In addition, Prism has a number of innovative
payment technologies relating to mobile phones including VTU. This product
enables individuals to purchase mobile phone minutes and resell them from their
mobile phone to other subscribers without the need for additional authorization
codes.

International.
Prism currently operates in Africa, Asia and Europe and has an office in
Malaysia. We believe that Prisms existing infrastructure will assist us in the
expansion of our international operations.

We
have largely completed the integration of Prism into our current operations. We
believe that there are a number of synergies that have been realized from our
acquisition of Prism. These synergies, in our view, enable us to activate a more
aggressive offensive and defensive strategy in South Africa. The offensive
aspect of our strategy focuses on our wage payment system initiative which we
believe will be greatly enhanced. The defensive aspect of our strategy focuses
on continuing to play a critical role in the switching and settling of formal
credit and debit card transactions on behalf of formal banks and large retail
stores. We also are of the view that we are now well-positioned to capitalize on
the convergence of technologies such as the cellular phone, the UEPS and banking
whereby we will be able to provide services to all segments of the population
regardless of their earning power or place of residence.

***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.

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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 will each initially contribute $0.7
million (ZAR 5 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.

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.

Net1
and Grindrod Bank commenced with the establishment of the division during the
third quarter of fiscal 2007. During the establishment phase, all the relevant
technological platforms will be installed, where required, or integrated between
Net1 and Grindrod. Grindrod Bank, with Net1s assistance, has also initiated the
process that will enable it to become a member of the South African National
Payment System and the various payment clearing houses in South Africa and
significant progress was made in this regard during the fourth quarter of fiscal
2007. Grindrod Bank has been granted provisional membership of the Payments
Association of South Africa, or PASA, and we expect the process of obtaining
membership of the various payment clearing houses in South Africa to be
completed during the second quarter of fiscal 2008. In parallel, Net1 and
Grindrod Bank have defined the products, pricing and marketing strategy for the
wage payment system. During the fourth quarter of fiscal 2007, Net1 and Grindrod
Bank commenced pilot operations of the wage payment system and 1,807 people,
mainly in the agricultural sector, were registered, issued with smart cards and
paid. During the first quarter of fiscal 2008, the pilot will be extended to
cover multiple employers in a specific geographic area, where after the solution
will be made available on a national basis.

***National
Credit Act***

The
final phase of the National Credit Act (No. 34 of 2005), or NCA, became
effective in South Africa on June 1, 2007. The NCA has impacted our traditional
and UEPS-based lending activities in South Africa. In compliance with the
provisions of the NCA, we are permitted to charge an initiation fee and a
service fee on all traditional and UEPS-based lending activities as well as levy
interest on a monthly basis. Our management has decided, effective June 1, 2007,
to cease charging interest on all new UEPS-based lending activities and now
charges a service fee. The fees generated from new UEPS-based lending activities
approximate the interest that was historically generated from these activities.
We were required, effective June 1, 2007, to reduce the interest charged on all
new traditional lending activities and introduce a fee for initiation and
servicing of all the new loans. The interest and fees generated from new
traditional lending activities approximate the interest that was historically
generated from these activities. Our management has included, and will continue
to include in the foreseeable future, the initiation and service fees in the
financial services segment.

***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 12.5% on dividends distributed, subject to certain exemptions. If a
dividend tax is introduced South African companies will no longer be liable to
pay STC, the shareholder will be liable to pay the dividend tax. Treaty relief
would be available for foreign shareholders.

The
reform will be implemented in two phases, the first phase entailing a reduction
of the STC rate, effective October 1, 2007, to 10% and the second phase,
expected in 2008, a total conversion to a dividend tax. It is likely that South
Africa companies will be required to withhold the dividend tax on all dividend
paid.

We
can not reasonably determine whether these proposals will be enacted as proposed
and we will comply with the new tax legislation once it has been enacted. We
expect the proposed replacement of STC with a dividend tax to reduce our current
fully distributed rate of 36.89% to 29%. In addition, under GAAP we apply the
fully distributed rate of 36.89% to our deferred taxation assets and
liabilities. The change in the fully distributed rate is expected to reduce 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 year ended June 30, 2007, is deferred income tax expense
  of approximately $8.3 million (ZAR 59.6 million), respectively, related to the
  application of the fully distributed rate of 36.89% compared with the South
  African statutory rate of 29% to our Income before income tax. The following
  table illustrates the effect on our June 30, 2007, income tax expense, earnings
  per share and net deferred tax liability as if the first and second phases described
  above had been enacted on July 1, 2006:

|Table 3                                                     |  | Year
      ended June 30, 2007 | 
|----------------------------------------------------------- |  | ------------------------------ | 
|                                                            |  |                                | 
|                                                            |  |                                | 
|                                                            |  | Actual                         | 
|Fully distributed tax rate                                  |  | 36.89%                         | 
|Income tax expense                                          |  | 37,574                         | 
|Net deferred tax liability reversal to net
      income (3) |  | -                              | 
|Earnings per share, in U.S. cents                           |  | 111.8                          | 
|Net deferred tax liability as at June 30                    |  | 29,191                         | 

(1)
  Scenario 1 illustrates the reduction in the fully distributed rate from 36.89%
  to 35.45% had the reduction in the STC rate been enacted on July 1, 2006.
            (2) Scenario 2 illustrates
  the abolishment of STC had this been enacted on July 1, 2006. Accordingly, the
  fully distributed rate decreases from 36.89% to 29%. All South African deferred
  tax assets and liabilities are now measured at 29% which results in a reversal
  of net deferred tax liabilities recognized. 
            (3) The net deferred
  tax liability reversal to net income represents the net deferred tax liability
  rate adjustment as of June 30, 2006 translated at rates applicable as of June
  30, 2006 assuming a) the fully distributed tax rate, prior to the abolishment
  of STC, was 35.45% (potential outcome scenario 1) and b) the fully distributed
  tax rate is thereafter 29% (potential outcome scenario 2).

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

***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.

***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.

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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.

***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 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 77 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.

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One
of our largest customers in this segment is Nedbank Limited, one of South
Africas largest banks by asset size. 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.

Our
acquisition of Prism gives us access to the Prism product base, which we are
integrating into our UEPS product and service offerings. The current main Prism
products are:

- chip and wireless
    - 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 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. We supply 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;
- payment
    solutions - we charge customers a once off fee to install and integrate
    POS payment products and systems including our FlexiLANI, FlexiGATE and FlexiPOS
    solutions. In addition, we charge a fee to assist retailers together with
    their acquirers to meet the requirements of upgrading software, terminals
    and security for conformity with the latest EMV chip card standards; and
- transaction
    solutions - we utilize our TDES and EMV security initiatives to assist,
    through close collaboration, suppliers of payment processing devices to ensure
    their technologies meet the stringent security standards required by the card
    associations. As a Thales e-Security Gold partner, we are a value added reseller
    of Thales transaction security technology into the Southern African region.
    We sell our self-developed range of PIN encryption devices, card acceptance
    modules and outdoor payment terminals which 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.

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) one time fixed fees we charge to provincial governments and
employers for providing a smart card account to each card holder; (3) interest
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.

***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.

65

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***Costs
Related to Public Offering and Nasdaq Listing***

These
costs consist of the portion of the legal, accounting, regulatory and filing
fees and other expenses incurred related to our public offering and Nasdaq
listing in August 2005.

***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 income
we earn from our business of providing short-term loans is included in revenue
and is not included in interest income.

***Income
Taxes***

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. The tax rate in South Africa varies depending on whether income is
distributed. The income tax rate is currently 29%, but upon distribution an
additional tax of 12.5% is due based on the amount of dividends declared, net of
dividends received during a dividend cycle. The decrease in the statutory rate
of taxation for South African domiciled companies from 30% to 29% for all fiscal
years ending on or after April 1, 2005 was promulgated on July 19, 2005, which
has resulted in a decrease in our distributed rate from 37.78% to 36.89% . The
effect of this change is shown in our 2006 taxation charge.

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

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

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.

***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.

66

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***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. Share-based compensation expense from
continuing operations, including the impact of FAS 123R, was $0.9 million and
$0.2 million for the year ended June 30, 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 have been determined by management with the assistance of
independent valuation appraisers and guidance provided by FAS 141, Business
Combinations. 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.

Goodwill
related to the acquisition represents the excess of the purchase price of Prism
over the fair values of the identifiable assets acquired and liabilities
assumed.

***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, 2007, the full amount of
such debt outstanding totaled $5.8 million (ZAR 40.7 million), which is a 17%
decrease, in ZAR terms, over the amount outstanding at June 30, 2006 ($6.7
million or ZAR 48.8 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 with immaterial amounts of development
costs incurred during this period. Accordingly, we did not capitalize any
development costs during the years ended June 30, 2007, 2006 or 2005,
particularly because the main part of our development is the enhancement and
upgrading of existing products.

67

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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, 2007*

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, 2007, including
the expected dates of adoption and effects on financial condition, results of
operations and cash flows.

68

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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 4
      
      Year
        ended June 30,2007
      
      
      2006
      
      
      2005ZAR : $ average exchange rate
      
      7.2188
      
      
      6.4283
      
      
      6.2219Highest ZAR : $ rate during period
      
      7.9748
      
      
      7.5323
      
      
      6.9473Lowest ZAR : $ rate during period
      
      6.7193
      
      
      5.9256
      
      
      5.5350Rate at end of period
      
      7.0760
      
      
      7.2701
      
      
      6.6840




***Translation
exchange rates***

We
are required to translate our results of operations from ZAR to U.S. dollars on
a monthly basis. Thus, the average rates used to translate this data for the
years ended June 30, 2007, 2006 and 2005, 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 5
    
    
    
    
    June 30,2007
    
    
    2006
    
    
    2005Income and expense items: $1 = ZAR .
    
    7.2100
    
    
    6.4127
    
    
    6.2096Balance sheet items: $1 = ZAR
    
    7.0760
    
    
    7.2701
    
    
    6.6840


69

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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 U.S. GAAP. Our discussion analyzes our results of operations
both in U.S. 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 U.S. dollar and ZAR on
our reported results and because we use the U.S. 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.

***Year
Ended June 30, 2007 Compared to Year Ended June 30, 2006***

The
following factors had a significant impact on our results of operations for the
year ended June 30, 2007 as compared to the prior year:

- significant weakening of the South African rand, or ZAR, our functional
  currency, against the U.S. dollar, our reporting currency, which had a
  negative impact on our reported revenues and net income in U.S. 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
- increasing 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 U.S. dollars and in ZAR:

|                                                          |   | In United States Dollars  | 
|--------------------------------------------------------- | - | ------------------------- | 
|Table 6                                                   |   | (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                    | 

70

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|                                                          |  | In South African Rand     | 
|--------------------------------------------------------- |  | ------------------------- | 
|Table 7                                                   |  | (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 the year ended June 30, 2007, decreased to 43%
compared with 46% for the year ended June 30, 2006. The inclusion of Prism
operations during the year ended June 30, 2007, has reduced our overall
operating margin as Prism operations generate a lower operating margin than our
historical operations. In addition, our margin during the year ended June 30,
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.

Selling,
general and administration expenses increased during the year ended June 30,
2007 from the comparable quarter 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.

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 (ZAR1.5 million) and $0.4 million (ZAR 3.0 million), respectively.
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 the year
ended June 30, 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 the year ended June 30, 2006, related to legal fees, printing
costs, registration and filing and accounting fees.

71

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The
increase in depreciation and amortization during the year ended June 30, 2007
compared to the year ended June 30, 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 the year ended June 30, 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 the year ended June 30, 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 during
the year ended June 30, 2007 compared with the year ended June 30, 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 the year ended June 30, 2007 increased to $16.4 million
  (ZAR 118.2 million) from $14.6 million (ZAR 93.6 million) for the year ended
  June 30, 2006. The increase in interest on surplus cash held in South Africa
  was due to the adjustment in the South African prime interest rate from an average
  of approximately 10.50% per annum for the year ended June 30, 2006, to 12.12%
  per annum for the year ended June 30, 2007. In addition, interest on surplus
  cash held in the United States increased due to the increase in the federal
  funds rate from an average of 4.18% per annum during fiscal 2006 to 5.25% per
  annum during fiscal 2007. These increases in interest rates were offset by lower
  surplus cash balances as a result of the $95.2 million paid in cash for the
  acquisition of Prism.

During
the year ended June 30, 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 the year ended June 30, 2007, from $8.7 million (ZAR 55.8 million)
for the year ended June 30, 2006.

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

For
the year ended June 30, 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 the year ended June 30, 2007 and 2006, respectively.
During the year ended June 30, 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 the year ended June 30, 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 includes a loss of $0.2 million (ZAR 1.8
million) for the year ended June 30, 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.

72

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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 8                                         |  | In
      United States Dollars (US GAAP) |  
|----------------------------------------------- |  | ---------------------------------------- | -
|                                                |  | Year
      ended June 30,                |  
|                                                |  | 2007                                     |  
|Operating Segment                               |  | $000                                    |  
|Consolidated revenue:                           |  |                                          |  
|Transaction-based activities                    |  | 139,006                                  |  
|Smart card accounts                             |  | 34,562                                   |  
|Financial services                              |  | 11,241                                   |  
|Hardware, software and related technology sales |  | 39,159                                   |  
|Total consolidated revenue                      |  | 223,968                                  |  
|Consolidated operating income (loss):           |  |                                          |  
|Transaction-based activities                    |  | 78,785                                   |  
|Smart card accounts                             |  | 15,710                                   |  
|Financial services                              |  | 3,351                                    |  
|Hardware, software and related technology sales |  | 6,115                                    |  
|Corporate/ Eliminations                         |  | (7,085                                   | )
|Total consolidated operating
      income       |  | 96,876                                   |  

|Table 9                                         |  | In
      South African Rand (US GAAP) |  
|----------------------------------------------- |  | ------------------------------------- | -
|                                                |  | Year
      ended June 30,             |  
|                                                |  | 2007                                  |  
|                                                |  | ZAR                                   |  
|Operating Segment                               |  | 000                                  |  
|Consolidated revenue:                           |  |                                       |  
|Transaction-based activities                    |  | 1,002,233                             |  
|Smart card accounts                             |  | 249,192                               |  
|Financial services                              |  | 81,048                                |  
|Hardware, software and related technology sales |  | 282,336                               |  
|Total consolidated revenue                      |  | 1,614,809                             |  
|Consolidated operating income (loss):           |  |                                       |  
|Transaction-based activities                    |  | 568,040                               |  
|Smart card accounts                             |  | 113,269                               |  
|Financial services                              |  | 24,161                                |  
|Hardware, software and related technology sales |  | 44,089                                |  
|Corporate/ Eliminations                         |  | (51,083                               | )
|Total consolidated operating
      income       |  | 698,476                               |  

**Transaction-based
activities**

In
U.S. 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 volumes from 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.

73

---

Operating
income margin for the year ended June 30, 2007 increased to 57% from 52% for the
year ended June 30, 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 OverviewProgress of Our Merchant Acquiring System.

***Higher
volumes from our provincial contracts*:**

During
the year ended June 30, 2007, we experienced growth 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 volume of payments
processed during the year ended June 30, 2007 increased 7.3% to 45,332,242 from
the year ended June 30, 2006.

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

|Table 10           |  | Year
      ended June 30, | 
|------------------ |  | ------------------------- | 
|                   |  | Number of                 | 
|                   |  | Grants
      Paid         | 
|Province           |  | 2007                      | 
|KwaZulu-Natal (A). |  | 20,080,685                | 
|Limpopo (B)        |  | 11,662,537                | 
|North West (C)     |  | 3,351,477                 | 
|Northern Cape (D)  |  | 1,669,037                 | 
|Eastern Cape (E)   |  | 8,568,506                 | 
|**Total**          |  | 45,332,242                | 

*(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 the
year ended June 30, 2007, compared with the year ended June 30, 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.

74

---

***Contract
variation settlement payment received from SASSA***

During
the year ended June 30, 2007, we received approximately $6.9 million (ZAR 49.5
million) from SASSA as a result of the settlement of contract variations 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. The price charged per beneficiary in the Eastern Cape province was
increased as a result of the settlement reached and will be applied until the
end of the current contract period, with a further inflation adjustment review
scheduled for November 2007. We are engaged with SASSA in respect of each of the
provinces where it provides social welfare benefit payments to ensure that
revenue from contract variations and price increases are negotiated and
received. We record such income in accordance with our revenue accounting policy
for contract variations.

***EasyPay
transaction fees:***

During
the year ended June 30, 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 the year ended June 30, 2007 was $0.03 (ZAR 0.21) . EasyPay
transaction fees are not included in our results for the year ended June 30,
2006 as we acquired EasyPay on July 3, 2006.

Operating
income margins generated by EasyPay, before amortization of EasyPay intangibles,
during the year ended June 30, 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 the year ended June 30, 2007 of approximately $1.7 million (ZAR
12.1 million) is included in the calculation of EasyPay operating margins.

***Allocation
of revenues and operating income:***

In
order to provide shareholders with additional information on the effects of the
Prism acquisition on this segment the table below sets forth the allocation of
revenues and operating income between transaction-based activities (excluding
EasyPay) and EasyPay on a standalone basis:

|Table 11                                                   |  | Year
      ended June 30, 2007 | 
|---------------------------------------------------------- |  | ------------------------------ | 
|                                                           |  |                                | 
|                                                           |  | Revenue                        | 
|                                                           |  | 000                           | 
|                                                           |  |                                | 
|Transaction-based activities (excluding EasyPay)           |  | 126,059                        | 
|EasyPay                                                    |  | 12,947                         | 
|EasyPay before amortization
      of EasyPay intangibles . |  | -                              | 
|Amortization of EasyPay intangibles                        |  | -                              | 
|Total                                                      |  | 139,006                        | 

|Table 12                                                   |  | Year
      ended June 30, 2007 | 
|---------------------------------------------------------- |  | ------------------------------ | 
|                                                           |  |                                | 
|                                                           |  | Revenue                        | 
|                                                           |  | ZAR 000                       | 
|                                                           |  |                                | 
|Transaction-based activities (excluding EasyPay)           |  | 908,885                        | 
|EasyPay                                                    |  | 93,348                         | 
|EasyPay before amortization
      of EasyPay intangibles . |  | -                              | 
|Amortization of EasyPay intangibles                        |  | -                              | 
|Total                                                      |  | 1,002,233                      | 

**Smart
card accounts**

In
U.S. 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.

75

---

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
U.S. 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 the year ended June 30, 2007 compared
with the year ended June 30, 2006 primarily due to the lower number of loans
granted during the year ended June 30, 2007 compared to the year ended June 30,
2006. In addition, on average, the rate of interest charged on these UEPS-based
loans was lower during the year ended June 30, 2007 compared with the year ended
June 30, 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 the year ended June
30, 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 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 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 13
      
      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 the year
ended June 30, 2007 from 43% for the year ended June 30, 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.

76

---

As
the NCA regulates fees and interest charged on micro-lending loans and imposes
obligations prior to granting of credit to individuals, we are unable to predict
the impact on our financial services segment revenues and operating income for
the year ended June 30, 2008, as a result of the introduction of the NCA from
June 1, 2007.

**Hardware,
software and related technology sales**

In
U.S. 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 the year ended June 30, 2007 comprises:

- sales of terminals to retailers and other customers;
- sales of SIM cards 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.

Revenues
from sales of hardware to SmartSwitch Botswana during the year ended June 30,
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
the year ended June 30, 2007, sales of hardware to Nedbank was approximately
$4.4 million (ZAR 32.0 million). There were less sales of hardware to Nedbank
during the year ended June 30, 2007, compared with the year ended June 30, 2006,
due to Nedbank replacing its terminal base in order to make it EMV compliant.

Amortization
of Prism intangible assets during the year ended June 30, 2007 was approximately
$3.7 million (ZAR 26.9 million) and reduced our operating income.

Total
revenues from the Nedbank orders during the year ended June 30, 2006, were
approximately $13.3 million (approximately ZAR 85.3 million). Revenues from
sales of hardware, software and licenses to SmartSwitch Namibia during the year
ended June 30, 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.

Hardware
sales to Nedbank are infrequent, and, other than sales generated from the
Ghanaian National Switch and Smart Card Payment System Tender award, we do not
anticipate revenue from similar large-scale hardware supply contracts to occur
in the foreseeable future. In addition, we expect sales of hardware, software
and licenses related to our international expansion to occur on an ad hoc basis
as and when new international ventures, such as SmartSwitch Namibia and
SmartSwitch Botswana, are established.

Depending
on whether we are required to consolidate our interest in new ventures, we may
have to eliminate the sale of any hardware, software and licenses to these
entities.

77

---

**Allocation
of revenues and operating income:**

In
order to provide shareholders with additional information on the effects of the
Prism acquisition on this segment the table below sets forth the allocation of
revenues and operating income between hardware, software and related technology
sales (excluding Prism) and Prism:

|Table 14                                                                    |  | Year ended          | 
|--------------------------------------------------------------------------- |  | ------------------- | 
|                                                                            |  | June
      30, 2007 | 
|                                                                            |  |                     | 
|                                                                            |  | Revenue             | 
|                                                                            |  | $000               | 
|                                                                            |  |                     | 
|Hardware, software and related technology sales
      (excluding Prism)     |  | 11,593              | 
|Prism                                                                       |  | 27,566              | 
|Prism before amortization
      of intangibles related to Prism acquisition |  | -                   | 
|Amortization of intangibles related to
      Prism acquisition              |  | -                   | 
|Total                                                                       |  | 39,159              | 

|Table 15                                                                    |  | Year ended          | 
|--------------------------------------------------------------------------- |  | ------------------- | 
|                                                                            |  | June
      30, 2007 | 
|                                                                            |  |                     | 
|                                                                            |  | Revenue             | 
|                                                                            |  | ZAR 000            | 
|                                                                            |  |                     | 
|Hardware, software and related technology sales
      (excluding Prism)     |  | 83,586              | 
|Prism                                                                       |  | 198,751             | 
|Prism before amortization
      of intangibles related to Prism acquisition |  | -                   | 
|Amortization of intangibles related to
      Prism acquisition              |  | -                   | 
|Total                                                                       |  | 282,337             | 

**Corporate/
Eliminations**

In
U.S. 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 the year ended June 30, 2007 compared with
the year ended June 30, 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 the year ended June 30, 2007, include all corporate
activities of Prism.

In
addition, corporate/eliminations for the year ended June 30, 2006 includes 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. Ignoring the effects of exchange rates, we expect inflationary
increases to these and other expenses during fiscal 2008.

78

---

***Year
Ended June 30, 2006 Compared to Year Ended June 30, 2005***

The
following factors had a significant impact on our results of operations for the
year ended June 30, 2006 as compared to the prior year:

- weakening of the South African rand, or ZAR, our functional currency,
  against the U.S. dollar, our reporting currency, which had a negative impact
  on our reported revenues and net income in U.S. dollars;
- increase in revenues from sales of hardware to Nedbank;
- revenues from hardware and software sales to SmartSwitch Namibia;
- decrease in margins in our traditional micro-lending operations; and
- continued adoption of our merchant acquiring project by cardholders, 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 U.S. dollars and in ZAR:

|                                                          |  | In United States Dollars  | 
|--------------------------------------------------------- |  | ------------------------- | 
|Table 16                                                  |  | (US
      GAAP)           | 
|                                                          |  | Year
      ended June 30, | 
|                                                          |  | 2006                      | 
|                                                          |  | $ 000                    | 
|Revenue                                                   |  | 196,098                   | 
|Cost of goods sold, IT processing, servicing and support  |  | 50,619                    | 
|Selling, general and administration                       |  | 48,627                    | 
|Depreciation and amortization                             |  | 5,710                     | 
|Costs related to public offering and Nasdaq
      listing |  | 1,529                     | 
|Operating income                                          |  | 89,613                    | 
|Interest income, net                                      |  | 5,889                     | 
|Income before income taxes                                |  | 95,502                    | 
|Income tax expense                                        |  | 36,653                    | 
|Income before earnings from equity-accounted              |  |                           | 
|investments                                               |  | 58,849                    | 
|Earnings from equity-accounted investments                |  | 383                       | 
|Net income                                                |  | 59,232                    | 

|                                                          |  | In South African Rand     | 
|--------------------------------------------------------- |  | ------------------------- | 
|Table 17                                                  |  | (US
      GAAP)           | 
|                                                          |  | Year
      ended June 30, | 
|                                                          |  | 2006                      | 
|                                                          |  | ZAR                       | 
|                                                          |  | 000                      | 
|Revenue                                                   |  | 1,257,525                 | 
|Cost of goods sold, IT processing, servicing and support  |  | 324,607                   | 
|Selling, general and administration                       |  | 311,833                   | 
|Depreciation and amortization                             |  | 36,616                    | 
|Costs related to public offering and Nasdaq
      listing |  | 9,805                     | 
|Operating income                                          |  | 574,664                   | 
|Interest income, net                                      |  | 37,765                    | 
|Income before income taxes                                |  | 612,429                   | 
|Income tax expense                                        |  | 235,046                   | 
|Income before earnings from equity-accounted              |  |                           | 
|investments                                               |  | 377,383                   | 
|Earnings from equity-accounted investments                |  | 2,456                     | 
|Net income                                                |  | 379,839                   | 

Analyzed
in ZAR, the increase in revenue and cost of goods sold, IT processing, servicing
and support for the year ended June 30, 2006, was primarily due to the higher
volumes in our transaction-based activities, a greater number of UEPS-based
smart card holders and increased hardware, software and related technology sales
activity .

79

---

The
increase in operating income margin to 46% for the year ended June 30, 2006,
from 40% for the year ended June 30, 2005, was primarily due to improved
efficiencies across most activities, the continued adoption of our merchant
acquiring initiative, the sale of hardware and high-margin software to
SmartSwitch Namibia and a significantly improved contribution from our contract
to pay social welfare grants in the Eastern Cape province. We do not expect that
our operating income margin will increase significantly for the 2007 fiscal
year, before taking into account the effect of the Prism acquisition.

Selling,
general and administration expenses increased during the year ended June 30,
2006 from the prior year due to compliance with Sarbanes, expenditure on
non-executive directors fees resulting from the election of independent
directors to our board, increased legal fees, increased auditor fees, increased
bonuses, directors and officers insurance premiums, establishment of a presence
in North America, an increase in the number of head office staff and salary
increases.

We
completed our public offering and Nasdaq listing in August 2005. In addition to
the $1.8 million (ZAR 11.3 million) incurred during the fourth quarter of fiscal
2005, we incurred an additional $1.50 million (ZAR 9.8 million) during fiscal
2006, related to legal fees, printing costs, registration and filing and
accounting fees.

We
incurred Sarbanes compliance costs of approximately $1.0 million and $0.8
million during the years ended June 30, 2006 and 2005.

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 most 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 and amortization expense
has decreased during the year ended June 30, 2006 compared with the year ended
June 30, 2005. This reduction in depreciation is partially offset by the
increase in depreciation of our participating merchant POS terminals during the
year ended June 30, 2006.

Interest
on surplus cash for the year ended June 30, 2006 decreased to $14.6 million (ZAR
93.6 million) from $16.4 million (ZAR 101.7 million) for the year ended June 30,
2005, due to the adjustment in the South African prime interest rate from an
average of approximately 11.0% per annum for the year ended June 30, 2005, to
10.5% per annum for the year ended June 30, 2006. The effect of the decrease in
the interest rate on interest received was partially offset by higher average
cash balances during the year ended June 30, 2006.

During
the year ended June 30, 2006, our pre-funding obligation increased but our
finance costs decreased due to the decrease in the South African prime interest
rate and improved centralized cash management. Finance costs decreased from
$14.0 million (ZAR 86.8 million) for the year ended June 30, 2005, to $8.7
million (ZAR 55.8 million) for the year ended June 30, 2006.

We
expect our interest on surplus cash to decrease and our finance costs to
increase in the first quarter of fiscal 2007 as a result of lower available cash
on hand due to the acquisition of Prism in July 2006.

Total
tax expense for the year ended June 30, 2006 was $36.7 million (ZAR 235.1
million) compared with $29.7 million (ZAR 184.2 million) during the same period
in the prior year. The increase was due to our increased profitability in most
segments. Our effective tax rate for fiscal 2006 is 38.4%, compared to 40.3% for
fiscal 2005. The change in our effective tax rate is primarily due to the change
in the statutory rate of taxation for South African domiciled companies and
fewer non-deductible expenses during fiscal 2006 compared to fiscal 2005. The
effect of the change in tax rate is included in our fiscal 2006 tax expense and
is approximately $0.2 million (ZAR 1.0 million).

For
the years ended June 30, 2006 and 2005, earnings from Permit totaled
approximately $1.0 million and $0.5 million (ZAR 6.4 million and ZAR 3.3
million), respectively.

SmartSwitch
Namibia commenced operations in February 2006 and generated a profit during
these first months of trading due to the once off sale and financing of smart
cards to NamPost, its first customer. We are required to eliminate unrealized
income from license fees, software and hardware sales made to SmartSwitch
Namibia of $0.5 million (ZAR 3.2 million) for the year ended June 30, 2006.

Earnings
from equity-accounted investments includes a loss, after elimination of
unrealized income, of $0.6 million (ZAR 3.8 million) for the year ended June 30,
2006. We do not expect SmartSwitch Namibia to generate earnings during the first
quarter of fiscal 2007 as it has only recently commenced operations.

80

---

**Results
of operations by operating segment**

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

Table 18
      
      In United States Dollars (US GAAP)Year ended June 30,2006
      
      
      % of
      
      
      2005
      
      
      % of
      
      
      %Operating Segment
      
      $ 000
      
      
      total
      
      
      $ 000
      
      
      total
      
      
      changeConsolidated revenue:Transaction-based activities
      
      117,186
      
      
      60%
      
      
      103,653
      
      
      59%
      
      
      13%Smart card accounts
      
      36,220
      
      
      18%
      
      
      34,931
      
      
      20%
      
      
      4%Financial services
      
      16,129
      
      
      8%
      
      
      20,215
      
      
      11%
      
      
      (20)%Hardware, software and related technology
        sales
      
      26,563
      
      
      14%
      
      
      17,491
      
      
      10%
      
      
      52%Total consolidated revenue
      
      196,098
      
      
      100%
      
      
      176,290
      
      
      100%
      
      
      11%Consolidated operating income (loss):Transaction-based activities
      
      60,653
      
      
      68%
      
      
      44,233
      
      
      62%
      
      
      37%Smart card accounts
      
      16,464
      
      
      18%
      
      
      15,878
      
      
      22%
      
      
      4%Financial services
      
      6,929
      
      
      8%
      
      
      9,316
      
      
      13%
      
      
      (26)%Hardware, software and related technology
        sales
      
      16,721
      
      
      19%
      
      
      5,689
      
      
      8%
      
      
      194%Corporate/ Eliminations
      
      (11,154
      )
      
      (13)%
      
      
      (3,813
      )
      
      (5)%
      
      
      193%Total consolidated
        operating income
      
      89,613
      
      
      100%
      
      
      71,303
      
      
      100%
      
      
      26%


Table 19
      
      In South African Rand (US GAAP)Year ended June 30,2006
      
      
      
      
      
      2005ZAR
      
      
      % of
      
      
      ZAR
      
      
      % of
      
      
      %Operating Segment
      
      000
      
      
      total
      
      
      000
      
      
      total
      
      
      changeConsolidated revenue:Transaction-based activities
      
      751,483
      
      
      60%
      
      
      643,642
      
      
      59%
      
      
      17%Smart card accounts
      
      232,269
      
      
      18%
      
      
      216,907
      
      
      20%
      
      
      7%Financial services
      
      103,431
      
      
      8%
      
      
      125,527
      
      
      11%
      
      
      (18)%Hardware, software and related technology
        sales
      
      170,342
      
      
      14%
      
      
      108,612
      
      
      10%
      
      
      57%Total consolidated revenue
      
      1,257,525
      
      
      100%
      
      
      1,094,688
      
      
      100%
      
      
      15%Consolidated operating income (loss):Transaction-based activities
      
      388,952
      
      
      68%
      
      
      274,669
      
      
      62%
      
      
      42%Smart card accounts
      
      105,579
      
      
      18%
      
      
      98,596
      
      
      22%
      
      
      7%Financial services
      
      44,434
      
      
      8%
      
      
      57,849
      
      
      13%
      
      
      (23)%Hardware, software and related technology
        sales
      
      107,227
      
      
      19%
      
      
      35,326
      
      
      8%
      
      
      204%Corporate/ Eliminations
      
      (71,528
      )
      
      (13)%
      
      
      (23,677
      )
      
      (5)%
      
      
      202%Total consolidated
        operating income
      
      574,664
      
      
      100%
      
      
      442,763
      
      
      100%
      
      
      30%


**Transaction-based
activities**

In
U.S. dollars, revenues increased by 13% for the year ended June 30, 2006, from
the year ended June 30, 2005. Operating income increased by 37% for the year
ended June 30, 2006, from the year ended June 30, 2005.

In
ZAR, revenues increased by 17% for the year ended June 30, 2006, from the year
ended June 30, 2005. Operating income increased by 42% for the year ended June
30, 2006, from the year ended June 30, 2005.

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, and higher volumes from our provincial contracts. We
discuss these factors in more detail below.

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

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

Refer
to discussion under OverviewProgress of Our Merchant Acquiring Project.

81

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***Higher
volumes from our provincial contracts*:**

During
the year ended June 30, 2006, we experienced growth 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 volume of payments
processed during the year ended June 30, 2006 increased 7% to 42,243,781 from
the year ended June 30, 2005.

The
higher volumes under existing provincial contracts during the year ended June
30, 2006, as well as average revenue per grant paid, are detailed below:

Table 20Year ended June 30,Number of
      
      
      
      Average
        Revenue per Grant PaidGrants Paid
      
      
      
      2006
      
      2005
      
      2006
      
      2005Province
      
      2006
      
      2005
      
      $(1)
      
      $(2)
      
      ZAR(1)
      
      ZAR(2)KwaZulu-Natal (A).
      
      18,117,676
      
      16,774,940
      
      3.13
      
      2.88
      
      20.14
      
      17.85Limpopo (B)
      
      11,154,040
      
      10,635,232
      
      2.43
      
      2.47
      
      15.59
      
      15.34North West (C)
      
      3,181,242
      
      3,153,868
      
      2.82
      
      2.65
      
      18.10
      
      16.43Northern Cape (D)
      
      1,585,846
      
      1,459,264
      
      3.00
      
      3.13
      
      19.30
      
      19.41Eastern Cape (E)
      
      8,204,977
      
      7,410,272
      
      1.87
      
      1.99
      
      12.04
      
      12.35**Total**
      
      42,243,781
      
      39,433,576


*(1)
Average Revenue per Grant Paid excludes $ 0.86 (ZAR 5.50) related to the
provision of smart card accounts.*

*(2)
Average Revenue per Grant Paid excludes $ 0.89 (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 is
primarily due to the increase in the number of beneficiaries and the increase in
the per grant amount to beneficiaries announced in the 2005/2006 Budget Speech
by the South African Minister of Finance. These per grant increases became
effective on April 1, 2005. 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 increase in the number of beneficiaries and 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
primarily due to inflation price increases agreed by the North West provincial
government during July 2005 and March 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 decrease in the Average Revenue per Grant Paid in Eastern Cape is
due to fewer registrations.

Through
our merchant acquiring initiative, 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 payment file is normally activated during
the first week of January and not the last week of December. Our annual results
were not affected as twelve full payment cycles were included in the fiscal 2006
results.

Operating
income margin for the year ended June 30, 2006 increased to 52% from 43% for the
year ended June 30, 2005. These profit margin improvements were mainly due to:

- the increased volumes as detailed in the table above;
- the inflation adjustment to the price charged in the North West and Limpopo
  provinces; and
- 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.

82

---

**Smart
card accounts**

In
U.S. dollars, revenues and operating income each increased by 4% for the year
ended June 30, 2006, from the year ended June 30, 2005.

In
ZAR, revenues and operating income each increased by 7% for the year ended June
30, 2006, from the year ended June 30, 2005.

Operating
  income margin from providing smart card accounts was fairly constant at 45%
  for each of the years ended June 30, 2006 and 2005.

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 3,653,696 smart card-based accounts were active at June 30,
2006, compared to 3,353,603 active accounts as at June 30, 2005. 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
U.S. dollars, revenues decreased 20% for the year ended June 30, 2006, from the
year ended June 30, 2005. Operating income decreased by 26% for the year ended
June 30, 2006, from the year ended June 30, 2005.

In
ZAR, revenues decreased by 18% for the year ended June 30, 2006, from the year
ended June 30, 2005. Operating income increased by 23% for the year ended June
30, 2006, from the year ended June 30,2004.

Revenues
from UEPS-based lending decreased during fiscal 2006 compared with fiscal 2005
due to the reduction in the rate of interest charged on UEPS-based loans during
the year. 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 the year due to
increased competition, our strategic decision not to grow this business, lower
interest rates charged on traditional microlending loans and the sale of loss
making branches. The loan portfolio of the traditional microlending businesses
remained static 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.

83

---

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

Table 21
      
      As at June 30,2006
      
      
      2005
      
      
      
      
      
      2006
      
      
      2005%
      
      
      ZAR
      
      
      ZAR
      
      
      ZAR %$ 000
      
      
      $ 000
      
      
      change
      
      
      000
      
      
      000
      
      
      changeTraditional microlending:Finance loans receivable  gross
      
      7,169
      
      
      7,212
      
      
      (1)%
      
      
      52,117
      
      
      48,208
      
      
      8%Allowance for doubtful
        finance loansreceivable
      
      (3,448
      )
      
      (3,636
      )
      
      (5)%
      
      
      (25,061
      )
      
      (24,308
      )
      
      3%Finance
        loans receivable  net
      
      3,721
      
      
      3,576
      
      
      4%
      
      
      27,056
      
      
      23,900
      
      
      13%UEPS-based lending:Finance loans receivable net andgross
        (i.e., no allowance)
      
      2,992
      
      
      4,184
      
      
      (28)%
      
      
      21,750
      
      
      27,967
      
      
      (22)%Total
        finance loans receivable,net
      
      6,713
      
      
      7,760
      
      
      
      
      
      48,806
      
      
      51,867


Operating income margin for the financial services segment
decreased to 43% for the year ended June 30, 2006 from 46% for the year ended
June 30, 2005, primarily due to lower interest rates offered on our UEPS-based
lending products and difficult operating conditions in our traditional
micro-lending operations.

**Hardware,
software and related technology sales**

In
U.S. dollars, revenues increased by $9.1 million for the year ended June 30,
2006, from the year ended June 30, 2005. Operating income increased by $11.0
million for the year ended June 30, 2006, from the year ended June 30, 2005.

In
ZAR, revenues increased by ZAR 61.7 million for the year ended June 30, 2006,
from the year ended June 30, 2005. Operating income increased by ZAR 71.9
million for the year ended June 30, 2006, from the year ended June 30, 2005.

The
increase in revenue for the year ended June 30, 2006, was due primarily to
revenues earned from the orders to supply Nedbank with smart cards, smart card
readers and terminals and the sale of hardware, software and licenses to
SmartSwitch Namibia. Total revenues from the Nedbank orders during the year
ended June 30, 2006, were approximately $13.3 million (approximately ZAR 85.3
million). Revenues from sales of hardware, software and licenses to SmartSwitch
Namibia during the year ended June 30, 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.

During
fiscal 2005 we provided Nedbank with 18,500 POS devices, 5,600 pin-pads and
66,000 merchant smart cards. Total revenues from this contract were $10.4
million (approximately ZAR 63.6 million) for the year ended June 30, 2005. This
project was completed during the third quarter of fiscal 2005.

Hardware
sales to Nedbank are infrequent, and we do not anticipate revenue from similar
large-scale hardware supply contracts to occur in the foreseeable future. In
addition, we expect sales of hardware, software and licenses related to our
international expansion to occur on an ad hoc basis as and when new
international ventures, such as SmartSwitch Namibia and SmartSwitch Botswana,
are established. We expect to provide hardware, software and licenses to
SmartSwitch Botswana and software and licenses to SmartSwitch Nigeria during the
first quarter of fiscal 2007.

**Corporate/
Eliminations**

In
U.S. dollars, operating loss increased by $7.3 million for year ended June 30,
2006, from the year ended June 30, 2005.

In
ZAR, operating loss increased by ZAR 47.8 million for the year ended June 30,
2006, from the year ended June 30, 2005.

Operating
losses for the year ended June 30, 2006 includes expenses of $1.5 million (ZAR
9.8 million) related to our public offering and Nasdaq listing. During the year
ended June 30, 2005, we incurred expenses of $1.8 million (ZAR 11.3 million)
related to our public offering and Nasdaq listing

84

---

Operating
losses for the year ended June 30, 2006, includes increased expenditure related
to compliance with Sarbanes, non-executive directors fees resulting from the
election of independent directors to our board, increased legal and auditor
fees, increased bonuses, directors and officers insurance premiums,
establishment of a presence in North America, an increase in the number of head
office staff and salary increases.

Liquidity and Capital Resources

Our
business has historically generated and continues to generate high levels of
cash. At June 30, 2007 our cash balances were $171.7 million, which comprised
mainly ZAR-denominated balances of ZAR 928.5 million ($131.2 million) and U.S.
dollar-denominated balances of $37.1 million. Our cash balances declined from
June 30, 2006 levels mainly as a result of the payment of the purchase price for
Prism and the payment of provisional taxes, partially offset by the cash
generated by operating activities.

Surplus
cash held by our South African operations is invested in overnight call accounts
in the South African money market, and surplus cash held by our non-South
African companies is invested in the U.S. 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 $81.3 million (ZAR 575.0 million). As a
result of utilizing approximately $96.2 million, representing approximately 50%
of our June 30, 2006 cash balances to acquire Prism, during the year ended June
30, 2007, we borrowed under these facilities on a short-term basis when our
pre-funding requirements exceeded the available cash on hand. 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.

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 $48.0 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
increase in the number of social welfare grant beneficiaries in the
KwaZulu-Natal and Eastern Cape provinces during the year ended June 30, 2007 has
increased our pre-funding requirements and we have utilized external short-term
financing for the pre-funding of these grant payments.

The
amount disbursed through merchants during June 2007 was reimbursed to us by the
provincial governments during the first two weeks of July 2007. 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
operations for at least the next three quarters. In addition, we have recently
submitted tenders for the distribution and administration of social welfare
grants in all nine provinces in South Africa in terms of which we may be
required to pre-fund the payment of social welfare grants in all nine provinces
which will require us to extend our credit facilities and/ or issue debt
instruments. In this regard we have received letters of intent from banking
institutions to extend such credit facilities and/ or raise debt instruments for
us in the event that we are awarded the contracts.

85

---

***Cash
flows from operating activities***

Cash
flows from operating activities for the year ended June 30, 2007, decreased to
$65.5 million (ZAR 472.3 million) from $75.8 million (ZAR 486.6 million) for the
year ended June 30, 2006. The decrease is 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. In addition, during the year ended June 30,
2006, we sold hardware of approximately $13.3 million (approximately ZAR 85.3
million) to Nedbank which increased our cash flows from operating
activities.

During
the year ended June 30, 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. During the year ended June 30, 2006, we paid
provisional taxes of approximately $3.2 million (ZAR 20.5 million) related to
the tax year ended June 30, 2005 and provisional taxes of approximately $24.2
million (ZAR 155.9 million) related to the tax year ended June 30, 2006. In
addition, we paid Secondary Taxation on Companies, or STC, of approximately $0.5
million (ZAR 3.3 million) related to the closure and deregistration of dormant
subsidiaries. See the table below for a summary of all taxes paid.

Taxes
paid during the year ended June 30, 2007 and 2006 were as follows:

|Table 22                             |  | Year
      ended June 30, |  
|------------------------------------ |  | ------------------------- | -
|                                     |  | 2007                      |  
|                                     |  |                           |  
|                                     |  | $000                     |  
|                                     |  |                           |  
|First provisional payments           |  | 12,228                    |  
|Second provisional payments          |  | 6,600                     |  
|Third provisional payments           |  | 2,571                     |  
|Taxation paid related to prior years |  | 9,027                     |  
|Taxation refunds received            |  | (976                      | )
|Secondary taxation on companies      |  | 70                        |  
|Total tax paid                       |  | 29,520                    |  

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 $8.5 million (based on the year end exchange rate of $1: ZAR 7.08)
(ZAR 60.3 million). These will have a negative impact on our cash flows from
operating activities for the first quarter of 2008.

Cash
flows from operating activities for the year ended June 30, 2006, increased to
$75.8 million (ZAR 486.6 million) from $38.1 million (ZAR 236.6 million) for the
year ended June 30, 2005. The increase is largely due to increased business
activities in our transaction-based activities and hardware, software and
related technology sales segments and better working capital management. The
payment of welfare grants through our merchant acquiring network increases our
operating cash flows as the total costs to distribute grants through our
merchant acquiring network are lower compared to paying grants at pay sites. In
addition, during the year ended June 30, 2005, we paid $8.5 million (ZAR 51.7
million) in non-recurring taxes related to the Aplitec transaction in June 2004.
During the year ended June 30, 2006, we paid provisional taxes of approximately
$3.2 million (ZAR 20.5 million) related to the tax year ended June 30, 2005 and
provisional taxes of approximately $24.2 million (ZAR 155.9 million) related to
the tax year ended June 30, 2006. In addition, we paid Secondary Taxation on
Companies, or STC, of approximately $0.5 million (ZAR 3.3 million) related to
the closure and deregistration of dormant subsidiaries.

***Cash
flows from investing activities***

Cash
used in investing activities for the year ended June 30, 2007 includes capital
expenditure 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
the year ended June 30, 2007, we lent an additional $0.3 million (ZAR 2.2
million) to SmartSwitch Botswana.

During
the year ended June 30, 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.

86

---

Cash
used in investing activities for the year ended June 30, 2006 includes capital
expenditure 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 the year ended June 30,
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
used in investing activities for the year ended June 30, 2005, includes capital
expenditure of $3.4 million (ZAR 21.0 million), of which $0.4 million (ZAR 2.8
million) related to the purchase of an additional transaction processing
computer at head-office and $1.7 million (ZAR 10.4 million) related to the
purchase of POS and pin-pad devices for use at retailers participating in our
merchant acquiring project.

***Cash
flows from financing activities***

As
discussed above we were required to utilize our ZAR based-credit facilities in
order to meet our obligations to distribute social welfare grants to
beneficiaries during the year ended June 30, 2007. As our reporting currency is
the U.S. dollar and our functional currency is the ZAR the exchange rate
fluctuations during the year ended June 30, 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
the year ended June 30, 2007. The result of these exchange rate fluctuations are
included in Effect of exchange rate changes on cash in our audited
consolidated statement of cash flow for the year ended June 30, 2007.

During
the year ended June 30, 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 by
an executive officer and employees. During the year ended June 30, 2007, the
other shareholders of SmartSwitch Nigeria, in terms of the shareholders
agreement, lent $3.5 million (ZAR 25.6 million) to SmartSwitch Nigeria.

During
the year ended June 30, 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
the year ended June 30, 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
the year ended June 30, 2006, we paid $4.0 million (ZAR 25.7 million) to
repurchase 147,973 shares of our common stock.

There
were no significant cash flows from financing activities during the year ended
June 30, 2005.

**Off-Balance
Sheet Arrangements**

We
have no off-balance sheet arrangements.

87

---

Capital Expenditures

Capital
expenditures for the years ended June 30, 2007, 2006 and 2005 were as follows:

Table 23
      
      Fiscal year ended June 30,2007
      
      
      2006
      
      
      20052007
      
      
      2006
      
      
      2005
      
      
      ZAR
      
      
      ZAR
      
      
      ZAROperating Segment
      
      $000
      
      
      $000
      
      
      $000
      
      
      000
      
      
      000
      
      
      000Transaction-based activities
      
      3,093
      
      
      1,372
      
      
      2,604
      
      
      22,301
      
      
      8,798
      
      
      16,141Smart card accounts
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Financial services
      
      279
      
      
      449
      
      
      832
      
      
      2,012
      
      
      2,879
      
      
      5,169Hardware, software and relatedtechnology sales
      
      373
      
      
      -
      
      
      -
      
      
      2,689
      
      
      -
      
      
      -Corporate / Eliminations
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -**Consolidated total**
      
      3,745
      
      
      1,821
      
      
      3,436
      
      
      27,002
      
      
      11,677
      
      
      21,310


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 the year ended June 30, 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 the year ended June 30, 2006 related mainly to the
acquisition of POS and pin-pad devices that we lease to participating retailers.
Our capital expenditures for the year ended June 30, 2005, related mainly to the
acquisition of a new transaction processing computer at our head-office and 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 no outstanding capital commitments at June
30, 2007. We anticipate that capital spending for the first quarter of fiscal
2008 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.

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 24
      
      Payments
        due by Period, as at June 30, 2007 (in $ 000s)Less
      
      
      
      
      
      
      
      
      Morethan 1
      
      
      1-3
      
      
      3-5
      
      
      than 5Total
      
      
      year
      
      
      years
      
      
      years
      
      
      yearsOperating leaseobligations
      
      6,230
      
      
      2,116
      
      
      2,465
      
      
      1,649
      
      
      -Purchase obligations
      
      5,769
      
      
      5,769
      
      
      -
      
      
      -
      
      
      -Capital commitments
      
      65
      
      
      65Total
      
      12,064
      
      
      7,950
      
      
      2,465
      
      
      1,649
      
      
      -


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.

88

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Insurance

We
annually assess our risk exposure. At June 30, 2007, 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.

89

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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 U.S. 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 U.S. dollar and the euro, on the other hand. As of June 30, 2007 and
2006, our outstanding foreign exchange contracts were as follows:

**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


As of June 30, 2006

Fair marketNotional amount
    
    Strike price
    
    value price
    
    MaturityEUR
    627,372
    ZAR
    8.0529
    ZAR
    9.3259
    November 30, 2006EUR
    17,091
    ZAR
    8.5339
    ZAR
    9.1744
    August 1, 2006EUR
    (627,372)
    ZAR
    8.2625
    ZAR
    9.3259
    November 30, 2006


**Translation
Risk**

Translation
risk relates to the risk that our results of operations will vary significantly
as the U.S. dollar is our reporting currency, but we earn most of our revenues
and incur most of our expenses in ZAR. The U.S. 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 $20,043 per month, while interest earned per
month on any surplus cash increases by $11,386 per $14.1 million (ZAR 100
million).

**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
Standard & Poors.

90

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**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-48 of this
Annual Report on Form 10-K.

91

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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, 2007

*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, 2007.

*Changes
in Internal Control over Financial Reporting*

During
  the year under review we completed our acquisition of Prism. Prism’s major
  processes were considered and evaluated by our Management as part of our evaluation
  of the effectiveness of Internal Control over Financial Reporting. There have
  not been any changes in our internal control over financial reporting during
  the most recent fiscal quarter ended June 30, 2007, that have materially affected,
  or are reasonably likely to materially affect, our internal control over financial
  reporting.

92

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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 its subsidiaries (the Company) to determine that the
Company maintained effective internal control over financial reporting as of
June 30, 2007, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). 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. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, 2007, based on the
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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, 2007 of the Company and our
report dated August 29, 2007 expressed an unqualified opinion on those financial
statements with an explanatory paragraph regarding the Companys adoption of
Statement of Financial Accounting Standards No. 123R, Share-Based
Payment, with effect from July 1, 2005 using the modified prospective
method.

/s/ Deloitte & Touche (South Africa) Chartered
Accountants (SA) Johannesburg, Republic of South Africa August
29, 2007

93

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ITEM 9B. OTHER INFORMATION

Not
  applicable.

94

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

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 2007, entitled Election of Directors, Executive Officers 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 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 2007, entitled Compensation Discussion and Analysis, Summary
Compensation Table, Grants of Plan-Based Awards, Outstanding Equity Awards
at Fiscal Year-End, Options Exercised and Stock Vested in Fiscal 2007,
Compensation of Directors, Potential Payments Upon Termination 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 2007, entitled Security Ownership of Certain Beneficial Owners and
Management, 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 2007, entitled Certain Relationships and Related Transactions, and
Director Independence, 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 2007, 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.

95

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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-48                                             |    
|   |                                                                                                                             |    
|   | Report
      of the Independent Registered Public Accounting Firm  Deloitte &
      Touche (South Africa)                  | F-2
|   |                                                                                                                             |    
|   | Consolidated
      Balance Sheets  as of June 30, 2007 and 2006                                                            | F-3
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Operations  for the years ended June 30, 2007, 2006 and
      2005                        | F-4
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Movements in Shareholders Equity  for the years ended June
      30, 2007, 2006 and 2005 | F-5
|   |                                                                                                                             |    
|   | Consolidated
      Statements of Cash Flows  for the years ended June 30, 2007, 2006 and
      2005                        | 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 Exhibit2.4
      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 Parters 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))                                                                                                                                                                               

96

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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.                                                                                       
|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 3.5 to our Form 8-K filed on
      June 7, 2005 (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  | Service Level Agreement between the Department of Social
      Welfare and Population Development, KwaZulu 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))                    
|10.4  | 2004 Stock Incentive Plan (included as Annex B to the
      proxy statement/prospectus) (Incorporated by reference to Exhibit 10.5 to
      our Registration Statement on Form S-4 filed February 3, 2004 (Commission
      File No. 333- 112463))                                                                                                          
|10.5  | Product License Agreement between Net 1 Holdings S.a.r.l.
      and Banque De Gestion Et De Financement Burundi (Incorporated by reference
      to Exhibit 10.6 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  | Product License Agreement between Net 1 Holdings S.a.r.l.
      and Banque De Commerce, De Development Et DIndustrie B.C.D.I. S.A. Rwanda
      (Incorporated by reference to Exhibit 10.7 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  | 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))                                                                              
|10.8  | 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))                                     
|10.9  | 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))                                                 
|10.10 | 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))                                                          
|10.11 | 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))                                             
|10.12 | 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))                                                                                                     
|10.13 | 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))                                                                                                                 
|10.14 | 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))                                    
|10.15 | 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))                                                                                                            
|10.16 | 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))                                      

97

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|10.17 | 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))                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 | 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))                                                                                                                                                                                                                                                                                                                                                                                               
|10.19 | 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))                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.20 | 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
      No. 333-125273))
|10.21 | Placement Agent Agreement, dated July 18, 2005, among
      Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc., as
      Placement Agents, the sellers party thereto, and Net 1 UEPS Technologies,
      Inc. (Incorporated by reference to Exhibit 10.22 to our Registration
      Statement on Form S-1/A filed August 1, 2005 (Commission File No.
      333-125273))                                                                                                                                                                                                                                                                                                                           
|10.22 | Amendment No. 1 to the Stock Purchase Agreement dated as
      of August 11, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.23 | Stock Option Agreement dated as of January 9, 2006, by
      and between Net 1 UEPS Technologies, Inc. and David A. Schwarzbach
      (Incorporated by reference to Exhibit 10.24 to our Quarterly Report on
      Form 10-Q filed February 7, 2006 (Commission File No.
000-31203))                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.24 | Employment Agreement dated as of January 9, 2006, by and
      between Net 1 UEPS Technologies, Inc. and David A. Schwarzbach
      (Incorporated by reference to Exhibit 10.25 to our Quarterly Report on
      Form 10-Q filed February 7, 2006 (Commission File No.
000-31203))                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.25 | 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))                                                                                                                                                                                                                                                                                                                                                           
|10.26 | Addendum to service level agreement dated as of April 14,
      2006, entered into by and between the KwaZulu- 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))                                                                                                                                                                                                                                                                                          
|10.27 | 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))                                                                                                                                                                                                                                                                                                                                                                                                    
|10.28 | 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))                                                                                                                                                                                                                                                                                                                                                            
|10.29 | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.30 | 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))                                                                                                                                                                                                                                                                                                                                                                  
|10.31 | 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))                                                                                                                                                                                                                                                                                                                                              
|10.32 | 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))                                                                                                                                                                                                                                                                                                                           
|10.33 | 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))                                                                                                                                                                                                                                                                                                                                                
|10.34 | 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))                                                                                                                                                                                                                                                                                                                                                

98

---

|10.35 | 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))
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.36 | Restricted Stock Agreement
        by and between Net 1 UEPS Technologies, Inc. and Serge Christian Pierre
        Belamant                                                                                                                                                                                                                                                        
|10.37 | Restricted Stock Agreement
        by and between Net 1 UEPS Technologies, Inc. and Herman Gideon Kotze                                                                                                                                                                                                                                                                            
|10.38 | Restricted Stock Agreement
        by and between Net 1 UEPS Technologies, Inc. and Brenda Lynn Stewart                                                                                                                                                                                                                                                                            
|10.39 | Restricted Stock Agreement
        by and between Net 1 UEPS Technologies, Inc. and Nitin Soma                                                                                                                                                                                                                                                                                     
|10.40 | Form of Restricted Stock
        Agreement by and between Net 1 UEPS Technologies, Inc. and employees of
        Net 1 UEPS Technologies, Inc.                                                                                                                                                                                                                                     
|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 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                           

99

---

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 29, 2007

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           
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------------
|                                            |                                                                                                                        |                
|/s/ Serge C.P. Belamant Serge C.P. Belamant | Chief Executive Officer and
      Chairman of the Board and Director (Principal Executive Officer)                     | August 29, 2007
|                                            |                                                                                                                        |                
|                                            |                                                                                                                        |                
|/s/ Herman Gideon Kotze Herman Gideon Kotze | Chief Financial Officer,
      Treasurer and Secretary and Director (Principal Financial and Accounting
      Officer) | August 29, 2007
|                                            |                                                                                                                        |                
|/s/ Antony Charles Ball                     | Director                                                                                                               | August 29, 2007
|Antony Charles Ball                         |                                                                                                                        |                
|                                            |                                                                                                                        |                
|/s/ Christopher Stefan Seabrooke            | Director                                                                                                               | August 29, 2007
|Christopher Stefan Seabrooke                |                                                                                                                        |                
|                                            |                                                                                                                        |                
|/s/ Alasdair Jonathan Kemsley Pein          | Director                                                                                                               | August 29, 2007
|Alasdair Jonathan Kemsley Pein              |                                                                                                                        |                
|                                            |                                                                                                                        |                
|/s/ Paul Edwards                            | Director                                                                                                               | August 29, 2007
|Paul Edwards                                |                                                                                                                        |                
|                                            |                                                                                                                        |                
|/s/ Florian P. Wendelstadt                  | Director                                                                                                               | August 29, 2007
|Floridan P. Wendelstadt                     |                                                                                                                        |                

100

---

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, 2007 and 2006                                                            | F-3
|                                                                                                                    |    
|Consolidated statements of operations for the years ended
      June 30, 2007, 2006 and 2005                        | F-4
|                                                                                                                    |    
|Consolidated statements of movements in shareholders
      equity for the years ended June 30, 2007, 2006 and 2005 | F-5
|                                                                                                                    |    
|Consolidated statements of cash flows for the years ended
      June 30, 2007, 2006 and 2005                        | 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, 2007 and 2006 and the related consolidated
  statements of income, shareholders equity and cash flows for each of the
  three years in the period ended June 30, 2007. 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 the Company at June 30, 2007 and 2006 and the results
  of its operations and its cash flows for each of the three years in the period
  ended June 30, 2007 in conformity with accounting principles generally accepted
  in the United States of America.

Effective July 1, 2005, the Company
  changed its method of accounting for stock based compensation to conform to
  Statement of Financial Accounting Standards No. 123R, Share-Based Payment.
  The Statement was adopted using the modified prospective method and accordingly
  prior periods information has not been restated.

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, 2007, based on the criteria established in Internal Control—Integrated
  Framework issued by the Committee of Sponsoring Organizations of the Treadway
  Commission (COSO) and our report dated August 29, 2007, 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 29, 2007

F-2

---

NET 1 UEPS TECHNOLOGIES, INC. 
  CONSOLIDATED BALANCE SHEETS 
  as of June 30, 2007 and 2006

|                                                                               |   | 2007                              |   |   | 2006    |  
|------------------------------------------------------------------------------ | - | --------------------------------- | - | - | ------- | -
|                                                                               |   | (In thousands, except share data) |  
|                                                                               |   |                                   |   |   |         |  
|ASSETS                                                                         |   |                                   |   |   |         |  
|CURRENT ASSETS                                                                 |   |                                   |   |   |         |  
|Cash and cash equivalents                                                      | $ | 171,727                           |   | $ | 189,735 |  
|Pre-funded
      social welfare grants receivable                              |   | 26,817                            |   |   | 17,223  |  
|Accounts receivable, net                                                       |   | 30,503                            |   |   | 21,219  |  
|Finance
      loans receivable, net                                            |   | 5,755                             |   |   | 6,713   |  
|Deferred expenditure on smart cards                                            |   | 507                               |   |   | 656     |  
|Inventory                                                                      |   | 5,645                             |   |   | 1,935   |  
|Deferred income taxes                                                          |   | 7,028                             |   |   | 3,237   |  
|Total current assets                                                           |   | 247,982                           |   |   | 240,718 |  
|                                                                               |   |                                   |   |   |         |  
|LONG-TERM RECEIVABLES                                                          |   | 54                                |   |   | 946     |  
|PROPERTY, PLANT AND EQUIPMENT, net                                             |   | 7,582                             |   |   | 3,757   |  
|EQUITY-ACCOUNTED INVESTMENTS                                                   |   | 2,992                             |   |   | 4,986   |  
|GOODWILL                                                                       |   | 85,871                            |   |   | 13,923  |  
|INTANGIBLE ASSETS, net                                                         |   | 31,609                            |   |   | 5,649   |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL ASSETS                                                                   |   | 376,090                           |   |   | 269,979 |  
|                                                                               |   |                                   |   |   |         |  
|LIABILITIES                                                                    |   |                                   |   |   |         |  
|CURRENT LIABILITIES                                                            |   |                                   |   |   |         |  
|Bank
      overdraft                                                           |   | 16                                |   |   | 20      |  
|Accounts payable                                                               |   | 5,879                             |   |   | 2,073   |  
|Other
      payables                                                           |   | 34,457                            |   |   | 28,575  |  
|Income taxes payable                                                           |   | 14,346                            |   |   | 12,455  |  
|Total current liabilities                                                      |   | 54,698                            |   |   | 43,123  |  
|                                                                               |   |                                   |   |   |         |  
|DEFERRED INCOME TAXES                                                          |   | 36,219                            |   |   | 17,846  |  
|                                                                               |   |                                   |   |   |         |  
|INTEREST BEARING LIABILITIES  outside shareholders loans                      |   | 4,100                             |   |   | -       |  
|                                                                               |   |                                   |   |   |         |  
|COMMITMENTS AND CONTINGENCIES                                                  |   | -                                 |   |   | -       |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL LIABILITIES                                                              |   | 95,017                            |   |   | 60,969  |  
|                                                                               |   |                                   |   |   |         |  
|SHAREHOLDERS EQUITY                                                           |   |                                   |   |   |         |  
|COMMON STOCK                                                                   |   |                                   |   |   |         |  
|Authorized
      shares: 83,333,333 with $0.001 par value;                     |   |                                   |   |   |         |  
|Issued and outstanding shares: 2007: 51,730,547; 2006: 49,744,852              |   | 52                                |   |   | 50      |  
|                                                                               |   |                                   |   |   |         |  
|SPECIAL CONVERTIBLE PREFERRED STOCK                                            |   |                                   |   |   |         |  
|Authorized
      shares: 50,000,000 with $0.001 par value;                     |   |                                   |   |   |         |  
|Issued and outstanding shares: 2007: 5,656,110; 2006: 7,315,099                |   | 5                                 |   |   | 7       |  
|                                                                               |   |                                   |   |   |         |  
|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):
      2007: |   |                                   |   |   |         |  
|41,676,625;
      2006: 53,900,752                                             |   | 7                                 |   |   | 9       |  
|                                                                               |   |                                   |   |   |         |  
|ADDITIONAL PAID-IN CAPITAL                                                     |   | 112,167                           |   |   | 105,792 |  
|                                                                               |   |                                   |   |   |         |  
|TREASURY SHARES, AT COST: 2007: 299,821; 2006: 147,973                         |   | (7,795                            | ) |   | (3,958  | )
|                                                                               |   |                                   |   |   |         |  
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                           |   | (3,915                            | ) |   | (9,763  | )
|                                                                               |   |                                   |   |   |         |  
|RETAINED EARNINGS                                                              |   | 180,552                           |   |   | 116,873 |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL SHAREHOLDERS EQUITY                                                     |   | 281,073                           |   |   | 209,010 |  
|                                                                               |   |                                   |   |   |         |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                     | $ | 376,090                           |   | $ | 269,979 |  

See accompanying notes to consolidated financial statements.

F-3

---

NET 1 UEPS TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended June 30, 2007, 2006 and 2005

|                                                               |   | 2007                                  |  |   | 2006    |  |   | 2005    | 
|-------------------------------------------------------------- | - | ------------------------------------- |  | - | ------- |  | - | ------- | 
|                                                               |   | (In thousands, except per share data) | 
|REVENUE                                                        | $ | 223,968                               |  | $ | 196,098 |  | $ | 176,290 | 
|Sale of goods                                                  |   | 27,716                                |  |   | 17,867  |  |   | 11,885  | 
|Loan-based interest and
      fees received                    |   | 11,460                                |  |   | 15,017  |  |   | 19,069  | 
|Services rendered                                              |   | 184,792                               |  |   | 163,214 |  |   | 145,336 | 
|EXPENSE                                                        |   |                                       |  |   |         |  |   |         | 
|Cost of goods sold, IT processing, servicing
      and support |   | 54,417                                |  |   | 50,619  |  |   | 50,682  | 
|Selling, general and administration                            |   | 61,625                                |  |   | 48,627  |  |   | 45,897  | 
|Depreciation and amortization                                  |   | 11,050                                |  |   | 5,710   |  |   | 6,591   | 
|Costs related to public
      offering and Nasdaq listing      |   | -                                     |  |   | 1,529   |  |   | 1,817   | 
|OPERATING INCOME                                               |   | 96,876                                |  |   | 89,613  |  |   | 71,303  | 
|INTEREST INCOME, net                                           |   | 4,401                                 |  |   | 5,889   |  |   | 2,389   | 
|INCOME BEFORE INCOME TAXES                                     |   | 101,277                               |  |   | 95,502  |  |   | 73,692  | 
|INCOME TAX EXPENSE                                             |   | 37,574                                |  |   | 36,653  |  |   | 29,666  | 
|NET INCOME BEFORE MINORITY INTEREST AND EARNINGS FROM          |   |                                       |  |   |         |  |   |         | 
|EQUITY-ACCOUNTED INVESTMENTS                                   |   | 63,703                                |  |   | 58,849  |  |   | 44,026  | 
|MINORITY INTEREST                                              |   | 205                                   |  |   | -       |  |   | -       | 
|EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS                     |   | 181                                   |  |   | 383     |  |   | 536     | 
|NET INCOME                                                     | $ | 63,679                                |  | $ | 59,232  |  | $ | 44,562  | 
|Net income per share                                           |   |                                       |  |   |         |  |   |         | 
|Basic earnings  common stock and
      linked units           |   | 1.12                                  |  |   | 1.05    |  |   | 0.81    | 
|Diluted earnings 
      common stock and linked units         |   | 1.11                                  |  |   | 1.03    |  |   | 0.80    | 

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, 2007, 2006 and 2005

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, 2004
      
      22,539,204
      
      
      23
      
      
      
      
      
      -
      
      
      71,954
      
      
      32,161,190
      
      
      32
      
      
      236,977,187
      
      
      38
      
      
      8,502
      
      
      15,039
      
      
      95,588Net Income
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      44,562
      
      
      
      
      
      44,562
      
      
      44,562Recognition of deferred tax asset,net of valuation allowance
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,577
      
      
      
      
      
      4,577Exercise of options by holders
      
      581,396
      
      
      1
      
      
      
      
      
      
      
      
      1,743
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,744Loan note consideration forstock issued in accordance with2004 Stock Incentive Plan
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,744
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,744
      )Conversion from specialconvertible preferred stock tocommon stock and cession of Bclass preference shares and Bclass loans to Net 1 as a result oftrigger events
      
      5,427,669
      
      
      5
      
      
      
      
      
      
      
      
      7
      
      
      (5,427,669
      )
      
      (5
      )
      
      (39,993,346
      )
      
      (7
      )
      
      
      
      
      
      
      
      -Movement in Foreign CurrencyTranslation Reserve
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (7,725
      )
      
      (7,725
      )
      
      (7,725
      )Balance - June 30, 2005
      
      28,548,269
      
      
      29
      
      
      -
      
      
      -
      
      
      71,960
      
      
      26,733,521
      
      
      27
      
      
      196,983,841
      
      
      31
      
      
      57,641
      
      
      7,314
      
      
      137,002
      
      
      36,837Net 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 sold byemployees
      
      
      
      
      
      
      
      
      
      
      
      
      
      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
      
      $
      69,527


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, 2007, 2006 and 2005

|                                                                                       |   | 2007    |   |   | 2006           |   |   | 2005    |  
|-------------------------------------------------------------------------------------- | - | ------- | - | - | -------------- | - | - | ------- | -
|                                                                                       |   |         |   |   | (In thousands) |   |   |         |  
|                                                                                       |   |         |   |   |                |   |   |         |  
|Cash flows from operating activities                                                   |   |         |   |   |                |   |   |         |  
|Net income                                                                             | $ | 63,679  |   | $ | 59,232         |   | $ | 44,562  |  
|Adjustments to reconcile net income to net
      cash provide by operating activities: |   |         |   |   |                |   |   |         |  
|Depreciation and amortization                                                          |   | 11,050  |   |   | 5,710          |   |   | 6,591   |  
|Earnings from equity-accounted
      investments                                       |   | (181    | ) |   | (383           | ) |   | (536    | )
|Fair value adjustment related to financial
      liabilities                           |   | 161     |   |   | 6              |   |   | 49      |  
|Fair value adjustments
      of FAS 133 derivative instruments                         |   | 25      |   |   | (90            | ) |   | (507    | )
|Interest payable                                                                       |   | 234     |   |   | -              |   |   | -       |  
|(Profit) Loss on disposal
      of property, plant and equipment                       |   | (286    | ) |   | (210           | ) |   | 14      |  
|Loss on disposal of equity-accounted investment
       Permit Group 2 (Pty) Ltd       |   | 586     |   |   | -              |   |   | -       |  
|Profit on disposal of business                                                         |   | -       |   |   | (10            | ) |   | -       |  
|Minority interest                                                                      |   | 205     |   |   | -              |   |   | -       |  
|Stock compensation charge,
      net of forfeitures                                    |   | 910     |   |   | 150            |   |   | -       |  
|Write down of property, plant and equipment                                            |   | -       |   |   | 314            |   |   | -       |  
|Other                                                                                  |   | -       |   |   | -              |   |   | (34     | )
|Increase in accounts receivable, pre-funded
      social welfare grants                |   |         |   |   |                |   |   |         |  
|receivable and finance
      loans receivable                                          |   | (9,469  | ) |   | (13,870        | ) |   | (5,462  | )
|Decrease in deferred expenditure on smart
      cards                                  |   | 155     |   |   | 3,199          |   |   | 1,063   |  
|Increase in inventory                                                                  |   | (2,203  | ) |   | (109           | ) |   | (979    | )
|(Decrease) Increase in accounts payable
      and other payables                       |   | (1,470  | ) |   | 13,183         |   |   | (1,850  | )
|Increase (Decrease) in
      taxes payable                                             |   | 268     |   |   | (471           | ) |   | (10,723 | )
|Increase in deferred taxes                                                             |   | 1,802   |   |   | 9,126          |   |   | 5,954   |  
|Net cash provided by operating activities                                              |   | 65,466  |   |   | 75,777         |   |   | 38,142  |  
|                                                                                       |   |         |   |   |                |   |   |         |  
|Cash flows from investing activities                                                   |   |         |   |   |                |   |   |         |  
|Capital expenditures                                                                   |   | (3,745  | ) |   | (1,821         | ) |   | (3,436  | )
|Proceeds from disposal of property, plant and
      equipment                          |   | 685     |   |   | 336            |   |   | 39      |  
|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                    |   | (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                                            |   | (91,540 | ) |   | (5,505         | ) |   | (3,397  | )
|                                                                                       |   |         |   |   |                |   |   |         |  
|Cash flows from financing activities                                                   |   |         |   |   |                |   |   |         |  
|Proceeds from issue of common stock                                                    |   | 909     |   |   | 33,661         |   |   | -       |  
|Acquisition of treasury stock                                                          |   | (1,000  | ) |   | (3,958         | ) |   | -       |  
|Proceeds from bank overdraft                                                           |   | 84,657  |   |   | 20             |   |   | -       |  
|Repayment of bank overdraft                                                            |   | (84,854 | ) |   | -              |   |   | (19     | )
|Proceeds from interest bearing liabilities                                             |   | 3,513   |   |   | -              |   |   | -       |  
|Net cash provided by
      (used in) financing activities                              |   | 3,225   |   |   | 29,723         |   |   | (19     | )
|                                                                                       |   |         |   |   |                |   |   |         |  
|Effect of exchange rate changes on cash                                                |   | 4,841   |   |   | (18,009        | ) |   | (7,259  | )
|                                                                                       |   |         |   |   |                |   |   |         |  
|Net (decrease) increase in cash and cash
      equivalents                             |   | (18,008 | ) |   | 81,986         |   |   | 27,467  |  
|                                                                                       |   |         |   |   |                |   |   |         |  
|Cash and cash equivalents  beginning
      of year                                    |   | 189,735 |   |   | 107,749        |   |   | 80,282  |  
|                                                                                       |   |         |   |   |                |   |   |         |  
|Cash and cash equivalents at end of year                                               | $ | 171,727 |   | $ | 189,735        |   | $ | 107,749 |  

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, 2007, 2006 and 2005                                         
|(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 handles 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, Net 1 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, 2007, 2006 and 2005                                         
|(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 12  Capital Structure and Creditor Rights Attached
      to the B Class Loans for a detailed explanation of this treatment.

On June 13, 2005, Net1 effected
  a one-for-six reverse stock split. Under Florida corporate law the reverse stock
  split was not required to be approved by the Net1s shareholders. The following
  were previously retroactively restated as a result of the reverse stock split:

- number of shares of common and special convertible stock authorized, issued
      and outstanding, and the conversion ratio applicable to the securities included
      in the linked units issued in the transaction;
- stock issued under any of Net1s stock compensation plans, including
      stock issued pursuant to the Net1s 2004 Stock Incentive Plan;
- all per share measures, including, but not limited to basic and diluted
      earnings per share;
- certain price per share information related to the June 2004 Aplitec transaction;
      and
- reallocation of amounts from common stock to additional paid in capital
      as the par value of $0.001 per share did not change.

On July 3, 2007, 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, 2007, for approximately
  $95.2 million in cash. This transaction is discussed in more detail in Note
  3.

**2.**     **SIGNIFICANT
  ACCOUNTING POLICIES**

***Basis of presentation***

The accompanying consolidated financial
  statements include all majority owned 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, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**2. S****IGNIFICANT 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, 2007 and 2006.

***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.

***Changes to comparative
  information***

The consolidated statement of cash
  flows is presented using the indirect method with supplemental note disclosures
  for the years ended June 30, 2007, 2006 and 2005. The Companys 2006 Annual
  Report on Form 10-K presented the consolidated statement of cash flows for the
  years ended June 30, 2006 and 2005 using the direct method with supplemental
  note disclosures.

***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 yearsOffice equipment
      3 to 6 yearsVehicles
      4 to 5 yearsFurniture and fittings
      5 to 10 yearsPlant 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, 2007, 2006 and 2005                                         
|(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. The
  income tax rate is currently 29%, but upon distribution an additional tax (Secondary
  Tax on Companies, or STC) of 12.5% 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 36.89% . The income tax rate during the year ended June 30, 2005 was
  30%, and the combined rate was 37.78% . The decrease in the statutory rate of
  taxation for South African domiciled companies from 30% to 29% for all fiscal
  years ending on or after April 1, 2005 was promulgated on July 19, 2005, which
  has resulted in a decrease in the Companys distributed rate from 37.78%
  to 36.89% for all fiscal years commencing on or after July 1, 2005.

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.

***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 including:
  amounts at which the unit as a whole could be bought or sold in a current transaction
  between willing parties; using present value techniques of estimated future
  cash flows; or using valuation techniques based on multiples of earnings or
  revenue, or a similar performance measure.

***Intangible assets***

Intangible assets are shown at
  cost less accumulated amortization and are amortized over their useful lives,
  which vary between five and ten 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 our
  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.

F-10

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**2.**     **SIGNIFICANT
  ACCOUNTING POLICIES (continued)**

***Translation of foreign
  currencies***

The functional currency of the
  Company is the South African rand and its reporting currency is the U.S. dollar.
  The current rate method is used to translate the financial statements of the
  Company to U.S. dollars. 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 income 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; and
- 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.

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 a consideration of post contract maintenance
  and technical support or other future obligations which could impact the timing
  and amount of revenue recognized.

F-11

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**2.**     **SIGNIFICANT
  ACCOUNTING POLICIES (continued)**

***Revenue recognition
  (continued)***

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 income statement 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 recognised 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 percent complete
  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.

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
  are charged to net income in the periods in which they are incurred. During
  the years ended June 30, 2007, 2006 and 2005, the Company incurred research
  and development expenditures of $4.9 million, $0.6 million and $0.6 million,
  respectively.

F-12

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**2.**     **SIGNIFICANT
  ACCOUNTING POLICIES (continued)**

***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 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.

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 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).

F-13

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

2.      SIGNIFICANT ACCOUNTING POLICIES
  (continued)

***Stock-based compensation
  (continued)***

For the year ended June 30, 2005,
  the Company accounted for its stock options using the intrinsic-value method
  prescribed in APB 25. Accordingly, compensation costs of stock options was measured
  as the excess, if any, of the quoted market price of the Companys stock
  at the measurement date over the option exercise price and was charged to operations
  over the vesting period. For plans where the measurement date occurred after
  the grant date, referred to as variable plans, compensation cost was remeasured
  on the basis of the current market value of the Companys stock at the
  end of each reporting period.

The Company recognized compensation
  expense for variable plans with performance conditions if achievement of those
  conditions becomes probable. As required by FAS 123, the Company has included
  in these financial statements the required pro forma disclosures as if the fair-value
  method of accounting had been applied.

***Recent accounting pronouncements
  adopted***

In April 2006, the Financial Accounting
  Standard Board (FASB) issued FASB Staff Position (FSP)
  No. FIN No. 46(R)-6, Determining the Variability to be Considered in Applying
  FASB Interpretation No. 46(R) (FSP FIN 46(R)-6). FSP FIN 46(R)-6
  introduces the by-design approach to determine the variability to
  consider when applying FASB Interpretation No. 46(R) Consolidation of Variable
  Interest Entities - an Interpretation of ARB No. 51 (FIN 46(R)).
  FSP FIN 46(R)-6 requires an analysis of the design of the entity in determining
  the variability to be considered in applying FIN 46(R), and provides the following
  two steps:

- Analyze the nature of the risks in the entity; and
- Determine the purpose(s) for which the entity was created and determine
    the variability (created by the risks identified in step 1) the entity is
    designed to create and pass along to interest holders.

FSP FIN 46(R)-6 should be applied
  prospectively to all entities (including newly created entities) with which
  an enterprise first becomes involved, and to all entities previously required
  to be analyzed under FIN 46(R) when a reconsideration event has occurred beginning
  the first day of the first reporting period beginning after June 15, 2006. The
  adoption of FSP FIN 46(R)-6 by the Company did not have an impact on its overall
  results of operations, financial position or cash flows.

In June 2006, the EITF reached
  a consensus on EITF 06-3, How Sales Taxes Collected from Customers and Remitted
  to Governmental Authorities should be presented in the Income Statement (That
  Is, Gross versus Net Presentation)(EITF 06-3). The scope of
  EITF 06-3 includes any tax assessed by a governmental authority that is directly
  imposed on a revenue producing transaction between a seller and a customer and
  may include, but is not limited to, sales, use, value added, and some excise
  taxes. EITF 06-3 concluded that the presentation of taxes within the scope of
  EITF 06-3 as either gross (included within revenues and costs) or net (excluded
  from revenues) is an accounting policy decision that should be disclosed. In
  addition, for any such taxes that are reported on a gross basis, a company should
  disclose the amounts of those taxes in interim and annual financial statements
  for each period for which an income statement is presented if those amounts
  are significant. The disclosure of those taxes can be done on an aggregate basis.
  The guidance in EITF 06-3 should be applied to financial reports, through retrospective
  application for all periods presented, if amounts are significant, for interim
  and annual reporting periods beginning after December 15, 2006. On adoption
  of EITF 06-3, the Company continued to present revenues net of taxes. The adoption
  of EITF 06-03 did not have a material impact on the Company's consolidated financial
  position, results of operations or cash flows or financial statement disclosure.

In October 2006, the FASB issued
  FSP No. FAS 123(R)-5, Amendment of FASB Staff Position FAS 123(R)-1(FSP
  FAS 123(R)-5). FSP FAS 123(R)-5 addresses whether a modification of an
  instrument in connection with an equity restructuring should be considered a
  modification for purposes of applying FSP FAS 123(R)-1, Classification and
  Measurement of Freestanding Financial Instruments Originally Issued in Exchange
  for Employee Services under FASB Statement No. 123(R).

F-14

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**2.**     **SIGNIFICANT
  ACCOUNTING POLICIES (continued)**

***Recent accounting pronouncements
  adopted (continued)***

FASB concluded that for instruments
  that were originally issued as employee compensation and then modified, and
  that modification is made to the terms of the instrument solely to reflect an
  equity restructuring that occurs when the holders are no longer employees, no
  change in the recognition or the measurement (due to a change in classification)
  of those instruments will result if both of the following conditions are met:

- There is no increase in fair value of the award (or the ratio of intrinsic
    value to the exercise price of the award is preserved, that is, the holder
    is made whole), or the antidilution provision is not added to the terms of
    the award in contemplation of an equity restructuring; and
- All holders of the same class of equity instruments (for example, stock
    options) are treated in the same manner.

The adoption of FSP FAS 123(R)-5
  by the Company did not have an impact on its overall results of operations,
  financial position or cash flows.

In November 2006, the EITF reached
  consensus on EITF No. 06-9, Reporting a Change in (or the Elimination of)
  a Previously Existing Difference between the Fiscal Year-End of a Parent Company
  and That of a Consolidated Entity or between the Reporting Period of an Investor
  and That of an Equity Method Investee (EITF 06-9). The EITF reached
  a consensus that a change in a subsidiarys or equity method investees
  reporting period is a change in accounting principle. Therefore, the parent
  or investor should recognize the effects of the change through retrospective
  application to all prior periods presented pursuant to Statement 154, Accounting
  Changes and Error Corrections. EITF 06-9 is effective for interim and annual
  reporting periods beginning after November 29, 2006. The adoption of EITF 06-9
  by the Company did not have an impact on its overall results of operations,
  financial position or cash flows.

In September 2006, the Securities
  and Exchange Commission staff issued Staff Accounting Bulletin (SAB)
  No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
  Current Year Misstatements (SAB 108). SAB 108 requires companies
  to quantify misstatements using both a balance sheet (iron curtain) and an income
  statement (rollover) approach to evaluate whether either approach results in
  an error that is material in light of relevant quantitative and qualitative
  factors, and provides for a one-time cumulative effect transition adjustment.
  The adoption of SAB 108 by the Company did not have an impact on its overall
  results of operations, financial position or cash flows.

***Recent accounting pronouncements
  not yet adopted as of June 30, 2007***

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 has not yet assessed
  the impact of the adoption of FAS 157 on its overall results of operations,
  financial position or cash flows.

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 SFAS 159 and has not yet determined the impact that the adoption of
  this standard will have on its 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, 2007, 2006 and 2005                                         
|(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, 2007 (continued)***

In July 2006, the FASB issued 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. The evaluation of a tax position
  under FIN 48 is a two-step process. The first step is recognition: Tax positions
  taken or expected to be taken in a tax return should be recognized only if those
  positions are more likely than not of being sustained upon examination, based
  on the technical merits of the position. In evaluating whether a tax position
  has met the more likely than not recognition threshold, it should be presumed
  that the position will be examined by the relevant taxing authority that would
  have full knowledge of all relevant information. The second step is measurement:
  Tax positions that meet the recognition criteria are measured at the largest
  amount of benefit that is greater than 50 percent likely of being recognized
  upon ultimate settlement.

FIN 48 also provides guidance on
  derecognition, classification, interest and penalties, accounting in interim
  periods, disclosure and transition. FIN 48 is effective for fiscal years beginning
  after December 15, 2006 and is effective for the Company in the first quarter
  of the year beginning July 1, 2007. The Company is currently assessing FIN 48
  and has not yet determined the impact that the adoption of this interpretation
  will have on its financial position or results of operations.

**3.**     **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, Business Combinations (FAS 141).

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.

F-16

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**3.**     **ACQUISITIONS
  (continued)**

***2007 Acquisitions (continued)***

Prism (continued)

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
      $
      95,178Costs directly related to the acquisition
      
      2,342Total 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
      $
      15,090Accounts receivable, net
      
      7,756Inventory
      
      1,497Property, plant and equipment
      
      4,211Intangible assets (see Note 10)
      
      27,900Trade and other payables
      
      (13,842
      )Income taxes payable
      
      (1,223
      )Deferred tax assets
      
      2,993Deferred tax liabilities
      
      (10,366
      )Minority interests
      
      (751
      )Goodwill (see Note 10)
      
      64,255Total purchase price
      $
      97,520


The purchase price allocation was
  performed by the Companys management with the assistance of an independent
  appraiser 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.

Pro forma results of operations
  for the current period as though the business combination or combinations had
  been completed at the beginning of the period have been omitted as the acquisition
  of Prism was completed on July 3, 2006.

F-17

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**3.**     **ACQUISITIONS
  (continued)**

***2007 Acquisitions (continued)***

Prism (continued)

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.

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.

F-18

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**3.**     **ACQUISITIONS
  (continued)**

***2007 Acquisitions (continued)***

EasyPay (continued)

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
      $
      8,773Costs directly related to the acquisition
      
      22Total 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 preliminary allocation of the purchase price using exchange
  rates applicable as of October 1, 2006:

Property, plant and equipment
      $
      1,848Trade and other receivables
      
      1,202Cash and cash equivalents
      
      2,477Trade and other payables
      
      (3,864
      )Amounts owing to group companies
      
      (158
      )Taxation
      
      (324
      )Intangible assets (see Note 10)
      
      16,155Deferred tax assets
      
      132Deferred tax liabilities
      
      (4,685
      )Total value of EasyPay
      
      12,783Fair value of remaining 25.1% of EasyPay acquired
      
      3,209Purchase price
      
      8,795Goodwill acquired (see Note 10)
      $
      5,586


The purchase price allocation was
  based on management estimates as of June 30, 2007 and may be adjusted up to
  one year following the closing of the transaction.

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.

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, 2007, the Company has provided loan funding totaling
  approximately $1.6 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 have 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,
  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.

F-19

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**4.**     **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 2007 payment service commenced during
  the last four days of June 2007 and was offered at government pay points and
  at merchant locations.

**5.**     **ACCOUNTS
  RECEIVABLE AND FINANCE LOANS RECEIVABLE**

|                                                                    |   | 2007   |   |  |   | 2006   |  
|------------------------------------------------------------------- | - | ------ | - |  | - | ------ | -
|                                                                    |   |        |   |  |   |        |  
|Accounts receivable, trade, net                                     | $ | 24,026 |   |  | $ | 16,695 |  
|Accounts receivable, trade, gross                                   |   | 24,581 |   |  |   | 16,854 |  
|Allowance for doubtful accounts
      receivable, end of year       |   | 555    |   |  |   | 159    |  
|Allowance for doubtful accounts
      receivable, beginning of year |   |        |   |  |   |        |  
|re-measured
      at year end rates                                 |   | 163    |   |  |   | -      |  
|Allowance charged to statement
      of operations, re-measured at  |   |        |   |  |   |        |  
|year end
      rates                                                |   | 558    |   |  |   | 163    |  
|Amount utilized, re-measured
      at year end rates                |   | (166   | ) |  |   | (4     | )
|                                                                    |   |        |   |  |   |        |  
|Prepaid establishment costs related to Grindrod opportunity         |   | 707    |   |  |   | -      |  
|Prepaid expenses related to Prism acquisition                       |   | -      |   |  |   | 582    |  
|Other receivables                                                   |   | 5,770  |   |  |   | 3,942  |  
|Total accounts receivable, net                                      |   | 30,503 |   |  |   | 21,219 |  
|                                                                    |   |        |   |  |   |        |  
|Finance loans receivable                                            |   |        |   |  |   |        |  
|UEPS-based lending                                                  |   | 3,265  |   |  |   | 2,992  |  
|Traditional microlending 
      net                                |   | 2,490  |   |  |   | 3,721  |  
|Traditional microlending
       gross                              |   | 5,263  |   |  |   | 7,169  |  
|Allowance
      for doubtful microlending loans , end of year       |   | 2,773  |   |  |   | 3,448  |  
|Allowance for
      doubtful microlending loans, beginning of year  |   |        |   |  |   |        |  
|re-measured
      at year end rates                                 |   | 3,542  |   |  |   | 3,344  |  
|Allowances
      charged to the statement of operations, re-        |   |        |   |  |   |        |  
|measured
      at year end rates                                    |   | 1,426  |   |  |   | 587    |  
|Amounts utilized,
      re-measured at year end rates               |   | (2,195 | ) |  |   | (483   | )
|                                                                    |   |        |   |  |   |        |  
|Total finance loans receivable                                      | $ | 5,755  |   |  | $ | 6,713  |  

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.

Accounts receivable, trade, also
  includes amounts due by customers from the sale of hardware and SIM cards.

In late 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 our wage payment solution in South Africa. Under the co-operation
  agreement, the Company was required to invest $0.7 million to facilitate the
  establishment of this retail banking decision. The Company opened a bank account
  with Grindrod and has transferred the funds and these funds will be drawn down
  as and when required by the retail banking division.

The prepaid expenses related to
  the acquisition of Prism as of June 30, 2006, included legal and other professional
  fees. The acquisition closed on July 3, 2006, and these amounts were capitalized
  to the purchase price of the acquisition.

F-20

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**6.**     **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 with the provincial government.

**7.**     **INVENTORY**

The Companys inventory comprised
  of the following categories as of June 30, 2007 and 2006.

2007
      
      
      2006Raw materials
      $
      588
      
      
      -Finished goods
      
      5,057
      
      $
      1,935$
      5,645
      
      $
      1,935


**8.**     **EQUITY-ACCOUNTED
  INVESTMENTS AND LONG-TERM RECEIVABLE**

*Permit Group 2 (Proprietary)
  Limited (Permit)*

On April 1, 2004, Aplitec purchased
  43% of the issued share capital of the Permit for $10. A loan of approximately
  $0.8 million, bearing interest at the then current South African prime rate,
  currently 11%, and with no fixed repayment terms, was made to Permit in April
  2004 and the proceeds of this loan was used to purchase 43% of a 95% interest
  in New Era Life Insurance Company Limited (New Era), a provider
  of various insurance products to the South African market.

Imvume Resources (Pty) Limited
  ("Imvume"), held the remaining 57% equity interest in Permit, and controls Permit
  through its majority voting rights. The Company had accounted for its 43% interest
  in Permit up to the date of disposal using the equity method.

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.

*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 of SmartSwitch Namibia.
  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 of SmartSwitch Botswana. 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.

F-21

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

8.      EQUITY-ACCOUNTED INVESTMENTS
  AND LONG-TERM RECEIVABLE (continued)

*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 of VTU Colombia. Therefore, the Company has not consolidated
  VTU Colombia, and has accounted for this investment using the equity method.

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 U.S. dollar and thus
  the investments are restated at the period end U.S. dollar/foreign currency
  exchange rate with an entry against accumulated other comprehensive income.
  The functional currency of Permit is the South African rand, the functional
  currency of SmartSwitch Namibia is the Namibian dollar, the functional currency
  of SmartSwitch Botswana is the Botswana pula and the functional currency of
  VTU Colombia is the Colombian peso.

Summarized below is the Companys
  interest in equity-accounted investments as of June 30, 2007 and 2006:

EarningsEquity
      
      
      Loans
      
      
      (Loss)
      
      
      Elimination
      
      
      TotalPermit:Balance as of July 1, 2005
      
      -
      
      $
      736
      
      $
      444
      
      $
      145
      
      $
      1,325Earnings from equity-accountedinvestment
      
      -
      
      
      -
      
      
      868
      
      
      101
      
      
      969Foreign currency adjustment(1)
      
      -
      
      
      (59
      )
      
      (145
      )
      
      (23
      )
      
      (227
      )Balance as of June 30,
        2006
      
      -
      
      
      677
      
      
      1,167
      
      
      223
      
      
      2,067Earnings from equity-accountedinvestment (5) (6)
      
      
      
      
      
      
      
      1,314
      
      
      101
      
      
      1,415Balance
        as of June 30, 2007(7)
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -SmartSwitch Namibia:Share capital acquired/ loansextended
      $
      634
      
      
      1,978
      
      
      
      
      
      
      
      
      2,612Loss from equity-accountedinvestment
      
      
      
      
      
      
      
      (68
      )
      
      (518
      )
      
      (586
      )Foreign currency adjustment(2)
      
      (98
      )
      
      (259
      )
      
      9
      
      
      61
      
      
      (287
      )Balance
        as of June 30, 2006
      
      536
      
      
      1,719
      
      
      (59
      )
      
      (457
      )
      
      1,739(Loss) Earnings from equity-accounted investment (5)
        (6)
      
      
      
      
      
      
      
      (347
      )
      
      85
      
      
      (262
      )Foreign currency adjustment(2)
      
      17
      
      
      48
      
      
      (10
      )
      
      22
      
      
      77Balance
        as of June 30, 2007
      
      553
      
      
      1,767
      
      
      (416
      )
      
      (350
      )
      
      1,554


F-22

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**8.**     **EQUITY-ACCOUNTED
  INVESTMENTS AND LONG-TERM RECEIVABLE (continued)**

SmartSwitch Botswana:Share capital acquired/ loansextended
      
      710
      
      
      708
      
      
      
      
      
      
      
      
      1,418(Loss) Earnings from equity-accounted investment
      
      
      
      
      
      
      
      (9
      )
      
      9
      
      
      -Foreign currency adjustment(3)
      
      (121
      )
      
      (117
      )
      
      -
      
      
      -
      
      
      (238
      )Balance
        as of June 30, 2006
      
      589
      
      
      591
      
      
      (9
      )
      
      9
      
      
      1,180Loans extended
      
      
      
      
      310
      
      
      
      
      
      
      
      
      310Loss from equity-accountedinvestment (5) (6)
      
      
      
      
      
      
      
      (245
      )
      
      (348
      )
      
      (593
      )Foreign currency adjustment(3)
      
      -
      
      
      17
      
      
      (1
      )
      
      (23
      )
      
      (7
      )Balance as of June 30, 2007
      
      589
      
      
      918
      
      
      (255
      )
      
      (362
      )
      
      890VTU De Colombia:Share capital acquired/ loansextended
      
      50
      
      
      892
      
      
      
      
      
      
      
      
      942Loss from equity-accountedinvestment (5) (6)
      
      
      
      
      
      
      
      (113
      )
      
      (266
      )
      
      (379
      )Foreign currency adjustment(4)
      
      (3
      )
      
      -
      
      
      (7
      )
      
      (5
      )
      
      (15
      )Balance as of June 30, 2007
      
      47
      
      
      892
      
      
      (120
      )
      
      (271
      )
      
      548Equity-accounted investments as ofJune 30, 2006
      
      1,125
      
      
      2,987
      
      
      1,099
      
      
      (225
      )
      
      4,986Equity-accounted investments as ofJune 30, 2007
      $
      1,189
      
      $
      3,577
      
      $
      (791
      )
      $
      (983
      )
      $
      2,992


(1)  the foreign currency
  adjustment represents the effects of the fluctuations between the South African
  rand and the U.S. dollar.

(2)  the foreign currency
  adjustment represents the effects of the fluctuations between the Namibian dollar
  and the U.S. dollar, except for the foreign currency adjustment for loan balance
  which represents the effects of the fluctuations between the South African rand
  and the U.S. dollar.

(3)  the foreign currency
  adjustment represents the effects of the fluctuations between the Botswana pula
  and the U.S. dollar, except for the foreign currency adjustment for loan balance
  which represents the effects of the fluctuations between the South African rand
  and the U.S. dollar.

(4)  the foreign currency
  adjustment represents the effects of the fluctuations between the Colombia peso
  and the U.S. dollar.

(5)  the sum of the earnings
  (loss) from equity accounted investment represents the amount presented on the
  earnings from equity-accounted investments line in the audited consolidated
  statement of operations for the year ended June 2007.

(6)  includes the elimination
  of unrealized net income as described below.

(7)  the equity-accounted
  investment in Permit was sold in May 2007 and there is no investment as of June
  30, 2007.

As the Company owns 50% of SmartSwitch
  Namibia, SmartSwitch Botswana VTU Colombia, respectively, it is required to
  eliminate 50% of the net income generated from sales to SmartSwitch Namibia
  and SmartSwitch Botswana. 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. During the year ended June
  30, 2006, the Company sold hardware and software to SmartSwitch Namibia. 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-23

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**9.**     **PROPERTY,
  PLANT AND EQUIPMENT**

2007
      
      
      2006Cost:Computer equipment
      $
      16,289
      
      $
      9,596Furniture and office equipment
      
      4,827
      
      
      2,868Motor vehicles
      
      8,470
      
      
      7,836Plant and equipment
      
      2,402
      
      
      -31,988
      
      
      20,300Accumulated depreciation:Computer equipment
      
      12,834
      
      
      7,722Furniture and office equipment
      
      2,763
      
      
      1,927Motor vehicles
      
      7,449
      
      
      6,894Plant and equipment
      
      1,360
      
      
      -24,406
      
      
      16,543Carrying amount:Computer equipment
      
      3,455
      
      
      1,874Furniture and office equipment
      
      2,064
      
      
      941Motor vehicles
      
      1,021
      
      
      942Plant and equipment
      
      1,042
      
      
      -$
      7,582
      
      $
      3,757


**10.**     **GOODWILL
  AND INTANGIBLE ASSETS**

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 goodwill associated
  with the acquisition of Prism and the remaining 25.1% of EasyPay represents
  the excess of cost over the fair value of acquired net assets. The goodwill
  is not deductible for taxation purposes. See Note 3 for the allocation of the
  purchase price to the fair value of acquired net assets.

**Goodwill**

The goodwill associated with the
  acquisition of Prism and the remaining 25.1% of EasyPay has been allocated to
  the Companys reportable segments, as follows:

|                                                |   | Prism,  |  |   | EasyPay,   | 
|----------------------------------------------- | - | ------- |  | - | ---------- | 
|                                                |   | July 3, |  |   | October 1, | 
|                                                |   | 2006    |  |   | 2006       | 
|Transaction-based activities                    | $ | 30,200  |  | $ | 5,586      | 
|Hardware, software and related technology sales |   | 34,055  |  |   | -          | 
|Total (see note 3)                              | $ | 64,255  |  | $ | 5,586      | 

Summarized below is the movement
  in carrying value of goodwill for the years ended June 30, 2007 and 2006:

CarryingvalueBalance as of June 30, 2005
      $
      14,636Foreign currency adjustment (1)
      
      (713
      )Balance as of June 30, 2006
      
      13,923Goodwill associated with the acquisition of
        Prism (see note 3)
      
      64,255Goodwill associated with the
        acquisition of EasyPay (see note 3)
      
      5,586Foreign currency adjustment (1)
      
      2,107Balance as of June 30, 2007
      $
      85,871


(1)  the foreign currency
  adjustment represents the effects of the fluctuations between the South African
  rand and the U.S. dollar on the carrying value.

F-24

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**10.**     **GOODWILL
  AND INTANGIBLE ASSETS (continued)**

**Goodwill (continued)**

As required by FAS 141 goodwill
  has been allocated to the Companys reportable segments as follows:

|                                                |   | 2007   |  |   | 2006   | 
|----------------------------------------------- | - | ------ |  | - | ------ | 
|                                                |   |        |  |   |        | 
|Transaction-based activities                    | $ | 39,391 |  | $ | 2,338  | 
|Smart card accounts                             |   | -      |  |   | -      | 
|Financial services                              |   | 5,014  |  |   | 4,880  | 
|Hardware, software and related technology sales |   | 41,466 |  |   | 6,705  | 
|Total                                           | $ | 85,871 |  | $ | 13,923 | 

**Intangible assets**

Summarized below are the fair values
  of the Prism intangible assets acquired, translated at the exchange rate applicable
  as of July 3, 2006, and the weighted-average amortization period of these intangible
  assets:

|                                                                       |   |               |  |  | Weighted-    | 
|---------------------------------------------------------------------- | - | ------------- |  |  | ------------ | 
|                                                                       |   |               |  |  | Average      | 
|                                                                       |   | Fair value    |  |  | Amortization | 
|                                                                       |   | as of July 3, |  |  | period (in   | 
|                                                                       |   | 2006          |  |  | years)       | 
|Finite-lived intangible assets:                                        |   |               |  |  |              | 
|Customer relationships                                                 | $ | 14,007        |  |  | 3  15       | 
|Software and unpatented technology                                     |   | 10,601        |  |  | 3            | 
|Trademarks                                                             |   | 3,292         |  |  | 5  20       | 
|Total Prism finite-lived intangible
      assets acquired (see note 3) | $ | 27,900        |  |  |              | 

A deferred tax liability of $10.3
  million, at exchange rates applicable as of July 3, 2006, was recognized on
  the acquisition date related to the intangible assets acquired.

Summarized below are the fair value
  of the intangible assets related to the remaining 25.1% of EasyPay acquired,
  translated at the exchange rate applicable as of October 1, 2006, and the weighted-average
  amortization period of these intangible assets:

|                                                                 |   |             |  |   | 25.1% of   |  |  | Weighted-    | 
|---------------------------------------------------------------- | - | ----------- |  | - | ---------- |  |  | ------------ | 
|                                                                 |   | Total fair  |  |   | fair value |  |  | Average      | 
|                                                                 |   | value as of |  |   | as of      |  |  | Amortization | 
|                                                                 |   | October 1,  |  |   | October 1, |  |  | period (in   | 
|                                                                 |   | 2006        |  |   | 2006       |  |  | years)       | 
|Finite-lived intangible assets:                                  |   |             |  |   |            |  |  |              | 
|Customer relationships                                           | $ | 12,094      |  | $ | 3,036      |  |  | 3  15       | 
|Software and unpatented technology                               |   | 1,490       |  |   | 374        |  |  | 3            | 
|Trademarks                                                       |   | 2,571       |  | $ | 645        |  |  | 5  20       | 
|Total finite-lived intangible
      assets acquired (see note 3) | $ | 16,155      |  |   |            |  |  |              | 

A deferred tax liability of $1.2
  million, at exchange rates applicable as of October 1, 2006, was recognized
  on October 1, 2006 related to the intangible assets acquired.

F-25

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**10.**     **GOODWILL
  AND INTANGIBLE ASSETS (continued)**

**Intangible assets (continued)**

Summarized below is the carrying
  value and accumulated amortization of the intangible assets as of June 30, 2007
  and 2006:

As
        of June 30, 2007
      
      
      As
        of June 30, 2006Gross
      
      
      
      
      
      Net
      
      
      Gross
      
      
      
      
      
      Netcarrying
      
      
      Accumulated
      
      
      carrying
      
      
      carrying
      
      
      Accumulated
      
      
      carryingvalue
      
      
      amortization
      
      
      value
      
      
      value
      
      
      amortization
      
      
      valueFinite-lived intangible assets:Customer relationships
      $
      17,649
      
      $
      (1,419
      )
      $
      16,230
      
      
      -
      
      
      -
      
      
      -Software and unpatented technology
      
      11,227
      
      
      (3,717
      )
      
      7,510
      
      
      -
      
      
      -
      
      
      -FTS patent
      
      5,415
      
      
      (3,792
      )
      
      1,623
      
      $
      5,270
      
      $
      (3,163
      )
      $
      2,107Exclusive licenses
      
      4,506
      
      
      (1,997
      )
      
      2,509
      
      
      4,506
      
      
      (1,349
      )
      
      3,157Trademarks
      
      4,072
      
      
      (375
      )
      
      3,697
      
      
      -
      
      
      -
      
      
      -Contract rights
      
      2,371
      
      
      (2,371
      )
      
      -
      
      
      2,308
      
      
      (1,987
      )
      
      321Customer contracts
      
      114
      
      
      (74
      )
      
      40
      
      
      114
      
      
      (50
      )
      
      64Total finite-lived
        intangible assets
      $
      45,354
      
      $
      (13,745
      )
      $
      31,609
      
      $
      12,198
      
      $
      (6,549
      )
      $
      5,649


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 with the assistance of an independent appraiser. As presented above,
  the customer relationships are amortized over three to 15 years. Aggregate amortization
  expense on the customer relationships for the year ended June 30, 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. As presented above, the software and unpatented technology is amortized
  over three years. Aggregate amortization expense on the software and unpatented
  technology for the year ended June 30, 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
  $3.6 million at the year end exchange rate of $1: ZAR7.08), 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 $1.8 million (or $1.6 million at the year end exchange rate
  of $1:ZAR7.08). 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, 2007 was approximately $0.5 million (2006: $0.6
  million, 2005: $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, with
  the assistance of an independent appraiser. As presented above, the trademarks
  are amortized over five to 20 years. Aggregate amortization expense on the trademarks
  for the year ended June 30, 2007 was approximately $0.4 million.

In December 2003 the Company entered
  into an agreement with various black economic empowerment partners (the partners)
  whereby the partners would provide certain services, for example, debt collection
  and dispute resolution, related to the Cash Paymaster Services Northern contract.
  The contract rights have been amortized over the contract period of three years
  which expired in December 2006. Amortization for the year ended June 30, 2007
  was approximately $0.3 million (2006: $0.9 million 2005: $0.9 million).

F-26

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**10.**     **GOODWILL
  AND INTANGIBLE ASSETS (continued)**

**Intangible assets (continued)**

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, 2007, was $0.02 million and
  $0.6 million, respectively, (2006: $0.02 million and $0.6 million, respectively
  2005: $0.02 million and $0.6 million, respectively).

Future annual amortization expense
  is estimated at $6.9 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 and other relevant
  factors.

**11.**     **OTHER
  PAYABLES**

2007
      
      
      2006Participating merchants settlement obligation
      $
      11,241
      
      $
      11,320Payroll-related payables
      
      1,308
      
      
      1,731Accruals
      
      6,725
      
      
      5,294Value-added tax payable
      
      1,968
      
      
      1,364Other payables
      
      6,825
      
      
      5,081Provisions
      
      6,390
      
      
      3,785$
      34,457
      
      $
      28,575


**12.**     **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 Net 1 Applied Technologies South Africa Limited
      (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, 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.

F-27

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**12.**     **CAPITAL
  STRUCTURE AND CREDITOR RIGHTS ATTACHED TO THE B CLASS LOANS (continued)**

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.

*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.

F-28

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

12.      CAPITAL STRUCTURE AND CREDITOR
  RIGHTS ATTACHED TO THE B CLASS LOANS (continued)

*Special convertible preferred
  stock (continued)*

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.

*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.

F-29

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**12.**     **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.

During the year ended June 30,
  2006, 19,418,422 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 143,083,089 linked units
  during year ended June 30, 2006. The net result of these conversions was that
  143,083,089 B class preference shares and B class loans were ceded to Net1 during
  the year ended June 30, 2006, which converted 19,418,422 shares of special convertible
  preferred stock to 19,418,422 common stock in return for the ownership of the
  143,083,089 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 19,418,422
  and the number of outstanding shares of special convertible preferred stock
  has decreased by 19,418,422. In addition, as a consequence of the conversion,
  as June 30, 2006, Net1 owned 183,076,435 B class preferred shares and B class
  loans. The reduction in the B class preference shares from $0.031 million to
  $0.009 million is due to the cession to Net1 of the B class preference shares
  as a result of the trigger events.

13. REVENUE

|                                                       |   | 2007    |  |   | 2006    |  |   | 2005    | 
|------------------------------------------------------ | - | ------- |  | - | ------- |  | - | ------- | 
|                                                       |   |         |  |   |         |  |   |         | 
|Sale of goods  comprising hardware and
      software |   |         |  |   |         |  |   |         | 
|sales                                                  | $ | 27,716  |  | $ | 17,867  |  | $ | 11,885  | 
|Loan-based interest and fees received                  |   | 11,460  |  |   | 15,017  |  |   | 19,069  | 
|Services rendered  comprising mainly fees and         |   |         |  |   |         |  |   |         | 
|commissions and
      contract variation fees          |   | 184,792 |  |   | 163,214 |  |   | 145,336 | 
|                                                       | $ | 223,968 |  | $ | 196,098 |  | $ | 176,290 | 

**14.**     **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-30

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**14.**     **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, 2007, the Company
  has recorded a deferred tax asset of approximately $0.05 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-31

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.      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.

***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.

During the year ended June 30,
  2007, Prism employee resignations and terminations resulted in forfeitures of
  approximately 405,000 options.

F-32

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**14.**     **STOCK-BASED
  COMPENSATION (continued)**

**Adoption of SFAS No. 123R,
  Share Based Payment(FAS 123R) and stock-based compensation
  charge**

The Company elected to adopt the
  modified prospective application method as provided by FAS 123R and accordingly,
  from July 1, 2005, compensation cost is recognized based on the requirements
  of FAS 123R for all new share-based awards and based on the requirements of
  SFAS No. 123, Accounting for Stock-Based Compensation(FAS 123)
  for all awards granted prior to the effective date of FAS 123R that remain unvested
  on the effective date. Prior period amounts have not been restated. The adoption
  of FAS 123R did not have an impact on the options granted pursuant to the 2004
  Stock Incentive Plan as the Company accounted for the stock-based compensation
  charge for these options in accordance with Accounting Principles Board Opinion
  (APB) No. 25, Accounting for Stock Issued to Employees(APB
  25).

The stock compensation charge under
  APB 25 for the years ended June 30, 2005 was $0. Had compensation expense for
  share options granted under the stock option plan been determined based on fair
  value at the grant dates consistent with the method required in accordance with
  FAS 123, the Companys net income and earnings per share for 2005 would
  have been as presented in the pro-forma disclosures below:

|                                                                                                      |   | 2005   | 
|----------------------------------------------------------------------------------------------------- | - | ------ | 
|                                                                                                      |   |        | 
|Net income                                                                                            | $ | 44,562 | 
|Add back: stock-based compensation expense included in reported
      net income, net of related tax  |   |        | 
|effects                                                                                               |   | -      | 
|Deduct: total stock-based compensation expense determined under
      fair value based method for all |   |        | 
|awards, net of related tax effects                                                                    |   | -      | 
|                                                                                                      |   |        | 
|Pro-forma net income                                                                                  | $ | 44,562 | 
|                                                                                                      |   |        | 
|Earnings per share, in US cents:                                                                      |   |        | 
|Basic, as reported                                                                                    |   | 0.81   | 
|Basic, pro forma                                                                                      |   | 0.81   | 
|                                                                                                      |   |        | 
|Weighted average assumptions(1):                                                                      |   |        | 
|Risk-free interest rate                                                                               |   | 3.50%  | 
|Dividend yield                                                                                        |   | 0.00%  | 
|Stock volatility                                                                                      |   | 72.00% | 
|Average expected life (years)                                                                         |   | 7.00   | 

(1)the 2005 and 2004 assumptions are based on stock
  issued under the 2004 Stock Incentive Plan.

F-33

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**14.**     **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, 2007, 2006 and 2005 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, 2004                  |  | 1,453,490 |   | $ | 3.00     |  |  | 10.00       |  | $ | 13,395    | 
|Exercised                                           |  | (581,396  | ) |   | 3.00     |  |  | -           |  |   | 9,558     | 
|Balance outstanding  June 30, 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    | 
|                                                    |  |           |   |   |          |  |  |             |  |   |           | 
|Exercisable                                         |  | 245,140   |   | $ | 11.9     |  |  | 7.8         |  | $ | 3,003     | 

During the year ended June 30,
  2007, approximately 537,000 stock options became exercisable. During each of
  the years ended June 30, 2006 and 2005 approximately 300,000 respectively, stock
  options became exercisable.

Options granted to certain employees
  on August 24, 2006, were automatically exercised on May 8, 2007 as the employees
  did not provide the Company with an automatic exercise waiver notice. In accordance
  with the terms of the option agreements, 111,748 shares were withheld from these
  employees to settle the exercise price. These 111,748 shares are reflected as
  treasury shares and 12,783 of these shares are available to the Company for
  issue under the Plan.

During the years ended June 30,
  2007 and 2006, respectively, the Company received approximately $3.7 million
  and $1.6 million from employees exercising stock options and approximately $0.6
  million and $1.1 million from employees repaying loans granted.

The Company issues new shares to
  satisfy stock option exercises.

F-34

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

14.      STOCK-BASED COMPENSATION
  (continued)

**Stock-based compensation
  charge and unrecognized compensation cost**

The Company has recorded a net
  stock compensation charge of $0.9 million and $0.2 million for the years ended
  June 30, 2007 and 2006, which comprised:

|                                                               |   |           |   |   | Allocated to  |  |   |                |  
|-------------------------------------------------------------- | - | --------- | - | - | ------------- |  | - | -------------- | -
|                                                               |   |           |   |   | cost of goods |  |   |                |  
|                                                               |   |           |   |   | sold, IT      |  |   | Allocated to   |  
|                                                               |   | Total     |   |   | processing,   |  |   | selling,       |  
|                                                               |   | charge    |   |   | servicing and |  |   | general and    |  
|                                                               |   | (benefit) |   |   | support       |  |   | administration |  
|                                                               |   |           |   |   |               |  |   |                |  
|Year ended June 30, 2006                                       |   |           |   |   |               |  |   |                |  
|Options granted in January
      2006                          | $ | 216       |   |   | -             |  | $ | 216            |  
|Total
       year ended June 30, 2006                         | $ | 216       |   |   | -             |  | $ | 216            |  
|                                                               |   |           |   |   |               |  |   |                |  
|Year ended June 30, 2007                                       |   |           |   |   |               |  |   |                |  
|Options granted in January
      2006                          | $ | 66        |   |   | -             |  | $ | 66             |  
|Options granted
      to employees of Prism                    |   | 531       |   | $ | 272           |  |   | 259            |  
|Options granted to employees
      on August 24, 2006          |   | 529       |   |   | -             |  |   | 529            |  
|Reversal
      of stock compensation charge related to options |   |           |   |   |               |  |   |                |  
|granted in January 2006                                        |   | (216      | ) |   | -             |  |   | (216           | )
|Total
       year ended June 30, 2007                         | $ | 910       |   | $ | 272           |  | $ | 638            |  

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, 2007, the total
  unrecognized compensation cost related to stock options is approximately $4.8
  million, which the Company expects to recognize over approximately four years.
  As of June 30, 2007, the 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 $0.05 million and $0.06 million, respectively, for
  the years ended June 30, 2007 and 2006, related to its stock compensation charge
  under FAS 123R. However, for the year ended June 30, 2006, the Companys
  management provided a valuation allowance of approximately $0.06 million against
  this deferred tax asset because the Company was not assured that it is more
  likely than not it would, together with its accumulated losses, utilize the
  tax deduction related to the stock compensation charge in future periods.

F-35

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

15.      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 statutory 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:

|                                                        |   | 2007    |   |   | 2006    |   |   | 2005    |  
|------------------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|Income tax provision                                    |   |         |   |   |         |   |   |         |  
|Current income tax provision                            | $ | 40,778  |   | $ | 35,027  |   | $ | 30,164  |  
|Capital gains
      tax                                 |   | -       |   |   | -       |   |   | -       |  
|Change in tax rate                                      |   | -       |   |   | (155    | ) |   | -       |  
|Deferred
      taxation charge (benefit)                |   | (3,204  | ) |   | 1,781   |   |   | (498    | )
|Income
      tax provision                              | $ | 37,574  |   | $ | 36,653  |   | $ | 29,666  |  
|                                                        |   |         |   |   |         |   |   |         |  
|Income tax rate reconciliation                          |   |         |   |   |         |   |   |         |  
|Income taxes at statutory South African tax
      rates |   | 36.89%  |   |   | 36.89%  |   |   | 37.78%  |  
|Permanent items                                         |   | 0.40%   |   |   | 0.63%   |   |   | 1.47%   |  
|Foreign tax credits                                     |   | (2.57)% |   |   | -%      |   |   | -%      |  
|Movement in valuation allowance                         |   | 2.38%   |   |   | 1.02%   |   |   | 1.00%   |  
|Capital gains tax                                       |   | -       |   |   | -%      |   |   | -%      |  
|Change in tax rate                                      |   | -       |   |   | (0.16)% |   |   | -%      |  
|Income tax provision                                    |   | 37.10%  |   |   | 38.38%  |   |   | 40.25%  |  
|Current                                                 |   | 40.26%  |   |   | 36.68%  |   |   | 40.93%  |  
|Capital gains
      tax                                 |   | -%      |   |   | -%      |   |   | -%      |  
|Change in tax rate                                      |   | -%      |   |   | (0.16)% |   |   | -%      |  
|Deferred                                                |   | (3.16)% |   |   | 1.86%   |   |   | (0.68)% |  

In July 2005, i.e. for the year
  ended June 30, 2006, the enacted tax rate in South Africa changed from 37.78%
  to 36.89% . There were no changes to the enacted tax rate in years ended June
  30, 2007 and 2005.

F-36

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**15.**     **INCOME
  TAXES (continued)**

The following table shows the significant
  components included in deferred income taxes as at June 30:

|                                                            |   | 2007   |   |   | 2006   |  
|----------------------------------------------------------- | - | ------ | - | - | ------ | -
|                                                            |   |        |   |   |        |  
|Deferred tax assets                                         |   |        |   |   |        |  
|                                                            |   |        |   |   |        |  
|Assessed
      losses                                       | $ | 4,623  |   | $ | 4,144  |  
|Provisions and accruals                                     |   | 2,093  |   |   | 1,443  |  
|FTS patent                                                  |   | 2,472  |   |   | 2,549  |  
|Deferred income                                             |   | 189    |   |   | 416    |  
|Intangible
      assets                                     |   | 540    |   |   | 66     |  
|Foreign tax credits                                         |   | 2,399  |   |   | -      |  
|Other                                                       |   | 1,694  |   |   | 447    |  
|Total
      deferred tax assets before valuation allowance  |   | 14,010 |   |   | 9,065  |  
|Valuation
      allowances                                  |   | (5,284 | ) |   | (4,720 | )
|Total deferred tax assets, net of valuation
      allowance |   | 8,726  |   |   | 4,345  |  
|                                                            |   |        |   |   |        |  
|Total deferred tax liabilities:                             |   |        |   |   |        |  
|                                                            |   |        |   |   |        |  
|Intangible assets                                           |   | 10,709 |   |   | 1,185  |  
|Prepaid expenses                                            |   | 252    |   |   | 284    |  
|STC liability, net of STC
      credits                     |   | 26,235 |   |   | 17,253 |  
|Other                                                       |   | 721    |   |   | 232    |  
|Total
      deferred tax liabilities                        |   | 37,917 |   |   | 18,954 |  
|                                                            |   |        |   |   |        |  
|Reported as                                                 |   |        |   |   |        |  
|Current deferred
      tax assets                           |   | 7,028  |   |   | 3,237  |  
|Long term deferred tax liabilities                          |   | 36,219 |   |   | 17,846 |  
|                                                            |   |        |   |   |        |  
|Net deferred income tax liabilities                         | $ | 29,191 |   | $ | 14,609 |  

*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 the
  Net1 will be able to utilize some of its net operating loss carry forward during
  the year ended June 30, 2008. 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, 2007, Net1 has provided
  a valuation allowance of $1.9 million. During the year ended June 30, 2007,
  Net1 utilized approximate $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. No new net operating loss deferred
  tax assets were created for Net1 during the year ended June 30, 2007.

As of June 30, 2006, a portion
  of the valuation allowance raised against the deferred tax assets relates to
  net operating losses incurred by Net1. Management did not recognize any of the
  potential benefit of these net operating losses because the Company could not
  be assured that it was more likely than not that it would utilize the net operating
  loss carried forward in future years.

F-37

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

15.      INCOME TAXES (continued)

*Net1 - Movement in valuation
  allowance (continued)*

Net1 has incurred net operating
  losses as detailed in the following table:

|Year of loss |   | Amount |  |  | Year of    | 
|------------ | - | ------ |  |  | ---------- | 
|             |   |        |  |  | Expiration | 
|1998         | $ | 556    |  |  | 2013       | 
|1999         |   | 267    |  |  | 2014       | 
|2000         |   | 336    |  |  | 2015       | 
|2001         |   | 674    |  |  | 2016       | 
|2002         |   | 166    |  |  | 2017       | 
|2003         |   | 282    |  |  | 2018       | 
|2004         |   | 4,532  |  |  | 2019       | 
|2005         |   | -      |  |  | 2020       | 
|2006         |   | -      |  |  | 2021       | 
|2007         |   | -      |  |  | 2022       | 
|             | $ | 6,813  |  |  |            | 

*Net1 - Foreign tax credits*

Net1 has unused foreign tax credits
  as of June 30, 2007, which its management believes will be utilized in future
  periods. The unused foreign tax credits expire after five years and accordingly
  $0.9 million and $1.5 million, respectively, expire in 2011 and 2012.

*South African  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. Certain
  companies acquired in the Prism acquisition discussed in Note 3 have net operating
  losses incurred in periods prior to the acquisition. The Companys management
  has provided a valuation allowance $1.6 million related to the South African-based
  net operating loss carry forward. 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
      
      Amount2005 and prior, net of utilization (at June
        30, 2007 rate of $1: ZAR 7.08)
      $
      4,0792006
      
      -2007
      
      3,509$
      7,588


During the year ended June 30,
  2007, a subsidiary company in South Africa utilized $3.7 million of its net
  operating losses carried forward from prior years against taxable income generated
  during the current year.

F-38

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**15.**     **INCOME
  TAXES (continued)**

*South African  movement
  in valuation allowance (continued)*

Intangible assets

In addition, 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 2007, a valuation allowance is neededfor
  approximately 60% (2006: 72%) 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, 2007 and
  2006 and the valuation allowance as of June 30, 2007 and 2006, respectively,
  is approximately $1.7 million and $1.8 million.

**16.**     **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 12, 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 (56.9 million) of weighted average common stock (51.3 million) and special
  convertible preferred stock (5.6 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 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 basic earnings per share for
  the year ended June 30, 2005, for the common stock and linked units are the
  same and is calculated by dividing the net income by the combined number (54.7
  million) of common stock (28.0 million) and special convertible preferred stock
  (26.7 million) in issue.

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-39

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**16.**     **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, 2007, 2006 and 2005.

|                                                                              |  | 2007   |  |  | 2006   |  |  | 2005   | 
|----------------------------------------------------------------------------- |  | ------ |  |  | ------ |  |  | ------ | 
|                                                                              |  | 000   |  |  | 000   |  |  | 000   | 
|Weighted average number of outstanding shares
      of common stock  basic   |  | 51,280 |  |  | 49,198 |  |  | 27,984 | 
|Weighted average effect of dilutive securities: employee stock
      options  |  | 453    |  |  | 712    |  |  | 636    | 
|Weighted average number of outstanding shares
      of common stock  diluted |  | 51,733 |  |  | 49,910 |  |  | 28,620 | 

|                                                                             |  | 2007  |  |  | 2006  |  |  | 2005   | 
|---------------------------------------------------------------------------- |  | ----- |  |  | ----- |  |  | ------ | 
|                                                                             |  | 000  |  |  | 000  |  |  | 000   | 
|Weighted average number of outstanding linked
      units  basic            |  | 5,656 |  |  | 7,315 |  |  | 26,734 | 
|Weighted average effect of dilutive securities: employee stock
      options |  | 50    |  |  | 106   |  |  | 607    | 
|Weighted average number of outstanding linked
      units  diluted          |  | 5,706 |  |  | 7,421 |  |  | 27,341 | 

|                                                                                      |  | 2007   |  |  | 2006   |  |  | 2005   | 
|------------------------------------------------------------------------------------- |  | ------ |  |  | ------ |  |  | ------ | 
|                                                                                      |  | 000   |  |  | 000   |  |  | 000   | 
|Total weighted average number of outstanding
      shares used to calculated earnings |  |        |  |  |        |  |  |        | 
|per share  basic                                                                     |  | 56,936 |  |  | 56,513 |  |  | 54,718 | 
|                                                                                      |  |        |  |  |        |  |  |        | 
|Total weighted average number of outstanding shares used to
      calculated earnings |  |        |  |  |        |  |  |        | 
|per share  diluted                                                                   |  | 57,439 |  |  | 57,331 |  |  | 55,961 | 

**17.**     **COMPREHENSIVE
  INCOME (LOSS)**

The Companys comprehensive
  income consists of net income and foreign currency translation gains and losses
  which, under GAAP, are excluded from net income. Total comprehensive income
  for each of the three years ended June 30, 2007 was:

|                                         |   | 2007   |  |   | 2006    |   |   | 2005   |  
|---------------------------------------- | - | ------ |  | - | ------- | - | - | ------ | -
|Net income                               | $ | 63,679 |  | $ | 59,232  |   | $ | 44,562 |  
|Foreign currency translation adjustments |   | 5,848  |  |   | (17,077 | ) |   | (7,725 | )
|                                         | $ | 69,527 |  | $ | 42,155  |   | $ | 36,837 |  

**18.**     **SUPPLEMENTAL
  CASH FLOW INFORMATION**

*Supplemental cash flow information:*

The following table presents the
  supplemental cash flow disclosures for the years ended June 30, 2007, 2006 and
  2005:

|                            |   | 2007   |  |   | 2006   |  |   | 2005   | 
|--------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
|Cash received from interest | $ | 16,139 |  | $ | 14,496 |  | $ | 16,308 | 
|Cash paid for interest      | $ | 11,462 |  | $ | 8,741  |  | $ | 13,974 | 
|Cash paid for income taxes  | $ | 29,520 |  | $ | 27,857 |  | $ | 37,872 | 

*Supplemental non-cash financing
  activities:*

Financing activities

As discussed in Note 14, during
  the year ended June 30, 2007, the Company acquired 111,748 million of the Companys
  common stock at $25.39 per share 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, 2007.

F-40

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**19.**     **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 operations of Prism have been allocated
  to two of the existing reportable segments of the Company as the chief operating
  decision maker has currently been analyzing the business on this basis.

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, 2007, there were three such customers, providing
  31%, 17% and 11% of total revenue (2006: three such customers, providing 38%,
  19% and 12% of total revenue; 2005: three such customers, providing 36%, 20%
  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
  derives revenue from the provision of short-term personal lending activities
  and life insurance products. Interest income is recognized in the income statement
  as it falls due, using the interest method by reference to the constant interest
  rate stated in each loan agreement. The final phase of the National Credit Act
  (No. 34 of 2005), NCA, became effective in South Africa on June
  1, 2007. The NCA has impacted the Companys traditional and UEPS-based
  lending activities in South Africa. In compliance with the provisions of the
  NCA, the Company is permitted to charge an initiation fee and a service fee
  on all traditional and UEPS-based lending activities as well as levy interest
  on a monthly basis. The Companys management has decided, effective June
  1, 2007, to cease charging interest on all new UEPS-based lending activities
  and now charges a service fee. The fees generated from new UEPS-based lending
  activities approximate the interest that was historically generated from these
  activities. The Companys management was required, effective June 1, 2007,
  to reduce the interest charged on all new traditional lending activities and
  also charges an initiation and service fee. The interest and fees generated
  from new traditional lending activities approximate the interest that was historically
  generated from these activities. The Companys management has included,
  and will continue to include in the foreseeable future, the initiation and service
  fees in the financial services segment.

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-41

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**19.**     **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, |   |   |         |  
|----------------------------------------------------- | - | ------- | - | - | -------- | - | - | ------- | -
|                                                      |   | 2007    |   |   | 2006     |   |   | 2005    |  
|                                                      |   |         |   |   |          |   |   |         |  
|Revenues                                              |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          | $ | 139,006 |   | $ | 117,186  |   | $ | 103,653 |  
|Smart card accounts                                   |   | 34,562  |   |   | 36,220   |   |   | 34,931  |  
|Financial services                                    |   | 11,241  |   |   | 16,129   |   |   | 20,215  |  
|Hardware, software and
      related technology sales |   | 39,159  |   |   | 26,563   |   |   | 17,491  |  
|Total                                                 |   | 223,968 |   |   | 196,098  |   |   | 176,290 |  
|                                                      |   |         |   |   |          |   |   |         |  
|Inter-company Revenues                                |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 4,087   |   |   | 4,257    |   |   | 3,000   |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | -       |   |   | -        |   |   | -       |  
|Hardware, software and related technology
      sales |   | 1,618   |   |   | -        |   |   | 847     |  
|Total                                                 |   | 5,705   |   |   | 4,257    |   |   | 3,847   |  
|                                                      |   |         |   |   |          |   |   |         |  
|Operating income                                      |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 78,785  |   |   | 60,653   |   |   | 44,233  |  
|Smart card accounts                                   |   | 15,710  |   |   | 16,464   |   |   | 15,878  |  
|Financial services                                    |   | 3,351   |   |   | 6,929    |   |   | 9,316   |  
|Hardware, software and
      related technology sales |   | 6,115   |   |   | 16,721   |   |   | 5,689   |  
|Corporate/ Eliminations                               |   | (7,085  | ) |   | (11,154  | ) |   | (3,813  | )
|Total                                                 |   | 96,876  |   |   | 89,613   |   |   | 71,303  |  
|                                                      |   |         |   |   |          |   |   |         |  
|Interest earned                                       |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | -       |   |   | -        |   |   | -       |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | -       |   |   | -        |   |   | -       |  
|Hardware, software and
      related technology sales |   | -       |   |   | -        |   |   | -       |  
|Corporate/ Eliminations                               |   | 16,413  |   |   | 14,638   |   |   | 16,341  |  
|Total                                                 |   | 16,413  |   |   | 14,638   |   |   | 16,341  |  
|                                                      |   |         |   |   |          |   |   |         |  
|Interest expense                                      |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 11,823  |   |   | 8,700    |   |   | 13,564  |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | 1       |   |   | 11       |   |   | 34      |  
|Hardware, software and
      related technology sales |   | 16      |   |   | 38       |   |   | 354     |  
|Corporate/ Eliminations                               |   | 172     |   |   | -        |   |   | -       |  
|Total                                                 |   | 12,012  |   |   | 8,749    |   |   | 13,952  |  
|                                                      |   |         |   |   |          |   |   |         |  
|Depreciation and amortization                         |   |         |   |   |          |   |   |         |  
|Transaction-based activities                          |   | 4,959   |   |   | 4,046    |   |   | 5,112   |  
|Smart card accounts                                   |   | -       |   |   | -        |   |   | -       |  
|Financial services                                    |   | 392     |   |   | 470      |   |   | 507     |  
|Hardware, software and
      related technology sales |   | 4,343   |   |   | -        |   |   | -       |  
|Corporate/ Eliminations                               |   | 1,356   |   |   | 1,194    |   |   | 972     |  
|Total                                                 | $ | 11,050  |   | $ | 5,710    |   | $ | 6,591   |  

F-42

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**19.**     **OPERATING
  SEGMENTS (continued)**

|                                                      |   |        |  |   | June 30, |   |   |        | 
|----------------------------------------------------- | - | ------ |  | - | -------- | - | - | ------ | 
|                                                      |   | 2007   |  |   | 2006     |   |   | 2005   | 
|                                                      |   |        |  |   |          |   |   |        | 
|Income taxation expense                               |   |        |  |   |          |   |   |        | 
|Transaction-based activities                          | $ | 19,544 |  | $ | 15,032   |   | $ | 9,182  | 
|Smart card accounts                                   |   | 4,556  |  |   | 4,774    |   |   | 4,751  | 
|Financial services                                    |   | 971    |  |   | 2,005    |   |   | 2,749  | 
|Hardware, software and related
      technology sales |   | 5,777  |  |   | 4,838    |   |   | 1,540  | 
|Corporate/ Eliminations                               |   | 6,726  |  |   | 10,004   |   |   | 11,444 | 
|Total                                                 |   | 37,574 |  |   | 36,653   |   |   | 29,666 | 
|                                                      |   |        |  |   |          |   |   |        | 
|Net income                                            |   |        |  |   |          |   |   |        | 
|Transaction-based activities                          |   | 47,418 |  |   | 36,919   |   |   | 21,484 | 
|Smart card accounts                                   |   | 11,154 |  |   | 11,690   |   |   | 11,125 | 
|Financial services                                    |   | 2,376  |  |   | 4,913    |   |   | 6,536  | 
|Hardware, software and related
      technology sales |   | 273    |  |   | 11,847   |   |   | 3,792  | 
|Corporate/ Eliminations                               |   | 2,458  |  |   | (6,137   | ) |   | 1,625  | 
|Total                                                 |   | 63,679 |  |   | 59,232   |   |   | 44,562 | 
|                                                      |   |        |  |   |          |   |   |        | 
|Expenditures for long-lived assets                    |   |        |  |   |          |   |   |        | 
|Transaction-based activities                          |   | 3,093  |  |   | 1,372    |   |   | 2,604  | 
|Smart card accounts                                   |   | -      |  |   | -        |   |   | -      | 
|Financial services                                    |   | 279    |  |   | 449      |   |   | 832    | 
|Hardware, software and related
      technology sales |   | 373    |  |   | -        |   |   | -      | 
|Corporate/ Eliminations                               |   | -      |  |   | -        |   |   | -      | 
|Total                                                 | $ | 3,745  |  | $ | 1,821    |   | $ | 3,436  | 

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.

**20.**     **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-43

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**20.**     **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 U.S. 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 U.S.
  dollar and the euro, on the other hand.

As of June 30, 2007, 2006 and 2005,
  the outstanding foreign exchange contracts are as follows:

**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


**As of June 30, 2006**

Fair marketNotional amount
      
      Strike price
      
      value price
      
      MaturityEUR
      627,372
      ZAR
      8.0529
      ZAR
      9.3259
      November 30, 2006EUR
      17,091
      ZAR
      8.5339
      ZAR
      9.1744
      August 1, 2006EUR
      (627,372)
      ZAR
      8.2625
      ZAR
      9.3259
      November 30, 2006


**As of June 30, 2005**

Fair marketNotional amount
      
      Strike price
      
      value price
      
      MaturityUSD
      98,000
      ZAR
      6.0542
      ZAR
      6.7553
      September 30, 2005EUR
      57,000
      ZAR
      8.3404
      ZAR
      8.1482
      August 25, 2005EUR
      285,000
      ZAR
      8.4137
      ZAR
      8.2162
      October 25, 2005EUR
      798,000
      ZAR
      8.4494
      ZAR
      8.2511
      November 25, 2005EUR
      39,000
      ZAR
      8.4793
      ZAR
      8.2566
      November 30, 2005EUR
      106,950
      ZAR
      8.4078
      ZAR
      8.2385
      November 14, 2005EUR
      267,110
      ZAR
      8.4213
      ZAR
      8.1168
      July 29, 2005EUR
      324,800
      ZAR
      8.4536
      ZAR
      8.1490
      August 26, 2005EUR
      101,250
      ZAR
      8.3908
      ZAR
      8.0996
      July 15, 2005


**Translation Risk**

Translation risk relates to the
  risk that the Companys results of operations will vary significantly as
  the U.S. dollar is its reporting currency, but it earns most of its revenues
  and incurs most of its expenses in ZAR. The U.S. 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.

F-44

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**20.**     **FAIR
  VALUE OF FINANCIAL INSTRUMENTS (continued)**

**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 Standard & Poors.

**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.

**21.**     **COMMITMENTS
  AND CONTINGENCIES**

*Operating lease commitments*

The Company leases certain premises.
  At June 30, 2007, the future minimum payments under operating leases consist
  of:

Due within 1 year
      $
      2,116Due within 2 years
      
      1,268Due within 3 years
      
      1,197Due within 4 years
      
      1,153Due within 5 years
      $
      496


Operating lease payments related
  to the premises and equipment were $4.0 million, $3.3 million and $3.4 million,
  respectively, for the years ended June 2007, 2006 and 2005, respectively.

*Capital commitments*

As of June 30, 2007, the Company
  had outstanding capital commitments of approximately $0.07 million which had
  been approved by the directors. The Company had no outstanding capital commitments
  as at June 30, 2006 and 2005 which had been approved by the directors.

*Purchase Obligations*

As of June 30, 2007 the Company
  has purchase obligations totaling $5.8 million.

F-45

---

|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**21.**     **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 $2.8
  million (R20 million), re-measured at the year end exchange rate of $1:ZAR7.08.
  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.

**22.**     **SHORT-TERM
  FACILITIES**

As a result of utilizing approximately
  $95.2 million of its cash to acquire Prism on July 3, 2006, the Company was
  required, from time to time, to draw down on its short-term facilities in order
  to meet its obligations to distribute social welfare grants. As of June 30,
  2007, the Company had maximum short-term facilities of approximately $81.3 million,
  translated at exchange rates applicable as of June 30, 2007. The interest rates
  applicable to these short-term facilities range from the South African prime
  overdraft rate (13.00% per annum at June 30, 2007) to the South African prime
  overdraft rate less 225 basis points. As of June 30, 2007, the Company had utilized
  approximately $0.02 million of 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 16, 2007, the South African
  Reserve Bank announced an increase in the repurchase rate from 9.50% to 10.00%
  which resulted in the Companys bankers increasing the South African prime
  overdraft rate to 13.50% .

**23.**     **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. During the year ended June 30, 2005, the Company
  earned $2.0 million under the technology service and maintenance contract and
  $11.1 million in hardware sales from Nedbank. Included in accounts receivable
  as of June 30, 2006, is $1.5 million due 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. As of June 30, 2006, Nedbank no longer owns any securities in the Company
  or any of its subsidiaries.

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, 2007,
  2006 and 2005, the Company incurred expenses of approximately $0.2 million,
  $0.1 million and $0.2 million, respectively, related to these administrative
  costs. As of June 30, 2007, $0.02 million is included in accounts payable and
  should be paid by September 2007.

F-46

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|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**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 years ended June 30, 2006 and
  2005:

|                                                                |   | Year ended |  |   | Year ended | 
|--------------------------------------------------------------- | - | ---------- |  | - | ---------- | 
|                                                                |   | June 30,   |  |   | June 30,   | 
|                                                                |   | 2006       |  |   | 2005       | 
|Legal fees                                                      | $ | 1,007      |  | $ | 1,567      | 
|Printing                                                        |   | 243        |  |   | -          | 
|Accounting fees                                                 |   | 25         |  |   | 179        | 
|Regulatory and filing fees                                      |   | 165        |  |   | 26         | 
|Other                                                           |   | 89         |  |   | 45         | 
|Total costs related to public
      offering and Nasdaq listing | $ | 1,529      |  | $ | 1,817      | 

The Other category includes costs
  to date 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.

**25.**     **UNAUDITED
  QUARTERLY RESULTS**

The following tables contain selected
  unaudited consolidated statements of income for each quarter of fiscal 2007
  and 2006:

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
      
      0.31
      
      
      0.32
      
      
      0.23
      
      
      0.27
      
      
      1.12Diluted earnings per share
      $
      0.31
      
      $
      0.32
      
      $
      0.22
      
      $
      0.26
      
      $
      1.11


Three months endedJun 30,
      
      
      Mar 31,
      
      
      Dec 31,
      
      
      Sep 30,
      
      
      Total2006
      
      
      2006
      
      
      2005
      
      
      2005
      
      
      YTD(In thousands except per share data)Revenue
      $
      48,198
      
      $
      54,584
      
      $
      47,429
      
      $
      45,887
      
      $
      196,098Costs related to public offering and Nasdaq listing
      
      -
      
      
      25
      
      
      27
      
      
      1477
      
      
      1,529Operating income
      
      23,001
      
      
      25,042
      
      
      21,173
      
      
      20,397
      
      
      89,613Net income
      
      15,545
      
      
      16,576
      
      
      13,932
      
      
      13,179
      
      
      59,232Earnings per share (common stock and linked
        units)Basic earnings per share
      
      0.27
      
      
      0.29
      
      
      0.25
      
      
      0.24
      
      
      1.05Diluted earnings per share
      $
      0.27
      
      $
      0.29
      
      $
      0.24
      
      $
      0.24
      
      $
      1.03


F-47

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|NET 1 UEPS TECHNOLOGIES, INC.                                                            
|-----------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                           
|for the years ended June 30, 2007, 2006 and 2005                                         
|(All amounts stated
      in thousands of United States Dollars, unless otherwise stated)

**26.**     **SUBSEQUENT
  EVENTS**

On August 1, 2007, the Remuneration
  Committee of the Board of Directors of the Company, approved an award of 35,000
  restricted shares of the Companys common stock to Brenda Stewart, Senior
  Vice President of Sales and Marketing, and 30,000 restricted shares of the Companys
  common stock to Nitin Soma, Senior Vice President of Information Technology.
  On August 7, 2007, the Remuneration Committee approved additional awards of
  40,000 restricted shares of Company common stock to each of Dr. Serge C.P. Belamant,
  Chief Executive Officer, and Herman Gideon Kotze, Chief Financial Officer. All
  of the awards of restricted shares were granted pursuant to the Companys
  Amended and Restated 2004 Stock Incentive Plan.

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 Fundamental EPS targets will
  be proportionately adjusted by the Remuneration Committee for any stock split,
  reverse stock split, stock dividend, share combination, recapitalization or
  similar event effected subsequent to the date of grant. The Remuneration Committee,
  in its sole discretion, may adjust the targets as it considers in good faith
  to be appropriate to reflect extraordinary items including, without
  limitation, the charges or costs associated with restructurings of the Company,
  discontinued operations, other unusual or nonrecurring items, and the cumulative
  effects of accounting changes.

*********************

F-48

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