# Netsol Technologies Inc: Form 10-Q for the period ended Dec 31, 2022

- Company: [Netsol Technologies Inc](/companies/ntwk.md) (CIK 1039280)
- Form: 10-Q
- Filed: 2023-02-14
- Accepted by EDGAR: Feb 14, 2023, 12:45 ET
- Period: 2022-12-31
- Accession: 0001493152-23-004714
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1039280/000149315223004714/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1039280/000149315223004714/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-10-01 to 2022-12-31 | $12.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2022-07-01 to 2022-12-31 | $25.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-10-01 to 2022-12-31 | $9.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2022-07-01 to 2022-12-31 | $17.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-10-01 to 2022-12-31 | $3.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2022-07-01 to 2022-12-31 | $7.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-10-01 to 2022-12-31 | $472.9k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-07-01 to 2022-12-31 | $942.5k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-10-01 to 2022-12-31 | −$3.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-07-01 to 2022-12-31 | −$4.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-10-01 to 2022-12-31 | $202.4k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-07-01 to 2022-12-31 | $324.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-10-01 to 2022-12-31 | $220.1k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-07-01 to 2022-12-31 | $413.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-10-01 to 2022-12-31 | −$2.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-07-01 to 2022-12-31 | −$2.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-10-01 to 2022-12-31 | −$0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-07-01 to 2022-12-31 | −$0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-10-01 to 2022-12-31 | −$0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-07-01 to 2022-12-31 | −$0.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-10-01 to 2022-12-31 | 11,270,199 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-07-01 to 2022-12-31 | 11,263,869 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-07-01 to 2022-12-31 | $1.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-07-01 to 2022-12-31 | $1.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-12-31 | $20.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-12-31 | $43.1m | us-gaap:AssetsCurrent |
| Total assets | at 2022-12-31 | $64.8m | us-gaap:Assets |
| Current liabilities | at 2022-12-31 | $19.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-12-31 | $20.5m | us-gaap:Liabilities |
| Long-term debt | at 2022-12-31 | $293.3k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-12-31 | $191.7k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-12-31 | $40.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,090 characters.

The following discussion is intended to assist in an understanding of the Company’s financial position and results of operations for the three months ended December 31, 2022. The following discussion should be read in conjunction with the information included within our Annual Report on Form 10-K for the year ended June 30, 2022, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Our website is located at www.netsoltech.com, and our investor relations website is located at https://ir.netsoltech.com. The following filings are available through our investor relations website after we file with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and our Proxy Statements for our annual meetings of stockholders. These filings are also available for download free of charge on our investor relations website. We also provide a link to the section of the SEC’s website at www.sec.gov that has all of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements and other ownership related filings. Further, a copy of this Quarterly Report on Form 10-Q is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website and on social media platforms linked to our corporate website. Investors and others can receive notifications of new information posted on our investor relations website by signing up for e-mail alerts. Further corporate governance information, including our committee charters and code of conduct, is also available on our investor relations website at https://netsoltech.com/about-us. The content of our websites is not intended to be incorporated by reference into this or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

#### Forward-Looking Information

*This report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of its management as well as assumptions made by and information currently available to its management. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, and similar expressions as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The Company’s realization of its business aims could be materially and adversely affected by any technical or other problems in, or difficulties with, planned funding and technologies, third party technologies which render the Company’s technologies obsolete, the unavailability of required third party technology licenses on commercially reasonable terms, the loss of key research and development personnel, the inability or failure to recruit and retain qualified research and development personnel, or the adoption of technology standards which are different from technologies around which the Company’s business ultimately is built. The Company does not intend to update these forward-looking statements.*

### Business Overview

NetSol Technologies, Inc. (NasdaqCM: NTWK) is a worldwide provider of IT and enterprise software solutions. We believe that our solutions constitute mission critical applications for clients, as they encapsulate end-to-end business processes, facilitating faster processing and increased transactions.

Our primary sources of revenues have been licensing, subscriptions, modification, enhancement and support of our suite of financial applications, under the brand name NFS Ascent® for leading businesses in the global finance and leasing space. With constant innovation being a major part of NETSOL’s DNA, we have enabled NFS Ascent® deployment on the cloud with several implementations already live and some underway. This shift to the cloud will enable NETSOL’s new customers to opt for a subscription-based pricing model rather than the traditional licensing model.

NETSOL’s clients include blue chip organizations, Dow-Jones 30 Industrials, Fortune 500 manufacturers, financial institutions, global vehicle manufacturers and enterprise technology providers, all of which are serviced by NETSOL’s strategically placed support and delivery locations around the globe.

Founded in 1997, NetSol is headquartered in Los Angeles County, California. While the Company follows a global strategy for sales and delivery of its portfolio of solutions and services, it continues to maintain regional offices in the following locations:

|  |  |  |
| --- | --- | --- |
| ● | North America | Los Angeles Area |
| ● | Europe | London Metropolitan area and Horsham in the UK |
| ● | Asia Pacific | Lahore, Karachi, Bangkok, Beijing, Shanghai, Jakarta and Sydney |

NETSOL believes that our strong technology solutions offer our customers a return on their investment and allows us to thrive in a hyper competitive and mature global marketplace. Our solutions are bolstered by our people. NETSOL believes that people are the drivers of success; therefore, we invest heavily in our hiring, training and retention of top-notch staff to ensure not only successful selling, but also the ongoing satisfaction of our clients. Taken together, this “selling and attentive servicing” approach creates a distinctive advantage for NETSOL and a unique value for its customers. NETSOL continues to underpin its proven and effective business model which is a combination of careful cost arbitrage, subject matter expertise, domain experience, scalability and proximity with its global and regional customers.

Our primary offerings include the following:

### NFS Ascent®

NFS Ascent®, the Company’s next generation platform, offers a technologically advanced solution for the auto and equipment finance and leasing industry. NFS Ascent’s® architecture and user interfaces were designed based on the Company’s collective experience with global Fortune 500 companies over the past 40 years combined with UX design concepts. The platform’s framework allows auto captive and asset finance companies to rapidly transform legacy driven technology into a state-of-the-art IT and business process environment. At the core of the NFS Ascent® platform, is a lease accounting and contract processing engine, which allows for an array of interest calculation methods, as well as robust accounting of multi-billion-dollar lease portfolios. NFS Ascent®, with its distributed and clustered deployment across parallel application and high-volume data servers, enables finance companies to process voluminous data in a hyper speed environment. NFS Ascent® has been developed using the latest tools and technologies and its n-tier SOA architecture allows the system to greatly improve a myriad of areas including, but not limited to, scalability, performance, fault tolerance and security. Our premier, next generation solution NFS Ascent® is now also available on the cloud via SaaS/subscription-based pricing. With swift, seamless deployments and easy scalability, it is an extremely adaptive retail and wholesale platform for the global finance and leasing industry. This cloud-version of NFS Ascent® is offered via flexible, value-driven subscription-based pricing options without the need to pay any upfront license fees.

### NFS Digital

NFS Digital is a combination of our core strengths, domain, and technology. Our insight into the evolving landscape along with our valuable experience enables us to define sound digital transformation strategies and compliment them with smart digital solutions so our customers always remain competitive and relevant to the dynamic environment. Our digital transformation solutions are extremely robust and can be used with or without our core, next-gen solution (NFS Ascent®) to effectively augment and enhance our customer’s ecosystem. NFS Digital includes Self-Point of Sale, Mobile Account, Mobile Point of Sale, Mobile Dealer, Mobile Auditor, Mobile Collector and Mobile Field Investigator.

### OTOZ

### Otoz Digital Auto Retail

Otoz provides a white-labelled SaaS platform to OEMs, auto-captives, dealers and start-ups that helps them launch short and long-term on-demand mobility models (car-share and car subscription) and digital retail in minimum time. Our white-label, turn-key platform helps dealers to make the move into digital era by offering an end-to-end car buying experience completely online. Digital auto-retail is not a one-size-fits-all. Otoz provides a flexible, configurable and scalable turn-key platform that helps define, launch and scale a variety of retail products (finance, lease, buy, etc.). Otoz platform empowers dealers to compete in digital era by addressing a range of customer segments with varied needs.

### Otoz Ecosystem

The Otoz powerful Application Program Interface (API) based architecture allows OEMs, auto-captives and dealerships to integrate with a plethora of providers to offer an end-to-end Omni-channel digital car finance and lease experience. Out-of-the-box APIs by Otoz help dealers and auto-captives connect with ecosystem partners which are crucial for running their auto retail business. It includes, finance and insurance products, trade-in tools, fraud checks, CRM system, websites (Tier 1 – Tier 3), marketing toolkit, inventory feeds, Know Your Customers (KYC), payment processors, and vehicle delivery providers amongst others. In addition, Otoz is equipped with smart lead generation and product analytics capabilities. It empowers dealers with the capability to convert qualified leads and never lose contact with customers. The product analytics capability allows us to improve the customer journey by addressing friction points, herein improving customer experience and conversions – a win-win scenario for dealers and customers.

### Otoz Platform

A fully digital, white label platform for lease, finance, and cash transactions that delivers a frictionless customer experience.

Otoz platform consists of two components the Dealer Tool and the Customer Application (APP) of a Dealer Tool which provides for a myriad of services including account creation, order management work queue, user roles and rights, tax configurator, customer KYC reports, vehicle delivery scheduling, payment gateways and inventory management, finance and insurance products feed and prioritization, dealer fee management and ecosystem APIs. The Customer App permits the dealer to work with the customer to get a vehicle via cash, finance or lease, manage vehicle delivery and pick-up scheduling, buy finance and insurance products, buy accessories, paperless license checks, personalized pricing, vehicle options, trade-in valuation, credit application and decision, paperless contracts and e-signing, digital payments and a deal builder.

### Other Products

The Company continues to support its North America and European legacy systems including LeasePak and LeaseSoft.

### Highlights

Listed below are a few of NetSol’s highlights for the quarter ended December 31, 2022:

- We signed a new agreement with a tier 1 automotive company in the U.S. to implement and license our Otoz mobility solution which will manage back-office operations for vehicle subscriptions.
- Otoz went live with its 37th dealer and now has dealers in 16 states.
- Our sales pipeline continues to be strong with the addition of some new prospects who have registered their interests in NFS Ascent®, digital, and legacy solutions across various regions pushing the total pipeline size to approximately $250 million.
- We effectively generated approximately $1.0 million by successfully implementing change requests from various customers across multiple regions.
- The organization successfully achieved ACE partnership status in cloud services domain by partnering with Amazon Web Services (AWS). We anticipate that this partnership will help the business grow its cloud services vertical over the coming periods.
- NetSol achieved the first Go-Live milestone for the finance company of a leading Swedish bank by effectively implementing its invoice factoring system.

#### Page 35

Management has identified the following material trends affecting NetSol.

Positive trends:

- According to S&P Global Mobility, new vehicles sales globally are expected to reach 84 million units in 2023 for a 5.6% increase. U.S. sales volumes are expected to reach approximately 15 million units, an estimated increase of 7% from the projected 2022 levels.
- Reduction of the U.S. inflation rate over the last few months.
- The elimination of travel related COVID-19 testing increases opportunities to meet face to face with current and potential customers.
- NFS Ascent® SaaS offerings and major on-premise license offerings are gaining traction in both mid and large size auto captives in the North American and European markets.
- The auto and banking sectors continue momentum towards increased mobility and digital solutions according to Forbes and Insider Intelligence 2022.
- Otoz retail platform is showing a steady growth of interest from existing and new auto leasing and Tier 1 companies in all of our markets.
- The China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65 billion investment, from the originally planned $46 billion, in Pakistan energy and infrastructure sectors.
- China’s auto sector remains strong which includes government year-end incentives, with customers requesting additional services reflecting the resilience of our offerings.
- There has been an aggressive uptick in business development activities in the US and China.
- There is a growing interest from long-time customers in upgrading from our legacy NFS solution to Ascent®.

Negative trends:

- General economic conditions in our geographic markets; geopolitical tensions, including trade wars, tariffs and/or sanctions in geographic areas; Global pandemics, including COVID-19; and, global conflicts or disasters that impact the global economy or one or more sectors of the global economy.
- A global recession fear impacts the future expansions and budgets in every country and every sector.
- Continued interest rate increases by the U.S. Federal Reserve Board in 2023 restricting buying power for consumers.
- The negative currency impact on our financial statements due to the devaluation of the Pakistan Rupee and the British Pound Sterling in comparison to the US Dollar.
- Political, monetary and economic challenges and higher inflation rate than other regional countries impacting Pakistan exports.
- Inflation and higher interest rates have greatly increased the cost of doing business, including salaries and benefits worldwide, affecting profitability.
- War and hostility between Russia and Ukraine continue to foster global uncertainty.
- The decline by over 20% in 2022 of the U.S. markets including the NASDAQ index and the Russell 2000 index limiting access to capital markets.
- Working from the office might not return to pre-pandemic levels which may affect employee collaboration potentially lessening efficiency.
- The Pakistan political environment will likely remain unsteady until new elections are called.

CHANGES IN FINANCIAL CONDITION

### Quarter Ended December 31, 2022 Compared to the Quarter Ended December 31, 2021

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended December 31, 2022 and 2021 as a percentage of revenues.

|  | For the Three Months Ended December 31, |  |
| --- | ---: | ---: |
|  | 2022% | 2021% |
| **Net Revenues:** |  |  |
| License fees | $15,884 0.1% | $1,955,331 12.6% |
| Subscription and support | 6,502,669 52.5% | 9,374,869 60.6% |
| Services | 5,871,805 47.4% | 4,142,762 26.8% |
| Total net revenues | 12,390,358 100.0% | 15,472,962 100.0% |
| **Cost of revenues:** |  |  |
| Salaries and consultants | 6,942,171 56.0% | 5,661,917 36.6% |
| Travel | 635,298 5.1% | 282,836 1.8% |
| Depreciation and amortization | 693,278 5.6% | 728,868 4.7% |
| Other | 977,148 7.9% | 1,156,754 7.5% |
| Total cost of revenues | 9,247,895 74.6% | 7,830,375 50.6% |
| **Gross profit** | 3,142,463 25.4% | 7,642,587 49.4% |
| **Operating expenses:** |  |  |
| Selling and marketing | 2,007,462 16.2% | 1,807,162 11.7% |
| Depreciation and amortization | 198,222 1.6% | 212,864 1.4% |
| General and administrative | 3,510,389 28.3% | 3,733,303 24.1% |
| Research and development cost | 472,904 3.8% | 235,390 1.5% |
| Total operating expenses | 6,188,977 49.9% | 5,988,719 38.7% |
| **Income (loss) from operations** | (3,046,514) -24.6% | 1,653,868 10.7% |
| **Other income and (expenses)** |  |  |
| Gain (loss) on sale of assets | 5,048 0.0% | (80,125) -0.5% |
| Interest expense | (202,363) -1.6% | (90,808) -0.6% |
| Interest income | 309,906 2.5% | 316,253 2.0% |
| Gain (loss) on foreign currency exchange transactions | 657,223 5.3% | 901,016 5.8% |
| Share of net loss from equity investment | 5,133 0.0% | (79,818) -0.5% |
| Other income (expense) | 89,660 0.7% | 19,668 0.1% |
| Total other income (expenses) | 864,607 7.0% | 986,186 6.4% |
| **Net income (loss) before income taxes** | (2,181,907) -17.6% | 2,640,054 17.1% |
| **Income tax provision** | (220,056) -1.8% | (201,506) -1.3% |
| **Net income (loss)** | (2,401,963) -19.4% | 2,438,548 15.8% |
| **Non-controlling interest** | 309,037 2.5% | (1,031,763) -6.7% |
| **Net income (loss) attributable to NetSol** | $(2,092,926) -16.9% | $1,406,785 9.1% |
| **Net income (loss) per share:** |  |  |
| Net income (loss) per common share |  |  |
| Basic | $(0.19) | $0.13 |
| Diluted | $(0.19) | $0.13 |
| Weighted average number of shares outstanding |  |  |
| Basic | 11,270,199 | 11,244,539 |
| Diluted | 11,270,199 | 11,244,539 |

#### Page 37

A significant portion of our business is conducted in currencies other than the U.S. dollar. We operate in several geographical regions as described in Note 18 “Operating Segments” within the Notes to the Condensed Consolidated Financial Statements. Weakening of the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues but also increasing our expenses denominated in currencies other than the U.S. dollar. Similarly, strengthening of the U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the changes in results from one period to another period using constant currency. In order to calculate our constant currency results, we apply the current period results to the prior period foreign currency exchange rates. In the table below, we present the change based on actual results in reported currency and in constant currency.

|  | For the Three Months Ended December 31, |  | Favorable (Unfavorable) Change in Constant | Favorable (Unfavorable) Change due to Currency | Total Favorable (Unfavorable) Change as |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | 2022% | 2021% | Currency | Fluctuation | Reported |
| **Net Revenues:** | $12,390,358 100.0% | $15,472,962 100.0% | $(871,575) | $(2,211,029) | $(3,082,604) |
| **Cost of revenues:** | 9,247,895 74.6% | 7,830,375 50.6% | (3,496,455) | 2,078,935 | (1,417,520) |
| **Gross profit** | 3,142,463 25.4% | 7,642,587 49.4% | (4,368,030) | (132,094) | (4,500,124) |
| **Operating expenses:** | 6,188,977 49.9% | 5,988,719 38.7% | (1,222,100) | 1,021,842 | (200,258) |
| **Income (loss) from operations** | $(3,046,514) -24.6% | $1,653,868 10.7% | $(5,590,130) | $889,748 | $(4,700,382) |

Net revenues for the three months ended December 31, 2022 and 2021 are broken out among the segments as follows:

|  | 2022 Revenue% |  | 2021 Revenue% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $1,597,852 | 12.9% | $1,060,379 | 6.9% |
| Europe | 2,845,701 | 23.0% | 2,122,094 | 13.7% |
| Asia-Pacific | 7,946,805 | 64.1% | 12,290,489 | 79.4% |
| Total | $12,390,358 | 100.0% | $15,472,962 | 100.0% |

#### Revenues

#### License fees

License fees for the three months ended December 31, 2022 were $15,884 compared to $1,955,331 for the three months ended December 31, 2021 reflecting a decrease of $1,939,447 with a decrease in constant currency of $1,939,167. During the three months ended December 31, 2021, we recognized approximately $1,920,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent product® for their new business segment in the Japanese and Australian markets.

#### Subscription and support

Subscription and support fees for the three months ended December 31, 2022 were $6,502,669 compared to $9,374,869 for the three months ended December 31, 2021 reflecting a decrease of $2,872,200 with a decrease in constant currency of $1,717,959. The reason for the decrease in subscription and support revenue is that in the three months ended December 31, 2021, we recorded a one-time post contract support revenue of approximately $3,480,00 using the catch-up approach. Subscription and support fees begin once a customer has “gone live” with our product. Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS Ascent®.

#### Services

Services income for the three months ended December 31, 2022 was $5,871,805 compared to $4,142,762 for the three months ended December 31, 2021 reflecting an increase of $1,729,043 with an increase in constant currency of $2,785,551. The increase is primarily due to services provided for ongoing implementations plus additional change requests.

#### Gross Profit

The gross profit was $3,142.463, for the three months ended December 31, 2022 compared with $7,642,587 for the three months ended December 31, 2021. This is a decrease of $4,500,124 with a decrease in constant currency of $4,368,030. The gross profit percentage for the three months ended December 31, 2022 also decreased to 25.4% from 49.4% for the three months ended December 31, 2021. The cost of sales was $9,247,895 for the three months ended December 31, 2022 compared to $7,830,375 for the three months ended December 31, 2021 for an increase of $1,417,520 and on a constant currency basis an increase of $3,496,455. As a percentage of sales, cost of sales increased from 50.6% for the three months ended December 31, 2021 to 74.6% for the three months ended December 31, 2022.

Salaries and consultant fees increased by $1,280,254 from $5,661,917 for the three months ended December 31, 2021 to $6,942,171 for the three months ended December 31, 2022 and on a constant currency basis increased by $2,839,566. The increase is due to annual salary raises and new hirings. As a percentage of sales, salaries and consultant expense increased from 36.6% for the three months ended December 31, 2021 to 56.0% for the three months ended December 31, 2022.

Travel expense was $635,298 for the three months ended December 31, 2022 compared to $282,836 for the three months ended December 31, 2021 for an increase of $352,462 with an increase in constant currency of $495,136. The increase in travel expense is due to the increase in travel as countries begin lifting travel restrictions.

Depreciation and amortization expense decreased to $693,278 compared to $728,868 for the three months ended December 31, 2021 or a decrease of $35,590 and on a constant currency basis an increase of $157,621.

Other costs decreased to $977,148 for the three months ended December 31, 2022 compared to $1,156,754 for the three months ended December 31, 2021 or a decrease of $179,606 and on a constant currency basis an increase of $4,132.

#### Operating Expenses

Operating expenses were $6,188,977 for the three months ended December 31, 2022 compared to $5,988,719, for the three months ended December 31, 2021 for an increase of 3.3% or $200,258 and on a constant currency basis an increase of 20.4% or $1,222,100. As a percentage of sales, it increased from 38.7% to 50.0%. The increase in operating expenses was primarily due to increases in selling expenses and research and development costs offset by a decrease in general and administrative expenses.

Selling expenses were $2,007,462 for the three months ended December 31, 2022 compared to $1,807,162, for the three months ended December 31, 2021 for an increase of $200,300 and on a constant currency basis an increase of $531,194.

General and administrative expenses were $3,510,389 for the three months ended December 31, 2022 compared to $3,733,303 at December 31, 2021 or a decrease of $222,914 or 6.0% and on a constant currency basis an increase of $303,647 or 8.1%. During the three months ended December 31, 2022, salaries decreased by approximately $22,012 and increased $327,696 on a constant currency basis, and other general and administrative expenses decreased approximately $200,902 or decreased by $24,049 on a constant currency basis.

Research and development cost was $472,904 for the three months ended December 31, 2022 compared to $235,390, for the three months ended December 31, 2021 for an increase of $237,514 and on a constant currency basis an increase of $357,628.

#### Income/Loss from Operations

Loss from operations was $3,046,514 for the three months ended December 31, 2022 compared to income from operations of $1,653,868 for the three months ended December 31, 2021. This represents an increase in the loss of $4,700,382 with an increase in the loss of $5,590,130 on a constant currency basis for the three months ended December 31, 2022 compared with the three months ended December 31, 2021. As a percentage of sales, loss from operations was 24.6% for the three months ended December 31, 2022 compared to income from operations of 10.7% for the three months ended December 31, 2021.

#### Other Income and Expense

Other income was $864,607 for the three months ended December 31, 2022 compared to $986,186 for the three months ended December 31, 2021. This represents a decrease of $121,579 with an increase of $88,885 on a constant currency basis. The decrease is primarily due to the foreign currency exchange transactions. The majority of the contracts with NetSol PK are either in U.S. dollars or Euros; therefore, the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S. dollar and the Euro. During the three months ended December 31, 2022, we recognized a gain of $657,223 in foreign currency exchange transactions compared to $901,016 for the three months ended December 31, 2021. During the three months ended December 31, 2022, the value of the U.S. dollar decreased 0.7% and the Euro increased 8.5%, compared to the PKR. During the three months ended December 31, 2021, the value of the U.S. dollar and the Euro increased 3.8% and 1.6%, respectively, compared to the PKR.

#### Non-controlling Interest

For the three months ended December 31, 2022, the net loss attributable to non-controlling interest was $309,037, compared to net income of $1,031,763 for the three months ended December 31, 2021. The decrease in non-controlling interest is primarily due to the decrease in net income of NetSol PK.

#### Net loss attributable to NetSol

The net loss was $2,092,926 for the three months ended December 31, 2022 compared to net income of $1,406,785 for the three months ended December 31, 2021. This is a decrease of $3,499,711 with a decrease of $4,142,007 on a constant currency basis, compared to the prior year. For the three months ended December 31, 2022, net loss per share was $0.19 for basic and diluted shares compared to net income per share of $0.13 for basic and diluted shares for the three months ended December 31, 2021.

### Six Months Ended December 31, 2022 Compared to the Six Months Ended December 31, 2021

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the six months ended December 31, 2022 and 2021 as a percentage of revenues.

|  | For the Six Months Ended December 31, |  |
| --- | ---: | ---: |
|  | 2022% | 2021% |
| **Net Revenues:** |  |  |
| License fees | $265,844 1.1% | $1,966,047 6.8% |
| Subscription and support | 12,519,503 49.9% | 15,605,258 54.0% |
| Services | 12,311,130 49.1% | 11,322,418 39.2% |
| Total net revenues | 25,096,477 100.0% | 28,893,723 100.0% |
| **Cost of revenues:** |  |  |
| Salaries and consultants | 13,028,906 51.9% | 11,324,327 39.2% |
| Travel | 1,027,643 4.1% | 496,968 1.7% |
| Depreciation and amortization | 1,347,327 5.4% | 1,494,603 5.2% |
| Other | 2,298,141 9.2% | 2,492,215 8.6% |
| Total cost of revenues | 17,702,017 70.5% | 15,808,113 54.7% |
| **Gross profit** | 7,394,460 29.5% | 13,085,610 45.3% |
| **Operating expenses:** |  |  |
| Selling and marketing | 3,769,639 15.0% | 3,427,155 11.9% |
| Depreciation and amortization | 389,176 1.6% | 427,135 1.5% |
| General and administrative | 7,235,819 28.8% | 7,706,442 26.7% |
| Research and development cost | 942,531 3.8% | 510,620 1.8% |
| Total operating expenses | 12,337,165 49.2% | 12,071,352 41.8% |
| **Loss from operations** | (4,942,705) -19.7% | 1,014,258 3.5% |
| **Other income and (expenses)** |  |  |
| Gain (loss) on sale of assets | 28,344 0.1% | (190,725) -0.7% |
| Interest expense | (323,973) -1.3% | (191,821) -0.7% |
| Interest income | 741,763 3.0% | 759,386 2.6% |
| Gain (loss) on foreign currency exchange transactions | 1,972,928 7.9% | 2,185,164 7.6% |
| Share of net loss from equity investment | 5,133 0.0% | (240,783) -0.8% |
| Other income (expense) | 91,980 0.4% | 22,697 0.1% |
| Total other income (expenses) | 2,516,175 10.0% | 2,343,918 8.1% |
| **Net income (loss) before income taxes** | (2,426,530) -9.7% | 3,358,176 11.6% |
| **Income tax provision** | (413,404) -1.6% | (369,133) -1.3% |
| **Net income (loss)** | (2,839,934) -11.3% | 2,989,043 10.3% |
| **Non-controlling interest** | 126,279 0.5% | (1,394,289) -4.8% |
| **Net income (loss) attributable to NetSol** | $(2,713,655) -10.8% | $1,594,754 5.5% |
| **Net income (loss) per share:** |  |  |
| Net income (loss) per common share |  |  |
| Basic | $(0.24) | $0.14 |
| Diluted | $(0.24) | $0.14 |
| Weighted average number of shares outstanding |  |  |
| Basic | 11,263,869 | 11,249,372 |
| Diluted | 11,263,869 | 11,249,372 |

#### Page 41

A significant portion of our business is conducted in currencies other than the U.S. dollar. We operate in several geographical regions as described in Note 18 “Operating Segments” within the Notes to the Condensed Consolidated Financial Statements. Weakening of the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues but also increasing our expenses denominated in currencies other than the U.S. dollar. Similarly, strengthening of the U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the changes in results from one period to another period using constant currency. In order to calculate our constant currency results, we apply the current period results to the prior period foreign currency exchange rates. In the table below, we present the change based on actual results in reported currency and in constant currency.

|  | For the Six Months Ended December 31, |  | Favorable (Unfavorable) Change in Constant | Favorable (Unfavorable) Change due to Currency | Total Favorable (Unfavorable) Change as |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | 2022% | 2021% | Currency | Fluctuation | Reported |
| **Net Revenues:** | $25,096,477 100.0% | $28,893,723 100.0% | $1,227,120 | $(5,024,366) | $(3,797,246) |
| **Cost of revenues:** | 17,702,017 70.5% | 15,808,113 54.7% | (6,331,372) | 4,437,468 | (1,893,904) |
| **Gross profit** | 7,394,460 29.5% | 13,085,610 45.3% | (5,104,252) | (586,898) | (5,691,150) |
| **Operating expenses:** | 12,337,165 49.2% | 12,071,352 41.8% | (2,525,894) | 2,260,081 | (265,813) |
| **Income (loss) from operations** | $(4,942,705) -19.7% | $1,014,258 3.5% | $(7,630,146) | $1,673,183 | $(5,956,963) |

Net revenues for the six months ended December 31, 2022 and 2021 are broken out among the segments as follows:

|  | 2022 Revenue% |  | 2021 Revenue% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $2,723,140 | 10.9% | $1,990,613 | 6.9% |
| Europe | 5,093,036 | 20.3% | 5,394,993 | 18.7% |
| Asia-Pacific | 17,280,301 | 68.9% | 21,508,117 | 74.4% |
| Total | $25,096,477 | 100.0% | $28,893,723 | 100.0% |

#### Revenues

#### License fees

License fees for the six months ended December 31, 2022 were $265,844 compared to $1,966,047 for the six months ended December 31, 2021 reflecting a decrease of $1,700,203 with a decrease in constant currency of $1,625,032. During the six months ended December 31, 2022, we recognized approximately $188,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent® product. During the six months ended December 31, 2021, we recognized approximately $1,920,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent product® for their new business segment in the Japanese and Australian markets.

#### Subscription and support

Subscription and support fees for the six months ended December 31, 2022 were $12,519,503 compared to $15,605,258 for the six months ended December 31, 2021 reflecting a decrease of $3,085,755 with a decrease in constant currency of $686,454. The reason for the decrease in subscription and support revenue is that in the six months ended December 31, 2021, we recorded a one-time post contract support revenue of approximately $3,480,000 using the catch-up approach. Subscription and support fees begin once a customer has “gone live” with our product. Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS Ascent®.

#### Services

Services income for the six months ended December 31, 2022 was $12,311,130 compared to $11,322,418 for the six months ended December 31, 2021 reflecting an increase of $988,712 with an increase in constant currency of $3,538,606. The increase is primarily due to services provided for ongoing implementations plus additional change requests.

#### Gross Profit

The gross profit was $7,394,460, for the six months ended December 31, 2022 compared with $13,085,610 for the six months ended December 31, 2021. This is a decrease of $5,691,150 with a decrease in constant currency of $5,104,252. The gross profit percentage for the six months ended December 31, 2022 also decreased to 29.5% from 45.3% for the six months ended December 31, 2021. The cost of sales was $17,702,017 for the six months ended December 31, 2022 compared to $15,808,113 for the six months ended December 31, 2021 for an increase of $1,893,904 and on a constant currency basis an increase of $6,331,372. As a percentage of sales, cost of sales increased from 54.7% for the six months ended December 31, 2021 to 70.5% for the six months ended December 31, 2022.

Salaries and consultant fees increased by $1,704,579 from $11,324,327 for the six months ended December 31, 2021 to $13,028,906 for the six months ended December 31, 2022 and on a constant currency basis increased by $4,910,006. The increase is due to annual salary raises and new hirings. As a percentage of sales, salaries and consultant expense increased from 39.2% for the six months ended December 31, 2021 to 51.9% for the six months ended December 31, 2022.

Travel expense was $1,027,643 for the six months ended December 31, 2022 compared to $496,968 for the six months ended December 31, 2021 for an increase of $530,675 with an increase in constant currency of $787,416. The increase in travel expense is due to the increase in travel as countries begin lifting travel restrictions.

Depreciation and amortization expense decreased to $1,347,327 compared to $1,494,603 for the six months ended December 31, 2021 or a decrease of $147,276 and on a constant currency basis an increase of $278,982.

Other costs decreased to $2,298,141 for the six months ended December 31, 2022 compared to $2,492,215 for the six months ended December 31, 2021 or a decrease of $194,074 and on a constant currency basis an increase of $354,968. The increase on a constant currency basis is mainly due to increases in computer costs.

#### Operating Expenses

Operating expenses were $12,337,165 for the six months ended December 31, 2022 compared to $12,071,352, for the six months ended December 31, 2021 for an increase of 2.2% or $265,813 and on a constant currency basis an increase of 9.3% or $2,525,894. As a percentage of sales, it increased from 41.8% to 49.2%. The increase in operating expenses was primarily due to increases in selling expenses and research and development costs offset by a decrease in general and administrative expenses.

Selling expenses were $3,769,639 for the six months ended December 31, 2022 compared to $3,427,155, for the six months ended December 31, 2021 for an increase of $342,484 and on a constant currency basis an increase of $1,044,521.

General and administrative expenses were $7,235,819 for the six months ended December 31, 2022 compared to $7,706,442 at December 31, 2021 or a decrease of $470,623 or 6.1% and on a constant currency basis an increase of $719,580 or 6.1%. During the six months ended December 31, 2022, salaries decreased by approximately $311,994 and increased $416,313 on a constant currency basis, and other general and administrative expenses decreased approximately $158,629 and increased $303,267 on a constant currency basis.

Research and development cost was $942,531 for the six months ended December 31, 2022 compared to $510,620, for the six months ended December 31, 2021 for an increase of $431,911 and on a constant currency basis an increase of $704,845.

#### Income/Loss from Operations

Loss from operations was $4,942,705 for the six months ended December 31, 2022 compared to income from operations of $1,014,258 for the six months ended December 31, 2021. This represents an increase in the loss of $5,956,963 with an increase in the loss of $7,630,146 on a constant currency basis for the six months ended December 31, 2022 compared with the six months ended December 31, 2021. As a percentage of sales, loss from operations was 19.7% for the six months ended December 31, 2022 compared to income from operations of 3.5% for the six months ended December 31, 2021.

#### Other Income and Expense

Other income was $2,516,175 for the six months ended December 31, 2022 compared to $2,343,918 for the six months ended December 31, 2021. This represents an increase of $172,257 with an increase of $968,923 on a constant currency basis. The increase is due to a decrease in the loss of sale of assets of $219,069 and on a constant currency basis $228,787, a decrease in the loss on equity investments of $245,916 and on a constant currency basis $246,374, offset by a decrease in the gain on foreign currency exchange transactions of $212,236 and on a constant currency basis an increase in gain of $428,568.

#### Non-controlling Interest

For the six months ended December 31, 2022, the net loss attributable to non-controlling interest was $126,279, compared to net income of $1,394,289 for the six months ended December 31, 2021. The decrease in non-controlling interest is primarily due to the decrease in net income of NetSol PK.

#### Net loss attributable to NetSol

The net loss was $2,713,655 for the six months ended December 31, 2022 compared to net income of $1,594,754 for the six months ended December 31, 2021. This is a decrease of $4,308,409 with a decrease of $5,233,005 on a constant currency basis, compared to the prior year. For the six months ended December 31, 2022, net loss per share was $0.24 for basic and diluted shares compared to net income per share of $0.14 for basic and diluted shares for the six months ended December 31, 2021.

### Non-GAAP Financial Measures

Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of adjusted EBITDA and adjusted EBITDA per basic and diluted share meet the definition of a non-GAAP financial measure.

We define the non-GAAP measures as follows:

- EBITDA is GAAP net income or loss before net interest expense, income tax expense, depreciation and amortization.
- Non-GAAP adjusted EBITDA is EBITDA plus stock-based compensation expense.
- Adjusted EBITDA per basic and diluted share – Adjusted EBITDA allocated to common stock divided by the weighted average shares outstanding and diluted shares outstanding.

We use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure in evaluating the Company.

The non-GAAP measures reflect adjustments based on the following items:

EBITDA: We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income or loss because doing so makes internal comparisons to our historical operating results more consistent. In addition, we believe providing an EBITDA calculation is a more useful comparison of our operating results to the operating results of our peers.

Stock-based compensation expense: We have excluded the effect of stock-based compensation expense from the non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per basic and diluted share calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by NetSol, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.

Non-controlling interest: We add back the non-controlling interest in calculating gross adjusted EBITDA and then subtract out the income taxes, depreciation and amortization and net interest expense attributable to the non-controlling interest to arrive at a net adjusted EBITDA.

Our reconciliation of the non-GAAP financial measures of adjusted EBITDA and non-GAAP earnings per basic and diluted share to the most comparable GAAP measures for the three and six months ended December 31, 2022 and 2021 are as follows:

|  | For the Three Months Ended December 31, 2022 | 2021 | For the Six Months Ended December 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net Income (loss) attributable to NetSol | $(2,092,926) | $1,406,785 | $(2,713,655) | $1,594,754 |
| Non-controlling interest | (309,037) | 1,031,763 | (126,279) | 1,394,289 |
| Income taxes | 220,056 | 201,506 | 413,404 | 369,133 |
| Depreciation and amortization | 891,500 | 941,732 | 1,736,503 | 1,921,738 |
| Interest expense | 202,363 | 90,808 | 323,973 | 191,821 |
| Interest (income) | (309,906) | (316,253) | (741,763) | (759,386) |
| EBITDA | $(1,397,950) | $3,356,341 | $(1,107,817) | $4,712,349 |
| Add back: |  |  |  |  |
| Non-cash stock-based compensation | 64,333 | 25,289 | 146,167 | 28,292 |
| Adjusted EBITDA, gross | $(1,333,617) | $3,381,630 | $(961,650) | $4,740,641 |
| Less non-controlling interest (a) | 7,363 | (1,293,037) | (392,172) | (1,881,916) |
| Adjusted EBITDA, net | $(1,326,254) | $2,088,593 | $(1,353,822) | $2,858,725 |
| Weighted Average number of shares outstanding |  |  |  |  |
| Basic | 11,270,199 | 11,244,539 | 11,263,869 | 11,249,372 |
| Diluted | 11,270,199 | 11,244,539 | 11,263,869 | 11,249,372 |
| Basic adjusted EBITDA | $(0.12) | $0.19 | $(0.12) | $0.25 |
| Diluted adjusted EBITDA | $(0.12) | $0.19 | $(0.12) | $0.25 |
| (a)The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows |  |  |  |  |
| Net Income (loss) attributable to non-controlling interest | $(309,037) | $1,031,763 | $(126,279) | $1,394,289 |
| Income Taxes | 68,406 | 61,761 | 128,316 | 114,427 |
| Depreciation and amortization | 255,584 | 273,822 | 493,917 | 561,453 |
| Interest expense | 62,736 | 26,682 | 100,132 | 56,082 |
| Interest (income) | (93,012) | (101,385) | (225,501) | (244,729) |
| EBITDA | $(15,323) | $1,292,643 | $370,585 | $1,881,522 |
| Add back: |  |  |  |  |
| Non-cash stock-based compensation | 7,960 | 394 | 21,587 | 394 |
| Adjusted EBITDA of non-controlling interest | $(7,363) | $1,293,037 | $392,172 | $1,881,916 |

#### Page 46

### LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $20,946,722 at December 31, 2022, compared to $23,963,797 at June 30, 2022.

Net cash provided by operating activities was $1,689,543 for the six months ended December 31, 2022 compared to net cash used in operating activities of $3,036,634 for the six months ended December 31, 2021. At December 31, 2022, we had current assets of $43,076,510 and current liabilities of $19,358,221. We had accounts receivable of $4,595,675 at December 31, 2022 compared to $8,669,202 at June 30, 2022. We had revenues in excess of billings of $15,389,951 at December 31, 2022 compared to $15,425,377 at June 30, 2022 of which $604,358 and $853,601 is shown as long term as of December 31, 2022 and June 30, 2022, respectively. The long-term portion was discounted by $9,376 and $28,339 at December 31, 2022 and June 30, 2022, respectively, using the discounted cash flow method with interest rates ranging from 4.65% to 6.25%. During the six months ended December 31, 2022, our revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings decreased by $4,108,953 from $24,094,579 at June 30, 2022 to $19,985,626 at December 31, 2022. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $7,423,248 and $7,386,750, respectively at December 31, 2022. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,813,541 and $8,567,145, respectively at June 30, 2022.

The average days sales outstanding for the six months ended December 31, 2022 and 2021 were 162 and 137 days, respectively, for each period. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and revenues in excess of billings.

Net cash used in investing activities was $1,182,042 for the six months ended December 31, 2022, compared to $572,180 for the six months ended December 31, 2021. We had purchases of property and equipment of $1,252,325 compared to $773,953 for the six months ended December 31, 2021.

Net cash used in financing activities was $537,180 for the six months ended December 31, 2022, compared to $626,955 for the six months ended December 31, 2021. For the six months ended December 31, 2021, we purchased 22,510 shares of our own stock for $100,106. The six months ended December 31, 2021 included the cash inflow of $188,272 from bank proceeds. During the six months ended December 31, 2022, we had net payments for bank loans and finance leases of $537,180 compared to $715,121 for the six months ended December 31, 2021. We are operating in various geographical regions of the world through our various subsidiaries. Those subsidiaries have financial arrangements from various financial institutions to meet both their short and long-term funding requirements. These loans will become due at different maturity dates as described in Note 15 of the financial statements. We are in compliance with the covenants of the financial arrangements and there is no default, which may lead to early payment of these obligations. We anticipate paying back all these obligations on their respective due dates from its own sources.

We typically fund the cash requirements for our operations in the U.S. through our license, services, and subscription and support agreements, intercompany charges for corporate services, and through the exercise of options and warrants. As of December 31, 2022, we had approximately $20.9 million of cash, cash equivalents and marketable securities of which approximately $18.6 million is held by our foreign subsidiaries. As of June 30, 2022, we had approximately $24.0 million of cash, cash equivalents and marketable securities of which approximately $22.8 million was held by our foreign subsidiaries.

We remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving cash reserves internally and reduced reliance on external capital raise.

As a growing company, we have on-going capital expenditure needs based on our short term and long-term business plans. Although our requirements for capital expenses vary from time to time, for the next 12 months, we anticipate needing $2.5 million for APAC, U.S. and Europe new business development activities and infrastructure enhancements, which we expect to provide from current operations.

While there is no guarantee that any of these methods will result in raising sufficient funds to meet our capital needs or that even if available will be on terms acceptable to us, we will be very cautious and prudent about any new capital raise given the global market uncertainties. However, we are very conscious of the dilutive effect and price pressures in raising equity-based capital.

### Financial Covenants

Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($361,446) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 500 million ($2,208,285) and a running finance facility of Rupees 53 million ($236,728). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 900 million ($3,974,914). These facilities require NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. NetSol PK also has an approved export refinance facility of Rs. 380 million ($1,678,297) from Samba Bank Limited. During the tenure of loan, these two facilities require NetSol PK to maintain at a minimum a current ratio of 1:1, an interest coverage ratio of 4 times, a leverage ratio of 2 times, and a debt service coverage ratio of 4 times.

As of the date of this report, we are in compliance with the financial covenants associated with our borrowings. The maturity dates of the borrowings of respective subsidiaries may accelerate if they do not comply with these covenants. In case of any change in control in subsidiaries, they may have to repay their respective credit facilities.

CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements are prepared applying certain critical accounting policies. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective, or complex judgments. Critical accounting policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect our reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on our future financial condition and results of operations. Our financial statements are prepared in accordance with U.S. GAAP, and they conform to general practices in our industry. We apply critical accounting policies consistently from period to period and intend that any change in methodology occur in an appropriate manner. There have been no significant changes to our accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

### RECENT ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

## Controls and procedures

As filed, 873 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Financial Officer and Chief Executive Officer concluded that our disclosure controls and procedures were effective.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the three months ended December 31, 2022, that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)).

Filed Feb 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-004714. Last ingested by Listed: Nov 4, 2026, 18:59 ET. No prices; not investment advice.