# Netsol Technologies Inc: Form 10-Q for the period ended Mar 31, 2023

- Company: [Netsol Technologies Inc](/companies/ntwk.md) (CIK 1039280)
- Form: 10-Q
- Filed: 2023-05-11
- Accepted by EDGAR: May 11, 2023, 10:25 ET
- Period: 2023-03-31
- Accession: 0001493152-23-016315
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1039280/000149315223016315/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1039280/000149315223016315/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $13.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-07-01 to 2023-03-31 | $38.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $8.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-07-01 to 2023-03-31 | $26.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $4.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-07-01 to 2023-03-31 | $12.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $302.3k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-07-01 to 2023-03-31 | $1.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$930.4k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-07-01 to 2023-03-31 | −$5.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $188.1k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-07-01 to 2023-03-31 | $512.1k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $227.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-07-01 to 2023-03-31 | $641.1k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $2.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-07-01 to 2023-03-31 | −$169.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.23 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-07-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.23 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-07-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 11,283,954 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-07-01 to 2023-03-31 | 11,270,466 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-07-01 to 2023-03-31 | $2.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-07-01 to 2023-03-31 | $1.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $15.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $40.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $59.5m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $17.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $18.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $209.5k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $167.2k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $37.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,141 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 March 31, 2023. 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 and Austin, Texas 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 March 31, 2023:

- We signed a new agreement with Kubota Australia Pty Ltd (“Kubota”) to implement our NFS Ascent® product. The contract relates to its operations in Australia and is expected to generate revenues of $5 million over 5 years.
- We went live with the Company’s API-first cloud-based calculation engine, Flex™, for Haydock Finance, a business finance provider in the United Kingdom.
- We continued our successful implementations with DFS by going live in Japan with our NFS Ascent® CMS system.
- Otoz went live with its 38th dealer and has dealers in 16 states.
- We effectively generated approximately $1.0 million by successfully implementing change requests from various customers across multiple regions.
- We achieved the status of API Gateway Delivery Partner with Amazon Web Services (AWS). With this extended APN partnership, we will have access to AWS API Gateway, a fully managed service that makes it easy for developers to create, publish, maintain, monitor, and secure APIs (application programming interfaces) at any scale. This partnership is expected to help the business generate new sales for this growth vertical.

#### Page 34

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 8% from the projected 2022 levels.
- Reduction of the U.S. inflation rate over the last few months to approximately 5% annually.
- 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.
- 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. Last June, China authorized a new $2.3 billion loan at a discounted rate to Pakistan as a short-term loan.
- China’s auto sector remains steady with government year-end incentives and customers requesting additional services reflecting the resilience of our offerings.
- There has been a positive trend in business development activities in the US and China as both countries are interested in a stable and bilateral relationship.

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 globally 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 and economic environment will likely remain unsteady until new elections are called.

#### Page 35

CHANGES IN FINANCIAL CONDITION

### Quarter Ended March 31, 2023 Compared to the Quarter Ended March 31, 2022

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022 as a percentage of revenues.

|  | For the Three Months Ended March 31, |  |
| --- | ---: | ---: |
|  | 2023% | 2022% |
| **Net Revenues:** |  |  |
| License fees | $1,982,985 14.7% | $1,620,827 10.9% |
| Subscription and support | 6,656,082 49.3% | 6,554,540 44.3% |
| Services | 4,867,322 36.0% | 6,634,459 44.8% |
| Total net revenues | 13,506,389 100.0% | 14,809,826 100.0% |
| **Cost of revenues:** |  |  |
| Salaries and consultants | 6,453,814 47.8% | 6,756,898 45.6% |
| Travel | 724,431 5.4% | 256,730 1.7% |
| Depreciation and amortization | 602,829 4.5% | 741,587 5.0% |
| Other | 1,020,286 7.6% | 1,220,041 8.2% |
| Total cost of revenues | 8,801,360 65.2% | 8,975,256 60.6% |
| **Gross profit** | 4,705,029 34.8% | 5,834,570 39.4% |
| **Operating expenses:** |  |  |
| Selling and marketing | 1,643,853 12.2% | 2,074,873 14.0% |
| Depreciation and amortization | 180,137 1.3% | 206,346 1.4% |
| General and administrative | 3,509,212 26.0% | 3,841,655 25.9% |
| Research and development cost | 302,262 2.2% | 251,001 1.7% |
| Total operating expenses | 5,635,464 41.7% | 6,373,875 43.0% |
| **Income (loss) from operations** | (930,435) -6.9% | (539,305) -3.6% |
| **Other income and (expenses)** |  |  |
| Gain (loss) on sale of assets | (84,838) -0.6% | 8,770 0.1% |
| Interest expense | (188,137) -1.4% | (85,916) -0.6% |
| Interest income | 263,794 2.0% | 364,161 2.5% |
| Gain (loss) on foreign currency exchange transactions | 5,385,591 39.9% | 499,516 3.4% |
| Share of net loss from equity investment | 2,377 0.0% | (76,798) -0.5% |
| Other income (expense) | 21,897 0.2% | (30,296) -0.2% |
| Total other income (expenses) | 5,400,684 40.0% | 679,437 4.6% |
| **Net income before income taxes** | 4,470,249 33.1% | 140,132 0.9% |
| **Income tax provision** | (227,718) -1.7% | (157,604) -1.1% |
| **Net income (loss)** | 4,242,531 31.4% | (17,472) -0.1% |
| **Non-controlling interest** | (1,697,908) -12.6% | (260,998) -1.8% |
| **Net income (loss) attributable to NetSol** | $2,544,623 18.8% | $(278,470) -1.9% |
| **Net income (loss) per share:** |  |  |
| Net income (loss) per common share |  |  |
| Basic | $0.23 | $(0.02) |
| Diluted | $0.23 | $(0.02) |
| Weighted average number of shares outstanding |  |  |
| Basic | 11,283,954 | 11,249,606 |
| Diluted | 11,283,954 | 11,249,606 |

#### Page 36

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 17 “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 March 31, |  | Favorable (Unfavorable) Change in Constant | Favorable (Unfavorable) Change due to Currency | Total Favorable (Unfavorable) Change as |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | 2023% | 2022% | Currency | Fluctuation | Reported |
| **Net Revenues:** | $13,506,389 100.0% | $14,809,826 100.0% | $(707,932) | $(595,505) | $(1,303,437) |
| **Cost of revenues:** | 8,801,360 65.2% | 8,975,256 60.6% | (2,716,350) | 2,890,246 | 173,896 |
| **Gross profit** | 4,705,029 34.8% | 5,834,570 39.4% | (3,424,282) | 2,294,741 | (1,129,541) |
| **Operating expenses:** | 5,635,464 41.7% | 6,373,875 43.0% | (490,388) | 1,228,799 | 738,411 |
| **Income (loss) from operations** | $(930,435) -6.9% | $(539,305) -3.6% | $(3,914,670) | $3,523,540 | $(391,130) |

Net revenues for the three months ended March 31, 2023 and 2022 are broken out among the segments as follows:

|  | 2023 Revenue% |  | 2022 Revenue% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $1,365,556 | 10.1% | $1,113,820 | 7.5% |
| Europe | 2,550,372 | 18.9% | 2,088,918 | 14.1% |
| Asia-Pacific | 9,590,461 | 71.0% | 11,607,088 | 78.4% |
| Total | $13,506,389 | 100.0% | $14,809,826 | 100.0% |

#### Revenues

#### License fees

License fees for the three months ended March 31, 2023 were $1,982,985 compared to $1,620,827 for the three months ended March 31, 2022 reflecting an increase of $362,158 with an increase in constant currency of $479,420. During the three months ended March 31, 2023, we recognized approximately $1,918,000 related to a new NFS Ascent® agreement with Kubota in Australia. During the three months ended March 31, 2022, we recognized approximately $1,117,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent product® for their new business segment in the South African market and $465,000 from the DFS contract.

#### Subscription and support

Subscription and support fees for the three months ended March 31, 2023 were $6,656,082 compared to $6,554,540 for the three months ended March 31, 2022 reflecting an increase of $101,542 with an increase in constant currency of $264,776. 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 March 31, 2023 was $4,867,322 compared to $6,634,459 for the three months ended March 31, 2022 reflecting a decrease of $1,767,137 with a decrease in constant currency of $1,452,128. The decrease is primarily due to the decrease in services provided for ongoing implementations and additional change requests.

#### Gross Profit

The gross profit was $4,705,029, for the three months ended March 31, 2023 compared with $5,834,570 for the three months ended March 31, 2022. This is a decrease of $1,129,541 with a decrease in constant currency of $3,424,282. The gross profit percentage for the three months ended March 31, 2023 also decreased to 34.8% from 39.4% for the three months ended March 31, 2022. The cost of sales was $8,801,360 for the three months ended March 31, 2023 compared to $8,975,256 for the three months ended March 31, 2022 for a decrease of $173,896 and on a constant currency basis an increase of $2,716,350. As a percentage of sales, cost of sales increased from 60.6% for the three months ended March 31, 2022 to 65.2% for the three months ended March 31, 2023.

Salaries and consultant fees decreased by $303,084 from $6,756,898 for the three months ended March 31, 2022 to $6,453,814 for the three months ended March 31, 2023 and on a constant currency basis increased by $1,741,371. The increase on a constant currency basis is due to annual salary raises and new hirings. As a percentage of sales, salaries and consultant expense increased from 45.6% for the three months ended March 31, 2022 to 47.8% for the three months ended March 31, 2023.

Travel expense was $724,431 for the three months ended March 31, 2023 compared to $256,730 for the three months ended March 31, 2022 for an increase of $467,701 with an increase in constant currency of $700,226. The increase in travel expense is due to the increase in travel as countries have been lifting travel restrictions.

Depreciation and amortization expense decreased to $602,829 compared to $741,587 for the three months ended March 31, 2022 or a decrease of $138,758 and on a constant currency basis an increase of $139,936.

Other costs decreased to $1,020,286 for the three months ended March 31, 2023 compared to $1,220,041 for the three months ended March 31, 2022 or a decrease of $199,755 and on a constant currency basis an increase of $134,817.

#### Operating Expenses

Operating expenses were $5,635,464 for the three months ended March 31, 2023 compared to $6,373,875, for the three months ended March 31, 2022 for a decrease of 11.6% or $738,411 and on a constant currency basis an increase of 7.7% or $490,388. As a percentage of sales, it decreased from 43.0% to 41.7%. The increase in operating expenses on a constant currency basis was primarily due to increases in salaries and wages and research and development costs, offset by decreases in selling and marketing expense and other general and administrative expenses.

Selling expenses were $1,643,853 for the three months ended March 31, 2023 compared to $2,074,873, for the three months ended March 31, 2022 for a decrease of $431,020 and on a constant currency basis a decrease of $57,742.

General and administrative expenses were $3,509,212 for the three months ended March 31, 2023 compared to $3,841,655 for the three months ended March 31, 2022 or a decrease of $332,443 or 8.7% and on a constant currency basis an increase of $304,475 or 7.9%. During the three months ended March 31, 2023, salaries decreased by approximately $52,981 and increased $389,564 on a constant currency basis, and other general and administrative expenses decreased approximately $308,825 or decreased by $129,617 on a constant currency basis.

Research and development cost was $302,262 for the three months ended March 31, 2023 compared to $251,001, for the three months ended March 31, 2022 for an increase of $51,261 and on a constant currency basis an increase of $215,444.

#### Income/Loss from Operations

Loss from operations was $930,435 for the three months ended March 31, 2023 compared to a loss of $539,305 for the three months ended March 31, 2022. This represents an increase in the loss of $391,130 with an increase in the loss of $3,914,670 on a constant currency basis for the three months ended March 31, 2023 compared with the three months ended March 31, 2022. As a percentage of sales, loss from operations was 6.9% for the three months ended March 31, 2023 compared to 3.6% for the three months ended March 31, 2022.

#### Other Income and Expense

Other income was $5,400,684 for the three months ended March 31, 2023 compared to $679,437 for the three months ended March 31, 2022. This represents an increase of $4,721,247 with an increase of $7,233,035 on a constant currency basis. The increase 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 March 31, 2023, we recognized a gain of $5,385,591 in foreign currency exchange transactions compared to $499,516 for the three months ended March 31, 2022. During the three months ended March 31, 2023, the value of the U.S. dollar increased 25.3% and the Euro increased 27.3%, compared to the PKR. During the three months ended March 31, 2022, the value of the U.S. dollar and the Euro increased 3.2% and 1.2%, respectively, compared to the PKR.

#### Non-controlling Interest

For the three months ended March 31, 2023, the net income attributable to non-controlling interest was $1,697,908, compared to $260,998 for the three months ended March 31, 2022. The increase in non-controlling interest is primarily due to the increase in net income of NetSol PK.

#### Net income (loss) attributable to NetSol

The net income was $2,544,623 for the three months ended March 31, 2023 compared to a net loss of $278,470 for the three months ended March 31, 2022. This is an increase of $2,823,093 with an increase of $1,511,612 on a constant currency basis, compared to the prior year. For the three months ended March 31, 2023, net income per share was $0.23 for basic and diluted shares compared to net loss per share of $0.02 for basic and diluted shares for the three months ended March 31, 2022.

### Nine Months Ended March 31, 2023 Compared to the Nine Months Ended March 31, 2022

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the nine months ended March 31, 2023 and 2022 as a percentage of revenues.

|  | For the Nine Months Ended March 31, |  |
| --- | ---: | ---: |
|  | 2023% | 2022% |
| **Net Revenues:** |  |  |
| License fees | $2,248,829 5.8% | $3,586,874 8.2% |
| Subscription and support | 19,175,585 49.7% | 22,159,798 50.7% |
| Services | 17,178,452 44.5% | 17,956,877 41.1% |
| Total net revenues | 38,602,866 100.0% | 43,703,549 100.0% |
| **Cost of revenues:** |  |  |
| Salaries and consultants | 19,482,720 50.5% | 18,081,225 41.4% |
| Travel | 1,752,074 4.5% | 753,698 1.7% |
| Depreciation and amortization | 1,950,156 5.1% | 2,236,190 5.1% |
| Other | 3,318,427 8.6% | 3,712,256 8.5% |
| Total cost of revenues | 26,503,377 68.7% | 24,783,369 56.7% |
| **Gross profit** | 12,099,489 31.3% | 18,920,180 43.3% |
| **Operating expenses:** |  |  |
| Selling and marketing | 5,413,492 14.0% | 5,502,028 12.6% |
| Depreciation and amortization | 569,313 1.5% | 633,481 1.4% |
| General and administrative | 10,745,031 27.8% | 11,548,097 26.4% |
| Research and development cost | 1,244,793 3.2% | 761,621 1.7% |
| Total operating expenses | 17,972,629 46.6% | 18,445,227 42.2% |
| **Income (loss) from operations** | (5,873,140) -15.2% | 474,953 1.1% |
| **Other income and (expenses)** |  |  |
| Gain (loss) on sale of assets | (56,494) -0.1% | (181,955) -0.4% |
| Interest expense | (512,110) -1.3% | (277,737) -0.6% |
| Interest income | 1,005,557 2.6% | 1,123,547 2.6% |
| Gain (loss) on foreign currency exchange transactions | 7,358,519 19.1% | 2,684,680 6.1% |
| Share of net loss from equity investment | 7,510 0.0% | (317,581) -0.7% |
| Other income (expense) | 113,877 0.3% | (7,599) 0.0% |
| Total other income (expenses) | 7,916,859 20.5% | 3,023,355 6.9% |
| **Net income before income taxes** | 2,043,719 5.3% | 3,498,308 8.0% |
| **Income tax provision** | (641,122) -1.7% | (526,737) -1.2% |
| **Net income (loss)** | 1,402,597 3.6% | 2,971,571 6.8% |
| **Non-controlling interest** | (1,571,629) -4.1% | (1,655,287) -3.8% |
| **Net income (loss) attributable to NetSol** | $(169,032) -0.4% | $1,316,284 3.0% |
| **Net income (loss) per share:** |  |  |
| Net income (loss) per common share |  |  |
| Basic | $(0.01) | $0.12 |
| Diluted | $(0.01) | $0.12 |
| Weighted average number of shares outstanding |  |  |
| Basic | 11,270,466 | 11,249,449 |
| Diluted | 11,270,466 | 11,249,449 |

#### Page 40

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 17 “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 Nine Months Ended March 31, |  | Favorable (Unfavorable) Change in Constant | Favorable (Unfavorable) Change due to Currency | Total Favorable (Unfavorable) Change as |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | 2023% | 2022% | Currency | Fluctuation | Reported |
| **Net Revenues:** | $38,602,866 100.0% | $43,703,549 100.0% | $(3,069,077) | $(2,031,606) | $(5,100,683) |
| **Cost of revenues:** | 26,503,377 68.7% | 24,783,369 56.7% | (9,047,722) | 7,327,714 | (1,720,008) |
| **Gross profit** | 12,099,489 31.3% | 18,920,180 43.3% | (12,116,799) | 5,296,108 | (6,820,691) |
| **Operating expenses:** | 17,972,629 46.6% | 18,445,227 42.2% | (3,016,282) | 3,488,880 | 472,598 |
| **Income (loss) from operations** | $(5,873,140) -15.2% | $474,953 1.1% | $(15,133,081) | $8,784,988 | $(6,348,093) |

Net revenues for the nine months ended March 31, 2023 and 2022 are broken out among the segments as follows:

|  | 2023 Revenue% |  | 2022 Revenue% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $4,088,696 | 10.6% | $3,104,433 | 7.1% |
| Europe | 7,643,408 | 19.8% | 7,483,911 | 17.1% |
| Asia-Pacific | 26,870,762 | 69.6% | 33,115,205 | 75.8% |
| Total | $38,602,866 | 100.0% | $43,703,549 | 100.0% |

#### Revenues

#### License fees

License fees for the nine months ended March 31, 2023 were $2,248,829 compared to $3,586,874 for the nine months ended March 31, 2022 reflecting a decrease of $1,338,045 with a decrease in constant currency of $1,212,555. During the nine months ended March 31, 2023, we recognized approximately $1,918,000 related to a new NFS Ascent® agreement with Kubota in Australia and approximately $188,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent® product. During the nine months ended March 31, 2022, we recognized approximately $3,039,000 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, Australian and South African markets and $465,000 from the DFS contract.

#### Subscription and support

Subscription and support fees for the nine months ended March 31, 2023 were $19,175,585 compared to $22,159,798 for the nine months ended March 31, 2022 reflecting a decrease of $2,984,213 with a decrease in constant currency of $2,370,859. The decrease in subscription and support revenue is related to the revised ceiling amount for post contract support due to the software customizations related to the DFS contract. The Company recorded a one-time post contract support revenue of approximately $3,480,000 using the catch-up approach during the nine months ended March 31, 2022. 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 nine months ended March 31, 2023 was $17,178,452 compared to $17,956,877 for the nine months ended March 31, 2022 reflecting a decrease of $778,425 with an increase in constant currency of $514,337. The change is primarily due to services provided for ongoing implementations plus additional change requests.

#### Gross Profit

The gross profit was $12,099,489 for the nine months ended March 31, 2023 compared with $18,920,180 for the nine months ended March 31, 2022. This is a decrease of $6,820,691 with a decrease in constant currency of $12,116,799. The gross profit percentage for the nine months ended March 31, 2023 also decreased to 31.3% from 43.3% for the nine months ended March 31, 2022. The cost of sales was $26,503,377 for the nine months ended March 31, 2023 compared to $24,783,369 for the nine months ended March 31, 2022 for an increase of $1,720,008 and on a constant currency basis an increase of $9,047,722. As a percentage of sales, cost of sales increased from 56.7% for the nine months ended March 31, 2022 to 68.7% for the nine months ended March 31, 2023.

Salaries and consultant fees increased by $1,401,495 from $18,081,225 for the nine months ended March 31, 2022 to $19,482,720 for the nine months ended March 31, 2023 and on a constant currency basis increased by $6,651,377. The increase is due to annual salary raises and new hirings. As a percentage of sales, salaries and consultant expense increased from 41.4% for the nine months ended March 31, 2022 to 50.5% for the nine months ended March 31, 2023.

Travel expense was $1,752,074 for the nine months ended March 31, 2023 compared to $753,698 for the nine months ended March 31, 2022 for an increase of $998,376 with an increase in constant currency of $1,487,642. The increase in travel expense is due to the increase in travel as countries have been lifting travel restrictions.

Depreciation and amortization expense decreased to $1,950,156 compared to $2,236,190 for the nine months ended March 31, 2022 or a decrease of $286,034 and on a constant currency basis an increase of $418,918.

Other costs decreased to $3,318,427 for the nine months ended March 31, 2023 compared to $3,712,256 for the nine months ended March 31, 2022 or a decrease of $393,829 and on a constant currency basis an increase of $489,785. The increase on a constant currency basis is mainly due to increases in computer costs.

#### Operating Expenses

Operating expenses were $17,972,629 for the nine months ended March 31, 2023 compared to $18,445,227, for the nine months ended March 31, 2022 for a decrease of 2.6% or $472,598 and on a constant currency basis an increase of 16.3% or $3,016,282. As a percentage of sales, it increased from 42.2% to 46.6%. The increase in operating expenses on a constant currency basis was primarily due to increases in selling expenses, general and administrative expenses and research and development costs.

Selling expenses were $5,413,492 for the nine months ended March 31, 2023 compared to $5,502,028, for the nine months ended March 31, 2022 for a decrease of $88,536 and on a constant currency basis an increase of $986,779.

General and administrative expenses were $10,745,031 for the nine months ended March 31, 2023 compared to $11,548,097 at March 31, 2022 or a decrease of $803,066 or 7.0% and on a constant currency basis an increase of $1,024,055 or 8.9%. During the nine months ended March 31, 2023, salaries decreased by approximately $364,975 and increased $805,877 on a constant currency basis, and other general and administrative expenses decreased approximately $438,091 and increased $218,178 on a constant currency basis.

Research and development cost was $1,244,793 for the nine months ended March 31, 2023 compared to $761,621, for the nine months ended March 31, 2022 for an increase of $483,172 and on a constant currency basis an increase of $920,289.

#### Income/Loss from Operations

Loss from operations was $5,873,140 for the nine months ended March 31, 2023 compared to income from operations of $474,953 for the nine months ended March 31, 2022. This represents an increase in the loss of $6,348,093 with an increase in the loss of $15,133,081 on a constant currency basis for the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022. As a percentage of sales, loss from operations was 15.2% for the nine months ended March 31, 2023 compared to income from operations of 1.1% for the nine months ended March 31, 2022.

#### Other Income and Expense

Other income was $7,916,859 for the nine months ended March 31, 2023 compared to $3,023,355 for the nine months ended March 31, 2022. This represents an increase of $4,893,504 with an increase of $8,201,958 on a constant currency basis. The increase 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 nine months ended March 31, 2023, we recognized a gain of $7,358,519 in foreign currency exchange transactions compared to $2,684,680 for the nine months ended March 31, 2022. During the nine months ended March 31, 2023, the value of the U.S. dollar and the Euro increased 38.2% and 43.8%, respectively, compared to the PKR. During the nine months ended March 31, 2022, the value of the U.S. dollar and the Euro increased 15.9% and 8.5%, respectively, compared to the PKR.

#### Non-controlling Interest

For the nine months ended March 31, 2023, the net income attributable to non-controlling interest was $1,571,629, compared to $1,655,287 for the nine months ended March 31, 2022. The decrease in non-controlling interest is primarily due to the decrease in net income of NetSol PK.

#### Net income (loss) attributable to NetSol

The net loss was $169,032 for the nine months ended March 31, 2023 compared to net income of $1,316,284 for the nine months ended March 31, 2022. This is a decrease of $1,485,316 with a decrease of $6,151,678 on a constant currency basis, compared to the prior year. For the nine months ended March 31, 2023, net loss per share was $0.01 for basic and diluted shares compared to net income per share of $0.12 for basic and diluted shares for the nine months ended March 31, 2022.

### 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 nine months ended March 31, 2023 and 2022 are as follows:

|  | For the Three Months Ended March 31, 2023 | 2022 | For the Nine Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net Income (loss) attributable to NetSol | $2,544,623 | $(278,470) | $(169,032) | $1,316,284 |
| Non-controlling interest | 1,697,908 | 260,998 | 1,571,629 | 1,655,287 |
| Income taxes | 227,718 | 157,604 | 641,122 | 526,737 |
| Depreciation and amortization | 782,966 | 947,933 | 2,519,469 | 2,869,671 |
| Interest expense | 188,137 | 85,916 | 512,110 | 277,737 |
| Interest (income) | (263,794) | (364,161) | (1,005,557) | (1,123,547) |
| EBITDA | $5,177,558 | $809,820 | $4,069,741 | $5,522,169 |
| Add back: |  |  |  |  |
| Non-cash stock-based compensation | 52,392 | 49,933 | 198,559 | 78,225 |
| Adjusted EBITDA, gross | $5,229,950 | $859,753 | $4,268,300 | $5,600,394 |
| Less non-controlling interest (a) | (1,971,516) | (500,805) | (2,363,688) | (2,382,721) |
| Adjusted EBITDA, net | $3,258,434 | $358,948 | $1,904,612 | $3,217,673 |
| Weighted Average number of shares outstanding |  |  |  |  |
| Basic | 11,283,954 | 11,249,606 | 11,270,466 | 11,249,449 |
| Diluted | 11,283,954 | 11,249,606 | 11,270,466 | 11,249,449 |
| Basic adjusted EBITDA | $0.29 | $0.03 | $0.17 | $0.29 |
| Diluted adjusted EBITDA | $0.29 | $0.03 | $0.17 | $0.29 |
| (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 | $1,697,908 | $260,998 | $1,571,629 | $1,655,287 |
| Income Taxes | 69,947 | 45,427 | 198,263 | 159,854 |
| Depreciation and amortization | 219,759 | 279,055 | 713,676 | 840,508 |
| Interest expense | 57,797 | 25,764 | 157,929 | 81,846 |
| Interest (income) | (77,988) | (117,417) | (303,489) | (362,146) |
| EBITDA | $1,967,423 | $493,827 | $2,338,008 | $2,375,349 |
| Add back: |  |  |  |  |
| Non-cash stock-based compensation | 4,093 | 6,978 | 25,680 | 7,372 |
| Adjusted EBITDA of non-controlling interest | $1,971,516 | $500,805 | $2,363,688 | $2,382,721 |

#### Page 45

### LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $15,259,497 at March 31, 2023, compared to $23,963,797 at June 30, 2022.

Net cash provided by operating activities was $2,564,619 for the nine months ended March 31, 2023 compared to $5,525,951 for the nine months ended March 31, 2022. At March 31, 2023, we had current assets of $40,824,397 and current liabilities of $17,656,128. We had accounts receivable of $9,223,484 at March 31, 2023 compared to $8,669,202 at June 30, 2022. We had revenues in excess of billings of $13,741,884 at March 31, 2023 compared to $15,425,377 at June 30, 2022 of which $nil and $853,601 is shown as long term as of March 31, 2023 and June 30, 2022, respectively. The long-term portion was discounted by $nil and $28,339 at March 31, 2023 and June 30, 2022, respectively, using the discounted cash flow method with interest rates ranging from 4.65% to 6.25%. During the nine months ended March 31, 2023, 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 $1,129,211 from $24,094,579 at June 30, 2022 to $22,965,368 at March 31, 2023. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $7,098,206 and $5,969,044, respectively at March 31, 2023. 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 nine months ended March 31, 2023 and 2022 were 167 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 $1,421,657 for the nine months ended March 31, 2023, compared to $1,359,605 for the nine months ended December 31, 2021. We had purchases of property and equipment of $1,575,059 compared to $1,680,856 for the nine months ended March 31, 2022.

Net cash used in financing activities was $517,349 for the nine months ended March 31, 2023, compared to $833,103 for the nine months ended March 31, 2022. For the nine months ended March 31, 2022, we purchased 22,510 shares of our own stock for $100,106. The nine months ended March 31, 2023 and 2022 included the cash inflow of $270,292 and $312,467, respectively, from bank proceeds. During the nine months ended March 31, 2023, we had net payments for bank loans and finance leases of $787,641 compared to $1,045,464 for the nine months ended March 31, 2022. 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 14 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 March 31, 2023, we had approximately $15.3 million of cash, cash equivalents and marketable securities of which approximately $13.1 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.

### Financial Covenants

Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($370,370) 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 ($1,762,363) and a running finance facility of Rupees 53 million ($188,925). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 900 million ($3,172,253). 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 ($1,339,396) 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, 870 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 March 31, 2023, 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 May 11, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-016315. Last ingested by Listed: Nov 4, 2026, 18:59 ET. No prices; not investment advice.