# Netsol Technologies Inc: Form 10-Q for the period ended Sep 30, 2024

- Company: [Netsol Technologies Inc](/companies/ntwk.md) (CIK 1039280)
- Form: 10-Q
- Filed: 2024-11-13
- Accepted by EDGAR: Nov 13, 2024, 14:05 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045055
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1039280/000149315224045055/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1039280/000149315224045055/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $14.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $8.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $6.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $359.9k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$760.2k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $258.2k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $229.8k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $70.8k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 11,482,754 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-07-01 to 2024-09-30 | $5.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-07-01 to 2024-09-30 | $100.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $24.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $46.5m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $62.8m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $22.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $23.1m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $5.0k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $39.8k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $34.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,554 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 September 30, 2024. 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, 2024, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Our website is located at https://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 is a global leader in delivering state-of-the-art solutions for the asset finance and leasing industry, serving automotive and equipment OEMs, auto captives and financial institutions across over 30 countries. Since its inception in 1997, NETSOL has been at the cutting edge of technology, pioneering innovations with its asset finance solutions and leveraging advanced AI and cloud services to meet the complex needs of the global market.

Renowned for its deep industry expertise, customer-centric approach and commitment to excellence, NETSOL fosters strong partnerships with its clients, ensuring their success in an ever-evolving landscape. With a rich history of innovation, ethical business practices and a focus on sustainability, NETSOL is dedicated to empowering businesses worldwide, securing its position as the trusted partner for leading firms around the globe.

Our primary sources of revenues have been licensing, subscriptions, modification, enhancement and support of our suite of financial applications, under the brand name Transcend™ Finance (formerly called NFS Ascent®) for leading businesses in the global finance and leasing space.

Our 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 our strategically placed support and delivery locations around the globe.

We are also committed to serving Tier-2 and Tier-3 banks and financial institutions. We understand the unique challenges faced by these institutions, which is why we offer innovative cloud implementation solutions without any license fees, rapid deployments and the ability to scale. Further, our out-of-the-box, API-first products are designed to seamlessly integrate into existing systems, providing flexibility and scalability that smaller institutions often need. By prioritizing accessibility and ease of use, we empower smaller financial companies to enhance their service offerings and streamline operations, positioning ourselves as a trusted partner in their digital transformation journey.

Founded in 1997, NETSOL is headquartered in Encino, 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 | Encino, California and Austin, Texas |
| ● | Europe | London Metropolitan area, Horsham and Flintshire |
| ● | Asia Pacific | Lahore, Karachi, Bangkok, Beijing, Tianjin, Jakarta and Sydney |
| ● | Middle East | Dubai |

We believe 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. We believe 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 us and a unique value for our customers. We continue to underpin our proven and effective business model which is a combination of careful cost arbitrage, subject matter expertise, domain experience, scalability and proximity with our global and regional customers.

### Expertise

Our expertise in enterprise technology and financial application development has helped us emerge as a global player in the finance and leasing industry and enabled us to secure a broad footprint across the major markets of North America, Asia Pacific and Europe. The Asia Pacific region has particularly benefitted from the organic growth in the fast-developing leasing automation industry, which is still nascent as per Western standards.

### Domain Experience

NETSOL is a dynamic leader and has been able to accumulate a wealth of experience in the global asset finance and leasing industry. We have built a large knowledge base which is regularly refined and updated to ensure the most up-to-date best practices and business solutions for the benefit of our clients and partners. We have a strong presence in the captive asset-finance domain. We have had continual operations for nearly three decades in Asia Pacific and Europe and over four decades in North America.

### Proximity with Global and Regional Customers

We have offices across the world, located strategically to maintain close contact and proximity with our customers in various key markets. This has not only helped us strengthen our customer relationships, but also build a deeper understanding of local market dynamics. Simultaneously, we are able to extend services and support development through a combination of onsite and offsite resources. This approach has allowed us to offer blended rates to our customers by employing a unique and cost-effective global development model.

While our business model is built around the development, implementation and maintenance of our suite of financial applications, we employ the same facilities and competencies to extend our services to related segments, including but not limited to:

- Information security
- Digital solutions
- AI, ML and data analytics
- Generative AI
- Policy and strategy
- Emerging technologies
- Cloud services
- Data engineering

Our global operations are broken down into three primary regions: North America, Europe and Asia Pacific. All of the subsidiaries are seamlessly integrated to function effectively with global delivery capabilities, cross selling to multinational asset finance companies, leveraging the centralized marketing and pre-sales organization, and a network of employees connected across the globe to support local and global customers and partners.

### OUR PRODUCTS AND SERVICES

Covering the complete finance and leasing lifecycle starting from quotation origination through contract settlements, our products are designed and developed for highly flexible settings and are capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and multi-manufacturer environments. Our solutions empower financial institutions to effectively manage their complex lending portfolios, enabling them to thrive in hyper-competitive global markets.

Built on cutting-edge, modern technology, NETSOL’s unified Transcend™ Platform is an AI-powered digital retail and asset finance solution for automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers and financial institutions.

### PRODUCTS AND SERVICES: TRANSCEND™ PLATFORM

The Transcend™ Platform, powered by NETSOL, is an AI-driven unified ecosystem that revolutionizes how assets are sold, financed and leased. Designed to automate and optimize every step - from sales to originations to servicing, Transcend™ leverages AI and ML to drive predictive insights and smarter decision-making.

### Transcend™ Retail (Formerly Known as Otoz®)

We revolutionize auto and equipment retail with a fully digital, integrated platform that simplifies the entire customer journey. From online purchasing to finance approval, Transcend™ Retail (formerly known as Otoz®) offers advanced retail and mobility solutions that keep dealerships or OEMs at the cutting edge of consumer expectations.

### Transcend™ Finance (Formerly Known as Ascent®)

We streamline finance and leasing operations with a comprehensive solution for originations, servicing and wholesale finance. Transcend™ Finance (formerly known as Ascent®) empowers automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers and financial institutions with end-to-end visibility and control, ensuring seamless workflows and accelerated business outcomes.

### Originations

We streamline the entire origination process, from submission to approval, with advanced features such as real-time, AI-powered credit decisioning, automated deal flows and more.

### Servicing

We enable financial institutions to attain real-time insights into portfolio performance, delinquencies and losses, enabling proactive portfolio management and strategic decision-making.

### Wholesale finance

Our wholesale finance solution empowers customers to gain a competitive edge by automating their wholesale finance and floor planning operations effortlessly.

### Transcend™ Marketplace (Formerly Known as Appex Now)

Transcend™ Marketplace (formerly known as Appex Now) offers a suite of flexible, component-based solutions that integrate seamlessly with the customer’s existing infrastructure. Transcend™ Marketplace is a modular, API-first solution that addresses every aspect of finance and leasing using tools for calculations, document generation, loan origination and lending configurations.

### Flex™

Flex is an API-first, ready-to-use calculation and quotation engine. It is a one-stop solution that guarantees precise calculations at all stages of the contract lifecycle through various calculation types. All the calculations are parameter-driven, which helps perform simple, multi-dimensional or complex calculations based on the needs of a business. Flex™ has a lightning-fast onboarding process, which can take place in mere minutes.

### Hubex™

Hubex™ is an API library that enables companies to standardize all their API integration procedures across multiple API services through a single integration. In addition to traditional lending companies, Hubex™ can also streamline the operations of dealerships, vendors and consultants. With a ready-to-use service, Hubex™ makes it easy for businesses to seamlessly connect with multiple APIs and achieve their desired outcomes. Pre-integrated services in the Hubex™ library include, but are not limited to, payment processing, bank account authentication, finance and insurance products, fraud check, know your customer (KYC) service, driver license verification, address validation, vehicle valuation and notification service.

### Index™

Index™ is a cloud-based parameter storage that smoothly runs all of a company’s core lending operations. It is an accumulation of all the master setups, including asset catalog and inventory, programs, rates, and profiles for lenders, dealers and multiple partners, in one centralized location for all business types. Index™ can enhance delivery efficiency and program management for easy integration into all systems.

### Dock™

Dock™ is an advanced document generation tool that lets a company create accurate and professional-looking documents in just seconds. With Dock™’s template-based configuration, a company can set up placeholders for data, essentially simplifying the document creation process and reducing the chance of human error. Its API-first architecture ensures scalability, making it capable of handling any document generation task, from single documents to millions, with ease.

### Lane™

Lane™ offers a feature-rich, end-to-end order management system for asset leasing and loans and credit companies. Our platform covers all aspects, from conducting end-to-end sales to performing dealer and partner-related tasks and marketing-related activities. The system offers a variety of dashboards that provide vital information for dealers and partners while enabling quick order management and providing a way for users to record and submit a complete credit application for their clients.

### Link™

Link is a purpose-built platform designed for brokers, lenders, dealers and borrowers to work seamlessly together. With tailored solutions that simplify applications and automate key processes, Link™ is designed to enhance customer relationships whilst making compliance effortless. This results in faster approvals, enriched customer experiences and stronger loyalty via elevated customer satisfaction.

### Intermediary portals:

### Broker portals

Efficiency and effectiveness are paramount for any broker. Managing disparate systems and processes can be cumbersome and time consuming, often leading to inefficiencies and missed opportunities. NETSOL offers a solution to these challenges by consolidating disparate processes into a single unified interface, revolutionizing the way a brokerage operates.

### Lender portals

NETSOL’s lender-specific portals are designed to transform the lending process by enhancing risk management and driving profitability. Our advanced tools not only streamline loan origination, but also facilitate seamless communication and collaboration with the lending ecosystem. We empower a company’s lending process with intuitive and efficient lender portals designed for a seamless user experience.

### Dealer portals

In the competitive automotive industry, dealers need efficient and comprehensive solutions to manage their operations effectively. NETSOL’s intermediary portals serve as digital command centers, providing dealers with a wide array of tools, resources and services to optimize every aspect of their business, from inventory management to sales and marketing.

### Transcend™ Consultancy

Empowering businesses with Transcend™ Consulting Services, we offer expert guidance across critical areas like information security, data engineering and cloud services. Our team partners with businesses to create tailored solutions that drive innovation, efficiency and growth.

### Transcend™ AI Labs

We are leading AI-driven innovation with our Transcend™ AI Labs, integrating advanced AI services into our product suite to solve the unique challenges of BFSI, equipment and auto OEMs and dealerships. Our tailored solutions drive industry-specific advancements, helping companies stay ahead in a competitive market.

### Highlights

Listed below are a few of NetSol’s highlights for the quarter ended September 30, 2024:

- We renewed a support contract with one of our existing clients in China for the next 5 years that will generate over $30 million in revenues.
- We signed a contract with an independent finance company operating in the UK, particularly across Northern Ireland and Scotland that will generate approximately $600K in revenues over the next 5 years. The client specializes in providing personal and commercial asset finance products, serving various markets including motor, agricultural, insurance premium, and leisure finance.
- We signed contracts that are expected to generate approximately $225K in revenue from professional services for two of our customers in China.
- We generated nearly $1.7 million in services revenues from modifications and enhancements for multiple customers across various regions.
- We successfully went live with our wholesale platform with a leading leasing company based in the Netherlands that is primarily focused on small and medium-sized enterprises (SMEs).
- The business effectively rebranded and repositioned its products on the Transcend™ platform. The platform is an AI-driven unified ecosystem that revolutionizes how assets are sold, financed and leased. Designed to automate and optimize every step - from sales to originations to servicing, Transcend™ leverages AI and ML to drive predictive insights and facilitate smarter decision-making.
- The Company launched its new corporate website. The new website represents a significant leap forward in unifying our products and services under a single, cohesive platform. The new corporate website facilitates a simplified customer journey and has our design refreshed with a vibrant, modern and aesthetically appealing visuals and comes with an engaging and easy-to-understand content.

Page 35

Management has identified the following material trends affecting NETSOL.

Positive trends:

- According to PR Newswire, December 14, 2023, and the S&P Global Mobility, new vehicles sales globally are expected to reach 86 million units in 2023 for an 8.9% increase over 2022 and forecasts 2024 auto sales at 88.3 million units for a 2.8% increase over 2023.
- The U.S. automotive sales volumes are expected to reach approximately 15.9 million units, in 2024 sales, an estimated increase of 2% compared to 2023. (S&P Global Mobility)
- The U.S. inflation rate decreased and ended at 2.4% at September 2024. (US Inflation Rate – Trading Economics)
- The U.S. market remains strong and resilient for NETSOL to continue investing in building local teams for its core offerings.
- In 2024, China domestic auto sales are expected to be at approximately 31 million units, a 3% increase from 2023. (China Passenger Car Association)
- In China, domestic electric vehicles sales are up 73% compared to August 2023. (Clean Technica 09/01/2024)
- The China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65 billion 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.
- The overall size of the mobility market in Europe and the United States is projected to increase over $425 billion combined, by 2035 or a compound CAGR of 5% from 2022. (Deloitte Global Automotive Mobility Market Simulation Tool)
- The global automotive finance market accounted for $245 billion in 2022 and is expected to more than double by 2035 at a CAGR of 7.4% according to Precedence Research.
- The U.S. economy grew at an annual rate of 3% for the second quarter of 2024. This report reflects the U.S. economy to be resilient despite other pressures including inflation and higher interest rates. (Associated Press August 29, 2024)
- The Federal Reserve cut interest rates by half a point in September 2024 and another half point reduction is forecasted by December 2024.
- The Russell index has returned an average of 14.4% during 2024.

Negative trends:

- The conflict in Gaza has disrupted the entire Middle East region since October 7, 2023. The conflict has expanded to neighboring nations such as Syria, Lebanon and Iran. The unrest and turmoil in the region is negative for the regional business environment.
- General economic conditions in our geographic markets; inflation, pending U.S. elections, geopolitical tensions, including trade wars, tariffs and/or sanctions in geographic areas; and global conflicts or disasters that impact the global economy or one or more sectors of the global economy.
- Political, monetary, and economic challenges and a 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 economic uncertainty.
- The geo-political environment in South Asia will continue to influence Pakistan’s economic prospects. Pakistan’s political uncertainty has caused higher inflation with constant pressure on its currency being devalued against the US Dollar. According to a report issued by the World Bank, while marginal economic growth is expected in Pakistan, implementing an ambitious and credibly communicated economic reform plan is critical for a robust economic recovery. There is no guarantee that such reforms will be implemented. See Press Release, dated April 2, 2024, World Bank.
- While the US-China bilateral summit in January 2024 exceeded expectations, the tensions between the two countries continue. The US and EU have placed tariffs on a range of high-tech products from China including the US placing 100% tariffs on EV vehicles and 25% tariffs on EV batteries imported from China. (Center for Strategic and International Studies June 28, 2024).

Page 36

CHANGES IN FINANCIAL CONDITION

### Quarter Ended September 30, 2024 Compared to the Quarter Ended September 30, 2023

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended September 30, 2024 and 2023 as a percentage of revenues.

|  | For the Three Months Ended September 30, |  |
| --- | ---: | ---: |
|  | 2024% | 2023% |
| **Net Revenues:** |  |  |
| License fees | $1,229 0.0% | $1,280,449 9.0% |
| Subscription and support | 8,192,471 56.1% | 6,512,243 45.7% |
| Services | 6,404,798 43.9% | 6,449,489 45.3% |
| Total net revenues | 14,598,498 100.0% | 14,242,181 100.0% |
| **Cost of revenues** | 8,034,386 55.0% | 8,080,164 56.7% |
| **Gross profit** | 6,564,112 45.0% | 6,162,017 43.3% |
| **Operating expenses:** |  |  |
| Selling, general and administrative | 6,964,321 47.7% | 5,432,969 38.1% |
| Research and development cost | 359,949 2.5% | 378,419 2.7% |
| Total operating expenses | 7,324,270 50.2% | 5,811,388 40.8% |
| **Income (loss) from operations** | (760,158) -5.2% | 350,629 2.5% |
| **Other income and (expenses)** |  |  |
| Interest expense | (258,219) -1.8% | (276,017) -1.9% |
| Interest income | 769,867 5.3% | 414,718 2.9% |
| Gain (loss) on foreign currency exchange transactions | 542,545 3.7% | (134,253) -0.9% |
| Other income | 153,491 1.1% | 57,881 0.4% |
| Total other income (expenses) | 1,207,684 8.3% | 62,329 0.4% |
| **Net income before income taxes** | 447,526 3.1% | 412,958 2.9% |
| **Income tax provision** | (229,817) -1.6% | (121,895) -0.9% |
| **Net income** | 217,709 1.5% | 291,063 2.0% |
| **Non-controlling interest** | (146,914) -1.0% | (260,173) -1.8% |
| **Net income attributable to NetSol** | $70,795 0.5% | $30,890 0.2% |
| **Net income per share:** |  |  |
| Net income per common share |  |  |
| Basic | $0.006 | $0.003 |
| Diluted | $0.006 | $0.003 |
| Weighted average number of shares outstanding |  |  |
| Basic | 11,429,695 | 11,345,856 |
| Diluted | 11,482,754 | 11,345,856 |

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 15 “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 September 30, |  | Favorable (Unfavorable) Change in Constant | Favorable (Unfavorable) Change due to Currency | Total Favorable (Unfavorable) Change as |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | 2024% | 2023% | Currency | Fluctuation | Reported |
| **Net Revenues:** | $14,598,498 100.0% | $14,242,181 100.0% | $220,340 | $135,977 | $356,317 |
| **Cost of revenues:** | 8,034,386 55.0% | 8,080,164 56.7% | 303,414 | (257,636) | 45,778 |
| **Gross profit** | 6,564,112 45.0% | 6,162,017 43.3% | 523,754 | (121,659) | 402,095 |
| **Operating expenses:** | 7,324,270 50.2% | 5,811,388 40.8% | (1,345,545) | (167,337) | (1,512,882) |
| **Income (loss) from operations** | $(760,158) -5.2% | $350,629 2.5% | $(821,791) | $(288,996) | $(1,110,787) |

Net revenues for the three months ended September 30, 2024 and 2023 are broken out among the segments as follows:

|  | 2024 Revenue% |  | 2023 Revenue% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $2,868,661 | 19.7% | $1,408,615 | 9.9% |
| Europe | 2,495,286 | 17.1% | 2,562,033 | 18.0% |
| Asia-Pacific | 9,234,551 | 63.3% | 10,271,533 | 72.1% |
| Total | $14,598,498 | 100.0% | $14,242,181 | 100.0% |

#### Revenues

#### License fees

License fees for the three months ended September 30, 2024 were $1,229 compared to $1,280,449 for the three months ended September 30, 2023 reflecting a decrease of $1,279,220 with a decrease in constant currency of $1,279,251. During the three months ended September 30, 2023, we recognized approximately $1,142,000 related to the license renewal with an existing customer.

#### Subscription and support

Subscription and support fees for the three months ended September 30, 2024 were $8,192,471 compared to $6,512,243 for the three months ended September 30, 2023 reflecting an increase of $1,680,228 with an increase in constant currency of $1,625,032. The increase includes a one-time catch up of approximately $639,000 upon signing a new contract with an existing customer in China. 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 September 30, 2024 was $6,404,798 compared to $6,449,489 for the three months ended September 30, 2023 reflecting a decrease of $44,691 with a decrease in constant currency of $147,175.

#### Gross Profit

The gross profit was $6,564,112, for the three months ended September 30, 2024 compared with $6,162,017 for the three months ended September 30, 2023. This is an increase of $402,095 with an increase in constant currency of $523,754. The gross profit percentage for the three months ended September 30, 2024 also increased to 45.0% from 43.3% for the three months ended September 30, 2023. The cost of sales was $8,034,386 for the three months ended September 30, 2024 compared to $8,080,164 for the three months ended September 30, 2023 for a decrease of $45,778 and on a constant currency basis a decrease of $303,414. As a percentage of sales, cost of sales decreased from 56.7% for the three months ended September 30, 2023 to 55.0% for the three months ended September 30, 2024.

Salaries and consultant fees increased by $245,591 from $5,958,143 for the three months ended September 30, 2023 to $6,203,734 for the three months ended September 30, 2024 and on a constant currency basis increased by $48,406. The increase is due to annual salary raises. As a percentage of sales, salaries and consultant expense increased from 41.8% for the three months ended September 30, 2023 to 42.5% for the three months ended September 30, 2024.

Travel expenses were $570,862 for the three months ended September 30, 2024 compared to $660,367 for the three months ended September 30, 2023 for a decrease of $89,505 with a decrease in constant currency of $104,248. As a percentage of sales, travel expense decreased from 4.6% for the three months ended September 30, 2023 to 3.9% for the three months ended September 30, 2024.

Depreciation and amortization expense decreased to $228,550 compared to $392,983 for the three months ended September 30, 2023 or a decrease of $164,433 and on a constant currency basis a decrease of $173,914.

Other costs decreased to $1,031,240 for the three months ended September 30, 2024 compared to $1,068,671 for the three months ended September 30, 2023 or a decrease of $37,431 and on a constant currency basis a decrease of $73,658.

#### Operating Expenses

Operating expenses were $7,324,270 for the three months ended September 30, 2024 compared to $5,811,388, for the three months ended September 30, 2023 for an increase of $1,512,882 and on a constant currency basis an increase of $1,345,545. As a percentage of sales, it increased from 40.8% to 50.2%. The increase in operating expenses was primarily due to increases in selling and marketing expenses, salaries and wages, professional services, provision for doubtful accounts, and other general and administrative expenses.

Selling expenses were $2,292,199 for the three months ended September 30, 2024 compared to $1,708,865, for the three months ended September 30, 2023 for an increase of $583,334 and on a constant currency basis an increase of $535,603. The increase is mainly due to increases is salaries and consultants of approximately $434,000, due to annual raises and the hiring of additional marketing personnel. Other marketing expenses increased by approximately $110,000 due to the increase in marketing events.

General and administrative expenses were $4,534,675 for the three months ended September 30, 2024 compared to $3,586,301 for the three months ended September 30, 2023 or an increase of $948,374 and on a constant currency basis an increase of $848,669. During the three months ended September 30, 2024, salaries increased by approximately $439,044 and increased $385,664 on a constant currency basis, and other general and administrative expenses increased approximately $99,770 or increased by $69,090 on a constant currency basis.

Research and development cost was $359,949 for the three months ended September 30, 2024 compared to $378,419, for the three months ended September 30, 2023 for a decrease of $18,470 and on a constant currency basis a decrease of $33,790.

#### Income/Loss from Operations

Loss from operations was $760,158 for the three months ended September 30, 2024 compared to income from operations of $350,629 for the three months ended September 30, 2023. This represents an increase in loss of $1,110,787 with an increase in loss of $821,791 on a constant currency basis for the three months ended September 30, 2024 compared with the three months ended September 30, 2023. As a percentage of sales, loss from operations was 5.2% for the three months ended September 30, 2024 compared to income from operations of 2.5% for the three months ended September 30, 2023.

#### Other Income and Expense

Other income was $1,207,684 for the three months ended September 30, 2024 compared to $62,329 for the three months ended September 30, 2023. This represents an increase of $1,145,355 with an increase of $1,095,873 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions and interest income. 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 September 30, 2024, we recognized a gain of $542,545 in foreign currency exchange transactions compared to a loss of $134,253 for the three months ended September 30, 2023. During the three months ended September 30, 2024, the value of the U.S. dollar decreased 0.2% and the Euro increased 3.9%, compared to the PKR. During the three months ended September 30, 2023, the value of the U.S. dollar increased 0.2% and the Euro decreased 2.6%, compared to the PKR. During the three months ended September 30, 2024, interest income was $769,867 compared to $414,718 for the three months ended September 30, 2023, for an increase of $355,149 and on constant currency basis an increase of $322,401.

#### Non-controlling Interest

For the three months ended September 30, 2024, the net income attributable to non-controlling interest was $146,914, compared to $260,173 for the three months ended September 30, 2023. The decrease in non-controlling interest is primarily due to the increase in net loss of NetSol Innovation.

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

The net income was $70,795 for the three months ended September 30, 2024 compared to $30,890 for the three months ended September 30, 2023. This is an increase in income of $39,905 with an increase of $153,796 on a constant currency basis, compared to the prior year. For the three months ended September 30, 2024, net income per share was $0.006 for basic and diluted shares compared to net income per share of $0.003 for basic and diluted shares for the three months ended September 30, 2023.

### 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 months ended September 30, 2024 and 2023 are as follows:

|  | For the Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net Income (loss) attributable to NetSol | $70,795 | $30,890 |
| Non-controlling interest | 146,914 | 260,173 |
| Income taxes | 229,817 | 121,895 |
| Depreciation and amortization | 365,997 | 530,786 |
| Interest expense | 258,219 | 276,017 |
| Interest (income) | (769,867) | (414,718) |
| EBITDA | $301,875 | $805,043 |
| Add back: |  |  |
| Non-cash stock-based compensation | 47,779 | 60,354 |
| Adjusted EBITDA, gross | $349,654 | $865,397 |
| Less non-controlling interest (a) | (145,781) | (399,440) |
| Adjusted EBITDA, net | $203,873 | $465,957 |
| Weighted Average number of shares outstanding |  |  |
| Basic | 11,429,695 | 11,345,856 |
| Diluted | 11,482,754 | 11,345,856 |
| Basic adjusted EBITDA | $0.02 | $0.04 |
| Diluted adjusted EBITDA | $0.02 | $0.04 |
| (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 | $146,914 | $260,173 |
| Income Taxes | 70,587 | 36,377 |
| Depreciation and amortization | 89,135 | 141,351 |
| Interest expense | 79,192 | 85,889 |
| Interest (income) | (242,647) | (128,091) |
| EBITDA | $143,181 | $395,699 |
| Add back: |  |  |
| Non-cash stock-based compensation | 2,600 | 3,741 |
| Adjusted EBITDA of non-controlling interest | $145,781 | $399,440 |

Page 42

### LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $24,525,956 at September 30, 2024, compared to $19,127,165 at June 30, 2024.

Net cash provided by operating activities was $5,517,745 for the three months ended September 30, 2024 compared to $1,663,619 for the three months ended September 30, 2023. At September 30, 2024, we had current assets of $46,533,702 and current liabilities of $22,372,380. We had accounts receivable of $5,936,063 at September 30, 2024 compared to $13,049,614 at June 30, 2024. We had revenues in excess of billings of $13,609,959 at September 30, 2024 compared to $13,638,547 at June 30, 2024 of which $866,388 and $954,029 is shown as long term as of September 30, 2024 and June 30, 2024, respectively. The long-term portion was discounted by $133,867 and $152,446 at September 30, 2024 and June 30, 2024, respectively, using the discounted cash flow method with interest rates ranging from 7.3% to 17.5%. During the three months ended September 30, 2024, 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 $7,142,139 from $26,688,161 at June 30, 2024 to $19,546,022 at September 30, 2024. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,414,790 and $6,443,937, respectively at September 30, 2024. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,232,342 and $6,276,125, respectively, at June 30, 2024.

The average days sales outstanding for the three months ended September 30, 2024 and 2023 were 150 and 144 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 $108,632 for the three months ended September 30, 2024, compared to $370,400 for the three months ended September 30, 2023. We had purchases of property and equipment of $100,737 compared to $371,630 for the three months ended September 30, 2023.

Net cash provided by financing activities was $153,189 for the three months ended September 30, 2024, compared to net cash used in financing activities of $44,474 for the three months ended September 30, 2023. During the three months ended September 30, 2024, we had net payments for bank loans and finance leases of $118,311 compared to $44,474 for the three months ended September 30, 2023. 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 12 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 September 30, 2024, we had approximately $24.5 million of cash, cash equivalents and marketable securities of which approximately $22.8 million is held by our foreign subsidiaries. As of June 30, 2024, we had approximately $19.1 million of cash, cash equivalents and marketable securities of which approximately $18.2 million is 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 ($400,000) 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 ($1,800,504) and a running finance facility of Rupees 53 million ($193,014). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 900 million ($3,240,907). 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 ($1,368,383) from Samba Bank Limited. During the loan tenure, 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, 2024.

### 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, 874 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 September 30, 2024, 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)).

## Risk factors

As filed, 628 characters.

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended June 30, 2024, filed with the SEC on September 30, 2024. Any of such factors could result in a significant or material adverse effect on our result of operations or financial conditions. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Filed Nov 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045055. Last ingested by Listed: Nov 4, 2026, 18:59 ET. No prices; not investment advice.