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, 2022. The following discussion should be read in conjunction with the information included within our Annual Report on Form 10-K for the year ended June 30, 2022, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Our website is located at www.netsoltech.com, and our investor relations website is located at http://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'swebsite 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 Roomat 100 F Street, NE, Washington D.C.20549. Information on the operation of the Public Reference Roomcan be obtained by calling the SECat 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 SECfilings, 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 http:// 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'sDNA, 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'snew customers to opt for a subscription-based pricing model rather than the traditional licensing model.
Fortune 500 manufacturers, financial institutions, global vehicle manufacturers
and enterprise technology providers, all of which are serviced by
strategically placed support and delivery locations around the globe.
Founded in 1997,
NetSolis headquartered in Calabasas, California. While the Company follows a global strategy for sales and delivery of its portfolio of solutions and services, it continues to maintain regional offices in the following locations: ? North America Los Angeles Area? Europe LondonMetropolitan area and Horshamin the UK? Asia Pacific Lahore, Karachi, Bangkok, Beijing, Shanghai, Jakartaand SydneyPage 26
NETSOLbelieves 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. NETSOLbelieves 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 NETSOLand a unique value for its customers. NETSOLcontinues 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-Pointof Sale, Mobile Account, Mobile Pointof 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. Page 27 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
including LeasePak and LeaseSoft.
Listed below are a few of
? We partnered with
providing an innovative transformation of our cloud-based solutions. Since
this launch, we have already signed our first customer, a leading software
house based in the US. We signed a contract with a tier 1 automotive company
operations for vehicle subscriptions.
? We launched a new product offering – Flex, which is a cloud-based ready-to-use
calculation engine that guarantees precise calculations at all stages of the
contract lifecycle. We successfully signed our first Flex contract with
? Otoz went live with its 28th dealer and is now with dealers in 13 states. The
onboarding of these new dealers will help the business generate approximately
? Our sales pipeline continues to be strong with the addition of some new
prospects who have registered their interests in NFS Ascent®, digital, and
legacy solutions across various regions pushing the total pipeline size to
? We have expanded our footprint within
as the professional services vertical growth within
of work signed with BAIC and BYD by the
will be delivered and supported by
? We effectively generated approximately
implementing change requests from various customers across multiple regions.
? We successfully renegotiated an existing maintenance contract with a leading
finance company of a
annual maintenance fees to
$500Kfrom $280K. Page 28
Management has identified the following material trends affecting
? Most countries no longer require COVID-19 testing and other travel
restrictions have been lifted which increases opportunities to meet face to
face with current and potential customers.
? NFS Ascent® SaaS offering is gaining traction in mid-size auto captives in
North American and European markets.
? The auto and banking sectors continue momentum towards increased mobility and
? In developing markets, we continue to see interest from existing clients for
upgrades and mobility platforms.
? Otoz TM platform is showing a steady growth of interest from existing and new
auto leasing and Tier 1 companies in all of our markets.
? The China Pakistan Economic Corridor (CPEC) investment, initiated by
Pakistanenergy and infrastructure sectors. ? China'sauto sector remains strong with customers requesting additional services reflecting the resilience of our offerings.
? There has been an increase in business development activities in the US, the
? There is a growing interest from long-time customers in upgrading from our
legacy NFS solution to Ascent®. Negative trends:
? General economic conditions in our geographic markets; geopolitical tensions,
including trade wars, tariffs and/or sanctions in our 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 fear of global recession impacts the future expansions and budgets in every
country and every sector.
? The Negative currency impact due to the devaluation of the Pakistan Rupee and
? Inflation and higher interest rates have greatly increased the cost of doing
business worldwide affecting profitability.
? War and hostility between
affecting business travels and face to face meetings with decision makers.
? Higher inflation globally and in
benefits for employees resulting in increased turnover in
also increased costs of salaries and benefits for all of our subsidiaries.
been down by over 20% in 2022.
? Working from the office might never return to 100% affecting productivity and
elections are called. Page 29
CHANGES IN FINANCIAL CONDITION
The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended
September 30, 2022and 2021 as a percentage of revenues. For the Three Months Ended September 30, 2022 % 2021 % Net Revenues: License fees $ 249,9602.0 % $ 10,7160.1 % Subscription and support 6,016,834 47.4 % 6,230,389 46.4 % Services 6,439,325 50.7 % 7,179,656 53.5 % Total net revenues 12,706,119 100.0 % 13,420,761 100.0 % Cost of revenues: Salaries and consultants 6,086,735 47.9 % 5,662,410 42.2 % Travel 392,345 3.1 % 214,132 1.6 % Depreciation and amortization 654,049 5.1 % 765,735 5.7 % Other 1,320,993 10.4 % 1,335,461 10.0 % Total cost of revenues 8,454,122 66.5 % 7,977,738 59.4 % Gross profit 4,251,997 33.5 % 5,443,023 40.6 % Operating expenses: Selling and marketing 1,762,177 13.9 % 1,619,993 12.1 % Depreciation and amortization 190,954 1.5 % 214,271 1.6 % General and administrative 3,725,430 29.3 % 3,973,139 29.6 % Research and development cost 469,627 3.7 % 275,230 2.1 % Total operating expenses 6,148,188 48.4 % 6,082,633 45.3 % Loss from operations (1,896,191 ) -14.9 % (639,610 ) -4.8 % Other income and (expenses) Gain (loss) on sale of assets 23,296 0.2 % (110,600 ) -0.8 % Interest expense (121,610 ) -1.0 % (101,013 ) -0.8 % Interest income 431,857 3.4 % 443,133 3.3 % Gain (loss) on foreign currency exchange transactions 1,315,705 10.4 % 1,284,148 9.6 % Share of net loss from equity investment - 0.0 % (160,965 ) -1.2 % Other income (expense) 2,320 0.0 % 3,029 0.0 % Total other income (expenses) 1,651,568 13.0 % 1,357,732 10.1 % Net income (loss) before income taxes (244,623 ) -1.9 % 718,122 5.4 % Income tax provision (193,348 ) -1.5 % (167,627 ) -1.2 % Net income (loss) (437,971 ) -3.4 % 550,495 4.1 % Non-controlling interest (182,758 ) -1.4 % (362,526 ) -2.7 % Net income (loss) attributable to NetSol $ (620,729 )-4.9 % $ 187,9691.4 % Net income (loss) per share: Net income (loss) per common share Basic $ (0.06 ) $ 0.02Diluted $ (0.06 ) $ 0.02Weighted average number of shares outstanding Basic 11,257,539 11,254,205 Diluted 11,257,539 11,254,205 Page 30
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 19 "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. Favorable Favorable (Unfavorable) Total (Unfavorable) Change Favorable For the Three Months Change in due to (Unfavorable) Ended September 30, Constant Currency Change as 2022 % 2021 % Currency Fluctuation Reported Net Revenues: $ 12,706,119100.0 % $ 13,420,761100.0 % $ 2,098,695 $ (2,813,337 ) $ (714,642 )Cost of revenues: 8,454,122 66.5 % 7,977,738 59.4 % (2,834,917 ) 2,358,533 (476,384 ) Gross profit 4,251,997 33.5 % 5,443,023 40.6 % (736,222 ) (454,804 ) (1,191,026 ) Operating expenses: 6,148,188 48.4 % 6,082,633 45.3 % (1,303,794 ) 1,238,239 (65,555 )
Income (loss) from operations
$ (1,896,191 )-14.9 % $
(639,610 ) -4.8 %
$ (2,040,016 ) $ 783,435 $ (1,256,581 )
Net revenues for the quarter ended
among the segments as follows:
2022 2021 Revenue % Revenue % North America
$ 1,125,2888.9 % $ 930,2346.9 % Europe 2,247,335 17.7 % 3,272,899 24.4 % Asia-Pacific 9,333,496 73.5 % 9,217,628 68.7 % Total $ 12,706,119100.0 % $ 13,420,761100.0 % Revenues License fees License fees for the three months ended September 30, 2022were $249,960compared to $10,716for the three months ended September 30, 2021reflecting an increase of $239,244with a change in constant currency of $314,135. During the three months ended September 30, 2022, we recognized approximately $188,000related to a new agreement with the Government of Khyber Pakhtunkhwafor the sale of our Ascent®product. Subscription and support
Subscription and support fees for the three months ended
September 30, 2022were $6,016,834compared to $6,230,389for the three months ended September 30, 2021reflecting a decrease of $213,555with an increase in constant currency of $1,031,505. The reason for the decrease in subscription and support revenue is the decrease in the value of major currencies compared to the USD. 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®. Page 31 Services Services income for the three months ended
September 30, 2022was $6,439,325compared to $7,179,656for the three months ended September 30, 2021reflecting a decrease of $740,331with an increase in constant currency of $753,055. The decrease is primarily due to the devaluation of major currencies compared to the USD. Gross Profit The gross profit was $4,251,997, for the three months ended September 30, 2022as compared with $5,443,023for the three months ended September 30, 2021. This is a decrease of $1,191,026with a decrease in constant currency of $736,222. The gross profit percentage for the three months ended September 30, 2022also decreased to 33.5% from 40.6% for the three months ended September 30, 2021. The cost of sales was $8,454,122for the three months ended September 30, 2022compared to $7,977,738for the three months ended September 30, 2021for an increase of $476,384and on a constant currency basis an increase of $2,834,917. As a percentage of sales, cost of sales increased from 59.4% for the three months ended September 30, 2021to 66.5% for the three months ended September 30, 2022.
Salaries and consultant fees increased by
$424,325from $5,662,410for the three months ended September 30, 2021to $6,086,735for the three months ended September 30, 2022and on a constant currency basis increased by $2,070,440. The increase is due to annual salary raises, and new hirings. As a percentage of sales, salaries and consultant expense increased from 42.2% for the three months ended September 30, 2021to 47.9% for the three months ended September 30, 2022.
Travel expense was
increase in travel expense is due to the increase in travel as countries begin
lifting travel restrictions.
Depreciation and amortization expense decreased to
$654,049compared to $765,735for the three months ended September 30, 2021or a decrease of $111,686and on a constant currency basis an increase of $121,361. Other costs decreased to $1,320,993for the three months ended September 30, 2022compared to $1,335,461for the three months ended September 30, 2021or a decrease of $14,468and on a constant currency basis an increase of $350,836. The increase is mainly due to increases in repair and maintenance costs and
computer costs. Operating Expenses
Operating expenses were
$6,148,188for the three months ended September 30, 2022compared to $6,082,633, for the three months ended September 30, 2021for an increase of 1.1% or $65,555and on a constant currency basis an increase of 21.4% or $1,303,794. As a percentage of sales, it increased from 45.3% to 48.4%. The increase in operating expenses was primarily due to increases in selling expenses and research and development costs offset by a decrease in general
and administrative expenses. Selling expenses were
$1,762,177for the three months ended September 30, 2022compared to $1,619,993, for the three months ended September 30, 2021for an increase of $142,184and on a constant currency basis an increase of $513,327. General and administrative expenses were $3,725,430for the three months ended September 30, 2022compared to $3,973,139at September 30, 2021or a decrease of $247,709or 6.2% and on a constant currency basis an increase of $415,933or 10.5%. During the three months ended September 30, 2022, salaries decreased by approximately $289,982and increased $88,617on a constant currency basis, and other general and administrative expenses increased approximately $156,493or $437,776on a constant currency basis. Research and development cost was $469,627for the three months ended September 30, 2022compared to $275,230, for the three months ended September 30, 2021for an increase of $194,397and on a constant currency basis an increase of $347,217. Income/Loss from Operations Loss from operations was $1,896,191for the three months ended September 30, 2022compared to loss from operations of $639,610for the three months ended September 30, 2021. This represents an increase in the loss of $1,256,581with an increase in the loss of $2,040,016on a constant currency basis for the three months ended September 30, 2022compared with the three months ended September 30, 2021. As a percentage of sales, loss from operations was 14.9% for the three months ended September 30, 2022compared to loss from operations of 4.8% for the three months ended September 30, 2021. Page 32 Other Income and Expense Other income was $1,651,568for the three months ended September 30, 2022compared to $1,357,732for the three months ended September 30, 2021. This represents an increase of $293,836with an increase of $880,038on 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 September 30, 2022, we recognized a gain of $1,315,705in foreign currency exchange transactions compared to $1,284,148for the three months ended September 30, 2021. During the three months ended September 30, 2022, the value of the U.S.dollar and the Euro increased 11.0% and 4.11%, respectively, compared to the PKR. During the three months ended September 30, 2021, the value of the U.S.dollar and the Euro increased 8.1% and 5.5%, respectively, compared to the PKR. Non-controlling Interest
For the three months ended
September 30, 2022, the net income attributable to non-controlling interest was $182,758, compared to $362,526for the three months ended September 30, 2021. The decrease in non-controlling interest is primarily due to the decrease in net income of NetSol PK.
Net loss attributable to
The net loss was
$620,729for the three months ended September 30, 2022compared to net income of $187,969for the three months ended September 30, 2021. This is a decrease of $808,698with a decrease of $1,100,209on a constant currency basis, compared to the prior year. For the three months ended September 30, 2022, net loss per share was $0.06for basic and diluted shares compared to net income per share of $0.02for basic and diluted shares for the three months
September 30, 2021. Non-GAAP Financial Measures Regulation S-K Item 10(e), "Use of Non-GAAP Financial Measures in Commission Filings," defines and prescribes the conditions for use of non-GAAP financial information. Our measures of adjusted EBITDA and adjusted EBITDA per basic and diluted share meet the definition of a non-GAAP financial measure.
We define the non-GAAP measures as follows:
? EBITDA is GAAP net income or loss before net interest expense, income tax
expense, depreciation and amortization.
? Non-GAAP adjusted EBITDA is EBITDA plus stock-based compensation expense.
? Adjusted EBITDA per basic and diluted share – Adjusted EBITDA allocated to
common stock divided by the weighted average shares outstanding and diluted
shares outstanding. We use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure in evaluating the Company.
The non-GAAP measures reflect adjustments based on the following items:
EBITDA: We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income or loss because doing so makes internal comparisons to our historical operating results more consistent. In addition, we believe providing an EBITDA calculation is a more useful comparison of our operating results to the operating results of our peers. Stock-based compensation expense: We have excluded the effect of stock-based compensation expense from the non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per basic and diluted share calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by
NetSol, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.
Non-controlling interest: We add back the non-controlling interest in
calculating gross adjusted EBITDA and then subtract out the income taxes,
depreciation and amortization and net interest expense attributable to the
non-controlling interest to arrive at a net adjusted EBITDA.
Page 33 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, 2022and 2021 are as follows: For the Three For the Three Months Ended Months Ended September 30, September 30, 20222021
Net Income (loss) attributable to NetSol
$ (620,729 )$
187,969 Non-controlling interest 182,758 362,526 Income taxes 193,348 167,627
Depreciation and amortization 845,003
980,006 Interest expense 121,610 101,013 Interest (income) (431,857 ) (443,133 ) EBITDA
$ 290,133 $ 1,356,008Add back:
Non-cash stock-based compensation 81,834
Adjusted EBITDA, gross
Less non-controlling interest (a) (399,535 ) (588,879 ) Adjusted EBITDA, net
$ (27,568 )$
Weighted Average number of shares outstanding Basic 11,257,539 11,254,205 Diluted 11,257,539 11,254,205 Basic adjusted EBITDA $ (0.00 ) $ 0.07 Diluted adjusted EBITDA $ (0.00 ) $ 0.07 (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
Income Taxes 59,910
Depreciation and amortization 238,333
287,631 Interest expense 37,396 29,400 Interest (income) (132,489 ) (143,344 ) EBITDA
$ 385,908 $ 588,879Add back:
Non-cash stock-based compensation 13,627 -
Adjusted EBITDA of non-controlling interest
588,879 Page 34
LIQUIDITY AND CAPITAL RESOURCES
Our cash position was
Net cash provided by operating activities was
$1,298,857for the three months ended September 30, 2022compared to net cash used in operating activities $3,391,653for the three months ended September 30, 2021. At September 30, 2022, we had current assets of $44,070,743and current liabilities of $18,969,718. We had accounts receivable of $7,319,856at September 30, 2022compared to $8,669,202at June 30, 2022. We had revenues in excess of billings of $14,061,982at September 30, 2022compared to $15,425,377at June 30, 2022of which $714,458and $853,601is shown as long term as of September 30, 2022and June 30, 2022, respectively. The long-term portion was discounted by $18,656and $28,339at September 30, 2022and June 30, 2022, respectively, using the discounted cash flow method with interest rates ranging from 4.65% to 6.25%. During the three months ended September 30, 2022, our revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings decreased by $2,712,741from $24,094,579at June 30, 2022to $21,381,838at September 30, 2022. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $7,029,527and $7,426,972, respectively at September 30, 2022. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,813,541and $8,567,145, respectively at June 30, 2022.
The average days sales outstanding for the three months ended
September 30, 2022and 2021 were 165 and 147 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 $893,994for the three months ended September 30, 2022, compared to $196,407for the three months ended September 30, 2021. We had purchases of property and equipment of $1,347,601compared to $216,112for the three months ended September 30, 2021. Net cash used in financing activities was $445,737for the three months ended September 30, 2022, compared to $463,570for the three months ended September 30, 2021. For the three months ended September 30, 2021, we purchased 22,510 shares of our own stock for $100,106. During the three months ended September 30, 2022, we had net payments for bank loans and finance leases of $445,737compared to $363,464for the three months ended September 30, 2021. We are operating in various geographical regions of the world through our various subsidiaries. Those subsidiaries have financial arrangements from various financial institutions to meet both their short and long-term funding requirements. These loans will become due at different maturity dates as described in Note 15 of the financial statements. We are in compliance with the covenants of the financial arrangements and there is no default, which may lead to early payment of these obligations. We anticipate paying back all these obligations on their respective due dates from its own sources. We typically fund the cash requirements for our operations in the U.S.through our license, services, and subscription and support agreements, intercompany charges for corporate services, and through the exercise of options and warrants. As of September 30, 2022, we had approximately $20.9 millionof cash, cash equivalents and marketable securities of which approximately $18.4 millionis held by our foreign subsidiaries. As of June 30, 2022, we had approximately $24.0 millionof cash, cash equivalents and marketable securities of which approximately $22.8 millionwas 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 millionfor APAC, U.S.and Europenew business development activities and infrastructure enhancements, which we expect to provide from current operations. While there is no guarantee that any of these methods will result in raising sufficient funds to meet our capital needs or that even if available will be on terms acceptable to us, we will be very cautious and prudent about any new capital raise given the global market uncertainties. However, we are very conscious of the dilutive effect and price pressures in raising equity-based capital. Page 35 Financial Covenants Our UKbased subsidiary, NTE, has an approved overdraft facility of £300,000 ( $333,333) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 500 million( $2,192,694) and a running finance facility of Rupees 53 million( $235,057). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limitedamounting to Rupees 900 million( $3,946,849). 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( $1,666,447) 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
SECdefines "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.
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