NETSOL TECHNOLOGIES INC 10-K

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITY (a) MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION - Common stock of NetSol Technologies, Inc. is listed and traded on NASDAQ Capital Market under the ticker symbol “NTWK”. The table shows the high and low intra-day prices of the Company’s common stock as reported on the composite tape of the NASDAQ for each quarter during the last two fiscal years. Fiscal Year 2020 High Low First Quarter $ 6.45 $ 4.95 Second Quarter $ 5.85 $ 3.50 Third Quarter $ 4.50 $ 2.00 Fourth Quarter $ 3.65 $ 2.05 Fiscal Year 2019 High Low First Quarter $ 6.95 $ 5.43 Second Quarter $ 10.53 $ 5.16 Third Quarter $ 8.27 $ 6.03 Fourth Quarter $ 7.63 $ 5.12 RECORD HOLDERS - As of September 18, 2020, the number of holders of record of the Company’s common stock was 149. DIVIDENDS - The Company has not paid dividends on its Common Stock in the past two fiscal years. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN The table shows information related to our equity compensation plans as of June 30, 2020: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) Equity Compensation Plans approved by Security holders None None 425,004 (1) Equity Compensation Plans not approved by Security holders None None None Total None None 425,004 (1) Represents 20,386 available for issuance under the 2005 Incentive and Nonstatutory Stock Option Plan, 98,196 under the 2013 Incentive and Nonstatutory Stock Option Plan and 306,422 under the 2015 Incentive and Nonstatutory Stock Option Plan. As of June 30, 2020, 66,421 shares of common stock that have been granted as compensation, but have not yet vested. (b) RECENT SALES OF UNREGISTERED SECURITIES None. (c) ISSUER PURCHASES OF EQUITY SECURITIES Effective July 30, 2020, the Company’s, Board of Directors authorized the repurchase of up to two million dollars’ worth of the Company’s issued and outstanding common shares. The repurchase plan is authorized commencing July 30, 2020, and ending December 24, 2020, subject to an additional six-month extension at the discretion of management. Although no shares were repurchased during fiscal year 2020, the Company purchased 147,052 shares at an average price of $3.16 per share subsequent to the fiscal year ended June 30, 2020. ITEM 6 – SELECTED FINANCIAL DATA Not applicable. 14 ITEM 7- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist in understanding our financial position and results of operations for the year ended June 30, 2020. It should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. A few of our highlights for the fiscal year ended June 30, 2020 were: ● NETSOL acquired the remaining stake in Virtual Lease Services, a UK-based portfolio and risk management servicing partner for business and consumer finance providers. By acquiring the remaining stake, NETSOL became the outright owner of the organization. ● Due to the demand for the Company’s premier solution NFS Ascent’s ® Wholesale Platform in Europe, NETSOL appointed Chris Mobley as Head of NFS Ascent ® Wholesale Operations in Europe. Mr. Mobley brings over two decades of industry experience to NETSOL with an accomplished background and domain-specific knowledge and expertise within the wholesale finance space. ● NETSOL announced the SaaS or subscription-based pricing model for our global markets in addition to its existing license options. All global contracts now provide NETSOL customers with the option for subscription-based pricing as an alternative to the traditional license model. This Software-as-a-Service (SaaS) pricing option is now available for all cloud-based NETSOL products and services, including NETSOL’s core, next-gen solution NFS Ascent ® . ● NETSOL signed a multi-million-dollar agreement with a large UK vehicle finance company to implement its NFS Ascent ® Wholesale Platform. This agreement pertains to accessing NFS Ascent ® Wholesale Finance System (WFS) via subscription-based pricing, the dynamic pricing model that NETSOL has introduced in all operating regions in response to growing demand for this model. This monumental implementation marked the first roll-out of NFS Ascent ® in the United Kingdom. ● NETSOL signed an agreement with a bank in the United Kingdom for NFS Ascent ® on the cloud. This contract covers the implementation of NFS Ascent’s ® Retail platform, including its Omni Point of Sale solution (Omni POS) and Contract Management System (CMS). Similar to the previous contract with a large independent used vehicle finance company in the United Kingdom, implementation is expected in less than six months, enabling the bank to gain value from Ascent’s technology in the shortest possible timeframe and setting a new standard for time to deployment in the industry. This major agreement not only validates increasing traction and demand for NFS Ascent ® in the United Kingdom, but also its European market readiness. ● NETSOL announced its first North American customer for NFS Ascent ® . This was done as the company secured a contract with SCI Lease Corp, a Canadian-based national automotive leasing company, for the deployment of its NFS Ascent ® Contract Management System (CMS) on the cloud. This contract represented NETSOL’s first official sale of NFS Ascent ® in the North American market and also the first Software-as-a-Service (SaaS) based agreement for Ascent in this region. ● A major American multinational automaker went live in China with NETSOL’s next-gen solution NFS Ascent’s ® Retail Platform. This deployment covered the complete Ascent ® Retail Platform, which includes its Omni-Point of Sale (Omni-POS) and Contract Management System (CMS). This multi-million-dollar contract marked the second successful implementation of NETSOL’s next-gen product NFS Ascent ® in China. ● NETSOL went live with its NFS Ascent ® Wholesale Platform with BMW Automotive Finance in China. This second largest customer has a strong presence in China as well as the rest of the Asia-Pacific region, and this deployment was part of a previously announced $30 million contract in which NETSOL was selected as the vendor of choice after an extensive evaluation process. ● NETSOL went live with its NFS Digital Mobile Collector application for a top tier multi-finance company in Indonesia. This mCollector go-live, which was part of a larger contract originally signed in 2018, was carried out to improve the client’s existing business practices through the use of new digital technology. 15 ● As part of the previously announced $100 million plus contract with Daimler Financial Services, the largest signing in NETSOL’s history, for implementations in 12 countries, NFS Ascent ® went live in Hong Kong. NETSOL implemented its NFS Ascent ® Retail Platform, consisting of its Omni Point of Sale (Omni POS) and Contract Management System (CMS), for this existing customer. ● As part of the DFS contract, the Company’s next-gen solution NFS Ascent ® also went live in Malaysia. This implementation consisted of the full suite of NFS Ascent ® , including its Omni Point of Sale (Omni POS) and Contract Management System (CMS), as well as its Wholesale Finance System (WFS). Malaysia marked the ninth deployment to go live following successful implementations in Japan, China, South Africa, Thailand, New Zealand, Australia, South Korea, and Hong Kong. This series of deployments constitutes the largest and most prestigious contract signing in NETSOL’s history. ● Pertaining to NETSOL’s wholly-owned subsidiary Otoz, as the first in a number of planned rollouts, the new mobility technology startup announced the creation of an Ai-powered chatbot that is intended to cater to renters and car owners, which will be integrated into the current Drivemate chat application LINE. Otoz also provided further information regarding its ongoing strategic partnership with Drivemate, the leading peer-to-peer car-sharing service in Thailand. ● Otoz also announced a pilot car-sharing program with an existing tier-one European auto captive finance customer in China. As part of the program, thousands of the auto captive’s employees will be eligible to use flexible car-sharing products, all of which will be deployed on the Otoz platform. Among the many use cases and trials being conducted, Otoz will enable options for flexible car rentals as well as peer-to-peer car-sharing and other subscription-based programs. Marketing and Business Development Activities Management has developed a growth strategy aimed at increasing competitiveness, enhancing global delivery capabilities and increasing financial strength to become a leading global IT institution in the leasing and finance space. The growth strategy contemplates the following enhanced activities and initiatives to accomplish these goals: ● Build strong C-level executive teams in each key location to execute our long-term strategy. ● Develop, groom and retain the next tier level management for leadership to navigate long term growth. ● Upgraded Bangkok and Beijing offices to support the growing and existing client relationships and new client acquisitions in the region. ● Strengthen the NETSOL brand in the Americas and Europe and further penetrate the APAC markets such as China, Thailand, Indonesia, Japan, Australia and New Zealand. ● Maintain the quality of our delivery, after delivery support, and client relationships. ● Further penetration of NFS Ascent ® into the leasing and financing sectors in China, APAC, Europe and North America by focusing on multi-national auto captive Fortune 500 companies. ● Pursue a well thought out strategy to diversify into complimentary verticals by way of organic expansion, partnerships and synergistic M&A. ● Continue to implement new tools, systems and processes, such as JIRA, and the Agile framework to further enhance productivity, efficiencies and operating margins. ● Offer a cloud enabled NFS Ascent ® at subscription-based pricing models to generate additional interest from prospects. ● Continue investing in Otoz and our innovation lab to generate new verticals for the business. Growth Prospects for NFS Ascent ® Growth prospects for NFS Ascent ® are linked to the maturing of the product portfolio and its growing customer base across different geographic and product markets. We are eyeing key international markets for growth in sales. Our sales strategy now carefully balances expansion into new geographic markets, including the Americas, Europe, and further penetration of our leading position in Asia Pacific. Growth in North America is expected to come from the potential market for replacement of legacy systems. NFS Ascent ® is aimed at providing a highly flexible and robust solution based on the latest technology and advanced architecture for the North American customers looking to replace their legacy systems. We believe that NFS Ascent ® can provide substantial competitive disruption to the market’s lagging technology provided by incumbent vendors. The existing customer base may also represent latent demand for increased service and maintenance revenues by offering business process optimization, customization and upgrade services. 16 Growth in Europe will come from the introduction of NFS Ascent ® , which will allow NTE to support larger organizations than those typically selecting the existing LeaseSoft product set, and opens the door for European expansion. This is designed to attract larger license and professional services revenues across a wider geography. In addition, leveraging the core strengths of NFS Ascent ® will increasingly provide opportunities in the automotive sector where NTE is currently underrepresented. Growth in our traditionally strong base in Asia Pacific is expected through diversification across market segments to include new customers in related banking and commercial lending areas. At the same time, the existing customer base is tapped for increased service and maintenance revenues by offering enhanced features and new solutions to emerging customer needs. In addition, there is a potential for NFS Ascent ® in Asia Pacific in the form of existing customers who are looking for replacement of their current system. In China, we are a de facto leader in the leasing and finance enterprise solution domain. With this position, we continue to enjoy demand for the current NFS™ solution, as well as NFS Ascent ® . We will continue strengthening our position within existing multinational auto manufacturers, as well as, local Chinese captive finance and leasing companies. The Chinese auto leasing market is young and low on consumer penetration in comparison with the giant U.S. market. In Thailand, we established a sales headquarters, client service center, as well as a headquarters for OTOZ. The NetSol Thai operation is the hub for our global markets and directly supports all APAC markets including China, Indonesia and Australia. Our operation in Bangkok serves a very robust and growing market for leasing companies and regional banks. MATERIAL TRENDS AFFECTING NETSOL Management has identified the following material trends affecting NetSol. Positive trends: ● NFS Ascent ® SaaS offering is gaining traction in mid-size auto captives in North American and European markets. ● Mobility and digital transformation is the new norm showing acceleration in every sector particularly in auto and banking. ● On Cloud demand for our solution is on the rise. ● COVID-19 has created new dynamics for businesses and corporations with employees and executives working from home. Essentially, the decreased office and maintenance costs, as well as the sharply reduced travel expenses, should positively impact our financials. ● COVID-19 is creating new opportunities for our R&D teams to expand and monetize mobile and digital solutions in our space and complementary sectors. ● In developing markets, new interests are emerging from existing clients for upgrades and mobility platforms. ● Growing opportunities and dynamics of shared car ownership either through ride hailing and car sharing encouraging our innovation and development tools. ● OTOZ platform is showing positive trajectory of interest from existing and new auto leasing and Tier 1 companies in all of our markets, including China, the US and Europe. ● Improved stability in US and Pakistan relationship boosting confidence and trade relations. ● China’s China Pakistan Economic Corridor (CPEC) investment has exceeded $62 billion investment from the originally planned $46 billion on Pakistan energy and infrastructure sectors. ● China auto sector remains strong as our customers are constantly demanding ‘Change Requests’ or additional services and reflects resilience. 17 Negative trends: ● COVID-19 has caused a global recession that will adversely impact every one of our business sectors. ● Most OEMs and auto sectors are experiencing major slowdown due to lockdowns and health concerns. ● The C-level decision making to acquire new systems or even upgrade will be elongated due to uncertainty of the COVID-19 virus. ● The steep drop of global oil prices reflects a sudden drop in transportation, air travels and road travels. The lockdowns worldwide present layers of challenges for every business worldwide. ● US and China trade conflicts tend to further aggravate the global business environment. ● Working from office poses its own risk of virus spread until it vanishes completely. ● Global outlook for auto sector is uncertain if the recessionary impact worsens. This might cause delay or procrastination on decision making by our customers. ● Marketing activities have been reduced dramatically particularly global and regional industry conferences. The indications it will be quite some time before these marketing activities can resume. CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition and multiple element arrangements, intangible assets, software development costs, and goodwill. REVENUE RECOGNITION The Company determines revenue recognition through the following steps: ● Identification of the contract, or contracts, with a customer; ● Identification of the performance obligations in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities. The Company has two primary revenue streams: core revenue and non-core revenue. Core Revenue The Company generates its core revenue from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) maintenance, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via two models: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software. Non-Core Revenue The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. 18 The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase maintenance and services in addition to the licenses. The Company’s single performance obligation arrangements are typically maintenance renewals, subscription renewals and services engagements. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. Subscription Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. Software Licenses Transfer of control for software is considered to have occurred upon delivery of the product to the customer. The Company’s typical payment terms tend to vary by region, but its standard payment terms are within 30 days of invoice. Maintenance Revenue from support services and product updates, referred to as maintenance revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates, maintenance releases and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, a majority of customers renew their support services contracts annually and typical payment terms provide that customers make payment within 30 days of invoice. Professional Services Revenue from professional services is typically comprised of implementation, development, data migration, training or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice. BPO and Internet Services Revenue from BPO services is recognized based on the stage of completion which is measured by reference to labor hours incurred to date as a percentage of total estimated labor hours for each contract. Internet services are invoiced either monthly, quarterly or half yearly in advance to the customers and revenue is recognized ratably overtime on a monthly basis. Significant Judgments More judgments and estimates are required under Topic 606 than were required under Topic 605. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. 19 Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a stand-alone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. The most significant inputs involved in the Company’s revenue recognition policies are: The (1) stand-alone selling prices of the Company’s software license, and the (2) the method of recognizing revenue for installation/customization, and other services. The stand-alone selling price of the licenses was measured primarily through an analysis of pricing that management evaluated when quoting prices to customers. Although the Company has no history of selling its software separately from maintenance and other services, the Company does have historical experience with amending contracts with customers to provide additional modules of its software or providing those modules at an optional price. This information guides the Company in assessing the stand-alone selling price of the Company’s software, since the Company can observe instances where a customer had a particular component of the Company’s software that was essentially priced separate from other goods and services that the Company delivered to that customer. The Company recognized revenue from implementation and customization services using the percentage of estimated “man-days” that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of man-days required to complete implementation and customization services each reporting period. Revenue is recognized over time for the Company’s subscription, maintenance and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes. If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved. If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (deferred revenue) on the Company’s Consolidated Balance Sheets. The Company records revenues in excess of billings when the Company has transferred goods or services but does not yet have the right to consideration. The Company records deferred revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer. Deferred Revenue The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancelable license and services starting in future periods are included in accounts receivable and deferred revenue. 20 Practical Expedients and Exemptions There are several practical expedients and exemptions allowed under Topic 606 that impact timing of revenue recognition and the Company’s disclosures. Below is a list of practical expedients the Company applied in the adoption and application of Topic 606: Application ● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer. ● The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations. ● The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements). Modified Retrospective Transition Adjustments ● For contract modifications, the Company reflected the aggregate effect of all modifications that occurred prior to the adoption date when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to satisfied and unsatisfied performance obligations for the modified contract at transition. Costs to Obtain a Contract The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, we incur few direct incremental costs of obtaining new customer contracts. We rarely incur incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, our sales personnel receive fees that we refer to as commissions, but that are based on more than simply signing up new customers. Our sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts. INTANGIBLE ASSETS Intangible assets consist of product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. SOFTWARE DEVELOPMENT COSTS Costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred until technological feasibility for the respective product is established. Thereafter, all software development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. The Company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, the Company writes off the amount which the unamortized software development costs exceed net realizable value. Capitalized and purchased computer software development costs are being amortized ratably based on the projected revenue associated with the related software or on a straight-line basis. 21 STOCK-BASED COMPENSATION Our stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton (BSM) option pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including expected volatility and expected term. If any of the assumptions used in the BSM model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees. To the extent our actual forfeiture rate is different from our estimate; stock-based compensation expense is adjusted accordingly. GOODWILL Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase businesses combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. Recent Accounting Pronouncement See Note 2 “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption. 22 RESULTS OF OPERATIONS THE YEAR ENDED JUNE 30, 2020 COMPARED TO THE YEAR ENDED JUNE 30, 2019 The following table sets forth the items in our consolidated statement of operations for the years ended June 30, 2020 and 2019 as a percentage of revenues. For the Years Ended June 30, 2020 % 2019 % Net Revenues: License fees $ 4,564,560 8.1 % $ 16,768,749 24.7 % Maintenance fees 18,951,248 33.6 % 15,521,413 22.9 % Services 32,555,690 57.8 % 34,892,290 51.4 % Services - related party 300,821 0.5 % 636,731 0.9 % Total net revenues 56,372,319 100.0 % 67,819,183 100.0 % Cost of revenues: Salaries and consultants 18,821,738 33.4 % 19,253,364 28.4 % Travel 4,181,742 7.4 % 6,527,868 9.6 % Depreciation and amortization 2,897,371 5.1 % 3,525,857 5.2 % Other 3,508,098 6.2 % 3,625,478 5.3 % Total cost of revenues 29,408,949 52.2 % 32,932,567 48.6 % Gross profit 26,963,370 47.8 % 34,886,616 51.4 % Operating expenses: Selling and marketing 6,450,663 11.4 % 7,831,758 11.5 % Depreciation and amortization 834,583 1.5 % 897,800 1.3 % General and administrative 17,138,832 30.4 % 17,357,918 25.6 % Research and development cost 1,468,954 2.6 % 1,971,228 2.9 % Total operating expenses 25,893,032 45.9 % 28,058,704 41.4 % Income from operations 1,070,338 1.9 % 6,827,912 10.1 % Other income and (expenses) Gain on sale of assets 23,103 0.0 % 81,455 0.1 % Interest expense (346,856 ) -0.6 % (311,798 ) -0.5 % Interest income 1,569,536 2.8 % 955,061 1.4 % Gain on foreign currency exchange transactions 398,610 0.7 % 6,345,859 9.4 % Share of net loss from equity investment (605,864 ) -1.1 % (841,845 ) -1.2 % Other income 224,224 0.4 % 18,680 0.0 % Total other income (expenses) 1,262,753 2.2 % 6,247,412 9.2 % Net income before income taxes 2,333,091 4.1 % 13,075,324 19.3 % Income tax provision (1,141,068 ) -2.0 % (1,057,784 ) -1.6 % Net income 1,192,023 2.1 % 12,017,540 17.7 % Non-controlling interest (254,942 ) -0.5 % (3,434,141 ) -5.1 % Net income attributable to NetSol $ 937,081 1.7 % $ 8,583,399 12.7 % 23 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 21 “Segment Information and Geographic Areas” within the Notes to the 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 Total (Unfavorable) (Unfavorable) Favorable For the Year Change in Change due to (Unfavorable) Ended June 30, Constant Currency Change as 2020 % 2019 % Currency Fluctuation Reported Net Revenues: $ 56,372,319 100.0 % $ 67,819,183 100.0 % $ (5,684,344 ) $ (5,762,520 ) $ (11,446,864 ) Cost of revenues: 29,408,949 52.2 % 32,932,567 48.6 % (90,133 ) 3,613,751 3,523,618 Gross profit 26,963,370 47.8 % 34,886,616 51.4 % (5,774,477 ) (2,148,769 ) (7,923,246 ) Operating expenses: 25,893,032 45.9 % 28,058,704 41.4 % 287,257 1,878,415 2,165,672 Income (loss) from operations $ 1,070,338 1.9 % $ 6,827,912 10.1 % $ (5,487,220 ) $ (270,354 ) $ (5,757,574 ) Net revenues for the years ended June 30, 2020 and 2019 by segment are as follows: 2020 2019 Revenue % Revenue % North America $ 4,444,862 7.9 % $ 3,947,408 5.8 % Europe 11,914,071 21.1 % 9,148,164 13.5 % Asia-Pacific 40,013,386 71.0 % 54,723,611 80.7 % Total $ 56,372,319 100.0 % $ 67,819,183 100.0 % Revenues License fees License fees for the year ended June 30, 2020 were $4,564,560 compared to $16,768,749 for the year ended June 30, 2019 reflecting a decrease of $12,204,189 with a change in constant currency of $11,493,282. The decrease in license revenue for the fiscal year ended June 30, 2020 compared to 2019 is primarily due to the decrease in license revenue recognized for the DFS and BMW contracts to implement our NFS Ascent ® Retail Platform. In the fiscal year ended June 30, 2020, we recorded $2,500,000 of license revenue for the DFS, 12 country NFS Ascent ® contract, $470,000 for an NFS Ascent ® contract in the U.K., and $1,540,000 from license revenues through sales of our regional offerings in China, Australia, the U.S. and the U.K. In fiscal year ended June 30, 2019, we recorded $6,600,000 of license revenue recognized for the DFS, 12 country NFS Ascent ® contract, $8,000,000 related to the NFS Ascent ® contracts signed with a tier-one auto captive finance company and a major American multinational automaker to implement our product in China, and $2,200,000 from license revenues through sales of our regional offerings in China, Australia, the U.S. and the U.K. 24 Maintenance fees Maintenance fees for the year ended June 30, 2020, were $18,951,248 compared to $15,521,413 for the year ended June 30, 2019 reflecting an increase of $3,429,835 with a change in constant currency of $5,286,321. Maintenance fees begin once a customer has “gone live” with our product. The increase was due to the start of new maintenance agreements from customers who went live with our product during the latter stages of fiscal year 2019 and into fiscal year 2020. We anticipate maintenance fees to gradually increase as we implement both our NFS legacy product and NFS Ascent ® . Services Services income for the year ended June 30, 2020, was $32,555,690 compared to $34,892,290 for the year ended June 30, 2019, reflecting a decrease of $2,336,600 with an increase in constant currency of $751,124. The services revenue increase based on constant currency was due to an increase in services revenue associated with new implementations and change requests. Services revenue is derived from services provided to both current customers as well as services provided to new customers as part of the implementation process. Services – related party Services income from related party for the year ended June 30, 2020 was $300,821 compared to $636,731 for the year ended June 30, 2019 reflecting a decrease of $335,910 with a decrease in constant currency of $228,507. The decrease in related party service revenue is due to a decrease in revenue due to less services performed for WRLD3D. Gross Profit The gross profit was $26,963,370, for the year ended June 30, 2020 as compared with $34,886,616 for the year ended June 30, 2019. This is a decrease of $7,923,246 with a decrease in constant currency of $5,774,477. The gross profit percentage for the year ended June 30, 2020 also decreased to 47.8% from 51.4% for the year ended June 30, 2019. The cost of sales was $29,408,949 for the year ended June 30, 2020 compared to $32,932,567 for the year ended June 30, 2019 for a decrease of $3,523,618 and on a constant currency basis a decrease of $90,133. As a percentage of sales, cost of sales increased from 48.6% for the year ended June 30, 2019 to 52.2% for the year ended June 30, 2020. Salaries and consultant fees decreased by $431,626 from $19,253,364 for the year ended June 30, 2019 to $18,821,738 for the year ended June 30, 2020 and on a constant currency basis increased by $1,754,053. The decrease in salaries and consultant fees is due to the devaluation of the Pakistan Rupee (“PKR”) compared to the U.S. Dollar. The increase in salaries on a constant currency basis is due to the increase in the number of technical employees and the annual increase in salaries and wages. We had 976, 932, and 1,009 technical employees as of June 30, 2018, 2019 and 2020, respectively. As a percentage of sales, salaries and consultant expense increased from 28.4% for the year ended June 30, 2019 to 33.4% for the year ended June 30, 2020. Travel decreased by $2,346,126 from $6,527,868 for the year ended June 30, 2019 to $4,181,742 for the year ended June 30, 2020 and on a constant currency basis decreased by $1,799,905. The decrease in travel is due to the COVID-19 Pandemic. As a percentage of sales, travel expense decreased from 9.6% for year ended June 30, 2019 to 7.4% for the year ended June 30, 2020. Depreciation and amortization expense decreased to $2,897,371 compared to $3,525,857 for the year ended June 30, 2019 or a decrease of $628,486 and on a constant currency basis a decrease of $146,175. Depreciation and amortization expense decreased as some products became fully amortized. Operating Expenses Operating expenses were $25,893,032 for the year ended June 30, 2020 compared to $28,058,704, for the year ended June 30, 2019 for a decrease of 7.7% or $2,165,672 and on a constant currency basis a decrease of 1.0% or $287,257. As a percentage of sales, it increased from 41.4% to 45.9%. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses, salaries and wages and research and development cost offset by an increase in general and administrative expenses. Selling and marketing expenses decreased $1,381,095 or 17.6% and on a constant currency basis a decrease of $844,758 or 10.8%. The decrease in selling and marketing expenses is due to decrease in our salaries and commissions, travel expenses, and business development costs to market and sell NFS Ascent ® globally. 25 General and administrative expenses were $17,138,832 for the year ended June 30, 2020 compared to $17,357,918 at June 30, 2019 or a decrease of $219,086 or 1.3% and on a constant currency basis an increase of $797,684 or 4.6%. During the year ended June 30, 2020, salaries decreased by $1,112,184 or $512,629 on a constant currency basis due to reduction in salaries, and less share grants. Professional services increased by $104,726 or $130,533 on a constant currency basis and other general and administrative expenses increased by $1,077,944 or increased $1,466,481 on a constant currency basis. The increase on a constant currency basis is primarily due to the increase in withholding taxes on payments from customers and funds transferred from China of approximately $850,000, a new office lease in London of approximately $150,000, and software license and subscription fees of approximately $140,000. Research and development costs were $1,468,954 for the year ended June 30, 2020 compared to $1,971,228 at June 30, 2019 or a decrease of $502,274 or 25.5% and on constant currency basis a decrease of $239,075 or 12.1%. The decrease in research and development costs is due to less spending on our innovation initiatives with Blockchain, AI, and IoT. Income/Loss from Operations Income from operations was $1,070,338 for the year ended June 30, 2020 compared to $6,827,912 for the year ended June 30, 2019. This represents a decrease of $5,757,574 with a decrease of $5,487,220 on a constant currency basis for the year ended June 30, 2020 compared with the year ended June 30, 2019. As a percentage of sales, income from operations was 1.9% for the year ended June 30, 2020 compared to 10.1% for the year ended June 30, 2019. Other Income and Expense Other income was $1,262,753 for the year ended June 30, 2020 compared to $6,247,412 for the year ended June 30, 2019. This represents a decrease of $4,984,659 with a decrease of $5,137,165 on a constant currency basis. The decrease is primarily due to the foreign currency exchange transactions. The majority of the contracts with NetSol PK are either in U.S. dollars or Euros; therefore, the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S. Dollar and the Euro. During the year ended June 30, 2020, we recognized a gain of $398,610 in foreign currency exchange transactions compared to a gain of $6,345,859 for the year ended June 30, 2019. During the year ended June 30, 2020, the value of the U.S. dollar and the Euro increased 3.1% and 1.8%, respectively, compared to the PKR. During year ended June 30, 2019, the value of the U.S. dollar and the Euro increased 33.9% and 30.8%, respectively, compared to the PKR. Interest income was $1,569,536 for the year ended June 30, 2020 compared to $955,061 for the period ended June 30, 2019. This represent an increase of $614,475 or a change of $800,815 on constant currency basis. The increase is due to the increase in cash which is invested into short term deposits and interest accrued on convertible note receivables. Non-controlling Interest For the year ended June 30, 2020 and 2019, the net income attributable to non-controlling interest was $254,942 and $3,434,141, respectively. The decrease in non-controlling interest is primarily due to the decrease in net income of NetSol PK. Net Income/Loss attributable to NetSol Net income was $937,081 for the year ended June 30, 2020 compared to $8,583,399 for the year ended June 30, 2019. This is a decrease of $7,646,318 with a decrease of $7,622,678 on a constant currency basis, compared to the prior year. For the year ended June 30, 2020, net income per share was $0.08 for basic and diluted shares. For the year ended June 30, 2019, net income per share was $0.74 for basic and diluted shares. 26 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 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 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. 27 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 years ended June 30, 2020 and 2019 are as follows: For the Year Ended For the Year Ended June 30, 2020 June 30, 2019 Net Income (loss) attributable to NetSol $ 937,081 $ 8,583,399 Non-controlling interest 254,942 3,434,141 Income taxes 1,141,068 1,057,784 Depreciation and amortization 3,731,954 4,423,657 Interest expense 346,856 311,798 Interest (income) (1,569,536 ) (955,061 ) EBITDA $ 4,842,365 $ 16,855,718 Add back: Non-cash stock-based compensation 808,616 1,174,625 Adjusted EBITDA, gross $ 5,650,981 $ 18,030,343 Less non-controlling interest (a) (1,330,352 ) (5,140,004 ) Adjusted EBITDA, net $ 4,320,629 $ 12,890,339 Weighted Average number of shares outstanding Basic 11,734,648 11,599,290 Diluted 11,784,414 11,621,990 Basic adjusted EBITDA $ 0.37 $ 1.11 Diluted adjusted EBITDA $ 0.37 $ 1.11 (a) The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows Net Income attributable to non-controlling interest $ 254,942 $ 3,434,141 Income Taxes 223,675 351,778 Depreciation and amortization 1,060,605 1,397,613 Interest expense 100,373 99,696 Interest (income) (391,644 ) (229,802 ) EBITDA $ 1,247,951 $ 5,053,426 Add back: Non-cash stock-based compensation 82,401 86,578 Adjusted EBITDA of non-controlling interest $ 1,330,352 $ 5,140,004 28 LIQUIDITY AND CAPITAL RESOURCES Our cash position was $20,166,830 at June 30, 2020, compared to $17,366,364 at June 30, 2019. Net cash provided by operating activities was $3,972,426 for the year ended June 30, 2020 compared to $4,933,210 for the year ended June 30, 2019. At June 30, 2020, we had current assets of $51,895,711 and current liabilities of $20,116,106. We had accounts receivable of $11,414,257 at June 30, 2020 compared to $15,599,314 at June 30, 2019. We had revenues in excess of billings of $18,506,733 at June 30, 2020 compared to $16,111,366 at June 30, 2019 of which $1,300,289 and $1,281,492 are shown as long term as of June 30, 2020 and 2019, respectively. The long-term portion was discounted by $41,286 and $99,139 at June 30, 2020 and 2019, respectively, using the discounted cash flow method with an interest rate of 4.35%, during years ended June 30, 2020 and 2019. During the year ended June 30, 2020, our revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings decreased by $1,789,690 from $31,710,680 at June 30, 2019 to $29,920,990 at June 30, 2020. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $5,680,837 and $9,139,561, respectively at June 30, 2020. The average days sales outstanding for the years ended June 30, 2020 and 2019 were 200 and 171 days respectively. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and revenue in excess of billings. Net cash used by investing activities amounted to $2,054,890 for the year ended June 30, 2020, compared to $3,649,680 for the year ended June 30, 2019. We had net purchases of property and equipment of $1,270,965 compared to $1,555,680 for the comparable period last fiscal year. For the year ended June 30, 2020 and 2019, we invested $600,000 and $1,526,500, respectively, in short-term convertible notes. For the year ended June 30, 2019, we purchased the remaining 49% share of VLS for $927,100. We paid cash of $317,500 at the closing date and accrued the remaining $609,600, which was subsequently paid during the fiscal year ended June 30, 2020. Net cash provided by financing activities was $1,700,293 compared to $17,167, for the years ended June 30, 2020, and 2019, respectively. The year ended June 30, 2020 included the cash inflow of $Nil from the exercising of stock options compared to $85,000 for the year ended June 30, 2019. During the year ended June 30, 2020, we purchased zero shares of our common stock from the open market compared to 41,650 shares of common stock for $250,945 for the same period last year. The year ended June 30, 2020, included cash inflow of $4,221,203 from bank proceeds compared to $1,227,158 for the same period last year. During the year ended June 30, 2020, we had net payments for bank loans and capital leases of $611,913 compared to $480,231 for the year ended June 30, 2019. 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. We typically fund the cash requirements for our operations in the U.S. through our license, services, and maintenance agreements, intercompany charges for corporate services, and through the exercise of options. As of June 30, 2020, we had approximately $20.2 million of cash, cash equivalents and marketable securities of which approximately $18.2 million is held by our foreign subsidiaries. As of June 30, 2019, we have approximately $17.4 million of cash, cash equivalents and marketable securities of which approximately $16.1 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 working capital of $2 to $3 million for APAC, U.S. and European new business development activities and infrastructure enhancements. 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. 29 Financial Covenants Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($370,370) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 500 million ($2,975,482) and a running finance facility of Rupees 75 million ($446,322). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 900 million ($5,355,868). 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 ($2,261,366) and a running finance facility of Rs. 120 million ($714,116) 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. Dividends and Redemption It has been our policy to invest earnings in growth rather than distribute earnings as common stock dividends. This policy, under which common stock dividends have not been paid since our inception is expected to continue but is subject to regular review by the Board of Directors. Contractual Obligations Our contractual obligations are as follows: Payment due by period Contractual Obligation Total 0 - 1 year 1-3 Years 3-5 Years More than 5 years Debt Obligations D&O Insurance $ 81,728 $ 81,728 $ - $ - $ - Paycheck Protection Program Loans 469,721 182,669 287,052 - - Term Finance Facility 1,380,878 354,337 1,026,541 - Loan Payable Bank - Export Refinance 2,975,482 2,975,482 - - - Loan Payable Bank - Export Refinance II 2,261,365 2,261,365 - - - Loan Payable Bank - Export Refinance III 2,975,483 2,975,483 - - - Term Finance Facility 65,473 16,423 32,846 16,204 - Subsidiary Finance Leases 469,406 292,074 177,332 - - Operating Lease Obligations 2,624,890 1,215,699 1,329,763 76,286 3,142 Total $ 13,304,426 $ 10,355,260 $ 2,853,534 $ 92,490 $ 3,142 Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations. 30