What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-14 compared with 2022-11-10 · 349 added, 171 removed, 326 unchanged (61% of the section changed)

1 unchanged sentence

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 three months ended December 31, 2022.

The following discussion should be read in conjunction with the information included within

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included elsewhere in this Quarterly Report on Form 10-Q.

website is located at www.netsoltech.com , and our investor relations website is located at http://ir.netsoltech.com .

website is located at www.

netsoltech .com, and our investor relations website is located at https://ir.netsoltech.com .

following filings are available through our investor relations website after we file with the SEC:

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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 .

available on our investor relations website at https://netsoltech.com/about-us .

The content of our websites is not intended to

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locations around the globe.

in 1997, NetSol is 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:

Los Angeles Area

London Metropolitan area and Horsham in the UK

Lahore, Karachi, Bangkok, Beijing, Shanghai, Jakarta and Sydney

in 1997, NetSol is headquartered in Los Angeles County, California.

While the Company follows a global strategy for sales and delivery

of its portfolio of solutions and services, it continues to maintain regional offices in the following locations:

Metropolitan area and Horsham in the UK

Karachi, Bangkok, Beijing, Shanghai, Jakarta and Sydney

believes that our strong technology solutions offer our customers a return on their investment and allows us to thrive in a hyper competitive

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

below are a few of NetSol’s highlights for the quarter ended September 30, 2022:

partnered with Amazon Web Services to offer cloud computing services, 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 in the U.S.

for our Otoz mobility solution which will manage the back-office operations for vehicle subscriptions.

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 European

Merchant Bank.

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 $0.750 million to $1 million in annual recurring revenues.

sales pipeline continues to be strong with the addition of some new prospects who have registered their interests in NFS Ascent®,

digital, and legacy solutions across various regions pushing the total pipeline size to approximately $200 million.

have expanded our footprint within China by opening a new office in Tianjin.

This office will support both the ongoing delivery operations

as well as the professional services vertical growth within China.

Two new statements of work signed with BAIC and BYD by the China team

for Professional Services will be delivered and supported by Tianjin team.

effectively generated approximately $2.0 million by successfully implementing change requests from various customers across multiple

successfully renegotiated an existing maintenance contract with a leading finance company of a U.S.

based auto manufacturer in China

increasing the annual maintenance fees to $500K from $280K.

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

signed a new agreement with a tier 1 automotive company in the U.S.

to implement and license

our Otoz mobility solution which will manage back-office operations for vehicle subscriptions.

● Otoz went live with its 37th dealer and now has dealers in 16 states.

sales pipeline continues to be strong with the addition of some new prospects who have registered

their interests in NFS Ascent®, digital, and legacy solutions across various regions

pushing the total pipeline size to approximately $250 million.

effectively generated approximately $1.0 million by successfully implementing change requests

from various customers across multiple regions.

organization successfully achieved ACE partnership status in cloud services domain by partnering

with Amazon Web Services (AWS).

We anticipate that this partnership will help the business

grow its cloud services vertical over the coming periods.

achieved the first Go-Live milestone for the finance company of a leading Swedish bank by

effectively implementing its invoice factoring system.

has identified the following material trends affecting NetSol.

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.

Ascent ® SaaS offering is gaining traction in mid-size auto captives in North American and European markets.

to S&P Global Mobility, new vehicles sales globally are expected to reach 84 million

units in 2023 for a 5.6% increase.

sales volumes are expected to reach approximately

15 million units, an estimated increase of 7% from the projected 2022 levels.

inflation rate over the last few months.

elimination of travel related COVID-19 testing increases opportunities to meet face to face

with current and potential customers.

Ascent ® SaaS offerings and major on-premise license offerings are gaining

traction in both mid and large size auto captives in the North American and European markets.

auto and banking sectors continue momentum towards increased mobility and digital solutions

developing markets, we continue to see interest from existing clients for upgrades and mobility platforms.

TM platform is showing a steady growth of interest from existing and new auto leasing and Tier 1 companies in all of our markets.

China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $62 billion investment from the originally planned

$46 billion on Pakistan energy and infrastructure sectors.

auto sector remains strong with customers requesting additional services reflecting the resilience of our offerings.

has been an increase in business development activities in the US, the UK, and the Scandinavian regions.

is a growing interest from long-time customers in upgrading from our legacy NFS solution to Ascent ® .

according to Forbes and Insider Intelligence 2022.

retail platform is showing a steady growth of interest from existing and new auto leasing

and Tier 1 companies in all of our markets.

China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65

billion investment, from the originally planned $46 billion, in Pakistan energy and infrastructure

auto sector remains strong which includes government year-end incentives, with customers

requesting additional services reflecting the resilience of our offerings.

has been an aggressive uptick in business development activities in the US and China.

is a growing interest from long-time customers in upgrading from our legacy NFS solution

to Ascent ® .

economic conditions in our geographic markets;

geopolitical tensions, including trade wars, tariffs and/or sanctions in our geographic

geopolitical tensions, including trade wars,

tariffs and/or sanctions in geographic areas;

Global pandemics, including COVID-19;

and, global conflicts or disasters that impact the global economy or one or more sectors

of the global economy.

fear of global recession impacts the future expansions and budgets in every country and every sector.

Negative currency impact due to the devaluation of the Pakistan Rupee and the UK Pounds Sterling in comparison with the US Dollar.

Inflation and higher interest rates have greatly increased the cost of doing business worldwide affecting profitability.

and hostility between Russia and Ukraine have created global uncertainty.

travel and 7 days quarantine rules have yet to soften and is adversely affecting business travels and face to face meetings with decision

inflation globally and in Pakistan has impacted compensation and benefits for employees resulting in increased turnover in Pakistan.

It has also increased costs of salaries and benefits for all of our subsidiaries.

markets including the NASDAQ index and the Russell 2000 index have been down by over 20% in 2022.

from the office might never return to 100% affecting productivity and collaboration.

Pakistan political environment will likely remain unsteady until the new elections are called.

global conflicts or disasters that impact the global economy or one or more sectors of the

global economy.

global recession fear impacts the future expansions and budgets in every country and every

interest rate increases by the U.S.

Federal Reserve Board in 2023 restricting buying power

for consumers.

negative currency impact on our financial statements due to the devaluation of the Pakistan

Rupee and the British Pound Sterling in comparison to the US Dollar.

monetary and economic challenges and higher inflation rate than other regional countries

impacting Pakistan exports.

and higher interest rates have greatly increased the cost of doing business, including salaries

and benefits worldwide, affecting profitability.

and hostility between Russia and Ukraine continue to foster global uncertainty.

decline by over 20% in 2022 of the U.S.

markets including the NASDAQ index and the Russell

2000 index limiting access to capital markets.

from the office might not return to pre-pandemic levels which may affect employee collaboration

potentially lessening efficiency.

Pakistan political environment will likely remain unsteady until new elections are called.

IN FINANCIAL CONDITION

Ended September 30, 2022 Compared to the Quarter Ended September 30, 2021

following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended September

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

following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended December

31, 2022 and 2021 as a percentage of revenues.

For the Three Months

Ended September 30,

Ended December 31,

Net Revenues:

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Total operating expenses

Loss from operations

Income (loss) from operations

Other income and (expenses)

11 unchanged sentences

Net income (loss) attributable to NetSol

$ (2,092,926 )

Net income (loss) per share:

21 unchanged sentences

(Unfavorable)

For the Three Months

(Unfavorable)

For the Three Months

Change due to

(Unfavorable)

Ended September 30,

Ended December 31,

Net Revenues:

$ (2,211,029 )

$ (3,082,604 )

Cost of revenues:

4 unchanged sentences

$ (4,700,382 )

revenues for the quarter ended September 30, 2022 and 2021 are broken out among the segments as follows:

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

North America

fees for the three months ended September 30, 2022 were $249,960 compared to $10,716 for the three months ended September 30, 2021 reflecting

an increase of $239,244 with a change in constant currency of $314,135.

During the three months ended September 30, 2022, we recognized

approximately $188,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent ®

and support fees for the three months ended September 30, 2022 were $6,016,834 compared to $6,230,389 for the three months ended September

30, 2021 reflecting a decrease of $213,555 with an increase in constant currency of $1,031,505.

fees for the three months ended December 31, 2022 were $15,884 compared to $1,955,331 for the three months ended December 31, 2021 reflecting

a decrease of $1,939,447 with a decrease in constant currency of $1,939,167.

During the three months ended December 31, 2021, we recognized

approximately $1,920,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent product ® for

their new business segment in the Japanese and Australian markets.

and support fees for the three months ended December 31, 2022 were $6,502,669 compared to $9,374,869 for the three months ended December

31, 2021 reflecting a decrease of $2,872,200 with a decrease in constant currency of $1,717,959.

The reason for the decrease in subscription

and support revenue is 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 ® .

income for the three months ended September 30, 2022 was $6,439,325 compared to $7,179,656 for the three months ended September 30, 2021

reflecting a decrease of $740,331 with 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 was $4,251,997, for the three months ended September 30, 2022 as compared with $5,443,023 for the three months ended September

and support revenue is that in the three months ended December 31, 2021, we recorded a one-time post contract support revenue of approximately

$3,480,00 using the catch-up approach.

Subscription and support fees begin once a customer has “gone live” with our product.

Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS

legacy products and NFS Ascent ® .

income for the three months ended December 31, 2022 was $5,871,805 compared to $4,142,762 for the three months ended December 31, 2021

reflecting an increase of $1,729,043 with an increase in constant currency of $2,785,551.

The increase is primarily due to services provided

for ongoing implementations plus additional change requests.

gross profit was $3,142.463, for the three months ended December 31, 2022 compared with $7,642,587 for the three months ended December

This is a decrease of $4,500,124 with a decrease in constant currency of $4,368,030.

The gross profit percentage for the three

months ended September 30, 2022 also decreased to 33.5% from 40.6% for the three months ended September 30, 2021.

months ended December 31, 2022 also decreased to 25.4% from 49.4% for the three months ended December 31, 2021.

The cost of sales was

$8,454,122 for the three months ended September 30, 2022 compared to $7,977,738 for the three months ended September 30, 2021 for an

increase of $476,384 and on a constant currency basis an increase of $2,834,917.

$9,247,895 for the three months ended December 31, 2022 compared to $7,830,375 for the three months ended December 31, 2021 for an increase

of $1,417,520 and on a constant currency basis an increase of $3,496,455.

As a percentage of sales, cost of sales increased from 50.6%

59.4% for the three months ended September 30, 2021 to 66.5% for the three months ended September 30, 2022.

and consultant fees increased by $424,325 from $5,662,410 for the three months ended September 30, 2021 to $6,086,735 for the three months

ended September 30, 2022 and on a constant currency basis increased by $2,070,440.

The increase is due to annual salary raises, and new

As a percentage of sales, salaries and consultant expense increased from 42.2% for the three months ended September 30, 2021

to 47.9% for the three months ended September 30, 2022.

expense was $392,345 for the three months ended September 30, 2022 compared to $214,132 for the three months ended September 30, 2021

for an increase of $178,213 with an increase in constant currency of $292,280.

The increase in travel expense is due to the increase

in travel as countries begin lifting travel restrictions.

and amortization expense decreased to $654,049 compared to $765,735 for the three months ended September 30, 2021 or a decrease of $111,686

for the three months ended December 31, 2021 to 74.6% for the three months ended December 31, 2022.

and consultant fees increased by $1,280,254 from $5,661,917 for the three months ended December 31, 2021 to $6,942,171 for the three

months ended December 31, 2022 and on a constant currency basis increased by $2,839,566.

The increase is due to annual salary raises

and new hirings.

As a percentage of sales, salaries and consultant expense increased from 36.6% for the three months ended December 31,

2021 to 56.0% for the three months ended December 31, 2022.

expense was $635,298 for the three months ended December 31, 2022 compared to $282,836 for the three months ended December 31, 2021 for

an increase of $352,462 with an increase in constant currency of $495,136.

The increase in travel expense is due to the increase in travel

as countries begin lifting travel restrictions.

and amortization expense decreased to $693,278 compared to $728,868 for the three months ended December 31, 2021 or a decrease of $35,590

and on a constant currency basis an increase of $157,621.

costs decreased to $1,320,993 for the three months ended September 30, 2022 compared to $1,335,461 for the three months ended September

costs decreased to $977,148 for the three months ended December 31, 2022 compared to $1,156,754 for the three months ended December 31,

2021 or a decrease of $179,606 and on a constant currency basis an increase of $4,132.

The increase is mainly due to increases in

repair and maintenance costs and computer costs.

expenses were $6,148,188 for the three months ended September 30, 2022 compared to $6,082,633, for the three months ended September 30,

expenses were $6,188,977 for the three months ended December 31, 2022 compared to $5,988,719, for the three months ended December 31,

2021 for an increase of 3.3% or $200,258 and on a constant currency basis an increase of 20.4% or $1,222,100.

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and development costs offset by a decrease in general and administrative expenses.

expenses were $1,762,177 for the three months ended September 30, 2022 compared to $1,619,993, for the three months ended September 30,

expenses were $2,007,462 for the three months ended December 31, 2022 compared to $1,807,162, for the three months ended December 31,

2021 for an increase of $200,300 and on a constant currency basis an increase of $531,194.

and administrative expenses were $3,725,430 for the three months ended September 30, 2022 compared to $3,973,139 at September 30, 2021

and administrative expenses were $3,510,389 for the three months ended December 31, 2022 compared to $3,733,303 at December 31, 2021

or a decrease of $222,914 or 6.0% and on a constant currency basis an increase of $303,647 or 8.1%.

During the three months ended September

During the three months ended December

31, 2022, salaries decreased by approximately $22,012 and increased $327,696 on a constant currency basis, and other general and administrative

expenses increased approximately $156,493 or $437,776 on a constant currency basis.

and development cost was $469,627 for the three months ended September 30, 2022 compared to $275,230, for the three months ended September

expenses decreased approximately $200,902 or decreased by $24,049 on a constant currency basis.

and development cost was $472,904 for the three months ended December 31, 2022 compared to $235,390, for the three months ended December

31, 2021 for an increase of $237,514 and on a constant currency basis an increase of $357,628.

from Operations

from operations was $1,896,191 for the three months ended September 30, 2022 compared to loss from operations of $639,610 for the three

months ended September 30, 2021.

This represents an increase in the loss of $1,256,581 with an increase in the loss of $2,040,016 on

a constant currency basis for the three months ended September 30, 2022 compared with the three months ended September 30, 2021.

percentage of sales, loss from operations was 14.9% for the three months ended September 30, 2022 compared to loss from operations

of 4.8% for the three months ended September 30, 2021.

from operations was $3,046,514 for the three months ended December 31, 2022 compared to income from operations of $1,653,868 for the

three months ended December 31, 2021.

This represents an increase in the loss of $4,700,382 with an increase in the loss of $5,590,130

on a constant currency basis for the three months ended December 31, 2022 compared with the three months ended December 31, 2021.

a percentage of sales, loss from operations was 24.6% for the three months ended December 31, 2022 compared to income from operations

of 10.7% for the three months ended December 31, 2021.

Income and Expense

income was $1,651,568 for the three months ended September 30, 2022 compared to $1,357,732 for the three months ended September 30, 2021.

This represents an increase of $293,836 with an increase of $880,038 on a constant currency basis.

The increase is primarily due to the

foreign currency exchange transactions.

income was $864,607 for the three months ended December 31, 2022 compared to $986,186 for the three months ended December 31, 2021.

represents a decrease of $121,579 with an increase of $88,885 on a constant currency basis.

The decrease is primarily due to the foreign

currency exchange transactions.

The majority of the contracts with NetSol PK are either in U.S.

dollars or Euros;

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 $1,315,705 in foreign currency exchange

transactions compared to $1,284,148 for 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.

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.

During the three months ended December 31, 2022, we recognized a gain of $657,223 in foreign currency exchange transactions

compared to $901,016 for the three months ended December 31, 2021.

During the three months ended December 31, 2022, the value of the

dollar decreased 0.7% and the Euro increased 8.5%, compared to the PKR.

During the three months ended December 31, 2021, the value

dollar and the Euro increased 3.8% and 1.6%, respectively, compared to the PKR.

Non-controlling

the three months ended September 30, 2022, the net income attributable to non-controlling interest was $182,758, compared to $362,526

for 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.

the three months ended December 31, 2022, the net loss attributable to non-controlling interest was $309,037, compared to net income

of $1,031,763 for the three months ended December 31, 2021.

The decrease in non-controlling interest is primarily due to the decrease

in net income of NetSol PK.

loss attributable to NetSol

net loss was $620,729 for the three months ended September 30, 2022 compared to net income of $187,969 for the three months ended September

net loss was $2,092,926 for the three months ended December 31, 2022 compared to net income of $1,406,785 for the three months ended

December 31, 2021.

This is a decrease of $3,499,711 with a decrease of $4,142,007 on a constant currency basis, compared to the prior

For the three months ended December 31, 2022, net loss per share was $0.19 for basic and diluted shares compared to net income

per share of $0.13 for basic and diluted shares for the three months ended December 31, 2021.

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

following table sets forth the items in our unaudited condensed consolidated statement of operations for the six months ended December

31, 2022 and 2021 as a percentage of revenues.

For the Six Months

Ended December 31,

Net Revenues:

Subscription and support

Total net revenues

Cost of revenues:

Salaries and consultants

Depreciation and amortization

Total cost of revenues

Operating expenses:

Selling and marketing

Depreciation and amortization

General and administrative

Research and development cost

Total operating expenses

Loss from operations

Other income and (expenses)

Gain (loss) on sale of assets

Interest expense

Interest income

Gain (loss) on foreign currency exchange transactions

Share of net loss from equity investment

Other income (expense)

Total other income (expenses)

Net income (loss) before income taxes

Income tax provision

Net income (loss)

Non-controlling interest

Net income (loss) attributable to NetSol

$ (2,713,655 )

Net income (loss) per share:

Net income (loss) per common share

Weighted average number of shares outstanding

significant portion of our business is conducted in currencies other than the U.S.

We operate in several geographical regions

as described in Note 18 “Operating Segments” within the Notes to the Condensed Consolidated Financial Statements.

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.

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.

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.

(Unfavorable)

For the Six Months

Change due to

(Unfavorable)

Ended December 31,

Net Revenues:

$ (5,024,366 )

$ (3,797,246 )

Cost of revenues:

Operating expenses:

Income (loss) from operations

$ (4,942,705 )

$ (7,630,146 )

$ (5,956,963 )

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

North America

fees for the six months ended December 31, 2022 were $265,844 compared to $1,966,047 for the six months ended December 31, 2021 reflecting

a decrease of $1,700,203 with a decrease in constant currency of $1,625,032.

During the six months ended December 31, 2022, we recognized

approximately $188,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent ®

During the six months ended December 31, 2021, we recognized approximately $1,920,000 related to a new agreement with DTFS for

the sale of both our legacy and Ascent product ® for their new business segment in the Japanese and Australian markets.

and support fees for the six months ended December 31, 2022 were $12,519,503 compared to $15,605,258 for the six months ended December

31, 2021 reflecting a decrease of $3,085,755 with a decrease in constant currency of $686,454.

The reason for the decrease in subscription

and support revenue is that in the six months ended December 31, 2021, we recorded a one-time post contract support revenue of approximately

$3,480,000 using the catch-up approach.

Subscription and support fees begin once a customer has “gone live” with our product.

Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS

legacy products and NFS Ascent ® .

income for the six months ended December 31, 2022 was $12,311,130 compared to $11,322,418 for the six months ended December 31, 2021

reflecting an increase of $988,712 with an increase in constant currency of $3,538,606.

The increase is primarily due to services provided

for ongoing implementations plus additional change requests.

gross profit was $7,394,460, for the six months ended December 31, 2022 compared with $13,085,610 for the six months ended December 31,

This is a decrease of $5,691,150 with a decrease in constant currency of $5,104,252.

The gross profit percentage for the six months

ended December 31, 2022 also decreased to 29.5% from 45.3% for the six months ended December 31, 2021.

The cost of sales was $17,702,017

for the six months ended December 31, 2022 compared to $15,808,113 for the six months ended December 31, 2021 for an increase of $1,893,904

and on a constant currency basis an increase of $6,331,372.

As a percentage of sales, cost of sales increased from 54.7% for the six

months ended December 31, 2021 to 70.5% for the six months ended December 31, 2022.

and consultant fees increased by $1,704,579 from $11,324,327 for the six months ended December 31, 2021 to $13,028,906 for the six months

ended December 31, 2022 and on a constant currency basis increased by $4,910,006.

The increase is due to annual salary raises and new

As a percentage of sales, salaries and consultant expense increased from 39.2% for the six months ended December 31, 2021 to

51.9% for the six months ended December 31, 2022.

expense was $1,027,643 for the six months ended December 31, 2022 compared to $496,968 for the six months ended December 31, 2021 for

an increase of $530,675 with an increase in constant currency of $787,416.

The increase in travel expense is due to the increase in travel

as countries begin lifting travel restrictions.

and amortization expense decreased to $1,347,327 compared to $1,494,603 for the six months ended December 31, 2021 or a decrease of $147,276

and on a constant currency basis an increase of $278,982.

costs decreased to $2,298,141 for the six months ended December 31, 2022 compared to $2,492,215 for the six months ended December 31,

2021 or a decrease of $194,074 and on a constant currency basis an increase of $354,968.

The increase on a constant currency basis is

mainly due to increases in computer costs.

expenses were $12,337,165 for the six months ended December 31, 2022 compared to $12,071,352, for the six months ended December 31, 2021

for an increase of 2.2% or $265,813 and on a constant currency basis an increase of 9.3% or $2,525,894.

As a percentage of sales, it

increased from 41.8% to 49.2%.

The increase in operating expenses was primarily due to increases in selling expenses and research and

development costs offset by a decrease in general and administrative expenses.

expenses were $3,769,639 for the six months ended December 31, 2022 compared to $3,427,155, for the six months ended December 31, 2021

for an increase of $342,484 and on a constant currency basis an increase of $1,044,521.

and administrative expenses were $7,235,819 for the six months ended December 31, 2022 compared to $7,706,442 at December 31, 2021 or

a decrease of $470,623 or 6.1% and on a constant currency basis an increase of $719,580 or 6.1%.

During the six months ended December

31, 2022, salaries decreased by approximately $311,994 and increased $416,313 on a constant currency basis, and other general and administrative

expenses decreased approximately $158,629 and increased $303,267 on a constant currency basis.

and development cost was $942,531 for the six months ended December 31, 2022 compared to $510,620, for the six months ended December

31, 2021 for an increase of $431,911 and on a constant currency basis an increase of $704,845.

from Operations

from operations was $4,942,705 for the six months ended December 31, 2022 compared to income from operations of $1,014,258 for the six

months ended December 31, 2021.

This represents an increase in the loss of $5,956,963 with an increase in the loss of $7,630,146 on a

constant currency basis for the six months ended December 31, 2022 compared with the six months ended December 31, 2021.

As a percentage

of sales, loss from operations was 19.7% for the six months ended December 31, 2022 compared to income from operations of 3.5% for the

six months ended December 31, 2021.

Income and Expense

income was $2,516,175 for the six months ended December 31, 2022 compared to $2,343,918 for the six months ended December 31, 2021.

represents an increase of $172,257 with an increase of $968,923 on a constant currency basis.

The increase is due to a decrease in the

loss of sale of assets of $219,069 and on a constant currency basis $228,787, a decrease in the loss on equity investments of $245,916

and on a constant currency basis $246,374, offset by a decrease in the gain on foreign currency exchange transactions of $212,236 and

on a constant currency basis an increase in gain of $428,568.

Non-controlling

the six months ended December 31, 2022, the net loss attributable to non-controlling interest was $126,279, compared to net income of

$1,394,289 for the six months ended December 31, 2021.

The decrease in non-controlling interest is primarily due to the decrease in net

income of NetSol PK.

loss attributable to NetSol

net loss was $2,713,655 for the six months ended December 31, 2022 compared to net income of $1,594,754 for the six months ended December

This is a decrease of $4,308,409 with a decrease of $5,233,005 on a constant currency basis, compared to the prior year.

the three months ended September 30, 2022, net loss per share was $0.06 for basic and diluted shares compared to net income per share

of $0.02 for basic and diluted shares for the three months ended September 30, 2021.

the six months ended December 31, 2022, net loss per share was $0.24 for basic and diluted shares compared to net income per share of

$0.14 for basic and diluted shares for the six months ended December 31, 2021.

Financial Measures

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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, 2022 and 2021 are as follows:

For the Three Months Ended

September 30, 2022

September 30, 2021

GAAP measures for the three and six months ended December 31, 2022 and 2021 are as follows:

For the Three Months

For the Six Months

Ended December 31,

Net Income (loss) attributable to NetSol

$ (2,092,926 )

$ (2,713,655 )

Non-controlling interest

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Interest (income)

$ (1,397,950 )

$ (1,107,817 )

Non-cash stock-based compensation

Adjusted EBITDA, gross

$ (1,333,617 )

Less non-controlling interest (a)

Adjusted EBITDA, net

$ (1,326,254 )

$ (1,353,822 )

Weighted Average number of shares outstanding

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Diluted adjusted EBITDA

(a)The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows

(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

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AND CAPITAL RESOURCES

cash position was $20,922,948 at September 30, 2022, compared to $23,963,797 at June 30, 2022.

cash provided by operating activities was $1,298,857 for the three months ended September 30, 2022 compared to net cash used in operating

activities $3,391,653 for the three months ended September 30, 2021.

At September 30, 2022, we had current assets of $44,070,743 and

current liabilities of $18,969,718.

We had accounts receivable of $7,319,856 at September 30, 2022 compared to $8,669,202 at June 30,

We had revenues in excess of billings of $14,061,982 at September 30, 2022 compared to $15,425,377 at June 30, 2022 of which $714,458

and $853,601 is shown as long term as of September 30, 2022 and June 30, 2022, respectively.

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

cash provided by operating activities was $1,689,543 for the six months ended December 31, 2022 compared to net cash used in operating

activities of $3,036,634 for the six months ended December 31, 2021.

At December 31, 2022, we had current assets of $43,076,510 and current

liabilities of $19,358,221.

We had accounts receivable of $4,595,675 at December 31, 2022 compared to $8,669,202 at June 30, 2022.

had revenues in excess of billings of $15,389,951 at December 31, 2022 compared to $15,425,377 at June 30, 2022 of which $604,358 and

$853,601 is shown as long term as of December 31, 2022 and June 30, 2022, respectively.

The long-term portion was discounted by $9,376

$18,656 and $28,339 at September 30, 2022 and 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 $2,712,741 from $24,094,579 at June 30, 2022 to $21,381,838 at September 30, 2022.

Accounts payable

and accrued expenses, and current portions of loans and lease obligations amounted to $7,029,527 and $7,426,972, respectively at September

Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,813,541 and $8,567,145,

respectively at June 30, 2022.

average days sales outstanding for the three months ended September 30, 2022 and 2021 were 165 and 147 days, respectively, for each period.

and $28,339 at December 31, 2022 and June 30, 2022, respectively, using the discounted cash flow method with interest rates ranging from

4.65% to 6.25%.

During the six months ended December 31, 2022, our revenues in excess of billings were reclassified to accounts receivable

pursuant to billing requirements detailed in each contract.

The combined totals for accounts receivable and revenues in excess of billings

decreased by $4,108,953 from $24,094,579 at June 30, 2022 to $19,985,626 at December 31, 2022.

Accounts payable and accrued expenses,

and current portions of loans and lease obligations amounted to $7,423,248 and $7,386,750, respectively at December 31, 2022.

payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,813,541 and $8,567,145, respectively

at June 30, 2022.

average days sales outstanding for the six months ended December 31, 2022 and 2021 were 162 and 137 days, respectively, for each period.

The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and

revenues in excess of billings.

cash used in investing activities was $893,994 for the three months ended September 30, 2022, compared to $196,407 for the three months

ended September 30, 2021.

We had purchases of property and equipment of $1,347,601 compared to $216,112 for the three months ended September

cash used in financing activities was $445,737 for the three months ended September 30, 2022, compared to $463,570 for 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.

the three months ended September 30, 2022, we had net payments for bank loans and finance leases of $445,737 compared to $363,464 for

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.

cash used in investing activities was $1,182,042 for the six months ended December 31, 2022, compared to $572,180 for the six months

ended December 31, 2021.

We had purchases of property and equipment of $1,252,325 compared to $773,953 for the six months ended December

cash used in financing activities was $537,180 for the six months ended December 31, 2022, compared to $626,955 for the six months ended

December 31, 2021.

For the six months ended December 31, 2021, we purchased 22,510 shares of our own stock for $100,106.

The six months

ended December 31, 2021 included the cash inflow of $188,272 from bank proceeds.

During the six months ended December 31, 2022, we had

net payments for bank loans and finance leases of $537,180 compared to $715,121 for the six months ended December 31, 2021.

We are operating

in various geographical regions of the world through our various subsidiaries.

Those subsidiaries have financial arrangements from various

financial institutions to meet both their short and long-term funding requirements.

These loans will become due at different maturity

dates as described in Note 15 of the financial statements.

We are in compliance with the covenants of the financial arrangements and

there is no default, which may lead to early payment of these obligations.

We anticipate paying back all these obligations on their respective

due dates from its own sources.

typically fund the cash requirements for our operations in the U.S.

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intercompany charges for corporate services, and through the exercise of options and warrants.

As of September 30, 2022, we had approximately

As of December 31, 2022, we had approximately

$20.9 million of cash, cash equivalents and marketable securities of which approximately $18.6 million is held by our foreign subsidiaries.

7 unchanged sentences

for capital expenses vary from time to time, for the next 12 months, we anticipate needing $2.5 million for APAC, U.S.

and Europe new business

development activities and infrastructure enhancements, which we expect to provide from current operations.

and Europe new

business development activities and infrastructure enhancements, which we expect to provide from current operations.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis