What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2023-02-14 · 257 added, 275 removed, 400 unchanged (57% 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 December 31, 2022.

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

our Annual Report on Form 10-K for the year ended June 30, 2022, and the Condensed Consolidated Financial Statements and notes thereto

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

website is located at www.

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

the three months ended March 31, 2023.

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

Annual Report on Form 10-K for the year ended June 30, 2022, and the Condensed Consolidated Financial Statements and notes thereto included

elsewhere in this Quarterly Report on Form 10-Q.

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:

56 unchanged sentences

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

Angeles and Austin, Texas Area

Metropolitan area and Horsham in the UK

71 unchanged sentences

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 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.

below are a few of NetSol’s highlights for the quarter ended March 31, 2023:

signed a new agreement with Kubota Australia Pty Ltd (“Kubota”) to implement our NFS Ascent ® product.

The contract relates to its operations in Australia and is expected to generate revenues of $5 million over 5 years.

went live with the Company’s API-first cloud-based calculation engine, Flex™, for Haydock Finance, a business finance provider

in the United Kingdom.

continued our successful implementations with DFS by going live in Japan with our NFS Ascent ® CMS system.

went live with its 38th dealer and has dealers in 16 states.

effectively generated approximately $1.0 million by successfully implementing change requests from various customers across multiple

achieved the status of API Gateway Delivery Partner with Amazon Web Services (AWS).

With this extended APN partnership, we will have

access to AWS API Gateway, a fully managed service that makes it easy for developers to create, publish, maintain, monitor, and secure

APIs (application programming interfaces) at any scale.

This partnership is expected to help the business generate new sales for

this growth vertical.

has identified the following material trends affecting NetSol.

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

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 ® .

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 8% from the projected 2022 levels.

inflation rate over the last few months to approximately 5% annually.

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 according to Forbes and Insider Intelligence

China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65 billion investment, from the originally

planned $46 billion, in Pakistan energy and infrastructure sectors.

Last June, China authorized a new $2.3 billion loan at a discounted

rate to Pakistan as a short-term loan.

auto sector remains steady with government year-end incentives and customers requesting additional services reflecting the resilience

of our offerings.

has been a positive trend in business development activities in the US and China as both countries are interested in a stable and

bilateral relationship.

economic conditions in our geographic markets;

geopolitical tensions, including trade wars,

tariffs and/or sanctions in geographic areas;

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

Global pandemics, including COVID-19;

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

and, 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 sector.

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.

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 globally 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.

markets including the NASDAQ index and the Russell 2000 index limiting access to capital

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

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

IN FINANCIAL CONDITION

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

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

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

31, 2023 and 2022 as a percentage of revenues.

For the Three Months

Ended December 31,

Ended March 31,

Net Revenues:

20 unchanged sentences

Total other income (expenses)

Net income (loss) before income taxes

Net income before income taxes

Income tax provision

2 unchanged sentences

Net income (loss) attributable to NetSol

$ (2,092,926 )

Net income (loss) per share:

25 unchanged sentences

(Unfavorable)

Ended December 31,

Ended March 31,

Net Revenues:

$ (1,303,437 )

$ (3,082,604 )

Cost of revenues:

2 unchanged sentences

$ (3,914,670 )

$ (5,590,130 )

$ (4,700,382 )

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

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

North America

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 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

fees for the three months ended March 31, 2023 were $1,982,985 compared to $1,620,827 for the three months ended March 31, 2022 reflecting

an increase of $362,158 with an increase in constant currency of $479,420.

During the three months ended March 31, 2023, we recognized

approximately $1,918,000 related to a new NFS Ascent ® agreement with Kubota in Australia.

During the three months ended

March 31, 2022, we recognized approximately $1,117,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent

product ® for their new business segment in the South African market and $465,000 from the DFS contract.

and support fees for the three months ended March 31, 2023 were $6,656,082 compared to $6,554,540 for the three months ended March 31,

2022 reflecting an increase of $101,542 with an increase in constant currency of $264,776.

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

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 March 31, 2023 was $4,867,322 compared to $6,634,459 for the three months ended March 31, 2022 reflecting

a decrease of $1,767,137 with a decrease in constant currency of $1,452,128.

The decrease is primarily due to the decrease in services

provided for ongoing implementations and additional change requests.

gross profit was $4,705,029, for the three months ended March 31, 2023 compared with $5,834,570 for the three months ended March 31,

This is a decrease of $1,129,541 with a decrease in constant currency of $3,424,282.

The gross profit percentage for the three

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

months ended March 31, 2023 also decreased to 34.8% from 39.4% for the three months ended March 31, 2022.

The cost of sales was $8,801,360

$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%

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.

for the three months ended March 31, 2023 compared to $8,975,256 for the three months ended March 31, 2022 for a decrease of $173,896

and on a constant currency basis an increase of $2,716,350.

As a percentage of sales, cost of sales increased from 60.6% for the three

months ended March 31, 2022 to 65.2% for the three months ended March 31, 2023.

and consultant fees decreased by $303,084 from $6,756,898 for the three months ended March 31, 2022 to $6,453,814 for the three months

ended March 31, 2023 and on a constant currency basis increased by $1,741,371.

The increase on a constant currency basis is due to annual

salary raises and new hirings.

As a percentage of sales, salaries and consultant expense increased from 45.6% for the three months ended

March 31, 2022 to 47.8% for the three months ended March 31, 2023.

expense was $724,431 for the three months ended March 31, 2023 compared to $256,730 for the three months ended March 31, 2022 for an

increase of $467,701 with an increase in constant currency of $700,226.

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

as countries 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

as countries have been lifting travel restrictions.

and amortization expense decreased to $602,829 compared to $741,587 for the three months ended March 31, 2022 or a decrease of $138,758

and on a constant currency basis an increase of $139,936.

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,

costs decreased to $1,020,286 for the three months ended March 31, 2023 compared to $1,220,041 for the three months ended March 31, 2022

or a decrease of $199,755 and on a constant currency basis an increase of $134,817.

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.

As a percentage of sales,

it increased from 38.7% to 50.0%.

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 $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 $3,510,389 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 December

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

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

expenses were $5,635,464 for the three months ended March 31, 2023 compared to $6,373,875, for the three months ended March 31, 2022

for a decrease of 11.6% or $738,411 and on a constant currency basis an increase of 7.7% or $490,388.

As a percentage of sales, it decreased

from 43.0% to 41.7%.

The increase in operating expenses on a constant currency basis was primarily due to increases in salaries and wages

and research and development costs, offset by decreases in selling and marketing expense and other general and administrative expenses.

expenses were $1,643,853 for the three months ended March 31, 2023 compared to $2,074,873, for the three months ended March 31, 2022

for a decrease of $431,020 and on a constant currency basis a decrease of $57,742.

and administrative expenses were $3,509,212 for the three months ended March 31, 2023 compared to $3,841,655 for the three months ended

March 31, 2022 or a decrease of $332,443 or 8.7% and on a constant currency basis an increase of $304,475 or 7.9%.

During the three months

ended March 31, 2023, salaries decreased by approximately $52,981 and increased $389,564 on a constant currency basis, and other general

and administrative expenses decreased approximately $308,825 or decreased by $129,617 on a constant currency basis.

and development cost was $302,262 for the three months ended March 31, 2023 compared to $251,001, for the three months ended March 31,

2022 for an increase of $51,261 and on a constant currency basis an increase of $215,444.

from Operations

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.

from operations was $930,435 for the three months ended March 31, 2023 compared to a loss of $539,305 for the three months ended March

This represents an increase in the loss of $391,130 with an increase in the loss of $3,914,670 on a constant currency basis

for the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

As a percentage of sales, loss from operations

was 6.9% for the three months ended March 31, 2023 compared to 3.6% for the three months ended March 31, 2022.

Income and Expense

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.

income was $5,400,684 for the three months ended March 31, 2023 compared to $679,437 for the three months ended March 31, 2022.

represents an increase of $4,721,247 with an increase of $7,233,035 on a constant currency basis.

The increase is primarily due to the

foreign currency exchange transactions.

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

dollars or Euros;

therefore, the currency

fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S.

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

the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S.

dollar and the Euro.

During the three months ended March 31, 2023, we recognized a gain of $5,385,591 in foreign currency exchange transactions

compared to $499,516 for the three months ended March 31, 2022.

During the three months ended March 31, 2023, the value of the U.S.

increased 25.3% and the Euro increased 27.3%, compared to the PKR.

During the three months ended March 31, 2022, the value of the U.S.

dollar and the Euro increased 3.2% and 1.2%, respectively, compared to the PKR.

Non-controlling

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 $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

the three months ended March 31, 2023, the net income attributable to non-controlling interest was $1,697,908, compared to $260,998 for

the three months ended March 31, 2022.

The increase in non-controlling interest is primarily due to the increase in net income of NetSol

income (loss) attributable to NetSol

net income was $2,544,623 for the three months ended March 31, 2023 compared to a net loss of $278,470 for the three months ended March

This is an increase of $2,823,093 with an increase of $1,511,612 on a constant currency basis, compared to the prior year.

For the three months ended March 31, 2023, net income per share was $0.23 for basic and diluted shares compared to net loss per share

of $0.02 for basic and diluted shares for the three months ended March 31, 2022.

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

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

31, 2023 and 2022 as a percentage of revenues.

For the Six Months

Ended December 31,

For the Nine Months

Ended March 31,

Net Revenues:

11 unchanged sentences

Total operating expenses

Loss from operations

Income (loss) from operations

Other income and (expenses)

6 unchanged sentences

Total other income (expenses)

Net income (loss) before income taxes

Net income before income taxes

Income tax provision

2 unchanged sentences

Net income (loss) attributable to NetSol

$ (2,713,655 )

Net income (loss) per share:

21 unchanged sentences

(Unfavorable)

For the Nine Months

(Unfavorable)

For the Six Months

Change due to

(Unfavorable)

Ended December 31,

Ended March 31,

Net Revenues:

1 unchanged sentence

$ (2,031,606 )

$ (5,100,683 )

Cost of revenues:

(12,116,799 )

Operating expenses:

3 unchanged sentences

$ (6,348,093 )

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

revenues for the nine months ended March 31, 2023 and 2022 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

fees for the nine months ended March 31, 2023 were $2,248,829 compared to $3,586,874 for the nine months ended March 31, 2022 reflecting

a decrease of $1,338,045 with a decrease in constant currency of $1,212,555.

During the 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

During the nine months ended March 31, 2023, we recognized

approximately $1,918,000 related to a new NFS Ascent ® agreement with Kubota in Australia and approximately $188,000 related

to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent ® product.

During the nine months

ended March 31, 2022, we recognized approximately $3,039,000 related to a new agreement with DTFS for the sale of both our legacy and

Ascent product ® for their new business segment in the Japanese, Australian and South African markets and $465,000 from

the DFS contract.

and support fees for the nine months ended March 31, 2023 were $19,175,585 compared to $22,159,798 for the nine months ended March 31,

2022 reflecting a decrease of $2,984,213 with a decrease in constant currency of $2,370,859.

The 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.

The decrease in subscription and support

revenue is related to the revised ceiling amount for post contract support due to the software customizations related to the DFS contract.

The Company recorded a one-time post contract support revenue of approximately $3,480,000 using the catch-up approach during the nine

months ended March 31, 2022.

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

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

legacy products and NFS Ascent ® .

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,

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 nine months ended March 31, 2023 was $17,178,452 compared to $17,956,877 for the nine months ended March 31, 2022 reflecting

a decrease of $778,425 with an increase in constant currency of $514,337.

The change is primarily due to services provided for ongoing

implementations plus additional change requests.

gross profit was $12,099,489 for the nine months ended March 31, 2023 compared with $18,920,180 for the nine months ended March 31, 2022.

This is a decrease of $6,820,691 with a decrease in constant currency of $12,116,799.

The gross profit percentage for the 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 gross profit percentage for the nine months

ended March 31, 2023 also decreased to 31.3% from 43.3% for the nine months ended March 31, 2022.

The cost of sales was $26,503,377 for

the nine months ended March 31, 2023 compared to $24,783,369 for the nine months ended March 31, 2022 for an increase of $1,720,008 and

on a constant currency basis an increase of $9,047,722.

As a percentage of sales, cost of sales increased from 56.7% for the nine months

ended March 31, 2022 to 68.7% for the nine months ended March 31, 2023.

and consultant fees increased by $1,401,495 from $18,081,225 for the nine months ended March 31, 2022 to $19,482,720 for the nine months

ended March 31, 2023 and on a constant currency basis increased by $6,651,377.

The increase is due to annual salary raises and new hirings.

As a percentage of sales, salaries and consultant expense increased from 41.4% for the nine months ended March 31, 2022 to 50.5% for

the nine months ended March 31, 2023.

expense was $1,752,074 for the nine months ended March 31, 2023 compared to $753,698 for the nine months ended March 31, 2022 for an

increase of $998,376 with an increase in constant currency of $1,487,642.

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

as countries 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

as countries have been lifting travel restrictions.

and amortization expense decreased to $1,950,156 compared to $2,236,190 for the nine months ended March 31, 2022 or a decrease of $286,034

and on a constant currency basis an increase of $418,918.

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,

costs decreased to $3,318,427 for the nine months ended March 31, 2023 compared to $3,712,256 for the nine months ended March 31, 2022

or a decrease of $393,829 and on a constant currency basis an increase of $489,785.

The increase on a constant currency basis is

mainly due to increases in computer costs.

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.

The increase on a constant currency basis is mainly

due to increases in computer costs.

expenses were $17,972,629 for the nine months ended March 31, 2023 compared to $18,445,227, for the nine months ended March 31, 2022

for a decrease of 2.6% or $472,598 and on a constant currency basis an increase of 16.3% or $3,016,282.

As a percentage of sales, it

increased from 42.2% to 46.6%.

The increase in operating expenses 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

The increase in operating expenses on a constant currency basis was primarily due to increases in selling

expenses, general and administrative expenses and research and development costs.

expenses were $5,413,492 for the nine months ended March 31, 2023 compared to $5,502,028, for the nine months ended March 31, 2022 for

a decrease of $88,536 and on a constant currency basis an increase of $986,779.

and administrative expenses were $10,745,031 for the nine months ended March 31, 2023 compared to $11,548,097 at March 31, 2022 or a

decrease of $803,066 or 7.0% and on a constant currency basis an increase of $1,024,055 or 8.9%.

During the nine months ended March 31,

2023, salaries decreased by approximately $364,975 and increased $805,877 on a constant currency basis, and other general and administrative

expenses decreased approximately $438,091 and increased $218,178 on a constant currency basis.

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

and development cost was $1,244,793 for the nine months ended March 31, 2023 compared to $761,621, for the nine months ended March 31,

2022 for an increase of $483,172 and on a constant currency basis an increase of $920,289.

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.

from operations was $5,873,140 for the nine months ended March 31, 2023 compared to income from operations of $474,953 for the nine months

ended March 31, 2022.

This represents an increase in the loss of $6,348,093 with an increase in the loss of $15,133,081 on a constant

currency basis for the nine months ended March 31, 2023 compared with the nine months ended March 31, 2022.

As a percentage of sales,

loss from operations was 15.2% for the nine months ended March 31, 2023 compared to income from operations of 1.1% for the nine months

ended March 31, 2022.

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.

income was $7,916,859 for the nine months ended March 31, 2023 compared to $3,023,355 for the nine months ended March 31, 2022.

represents an increase of $4,893,504 with an increase of $8,201,958 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.

The increase is primarily due to the

foreign currency exchange transactions.

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

dollars or Euros;

the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S.

dollar and the Euro.

During the nine months ended March 31, 2023, we recognized a gain of $7,358,519 in foreign currency exchange transactions

compared to $2,684,680 for the nine months ended March 31, 2022.

During the nine months ended March 31, 2023, the value of the U.S.

and the Euro increased 38.2% and 43.8%, respectively, compared to the PKR.

During the nine months ended March 31, 2022, the value of

dollar and the Euro increased 15.9% and 8.5%, respectively, compared to the PKR.

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

the nine months ended March 31, 2023, the net income attributable to non-controlling interest was $1,571,629, compared to $1,655,287

for the nine months ended March 31, 2022.

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

income (loss) attributable to NetSol

net loss was $169,032 for the nine months ended March 31, 2023 compared to net income of $1,316,284 for the nine months ended March 31,

This is a decrease of $1,485,316 with a decrease of $6,151,678 on a constant currency basis, compared to the prior year.

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.

nine months ended March 31, 2023, net loss per share was $0.01 for basic and diluted shares compared to net income per share of $0.12

for basic and diluted shares for the nine months ended March 31, 2022.

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 and six months ended December 31, 2022 and 2021 are as follows:

GAAP measures for the three and nine months ended March 31, 2023 and 2022 are as follows:

For the Three Months

For the Six Months

Ended December 31,

Ended March 31,

For the Nine Months

Ended March 31,

Net Income (loss) attributable to NetSol

$ (2,092,926 )

$ (2,713,655 )

Non-controlling interest

2 unchanged sentences

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

1 unchanged sentence

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 $20,946,722 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

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.

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

cash provided by operating activities was $2,564,619 for the nine months ended March 31, 2023 compared to $5,525,951 for the nine months

ended March 31, 2022.

At March 31, 2023, we had current assets of $40,824,397 and current liabilities of $17,656,128.

We had accounts

receivable of $9,223,484 at March 31, 2023 compared to $8,669,202 at June 30, 2022.

We had revenues in excess of billings of $13,741,884

at March 31, 2023 compared to $15,425,377 at June 30, 2022 of which $nil and $853,601 is shown as long term as of March 31, 2023 and

June 30, 2022, respectively.

The long-term portion was discounted by $nil and $28,339 at March 31, 2023 and June 30, 2022, respectively,

using the discounted cash flow method with interest rates ranging from 4.65% to 6.25%.

During the nine months ended March 31, 2023, our

revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract.

combined totals for accounts receivable and revenues in excess of billings decreased by $1,129,211 from $24,094,579 at June 30, 2022

to $22,965,368 at March 31, 2023.

Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted

to $7,098,206 and $5,969,044, respectively at March 31, 2023.

Accounts payable and accrued expenses, and current portions of loans and

lease obligations amounted to $6,813,541 and $8,567,145, respectively at June 30, 2022.

average days sales outstanding for the nine months ended March 31, 2023 and 2022 were 167 and 137 days, respectively, for each period.

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

revenues in excess of billings.

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

cash used in investing activities was $1,421,657 for the nine months ended March 31, 2023, compared to $1,359,605 for the nine months

ended December 31, 2021.

We had purchases of property and equipment of $1,252,325 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.

We had purchases of property and equipment of $1,575,059 compared to $1,680,856 for the nine months ended March

cash used in financing activities was $517,349 for the nine months ended March 31, 2023, compared to $833,103 for the nine months ended

March 31, 2022.

For the nine months ended March 31, 2022, we purchased 22,510 shares of our own stock for $100,106.

The nine months ended

March 31, 2023 and 2022 included the cash inflow of $270,292 and $312,467, respectively, from bank proceeds.

During the nine months ended

March 31, 2023, we had net payments for bank loans and finance leases of $787,641 compared to $1,045,464 for the nine months ended March

We are operating in various geographical regions of the world through our various subsidiaries.

Those subsidiaries have financial

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

These loans will become

due at different maturity dates as described in Note 14 of the financial statements.

We are in compliance with the covenants of the financial

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

We anticipate paying back all these obligations

on their respective due dates from its own sources.

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

1 unchanged sentence

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

As of December 31, 2022, we had approximately

As of March 31, 2023, we had approximately

$15.3 million of cash, cash equivalents and marketable securities of which approximately $13.1 million is held by our foreign subsidiaries.

9 unchanged sentences

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

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.

UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($370,370) which requires that the aggregate amount of

34 unchanged sentences

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