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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

(Mark One)

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2024

 

For the transition period from __________ to __________

 

Commission file number: 0-22773

 

 

NETSOL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

 

nevada   95-4627685
(State or other Jurisdiction of   (I.R.S. Employer NO.)
Incorporation or Organization)    

 

16000 Ventura Blvd., Suite 770, Encino, CA 91436
(Address of principal executive offices) (Zip Code)

 

(818) 222-9195 / (818) 222-9197
(Issuer’s telephone/facsimile numbers, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of exchange on which registered
Common Stock, $0.01 par value per share   NTWK   NASDAQ

 

Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

  Large Accelerated Filer ☐ Accelerated Filer ☐
  Non-accelerated Filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No

 

The issuer had 12,344,271 shares issued and 11,405,240 outstanding of its $.01 par value Common Stock and no Preferred Stock outstanding as of May 17, 2024.

 

 

 

 
 

 

NETSOL TECHNOLOGIES, INC.

 

  Page No.
PART I. FINANCIAL INFORMATION    
Item 1. Financial Statements (Unaudited)    
Condensed Consolidated Balance Sheets as of March 31, 2024 and June 30, 2023   3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2024 and 2023   4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2024 and 2023   5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended March 31, 2024 and 2023   6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2024 and 2023   9
Notes to the Condensed Consolidated Financial Statements   11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   34
Item 3. Quantitative and Qualitative Disclosures about Market Risk   53
Item 4. Controls and Procedures   53
     
PART II. OTHER INFORMATION    
Item 1. Legal Proceedings   54
Item 1A Risk Factors   54
Item 2. Unregistered Sales of Equity and Use of Proceeds   54
Item 3. Defaults Upon Senior Securities   54
Item 4. Mine Safety Disclosures   54
Item 5. Other Information   54
Item 6. Exhibits   54

 

Page 2
 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets

(Unaudited)

   As of   As of 
   March 31, 2024   June 30, 2023 
ASSETS          
Current assets:          
Cash and cash equivalents  $12,338,642   $15,533,254 
Accounts receivable, net of allowance of $414,745 and $420,354   15,826,210    11,714,422 
Revenues in excess of billings, net of allowance of $116,023 and $1,380,141   15,659,806    12,377,677 
Other current assets   2,398,403    1,978,514 
Total current assets   46,223,061    41,603,867 
Revenues in excess of billings, net - long term   752,582    - 
Property and equipment, net   5,505,609    6,161,186 
Right of use assets - operating leases   1,490,669    1,151,575 
Other assets   32,341    32,327 
Intangible assets, net   -    127,931 
Goodwill   9,302,524    9,302,524 
Total assets  $63,306,786   $58,379,410 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $6,707,937   $6,552,181 
Current portion of loans and obligations under finance leases   6,047,511    5,779,510 
Current portion of operating lease obligations   635,168    505,237 
Unearned revenue   9,503,548    7,932,306 
Total current liabilities   22,894,164    20,769,234 
Loans and obligations under finance leases; less current maturities   130,381    176,229 
Operating lease obligations; less current maturities   837,756    652,194 
Total liabilities   23,862,301    21,597,657 
           
Stockholders’ equity:          
Preferred stock, $.01 par value; 500,000 shares authorized;   -    - 
Common stock, $.01 par value; 14,500,000 shares authorized; 12,344,271 shares issued and 11,405,240 outstanding as of March 31, 2024, 12,284,887 shares issued and 11,345,856 outstanding as of June 30, 2023   123,445     122,850  
Additional paid-in-capital   128,736,328    128,476,048 
Treasury stock (at cost, 939,031 shares as of March 31, 2024 and June 30, 2023)   (3,920,856)   (3,920,856)
Accumulated deficit   (44,129,431)   (44,896,186)
Other comprehensive loss   (45,505,920)   (45,975,156)
Total NetSol stockholders’ equity   35,303,566    33,806,700 
Non-controlling interest   4,140,919    2,975,053 
Total stockholders’ equity   39,444,485    36,781,753 
Total liabilities and stockholders’ equity  $63,306,786   $58,379,410 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Page 3
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations

(Unaudited)

 

             
   For the Three Months   For the Nine Months 
   Ended March 31,   Ended March 31, 
   2024   2023   2024   2023 
Net Revenues:                    
License fees  $558,340   $1,982,985   $4,829,242   $2,248,829 
Subscription and support   7,140,358    6,656,082    20,480,382    19,175,585 
Services   7,765,818    4,867,322    19,635,014    17,178,452 
Total net revenues   15,464,516    13,506,389    44,944,638    38,602,866 
                     
Cost of revenues   7,989,696    8,801,360    24,132,064    26,503,377 
Gross profit   7,474,820    4,705,029    20,812,574    12,099,489 
                     
Operating expenses:                    
Selling, general and administrative   5,811,335    5,333,202    17,051,798    16,727,836 
Research and development cost   345,582    302,262    1,065,412    1,244,793 
Total operating expenses   6,156,917    5,635,464    18,117,210    17,972,629 
                     
Income (loss) from operations   1,317,903    (930,435)   2,695,364    (5,873,140)
                     
Other income and (expenses)                    
Interest expense   (289,677)   (188,137)   (856,016)   (512,110)
Interest income   376,466    263,794    1,259,464    1,005,557 
Gain (loss) on foreign currency exchange transactions   (963,887)   5,385,591    (1,112,757)   7,358,519 
Share of net loss from equity investment   -    2,377    -    7,510 
Other income (expense)   21,634    (62,941)   22,210    57,383 
Total other income (expenses)   (855,464)   5,400,684    (687,099)   7,916,859 
                     
Net income before income taxes   462,439    4,470,249    2,008,265    2,043,719 
Income tax provision   (146,569)   (227,718)   (418,517)   (641,122)
Net income   315,870    4,242,531    1,589,748    1,402,597 
Non-controlling interest   11,679    (1,697,908)   (822,993)   (1,571,629)
Net income (loss) attributable to NetSol  $327,549   $2,544,623#  $766,755   $(169,032)
                     
Net income (loss) per share:                    
Net income (loss) per common share                    
Basic  $0.03   $0.23   $0.07   $(0.01)
Diluted  $0.03   $0.23   $0.07   $(0.01)
                     
Weighted average number of shares outstanding                    
Basic   11,390,888    11,283,954   11,369,778    11,270,466 
Diluted   11,430,493    11,283,954   11,409,383    11,270,466 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Page 4
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

 

             
   For the Three Months   For the Nine Months 
   Ended March 31,   Ended March 31, 
   2024   2023   2024   2023 
Net income (loss)  $327,549   $2,544,623   $766,755   $(169,032)
Other comprehensive income (loss):                    
Translation adjustment   441,993    (7,628,982)   812,109    (11,428,326)
Translation adjustment attributable to non-controlling interest   (77,604)   2,447,328    (342,873)   3,598,417 
Net translation adjustment   364,389    (5,181,654)   469,236    (7,829,909)
Comprehensive income (loss) attributable to NetSol  $691,938   $(2,637,031)  $1,235,991   $(7,998,941)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Page 5
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)

 

A statement of the changes in equity for the three months ended March 31, 2024 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at December 31, 2023   12,329,919   $123,301   $128,587,384   $(3,920,856)  $(44,456,980)  $(45,870,309)  $4,074,994   $38,537,534 
Common stock issued for: Services   14,352    144    39,606    -    -    -    -    39,750 
Fair value of options issued   -    -    101,424    -    -    -    -    101,424 
Fair value of subsidiary options issued   -    -    7,914    -    -    -    -    7,914 
Foreign currency translation adjustment   -    -    -    -    -    364,389    77,604    441,993 
Net income (loss) for the year   -    -    -    -    327,549    -    (11,679)   315,870 
Balance at March 31, 2024   12,344,271   $123,445   $128,736,328   $(3,920,856)  $(44,129,431)  $(45,505,920)  $4,140,919   $39,444,485 

 

A statement of the changes in equity for the three months ended December 31, 2023 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at September 30, 2023   12,311,850   $123,120   $128,536,132   $(3,920,856)  $(44,865,296)  $(46,411,702)  $3,201,723   $36,663,121 
Common stock issued for: Services   18,069    181    39,569    -    -    -    -    39,750 
Fair value of subsidiary options issued   -    -    11,683    -    -    -    -    11,683 
Foreign currency translation adjustment   -    -    -    -    -    541,393    298,772    840,165 
Net income (loss) for the year   -    -    -    -    408,316    -    574,499    982,815 
Balance at December 31, 2023   12,329,919   $123,301   $128,587,384   $(3,920,856)  $(44,456,980)  $(45,870,309)  $4,074,994   $38,537,534 

 

Page 6
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)

 

A statement of the changes in equity for the three months ended September 30, 2023 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at June 30, 2023   12,284,887   $122,850   $128,476,048   $(3,920,856)  $(44,896,186)  $(45,975,156)  $2,975,053   $36,781,753 
Common stock issued for: Services   26,963    270    48,530    -    -    -    -    48,800 
Fair value of subsidiary options issued   -    -    11,554    -    -    -    -    11,554 
Foreign currency translation adjustment   -    -    -    -    -    (436,546)   (33,503)   (470,049)
Net income (loss) for the year   -    -    -    -    30,890    -    260,173    291,063 
Balance at September 30, 2023   12,311,850   $123,120   $128,536,132   $(3,920,856)  $(44,865,296)  $(46,411,702)  $3,201,723   $36,663,121 

 

A statement of the changes in equity for the three months ended March 31, 2023 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at December 31, 2022   12,222,985   $122,231   $128,484,714   $(3,920,856)  $(42,366,093)  $(42,011,340)  $4,052,456   $44,361,112 
Common stock issued for: Services   15,057    151    39,599    -    -    -    -    39,750 
Fair value of subsidiary options issued   -    -    12,642    -    -    -    -    12,642 
Foreign currency translation adjustment   -    -    -    -    -    (5,181,654)   (2,447,328)   (7,628,982)
Net income (loss) for the year   -    -    -    -    2,544,623    -    1,697,908    4,242,531 
Balance at March 31, 2023   12,238,042   $122,382   $128,536,955   $(3,920,856)  $(39,821,470)  $(47,192,994)  $3,303,036   $41,027,053 

 

Page 7
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)

 

A statement of the changes in equity for the three months ended December 31, 2022 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at September 30, 2022   12,209,230   $122,093   $128,420,519   $(3,920,856)  $(40,273,167)  $(42,281,135)  $4,279,113   $46,346,567 
Common stock issued for: Services   13,755    138    39,612    -    -    -    -    39,750 
Fair value of subsidiary options issued   -    -    24,583    -    -    -    -    24,583 
Foreign currency translation adjustment   -    -    -    -    -    269,795    82,380    352,175 
Net income (loss) for the year   -    -    -    -    (2,092,926)   -    (309,037)   (2,401,963)
Balance at December 31, 2022   12,222,985   $122,231   $128,484,714   $(3,920,856)  $(42,366,093)  $(42,011,340)  $4,052,456   $44,361,112 

 

A statement of the changes in equity for the three months ended September 30, 2022 is provided below:

 

                       Other         
           Additional           Compre-   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   hensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at June 30, 2022   12,196,570   $121,966   $128,218,247   $(3,920,856)  $(39,652,438)  $(39,363,085)  $5,450,389   $50,854,223 
Common stock issued for: Services   12,660    127    39,623    -    -    -    -    39,750 
Adjustment in APIC for change in subsidiary shares to non-controlling interest   -    -    120,565    -    -    -    (120,565)   - 
Fair value of subsidiary options issued   -    -    42,084    -    -    -    -    42,084 
Foreign currency translation adjustment   -    -    -    -    -    (2,918,050)   (1,233,469)   (4,151,519)
Net income (loss) for the year   -    -    -    -    (620,729)   -    182,758    (437,971)
Balance at September 30, 2022   12,209,230   $122,093   $128,420,519   $(3,920,856)  $(40,273,167)  $(42,281,135)  $4,279,113   $46,346,567 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Page 8
 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)

 

       
   For the Nine Months 
   Ended March 31, 
   2024   2023 
Cash flows from operating activities:          
Net income  $1,589,748   $1,402,597 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation and amortization   1,351,239    2,519,469 
Provision for bad debts   9,739    7,648 
Share of net (gain) loss from investment under equity method   -    (7,510)
(Gain) loss on sale of assets   (1,154)   56,494 
Stock based compensation   260,875    198,559 
Changes in operating assets and liabilities:          
Accounts receivable   (3,922,773)   (1,855,899)
Revenues in excess of billing   (3,904,609)   240,324 
Other current assets   (1,525)   (621,731)
Accounts payable and accrued expenses   77,541    1,321,289 
Unearned revenue   938,242    (696,621)
Net cash provided by (used in) operating activities   (3,602,677)   2,564,619 
           
Cash flows from investing activities:          
Purchases of property and equipment   (948,337)   (1,575,059)
Sales of property and equipment   125,886    153,402 
Net cash used in investing activities   (822,451)   (1,421,657)
           
Cash flows from financing activities:          
Proceeds from bank loans   340,847    270,292 
Payments on finance lease obligations and loans - net   (307,235)   (787,641)
Net cash provided by (used in) financing activities   33,612    (517,349)
Effect of exchange rate changes   1,196,904    (9,329,913)
Net decrease in cash and cash equivalents   (3,194,612)   (8,704,300)
Cash and cash equivalents at beginning of the period   15,533,254    23,963,797 
Cash and cash equivalents at end of period  $12,338,642   $15,259,497 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)

 

   For the Nine Months 
   Ended March 31, 
   2024   2023 
SUPPLEMENTAL DISCLOSURES:          
Cash paid during the period for:          
Interest  $1,100,101   $378,720 
Taxes  $522,633   $706,658 
           
NON-CASH INVESTING AND FINANCING ACTIVITIES:          
Assets acquired under finance lease  $122,045   $- 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

Page 10
 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2024

(Unaudited)

 

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION