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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 September 30, 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 12,413,872 shares issued and 11,474,841 outstanding of its $.01 par value Common Stock and no Preferred Stock outstanding as of November 6, 2024.

 

 

 

 

 

 

NETSOL TECHNOLOGIES, INC.

 

  Page No.
PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited)  
Condensed Consolidated Balance Sheets as of September 30, 2024 and June 30, 2024 3
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2024 and 2023 4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended September 30, 2024 and 2023 5
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2024 and 2023 6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2024 and 2023 7
Notes to the Condensed Consolidated Financial Statements 9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 44
Item 4. Controls and Procedures 44
   
PART II. OTHER INFORMATION  
Item 1. Legal Proceedings 45
Item 1A Risk Factors 45
Item 2. Unregistered Sales of Equity and Use of Proceeds 45
Item 3. Defaults Upon Senior Securities 45
Item 4. Mine Safety Disclosures 45
Item 5. Other Information 45
Item 6. Exhibits 45

 

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 
   September 30, 2024   June 30, 2024 
ASSETS          
Current assets:          
Cash and cash equivalents  $24,525,956   $19,127,165 
Accounts receivable, net of allowance of $15,533 and $398,809   5,936,063    13,049,614 
Revenues in excess of billings, net of allowance of $460,743 and $116,148   12,743,571    12,684,518 
Other current assets   3,328,112    2,600,786 
Total current assets   46,533,702    47,462,083 
Revenues in excess of billings, net - long term   866,388    954,029 
Property and equipment, net   4,847,869    5,106,842 
Right of use assets - operating leases   1,216,835    1,328,624 
Other assets   32,341    32,340 
Goodwill   9,302,524    9,302,524 
Total assets  $62,799,659   $64,186,442 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $8,414,790   $8,232,342 
Current portion of loans and obligations under finance leases   6,443,937    6,276,125 
Current portion of operating lease obligations   590,541    608,202 
Unearned revenue   6,923,112    8,752,153 
Total current liabilities   22,372,380    23,868,822 
Loans and obligations under finance leases; less current maturities   92,638    95,771 
Operating lease obligations; less current maturities   594,631    688,749 
Total liabilities   23,059,649    24,653,342 
           
Stockholders’ equity:          
Preferred stock, $.01 par value; 500,000 shares authorized;   -    - 
Common stock, $.01 par value; 14,500,000 shares authorized; 12,383,872 shares issued and 11,444,841 outstanding as of September 30, 2024 , 12,359,922 shares issued and 11,420,891 outstanding as of June 30, 2024     123,842       123,602  
Additional paid-in-capital   128,709,890    128,783,865 
Treasury stock (at cost, 939,031 shares          
 as of September 30, 2024  and  June 30, 2024)   (3,920,856)   (3,920,856)
Accumulated deficit   (44,141,518)   (44,212,313)
Other comprehensive loss   (46,049,023)   (45,935,616)
Total NetSol stockholders’ equity   34,722,335    34,838,682 
Non-controlling interest   5,017,675    4,694,418 
Total stockholders’ equity   39,740,010    39,533,100 
Total liabilities and stockholders’ equity  $62,799,659   $64,186,442 

 

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)

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
Net Revenues:          
License fees  $1,229   $1,280,449 
Subscription and support   8,192,471    6,512,243 
Services   6,404,798    6,449,489 
Total net revenues   14,598,498    14,242,181 
           
Cost of revenues   8,034,386    8,080,164 
Gross profit   6,564,112    6,162,017 
           
Operating expenses:          
Selling, general and administrative   6,964,321    5,432,969 
Research and development cost   359,949    378,419 
Total operating expenses   7,324,270    5,811,388 
           
Income (loss) from operations   (760,158)   350,629 
           
Other income and (expenses)          
Interest expense   (258,219)   (276,017)
Interest income   769,867    414,718 
Gain (loss) on foreign currency exchange transactions   542,545    (134,253)
Other income   153,491    57,881 
Total other income (expenses)   1,207,684    62,329 
           
Net income before income taxes   447,526    412,958 
Income tax provision   (229,817)   (121,895)
Net income   217,709    291,063 
Non-controlling interest   (146,914)   (260,173)
Net income attributable to NetSol  $70,795   $30,890 
           
Net income per share:          
Net income per common share          
Basic  $0.006   $0.003 
Diluted  $0.006   $0.003 
           
Weighted average number of shares outstanding          
Basic   11,429,695    11,345,856 
Diluted   11,482,754    11,345,856 

 

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)

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
Net income  $70,795   $30,890 
Other comprehensive income (loss):          
Translation adjustment   (72,183)   (470,049)
Translation adjustment attributable to non-controlling interest   (41,224)   33,503 
Net translation adjustment   (113,407)   (436,546)
Comprehensive income (loss) attributable to NetSol  $(42,612)  $(405,656)

 

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 September 30, 2024 is provided below:

 

   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
           Additional           Other   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   Comprehensive   Controlling   Stockholders’ 
   Shares   Amount   Capital   Shares   Deficit   Loss   Interest   Equity 
Balance at June 30, 2024   12,359,922   $123,602   $128,783,865   $(3,920,856)  $(44,212,313)  $(45,935,616)  $4,694,418   $39,533,100 
Exercise of common stock options   10,000    100    21,400    -    -    -    -    21,500 
Common stock issued for: Services   13,950    140    39,610    -    -    -    -    39,750 
Fair value of subsidiary options issued   -    -    8,029    -    -    -    -    8,029 
Acquisition of non-controlling interest in subsidiary   -    -    (143,014)   -    -    -    135,119    (7,895)
Foreign currency translation adjustment   -    -    -    -    -    (113,407)   41,224    (72,183)
Net income (loss) for the year   -    -    -    -    70,795    -    146,914    217,709 
Balance at September 30, 2024   12,383,872   $123,842   $128,709,890   $(3,920,856)  $(44,141,518)  $(46,049,023)  $5,017,675   $39,740,010 

 

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

 

           Additional           Other   Non   Total 
   Common Stock   Paid-in   Treasury   Accumulated   Comprehensive   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 

 

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

 

Page 6

 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
Cash flows from operating activities:          
Net income  $217,709   $291,063 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   365,997    530,786 
Provision (reversal) for bad debts   336,506    7,880 
(Gain) loss on sale of assets   -    (98)
Stock based compensation   47,779    60,354 
Changes in operating assets and liabilities:          
Accounts receivable   6,738,384    4,608,881 
Revenues in excess of billing   836,403    (1,478,386)
Other current assets   (222,359)   92,686 
Accounts payable and accrued expenses   10,546    341,722 
Unearned revenue   (2,813,220)   (2,791,269)
Net cash provided by operating activities   5,517,745    1,663,619 
           
Cash flows from investing activities:          
Purchases of property and equipment   (100,737)   (371,630)
Sales of property and equipment   -    1,230 
Purchase of subsidiary shares   (7,895)   - 
Net cash used in investing activities   (108,632)   (370,400)
           
Cash flows from financing activities:          
Proceeds from the exercise of stock options   21,500    - 
Proceeds from bank loans   250,000    - 
Payments on finance lease obligations and loans - net   (118,311)   (44,474)
Net cash provided by (used in) financing activities   153,189    (44,474)
Effect of exchange rate changes   (163,511)   (230,322)
Net increase (decrease) in cash and cash equivalents   5,398,791    1,018,423 
Cash and cash equivalents at beginning of the period   19,127,165    15,533,254 
Cash and cash equivalents at end of period  $24,525,956   $16,551,677 

 

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

 

Page 7

 

 

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

 

   For the Three Months 
   Ended September 30, 
   2024   2023 
SUPPLEMENTAL DISCLOSURES:          
Cash paid during the period for:          
Interest  $285,362   $315,136 
Taxes  $264,030   $111,782 

 

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

 

Page 8

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

The Company designs, develops, markets, and exports proprietary software products to customers in the automobile financing and leasing, banking, and financial services industries worldwide. The Company also provides system integration, consulting, and IT products and services in exchange for fees from customers.

 

The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2024. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

 

The accompanying consolidated financial statements include the accounts of the Company as follows:

 

Wholly owned Subsidiaries

 

NetSol Technologies Americas, Inc. (“NTA”)

NetSol Connect (Private), Ltd. (“Connect”)

NetSol Technologies Australia Pty Ltd. (“Australia”)

NetSol Technologies Europe Limited (“NTE”)

NetSol Technologies (Beijing) Co. Ltd. (“NetSol Beijing”)

Tianjin NuoJinZhiCheng Co., Ltd (“Tianjin”)

Ascent Europe Ltd. (“AEL”)

Virtual Lease Services Holdings Limited (“VLSH”)

Virtual Lease Services Limited (“VLS”)

Virtual Lease Services (Ireland) Limited (“VLSIL”)

 

Majority-owned Subsidiaries

 

NetSol Technologies, Ltd. (“NetSol PK”)

NetSol Innovation (Private) Limited (“NetSol Innovation”)

NETSOL Ascent Middle East Computer Equipment Trading LLC (“Namecet”)

NetSol Technologies Thailand Limited (“NetSol Thai”)

Otoz, Inc. (“Otoz®”)

Otoz (Thailand) Limited (“Otoz® Thai”)

 

Page 9

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 2 – ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas requiring significant estimates are provision for doubtful accounts, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, assumptions used to determine the net present value of operating lease liabilities, and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates.

 

Concentration of Credit Risk

 

Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance except balances maintained in China are insured for RMB 500,000 ($71,327) in each bank and in the UK for GBP 85,000 ($113,333) in each bank. The Company maintains three bank accounts in China and nine bank accounts in the UK. As of September 30, 2024, and June 30, 2024, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $22,836,207 and $18,182,002, respectively. The Company has not experienced any losses in such accounts.

 

The Company’s operations are carried out globally. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments of each country and by the general state of the country’s economy. The Company’s operations in each foreign country are subject to specific considerations and significant risks not typically associated with companies in economically developed nations. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

 

Fair Value of Financial Instruments

 

The Company applies the provisions of Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively short maturities. The carrying amounts of the long-term debt approximate their fair values based on current interest rates for instruments with similar characteristics.

 

The three levels of valuation hierarchy are defined as follows:

 

Level 1: Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority.

 

Level 2: Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.

 

Level 3: Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

 

Page 10

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

The Company’s financial assets that were measured at fair value on a recurring basis as of September 30, 2024, were as follows:

 

   Level 1   Level 2   Level 3   Total Assets 
Revenues in excess of billings - long term  $-   $-   $866,388   $866,388 
Total  $-   $-   $866,388   $866,388 

 

The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2024, are as follows:

 

   Level 1   Level 2   Level 3   Total Assets 
Revenues in excess of billings - long term  $-   $-   $954,029   $954,029 
Total  $-   $-   $954,029   $954,029 

 

The reconciliation from June 30, 2024 to September 30, 2024 is as follows:

 

   Revenues in excess of billings - long term   Fair value discount   Total 
Balance at June 30, 2024  $1,106,475   $(152,446)  $954,029 
Amortization during the period   -    18,367    18,367 
Transfers to short term   (206,964)   -    (206,964)
Effect of Translation Adjustment   100,744    212    100,956 
Balance at September 30, 2024  $1,000,255   $(133,867)  $866,388 

 

Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrants and option derivatives are valued using the Black-Scholes model.

 

Recent Accounting Standards:

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for the Company’s Annual Report on Form 10-K for the fiscal year ending June 30, 2025, and subsequent interim periods, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance transparency and decision usefulness of income tax disclosures, particularly around rate reconciliations and income taxes paid information. ASU 2023-09 is effective for our Annual Report on Form 10-K for the fiscal year ending June 30, 2026, on a prospective basis, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.

 

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

 

Page 11

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 3 – REVENUE RECOGNITION

 

The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer;
Identification of the performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to the performance obligations in the contract; and
Recognition of revenue when, or as, the Company satisfies a performance obligation.

 

The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities.

 

The Company has two primary revenue streams: core revenue and non-core revenue.

 

Core Revenue

 

The Company generates its core revenue from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) subscription and support, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via two models: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software.

 

Non-Core Revenue

 

The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services.

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract.

 

The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase post contract support and services in addition to the licenses. The Company’s single performance obligation arrangements are typically post contract support renewals, subscription renewals and services engagements.

 

For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP.

 

Software Licenses

 

Transfer of control for software is considered to have occurred upon delivery of the product to the customer. The Company’s typical payment terms tend to vary by region, but its standard payment terms are within 30 days of invoice.

 

Page 12

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

Subscription

 

Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice.

 

Post Contract Support

 

Revenue from support services and product updates, referred to as subscription and support revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, most customers renew their support services contracts annually and typical payment terms provide that customers make payment within 30 days of invoice.

 

Professional Services

 

Revenue from professional services is typically comprised of implementation, development, data migration, training, or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice.

 

BPO and Internet Services

 

Revenue from BPO services is recognized based on the stage of completion which is measured by reference to labor hours incurred to date as a percentage of total estimated labor hours for each contract. Internet services are invoiced either monthly, quarterly, or half yearly in advance to the customers and revenue is recognized ratably overtime on a monthly basis.

 

Disaggregated Revenue

 

The Company disaggregates revenue from contracts with customers by category — core and non-core, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

Page 13

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

The Company’s disaggregated revenue by category is as follows:

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
Core:          
License  $1,229   $1,280,449 
Subscription and support   8,192,471    6,512,243 
Services   5,526,635    4,974,554 
Total core revenue, net   13,720,335    12,767,246 
           
Non-Core:          
Services   878,163    1,474,935 
Total non-core revenue, net   878,163    1,474,935 
           
Total net revenue  $14,598,498   $14,242,181 

 

Significant Judgments

 

Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.

 

Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a stand-alone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product, or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers.

 

The most significant inputs involved in the Company’s revenue recognition policies are: The (1) stand-alone selling prices of the Company’s software license, and the (2) the method of recognizing revenue for installation/customization, and other services.

 

The stand-alone selling price of the licenses was measured primarily through an analysis of pricing that management evaluated when quoting prices to customers. Although the Company has no history of selling its software separately from post contract support and other services, the Company does have historical experience with amending contracts with customers to provide additional modules of its software or providing those modules at an optional price. This information guides the Company in assessing the stand-alone selling price of the Company’s software, since the Company can observe instances where a customer had a particular component of the Company’s software that was essentially priced separate from other goods and services that the Company delivered to that customer.

 

The Company recognizes revenue from implementation and customization services using the percentage of estimated “person-days” that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of person-days required to complete implementation and customization services each reporting period.

 

Revenue is recognized over time for the Company’s subscription, post contract support and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes.

 

Page 14

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

 

If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur.

 

Contract Balances

 

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (unearned revenue) on the Company’s Consolidated Balance Sheets. The Company records revenues in excess of billings when the Company has transferred goods or services but does not yet have the right to consideration. The Company records unearned revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer.

 

The revenues in excess of billings are transferred to receivables when the rights to consideration become unconditional, usually upon completion of a milestone.

 

The Company’s revenues in excess of billings and unearned revenue are as follows:

 

   As of   As of 
   September 30, 2024  

June 30, 2024

 
         
Revenues in excess of billings  $13,609,959   $13,638,547 
           
Unearned revenue  $6,923,112   $8,752,153 

 

The Company’s unearned revenue reconciliation is as follows:

 

   Unearned Revenue 
Balance at June 30, 2024  $8,752,153 
Invoiced   5,640,585 
Revenue Recognized   (7,530,607)
Adjustments   60,981 
Balance at September 30, 2024  $6,923,112 

 

During the three months ended September 30, 2024, the Company recognized revenue of $4,172,244 that was included in the unearned revenue balance at the beginning of the period. All other activity in unearned revenue is due to the timing of invoicing in relation to the timing of revenue recognition.

 

Page 15

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

Revenue allocated to the remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $27,000,000 as of September 30, 2024, of which the Company estimates to recognize approximately $19,760,000 in revenue over the next 12 months and the remainder over an estimated 3 years thereafter. Actual revenue recognition depends in part on the timing of software modules installed at various customer sites. Accordingly, some factors that affect the Company’s revenue, such as the availability and demand for modules within customer geographic locations, is not entirely within the Company’s control. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements.

 

Unearned Revenue

 

The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancelable license and services starting in future periods are included in accounts receivable and unearned revenue.

 

Practical Expedients and Exemptions

 

There are several practical expedients and exemptions allowed under Topic 606 that impact timing of revenue recognition and the Company’s disclosures. The Company has applied the following practical expedients:

 

The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer.

 

The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations.

 

The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements).

 

Costs to Obtain a Contract

 

The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, the Company incurs few direct incremental costs of obtaining new customer contracts. The Company rarely incurs incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, the Company’s sales personnel receive fees that are referred to as commissions, but that are based on more than simply signing up new customers. The Company’s sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts.

 

Page 16

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 4 – EARNINGS PER SHARE

 

Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and stock awards.

 

The components of basic and diluted earnings per share were as follows:

 

   For the three months ended September 30, 2024 
   Net Income   Shares   Per Share 
Basic income per share:               
Net income available to common shareholders  $70,795    11,429,695   $0.006 
Effect of dilutive securities               
Stock options   -    53,059    - 
Diluted income per share  $70,795    11,482,754   $0.006 

 

   For the three months ended September 30, 2023 
   Net Income   Shares   Per Share 
             
Basic income per share:               
Net income available to common shareholders  $30,890    11,345,856   $0.003 
Effect of dilutive securities               
Share grants   -    -    - 
Diluted income per share  $30,890    11,345,856   $0.003 

 

NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY

 

The following table represents the functional currencies of the Company and its subsidiaries:

 

The Company and Subsidiaries  Functional Currency
    
NetSol Technologies, Inc.  USD
NTA  USD
Otoz  USD
NTE  British Pound
AEL  British Pound
VLSH  British Pound
VLS  British Pound
VLSIL  Euro
NetSol PK  Pakistan Rupee
Connect  Pakistan Rupee
NetSol Innovation  Pakistan Rupee
NetSol Thai  Thai Bhat
Otoz Thai  Thai Bhat
Australia  Australian Dollar
Namecet  AED
NetSol Beijing  Chinese Yuan
Tianjin  Chinese Yuan

 

Page 17

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the average exchange rate throughout the period. Accumulated translation losses classified as an item of accumulated other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet were $46,049,023 and $45,935,616 as of September 30, 2024 and June 30, 2024, respectively. During the three months ended September 30, 2024 and 2023, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol of $113,407 and $436,546, respectively.

 

NOTE 6 – MAJOR CUSTOMERS

 

During the three months ended September 30, 2024, revenues from Daimler Financial Services (“DFS”) and BMW Financial (“BMW”) were $3,217,541 and $2,472,701, respectively representing 22.3% and 17.1%, respectively of revenues. During the three months ended September 30, 2023, revenues from DFS and BMW were $3,687,631 and $1,058,137, respectively representing 25.9% and 7.4%, respectively of revenues. The revenues from DFS are shown in the Asia – Pacific segment. The revenues from BMW are shown in the Asia – Pacific and North America segments.

 

Accounts receivable from DFS and BMW at September 30, 2024, were $478,783 and $161,788, respectively. Accounts receivable from DFS and BMW at June 30, 2024, were $538,648 and $505,875, respectively. Revenues in excess of billings at September 30, 2024, were $716,952 and $542,374, respectively. Revenues in excess of billings at June 30, 2024, were $892,109 and $1,419,997, respectively.

 

NOTE 7 - OTHER CURRENT ASSETS

 

Other current assets consisted of the following:

 

   As of  As of
   September 30, 2024  June 30, 2024
       
 Prepaid Expenses  $1,499,275   $1,314,524 
 Advance Income Tax   378,489    300,368 
 Employee Advances   161,035    165,264 
 Security Deposits   207,129    199,633 
 Other Receivables   463,304    258,880 
 Other Assets   618,880    362,117 
 Net Balance  $3,328,112   $2,600,786 

  

NOTE 8 – REVENUES IN EXCESS OF BILLINGS – LONG TERM

 

Revenues in excess of billings, net consisted of the following:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
         
Revenues in excess of billings - long term  $1,000,255   $1,106,475 
Present value discount   (133,867)   (152,446)
Net Balance  $866,388   $954,029 

 

Pursuant to revenue recognition for contract accounting, the Company has recorded revenues in excess of billings long-term for amounts billable after one year. During the three months ended September 30, 2024 and 2023, the Company accreted $18,367 and $6,155, respectively, which was recorded in interest income for that period. The Company used the discounted cash flow method with interest rates ranging from 7.3% to 17.5%, for the period ended September, 30, 2024 and June 30, 2024.

 

Page 18

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 9 - PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
         
Office Furniture and Equipment  $2,460,155   $2,352,940 
Computer Equipment   8,937,643    8,679,791 
Assets Under Capital Leases   161,298    154,718 
Building   3,610,337    3,602,819 
Land   915,479    913,473 
Autos   1,681,785    1,658,961 
Improvements   220,748    206,387 
Subtotal   17,987,445    17,569,089 
Accumulated Depreciation   (13,139,576)   (12,462,247)
Property and Equipment, Net  $4,847,869   $5,106,842 

 

For the three months ended September 30, 2024 and 2023, depreciation expense totaled $365,997 and $404,745, respectively. Of these amounts, $228,550 and $266,942, respectively, are reflected in cost of revenues.

 

Following is a summary of fixed assets held under finance leases as of September 30, 2024 and June 30, 2024:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
Vehicles  $161,298   $154,718 
Total   161,298    154,718 
Less: Accumulated Depreciation - Net   (39,690)   (25,078)
Fixed assets held under capital leases, Total  $121,608   $129,640 

 

Finance lease term and discount rate were as follows:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
         
Weighted average remaining lease term - Finance leases    2.5 Years     2.75 Years 
           
Weighted average discount rate - Finance leases   11.3%   11.3%

 

Page 19

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 10 - LEASES

 

The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years.

 

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value.

 

The Company reviews the impairment of ROU assets consistent with the approach applied to the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

 

The Company elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from ROU asset and lease liability accounts.

 

Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a re-measurement of lease liabilities. The Company’s variable lease payments include payments for finance leases that are adjusted based on a change in the Karachi Inter Bank Offer Rate. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants.

 

Supplemental balance sheet information related to leases was as follows:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
Assets          
Operating lease assets, net  $1,216,835   $1,328,624 
           
Liabilities          
Current          
Operating  $590,541   $608,202 
Non-current          
Operating   594,631    688,749 
Total Lease Liabilities  $1,185,172   $1,296,951 

 

Page 20

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

The components of lease cost were as follows:

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
         
Amortization of finance lease assets  $13,877   $2,296 
Interest on finance lease obligation   3,087    869 
Operating lease cost   99,846    107,033 
Short term lease cost   49,563    41,008 
Sub lease income   (8,406)   (8,406)
Total lease cost  $157,967   $142,800 

 

Lease term and discount rate were as follows:

 

   As of   As of 
   September 30, 2024   June 30, 2024 
         
Weighted average remaining lease term - Operating leases   1.79 Years    1.99 Years 
           
Weighted average discount rate - Operating leases   4.5%   4.5%

 

Supplemental disclosures of cash flow information related to leases were as follows:

 

   2024   2023 
   For the Three Months 
   Ended September 30, 
   2024   2023 
         
         
Operating cash flows related to operating leases  $91,641   $61,696 
           
Operating cash flows related to finance leases  $3,087   $869 
           
Financing cash flows related finance leases  $5,516   $8,078 

 

Page 21

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

Maturities of operating lease liabilities were as follows as of September 30, 2024:

 

   Amount 
Within year 1  $641,066 
Within year 2   401,625 
Within year 3   147,504 
Within year 4   85,855 
Within year 5   356 
Total Lease Payments   1,276,406 
Less: Imputed interest   (91,234)
Present Value of lease liabilities   1,185,172 
Less:  Current portion   (590,541)
Non-Current portion  $594,631 

 

The Company is a lessor for certain office space leased by the Company and sub-leased to others under non-cancelable leases. These lease agreements provide for a fixed base rent and are currently on a month-by-month basis. All leases are considered operating leases. There are no rights to purchase the premises and no residual value guarantees. For the three months ended September 30, 2024 and 2023, the Company received lease income of $8,406 and $8,406, respectively.

 

NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following:

 

   As of   As of 
   September 30, 2024   June 30,
2024
 
         
Accounts Payable  $1,465,153   $1,426,930 
Accrued Liabilities   4,264,237    4,323,662 
Accrued Payroll   1,652,824    1,392,112 
Accrued Payroll Taxes   176,993    215,197 
Taxes Payable   639,242    634,035 
Other Payable   216,341    240,406 
Total  $8,414,790   $8,232,342 

 

Page 22

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

NOTE 12 – DEBTS

 

Notes payable and finance leases consisted of the following:

 

      As of September 30, 2024 
          Current   Long-Term 
Name     Total   Maturities   Maturities 
                
D&O Insurance  (1)  $23,706   $23,706   $- 
Line of Credit  (2)   250,000    250,000    - 
Bank Overdraft Facility  (3)   -    -    - 
Loan Payable Bank - Export Refinance  (4)   1,800,504    1,800,504    - 
Loan Payable Bank - Running Finance  (5)   -    -    - 
Loan Payable Bank - Export Refinance II  (6)   1,368,383    1,368,383    - 
Loan Payable Bank - Export Refinance III  (7)   2,520,706    2,520,706    - 
Sale and Leaseback Financing  (8)   44,746    39,789    4,957 
Short Term Financing  (9)   427,960    427,960    - 
       6,436,005    6,431,048    4,957 
Subsidiary Finance Leases  (10)   100,570    12,889    87,681 
      $6,536,575   $6,443,937   $92,638 

 

      As of June 30, 2024 
          Current   Long-Term 
Name     Total   Maturities   Maturities 
                
D&O Insurance  (1)  $124,314   $124,314   $- 
Line of Credit  (2)   -    -    - 
Bank Overdraft Facility  (3)   -    -    - 
Loan Payable Bank - Export Refinance  (4)   1,796,558    1,796,558    - 
Loan Payable Bank - Running Finance  (5)   -    -    - 
Loan Payable Bank - Export Refinance II  (6)   1,365,384    1,365,384    - 
Loan Payable Bank - Export Refinance III  (7)   2,515,181    2,515,181    - 
Sale and Leaseback Financing  (8)   56,842    47,158    9,684 
Short Term Financing  (9)   412,655    412,655    - 
       6,270,934    6,261,250    9,684 
Subsidiary Finance Leases  (10)   100,962    14,875    86,087 
      $6,371,896   $6,276,125   $95,771 

 

(1)The Company finances Directors’ and Officers’ (“D&O”) liability insurance and Errors and Omissions (“E&O”) liability insurance, for which the D&O and E&O balances are renewed on an annual basis and, as such, are recorded in current maturities. The interest rate on these financings were ranging from 8.6% to 10.9% as of September 30, 2024 and June 30, 2024.

 

(2)The Company has an uncommitted discretionary demand line of credit up to an aggregate amount of $1,000,000 with HSBC, secured by a lien on the Company’s assets. The annual interest rate was 8.25% at September 30, 2024 and 8.75% as of June 30, 2024. The total outstanding balance as of September 30, 2024 and June 30, 2024 was $250,000 and $nil, respectively.

 

Page 23

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

September 30, 2024

(Unaudited)

 

(3)The Company’s subsidiary, NTE, has an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts up to £300,000, or approximately $400,000. The annual interest rate was 9.5% as of September 30, 2024 and June 30, 2024. The total outstanding balance as of September 30, 2024 and June 30, 2024 was £Nil.

 

This overdraft facility requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. As of September 30, 2024, NTE w