NetSol(NTWK) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements, including balance sheets, operations, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Total assets | $64,815,899 | $72,608,632 | | Total liabilities | $20,454,787 | $21,754,409 | | Total stockholders' equity | $44,361,112 | $50,854,223 | | Cash and cash equivalents | $20,946,722 | $23,963,797 | | Accounts receivable, net | $4,595,675 | $8,669,202 | | Total current assets | $43,076,510 | $49,428,136 | | Total current liabilities | $19,358,221 | $20,830,926 | Condensed Consolidated Statements of Operations | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total net revenues | $12,390,358 | $15,472,962 | $25,096,477 | $28,893,723 | | Gross profit | $3,142,463 | $7,642,587 | $7,394,460 | $13,085,610 | | Loss from operations | $(3,046,514) | $1,653,868 | $(4,942,705) | $1,014,258 | | Net income (loss) | $(2,401,963) | $2,438,548 | $(2,839,934) | $2,989,043 | | Net income (loss) attributable to NetSol | $(2,092,926) | $1,406,785 | $(2,713,655) | $1,594,754 | | Basic EPS | $(0.19) | $0.13 | $(0.24) | $0.14 | | Diluted EPS | $(0.19) | $0.13 | $(0.24) | $(0.14) | Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) | $(2,092,926) | $1,406,785 | $(2,713,655) | $1,594,754 | | Net translation adjustment | $269,795 | $(921,743) | $(2,648,255) | $(3,067,148) | | Comprehensive income (loss) attributable to NetSol | $(1,823,131) | $485,042 | $(5,361,910) | $(1,472,394) | Condensed Consolidated Statements of Stockholders' Equity | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Common Stock Shares | 12,222,985 | 12,196,570 | | Common Stock Amount | $122,231 | $121,966 | | Additional Paid-in Capital | $128,484,714 | $128,218,247 | | Accumulated Deficit | $(42,366,093) | $(39,652,438) | | Other Comprehensive Loss | $(42,011,340) | $(39,363,085) | | Total NetSol stockholders' equity | $40,308,656 | $45,403,834 | | Non-controlling interest | $4,052,456 | $5,450,389 | | Total stockholders' equity | $44,361,112 | $50,854,223 | - During the three and six months ended December 31, 2022, the Company issued 13,755 shares and 26,415 shares of common stock, respectively, for services rendered by independent Board members, valued at $39,750 and $79,500[132] Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $1,689,543 | $(3,036,634) | | Net cash used in investing activities | $(1,182,042) | $(572,180) | | Net cash used in financing activities | $(537,180) | $(626,955) | | Net decrease in cash and cash equivalents | $(3,017,075) | $(8,117,639) | | Cash and cash equivalents at end of period | $20,946,722 | $25,587,515 | Notes to the Condensed Consolidated Financial Statements NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION Outlines the Company's global software and IT services, interim financial statements, and consolidated subsidiaries - NETSOL Technologies, Inc. provides IT and enterprise software solutions, primarily for automobile financing, leasing, banking, and financial services industries worldwide[26] - The consolidated financial statements include accounts of wholly-owned subsidiaries (e.g., NetSol Technologies Americas, NetSol Technologies Europe) and majority-owned subsidiaries (e.g., NetSol Technologies, Ltd., Otoz, Inc.)[29][30] NOTE 2 – ACCOUNTING POLICIES Details key accounting policies, estimates for doubtful accounts, taxation, asset lives, and fair value measurements - The Company's financial statements rely on significant estimates for areas such as doubtful accounts, taxation, useful lives of assets, and contingencies[32] - The Company is exposed to concentration of credit risk, particularly with uninsured cash deposits in foreign entities, totaling approximately $18.6 million as of December 31, 2022[33] | Financial Asset (Level 3) | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Revenues in excess of billings - long term | $604,358 | $853,601 | NOTE 3 – REVENUE RECOGNITION Explains revenue recognition, categorizing core and non-core streams, and pricing judgments - The Company's revenue streams are divided into core (software licenses, services, subscription and support) and non-core (BPO, other IT services, internet services)[44][45][46] - Subscription revenue is recognized ratably over the initial subscription period (typically 12-60 months), while professional services revenue is recognized over time based on costs incurred or hours expended[52][54] | Revenue Category | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :----------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Core Revenue: | | | | | | License | $15,884 | $1,955,331 | $265,844 | $1,966,047 | | Subscription and support | $6,502,669 | $9,374,869 | $12,519,503 | $15,605,258 | | Services | $4,818,461 | $2,867,515 | $10,239,827 | $8,723,794 | | Total core revenue, net | $11,337,014 | $14,197,715 | $23,025,174 | $26,295,099 | | Non-Core Revenue: | | | | | | Services | $1,053,344 | $1,275,247 | $2,071,303 | $2,598,624 | | Total non-core revenue, net | $1,053,344 | $1,275,247 | $2,071,303 | $2,598,624 | | Total net revenue | $12,390,358 | $15,472,962 | $25,096,477 | $28,893,723 | - Contracted but unsatisfied performance obligations were approximately $36,000,000 as of December 31, 2022, with an estimated $14,500,000 to be recognized in the next 12 months[72] NOTE 4 – EARNINGS PER SHARE Explains basic and diluted EPS calculation, with no dilutive instruments for the periods ended December 31, 2022 and 2021 - Basic and diluted EPS calculations for the three and six months ended December 31, 2022 and 2021 did not include any dilutive instruments[80] NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY Details foreign currency translation adjustments impacting comprehensive income, including accumulated losses and period-specific gains/losses - Accumulated translation losses in stockholders' equity were $42,011,340 as of December 31, 2022, compared to $39,363,085 as of June 30, 2022[81] | Metric | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2022 | | :------------------------------------ | :------------------------------ | :---------------------------- | | Translation adjustment attributable to NetSol | $269,795 (gain) | $(2,648,255) (loss) | NOTE 6 – MAJOR CUSTOMERS Identifies Daimler Financial Services and BMW Financial as major customers, detailing revenue and related receivables changes | Customer | Six Months Ended Dec 31, 2022 Revenue | % of Total Revenue (2022) | Six Months Ended Dec 31, 2021 Revenue | % of Total Revenue (2021) | | :--------------- | :------------------------------------ | :------------------------ | :------------------------------------ | :------------------------ | | Daimler Financial Services (DFS) | $7,069,884 | 28.2% | $11,421,688 | 39.5% | | BMW Financial (BMW) | $2,314,744 | 9.2% | $1,531,588 | 5.3% | | Customer | Accounts Receivable (Dec 31, 2022) | Accounts Receivable (June 30, 2022) | Revenues in Excess of Billings (Dec 31, 2022) | Revenues in Excess of Billings (June 30, 2022) | | :--------------- | :--------------------------------- | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | DFS | $357,164 | $2,005,463 | $3,535,799 | $365,863 | | BMW | $360,703 | $2,498,645 | $2,252,994 | $2,199,381 | NOTE 7 – CONVERTIBLE NOTES RECEIVABLE – RELATED PARTY Details convertible notes receivable from WRLD3D, a related party, with a full allowance for doubtful accounts and zero net balance - The Company has convertible notes receivable from WRLD3D totaling $4,250,000, with accrued interest of $701,062, but a full allowance for doubtful accounts has been recorded, resulting in a net balance of $0[87][88] NOTE 8 - OTHER CURRENT ASSETS Details other current assets, including prepaid expenses and receivables, with a full allowance for doubtful accounts on related party balances | Category | December 31, 2022 | June 30, 2022 | | :-------------------- | :------------------ | :------------ | | Prepaid Expenses | $1,634,444 | $1,389,370 | | Advance Income Tax | $240,223 | $202,783 | | Employee Advances | $109,972 | $87,627 | | Security Deposits | $234,638 | $236,909 | | Other Receivables | $52,470 | $21,581 | | Other Assets