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 December 31, 2022

☐ 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)

23975 Park Sorrento, Suite 250, Calabasas, CA 91302

(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 12,222,985 shares issued and 11,283,954 outstanding of its $.01 par value Common Stock and no Preferred Stock outstanding as of February 10, 2023.

NETSOL TECHNOLOGIES, INC.

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets as of December 31, 2022 and June 30, 2022		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2022 and 2021		4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2022 and 2021		5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2022 and 2021		6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and 2021		8
Notes to the Condensed Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33
Item 3. Quantitative and Qualitative Disclosures about Market Risk		48
Item 4. Controls and Procedures		48

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		49
Item 1A Risk Factors		49
Item 2. Unregistered Sales of Equity and Use of Proceeds		49
Item 3. Defaults Upon Senior Securities		49
Item 4. Mine Safety Disclosures		49
Item 5. Other Information		49
Item 6. Exhibits		49

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
		December 31, 2022			June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	20,946,722		$	23,963,797
Accounts receivable, net of allowance of $163,111 and $166,231		4,595,675			8,669,202
Revenues in excess of billings, net of allowance of $49,614 and $136,976		14,785,593			14,571,776
Other current assets, net of allowance of $1,243,633 and $1,243,633		2,748,520			2,223,361
Total current assets		43,076,510			49,428,136
Revenues in excess of billings, net - long term		604,358			853,601
Convertible note receivable - related party, net of allowance of $4,250,000 and $4,250,000		-			-
Property and equipment, net		8,719,657			9,382,624
Right of use of assets - operating leases		1,246,778			969,163
Long term investment		1,064,501			1,059,368
Other assets		532			25,546
Intangible assets, net		801,039			1,587,670
Goodwill		9,302,524			9,302,524
Total assets	$	64,815,899		$	72,608,632

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,423,248		$	6,813,541
Current portion of loans and obligations under finance leases		7,386,750			8,567,145
Current portion of operating lease obligations		499,455			548,678
Unearned revenue		4,048,768			4,901,562
Total current liabilities		19,358,221			20,830,926
Loans and obligations under finance leases; less current maturities		306,945			476,223
Operating lease obligations; less current maturities		789,621			447,260
Total liabilities		20,454,787			21,754,409
Commitments and contingencies		-			-
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 12,222,985 shares issued and 11,283,954 outstanding as of December 31, 2022 and 12,196,570 shares issued and 11,257,539 outstanding as of June 30, 2022		122,231			121,966
Additional paid-in-capital		128,484,714			128,218,247
Treasury stock (at cost, 939,031 sharesand as of December 31, 2022 and June 30, 2022)		(3,920,856	)		(3,920,856	)
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
Total liabilities and stockholders’ equity	$	64,815,899		$	72,608,632

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)

	2022			2021			2022			2021
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2022			2021			2022			2021
Net Revenues:
License fees	$	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		5,871,805			4,142,762			12,311,130			11,322,418
Total net revenues		12,390,358			15,472,962			25,096,477			28,893,723

Cost of revenues:
Salaries and consultants		6,942,171			5,661,917			13,028,906			11,324,327
Travel		635,298			282,836			1,027,643			496,968
Depreciation and amortization		693,278			728,868			1,347,327			1,494,603
Other		977,148			1,156,754			2,298,141			2,492,215
Total cost of revenues		9,247,895			7,830,375			17,702,017			15,808,113

Gross profit		3,142,463			7,642,587			7,394,460			13,085,610

Operating expenses:
Selling and marketing		2,007,462			1,807,162			3,769,639			3,427,155
Depreciation and amortization		198,222			212,864			389,176			427,135
General and administrative		3,510,389			3,733,303			7,235,819			7,706,442
Research and development cost		472,904			235,390			942,531			510,620
Total operating expenses		6,188,977			5,988,719			12,337,165			12,071,352

Loss from operations		(3,046,514	)		1,653,868			(4,942,705	)		1,014,258

Other income and (expenses)
Gain (loss) on sale of assets		5,048			(80,125	)		28,344			(190,725	)
Interest expense		(202,363	)		(90,808	)		(323,973	)		(191,821	)
Interest income		309,906			316,253			741,763			759,386
Gain on foreign currency exchange transactions		657,223			901,016			1,972,928			2,185,164
Share of net loss from equity investment		5,133			(79,818	)		5,133			(240,783	)
Other income (expense)		89,660			19,668			91,980			22,697
Total other income (expenses)		864,607			986,186			2,516,175			2,343,918

Net income (loss) before income taxes		(2,181,907	)		2,640,054			(2,426,530	)		3,358,176
Income tax provision		(220,056	)		(201,506	)		(413,404	)		(369,133	)
Net income (loss)		(2,401,963	)		2,438,548			(2,839,934	)		2,989,043
Non-controlling interest		309,037			(1,031,763	)		126,279			(1,394,289	)
Net income (loss) attributable to NetSol	$	(2,092,926	)	$	1,406,785		$	(2,713,655	)	$	1,594,754

Net income (loss) per share:
Net income (loss) per common share
Basic	$	(0.19	)	$	0.13		$	(0.24	)	$	0.14
Diluted	$	(0.19	)	$	0.13		$	(0.24	)	$	0.14

Weighted average number of shares outstanding
Basic		11,270,199			11,244,539			11,263,869			11,249,372
Diluted		11,270,199			11,244,539			11,263,869			11,249,372

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)

	2022			2021			2022			2021
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2022			2021			2022			2021
Net income (loss)	$	(2,092,926	)	$	1,406,785		$	(2,713,655	)	$	1,594,754
Other comprehensive income (loss):
Translation adjustment		352,175			(1,466,995	)		(3,799,344	)		(4,751,391	)
Translation adjustment attributable to non-controlling interest		(82,380	)		545,252			1,151,089			1,684,243
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	)

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 December 31, 2022 is provided below:

	Shares		Amount		Capital		Shares			Deficit			Loss			Interest			Equity
													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 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 December 31, 2021 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, 2021		12,183,570	$	121,836	$	129,030,982	$	(3,920,856	)	$	(38,613,313	)	$	(34,013,886	)	$	6,438,841		$	59,043,604
Common stock issued for:
Services		2,500		25		9,875		-			-			-			-			9,900
Fair value of subsidiary options issued		-		-		1,164		-			-			-			-			1,164
Foreign currency translation adjustment		-		-		-		-			-			(921,743	)		(545,252	)		(1,466,995	)
Net income for the year		-		-		-		-			1,406,785			-			1,031,763			2,438,548
Balance at December 31, 2021		12,186,070	$	121,861	$	129,042,021	$	(3,920,856	)	$	(37,206,528	)	$	(34,935,629	)	$	6,925,352		$	60,026,221

A statement of the changes in equity for the three months ended September 30, 2021 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, 2021		12,181,585	$	121,816	$	129,018,826	$	(3,820,750	)	$	(38,801,282	)	$	(31,868,481	)	$	7,215,473		$	61,865,602
Beginning balance		12,181,585	$	121,816	$	129,018,826	$	(3,820,750	)	$	(38,801,282	)	$	(31,868,481	)	$	7,215,473		$	61,865,602
Subsidiary common stock issued for:
-Services		-		-		167		-			-			-			(167	)		-
Common stock issued for:
Services		1,985		20		11,989		-			-			-			-			12,009
Purchase of treasury shares		-		-		-		(100,106	)		-			-			-			(100,106	)
Foreign currency translation adjustment		-		-		-		-			-			(2,145,405	)		(1,138,991	)		(3,284,396	)
Net income		-		-		-		-			187,969			-			362,526			550,495
Net income (loss) for the year		-		-		-		-			187,969			-			362,526			550,495
Balance at September 30, 2021		12,183,570	$	121,836	$	129,030,982	$	(3,920,856	)	$	(38,613,313	)	$	(34,013,886	)	$	6,438,841		$	59,043,604
Ending balance		12,183,570	$	121,836	$	129,030,982	$	(3,920,856	)	$	(38,613,313	)	$	(34,013,886	)	$	6,438,841		$	59,043,604

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

(Unaudited)

	2022			2021
	For the Six Months
	Ended December 31,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	(2,839,934	)	$	2,989,043
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,736,503			1,921,738
Provision for bad debts		(67,176	)		(33,815	)
Share of net (gain) loss from investment under equity method		(5,133	)		240,783
(Gain) loss on sale of assets		(28,344	)		190,725
Stock based compensation		146,167			28,292
Changes in operating assets and liabilities:
Accounts receivable		3,772,091			(3,243,348	)
Revenues in excess of billing		(702,812	)		(4,741,806	)
Other current assets		(529,579	)		304,464
Accounts payable and accrued expenses		904,731			56,539
Unearned revenue		(696,971	)		(749,249	)
Net cash provided by (used in) operating activities		1,689,543			(3,036,634	)

Cash flows from investing activities:
Purchases of property and equipment		(1,252,325	)		(773,953	)
Sales of property and equipment		70,283			201,773
Net cash used in investing activities		(1,182,042	)		(572,180	)

Cash flows from financing activities:
Purchase of treasury stock		-			(100,106	)
Proceeds from bank loans		-			188,272
Payments on finance lease obligations and loans - net		(537,180	)		(715,121	)
Net cash used in financing activities		(537,180	)		(626,955	)
Effect of exchange rate changes		(2,987,396	)		(3,881,870	)
Net decrease in cash and cash equivalents		(3,017,075	)		(8,117,639	)
Cash and cash equivalents at beginning of the period		23,963,797			33,705,154
Cash and cash equivalents at end of period	$	20,946,722		$	25,587,515

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 (CONTINUED)

(UNAUDITED)

	For the Six Months
	Ended December 31,
	2022		2021
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	226,271	$	238,569
Taxes	$	395,710	$	390,307

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares issued to vendor for services received	$	-	$	9,900

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

Page 9

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements
December 31, 2022

(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, 2022. 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”)

NTPK (Thailand) Co. Limited (“NTPK Thailand”)

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 Technologies Thailand Limited (“NetSol Thai”)

Otoz, Inc. (“Otoz”)

Otoz (Thailand) Limited (“Otoz Thai”)

Page 10

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(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 ($72,464) in each bank and in the UK for GBP 85,000 ($102,410) in each bank. The Company maintains three bank accounts in China and nine bank accounts in the UK. As of December 31, 2022, and June 30, 2022, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $18,568,700 and $22,758,963, 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 convertible note receivable and 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 11

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

The Company’s financial assets that were measured at fair value on a recurring basis as of December 31, 2022, were as follows:

	Level 1		Level 2		Level 3		Total Assets
Revenues in excess of billings - long term	$	-	$	-	$	604,358	$	604,358
Total	$	-	$	-	$	604,358	$	604,358

The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2022, were as follows:

	Level 1		Level 2		Level 3		Total Assets
Revenues in excess of billings - long term	$	-	$	-	$	853,601	$	853,601
Total	$	-	$	-	$	853,601	$	853,601

The reconciliation from June 30, 2022 to December 31, 2022 is as follows:

	Revenues in excess of billings - long term			Fair value discount			Total
Balance at June 30, 2022	$	881,940		$	(28,339	)	$	853,601
Amortization during the period		-			18,657			18,657
Transfers to short term		(268,116	)		-			(268,116	)
Effect of Translation Adjustment		(90	)		306			216
Balance at December 31, 2022	$	613,734		$	(9,376	)	$	604,358

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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. ASU 2021-08 is effective for annual periods beginning after December 15, 2022, and interim periods within those years, with early adoption permitted. The Company does not expect the standard to have a material effect on its consolidated financial statements.

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

Page 12

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(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 13

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(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, a majority of 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.

Page 14

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

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.

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

	2022		2021		2022		2021
	For the Three Months				For the Six Months
	Ended December 31,				Ended December 31,
	2022		2021		2022		2021
Core:
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:
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

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 “man-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 man-days required to complete implementation and customization services each reporting period.

Page 15

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

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.

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
	December 31, 2022		June 30, 2022

Revenues in excess of billings	$	15,389,951	$	15,425,377

Unearned revenue	$	4,048,768	$	4,901,562

During the three and six months ended December 31, 2022, the Company recognized revenue of $675,857 and $2,784,572 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 16

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

Revenue allocated to 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 $36,000,000 as of December 31, 2022, of which the Company estimates to recognize approximately $14,500,000 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 17

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(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. During the three and six months ended December 31, 2022 and 2021, there were no outstanding dilutive instruments.

NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY

The accounts of NTE, AEL, VLSH and VLS use the British Pound; VLSIL uses the Euro; NetSol PK, Connect, and NetSol Innovation use the Pakistan Rupee; NTPK Thailand, NetSol Thai and Otoz Thai use the Thai Baht; Australia uses the Australian dollar; and NetSol Beijing and Tianjin use the Chinese Yuan as the functional currencies. NetSol Technologies, Inc., and its subsidiaries, NTA and Otoz, use the U.S. dollar as the functional currency. 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 $42,011,340 and $39,363,085 as of December 31, 2022 and June 30, 2022, respectively. During the three and six months ended December 31, 2022, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a $269,795 translation gain attributable to NetSol and a $(2,648,255) translation loss attributable to NetSol, respectively. During the three and six months ended December 31, 2021, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol of $(921,743) and $(3,067,148), respectively.

NOTE 6 – MAJOR CUSTOMERS

During the six months ended December 31, 2022, revenues from Daimler Financial Services (“DFS”) and BMW Financial (“BMW”) were $7,069,884, and $2,314,744, respectively representing 28.2% and 9.2%, respectively of revenues. During the six months ended December 31, 2021, revenues from Daimler Financial Services (“DFS”) and BMW Financial (“BMW”) were $11,421,688 and $1,531,588, respectively representing 39.5% and 5.3%, respectively of revenues. The revenue from these customers is shown in the Asia – Pacific segment.

Accounts receivable from DFS and BMW at December 31, 2022, were $357,164 and $360,703, respectively. Accounts receivable at June 30, 2022, were $2,005,463 and $2,498,645, respectively. Revenues in excess of billings at December 31, 2022 were $3,535,799 and $2,252,994 for DFS and BMW, respectively. Revenues in excess of billings at June 30, 2022, were $365,863 and $2,199,381 for DFS and BMW, respectively.

NOTE 7 – CONVERTIBLE NOTES RECEIVABLE – RELATED PARTY

The Company has entered into multiple convertible note receivable agreements with WRLD3D. The convertible notes bear interest ranging from 5% to 10% with various maturity dates. The convertible notes have conversion features which allow the Company to convert the notes into shares of WRLD3D stock upon the occurrence of certain events. The Company has a security interest in all of WRLD3D’s personal property, inventory, equipment, general intangibles, financial assets, investment property, securities, deposit accounts and the proceeds thereof.

Page 18

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

The following table summarizes the convertible notes receivable from WRLD3D.

SCHEDULE OF CONVERTIBLE NOTES

					Convertible
Agreement	Interest		Maturity		Note			Accrued
Date	Rate		Date		Amount			Interest
May 25, 2017		5%		March 2, 2018	$	750,000		$	110,202
February 9, 2018		10%		March 31, 2019		2,500,000			500,773
April 1, 2019		10%		March 31, 2020		600,000			57,648
August 19, 2019		10%		March 31, 2020		400,000			32,439
						4,250,000			701,062
Less allowance for doubtful account						(4,250,000	)		(701,062	)
Net Balance					$	-		$	-

The Company has accrued interest of $701,062 at December 31, 2022 and June 30, 2022, which is included in “Other current assets”. As of July 1, 2020, the Company stopped accruing interest.

NOTE 8 - OTHER CURRENT ASSETS

Other current assets consisted of the following:

SCHEDULE OF OTHER CURRENT ASSETS

	As of			As of
	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		476,773			285,091
Due From Related Party		1,243,633			1,243,633
Total		3,992,153			3,466,994
Less allowance for doubtful account		(1,243,633	)		(1,243,633	)
Net Balance	$	2,748,520		$	2,223,361

Due from related party is the amount receivable from WRLD3D for which the Company has provided an allowance for credit loss for the full amount, leaving a net balance of $0.

Page 19

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

NOTE 9 – REVENUES IN EXCESS OF BILLINGS – LONG TERM

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

	As of			As of
	December 31, 2022			June 30, 2022

Revenues in excess of billings - long term	$	613,734		$	881,940
Present value discount		(9,376	)		(28,339	)
Net Balance	$	604,358		$	853,601

Pursuant to revenue recognition for contract accounting, the Company had recorded revenues in excess of billings long-term for amounts billable after one year. During the three and six months ended December 31, 2022, the Company accreted $9,288 and $18,657, respectively. During the three and six months ended December 31, 2021, the Company accreted $9,539 and $19,041, respectively, which was recorded in interest income for that period. The Company used the discounted cash flow method with interest rates ranging from 4.65% to 6.25%.

NOTE 10 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT

	As of			As of
	December 31, 2022			June 30, 2022

Office Furniture and Equipment	$	2,905,429		$	3,021,586
Computer Equipment		11,712,255			11,388,856
Assets Under Capital Leases		59,033			305,081
Building		4,387,210			4,818,650
Land		1,122,819			1,237,965
Autos		2,500,251			2,503,990
Improvements		228,291			175,560
Subtotal		22,915,288			23,451,688
Accumulated Depreciation		(14,195,631	)		(14,069,064	)
Property and Equipment, Net	$	8,719,657		$	9,382,624

For the three and six months ended December 31, 2022, depreciation expense totaled $568,828 and $1,091,011, respectively. Of these amounts, $370,606 and $701,835, respectively, are reflected in cost of revenues. For the three and six months ended December 31, 2021, depreciation expense was $527,463 and $1,067,185, respectively. Of these amounts, $314,599 and $640,050, respectively, are reflected in cost of revenues.

Following is a summary of fixed assets held under finance leases as of December 31, 2022 and June 30, 2022:

	As of			As of
	December 31, 2022			June 30, 2022
Vehicles	$	59,033		$	305,081
Total		59,033			305,081
Less: Accumulated Depreciation - Net		(16,117	)		(145,658	)
	$	42,916		$	159,423

Page 20

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

Finance lease term and discount rate were as follows:

SCHEDULE OF FINANCE LEASE TERM

	As of			As of
	December 31, 2022			June 30, 2022

Weighted average remaining lease term - Finance leases		1.66 Years			2.39 Years

Weighted average discount rate - Finance leases		16.5	%		12.5	%

NOTE 11 - 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 for 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.

Page 21

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

Supplemental balance sheet information related to leases was as follows:

	As of		As of
	December 31, 2022		June 30, 2022
Assets
Operating lease assets, net	$	1,246,778	$	969,163

Liabilities
Current
Operating	$	499,455	$	548,678
Operating, Current	$	499,455	$	548,678
Non-current
Operating		789,621		447,260
Operating, Current		789,621		447,260
Total Lease Liabilities	$	1,289,076	$	995,938

The components of lease cost were as follows:

SCHEDULE OF COMPONENTS OF LEASE COST

	2022			2021			2022			2021
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2022			2021			2022			2021

Amortization of finance lease assets	$	3,099		$	21,895		$	5,995		$	42,928
Interest on finance lease obligation		1,552			3,212			3,359			8,148
Operating lease cost		113,079			97,827			231,601			380,778
Short term lease cost		37,986			38,781			104,622			38,781
Sub lease income		(7,786	)		(8,950	)		(15,598	)		(18,105	)
Total lease cost	$	147,930		$	152,765		$	329,979		$	452,530

Lease term and discount rate were as follows:

	As of			As of
	December 31, 2022			June 30, 2022

Weighted average remaining lease term - Operating leases		3.31 Years			3.34 Years

Weighted average discount rate - Operating leases		3.6	%		4.2	%

Page 22

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

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

		1		2
	For the Six Months
	Ended December 31
	2022		2021

Operating cash flows related to operating leases	$	236,311	$	369,175

Operating cash flows related to finance leases	$	3,358	$	3,531

Financing cash flows related finance leases	$	16,230	$	54,844

Maturities of operating lease liabilities were as follows as of December 31, 2022:

	Amount
Within year 1	$	534,010
Within year 2		373,602
Within year 3		324,306
Within year 4		120,543
Within year 5		583
Thereafter		874
Total Lease Payments		1,353,918
Less: Imputed interest		(64,842	)
Present Value of lease liabilities		1,289,076
Less: Current portion		(499,455	)
Non-Current portion	$	789,621

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 and six months ended December 31, 2022, the Company received lease income of $7,786 and $15,598, respectively. For the three and six months ended December 31, 2021, the Company received lease income of $8,950 and $18,105, respectively.

Page 23

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

NOTE 12 – LONG TERM INVESTMENT

Drivemate – Related Party

The Company and Drivemate Co., Ltd. (“Drivemate”) entered into a subscription agreement on April 25, 2019, (“Drivemate Agreement”) whereby the Company purchased an equity interest of 30% in Drivemate. Per the Drivemate Agreement, the Company purchased 5,469 preferred shares for $1,800,000 consisting of $500,000 cash to be paid over a two-year period and $1,300,000 to be provided in services. The Company has paid the $500,000 in cash and has provided services of $1,300,000. Pursuant to the agreement, the number of shares to be issued is adjusted as necessary to result in an equity ownership equal to 30% of the issued and outstanding shares at the final payment date. As of December 31, 2022, the Company has been issued 8,178 shares equal to 30% of Drivemate. Per the Drivemate Agreement, the Company appointed two directors to the Drivemate board. The Company determined that it met the significant influence criteria since two of the four directors are appointed by the Company and the Company owns 30% of Drivemate; therefore, the Company accounts for the investment using the equity method of accounting.

Under the equity method of accounting, the Company recorded its share of net income of $5,133 for the three and six months ended December 31, 2022, and the Company recorded its share of net income of $4,666 and net loss of $58,905 for the three and six months ended December 31, 2021, respectively.

WRLD3D-Related Party

On March 2, 2017, the Company purchased a 4.9% interest in WRLD3D, a non-public company, for $1,111,111. The Company paid $555,556 at the initial closing and $555,555 on September 1, 2017. NetSol PK, the subsidiary of the Company, purchased a 12.2% investment in WRLD3D, for $2,777,778 which was earned by providing IT and enterprise software solutions.

Under the equity method of accounting, the Company recorded its share of net loss of $nil for the three and six months ended December 31, 2022, and the Company recorded its share of net loss of $84,484 and $181,878 for the three and six months ended December 31, 2021, respectively.

The following table reflects the above investments at December 31, 2022.

SCHEDULE OF LONG TERM INVESTMENT

	Drivemate			WRLD3D			Total
Gross investment	$	1,800,000		$	3,888,889		$	5,688,889
Cumulative net loss on investment		(735,499	)		(3,238,647	)		(3,974,146	)
Cumulative other comprehensive income (loss)		-			(650,242	)		(650,242	)
Net investment	$	1,064,501		$	-		$	1,064,501

The following table reflects the above investments at June 30, 2022.

	Drivemate			WRLD3D			Total
Gross investment	$	1,800,000		$	3,888,889		$	5,688,889
Cumulative net loss on investment		(740,632	)		(3,238,647	)		(3,979,279	)
Cumulative other comprehensive income (loss)		-			(650,242	)		(650,242	)
Net investment	$	1,059,368		$	-		$	1,059,368

Page 24

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

NOTE 13 - INTANGIBLE ASSETS

Intangible assets consisted of the following:

SCHEDULE OF INTANGIBLE ASSETS

	As of			As of
	December 31, 2022			June 30, 2022

Product Licenses - Cost	$	47,244,997		$	47,244,997
Effect of Translation Adjustment		(21,549,533	)		(19,914,206	)
Accumulated Amortization		(24,894,425	)		(25,743,121	)
Net Balance	$	801,039		$	1,587,670

Product Licenses

Product licenses include internally developed original license issues, renewals, enhancements, copyrights, trademarks, and trade names. Product licenses are amortized on a straight-line basis over their respective lives, and the unamortized amount of $801,039 will be amortized over one year. Amortization expense for the three and six months ended December 31, 2022, was $322,672 and $645,492, respectively. Amortization expense for the three and six months ended December 31, 2021was $414,269 and $854,553, respectively.

NOTE 14 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

	As of		As of
	December 31, 2022		June 30, 2022

Accounts Payable	$	942,689	$	1,175,527
Accrued Liabilities		4,114,952		3,507,415
Accrued Payroll		1,454,886		1,397,605
Accrued Payroll Taxes		147,837		153,416
Taxes Payable		418,315		328,755
Other Payable		344,569		250,823
Total	$	7,423,248	$	6,813,541

Page 25

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

NOTE 15 – DEBTS

Notes payable and finance leases consisted of the following:

			As of December 31, 2022
					Current		Long-Term
Name			Total		Maturities		Maturities

D&O Insurance	(1	)	$	127,599	$	127,599	$	-
Bank Overdraft Facility	(2	)		-		-		-
Term Finance Facility	(3	)		-		-		-
Loan Payable Bank - Export Refinance	(4	)		2,208,285		2,208,285		-
Loan Payable Bank - Running Finance	(5	)		-		-		-
Loan Payable Bank - Export Refinance II	(6	)		1,678,297		1,678,297		-
Loan Payable Bank - Export Refinance III	(7	)		3,091,600		3,091,600		-
Sale and Leaseback Financing	(8	)		463,011		172,983		290,028
Term Finance Facility	(9	)		21,908		18,682		3,226
Insurance Financing	(10	)		54,405		54,405		-
				7,645,105		7,351,851		293,254
Subsidiary Finance Leases	(11	)		48,590		34,899		13,691
			$	7,693,695	$	7,386,750	$	306,945

			As of June 30, 2022
					Current		Long-Term
Name			Total		Maturities		Maturities

D&O Insurance	(1	)	$	89,552	$	89,552	$	-
Bank Overdraft Facility	(2	)		-		-		-
Term Finance Facility	(3	)		423,101		423,101		-
Loan Payable Bank - Export Refinance	(4	)		2,434,749		2,434,749		-
Loan Payable Bank - Running Finance	(5	)		-		-		-
Loan Payable Bank - Export Refinance II	(6	)		1,850,409		1,850,409		-
Loan Payable Bank - Export Refinance III	(7	)		3,408,648		3,408,648		-
Sale and Leaseback Financing	(8	)		619,108		189,226		429,882
Term Finance Facility	(9	)		31,204		18,339		12,865
Insurance Financing	(10	)		118,026		118,026		-
				8,974,797		8,532,050		442,747
Subsidiary Finance Leases	(11	)		68,571		35,095		33,476
			$	9,043,368	$	8,567,145	$	476,223

(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 5.0% to 7.0% as of December 31, 2022 and June 30, 2022.

Page 26

NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

December 31, 2022

(Unaudited)

(2)

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 $361,446. The annual interest rate was 5.5% as of December 31, 2022. The total outstanding balance as of December 31, 2022 and June 30, 2022 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 December 31, 2022, NTE was in compliance with this covenant.

(3)

The Company’s subsidiary, NetSol PK, has a term finance facility from Askari Bank Limited, approved by the Government of Pakistan to protect the employment situation during the COVID-19 pandemic. This is a term loan payable in three years. The availed facility amount was Rs. nil or $nil, at December 31, 2022. The availed facility amount is Rs. 86,887,974 or $423,101, at June 30, 2022, which is shown as current. The interest rate for the loan was 3% at December 31, 2022 and June 30, 2022.

(4)

The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 500,000,000 or $2,208,285 at December 31, 20