Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.22.2.2
INCOME TAXES
 12 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 16 – INCOME TAXES

 

The Company is incorporated in the State of Nevada and registered to do business in the State of California. The following is a breakdown of income before the provision for income taxes:

 

Consolidated pre-tax income (loss) consists of the following:

 

                 
    Years Ended June 30,  
    2022     2021  
US operations   $ (1,140,443 )   $ 1,944,974  
Foreign operations     3,230,184       1,343,275  
Net income before income taxes   $ 2,089,741     $ 3,288,249  

 

The components of the provision for income taxes are as follows:

 

                 
    Years Ended June 30,  
    2022     2021  
Current:                
Federal   $ -     $ -  
State and Local     2,800       113,152  
Foreign     986,138       912,663  
                 
Deferred:                
Federal     -       -  
State and Local     -       802  
Foreign     -       -  
Provision for income taxes   $ 988,938     $ 1,026,617  

 

A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows:

 

    Years Ended June 30,
    2022           2021        
Income tax (benefit) provision at statutory rate   $ 438,846       21.0 %   $ 690,532       21.0 %
State income (benefit) taxes, net of federal tax benefit     145,864       7.0 %     229,520       7.0 %
Foreign earnings taxed at different rates     82,333       3.9 %     72,358       2.2 %
Change in valuation allowance for deferred tax assets     318,421       15 %     129,758       3.9 %
Other     3,474       0.2 %     (95,551 )     -2.9 %
Provision for income taxes   $ 988,938       47.3 %   $ 1,026,617       31.2 %

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2022 and 2021

 

Deferred income tax assets and liabilities as of June 30, 2022 and 2021 consist of tax effects of temporary differences related to the following:

 

                 
    2022     2021  
Net operating loss carry forwards   $ 7,885,333     $ 7,483,618  
Other     80,311       79,675  
Net deferred tax assets     7,965,644       7,563,293  
Valuation allowance for deferred tax assets     (7,965,644 )     (7,563,293 )
Net deferred tax assets   $ -     $ -  

 

The Company has established a full valuation allowance as management believes it is more likely than not that these assets will not be realized in the future. The valuation allowance increased by $402,351 for the year ended June 30, 2022.

 

At June 30, 2022, federal and state net operating loss carry forwards in the United States of America were $29,909,083 and $8,640,962, respectively. Federal net operating loss carry forwards begin to expire in 2028, while state net operating loss carry forwards are expiring each year. Due to both historical and recent changes in the capitalization structure of the Company, the utilization of net operating losses may be limited pursuant to section 382 of the Internal Revenue Code. California has suspended the net operating loss carryover deduction for taxable years 2020, 2021 and 2022. Net operating losses related to foreign entities were $3,967,928 at June 30, 2022.

 

As of June 30, 2022, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

 

The Company is subject to U.S. federal income tax, as well as various state and foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2019 through 2021. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months.

 

The cumulative amount of undistributed earnings of foreign subsidiaries that the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $28,816,721 as of June 30, 2022. The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution, and specific earnings distributed. The Company determined that it is not practicable to determine unrecognized deferred tax liability associated with the unremitted earnings attributable to the foreign subsidiaries.

 

Income from the export of computer software and its related services developed in Pakistan is exempt from tax through June 30, 2025. The aggregate effect of the tax holiday for June 30, 2022 and 2021 is $1,260,502 and $202,918, respectively. The effect on basic and diluted earnings per share is $0.11 and $0.018 for June 30, 2022 and 2021, respectively.

 

 

NETSOL TECHNOLOGIES, INC.

Notes to Consolidated Financial Statements

June 30, 2022 and 2021