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, 2021

☐	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 12,186,070 shares issued and 11,247,039 outstanding of its $.01 par value Common Stock and no Preferred Stock outstanding as of February 5, 2022.

NETSOL TECHNOLOGIES, INC.

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021	3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2021 and 2020	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended December 31, 2021 and 2020	5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended December 31, 2021 and 2020	6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021 and 2020	8
Notes to the Condensed Consolidated Financial Statements	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3. Quantitative and Qualitative Disclosures about Market Risk	47
Item 4. Controls and Procedures	47

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	48
Item 1A Risk Factors	48
Item 2. Unregistered Sales of Equity and Use of Proceeds	48
Item 3. Defaults Upon Senior Securities	48
Item 4. Mine Safety Disclosures	48
Item 5. Other Information	48
Item 6. Exhibits	48

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, 2021			June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	25,587,515		$	33,705,154
Accounts receivable, net of allowance of $173,589 and $166,231		7,190,759			4,184,096
Accounts receivable - related party, net of allowance of $1,373,099 and $1,373,099		-			-
Revenues in excess of billings, net of allowance of $82,042 and $136,976		18,730,022			14,680,131
Revenues in excess of billings - related party, net of allowance of $8,163 and $8,163		-			-
Other current assets, net of allowance of $1,243,633 and $1,243,633		2,581,401			3,009,393
Total current assets		54,089,697			55,578,774
Revenues in excess of billings, net - long term		985,772			957,603
Convertible note receivable - related party, net of allowance of $4,250,000 and $4,250,000		-			-
Property and equipment, net		10,265,385			12,091,812
Right of use of assets - operating leases		1,029,294			1,345,869
Long term investment		2,921,667			3,155,852
Other assets		33,204			55,127
Intangible assets, net		2,657,204			3,904,656
Goodwill		9,516,568			9,516,568
Total assets	$	81,498,791		$	86,606,261

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	6,394,780		$	6,696,035
Current portion of loans and obligations under finance leases		10,147,993			11,366,171
Current portion of operating lease obligations		770,559			857,729
Unearned revenue		3,719,348			4,556,626
Total current liabilities		21,032,680			23,476,561
Loans and obligations under finance leases; less current maturities		120,277			699,841
Operating lease obligations; less current maturities		319,613			564,257
Total liabilities		21,472,570			24,740,659
Commitments and contingencies		-
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 12,186,070 shares issued and 11,247,039 outstanding as of December 31, 2021 and 12,181,585 shares issued and 11,265,064 outstanding as of June 30, 2021		121,861			121,816
Additional paid-in-capital		129,042,021			129,018,826
Treasury stock (at cost, 939,031 shares and 916,521 shares as of December 31, 2021 and June 30, 2021, respectively)		(3,920,856	)		(3,820,750	)
Accumulated deficit		(37,206,528	)		(38,801,282	)
Other comprehensive loss		(34,935,629	)		(31,868,481	)
Total NetSol stockholders’ equity		53,100,869			54,650,129
Non-controlling interest		6,925,352			7,215,473
Total stockholders’ equity		60,026,221			61,865,602
Total liabilities and stockholders’ equity	$	81,498,791		$	86,606,261

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)

	2021			2020			2021			2020
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2021			2020			2021			2020
Net Revenues:
License fees	$	1,955,331		$	2,586,504		$	1,966,047		$	2,589,979
Subscription and support		9,374,869			5,724,802			15,605,258			10,896,665
Services		4,142,762			4,810,154			11,322,418			12,282,194
Total net revenues		15,472,962			13,121,460			28,893,723			25,768,838

Cost of revenues:
Salaries and consultants		5,661,917			5,294,662			11,324,327			9,821,311
Travel		282,836			159,174			496,968			262,926
Depreciation and amortization		728,868			713,749			1,494,603			1,420,998
Other		1,156,754			911,566			2,492,215			1,839,719
Total cost of revenues		7,830,375			7,079,151			15,808,113			13,344,954

Gross profit		7,642,587			6,042,309			13,085,610			12,423,884

Operating expenses:
Selling and marketing		1,807,162			1,558,027			3,427,155			3,167,631
Depreciation and amortization		212,864			221,572			427,135			443,362
General and administrative		3,733,303			4,065,788			7,706,442			7,493,424
Research and development cost		235,390			110,419			510,620			196,408
Total operating expenses		5,988,719			5,955,806			12,071,352			11,300,825

Income from operations		1,653,868			86,503			1,014,258			1,123,059

Other income and (expenses)
Gain (loss) on sale of assets		(80,125	)		(52,531	)		(190,725	)		(74,273	)
Interest expense		(90,808	)		(94,241	)		(191,821	)		(197,568	)
Interest income		316,253			210,854			759,386			411,675
Gain (loss) on foreign currency exchange transactions		901,016			13,981			2,185,164			310,022
Share of net loss from equity investment		(79,818	)		(43,685	)		(240,783	)		(151,535	)
Other income		19,668			45,365			22,697			132,637
Total other income (expenses)		986,186			79,743			2,343,918			430,958

Net income before income taxes		2,640,054			166,246			3,358,176			1,554,017
Income tax provision		(201,506	)		(245,434	)		(369,133	)		(509,728	)
Net income (loss)		2,438,548			(79,188	)		2,989,043			1,044,289
Non-controlling interest		(1,031,763	)		(162,916	)		(1,394,289	)		(568,839	)
Net income (loss) attributable to NetSol	$	1,406,785		$	(242,104	)	$	1,594,754		$	475,450

Net income (loss) per share:
Net income (loss) per common share
Basic	$	0.13		$	(0.02	)	$	0.14		$	0.04
Diluted	$	0.13		$	(0.02	)	$	0.14		$	0.04

Weighted average number of shares outstanding
Basic		11,244,539			11,580,030			11,249,372			11,683,631
Diluted		11,244,539			11,580,030			11,249,372			11,683,631

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)

	2021			2020			2021			2020
	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2021			2020			2021			2020
Net income (loss)	$	1,406,785		$	(242,104	)	$	1,594,754		$	475,450
Other comprehensive income (loss):
Translation adjustment		(1,466,995	)		1,633,906			(4,751,391	)		2,728,630
Translation adjustment attributable to non-controlling interest		545,252			(483,826	)		1,684,243			(703,734	)
Net translation adjustment		(921,743	)		1,150,080			(3,067,148	)		2,024,896
Comprehensive income (loss) attributable to NetSol	$	485,042		$	907,976		$	(1,472,394	)	$	2,500,346

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, 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
Cumulative effect adjustment (1)
Subsidiary common stock issued for:
-Services
Common stock issued for:
Services		2,500		25		9,875		-			-			-			-			9,900
Purchase of treasury shares
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
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
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

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, 2020 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, 2020		12,137,045	$	121,371	$	128,764,618	$	(1,920,645	)	$	(39,861,985	)	$	(33,210,231	)	$	6,640,531	$	60,533,659
Common stock issued for:
Services		10,413		105		58,563		-			-			-			-		58,668
Purchase of treasury shares		-		-		-		(927,995	)		-			-			-		(927,995	)
Foreign currency translation adjustment		-		-		-		-			-			1,150,080			483,826		1,633,906
Net income (loss) for the period		-		-		-		-			(242,104	)		-			162,916		(79,188	)
Balance at
December 31, 2020		12,147,458	$	121,476	$	128,823,181	$	(2,848,640	)	$	(40,104,089	)	$	(32,060,151	)	$	7,287,273	$	61,219,050

A statement of the changes in equity for the three months ended September 30, 2020 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, 2020		12,122,149	$	121,222	$	128,677,754	$	(1,455,969	)	$	(34,269,817	)	$	(34,085,047	)	$	6,488,900		$	65,477,043
Beginning Balance		12,122,149	$	121,222	$	128,677,754	$	(1,455,969	)	$	(34,269,817	)	$	(34,085,047	)	$	6,488,900		$	65,477,043
Cumulative effect adjustment (1)		-		-		-		-			(6,309,722	)		-			(474,578	)		(6,784,300	)
Subsidiary common stock issued for:
-Services		-		-		-		-			-			-			378			378
Common stock issued for:
Services		14,896		149		86,864		-			-			-			-			87,013
Purchase of treasury shares		-		-		-		(464,676	)		-			-			-			(464,676	)
Foreign currency translation adjustment		-		-		-		-			-			874,816			219,908			1,094,724
Net income		-		-		-		-			717,554			-			405,923			1,123,477
Net income (loss)		-		-		-		-			717,554			-			405,923			1,123,477
Balance at
September 30, 2020		12,137,045	$	121,371	$	128,764,618	$	(1,920,645	)	$	(39,861,985	)	$	(33,210,231	)	$	6,640,531		$	60,533,659
Ending Balance		12,137,045	$	121,371	$	128,764,618	$	(1,920,645	)	$	(39,861,985	)	$	(33,210,231	)	$	6,640,531		$	60,533,659

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)

	2021			2020
	For the Six Months
	Ended December 31,
	2021			2020
Cash flows from operating activities:
Net income	$	2,989,043		$	1,044,289
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,921,738			1,864,360
Provision for bad debts		(33,815	)		(175,575	)
Share of net loss from investment under equity method		240,783			151,535
Loss on sale of assets		190,725			74,273
Stock based compensation		28,292			165,164
Changes in operating assets and liabilities:
Accounts receivable		(3,243,348	)		5,479,516
Revenues in excess of billing		(4,741,806	)		4,540,271
Other current assets		304,464			(252,781	)
Accounts payable and accrued expenses		56,539			313,869
Unearned revenue		(749,249	)		(554,077	)
Net cash provided by (used in) operating activities		(3,036,634	)		12,650,844

Cash flows from investing activities:
Purchases of property and equipment		(773,953	)		(1,249,895	)
Sales of property and equipment		201,773			123,194
Investment in associates		-			(93,000	)
Net cash used in investing activities		(572,180	)		(1,219,701	)

Cash flows from financing activities:
Purchase of treasury stock		(100,106	)		(1,392,671	)
Proceeds from bank loans		188,272			705,338
Payments on finance lease obligations and loans - net		(715,121	)		(175,352	)
Net cash used in financing activities		(626,955	)		(862,685	)
Effect of exchange rate changes		(3,881,870	)		1,268,359
Net increase (decrease) in cash and cash equivalents		(8,117,639	)		11,836,817
Cash and cash equivalents at beginning of the period		33,705,154			20,166,830
Cash and cash equivalents at end of period	$	25,587,515		$	32,003,647

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,
	2021		2020
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	238,569	$	219,412
Taxes	$	390,307	$	366,695

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired under finance lease	$	-	$	222,391
Drivemate shares acquired for services rendered	$	-	$	1,300,000
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, 2021

(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, 2021. 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”)

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, 2021

(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 ($78,616) in each bank and in UK for GBP 85,000 ($114,865) in each bank. The Company maintains two bank accounts in China and six bank accounts in the UK. As of December 31, 2021, and June 30, 2021, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $23,506,089 and $31,662,035, 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.

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NETSOL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements