[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2023 [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the period ended September 30, 2023 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets decreased to $55.87 million as of September 30, 2023, from $58.38 million as of June 30, 2023, primarily driven by a decrease in accounts receivable Condensed Consolidated Balance Sheet Highlights (in USD) | Account | September 30, 2023 | June 30, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $16,551,677 | $15,533,254 | | Accounts receivable, net | $6,870,956 | $11,714,422 | | Total current assets | $38,675,408 | $41,603,867 | | **Total assets** | **$55,865,033** | **$58,379,410** | | **Liabilities & Equity** | | | | Total current liabilities | $18,268,130 | $20,769,234 | | **Total liabilities** | **$19,201,912** | **$21,597,657** | | **Total stockholders' equity** | **$36,663,121** | **$36,781,753** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended September 30, 2023, the company reported a net income attributable to NetSol of $30,890, a significant improvement from a net loss of $620,729 in the same period of 2022 Consolidated Statements of Operations (in USD) | Metric | Q1 FY2024 (Ended Sep 30, 2023) | Q1 FY2023 (Ended Sep 30, 2022) | | :--- | :--- | :--- | | Total net revenues | $14,242,181 | $12,706,119 | | Gross profit | $6,162,017 | $4,251,997 | | Income (loss) from operations | $350,629 | $(1,896,191) | | Net income (loss) attributable to NetSol | $30,890 | $(620,729) | | Basic EPS | $0.003 | $(0.06) | | Diluted EPS | $0.003 | $(0.06) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended September 30, 2023, net cash provided by operating activities was $1.66 million, an increase from $1.30 million in the prior-year period, with reduced cash usage in investing and financing activities Consolidated Cash Flow Summary (in USD) | Cash Flow Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,663,619 | $1,298,857 | | Net cash used in investing activities | $(370,400) | $(893,994) | | Net cash used in financing activities | $(44,474) | $(445,737) | | **Net increase (decrease) in cash** | **$1,018,423** | **$(3,040,849)** | | **Cash and cash equivalents at end of period** | **$16,551,677** | **$20,922,948** | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, including revenue recognition, leases, and segment reporting, with key disclosures on revenue disaggregation, major customers, and debt obligations - The company designs, develops, markets, and exports proprietary software products for the automobile financing and leasing, banking, and financial services industries worldwide[25](index=25&type=chunk) Disaggregated Revenue by Category (in USD) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | **Core Revenue** | | | | License | $1,280,449 | $249,960 | | Subscription and support | $6,512,243 | $6,016,834 | | Services | $4,974,554 | $5,421,366 | | **Total core revenue** | **$12,767,246** | **$11,688,160** | | **Non-Core Revenue** | | | | Services | $1,474,935 | $1,017,959 | | **Total net revenue** | **$14,242,181** | **$12,706,119** | - Contracted but unsatisfied performance obligations were approximately **$29.1 million** as of September 30, 2023, of which an estimated **$15.8 million** is expected to be recognized as revenue over the next 12 months[72](index=72&type=chunk) - Daimler Financial Services (DFS) was a major customer, accounting for **25.9%** of revenues (**$3.69 million**) for the three months ended September 30, 2023[79](index=79&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's performance, highlighting a return to profitability in Q1 FY2024, covering revenue, gross profit, operating expenses, liquidity, and non-GAAP measures [Business Overview and Highlights](index=33&type=section&id=Business%20Overview%20and%20Highlights) NetSol is a global provider of IT and enterprise software solutions, primarily for the finance and leasing industry, with key highlights for the quarter including a $1.1 million license extension and new professional services contracts - The company's primary offerings include its enterprise software suite **NFS Ascent™**, digital solutions like **NFS Digital** and **Otoz**, an API marketplace called **AppexNow**, and professional services[134](index=134&type=chunk)[146](index=146&type=chunk)[154](index=154&type=chunk)[163](index=163&type=chunk) - Key business highlights for the quarter include a license term extension with a client in Thailand worth approximately **$1.1 million**, over **$1.1 million** in revenue from modifications for existing customers, an additional **$1.9 million** in service revenue from an existing customer in the APAC region, and a new professional services project in China expected to generate approximately **$1 million**[177](index=177&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) For Q1 FY2024, total net revenues increased 12.1% to $14.24 million, with gross profit margin improving to 43.3%, leading to an operating income of $350,629 and net income of $30,890 Revenue by Type (in USD) | Revenue Type | Q1 FY2024 | Q1 FY2023 | | :--- | :--- | :--- | | License fees | $1,280,449 | $249,960 | | Subscription and support | $6,512,243 | $6,016,834 | | Services | $6,449,489 | $6,439,325 | | **Total net revenues** | **$14,242,181** | **$12,706,119** | - Gross profit increased by **$1.91 million** to **$6.16 million**, with the gross margin expanding to **43.3%** from **33.5%** in the prior-year quarter[187](index=187&type=chunk) - The company reported income from operations of **$350,629**, a positive swing of **$2.25 million** from a loss of **$1,896,191** in the same period last year[197](index=197&type=chunk) - A significant factor in profitability was a foreign currency exchange loss of **$134,253**, compared to a gain of **$1,315,705** in the prior-year quarter, due to currency fluctuations against the Pakistani Rupee (PKR)[198](index=198&type=chunk) [Non-GAAP Financial Measures](index=44&type=section&id=Non-GAAP%20Financial%20Measures) The company provides non-GAAP measures, including EBITDA and Adjusted EBITDA, to offer additional insight into its operational performance, with Adjusted EBITDA (net) significantly improving to $465,974 Reconciliation of Net Income (Loss) to Adjusted EBITDA (in USD) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net Income (loss) attributable to NetSol | $30,890 | $(620,729) | | EBITDA | $805,043 | $290,133 | | **Adjusted EBITDA, net** | **$465,974** | **$(27,568)** | | Basic adjusted EBITDA per share | $0.04 | $(0.002) | | Diluted adjusted EBITDA per share | $0.04 | $(0.002) | [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2023, the company's cash position increased to $16.6 million, with $1.7 million net cash from operating activities, and anticipates $2.5 million in capital expenditures - Cash and cash equivalents increased to **$16.6 million** at September 30, 2023, with approximately **$15.2 million** held by foreign subsidiaries[209](index=209&type=chunk)[214](index=214&type=chunk) - Net cash provided by operating activities was **$1.66 million** for the quarter[210](index=210&type=chunk) - The company anticipates needing **$2.5 million** for capital expenditures over the next 12 months, expected to be funded by operations[216](index=216&type=chunk) - The company is in compliance with all financial covenants related to its various debt facilities in the UK and Pakistan[218](index=218&type=chunk)[219](index=219&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reported no new quantitative and qualitative disclosures about market risks for the period covered by this report - The company stated 'None' in response to this item, indicating no new disclosures[222](index=222&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[223](index=223&type=chunk) - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are likely to materially affect, the company's internal controls[224](index=224&type=chunk) [PART II. OTHER INFORMATION](index=48&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides other required disclosures, including legal proceedings, risk factors, and recent corporate policy adoptions [Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - The company reported 'NA' (Not Applicable) for this item[225](index=225&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended June 30, 2023, have been reported[225](index=225&type=chunk) [Other Information](index=48&type=section&id=Item%205.%20Other%20Information) The company disclosed that on October 24, 2023, its Board of Directors adopted a Clawback Policy, effective retroactively to October 2, 2023 - A Clawback Policy was adopted on October 24, 2023, effective retroactively to October 2, 2023, to comply with SEC and NASDAQ rules[229](index=229&type=chunk) [Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Clawback Policy, CEO/CFO certifications, and Inline XBRL financial data files - Filed exhibits include the company's Clawback Policy (10.1), CEO/CFO certifications (31.1, 31.2, 32.1, 32.2), and XBRL data files (101 series)[231](index=231&type=chunk)

[FORM 10-K Filing Information](index=1&type=section&id=FORM%2010-K) This section provides key filing details for NETSOL TECHNOLOGIES, INC.'s Annual Report on Form 10-K for the fiscal year ended June 30, 2023 [Filing Details](index=1&type=section&id=Filing%20Details) This is an Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed by NETSOL TECHNOLOGIES, INC. (NTWK) with the SEC. The company is registered in Nevada, headquartered in Encino, CA, and its common stock is traded on NASDAQ. It is classified as a Non-accelerated Filer and a Smaller Reporting Company - NETSOL TECHNOLOGIES, INC. (NTWK) filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2023[2](index=2&type=chunk) Common Stock High and Low Prices (Fiscal Years 2022-2023) | Indicator | Value | | :--- | :--- | | Trading Symbol | NTWK | | Exchange | NASDAQ | | Well-known seasoned issuer | No | | Required to file reports | Yes | | Filed all reports in past 12 months | Yes | | Submitted Interactive Data File | Yes | | Large Accelerated Filer | No | | Accelerated Filer | No | | Non-accelerated Filer | Yes | | Smaller reporting company | Yes | [Market Value and Shares Outstanding](index=2&type=section&id=Market%20Value%20and%20Shares%20Outstanding) As of December 31, 2022, the aggregate market value of common stock held by non-affiliates was approximately **$28.2 million**. As of September 15, 2023, there were **12.28 million shares** issued and **11.35 million shares** outstanding Market Value and Shares Outstanding | Metric | Value | | :--- | :--- | | Aggregate market value (non-affiliates, Dec 31, 2022) | $28,197,710 | | Closing price (Dec 31, 2022) | $2.89 per share | | Shares issued (Sep 15, 2023) | 12,284,887 | | Shares outstanding (Sep 15, 2023) | 11,345,856 | | Preferred Stock outstanding | None | [Table of Contents and Cross Reference Sheet](index=3&type=section&id=TABLE%20OF%20CONTENTS%20AND%20CROSS%20REFERENCE%20SHEET) This section provides an index and cross-reference for the report's content [Note About Forward-Looking Statements](index=4&type=section&id=NOTE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) This section outlines the disclaimer regarding forward-looking statements and associated risks [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section highlights that the Annual Report contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from projections. Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to revise them, except as required by law - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from projections[9](index=9&type=chunk) - The company uses terms like 'believe,' 'expect,' 'anticipate,' and 'intend' to identify forward-looking statements[9](index=9&type=chunk) - The company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law[9](index=9&type=chunk) [PART I](index=4&type=section&id=PART%201) This part covers the company's business operations, risk factors, properties, and legal proceedings [Business Overview](index=4&type=section&id=ITEM%201%20-%20BUSINESS) NETSOL Technologies, Inc. is a global provider of IT and enterprise software solutions for the finance and leasing industry, specializing in auto and equipment finance. The company offers its flagship NFS Ascent platform, digital transformation solutions (NFS Digital), and a white-label SaaS platform (Otoz) for digital auto retail and mobility. NETSOL operates globally with a strong presence in North America, Europe, and Asia Pacific, serving blue-chip clients and focusing on a subscription-based model for its cloud-enabled products - NETSOL Technologies, Inc. provides IT and enterprise software solutions to the global finance and leasing industry, with a focus on mission-critical applications[11](index=11&type=chunk) - Primary revenue sources include licensing, subscriptions, modification, enhancement, and support of its NFS Ascent financial applications[12](index=12&type=chunk) - The company is shifting towards cloud-enabled, subscription-based pricing models for new customers, moving away from traditional licensing[12](index=12&type=chunk)[67](index=67&type=chunk) [General Company Information](index=4&type=section&id=GENERAL) NETSOL Technologies, Inc. is a global IT and enterprise software provider for the finance and leasing industry, headquartered in California with worldwide operations - NETSOL Technologies, Inc. (Nasdaq CM: NTWK) is a global provider of IT and enterprise software solutions for the finance and leasing industry[11](index=11&type=chunk) - The company's solutions, under the brand NFS Ascent, are mission-critical applications for clients, facilitating end-to-end business processes[11](index=11&type=chunk)[12](index=12&type=chunk) - NETSOL was founded in 1997 and is headquartered in Encino, California, with global offices in North America, Europe, Asia Pacific, and the Middle East[14](index=14&type=chunk)[15](index=15&type=chunk) [Business Model and Strategy](index=5&type=section&id=OUR%20BUSINESS) NETSOL's business model leverages cost arbitrage, domain expertise, and scalability to deliver specialized leasing and financing solutions globally - NETSOL's business model combines affordable pricing through cost arbitrage, subject matter expertise, domain experience, scalability, and proximity to customers[16](index=16&type=chunk) - The company specializes in the leasing and financing space, holding a strong foothold and market-leading position in the auto equipment finance segment[17](index=17&type=chunk) - NETSOL's global operations are divided into three regions: North America, Europe, and Asia Pacific, with integrated subsidiaries for global delivery and support[21](index=21&type=chunk) [Products and Services Portfolio](index=6&type=section&id=OUR%20PRODUCTS%20AND%20SERVICES) NETSOL offers a comprehensive portfolio including NFS Ascent, NFS Digital, Otoz, and AppexNow, alongside professional and cloud services, with a focus on AI/ML innovation - NFS Ascent is NETSOL's premier solution, covering the complete finance and leasing cycle from origination to contract settlements, designed for multinational and multi-asset environments[22](index=22&type=chunk) - NFS Digital offers a suite of digital transformation solutions, including Self-Point of Sale, Mobile Account, Mobile Point of Sale, Mobile Dealer, Mobile Auditor, Mobile Collector, and Mobile Field Investigator[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) - Otoz provides a white-label SaaS platform for OEMs, finance companies, dealers, and start-ups, enabling on-demand mobility models (subscriptions, rental, car-sharing) and digital retail[40](index=40&type=chunk) - AppexNow is a marketplace for API-first products for the credit, finance, and leasing industry, with initial offerings including Flex (a calculation engine) and Hubex (an API library)[49](index=49&type=chunk)[50](index=50&type=chunk)[53](index=53&type=chunk) - NETSOL also offers professional services (IT consulting, solutions development, business intelligence, outsourcing, maintenance, project management) and cloud services leveraging Amazon Web Services (AWS)[55](index=55&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - A dedicated team is developing artificial intelligence and machine learning solutions to help clients optimize production, decrease downtime, and gain a holistic view of business processes[60](index=60&type=chunk)[61](index=61&type=chunk) [Implementation Process](index=10&type=section&id=IMPLEMENTATION%20PROCESS) The implementation process for NETSOL's products involves configuration, data migration, training, and support, with cloud solutions enabling rapid deployment - The implementation process for NETSOL's products can range from three to fifteen months, depending on complexity and scope, and includes configuration, data migration, training, and support[62](index=62&type=chunk) - Post-implementation, consultants assist with smooth operations, followed by regular maintenance and support services for agreed-upon subscription or support fees[63](index=63&type=chunk) - Cloud-enabled solutions offer seamless and rapid deployments, providing businesses with quicker responsiveness and a competitive advantage[64](index=64&type=chunk) [Pricing and Revenue Streams](index=11&type=section&id=PRICING%20AND%20REVENUE%20STREAMS) NETSOL's revenue is generated from product licensing, subscriptions, implementation, and support services, with a strategic shift towards SaaS/subscription models - NETSOL's revenue streams are derived from product licensing, subscription-based pricing, implementation and customization services, and post-implementation support[65](index=65&type=chunk)[69](index=69&type=chunk) - The company is shifting to SaaS/subscription-based pricing for cloud-ready products to ensure predictable revenue, reduce initial buy-in costs, and shorten sales cycles[67](index=67&type=chunk) - License revenue is recognized upon software delivery, while implementation and support services are recognized as performed or ratably over the service period[66](index=66&type=chunk) [Strategic Alliances](index=11&type=section&id=ALLIANCES) NETSOL maintains key alliances with Daimler Financial Services for Asia Pacific and Africa, and Microsoft for cloud-hosting activities - NETSOL has a long-standing Frame Agreement with Daimler Financial Services (DFS) for the Asia Pacific and Africa region, renewed multiple times since 2004[68](index=68&type=chunk) - The company partners with Microsoft to provide cloud-hosting activities for its cloud-based products, including NFS Ascent and LeasePak Cloud - SaaS, leveraging Microsoft Azure[69](index=69&type=chunk) [Technical Affiliations](index=12&type=section&id=TECHNICAL%20AFFILIATIONS) NETSOL holds technical affiliations as a Microsoft Certified Silver Partner, Oracle Certified Partner, and AWS Select Tier Partner - NETSOL is a Microsoft Certified Silver Partner and an Oracle Certified Partner[70](index=70&type=chunk) - For Amazon Web Services (AWS), NETSOL is a Select Tier Partner, a Well Architected Partner, and a Solution Provider under their AWS Partner Programs[70](index=70&type=chunk) [Marketing and Sales Strategy](index=12&type=section&id=MARKETING%20AND%20SELLING) NETSOL's marketing and sales strategy focuses on building brand loyalty and expanding market reach through client events, conferences, and industry-focused professionals - NETSOL's marketing program aims to create and sustain preference and loyalty, with activities performed at both corporate and business unit levels[71](index=71&type=chunk) - Marketing activities include sponsoring client events, participating in conferences and webinars, and holding private briefings, leveraging industry-focused sales professionals[72](index=72&type=chunk) [NFS Ascent Growth Prospects](index=12&type=section&id=GROWTH%20PROSPECTS%20FOR%20NFS%20ASCENT) Growth for NFS Ascent is driven by continuous innovation and expanding customer bases in North America, Europe, and Asia Pacific, targeting legacy system replacement and new markets - Growth for NFS Ascent is driven by continuous product innovation and an expanding customer base across various geographic and product markets[73](index=73&type=chunk) - The sales strategy focuses on expanding into new geographic markets (Americas, Europe) and further penetrating existing Asia Pacific markets, targeting Tier 2 and Tier 3 prospects[73](index=73&type=chunk) - In North America and Europe, growth is expected from replacing legacy systems with NFS Ascent's flexible and robust solution, as well as acquiring new customers[74](index=74&type=chunk) - Asia Pacific growth is anticipated through diversification into banking and commercial lending, offering enhanced features to existing customers, and replacing current systems[76](index=76&type=chunk) [Target Markets](index=12&type=section&id=THE%20MARKETS) NETSOL primarily serves global commercial industries, including automotive, banking, and financial lending, with regionally focused marketing efforts - NETSOL primarily serves clients in global commercial industries, including automotive, banks, and other financial lending service companies[78](index=78&type=chunk) - Marketing efforts are regionally focused, with Asia Pacific targeted from offices in Bangkok, Beijing, Jakarta, Lahore, Shanghai, Tianjin, and Sydney, and the Americas/Europe from Austin, Texas, and London/Horsham[79](index=79&type=chunk) [Human Capital and Culture](index=13&type=section&id=PEOPLE%20AND%20CULTURE) NETSOL fosters a culture of quality and client focus, with a diverse global workforce of approximately 1,770 employees and community engagement programs - NETSOL's corporate culture emphasizes world-class quality, client-focused delivery, leadership, long-term relationships, creativity, transparency, and professional growth[80](index=80&type=chunk) - Employee turnover rate was approximately **19% in 2023**, with a goal to maintain it under **21% for fiscal year 2024** and beyond[81](index=81&type=chunk) - As of June 30, 2023, the company had approximately **1,770 employees**, with **76% technical staff** and **24% non-IT personnel**[84](index=84&type=chunk) - The company supports diversity and implements community programs such as literacy programs, higher education endowments, a noble cause fund, and a day care facility[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) [Competitive Landscape](index=13&type=section&id=COMPETITION) NETSOL competes with leading global IT solution providers in asset finance and leasing, as well as broader IT services firms - NETSOL competes with leading IT solution suppliers in the global asset finance and leasing industry, including Solifi, Alfa, Cassiopae, LineData, FIS, International Decision Systems (IDS), and Data Scan[86](index=86&type=chunk) - In IT-based business services, the company competes with both smaller local firms and global IT services providers like Wipro, InfoSys, HCL, and TCS[86](index=86&type=chunk) [Customer Base](index=14&type=section&id=CUSTOMERS) NETSOL serves a diverse customer base in finance and leasing, including major automotive captives like Daimler and BMW - NETSOL serves a broad spectrum of finance and leasing businesses, including automotive captive finance companies, equipment finance and leasing companies, and large regional banks[87](index=87&type=chunk) - Major customers include Daimler (**28.6% of FY2023 revenue**) and BMW (**7.9% of FY2023 revenue**), along with Toyota, Nissan, Ford, FIAT, Motorcycle Group, SCI Lease Corp, Maple Commercial Finance, and Yamaha Motor Finance[88](index=88&type=chunk)[89](index=89&type=chunk) [Global Operations and Geographic Data](index=14&type=section&id=GLOBAL%20OPERATIONS%20AND%20GEOGRAPHIC%20DATA) NETSOL operates across the Americas, Europe, and Asia Pacific, with Pakistan serving as a key 'Center of Excellence' for R&D and support - NETSOL's operations are divided into three regions: the Americas, Europe, and Asia Pacific, with individual subsidiaries managed regionally[90](index=90&type=chunk) - The Asia Pacific region accounted for approximately **67.8% of total revenues in 2023**[103](index=103&type=chunk) - Pakistan serves as NETSOL's 'Center of Excellence' for programming, R&D, global implementations, and 24-hour customer support[97](index=97&type=chunk) [Intellectual Property](index=15&type=section&id=INTELLECTUAL%20PROPERTY) NETSOL protects its proprietary rights through non-disclosure agreements, trade secrets, copyrights, and trademarks for its brand and products - NETSOL protects its proprietary rights through non-disclosure agreements, trade secret, copyright, and trademark laws[104](index=104&type=chunk) - The NETSOL 'N' logo and name, NFS logo and product name, and NFS Ascent are copyrighted and/or trademark registered in Pakistan and/or the U.S. Patent and Trademark Office[104](index=104&type=chunk) - An application for the OTOZ Name has been filed with the U.S. Patent and Trademark Office[104](index=104&type=chunk) [Governmental Approval and Regulation](index=15&type=section&id=GOVERNMENTAL%20APPROVAL%20AND%20REGULATION) NETSOL's operations are subject to local laws, with Pakistan offering tax exemptions for IT exports and requiring State Bank approval for investment repatriation - Current company operations do not require specific governmental approvals, but NETSOL is subject to laws of countries where it maintains subsidiaries and operates[105](index=105&type=chunk) - Pakistani law provides a tax exemption on income from exports of IT services and products until 2025[105](index=105&type=chunk) - Repatriation of investment from foreign-based companies in Pakistan requires approval from the State Bank of Pakistan[105](index=105&type=chunk) [Available Information](index=16&type=section&id=AVAILABLE%20INFORMATION) NETSOL provides public access to SEC filings, earnings webcasts, and corporate governance information through its official and investor relations websites - NETSOL's website (www.netsoltech.com) and investor relations website (http://ir.netsoltech.com) provide access to SEC filings, earnings call webcasts, and corporate governance information[106](index=106&type=chunk)[107](index=107&type=chunk) - SEC filings, including 10-K, 10-Q, and 8-K reports, are available for download free of charge on the investor relations website and the SEC's website[106](index=106&type=chunk) [Risk Factors](index=16&type=section&id=ITEM%201A%20-%20RISK%20FACTORS) NETSOL faces various risks, including political and economic instability in Pakistan (devaluation of Rupee, high inflation), geopolitical tensions between the US and China impacting operations and fund transfers, and general economic conditions such as global recession fears, rising interest rates, and inflation affecting profitability and consumer buying power - Political and economic instability in Pakistan, including Rupee devaluation and high inflation, may negatively affect the business, particularly its largest subsidiary[108](index=108&type=chunk)[109](index=109&type=chunk) - US-China political tensions could impact operations in China, new business acquisition, and the ability to transfer funds out of China[110](index=110&type=chunk) - General economic conditions, including inflation, geopolitical tensions, global pandemics, and rising interest rates, restrict buying power and increase operating costs, potentially affecting profitability[111](index=111&type=chunk)[112](index=112&type=chunk) - Declines in U.S. markets and the company's stock price may limit access to capital markets[113](index=113&type=chunk) [Unresolved Staff Comments](index=17&type=section&id=ITEM%201B%20-%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments - The company has no unresolved staff comments[115](index=115&type=chunk) [Cybersecurity](index=17&type=section&id=ITEM%201C%20-%20Cybersecurity) This item is not applicable to the company - The cybersecurity disclosure item is not applicable[115](index=115&type=chunk) [Properties](index=17&type=section&id=ITEM%202%20-%20PROPERTIES) NETSOL's corporate headquarters are leased in Encino, California, while it owns its Lahore Technology Campus in Pakistan, which is a significant computer and office space facility. The company also maintains leased offices in the UK, China, Australia, Thailand, Indonesia, and Austin, Texas - Corporate headquarters are leased in Encino, California (approx. **2,400 sq ft**)[115](index=115&type=chunk) - The Lahore Technology Campus in Pakistan is owned, comprising approximately **140,000 sq ft** of computer and general office space, with capacity for about **1,000 resources**[115](index=115&type=chunk) - Additional leased office spaces are maintained in the UK, China, Australia, Thailand, and a shared office in Indonesia, along with an NTA office in Austin, Texas[115](index=115&type=chunk) [Legal Proceedings](index=17&type=section&id=ITEM%203%20-%20LEGAL%20PROCEEDINGS) There are no legal proceedings to report - The company has no legal proceedings to disclose[116](index=116&type=chunk) [Mine Safety Disclosures](index=17&type=section&id=ITEM%204%20-%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine safety disclosures are not applicable[116](index=116&type=chunk) [PART II](index=18&type=section&id=PART%20II) This part details market information, financial condition, results of operations, and controls and procedures [Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Security](index=18&type=section&id=ITEM%205%20-%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITY) NETSOL's common stock trades on NASDAQ Capital Market under 'NTWK'. The stock experienced price fluctuations in fiscal years 2022 and 2023. As of September 15, 2023, there were 133 record holders. The company has not paid dividends in the past two fiscal years and has no outstanding preferred stock. Equity compensation plans have 363,687 securities available for future issuance - NETSOL Technologies, Inc. common stock is listed and traded on NASDAQ Capital Market under the ticker symbol 'NTWK'[118](index=118&type=chunk) Common Stock High and Low Prices (Fiscal Years 2022-2023) | Fiscal Year 2023 | High | Low | | :--- | :--- | :--- | | First Quarter | $3.80 | $2.75 | | Second Quarter | $3.23 | $2.82 | | Third Quarter | $3.25 | $2.53 | | Fourth Quarter | $3.30 | $2.11 | | Fiscal Year 2022 | High | Low | | First Quarter | $4.85 | $3.70 | | Second Quarter | $5.65 | $3.85 | | Third Quarter | $4.43 | $3.61 | | Fourth Quarter | $4.04 | $2.74 | Equity Compensation Plan Summary (as of June 30, 2023) | Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity Compensation Plans approved by Security holders | None | None | 363,687 | | Equity Compensation Plans not approved by Security holders | None | None | None | | Total | None | None | 363,687 | - The company has not paid dividends on its Common Stock in the past two fiscal years[121](index=121&type=chunk) [Reserved](index=18&type=section&id=ITEM%206%20-%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%207%20-%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) NETSOL's financial performance for FY2023 saw a decrease in total net revenues to **$52.39 million** from **$57.25 million** in FY2022, primarily due to lower license fees and subscription/support revenue, despite an increase in services revenue on a constant currency basis. The company reported a net loss of **$5.24 million** in FY2023, a significant increase from the **$0.85 million** net loss in FY2022, driven by decreased gross profit and increased operating expenses, partially offset by foreign currency exchange gains. Strategic initiatives included new product launches (Flex, Hubex), AWS partnership, and expansion into new geographic markets Key Financial Highlights (FY2023 vs. FY2022) | Metric | FY2023 (USD) | FY2022 (USD) | Change (USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenues | $52,393,215 | $57,247,979 | $(4,854,764) | -8.48% | | Gross Profit | $16,915,563 | $23,737,174 | $(6,821,611) | -28.74% | | Loss from Operations | $(8,779,958) | $(1,078,323) | $(7,701,635) | 714.23% | | Net Income (Loss) Attributable to NetSol | $(5,243,748) | $(851,156) | $(4,392,592) | 516.07% | | Basic EPS | $(0.46) | $(0.08) | $(0.38) | 475.00% | | Diluted EPS | $(0.46) | $(0.08) | $(0.38) | 475.00% | - Key achievements in FY2023 include partnering with Amazon Web Services, launching new products Flex and Hubex, signing a mobility solution contract with a Tier 1 automotive company in the U.S., and expanding geographically with a new subsidiary in Dubai and a development center in Austin, Texas[126](index=126&type=chunk) - The company successfully implemented change requests generating approximately **$7.0 million** and renegotiated existing contracts, increasing annual maintenance fees for a U.S. auto manufacturer's finance company in China to **$500K** from **$280K**[126](index=126&type=chunk) [Fiscal Year 2023 Highlights](index=19&type=section&id=Highlights%20for%20the%20fiscal%20year%20ended%20June%2030%2C%202023) This section summarizes key achievements and strategic developments for NETSOL during the fiscal year ended June 30, 2023 - Partnered with Amazon Web Services (AWS) to offer cloud computing services and achieved API Gateway Delivery Partner status, signing the first customer[126](index=126&type=chunk) - Launched new products: Flex (cloud-based calculation engine) and Hubex (API library), securing the first Flex contract with European Merchant Bank[126](index=126&type=chunk) - Otoz went live with its **55th dealer**, now operating in **36 states**, expected to generate approximately **$1.1 million in annual recurring revenues**[126](index=126&type=chunk) - Successfully implemented change requests from various customers, generating approximately **$7.0 million**[126](index=126&type=chunk) - Signed a new agreement with Kubota Australia Pty Ltd for NFS Ascent, expected to generate **$5 million over 5 years**[126](index=126&type=chunk) - Established a new subsidiary in Dubai to penetrate the MENA region and opened a development and support center in Austin, Texas, for North American growth[126](index=126&type=chunk) [Marketing and Business Development Activities](index=20&type=section&id=Marketing%20and%20Business%20Development%20Activities) This section outlines NETSOL's strategies for market expansion, enhancing global delivery, and strengthening its financial position within the leasing and finance industry - Management's growth strategy focuses on increasing competitiveness, enhancing global delivery capabilities, and strengthening financial position in the leasing and finance space[127](index=127&type=chunk) - Key initiatives include building strong C-level executive teams, developing next-tier management, upgrading China offices, and strengthening the NETSOL brand in Americas, Europe, and APAC[131](index=131&type=chunk) - The strategy also involves diversifying into complementary verticals through organic expansion, partnerships, and M&A, and continuing investment in the innovation lab[131](index=131&type=chunk) [NFS Ascent Growth Prospects (MD&A)](index=20&type=section&id=Growth%20Prospects%20for%20NFS%20Ascent) This section discusses the growth opportunities for NFS Ascent, driven by product maturation and expanding customer bases across various geographic and product markets - Growth for NFS Ascent is tied to product portfolio maturation and expanding customer base across geographic and product markets[127](index=127&type=chunk) - Sales strategy balances expansion into new markets (Americas, Europe) with further penetration in Asia Pacific[127](index=127&type=chunk) - North America growth is expected from replacing legacy systems, while Europe will see traction from NFS Ascent deployed on the cloud, supporting larger and smaller organizations[128](index=128&type=chunk)[129](index=129&type=chunk) - Asia Pacific growth is anticipated through diversification into banking and commercial lending, and increased service/maintenance revenues from existing customers[130](index=130&type=chunk) [Material Trends Affecting NETSOL](index=21&type=section&id=Material%20Trends%20Affecting%20NETSOL) This section identifies both positive and negative macroeconomic and industry trends impacting NETSOL's business, including vehicle sales, inflation, interest rates, and geopolitical factors - Positive trends include expected global new vehicle sales increase (**5.6% in 2023**), reduction of U.S. inflation to **~5%**, strong U.S. market for team building, and increasing traction for NFS Ascent SaaS offerings[132](index=132&type=chunk) - The auto and banking sectors show momentum towards increased mobility and digital solutions, with the global automotive finance market projected to more than double by 2035 (**CAGR of 7.4%**)[132](index=132&type=chunk) - Negative trends include global recession fears, continued U.S. interest rate increases restricting buying power, negative currency impact from Pakistan Rupee devaluation, and political/economic challenges in Pakistan[132](index=132&type=chunk) - Ongoing war in Ukraine, U.S. market decline in 2022, and U.S.-China tensions are also identified as negative trends[132](index=132&type=chunk) [Critical Accounting Policies](index=22&type=section&id=Critical%20Accounting%20Policies) This section outlines NETSOL's critical accounting policies, including revenue recognition, intangible assets, software development costs, and goodwill, which require significant management estimates and assumptions - Critical accounting policies include revenue recognition and multiple element arrangements, intangible assets, software development costs, and goodwill[133](index=133&type=chunk) - Financial statements are prepared in accordance with U.S. GAAP, requiring management estimates and assumptions[133](index=133&type=chunk) [Revenue Recognition](index=22&type=section&id=Revenue%20Recognition) This section details NETSOL's revenue recognition process under ASC 606, covering core and non-core revenue streams, and the significant judgments involved in determining standalone selling prices and measuring service progress - Revenue recognition follows a five-step process: identifying contracts, performance obligations, transaction price, allocating price to obligations, and recognizing revenue upon satisfaction of obligations[134](index=134&type=chunk)[139](index=139&type=chunk) - Core revenue streams are software licenses, services (implementation/consulting), and subscription/support (post-contract support) for enterprise software solutions[136](index=136&type=chunk) - Non-core revenue comes from business process outsourcing (BPO), other IT services, and internet services[137](index=137&type=chunk) - The company offers software via traditional on-premises licensing and a subscription model (hosted as a service)[136](index=136&type=chunk) - Significant judgments are required for determining Standalone Selling Price (SSP) for distinct performance obligations and for recognizing revenue from implementation/customization services based on estimated 'man-days'[148](index=148&type=chunk)[151](index=151&type=chunk) - The company applies practical expedients, such as not evaluating significant financing components if payment is expected within one year and expensing sales commissions when incurred if the amortization period is one year or less[157](index=157&type=chunk)[158](index=158&type=chunk) [Intangible Assets (MD&A)](index=25&type=section&id=Intangible%20Assets) This section describes NETSOL's intangible assets, including product licenses, copyrights, and trademarks, and the company's policy for amortization and impairment evaluation - Intangible assets include product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists[161](index=161&type=chunk) - Assets with finite lives are amortized over their estimated useful life and evaluated for impairment annually or when circumstances indicate carrying value may not be recoverable[161](index=161&type=chunk) [Software Development Costs (MD&A)](index=25&type=section&id=Software%20Development%20Costs) This section outlines NETSOL's accounting policy for software development costs, distinguishing between expensed R&D and capitalized costs, and their subsequent amortization - Costs for internally developing or enhancing software are expensed as R&D until technological feasibility is established, then capitalized[162](index=162&type=chunk) - Capitalization ceases when the product is available for general release, and capitalized costs are amortized based on projected revenue or a straight-line basis[162](index=162&type=chunk)[163](index=163&type=chunk) [Stock-Based Compensation (MD&A)](index=25&type=section&id=Stock-Based%20Compensation) This section details NETSOL's accounting for stock-based compensation, including the use of the Black-Scholes-Merton model and the judgmental assumptions required for valuation - Stock-based compensation expense is estimated at the grant date using the Black-Scholes-Merton (BSM) option pricing model and recognized over the requisite service period[164](index=164&type=chunk) - The BSM model requires judgmental assumptions like expected volatility and expected term, and the forfeiture rate is estimated based on historical experience[164](index=164&type=chunk) [Goodwill (MD&A)](index=25&type=section&id=Goodwill) This section explains NETSOL's accounting for goodwill, representing the excess of purchase price over acquired net assets, and the annual impairment review process - Goodwill represents the excess of purchase price over fair value of net assets acquired in business combinations[165](index=165&type=chunk) - Goodwill is reviewed for impairment annually, or more frequently if circumstances indicate impairment, using qualitative and quantitative assessments (expected present value of future cash flows)[165](index=165&type=chunk) [Recent Accounting Pronouncements (MD&A)](index=26&type=section&id=Recent%20Accounting%20Pronouncement) This section directs readers to Note 2 of the Consolidated Financial Statements for a comprehensive overview of recent accounting pronouncements and their adoption status - Refer to Note 2 'Summary of Significant Accounting Policies' in the Consolidated Financial Statements for a full description of recent accounting pronouncements and their expected adoption dates[167](index=167&type=chunk) [Results of Operations (FY2023 vs. FY2022)](index=27&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of NETSOL's financial performance for fiscal years 2023 and 2022, highlighting changes in revenues, gross profit, operating expenses, and net income Consolidated Statements of Operations (FY2023 vs. FY2022) | Metric | FY2023 (USD) | % of Revenue (FY2023) | FY2022 (USD) | % of Revenue (FY2022) | | :--- | :--- | :--- | :--- | :--- | | **Net Revenues:** | | | | | | License fees | $2,269,564 | 4.3% | $4,539,260 | 7.9% | | Subscription and support | $25,980,661 | 49.6% | $28,284,759 | 49.4% | | Services | $24,142,990 | 46.1% | $24,423,960 | 42.7% | | **Total net revenues** | **$52,393,215** | **100.0%** | **$57,247,979** | **100.0%** | | Cost of revenues | $35,477,652 | 67.7% | $33,510,805 | 58.5% | | **Gross profit** | **$16,915,563** | **32.3%** | **$23,737,174** | **41.5%** | | **Operating expenses:** | | | | | | Selling, general and administrative | $24,093,908 | 46.0% | $23,473,343 | 41.0% | | Research and development cost | $1,601,613 | 3.1% | $1,342,154 | 2.3% | | **Total operating expenses** | **$25,695,521** | **49.0%** | **$24,815,497** | **43.3%** | | **Loss from operations** | **$(8,779,958)** | **-16.8%** | **$(1,078,323)** | **-1.9%** | | **Other income and (expenses):** | | | | | | Interest expense | $(765,030) | -1.5% | $(369,801) | -0.6% | | Interest income | $1,217,850 | 2.3% | $1,655,883 | 2.9% | | Gain (loss) on foreign currency exchange transactions | $6,748,038 | 12.9% | $4,327,590 | 7.6% | | Share of net loss from equity investment | $(1,033,243) | -2.0% | $(2,021,480) | -3.5% | | Other income (expense) | $(605,570) | -1.2% | $(424,128) | -0.7% | | **Total other income (expenses)** | **$5,562,045** | **10.6%** | **$3,168,064** | **5.5%** | | Net income (loss) before income taxes | $(3,217,913) | -6.1% | $2,089,741 | 3.7% | | Income tax provision | $(926,560) | -1.8% | $(988,938) | -1.7% | | **Net income (loss)** | **$(4,144,473)** | **-7.9%** | **$1,100,803** | **1.9%** | | Non-controlling interest | $(1,099,275) | -2.1% | $(1,951,959) | -3.4% | | **Net income (loss) attributable to NetSol** | **$(5,243,748)** | **-10.0%** | **$(851,156)** | **-1.5%** | | **Net income (loss) per common share:** | | | | | | Basic | $(0.46) | | $(0.08) | | | Diluted | $(0.46) | | $(0.08) | | | Weighted average number of shares outstanding (Basic) | 11,279,966 | | 11,250,219 | | | Weighted average number of shares outstanding (Diluted) | 11,279,966 | | 11,250,219 | | Net Revenues by Segment (FY2023 vs. FY2022) | Segment | FY2023 Revenue (USD) | % of Total (FY2023) | FY2022 Revenue (USD) | % of Total (FY2022) | | :--- | :--- | :--- | :--- | :--- | | North America | $6,117,282 | 11.7% | $4,288,008 | 7.5% | | Europe | $10,758,444 | 20.5% | $10,428,203 | 18.2% | | Asia-Pacific | $35,517,489 | 67.8% | $42,531,768 | 74.3% | | **Total** | **$52,393,215** | **100.0%** | **$57,247,979** | **100.0%** | - License fees decreased by **$2.27 million (50.0%)** in FY2023, primarily due to lower new agreements compared to FY2022[172](index=172&type=chunk) - Subscription and support fees decreased by **$2.30 million (8.1%)** in FY2023, mainly due to a one-time revenue recognition in FY2022, but are anticipated to gradually increase[173](index=173&type=chunk) - Services income decreased by **$0.28 million (1.1%)** in FY2023, but increased by **$1.17 million (4.8%)** on a constant currency basis due to higher change requests, enhancements, and reimbursable costs[174](index=174&type=chunk) - Gross profit decreased by **$6.82 million (28.7%)** in FY2023, with the gross profit percentage falling to **32.3% from 41.5%**, driven by increased cost of sales[175](index=175&type=chunk) - Operating expenses increased by **$0.88 million (3.6%)** in FY2023, or **$5.60 million (22.6%)** on a constant currency basis, mainly due to increases in selling, general and administrative expenses, and R&D costs[181](index=181&type=chunk) - Loss from operations increased significantly to **$8.78 million** in FY2023 from **$1.08 million** in FY2022, an increase of **$7.70 million**[185](index=185&type=chunk) - Other income increased by **$2.39 million (75.5%)** in FY2023, primarily due to a higher gain on foreign currency exchange transactions (**$6.75 million** in FY2023 vs. **$4.33 million** in FY2022), partially offset by an impairment in Drivemate investment and other comprehensive loss[186](index=186&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) Adjusted EBITDA (FY2023 vs. FY2022) | Metric | FY2023 (USD) | FY2022 (USD) | | :--- | :--- | :--- | | Net Income (loss) attributable to NetSol | $(5,243,748) | $(851,156) | | Non-controlling interest | $1,099,275 | $1,951,959 | | Income taxes | $926,560 | $988,938 | | Depreciation and amortization | $3,244,538 | $3,812,273 | | Interest expense | $765,030 | $369,801 | | Interest (income) | $(1,217,850) | $(1,655,883) | | **EBITDA** | **$(426,195)** | **$4,615,932** | | Add back: Non-cash stock-based compensation | $317,451 | $104,347 | | **Adjusted EBITDA, gross** | **$(108,744)** | **$4,720,279** | | Less non-controlling interest (a) | $(2,154,850) | $(2,903,457) | | **Adjusted EBITDA, net** | **$(2,263,594)** | **$1,816,822** | | Basic adjusted EBITDA | $(0.20) | $0.16 | | Diluted adjusted EBITDA | $(0.20) | $0.16 | [Liquidity and Capital Resources](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section analyzes NETSOL's cash position, operating and investing activities, and financing arrangements, highlighting the company's ability to meet its short-term and long-term financial obligations Cash Position (FY2023 vs. FY2022) | Metric | June 30, 2023 (USD) | June 30, 2022 (USD) | | :--- | :--- | :--- | | Cash position | $15,533,254 | $23,963,797 | | Net cash provided by operating activities | $2,009,571 | $3,060,622 | | Net cash used by investing activities | $1,399,231 | $2,260,147 | | Net cash used in financing activities | $718,992 | $1,378,721 | | Current assets | $41,603,867 | $49,428,136 | | Current liabilities | $20,769,234 | $20,830,926 | | Average days sales outstanding | 168 days | 140 days | - Approximately **$13.5 million** of cash was held by foreign subsidiaries as of June 30, 2023, down from **$22.8 million** in 2022[203](index=203&type=chunk) - The company anticipates needing **$2 to $3 million** in working capital for APAC, U.S., and European new business development and infrastructure enhancements over the next **12 months**[205](index=205&type=chunk) - Subsidiaries have various financial arrangements and are in compliance with covenants, with no default leading to early payment obligations[207](index=207&type=chunk)[208](index=208&type=chunk) - The company's policy is to invest earnings in growth rather than distribute common stock dividends, a policy subject to regular Board review[209](index=209&type=chunk) Contractual Obligations (as of June 30, 2023) | Contractual Obligation | Total (USD) | 0 - 1 year (USD) | 1-3 Years (USD) | 3-5 Years (USD) | More than 5 years (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Obligations | | | | | | | D&O Insurance | $89,823 | $89,823 | $- | $- | $- | | Loan Payable Bank - Export Refinance | $1,741,493 | $1,741,493 | $- | $- | $- | | Loan Payable Bank - Export Refinance II | $1,323,535 | $1,323,535 | $- | $- | $- | | Loan Payable Bank - Export Refinance III | $2,438,089 | $2,438,089 | $- | $- | $- | | Term Finance Facility | $13,356 | $13,356 | $- | $- | $- | | Sale and Leaseback Financing | $321,113 | $148,264 | $172,849 | $- | $- | | Subsidiary Finance Leases | $28,330 | $24,950 | $3,380 | $- | $- | | Operating Lease Obligations | $1,157,431 | $505,237 | $589,025 | $62,733 | $436 | | **Total** | **$7,113,170** | **$6,284,747** | **$765,254** | **$62,733** | **$436** | - The company does not maintain any off-balance sheet arrangements[210](index=210&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) NETSOL is exposed to financial market risks, primarily foreign currency exchange rate fluctuations. The company's significant operations in the Asia Pacific region, where the Pakistan Rupee continuously devalues against the U.S. Dollar, result in foreign exchange gains. The company does not hedge this exposure, believing it to be counter-productive due to the lack of imports - NETSOL is exposed to financial market risks, including changes in currency exchange rates and interest rates[212](index=212&type=chunk) - The company's significant operations in the Asia Pacific region, where the Pakistan Rupee is continuously losing value against the US Dollar, result in foreign exchange gains[212](index=212&type=chunk) - NETSOL believes it is counter-productive to hedge foreign currency exposure due to the devaluation of the Pakistan Rupee and the lack of imports[212](index=212&type=chunk)[213](index=213&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) The consolidated financial statements and supplementary data are included at the end of this report, starting on page F-1 - The Consolidated Financial Statements are located at the end of the report, starting on page F-1[214](index=214&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=35&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) NETSOL's financial statements for fiscal years 2023 and 2022 did not contain adverse opinions or disclaimers, nor were they qualified or modified. There were no disagreements with BF Borgers CPA PC on accounting principles, financial disclosure, or auditing scope - NETSOL's financial statements for FY2023 and FY2022 did not contain an adverse opinion or disclaimer, nor were they qualified or modified[215](index=215&type=chunk) - There were no disagreements, disputes, or differences of opinion with BF Borgers CPA PC regarding accounting principles, financial statement disclosure, or auditing scope and procedures[216](index=216&type=chunk) [Controls and Procedures](index=35&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that NETSOL's disclosure controls and procedures were effective as of June 30, 2023. The company's internal controls over financial reporting were also assessed as effective based on the COSO framework. No material changes in internal controls were reported during Q4 FY2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2023[217](index=217&type=chunk) - Management assessed the effectiveness of internal controls over financial reporting as effective as of June 30, 2023, based on the COSO Internal Control-Integrated Framework (2013)[218](index=218&type=chunk)[220](index=220&type=chunk) - No changes in internal controls over financial reporting materially affected or are reasonably likely to materially affect the company's internal control during the fourth quarter of fiscal year 2023[221](index=221&type=chunk) [Other Information](index=36&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report under this item - No other information is reported under this item[222](index=222&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=36&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) There are no disclosures regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections[222](index=222&type=chunk) [PART III](index=36&type=section&id=PART%20III) This part addresses corporate governance, executive compensation, security ownership, and principal accountant fees [Directors, Executive Officers and Corporate Governance](index=36&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section details NETSOL's corporate governance, including compliance with Section 16(a) reporting, changes to the Board of Directors and its committees, and the business experience of current directors and executive officers. It also outlines the company's Code of Business Conduct & Ethics and the composition of the Audit Committee, identifying Mr. Kausar Kazmi as the Audit Committee financial expert - All Section 16(a) filing requirements for executive officers, directors, and beneficial owners were complied with for the fiscal year ended June 30, 2023[224](index=224&type=chunk) - Mr. Michael Francis was elected to the Board of Directors in June 2023, replacing Mr. Henry Tolentino, and was appointed Chair of the Nominating and Corporate Governance Committee and a member of the Audit and Compensation Committees in September 2023[225](index=225&type=chunk)[226](index=226&type=chunk) Current Directors and Executive Officers | Name | Age | Position Held with the Registrant | Family Relationship | | :--- | :--- | :--- | :--- | | Najeeb Ghauri | 69 | Chief Executive Officer, Chairman and Director | Brother of Naeem Ghauri | | Naeem Ghauri | 66 | President | Brother of Najeeb Ghauri | | Roger Almond | 58 | Chief Financial Officer | None | | Patti L. W. McGlasson | 58 | Sr. V.P., Legal and Corporate Affairs; Secretary, General Counsel | None | | Mark Caton | 74 | Director | None | | Malea Farsai | 54 | Director; Corporate Counsel | None | | Syed Kausar Kazmi | 70 | Director | None | | Michael Francis | 57 | Director | None | - Mr. Kausar Kazmi is identified as the Audit Committee financial expert, possessing over **40 years** of banking industry experience[258](index=258&type=chunk) [Executive Compensation](index=42&type=section&id=ITEM%2011%20-%20EXECUTIVE%20COMPENSATION) NETSOL's executive compensation philosophy aims to attract, motivate, and retain leaders by tying compensation to individual and corporate performance, aligning executive interests with shareholder value. Compensation for named executive officers includes base salary, performance-based cash bonuses, and long-term equity incentives. The Compensation Committee, advised by an independent consultant, sets compensation, with the CEO's bonus tied to total revenues and income from operations. The company also details potential payments upon termination or change of control for its named executive officers and outlines director compensation - Shareholders expressed support for executive compensation programs at the June 7, 2023 annual meeting, with **75% of votes cast in favor**[262](index=262&type=chunk) - The compensation program for the CEO ties a significant portion of compensation to financial results (total revenues and income from operations) on a graduated basis, with bonuses paid **60% in cash** and **40% in stock**[263](index=263&type=chunk)[268](index=268&type=chunk)[286](index=286&type=chunk) - The Compensation Committee engages an independent compensation consultant (Compensation Resources, Inc.) to evaluate executive and director compensation practices against a peer group[265](index=265&type=chunk)[270](index=270&type=chunk) - Executive compensation components for 2023 included base salary, cash awards at the discretion of the Compensation Committee, and long-term equity in the form of time-based restricted stock[269](index=269&type=chunk) Summary Compensation Table (FY2023 vs. FY2022) | Name and Principle Position | Fiscal Year Ended | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Najeeb Ghauri, CEO & Chairman | 2023 | $700,000 | $- | $- | $- | $200,000 | $900,000 | | | 2022 | $700,000 | $69,922 | $- | $- | $200,000 | $969,922 | | Naeem Ghauri, President | 2023 | $802,883 | $- | $- | $- | $47,220 | $850,103 | | | 2022 | $793,428 | $- | $- | $- | $45,830 | $839,258 | | Roger K Almond, Chief Financial Officer | 2023 | $226,000 | $10,000 | $- | $- | $36,871 | $272,871 | | | 2022 | $197,041 | $20,000 | $- | $- | $34,066 | $251,107 | | Patti L. W. McGlasson, Secretary, General Counsel | 2023 | $233,622 | $- | $- | $- | $11,719 | $245,341 | | | 2022 | $212,384 | $- | $- | $- | $10,426 | $222,810 | - As of June 30, 2023, there are no outstanding stock options or grants of unvested stock awards[315](index=315&type=chunk) Potential Payments to Najeeb Ghauri upon Termination/Change of Control (as of June 30, 2023) | Benefits and Payments | Termination After Change of Control ($) | Termination Upon Death or Disability ($) | Termination by Us Without Cause or by Executive for Good Reason ($) | | :--- | :--- | :--- | :--- | | Base Salary Continuance | $2,800,000 | $116,667 | $2,800,000 | | Health Related Benefits | $69,744 | $- | $69,744 | | Bonus | $- | $- | $- | | Salary Multiple Pay-out | $2,093,000 | $- | $- | | Bonus or Revenue One-time Pay-Out | $523,932 | $- | $- | | Net Cash Value of Options | $- | $- | $- | | **Total** | **$5,486,676** | **$116,667** | **$2,869,744** | Director Compensation Table (FY2023) | Name | Fees Earned or Paid in Cash ($) | Share Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Mark Caton | 53,000 | 53,000 | 106,000 | | Henry Tolentino | 53,000 | 53,000 | 106,000 | | Kausar Kazmi | 53,000 | 53,000 | 106,000 | | **Total** | **159,000** | **159,000** | **318,000** | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=57&type=section&id=ITEM%2012%20-%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section provides details on the beneficial ownership of NETSOL's common stock as of September 15, 2023. Najeeb Ghauri is the largest individual beneficial owner among management with **7.26%** ownership, while Todd M Felte and The Vanguard Group are significant institutional shareholders with **6.09%** and **5.20%** respectively. All officers and directors as a group beneficially own **14.01%** of the common stock Beneficial Ownership of Common Stock (as of September 15, 2023) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Najeeb Ghauri | 823,656 | 7.26% | | Naeem Ghauri | 416,697 | 3.67% | | Mark Caton | 121,021 | 1.07% | | Henry Tolentino | 46,752 | * | | Kausar Kazmi | 30,884 | * | | Michael Francis | - | * | | Patti McGlasson | 81,050 | * | | Roger Almond | 30,000 | * | | Malea Farsai | 39,811 | * | | Todd M Felte | 690,847 | 6.09% | | The Vanguard Group | 589,481 | 5.20% | | All officers and directors as a group (nine persons) | 1,589,871 | 14.01% | * Less than one percent - Shares issued and outstanding as of September 15, 2023, were **11,345,856**[339](index=339&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=57&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) NETSOL reported no material related party transactions exceeding **$120,000** since July 1, 2022, other than executive and director compensation. The Board of Directors has determined that Mark Caton, Kausar Kazmi, and Michael Francis are independent directors, satisfying Nasdaq listing requirements - No transactions with related persons exceeding **$120,000** occurred since July 1, 2022, other than compensation arrangements for executive officers and directors[341](index=341&type=chunk) - The Board of Directors determined that Mark Caton, Kausar Kazmi, and Michael Francis are 'independent directors' as defined by Nasdaq Listing Rules[342](index=342&type=chunk) [Principal Accountant Fees and Services](index=58&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) BF Borgers CPA PC served as NETSOL's principal accountant, billing **$262,500** for audit fees in FY2023 and **$250,000** in FY2022. Tax fees were **$16,000** for both fiscal years, covering federal and state tax return preparation. No other fees were paid. The Audit Committee pre-approves all auditing and permitted non-audit services to maintain auditor independence Principal Accountant Fees (FY2023 vs. FY2022) | Fee Type | FY2023 (USD) | FY2022 (USD) | | :--- | :--- | :--- | | Audit Fees | $262,500 | $250,000 | | Tax Fees | $16,000 | $16,000 | | All Other Fees | $- | $- | - The Audit Committee is responsible for engaging independent auditors and pre-approving all auditing and permitted non-audit services to ensure auditor independence[346](index=346&type=chunk) [PART IV](index=60&type=section&id=PART%20IV) This part lists exhibits, financial statement schedules, and reports on Form 8-K [Exhibits, Financial Statement Schedules and Reports on Form 8-K](index=60&type=section&id=ITEM%2015%20-%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES%20AND%20REPORTS%20ON%20FORM%208-K) This section lists all exhibits filed as part of the 10-K report, including articles of incorporation, employment agreements, stock option plans, and certifications (e.g., Sarbanes-Oxley Act). It also includes a list of all subsidiaries of the company and XBRL taxonomy documents - The report includes various exhibits such as Articles of Incorporation, Employment Agreements, and Stock Option Plans[350](index=350&type=chunk) - Certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 for the CEO and CFO are included[351](index=351&type=chunk) - A list of all subsidiaries of the Company and Inline XBRL documents are also part of the exhibits[351](index=351&type=chunk) [Signatures](index=62&type=section&id=SIGNATURES) This section contains the official signatures of NETSOL Technologies, Inc.'s authorized representatives, including executive officers and directors [Signatures of Authorized Persons](index=62&type=section&id=Signatures%20of%20Authorized%20Persons) The report is signed by authorized representatives of NetSol Technologies, Inc., including the Chief Executive Officer, Chief Financial Officer, and members of the Board of Directors, affirming its submission in accordance with the Exchange Act - The report is signed by Najeeb Ghauri (Chief Executive Officer, Chairman, Director) and Roger K. Almond (Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer)[354](index=354&type=chunk)[356](index=356&type=chunk) - Other directors, including Mark Caton, Malea Farsai, Michael Francis, and Kausar Kazmi, also signed the report[356](index=356&type=chunk) [Index to Consolidated Financial Statements](index=64&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides an index to the company's consolidated financial statements, including auditor's report, balance sheets, statements of operations, equity, cash flows, and notes [Financial Statements Listing](index=64&type=section&id=Financial%20Statements%20Listing) This section provides an index to the consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Statement of Equity, Statements of Cash Flows, and Notes to Consolidated Financial Statements - The index lists the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statement of Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[358](index=358&type=chunk) [Report of Independent Registered Public Accounting

3 NASDAQ: NTWK THIRD QUARTER HIGHLIGHTS Global customer growth | --- | --- | --- | |-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------| | | | | | • • | Multi-million-dollar agreement with Kubota, a leading Japanese equipment finance company Went live with API-first and cloud-based calculation engine Flex ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents NETSOL Technologies' unaudited condensed consolidated financial statements and related notes for the specified interim periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | Metric | March 31, 2023 | June 30, 2022 | | :-------------------------------- | :------------- | :------------ | | Total assets | $59,549,867 | $72,608,632 | | Total liabilities | $18,522,814 | $21,754,409 | | Total stockholders' equity | $41,027,053 | $50,854,223 | - Total assets decreased by approximately **$13.06 million** from June 30, 2022, to March 31, 2023. Total liabilities decreased by approximately **$3.23 million**, and total stockholders' equity decreased by approximately **$9.83 million** during the same period[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section reports the company's revenues, expenses, and net income or loss over specific interim periods | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total net revenues | $13,506,389 | $14,809,826 | $38,602,866 | $43,703,549 | | Gross profit | $4,705,029 | $5,834,570 | $12,099,489 | $18,920,180 | | Income (loss) from operations | $(930,435) | $(539,305) | $(5,873,140) | $474,953 | | Net income (loss) attributable to NetSol | $2,544,623 | $(278,470) | $(169,032) | $1,316,284 | | Basic EPS | $0.23 | $(0.02) | $(0.01) | $0.12 | | Diluted EPS | $0.23 | $(0.02) | $(0.01) | $0.12 | - For the three months ended March 31, 2023, total net revenues decreased by **8.8% YoY**, while net income attributable to NetSol significantly improved from a loss of **$278,470** to a gain of **$2,544,623**. For the nine months ended March 31, 2023, total net revenues decreased by **11.7% YoY**, and net income attributable to NetSol shifted from a gain of **$1,316,284** to a loss of **$169,032**[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents net income or loss alongside other comprehensive income items, such as foreign currency translation adjustments | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to NetSol | $2,544,623 | $(278,470) | $(169,032) | $1,316,284 | | Net translation adjustment | $(5,181,654) | $(1,804,777) | $(7,829,909) | $(4,871,925) | | Comprehensive income (loss) attributable to NetSol | $(2,637,031) | $(2,083,247) | $(7,998,941) | $(3,555,641) | - The company experienced significant negative translation adjustments, leading to comprehensive losses for both the three and nine months ended March 31, 2023 and 2022, despite a net income for the three months ended March 31, 2023[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity accounts, including common stock, additional paid-in capital, and accumulated deficit | Metric | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Common Stock Shares | 12,238,042 | 12,196,570 | | Common Stock Amount | $122,382 | $121,966 | | Additional Paid-in Capital | $128,536,955 | $128,218,247 | | Accumulated Deficit | $(39,821,470) | $(39,652,438) | | Other Comprehensive Loss | $(47,192,994) | $(39,363,085) | | Total Stockholders' Equity | $41,027,053 | $50,854,223 | - Total stockholders' equity decreased by approximately **$9.83 million** from June 30, 2022, to March 31, 2023, primarily due to an increase in other comprehensive loss (translation adjustment) and accumulated deficit, partially offset by an increase in additional paid-in capital[8](index=8&type=chunk)[15](index=15&type=chunk)[17](index=17&type=chunk) - The company issued **41,472 shares** of common stock for services rendered by independent board members during the nine months ended March 31, 2023, valued at **$119,250**[123](index=123&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports cash inflows and outflows from operating, investing, and financing activities over specific interim periods | Cash Flow Activity | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $2,564,619 | $5,525,951 | | Net cash used in investing activities | $(1,421,657) | $(1,359,605) | | Net cash used in financing activities | $(517,349) | $(833,103) | | Effect of exchange rate changes | $(9,329,913) | $(6,465,085) | | Net decrease in cash and cash equivalents | $(8,704,300) | $(3,131,842) | | Cash and cash equivalents at end of period | $15,259,497 | $30,573,312 | - Net cash provided by operating activities decreased by approximately **53.6% YoY** for the nine months ended March 31, 2023. The significant negative effect of exchange rate changes contributed to a larger net decrease in cash and cash equivalents compared to the prior year[21](index=21&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION](index=12&type=section&id=NOTE%201%20-%20BASIS%20OF%20PRESENTATION%20AND%20PRINCIPLES%20OF%20CONSOLIDATION) This note describes the company's business, the basis for preparing interim financial statements, and its consolidation principles - NETSOL Technologies, Inc. provides proprietary software products and IT services to the automobile financing, leasing, banking, and financial services industries worldwide[26](index=26&type=chunk) - The company's consolidated financial statements include accounts of wholly-owned subsidiaries (e.g., NetSol Technologies Americas, NetSol Technologies Europe Limited) and majority-owned subsidiaries (e.g., NetSol Technologies, Ltd., Otoz, Inc.)[29](index=29&type=chunk) [NOTE 2 – ACCOUNTING POLICIES](index=13&type=section&id=NOTE%202%20%E2%80%93%20ACCOUNTING%20POLICIES) This note outlines significant accounting policies, including estimates, credit risk, and fair value measurements - Significant estimates are made for doubtful accounts, taxation, useful lives of depreciable and intangible assets, contingencies, operating lease liabilities, and estimated contract costs[31](index=31&type=chunk) - As of March 31, 2023, the company had approximately **$13.09 million** in uninsured cash deposits in foreign entities, down from **$22.76 million** at June 30, 2022[32](index=32&type=chunk) - The company did not have any financial assets measured at fair value on a recurring basis at March 31, 2023, compared to **$853,601** at June 30, 2022, primarily due to transfers to short term and amortization[37](index=37&type=chunk)[38](index=38&type=chunk) [NOTE 3 – REVENUE RECOGNITION](index=15&type=section&id=NOTE%203%20%E2%80%93%20REVENUE%20RECOGNITION) This note details the company's revenue recognition policies, including core and non-core streams and contract balances - The company's primary revenue streams are core revenue (software licenses, services, subscription and support) and non-core revenue (BPO, other IT services, internet services)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) Total Net Revenue by Category | Revenue Category | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :----------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total core revenue, net | $12,508,511 | $13,592,002 | $35,533,685 | $39,887,101 | | Total non-core revenue, net | $997,878 | $1,217,824 | $3,069,181 | $3,816,448 | | Total net revenue | $13,506,389 | $14,809,826 | $38,602,866 | $43,703,549 | - Contracted but unsatisfied performance obligations were approximately **$33.6 million** as of March 31, 2023, with an estimated **$15.2 million** to be recognized in the next 12 months[73](index=73&type=chunk) [NOTE 4 – EARNINGS PER SHARE](index=20&type=section&id=NOTE%204%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note explains the calculation of basic and diluted earnings per share, noting the absence of dilutive instruments - Basic EPS is computed based on weighted average common shares outstanding; diluted EPS includes dilutive potential common shares. No dilutive instruments were outstanding for the periods ended March 31, 2023 and 2022[81](index=81&type=chunk) [NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY](index=20&type=section&id=NOTE%205%20%E2%80%93%20OTHER%20COMPREHENSIVE%20INCOME%20AND%20FOREIGN%20CURRENCY) This note addresses foreign currency translation adjustments and their impact on comprehensive income and accumulated losses - Various subsidiaries use different functional currencies (e.g., British Pound, Euro, Pakistan Rupee, Thai Baht, Australian dollar, AED, Chinese Yuan), while NetSol Technologies, Inc. uses the U.S. dollar[82](index=82&type=chunk) Accumulated Translation Losses and Net Translation Adjustment | Metric | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Accumulated translation losses | $(47,192,994) | $(39,363,085) | | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net translation adjustment attributable to NetSol | $(5,181,654) | $(1,804,777) | $(7,829,909) | $(4,871,925) | [NOTE 6 – MAJOR CUSTOMERS](index=20&type=section&id=NOTE%206%20%E2%80%93%20MAJOR%20CUSTOMERS) This note identifies key customers, Daimler Financial Services and BMW Financial, and their revenue and receivable contributions Revenue from Major Customers | Customer | 9 Months Ended Mar 31, 2023 Revenue | % of Total Revenue (9M 2023) | 9 Months Ended Mar 31, 2022 Revenue | % of Total Revenue (9M 2022) | | :--------------------- | :-------------------------------- | :--------------------------- | :-------------------------------- | :--------------------------- | | Daimler Financial Services (DFS) | $10,824,636 | 28.0% | $15,692,171 | 35.9% | | BMW Financial (BMW) | $3,208,649 | 8.3% | $3,203,536 | 7.3% | Accounts Receivable and Revenues in Excess of Billings from Major Customers | Customer | Accounts Receivable (Mar 31, 2023) | Accounts Receivable (Jun 30, 2022) | Revenues in Excess of Billings (Mar 31, 2023) | Revenues in Excess of Billings (Jun 30, 2022) | | :--------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Daimler Financial Services (DFS) | $2,284,979 | $2,005,463 | $2,016,970 | $365,863 | | BMW Financial (BMW) | $1,104,698 | $2,498,645 | $2,002,579 | $2,199,381 | [NOTE 7 - OTHER CURRENT ASSETS](index=20&type=section&id=NOTE%207%20-%20OTHER%20CURRENT%20ASSETS) This note details the components of other current assets, including prepaid expenses and various receivables Other Current Assets Breakdown | Category | March 31, 2023 | June 30, 2022 | | :----------------- | :------------- | :------------ | | Prepaid Expenses | $1,438,244 | $1,389,370 | | Advance Income Tax | $218,352 | $202,783 | | Other Receivables | $188,157 | $21,581 | | Net Balance | $2,599,532 | $2,223,361 | [NOTE 8 – REVENUES IN EXCESS OF BILLINGS – LONG TERM](index=21&type=section&id=NOTE%208%20%E2%80%93%20REVENUES%20IN%20EXCESS%20OF%20BILLINGS%20%E2%80%93%20LONG%20TERM) This note explains the decrease in long-term revenues in excess of billings due to accretion and reclassification to short-term Revenues in Excess of Billings - Long Term | Metric | March 31, 2023 | June 30, 2022 | | :---------------------------------- | :------------- | :------------ | | Revenues in excess of billings - long term | $0 | $881,940 | | Present value discount | $0 | $(28,339) | | Net Balance | $0 | $853,601 | - During the three and nine months ended March 31, 2023, the company accreted **$9,372** and **$28,029**, respectively, which was recorded in interest income[87](index=87&type=chunk) [NOTE 9 - PROPERTY AND EQUIPMENT](index=21&type=section&id=NOTE%209%20-%20PROPERTY%20AND%20EQUIPMENT) This note details changes in property and equipment, net, primarily due to accumulated depreciation and related expenses Property and Equipment, Net | Category | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Subtotal (Gross) | $18,307,788 | $23,451,688 | | Accumulated Depreciation | $(11,436,752) | $(14,069,064) | | Property and Equipment, Net | $6,871,036 | $9,382,624 | - Depreciation expense for the nine months ended March 31, 2023, was **$1,598,325**, with **$1,029,012** reflected in cost of revenues[88](index=88&type=chunk) [NOTE 10 - LEASES](index=22&type=section&id=NOTE%2010%20-%20LEASES) This note outlines the company's lease accounting, including ROU assets, lease liabilities, and total lease costs Lease Assets and Liabilities | Metric | March 31, 2023 | June 30, 2022 | | :------------------------ | :------------- | :------------ | | Operating lease assets, net | $1,102,729 | $969,163 | | Total Lease Liabilities | $1,072,666 | $995,938 | Lease Cost Components | Lease Cost Component | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | | Amortization of finance lease assets | $13,701 | $59,201 | | Interest on finance lease obligation | $4,402 | $13,780 | | Operating lease cost | $346,993 | $518,048 | | Short term lease cost | $143,978 | $166,789 | | Sub lease income | $(23,697) | $(27,012) | | Total lease cost | $485,377 | $730,806 | - Maturities of operating lease liabilities as of March 31, 2023, show **$450,939** due within year 1 and **$651,443** as non-current portion[101](index=101&type=chunk) [NOTE 11 – LONG TERM INVESTMENT](index=25&type=section&id=NOTE%2011%20%E2%80%93%20LONG%20TERM%20INVESTMENT) This note describes the company's equity method investment in Drivemate Co., Ltd., and its impact on net income - The company owns a **30% equity interest** in Drivemate Co., Ltd., accounted for using the equity method[104](index=104&type=chunk) Net Investment in Drivemate | Metric | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Gross investment | $1,800,000 | $1,800,000 | | Cumulative net loss on investment | $(733,122) | $(740,632) | | Net investment | $1,066,878 | $1,059,368 | - For the nine months ended March 31, 2023, the company recorded a share of net income of **$7,510** from its equity investment in Drivemate[105](index=105&type=chunk) [NOTE 12 - INTANGIBLE ASSETS](index=25&type=section&id=NOTE%2012%20-%20INTANGIBLE%20ASSETS) This note details intangible assets, primarily product licenses, their amortization, and net balance changes Intangible Assets, Net | Metric | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Product Licenses - Cost | $47,244,997 | $47,244,997 | | Accumulated Amortization | $(22,198,513) | $(25,743,121) | | Net Balance | $381,878 | $1,587,670 | - The unamortized amount of **$381,878** will be amortized over one year. Amortization expense for the nine months ended March 31, 2023, was **$921,144**[109](index=109&type=chunk) [NOTE 13 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=26&type=section&id=NOTE%2013%20-%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) This note explains the changes in accounts payable and accrued expenses, driven by accrued liabilities Accounts Payable and Accrued Expenses | Category | March 31, 2023 | June 30, 2022 | | :-------------------------- | :------------- | :------------ | | Accounts Payable | $987,963 | $1,175,527 | | Accrued Liabilities | $4,102,715 | $3,507,415 | | Accrued Payroll | $1,182,049 | $1,397,605 | | Total | $7,098,206 | $6,813,541 | [NOTE 14 – DEBTS](index=26&type=section&id=NOTE%2014%20%E2%80%93%20DEBTS) This note details the company's notes payable and finance leases, including current maturities and varying interest rates Debt and Finance Lease Obligations | Debt Type | March 31, 2023 Total | March 31, 2023 Current | March 31, 2023 Long-Term | June 30, 2022 Total | June 30, 2022 Current | June 30, 2022 Long-Term | | :-------------------------------- | :------------------- | :--------------------- | :----------------------- | :------------------- | :--------------------- | :----------------------- | | Loans and obligations under finance leases | $6,148,260 | $5,938,717 | $209,543 | $8,974,797 | $8,532,050 | $442,747 | | Subsidiary Finance Leases | $36,027 | $30,327 | $5,700 | $68,571 | $35,095 | $33,476 | | Total | $6,184,287 | $5,969,044 | $215,243 | $9,043,368 | $8,567,145 | $476,223 | - Interest rates on export refinance facilities for NetSol PK increased significantly, for example, from **3.0% to 17.0%** for Askari Bank Limited and from **3.0% to 10.0%** for Samba Bank Limited and Habib Metro Bank Limited[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Minimum future lease payments under finance leases total **$39,187**, with **$33,135** due within year 1. Aggregate future long-term debt payments total **$376,712**, with **$167,169** due within year 1[120](index=120&type=chunk) [NOTE 15 - STOCKHOLDERS' EQUITY](index=30&type=section&id=NOTE%2015%20-%20STOCKHOLDERS'%20EQUITY) This note reports the issuance of common stock for services rendered by independent board members - The company issued **15,057 common shares** (**$39,750** fair value) for services in the three months ended March 31, 2023, and **41,472 common shares** (**$119,250** fair value) for the nine months ended March 31, 2023[123](index=123&type=chunk) [NOTE 16 – CONTINGENCIES](index=30&type=section&id=NOTE%2016%20%E2%80%93%20CONTINGENCIES) This note addresses legal proceedings, claims, and tax assessments, and the company's policy for estimating losses - The company faces legal proceedings, claims, and litigation, including tax assessments, in the ordinary course of business[124](index=124&type=chunk) - Estimated losses are accrued when probable and reasonably estimable; otherwise, disclosures are provided if a material loss is reasonably possible[124](index=124&type=chunk) [NOTE 17 – OPERATING SEGMENTS](index=30&type=section&id=NOTE%2017%20%E2%80%93%20OPERATING%20SEGMENTS) This note outlines the company's three operating segments: North America, Europe, and Asia-Pacific, with Asia-Pacific being the largest - The company's three operating segments are North America, Europe, and Asia-Pacific, each offering similar products and services[125](index=125&type=chunk) Identifiable Assets by Segment | Segment | Identifiable Assets (Mar 31, 2023) | Identifiable Assets (Jun 30, 2022) | | :-------------- | :------------------------------- | :------------------------------- | | North America | $6,332,955 | $6,442,219 | | Europe | $8,351,282 | $8,727,530 | | Asia - Pacific | $43,231,859 | $56,594,705 | | Consolidated | $59,549,867 | $72,608,632 | Revenue by Segment | Segment | 9 Months Ended Mar 31, 2023 Revenue | 9 Months Ended Mar 31, 2022 Revenue | | :-------------- | :-------------------------------- | :-------------------------------- | | North America | $4,088,696 | $3,104,433 | | Europe | $7,643,408 | $7,483,911 | | Asia - Pacific | $26,870,762 | $33,115,205 | | Consolidated | $38,602,866 | $43,703,549 | [NOTE 18 – NON-CONTROLLING INTEREST IN SUBSIDIARY](index=32&type=section&id=NOTE%2018%20%E2%80%93%20NON-CONTROLLING%20INTEREST%20IN%20SUBSIDIARY) This note explains the changes in non-controlling interest, primarily due to NetSol PK's net income and Otoz share issuance Non-Controlling Interest by Subsidiary | Subsidiary | Non-Controlling Interest % (Mar 31, 2023) | Non-Controlling Interest (Mar 31, 2023) | Non-Controlling Interest % (Jun 30, 2022) | Non-Controlling Interest (Jun 30, 2022) | | :---------------- | :---------------------------------------- | :-------------------------------------- | :---------------------------------------- | :-------------------------------------- | | NetSol PK | 32.38% | $3,630,559 | 32.38% | $5,479,905 | | Otoz, Inc. | 10.94% | $(156,930) | 5.59% | $(47,698) | | Total | - | $3,303,036 | - | $5,450,389 | - The non-controlling interest in Otoz, Inc. increased from **5.59% to 10.94%** due to the issuance of **191,011 shares** to an employee[131](index=131&type=chunk) [NOTE 19– INCOME TAXES](index=33&type=section&id=NOTE%2019%E2%80%93%20INCOME%20TAXES) This note details the income tax provision and effective tax rate, noting tax exemptions for Pakistan-developed software exports Income Tax Provision | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax provision | $(227,718) | $(157,604) | $(641,122) | $(526,737) | - Income from the export of computer software and related services developed in Pakistan is tax-exempt through June 30, 2025; tax is applied to non-core business activities[135](index=135&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, covering business, trends, financial changes, non-GAAP measures, liquidity, and covenants [Business Overview](index=34&type=section&id=Business%20Overview) This section describes NETSOL's global IT and enterprise software solutions, focusing on its NFS Ascent suite for the finance and leasing industry - NETSOL's primary revenue sources are licensing, subscriptions, modification, enhancement, and support of its NFS Ascent financial applications for the global finance and leasing space[143](index=143&type=chunk) - Key offerings include NFS Ascent (cloud-enabled, SaaS/subscription-based), NFS Digital (digital transformation solutions), and OTOZ (white-labeled SaaS platform for on-demand mobility and digital auto retail)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - The company maintains regional offices in North America (Los Angeles, Austin), Europe (London, Horsham), and Asia Pacific (Lahore, Karachi, Bangkok, Beijing, Shanghai, Jakarta, Sydney)[145](index=145&type=chunk)[148](index=148&type=chunk) [Highlights](index=36&type=section&id=Highlights) This section summarizes key achievements for the quarter, including new agreements, product implementations, and strategic partnerships - Signed a new **$5 million NFS Ascent agreement** with Kubota Australia Pty Ltd - Went live with the API-first cloud-based calculation engine, Flex™, for Haydock Finance in the United Kingdom - Successfully implemented NFS Ascent CMS system for DFS in Japan - Otoz expanded its network to **38 dealers** across **16 states** - Generated approximately **$1.0 million** from successfully implementing change requests - Achieved API Gateway Delivery Partner status with Amazon Web Services (AWS), enhancing API capabilities and potential sales[153](index=153&type=chunk) [Trends](index=37&type=section&id=Trends) This section outlines positive and negative market trends impacting the company, such as vehicle sales, inflation, currency fluctuations, and geopolitical events - **Positive Trends:** Global new vehicle sales expected to reach **84 million units** in 2023 (**5.6% increase**), U.S. sales volumes projected to increase by **8% to 15 million units**. Reduction of U.S. inflation rate to approximately **5% annually**. Elimination of COVID-19 travel testing. NFS Ascent SaaS offerings gaining traction. Auto and banking sectors show momentum towards increased mobility and digital solutions. China Pakistan Economic Corridor (CPEC) investment exceeding **$65 billion**. China's auto sector remains steady with government incentives. Positive business development activities in the US and China - **Negative Trends:** Global recession fears impacting future expansions and budgets. Continued interest rate increases by the U.S. Federal Reserve Board. Negative currency impact due to devaluation of Pakistan Rupee and British Pound Sterling against the US Dollar. Political, monetary, and economic challenges in Pakistan. Inflation and higher global interest rates increasing the cost of doing business. War and hostility between Russia and Ukraine fostering global uncertainty. Decline in U.S. markets limiting access to capital. Potential impact of remote work on employee collaboration. Unsteady political and economic environment in Pakistan[154](index=154&type=chunk) [CHANGES IN FINANCIAL CONDITION](index=38&type=section&id=CHANGES%20IN%20FINANCIAL%20CONDITION) This section analyzes changes in financial condition, revenues, and expenses for the three and nine months, emphasizing constant currency impacts Key Financial Changes (3 Months Ended March 31) | Metric | 2023 (Reported) | 2022 (Reported) | Change (Reported) | Change (Constant Currency) | | :------------------------------------------ | :-------------- | :-------------- | :---------------- | :------------------------- | | Net Revenues | $13,506,389 | $14,809,826 | $(1,303,437) | $(707,932) | | Gross profit | $4,705,029 | $5,834,570 | $(1,129,541) | $(3,424,282) | | Income (loss) from operations | $(930,435) | $(539,305) | $(391,130) | $(3,914,670) | | Gain on foreign currency exchange transactions | $5,385,591 | $499,516 | $4,886,075 | - | | Net income (loss) attributable to NetSol | $2,544,623 | $(278,470) | $2,823,093 | $1,511,612 | Key Financial Changes (9 Months Ended March 31) | Metric | 2023 (Reported) | 2022 (Reported) | Change (Reported) | Change (Constant Currency) | | :------------------------------------------ | :-------------- | :-------------- | :---------------- | :------------------------- | | Net Revenues | $38,602,866 | $43,703,549 | $(5,100,683) | $(3,069,077) | | Gross profit | $12,099,489 | $18,920,180 | $(6,820,691) | $(12,116,799) | | Income (loss) from operations | $(5,873,140) | $474,953 | $(6,348,093) | $(15,133,081) | | Gain on foreign currency exchange transactions | $7,358,519 | $2,684,680 | $4,673,839 | - | | Net income (loss) attributable to NetSol | $(169,032) | $1,316,284 | $(1,485,316) | $(6,151,678) | - Foreign currency exchange gains significantly impacted other income, with a gain of **$5,385,591** for the three months and **$7,358,519** for the nine months ended March 31, 2023, primarily due to the strengthening of the U.S. dollar and Euro against the Pakistani Rupee[172](index=172&type=chunk)[194](index=194&type=chunk) [Non-GAAP Financial Measures](index=46&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures like Adjusted EBITDA, used to evaluate business performance - EBITDA is GAAP net income or loss before net interest expense, income tax expense, depreciation and amortization - Non-GAAP adjusted EBITDA is EBITDA plus stock-based compensation expense - Adjusted EBITDA per basic and diluted share is Adjusted EBITDA allocated to common stock divided by weighted average shares outstanding and diluted shares outstanding[203](index=203&type=chunk) Adjusted EBITDA Reconciliation | Metric | 3 Months Ended Mar 31, 2023 | 3 Months Ended Mar 31, 2022 | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (loss) attributable to NetSol | $2,544,623 | $(278,470) | $(169,032) | $1,316,284 | | EBITDA | $5,177,558 | $809,820 | $4,069,741 | $5,522,169 | | Adjusted EBITDA, net | $3,258,434 | $358,948 | $1,904,612 | $3,217,673 | | Basic adjusted EBITDA per share | $0.29 | $0.03 | $0.17 | $0.29 | [LIQUIDITY AND CAPITAL RESOURCES](index=48&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash position, operating cash flow, investing and financing activities, and future capital expenditure plans | Metric | March 31, 2023 | June 30, 2022 | | :--------------------------------- | :------------- | :------------ | | Cash and cash equivalents | $15,259,497 | $23,963,797 | | Current assets | $40,824,397 | $49,428,136 | | Current liabilities | $17,656,128 | $20,830,926 | | Cash Flow Activity | 9 Months Ended Mar 31, 2023 | 9 Months Ended Mar 31, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $2,564,619 | $5,525,951 | | Net cash used in investing activities | $(1,421,657) | $(1,359,605) | | Net cash used in financing activities | $(517,349) | $(833,103) | - Approximately **$13.1 million** of cash and cash equivalents are held by foreign subsidiaries as of March 31, 2023. The company anticipates needing **$2.5 million** for capital expenditures in the next 12 months, to be funded from current operations[210](index=210&type=chunk)[212](index=212&type=chunk) [Financial Covenants](index=49&type=section&id=Financial%20Covenants) This section details financial covenants associated with subsidiary borrowings and confirms the company's compliance - NTE (UK) overdraft facility requires invoiced trade debtors (net of provisions, excluding intra-group, not exceeding 90 days old) to be at least **200%** of the **£300,000** facility - NetSol PK (Pakistan) facilities require maintaining a long-term debt-to-equity ratio of **60:40** and a current ratio of **1:1** - NetSol PK's export refinance facilities from Samba Bank Limited also require a minimum current ratio of **1:1**, an interest coverage ratio of **4 times**, a leverage ratio of **2 times**, and a debt service coverage ratio of **4 times** - The company is in compliance with all financial covenants as of the report date[214](index=214&type=chunk)[215](index=215&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=49&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section highlights critical accounting policies involving significant management judgments and estimates, with no recent changes - Critical accounting policies involve significant management judgments, estimates, and assumptions that can materially affect reported results[216](index=216&type=chunk) - There have been no significant changes to the company's accounting policies and estimates since the Annual Report on Form 10-K for the fiscal year ended June 30, 2022[216](index=216&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=49&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section refers to Note 2 for information on recent accounting pronouncements and their impact on financial statements - Refer to Note 2 for information on recent accounting pronouncements and their impact on the consolidated financial statements[217](index=217&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company reported no material quantitative or qualitative disclosures about market risks for the period - There are no quantitative or qualitative disclosures about market risk[218](index=218&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[219](index=219&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[220](index=220&type=chunk) [PART II. OTHER INFORMATION](index=50&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.Legal%20Proceedings) There are no legal proceedings to report for the current period - No legal proceedings to report[221](index=221&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A%20Risk%20Factors) There are no new risk factors to report for the current period - No new risk factors to report[221](index=221&type=chunk) [Item 2. Unregistered Sales of Equity and Use of Proceeds](index=50&type=section&id=Item%202.Unregistered%20Sales%20of%20Equity%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity or use of proceeds to report - No unregistered sales of equity or use of proceeds to report[222](index=222&type=chunk) [Item 3. Defaults Upon Senior Securities](index=50&type=section&id=Item%203.Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[223](index=223&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[224](index=224&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.Other%20Information) There is no other information to report for the current period - No other information to report[225](index=225&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications and Inline XBRL documents - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO and CFO) - Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO and CFO) - Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Cover Page Interactive Data File[227](index=227&type=chunk)

NetSol Technologies, Inc. (NASDAQ:NTWK) Q2 2023 Earnings Conference Call February 14, 2023 9:00 AM ET Company Participants Patti McGlasson - SVP, Legal & Corporate Affairs, Corporate Secretary and General Counsel Roger Almond - CFO Najeeb Ghauri - Co-Founder, Chairman & CEO Conference Call Participants Todd Felte - AGES Financial Services Operator Good morning. Welcome to NetSol Technologies Second Quarter 2023 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Offi ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited consolidated financial statements, including balance sheets, operations, cash flows, and detailed accounting notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Total assets | $64,815,899 | $72,608,632 | | Total liabilities | $20,454,787 | $21,754,409 | | Total stockholders' equity | $44,361,112 | $50,854,223 | | Cash and cash equivalents | $20,946,722 | $23,963,797 | | Accounts receivable, net | $4,595,675 | $8,669,202 | | Total current assets | $43,076,510 | $49,428,136 | | Total current liabilities | $19,358,221 | $20,830,926 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total net revenues | $12,390,358 | $15,472,962 | $25,096,477 | $28,893,723 | | Gross profit | $3,142,463 | $7,642,587 | $7,394,460 | $13,085,610 | | Loss from operations | $(3,046,514) | $1,653,868 | $(4,942,705) | $1,014,258 | | Net income (loss) | $(2,401,963) | $2,438,548 | $(2,839,934) | $2,989,043 | | Net income (loss) attributable to NetSol | $(2,092,926) | $1,406,785 | $(2,713,655) | $1,594,754 | | Basic EPS | $(0.19) | $0.13 | $(0.24) | $0.14 | | Diluted EPS | $(0.19) | $0.13 | $(0.24) | $(0.14) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) | $(2,092,926) | $1,406,785 | $(2,713,655) | $1,594,754 | | Net translation adjustment | $269,795 | $(921,743) | $(2,648,255) | $(3,067,148) | | Comprehensive income (loss) attributable to NetSol | $(1,823,131) | $485,042 | $(5,361,910) | $(1,472,394) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Common Stock Shares | 12,222,985 | 12,196,570 | | Common Stock Amount | $122,231 | $121,966 | | Additional Paid-in Capital | $128,484,714 | $128,218,247 | | Accumulated Deficit | $(42,366,093) | $(39,652,438) | | Other Comprehensive Loss | $(42,011,340) | $(39,363,085) | | Total NetSol stockholders' equity | $40,308,656 | $45,403,834 | | Non-controlling interest | $4,052,456 | $5,450,389 | | Total stockholders' equity | $44,361,112 | $50,854,223 | - During the three and six months ended **December 31, 2022**, the Company issued **13,755 shares** and **26,415 shares** of common stock, respectively, for services rendered by independent Board members, valued at **$39,750** and **$79,500**[132](index=132&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $1,689,543 | $(3,036,634) | | Net cash used in investing activities | $(1,182,042) | $(572,180) | | Net cash used in financing activities | $(537,180) | $(626,955) | | Net decrease in cash and cash equivalents | $(3,017,075) | $(8,117,639) | | Cash and cash equivalents at end of period | $20,946,722 | $25,587,515 | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION](index=12&type=section&id=NOTE%201%20-%20BASIS%20OF%20PRESENTATION%20AND%20PRINCIPLES%20OF%20CONSOLIDATION) Outlines the Company's global software and IT services, interim financial statements, and consolidated subsidiaries - NETSOL Technologies, Inc. provides IT and enterprise software solutions, primarily for automobile financing, leasing, banking, and financial services industries worldwide[26](index=26&type=chunk) - The consolidated financial statements include accounts of wholly-owned subsidiaries (e.g., NetSol Technologies Americas, NetSol Technologies Europe) and majority-owned subsidiaries (e.g., NetSol Technologies, Ltd., Otoz, Inc.)[29](index=29&type=chunk)[30](index=30&type=chunk) [NOTE 2 – ACCOUNTING POLICIES](index=13&type=section&id=NOTE%202%20%E2%80%93%20ACCOUNTING%20POLICIES) Details key accounting policies, estimates for doubtful accounts, taxation, asset lives, and fair value measurements - The Company's financial statements rely on significant estimates for areas such as doubtful accounts, taxation, useful lives of assets, and contingencies[32](index=32&type=chunk) - The Company is exposed to concentration of credit risk, particularly with uninsured cash deposits in foreign entities, totaling approximately **$18.6 million** as of **December 31, 2022**[33](index=33&type=chunk) | Financial Asset (Level 3) | December 31, 2022 | June 30, 2022 | | :-------------------------------- | :------------------ | :------------ | | Revenues in excess of billings - long term | $604,358 | $853,601 | [NOTE 3 – REVENUE RECOGNITION](index=15&type=section&id=NOTE%203%20%E2%80%93%20REVENUE%20RECOGNITION) Explains revenue recognition, categorizing core and non-core streams, and pricing judgments - The Company's revenue streams are divided into core (software licenses, services, subscription and support) and non-core (BPO, other IT services, internet services)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - Subscription revenue is recognized ratably over the initial subscription period (typically **12-60 months**), while professional services revenue is recognized over time based on costs incurred or hours expended[52](index=52&type=chunk)[54](index=54&type=chunk) | Revenue Category | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :----------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | **Core Revenue:** | | | | | | License | $15,884 | $1,955,331 | $265,844 | $1,966,047 | | Subscription and support | $6,502,669 | $9,374,869 | $12,519,503 | $15,605,258 | | Services | $4,818,461 | $2,867,515 | $10,239,827 | $8,723,794 | | Total core revenue, net | $11,337,014 | $14,197,715 | $23,025,174 | $26,295,099 | | **Non-Core Revenue:** | | | | | | Services | $1,053,344 | $1,275,247 | $2,071,303 | $2,598,624 | | Total non-core revenue, net | $1,053,344 | $1,275,247 | $2,071,303 | $2,598,624 | | **Total net revenue** | **$12,390,358** | **$15,472,962** | **$25,096,477** | **$28,893,723** | - Contracted but unsatisfied performance obligations were approximately **$36,000,000** as of **December 31, 2022**, with an estimated **$14,500,000** to be recognized in the next **12 months**[72](index=72&type=chunk) [NOTE 4 – EARNINGS PER SHARE](index=20&type=section&id=NOTE%204%20%E2%80%93%20EARNINGS%20PER%20SHARE) Explains basic and diluted EPS calculation, with no dilutive instruments for the periods ended December 31, 2022 and 2021 - Basic and diluted EPS calculations for the three and six months ended **December 31, 2022** and **2021** did not include any dilutive instruments[80](index=80&type=chunk) [NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY](index=20&type=section&id=NOTE%205%20%E2%80%93%20OTHER%20COMPREHENSIVE%20INCOME%20AND%20FOREIGN%20CURRENCY) Details foreign currency translation adjustments impacting comprehensive income, including accumulated losses and period-specific gains/losses - Accumulated translation losses in stockholders' equity were **$42,011,340** as of **December 31, 2022**, compared to **$39,363,085** as of **June 30, 2022**[81](index=81&type=chunk) | Metric | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2022 | | :------------------------------------ | :------------------------------ | :---------------------------- | | Translation adjustment attributable to NetSol | **$269,795** (gain) | **$(2,648,255)** (loss) | [NOTE 6 – MAJOR CUSTOMERS](index=20&type=section&id=NOTE%206%20%E2%80%93%20MAJOR%20CUSTOMERS) Identifies Daimler Financial Services and BMW Financial as major customers, detailing revenue and related receivables changes | Customer | Six Months Ended Dec 31, 2022 Revenue | % of Total Revenue (2022) | Six Months Ended Dec 31, 2021 Revenue | % of Total Revenue (2021) | | :--------------- | :------------------------------------ | :------------------------ | :------------------------------------ | :------------------------ | | Daimler Financial Services (DFS) | $7,069,884 | 28.2% | $11,421,688 | 39.5% | | BMW Financial (BMW) | $2,314,744 | 9.2% | $1,531,588 | 5.3% | | Customer | Accounts Receivable (Dec 31, 2022) | Accounts Receivable (June 30, 2022) | Revenues in Excess of Billings (Dec 31, 2022) | Revenues in Excess of Billings (June 30, 2022) | | :--------------- | :--------------------------------- | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | DFS | $357,164 | $2,005,463 | $3,535,799 | $365,863 | | BMW | $360,703 | $2,498,645 | $2,252,994 | $2,199,381 | [NOTE 7 – CONVERTIBLE NOTES RECEIVABLE – RELATED PARTY](index=20&type=section&id=NOTE%207%20%E2%80%93%20CONVERTIBLE%20NOTES%20RECEIVABLE%20%E2%80%93%20RELATED%20PARTY) Details convertible notes receivable from WRLD3D, a related party, with a full allowance for doubtful accounts and zero net balance - The Company has convertible notes receivable from WRLD3D totaling **$4,250,000**, with accrued interest of **$701,062**, but a full allowance for doubtful accounts has been recorded, resulting in a **net balance of $0**[87](index=87&type=chunk)[88](index=88&type=chunk) [NOTE 8 - OTHER CURRENT ASSETS](index=21&type=section&id=NOTE%208%20-%20OTHER%20CURRENT%20ASSETS) Details other current assets, including prepaid expenses and receivables, with a full allowance for doubtful accounts on related party balances | Category | December 31, 2022 | June 30, 2022 | | :-------------------- | :------------------ | :------------ | | Prepaid Expenses | $1,634,444 | $1,389,370 | | Advance Income Tax | $240,223 | $202,783 | | Employee Advances | $109,972 | $87,627 | | Security Deposits | $234,638 | $236,909 | | Other Receivables | $52,470 | $21,581 | | Other Assets

NetSol Technologies Inc. (NASDAQ:NTWK) Q1 2023 Earnings Conference Call November 10, 2022 9:00 AM ET Company Participants Patti McGlasson - General Counsel Najeeb Ghauri - Chairman and CEO Roger Almond - CFO Conference Call Participants Operator Good morning and welcome to NETSOL Technologies Fiscal First Quarter 2023 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Officer; and Patti McGlasson, General Counsel. I would now li ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2022 ☐ For the transition period from __________ to __________ Commission file number: 0-22773 NETSOL TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) | | | (State or other Jurisdiction of (I.R.S. Employer NO.) Incorporation or Organization) 23975 Park Sorrento ...

[Note About Forward-Looking Statements](index=4&type=section&id=Note%20About%20Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from projections. Readers are cautioned not to place undue reliance on such statements[10](index=10&type=chunk) [PART I](index=4&type=section&id=PART%20I) [Item 1 Business](index=4&type=section&id=Item%201%20Business) NETSOL Technologies, Inc. is a global provider of IT and enterprise software solutions for the finance and leasing industry, specializing in auto equipment finance, with primary revenue from its NFS Ascent suite - NETSOL is a worldwide provider of IT and enterprise software solutions to the global finance and leasing industry, with solutions considered mission-critical for clients[12](index=12&type=chunk) - Primary revenue sources include licensing, subscriptions, modification, enhancement, and support of its NFS Ascent financial applications[13](index=13&type=chunk) - The company serves blue chip organizations, Fortune 500 companies, financial institutions, global vehicle manufacturers (auto captives), and equipment finance/leasing companies[14](index=14&type=chunk) [General Business Overview](index=4&type=section&id=GENERAL) NETSOL Technologies, Inc. is a global IT and enterprise software provider for the finance and leasing industry, primarily offering the NFS Ascent suite - NETSOL Technologies, Inc. (Nasdaq CM: NTWK) is a global provider of IT and enterprise software solutions for the finance and leasing industry, headquartered in Calabasas, California[12](index=12&type=chunk)[15](index=15&type=chunk) - The company's solutions, primarily the NFS Ascent suite, are mission-critical applications that encapsulate end-to-end business processes, facilitating faster processing and increased transactions[12](index=12&type=chunk)[13](index=13&type=chunk) - NETSOL has enabled NFS Ascent deployment on the cloud, supporting a shift to subscription-based pricing models for new customers[13](index=13&type=chunk) [Our Business Model and Focus](index=5&type=section&id=OUR%20BUSINESS) NETSOL's business model combines cost arbitrage, subject matter expertise, and scalability, specializing in auto equipment finance with a market-leading position - NETSOL's business model combines affordable pricing through cost arbitrage, subject matter expertise, domain experience, scalability, and proximity to global and regional customers[17](index=17&type=chunk) - The company specializes in the leasing and financing space, holding a market-leading position in the auto equipment finance segment and a growing presence in general asset finance[18](index=18&type=chunk) - NETSOL leverages dual expertise in enterprise technology implementation and financial application development, with a strong presence in the captive asset-finance domain across North America, Asia Pacific, and Europe[19](index=19&type=chunk)[20](index=20&type=chunk) [Our Products and Services](index=6&type=section&id=OUR%20PRODUCTS%20AND%20SERVICES) NETSOL offers the NFS Ascent suite, NFS Digital solutions, Otoz SaaS platform, Flex calculation engine, and various professional IT services - NFS Ascent is NETSOL's premier solution, covering the complete finance and leasing cycle from quotation to contract settlement, designed for multinational, multi-asset environments[23](index=23&type=chunk) - NFS Digital offers a suite of digital transformation solutions, including Self-Point of Sale, Mobile Account, Mobile Point of Sale, Mobile Dealer, Mobile Auditor, and Mobile Collector, enhancing customer and dealer experience[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - Otoz provides a white-label SaaS platform for digital auto retail and on-demand mobility models (subscriptions, rental, car-sharing) to OEMs, finance companies, and dealers[41](index=41&type=chunk) - Flex is a newly developed, API-based, cloud-based SaaS calculation engine that integrates seamlessly into an organization's ecosystem, offering precise calculations across the contract lifecycle[50](index=50&type=chunk)[52](index=52&type=chunk) - NETSOL also offers professional services including IT consulting, solutions development, business intelligence, outsourcing, maintenance, project management, and AI/machine learning solutions[22](index=22&type=chunk)[53](index=53&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) [Implementation Process](index=11&type=section&id=IMPLEMENTATION%20PROCESS) The implementation process for NETSOL's products typically ranges from three to fifteen months, followed by post-implementation support and maintenance - The implementation process for NETSOL's products can range from three to fifteen months, depending on complexity and scope, and includes configuration, data migration, training, and support[60](index=60&type=chunk) - Post-implementation, consultants assist with operations, followed by regular maintenance and support services for agreed subscriptions or fees[61](index=61&type=chunk) - Cloud-enabled solutions offer seamless and rapid deployments, providing businesses with increased responsiveness and competitive advantage[62](index=62&type=chunk) [Pricing and Revenue Streams](index=12&type=section&id=PRICING%20AND%20REVENUE%20STREAMS) NETSOL's revenue comes from product licensing, subscription-based pricing, implementation services, and post-implementation support, with a shift towards SaaS models - NETSOL's revenue streams are derived from product licensing, subscription-based pricing, implementation and customization services, and post-implementation support[64](index=64&type=chunk) - The company is shifting to SaaS/subscription-based pricing models for cloud-ready products to ensure predictable revenue, decrease initial buy-in costs, and reduce sales cycles[66](index=66&type=chunk) - License fees are recognized upon software delivery, while implementation and support services are recognized as performed or ratably over the maintenance period[65](index=65&type=chunk) [Alliances](index=12&type=section&id=ALLIANCES) NETSOL maintains strategic alliances with Daimler Financial Services, Microsoft, and CGI to support its product offerings and cloud-hosting activities - NETSOL has a long-standing Frame Agreement with Daimler Financial Services (DFS) for the Asia Pacific and Africa region, renewed multiple times since 2004[67](index=67&type=chunk) - Strategic partnerships with Microsoft and CGI support cloud-hosting activities for NETSOL's cloud-based products, including NFS Ascent deployed on Microsoft Azure[68](index=68&type=chunk)[69](index=69&type=chunk) [Technical Affiliations](index=12&type=section&id=TECHNICAL%20AFFILIATIONS) NETSOL holds certifications as a Microsoft Certified Silver Partner and an Oracle Certified Partner - NETSOL is a Microsoft Certified Silver Partner and an Oracle Certified Partner[70](index=70&type=chunk) [Marketing and Selling](index=12&type=section&id=MARKETING%20AND%20SELLING) NETSOL's marketing strategy focuses on building client preference and loyalty through events, conferences, webinars, and digital media management - NETSOL's marketing program aims to create and sustain preference and loyalty, with activities performed at both corporate and business unit levels[71](index=71&type=chunk) - Marketing efforts include client events, targeted conferences, webinars, private briefings, and management of digital mediums like websites and social media[71](index=71&type=chunk)[72](index=72&type=chunk) [Growth Prospects for NFS Ascent](index=13&type=section&id=GROWTH%20PROSPECTS%20FOR%20NFS%20ASCENT) Growth for NFS Ascent is driven by continuous innovation, expanding into new geographic markets, and deeper penetration in existing regions like Asia Pacific - Growth for NFS Ascent is driven by continuous product innovation and expanding customer base across new geographic markets (Americas, Europe) and deeper penetration in Asia Pacific[73](index=73&type=chunk) - North America and Europe growth is expected from replacing legacy systems and acquiring new customers, with NFS Ascent offering a flexible, robust, and technologically advanced solution[74](index=74&type=chunk)[75](index=75&type=chunk) - In Asia Pacific, growth is anticipated through diversification into banking and commercial lending, enhanced features for existing customers, and replacements of current systems[76](index=76&type=chunk)[77](index=77&type=chunk) [The Markets](index=13&type=section&id=THE%20MARKETS) NETSOL primarily serves global commercial industries, including automotive, banks, and financial lending services, with regional marketing offices worldwide - NETSOL primarily serves clients in global commercial industries, including automotive, banks, and other financial lending service companies[78](index=78&type=chunk) - Marketing for core offerings is conducted from regional offices: Asia Pacific (Bangkok, Beijing, Jakarta, Lahore, Shanghai, Tianjin, Sydney) and Americas/Europe (Los Angeles Area, London Metropolitan Area, Horsham)[79](index=79&type=chunk) [People and Culture](index=13&type=section&id=PEOPLE%20AND%20CULTURE) NETSOL fosters a culture of quality, client-focused delivery, and professional growth, investing in employee training and community support programs - NETSOL emphasizes a strong corporate culture focused on world-class quality, client-focused delivery, leadership, long-term relationships, creativity, transparency, and professional growth[80](index=80&type=chunk) - The company invests in training programs for technical skills, business domain knowledge, and soft skills to attract and retain talent, with an employee turnover rate under **16.04% in 2022**[82](index=82&type=chunk)[84](index=84&type=chunk) - As of June 30, 2022, NETSOL had approximately **1,781 employees**, with **80.4% technical staff** and **19.6% non-IT personnel**[85](index=85&type=chunk) - NETSOL engages in community support programs, including literacy, higher education endowments, a noble cause fund for employees, and a day care facility (temporarily closed due to COVID-19)[84](index=84&type=chunk) [Competition](index=14&type=section&id=COMPETITION) NETSOL competes with leading IT solution suppliers in global asset finance and leasing, as well as local and global IT services providers - NETSOL competes with leading IT solution suppliers in the global asset finance and leasing industry, including White Clarke Group, Alfa, Cassiopae, LineData, FIS, International Decision Systems (IDS), and Data Scan[86](index=86&type=chunk) - In IT-based business services, the company competes with both smaller local firms and global IT services providers such as Wipro, InfoSys, Satyam Infoway, HCL, and TCS[87](index=87&type=chunk) [Customers](index=15&type=section&id=CUSTOMERS) NETSOL's customer base includes automotive captive finance companies, equipment finance firms, and large regional banks, with major clients like Daimler and BMW - NETSOL's customer base spans automotive captive finance companies, equipment finance and leasing companies, and large regional banks[88](index=88&type=chunk) - Major customers include Daimler and BMW, accounting for approximately **31.6%** and **7.5% of revenue**, respectively, for the fiscal year ended June 30, 2022[89](index=89&type=chunk) - Other globally renowned auto captives and equipment finance clients include Toyota, Nissan, Ford, FIAT, Motorcycle Group, SCI Lease Corp, Maple Commercial Finance, and Yamaha Motor Finance[89](index=89&type=chunk)[90](index=90&type=chunk) [Global Operations and Geographic Data](index=15&type=section&id=GLOBAL%20OPERATIONS%20AND%20GEOGRAPHIC%20DATA) NETSOL operates across the Americas, Europe, and Asia Pacific, with the Asia Pacific region accounting for approximately 75.1% of its 2022 revenues - NETSOL's operations are divided into three regions: the Americas, Europe, and Asia Pacific, with subsidiaries managed autonomously on a regional basis[91](index=91&type=chunk) - The Asia Pacific region accounted for approximately **75.1% of NETSOL's revenues in 2022**, with Pakistan serving as a nucleus for delivery and R&D[102](index=102&type=chunk)[103](index=103&type=chunk) - Key leadership is in place across regions, including Peter Minshall (EVP, Americas), Asad Ghauri (President APAC & Group MD Europe), and Salim Ghauri (CEO, NetSol PK)[92](index=92&type=chunk)[95](index=95&type=chunk)[97](index=97&type=chunk) [Intellectual Property](index=16&type=section&id=INTELLECTUAL%20PROPERTY) NETSOL protects its proprietary rights through non-disclosure agreements, trade secret, copyright, and trademark laws for its products and brand - NETSOL protects its proprietary rights through non-disclosure agreements, trade secret, copyright, and trademark laws[104](index=104&type=chunk) - The NETSOL 'N' logo and name, NFS logo, and NFS Ascent product name are copyrighted and trademark registered in Pakistan and/or with the U.S. Patent and Trademark Office[104](index=104&type=chunk) [Governmental Approval and Regulation](index=17&type=section&id=GOVERNMENTAL%20APPROVAL%20AND%20REGULATION) NETSOL's operations are subject to the laws of countries where it operates, with a tax exemption on IT service exports from Pakistan until 2025 - Current company operations do not require specific governmental approvals, but NETSOL is subject to laws of countries where it maintains subsidiaries and operates[106](index=106&type=chunk) - Pakistani law provides a tax exemption on income from exports of IT services and products until 2025[106](index=106&type=chunk) [Available Information](index=17&type=section&id=AVAILABLE%20INFORMATION) NETSOL provides access to SEC filings, earnings call webcasts, and corporate governance information on its official and investor relations websites - NETSOL's website (www.netsoltech.com) and investor relations website (http://ir.netsoltech.com) provide access to SEC filings, earnings call webcasts, and corporate governance information[107](index=107&type=chunk)[108](index=108&type=chunk) [Item 1A Risk Factors](index=17&type=section&id=Item%201A%20Risk%20Factors) This section is marked as 'Not Applicable', indicating that the company does not have specific risk factors to disclose under this item - The company states 'Not Applicable' for Item 1A, indicating no specific risk factors are being disclosed[109](index=109&type=chunk) [Item 1B Unresolved Staff Comments](index=17&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) This section states 'None', indicating there are no unresolved staff comments from the SEC - The company reports 'None' for unresolved staff comments[109](index=109&type=chunk) [Item 2 Properties](index=17&type=section&id=Item%202%20Properties) NETSOL's corporate headquarters are in Calabasas, California, with owned and leased offices globally, including a large campus in Lahore, Pakistan - Corporate headquarters are in Calabasas, California (**5,000 sq ft leased**)[109](index=109&type=chunk) - Owns Lahore Technology Campus in Pakistan (approx. **140,000 sq ft**, capacity for **1,000 resources**)[109](index=109&type=chunk) - Maintains leased offices in the UK, China, Australia, Thailand, and a shared office in Indonesia[109](index=109&type=chunk) [Item 3 Legal Proceedings](index=17&type=section&id=Item%203%20Legal%20Proceedings) This section states 'None', indicating no material legal proceedings - The company reports 'None' for legal proceedings[110](index=110&type=chunk) [Item 4 Mine Safety Disclosures](index=17&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This section is marked as 'Not applicable', indicating no disclosures related to mine safety - The company states 'Not applicable' for mine safety disclosures[110](index=110&type=chunk) [PART II](index=18&type=section&id=PART%20II) [Item 5 Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205%20Market%20for%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) NETSOL's common stock trades on NASDAQ under 'NTWK', with no dividends paid in the last two fiscal years, and the company repurchased shares in FY2021 and FY2022 - Common stock trades on NASDAQ Capital Market under the ticker symbol 'NTWK'[111](index=111&type=chunk) - The company has not paid dividends on its Common Stock in the past two fiscal years[114](index=114&type=chunk) Common Stock Market Prices (High/Low) | Fiscal Year | Quarter | High ($) | Low ($) | | :---------- | :------ | :------- | :------ | | 2022 | First | 4.85 | 3.70 | | 2022 | Second | 5.65 | 3.85 | | 2022 | Third | 4.43 | 3.61 | | 2022 | Fourth | 4.04 | 2.74 | | 2021 | First | 3.29 | 2.52 | | 2021 | Second | 4.07 | 2.35 | | 2021 | Third | 5.30 | 3.80 | | 2021 | Fourth | 6.12 | 3.71 | Issuer Purchases of Equity Securities | Month | Total Number of Shares Purchased | Average Price Paid Per Share ($) | | :---------------- | :------------------------------- | :------------------------------- | | As of June 30, 2021 | 669,018 | 3.53 | | Aug-2021 | 22,510 | 4.45 | | Total | 691,528 | | [Item 6 [Reserved]](index=19&type=section&id=Item%206%20%5BReserved%5D) This item is explicitly marked as 'Reserved' in the report [Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) NETSOL's FY2022 saw total net revenues increase to **$57.25 million**, driven by subscription fees, but gross profit declined, leading to a net loss of **$0.85 million** due to higher operating expenses and investment losses Key Financial Highlights (FY2022 vs. FY2021) | Metric | FY2022 ($) | FY2021 ($) | Change ($) | Change (%) | | :-------------------------------------- | :----------- | :----------- | :----------- | :--------- | | Total Net Revenues | 57,247,979 | 54,920,615 | 2,327,364 | 4.24% | | Gross Profit | 23,737,174 | 26,353,028 | (2,615,854) | -9.93% | | Income (Loss) from Operations | (1,078,323) | 2,720,849 | (3,799,172) | -139.67% | | Net Income (Loss) Attributable to NetSol | (851,156) | 1,778,257 | (2,629,413) | -147.86% | | Basic EPS | (0.08) | 0.15 | (0.23) | -153.33% | - Significant achievements in FY2022 include successful implementations of NFS Ascent and Digital solutions in New Zealand, Japan, Australia, and South Africa, generating over **$4 million in revenue** from DTFS implementations[121](index=121&type=chunk) - Renegotiated support contracts with DFS and BMW in China are expected to generate over **$10 million** and **$400,000 in additional revenues**, respectively, over the coming years[121](index=121&type=chunk) [Fiscal Year 2022 Highlights](index=20&type=section&id=Highlights%20for%20the%20fiscal%20year%20ended%20June%2030%2C%202022) FY2022 highlights include successful NFS Ascent implementations, significant revenue from Daimler Truck Financial Services, and renegotiated support contracts - Generated approximately **$5.5 million** from change requests across multiple regions[121](index=121&type=chunk) - Went live with NFS Ascent® and NFS Ascent® Digital in New Zealand for a leading Japanese equipment manufacturer, with an additional **$1 million** statement of work[121](index=121&type=chunk) - Successfully implemented NFS Ascent® and NFS solutions with Daimler Truck Financial Services GmbH (DTFS) in Japan, Australia, and South Africa, generating over **$4 million in revenues**[121](index=121&type=chunk) - Renegotiated support contracts with DFS and BMW in China, projected to generate over **$10 million** and **$400,000 in additional revenues**, respectively[121](index=121&type=chunk) - Signed a **$5 million contract** with a notable Swedish bank for NFS Ascent® implementation across Nordic countries over five years[121](index=121&type=chunk) - Awarded a **$2.25 million contract** by the Government of Khyber Pakhtunkhwa for a document management system[121](index=121&type=chunk) - Successfully delivered cloud-enabled Ascent® front end (POS/CAP) to an Australian commercial finance company, generating approximately **$200,000 in subscription-based revenue**[121](index=121&type=chunk) [Marketing and Business Development Activities](index=22&type=section&id=Marketing%20and%20Business%20Development%20Activities) Management's growth strategy focuses on enhancing competitiveness, strengthening global delivery, and expanding the NETSOL brand and product penetration - Management's growth strategy focuses on increasing competitiveness, enhancing global delivery capabilities, and strengthening financial position in the leasing and finance space[122](index=122&type=chunk) - Key initiatives include building strong C-level executive teams, developing next-tier management, upgrading China offices, and strengthening the NETSOL brand in Americas, Europe, and APAC[125](index=125&type=chunk) - The strategy also involves further penetration of NFS Ascent into leasing/financing sectors globally, diversifying into complementary verticals, and continued investment in Otoz and innovation labs[125](index=125&type=chunk) [Growth Prospects for NFS Ascent](index=22&type=section&id=Growth%20Prospects%20for%20NFS%20Ascent) NFS Ascent's growth is driven by product maturation, expanding customer base in new and existing markets, and diversification into banking and commercial lending - Growth for NFS Ascent is tied to product portfolio maturation and expanding customer base across geographic and product markets, with a balanced sales strategy for new and existing regions[122](index=122&type=chunk) - North America's growth is expected from replacing legacy systems with NFS Ascent's flexible and robust solution, while Europe will see traction from NFS Ascent supporting larger and smaller organizations[123](index=123&type=chunk)[124](index=124&type=chunk) - Asia Pacific's growth will come from diversification into banking and commercial lending, offering enhanced features to existing customers, and system replacements[126](index=126&type=chunk) - In China, NETSOL aims to strengthen its leadership position within multinational auto manufacturers and local Chinese captive finance/leasing companies[127](index=127&type=chunk) [Material Trends Affecting NETSOL](index=23&type=section&id=MATERIAL%20TRENDS%20AFFECTING%20NETSOL) Positive trends include lifted travel restrictions and growing interest in SaaS and mobility solutions, while negative trends involve economic conditions and geopolitical tensions - Positive trends include lifted COVID-19 travel restrictions, increasing traction for NFS Ascent SaaS in North American and European mid-size auto captives, and growing interest in mobility/digital solutions in auto and banking sectors[129](index=129&type=chunk) - Otoz platform is showing steady growth of interest, and there's increased traction in the UK and Scandinavian region, along with existing customers upgrading to Ascent[129](index=129&type=chunk) - Negative trends include general economic conditions, geopolitical tensions (e.g., Russia-Ukraine war), fear of global recession, high inflation impacting employee compensation and turnover in Pakistan, and China's travel restrictions[130](index=130&type=chunk)[134](index=134&type=chunk) [Critical Accounting Policies](index=24&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Key accounting policies include revenue recognition, intangible assets, software development costs, and goodwill, all requiring significant management judgment - Critical accounting policies include revenue recognition and multiple element arrangements, intangible assets, software development costs, and goodwill[131](index=131&type=chunk) [Revenue Recognition](index=24&type=section&id=REVENUE%20RECOGNITION) Revenue recognition follows a five-step process for software licenses, services, and subscriptions, requiring significant judgment for standalone selling prices and project estimates - Revenue recognition follows a five-step process: identifying contracts, performance obligations, transaction price, allocating price to obligations, and recognizing revenue upon satisfaction of obligations[135](index=135&type=chunk) - Core revenue streams are software licenses (on-premises or subscription), services (implementation, consulting), and subscription/support (post-contract support). Non-core revenue comes from BPO, other IT, and internet services[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - Significant judgment is required to determine standalone selling prices (SSP) for distinct performance obligations and to estimate project status and costs for professional services[145](index=145&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) - Subscription revenue is recognized ratably over the initial 12-60 month period, software licenses upon delivery, and post-contract support ratably over the maintenance period (typically one year)[140](index=140&type=chunk)[141](index=141&type=chunk) [Intangible Assets (MD&A)](index=27&type=section&id=INTANGIBLE%20ASSETS) Intangible assets, including product licenses and copyrights, are amortized over their useful lives and evaluated for impairment annually - Intangible assets include product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists[158](index=158&type=chunk) - Assets with finite lives are amortized over their estimated useful life and evaluated for impairment annually or when circumstances indicate carrying value may not be recoverable[158](index=158&type=chunk) [Software Development Costs](index=28&type=section&id=SOFTWARE%20DEVELOPMENT%20COSTS) Costs for internally developed software are expensed as R&D until technological feasibility, then capitalized and amortized upon general release - Costs for internally developing or enhancing software are expensed as R&D until technological feasibility is established, then capitalized until general release[160](index=160&type=chunk) - Capitalized software costs are reported at the lower of unamortized cost or net realizable value and amortized ratably based on projected revenue or straight-line[160](index=160&type=chunk)[161](index=161&type=chunk) [Stock-Based Compensation](index=28&type=section&id=STOCK-BASED%20COMPENSATION) Stock-based compensation expense is estimated at grant date using the Black-Scholes-Merton model and recognized over the requisite service period - Stock-based compensation expense is estimated at grant date using the Black-Scholes-Merton model and recognized over the requisite service period[162](index=162&type=chunk) - Assumptions for the BSM model include expected volatility and expected term, and the forfeiture rate is estimated based on historical experience[162](index=162&type=chunk) [Goodwill (MD&A)](index=28&type=section&id=GOODWILL) Goodwill is reviewed for impairment annually or more frequently, involving qualitative and quantitative assessments to compare carrying value to fair value - Goodwill is reviewed for impairment annually or more frequently if circumstances indicate impairment[163](index=163&type=chunk) - Impairment testing involves a qualitative assessment, followed by a quantitative assessment using discounted cash flows if necessary, to determine if carrying value exceeds fair value[163](index=163&type=chunk) [Recent Accounting Pronouncement](index=28&type=section&id=Recent%20Accounting%20Pronouncement) For a full description of recent accounting pronouncements, refer to Note 2 'Summary of Significant Accounting Policies' in the Consolidated Financial Statements - Refer to Note 2 'Summary of Significant Accounting Policies' in the Consolidated Financial Statements for a full description of recent accounting pronouncements[164](index=164&type=chunk) [Results of Operations (FY2022 vs. FY2021)](index=29&type=section&id=RESULTS%20OF%20OPERATIONS) In FY2022, total net revenues increased, but gross profit and operating income declined, leading to a net loss primarily due to increased expenses and equity investment losses Consolidated Statement of Operations (Percentage of Revenues) | Item | 2022 (%) | 2021 (%) | | :-------------------------------------- | :------- | :------- | | License fees | 7.9% | 11.4% | | Subscription and support | 49.4% | 40.4% | | Services | 42.7% | 48.2% | | Services - related party | 0.0% | 0.1% | | Total net revenues | 100.0% | 100.0% | | Cost of revenues | 58.5% | 52.0% | | Gross profit | 41.5% | 48.0% | | Total operating expenses | 43.3% | 43.0% | | Income (loss) from operations | -1.9% | 5.0% | | Total other income (expenses) | 5.5% | 1.0% | | Net income before income taxes | 3.7% | 6.0% | | Income tax provision | -1.7% | -1.9% | | Net income | 1.9% | 4.1% | | Non-controlling interest | -3.4% | -0.9% | | Net income (loss) attributable to NetSol | -1.5% | 3.2% | Net Revenues by Segment (FY2022 vs. FY2021) | Segment | 2022 Revenue ($) | 2022 (%) | 2021 Revenue ($) | 2021 (%) | | :----------- | :--------------- | :------- | :--------------- | :------- | | North America | 4,288,008 | 7.5% | 3,724,547 | 6.8% | | Europe | 10,428,203 | 18.2% | 11,283,499 | 20.5% | | Asia-Pacific | 42,531,768 | 74.3% | 39,912,569 | 72.7% | | Total | 57,247,979 | 100.0% | 54,920,615 | 100.0% | Revenue Stream Changes (FY2022 vs. FY2021) | Revenue Stream | FY2022 ($) | FY2021 ($) | Change ($) | Change (Constant Currency $) | | :---------------------- | :----------- | :----------- | :----------- | :--------------------------- | | License fees | 4,539,260 | 6,249,924 | (1,710,664) | (1,152,220) | | Subscription and support | 28,284,759 | 22,173,745 | 6,111,014 | 7,861,490 | | Services | 24,423,960 | 26,448,171 | (2,024,211) | (1,587,028) | | Services – Related Party | - | 48,775 | (48,775) | (48,775) | - Gross profit decreased by **$2.62 million (9.93%)** to **$23.74 million** in FY2022, with the gross profit percentage declining from **48.0% to 41.5%**, primarily due to increased cost of sales[174](index=174&type=chunk) - Operating expenses increased by **$1.18 million (5.0%)** to **$24.82 million** in FY2022, driven by increases in selling and marketing, general and administrative, and research and development costs[179](index=179&type=chunk) - The company reported a loss from operations of **$1.08 million** in FY2022, a significant decrease from an income of **$2.72 million** in FY2021[183](index=183&type=chunk) - Other income increased by **$2.60 million** to **$3.17 million** in FY2022, primarily due to a **$4.33 million gain** on foreign currency exchange transactions, partially offset by a **$2.02 million share of net loss** from equity investments (including impairments in WRLD3D and DriveMate) and **$214,000 goodwill impairment** related to VLS[184](index=184&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) Adjusted EBITDA Reconciliation (FY2022 vs. FY2021) | Metric | FY2022 ($) | FY2021 ($) | | :-------------------------------------- | :----------- | :----------- | | Net Income (loss) attributable to NetSol | (851,156) | 1,778,257 | | Non-controlling interest | 1,951,959 | 483,375 | | Income taxes | 988,938 | 1,026,617 | | Depreciation and amortization | 3,812,273 | 3,956,314 | | Interest expense | 369,801 | 394,289 | | Interest (income) | (1,655,883) | (1,017,432) | | **EBITDA** | **4,615,932** | **6,621,420** | | Add back: Non-cash stock-based compensation | 104,347 | 342,153 | | **Adjusted EBITDA, gross** | **4,720,279** | **6,963,573** | | Less non-controlling interest (a) | (2,903,457) | (1,588,701) | | **Adjusted EBITDA, net** | **1,816,822** | **5,374,872** | | Basic adjusted EBITDA per common share | 0.16 | 0.47 | | Diluted adjusted EBITDA per common share | 0.16 | 0.47 | [Liquidity and Capital Resources](index=35&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) NETSOL's cash position decreased in FY2022, with reduced operating cash flow and increased contractual obligations, while maintaining compliance with loan covenants - Cash position decreased to **$23.96 million** at June 30, 2022, from **$33.71 million** at June 30, 2021[198](index=198&type=chunk) Cash Flow Summary (FY2022 vs. FY2021) | Cash Flow Activity | FY2022 ($) | FY2021 ($) | | :------------------------ | :----------- | :----------- | | Operating Activities | 3,060,622 | 15,725,923 | | Investing Activities | (2,260,147) | (2,518,550) | | Financing Activities | (1,378,721) | (1,165,565) | | Effect of exchange rate changes | (9,163,111) | 1,496,516 | | Net Increase (Decrease) | (9,741,357) | 13,538,324 | | Cash & Equivalents (End) | 23,963,797 | 33,705,154 | - The combined total for accounts receivable and revenues in excess of billings increased by **$4.27 million** to **$24.09 million** at June 30, 2022[199](index=199&type=chunk) - The company anticipates needing **$2 to $3 million** in working capital for APAC, U.S., and European new business development and infrastructure enhancements over the next 12 months[204](index=204&type=chunk) - NETSOL's UK and Pakistani subsidiaries have various loan facilities with financial covenants, which the company was in compliance with as of the report date[207](index=207&type=chunk)[208](index=208&type=chunk) - The company has a policy of investing earnings in growth rather than distributing common stock dividends, a policy expected to continue[209](index=209&type=chunk) Contractual Obligations as of June 30, 2022 | Contractual Obligation | Total ($) | 0 - 1 year ($) | 1-3 Years ($) | 3-5 Years ($) | More than 5 years ($) | | :-------------------------- | :----------- | :------------- | :------------ | :------------ | :-------------------- | | D&O Insurance | 89,552 | 89,552 | - | - | - | | Term Finance Facility | 423,101 | 423,101 | - | - | - | | Loan Payable Bank - Export Refinance | 2,434,749 | 2,434,749 | - | - | - | | Loan Payable Bank - Export Refinance II | 1,850,409 | 1,850,409 | - | - | - | | Loan Payable Bank - Export Refinance III | 3,408,648 | 3,408,648 | - | - | - | | Term Finance Facility | 31,204 | 18,339 | 12,865 | - | - | | Sale and Leaseback Financing | 619,108 | 189,226 | 429,882 | - | - | | Insurance financing | 118,026 | 118,026 | - | - | - | | Subsidiary Finance Leases | 68,571 | 35,095 | 33,476 | - | - | | Operating Lease Obligations | 995,938 | 548,678 | 271,220 | 174,815 | 1,225 | | **Total** | **10,039,306** | **9,115,823** | **747,443** | **174,815** | **1,225** | [Item 7A Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) NETSOL is exposed to foreign currency exchange rate fluctuations due to international operations but does not hedge against Pakistan Rupee devaluation due to resulting gains - The company is exposed to financial market risks, including changes in currency exchange rates and interest rates[213](index=213&type=chunk) - Foreign currency exchange risk arises from international revenues and costs denominated in foreign currencies, particularly the Euro, Yuan, Baht, and Pakistan Rupee[214](index=214&type=chunk)[215](index=215&type=chunk) - NETSOL believes it is counter-productive to hedge its exposure to the Pakistan Rupee's devaluation, as it results in foreign exchange gains and the company has no imports[214](index=214&type=chunk)[215](index=215&type=chunk) [Item 8 Financial Statements and Supplementary Data](index=37&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section indicates that the Consolidated Financial Statements, which constitute Item 8, are included at the end of the report starting on page F-1 - The Consolidated Financial Statements are located at the end of the report, starting on page F-1[216](index=216&type=chunk) [Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=37&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) NETSOL reported no adverse opinions or disagreements with its independent registered public accounting firm, BF Borgers CPA PC, for fiscal years 2022 and 2021 - No adverse opinion or disclaimer of opinion, and no qualification or modification as to uncertainty, audit scope, or accounting principles in financial statements for FY2022 and FY2021[217](index=217&type=chunk) - No disagreements, disputes, or differences of opinion with BF Borgers CPA PC on accounting principles, financial statement disclosure, or auditing scope/procedures[218](index=218&type=chunk) [Item 9A Controls and Procedures](index=38&type=section&id=Item%209A%20Controls%20and%20Procedures) Management concluded that NETSOL's disclosure controls and internal controls over financial reporting were effective as of June 30, 2022, with no material changes - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[220](index=220&type=chunk) - Management's assessment of internal controls over financial reporting, based on the COSO framework, concluded they were effective as of June 30, 2022[221](index=221&type=chunk)[223](index=223&type=chunk) - No material changes in internal controls over financial reporting occurred during the fourth quarter of fiscal year 2022[224](index=224&type=chunk) [Item 9B Other Information](index=38&type=section&id=Item%209B%20Other%20Information) This section states 'NONE', indicating no other information to disclose under this item - The company reports 'NONE' for other information[225](index=225&type=chunk) [Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=38&type=section&id=Item%209C%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section states 'NONE', indicating no disclosures regarding foreign jurisdictions that prevent inspections - The company reports 'NONE' for disclosures regarding foreign jurisdictions that prevent inspections[225](index=225&type=chunk) [PART III](index=39&type=section&id=PART%20III) [Item 10 Directors, Executive Officers and Corporate Governance](index=39&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) NETSOL's Board of Directors comprises five members, with key executive officers including Najeeb Ghauri (CEO), and the company maintains a Code of Business Conduct & Ethics - The Board of Directors comprises five members: Najeeb U. Ghauri (Chairman), Mark Caton, Malea Farsai, Kausar Kazmi, and Henry Tolentino[229](index=229&type=chunk) - Key executive officers include Najeeb Ghauri (CEO & Chairman), Naeem Ghauri (President), Roger Almond (CFO), and Patti L. W. McGlasson (Sr. V.P., Legal and Corporate Affairs; Secretary, General Counsel)[235](index=235&type=chunk) - Kausar Kazmi serves as the Chairman of the Audit Committee and is identified as the Audit Committee financial expert, possessing over **40 years of banking industry expertise**[230](index=230&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk) - The company has adopted a Code of Business Conduct & Ethics applicable to all officers, directors, and employees[258](index=258&type=chunk) [Item 11 Executive Compensation](index=44&type=section&id=Item%2011%20Executive%20Compensation) Executive compensation at NETSOL aims to attract and retain leaders through competitive base salaries, performance-based cash awards, and long-term equity incentives - Executive compensation philosophy focuses on competitive total compensation, rewarding performance, and aligning executive interests with shareholder value[274](index=274&type=chunk) - Compensation for executive officers includes base salary, short-term cash awards based on objective performance targets, and long-term equity in the form of time and objective performance targets[272](index=272&type=chunk) - The Compensation Committee engages an independent compensation consultant to evaluate CEO and director compensation against a peer group[267](index=267&type=chunk)[273](index=273&type=chunk) - CEO Najeeb Ghauri's bonus for fiscal year 2022 was **$69,922**, based on a graduated structure tied to total revenues and income from operations, paid **60% in cash** and **40% in stock**[286](index=286&type=chunk)[291](index=291&type=chunk) Summary Compensation Table (FY2022-2020) | Name and Principle Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :---------- | :--------- | :-------- | :--------------- | :------------------------- | :-------- | | Najeeb Ghauri, CEO & Chairman | 2022 | 700,000 | 69,922 | - | 200,000 | 969,922 | | | 2021 | 667,000 | 67,500 | - | 180,383 | 914,883 | | | 2020 | 689,000 | - | - | 156,586 | 845,586 | | Naeem Ghauri, President | 2022 | 793,428 | - | - | 45,830 | 839,258 | | | 2021 | 767,768 | - | - | 77,045 | 844,813 | | Roger K Almond, CFO | 2022 | 197,041 | 20,000 | - | 34,066 | 251,107 | | | 2021 | 186,515 | - | - | 32,872 | 219,387 | | | 2020 | 217,111 | 20,000 | 56,900 | 10,639 | 304,650 | | Patti L. W. McGlasson, Secretary, General Counsel | 2022 | 212,384 | - | - | 10,426 | 222,810 | | | 2021 | 202,271 | - | - | 9,784 | 212,055 | | | 2020 | 219,481 | - | 42,675 | 10,019 | 272,175 | - In the event of termination without cause or for good reason, executive officers are entitled to severance payments, including salary continuance and health benefits for specified periods (e.g., **48 months for CEO**, **12 months for CFO**, **24 months for General Counsel**)[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk) Director Compensation Table (FY2022) | NAME | FEES EARNED OR PAID IN CASH ($) | SHARE AWARDS ($) | TOTAL ($) | | :-------------- | :------------------------------ | :--------------- | :-------- | | Mark Caton | 87,500 | 12,009 | 99,509 | | Henry Tolentino | 87,500 | - | 87,500 | | Kausar Kazmi | 87,500 | - | 87,500 | | Total | 262,500 | 12,009 | 274,509 | [Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=58&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of September 20, 2022, Najeeb Ghauri was the largest individual beneficial owner, and all officers and directors as a group beneficially owned 13.33% of common stock Beneficial Ownership of Common Stock (as of Sep 20, 2022) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage | | :----------------------------------- | :---------------------------------- | :--------- | | Najeeb Ghauri | 808,656 | 7.18% | | Naeem Ghauri | 400,689 | 3.56% | | Mark Caton | 101,582 | * | | Henry Tolentino | 27,313 | * | | Patti McGlasson | 81,050 | * | | Roger Almond | 30,000 | * | | Kausar Kazmi | 11,445 | * | | Malea Farsai | 39,811 | * | | Renaissance Technologies Holdings Corp. | 579,401 | 5.15% | | Topline Capital Management LLC | 570,493 | 5.07% | | All officers and directors as a group (eight persons) | 1,500,546 | 13.33% | - As of September 19, 2022, there were **11,257,539 shares** issued and outstanding[4](index=4&type=chunk)[347](index=347&type=chunk) [Item 13 Certain Relationships and Related Transactions, and Director Independence](index=58&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) NETSOL has convertible promissory note agreements with WRLD3D, a related party where the CEO's son serves as CEO, and the CEO also has an interest in G-Force, LLC - Faizaan Ghauri, son of CEO Najeeb Ghauri and a company employee, was appointed CEO of WRLD3D on May 31, 2017[348](index=348&type=chunk) - NETSOL entered into multiple convertible promissory note agreements with WRLD3D, with principal amounts totaling **$4.25 million** across several notes (May 2017, Feb 2018, April 2019, Aug 2019)[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk)[496](index=496&type=chunk) - Najeeb Ghauri and Naeem Ghauri have a financial interest in G-Force, LLC, which purchased a **4.9% investment** in WRLD3D for **$1,111,111**[353](index=353&type=chunk) [Item 14 Principal Accountant Fees and Services](index=59&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) BF Borgers CPA PC served as NETSOL's principal accountant, with audit and tax fees totaling **$263,000** in both FY2022 and FY2021, all pre-approved by the Audit Committee - BF Borgers CPA PC audited financial statements for FY2022 and FY2021[354](index=354&type=chunk) Principal Accountant Fees (FY2022 vs. FY2021) | Fee Type | FY2022 ($) | FY2021 ($) | | :--------- | :--------- | :--------- | | Audit Fees | 250,000 | 250,000 | | Tax Fees | 13,000 | 13,000 | | Other Fees | 0 | 0 | - The Audit Committee is responsible for engaging independent auditors and pre-approving all auditing and permitted non-audit services to ensure auditor independence[357](index=357&type=chunk) [PART IV](index=61&type=section&id=PART%20IV) [Item 15 Exhibits and Financial Statement Schedules](index=61&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the 10-K report, including articles of incorporation, employment agreements, stock option plans, and certifications - The report includes a comprehensive list of exhibits, such as Articles of Incorporation, Amendments, Bylaws, Stock Purchase Agreements, Employment Agreements, Stock Option Plans, and various certifications (e.g., Sarbanes-Oxley Act)[361](index=361&type=chunk) - Exhibits are categorized by whether they are filed with the current report or were previously filed[362](index=362&type=chunk) [Financial Statements](index=65&type=section&id=Financial%20Statements) The Financial Statements section includes the independent auditor's report, consolidated financial statements, and detailed notes explaining accounting policies and financial performance - The company's consolidated financial statements include accounts of wholly-owned and majority-owned subsidiaries, prepared in accordance with US GAAP[403](index=403&type=chunk)[404](index=404&type=chunk)[405](index=405&type=chunk) - Significant estimates are made for doubtful accounts, taxation, useful lives of assets, contingencies, and contract costs[407](index=407&type=chunk) - The company has two primary revenue streams: core revenue (software licenses, services, subscription/support) and non-core revenue (BPO, IT, internet services)[453](index=453&type=chunk)[454](index=454&type=chunk)[455](index=455&type=chunk) - Major customers, Daimler Financial Services (DFS) and BMW Financial (BMW), accounted for **31.6%** and **7.5% of revenues**, respectively, in FY2022[491](index=491&type=chunk) - Goodwill impairment of **$214,044** was recorded at June 30, 2022, related to VLS due to a decline in revenue from customer losses[529](index=529&type=chunk) - The company has established a full valuation allowance for deferred tax assets, as management believes they are unlikely to be realized in the future[545](index=545&type=chunk) - Income from export of computer software and related services developed in Pakistan is tax-exempt through June 30, 2025, with an aggregate effect of **$1,260,502** on income tax for FY2022[550](index=550&type=chunk) [Report of Independent Registered Public Accounting Firm](index=66&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) BF Borgers CPA PC issued an unqualified opinion on NETSOL's consolidated financial statements, highlighting revenue recognition and goodwill impairment as critical audit matters - BF Borgers CPA PC issued an unqualified opinion, stating the financial statements present fairly, in all material respects, the consolidated financial positions and results of operations[371](index=371&type=chunk) - Critical audit matters identified were revenue recognition (identification of contractual terms in customer arrangements) and goodwill/intangible asset impairment[377](index=377&type=chunk)[380](index=380&type=chunk) - Auditing these critical matters involved significant judgment and effort, including testing controls, examining customer arrangements, and evaluating management's estimates with the assistance of fair value specialists[378](index=378&type=chunk)[379](index=379&type=chunk)[381](index=381&type=chunk) [Consolidated Balance Sheets](index=69&type=section&id=Consolidated%20Balance%20Sheets) NETSOL's consolidated balance sheet shows a decrease in total assets from **$86.61 million** in FY2021 to **$72.61 million** in FY2022, driven by reductions in cash, property, and intangible assets, alongside a decline in total stockholders' equity Consolidated Balance Sheet Summary (FY2022 vs. FY2021) | Item | June 30, 2022 ($) | June 30, 2021 ($) | | :-------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | 23,963,797 | 33,705,154 | | Total current assets | 49,428,136 | 55,578,774 | | Property and equipment, net | 9,382,624 | 12,091,812 | | Intangible assets, net | 1,587,670 | 3,904,656 | | Goodwill | 9,302,524 | 9,516,568 | | Total assets | 72,608,632 | 86,606,261 | | Total current liabilities | 20,830,926 | 23,476,561 | | Total liabilities | 21,754,409 | 24,740,659 | | Total NetSol stockholders' equity | 45,403,834 | 54,650,129 | | Non-controlling interest | 5,450,389 | 7,215,473 | | Total stockholders' equity | 50,854,223 | 61,865,602 | - Cash and cash equivalents decreased by **$9.74 million (28.9%)** from **$33.71 million** in FY2021 to **$23.96 million** in FY2022[384](index=384&type=chunk) - Accounts receivable, net, increased by **$4.49 million (107.3%)** from **$4.18 million** in FY2021 to **$8.67 million** in FY2022[384](index=384&type=chunk) [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=70&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) NETSOL reported a net income of **$1.10 million** in FY2022, a decrease from FY2021, driven by increased subscription revenue but offset by higher costs and a negative translation adjustment, resulting in a net loss attributable to NetSol of **$0.85 million** Consolidated Statements of Operations (FY2022 vs. FY2021) | Item | FY2022 ($) | FY2021 ($) | | :-------------------------------------- | :----------- | :----------- | | License fees | 4,539,260 | 6,249,924 | | Subscription and support | 28,284,759 | 22,173,745 | | Services | 24,423,960 | 26,448,171 | | Services - related party | - | 48,775 | | Total net revenues | 57,247,979 | 54,920,615 | | Total cost of revenues | 33,510,805 | 28,567,587 | | Gross profit | 23,737,174 | 26,353,028 | | Total operating expenses | 24,815,497 | 23,632,179 | | Income (loss) from operations | (1,078,323) | 2,720,849 | | Total other income (expenses) | 3,168,064 | 567,400 | | Net income before income taxes | 2,089,741 | 3,288,249 | | Income tax provision | (988,938) | (1,026,617) | | Net income | 1,100,803 | 2,261,632 | | Non-controlling interest | (1,951,959) | (483,375) | | Net income (loss) attributable to NetSol | (851,156) | 1,778,257 | | Basic EPS | (0.08) | 0.15 | | Diluted EPS | (0.08) | 0.15 | Consolidated Statements of Comprehensive Income (Loss) (FY2022 vs. FY2021) | Item | FY2022 ($) | FY2021 ($) | | :-------------------------------------- | :------------ | :----------- | | Net income (loss) | (851,156) | 1,778,257 | | Translation adjustment | (11,175,077) | 2,933,964 | | Translation adjustment attributable to non-controlling interest | 3,680,473 | (717,398) | | Net translation adjustment | (7,494,604) | 2,216,566 | | Comprehensive income (loss) attributable to NetSol | (8,345,760) | 3,994,823 | - Subscription and support revenue increased by **$6.11 million (27.6%)** in FY2022, while license fees decreased by **$1.71 million (27.4%)** and services revenue decreased by **$2.02 million (7.6%)**[386](index=386&type=chunk) [Consolidated Statement of Stockholders' Equity](index=72&type=section&id=Consolidated%20Statement%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased in FY2022 due to a net loss attributable to NetSol and a significant negative foreign currency translation adjustment Consolidated Statement of Stockholders' Equity (FY2022 vs. FY2021) | Item | June 30, 2022 ($) | June 30, 2021 ($) | | :-------------------------------------- | :---------------- | :---------------- | | Common Stock Amount | 121,966 | 121,816 | | Additional Paid-in Capital | 128,218,247 | 129,018,826 | | Treasury Shares | (3,920,856) | (3,820,750) | | Accumulated Deficit | (39,652,438) | (38,801,282) | | Other Comprehensive Loss | (39,363,085) | (31,868,481) | | Non-Controlling Interest | 5,450,389 | 7,215,473 |\ | **Total Stockholders' Equity** | **50,854,223** | **61,865,602** | - Net loss attributable to NetSol was **$851,156** in FY2022, contributing to the decrease in accumulated deficit[394](index=394&type=chunk) - Foreign currency translation adjustment resulted in a negative impact of **$7.49 million** in FY2022, significantly increasing other comprehensive loss[394](index=394&type=chunk) - The purchase of subsidiary treasury shares (NetSol PK) for **$950,352** decreased non-controlling interest and additional paid-in capital[394](index=394&type=chunk)[579](index=579&type=chunk) [Consolidated Statements of Cash Flows](index=74&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) NETSOL experienced a net decrease in cash and cash equivalents of **$9.74 million** in FY2022, primarily due to reduced operating cash flow, increased financing activities, and a negative effect from exchange rate changes Consolidated Statements of Cash Flows (FY2022 vs. FY2021) | Cash Flow Activity | FY2022 ($) | FY2021 ($) | | :------------------------ | :----------- | :----------- | | Net income | 1,100,803 | 2,261,632 | | Net cash provided by operating activities | 3,060,622 | 15,725,923 | | Net cash used in investing activities | (2,260,147) | (2,518,550) | | Net cash used in financing activities | (1,378,721) | (1,165,565) | | Effect of exchange rate changes | (9,163,111) | 1,496,516 | | Net increase (decrease) in cash and cash equivalents | (9,741,357) | 13,538,324 | | Cash and cash equivalents at end of period | 23,963,797 | 33,705,154 | - Net cash provided by operating activities decreased significantly from **$15.73 million** in FY2021 to **$3.06 million** in FY2022, largely due to changes in accounts receivable and revenues in excess of billings[396](index=396&type=chunk) - Net cash used in financing activities increased to **$1.38 million** in FY2022, including **$950,352** for the purchase of subsidiary treasury stock[396](index=396&type=chunk)[201](index=201&type=chunk) - The effect of exchange rate changes resulted in a negative impact of **$9.16 million** on cash flows in FY2022, compared to a positive impact of **$1.50 million** in FY2021[396](index=396&type=chunk) [Notes to Consolidated Financial Statements](index=76&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of NETSOL's accounting policies, financial statement line items, and significant transactions, including revenue recognition and segment information [NOTE 1 - Organization and Description of Business](index=76&type=section&id=NOTE%201%20-%20Organization%20and%20Description%20of%20Business) NetSol Technologies, Inc. designs, develops, markets, and exports proprietary software products and provides IT services to the automobile financing and leasing, banking, and financial services industries - NetSol Technologies, Inc. was incorporated in Nevada on March 18, 1997[402](index=402&type=chunk) - The company designs, develops, markets, and exports proprietary software products to customers in the automobile financing and leasing, banking, and financial services industries worldwide[402](index=402&type=chunk) - It also provides system integration, consulting, and IT products and services[402](index=402&type=chunk) [NOTE 2 - Summary of Significant Accounting Policies](index=76&type=section&id=NOTE%202%20-%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines NETSOL's accounting policies for consolidation, US GAAP compliance, significant estimates, credit risk, investments, goodwill, and recent accounting pronouncements - The consolidated financial statements include wholly-owned and majority-owned subsidiaries, with inter-company accounts eliminated[403](index=403&type=chunk)[404](index=404&type=chunk) - Financial statements are prepared in accordance with US GAAP and SEC rules[405](index=405&type=chunk) - Significant estimates are made for doubtful accounts, taxation, useful lives of assets, contingencies, and estimated contract costs[407](index=407&type=chunk) - The company is exposed to concentration of credit risk in cash balances, with approximately **$22.76 million uninsured** in foreign entities as of June 30, 2022[409](index=409&type=chunk) - Investments are accounted for using the equity method for significant influence or cost method otherwise, with impairment losses recorded when applicable[414](index=414&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk) - Goodwill is reviewed for impairment annually, using qualitative and quantitative assessments (discounted cash flow methodology)[424](index=424&type=chunk) - The company adopted ASU No. 2019-12 (Income Taxes) on July 1, 2021, with no material impact, and does not expect material effects from ASU 2020-06 (Convertible Instruments) or ASU 2021-08 (Business Combinations) upon adoption[445](index=445&type=chunk)[446](index=446&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk) [NOTE 3 – Revenue Recognition](index=84&type=section&id=NOTE%203%20%E2%80%93%20Revenue%20Recognition) This note details NETSOL's five-step revenue recognition process for core and non-core streams, including software licenses, services, and subscriptions, and disaggregated revenue data - Revenue recognition follows a five-step process: identifying contracts, performance obligations, transaction price, allocating price, and recognizing revenue upon satisfaction[452](index=452&type=chunk) - Core revenue streams are software licenses, services (implementation, consulting), and subscription/support. Non-core revenue includes BPO, other IT, and internet services[454](index=454&type=chunk)[455](index=455&type=chunk) Disaggregated Revenue by Category (FY2022 vs. FY2021) | Category | FY2022 ($) | FY2021 ($) | | :---------------------- | :----------- | :----------- | | **Core Revenue, net:** | | | | License | 4,539,260 | 6,249,924 | | Subscription and support | 28,284,759 | 22,173,745 | | Services | 19,519,508 | 20,139,320 | | Services - related party | - | 48,775 | | Total core revenue, net | 52,343,527 | 48,611,764 | | **Non-Core Revenue, net:** | | | | Services | 4,904,452 | 6,308,851 | | Total non-core revenue, net | 4,904,452 | 6,308,851 | | **Total net reve

NetSol Technologies Inc. (NASDAQ:NTWK) Q4 2022 Earnings Conference Call September 27, 2022 9:00 AM ET Corporate Participants Patti McGlasson - General Counsel Najeeb Ghauri - Chairman and Chief Executive Officer Roger Almond - Chief Financial Officer Conference Call Participants Operator Good morning and welcome to NETSOL Technologies Fiscal Fourth Quarter and Full Year 2022 Earnings Conference Call. On the call today are Najeeb Ghauri, Chairman and Chief Executive Officer; Roger Almond, Chief Financial Off ...