NetSol
Annual Report 2023

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2023 or ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-22773 NETSOL TECHNOLOGIES, INC. (Exact Name of Registrant specified in its charter) NEVADA (State or other jurisdiction of incorporation or organization) 95-4627685 (I.R.S. Employer Identification Number) 16000 Ventura Blvd., Suite 770, Encino, CA 91436 (Address of principal executive offices) (Zip code) (818) 222-9195 (Issuer’s telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of exchange on which registered Common Stock, $0.01 par value per share NTWK NASDAQ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐ Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one): Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $28,197,710 based upon the closing price of the stock as reported on NASDAQ Capital Market ($2.89 per share) on December 31, 2022, the last business day of the registrant’s second quarter. As of September 15, 2023, there were 12,284,887 shares issued and 11,345,856 outstanding of its $.01 par value Common Stock and no Preferred Stock was outstanding. DOCUMENTS INCORPORATED BY REFERENCE (None) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 Note About Forward-Looking Statements Business Item 1 Item 1A Risk Factors Item 1B Unresolved Staff Comments Item 1C Item 2 Item 3 Item 4 Cybersecurity Properties Legal Proceedings Mine Safety Disclosures TABLE OF CONTENTS AND CROSS REFERENCE SHEET PART I PART II Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 5 Item 6 Item 7 Item 7A Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Item 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A Controls and Procedures Item 9B Other Information Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10 Item 11 Item 12 Item 13 Item 14 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Item 15 Exhibits and Financial Statement Schedules PART IV i PAGE 1 13 14 14 14 14 14 15 15 16 31 31 31 31 32 32 32 37 49 49 50 51 NOTE ABOUT FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the development of the Company’s products and services and future operation results, including statements regarding the Company that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “anticipate,” “intend,” variations of such words, and similar expressions, identify forward looking statements, but their absence does not mean that the statement is not forward looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Factors that could affect the Company’s actual results include the progress and costs of the development of products and services and the timing of the market acceptance. Forward looking statements may appear throughout this report, including without limitation, the following sections: Item 1 “Business,” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risk and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. As used herein, “NETSOL,” “we”, “our,” and similar terms include NetSol Technologies, Inc. and its subsidiaries, unless the context indicates otherwise. PART 1 ITEM 1 - BUSINESS GENERAL NetSol Technologies, Inc. (Nasdaq CM: NTWK) is a worldwide provider of IT and enterprise software solutions to the global finance and leasing industry. We believe that our solutions constitute mission critical applications for clients, as they encapsulate end-to-end business processes, facilitating faster processing and increased transactions. NETSOL’s primary sources of revenues have been licensing, subscriptions, modification, enhancement and support of its suite of financial applications, under the brand name NFS Ascent® to leading businesses in the global finance and leasing space. With constant innovation being a major part of NETSOL’s DNA, we have enabled NFS Ascent® deployment on the cloud with several implementations already live and some underway. This shift to the cloud will enable NETSOL’s new customers to opt for a subscription- based pricing model rather than the traditional licensing model. NETSOL’s clients include blue chip organizations, Dow-Jones 30 Industrials, Fortune 500 companies, financial institutions, global vehicle manufacturers through their captive finance companies (“auto captives”), unrelated automotive finance companies (“non-captives”), equipment finance and leasing companies, and banks. All of which are serviced by NETSOL’s strategically placed support and delivery locations around the globe. Founded in 1997, NETSOL is headquartered in Encino, California. NETSOL follows a global strategy for sales and delivery of its portfolio of solutions and services through its offices in the following locations: North America ■ Europe ■ ■ Asia Pacific ■ Middle East Encino, California and Austin, Texas London Metropolitan Area, Horsham, Flintshire Lahore, Karachi, Bangkok, Beijing, Shanghai, Tianjin, Jakarta and Sydney Dubai 1 OUR BUSINESS Company Business Model We believe that our technology solutions offer our customers a return on their investment and allow us to thrive in a hyper competitive and mature global marketplace. Our solutions are bolstered by our people. We believe that people are the drivers of success; therefore, we invest heavily in our hiring, training and retention of top-notch staff to ensure not only successful selling, but also the ongoing satisfaction of our clients. Taken together, this “selling and attentive servicing” approach creates a distinctive advantage for us and a unique value for our customers. We continue to underpin our proven and effective business model which is a combination of affordable pricing through effective cost arbitrage, subject matter expertise, domain experience, scalability and proximity with our global and regional customers. Niche Market Focus Through our specialization in the leasing and financing space, we have gained a strong foothold in several global locations and a market leading position in the auto equipment finance segment. We have a significantly growing presence in the general asset finance space, including equipment and the big-ticket financing industry together with startups and banks. Subject Matter Expertise Our dual expertise in enterprise technology implementation and financial application development has helped us emerge as a global player in the finance and leasing industry and secure a broad footprint across the major markets of North America, Asia Pacific and Europe. The Asia Pacific region has particularly benefitted from the organic growth in the fast-developing leasing automation industry, which is still nascent per Western standards. Domain Experience We have a strong presence in the captive asset-finance domain. With a collective experience of over two decades in Asia Pacific and Europe and of nearly four decades in North America, we are one of the few players in this niche industry with a global presence. Proximity with Global and Regional Customers We have offices across the world, located strategically to maintain close contact and proximity with our customers in various key markets. This has not only helped us strengthen our customer relationships but also build a deeper understanding of local market dynamics. Simultaneously, we are able to extend services and even support development through a combination of onsite and off-site resources. This approach has allowed us to offer blended rates to our customers by employing a unique and cost- effective global development model. While our business model is built around the development, implementation and maintenance of our suite of financial applications, we employ the same facilities and competencies to extend our offerings into related segments, including but not limited to: ■ IT consulting and services ■ Solutions development and implementation ■ Business intelligence ■ Outsourcing services and software process improvement consulting ■ Maintenance and support of existing systems ■ Project management ■ Technology/start-up incubation ■ White labelled digital retailing for auto-captives Our global operation is broken down into three regions: North America, Europe and Asia Pacific. All of the subsidiaries are seamlessly integrated to function effectively with global delivery capabilities, cross selling to multinational asset finance companies, leveraging of the centralized marketing and pre-sales organization, and a network of employees connected across the globe to support local and global customers and partners. 2 OUR PRODUCTS AND SERVICES NFS Ascent® Covering the complete finance and leasing cycle starting from quotation origination through contract settlements, NFS Ascent® is designed and developed for a highly flexible setting and is capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and multi-manufacturer environments. The solution fully automates the entire financing/leasing cycle for companies of any size, including those with multi-billion-dollar portfolios. NFS Ascent® empowers financial institutions to effectively manage their complex lending portfolios, enabling them to thrive in hyper-competitive global markets. NFS Ascent® is built on cutting-edge, modern technology that enables auto, equipment and big-ticket finance companies, alongside banks, to run their retail and wholesale finance business with ease. With comprehensive domain coverage and powerful configuration engines, it is well architected to empower finance and leasing companies with a platform that supports their growth in terms of business volume and transactions. NETSOL’s next generation platform offers a technologically advanced solution for the asset finance and leasing industry. NFS Ascent’s® architecture and user interfaces were designed based on NETSOL’s collective experience with blue chip organizations and global Fortune 500 companies over the past 40 years combined with modern UX design concepts. The platform’s framework allows auto captive and asset finance companies to rapidly transform legacy driven technology into a state-of-the-art IT and business process environment. At the core of the NFS Ascent® platform is a lease accounting and contract processing engine, which allows for an array of interest calculation methods, as well as robust accounting of multi-billion-dollar lease portfolios in compliance with various regulatory standards. NFS Ascent®, with its distributed and clustered deployment across parallel application and high-volume data servers, enables finance companies to process voluminous data in a hyper speed environment. Our premier solution has been developed using the latest tools and technologies and its n-tier SOA architecture allows the system to greatly improve a myriad of areas including, but not limited to, scalability, performance, fault tolerance and security. NFS Ascent® empowers users with: ● Improvement in overall productivity within the delivery organization: ○ The features of the integrated Business Process Manager, Workflow Engine, Business Rule Engine and Integration Hub provide flexibility to our clients allowing them to configure certain parts of the application themselves rather than requesting customization. ○ The NFS Ascent® platform and the SOA architecture allow us to develop portals and mobile applications quickly by utilizing our existing services. ○ The n-tier architecture allows us to intelligently distribute processing and eases application maintenance. The loose coupling between various modules and layers reduces the risk of regression in other parts of the system as a result of changes made in one part of the system and follows proven and accepted SOA principles. ● Amplified customer satisfaction: ○ NFS Ascent® and NFS Digital empower not only the finance company and dealerships, but the end customer as well with self-service digital tools allowing a seamless customer experience throughout the customer journey from origination through contract maturity. 3 NFS ASCENT® CONSTITUENT APPLICATIONS Omni Point of Sale (Omni POS) A highly agile, easy-to-use, web-based application - also accessible through mobile devices - Ascent’s Omni POS system delivers an intuitive user experience, with features that enable rapid data capture. Information captured at the point of sale can be made available to anyone in an organization at any point in the lifecycle of each transaction. Contract Management System (CMS) Ascent’s Contract Management System (CMS) is a powerful, highly agile, functionally rich application for managing and maintaining detailed credit contracts throughout their lifecycle – from pre-activation and activation through customer management, asset financial management, billing and collections, finance and accounting, restructuring and maturity. Wholesale Finance System (WFS) The Ascent Wholesale Finance System (WFS) provides a powerful, seamless and efficient system for automating and managing the entire lifecycle of wholesale finance. With floor planning, dealer and inventory financing, it is ideal for a culture of collaboration. Dealers, distributors, partners and anyone in the supply chain are empowered to realize the benefits of financing – and leverage the advantages of real-time business intelligence. The system also supports asset and non-asset-based financing. Dealer Auditor Access System (DAAS) DAAS is a web-based solution that can be used in conjunction with WFS or any third-party wholesale finance system. It addresses the needs of dealer, distributor, and auditor access in a wholesale financing arrangement. NFS Ascent® deployed on the cloud Our premier, next generation solution NFS Ascent® is also available on the cloud. With swift, seamless deployments and easy scalability, it is an extremely adaptive retail and wholesale platform for the global finance and leasing industry. This cloud-version of NFS Ascent® is offered via flexible, value-driven subscription-based pricing options without the need to pay any upfront license fees. Clients further benefit from a rapid deployment process and the ability to scale on demand. NFS Digital NETSOL is the pioneer in the global finance and leasing industry providing a full suite of digital transformation solutions. NFS Digital is a combination of our core strengths, domain, and technology. Our insight into the evolving landscape together with our valuable experience led us to define sound digital transformation strategies and compliment them with smart digital solutions so that our customers always remain competitive and relevant to the dynamic environment. Our digital transformation solutions are extremely robust and can be used with or without our core, next-gen solution (NFS Ascent®) to effectively augment and enhance our customer’s ecosystem. ■ Self-Point of Sale Our Self POS portal allows customers to go through the complete buying and financing process online and on their mobile devices including car configuration, generating quotations, and filling out applications. It is the ultimate origination application that enables users to compare, select and configure an asset using a mobile device anywhere, at any time and submit an accompanying financial product application. ■ Mobile Account mAccount is a powerful, self-service mobile solution. It empowers the dealer with a powerful backend system and allows the customer to setup a secure account and view information 24/7 to keep track of contract status, resolve queries and make payments, reducing inbound calls for customer queries and improving turnaround time for repayments. 4 ■ Mobile Point of Sale The mPOS application is a web and mobile-enabled platform featuring a customizable dashboard along with menu selling, application submission, loan calculator, work queues and detailed reporting. mPOS empowers the dealer to make the origination process quick and seamless, increasing overall productivity and system-wide efficiency. ■ Mobile Dealer mDealer provides more visibility and control over inventories – with minimal effort. Dealers can view their use of floor plan facility, stock status and financial conditions, while entering settlement requests or relocating assets. ■ Mobile Auditor mAuditor schedules visits, records audit exceptions and tracks assets for higher levels of transparency. It also enables the auditor to conduct audits and submit results in real-time through quick audit processing tools, providing visibility and saving significant time. ■ Mobile Collector mCollector empowers collections teams to do more, with an easy-to-use interface and intelligent architecture. The tool exponentially increases the productivity of field teams by enabling them to carry out all collection related tasks on the go. ■ Mobile Field Investigator By using Mobile Field Investigator (mFI), the applicant has access to powerful features that permit detailed applicant field verifications on the go. The application features a reporting dashboard that displays progress stats, action items and the latest notifications, enabling the client to achieve daily goals while tracking performance. OtozTM Digital Auto Retail and Mobility Orchestration OtozTM provides a white-label SaaS platform to OEMs, finance companies, dealers, and start-ups that enables short and long-term on-demand mobility models (subscriptions, rental and car-sharing) and digital retail. Our turn-key platform helps automotive companies make a move into the digital era, addressing a range of customer segments with evolving needs by offering them a seamless, omni-channel, end-to-end car buying and usage experience. It enables both direct-to-consumer transactions as well as traditional dealer models with the option to add peer-to- peer market place functionalities for the future of EV pay-per-use and mobility orchestration. Digital auto-retail is not a one-size-fits-all. OtozTM offers a flexible, configurable, and scalable platform along with a proven launch strategy framework for auto companies that intend to launch and grow digital retail and mobility businesses quickly and seamlessly. OtozTM Ecosystem OtozTM is built on state-of-the-art technology, offering open Application Programming Interfaces (APIs) and ecosystem partner integrations that are crucial to digital retail and mobility operations including finance and insurance providers, trade-in tools, KYC and fraud detection tools, CRM systems, website providers (Tier 1 – Tier 3), marketing toolkits, inventory feeds, pricing engines, tax engine, payment processors, an insurance marketplace and vehicle delivery logistics providers. In addition, OtozTM is equipped with intelligent lead generation and product analytics capabilities, empowering dealerships with the tools to track customer journeys, personalize customer engagements, and convert qualified leads. OtozTM Platform A fully digital, white-label platform for digital auto retail and mobility orchestration that delivers an intuitive and elegant user experience, both online and offline. 5 OtozTM expands into a comprehensive in-life subscription and rental platform that empowers in-life and end-of-life management of such contracts. The platform’s seamless handling of complex tax rules and contract management processes are compliant with local and state standards for jurisdictions it operates in across the U.S. OtozTM platform consists of two portals: ● Dealer/Admin Tool ● Customer Portal Dealer/Admin Tool ■ Account creation ■ Order management work queue ■ User roles and rights ■ Tax configurator ■ Customer KYC reports ■ Vehicle delivery scheduling ■ Payment gateways ■ Inventory management ■ Finance and insurance products feed and prioritization ■ Accessories/add-on management and association ■ Dealer fee management ■ Ecosystem APIs ■ DMS integrations ■ Send referral ■ Deal builder Customer Portal ■ Inventory search and selection ■ Multi-lender capabilities ■ Deal builder and personalized pricing for purchase, lease, finance, subscription, and rentals ■ Dealer-Customer-Chat tool ■ Buy finance and insurance products including collision & liability insurance via integrated provider marketplaces ■ Buy accessories ■ License checks (paperless) ■ Vehicle options and finance and insurance products ■ Trade-in valuation ■ Credit application and decision ■ Paperless contracts and e-signing ■ Digital payments ■ Vehicle delivery and pick-up scheduling AppexNow NETSOL introduced AppexNow - the first marketplace for API-first products specifically for the global credit, finance and leasing industry. Two products have been launched under the umbrella of the AppexNow marketplace until now i.e. Flex and Hubex. NETSOL will introduce and launch further products and services under this marketplace in the future. AppexNow: Flex The first product offering from the AppexNow marketplace, Flex is an API-based, ready-to-use calculation engine. It is a pure play SaaS product that is cloud-based and can be integrated seamlessly into an organization’s products, services and ecosystem. The calculation engine intelligently adapts to demand by monitoring usage to maintain reliable and predictable performance at desired costs. It is a one-stop solution that guarantees precise calculations at all stages of the contract lifecycle through various calculation types. 6 It is a comprehensive solution which creates an ecosystem of value across multiple functions, systems and industries to fuel growth and propel businesses into the future by increasing delivery efficiency and product management, centralization through a connected ecosystem resulting in a higher ROI and a larger market share. Flex proves versatility by covering all the calculation aspects ranging from the pricing for the end customer at inception, in-life financial modifications, the re-creation of the repayment plan, termination, amortizations/re-amortizations, among other calculation types. All the calculations are parameter-driven, which helps perform simple, multi- dimensional, or complex calculations based on the needs. AppexNow: Hubex Hubex is an API library that enables companies to standardize all their API integration procedures across multiple API services through a single integration. Hubex is NETSOL’s second product offering from the AppexNow marketplace following Flex. In addition to traditional lending companies, Hubex can also streamline the operations of dealerships, vendors and consultants through an API library. With a ready-to-use service, Hubex makes it easy for businesses to seamlessly connect with multiple APIs and achieve their desired outcomes. Pre-integrated services in the Hubex library include, but are not limited to, payment processing, bank account authentication, finance and insurance products, fraud check, KYC service, driver license verification, address validation, vehicle valuation and notification service. Professional Services NETSOL offers professional services to organizations in different regions in order to enable them to meet their business objectives. These services primarily consist of technical consultancy, web development, app development, digital marketing, cloud services, outsourcing and co-sourcing. Pertaining to our professional services offerings, our highly skilled and experienced professionals include skilled software programmers, well-versed business analysists, competent quality assurance engineers, technical and solution architects, project managers, cloud native developers and architects, mobile/web app developers and automation specialists. We enable businesses to employ the industry’s best talent to help them develop and refine their technology strategy, innovate, execute their roadmap and optimize service quality. Amazon Web Services We have expanded our footprint in the cloud services domain by offering services to the AWS community. We aim for our cloud services to be well recognized, expanding our reach to relevant prospects. Since AWS is the most comprehensive and highly adopted cloud offering, we are leveraging its power to ensure lower costs, increased agility, a secure environment, and innovative solutions across all domains. Our AWS customer offerings include: analytics, data pipeline and big data services; application modernization services; database migration and modernization; development operations; managed services; and, information security services. Artificial Intelligence A dedicated team is under the leadership of Dr. Ali Ahmed, Chief Data Scientist at NETSOL, to develop artificial intelligence and machine learning solutions. With experience in machine learning, scientific computing and computer vision, Dr. Ahmed has extensive experience in developing and implementing algorithms for industrial solutions in predictive maintenance. Our AI team seeks to deploy AI solutions leveraging cutting-edge technologies to enable clients to optimize production, decrease downtime and provide a holistic view of their business processes. IMPLEMENTATION PROCESS The implementation process of our products can span from three to fifteen months depending upon the methodology, complexity and scope. The implementation process may also include related software services such as configuration, data migration, training, gaps development and any other additional third-party interfaces. Even after implementation, customers constantly seek enhancements and additions to improve their business processes and have changing requirements addressed at mutually agreed rates. 7 Post implementation, our consultants may remain at the client site to assist the customer in smooth operations. After this phase, the regular maintenance and support services phase for the implemented software begins in exchange for agreed subscriptions or support fees. In addition to the daily rate paid by the customer for each consultant engaged, the customer also pays for all visa and transportation-related expenses, boarding of the consultants, and a living allowance. Our involvement in all the above steps is suitably priced to bring value to our customers and increase our profitability. Cloud-enabled solutions are offered via seamless and rapid deployments. The swift speed of implementations for our cloud-ready products enables businesses to be more responsive and attain a competitive advantage. PRICING AND REVENUE STREAMS The company’s revenue streams are the outcome of the following four main areas: ■ Product licensing ■ Subscription-based pricing ■ Implementation and customization-related services ■ Post implementation, support-related services License fees can range up to a multi-million-dollar fee for single or multiple module implementations. License revenue is realized with traditional, non-SaaS-based agreements, whereas SaaS-based agreements do not contain license fees and are offered via flexible, value-driven, subscription-based pricing. There are various attributes which determine the level of pricing complexity, a few of which are: number of contracts; size of the portfolio; IT budgets; business strategy of the customer; internal business processes followed by the customer; number of business users; amount of customization required; complexity of data migration and branch network of the customer. We recognize revenue from license contracts when the software has been delivered to the customer. Implementation-related services, including customization, configuration, data migration, training and third-party interfaces are recognized as the services are performed. Post implementation support services are then provided on a continued basis. The annual support fee, which typically is an agreed upon percentage of overall monetary value of the license, then becomes an ongoing revenue stream realized on a yearly basis. Revenue from software services includes fixed price and time and materials-based contracts and is recognized as the services are performed. Additionally, in order to avoid lumpiness in our revenues and to ensure a predictable revenue base over coming years, the business has shifted to a pricing strategy whereby the business is now offering its cloud-ready products at SaaS/subscription-based pricing models. Rapid deployments coupled with affordable prices/payment schedules is expected to lead the business towards volume-based selling. Moreover, this value-driven pricing plan is intended to decrease the initial buy-in cost for new customers by eliminating heavy license fees, reducing the sales cycles and providing an alternative to current customers seeking lower software usage and maintenance costs. ALLIANCES Daimler South East Asia Pte. Ltd. (“DSEA”), (through the regional office Daimler Financial Services (“DFS”) Africa Asia Pacific), has established a “Centre of Competence” (“CoC”) in Singapore to facilitate the regional companies in product related matters. The DSEA CoC is powered by highly qualified technical and business personnel. In conjunction with our Asia Pacific region, the CoC supports DFS companies in twelve different countries in Asia and Africa and this list can increase as more DFS companies from other countries opt for NFS Ascent®. In July 2004, the company entered into a Frame Agreement with DFS for the Asia Pacific and Africa region. This agreement was renewed in 2008, 2010, 2013 and most recently in January 2016. The agreement serves as a guideline for managing the business relationship with DFS and the use of licensed products of the company by DFS and its affiliated companies. We have a partnership with Microsoft to provide cloud-hosting activities for our cloud-based products. NETSOL hosts its cloud version of Ascent, NFS Ascent® deployed on the cloud and LeasePak Cloud - SaaS in the high performance and cost-effective Microsoft Azure cloud environment. A quick start implementation program combined with hassle-free Microsoft Azure™ cloud connectivity ensures new clients see a time-to-value faster than ever before. 8 TECHNICAL AFFILIATIONS We are a Microsoft Certified Silver Partner and an Oracle Certified Partner. For Amazon Web Services (“AWS”), we are a Select Tier Partner, a Well Architected Partner and a Solution Provider under their AWS Partner Programs and Cloud Formation Delivery Service, Lambda Delivery Service and API Gateway Delivery Service under AWS Service Delivery. MARKETING AND SELLING We continue our optimism that we will experience ever increasing opportunities for our product and services offerings in fiscal year 2024 and beyond. The objective of our marketing program is to create and sustain preference and loyalty for NETSOL. Marketing is performed at the corporate and business unit levels. The corporate marketing department has overall responsibility for communications, advertising, public relations and management of all digital owned and paid mediums including website, social media channels and collaboration with industry partners. In addition, corporate marketing oversees central marketing and communications programs for use by each of the business units. Our dedicated marketing personnel, within the regions, undertake a variety of marketing activities, including sponsoring focused client events to demonstrate our skills and products and participating in targeted conferences, webinars and holding private briefings with individual companies. We believe that the industry focus of our sales professionals and our business unit marketing personnel enhances their knowledge and expertise in these industries and will generate additional client engagements. GROWTH PROSPECTS FOR NFS ASCENT® Growth prospects for NFS Ascent® are linked to the constant innovation in the product and its growing customer base across different geographic and product markets. We are eyeing key international markets for growth in sales. Our sales strategy not only focuses on expansion into new geographic markets, including the Americas, Europe, and further penetration of our leading position in Asia Pacific, but also within existing markets into new verticals with targeting of Tier 2 and Tier 3 prospects as well. Growth in North America and Europe is expected to come from the potential market for replacement of legacy systems as well as acquisition of new customers. NFS Ascent® is aimed at providing a highly flexible and robust solution based on the latest technology and advanced architecture for North American and European customers looking to replace their legacy systems. We believe that NFS Ascent® can provide substantial competitive disruption to the market’s lagging technology provided by incumbent vendors. The existing customer base may also represent latent demand for increased service and support revenues by offering business process optimization, customization and upgrade services. With a market ready product with successful implementations, the prospects for NFS Ascent® in the region are positive. Further traction in Europe will come from NFS Ascent® deployed on the cloud, which will continue to allow the Europe division to support not only larger organizations, but also small and medium sized organizations including startups. Growth in our traditionally strong base in Asia Pacific is expected through diversification across market segments to include new customers in related banking and commercial lending areas. At the same time, the existing customer base is tapped for increased service and support revenues by offering enhanced features and new solutions to emerging customer needs. In addition, there is a potential for NFS Ascent® in Asia Pacific in the form of existing customers who are looking for replacement of their current system. In China, we are a leader in the leasing and finance enterprise solution domain. With this position, we continue to enjoy demand for the current NFS™ solution, as well as NFS Ascent®. We will continue strengthening its position within existing multinational auto manufacturers, as well as local Chinese captive finance and leasing companies. THE MARKETS We provide our services primarily to clients in global commercial industries. In the global commercial area, our service offerings are marketed to clients in a wide array of industries including, automotive, banks and other financial lending service companies. The Asian continent, including Australia and New Zealand, from the perspective of marketing, are targeted by the Asia Pacific Region from our Bangkok, Beijing, Jakarta, Lahore, Shanghai, Tianjin and Sydney facilities. The marketing for our core offerings in the Americas and Europe is carried out from our Austin, Texas and our London Metropolitan Area and Horsham offices, respectively. 9 PEOPLE AND CULTURE Our strong corporate culture is critical to our success. Our key values are delivering world-class quality solutions, client-focused timely delivery, leadership, long-term relationships, creativity, transparency and professional growth. The services provided by NETSOL require proficiency in many fields, such as software engineering, quality assurance, project management, business analysis, technical writing, sales and marketing, communication and presentation skills. Due to the growing demand for our core offerings and IT services, retention of quality, proven technical and management personnel is essential. Our employee turnover rate was approximately 19% in 2023 with a goal to maintain the turnover rate under 21% during the 2024 fiscal year and onwards. The turnover rates include employees leaving either voluntarily or involuntarily. In addition, we are committed to improving key performance indicators such as efficiency, productivity and revenue per employee. To encourage all employees to build on our core values, we reward teamwork and promote individuals that demonstrate these values. We believe that our growth and success are attributable in large part to the high caliber of our employees and our commitment to maintain the values on which our success has been based. We support diversity on a global basis. We are an equal opportunity employer with the largest concentration of female employees in Lahore, Pakistan and our U.S. headquarters. We believe we should give back to the community and employees as much as possible. Certain subsidiaries are located in regions where basic services are not readily available. Where possible, we act to not only improve the quality of life of our employees, but also the standard of living in these regions. Examples of such programs are as follows: ■ Literacy Program: Launched to educate children of our unskilled staff, the main objective of this program is to enable them to acquire basic reading, writing and arithmetic skills. ■ Higher Education and Science and Research Institutions: In order to support higher education in Pakistan, we have contributed endowments to NUST, Forman Christian College, and a few other universities who are focused on science and engineering. ■ Noble Cause Fund: A noble cause fund has been established to meet medical and education expenses of the children of the lower paid employees. Our employees voluntarily contribute a fixed amount every month to the fund and NETSOL matches the employee subscriptions with an equivalent contribution amount. A portion of this fund is also utilized to support social needs of certain institutions and individuals, outside of NETSOL. ■ Day Care Facility: Our human resources are our key assets and thus we take numerous steps to ensure the provision of basic comforts to our employees. In Pakistan, the provision of outside pre-school childcare is a rarity. With this in mind, a children’s day care facility has been created near NETSOL’s office in Lahore, Pakistan providing employees with peace of mind knowing their children are nearby and being taken care of by qualified staff in a child friendly facility. Due to COVID-19 restrictions, the facility is temporarily closed. ■ Preventative Health Care Program: In addition to the comprehensive out-patient and in-patient medical benefits, preventive health care has also been introduced. This phased program focuses on vaccination of our employees against such diseases as Hepatitis – A/B, Tetanus, Typhoid, Flu and COVID-19 on a routine basis. There is significant competition for employees with the skills required to perform the services we offer. We run an elaborate training program for different cadres of employees to cover technical skills and business domain knowledge, as well as communication, management and leadership skills. We believe that we have been successful in our efforts to attract and retain the highest level of talent available, in part because of the emphasis on core values, training and professional growth. We intend to continue to recruit, hire and promote employees who share our vision. As of June 30, 2023, we had approximately 1,770 employees; comprised of 76% technical staff and 24% non-IT personnel. COMPETITION No company dominates the IT market in the space in which we compete. A substantial number of companies offer services that overlap and are competitive with those offered by NETSOL. 10 We compete chiefly against leading suppliers of IT solutions to the global asset finance and leasing industry, including, but not limited to, Solifi, Alfa, Cassiopae, LineData, FIS, International Decision Systems (IDS) and Data Scan. In the IT-based business services areas, we compete with both smaller local firms and many global IT services providers, including, but not limited to, Wipro, InfoSys, Satyam Infoway, HCL and TCS (Tata Consulting). CUSTOMERS NETSOL’s solutions and services cater to a broad spectrum of finance and leasing businesses, from automotive captive finance companies to equipment finance and leasing companies to large regional banks. NETSOL’s customers include world renowned auto manufacturers through their finance arms. NETSOL is a strategic business partner for Daimler and BMW (which consists of a group of many companies in different countries), which accounts for approximately 28.6% and 7.9%, respectively, of our revenue for our fiscal year ended June 30, 2023. Other globally renowned auto captives that are customers of the company include Toyota, Nissan, Ford, and FIAT. Other customers include equipment finance and leasing companies and banks worldwide. Some of these clients include Motorcycle Group, SCI Lease Corp, Maple Commercial Finance and Yamaha Motor Finance. GLOBAL OPERATIONS AND GEOGRAPHIC DATA NETSOL divides its operations into three regions: the Americas, Europe, and Asia Pacific. The regions consist of individual subsidiaries which operate as autonomous companies and are strategically managed on a regional basis. The Americas Mr. Peter Minshall, Executive Vice President at NetSol Technologies Americas, Inc. (NTA) is responsible for NTA’s business operations. He brings three decades of international experience in the financial services industry holding various senior leadership roles with Daimler Financial Services. Peter continues to be supported by Doug Jones as Vice President - Operations for NTA. Doug is a driven technology leader credited with shaping team performance to deliver best-in-class, leading web-based and embedded software applications for the finance and leasing industry. Peter is also supported by James Freto, who serves as Vice President – Sales for NTA. Prior to his appointment, Freto worked for Fortune 500 financial product and services provider, FIS, as a Senior Sales Executive, selling origination and credit assessment solutions to mid to large-size financial institutions in the banking and asset finance segments. Freto brings directly applicable sales experience and subject matter expertise in key NETSOL markets. Peter is further supported by Jay Edwards, who serves as Vice President Sales and Wholesale Product Manager for NetSol Technologies, Inc. Edwards is a dynamic experienced fintech business leader with a highly successful track record in the information technology and financial services industry, with a focus on digital transformation. He possesses strong professional skills in Business Development, Account Management, IT Operations, eCommerce and Business Process Outsourcing. To augment the AWS team, in the United States, Rajnish Harjika serves as VP Technology, Cloud Services. OtozTM CEO and Co-founder, Mr. Naeem Ghauri, was recently appointed as Chairman for NetSol Technologies, Ltd., (“NetSol PK”) and is also the President of the parent company, NetSol Technologies, Inc. He is based in our Lahore, Pakistan office. Europe Mr. Asad Ghauri is the President of Asia Pacific (APAC) and Group Managing Director of Europe. Mr. Ghauri has a strong management team in the U.K. headed by Darryll Lewis who has served as Managing Director of NetSol Technologies Europe since May 2023. With over twenty years in the receivables and asset finance software industry, Mr. Lewis is a highly experienced and accomplished leader with a track record of driving business growth and creating innovative solutions for clients. Prior to joining NETSOL, Mr. Lewis has held executive roles at several leading asset finance software companies where he led teams responsible for developing and implementing successful software solutions. Mr. Lewis is supported by a seasoned team in finance, IT and client services. 11 NetSol had previously acquired the remaining stake in Virtual Lease Services (VLS) - rebranded as Banking Works. Previously limited to being a UK-based portfolio and risk management servicing partner for business and consumer finance providers, Banking Works focuses on supporting financial services businesses to achieve their own transformation ambitions. Mark Cawood, an industry veteran, is the Managing Director, while Diane Roberts serves as Director of Finance. Asia Pacific Region NetSol PK, a majority owned subsidiary of the parent company, is located in Lahore, Pakistan and is headed by Mr. Salim Ghauri as its CEO. Mr. Ghauri is a Co-founder of NetSol PK and has been with the company since 1996. NetSol PK is the “Center of Excellence” and a state-of-the-art facility for programming, R&D, global implementations and 24-hour support to our customers worldwide. NetSol Technologies (Beijing) Co. Ltd. (“NetSol Beijing”) is headed by Amanda Li as President. Ms. Li previously worked as a managing director for Sopra Banking Software where she was instrumental in developing business and driving sales. Prior to Sopra Banking Software, Ms. Li was Vice President of NetSol Beijing. NETSOL’s Head of Indonesia is Withoon Hardat. During his 12 years at NETSOL, before taking charge of the Indonesia office, he served as Client Partner for the Thailand office as well as Director for Business Development for APAC. He also serves as the Head of Thailand. Most recently serving as the Managing Director of NetSol Technologies Australia and New Zealand, Farooq Ghauri has newly been appointed as Head of Sales for all Asian Markets (excluding China). He has played a vital role in NETSOL’s global success through his hands-on leadership and unrelenting drive to meet the needs of NETSOL’s growing client base. Since he joined the company in 2004, Mr. Ghauri has worked in NETSOL’s Pakistan, China, Australia, Thailand and U.S. offices. The Global Sales Division is headed by Mr. Asad Ghauri as President of Sales from the NetSol PK office. Mr. Ghauri has been with NETSOL since 2000 and has over 23 years of experience in business and IT. The Asia Pacific region including Australia/New Zealand and the Middle East, is supported and clients are serviced from the APAC region offices located in Sydney, Beijing, Shanghai, Tianjin, Bangkok, Indonesia, Lahore and Karachi. Pakistan continues to be a nucleus of NETSOL’s delivery and research and development. With the continued growth of the Chinese market, our Beijing office continues to expand as both a sales and support facility. Finally, the Asia Pacific region maintains and will establish offices through the region as is necessary to support its customers and to explore potential new markets. Our APAC Region accounted for approximately 67.8% of our revenues in 2023. Information regarding financial data by geographic areas is set forth in Item 7 and Item 8 of this Annual Report on form 10-K. See note 20 of Notes to Consolidated Financial Statements under Item 8. INTELLECTUAL PROPERTY NETSOL relies upon a combination of non-disclosure and other contractual arrangements, as well as common law trade secret, copyright and trademark laws to protect its proprietary rights. NETSOL enters into confidentiality agreements with its employees, generally requires its consultants and clients to enter into these agreements, and limits access to and distribution of its proprietary information. The NETSOL “N” logo and name, as well as the NFS logo and product name have been copyrighted and trademark registered in Pakistan. The NETSOL “N” logo has been registered with the U.S. Patent and Trademark Office. NFS Ascent® has been registered with the U.S. Patent and Trademark Office. We filed an application for the OTOZ Name with the U.S. Patent and Trademark Office. The Company intends to trademark and copyright its intellectual property as necessary and in the appropriate jurisdictions. GOVERNMENTAL APPROVAL AND REGULATION Current Company operations do not require specific governmental approvals. Like all companies, including those with multinational subsidiaries, we are subject to the laws of the countries in which we maintain subsidiaries and conduct operations. Pakistani law allows a tax exemption on income from exports of IT services and products up to 2025. While foreign based companies may invest in Pakistan, repatriation of their investment, in the form of dividends or other methods, requires approval of the State Bank of Pakistan. 12 AVAILABLE INFORMATION Our website is located at www.netsoltech.com, and our investor relations website is located at http://ir.netsoltech.com. The following filings are available through our investor relations website after we file with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and our Proxy Statements for our annual meetings of stockholders. These filings are also available for download free of charge on our investor relations website. We also provide a link to the section of the SEC’s website at www.sec.gov that has all of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements and other ownership related filings. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website by signing up for e-mail alerts. Further corporate governance relations website at http://ir.netsoltech.com/governance-docs. The content of our websites is not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. including our committee charters and code of conduct, is also available on our information, investor ITEM 1A - RISK FACTORS Pakistan The political and economic environment in Pakistan may negatively affect the business. The political unsteadiness delays governmental functions. If such unsteadiness continues in the long term, it could result in difficulty in necessary interactions with the government as it relates to government contracts and personnel access to necessary government functions. We anticipate that the political and governmental environment will remain unsteady until new elections are held. The devaluation of the Pakistan Rupee in comparison to the US Dollars has an impact on the value of our contracts paid in Rupees. This coupled with the higher-than-average inflation rate in Pakistan, may continue to negatively impact our largest subsidiary and accordingly the Company’s financials as a whole. China Political tensions between the US and China have resulted in US companies exiting China and moving their supply chain requirements to other countries. Other multinational companies have indicated concerns about transactions with US owned Chinese companies because of this continued tension. Should these tensions result in disparate treatment of US owned subsidiaries, it could negatively impact our operations in China, our ability to gain new business and the ability to transfer funds out of China. General Economic Conditions General economic conditions in our geographic markets; inflation, geopolitical tensions, including trade wars, tariffs and/or sanctions in geographic areas; Global pandemics, including COVID-19; and global conflicts or disasters that impact the global economy or one or more sectors of the global economy have negative impacts on our ability to acquire new business to and deliver on new business when contracted. Continued interest rate increases by the U.S. Federal Reserve Board in 2023 restrict buying power for consumers and companies which may negatively affect our customers profits and ability to acquire new or additional services. Inflation and higher interest rates globally have greatly increased the cost of doing business, including salaries and benefits worldwide, affecting our profitability. If inflation does not stabilize, our profitability can be impacted. . The decline by over 20% in 2022 of the U.S. markets including the NASDAQ index and the Russell 2000 index, and any continued decline in our stock price may limit access to capital markets. 13 Working from the office might not return to pre-pandemic levels which may affect employee collaboration potentially lessening efficiency. Should we fail to navigate this challenge, it could negatively affect productivity. ITEM 1B – UNRESOLVED STAFF COMMENTS None ITEM 1C – Cybersecurity Not applicable ITEM 2 - PROPERTIES Our corporate headquarters are located in Encino, California where we lease approximately 2,400 square feet of office space. We own our Lahore Technology Campus which consists of approximately 140,000 square feet of computer and general office space. This includes two adjacent five story buildings having a covered area of approximately 90,000 square feet with the capacity to house approximately 1,000 resources. In addition, we maintain leased office spaces in the UK, China, Australia, Thailand and a shared office in Indonesia. Our NTA office is located in Austin, Texas. We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business. ITEM 3 - LEGAL PROCEEDINGS None ITEM 4 – MINE SAFETY DISCLOSURES Not applicable. 14 PART II ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITY (a) MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION - Common stock of NetSol Technologies, Inc. is listed and traded on NASDAQ Capital Market under the ticker symbol “NTWK”. The table shows the high and low intra-day prices of the Company’s common stock as reported on the composite tape of the NASDAQ for each quarter during the last two fiscal years. Fiscal Year 2023 High Low First Quarter Second Quarter Third Quarter Fourth Quarter First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2022 $ $ $ $ $ $ $ $ 3.80 $ 3.23 $ 3.25 $ 3.30 $ High Low 4.85 $ 5.65 $ 4.43 $ 4.04 $ 2.75 2.82 2.53 2.11 3.70 3.85 3.61 2.74 RECORD HOLDERS - As of September 15, 2023, the number of holders of record of the Company’s common stock was 133. DIVIDENDS - The Company has not paid dividends on its Common Stock in the past two fiscal years. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN The table shows information related to our equity compensation plans as of June 30, 2023: Equity Compensation Plans approved by Security holders Equity Compensation Plans not approved by Security holders Total Number of securities to be issued upon exercise of outstanding options, warrants and rights None None None Weighted average exercise price of outstanding options, warrants and rights None None None Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) 363,687(1) None 363,687 (1) Represents 141 available for issuance under the 2005 Incentive and Nonstatutory Stock Option Plan, 57,124 under the 2013 Incentive and Nonstatutory Stock Option Plan and 306,422 under the 2015 Incentive and Nonstatutory Stock Option Plan. (b) RECENT SALES OF UNREGISTERED SECURITIES None. (c) ISSUER PURCHASES OF EQUITY SECURITIES None ITEM 6 – [Reserved] 15 ITEM 7- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist in understanding our financial position and results of operations for the year ended June 30, 2023. It should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. A few of our highlights for the fiscal year ended June 30, 2023 were: ● We partnered with Amazon Web Services to offer cloud computing services, providing an innovative transformation of our cloud-based solutions. Since this launch, we have successfully signed our first customer, a leading software house based in the U.S. We achieved the status of API Gateway Delivery Partner with Amazon Web Services (AWS). With this extended APN partnership, we will have access to AWS API Gateway, a fully managed service that makes it easy for developers to create, publish, maintain, monitor, and secure APIs (application programming interfaces) at any scale. This partnership is expected to help the business generate new sales for this growth vertical. ● We signed a contract with a tier 1 automotive company in the U.S. for our mobility solution which will manage the back-office operations for vehicle subscriptions. ● We launched a new product offering – Flex, which is a cloud-based ready-to-use calculation engine that guarantees precise calculations at all stages of the contract lifecycle. We successfully signed our first Flex contract with European Merchant Bank. ● We launched Hubex, an API library that enables companies to standardize their API integration procedures across multiple API services through a single integration. Hubex is our second product offering from the AppexNow marketplace following Flex, an API-based, ready-to-use calculation engine. Pre-integrated services in the Hubex library include but are not limited to payment processing, bank account authentication, finance and insurance products, fraud check, KYC service, driver license verification, address validation, vehicle valuation and notification service. ● Otoz™ went live with its 55th dealer and is, now with dealers in 36 states. The onboarding of these new dealers will help the business generate approximately $1.1 million in annual recurring revenues. ● We effectively generated approximately $7.0 million by successfully implementing change requests from various customers across multiple regions. ● We successfully re-negotiated the extension of the contract with one of our existing bank customers in the UK. This extension is expected to generate nearly $2 million in revenues over the next few quarters. ● We successfully renegotiated an existing maintenance contract with a leading finance company of a U.S. based auto manufacturer in China increasing the annual maintenance fees to $500K from $280K. ● NetSol achieved the first Go-Live milestone for the finance company of a leading Swedish bank by effectively implementing its invoice factoring system. ● We signed a new agreement with Kubota Australia Pty Ltd (“Kubota”) to implement our NFS Ascent® product. The contract relates to its operations in Australia and is expected to generate revenues of $5 million over 5 years. ● We established a new subsidiary in Dubai. This new company is strategically important for the business to penetrate into MENA (Middle East and North Africa) region. We expect the Dubai entity to serve as a regional sales and delivery office in medium to long run. ● We opened up a development and support center in Austin, Texas to support growth in North America partnering with consultants and system integrators like Amazon AWS to efficiently scale U.S. operations. ● We continued our successful implementations with DFS by going live in Japan with our NFS Ascent® CMS system. 16 Marketing and Business Development Activities Management has developed a growth strategy aimed at increasing competitiveness, enhancing global delivery capabilities and increasing financial strength to become a leading global IT institution in the leasing and finance space. The growth strategy contemplates the following enhanced activities and initiatives to accomplish these goals: ● Build strong C-level executive professional teams in each key location to execute our long-term strategy. ● Develop and retain the next tier level management for leadership to navigate long term growth. ● Upgraded our offices in China to support the growing and existing client relationships and new client acquisitions in the region. ● Strengthen the NETSOL brand in the Americas and Europe and further penetrate the APAC markets such as China, Thailand, Indonesia, Japan, Australia and New Zealand. ● Maintain the quality of our delivery, after delivery support, and client relationships. ● Further penetration of NFS Ascent® into the leasing and financing sectors in China, APAC, Europe and North America by focusing on multi-national auto captive Fortune 500 companies. ● Pursue a well thought out strategy to diversify into complimentary verticals by way of organic expansion, partnerships and synergistic M&A. ● Continue to implement new tools, systems and processes, such as JIRA, and the Agile framework to further enhance productivity, efficiencies and operating margins. ● Offer a cloud enabled NFS Ascent® at subscription-based pricing models to generate additional interest from prospects. ● Continue investing in our innovation lab to generate new verticals for the business. Growth Prospects for NFS Ascent® Growth prospects for NFS Ascent® are linked to the maturing of the product portfolio and its growing customer base across different geographic and product markets. We are eyeing key international markets for growth in sales. Our sales strategy now carefully balances expansion into new geographic markets, including the Americas, Europe, and further penetration of our leading position in Asia Pacific. Growth in North America is expected to come from the potential market for replacement of legacy systems. NFS Ascent® is aimed at providing a highly flexible and robust solution based on the latest technology and advanced architecture for the North American customers looking to replace their legacy systems. We believe that NFS Ascent® can provide substantial competitive disruption to the market’s lagging technology provided by incumbent vendors. The existing customer base may also represent latent demand for increased service and maintenance revenues by offering business process optimization, customization and upgrade services. Growth in Europe will come from the introduction of NFS Ascent®, which will allow NTE to support larger organizations than those typically selecting the existing LeaseSoft product set, and opens the door for European expansion. This is designed to attract larger license and professional services revenues across a wider geography. In addition, leveraging the core strengths of NFS Ascent® will increasingly provide opportunities in the automotive sector where NTE is currently underrepresented. Growth in our traditionally strong base in Asia Pacific is expected through diversification across market segments to include new customers in related banking and commercial lending areas. At the same time, the existing customer base is tapped for increased service and maintenance revenues by offering enhanced features and new solutions to emerging customer needs. In addition, there is a potential for NFS Ascent® in Asia Pacific in the form of existing customers who are looking for replacement of their current system. In China, we are a de facto leader in the leasing and finance enterprise solution domain. With this position, we continue to enjoy demand for the current NFS™ solution, as well as NFS Ascent®. We will continue strengthening our position within existing multinational auto manufacturers, as well as, local Chinese captive finance and leasing companies. 17 MATERIAL TRENDS AFFECTING NETSOL Management has identified the following material trends affecting NetSol. Positive trends: ● According to S&P Global Mobility, new vehicles sales globally are expected to reach 84 million units in 2023 for a 5.6% increase. U.S. sales volumes are expected to reach approximately 15 million units, an estimated increase of 8% from the projected 2022 levels. ● Reduction of the U.S. inflation rate over the last few months to approximately 5% annually. ● The U.S. market remains strong and resilient for NetSol to continue investing in building local teams for its core offerings. ● NFS Ascent® SaaS offerings and major on-premise license offerings are gaining traction in both mid and large size auto captives in the North American and European markets. ● The auto and banking sectors continue momentum towards increased mobility and digital solutions according to Forbes and Insider Intelligence 2022. ● The China Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65 billion investment, from the originally planned $46 billion, in Pakistan energy and infrastructure sectors. Last June, China authorized a new $2.3 billion loan at a discounted rate to Pakistan as a short-term loan. ● China’s auto sector remains steady with government year-end incentives and customers requesting additional services reflecting the resilience of our offerings. ● Chinese auto sales rose 8.8% over a year earlier over the first half of 2023 as electric vehicle purchases surged. Total vehicle sales including trucks and buses rose 9.8% to 13.2 million (ABCnews.com July 2023). ● The overall size of the mobility market in the Europe and the United States is projected to increase over $425 billion combined, by 2035 or a compound CAGR of 5%from 2022. * source – Deloitte Global Automotive Mobility Market Simulation Tool. ● The global automotive finance market accounted for $245 Billion in 2022 and is expected to more than double by 2035 at a CAGR of 7.4%. source: www.precedenceresearch.com Negative trends: ● General economic conditions in our geographic markets; inflation, geopolitical tensions, including trade wars, tariffs and/or sanctions in geographic areas; Global pandemics, including COVID-19; and, global conflicts or disasters that impact the global economy or one or more sectors of the global economy. ● A global recession fear impacts the future expansions and budgets in every country and every sector. ● Continued interest rate increases by the U.S. Federal Reserve Board in 2023 restricting buying power for consumers. ● The negative currency impact on our financial statements due to the devaluation of the Pakistan Rupee in comparison to the US Dollar. ● Political, monetary and economic challenges and higher inflation rate than other regional countries impacting Pakistan exports. ● Inflation and higher interest rates globally have greatly increased the cost of doing business, including salaries and benefits worldwide, affecting profitability. 18 ● War and hostility between Russia and Ukraine continue to foster global uncertainty. ● The decline by over 20% in 2022 of the U.S. markets including the NASDAQ index and the Russell 2000 index limiting access to capital markets. ● Working from the office might not return to pre-pandemic levels which may affect employee collaboration potentially lessening efficiency. ● The Pakistan political and economic environment will likely remain unsteady until new elections are called. ● Continued tensions between the U.S. and China are causing some American companies to pull out of China and move their supply chain elsewhere. (Business Insider, Aug. 28, 2023). CRITICAL ACCOUNTING POLICIES Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us include revenue recognition and multiple element arrangements, intangible assets, software development costs, and goodwill. REVENUE RECOGNITION The Company determines revenue recognition through the following steps: ● Identification of the contract, or contracts, with a customer; ● Identification of the performance obligations in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities. The Company has two primary revenue streams: core revenue and non-core revenue. Core Revenue The Company generates its core revenue from the following sources: (1) software licenses; (2) services, which include implementation and consulting services; and (3) subscription and support, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software. Non-Core Revenue The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. 19 The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase post contract support and services in addition to the licenses. The Company’s single performance obligation arrangements are typically post contract support renewals, subscription renewals and services engagements. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. Subscription Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. Software Licenses Transfer of control for software is considered to have occurred upon delivery of the product to the customer. The Company’s typical payment terms tend to vary by region, but its standard payment terms are within 30 days of invoice. Post Contract Support Revenue from support services and product updates, referred to as subscription and support revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates, maintenance releases and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, a majority of customers renew their support services contracts annually and typical payment terms provide that customers make payment within 30 days of invoice. Professional Services Revenue from professional services is typically comprised of implementation, development, data migration, training or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice. BPO and Internet Services Revenue from BPO services is recognized based on the stage of completion which is measured by reference to labor hours incurred to date as a percentage of total estimated labor hours for each contract. Internet services are invoiced either monthly, quarterly or half yearly in advance to the customers and revenue is recognized ratably overtime on a monthly basis. Significant Judgments More judgments and estimates are required under Topic 606 than were required under Topic 605. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. 20 Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a stand-alone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. The most significant inputs involved in the Company’s revenue recognition policies are: The (1) stand-alone selling prices of the Company’s software license, and (2) the method of recognizing revenue for installation/customization, and other services. The stand-alone selling price of the licenses was measured primarily through an analysis of pricing that management evaluated when quoting prices to customers. Although the Company has no history of selling its software separately from post contract support and other services, the Company does have historical experience with amending contracts with customers to provide additional modules of its software or providing those modules at an optional price. This information guides the Company in assessing the stand-alone selling price of the Company’s software, since the Company can observe instances where a customer had a particular component of the Company’s software that was essentially priced separate from other goods and services that the Company delivered to that customer. The Company recognizes revenue from implementation and customization services using the percentage of estimated “man-days” that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of man-days required to complete implementation and customization services each reporting period. Revenue is recognized over time for the Company’s subscription, post contract support and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes. If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved. If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (unearned revenue) on the Company’s Consolidated Balance Sheets. The Company records revenues in excess of billings when the Company has transferred goods or services but does not yet have the right to consideration. The Company records unearned revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer. Unearned Revenue The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancellable license and services starting in future periods are included in accounts receivable and unearned revenue. 21 Practical Expedients and Exemptions There are several practical expedients and exemptions allowed under Topic 606 that impact timing of revenue recognition and the Company’s disclosures. The Company has applied the following practical expedients: ● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer. ● The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations. ● The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements). Costs to Obtain a Contract The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, we incur few direct incremental costs of obtaining new customer contracts. We rarely incur incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, our sales personnel receive fees that we refer to as commissions, but that are based on more than simply signing up new customers. Our sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts. INTANGIBLE ASSETS Intangible assets consist of product licenses, renewals, enhancements, copyrights, trademarks, trade names, and customer lists. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. SOFTWARE DEVELOPMENT COSTS Costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred until technological feasibility for the respective product is established. Thereafter, all software development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. The Company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated net realizable value of the product. If such evaluations indicate that the unamortized software development costs exceed the net realizable value, the Company writes off the amount which the unamortized software development costs exceed net realizable value. Capitalized and purchased computer software development costs are being amortized ratably based on the projected revenue associated with the related software or on a straight-line basis. STOCK-BASED COMPENSATION Our stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes-Merton (BSM) option pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including expected volatility and expected term. If any of the assumptions used in the BSM model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre-vesting termination behavior of employees. To the extent our actual forfeiture rate is different from our estimate; stock-based compensation expense is adjusted accordingly. GOODWILL Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. In conducting its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. Recent Accounting Pronouncement See Note 2 “Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption. 22 RESULTS OF OPERATIONS THE YEAR ENDED JUNE 30, 2023 COMPARED TO THE YEAR ENDED JUNE 30, 2022 The following table sets forth the items in our consolidated statement of operations for the years ended June 30, 2023 and 2022 as a percentage of revenues. 2023 % 2022 % For the Years Ended June 30, Net Revenues: License fees Subscription and support Services Total net revenues Cost of revenues Gross profit Operating expenses: Selling, general and administrative Research and development cost Total operating expenses Loss from operations Other income and (expenses) Interest expense Interest income Gain (loss) on foreign currency exchange transactions Share of net loss from equity investment Other income (expense) Total other income (expenses) Net income (loss) before income taxes Income tax provision Net income (loss) Non-controlling interest Net income (loss) attributable to NetSol Net income (loss) per share: Net income (loss) per common share Basic Diluted Weighted average number of shares outstanding Basic Diluted $ $ $ $ 2,269,564 25,980,661 24,142,990 52,393,215 35,477,652 16,915,563 24,093,908 1,601,613 25,695,521 (8,779,958) (765,030) 1,217,850 6,748,038 (1,033,243) (605,570) 5,562,045 (3,217,913) (926,560) (4,144,473) (1,099,275) (5,243,748) (0.46) (0.46) 11,279,966 11,279,966 23 7.9% 49.4% 42.7% 100.0% 58.5% 41.5% 41.0% 2.3% 43.3% -1.9% -0.6% 2.9% 7.6% -3.5% -0.7% 5.5% 3.7% -1.7% 1.9% -3.4% -1.5% $ 4.3% 49.6% 46.1% 100.0% 67.7% 32.3% 46.0% 3.1% 49.0% 4,539,260 28,284,759 24,423,960 57,247,979 33,510,805 23,737,174 23,473,343 1,342,154 24,815,497 -16.8% (1,078,323) -1.5% 2.3% 12.9% -2.0% -1.2% 10.6% -6.1% -1.8% -7.9% -2.1% -10.0% $ $ $ (369,801) 1,655,883 4,327,590 (2,021,480) (424,128) 3,168,064 2,089,741 (988,938) 1,100,803 (1,951,959) (851,156) (0.08) (0.08) 11,250,219 11,250,219 A significant portion of our business is conducted in currencies other than the U.S. dollar. We operate in several geographical regions as described in Note 20 “Segment Information and Geographic Areas” within the Notes to the Consolidated Financial Statements. Weakening of the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues but also increasing our expenses denominated in currencies other than the U.S. dollar. Similarly, strengthening of the U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the changes in results from one period to another period using constant currency. In order to calculate our constant currency results, we apply the current period results to the prior period foreign currency exchange rates. In the table below, we present the change based on actual results in reported currency and in constant currency. For the Years Ended June 30, % 2022 2023 % Favorable (Unfavorable) Favorable (Unfavorable) Change in Change due to Currency Constant Fluctuation Currency Total Favorable (Unfavorable) Change as Reported Net Revenues: $ 52,393,215 100.0% $ 57,247,979 100.0% $ (2,589,689) $ (2,265,075) $ (4,854,764) Cost of revenues: 35,477,652 67.7% 33,510,805 58.5% (11,939,512) 9,972,665 (1,966,847) Gross profit 16,915,563 32.3% 23,737,174 41.5% (14,529,201) 7,707,590 (6,821,611) Operating expenses: 25,695,521 49.0% 24,815,497 43.3% (5,603,576) 4,723,552 (880,024) Income (loss) from operations $ (8,779,958) -16.8% $ (1,078,323) -1.9% $ (20,132,777) $ 12,431,142 $ (7,701,635) Net revenues for the years ended June 30, 2023 and 2022 by segment are as follows: 2023 Revenue % 2022 Revenue % $ $ 6,117,282 10,758,444 35,517,489 52,393,215 11.7% $ 20.5% 67.8% 100.0% $ 4,288,008 10,428,203 42,531,768 57,247,979 7.5% 18.2% 74.3% 100.0% North America Europe Asia-Pacific Total Revenues License Fees License fees for the year ended June 30, 2023 were $2,269,564 compared to $4,539,260 for the year ended June 30, 2022 reflecting a decrease of $2,269,696 with a change in constant currency of $2,144,206. In the fiscal year ended June 30, 2023, we recognized approximately $1,918,000 related to a new NFS Ascent® agreement with Kubota in Australia and approximately $188,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent® product. In the fiscal year ended June 30, 2022, we recognized approximately $3,000,000 related to a new agreement with DTFS for the sale of both our legacy and Ascent product® for their new business segment in the Japanese, Australian and South African markets and $465,000 from the DFS contract. We also recognized approximately $720,000 related to a new agreement with the Government of Khyber Pakhtunkhwa for the sale of our Ascent product®. 24 Subscription and Support Subscription and support fees for the year ended June 30, 2023, were $25,980,661 compared to $28,284,759 for the year ended June 30, 2022 reflecting a decrease of $2,304,098 with a decrease in constant currency of $1,613,325. The decrease was due to the recognition of a one-time post contract support revenue of approximately $3,480,000 using the catch-up approach during the year ended June 30, 2022. Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS Ascent®. Services Services income for the year ended June 30, 2023, was $24,142,990 compared to $24,423,960 for the year ended June 30, 2022, reflecting a decrease of $280,970 with an increase in constant currency of $1,167,842. The increase in services revenue on a constant currency basis is due to the increase in change requests, enhancements and reimbursable costs. Services revenue is derived from services provided to both current customers as well as services provided to new customers as part of the implementation process. Gross Profit The gross profit was $16,915,563 for the year ended June 30, 2023 compared with $23,737,174 for the year ended June 30, 2022. This is a decrease of $6,821,611 with a decrease in constant currency of $14,529,201. The gross profit percentage for the year ended June 30, 2023 decreased to 32.3% from 41.5% for the year ended June 30, 2022. The cost of sales was $35,477,652 for the year ended June 30, 2023 compared to $33,510,805 for the year ended June 30, 2022 for an increase of $1,966,847 and on a constant currency basis an increase of $11,939,512. As a percentage of sales, cost of sales increased from 58.5% for the year ended June 30, 2022 to 67.7% for the year ended June 30, 2023. Salaries and consultant fees increased by $1,501,361 from $24,528,155 for the year ended June 30, 2022 to $26,029,516 for the year ended June 30, 2023 and on a constant currency basis increased by $8,625,137. The increase is due to increases in salaries and personnel. For fiscal years 2023 and 2022, we had an average of 1,505 and 1,225 technical employees, respectively. As of June 30, 2023, our total number of technical employees decreased to 1,415 from a maximum of 1,579. As a percentage of sales, salaries and consultant expense increased from 42.9% for the year ended June 30, 2022 to 49.7% for the year ended June 30, 2023. Travel increased by $1,373,418 from $1,036,623 for the year ended June 30, 2022 to $2,410,041 for the year ended June 30, 2023 and on a constant currency basis increased by $2,052,110. The increase in travel expense is due to the increase in travel as countries begin lifting travel restrictions. As a percentage of sales, travel expense increased from 1.8% for year ended June 30, 2022 to 4.6% for the year ended June 30, 2023. Depreciation and amortization expense decreased to $2,504,046 compared to $2,949,093 for the year ended June 30, 2022 or a decrease of $445,057 and on a constant currency basis an increase of $517,294. Other cost decreased to $4,534,049 for the year ended June 30, 2023 compared to $4,996,934 for the year ended June 30, 2022 or a decrease of $462,885 and on a constant currency basis an increase of $744,971. The increase in constant currency is mainly due to increase in computer cost of approximately $503,000, connectivity charges of approximately $186,000, utilities and communication costs of approximately $293,000 off set by the reversal of royalty fee of approximately $162,000, and a decrease in repair and maintenance cost of approximately $140,000. 25 Operating Expenses Operating expenses were $25,695,521 for the year ended June 30, 2023 compared to $24,815,497, for the year ended June 30, 2022 for an increase of 3.6% or $880,024 and on a constant currency basis an increase of 22.6% or $5,603,576. As a percentage of sales, it increased from 43.4% to 49.0%. The increase in operating expenses was primarily due to increases in selling expenses, general and administrative expenses and research and development costs. Selling and marketing expenses decreased by $111,542 or 1.6% and on a constant currency basis increased by $1,333,881 or 18.5%. The increase in constant currency is mainly due to increases in salaries of approximately $928,000, travel of approximately $271,000 and other selling expenses of approximately $133,000. General and administrative expenses were $16,244,936 for the year ended June 30, 2023, compared to $15,390,141 at June 30, 2022 or an increase of $854,795 or 5.6%, and on a constant currency basis an increase of $3,359,080 or 21.8%. During the year ended June 30, 2023, salaries decreased by approximately $237,675 or increased by approximately $1,310,485 on a constant currency basis, due to increases in salaries, medical costs and subsidiary options granted to staff in NetSol PK. The provision for doubtful accounts increased by approximately $1,700,000 and on constant currency basis increased by approximately $1,800,000 primarily due to non-payment from one of our Chinese customers. Research and development costs were $1,601,613 for the year ended June 30, 2023 compared to $1,342,154 for the year ended June 30, 2022 or an increase of $259,459 or 19.3% and on constant currency basis an increase of $854,083 or 63.6%. Income/Loss from Operations Loss from operations was $8,779,958 for the year ended June 30, 2023 compared to a loss of $1,078,323 for the year ended June 30, 2022. This represents an increase in loss of $7,701,635 with an increase of $20,132,777 on a constant currency basis for the year ended June 30, 2023 compared with the year ended June 30, 2022. As a percentage of sales, loss from operations was 16.8% for the year ended June 30, 2023 compared to 1.9% for the year ended June 30, 2022. Other Income and Expense Other income was $5,562,045 for the year ended June 30, 2023 compared to $3,168,064 for the year ended June 30, 2022. This represents an increase of $2,393,981 with an increase of $5,469,614 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions off set by recording other comprehensive loss and an impairment in our Drivemate investment and an increase in interest expense. Interest income was $1,217,850 for the year ended June 30, 2023 compared to $1,655,883 for the period ended June 30, 2022. This represents a decrease of $438,033 or a change of $2,959 on a constant currency basis. Interest income is earned on cash maintained in interest bearing accounts. During the year ended June 30, 2023, we recognized a gain of $6,748,038 in foreign currency exchange transactions compared to $4,327,590 for the year ended June 30, 2022. The majority of the contracts with NetSol PK are either in U.S. dollars or Euros; therefore, the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S. Dollar and the Euro. During the year ended June 30, 2023, the value of the U.S. dollar and the Euro increased 39.8% and 45.6%, respectively, compared to the PKR. During the year ended June 30, 2022, the value of the U.S. dollar and the Euro increased 29.9% and 14.9%, respectively, compared to the PKR. The share of net loss from equity investment was $1,033,243 for the year ended June 30, 2023 compared to $2,021,480 for the period ended June 30, 2022. This represents a decrease of $988,237 or a change of $986,639 on a constant currency basis. During the year ended June 30, 2023, we recorded an impairment of approximately $1,041,000 on our investment in Drivemate. During the year ended June 30, 2022, we recorded an impairment of approximately $1,617,000 related to our investments in WRLD3D and Drivemate. Included in other expenses for the year ended June 30, 2023 is $324,000 and $650,000 related to other comprehensive loss on liquidation of NTPK Thailand and WRLD3D, respectively. These amounts were reclassified from other comprehensive income to the statement of operations for the year ended June 30, 2023. 26 Non-controlling Interest For the year ended June 30, 2023 and 2022, the net income attributable to non-controlling interest was $1,099,275 and $1,951,959, respectively. The decrease in non- controlling interest is primarily due to the decrease in net income of NetSol PK. Net Income (Loss) Attributable to NetSol Net loss was $5,243,748 for the year ended June 30, 2023 compared to a net loss of $851,156 for the year ended June 30, 2022. This is an increase in loss of $4,392,592 with an increase of $11,427,411 on a constant currency basis, compared to the prior year. For the year ended June 30, 2023, net loss per share was $0.46 for basic and diluted shares. For the year ended June 30, 2022, net loss per share was $0.08 for basic and diluted shares. Non-GAAP Financial Measures Regulation S-K Item 10(e), “Use of Non-GAAP Financial Measures in Commission Filings,” defines and prescribes the conditions for use of non-GAAP financial information. Our measures of adjusted EBITDA and adjusted EBITDA per basic and diluted share meet the definition of a non-GAAP financial measure. We define the non-GAAP measures as follows: ● EBITDA is GAAP net income 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 – Adjusted EBITDA allocated to common stock divided by the weighted average shares outstanding and diluted shares outstanding. We use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure in evaluating the Company. The non-GAAP measures reflect adjustments based on the following items: EBITDA: We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income because doing so makes internal comparisons to our historical operating results more consistent. In addition, we believe providing an EBITDA calculation is a more useful comparison of our operating results to the operating results of our peers. Stock-based compensation expense: We have excluded the effect of stock-based compensation expense from the non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per basic and diluted share calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by NetSol, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers. Non-controlling interest: We add back the non-controlling interest in calculating gross adjusted EBITDA and then subtract out the income taxes, depreciation and amortization and net interest expense attributable to the non-controlling interest to arrive at a net adjusted EBITDA. 27 Our reconciliation of the non-GAAP financial measures of adjusted EBITDA and non-GAAP earnings per basic and diluted share to the most comparable GAAP measures for the years ended June 30, 2023 and 2022 are as follows: Net Income (loss) attributable to NetSol Non-controlling interest Income taxes Depreciation and amortization Interest expense Interest (income) EBITDA Add back: Non-cash stock-based compensation Adjusted EBITDA, gross Less non-controlling interest (a) Adjusted EBITDA, net Weighted Average number of shares outstanding Basic Diluted Basic adjusted EBITDA Diluted adjusted EBITDA (a)The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non- controlling interest is as follows Net Income (loss) attributable to non-controlling interest Income Taxes Depreciation and amortization Interest expense Interest (income) EBITDA Add back: Non-cash stock-based compensation Adjusted EBITDA of non-controlling interest 28 For the Years Ended June 30, 2023 2022 (5,243,748) 1,099,275 926,560 3,244,538 765,030 (1,217,850) (426,195) 317,451 (108,744) (2,154,850) (2,263,594) 11,279,966 11,279,966 (0.20) (0.20) 1,099,275 253,158 905,002 237,162 (369,197) 2,125,400 29,450 2,154,850 $ $ $ $ $ $ $ $ $ (851,156) 1,951,959 988,938 3,812,273 369,801 (1,655,883) 4,615,932 104,347 4,720,279 (2,903,457) 1,816,822 11,250,219 11,250,219 0.16 0.16 1,951,959 258,468 1,096,709 109,361 (526,567) 2,889,930 13,527 2,903,457 $ $ $ $ $ $ $ $ $ LIQUIDITY AND CAPITAL RESOURCES Our cash position was $15,533,254 at June 30, 2023, compared to $23,963,797 at June 30, 2022. Net cash provided by operating activities was $2,009,571 for the year ended June 30, 2023 compared to $3,060,622 for the year ended June 30, 2022. At June 30, 2023, we had current assets of $41,603,867 and current liabilities of $20,769,234. We had accounts receivable of $11,714,422 at June 30, 2023 compared to $8,669,202 at June 30, 2022. We had revenues in excess of billings of $12,377,677 at June 30, 2023 compared to $15,425,377 at June 30, 2022 of which $nil and $853,601 are shown as long term as of June 30, 2023 and 2022, respectively. The long-term portion was discounted by $nil and $28,339 at June 30, 2023 and 2022, respectively, using the discounted cash flow method with an interest rate of 4.35%, for the years ended June 30, 2023 and 2022. During the year ended June 30, 2023, our revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings slightly decreased by $2,480 from $24,094,579 at June 30, 2022 to $24,092,099 at June 30, 2023. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,552,181 and $5,779,510, respectively, at June 30, 2023. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $6,813,541 and $8,567,145, respectively, at June 30, 2022. The average days sales outstanding for the years ended June 30, 2023 and 2022 were 168 and 140 days respectively. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and revenue in excess of billings. Net cash used by investing activities amounted to $1,399,231 for the year ended June 30, 2023, compared to $2,260,147 for the year ended June 30, 2022. We had net purchases of property and equipment of $1,399,231 compared to $2,260,147 for the comparable period last fiscal year. Net cash used in financing activities was $718,992 compared to $1,378,721, for the years ended June 30, 2023, and 2022, respectively. During the years ended June 30, 2023 and 2022, our subsidiaries used cash of $61,124 and $950,352, respectively, for the purchase of treasury shares. During the year ended June 30, 2022, we purchased 22,510 shares of our common stock from the open market for $100,106. The year ended June 30, 2023, included cash inflow of $270,292 from bank proceeds compared to $941,841 for the same period last year. During the year ended June 30, 2023, we had net payments for bank loans and capital leases of $928,160 compared to $1,270,104 for the year ended June 30, 2022. We are operating in various geographical regions of the world through our various subsidiaries. Those subsidiaries have financial arrangements from various financial institutions to meet both their short and long-term funding requirements. These loans will become due at different maturity dates as described in Note 15 of the financial statements. We are in compliance with the covenants of the financial arrangements and there is no default which may lead to early payment of these obligations. We anticipate paying back all these obligations on their respective due dates. We typically fund the cash requirements for our operations in the U.S. through our license, services, and maintenance agreements, intercompany charges for corporate services, and through the exercise of options. As of June 30, 2023, we had approximately $15.5 million of cash, cash equivalents and marketable securities of which approximately $13.5 million is held by our foreign subsidiaries. As of June 30, 2022, we had approximately $24.0 million of cash, cash equivalents and marketable securities of which approximately $22.8 million was held by our foreign subsidiaries. We remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving cash reserves internally. As a growing company, we have on-going capital expenditure needs based on our short term and long-term business plans. Although our requirements for capital expenses vary from time to time, for the next 12 months, we anticipate needing working capital of $2 to $3 million for APAC, U.S. and European new business development activities and infrastructure enhancements. 29 Financial Covenants Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($379,747) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 500 million ($1,741,493) and a running finance facility of Rupees 53.6 million ($186,688). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 900 million ($3,134,687). These facilities require NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. NetSol PK also has an approved export refinance facility of Rs. 380 million ($1,323,535) from Samba Bank Limited. During the tenure of loan, these two facilities require NetSol PK to maintain at a minimum a 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. As of the date of this report, we are in compliance with the financial covenants associated with our borrowings. The maturity dates of the borrowings of respective subsidiaries may accelerate if they do not comply with these covenants. In case of any change in control in subsidiaries, they may have to repay their respective credit facilities. Dividends and Redemption It has been our policy to invest earnings in growth rather than distribute earnings as common stock dividends. This policy, under which common stock dividends have not been paid since our inception is expected to continue but is subject to regular review by the Board of Directors. Contractual Obligations Our contractual obligations are as follows: Contractual Obligation Debt Obligations D&O Insurance Loan Payable Bank - Export Refinance Loan Payable Bank - Export Refinance II Loan Payable Bank - Export Refinance III Term Finance Facility Sale and Leaseback Financing Subsidiary Finance Leases Operating Lease Obligations Total Off-Balance Sheet Arrangements Total 0 - 1 year 1-3 Years 3-5 Years Payment due by period More than 5 years $ $ 89,823 1,741,493 1,323,535 2,438,089 13,356 321,113 28,330 1,157,431 7,113,170 $ $ 89,823 1,741,493 1,323,535 2,438,089 13,356 148,264 24,950 505,237 6,284,747 $ $ - - - - - 172,849 3,380 589,025 765,254 $ $ - - - - - - - 62,733 62,733 $ $ - - - - - - - 436 436 We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations. 30 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in currency exchange rates and interest rates. Foreign Currency Exchange Risk Economic Exposure We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. Since the majority of the Company’s operations are based in the Asia Pacific region where the Pakistan Rupee is continuously losing its value against the US Dollar and we don’t have any imports; therefore, we believe it is counter-productive to hedge this exposure. The devaluation of the Pakistan Rupee results in a foreign exchange gain to the Company. Transaction Exposure Our exposure to foreign currency transaction gains and losses is the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary, primarily the Euro, Yuan, Baht and the Pakistan Rupee. Our foreign subsidiaries conduct their businesses in local currency. Since the majority of the Company’s operations are based in the Asia Pacific region where the Pakistan Rupee is continuously losing its value against the US Dollar and we don’t have any imports; therefore, we believe it is counter-productive to hedge this exposure. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements that constitute Item 8 are included at the end of this report on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NETSOL’s financial statements for the fiscal years ended June 30, 2023 and June 30, 2022, did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audit of NETSOL’s financial statements for the fiscal year ended June 30, 2023 and 2022, there were no disagreements, disputes, or differences of opinion with BF Borgers CPA PC. (“BF Borgers”) on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures, which, if not resolved to the satisfaction of BF Borgers would have caused BF Borgers to make reference to the matter in their report. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Chief Financial Officer and Chief Executive Officer concluded that our disclosure controls and procedures were effective. Management’s Report on Internal Control over Financial Reporting Our management has the responsibility to establish and maintain adequate internal controls over our financial reporting, as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934. Our internal controls are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our external financial statements in accordance with generally accepted accounting principles (GAAP). Due to inherent limitations of any internal control system, management acknowledges that there are limitations as to the effectiveness of internal controls over financial reporting and therefore recognize that only reasonable assurance can be gained from any internal control system. Accordingly, our internal control system may not detect or prevent material misstatements in our financial statements and projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 31 Under the supervision and participation of management, including the Chief Executive Officer and Chief Financial Officer, we have performed an assessment of the effectiveness of our internal controls over financial reporting as of June 30, 2023. This assessment was based on the criteria established in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of our assessment, the Company has determined that as of June 30, 2023, the Company’s internal control over financial reporting are effective. Changes in Internal Control over Financial Reporting There have been no changes in our internal controls over financial reporting during the fourth quarter of fiscal year 2023, that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)). ITEM 9B. OTHER INFORMATION NONE ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS NONE ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Section 16(a) Beneficial Ownership Reporting Compliance PART III Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company’s directors and executive officers and persons owning more than 10% of the outstanding Common Stock, file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive officers, directors and beneficial owners of more than 10% of the Company’s Common Stock are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on copies of such forms furnished as provided above, or written representations that no such forms were required, the Company believes that during the fiscal year ended June 30, 2023, all Section 16(a) filing requirements applicable to its executive officers, directors and beneficial owners of more than 10% of its Common Stock were complied with. CHANGE IN MANAGEMENT AND BOARD OF DIRECTORS Board of Directors At the 2022 Annual Shareholders Meeting held in June 2023, a five-member board stood for election. The members were elected and, according to the bylaws of the Company shall retain their position as directors until the next meeting. The board of directors is made up of Mr. Najeeb U. Ghauri (Chairman of the Board), Mr. Mark Caton, Ms. Malea Farsai, Mr. Kausar Kazmi and Mr. Michael Francis. Mr. Henry Tolentino did not stand for re-election due to personal reasons and Mr. Michael Francis was nominated and elected to the Board. Committees During the fiscal year 2023, the Audit Committee, the Compensation Committee and the Nominating and Corporate Government Committee were structured as follows: The Audit Committee consisted of Mr. Kazmi, as Chair, with Mr. Caton and Mr. Tolentino as members. The Compensation Committee consisted of Mr. Caton, as Chair, with Mr. Kazmi and Mr. Tolentino as its members. The Nominating and Corporate Governance Committee consisted of Mr. Tolentino, as Chair, with Mr. Caton and Mr. Kazmi as its members. In September 2023, Mr. Michael Francis was appointed as the Chair of the Nominating and Corporate Governance Committee and was appointed as a member of the Audit Committee and the Compensation Committee. 32 The table below provides the membership for each of the committees during Fiscal Year 2023. Director Najeeb Ghauri Malea Farsai Mark Caton (I) Kausar Kazmi (I) Henry Tolentino * (I) Michael Francis ** (I) (N) Audit Committee X X (C) X Compensation Committee X (C) X X Nominating and Corporate Governance Committee X X X (C) *Mr. Tolentino’s term ended June 2023. ** Mr. Francis was elected to the Board in June 2023, but did not join as a committee member until September 2023. (I) Denotes an Independent Director. (C) Denotes the Chairperson of the Committee. (N) Mr. Francis became the Nominating Committee Chairman in September 2023. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names and ages of the current directors and executive officers of the Company, the principal offices and positions with the Company held by each person and the date such person became a director or executive officer of the Company. The Board of Directors elects the executive officers of the Company annually. Each year the stockholders elect the Board of Directors. The executive officers serve varying terms until their death, resignation or removal by the Board of Directors. In addition, there was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer. The directors and executive officers of the Company are as follows: Name Najeeb Ghauri Naeem Ghauri Roger Almond Patti L. W. McGlasson Mark Caton Malea Farsai Henry Tolentino Syed Kausar Kazmi Michael Francis Year First Elected as an Officer or Director 1997 1999 2013 2004 2002 2018 2018 2019 2023 Age 69 66 58 58 74 54 74 70 57 Position Held with the Registrant Family Relationship Chief Executive Officer, Chairman and Director President Chief Financial Officer Sr. V.P., Legal and Corporate Affairs; Secretary, General Counsel Director Director; Corporate Counsel Director Director Director 33 Brother of Naeem Ghauri Brother of Najeeb Ghauri None None None None None None None Business Experience of Officers and Directors: NAJEEB U. GHAURI is the Chief Executive Officer and Chairman of NETSOL. He has been the Co-founder and director of the Company since 1997, Chairman since 2003 and Chief Executive Officer from January 1998 to September 2002 and from October 2006 to present. Mr. Ghauri was responsible for NETSOL listing on NASDAQ in 1999 and NETSOL Pakistan subsidiary listing on the Karachi Stock Exchange in 2005. Mr. Ghauri served as the Company’s Chief Executive Officer from 1999 to 2001 and as the Chief Financial Officer from 2001 to 2005. As CEO, Mr. Ghauri is responsible for managing the day-to-day operations of the Company, as well as the Company’s overall growth and expansion plan. In 2017, Mr. Najeeb Ghauri as the CEO, implemented a Company-wide initiative cutting costs which saved the Company in excess of $7,000,000. Mr. Ghauri was also instrumental in the substantial increase in revenue for fiscal year end 2015. In addition, Mr. Ghauri traveled overseas multiple times to execute the largest contract for the Company, worth over $100 million, in December 2015. Under his watch, NETSOL has become a leading player in China with innovation and a cutting-edge technology. In September 2020, Mr. Ghauri was presented with the highest civilian award in Pakistan, “Sitar e Imtiaz”, a medal of pride, in recognition for his work in IT and charitable causes in Pakistan. This medal was conferred by the President of Pakistan at the President House in Islamabad, Pakistan. Prior to joining the Company, Mr. Ghauri was part of the marketing team of Atlantic Richfield Company (ARCO) (now acquired by BP), a Fortune 500 company, from 1987-1997. Prior to ARCO, he spent nearly five years with Unilever as brand and sales managers. Mr. Ghauri attended Eastern Illinois University in 1977-78 for Bachelor of Science degree in Management/Economics. He earned an M.B.A. in Marketing Management from Peter F. Drucker School of Management, Claremont, California in 1981. Mr. Ghauri was elected Vice Chairman of US Pakistan Business Council in 2006, a Washington D.C. based council of US Chamber of Commerce. He is also very active in several philanthropic activities in emerging markets and is a founding director of Pakistan Human Development Fund, a non-profit organization, a partnership with UNDP to promote literacy, health services and poverty alleviation in Pakistan. Mr. Ghauri has participated in NASDAQ opening and/or closing bell ceremonies in 2006, 2008,2009, 2015 and 2020. Skills and Qualifications: Mr. Ghauri has an extensive executive, operational and strategic leadership experience in a global setting and substantial experience in establishing management performance objective and establishing goals. Mr. Ghauri not only serves the Board with his experience as a chief executive officer, but also his skills and insight into global operational logistics, which he developed over the course of his 25-year career in technology industry. NAEEM GHAURI was a Director of the Company from 1999 through 2020 and was the Company’s Chief Executive Officer from August 2001 to October 2006. Mr. Ghauri is also a co-founder of the Company. Currently, Mr. Ghauri serves as the President and Director of Global Sales of NETSOL, director of NETSOL (UK) Ltd., a wholly owned subsidiary of the Company located in London, and Chairman of NetSol Technologies Limited in Pakistan. While instrumental in numerous transactions, his most significant contribution to the revenue of the Company was his role in overseeing and leading the closing of the largest contract to date for the Company worth $100 million signed in December 2015. More recently, Mr. Ghauri headed the sales team that signed a contract valued in excess of $35 million. Mr. Ghauri spearheaded the Innovation practice of the Company while he was located in Thailand with an eye towards working with rideshare platforms as sustainable business models for the Company as the CEO of OTOZ™, Inc. He is currently based out of NetSol’s Pakistan office, Prior to joining the Company, Mr. Ghauri was Program Director for Mercedes-Benz Finance Ltd., from 1994-1999. Mr. Ghauri supervised over 200 project managers, developers, analysts and users in nine European Countries. Mr. Ghauri is a board member of Drivemate Co., Ltd., the Company’s partner in Thailand, as a representative of NetSol. Mr. Ghauri earned his degree in computer science from Brighton University in England. Skills and Qualifications: Mr. Naeem Ghauri has served in many leadership capacities within the Company throughout the past 23 years. Through his various senior leadership positions and extensive executive experience, Mr. Ghauri brings to NetSol his unique insight related to technology, innovation, marketing, and growth, including digital and mobility strategy. ROGER ALMOND was appointed Chief Financial Officer on September 9, 2013. Since 2007, Roger Almond held the position of Senior Manager at Pickard & Green Certified Public Accountants where he and his team were responsible for assisting national and international companies with their financial reporting requirements to the SEC. Roger Almond’s duties also included overseeing multiple entity consolidations, converting financial data to US GAAP, preparing financials statements, footnotes and MD&A. Prior to his current position, Roger Almond held the position of Assurance Manager at Grant Thornton LLP, in Los Angeles, California from 2003-2006. From November 1999 to August 2003, he was the Chief Financial Officer of Keysor Century Corporation located in Saugus, California. Roger Almond received his BS in Accounting from Brigham Young University in 1991 and he is a Certified Public Accountant licensed in California. He has also completed executive management courses at UCLA in 2001. Skills and Qualifications: Through his senior leadership as Chief Financial Officer, Mr. Almond possesses extensive knowledge in several important business areas, including public company accounting, leadership, risk assessment, and international, cross-border accounting. 34 PATTI L. W. MCGLASSON joined NETSOL as General Counsel in January 2004 and was elected to the position of Secretary in March 2004. She was appointed Senior Vice President, Corporate and Legal Affairs in 2013. In the role of General Counsel, Ms. McGlasson is responsible for leading NETSOL’s legal department company-wide. She is also responsible for the implementation of the Company’s internal corporate governance and policy plans, ethics and business conduct. She oversees all board meetings in her executive position as corporate secretary. Ms. McGlasson has over 30 years of experience in corporate law, mergers and acquisitions, business and cross-border transactions and securities law. Immediately prior to joining NETSOL, Patti practiced at Vogt & Resnick, law corporation. She was admitted to practice in California in 1991. She received her Bachelor of Arts in Political Science in 1987 from the University of California, San Diego and, her Juris Doctor and Masters in Law in Transnational Business from the University of the Pacific, McGeorge School of Law, in 1991 and 1993, respectively. As part of her Masters in Law in Transnational Business, she interned at the law firm of Loeff Claeys Verbeke in Rotterdam, the Netherlands in 1991. Skills and Qualifications: As General Counsel, Ms. McGlasson offers extensive knowledge in several important strategic areas, including innovative problem-solving related to global risks and opportunities. Her legal expertise also helps NetSol navigate cross-cultural and cross-border opportunities. MARK CATON joined the Board of Directors in 2007. Mr. Caton is currently President of Centela Capital, Inc. a diversified financial services company, a position he has held since 2006. Prior to joining Centela Capital, Mr. Caton was President of NETSOL Technologies USA, responsible for US sales, from June 2002 to December 2003. Mr. Caton was previously employed by ePlus from 1994 to 2002 as Senior Vice President-Business Development. He was a member of the UCLA Alumni Association Board of Directors and served on the Board of Directors of NETSOL from 2002-2005. Mr. Caton is the Chair of the Compensation Committee and a member of the Audit and Nominating and Corporate Governance Committees. Mr. Caton received his BA from UCLA in psychology in 1971. Skills and Qualifications: Mr. Caton serves the Board with his 45 years of experience in sales, marketing and management in the financial leasing and software industries. MALEA FARSAI joined the Board of Directors for the first time in 2018 and is currently the Company’s Corporate Counsel. Before joining NETSOL in March 2000, Ms. Farsai was an associate at the law firm of Horwitz and Beam where she represented both domestic and international private and public clients from technology to apparel in various transactions from 1996-2000. She has also worked on the formation of business startups and IPOs. Ms. Farsai was on the team that took NETSOL public and is the one who listed NETSOL on NASDAQ in 1999 and has maintained its listing since then to current. After nearly two decades with the Company, Ms. Farsai continues to work part- time as Corporate Counsel overseeing the Company’s insurance as well as day to day corporate legal needs. She has also obtained many of NETSOL’s various trademarks. Ms. Farsai has been actively updating and overseeing the Company’s Corporate and Social Responsibilities (CSR) globally and has effectively established a 501(c)(3) foundation for NETSOL to continue its charitable work internationally. Ms. Farsai received her B.A. degree from University of California, Irvine and her J.D. in 1996, and has been a member of the California State Bar since 1996. She sits on the board of various charitable organizations in Los Angeles. Skills and Qualifications: Ms. Farsai has served the Company and its legal department since its inception and has a breadth of knowledge and understanding about NETSOL’s business through her role as Corporate Counsel. She also has an understanding of Public Company corporate governance as well as the management and retention of a diverse group of employees. 35 HENRY TOLENTINO joined the Board of Directors for the first time in 2018 and served as a director until his term ended in June 2023. Mr. Tolentino brought over than 30 years of experience in the auto finance industry working with global manufacturers such as Toyota and General Motors. Prior to joining NETSOL’s advisory board in 2017, Mr. Tolentino held several executive positions at Toyota Leasing (Thailand) Co., Ltd., including most recently as president from 2006 to 2014 and then served as an advisor from 2015 to 2016. Prior to Toyota Leasing, Mr. Tolentino spent more than 10 years with Toyota Motor Credit Corporation, USA. He began his career in the auto finance industry with General Motors Acceptance Corporation. Mr. Tolentino served as the Chair of the Nomination and Corporate Governance Committee and member of the Audit and Compensation Committees until the end of his term in June 2023. Skills and Qualifications: Mr. Tolentino has significant knowledge in international automobile manufacturing, business strategy and managing growth in the automotive industry. Using his experience, he provided the Company’s management with strategic advice. SYED KAUSAR KAZMI joined the Board of Directors in 2019. Mr. Kazmi brings over 40 years of expertise in the banking industry and is currently the Head of Commercial Banking and Business Development at Habib Bank Zurich PLC, located in London where he has served in this capacity since 2016. Prior to this position, Mr. Kazmi served as the Head of Business Development for UK and Europe at Habib Bank AG Zurich in London from 2012-2016, before which Mr. Kazmi was the CEO of the UK operations of Habib Bank AG Zurich from 2009-2012. In 2018, Mr. Kazmi was awarded by Power 100, Parliamentary Review in association with The British Publishing Company a “Lifetime Achievement Award” for his significant and lasting impact on the banking sector. In addition, Mr. Kazmi has been awarded by the Asian Media Group the “GG2 Power List” celebrating Britain’s 101 most influential Asians from 2016-2018. Mr. Kazmi received his BSc in Chemical Engineering with II Class Honors from Habib Institute of Technology in 1974. He sits on the board of many charitable organizations, with a focus on helping raise funds. Mr. Kazmi is the Chair of the Audit Committee and is a member of the Nominating and Corporate Governance and Compensation Committees. Skills and Qualifications: Mr. Kazmi has strong financial services and management expertise. He directs the operations of a financial services business, expending its focus on business development. MICHAEL FRANCIS is nominated to the Board of Directors for the first time this year in June 2023. Mr. Francis brings over 30 years of expertise in the banking and finance industry. He is currently Joint Managing Partner of Alderson Francis Associates Ltd, which provides business consulting to UK finance, software, and private equity businesses. Prior to this, he was Co-Head of Investment Banking at Investec Bank UK PLC, until October 2020. He was at Investec for 18 years, in various roles, most significantly as the founder and CEO of Investec asset Finance PLC, which is a significant client of NETSOL. From November 2022 to May 2023, Mr. Francis served as an interim executive director for VLS, a subsidiary of NTE to utilize his Financial Conduct Authority (FCA) authorization to assist VLS in strategic management of its business and to meet VLS’s FCA requirements. Mr. Francis also held senior management positions at Barclays Bank PLC and ANZ Investment Bank. Mr. Francis received his BSc in Biochemistry with II Class Honors from The University College of Wales, Aberystwyth in 1987. He is also a Fellow of the Institute of Chartered Accountants in England and Wales, qualifying with Ernst & Young in 1992. Mr. Francis is currently a trustee of the School of Hard Knocks located in the United Kingdom. He also served as the Chair of the Finance Committee of The Beacon School, located in the UK, for nine years. In September 2023, Mr. Francis was appointed as the Chair of the Nomination and Corporate Governance Committee and a member of the Audit and Compensation Committees. Skills and Qualifications: Mr. Francis brings to the Board a seasoned expertise in financial services strategy, especially in the field of Lease and Finance as well as management proficiency. COPORATE GOVERNANCE Code of Business Conduct & Ethics The Company adopted its Code of Business Conduct & Ethics, as amended and restated on September 9, 2013, applicable to every officer, director and employee of the Company, including, but not limited to the Company’s principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. Our Code of Business Conduct & Ethics has been posted on our website and may be viewed at http://ir.netsoltech.com/governance-docs. Audit Committee The Company has an Audit Committee whose members are the independent directors of the Company, specifically, Mr. Kazmi, Mr. Caton, and Mr. Tolentino with Mr. Francis replacing Mr. Tolentino after being elected to the Board in June 2023 and being appointed as a member of the Audit Committee in September 2023. Mr. Kazmi is the current Chair of the Audit Committee. Audit Committee Financial Expert The Company has identified its audit chairperson, Mr. Kausar Kazmi as its Audit Committee financial expert. Mr. Kazmi is an independent board member as the term is defined in the Nasdaq Listing Rules. Mr. Kazmi’s over 40 years of experience in the banking industry including his current tenure as Head of Commercial Banking and Business Development for UK and Europe for Habib Bank AG Zurich as well as his service as a board member on various charities as the board member responsible for fundraising, provides him with an understanding of generally accepted accounting principles and financial reporting. Additionally, this experience provides an ability to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; experience analyzing financial statements that were comparable in the breadth and complexity of issues that can be reasonably expected to be raised by the Company’s financial statements; an understanding of internal control over financial reporting; and an understanding of audit committee functions. 36 ITEM 11-EXECUTIVE COMPENSATION Introduction Our Compensation Committee is responsible for establishing and overseeing compensation programs that comply with NetSol’s executive compensation philosophy. As described in this Compensation Discussion and Analysis (“CD&A”), the Compensation Committee follows a disciplined process for setting executive compensation. This process involves analyzing factors such as company performance, individual performance, strategic goals and competitive market data to arrive at each element of compensation. The Compensation Committee approves compensation decisions for all executive officers. An independent compensation consultant helps the Compensation Committee by providing advice, information, and an objective opinion. This CD&A will focus on the compensation awarded to NetSol’s “named executive officers”—the Chief Executive Officer, Chief Financial Officer, and General Counsel, Corporate Secretary. You can find more complete information about all elements of compensation for the named executive officers in the following discussion and in the Summary Compensation table that appears on page 43. Fiscal 2023 Executive Compensation Highlights and Governance This section identifies the most significant decisions and changes made regarding NETSOL’s executive compensation in fiscal year 2023. Shareholder Approval of Compensation At the last annual general meeting held on June 7, 2023, shareholders expressed support for our executive compensation programs, with 75% of votes cast at the meeting voting to ratify the compensation of our named executive officers. Although the advisory shareholder vote on executive compensation is non-binding, the Compensation Committee has considered, and will continue to consider, the outcome of the vote and the sentiments of our shareholders when making future compensation decisions for the named executive officers. Based on the results from our last annual general meeting, the Compensation Committee believes shareholders support the Company’s executive compensation philosophy and the compensation paid to the named executive officers. Taking into account the support of this plan at the June 7, 2023 Annual Shareholders Meeting, the Compensation Committee believes the compensation program meaningfully explains the Compensation Committee’s compensation decisions and its determination to tie long term incentives of the Chief Executive Officer to performance criteria. The Compensation Committee continues to reach out to its shareholders regarding their positions on the Company’s compensation program. In connection with the proxy solicitations, the executive compensation was discussed with certain of our top shareholders and their general acceptance of the compensation structure is reflected in the proxy vote results. Accordingly, the Compensation Committee will continue to provide the CEO with a bonus criterion that is based on total revenues and income from operations on a graduated basis. Bonuses would be paid 60% in cash and 40% in stock valued at the share price on June 30th of the fiscal year in which it was earned. At the annual general meeting on June 7, 2023, the Shareholders overwhelmingly approved an annual vote on the Frequency of Say on Pay voting. Accordingly, we will continue to provide our stockholders with an annual opportunity to cast an advisory vote on the compensation programs for our named executive officers and as always, the stockholders are welcome to contact Investor Relations with any questions. Governance and Evolving Compensation Practices The Compensation Committee and the Board are aware of evolving practices in executive compensation and corporate governance. In response, we have adopted and/or maintained certain policies and practices that are in keeping with “best practices” in many areas. For example: ● The Compensation Committee engages an independent compensation consultant to evaluate our chief executive officer’s executive compensation practices in comparison to a peer group. ● We do not provide excessive executive perquisites to our named executive officers. ● Our incentive plans expressly prohibit repricing of options (directly or indirectly) without prior shareholder approval. ● Our policy on the prevention of insider trading prohibits various types of transactions involving Company stock or securities, including short sales, options trading, hedging, margin purchases and pledges. ● Our stock ownership guidelines require our executive officers to align their long-term interests with those of our stockholders. ● Our policy prohibits the named executive officers from selling any newly issued shares for a period of three months, in an open market transaction. ● Beginning with our fiscal year 2019 to current, we modified our compensation practices for our CEO to tie a significant portion to financial results both on a top line and bottom-line basis. 37 General Compensation Overview For 2023, compensation designed for our executive officers consisted of: ● Base Salary ● Cash awards at the discretion of the Compensation Committee ● Long term equity in the form of time-based restricted stock; and ● Ability to participate generally in all group health and welfare benefit programs and tax-qualified retirement plans on the same basis as applicable to all of our employees. In response to discussions we have had with certain shareholders and given the percentage voting in favor of our executive compensation, beginning with the 2019 fiscal year, Chief Executive Officer compensation shall consist of: ● Base Salary ● Short-term cash awards conditioned upon achieving objective performance targets ● Long-term equity in the form of time and objective performance targets; and ● Ability to participate generally in all group health and welfare benefit programs and tax-qualified retirement plans on the same basis as applicable to all of our employees. The Compensation Committee administers the cash and non-cash compensation programs applicable to our executive officers. The Compensation Committee makes all decisions about executive officer compensation for the Chief Executive Officer and the remaining named executives after discussion with our Chief Executive Officer about his direct reports. The Compensation Committee has often refined the direct reports’ compensation recommendations made by the Chief Executive Officer. Our Chief Executive Officer’s compensation is determined solely by the Compensation Committee, which, consistent with NASDAQ requirements, is comprised exclusively of independent directors, and the Chief Executive Officer does not participate in Committee decisions surrounding his compensation. Independent Compensation Consultant The Compensation Committee retained Compensation Resources, Inc. as its independent compensation consultant. Compensation Resources provided chief executive officer and director compensation consulting services to the Compensation Committee, including a competitive market analysis of peers and the base salary, total cash compensation and total direct compensation. Interactions with Compensation Resources was limited to the Compensation Committee Chair and interaction with executives was generally limited to discussions as required to compile information at the Compensation Committee’s direction. During fiscal year 2023, Compensation Resources did not provide services to the Company. Based on these factors and its own evaluation of Compensation Resources independence pursuant to the requirements approved and adopted by the SEC, the Compensation Committee has determined that the work performed by Compensation Resources does not raise any conflicts of interest. Compensation Philosophy and Objectives Our executive compensation philosophy calls for competitive total compensation that will reward executives for achieving individual and corporate performance objectives and will attract, motivate and retain leaders who will drive the creation of shareholder value. It incorporates elements that create shareholder value by driving financial performance, retaining a high-performing and talented executive team, and aligning the interests of the executive team with the interests of shareholders. The Compensation Committee reviews the compensation and benefit programs for executive officers, including the named executive officers, and performs an annual assessment of the Company’s executive compensation policy. In determining total compensation, the Compensation Committee considers the objectives and attributes described below. 38 Shareholder Alignment ● ● Executive Compensation Principles Our executive compensation programs are designed to create shareholder value. Long-term incentive awards, delivered in the form of equity, make up a portion of our executives’ total compensation and closely align the interests of executives with the long-term interests of our shareholders. Our policy prohibits the named executive officers from selling any newly issued shares for a period of three months, on an open market transaction. Performance based ● Long-term incentive awards are designed to reward our executive officers for creating long-term shareholder value. Long-term incentive awards are granted primarily in the form of stock options and/or shares. Appropriate Risk ● Our executive compensation programs are designed to encourage executive officers to take appropriate risks in managing their businesses to Competitive with external talent markets Simple and transparent achieve optimal performance. ● Our executive compensation programs are designed to be competitive within the relevant markets. ● Our executive compensation programs are designed to be readily understood by our executives, and transparent to our investors. Compensation Analysis Peer Group After consideration of business models, company revenue and market capitalization of other companies in the Company’s technology industry segment, and with the input from Compensation Resources, Inc., the compensation consultant used by the Company at the time the study was last conducted, the Compensation Committee established the following list of peer companies to provide a comparative framework for use in setting executive compensation: American Software, Inc. BSquare Corp. Cass Information Systems Digital Turbine, Inc. Everbridge, Inc. Mitek Systems, Inc. SPS Commerce Inc. Executive Officer Base Salaries and Compensation Comparisons Compensation plans are developed by utilizing publicly available compensation data in the information technology and software services industries. We believe that the practices of these groups of companies provide us with appropriate compensation benchmarks, because these groups of companies are in similar businesses and tend to compete with us for executives and other employees. For benchmarking executive compensation, we typically review the compensation data we have collected from these groups of companies, as well as a subset of the data from those companies that have a similar number of employees as the Company. The Compensation Committee has determined to utilize the services of a consultant for purposes of comparing our compensation program with similarly situated companies in like industries. The recommendations of these consultants will be utilized by the Compensation Committee in determining the appropriate compensation packages in addition to taking into account the unique global scale of the Company’s business. While these consultants may make general recommendations about the size and components of compensation, we anticipate our philosophy to continue on the basis of a pay-for-performance philosophy. In establishing the compensation of our named Chief Executive Officer, we based the amounts primarily on the market data and advice provided by Compensation Resources, Inc. with respect to the compensation paid to individuals who perform substantially similar functions within the peer group companies. In connection with the other named executive officers, we also relied on the recommendations of the Chief Executive Officer’s analysis relative to those individuals’ performance and compensation. We also examined the outstanding stock options and equity grants held by the executive officers for the purpose of considering the retention value of any additional equity awards. As a general guideline, for our named executive officers, we aim to set base salary, cash compensation and total compensation at approximately the mean market range. Our analysis determined that the base salary of our Chief Executive officer was slightly above the mean, cash compensation was generally within the mean, but the total direct compensation was below the mean. As such, it was determined to develop a long-term, performance-based element of the compensation that brought the total direct compensation within the mean. 39 2023 Executive Compensation Components Base Salary An executive’s base salary is a fixed element of the executive’s compensation intended to attract and retain executives. It is evaluated together with components of the executive’s other compensation to ensure that the executive’s total compensation is consistent with our overall compensation philosophy. Base salaries are adjusted annually by the Compensation Committee. The base salaries were established in arms-length negotiations between the executive and the Company, considering their extensive experience, knowledge of the industry, track record, and achievements on behalf of the Company. The Company expects each named executive officer to contribute to the Company’s overall success as a member of the executive team rather than focus solely on specific objectives within the officer’s area of responsibility. Mr. Ghauri’s base salary for fiscal year 2023 was $700,000 and in addition he received $200,000 in allowances. Mr. Ghauri’s base salary and allowances will remain the same for fiscal year 2024. Mr. Almond’s base salary for fiscal year 2023 was $226,000 and in addition he received $24,000 in allowances. For fiscal year 2024, Mr. Almonds salary will remain the same. Ms. McGlasson salary for fiscal year 2023 was $233,622 and her base salary for fiscal year 2024 will remain the same. The Compensation Committee determined that salary alone was an adequate basis for short term compensation, and that equity incentives would be used for the long-term elements of incentive programs for Ms. McGlasson and Mr. Almond. Annual Bonus Our compensation program includes eligibility for bonuses as rewarded by the Compensation Committee. All executives are eligible for annual performance-based cash bonuses in accordance with Company policies. The Compensation Committee takes into consideration the executive’s performance during the previous year to determine eligibility for discretionary bonuses. Further, the compensation committee will review, if applicable, the performance criteria set forth in an executive’s previous year’s agreement and will determine if the executive has met such criteria in order to achieve the bonus. The Company’s bonus criteria at the executive management level, is typically based on a gross revenue and income from operations targets. Cash bonuses, if any for 2023 are reflected in the summary of compensation table on page 43. For 2023, based on structured KPI’s by the compensation committee, Mr. Ghauri did not earn any bonus. See bonus structure as discussed below on page 41. The Compensation Committee determined that Gross Revenue and Income from Operations structure used in fiscal 2023 continues to be a proper measure for measuring Mr. Ghauri’s performance in that it encourages his participation in revenue generating activities and continues to incentivize him to monitor and maximize cost efficiency. Long-Term Equity Incentive Compensation We believe that long-term performance is achieved through an ownership culture that encourages long-term participation by our executives in equity-based awards. Because base salary and equity awards are such basic elements of compensation within our industry, as well as the high technology and software industries in general, and are generally expected by employees, we believe that these components must be included in our compensation mix in order for us to compete effectively for talented executives. We award time based vested stock from our Equity Incentive Plans for several reasons. First, such awards facilitate retention of our executives. Restricted stock generally vests only if the executive remains employed by the Company. Second, time-based stock awards align executive compensation with the interests of our shareholders and thereby focuses executives on increasing value for the shareholders. Time vested stock generally only provides a superior return if the stock price appreciates, and results in materially less dilution to the shareholders than options while frequently providing equivalent value to the employee at less cost to the Company than options. In determining the number of shares to be granted to executives, we take into account the individual’s position, scope of responsibility, ability to affect profits and shareholder value, past and recent performance, and the estimated value of shares at the time of grant. Assuming individual performance at a level satisfactory to the Compensation Committee, the size of total equity compensation is generally targeted at the 50th percentile for the peer group. As indicated above, market data, including compensation percentiles, were among several factors the committee reviewed in determining compensation. Equity incentives provided to executives are determined by the Fair Market Value of our common stock on the grant date. Each executive’s stock award was based on an analysis of the Compensation Committee of an appropriate overall cash compensation for each individual taking into account their position and compensation at similarly situated companies. Each executive’s stock award was based on a desired overall compensation cash value less the base salary as approved by the Compensation Committee. Mr. Najeeb Ghauri is eligible to receive grants of shares based on the performance criteria connected to gross revenues and net income from operations as discussed below. The total compensation including equity grants is designed to bring the Chief Executive Officer to the mean market average. 40 Mr. Najeeb Ghauri’s bonus for fiscal year 2023 is based on the total revenues and income from operations on a graduated basis. The following table demonstrates the graduated percentage of bonus that Mr. Ghauri will be eligible to earn based on the percentage of the goal achieved. Bonuses will be paid 60% in cash and 40% in shares of common stock valued on June 30, 2023. Total net revenues and income from operations are based on those values reported for the year ending June 30, 2023 excluding any adjustments relating to changes in revenue recognition policy. Allocated Bonus % % of Bonus Net revenues Bonus Earned 55% Increase in revenues $ 25% 5% $ 82,500 50% 10% $ 165,000 100% 15% $ 330,000 125% 20% $ 412,500 150% 25% $ 495,000 175% 30% $ 577,500 200% 35% 660,000 Income from Operations Bonus Earned Total Bonus % of Bonus Income from Operations % 45% 25% 50% 100% 125% 150% 175% 200% 5.0% $ 67,500 7.5% $ 135,000 10.0% $ 270,000 12.5% $ 337,500 15.0% $ 405,000 17.5% $ 472,500 20.0% 540,000 $ $ 150,000 $ 300,000 $ 600,000 $ 750,000 $ 900,000 $ 1,050,000 $ 1,200,000 Mr. Ghauri’s bonus for the fiscal year 2024 will be based on the same criteria stated above. Perquisites and Other Personal Benefits We provide named executive officers with perquisites and other personal benefits that we believe are reasonable and consistent with our overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Compensation Committee periodically reviews the level of perquisites and other personal benefits provided to NETSOL’s executive officers. We maintain benefits and perquisites that are offered to all employees, including health and dental insurance. Benefits and perquisites may vary in different country locations and are consistent with local practices and regulations. Termination Based Compensation Upon termination of employment, all executive officers with a written employment agreement are entitled to receive severance payments under their employment agreements. In determining whether to approve, and as part of the process of setting the terms of, such severance arrangements, the Compensation Committee recognizes that executives and officers often face challenges securing new employment following termination. Further, the Committee recognizes that many of the named executives and officers have participated in the Company since its founding and that this participation has not resulted in a return on their investments. Termination and Change in Control Payments considered both the risk and the dedication of these executives’ service to the Company. Our Chief Executive Officer has an employment agreement that provides, if his employment is terminated without cause or if the executive terminates the agreement with Good Reason, he is entitled to (a) all remaining salary to the end of the date of termination, plus salary from the end of the employment term through the end of the fourth anniversary of the date of termination, and (b) the continuation by the Company of medical and dental insurance coverage for him and his family until the end of the employment term and through the end of the fourth anniversary of the date of termination. Provided, however, if such benefits cannot be continued for this extended period, the Executive shall receive cash (including a tax-equivalency payment for Federal, state and local income and payroll taxes assuming Executive is in the maximum tax bracket for all such purposes) where such benefits may not be continued. These agreements further provide for vesting of all options and restrictive stock grants, if any. Our Chief Financial Officer has an employment agreement that provides, if his employment is terminated without cause or if the executive terminates the agreement with Good Reason, he is entitled to (a) all remaining salary to the end of the date of termination, plus salary from the end of the employment term through the end of the first anniversary of the date of termination, and (b) the continuation by the Company of medical and dental insurance coverage for him and his family until the end of the employment term and through the end of the first anniversary from the date of termination. Provided, however, if such benefits cannot be continued for this extended period, the Executive shall receive cash (including a tax-equivalency payment for Federal, state and local income and payroll taxes assuming Executive is in the maximum tax bracket for all such purposes) where such benefits may not be continued. These agreements further provide for vesting of all options and restrictive stock grants, if any. 41 The Secretary of the Company has an employment agreement that provides, if she is terminated without cause or if the executive terminates the agreement with Good Reason, she is entitled to (a) all remaining salary to the end of the date of termination, plus salary from the end of the employment term through the end of the second anniversary of the date of termination, and (b) the continuation by the Company of medical and dental insurance coverage for her and her family until the end of the employment term and through the end of the second anniversary of the date of termination. Provided, however, if such benefits cannot be continued for this extended period, the Executive shall receive cash (including a tax-equivalency payment for Federal, state and local income and payroll taxes assuming Executive is in the maximum tax bracket for all such purposes) where such benefits may not be continued. These agreements further provide for vesting of all options and restrictive stock grants, if any. These agreements were designed to assist in the retention of the services of our named executives and to determine in advance the rights and remedies of the parties in connection with any termination. The types and amounts of compensation and the triggering events set forth in these agreements were based on a review of the terms and conditions of normal and customary agreements in our competitive marketplace. Tax and Accounting Implications Deductibility of Executive Compensation As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that we may not deduct compensation of more than $1,000,000 that is paid to certain individuals. The Compensation Committee is aware of the limitations imposed by Section 162(m) and considers the issue of deductibility when and if circumstances warrant. The committee reviews proposed compensation plans in light of applicable tax deductions, and generally seeks to maximize the deductibility for tax purposes of all elements of compensation. However, the committee may approve compensation that does not qualify for deductibility, including stock option and time-based restricted stock awards, if and when the committee deems it to be in the best interests of the Company and our shareholders. Accounting for Stock-Based Compensation Commencing on July 1, 2006, we began accounting for stock-based payments, including awards under our Employee Stock Option Plans, in accordance with the of Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation. Summary Compensation The following table shows the compensation for the fiscal years ended June 30, 2023 and 2022, earned by our Chairman and Chief Executive Officer, our Chief Financial Officer who is our Principal Financial and Accounting Officer, and others considered to be executive officers of the Company. 42 Name and Principle Position Najeeb Ghauri CEO & Chairman Naeem Ghauri President Roger K Almond Chief Financial Officer Patti L. W. McGlasson Secretary, General Counsel Fiscal Year Ended 2023 2022 2023 2022 2023 2022 2023 2022 Salary ($) 700,000 700,000 802,883(4) 793,428(4) 226,000 197,041 233,622 212,384 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Bonus ($) Stock Awards ($) (1) Option Awards ($) - 69,922(2) - - 10,000 20,000 - - $ $ $ $ $ $ $ $ - - - - - - - - $ $ $ $ $ $ $ $ - - - - - - - - All Other Compensation ($) 200,000(3) 200,000(3) 47,220(5) 45,830(5) 36,871(6) 34,066(6) 11,719(7) 10,426(7) $ $ $ $ $ $ $ $ Total ($) 900,000 969,922 850,103 839,258 272,871 251,107 245,341 222,810 $ $ $ $ $ $ $ $ (1) There were no stock awards during the three years presented. (2) Bonus was awarded based on Mr. Ghauri’s bonus structure as detailed on page 41. (3) Per Mr. Najeeb Ghauri’s compensation agreement, he received $200,000 in allowances, perquisites and benefits such as car allowance, insurance premiums, and home office allowance for the fiscal years ended June 30, 2023 and 2022. (4) Consists of $610,068 and $586,397 base salary and $192,815 and $207,031 commission for the fiscal years ended June 30, 2023 and 2022, respectively. (5) Per Mr. Naeem Ghauri’s compensation agreement, he received $47,220 and $45,830 in allowances, perquisites and benefits for the fiscal years ended June 30, 2023 and 2022, respectively. (6) Consists of $12,871 and $10,066 paid for medical and dental insurance premiums for participation in the health insurance program for the fiscal years ended June 30, 2023 and 2022, respectively, and $24,000 paid as car allowance for the years ended June 30, 2023 and 2022. (7) Consists of $11,719 and $10,426 paid for medical and dental insurance premiums for participation in the health insurance program for the fiscal years ended June 30, 2023 and 2022, respectively. Grants of Plan-Based Awards There were no stock grants during the three years presented. Discussion of Summary Compensation Table The terms of our executive officers’ compensation are derived from our employment agreements with them and the annual performance review by our Compensation Committee. The terms of Mr. Najeeb Ghauri’s employment agreement with the Company were the result of negotiations between the Company and the executive and were approved by our Compensation Committee and Board of Directors. The terms of Ms. McGlasson’s and Mr. Almond’s employment agreement with the Company were the result of negotiations between our Chief Executive Officer and the employees and were approved by our Compensation Committee. 43 Employment Agreement with Najeeb Ghauri Effective January 1, 2007, the Company entered into an Employment Agreement with our Chief Executive Officer, Najeeb Ghauri (the “CEO Agreement”). The CEO Agreement was amended effective January 1, 2008, January 1, 2010, July 25, 2013 and again on June 30, 2014. Changes made in the June 30, 2014 amendment are effective July 1, 2014. Pursuant to the CEO Agreement, as amended, between Mr. Ghauri and the Company (the “CEO Agreement”), the Company agreed to employ Mr. Ghauri as its Chief Executive Officer for a five-year term. The term of employment automatically renews for 12 additional months unless notice of intent to terminate is received by either party at least 6 months prior to the end of the term. For the fiscal year 2023, Mr. Ghauri is entitled to an annualized compensation of $900,000 consisting of salary, allowances, perquisites and benefits, and is eligible for annual bonuses based on the bonus structure adopted by the Compensation Committee as described in Item 11 under Executive Compensation beginning on page 37. For fiscal year 2024, Mr. Ghauri’s annualized compensation consisting of salary, allowance, perquisites and benefits will be $900,000. Mr. Ghauri is entitled to six weeks of paid vacation per calendar year. The CEO Agreement also includes provisions respecting severance, non-solicitation, non-competition, and confidentiality obligations. Pursuant to the CEO Agreement, if he terminates his employment for Good Reason (as described below), or, is terminated prior to the end of the employment term by the Company other than for Cause (as described below) or death, he shall be entitled to all remaining salary from the termination date until 48 months thereafter, at the rate of salary in effect on the date of termination, immediate vesting of all options and continuation of all health related plan benefits for a period of 48 months. He shall have no obligation to seek other employment and any income so earned shall not reduce the foregoing amounts. If he is terminated by the Company for Cause (as described below), or at the end of the employment term, he shall not be entitled to further compensation. Under the CEO Agreement, Good Reason includes the assignment of duties inconsistent with his title, a material reduction in salary and perquisites, the relocation of the Company’s principal office by 30 miles, if the Company asks him to perform any act which is illegal, including the commission of a crime or act of moral turpitude, or a material breach of the CEO Agreement by the Company. Under the CEO Agreement, Cause includes conviction of crime involving moral turpitude, failure to perform his duties to the Company, engaging in activities which are directly competitive to or intentionally injurious to the Company, or any material breach of the CEO Agreement by Mr. Ghauri. The above summary of the CEO Agreement is qualified in its entirety by reference to the full text of the CEO Agreement, a copy of which was filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30, 2007. The above summary of the First Amendment is qualified in its entirety by reference to the full text of the Amendment, a copy of which was filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30, 2008. The above summary of the Second Amendment is qualified in its entirety by reference to the full text of the Amendment, a copy of which was filed as an exhibit to the Company’s 10-Q for the fiscal year ended December 31, 2009. The above summary of the Third Amendment is qualified in its entirety by reference to the full text of the Amendment, a copy of which was filed as an exhibit to the Company’s 8-K filed on July 26, 2013. The above summary of the Fourth Amendment is qualified in its entirety by reference to the full text of the Amendment, a copy of which was filed as an exhibit to the Company’s 8-K filed on July 3, 2014. Employment Agreement with Roger K. Almond Effective March 1, 2015, the Company entered into an Employment Agreement with our Chief Financial Officer, Mr. Roger K. Almond. Pursuant to the Employment Agreement, between Mr. Almond and the Company (the “CFO Agreement”), the Company agreed to employ Mr. Almond as its Chief Financial Officer from the date of the CFO Agreement through February 28, 2017. According to the terms of the CFO Agreement, the term of the agreement automatically extends for an additional one-year period unless notice of intent to terminate is received by either party at least 6 months prior to the end of the term. For the fiscal year 2023, Mr. Almond was entitled to an annualized base salary of $226,000 per annum and a $2,000 per month car allowance, and eligible for annual bonuses at the discretion of the Chief Executive Officer. There is no change in Mr. Almond’s salary for the fiscal year 2024, and is eligible for annual bonuses at the discretion of the Chief Executive Officer. In addition, Mr. Almond is entitled to participate in the Company’s equity incentive plans and is entitled to four weeks of paid vacation per calendar year. The CFO Agreement also includes provisions respecting severance, non-solicitation, non-competition, and confidentiality obligations. Pursuant to the CFO Agreement, if he terminates his employment for Good Reason (as described below), or, is terminated prior to the end of the employment term by the Company other than for Cause (as described below) or death, he shall be entitled to all remaining salary from the termination date until 12 months thereafter, at the rate of salary in effect on the date of termination, immediate vesting of all options and continuation of all health related plan benefits for a period of 12 months. He shall have no obligation to seek other employment and any income so earned shall not reduce the foregoing amounts. If he is terminated by the Company for Cause (as described below), or at the end of the employment term, he shall not be entitled to further compensation. Under the CFO Agreement, Good Reason includes the assignment of duties inconsistent with his title, a material reduction in salary and perquisites, the relocation of the Company’s principal office by 60 miles, if the Company asks him to perform any act which is illegal, including the commission of a crime or act of moral turpitude, or a material breach of the CFO Agreement by the Company. Under the CFO Agreement, Cause includes conviction of crime involving moral turpitude, failure to perform his duties to the Company, engaging in activities which are directly competitive to or intentionally injurious to the Company, or any material breach of the CFO Agreement by Mr. Almond. The above summary of the CFO Agreement is qualified in its entirety by reference to the full text of the CFO Agreement, a copy of which was filed as an exhibit to the Company’s 8-K filed on March 4, 2015. 44 Employment Agreement with Patti L. W. McGlasson Effective May 1, 2006, the Company entered into an Employment Agreement with our Secretary, General Counsel and Sr. Vice President, Legal and Corporate Affairs, Ms. Patti L. W. McGlasson. Pursuant to the Employment Agreement and its related amendments, between Ms. McGlasson and the Company (the “General Counsel Agreement”), the Company agreed to employ Ms. McGlasson as its Secretary and General Counsel from the date of the General Counsel Agreement through June 30, 2017. According to the terms of the General Counsel Agreement, the term of the agreement automatically extends for an additional one-year period unless notice of intent to terminate is received by either party at least 6 months prior to the end of the term. The General Counsel Agreement was amended on July 25, 2013 and again on June 30, 2014 (the General Counsel Agreement and all amendments referred to as the “GC Agreement”). Changes made in the June 30, 2014 amendment are effective July 1, 2014. Under the GC Agreement, Ms. McGlasson is entitled to an annualized base salary of $233,622 per annum, and is eligible for annual bonuses at the discretion of the Chief Executive Officer. There is no change in Ms. McGlasson’s salary for fiscal year 2024. In addition, Ms. McGlasson is entitled to participate in the Company’s equity incentive plans and, is entitled to six weeks of paid vacation per calendar year. The General Counsel Agreement also includes provisions respecting severance, non-solicitation, non-competition, and confidentiality obligations. Pursuant to the General Counsel Agreement, if she terminates her employment for Good Reason (as described below), or, is terminated prior to the end of the employment term by the Company other than for Cause (as described below) or death, she shall be entitled to all remaining salary from the termination date until 24 months thereafter, at the rate of salary in effect on the date of termination, immediate vesting of all options and continuation of all health related plan benefits for a period of 24 months. She shall have no obligation to seek other employment and any income so earned shall not reduce the foregoing amounts. If she is terminated by the Company for Cause (as described below), or at the end of the employment term, she shall not be entitled to further compensation. Under the General Counsel Agreement, Good Reason includes the assignment of duties inconsistent with her title, a material reduction in salary and perquisites, the relocation of the Company’s principal office by 60 miles, if the Company asks her to perform any act which is illegal, including the commission of a crime or act of moral turpitude, or a material breach of the General Counsel Agreement by the Company. Under the General Counsel Agreement, Cause includes conviction of crime involving moral turpitude, failure to perform her duties to the Company, engaging in activities which are directly competitive to or intentionally injurious to the Company, or any material breach of the General Counsel Agreement by Ms. McGlasson. The above summary of the General Counsel Agreement is qualified in its entirety by reference to the full text of the General Counsel Agreement, a copy of which was filed as an exhibit to the Company’s 10-KSB for the fiscal year ended June 30, 2006 on September 27, 2006. The above summary is also qualified in its entirety by reference to the full text of the Amendment to the General Counsel Agreement, a copy of which was filed as an exhibit to the Company’s 10-Q for the quarter ended March 31, 2010. The above summary is also qualified in its entirety by reference to the full text of the Second Amendment to the General Counsel Agreement, a copy of which was filed as an exhibit to the Company’s 8-K filed on July 26, 2013. The above summary is also qualified in its entirety by reference to the full text of the Third Amendment to the General Counsel Agreement, a copy of which was filed as an exhibit to the Company’s 8-K filed on July 3, 2014. Outstanding Equity Awards at Fiscal Year-End As of June 30, 2023, there are no outstanding stock options or grants of unvested stock awards. Pension Benefits We do not have any qualified or non-qualified defined benefit plans. Potential Payments upon Termination or Change of Control Generally, regardless of the manner in which a named executive officer’s employment terminates, the executive officer is entitled to receive amounts earned during the term of employment. Such amounts include the portion of the executive’s base salary that has accrued prior to any termination and not yet been paid, and unused vacation pay. In addition, we are required to make the additional payments and/or provide additional benefits to the individuals named in the Summary Compensation Table in the event of a termination of employment or a change of control, as set forth below. 45 Change-in-Control Payments Najeeb Ghauri, Chairman and Chief Executive Officer In the event that Mr. Ghauri is terminated as a result of a change in control, he is entitled to all payments due in the event of a termination for Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and his salary during the preceding 12 months; (b) a one-time payment equal to the higher of (i) Executive’s bonus for the previous year and (ii) one percent of the Company’s consolidated gross revenues for the previous twelve (12) months; and at the election of the Executive, (c) a one-time cash payment equal to the cash value of all shares eligible for exercise upon the exercise of Executive’s Options then currently outstanding and exercisable as if they had been exercised in full (the “Change of Control Termination Payment”). In the event Executive elects to receive the cash value of the shares underlying Executive’s options, he shall so notify the Company of his intent. The following table summarizes the potential payments to Mr. Ghauri assuming his employment with us was terminated or a change of control occurred on June 30, 2023, the last day of our most recently completed fiscal year. 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 Health Related Benefits Bonus Salary Multiple Pay-out Bonus or Revenue One-time Pay-Out Net Cash Value of Options Total Roger Almond, Chief Financial Officer $ $ 2,800,000 69,744 - 2,093,000 523,932 - 5,486,676 $ $ 116,667 - - - - - 116,667 $ $ 2,800,000 69,744 - - - - 2,869,744 In the event that Mr. Almond is terminated as a result of a change in control, he is entitled to all payments due in the event of a termination for Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and his salary during the preceding 12 months; (b) a one-time payment equal to the higher of (i) Executive’s bonus for the previous year and (ii) one-half of one percent of the Company’s consolidated gross revenues for the previous twelve (12) months (the “Change of Control Termination Payment”). 46 The following table summarizes the potential payments to Mr. Almond assuming his employment with us was terminated or a change of control occurred on June 30, 2023, the last day of our most recently completed fiscal year. 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 Health related benefits Bonus Salary Multiple Pay-out Bonus or Revenue One-time Pay-Out Net Cash Value of Options Total $ $ 226,000 12,876 - 675,740 261,966 - 1,176,582 $ $ 37,667 - - - - - 37,667 $ $ 226,000 12,876 - - - - 238,876 Patti L. W. McGlasson, Senior V.P. of Legal and Corporate Affairs, Secretary and General Counsel In the event that Ms. McGlasson is terminated as a result of a change in control, she is entitled to all payments due in the event of a termination for Cause or Good Reason and: (a) a onetime payment equal to the product of 2.99 and her salary during the preceding 12 months; (b) a one-time payment equal to the higher of (i) Executive’s bonus for the previous year and (ii) one-half of one percent of the Company’s consolidated gross revenues for the previous twelve (12) months (the “Change of Control Termination Payment”). The following table summarizes the potential payments to Ms. McGlasson assuming her employment with us was terminated or a change of control occurred on June 30, 2023, the last day of our most recently completed fiscal year. 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 Health related benefits Bonus Salary Multiple Pay-out Bonus or Revenue One-time Pay-Out Net Cash Value of Options Total Director Compensation Director Compensation Policy $ $ 467,244 23,448 - 698,530 261,966 - 1,451,188 $ $ 38,937 - - - - - 38,937 $ $ 467,244 23,448 - - - - 490,692 Mr. Najeeb Ghauri and Ms. Malea Farsai are not paid any fees or other compensation for services as members of our Board of Directors. The Committee relied on a survey conducted by Compensation Resources, Inc. in setting the compensation for the non-employee members of our Board of Directors. As with named executives, the aim is to compensate the Board of Directors at the mean of peer companies. Any additional cash and/or equity compensation for the fiscal year beginning was designed to maintain this mean. The non-employee members of our Board of Directors received as compensation for services as directors as well as reimbursement for documented reasonable expenses incurred in connection with attendance at meetings of our Board of Directors and the committees thereof. 47 Director Compensation Table The following table sets forth a summary of the compensation earned by our Directors and/or paid to certain of our Directors pursuant to the Company’s compensation policies for the fiscal year ended June 30, 2023, other than Najeeb Ghauri and Malea Farsai who were paid as part of their employment agreements with the Company and not as directors. NAME FEES EARNED OR PAID IN CASH ($) SHARE AWARDS ($) TOTAL ($) Mark Caton Henry Tolentino Kausar Kazmi 53,000 53,000 53,000 159,000 53,000 53,000 53,000 159,000 106,000 106,000 106,000 318,000 In previous years, the committee chairs have received additional compensation, but was eliminated as part of the Company’s Covid-19 mitigation measures. Independent members of our Board of Directors are also eligible to receive stock option or stock award grants both upon joining the Board of Directors and on an annual basis in line with recommendations by the Compensation Committee, which grants are non-qualified stock options under our Employee Stock Option Plans. Further, from time to time, the non- employee members of the Board of Directors are eligible to receive stock grants that may be granted if and only if approved by the shareholders of the Company. Compensation Committee Interlocks and Insider Participation The current members of the Compensation Committee are Mr. Caton (Chairman), Mr. Kazmi, and Mr. Francis. All current members of the Compensation Committee are “independent directors” as defined under the NASDAQ Listing Rules. None of these individuals were at any time during the fiscal year ended June 30, 2023, or at any other relevant time, an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation Committee. Employee Equity Plans OPTIONS: The 2005 stock option plan The 2013 stock option plan The 2015 stock option plan Number of Options Authorized Options Grants Issued Options Grants Cancelled / Expired Available for Issue Options Issued but Outstanding 500,000 1,250,000 1,250,000 3,700,000 499,859 1,192,876 943,578 3,336,313 48 - - - - 141 57,124 306,422 363,687 - - - - ITEM 12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock, its only class of outstanding voting securities as of September 15, 2023, by (i) each person who is known to the Company to own beneficially more than 5% of the outstanding common Stock with the address of each such person, (ii) each of the Company’s present directors and officers, and (iii) all officers and directors as a group: Name of Beneficial Owner (1) Number of Shares Beneficially Owned (2) Percentage Najeeb Ghauri Naeem Ghauri Mark Caton Henry Tolentino ** Kausar Kazmi Michael Francis Patti McGlasson Roger Almond Malea Farsai Todd M Felte The Vanguard Group All officers and directors as a group (nine persons) * Less than one percent ** He is no longer director of the Company (3) (3) (3) (3) (3) (3) (3) (3) (3) (5) (6) 823,656 416,697 121,021 46,752 30,884 - 81,050 30,000 39,811 690,847 589,481 1,589,871 7.26% 3.67% 1.07% * * * * * * 6.09% 5.20% 14.01% (1) Except as otherwise indicated, the Company believes that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. (2) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of common stock relating to share grants that will vest or options currently exercisable or exercisable within 60 days of September 15, 2023, are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them. (3) Address c/o NetSol Technologies, Inc. at 16000 Ventura Blvd., Suite 770, Encino, CA 91436. (4) Shares issued and outstanding as of September 15, 2023 were 11,345,856. (5) 5% or greater shareholder based on Schedule 13G filing on April 13, 2023. (6) 5% or greater shareholder based on Schedule 13G filing on June 30, 2023. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. Transactions with Related Persons, Promoters and Certain Control Persons Other than compensation arrangements for our executive officers and directors, which are described under “Executive and Director Compensation”, since July 1, 2022, there are no transactions to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of $120,000 of one percent (1%) of our average total assets at year-end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, had or will have a direct or indirect material interest. 49 Director Independence The Nasdaq Stock Market LLC (“Nasdaq”) requires that a majority of our board of directors must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The board has determined that Mark Caton, Kausar Kazmi, Mr. Henry Tolentino, and Michael Francis are “independent”. Our board currently consists of three independent directors and two non-independent directors. Mr. Tolentino’s term ended in June 2023 and Mr. Francis was elected to the Board of Directors in June 2023. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees BF Borgers audited the Company’s financial statements for the fiscal year ended June 30, 2023 and 2022. The aggregate fees billed by principal accountants for the annual audit and review of financial statements included in the Company’s Form 10-K, services related to providing an opinion in connection with our public offering of shares of common stock and/or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $262,500 and $250,000 for the years ended June 30, 2023 and 2022, respectively. Tax Fees Tax fees for fiscal year 2023 were $16,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal years 2022. Tax fees for fiscal year 2022 were $16,000 and consisted of the preparation of the Company’s federal and state tax returns for the fiscal year 2021. All Other Fees No other fees were paid to principal accountant during the fiscal year 2023 and 2022. Pre-Approval Procedures The Audit Committee and the Board of Directors are responsible for the engagement of the independent auditors and for approving, in advance, all auditing services and permitted non-audit services to be provided by the independent auditors. The Audit Committee maintains a policy for the engagement of the independent auditors that is intended to maintain the independent auditor’s independence from NetSol. In adopting the policy, the Audit Committee considered the various services that the independent auditors have historically performed or may be needed to perform in the future. The policy, which is to be reviewed and re-adopted at least annually by the Audit Committee: (i) Approves the performance by the independent auditors of certain types of service (principally audit-related and tax), subject to restrictions in some cases, based on the Committee’s determination that this would not be likely to impair the independent auditors’ independence from NetSol; (ii) Requires that management obtain the specific prior approval of the Audit Committee for each engagement of the independent auditors to perform other types of permitted services; and (iii) Prohibits the performance by the independent auditors of certain types of services due to the likelihood that their independence would be impaired. Any approval required under the policy must be given by the Audit Committee, by the Chair of the Committee in office at the time, or by any other Committee member to whom the Committee has delegated that authority. The Audit Committee does not delegate its responsibilities to approve services performed by the independent auditors to any member of management. The standard applied by the Audit Committee in determining whether to grant approval of an engagement of the independent auditors is whether the services to be performed, the compensation to be paid therefore and other related factors are consistent with the independent auditors’ independence under guidelines of the Securities and Exchange Commission and applicable professional standards. Relevant considerations include, but are not limited to, whether the work product is likely to be subject to, or implicated in, audit procedures during the audit of NetSol’s financial statements; whether the independent auditors would be functioning in the role of management or in an advocacy role; whether performance of the service by the independent auditors would enhance NetSol’s ability to manage or control risk or improve audit quality; whether performance of the service by the independent auditors would increase efficiency because of their familiarity with NetSol’s business, personnel, culture, systems, risk profile and other factors; and whether the amount of fees involved, or the proportion of the total fees payable to the independent auditors in the period that is for tax and other non-audit services, would tend to reduce the independent auditors’ ability to exercise independent judgment in performing the audit. 50 PART IV ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4.1 10.1 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 Articles of Incorporation of Mirage Holdings, Inc., a Nevada corporation, dated March 18, 1997, incorporated by reference as Exhibit 3.1 to NETSOL’s Registration Statement No. 333-28861 filed on Form SB-2 filed June 10, 1997. * Amendment to Articles of Incorporation dated May 21, 1999, incorporated by reference as Exhibit 3.2 to NETSOL’s Annual Report for the fiscal year ended June 30, 1999 on Form 10K-SB filed September 28, 1999. * Amendment to the Articles of Incorporation of NETSOL International, Inc. dated March 20, 2002 incorporated by reference as Exhibit 3.3 to NETSOL’s Annual Report on Form 10-KSB/A filed on February 2, 2001. * Amendment to the Articles of Incorporation of NetSol Technologies, Inc. dated August 20, 2003 filed as Exhibit A to NETSOL’s Definitive Proxy Statement filed June 27, 2003. * Amendment to the Articles of Incorporation of NetSol Technologies, Inc. dated March 14, 2005 filed as Exhibit 3.0 to NETSOL’s quarterly report filed on Form 10-QSB for the period ended March 31, 2005. * Amendment to the Articles of Incorporation dated October 18, 2006 filed as Exhibit 3.5 to NETSOL’s Annual Report for the fiscal year ended June 30, 2007 on Form 10-KSB. * Amendment to Articles of Incorporation dated May 12, 2008. * Amendment to the Articles of Incorporation dated August 6, 2012, filed as Appendix A to NETSOL’s Definitive Proxy Statement filed June 14, 2012. * Amended and Restated Bylaws of NetSol Technologies, Inc. dated February 9, 2018*. Form of Common Stock Certificate. * Stock Purchase Agreement dated May 6, 2006 by and between the Company, McCue Systems, Inc. and the shareholders of McCue Systems, Inc. incorporated by reference as Exhibit 2.1 to NETSOL’s Current Report filed on form 8-K on May 8, 2006. * Employment Agreement by and between NetSol Technologies, Inc. and Patti L. W. McGlasson dated May 1, 2006 incorporated by reference as Exhibit 10.20 to NETSOL’s Annual Report on form 10-KSB dated September 18, 2006. * Employment Agreement by and between the Company and Najeeb Ghauri dated January 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007. * Employment Agreement by and between the Company and Naeem Ghauri dated January 1, 2007 filed as Exhibit 10.11 to the Company’s Annual Report filed on Form 10-KSB for the year ended June 30, 2007. * Amendment to Employment Agreement by and between Company and Najeeb Ghauri dated effective January 1, 2007. * Amendment to Employment Agreement by and between Company and Naeem Ghauri dated effective January 1, 2007. * Company 2005 Stock Option Plan incorporated by reference as Exhibit 1.1 to NETSOL’s Definitive Proxy Statement filed on March 3, 2006. * Amendment to Employment Agreement by and between Company and Najeeb Ghauri dated effective January 1, 2010. * Amendment to Employment Agreement by and between Company and Naeem Ghauri dated effective January 1, 2010. * Amendment to Employment Agreement by and between Company and Patti L. W. McGlasson dated effective April 1, 2010. * Company’s 2011 Equity Incentive and Nonstatutory Plan incorporated by reference as Appendix A to NETSOL’s Proxy Statement filed on April 11, 2011. * Company’s 2013 Equity Incentive Plan incorporated by reference as Appendix A to NETSOL’s Definitive Proxy Statement filed on May 29, 2013. * Amendment to Employment Agreement between NetSol Technologies, Inc. and Najeeb Ghauri dated effective July 25, 2013. * Amendment to Employment Agreement between NetSol Technologies, Inc. and Patti L.W. McGlasson dated effective July 25, 2013. * Restated Charter of the Compensation Committee dated effective September 10, 2013. * 51 Restated Charter of the Nominating and Corporate Governance Committee dated effective September 10, 2013. * Restated Charter of the Audit Committee dated effective September 10, 2013. * Restated Code of Business Conduct & Ethics dated effective September 10, 2013. * Company’s 2015 Equity Incentive Plan incorporated by reference as Appendix A to NETSOL’s Definitive Proxy Statement filed on April 15, 2015. * A list of all subsidiaries of the Company (1) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO) (1) Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO) (1) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO) (1) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002 (CFO) (1) Inline XBRL Instance Document 10.17 10.18 10.19 10.20 21.1 31.1 31.2 32.1 32.2 101.INS 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DFE Inline XBRL Taxonomy Extension definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) *Previously Filed (1) Filed Herewith 52 In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: September 22, 2023 Date: September 22, 2023 NetSol Technologies, Inc. BY: /S/ NAJEEB GHAURI Najeeb Ghauri Chief Executive Officer BY: /S/ ROGER K. ALMOND Roger K. Almond Chief Financial Officer Principal Financial Officer 53 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: September 22, 2023 Date: September 22, 2023 Date: September 22, 2023 Date: September 22, 2023 Date: September 22, 2023 Date: September 22, 2023 BY: /S/ NAJEEB U. GHAURI Najeeb U. Ghauri Chief Executive Officer Director, Chairman BY: /S/ROGER K. ALMOND Roger K. Almond Chief Financial Officer Principal Accounting Officer BY: /S/ MARK CATON Mark Caton Director BY: /S/ MALEA FARSAI Malea Farsai Director BY: /S/ MICHAEL FRANCIS Michael Francis Director BY: /S/ KAUSAR KAZMI Kausar Kazmi Director 54 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Description Report of Independent Registered Public Accounting Firm Financial Statements Consolidated Balance Sheets as of June 30, 2023 and 2022 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended June 30, 2023 and 2022 Consolidated Statement of Equity for the Years Ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows for the Years Ended June 30, 2023 and 2022 Notes to Consolidated Financial Statements F-1 Page F-2 F-3 F-4 F-6 F-8 F-10 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of NetSol Technologies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of NetSol Technologies, Inc. as of June 30, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /S/ BF Borgers CPA PC (PCAOB ID 5041) We have served as the Company’s auditor since 2020 Lakewood, CO September 22, 2023 F-2 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets As of June 30, 2023 As of June 30, 2022 ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowance of $420,354 and $166,231 Revenues in excess of billings, net of allowance of $1,380,141 and $136,976 Other current assets Total current assets Revenues in excess of billings, net - long term Property and equipment, net Right of use assets - operating leases Long term investment Other assets Intangible assets, net Goodwill Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses Current portion of loans and obligations under finance leases Current portion of operating lease obligations Unearned revenue Total current liabilities Loans and obligations under finance leases; less current maturities Operating lease obligations; less current maturities Total liabilities Stockholders’ equity: Preferred stock, $.01 par value; 500,000 shares authorized; Common stock, $.01 par value; 14,500,000 shares authorized; 12,284,887 shares issued and 11,345,856 outstanding as of June 30, 2023 12,196,570 shares issued and 11,257,539 outstanding as of June 30, 2022 Additional paid-in-capital Treasury stock (at cost, 939,031 shares as of June 30, 2023 and June 30, 2022) Accumulated deficit Other comprehensive loss Total NetSol stockholders’ equity Non-controlling interest Total stockholders’ equity Total liabilities and stockholders’ equity $ $ $ $ $ $ $ 15,533,254 11,714,422 12,377,677 1,978,514 41,603,867 - 6,161,186 1,151,575 25,396 6,931 127,931 9,302,524 58,379,410 6,552,181 5,779,510 505,237 7,932,306 20,769,234 176,229 652,194 21,597,657 23,963,797 8,669,202 14,571,776 2,223,361 49,428,136 853,601 9,382,624 969,163 1,059,368 25,546 1,587,670 9,302,524 72,608,632 6,813,541 8,567,145 548,678 4,901,562 20,830,926 476,223 447,260 21,754,409 - - 122,850 128,476,048 (3,920,856) (44,896,186) (45,975,156) 33,806,700 2,975,053 36,781,753 58,379,410 $ 121,966 128,218,247 (3,920,856) (39,652,438) (39,363,085) 45,403,834 5,450,389 50,854,223 72,608,632 The accompanying notes are an integral part of these consolidated financial statements. F-3 Net Revenues: License fees Subscription and support Services Total net revenues Cost of revenues Gross profit Operating expenses: Selling, general and administrative Research and development cost Total operating expenses Loss from operations Other income and (expenses) Interest expense Interest income Gain on foreign currency exchange transactions Share of net loss from equity investment Other income (expense) Total other income (expenses) Net income (loss) before income taxes Income tax provision Net income (loss) Non-controlling interest Net income (loss) attributable to NetSol Net income (loss) per share: Net income (loss) per common share Basic Diluted Weighted average number of shares outstanding Basic Diluted NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations $ $ $ $ For the Years Ended June 30, 2023 2022 $ 2,269,564 25,980,661 24,142,990 52,393,215 35,477,652 16,915,563 24,093,908 1,601,613 25,695,521 4,539,260 28,284,759 24,423,960 57,247,979 33,510,805 23,737,174 23,473,343 1,342,154 24,815,497 (8,779,958) (1,078,323) (765,030) 1,217,850 6,748,038 (1,033,243) (605,570) 5,562,045 (3,217,913) (926,560) (4,144,473) (1,099,275) (5,243,748) (0.46) (0.46) 11,279,966 11,279,966 $ $ $ (369,801) 1,655,883 4,327,590 (2,021,480) (424,128) 3,168,064 2,089,741 (988,938) 1,100,803 (1,951,959) (851,156) (0.08) (0.08) 11,250,219 11,250,219 The accompanying notes are an integral part of these consolidated financial statements. F-4 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) Net income (loss) Other comprehensive income (loss): Translation adjustment Translation adjustment attributable to non-controlling interest Net translation adjustment Comprehensive income (loss) attributable to NetSol For the Years Ended June 30, $ $ 2023 2022 (5,243,748) $ (851,156) (10,184,324) 3,572,253 (6,612,071) (11,855,819) $ (11,175,077) 3,680,473 (7,494,604) (8,345,760) The accompanying notes are an integral part of these consolidated financial statements. F-5 Balance at June 30, 2021 Subsidiary common stock issued for: -Services Common stock issued for: Services Purchase of treasury shares Purchase of subsidiary treasury shares Adjustment in APIC for purchase of subsidiary treasury shares Fair value of subsidiary options issued Foreign currency translation adjustment Net income (loss) for the year Balance at June 30, 2022 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Years Ended June 30, 2023 and 2022 Common Stock Additional Paid-in Treasury Accumulated Comprehensive Controlling Stockholders’ Other Non Total Shares Amount Capital Shares Deficit Loss Interest Equity 12,181,585 $ 121,816 $ 129,018,826 $ (3,820,750) $ (38,801,282) $ (31,868,481) $ 7,215,473 $ 61,865,602 - 14,985 - - - - 150 - - - 167 - 72,434 - - (100,106) (950,352) 36,403 40,769 - - - - - - - - - - - - (167) - - - 72,584 (100,106) (950,352) (36,403) - - 40,769 (11,175,077) 1,100,803 12,196,570 $ 121,966 $ 128,218,247 $ (3,920,856) $ (39,652,438) $ (39,363,085) $ 5,450,389 $ 50,854,223 (3,680,473) 1,951,959 (7,494,604) - - (851,156) - - - - - - - - The accompanying notes are an integral part of these consolidated financial statements. F-6 Balance at June 30, 2022 Common stock issued for: Services Adjustment in APIC for change in subsidiary shares to non-controlling interest Fair value of subsidiary options issued Acquisition of non-controlling interest in subsidiary Foreign currency translation adjustment Net income (loss) for the year Balance at June 30, 2023 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders’ Equity For the Years Ended June 30, 2023 and 2022 Common Stock Additional Paid-in Treasury Accumulated Comprehensive Controlling Stockholders’ Other Non Total Shares Amount Capital Shares Deficit Loss Interest Equity 12,196,570 $ 121,966 $ 128,218,247 $ (3,920,856) $ (39,652,438) $ (39,363,085) $ 5,450,389 $ 50,854,223 88,317 884 225,616 - - - - - - 120,565 90,951 (179,331) - - - - - - - - - - - - - 226,500 (120,565) - - 90,951 118,207 (61,124) (10,184,324) (4,144,473) 12,284,887 $ 122,850 $ 128,476,048 $ (3,920,856) $ (44,896,186) $ (45,975,156) $ 2,975,053 $ 36,781,753 (3,572,253) 1,099,275 (6,612,071) - - (5,243,748) - - - - - - - - The accompanying notes are an integral part of these consolidated financial statements. F-7 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Years Ended June 30, 2023 2022 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Provision for bad debts Goodwill impairment Impairment and share of net loss from investment under equity method Loss on sale of assets Stock based compensation Changes in operating assets and liabilities: Accounts receivable Revenues in excess of billing Other current assets Accounts payable and accrued expenses Unearned revenue Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Sales of property and equipment Net cash used in investing activities Cash flows from financing activities: Purchase of treasury stock Purchase of subsidiary treasury stock Proceeds from bank loans Payments on finance lease obligations and loans - net Net cash used in financing activities Effect of exchange rate changes Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of period $ (4,144,473) $ 3,244,538 1,702,744 - 2,113,430 19,721 317,451 (6,860,983) 1,514,305 (131,108) 709,758 3,524,188 2,009,571 (1,639,438) 240,207 (1,399,231) - (61,124) 270,292 (928,160) (718,992) (8,321,891) (8,430,543) 23,963,797 15,533,254 $ $ 1,100,803 3,812,273 23,388 214,044 2,021,480 205,288 104,347 (5,669,262) (1,273,693) 469,194 1,121,308 931,452 3,060,622 (2,609,205) 349,058 (2,260,147) (100,106) (950,352) 941,841 (1,270,104) (1,378,721) (9,163,111) (9,741,357) 33,705,154 23,963,797 The accompanying notes are an integral part of these consolidated financial statements. F-8 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest Taxes NON-CASH INVESTING AND FINANCING ACTIVITIES: Assets acquired under finance lease Shares issued to vendor for services received For the Years Ended June 30, 2023 2022 $ $ $ $ 679,925 982,731 - 67,500 $ $ $ $ 433,083 1,234,793 49,189 19,525 The accompanying notes are an integral part of these consolidated financial statements. F-9 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS NetSol Technologies, Inc., was incorporated under the laws of the State of Nevada on March 18, 1997. (NetSol Technologies, Inc. and subsidiaries collectively referred to as the “Company”) The Company designs, develops, markets, and exports proprietary software products to customers in the automobile financing and leasing, banking, and financial services industries worldwide. The Company also provides system integration, consulting, and IT products and services in exchange for fees from customers. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company as follows: Wholly owned Subsidiaries NetSol Technologies Americas, Inc. (“NTA”) NetSol Connect (Private), Ltd. (“Connect”) NetSol Technologies Australia Pty Ltd. (“Australia”) NetSol Technologies Europe Limited (“NTE”) NTPK (Thailand) Co. Limited (“NTPK Thailand”) NetSol Technologies (Beijing) Co. Ltd. (“NetSol Beijing”) Tianjin NuoJinZhiCheng Co., Ltd (“Tianjin”) Ascent Europe Ltd. (“AEL”) Virtual Lease Services Holdings Limited (“VLSH”) Virtual Lease Services Limited (“VLS”) Virtual Lease Services (Ireland) Limited (“VLSIL”) Majority-owned Subsidiaries NetSol Technologies, Ltd. (“NetSol PK”) NetSol Innovation (Private) Limited (“NetSol Innovation”) NETSOL Ascent Middle East Computer Equipment Trading LLC (“Namecet”) NetSol Technologies Thailand Limited (“NetSol Thai”) OTOZ, Inc. (“OTOZ”) OTOZ (Thailand) Limited (“OTOZ Thai”) The Company consolidates any variable interest entities of which it is the primary beneficiary. Equity investments through which the Company exercises significant influence over but does not control the investee and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments through which the Company is not able to exercise significant influence over the investee and which do not have readily determinable fair values are accounted for under the cost method. All material inter-company accounts have been eliminated in the consolidation. Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). F-10 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas requiring significant estimates are provision for doubtful accounts, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. Concentration of Credit Risk Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance, except balances maintained in China are insured for RMB500,000 ($68,871) in each bank and in the UK for GBP 85,000 ($107,595) in each bank. The Company maintains three bank accounts in China and nine bank accounts in the UK. As of June 30, 2023 and 2022, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $13,523,997 and $22,758,963, respectively. The Company has not experienced any losses in such accounts. The Company’s operations are carried out globally. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments of each country and by the general state of the country’s economy. The Company’s operations in each foreign country are subject to specific considerations and significant risks not typically associated with companies in economically developed nations. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management regularly reviews the composition of accounts receivable and analyzes customer credit worthiness, customer concentrations, current economic trends and changes in customer payment patterns. Reserves are recorded primarily on a specific identification basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Notes Receivable Notes Receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income. F-11 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Revenues in Excess of Billings Revenues in excess of billings represent the total of the project to be billed to the customer for revenues recognized per US GAAP. As the customers are billed under the terms of their contract, the corresponding amount is transferred from this account to “Accounts Receivable.” The Company recognizes the potential risk associated with recognizing revenues in excess of billings, including the risk of non-payment by the customer. Therefore, management continually assesses the collectability of such amounts and makes appropriate provisions or adjustments if collectability becomes doubtful. Investments The Company uses the equity investment without readily determinable fair value method to account for investments in businesses that are not publicly traded and for which the Company does not control or have the ability to exercise significant influence over operating and financial policies. In accordance with this method, these investments are recorded at lower of cost or fair value, as appropriate, and are classified as long-term. Investments held by the Company in businesses that are not publicly traded and for which the Company has the ability to exercise significant influence over operating and financial management are accounted for under the equity method. In accordance with the equity method, these investments are originally recorded at cost and are adjusted for the Company’s proportionate share of earnings, losses and distributions. These investments are classified as long-term. The Company assesses and records impairment losses when events and circumstances indicate the investments might be impaired. Gains and losses are recognized when realized and recorded in other income (expense) in the accompanying Consolidated Statements of Operations. Property and Equipment Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using various methods over the estimated useful lives of the assets, ranging from three to twenty years. Following is the summary of estimated useful lives of the assets: Category Estimated Useful Life Computer equipment and software Office furniture and equipment Building Autos Assets under capital leases Improvements 3 to 5 Years 5 to 10 Years 20 Years 5 Years 3 to 10 Years 5 to 10 Years The Company capitalizes costs of materials, consultants, and payroll and payroll-related costs for employees incurred in developing internal-use computer software. These costs are included with “Computer equipment and software.” Impairment of Long-Lived Assets The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. F-12 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Intangible Assets Intangible assets consist of capitalized software cost. Intangible assets with finite lives are amortized over the estimated useful life and are evaluated for impairment at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the discounted expected future cash flows. If the future discounted cash flows are less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Software Development Costs Costs incurred to internally develop computer software products or to enhance an existing product are recorded as research and development costs and expensed when incurred until technological feasibility for the respective product is established. Thereafter, all software development costs are capitalized and reported at the lower of unamortized cost or net realizable value. Capitalization ceases when the product or enhancement is available for general release to customers. The Company makes on-going evaluations of the recoverability of its capitalized software projects by comparing the amount capitalized for each product to the estimated present value of expected future net income from the product. If such evaluations indicate that the unamortized software development costs exceed the present value of expected future net income, the Company writes off the amount which the unamortized software development costs exceed such present value. Capitalized and purchased computer software development costs are being amortized ratably based on the projected revenue associated with the related software or on a straight-line basis. Research and Development Costs Research and development expenses are comprised of salaries, benefits and overhead expenses of employees involved in software product enhancement and development, cost of outside contractors engaged to perform quality assurance, software product enhancement and development (if any). Development costs are expensed as incurred. Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. In conducting its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. F-13 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Fair Value of Financial Instruments The Company applies the provisions of ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively short maturities. The carrying amounts of the convertible notes receivable and long-term debt approximate their fair values based on current interest rates for instruments with similar characteristics. The three levels of valuation hierarchy are defined as follows: Level 1: Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority. Level 2: Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability. Level 3: Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority. The Company did not have any financial assets that were measured at fair value on a recurring basis at June 30, 2023. The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2022, are as follows: Revenues in excess of billings - long term Total Level 1 Level 2 Level 3 Total Assets $ $ - - $ $ - - $ $ 853,601 853,601 $ $ 853,601 853,601 The reconciliation for the years ended June 30, 2023 and 2022 is as follows: Balance at June 30, 2021 Amortization during the period Transfers to short term Effect of Translation Adjustment Balance at June 30, 2022 Amortization during the period Transfers to short term Effect of Translation Adjustment Balance at June 30, 2023 Revenues in excess of billings - long term Fair value discount Total $ $ $ 1,024,382 - (129,352) (13,090) 881,940 - (890,794) 8,854 - $ $ $ (66,779) 38,005 - 435 (28,339) 28,029 - 310 - $ $ $ 957,603 38,005 (129,352) (12,655) 853,601 28,029 (890,794) 9,164 - The Company used the discounted cash flow method with an interest rate of 4.35% for the year ended June 30, 2022. Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities From Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrants and option derivatives are valued using the Black-Scholes model. F-14 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Unearned Revenue Unearned revenue represents billings in excess of revenue earned on contracts and are recognized on a pro-rata basis over the life of the contract. Cost of Revenues Cost of revenues includes salaries and benefits for technical employees, consultant costs, amortization of capitalized computer software development costs, depreciation of computer and equipment, travel costs, and indirect costs such as rent and insurance. Advertising Costs The Company expenses the cost of advertising as incurred. Advertising costs for the years ended June 30, 2023 and 2022 were $64,556 and $119,592, respectively. Share-Based Compensation The Company records stock compensation in accordance with ASC 718, Compensation – Stock Compensation. ASC 718 requires companies to measure compensation cost for stock employee compensation at fair value at the grant date and recognize the expense over the employee’s requisite service period. The Company recognizes forfeitures as they occur. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non- employees. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Applicable interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of operations. F-15 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Foreign Currency Translation The Company transacts business in various foreign currencies. The accounts of NetSol UK, NTE, AEL, VLSH and VLS use the British Pound; VLSIL uses the Euro; NetSol PK, Connect, and NetSol Innovation use Pakistan Rupees; NTPK Thailand, NetSol Thai and OTOZ Thai use Thai Baht; NetSol Australia uses the Australian dollar; Namecet uses AED; and NetSol Beijing and Tianjin use the Chinese Yuan as the functional currencies. NetSol Technologies, Inc., and its subsidiaries, NTA and OTOZ, use the U.S. dollar as the functional currency. Consequently, revenues and expenses of operations outside the United States are translated into U.S. Dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into U.S. Dollars using exchange rates at the balance sheet date. The effects of foreign currency translation adjustments are recorded to other comprehensive income. Statement of Cash Flows The Company’s cash flows from operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet. Segment Reporting The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. The Company allocates its resources and assesses the performance of its sales activities based on the geographic locations of its subsidiaries. (See Note 20 “Segment Information and Geographic Areas”) Recent Accounting Standards Adopted by the Company: In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. This new standard is effective for fiscal years beginning after December 15, 2020 and was adopted by the Company July 1, 2021. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and results in fewer instruments with embedded conversion features being separately recognized from the host contract as compared with current standards. Those instruments that do not have a separately recognized embedded conversion feature will no longer recognize a debt issuance discount related to such a conversion feature and would recognize less interest expense on a periodic basis. Additionally, the ASU amends the calculation of the share dilution impact related to a conversion feature and eliminates the treasury method as an option. For instruments that do not have a component mandatorily settled in cash, the change will likely result in a higher amount of share dilution in the calculation of earnings per share. This ASU is effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2021, and was adopted by the Company July 1, 2022. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. F-16 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Effects of Reference Rate Reform on Financial Reporting, which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The elective amendments provide expedients to contract modification, affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by this guidance apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. This guidance is not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The guidance can be applied immediately through December 31, 2022. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles (GAAP).” In addition, the ASU “removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it” and “simplifies the diluted earnings per share (EPS) calculation in certain areas. The guidance is effective for fiscal years beginning after December 15, 2021 and interim periods therein, and was adopted by the Company on July 1, 2022. The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements. Accounting Standards Recently Issued but Not Yet Adopted by the Company: In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. ASU 2021-08 is effective for annual periods beginning after December 15, 2022, and interim periods within those years, with early adoption permitted. The Company does not expect the standard to have a material effect on its consolidated financial statements. All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable. NOTE 3 – REVENUE RECOGNITION The Company determines revenue recognition through the following steps: ● Identification of the contract, or contracts, with a customer; ● Identification of the performance obligations in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities. The Company has two primary revenue streams: core revenue and non-core revenue. Core Revenue The Company generates its core revenue from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) subscription and support, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via two models: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software. F-17 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Non-Core Revenue The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase post contract support and services in addition to the licenses. The Company’s single performance obligation arrangements are typically post contract support renewals, subscription renewals and services engagements. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. Software Licenses Transfer of control for software is considered to have occurred upon delivery of the product to the customer. The Company’s typical payment terms tend to vary by region, but its standard payment terms are within 30 days of invoice. Subscription Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. Post Contract Support Revenue from support services and product updates, referred to as subscription and support revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, a majority of customers renew their support services contracts annually and typical payment terms provide that customers make payment within 30 days of invoice. F-18 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Professional Services Revenue from professional services is typically comprised of implementation, development, data migration, training or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice. BPO and Internet Services Revenue from BPO services is recognized based on the stage of completion which is measured by reference to labor hours incurred to date as a percentage of total estimated labor hours for each contract. Internet services are invoiced either monthly, quarterly or half yearly in advance to the customers and revenue is recognized ratably overtime on a monthly basis. Disaggregated Revenue The Company disaggregates revenue from contracts with customers by category — core and non-core, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The Company’s disaggregated revenue by category is as follows: Core: License Subscription and support Services Total core revenue, net Non-Core: Services Total non-core revenue, net Total net revenue Significant Judgments For the Years Ended June 30, 2023 2022 $ 2,269,564 $ 25,980,661 19,676,414 47,926,639 4,466,576 4,466,576 4,539,260 28,284,759 19,519,508 52,343,527 4,904,452 4,904,452 $ 52,393,215 $ 57,247,979 More judgments and estimates are required under Topic 606 than were required under Topic 605. Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances. F-19 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a stand-alone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers. The most significant inputs involved in the Company’s revenue recognition policies are: The (1) stand-alone selling prices of the Company’s software license, and the (2) the method of recognizing revenue for installation/customization, and other services. The stand-alone selling price of the licenses was measured primarily through an analysis of pricing that management evaluated when quoting prices to customers. Although the Company has no history of selling its software separately from post contract support and other services, the Company does have historical experience with amending contracts with customers to provide additional modules of its software or providing those modules at an optional price. This information guides the Company in assessing the stand-alone selling price of the Company’s software, since the Company can observe instances where a customer had a particular component of the Company’s software that was essentially priced separate from other goods and services that the Company delivered to that customer. The Company recognizes revenue from implementation and customization services using the percentage of estimated “man-days” that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of man-days required to complete implementation and customization services each reporting period. Revenue is recognized over time for the Company’s subscription, post contract support and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes. If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved. If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (unearned revenue) on the Company’s Consolidated Balance Sheets. The Company records revenues in excess of billings when the Company has transferred goods or services but does not yet have the right to consideration. The Company records unearned revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer. The revenues in excess of billings are transferred to receivables when the rights to consideration become unconditional, usually upon completion of a milestone. F-20 The Company’s revenues in excess of billings and unearned revenue are as follows: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Revenues in excess of billings Unearned revenue The Company’s unearned revenue reconciliation is as follows: As of June 30, 2023 As of June 30, 2022 $ $ 12,377,677 $ 15,425,377 7,932,306 $ 4,901,562 Balance at June 30, 2021 Invoiced Revenue Recognized Adjustments Balance at June 30, 2022 Invoiced Revenue Recognized Adjustments Balance at June 30, 2023 Unearned Revenue $ $ 4,556,626 18,800,227 (17,881,803) (573,488) 4,901,562 23,549,941 (19,762,568) (756,629) 7,932,306 At June 30, 2023, the Company recorded a provision of $1,275,000 against revenues in excess of billings related to an overdue balance from a customer in the Asia-Pacific segment, which the Company determined to be uncollectible. During the year ended June 30, 2023, the Company recognized revenue of $3,453,962, which was included in the unearned revenue balance at the beginning of the period. All other activity in unearned revenue is due to the timing of invoicing in relation to the timing of revenue recognition. Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $34,300,000 as of June 30, 2023, of which the Company estimates to recognize approximately $18,700,000 in revenue over the next 12 months and the remainder over an estimated 3 years thereafter. Actual revenue recognition depends in part on the timing of software modules installed at various customer sites. Accordingly, some factors that affect the Company’s revenue, such as the availability and demand for modules within customer geographic locations, is not entirely within the Company’s control. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements. Unearned Revenue The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancelable license and services starting in future periods are included in accounts receivable and unearned revenue. Practical Expedients and Exemptions There are several practical expedients and exemptions allowed under Topic 606 that impact timing of revenue recognition and the Company’s disclosures. The Company has applied the following practical expedients: ● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer. ● The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations. ● The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements). F-21 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Costs to Obtain a Contract The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, the Company incurs few direct incremental costs of obtaining new customer contracts. The Company rarely incurs incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, the Company’s sales personnel receive fees that are referred to as commissions, but that are based on more than simply signing up new customers. The Company’s sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts. NOTE 4 – RE-CLASSIFICATION OF OTHER COMPREHENSIVE INCOME (LOSS) The Company re-classified certain foreign currency translation adjustments of foreign entities in other comprehensive income (loss) to income (loss) for the period ended June 30, 2023. Details about Accumulated Other Comprehensive Income (Loss) Components For the Year ended June 30, 2023 Amount Reclassified from Accumulated Other Income (Loss) Affected Line Item in the Statement Consolidated Statement of Operations Where Net Loss is Presented Foreign currency translation gain (loss) on liquidation of NTPK Thailand Foreign currency translation gain (loss) on investment in WRLD3D Total reclassification for the period $ $ (323,764) Gain on foreign currency exchange transactions (650,242) Other income (expense) (974,006) NTPK Thailand had been a dormant company in Thailand since 2016 when it was replaced by NetSol Technologies Thailand Limited. During the year ended June 30, 2023, the dissolution of NTPK Thailand was finalized by Thailand’s authorities. NOTE 5 – EARNINGS PER SHARE Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. During the years ended June 30, 2023 and 2022, there were no outstanding dilutive instruments. NOTE 6 – MAJOR CUSTOMERS During the year ended June 30, 2023, revenues from Daimler Financial Services (“DFS”) were $14,982,394 representing 28.6% of revenues. During the year ended June 30, 2022, revenues from Daimler Financial Services (“DFS”) were $18,090,059 representing 31.6% of revenues. The revenue from DFS are shown in the Asia – Pacific segment. Accounts receivable from DFS at June 30, 2023 and 2022 were $4,368,881 and $2,005,463, respectively. Revenues in excess of billings at June 30, 2023 and 2022 were $1,961,750 and $365,863, respectively. F-22 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 7 - OTHER CURRENT ASSETS Other current assets consisted of the following: Prepaid Expenses Advance Income Tax Employee Advances Security Deposits Other Receivables Other Assets Net Balance NOTE 8 – REVENUES IN EXCESS OF BILLINGS – LONG TERM Revenues in excess of billings, net consisted of the following: Revenues in excess of billings - long term Present value discount Net Balance As of June 30, 2023 As of June 30, 2022 1,299,334 $ 144,428 68,488 177,148 92,716 196,400 1,978,514 $ 1,389,370 202,783 87,627 236,909 21,581 285,091 2,223,361 As of June 30, 2023 As of June 30, 2022 - $ - - $ 881,940 (28,339) 853,601 $ $ $ $ Pursuant to revenue recognition for contract accounting, the Company had recorded revenues in excess of billings long-term for amounts billable after one year. During the years ended June 30, 2023 and 2022, the Company accreted $28,029 and $38,005, respectively, which was recorded in interest income for that period. The Company used the discounted cash flow method with an interest rate of 4.35% during the years ended June 30, 2023 and 2022. F-23 NOTE 9 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following: Office Furniture and Equipment Computer Equipment Assets Under Capital Leases Building Land Autos Improvements Subtotal Accumulated Depreciation Property and Equipment, Net NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 As of June 30, 2023 As of June 30, 2022 $ $ 2,678,664 $ 8,317,131 46,554 3,497,913 885,474 1,941,063 205,289 17,572,088 (11,410,902) 6,161,186 $ 3,021,586 11,388,856 305,081 4,818,650 1,237,965 2,503,990 175,560 23,451,688 (14,069,064) 9,382,624 For the years ended June 30, 2023 and 2022, depreciation expense totaled $2,072,897 and $2,179,509, respectively. Of these amounts, $1,332,405and $1,316,329, respectively, are reflected in cost of revenues. Following is a summary of fixed assets held under capital leases as of June 30, 2023 and 2022: Vehicles Total Less: Accumulated Depreciation - Net Finance lease term and discount rate were as follows: Weighted average remaining lease term - Finance leases Weighted average discount rate - Finance leases As of June 30, 2023 As of June 30, 2022 46,554 $ 46,554 (17,366) 29,188 $ 305,081 305,081 (145,658) 159,423 $ $ As of June 30, 2023 1.21 Years 16.4% As of June 30, 2022 2.39 Years 12.5% F-24 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 10 - LEASES The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years. The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. For finance leases, the Company used the incremental borrowing rate implicit in the lease. The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from ROU asset and lease liability accounts. Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a re-measurement of lease liabilities. The Company’s variable lease payments include payments for finance leases that are adjusted based on a change in the Karachi Inter Bank Offer Rate. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants. Supplemental balance sheet information related to leases was as follows: Assets Operating lease assets, net Liabilities Current Operating Non-current Operating Total Lease Liabilities As of June 30, 2023 As of June 30, 2022 $ $ $ F-25 1,151,575 $ 969,163 505,237 $ 652,194 1,157,431 $ 548,678 447,260 995,938 The components of lease cost were as follows: Amortization of finance lease assets Interest on finance lease obligation Operating lease cost Short term lease cost Sub lease income Total lease cost Lease term and discount rate were as follows: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 For the Years Ended June 30, 2023 2022 $ $ 10,904 $ 4,966 446,627 184,526 (31,998) 615,025 $ 72,340 22,010 652,911 258,227 (35,356) 970,132 Weighted average remaining lease term - Operating leases Weighted average discount rate - Operating leases Supplemental disclosures of cash flow information related to leases were as follows: As of June 30, 2023 As of June 30, 2022 3.09 Years 3.34 Years 4.0% 4.2% Operating cash flows related to operating leases Operating cash flows related to finance leases Financing cash flows related finance leases For the Years Ended June 30 2023 2022 457,592 $ 5,075 $ 32,536 $ 893,196 3,577 55,476 $ $ $ F-26 Maturities of operating lease liabilities were as follows as of June 30, 2023: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Within year 1 Within year 2 Within year 3 Within year 4 Within year 5 Thereafter Total Lease Payments Less: Imputed interest Present Value of lease liabilities Less: Current portion Non-Current portion Amount $ $ 543,355 432,322 178,422 63,477 460 460 1,218,496 (61,065) 1,157,431 (505,237) 652,194 The Company is a lessor for certain office space leased by the Company and sub-leased to others under non-cancelable leases. These lease agreements provide for a fixed base rent and terminate by January 2027. All leases are considered operating leases. There are no rights to purchase the premises and no residual value guarantees. For the years ended June 30, 2023 and 2022, the Company received lease income of $31,998 and $35,356, respectively. The Company signed an agreement for office space in Austin, Texas in April 2023 with effective date of August 2023. The lease agreement is a three year agreement with monthly payments ranging from $10,790 for year one to $11,448 for year three. NOTE 11 – LONG-TERM INVESTMENT Drivemate-Related Party The Company and Drivemate Co., Ltd. (“Drivemate”) entered into a subscription agreement on April 25, 2019, (“Drivemate Agreement”) whereby the Company purchased an equity interest of 30% in Drivemate. Per the Drivemate Agreement, the Company purchased 5,469 preferred shares for $1,800,000 consisting of $500,000 cash to be paid over a two-year period and $1,300,000 to be provided in services. The Company has paid the $500,000 in cash and has provided services of $1,300,000. Pursuant to the agreement, the number of shares to be issued is adjusted as necessary to result in an equity ownership equal to 30% of the issued and outstanding shares at the final payment date. As of June 30, 2023 and 2022, the Company owns 8,178 shares equal to 30% of Drivemate. Per the Drivemate Agreement, the Company appointed two directors to the Drivemate board. The Company determined that it met the significant influence criteria since two of the four directors are appointed by the Company and the Company owns 30% of Drivemate; therefore, the Company accounts for the investment using the equity method of accounting. During the years ended June 30, 2023 and 2022, the Company performed services of $nil and $12,528, respectively. Under the equity method of accounting, the Company recorded its share of net income of $7,510 and share of net loss of $49,664 for the years ended June 30, 2023 and 2022, respectively. For the year ended June 30, 2023, the Company performed a fair value analysis and determined that the carrying amount of the investment exceeded the investment’s fair value; therefore, the Company recorded an impairment of $1,041,482. The impairment expense is recorded in the line item “share of net loss under equity method” in the “Consolidated Statement of Operations”. F-27 The following table reflects the above investments at June 30, 2023 and 2022. NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Gross investment at June 30, 2021 Cumulative net loss on investment Impairment Net investment at June 30, 2022 Share of net income for the year Impairment Net investment at June 30, 2023 NOTE 12 - INTANGIBLE ASSETS Intangible assets consisted of the following: Product Licenses - Cost Effect of Translation Adjustment Accumulated Amortization Net Balance Product Licenses Investment in Drivemate 1,800,000 (89,614) (651,018) 1,059,368 7,510 (1,041,482) 25,396 $ $ As of June 30, 2023 As of June 30, 2022 $ $ 47,244,997 $ (24,756,959) (22,360,107) 127,931 $ 47,244,997 (19,914,206) (25,743,121) 1,587,670 Product licenses include internally-developed software cost. Product licenses are amortized on a straight-line basis over their respective lives, and the unamortized amount of $127,931 will be amortized over one month. Amortization expense for the years ended June 30, 2023 and 2022 was $1,171,641 and $1,632,764, respectively. NOTE 13 – GOODWILL Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in prior period business combinations. Goodwill was comprised of the following amounts: Entity (Segment) NetSol PK (Asia - Pacific) NTE (Europe) NTA (North America) Total As of June 30, 2023 As of June 30, 2022 $ $ 1,166,610 $ 3,471,814 4,664,100 9,302,524 $ 1,166,610 3,471,814 4,664,100 9,302,524 The Company tests for goodwill impairment at each reporting unit and recorded an impairment of $214,044 at June 30, 2022. The Company performed the goodwill analysis using an income approach. NOTE 14 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: Accounts Payable Accrued Liabilities Accrued Payroll Accrued Payroll Taxes Taxes Payable Other Payable Total As of June 30, 2023 As of June 30, 2022 $ $ 1,114,915 $ 3,695,091 982,884 170,063 195,491 393,737 6,552,181 $ F-28 1,175,527 3,507,415 1,397,605 153,416 328,755 250,823 6,813,541 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 15 – DEBTS Notes payable and capital leases consisted of the following: Name Total As of June 30, 2023 Current Maturities Long-Term Maturities D&O Insurance Bank Overdraft Facility Term Finance Facility Loan Payable Bank - Export Refinance Loan Payable Bank - Running Finance Loan Payable Bank - Export Refinance II Loan Payable Bank - Export Refinance III Sale and Leaseback Financing Term Finance Facility Insurance Financing Subsidiary Finance Leases Name D&O Insurance Bank Overdraft Facility Term Finance Facility Loan Payable Bank - Export Refinance Loan Payable Bank - Running Finance Loan Payable Bank - Export Refinance II Loan Payable Bank - Export Refinance III Sale and Leaseback Financing Term Finance Facility Insurance Financing Subsidiary Finance Leases (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) $ $ $ $ 89,823 - - 1,741,493 - 1,323,535 2,438,089 321,113 13,356 - 5,927,409 28,330 5,955,739 $ $ 89,823 - - 1,741,493 - 1,323,535 2,438,089 148,264 13,356 - 5,754,560 24,950 5,779,510 As of June 30, 2022 Current Maturities Total 89,552 - 423,101 2,434,749 - 1,850,409 3,408,648 619,108 31,204 118,026 8,974,797 68,571 9,043,368 $ $ 89,552 - 423,101 2,434,749 - 1,850,409 3,408,648 189,226 18,339 118,026 8,532,050 35,095 8,567,145 $ $ $ $ - - - - - - - 172,849 - - 172,849 3,380 176,229 Long-Term Maturities - - - - - - - 429,882 12,865 - 442,747 33,476 476,223 (1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance and Errors and Omissions (“E&O”) liability insurance, for which the D&O and E&O balances are renewed on an annual basis and, as such, are recorded in current maturities. The interest rate on these financings range from 5.0% to 7.9% and 5.0% to 7.0% as of June 30, 2023 and 2022, respectively. F-29 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 (2) The Company’s subsidiary, NTE, has an overdraft facility with HSBC Bank plc whereby the bank would cover any overdrafts up to £300,000, or approximately $379,747. The annual interest rate was 9.5% and 5.5% as of June 30, 2023 and 2022, respectively. The total outstanding balance as of June 30, 2023 and 2022 was £nil. This overdraft facility requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. As of June 30, 2023, NTE was in compliance with this covenant. (3) The Company’s subsidiary, NetSol PK, has a term finance facility from Askari Bank Limited, approved by the Government of Pakistan to protect the employment situation during the COVID-19 Pandemic. This is a term loan payable in three years. The availed facility amount is Rs. nil or $nil, at June 30, 2023. The availed facility amount is Rs. 86,887,974 or $423,101, at June 30, 2022, which is shown as current. The interest rate for the loan was 3% at June 30, 2023 and 2022. (4) The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. The total facility amount is Rs. 500,000,000 or $1,741,493 and Rs. 500,000,000 or $2,434,749 at June 30, 2023 and 2022, respectively. The interest rate for the loan was 17.0% and 3.0% at June 30, 2023 and 2022, respectively. (5) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. The total facility amount is Rs. 53,600,000 or $186,688 and Rs. 53,600,000 or $261,005, at June 30, 2023 and 2022, respectively. The balance outstanding at June 30, 2023 and 2022 was Rs. Nil. The interest rate for the loan was 24.9% and 14.0% at June 30, 2023 and 2022, respectively. These facilities require NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. As of June 30, 2023, NetSol PK was in compliance with this covenant. (6) The Company’s subsidiary, NetSol PK, has an export refinance facility with Samba Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. The total facility amount is Rs. 380,000,000 or $1,323,535 and Rs. 380,000,000 or $1,850,409, at June 30, 2023 and 2022, respectively. The interest rate for the loan was 18.0% and 3.0% at June 30, 2023 and 2022, respectively. During the loan tenure, the facilities from Samba Bank Limited require NetSol PK to maintain at a minimum a 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. As of June 30, 2023, NetSol PK was in compliance with these covenants. (7) The Company’s subsidiary, NetSol PK, has an export refinance facility with Habib Metro Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 900,000,000 or $3,134,687 and Rs. 900,000,000 or $4,382,548, at June 30, 2023 and 2022, respectively. NetSol PK used Rs. 700,000,000 or $2,438,089 and Rs. 700,000,000 or $3,408,648, at June 30, 2023 and 2022, respectively. The interest rate for the loan was 18.0% and 3.0% at June 30, 2023 and 2022, respectively. (8) The Company’s subsidiary, NetSol PK, availed sale and leaseback financing from First Habib Modaraba secured by the transfer of the vehicles’ title. As of June 30, 2023, NetSol PK used Rs. 92,194,774 or $321,113 of which $172,849 was shown as long term and $148,264 as current. As of June 30, 2022, NetSol PK used Rs. 127,140,038 or $619,108 of which $429,882 was shown as long term and $189,226 as current. The interest rate for the loan was ranging from 9.0% to 16.0% at June 30, 2023 and 2022. (9) In March 2020, the Company’s subsidiary, VLS, entered into a loan agreement with Investec Bank PLC. The loan amount was £69,549, or $88,037, for a period of 5 years with monthly payments of £1,349, or $1,708. As of June 30, 2023, the subsidiary has used this facility up to $13,356, which was shown as current. The interest rate was 6.14% at June 30, 2023. (10) The Company’s subsidiary, VLS, finances Directors’ and Officers’ (“D&O”) liability insurance, and $nil and $96,781 was recorded in current maturities, at June 30, 2023 and 2022, respectively. The interest rate on this financing ranged from 9.7% to 12.7% as of June 30, 2023 and 2022. F-30 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 (11)The Company leases various fixed assets under capital lease arrangements expiring in various years through 2024. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are secured by the assets themselves. Depreciation of assets under capital leases is included in depreciation expense for the years ended June 30, 2023 and 2022. Following is the aggregate minimum future lease payments under capital leases as of June 30, 2023: Minimum Lease Payments Within year 1 Within year 2 Total Minimum Lease Payments Interest Expense relating to future periods Present Value of minimum lease payments Less: Current portion Non-Current portion Amount 27,363 3,546 30,909 (2,579) 28,330 (24,950) 3,380 $ $ Following is the aggregate future long term debt payments, which consists of “Sale and Leasback Financing (8)” and “Term Finance Facility (9)”, as of June 30, 2023: Loan Payments Within year 1 Within year 2 Within year 3 Total Loan Payments Less: Current portion Non-Current portion Amount 161,620 158,258 14,591 334,469 (161,620) 172,849 $ $ F-31 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 16 – INCOME TAXES The Company is incorporated in the State of Nevada and registered to do business in the State of California. The following is a breakdown of income before the provision for income taxes: Consolidated pre-tax income (loss) consists of the following: US operations Foreign operations The components of the provision for income taxes are as follows: Current: Federal State and Local Foreign Deferred: Federal State and Local Foreign Provision for income taxes Years Ended June 30, 2023 2022 (394,914) (2,822,999) (3,217,913) $ $ (1,140,443) 3,230,184 2,089,741 Years Ended June 30, 2023 2022 - 13,972 912,588 - - - 926,560 $ $ - 2,800 986,138 - - - 988,938 $ $ $ $ A reconciliation of taxes computed at the statutory federal income tax rate to income tax expense (benefit) is as follows: Reconciliation of effective income tax rate Income tax (benefit) provision at statutory rate State income (benefit) taxes, net of federal tax benefit Foreign earnings taxed at different rates Change in valuation allowance for deferred tax assets Other Provision for income taxes 2023 (675,762) (224,610) 1,702,463 111,473 12,996 926,560 $ $ F-32 Years Ended June 30, 2022 21.0% 7.0% -52.9% -3.5% -0.4% -28.8% $ $ 438,846 145,864 82,333 318,421 3,474 988,938 21.0% 7.0% 3.9% 15.2% 0.2% 47.3% Deferred income tax assets and liabilities as of June 30, 2022 and 2021 consist of tax effects of temporary differences related to the following: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Components of deferred tax asset Net operating loss carry forwards Other Net deferred tax assets Valuation allowance for deferred tax assets Net deferred tax assets Years Ended June 30, 2023 2022 8,281,162 184,916 8,466,078 (8,466,078) - $ $ 7,885,333 80,311 7,965,644 (7,965,644) - $ $ The Company has established a full valuation allowance as management believes it is more likely than not that these assets will not be realized in the future. The valuation allowance increased by $500,434 for the year ended June 30, 2023. At June 30, 2023, federal and state net operating loss carry forwards in the United States of America were $29,963,170 and $8,561,437, respectively. Federal net operating loss carry forwards begin to expire in 2028, while state net operating loss carry forwards are expiring each year. Due to both historical and recent changes in the capitalization structure of the Company, the utilization of net operating losses may be limited pursuant to section 382 of the Internal Revenue Code. California has suspended the net operating loss carryover deduction for taxable years 2020, 2021 and 2022. Net operating losses related to foreign entities were $6,022,156 at June 30, 2023. As of June 30, 2023, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company is subject to U.S. federal income tax, as well as various state and foreign jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending June 30, 2020 through 2022. The Company does not anticipate any material amount of unrecognized tax benefits within the next 12 months. The cumulative amount of undistributed earnings of foreign subsidiaries that the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $21,484,398 as of June 30, 2023. The additional US income tax on unremitted foreign earnings, if repatriated, would be offset in part by foreign tax credits. The extent of this offset would depend on many factors, including the method of distribution, and specific earnings distributed. The Company determined that it is not practicable to determine unrecognized deferred tax liability associated with the unremitted earnings attributable to the foreign subsidiaries. Income from the export of computer software and its related services developed in Pakistan is exempt from tax through June 30, 2025. The aggregate effect of the tax holiday for June 30, 2023 and 2022 is $1,359,169 and $1,260,502, respectively. The effect on basic and diluted earnings per share is $0.12 and $0.11 for June 30, 2023 and 2022, respectively. F-33 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 17 - STOCKHOLDERS’ EQUITY During the years ended June 30, 2023 and 2022, the Company issued 58,317 and 1,985 shares of common stock respectively, for services rendered by the independent members of the Board of Directors as part of their board compensation. These shares were valued at the fair market value of $159,000 and $12,009, respectively, and recorded as compensation expense in the accompanying consolidated financial statements. During the year ended June 30, 2022, the Company issued 8,000 shares of common stock, to employees pursuant to the terms of their employment agreements. These shares were valued at the fair market value of $41,050, and recorded as compensation expense in the accompanying consolidated financial statements. During the years ended June 30, 2023 and 2022, the Company issued 30,000 and 5,000 shares of common stock for services received from one of its vendors. These shares were valued at the fair market value of $67,500 and $19,525, respectively. During the year ended June 30, 2022, the Company purchased 22,510 shares of its common stock from the open market for cash proceeds of $100,106 at an average price of $4.45 per share, pursuant to the Company’s stock buy-back plan. NOTE 18 - INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN The Company maintains several Incentive and Non-Statutory Stock Option Plans (“Plans”) for its employees and consultants. Options granted under these Plans to an employee of the Company become exercisable over a period of no longer than ten (10) years and no less than twenty percent (20%) of the shares are exercisable annually. Options are not exercisable, in whole or in part, prior to one (1) year from the date of grant unless the Board of Directors specifically determines otherwise, as provided. Two types of options may be granted under these Plans: (1) Incentive Stock Options (also known as Qualified Stock Options) which may only be issued to employees of the Company and whereby the exercise price of the option is not less than the fair market value of the common stock on the date it was reserved for issuance under the Plan; and (2) Non-statutory Stock Options which may be issued to either employees or consultants of the Company and whereby the exercise price of the option may be less than the fair market value of the common stock on the date it was reserved for issuance under the plan. Grants of options may be made to employees and consultants without regard to any performance measures. All options issued pursuant to the Plan are nontransferable and subject to forfeiture. The Plans provide for the grant of equity-based awards, including options, stock appreciation rights, restricted stock awards or performance share awards or any other right or interest relating to shares or cash, to eligible participants. The Plans contemplate the issuance of common stock upon exercise of options or other awards granted to eligible persons under the Plans. Shares issued under the Plans may be both authorized and unissued shares or previously issued shares acquired by the Company. Upon termination or expiration of an unexercised option, stock appreciation right or other stock-based award under the Plans, in whole or in part, the number of shares of common stock subject to such award again becomes available for grant under the Plans. Any shares of restricted stock forfeited as described below will become available for grant. The maximum number of shares that may be granted to any one participant in any calendar year may not exceed 50,000 shares. All options issued pursuant to the Plan are nontransferable and subject to forfeiture. Options granted under the Plans are not generally transferable and must be exercised within 10 years, subject to earlier termination upon termination of the option holder’s employment, but in no event later than the expiration of the option’s term. The exercise price of each option may not be less than the fair market value of a share of the Company’s common stock on the date of grant (except in connection with the assumption or substitution for another option in a manner qualifying under Section 424(a) of the Internal Revenue Code of 1986, as amended. F-34 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Incentive stock options granted to any participant who owns 10% or more of the Company’s outstanding common stock (a “Ten Percent Shareholder”) must have an exercise price equal to or exceeding 110% of the fair market value of a share of our common stock on the date of the grant and must not be exercisable for longer than five years. Options become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Board of Directors. The maximum term of any option granted under the 2015 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Shareholder must have a term not exceeding five years. Under the Plans, a participant may also be awarded a “performance award,” which means that the participant may receive cash, stock or other awards contingent upon achieving performance goals established by the Board of Directors. The Board of Directors may also make “deferred share” awards, which entitle the participant to receive the Company’s stock in the future for services performed between the date of the award and the date the participant may receive the stock. The vesting of deferred share awards may be based on performance criteria and/or continued service with the Company. A participant who is granted a “stock appreciation right” under the Plan has the right to receive all or a percentage of the fair market value of a share of stock on the date of exercise of the stock appreciation right minus the grant price of the stock appreciation right determined by the Board of Directors (but in no event less than the fair market value of the stock on the date of grant). Finally, the Board of Directors may make “restricted stock” awards under the Plans, which are subject to such terms and conditions as the Board of Directors determines and as are set forth in the award agreement related to the restricted stock. As of June 30, 2023, the remaining shares to be granted are 141 under the 2005 Plan, 57,124 under the 2013 Plan and 306,422 under the 2015 Plan. Stock Grants The following table summarizes stock grants awarded as compensation: Unvested, June 30, 2021 Granted Vested Unvested, June 30, 2022 Granted Vested Unvested, June 30, 2023 # Number of shares Weighted Average Grant Date Fair Value ($) 6,985 $ 3,000 $ (9,985) $ - $ 58,317 $ (58,317) $ - $ 5.75 4.20 5.31 - 2.73 2.73 - For the years ended June 30, 2023 and 2022, the Company recorded compensation expense of $159,000 and $44,053, respectively. The weighted average grant date fair value is determined by the Company’s closing stock price on the grant date. F-35 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 NOTE 19 – RETIREMENT PLANS The Company and its subsidiaries have varying defined contribution plans based on country specific laws. Employer contributions vary by subsidiary from 0% up to 8% taking the form in some jurisdictions of employee matching contributions and in others direct employer contributions mandated by local law. During the years ended June 30, 2023 and 2022, the Company contributed $1,298,115 and $1,374,376, respectively, to these plans. NOTE 20 – SEGMENT INFORMATION AND GEOGRAPHIC AREAS The Company has identified three segments for its products and services; North America, Europe and Asia-Pacific. The reportable segments are business units located in different global regions. Each business unit provides similar products and services; license fees for leasing and asset-based software, related post contract support fees, and implementation and IT consulting services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. The following table presents a summary of identifiable assets as of June 30, 2023 and 2022: Identifiable assets: Corporate headquarters North America Europe Asia - Pacific Consolidated As of June 30, 2023 As of June 30, 2022 $ $ 878,899 7,344,122 8,716,656 41,439,733 58,379,410 $ $ 844,178 6,442,219 8,727,530 56,594,705 72,608,632 The following table presents a summary of investments under the equity method as of June 30, 2023 and 2022: Investment in associates under equity method: Asia - Pacific Consolidated As of June 30, 2023 As of June 30, 2022 $ $ 25,396 25,396 $ $ 1,059,368 1,059,368 The following table presents a summary of revenue streams by segment for the years ended June 30, 2023 and 2022: 2023 2022 License fees Subscription and support Services Total License fees Subscription and support Services Total North America Europe Asia-Pacific Total $ 28,000 136,151 2,105,413 $ 2,269,564 $ 4,398,429 2,682,407 18,899,825 $ 25,980,661 $ 1,690,853 7,939,886 14,512,251 $ 24,142,990 $ 6,117,282 10,758,444 35,517,489 $ 52,393,215 $ 27,500 291,652 4,220,108 $ 4,539,260 $ 3,744,605 2,213,427 22,326,727 $ 28,284,759 $ 515,903 7,923,124 15,984,933 $ 24,423,960 $ 4,288,008 10,428,203 42,531,768 $ 57,247,979 F-36 The following table presents a summary of operating information for the years ended June 30: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Revenues from unaffiliated customers: North America Europe Asia - Pacific Revenue from affiliated customers Asia - Pacific Consolidated Intercompany revenue Europe Asia - Pacific Eliminated Net income (loss) after taxes and before non-controlling interest: Corporate headquarters North America Europe Asia - Pacific Consolidated Depreciation and amortization: North America Europe Asia - Pacific Consolidated Interest expense: Corporate headquarters North America Europe Asia - Pacific Consolidated Income tax expense: Corporate headquarters North America Europe Asia - Pacific Consolidated For the Years Ended June 30, 2023 2022 6,117,282 10,758,444 35,517,489 52,393,215 - - 52,393,215 394,962 9,075,861 9,470,823 (501,560) 92,674 (949,214) (2,786,373) (4,144,473) 2,523 303,907 2,938,108 3,244,538 23,639 - 8,955 732,436 765,030 12,372 1,600 46,747 865,841 926,560 $ $ $ $ $ $ $ $ $ $ $ $ 4,288,008 10,428,203 42,531,768 57,247,979 - - 57,247,979 453,242 9,612,755 10,065,997 (1,027,044) (116,199) (1,407,252) 3,651,298 1,100,803 1,995 396,519 3,413,759 3,812,273 32,915 - 10,335 326,551 369,801 (43,354) 46,154 15,862 970,276 988,938 $ $ $ $ $ $ $ $ $ $ $ $ F-37 The following table presents a summary of capital expenditures for the years ended June 30: NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Capital expenditures: North America Europe Asia - Pacific Consolidated Geographic Information For the Years Ended June 30, 2023 2022 $ $ 4,881 $ 33,185 1,601,372 1,639,438 $ - 151,378 2,457,827 2,609,205 Disclosed in the table below is geographic information for each country that comprised greater than five percent of total revenues for the years ended June 30, 2023 and 2022. China Thailand USA UK Pakistan & India Australia & New Zealand Mexico Indonesia South Africa South Korea Other Countries Total June 30, 2023 June 30, 2022 Revenue Long-lived Assets Revenue Long-lived Assets $ $ 15,120,449 2,260,699 5,057,470 10,758,444 2,087,018 7,018,095 1,059,812 2,903,163 752,603 1,954,982 3,420,480 52,393,215 $ $ F-38 $ 631,713 207,280 4,805,841 4,276,754 6,845,753 8,202 - - - - 16,775,543 $ 20,533,170 2,781,867 3,161,365 10,428,203 3,751,603 6,545,872 1,126,643 2,957,354 2,057,608 894,160 3,010,134 57,247,979 $ $ 256,468 1,240,082 4,852,458 4,986,192 11,836,992 8,304 - - - - 23,180,496 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 Disclosed in the table below is the geographic information of total revenues by country for the years ended June 30, 2023 and 2022. Revenues 2023 North America: Europe: Asia-Pacific: Total North America: Europe: Asia-Pacific: Total $ Total 6,117,282 10,758,444 35,517,489 China $ - - 15,120,449 $ Thailand - - 2,260,699 USA $ 5,057,470 - - UK Pakistan & India $ - 10,758,444 - $ - - 2,087,018 Australia & New Zealand - - 7,018,095 $ Mexico $ 1,059,812 - - $ Indonesia - - 2,903,163 South Africa South Korea $ - - 752,603 $ - - 1,954,982 $ Other Countries - - 3,420,480 $ 52,393,215 $ 15,120,449 $ 2,260,699 $ 5,057,470 $ 10,758,444 $ 2,087,018 $ 7,018,095 $ 1,059,812 $ 2,903,163 $ 752,603 $ 1,954,982 $ 3,420,480 Total China Thailand USA UK Revenues 2022 Pakistan & India Australia & New Zealand Mexico Indonesia South Africa South Korea Other Countries $ 4,288,008 10,428,203 42,531,768 $ - - 20,533,170 $ - - 2,781,867 $ 3,161,365 - - $ - 10,428,203 - $ - - 3,751,603 $ - - 6,545,872 $ 1,126,643 - - $ - - 2,957,354 $ - - 2,057,608 $ - - 894,160 $ - - 3,010,134 $ 57,247,979 $ 20,533,170 $ 2,781,867 $ 3,161,365 $ 10,428,203 $ 3,751,603 $ 6,545,872 $ 1,126,643 $ 2,957,354 $ 2,057,608 $ 894,160 $ 3,010,134 NOTE 21 – NON-CONTROLLING INTEREST IN SUBSIDIARY The Company had non-controlling interests in several of its subsidiaries. The balance of non-controlling interest was as follows: SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at June 30, 2023 NetSol PK NetSol-Innovation NAMECET NetSol Thai OTOZ Thai OTOZ Total NetSol PK NetSol-Innovation NetSol Thai OTOZ Thai OTOZ Total 32.38% $ 32.38% 32.38% 0.006% 5.60% 5.59% $ 3,314,659 (223,504) (5,384) (194) (23,572) (86,952) 2,975,053 SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at June 30, 2022 32.38% $ 32.38% 0.006% 5.60% 5.59% $ 5,479,905 49,146 (196) (30,768) (47,698) 5,450,389 F-39 NETSOL TECHNOLOGIES, INC. Notes to Consolidated Financial Statements June 30, 2023 and 2022 OTOZ In September 2022, the Company’s subsidiary, Otoz, issued 191,011 shares to an employee per the employment agreement resulting in an increase of non-controlling interest from 5.59% to 10.94%. The effective shareholding of the non-controlling interest for Otoz Thai increased to 10.95%. In June 2023, the Company’s subsidiary, Otoz, repurchased the 191,011 shares from the same employee per the employment agreement, after his resignation, resulting in a decrease of non-controlling interest from 10.94% to 5.59%. The effective shareholding of the non-controlling interest for Otoz Thai decreased to 5.60%. NetSol PK During the year ended June 30, 2022, NetSol PK purchased 2,000,000 shares of common stock from open market for $950,352. Due to this purchase, the non-controlling interest decreased from 33.88% at June 30, 2021 to 32.38% at June 30, 2022. The following schedule discloses the effect to the Company’s equity due to the changes in the Company’s ownership interest in NetSol PK and OTOZ. Net income (loss) attributable to NetSol Transfer (to) from non-controlling interest Increase in paid-in capital for issuance of 191,011 shares of OTOZ Inc common stock Decrease in paid-in capital for purchase of 191,011 shares of OTOZ Inc common stock Increase in paid-in capital for purchase of 2,000,000 shares of common stock of NetSol PK from Open Market Net transfer (to) from non-controlling interest Change from net income (loss) attributable to NetSol and transfer (to) from non-controlling interest $ $ F-40 For the Years Ended June 30, 2023 2022 (5,243,748) $ (851,156) 120,565 (118,207) - 2,358 (5,241,390) $ - - 36,403 36,403 (814,753) Exhibit 21.1 Wholly owned Subsidiaries NetSol Technologies Americas, Inc. (“NTA”) NetSol Connect (Private), Ltd. (“Connect”) NetSol Technologies Australia Pty Ltd. (“Australia”) NetSol Technologies Europe Limited (“NTE”) NTPK (Thailand) Co. Limited (“NTPK Thailand”) NetSol Technologies (Beijing) Co. Ltd. (“NetSol Beijing”) Tianjin NuoJinZhiCheng Co., Ltd (“Tianjin”) Ascent Europe Ltd. (“AEL”) Virtual Lease Services Holdings Limited (“VLSH”) Virtual Lease Services Limited (“VLS”) Virtual Lease Services (Ireland) Limited (“VLSIL”) Majority-owned Subsidiaries NetSol Technologies, Ltd. (“NetSol PK”) NetSol Innovation (Private) Limited (“NetSol Innovation”) NETSOL Ascent Middle East Computer Equipment Trading LLC (“Namecet”) NetSol Technologies Thailand Limited (“NetSol Thai”) OTOZ, Inc. (“OTOZ”) OTOZ (Thailand) Limited (“OTOZ Thai”) Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.1 I, Najeeb Ghauri, certify that: (1) I have reviewed this annual report on Form 10-K for the year ended June 30, 2023 of NetSol Technologies, Inc., (“Registrant”). (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; (5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: September 22, 2023 /s/Najeeb Ghauri Najeeb Ghauri, Chief Executive Officer Principal executive officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 I, Roger K. Almond, certify that: (1) I have reviewed this annual report on Form 10-K for the fiscal year ended June 30, 2023 of NetSol Technologies, Inc., (“Registrant”). (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) designed such disclosure controls and procedure, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; (5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: September 22, 2023 /s/ Roger K. Almond Roger K. Almond Chief Financial Officer Principal Accounting Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the Annual Report of NetSol Technologies, Inc. on Form 10-K for the period ending June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Najeeb Ghauri, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and, (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: September 22, 2023 /s/ Najeeb Ghauri Najeeb Ghauri, Chief Executive Officer Principal Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with the Annual Report of NetSol Technologies, Inc. on Form 10-K for the period ending June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Roger K. Almond, Chief Financial Officer, and Principal Accounting Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and, (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Date: September 22, 2023 /s/Roger K. Almond Roger K. Almond Chief Financial Officer Principal Accounting Officer 

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