UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~December 31, 2017~~September 30, 2019

[ ] For the transition period from __________ to __________

Commission file number: 0-22773

NETSOL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

NEVADA		95-4627685
(State or other Jurisdiction of		(I.R.S. Employer NO.)
Incorporation or Organization)

23975Park Sorrento, Suite 250, Calabasas, CA 91302
(Address of principal executive offices) (Zip Code)

(818) 222-9195 / (818) 222-9197
(Issuer’s telephone/facsimile numbers, including area code)

Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer [ ]	Accelerated Filer [ ]
Non-Accelerated Filer [ ]	Small Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes [ ] No [X]

The issuer had ~~11,395,401~~11,724,606 shares of its $.01 par value Common Stock and no Preferred Stock ~~issued and~~ outstanding as of ~~February 10, 2018.~~November 5, 2019.

NETSOL TECHNOLOGIES, INC.

		Page No.
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~2019		3
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and ~~Six Months Ended December 31, 2017 and 2016~~2018		4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended September 30, 2019 and ~~Six Months Ended December 31, 2017 and 2016~~2018		5
Condensed Consolidated Statements of Stockholders’ Equity for the Three MonthsEnded September 30, 2019 and 2018		6
Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three MonthsEnded ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018	6	7
Notes to the Condensed Consolidated Financial Statements	8	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30	32
Item 3. Quantitative and Qualitative Disclosures about Market Risk	45	41
Item 4. Controls and Procedures	46	41

PART II. OTHER INFORMATION		42
Item 1. Legal Proceedings	47	42
Item 1A Risk Factors	47	42
Item 2. Unregistered Sales of Equity and Use of Proceeds	47	42
Item 3. Defaults Upon Senior Securities	47	42
Item 4. Mine Safety Disclosures	47	42
Item 5. Other Information	48	42
Item 6. Exhibits	48	42

Page 2

PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements (Unaudited)

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
~~CONDENSED CONSOLIDATED BALANCE SHEETS~~Condensed Consolidated Balance Sheets

~~(UNAUDITED)~~
(Unaudited)

As of December 31, As of June 30,
2017 2017
ASSETS
Current assets:
Cash and cash equivalents $ 10,004,650 $ 14,172,954
Accounts receivable, net of allowance of $347,413 and $571,511 19,106,677 6,583,199
Accounts receivable, net - related party 2,582,403 1,644,942
Revenues in excess of billings 16,094,026 19,126,389
Revenues in excess of billings - related party 107,562 80,705
Convertible note receivable - related party 750,000 200,000
Other current assets 2,819,183 2,463,886
Total current assets 51,464,501 44,272,075
Restricted cash 90,000 90,000
Revenues in excess of billings, net - long term 6,668,854 5,173,538
Property and equipment, net 18,443,494 20,370,703
Other assets 3,543,315 3,211,295
Intangible assets, net 14,810,605 17,043,151
Goodwill 9,516,568 9,516,568
Total assets $ 104,537,337 $ 99,677,330

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,560,298 $ 6,880,194
Current portion of loans and obligations under capitalized leases 10,133,100 10,222,795
Unearned revenues 10,082,346 3,925,702
Common stock to be issued 88,324 88,324
Total current liabilities 27,864,068 21,117,015
Loans and obligations under capitalized leases; less current maturities 250,883 366,762
Total liabilities 28,114,951 21,483,777
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized; - -
Common stock, $.01 par value; 14,500,000 shares authorized; 11,395,401 shares issued and 11,221,347 outstanding as of December 31, 2017 and 11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017 113,954 112,254
Additional paid-in-capital 125,354,035 124,409,998
Treasury stock (At cost, 174,054 shares and 34,779 shares as of December 31, 2017 and June 30, 2017, respectively) (1,055,330 ) (454,310 )
Accumulated deficit (42,036,467 ) (42,301,390 )
Stock subscription receivable (221,000 ) (297,511 )
Other comprehensive loss (20,276,030 ) (18,074,570 )
Total NetSol stockholders’ equity 61,879,162 63,394,471
Non-controlling interest 14,543,224 14,799,082
Total stockholders’ equity 76,422,386 78,193,553
Total liabilities and stockholders’ equity $ 104,537,337 $ 99,677,330

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

~~Page 3~~

~~NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(UNAUDITED)~~

For the Three Months For the Six Months
Ended December 31, Ended December 31,
2017 2016 2017 2016
Restated Restated
Net Revenues:
License fees $ 235,932 $ 3,769,557 $ 561,998 $ 9,223,352
Maintenance fees 3,568,448 3,588,899 7,042,173 7,112,696
Services 9,087,191 6,619,158 16,104,928 12,175,293
License fees - related party 217,105 - 261,513 246,957
Maintenance fees - related party 101,251 51,345 204,214 181,976
Services - related party 1,236,508 1,829,827 3,090,385 3,994,981
Total net revenues 14,446,435 15,858,786 27,265,211 32,935,255

Cost of revenues:
Salaries and consultants 5,362,092 5,979,804 10,826,252 11,873,153
Travel 287,901 836,240 801,013 1,548,135
Depreciation and amortization 1,168,103 1,318,764 2,341,216 2,649,636
Other 939,986 1,065,727 1,796,568 2,038,065
Total cost of revenues 7,758,082 9,200,535 15,765,049 18,108,989

Gross profit 6,688,353 6,658,251 11,500,162 14,826,266

Operating expenses:
Selling and marketing 1,932,140 2,713,478 3,643,436 5,057,516
Depreciation and amortization 222,785 271,485 468,658 540,582
Provision for bad debts - 1,026 - 1,026
General and administrative 4,026,706 3,932,387 7,814,264 8,551,583
Research and development cost 189,891 91,607 374,976 184,539
Total operating expenses 6,371,522 7,009,983 12,301,334 14,335,246

Income from operations 316,831 (351,732 ) (801,172 ) 491,020

Other income and (expenses)
Loss on sale of assets (8,939 ) (32,339 ) (16,069 ) (34,742 )
Interest expense (109,675 ) (62,127 ) (227,746 ) (116,602 )
Interest income 115,570 23,416 252,481 53,856
Gain (loss) on foreign currency exchange transactions 1,737,967 (621,887 ) 2,754,329 (1,036,783 )
Share of net loss from equity investment (203,336 ) - (270,898 ) -
Other income 14,511 6,823 15,610 28,383
Total other income (expenses) 1,546,098 (686,114 ) 2,507,707 (1,105,888 )

Net income (loss) before income taxes 1,862,929 (1,037,846 ) 1,706,535 (614,868 )
Income tax provision (200,927 ) (338,884 ) (225,798 ) (378,759 )
Net income (loss) 1,662,002 (1,376,730 ) 1,480,737 (993,627 )
Non-controlling interest (1,027,581 ) (791,664 ) (1,215,814 ) (1,560,878 )
Net income (loss) attributable to NetSol $ 634,421 $ (2,168,394 ) $ 264,923 $ (2,554,505 )

Net income (loss) per share:
Net income (loss) per common share
Basic $ 0.06 $ (0.20 ) $ 0.02 $ (0.24 )
Diluted $ 0.06 $ (0.20 ) $ 0.02 $ (0.24 )

Weighted average number of shares outstanding
Basic 11,159,075 10,877,446 11,115,346 10,783,685
Diluted 11,171,543 10,877,446 11,127,814 10,783,685

	As of			As of
	September 30, 2019			June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	17,621,379		$	17,366,364
Accounts receivable, net of allowance of $160,396 and $192,786		8,079,537			12,332,714
Accounts receivable, net of allowance of $172,485 and $166,075 - related party		3,225,787			3,266,600
Revenues in excess of billings, net of allowance of $220,820 and $194,684		16,345,384			14,719,047
Revenues in excess of billings - related party		48,145			110,827
Convertible note receivable - related party		4,085,000			3,650,000
Other current assets		3,351,698			3,146,264
Total current assets		52,756,930			54,591,816
Revenues in excess of billings, net - long term		1,246,660			1,281,492
Property and equipment, net		12,478,841			12,096,855
Right-of-use assets - operating leases		2,734,762			-
Long term investment		2,460,870			2,653,769
Other assets		25,329			23,569
Intangible assets, net		7,159,422			7,332,950
Goodwill		9,516,568			9,516,568
Total assets	$	88,379,382		$	87,497,019

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,377,985		$	7,476,560
Current portion of loans and obligations under finance leases		7,097,025			6,905,597
Current portion of operating lease obligations		920,115			-
Unearned revenues		4,424,652			5,977,736
Common stock to be issued		88,324			88,324
Total current liabilities		19,908,101			20,448,217
Loans and obligations under finance leases; less current maturities		493,403			564,572
Operating lease obligations; less current maturities		1,912,804			-
Total liabilities		22,314,308			21,012,789
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 11,972,109 shares issued and 11,724,606 outstanding as of September 30, 2019 and 11,911,742 shares issued and 11,664,239 outstanding as of June 30, 2019		119,721			119,117
Additional paid-in-capital		128,052,079			127,737,999
Treasury stock (At cost, 247,503 shares and 247,503 shares as of September 30, 2019 and June 30, 2019, respectively)		(1,455,969	)		(1,455,969	)
Accumulated deficit		(37,034,845	)		(35,206,898	)
Other comprehensive loss		(32,221,661	)		(33,125,006	)
Total NetSol stockholders’ equity		57,459,325			58,069,243
Non-controlling interest		8,605,749			8,414,987
Total stockholders’ equity		66,065,074			66,484,230
Total liabilities and stockholders’ equity	$	88,379,382		$	87,497,019

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

Page 4 3

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~Condensed Consolidated Statements of Operations

~~(UNAUDITED)~~(Unaudited)

For the Three Months For the Six Months
Ended December 31, Ended December 31,
2017 2016 2017 2016
Restated Restated
Net income (loss) $ 634,421 $ (2,168,394 ) $ 264,923 $ (2,554,505 )
Other comprehensive income (loss):
Translation adjustment (2,453,890 ) (944,837 ) (3,279,634 ) 149,237
Translation adjustment attributable to non-controlling interest 841,009 276,575 1,078,174 (47,138 )
Net translation adjustment (1,612,881 ) (668,262 ) (2,201,460 ) 102,099
Comprehensive income (loss) attributable to NetSol $ (978,460 ) $ (2,836,656 ) $ (1,936,537 ) $ (2,452,406 )
For the Three Months
Ended September 30,
2019 2018
Net Revenues:
License fees $ 2,679,145 $ 5,956,113
Maintenance fees 4,391,447 3,739,676
Services 6,418,891 6,470,625
Services - related party 82,933 230,131
Total net revenues 13,572,416 16,396,545

Cost of revenues:
Salaries and consultants 4,454,964 5,020,562
Travel 1,342,635 1,151,997
Depreciation and amortization 719,665 937,604
Other 944,524 1,048,324
Total cost of revenues 7,461,788 8,158,487

Gross profit 6,110,628 8,238,058

Operating expenses:
Selling and marketing 1,743,868 1,701,326
Depreciation and amortization 202,387 212,232
General and administrative 3,918,613 4,406,720
Research and development cost 672,970 318,155
Total operating expenses 6,537,838 6,638,433

Income (loss) from operations (427,210 ) 1,599,625

Other income and (expenses)
Gain (loss) on sale of assets (289 ) 52,294
Interest expense (63,663 ) (99,434 )
Interest income 399,229 248,964
Gain (loss) on foreign currency exchange transactions (1,760,190 ) 10,912
Share of net loss from equity investment (189,224 ) (299,691 )
Other income 18,326 5,379
Total other income (expenses) (1,595,811 ) (81,576 )

Net income (loss) before income taxes (2,023,021 ) 1,518,049
Income tax provision (238,238 ) (236,914 )
Net income (loss) (2,261,259 ) 1,281,135
Non-controlling interest 433,312 (318,546 )
Net income (loss) attributable to NetSol $ (1,827,947 ) $ 962,589

Net income (loss) per share:
Net income (loss) per common share
Basic $ (0.16 ) $ 0.08
Diluted $ (0.16 ) $ 0.08

Weighted average number of shares outstanding
Basic 11,664,239 11,502,616
Diluted 11,664,239 11,507,730

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

Page 5 4

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
~~(UNAUDITED)~~

For the Six Months
Ended December 31,
2017 2016
Restated
Cash flows from operating activities:
Net income (loss) $ 1,480,737 $ (993,627 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 2,809,874 3,190,218
Provision for bad debts - 1,026
Share of net loss from investment under equity method 270,898 -
Loss on sale of assets 16,069 34,742
Stock based compensation 833,530 1,525,775
Fair market value of warrants and stock options granted - 21,804
Changes in operating assets and liabilities:
Accounts receivable (13,231,059 ) 3,678,110
Accounts receivable - related party (1,637,829 ) 829,285
Revenues in excess of billing 602,676 (7,592,495 )
Revenues in excess of billing - related party (32,308 ) 285,791
Other current assets (524,547 ) 585,147
Accounts payable and accrued expenses 887,824 334,241
Unearned revenue 6,469,146 (1,830,619 )
Net cash provided by (used in) operating activities (2,054,989 ) 69,398

Cash flows from investing activities:
Purchases of property and equipment (543,123 ) (1,074,316 )
Sales of property and equipment 193,241 181,087
Convertible note receivable - related party (500,000 ) -
Investment in WRLD3D (50,000 ) (705,555 )
Net cash used in investing activities (899,882 ) (1,598,784 )

Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants 215,311 429,452
Proceeds from exercise of subsidiary options 7,755 18,089
Purchase of treasury stock (601,020 ) (38,885 )
Dividend paid by subsidiary to non-controlling interest (417,853 ) (968,657 )
Proceeds from bank loans 708,457 -
Payments on capital lease obligations and loans - net (361,814 ) (69,998 )
Net cash used in financing activities (449,164 ) (629,999 )
Effect of exchange rate changes (764,269 ) 107,241
Net decrease in cash and cash equivalents (4,168,304 ) (2,052,144 )
Cash and cash equivalents, beginning of the period 14,172,954 11,557,527
Cash and cash equivalents, end of period $ 10,004,650 $ 9,505,383
For the Three Months
Ended September 30,
2019 2018
Net income (loss) $ (1,827,947 ) $ 962,589
Other comprehensive income (loss):
Translation adjustment 1,487,701 (464,076 )
Translation adjustment attributable to non-controlling interest (584,356 ) 200,873
Net translation adjustment 903,345 (263,203 )
Comprehensive income (loss) attributable to NetSol $ (924,602 ) $ 699,386

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

Page 6 5

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)~~Condensed Consolidated Statement of Stockholders’ Equity
~~(UNAUDITED)~~(Unaudited)

For the Six Months
Ended December 31,
2017 2016
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 189,769 $ 123,682
Taxes $ 226,098 $ 77,414

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Provided services for investment in WRLD3D $ 553,678 $ 549,621
Assets acquired under capital lease $ 113,220 $ -
A statement of the changes in equity for the three months ended September 30, 2019 is provided below:
Common Stock Additional
Paid-in Treasury Accumulated Shares
to be Other
Comprehensive Non
Controlling Total
Stockholders’
Shares Amount Capital Shares Deficit Issued Loss Interest Equity

Balance at June 30, 2019 11,911,742 $ 119,117 $ 127,737,999 $ (1,455,969 ) $ (35,206,898 ) $ - $ (33,125,006 ) $ 8,414,987 $ 66,484,230
Exercise of subsidiary common stock options - - (28,097 ) - - - - 39,718 11,621
Common stock issued for:
Services 60,367 604 342,177 - - - - - 342,781
Equity component shown as current liability at
June 30, 2019 - - - - - 88,324 - - 88,324
September 30, 2019 - - - - - (88,324 ) - - (88,324 )
Foreign currency translation adjustment - - - - - - 903,345 584,356 1,487,701
Net loss for the period - - - - (1,827,947 ) - - (433,312 ) (2,261,259 )
Balance at September 30, 2019 11,972,109 $ 119,721 $ 128,052,079 $ (1,455,969 ) $ (37,034,845 ) $ - $ (32,221,661 ) $ 8,605,749 $ 66,065,074
A statement of the changes in equity for the three months ended September 30, 2018 is provided below:
Common Stock Additional
Paid-in Treasury Accumulated Stock
Subscriptions Shares
to be Other
Comprehensive Non
Controlling Total
Stockholders’
Shares Amount Capital Shares Deficit Receivable Issued Loss Interest Equity
Balance at June 30, 2018 11,708,469 $ 117,085 $ 126,479,147 $ (1,205,024 ) $ (37,994,502 ) $ (221,000 ) $ - $ (24,386,071 ) $ 14,146,417 $ 76,936,052
Adjustment in retained earnings on adoption of ASC 606 - - - - (5,795,795 ) - - - (2,957,860 ) (8,753,655 )
Exercise of subsidiary common - - (6,629 ) - - - - - 9,279 2,650
Common stock issued for:
Services 73,891 739 445,801 - - - - - - 446,540
Equity component shown as current liability at
June 30, 2018 - - - - - - 88,324 - - 88,324
September 30, 2018 - - - - - - (88,324 ) - - (88,324 )
Foreign currency translation adjustment - - - - - - - (263,203 ) (200,873 ) (464,076 )
Net income for the period - - - - 962,589 - - - 318,546 1,281,135
Balance at September 30, 2018 11,782,360 $ 117,824 $ 126,918,319 $ (1,205,024 ) $ (42,827,708 ) $ (221,000 ) $ - $ (24,649,274 ) $ 11,315,509 $ 69,448,646

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

Page 6
NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months
Ended September 30,
2019 2018
Cash flows from operating activities:
Net income (loss) $ (2,261,259 ) $ 1,281,135
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 922,052 1,149,836
Provision for bad debts (38,621 ) -
Share of net loss from investment under equity method 189,224 299,691
(Gain) loss on sale of assets 289 (52,294 )
Stock based compensation 164,293 432,048
Changes in operating assets and liabilities:
Accounts receivable 4,836,183 5,136,381
Accounts receivable - related party 46,016 284,869
Revenues in excess of billing (1,870,517 ) (6,347,196 )
Revenues in excess of billing - related party 66,330 (70,102 )
Other current assets (278,677 ) (571,246 )
Accounts payable and accrued expenses 122,012 (680,147 )
Unearned revenue (1,631,245 ) (1,202,420 )
Net cash provided by (used in) operating activities 266,080 (339,445 )

Cash flows from investing activities:
Purchases of property and equipment (321,125 ) (563,413 )
Sales of property and equipment 958 184,032
Convertible note receivable - related party (435,000 ) (758,000 )
Net cash used in investing activities (755,167 ) (1,137,381 )

Cash flows from financing activities:
Proceeds from exercise of subsidiary options 11,621 2,650
Proceeds from bank loans - 119,895
Payments on finance lease obligations and loans - net (147,376 ) (179,237 )
Net cash used in financing activities (135,755 ) (56,692 )
Effect of exchange rate changes 879,857 (119,591 )
Net increase (decrease) in cash and cash equivalents 255,015 (1,653,109 )
Cash and cash equivalents at beginning of the period 17,366,364 22,088,853
Cash and cash equivalents at end of period $ 17,621,379 $ 20,435,744
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 7

NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Three Months
Ended September 30,
2019 2018
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 105,368 $ 120,010
Taxes $ 151,375 $ 213,605

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired under finance lease $ - $ 144,801
Assets recognized under operating leases $ 3,011,814 $ -
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Page 8
NETSOL TECHNOLOGIES, INC.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements
~~DECEMBER 31, 2017~~September 30, 2019
~~(UNAUDITED)~~(Unaudited)

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The Company designs, develops, markets, and exports proprietary software products to customers in the automobile financing and leasing, banking, and financial services industries worldwide.The Company also provides system integration, consulting, and IT products and services in exchange for fees from customers.

The consolidated condensed interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, ~~2017.~~2019. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results.

The accompanying condensed consolidated financial statements include the accounts of NetSol Technologies, Inc. and subsidiaries (collectively, 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”)
~~NetSol Technologies (GmbH) (“NTG”)~~
~~Majority-owned Subsidiaries~~
~~NetSol Technologies,~~Ascent Europe Ltd. (“~~NetSol PK”)~~
~~NetSol Innovation (Private) Limited (“NetSol Innovation”)~~
~~NetSol Technologies Thailand Limited (“NetSol Thai”~~AEL”)
Virtual Lease Services Holdings Limited (“VLSH”)

Virtual Lease Services Limited (“VLS”)

Virtual Lease Services (Ireland) Limited (“VLSIL”)
Majority-owned Subsidiaries
NetSol Technologies, Ltd. (“NetSol PK”)
NetSol Innovation (Private) Limited (“NetSol Innovation”)
NetSol Technologies Thailand Limited (“NetSol Thai”)
Page 9
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

For comparative purposes, prior year’s condensed consolidated financial statements have been reclassified to conform to report classifications of the current period. Below is the table of reclassified amounts:

For the Three Months For the Six Months
Ended December 31, 2016 Ended December 31, 2016
Originally reported Reclassified Originally reported Reclassified

Net Revenues:
Services $ 6,984,084 $ 6,619,158 $ 12,790,801 $ 12,175,293
Services - related party 1,464,901 1,829,827 3,379,473 3,994,981
$ 8,448,985 $ 8,448,985 $ 16,170,274 $ 16,170,274

Operating expenses:
Provision for bad debts $ - $ 1,026 $ - $ 1,026
General and administrative 3,933,413 3,932,387 8,552,609 8,551,583
$ 3,933,413 $ 3,933,413 $ 8,552,609 $ 8,552,609
~~Page 8~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
For the Three Months Ended
September 30, 2018
Originally reported Reclassified

REVENUES
License fees $ 5,956,113 $ 5,956,113
Maintenance fees 3,638,327 3,739,676
Services 6,418,634 6,470,625
Maintenance fees - related party 101,349 -
Services - related party 282,122 230,131
Total net revenues $ 16,396,545 $ 16,396,545

NOTE 2 – ACCOUNTING POLICIES

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas requiring significant estimates are provision for doubtful accounts, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, assumptions used to determine the net present value of operating lease liabilities, and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates.

Concentration of Credit Risk

Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance. As of ~~December 31, 2017,~~September 30, 2019, and June 30, ~~2017,~~2019, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately ~~$8,463,863~~$16,695,896 and ~~$11,564,343,~~$16,124,339, 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.

Page 10
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
Fair Value of Financial Instruments
The Company applies the provisions of ~~ASC~~Accounting Standards Codification (“ASC”) 820-10,“Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, ~~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 note receivable and the long-term debt approximate their fair values based on current interest rates for instruments with similar characteristics.

The three levels of valuation hierarchy are defined as follows:

Level 1: Valuations consist of unadjusted quoted prices in active markets for identical assets and liabilities and has the highest priority.
Level 2: Valuations rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.
Level 3: Valuations are based on prices or third party or internal valuation models that require inputs that are significant to the fair value measurement and are less observable and thus have the lowest priority.

~~Page 9~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
The Company’s ~~financial~~ assets that ~~are~~were measured at fair value on a recurring basis as of ~~December 31, 2017, are~~September 30, 2019, were as follows:

Level 1 Level 2 Level 3 Total Assets Level 1 Level 2 Level 3 Total Assets
Revenue in excess of billing - long term $ - $ - $ 6,668,854 $ 6,668,854
Revenues in excess of billing - long term $      - $       - $ 1,246,660 $ 1,246,660
Total $ - $ - $ 6,668,854 $ 6,668,854 $ - $ - $ 1,246,660 $ 1,246,660

The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, ~~2017,~~2019, were as follows:

Level 1 Level 2 Level 3 Total Assets Level 1 Level 2 Level 3 Total Assets
Revenue in excess of billing - long term $ - $ - $ 5,173,538 $ 5,173,538
Revenues in excess of billing - long term $     - $     - $ 1,281,492 $ 1,281,492
Total $ - $ - $ 5,173,538 $ 5,173,538 $ - $ - $ 1,281,492 $ 1,281,492

The reconciliation from June 30, ~~2017~~2019 to ~~December 31, 2017~~September 30, 2019 is as follows:

Revenue in excess of billing - long term Fair value discount Total
Balance at June 30, 2017 $ 5,483,869 $ (310,331 ) $ 5,173,538
Additions 1,469,379 $ (85,057 ) 1,384,322
Amortization during the period - 110,994 110,994
Balance at December 31, 2017 $ 6,953,248 $ (284,394 ) $ 6,668,854
~~The Company applied the discounted cash flow method to calculate the fair value and used NetSol PK’s weighted average borrowing rate, ranging from 3.93% to 4.43%.~~

Revenues in excess
of billing - long term
Fair value discount Total
Balance at June 30, 2019 $ 1,380,631 $ (99,139 ) $ 1,281,492
Amortization during the period - 13,860 13,860
Effect of Translation Adjustment (52,208 ) 3,516 (48,692 )
Balance at September 30, 2019 $ 1,328,423 $ (81,763 ) $ 1,246,660

Management analyzes all financial instruments with features of both liabilities and equity under ASC 480,“Distinguishing Liabilities ~~From~~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 ~~warrant~~warrants and option derivatives are valued using the Black-Scholes model.
Page 11
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

New Accounting Pronouncements

Recent Accounting Standards Adopted by the Company:

In ~~November 2015,~~February 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ~~ASU 2015-17,~~~~Balance Sheet Classification of Deferred Taxes~~ ~~(ASU 2015-17),~~Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). This pronouncement requires lessees to recognize a liability for lease obligations, which ~~changes how deferred taxes are classified~~represents the discounted obligation to make future lease payments, and a corresponding right-of-use (“ROU”) asset on the balance ~~sheet~~sheet. The Company adopted ASU 2016-02, along with related clarifications and ~~is effective for financial statements issued for annual~~improvements, as of July 1, 2019, using the modified retrospective approach, which allows the Company to apply ASC 840, Leases, in the comparative periods ~~beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax~~presented in the year of adoption. Accordingly, the comparative periods and disclosures have not been restated.
The Company elected the package of practical expedients to not reassess:
● whether a contract is or contains a lease
● lease classification
● initial direct costs
Additionally, the Company adopted the policy election to not recognize ROU assets and lease liabilities for short-term leases for all asset classes.
Adoption of the new standard resulted in the recording of a non-cash transitional adjustment to ~~be classified~~ROU assets and lease liabilities of approximately $3,011,814 and $3,091,236, respectively, as ~~non-current.~~of July 1, 2019. The difference between the ROU assets and lease liabilities represented existing deferred rent expense and prepaid rent that were derecognized and adjusted ROU assets in the Condensed Consolidated Balance Sheets. The adoption of ~~this guidance~~ASU 2016-02 did not ~~have a material~~materially impact on the ~~Company’s~~ results of operations ~~financial position~~ or ~~disclosures.~~
~~In March 2016, the FASB issued ASU 2016-09,~~~~Improvements to Employee Share-Based Payment Accounting~~. The guidance simplifies accounting for share-based payments, most notably by requiring all excess tax benefits and tax deficiencies to be recorded as income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when they occur. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or disclosures.
~~Page 10~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~cash flows.

Accounting Standards Recently Issued but Not Yet Adopted by the Company:

In ~~May 2014, the (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,~~~~Revenue from Contracts with Customers~~, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of the new revenue standard by one year, which will make it effective for the Company in the first quarter of its fiscal year ending June 30, 2019. The Company is currently in the process of evaluating the impact of adoption of this ASU on its consolidated financial statements.
~~In January 2016, the FASB issued ASU 2016-01,~~~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ (ASU 2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is effective beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
~~In February 2016, the FASB issued ASU No. 2016-02,~~~~Leases~~, which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
~~In August 2016, the FASB issued ASU 2016-15,~~~~Clarification of Certain Cash Receipts and Cash Payments~~, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
~~On November 17, 2016, the FASB issued Accounting Standards Update No. 2016-18,~~~~Statement of Cash Flows (Topic 230): Restricted Cash.~~ It is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The new standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Earlier adoption is permitted. The Company maintains restricted cash balances and will show restricted cash as part of cash and restricted cash equivalents in the statement of cash flows.
In January 2017, the FASB issued ASU ~~No. 2017-01,~~~~Clarifying the Definition of a Business~~, which clarifies and provides a more robust framework to use in determining when a set of assets and activities is a business. The amendments in this update should be applied prospectively on or after the effective date. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those periods. Early adoption is permitted for acquisition or deconsolidation transactions occurring before the issuance date or effective date and only when the transactions have not been reported in issued or made available for issuance financial statements. The Company does not expect the adoption to have any significant impact on its Consolidated Financial Statements.
~~In January 2017, the FASB issued ASU No.~~ 2017-04,Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods. Early adoption is permitted for interim or annual goodwill impairment test performed on testing dates after January 1, 2017. The Company will apply this guidance to applicable impairment tests after the adoption date.

~~Page 11~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
~~In May 2017, the FASB issued ASU 2017-09,~~~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,~~which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as a modification. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard will be effective prospectively for the Company for the fiscal year beginning July 1, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the new standard on its consolidated financial statements and related disclosures.
In July 2017, the FASB issued ASU ~~No.~~ 2017-11,“Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope ~~Exception”.~~Exception. The ASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Page 12
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
NOTE 3 – REVENUE RECOGNITION
The Company determines revenue recognition through the following steps:
● Identification of the contract, or contracts, with a customer;
● Identification of the performance obligations in the contract;
● Determination of the transaction price;
● Allocation of the transaction price to the performance obligations in the contract; and
● Recognition of revenue when, or as, the Company satisfies a performance obligation.
The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities.
The Company has two primary revenue streams: core revenue and non-core revenue.
Core Revenue
The Company generates its core revenue from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) maintenance, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via two models: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software.
Non-Core Revenue
The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract.
The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase maintenance and services in addition to the licenses. The Company’s single performance obligation arrangements are typically maintenance 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.
Page 13
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
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.
Maintenance
Revenue from support services and product updates, referred to as maintenance 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.
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.
Page 14
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
The Company’s disaggregated revenue by category is as follows:
For the Three Months
Ended September 30,
2019 2018

Core:
License $ 2,679,145 $ 5,956,113
Maintenance 4,391,447 3,739,676
Services 4,626,269 4,988,025
Services - related party 82,933 162,845
Total core revenue, net 11,779,794 14,846,659

Non-Core:
Services 1,792,622 1,482,600
Services - related party - 67,286
Total non-core revenue, net 1,792,622 1,549,886

Total net revenue $ 13,572,416 $ 16,396,545
Significant Judgments
Due to the complexity of certain contracts, the actual revenue recognition treatment required under Topic 606 for the Company’s arrangements may be dependent on contract-specific terms and may vary in some instances.
Judgment is required to determine the SSP for each distinct performance obligation. The Company rarely licenses or sells products on a stand-alone basis, so the Company is required to estimate the range of SSPs for each performance obligation. In instances where SSP is not directly observable because the Company does not sell the license, product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. In making these judgments, the Company analyzes various factors, including its pricing methodology and consistency, size of the arrangement, length of term, customer demographics and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers.
The most significant inputs involved in the Company’s revenue recognition policies are: The (1) stand-alone selling prices of the Company’s software license, and the (2) the method of recognizing revenue for installation/customization, and other services.
The stand-alone selling price of the licenses was measured primarily through an analysis of pricing that management evaluated when quoting prices to customers. Although the Company has no history of selling its software separately from maintenance 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 recognized revenue from implementation and customization services using the percentage of estimated “man-days” that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of man-days required to complete implementation and customization services each reporting period.
Page 15
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
Revenue is recognized over time for the Company’s subscription, maintenance 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 (deferred 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 deferred revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer.
The revenues in excess of billings are transferred to receivables when the rights to consideration become unconditional, usually upon completion of a milestone.
The Company’s revenues in excess of billings and deferred revenue are as follows:
As of As of
September 30, 2019 June 30, 2019

Revenues in excess of billings $ 17,640,189 $ 16,111,366

Deferred Revenue $ 4,424,652 $ 5,977,736
During the three months ended September 30, 2019, the Company recognized revenue of $3,000,062 that was included in the deferred revenue balance at the beginning of the period. All other activity in deferred revenue is due to the timing of invoicing in relation to the timing of revenue recognition.
Page 16
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted but unsatisfied performance obligations were approximately $69,197,093 as of September 30, 2019, of which the Company estimates to recognize approximately $14,540,294 in revenue over the next 12 months and the remainder over an estimated 5 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.
Deferred 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 deferred 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. Below is a list of practical expedients applied by the Company:
● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer.
● The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations.
● The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements).
Costs to Obtain a Contract
The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, the Company incurs few direct incremental costs of obtaining new customer contracts. The Company rarely incurs incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, the Company’s sales personnel receive fees that are referred to as commissions, but that are based on more than simply signing up new customers. The Company’s sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfilment duties and collections efforts.

NOTE 34 – 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. Dilutive potential common shares include outstanding stock options ~~warrants,~~ and stock awards.

Page 12 17

NETSOL TECHNOLOGIES, INC.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements
~~DECEMBER 31, 2017~~September 30, 2019
~~(UNAUDITED)~~(Unaudited)

The components of basic and diluted earnings per share were as follows:

For the three months ended
December 31, 2017 For the six months ended
December 31, 2017
Net Income Shares Per Share Net Income Shares Per Share
Basic income per share:
Net income available to common shareholders $ 634,421 11,159,075 $ 0.06 $ 264,923 11,115,346 $ 0.02
Effect of dilutive securities
Stock options - 12,468 - - 12,468 -
Diluted income per share $ 634,421 11,171,543 $ 0.06 $ 264,923 11,127,814 $ 0.02
For the three months ended September 30, 2019
Net Loss Shares Per Share
Basic loss per share:
Net loss available to common shareholders $ (1,827,947 ) 11,664,239 $ (0.16 )
Effect of dilutive securities
Share grants - - -
Diluted loss per share $ (1,827,947 ) 11,664,239 $ (0.16 )

For the three months ended
December 31, 2016 For the six months ended
December 31, 2016
Net Loss Shares Per Share Net Loss Shares Per Share
Restated Restated Restated Restated
Basic loss per share:
Net loss available to common shareholders $ (2,168,394 ) 10,877,446 $ (0.20 ) $ (2,554,505 ) 10,783,685 $ (0.24 )
Effect of dilutive securities
Stock options - - - - - -
Diluted loss per share $ (2,168,394 ) 10,877,446 $ (0.20 ) $ (2,554,505 ) 10,783,685 $ (0.24 )
For the three months ended September 30, 2018
Net Income Shares Per Share

Basic income per share:
Net income available to common shareholders $ 962,589 11,502,616 $ 0.08
Effect of dilutive securities
Share grants - 5,114 -
Diluted income per share $ 962,589 11,507,730 $ 0.08

The following potential dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.

For the Three Months For the Six Months For the Three Months
Ended December 31, Ended December 31, Ended September 30,
2017 2016 2017 2016 2019 2018

Stock Options - 480,133 - 480,133 40,386 53,462
Warrants - 11,075 - 11,075
Share Grants 285,956 629,258 285,956 629,258 138,052 -
285,956 1,120,466 285,956 1,120,466 178,438 53,462

NOTE 45 – OTHER COMPREHENSIVE INCOME AND FOREIGN ~~CURRENCY:~~CURRENCY

The accounts of NTE, AEL, VLSH and VLS use the British Pound; VLSIL ~~and NTG use~~uses the Euro; NetSol PK, Connect, and NetSol Innovation use the Pakistan Rupee; NTPK Thailand and NetSol Thai use the Thai Baht; Australia uses the Australian dollar; and NetSol Beijing uses the Chinese Yuan as the functional currencies. NetSol Technologies, Inc., and its subsidiary, NTA, use the U.S. dollar as the functional currency. Assets and liabilities are translated at the exchange rate on the balance sheet date, and operating results are translated at the average exchange rate throughout the period. Accumulated translation losses classified as an item of accumulated other comprehensive loss in the stockholders’ equity section of the consolidated balance sheet were ~~$20,276,030~~$32,221,661 and ~~$18,074,570~~$33,125,006 as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively. During the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation ~~loss~~gain attributable to NetSol of ~~$1,612,881~~$903,345 and ~~$2,201,460, respectively. During the three and six months ended December 31, 2016, comprehensive income (loss) in the consolidated statements of operations included~~ a translation loss of ~~$668,262 and translation income of $102,099,~~$263,203, respectively.
~~Page 13~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~

NOTE 56 – RELATED PARTY TRANSACTIONS

NetSol-Innovation

In November 2004, the Company entered into a joint venture with 1insurer, formerlyInnovation Group, called NetSol-Innovation. NetSol-Innovation provides support services to 1insurer. During the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, NetSol Innovation provided services of ~~$796,757~~$Nil and ~~$1,928,513, respectively. During the three and six months ended December 31, 2016, NetSol-Innovation provided services of $1,401,144 and $2,956,619,~~$67,286, respectively. Accounts receivable at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~2019 were ~~$2,429,771~~$2,231,841 and ~~$1,462,078,~~$2,130,041, respectively.
~~Investec Asset Finance~~
In October 2011, NTE entered into an agreement with Investec Asset Finance to acquire VLS. NTE and VLS provide support services to Investec. During the three and six months ended December 31, 2017, NTE and VLS provided license, maintenance and services of $442,699 and $1,043,891, respectively. During the three and six months ended December 31, 2016, NTE and VLS provided license, maintenance and services of $115,102 and $851,787, respectively. Accounts receivable at December 31, 2017 and June 30, 2017 were $113,310 and $133,218, respectively.
~~WRLD3D~~
On May 31, 2017, Faizaan Ghauri, son of CEO Najeeb Ghauri, and an employee of the Company was appointed CEO of WRLD3D, Inc. (“WRLD3D”) a non-public company. On March 2, 2016, the Company purchased a 4.9% interest in WRLD3D for $1,111,111 and the Company’s subsidiary NetSol PK purchased a 12.2% investment in WRLD3D for $2,777,778 which will be earned over future periods by providing IT and enterprise software solutions. See Note 7 and Note 11.
~~G-FORCE~~
Najeeb Ghauri, CEO and Chairman of the Board, and Naeem Ghauri, Director, have a financial interest in G-Force, LLC, which purchased a 4.9% investment in WRLD3D, Inc. for $1,111,111. See Note 11 “Other Long-Term Assets”
~~NOTE 6 – MAJOR CUSTOMERS~~
The Company is a strategic business partner for Daimler Financial Services (which consists of a group of many companies in different countries), which accounts for approximately 35.90% and 41.54% of revenue for the six months ended December 31, 2017 and 2016, respectively. The revenue from this customer is shown in the Asia – Pacific segment. Accounts receivable at December 31, 2017 and June 30, 2017, were $12,761,829 and $1,620,717, respectively. Revenue in excess of billing at December 31, 2017 was $16,674,348, which included $6,668,854 shown as long term. Revenue in excess of billing at June 30, 2017 was $18,579,540, which included $5,173,538 shown as long term.
On December 21, 2015, the Company entered into a 10-year contract with Daimler Financial Services to provide license, maintenance and services for 12 countries in the Asia Pacific Region. The implementation phase is expected to be over a five-year period with maintenance and support over 10 years. The contract is a fixed fee arrangement with total license and maintenance fees of approximately €71,000,000 (approximately $85,054,591) with services to be separately agreed upon and billed as they are performed. The customer will make fixed annual payments of €5,850,000 (approximately $7,008,019) for years 1-5 and €8,350,000 (approximately $10,002,899) for years 6-10. Under the terms of the contract, the customer has the right to withdraw from certain modules and terminate the agreement as to certain countries based on good cause or business reasons prior to the beginning of implementation.
On, September 4, 2017, the Company amended the agreement which provided for an additional €7,700,000 (approximately $9,277,108) to be earned over the remaining life of the contract. The amended agreement provides for €7,000,000 (approximately $8,433,735) to be paid in the current fiscal year with €100,000 (approximately $120,482) to be paid each year over the remaining seven years.

Page 14 18

NETSOL TECHNOLOGIES, INC.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements
~~DECEMBER 31, 2017~~September 30, 2019
~~(UNAUDITED)~~(Unaudited)

NOTE 7 – MAJOR CUSTOMERS
During the three months ended September 30, 2019 revenues from two customers were $5,041,367 and $951,369 representing 37.1% and 7.0% of revenues. During the three months ended September 30, 2018, revenues from two customer were $4,716,404 and $4,850,093 representing 28.8% and 29.6% of revenues. The revenue from these customers are shown in the Asia – Pacific segment.
Accounts receivable from the two customers at September 30, 2019, were $2,372,071 and $1,015,369, respectively. Accounts receivable at June 30, 2019, were $7,917,814 and $159,322, respectively. Revenues in excess of billings at September 30, 2019 were $6,330,729 and $6,372,328, respectively. Revenues in excess of billings at June 30, 2019, were $4,371,081 and $5,472,043, respectively. Included in this amount was $1,246,660 and $1,281,492 shown as long term at September 30, 2019 and June 30, 2019, respectively.
NOTE 8 – CONVERTIBLE NOTE RECEIVABLE – RELATED PARTY

The Company entered into an agreement with WRLD3D, whereby the Company was issued a Convertible Promissory Note (the ~~“Convertible~~“August 2019 Note”) which was fully executed on ~~May 25, 2017.~~August 19, 2019. The maximum principal amount of ~~the Convertible Note is $750,000, and as of December 31, 2017, the Company had disbursed the full amount.~~$400,000 was paid on September 9, 2019. The ~~Convertible~~August 2019 Note bears interest at 5%10% per annum and all unpaid interest and principal is due and payable upon ~~the Company’s~~ request on or after ~~February 1, 2018.~~March 31, 2020. The ~~Convertible~~Company has a security interest in all of WRLD3D’s personal property, inventory, equipment, general intangibles, financial assets, investment property, securities, deposit accounts, and the proceeds thereof.
The August 2019 Note is convertible ~~into Series BB Preferred shares at~~upon the ~~lesser~~occurrence of ~~(i)~~the following events:
1. Conversion upon a qualified financing which is an equity financing of at least $1,000,000.
2. Optional conversion upon an equity financing less than $1,000,000.
3. Optional conversion after the maturity date.
4. Change of control.
If the Company converts the August 2019 Note upon the occurrence of a financing, then the conversion price will be equal to the product of: (A) the price paid per share for the equity ~~security~~securities by the investors inmultiplied by (B) a calculated conversion rate which is determined based on the ~~qualified financing~~amount of the principal and ~~(ii)~~interest outstanding and the Company’s ownership percentage.
If the Company converts the August 2019 Note either as an optional conversion after the maturity date or due to a change of control, then the conversion price is equal to $0.6788 per share (adjusted for any stock dividends, combinations, splits, recapitalizations or the like with respect to WRLD3D’s Series BB Preferred Stock after the date of the ~~Convertible~~August 2019 Note). ~~The Convertible Note is convertible upon the occurrence of the following events:~~

~~1. Upon a qualified financing~~The following table summarizes the convertible notes receivable from WRLD3D.
Convertible
Agreement Interest Maturity Note Amount
Date Rate Date Amount Disbursed
May 25, 2017 5 % On Demand $ 750,000 $ 750,000
February 9, 2018 10 % On Demand 2,500,000 2,500,000
April 1, 2019 10 % March 31, 2020 600,000 435,000
August 19, 2019 10 % March 31, 2020 400,000 400,000
$ 4,250,000 $ 4,085,000
The Company has accrued interest of $414,297 at September 30, 2019 which is ~~an equity financing of at least $2,000,000.~~included in “Other current assets.

~~2. Optionally, upon an equity financing less than $2,000,000.~~
Page 19

~~3. Optionally after the maturity date.~~NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
~~4. Upon a change of control.~~September 30, 2019
(Unaudited)

NOTE 89 - OTHER CURRENT ASSETS

Other current assets consisted of the following:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019

Prepaid Expenses $ 660,417 $ 597,687 $ 1,085,863 $ 991,528
Advance Income Tax 979,296 1,052,935 743,939 800,798
Employee Advances 114,147 128,100 97,925 33,778
Security Deposits 84,934 103,255 149,074 147,668
Other Receivables 648,237 252,590 940,599 733,826
Other Assets 332,152 329,319 334,298 438,666
Total $ 2,819,183 $ 2,463,886 $ 3,351,698 $ 3,146,264

NOTE 910 – ~~REVENUE~~REVENUES IN EXCESS OF BILLINGS – LONG TERM

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

As of December 31, As of June 30,
2017 2017
Revenue in excess of billing - long term $ 6,953,248 �� $ 5,483,869
Present value discount (284,394 ) (310,331 )
Net Balance $ 6,668,854 $ 5,173,538
As of As of
September 30, 2019 June 30, 2019

Revenues in excess of billing - long term $ 1,328,423 $ 1,380,631
Present value discount (81,763 ) (99,139 )
Net Balance $ 1,246,660 $ 1,281,492

Pursuant to revenue recognition for contract accounting, the Company ~~has~~had recorded ~~revenue~~revenues in excess of billings long-term for amounts billable after one year. During the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, the Company accreted ~~$59,272~~$13,860 and ~~$110, 994, respectively,~~$nil which iswas recorded in interest ~~income.~~income for that period. The Company used the discounted cash flow method with an interest ~~rates ranging from 3.93% to 4.43%~~rate of 4.35%.
~~Page 15~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~

NOTE 1011 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019

Office Furniture and Equipment $ 3,908,883 $ 3,755,710 $ 3,231,116 $ 3,125,382
Computer Equipment 25,788,684 26,693,730 19,557,328 18,905,603
Assets Under Capital Leases 1,522,708 1,965,650
Assets Under Finance Leases 1,669,388 1,720,490
Building 8,794,381 9,243,866 6,247,424 6,021,939
Land 2,299,047 2,428,626 1,619,290 1,559,111
Autos 1,287,043 1,270,339 1,399,070 1,024,754
Improvements 534,900 592,652 93,738 111,165
Subtotal 44,135,646 45,950,573 33,817,354 32,468,444
Accumulated Depreciation (25,692,152 ) (25,579,870 ) (21,338,513 ) (20,371,589 )
Property and Equipment, Net $ 18,443,494 $ 20,370,703 $ 12,478,841 $ 12,096,855
Page 20
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

For the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, depreciation expense totaled ~~$707,668~~$465,451 and ~~$1,436,327,~~$564,128, respectively. Of these amounts, ~~$484,883~~$263,064 and $967,669, respectively, are reflected in cost of revenues. For the three and six months ended December 31, 2016, depreciation expense totaled $902,678 and $1,801,981, respectively. Of these amounts, $631,193 and $1,261,399,$351,896, respectively, are reflected in cost of revenues.

Following is a summary of fixed assets held under ~~capital~~finance leases as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017:~~2019:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019
Computers and Other Equipment $ 236,518 $ 309,863 $ 317,296 $ 324,466
Furniture and Fixtures 65,084 227,914 65,084 65,084
Vehicles 1,221,106 1,427,873 1,287,008 1,330,940
Total 1,522,708 1,965,650 1,669,388 1,720,490
Less: Accumulated Depreciation - Net (568,087 ) (711,622 ) (567,780 ) (538,564 )
$ 954,621 $ 1,254,028 $ 1,101,608 $ 1,181,926
Finance lease term and discount rate were as follows:
As of
September 30, 2019
Weighted average remaining lease term - finance leases 2.11 Years
Weighted average discount rate - finance leases 12.79 %

NOTE 1112 - LEASES
The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years.
The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. The Company used the incremental borrowing rate on July 1, 2019 for all leases that commenced prior to that date. 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.
Page 21
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
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 remeasurement of lease liabilities. The Company’s variable lease payments include payments for finance leases that are adjusted based on a change in 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:
As of
September 30, 2019
Assets
Operating lease assets, net $ 2,734,762

Liabilities
Current
Operating $ 920,115
Non-current
Operating 1,912,804
Total Lease Liabilities $ 2,832,919
The components of lease cost were as follows:
For the Three Months
Ended September 30, 2019

Amortization of finance lease assets $ 26,330
Interest on finance lease obligation 22,918
Operating lease cost 263,577
Short term lease cost 74,110
Sub lease income (8,199 )
Total lease cost $ 378,736
Lease term and discount rate were as follows:
As of
September 30, 2019
Weighted average remaining lease term - Operating leases 3.3 Years
Weighted average discount rate - Operating leases 5.61 %
Page 22
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
Supplemental disclosures of cash flow information related to leases were as follows:
For the Three
Months Ended
September 30, 2019

Cash flows related to lease liabilities
Operating cash flows related to operating leases $ 232,268
Maturities of operating lease liabilities were as follows as of September 30, 2019:
Amount
Within year 1 $ 1,045,298
Within year 2 874,317
Within year 3 797,007
Within year 4 305,926
Within year 5 82,404
Thereafter 6,235
Total Lease Payments 3,111,187
Less: Imputed interest (278,268 )
Present Value of lease liabilities 2,832,919
Less: Current portion (920,115 )
Non-Current portion $ 1,912,804
As of June 30, 2019, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, under non-cancelable operating leases for the following five fiscal years and thereafter were as follows:
Within year 1 $ 744,549
Within year 2 514,243
Within year 3 269,375
Within year 4 197,872
Within year 5 36,044
Total $ 1,762,083
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 July 2021. All leases are considered operating leases. There are no rights to purchase the premises and no residual value guarantees. For the three months ended September 30, 2019, the Company received $8,199 of lease income.
The company entered into an agreement to acquire additional office space in London for a term of two years which will begin October 1, 2019. The Company will recognize a ROU asset of approximately $505,761, and corresponding lease liability at the inception of lease term.
Page 23
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
NOTE 13 – ~~OTHER~~ LONG TERM ~~ASSETS~~INVESTMENT

As of December 31, As of June 30,
2017 2017

Investment (1) $ 3,389,801 $ 3,057,020
Long Term Security Deposits 153,514 154,275
Total $ 3,543,315 $ 3,211,295
Drivemate

~~(1) Investment~~The Company and Drivemate Co., Ltd. (“Drivemate”) entered into a subscription agreement (“Drivemate Agreement”) whereby the Company will purchase an equity interest of 30% in ~~WRLD3D~~Drivemate. Per the Drivemate Agreement, the Company will purchase 5,469 preferred shares for $1,800,000 consisting of $500,000 cash and $1,300,000 in services. The Company paid $250,000 on May 2, 2019 and received 760 shares for a 5.27% holding in Drivemate. The remaining $250,000 will be paid in $62,500 increments beginning 15 months from the date of the Drivemate Agreement signing with the final payment due 24 months from the date of the Drivemate Agreement signing. 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 is to own 30% of Drivemate at the final payment date; therefore, the Company accounts for the investment using the equity method of accounting.
During the three months ended September 30, 2019, the Company performed $204,615 of services.
Under the equity method of accounting, the Company recorded its share of net loss of $5,392 for the three months ended September 30, 2019.
WRLD3D-Related Party

On March 2, ~~2016,~~2017, the Company purchased a 4.9% interest in WRLD3D, a non-public company, for $1,111,111. The Company paid $555,556 at the initial closing and $555,555 on September 1, ~~2016.~~2017. NetSol PK, the subsidiary of the Company, purchased a 12.2% investment in WRLD3D, for $2,777,778 which ~~will be~~was earned ~~over future periods~~ by providing IT and enterprise software solutions. Per the agreement, NetSol PK is to provide a minimum of $200,000 of services in each three-month period and the entire balance is required to be provided within three years of the date of the agreement. If NetSol PK fails to provide the future services, it may be required to forfeit the unearned shares back to WRLD3D. As of December 31, the investment earned by NetSol PK is $2,549,587.
~~Page 16~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
~~In connection with the investment, the Company and NetSol PK received a warrant to purchase preferred stock of WRLD3D which included the following key terms and features:~~
● ~~The warrants are exercisable into shares of the “Next Round Preferred”, only if and when the Next Round Preferred is issued by WRLD3D in a “Qualified Financing”.~~
● ~~The warrants expire on March 2, 2020.~~
● ~~“Next Round Preferred” is defined as occurring if WRLD3D’s preferred stock (or securities convertible into preferred stock) are issued in a Qualified Financing that occurs after March 2, 2016.~~
● ~~“Qualified Financing” is defined as financing with total proceeds of at least $2 million.~~
● ~~The total number of common stock shares to be issued is equal to $1,250,000 divided by the per share price of the Next Round Preferred.~~
● ~~The exercise price of the warrants is equal to the greater of~~
a) ~~70% of the per share price of the Next Round Preferred sold in a Qualified Financing, or~~
b) 25,000,000 divided by the total number of shares of common stock outstanding immediately prior to the Qualified Financing (on a fully-diluted basis, excluding the number of common stock shares issuable upon the exercise of any given warrant).
The Company had originally accounted for the investment under the cost method. On May 31, 2017, the Company determined that it met the significant influence criteria since the newly appointed CEO of WRLD3D is the son of the CEO, Najeeb Ghauri, and also an employee of the Company; therefore, the Company changed the accounting treatment from the cost method to the equity method.

During the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, NetSol PK provided services valued at ~~$315,408~~$82,933 and ~~$583,708, respectively. During the three and six months ended December 31, 2016, NetSol PK provided services valued at $300,963 and $549,621, respectively. This revenue~~$162,845, respectively, which is recorded as services-related party. ~~These services are recorded as accounts receivable until approved by WRLD3D after which the shares are released from restriction.~~ Accounts receivable at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~2019 were ~~$39,322~~$1,166,431 and ~~$49,646,~~$1,020,589, respectively. Revenue in excess of billing at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017~~2019 were ~~$107,562~~$48,145 and ~~$80,705,~~$110,827, respectively. During the three and six months ended December 31, 2017, NetSol PK services valued at $285,378 and $553,678, respectively, were released from restriction. During the three and six months ended December 31, 2016, NetSol PK services valued at $300,963 and $549,621, respectively, were released from restriction.
Under the equity method of accounting, the Company recorded its share of net loss of ~~$203,336~~$183,832 and ~~$270,898~~$299,691 for the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, respectively.
The following table reflects the above investments at September 30, 2019.
DriveMate WRLD3D Total
Initial investment $ 250,000 $ 3,888,889 $ 4,138,889
Cumulative net loss on investment (8,756 ) (1,284,998 ) (1,293,754 )
Cumulative other comprehensive income (loss) - (384,265 ) (384,265 )
Net investment $ 241,244 $ 2,219,626 $ 2,460,870
Page 24
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

NOTE 1214 - INTANGIBLE ASSETS

Intangible assets consisted of the following:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019

Product Licenses - Cost $ 47,244,997 $ 47,244,997 $ 47,244,997 $ 47,244,997
Effect of Translation Adjustment (4,850,984 ) (3,134,488 ) (14,558,721 ) (15,343,727 )
Accumulated Amortization (27,583,408 ) (27,067,358 ) (25,526,854 ) (24,568,320 )
Net Balance $ 14,810,605 $ 17,043,151 $ 7,159,422 $ 7,332,950

(A) Product Licenses

Product licenses include internally developed original license issues, renewals, enhancements, copyrights, trademarks, and trade names. Product licenses are amortized on a straight-line basis over their respective lives, and the unamortized amount of ~~$14,810,605~~$7,159,422 will be amortized over the next ~~5.5~~4 years. Amortization expense for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and 2018 was ~~$683,220~~$456,601 and ~~$1,373,547,~~$585,708, respectively. ~~Amortization expense for the three and six months ended December 31, 2016 was $687,571 and $1,388,237, respectively.~~
~~Page 17~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~

(B) Future Amortization

Estimated amortization expense of intangible assets over the next five years is as follows:

Year ended:
December 31, 2018 $ 2,630,334
December 31, 2019 2,630,334
December 31, 2020 2,630,334
December 31, 2021 2,630,334
December 31, 2022 2,630,334
Thereafter 1,658,935
$ 14,810,605
Year ended:
September 30, 2020 $ 1,852,626
September 30, 2021 1,852,626
September 30, 2022 1,852,626
September 30, 2023 1,601,544
$ 7,159,422

NOTE 1315 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019

Accounts Payable $ 1,639,112 $ 1,466,265 $ 1,830,934 $ 1,156,498
Accrued Liabilities 5,086,258 4,498,958 4,514,879 5,055,358
Accrued Payroll & Taxes 488,491 520,719 515,960 793,503
Taxes Payable 167,994 174,485 411,892 326,386
Other Payable 178,443 219,767 104,320 144,815
Total $ 7,560,298 $ 6,880,194 $ 7,377,985 $ 7,476,560

Page 18 25

NETSOL TECHNOLOGIES, INC.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements
~~DECEMBER 31, 2017~~September 30, 2019
~~(UNAUDITED)~~(Unaudited)

NOTE 1416 – DEBTS

Notes payable and ~~capital~~finance leases consisted of the following:

As of December 31, 2017 As of September 30, 2019
Current Long-Term Current Long-Term
Name Total Maturities Maturities Total Maturities Maturities

D&O Insurance (1) $ 105,023 $ 105,023 $ - (1) $ 15,753 $ 15,753 $ -
Bank Overdraft Facility (2) - - - (2) - - -
Loan Payable Bank - Export Refinance (3) 4,521,613 4,521,613 - (3) 3,184,714 3,184,714 -
Loan Payable Bank - Running Finance (4) 678,217 678,217 - (4) 337,580 337,580 -
Loan Payable Bank - Export Refinance II (5) 3,165,130 3,165,130 - (5) 2,420,382 2,420,382 -
Loan Payable Bank - Running Finance II (6) 1,356,484 1,356,484 - (6) 764,331 764,331 -
Related Party Loan (7) 77,148 15,686 61,462
9,826,467 9,826,467 - 6,799,908 6,738,446 61,462
Subsidiary Capital Leases (7) 557,516 306,633 250,883
Subsidiary Finance Leases (8) 790,520 358,579 431,941
$ 10,383,983 $ 10,133,100 $ 250,883 $ 7,590,428 $ 7,097,025 $ 493,403

As of June 30, 2017 As of June 30, 2019
Current Long-Term Current Long-Term
Name Total Maturities Maturities Total Maturities Maturities

D&O Insurance (1) $ 87,485 $ 87,485 $ - (1) $ 67,671 $ 67,671 $ -
Bank Overdraft Facility (2) 221,379 221,379 - (2) - - -
Loan Payable Bank - Export Refinance (3) 4,776,461 4,776,461 - (3) 3,066,355 3,066,355 -
Loan Payable Bank - Running Finance (4) 325,034 325,034 -
Loan Payable Bank - Export Refinance II (5) 1,910,585 1,910,585 - (5) 2,330,431 2,330,431 -
Loan Payable Bank - Running Finance II (6) 2,865,877 2,865,877 - (6) 735,925 735,925 -
Related Party Loan (7) 82,969 15,838 67,131
9,861,787 9,861,787 - 6,608,385 6,541,254 67,131
Subsidiary Capital Leases (7) 727,770 361,008 366,762
Subsidiary Finance Leases (8) 861,784 364,343 497,441
$ 10,589,557 $ 10,222,795 $ 366,762 $ 7,470,169 $ 6,905,597 $ 564,572

(1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance and Errors and Omissions (“E&O”) liability insurance, ~~and some account payables,~~ for which the D&O and E&O balances are renewed on an annual basis and, as such, are recorded in current maturities. The interest rate on these financings were ranging from ~~4.8%~~6.0% to ~~7.69%~~7.0% as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017.~~2019.

(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 ~~$405,405.~~$370,370. The annual interest rate was ~~4.75%~~5.12% as of ~~December 31, 2017.~~September 30, 2019. Total outstanding balance as of ~~December 31, 2017~~September 30, 2019 was £Nil. ~~Interest expense for three and six months ended December 31, 2017, was $5,991 and $8,045, respectively. Interest expense for three and six months ended December 31, 2016, was $nil.~~

This overdraft facility requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. As of ~~December 31, 2017,~~September 30, 2019, NTE was in compliance with this covenant.

(3) 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. Total facility amount is Rs. 500,000,000 or ~~$4,521,613~~$3,184,714 at ~~December 31, 2017~~September 30, 2019 and Rs. 500,000,000 or $3,066,355 at June 30, ~~2017.~~2019. The interest rate for the ~~loans~~loan was 3% at ~~December 31, 2017~~September 30, 2019 and June 30, 2017. Interest expense for the three and six months ended December 31, 2017 was $35,533 and $71,431, respectively. Interest expense for the three and six months ended December 31, 2016 was $28,527 and $57,592, respectively.2019.
Page 26
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

(4) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. Total facility amount is Rs. 75,000,000 or ~~$678,242,~~$477,707, at ~~December 31, 2017.~~September 30, 2019. NetSol PK used Rs. ~~74,997,233~~53,000,000, or ~~$678,217,~~$337,580 at ~~December 31, 2017.~~September 30, 2019. The interest rate for the ~~loans~~loan was ~~8.16%~~15.0% and 13.0% at ~~December 31, 2017.~~
~~Page 19~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~September 30, 2019 and June 30, 2019, respectively.

This facility requires NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. As of ~~December 31, 2017,~~September 30, 2019, NetSol PK was in compliance with this covenant.

(5) 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. Total facility amount is Rs. ~~350,000,000~~380,000,000 or ~~$3,165,130~~$2,420,382 and Rs. ~~200,000,000~~380,000,000 or ~~$1,910,585,~~$2,330,431 at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively. The interest rate for the ~~loans~~loan was 3% at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017. Interest expense for the three and six months ended December 31, 2017 was $17,656 and $39,778, respectively. Interest expense for three and six months ended December 31, 2016, was $nil.~~2019.

(6) The Company’s subsidiary, NetSol PK, has a running finance facility with Samba Bank Limited, secured by NetSol PK’s assets. Total facility amount is Rs. ~~150,000,000~~120,000,000 or ~~$1,356,484~~$764,331 and Rs. ~~300,000,000~~120,000,000 or ~~$2,865,877,~~$735,925, at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively. The interest rate for the ~~loans~~loan was ~~8.13%~~15.3% and 14.3% at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively. ~~Interest expense for the three and six months ended December 31, 2017 was $35,626 and $79,721, respectively. Interest expense for three and six months ended December 31, 2016, was $nil.~~

During the tenure of loan, 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 ~~December 31, 2017,~~September 30, 2019, NetSol PK was in compliance with these covenants.

~~(6)~~(7) In March 2019, the Company’s subsidiary, VLS, entered into a loan agreement. The loan amount was £69,549, or $85,863, for a period of 5 years with monthly payment of £1,349, or $1,665. As of September 30, 2019, the subsidiary has used this facility up to $77,148, of which $61,462 was shown as long-term and $15,686 as current. The interest rate was 6.14% at September 30, 2019.
(8) The Company leases various fixed assets under ~~capital~~finance lease arrangements expiring in various years through ~~2022.~~2024. The assets and liabilities under ~~capital~~finance 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~~finance leases is included in depreciation expense for the three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016.~~2018.

Following is the aggregate minimum future lease payments under ~~capital~~finance leases as of ~~December 31, 2017:~~September 30, 2019:

Amount Amount
Minimum Lease Payments
Due FYE 12/31/18 $ 336,546
Due FYE 12/31/19 220,855
Due FYE 12/31/20 36,412
Due FYE 12/31/21 5,182
Due FYE 12/31/22 -
Due FYE 9/30/20 $ 427,463
Due FYE 9/30/21 334,746
Due FYE 9/30/22 101,392
Due FYE 9/30/23 19,852
Due FYE 9/30/24 8,272
Total Minimum Lease Payments 598,995 891,725
Interest Expense relating to future periods (41,479 ) (101,205 )
Present Value of minimum lease payments 557,516 790,520
Less: Current portion (306,633 ) (358,579 )
Non-Current portion $ 250,883 $ 431,941
Page 27
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)

NOTE 1517 - STOCKHOLDERS’ EQUITY

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, the Company issued ~~26,136~~34,904 shares of common stock for services rendered by officers of the Company. These shares were valued at the fair market value of ~~$163,350.~~$195,263.

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, the Company issued ~~9,699~~11,289 shares of common stock 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 ~~$55,080.~~$65,297.

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, the Company issued ~~98,408~~14,174 shares of its common stock to employees pursuant to the terms of their employment agreements valued at ~~$605,107.~~
~~Page 20~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
~~During the six months ended December 31, 2017, the Company collected subscription receivable of $76,511 related to the exercise of stock options in previous years.~~
~~During the six months ended December 31, 2017, the Company received $138,800 pursuant to a stock option agreement for the exercise of 35,773 shares of common stock at a price of $3.88 per share.~~
~~During the six months ended December 31, 2017, the Company paid $601,020 to purchase 139,275 of shares of its common stock from the open market at an average price of $4.32 per share.~~$82,221.

NOTE 1618 - INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN

Common stock purchase options ~~and warrants~~ consisted of the following:

OPTIONS:

# of shares Weighted Ave Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregated Intrinsic Value

Outstanding and exercisable, June 30, 2016 610,133 $ 4.90 0.99 $ 799,030
Granted 79,838 $ 4.53
Exercised (84,838 ) $ 4.49
Expired / Cancelled (130,000 ) $ 7.50
Outstanding and exercisable, June 30, 2017 475,133 $ 4.20 1.05 $ 8,413
Granted - -
Exercised (35,773 ) $ 3.88
Expired / Cancelled (1,000 ) $ 16.00
Outstanding and exercisable, December 31, 2017 438,360 $ 4.20 0.57 $ 319,465
# of shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Life
(in years) Aggregated Intrinsic Value
Outstanding and exercisable, June 30, 2019 40,386 $ 6.50 0.61 $ 404
Granted - -
Exercised - -
Expired / Cancelled - -
Outstanding and exercisable, September 30, 2019 40,386 $ 6.50 0.36 $ -

The following table summarizes information about stock options ~~and warrants~~ outstanding and exercisable at ~~December 31, 2017.~~September 30, 2019.

Exercise Price Exercise Price Number Outstanding and Exercisable Weighted Average Remaining Contractual Life Weighted Ave Exercise Price Number Outstanding and Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price
OPTIONS: OPTIONS:

$ 3.88 384,898 0.49 $ 3.88
$ 6.50 53,462 1.10 $ 6.50
$6.50 40,386 0.36 $ 6.50
Totals Totals 438,360 0.57 $ 4.20 40,386 0.36 $ 6.50

Page 21 28

NETSOL TECHNOLOGIES, INC.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Condensed Consolidated Financial Statements
~~DECEMBER 31, 2017~~September 30, 2019
~~(UNAUDITED)~~(Unaudited)
The following table summarizes stock grants awarded as compensation:

# of shares Weighted Average Grant Date Fair Value ($)

Unvested, June 30, 2016 630,228 $ 6.07
Granted 222,146 $ 5.92
Forfeited / Cancelled (5,000 ) $ 5.55
Vested (427,175 ) $ 5.90
Unvested, June 30, 2017 420,199 $ 6.07
Vested (134,243 ) $ 6.13
Unvested, December 31, 2017 285,956 $ 6.18
# of shares Weighted Average Grant Date Fair Value ($)
Unvested, June 30, 2019 81,515 $ 5.88
Granted 117,895 $ 5.66
Vested (60,367 ) $ 5.68
Forfeited / Cancelled (991 ) $ 6.05
Unvested, September 30, 2019 138,052 $ 5.78

For the three ~~and six~~ months ended ~~December 31, 2017,~~September 30, 2019 and 2018, the Company recorded compensation expense of ~~$405,721~~$164,293 and ~~$833,530, respectively. For the three and six months ended December 31, 2016, the Company recorded compensation expense of $682,640 and $1,547,579,~~$432,048, respectively. The compensation expense related to the unvested stock grants as of ~~December 31, 2017~~September 30, 2018 was ~~$1,731,908~~$778,463 which will be recognized during the fiscal years ~~2018~~2020 through 2022.

NOTE ~~17 – TAXES~~
~~U.S. Tax Reform~~
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the future ongoing U.S. corporate income tax by, among other things, lowering U. S. corporate income tax rates and implementing a territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years.
There are also certain transitional impacts of the Tax Act. As part of the transition to the new territorial tax system, the Tax Act imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. As of December 31, 2017, the provisional undistributed earnings of foreign subsidiaries were $22.8 million which the Company anticipates being able to offset fully with net operating loss carry forwards. In addition, the modified territorial tax system includes a new anti-deferral provision, referred to as global intangible low taxed income (“GILTI”), which subjects certain foreign income to current U.S. tax.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries.
In December 2017, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Reform Act. Under SAB 118, companies are able to record a reasonable estimate of the impacts of the Tax Reform Act if one is able to be determined and report it as a provisional amount during the measurement period. The measurement period is not to extend beyond one year from the enactment date. Impacts of the Tax Reform Act that a company is not able to make a reasonable estimate for should not be recorded until a reasonable estimate can be made during the measurement period.
~~We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending June 30, 2018.~~
~~Page 22~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
~~NOTE 18~~19 – CONTINGENCIES

~~On April 7, 2017, Conister Bank Limited filed a complaint~~From time to time, the Company is subject to legal proceedings, claims, and litigation arising in the ~~High Court~~ordinary course of ~~Justice Chancery Division, as claim no. HC-2017-001045~~business including tax assessments. The Company defends itself vigorously against ~~our subsidiary, Virtual Lease Services Limited (“VLS”).~~any such claims. When (i) it is probable that an asset has been impaired or a liability has been incurred and (ii) the amount of the loss can be reasonably estimated, the Company records the estimated loss. The ~~complaint alleges that VLS was~~Company provides disclosure in ~~willful default of their agreements with Conister Bank Limited by failing to fulfill its obligations under~~ the ~~agreements with Conister. The complaint alleges damages in excess of £200,000 (approximately $270,270). VLS has responded~~notes to the ~~complaint~~consolidated financial statements for loss contingencies that do not meet both conditions if there is a reasonable possibility that a loss may have been incurred that would be material to the financial statements. Significant judgment is required to determine the probability that a liability has been incurred and ~~its expenses are currently covered by~~whether such liability is reasonably estimable. The Company bases accruals on the best information available ~~insurance. VLS denies all claims and intends to vigorously defend~~at the ~~action.~~time, which can be highly subjective. The final outcome of these matters could vary significantly from the amounts included in the accompanying consolidated financial statements.

NOTE 1920 – OPERATING SEGMENTS

The Company has identified three segments for its products and services; North America, Europe and Asia-Pacific. Our 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 maintenance 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.

Page 29
NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
The following table presents a summary of identifiable assets as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017:~~2019:

As of December 31, As of June 30, As of As of
2017 2017 September 30, 2019 June 30, 2019
Identifiable assets:
Corporate headquarters $ 3,308,334 $ 2,922,514 $ 3,889,608 $ 2,947,727
North America 5,513,464 6,717,366 5,797,752 5,730,928
Europe 6,590,233 6,056,514 9,260,282 8,399,033
Asia - Pacific 89,125,306 83,980,936 69,431,740 70,419,331
Consolidated $ 104,537,337 $ 99,677,330 $ 88,379,382 $ 87,497,019

The following table presents a summary of investment under equity method as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017:~~2019:

As of December 31, As of June 30,
2017 2017
Investment in WRLD3D:
Corporate headquarters $ 1,033,486 $ 1,111,111
Asia - Pacific 2,356,315 1,945,909
Consolidated $ 3,389,801 $ 3,057,020
~~Page 23~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
As of As of
September 30, 2019 June 30, 2019
Investment in associates under equity method:
Corporate headquarters $ 630,186 $ 686,504
Asia - Pacific 1,830,684 1,967,265
Consolidated $ 2,460,870 $ 2,653,769

The following table presents a summary of operating information for the three ~~and six~~ months ended ~~December 31:~~September 30:
For the Three Months
Ended September 30,
2019 2018
Revenues from unaffiliated customers:
North America $ 977,175 $ 843,085
Europe 2,592,339 1,919,934
Asia - Pacific 9,919,969 13,403,395
13,489,483 16,166,414
Revenue from affiliated customers
Asia - Pacific 82,933 230,131
82,933 230,131
Consolidated $ 13,572,416 $ 16,396,545

Intercompany revenue
Europe $ 146,825 $ 138,653
Asia - Pacific 1,064,766 3,192,386
Eliminated $ 1,211,591 $ 3,331,039

Net income (loss) after taxes and before non-controlling interest:
Corporate headquarters $ (864,210 ) $ (1,218,387 )
North America (57,987 ) (178,630 )
Europe 381,094 174,088
Asia - Pacific (1,720,156 ) 2,504,064
Consolidated $ (2,261,259 ) $ 1,281,135

For the Three Months For the Six Months
Ended December 31, Ended December 31,
2017 2016 2017 2016
Restated Restated
Revenues from unaffiliated customers:
North America $ 1,287,638 $ 1,513,997 $ 2,135,710 $ 3,355,428
Europe 1,661,213 1,298,037 3,109,037 1,888,578
Asia - Pacific 10,258,128 11,530,506 18,464,352 23,267,335
13,206,979 14,342,540 23,709,099 28,511,341
Revenue from affiliated customers
Europe 442,699 115,102 1,043,891 1,467,295
Asia - Pacific 796,757 1,401,144 2,512,221 2,956,619
1,239,456 1,516,246 3,556,112 4,423,914
Consolidated $ 14,446,435 $ 15,858,786 $ 27,265,211 $ 32,935,255

Intercompany revenue
Europe $ 139,228 $ 95,053 $ 241,703 $ 231,180
Asia - Pacific 768,431 1,462,603 1,145,368 1,922,554
Eliminated $ 907,659 $ 1,557,656 $ 1,387,071 $ 2,153,734

Net income (loss) after taxes and before non-controlling interest:
Corporate headquarters $ (1,258,717 ) $ (1,190,559 ) $ (2,296,641 ) $ (2,179,432 )
North America 65,194 (71,134 ) (230,452 ) (266,817 )
Europe 180,655 (698,364 ) 280,045 (1,293,771 )
Asia - Pacific 2,674,870 583,327 3,727,785 2,746,393
Consolidated $ 1,662,002 $ (1,376,730 ) $ 1,480,737 $ (993,627 )
Page 30

NETSOL TECHNOLOGIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2019
(Unaudited)
The following table presents a summary of capital expenditures for the ~~six~~three months ended ~~December 31:~~September 30:

For the Six Months
Ended December 31,
2017 2016
Capital expenditures:
North America $ - $ 41,275
Europe 123,335 273,794
Asia - Pacific 419,788 759,247
Consolidated $ 543,123 $ 1,074,316
~~Page 24~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
For the Three Months
Ended September 30,
2019 2018
Capital expenditures:
North America $ - $ -
Europe 31,852 98,444
Asia - Pacific 289,273 464,969
Consolidated $ 321,125 $ 563,413

NOTE 2021 – 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
December 31, 2017 Non-Controlling Interest %
Non-Controlling Interest at
September 30, 2019

NetSol PK 33.83 % $ 12,386,620 33.88 % $ 7,206,652
NetSol-Innovation 49.90 % 1,749,551 49.90 % 1,399,134
VLS, VLSH & VLSIL Combined 49.00 % 407,132
NetSol Thai 0.006 % (79 ) 0.006 % (37 )
Total $ 14,543,224 $ 8,605,749

SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at
June 30, 2017 Non-Controlling Interest %
Non-Controlling Interest at
June 30, 2019

NetSol PK 33.80 % $ 12,887,938 33.80 % $ 6,993,491
NetSol-Innovation 49.90 % 1,599,734 49.90 % 1,421,528
VLS, VLHS & VLSIL Combined 49.00 % 311,502
NetSol Thai 0.006 % (92 ) 0.006 % (32 )
Total $ 14,799,082 $ 8,414,987

NetSol PK

During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, employees of NetSol PK exercised ~~50,000 of~~114,000 options of common stock ~~pursuant to employees exercising stock options~~ and NetSol PK received cash of ~~$7,755 resulting in an increase in~~$11,261. Due to the exercise of options, the non-controlling interest increased from 33.80% to ~~33.83%~~33.88%.
~~During the six months ended December 31, 2017, NetSol PK paid a cash dividend of $1,234,991.~~
~~NOTE 21 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS~~
During the preparation of the Company’s Form 10-Q for the nine months ended March 31, 2017, misstatements were identified in the previous financial statements relating to the recording of revenue in the proper period. The restated financial statements for the periods affected were disclosed in Note 19 of the Notes to Condensed Consolidated Financial Statement contained in the Company’s Form 10-Q for the nine months ended March 31, 2017.
On December 21, 2015, the Company signed a 10-year contract for a 12-country installation of its NFS Ascent product which included a perpetual license, continued maintenance on the existing product and then maintenance on NFS Ascent upon installation. The Company did not appropriately apply the percentage-of-completion method for this arrangement in accordance with ASC 605-35. As a result, for quarter ended September 30, 2016, license revenue was understated by $1,953,935 and for the quarter ended December 31, 2016, license revenue was overstated by $1,580,529.
The Company charges maintenance revenue on the license value plus any additional customization that the customer may require. For one customer, the Company did not increase the maintenance fee for the additional customization that was performed during the year. This resulted in an understatement of maintenance revenue of $120,976 for the quarter ended September 30, 2016 and an overstatement of maintenance revenue of $198,797 for the quarter ended December 31, 2016.
~~The following tables present the restated financial statements for the three and six months ended December 31, 2016.~~

Page 25 31
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
Balance Sheet
As of December 31, 2016
As Originally Amount of
Presented Restatement As Restated
ASSETS
Current assets:
Cash and cash equivalents $ 9,505,383 $ 9,505,383
Accounts receivable, net of allowance of $495,760 and $492,498 5,840,490 5,840,490
Accounts receivable, net - related party 4,303,380 4,303,380
Revenues in excess of billings 17,646,488 373,406 18,019,894
Revenues in excess of billings - related party 469,030 469,030
Other current assets 2,904,650 2,904,650
Total current assets 40,669,421 373,406 41,042,827
Restricted cash 90,000 90,000
Property and equipment, net 21,873,277 21,873,277
Other assets 2,054,938 2,054,938
Intangible assets, net 18,423,439 18,423,439
Goodwill 9,516,568 9,516,568
Total assets $ 92,627,643 $ 373,406 $ 93,001,049

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,373,097 $ 7,373,097
Current portion of loans and obligations under capitalized leases 4,368,930 4,368,930
Unearned revenues 2,806,804 77,821 2,884,625
Common stock to be issued 88,324 88,324
Total current liabilities 14,637,155 77,821 14,714,976
Long term loans and obligations under capitalized leases; less current maturities 501,554 501,554
Total liabilities 15,138,709 77,821 15,216,530
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized; - - -
Common stock, $.01 par value; 14,500,000 shares authorized;
10,993,054 shares issued and 10,958,275 outstanding as of December 31, 2016 and 10,713,372 shares issued and 10,686,093 outstanding as of June 30, 2016 109,931 109,931
Additional paid-in-capital 123,019,215 123,019,215
Treasury stock (34,779 shares and 27,279 shares) (454,310 ) (454,310 )
Accumulated deficit (40,074,755 ) 196,890 (39,877,865 )
Stock subscription receivable (450,220 ) (450,220 )
Other comprehensive loss (18,628,395 ) (18,628,395 )
Total NetSol stockholders’ equity 63,521,466 196,890 63,718,356
Non-controlling interest 13,967,468 98,695 14,066,163
Total stockholders’ equity 77,488,934 295,585 77,784,519
Total liabilities and stockholders’ equity $ 92,627,643 $ 373,406 $ 93,001,049
~~Page 26~~

~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
For the Three Months For the Six Months
Ended December 31, 2016 Ended December 31, 2016
As Originally Amount of As Originally Amount of
Presented Restatement As Restated Presented Restatement As Restated
Net Revenues:
License fees $ 5,350,086 $ (1,580,529 ) $ 3,769,557 $ 8,849,946 $ 373,406 $ 9,223,352
Maintenance fees 3,787,696 (198,797 ) 3,588,899 7,190,517 (77,821 ) 7,112,696
Services 6,984,084 6,984,084 12,790,801 12,790,801
License fees - related party - - 246,957 246,957
Maintenance fees - related party 51,345 51,345 181,976 181,976
Services - related party 1,464,901 1,464,901 3,379,473 3,379,473
Total net revenues 17,638,112 (1,779,326 ) 15,858,786 32,639,670 295,585 32,935,255

Cost of revenues:
Salaries and consultants 5,979,804 5,979,804 11,873,153 11,873,153
Travel 836,240 836,240 1,548,135 1,548,135
Depreciation and amortization 1,318,764 1,318,764 2,649,636 2,649,636
Other 1,065,727 1,065,727 2,038,065 2,038,065
Total cost of revenues 9,200,535 - 9,200,535 18,108,989 - 18,108,989

Gross profit 8,437,577 (1,779,326 ) 6,658,251 14,530,681 295,585 14,826,266

Operating expenses: ��
Selling and marketing 2,713,478 2,713,478 5,057,516 5,057,516
Depreciation and amortization 271,485 271,485 540,582 540,582
General and administrative 3,933,413 3,933,413 8,552,609 8,552,609
Research and development cost 91,607 91,607 184,539 184,539
Total operating expenses 7,009,983 - 7,009,983 14,335,246 - 14,335,246

Income (loss) from operations 1,427,594 (1,779,326 ) (351,732 ) 195,435 295,585 491,020

Other income and (expenses)
Loss on sale of assets (32,339 ) (32,339 ) (34,742 ) (34,742 )
Interest expense (62,127 ) (62,127 ) (116,602 ) (116,602 )
Interest income 23,416 23,416 53,856 53,856
Loss on foreign currency exchange transactions (621,887 ) (621,887 ) (1,036,783 ) (1,036,783 )
Other income 6,823 6,823 28,383 28,383
Total other income (expenses) (686,114 ) - (686,114 ) (1,105,888 ) - (1,105,888 )

Net income (loss) before income taxes 741,480 (1,779,326 ) (1,037,846 ) (910,453 ) 295,585 (614,868 )
Income tax provision (338,884 ) (338,884 ) (378,759 ) (378,759 )
Net income (loss) from continuing operations 402,596 (1,779,326 ) (1,376,730 ) (1,289,212 ) 295,585 (993,627 )
Non-controlling interest (1,388,272 ) 596,608 (791,664 ) (1,462,183 ) (98,695 ) (1,560,878 )
Net income (loss) attributable to NetSol $ (985,676 ) $ (1,182,718 ) $ (2,168,394 ) $ (2,751,395 ) $ 196,890 $ (2,554,505 )

Net income (loss) per share:

Net income (loss) per common share
Basic $ (0.09 ) $ (0.11 ) $ (0.20 ) $ (0.26 ) $ 0.03 $ (0.24 )
Diluted $ (0.09 ) $ (0.11 ) $ (0.20 ) $ (0.26 ) $ 0.03 $ (0.24 )

Weighted average number of shares outstanding
Basic 10,877,446 10,877,446 10,877,446 10,783,685 10,783,685 10,783,685
Diluted 10,877,446 10,877,446 10,877,446 10,783,685 10,783,685 10,783,685
~~Page 27~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
For the Three Months
Ended December 31, 2016
As Originally Amount of
Presented Restatement As Restated
Net income (loss) $ (985,676 ) $ (1,182,718 ) $ (2,168,394 )
Other comprehensive income (loss):
Translation adjustment (944,837 ) - (944,837 )
Comprehensive income (loss) (1,930,513 ) (1,182,718 ) (3,113,231 )
Comprehensive income (loss) attributable to non-controlling interest (276,575 ) - (276,575 )
Comprehensive income (loss) attributable to NetSol $ (1,653,938 ) $ (1,182,718 ) $ (2,836,656 )
For the Six Months
Ended December 31, 2016
As Originally Amount of
Presented Restatement As Restated
Net income (loss) $ (2,751,395 ) $ 262,469 $ (2,488,926 )
Other comprehensive income (loss):
Translation adjustment 149,237 - 149,237
Comprehensive income (loss) (2,602,158 ) 262,469 (2,339,689 )
Comprehensive income (loss) attributable to non-controlling interest 47,138 - 47,138
Comprehensive income (loss) attributable to NetSol $ (2,649,296 ) $ 262,469 $ (2,386,827 )
~~Page 28~~
~~NETSOL TECHNOLOGIES, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~DECEMBER 31, 2017~~
~~(UNAUDITED)~~
For the Six Months
Ended December 31, 2016
As Originally Amount of
Presented Restatement As Restated
Cash flows from operating activities:
Net income (loss) $ (1,289,212 ) $ 295,585 $ (993,627 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 3,190,218 3,190,218
Provision for bad debts 1,026 1,026
Loss on sale of assets 34,742 34,742
Stock issued for services 1,525,775 1,525,775
Fair market value of warrants and stock options granted 21,804 21,804
Changes in operating assets and liabilities:
Accounts receivable 3,678,110 3,678,110
Accounts receivable - related party 829,285 829,285
Revenues in excess of billing (7,219,089 ) (373,406 ) (7,592,495 )
Revenues in excess of billing - related party 285,791 285,791
Other current assets 585,147 585,147
Accounts payable and accrued expenses 334,241 334,241
Unearned revenue (1,908,440 ) 77,821 (1,830,619 )
Net cash used in operating activities 69,398 - 69,398

Cash flows from investing activities:
Purchases of property and equipment (1,074,316 ) (1,074,316 )
Sales of property and equipment 181,087 181,087
Purchase of treasury stock (38,885 ) (38,885 )
Investment (705,555 ) (705,555 )
Net cash used in investing activities (1,637,669 ) - (1,637,669 )

Cash flows from financing activities:
Proceeds from the exercise of stock options and warrants 429,452 429,452
Proceeds from exercise of subsidiary options 18,089 18,089
Dividend paid by subsidiary to Non controlling interest (968,657 ) (968,657 )
Payments on capital lease obligations and loans - net (69,998 ) (69,998 )
Net cash provided by financing activities (591,114 ) - (591,114 )
Effect of exchange rate changes 107,241 107,241
Net decrease in cash and cash equivalents (2,052,144 ) - (2,052,144 )
Cash and cash equivalents, beginning of the period 11,557,527 11,557,527
Cash and cash equivalents, end of period $ 9,505,383 $ - $ 9,505,383
~~Page 29~~
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in an understanding of the Company’s financial position and results of operations for the three ~~and six~~ months ended ~~December 31, 2017.~~September 30, 2019. The following discussion should be read in conjunction with the information included within our Annual Report on Form 10-K for the year ended June 30, ~~2017,~~2019, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Our website is located atwww.netsoltech.com, and our investor relations website is located athttp://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 atwww.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 Quarterly Report on Form 10-Q 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 and on social media platforms linked to our corporate 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 information, including our committee charters and code of conduct, is also available on our investor relations website athttp://netsoltech.com/about-us. The content of our websites is not intended to be incorporated by reference into this 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.

Forward-Looking Information

This report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of its management as well as assumptions made by and information currently available to its management. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, and similar expressions as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The Company’s realization of its business aims could be materially and adversely affected by any technical or other problems in, or difficulties with, planned funding and technologies, third party technologies which render the Company’s technologies obsolete, the unavailability of required third party technology licenses on commercially reasonable terms, the loss of key research and development personnel, the inability or failure to recruit and retain qualified research and development personnel, or the adoption of technology standards which are different from technologies around which the Company’s business ultimately is built. The Company does not intend to update these forward-looking statements.

Business Overview

NetSol Technologies, Inc. (NasdaqCM: NTWK) is a worldwide provider of IT and enterprise software solutions. 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.

The Company’s primary source of revenue is the licensing, customization, enhancement and maintenance of its suite of financial applications under the brand name NFS™ (NetSol Financial Suite) and NFS Ascent^TM for leading businesses in the global lease and finance industry.

NetSol’s clients include Dow-Jones 30 Industrials and Fortune 500 manufacturers and financial institutions, global vehicle manufacturers, and enterprise technology providers, all of which are serviced by NetSol delivery locations around the globe.

Page 32
Founded in 1997, NetSol is headquartered in Calabasas, California. While the Company follows a global strategy for sales and delivery of its portfolio of solutions and services, it continues to maintain regional offices in the following locations:

● North America Los Angeles Area
● Europe London Metropolitan area
● Asia Pacific Lahore, Karachi, Bangkok, Beijing, Shanghai, Jakarta and Sydney

NetSol’s offerings include its flagship global solution, NFS™. A robust suite of ~~five~~four software applications itthat is an end-to-end solution for the ~~lease and~~asset finance industry covering the complete leasing and ~~financing~~finance cycle starting from quotation origination through end of contract ~~transactions.~~transactions and including digital channel support with intuitive mobile applications. The ~~five software~~four applications under NFS™ have been designed and developed for a highly flexible setting and are capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and multi-manufacturer environments. Each application is a complete system in itself and can be used independently to address specific sub-domains of the leasing/financing cycle. When used together, they fully automate the entire leasing/financing cycle for companies of any size, ~~company,~~ including those with multi-billion-dollar portfolios.
~~Page 30~~

NFS Ascent™

NFS Ascent™ is, the Company’s ~~next-generation~~next generation platform, ~~offering~~offers a technologically advanced solution for the auto and equipment finance and leasing industry. NFS Ascent’s™ architecture and user interfaces were designed based on the Company’s collective experience with global Fortune 500 companies over the past ~~30 years.~~40 years combined with 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 ~~multibillion dollar~~multi-billion-dollar lease portfolios ~~under~~in compliance with various ~~generally accepted accounting principles (GAAP), as well as international financial reporting standards (IFRS).~~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. NFS Ascent™ 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. Pricing models for NFS Ascent are also available on a subscription-based pricing as an alternative to the traditional license model. Subscription-based pricing is being offered on a monthly, quarterly or annual basis and decreases the cost of the initial buy-in for new customers while providing an alternative to current customers seeking lower software usage and maintenance costs.

NFS Digital

~~NetSol launched~~ NFS ~~digital in 2014. It~~Digital enables a sales force for ~~the~~a finance and leasing company ~~across~~to access different channels ~~such as~~like point of sale, field investigation and auditing ~~and allows~~as well as allowing end customers to access their contract details through a self-service mobile application. ~~NFS digital includes mAccount, mPOS, mDealer, mAuditor, and Mobile Field Investigator (mFI).~~

LeasePak

In North America, NTA has and continues to develop the LeasePak CMS ~~product.~~product which is now tailored to be an offering on the Microsoft Azure™ cloud. LeasePak streamlines the lease and loan management lifecycle, enabling superior ~~lease and loan~~ portfolio management, flexible financial products (lease or loan terms) and sophisticated financial analysis and management to ~~reducing~~reduce operating costs, simplify accounting and improve profits. It is scalable from a basic offering to a collection of highly specialized add on modules for systems, portfolios and ~~accrual~~accounting methods for virtually all sizes and ~~varying~~ complexity of operations. It is ~~part~~the centerpiece of ~~the~~ vehicle leasing infrastructure at leading Fortune 500 banks and ~~manufacturers,~~Automotive Captives, as well as for some of the industry’s leading independent lessors. It handles every aspect of the lease or loan lifecycle, including credit application origination, credit adjudication, pricing, documentation, booking, payments, customer service, collections, midterm adjustments, and end-of-term options for asset disposition and ~~asset disposition. It is also integrated with important partners in the asset-finance ecosystem, such as Vertex Series O.~~remarketing.

LeasePak-SaaS

NTA also offers the LeasePak Software-as-a-Service (“SaaS”) business line, which provides high performance with a reduced total cost of ownership. SaaS offers a proven deployment option whereby customers only require access to the internet to use the software. With an elastic cloud price, revenue stream predictability and improved return on investment for customers, management believes that its SaaS customers will experience the performance, the reliability and the speed usually associated with a highly scalable private cloud. LeasePak-SaaS targets small and mid-sized leasing and finance companies.

Page 33
LeaseSoft

In addition to offering NFS Ascent™ to the European market, NTE has some regional offerings, including LeaseSoft and LoanSoft. LeaseSoft is a full lifecycle lease and finance system aimed predominantly at the UK funder market, including modules to support web portals and an electronic data interchange manager to facilitate integration between funders and introducers. LoanSoft is similar to LeaseSoft, but optimized for the consumer loan market.

Highlights

Listed below are a few of NetSol’s ~~major successes achieved in~~highlights for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2019:

● We ~~amended the 12 countyNFS~~Ascent™ contract securing €7.7 million Euros (approximately $9.3 million) in future revenues in addition to what was previously projected from the customer. The revenue will be recognized over the contract term as the support services are performed.
● ~~Pursuant to the 12 countryNFSAscent™ contract, we successfully implemented the Loan Origination System and the Wholesale Financial System in Thailand and Korea, respectively.~~
● ~~Pursuant to the 12 countryNFSAscent™ contract, we delivered the first major release of~~went live with our NFS Ascent™ toretail platform for a major American auto captive in China.
~~Page 31~~
● ~~An increase in software modification requests from some~~ The deployment covers the complete Ascent retail platform including its Omni-Point of ~~our existing customers spread across the various regions contributed reasonably to the revenues for the quarter. A trend which is believed will be continued in the following quarters.~~Sale and Contract Management System.
● We ~~signed a chargeable proof of concept agreement with one of the oldest and largest banks in Australia. The proof of concept project will add to our revenues and assist us in making further~~made substantial progress in ~~the selection process~~its cloud enabled Wholesale implementation for ~~our NFS Ascent™ product.~~a UK based leading auction house.
● ~~Mizhou Balimore, a Japanese bank in Indonesia, went live with the first phase of its NFS Ascent™ digital solution.~~We generated close to $1 million by successfully implementing change requests from various customers across multiple region.
● Our ~~existing customer, an~~innovation lab initiates multiple engagements with the customers in a bid to generate healthy sales pipeline for the organization.
● An auto captive finance company of a leading ~~bank~~German auto manufacturer in Indonesia, kicked off its leasing project. We believe that this is likely to help increase revenues in the following quarters of the current fiscal year. This kick off has further strengthened our relationship with this Indonesian business partner paving the way for further success in the market. Additionally, all the branches of the same business partnerChina successfully went live with the NFS Ascent™ ~~during the first quarter of the current fiscal year culminating into a maturing and long-standing delivery commitment.~~wholesale platform.
● ~~NFS Ascent™ and Ascent Digital continue~~NTE successfully agreed on a new statement of work related to their legacy solution with one of its notable customers which would help generate interest across all major regions and industries as some significant new prospects have come through the pipeline, further strengthening projections and forecasts. Revenue could also be boosted as customization requests grow in addition to new business volume.over $250,000.

Our success, in the near term, will depend, in large part, on the Company’s ability to continue to grow revenues and improve profits, adequately capitalize for growth in various markets and verticals, make progress in the North American and European markets and, continue to streamline sales and marketing efforts in every market we operate. However, management’s outlook for the continuing operations, which has been consolidated and has been streamlined, remains optimistic.

Management has identified the following material trends affecting NetSol.

Positive trends:

● ~~Improving U.S. economy generally, and particularly auto and banking markets.~~
● ~~According to Automotive World December 2017 publication,global demand for light weight trucks is expected to reach an all-time high in 2018.~~
● ~~Total industry sales of more than 20 million vehicles annually by 2018, according to John Murphy, an analyst for Bank of America Merrill Lynch annual industry outlook.~~
● ~~Robust Chinese markets as asset based leasing and finance sector are far from maturity levels.~~
● Latin American markets, primarily in Mexico, remain largely untapped.
● Greater stability in US and Pakistan ~~economy growth~~relations as both countries explore trade relations and continued strategic ally in gross domestic product reached 4.7% in 2016, according to the Pakistan Bureau of Statistics; and improved credit ratings by Bloomberg, S&P, Moody’s and Forbes Pakistan security and geopolitical environment has improved.Afghanistan. (NPR, July 23, 2019)
● China investment or CPEC (China Pakistan Economic Corridor) has exceeded ~~$50~~$62 billion from ~~originally~~an original commitment of $46 billion in Pakistan on energy and infrastructure projects.
● New emerging markets and IT destinations in Thailand, Malaysia, Indonesia, ~~China~~Africa and Australia.
● Continued interest from Fortune 500 multinational auto captives and global companies in ~~NetSol~~NETSOL Ascent™.
● ~~Continuing~~Growing interest and engagements by tier 1 existing clients for OTOZ™ platform and NetSol innovative tools in development stages.
● Growing interest from existing clients in the NFS™ legacy systems in emerging and developing markets.
● Growing demand and traction for upgrading to NFS Ascent™ by existing tier one auto captive clients.
● ~~Increased visits to NetSol PK by senior executives of existing clients and potential new customers.~~Growing interest in the NFS Ascent™ SaaS offering.

Negative trends:

● ~~Continued Global terrorism~~Regional tensions in Afghanistan and ~~extremism threats~~uncertainty caused in ~~European countries.~~neighboring Kashmir and Indian territories.
● China – US Trade war could have negative ancillary effect on automobile lease industry.
● Geopolitical unrest in the Middle East, South East Asia and potential terrorism and the disruption risk it creates.
● ~~Restricted liquidity~~General global market worries of recession and ~~financial burden~~uncertainty due to ~~tighter internal processes~~Brexit in Europe (delayed until January 31, 2020) and ~~limited budgets might cause delays in the receivables from some clients.~~US China trade war.
● The threats of conflict between in the Middle Eastern countries could potentially create volatility in oil prices, causing readjustments of corporate budgets and consumer spending slowing global auto sales.
● Recent growing tensions between Pakistan and India.

Page 32 34

CHANGES IN FINANCIAL CONDITION

Quarter Ended ~~December 31, 2017 compared~~September 30, 2019 Compared to ~~December 31, 2016~~the Quarter Ended September 30, 2018

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the quarter ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018 as a percentage of revenues.

For the Three Months
Ended December 31,
2017 %
2016
Restated
%
Net Revenues:
License fees $ 235,932 1.63 % $ 3,769,557 23.77 %
Maintenance fees 3,568,448 24.70 % 3,588,899 22.63 %
Services 9,087,191 62.90 % 6,619,158 41.74 %
License fees - related party 217,105 1.50 % - 0.00 %
Maintenance fees - related party 101,251 0.70 % 51,345 0.32 %
Services - related party 1,236,508 8.56 % 1,829,827 11.54 %
Total net revenues 14,446,435 100.00 % 15,858,786 100.00 %

Cost of revenues:
Salaries and consultants 5,362,092 37.12 % 5,979,804 37.71 %
Travel 287,901 1.99 % 836,240 5.27 %
Depreciation and amortization 1,168,103 8.09 % 1,318,764 8.32 %
Other 939,986 6.51 % 1,065,727 6.72 %
Total cost of revenues 7,758,082 53.70 % 9,200,535 58.02 %

Gross profit 6,688,353 46.30 % 6,658,251 41.98 %
Operating expenses:
Selling and marketing 1,932,140 13.37 % 2,713,478 17.11 %
Depreciation and amortization 222,785 1.54 % 271,485 1.71 %
Provision for bad debts - 0.00 % 1,026 0.01 %
General and administrative 4,026,706 27.87 % 3,932,387 24.80 %
Research and development cost 189,891 1.31 % 91,607 0.58 %
Total operating expenses 6,371,522 44.10 % 7,009,983 44.20 %

Income (loss) from operations 316,831 2.19 % (351,732 ) -2.22 %
Other income and (expenses)
Loss on sale of assets (8,939 ) -0.06 % (32,339 ) -0.20 %
Interest expense (109,675 ) -0.76 % (62,127 ) -0.39 %
Interest income 115,570 0.80 % 23,416 0.15 %
Gain (loss) on foreign currency exchange transactions 1,737,967 12.03 % (621,887 ) -3.92 %
Share of net loss from equity investment (203,336 ) -1.41 % - 0.00 %
Other income 14,511 0.10 % 6,823 0.04 %
Total other income (expenses) 1,546,098 10.70 % (686,114 ) -4.33 %

Net income (loss) before income taxes 1,862,929 12.90 % (1,037,846 ) -6.54 %
Income tax provision (200,927 ) -1.39 % (338,884 ) -2.14 %
Net income (loss) 1,662,002 11.50 % (1,376,730 ) -8.68 %
Non-controlling interest (1,027,581 ) -7.11 % (791,664 ) -4.99 %
Net income (loss) attributable to NetSol $ 634,421 4.39 % $ (2,168,394 ) -13.67 %
For the Three Months
Ended September 30,
2019 % 2018 %
Net Revenues:
License fees $ 2,679,145 19.7 % $ 5,956,113 36.3 %
Maintenance fees 4,391,447 32.4 % 3,739,676 22.8 %
Services 6,418,891 47.3 % 6,470,625 39.5 %
Services - related party 82,933 0.6 % 230,131 1.4 %
Total net revenues 13,572,416 100.0 % 16,396,545 100.0 %

Cost of revenues:
Salaries and consultants 4,454,964 32.8 % 5,020,562 30.6 %
Travel 1,342,635 9.9 % 1,151,997 7.0 %
Depreciation and amortization 719,665 5.3 % 937,604 5.7 %
Other 944,524 7.0 % 1,048,324 6.4 %
Total cost of revenues 7,461,788 55.0 % 8,158,487 49.8 %

Gross profit 6,110,628 45.0 % 8,238,058 50.2 %
Operating expenses:
Selling and marketing 1,743,868 12.8 % 1,701,326 10.4 %
Depreciation and amortization 202,387 1.5 % 212,232 1.3 %
General and administrative 3,918,613 28.9 % 4,406,720 26.9 %
Research and development cost 672,970 5.0 % 318,155 1.9 %
Total operating expenses 6,537,838 48.2 % 6,638,433 40.5 %

Income (loss) from operations (427,210 ) -3.1 % 1,599,625 9.8 %
Other income and (expenses)
Gain (loss) on sale of assets (289 ) 0.0 % 52,294 0.3 %
Interest expense (63,663 ) -0.5 % (99,434 ) -0.6 %
Interest income 399,229 2.9 % 248,964 1.5 %
Gain (loss) on foreign currency exchange transactions (1,760,190 ) -13.0 % 10,912 0.1 %
Share of net loss from equity investment (189,224 ) -1.4 % (299,691 ) -1.8 %
Other income 18,326 0.1 % 5,379 0.0 %
Total other income (expenses) (1,595,811 ) -11.8 % (81,576 ) -0.5 %

Net income (loss) before  income taxes (2,023,021 ) -14.9 % 1,518,049 9.3 %
Income tax provision (238,238 ) -1.8 % (236,914 ) -1.4 %
Net income (2,261,259 ) -16.7 % 1,281,135 7.8 %
Non-controlling interest 433,312 3.2 % (318,546 ) -1.9 %
Net income (loss) attributable to NetSol $ (1,827,947 ) -13.5 % $ 962,589 5.9 %

Page 33 35

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 1920 “Operating Segments” within the Notes to the Condensed 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.

Favorable Favorable Total Favorable Favorable Total
For the Three Months (Unfavorable) (Unfavorable) Favorable (Unfavorable) (Unfavorable) Favorable
Ended December 31, Change in Change due to (Unfavorable) For the Three Months Change in Change due (Unfavorable)
2016 Constant Currency Change as Ended September 30, Constant to Currency Change as
2017 % Restated % Currency Fluctuation Reported 2019 % 2018 % Currency Fluctuation Reported

Net Revenues: 14,446,435 100.00 % 15,858,786 100.00 % (1,506,082 ) 93,731 (1,412,351 ) $ 13,572,416 100.0 % $ 16,396,545 100.0 % $ (312,062 ) $ (2,512,067 ) $ (2,824,129 )

Cost of revenues: 7,758,082 53.70 % 9,200,535 58.02 % 1,473,242 (30,789 ) 1,442,453 7,461,788 55.0 % 8,158,487 49.8 % (823,722 ) 1,520,421 696,699

Gross profit 6,688,353 46.30 % 6,658,251 41.98 % (32,840 ) 62,942 30,102 6,110,628 45.0 % 8,238,058 50.2 % (1,135,784 ) (991,646 ) (2,127,430 )

Operating expenses: 6,371,522 44.10 % 7,009,983 44.20 % 730,914 (92,453 ) 638,461 6,537,838 48.2 % 6,638,433 40.5 % (736,616 ) 837,211 100,595

Income (loss) from operations 316,831 2.19 % (351,732 ) -2.22 % 698,074 (29,511 ) 668,563 $ (427,210 ) -3.1 % $ 1,599,625 9.8 % $ (1,872,400 ) $ (154,435 ) $ (2,026,835 )

Net revenues for the quarter ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018 are broken out among the segments as follows:

2019 2018
2017 2016 Revenue % Revenue %
Revenue % Revenue
Restated %
North America $ 1,287,638 8.91 % $ 1,513,997 9.55 % 977,175 7.2 % 843,085 5.1 %
Europe 2,103,912 14.56 % 1,413,139 8.91 % 2,592,339 19.1 % 1,919,934 11.7 %
Asia-Pacific 11,054,885 76.52 % 12,931,650 81.54 % 10,002,902 73.7 % 13,633,526 83.1 %
Total $ 14,446,435 100.00 % $ 15,858,786 100.00 % $ 13,572,416 100.0 % $ 16,396,545 100.0 %

Revenues

License fees

License fees for the three months ended ~~December 31, 2017~~September 30, 2019 were ~~$235,932~~$2,679,145 compared to ~~$3,769,557~~$5,956,113 for the three months ended ~~December 31, 2016~~September 30, 2018 reflecting a decrease of ~~$3,533,625~~$3,276,968 with a change in constant currency of ~~$3,556,109. The decrease in license revenue for~~$2,591,693. During the ~~fiscal~~ three months ended ~~December 31, 2017 compared to 2016 is primarily due~~September 30, 2019, we recognized approximately $2,455,000 related to the ~~decrease of license revenue recognized for the 12 country NFS Ascent™~~DFS contract. During the ~~current quarter,~~three months ended September 30, 2018, we ~~had license revenues through sales of~~recognized approximately $769,000 related to the DFS contract and approximately $4,850,000 related to the five-year contract that was signed with a tier-one auto captive finance company to implement our ~~regional offerings~~NFS Ascent platform in ~~the U.S. and the U.K.~~China.

Page 34 36
~~License fees – related party~~
License fees from related party for the three months ended December 31, 2017 were $217,105 compared to $Nil for the three months ended December 31, 2016 reflecting an increase of $217,105 with a change in constant currency of $210,400.

Maintenance fees

Maintenance fees for the three months ended ~~December 31, 2017~~September 30, 2019 were ~~$3,568,448~~$4,391,447 compared to ~~$3,588,899~~$3,739,676 for the three months ended ~~December 31, 2016~~September 30, 2018 reflecting ~~a decrease~~an increase of ~~$20,451~~$651,771 with a change in constant currency of ~~$51,595.~~$1,372,374. Maintenance fees begin once a customer has “gone live” with our product. ~~The decrease was due to some customers not renewing their maintenance agreements.~~ We anticipate maintenance fees to gradually increase as we implement both our NFS legacy product and NFS Ascent™.

~~Maintenance fees – related party~~
Maintenance fees from related party for the three months ended December 31, 2017 were $101,251 compared to $51,345 for the three months ended December 31, 2016 reflecting an increase of $49,906 with a change in constant currency of $44,670. The decrease was due to the fluctuation in usage of active users.
Services

Services income for the three months ended ~~December 31, 2017~~September 30, 2019 was ~~$9,087,191~~$6,418,891 compared to ~~$6,619,158~~$6,470,625 for the three months ended ~~December 31, 2016~~September 30, 2018 reflecting a slight decrease of $51,734 with an increase ~~of $2,468,033 with a change~~ in constant currency of ~~$2,451,053.~~$974,543. The services revenue ~~increase was due to an increase in services revenue associated with new implementations and change requests.~~remained relatively flat based on constant currency. 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.

Services – related party

Services income from related party for the three months ended ~~December 31, 2017~~September 30, 2019 was ~~$1,236,508~~$82,933 compared to ~~$1,829,827~~$230,131 for the three months ended ~~December 31, 2016~~September 30, 2018 reflecting a decrease of ~~$593,319~~$147,198 with a change in constant currency of ~~$604,501.~~$67,286. The decrease in related party service revenue is due to a decrease in revenue from our joint venture with ~~1insurer.~~1insurer of approximately $67,286 and approximately $79,912 in service revenue related to services performed for WRLD3D, respectively.

Gross Profit

The gross profit was ~~$6,688,353,~~$6,110,628, for the three months ended ~~December 31, 2017~~September 30, 2019 as compared with ~~$6,658,251~~$8,238,058 for the three months ended ~~December 31, 2016.~~September 30, 2018. This is ~~an increase~~a decrease of ~~$30,102~~$2,127,430 with a ~~decrease~~change in constant currency of ~~$32,840.~~$1,135,784. The gross profit percentage for the three months ended ~~December 31, 2017 increased~~September 30, 2019 also decreased to ~~46.30%~~45.0% from ~~41.98%~~50.2% for the three months ended ~~December 31, 2016.~~September 30, 2018. The cost of sales was ~~$7,758,082~~$7,461,788 for the three months ended ~~December 31, 2017~~September 30, 2019 compared to ~~$9,200,535~~$8,158,487 for the three months ended ~~December 31, 2016~~September 30, 2018 for a decrease of ~~$1,442,453~~$696,699 and on a constant currency basis an increase of $823,722. As a percentage of sales, cost of sales increased from 49.8% for the three months ended September 30, 2018 to 55.0% for the three months ended September 30, 2019.
Salaries and consultant fees decreased by $565,598 from $5,020,562 for the three months ended September 30, 2018 to $4,454,964 for the three months ended September 30, 2019 and on a constant currency basis increased $317,024. The increase, based on constant currency, is due to annual salary raises. As a percentage of sales, salaries and consultant expense increased from 30.6% for the three months ended September 30, 2018 to 32.8% for the three months ended September 30, 2019.
Depreciation and amortization expense decreased to $719,665 compared to $937,604 for the three months ended September 30, 2018 or a decrease of $217,939 and on a constant currency basis a decrease of ~~$1,473,242. As a percentage of sales, cost of sales decreased from 58.02% for the three months ended December 31, 2016 to 53.70% for the three months ended December 31, 2017.~~
Salaries and consultant fees decreased by $617,712 from $5,979,804 for the three months ended December 31, 2016 to $5,362,092 for the three months ended December 31, 2017 and on a constant currency basis decreased $629,888. The decrease in salaries and consultant fees is due to the right sizing of technical employees at key locations including Pakistan, Thailand, China, UK and North America. As a percentage of sales, salaries and consultant expense decreased from 37.71% for the three months ended December 31, 2016 to 37.12% for the three months ended December 31, 2017.
Depreciation and amortization expense decreased to $1,168,103 compared to $1,318,764 for the three months ended December 31, 2016 or a decrease of $150,661 and on a constant currency basis a decrease of $143,439.$19,854. Depreciation and amortization expense decreased as some products became fully amortized.

~~Page 35~~
Operating Expenses

Operating expenses were ~~$6,371,522~~$6,537,838 for the three months ended ~~December 31, 2017~~September 30, 2019 compared to ~~$7,009,983,~~$6,638,433, for the three months ended ~~December 31, 2016~~September 30, 2018 for a decrease of ~~9.11%~~1.5% or ~~$638,461~~$100,595 and on a constant currency basis ~~a decrease~~an increase of ~~10.43%~~11.1% or ~~$730,914.~~$736,616. As a percentage of sales, it ~~decreased~~increased from ~~44.2%~~40.5% to ~~44.1%~~48.2%. The ~~decrease~~increase in operating expenses was primarily due to ~~decreases~~increases in salaries and wages, research and development and general and admin offset by decrease in selling and marketing expenses, ~~salaries~~depreciation, and ~~wages, and depreciation.~~professional services.

Selling and marketing expenses ~~decreased by $781,338~~increased $42,542 or ~~28.79%~~2.5% and on a constant currency basis ~~a decrease of $816,557~~increased $299,464 or ~~30.09%~~17.6%. The ~~decrease~~increase in selling and marketing expenses based on constant currency is due to ~~reduction in staff, decrease in our salaries and~~ commissions, travel expenses, and business development costs to market and sell NFS Ascent™ globally.

General and administrative expenses were ~~$4,026,706~~$3,918,613 for the three months ended ~~December 31, 2017~~September 30, 2019 compared to ~~$3,933,413~~$4,406,720 at ~~December 31, 2016~~September 30, 2018 or ~~an increase~~a decrease of ~~$93,293~~$488,107 or ~~2.37%~~11.1% and on a constant currency basis ~~an increase~~a decrease of ~~$42,545~~$96,982 or ~~1.08%~~2.2%. During the three months ended ~~December 31, 2017,~~September 30, 2019, salaries decreased by approximately ~~$155,400~~$545,137 or ~~$174,016~~$287,747 on a constant currency basis due to ~~the decrease in the number of employees, minimal annual raises,~~ less share grants, ~~and options, offset by~~ an increase in ~~professional services of approximately $73,308 or $69,760 on a constant currency basis and~~ other general and administrative expenses of approximately ~~$176,411~~$33,324 or ~~$147,827~~$164,413 on a constant currency ~~basis.~~basis, and professional services of approximately $62,327 or $75,743 on constant currency bases.

Page 37
Income/Loss from Operations
~~Income~~Loss from operations was ~~$316,831~~$427,210 for the three months ended ~~December 31, 2017~~September 30, 2019 compared to ~~loss~~income from operations of ~~$351,732~~$1,599,625 for the three months ended ~~December 31, 2016.~~September 30, 2018. This represents ~~an increase~~a decrease of ~~$668,563~~$2,026,835 with ~~an increase~~a decrease of ~~$698,074~~$1,872,400 on a constant currency basis for the three months ended ~~December 31, 2017~~September 30, 2019 compared with the three months ended ~~December 31, 2016. As a percentage of sales, income from operations was 2.19% for the three months ended December 31, 2017 compared to a loss of 2.22% for the three months ended December 31, 2016.~~
~~Other income and expense~~
Other income was $1,546,098 for the three months ended December 31, 2017 compared with a loss of $686,114 for the three months ended December 31, 2016. This represents an increase of $2,232,212 with an increase of $2,243,765 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions. 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 Pakistan Rupee (“PKR”) compared to the U.S. dollar and the Euro. In December 2017, Pakistan’s central bank withdrew its support of the PKR, which caused the PKR to drop in value. During the three months ended December 31, 2017, we recognized a gain of $1,737,967 in foreign currency exchange transactions compared to a loss of $621,887 for the three months ended December 31, 2016. During the three months ended December 31, 2017, the value of the U.S. dollar and the Euro increased 4.30% and 5.76%, respectively, compared to the PKR. During the three months ended December 31, 2016, the value of the U.S. dollar increased 1.08% and the Euro decreased 5.14% compared to the PKR.
~~Non-controlling Interest~~
For the three months ended December 31, 2017 and 2016, the net income attributable to non-controlling interest was $1,027,581 and $791,664, respectively. The increase in non-controlling interest is primarily due to the increase in net income of NetSol PK offset by a decrease in net income of NetSol Innovation.
~~Net Income / Loss attributable to NetSol~~
Net income was $634,421 for the three months ended December 31, 2017 compared to a loss of $2,168,394 for the three months ended December 31, 2016. This is an increase of $2,802,815 with an increase of $2,843,590 on a constant currency basis, compared to the prior year. For the three months ended December 31, 2017, net income per share was $0.06 for basic and diluted shares compared to a loss of $0.20 for basic and diluted shares for the three months ended December 31, 2016.
~~Page 36~~
~~Six Months Ended December 31, 2017 compared to December 31, 2016~~
~~The following table sets forth the items in our unaudited condensed consolidated statement of operations for the six months ended December 31, 2017 and 2016 as a percentage of revenues.~~
For the Six Months
Ended December 31,
2016
2017 % Restated %
Net Revenues:
License fees $ 561,998 2.06 % $ 9,223,352 28.00 %
Maintenance fees 7,042,173 25.83 % 7,112,696 21.60 %
Services 16,104,928 59.07 % 12,175,293 36.97 %
License fees - related party 261,513 0.96 % 246,957 0.75 %
Maintenance fees - related party 204,214 0.75 % 181,976 0.55 %
Services - related party 3,090,385 11.33 % 3,994,981 12.13 %
Total net revenues 27,265,211 100.00 % 32,935,255 100.00 %

Cost of revenues:
Salaries and consultants 10,826,252 39.71 % 11,873,153 36.05 %
Travel 801,013 2.94 % 1,548,135 4.70 %
Depreciation and amortization 2,341,216 8.59 % 2,649,636 8.04 %
Other 1,796,568 6.59 % 2,038,065 6.19 %
Total cost of revenues 15,765,049 57.82 % 18,108,989 54.98 %

Gross profit 11,500,162 42.18 % 14,826,266 45.02 %
Operating expenses:
Selling and marketing 3,643,436 13.36 % 5,057,516 15.36 %
Depreciation and amortization 468,658 1.72 % 540,582 1.64 %
Provision for bad debts - 0.00 % 1,026 0.00 %
General and administrative 7,814,264 28.66 % 8,551,583 25.96 %
Research and development cost 374,976 1.38 % 184,539 0.56 %
Total operating expenses 12,301,334 45.12 % 14,335,246 43.53 %

Income (loss) from operations (801,172 ) -2.94 % 491,020 1.49 %
Other income and (expenses)
Loss on sale of assets (16,069 ) -0.06 % (34,742 ) -0.11 %
Interest expense (227,746 ) -0.84 % (116,602 ) -0.35 %
Interest income 252,481 0.93 % 53,856 0.16 %
Gain (loss) on foreign currency exchange transactions 2,754,329 10.10 % (1,036,783 ) -3.15 %
Share of net loss from equity investment (270,898 ) -0.99 % - 0.00 %
Other income 15,610 0.06 % 28,383 0.09 %
Total other income (expenses) 2,507,707 9.20 % (1,105,888 ) -3.36 %

Net income (loss) before income taxes 1,706,535 6.26 % (614,868 ) -1.87 %
Income tax provision (225,798 ) -0.83 % (378,759 ) -1.15 %
Net income (loss) 1,480,737 5.43 % (993,627 ) -3.02 %
Non-controlling interest (1,215,814 ) -4.46 % (1,560,878 ) -4.74 %
Net income (loss) attributable to NetSol $ 264,923 0.97 % $ (2,554,505 ) -7.76 %
~~Page 37~~
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 19 “Operating Segments” within the Notes to the Condensed 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.
Favorable Favorable Total
For the Six Months (Unfavorable) (Unfavorable) Favorable
Ended December 31, Change in Change due to (Unfavorable)
2016 Constant Currency Change as
2017 % Restated % Currency Fluctuation Reported

Net Revenues: 27,265,211 100.00 % 32,935,255 100.00 % (5,650,244 ) (19,800 ) (5,670,044 )

Cost of revenues: 15,765,049 57.82 % 18,108,989 54.98 % 2,269,770 74,170 2,343,940

Gross profit 11,500,162 42.18 % 14,826,266 45.02 % (3,380,474 ) 54,370 (3,326,104 )

Operating expenses: 12,301,334 45.12 % 14,335,246 43.53 % 2,097,944 (64,032 ) 2,033,912

Income (loss) from operations (801,172 ) -2.94 % 491,020 1.49 % (1,282,530 ) (9,662 ) (1,292,192 )
~~Net revenues for the six months ended December 31, 2017 and 2016 are broken out among the segments as follows:~~
2017 2016
Revenue %
Revenue Restated
%
North America $ 2,135,710 7.83 % $ 3,355,428 10.19 %
Europe 4,152,928 15.23 % 3,355,873 10.19 %
Asia-Pacific 20,976,573 76.94 % 26,223,954 79.62 %
Total $ 27,265,211 100.00 % $ 32,935,255 100.00 %
~~Revenues~~
~~License fees~~
License fees for the six months ended December 31, 2017 were $561,998 compared to $9,223,352 for the six months ended December 31, 2016 reflecting a decrease of $8,661,354 with a change in constant currency of $8,683,204. The decrease in license revenue for the fiscal six months ended December 31, 2017 compared to 2016 is primarily due to the decrease of license revenue recognized for the 12 country NFS Ascent™ contract. During the current quarter, we had license revenues through sales of our regional offerings in the U.S. and the U.K.
~~Page 38~~
~~License fees – related party~~
License fees from related party for the six months ended December 31, 2017 were $261,513 compared to $246,957 for the six months ended December 31, 2016 reflecting an increase of $14,556 with a change in constant currency of $7,851.
~~Maintenance fees~~
Maintenance fees for the six months ended December 31, 2017 were $7,042,173 compared to $7,112,696 for the six months ended December 31, 2016 reflecting a decrease of $70,523 with a change in constant currency of $80,252. Maintenance fees begin once a customer has “gone live” with our product. The decrease was due to some customers not renewing their maintenance agreements. We anticipate maintenance fees to gradually increase as we implement both our NFS legacy product and NFS Ascent™.
~~Maintenance fees – related party~~
Maintenance fees from related party for the six months ended December 31, 2017 were $204,214 compared to $181,976 for the six months ended December 31, 2016 reflecting an increase of $22,238 with a change in constant currency of $17,002. The increase was due to the fluctuation in usage of active users.
~~Services~~
Services income for the six months ended December 31, 2017 was $16,104,928 compared to $12,175,293 for the six months ended December 31, 2016 reflecting an increase of $3,929,635 with a change in constant currency of $3,987,343. The services revenue increase was due to an increase in services revenue associated with new implementations and change requests. 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.
~~Services – related party~~
Services income from related party for the six months ended December 31, 2017 was $3,090,385 compared to $3,994,981 for the six months ended December 31, 2016 reflecting a decrease of $904,596 with a change in constant currency of $898,984. The decrease in related party service revenue is due to a decrease in revenue from our joint venture with the company, 1insurer.
~~Gross Profit~~
The gross profit was $11,500,162, for the six months ended December 31, 2017 as compared with $14,826,266 for the six months ended December 31, 2016. This is a decrease of $3,326,104 with a change in constant currency of $3,380,474. The gross profit percentage for the six months ended December 31, 2017 decreased to 42.18% from 45.02% for the six months ended December 31, 2016. The cost of sales was $15,765,049 for the six months ended December 31, 2017 compared to $18,108,989 for the six months ended December 31, 2016 for a decrease of $2,343,940 and on a constant currency basis a decrease of $2,269,770. As a percentage of sales, cost of sales increased from 54.98% for the six months ended December 31, 2016 to 57.82% for the six months ended December 31, 2017.
Salaries and consultant fees decreased by $1,046,901 from $11,873,153 for the six months ended December 31, 2016 to $10,826,252 for the six months ended December 31, 2017 and on a constant currency basis decreased $972,201. The decrease in salaries and consultant fees is due to the right sizing of technical employees at key locations including Pakistan, Thailand, China, UK and North America. As a percentage of sales, salaries and consultant expense increased from 36.05% for the six months ended December 31, 2016 to 39.71% for the six months ended December 31, 2017.
Depreciation and amortization expense decreased to $2,341,216 compared to $2,649,636 for the six months ended December 31, 2016 or a decrease of $308,420 and on a constant currency basis a decrease of $283,783. Depreciation and amortization expense decreased as some products became fully amortized.
~~Page 39~~
~~Operating Expenses~~
Operating expenses were $12,301,334 for the six months ended December 31, 2017 compared to $14,335,246, for the six months ended December 31, 2016 for a decrease of 14.19% or $2,033,912 and on a constant currency basis a decrease of 14.63% or $2,097,944. As a percentage of sales, it increased from 43.53% to 45.12%. The decrease in operating expenses was primarily due to decreases in selling and marketing expenses, salaries and wages and depreciation.
Selling and marketing expenses decreased by $1,414,080 or 27.96% and on a constant currency basis a decrease of $1,445,637 or 28.58%. The decrease in selling and marketing expenses is due to reduction in staff, decrease in our salaries and commissions, travel expenses, and business development costs to market and sell NFS Ascent™ globally.
General and administrative expenses were $7,814,264 for the six months ended December 31, 2017 compared to $8,552,609 at December 31, 2016 or a decrease of $738,345 or 8.63% and on a constant currency basis an increase of $768,732 or 8.99%. During the six months ended December 31, 2017, salaries decreased by approximately $1,052,356 or $1,043,147 on a constant currency basis due to the decrease in the number of employees, minimal annual raises, less share grants and options, offset by an increase in other general and administrative expenses of approximately $249,382 or $213,461 on a constant currency basis and professional services approximately $65,655 or $61,980 on constant currency bases.
~~Loss from Operations~~
Loss from operations was $801,172 for the six months ended December 31, 2017 compared to income of $491,020 for the six months ended December 31, 2016. This represents a decrease of $1,292,192 with a decrease of $1,282,530 on a constant currency basis for the six months ended December 31, 2017 compared with the six months ended December 31, 2016.September 30, 2018. As a percentage of sales, loss from operations was ~~2.94%~~3.2% for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 compared to income of ~~1.49%~~9.8% for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018.

Other Income and Expense
Other ~~income~~expense was ~~$2,507,707~~$1,595,811 for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 compared with ~~a loss of $1,105,888~~$81,576 for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018. This represents an increase of ~~$3,613,595~~$1,514,235 with an increase of ~~$3,641,001~~$1,955,102 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions. 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. ~~In December 2017, Pakistan’s central bank withdrew its support of the PKR, which caused the PKR to drop in value.~~ During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, we recognized a ~~gain~~loss of ~~$2,754,329~~$1,760,190 in foreign currency exchange transactions compared to a ~~loss~~gain of ~~$1,036,783~~$10,912 for the ~~six~~three months ended ~~December 31, 2017.~~September 30, 2018. During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, the value of the U.S. dollar and the Euro decreased 3.7% and 7.6%, respectively, compared to the PKR. During the three months ended September 30, 2018, the value of the U.S. dollar and the Euro increased ~~5.63%~~1.6% and ~~10.77%, respectively, compared to the PKR. During the six months ended December 31, 2016, the value of the U.S. dollar and the Euro decreased 0.69% and 5.93%~~0.9%, respectively, compared to the PKR.

Non-controlling Interest
For the ~~six~~three months ended ~~December 31, 2017 and 2016,~~September 30, 2019, the net ~~income~~loss attributable to non-controlling interest was ~~$1,215,814 and $1,560,878, respectively.~~$433,312, compared to income of $318,546 for the three months ended September 30, 2018. The decrease in non-controlling interest is primarily due to the ~~decrease~~increase in net ~~income~~loss of NetSol PK and NetSol Innovation.

Net Income / Loss attributable to NetSol
Net ~~income~~loss was ~~$264,923~~$1,827,947 for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 compared to ~~a loss~~net income of ~~$2,554,505~~$962,589 for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018. This is ~~an increase~~a decrease of ~~$2,819,428~~$2,790,536 with ~~an increase~~a decrease of ~~$2,851,849~~$3,151,605 on a constant currency basis, compared to the prior year. For the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, net ~~income~~loss per share was ~~$0.02~~$0.16 for basic and diluted shares compared to ~~a loss~~net income of ~~$0.24~~$0.08 for basic and diluted shares for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018.

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 or loss before net interest expense, income tax expense, depreciation and amortization.
● Non-GAAP adjusted EBITDA is EBITDA ~~less~~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.
~~Page 40~~

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 or loss 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.

Page 38
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.

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 three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018 are as follows:

Three Months Three Months
Ended Ended
September 30, 2019 September 30, 2018

Net Income (loss) attributable to NetSol $ (1,827,947 ) $ 962,589
Non-controlling interest (433,312 ) 318,546
Income taxes 238,238 236,914
Depreciation and amortization 922,052 1,149,836
Interest expense 63,663 99,434
Interest (income) (399,229 ) (248,964 )
EBITDA $ (1,436,535 ) $ 2,518,355
Add back:
Non-cash stock-based compensation 164,293 432,048
Adjusted EBITDA, gross $ (1,272,242 ) $ 2,950,403
Less non-controlling interest (a) 191,235 (752,669 )
Adjusted EBITDA, net $ (1,081,007 ) $ 2,197,734

Weighted Average number of shares outstanding
Basic 11,664,239 11,502,616
Diluted 11,664,239 11,507,730

Basic adjusted EBITDA $ (0.09 ) $ 0.19
Diluted adjusted EBITDA $ (0.09 ) $ 0.19

(a) The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows

Net Income attributable to non-controlling interest $ (433,312 ) $ 318,546
Income Taxes 53,335 70,543
Depreciation and amortization 259,635 365,854
Interest expense 19,041 32,690
Interest (income) (105,501 ) (66,868 )
EBITDA $ (206,802 ) $ 720,765
Add back:
Non-cash stock-based compensation 15,567 31,904
Adjusted EBITDA of non-controlling interest $ (191,235 ) $ 752,669
Page 41 39
Three Months Six Months
Three Months Ended Six Months Ended
Ended December 31, 2016 Ended December 31, 2016
December 31, 2017 Restated December 31, 2017 Restated

Net Income (loss) before preferred dividend, per GAAP $ 634,421 $ (2,168,394 ) $ 264,923 $ (2,554,505 )
Non-controlling interest 1,027,581 791,664 1,215,814 1,560,878
Income taxes 200,927 338,884 225,798 378,759
Depreciation and amortization 1,390,888 1,590,249 2,809,874 3,190,218
Interest expense 109,675 62,127 227,746 116,602
Interest (income) (115,570 ) (23,416 ) (252,481 ) (53,856 )
EBITDA $ 3,247,922 $ 591,114 $ 4,491,674 $ 2,638,096
Add back:
Non-cash stock-based compensation 405,721 660,319 833,530 1,547,579
Adjusted EBITDA, gross $ 3,653,643 $ 1,251,433 $ 5,325,204 $ 4,185,675
Less non-controlling interest (a) (1,562,303 ) (1,550,729 ) (2,264,167 ) (3,183,972 )
Adjusted EBITDA, net $ 2,091,340 $ (299,296 ) $ 3,061,037 $ 1,001,703

Weighted Average number of shares outstanding
Basic 11,159,075 10,877,446 11,115,346 10,783,685
Diluted 11,171,543 10,877,446 11,127,814 10,939,177

Basic adjusted EBITDA $ 0.19 $ (0.03 ) $ 0.28 $ 0.09
Diluted adjusted EBITDA $ 0.19 $ (0.03 ) $ 0.28 $ 0.09

(a)The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows

Net Income attributable to non-controlling interest $ 1,027,581 $ 791,664 $ 1,215,814 $ 1,560,878
Income Taxes 29,945 23,907 40,423 37,781
Depreciation and amortization 465,138 730,672 932,320 1,556,538
Interest expense 34,463 12,991 73,535 31,333
Interest (income) (36,918 ) (34,947 ) (82,075 ) (51,397 )
EBITDA $ 1,520,209 $ 1,524,287 $ 2,180,017 $ 3,135,133
Add back:
Non-cash stock-based compensation 42,094 26,442 84,150 48,839
Adjusted EBITDA of non-controlling interest $ 1,562,303 $ 1,550,729 $ 2,264,167 $ 3,183,972

LIQUIDITY AND CAPITAL RESOURCES

Our cash position was ~~$10,004,650~~$17,621,379 at ~~December 31, 2017,~~September 30, 2019, compared to ~~$14,172,954~~$17,366,364 at June 30, ~~2017.~~2019.

Net ~~cash used in operating activities was $2,054,989 for the six months ended December 31, 2017 compared to net~~ cash provided by operating activities ~~of $69,398~~was $266,080 for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2019 compared to cash used of $339,445 for the three months ended September 30, 2018. At ~~December 31, 2017,~~September 30, 2019, we had current assets of ~~$51,464,501~~$52,756,930 and current liabilities of ~~$27,864,068.~~$19,908,101. We had accounts receivable of ~~$21,689,080~~$11,305,324 at ~~December 31, 2017~~September 30, 2019 compared to ~~$8,228,141~~$15,599,314 at June 30, ~~2017. The increase in accounts receivable includes $8,433,735 due to billing for the code split per the amended DFS contract of which approximately $4,216,737 was received in January 2018.~~2019. We had revenues in excess of billings of ~~$22,870,442~~$17,640,189 at ~~December 31, 2017~~September 30, 2019 compared to ~~$24,380,632~~$16,111,366 at June 30, ~~2017~~2019 of which ~~$6,668,854~~$1,246,660 and ~~$5,173,538~~$1,281,492 is shown as long term as of ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively. The long-term portion iswas discounted by ~~$284,394~~$81,763 and ~~$310,331~~$99,139 at ~~December 31, 2017~~September 30, 2019 and June 30, ~~2017,~~2019, respectively, using the discounted cash flow method with an interest ~~rates ranging from 3.93% to 4.43% which is NetSol PK’s weighted average borrowing rate.~~rate of 4.35%. During the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, 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 ~~increased~~decreased by ~~$11,950,749~~$2,765,167 from ~~$32,608,773~~$31,710,680 at June 30, ~~2017~~2019 to ~~$44,559,522~~$28,945,513 at ~~December 31, 2017. The increase is due to recognition of revenue according to progress of contracts and billing for the amended DFS contract.~~September 30, 2019. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to ~~$7,560,298~~$7,377,985 and ~~$10,133,100,~~$8,017,140, respectively at ~~December 31, 2017.~~September 30, 2019. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to ~~$6,880,194~~$7,476,560 and ~~$10,222,795,~~$6,905,597, respectively at June 30, ~~2017.~~2019.
~~Page 42~~

The average days sales outstanding for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 and ~~2016~~2018 were ~~260~~205 and ~~145~~156 days, respectively, for each period. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and ~~revenue~~revenues in excess of billings.

Net cash used in investing activities was ~~$899,882~~$755,167 for the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019, compared to ~~$1,598,784~~$1,137,381 for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018. We had purchases of property and equipment of ~~$543,123~~$321,125 compared to ~~$1,074,316~~$563,413 for the ~~comparable period last fiscal year.~~three months ended September 30, 2018. For the ~~six~~three months ended ~~December 31, 2017,~~September 30, 2019 and 2018, we invested ~~$500,000~~$435,000 and $758,000, respectively, in a short-term convertible note receivable from WRLD3D. ~~For the six months ended December 31, 2017, we invested $50,000 in WRLD3D compared to $705,555 for the six months ended December 31, 2016.~~

Net cash used in financing activities was ~~$449,164,~~$135,755 for the three months ended September 30, 2019, compared to ~~$629,999~~$56,692 for the ~~six~~three months ended ~~December 31, 2017, and 2016, respectively.~~September 30, 2018. The ~~six~~three months ended ~~December 31, 2017~~September 30, 2019 included the cash inflow of ~~$215,311~~$Nil from ~~the exercising of stock options and warrants~~bank proceeds compared to ~~$429,452~~$119,895 for the same period last year. During the ~~six~~three months ended December 31, 2017, we purchased 139,275 shares of our common stock from the open market for $601,020 compared to 7,500 shares of common stock for $38,885 for the same period last year. During the six months ended December 31, 2017,September 30, 2019, we had net payments for bank loans and ~~capital~~finance leases of ~~$361,814~~$147,376 compared to ~~$69,998~~$179,237 for the ~~six~~three months ended ~~December 31, 2016.~~September 30, 2018. 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 1416 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 from its own sources.

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 and warrants. As of ~~December 31, 2017,~~September 30, 2019, we had approximately ~~$10~~$17.6 million of cash, cash equivalents and marketable securities of which approximately ~~$8.46~~$16.7 million is held by our foreign subsidiaries. As of June 30, ~~2017,~~2019, we had approximately ~~$14.17~~$17.4 million of cash, cash equivalents and marketable securities of which approximately ~~$11.56~~$16.1 million is held by our foreign subsidiaries. The Tax Act, which was passed on December 22, 2017, imposes a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. As of December 31, 2017, the provisional undistributed earnings of foreign subsidiaries were $22.8 million which we anticipate being able to offset fully with net operating loss carry forwards.

We remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving cash reserves internally and reduced reliance on external capital raise.

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 $2$2.5 million for APAC, U.S. and Europe new business development activities and infrastructure enhancements, which we expect to provide from current operations.

While there is no guarantee that any of these methods will result in raising sufficient funds to meet our capital needs or that even if available will be on terms acceptable to us, we will be very cautious and prudent about any new capital raise given the global market uncertainties. However, we are very conscious of the dilutive effect and price pressures in raising equity-based capital.

Page 40
Financial Covenants

Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($~~405,405)~~370,370) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 500 million ($~~4,521,613)~~3,184,714) and a running finance facility of Rupees 75 million ($~~678,217)~~477,707) which requires NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. NetSol PK also has an approved export refinance facility of Rs. ~~350~~380 million ($~~3,165,130)~~2,420,382) and a running finance facility of Rs. ~~150~~120 million ($~~1,356,484)~~764,331) 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.
~~Page 43~~

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.

CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements are prepared applying certain critical accounting policies. The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective, or complex judgments. Critical accounting policies require numerous estimates and ~~accompanying notes~~strategic or economic assumptions that may prove inaccurate or subject to variations and may significantly affect our reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on our future financial condition and results of operations. Our financial statements are prepared in accordance with ~~accounting principles generally accepted~~U.S. GAAP, and they conform to general practices 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. Criticalour industry. We apply critical accounting policies ~~for us include revenue recognition~~consistently from period to period and ~~multiple element arrangements, intangible assets, software development costs, and goodwill.~~
~~REVENUE RECOGNITION~~
The Company derives revenues from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) maintenance, which includes post contract support.
The Company recognizes revenue from license contracts without major customization when a non-cancelable, non-contingent license agreement has been signed, delivery of the software has occurred, the fee is fixed or determinable, and collectability is probable. Delivery is considered to have occurred upon electronic transfer of the license keyintend that ~~provides immediate availability of the product to the purchaser. Determining whether and when some of these criteria~~any change in methodology occur in an appropriate manner. There have been ~~satisfied often involves assumptions~~no significant changes to our accounting policies and ~~judgments that can have a significant impact~~estimates as discussed in our Annual Report on ~~the timing and amount of revenue the Company reports.~~
If an arrangement does not qualify for separate accounting of the software license and consulting transactions, then new software license revenue is generally recognized together with the consulting services based on contract accounting using either the percentage-of-completion or completed contract method. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees; (2) where services include significant modification or customization of the software; (3) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted; or (4) where the software license payment is tied to the performance of consulting services.
Revenue from consulting services is recognized as the services are performed for time-and-materials contracts. Revenue from training and development services is recognized as the services are performed.
~~Revenue from maintenance agreements is recognized ratably over the term of the maintenance agreement, typically one year.~~
~~Multiple Element Arrangements~~
The Company may enter into multiple element revenue arrangements in which a customer may purchase a number of different combinations of software licenses, consulting services, maintenance and support, as well as training and development.
Vendor specific objective evidence (“VSOE”) of fair value for each element is based on the price for which the element is sold separately. The Company determines the VSOE of fair value of each element based on historical evidence of the Company’s stand-alone sales of these elements to third-parties or from the stated renewal rateForm 10-K for the elements contained in the initial software license arrangement. When VSOE of fair value does not exist for any undelivered element, revenue is deferred until the earlier of the point at which such VSOE of fair value exists or until all elements of the arrangement have been delivered. The only exception to this guidance is when the only undelivered element is maintenance and support or other services, then the entire arrangement fee is recognized ratably over the performance period.
~~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.
~~Page 44~~
~~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 businesses 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. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.fiscal year ended June 30, 2019.

RECENT ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risks.

None.
~~Page 45~~

Item 4. 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 Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Financial Officer and Chief Executive Officer concluded that our disclosure controls and procedures were ~~ineffective.~~effective.

~~The~~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.
Page 41
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 September 30, 2019. This assessment was based on the criteria established in Internal Control-Integrated Framework, 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 September 30, 2019, there was no material weakness ~~relates to the lack of qualified Internal Audit resources dedicated to documenting and testing legacy accounting systems and Corporate functions.~~
~~The Company is~~ in the process of remediating the material weakness, including, but not limited to, by continuing the implementation of a leading cloud-based global ERP system, as approved by the Company’s Board in fiscal year 2016, which is already live in certain locations, and is expected to be completed by June 30, 2018. Further, the Company engaged an internal audit consulting firm to advise and assist with the remediation and internal control improvements, including to assist with the expansion and training of the Company’s internal ~~audit function,~~control over financial reporting. Our management, including our Chief Executive Officer, believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and ~~to augment corporate oversight and internal audit coverage.~~cash flows for the periods presented.
Changes in Internal Control over Financial Reporting

~~Except for progress made~~Effective July 1, 2019, we adopted ASU 2016-02Leases (Topic 842), and all related amendments, which resulted in the ~~remediation actions described above, there~~modification of certain processes and internal controls related to leases. There were no other changes in our internal controls over financial reporting during the three months ended ~~December 31, 2017,~~September 30, 2019, 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)).

~~Page 46~~
PART II OTHER INFORMATION

Item 1. Legal Proceedings

On April 7, 2017, Conister Bank Limited filed a complaint in the High Court of Justice Chancery Division, as claim no. HC-2017-001045 against our subsidiary, Virtual Lease Services Limited (“VLS”). The complaint alleges that VLS was in willful default of their agreements with Conister Bank Limited by failing to fulfill its obligations under the agreements with Conister. The complaint alleges damages in excess of £200,000 (approximately $270,270). VLS has responded to the complaint and its expenses are currently covered by available insurance. VLS denies all claims and intends to vigorously defend the action.None

Item 1A. Risk Factors

None.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~The repurchases provided in the table below were made through the quarter ended December 31, 2017:~~
Issuer Purchases of Equity Securities (1)
Month Total Number of Shares Purchased Average
Price Paid
Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that may be Purchased Under the Plans or Programs
Jul-17 20,247 $ 4.32 20,247 -
Aug-17 91,533 $ 4.51 111,780 -
Sep-17 - $ - 111,780 -
Oct-17 27,495 $ 3.65 139,275 -
Nov-17 - $ - - -
Dec-17 - $ - - -
Total 139,275 $ 4.32 139,275 1,000,000
On July 18, 2017, the Company announced that it had authorized a stock repurchase program permitting the Company to repurchase up to 1,000,000 of its shares of common stock through December 15, 2017. The shares were to be repurchased from time to time in open market transactions or privately negotiated transactions in the Company’s discretion. The repurchase plan expired on its own terms on December 15, 2017.None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

~~Page 47~~
Item 5. Other Information

On February 9, 2018, the Board of Directors of the Company amended and restated the bylaws of the Company. The Company has attached a copy of the Amended and Restated Bylaws of NetSol Technologies, Inc. dated February 9, 2018 (the “Bylaws”) in its entirety as Exhibit 3.10. The Bylaws were amended and restated to consolidate into one comprehensive document all prior amendments and to reflect prior amendments to the Articles of Incorporation relevant to the Bylaws. This document is further amended as follows:None.
● ~~To change the Company’s name in the Bylaws from NetSol International, Inc. to NetSol Technologies, Inc consistent with the Company’s Articles of Incorporation.~~
● ~~Article II, Section 2 and Section 4, amending to clarify that the minimum and maximum number of board members to 3 and 9, respectively, and to confirm the board’s ability to fill board vacancies.~~
● ~~Article IV, Section 2 amending the date of the annual shareholders meeting to be in line with the Company’s current fiscal year end and practices.~~

Item 6. Exhibits

~~3.10~~ ~~Amended and Restated Bylaws of NetSol Technologies, Inc. dated February 9, 2018.~~
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

Page 48 42

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~NETSOL TECHNOLOGIES, INC.~~
NETSOL TECHNOLOGIES, INC.
Date: ~~February 13, 2018~~November 12, 2019 /s/ Najeeb U. Ghauri
NAJEEB U. GHAURI
Chief Executive Officer

Date: ~~February 13, 2018~~November 12, 2019 /s/Roger K. Almond
ROGER K. ALMOND
Chief Financial Officer
Principal Accounting Officer

Page 49 43

	As of December 31,			As of June 30,
	2017			2017
ASSETS
Current assets:
Cash and cash equivalents	$	10,004,650		$	14,172,954
Accounts receivable, net of allowance of $347,413 and $571,511		19,106,677			6,583,199
Accounts receivable, net - related party		2,582,403			1,644,942
Revenues in excess of billings		16,094,026			19,126,389
Revenues in excess of billings - related party		107,562			80,705
Convertible note receivable - related party		750,000			200,000
Other current assets		2,819,183			2,463,886
Total current assets		51,464,501			44,272,075
Restricted cash		90,000			90,000
Revenues in excess of billings, net - long term		6,668,854			5,173,538
Property and equipment, net		18,443,494			20,370,703
Other assets		3,543,315			3,211,295
Intangible assets, net		14,810,605			17,043,151
Goodwill		9,516,568			9,516,568
Total assets	$	104,537,337		$	99,677,330

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	7,560,298		$	6,880,194
Current portion of loans and obligations under capitalized leases		10,133,100			10,222,795
Unearned revenues		10,082,346			3,925,702
Common stock to be issued		88,324			88,324
Total current liabilities		27,864,068			21,117,015
Loans and obligations under capitalized leases; less current maturities		250,883			366,762
Total liabilities		28,114,951			21,483,777
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 500,000 shares authorized;		-			-
Common stock, $.01 par value; 14,500,000 shares authorized; 11,395,401 shares issued and 11,221,347 outstanding as of December 31, 2017 and 11,225,385 shares issued and 11,190,606 outstanding as of June 30, 2017		113,954			112,254
Additional paid-in-capital		125,354,035			124,409,998
Treasury stock (At cost, 174,054 shares and 34,779 shares as of December 31, 2017 and June 30, 2017, respectively)		(1,055,330	)		(454,310	)
Accumulated deficit		(42,036,467	)		(42,301,390	)
Stock subscription receivable		(221,000	)		(297,511	)
Other comprehensive loss		(20,276,030	)		(18,074,570	)
Total NetSol stockholders’ equity		61,879,162			63,394,471
Non-controlling interest		14,543,224			14,799,082
Total stockholders’ equity		76,422,386			78,193,553
Total liabilities and stockholders’ equity	$	104,537,337		$	99,677,330

	For the Three Months						For the Six Months
	Ended December 31,						Ended December 31,
	2017			2016			2017			2016
				Restated						Restated
Net Revenues:
License fees	$	235,932		$	3,769,557		$	561,998		$	9,223,352
Maintenance fees		3,568,448			3,588,899			7,042,173			7,112,696
Services		9,087,191			6,619,158			16,104,928			12,175,293
License fees - related party		217,105			-			261,513			246,957
Maintenance fees - related party		101,251			51,345			204,214			181,976
Services - related party		1,236,508			1,829,827			3,090,385			3,994,981
Total net revenues		14,446,435			15,858,786			27,265,211			32,935,255

Cost of revenues:
Salaries and consultants		5,362,092			5,979,804			10,826,252			11,873,153
Travel		287,901			836,240			801,013			1,548,135
Depreciation and amortization		1,168,103			1,318,764			2,341,216			2,649,636
Other		939,986			1,065,727			1,796,568			2,038,065
Total cost of revenues		7,758,082			9,200,535			15,765,049			18,108,989

Gross profit		6,688,353			6,658,251			11,500,162			14,826,266

Operating expenses:
Selling and marketing		1,932,140			2,713,478			3,643,436			5,057,516
Depreciation and amortization		222,785			271,485			468,658			540,582
Provision for bad debts		-			1,026			-			1,026
General and administrative		4,026,706			3,932,387			7,814,264			8,551,583
Research and development cost		189,891			91,607			374,976			184,539
Total operating expenses		6,371,522			7,009,983			12,301,334			14,335,246

Income from operations		316,831			(351,732	)		(801,172	)		491,020

Other income and (expenses)
Loss on sale of assets		(8,939	)		(32,339	)		(16,069	)		(34,742	)
Interest expense		(109,675	)		(62,127	)		(227,746	)		(116,602	)
Interest income		115,570			23,416			252,481			53,856
Gain (loss) on foreign currency exchange transactions		1,737,967			(621,887	)		2,754,329			(1,036,783	)
Share of net loss from equity investment		(203,336	)		-			(270,898	)		-
Other income		14,511			6,823			15,610			28,383
Total other income (expenses)		1,546,098			(686,114	)		2,507,707			(1,105,888	)

Net income (loss) before income taxes		1,862,929			(1,037,846	)		1,706,535			(614,868	)
Income tax provision		(200,927	)		(338,884	)		(225,798	)		(378,759	)
Net income (loss)		1,662,002			(1,376,730	)		1,480,737			(993,627	)
Non-controlling interest		(1,027,581	)		(791,664	)		(1,215,814	)		(1,560,878	)
Net income (loss) attributable to NetSol	$	634,421		$	(2,168,394	)	$	264,923		$	(2,554,505	)

Net income (loss) per share:
Net income (loss) per common share
Basic	$	0.06		$	(0.20	)	$	0.02		$	(0.24	)
Diluted	$	0.06		$	(0.20	)	$	0.02		$	(0.24	)

Weighted average number of shares outstanding
Basic		11,159,075			10,877,446			11,115,346			10,783,685
Diluted		11,171,543			10,877,446			11,127,814			10,783,685

	For the Three Months
	Ended September 30,
	2019			2018
Net Revenues:
License fees	$	2,679,145		$	5,956,113
Maintenance fees		4,391,447			3,739,676
Services		6,418,891			6,470,625
Services - related party		82,933			230,131
Total net revenues		13,572,416			16,396,545

Cost of revenues:
Salaries and consultants		4,454,964			5,020,562
Travel		1,342,635			1,151,997
Depreciation and amortization		719,665			937,604
Other		944,524			1,048,324
Total cost of revenues		7,461,788			8,158,487

Gross profit		6,110,628			8,238,058

Operating expenses:
Selling and marketing		1,743,868			1,701,326
Depreciation and amortization		202,387			212,232
General and administrative		3,918,613			4,406,720
Research and development cost		672,970			318,155
Total operating expenses		6,537,838			6,638,433

Income (loss) from operations		(427,210	)		1,599,625

Other income and (expenses)
Gain (loss) on sale of assets		(289	)		52,294
Interest expense		(63,663	)		(99,434	)
Interest income		399,229			248,964
Gain (loss) on foreign currency exchange transactions		(1,760,190	)		10,912
Share of net loss from equity investment		(189,224	)		(299,691	)
Other income		18,326			5,379
Total other income (expenses)		(1,595,811	)		(81,576	)

Net income (loss) before income taxes		(2,023,021	)		1,518,049
Income tax provision		(238,238	)		(236,914	)
Net income (loss)		(2,261,259	)		1,281,135
Non-controlling interest		433,312			(318,546	)
Net income (loss) attributable to NetSol	$	(1,827,947	)	$	962,589

Net income (loss) per share:
Net income (loss) per common share
Basic	$	(0.16	)	$	0.08
Diluted	$	(0.16	)	$	0.08

Weighted average number of shares outstanding
Basic		11,664,239			11,502,616
Diluted		11,664,239			11,507,730

	Common Stock				Additional Paid-in			Treasury			Accumulated			Shares to be			Other Comprehensive			Non Controlling			Total Stockholders’
	Shares		Amount		Capital			Shares			Deficit			Issued			Loss			Interest			Equity

Balance at June 30, 2019		11,911,742	$	119,117	$	127,737,999		$	(1,455,969	)	$	(35,206,898	)	$	-		$	(33,125,006	)	$	8,414,987		$	66,484,230
Exercise of subsidiary common stock options		-		-		(28,097	)		-			-			-			-			39,718			11,621
Common stock issued for:
Services		60,367		604		342,177			-			-			-			-			-			342,781
Equity component shown as current liability at
June 30, 2019		-		-		-			-			-			88,324			-			-			88,324
September 30, 2019		-		-		-			-			-			(88,324	)		-			-			(88,324	)
Foreign currency translation adjustment		-		-		-			-			-			-			903,345			584,356			1,487,701
Net loss for the period		-		-		-			-			(1,827,947	)		-			-			(433,312	)		(2,261,259	)
Balance at September 30, 2019		11,972,109	$	119,721	$	128,052,079		$	(1,455,969	)	$	(37,034,845	)	$	-		$	(32,221,661	)	$	8,605,749		$	66,065,074

	For the Three Months				For the Six Months
	Ended December 31, 2016				Ended December 31, 2016
	Originally reported		Reclassified		Originally reported		Reclassified

Net Revenues:
Services	$	6,984,084	$	6,619,158	$	12,790,801	$	12,175,293
Services - related party		1,464,901		1,829,827		3,379,473		3,994,981
	$	8,448,985	$	8,448,985	$	16,170,274	$	16,170,274

Operating expenses:
Provision for bad debts	$	-	$	1,026	$	-	$	1,026
General and administrative		3,933,413		3,932,387		8,552,609		8,551,583
	$	3,933,413	$	3,933,413	$	8,552,609	$	8,552,609

	For the Three Months Ended
	September 30, 2018
	Originally reported		Reclassified

REVENUES
License fees	$	5,956,113	$	5,956,113
Maintenance fees		3,638,327		3,739,676
Services		6,418,634		6,470,625
Maintenance fees - related party		101,349		-
Services - related party		282,122		230,131
Total net revenues	$	16,396,545	$	16,396,545


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.

	Level 1		Level 2		Level 3		Total Assets		Level 1		Level 2		Level 3		Total Assets
Revenue in excess of billing - long term	$	-	$	-	$	6,668,854	$	6,668,854
Revenues in excess of billing - long term									$	-	$	-	$	1,246,660	$	1,246,660
Total	$	-	$	-	$	6,668,854	$	6,668,854	$	-	$	-	$	1,246,660	$	1,246,660

	Revenue in excess of billing - long term		Fair value discount			Total
Balance at June 30, 2017	$	5,483,869	$	(310,331	)	$	5,173,538
Additions		1,469,379	$	(85,057	)		1,384,322
Amortization during the period		-		110,994			110,994
Balance at December 31, 2017	$	6,953,248	$	(284,394	)	$	6,668,854

	Revenues in excess of billing - long term			Fair value discount			Total
Balance at June 30, 2019	$	1,380,631		$	(99,139	)	$	1,281,492
Amortization during the period		-			13,860			13,860
Effect of Translation Adjustment		(52,208	)		3,516			(48,692	)
Balance at September 30, 2019	$	1,328,423		$	(81,763	)	$	1,246,660

	●	whether a contract is or contains a lease
	●	lease classification
	●	initial direct costs

●	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 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).

	For the three months ended December 31, 2017						For the six months ended December 31, 2017
	Net Income		Shares		Per Share		Net Income		Shares		Per Share
Basic income per share:
Net income available to common shareholders	$	634,421		11,159,075	$	0.06	$	264,923		11,115,346	$	0.02
Effect of dilutive securities
Stock options		-		12,468		-		-		12,468		-
Diluted income per share	$	634,421		11,171,543	$	0.06	$	264,923		11,127,814	$	0.02

	For the three months ended September 30, 2019
	Net Loss			Shares		Per Share
Basic loss per share:
Net loss available to common shareholders	$	(1,827,947	)		11,664,239	$	(0.16	)
Effect of dilutive securities
Share grants		-			-		-
Diluted loss per share	$	(1,827,947	)		11,664,239	$	(0.16	)

	1.	Conversion upon a qualified financing which is an equity financing of at least $1,000,000.
	2.	Optional conversion upon an equity financing less than $1,000,000.
	3.	Optional conversion after the maturity date.
	4.	Change of control.

					Convertible
Agreement	Interest			Maturity	Note		Amount
Date	Rate			Date	Amount		Disbursed
May 25, 2017		5	%	On Demand	$	750,000	$	750,000
February 9, 2018		10	%	On Demand		2,500,000		2,500,000
April 1, 2019		10	%	March 31, 2020		600,000		435,000
August 19, 2019		10	%	March 31, 2020		400,000		400,000
					$	4,250,000	$	4,085,000

	As of
	September 30, 2019

Weighted average remaining lease term - finance leases		2.11 Years

Weighted average discount rate - finance leases		12.79	%

	For the Three Months
	Ended September 30, 2019

Amortization of finance lease assets	$	26,330
Interest on finance lease obligation		22,918
Operating lease cost		263,577
Short term lease cost		74,110
Sub lease income		(8,199	)
Total lease cost	$	378,736

	For the Three Months Ended
	September 30, 2019

Cash flows related to lease liabilities
Operating cash flows related to operating leases	$	232,268

	Amount
Within year 1	$	1,045,298
Within year 2		874,317
Within year 3		797,007
Within year 4		305,926
Within year 5		82,404
Thereafter		6,235
Total Lease Payments		3,111,187
Less: Imputed interest		(278,268	)
Present Value of lease liabilities		2,832,919
Less: Current portion		(920,115	)
Non-Current portion	$	1,912,804

Within year 1	$	744,549
Within year 2		514,243
Within year 3		269,375
Within year 4		197,872
Within year 5		36,044
Total	$	1,762,083

	●	~~The warrants are exercisable into shares of the “Next Round Preferred”, only if and when the Next Round Preferred is issued by WRLD3D in a “Qualified Financing”.~~
	●	~~The warrants expire on March 2, 2020.~~
	●	~~“Next Round Preferred” is defined as occurring if WRLD3D’s preferred stock (or securities convertible into preferred stock) are issued in a Qualified Financing that occurs after March 2, 2016.~~
	●	~~“Qualified Financing” is defined as financing with total proceeds of at least $2 million.~~
	●	~~The total number of common stock shares to be issued is equal to $1,250,000 divided by the per share price of the Next Round Preferred.~~
	●	~~The exercise price of the warrants is equal to the greater of~~

	a)	~~70% of the per share price of the Next Round Preferred sold in a Qualified Financing, or~~

	b)	25,000,000 divided by the total number of shares of common stock outstanding immediately prior to the Qualified Financing (on a fully-diluted basis, excluding the number of common stock shares issuable upon the exercise of any given warrant).

	DriveMate			WRLD3D			Total
Initial investment	$	250,000		$	3,888,889		$	4,138,889
Cumulative net loss on investment		(8,756	)		(1,284,998	)		(1,293,754	)
Cumulative other comprehensive income (loss)		-			(384,265	)		(384,265	)
Net investment	$	241,244		$	2,219,626		$	2,460,870

Year ended:
December 31, 2018	$	2,630,334
December 31, 2019		2,630,334
December 31, 2020		2,630,334
December 31, 2021		2,630,334
December 31, 2022		2,630,334
Thereafter		1,658,935
	$	14,810,605

Year ended:
September 30, 2020	$	1,852,626
September 30, 2021		1,852,626
September 30, 2022		1,852,626
September 30, 2023		1,601,544
	$	7,159,422

		As of December 31, 2017							As of September 30, 2019
				Current		Long-Term					Current		Long-Term
Name		Total		Maturities		Maturities			Total		Maturities		Maturities

D&O Insurance	(1)	$	105,023	$	105,023	$	-	(1)	$	15,753	$	15,753	$	-
Bank Overdraft Facility	(2)		-		-		-	(2)		-		-		-
Loan Payable Bank - Export Refinance	(3)		4,521,613		4,521,613		-	(3)		3,184,714		3,184,714		-
Loan Payable Bank - Running Finance	(4)		678,217		678,217		-	(4)		337,580		337,580		-
Loan Payable Bank - Export Refinance II	(5)		3,165,130		3,165,130		-	(5)		2,420,382		2,420,382		-
Loan Payable Bank - Running Finance II	(6)		1,356,484		1,356,484		-	(6)		764,331		764,331		-
Related Party Loan								(7)		77,148		15,686		61,462
			9,826,467		9,826,467		-			6,799,908		6,738,446		61,462
Subsidiary Capital Leases	(7)		557,516		306,633		250,883
Subsidiary Finance Leases								(8)		790,520		358,579		431,941
		$	10,383,983	$	10,133,100	$	250,883		$	7,590,428	$	7,097,025	$	493,403

		As of June 30, 2017							As of June 30, 2019
				Current		Long-Term					Current		Long-Term
Name		Total		Maturities		Maturities			Total		Maturities		Maturities

D&O Insurance	(1)	$	87,485	$	87,485	$	-	(1)	$	67,671	$	67,671	$	-
Bank Overdraft Facility	(2)		221,379		221,379		-	(2)		-		-		-
Loan Payable Bank - Export Refinance	(3)		4,776,461		4,776,461		-	(3)		3,066,355		3,066,355		-
Loan Payable Bank - Running Finance								(4)		325,034		325,034		-
Loan Payable Bank - Export Refinance II	(5)		1,910,585		1,910,585		-	(5)		2,330,431		2,330,431		-
Loan Payable Bank - Running Finance II	(6)		2,865,877		2,865,877		-	(6)		735,925		735,925		-
Related Party Loan								(7)		82,969		15,838		67,131
			9,861,787		9,861,787		-			6,608,385		6,541,254		67,131
Subsidiary Capital Leases	(7)		727,770		361,008		366,762
Subsidiary Finance Leases								(8)		861,784		364,343		497,441
		$	10,589,557	$	10,222,795	$	366,762		$	7,470,169	$	6,905,597	$	564,572