NETSOL TECHNOLOGIES INC 10-Q

Item 1. Financial Statements (Unaudited) NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) As of As of September 30, 2025 June 30, 2025 ASSETS Current assets: Cash and cash equivalents $ 22,690,618 $ 17,357,944 Accounts receivable, net of allowance of $ 359,088 and $ 355,464 6,320,988 7,527,572 Revenues in excess of billings, net of allowance of $ 31,662 and $ 34,496 13,994,651 18,230,619 Other current assets 3,586,732 3,203,468 Total current assets 46,592,989 46,319,603 Revenues in excess of billings, net - long term 881,053 903,766 Property and equipment, net 5,188,592 5,073,372 Right of use assets - operating leases 653,418 809,513 Other assets 6,938 32,331 Goodwill 9,302,524 9,302,524 Total assets $ 62,625,514 $ 62,441,109 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 9,191,552 $ 8,010,844 Current portion of loans and obligations under finance leases 8,330,243 8,240,061 Current portion of operating lease obligations 401,655 433,242 Unearned revenue 3,735,828 3,029,850 Total current liabilities 21,659,278 19,713,997 Loans and obligations under finance leases; less current maturities 218,170 134,608 Operating lease obligations; less current maturities 224,417 333,374 Total liabilities 22,101,865 20,181,979 Stockholders’ equity: Preferred stock, $ .01 par value; 500,000 shares authorized; - - Common stock, $ .01 par value; 18,000,000 shares authorized; 12,733,907 shares issued and 11,794,876 outstanding as of September 30, 2025; 12,700,465 shares issued and 11,761,434 outstanding as of June 30, 2025 127,342 127,008 Additional paid-in-capital 129,636,251 129,529,901 Treasury stock (at cost, 939,031 shares as of September 30, 2025 and June 30, 2025) ( 3,920,856 ) ( 3,920,856 ) Accumulated deficit ( 43,646,368 ) ( 41,289,080 ) Other comprehensive loss ( 46,402,374 ) ( 46,613,208 ) Total NetSol stockholders’ equity 35,793,995 37,833,765 Non-controlling interest 4,729,654 4,425,365 Total stockholders’ equity 40,523,649 42,259,130 Total liabilities and stockholders’ equity $ 62,625,514 $ 62,441,109 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) 2025 2024 For the Three Months Ended September 30, 2025 2024 Net Revenues: License fees $ 72,225 $ 1,229 Subscription and support 8,960,555 8,192,471 Services 5,979,143 6,404,798 Total net revenues 15,011,923 14,598,498 Cost of revenues 9,099,933 8,034,386 Gross profit 5,911,990 6,564,112 Operating expenses: Selling, general and administrative 7,536,353 6,964,321 Research and development cost 214,343 359,949 Total operating expenses 7,750,696 7,324,270 Income (loss) from operations ( 1,838,706 ) ( 760,158 ) Other income and (expenses) Interest expense ( 174,611 ) ( 258,219 ) Interest income 280,974 769,867 Gain (loss) on foreign currency exchange transactions ( 286,917 ) 542,545 Other income 17,670 153,491 Total other income (expenses) ( 162,884 ) 1,207,684 Net income before income taxes ( 2,001,590 ) 447,526 Income tax provision ( 215,775 ) ( 229,817 ) Net income ( 2,217,365 ) 217,709 Non-controlling interest ( 139,923 ) ( 146,914 ) Net income attributable to NetSol $ ( 2,357,288 ) $ 70,795 Net income per share: Net income per common share Basic $ ( 0.20 ) $ 0.006 Diluted $ ( 0.20 ) $ 0.006 Weighted average number of shares outstanding Basic 11,767,811 11,429,695 Diluted 11,767,811 11,482,754 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 4 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) 2025 2024 For the Three Months Ended September 30, 2025 2024 Net income $ ( 2,357,288 ) $ 70,795 Other comprehensive income (loss): Translation adjustment 259,917 ( 72,183 ) Translation adjustment attributable to non-controlling interest ( 49,083 ) ( 41,224 ) Net translation adjustment 210,834 ( 113,407 ) Comprehensive income (loss) attributable to NetSol $ ( 2,146,454 ) $ ( 42,612 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 5 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) A statement of the changes in equity for the three months ended September 30, 2025 is provided below: Shares Amount Capital Shares Deficit Loss Interest Equity Additional Other Non Total Common Stock Paid-in Treasury Accumulated Comprehensive Controlling Stockholders’ Shares Amount Capital Shares Deficit Loss Interest Equity Balance at June 30, 2025 12,700,465 $ 127,008 $ 129,529,901 $ ( 3,920,856 ) $ ( 41,289,080 ) $ ( 46,613,208 ) $ 4,425,365 $ 42,259,130 Exercise of subsidiary common stock options - - ( 38,716 ) - - - 115,283 76,567 Common stock issued for: Services 33,442 334 145,066 - - - - 145,400 Foreign currency translation adjustment - - - - - 210,834 49,083 259,917 Net loss - - - - ( 2,357,288 ) - 139,923 ( 2,217,365 ) Balance at September 30, 2025 12,733,907 $ 127,342 $ 129,636,251 $ ( 3,920,856 ) $ ( 43,646,368 ) $ ( 46,402,374 ) $ 4,729,654 $ 40,523,649 A statement of the changes in equity for the three months ended September 30, 2024 is provided below: Additional Other Non Total Common Stock Paid-in Treasury Accumulated Comprehensive Controlling Stockholders’ Shares Amount Capital Shares Deficit Loss Interest Equity Balance at June 30, 2024 12,359,922 $ 123,602 $ 128,783,865 $ ( 3,920,856 ) $ ( 44,212,313 ) $ ( 45,935,616 ) $ 4,694,418 $ 39,533,100 Balance 12,359,922 $ 123,602 $ 128,783,865 $ ( 3,920,856 ) $ ( 44,212,313 ) $ ( 45,935,616 ) $ 4,694,418 $ 39,533,100 Exercise of common stock options 10,000 100 21,400 - - - - 21,500 Common stock issued for: Services 13,950 140 39,610 - - - - 39,750 Common stock issued for Services 13,950 140 39,610 - - - - 39,750 Fair value of subsidiary options issued - - 8,029 - - - - 8,029 Acquisition of non-controlling interest in subsidiary - - ( 143,014 ) - - - 135,119 ( 7,895 ) Foreign currency translation adjustment - - - - - ( 113,407 ) 41,224 ( 72,183 ) Net income (loss) for the year - - - - 70,795 - 146,914 217,709 Net income (loss) - - - - 70,795 - 146,914 217,709 Balance at September 30, 2024 12,383,872 $ 123,842 $ 128,709,890 $ ( 3,920,856 ) $ ( 44,141,518 ) $ ( 46,049,023 ) $ 5,017,675 $ 39,740,010 Balance 12,383,872 $ 123,842 $ 128,709,890 $ ( 3,920,856 ) $ ( 44,141,518 ) $ ( 46,049,023 ) $ 5,017,675 $ 39,740,010 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) 2025 2024 For the Three Months Ended September 30, 2025 2024 Cash flows from operating activities: Net income (loss) $ ( 2,217,365 ) $ 217,709 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 324,606 365,997 Provision for bad debts ( 1,583 ) 336,506 Gain on sale of assets ( 16,613 ) - Stock based compensation 145,400 47,779 Changes in operating assets and liabilities: Accounts receivable 1,218,992 6,738,384 Revenues in excess of billing 4,282,495 836,403 Other current assets ( 323,491 ) ( 222,359 ) Accounts payable and accrued expenses 1,176,241 10,546 Unearned revenue 714,879 ( 2,813,220 ) Net cash provided by operating activities 5,303,561 5,517,745 Cash flows from investing activities: Purchases of property and equipment ( 485,281 ) ( 100,737 ) Sales of property and equipment 16,687 - Investment in associates 25,396 - Purchase of subsidiary shares - ( 7,895 ) Net cash used in investing activities ( 443,198 ) ( 108,632 ) Cash flows from financing activities: Proceeds from the exercise of stock options and warrants - 21,500 Proceeds from exercise of subsidiary options 64,147 - Proceeds from bank loans 242,421 250,000 Payments on finance lease obligations and loans - net ( 115,350 ) ( 118,311 ) Net cash provided by financing activities 191,218 153,189 Effect of exchange rate changes 281,093 ( 163,511 ) Net increase (decrease) in cash and cash equivalents 5,332,674 5,398,791 Cash and cash equivalents at beginning of the period 17,357,944 19,127,165 Cash and cash equivalents at end of period $ 22,690,618 $ 24,525,956 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, 2025 2024 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 165,954 $ 285,362 Taxes $ 100,011 $ 264,030 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 September 30, 2025 (Unaudited) NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The Company is a business services and asset finance solutions provider that 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, 2025. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results. The accompanying consolidated financial statements include the accounts of the Company as follows: Wholly owned Subsidiaries NetSol Technologies Americas, Inc. (“NTA”) NetSol Connect (Private), Ltd. (“Connect”) NetSol Technologies Australia Pty Ltd. (“Australia”) NetSol Technologies Europe Limited (“NTE”) NetSol Technologies (Beijing) Co. Ltd. (“NetSol Beijing”) Tianjin NuoJinZhiCheng Co., Ltd (“Tianjin”) Ascent Europe Ltd. (“AEL”) Virtual Lease Services Holdings Limited (“VLSH”) Virtual Lease Services Limited (“VLS”) Virtual Lease Services (Ireland) Limited (“VLSIL”) Majority-owned Subsidiaries NetSol Technologies, Ltd. (“NetSol PK”) NetSol Innovation (Private) Limited (“NetSol Innovation”) NetSol Institute of Artificial Intelligence (Private) Limited (“NIAI”) NETSOL Ascent Middle East Computer Equipment Trading LLC (“Namecet”) NetSol Technologies Thailand Limited (“NetSol Thai”) Otoz (Thailand) Limited (“Otoz® Thai”) Page 9 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 2 – ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas requiring significant estimates are the measurement of progress toward completion of long-term software implementation projects, the allocation of the transaction price in multiple performance obligations, expected credit loss on accounts receivable and revenues in excess of billings, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, the determination of stock-based compensation expense and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates. Concentration of Credit Risk Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance, except balances maintained in China are insured for RMB 500,000 ($ 70,225 ) in each bank and in the UK for GBP 85,000 ($ 114,865 ) in each bank. The Company maintains three bank accounts in China and nine bank accounts in the UK. As of September 30, 2025, and June 30, 2025, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $ 21,972,967 and $ 16,386,079 , respectively. The Company has not experienced any losses in such accounts. The Company’s operations are carried out globally. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments of each country and by the general state of the country’s economy. The Company’s operations in each foreign country are subject to specific considerations and significant risks not typically associated with companies in economically developed nations. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Fair Value of Financial Instruments The Company applies the provisions of Accounting Standards Codification (“ASC”) 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amounts approximate fair value due to their relatively short maturities. The carrying amounts of the 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 10 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) The Company’s financial assets that were measured at fair value on a recurring basis as of September 30, 2025, were as follows: SCHEDULE OF FAIR VALUE OF FINANCIAL ASSETS MEASURED ON RECURRING BASIS Level 1 Level 2 Level 3 Total Assets Revenues in excess of billings - long term $ - $ - $ 881,053 $ 881,053 Total $ - $ - $ 881,053 $ 881,053 The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2025, are as follows: Level 1 Level 2 Level 3 Total Assets Revenues in excess of billings - long term $ - $ - $ 903,766 $ 903,766 Total $ - $ - $ 903,766 $ 903,766 The reconciliation from June 30, 2025 to September 30, 2025 is as follows: SCHEDULE OF FAIR VALUE OF FINANCIAL INSTRUMENTS RECONCILIATION Revenues in excess of billings - long term Fair value discount Total Balance at June 30, 2025 $ 1,111,803 $ ( 208,037 ) $ 903,766 Amortization during the period - 24,814 24,814 Transfers to short term ( 56,813 ) - ( 56,813 ) Effect of Translation Adjustment 9,200 86 9,286 Balance at September 30, 2025 $ 1,064,190 $ ( 183,137 ) $ 881,053 Management analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging.” Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments such as warrants and option derivatives are valued using the Black-Scholes model. Recent Accounting Standards : In December 2023, the FASB issued ASU No. 2023-09 – Income Taxes (Topic ASC 740) Income Taxes . This ASU improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, as well as disaggregated income taxes paid by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024. For the Company, this corresponds to fiscal year 2026. The amendments will be applied on a prospective basis, although retrospective application for prior periods is permitted. The Company expects the adoption of this ASU to result in additional disclosures but does not anticipate any impact on its financial position, results of operations, or cash flows. In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The standard requires disclosure of specified information about certain costs and expenses, including purchases of inventory, employee compensation, depreciation, and intangible asset amortization from each relevant expense caption. The amendments are effective for annual reporting periods beginning after December 15, 2026, which corresponds to the Company’s fiscal year 2028 and interim periods beginning after December 15, 2027, which corresponds to the Company’s first quarter of fiscal 2029. Early adoption and retrospective application are permitted but not required. The Company plans to adopt the standard and make the required disclosures beginning in fiscal year 2028 for annual periods and in Q1 of fiscal 2029 for interim periods. The Company expects the adoption of this ASU to result in additional disclosures but does not anticipate any impact on its financial position, results of operations, or cash flows. Page 11 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable. NOTE 3 – REVENUE RECOGNITION The Company determines revenue recognition through the following steps: ● Identification of the contract, or contracts, with a customer; ● Identification of the performance obligations in the contract; ● Determination of the transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company records the amount of revenue and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of its promise to the customer. Revenue is presented net of sales, value-added and other taxes collected from customers and remitted to government authorities. The Company has two primary revenue streams: core revenue and non-core revenue. Core Revenue The Company generates its core revenue from the following sources: (1) software licenses, (2) services, which include implementation and consulting services, and (3) subscription and support, which includes post contract support, of its enterprise software solutions for the lease and finance industry. The Company offers its software using the same underlying technology via two models: a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software. Non-Core Revenue The Company generates its non-core revenue by providing business process outsourcing (“BPO”), other IT services and internet services. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract. The Company’s contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase post contract support and services in addition to the licenses. The Company’s single performance obligation arrangements are typically post contract support renewals, subscription renewals and services engagements. For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. Page 12 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (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. Subscription Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. Post Contract Support Revenue from support services and product updates, referred to as subscription and support revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, most 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. Several 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 13 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) The Company’s disaggregated revenue by category is as follows: SCHEDULE OF DISAGGREGATED REVENUE BY CATEGORY 2025 2024 For the Three Months Ended September 30, 2025 2024 Core: License $ 72,225 $ 1,229 Subscription and support 8,960,555 8,192,471 Services 5,094,911 5,530,629 Total core revenue, net 14,127,691 13,724,329 Non-Core: Services 884,232 874,169 Total non-core revenue, net 884,232 874,169 Total net revenue $ 15,011,923 $ 14,598,498 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 post contract support and other services, the Company does have historical experience with amending contracts with customers to provide additional modules of its software or providing those modules at an optional price. This information guides the Company in assessing the stand-alone selling price of the Company’s software, since the Company can observe instances where a customer had a particular component of the Company’s software that was essentially priced separate from other goods and services that the Company delivered to that customer. The Company recognizes revenue from implementation and customization services using the percentage of estimated “person-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 person-days required to complete implementation and customization services each reporting period. Revenue is recognized over time for the Company’s subscription, post contract support and fixed fee professional services that are separate performance obligations. For the Company’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. Several internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes. Page 14 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved. If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (unearned revenue) on the Company’s Consolidated Balance Sheets. The Company records revenues in excess of billings when the Company has transferred goods or services but does not yet have the right to consideration. The Company records unearned revenue when the Company has received or has the right to receive consideration but has not yet transferred goods or services to the customer. The revenues in excess of billings are transferred to receivables when the rights to consideration become unconditional, usually upon completion of a milestone. The Company’s revenues in excess of billings and unearned revenue are as follows: SCHEDULE OF REVENUES IN EXCESS OF BILLINGS AND DEFERRED REVENUE As of As of September 30, 2025 June 30, 2025 Revenues in excess of billings $ 14,875,704 $ 19,134,385 Unearned revenue $ 3,735,828 $ 3,029,850 The Company’s unearned revenue reconciliation is as follows: SCHEDULE OF UNEARNED REVENUE RECONCILIATION Unearned Revenue Balance at June 30, 2025 $ 3,029,850 Invoiced 8,793,181 Revenue Recognized ( 8,003,905 ) Adjustments ( 83,298 ) Balance at September 30, 2025 $ 3,735,828 During the three months ended September 30, 2025, the Company recognized revenue of $ 1,570,000 , that was included in the unearned revenue balance at the beginning of the period. All other activity in unearned revenue is due to the timing of invoicing in relation to the timing of revenue recognition. Page 15 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) Revenue allocated to the 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 $ 18,664,000 as of September 30, 2025, of which the Company estimates to recognize approximately $ 13,440,000 in revenue over the next 12 months and the remainder over an estimated 3 years thereafter . Actual revenue recognition depends in part on the timing of software modules installed at various customer sites. Accordingly, some factors that affect the Company’s revenue, such as the availability and demand for modules within customer geographic locations, is not entirely within the Company’s control. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, and not to facilitate financing arrangements. Unearned Revenue The Company typically invoices its customers for subscription and support fees in advance on a quarterly or annual basis, with payment due at the start of the subscription or support term. Unpaid invoice amounts for non-cancelable license and services starting in future periods are included in accounts receivable and unearned revenue. Practical Expedients and Exemptions There are several practical expedients and exemptions allowed under Topic 606 that impact timing of revenue recognition and the Company’s disclosures. The Company has applied the following practical expedients: ● The Company does not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer. ● The Company generally expenses sales commissions and sales agent fees when incurred when the amortization period would have been one year or less or the commissions are based on cashed received. These costs are recorded within sales and marketing expense in the Consolidated Statement of Operations. ● The Company does not disclose the value of unsatisfied performance obligations for contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed (applies to time-and-material engagements). Costs to Obtain a Contract The Company does not have a material amount of costs to obtain a contract capitalized at any balance sheet date. In general, the Company incurs few direct incremental costs of obtaining new customer contracts. The Company rarely incurs incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, the Company’s sales personnel receive fees that are referred to as commissions, but that are based on more than simply signing up new customers. The Company’s sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts. NOTE 4 – 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 and stock awards. The components of basic and diluted earnings per share were as follows: SCHEDULE OF DILUTIVE POTENTIAL COMMON SHARES For the three months ended September 30, 2025 Net Loss Shares Per Share Basic loss per share: Net loss $ ( 2,357,288 ) 11,767,811 $ ( 0.20 ) Effect of dilutive securities Stock options - - - Diluted loss per share $ ( 2,357,288 ) 11,767,811 $ ( 0.20 ) For the three months ended September 30, 2024 Net Income Shares Per Share Basic income per share: Net income $ 70,795 11,429,695 $ 0.006 Effect of dilutive securities Stock options 53,059 - Diluted income per share $ 70,795 11,482,754 $ 0.006 As of September 30, 2025, 50,000 options were outstanding. These options were not included in the computation of diluted earnings per share because of the loss during the quarter ended September 30, 2025; therefore, their effect would have been anti-dilutive. Page 16 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 5 – OTHER COMPREHENSIVE INCOME AND FOREIGN CURRENCY The following table represents the functional currencies of the Company and its subsidiaries: SCHEDULE OF FOREIGN CURRENCY TRANSLATION The Company and Subsidiaries Functional Currency NetSol Technologies, Inc. USD NTA USD NTE British Pound AEL British Pound VLSH British Pound VLS British Pound VLSIL Euro NetSol PK Pakistan Rupee Connect Pakistan Rupee NetSol Innovation Pakistan Rupee NIAI Pakistan Rupee NetSol Thai Thai Bhat Otoz Thai Thai Bhat Australia Australian Dollar Namecet AED NetSol Beijing Chinese Yuan Tianjin Chinese Yuan 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 $ 46,402,374 and $ 46,613,208 as of September 30, 2025 and June 30, 2025, respectively. During the three months ended September 30, 2025 and 2024, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation gain attributable to NetSol of $ 210,834 and a translation loss of $ 113,407 , respectively. NOTE 6 – MAJOR CUSTOMERS For the three months ended September 30, 2025, the Company had three customers that comprised 24.7 %, 14.8 % and 10.4 % of the Company’s net revenues, respectively. For the three months ended September 30, 2024, the Company had two customers that comprised 22 % and 16.9 % of the Company’s net revenues, respectively. As of September 30, 2025, no customer accounted for more than 10 % of accounts receivable. As of June 30, 2025, three customers accounted for 16.8 %, 16.1 % and 10.8 % of accounts receivable, respectively. As of September 30, 2025, four customers accounted for 22.2 %, 20.7 %, 12.1 % and 11.5 % of revenues in excess of billings, respectively. As of June 30, 2025, four customers accounted for 24.2 %, 16.9 %, 15.9 % and 11.9 % of revenues in excess of billings, respectively. Page 17 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 7 - OTHER CURRENT ASSETS Other current assets consisted of the following: SCHEDULE OF OTHER CURRENT ASSETS As of September 30, 2025 As of June 30, 2025 Prepaid Expenses $ 1,706,683 $ 1,760,321 Advance Income Tax 513,327 406,221 Employee Advances 293,549 151,355 Security Deposits 194,280 159,849 Other Receivables 375,428 410,489 Other Assets 503,465 315,233 Net Balance $ 3,586,732 $ 3,203,468 NOTE 8 – REVENUES IN EXCESS OF BILLINGS – LONG TERM Revenues in excess of billings, net consisted of the following: SCHEDULE OF REVENUE IN EXCESS OF BILLING As of September 30, 2025 As of June 30, 2025 Revenues in excess of billings - long term $ 1,064,190 $ 1,111,803 Present value discount ( 183,137 ) ( 208,037 ) Net Balance $ 881,053 $ 903,766 Pursuant to revenue recognition for contract accounting, the Company has recorded revenues in excess of billings long-term for amounts billable after one year. During the three months ended September 30, 2025 and 2024, the Company accreted $ 24,814 and $ 18,367 , respectively, which was recorded in interest income for that period. The Company used the discounted cash flow method with interest rates ranging from 4.2 % to 17.5 %, for the period ended September 30, 2025 and June 30, 2025. NOTE 9 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT As of September 30, 2025 As of June 30, 2025 Office Furniture and Equipment $ 2,490,058 $ 2,437,002 Computer Equipment 9,535,551 9,513,181 Assets Under Capital Leases 143,494 145,197 Building 3,553,010 3,532,475 Land 900,179 894,698 Autos 1,850,649 1,603,271 Improvements 218,374 217,230 Subtotal 18,691,315 18,343,054 Accumulated Depreciation ( 13,502,723 ) ( 13,269,682 ) Property and Equipment, Net $ 5,188,592 $ 5,073,372 For the three months ended September 30, 2025 and 2024, depreciation expense totaled $ 324,606 and $ 365,997 , respectively. Of these amounts, $ 208,731 and $ 228,550 , respectively, are reflected in cost of revenues. Following is a summary of fixed assets held under finance leases as of September 30, 2025 and June 30, 2025: SCHEDULE OF FIXED ASSETS HELD UNDER CAPITAL LEASES As of September 30, 2025 As of June 30, 2025 Vehicles $ 143,494 $ 145,197 Total 143,494 145,197 Less: Accumulated Depreciation - Net ( 55,889 ) ( 47,807 ) Fixed assets held under capital leases, Total $ 87,605 $ 97,390 Finance lease term and discount rate were as follows: SCHEDULE OF FINANCE LEASE TERM As of As of September 30, 2025 June 30, 2025 Weighted average remaining lease term - Finance leases 1.5 Years 1.75 Years Weighted average discount rate - Finance leases 11.3 % 11.3 % Page 18 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 10 - LEASES The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years. The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at the 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 reviews the impairment of ROU assets consistent with the approach applied to the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company elected the practical expedient to exclude short-term leases (leases with original terms of 12 months or less) from ROU asset and lease liability accounts. Lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do not result in a re-measurement of lease liabilities. The Company’s variable lease payments include payments for finance leases that are adjusted based on a change in the Karachi Inter Bank Offer Rate. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants. Supplemental balance sheet information related to leases was as follows: SCHEDULE OF BALANCE SHEET INFORMATION RELATED TO LEASE As of September 30, 2025 As of June 30, 2025 Assets Operating lease assets, net $ 653,418 $ 809,513 Liabilities Current Operating $ 401,655 $ 433,242 Operating, Current $ 401,655 $ 433,242 Non-current Operating 224,417 333,374 Operating, Noncurrent 224,417 333,374 Total Lease Liabilities $ 626,072 $ 766,616 Page 19 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) The components of lease cost were as follows: SCHEDULE OF COMPONENTS OF LEASE COST 2025 2024 For the Three Months Ended September 30, 2025 2024 Amortization of finance lease assets $ 8,125 $ 13,877 Interest on finance lease obligation 3,042 3,087 Operating lease cost 81,627 99,846 Short term lease cost 76,465 49,563 Sub lease income ( 8,974 ) ( 8,406 ) Total lease cost $ 160,285 $ 157,967 Lease term and discount rate were as follows: SCHEDULE OF LEASE TERM AND DISCOUNT RATE As of As of September 30, 2025 June 30, 2025 Weighted average remaining lease term - Operating leases 1.29 Years 1.44 Years Weighted average discount rate - Operating leases 4.9 % 4.8 % Supplemental disclosures of cash flow information related to leases were as follows: SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES 2025 2024 For the Three Months Ended September 30, 2025 2024 Operating cash flows related to operating leases $ 75,824 $ 91,641 Operating cash flows related to finance leases $ 3,042 $ 3,087 Financing cash flows related finance leases $ 15,109 $ 5,516 Maturities of operating lease liabilities were as follows as of September 30, 2025: SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Amount Within year 1 $ 428,605 Within year 2 173,187 Within year 3 63,507 Within year 4 351 Total Lease Payments 665,650 Less: Imputed interest ( 39,578 ) Present Value of lease liabilities 626,072 Less: Current portion ( 401,655 ) Non-Current portion $ 224,417 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 are currently on a month-by-month basis. 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, 2025 and 2024, the Company received lease income of $ 8,974 and $ 8,406 , respectively. NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES As of September 30, 2025 As of June 30, 2025 Accounts Payable $ 1,218,485 $ 981,504 Accrued Liabilities 4,734,430 4,502,366 Accrued Payroll 2,002,429 1,313,127 Accrued Payroll Taxes 210,980 329,618 Taxes Payable 713,345 600,199 Other Payable 311,883 284,030 Total $ 9,191,552 $ 8,010,844 Page 20 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 12 – DEBTS Notes payable and finance leases consisted of the following: SCHEDULE OF COMPONENTS OF NOTES PAYABLE AND CAPITAL LEASES As of September 30, 2025 Name Total Current Maturities Long-Term Maturities D&O Insurance (1) $ 23,622 $ 23,622 $ - Line of Credit (2) 505,000 505,000 - Bank Overdraft Facility (3) - - - Loan Payable Bank - Export Refinance (4) 1,770,413 1,770,413 - Loan Payable Bank - Running Finance (5) - - - Loan Payable Bank - Export Refinance II (6) - - - Loan Payable Bank - Export Refinance III (7) 1,345,514 1,345,514 - Loan Payable Bank - Export Refinance IV (8) 4,603,073 4,603,073 - Sale and Leaseback Financing (9) 203,906 68,923 134,983 Short Term Financing (10) - - - 8,451,528 8,316,545 134,983 Subsidiary Finance Leases (11) 96,885 13,698 83,187 $ 8,548,413 $ 8,330,243 $ 218,170 As of June 30, 2025 Name Total Current Maturities Long-Term Maturities D&O Insurance (1) $ 119,542 $ 119,542 $ - Line of Credit (2) 405,000 405,000 - Bank Overdraft Facility (3) - - - Loan Payable Bank - Export Refinance (4) 1,759,634 1,759,634 - Loan Payable Bank - Running Finance (5) - - - Loan Payable Bank - Export Refinance II (6) - - - Loan Payable Bank - Export Refinance III (7) 1,337,322 1,337,322 - Loan Payable Bank - Export Refinance IV (8) 4,575,048 4,575,048 - Sale and Leaseback Financing (9) 76,618 29,660 46,958 Short Term Financing (10) - - - 8,273,164 8,226,206 46,958 Subsidiary Finance Leases (11) 101,505 13,855 87,650 $ 8,374,669 $ 8,240,061 $ 134,608 (1) The Company finances Directors’ and Officers’ (“D&O”) liability insurance and Errors and Omissions (“E&O”) liability insurance, for which the D&O and E&O balances are renewed on an annual basis and, as such, are recorded in current maturities. The interest rate on these financings were ranging from 8.4 % to 11.6 % as of September 30, 2025 and June 30, 2025. (2) The Company has an uncommitted discretionary demand line of credit up to an aggregate amount of $ 1,000,000 with HSBC, secured by a lien on the Company’s assets. The annual interest rate was 7.75 % as of September 30, 2025 and June 30, 2025. The total outstanding balance as of September 30, 2025 and June 30, 2025 was $ 505,000 and $ 405,000 , respectively. Page 21 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) (3) 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 . The annual interest rate was 8.5 % as of September 30, 2025 and June 30, 2025. The total outstanding balance as of September 30, 2025 and June 30, 2025 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 September 30, 2025, NTE was in compliance with this covenant. (4) The Company’s subsidiary, NetSol PK, has an export refinance facility with Askari Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. The total facility amount is Rs. 600,000,000 or $ 2,124,495 at September 30, 2025 and Rs. 600,000,000 or $ 2,111,561 at June 30, 2025. NetSol PK used Rs. 500,000,000 or $ 1,770,413 at September 30, 2025 and Rs. 500,000,000 or $ 1,759,634 at June 30, 2025. The interest rate for the loan was 8.0 % at September 30, 2025 and June 30, 2025. (5) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. The total facility amount is Rs. 4,050,937 or $ 14,344 and Rs. 4,050,937 or $ 14,256 , at September 30, 2025 and June 30, 2025, respectively. The balance outstanding at September 30, 2025 and June 30, 2025 was Rs. Nil . The interest rate for the loan was 13.1 % at September 30, 2025 and 13.2 % at June 30, 2025. (6) The Company’s subsidiary, NetSol PK, has an export refinance facility with Bank Al-Habib Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. The total facility amount is Rs. 400,000,000 or $ 1,416,331 at September 30, 2025. NetSol PK has not used this facility at September 30, 2025. The interest rate for the loan was 8.0 % at September 30, 2025. This facility requires NetSol PK to maintain a long-term debt equity ratio of 60:40 and a current ratio of 1:1. As of September 30, 2025, NetSol PK was in compliance with this covenant. (7) The Company’s subsidiary, NetSol PK, has an export refinance facility with Samba Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every six months. The total facility amount is Rs. 380,000,000 or $ 1,345,514 and Rs. 380,000,000 or $ 1,337,322 at September 30, 2025 and June 30, 2025, respectively. The interest rate for the loan was 8.0 % at September 30, 2025 and June 30, 2025. During the tenure of the 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 September 30, 2025, NetSol PK was in compliance with these covenants. (8) The Company’s subsidiary, NetSol PK, has an export refinance facility with Habib Metro Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 1,300,000,000 or $ 4,603,073 and Rs. 1,300,000,000 or $ 4,575,048 , at September 30, 2025 and June 30, 2025, respectively. NetSol PK used Rs. 1,300,000,000 or $ 4,603,073 and Rs. 1,300,000,000 or $ 4,575,048 , at September 30, 2025 and June 30, 2025, respectively. The interest rate for the loan was 8.0 % at September 30, 2025 and June 30, 2025. (9) The Company’s subsidiary, NetSol PK, availed sale and leaseback financing from First Habib Modaraba secured by the transfer of the vehicles’ title. As of September 30, 2025, NetSol PK used Rs. 57,587,011 or $ 203,906 of which $ 134,983 was shown as long term and $ 68,923 as current. As of June 30, 2025, NetSol PK used Rs. 21,771,042 or $ 76,618 of which $ 46,958 was shown as long-term and $ 29,660 as current. The interest rate for the loan was from 12.3 % to 22.7 % at September 30, 2025 and June 30, 2025. (10) The Company leases various fixed assets under finance lease arrangements expiring in various years through 2028. The assets and liabilities under 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 finance leases is included in depreciation expense for the three months ended September 30, 2025 and 2024. Page 22 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) Following are the aggregate minimum future lease payments under finance leases as of September 30, 2025: SCHEDULE OF AGGREGATE MINIMUM FUTURE LEASE PAYMENTS UNDER CAPITAL LEASES Amount Minimum Lease Payments Within year 1 $ 26,300 Within year 2 84,402 Within year 3 5,868 Total Minimum Lease Payments 116,570 Interest Expense relating to future periods ( 19,685 ) Present Value of minimum lease payments 96,885 Less: Current portion ( 13,698 ) Non-Current portion $ 83,187 The following are the aggregate future long-term debt payments as of September 30, 2025 which consist of “Sale and Leaseback Financing (9)”. SCHEDULE OF AGGREGATE FUTURE LONG TERM DEBT PAYMENTS Amount Loan Payments Within year 1 $ 68,923 Within year 2 72,359 Within year 3 62,624 Total Loan Payments 203,906 Less: Current portion ( 68,923 ) Non-Current portion $ 134,983 NOTE 13 - STOCKHOLDERS’ EQUITY During the three months ended September 30, 2025, the Company issued 7,581 shares of common stock, respectively, to the independent Board of Directors as part of their board compensation. The grant date fair value was $ 36,000 and was recorded as compensation expense in the accompanying consolidated financial statements. During the three months ended September 30, 2025, the Company issued 5,861 shares of common stock to a consultant pursuant to the terms of his consultancy agreement. The grant date fair value of the shares was $ 25,000 and was recorded as compensation expense in the accompanying consolidated financial statements. During the three months ended September 30, 2025, the Company issued 20,000 shares of common stock to employees pursuant to the terms of their employment agreements. The grant date fair value was $ 84,400 and was recorded as compensation expense in the accompanying consolidated financial statements. Stock Grants The following table summarizes stock grants awarded as compensation: SUMMARY OF UNVESTED STOCK GRANTS AWARDED AS COMPENSATION # Number of shares Weighted Average Grant Date Fair Value ($) Unvested, June 30, 2025 - $ - Granted 33,442 $ 4.35 Vested ( 33,442 ) $ 4.35 Unvested, September 30, 2025 - $ - For the three months ended September 30, 2025 and 2024, the Company recorded compensation expense of $ 145,400 and $ 39,750 , respectively. The weighted average grant date fair value is determined by the Company’s closing stock price on the grant date. Page 23 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 14 – INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN Common stock purchase options consisted of the following: OPTIONS: SCHEDULE OF COMMON STOCK PURCHASE OPTIONS # of shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregated Intrinsic Value Outstanding and exercisable, June 30, 2025 50,000 $ 2.94 1.89 - Granted - - - Exercised - - - Expired / Cancelled - - - Outstanding and exercisable, September 30, 2025 50,000 $ 2.94 1.64 $ 90,500 The aggregate intrinsic value at September 30, 2025 represents the difference between the Company’s closing stock price of $ 4.75 on September 30, 2025 and the exercise price of the in-the-money stock options. The following table summarizes information about stock options outstanding and exercisable at September 30, 2025. SUMMARY OF STOCK OPTIONS OUTSTANDING Exercise Price Number Outstanding and Exercisable Weighted Average Remaining Contractual Life Weighted Average Exercise Price OPTIONS: $ 2.94 50,000 1.64 $ 2.94 Totals 50,000 1.64 $ 2.94 NOTE 15– OPERATING SEGMENTS The Company has identified three segments for its products and services: North America, Europe, and Asia-Pacific. The reportable segments are business units located in different global regions. Each business unit provides similar products and services: license fees for leasing and asset-based software, subscription and support fees, and implementation and IT consulting services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to its particular regional location. The Company’s chief operating decision maker (“CODM”) evaluates performance and allocates resources based on gross profit and income from operations. The Company has designated its Chief Executive Officer as the CODM. Segment assets include all assets attributable to operations within the respective geographic regions, including cash, accounts receivable, revenue in excess of billings, and property, plant, and equipment. Corporate assets, which primarily consist of cash and cash equivalents, goodwill, and assets associated with the Company’s corporate headquarters, are not allocated to the geographic segments and are shown separately. Prior year results have been restated to conform to the current year presentation, reflecting the use of gross profit and income from operations as the measures of segment performance evaluated by the CODM. Page 24 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) The following tables present financial information by reportable segment for the three months ended September 30, 2025: SCHEDULE OF FINANCIAL INFORMATION BY REPORTABLE SEGMENT North America Europe Asia - Pacific Total For the Three Months Ended September 30, 2025 North America Europe Asia - Pacific Total Revenues License $ - $ 72,225 $ - $ 72,225 Subscription and support 1,486,397 1,484,646 5,989,512 8,960,555 Services 621,966 1,747,446 3,609,731 5,979,143 Intersegment revenues - - 1,061,771 1,061,771 Total revenue from reportable segments 2,108,363 3,304,317 10,661,014 16,073,694 Elimination of intersegment revenues - - - ( 1,061,771 ) Total consolidated revenues $ 15,011,923 Revenues from reportable segments 2,108,363 3,304,317 10,661,014 16,073,694 Salaries and consultants 492,636 1,133,001 5,338,889 6,964,526 Travel 53,734 67,360 377,078 498,172 Depreciation - - 208,731 208,731 Other (a) 501,302 918,027 1,070,946 2,490,275 Gross Profit 1,060,691 1,185,929 3,665,370 5,911,990 Selling and marketing 637,561 395,008 1,907,598 2,940,167 Depreciation 1,594 44,608 69,673 115,875 General and administrative 299,026 889,577 2,272,570 3,461,173 Income (loss) from operations - reportable segments $ 122,510 $ ( 143,264 ) $ ( 584,471 ) $ ( 605,225 ) Reconciliation: Income (loss) from operations - reportable segments $ ( 605,225 ) Corporate operating expenses ( 1,233,481 ) Interest expense ( 174,611 ) Interest income 280,974 Gain (loss) on foreign currency exchange transactions ( 286,917 ) Other income (expense) 17,670 Net income (loss) before income taxes $ ( 2,001,590 ) North America Europe Asia - Pacific Total As of September 30, 2025 North America Europe Asia - Pacific Total Segment assets: Cash $ 194,594 $ 937,579 $ 21,035,388 $ 22,167,561 Accounts receivable, net of allowance 827,171 1,996,084 3,497,733 6,320,988 Revenue in excess of billings, net of allowance 1,547,541 3,137,993 10,190,170 14,875,704 Other segment assets (b) 281,641 1,406,229 7,629,704 9,317,574 Total segment assets $ 2,850,947 $ 7,477,885 $ 42,352,995 $ 52,681,827 Asset Reconciliation Total assets for reportable segments 52,681,827 Corporate assets 641,163 Goodwill not allocated to segments 9,302,524 Consolidated total $ 62,625,514 North America Europe Asia - Pacific Total For the Three Months ended September 30, 2025 North America Europe Asia - Pacific Total Expenditures for property, plant and equipment $ 21,099 $ 38,187 $ 425,995 $ 485,281 Page 25 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) The following tables present financial information by reportable segment for the three months ended September 30, 2024: North America Europe Asia - Pacific Total For the Three Months Ended September 30, 2024 North America Europe Asia - Pacific Total Revenues License $ - $ 1,229 $ - $ 1,229 Subscription and support 1,262,645 892,772 6,037,054 8,192,471 Services 1,606,016 1,601,285 3,197,497 6,404,798 Intersegment revenues - - 621,392 621,392 Total revenue from reportable segments 2,868,661 2,495,286 9,855,943 15,219,890 Elimination of intersegment revenues - - - ( 621,392 ) Total consolidated revenues $ 14,598,498 Revenues from reportable segments 2,868,661 2,495,286 9,855,943 15,219,890 Salaries and consultants 483,609 1,001,075 4,719,050 6,203,734 Travel 139,775 14,730 416,357 570,862 Depreciation - - 228,550 228,550 Other (a) 260,445 645,924 746,263 1,652,632 Gross Profit 1,984,832 833,557 3,745,723 6,564,112 Selling and marketing 548,099 273,368 1,400,888 2,222,355 Depreciation 471 59,680 77,296 137,447 General and administrative 221,426 927,202 2,359,305 3,507,933 Income (loss) from operations - reportable segments $ 1,214,836 $ ( 426,693 ) $ ( 91,766 ) $ 696,377 Reconciliation: Income (loss) from operations - reportable segments $ 696,377 Corporate operating expenses ( 1,456,535 ) Interest expense ( 258,219 ) Interest income 769,867 Gain (loss) on foreign currency exchange transactions 542,545 Other income (expense) 153,491 Net income (loss) before income taxes $ 447,526 North America Europe Asia - Pacific Total As of June 30, 2025 North America Europe Asia - Pacific Total Segment assets: Cash $ 387,955 $ 1,138,048 $ 15,248,031 $ 16,774,034 Accounts receivable, net of allowance 581,872 1,084,418 5,861,282 7,527,572 Revenue in excess of billings, net of allowance 1,967,757 3,178,780 13,987,848 19,134,385 Other segment assets (b) 243,550 1,580,534 7,066,725 8,890,809 Total segment assets $ 3,181,134 $ 6,981,780 $ 42,163,886 $ 52,326,800 Asset Reconciliation Total assets for reportable segments 52,326,800 Corporate assets 811,785 Goodwill not allocated to segments 9,302,524 Consolidated total $ 62,441,109 North America Europe Asia - Pacific Total For the Three Months ended September 30, 2024 North America Europe Asia - Pacific Total Expenditures for property, plant and equipment $ 3,841 $ 37,494 $ 59,402 $ 100,737 (a) Other costs of goods sold include computer costs, third-party hardware and software costs, repair and maintenance, insurance, utilities, and communication expenses. (b) Other assets include property and equipment, right of use of assets, advances, deposits, and prepayments. Page 26 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements September 30, 2025 (Unaudited) NOTE 16 – 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: SCHEDULE OF BALANCE OF NON-CONTROLLING INTEREST SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at September 30, 2025 NetSol PK 30.47 % $ 4,773,605 NetSol Innovation 30.47 % ( 725,468 ) NAMECET 30.47 % 686,443 NIAI 30.47 % ( 4,743 ) NetSol Thai 0.006 % ( 189 ) OTOZ Thai 0.01 % 6 Total $ 4,729,654 SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at June 30, 2025 NetSol PK 30.24 % $ 4,496,723 NetSol Innovation 30.24 % ( 637,529 ) NAMECET 30.24 % 567,819 NIAI 30.24 % ( 1,471 ) NetSol Thai 0.006 % ( 184 ) OTOZ Thai 0.01 % 7 OTOZ 0.00 % - Total $ 4,425,365 During the quarter ended September 30, 2025, employees of NetSol PK, a majority-owned subsidiary of the Company, exercised stock options to purchase an aggregate of 278,455 shares of the subsidiary’s common stock for total proceeds of $ 76,567 . Of this amount, $ 64,147 was received during the quarter ended September 30, 2025, and $ 12,420 was received during the fiscal year ended June 30, 2025. Due to this exercise, the non-controlling interest in NetSol PK, NetSol Innovation, NAMECET and NIAI, increased from 30.24 % at June 30, 2025 to 30.47 % at September 30, 2025. The carrying amount of the non-controlling interest was increased by $ 115,283 , and the difference of $ 38,716 was recognized as a decrease in additional paid-in capital in the Company’s consolidated equity. The following schedule discloses the effect on the Company’s equity due to the changes in the Company’s ownership interest. SCHEDULE OF CHANGE IN OWNERSHIP INTEREST 2025 2024 For the Three Months Ended September 30, 2025 2024 Net income (loss) attributable to NetSol $ ( 2,357,288 ) $ 70,795 Transfer to (from) non-controlling interest Decrease in paid-in capital for purchase of 157,895 shares of OTOZ Inc common stock ( 143,014 ) Decrease in paid-in capital for option exercise of 278,455 shares of common stock of NetSol PK by emplyees ( 38,716 ) Net transfer to (from) non-controlling interest ( 38,716 ) ( 143,014 ) Change from net income (loss) attributable to NetSol and transfer (to) from non-controlling interest $ ( 2,396,004 ) $ ( 72,219 ) NOTE 17– INCOME TAXES The current tax provision is based on taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for tax on income is calculated at the current rates of taxation as applicable after considering tax credit and tax rebates available, if any. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Our effective tax rate will depend on the portion of our profits earned within and outside the United States. During the three months ended September 30, 2025 and 2024, the Company recorded an income tax provision of $ 215,775 and $ 229,817 , respectively. Page 27