NETSOL TECHNOLOGIES INC 10-Q

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 months ended September 30, 2025. 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, 2025, and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Our website is located at https://netsoltech.com/ , and our investor relations website is located at https://ir.netsoltech.com . The following filings are available through our investor relations website after we file with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and our Proxy Statements for our annual meetings of stockholders. These filings are also available for download free of charge on our investor relations website. We also provide a link to the section of the SEC’s website at www.sec.gov that has all of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements and other ownership related filings. Further, a copy of this 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 at https://ir.netsoltech.com/all-sec-filings. 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. Page 28 Business Overview NetSol Technologies is a global business services and asset finance solutions provider. NetSol delivers state-of-the-art solutions for the asset finance and leasing industry, serving automotive and equipment OEMs, auto captives and financial institutions across over 30 countries. Since its inception in 1997, NetSol has been at the cutting edge of technology, pioneering innovations with its asset finance solutions and leveraging advanced AI and cloud services to meet the complex needs of the global market. Renowned for its deep industry expertise, customer-centric approach and commitment to excellence, NetSol fosters strong partnerships with its clients, ensuring their success in an ever-evolving landscape. With a rich history of innovation, ethical business practices and a focus on sustainability, NetSol is dedicated to empowering businesses worldwide, securing its position as the trusted partner for leading firms around the globe. Our primary sources of revenues have been licensing, subscriptions, modification, enhancement and support of our suite of financial applications, under the brand name Transcend™ Finance (formerly called NFS Ascent ® ) for leading businesses in the global finance and leasing space. Our clients include blue chip organizations, Dow-Jones 30 Industrials, Fortune 500 manufacturers, financial institutions, global vehicle manufacturers and enterprise technology providers, all of which are serviced by our strategically placed support and delivery locations around the globe. We are also committed to serving Tier-2 and Tier-3 banks and financial institutions. We understand the unique challenges faced by these institutions, which is why we offer innovative cloud implementation solutions without any license fees, with rapid deployments and the with ability to scale. Further, our out-of-the-box, API-first products are designed to seamlessly integrate into existing systems, providing flexibility and scalability that smaller institutions often need. By prioritizing accessibility and ease of use, we empower smaller financial companies to enhance their service offerings and streamline operations, positioning ourselves as a trusted partner in their digital transformation journey. Founded in 1997, NetSol is headquartered in Encino, 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 Encino, California and Austin, Texas ● Europe London Metropolitan area, Horsham and Flintshire ● Asia Pacific Lahore, Karachi, Bangkok, Beijing, Tianjin, Jakarta and Sydney ● Middle East Dubai We believe that our strong technology solutions offer our customers a return on their investment and allows us to thrive in a hyper competitive and mature global marketplace. Our solutions are bolstered by our people. We believe that people are the drivers of success; therefore, we invest heavily in our hiring, training and retention of top-notch staff to ensure not only successful selling, but also the ongoing satisfaction of our clients. Taken together, this “selling and attentive servicing” approach creates a distinctive advantage for us and a unique value for our customers. We continue to underpin our proven and effective business model, which is a combination of careful cost arbitrage, subject matter expertise, domain experience, scalability and proximity with our global and regional customers. Expertise Our expertise in enterprise technology and financial application development has helped us emerge as a global player in the finance and leasing industry and enabled us to secure a broad footprint across the major markets of North America, Asia Pacific and Europe. The Asia Pacific region has particularly benefitted from the organic growth in the fast-developing leasing automation industry, which is still nascent as per Western standards. Page 29 Domain Experience NetSol is a dynamic leader and has been able to accumulate a wealth of experience in the global asset finance and leasing industry. We have built a large knowledge base which is regularly refined and updated to ensure the most up-to-date best practices and business solutions for the benefit of our clients and partners. We have a strong presence in the captive asset-finance domain. We have had continual operations for nearly three decades in Asia Pacific and Europe and over four decades in North America. Proximity with Global and Regional Customers We have offices across the world, located strategically to maintain close contact and proximity with our customers in various key markets. This has not only helped us strengthen our customer relationships, but also build a deeper understanding of local market dynamics. Simultaneously, we can extend services and support development through a combination of onsite and offsite resources. This approach has allowed us to offer blended rates to our customers by employing a unique and cost-effective global development model. While our business model is built around the development, implementation and maintenance of our suite of financial applications, we employ the same facilities and competencies to extend our services to related segments, including but not limited to: ● Information security ● Digital solutions ● AI, ML and data analytics ● Generative AI ● Policy and strategy ● Emerging technologies| ● Cloud services ● Data engineering Our global operations are broken down into three primary regions: North America, Europe and Asia Pacific. All of the subsidiaries are seamlessly integrated to function effectively with global delivery capabilities, cross selling to multinational asset finance companies, leveraging the centralized marketing and pre-sales organization, and a network of employees connected across the globe to support local and global customers and partners. OUR PRODUCTS AND SERVICES Covering the complete finance and leasing lifecycle starting from quotation origination through contract settlements, our products are designed and developed for highly flexible settings and are capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor and multi-manufacturer environments. Our solutions empower financial institutions to effectively manage their complex lending portfolios, enabling them to thrive in hyper-competitive global markets. Built on cutting-edge, modern technology, NetSol’s unified Transcend™ Platform is an AI-powered digital retail and asset finance solution for automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers and financial institutions. PRODUCTS AND SERVICES: TRANSCEND™ PLATFORM The Transcend™ Platform, powered by NetSol, is an AI-driven unified ecosystem that revolutionizes how assets are sold, financed and leased. Designed to automate and optimize every step - from sales to originations to servicing, Transcend™ leverages AI and ML to drive predictive insights and smarter decision-making. Page 30 Transcend™ Retail (Formerly Known as Otoz®) We revolutionize auto and equipment retail with a fully digital, integrated platform that simplifies the entire customer journey. From online purchasing to finance approval, Transcend™ Retail (formerly known as Otoz®) offers advanced retail and mobility solutions that keep dealerships or OEMs at the cutting edge of consumer expectations. Transcend™ Finance (Formerly Known as Ascent®) We streamline finance and leasing operations with a comprehensive solution for originations, servicing and wholesale finance. Transcend™ Finance (formerly known as Ascent®) empowers automotive and equipment OEMs, auto captives, commercial lenders, dealers, brokers and financial institutions with end-to-end visibility and control, ensuring seamless workflows and accelerated business outcomes. Originations We streamline the entire origination process, from submission to approval, with advanced features such as real-time, AI-powered credit decisioning, automated deal flows and more. Servicing We enable financial institutions to attain real-time insights into portfolio performance, delinquencies and losses, enabling proactive portfolio management and strategic decision-making. Wholesale finance Our wholesale finance solution empowers customers to gain a competitive edge by automating their wholesale finance and floor planning operations effortlessly. Transcend™ Marketplace (Formerly Known as Appex Now) Transcend™ Marketplace (formerly known as Appex Now) offers a suite of flexible, component-based solutions that integrate seamlessly with the customer’s existing infrastructure. Transcend™ Marketplace is a modular, API-first solution that addresses every aspect of finance and leasing using tools for calculations, document generation, loan origination and lending configurations. Flex™ Flex is an API-first, ready-to-use calculation and quotation engine. It is a one-stop solution that guarantees precise calculations at all stages of the contract lifecycle through various calculation types. All the calculations are parameter-driven, which helps perform simple, multi-dimensional or complex calculations based on the needs of a business. Flex™ has a lightning-fast onboarding process, which can take place in mere minutes. Hubex™ Hubex™ is an API library that enables companies to standardize all their API integration procedures across multiple API services through a single integration. In addition to traditional lending companies, Hubex™ can also streamline the operations of dealerships, vendors and consultants. With a ready-to-use service, Hubex™ makes it easy for businesses to seamlessly connect with multiple APIs and achieve their desired outcomes. Pre-integrated services in the Hubex™ library include, but are not limited to, payment processing, bank account authentication, finance and insurance products, fraud check, know your customer (KYC) service, driver license verification, address validation, vehicle valuation and notification service. Index™ Index™ is a cloud-based parameter storage that smoothly runs all of a company’s core lending operations. It is an accumulation of all the master setups, including asset catalog and inventory, programs, rates, and profiles for lenders, dealers and multiple partners, in one centralized location for all business types. Index TM can enhance delivery efficiency and program management for easy integration into all systems. Dock™ Dock™ is an advanced document generation tool that lets a company create accurate and professional-looking documents in just seconds. With Dock TM ’s template-based configuration, a company can set up placeholders for data, essentially simplifying the document creation process and reducing the chance of human error. Its API-first architecture ensures scalability, making it capable of handling any document generation task, from single documents to millions, with ease. Page 31 Lane™ Lane™ offers a feature-rich, end-to-end order management system for asset leasing and loans and credit companies. Our platform covers all aspects, from conducting end-to-end sales to performing dealer and partner-related tasks and marketing-related activities. The system offers a variety of dashboards that provide vital information for dealers and partners while enabling quick order management and providing a way for users to record and submit a complete credit application for their clients. Link™ Link is a purpose-built platform designed for brokers, lenders, dealers and borrowers to work seamlessly together. With tailored solutions that simplify applications and automate key processes, Link TM is designed to enhance customer relationships whilst making compliance effortless. This results in faster approvals, enriched customer experiences and stronger loyalty via elevated customer satisfaction. Intermediary portals: Broker portals Efficiency and effectiveness are paramount for any broker. Managing disparate systems and processes can be cumbersome and time consuming, often leading to inefficiencies and missed opportunities. NetSol offers a solution to these challenges by consolidating disparate processes into a single unified interface, revolutionizing the way a brokerage operates. Lender portals NETSOL’s lender-specific portals are designed to transform the lending process by enhancing risk management and driving profitability. Our advanced tools not only streamline loan origination, but also facilitate seamless communication and collaboration with the lending ecosystem. We empower a company’s lending process with intuitive and efficient lender portals designed for a seamless user experience. Dealer portals In the competitive automotive industry, dealers need efficient and comprehensive solutions to manage their operations effectively. NetSol’s intermediary portals serve as digital command centers, providing dealers with a wide array of tools, resources and services to optimize every aspect of their business, from inventory management to sales and marketing. Transcend™ Consultancy Empowering businesses with Transcend™ Consulting Services, we offer expert guidance across critical areas like information security, data engineering and cloud services. Our team partners with businesses to create tailored solutions that drive innovation, efficiency and growth. Transcend™ AI Labs We are leading AI-driven innovation with our Transcend™ AI Labs, integrating advanced AI services into our product suite to solve the unique challenges of BFSI, equipment and auto OEMs and dealerships. Our tailored solutions drive industry-specific advancements, helping companies stay ahead in a competitive market. Page 32 Highlights Listed below are a few of NetSol’s highlights for the quarter ended September 30, 2025: ● We generated approximately $1.6 million in revenue through major system enhancements and platform modifications for multiple clients across diverse global regions. ● We entered into a strategic agreement with an existing client to not only have the annual maintenance fee revised upwards but also to upgrade our legacy R1 platform, a project expected to generate approximately $1.5 million in revenues. ● We launched Check AI, a groundbreaking AI-native credit decisioning engine integrated into our Transcend platform, marking a major step forward in transforming automated underwriting through faster decision-making and superior accuracy. ● We were selected by a Fortune 500 automotive and powersports dealership group in North America to lead a discovery engagement with them focused on defining the roadmap for their next-gen omnichannel digital retail platform to be powered by our Transcend Retail system. ● The finance arm of a leading Chinese construction equipment company in Indonesia successfully went live with our Transcend Finance solution. Management has identified the following material trends affecting NetSol. Positive trends: ● According to S&P Global Mobility, the forecast for new vehicle sales worldwide in 2025 is 89.6 million units, which is a modest 1.7% year-over-year growth in light vehicle sales, and the US automotive sales of new vehicles in 2025 are expected to be around 16.2 million units, which is a 1.2% to 1.4% increase from 2024. This would be the highest annual sales figure since 2019. ● According to recent forecasts, China’s auto sales in 2025 are expected to reach approximately 32.9 million units, representing a 4.7% year-over-year increase. Sales of New Energy Vehicles (NEV) account for 48.7% of all new car sales in China. (China Automobile Manufacturers Association). China’s sales target for NEVs in 2025 is projected to reach 15.5 million units, amounting to a 20% rise over 2024 figures (Fastmarkets, September 19, 2025). ● The overall size of the mobility market in Europe and the United States is projected to increase to over $425 billion combined by 2035 or a compound CAGR of 5% from 2022 (Deloitte Global Automotive Mobility Market Simulation Tool). ● The global automotive finance market size was valued at approximately $295.13 billion in 2024 and is projected to reach USD 451.71 billion by 2030, representing a compound annual growth rate (CAGR) of 7.4% from 2025 through 2030 (Grandview Research). Negative trends: ● The conflict in Gaza has disrupted the entire Middle East region since October 7, 2023. The conflict has expanded to neighboring nations such as Syria, Lebanon, and Iran. The unrest and turmoil in the region are viewed unfavorably by the regional business community. While recent ceasefire efforts may signal a positive change to the volatility in the region, there is no guarantee that the ceasefire will hold or that any outcome of the conflict will positively affect the region. ● General economic conditions in our geographic markets, inflation, economic uncertainty, and increased operational costs are pressuring margins and leading companies to prioritize critical investment and control spending. ● SaaS cybersecurity faces unprecedented challenges as companies increasingly migrate critical functions to cloud platforms. Proliferation of AI tools within these platforms has created additional attack vectors that require specialized security approaches beyond legacy protections (JOSYS.COM). ● The imposition of tariffs on China and on other US trading partners may affect the price of consumer goods, including vehicles, amongst others, negatively affecting the profitability of many of our customers. ● After the phase-out of the U.S. federal tax credits for EVs, sales have declined and the outlook for recovery in EV demand is poor in the near future (marklines.com). Page 33 CHANGES IN FINANCIAL CONDITION Quarter Ended September 30, 2025 Compared to the Quarter Ended September 30, 2024 The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended September 30, 2025 and 2024 as a percentage of revenues. For the Three Months Ended September 30, 2025 % 2024 % Net Revenues: License fees $ 72,225 0.5 % $ 1,229 0.0 % Subscription and support 8,960,555 59.7 % 8,192,471 56.1 % Services 5,979,143 39.8 % 6,404,798 43.9 % Total net revenues 15,011,923 100.0 % 14,598,498 100.0 % Cost of revenues 9,099,933 60.6 % 8,034,386 55.0 % Gross profit 5,911,990 39.4 % 6,564,112 45.0 % Operating expenses: Selling, general and administrative 7,536,353 50.2 % 6,964,321 47.7 % Research and development cost 214,343 1.4 % 359,949 2.5 % Total operating expenses 7,750,696 51.6 % 7,324,270 50.2 % Income (loss) from operations (1,838,706 ) -12.2 % (760,158 ) -5.2 % Other income and (expenses) Interest expense (174,611 ) -1.2 % (258,219 ) -1.8 % Interest income 280,974 1.9 % 769,867 5.3 % Gain (loss) on foreign currency exchange transactions (286,917 ) -1.9 % 542,545 3.7 % Other income 17,670 0.1 % 153,491 1.1 % Total other income (expenses) (162,884 ) -1.1 % 1,207,684 8.3 % Net income before income taxes (2,001,590 ) -13.3 % 447,526 3.1 % Income tax provision (215,775 ) -1.4 % (229,817 ) -1.6 % Net income (2,217,365 ) -14.8 % 217,709 1.5 % Non-controlling interest (139,923 ) -0.9 % (146,914 ) -1.0 % Net income attributable to NetSol $ (2,357,288 ) -15.7 % $ 70,795 0.5 % 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 Page 34 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 15 “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. For the Three Months Ended September 30, Favorable (Unfavorable) Change in Constant Favorable (Unfavorable) Change due to Currency Total Favorable (Unfavorable) Change as 2025 % 2024 % Currency Fluctuation Reported Net Revenues: $ 15,011,923 100.0 % $ 14,598,498 100.0 % $ 488,281 $ (74,856 ) $ 413,425 Cost of revenues: 9,099,933 60.6 % 8,034,386 55.0 % (1,157,815 ) 92,268 (1,065,547 ) Gross profit 5,911,990 39.4 % 6,564,112 45.0 % (669,534 ) 17,412 (652,122 ) Operating expenses: 7,750,696 51.6 % 7,324,270 50.2 % (445,820 ) 19,394 (426,426 ) Income (loss) from operations $ (1,838,706 ) -12.2 % $ (760,158 ) -5.2 % $ (1,115,354 ) $ 36,806 $ (1,078,548 ) Net revenues for the three months ended September 30, 2025 and 2024 are broken out among the segments as follows: 2025 2024 Revenue % Revenue % North America $ 2,108,363 14.0 % $ 2,868,661 19.7 % Europe 3,304,317 22.0 % 2,495,286 17.1 % Asia-Pacific 9,599,243 63.9 % 9,234,551 63.3 % Total $ 15,011,923 100.0 % $ 14,598,498 100.0 % Revenues License fees License fees for the three months ended September 30, 2025 were $72,225 compared to $1,229 for the three months ended September 30, 2024 reflecting an increase of $70,996 with an increase in constant currency of $68,182. Page 35 Subscription and support Subscription and support fees for the three months ended September 30, 2025 were $8,960,555 compared to $8,192,471 for the three months ended September 30, 2024 reflecting an increase of $768,084 with an increase in constant currency of $899,515. Subscription and support fees begin once a customer has “gone live” with our product. Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we implement both our NFS legacy products and NFS Ascent ® . Services Services income for the three months ended September 30, 2025 was $5,979,143 compared to $6,404,798 for the three months ended September 30, 2024 reflecting a decrease of $425,655, with a decrease in constant currency of $479,416. Services revenue decreased compared to the prior quarter primarily due to the timing and composition of implementation projects. Gross Profit The gross profit was $5,911,990 for the three months ended September 30, 2025 compared with $6,564,112 for the three months ended September 30, 2024. This is a decrease of $652,122 with a decrease in constant currency of $669,534. The gross profit percentage for the three months ended September 30, 2025 also decreased to 39.4% from 45.0% for the three months ended September 30, 2024. The cost of sales was $9,099,933 for the three months ended September 30, 2025 compared to $8,034,386 for the three months ended September 30, 2024 for an increase of $1,065,547 and on a constant currency basis an increase of $1,157,815. As a percentage of sales, cost of sales increased from 55.0% for the three months ended September 30, 2024 to 60.6% for the three months ended September 30, 2025. Salaries and consultant fees increased by $760,792 from $6,203,734 for the three months ended September 30, 2024 to $6,964,526 for the three months ended September 30, 2025 and on a constant currency basis increased by $789,164. The increase is due to annual salary raises. As a percentage of sales, salaries and consultant expense increased from 42.5% for the three months ended September 30, 2024 to 46.4% for the three months ended September 30, 2025. Travel expenses were $498,172 for the three months ended September 30, 2025 compared to $570,862 for the three months ended September 30, 2024 for a decrease of $72,690 with a decrease in constant currency of $71,543. As a percentage of sales, travel expense decreased from 3.9% for the three months ended September 30, 2024 to 3.3% for the three months ended September 30, 2025. Depreciation and amortization expense decreased to $208,731 compared to $228,550 for the three months ended September 30, 2024 or a decrease of $19,819 and on a constant currency basis a decrease of $16,277. Other costs were $1,428,504 for the three months ended September 30, 2025 compared to $1,031,240 for the three months ended September 30, 2024 or an increase of $397,264 and on a constant currency basis an increase of $456,471. The increase is mainly due to an increase in third-party hardware and software costs of approximately $380,000 and hosting fees of approximately $57,000. Operating Expenses Operating expenses were $7,750,696 for the three months ended September 30, 2025 compared to $7,324,270, for the three months ended September 30, 2024 for an increase of $426,426 and on a constant currency basis an increase of $445,820. As a percentage of sales, it increased from 50.2% to 51.6%. The increase in operating expenses was primarily due to increases in selling and marketing expenses, salaries and wages, offset by a decrease in other general and administrative expenses and the provision for doubtful accounts. Selling and marketing expenses were $3,116,953 for the three months ended September 30, 2025 compared to $2,292,199, for the three months ended September 30, 2024 for an increase of $824,754 and on a constant currency basis an increase of $847,959. The increase is mainly due to increases in salaries and consultants of approximately $663,739, due to annual raises and the hiring of additional marketing personnel. Other marketing expenses increased by approximately $151,836 due to the increase in advertising and marketing events. Page 36 General and administrative expenses were $4,419,400 for the three months ended September 30, 2025 compared to $4,672,122 for the three months ended September 30, 2024 or a decrease of $252,722 and on a constant currency basis a decrease of $260,336. During the three months ended September 30, 2025, salaries increased by $144,888 and increased $144,575 on a constant currency basis, bad debt expense decreased $338,089 and decreased $338,062 on a constant currency basis, and other general and administrative expenses decreased $59,521 and decreased by $66,849 on a constant currency basis. Research and development cost was $214,343 for the three months ended September 30, 2025 compared to $359,949, for the three months ended September 30, 2024 for a decrease of $145,606 and on a constant currency basis a decrease of $141,803. Income/Loss from Operations Loss from operations was $1,838,706 for the three months ended September 30, 2025 compared to $760,158 for the three months ended September 30, 2024. This represents an increase in loss of $1,078,548 with an increase of $1,115,354 on a constant currency basis for the three months ended September 30, 2025 compared with the three months ended September 30, 2024. As a percentage of sales, loss from operations was 12.3% for the three months ended September 30, 2025 compared to a loss from operations of 5.2% for the three months ended September 30, 2024. Other Income and Expense Other expense was $162,884 for the three months ended September 30, 2025 compared to other income of $1,207,684 for the three months ended September 30, 2024. This represents a decrease in other income of $1,370,568 with a decrease of $1,371,569 on a constant currency basis. The decrease 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. During the three months ended September 30, 2025, we recognized a loss of $286,917 in foreign currency exchange transactions compared to a gain of $542,545 for the three months ended September 30, 2024. During the three months ended September 30, 2025, the value of the U.S. dollar decreased 0.6% and the Euro decreased 0.7%, compared to the PKR. During the three months ended September 30, 2024, the value of the U.S. dollar decreased 0.2% and the Euro increased 3.9%, compared to the PKR. Non-controlling Interest For the three months ended September 30, 2025, the net income attributable to non-controlling interest was $139,923, compared to $146,914 for the three months ended September 30, 2024. Net income (loss) attributable to NetSol The net loss was $2,357,288 for the three months ended September 30, 2025 compared to net income of $70,795 for the three months ended September 30, 2024. This is a decrease of $2,428,083 with a decrease of $2,509,233 on a constant currency basis, compared to the prior year. For the three months ended September 30, 2025, net loss per share was $0.20 for basic and diluted shares compared to net income per share of $0.006 for basic and diluted shares for the three months ended September 30, 2024. Page 37 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 plus stock-based compensation expense. ● Adjusted EBITDA per basic and diluted share – Adjusted EBITDA allocated to common stock divided by the weighted average shares outstanding and diluted shares outstanding. We use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure in evaluating the Company. The non-GAAP measures reflect adjustments based on the following items: EBITDA : We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income 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. 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. Page 38 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 months ended September 30, 2025 and 2024 are as follows: For the Three Months Ended September 30, 2025 2024 Net Income (loss) attributable to NetSol $ (2,357,288 ) $ 70,795 Non-controlling interest 139,923 146,914 Income taxes 215,775 229,817 Depreciation and amortization 324,606 365,997 Interest expense 174,611 258,219 Interest (income) (280,974 ) (769,867 ) EBITDA $ (1,783,347 ) $ 301,875 Add back: Non-cash stock-based compensation 145,400 47,779 Adjusted EBITDA, gross $ (1,637,947 ) $ 349,654 Less non-controlling interest (a) (223,948 ) (145,781 ) Adjusted EBITDA, net $ (1,861,895 ) $ 203,873 Weighted Average number of shares outstanding Basic 11,767,811 11,429,695 Diluted 11,767,811 11,482,754 Basic adjusted EBITDA $ (0.16 ) $ 0.02 Diluted adjusted EBITDA $ (0.16 ) $ 0.02 (a) The reconciliation of adjusted EBITDA of non-controlling interest to net income attributable to non-controlling interest is as follows Net Income (loss) attributable to non-controlling interest $ 139,923 $ 146,914 Income Taxes 39,792 70,587 Depreciation and amortization 75,085 89,135 Interest expense 48,827 79,192 Interest (income) (79,679 ) (242,647 ) EBITDA $ 223,948 $ 143,181 Add back: Non-cash stock-based compensation - 2,600 Adjusted EBITDA of non-controlling interest $ 223,948 $ 145,781 Page 39 LIQUIDITY AND CAPITAL RESOURCES Our cash position was $22,690,618 at September 30, 2025, compared to $17,357,944 at June 30, 2025. Net cash provided by operating activities was $5,303,561 for the three months ended September 30, 2025 compared to $5,517,745 for the three months ended September 30, 2024. At September 30, 2025, we had current assets of $46,592,989 and current liabilities of $21,659,278. We had accounts receivable of $6,320,988 at September 30, 2025 compared to $7,527,572 at June 30, 2025. We had revenues in excess of billings of $14,875,704 at September 30, 2025 compared to $19,134,385 at June 30, 2025 of which $881,053 and $903,766 is shown as long-term as of September 30, 2025 and June 30, 2025, respectively. The long-term portion was discounted by $183,137 and $208,037 at September 30, 2025 and June 30, 2025, respectively, using the discounted cash flow method with interest rates ranging from 4.2% to 17.5%. During the three months ended September 30, 2025, 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 decreased by $5,465,265 from $26,661,957 at June 30, 2025 to $21,196,692 at September 30, 2025. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $9,191,552 and $8,330,243, respectively, at September 30, 2025. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,010,844 and $8,240,061, respectively, at June 30, 2025. The average days sales outstanding for the three months ended September 30, 2025 and 2024 were 147 and 150 days, respectively. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and revenues in excess of billings. Net cash used in investing activities was $443,198 for the three months ended September 30, 2025, compared to $108,632 for the three months ended September 30, 2024. We had purchases of property and equipment of $485,281 compared to $100,737 for the three months ended September 30, 2024. Net cash provided by financing activities was $191,218 for the three months ended September 30, 2025, compared to $153,189 for the three months ended September 30, 2024. During the three months ended September 30, 2025, we received bank proceeds of $242,421 compared to $250,000 during the three months ended September 30, 2024. During the three months ended September 30, 2025, we had net payments for bank loans and finance leases of $115,350 compared to $118,311 for the three months ended September 30, 2024. Employees of our subsidiary, NetSol PK, exercised 278,455 options of common stock for $76,567, of which $64,147 was received during the quarter ended September 30, 2025 and $12,420 was received during the fiscal year ended June 30, 2025. We are operating in various geographical regions of the world through our various subsidiaries. Those subsidiaries have financial arrangements with 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 12 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 subscription and support agreements, intercompany charges for corporate services, and through the exercise of options and warrants. As of September 30, 2025, we had approximately $22.7 million of cash, cash equivalents and marketable securities of which approximately $22 million is held by our foreign subsidiaries. As of June 30, 2025, we had approximately $17.4 million of cash, cash equivalents and marketable securities of which approximately $16.4 million is held by our foreign subsidiaries. We remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving cash reserves internally and reducing reliance on external capital raises. As a growing company, we have ongoing 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 $1.5 million for APAC, the U.S. and Europe’s new business development activities and infrastructure enhancements, which we expect to provide from current operations. Page 40 Financial Covenants Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($405,405) 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 600 million ($2,124,495) and a running finance facility of Rupees 4.1 million ($14,344). NetSol PK has an approved facility for export refinance from Habib Metro Bank Limited amounting to Rupees 1.3 billion ($4,603,073) and another export refinance facility amounting to Rupees 400 million ($1,416,331) from Bank Al-Habib. These facilities require NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. NetSol PK also has an approved export refinance facility of Rs. 380 million ($1,345,514) from Samba Bank Limited. During the loan tenure, these two facilities require NetSol PK to maintain at a minimum a current ratio of 1:1, an interest coverage ratio of 4 times, a leverage ratio of 2 times, and a debt service coverage ratio of 4 times. As of the date of this report, we are in compliance with the financial covenants associated with our borrowings. The maturity dates of the borrowings of respective subsidiaries may accelerate if they do not comply with these covenants. In case of any change in control in subsidiaries, they may have to repay their respective credit facilities. 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 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 U.S. GAAP, and they conform to general practices in our industry. We apply critical accounting policies consistently from period to period and intend that any change in methodology occur in an appropriate manner. There have been no significant changes to our accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. 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.