NETSOL TECHNOLOGIES INC 10-Q

Item 1. Financial Statements (Unaudited) NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) As of As of March 31, 2025 June 30, 2024 ASSETS Current assets: Cash and cash equivalents $ 18,774,739 $ 19,127,165 Accounts receivable, net of allowance of $ 37,794 and $ 398,809 5,443,498 13,049,614 Revenues in excess of billings, net of allowance of $ 1,126,734 and $ 116,148 14,727,410 12,684,518 Other current assets 3,465,893 2,600,786 Total current assets 42,411,540 47,462,083 Revenues in excess of billings, net - long term 697,486 954,029 Property and equipment, net 4,768,844 5,106,842 Right of use assets - operating leases 930,847 1,328,624 Other assets 32,338 32,340 Goodwill 9,302,524 9,302,524 Total assets $ 58,143,579 $ 64,186,442 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 7,097,343 $ 8,232,342 Current portion of loans and obligations under finance leases 8,459,991 6,276,125 Current portion of operating lease obligations 475,888 608,202 Unearned revenue 2,705,414 8,752,153 Total current liabilities 18,738,636 23,868,822 Loans and obligations under finance leases; less current maturities 86,800 95,771 Operating lease obligations; less current maturities 422,350 688,749 Total liabilities 19,247,786 24,653,342 Stockholders’ equity: Preferred stock, $ .01 par value; 500,000 shares authorized; - - Common stock, $ .01 par value; 14,500,000 shares authorized; 12,648,574 shares issued and 11,709,543 outstanding as of March 31, 2025, 12,359,922 shares issued and 11,420,891 outstanding as of June 30, 2024 126,489 123,602 Additional paid-in-capital 129,366,638 128,783,865 Treasury stock (at cost, 939,031 shares as of March 31, 2025 and June 30, 2024) ( 3,920,856 ) ( 3,920,856 ) Accumulated deficit ( 43,864,592 ) ( 44,212,313 ) Other comprehensive loss ( 46,253,619 ) ( 45,935,616 ) Total NetSol stockholders’ equity 35,454,060 34,838,682 Non-controlling interest 3,441,733 4,694,418 Total stockholders’ equity 38,895,793 39,533,100 Total liabilities and stockholders’ equity $ 58,143,579 $ 64,186,442 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 2025 2024 For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 2024 2025 2024 Net Revenues: License fees $ 1,198 $ 558,340 $ 75,115 $ 4,829,242 Subscription and support 7,888,360 7,140,358 24,723,460 20,480,382 Services 9,654,399 7,765,818 22,880,541 19,635,014 Total net revenues 17,543,957 15,464,516 47,679,116 44,944,638 Cost of revenues 8,802,184 7,989,696 25,452,890 24,132,064 Gross profit 8,741,773 7,474,820 22,226,226 20,812,574 Operating expenses: Selling, general and administrative 6,883,587 5,811,335 20,921,530 17,051,798 Research and development cost 304,788 345,582 998,406 1,065,412 Total operating expenses 7,188,375 6,156,917 21,919,936 18,117,210 Income (loss) from operations 1,553,398 1,317,903 306,290 2,695,364 Other income and (expenses) Interest expense ( 194,742 ) ( 289,677 ) ( 689,347 ) ( 856,016 ) Interest income 294,655 376,466 1,593,594 1,259,464 Gain (loss) on foreign currency exchange transactions 321,622 ( 963,887 ) 165,775 ( 1,112,757 ) Other income 10,831 21,634 202,386 22,210 Total other income (expenses) 432,366 ( 855,464 ) 1,272,408 ( 687,099 ) Net income before income taxes 1,985,764 462,439 1,578,698 2,008,265 Income tax provision ( 151,334 ) ( 146,569 ) ( 712,765 ) ( 418,517 ) Net income 1,834,430 315,870 865,933 1,589,748 Non-controlling interest ( 410,462 ) 11,679 ( 518,212 ) ( 822,993 ) Net income attributable to NetSol $ 1,423,968 $ 327,549 $ 347,721 $ 766,755 Net income per share: Net income per common share Basic $ 0.12 $ 0.03 $ 0.03 $ 0.07 Diluted $ 0.12 $ 0.03 $ 0.03 $ 0.07 Weighted average number of shares outstanding Basic 11,683,408 11,390,888 11,531,365 11,369,778 Diluted 11,683,408 11,430,493 11,531,365 11,409,383 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 2025 2024 For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 2024 2025 2024 Net income $ 1,423,968 $ 327,549 $ 347,721 $ 766,755 Other comprehensive income (loss): Translation adjustment ( 94,339 ) 441,993 ( 352,436 ) 812,109 Translation adjustment attributable to non-controlling interest 28,486 ( 77,604 ) 34,433 ( 342,873 ) Net translation adjustment ( 65,853 ) 364,389 ( 318,003 ) 469,236 Comprehensive income (loss) attributable to NetSol $ 1,358,115 $ 691,938 $ 29,718 $ 1,235,991 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 March 31, 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 December 31, 2024 12,589,046 $ 125,894 $ 129,194,697 $ ( 3,920,856 ) $ ( 45,288,560 ) $ ( 46,187,766 ) $ 4,592,554 $ 38,515,963 Exercise of common stock options 20,000 200 42,800 - - - - 43,000 Common stock issued for: Services 39,528 395 100,006 - - - - 100,401 Purchase of subsidiary treasury shares - - - - - - ( 1,503,662 ) ( 1,503,662 ) Adjustment in APIC for change in subsidiary shares to non-controlling interest - - 29,135 - - - ( 29,135 ) - Foreign currency translation adjustment - - - - - ( 65,853 ) ( 28,486 ) ( 94,339 ) Net income for the period - - - - 1,423,968 - 410,462 1,834,430 Balance at March 31, 2025 12,648,574 $ 126,489 $ 129,366,638 $ ( 3,920,856 ) $ ( 43,864,592 ) $ ( 46,253,619 ) $ 3,441,733 $ 38,895,793 A statement of the changes in equity for the three months ended December 31, 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 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 Exercise of common stock options 190,000 1,900 406,600 - - - - 408,500 Common stock issued for: Services 15,174 152 39,598 - - - - 39,750 Fair value of subsidiary options issued - - 7,605 - - - - 7,605 Acquisition of non-controlling interest in subsidiary - - 31,004 - - - ( 31,987 ) ( 983 ) Dividend to non-controlling interest - - - - - - ( 306,799 ) ( 306,799 ) Foreign currency translation adjustment - - - - - ( 138,743 ) ( 47,171 ) ( 185,914 ) Net income (loss) for the year - - - - ( 1,147,042 ) - ( 39,164 ) ( 1,186,206 ) Balance at December 31, 2024 12,589,046 $ 125,894 $ 129,194,697 $ ( 3,920,856 ) $ ( 45,288,560 ) $ ( 46,187,766 ) $ 4,592,554 $ 38,515,963 Page 6 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, 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 Exercise of common stock options 10,000 100 21,400 - - - - 21,500 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 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 A statement of the changes in equity for the three months ended March 31, 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 December 31, 2023 12,329,919 $ 123,301 $ 128,587,384 $ ( 3,920,856 ) $ ( 44,456,980 ) $ ( 45,870,309 ) $ 4,074,994 $ 38,537,534 Common stock issued for: Services 14,352 144 39,606 - - - - 39,750 Fair value of options issued - - 101,424 - - - - 101,424 Fair value of options issued - - 101,424 - - - - 101,424 of subsidiary options issued - - 7,914 - - - - 7,914 Foreign currency translation adjustment - - - - - 364,389 77,604 441,993 Net income (loss) for the year - - - - 327,549 - ( 11,679 ) 315,870 Balance at March 31, 2024 12,344,271 $ 123,445 $ 128,736,328 $ ( 3,920,856 ) $ ( 44,129,431 ) $ ( 45,505,920 ) $ 4,140,919 $ 39,444,485 Page 7 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) A statement of the changes in equity for the three months ended December 31, 2023 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 September 30, 2023 12,311,850 $ 123,120 $ 128,536,132 $ ( 3,920,856 ) $ ( 44,865,296 ) $ ( 46,411,702 ) $ 3,201,723 $ 36,663,121 Common stock issued for: Services 18,069 181 39,569 - - - - 39,750 Fair value of subsidiary options issued - - 11,683 - - - - 11,683 Foreign currency translation adjustment - - - - - 541,393 298,772 840,165 Net income (loss) for the year - - - - 408,316 - 574,499 982,815 Balance at December 31, 2023 12,329,919 $ 123,301 $ 128,587,384 $ ( 3,920,856 ) $ ( 44,456,980 ) $ ( 45,870,309 ) $ 4,074,994 $ 38,537,534 A statement of the changes in equity for the three months ended September 30, 2023 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, 2023 12,284,887 $ 122,850 $ 128,476,048 $ ( 3,920,856 ) $ ( 44,896,186 ) $ ( 45,975,156 ) $ 2,975,053 $ 36,781,753 Balance 12,284,887 $ 122,850 $ 128,476,048 $ ( 3,920,856 ) $ ( 44,896,186 ) $ ( 45,975,156 ) $ 2,975,053 $ 36,781,753 Common stock issued for: Services 26,963 270 48,530 - - - - 48,800 Common stock issued for: Services 26,963 270 48,530 - - - - 48,800 Fair value of subsidiary options issued - - 11,554 - - - - 11,554 Foreign currency translation adjustment - - - - - ( 436,546 ) ( 33,503 ) ( 470,049 ) Net income (loss) for the year - - - - 30,890 - 260,173 291,063 Balance at September 30, 2023 12,311,850 $ 123,120 $ 128,536,132 $ ( 3,920,856 ) $ ( 44,865,296 ) $ ( 46,411,702 ) $ 3,201,723 $ 36,663,121 Balance 12,311,850 $ 123,120 $ 128,536,132 $ ( 3,920,856 ) $ ( 44,865,296 ) $ ( 46,411,702 ) $ 3,201,723 $ 36,663,121 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 8 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) 2025 2024 For the Nine Months Ended March 31, 2025 2024 Cash flows from operating activities: Net income $ 865,933 $ 1,589,748 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,102,085 1,351,239 Provision for bad debts 1,062,515 9,739 Gain on sale of assets ( 28,320 ) ( 1,154 ) Stock based compensation 134,884 260,875 Changes in operating assets and liabilities: Accounts receivable 6,408,397 ( 3,922,773 ) Revenues in excess of billing ( 1,411,983 ) ( 3,904,609 ) Other current assets ( 344,493 ) ( 1,525 ) Accounts payable and accrued expenses ( 1,136,533 ) 77,541 Unearned revenue ( 6,646,170 ) 938,242 Net cash provided by (used in) operating activities 6,315 ( 3,602,677 ) Cash flows from investing activities: Purchases of property and equipment ( 897,743 ) ( 948,337 ) Sales of property and equipment 63,577 125,886 Purchase of subsidiary shares ( 8,878 ) - Net cash used in investing activities ( 843,044 ) ( 822,451 ) Cash flows from financing activities: Proceeds from the exercise of stock options and warrants 473,000 - Dividend paid by subsidiary to non-controlling interest ( 306,799 ) - Purchase of subsidiary treasury stock ( 1,503,662 ) - Proceeds from bank loans 2,451,256 340,847 Payments on finance lease obligations and loans - net ( 247,496 ) ( 307,235 ) Net cash provided by financing activities 866,299 33,612 Effect of exchange rate changes ( 381,996 ) 1,196,904 Net increase (decrease) in cash and cash equivalents ( 352,426 ) ( 3,194,612 ) Cash and cash equivalents at beginning of the period 19,127,165 15,533,254 Cash and cash equivalents at end of period $ 18,774,739 $ 12,338,642 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 9 NETSOL TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) For the Nine Months Ended March 31, 2025 2024 SUPPLEMENTAL DISCLOSURES: Cash paid during the period for: Interest $ 619,451 $ 1,100,101 Taxes $ 1,185,546 $ 522,633 NON-CASH INVESTING AND FINANCING ACTIVITIES: Assets acquired under finance lease $ - $ 122,045 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. Page 10 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 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, 2024. 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”) Otoz, Inc. (“Otoz®”) Majority-owned Subsidiaries NetSol Technologies, Ltd. (“NetSol PK”) NetSol Innovation (Private) Limited (“NetSol Innovation”) NETSOL Ascent Middle East Computer Equipment Trading LLC (“Namecet”) NetSol Technologies Thailand Limited (“NetSol Thai”) Otoz (Thailand) Limited (“Otoz® Thai”) Page 11 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 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 provision for doubtful accounts, provision for taxation, useful life of depreciable assets, useful life of intangible assets, contingencies, assumptions used to determine the net present value of operating lease liabilities, and estimated contract costs. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results could differ from those estimates. Concentration of Credit Risk Cash includes cash on hand and demand deposits in accounts maintained within the United States as well as in foreign countries. Certain financial instruments, which subject the Company to concentration of credit risk, consist of cash and restricted cash. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions within certain foreign countries are not covered by insurance except balances maintained in China are insured for RMB 500,000 ($ 68,871 ) in each bank and in the UK for GBP 85,000 ($ 110,390 ) in each bank. The Company maintains three bank accounts in China and nine bank accounts in the UK. As of March 31, 2025, and June 30, 2024, the Company had uninsured deposits related to cash deposits in accounts maintained within foreign entities of approximately $ 17,848,732 and $ 18,182,002 , 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 12 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) The Company’s financial assets that were measured at fair value on a recurring basis as of March 31, 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 $ - $ - $ 697,486 $ 697,486 Total $ - $ - $ 697,486 $ 697,486 The Company’s financial assets that were measured at fair value on a recurring basis as of June 30, 2024, are as follows: Level 1 Level 2 Level 3 Total Assets Revenues in excess of billings - long term $ - $ - $ 954,029 $ 954,029 Total $ - $ - $ 954,029 $ 954,029 The reconciliation from June 30, 2024 to March 31, 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, 2024 $ 1,106,475 $ ( 152,446 ) $ 954,029 Amortization during the period - 54,833 54,833 Transfers to short term ( 310,446 ) - ( 310,446 ) Effect of Translation Adjustment ( 1,258 ) 328 ( 930 ) Balance at March 31, 2025 $ 794,771 $ ( 97,285 ) $ 697,486 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 November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for the Company’s Annual Report on Form 10-K for the fiscal year ending June 30, 2025, and subsequent interim periods, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures. Page 13 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , to enhance transparency and decision usefulness of income tax disclosures, particularly around rate reconciliations and income taxes paid information. ASU 2023-09 is effective for our Annual Report on Form 10-K for the fiscal year ending June 30, 2026, on a prospective basis, with early adoption permitted. We are evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures. 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. Page 14 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) For contracts with multiple performance obligations where the contracted price differs from the standalone selling price (“SSP”) for any distinct good or service, the Company may be required to allocate the contract’s transaction price to each performance obligation using its best estimate for the SSP. Software Licenses Transfer of control for software is considered to have occurred upon delivery of the product to the customer. The Company’s typical payment terms tend to vary by region, but its standard payment terms are within 30 days of invoice. Subscription Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice. Post Contract Support Revenue from support services and product updates, referred to as subscription and support revenue, is recognized ratably over the term of the maintenance period, which in most instances is one year. Software license updates provide customers with rights to unspecified software product updates and patches released during the term of the support period on a when-and-if available basis. The Company’s customers purchase both product support and license updates when they acquire new software licenses. In addition, 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 15 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) The Company’s disaggregated revenue by category is as follows: SCHEDULE OF DISAGGREGATED REVENUE BY CATEGORY 2025 2024 2025 2024 For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 2024 2025 2024 Core: License $ 1,198 $ 558,340 $ 75,115 $ 4,829,242 Subscription and support 7,888,360 7,140,358 24,723,460 20,480,382 Services 8,265,745 6,477,849 19,664,970 15,566,480 Total core revenue, net 16,155,303 14,176,547 44,463,545 40,876,104 Non-Core: Services 1,388,654 1,287,969 3,215,571 4,068,534 Total non-core revenue, net 1,388,654 1,287,969 3,215,571 4,068,534 Total net revenue $ 17,543,957 $ 15,464,516 $ 47,679,116 $ 44,944,638 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 16 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 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 March 31, 2025 June 30, 2024 Revenues in excess of billings $ 15,424,896 $ 13,638,547 Unearned revenue $ 2,705,414 $ 8,752,153 The Company’s unearned revenue reconciliation is as follows: SCHEDULE OF UNEARNED REVENUE RECONCILIATION Unearned Revenue Balance at June 30, 2024 $ 8,752,153 Invoiced 16,253,159 Revenue Recognized ( 22,215,692 ) Adjustments ( 84,206 ) Balance at March 31, 2025 $ 2,705,414 During the three and nine months ended March 31, 2025, the Company recognized revenue of $ 549,933 and $ 8,236,336 , 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 17 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 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 $ 16,000,000 as of March 31, 2025, of which the Company estimates to recognize approximately $ 15,000,000 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. Page 18 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) 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 March 31, 2025 For the nine months ended March 31, 2025 Net Income Shares Per Share Net Income Shares Per Share Basic income per share: Net income available to common shareholders $ 1,423,968 11,683,408 $ 0.12 $ 347,721 11,531,365 $ 0.03 Effect of dilutive securities Stock options - - - - - - Diluted income per share $ 1,423,968 11,683,408 $ 0.12 $ 347,721 11,531,365 $ 0.03 For the three months ended March 31, 2024 For the nine months ended March 31, 2024 Net Income Shares Per Share Net Income Shares Per Share Basic income per share: Net income available to common shareholders $ 327,549 11,390,888 $ 0.03 $ 766,755 11,369,778 $ 0.07 Effect of dilutive securities Stock options - 39,605 - - 39,605 - Diluted income per share $ 327,549 11,430,493 $ 0.03 $ 766,755 11,409,383 $ 0.07 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 Otoz 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 NetSol Thai Thai Bhat Otoz Thai Thai Bhat Australia Australian Dollar Namecet AED NetSol Beijing Chinese Yuan Tianjin Chinese Yuan Page 19 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) 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 $ 46,253,619 and $ 45,935,616 as of March 31, 2025 and June 30, 2024, respectively. During the three and nine months ended March 31, 2025, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation loss attributable to NetSol of $ 65,853 and $ 318,003 , respectively. During the three and nine months ended March 31, 2024, comprehensive income (loss) in the consolidated statements of comprehensive income (loss) included a translation gain attributable to NetSol of $ 364,389 and $ 469,236 , respectively. NOTE 6 – MAJOR CUSTOMERS The following table describes the revenues from major customers: SCHEDULE OF REVENUES AND RECEIVABLES FROM MAJOR CUSTOMERS For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 % 2024 % 2025 % 2024 % Net Revenues: Daimler Financial Services $ 2,900,468 16.5 % $ 4,207,409 27.2 % $ 9,160,858 19.2 % $ 11,840,101 26.3 % BMW Financial $ 3,314,902 18.9 % $ 1,422,068 9.2 % $ 8,903,689 18.7 % $ 3,180,171 7.1 % The following table describes the receivables from major customers: As of As of March 31, 2025 June 30, 2024 Accounts Receivable Daimler Financial Services $ 1,005,108 $ 538,648 BMW Financial $ 771,436 $ 505,875 Revenue in Excess of Billing Daimler Financial Services $ 649,671 $ 892,109 BMW Financial $ 2,246,214 $ 1,419,997 NOTE 7 - OTHER CURRENT ASSETS Other current assets consisted of the following: SCHEDULE OF OTHER CURRENT ASSETS As of As of March 31, 2025 June 30, 2024 Prepaid Expenses $ 1,789,339 $ 1,314,524 Advance Income Tax 401,009 300,368 Employee Advances 166,523 165,264 Security Deposits 160,192 199,633 Other Receivables 467,992 258,880 Other Assets 480,838 362,117 Net Balance $ 3,465,893 $ 2,600,786 Page 20 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) 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 As of March 31, 2025 June 30, 2024 Revenues in excess of billings - long term $ 794,771 $ 1,106,475 Present value discount ( 97,285 ) ( 152,446 ) Net Balance $ 697,486 $ 954,029 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 and nine months ended March 31, 2025, the Company accreted $ 18,099 and $ 54,833 , respectively, which was recorded in interest income for that period. During the three and nine months ended March 31, 2024, the Company accreted $ 12,309 and $ 30,773 , respectively, which was recorded in interest income for that period. The Company used the discounted cash flow method with interest rates ranging from 7.3 % to 17.5 %, for the period ended March 31, 2025 and June 30, 2024. NOTE 9 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT As of As of March 31, 2025 June 30, 2024 Office Furniture and Equipment $ 2,446,214 $ 2,352,940 Computer Equipment 8,901,316 8,679,791 Assets Under Capital Leases 138,549 154,718 Building 3,586,906 3,602,819 Land 909,226 913,473 Autos 1,585,341 1,658,961 Improvements 213,868 206,387 Subtotal 17,781,420 17,569,089 Accumulated Depreciation ( 13,012,576 ) ( 12,462,247 ) Property and Equipment, Net $ 4,768,844 $ 5,106,842 For the three and nine months ended March 31, 2025, depreciation expense totaled $ 363,503 and $ 1,102,085 , respectively. Of these amounts, $ 240,444 and $ 706,876 , respectively, are reflected in cost of revenues. For the three and nine months ended March 31, 2024, depreciation expense totaled $ 391,290 and $ 1,225,198 , respectively. Of these amounts, $ 250,126 and $ 781,442 , respectively, are reflected in cost of revenues. Page 21 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) Following is a summary of fixed assets held under finance leases as of March 31, 2025 and June 30, 2024: SCHEDULE OF FIXED ASSETS HELD UNDER CAPITAL LEASES As of As of March 31, 2025 June 30, 2024 Vehicles $ 138,549 $ 154,718 Total 138,549 154,718 Less: Accumulated Depreciation - Net ( 36,994 ) ( 25,078 ) Fixed assets held under capital leases, Total $ 101,555 $ 129,640 Finance lease term and discount rate were as follows: SCHEDULE OF FINANCE LEASE TERM As of As of March 31, 2025 June 30, 2024 Weighted average remaining lease term - Finance leases 2 Years 2.75 Years Weighted average discount rate - Finance leases 11.3 % 11.3 % NOTE 10 - LEASES The Company leases certain office space, office equipment and autos with remaining lease terms of one year to 10 years under leases classified as financing and operating. For certain leases, the Company has options to extend the lease term for additional periods ranging from one year to 10 years. The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, or the Company directs the use of the asset and obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (“ROU”) assets and lease obligation liabilities for leases with terms greater than 12 months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company’s obligation to make payments over the life of the lease. A ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally not readily determinable for the operating leases, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. 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. Page 22 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) Supplemental balance sheet information related to leases was as follows: SCHEDULE OF BALANCE SHEET INFORMATION RELATED TO LEASE As of As of March 31, 2025 June 30, 2024 Assets Operating lease assets, net $ 930,847 $ 1,328,624 Liabilities Current Operating $ 475,888 $ 608,202 Operating, Current $ 475,888 $ 608,202 Non-current Operating 422,350 688,749 Operating, Noncurrent 422,350 688,749 Total Lease Liabilities $ 898,238 $ 1,296,951 The components of lease cost were as follows: SCHEDULE OF COMPONENTS OF LEASE COST 2025 2024 2025 2024 For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 2024 2025 2024 Amortization of finance lease assets $ 7,584 $ 3,963 $ 29,181 $ 8,624 Interest on finance lease obligation 7,584 1,434 13,578 3,073 Operating lease cost 97,891 99,201 296,229 304,543 Short term lease cost 51,551 41,087 161,591 122,311 Sub lease income ( 8,406 ) ( 8,406 ) ( 25,326 ) ( 25,011 ) Total lease cost $ 156,204 $ 137,279 $ 475,253 $ 413,540 Lease term and discount rate were as follows: SCHEDULE OF LEASE TERM AND DISCOUNT RATE As of As of March 31, 2025 June 30, 2024 Weighted average remaining lease term - Operating leases 1.57 Years 1.99 Years Weighted average discount rate - Operating leases 4.7 % 4.5 % Page 23 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) Supplemental disclosures of cash flow information related to leases were as follows: SCHEDULE OF SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION RELATED TO LEASES 2025 2024 For the Nine Months Ended March 31, 2025 2024 Operating cash flows related to operating leases $ 280,336 $ 230,943 Operating cash flows related to finance leases $ 8,833 $ 3,070 Financing cash flows related finance leases $ 12,122 $ 20,180 Maturities of operating lease liabilities were as follows as of March 31, 2025: SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Amount Within year 1 $ 515,226 Within year 2 303,741 Within year 3 126,440 Within year 4 18,957 Within year 5 118 Total Lease Payments 964,482 Less: Imputed interest ( 66,244 ) Present Value of lease liabilities 898,238 Less: Current portion ( 475,888 ) Non-Current portion $ 422,350 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 and nine months ended March 31, 2025, the Company received lease income of $ 8,406 and $ 25,326 , respectively. For the three and nine months ended March 31, 2024, the Company received lease income of $ 8,406 and $ 25,011 , respectively. Page 24 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) 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 As of March 31, 2025 June 30, 2024 Accounts Payable $ 1,093,855 $ 1,426,930 Accrued Liabilities 4,160,480 4,323,662 Accrued Payroll 1,156,727 1,392,112 Accrued Payroll Taxes 199,736 215,197 Taxes Payable 175,808 634,035 Other Payable 310,737 240,406 Total $ 7,097,343 $ 8,232,342 NOTE 12 – DEBTS Notes payable and finance leases consisted of the following: SCHEDULE OF COMPONENTS OF NOTES PAYABLE AND CAPITAL LEASES As of March 31, 2025 Current Long-Term Name Total Maturities Maturities D&O Insurance (1) $ 226,199 $ 226,199 $ - Line of Credit (2) 405,000 405,000 - Bank Overdraft Facility (3) - - - Loan Payable Bank - Export Refinance (4) 1,788,205 1,788,205 - Loan Payable Bank - Running Finance (5) - - - Loan Payable Bank - Export Refinance II (6) 1,359,036 1,359,036 - Loan Payable Bank - Export Refinance III (7) 4,649,333 4,649,333 - Sale and Leaseback Financing (8) 18,980 18,980 - Short Term Financing (9) - - - 8,446,753 8,446,753 - Subsidiary Finance Leases (10) 100,038 13,238 86,800 $ 8,546,791 $ 8,459,991 $ 86,800 As of June 30, 2024 Current Long-Term Name Total Maturities Maturities D&O Insurance (1) $ 124,314 $ 124,314 $ - Line of Credit (2) - - - Bank Overdraft Facility (3) - - - Loan Payable Bank - Export Refinance (4) 1,796,558 1,796,558 - Loan Payable Bank - Running Finance (5) - - - Loan Payable Bank - Export Refinance II (6) 1,365,384 1,365,384 - Loan Payable Bank - Export Refinance III (7) 2,515,181 2,515,181 - Sale and Leaseback Financing (8) 56,842 47,158 9,684 Short Term Financing (9) 412,655 412,655 - 6,270,934 6,261,250 9,684 Subsidiary Finance Leases (10) 100,962 14,875 86,087 $ 6,371,896 $ 6,276,125 $ 95,771 (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 8.6 % to 10.9 % as of March 31, 2025 and June 30, 2024. (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 8.25 % at March 31, 2025 and 8.75 % as of June 30, 2024. The total outstanding balance as of March 31, 2025 and June 30, 2024 was $ 405,000 and $ nil , respectively. Page 25 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 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 $ 389,610 . The annual interest rate was 9.5 % as of March 31, 2025 and June 30, 2024. The total outstanding balance as of March 31, 2025 and June 30, 2024 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 March 31, 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 nine months. The total facility amount is Rs. 600,000,000 or $ 2,145,846 at March 31, 2025 and Rs. 500,000,000 or $ 1,796,558 at June 30, 2024. NetSol PK used Rs. 500,000,000 or $ 1,788,205 at March 31, 2025 and Rs. 500,000,000 or $ 1,796,558 at June 30, 2024. The interest rate for the loan was 10.0 % and 17.5 % at March 31, 2025 and June 30, 2024, respectively. (5) The Company’s subsidiary, NetSol PK, has a running finance facility with Askari Bank Limited, secured by NetSol PK’s assets. The total facility amount is Rs. 4,050,937 or $ 14,488 , at March 31, 2025. The balance outstanding at March 31, 2025 and June 30, 2024 was Rs. Nil . The interest rate for the loan was 14.1 % at March 31, 2025 and 22.2% at June 30, 2024. 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 March 31, 2025, NetSol PK was in compliance with this covenant. (6) The Company’s subsidiary, NetSol PK, has an export refinance facility with Samba Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 380,000,000 or $ 1,359,036 and Rs. 380,000,000 or $ 1,365,384 at March 31, 2025 and June 30, 2024, respectively. The interest rate for the loan was 10.0 % and 17.5 % at March 31, 2025 and June 30, 2024, respectively. 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 March 31, 2025, NetSol PK was in compliance with these covenants. (7) The Company’s subsidiary, NetSol PK, has an export refinance facility with Habib Metro Bank Limited, secured by NetSol PK’s assets. This is a revolving loan that matures every nine months. The total facility amount is Rs. 1,300,000,000 or $ 4,649,333 and Rs. 900,000,000 or $ 3,233,804 , at March 31, 2025 and June 30, 2024, respectively. NetSol PK used Rs. 1,300,000,000 or $ 4,649,333 and Rs. 700,000,000 or $ 2,515,181 , at March 31, 2025 and June 30, 2024, respectively. The interest rate for the loan was 10.0 % and 17.5 % at March 31, 2025 and June 30, 2024, respectively. (8) The Company’s subsidiary, NetSol PK, availed sale and leaseback financing from First Habib Modaraba secured by the transfer of the vehicles’ title. As of March 31, 2025, NetSol PK used Rs. 5,307,080 or $ 18,980 which was shown as current. As of June 30, 2024, NetSol PK used Rs. 15,819,683 or $ 56,842 of which $ 9,684 was shown as long term and $ 47,158 as current. The interest rate for the loan was from 22.7 % to 24.2 % at March 31, 2025 and June 30, 2024. (9) The Company’s subsidiary, NetSol Beijing, had a one year, short-term loan facility with Bank of China, secured by a personal guarantee from NetSol Beijing’s General Manager. The facility amount was CNY 3,000,000 or $ 413,223 . NetSol Beijing has paid off this facility during the period ended March 31, 2025. NetSol Beijing used CNY 3,000,000 or $ 412,655 , at June 30, 2024. The interest rate of the loan was 3.8 % at March 31, 2025 and June 30, 2024. (10) The Company leases various fixed assets under finance lease arrangements expiring in various years through 2027. 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 March 31, 2025 and 2024. Page 26 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) Following are the aggregate minimum future lease payments under finance leases as of March 31, 2025: SCHEDULE OF AGGREGATE MINIMUM FUTURE LEASE PAYMENTS UNDER CAPITAL LEASES Amount Minimum Lease Payments Within year 1 $ 26,081 Within year 2 93,012 Within year 3 6,431 Total Minimum Lease Payments 125,524 Interest Expense relating to future periods ( 25,486 ) Present Value of minimum lease payments 100,038 Less: Current portion ( 13,238 ) Non-Current portion $ 86,800 Following are the aggregate future long term debt payments as of March 31, 2025 which consists of “Sale and Leaseback Financing (8)”. SCHEDULE OF AGGREGATE FUTURE LONG TERM DEBT PAYMENTS Amount Loan Payments Within year 1 $ 18,980 Within year 2 - Total Loan Payments 18,980 Less: Current portion ( 18,980 ) Non-Current portion $ - NOTE 13 - STOCKHOLDERS’ EQUITY During the three and nine months ended March 31, 2025, the Company issued nil and 29,124 shares of common stock for services rendered by the independent members of the Board of Directors as part of their board compensation. These shares were valued at the fair market value of $ nil and $ 79,500 , respectively. The Company grants share-based compensation to its independent Board of Directors as part of their service compensation. These awards are typically settled in shares under the Company’s equity incentive plan. As of March 31, 2025, the Company did not have a sufficient number of shares available for issuance under the current equity incentive plan to settle the equity portion of the director’s compensation for the period. In accordance with ASC 718 – Compensation – Stock Compensation, the Company has accounted for these awards as a liability and has recorded an accrued liability of $ 39,750 as of March 31, 2025. The Company will reclassify the liability to equity upon the issuance of shares once additional shares are made available under a new equity incentive plan, or will settle the liability in cash if shares are not issued. During the three and nine months ended March 31, 2025, the employees of the Company exercised 20,000 and 220,000 options of common stock with an exercise price of $ 2.15 per share for cash proceeds of $ 473,000 . Page 27 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) 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, 2024 - $ - Granted 68,652 $ 2.62 Vested ( 68,652 ) $ 2.62 Unvested, March 31, 2025 - $ - For the three and nine months ended March 31, 2025, the Company recorded compensation expense of $ 39,750 and $ 79,500 , respectively. For the three and nine months ended March 31, 2024, the Company recorded compensation expense of $ 39,750 and $ 128,300 , respectively. The weighted average grant date fair value is determined by the Company’s closing stock price on the grant date. NOTE 14 – INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN Common stock purchase options consisted of the following: SCHEDULE OF COMMON STOCK PURCHASE OPTIONS OPTIONS: # of shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregated Intrinsic Value Outstanding and exercisable, June 30, 2024 250,000 $ 2.15 0.50 Granted - - - - Exercised ( 220,000 ) 2.15 - - Expired / Cancelled ( 30,000 ) 2.15 - - Outstanding and exercisable, March 31, 2025 - $ - - $ - NOTE 15– OPERATING SEGMENTS The Company has identified three segments for its products and services; North America, Europe and Asia-Pacific. Our reportable segments are business units located in different global regions. Each business unit provides similar products and services; license fees for leasing and asset-based software, related maintenance fees, and implementation and IT consulting services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies due to their particular regional location. The Company accounts for intra-company sales and expenses as if the sales or expenses were to third parties and eliminates them in the consolidation. Page 28 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) The following table presents a summary of identifiable assets as of March 31, 2025 and June 30, 2024: SUMMARY OF IDENTIFIABLE ASSETS As of As of March 31, 2025 June 30, 2024 Identifiable assets: Corporate headquarters $ 978,584 $ 808,385 North America 7,696,063 6,114,142 Europe 10,981,036 9,410,098 Asia - Pacific 38,487,896 47,853,817 Consolidated $ 58,143,579 $ 64,186,442 Identifiable assets $ 58,143,579 $ 64,186,442 The following table presents a summary of revenue streams by segment for the three months ended March 31, 2025 and 2024: SUMMARY OF REVENUE STREAMS License fees Subscription and support Services Total License fees Subscription and support Services Total 2025 2024 License fees Subscription and support Services Total License fees Subscription and support Services Total North America $ - $ 1,340,088 $ 2,529,815 $ 3,869,903 $ - $ 1,161,417 $ 203,657 $ 1,365,074 Europe 1,198 1,215,438 4,678,504 5,895,140 92,925 869,429 2,083,430 3,045,784 Asia-Pacific - 5,332,834 2,446,080 7,778,914 465,415 5,109,512 5,478,731 11,053,658 Total $ 1,198 $ 7,888,360 $ 9,654,399 $ 17,543,957 $ 558,340 $ 7,140,358 $ 7,765,818 $ 15,464,516 The following table presents a summary of revenue streams by segment for the nine months ended March 31, 2025 and 2024: License fees Subscription and support Services Total License fees Subscription and support Services Total 2025 2024 License fees Subscription and support Services Total License fees Subscription and support Services Total North America $ - $ 4,208,995 $ 5,736,842 $ 9,945,837 $ - $ 3,454,455 $ 784,455 $ 4,238,910 Europe 75,115 3,311,068 8,265,423 11,651,606 101,891 2,457,513 5,520,770 8,080,174 Asia-Pacific - 17,203,397 8,878,276 26,081,673 4,727,351 14,568,414 13,329,789 32,625,554 Total $ 75,115 $ 24,723,460 $ 22,880,541 $ 47,679,116 $ 4,829,242 $ 20,480,382 $ 19,635,014 $ 44,944,638 Page 29 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) The following table presents a summary of operating information for the three and nine months ended March 31: SUMMARY OF OPERATING INFORMATION 2025 2024 2025 2024 For the Three Months Ended March 31, For the Nine Months Ended March 31, 2025 2024 2025 2024 Revenues from unaffiliated customers: North America $ 3,869,903 $ 1,365,074 $ 9,945,837 $ 4,238,910 Europe 5,895,140 3,045,784 11,651,606 8,080,174 Asia - Pacific 7,778,914 11,053,658 26,081,673 32,625,554 Revenues from unaffiliated customers 17,543,957 15,464,516 47,679,116 44,944,638 Revenue from affiliated customers Asia - Pacific - - - - Revenue from affiliated customers - - - - Consolidated $ 17,543,957 $ 15,464,516 $ 47,679,116 $ 44,944,638 Revenue $ 17,543,957 $ 15,464,516 $ 47,679,116 $ 44,944,638 Intercompany revenue Europe $ ( 55,939 ) $ 100,315 $ 149,375 $ 300,732 Asia - Pacific 5,303,033 2,601,585 13,286,176 8,087,181 Eliminated $ 5,247,094 $ 2,701,900 $ 13,435,551 $ 8,387,913 Revenue $ 5,247,094 $ 2,701,900 $ 13,435,551 $ 8,387,913 Net income (loss) after taxes and before non-controlling interest: Corporate headquarters $ ( 209,221 ) $ ( 1,003,157 ) $ ( 974,367 ) $ ( 2,229,549 ) North America 859,320 7,679 1,093,581 ( 61,546 ) Europe 951,208 14,516 ( 22,468 ) ( 228,303 ) Asia - Pacific 233,123 1,296,832 769,187 4,109,146 Consolidated $ 1,834,430 $ 315,870 $ 865,933 $ 1,589,748 Net income (loss) after taxes and before non-controlling interest $ 1,834,430 $ 315,870 $ 865,933 $ 1,589,748 Depreciation and amortization: North America $ 824 $ 407 $ 1,894 $ 1,305 Europe 41,357 58,469 154,216 179,128 Asia - Pacific 321,322 332,414 945,975 1,170,806 Consolidated $ 363,503 $ 391,290 $ 1,102,085 $ 1,351,239 Depreciation and amortization $ 363,503 $ 391,290 $ 1,102,085 $ 1,351,239 Interest expense: Corporate headquarters $ 13,795 $ 12,028 $ 34,246 $ 24,687 Europe - 508 12,059 6,984 Asia - Pacific 180,947 277,141 643,042 824,345 Consolidated $ 194,742 $ 289,677 $ 689,347 $ 856,016 Interest expense $ 194,742 $ 289,677 $ 689,347 $ 856,016 Income tax expense: North America $ 800 $ 800 $ 800 $ 800 Europe - - - ( 93,583 ) Asia - Pacific 150,534 145,769 711,965 511,300 Consolidated $ 151,334 $ 146,569 $ 712,765 $ 418,517 Income tax expense $ 151,334 $ 146,569 $ 712,765 $ 418,517 Page 30 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) The following table presents a summary of capital expenditures for the nine months ended March 31: SUMMARY OF CAPITAL EXPENDITURES 2025 2024 For the Nine Months Ended March 31, 2025 2024 Capital expenditures: North America $ 17,331 $ - Europe 72,551 592,432 Asia - Pacific 807,861 355,905 Consolidated $ 897,743 $ 948,337 Capital expenditures $ 897,743 $ 948,337 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 March 31, 2025 NetSol PK 30.24 % $ 3,971,577 NetSol Innovation 30.24 % ( 579,525 ) NAMECET 30.24 % 49,826 NetSol Thai 0.006 % ( 163 ) OTOZ Thai 0.01 % 18 OTOZ 0.00 % - Total $ 3,441,733 SUBSIDIARY Non-Controlling Interest % Non-Controlling Interest at June 30, 2024 NetSol PK 32.38 % $ 4,679,101 NetSol Innovation 32.38 % 137,232 NAMECET 32.38 % ( 21,014 ) NetSol Thai 0.006 % ( 163 ) OTOZ Thai 5.60 % ( 17,483 ) OTOZ 5.59 % ( 83,255 ) Total $ 4,694,418 During the quarter ended March 31, 2025, NetSol PK, a majority owned subsidiary of the Company, repurchased 2,690,251 shares of its outstanding common stock from the open market for $ 1,503,662 . The repurchase did not result in a change of control and was therefore accounted for as an equity transaction in accordance with ASC 810-10. Due to this purchase, the non-controlling interest in NetSol PK, NetSol Innovation and NAMECET, decreased from 32.38 % at June 30, 2024 to 30.24 % at March 31, 2025. The carrying amount of the non-controlling interest was reduced by $ 1,532,797 , and the difference of $ 29,135 was recognized as an increase in additional paid-in capital in the Company’s consolidated equity. Page 31 NETSOL TECHNOLOGIES, INC. Notes to Condensed Consolidated Financial Statements March 31, 2025 (Unaudited) During the nine months ended March 31, 2025, the Company acquired the remaining 177,558 minority shares from the OTOZ non-controlling shareholders for $ 8,878 . As a result, the Company’s ownership interest increased, reducing the non-controlling interest from 5.59 % to 0.0 %. The effective non-controlling interest in Otoz® Thai decreased to 0.01 %. The following schedule discloses the effect on the Company’s equity due to the changes in the Company’s ownership interest in Otoz® and Otoz® Thai. SCHEDULE OF CHANGE IN OWNERSHIP INTEREST 2025 2024 2025 2024 For the Three Months For the Nine Months Ended March 31, Ended March 31, 2025 2024 2025 2024 Net income (loss) attributable to NetSol Transfer to (from) non-controlling interest $ 1,423,968 $ 327,549 $ 347,721 $ 766,755 Decrease in paid-in capital for purchase of 177,558 shares of OTOZ Inc common stock - - ( 103,132 ) - Increase in paid-in capital for purchase of 2,690,251 shares of common stock of NetSol PK from Open Market 29,135 - 29,135 - Net transfer to (from) non-controlling interest 29,135 - ( 73,997 ) - Change from net income (loss) attributable to NetSol and transfer (to) from non-controlling interest $ 1,453,103 $ 327,549 $ 273,724 $ 766,755 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 and nine months ended March 31, 2025, the Company recorded an income tax provision of $ 151,334 and $ 712,765 , respectively. During the three and nine months ended March 31, 2024, the Company recorded an income tax provision of $ 146,569 and $ 418,517 , respectively. NOTE 18– SUBSEQUENT EVENTS The Company’s subsidiary OTOZ Inc. has been merged with NTA effective April 1, 2025. The merger has no financial impact on the consolidated financial statements. Page 32