Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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, 2026. 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, 2026, 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.

Business overview

NetSol Technologies, Inc. ("NetSol" or the "Company") is a global provider of AI-enabled solutions and services powering OEMs, dealerships and financial institutions to sell, finance and lease assets.

The Company is headquartered in Encino, California and operates through three reportable geographic segments: North America, Europe and Asia-Pacific, serving customers in more than 30 countries. NetSol generates revenues primarily through software licensing, subscription fees, implementation services and ongoing maintenance and support. The Company's solutions and services are marketed under the Transcend™ Platform brand.

Corporate history

NetSol was incorporated in 1997 and listed on the Nasdaq Stock Market in 1999, where it continues to trade under the ticker symbol NTWK. While the Company's incorporation dates to 1997, its asset finance and leasing domain expertise extends more than 40 years through acquired operations.

The Company has grown both organically and through strategic acquisitions. In 2005, NetSol acquired CQ Systems Ltd., a UK-based provider of asset-based financial solutions, which established the Company's presence in the UK asset finance market. In 2006, the Company acquired McCue Systems, Inc., a California-based provider of lease and loan portfolio management software with more than 30 years of industry experience, strengthening NetSol's North American operations. In 2011, the Company, through its subsidiary NTE, acquired a 51% interest in Virtual Lease Services Ltd. ("VLS") in a joint venture with Investec Asset Finance Plc and acquired the remaining 49% in 2019.

Over subsequent years, NetSol transitioned from its legacy product suite to its current unified Transcend™ Platform: a cloud-deployed, AI-enabled, API-first ecosystem that today serves as the foundation for the Company's current generation product and service offerings.

Industry and market

The Company serves two complementary markets: the global asset finance and leasing industry, and digital retail for vehicle sales, where the Company's current focus is the United States.

The Company maintains regional offices in the following locations:

	●	North America: Encino, California (Corporate Headquarters) and Austin, Texas, U.S.
	●	Europe: Horsham and Flintshire, UK
	●	Asia-Pacific: Sydney, Australia; Bangkok, Thailand; Beijing and Tianjin, China; Jakarta, Indonesia; Lahore and Karachi, Pakistan; Dubai, UAE

Geographic presence and domain expertise

NetSol and its acquired businesses have more than 40 years of operating experience in North America, 30 years in Europe and 25 years in Asia-Pacific, with a significant concentration of business in the captive finance segment. The Asia-Pacific business benefits from continued growth in leasing automation adoption across developing markets in the region, while operations in North America and Europe serve more mature markets. Building on this foundation in automotive finance and leasing, the Company has expanded into adjacent areas, including digital retail solutions.

Global delivery model

The Company operates a blended onshore and offshore delivery model, with regional offices located near key customers and centralized development resources supporting global product delivery. This model enables competitive cost structures, cross-selling across regions to multinational customers and consistent platform delivery across geographies.

OUR PRODUCTS AND SERVICES

NetSol delivers its solutions through the Transcend™ Platform, a unified, API-first technology platform for the asset finance, leasing and automotive retail markets. The platform is designed for deployment in the cloud or in customer-managed environments, to integrate with existing customer and third-party systems through open APIs and to operate under the regulatory, audit and data-residency requirements applicable to financial institutions. Artificial intelligence is embedded within the platform and is applied in capabilities such as credit decisioning, document processing, portfolio analytics, collection intelligence and lifecycle servicing. The platform also enables customers to develop and deploy agents that operate on their data within their own environments, subject to the same access, audit and data-residency controls that apply across the platform.

The Company's principal offerings are as follows:

Transcend™ Retail

Transcend™ Retail is a digital retail platform for vehicle sales. It gives the buyer a single continuous purchase experience, from configuring a vehicle and valuing a trade-in to reviewing transparent payment and finance options and completing the transaction, whether that takes place online, in the showroom or across both. The buyer and the dealership work on the same deal in parallel rather than in separate systems, and either side can pick up where the other left off. The platform is configured to the brand standards of the manufacturer or dealer group and provides visibility and administrative control across the retail network. It is used by automotive manufacturers and dealer groups.

Transcend™ Finance

Transcend™ Finance is the Company's platform for lenders and lessors. It comprises three core solutions: Originations, Servicing and Wholesale Finance. Together these span the finance and leasing lifecycle from application through end of contract, and support auto, equipment, fleet and receivables portfolios across both retail and commercial products. The platform operates multiple legal entities, currencies and jurisdictions on a single system, and is configured to each customer's products, pricing and credit policy rather than custom-built. Partner-facing portals extend origination and servicing to the intermediaries in a customer's distribution network. 

Highlights

Listed below are a few of NetSol's highlights for the quarter ended September 30, 2026:

	●	We executed an agreement with BMO Equipment Finance, a leading North American bank and a long-standing customer, to migrate its U.S. and Canadian equipment finance portfolios from the legacy LeasePak platform to the next-generation Transcend™ Finance platform.
	●	We entered into an agreement with an automotive and powersports dealership group in North America to implement our Transcend Retail system to power its next-generation omnichannel digital retail platform. The agreement for the initial phase of development is valued at approximately $1.6 million.
	●	We generated nearly $2 million in revenue through major system enhancements and platform modifications for multiple customers across the globe.
	●	We announced the go-live of our Transcend Retail platform across two new U.S. dealer partners: Atlanta Autos and Royal Coach RV.
	●	We announced leadership transitions across our Americas and Europe businesses. Faizaan Ghauri was named President of NetSol Technologies Americas; Peter Minshall and Umar Qadri relocated to the United Kingdom to strengthen NetSol's European operations and commercial presence.
	●	We implemented AI-powered solutions primarily across HR and in selected finance processes, alongside broader initiatives to optimize workflows, reduce manual effort, and enhance operational efficiency and productivity. These efforts are supported by an enterprise AI governance framework and employee training, with a focus on improving process effectiveness and enabling more efficient use of resources.

Industry trends affecting our business

Management believes the following trends and uncertainties may have a material, favorable or unfavorable impact on the Company.

Interest rate environment and credit conditions

Interest rate levels and broader monetary policy conditions continue to influence borrowing costs, credit availability and financing activity across consumer and commercial lending markets, including automotive finance. Sustained elevated rates may temper near-term financing volumes among customers, while creating demand for technology investments that support operational efficiency and risk management.

Digital and omnichannel automotive retail

OEMs and dealers continue to adopt digital tools and omnichannel retail approaches, integrating online and physical channels across vehicle research, configuration and transaction processes. Continued investment in digital retail capabilities by automotive OEMs and dealerships may support demand for the Company's Transcend Retail platform, although adoption pace and implementation timing vary across customers and regions.

Shift from license to subscription revenue

Customers increasingly purchase the Company's software on a subscription basis rather than as a perpetual license. Subscription arrangements are recognized ratably over the contract term rather than at delivery, which reduces period-to-period revenue volatility and improves visibility but defers recognition of amounts that would previously have been recorded as license revenue at contract signing. Subscription and support revenue grew 6.1% in the quarter and represented approximately 58% of total revenue.

Replacement of legacy lender systems

Many of the Company's customers and prospects operate core systems that are decades old, including the Company's own legacy platforms. Replacement decisions are infrequent, involve long evaluation and implementation cycles and are sensitive to the customer's budget and risk appetite, so the timing of new agreements and go-lives can shift revenue between quarters. Upgrades of existing customers from legacy platforms to Transcend are a principal source of new subscription revenue.

Entry of horizontal platform vendors

Providers of general-purpose enterprise software, including customer relationship management and low-code platforms, have begun offering configurable solutions for lending and leasing, and the Company has started to encounter them in competitive evaluations. These vendors bring scale and existing relationships with the Company's customers in other functions. The Company's position in these evaluations rests on the depth of its asset finance functionality and its experience operating complex leasing and wholesale finance products in regulated, multi-entity environments.

Artificial intelligence in software development and delivery

AI tools are changing how enterprise software is built, implemented and supported. The Company uses these tools in its own development and delivery operations and expects them to contribute to delivery efficiency over time. The same tools may reduce the implementation effort customers are willing to pay for and lower barriers to entry for competitors.

Offshore delivery and currency exposure

The majority of the Company's development and delivery personnel are located in offshore delivery centers in Asia, which provides a cost advantage relative to competitors with onshore workforces. The Company's results are affected by wage inflation and competition for technical talent in those markets, and by movements in local currencies against the U.S. dollar, the euro and the British pound, as described under Other Income and Expense.

CHANGES IN FINANCIAL CONDITION

Quarter Ended September 30, 2026 Compared to the Quarter Ended September 30, 2025

The following table sets forth the items in our unaudited condensed consolidated statement of operations for the three months ended September 30, 2026 and 2025 as a percentage of revenues.

		For the Three Months
		Ended September 30,
		2026				%				2025				%
Net Revenues:
License fees		$	549,263				3.3	%		$	72,225				0.5	%
Subscription and support			9,505,208				57.9	%			8,960,555				59.7	%
Services			6,357,989				38.7	%			5,979,143				39.8	%
Total net revenues			16,412,460				100.0	%			15,011,923				100.0	%
Cost of revenues			8,131,365				49.5	%			9,099,933				60.6	%
Gross profit			8,281,095				50.5	%			5,911,990				39.4	%
Operating expenses:
Selling, general and administrative			7,700,709				46.9	%			7,536,353				50.2	%
Research and development cost			171,626				1.0	%			214,343				1.4	%
Total operating expenses			7,872,335				48.0	%			7,750,696				51.6	%
Income (loss) from operations			408,760				2.5	%			(1,838,706	)			-12.2	%
Other income and (expenses)
Interest expense			(111,360	)			-0.7	%			(174,611	)			-1.2	%
Interest income			301,068				1.8	%			280,974				1.9	%
Loss on foreign currency exchange transactions			(6,811	)			0.0	%			(286,917	)			-1.9	%
Other income			47,677				0.3	%			17,670				0.1	%
Total other income (expenses)			230,574				1.4	%			(162,884	)			-1.1	%
Net income (loss) before income taxes			639,334				3.9	%			(2,001,590	)			-13.3	%
Income tax provision			(105,126	)			-0.6	%			(215,775	)			-1.4	%
Net income (loss)			534,208				3.3	%			(2,217,365	)			-14.8	%
Non-controlling interest			(371,239	)			-2.3	%			(139,923	)			-0.9	%
Net income (loss) attributable to NetSol		$	162,969				1.0	%		$	(2,357,288	)			-15.7	%
Net income (loss) per share:
Net income (loss) per common share
Basic		$	0.01							$	(0.21	)
Diluted		$	0.01							$	(0.21	)
Weighted average number of shares outstanding
Basic			11,906,981								11,429,695
Diluted			11,926,869								11,429,695

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 18 "Operating Segments" within the Notes to the Condensed Consolidated Financial Statements. Weakening of the value of the U.S. dollar compared to foreign currency exchange rates generally has the effect of increasing our revenues but also increasing our expenses denominated in currencies other than the U.S. dollar. Similarly, strengthening of the U.S. dollar compared to foreign currency exchange rates generally has the effect of reducing our revenues but also reducing our expenses denominated in currencies other than the U.S. dollar. We plan our business accordingly by deploying additional resources to areas of expansion, while continuing to monitor our overall expenditures given the economic uncertainties of our target markets. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we compare the changes in results from one period to another period using constant currency. In order to calculate our constant currency results, we apply the current period results to the prior period foreign currency exchange rates. In the table below, we present the change based on actual results in reported currency and in constant currency.

																		Favorable				Favorable				Total
																		(Unfavorable)				(Unfavorable)				Favorable
		For the Three Months																Change in				Change due to				(Unfavorable)
		Ended September 30,																Constant				Currency				Change as
		2026				%				2025				%				Currency				Fluctuation				Reported
Net Revenues:		$	16,412,460				100.0	%		$	15,011,923				100.0	%		$	1,469,353			$	(68,816	)		$	1,400,537
Cost of revenues:			8,131,365				49.5	%			9,099,933				60.6	%			1,051,509				(82,941	)			968,568
Gross profit			8,281,095				50.5	%			5,911,990				39.4	%			2,520,862				(151,757	)			2,369,105
Operating expenses:			7,872,335				48.0	%			7,750,696				51.6	%			(92,968	)			(28,671	)			(121,639	)
Income (loss) from operations		$	408,760				2.5	%		$	(1,838,706	)			-12.2	%		$	2,427,894			$	(180,428	)		$	2,247,466

Net revenues for the three months ended September 30, 2026 and 2025 are broken out among the segments as follows:

		2026								2025
		Revenue				%				Revenue				%
North America		$	2,646,710				16.1	%		$	2,108,363				14.0	%
Europe			2,545,470				15.5	%			3,304,317				22.0	%
Asia-Pacific			11,220,280				68.4	%			9,599,243				63.9	%
Total		$	16,412,460				100.0	%		$	15,011,923				100.0	%

Revenues

License fees

License fees for the three months ended September 30, 2026 were $549,263 compared to $72,225 for the three months ended September 30, 2025, reflecting an increase of $477,038 or $479,610 on a constant currency basis. During the three months ended September 30, 2026, we recognized approximately $461,468 of software license revenue associated with the capping of the number of contracts of an existing customer agreement for our Transcend^TM software platform, and approximately $86,518 for the renewal of our Transcend^TM software with another existing customer. Revenue associated with maintenance and support services under the arrangement will continue to be recognized over the contractual service period.

Subscription and support

Subscription and support fees for the three months ended September 30, 2026, were $9,505,208 compared to $8,960,555 for the three months ended September 30, 2025, reflecting an increase of $544,653 with an increase in constant currency of $638,973. Subscription and support fees begin once a customer has "gone live" with our product and are recurring in nature. We anticipate these fees to increase over time as we implement our Transcend^TM products.

Services

Services income for the three months ended September 30, 2026, was $6,357,989 compared to $5,979,143 for the three months ended September 30, 2025, reflecting an increase of $378,846, with an increase in constant currency of $350,770. Services revenue increased compared to the prior year period, primarily due to the timing and composition of the current implementation projects.

Gross Profit

The gross profit was $8,281,095 for the three months ended September 30, 2026, compared with $5,911,990 for the three months ended September 30, 2025. This is an increase of $2,369,105 with an increase in constant currency of $2,520,862. The gross profit percentage for the three months ended September 30, 2026, also increased to 50.5% from 39.4% for the three months ended September 30, 2025. The cost of sales was $8,131,365 for the three months ended September 30, 2026, compared to $9,099,933 for the three months ended September 30, 2025, for a decrease of $968,568 and on a constant currency basis a decrease of $1,051,509. As a percentage of sales, cost of sales decreased from 60.6% for the three months ended September 30, 2025, to 49.5% for the three months ended September 30, 2026.

Salaries and consultant fees decreased by $712,909 from $6,964,526 for the three months ended September 30, 2025, to $6,251,617 for the three months ended September 30, 2026, and on a constant currency basis decreased by $835,355. The decrease is due to capitalization of internally developed software. As a percentage of sales, salaries, and consultant expenses decreased from 46.4% for the three months ended September 30, 2025, to 38.1% for the three months ended September 30, 2026.

Travel expenses were $350,050 for the three months ended September 30, 2026, compared to $498,172 for the three months ended September 30, 2025, for a decrease of $148,122 with a decrease in constant currency of $149,328. As a percentage of sales, travel expense decreased from 3.3% for the three months ended September 30, 2025, to 2.1% for the three months ended September 30, 2026. Travel expenses decreased due to less travel associated with new customer implementation projects.

Depreciation and amortization expense increased to $216,356 compared to $208,731 for the three months ended September 30, 2025, or an increase of $7,625 and on a constant currency basis an increase of $2,013.

Other costs were $1,313,342 for the three months ended September 30, 2026, compared to $1,428,504 for the three months ended September 30, 2025, or a decrease of $115,162, and on a constant currency basis, a decrease of $68,839.

Operating Expenses

Operating expenses were $7,872,335 for the three months ended September 30, 2026, compared to $7,750,696 for the three months ended September 30, 2025, for an increase of $121,639 and on a constant currency basis an increase of $92,968. As a percentage of sales, it decreased from 51.6% for the three months ended September 30, 2025 to 48.0% at September 30, 2026. The increase in operating expenses was primarily due to increases in the provision for doubtful accounts, salaries and wages, other general and administrative expenses, offset by a decrease in selling and marketing expenses and research and development cost.

Selling and marketing expenses were $2,823,967 for the three months ended September 30, 2026, compared to $3,116,953 for the three months ended September 30, 2025, for a decrease of $292,986 and on a constant currency basis a decrease of $272,105. The decrease is mainly due to decreases in travel of approximately $158,021. Other marketing expenses decreased by approximately $178,984 due to the decrease in advertising and marketing events offset by increase in salaries and consultants of approximately $43,659.

General and administrative expenses were $4,876,742 for the three months ended September 30, 2026, compared to $4,419,400 for the three months ended September 30, 2025, or an increase of $457,342 and on a constant currency basis an increase of $411,267. During the three months ended September 30, 2026, salaries increased by $121,770 and increased by $95,459 on a constant currency basis, bad debt expense increased by $114,377 and increased by $112,092 on a constant currency basis, and other general and administrative expenses increased by $221,195 and increased by $203,716 on a constant currency basis.

Research and development cost was $171,626 for the three months ended September 30, 2026, compared to $214,343 for the three months ended September 30, 2025, for a decrease of $42,717 and on a constant currency basis a decrease of $46,194.

Income/Loss from Operations

Income from operations was $408,760 for the three months ended September 30, 2026, compared to a loss of $1,838,706 for the three months ended September 30, 2025. This represents an increase in income of $2,247,466 with an increase of $2,427,894 on a constant currency basis for the three months ended September 30, 2026, compared with the three months ended September 30, 2025. As a percentage of sales, income from operations was 2.5% for the three months ended September 30, 2026, compared to a loss of 12.3% for the three months ended September 30, 2025.

Other Income and Expense

Other income was $230,574 for the three months ended September 30, 2026, compared to other expense of $162,884 for the three months ended September 30, 2025. This represents an increase in other income of $393,458 with an increase of $388,247 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions. The majority of the contracts with NetSol PK are either in U.S. dollars or Euros; therefore, the currency fluctuations will lead to foreign currency exchange gains or losses depending on the value of the PKR compared to the U.S. dollar and the euro. During the three months ended September 30, 2026, we recognized a loss of $6,811 in foreign currency exchange transactions compared to a loss of $286,917 for the three months ended September 30, 2025. During the three months ended September 30, 2026, the value of the U.S. dollar decreased 0.4% and the euro decreased 1.0%, compared to the PKR. 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.

Non-controlling Interest

For the three months ended September 30, 2026, the net income attributable to non-controlling interest was $371,239, compared to $139,923 for the three months ended September 30, 2025. The increase is mainly due to the increase in net income of NetSol PK.

Net income (loss) attributable to NetSol

The net income was $162,969 for the three months ended September 30, 2026, compared to a net loss of $2,357,288 for the three months ended September 30, 2025. This is an increase of $2,520,257 with an increase of $2,609,955 on a constant currency basis, compared to the prior year. For the three months ended September 30, 2026, net income per share was $0.01 for basic and diluted shares compared to a net loss per share of $0.21 for basic and diluted shares for the three months ended September 30, 2025.

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 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 and adjusted for foreign currency gains and losses.

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 non-GAAP adjusted EBITDA. 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.

Foreign currency exchange gains and losses: We have excluded the effect of foreign currency exchange gains and losses from non-GAAP adjusted EBITDA. As a multinational company, we are exposed to fluctuations in foreign currency exchange rates, which may result in significant gains or losses from period to period. Although foreign currency exchange gains and losses are reflected in our results in accordance with GAAP and may recur in future periods, we exclude these amounts from our non-GAAP measures because they are affected by changes in foreign currency exchange rates and are not considered by management to be indicative of the underlying operating performance of our business. We believe excluding foreign currency exchange gains and losses provides investors with additional information regarding our operating performance and facilitates period-to-period comparisons of our results.

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 an adjusted EBITDA attributable to NetSol.

Our reconciliation of the non-GAAP financial measures of EBITDA and adjusted EBITDA to the most comparable GAAP measures for the three months ended September 30, 2026 and 2025 are as follows:

		For the Three Months
		Ended September 30,
		2026				2025
Net Income (loss) attributable to NetSol		$	162,969			$	(2,357,288	)
Non-controlling interest			371,239				139,923
Income taxes			105,126				215,775
Depreciation and amortization			332,284				324,606
Interest expense			111,360				174,611
Interest (income)			(301,068	)			(280,974	)
EBITDA		$	781,910			$	(1,783,347	)
Add back:
Currency exchange (gain) loss			6,811				286,917
Non-cash stock-based compensation			102,900				145,400
Adjusted EBITDA, gross		$	891,621			$	(1,351,030	)
Less non-controlling interest (a)			(406,674	)			(305,661	)
Adjusted EBITDA, net		$	484,947			$	(1,656,691	)
(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		$	371,239			$	139,923
Income Taxes			25,391				39,805
Depreciation and amortization			72,671				75,085
Interest expense			33,855				48,827
Interest (income)			(93,372	)			(79,772	)
EBITDA		$	409,784			$	223,868
Add back:
Currency exchange (gain) loss			(3,110	)			81,793
Non-cash stock-based compensation			-				-
Adjusted EBITDA of non-controlling interest		$	406,674			$	305,661

LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $19,697,789 at September 30, 2026, compared to $27,123,955 at June 30, 2026.

Net cash used in operating activities was $5,556,001 for the three months ended September 30, 2026, compared to net cash provided by operating activities of $5,303,561 for the three months ended September 30, 2025. The decrease in operating cash flows was primarily attributable to changes in working capital. During the three months ended September 30, 2026, contract liabilities decreased by $3.4 million compared to an increase of $0.7 million in three months ended September 30, 2025, resulting in a significant year-over-year impact in operating cash flows. Operating cash flows were also impacted from a $2.6 million increase in contract assets during the three months ended September 30, 2026 compared to a $4.3 million decrease in three months ended September 30, 2025 and a decrease in accounts payable and accrued expenses of $1.5 million for the three months ended September 30, 2026 compared to an increase in accounts payable of $1.2 million for the three months ended September 30, 2026. These unfavorable changes were partially offset by a $1.1 million decrease in accounts receivable during the three months ended September 30, 2026 compared to a $1.2 million decrease in the three months ended September 30, 2025.

At September 30, 2026, we had current assets of $51,979,898 and current liabilities of $22,856,793. We had accounts receivable of $9,144,194 at September 30, 2026, compared to $10,286,342 at June 30, 2026. We had contract assets of $21,460,654 at September 30, 2026, compared to $18,707,582 at June 30, 2026, of which $2,483,199 and $2,467,018 are shown as long-term as of September 30, 2026, and June 30, 2026, respectively. The long-term portion was discounted by $343,247 and $373,219 at September 30, 2026, and June 30, 2026, respectively, using the discounted cash flow method with interest rates ranging from 4.5% to 6.6%, for the period ended September 30, 2026 and June 30, 2026.

During the three months ended September 30, 2026, our contract assets were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and contract assets increased by $1,610,924 from $28,993,924 at June 30, 2026, to $30,604,848 at September 30, 2026. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $7,276,077 and $8,139,155, respectively, at September 30, 2026. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,708,029 and $8,187,170, respectively, at June 30, 2026. The average days sales outstanding for the three months ended September 30, 2026, and 2025 were 167 and 147 days, respectively. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and contract assets.

Net cash used in investing activities amounted to $1,930,896 for the three months ended September 30, 2026, compared to $443,198 for the three months ended September 30, 2025. We had net purchases of property and equipment of $929,415 compared to $468,594 for the comparable period last fiscal year. We invested $1,001,481 in capitalization of software development costs for the three months ended September 30, 2026 compared to $nil in the prior period.

Net cash used in financing activities was $99,006 compared to net cash provided by financing activities $191,218, for the three months ended September 30, 2026, and 2025, respectively. During the three months ended September 30, 2025, we received bank proceeds of $242,421. During the three months ended September 30, 2026, we had net payments for bank loans and capital leases of $119,298 compared to $115,350 for the three months ended September 30, 2025. Employees of our subsidiary, NetSol PK, exercised 72,370 options of common stock for $20,292 during the quarter ended September 30, 2026. 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 from various financial institutions to meet both their short- and long-term funding requirements. These loans will become due at different maturity dates as described in Note 15 of the financial statements. We are in compliance with the covenants of the financial arrangements and there is no default that may lead to early payment of these obligations. We anticipate paying back all these obligations on their respective due dates.

As a growing company, we have ongoing capital expenditure requirements to support our short-term and long-term business plans. Over the next 12 months, we expect to incur approximately $3.0 to $3.5 million in capital expenditures across our APAC, U.S. and European operations.

We typically fund the cash requirements for our operations in the U.S. through our license, services, and maintenance agreements, intercompany charges for corporate services, and through the exercise of options. As of September 30, 2026, we had approximately $19.7 million of cash, cash equivalents and marketable securities of which approximately $18.9 million is held by our foreign subsidiaries. As of June 30, 2026, we had approximately $27.1 million of cash, cash equivalents and marketable securities, of which approximately $26.5 million is held by our foreign subsidiaries.

Financial Covenants

The following tables present financial covenants associated with our borrowings.

Subsidiary		Bank / Facility		Facility Amount		Key Financial Covenants / Conditions
NTE (UK)		Overdraft facility		£300,000 ($400,000)		Eligible trade receivables (≤90 days old, net of provisions, excluding intercompany) must be at least 200% of the facility balance
NetSol PK		Askari Bank - Export refinance		PKR 600 million ($2,166,221)
NetSol PK		Askari Bank - Running finance		PKR 4.1 million ($14,625)
NetSol PK		Habib Metro - Export refinance		PKR 1.3 billion ($4,693,480)		Long-term debt-to-equity ratio of 60:40; Current ratio of at least 1:1
NetSol PK		Bank Al-Habib - Export refinance		PKR 400 million ($1,444,148)
NetSol PK		Bank of Punjab - Export refinance		PKR 200 million ($722,074)
NetSol PK		Samba Bank - Export refinance		PKR 380 million ($1,371,940)		Current ratio ≥ 1:1; Interest coverage ≥ 4x; Leverage ratio ≤ 2x; Debt service coverage ≥ 4x

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, 2026.

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.