Annual Report for Fiscal Year Ending JUNE 30, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding our financial position and results of operations for the year ended June 30, 2025. It should be read together with our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K.

Listed below are a few of NetSol's highlights for the Year ended June 30, 2025:

● We signed a multi-year agreement with the captive finance arm of a leading Japanese automotive manufacturer to implement its flagship Transcend™ Finance platform across both retail and wholesale operations in Australia and New Zealand. The agreement, structured with a five-year total cost of ownership of approximately $21 million, reflects the client's strategic commitment to deploying a unified, next-generation solution. The platform implementation is aimed at driving enterprise-wide operational efficiencies, supporting digital transformation objectives, and enhancing long-term scalability and regulatory readiness across the Australia/New Zealand finance ecosystem.

● We successfully executed a binding, multi-year maintenance and technical upgrade agreement with the captive finance arm of a leading Japanese automotive manufacturer. The agreement, with a total cost of ownership exceeding $4 million, governs the upgrade and extended support of the client's retail finance platform through 2027. The scope includes comprehensive system upgrades, implementation of enhanced security protocols, performance optimization, and full-cycle testing.

● We broadened our revenue base and expanded our managed service portfolio by securing three new client engagements covering audit, business process outsourcing (BPO), and standby services. One of these clients is already live on our redesigned standby platform. Collectively, these contracts are expected to contribute nearly $400,000 in incremental revenues over their respective terms, pursuant to the terms and service levels defined in each executed agreement.

● We formalized an agreement with the captive finance division of a prominent North American automotive retailer to conduct a structured discovery and assessment phase. This engagement, projected to generate approximately $800,000 in revenue, is aimed at evaluating current platform capabilities, identifying custom development opportunities, and defining the scope for a future technology solution. The outcome of this phase will inform a potential omnichannel transformation strategy focused on enhancing customer experience and operational efficiency.

● We have generated approximately $6.1 million in revenue through the successful implementation of client-approved platform modifications and enhancement requests. These initiatives were executed across multiple regional markets in accordance with the terms of individual service orders, ensuring continuity, improved performance, and alignment with evolving business needs.

● We entered into an agreement with a Chinese leasing company to deploy our Transcend™ Finance Suite, including Omni POS, Contract Management System, and a customized funding platform compliant with local regulations. The contract is expected to generate approximately $2.7 million in revenue during the contract term.

● We partnered with Sindbad Management SPC to implement Transcend™ Finance Platform (Point-of-Sale, Credit Underwriting, Contract Management) under a scalable pricing model, supporting high-value asset financing and regional growth. The contract is expected to generate $1.7 million in revenue during the contract term.

● We secured $1 million in additional revenue for the ongoing Transcend™ Retail Platform implementation for a U.S. auto manufacturer, driven by customizations to meet their evolving business needs.

● We amended an agreement with an existing UK/EU client that will provide additional revenue of €3 million, further strengthening the long-term partnership.

● We hired a Vice President of Artificial Intelligence, who has 15+ years in fintech, insurance, and entertainment, to lead Transcend™ AI Labs, accelerating our AI-first strategy in asset finance.

● We announced the go-live of our Transcend™ Finance platform for the Australian operations of a leading Japanese equipment finance company, building on our existing partnership in New Zealand and enhancing their regional operations with additional digital self-service solutions.

Marketing and Business Development Activities

We continue to pursue a series of strategic marketing and business development initiatives to capitalize on favorable market conditions and drive growth across our business lines. These efforts reflect our commitment to building a stronger market presence, expanding our customer base and maintaining a careful focus on profitability. These efforts include: repositioning our brand and messaging; brand strengthening and awareness; raising industry expertise through speaking engagements and participation in awards and recognitions; accelerating digital campaigns focused on content marketing; leveraging analytics and marketing automation tools to improve campaign effectiveness and optimize marketing return on investment; creating comprehensive go-to-market plans for new launches and feature upgrades; customer centric sales enablement; targeting new global and product markets; using AI to enhance productivity; expanding market reach through participation in industry associations; and, adopting practices that strengthen leadership and talent retention.

MATERIAL TRENDS AFFECTING NETSOL

Management has identified the following material trends affecting NETSOL.

Positive trends:

●

According to S&P Global Mobility, the forecast for new vehicle sales worldwide in 2025 is 89.6 million units, which is a modest 1.7% year-over-year growth in light vehicle sales. And the US automotive sales of new vehicles in 2025 are expected to be around 16.2 million units, which is a 1.2% to 1.4% increase from 2024. This would be the highest annual sales figure since 2019.

●

The annual inflation rate remained steady for the U.S. at 2.7% for the 12 months ending July 2025. (USinflationcalculator.com)

●

According to recent forecasts, China's auto sales in 2025 are expected to reach approximately 32.9 million units representing a 4.7% year-over-year increase. Sales of New Energy Vehicles account of 48.7% of all new car sales in China. (China Automobile Manufacturers Association)

●

The China-Pakistan Economic Corridor (CPEC) investment, initiated by China, has exceeded $65 billion from the originally planned $46 billion, in Pakistan's energy and infrastructure sectors. In June 2024, China authorized a new $2.3 billion loan at a discounted rate to Pakistan as a short-term loan.

●

The overall size of the mobility market in Europe and the United States is projected to increase over $425 billion combined, by 2035 or a compound CAGR of 5% from 2022. (Deloitte Global Automotive Mobility Market Simulation Tool)

●

The global automotive finance market accounted for $378,957 billion in 2024 and is expected to increase to $798,657 billion by 2035 at a CAGR of 7.7% according to Global Growth Insights.

Negative trends:

●

The conflict in Gaza has disrupted the entire Middle East region since October 7, 2023. The conflict has expanded to neighboring nations such as Syria, Lebanon, and Iran. The unrest and turmoil in the region are viewed unfavorably by the regional business community.

●

General economic conditions in our geographic markets; inflation, economic uncertainty, and increased operational costs are pressuring margins and leading companies to prioritize critical investment and control spending.

●

SaaS cybersecurity faces unprecedented challenges as companies increasingly migrate critical functions to cloud platforms. Proliferation of AI tools within these platforms has created additional attack vectors that require specialized security approaches beyond legacy protections. (JOSYS.COM)

●

The imposition of tariffs on China and on other US trading partners may affect the price of consumer goods including vehicles amongst others, negatively affecting the profitability of many of our customers.

CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for us include revenue recognition and multiple element arrangements, intangible assets, software development costs, and goodwill.

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 a traditional on-premises licensing model and a subscription model. The on-premises model involves the sale or license of software on a perpetual basis to customers who take possession of the software and install and maintain the software on their own hardware. Under the subscription delivery model, the Company provides access to its software on a hosted basis as a service and customers generally do not have the contractual right to take possession of the software.

Non-Core Revenue

The Company generates its non-core revenue by providing business process outsourcing ("BPO"), other IT services and internet services.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that the Company can monitor and account for the performance obligations over the life of the contract.

The Company's contracts which contain multiple performance obligations generally consist of the initial purchase of subscription or licenses and a professional services engagement. License purchases generally have multiple performance obligations as customers purchase post-contract support and services in addition to the licenses. The Company's single performance obligation arrangements are typically post-contract support renewals, subscription renewals and services engagements.

For contracts with multiple performance obligations where the contracted price differs from the standard-alone selling price ("SSP") for any distinct good or service, the Company may be required to allocate the contract's transaction price to each performance obligation using its best estimate for the SSP.

Subscription

Subscription revenue is recognized ratably over the initial subscription period committed to by the customer commencing when the product is made available to the customer. The initial subscription period is typically 12 to 60 months. The Company generally invoices its customers in advance in quarterly or annual installments and typical payment terms provide that customers make payment within 30 days of invoice.

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.

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, maintenance releases and patches released during the term of the support period on a when-and-if available basis. The Company's customers purchase both product support and license updates when they acquire new software licenses. In addition, a majority of customers renew their support services contracts annually and typical payment terms provide that customers make payment within 30 days of invoice.

Professional Services

Revenue from professional services is typically comprised of implementation, development, data migration, training or other consulting services. Consulting services are generally sold on a time-and-materials or fixed fee basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to operate in integrated environments. The Company recognizes revenue for time-and-materials arrangements as the services are performed. In fixed fee arrangements, revenue is recognized as services are performed as measured by costs incurred to date, compared to total estimated costs to complete the services project. Management applies judgment when estimating project status and the costs necessary to complete the services projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. Services are generally invoiced upon milestones in the contract or upon consumption of the hourly resources and payments are typically due 30 days after invoice.

BPO and Internet Services

Revenue from BPO services is recognized based on the stage of completion which is measured by reference to labor hours incurred to date as a percentage of total estimated labor hours for each contract. Internet services are invoiced either monthly, quarterly or half yearly in advance to the customers and revenue is recognized ratably overtime on a monthly basis.

Significant Judgments

More judgments and estimates are required under Topic 606 than were required under Topic 605. 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 (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 "man-days" that the work requires. The Company believes the level of effort to complete the services is best measured by the amount of time (measured as an employee working for one day on implementation/customization work) that is required to complete the implementation or customization work. The Company reviews its estimate of man-days required to complete implementation and customization services each reporting period.

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. A number of internal and external factors can affect these estimates, including labor rates, utilization, specification variances and testing requirement changes.

If a group of agreements are entered at or near the same time and so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be combined as one arrangement for revenue recognition purposes. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether agreements should be accounted for separately or as a single arrangement. The Company's judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

If a contract includes variable consideration, the Company exercises judgment in estimating the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. When estimating variable consideration, the Company will consider all relevant facts and circumstances. Variable consideration will be estimated and included in the contract price only when it is probable that a significant reversal in the amount of revenue recognized will not occur.

Contract Balances

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets (revenues in excess of billings), or contract liabilities (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.

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-cancellable 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 cash 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, we incur few direct incremental costs of obtaining new customer contracts. We rarely incur incremental costs to review or otherwise enter into contractual arrangements with customers. In addition, our sales personnel receive fees that we refer to as commissions, but that are based on more than simply signing up new customers. Our sales personnel are required to perform additional duties beyond new customer contract inception dates, including fulfillment duties and collections efforts.

STOCK-BASED COMPENSATION

Our stock-based compensation expense is estimated at the grant date based on the award's fair value as calculated by the Black-Scholes-Merton (BSM) option pricing model and is recognized as expense over the requisite service period. The BSM model requires various highly judgmental assumptions including expected volatility and expected term. If any of the assumptions used in the BSM model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. The Company recognizes compensation expense net of actual forfeitures as they occur. Accordingly, no estimate is made for the future forfeitures at the time of grant.

GOODWILL

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. In conducting its annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, the Company performs a quantitative assessment, and the fair value of the reporting unit is determined by analyzing the expected present value of future cash flows. If the carrying value of the reporting unit continues to exceed its fair value, the fair value of the reporting unit's goodwill is calculated and an impairment loss equal to the excess is recorded.

Recent Accounting Pronouncement

See Note 2 "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, for a full description of recent accounting pronouncements, including the expected dates of adoption.

RESULTS OF OPERATIONS

THE YEAR ENDED JUNE 30, 2025 COMPARED TO THE YEAR ENDED JUNE 30, 2024

The following table sets forth the items in our consolidated statement of operations for the years ended June 30, 2025 and 2024 as a percentage of revenues.

		For the Years
		Ended June 30,
		2025				%				2024				%
Net Revenues:
License fees		$	598,633				0.9	%		$	5,449,991				8.9	%
Subscription and support			32,934,648				49.8	%			27,952,768				45.5	%
Services			32,554,948				49.3	%			27,990,332				45.6	%
Total net revenues			66,088,229				100.0	%			61,393,091				100.0	%
Cost of revenues			33,513,697				50.7	%			32,108,221				52.3	%
Gross profit			32,574,532				49.3	%			29,284,870				47.7	%
Operating expenses:
Selling, general and administrative			27,796,936				42.1	%			24,388,714				39.7	%
Research and development cost			1,275,878				1.9	%			1,402,601				2.3	%
Total operating expenses			29,072,814				44.0	%			25,791,315				42.0	%
Income (loss) from operations			3,501,718				5.3	%			3,493,555				5.7	%
Other income and (expenses)
Interest expense			(871,355	)			-1.3	%			(1,142,166	)			-1.9	%
Interest income			1,871,040				2.8	%			1,911,258				3.1	%
Gain (loss) on foreign currency exchange transactions			1,301,613				2.0	%			(1,187,320	)			-1.9	%
Other income			244,241				0.4	%			148,120				0.2	%
Total other income (expenses)			2,545,539				3.9	%			(270,108	)			-0.4	%
Net income before income taxes			6,047,257				9.2	%			3,223,447				5.3	%
Income tax provision			(1,476,338	)			-2.2	%			(1,145,518	)			-1.9	%
Net income			4,570,919				6.9	%			2,077,929				3.4	%
Non-controlling interest			(1,647,686	)			-2.5	%			(1,394,056	)			-2.3	%
Net income attributable to NetSol		$	2,923,233				4.4	%		$	683,873				1.1	%
Net income per share:
Net income per common share
Basic		$	0.25							$	0.06
Diluted		$	0.25							$	0.06
Weighted average number of shares outstanding
Basic			11,576,287								11,378,595
Diluted			11,576,287								11,421,940

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 17 "Segment Information and Geographic Areas" within the Notes to the 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 Years																Change in				Change due to				(Unfavorable)
		Ended June 30,																Constant				Currency				Change as
		2025				%				2024				%				Currency				Fluctuation				Reported
Net Revenues:		$	66,088,229				100.0	%		$	61,393,091				100.0	%		$	4,184,791			$	510,347			$	4,695,138
Cost of revenues:			33,513,697				50.7	%			32,108,221				52.3	%			(1,007,408	)			(398,068	)			(1,405,476	)
Gross profit			32,574,532				49.3	%			29,284,870				47.7	%			3,177,383				112,279				3,289,662
Operating expenses:			29,072,814				44.0	%			25,791,315				42.0	%			(3,452,110	)			170,611				(3,281,499	)
Income (loss) from operations		$	3,501,718				5.3	%		$	3,493,555				5.7	%		$	(274,727	)		$	282,890			$	8,163

Net revenues for the years ended June 30, 2025 and 2024 by segment are as follows:

		2025								2024
		Revenue				%				Revenue				%
North America		$	12,003,827				18.2	%		$	5,933,797				9.7	%
Europe			14,644,000				22.2	%			11,967,802				19.5	%
Asia-Pacific			39,440,402				59.7	%			43,491,492				70.8	%
Total		$	66,088,229				100.0	%		$	61,393,091				100.0	%

Revenues

License Fees

License fees for the year ended June 30, 2025 were $598,633 compared to $5,449,991 for the year ended June 30, 2024 reflecting a decrease of $4,851,358 with a change in constant currency of $4,855,917. In the fiscal year ended June 30, 2025, we recognized approximately $487,000 from a new customer in Indonesia. In the fiscal year ended June 30, 2024, we recognized approximately $2,800,000 related to the sale of our NFS Ascent^® CMS software to a renowned US auto manufacturer based in China, and we recognized approximately $1,142,000 related to the license renewal with an existing customer, and we recognized approximately $465,000 related to the additional sale of our NFS Ascent® CMS software to a renowned German auto manufacturer based in China, and we recognized approximately $610,000 related to selling licenses of our digital applications to a current Indonesian customer.

Subscription and Support

Subscription and support fees for the year ended June 30, 2025, were $32,934,648 compared to $27,952,768 for the year ended June 30, 2024 reflecting an increase of $4,981,880 with an increase in constant currency of $4,788,597. The increase includes a one-time catch up of approximately $1,693,000 from five of our customers. Subscription and support fees are recurring in nature, and we anticipate these fees to gradually increase as we increase our SaaS customer base and implement NFS Ascent^®.

Services

Services income for the year ended June 30, 2025, was $32,554,948 compared to $27,990,332 for the year ended June 30, 2024, reflecting an increase of $4,564,616 with an increase in constant currency of $4,160,167. The increase is mainly due to implementation services in APAC, the U.S. and Europe.

Gross Profit

The gross profit was $32,574,532 for the year ended June 30, 2025, compared with $29,284,870 for the year ended June 30, 2024. This is an increase of $3,289,662 with an increase in constant currency of $3,177,383. The gross profit percentage for the year ended June 30, 2025, increased to 49.3% from 47.7% for the year ended June 30, 2024. The cost of sales was $33,513,697 for the year ended June 30, 2025, compared to $32,108,221 for the year ended June 30, 2024, for an increase of $1,405,476 and on a constant currency basis an increase of $1,007,408. As a percentage of sales, cost of sales decreased from 52.3% for the year ended June 30, 2024, to 50.7% for the year ended June 30, 2025.

Salaries and consultant fees increased by $2,174,558 from $23,622,907 for the year ended June 30, 2024, to $25,797,465 for the year ended June 30, 2025, and on a constant currency basis increased by $1,869,462. The increase is due to annual increases in salary. As a percentage of sales, salaries and consultant expense increased from 38.5% for the year ended June 30, 2024, to 39.0% for the year ended June 30, 2025.

Travel decreased by $879,931 from $2,943,442 for the year ended June 30, 2024, to $2,063,511 for the year ended June 30, 2025, and on a constant currency basis decreased by $901,699. The decrease in travel expense is due to the decrease in travel for the current implementations. As a percentage of sales, travel expense decreased from 4.8% for year ended June 30, 2024, to 3.1% for the year ended June 30, 2025.

Depreciation and amortization expense decreased to $952,331 compared to $1,144,809 for the year ended June 30, 2024, or a decrease of $192,478 and on a constant currency basis a decrease of $202,630.

Other costs increased to $4,700,390 for the year ended June 30, 2025, compared to $4,397,063 for the year ended June 30, 2024, or an increase of $303,327 and on a constant currency basis an increase of $242,275. The increase is mainly due to increase in third party hardware costs of approximately $267,000.

Operating Expenses

Operating expenses were $29,072,814 for the year ended June 30, 2025, compared to $25,791,315, for the year ended June 30, 2024, for an increase of $3,281,499 and on a constant currency basis an increase of $3,452,110. As a percentage of sales, it increased from 42.0% to 44.0%. The increase in operating expenses was primarily due to increases in selling expenses, general and administrative expenses and research and development costs.

Selling and marketing expenses increased by $2,742,951 and on a constant currency basis increased by $2,603,499. The increase is mainly due to increases in salaries of approximately $2,200,000, travel of approximately $257,000 and other selling expenses of approximately $288,000.

General and administrative expenses were $17,501,610 for the year ended June 30, 2025, compared to $16,836,339 at June 30, 2024, or an increase of $665,271, and on a constant currency basis an increase of $992,703. During the year ended June 30, 2025, salaries increased by approximately $687,000 or increased by approximately $574,000 on a constant currency basis, due to increases in salaries including bonuses, medical costs and subsidiary options granted to staff in NetSol PK. The provision for doubtful accounts increased by approximately $496,000 and on a constant currency basis increased by approximately $477,000. Other general and administrative costs decreased by approximately $518,000 and on a constant currency basis a decrease of approximately $58,000.

Research and development costs decreased by approximately $127,000 and on a constant currency basis a decrease of approximately $144,000.

Income/Loss from Operations

Income from operations was $3,501,718 for the year ended June 30, 2025, compared to $3,493,555 for the year ended June 30, 2024. This represents a slight increase of $8,163 with a decrease of $274,727 on a constant currency basis for the year ended June 30, 2025, compared with the year ended June 30, 2024. As a percentage of sales, income from operations was 5.3% for the year ended June 30, 2025, compared to 5.7% for the year ended June 30, 2024.

Other Income and Expense

Other income was $2,545,539 for the year ended June 30, 2025, compared to other expense of $270,108 for the year ended June 30, 2024. This represents an increase of $2,815,647 with an increase of $2,796,342 on a constant currency basis. The increase is primarily due to the foreign currency exchange transactions.

During the year ended June 30, 2025, we recognized a gain of $1,301,613 in foreign currency exchange transactions compared to a loss of $1,187,320 for the year ended June 30, 2024. 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 year ended June 30, 2025, the value of the U.S. dollar and the Euro increased 2.1% and 11.9%, respectively, compared to the PKR. During the year ended June 30, 2024, the value of the U.S. dollar and the Euro decreased 3.1% and 4.6%, respectively, compared to the PKR.

Non-controlling Interest

For the year ended June 30, 2025, and 2024, the net income attributable to non-controlling interest was $1,647,686 and $1,394,056, respectively. The increase in non-controlling interest is primarily due to the increase in net income of NetSol PK.

Net Income (Loss) Attributable to NetSol

Net income was $2,923,233 for the year ended June 30, 2025, compared to $683,873 for the year ended June 30, 2024. This is an increase in income of $2,239,360 with an increase of $1,678,200 on a constant currency basis, compared to the prior year. For the year ended June 30, 2025, net income per share was $0.25 for basic and diluted shares. For the year ended June 30, 2024, net income per share was $0.06 for basic and diluted shares.

Non-GAAP Financial Measures

Regulation S-K Item 10(e), "Use of Non-GAAP Financial Measures in Commission Filings," defines and prescribes the conditions for use of non-GAAP financial information. Our measures of adjusted EBITDA and adjusted EBITDA per basic and diluted share meet the definition of a non-GAAP financial measure.

We define the non-GAAP measures as follows:

●

EBITDA is GAAP net income before net interest expense, income tax expense, depreciation and amortization.

●

Non-GAAP adjusted EBITDA is EBITDA plus stock-based compensation expense.

●

Adjusted EBITDA per basic and diluted share - Adjusted EBITDA allocated to common stock divided by the weighted average shares outstanding and diluted shares outstanding.

We use non-GAAP measures internally to evaluate the business and believe that presenting non-GAAP measures provides useful information to investors regarding the underlying business trends and performance of our ongoing operations as well as useful metrics for monitoring our performance and evaluating it against industry peers. The non-GAAP financial measures presented should be used in addition to, and in conjunction with, results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP financial measures. Management strongly encourages investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure in evaluating the Company.

The non-GAAP measures reflect adjustments based on the following items:

EBITDA: We report EBITDA as a non-GAAP metric by excluding the effect of net interest expense, income tax expense, depreciation and amortization from net income because doing so makes internal comparisons to our historical operating results more consistent. In addition, we believe providing an EBITDA calculation is a more useful comparison of our operating results to the operating results of our peers.

Stock-based compensation expense: We have excluded the effect of stock-based compensation expense from the non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA per basic and diluted share calculations. Although stock-based compensation expense is calculated in accordance with current GAAP and constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense which generally requires cash settlement by NetSol, and therefore is not used by us to assess the profitability of our operations. We also believe the exclusion of stock-based compensation expense provides a more useful comparison of our operating results to the operating results of our peers.

Non-controlling interest:We add back the non-controlling interest in calculating gross adjusted EBITDA and then subtract out the income taxes, depreciation and amortization and net interest expense attributable to the non-controlling interest to arrive at a net adjusted EBITDA.

Our reconciliation of the non-GAAP financial measures of adjusted EBITDA and non-GAAP earnings per basic and diluted share to the most comparable GAAP measures for the years ended June 30, 2025, and 2024 are as follows:

		For the Years
		Ended June 30,
		2025				2024
Net Income (loss) attributable to NetSol		$	2,923,233			$	683,873
Non-controlling interest			1,647,686				1,394,056
Income taxes			1,476,338				1,145,518
Depreciation and amortization			1,463,783				1,721,800
Interest expense			871,355				1,142,166
Interest (income)			(1,871,040	)			(1,911,258	)
EBITDA		$	6,511,355			$	4,176,155
Add back:
Non-cash stock-based compensation			208,116				308,569
Adjusted EBITDA, gross		$	6,719,471			$	4,484,724
Less non-controlling interest (a)			(2,017,274	)			(1,810,394	)
Adjusted EBITDA, net		$	4,702,197			$	2,674,330
Weighted Average number of shares outstanding
Basic			11,576,287				11,378,595
Diluted			11,576,287				11,421,940
Basic adjusted EBITDA		$	0.41			$	0.24
Diluted adjusted EBITDA		$	0.41			$	0.23
(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		$	1,647,686			$	1,394,056
Income Taxes			321,973				198,923
Depreciation and amortization			358,180				440,302
Interest expense			251,658				354,624
Interest (income)			(567,285	)			(590,170	)
EBITDA		$	2,012,212			$	1,797,735
Add back:
Non-cash stock-based compensation			5,062				12,659
Adjusted EBITDA of non-controlling interest		$	2,017,274			$	1,810,394

LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $17,357,344 at June 30, 2025, compared to $19,127,165 at June 30, 2024.

Net cash provided by operating activities was $447,267 for the year ended June 30, 2025, compared to $2,909,388 for the year ended June 30, 2024. At June 30, 2025, we had current assets of $46,319,603 and current liabilities of $19,713,997. We had accounts receivable of $7,527,572 at June 30, 2025, compared to $13,049,614 at June 30, 2024. We had revenues in excess of billings of $19,134,385 at June 30, 2025, compared to $13,638,547 at June 30, 2024, of which $903,766 and $954,029 are shown as long term as of June 30, 2025, and 2024, respectively. The long-term portion was discounted by $208,037 and $152,446 at June 30, 2025, and 2024, respectively, using the discounted cash flow method with interest rates ranging from 4.2% to 17.5%, for the year ended June 30, 2025, and 2024 respectively. During the year ended June 30, 2025, our revenues in excess of billings were reclassified to accounts receivable pursuant to billing requirements detailed in each contract. The combined totals for accounts receivable and revenues in excess of billings decreased by $26,204 from $26,688,161 at June 30, 2024, to $26,661,957 at June 30, 2025. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,010,844 and $8,240,061, respectively, at June 30, 2025. Accounts payable and accrued expenses, and current portions of loans and lease obligations amounted to $8,232,342 and $6,276,125, respectively, at June 30, 2024. The average days sales outstanding for the years ended June 30, 2025, and 2024 were 147 and 151 days respectively. The days sales outstanding have been calculated by taking into consideration the average combined balances of accounts receivable and revenue in excess of billings.

Net cash used by investing activities amounted to $1,274,865 for the year ended June 30, 2025, compared to $291,538 for the year ended June 30, 2024. We had net purchases of property and equipment of $1,265,987 compared to $291,538 for the comparable period last fiscal year.

Net cash provided by financing activities was $822,881 compared to $239,551, for the years ended June 30, 2025, and 2024, respectively. During the year ended June 30, 2025, we received bank proceeds of $2,920,149 compared to $756,936 during the year ended June 30, 2024. During the year ended June 30, 2025, we had net payments for bank loans and capital leases of $773,535 compared to $517,385 for the year ended June 30, 2024. During the year ended June 30, 2025, Company employees exercised 220,00 options of common stock for $473,000, NetSol PK, a subsidiary of the Company, paid a dividend of $306,799 to the non-controlling shareholders, and NetSol PK purchased 2,690,251 shares of its common stock from the open market for $1,503,662. 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 12 of the financial statements. We are in compliance with the covenants of the financial arrangements and there is no default which may lead to early payment of these obligations. We anticipate paying back all these obligations on their respective due dates.

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 June 30, 2025, we had approximately $17.4 million of cash, cash equivalents and marketable securities of which approximately $16.4 million is held by our foreign subsidiaries. As of June 30, 2024, we had approximately $19.1 million of cash, cash equivalents and marketable securities of which approximately $18.2 million was held by our foreign subsidiaries.

We remain open to strategic relationships that would provide value added benefits. The focus will remain on continuously improving cash reserves internally.

As a growing company, we have on-going capital expenditure needs based on our short-term and long-term business plans. Although our requirements for capital expenses vary from time to time, for the next 12 months, we anticipate needing working capital of $1.5 to $2 million for APAC, U.S. and European new business development activities and infrastructure enhancements.

Financial Covenants

Our UK based subsidiary, NTE, has an approved overdraft facility of £300,000 ($410,959) which requires that the aggregate amount of invoiced trade debtors (net of provisions for bad and doubtful debts and excluding intra-group debtors) of NTE, not exceeding 90 days old, will not be less than an amount equal to 200% of the facility. The Pakistani subsidiary, NetSol PK has an approved facility for export refinance from Askari Bank Limited amounting to Rupees 600 million ($2,111,561) and a running finance facility of Rupees 4.1 million ($14,256). NetSol PK has an approved facility for export refinance from another Habib Metro Bank Limited amounting to Rupees 1.3 billion ($4,575,048). These facilities require NetSol PK to maintain a long-term debt equity ratio of 60:40 and the current ratio of 1:1. NetSol PK also has an approved export refinance facility of Rs. 380 million ($1,337,322) from Samba Bank Limited. During the loan tenure, these two facilities require NetSol PK to maintain at a minimum a current ratio of 1:1, an interest coverage ratio of 4 times, a leverage ratio of 2 times, and a debt service coverage ratio of 4 times.

As of the date of this report, we are in compliance with the financial covenants associated with our borrowings. The maturity dates of the borrowings of respective subsidiaries may accelerate if they do not comply with these covenants. In case of any change in control in subsidiaries, they may have to repay their respective credit facilities.

Dividends and Redemption

It has been our policy to invest earnings in growth rather than distribute earnings as common stock dividends. This policy, under which common stock dividends have not been paid since our inception is expected to continue but is subject to regular review by the Board of Directors.

Contractual Obligations

Our contractual obligations are as follows:

		Payment due by period																More than 5
Contractual Obligation		Total				0 - 1 year				1-3 Years				3-5 Years				years
Debt Obligations
D&O Insurance		$	119,542			$	119,542			$	-			$	-			$	-
Bank Overdraft Facility			405,000				405,000				-				-				-
Bank Overdraft Facility II			-				-				-				-				-
Term Finance Facility			-				-				-								-
Loan Payable Bank - Export Refinance			1,759,634				1,759,634				-				-				-
Loan Payable Bank - Running Finance
Loan Payable Bank - Export Refinance II			1,337,322				1,337,322				-				-				-
Loan Payable Bank - Export Refinance III			4,575,048				4,575,048				-				-				-
Term Finance Facility			-				-				-				-				-
Sale and Leaseback Financing			76,618				29,660				46,958				-				-
Insurance financing			-				-				-				-				-
Short Term Loan			-				-				-				-				-
Subsidiary Finance Leases			101,505				13,855				87,650				-				-
																			-
																			-
Operating Lease Obligations			766,616				433,242				332,938				436				-
																			-
Total		$	9,141,285			$	8,673,303			$	467,546			$	436			$	-

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in currency exchange rates and interest rates.

Foreign Currency Exchange Risk

Economic Exposure

We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. Since the majority of the Company's operations are based in the Asia Pacific region where the Pakistan Rupee is continuously losing its value against the US Dollar and we don't have any imports; therefore, we believe it is counter-productive to hedge this exposure. The devaluation of the Pakistan Rupee results in a foreign exchange gain to the Company.

Transaction Exposure

Our exposure to foreign currency transaction gains and losses is the result of certain net receivables due from our foreign subsidiaries and customers being denominated in currencies other than the functional currency of the subsidiary, primarily the Euro, Yuan, Baht and the Pakistan Rupee. Our foreign subsidiaries conduct their businesses in local currency. Since the majority of the Company's operations are based in the Asia Pacific region where the Pakistan Rupee is continuously losing its value against the US Dollar and we don't have any imports; therefore, we believe it is counter-productive to hedge this exposure.