{"url_path":"/sec/fatn/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-05-18","source_url":"https://www.sec.gov/Archives/edgar/data/1993400/0001493152-26-024184-index.html","accession_number":"0001493152-26-024184","cik":"0001993400","ticker":"FATN","issuer_name":"Fatpipe Inc/UT","edgar_url":"https://www.sec.gov/Archives/edgar/data/1993400/0001493152-26-024184-index.html","primary_entity_key":"0001993400","primary_entity_name":"Fatpipe Inc/UT"},"word_count":5159,"has_tables":true,"body_markdown":"** **\n\n**ITEM\n7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**\n\n \n\n*The\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated\nfinancial statements and related notes thereto included elsewhere in this Annual Report. This discussion contains forward-looking statements\nthat relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and\nother factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any\nfuture results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks\nand other factors include, among others, those listed under “Special Note Regarding Forward-Looking Statements” and “Risk\nFactors” and those included elsewhere in this Annual Report.*\n\n \n\n**Overview**\n\n \n\nFatPipe\nis a pioneer in enterprise-grade, application-aware, secure SD-WAN solutions for organizations, including enterprises, communication\nservice providers, security service providers, government organizations, and other middle-market companies. FatPipe also develops FatPipe\nTotal Security 360, a comprehensive cybersecurity and Security Information and Event Management product. We sell our software solutions\nto a diverse group of end-users predominately on a subscription basis, and rely on our network of distributors, value-added resellers,\nISPs, and other third parties for distribution. We typically maintain a contractual relationship directly with the end-user customer\nand provide product deployment and ongoing support. We sell our products in the U.S. and South Asia.\n\n \n\nFatPipe’s\nfiscal year ends March 31. The fiscal year ended March 31, 2026 (“FY2026”) was our first full fiscal year as a publicly traded\ncompany, having completed our initial public offering on April 9, 2025.\n\n \n\nSince\nour initial public offering, we have continued to expand our software platform and our sales organization. We introduced an integrated\nsingle-stack architecture that combines our networking, security, and monitoring functionality within a unified software platform, and\nwe expanded our cybersecurity capabilities. In addition, we have approximately doubled the headcount of our sales organization, contributing\nto growth in our sales pipeline.\n\n \n\n**Components\nof Results of Operations**\n\n \n\n**Revenue**\n\n \n\nFatPipe\nderives its revenues from the sale of its software solutions and services, which include an integrated suite of SD-WAN, security and\nnetwork management capabilities. These solutions are delivered to customers on commodity network servers, or virtually for deployment\nin public, private or hybrid cloud environments. Revenues are reported net of marketing development funds provided to our distribution\npartners for sales and marketing support. FatPipe Technologies, our consulting subsidiary, generally provides consulting, staffing, and\nengineering services on a project basis.\n\n \n\nOur\ncustomer contracts generally range from 36 to 60 months and are typically billed on a monthly basis; however, the accounting treatment\nvaries based on the nature of the service. The majority of our revenue is recognized at a point-in-time once the software solution has\nbeen delivered or ownership has been transferred, and our performance obligations have been satisfied. The Company delivers software\nlicenses that are valid for the duration of the contract term (i.e., 36-60 months) along with the product. Therefore, the Company recognizes\nthe software license revenue at the time of delivery or transfer of control. The contract value is recorded as contracts receivable and\nis transferred to accounts receivable upon invoicing the customer. The remaining obligation of the contract value is recorded as contract\nliability. Our deferred revenue consists of the amounts from the service portion of the contract and is amortized pro-rata over the term\nof the service agreement. For further details on our revenue recognition policies, please refer to Note 1 to the consolidated financial\nstatements.\n\n \n\n**Cost\nof Revenue**\n\n \n\nThe\ncost of revenue includes all costs associated with the network server components, as well as the costs of cloud hosting services used\nfor the delivery of our software solutions and services.\n\n \n\n39\n\n \n\n** **\n\n**Gross\nProfit**\n\n \n\nGross\nprofit represents the difference between revenue and cost of revenue. Cost of revenue primarily includes the cost of the network server\nhardware that is used in certain instances to deliver our software solutions. Gross profit is impacted by our software solutions’\naverage selling price and the revenue mix between solutions and services. We do not use custom hardware and historically have not been\nconstrained by access to adequate supplies of hardware required to support our sales. The costs of revenue include all costs associated\nwith network server components as well as costs associated with providing services to our customers, including costs associated with\nhosting our services through Amazon Web Services.\n\n \n\n**Operating\nExpenses**\n\n \n\nOur\noperating expenses consist of sales and marketing (“S&M”) expense, general and administrative (“G&A”)\nexpense, product development expense, and employee cost. Historically, we have not capitalized any material portion of our product development\nexpense. The Company’s 2024 Equity Incentive Plan was adopted by the Board in connection with our initial public offering and provides\nfor stock-based compensation.\n\n \n\n**Sales\nand Marketing Expense**\n\n \n\nSales\nand marketing expenses include the costs associated with our sales and product marketing professionals and marketing expenses in support\nof our distribution partners and direct sales efforts. We incur expenses for such activities as co-marketing, trade show support, travel,\npromotional materials, and product training. Following our initial public offering, we have substantially expanded our sales organization,\nwhich has driven incremental sales and marketing expense in the current fiscal year.\n\n \n\n**General\nand Administrative Expense**\n\n \n\nOur\nG&A expenses primarily include the direct costs associated with corporate functions such as accounting, human resources, administrative\nsupport, legal and professional fees, and rent and provisions for bad debt. Additionally, intangible charges, such as depreciation and\namortization expenses, are included in G&A. Depreciation and amortization expenses are primarily related to the amortization of our\nintellectual property and capitalized leases. Following our initial public offering, we have incurred increased G&A expenses associated\nwith operating as a public company, including legal, audit, investor relations, listing, transfer agent, and director and officer insurance\ncosts.\n\n \n\n**Product\nDevelopment Expense**\n\n \n\nFatPipe\ninvests in ongoing research and development as a core component of its product innovation. These expenses consist primarily of the direct\ncosts of engineers and technicians who design and test our highly complex software solutions. We record all research and development\nexpenses as incurred. Our research and development teams are primarily located at our main offices in Salt Lake City, Utah and Chennai,\nIndia.\n\n \n\n**Employee\nCost**\n\n \n\nEmployee\ncost reflects the cost of personnel related to our consulting services delivery as well as certain shared service personnel. Employee\ncost in the current fiscal year reflects continued investment in our personnel base to support both core software solution delivery and\nconsulting engagements.\n\n \n\n**Operating\nResults**\n\n \n\nOperating\nresults reflect the income from operations derived from the sale of our software solutions and services with adjustments for non-operating\nincome and expenses such as interest expense, interest income, and foreign exchange losses/gains resulting from our India operations.\n\n \n\n**Results\nof Operations**\n\n \n\n**For\nthe years ended March 31, 2026 and March 31, 2025**\n\n \n\nThe\nfollowing table sets forth our results of operations for the years ended March 31, 2026 and 2025:\n\n \n\n40\n\n \n\n** **\n\n**FatPipe\nInc and Subsidiaries**\n\n \n\n**Consolidated\nStatement of Operations and Comprehensive Income**\n\n \n\n \n \n**Year\nEnded**\n \n\n \n \n**March\n31,**\n \n\n \n \n**2026**\n \n \n**2025**\n \n\nRevenues\n \n$\n19,208,294\n \n \n$\n16,288,881\n \n\nCost\nof revenues\n \n \n1,728,384\n \n \n \n1,061,647\n \n\nGross\nprofit\n \n \n17,479,910\n \n \n \n15,227,234\n \n\n \n \n \n \n \n \n \n \n \n\nOperating\nexpenses:\n \n \n \n \n \n \n \n \n\nSales\nand marketing\n \n \n4,791,906\n \n \n \n3,753,948\n \n\nGeneral\nand administrative\n \n \n4,759,653\n \n \n \n3,422,596\n \n\nProduct\ndevelopment\n \n \n1,905,042\n \n \n \n1,787,128\n \n\nEmployee\ncost\n \n \n2,433,939\n \n \n \n2,791,816\n \n\nTotal\noperating expenses\n \n \n13,890,540\n \n \n \n11,755,488\n \n\n \n \n \n \n \n \n \n \n \n\nIncome\n(loss) from operations\n \n \n3,589,370\n \n \n \n3,471,746\n \n\n \n \n \n \n \n \n \n \n \n\nOther\nincome (expense), net:\n \n \n \n \n \n \n \n \n\nInterest\nincome\n \n \n125,185\n \n \n \n42,688\n \n\nOther\nIncome\n \n \n-\n \n \n \n1,831\n \n\nForeign\nexchange gain/(loss)\n \n \n246,874\n \n \n \n101,383\n \n\nInterest\nexpense\n \n \n(475,071\n)\n \n \n(329,892\n)\n\nTotal\nother income (expense), net\n \n \n(103,012\n)\n \n \n(183,990\n)\n\n \n \n \n \n \n \n \n \n \n\nIncome\n(loss) before benefit/(provision) for taxes\n \n \n3,486,358\n \n \n \n3,287,756\n \n\nIncome\ntax benefit/(provision)\n \n \n1,483,603\n \n \n \n(1,294,312\n)\n\nDeferred\ntax asset / (liability)\n \n \n-\n \n \n \n(40,550\n)\n\nNet\nincome\n \n \n4,969,961\n \n \n \n1,952,894\n \n\nLess:\nNet loss attributable to non-controlling interests\n \n \n-\n \n \n \n(13,514\n)\n\nNet\nincome attributable to stockholders\n \n$\n4,969,961\n \n \n$\n1,966,408\n \n\n \n \n \n \n \n \n \n \n \n\nNet\nincome per common share - basic\n \n$\n0.36\n \n \n$\n0.15\n \n\nNet income per common share - diluted\n \n$\n\n0.35\n\n \n \n$\n0.15\n \n\nWeighted average common shares outstanding – basic\n \n \n\n13,882,787\n\n \n \n \n\n12,858,852\n\n \n\nWeighted\naverage common shares outstanding - diluted\n \n \n14,006,392\n \n \n \n12,858,852\n \n\n \n \n \n \n \n \n \n \n \n\nNet\nincome\n \n$\n4,969,961\n \n \n$\n1,952,894\n \n\nOther\ncomprehensive income (loss):\n \n \n \n \n \n \n \n \n\nForeign\ncurrency translation adjustment\n \n \n(192,030\n)\n \n \n(153,822\n)\n\nTotal\nother comprehensive income, net of tax\n \n \n(192,030\n)\n \n \n(153,822\n)\n\nComprehensive\nincome (loss)\n \n \n4,777,931\n \n \n \n1,799,072\n \n\nLess:\nComprehensive loss attributable to non-controlling interests\n \n \n-\n \n \n \n(13,139\n)\n\nComprehensive\nincome attributable to stockholders\n \n$\n4,777,931\n \n \n$\n1,812,211\n \n\n \n\n41\n\n \n\n** **\n\n**Comparison\nof the Years Ended March 31, 2026 and 2025**\n\n \n\n**Revenue**\n\n \n\nIn\nthe fiscal year ended March 31, 2026, net revenue was $19,208,294, an increase of $2,919,413, or 17.9%, from the prior fiscal year ended\nMarch 31, 2025. The increase in revenue was primarily driven by the expansion of our sales organization following our initial public\noffering and continued growth in recurring billings from new and existing customers, including the contribution from our cybersecurity\nofferings introduced during the period.\n\n \n\n**Cost\nof Revenue**\n\n \n\nIn\nthe fiscal year ended March 31, 2026, our cost of revenue was $1,728,384, an increase of $666,737, or 62.8%, from the fiscal year ended\nMarch 31, 2025. The increase in cost of revenue reflects higher variable hardware costs associated with increased product unit shipments\nto support the expansion of our customer base, as well as additional personnel costs in our customer support and implementation organizations.\n\n \n\n**Gross\nProfit and Gross Margin**\n\n \n\nIn\nthe fiscal year ended March 31, 2026, our gross profit was $17,479,910, an increase of $2,252,676, or 14.8%, from the fiscal year ended\nMarch 31, 2025. Gross margin was approximately 91.0% in the current fiscal year compared to 93.5% in the prior fiscal year. The decrease\nin gross margin reflects the higher proportion of cost of revenue relative to revenue growth, primarily attributable to product mix and\nincreased customer support headcount.\n\n \n\n**Sales\nand Marketing Expense**\n\n \n\nSales\nand marketing expense in the fiscal year ended March 31, 2026 was $4,791,906, an increase of $1,037,958, or 27.6%, compared to the prior\nfiscal year. The increase reflects continued investment in our sales organization, including a substantially expanded sales team, in\nsupport of pipeline growth following our initial public offering.\n\n \n\n**General\nand Administrative Expense**\n\n \n\nGeneral\nand administrative expense in the fiscal year ended March 31, 2026 was $4,759,653, an increase of $1,337,057, or 39.1%, compared to\nthe prior fiscal year. The change reflects increased costs of operating as a public company, including the recognition of $770,220\nof stock-based compensation expense and Impairment of contract assets of $664,217, professional fees, and ongoing public-company compliance costs, partially offset by a decrease\nin IPO-related expenses incurred in the prior year.\n\n \n\n*Impairment\nof Contract Assets* Impairment of contract assets in the fiscal year ended March 31, 2026 was $916,419, compared to $292,810 in\nthe prior fiscal year. The charge reflects a reserve on expected collections on certain specific long-duration contracts and was\nrecorded in accordance with ASC 326. The Company continues to monitor the credit quality of its contracts receivable\nportfolio.\n\n \n\n**Product\nDevelopment Expense**\n\n \n\nProduct\ndevelopment expense in the fiscal year ended March 31, 2026 was $1,905,042, an increase of $117,914, or 6.6%, compared to the prior fiscal\nyear, as the Company continued its development plans for its cybersecurity products and platform integration features.\n\n \n\n**Employee\nCost**\n\n \n\nEmployee\ncost in the fiscal year ended March 31, 2026 was $2,433,939, a decrease of $357,877, or 12.8%, compared to the prior fiscal year. The\ndecrease primarily reflects shifts in the allocation of personnel costs across functional categories and a reduced headcount in certain\nsupport functions following the completion of public-company readiness activities in the prior year.\n\n \n\n**Depreciation\nand Amortization Expense**\n\n \n\nDepreciation\nand amortization expense in the fiscal year ended March 31, 2026 was $369,249, a decrease of $176,460, or 32.3%, compared to $545,709\nin the prior fiscal year. The decrease primarily reflects the continued amortization of patent costs against a smaller remaining basis.\nThese expenses are categorized within general and administrative expenses.\n\n \n\n42\n\n \n\n** **\n\n**Non-operating\nIncome (Expenses)**\n\n \n\nInterest\nincome during the fiscal year ended March 31, 2026 was $125,185, compared to $42,688 in the prior fiscal year, primarily reflecting interest\nearned on the Company’s expanded cash balances following the initial public offering.\n\n \n\nOther\nincome during the fiscal year ended March 31, 2026 was nil, compared to $1,831 in the prior fiscal year.\n\n \n\nInterest\nexpense during the fiscal year ended March 31, 2026 was $475,071, compared to $329,892 in the prior fiscal year. The increase reflects\na full year of interest on the Fortis Bank term loan obtained in March 2025, which carries a Prime Rate plus 1% interest rate.\n\n \n\nThe\nforeign exchange gain in the fiscal year ended March 31, 2026 was $246,874, compared to $101,383 in the prior fiscal year, and results\nfrom currency conversion from U.S. dollars to Indian rupees and is associated with our India subsidiary.\n\n \n\n**Income\nTax Benefit**\n\n \n\nWe\nrecorded an income tax benefit of $1,483,603 for the fiscal year ended March 31, 2026, compared to an income tax provision of $1,294,312\nin the prior fiscal year. The income tax benefit in the current fiscal year reflects (i) substantial utilization of net operating loss\ncarryforwards against current-year U.S. taxable income, (ii) the partial reversal of approximately 50% of a $2,967,305 prior-period accrued\nincome tax payable balance, recognized as a change in accounting estimate, (iii) utilization of general business credit carryforwards,\nand (iv) the foreign rate differential associated with losses generated by our Indian subsidiary. We expect to recognize the remaining\n~50% of the prior-period accrual as a benefit in fiscal year 2027, subject to that year’s operating results. See Note 10 to the\nconsolidated financial statements for additional information.\n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nWe\nbelieve we have sufficient sources of funding to meet our business requirements and plans for the next 12 months and in the longer term.\nCash generated by operations, our cash balances (which were materially increased by net proceeds of approximately $3,935,522 received\nin our April 2025 initial public offering, including partial exercise of the underwriters’ over-allotment option), and the Fortis\nBank term loan, are our primary sources of liquidity for funding our strategic business requirements.\n\n \n\nTo\nfund our cash requirements in the ordinary course of business, we anticipate that we will continue to primarily rely on operating cash\nflows, supplemented by our total cash and cash equivalents. Our capital requirements, including but not limited to, servicing our lease\nobligations and fixed asset purchases, will depend on many factors, including our growth rate and the timing and extent of operating\nexpenses.\n\n \n\nWe\ndid not have during the periods presented, and we do not currently have, any off-balance sheet arrangements involving commitments or\nobligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably\nlikely to have a material current or future effect on our financial condition, results of operations, liquidity, cash requirements or\ncapital resources.\n\n \n\nAs\nthe Company expands in the India and South Asian market, the Company can expect a lower gross margin from sales in that cost-sensitive\nregion. Further, the impact on margins will be offset by lower costs of sales, as wages in that region are lower than in the U.S. As\nthe Company exhausts its U.S. net operating losses from prior periods, it expects to begin paying additional U.S. income taxes in future\nperiods.\n\n \n\n**Debt**\n\n \n\nOn\nJanuary 25, 2023, the Company entered into a three-year term loan with Celtic Bank Corporation that was secured by substantially all\nassets of the Company, with a corporate guarantee given by our subsidiary FatPipe Networks Private Limited. The Company received $2.5\nmillion of the $5 million loan sanctioned by the bank. In November 2024, the Company received an additional $500,000 in proceeds under\nthat arrangement. In March 2025, the Company obtained a $5 million term loan from Fortis Bank, of which $3 million was used to repay\nthe outstanding Celtic loan. The Fortis Bank loan is repayable in 120 equal monthly installments commencing March 1, 2025 and bears interest\nat the Prime Rate plus 1%. The interest rate is adjusted every calendar quarter beginning April 1, 2025. The loan is secured by substantially\nall of the Company’s assets, certain personal property of directors of the Company, a personal guarantee given by them, and a Trust\nwhere directors are trustees. During the year ended March 31, 2026, the Company made principal payments totaling $347,083.\n\n \n\n43\n\n \n\n \n\nFuture\nmaturities of long-term debt are as follows:\n\n \n\nYear Ended March 31, \nAmount \n\n2026 \n 391,397 \n\n2027 \n 422,007 \n\n2028 \n 456,724 \n\n2029 \n 493,404 \n\n2030 \n 533,031 \n\nThereafter \n 2,327,720 \n\nTotal principal repayments \n 4,624,283 \n\nLess: Current portion \n 391,397 \n\nLong-term portion of notes payable \n$4,232,886 \n\n \n\nInterest\nexpense was $474,116 and $329,892 for the years ended March 31, 2026 and 2025, respectively.\n\n \n\n**Short\nTerm Debt**\n\n \n\nOn\nJune 15, 2023, the Company received an interest-free loan of $120,000 from Stay in Business Inc., a related party, repayable on demand.\nDuring the year ended March 31, 2025, the Company received an additional $13,652 under the same arrangement. During the fiscal year ended\nMarch 31, 2026, the Company repaid the entire outstanding balance of $133,652 under this arrangement, and no balance was outstanding\nas of March 31, 2026.\n\n \n\n**Cash\nFlows**\n\n \n\nThe\nfollowing table sets forth our cash flow activities for the years ended March 31, 2026 and 2025:\n\n \n\n  \nYear Ended \n\n  \nMarch 31, \n\n  \n2026  \n2025 \n\nNet cash used in operating activities \n$(780,393) \n$(504,124)\n\nNet cash used in investing activities \n (52,483) \n (19,762)\n\nNet cash provided by financing activities \n 3,319,131  \n 2,485,739 \n\nEffect of exchange rate changes on cash and cash equivalents \n (192,030) \n (153,822)\n\nNet change in cash and cash equivalents \n 2,294,225  \n 1,808,031 \n\nCash and cash equivalents, beginning of year \n 2,920,550  \n 1,112,519 \n\nCash and cash equivalents, end of year \n$5,214,775  \n$2,920,550 \n\n \n\n44\n\n \n\n* *\n\n*Operating\nActivities*\n\n \n\nNet\ncash used in operating activities in the fiscal year ended March 31, 2026 was $780,393, compared to net cash used of $504,124 in the\nprior fiscal year. The change was primarily driven by significant growth in contracts receivable (a use of $5,687,438) reflecting expansion\nof multi-year customer contracts billed monthly, partially offset by higher net income of $4,969,961 (compared to $1,952,894), the recognition\nof $770,220 of stock-based compensation, and changes in working capital, including a decrease in accrued expenses and other current liabilities\n($2,308,279 use) primarily reflecting the partial reversal of accrued income tax payable.\n\n \n\n*Investing\nActivities*\n\n \n\nNet\ncash used in investing activities in the fiscal year ended March 31, 2026 was $52,483, compared to $19,762 in the prior fiscal year.\nThe change reflects increased purchases of computer equipment and office equipment to support headcount growth following the initial\npublic offering.\n\n \n\n*Financing\nActivities*\n\n \n\nNet\ncash provided by financing activities in the fiscal year ended March 31, 2026 was $3,319,131, compared to net cash provided of $2,485,739\nin the prior fiscal year. Financing activities in the current fiscal year reflect approximately $3,659,162 of net proceeds from our initial\npublic offering completed on April 9, 2025, including partial exercise of the underwriters’ over-allotment option, and $83,000\nof cash received in connection with the issuance of common stock to consultants and employees, partially offset by $347,803 of scheduled\nprincipal payments on the Fortis Bank term loan and the repayment in full of the $133,652 short-term related party loan from Stay in\nBusiness Inc.\n\n \n\n**Non-GAAP\nFinancial Measures**\n\n \n\nIn\naddition to our financial results determined in accordance with the generally accepted accounting principles in the United States (“GAAP”),\nour management uses earnings before interest, taxes, depreciation, and amortization (“EBITDA”), adjusted EBITDA, Non-GAAP Net Income, and Non-GAAP Earnings Per Share, non-GAAP\nmeasures, as key measures in operating our business. We use these measures to make strategic decisions, establish business plans and\nforecasts, identify trends affecting our business, and evaluate performance. EBITDA, adjusted EBITDA, Non-GAAP Net Income, and Non-GAAP Earnings Per Share are presented for supplemental\ninformational purposes only, should not be considered a substitute for, or a more meaningful measure than, financial information presented\nin accordance with GAAP, and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation is provided\nbelow for adjusted EBITDA, Non-GAAP Net Income, and Non-GAAP Net Income Per Share to the most directly comparable financial measure presented in accordance with GAAP.\n\n \n\n  \nYear Ended \n\n  \nMarch 31, \n\n  \n2026  \n2025 \n\nNet income \n$4,969,961  \n$1,952,895 \n\nImpairment of contract assets \n 664,217  \n - \n\nStock-based compensation \n 770,220  \n - \n\n**Non-GAAP Net Income**** **\n** ****6,404,398**** **** **\n** ****1,952,895**** **\n\nDepreciation and amortization \n 369,249  \n 545,709 \n\nOther income \n -  \n (1,831)\n\nIncome tax benefit/(provision) \n (1,483,603) \n 1,294,312 \n\nDeferred tax liability / (asset) \n -  \n 40,550 \n\nInterest expense \n 475,071  \n 329,892 \n\nForeign exchange gain/(loss) \n (246,874) \n (101,383)\n\nInterest income \n (125,185) \n (42,688)\n\n**Adjusted EBITDA**** **\n**$****5,393,056**** **** **\n**$****4,017,456**** **\n\n \n\nIn\nthe fiscal year ended March 31, 2026, our adjusted EBITDA increased by approximately $1,375,601, or 34.2%, compared to the prior fiscal\nyear, primarily due to revenue growth of approximately 18% combined with disciplined operating expense management, partially offset by\nincreased operating expenses related to public company costs and sales organization expansion.\n\n \n\n  \n\n**Year Ended**\n\n**March 31,**\n \n\n  \n2026  \n2025 \n\nNet income attributable to stockholders \n$4,969,961  \n$1,966,408 \n\nImpairment of contract assets \n 664,217  \n - \n\nStock-based compensation \n 770,220  \n - \n\nNon-GAAP Net Income \n 6,404,398  \n 1,952,895 \n\n  \n    \n   \n\nWeighted-average shares of common stock outstanding - basic \n 13,882,787  \n 12,858,852 \n\nEffect of dilutive securities \n 123,605  \n - \n\nWeighted-average shares of common stock outstanding - diluted \n 14,006,392  \n 12,858,852 \n\n  \n    \n   \n\nNon-GAAP Earnings per share - basic \n$0.46  \n$0.15 \n\nNon-GAAP Earnings per share - diluted \n$0.46  \n$0.15 \n\n \n\nIn\nthe fiscal year ended March 31, 2026, our Non-GAAP Net Income increased by approximately $4,451,503, or 228%, compared to the prior fiscal\nyear.\n\n \n\n45\n\n \n\n** **\n\n**Recurring\nBillings from Monthly and Annual Subscriptions**\n\n \n\nFatPipe\nannual and monthly recurring billings from products and services in fiscal year 2026, excluding consulting services, increased by approximately\n14% compared to the prior fiscal year. This reflects continuing billings for existing customers as well as new business. We expect\nthis growth in recurring billings to continue as our sales staff, including newly added headcount, continue to book new contracts as\nwell as renewals of 36-month contracts coming due, and as our newly introduced cybersecurity offerings contribute to recurring billings\ngoing forward.\n\n \n\nFatPipe\nGAAP revenue is aligned to new bookings of contracts. Billings follow customer deployments. New bookings have remained consistent quarter\nover quarter as the business scales. As booked revenue converts to billings, FatPipe has experienced strong growth on billings, with\nmonthly recurring billings increasing materially year-over-year. As this faster-growing revenue segment scales, it represents a larger\nportion of FatPipe’s total revenues.\n\n \n\nPlease refer to the following table:\n\n**\n\n \n\n \n\n46\n\n \n\n \n\n \n\n47\n\n \n\n \n\n \n\n**Off-Balance\nSheet Arrangements**\n\n \n\nDuring\nthe years presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.\n\n \n\n48\n\n \n\n** **\n\n**Critical\nAccounting Policies and Estimates**\n\n \n\nThe\napplication of our accounting policies may require us to make assumptions and estimates about future events and apply judgments that\naffect the reported amounts of assets, liabilities, revenue and expense, and the accompanying disclosures. We base our assumptions, estimates\nand judgments on historical experience, current trends and other factors that management believes to be relevant at the time the estimate\nwas made.\n\n \n\nOn\nan ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowance for credit losses on\naccounts receivable and contracts receivable, intangible assets, defined benefit obligations, and deferred taxes. We base our estimates,\nassumptions and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances,\nthe results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent\nfrom other sources. Actual results may materially differ from the results implied by these estimates and judgments under different assumptions\nor conditions.\n\n \n\n**Revenue\nRecognition**\n\n \n\nAs\ndescribed in Note 1 to the consolidated financial statements, we recognize revenue under ASC 606, Revenue from Contracts with Customers,\nwhich establishes a five-step model for recognizing revenue. We apply judgment in identifying contractual terms and determining the transaction\nprice, particularly in connection with contracts that contain multiple performance obligations (delivery of software license; technical\nsupport, including implementation, configuration, and training) where standalone selling prices are required to be allocated. We selected\nthe cost of technical support personnel plus a 20% margin for support services, and the balance contract value as the standalone selling\nprice for delivery of product and software license, applied consistently across periods. The software license revenue in our product\narrangements is recognized at a point-in-time when the software solution has been delivered or ownership has been transferred. Service\nand support revenue is recognized over the term of the contract, with imputed interest recognized on a cumulative basis using the interest\nmethod.\n\n \n\n**Allowance\nfor Credit Losses on Receivables**\n\n \n\nWe\nrecord allowances for credit losses on accounts receivable and contracts receivable based on management’s assessment of historical\nexperience, current market trends, customer-specific risk indicators, and forecasts of future economic conditions. Past due balances\nand other higher-risk amounts are reviewed individually for collectability. Changes in our assessment may result in increases or decreases\nin the allowance in future periods.\n\n \n\n**Intangible\nAssets**\n\n \n\nOur\nfinancial statements include IP-related intangible assets consisting primarily of legal and related costs associated with our patents\nand capitalized lease obligations adjusted by accumulated amortization. The identification and recognition of those intangible assets\ninvolve significant judgments, relating to, among other things, the projected cash flows attributable to these intangible assets and\nthe estimated useful lives of these intangible assets. We amortize intangible assets that are subject to amortization over their estimated\nuseful lives. The useful lives are determined by management at the time of creation of the intangible assets and based on historical\nexperience and the economic life of the underlying technology and are regularly reviewed for appropriateness. We perform a quarterly\nreview of significant finitely lived identified intangible assets to make a judgement on whether facts and circumstances indicate that\nthe carrying amount may not be recoverable and an impairment may be required.\n\n \n\n**Defined\nBenefit Plan**\n\n \n\nWe\nprovide a defined benefit gratuity plan to eligible employees of FatPipe Networks Private Limited (“FP India”) in accordance\nwith applicable labor laws of India. The benefit obligation is determined using the projected unit credit method based on annual actuarial\nvaluations performed by independent actuaries. The valuation requires the use of significant assumptions, including the discount rate,\nsalary growth rate, and employee turnover rate. Actual results may differ from these assumptions, and changes in assumptions can result\nin significant changes in the benefit obligation and the related net periodic benefit cost recorded in the consolidated statements of\noperations.\n\n \n\n**Income\nTaxes and Deferred Taxes**\n\n \n\nDeferred\ntax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the consolidated\nfinancial statement carrying amounts of existing assets and liabilities and their respective tax bases. We reduce the carrying amounts\nof deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will\nnot be realized. The need to establish valuation allowances for deferred tax assets is continually assessed based on a more-likely-than-not\nrealization threshold.\n\n \n\n49\n\n \n\n \n\nIn\nthe current fiscal year, we recognized a partial reversal of $1,483,653 of accrued income tax payable from prior periods as a change\nin accounting estimate. The original accrual had been computed using a flat-rate methodology that did not give effect to available net\noperating loss carryforwards. Following the filing of the FY2025 federal and state returns and completion of the related ASC 740 computation,\nmanagement determined that, after applying available carryforwards, the prior accrual was materially overstated. Considering the magnitude\nof the adjustment and forecasting uncertainty, management elected to recognize the reversal ratably over fiscal years 2026 and 2027.\nSee Note 10 to the consolidated financial statements for additional information, including the deferred tax asset and valuation allowance\nassessment.\n\n \n\n**Implications\nof being an Emerging Growth Company**\n\n \n\nWe\nare an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities\nAct”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to\ntake advantage of certain exemptions from various reporting requirements applicable to other public companies that are not “emerging\ngrowth companies” including, but not limited to:\n\n \n\n●being\npermitted to present only two years of audited financial statements and only two years of\nrelated disclosure in “Management’s Discussion and Analysis of Financial Condition\nand Results of Operations”;\n\n \n\n●being\npermitted to provide less extensive narrative disclosure than other public companies, including\nnot being required to comply with the auditor attestation requirements of Section 404 of\nthe Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation\nin our periodic reports, proxy statements and registration statements;\n\n \n\n●being\npermitted to utilize exemptions from the requirements of holding a nonbinding advisory vote\non executive compensation and stockholder approval of any golden parachute payments not previously\napproved;\n\n \n\n●being\npermitted to defer complying with certain changes in accounting standards; and\n\n \n\n●being\npermitted to use test-the-waters communications with qualified institutional buyers and institutional\naccredited investors.\n\n \n\nWe\nintend to take advantage of these and other exemptions available to “emerging growth companies.” We could remain an “emerging\ngrowth company” until the earliest of (i) the last day of our fiscal year following the fifth anniversary of the closing of our\ninitial public offering, (ii) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (iii) the\nlast day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities\nExchange Act of 1934, as amended (the “Exchange Act”) (which would occur if the market value of our equity securities that\nis held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or\n(iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.\n\n \n\nThe\nJOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new\nor revised accounting standards applicable to public companies. As a result of this election, our financial statements may not be comparable\nto companies that comply with public company effective dates. We have elected to delay such adoption of new or revised accounting standards.\n\n \n\n*Smaller\nReporting Company*\n\n \n\nWe\nare also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700\nmillion as of the last trading day of our second quarter and our annual revenue is less than $100 million during the most recently completed\nfiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is\nless than $250 million as of the last trading day of our second quarter or (ii) our annual revenue is less than $100 million during the\nmost recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last\ntrading day of our second quarter. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may\ncontinue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies."}