The following discussion is intended to assist in an understanding of the Company's financial position and results of operations for the quarter ending September 30, 2008.

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.

INTRODUCTION

NetSol Technologies, Inc. ("NetSol" or the "Company") (NasdaqCM: NTWK) (DIFX:
NTWK) is a US worldwide provider of global business services and enterprise application solutions. NetSol uses its BestShoring™ practices and highly-experienced resources in analysis, development, quality assurance, and implementation to deliver high-quality, cost-effective solutions. Organized into specialized practices, these product and services offerings include portfolio management systems for the financial services industry, consulting, custom development, systems integration, and technical services for the global Healthcare, Insurance, Real Estate, and Technology markets. NetSol's commitment to quality is demonstrated by its achievement of the ISO 9001, ISO 279001, and SEI (Software Engineering Institute, Carnegie Mellon University, USA) CMMi (Capability Maturity Model) Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol's clients include Fortune 500 manufacturers, global automakers, financial institutions, technology providers, and governmental agencies.

Founded in 1996, NetSol is headquartered in Calabasas, California with operating headquarters in the San Francisco Bay Area. NetSol also has operations and/or offices in: Horsham, United Kingdom; Sydney and Adelaide, Australia; Beijing, China; Lahore, Islamabad, Rawalpindi and Karachi, Pakistan; and, Bangkok, Thailand.

In today's highly competitive marketplace, business executives with labor or services-centric budgetary responsibilities are not just encouraged but are, in fact, obliged to engage in "Make or Buy" decision process when contemplating how to support and staff new development, testing, services support and delivery activities. The Company has initiated the strategic evolution of it business offerings that is a BestShoring™ solutions strategy. BestShoring ™ is simply defined as NetSol Technologies' ability to draw upon its global resource base and construct the best possible solution and price for each and every customer. Unlike traditional outsourcing offshore vendors, NetSol draws upon an international workforce and delivery capability to ensure a "BestShoring™ delivers BestSolution™" approach.

NetSol combines domain expertise, not only with lowest cost blended rates from its design centers and campuses located around the world, but also with the guarantee of localized program and project management while minimizing any implementation risk associated with a single service center. Our BestShoring™ approach, which we consider a unique and cost effective global development model, is leading the way into the 21st century, providing value added Solutions for Global Business Services through a win-win partnership, rather than the traditional outsourced vendor framework. Our focus "Solutions" serves to ensure the most favorable pricing while delivering in-depth domain experience. NetSol currently has locations in Bangkok, Beijing, Lahore, London, the San Francisco Bay Area, and Sydney to best serve its clients and partners worldwide. This provides NetSol customers with the optimum balance of subject matter expertise, in-depth domain experience, and cost effective labor, all merged into a scalable solution. In this way, "BestShoring delivers BestSolutionTM".

Information technology services are valuable only if they fulfill the business strategy and project objectives set forth by the customer. NetSol's expert consultants have the technical knowledge and business experience to ensure the optimization of the development process in alignment with basic business principles. The Company offers a broad array of professional services to clients in the global commercial markets and specializes in the application of advanced and complex IT enterprise solutions to achieve its customers' strategic objectives. Its service offerings include IT Consulting & Services; NetSol Defense Division; Business Intelligence, Information Security, Outsourcing Services and Software Process Improvement Consulting; maintenance and support of existing systems; and, project management.

In addition to NetSol Global Business Services, our product offerings are centered around the NetSol Financial Suite ("NSF") of products and components. The NetSol Financial Suite includes our flagship global solution, LeaseSoft. LeaseSoft, a robust suite of four software applications, is an end-to-end solution for the lease and finance industry covering the complete leasing and finance cycle starting from quotation origination through end of contract. The four software applications under LeaseSoft have been designed and developed for a highly flexible setting and are capable of dealing with multinational, multi-company, multi-asset, multi-lingual, multi-distributor, multi-manufacturer, and multi-taxation environments. Each application is a complete solution in itself and can be used independently to address specific sub-domains of the leasing/financing cycle. When used together, they fully automate the entire leasing / financing cycle. LeaseSoft is a result of more than eight years of effort resulting in an industry leading and awarding winning product Applications. NetSol recently added LeaseSoft Fleet Management System (FMS). The Company has already signed an agreement for FMS with a major automotive company in the Asia Pacific region. As with our service offerings, LeaseSoft is complementary to and can be used with all of our regionally developed solutions such as LeasePak in North America and LeaseSoft Asset in Europe.

Beyond LeaseSoft, the NetSol Financial Suite also includes LeasePak. LeasePak provides the leasing technology industry with the development of Web-enabled and Web-based tools to deliver superior customer service, reduce operating costs, streamline the lease management lifecycle, and support collaboration with origination channel and asset partners. LeasePak can be configured to run on HP-UX, SUN/Solaris or Linux, as well as for Oracle and Sybase users. In terms of scalability, NetSol Technologies North America offers the basic product as well as a collection of highly specialized add on modules for systems, portfolios and accrual methods for virtually all sizes and complexities of operations. These solutions provide the equipment and vehicle leasing infrastructure at leading Fortune 500 banks and manufacturers, as well as for some of the industry's leading independent lessors.

Our product and services offerings include: inBanking, which provides full process automation and decision support in the front, middle and back offices of treasury and capital markets operations; LeaseSoft Portals and Modules through our European operations; LeasePak 6.0b of our LeasePak product suite; enterprise wide information systems, such as or LRMIS, MTMIS and Hospital Management Systems; Accounting Outsourcing Services, and, the NetSol Technology Institute, our specialized career and technology program.

To further bolster NetSol's Solutions capabilities, in October 2008, NetSol acquired Ciena Solutions, a preferred SAP and Business Objects integration firm. This acquisition expands NetSol's domain and subject matter expertise to include integration and consulting services for:

· SAP R/3 System deployments

· NetWeaver

· Exchange Infrastructure Portals

· MySAP Business Suite

· Supplier Relationship Management Module

· Client Relationship Management Module

· SAP/Business Objects Products and related Services

In additional to this expansion of SAP-centric integration consulting and Services, Ciena also has developed proprietary intellectual property in the form of designs and source code focused on enhancing SAP-centric procurement activities.

PLAN OF OPERATIONS

Management has set the following new goals for NetSol for the next 12 months:

· Expand sales and marketing activities in China. In addition to the Beijing office, we anticipate launching new sales and support offices in at least 1-2 more cities in China.

· Grow NetSol in the newest region in the UAE and Gulf states. Initially, a small virtual office is being set up in Dubai area that could roll into a bigger and stand alone presence in the area.

· Globalization and diversification of development and programming capabilities, not limited to Southeast Asia but exploration of emerging economies in Central and South America to support the NTNA business.

· Most strategic goal in 2009 is to establish the NTNA business by expanding the existing operations. The move from a smaller office in Burlingame to our global operating headquarters in Emeryville, California is a major event in NetSol history. We hope to use this location as a springboard for global business and valuation for Netsol consistent with our stated vision.

· Actively explore both opportunistic and synergistic alliances and partnerships in Americas and Europe.

· Improve the quality of hiring of senior management personnel in key locations. Further build a stronger middle management resource pool to deliver and execute the growth and earnings envisioned by the management.

· Introduce and market, within the context of the NetSol Financial Suite the LeaseSoft modules of WSF and CAPS in the US market.

· Grow into new business verticals including healthcare, insurance, and banking in the US and European markets. The launch of Global Business Services through these verticals is an important goal in 2009.

· Enhance software design, engineering and service delivery capabilities by increasing investment in training.

· Continue to invest in research and development in an amount between 7-10% of yearly budgets in both new developments and domains within NetSol's core competencies.

· NetSol technology campus to become much more cost efficient, enhanced productivity and services to global clients and partners.

Top Line Growth through Investment in organic marketing activities. NetSol marketing activities will continue to:

· Prompt organic expansion in North America market by expanding the sales and marketing team.

· Diversify in new verticals of services in North America such as insurance, healthcare, public sectors.

· Continue sales momentum and pipeline of LeaseSoft in APAC, Europe and now in the Americas.

· Further extending services offerings to existing 30 plus US customers.

· Penetrate further into the Chinese market by adding new locations.

· Effectively enter the UAE and regional markets for LeaseSoft, augmentation and services.

· Further penetrate in Australian market in captive and non-captive sectors.

· Fully leverage NetSol's reputable name in the UK and European markets within banking, leasing and insurance sectors.

· Grow new business through joint ventures and alliances.

Funding and Investor Relations:

· Add breadth and depth to the investor base in the US and Middle East/UAE region by aggressively presenting in various investors forums and analysts meetings.

· IR/PR to expand media reach in 2009. NetSol has been interviewed by Fox Business Network, Nasdaq site and many print publications in 2008.

· NetSol to present in NASDAQ OMX sponsored investors' forum in Dubai-UAE.

· Expand the investor ownership in the UAE market to generate increased trading volumes on the NASDAQ Capital Market and the DIFX exchanges.

· Preserve cash position and enhance collections for AR's to strengthen cash flow position.

· Continue to present NetSol in every strategic and important forums to create awareness and offer valued proposition.

Improving the Bottom Line:

· Grow top-line, enhance gross profit margins to 55 - 60% by leveraging our low-cost development facilities and Best Shoring model.

· Generate much higher revenues per developer and service group, enhance productivity and lower cost per employee overall.

· Consolidate subsidiaries and integrate and combine entities to reduce overheads and employ economies of scale.

· Continue to review costs at every level to consolidate and enhance operating efficiencies.

· Grow process automation and leverage the best practices of CMMi level 5.

· Cost efficient management of every operation and continue further consolidation to improve bottom line.

· Initiated steps to consolidate some of the new lines of services businesses to improve both operating and net margins.

· Sign up new offshore focused JVs with UAE based financial and telecom groups.

Management continues to be focused on building its delivery capability and has achieved key milestones in that respect. Key projects are being delivered on time and on budget, quality initiatives are succeeding, especially in maturing internal processes.

In a quest to continuously improve its quality standards, NetSol is frequently assessed to maintain its CMMi Level 5 quality certification. We believe that the CMMi standards achievement is a key reason in NetSol's demand surge worldwide. We remain convinced that this trend will continue for all NetSol offerings promoting further beneficial alliances and increasing the number and quality of our global customers. The quest for quality standards is a key to NetSol overall sustainability and success. In 2008 NetSol PK became ISO 27001 certified, a global standard and a set of best practices for Information Security Management.

MATERIAL TRENDS AFFECTING NETSOL

NetSol has identified the following material trends affecting NetSol

Positive trends:

· Robust worldwide shift towards cost redundancies, economies of scale and labor arbitrage.

· The most challenging global economic pressures and recession has shifted IT processes and technology to utilize both offshore and onshore solutions providers, to control the costs and improve ROIs.

· New trends in the most emerging and newest markets. There has been a noticeable new demand of leasing and financing solutions as a result of new buying habits and patterns in the Middle East, Eastern Europe and Central America.

· The overall leasing and finance industry in North America has steadily grown to over $260 billion despite the subprime crises, partly due to the resulting lack of cash liquidity.

· The levy of Indian IT sector excise tax of 35% (NASSCOM) on software exports is very positive for NetSol. In Pakistan there is a 15 year tax holiday on IT exports of services. There are 10 more years remaining on this tax incentive.

· Cost arbitrage, labor costs still very competitive and attractive when compared with India. Pakistan is significantly under priced for IT services and programmers as compared to India.

· Chinese market is strong and wide open for NetSol's 'niche' products and services. NetSol is gaining a solid traction in this market.

Negative trends:
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· Overall slump in world markets, curtailing IT and spending budgets.

· Worry of an expanding and unending credit crunch in the world economies due to financial and banking sector failures.

· Overall decline of auto sales due to higher oil prices and inflationary pressure.

· The disturbance in Middle East, Afghanistan and Pakistan borders. Due to 9/11 events and global war on terrorism, the travel advisory of Americans travel restrictions to Pakistan continue. In addition, travel restrictions to the US and more stringent immigration laws are causing delays in travel to the US.

· Negative perception and image created by extremism and terrorism in the South Asian region.

· Unstable economic and political environment in Pakistan and the current volatility of Pakistan's capital markets.

· Global recession and slowed economic environment across is tangibly affecting almost every sector and industry.

· Resulting auto sales decline worldwide and most challenging times for credit and finance related business has caused curtailed spending and revised budgets.

· Lack of liquidity in practically every market and economy has shaken up the confidence of consumers, thus less spending.

· An economic turnaround may take 2 years or more worldwide.

CRITICAL ACCOUNTING POLICIES

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, and expense amounts reported. These estimates can also affect supplemental information contained in the external disclosures of NetSol including information regarding contingencies, risk and financial condition. Management believes our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. Valuations based on estimates are reviewed for reasonableness and conservatism on a consistent basis throughout NetSol. Primary areas where our financial information is subject to the use of estimates, assumptions and the application of judgment include our evaluation of impairments of intangible assets, and the recoverability of deferred tax assets, which must be assessed as to whether these assets are likely to be recovered by us through future operations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
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VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

The recoverability of these assets requires considerable judgment and is evaluated on an annual basis or more frequently if events or circumstances indicate that the assets may be impaired. As it relates to definite life intangible assets, we apply the impairment rules as required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to Be Disposed Of" which requires significant judgment and assumptions related to the expected future cash flows attributable to the intangible asset. The impact of modifying any of these assumptions can have a significant impact on the estimate of fair value and, thus, the recoverability of the asset.

INCOME TAXES

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets generated by the Company or any of its subsidiaries are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Deferred tax assets resulting from the net operating losses are reduced in part by a valuation allowance. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. During the fiscal years ended June 30, 2008 and 2007, we estimated the allowance on net deferred tax assets to be one hundred percent of the net deferred tax assets.

CHANGES IN FINANCIAL CONDITION

Quarter Ended September 30, 2008 as compared to the Quarter Ended September 30,
2007:

Net revenues and income for the quarter ended September 30, 2008 and 2007 are
broken out among the subsidiaries as follows:

                                             2008                                      2007
                              Revenue     %             Net Income      Revenue     %            Net Income
Corporate headquarters      $         -        0.00 %  $ (1,235,346 ) $         -        0.00 %  $  (990,184 )

North America:
Netsol Tech NA                1,552,709       16.69 %        24,808     1,073,611       12.41 %       60,635
                              1,552,709       16.69 %        24,808     1,073,611       12.41 %       60,635

Europe:
Netsol UK                             -        0.00 %      (124,894 )     129,725        1.50 %        3,985
Netsol Tech Europe            1,637,106       17.60 %       187,049     1,535,191       17.74 %      261,403
                              1,637,106       17.60 %        62,155     1,664,916       19.24 %      265,388

Asia-Pacific:
Netsol Tech (PK)              4,666,795       50.18 %     3,252,708     4,516,008       52.19 %    1,224,967
Netsol-Innovation             1,226,342       13.19 %       628,470     1,052,471       12.16 %    1,211,815
Netsol Connect                  194,340        2.09 %       (12,003 )     206,863        2.39 %          839
Netsol-Omni                           -        0.00 %             -        20,418        0.24 %      (10,175 )
Netsol-Abraxas Australia         23,675        0.25 %       (34,189 )     118,950        1.37 %       28,839
                              6,111,152       65.70 %     3,834,986     5,914,710       68.35 %    2,456,285

Total Net Revenues          $ 9,300,967      100.00 %  $  2,686,603   $ 8,653,237      100.00 %  $ 1,792,124

The following table sets forth the items in our unaudited consolidated statement of operations for the three months ended September 30, 2008 and 2007 as a percentage of revenues.

                                               For the Three Months
                                               Ended September 30,
                                         2008                        2007

Net Revenues:                                            %                           %
License fees                         $  2,529,808        27.20 % $  1,903,552        22.00 %
Maintenance fees                        1,593,734        17.14 %    1,583,420        18.30 %
Services                                5,177,425        55.67 %    5,166,265        59.70 %
 Total revenues                         9,300,967       100.00 %    8,653,237       100.00 %
Cost of revenues:
Salaries and consultants                2,640,713        28.39 %    2,321,030        26.82 %
Travel                                    485,936         5.22 %      266,828         3.08 %
Repairs and maintenance                   106,665         1.15 %      114,154         1.32 %
Insurance                                  32,839         0.35 %       38,645         0.45 %
Depreciation and amortization             551,325         5.93 %      258,907         2.99 %
Other                                     751,068         8.08 %      387,891         4.48 %
 Total cost of revenues                 4,568,546        49.12 %    3,387,455        39.15 %
Gross profit                            4,732,421        50.88 %    5,265,782        60.85 %
Operating expenses:
Selling and marketing                     969,518        10.42 %      832,493         9.62 %
Depreciation and amortization             480,208         5.16 %      464,647         5.37 %
Bad debt expense                                -         0.00 %        2,439         0.03 %
Salaries and wages                        979,254        10.53 %      907,879        10.49 %
Professional services, including
non-cash compensation                     306,886         3.30 %      160,050         1.85 %
General and adminstrative                 868,117         9.33 %      678,573         7.84 %
 Total operating expenses               3,603,983        38.75 %    3,046,081        35.20 %
Income (loss) from operations           1,128,438        12.13 %    2,219,701        25.65 %
Other income and (expenses)
Loss on sale of assets                   (165,738 )      -1.78 %      (32,223 )      -0.37 %
Interest expense                         (203,892 )      -2.19 %     (233,804 )      -2.70 %
Interest income                            27,941         0.30 %       33,863         0.39 %
Gain on foreign currency exchange
rates                                   2,007,882        21.59 %       55,986         0.65 %
Fair market value of options
issued                                   (117,300 )      -1.26 %            -         0.00 %
Other income                               16,454         0.18 %       55,961         0.65 %
 Total other expenses                   1,565,347        16.83 %     (120,217 )      -1.39 %
Net income (loss) before minority
interest in subsidiary                  2,693,785        28.96 %    2,099,484        24.26 %
Minority interest in subsidiary        (1,629,761 )     -17.52 %   (1,152,107 )     -13.31 %
Income taxes                               (7,182 )      -0.08 %      (32,441 )      -0.37 %
Net income (loss)                       1,056,842        11.36 %      914,936        10.57 %
Dividend required for preferred
stockholders                              (33,876 )      -0.36 %      (71,157 )      -0.82 %
Net income (loss) applicable to
common shareholders                  $  1,022,966        11.00 % $    843,779         9.75 %

Net revenues for the quarter ended September 30, 2008 were $9,300,967 as compared to $8,653,237 for the quarter ended September 30, 2007. This reflects an increase of $647,730 or 7.5% in the current quarter as compared to the quarter ended September 30, 2007. Revenue from services, which includes . . .