The following discussion is intended to assist in an understanding of NetSol's financial position and results of operations for the year ended June 30, 2009.

Forward Looking Information

This report contains certain forward-looking statements and information relating to NetSol that is based on the beliefs of 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 NetSol or its management, are intended to identify forward-looking statements. These statements reflect management's current view of NetSol 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 inaccurate, actual results may vary materially from those described in this report as anticipated, estimated or expected. NetSol'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 NetSol'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 is built. NetSol does not intend to update these forward-looking statements.

Management undertook major steps to counter the deep effect of global recession, such as:

o Reduced headcount by 140 employees in all three key locations in Pakistan, the United Kingdom and the US. The Company's total headcount is approximately 720 people.

o Senior management compensation, benefits and perquisites were reduced by an average of 20% across the Company, while the CEO and Chairman voluntarily cut his compensation by 33%.

o Earlier this year, the senior management voluntarily forfeited approximately $400,000 of earned cash bonuses. In addition, senior officers agreed to the cancellation of option grants awarded by the Board in 2008 to further reduce expense.

o Restructured the corporate finance team at the headquarters by promoting Mr. Boo Ali CFO of NetSol Technologies, Ltd., Pakistan (5 year veteran with NetSol) to global CFO for NetSol Technologies, Inc. In addition, the parent company added an experienced controller to support the newly appointed CFO, while each subsidiary now has a stronger accounting staff in place.

o In 2009, to enhance productivity and cost efficiencies, the concept of Global Delivery Model has been implemented. Without moving the source codes of US products or UK products to Lahore, Pakistan, we have integrated the local developers / engineers / programming resources with PK technology group teams. This model would eventually create much stronger band width for customers worldwide but also have the same interfacing local management available for regional clients. In essence, the concept of BestShoring® model is effectively being executed.

o The global delivery model would further streamline the cost base as well as optimum utilization of NetSol Center of Excellence, CMMi Level 5 technology campus and translate into better and more competitive pricing modules for our customers.

o Revamped sales organization from several departments into one group. The newly created global sales organization under one president of global sales, centrally headquartered in the UK, would provide much improved visibility and traction in all key markets worldwide. In addition to achieving critical mass and visibility, the regional sales heads have been created to directly report to President Group Sales.

o In wake of the severe recession, the Global headquarters in Emeryville, California, has diligently begun the process of either renegotiating the rental costs and/or subleasing a portion of the space to reduce costs. However, the net effect of cost rationalization in operating expenses and general and administrative overhead is reflected from the fourth quarter of fiscal year 2009.

o Some marketing and new project activities had to be slowed down due to the poor economy but the most strategic new product development and research and development activities has increased. Management's vision is that a one product global solution is the key initiative that will place NetSol in the next level of critical mass solutions providers.

Business Development Activities:

· NetSol launched a long term strategy in 2008 to get NetSol brand and name recognition in UAE and GCC States by a dual listing on DIFX (now the NASDAQ DUBAI exchange). Management believes that the signing of a joint venture agreement with a very well established Saudi Arabian business conglomerate represents a major break-through for the Company. The joint venture is a relationship between NetSol Technologies, Inc. and the Atheeb Group of the Kingdom of Saudi Arabia ("KSA"). NetSol owns 51% and Atheeb owns 49% of the newly created Atheeb NetSol, Ltd. to be based in Riyadh, Saudi Arabia. Atheeb has been in operation since 1985 and has major businesses in defense, public works, telecom, financial, transportation and agriculture. By partnering with Atheeb through a joint venture, NetSol gains access to not only major local projects in key sectors but also to regional economies in GCC states, Central Asia and Africa. The influence and reputation of Atheeb in the KSA and regional markets is compelling, and NetSol expects to benefit handsomely in coming years. The joint venture will fully utilize NetSol PK's Lahore based center of excellence, CMMi Level 5 technology campus.

· NetSol has formed a joint venture with Grupo Karims, a major commercial business group in Latin America. The objective is to diversify and expand NetSol software programming and delivery capabilities in emerging economies of Latin America.

· The acquisition of Ciena Solutions for SAP services, has been effectively integrated with NetSol's operation. Our new SAP services and offerings are being marketed to our existing US based clients and new markets to establish a key new vertical. The US clients list includes a major energy utility company in California. Additionally, we believe a majority of NetSol global clients could benefit from SAP services and solutions. The Company is beta testing its product, SMART OCI, a search engine to expand its SAP product portfolio. The practice was recently awarded SAP PartnerEdge status as an SAP services partner.

· By expanding into the Americas, NetSol sees a strong opportunity to establish its brand recognition and create critical mass in the Americas. Despite the recession and consolidations in the U.S., NetSol has embarked on an aggressive strategy to reposition and rebrand NetSol for the U.S markets. For example, NetSol is strategically rolling out offerings of the NetSol Financial Suite™ to our global auto manufacturers, whether captive or non-captive, in the North and South American markets. NetSol sees a new market in Mexico, Brazil, Costa Rica and many countries in Latin America as both mature and emerging markets are ripe for our flagship NFS™ applications. NetSol added two new global customers to the Americas in Nissan's North America and Mexican operations.

· Management envisions a major growth in the Chinese market as China continues to have strong economic indicators amongst the major industrial countries. China is the third largest economic power and its auto and banking sectors are growing at a dynamic pace, unlike the western markets. We are expanding the Beijing office and adding local staff. Our current five multi-national customers in China have begun to expand their relationship with NetSol. We recently signed a few new deals with a few multinational auto companies and Minsheng Bank, one of the largest in China Management anticipates that the NFS™ products will demonstrate a noted break through with Chinese companies in coming months.

· The European economy has shown serious decline and the severe impact of consolidation and budget cuts have started to intensely affect our business there. The European markets are expected to remain sluggish and we will hold off any further investment until next year.

· We expect top line growth through investment in organic marketing activities.

NetSol marketing activities will continue to:

· Encourage organic revenue growth in the Chinese market in the automobile, banking, manufacturing and captive leasing sectors.

· Expand the Beijing office with new local Chinese staff and senior business development and project management teams.

· Further penetrate the Asia Pacific markets by selling NetSol offerings in the key and robust markets of Australia, New Zealand, Singapore, Thailand, South Korea and, Japan.

· Expand Thailand operations with the aim of making it a second hub, after China. A few senior business development teams have been mobilized and relocated in Thailand to support the new business development efforts in the APAC region.

· While consolidating the development and sales teams, further build and expand in the North America market. As the most mature and largest market for the Company's solutions, North America will remain key to new revenue in the coming years. NetSol's existing product line including LeasePak and its modules will remain as a primary offering to support our existing customers.

· NetSol SAP practice will enhance the revenue and add new customers for SAP consulting service, staffing & proprietary bolt-on software offerings.

· Expand and support the new and innovative road map of more capable and robust solutions to the existing 30 plus US customers.

· Expand marketing as selling efforts in Europe and Africa through local resellers, joint ventures and alliances.

· Expand and win new customers in the Middle Eastern markets through a recently formed joint venture with Atheeb Group in the KSA. This will include sectors in leasing, banking, defense and public areas.

· Optimize Lahore's center of excellence in emerging and growing markets in Middle East.

· Grow new revenues in public and defense sectors in Pakistan.

· Expand and penetrate in e-government and automation in various sectors in Pakistan.

· As the global economy is bouncing back, we will improve our accounts receivable collections and new revenues by signing new customers worldwide.

Funding and Investor Relations:

Management anticipates, but there is no guaranty, that as the price of the Company's shares of common stock will rise, as quoted on the Nasdaq Capital Market that:

· Officers may exercise options, as nearly 1.5 million of over 1.8 million are currently in the money;

· The realization of an additional nearly $1 million from an employee stock purchase while also expecting employees to exercise previously granted stock options that could generate an additional $500,000 to $750,000 in fiscal year 2010; and

· Exercise of warrants by major fund investors.

Investor Relations efforts will include:

· Launching a new IR/PR marketing campaign in the US market after the fiscal year 2009 results.

· Reaching out to new small cap funds, sell side analysts and institutions.

· Presenting at 2 to 3 major investors conferences in fall 2009.

· Injecting new capital into NTI by timely monetizing from NetSol PK, while maintaining majority holding.

· Seeking the participation of strategic value added business partners, such as joint venture partners, to invest in the Company and support their long term relationship with the Company.

· Creating value propositions for strategic ownership by joint venture partners in the Middle East and China.

Improving the Bottom Line:

· Further improve daily service and rate of delivery.

· Carefully enhance pricing of NetSol solutions offerings worldwide.

· Continue consolidation and reevaluating operating margins as an ongoing activity.

· Streamline further cost of goods sold to improve gross margins to historical levels over 50%, as sales ramp up.

· Generate higher revenues per employee, enhance productivity and lower cost per employee.

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

· Grow process automation and leverage the best practices of CMMi level 5. Global delivery concept and integration will further improve both gross and net margins.

· Scale back a few marketing plans until the US economy begins to show a steady sign of recovery.

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

· Reduced General and Administrative expense and expenses of marketing programs.

· Negotiate NTNA office space lease or sub lease to reduce monthly expense by at least 50% on rent.

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, CMMi level companies are reassessed every three years by independent consultants under the standards of the Carnegie Mellon University to maintain its CMMi Level 5 quality certification. NetSol will be reassessed beginning of 2010 to further improve its processes and internal procedures. We believe that the CMMi standards are 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 imperative to NetSol's overall sustainability and success. In 2008, NetSol became ISO 27001 certified, a global standard and a set of best practices for Information Security Management.

MATERIAL TRENDS AFFECTING NETSOL

Management has identified the following material trends affecting NetSol.

Positive trends:

· The global recession and consolidations have opened doors for low cost solution providers such as NetSol. The BestShoring® model of NetSol is a catalyst in today's environment.

· The 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.

· China has become the third largest economy and has grown to over 7% GDP while other industrial nations have declined or grown marginally.

· China's automobile and banking sectors have been unaffected by the global meltdown and in fact have outgrown all other economies with their recent automobile sales statistics.

· The surviving IT companies, such as NetSol, with price advantage and a global presence, will gain further momentum as economic indicators turn positive. The bigger customers and targeted verticals are much more cost conscious and are seeking a better rate of return on investments in IT services. NetSol has an edge due to its BestShoring® model and proven track record of delivery and implementations worldwide.

· NetSol survived the most challenging economic times in 2008-2009 because of its product demands and dependency of customers. The Company has never lost a product or a license customer.

· 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 surge of joint ventures in emerging markets is growing and is beneficial for both parties, representing strengths with core competencies without any overlap. Thus, mitigating the risk of starting fresh in untested territories with modest investments.

· Pakistan's future looks bright due to recent elimination of extremists and a stabilizing judiciary and media. The new political landscape would weed out bad elements and is already showing signs of new direct foreign investments.

· The aid and support of trade in Pakistan from countries like the US, China, Saudi Arabia and other western and friendly countries seems to be growing recently. This will positively affect NetSol, local employees and customers worldwide. Pakistan has every potential to rise up as the plans for energy, power, agriculture and infrastructures (including 12 new dams to be built by Chinese companies) creates a much better outlook and growth for Pakistan.

· US AID and many other western agencies are diligently assisting the Pakistani people to improve literacy, education, poverty alleviation and healthcare programs. These initiatives will necessarily result in more graduates in science and technology areas.

· Global opportunities to diversify delivery capabilities in new emerging economies that offer geopolitical stability and low cost IT resources reducing dependency upon Lahore technology campus.

· Positive growth and resiliency indicators of domestic economy in Pakistan (a cash based economy)will lead to renewed optimism for growth in local public and private sectors.

· Our global multi-national clients have continued to pursue deeper relationships in newer regions and countries. This reflects our customers' dependencies and satisfaction with our NetSol Financial Suite of products.

· 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 7 more years remaining on this tax incentive.

· Latest comments by the Federal Reserve on anticipated upturn in economy by year end 2009.

Negative trends:

· Dramatic and deep global recession has created a serious decline in business spending causing significant budget cuts for many of the Company's target verticals.

· Tightened liquidity and credit restrictions in consumer spending has either delayed or reduced spending on business solutions and systems squeezing IT budgets and elongating decision making cycles.

· Corporate earnings losses and liquidity crunch causing delays in the receivables from few clients.

· Challenged US auto sectors, banking and retail sectors, thus resulting in longer sales and closing cycles.

· Anticipated worsening US deficit and rise in inflation in coming years would further put stress on consumers and business spending.

· Unrest and growing war in Afghanistan could increase the migration of both refugees and extremists to Pakistan, thus creating domestic and regional challenges.

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.

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, 2009 and 2008, we estimated the allowance on net deferred tax assets to be one hundred percent of the net deferred tax assets.

CASH RESOURCES

We were successful in improving our cash position by the end of our fiscal year, June 30, 2009 with $4.4 million in cash worldwide. In addition, $464,505 was injected by the exercise of options in 2009.

CHANGE IN MANAGEMENT AND BOARD OF DIRECTORS

Board of Directors

At the 2009 Annual Shareholders Meeting the Company's current seven member board stood for election. As a quorum at this meeting was not achieved, and according to the bylaws of the Company, the current slate retains its positions as directors until the next meeting. The board of directors is made up of: Mr. Najeeb U. Ghauri, Mr. Salim Ghauri, Mr. Eugen Beckert, Mr. Naeem U. Ghauri, Mr. Shahid Burki, Mr. Mark Caton and Mr. Alexander Shakow.

Committees

The Audit committee is made up of Mr. Shahid Burki as Chairman, Mr. Caton, Mr. Beckert and Mr. Shakow as members. The Compensation committee consists of Mr. Caton as its Chairman and Mr. Beckert, Mr. Burki, and Mr. Shakow as its members. The Nominating and Corporate Governance Committee consists of Mr. Beckert as chairman and Mr. Burki, Mr. Caton and Mr. Shakow as members.

RESULTS OF OPERATIONS

THE YEAR ENDED JUNE 30, 2009 COMPARED TO THE YEAR ENDED JUNE 30, 2008

Net revenues for the year ended June 30, 2009 were $26,448,177 as compared to
$36,642,175 for the year ended June 30, 2008.  Net revenues are broken out among
the subsidiaries as follows:

                               2009            %             2008            %
North America:
NetSol Tech NA (NTNA)      $  5,396,693        20.40 %   $  3,969,521        10.83 %
                           $  5,396,693        20.40 %   $  3,969,521        10.83 %
Europe:
NetSol Tech Europe (NTE)      3,886,337        14.69 %      5,908,661        16.13 %
NetSol UK                             -         0.00 %      1,767,564         4.82 %
                              3,886,337        14.69 %      7,676,225        20.95 %
Asia Pacific:
NetSol PK Tech               13,265,196        50.16 %     19,610,797        53.52 %
NetSol-Innovation             3,098,353        11.71 %      4,199,520        11.46 %
NetSol Connect                  673,256         2.55 %        811,232         2.21 %
NetSol-Abraxas Australia        128,342         0.49 %        344,514         0.94 %
NetSol Omni                           -         0.00 %         30,366         0.08 %
                             17,165,147        64.90 %     24,996,429        68.22 %

Total Net Revenues         $ 26,448,177       100.00 %   $ 36,642,175       100.00 %

The following table sets forth the items in our consolidated statement of operations for the years ended June 30, 2009 and 2008 as a percentage of revenues.

                                                                 For the Year
                                                                Ended June 30,
                                               2009                           2008
                                                                %                              %
Net Revenues:
License fees                               $  4,786,332         18.10 %   $ 12,685,039         34.62 %
Maintenance fees                              6,499,419         24.57 %      6,306,321         17.21 %
Services                                     15,162,426         57.33 %     17,650,815         48.17 %
Total revenues                               26,448,177        100.00 %     36,642,175        100.00 %
Cost of revenues
Salaries and consultants                      9,787,965         37.01 %     10,071,664         27.49 %
Travel                                        1,334,879          5.05 %      1,719,743          4.69 %
Repairs and maintenance                         370,487          1.40 %        405,140          1.11 %
Insurance                                       174,761          0.66 %        239,043          0.65 %
Depreciation and amortization                 2,214,211          8.37 %      1,398,454          3.82 %
Other                                         3,316,031         12.54 %      1,890,100          5.16 %
Total cost of sales                          17,198,334         65.03 %     15,724,144         42.91 %
Gross profit                                  9,249,843         34.97 %     20,918,031         57.09 %
Operating expenses:
Selling and marketing                         3,115,883         11.78 %      3,722,470         10.16 %
Depreciation and amortization                 1,973,997          7.46 %      1,939,502          5.29 %
Bad debt expense                              2,393,685          9.05 %         58,293          0.16 %
Salaries and wages                            3,443,390         13.02 %      3,703,836         10.11 %
Professional services, including
non-cash compensation                         1,215,939          4.60 %        837,598          2.29 %
General and adminstrative                     3,590,118         13.57 %      3,447,113          9.41 %
. . .